Cases 091915

1
THIRD DIVISION
METROPOLITAN BANK & TRUST
G.R. No. 176959
COMPANY, INC. (as successor-ininterest of the banking operations of
Global Business Bank, Inc. formerly Present:
known as PHILIPPINE BANKING
CARPIO MORALES, J.,
CORPORATION),
Chairperson,
Petitioner,
BERSAMIN,
DEL CASTILLO,
VILLARAMA, JR., and
- versus SERENO, JJ.
THE BOARD OF TRUSTEES OF
RIVERSIDE MILLS CORPORATION
PROVIDENT AND RETIREMENT
FUND, represented by ERNESTO
TANCHI, JR., CESAR SALIGUMBA,
AMELITA
SIMON,
EVELINA
OCAMPO and CARLITOS Y. LIM,
RMC
UNPAID
EMPLOYEES
ASSOCIATION, INC., and THE Promulgated:
September 8, 2010
INDIVIDUAL BENEFICIARIES OF
THE
PROVIDENT
AND
RETIREMENT FUND OF RMC,
Respondents.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
VILLARAMA, JR., J.:
This petition for review on certiorari under Rule 45 of the 1997 Rules of Civil
Procedure, as amended, prays for the reversal of the Decision [1] dated November 7,
2006 and Resolution[2] dated March 5, 2007 of the Court of Appeals (CA) in CAG.R. CV No. 76642. The CA had affirmed the Decision[3] dated June 27, 2002 of
the Regional Trial Court (RTC), Branch 137, Makati City in Civil Case No. 97-997
which declared invalid the reversion or application of the Riverside Mills
Corporation Provident and Retirement Fund (RMCPRF) to the outstanding
obligation of Riverside Mills Corporation (RMC) with Philippine Banking
Corporation (Philbank).
The facts are as follows:
On November 1, 1973, RMC established a Provident and Retirement
Plan[4] (Plan) for its regular employees. Under the Plan, RMC and its employees
shall each contribute 2% of the employees current basic monthly salary, with
RMCs contribution to increase by 1% every five (5) years up to a maximum of
5%. The contributions shall form part of the provident fund (the Fund) which shall
be held, invested and distributed by the Commercial Bank and Trust
Company. Paragraph 13 of the Plan likewise provided that the Plan may be
amended or terminated by the Company at any time on account of business
conditions, but no such action shall operate to permit any part of the assets of the
Fund to be used for, or diverted to purposes other than for the exclusive benefit of
the members of the Plan and their beneficiaries. In no event shall any part of the
assets of the Fund revert to [RMC] before all liabilities of the Plan have been
satisfied.[5]
On October 15, 1979, the Board of Trustees of RMCPRF (the Board) entered into
an Investment Management Agreement[6] (Agreement) with Philbank (now,
petitioner Metropolitan Bank and Trust Company). Pursuant to the Agreement,
petitioner shall act as an agent of the Board and shall hold, manage, invest and
reinvest the Fund in Trust Account No. 1797 in its behalf. The Agreement shall be
in force for one (1) year and shall be deemed automatically renewed unless sooner
terminated either by petitioner bank or by the Board.
In 1984, RMC ceased business operations. Nonetheless, petitioner continued to

render investment services to respondent Board. In a letter[7] dated September 27,
1995, petitioner informed respondent Board that Philbanks Board of Directors had
decided to apply the remaining trust assets held by it in the name of RMCPRF
against part of the outstanding obligations of RMC.
Subsequently, respondent RMC Unpaid Employees Association, Inc. (Association),
representing the terminated employees of RMC, learned of Trust Account No.
1797. Through counsel, they demanded payment of their share in a
letter[8] dated February 4, 1997. When such demand went unheeded, the
Association, along with the individual members of RMCPRF, filed a complaint for
accounting against the Board and its officers, namely, Ernesto Tanchi, Jr., Carlitos
Y. Lim, Amelita G. Simon, Evelina S. Ocampo and Cesar Saligumba, as well as
petitioner bank. The case was docketed as Civil Case No. 97-997 in the RTC of
Makati City, Branch 137.
On June 2, 1998, during the trial, the Board passed a Resolution [9] in court
declaring that the Fund belongs exclusively to the employees of RMC. It
authorized petitioner to release the proceeds of Trust Account No. 1797 through the
Board, as the court may direct. Consequently, plaintiffs amended their complaint to
include the Board as co-plaintiffs.
On June 27, 2002, the RTC rendered a decision in favor of respondents. The trial
court declared invalid the reversion and application of the proceeds of the Fund to
the outstanding obligation of RMC to petitioner bank. The fallo of the decision
reads:
WHEREFORE, judgment is hereby rendered:
1. Declaring INVALID the reversion or application of the Riverside Mills
Corporation Provident and Retirement Fund as payment for the outstanding
obligation of Riverside Mills Corporation with defendant Philippine Banking
Corporation.
2. Defendant Philippine Banking Corporation (now [Global Bank]) is hereby

ordered to:
a. Reverse the application of the Riverside Mills Corporation Provident
and Retirement Fund as payment for the outstanding obligation of
Riverside Mills Corporation with defendant Philippine Banking
Corporation;
b. Render a complete accounting of the Riverside Mills Corporation
Provident and Retirement Fund; the Fund will then be subject to
disposition by plaintiff Board of Trustees in accordance with law and
the Provident Retirement Plan;
c. Pay attorneys fees equivalent to 10% of the total amounts due to
plaintiffs Riverside Mills Unpaid Employees Association and the
individual beneficiaries of the Riverside Mills Corporation Provident
and Retirement Fund; and costs of suit.
3. The Riverside Mills Corporation Provident and Retirement Fund is ordered to
determine the beneficiaries of the FUND entitled to benefits, the amount of
benefits per beneficiary, and pay such benefits to the individual beneficiaries.
SO ORDERED.[10]
On appeal, the CA affirmed the trial court. It held that the Fund is distinct from
RMCs account in petitioner bank and may not be used except for the benefit of the
members of RMCPRF. Citing Paragraph 13 of the Plan, the appellate court stressed
that the assets of the Fund shall not revert to the Company until after the liabilities
of the Plan had been satisfied. Further, the Agreement was specific that upon the
termination of the Agreement, petitioner shall deliver the Fund to the Board or its
successor, and not to RMC as trustor. The CA likewise sustained the award of
attorneys fees to respondents.[11]
Hence, this petition.
Before us, petitioner makes the following assignment of errors:
I.
THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE
REVERSION AND APPLICATION BY PHILBANK OF THE FUND IN
PAYMENT OF THE LOAN OBLIGATIONS OF RIVERSIDE MILLS

CORPORATION WERE INVALID.[12]
II.
THE HONORABLE COURT OF APPEALS COMMITTED REVERSIBLE
ERROR IN DECLARING THAT BY HAVING ENTERED INTO AN
AGREEMENT WITH THE BOARD, (PHILBANK) IS NOW ESTOPPED TO
QUESTION THE LATTERS AUTHORITY AS WELL AS THE TERMS AND
CONDITIONS THEREOF.[13]
III.
THE HONORABLE COURT COMMITTED REVERSIBLE ERROR IN
AWARDING ATTORNEYS FEES TO PLAINTIFFS-APPELLEES ON THE
BASIS THAT [PHILBANK] WAS REMISS IN ITS DUTY TO TREAT
RMCPRFS ACCOUNT WITH THE HIGHEST DEGREE OF CARE
CONSIDERING THE FIDUCIARY NATURE OF THEIR RELATIONSHIP,
PERFORCE, THE PLAINTIFFS-APPELLEES WERE COMPELLED TO
LITIGATE TO PROTECT THEIR RIGHT.[14]
The fundamental issue for our determination is whether the proceeds of the
RMCPRF may be applied to satisfy RMCs debt to Philbank.
Petitioner contends that RMCs closure in 1984 rendered the RMCPRF Board of
Trustees functus officio and devoid of authority to act on behalf of RMCPRF. It
thus belittles the RMCPRF Board Resolution dated June 2, 1998, authorizing the
release of the Fund to several of its supposed beneficiaries. Without known
claimants of the Fund for eleven (11) years since RMC closed shop, it was
justifiable for petitioner to consider the Fund to have technically reverted to, and
formed part of RMCs assets. Hence, it could be applied to satisfy RMCs debts to
Philbank. Petitioner also disputes the award of attorneys fees in light of the efforts
taken by Philbank to ascertain claims before effecting the reversion.
Respondents for their part, belie the claim that petitioner exerted earnest
efforts to ascertain claims. Respondents cite petitioners omission to publish a
notice in newspapers of general circulation to locate claims against the Fund. To
them, petitioners act of addressing the letter dated September 27, 1995 to the Board
is a recognition of its authority to act for the beneficiaries. For these reasons,
respondents believe that the reversion of the Fund to RMC is not only unwarranted
but unconscionable. For being compelled to litigate to protect their rights,
respondents also defend the award of attorneys fees to be proper.
The petition has no merit.
A trust is a fiduciary relationship with respect to property which involves the
existence of equitable duties imposed upon the holder of the title to the property to
deal with it for the benefit of another. A trust is either express or implied. Express
trusts are those which the direct and positive acts of the parties create, by some
writing or deed, or will, or by words evincing an intention to create a trust.[15]
Here, the RMC Provident and Retirement Plan created an express trust to
provide retirement benefits to the regular employees of RMC. RMC retained legal
title to the Fund but held the same in trust for the employees-beneficiaries. Thus,
the allocation under the Plan is directly credited to each members account:
6. Allocation:
a. Monthly Contributions:
1. Employee to be credited to his account.
2. Employer to be credited to the respective members account as stated
under the contribution provision.
b. Investment Earnings semestral valuation of the fund shall be made and any
earnings or losses shall be credited or debited, as the case may be, to
each members accountin proportion to his account balances based on the
last proceeding (sic) [preceding] accounting period.
c. Forfeitures shall be retained in the fund.[16] (Emphasis supplied.)
The trust was likewise a revocable trust as RMC reserved the power to
terminate the Plan after all the liabilities of the Fund to the employees under the
trust had been paid. Paragraph 13 of the Plan provided that [i]n no event shall any
part of the assets of the Fund revert to the Company before all liabilities of the Plan
have been satisfied.
Relying on this clause, petitioner, as the Fund trustee, considered the Fund to
have technically reverted to RMC, allegedly after no further claims were made
thereon since November 1984. Thereafter, it applied the proceeds of the Fund to
RMCs debt with the bank pursuant to Paragraph 9 of Promissory Note No. 161880[17] which RMC executed on May 12, 1981. The pertinent provision of the
promissory note reads:
IN THE EVENT THAT THIS NOTE IS NOT PAID AT MATURITY OR
WHEN THE SAME BECOMES DUE UNDER ANY OF THE PROVISIONS
HEREOF, I/WE HEREBY AUTHORIZE THE BANK AT ITS OPTION AND
WITHOUT NOTICE, TO APPLY TO THE PAYMENT OF THIS NOTE, ANY
AND ALL MONEYS, SECURITIES AND THINGS OF VALUE WHICH MAY
BE IN ITS HAND OR ON DEPOSIT OR OTHERWISE BELONGING TO
ME/US AND, FOR THIS PURPOSE, I/WE HEREBY, JOINTLY AND
SEVERALLY, IRREVOCABLY CONSTITUTE AND APPOINT THE SAID
BANK TO BE MY/OUR TRUE ATTORNEY-IN-FACT WITH FULL POWER
AND AUTHORITY FOR ME/US AND IN MY/OUR NAME AND BEHALF,
AND WITHOUT PRIOR NOTICE, TO NEGOTIATE, SELL AND TRANSFER
ANY MONEYS, SECURITIES AND THINGS OF VALUE WHICH IT MAY
HOLD, BY PUBLIC OR PRIVATE SALE, AND APPLY THE PROCEEDS
THEREOF TO THE PAYMENT OF THIS NOTE. (Emphasis supplied.)
Petitioner contends that it was justified in supposing that reversion had

occurred because its efforts to locate claims against the Fund from the National
Labor Relations Commission (NLRC), the lower courts, the CA and the Supreme
Court proved futile.
We are not convinced.
Employees trusts or benefit plans are intended to provide economic
assistance to employees upon the occurrence of certain contingencies, particularly,
old age retirement, death, sickness, or disability. They give security against certain
hazards to which members of the Plan may be exposed. They are independent and
additional sources of protection for the working group and established for their
exclusive benefit and for no other purpose.[18] Here, while the Plan provides for a
reversion of the Fund to RMC, this cannot be done until all the liabilities of the
Plan have been paid. And when RMC ceased operations in 1984, the Fund became
liable for the payment not only of the benefits of qualified retirees at the time of
RMCs closure but also of those who were separated from work as a consequence
of the closure. Paragraph 7 of the Retirement Plan states:
Separation from Service:
A member who is separated from the service of the Company before satisfying the
conditions for retirement due to resignation or any reason other than dismissal
for cause shall be paid the balance of his account as of the last day of the
month prior to separation. The amount representing the Companys contribution
and income thereon standing to the credit of the separating member shall be paid
to him as follows:
Completed Years % of Companys Contribution
of Membership and Earnings Thereon Payable
0 5 NIL
6 10 20%
11 15 40%
16 20 60%
21 25 80%
25 over 100%
A member who is separated for cause shall not be entitled to withdraw the total
amount representing his contribution and that of the Company including the
earned interest thereon, and the employers contribution shall be retained in the
fund.[19] (Emphasis supplied.)
The provision makes reference to a member-employee who is dismissed for

cause. Under the Labor Code, as amended, an employee may be dismissed for just
or authorized causes. A dismissal for just cause under Article 282 [20] of the Labor
Code, as amended, implies that the employee is guilty of some misfeasance
towards his employer, i.e. the employee has committed serious misconduct in
relation to his work, is guilty of fraud, has perpetrated an offense against the
employer or any immediate member of his family, or has grossly and habitually
neglected his duties. Essentially, it is an act of the employee that sets off the
dismissal process in motion.
On the other hand, a dismissal for an authorized cause under Article

283[21] and 284[22] of the Labor Code, as amended, does not entail any wrongdoing
on the part of the employee. Rather, the termination of employment is occasioned
by the employers exercise of management prerogative or by the illness of the
employee matters beyond the workers control.
The distinction between just and authorized causes for dismissal lies in the
fact that payment of separation pay is required in dismissals for an authorized
cause but not so in dismissals for just cause. The rationale behind this rule was
explained in the case of Phil. Long Distance Telephone Co. v. NLRC[23] and
reiterated inSan Miguel Corporation v. Lao,[24] thus:
We hold that henceforth separation pay shall be allowed as a measure of
social justice only in those instances where the employee is validly dismissed for
causes other than serious misconduct or those reflecting on his moral character.
Where the reason for the valid dismissal is, for example, habitual intoxication or
an offense involving moral turpitude, like theft or illicit sexual relations with a
fellow worker, the employer may not be required to give the dismissed employee
separation pay, or financial assistance, or whatever other name it is called, on the
ground of social justice.
xxxxxxxxx
The policy of social justice is not intended to countenance wrongdoing
simply because it is committed by the underprivileged. At best[,] it may mitigate
the penalty but it certainly will not condone the offense.
In San Miguel Corporation v. Lao, we reversed the CA ruling which granted

retirement benefits to an employee who was found by the Labor Arbiter and the
NLRC to have been properly dismissed for willful breach of trust and confidence.
Applied to this case, the penal nature of the provision in Paragraph 7 of the
Plan, whereby a member separated for cause shall not be entitled to withdraw the
contributions made by him and his employer, indicates that the separation for cause
being referred to therein is any of the just causes under Article 282 of the Labor
Code, as amended.
10
To be sure, the cessation of business by RMC is an authorized cause for the

termination of its employees. Hence, not only those qualified for retirement should
receive their total benefits under the Fund, but those laid off should also be entitled
to collect the balance of their account as of the last day of the month prior to RMCs
closure. In addition, the Plan provides that the separating member shall be paid a
maximum of 40% of the amount representing the Companys contribution and its
income standing to his credit. Until these liabilities shall have been settled, there
can be no reversion of the Fund to RMC.
Under Paragraph 6[25] of the Agreement, petitioners function shall be limited
to the liquidation and return of the Fund to the Board upon the termination of the
Agreement. Paragraph 14 of said Agreement further states that it shall be the duty
of the Investment Manager to assign, transfer, and pay over to its successor or
successors all cash, securities, and other properties held by it constituting the
fund less any amounts constituting the charges and expenses which are authorized
[under the Agreement] to be payable from the Fund.[26] Clearly, petitioner had no
power to effect reversion of the Fund to RMC.
The reversion petitioner effected also could hardly be said to have been done
in good faith and with due regard to the rights of the employee-beneficiaries. The
restriction imposed under Paragraph 13 of the Plan stating that in no event shall
any part of the assets of the Fund revert to the Company before all liabilities of the
Plan have been satisfied, demands more than a passive stance as that adopted by
petitioner in locating claims against the Fund. Besides, the beneficiaries of the
Fund are readily identifiable the regular or permanent employees of RMC who
were qualified retirees and those who were terminated as a result of its
closure. Petitioner needed only to secure a list of the employees concerned from
the Board of Trustees which was its principal under the Agreement and the trustee
of the Plan or from RMC which was the trustor of the Fund under the Retirement
Plan. Yet, petitioner notified respondent Board of Trustees only after Philbanks
11
Board of Directors had decided to apply the remaining trust assets of RMCPRF to
the liabilities of the company.
Petitioner nonetheless assails the authority of the Board of Trustees to issue
the Resolution of June 2, 1998 recognizing the exclusive ownership of the Fund by
the employees of RMC and authorizing its release to the beneficiaries as may be
ordered by the trial court. Petitioner contends that the cessation of RMCs
operations ended not only the Board members employment in RMC, but also their
tenure as members of the RMCPRF Board of Trustees.
Again, we are not convinced. Paragraph 13 of the Plan states that [a]lthough
it is expected that the Plan will continue indefinitely, it may be amended or
terminated by the Company at any time on account of business conditions. There is
no dispute as to the management prerogative on this matter, considering that the
Fund consists primarily of contributions from the salaries of members-employees
and the Company. However, it must be stressed that the RMC Provident and
Retirement Plan was primarily established for the benefit of regular and permanent
employees of RMC. As such, the Board may not unilaterally terminate the Plan
without due regard to any accrued benefits and rightful claims of membersemployees. Besides, the Board is bound by Paragraph 13 prohibiting the reversion
of the Fund to RMC before all the liabilities of the Plan have been satisfied.
As to the contention that the functions of the Board of Trustees ceased upon
with RMCs closure, the same is likewise untenable.
Under Section 122[27] of the Corporation Code, a dissolved corporation shall
nevertheless continue as a body corporate for three (3) years for the purpose of
prosecuting and defending suits by or against it and enabling it to settle and close
its affairs, to dispose and convey its property and to distribute its assets, but not for
the purpose of continuing the business for which it was established. Within those
three (3) years, the corporation may appoint a trustee or receiver who shall carry
out the said purposes beyond the three (3)-year winding-up period. Thus, a trustee
12
of a dissolved corporation may commence a suit which can proceed to final

judgment even beyond the three (3)-year period of liquidation.[28]
In the same manner, during and beyond the three (3)-year winding-up period
of RMC, the Board of Trustees of RMCPRF may do no more than settle and close
the affairs of the Fund. The Board retains its authority to act on behalf of its
members, albeit, in a limited capacity. It may commence suits on behalf of its
members but not continue managing the Fund for purposes of maximizing
profits. Here, the Boards act of issuing the Resolution authorizing petitioner to
release the Fund to its beneficiaries is still part of the liquidation process, that is,
satisfaction of the liabilities of the Plan, and does not amount to doing
business. Hence, it was properly within the Boards power to promulgate.
Anent the award of attorneys fees to respondents, we find the same to be in
order. Article 2208(2) of the Civil Code allows the award of attorneys fees in cases
where the defendants act or omission has compelled the plaintiff to litigate with
third persons or to incur expenses to protect his interest. Attorneys fees may be
awarded by a court to one (1) who was compelled to litigate with third persons or
to incur expenses to protect his or her interest by reason of an unjustified act or
omission of the party from whom it is sought.[29]
Here, petitioner applied the Fund in satisfaction of the obligation of RMC
without authority and without bothering to inquire regarding unpaid claims from
the Board of Trustees of RMCPRF. It wrote the members of the Board only after it
had decided to revert the Fund to RMC. Upon being met with objections, petitioner
insisted on the reversion of the Fund to RMC, despite the clause in the Plan that
prohibits such reversion before all liabilities shall have been satisfied, thereby
leaving respondents with no choice but to seek judicial relief.
WHEREFORE,
the
petition
for
review
on certiorari is
hereby DENIED. The Decision dated November 7, 2006 and the Resolution
13
dated March 5, 2007 of the Court of Appeals in CA-G.R. CV No. 76642

are AFFIRMED.
With costs against the petitioner.
SO ORDERED.
MARTIN S. VILLARAMA, JR.
Associate Justice
WE CONCUR:
CONCHITA CARPIO MORALES

Associate Justice
Chairperson
LUCAS P. BERSAMIN
Associate Justice
MARIANO C. DEL CASTILLO

Associate Justice
MARIA LOURDES P. A. SERENO

Associate Justice
AT T E S TAT I O N
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.
Associate Justice
Chairperson, Third Division
14
C E R T I F I C AT I O N
Pursuant to Section 13, Article VIII of the 1987 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
Designated additional member per Special Order No. 879 dated August 13, 2010.
Rollo, pp. 38-45. Penned by Associate Justice Estela M. Perlas-Bernabe and concurred in by Associate Justices
Renato C. Dacudao and Rosmari D. Carandang.
[2]
Id. at 63.
[3]
Id. at 89-98.
[4]
Records, Vol. 2, pp. 409-411.
[5]
Id.
[6]
Id. at 295-301.
[7]
Id. at 316.
[8]
Id. at 427-428.
[9]
Records, Vol. I, p. 241.
[10]
Rollo, pp. 97-98.
[11]
Id. at 43-44.
[12]
Id. at 22.
[13]
Id. at 26.
[14]
Id. at 28.
[15]
Development Bank of the Philippines v. Commission on Audit, G.R. No. 144516, February 11, 2004, 422 SCRA
459, 472.
[16]
Records, Vol. 2, p. 409.
[17]
Id. at 512.
[18]
Commissioner of Internal Revenue v. Court of Appeals, G.R. No. 95022, March 23, 1992, 207 SCRA 487, 495.
[19]
Records, Vol. 2, pp. 409-410.
[20]
ART. 282. TERMINATION BY EMPLOYER.-An employer may terminate an employment for any of the
following causes:
(a) Serious misconduct or willful disobedience by the employee of the lawful orders of his employer or
representative in connection with his work;
(b) Gross and habitual neglect by the employee of his duties;
(c) Fraud or willful breach by the employee of the trust reposed in him by his employer or duly authorized
representative;
(d) Commission of a crime or offense by the employee against the person of his employer or any immediate
member of his family or his duly authorized representative; and
(e) Other causes analogous to the foregoing.
[21]
ART. 283. CLOSURE OF ESTABLISHMENT AND REDUCTION OF PERSONNEL. - The employer may also
terminate the employment of any employee due to the installation of labor-saving devices, redundancy,
retrenchment to prevent losses or the closing or cessation of operation of the establishment or undertaking
unless the closing is for the purpose of circumventing the provisions of this Title, by serving a written notice on
the worker and the Ministry of Labor and Employment at least one (1) month before the intended date thereof.
[1]
15
In case of termination due to the installation of labor saving devices or redundancy, the worker affected thereby
shall be entitled to a separation pay equivalent to at least his one (1) month pay or at least (1) month pay for
every year of service, whichever is higher. In case of retrenchment to prevent losses and in cases of closures or
cessation of operations of establishment or undertaking not due to serious business losses or financial reverses,
the separation pay shall be equivalent to one (1) month pay or at least one-half (1/2) month pay for every year
of service, whichever is higher. A fraction of at least six (6) months shall be considered as one (1) whole year.
[22]
ART. 284. DISEASE AS GROUND FOR TERMINATION. - An employer may terminate the services of an
employee who has been found to be suffering from any disease and whose continued employment is prohibited
by law or is prejudicial to his health as well as to the health of his co-employees: Provided, That he is paid
separation pay equivalent to at least one (1) month salary or to one-half (1/2) month salary for every year of
service, whichever is greater, a fraction of at least six (6) months being considered as one (1) whole year.
[23]
No. L-80609, August 23, 1988, 164 SCRA 671, 682.
[24]
G.R. Nos. 143136-37, July 11, 2002, 384 SCRA 504, 511.
[25]
The power, duties and discretion conferred upon the Investment Manager by virtue of this Agreement shall continue
for purposes of liquidation and return of the Fund only, after the notice of termination of this Agreement has
been served in writing until final delivery of the Fund to the Board of Trustees or its successors-in-interest or
assigns. (Emphasis supplied.) Records, Vol. 2, p. 297.
[26]
Records, Vol. 2, p. 299.
[27]
SEC. 122. Corporate liquidation. - Every corporation whose charter expires by its own limitation or is annulled
by forfeiture or otherwise, or whose corporate existence for other purposes is terminated in any other manner,
shall nevertheless be continued as a body corporate for three (3) years after the time when it would have been so
dissolved, for the purpose of prosecuting and defending suits by or against it and enabling it to settle and close
its affairs, to dispose of and convey its property and to distribute its assets, but not for the purpose of continuing
the business for which it was established.
At any time during said three (3) years, said corporation is authorized and empowered to convey all of its
property to trustees for the benefit of stockholders, members, creditors, and other persons in interest. From and
after any such conveyance by the corporation of its property in trust for the benefit of its stockholders,
members, creditors and others in interest, all interests which the corporation had in the property terminates, the
legal interest vests in the trustees, and the beneficial interest in the stockholders, members, creditors or other
persons in interest.
Upon winding up of the corporate affairs, any asset distributable to any creditor or stockholder or member
who is unknown or cannot be found shall be escheated to the city or municipality where such assets are located.
Except by decrease of capital stock and as otherwise allowed by this Code, no corporation shall distribute any
of its assets or property except upon lawful dissolution and after payment of all its debts and liabilities.
[28]
Knecht v. United Cigarette Corp., G.R. No. 139370, July 4, 2002, 384 SCRA 45, 57, citing Reburiano v. Court of
Appeals, G.R. No. 102965, January 21, 1999, 301 SCRA 342, 353.
[29]
Republic v. Court of Appeals, G.R. No. 160379, August 14, 2009, 596 SCRA 57, 76.
G.R. No. 179096
February 06, 2013
JOSEPH GOYANKO, JR., as administrator of the Estate of Joseph

Goyanko, Sr., Petitioner,
vs.
UNITED COCONUT PLANTERS BANK, MANGO AVENUE
BRANCH, Respondent.
DECISION
BRION, J.:
16
We resolve the petition for review on certiorari1 filed by petitioner Joseph

Goyanko, Jr., administrator of the Estate of Joseph Goyanko, Sr., to
nullify the decision2 dated February 20, 2007 and the resolution3 dated
July 31, 2007 of the Court of Appeals (CA) in CA-G.R. CV. No. 00257
affirming the decision4 of the Regional Trial Court of Cebu City, Branch
16(RTC) in Civil Case No. CEB-22277. The RTC dismissed the
petitioners complaint for recovery of sum money against United Coconut
Planters Bank, Mango Avenue Branch (UCPB).
The Factual Antecedents
In 1995, the late Joseph Goyanko, Sr. (Goyanko) invested Two Million
Pesos (P2,000,000.00) with Philippine Asia Lending Investors, Inc.
family, represented by the petitioner, and his illegitimate family presented
conflicting claims to PALII for the release of the investment. Pending the
investigation of the conflicting claims, PALII deposited the proceeds of
the investment with UCPB on October 29, 19965 under the name "Phil
Asia: ITF (In Trust For) The Heirs of Joseph Goyanko, Sr." (ACCOUNT).
On September 27, 1997, the deposit under the ACCOUNT was
P1,509,318.76.
On December 11, 1997, UCPB allowed PALII to withdraw One Million
Five Hundred Thousand Pesos (P1,500,000.00) from the Account,
leaving a balance of only P9,318.76. When UCPB refused the demand
to restore the amount withdrawn plus legal interest from December 11,
1997, the petitioner filed a complaint before the RTC. In its answer to the
complaint, UCPB admitted, among others, the opening of the ACCOUNT
under the name "ITF (In Trust For) The Heirs of Joseph Goyanko,
Sr.," (ITF HEIRS) and the withdrawal on December 11, 1997.
The RTC Ruling
In its August 27, 2003 decision, the RTC dismissed the petitioners
complaint and awarded UCPB attorneys fees, litigation expenses and
the costs of the suit.6 The RTC did not consider the words "ITF HEIRS"
sufficient to charge UCPB with knowledge of any trust relation between
PALII and Goyankos heirs (HEIRS). It concluded that UCPB merely
performed its duty as a depository bank in allowing PALII to withdraw
from the ACCOUNT, as the contract of deposit was officially only
17
between PALII, in its own capacity, and UCPB. The petitioner appealed
his case to the CA.
The CAs Ruling
Before the CA, the petitioner maintained that by opening the
ACCOUNT, PALII established a trust by which it was the "trustee"
and the HEIRS are the "trustors-beneficiaries;" thus, UCPB should
be liable for allowing the withdrawal.
The CA partially granted the petitioners appeal. It affirmed the August
27, 2003 decision of the RTC, but deleted the award of attorneys fees
and litigation expenses. The CA held that no express trust was created
between the HEIRS and PALII. For a trust to be established, the law
requires, among others, a competent trustor and trustee and a clear
intention to create a trust, which were absent in this case. Quoting the
RTC with approval, the CA noted that the contract of deposit was only
between PALII in its own capacity and UCPB, and the words "ITF
HEIRS" were insufficient to establish the existence of a trust. The CA
concluded that as no trust existed, expressly or impliedly, UCPB is not
liable for the amount withdrawn.7
In its July 31, 2007 resolution,8 the CA denied the petitioners motion for
reconsideration. Hence, the petitioners present recourse.
The Petition
The petitioner argues in his petition that: first, an express trust was
created, as clearly shown by PALIIs March 28, 1996 and November 15,
1996 letters.9 Citing jurisprudence, the petitioner emphasizes that from
the established definition of a trust,10 PALII is clearly the trustor as it
created the trust; UCPB is the trustee as it is the party in whom
confidence is reposed as regards the property for the benefit of another;
and the HEIRS are the beneficiaries as they are the persons for whose
benefit the trust is created.11 Also, quoting Development Bank of the
Philippines v. Commission on Audit,12 the petitioner argues that the
naming of the cestui que trust is not necessary as it suffices that they are
adequately certain or identifiable.13
18
Second, UCPB was negligent and in bad faith in allowing the withdrawal
and in failing to inquire into the nature of the ACCOUNT.14 The petitioner
maintains that the surrounding facts, the testimony of UCPBs witness,
and UCPBs own records showed that: (1) UCPB was aware of the trust
relation between PALII and the HEIRS; and (2) PALII held the
ACCOUNT in a trust capacity. Finally, the CA erred in affirming the
RTCs dismissal of his case for lack of cause of action. The petitioner
insists that since an express trust clearly exists, UCPB, the trustee,
should not have allowed the withdrawal.
The Case for UCPB
UCPB posits, in defense, that the ACCOUNT involves an ordinary
deposit contract between PALII and UCPB only, which created a debtorcreditor relationship obligating UCPB to return the proceeds to the
account holder-PALII. Thus, it was not negligent in handling the
ACCOUNT when it allowed the withdrawal. The mere designation of the
ACCOUNT as "ITF" is insufficient to establish the existence of an
express trust or charge it with knowledge of the relation between PALII
and the HEIRS.
UCPB also argues that the petitioner changed the theory of his case.
Before the CA, the petitioner argued that the HEIRS are the trustorsbeneficiaries, and PALII is the trustee. Here, the petitioner maintains that
PALII is the trustor, UCPB is the trustee, and the HEIRS are the
beneficiaries. Contrary to the petitioners assertion, the records failed to
show that PALII and UCPB executed a trust agreement, and PALIIs
letters made it clear that PALII, on its own, intended to turn-over the
proceeds of the ACCOUNT to its rightful owners.
The Courts Ruling
The issue before us is whether UCPB should be held liable for the
amount withdrawn because a trust agreement existed between PALII
and UCPB, in favor of the HEIRS, when PALII opened the ACCOUNT
with UCPB.
We rule in the negative.
19
We first address the procedural issues. We stress the settled rule that a
petition for review on certiorari under Rule 45 of the Rules of Court
resolves only questions of law, not questions of fact.15 A question, to be
one of law, must not examine the probative value of the evidence
presented by the parties;16 otherwise, the question is one of
fact.17 Whether an express trust exists in this case is a question of fact
whose resolution is not proper in a petition under Rule 45. Reinforcing
this is the equally settled rule that factual findings of the lower tribunals
are conclusive on the parties and are not generally reviewable by this
Court,18 especially when, as here, the CA affirmed these findings. The
plain reason is that this Court is not a trier of facts.19 While this Court
has, at times, permitted exceptions from the restriction,20 we find that
none of these exceptions obtain in the present case.
Second, we find that the petitioner changed the theory of his case. The
petitioner argued before the lower courts that an express trust exists
between PALII as the trustee and the HEIRS as the trustorbeneficiary.21 The petitioner now asserts that the express trust exists
between PALII as the trustor and UCPB as the trustee, with the HEIRS
as the beneficiaries.22 At this stage of the case, such change of theory is
simply not allowed as it violates basic rules of fair play, justice and due
process. Our rulings are clear - "a party who deliberately adopts a
certain theory upon which the case was decided by the lower court will
not be permitted to change [it] on appeal";23otherwise, the lower courts
will effectively be deprived of the opportunity to decide the merits of the
case fairly.24Besides, courts of justice are devoid of jurisdiction to resolve
a question not in issue.25 For these reasons, the petition must fail.
Independently of these, the petition must still be denied.
No express trust exists; UCPB exercised the required diligence in
handling the ACCOUNT; petitioner has no cause of action against
UCPB
A trust, either express or implied,26 is the fiduciary relationship "x x x
between one person having an equitable ownership of property and
another person owning the legal title to such property, the equitable
ownership of the former entitling him to the performance of certain duties
and the exercise of certain powers by the latter."27Express or direct trusts
are created by the direct and positive acts of the trustor or of the
20
parties.28 No written words are required to create an express trust. This is

clear from Article 1444 of the Civil Code,29 but, the creation of an express
trust must be firmly shown; it cannot be assumed from loose and vague
declarations or circumstances capable of other interpretations.30
In Rizal Surety & Insurance Co. v. CA,31 we laid down the requirements
before an express trust will be recognized:
Basically, these elements include a competent trustor and trustee,
an ascertainable trust res, and sufficiently certain beneficiaries. xxx
each of the above elements is required to be established, and, if
any one of them is missing, it is fatal to the trusts (sic).
Furthermore, there must be a present and complete disposition of
the trust property, notwithstanding that the enjoyment in the
beneficiary will take place in the future. It is essential, too, that the
purpose be an active one to prevent trust from being executed into a
legal estate or interest, and one that is not in contravention of some
prohibition of statute or rule of public policy. There must also be some
power of administration other than a mere duty to perform a
contract although the contract is for a thirdparty beneficiary. A
declaration of terms is essential, and these must be stated with
reasonable certainty in order that the trustee may administer, and
that the court, if called upon so to do, may enforce, the trust. [emphasis
ours]
Under these standards, we hold that no express trust was created. First,
while an ascertainable trust res and sufficiently certain beneficiaries may
exist, a competent trustor and trustee do not. Second, UCPB, as trustee
of the ACCOUNT, was never under any equitable duty to deal with or
given any power of administration over it. On the contrary, it was PALII
that undertook the duty to hold the title to the ACCOUNT for the benefit
of the HEIRS.Third, PALII, as the trustor, did not have the right to the
beneficial enjoyment of the ACCOUNT. Finally, the terms by which
UCPB is to administer the ACCOUNT was not shown with reasonable
certainty. While we agree with the petitioner that a trusts beneficiaries
need not be particularly identified for a trust to exist, the intention to
create an express trust must first be firmly established, along with
the other elements laid above; absent these, no express trust exists.
21
Contrary to the petitioners contention, PALIIs letters and UCPBs

records established UCPBs participation as a mere depositary of the
proceeds of the investment. In the March 28, 1996 letter, PALII
manifested its intention to pursue an active role in and up to the turnover
of those proceeds to their rightful owners,32 while in the November 15,
1996 letter, PALII begged the petitioner to trust it with the safekeeping of
the investment proceeds and documents.33 Had it been PALIIs intention
to create a trust in favor of the HEIRS, it would have relinquished any
right or claim over the proceeds in UCPBs favor as the trustee. As
matters stand, PALII never did.
UCPBs records and the testimony of UCPBs witness34 likewise lead us
to the same conclusion. While the words "ITF HEIRS" may have created
the impression that a trust account was created, a closer scrutiny reveals
that it is an ordinary savings account.35 We give credence to UCPBs
explanation that the word "ITF" was merely used to distinguish the
ACCOUNT from PALIIs other accounts with UCPB. A trust can be
created without using the word "trust" or "trustee," but the mere use of
these words does not automatically reveal an intention to create a
trust.36If at all, these words showed a trustee-beneficiary relationship
between PALII and the HEIRS.
Contrary to the petitioners position, UCPB did not become a trustee by
the mere opening of the ACCOUNT. While this may seem to be the case,
by reason of the fiduciary nature of the banks relationship with its
depositors,37 this fiduciary relationship does not "convert the contract
between the bank and its depositors from a simple loan to a trust
agreement, whether express or implied."38 It simply means that the bank
is obliged to observe "high standards of integrity and performance" in
complying with its obligations under the contract of simple loan.39 Per
Article 1980 of the Civil Code,40 a creditor-debtor relationship exists
between the bank and its depositor.41 The savings deposit agreement is
between the bank and the depositor;42 by receiving the deposit, the bank
impliedly agrees to pay upon demand and only upon the depositors
order.43
1wphi1
Since the records and the petitioners own admission showed that the
ACCOUNT was opened by PALII, UCPBs receipt of the deposit signified
that it agreed to pay PALII upon its demand and only upon its order.
22
Thus, when UCPB allowed PALII to withdraw from the ACCOUNT, it was
merely performing its contractual obligation under their savings deposit
agreement. No negligence or bad faith44 can be imputed to UCPB for this
action. As far as UCPB was concerned, PALII is the account holder and
not the HEIRS. As we held in Falton Iron Works Co. v. China Banking
Corporation.45 the banks duty is to its creditor-depositor and not to third
persons. Third persons, like the HEIRS here, who may have a right to
the money deposited, cannot hold the bank responsible unless there is a
court order or garnishment.46 The petitioners recourse is to go before a
court of competent jurisdiction to prove his valid right over the money
deposited.
In these lights, we find the third assignment of error mooted. A cause of
action requires that there be a right existing in favor of the plaintiff, the
defendants obligation to respect that right, and an act or omission of the
defendant in breach of that right.47 We reiterate that UCPBs obligation
was towards PALII as its creditor-depositor. While the HEIRS may have
a valid claim over the proceeds of the investment, the obligation to turnover those proceeds lies with PALII. Since no trust exists the petitioners
complaint was correctly dismissed and the CA did not commit any
reversible error in affirming the RTC decision. One final note, the burden
to prove the existence of an express trust lies with the petitioner.48 For
his failure to discharge this burden, the petition must fail.
WHEREFORE, in view of these considerations, we hereby DENY the
petition and AFFIRM the decision dated February 20, 2007 and the
resolution dated July 31, 2007 of the Court of Appeals in CA-G.R. CV.
No. 00257. Costs against the petitioner.
SO ORDERED:
ARTURO D. BRION
Associate Justice
WE CONCUR:
ANTONIO T. CARPIO
Associate Justice
Chairperson
23

Associate Justice
JOSE PORTUGAL PEREZ

Associate Justice
ESTELA M. PERLAS-BERNABE
Associate Justice
ATT E S TAT I O N
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
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 had been reached in consultation before the case was
assigned to the writer of the opinion of the Court' Division.
MARIA LOURDES P.A. SERENO
Chief Justice
Footnotes
Dated September 25, 2007 and filed on September 24, 2007
under Rule 45 of the 1997 Rules of Civil Procedure: rollo. pp 2442.
1
Penned by Associate Justice Priscila Baltazar-Padilla, and

concurred in by Executive Justice Arsenio I. Magpale and
Associate Justice Romeo F. Barza: id. at 9-17.
2
Id at 19-20.
24
4
Dated August 27, 2008 per the CA decision: id at 9.
The amount deposited was P1,485,685.09 per the CA decision

dated February 20, 2007. Per the attached copy of UCPBs record
pertaining to the ACCOUNT, and UCPBs comment, the ACCOUNT
was opened on May 31, 1996. Also, per UCPBs comment, the
initial deposit on the ACCOUNT was P173,250.00, with subsequent
deposits made in the succeeding months, the last of which was on
October 28, 1996; id. at 60 and 77.
5
From the dispositive portion of the RTC decision, as quoted by

the CA; id. at 10.
6
Id. at 15.
Supra note 3.
Rollo, pp. 33-35, 113-114; copy of the letters at pp. 59 and 61.
The petitioner cites the Courts ruling in Estate of Edward Grimm

v. Estate of Charles Parsons and Patrick C. Parsons, G.R. No.
159810, October 9, 2006, 504 SCRA 67; id. at 36. The petitioner
also citesGalvez v. Court of Appeals, 485 SCRA 346; id. at 115116.
10
11
Rollo, pp. 34-36, 115-116.
12
G.R. No. 144516, February 11, 2004, 422 SCRA 459.
13
Rollo, pp. 35, 116-117.
14
Id. at 36-40, 119-123.
Andrada v. Pilhino Sales Corporation, G.R. No. 156448, February

23, 2011, 644 SCRA 1, 8-9; Philippine Commercial International
Bank v. Balmaceda, G.R. No. 158143, September 21, 2011, 658
SCRA 33, 42-43; Lorzano v. Tabayag, Jr., G.R. No. 189647,
February 6, 2012, 665 SCRA 38, 46-47; and Republic v. De
Guzman, G.R. No. 175021, June 15, 2011, 652 SCRA 101, 113.
15
25
Lorzano v. Tabayag, Jr. supra note 15, at 46-47; Republic v. De

Guzman, supra note 15, at 113. See also Heirs of Pacencia
Racaza, etc. v. Spouses Florencio Abay-abay, et al., G.R. No.
198402, June 13, 2012.
16
Lorzano v. Tabayag, Jr., supra note 15, at 46-47; Republic v. De

Guzman, supra note 15, at 113.
17
See Heirs of Pacencia Racaza, etc. v. Spouses Florencio Abayabay, supra note 16.
18
19
Id.
20
Among the recognized exceptions to the restriction are:

(a) When the findings are grounded entirely on speculation,
surmises, or conjectures;
(b) When the inference made is manifestly mistaken, absurd,
or impossible;
(c) When there is grave abuse of discretion;
(d) When the judgment is based on a misapprehension of
facts;
(e) When the findings of facts are conflicting;
(f) When in making its findings, the CA went beyond the
issues of the case, or its findings are contrary to the
admissions of both the appellant and the appellee;
(g) When the CAs findings are contrary to those by the trial
court;
(h) When the findings are conclusions without specific citation
of specific evidence on which they are based;
26
(i) When the facts set forth in the petition as well as in the
petitioners main and reply briefs are not disputed by the
respondent;
(j) When the findings of fact are premised on the supposed
absence of evidence and contradicted by the evidence on
record; or
(k) When the CA manifestly overlooked certain relevant facts
not disputed by the parties which, if properly considered,
would justify a different conclusion.
21
See rollo, pp. 12-13.
22
Id. at 34-36, 115-116.
Morla v. Belmonte, G.R. No. 171146, December 7, 2011, 661

SCRA 717, 727.
23
Pea v. Tolentino, G.R. Nos. 155227-28, February 9, 2011, 642

SCRA 310, 323.
24
25
Id. at 324.
Estate of Margarita D. Cabacungan v. Laigo, G.R. No. 175073,

August 15, 2011, 655 SCRA 366, 376. See also Philippine National
Bank v. Aznar, G.R. Nos. 171805 and 172021, May 30, 2011, 649
SCRA 214, 230; and Torbela v. Rosario, G.R. Nos. 140528 and
140553, December 7, 2011, 661 SCRA 633, 661.
26
Estate of Margarita D. Cabacungan v. Laigo, supra, at 376. See

also Philippine National Bank v. Aznar, supra; Torbela v. Rosario,
supra; and Metropolitan Bank & Trust Company, Inc. v. Board of
Trustees of Riverside Mills Corporation Provident and Retirement
Fund, G.R. No. 176959, September 8, 2010, 630 SCRA 350, 357.
27
Torbela v. Rosario, supra note 26; and PNB v. Aznar, supra note
26.
28
27
Art. 1444. No particular words are required for the creation of an

express trust, it being sufficient that a trust is clearly intended.
29
30
Philippine National Bank v. Aznar, supra note 26, at 230.
329 Phil. 789, 805-806, citing Mindanao Development Authority

v. Court of Appeals, No. L-49087, April 5, 1982, 113 SCRA 429,
436-437.
31
Rollo, p. 59. The letter stated: "In the meantime, the monthly
interest that will accrue to said investments will be, at the
instance of our client, deposited in a bank under the account
name, Heirs of Joseph Goyanko, Sr., x x x x.
32
x x x our client will be constrained to bring an action

before the court for interpleader to compel the claimants to
interplead and litigate their several claims among
themselves. (emphasis ours)
Id. at 61. To quote PALII: "Since the money is intact and safe in
the bank ready for turn-over to the righteous owner, so with all the
documents of the investment in our possession, we would like to
request your goodself to please trust us for its safekeeping."
(emphasis ours)
33
Id. at 62-64. UCPBs witness testified that the ACCOUNT was

owned by PALII and that he was not personally aware of any trust
relation between PALII and the HEIRS since he was not yet the
banks branch manager at that time.
34
Id. at 60. In the copy of the UCPBs record, UCPB Form No. 41118, under the heading "TYPE OF ACCOUNT," the option
"Savings Account" bears a check mark. Also, on the reverse side,
under the heading "TYPE OF ACCT." "Savings Acct." was written.
Also the ACCOUNTs authorized signatory was only Crisanto
Pescadero, PALIIs general manager.
35
36
See Torbela v. Rosario, supra note 26, at 661.
28
See BPI Family Bank v. Franco, G.R. No. 123498, November 23,
2007, 538 SCRA 184, 198.
37
Consolidated Bank and Trust Corporation v. Court of

Appeals, G.R. No. 138569, September 11, 2003, 457 Phil. 688,
707.
38
39
Id. at 705.
40
Article 1980 of the Civil Code provides:

Art. 1980. Fixed, savings, and current deposits of money in
banks and similar institutions shall be governed by the
provisions concerning simple loan. (emphasis ours)
See Central Bank of the Philippines v. Citytrust Banking

Corporation, G.R. No. 141835, February 4, 2009, 578 SCRA 27,
32, quoting Consolidated Bank and Trust Corporation v. Court of
Appeals, supra note 38 at, 574-575; Lucman v. Malawi, 540 Phil.
289, 300 (2006); and Allied Banking Corporation v. Lim Sio
Wan, G.R. No. 133179, March 27, 2008, 549 SCRA 504, 515.
See Samsung Construction Co. Phils., Inc. v. FEBTC, 480 Phil. 39,
49 (2004).
41
Consolidated Bank and Trust Corporation v. Court of Appeals,

supra note 38, at 705.
42
Samsung Construction Co. Phils., Inc. v. FEBTC, supra note 41,

at 49; and Central Bank of the Philippines v. Citytrust Banking
Corporation, supra note 41, at 32.
43
Article 1173. Civil Code of the Philippines provides:"Negligence

consists in the omission of that diligence which is required by the
nature of the obligation, and corresponds with the circumstances of
the persons, of the time and of the place." Bad faith implies a
conscious or intentional design to do a wrongful act for a dishonest
purpose or moral obliquity. (Arenas v. CA, G.R. No. 126466,
January 14, 1999, 345 SCRA 617)
44
45
55 Phil. 208; 216-217 (1930).
29
46
Ibid.
NAI Rathschild & Sons (Australia) Limited v. Lepanto

Consolidated Mining Company, G.R. No. 175799, November 28,
2011, 664 SCRA 328 338-339; and Manalo v. PAIC Savings Bank,
493 Phil. 854, 859, 2005).
47
Section 2 of the Rules of Court provides:

SEC. 2. Cause of action defined "A cause of action is the
act or omission by which a party violates a right of another.
Caezo v. Rojas, G.R. No. 448788, November 23, 2007, 538
SCRA 242, 253; and Duran v. Court of Appeals. 522 Phil. 399, 407
(2006).
48
G.R. No. 192371, January 15, 2014

LAND BANK OF THE PHILIPPINES, Petitioner, v. EMMANUEL
OATE, Respondent.
DECISION
DEL CASTILLO, J.:
This Petition for Review on Certiorari1 assails the December 18, 2009
Decision2 of the Court of Appeals (CA) in CA-G.R. CV No. 89346, which affirmed
with modification the May 31, 2006 Decision3 of the Regional Trial Court (RTC),
Branch 141, Makati City. The RTC dismissed the Complaint4 for Sum of Money,
which petitioner Land Bank of the Philippines (Land Bank) filed against
respondent Emmanuel C. Oate (Oate), and ordered Land Bank to return the
amount of P1,471,416.52 it unilaterally debited from his accounts. On separate
appeals by both parties, the CA affirmed the RTC Decision with modification that
Land Bank was further ordered to pay Oate the sums of P60,663,488.11 and
US$3,210,222.85 representing the undocumented withdrawals and drawings
from his trust accounts with 12% per annum interest compounded annually
from June 21, 1991 until fully paid.
Also assailed is the CAs May 27, 2010 Resolution5 denying Land Banks Motion
for Reconsideration.6
chanroble slaw
Factual Antecedents
30
Land Bank is a government financial institution created under Republic Act No.
3844.7 From 1978 to 1980, Oate opened and maintained seven trust accounts
with Land Bank, more particularly described as follows:
chanRoble svirtualLawlibrary
Trust Account No. Date Opened Beginning Balance

01-014
09.07.78
P 250,000.008
01-017
11.16.78
1,312,896.009
01-024
02.23.79
900,000.0010
01-075
10.08.79
500,000.0011
01-082
10.25.79
200,001.0012
01-089
03.18.80
43.9813
01-125
03.13.80
188,161.0014
Each trust account was covered by an Investment Management Account (IMA)
with Full Discretion15and has a corresponding passbook where deposits and
withdrawals were recorded. Pertinent portions common to the IMAs read:
chanRoblesvirtualLa wlibrary
You [Land Bank] are appointed as my agent with full powers and discretion,
subject only to the following provisions:
chanroblesvirtuallawlibrary
1. You are authorized to hold, invest and reinvest the Fund and keep the same
invested, in your sole discretion, without distinction between principal and
income, in any assets which you deem advisable, without being restricted to
those of the character authorized for fiduciaries under any present or future law.
2.
You shall have full power and authority:
chanroble svirtuallawlibrary
(a)to treat all the Fund as one aggregate amount for

purposes of investment, and to deposit all or any part
thereof with a reputable bank including your own
commercial banking department;
(b to pay all costs, expenses and charges incurred in
) connection with the administration, preservation,
maintenance and protection of the Fund and to charge
the same to the Fund;
(c) to vote in person or by proxy on any stocks, bonds or
other securities held by you, for my/our account;
(d to borrow money for the Fund (from your banking
) department or from others) with or without giving
31
securities from the Fund;

(e)to cause any asset of the Fund to be issued, held or
registered in your name or in the name of your
nominee, or in such form that title will pass by
delivery, provided your records shall indicate the true
ownership of such assets;
(f) to hold the Fund in cash and to invest the same in
fixed income placements traded and sold by your own
Money Market Division; and
(g to sign all documents pertinent to the transaction
) which you will make in behalf of this Account.
3. All actions taken by you hereunder shall be for my account and
risk. Except for willful default or gross misconduct, you shall not be liable
for any loss or depreciation in the value of the assets of the Fund arising from
any cause whatsoever.
4. You shall maintain accurate records of all investments, receipts,
disbursements and other transactions of the Account. Records relating thereto
shall be open at all reasonable times to inspection and audit by me either
personally or through duly authorized representatives. Statements consisting of
a balance sheet, portfolio analysis, statement of income and expenses, and
summary of investment changes are to be sent to me/us quarterly.
I/We shall approve such accounting by delivering in writing to you a statement
to that effect or by failure to express objection to such accounting in writing
delivered to you within thirty (30) days from my receipt of the accounting.
Upon your receipt of a written approval of the accounting, or upon the passage
of said period of time within which objections may be filed, without written
objections having been delivered to you, such accounting shall be deemed to be
approved, and you shall be released and discharged as to all items, matters and
things set forth in such accounting as if such accounting had been settled and
allowed by a decree of a court of competent jurisdiction, in an action or
proceeding in which you and I were parties.16(Emphasis supplied)
In a letter17 dated October 8, 1981, however, Land Bank demanded from Oate
the return of P4 million it claimed to have been inadvertently deposited to Trust
Account No. 01-125 as his additional funds but actually represents the total
amount of the checks issued to Land Bank by its corporate borrowers as
payment for their pre-terminated loans. Oate refused. To settle the matter, a
meeting was held, but the parties failed to reach an agreement. Since then, the
32
issue of miscrediting remained unsettled. Then on June 21, 1991, Land Bank
unilaterally applied the outstanding balance in all of Oates trust accounts
against his resulting indebtedness by reason of the miscrediting of funds.
Although it exhausted the funds in all of Oates trust accounts, Land Bank was
able to debit the amount of P1,528,583.48 only.18
chanroble slaw
Proceedings before the Regional Trial Court

To recoup the remaining balance of Oates indebtedness, Land Bank filed a
Complaint19 for Sum of Money seeking to recover the amount of
P8,222,687.8920 plus interest at the legal rate of 12% per annum computed
from May 15, 1992 until fully paid. Pertinent portions of Land Banks Complaint
reads:
5. By virtue of the Deeds of Revocable Trust executed on January 9,

198921 [sic] and February 5, 198922 [sic] by Philippine Virginia Tobacco
Administration (PVTA) and Philippine Virginia Tobacco Board (PVTB), LANDBANK
likewise became a Trustee of certain funds belonging to PVTA and PVTB.
6. As authorized under the [Deeds] of Revocable Trust, on October 10, 1980,
LANDBANK invested P4 Million of the trust accounts of PVTA and PVTB, through
a direct lending scheme to the following companies:
(a) Republic Telephone Company, Inc. (RETELCO), under Promissory Note No.
1145 dated October 10, 1980, for P1,021,250.00 with maturity date on
November 24, 1980, subject to automatic roll-over up to October 10, 1981 at
17% interest per annum.
(b) Philippine Blooming Mills Company, Inc. (PBM), under Promissory Note
(unnumbered) dated October 10, 1980, for P1,021,250.00, with maturity date
on November 24, 1980, subject to automatic roll-over up to October 10, 1981,
at 17% interest per annum;
(c) Cheng Ban Yek (CBY), under Promissory Note (unnumbered) dated October
10, 1980, for P1,023,138.89, with maturity date on November 28, 1980,
subject to automatic roll-over up to October 10, 1981, at 17% interest per
annum;
(d) Philippine Tobacco Filters Corporation (PHILTOFIL), under Promissory Note
(unnumbered) dated October 10, 1980, for P1,021,250.00, with maturity date
on November 24, 1980, subject to automatic roll-over up to October 10, 1981,
at 17% interest per annum.
cralawre d
xxxx
7. Pursuant to such direct loan transactions granted to the aforementioned
companies, LANDBANK issued four (4) cashiers checks for P1 Million each
payable to RETELCO, PBM, CBY, and PHILTOFIL x x x
33
8. On or about November 24 and 28, 1980, the aforesaid borrowers

(RETELCO, PBM, CBY, AND PHILTOFIL), pre-terminated their corresponding
loans and paid their respective obligations in the form of checks payable to
LANDBANK and delivered by [Oates] representative, Mr. Eduardo Polonio.
9. When the checks were delivered, [Oate] fraudulently misrepresented to
LANDBANK that they were [Oates] additional capital contribution to his
personal trust account. On the basis of this misrepresentation, LANDBANK
credited the payments made by the aforementioned corporate borrowers to
[Oates] Trust Account No. 01-125.
10. After the payments were credited to his personal trust account, Oate
proceeded to withdraw the same, to the damage and prejudice of LANDBANK as
the owner thereof.23
In his Answer (With Compulsory Counterclaim),24 Oate asserted that the setoff
was without legal and factual bases. He specifically denied any knowledge or
involvement in the transaction between Land Bank and its clients Philippine
Virginia Tobacco Administration (PVTA) and Philippine Virginia Tobacco Board
(PVTB). He also denied that he made fraudulent misrepresentation to induce
the bank to deposit to his Trust Account No. 01-125 as his additional capital the
payments allegedly tendered by the banks corporate borrowers. He maintained
that all the funds in his accounts came from legitimate sources and that he was
totally unaware of and had nothing to do with the alleged miscrediting. While
Oate admitted having received the October 8, 1981 demand letter, he argued
that he did not acquiesce thereto and, in fact, disputed the same during a
meeting with an officer of Land Bank. He also refuted Land Banks claim that it
formally demanded for the return of the disputed amount as the September 3,
1991 letter25 it alluded to is not a demand letter. It was sent in response to his
counsels letter requesting for an accounting of his trust accounts.
By way of compulsory counterclaim, Oate pointed out that per Balance
Sheets26 as of June 30, 1982 the funds in his trust accounts already totaled
P35,555,464.78. And as of January 1993, the accumulated balance of his
accounts reached P229,222,160.25 and $3,472,683.94 computed as follows:
With interest at the rate of eighteen percent (18%) compounded every ninety
(90) days from the third quarter of 1982 to January, 1993, the trustors equity
of P35,555,464.78 has earned interest in the amount of P193,666,695.47.
Adding the trustors equity to the aforesaid accrued interest thereon, [Oates]
peso deposits [in] his trust accounts with plaintiff bank have an accumulated
balance of P229,222,160.25 as of January 1993.
But that is not all. [Oates] dollar deposits to Trust Account No. 01-014 (which
is for an Undisclosed Principal) from the period July-September, 1980 alone,
34
already amounted to $1,690,943.78. x x x

With interest at the rate of six percent (6%) compounded every ninety (90)
days from the first quarter of 1981, the said dollar deposits have earned
interest of$1,781,740.16 up to January, 1993. Thus, [Oates] dollar
deposits [in] Trust Account No. 01-014 have an aggregate balance
of $3,472,683.94 as of January 1993.27
Hence, even if the amount of P8,222,687.89 as of May 15, 1992 is deducted
from the outstanding balance of his trust accounts as of January 1993, the bank
still owes him P220,999,472.36 on top of his dollar deposits amounting to
$3,472,683.94.
Oate prayed that a judgment be issued dismissing the Complaint and ordering
Land Bank to pay him:
i) The sum of P220,999,472.36, representing the outstanding balance on the

peso deposits [of Oates] various trust accounts as of January 1993, with
interest thereon from said date at the rate of eighteen percent (18%)
compounded every ninety (90) days, until the said amount is fully paid;
ii) The sum of $3,472,683.94, representing the aggregate balance as of January
1993 on [Oates] dollar deposits [in] Trust Account No. 01-014, with interest
thereon from said date at the rate of six percent (6%) compounded every
ninety (90) days, until the said amount is fully paid;
iii) The sum of P100,000,000.00 as and by way of moral damages;
iv) The sum of P50,000,000.00 as and by way of exemplary damages; and
v) The sum of P15,000,000.00, or 20% of all sums collected, whichever is
higher, as and for attorney's fees, the further sum of P3,000.00 as appearance
fee for each hearing attended, and such other sums that may be proved during
the trial as litigation expenses.28
Upon Oates motion, the RTC issued an Order29 dated May 27, 1994, creating a
Board of Commissioners (the Board) for the purpose of examining the records
of Oates seven trust accounts, as well as to determine the total amount of
deposits, withdrawals, funds invested, earnings, and expenses incurred. It was
composed of Atty. Engracio M. Escasinas, the Clerk of Court of the RTC of
Makati City, as the Chairman; and, Atty. Ma. Cristina C. Malab and Ms. Adeliza
M. Jaranilla representing Land Bank and Oate, respectively, as members.
Initially, the Board submitted three reports. 30 But for clarity, the trial court
ordered31 the Board to reconvene and to submit a consolidated report furnishing
copies of the same to both parties, who were given 10 days from receipt thereof
35
to file their respective comments thereto. The Board complied and on August
16, 2004 submitted its consolidated report.32 As summarized by the RTC, the
said consolidated report revealed that there were undocumented and over
withdrawals and drawings33 from Oates trust accounts:
Thus, the Commissioners Report showed that the total amount of drawings and
withdrawals from each account without withdrawal slips are as follows:
chanroble svirtuallawlibrary
In Trust Account No. 01-014, there was a total withdrawals [sic] without
withdrawal slips but reflected in the passbook in the amount of P45,103,297.33
and this account showed a negative balance of P40,367,342.34. On the dollar
deposit under the same trust account, there was a total [withdrawal] without
withdrawal slips but reflected in the passbook in the amount of $3,210,222.85.
In Trust Account No. 01-017, there was a total withdrawal without withdrawal
slips in the amount of P2,682,088.58 and there was an over withdrawal of
P11,738,470.53 and $30,000.00.
slips of P900,000.00 and over withdrawal of P13,310,328.01.
In Trust Account No. 01-075, there was a total withdrawal of P500,000.00
without withdrawal slips and there was a negative balance of P33,342,132.64
and $286,399.34 on the dollar account.
In Trust Account No. 01-082, the total amount of withdrawal without withdrawal
slips but reflected in the passbook was P1,782,741.86 and there was an over
withdrawal of P14,031.63.
slips in the amount of P5,054,809.00 but the report indicated that there was a
negative balance of P1,296,441.92.
slips in the amount of P4,640,551.34 and there was a negative balance of
P58,327,459.23.34
On even date, the Board also submitted a Manifestation35 informing the RTC that
its findings as to the outstanding balance of each trust account may not be
accurate considering that it was not given ample opportunity to collate and sort
out the documents related to each trust account and that there may have been
double take up of accounts since the documents previously reviewed may have
been considered again in subsequent reports.
In his Comment,36 Oate asserted that the undocumented withdrawals
mentioned in the consolidated report should not be considered as cash
36
outflows. Rather, they should be treated as unauthorized transactions and the

amounts subject thereof must be credited back to his accounts.
Land Bank did not file any comment or objection to the Boards consolidated
comment.
During the pre-trial conference, the parties agreed that they would submit the
case for decision based on the reports of the Board after they have submitted
their respective memoranda. They also stipulated on the following issues for
resolution of the RTC:
1. Whether x x x Oate could claim on Trust Account Nos. 01-014 and 01017 which were opened for an undisclosed principal;
2. Whether x x x the undocumented withdrawals and drawings are
considered valid and regular and, conversely, if in the negative, whether x
x x such amounts shall be credited [back] to the accounts. 37
In his Memorandum38 filed on July 12, 2005, Oate reiterated that Land Bank
should be held liable for the undocumented withdrawals and drawings. For its
part, Land Bank posited, inter alia, that Trust Account Nos. 01-014 and 01-017
should be excluded from the computation of Oates counterclaim considering
his allegation that said accounts are owned by an undisclosed principal
whom/which he failed to join as indispensable party. Land Bank further
theorized that Oate must answer for the negative balances as revealed by the
Boards reports.39
chanroble slaw
Thereafter, the case was submitted for decision.

Ruling of the Regional Trial Court
On May 31, 2006, the RTC rendered a Decision40 dismissing Land Banks
Complaint for its failure to establish that the amount of P4,086,888.89 allegedly
miscredited to Oates Trust Account No. 01-125 actually came from the
investments of PVTA and PVTB. Hence, the RTC ordered Land Bank to restore
the total amount of P1,471,416.52 which the bank unilaterally debited from
Oates five trust accounts.41
chanrobleslaw
With regard to Oates counterclaim for the recovery of P220,999,472.36, as

well as the alleged US$3,472,683.94 balance of his dollar deposits in Trust
Account No. 01-014, the RTC ruled that under the IMAs, Land Bank had the
authority to withdraw funds (as in fact it was at all times in possession of the
passbooks) from Oates accounts even without a letter of instruction or
withdrawal slip coming from Oate. It thus gave weight to the entries in the
passbooks since the same were made in the ordinary course of business. The
37
RTC also ruled that Oate is deemed to have approved the entries in the
statements of account that were sent to him as he never interposed any
objection thereto within the period given him to do so.
Anent Land Banks claim for the negative balances, the RTC likewise denied the
same for Land Bank never sought them in its Complaint. Moreover, being the
manager of the funds and keeper of the records, the RTC held that Land Bank
should not have allowed further withdrawals if there were no more funds.
The RTC likewise debunked Land Banks argument that Oates counterclaim
with respect to Trust Account Nos. 01-014 and 01-017 should be dismissed for
his failure to join his undisclosed principal. According to the RTC, Land Bank
should have earlier invoked such defense when it filed its answer to the
counterclaim. Also, if it is true that said accounts are not owned by Oate, then
the bank had no right to apply the funds in said accounts as payment for the
alleged personal indebtedness of Oate.
The dispositive portion of the RTCs Decision reads:
WHEREFORE, in view of all the foregoing, decision is hereby rendered

dismissing the complaint and ordering [Land Bank] to pay [Oate] the total
amount of P1,471,416.52 representing the total amount of funds debited from
the five (5) trust accounts of the defendant with legal rate of interest of
12% per annum, compounded yearly, effective on 21 June 1991 until fully paid.
No pronouncement as to costs.
SO ORDERED.42
Land Bank filed a Motion for Reconsideration.43 In an Order44 dated July 11,
2006, however, the RTC denied the same.
Both parties appealed to the CA.
Ruling of the Court of Appeals
In its December 18, 2009 Decision,45 the CA denied Land Banks appeal and
granted that of Oate. The CA affirmed the RTCs ruling that Land Bank failed
to establish the source of the funds it claimed to have been erroneously credited
to Oates account. With respect to Oates appeal, the CA agreed that he is
entitled to the unaccounted withdrawals which, as found by the Board, stood at
P60,663,488.11 and $3,210,222.85.46 The CAs ruling is anchored on the banks
failure to observe Sections X401 and X425 of the Bangko Sentral ng Pilipinas
Manual of Regulation for Banks (MORB) requiring it to give full disclosure of the
services it offered and conduct its dealings with transparency, as well as to
render reports that would sufficiently apprise its clients of the significant
38
developments in the administration of their accounts. Aside from allowing

undocumented withdrawals, the CA likewise noted that Land Bank failed to keep
an accurate record and render an accounting of Oates accounts. For the CA,
the entries in the passbooks are not sufficient because they do not specify
where the funds withdrawn from Oates accounts were invested.
The dispositive portion of the CAs Decision reads:
WHEREFORE, the appeal of plaintiff-appellant Land Bank is DENIED.

The appeal of defendant-appellant Emmanuel Oate is hereby partially
GRANTED. Accordingly, the May 31, 2006 Decision of the Regional Trial Court,
Branch 141, Makati City is hereby MODIFIED in that, in addition to the previous
grant of P1,471,416.52 representing the total amount of funds debited from
defendant-appellant Oates trust accounts, plaintiff-appellant Land Bank is
hereby ordered to pay defendant-appellant Oate the sum of P60,663,488.11
and $3,210,222.85 representing the undocumented withdrawals it debited from
the latters trust account with interest at the rate of 12% per annum,
compounded yearly from June 21, 1991 until fully paid.
SO ORDERED.47
Land Bank filed a Motion for Reconsideration.48 In a Resolution49 dated May 27,
2010, however, the CA denied its motion. Hence, Land Bank filed the instant
Petition for Review on Certiorari based on the following issues:
Issues
1. WHETHER X X X THE ENTRIES IN THE PASSBOOK ISSUED BY LBP
IN OATES TRUST ACCOUNT (EXPRESS TRUST) COVERED BY AN
INVESTMENT MANAGEMENT AGREEMENT (IMA) WITH FULL
DISCRETION ARE SUFFICIENT TO MEET THE RULE ON
PRESUMPTION OF REGULARITY OF ENTRIES IN THE COURSE OF
BUSINESS PROVIDED FOR UNDER SECTION 43, RULE 130 OF THE
RULES OF COURT.
2. WHETHER X X X OATE IS ENTITLED TO CLAIM FOR P1,471,416.52
WHICH IS NOT PLEADED AS COUNTERCLAIM IN HIS ANSWER
PURSUANT TO SECTION 2, RULE 9 OF THE RULES OF COURT.
3. WHETHER X X X OATE IS ENTITLED TO THE AWARD OF
P60,663,488.11 AND $3,210,222.85 REPRESENTING THE ALLEGED
UNDOCUMENTED WITHDRAWALS DEBITED FROM HIS TRUST
ACCOUNTS ON THE GROUND OF LBPS ALLEGED FAILURE TO MEET
39
THE STANDARDS SET FORTH UNDER THE 2008 MANUAL ON

REGULATIONS FOR BANKS (MORB) ISSUED BY BSP.
4. WHETHER X X X OATE MAY SUE [ON] TRUST ACCOUNT NOS. 01014 AND 01-017 OPENED FOR AN UNDISCLOSED PRINCIPAL
WITHOUT JOINING HIS UNDISCLOSED PRINCIPAL.
5. WHETHER X X X THE AWARD OF INTEREST TO OATE AT THE RATE
OF TWELVE PERCENT (12%) PER ANNUM, COMPOUNDED YEARLY
FROM JUNE 21, 1991 UNTIL FULLY PAID, IS VIOLATIVE OF ARTICLE
1959 OF THE CIVIL CODE.50
Land Banks Arguments
Land Bank disputes the ruling of both lower courts that it failed to prove the fact
of miscrediting the amount of P4,086,888.89 to Oates Trust Account No. 01125 as the deposit slips pertaining thereto were not presented. Land Bank
maintains that in trust accounts the passbooks are always in the banks
possession so that it can record the cash inflows and outflows even without the
corresponding deposit or withdrawal slips. Citing Section 43, Rule 130 of the
Rules of Court, it asserts that the entries in the passbooks must be accepted as
proof of the regularity of the transactions reflected in the trust accounts,
including the miscrediting of P4,086,888.89, for they were made in the
regular course of business. In addition, said entries are supported by demand
letters dated October 8, 198151 and September 3, 1991,52 as well as a
Statement of Account53 as of May 15, 1992. Land Bank avers that Oate never
questioned the statements of account and the reports it presented to him and,
hence, he is deemed to have approved all of them.
Land Bank also imputes error on the lower courts in ordering the restoration of
the amount of P1,471,416.52 it debited from Oates five trust accounts
because he never sought it in his Answer.
Petitioner bank vigorously argues that Oate is not entitled to the
undocumented withdrawals amounting to P60,663,488.11 and $3,210,222.85.
According to Land Bank, in holding it liable for the said amounts, the CA
erroneously relied on the 2008 MORB which was not yet in existence at the time
the transactions subject of this case were made or even at the time when Land
Bank filed its Complaint. In any case, Land Bank insists that it made proper
accounting and apprised Oate of the status of his investments in accordance
with the terms of the IMAs. In its demand letter54 dated September 3, 1991
Land Bank made a full disclosure that the total outstanding balance of all the
trust accounts amounted to P1,471,416.52, but that the same was setoff to
recoup the miscredited funds. It faults Oate for not interposing any
objection as his silence constitutes as his approval after 30 days from receipt
40
thereof. Land Bank asseverates that Oate could have also inspected and
audited the records of his accounts at any reasonable time. But he never did.
Land Bank likewise faults the CA in treating the undocumented withdrawals as
unauthorized transactions as the Boards reports do not state anything to that
effect. It claims that the CAs reliance on the consolidated report in awarding
the extremely huge amounts of P60,663,488.11 and $3,210,222.85 is a
grievous mistake because the Board itself already manifested that said report
may not be accurate. Consequently too, Land Bank asserts that the reports of
the Board cannot prevail over the entries in the passbooks which were made in
the regular course of business.
Land Bank further states that as computed by the Board, the amount of
negative balances in Oates accounts reached P131,747,487.02 and
$818,674.71.55 It thus proposes that if the CA awarded to Oate the
undocumented withdrawals on the basis of the Boards reports, then it should
have also awarded to Land Bank said negative balances or over withdrawals as
reflected in the same reports. After all, Oate admitted in his Answer that all
withdrawals from his trust accounts were done in the ordinary course of
business.
Furthermore, Land Bank claims that it argued before the CA that Oate cannot
sue on Trust Account Nos. 01-014 and 01-017. While Oate alleged that said
accounts were opened for an undisclosed principal, he did not, however, join as
an indispensable party said principal in violation of Section 3, Rule 3 of the
Rules of Court.56 Unfortunately, the CA sidestepped the issue and proceeded to
grant Oate the unaccounted withdrawals from said accounts in the aggregate
amounts of P47,785,385.91 and $3,210,222.85. Following Quilatan v. Heirs of
Lorenzo Quilatan,57 Land Bank insists that this case should be remanded to the
trial court even if the issue of failure to implead an indispensable party was
raised for the first time in a Motion for Reconsideration of the trial courts
Decision.
Finally, Land Bank questions the ruling of the CA imposing 12% per annum rate
of interest. It contends that trust accounts are in the nature of Express Trust
and not in the nature of a regular deposit account where a debtor-creditor
relationship exists between the bank and its depositor. It was not indebted to
Oate but merely held and managed his funds. There being no loan or
forbearance of money involved, in the absence of stipulation, the applicable rate
of interest is only 6% per annum. Land Bank claims that the CA further erred
when it compounded the 12% interest even in the absence of any such
stipulation.
Oates Arguments
In opposing the Petition, Oate argues that the issues raised by Land Bank
41
involve factual matters not proper in a petition for review on certiorari. He

posits that the Petition does not fall under any of the exceptions where this
Court could review factual issues.
As to Land Banks allegation that he cannot claim the funds without divulging
and impleading as an indispensable party his undisclosed principal, Oate points
out that in his Answer (With Compulsory Counterclaim) he alleged that Trust
Account Nos. 01-014 and 01-017 were opened for an undisclosed principal.
Yet Land Bank did not controvert his allegation. It is, therefore, too late in the
day for Land Bank to invoke non-joinder of principal as an indispensable party.
Besides, when he executed the IMAs, he was acting for himself and on behalf of
an undisclosed principal. Hence, he could claim and recover the amounts owing
not only to himself but also to his undisclosed principal.
Oate likewise asserts that Land Bank, as uniformly found by both lower courts,
failed to prove by preponderance of evidence the fact of miscrediting. As to
the demand letters adverted to by Land Bank, Oate asserts that the lower
courts did not consider the same because they were not formally offered. Land
Bank also failed to present competent and sufficient evidence that he admitted
his indebtedness on account of the miscrediting of funds. Since Land Bank
failed to prove the fact of miscrediting it had no right to debit any amount
from his accounts and must restore whatever funds it had debited therefrom.
Oate also denies having failed to seek the return of the funds debited from his
account.
Oate further claims that in 1982 his peso trust accounts had a total balance of
P35,555,464.78 while the dollar trust accounts had a balance of
US$1,690,943.78. Since then, however, he never received any report or update
regarding his accounts until the bank sent him financial reports dated June 30,
1991 indicating that the balances of his trust accounts had been unilaterally
setoff. According to Oate, Land Banks failure to keep an accurate record of his
accounts and to make proper accounting violate several circulars of the Central
Bank.58 Hence, it is only proper to require the bank to return the
undocumented withdrawals which, as found by the Board, amount to
P60,663,488.11 and $3,210,222.82. In addition, Oate points out Land Banks
failure to keep an accurate record of his accounts as shown by the huge
amounts of unsupported withdrawals and drawings which constitutes willful
default if not gross misconduct in violation of the IMAs which, in turn, makes
the bank liable for its actions.
Anent Land Banks invocation that the entries in the passbook made in the
ordinary course of business are presumed correct and regular, Oate argues
that such presumption does not relieve the trustee, Land Bank in this case, from
presenting evidence that the undocumented withdrawals and drawings were
authorized. In any case, the presumption invoked by Land Bank does not lie as
one of its elements that the entrant must be deceased or unable to testify is
42
lacking. Land Bank cannot also excuse itself for failing to regularly submit to
him accounting reports as, anyway, he was free to inspect the records at any
reasonable day. Oate emphasizes that it is the duty of the bank to keep him
updated with significant developments in his accounts.
In refutation of Land Banks claim to negative balances and over withdrawals,
Oate posits that the bank cannot benefit from its own negligence in
mismanaging the trust accounts.
Lastly, Oate defends the CAs grant of 12% per annum rate of interest as
under BSP Circular No. 416, said rate shall be applied in cases where money is
transferred from one person to another and the obligation to return the same or
a portion thereof is adjudged. In any event, Land Bank is estopped from
disputing said rate for Land Bank itself applied the same 12% per annum rate of
interest when it sought to recover the amount allegedly miscredited to his
account. As to the compounding of interest, Oate claims that the parties
intended that interest income shall be capitalized and shall form part of the
principal.
Our Ruling
We deny the Petition.
The issues raised are factual and
do not involve questions of law.
From the very start the issues involved in this case are factual the very
reason why the RTC created a Board of Commissioners to assist it in examining
the records pertaining to Oates accounts and determine the respective cash
inflows and outflows in said accounts. Thereafter, the parties agreed to submit
the case based on the Boards reports. And when the controversy reached the
CA, the appellate court basically conducted an assiduous assessment of the
evidentiary records.59 No question of law was ever raised for determination of
the lower courts. Now, Land Bank practically beseeches us to assess the
probative weight of the documentary evidence on record to resolve the same
basic issues of (i) whether Land Bank miscredited P4,086,888.89 to Trust
Account No. 01-125 and (ii) whether x x x the undocumented withdrawals and
drawings are considered valid and regular and, conversely, if in the negative,
whether x x x such amounts shall be credited to the accounts.60
chanroble slaw
These issues could be resolved by consulting the evidence extant on records,

such as the IMAs, the passbooks, the letters of instructions, withdrawal and
deposit slips, statements of account, and the Boards reports. Land Banks
heavy reliance on Section 43, Rule 130 of the Rules of Court61 also attests to the
factual nature of the issues involved in this case. Well-settled is the rule that
43
in petitions for review on certiorari under Rule 45, only questions of law can be
raised.62 In Velayo-Fong v. Spouses Velayo,63 we defined a question of law as
distinguished from a question of fact:
A question of law arises when there is doubt as to what the law is on a certain
state of facts, while there is a question of fact when the doubt arises as to the
truth or falsity of the alleged facts. For a question to be one of law, the same
must not involve an examination of the probative value of the evidence
presented by the litigants or any of them. The resolution of the issue must rest
solely on what the law provides on the given set of circumstances. Once it is
clear that the issue invites a review of the evidence presented, the question
posed is one of fact. Thus, the test of whether a question is one of law or of
fact is not the appellation given to such question by the party raising the same;
rather, it is whether the appellate court can determine the issue raised without
reviewing or evaluating the evidence, in which case, it is a question of law;
otherwise, it is a question of fact. (Italics supplied)
While there are recognized exceptions64 to this rule, none exists in this case.
Anent Land Banks contention that the determination of whether the CA erred in
retroactively applying the 2008 MORB poses a legal question, the same
deserves scant consideration. True, the CA included in its ratio decidendi a
discussion on the 2008 MORB to give emphasis to the duties of banks to keep
an accurate record and regularly apprise their clients of the status of their
accounts. But the issue of whether Land Bank failed to comply with those
duties can be resolved even without the MORB as the same duties are also
imposed on Land Bank by the IMAs, the contract that primarily governs the
parties in this case. As a general rule, a contract is the law between the
parties. Thus, from the moment the contract is perfected, the parties are
bound not only to the fulfilment of what has been expressly stipulated but also
to all consequences which, according to their nature, may be in keeping with
good faith, usage and law. Also, the stipulations of the contract being the law
between the parties, courts have no alternative but to enforce them as they
were agreed [upon] and written x x x.65
chanroble slaw
Based on the factual milieu of this case even without touching on the MORB, we
found that Land Bank still failed to perform its bounden duties to keep accurate
records and render regular accounting. We also found no cogent reason to
disturb the other factual findings of the CA.
Land Bank failed to prove that the
miscredited funds came from the
proceeds of the pre-terminated loans of
its corporate borrowers.
Land Bank argues that the entries in the passbooks were made in the regular
44
course of business and should be accepted as prima facie evidence of the facts
stated therein. But before entries made in the course of business may qualify
under the exception to the hearsay rule and given weight, the party offering
them must establish that: (1) the person who made those entries is dead,
outside the country, or unable to testify; (2) the entries were made at, or near
the time of the transaction to which they refer; (3) the entrant was in a position
to know the facts stated therein; (4) the entries were made in the professional
capacity or in the course of duty of the entrant; and, (5) the entries were made
in the ordinary or regular course of business or duty.66
chanroble slaw
Here, Land Bank has neither identified the persons who made the entries in the
passbooks nor established that they are already dead or unable to testify as
required by Section 43,67 Rule 130 of the Rules of Court. Also, and as correctly
opined by the CA, [w]hile the deposit entries in the banks passbook enjoy a
certain degree of presumption of regularity x x x, the same do not indicate or
explain the source of the funds being deposited or withdrawn from an individual
account.68 They are mere prima facie proof of what are stated therein the
dates of the transactions, the amounts deposited or withdrawn, and the
outstanding balances. They do not establish that the total amount of
P4,086,888.89 deposited in Oates Trust Account No. 01-125 in November
1980 came from the proceeds of the pre-terminated loans of Land Banks
corporate borrowers. It would be too presumptuous to immediately conclude
that said amount came from the checks paid to Land Bank by its corporate
borrowers just because the maturity dates of the loans coincided with the dates
said total amount was deposited. There must be proof showing an unbroken
link between the proceeds of the pre-terminated loans and the amount allegedly
miscredited to Oates Trust Account No. 01-125. As a bank and custodian of
records, Land Bank could have easily produced documents showing that its
borrowers pre-terminated their loans, the checks they issued as payment for
such loans, and the deposit slips used in depositing those checks. But it did
not.
Land Bank did not also bother to explain how Oate or his representative,
Eduardo Polonio (Polonio), obtained possession of the checks when, according
to it, the corporate borrowers issued the checks in its name as payment for
their loans.69 Under paragraph 8 of its Complaint, Land Bank alleged that its
corporate borrowers paid their respective obligations in the form of checks
payable to LANDBANK x x x.70 If it is true, then why were the checks credited
to Oates account? Unless subsequently endorsed to Oate, said checks can
only be deposited in the account of the payee appearing therein. We cannot
thus lend credence to Land Banks excuse that the proximate cause of the
alleged miscrediting was the fraudulent representation of Polonio, for
assuming that the latter indeed employed fraudulent machinations, with the
degree of prudence expected of banks, Land Bank and its tellers could have
easily detected that Oate was not the intended payee. In Traders Royal Bank
v. Radio Philippines Network, Inc.,71 we held that petitioner bank was remiss in
45
its duty and obligation for accepting and paying a check to a person other than
the payee appearing on the face of the check sans valid endorsement.
Consequently, it was made liable for its own negligence and in disregarding
established banking rules and procedures.
We are also groping in the dark as to the number of checks allegedly deposited
by Polonio to Oates Trust Account No. 01-125. According to Land Bank, the
entire amount of P4,086,888.89 represents the proceeds of the pre-terminated
loans of four of its clients, namely, RETELCO, PBM, CBY and PHILTOFIL. But it
could only point to two entries made on two separate dates in the passbook as
reproduced below:
Date
WITHDRAWAL
DEPOSIT
xxx
xxx
24NOV80
159,000.00
24NOV8
3,063,750.00C
0
K
24NOV80
42,000.00
25NOV80
275,923.75 CK
25NOV 80 1,235,962.00
26NOV80
193,800.00 CK
26NOV80
250,000.00 CK
26NOV80
321,188.38 CK
26NOV80 1,373,167.00
27NOV80
1,021,250.00 CK
28NOV80
70,833.33 CK
27NOV80
919,300.00
28NOV8
0
1,023,138.89
CK
BALANCE
P250,704.60
409,704.60
3,473,454.60
3,431,454.60
3,707,378.35
2,471,416.35
2,665,216.35
2,915,216.35
2,915,216.35
2,915,216.35
3,236,404.73
1,863,237.73
2,884,487.73
2,955,321.06
2,036,021.06
3,059,159.9572
Were there only two checks issued as payment for the separate loans of these
four different entities? These hanging questions only confirm the correctness of
the lower courts uniform conclusion that Land Bank failed to prove that the
amount allegedly miscredited to Oates account came from the proceeds of
the pre-terminated loans of its clients. It is worth emphasizing that in civil
cases, the party making the allegations has the burden of proving them by
preponderance of evidence. Mere allegation is not sufficient.73
chanrobleslaw
46
As a consequence of its failure to prove

the source of the claimed miscredited
funds, Land Bank had no right to debit
the total amount of P1,471,416.52 and
must, therefore, restore the same.
In view of the above, Land Banks argument that the lower courts erred in
ordering the return of the amount of P1,471,416.52 it debited from Oates five
trust accounts since he did not seek such relief in his Answer as a counterclaim,
falls flat on its face. The order to restore the debited amount is consistent with
the lower courts ruling that Land Bank failed to prove that the amount of
P4,086,888.89 was miscredited to Oates account and, hence, it had no right
to seek reimbursement or debit any amount from his accounts in payment
therefor. Without such right, Land Bank should return the amount of
P1,471,416.52 it debited from Oates accounts in its attempt to recoup what it
allegedly lost due to miscrediting. Moreover, contrary to Land Banks assertion,
Oate contested the banks application of the balance of his trust accounts in
payment for the allegedly miscredited amount in his Answer (With Compulsory
Counterclaim) for being without any factual and legal [bases].74
chanrobleslaw
Land Bank was remiss in performing

its duties under the IMAs and as a
banking institution.
The contractual relation between Land Bank and Oate in this case is primarily
governed by the IMAs. Paragraph 4 thereof expressly imposed on Land Bank
the duty to maintain accurate records of all his investments, receipts,
disbursements and other transactions relating to his accounts. It also obliged
Land Bank to provide Oate with quarterly balance sheets, statements of
income and expenses, summary of investments, etc. Thus:
4. You shall maintain accurate records of all investments, receipts,

disbursements and other transactions of the Account. Records relating
thereto shall be open at all reasonable times to inspection and audit by me
either personally or through duly authorized representatives. Statements
consisting of a balance sheet, portfolio analysis, statement of income
and expenses, and summary of investment changes are to be sent to
me/us quarterly.
I/We shall approve such accounting by delivering in writing to you a statement
to that effect or by failure to express objections to such accounting in writing
delivered to you within thirty (30) days from my receipt of the accounting.
Upon your receipt of a written approval of the accounting, or upon the passage
of said period of time within which objections may be filed, without written
47
objections having been delivered to you, such accounting shall be deemed to be

approved, and you shall be released and discharged as to all items, matters and
things set forth in such accounting as if such accounting had been settled and
allowed by a decree of a court of competent jurisdiction, in an action or
proceeding in which you and I were parties.75(Emphasis supplied)
These are the obligations of Land Bank which it should have faithfully complied
with in good faith.76Unfortunately, Land Bank failed in its contractual duties to
maintain accurate records of all investments and to regularly furnish
Oate with financial statements relating to his accounts. Had Land Bank kept
an accurate record there would have been no need for the creation of a Board of
Commissioners or at least the latters work would have been a lot easier and
more accurate. But because of Land Banks inefficient record keeping, the
Board performed the tedious task of trying to reconcile messy and incomplete
records. The lackadaisical attitude of Land Bank in keeping an updated record of
Oates accounts is aggravated by its reluctance to accord the Board full and
unrestricted access to the records when it was conducting a review of the
accounts upon the orders of the trial court. Thus, in its Manifestation77dated
August 16, 2004, the Board informed the trial court that its report pertaining to
outstanding balances may not be accurate because the documents were then
in the custody of Land Bank and the documents to be reviewed by the Board at
a designated hearing depended on what was released by the then handling
lawyer of Land Bank. They were not given the opportunity to collate/sort-out
the documents related to each trust account 78 and the folders being reviewed
contained documents related to different trust accounts.79 As a result, [t]here
may have been double take up of accounts since the documents previously
reviewed may have been repeatedly considered in the reports.80
chanrobleslaw
For its failure to faithfully comply with

its obligations under the IMAs and for
having agreed to submit the case on the
basis of the reports of the Board of
Commissioners, the latters findings
are binding on Land Bank.
Because of Land Banks failure to keep an updated and accurate record of
Oates account, it would have been difficult, if not impossible, to determine
with some degree of accuracy the outstanding balances in Oates accounts.
Indeed, the creation of a Board of Commissioners was a significant development
in this case as it facilitated the examination of the records and helped in the
determination of the balances in each of Oates accounts. In a span of four
years, the Board held 60 meetings and scoured the voluminous and scattered
records of subject accounts. In the course thereof, it found several
undocumented withdrawals and over withdrawals. Thereafter, the Board
submitted its consolidated report, to which Land Bank did not file its comment
48
despite having been given the opportunity to do so. It did not question the
result of the examinations conducted by the Board, particularly the Boards
computation of the outstanding balance in each account, the existence of
undocumented and over withdrawals, and how often the bank sent Oate
statements of account. In fact, during the pre-trial conference, Land Bank
agreed to submit the case based on the reports of the Board.
Consequently, we found no cogent reason to deviate from the same course
taken by the CA give weight to the consolidated report of the Board and treat
it as competent and sufficient evidence of what are stated therein. After all, the
dearth of evidentiary documents that could have shed light on the alleged
unintended crediting and unexplained withdrawals was brought about by Land
Banks failure to maintain accurate records as required by the IMAs. In Simex
International (Manila), Inc. v. Court of Appeals, 81 we elucidated on the nature of
banking business and the responsibility of banks:
The banking system is an indispensable institution in the modern world and

plays a vital role in the economic life of every civilized nation. Whether as mere
passive entities for the safekeeping and saving of money or as active
instruments of business and commerce, banks have become an ubiquitous
presence among the people, who have come to regard them with respect and
even gratitude and, most of all, confidence. Thus, even the humble wageearner has not hesitated to entrust his lifes savings to the bank of his choice,
knowing that they will be safe in its custody and will even earn some interest for
him. The ordinary person, with equal faith, usually maintains a modest
checking account for security and convenience in the settling of his monthly bills
and the payment of ordinary expenses. As for business entities like the
petitioner, the bank is a trusted and active associate that can help in the
running of their affairs, not only in the form of loans when needed but more
often in the conduct of their day-to-day transactions like the issuance or
encashment of checks.
In every case, the depositor expects the bank to treat his account with the
utmost fidelity, whether such account consists only of a few hundred pesos or of
millions. The bank must record every single transaction accurately,
down to the last centavo and as promptly as possible. This has to be
done if the account is to reflect at any given time the amount of money the
depositor can dispose of as he sees fit, confident that the bank will deliver it as
and to whomever he directs. x x x
The point is that as a business affected with public interest and because of the
nature of its functions, the bank is under obligations to treat the accounts of its
depositors with meticulous care, always having in mind the fiduciary nature of
their relationship. x x x (Emphasis supplied)
As to the conceded inaccuracies in the reports, we cannot allow Land Bank to
49
benefit therefrom. Time and again, we have cautioned banks to spare no effort
in ensuring the integrity of the records of its clients. 82 And in Philippine National
Bank v. Court of Appeals,83 we held that as between parties where negligence
is imputable to one and not to the other, the former must perforce bear the
consequences of its neglect. In this case, the Board could have submitted a
more accurate report had Land Bank faithfully complied with its duty of
maintaining a complete and accurate record of Oates accounts. But the Board
could not find and present the corresponding slips for the withdrawals reflected
in the passbooks. In addition, and as earlier mentioned, Land Bank was less
than cooperative when the Board was examining the records of Oates
accounts. It did not give the Board enough leeway to go over the records
systematically or in orderly fashion. Hence, we cannot allow Land Bank to
benefit from possible inaccuracies in the reports.
Neither does Oates failure to exercise his rights to inspect the records and
audit his accounts excuse the bank from sending the required notices, for under
the IMAs it behooved upon Land Bank to keep him fully informed of the status
of his investments by sending him regular reports and statements. Oates
failure to inspect the record of his accounts should neither be construed as his
waiver to be furnished with updates on his accounts nor authority for the bank
to make undocumented withdrawals. As aptly opined by the CA:
x x x The least that Land Bank could have done was to keep a detailed quarterly
report on [its] file. In this case, Land Bank did away with this procedure that
made [its] records a complete mess of voluminous and meaningless records of
numerous folders containing more than 7,600 leaves/pages and some 90
passbooks, with 1,355 leaves/pages of entries, corresponding to the seven (7)
Trust Accounts.
The passbook entries alone are insufficient compliance with Land Banks duty to
keep accurate records of all investments, receipts, disbursements and other
transactions of the Account. These passbooks do not inform what investments
were made on the funds withdrawn. Moreover, these passbook entries do not
show if the amounts purported to have been invested were indeed received by
the concerned entity, facility, or borrower. From these entries alone, Oate
would have no way of knowing where his money went.84
But Land Bank next postulates that if Oate is entitled to the undocumented
withdrawals on the basis of the reports of the Board, then it should also be
entitled to the negative balances or over withdrawals as reflected in the same
reports.
We cannot agree for a number of reasons. First, as earlier discussed, Land
Bank is guilty of negligence while Oate (at least insofar as over withdrawals
are concerned) is not. Had Land Bank maintained an accurate record, it would
have readily detected and prevented over withdrawals. But without any
50
qualms, Land Bank asks for the negative balances, unmindful that such claim is
actually detrimental to its cause because it amounts to an admission that it
allowed over withdrawals. As aptly observed by the CA:
Corollarily, the Court cannot allow Land Bank to recover the negative balances
from Oates trust accounts. Examining the Commissioners Report, the Court
notes that the funds of Oates trust accounts became seriously depleted due to
the unaccounted withdrawals that Land Bank charged against his accounts. At
any rate, those negative balances on Oates accounts show Land Banks
inefficient performance in managing his trust accounts. Reasonable bank
practice and prudence [dictate] that Land Bank should not have authorized the
withdrawal of various sums from Oates accounts if it would result to
overwithdrawals. x x x85
Second, Land Bank never prayed for the recovery of the negative balances in its
Complaint.
It is settled that courts cannot grant a relief not prayed for in the pleadings or in
excess of what is being sought by the party. x x x Due process considerations
require that judgments must conform to and be supported by the pleadings and
evidence presented in court. In Development Bank of the Philippines v.
Teston,86 this Court expounded that:
Due process considerations justify this requirement. It is improper to enter an
order which exceeds the scope of relief sought by the pleadings, absent notice
which affords the opposing party an opportunity to be heard with respect to the
proposed relief. The fundamental purpose of the requirement that allegations of
a complaint must provide the measure of recovery is to prevent surprise to the
defendant.87
Last, during the pre-trial conference, the issue of the validity of undocumented
withdrawals was properly put into issue. The parties also agreed, as a collateral
issue, that should it appear that the bank was not authorized to make the
undocumented withdrawals, the next issue for consideration would be whether
the amount subject thereof should be credited back to Oates accounts. 88 The
case of negative balances as alluded to by Land Bank, however, is different. It
was never put into issue during the pre-trial conference. In Caltex
(Philippines), Inc. v. Court of Appeals,89 we held that to obviate the element of
surprise, parties are expected to disclose at a pre-trial conference all issues of
law and fact which they intend to raise at the trial, except such as may involve
privileged or impeaching matters. The determination of issues at a pre-trial
conference bars the consideration of other questions on appeal. Land Bank
interposed its claim to the negative balances for the first time only when it filed
its Memorandum with the RTC.
Land Bank knew from the start and
admitted during trial that Trust
51
Account Nos. 01-014 and 01-017 do not

belong to Oate; hence, it should not
have debited any amount therefrom to
compensate for the alleged personal
indebtedness of Oate.
Land Bank claims that Oate cannot sue on Trust Account Nos. 01-014 and 01017 without joining as an indispensable party his undisclosed principal.
But if anyone in this case is guilty of failing to join an indispensable party, it is
Land Bank that first committed a violation. The IMAs covering Trust Account
Nos. 01-014 and 01-017 attached as Annexes A90 and B,91 respectively, of
Land Banks Complaint clearly state that Oate signed the same FOR:
UNDISCLOSED PRINCIPAL. As party to the said IMAs, Land Bank knew and
ought not to forget that Oate is merely an agent and not the owner of the
funds in said accounts. Yet Land Bank garnished the total amount of
P792,595.25 from Trust Account Nos. 01-014 and 01-017 to answer for the
alleged personal indebtedness of Oate. Worse, when Land Bank filed its
Complaint for Sum of Money, it did not implead said undisclosed principal or
inform the trial court thereof. Now that Oate is seeking the restoration of the
amounts debited and withdrawn without withdrawal slips from said accounts,
Land Bank is invoking the defense of failure to implead an indispensable party.
We cannot allow Land Bank to do this. As aptly observed by the trial court:
Under the circumstances obtaining, it is highly unfair, unjust and iniquitous, to

dismiss the suit with respect to the two Trust Accounts after [Land Bank] had
garnished the balances of said accounts to pay the alleged indebtedness of
[Oate] allegedly incurred by the erroneous crediting of P4 million to x x x Trust
Account No. 01-125 which does not appear to be owned by an undisclosed
principal. Trust Account No. 01-125 is [Oates] personal trust account with
plaintiff. Stated differently, [Land Bank] having now recognized and admitted
that Trust Account Nos. 01-014 and 01-017 were not owned by [Oate], it has
perforce no right, nay unlawful for it, to apply the funds in said accounts to pay
the alleged indebtedness of [Oates] personal account. Equity and justice so
demand that the funds be restored to Trust Account Nos. 01-014 and 01-017. 92
Oate protested the contents of the
statements of account at the earliest
opportunity.
As to Land Banks insistence that Oate is deemed to have accepted the
contents of the statements of account for his failure to manifest his objection
thereto within 30 days from receipt thereof, it should be recalled that from the
time the alleged miscrediting occurred in November 1980, the first
communication coming from Land Bank was its letter dated October 8, 1981. 93
This, however, was the subject of a failed negotiation between the parties.
52
Besides, said letter can hardly be considered as an statement that would

apprise Oate of the status of his investments. It is not a balance sheet,
portfolio analysis, statement of income and expenses or a summary of
investment changes as contemplated in paragraph 4 of the IMAs. It is a
demand letter seeking the return of the alleged miscredited amount. The
same goes true with Land Banks letter dated September 3, 1991. As can be
readily seen from its opening paragraph, said letter is in response to Oates
demand for information regarding the offsetting,94 which Oate protested and
is now one of the issues involved in this case. In fine, it cannot be said that
Oate approved and adopted the outstanding balances in his accounts for his
failure to object to the contents of those letters within the 30-day period
allotted to him under the IMAs.
From what is available on the voluminous records of this case and as borne out
by the Boards consolidated report dated August 16, 2004, the statements
which Land Bank sent to Oate are only the following:
Based on the Annexes95 attached to Oates Answer (With Compulsory

Counterclaim)
ITF No.
01-014
01-017
01-089
01-082
01-075
01-125
01-024
Balance Sheet
As of
June
June
June
June
June
June
June
30,
30,
30,
30,
30,
30,
30,
1982
1982
1982
1982
1982
1982
1982
Total Liabilities and

Trustors Equity
P 1,909,349.80
6,003,616.35
551,267.24
1,915.28
12,113,262.95
13,595,271.16
1,131,854.20
Based on the Consolidated Report
ITF Report Details

No
01024
01075
Schedule of Money Market

Placement
Statement of Income and
Expenses
Last
Date
Balances
of
Report
03.31.8
P 453,140.69
2
03.31.9
0.00
0
1,207,501.6
53
Sheet Balance
03.31.9
0
06.30.9
1
06.30.9
1
06.30.9
1
06.30.9
1
06.30.9
1
06.30.9
1
06.30.9
1
06.30.9
1
06.30.9
1
06.30.9
1
06.30.9
1
01- Schedule of Money Market

014 Placement
Statement of Income and
Expenses
Balance Sheet
01- Schedule of Investment
017 Statement of Income and
Expenses
Balance Sheet
01- Statement of Income and

082 Expense
Balance Sheet
01- Schedule of Investment
125 Statement of Income and
Expenses
Balance Sheet
9
14,767.20
3,267.19
20,673.58
38,502.06
10,437.22
39,659.56
59.75
70.28
44,055.72
10,079.16
60,920.42
The patent wide gap between the time Land Bank furnished Oate with Balance
Sheets as of June 30, 1982 and the date it sent him an Statement of Income
and Expenses, as well as a Balance Sheet, on March 31, 1990 is a clear and
gross violation of the IMAs requiring it to furnish him with balance sheet,
portfolio analysis, statement of income and expenses and the like, quarterly. As
to the reports dated June 30, 1991 and letters subsequent thereto, it should be
noted that during those times Oate had already interposed his objections to
the outstanding balances of his accounts.96
chanrobleslaw
The proper rate of legal

interest.
Land Banks argument that the lower courts erred in imposing 12% per annum
rate of interest is likewise devoid of merit. The unilateral offsetting of funds
without legal justification and the undocumented withdrawals are tantamount to
forbearance of money. In the analogous case of Estores v. Supangan,97 we held
that [the] unwarranted withholding of the money which rightfully pertains to
54
[another] amounts to forbearance of money which can be considered as an

involuntary loan. Following Eastern Shipping Lines, Inc. v. Court of
Appeals,98 therefore, the applicable rate of interest in this case is 12% per
annum. Besides, Land Bank is estopped from assailing the award of 12% per
annum rate of interest. In its Complaint, Land Bank arrived at P8,222,687.89
as the outstanding indebtedness of Oate by using the same 12% per
annum rate of interest. It was only after the lower courts rendered unfavorable
decisions that Land Bank started to insist that the applicable rate of interest is
6% per annum.
Of equal importance is the determination of when the said 12% per annum rate
of interest should commence. Recall that both the RTC and the CA reckoned the
running of the 12% per annum rate of interest from June 21, 1991, or the day
Land Bank unilaterally applied the outstanding balance in all of Oates trust
accounts, until fully paid. The compounding of interest, on the other hand, was
based on the provision of the IMAs granting Land Bank to hold, invest and
reinvest the Fund and keep the same invested, in your sole discretion, without
distinction between principal and income.
ChanRoblesVirtualawlibrary
While we find sufficient basis for the compounding of interest, we find it

necessary however to modify the commencement date. In Eastern
Shipping,99 it was observed that the commencement of when the legal interest
should start to run varies depending on the factual circumstances obtaining in
each case.100 As a rule of thumb, it was suggested that 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 made101 (at which time the quantification of
damages may be deemed to have been reasonably ascertained).102
chanrobleslaw
In the case at bench, while Oate protested the setting off, no proof was
presented that he formally demanded for the return of the amount so debited
prior to the filing of the Complaint. Quite understandably so because at that
time he could not determine with some degree of certainty the outstanding
balances of his accounts as Land Bank neglected on its duty to keep him
updated on the status of his accounts. Land Bank even undertook to furnish
him with the exact computation103 of what remains in his accounts after the
set off. But this never happened until Land Bank initiated the Complaint on
September 7, 1992. Oate, on the other hand, filed his Answer (With
Compulsory Counterclaim) on May 26, 1993. In other words, we cannot reckon
the running of the interest prior to the filing of the Complaint or Oates
Counterclaim as no demand prior thereto was made. Neither could the interest
commence to run at the time of filing of any of aforesaid pleadings (as to
constitute judicial demand) since the undocumented withdrawals in the sums of
P60,663,488.11 and US$3,210,222.85, as well as the amount actually debited
55
from all of Oates accounts, were determined only after the Board submitted its
consolidated report on August 16, 2004 or more than 10 years after Land Bank
and Oate filed their Complaint and Answer, respectively. Note too that while
Oate sought to recover the amount of undocumented withdrawals before the
RTC,104 the same was denied in the latters May 31, 2006 Decision. The RTC
granted Oate only the total amount of funds debited from his trust accounts. It
was only when the CA rendered its December 18, 2009 Decision that Oate was
awarded the undocumented withdrawals. Hence, we find it just and proper to
reckon the running of the interest of 12% per annum, compounded yearly, for
the debited amount and undocumented withdrawals on different dates. The
debited amount of P1,471,416.52, shall earn interest beginning May 31, 2006
or the day the RTC rendered its Decision granting said amount to Oate. As to
the undocumented withdrawals of P60,663,488.11 and US$3,210,222.85, the
legal rate of interest should start to run the day the CA promulgated its Decision
on December 18, 2009.
During the pendency of this case, however, the Monetary Board issued
Resolution No. 796 dated May 16, 2013, stating that in the absence of express
stipulation between the parties, the rate of interest in loan or forbearance of any
money, goods or credits and the rate allowed in judgments shall be 6%per
annum. Said Resolution is embodied in Bangko Sentral ng Pilipinas Circular No.
799, Series of 2013, which took effect on July 1, 2013. Hence, the 12% annual
interest mentioned above shall apply only up to June 30, 2013. Thereafter, or
starting July 1, 2013, the applicable rate of interest for both the debited amount
and undocumented withdrawals shall be 6% per annum, compounded annually,
until fully paid.
WHEREFORE, the Petition is hereby DENIED and the December 18, 2009
Decision of the Court of Appeals in CA-G.R. CV No. 89346 is AFFIRMED with
modification in that the interest of 12% per annum, compounded annually, for
the debited amount of P1,471,416.52 shall commence to run on May 31, 2006,
while the same rate of interest shall apply to the undocumented withdrawals in
the amounts of P60,663,488.11 and US$3,210,222.85 starting December 18,
2009. Beginning July 1, 2013, however, the applicable rate of interest on all
amounts awarded shall earn interest at the rate of 6% per annum, compounded
yearly, until fully paid.
SO ORDERED.
cralawla wlibrary
Carpio, (Chairperson), Brion, Perez, and Perlas-Bernabe , JJ. concur.

Endnotes:
1
Rollo, pp. 11-94.
56
CA rollo, pp. 484-511; penned by Associate Justice Jose Catral Mendoza (now
a Member of this Court) and concurred in by Associate Justices Myrna
Dimaranan Vidal and Priscilla J. Baltazar-Padilla.
2
Records, Vol. IV, pp.1358-1387; penned by Judge Manuel D. Victorio.
Id., Vol. I, pp. 1-8.
CA Rollo, pp. 594-595; penned by Associate Justice Priscilla J. Baltazar-Padilla

and concurred in by Associate Justices Fernanda Lampas Peralta and Michael P.
Elbinias.
5
Id. at 518-558.
AN ACT TO ORDAIN THE AGRICULTURAL LAND REFORM CODE AND TO

INSTITUTE LAND REFORMS IN THE PHILIPPINES, INCLUDING THE ABOLITION
OF TENANCY AND THE CHANNELING OF CAPITAL INTO INDUSTRY, PROVIDE
FOR THE NECESSARY IMPLEMENTING AGENCIES, APPROPRIATE FUNDS
THEREFOR AND FOR OTHER PURPOSES. Approved August 8, 1963.
7
See Passbook 1, Exhibit D-31.
See Passbook 2, Exhibit F-3.
10
See Passbook 7, Exhibit C-3.
11
See Passbook 5, Exhibit B-3.
12
See Passbook 4, Exhibit A-3.
13
See Passbook 3, Exhibit E-3.
14
See Passbook 6, Exhibit G-3.
15
Records, Vol. I, pp. 9-23.
16
Id.
17
Id. at 33.
As alleged in paragraph 14 of the Complaint, id. at 5-6. But per Annex P of

the same Complaint, id. at 34-35, the total amount debited was P1,471,416.52.
18
19
Id. at 1-8.
20
Under paragraph 15 of the Complaint, Land Bank explained how it arrived at
57
the amount of P8,222,687.89, viz:
15. [Oates] outstanding indebtedness to LANDBANK stands at P8,222,687.89

as of May 15, 1992, which was computed on the basis of the more than P4
Million erroneously credited to [Oate] multiplied by 12% interest per
annum from the date of the erroneous crediting up to February 4, 1992, minus
P1,528,583.48 representing the balance standing in [Oates] personal trust
accounts which was applied as payment by way of set-off. x x x (Id. at 6.)
21
Should be 1980.
22
Should be 1980.
23
24
Id. at 138-152.
25
26
27
Id. at 34-35.
Id. at 153-159.
Id. at 144-145. Emphases in the original.
28
Id. at 151-152.
29
Id., Vol. II, pp. 409-410.
(i) Report of the Board of Commissioners dated September 24, 1999, id., Vol.
V, pp. 1432-1441; (ii) supplemental summary report dated January 27, 2000,
id., Vol. III, pp. 790-797; (iii) second supplemental report dated April 6, 2000,
id. at 811-812.
30
31
See Order dated May 25, 2004, id., Vol. IV, p. 1216.
32
Id. at 1220-1228.
Per commissioners consolidated report dated August 16, 2004, id.,

withdrawals is defined as cash outflow reflected on the passbooks of Oate,
while drawings is cash outflow from the capital contribution of Oate per his
Letter of Instructions.
33
34
Id. at 1380-1381.
35
Id. at 1229-1230.
36
See Comment (Re: Board of Commissioners Compliance dated 16 August
58
2004), id. at 1241-1245.

37
See Order dated June 10, 2005, id. at 1286.
38
Id. at 1288-1307.
39
See Land Banks Memorandum dated August 5, 2005, id. at 1319-1345.
40
Id. at 1358-1387.
Broken down as follows: Trust Account No. 01-014, P170,172.91; Trust

Account No. 01-017, P622,422.34; Trust Account No. 01-082, P4,175.88; Trust
Account No. 01-089, P148,298.79; and, Trust Account No. 01-125,
P526,346.61, for a total amount of P1,471,416.52.
41
42
Records, Vol. IV, p. 1387.
43
Id. at 1388-1399.
44
Id. at 1416-1417.
45
CA Rollo, pp. 484-511.
46
Broken down as follows:
Trust Account No.

01-014
01-017
01-024
01-075
01-082
01-089
01-125
TOTAL
Undocumented Withdrawals
P45,103,297.33
2,682,088.58
900,000.00
500,000.00
1,782,741.86
5,054,089.00
4,640,551.34
P60,663,488.11
DOLLAR ACCOUNT
Trust Account No.

01-014
47
CA rollo, pp. 510-511.
48
Id. at 518-558.
Undocumented Withdrawals
$3,210,222.85
59
49
50
Id. at 594-595.
Rollo, p. 465.
51
52
Id. at 34-35.
53
Id. at 36.
54
Id. at 34-35.
55
See Memorandum dated October 4, 2011, rollo, pp. 443-528, 508.
SEC. 3. Representatives as parties. mdash; Where the action is allowed to be

prosecuted or defended by a representative or someone acting in a fiduciary
capacity, the beneficiary shall be included in the title of the case and shall be
deemed to be the real party in interest. A representative may be a trustee of an
express trust, a guardian, an executor or administrator, or a party authorized by
law or these Rules. 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.
56
57
G.R. No. 183059, August 28, 2009, 597 SCRA 519.
CBP Circular No. 824-81 dated September 17, 1981; Subsection 2415.1 of
the 1982 Manual of Regulations for Banks (MORB); and CBP Memorandum
dated October 16, 1990 and the 1993 MORB.
58
59
CA Rollo, p. 504.
60
See Order dated June 10, 2005, Records, Vol. IV, p. 1286.
61
See paragraph 7 of the Petition, Rollo, p. 39.
Atiko Trans, Inc. v. Prudential Guarantee and Assurance, Inc., G.R. No.
167545, August 17, 2011, 655 SCRA 625, 633.
62
63
539 Phil. 377, 386-387 (2006).
Section 4, Rule 3, The Internal Rules of the Supreme Court enumerates the
following exceptions: (a) the conclusion is a finding grounded entirely on
speculation, surmise and conjecture; (b) the inference made is manifestly
mistaken; (c) there is grave abuse of discretion; (d) the judgment is based on a
misapprehension of facts; (e) the findings of fact are conflicting; (f) the collegial
64
60
appellate courts went beyond the issues of the case, and their findings are
contrary to the admissions of both appellant and appellee; (g) the findings of
fact of the collegial appellate courts are contrary to those of the trial court; (h)
said findings of fact are conclusions without citation of specific evidence on
which they are based; (i) the facts set forth in the petition as well as in the
petitioners main and reply briefs are not disputed by the respondents; (j) the
findings of fact of the collegial appellate courts are premised on the supposed
evidence, but are contradicted by the evidence on record; and, (k) all other
similar and exceptional cases warranting a review of the lower courts findings
of fact.
65
Valarao v. Court of Appeals, 363 Phil. 495, 506 (1999). Citations omitted.
66
Canque v. Court of Appeals, 365 Phil. 124, 131 (1999).
SEC. 43. Entries in the course of business. Entries made at, or near the
time of the transactions to which they refer, by a person deceased, or unable to
testify, who was in a position to know the facts therein stated, may be received
as prima facie evidence, if such person made the entries in his professional
capacity or in the performance of duty and in the ordinary or regular course of
business or duty.
67
68
CA rollo, p. 504.
See Land Banks Memorandum dated October 13, 2011, Rollo, pp. 443-528,
462.
69
70
71
439 Phil. 475 (2002).
Passbook Under Account No. 101 5759-3 with Name of Depositor LBP ITF 01125 marked as Exhibits G-18 to G-19.
72
Hyatt Elevators and Escalators Corporation v. Cathedral Heights Building

Complex Association, Inc., G.R. No. 173881, December 1, 2010, 636 SCRA 401,
412.
73
74
75
Id. at 9-23.
Article 1159 of the CIVIL CODE OF THE PHILIPPINES provides:

Obligations arising from contracts have the force of law between the contracting
parties and should be complied with in good faith.
76
61
77
See Manifestation dated August 16, 2004, Records, Vol. IV, pp. 1229-1230.
78
Id.
79
Id.
80
Id.
81
262 Phil. 387, 395-396 (1990).
Dycoco, Jr. v. Equitable PCI Bank, G.R. No. 188271, August 16, 2010, 628
SCRA 346, 353.
82
83
G.R. No. 97995, January 21, 1993, 217 SCRA 347, 358.
84
CA rollo, p. 509.
85
Id. at 505.
86
G.R. No. 174966, February 14, 2008, 545 SCRA 422, 429.
87
Diona v. Balangue, G.R. No. 173559, January 7, 2013, 688 SCRA 22, 35-36.
88
See Order dated June 10, 2005, Records, Vol. IV, p. 1286.
89
G.R. No. 97753, August 10, 1992, 212 SCRA 448, 462.
90
91
Id. at 12-14.
92
Id., Vol. IV, p. 1387.
93
Id., Vol. 1, p. 33.
94
Id. at 34.
95
Id. at 153-159.
See Land Banks letter to Oates counsel dated June 4, 1991, id. at 60 as
well as the latters letter to the former dated June 20, 1991, id. at 61-62.
96
97
G.R. No. 175139, April 18, 2012, 670 SCRA 95, 106.
98
G.R. No. 97412, July 12, 1994, 234 SCRA 78.
62
99
Id.
100
Id. at 94-95.
Emphasis supplied.
101
102
Id. at 96.
See Letter dated June 4, 1991, Records, Vol. I, p. 60; Letter dated June 20,
1991, id.
103
See Comment (Re: Board of Commissioners Compliance dated 16 August

2004), id. at 1241-1245.
104
G.R. No. 202414, June 04, 2014 - JOSEPHINE WEE, Petitioner, v. FELICIDAD
GONZALEZ, Respondent.
THIRD DIVISION
G.R. No. 202414, June 04, 2014
JOSEPHINE WEE, Petitioner, v. FELICIDAD GONZALEZ, Respondent.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 assailing the June 26,
2012 Decision of the Court of Appeals (CA), which reversed and set aside the
September 4, 2009 Decision of the Regional Trial Court, Branch XVIII, Tagaytay
City, Cavite (RTC), granting petitioners Application for Registration of Title.
Factual and Procedural Antecedents:
Respondent Felicidad Gonzales, married to Leopoldo Mardo, was granted a
registered Free Patent No. (IV-2) 15284, dated April 26, 1979, covering Lot No.
8348, situated in Puting Kahoy, Silang, Cavite.
63
On February 1, 1993, respondent allegedly conveyed to petitioner, Josephine

Wee, through a Deed of Absolute Sale,1 a portion of Lot No. 8348 known as Lot
No. 8348-B, for a consideration of P250,000.00 which was fully paid.
Respondent, however, refused to vacate and turn over the subject property
claiming that the alleged sale was falsified.
On December 22, 1994, petitioner filed an Application for Original Registration
of a parcel of land located at Barangay Putting Kahoy, Silang, Cavite, known as
Lot No. 8349. Said application was amended on September 19, 1996, this time
covering a parcel of land known as Lot 8348-B situated in Barangay Puting
Kahoy, Silang, Cavite. Petitioner claimed that she is the owner of the said
unregistered land by virtue of a deed of absolute sale.
On September 19, 1997, respondent filed her Opposition to the Amended
Application alleging 1] that she is the true and lawful owner of the parcel of land
which is the subject of the amended application; and 2] that petitioners deed of
absolute sale is surreptitious.
On October 28, 2000, respondent filed a Motion to Dismiss the Application
alleging that the land described in the application was different from the land
being claimed for titling. The motion was, however, denied. A motion for
reconsideration and second urgent motion for reconsideration were
subsequently filed by respondent, but both were denied by the RTC.
Thereafter, petitioner completed her presentation of evidence and filed a formal
offer which was admitted by the RTC.
On June 10, 2003, during the pendency of the case, respondent managed to
register the land in her name under Original Certificate of Title (OCT) No. OP1840. Petitioner filed a Notice of Lis Pendenswith the Registry of Deeds of Cavite
on May 10, 2005 which was annotated on the title. A Motion for Leave to File
Supplemental Pleading and to Admit Attached Supplemental Complaint for
Reconveyance was filed by petitioner which was denied by the RTC on the
ground that a motion for reconveyance was different from an application for
registration of title.
Consequently, respondent presented her own evidence, through the testimony
of her counsel, who testified that the parcel of land subject of the application for
registration was the property she bought ten (10) years ago. Respondent,
however, did not state from whom she bought it. As proof of her alleged
ownership, she presented copies of tax declarations in the absence of any deed
of sale in her favor.
On September 4, 2009, the RTC rendered a Decision2 granting the application of
petitioner. The dispositive portion of said decision reads:
64
WHEREFORE, judgment is hereby rendered granting the applicant, Josephine

Wee, as qualified to register the subject land in her name, and the
Administrator of LRA is hereby directed to issue the corresponding decree in her
name based on the plan and technical description of said land as submitted by
the applicant and the Register of Deeds of the Province of Cavite to issue title in
her name.
SO ORDERED.
A motion for reconsideration was filed by respondent which was denied by the
RTC. Hence, respondent appealed the decision before the CA, which case was
docketed as CA-G.R. CV No. 96934.
On June 26, 2012, the CA handed down a Judgment3reversing and setting
aside the RTC decision. The decretal portion of the CA decision reads:
WHEREFORE, the appeal is GRANTED. The Decision, dated September 4, 2009,

of the Regional Trial Court (Branch XVIII) of Tagaytay City, Cavite, in LRC No.
TG-647 is SET ASIDE. Accordingly, applicant-appellees Application for Original
Registration of a parcel of land located at Barangay Puting Kahoy, Silang Cavite,
known as Lot No. 8349, Cad. Lot 042118-011719-D of Silang Cadastre, is
hereby DENIED.
SO ORDERED.
The CA held, among others, that petitioner was not able to comply with the
requirement of possession and occupation under Sec. 14 (1) of P.D. No. 1529.
Her admission that the subject lot was not physically turned over to her due to
some objections and oppositions to her title suggested that she was not
exercising any acts of dominion over the subject property, an essential element
in the requirement of possession and occupation contemplated under Sec. 14
(1) of P.D. No. 1529.
A copy of the decision was received by petitioner on July 2, 2012. On August
15, 2012, petitioner filed this subject petition for review challenging the CA
decision.
Hence, this petition.
In advocacy of her petition, petitioner assigns the following
ERRORS:
I.
The Court of Appeals gravely erred and ruled contrary to law in not finding that
65
petitioner is entitled to register the subject land under her name. Under the
peculiar circumstances of this case, wherein petitioners predecessor-in-interest
unexpectedly and unjustifiably continued to be in physical possession of the
subject property after the sale thereof to petitioner, the latter must be deemed
to be in possession and occupation thereof through her predecessor-in-interest.
Under the Public Land Act and Presidential Decree No. 1529, the period of
possession of an applicants predecessor-in-interest benefits and is credited in
favor of the applicant.
II.
Moreover, petitioner was denied actual possession of the subject land by
circumstances amounting to a fortuitous event. By express provision of Sec.
48(b) of the Public Land Act, such fortuitous event does not affect her vested
right to register the property under her name.
III.
The Court of Appeals likewise seriously erred and ruled contrary to the law and
to the evidence in not finding that petitioners predecessor-in-interest,
respondent Felicidad Mardo, had possession and occupation of the subject
parcel of land under a bona fide claim of ownership since June 12, 1945, or
earlier.
IV.
In view of the fact that the validity of the sale of the subject parcel of land to
petitioner in 1993 was duly established before the trial court and affirmed by
the Court of Appeals and considering further that the registration of the said
land under respondents name was fraudulently secured, in order to avoid
multiplicity of suits and to put an end to the long pending dispute between the
parties, the Court of Appeals should have ordered the reconveyance of the
subject parcel of land to the petitioner as its rightful owner.
Petitioner presents the theory that she must be deemed to have been in
possession and occupation of the subject property through respondent, her
predecessor-in-interest, who after the sale in 1993 and despite demands from
her, unexpectedly and unjustifiably continued to occupy the property and
refused to turn over physical possession to her. Petitioner argues that it is not
necessary that the person in possession should himself be the occupant as the
occupancy can be held by another in his name.
Moreover, petitioner also seeks reconveyance of the subject property arguing
that by virtue of its fraudulent registration, respondent became a trustee of an
implied trust for her benefit, as its real owner, having validly acquired the same
from respondent through an absolute deed of sale.
66
The Courts Ruling

The petition deserves no merit.
P.D. 1529, otherwise known as Property Registration Decree, governs the
original registration proceedings of unregistered land. The subject application
for original registration was filed pursuant to Sec. 14(1) of PD 1529, which
provides the condition necessary for registration. Thus:
SEC 14. Who may apply.The following persons may file in the proper Court of
First Instance an application for registration of title to land, whether personally
or through their duly authorized representatives:
(1) Those who by themselves or through their predecessors-in-interest
have been in open, continuous, exclusive and notorious possession and
occupation of alienable and disposable lands of the public domain under
a bona fide claim of ownership since June 12, 1945, or
earlier. (Emphasis supplied)
Based on these legal parameters, applicants for registration of title under
Section 14(1) must sufficiently establish: (1) that the subject land forms part of
the disposable and alienable lands of the public domain; (2) that the applicant
and his predecessors-in-interest have been in open, continuous, exclusive and
notorious possession and occupation of the same; and (3) that it is under
a bona fideclaim of ownership since June 12, 1945 or earlier.4
cralawred
The CA denied the application on the issue of open, continuous, exclusive, and
notorious possession and occupation of the subject land. It was of the view that
she could not have complied with the requirement of possession and occupation
under Sec. 14 (1) of P.D. No. 1529 considering that she had admitted that it
was not physically turned over to her. As she was not in actual and physical
possession, she could not have exercised any acts of dominion over the subject
property which was essential to the requirement of possession and occupation
contemplated under Sec. 14 (1) of P.D. No. 1529.
A more important consideration, however, is that the subject land is already
registered under OCT No. OP-1840 (Patent No. 042118-03-6111) of the
Registry of Deeds of Cavite, under the name of respondent Felicidad Gonzales.
In the case of Republic vs. Umali,5 this Court ruled that once a patent is
registered and the corresponding certificate of title is issued, the land ceases to
be part of public domain and becomes private property over which the Director
of Lands has neither control nor jurisdiction. A public land patent, when
registered in the corresponding Register of Deeds, is a veritable Torrens title,
and becomes as indefeasible upon the expiration of one (1) year from the date
67
of issuance thereof. Said title, like one issued pursuant to a judicial decree, is
subject to review within one (1) year from the date of the issuance of the
patent. This rule is embodied in Section 103 of PD 1529, which provides that:
Section 103. Certificates of title pursuant to patents. Whenever public land is

by the Government alienated, granted or conveyed to any person, the same
shall be brought forthwith under the operation of this Decree. x x x After due
registration and issuance of the certificate of title, such land shall be
deemed to be registered land to all intents and purposes under this
Decree. (Emphasis supplied)
Accordingly, respondents registered patent in the corresponding Registry of
Deeds is a veritable Torrens title and becomes as indefeasible as a Torrens title
upon the expiration of one (1) year from the date of its issuance.6
cralawred
For said reason, the order of the RTC directing the Administrator of LRA to issue
a corresponding decree in petitioners name is null and void. A land registration
court has no jurisdiction to order the registration of land already decreed in the
name of another in an earlier land registration case. A second decree for the
same land would be null and void, since the principle behind the original
registration is to register a parcel of land only once.7
cralawre d
Verily, once a title is registered, as a consequence either of judicial or

administrative proceedings, the owner may rest secure, without the necessity of
waiting in the portals of the court sitting in themirador de su casa to avoid the
possibility of losing his land.8 The certificate of title cannot be defeated by
adverse, open and notorious possession. Neither can it be defeated by
prescription. As provided under Sec. 47 of PD 1529, no title to registered land in
derogation of the title of the registered owner shall be acquired by prescription
or adverse possession.
A Certificate of Title Not
Subject to Collateral Attack
Petitioner argued that the rule on indefeasibility of title does not attach to titles
secured by fraud and misrepresentation. In this case, she alleged that the
respondent fraudulently registered the subject property under her name after
she (respondent) had already sold a portion thereof to her (petitioner). By
virtue of the deed of sale, petitioner insists that she is considered to be the real
owner of the subject parcel of land.
The Court finds no merit in petitioners argument. It is settled in this jurisdiction
that the issue of the validity of title can only be assailed in an action expressly
instituted for such purpose.9 A certificate of title cannot be attacked collaterally.
This rule is provided under Section 48 of PD 1529 which states that:
68
SEC. 48. Certificate not subject to collateral attack. - A certificate of title

shall not be subject to collateral attack. It cannot be altered, modified, or
canceled except in a direct proceeding in accordance with law. (Emphasis
supplied)
In Lagrosa v. Court of Appeals,10 it was stated that it is a well-known doctrine
that the issue as to whether title was procured by falsification or fraud as
advanced by petitioner can only be raised in an action expressly instituted for
the purpose. A Torrens title can be attacked only for fraud, within one year after
the date of the issuance of the decree of registration. Such attack must be
direct, and not by a collateral proceeding. The title represented by the
certificate cannot be changed, altered, modified, enlarged, or diminished in a
collateral proceeding.
In this case, the petitioner is contesting the indefeasibility of title on the ground
of fraud and misrepresentation. Applying the abovementioned doctrine, even
assuming that the petitioners allegations are true, the same are considered as
collateral attacks, and such must be raised in an action expressly instituted for
such purpose and in a proper proceeding.
Thus, in Carvajal v. Court of Appeals,11 it was ruled that an application for
registration of an already titled land constitutes a collateral attack on the
existing title. The title may be challenged only in a proceeding for that purpose,
not in an application for registration of a land already registered in the name of
another person. After one year from its registration, the title is incontrovertible
and is no longer open to review.
Remedy of the petitioner is
to file a separate proceeding
such as an action for specific
performance or for reconveyance
Petitioner further argues that considering the registration of the said land under
respondents name was fraudulently secured, in order to avoid multiplicity of
suits and to put an end to the long pending dispute between the parties, the
courts below should have ordered the reconveyance of the subject land to her
as its rightful owner.
Petitioner advances the theory that by virtue of the fraudulent registration of a
subject property, respondent is a trustee of an implied trust for her benefit,
being the real owner of the subject property, as she had validly acquired the
same from respondent through an absolute deed of sale.
Petitioners argument fails to persuade. The issue of fraudulent alienation raised
in the second application for registration of the subject property is collateral
attack which should be directly raised in a separate proceeding filed for such
69
purpose. It cannot be entertained in this proceeding. In several cases, the Court

has ruled that an attack is indirect or collateral when, in an action to obtain a
different relief, an attack on the judgment or proceeding is nevertheless made
as an incident thereof.12
cralawred
The RTC was, thus, correct in denying petitioners Motion for Leave to File
Supplemental Pleading and to Admit Attached Supplemental Complaint For
Reconveyance. Allowing it would not have been permissible because the
application for original registration of title over a parcel of land already
registered is a collateral attack itself. It is settled that an application for
registration of a parcel of land already covered by a Torrens title is actually a
collateral attack, not permitted under the principle of indefeasibility of a Torrens
title.13
cralawre d
Registration, however, does not deprive an aggrieved party of a remedy in law.

What cannot be collaterally attacked is the certificate of title and not the title or
ownership which is represented by such certificate. Ownership is different from
a certificate of title. The fact that a person was able to secure a title in his
name did not operate to vest ownership upon him of the subject land.
Registration of a piece of land under the Torrens System does not create or vest
title, because it is not a mode of acquiring ownership. A certificate of title is
merely an evidence of ownership or title over the particular property described
therein. It cannot be used to protect a usurper from the true owner; nor can it
be used as a shield for the commission of fraud; neither does it permit one to
enrich himself at the expense of others. Its issuance in favor of a particular
person does not foreclose the possibility that the real property may be coowned with persons not named in the certificate, or that it may be held in trust
for another person by the registered owner.14
cralawred
The remedy of the petitioner is to file a separate proceeding or action to protect

her alleged interest. As she claimed that she bought the subject property for
value from the respondent as evidenced by a deed of sale, she can file an action
for specific performance to compel the respondent to comply with her obligation
in the alleged deed of sale and/or an action for reconveyance of the property.
She can also file an action for rescission. Needless to state, petitioner must
prove her entitlement because the respondent claims that the sale was falsified.
Reconveyance is based on Section 55 of Act No. 496, as amended by Act No.
3322, which states that in all cases of registration procured by fraud the owner
may pursue all his legal and equitable remedies against the parties to such
fraud, without prejudice, however, to the rights of any innocent holder for value
of a certificate of title.15 It is an action in personam available to a person whose
property has been wrongfully registered under the Torrens system in anothers
name.16 It does not seek to set aside the decree but, respecting it as
incontrovertible and no longer open to review, seeks to transfer or reconvey the
land from the registered owner to the rightful owner.17Reconveyance is always
70
available as long as the property has not passed to an innocent third person for
value.18
cralawred
WHEREFORE, the petition is hereby DENIED, without prejudice to any

remedial action by the petitioner to protect her claimed interest.
SO ORDERED.
Velasco, Jr., (Chairperson), Peralta, Villarama, Jr.,* and Leonen JJ., concur.
Endnotes:
Designated Acting Member in view of the vacancy in the Third Division, per
Special Order No. 1691 dated May 22, 2014.
*
Rollo, p. 54.
Id. at 145; penned by Acting Presiding Judge Emma S. Young.
Id. at 15; penned by Associate Justice Jose C. Reyes, Jr., and concurred by
Associate Justice Priscilla J. Baltazar-Padilla and Associate Justice Agnes ReyesCarpio
3
Republic v. Manimtim, G.R. No. 169599, March 16, 2011, 645 SCRA 520, 533534.
4
253 Phil. 732 (1989).

The Director of Lands v. De Luna, 110 Phil. 32 (1960).
Spouses Laburada v. Land Registration Authority, 350 Phil. 779, 790-791

(1998).
7
Salao, et al. v. Salao, 162 Phil. 116 (1976).
Ingusanl, Miguel v. Heirs of Aureliano I. Reyes, 558 Phil. 60 (2007),

citing Caraan v. Court of Appeals, 551 Phil. 172 (2005); and Spouses Apostol v.
Court of Appeals, 476 Phil. 414 (2004).
9
10
Lagrosa v. Court of Appeals, 371 Phil. 238 (1999).
71
11
345 Phil. 592 (1997).
12
Sampaco v. Lantud, G.R. No. 163551, July 18, 2011, 654 SCRA 54.
13
Fil-Estate Management v. Trono, 518 Phil. 8, 14-15 (2006).
14
Naval v. Court of Appeals, 518 Phil. 271, 282-283 (2006).
15
Heirs of Lopez, Sr. v. Hon. Enriquez, 490 Phil. 89 (2005).
16
Pacete v. Asotigue, G.R. No. 188575, December 10, 2012, 687 SCRA 580.
Director of Lands v. Register of Deeds, G.R No. L-4463, March 24, 1953, 92
SCRA 831.
17
18
Heirs of Eugenio Lopez, Sr. v. Hon. Alfredo Enriquez, 490 Phil. 90 (2005).
G.R. No. 167622 : January 25, 2011]
GREGORIO V. TONGKO, PETITIONER, VS. THE MANUFACTURERS LIFE INSURANCE CO. (PHILS.),
INC. AND RENATO A. VERGEL DE DIOS, RESPONDENTS.
RESOLUTION
BRION, J.:
We resolve petitioner Gregorio V. Tongko's bid, through his Motion for Reconsideration,[1] to set aside our
June 29, 2010 Resolution that reversed our Decision of November 7, 2008.[2] With the reversal, the
assailed June 29, 2010 Resolution effectively affirmed the Court of Appeals' ruling [3]in CA-G.R. SP No. 88253
that the petitioner was an insurance agent, not the employee, of the respondent The Manufacturers Life
Insurance Co. (Phils.), Inc. (Manulife).
cralaw
In his Motion for Reconsideration, petitioner reiterates the arguments he had belabored in his petition and
various other submissions. He argues that for 19 years, he performed administrative functions and
exercised supervisory authority over employees and agents of Manulife, in addition to his insurance agent
functions.[4] In these 19 years, he was designated as a Unit Manager, a Branch Manager and a Regional
Sales Manager, and now posits that he was not only an insurance agent for Manulife but was its employee as
well.
We find no basis or any error to merit the reconsideration of our June 29, 2010 Resolution.
A. Labor Law Control = Employment Relationship
Control over the performance of the task of one providing service - both with respect to the means and
manner, and the results of the service - is the primary element in determining whether an employment
relationship exists. We resolve the petitioner's Motion against his favor since he failed to show that the
control Manulife exercised over him was the control required to exist in an employer-employee relationship;
Manulife's control fell short of this norm and carried only the characteristic of the relationship between an
insurance company and its agents, as defined by the Insurance Code and by the law of agency under the
Civil Code.
The petitioner asserts in his Motion that Manulife's labor law control over him was demonstrated (1) when it
set the objectives and sales targets regarding production, recruitment and training programs; and (2) when
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it prescribed the Code of Conduct for Agents and the Manulife Financial Code of Conduct to govern his
activities.[5] We find no merit in these contentions.
In our June 29, 2010 Resolution, we noted that there are built-in elements of control specific to an insurance
agency, which do not amount to the elements of control that characterize an employment relationship
governed by the Labor Code. The Insurance Code provides definite parameters in the way an agent
negotiates for the sale of the company's insurance products, his collection activities and his delivery of the
insurance contract or policy.[6] In addition, the Civil Code defines an agent as a person who binds himself to
do something in behalf of another, with the consent or authority of the latter.[7] Article 1887 of the Civil
Code also provides that in the execution of the agency, the agent shall act in accordance with the
instructions of the principal.
All these, read without any clear understanding of fine legal distinctions, appear to speak of control by the
insurance company over its agents. They are, however, controls aimed only at specific results in
undertaking an insurance agency, and are, in fact, parameters set by law in defining an insurance agency
and the attendant duties and responsibilities an insurance agent must observe and undertake. They do not
reach the level of control into the means and manner of doing an assigned task that invariably characterizes
an employment relationship as defined by labor law. From this perspective, the petitioner's contentions
cannot prevail.
To reiterate, guidelines indicative of labor law "control" do not merely relate to the mutually desirable result
intended by the contractual relationship; they must have the nature of dictating the means and methods to
be employed in attaining the result.[8] Tested by this norm, Manulife's instructions regarding the objectives
and sales targets, in connection with the training and engagement of other agents, are among the directives
that the principal may impose on the agent to achieve the assigned tasks. They are targeted results that
Manulife wishes to attain through its agents. Manulife's codes of conduct, likewise, do not necessarily
intrude into the insurance agents' means and manner of conducting their sales. Codes of conduct are norms
or standards of behavior rather than employer directives into how specific tasks are to be done. These
codes, as well as insurance industry rules and regulations, are not per se indicative of labor law control
under our jurisprudence.[9]
The duties[10] that the petitioner enumerated in his Motion are not supported by evidence and, therefore,
deserve scant consideration. Even assuming their existence, however, they mostly pertain to the duties of an
insurance agent such as remitting insurance fees to Manulife, delivering policies to the insured, and aftersale services. For agents leading other agents, these include the task of overseeing other insurance agents,
the recruitment of other insurance agents engaged by Manulife as principal, and ensuring that these other
agents comply with the paperwork necessary in selling insurance. That Manulife exercises the power to
assign and remove agents under the petitioner's supervision is in keeping with its role as a principal in an
agency relationship; they are Manulife agents in the same manner that the petitioner had all along been a
Manulife agent.
The petitioner also questions Manulife's act of investing him with different titles and positions in the course
of their relationship, given the respondents' position that he simply functioned as an insurance agent. [11] He
also considers it an unjust and inequitable situation that he would be unrewarded for the years he spent as a
unit manager, a branch manager, and a regional sales manager.[12]
Based on the evidence on record, the petitioner's occupation was to sell Manulife's insurance policies and
products from 1977 until the termination of the Career Agent's Agreement (Agreement). The evidence also
shows that through the years, Manulife permitted him to exercise guiding authority over other agents who
operate under their own agency agreements with Manulife and whose commissions he shared. [13] Under this
scheme - an arrangement that pervades the insurance industry - petitioner in effect became a "lead agent"
and his own commissions increased as they included his share in the commissions of the other agents; [14] he
also received greater reimbursements for expenses and was allowed to use Manulife's facilities. His
designation also changed from unit manager to branch manager and then to regional sales manager, to
reflect the increase in the number of agents he recruited and guided, as well as the increase in the area
where these agents operated.
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As our assailed Resolution concluded and as we now similarly conclude, these arrangements, and the titles
and positions the petitioner was invested with, did not change his status from the insurance agent that he
had always been (as evidenced by the Agreement that governed his relationship with Manulife from the start
to its disagreeable end). The petitioner simply progressed from his individual agency to being a lead agent
who could use other agents in selling insurance and share in the earnings of these other agents.
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In sum, we find absolutely no evidence of labor law control, as extensively discussed in our Resolution of
June 29, 2010, granting Manulife's motion for reconsideration. The Dissent, unfortunately, misses this point.
B. No Resulting Inequity
We also do not agree that our assailed Resolution has the effect of fostering an inequitable or unjust
situation. The records show that the petitioner was very amply paid for his services as an insurance agent,
who also shared in the commissions of the other agents under his guidance. In 1997, his income was
P2,822,620; in 1998, P4,805,166.34; in 1999, P6,797,814.05; in 2001, P6,214,737.11; and in 2002,
P8,003,180.38. All these he earned as an insurance agent, as he failed to ever prove that he earned these
sums as an employee. In technical terms, he could not have earned all these as an employee because he
failed to provide the substantial evidence required in administrative cases to support the finding that he was
a Manulife employee. No inequity results under this legal situation; what would be unjust is an award of
backwages and separation pay - amounts that are not due him because he was never an employee.
The Dissent's discussion on this aspect of the case begins with the wide disparity in the status of the parties
- that Manulife is a big Canadian insurance company while Tongko is but a single agent of Manulife. The
Dissent then went on to say that "[i]f is but just, it is but right, that the Court interprets the relationship
between Tongko and Manulife as one of employment under labor laws and to uphold his constitutionally
protected right, as an employee, to security of tenure and entitlement to monetary award should such right
be infringed."[15] We cannot simply invoke the magical formula by creating an employment relationship even
when there is none because of the unavoidable and inherently weak position of an individual over a giant
corporation.
The Dissent likewise alluded to an ambiguity in the true relationship of the parties after Tongko's successive
appointments. We already pointed out that the legal significance of these appointments had not been
sufficiently explained and that it did not help that Tongko never bothered to present evidence on this point.
The Dissent recognized this but tried to excuse Tongko from this failure in the subsequent discussion, as
follows:
[o]ther evidence was adduced to show such duties and responsibilities. For one, in his letter of November 6,
2001, respondent De Dios addressed petitioner as sales manager. And as I wrote in my Dissent to the June
29, 2010 Resolution, it is difficult to imagine that Manulife did not issue promotional appointments to
petitioner as unit manager, branch manager, and, eventually, regional sales manager. Sound management
practice simply requires an appointment for any upward personnel movement, particularly when additional
functions and the corresponding increase in compensation are involved. Then, too, the adverted affidavits of
the managers of Manulife as to the duties and responsibilities of a unit manager, such as petitioner, point to
the conclusion that these managers were employees of Manulife, applying the "four-fold" test. [16]
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This Court (and all adjudicators for that matter) cannot and should not fill in the evidentiary gaps in a
party's case that the party failed to support; we cannot and should not take the cudgels for any
party. Tongko failed to support his cause and we should simply view him and his case as they are; our duty
is to sit as a judge in the case that he and the respondent presented.
To support its arguments on equity, the Dissent uses the Constitution and the Civil Code, using provisions
and principles that are all motherhood statements. The mandate of the Court, of course, isto decide cases
based on the facts and the law, and not to base its conclusions on fundamental precepts that are far
removed from the particular case presented before it. When there is no room for their application, of
capacity of principles, reliance on the application of these fundamental principles is misplaced.
C. Earnings were Commissions
That his earnings were agent's commissions arising from his work as an insurance agent is a matter that
the petitioner cannot deny, as these are the declarations and representations he stated in his income tax
returns through the years. It would be doubly unjust, particularly to the government, if he would be allowed
at this late point to turn around and successfully claim that he was merely an employee after he declared
himself, through the years, as an independent self-employed insurance agent with the privilege of deducting
business expenses. This aspect of the case alone - considered together with the probative value of income
tax declarations and returns filed prior to the present controversy -- should be enough to clinch the present
case against the petitioner's favor.
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D. The Dissent's Solution:
Unwieldy and Legally Infirm
The Dissent proposes that Tongko should be considered as part employee (as manager) and part insurance
agent; hence, the original decision should be modified to pertain only to the termination of his employment
as a manager and not as an insurance agent. Accordingly, the backwages component of the original award
to him should not include the insurance sales commissions. This solution, according to the line taken by the
Dissent then, was justified on the view that this was made on a case-to-case basis.
Decisions of the Supreme Court, as the Civil Code provides, form part of the law of the land. When the
Court states that the determination of the existence of an employment relationship should be on a case-tocase basis, this does not mean that there will be as many laws on the issue as there are cases. In the
context of this case, the four-fold test is the established standard for determining employer-employee
relationship and the existence of these elements, most notably control, is the basis upon which a conclusion
on the absence of employment relationship was anchored. This simply means that a conclusion on whether
employment relationship exists in a particular case largely depends on the facts and, in no small measure,
on the parties' evidence vis- -vis the clearly defined jurisprudential standards. Given that the parties
control what and how the facts will be established in a particular case and/or how a particular suit is to be
litigated, deciding the issues on a case-to-case basis becomes an imperative.
Another legal reality, a more important one, is that the duty of a court is to say what the law is. [17]This is the
same duty of the Supreme Court that underlies the stare decisis principle. This is how the public, in general
and the insurance industry in particular, views the role of this Court and courts in general in deciding cases.
The lower courts and the bar, most specially, look up to the rulings of this Court for guidance. Unless
extremely unavoidable, the Court must, as a matter of sound judicial policy, resist the temptation of
branding its ruling pro hac vice.
The compromise solution of declaring Tongko both an employee and an agent is legally unrealistic, unwieldy
and is, in fact, legally infirm, as it goes against the above basic principles of judicial operation. Likewise, it
does not and cannot realistically solve the problem/issue in this case; it actually leaves more questions than
answers.
As already pointed out, there is no legal basis (be it statutory or jurisprudential) for the part-employee/partinsurance agent status under an essentially principal-agent contractual relation which the Dissent proposes
to accord to Tongko. If the Dissent intends to establish one, this is highly objectionable for this would
amount to judicial legislation. A legal relationship, be it one of employment or one based on a contract other
than employment, exists as a matter of law pursuant to the facts, incidents and legal consequences of the
relationship; it cannot exist devoid of these legally defined underlying facts and legal consequences unless
the law itself creates the relationship - an act that is beyond the authority of this Court to do.
Additionally, the Dissent's conclusion completely ignores an unavoidable legal reality - that the parties are
bound by a contract of agency that clearly subsists notwithstanding the successive designation of Tongko as
a unit manager, a branch manager and a regional sales manager. (As already explained in our Resolution
granting Manulife's motion for reconsideration, no evidence on record exists to provide the Court with clues
as to the precise impact of all these designations on the contractual agency relationship.) The Dissent, it
must be pointed out, concludes that Tongko's employment as manager was illegally terminated; thus, he
should be accordingly afforded relief therefor. But, can Tongko be given the remedies incidental to his
dismissal as manager separately from his status as an insurance agent? In other words, since the
respondents terminated all relationships with Tongko through the termination letter, can we simply rule that
his role as a manager was illegally terminated without touching on the consequences of this ruling on his
status as an insurance agent? Expressed in these terms, the inseparability of his contract as agent with any
other relationship that springs therefrom can thus be seen as an insurmountable legal obstacle.
The Dissent's compromise approach would also sanction split jurisdiction. The labor tribunals shall have
jurisdiction over Tongko's employment as manager while another entity shall decide the issues/cases arising
from the agency relationship. If the managerial employment is anchored on the agency, how will the labor
tribunals decide an issue that is inextricably linked with a relationship that is outside the loop of their
jurisdiction? As already mentioned in the Resolution granting Manulife's reconsideration,
the DOMINANT relationship in this case is agency and no other.
E. The Dissent's Cited Cases
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The Dissent cites the cases of Great Pacific Life Assurance Corporation v. National Labor Relations
Commission[18] and Insular Life Assurance Co., Ltd. v. National Labor Relations Commission [19] to support the
allegation that Manulife exercised control over the petitioner as an employer.
In considering these rulings, a reality that cannot but be recognized is that cases turn and are decided on
the basis of their own unique facts; the ruling in one case cannot simply be bodily lifted and applied to
another, particularly when notable differences exist between the cited cases and the case under
consideration; their respective facts must be strictly examined to ensure that the ruling in one applies to
another. This is particularly true in a comparison of the cited cases with the present case. Specifically, care
should be taken in reading the cited cases and applying their rulings to the present case as the cited cases
all dealt with the proper legal characterization of subsequent management contracts that superseded the
original agency contract between the insurance company and the agent.
In Great Pacific Life, the Ruiz brothers were appointed to positions different from their original positions as
insurance agents, whose duties were clearly defined in a subsequent contract. Similarly, in Insular, de los
Reyes, a former insurance agent, was appointed as acting unit manager based on a subsequent contract. In
both cases, the Court anchored its findings of labor control on the stipulations of these subsequent
contracts.
In contrast, the present case is remarkable for the absence of evidence of any change in the nature of the
petitioner's employment with Manulife. As previously stated above and in our assailed Resolution, the
petitioner had always been governed by the Agreement from the start until the end of his relationship with
Manulife. His agency status never changed except to the extent of being a lead agent. Thus, the cited
cases - where changes in company-agent relationship expressly changed and where the subsequent
contracts were the ones passed upon by the Court - cannot be totally relied upon as authoritative.
We cannot give credit as well to the petitioner's claim of employment based on the affidavits executed by
other Manulife agents describing their duties, because these same affidavits only affirm their status as
independent agents, not as employees. To quote these various claims:[20]
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1.a. I have no fixed wages or salary since my services are compensated by way of commissions based on
the computed premiums paid in full on the policies obtained thereat;
1.b. I have no fixed working hours and employ my own method in soliciting insurance at a time and place I
see fit;
1.c. I have my own assistant and messenger who handle my daily work load;
1.d. I use my own facilities, tools, materials and supplies in carrying out my business of selling insurance;
x xx x
6. I have my own staff that handles day to day operations of my office;
7. My staff are my own employees and received salaries from me;
xx x x
9. My commission and incentives are all reported to the Bureau of Internal Revenue (BIR) as income by a
self-employed individual or professional with a ten (10) percent creditable withholding tax. I also remit
monthly for professionals.
The petitioner cannot also rely on the letter written by respondent Renato Vergel de Dios to prove that
Manulife exercised control over him. As we already explained in the assailed Resolution:
Even de Dios' letter is not determinative of control as it indicates the least amount of intrusion into Tongko's
exercise of his role as manager in guiding the sales agents. Strictly viewed, de Dios' directives are merely
operational guidelines on how Tongko could align his operations with Manulife's re-directed goal of being a
"big league player." The method is to expand coverage through the use of more agents. This requirement
for the recruitment of more agents is not a means-and-method control as it relates, more than anything
76
else, and is directly relevant, to Manulife's objective of expanded business operations through the use of a
bigger sales force whose members are all on a principal-agent relationship. An important point to note here
is that Tongko was not supervising regular full-time employees of Manulife engaged in the running of the
insurance business; Tongko was effectively guiding his corps of sales agents, who are bound to Manulife
through the same agreement that he had with manulife, all the while sharing in these agents' commissions
through his overrides.[21]
Lastly, in assailing the Agreement between him and Manulife, the petitioner cites Paguio v. National Labor
Relations Commission[22] on the claim that the agreement that the parties signed did not conclusively
indicate the legal relationship between them.
The evidentiary situation in the present case, however, shows that despite the petitioner's insistence that the
Agreement was no longer binding between him and Manulife, no evidence was ever adduced to show that
their relationship changed so that Manulife at some point controlled the means and method of the
petitioner's work. In fact, his evidence only further supports the conclusion that he remained an independent
insurance agent - a status he admits, subject only to the qualification that he is at the same time an
employee. Thus, we can only conclude that the Agreement governed his relations with Manulife.
Additionally, it is not lost on us that Paguio is a ruling based on a different factual setting; it involves a
publishing firm and an account executive, whose repeated engagement was considered as an indication of
employment. Our ruling in the present case is specific to the insurance industry, where the law permits an
insurance company to exercise control over its agents within the limits prescribed by law, and to engage
independent agents for several transactions and within an unlimited period of time without the relationship
amounting to employment. In light of these realities, the petitioner's arguments on his last argument must
also fail.
The dissent also erroneously cites eight other cases -- Social Security System v. Court of Appeals,
[23]
Cosmopolitan Funeral Homes, Inc. v. Maalat,[24] Algon Engineering Construction Corporation v. National
Labor Relations Commission,[25] Equitable Banking Corporation v. National Labor Relations Commission,
[26]
Lazaro v. Social Security Commission,[27] Dealco Farms, Inc. v. National Labor Relations Commission,
[28]
South Davao Development Company, Inc. v. Gamo,[29] and Abante, Jr. v. Lamadrid Bearing & Parts
Corporation.[30] The dissent cited these cases to support its allegation that labor laws and jurisprudence
should be applied in cases, to the exclusion of other laws such as the Civil Code or the Insurance Code, even
when the latter are also applicable.
In Social Security System, Cosmopolitan Funeral Homes, Dealco Farms, and South Davao Development, the
issue that repeats itself is whether complainants were employees or independent contractors; the legal
relationships involved are both labor law concepts and make no reference to the Civil Code (or even the
Insurance Code). The provisions cited in the Dissent -- Articles 1458-1637 of the Civil Code [31] and Articles
1713-1720 of the Civil Code [32] -- do not even appear in the decisions cited.
In Algon, the issue was whether the lease contract should dictate the legal relationship between the parties,
when there was proof of an employer-employee relationship. In the cited case, the lease provisions on
termination were thus considered irrelevant because of a substantial evidence of an employment
relationship. The cited case lacks the complexity of the present case; Civil Code provisions on lease do not
prescribe that lessees exercise control over their lessors in the way that the Insurance Code and the Civil
provide that insurance companies and principals exercised control over their agents.
The issue in Equitable, on the other hand, is whether a lawyer-client relationship or an employment
relationship governs the legal relation between parties. Again, this case is inapplicable as it does not
illustrate the predominance of labor laws and jurisprudence over other laws, in general, and the Insurance
Code and Civil Code, in particular. It merely weighed the evidence in favor of an employment relationship
over that of a lawyer-client relationship. Similarly in Lazaro, the Court found ample proof of control
determinative of an employer-employee relationship. Both cases are not applicable to the present case,
which is attended by totally different factual considerations as the petitioner had not offered any evidence of
the company's control in the means and manner of the performance of his work.
On the other hand, we find it strange that the dissent cites Abante as a precedent, since the Court, in this
case, held that an employee-employer relationship is notably absent in this case as the complainant was a
sales agent. This case better supports the majority's position that a sales agent, who fails to show control in
the concept of labor law, cannot be considered an employee, even if the company exercised control in the
concept of a sales agent.[33]
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77
It bears stressing that our ruling in this case is not about which law has primacy over the other, but that we
should be able to reconcile these laws. We are merely saying that where the law makes it mandatory for a
company to exercise control over its agents, the complainant in an illegal dismissal case cannot rely on
these legally prescribed control devices as indicators of an employer-employee relationship. As shown in our
discussion, our consideration of the Insurance Code and Civil Code provisions does not negate the
application of labor laws and jurisprudence; ultimately, we dismissed the petition because of its failure to
comply with the control test.
WHEREFORE, premises considered, we hereby DENY the Motion for Reconsideration WITH FINALITY for
lack of merit. No further pleadings shall be entertained. Let entry of judgment proceed in due course.
SO ORDERED.
Corona, C.J., Carpio, Peralta, Del Castillo, Abad, Perez, and Mendoza, JJ., concur.
Carpio Morales, J., i maintain my original vote, hence, i dissent.
Velasco, Jr., J., I dissent, pls. see dissenting opinion.
Nachura, J., join J., Velasco's dissent.
Leonardo-De Castro, J., join the dissent of J. Velasco.
Bersamin, J., join the dissent of J., Velasco.
Villarama, Jr., and Sereno, JJ., no part.
Endnotes:
[1]
Dated July 28, 2010.
The Dissent considered the referral of the motion for reconsideration to the En Bancas an "APPEAL" from
the Second Division to the En Banc (page 11 of the Dissent). Attention must be called to this matter for the
use of the word "APPEAL" might give the impression that there is an appeal remedy from the decision of a
division to the CourtEn Banc. The Court En Banc is not, as repeatedly held by the Supreme Court, an
appellate court of any of its divisions.
[2]
[3]
Dated March 29, 2005.
[4]
Motion for Reconsideration dated July 28, 2010, p. 3.
[5]
Id. at 29.
[6]
Sections 300, 301 and 306 of the Insurance Code.
[7]
Article 1868 of the Civil Code.
Insular Life Assurance Co., Ltd. v. National Labor Relations Commission, G.R. No. 84484, November 15,
1989, 179 SCRA 459, 465.
[8]
[9]
Id. at 466-467.
[10]
Rollo, pp. 977-978; Motion for Reconsideration dated July 28, 2010, pp. 29-30.
Petitioner asserts that:

"Aside from soliciting insurance for Manulife, petitioner was required to submit to the Company all completed
applications for insurance and to deliver policies, receive, collect and remit premiums to respondent
Manulife. Petitioner was required to use only sales materials and illustrations that were approved by
Manulife. He was even required to provide after-sales services, including the forwarding of all written
complaints to Manulife's Head Office. Petitioner as also obliged to turn over to Manulife any and all sums of
money collected by him. He was further tasked to interview potential recruits both for his direct unit and
units under the Metro North Region of Manulife. However, the appointment of these recruits is subject to the
approval of Manulife. Likewise, he coordinated planning Key Result Areas for all the subordinate managers
and distribute to subordinate managers and agents Manulife memos, copies of the Official Receipt, Daily
78
Exception Reports, Overdue Notice Reports, Policy Contracts, Returned Check Notices, and Agent's
Statement of Accounts and post on the bulletin board the Daily Production Report, Back-ended Cases Report
and Daily Collection Reports. To reiterate, petitioner was tasked to supervise agents and managers assigned
to his unit, the Metro North Region. It was Manulife who exercised the power to assign and remove agents
under his supervision."
[11]
Rollo, p. 966.
[12]
Id. at 968.
The Decision cites the Affidavits of other agents, wherein they described their duties and conditions of
employment, all of which support the finding that they are independent agents and not employees of
Manulife.
[13]
Rollo, p. 970. The petitioner admits in this motion that he was paid overriding commissions earned by
agents under him.
[14]
[15]
Dissent of Justice Presbitero J. Velasco, Jr., p. 12.
[16]
Id. at 39.
[17]
Marbury v. Madison, 5 US 137 (1803).
[18]
G.R. Nos. 80750-51, July 23, 1990, 187 SCRA 694.
[19]
350 Phil. 918 (1998).
Motion for Reconsideration, dated December 3, 2008, quoting from the Affidavit of John Chua (Regional
Sales Manager) dated April 28, 2003, Affidavit of Amanda Tolentino (Branch Manager) dated April 29, 2003,
and Affidavit of Lourdes Samson (Unit Manager) dated April 28, 2003; rollo, p. 803.
[20]
Tongko v. The Manufacturers Life Insurance Co. (Phils.), Inc. and Renato A. Vergel de Dios, G.R. No.
167622, Resolution dated June 29, 2010, pp. 26-27.
[21]
[22]
451 Phil. 243 (2003).
[23]
240 Phil. 364 (1987).
[24]
G.R. No. 86693, July 2, 1990, 187 SCRA 108.
[25]
345 Phil. 408 (1997).
[26]
339 Phil. 541 (1997).
[27]
479 Phil. 384 (2004).
[28]
G.R. No. 153192, January 30, 2009, 577 SCRA 280.
[29]
G.R. No. 171814, May 8, 2009, 587 SCRA 524.
[30]
G.R. No. 159890, May 28, 2004, 430 SCRA 368.
[31]
Dissent of Justice Velasco, p. 14.
[32]
Id. at 16.
Supra note 30 at 379-380. The Court specifically noted that: "While it is true that he [petitioner therein]
occasionally reported the Manila office to attend conferences on marketing strategies, it was intended not to
control the manner and means to be used in reaching the desired end, but to serve as a guide and to
upgrade his skills for a more efficient marketing performance."
[33]
79
DISSENTING OPINION
VELASCO, JR., J.:

Labor is prior to, and independent of, capital. Capital is only the fruit of labor, and could never have existed
if Labor had not first existed. Labor is superior to capital, and deserves much the higher consideration.
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--Abraham Lincoln
Prefatory Statement
At the outset, it has to be made clear that the instant petition applies solely to petitioner Tongko with
respect to his relationship with Manulife as the latter's Regional Manager of Metro North Region and not to
ordinary underwriters of different insurance companies claiming to be totaling 45,000 in the Philippines. In
view of the facts and circumstances peculiar only to Tongko's case, the disposition in the instant petition
is pro hac vice in line with the previous rulings of this Court that the determination of an employer-employee
relationship shall be on a case-to-case basis.[1]
There is, therefore, no reason to conclude that the November 7, 2008 Decision of this Court was meant to
indiscriminately classify all insurance agents as employees of their respective insurance companies. Nowhere
in the Decision was such a conclusion made or espoused. To reiterate, it was specifically stated in the
Decision that Tongko, given his administrative duties as a manager of Manulife, and not any other insurance
agent in the Philippines, was an employee. As in every case involving the determination of whether or not an
employer-employee relationship obtains, it must be established in each case that the alleged employer
exercises control over the means and methods employed by the worker in achieving a set objective. Only
then can such relationship be said to exist.
In a Letter dated December 16, 2008, the Joint Foreign Chambers of the Philippines implored this Court to
reverse its November 7, 2008 Decision on the stated ground that it is "a case of judicial legislation that
impairs the obligations of commercial contracts and interferes with established business models and
practices." The Chambers conclusion, sad to state, was based on the erroneous premise that the Decision
was a blanket declaration that all agents or underwriters are considered employees of the insurance
company.
The Philippine Life Insurance Association, Inc., through its then President Gregorio D. Mercado, also wrote a
letter dated January 12, 2009 reiterating the concerns of the Joint Foreign Chambers of the Philippines. In
the letter, Mercado states:
Thus, with the recent Decision of the Honorable Supreme Court, generalizing the code of conduct as an
indication of control over the means and method of an employee, PLIA is alarmed that the floodgates would
open to unscrupulous claimants and leave PLIA's member companies vulnerable to a multitude of law suits
from agents who shall insist on benefits that only employees enjoy. Such a scenario would certainly cripple
PLIA's member insurance companies, as their time and resources would be devoted to fending off
unscrupulous claims instead of focusing on improving themselves to serve the interests of the public.
Mercado goes on to imply that the finality of the November 7, 2008 Decision would spell the end of the
insurance industry.
The grim scenario depicted in Mercado's letter and the unmistakable veiled threats implied therein are
uncalled for.
The November 7, 2008 Decision, to reiterate, applies only to Tongko in light of the circumstances attendant
in his case. Certainly, his situation is unique from most other agents considering that he was promoted
initially to Unit Manager, then to Branch Manager and, eventually, Regional Manager. By this fact alone, the
Decision cannot be applicable to all other agents in the Philippines. Furthermore, the Decision was reached
80
considering the totality of all relevant matters underpinning and/or governing the professional relationship of
Tongko and Manulife, not only the Code of Conduct, or certain duties only. All the factors mentioned in the
Decision contributed to the conclusion that at the time that Tongko was dismissed, he was an employee of
Manulife. And it will only be in the far off possibility that a completely identical case is presented that the
findings therein would apply.
Additionally, in line with the Court's ruling in the November 7, 2008 Decision that Tongko became an
employee after his designation as a manager of Manulife, any backwages for illegal dismissal should only
correspond to his income, bonuses and other benefits that were appurtenant to his designation as a
manager. Under Tongko's Career Agent's Agreement, he was entitled to commissions, production bonus and
persistency income. Thus, the basis for backwages would only be his management overrides and other
bonuses relative to his position as manager.
The Case
For the consideration of the Court is the Motion for Reconsideration dated July 28, 2010, filed by petitioner
Gregorio V. Tongko. Tongko seeks the reversal of our June 29, 2010 Resolution which dismissed the instant
petition finding that Tongko was not an employee of Manufacturers Life Insurance Co. (Phils.), Inc.
(Manulife). The Resolution reversed the Court's November 17, 2008 Decision.
The Facts
For clarity, the facts of the case are hereby reiterated:
Manufacturers Life Insurance Co. (Phils.), Inc. (Manulife) is a domestic corporation engaged in life insurance
business. Renato A. Vergel De Dios (De Dios) was, during the period material, its President and Chief
Executive Officer. Gregorio V. Tongko started his professional relationship with Manulife on July 1, 1977 by
virtue of a Career Agent's Agreement[2] (Agreement) he executed with Manulife.
In the Agreement, it is provided that:
It is understood and agreed that the Agent is an independent contractor and nothing contained herein shall
be construed or interpreted as creating an employer-employee relationship between the Company and the
Agent.
xxxx
a) The Agent shall canvass for applications for Life Insurance, Annuities, Group policies and other products
offered by the Company, and collect, in exchange for provisional receipts issued by the Agent, money due or
to become due to the Company in respect of applications or policies obtained by or through the Agent or
from policyholders allotted by the Company to the Agent for servicing, subject to subsequent confirmation of
receipt of payment by the Company as evidenced by an Official Receipt issued by the Company directly to
the policyholder.
xxxx
14. TERMINATION
The Company may terminate this Agreement for any breach or violation of any of the provisions hereof by
the Agent by giving written notice to the Agent within fifteen (15) days from the time of the discovery of the
breach. No waiver, extinguishment, abandonment, withdrawal or cancellation of the right to terminate this
Agreement by the Company shall be construed for any previous failure to exercise its right under any
provision of this Agreement.
Either of the parties hereto may likewise terminate his Agreement at any time without cause, by giving to
the other party fifteen (15) days notice in writing. This Agreement shall similarly terminate forthwith upon
the death of the Agent.
In cases of termination, including the Agent's death, the Agent and/or his estate, executors or
administrators, heirs, assignees or successors-in-interest, as the case may be, shall remain liable to the
Company for all the Agent's obligations and indebtedness due the Company arising from law or this
Agreement.
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In 1983, Tongko was named as a Unit Manager in Manulife's Sales Agency Organization. In 1990, he became
a Branch Manager. He was thereafter promoted to Regional Manager. As the Court of Appeals (CA) found,
Tongko's gross earnings from his work at Manulife as a Regional Manager, consisting of commissions,
persistency income, and management overrides, may be summarized as follows:
January to December 10, 2002 - P 865,096.07
2001 - 6,214,737.11
2000 - 8,003,180.38
1999 - 6,797,814.05
1998 - 4,805,166.34
1997 - 2,822,620.00[3]
The problem started sometime in 2001, when Manulife instituted manpower development programs in the
regional sales management level. Relative thereto, De Dios addressed a letter dated November 6, 2001 [4] to
Tongko regarding an October 18, 2001 Metro North Sales Managers Meeting. In the letter, De Dios stated:
The first step to transforming Manulife into a big league player has been very clear - to increase the number
of agents to at least 1,000 strong for a start. This may seem diametrically opposed to the way Manulife was
run when you first joined the organization. Since then, however, substantial changes have taken place in the
organization, as these have been influenced by developments both from within and without the company.
xxxx
The issues around agent recruiting are central to the intended objectives hence the need for a Senior
Managers' meeting earlier last month when Kevin O'Connor, SVP - Agency, took to the floor to determine
from our senior agency leaders what more could be done to bolster manpower development. At earlier
meetings, Kevin had presented information where evidently, your Region was the lowest performer (on a per
Manager basis) in terms of recruiting in 2000 and, as of today, continues to remain one of the laggards in
this area.
While discussions, in general, were positive other than for certain comments from your end which were
perceived to be uncalled for, it became clear that a one-on-one meeting with you was necessary to ensure
that you and management, were on the same plane. As gleaned from some of your previous comments in
prior meetings (both in group and one-on-one), it was not clear that we were proceeding in the same
direction.
Kevin held subsequent series of meetings with you as a result, one of which I joined briefly. In those
subsequent meetings you reiterated certain views, the validity of which we challenged and subsequently
found as having no basis.
With such views coming from you, I was a bit concerned that the rest of the Metro North Managers may be a
bit confused as to the directions the company was taking. For this reason, I sought a meeting with everyone
in your management team, including you, to clear the air, so to speak.
This note is intended to confirm the items that were discussed at the said Metro North Region's Sales
Managers meeting held at the 7/F Conference room last 18 October.
xxxx
All of a sudden, Greg, I have become much more worried about your ability to lead this group towards the
new direction that we have been discussing these past few weeks, i.e., Manulife's goal to become a major
agency-led distribution company in the Philippines. While as you claim, you have not stopped anyone from
recruiting, I have never heard you proactively push for greater agency recruiting. You have not been
proactive all these years when it comes to agency growth.
xxxx
I cannot afford to see a major region fail to deliver on its developmental goals next year and so, we are
making the following changes in the interim:
82
1. You will hire at your expense a competent assistant who can unload you of much of the routine tasks
which can be easily delegated. This assistant should be so chosen as to complement your skills and help you
in the areas where you feel `may not be your cup of tea".
You have stated, if not implied, that your work as Regional Manager may be too taxing for you and for your
health. The above could solve this problem.
xxxx
2. Effective immediately, Kevin and the rest of the Agency Operations will deal with the North Star Branch
(NSB) in autonomous fashion. x x x
I have decided to make this change so as to reduce your span of control and allow you to concentrate more
fully on overseeing the remaining groups under Metro North, your Central Unit and the rest of the Sales
Managers in Metro North. I will hold you solely responsible for meeting the objectives of these remaining
groups.
xxxx
The above changes can end at this point and they need not go any further. This, however, is entirely
dependent upon you. But you have to understand that meeting corporate objectives by everyone is primary
and will not be compromised. We are meeting tough challenges next year and I would want everybody on
board. Any resistance or holding back by anyone will be dealt with accordingly.
Subsequently, De Dios wrote Tongko another letter dated December 18, 2001, [5] terminating Tongko's
services, thus:
It would appear, however, that despite the series of meetings and communications, both one-on-one
meetings between yourself and SVP Kevin O'Connor, some of them with me, as well as group meetings with
your Sales Managers, all these efforts have failed in helping you align your directions with Management's
avowed agency growth policy.
xxxx
On account thereof, Management is exercising its prerogative under Section 14 of your Agents Contract as
we are now issuing this notice of termination of your Agency Agreement with us effective fifteen days from
the date of this letter.
Therefrom, Tongko filed a Complaint dated November 25, 2002 with the National Labor Relations
Commission (NLRC) against Manulife for illegal dismissal. The case, docketed as NLRC NCR Case No. 1110330-02, was raffled to Labor Arbiter Marita V. Padolina.
In the Complaint, Tongko, in a bid to establish an employer-employee relationship, alleged that De Dios gave
him specific directives on how to manage his area of responsibility in the latter's letter dated November 6,
2001. He further claimed that Manulife exercised control over him as follows:
Such control was certainly exercised by respondents over the herein complainant. It was Manulife who hired,
promoted and gave various assignments to him. It was the company who set objectives as regards
productions, recruitment, training programs and all activities pertaining to its business. Manulife prescribed
a Code of Conduct which would govern in minute detail all aspects of the work to be undertaken by
employees, including the sales process, the underwriting process, signatures, handling of money,
policyholder service, confidentiality, legal and regulatory requirements and grounds for termination of
employment. The letter of Mr. De Dios dated 06 November 2001 left no doubt as to who was in control. The
subsequent termination letter dated 18 December 2001 again established in no uncertain terms the
authority of the herein respondents to control the employees of Manulife. Plainly, the respondents wielded
control not only as to the ends to be achieved but the ways and means of attaining such ends. [6]
Tongko bolstered his argument by citing Insular Life Assurance Co., Ltd. v. NLRC (4th Division)[7] andGreat
Pacific Life Assurance Corporation v. NLRC,[8] which Tongko claimed to be similar to the instant case.
Tongko further claimed that his dismissal was without basis and that he was not afforded due process. He
also cited the Manulife Code of Conduct by which his actions were controlled by the company.
83
Manulife then filed a Position Paper with Motion to Dismiss dated February 27, 2003, [9] in which it alleged
that Tongko is not its employee, and that it did not exercise "control" over him. Thus, Manulife claimed that
the NLRC has no jurisdiction over the case.
In a Decision dated April 15, 2004, Labor Arbiter Marita V. Padolina dismissed the complaint for lack of an
employer-employee relationship. Padolina found that applying the four-fold test in determining the existence
of an employer-employee relationship, none was found in the instant case. The dispositive portion thereof
states:
cralaw
WHEREFORE, premises considered, judgment is hereby rendered DISMISSING the instant complaint for lack
of jurisdiction, there being no employer-employee relationship between the parties.
SO ORDERED.
Tongko appealed the arbiter's Decision to the NLRC which reversed the same and rendered a Decision dated
September 27, 2004 finding Tongko to have been illegally dismissed.
The NLRC's First Division, while finding an employer-employee relationship between Manulife and Tongko
applying the four-fold test, held Manulife liable for illegal dismissal. It further stated that Manulife exercised
control over Tongko as evidenced by the letter dated November 6, 2001 of De Dios and wrote:
The above-mentioned letter shows the extent to which respondents controlled complainant's manner and
means of doing his work and achieving the goals set by respondents. The letter shows how respondents
concerned themselves with the manner complainant managed the Metro North Region as Regional Sales
Manager, to the point that respondents even had a say on how complainant interacted with other individuals
in the Metro North Region. The letter is in fact replete with comments and criticisms on how complainant
carried out his functions as Regional Sales Manager.
More importantly, the letter contains an abundance of directives or orders that are intended to directly affect
complainant's authority and manner of carrying out his functions as Regional Sales Manager.[10]
Additionally, the NLRC also ruled that:
Further evidence of [respondents'] control over complainant can be found in the records of the case. [These]
are the different codes of conduct such as the Agent Code of Conduct, the Manulife Financial Code of
Conduct, and the Manulife Financial Code of Conduct Agreement, which serve as the foundations of the
power of control wielded by respondents over complainant that is further manifested in the different
administrative and other tasks that he is required to perform. These codes of conduct corroborate and
reinforce the display of respondents' power of control in their 06 November 2001 Letter to complainant. [11]
The fallo of the September 27, 2004 NLRC Decision reads:
WHEREFORE, premises considered, the appealed Decision is hereby reversed and set aside. We find
complainant to be a regular employee of respondent Manulife and that he was illegally dismissed from
employment by respondents.
In lieu of reinstatement, respondent Manulife is hereby ordered to pay complainant separation pay as above
set forth. Respondent Manulife is further ordered to pay complainant backwages from the time he was
dismissed on 02 January 2002 up to the finality of this decision also as indicated above.
xxxx
All other claims are hereby dismissed for utter lack of merit.
From this Decision, Manulife filed a motion for reconsideration which was denied by the NLRC First Division
in a Resolution dated December 16, 2004.[12]
Thus, Manulife filed an appeal with the CA docketed as CA-G.R. SP No. 88253. Thereafter, the CA issued the
assailed Decision dated March 29, 2005, finding the absence of an employer-employee relationship between
the parties and deeming the NLRC with no jurisdiction over the case. The CA arrived at this conclusion while
84
again applying the four-fold test. The CA found that Manulife did not exercise control over Tongko that would
render the latter an employee of Manulife. The dispositive portion reads:
WHEREFORE, premises considered, the present petition is hereby GRANTED and the writ prayed for
accordingly GRANTED. The assailed Decision dated September 27, 2004 and Resolution dated December 16,
2004 of the National Labor Relations Commission in NLRC NCR Case No. 00-11-10330-2002 (NLRC NCR CA
No. 040220-04) are hereby ANNULLED and SET ASIDE. The Decision dated April 15, 2004 of Labor Arbiter
Marita V. Padolina is hereby REINSTATED.
Hence, Tongko filed a petition with this Court raising the following issues: (1) whether Tongko was an
employee of Manulife; and (2) whether Tongko was illegally dismissed.
In the November 17, 2010 Decision, this Court ruled that Tongko was an employee of Manulife and was
illegally dismissed. Applying the four-fold test, the Court found sufficient indicia of employment to conclude
that Manulife and Tongko had an employer-employee relationship. Thus, the Court further ruled that
because there was no just or valid cause for the termination of Tongko's employment, he was therefore
illegally dismissed.
Manulife appealed such Decision to the Court en banc which reversed the same in a June 29, 2010
Resolution. In the Resolution, the Court used the intent of the parties as well as the established insurance
industry practices to conclude that the control required by the labor code to be present to establish an
employer-employee relationship between Manulife and Tongko was not present. It was further ruled that
there was no other concrete evidence to establish that Tongko was an employee of Manulife.
Thereafter, Tongko filed the instant motion for reconsideration of the Resolution.
The motion for reconsideration must be granted.
Labor laws, not the Insurance Code
or the Corporation Code, shall prevail in the instant case
Manufacturers Life Insurance Co. (Phils.), Inc. is part of a Canada-based multinational financial company
claiming to be the largest life insurance company in North America having 3,000 employees and 25,000
agents.[13] On the other hand, Tongko is but a single Filipino agent/manager of Manulife. It is but just, it is
but right, that the Court, interpret the relationship between Tongko and Manulife as one of employment
under labor laws and to uphold his constitutionally protected rights as an employee, to security of tenure
and an entitlement to monetary award should such right is infringed. And this constitutionally-guaranteed
right cannot be diminished, let alone undermined, by a mere contract, or however the parties choose to call
their true working relationship.[14] Neither, to stress, may the employer-employee relationship, if one exists,
be subverted by the manner and form of remuneration or earnings being paid or received, [15] i.e., fixed or on
commission basis, or the method of calculating the same.
The controversy in this case arose from the fact that, initially, Tongko executed a Career Agent's Agreement
whereby he became an agent of Manulife. As such agent, Manulife did not control the means and methods
for accomplishing his assigned objective of canvassing life insurance applications. It is, therefore submitted
that when he was exclusively an agent of Manulife, he was not the latter's employee.
The evidence, however, will reveal that he was later on promoted to the positions of unit, branch and
regional manager. The evidence will also show that he, similar to his colleagues, was assigned other duties
and responsibilities aside from those enumerated under the Agreement.
And there lies the crux of the problem. There is now an ambiguity as to the true relationship between
Manulife and Tongko. Moreover, it is now unclear as to what law, labor laws, corporation code, insurance
code or civil code, should be applied to the two parties.
Jurisprudence teaches that, given the doubt as to the applicable law in the instant case, labor law shall
govern.
The Constitution acknowledges the reality that capital and labor often do not deal on equal grounds,
requiring the state to protect labor from abuse. To level the playing field, the framers of the Constitution
incorporated two (2) provisions therein to safeguard the employee's right to security of tenure and enhance
protection to employees' rights and welfare:
85
ARTICLE II
DECLARATION OF PRINCIPLES
AND STATE POLICIES PRINCIPLES
STATE POLICIES
Section 18. The State affirms labor as a primary social economic force. It shall protect the rights of
workers and promote their welfare.
ARTICLE XIII
SOCIAL JUSTICE AND HUMAN RIGHTS
LABOR
Section 3. The State shall afford full protection to labor, local and overseas, organized and
unorganized, and promote full employment and equality of employment opportunities for all.
It shall guarantee the rights of all workers to self-organization, collective bargaining and negotiations, and
peaceful concerted activities, including the right to strike in accordance with law. They shall be entitled to
security of tenure, humane conditions of work, and a living wage. They shall also participate in policy
and decision-making processes affecting their rights and benefits as may be provided by law. (Emphasis
supplied.)
In the Civil Code, it is provided in Articles 1700 and 1702 thereof that:
Art. 1700. The relations between capital and labor are not merely contractual. They are so impressed
with public interest that labor contracts must yield to the common good. Therefore, such contracts
are subject to the special laws on labor unions, collective bargaining, strikes and lockouts, closed shop,
wages, working conditions, hours of labor and similar subjects.
Article 1702. In case of doubt, all labor legislation and all labor contracts shall be construed in favor of
the safety and decent living for the laborer. (Emphasis supplied.)
Verily, the mandate of this Court is to ensure that the provisions of the Constitution are carried out. The
Court has the responsibility to ensure that the rights of labor, as guaranteed by the Constitution, are actually
enjoyed by the workers. Thus, in several cases, the Court has repeatedly resolved doubts as to the
relationship between parties as that of employment, that which is most favorable to labor.
The Court, in a slew of cases, has consistently ruled that when there is doubt as to the law to be
applied in a case with an allegation of an employer-employee relationship, labor laws and
jurisprudence shall apply. Consider:
1. In Social Security System v. Court of Appeals,[16] the Court was faced with the conflicting claims of the
workers and the proprietor on the issue of whether an employer-employee relationship exists. Romeo
Carreon and Quality Tobacco Corporation (QTC) entered into an agreement whereby Carreon would allegedly
purchase and sell QTC's products. Carreon claims that he was an employee of QTC while QTC claims that
Carreon is an independent contractor. In the agreement, Carreon was referred to as a vendee of QTC's
products. Their relationship would therefore be covered by the Civil Code provisions on sales. [17] However, in
view of the complaint of Carreon praying for SSS benefits on the claim that he is an employee of QTC, there
arose the question as to which law should apply--the Civil Code or the Labor Code and jurisprudence. The
Court applied the jurisprudence in labor cases and used the four-fold test to determine the existence of an
employer-employee relationship. The Court stated:
The issue raised by the petitioner before this Court is the very same issue resolved by the Court of Appealsthat is, whether or not Romeo Carreon is an employee or an independent contractor under the contract
aforequoted. Corollary thereto the question as to whether or not the Mafinco case is applicable to this case
was raised by the parties.
The Court took cognizance of the fact that the question of whether or not an employer-employee
relationship exists in a certain situation continues to bedevil the courts. Some businessmen with the aid of
lawyers have tried to avoid the bringing about of an employer-employee relationship in some of their
enterprises because that juridical relation spawns obligations connected with workmen's compensation,
social security, medicare, minimum wage, termination pay and unionism.
86
For this reason, in order to put the issue at rest, this Court has laid down in a formidable line of
decisions the elements to be generally considered in determining the existence of an employeremployee relationship, as follows: a) selection and engagement of the employee; b) the payment
of wages; c) the power of dismissal; and d) the employer's power to control the employee with
respect to the means and method by-which the work is to be accomplished. The last which is the
so-called "control test" is the most important element (Brotherhood Labor Unity Movement of the Phils. vs.
Zamora, 147 SCRA 49 [1987]; Dy Ke Beng vs. International Labor and Marine Union of the Phil., 90 SCRA
162 [1979]; Mafinco Trading Corp. vs. Ople, 70 SCRA 141 [1976]; Social Security System vs. Court of
Appeals, 37 SCRA 579 [1971]).
Applying the control test, that is, whether the employer controls or has reserved the right to control the
employee not only as to the result of the work to be done but also as to the means and method by which
the same is to be accomplished, the question of whether or not there is an employer-employee relationship
for purposes of the Social Security Act has been settled in this jurisdiction in the case of Investment
Planning Corp. vs. SSS, 21 SCRA 924 (1967). In other words, where the element of control is absent; where
a person who works for another does so more or less at his own pleasure and is not subject to definite hours
or conditions of work, and in turn is compensated according to the result of his effort, the relationship of
employer-employee does not exist. (SSS vs. Court of Appeals, 30 SCRA 210 [1969]). (Emphasis supplied.)
2. In Cosmopolitan Funeral Homes, Inc. v. Maalat,[18] Cosmopolitan Funeral Homes, Inc. engaged the
services of Noli Maalat as a "supervisor" to handle the solicitation of mortuary arrangements, sales and
collections. Maalat was dimissed after having committed violations of the company's policies. He filed a
complaint for illegal dismissal and nonpayment of commissions. Cosmopolitan argues that there is no
employer-employee relationship between it and Maalat, the latter being an independent contractor. The
Court ruled that:
In determining whether a person who performs work for another is the latter's employee or an
independent contractor, the prevailing test is the "right of control" test. Under this test, an
employer-employee relationship exists where the person for whom the services are performed reserves the
right to control not only the end to be achieved, but also the manner and means to be used in reaching that
end.
The Court did not consider the provisions of the Civil Code on a Contract for a Piece of Work [19] in
determining the relationship between the parties. Instead, it used the labor law concept, the control test, to
determine such relationship.
3. The Court in Algon Engineering Construction Corporation v. National Labor Relations Commission [20]did
not consider the Civil Code provisions on lease when it ruled upon the existence of an employer-employee
relationship. In that case, from March 1, 1983 to May 10, 1985, Algon was in the process of completing the
Lucena Talacogon Project in Del Monte, Talacogon, Agusan del Sur. Jose Espinosa's house is located near
that project site. Thus, throughout that same period of time, Espinosa allowed petitioner Algon to use his
house and the grounds adjacent thereto as a parking and storage place for the latter's heavy equipment.
However, Espinosa also claims in addition thereto that there existed an employment contract between
himself and petitioner Algon which, he insisted, hired him as a watchman to guard the heavy equipment
parked in other leased house spaces in Libtong, Talacogon, Agusan del Sur. The Court ruled therein that:
No particular evidence is required to prove the existence of an employer-employee relationship. All that is
necessary is to show that the employer is capable of exercising control over the employee. In labor disputes,
it suffices that there be a casual connection between the claim asserted and the employer-employee
relations.
The elements of an employer-employee relationship are: (1) selection and engagement of the employee; (2)
payment of wages; (3) power of dismissal; and (4) employer's own power to control employee's
conduct. Control of the employee's conduct is commonly regarded as the most crucial and
determinative indicator of the presence or absence of an employer-employee relationship. In the
case at bar, there is no doubt that petitioner exercises control over Espinosa's conduct, as shown by the fact
that, rather than address the loss of batteries as a breach of the purported contract of lease, the
memorandum instead emphasized the company rules and regulations and the fact that Espinosa was "on
duty" at the time of the said loss. Moreover, the petitioner's act of transferring Espinosa to the day shift
clearly shows its treatment of Espinosa as an employee, and not as a landlord. Thus, an employer-employee
87
relationship exists where the person for whom the services are performed reserves a right to control not
only the end to be achieved but also the means to be used in reaching such an end. (Emphasis supplied.)
4. Even when faced with the contention that the relationship between two parties was in the nature of a
lawyer-client relationship, the Court, in Equitable Banking Corporation v. National Labor Relations
Commission,[21] still employed the control test, a strictly labor law concept, to determine the existence of an
employer-employee relationship. There, Ricardo L. Sadac was engaged in 1981 as Equitable's Vice-President
for the legal department and as its General Counsel. In 1989, nine (9) lawyers of the legal department
issued a letter-petition to the chairperson of the board of the bank accusing private respondent of abusive
conduct, inefficiency, mismanagement, ineffectiveness and indecisiveness. Later, the lawyers threatened to
resign en masse if Sadac was not relieved as the head of the legal department. After a formal investigation
of the charges, Sadac was advised that he would be substituted as the bank's legal counsel. Sadac charged
the bank with illegal dismissal. The bank in turn denied the existence of an employer-employee relationship
between it and Sadac. The Court stated in its Decision that:
In determining the existence of an employer-employee relationship, the following elements are
considered: (1) the selection and engagement of the employee; (2) the payment of wages; (3)
the power of dismissal, and (4) the power to control the employee's conduct, with the control
test generally assuming primacy in the overall consideration. The power of control refers to the
existence of the power and not necessarily to the actual exercise thereof. It is not essential, in other words,
for the employer to actually supervise the performance of duties of the employee; it is enough that the
former has the right to wield the power. (Emphasis supplied.)
5. In Lazaro v. Social Security Commission,[22] Rosalina M. Laudato was a sales supervisor of Royal Star
Marketing, the proprietor of which was Angelito L. Lazaro. Laudato claimed that the company failed to report
her and remit her contributions as an employee, to the Social Security System (SSS). Denying that Laudato
was a sales supervisor of Royal Star Marketing, Lazaro claimed that the former was only a sales agent
earning on a commission basis. He added that Laudato did not maintain definite hours of work and therefore
could not be considered as an employee of Royal Star Marketing. The Court, in determining the true
relationship of the parties, did not apply the provisions of the Civil Code on agency. Rather, the labor law
concept of the control test was applied to determine the relationship of the parties. The Court ruled therein
that:
Lazaro's arguments may be dispensed with by applying precedents. Suffice it to say, the fact that Laudato
was paid by way of commission does not preclude the establishment of an employer-employee
relationship. In Grepalife v. Judico, the Court upheld the existence of an employer-employee
relationship between the insurance company and its agents, despite the fact that the
compensation that the agents on commission received was not paid by the company but by the
investor or the person insured. The relevant factor remains, as stated earlier, whether the
"employer" controls or has reserved the right to control the "employee" not only as to the result
of the work to be done but also as to the means and methods by which the same is to be
accomplished.
Neither does it follow that a person who does not observe normal hours of work cannot be deemed an
employee. In Cosmopolitan Funeral Homes, Inc. v. Maalat, the employer similarly denied the existence of
an employer-employee relationship, as the claimant according to it, was a "supervisor on commission basis"
who did not observe normal hours of work. This Court declared that there was an employer-employee
relationship, noting that "[the] supervisor, although compensated on commission basis, [is] exempt from the
observance of normal hours of work for his compensation is measured by the number of sales he makes."
It should also be emphasized that the SSC, also as upheld by the Court of Appeals, found that Laudato was
a sales supervisor and not a mere agent. As such, Laudato oversaw and supervised the sales agents of the
company, and thus was subject to the control of management as to how she implements its policies and its
end results. x x x (Emphasis supplied.)
6. While in Dealco Farms, Inc. v. National Labor Relations Commission (5th Division),[23] the Court declared
the workers as employees of Dealco farms and not independent contractors. There, Albert Caban and
Chiquito Bastida were hired by Dealco as escorts or "comboys" for the transit of live cattle from General
Santos City to Manila in 1993. Sometime 1999, Caban and Bastida were summarily replaced. Thus, they
filed a case for illegal dismissal. Dealco claimed that Caban and Bastida were in fact independent contractors
hired by the buyers of the cattle who arranged for the transport thereof to Manila. The Court again did not
88
take into consideration provisions of the Civil Code on Contracts for a Piece of Work and instead used the
four-fold test to determine the true nature of the parties' relationship. The Court ruled:
Regrettably, upon an evaluation of the merits of the petition, we do not find cause to disturb the findings of
the Labor Arbiter, affirmed by the NLRC, which are supported by substantial evidence.
The well-entrenched rule is that factual findings of administrative or quasi-judicial bodies, which are deemed
to have acquired expertise in matters within their respective jurisdictions, are generally accorded not only
respect but even finality, and bind the Court when supported by substantial evidence. Section 5, Rule 133
defines substantial evidence as "that amount of relevant evidence which a reasonable mind might accept as
adequate to justify a conclusion."
Consistent therewith is the doctrine that this Court is not a trier of facts, and this is strictly adhered to in
labor cases. We may take cognizance of and resolve factual issues only when the findings of fact and
conclusions of law of the Labor Arbiter are inconsistent with those of the NLRC and the CA.
In the case at bench, both the Labor Arbiter and the NLRC were one in their conclusion that respondents
were not independent contractors, but employees of petitioner. In determining the existence of an
employer-employee relationship between the parties, both the Labor Arbiter and the NLRC
examined and weighed the circumstances against the four-fold test which has the following
elements: (1) the power to hire, (2) the payment of wages, (3) the power to dismiss, and (4) the
power to control the employees' conduct, or the so-called "control test." Of the four, the power of
control is the most important element. More importantly, the control test merely calls for the existence of
the right to control, and not necessarily the exercise thereof.
xxxx
We reject petitioner's self-serving contention. Having failed to substantiate its allegation on the relationship
between the parties, we stick to the settled rule in controversies between a laborer and his master that
doubts reasonably arising from the evidence should be resolved in the former's favor. The policy is reflected
in no less than the Constitution, Labor Code and Civil Code. (Emphasis supplied.)
7. Similarly, in South Davao Development Company, Inc. v. Gamo,[24] the Court refused to apply the
provisions of the Civil Code on Contract for a Piece of Work to a copra maker contractor and instead used the
control test to determine the worker's relationship with the company. South Davao Development Company
was the operator of a coconut and mango farm in San Isidro, Davao Oriental and Inawayan/Baracatan,
Davao del Sur. Sometime in August 1963, the company hired respondent Sergio L. Gamo (Gamo) as a
foreman. Sometime in 1987, Gamo was appointed as a copra maker contractor. Ernesto Belleza, Carlos
Rojas, Maximo Malinao were all employees in petitioner's coconut farm, while respondents Felix Terona,
Virgilio Cosep, Maximo Tolda, and Nelson Bagaan were assigned to petitioner's mango farm. All of the
abovenamed respondents (copra workers) were later transferred by petitioner to Gamo as the latter's
copraceros. The Court ruled in that case that the workers must be considered as employees of the company
as the latter exercised control over the workers as evidenced by its power to transfer the copra workers as
its employees to that of Gamo:
In this case, it was in the exercise of its power of control when petitioner corporation transferred
the copra workers from their previous assignments to work as copraceros. It was also in the
exercise of the same power that petitioner corporation put Gamo in charge of the copra workers
although under a different payment scheme. Thus, it is clear that an employer-employee relationship
has existed between petitioner corporation and respondents since the beginning and such relationship did
not cease despite their reassignments and the change of payment scheme. (Emphasis supplied.)
8. While in Abante v. Lamadrid Bearing & Parts Corp.,[25] despite the allegation that the worker was a
commission salesman, the Court still used the four-fold test to determine the existence of an employeremployee relationship. The worker, Empermaco B. Abante, Jr., was employed by respondent company
Lamadrid Bearing and Parts Corporation sometime in June 1985 as a salesman earning a commission of 3%
of the total paid-up sales covering the whole area of Mindanao. Sometime in 2001, Abante was informed by
his customers that Lamadrid had issued a letter informing them that Abante was no longer their salesman.
Thereafter, Abante filed a case against Lamadrid for illegal dismissal. Lamadrid, for its part, argued that
Abante was not its employee but rather a freelance salesman on commission basis. The Court ruled therein:
89
We are called upon to resolve the issue of whether or not petitioner, as a commission salesman, is an
employee of respondent corporation. To ascertain the existence of an employer-employee
relationship, jurisprudence has invariably applied the four-fold test, namely: (1) the manner of
selection and engagement; (2) the payment of wages; (3) the presence or absence of the power
of dismissal; and (4) the presence or absence of the power of control. Of these four, the last one is
the most important. The so-called "control test" is commonly regarded as the most crucial and
determinative indicator of the presence or absence of an employer-employee relationship. Under the control
test, an employer-employee relationship exists where the person for whom the services are performed
reserves the right to control not only the end achieved, but also the manner and means to be used in
reaching that end. (Emphasis supplied.)
Verily, based on the above-mentioned sample of numerous cases, the Court has invariably applied labor laws
and doctrines, particularly the four-fold and control test, over Civil Code provisions, to determine the
relationship of parties where an employer-employee relationship is alleged, without regard to the industry or
otherwise alleged relationship of the parties. The Court cannot now deviate from established precedents.
The four-fold test must be used to determine whether Tongko was an employee of Manulife or not, and not
the Insurance Code or Civil Code as claimed by Manulife.
Using the Four-Fold Test, Manulife exercised control over Tongko
As a matter of long and settled jurisprudence, the following are the elements, constituting the four-fold test,
usually considered in determining the existence of an employer-employee relationship: (a) the selection of
the employee; (b) the payment of wages; (c) the power of dismissal; and (d) the power to control the
employee's conduct, with the "control test" being the most crucial [26] or generally assuming primacy in the
overall consideration.[27]
In Meteoro v. Creative Creatures, Inc.,[28] the Court stated that in the determination of the existence of an
employer-employee relationship, any competent and relevant evidence may be considered, to wit:
To resolve the issue raised by respondent, that is, the existence of an employer-employee relationship, there
is need to examine evidentiary matters. The following elements constitute the reliable yardstick to
determine such relationship: (a) the selection and engagement of the employee; (b) the payment of wages;
(c) the power of dismissal; and (d) the employer's power to control the employee's conduct. There is no
hard and fast rule designed to establish the aforesaid elements. Any competent and relevant
evidence to prove the relationship may be admitted. Identification cards, cash vouchers, social
security registration, appointment letters or employment contracts, payrolls, organization charts, and
personnel lists, serve as evidence of employee status. These pieces of evidence are readily available, as they
are in the possession of either the employee or the employer; and they may easily be looked into by the
labor inspector (in the course of inspection) when confronted with the question of the existence or absence
of an employer-employee relationship.
Some businessmen, however, try to avoid an employer-employee relationship from arising in their
enterprises, because that juridical relation spawns obligations connected with workmen's compensation,
social security, medicare, termination pay, and unionism.Thus, in addition to the above-mentioned
documents, other pieces of evidence are considered in ascertaining the true nature of the parties'
relationship. This is especially true in determining the element of "control." The most important
index of an employer-employee relationship is the so-called "control test," that is, whether the employer
controls or has reserved the right to control the employee, not only as to the result of the work to be done,
but also as to the means and methods by which the same is to be accomplished. (Emphasis supplied.)
The NLRC, taking stock of the affidavits of petitioner's fellow insurance managers therein detailing their
duties, had concluded that petitioner was an employee of Manulife. Indeed, the duties, responsibilities and
undertakings of these insurance managers are strikingly similar to those of Ernesto and Rodrigo Ruiz, as set
forth in the Decision in Great Pacific Life Assurance Corporation v. NLRC.[29] There, the Court decreed that
the brothers Ruiz were employees of Grepalife. The reasons behind the declaration need no belaboring.
Suffice it to state that vis- -vis the Ruizes in Grepalife, Manulife had control of the means and methods
employed by the petitioner in the performance of his work as a manager of Manulife. Following the stare
decisis rule, there seems to be no rhyme or reason to withhold from herein petitioner the benefits accruing
from an employer-employee relationship.
Thus, in the Court's November 7, 2008 Decision, finding that Tongko was Manulife's employee, it was ruled
that:
90
More importantly, Manulife's evidence establishes the fact that Tongko was tasked to perform administrative
duties that establishes his employment with Manulife.
In its Comment (Re: Petition for Review dated 15 April 2005) dated August 5, 2005, Manulife attached
affidavits of its agents purportedly to support its claim that Tongko, as a Regional Sales Manager, did not
perform any administrative functions. An examination of these affidavits would, however, prove the
opposite.
In an Affidavit dated April 28, 2003, John D. Chua, a Regional Sales Manager of Manulife, stated:
4. On September 1, 1996, my services were engaged by Manulife as an Agency Regional Sales Manager
(RSM) for Metro South Region pursuant to an Agency Contract. As such RSM, I have the following functions:
1. Refer and recommend prospective agents to Manulife
2. Coach agents to become productive
3. Regularly meet with, and coordinate activities of agents affiliated to my region.
While Amada Toledo, a Branch Manager of Manulife, stated in her Affidavit dated April 29, 2003 that:
3. In January 1997, I was assigned as a Branch Manager (BM) of Manulife for the Metro North Sector;
4. As such BM, I render the following services:
a. Refer and recommend prospective agents to Manulife;
b. Train and coordinate activities of other commission agents;
c. Coordinate activities of Agency Managers who, in turn, train and coordinate activities of other
commission agents;
d. Achieve agreed production objectives in terms of Net Annualized Commissions and Case Count and
recruitment goals; and
e. Sell the various products of Manulife to my personal clients.
While Ma. Lourdes Samson, a Unit Manager of Manulife, stated in her Affidavit dated April 28, 2003 that:
3. In 1977, I was assigned as a Unit Manager (UM) of North Peaks Unit, North Star Branch, Metro North
Region;
4. As such UM, I render the following services:
a. To render or recommend prospective agents to be licensed, trained and contracted to sell Manulife
products and who will be part of my Unit;
b. To coordinate activities of the agents under my Unit in their daily, weekly and monthly selling
activities, making sure that their respective sales targets are met;
c. To conduct periodic training sessions for my agents to further enhance their sales skills.
d. To assist my agents with their sales activities by way of joint fieldwork, consultations and oneon-one evaluation and analysis of particular accounts.
e. To provide opportunities to motivate my agents to succeed like conducting promos to increase sales
activities and encouraging them to be involved in company and industry activities.
f. To provide opportunities for professional growth to my agents by encouraging them to be a member of the
LUCAP (Life Underwriters Association of the Philippines).
A comparison of the above functions and those contained in the Agreement with those cited in Great Pacific
91
Life Assurance Corporation reveals a striking similarity that would more than support a similar finding as in
that case. Thus, there was an employer-employee relationship between the parties. (Emphasis supplied.)
In comparison, in Great Pacific Life Corporation v. NLRC (Grepalife),[30] the Court stated:
Furthermore, it cannot be gainsaid that Grepalife had control over private respondents' performance as well
as the result of their efforts. A cursory reading of their respective functions as enumerated in their contracts
reveals that the company practically dictates the manner by which their jobs are to be carried out. For
instance, the District Manager must properly account, record and document the company's funds spot-check
and audit the work of the zone supervisors, conserve the company's business in the district through
`reinstatements', follow up the submission of weekly remittance reports of the debit agents and
zone supervisors, preserve company property in good condition, train understudies for the position of
district manager, and maintain his quota of sales (the failure of which is a ground for termination). On the
other hand, a zone supervisor must direct and supervise the sales activities of the debit agents
under him, conserve company property through "reinstatements", undertake and discharge the functions of
absentee debit agents, spot-check the records of debit agents, and insure proper documentation of
sales and collections by the debit agents. (Emphasis supplied.)
A close scrutiny of the duties and responsibilities of the Manulife managers with those of the Ruizes would
show a striking similarity that cannot be denied. More so, taking the aggregate of the evidence presented in
this case, a just and objective mind cannot but conclude that, as in Grepalife, the Manulife managers are
also employees of Manulife.
cralaw
In Equitable Banking Corporation,[31] the Court ruled:

The NLRC, in the instant case, based its finding that there existed an employer-employee relationship
between petitioner bank and private respondent on these factual settings:
"It was complainant's understanding with respondent Morales that he would be appointed and assigned to
the Legal Department as vice President with the same salary, privileges and benefits granted by the
respondent bank to its ranking senior officers. He was not hired as lawyer on a retainership basis but as an
officer of the bank.
"Thus, the complainant was given an appointment as Vice President, Legal Department, effective August 1,
1981, with a monthly salary of P8,000.00, monthly allowance of P4,500.00, and the usual two months
Christmas bonus based on basic salary likewise enjoyed by the other officers of the bank.
"Then, as part of the ongoing organization of the Legal Department, the position of General Counsel of the
bank was created and extended to the complainant. In addition to his duties as Vice President of the bank,
the complainant's duties and responsibilities were so defined as to prove that he was a bank officer working
under the supervision of the President and the Board of Directors of the respondent bank.
"In his more than eight years employment with the respondent bank, the complainant was given the usual
payslips to evidence his monthly gross compensation. The respondent bank, as employer, withheld taxes due
to the Bureau of Internal Revenue from the complainant's salary as employee. Moreover, the bank enrolled
the complainant as its employee under the Social Security System and Medicare programs. The complainant
contributed to the bank Employees' Provident Fund.
"When the respondent bank changed its payroll accounting system in September 1988 by appointing SGV &
Co. to handle it and Far East Bank & Trust Company to pay the salaries and other benefits of Equitable
Banking Corporation officers, the complainant was included as one of corporate officers. Specifically, that
there were eleven Far East Bank and Trust Company credit memos starting October 13, 1988 up to
September 13, 1989 received by the complainant from FBTC crediting his salary and Christmas bonus to his
account with FBTC per instruction of the respondent bank.
"In as much as the complainant and the lawyers in the Legal Department were receiving salaries and other
benefits as other bank officers and employees, the attorney's fees, documentary and notarial fees earned in
the exercise of their profession as in-house lawyers were not given to or even shared with them, instead all
were credited to the income of the bank. In 1987 and 1988, the complainant and his subordinate lawyers
were able to generate by way of attorney's fees, documentary and notarial fees a total income of
P973,028.00 for the bank('s) benefit. In turn, the respondent bank shouldered the professional tax and
Integrated Bar of the Philippines dues of the complainant and his subordinate lawyers. Further proofs that
92
there existed employer-employee relationship between the respondent bank and the complainant
are the following, to wit:
"(1) Complainant's monthly attendance, like those of other bank officers, was recorded by the
Chief Security Officer and reported to the Office of the President with copy of the report
furnished to the bank Personnel and HRD Department.
"(2) Complainant was authorized by the President to sign for and in behalf of the bank contracts
covering legal services of lawyers to be retained by the respondent bank for its branches on
periodical retainership basis.
"(3) Complainant participated as part of management in annual Management Planning
Conferences which started in 1986 on objective-setting and long-range planning in response to
the requirement of the rapidly changing environment.
"(4) Respondent bank extended to complainant the benefit (of) a car plan like any other qualified
senior officer of the bank.
"(5) Respondent bank since 1982 continuously reported and included the complainant as one of
its senior officers in its statements of financial condition holding the position of Vice President.
These bank statements have been distributed and circularized to the public, including bank
clients and government entities.
"(6) Complainant, like other bank officers, prepared his biographical data for submission to the
Central Bank after his assumption of duties in 1981. Thereafter, and pursuant to the regulations
of the Central Bank, he has been required to update annually his biographical data."
It would virtually be foolhardy to so challenge the NLRC as having committed grave abuse of discretion in
coming up with its above findings. Just to the contrary, NLRC appears to have been rather exhaustive in its
examination of this particular question (existence or absence of an employer-employee relationship between
the parties). Substantial evidence, which is the quantum of evidence required to establish a fact in cases
before administrative and quasi-judicial bodies, connotes merely that amount of relevant evidence which a
reasonable mind might accept to be adequate in justifying a conclusion. (Emphasis supplied.)
Here, by virtue of designating Tongko initially as a Unit Manager and later on as a Regional Manager,
Manulife must be deemed as having considered Tongko as an officer of the company. Furthermore, Tongko
has been involved in Manulife's manpower development programs. Thus, just as in Equitable Banking
Corporation, Tongko must be considered as an employee of Manulife.
While in Aboitiz Haulers, Inc. v. Damapatoi,[32] Dimapatoi and several other individuals worked as checkers in
Mega Warehouse, which Aboitiz Haulers, Inc. owned. Aboitiz claimed that the complaining workers are not
its employees, but rather, of Grigio Security Agency and General Services (Grigio), a manpower agency that
supplies security guards, checkers and stuffers. It allegedly entered into a Written Contract of Service with
Grigio in 1994. The workers' services were terminated by Aboitiz on the pretext that its contract with Grigio
had already expired. In this case, the Court found that Aboitiz was the employer of the workers exercising
control over them:
Petitioner's allegation that Grigio retained control over the respondents by providing supervisors to monitor
the performance of the respondents cannot be given much weight. Instead of exercising their own
discretion or referring the matter to the officers of Grigio, Grigio's supervisors were obligated to
refer to petitioner's supervisors any discrepancy in the performance of the respondents with
their specified duties. The Written Contract of Services provided that:
5.c. That the GRIGIO personnel, particularly the supervisors, shall perform the following:
The Supervisor for the warehouse operation shall monitor the performance and productivity of all the
checkers, jacklifters, stuffers/strippers, forklift operators, drivers, and helpers. He shall coordinate with
AHI's supervisors regarding the operations at the Warehouse to ensure safety at the place of work.
He shall see to it that the cargoes are not overlanded, shortlanded, delivered at a wrong destination, or
misdelivered to consignee's port of destination. Any discrepancy shall be reported immediately to AHI's
Logistic Manager, Mr. Andy Valeroso.
93
The control exercised by petitioner's supervisors over the performance of respondents was to
such extent that petitioner's Warehouse Supervisor, Roger Borromeo, confidently gave an
evaluation of the performance of respondent Monaorai Dimapatoi, who likewise felt obliged to
obtain such Certification from Borromeo.
Petitioner's control over the respondents is evident. And it is this right to control the employee, not only as
to the result of the work to be done, but also as to the means and methods by which the same is to be
accomplished, that constitutes the most important index of the existence of the employer-employee
relationship. (Emphasis supplied.)
With this case, it becomes apparent that supervision and monitoring is sufficient to establish control that is
evidence of an employer-employee relationship. Such control would, therefore, be even more evident in the
instant case considering that Tongko himself was tasked to supervise and monitor the activities of Manulife
agents. Moreover, it may be gleaned from the records of the case that Tongko reported to Manulife with
regard the performance of his agents. It was not, as if, Tongko was left alone to supervise, and perhaps,
discipline such agents. Tongko must be deemed as an employee of Manulife.
In fact, in Lazaro,[33] the Court ruled that a Sales Supervisor was considered an employee as she "oversaw
and supervised the sales agents of the company":
Lazaro's arguments may be dispensed with by applying precedents. Suffice it to say, the fact that Laudato
was paid by way of commission does not preclude the establishment of an employer-employee relationship.
In Grepalife v. Judico, the Court upheld the existence of an employer-employee relationship between the
insurance company and its agents, despite the fact that the compensation that the agents on commission
received was not paid by the company but by the investor or the person insured. The relevant factor
remains, as stated earlier, whether the "employer" controls or has reserved the right to control the
"employee" not only as to the result of the work to be done but also as to the means and methods by which
the same is to be accomplished.
Neither does it follow that a person who does not observe normal hours of work cannot be deemed an
employee. In Cosmopolitan Funeral Homes, Inc. v. Maalat, the employer similarly denied the existence of
an employer-employee relationship, as the claimant according to it, was a "supervisor on commission basis"
who did not observe normal hours of work. This Court declared that there was an employer-employee
relationship, noting that "[the] supervisor, although compensated on commission basis, [is] exempt from the
observance of normal hours of work for his compensation is measured by the number of sales he makes."
It should also be emphasized that the SSC, also as upheld by the Court of Appeals, found that
Laudato was a sales supervisor and not a mere agent. As such, Laudato oversaw and supervised
the sales agents of the company, and thus was subject to the control of management as to how
she implements its policies and its end results. x x x
The finding of the SSC that Laudato was an employee of Royal Star is supported by substantial evidence.
The SSC examined the cash vouchers issued by Royal Star to Laudato, calling cards of Royal Star
denominating Laudato as a "Sales Supervisor" of the company, and Certificates of Appreciation issued by
Royal Star to Laudato in recognition of her unselfish and loyal efforts in promoting the company. On the
other hand, Lazaro has failed to present any convincing contrary evidence, relying instead on his bare
assertions. The Court of Appeals correctly ruled that petitioner has not sufficiently shown that the SSC's
ruling was not supported by substantial evidence.
A piece of documentary evidence appreciated by the SSC is Memorandum dated 3 May 1980 of Teresita
Lazaro, General Manager of Royal Star, directing that no commissions were to be given on all "main office"
sales from walk-in customers and enjoining salesmen and sales supervisors to observe this new policy. The
Memorandum evinces the fact that, contrary to Lazaro's claim, Royal Star exercised control over its sales
supervisors or agents such as Laudato as to the means and methods through which these personnel
performed their work. (Emphasis supplied.)
Tongko was held out as an officer of Manulife by Manulife itself, being tagged as its Manager. He was tasked
to supervise the insurance agents of Manulife. Clearly, the Lazaro case must apply to Tongko and he must be
considered an employee of Manulife.
94
Furthermore, the letter of De Dios itself also contained several indicia of control. To reiterate, it was stated in
the letter that:
All of a sudden, Greg, I have become much more worried about your ability to lead this group towards the
new direction that we have been discussing these past few weeks, i.e., Manulife's goal to become a major
agency-led distribution company in the Philippines. While as you claim, you have not stopped anyone
from recruiting, I have never heard you proactively push for greater agency recruiting. You have
not been proactive all these years when it comes to agency growth.
xxxx
I cannot afford to see a major region fail to deliver on its developmental goals next year and so, we are
making the following changes in the interim:
1. You will hire at your expense a competent assistant who can unload you of much of the routine
tasks which can be easily delegated. This assistant should be so chosen as to complement your skills
and help you in the areas where you feel "may not be your cup of tea".
You have stated, if not implied, that your work as Regional Manager may be too taxing for you and for your
health. The above could solve this problem.
xxxx
2. Effective immediately, Kevin and the rest of the Agency Operations will deal with the North Star Branch
(NSB) in autonomous fashion. x x x
I have decided to make this change so as to reduce your span of control and allow you to
concentrate more fully on overseeing the remaining groups under Metro North, your Central Unit
and the rest of the Sales Managers in Metro North. I will hold you solely responsible for meeting
the objectives of these remaining groups.(Emphasis supplied.)
The goal of Manulife was to become an agency-driven insurance company. If Tongko were indeed not an
employee of Manulife, the company would not set the means and methods to achieve such goal. As long as
Tongko was able to recruit the set number of agents, there would be no reason for Manulife to terminate his
services as an independent contractor. However, that is not the case here. It may be gleaned from the letter
that De Dios is directing Tongko to clamor more actively his peers and his agents to recruit other agents. It
was not sufficient that Tongko, by himself, recruit agents. This directive certainly shows that Manulife sought
to prescribe the means and methods to achieve its goal.
De Dios further ordered Tongko to hire at his expense an assistant on whom he "can unload you of much of
the routine tasks which can be easily delegated." There is no other way to classify this order but as an
intrusion into the means and methods of achieving the company's goals.
In the letter, Tongko was also informed that his area of responsibility was going to be reduced. InMegascope
General Services v. National Labor Relations Commission,[34] between February 15, 1977 and January 1,
1989, petitioner contracted the services of several individuals as gardeners, helpers and maintenance
workers. These workers were deployed at the National Power Corporation in Bagac, Bataan. Except for
Gener J. del Rosario whose employment ended on April 30, 1989, the work of the other workers ceased on
January 31, 1991. Consequently, private respondents filed a complaint for illegal dismissal, underpayment of
salaries, nonpayment of five-day service incentive leave credits and holiday pay against petitioner with the
NLRC. The Court ruled therein that the company exercised control over the workers that would establish an
employer-employee relationship when it reassigned the workers from one workplace to another:
Private respondents were selected and hired by petitioner which assigned them to the NPC housing village in
Bagac and in Km. 168, Morong, Bataan. They drew their salaries from petitioner which eventually dismissed
them. Petitioner's control over private respondents was manifest in its power to assign and pull them out of
clients at its own discretion. Power of control refers merely to the existence of the power and not to the
actual exercise thereof. It is not essential for the employer to actually supervise the performance of duties of
the employee. It is enough that the former has the right to wield the power.
In South Davao Development Company, Inc.,[35] the Court ruled that the workers must be considered as
employees of the company as the latter exercised control over the means and methods employed by the
95
workers to achieve their objective, as evidenced by its power to transfer the copra workers as its employees
to that of Gamo:
In this case, it was in the exercise of its power of control when petitioner corporation transferred the copra
workers from their previous assignments to work as copraceros. It was also in the exercise of the same
power that petitioner corporation put Gamo in charge of the copra workers although under a different
payment scheme. Thus, it is clear that an employer-employee relationship has existed between petitioner
corporation and respondents since the beginning and such relationship did not cease despite their
reassignments and the change of payment scheme.
Similarly, in the instant case, by limiting the area of responsibility of Tongko, this is akin to a transfer or
reassignment, an exercise of control by Manulife over Tongko that must necessarily determine the existence
of an employer-employee relationship.
On the same issue, Justice Carpio-Morales added in her Dissenting Opinion to the June 29, 2010 Resolution
that:
More significantly, in the succeeding Insular Life case, the Court found the following indicators material in
finding the presence of control in cases involving insurance managers:
Exclusivity of service, control of assignments and removal of agents under private respondent's unit,
collection of premiums, furnishing of company facilities and materials as well as capital described as Unit
Development Fund are but hallmarks of the management system in which herein private respondent
worked. This obtaining, there is no escaping the conclusion that private respondent Pantaleon de los Reyes
was an employee of herein petitioner. x x x
The ponencia concludes that "[a]ll these are obviously absent" in petitioner's case. The facts show
otherwise, however. On top of the exclusive service rendered to respondent, which AFP Mutual Benefit
Association, Inc. v. NLRC instructs to be not controlling, other factors were present. Petitioner established no
agency of his own as the Metro North Region to which he was assigned remained intact even after his ties
with respondent were severed. Respondent provided and furnished company facilities, equipments and
materials for petitioner at respondent's Makati office. Respondent's control of assignments was evident from
its act of removing the North Star Branch from petitioner's scope of the Metro North Region, on which a
"memo to spell this matter out in greater detail" was advised to be issued shortly thereafter. Respondent
reserved to impose other improvements in the region after manifesting its intention to closely follow the
region. Respondent's managers, like petitioner, could only refer and recommend to respondent prospective
agents who would be part of their respective units. In other words, respondent had the last say on the
composition and structure of the sales unit or region of petitioner. Respondent, in fact, even devised the
deployment of an Agency Development Officer in the region to "contribute towards the manpower
development work x x x as part of our agency growth campaign."
Such an arrangement leads to no other conclusion than that respondent exercised the type of control of an
employer, thereby wiping away the perception that petitioner was only a "lead agent" as viewed by the
ponencia. Even respondent sees otherwise when it rebuked petitioner that "[y]ou (petitioner) may have
excelled in the past as an agent but, to this date, you still carry the mindset of a senior agent." Insofar as
his management functions were concerned, petitioner was no longer considered a senior agent.
Furthermore, while this Court has already ruled that Article 280 of the Labor Code may not be used to prove
the existence of an employer-employee relationship when the same is denied, [36] the fact that the work of
the alleged independent contractor is usually necessary or desirable in the usual business or trade of the
employer would establish a management structure that would mean that Tongko was Manulife's employee.
Such element of control, however, was only present in the administrative duties imposed upon Tongko when
he was a manager of Manulife. The Agreement, as well as other the evidence presented, does not show the
control necessary to establish an employer-employee relationship while Tongko was just an agent of
Manulife. Hence, it is emphasized that it was only upon the imposition of such administrative duties that
Tongko was an employee of Manulife and only the consequent change in his remunerations should be
considered as his salary. This would consist of his persistency income and management overrides only and
not his commissions as an agent.
The majority would seem to suggest that the notion of "control" as understood in the Labor Code and as
applied in labor relations cases differs from the concept of "control" that governs the relationship between
96
an insurance company and its agents. In Grepalife and in the earlier Insular life Assurance Co. Ltd. v. NLRC
(4th Division) (Insular Life),[37] it was distinctly noted that the Court did not posit the dichotomy presently
parlayed by the majority. Consider the following excerpts from Insular Life:
Exclusivity of service, control of assignments and removal of agents under private respondent's unit,
collection of premiums, furnishing of company facilities and materials as well as capital described as Unit
Development Fund are but hallmarks of the management system in which herein private respondent
worked. This obtaining, there is no escaping the conclusion that private respondent Pantaleon de los Reyes
was an employee of herein petitioner.
Similarly, Justice Carpio-Morales, in the same Dissenting Opinion, wrote:
The Insurance Code may govern the licensing requirements and other particular duties of insurance agents,
but it does not bar the application of the Labor Code with regard to labor standards and labor relations.
It bears pointing out that Tongko cannot be considered as an independent contractor of Manulife. There is no
evidence to establish such a scenario. In Television and Production Exponents, Inc. v. Servaa,[38] the
Court enumerates the requirements for a worker to be considered an independent contractor:
Aside from possessing substantial capital or investment, a legitimate job contractor or subcontractor carries
on a distinct and independent business and undertakes to perform the job, work or service on its own
account and under its own responsibility according to its own manner and method, and free from the control
and direction of the principal in all matters connected with the performance of the work except as to the
results thereof. TAPE failed to establish that respondent is an independent contractor. As found by the Court
of Appeals:
We find the annexes submitted by the private respondents insufficient to prove that herein petitioner is
indeed an independent contractor. None of the above conditions exist in the case at bar. Private respondents
failed to show that petitioner has substantial capital or investment to be qualified as an independent
contractor. They likewise failed to present a written contract which specifies the performance of a specified
piece of work, the nature and extent of the work and the term and duration of the relationship between
herein petitioner and private respondent TAPE.
Here, the records are bereft of any evidence to establish that Tongko had substantial capital or investment
to be qualified as an independent contractor.
Tongko being allowed the privilege to canvas
insurance applications is not contrary to his employment status
The majority described petitioner as a lead insurance agent, at best, the change in his designation--from
unit manager to branch manager and then to regional sales manager--being merely reflective of the
increase in the number of agents under his guidance as well as the increase in the area of operation.
Tongko, so the majority suggests, never rose to the level of Manulife's employee, as he did not even present
copies of his managerial appointment to prove the fact that his agency relationship changed in the sense
that Manulife controlled the means and methods of his work. The majority posits that even though the other
managers of Manulife admitted to having duties and responsibilities other than those contained in a Career
Agents Agreement, Tongko could not have been anything other than an agent.
With due respect, I beg to disagree with this posture.
It may be stated, as a general proposition, that an insurance agent--who usually sells insurance at his
convenience following his own selling methods and who, for the most part, is governed by a set of
rules[39] the company promulgates to guide its commission agents in selling its policies that they may not run
afoul of the law--is not an employee. But as explained for reasons stated in my Dissent to the June 29, 2010
Resolution, Manulife, upon the petitioner's appointment as manager, exercised effective control not
only over the results of his work, but also over the means and methods by which it is to be accomplished.
For sure, petitioner, while acting as Manulife's unit or branch manager, was allowed to sell insurance
policies. And there is nothing absurd, let alone novel about an employee of an insurance company being
given the privilege to solicit insurance.
In two (2) cases, the Court has already ruled that an individual may be an employee of an insurance agency
97
while concurrently being allowed to sell insurance policies for the same company. In theInsular Life case,
[40]
Insular Assurance Co., Ltd. (Insular) entered into an agency contract with Pantaleon de los Reyes
authorizing the latter to solicit within the Philippines applications for life insurance and annuities for which he
would be paid compensation in the form of commissions. Later, on March 1, 1993, the same parties entered
into another contract where de los Reyes was appointed as Acting Unit Manager. The duties and
responsibilities of de los Reyes included the recruitment, training, organization and development within his
designated territory of a sufficient number of qualified, competent and trustworthy underwriters, and to
supervise and coordinate the sales efforts of the underwriters in the active solicitation of new business and
in the furtherance of the agency's assigned goals. We also stated that:
"Aside from soliciting insurance, De los Reyes was also expressly obliged to participate in the company's
conservation program, i.e., preservation and maintenance of existing insurance policies, and to accept
moneys duly receipted on agent's receipts provided the same were turned over to the company. As long as
he was unit manager in an acting capacity, De los Reyes was prohibited from working for other life insurance
companies or with the government. He could not also accept a managerial or supervisory position in any
firm doing business in the Philippines without the written consent of petitioner.
"Private respondent worked concurrently as agent and Acting Unit Manager until he was notified
by petitioner on 18 November 1993 that his services were terminated effective 18 December 1993. On 7
March 1994 he filed a complaint before the Labor Arbiter on the ground that he was illegally dismissed and
that he was not paid his salaries and separation pay." (Emphasis supplied.)
The fact that de los Reyes concurrently acted as an agent, selling insurance for Insular, and as an acting Unit
Manager, did not prevent the Court from ruling that de los Reyes was Insular's employee.
Similarly, in the Grepalife case,[41] the brothers Rodrigo and Ernesto Ruiz entered into agency agreements
with Great Pacific Life Assurance Corporation (Grepalife) for the former to sell the latter's insurance policies.
They started out as trainee agents and later promoted to Zone Supervisor and District Manager, respectively.
Describing the brother's duties, the Court ruled:
x x x [T]heir work at the time of their dismissal as zone supervisor and district manager are necessary and
desirable to the usual business of the insurance company. They were entrusted with supervisory, sales and
other functions to guard Grepalife's business interests and to bring in more clients to the company, and even
with administrative functions to ensure that all collections, reports and data are faithfully brought to the
company.
Upon the foregoing factual setting, the Court ruled that the brothers Ruiz are employees of Grepalife, the
latter exercising control over the means and methods employed by them to reach their objective.
Clearly, the fact that an individual acts as an agent of an insurance company is irrelevant to the issue of
whether the individual is an employee of the company. The Court has already recognized the reality that an
employee of an insurance company may, at the same time, be an agent and allowed to act as such.
It may be, as asserted, that petitioner was unable to adduce in evidence copies of his management
contracts specifying his overall duties and responsibilities as manager. But then, a management contract, for
purposes of determining the relationship between the worker and the employer, is simply evidence to
support a conclusion either way. Such document, or the absence thereof, would not influence the conclusion
on the issue of employment. The presence of a management contract would merely simplify the issue as to
the duties and responsibilities of the employee concerned as they would then be clearly defined. Moreover,
other evidence, like the letter of De Dios, may be considered to support the contention that he was an
employee of Manulife and prove his duties and responsibilities as such.
It may not be remiss to point out that Tongko was dismissed from his employment with Manulife for his
failure to recruit sufficient numbers of agents. As was explained in the November 7, 2008 Decision:
The problem started sometime in 2001, when Manulife instituted manpower development programs in the
regional sales management level. Relative thereto, De Dios addressed a letter dated November 6, 2001 to
Tongko regarding an October 18, 2001 Metro North Sales Managers Meeting. In the letter, De Dios stated:
The first step to transforming Manulife into a big league player has been very clear to increase the number
of agents to at least 1,000 strong for a start. This may seem diametrically opposed to the way Manulife was
run when you first joined the organization. Since then, however, substantial changes have taken place in the
98
organization, as these have been influenced by developments both from within and without the company.
Subsequently, De Dios wrote Tongko another letter dated December 18, 2001, terminating Tongko's
services, thus:
It would appear, however, that despite the series of meetings and communications, both one-on-one
meetings between yourself and SVP Kevin O' Connor, some of them with me, as well as group meetings with
your Sales Managers, all these efforts have failed in helping you align your directions with Managements'
avowed agency growth policy.
xxxx
On account thereof, Management is exercising its prerogative under Section 14 of your Agents Contract as
we are now issuing this notice of termination of your Agency Agreement with us effective fifteen days from
And yet, the recruitment of agents is not among the duties and responsibilities that were designated to
Tongko in the Agreement. And while there may not have been another contract to supersede the Agreement
that was presented as evidence, the facts of the case bear out that Tongko was assigned various other
duties and responsibilities that were not included therein.
Manulife's decision not to execute a management contract with petitioner was well within its prerogative.
However, the bare fact of Manulife and petitioner not having executed a management contract, if this were
the case, did not reduce the petitioner to a mere "lead agent." While there was perhaps no written
management contract whence petitioner's duties and undertaking as unit/branch manager may easily be
fleshed out prefatory to determining if an employer-employee relationship with Manulife did exist, other
evidence was adduced to show such duties and responsibilities. For one, in his letter [42] of November 6, 2001,
respondent De Dios addressed petitioner as sales manager. And as I wrote in my Dissent to the June 29,
2010 Resolution, it is difficult to imagine that Manulife did not issue promotional appointments to petitioner
as unit manager, branch manager, and eventually regional sales manager. Sound management practice
simply requires an appointment for any upward personnel movement, particularly when additional functions
and the corresponding increase in compensation are involved. Then, too, the adverted affidavits of the
managers of Manulife as to the duties and responsibilities of a unit manager, such as petitioner, point to the
conclusion that these managers were employees of Manulife, applying the "four-fold" test.
Any lingering doubt that petitioner was, by virtue of the management appointment, under Manulife's employ
should be laid to rest by its virtual admission made in its Motion for Reconsideration dated December 3,
2008 that petitioner was dismissed for a just and lawful cause: gross and habitual neglect of duties,
inefficiency and willful disobedience of the lawful orders of Manulife, to wit:
5.4. And yet, until the November 7 Decision, Respondents never thought for one moment that Petitioner was
Manulife's employee. All the agreements executed with him, his flexible hours, his unsupervised choice of
clients and method of selling the products, his ability to take leave anytime, his separate business expenses,
his own declarations in his tax return, Respondent Manulife's non-contribution of SSS premiums for him, his
non-existence in the company plantilla, Respondent Manulife's withholding from him of creditable income
tax, all consistently showed that Respondent Manulife's belief was singular in the existence of independent
contractorship.
x x x x.
5.7. And yet, respondent Manulife did indeed substantially comply with the requirements for lawful dismissal
of a regular employee, assuming arguendo that petitioner is one. He was dismissed for a just and lawful
cause - for gross disobedience of the lawful orders of Respondent Manulife. Respondents presented an
abundance of evidence demonstrating how termination happened only after failure to meet company goals,
after all remedial efforts to correct the inefficiency of Petitioner failed and after Petitioner, as found by the
CA, created dissension in Respondent Manulife when he refused to accept the need for improvement in his
area and continued to spread the bile of discontent and rebellion that he had generated among the other
agents.
Notably, in the termination letter of Manulife that was addressed to Tongko, no mention is made of any valid
cause for the termination of his services. No mention was made of any particular rule that Tongko violated
leading to his separation. Evidently, Tongko's termination of employment was without cause. In an apparent
99
about face, Manulife now claims that it had a valid cause for the termination of Tongko's services.
While the Court allows the presentation of inconsistent defenses, Manulife's argumentation on this point
would destroy its position that Tongko is not its employee. Manulife is essentially pointing out the facts that
would show that it abided by the requirements of the Labor Code on the dismissal of an employee. Article
282, paragraphs (a) and (b), of the Labor Code requires the presence of valid grounds for the legal dismissal
of an employee:
Article 282. Termination by employer. - An employer may terminate an employment for any of the following
just causes:
(a) Serious misconduct or willful disobedience by the employee of the lawful orders of his employer or
(b) Gross and habitual neglect by the employee of his duties;
Stated differently, such requirements are only required of employers with regard to their employees.
Manulife had no reason to comply with this provision of law if it did not consider Tongko as an employee.
Therefore, the question is begged as to why Manulife deemed it necessary to comply with such provision of
law. There is an implied admission that Tongko was Manulife's employee.
The following excerpts appearing in my Dissent to the June 29, 2010 Resolution are self-explanatory:
At this juncture, the Court notes that Manulife has changed its stance on the issue of illegal dismissal. In
its Position Paper with Motion to Dismiss filed before the Labor Arbiter, in its Motion for Reconsideration (Re:
Decision dated 27 September 2004) dated October 11, 2004 filed before the NLRC, and in
its Comment dated August 5, 2006 filed before the Court, Manulife had consistently assumed the posture
that the dismissal of petitioner was a proper exercise of termination proviso under the Career Agent's
Agreement. In this motion, however, Manulife, in a virtual acknowledgment of petitioner being its employee,
contends that the petitioner was "dismissed for a just and lawful cause - for gross and habitual neglect of
duties, inefficiency and willful disobedience of the lawful orders." Manulife adds that:
Respondents presented an abundance of evidence demonstrating how termination happened only after
failure to meet company goals, after all remedial efforts to correct the inefficiency of Petitioner failed and
after Petitioner, as found by the CA, created dissension in Respondent Manulife when he refused to accept
the need for improvement in his area and continued to spread the bile of discontent and rebellion that he
had generated among the other agents.
In all, I submit that petitioner's peculiar circumstances as unit manager, branch manager and ultimately
regional sales manager of Manulife, with the exclusivity feature of his engagement and his duties as such
manager, indicate, at the very least, a prima facie existence of an employer-employee relationship, following
the control test. And given the bias of the Constitution, [43] Labor Code[44] and Civil Code[45] in favor of labor,
any doubt as to the existence of such relationship occasioned by the lack of evidence should be resolved in
favor of petitioner and of employment. In this regard, I hark back anew to what the Court emphatically said
in Dealco Farms, Inc. v. National Labor Relations Commission:
Having failed to substantiate its allegations on the relationship between the parties, we stick to the settled
rule in controversies between a laborer and his master that doubts reasonably arising from the evidence
should be resolved in the former's favor.[46]
cralaw
As in Dealco Farms, the sympathies of the Court in this case should be easy and clear. The flip-flopping of
the lower tribunals and the change in the Court's own stand lucidly show the ambiguity and doubt in the
application of the labor laws to the instant case. As such, the Court is duty-bound to resolve such doubts in
favor of the employee, Tongko.
Tongko was illegally dismissed
Having established that Tongko was indeed an employee of Manulife when he was a manager thereof, the
next question is whether the dismissal was illegal.
This must be answered in the affirmative.
100
In the NLRC and the CA, Manulife alleged that Tongko was validly dismissed for gross and habitual neglect of
duties, inefficiency, as well as willful disobedience of the lawful orders of Manulife. Evidently, such dismissal
was due to Tongko's failure to recruit the required number of agents from his area of responsibility.
To reiterate, two (2) of the alleged grounds for the dismissal of Tongko fall under Art. 282, paragraphs (a)
and (b) of the Labor Code:
Article 282. Termination by employer. - An employer may terminate an employment for any of the following
just causes:
(b) Serious misconduct or willful disobedience by the employee of the lawful orders of his employer or
(c) Gross and habitual neglect by the employee of his duties;
On the other hand, inefficiency as a ground for termination of employment is equated with gross and
habitual neglect, as the Court explained in St. Luke's Medical Center, Incorporated v. Fadrigo:[47]
Gross inefficiency is closely related to gross neglect, for both involve specific acts of omission on
the part of the employee resulting in damage to the employer or to his business. As a just cause for
an employee's dismissal, inefficiency or neglect of duty must not only be gross but also habitual. Thus, a
single or isolated act of negligence does not constitute a just cause for the dismissal of the employee.
(Emphasis supplied.)
In cases of termination of employment for just causes, the Court has repeatedly held that the burden rests
on the employer to justify such dismissal. Art. 277, paragraph (b) of the Labor Code states:
Article. 277. Miscellaneous provisions. - x x x
(b) Subject to the constitutional right of workers to security of tenure and their right to be protected against
dismissal except for a just and authorized cause and without prejudice to the requirement of notice under
Article 283 of this Code, the employer shall furnish the worker whose employment is sought to be
terminated a written notice containing a statement of the causes for termination and shall afford the latter
ample opportunity to be heard and to defend himself with the assistance of his representative if he so
desires in accordance with company rules and regulations promulgated pursuant to guidelines set by the
Department of Labor and Employment. Any decision taken by the employer shall be without prejudice to the
right of the worker to contest the validity or legality of his dismissal by filing a complaint with the regional
branch of the National Labor Relations Commission. The burden of proving that the termination was
for a valid or authorized cause shall rest on the employer. The Secretary of the Department of Labor
and Employment may suspend the effects of the termination pending resolution of the dispute in the event
of a prima facie finding by the appropriate official of the Department of Labor and Employment before whom
such dispute is pending that the termination may cause a serious labor dispute or is in implementation of a
mass lay-off. (Emphasis supplied.)
Thus, the Court has ruled in Caltex (Philippines), Inc. v. Agad[48] that:
In termination cases, the burden of proof rests on the employer to show that the dismissal is for just cause.
When there is no showing of a clear, valid, and legal cause for the termination of employment, the law
considers the matter a case of illegal dismissal and the burden is on the employer to prove that the
termination was for a valid or authorized cause.
The quantum of proof which the employer must discharge is substantial evidence. An employee's dismissal
due to serious misconduct and loss of trust and confidence must be supported by substantial evidence.
Substantial evidence is that amount of relevant evidence as a reasonable mind might accept as adequate to
support a conclusion, even if other minds, equally reasonable, might conceivably opine otherwise.
While in Lima Land, Inc. v. Cuevas,[49] the Court ruled:
Well-settled is the rule that the essence of due process is simply an opportunity to be heard or, as applied to
administrative proceedings, an opportunity to explain one's side or an opportunity to seek a reconsideration
101
of the action or ruling complained of.
Moreover, in dismissing an employee, the employer has the burden of proving that the former worker has
been served two notices: (1) one to apprise him of the particular acts or omissions for which his dismissal is
sought, and (2) the other to inform him of his employer's decision to dismiss him. The first notice must state
that dismissal is sought for the act or omission charged against the employee, otherwise, the notice cannot
be considered sufficient compliance with the rules.
The first written notice to be served on the employees should contain the specific causes or grounds for
termination against them, and a directive that the employees are given the opportunity to submit their
written explanation within a reasonable period. "Reasonable opportunity" under the Omnibus Rules means
every kind of assistance that management must accord to the employees to enable them to prepare
adequately for their defense. This should be construed as a period of at least five (5) calendar days from
receipt of the notice to give the employees an opportunity to study the accusation against them, consult a
union official or lawyer, gather data and evidence, and decide on the defenses they will raise against the
complaint. Moreover, in order to enable the employees to intelligently prepare their explanation and
defenses, the notice should contain a detailed narration of the facts and circumstances that will serve as
basis for the charge against the employees. A general description of the charge will not suffice. Lastly, the
notice should specifically mention which company rules, if any, were violated and/or which among the
grounds under Article 282 is being charged against the employees.
Manulife has failed to overcome such burden. Willful disobedience, to justify termination from employment,
must comply with the following requirements, as enunciated in Areno v. SkyCable PCC-Baguio,[50] to wit:
As a just cause for dismissal of an employee under Article 282 of the Labor Code, willful disobedience of the
employer's lawful orders requires the concurrence of two elements: (1) the employee's assailed conduct
must have been willful, i.e., characterized by a wrongful and perverse attitude; and (2) the order violated
must have been reasonable, lawful, made known to the employee, and must pertain to the duties which he
had been engaged to discharge.
Neglect of duty, to be a valid ground for termination of employment must also conform to the following
requirements, as stated in Benjamin v. Amellar Corporation:[51]
It bears stressing in dismissing an employee for gross and habitual neglect of duties, the negligence should
not merely be gross. It should also be habitual. There being nothing in the records to identify what specific
duties Anabel violated and whether the violations were gross and habitual, any discussion herein is an
exercise in futility.
Here, Manulife has failed to identify the rule and the standards by which Tongko's acts were considered
unsatisfactory. There were no set criteria for determining the sufficiency of Tongko's recruitment efforts.
Moreover, Tongko's acts were not proved to be willful or gross and habitual as defined by the above-cited
jurisprudence. Absent proof establishing such factors, Manulife cannot be considered to have discharged the
burden required to prove that the just cause for termination of employment was indeed present. In fact, at
the time Tongko's services were terminated, his area was not the last in agent recruitment. As such,
Tongko's dismissal smacks of arbitrariness.
Informal communications violate the principle of sub judice
On a final note, the Court received and set for agenda four (4) letters in relation to the instant case: (1)
Letter of Tongko dated November 30, 2005;[52] (2) the aforementioned letter of the Joint Foreign Chambers
of the Philippines dated December 16, 2008;[53] (3) Letter of Gregorio Mercado, President of the Philippine
Life Insurance Association, Inc. dated January 12, 2009; [54] and (4) Letter of Tongko dated March 25, 2009,
[55]
propounding their positions on the case. At that point in time, the case had not yet become final and
executory, hence, sub judice. In Romero v. Estrada,[56] the Court expounded on this principle, to wit:
The sub judice rule restricts comments and disclosures pertaining to judicial proceedings to avoid prejudging
the issue, influencing the court, or obstructing the administration of justice. A violation of the sub judice rule
may render one liable for indirect contempt under Sec. 3(d), Rule 71 of the Rules of Court. The rationale for
the rule adverted to is set out in Nestle Philippines v. Sanchez:
102
[I]t is a traditional conviction of civilized society everywhere that courts and juries, in the decision of issues
of fact and law should be immune from every extraneous influence; that facts should be decided upon
evidence produced in court; and that the determination of such facts should be uninfluenced by bias,
prejudice or sympathies.
The principle of sub judice is a two-way street. Inasmuch as the parties and other interested individuals
should refrain from trying to influence the courts, the court itself should also be on guard against such
attempts. The Court should, therefore, be wary from accepting and putting on record, papers and
documents not officially filed with it. Such submissions have the appearance of influencing the Court despite
the latter's determined objectivity and must be avoided. To illustrate, the November 7, 2008 Decision of this
Court was decided in favor of Tongko with only one (1) dissent. However, in the July 29, 2010 Resolution,
the original Decision was reversed in favor of Manulife by the Court en banc, with only two (2) dissents. The
above-mentioned letters were received by the Court after November 7, 2008 but before July 29, 2010. While
the letters themselves may not have actually swayed the members of the Court, the appearance of
impropriety should be avoided. To reiterate, when the parties submitted the aforementioned letters, the case
had not yet become final and executory, they had sufficient remedies under the Rules of Court for redress.
There was no reason for the parties to have submitted such letters and for this Court to have taken
cognizance thereof and to set the same for agenda.
To reiterate, the declaration that Tongko is an employee of Manulife, having performed administrative
functions as its manager, cannot be applied to insurance agents in general. Any finding of an employeremployee relationship shall always be on a case-to-case basis. The instant case is no exception. Any fear
that the grant of Tongko's motion for reconsideration shall render all insurance agents in the country as
employees of insurance companies is badly misplaced.
WHEREFORE, I vote to grant Tongko's Motion for Reconsideration dated July 28, 2010, to annul and set
aside the June 29, 2010, and to reinstate the November 7, 2008 Decision with modification on the amount
of backwages to which Tongko shall be entitled. As thus modified and subject to the qualifications defined in
the Dissenting Opinion to the June 29, 2010, petitioner should be awarded backwages, to be computed as
the monthly average of his management overrides, as well as other bonuses and benefits, corresponding to
the period he was serving Manulife as unit, branch and eventually regional sales manager.
Endnotes:
Philippine Fuji Xerox Corporation v. National Labor Relations Commission (First Division), G.R. No.
111501, March 5, 1996, 254 SCRA 294; Associated Anglo-American Tobacco Corporation v. Clave, G.R. No.
50915, August 30, 1990, 189 SCRA 127; Tabas v. California Manufacturing Company, Inc., No. L-80680,
January 26, 1989, 169 SCRA 497.
[1]
[2]
Rollo, pp. 451-453.
[3]
Id. at 53.
[4]
Id. at 295-300.
[5]
Id. at 301-302.
[6]
Id. at 310.
[7]
G.R. No. 119930, March 12, 1998, 287 SCRA 476.
[8]
G.R. Nos. 80750-51, July 23, 1990, 187 SCRA 694.
[9]
Rollo, pp. 430-450.
[10]
Id. at 361.
[11]
Id. at 363-364.
[12]
Id. at 375-377.
103
[13]
Manulife Financial. "Global Presence." October 20, 2010.
.
Traders Royal Bank v. National Labor Relations Commission, G.R. No. 127864, December 22, 1999, 321
SCRA 467.
[14]
[15]
Lazaro v. Social Security Commission, G.R. No. 138254, July 30, 2004, 435 SCRA 472.
[16]
No. L-46058, December 14, 1987, 156 SCRA 383, 388-389.
[17]
Arts. 1458-1637.
[18]
G.R. No. 86693, July 2, 1990, 187 SCRA 108, 112-113.
[19]
Arts. 1713-1720.
[20]
G.R. No. 83402, October 6, 1997, 280 SCRA 188, 197-198.
[21]
G.R. No. 102467, June 13, 1997, 273 SCRA 352, 371.
[22]
G.R. No. 138254, July 30, 2004, 435 SCRA 472, 476-477.
[23]
G.R. No. 153192, January 30, 2009, 577 SCRA 280, 292-293, 295-296.
[24]
G.R. No. 171814, May 8, 2009, 587 SCRA 524, 534.
[25]
G.R. No. 159890, May 28, 2004, 430 SCRA 368, 379.
[26]
Id.
[27]
Traders Royal Bank v. NLRC, supra note 14.
[28]
G.R. No. 171275, July 13, 2009, 592 SCRA 481, 492-493.
[29]
G.R. Nos. 80750-51, July 23, 1990, 187 SCRA 694.
[30]
Id. at 698-699.
[31]
Supra note 21, at 331-334.
[32]
G. R. No. 148619, September 19, 2006, 502 SCRA 271, 288-289.
[33]
Supra note 22, at 476-478.
[34]
G.R. No. 109224, June 19, 1997, 274 SCRA 146, 154.
[35]
Supra note 24, at 534.
Purefoods Corporation (now San Miguel Purefoods Company, Inc.) v. National Labor Relations
Commission, G.R. No. 172241, November 20, 2008, 571 SCRA 406.
[36]
[37]
G.R. No. 119930, March 12, 1998, 287 SCRA 476, 489.
[38]
G.R. No. 167648, January 28, 2008, 542 SCRA 578, 588.
[39]
Usually the Codes of Conduct.
[40]
[41]
104
[42]
Rollo, p. 53.
[43]
Art. II, Section 8; and Art. XIII, Sec. 3.
[44]
Art. 4.
[45]
Arts. 1700 and 1702.
[46]
[47]
G.R. No. 185933, November 25, 2009, 605 SCRA 728, 736.
[48]
G.R. No. 162017, April 23, 2010.
[49]
G.R. No. 169523, June 16, 2010.
[50]
G.R. No. 180302, February 5, 2010.
[51]
G.R. No. 183383, April 5, 2010.
[52]
Rollo, p. 680.
[53]
Id. at 834-836.
[54]
Id. at 839-840.
[55]
Id. at 860.
[56]
G.R. No. 174105, April 2, 2009, 583 SCRA 396, 403.
[G.R. No. 166044 : June 18, 2012]

COUNTRY BANKERS INSURANCE CORPORATION, PETITIONER, VS.
KEPPEL CEBU SHIPYARD, UNIMARINE SHIPPING LINES, INC., PAUL
RODRIGUEZ, PETER RODRIGUEZ, ALBERT HONTANOSAS, AND
BETHOVEN QUINAIN, RESPONDENTS.
DECISION
LEONARDO-DE CASTRO, J.:
This is a petition for review on certiorari[1] to reverse and set aside the January
29, 2004 Decision[2]and October 28, 2004 Resolution[3] of the Court of Appeals
in CA-G.R. CV No. 58001, wherein the Court of Appeals affirmed with
modification the February 10, 1997 Decision[4] of the Regional Trial Court (RTC)
of Cebu City, Branch 7, in Civil Case No. CBB-13447.
cralaw
Hereunder are the undisputed facts as culled from the records of the case.
On January 27, 1992, Unimarine Shipping Lines, Inc. (Unimarine), a corporation
engaged in the shipping industry, contracted the services of Keppel Cebu
Shipyard, formerly known as Cebu Shipyard and Engineering Works, Inc. (Cebu
Shipyard), for dry docking and ship repair works on its vessel, the M/V Pacific
105
Fortune.[5]
On February 14, 1992, Cebu Shipyard issued Bill No. 26035 to Unimarine in
consideration for its services, which amounted to P4,486,052.00.[6]
Negotiations between Cebu Shipyard and Unimarine led to the reduction of this
amount to P3,850,000.00. The terms of this agreement were embodied in Cebu
Shipyards February 18, 1992 letter to the President/General Manager of
Unimarine, Paul Rodriguez, who signed his conformity to said letter, quoted in
full below:
18 February 1992
Ref No.: LL92/0383
UNIMARINE SHIPPING LINES, INC.
C/O Autographics, Inc.
Gorordo Avenue, Lahug, Cebu City
Attention: Mr. Paul Rodriguez
President/General Manager
This is to confirm our agreement on the shiprepair bills charged for the repair of
MV Pacific Fortune, our invoice no. 26035.
The shiprepair bill (Bill No. 26035) is agreed at a negotiated amount of
P3,850,000.00 excluding VAT.
Unimarine Shipping Lines, Inc. (Unimarine) will pay the above amount of
[P3,850,000.00] in US Dollars to be fixed at the prevailing USDollar to Philippine
Peso exchange rate at the time of payment. The payment terms to be extended
to Unimarine is as follows:
Installments
1st Installment
2nd Installment
Amount
P2,350,000.00
P1,500,000.00
Due Date
30 May 1992
30 Jun 1992
Unimarine will deposit post-dated checks equivalent to the above amounts in

Philippine Peso and an additional check amount of P385,000.00, representing
10% [Value Added Tax] VAT on the above bill of P3,850,000.00. In the event
that Unimarine fails to make full payment on the above due dates in US Dollars,
the post-dated checks will be deposited by CSEW in payment of the amounts
owned by Unimarine and Unimarine agree that the 10% VAT (P385,000.00)
shall also become payable to CSEW.
Unimarine in consideration of the credit terms extended by CSEW and the
release of the vessel before full payment of the above debt, agree to present
CSEW surety bonds equal to 120% of the value of the credit extended. The
106
total bond amount shall be P4,620,000.00.

Yours faithfully,
CEBU SHIPYARD & ENGG WORKS, INC
(SGD)
SEET KENG TAT
Treasurer/VP-Admin.
Conforme:
______(SGD)____________
PAUL RODRIGUEZ
Unimarine Shipping Lines, Inc.[7]
In compliance with the agreement, Unimarine, through Paul Rodriguez, secured

from Country Bankers Insurance Corp. (CBIC), through the latters agent,
Bethoven Quinain (Quinain), CBIC Surety Bond No. G (16) 29419[8] (the surety
bond) on January 15, 1992 in the amount of P3,000,000.00. The expiration of
this surety bond was extended to January 15, 1993, through Endorsement No.
33152[9] (the endorsement), which was later on attached to and formed part of
the surety bond. In addition to this, Unimarine, on February 19, 1992, obtained
another bond from Plaridel Surety and Insurance Co. (Plaridel), PSIC Bond No.
G (16)-00365[10] in the amount of P1,620,000.00.
On February 17, 1992, Unimarine executed a Contract of Undertaking in favor of
Cebu Shipyard. The pertinent portions of the contract read as follows:
Messrs, Uni-Marine Shipping Lines, Inc. (the Debtor) of Gorordo Avenue,
Cebu City hereby acknowledges that in consideration of Cebu Shipyard &
Engineering Works, Inc. (Cebu Shipyard) at our request agreeing to release
the vessel specified in part A of the Schedule (name of vessel) prior to the
receipt of the sum specified in part B of the Schedule (Moneys Payable)
payable in respect of certain works performed or to be performed by Cebu
Shipyard and/or its subcontractors and/or material and equipment supplied or
to be supplied by Cebu Shipyard and/or its subcontractors in connection with
the vessel for the party specified in part C of the Schedule (the Debtor), we
hereby unconditionally, irrevocably undertake to make punctual payment to
Cebu Shipyard of the Moneys Payable on the terms and conditions as set out in
part B of the Schedule. We likewise hereby expressly waive whatever right of
excussion we may have under the law and equity.
This contract shall be binding upon Uni-Marine Shipping Lines, Inc., its heirs,
executors, administrators, successors, and assigns and shall not be discharged
until all obligation of this contract shall have been faithfully and fully performed
by the Debtor.[11]
Because Unimarine failed to remit the first installment when it became due on
May 30, 1992, Cebu Shipyard was constrained to deposit the peso check
corresponding to the initial installment of P2,350,000.00. The check, however,
was dishonored by the bank due to insufficient funds.[12] Cebu Shipyard faxed a
107
message to Unimarine, informing it of the situation, and reminding it to settle

its account immediately.[13]
On June 24, 1992, Cebu Shipyard again faxed a message[14] to Unimarine, to
confirm Paul Rodriguezs promise that Unimarine will pay in full the
P3,850,000.00, in US Dollars on July 1, 1992.
Since Unimarine failed to deliver on the above promise, Cebu Shipyard, on July
2, 1992, through a faxed letter, asked Unimarine if the payment could be picked
up the next day. This was followed by another faxed message on July 6, 1992,
wherein Cebu Shipyard reminded Unimarine of its promise to pay in full on July
28, 1992. On August 24, 1992, Cebu Shipyard again faxed[15] Unimarine, to
inform it that interest charges will have to be imposed on their outstanding
debt, and if it still fails to pay before August 28, 1992, Cebu Shipyard will have
to enforce payment against the sureties and take legal action.
On November 18, 1992, Cebu Shipyard, through its counsel, sent Unimarine a
letter,[16] demanding payment, within seven days from receipt of the letter, the
amount of P4,859,458.00, broken down as follows:
B#26035
MV PACIFIC FORTUNE
4,486,052.00
LESS: ADJUSTMENT:
CN#00515-03/19/92
Add: VAT on repair bill no. 26035
Add: Interest/penalty charges:
Debit Note No. 02381
_(636,052.00)
3,850,000.00
__385,000.00
4,235,000.00
189,888.00
____434,570.00
4,859,458.00[17]
Due to Unimarines failure to heed Cebu Shipyards repeated demands, Cebu

Shipyard, through counsel, wrote the sureties CBIC [18] on November 18, 1992,
and Plaridel,[19] on November 19, 1992, to inform them of Unimarines
nonpayment, and to ask them to fulfill their obligations as sureties, and to
respond within seven days from receipt of the demand.
However, even the sureties failed to discharge their obligations, and so Cebu
Shipyard filed a Complaint dated January 8, 1993, before the RTC, Branch 18 of
Cebu City, against Unimarine, CBIC, and Plaridel. This was docketed as Civil
Case No. CBB-13447.
CBIC, in its Answer,[20] said that Cebu Shipyards complaint states no cause of
action. CBIC alleged that the surety bond was issued by its agent, Quinain, in
108
excess of his authority. CBIC claimed that Cebu Shipyard should have doubted
the authority of Quinain to issue the surety bond based on the following:
1. The nature of the bond undertaking (guarantee payment), and the
amount involved.
2. The surety bond could only be issued in favor of the Department of Public
Works and Highways, as stamped on the upper right portion of the face of
the bond.[21] This stamp was covered by documentary stamps.
3. The issuance of the surety bond was not reported, and the corresponding
premiums were not remitted to CBIC.[22]sup>
CBIC added that its liability was extinguished when, without its knowledge and
consent, Cebu Shipyard and Unimarine novated their agreement several times.
Furthermore, CBIC stated that Cebu Shipyards claim had already been paid or
extinguished when Unimarine executed an Assignment of Claims[23] of the
proceeds of the sale of its vessel M/V Headline in favor of Cebu Shipyard. CBIC
also averred that Cebu Shipyards claim had already prescribed as the
endorsement that extended the surety bonds expiry date, was not reported to
CBIC. Finally, CBIC asseverated that if it were held to be liable, its liability
should be limited to the face value of the bond and not for exemplary damages,
attorneys fees, and costs of litigation.[24]
Subsequently, CBIC filed a Motion to Admit Cross and Third Party
Complaint[25] against Unimarine, as cross defendant; Paul Rodriguez, Albert
Hontanosas, and Peter Rodriguez, as signatories to the Indemnity Agreement
they executed in favor of CBIC; and Bethoven Quinain, as the agent who issued
the surety bond and endorsement in excess of his authority, as third party
defendants.[26]
CBIC claimed that Paul Rodriguez, Albert Hontanosas, and Peter Rodriguez
executed an Indemnity Agreement, wherein they bound themselves, jointly and
severally, to indemnify CBIC for any amount it may sustain or incur in
connection with the issuance of the surety bond and the endorsement. [27] As for
Quinain, CBIC alleged that he exceeded his authority as stated in the Special
Power of Attorney, wherein he was authorized to solicit business and issue
surety bonds not exceeding P500,000.00 but only in favor of the Department of
Public Works and Highways, National Power Corporation, and other government
agencies.[28]
On August 23, 1993, third party defendant Hontanosas filed his Answer with
Counterclaim, to the Cross and Third Party Complaint. Hontanosas claimed that
he had no financial interest in Unimarine and was neither a stockholder, director
nor an officer of Unimarine. He asseverated that his relationship to Unimarine
109
was limited to his capacity as a lawyer, being its retained counsel. He further
denied having any participation in the Indemnity Agreement executed in favor
of CBIC, and alleged that his signature therein was forged, as he neither signed
it nor appeared before the Notary Public who acknowledged such undertaking.
[29]
Various witnesses were presented by the parties during the course of the trial of
the case. Myrna Obrinaga testified for Cebu Shipyard. She was the Chief
Accountant in charge of the custody of the documents of the company. She
corroborated Cebu Shipyards allegations and produced in court the documents
to support Cebu Shipyards claim. She also testified that while it was true that
the proceeds of the sale of Unimarines vessel, M/V Headline, were assigned to
Cebu Shipyard, nothing was turned over to them.[30]
Paul Rodriguez admitted that Unimarine failed to pay Cebu Shipyard for the
repairs it did on M/V Pacific Fortune, despite the extensions granted to
Unimarine. He claimed that he signed the Indemnity Agreement because he
trusted Quinain that it was a mere pre-requisite for the issuance of the surety
bond. He added that he did not bother to read the documents and he was not
aware of the consequences of signing an Indemnity Agreement. Paul Rodriguez
also alleged to not having noticed the limitation Valid only in favor of DPWH
stamped on the surety bond.[31] However, Paul Rodriguez did not contradict the
fact that Unimarine failed to pay Cebu Shipyard its obligation.[32]
CBIC presented Dakila Rianzares, the Senior Manager of its Bonding
Department. Her duties included the evaluation and approval of all applications
for and reviews of bonds issued by their agents, as authorized under the Special
Power of Attorney and General Agency Contract of CBIC. Rianzares testified
that she only learned of the existence of CBIC Surety Bond No. G (16) 29419
when she received the summons for this case. Upon investigation, she found
out that the surety bond was not reported to CBIC by Quinain, the issuing
agent, in violation of their General Agency Contract, which provides that all
bonds issued by the agent be reported to CBICs office within one week from the
date of issuance. She further stated that the surety bond issued in favor of
Unimarine was issued beyond Quinains authority. Rianzares added that she
was not aware that an endorsement pertaining to the surety bond was also
issued by Quinain.[33]
After the trial, the RTC was faced with the lone issue of whether or not CBIC
was liable to Cebu Shipyard based on Surety Bond No. G (16) 29419.[34]
On February 10, 1997, the RTC rendered its Decision, the fallo of which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff Cebu
Shipyard & Engineering Works, Incorporated and against the defendants:
110
1. Ordering the defendants Unimarine Shipping Lines, Incorporated, Country

Bankers Insurance Corporation and Plaridel Surety and Insurance Corporation to
pay plaintiff jointly and severally the amount of P4,620,000.00 equivalent to the
value of the surety bonds;
2. Ordering further defendant Unimarine to pay plaintiff the amount of
P259,458.00 to complete its entire obligation of P4,859,458.00;
3. To pay plaintiff jointly and severally the amount of P100,000.00 in attorneys
fees and litigation expenses;
4. For Cross defendant Unimarine Shipping Lines, Incorporated and Third party
defendants Paul Rodriguez, Peter Rodriguez and Alber[t] Hontanosas: To
indemnify jointly and severally, cross plaintiff and third party plaintiff Country
Bankers Insurance Corporation whatever amount the latter is made to pay to
plaintiff.[35]
The RTC held that CBIC, in its capacity as surety is bound with its principal
jointly and severally to the extent of the surety bond it issued in favor of [Cebu
Shipyard] because although the contract of surety is in essence secondary
only to a valid principal obligation, his liability to [the] creditor is said to be
direct, primary[,] and absolute, in other words, he is bound by the principal.[36]
The RTC added:
Solidary obligations on the part of Unimarine and CBIC having been established
and expressly stated in the Surety Bond No. 29419 (Exh. C), [Cebu Shipyard],
therefore, is entitled to collect and enforce said obligation against any and or
both of them, and if and when CBIC pays, it can compel its co-defendant
Unimarine to reimburse to it the amount it has paid.[37]
The RTC found CBICs contention that Quinain acted in excess of his authority in
issuing the surety bond untenable. The RTC held that CBIC is bound by the
surety bond issued by its agent who acted within the apparent scope of his
authority. The RTC said:
[A]s far as third persons are concerned, an act is deemed to have been
performed within the scope of the agents authority, if such act is within the
terms of the powers of attorney as written, even if the agent has in fact
exceeded the limits of his authority according to an understanding between the
principal and the agent.[38]
All the defendants appealed this Decision to the Court of Appeals.
Unimarine, Paul Rodriguez, Peter Rodriguez, and Albert Hontanosas argued that
Unimarines obligation under Bill No. 26035 had been extinguished by novation,
as Cebu Shipyard had agreed to accept the proceeds of the sale of the M/V
111
Headline as payment for the ship repair works it did on M/V Pacific Fortune.
Paul Rodriguez and Peter Rodriguez added that such novation also freed them
from their liability under the Indemnity Agreement they signed in favor of
CBIC. Albert Hontanosas in turn reiterated that he did not sign the Indemnity
Agreement.[39][SC1]
CBIC, in its Appellants Brief,[40] claimed that the RTC erred in enforcing its
liability on the surety bond as it was issued in excess of Quinains authority.
Moreover, CBIC averred, its liability under such surety had been extinguished by
reasons of novation, payment, and prescription. CBIC also questioned the RTCs
order, holding it jointly and severally liable with Unimarine and Plaridel for the
amount of P4,620,000.00, a sum larger than the face value of CBIC Surety
Bond No. G (16) 29419, and why the RTC did not hold Quinain liable to
indemnify CBIC for whatever amount it was ordered to pay Cebu Shipyard.
On January 29, 2004, the Court of Appeals promulgated its decision, with the
following dispositive portion:
WHEREFORE, in view of the foregoing, the respective appeal[s] filed by
Defendants-Appellants Unimarine Shipping Lines, Inc. and Country Bankers
Insurance Corporation; Cross-Defendant-Appellant Unimarine Shipping Lines,
Inc. and; Third-Party Defendants-Appellants Paul Rodriguez, Peter Rodriguez
and Albert Hontanosas are herebyDENIED. The decision of the RTC in Civil
Case No. CEB-13447 dated February 10, 1997 is AFFIRMED with modification
that Mr. Bethoven Quinain, CBICs agent is hereby held jointly and severally
liable with CBIC by virtue of Surety Bond No. 29419 executed in favor of
plaintiff-appellee CSEW.[41]
In its decision, the Court of Appeals resolved the following issues, as it had
summarized from the parties pleadings:
I. Whether or not UNIMARINE is liable to [Cebu Shipyard] for a sum of money
arising from the ship-repair contract;
II. Whether or not the obligation of UNIMARINE to [Cebu Shipyard] has been
extinguished by novation;
III. Whether or not Defendant-Appellant CBIC, allegedly being the Surety of
UNIMARINE is liable under Surety Bond No. 29419[;]
IV. Whether or not Cross Defendant-Appellant UNIMARINE and Third-Party
Defendants-Appellants Paul Rodriguez, Peter Rodriguez, Albert Hontanosas and
Third-Party Defendant Bethoven Quinain are liable by virtue of the Indemnity
Agreement executed between them and Cross and Third Party Plaintiff CBIC;
112
V. Whether or not Plaintiff-Appellee [Cebu Shipyard] is entitled to the award of

P100,000.00 in attorneys fees and litigation expenses.[42]
The Court of Appeals held that it was duly proven that Unimarine was liable to
Cebu Shipyard for the ship repair works it did on the formers M/V Pacific
Fortune. The Court of Appeals dismissed CBICs contention of novation for lack
of merit.[43] CBIC was held liable under the surety bond as there was no
novation on the agreement between Unimarine and Cebu Shipyard that would
discharge CBIC from its obligation. The Court of Appeals also did not allow
CBIC to disclaim liability on the ground that Quinain exceeded his authority
because third persons had relied upon Quinains representation, as CBICs
agent.[44] Quinain was, however, held solidarily liable with CBIC under Article
1911 of the Civil Code.[45]
Anent the liability of the signatories to the Indemnity Agreement, the Court of
Appeals held Paul Rodriguez, Peter Rodriguez, and Albert Hontanosas jointly and
severally liable thereunder. The Court of Appeals rejected Hontanosass claim
that his signature in the Indemnity Agreement was forged, as he was not able
to prove it.[46]
The Court of Appeals affirmed the award of attorneys fees and litigation
expenses to Cebu Shipyard since it was able to clearly establish the defendants
liability, which they tried to dodge by setting up defenses to release themselves
from their obligation.[47]
CBIC[48]and Unimarine, together with third party defendants-appellants [49] filed
their respective Motions for Reconsideration. This was, however, denied by the
Court of Appeals in its October 28, 2004 Resolution for lack of merit.
Unimarine elevated its case to this Court via a petition for review on certiorari,
docketed as G.R. No. 166023, which was denied in a Resolution dated January
19, 2005.[50]
The lone petitioner in this case, CBIC, is now before this Court, seeking the
reversal of the Court of Appeals decision and resolution on the following
grounds:
A.
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN APPLYING
THE PROVISIONS OF ARTICLE 1911 OF THE CIVIL CODE TO HOLD
PETITIONER LIABLE FOR THE ACTS DONE BY ITS AGENT IN EXCESS OF
AUTHORITY.
B.
113
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN HOLDING

THAT AN EXTENSION OF THE PERIOD FOR THE PERFORMANCE OF AN
OBLIGATION GRANTED BY THE CREDITOR TO THE PRINCIPAL DEBTOR
IS NOT SUFFICIENT TO RELEASE THE SURETY.
C.
ASSUMING THAT PETITIONER IS LIABLE UNDER THE BOND, THE
HONORABLE COURT OF APPEALS NONETHELESS SERIOUSLY ERRED IN
AFFIRMING THE SOLIDARY LIABILITY OF PETITIONER BEYOND THE
VALUE OF THE BOND.
D.
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING PETITIONER
JOINTLY AND SEVERALLY LIABLE FOR ATTORNEYS FEES IN THE
AMOUNT OF P100,000.00.[51]
Issue
The crux of the controversy lies in CBICs liability on the surety bond Quinain
issued to Unimarine, in favor of Cebu Shipyard.
CBIC avers that the Court of Appeals erred in interpreting and applying the
rules governing the contract of agency. It argued that the Special Power of
Attorney granted to Quinain clearly set forth the extent and limits of his
authority with regard to businesses he can transact for and in behalf of CBIC.
CBIC added that it was incumbent upon Cebu Shipyard to inquire and look into
the power of authority conferred to Quinain. CBIC said:
The authority to bind a principal as a guarantor or surety is one of those powers
which requires a Special Power of Attorney pursuant to Article 1878 of the Civil
Code. Such power could not be simply assumed or inferred from the
mere existence of an agency. A person who enters into a contract of
suretyship with an agent without confirming the extent of the latters authority
does so at his peril. x x x.[52]
CBIC claims that the foregoing is true even if Quinain was granted the authority
to transact in the business of insurance in general, as the authority to bind
the principal in a contract of suretyship could nonetheless never be
presumed.[53] Thus, CBIC claims, that:
[T]hird persons seeking to hold the principal liable for transactions entered into
by an agent should establish the following, in case the same is controverted:
114
6.6.1. The fact or existence of the agency.

6.6.2. The nature and extent of authority.[54]
To go a little further, CBIC said that the correct Civil Code provision to apply in
this case is Article 1898. CBIC asserts that Cebu Shipyard was charged with
knowledge of the extent of the authority conferred on Mr. Quinain by its failure
to perform due diligence investigations.[55]
Cebu Shipyard, in its Comment[56] first assailed the propriety of the petition for
raising factual issues. In support, Cebu Shipyard claimed that the Court of
Appeals application of Article 1911 of the Civil Code was founded on findings of
facts that CBIC now disputes. Thus, the question is not purely of law.
Discussion
The fact that Quinain was an agent of CBIC was never put in issue. What has
always been debated by the parties is the extent of authority or, at the very
least, apparent authority, extended to Quinain by CBIC to transact insurance
business for and in its behalf.
In a contract of agency, a person, the agent, binds himself to represent another,
the principal, with the latters consent or authority.[57] Thus, agency is based on
representation, where the agent acts for and in behalf of the principal on
matters within the scope of the authority conferred upon him.[58] Such acts
have the same legal effect as if they were personally done by the principal. By
this legal fiction of representation, the actual or legal absence of the principal is
converted into his legal or juridical presence.[59]
The RTC applied Articles 1900 and 1911 of the Civil Code in holding CBIC liable
for the surety bond. It held that CBIC could not be allowed to disclaim liability
because Quinains actions were within the terms of the special power of
attorney given to him.[60] The Court of Appeals agreed that CBIC could not be
permitted to abandon its obligation especially since third persons had relied on
Quinains representations. It based its decision on Article 1911 of the Civil Code
and found CBIC to have been negligent and less than prudent in conducting its
insurance business for its failure to supervise and monitor the acts of its agents,
to regulate the distribution of its insurance forms, and to devise schemes to
prevent fraudulent misrepresentations of its agents. [61]
This Court does not agree. Pertinent to this case are the following provisions
of the Civil Code:
Art. 1898. If the agent contracts in the name of the principal, exceeding the
scope of his authority, and the principal does not ratify the contract, it shall be
void if the party with whom the agent contracted is aware of the limits of the
powers granted by the principal. In this case, however, the agent is liable if he
115
undertook to secure the principals ratification.

Art. 1900. So far as third persons are concerned, an act is deemed to have
been performed within the scope of the agents authority, if such act is within
the terms of the power of attorney, as written, even if the agent has in fact
exceeded the limits of his authority according to an understanding between the
principal and the agent.
Art. 1902. A third person with whom the agent wishes to contract on behalf of
the principal may require the presentation of the power of attorney, or the
instructions as regards the agency. Private or secret orders and instructions of
the principal do not prejudice third persons who have relied upon the power of
attorney or instructions shown to them.
Art. 1910. The principal must comply with all the obligations which the agent
may have contracted within the scope of his authority.
As for any obligation wherein the agent has exceeded his power, the principal is
not bound except when he ratifies it expressly or tacitly.
Art. 1911. Even when the agent has exceeded his authority, the principal is
solidarily liable with the agent if the former allowed the latter to act as though
he had full powers.
Our law mandates an agent to act within the scope of his authority.[62] The
scope of an agents authority is what appears in the written terms of the power
of attorney granted upon him.[63] Under Article 1878(11) of the Civil Code, a
special power of attorney is necessary to obligate the principal as a
guarantor or surety.
In the case at bar, CBIC could be held liable even if Quinain exceeded the scope
of his authority only if Quinains act of issuing Surety Bond No. G (16) 29419
is deemed to have been performed within the written terms of the power of
attorney he was granted.[64]
However, contrary to what the RTC held, the Special Power of Attorney accorded
to Quinain clearly states the limits of his authority and particularly provides that
in case of surety bonds, it can only be issued in favor of the Department of
Public Works and Highways, the National Power Corporation, and other
government agencies; furthermore, the amount of the surety bond is limited to
P500,000.00, to wit:
SPECIAL POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
116
That, COUNTRY BANKERS INSURANCE CORPORATION, a corporation duly

organized and existing under and by virtue of the laws of the Philippines, with
head offices at 8thFloor, G.F. Antonino Building, T.M. Kalaw Street, Ermita,
Manila, now and hereinafter referred to as the Company hereby
appoints BETHOVEN B. QUINAIN with address at x x x to be its General Agent
and Attorney-in-Fact, for and in its place, name and stead, and for its own use
and benefit, to do and perform the following acts and things:
1. To conduct, manage, carry on and transact insurance business as usually
pertains to a General Agency of Fire, Personal Accident, Bond, Marine, Motor
Car (Except Lancer).
2. To accept, underwrite and subscribe policies of insurance for and in behalf of
the Company under the terms and conditions specified in the General Agency
Contract executed and entered into by and between it and its said Attorney-inFact subject to the following Schedule of Limits:
- SCHEDULE OF LIMITS a. FIRE:
xxxx
b. PERSONAL ACCIDENT:
xxxx
c. MOTOR CAR:
xxxx
d. MARINE:
xxxx
e. BONDS:
xxxx
Surety Bond
(in favor of Dept. of Pub. Works and

Highways, Natl. Power Corp. & other. 500,000.00
Government agencies)[65]
117
CBIC does not anchor its defense on a secret agreement, mutual understanding,
or any verbal instruction to Quinain. CBICs stance is grounded on its contract
with Quinain, and the clear, written terms therein. This Court finds that the
terms of the foregoing contract specifically provided for the extent and scope of
Quinains authority, and Quinain has indeed exceeded them.
Under Articles 1898 and 1910, an agents act, even if done beyond the scope of
his authority, may bind the principal if he ratifies them, whether expressly or
tacitly. It must be stressed though that only the principal, and not the agent,
can ratify the unauthorized acts, which the principal must have knowledge of.
[66]
Expounding on the concept and doctrine of ratification in agency, this Court
said:
Ratification in agency is the adoption or confirmation by one person of an act
performed on his behalf by another without authority. The substance of the
doctrine is confirmation after conduct, amounting to a substitute for a prior
authority. Ordinarily, the principal must have full knowledge at the time of
ratification of all the material facts and circumstances relating to the
unauthorized act of the person who assumed to act as agent. Thus, if
material facts were suppressed or unknown, there can be no valid
ratification and this regardless of the purpose or lack thereof in
concealing such facts and regardless of the parties between whom the
question of ratification may arise. Nevertheless, this principle does not
apply if the principals ignorance of the material facts and circumstances was
willful, or that the principal chooses to act in ignorance of the facts.
However, in the absence of circumstances putting a reasonably prudent
man on inquiry, ratification cannot be implied as against the principal
who is ignorant of the facts.[67] (Emphases supplied.)
Neither Unimarine nor Cebu Shipyard was able to repudiate CBICs testimony
that it was unaware of the existence of Surety Bond No. G (16) 29419 and
Endorsement No. 33152. There were no allegations either that CBIC should
have been put on alert with regard to Quinains business transactions done on
its behalf. It is clear, and undisputed therefore, that there can be no ratification
in this case, whether express or implied.
Article 1911, on the other hand, is based on the principle of estoppel, which is
necessary for the protection of third persons. It states that the principal is
solidarily liable with the agent even when the latter has exceeded his authority,
if the principal allowed him to act as though he had full powers. However, for
an agency by estoppel to exist, the following must be established:
1. The principal manifested a representation of the agents authority or
knowingly allowed the agent to assume such authority;
118
2. The third person, in good faith, relied upon such representation; and
3. Relying upon such representation, such third person has changed his
position to his detriment.[68]
In Litonjua, Jr. v. Eternit Corp.,[69] this Court said that [a]n 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.[70]
This Court cannot agree with the Court of Appeals pronouncement of
negligence on CBICs part. CBIC not only clearly stated the limits of its agents
powers in their contracts, it even stamped its surety bonds with the restrictions,
in order to alert the concerned parties. Moreover, its company procedures, such
as reporting requirements, show that it has designed a system to monitor the
insurance contracts issued by its agents. CBIC cannot be faulted for Quinains
deliberate failure to notify it of his transactions with Unimarine. In fact, CBIC
did not even receive the premiums paid by Unimarine to Quinain.
Furthermore, nowhere in the decisions of the lower courts was it stated that
CBIC let the public, or specifically Unimarine, believe that Quinain had the
authority to issue a surety bond in favor of companies other than the
Department of Public Works and Highways, the National Power Corporation, and
other government agencies. Neither was it shown that CBIC knew of the
existence of the surety bond before the endorsement extending the life of the
bond, was issued to Unimarine. For one to successfully claim the benefit of
estoppel on the ground that he has been misled by the representations of
another, he must show that he was not misled through his own want of
reasonable care and circumspection.[71]
It is apparent that Unimarine had been negligent or less than prudent in its
dealings with Quinain. InManila Memorial Park Cemetery, Inc. v. Linsangan,
[72]
this Court held:
It is a settled rule that persons dealing with an agent are bound at their peril, if
they would hold the principal liable, to ascertain not only the fact of agency but
also the nature and extent of authority, and in case either is controverted, the
burden of proof is upon them to establish it. The basis for agency is
representation and a person dealing with an agent is put upon inquiry and must
discover upon his peril the authority of the agent. If he does not make such an
inquiry, he is chargeable with knowledge of the agents authority and his
ignorance of that authority will not be any excuse.
In the same case, this Court added:
119
[T]he ignorance of a person dealing with an agent as to the scope of the latters
authority is no excuse to such person and the fault cannot be thrown upon the
principal. A person dealing with an agent assumes the risk of lack of authority
in the agent. He cannot charge the principal by relying upon the agents
assumption of authority that proves to be unfounded. The principal, on the
other hand, may act on the presumption that third persons dealing with his
agent will not be negligent in failing to ascertain the extent of his authority as
well as the existence of his agency.[73]
Unimarine undoubtedly failed to establish that it even bothered to inquire if
Quinain was authorized to agree to terms beyond the limits indicated in his
special power of attorney. While Paul Rodriguez stated that he has done
business with Quinain more than once, he was not able to show that he was
misled by CBIC as to the extent of authority it granted Quinain. Paul Rodriguez
did not even allege that he asked for documents to prove Quinains authority to
contract business for CBIC, such as their contract of agency and power of
attorney. It is also worthy to note that even with the Indemnity Agreement,
Paul Rodriguez signed it on Quinains mere assurance and without truly
understanding the consequences of the terms of the said agreement. Moreover,
both Unimarine and Paul Rodriguez could have inquired directly from CBIC to
verify the validity and effectivity of the surety bond and endorsement; but,
instead, they blindly relied on the representations of Quinain. As this Court held
inLitonjua, Jr. v. Eternit Corp.[74]:
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. 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. In this
case, the petitioners failed to discharge their burden; hence, petitioners are not
entitled to damages from respondent EC.[75]
In light of the foregoing, this Court is constrained to release CBIC from its
liability on Surety Bond No. G (16) 29419 and Endorsement No. 33152. This
Court sees no need to dwell on the other grounds propounded by CBIC in
support of its prayer.
cralaw
WHEREFORE, this petition is hereby GRANTED and the complaint against

CBIC is DISMISSED for lack of merit. The January 29, 2004 Decision and
October 28, 2004 Resolution of the Court of Appeals in CA-G.R. CV No. 58001
is MODIFIED insofar as it affirmed CBICs liability on Surety Bond No. G (16)
29419 and Endorsement No. 33152.
120
SO ORDERED.
Bersamin, Del Castillo, Villarama, Jr., and Perlas-Bernabe,** JJ., concur.
Leonardo-De Castro,* J. (Acting Chairperson).
Endnotes:
*
Per Special Order No. 1226 dated May 30, 2012.
**
Per Special Order No. 1227 dated May 30, 2012.
[1]
Under Rule 45 of the 1997 Rules of Court.
Rollo, pp. 31-55; penned by Associate Justice Jose C. Reyes, Jr. with
Associate Justices Romeo A. Brawner and Rebecca De Guia-Salvador,
concurring.
[2]
[3]
Id. at 57-58.
[4]
[5]
Rollo, pp. 81-82.
[6]
Id. at 94-114.
[7]
Id. at 115.
[8]
Id. at 116-117.
[9]
Id. at 118.
[10]
Id. at 119-120.
[11]
Id. at 121.
[12]
Id. at 85.
[13]
Id. at 123.
[14]
Id. at 124.
[15]
Id. at 125-127.
[16]
Id. at 128-129.
121
[17]
Id. at 130.
[18]
Id. at 131-132.
[19]
Id. at 133.
[20]
Id. at 136-143.
[21]
Id. at 236.
[22]
Id. at 137.
[23]
CA rollo, p. 27.
[24]
Rollo, pp. 138-141.
[25]
Id. at 144-145.
[26]
[27]
Rollo, p. 150.
[28]
Id. at 233-234.
[29]
Id. at 153-155.
[30]
CA rollo, p. 27.
[31]
Id. at 28.
[32]
Id. at 30.
[33]
Id. at 28-29.
[34]
Id. at 31.
[35]
Id. at 33.
[36]
Id. at 31.
[37]
Id.
[38]
Id. at 33.
[39]
Id. at 21-22.
122
[40]
Id. at 39-63.
[41]
Rollo, pp. 54-55.
[42]
Id. at 38.
[43]
Id. at 39-40.
[44]
Id. at 44-46.
[45]
Id. at 53.
[46]
Id. at 49-51.
[47]
Id. at 54.
[48]
[49]
Id. at 253-256.
[50]
Rollo, p. 389.
[51]
Id. at 13-14.
[52]
Id. at 15.
[53]
Id. at 16.
[54]
Id. at 18.
[55]
Id. at 19.
[56]
Id. at 248-287.
[57]
Civil Code, Art. 1868.
[58]
Id., Art. 1881.
[59]
Siredy Enterprises, Inc. v. Court of Appeals, 437 Phil. 580, 591 (2002).
[60]
[61]
Rollo, pp. 46-47.
[62]
Civil Code, Art. 1881.
123
[63]
Id., Art. 1900.
[64]
Id.
[65]
Rollo, pp. 233-234.
Manila Memorial Park Cemetery, Inc. v. Linsangan, G.R. No. 151319,

November 22, 2004, 443 SCRA 377, 394.
[66]
[67]
Id. at 394-395.
Litonjua, Jr. v. Eternit Corp., G.R. No. 144805, June 8, 2006, 490 SCRA 204,
224-225.
[68]
[69]
Id.
[70]
Id. at 225.
[71]
Manila Memorial Park Cemetery, Inc. v. Linsangan, supra note 66 at 397.
[72]
Id. at 391-392.
[73]
Id. at 392.
[74]
Supra note 68.
[75]
Id. at 223-224.
[G.R. No. 171468 : August 24, 2011]

NEW WORLD INTERNATIONAL DEVELOPMENT (PHILS.), INC., PETITIONER, VS. NYK-FILJAPAN
SHIPPING CORP., LEP PROFIT INTERNATIONAL, INC. (ORD), LEP INTERNATIONAL PHILIPPINES,
INC., DMT CORP., ADVATECH INDUSTRIES, INC., MARINA PORT SERVICES, INC., SERBROS
CARRIER CORPORATION, AND SEABOARD-EASTERN INSURANCE CO., INC., RESPONDENTS.
[G.R. NO. 174241]
NEW WORLD INTERNATIONAL DEVELOPMENT (PHILS.), INC., PETITIONER, VS. SEABOARDEASTERN INSURANCE CO., INC., RESPONDENT.
DECISION
ABAD, J.:
These consolidated petitions involve a cargo owner's right to recover damages from the loss of insured
goods under the Carriage of Goods by Sea Act and the Insurance Code.
The Facts and the Case
Petitioner New World International Development (Phils.), Inc. (New World) bought from DMT Corporation
124
(DMT) through its agent, Advatech Industries, Inc. (Advatech) three emergency generator sets worth
US$721,500.00.
DMT shipped the generator sets by truck from Wisconsin, United States, to LEP Profit International, Inc. (LEP
Profit) in Chicago, Illinois. From there, the shipment went by train to Oakland, California, where it was
loaded on S/S California Luna V59, owned and operated by NYK Fil-Japan Shipping Corporation (NYK) for
delivery to petitioner New World in Manila. NYK issued a bill of lading, declaring that it received the goods in
good condition.
NYK unloaded the shipment in Hong Kong and transshipped it to S/S ACX Ruby V/72 that it also owned and
operated. On its journey to Manila, however, ACX Ruby encountered typhoon Kadiangwhose captain filed a
sea protest on arrival at the Manila South Harbor on October 5, 1993 respecting the loss and damage that
the goods on board his vessel suffered.
Marina Port Services, Inc. (Marina), the Manila South Harbor arrastre or cargo-handling operator, received
the shipment on October 7, 1993. Upon inspection of the three container vans separately carrying the
generator sets, two vans bore signs of external damage while the third van appeared unscathed. The
shipment remained at Pier 3's Container Yard under Marina's care pending clearance from the Bureau of
Customs. Eventually, on October 20, 1993 customs authorities allowed petitioner's customs broker, Serbros
Carrier Corporation (Serbros), to withdraw the shipment and deliver the same to petitioner New World's job
site in Makati City.
An examination of the three generator sets in the presence of petitioner New World's representatives,
Federal Builders (the project contractor) and surveyors of petitioner New World's insurer, Seaboard-Eastern
Insurance Company (Seaboard), revealed that all three sets suffered extensive damage and could no longer
be repaired. For these reasons, New World demanded recompense for its loss from respondents NYK, DMT,
Advatech, LEP Profit, LEP International Philippines, Inc. (LEP), Marina, and Serbros. While LEP and NYK
acknowledged receipt of the demand, both denied liability for the loss.
Since Seaboard covered the goods with a marine insurance policy, petitioner New World sent it a formal
claim dated November 16, 1993. Replying on February 14, 1994, Seaboard required petitioner New World to
submit to it an itemized list of the damaged units, parts, and accessories, with corresponding values, for the
processing of the claim. But petitioner New World did not submit what was required of it, insisting that the
insurance policy did not include the submission of such a list in connection with an insurance claim.
Reacting to this, Seaboard refused to process the claim.
On October 11, 1994 petitioner New World filed an action for specific performance and damages against all
the respondents before the Regional Trial Court (RTC) of Makati City, Branch 62, in Civil Case 94-2770.
On August 16, 2001 the RTC rendered a decision absolving the various respondents from liability with the
exception of NYK. The RTC found that the generator sets were damaged during transit while in the care of
NYK's vessel, ACX Ruby. The latter failed, according to the RTC, to exercise the degree of diligence required
of it in the face of a foretold raging typhoon in its path.
The RTC ruled, however, that petitioner New World filed its claim against the vessel owner NYK beyond the
one year provided under the Carriage of Goods by Sea Act (COGSA). New World filed its complaint on
October 11, 1994 when the deadline for filing the action (on or before October 7, 1994) had already lapsed.
The RTC held that the one-year period should be counted from the date the goods were delivered to
the arrastre operator and not from the date they were delivered to petitioner's job site. [1]
As regards petitioner New World's claim against Seaboard, its insurer, the RTC held that the latter cannot be
faulted for denying the claim against it since New World refused to submit the itemized list that Seaboard
needed for assessing the damage to the shipment. Likewise, the belated filing of the complaint prejudiced
Seaboard's right to pursue a claim against NYK in the event of subrogation.
On appeal, the Court of Appeals (CA) rendered judgment on January 31, 2006, [2] affirming the RTC's rulings
except with respect to Seaboard's liability. The CA held that petitioner New World can still recoup its loss
from Seaboard's marine insurance policy, considering a) that the submission of the itemized listing is an
unreasonable imposition and b) that the one-year prescriptive period under the COGSA did not affect New
World's right under the insurance policy since it was the Insurance Code that governed the relation between
the insurer and the insured.
125
Although petitioner New World promptly filed a petition for review of the CA decision before the Court in
G.R. 171468, Seaboard chose to file a motion for reconsideration of that decision. On August 17, 2006 the
CA rendered an amended decision, reversing itself as regards the claim against Seaboard. The CA held that
the submission of the itemized listing was a reasonable requirement that Seaboard asked of New World.
Further, the CA held that the one-year prescriptive period for maritime claims applied to Seaboard, as
insurer and subrogee of New World's right against the vessel owner. New World's failure to comply promptly
with what was required of it prejudiced such right.
Instead of filing a motion for reconsideration, petitioner instituted a second petition for review before the
Court in G.R. 174241, assailing the CA's amended decision.
The Issues Presented
The issues presented in this case are as follows:
a) In G.R. 171468, whether or not the CA erred in affirming the RTC's release from liability of respondents
DMT, Advatech, LEP, LEP Profit, Marina, and Serbros who were at one time or another involved in handling
the shipment; and
b) In G.R. 174241, 1) whether or not the CA erred in ruling that Seaboard's request from petitioner New
World for an itemized list is a reasonable imposition and did not violate the insurance contract between
them; and 2) whether or not the CA erred in failing to rule that the one-year COGSA prescriptive period for
marine claims does not apply to petitioner New World's prosecution of its claim against Seaboard, its insurer.
The Court's Rulings
In G.R. 171468 -Petitioner New World asserts that the roles of respondents DMT, Advatech, LEP, LEP Profit, Marina and
Serbros in handling and transporting its shipment from Wisconsin to Manila collectively resulted in the
damage to the same, rendering such respondents solidarily liable with NYK, the vessel owner.
But the issue regarding which of the parties to a dispute incurred negligence is factual and is not a proper
subject of a petition for review on certiorari. And petitioner New World has been unable to make out an
exception to this rule.[3] Consequently, the Court will not disturb the finding of the RTC, affirmed by the CA,
that the generator sets were totally damaged during the typhoon which beset the vessel's voyage from Hong
Kong to Manila and that it was her negligence in continuing with that journey despite the adverse condition
which caused petitioner New World's loss.
That the loss was occasioned by a typhoon, an exempting cause under Article 1734 of the Civil Code, does
not automatically relieve the common carrier of liability. The latter had the burden of proving that the
typhoon was the proximate and only cause of loss and that it exercised due diligence to prevent or minimize
such loss before, during, and after the disastrous typhoon. [4] As found by the RTC and the CA, NYK failed to
discharge this burden.
In G.R. 174241 -One. The Court does not regard as substantial the question of reasonableness of Seaboard's additional
requirement of an itemized listing of the damage that the generator sets suffered. The record shows that
petitioner New World complied with the documentary requirements evidencing damage to its generator sets.
The marine open policy that Seaboard issued to New World was an all-risk policy. Such a policy insured
against all causes of conceivable loss or damage except when otherwise excluded or when the loss or
damage was due to fraud or intentional misconduct committed by the insured. The policy covered all losses
during the voyage whether or not arising from a marine peril. [5]
Here, the policy enumerated certain exceptions like unsuitable packaging, inherent vice, delay in voyage, or
vessels unseaworthiness, among others.[6] But Seaboard had been unable to show that petitioner New
World's loss or damage fell within some or one of the enumerated exceptions.
What is more, Seaboard had been unable to explain how it could not verify the damage that New World's
goods suffered going by the documents that it already submitted, namely, (1) copy of the Supplier's Invoice
126
KL2504; (2) copy of the Packing List; (3) copy of the Bill of Lading 01130E93004458; (4) the Delivery of
Waybill Receipts 1135, 1222, and 1224; (5) original copy of Marine Insurance Policy MA-HO-000266; (6)
copies of Damage Report from Supplier and Insurance Adjusters; (7) Consumption Report from the Customs
Examiner; and (8) Copies of Received Formal Claim from the following: a) LEP International Philippines,
Inc.; b) Marina Port Services, Inc.; and c) Serbros Carrier Corporation. [7] Notably, Seaboard's own marine
surveyor attended the inspection of the generator sets.
Seaboard cannot pretend that the above documents are inadequate since they were precisely the documents
listed in its insurance policy.[8] Being a contract of adhesion, an insurance policy is construed strongly
against the insurer who prepared it. The Court cannot read a requirement in the policy that was not there.
Further, it appears from the exchanges of communications between Seaboard and Advatech that submission
of the requested itemized listing was incumbent on the latter as the seller DMT's local agent. Petitioner New
World should not be made to suffer for Advatech's shortcomings.
Two. Regarding prescription of claims, Section 3(6) of the COGSA provides that the carrier and the ship
shall be discharged from all liability in case of loss or damage unless the suit is brought within one year after
delivery of the goods or the date when the goods should have been delivered.
But whose fault was it that the suit against NYK, the common carrier, was not brought to court on time? The
last day for filing such a suit fell on October 7, 1994. The record shows that petitioner New World filed its
formal claim for its loss with Seaboard, its insurer, a remedy it had the right to take, as early as November
16, 1993 or about 11 months before the suit against NYK would have fallen due.
In the ordinary course, if Seaboard had processed that claim and paid the same, Seaboard would have been
subrogated to petitioner New World's right to recover from NYK. And it could have then filed the suit as a
subrogee. But, as discussed above, Seaboard made an unreasonable demand on February 14, 1994 for an
itemized list of the damaged units, parts, and accessories, with corresponding values when it appeared
settled that New World's loss was total and when the insurance policy did not require the production of such
a list in the event of a claim.
Besides, when petitioner New World declined to comply with the demand for the list, Seaboard against
whom a formal claim was pending should not have remained obstinate in refusing to process that claim. It
should have examined the same, found it unsubstantiated by documents if that were the case, and formally
rejected it. That would have at least given petitioner New World a clear signal that it needed to promptly file
its suit directly against NYK and the others. Ultimately, the fault for the delayed court suit could be brought
to Seaboard's doorstep.
Section 241 of the Insurance Code provides that no insurance company doing business in the Philippines
shall refuse without just cause to pay or settle claims arising under coverages provided by its policies. And,
under Section 243, the insurer has 30 days after proof of loss is received and ascertainment of the loss or
damage within which to pay the claim. If such ascertainment is not had within 60 days from receipt of
evidence of loss, the insurer has 90 days to pay or settle the claim. And, in case the insurer refuses or fails
to pay within the prescribed time, the insured shall be entitled to interest on the proceeds of the policy for
the duration of delay at the rate of twice the ceiling prescribed by the Monetary Board.
Notably, Seaboard already incurred delay when it failed to settle petitioner New World's claim as Section 243
required. Under Section 244, a prima facie evidence of unreasonable delay in payment of the claim is
created by the failure of the insurer to pay the claim within the time fixed in Section 243.
Consequently, Seaboard should pay interest on the proceeds of the policy for the duration of the delay until
the claim is fully satisfied at the rate of twice the ceiling prescribed by the Monetary Board. The term
"ceiling prescribed by the Monetary Board" means the legal rate of interest of 12%per annum provided in
Central Bank Circular 416, pursuant to Presidential Decree 116. [9] Section 244 of the Insurance Code also
provides for an award of attorney's fees and other expenses incurred by the assured due to the
unreasonable withholding of payment of his claim.
In Prudential Guarantee and Assurance, Inc. v. Trans-Asia Shipping Lines, Inc.,[10] the Court regarded as
proper an award of 10% of the insurance proceeds as attorney's fees. Such amount is fair considering the
length of time that has passed in prosecuting the claim. [11] Pursuant to the Court's ruling in Eastern
Shipping Lines, Inc. v. Court of Appeals,[12] a 12% interest per annum from the finality of judgment until full
satisfaction of the claim should likewise be imposed, the interim period equivalent to a forbearance of credit.
127
Petitioner New World is entitled to the value stated in the policy which is commensurate to the value of the
three emergency generator sets or US$721,500.00 with double interest plus attorney's fees as discussed
above.
WHEREFORE, the Court DENIES the petition in G.R. 171468 and AFFIRMS the Court of Appeals decision
of January 31, 2006 insofar as petitioner New World International Development (Phils.), Inc. is not allowed
to recover against respondents DMT Corporation, Advatech Industries, Inc., LEP International Philippines,
Inc., LEP Profit International, Inc., Marina Port Services, Inc. and Serbros Carrier Corporation.
With respect to G.R. 174241, the Court GRANTS the petition and REVERSES and SETS ASIDE the Court
of Appeals Amended Decision of August 17, 2006. The Court DIRECTS Seaboard-Eastern Insurance
Company, Inc. to pay petitioner New World International Development (Phils.), Inc. US$721,500.00 under
Policy MA-HO-000266, with 24% interest per annum for the duration of delay in accordance with Sections
243 and 244 of the Insurance Code and attorney's fees equivalent to 10% of the insurance proceeds.
Seaboard shall also pay, from finality of judgment, a 12% interest per annum on the total amount due to
petitioner until its full satisfaction.
SO ORDERED.
Velasco, Jr., (Chairperson), Leonardo-De Castro,* Peralta, and Mendoza, JJ., concur.
Endnotes:
Designated as additional member in lieu of Associate Justice Maria Lourdes P. A. Sereno, per Special Order
1069 dated August 23, 2011.
*
[1]
Union Carbide Philippines, Inc. v. Manila Railroad Co., 168 Phil. 22, 31 (1977).
Penned by Associate Justice Vicente S.E. Veloso with the concurrence of Associate Justices Edgardo F.
Sundiam and Aurora S. Lagman, rollo (G.R. 171468), pp. 9-41.
[2]
[3]
See Cang v. Cullen, G.R. No. 163078, November 25, 2009, 605 SCRA 391.
[4]
Civil Code, Article 1739.
[5]
Choa Tiek Seng v. Court of Appeals, 262 Phil. 245, 255 (1990).
[6]
Rollo (G.R. 174241), p. 163.
[7]
Exhibit "BB" for petitioner, id. at 216.
For documentation of claims, the policy requires submission of: (1) Original policy or certificate of
insurance; (2) Original copy of shipping invoices together with shipping specifications and/or weight notes;
(3) Original Bill of Lading and/or other contract of carriage; (4) Survey report or other documentary
evidence to show the extent of the loss or damage; (5) Landing account and weight notes at final
destination, and; (6) Correspondence exchanged with the Carrier and other parties regarding the liability for
the loss or damage, id. at 165.
[8]
Otherwise known as "Amending Further Certain Sections of Act Numbered Two Thousand Six Hundred
Fifty-Five, as amended, otherwise known as "The Usury Law."
[9]
[10]
G.R. Nos. 151890 and 151991, June 20, 2006, 491 SCRA 411.
[11]
Cathay Insurance Company, Inc. v. Court of Appeals, 255 Phil. 714, 723 (1989).
[12]
G.R. No. 97412, July 12, 1994, 234 SCRA 78.
[G.R. No. 171624, December 06 : 2010]
128
BF HOMES, INC. AND THE PHILIPPINE WATERWORKS AND

CONSTRUCTION CORP., PETITIONERS, VS. MANILA ELECTRIC
COMPANY, RESPONDENT.
DECISION
This Petition for Review on Certiorari under Rule 45 of the Rules of Court assails
the Decision[1] dated October 27, 2005 of the Court of Appeals in CA-G.R. SP
No. 82826, nullifying and setting aside (1) the Order[2] dated November 21,
2003 of the Regional Trial Court (RTC), Branch 202 of Las Pias City, in Civil
Case No. 03-0151, thereby dissolving the writ of injunction against respondent
Manila Electric Company (MERALCO); and (2) the Resolution[3] dated February
7, 2006 of the Court of Appeals denying the Motion for Reconsideration of
petitioners BF Homes, Inc. (BF Homes) and Philippine Waterworks and
Construction Corporation (PWCC).
MERALCO is a corporation duly organized and existing under Philippine laws
engaged in the distribution and sale of electric power in Metro Manila. On the
other hand, BF Homes and PWCC are owners and operators of waterworks
systems delivering water to over 12,000 households and commercial buildings
in BF Homes subdivisions in Paraaque City, Las Pias City, Caloocan City,
and Quezon City. The water distributed in the waterworks systems owned and
operated by BF Homes and PWCC is drawn from deep wells using pumps run by
electricity supplied by MERALCO.
On June 23, 2003, BF Homes and PWCC filed a Petition [With Prayer for the
Issuance of Writ of Preliminary Injunction and for the Immediate Issuance of
Restraining Order] against MERALCO before the RTC, docketed as Civil Case No.
03-0151.
In their Petition before the RTC, BF Homes and PWCC invoked their right to
refund based on the ruling of this Court in Republic v. Manila Electric
Company[4]:
7. It is of judicial notice that on November 15, 2002, in G.R. No. 141314,
entitledRepublic of the Philippines vs. Manila Electric Company, and G.R. No.
141369, entitledLawyers Against Monopoly and Poverty (LAMP) et al. vs. Manila
Electric Compnay (MERALCO), (both cases shall hereafter be referred to as
"MERALCO Refund cases," for brevity), the Supreme Court ordered MERALCO to
refund its customers, which shall be credited against the customer's future
consumption, the excess average amount of P0.167 per kilowatt hour starting
with the customer's billing cycles beginning February 1998. The dispositive
portion of the Supreme Court Decision in the MERALCO Refund cases reads:
129
WHEREFORE, in view of the foregoing, the instant petitions are GRANTED and
the decision of the Court of Appeals in C.A. G.R. SP No. 46888 is REVERSED.
Respondent MERALCO is authorized to adopt a rate adjustment in the amount of
P0.017 kilowatthour, effective with respect to MERALCO's billing cycles
beginning February 1994. Further, in accordance with the decision of the ERB
dated February 16, 1998, the excess average amount of P0.167 per kilowatt
hour starting with the applicant's billing cycles beginning February 1998 is
ordered to be refunded to MERALCO's customers or correspondingly credited in
their favor for future consumption.
x x x x.
8. The Motion for Reconsideration filed by MERALCO in the MERALCO Refund
cases was DENIED WITH FINALITY (the uppercase letters were used by the
Supreme Court) in the Resolution of the Supreme Court dated April 9, 2003.
9. The amount that MERALCO was mandated to refund to [BF Homes and
PWCC] pursuant to the MERALCO Refund cases is in the amount of
P11,834,570.91.[5]
BF Homes and PWCC then alleged in their RTC Petition that:
10. On May 20, 2003, without giving any notice whatsoever, MERALCO
disconnected electric supply to [BF Homes and PWCC's] sixteen (16) water
pumps located in BF Homes in Paraaque, Caloocan, and Quezon City, which
thus disrupted water supply in those areas.
11. On June 4, 2003, [BF Homes and PWCC] received by facsimile transmission
a letter from MERALCO, x x x, in which MERALCO demanded to [BF Homes and
PWCC] the payment of electric bills amounting to P4,717,768.15.
12. [MERALCO] replied in a letter dated June 11, 2003, x x x, requesting
MERALCO to apply the P4,717,768.15 electric bill against the P11,834,570.91
that MERALCO was ordered to refund to [BF Homes and PWCC] pursuant to the
MERALCO Refund cases. x x x
13. Displaying the arrogance that has become its distinction, MERALCO, in its
letter dated June 16, 2003, x x x, denied [BF Homes and PWCC's] request
alleging that it has not yet come up with the schedule for the refund of large
amounts, such as those of [BF Homes and PWCC].
14. Even while MERALCO was serving its reply-letter to [BF Homes and PWCC],
MERALCO, again, without giving any notice, cut off power supply to [BF Homes
and PWCC's] five (5) water pumps located in BF Homes Paraaque and BF
Resort Village, in Pamplona, Las Pias City.
130
15. In its letter dated June 4, 2003 (Annex A), MERALCO threatened to cut off
electric power connections to all of [BF Homes and PWCC's] water pumps if [BF
Homes and PWCC] failed to pay their bills demanded by MERALCO by June 20,
2003.[6]
BF Homes and PWCC thus cited the following causes of action for their RTC
Petition:
16. In refusing to apply [MERALCO's] electric bills against the amounts that it
was ordered to refund to [BF Homes and PWCC] pursuant to the MERALCO
Refund cases and in making the implementation of the refund ordered by the
Supreme Court dependent upon its own will and caprice, MERALCO acted with
utmost bad faith.
17. [BF Homes and PWCC] are clearly entitled to the remedies under the law to
compel MERALCO to consider [BF Homes and PWCC's] electric bills fully paid by
the amounts which MERALCO was ordered to refund to [BF Homes and PWCC]
pursuant to the MERALCO Refund cases, to enjoin MERALCO to reconnect
electric power to all of [BF Homes and PWCC's] water pumps, and to order
MERALCO to desist from further cutting off power connection to [BF Homes and
PWCC's] water pumps.
18. MERALCO's unjust and oppressive acts have cast dishonor upon [BF Homes
and PWCC's] good name and besmirched their reputation for which [BF Homes
and PWCC] should be indemnified by way of moral damages in the amount of
not less than P1,000,000.00.
19. As an example for the public good, to dissuade others from emulating
MERALCO's unjust, oppressive and mercenary conduct, MERALCO should be
directed to pay [BF Homes and PWCC] exemplary damages of at least
P1,000,000.00.
20. MERALCO's oppressive and inequitable conduct forced [BF Homes and
PWCC] to engage the services of counsel to defend their rights and thereby
incur litigation expenses in the amount of at least P500,000.00 for which [BF
Homes and PWCC] should be indemnified.[7]
BF Homes and PWCC additionally prayed that the RTC issue a writ of preliminary
injunction and restraining order considering that:
21. As indicated in its letter dated June 4, 2003 (Annex A), unless seasonably
restrained, MERALCO will cut off electric power connections to all of [BF Homes
and PWCC's] water pumps on June 20, 2003.
22. Part of the reliefs herein prayed for is to restrain MERALCO from cutting off
electric power connections to [BF Homes and PWCC's] water pumps.
131
23. Unless MERALCO'S announced intention to cut off electric power connections
to [BF Homes and PWCC's] water pumps is restrained, [BF Homes and PWCC]
will suffer great and irreparable injury because they would not [be] able to
supply water to their customers.
24. [BF Homes and PWCC] therefore pray that a writ for preliminary injunction
be issued upon posting of a bond in an amount as will be determined by this
Honorable Court.
25. [BF Homes and PWCC] further pray that, in the meantime and immediately
upon the filing of the above captioned Petition, a restraining order be issued
before the matter of preliminary injunction can be heard.[8]
On August 15, 2003, MERALCO filed before the RTC its Answer with
Counterclaims and Opposition to the Application for Writ of Preliminary
Injunction[9] of BF Homes and PWCC.
According to MERALCO:
2.2. Both petitioners BF Homes, Incorporated and Philippine Waterworks
Corporation are admittedly the registered customers of [MERALCO] by virtue of
the service contracts executed between them under which the latter undertook
to supply electric energy to the former for a fee. The following twenty-three
(23) Service Identification Nos. (SINs) are registered under the name of BF
Homes, Incorporated: x x x. While the following twenty-one (21) Service
Identification Nos. (SINs) are registered under the name of Philippine
Waterworks Construction Corporation: x x x
xxxx
2.4. The service contracts as well as the terms and conditions of [MERALCO's]
service as approved by BOE [Board of Energy], now ERC [Energy Regulatory
Commission], provide in relevant parts, that [BF Homes and PWCC] agree as
follows:
DISCONTINUANCE OF SERVICE:
The Company reserves the right to discontinue service in case the
customer is in arrears in the payment of bills or for failure to pay the
adjusted bills in those cases where the meter stopped or failed to register the
correct amount of energy consumed, or for failure to comply with any of these
terms and conditions, or in case of or to prevent fraud upon the Company.
Before disconnection is made in the case of, or to prevent fraud, the Company
may adjust the bill of said customer accordingly and if the adjusted bill is not
paid, the Company may disconnect the same." (Emphasis supplied)
132
2.5. This contractual right of [MERALCO] to discontinue electric service for

default in the payment of its regular bills is sanctioned and approved by the
rules and regulations of ERB (now the ERC). This right is necessary and
reasonable means to properly protect and enable [MERALCO] to perform and
discharge its legal and contractual obligation under its legislative franchise and
the law. Cutting off service for non-payment by the customers of the regular
monthly electric bills is the only practical way a public utility, such as
[MERALCO], can ensure and maintain efficient service in accordance with the
terms and conditions of its legislative franchise and the law.
xxxx
2.14. Instead of paying their unpaid electric bills and before [MERALCO] could
effect its legal and contractual right to disconnect [BF Homes and PWCC's]
electric services, [BF Homes and PWCC] filed the instant petition to avoid
payment of [MERALCO's] valid and legal claim for regular monthly electric bills.
2.15. [BF Homes and PWCC's] unpaid regular bills totaled P6,551,969.55
covering the May and June 2003 electric bills. x x x
xxxx
2.17. [BF Homes and PWCC] knew that [MERALCO] is already in the process of
implementing the decision of the Supreme Court as to the refund case. But this
refund has to be implemented in accordance with the guidelines and schedule to
be approved by the ERC. Thus [BF Homes and PWCC's] filing of the instant
petition is merely to evade payment of their unpaid electric bills to [MERALCO].
[10]
Hence, MERALCO sought the dismissal of the RTC Petition of BF Homes and
PWCC on the following grounds:
3.1 The Honorable Court has no jurisdiction to award the relief prayed for by
[BF Homes and PWCC] because:
a) The petition is in effect preempting or defeating the power of the ERC to
implement the decision of the Supreme Court.
b) [MERALCO] is a utility company whose business activity is wholly regulated
by the ERC. The latter, being the regulatory agency of the government having
the authority over the respondent, is the one tasked to approve the guidelines,
schedules and details of the refund.
c) The decision of the Supreme Court, dated November 15, 2002, clearly states
that respondent is directed to make the refund to its customers in accordance
133
with the decision of the ERC (formerly ERB) dated February 16, 1998. Hence,
[MERALCO] has to wait for the schedule and details of the refund to be
approved by the ERC before it can comply with the Supreme Court decision.
3.2. [MERALCO] has the right to disconnect the electric service to [BF Homes
and PWCC] in that:
a) The service contracts between [MERALCO] and [BF Homes and PWCC]
expressly authorize the former to discontinue and disconnect electric services of
the latter for their failure to pay the regular electric bills rendered.
b) It is [MERALCO's] legal duty as a public utility to furnish its service to the
general public without arbitrary discrimination and, consequently, [MERALCO] is
obligated to discontinue and disconnect electric services to [BF Homes and
PWCC] for their refusal or failure to pay the electric energy actually used by
them.[11]
For its compulsory counterclaims, MERALCO prayed that the RTC orders BF
Homes and PWCC to pay MERALCO P6,551,969.55 as actual damages
(representing the unpaid electric bills of BF Homes and PWCC for May and June
2003), P1,500,000.00 as exemplary damages, P1,500,000.00 as moral
damages, and P1,000,000.00 as attorney's fees.
Lastly, MERALCO opposed the application for writ of preliminary injunction of BF
Homes and PWCC because:
I
[MERALCO] HAS THE LEGAL AND CONTRACTUAL RIGHT TO DEMAND PAYMENT
OF THE ELECTRIC BILLS AND, IN CASE OF NON-PAYMENT, TO DISCONTINUE
THE ELECTRIC SERVICES OF [BF HOMES and PWCC]
II
[BF HOMES and PWCC] HAVE NO CLEAR RIGHT WHICH WARRANTS
PROTECTION BY INJUNCTIVE PROCESS
After hearing,[12] the RTC issued an Order on November 21, 2003 granting the
application of BF Homes and PWCC for the issuance of a writ of preliminary
injunction. The RTC found that the records showed that all requisites for the
issuance of said writ were sufficiently satisfied by BF Homes and PWCC. The
RTC stated in its Order:
Albeit, this Court respects the right of a public utility company like MERALCO,
being a grantee of a legislative franchise under Republic Act No. 9029, to collect
overdue payments from its subscribers or customers for their respective
134
consumption of electric energy, such right must, however, succumb to the

paramount substantial and constitutional rights of the public to the usage and
enjoyment of waters in their community. Thus, there is an urgent need for the
issuance of a writ of preliminary injunction in order to prevent social unrest in
the community for having been deprived of the use and enjoyment of waters
flowing through [BF Homes and PWCC's] water pumps.[13]
The RTC decreed in the end:
WHEREFORE, in the light of the foregoing, [BF Homes and PWCC's] prayer for
the issuance of a writ of preliminary injunction is hereby GRANTED. Respondent
Manila Electric Company is permanently restrained from proceeding with its
announced intention to cut-off electric power connection to [BF Homes and
PWCC's] water pumps unless otherwise ordered by this Court. Further, [BF
Homes and PWCC] are hereby ordered to post a bond in the amount of
P500,000 to answer for whatever injury or damage that may be caused by
reason of the preliminary injunction.[14]
The Motion for Reconsideration of MERALCO of the aforementioned Order was
denied by the RTC in another Order issued on January 9, 2004. [15] The RTC
reiterated its earlier finding that all the requisites for the proper issuance of an
injunction had been fully complied with by BF Homes and PWCC, thus:
Records indubitably show that all the requisites for the proper issuance of an
injunction have been fully complied with in the instant case.
It should be noted that a disconnection of power supply would obviously cause
irreparable injury because the pumps that supply water to the BF community
will be without electricity, thereby rendering said community without water.
Water is a basic and endemic necessity of life. This is why its enjoyment and
use has been constitutionally safeguarded and protected. Likewise, a
community without water might create social unrest, which situation this Court
has the mandate to prevent. There is an urgent and paramount necessity for
the issuance of the injunctive writ to prevent serious damage to the guaranteed
rights of [BF Homes and PWCC] and the residents of the community to use and
enjoy water.[16]
The RTC resolved the issue on jurisdiction raised by MERALCO, as follows:
As to the jurisdictional issue raised by respondent MERALCO, it can be gleaned
from a re-evaluation and re-assessment of the records that this Court has
jurisdiction to delve into the case. This Court gave both parties the opportunity
to be heard as they introduced evidence on the propriety of the issuance of the
injunctive writ. It is well-settled that no grave abuse of discretion could be
attributed to its issuance where a party was not deprived of its day in court as it
135
was heard and had exhaustively presented all its arguments and defenses.
(National Mines and Allied Workers Union vs. Valero, 132 SCRA 578, 1984.)[17]
Aggrieved, MERALCO filed with the Court of Appeals a Petition
for Certiorari under Rule 65 of the Rules of Court, docketed as CA-G.R. SP No.
82826. MERALCO sought the reversal of the RTC Orders dated November 21,
2003 and January 9, 2004 granting a writ of preliminary injunction in favor of
BF Homes and PWCC. MERALCO asserted that the RTC had no jurisdiction over
the application of BF Homes and PWCC for issuance of such a writ.
In its Decision dated October 27, 2005, the Court of Appeals agreed with
MERALCO that the RTC had no jurisdiction to issue a writ of preliminary
injunction in Civil Case No. 03-0151, as said trial court had no jurisdiction over
the subject matter of the case to begin with. It ratiocinated in this wise:
For one, it cannot be gainsaid that the ERC has original and exclusive
jurisdiction over the case. Explicitly, Section 43(u) of Republic Act No. 9136,
otherwise known as the "Electric Power Industry Reform Act," (RA 9136), states
that the ERC shall have the original and exclusive jurisdiction over all cases
contesting rates, fees, fines and penalties imposed by the ERC in the exercise of
its powers, functions and responsibilities and over all cases involving disputes
between and among participants or players in the energy sector. Section 4(o)
of Rule 3 of the Implementing Rules and Regulations of RA 9136 likewise
provides that the ERC shall also be empowered to issue such other rules that
are essential in the discharge of its functions as an independent quasi-judicial
body.
For another, the respondent judge, instead of presiding over the case, should
have dismissed the same and yielded jurisdiction to the ERC pursuant to the
doctrine of primary jurisdiction. It is plain error on the part of the respondent
judge to determine, preliminary or otherwise, a controversy involving a question
which is within the jurisdiction of an administrative tribunal, especially so where
the question demands the exercise of sound administrative discretion.
Needless to state, the doctrine of primary jurisdiction applies where the
administrative agency, as in the case of ERC, exercises its quasi-judicial and
adjudicatory function. Thus, in cases involving specialized disputes, the practice
has been to refer the same to an administrative agency of special competence
pursuant to the doctrine of primary jurisdiction. The courts will not determine a
controversy involving a question which is within the jurisdiction of the
administrative tribunal prior to the resolution of that question by the
administrative tribunal, where the question demands the exercise of sound
administrative discretion requiring the special knowledge, experience and
services of the administrative tribunal to determine technical and intricate
matters of fact, and a uniformity of ruling is essential to comply with the
premises of the regulatory statute administered.
136
Verily, the cause of action of [BF Homes and PWCC] against [MERALCO]
originates from the Meralco Refund Decision as it involves the perceived right of
the former to compel the latter to set-off or apply their refund to their present
electric bill. The issue delves into the right of the private respondents to collect
their refund without submitting to the approved schedule of the ERC, and in
effect give unto themselves preferential right over other equally situated
consumers of [MERALCO]. Perforce, the ERC, as can be gleaned from the aforestated legal provisions, has primary, original and exclusive jurisdiction over the
said controversy.
Indeed, the respondent judge glaringly erred in enjoining the right of
[MERALCO] to disconnect its services to [BF Homes and PWCC] on the premise
that the court has jurisdiction to apply the provisions on compensation or set-off
in this case. Although [MERALCO] recognizes the right of [BF Homes and
PWCC] to the refund as provided in the Meralco Refund Decision, it is the ERC
which has the authority to implement the same according to its approved
schedule, it being a dispute arising from the exercise of its jurisdiction.
Moreover, it bears to stress that the Meralco Refund Decision was brought into
fore by the Decision dated 16 February 1998 of the ERC (then Energy
Regulatory Board) granting refund to [MERALCO's] consumers. Being the
agency of origin, the ERC has the jurisdiction to execute the same. Besides, as
stated, it is empowered to promulgate rules that are essential in the discharge
of its functions as an independent quasi-judicial body.[18]
The dispositive portion of the judgment of the appellate court reads:
WHEREFORE, the foregoing considered, the instant petition is
hereby GRANTED and the assailed Orders REVERSED and SET ASIDE.
Accordingly, the writ of injunction against [MERALCO] is hereby DISSOLVED.
No costs.[19]
In a Resolution dated February 7, 2006, the Court of Appeals denied the Motion
for Reconsideration of BF Homes and PWCC for failing to raise new and
persuasive and meritorious arguments.
br>Now, BF Homes and PWCC come before this Court via the instant Petition,
raising the following assignment of errors:
1. The Court of Appeals ERRED in saying that the respondent judge
committed grave abuse of discretion by issuing the disputed writ of
injunction pending the merits of the case including the issue of subject
matter jurisdiction.
2. The Court of Appeals ERRED in saying that the ERC under the doctrine of
primary jurisdiction has the original and EXCLUSIVE jurisdiction to take
137
cognizance of a petition for injunction to prevent electrical disconnection

to a customer entitled to a refund.
3. The Court of Appeals ERRED in NOT SAYING that the ERC as a quasijudicial body under RA 9136 has no power to issue any injunctive relief or
remedy to prevent disconnection.
4. The Court of Appeals ERRED in not resolving the issue as to the violation
of MERALCO of a standing injunction order while the case remains
undecided.[20]
At the core of the Petition is the issue of whether jurisdiction over the subject
matter of Civil Case No. 03-0151 lies with the RTC or the Energy Regulatory
Commission (ERC). If it is with the RTC, then the said trial court also has
jurisdiction to issue the writ of preliminary injunction against MERALCO. If it is
with the ERC, then the RTC also has no jurisdiction to act on any incidents in
Civil Case No. 03-0151, including the application for issuance of a writ of
preliminary injunction of BF Homes and PWCC therein.
BF Homes and PWCC argued that due to the threat of MERALCO to disconnect
electric services, BF Homes and PWCC had no other recourse but to seek an
injunctive remedy from the RTC under its general jurisdiction. The merits of
Civil Case No. 03-0151 was not yet in issue, only the propriety of issuing a writ
of preliminary injunction to prevent an irreparable injury. Even granting that
the RTC has no jurisdiction over the subject matter of Civil Case No. 03-0151,
the ERC by enabling law has no injunctive power to prevent the disconnection
by MERALCO of electric services to BF Homes and PWCC.
The Petition has no merit.
Settled is the rule that jurisdiction is conferred only by the Constitution or the
law.[21] Republic v. Court of Appeals[22] also enunciatedthat only a statute can
confer jurisdiction on courts and administrative agencies.
Related to the foregoing and equally well-settled is the rule that the nature of
an action and the subject matter thereof, as well as which court or agency of
the government has jurisdiction over the same, are determined by the material
allegations of the complaint in relation to the law involved and the character of
the reliefs prayed for, whether or not the complainant/plaintiff is entitled to any
or all of such reliefs. A prayer or demand for relief is not part of the petition of
the cause of action; nor does it enlarge the cause of action stated or change the
legal effect of what is alleged. In determining which body has jurisdiction over
a case, the better policy is to consider not only the status or relationship of the
parties but also the nature of the action that is the subject of their controversy.
[23]
138
In Manila Electric Company v. Energy Regulatory Board,[24] the Court traced the
legislative history of the regulatory agencies which preceded the ERC,
presenting a summary of these agencies, the statutes or issuances that created
them, and the extent of the jurisdiction conferred upon them, viz:
1. The first regulatory body, the Board of Rate Regulation (BRR), was created by
virtue of Act No. 1779. Its regulatory mandate under Section 5 of the law was
limited to fixing or regulating rates of every public service corporation.
2. In 1913, Act No. 2307 created the Board of Public Utility Commissioners
(BPUC) to take over the functions of the BRR. By express provision of Act No.
2307, the BPUC was vested with jurisdiction, supervision and control over all
public utilities and their properties and franchises.
3. On November 7, 1936, Commonwealth Act (C.A.) No. 146, or the Public
Service Act (PSA), was passed creating the Public Service Commission (PSC) to
replace the BPUC. Like the BPUC, the PSC was expressly granted jurisdiction,
supervision and control over public services, with the concomitant authority of
calling on the public force to exercise its power, to wit:
"SEC. 13. Except as otherwise provided herein, the Commission shall have
general supervision and regulation of, jurisdiction and control over, all
public utilities, and also over their property, property rights, equipment,
facilities and franchises so far as may be necessary for the purpose of carrying
out the provisions of this Act, and in the exercise of its authority it shall have
the necessary powers and the aid of the public forcex x x."
Section 14 of C.A. No. 146 defines the term "public service" or "public utility" as
including "every individual, copartnership, association, corporation or joint-stock
company, . . . that now or hereafter may own, operate, manage or control
within the Philippines, for hire or compensation, any common carrier, x x
x, electric light, heat, power, x x x, when owned, operated and managed for
public use or service within the Philippines x x x." Under the succeeding
Section 17(a), the PSC has the power even without prior hearing (a) To investigate, upon its own initiative, or upon complaint in writing, any
matter concerning any public service as regards matters under its jurisdiction;
to require any public service to furnish safe, adequate and proper service as the
public interest may require and warrant, to enforce compliance with any
standard, rule, regulation, order or other requirement of this Act or of the
Commission, x x x.
4. Then came Presidential Decree (P.D.) No. 1, reorganizing the national
government and implementing the Integrated Reorganization Plan. Under the
reorganization plan, jurisdiction, supervision and control over public services
139
related to electric light, and power heretofore vested in the PSC were
transferred to the Board of Power and Waterworks (BOPW).
Later, P.D. No. 1206 abolished the BOPW. Its powers and function relative to
power utilities, including its authority to grant provisional relief, were
transferred to the newly-created Board of Energy (BOE).
5. On May 8, 1987, then President Corazon C. Aquino issued E.O. No.
172 reconstituting the BOE into the ERB, transferring the former's functions and
powers under P.D. No. 1206 to the latter and consolidating in and entrusting on
the ERB "all the regulatory and adjudicatory functions covering the energy
sector." Section 14 of E.O. No. 172 states that "(T)he applicable provisions of
[C.A.] No. 146, as amended, otherwise known as the `Public Service Act'; x x x
and [P.D.] No. 1206, as amended, creating the Department of Energy, shall
continue to have full force and effect, except insofar as inconsistent with this
Order."[25]
Thereafter, on June 8, 2001, Republic Act No. 9136, known as the Electric Power
Industry Reform Act of 2001 (EPIRA), was enacted, providing a framework for
restructuring the electric power industry. One of the avowed purposes of the
EPIRA is to establish a strong and purely independent regulatory body. The
Energy Regulatory Board (ERB) was abolished and its powers and functions not
inconsistent with the provision of the EPIRA were expressly transferred to the
ERC.[26]
The powers and functions of the ERB not inconsistent with the EPIRA were
transferred to the ERC by virtue of Sections 44 and 80 of the EPIRA, which
read:
Sec. 44. Transfer of Powers and Functions. - The powers and functions of the
Energy Regulatory Board not inconsistent with the provisions of this Act are
hereby transferred to the ERC. The foregoing transfer of powers and functions
shall include all applicable funds and appropriations, records, equipment,
property and personnel as may be necessary.
Sec. 80. Applicability and Repealing Clause. - The applicability provisions of
Commonwealth Act No. 146, as amended, otherwise known as the "Public
Service Act." Republic Act 6395, as amended, revising the charter of NPC;
Presidential Decree 269, as amended, referred to as the National Electrification
Decree; Republic Act 7638, otherwise known as the "Department of Energy Act
of 1992"; Executive Order 172, as amended, creating the ERB; Republic Act
7832 otherwise known as the "Anti-Electricity and Electric Transmission
Lines/Materials Pilferage Act of 1994"; shall continue to have full force and
effect except insofar as they are inconsistent with this Act.
The provisions with respect to electric power of Section 11(c) of Republic Act
140
7916, as amended, and Section 5(f) of Republic Act 7227, are hereby repealed
or modified accordingly.
Presidential Decree No. 40 and all laws, decrees, rules and regulations, or
portions thereof, inconsistent with this Act are hereby repealed or modified
accordingly.
In addition to the foregoing, the EPIRA also conferred new powers upon the ERC
under Section 43, among which are:
SEC. 43. Functions of the ERC. - The ERC shall promote competition, encourage
market development, ensure customer choice and penalize abuse of market
power in the restructured electricity industry. In appropriate cases, the ERC is
authorized to issue cease and desist order after due notice and hearing.
Towards this end, it shall be responsible for the following key functions in the
restructured industry:
xxxx
(f) In the public interest, establish and enforce a methodology for setting
transmission and distribution wheeling rates and retail rates for the captive
market of a distribution utility, taking into account all relevant considerations,
including the efficiency or inefficiency of the regulated entities. The rates must
be such as to allow the recovery of just and reasonable costs and a reasonable
return on rate base (RORB) to enable the entity to operate viably. The ERC may
adopt alternative forms of internationally-accepted rate-setting methodology as
it may deem appropriate. The rate-setting methodology so adopted and applied
must ensure a reasonable price of electricity. The rates prescribed shall be nondiscriminatory. To achieve this objective and to ensure the complete removal of
cross subsidies, the cap on the recoverable rate of system losses prescribed in
Section 10 of Republic Act No. 7832, is hereby amended and shall be replaced
by caps which shall be determined by the ERC based on load density, sales mix,
cost of service, delivery voltage and other technical considerations it may
promulgate. The ERC shall determine such form of rate-setting methodology,
which shall promote efficiency. x x x.
xxxx
(u) The ERC shall have the original and exclusive jurisdiction over all cases
contesting rates, fees, fines and penalties imposed by the ERC in the exercise of
the abovementioned powers, functions and responsibilities and over all cases
involving disputes between and among participants or players in the energy
sector.
All notices of hearings to be conducted by the ERC for the purpose of fixing
141
rates or fees shall be published at least twice for two successive weeks in two
(2) newspapers of nationwide circulation.
A careful review of the material allegations of BF Homes and PWCC in their
Petition before the RTC reveals that the very subject matter thereof is the offsetting of the amount of refund they are supposed to receive from MERALCO
against the electric bills they are to pay to the same company. This is squarely
within the primary jurisdiction of the ERC.
The right of BF Homes and PWCC to refund, on which their claim for off-setting
depends, originated from the MERALCO Refund cases. In said cases, the Court
(1) authorized MERALCO to adopt a rate adjustment in the amount of P0.017
per kilowatthour, effective with respect to its billing cycles beginning February
1994; and (2) ordered MERALCO to refund to its customers or credit in said
customers' favor for future consumption P0.167 per kilowatthour, starting with
the customers' billing cycles that begin February 1998, in accordance with the
ERB Decision dated February 16, 1998.
It bears to stress that in the MERALCO Refund cases, this Court only affirmed
the February 16, 1998 Decision of the ERB (predecessor of the ERC) fixing the
just and reasonable rate for the electric services of MERALCO and granting
refund to MERALCO consumers of the amount they overpaid. Said Decision was
rendered by the ERB in the exercise of its jurisdiction to determine and fix the
just and reasonable rate of power utilities such as MERALCO.
Presently, the ERC has original and exclusive jurisdiction under Rule 43(u) of
the EPIRA over all cases contesting rates, fees, fines, and penalties imposed by
the ERC in the exercise of its powers, functions and responsibilities, and over all
cases involving disputes between and among participants or players in the
energy sector. Section 4(o) of the EPIRA Implementing Rules and Regulation
provides that the ERC "shall also be empowered to issue such other rules that
are essential in the discharge of its functions as in independent quasi-judicial
body."
Indubitably, the ERC is the regulatory agency of the government having the
authority and supervision over MERALCO. Thus, the task to approve the
guidelines, schedules, and details of the refund by MERALCO to its consumers,
to implement the judgment of this Court in the MERALCO Refund cases, also
falls upon the ERC. By filing their Petition before the RTC, BF Homes and PWCC
intend to collect their refund without submitting to the approved schedule of the
ERC, and in effect, enjoy preferential right over the other equally situated
MERALCO consumers.
Administrative agencies, like the ERC, are tribunals of limited jurisdiction and,
as such, could wield only such as are specifically granted to them by the
enabling statutes. In relation thereto is the doctrine of primary jurisdiction
142
involving matters that demand the special competence of administrative

agencies even if the question involved is also judicial in nature. Courts cannot
and will not resolve a controversy involving a question within the jurisdiction of
an administrative tribunal, especially when the question demands the sound
exercise of administrative discretion requiring special knowledge, experience
and services of the administrative tribunal to determine technical and intricate
matters of fact. The court cannot arrogate into itself the authority to resolve a
controversy, the jurisdiction of which is initially lodged with the administrative
body of special competence.[27]
Since the RTC had no jurisdiction over the Petition of BF Homes and PWCC in
Civil Case No. 03-0151, then it was also devoid of any authority to act on the
application of BF Homes and PWCC for the issuance of a writ of preliminary
injunction contained in the same Petition. The ancillary and provisional remedy
of preliminary injunction cannot exist except only as an incident of an
independent action or proceeding.[28]
Incidentally, BF Homes and PWCC seemed to have lost sight of Section 8 of
Executive Order No. 172 which explicitly vested on the ERB, as an incident of its
principal function, the authority to grant provisional relief, thus:
Section 8. Authority to Grant Provisional Relief. -- The Board may, upon the
filing of an application, petition or complaint or at any stage thereafter and
without prior hearing, on the basis of supporting papers duly verified or
authenticated, grant provisional relief on motion of a party in the case or on its
own initiative, without prejudice to a final decision after hearing, should the
Board find that the pleadings, together with such affidavits, documents and
other evidence which may be submitted in support of the motion, substantially
support the provisional order: Provided, That the Board shall immediately
schedule and conduct a hearing thereon within thirty (30) days thereafter, upon
publication and notice to all affected parties.
The aforequoted provision is still applicable to the ERC as it succeeded the ERB,
by virtue of Section 80 of the EPIRA. A writ of preliminary injunction is one
such provisional relief which a party in a case before the ERC may move for.
Lastly, the Court herein already declared that the RTC not only lacked the
jurisdiction to issue the writ of preliminary injunction against MERALCO, but that
the RTC actually had no jurisdiction at all over the subject matter of the Petition
of BF Homes and PWCC in Civil Case No. 03-0151. Therefore, in addition to the
dissolution of the writ of preliminary injunction issued by the RTC, the Court
also deems it appropriate to already order the dismissal of the Petition of BF
Homes and PWCC in Civil Case No. 03-0151 for lack of jurisdiction of the RTC
over the subject matter of the same. Although only the matter of the writ of
preliminary injunction was brought before this Court in the instant Petition, the
Court is already taking cognizance of the issue on the jurisdiction of the RTC
143
over the subject matter of the Petition. The Court may motu proprio consider
the issue of jurisdiction. The Court has discretion to determine whether the RTC
validly acquired jurisdiction over Civil Case No. 03-0151 since, to reiterate,
jurisdiction over the subject matter is conferred only by law. Jurisdiction over
the subject matter cannot be acquired through, or waived by, any act or
omission of the parties. Neither would the active participation of the parties nor
estoppel operate to confer jurisdiction on the RTC where the latter has none
over a cause of action.[29] Indeed, when a court has no jurisdiction over the
subject matter, the only power it has is to dismiss the action.[30]
WHEREFORE, the instant Petition for Review is DENIED. The Decision dated
October 27, 2005 of the Court of Appeals in CA-G.R. SP No. 82826
is AFFIRMED with the MODIFICATION that the Regional Trial Court, Branch
202 of Las Pias City, is ORDERED to dismiss the Petition [With Prayer for the
Issuance of Writ of Preliminary Injunction and for the Immediate Issuance of
Restraining Order] of BF Homes, Inc. and Philippine Waterworks and
Construction Corporation in Civil Case No. 03-0151. Costs against BF Homes,
Inc. and Philippine Waterworks and Construction Corporation.
SO ORDERED.
Corona, C.J., (Chairperson), Del Castillo, Abad,* and Perez, JJ., concur.
Endnotes:
*
Per Special Order No. 917 dated November 24, 2010.
Rollo, pp. 30-37; penned by Associate Justice Josefina Guevara-Salonga with

Associate Justices Delilah Vidallon Magtolis and Fernanda Lampas Peralta,
concurring.
[1]
[2]
Id. at 59-62.
[3]
Id. at 46-47.
[4]
440 Phil. 389 (2002).
[5]
Rollo, pp. 54-55.
[6]
Id. at 55.
[7]
Id. at 56.
[8]
Id. at 56-57.
144
[9]
[10]
Id. at 74-78.
[11]
Id. at 78-79.
[12]
Held on June 23, 2003; June 25, 2003; and July 3, 2003.
[13]
Rollo, pp. 60 and 62.
[14]
Id. at 62.
[15]
Id. at 78-82.
[16]
Id. at 81.
[17]
Id.
[18]
Id. at 34-36.
[19]
Id. at 37.
[20]
Id. at 17.
Civil Service Commission v. Albao, G.R. No. 155784, October 13, 2005, 472
SCRA 548, 555.
[21]
[22]
331 Phil. 1070, 1076 (1996).
Villamaria, Jr. v. Court of Appeals, G.R. No. 165881, April 19, 2006, 487
SCRA 571, 589.
[23]
[24]
G.R. No. 145399, March 17, 2006, 485 SCRA 19.
[25]
Id at 28-30.
Freedom from Debt Coalition v. Energy Regulatory Commission, 476 Phil.

134, 188 (2004).
[26]
[27]
Longino v. General, 491 Phil. 600, 618-619 (2005).
[28]
Urbanes, Jr. v. Court of Appeals, 407 Phil. 856, 870 (2001).
Suarez v. Saul, G.R. No. 166664, October 20, 2005, 473 SCRA 628, 637638.
[29]
145
Katon v. Palanca, Jr., G.R. No. 151149, September 7, 2004, 437 SCRA 565,
575.
[30]
Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 171591
25 June 2012
ACE NAVIGATION CO., INC., petitioner,

vs.
FGU INSURANCE CORPORATION and PIONEER INSURANCE AND
SURETY CORPORATION, Respondents.
DECISION
PERLAS-BERNABE, J.:
146
This is an appeal under Rule 45 of the Rules of Court seeking to reverse

the June 22, 2004 Decision1 and February 17, 2006 Resolution2 of the
Court of Appeals (CA) ordering petitioner Ace Navigation Co., Inc., jointly
and severally with Cardia Limited, to pay respondents FGU Insurance
Corp. and Pioneer Insurance and Surety Corp. the sum of P213,518.20
plus interest at the rate of six percentum (6%) from the filing of the
complaint until paid.
The Facts
On July 19, 1990, Cardia Limited (CARDIA) shipped on board the vessel
M/V Pakarti Tiga at Shanghai Port China, 8,260 metric tons or 165,200
bags of Grey Portland Cement to be discharged at the Port of Manila
and delivered to its consignee, Heindrich Trading Corp. (HEINDRICH).
The subject shipment was insured with respondents, FGU Insurance
Corp. (FGU) and Pioneer Insurance and Surety Corp. (PIONEER),
against all risks under Marine Open Policy No. 062890275 for the
amount of P18,048,421.00. 3
The subject vessel is owned by P.T. Pakarti Tata (PAKARTI) which it
chartered to Shinwa Kaiun Kaisha Ltd. (SHINWA). 4 Representing itself
as owner of the vessel, SHINWA entered into a charter party contract
with Sky International, Inc. (SKY), an agent of Kee Yeh Maritime Co.
(KEE YEH), 5 which further chartered it to Regency Express Lines S.A.
(REGENCY). Thus, it was REGENCY that directly dealt with consignee
HEINDRICH, and accordingly, issued Clean Bill of Lading No. SM-1. 6
On July 23, 1990, the vessel arrived at the Port of Manila and the
shipment was discharged. However, upon inspection of HEINDRICH and
petitioner Ace Navigation Co., Inc. (ACENAV), agent of CARDIA, it was
found that out of the 165,200 bags of cement, 43,905 bags were in bad
order and condition. Unable to collect the sustained damages in the
amount of P1,423,454.60 from the shipper, CARDIA, and the charterer,
REGENCY, the respondents, as co-insurers of the cargo, each paid the
consignee, HEINDRICH, the amounts of P427,036.40 and P284,690.94,
147
respectively, 7 and consequently became subrogated to all the rights and

causes of action accruing to HEINDRICH.
Thus, on August 8, 1991, respondents filed a complaint for damages
against the following defendants: "REGENCY EXPRESS LINES, S.A./
UNKNOWN CHARTERER OF THE VESSEL 'PAKARTI TIGA'/
UNKNOWN OWNER and/or DEMIFE (sic) CHARTERER OF THE
VESSEL 'PAKARTI TIGA', SKY INTERNATIONAL, INC. and/or ACE
NAVIGATION COMPANY, INC." 8 which was docketed as Civil Case No.
90-2016.
In their answer with counterclaim and cross-claim, PAKARTI and
SHINWA alleged that the suits against them cannot prosper because
they were not named as parties in the bill of lading. 9
Similarly, ACENAV claimed that, not being privy to the bill of lading, it
was not a real party-in-interest from whom the respondents can demand
compensation. It further denied being the local ship agent of the vessel
or REGENCY and claimed to be the agent of the shipper, CARDIA. 10
For its part, SKY denied having acted as agent of the charterer, KEE
YEH, which chartered the vessel from SHINWA, which originally
chartered the vessel from PAKARTI. SKY also averred that it cannot be
sued as an agent without impleading its alleged principal, KEE YEH. 11
On September 30, 1991, HEINDRICH filed a similar complaint against
the same parties and Commercial Union Assurance Co.
(COMMERCIAL), docketed as Civil Case No. 91-2415, which was later
consolidated with Civil Case No. 91-2016. However, the suit against
COMMERCIAL was subsequently dismissed on joint motion by the
respondents and COMMERCIAL. 12
Proceedings Before the RTC and the CA
148
In its November 26, 2001 Decision, 13 the RTC dismissed the complaint,
the fallo of which reads:
WHEREFORE, premises considered, plaintiffs complaint is
DISMISSED. Defendants counter-claim against the plaintiffs are likewise
dismissed, it appearing that plaintiff[s] did not act in evident bad faith in
filing the present complaint against them.
Defendant Pakarti and Shinwas cross-claims against their codefendants are likewise dismissed for lack of sufficient evidence.
No costs.
SO ORDERED.
Dissatisfied, the respondents appealed to the CA which, in its assailed
June 22, 2004 Decision, 14 found PAKARTI, SHINWA, KEE YEH and its
agent, SKY, solidarily liable for 70% of the respondents' claim, with the
remaining 30% to be shouldered solidarily by CARDIA and its agent,
ACENAV, thus:
WHEREFORE, premises considered, the Decision dated November 26,
2001 is hereby MODIFIED in the sense that:
a) defendant-appellees P.T. Pakarti Tata, Shinwa Kaiun Kaisha,
Ltd., Kee Yeh Maritime Co., Ltd. and the latters agent Sky
International, Inc. are hereby declared jointly and severally liable,
and are DIRECTED to pay FGU Insurance Corporation the amount
of Two Hundred Ninety Eight Thousand Nine Hundred Twenty Five
and 45/100 (P298,925.45) Pesos and Pioneer Insurance and
Surety Corp. the sum of One Hundred Ninety Nine Thousand Two
Hundred Eighty Three and 66/100 (P199,283.66) Pesos
representing Seventy (70%) percentum of their respective claims
as actual damages plus interest at the rate of six (6%) percentum
from the date of the filing of the complaint; and
149
b) defendant Cardia Ltd. and defendant-appellee Ace Navigation

Co., Inc. are DECLARED jointly and severally liable and are
hereby DIRECTED to pay FGU Insurance Corporation One
Hundred Twenty Eight Thousand One Hundred Ten and 92/100
(P128,110.92) Pesos and Pioneer Insurance and Surety Corp.
Eighty Five Thousand Four Hundred Seven and 28/100
(P85,407.28) Pesos representing thirty (30%) percentum of their
respective claims as actual damages, plus interest at the rate of six
(6%) percentum from the date of the filing of the complaint.
SO ORDERED.
Finding that the parties entered into a time charter party, not a demise or
bareboat charter where the owner completely and exclusively
relinquishes possession, command and navigation to the charterer, the
CA held PAKARTI, SHINWA, KEE YEH and its agent, SKY, solidarily
liable for 70% of the damages sustained by the cargo. This solidarity
liability was borne by their failure to prove that they exercised
extraordinary diligence in the vigilance over the bags of cement
entrusted to them for transport. On the other hand, the CA passed on the
remaining 30% of the amount claimed to the shipper, CARDIA, and its
agent, ACENAV, upon a finding that the damage was partly due to the
cargo's inferior packing.
With respect to REGENCY, the CA affirmed the findings of the RTC that
it did not acquire jurisdiction over its person for defective service of
summons.
PAKARTI's, SHINWA's, SKY's and ACENAV's respective motions for
reconsideration were subsequently denied in the CA's assailed February
17, 2006 Resolution.
Issues Before the Court
150
PAKARTI, SHINWA, SKY and ACENAV filed separate petitions for

review on certiorari before the Court, docketed as G.R. Nos. 171591,
171614, and 171663, which were ordered consolidated in the Courts
Resolution dated July 31, 2006. 15
On April 21, 2006, SKY manifested 16 that it will no longer pursue its
petition in G.R. No. 171614 and has preferred to await the resolution in
G.R. No. 171663 filed by PAKARTI and SHINWA. Accordingly, an entry
of judgment 17 against it was made on August 18, 2006. Likewise, on
November 29, 2007, PAKARTI and SHINWA moved 18 for the withdrawal
of their petitions for lack of interest, which the Court granted in its
January 21, 2008 Resolution. 19 The corresponding entry of
judgment 20 against them was made on March 17, 2008.
Thus, only the petition of ACENAV remained for the Court's resolution,
with the lone issue of whether or not it may be held liable to the
respondents for 30% of their claim.
Maintaining that it was not a party to the bill of lading, ACENAV asserts
that it cannot be held liable for the damages sought to be collected by
the respondents. It also alleged that since its principal, CARDIA, was not
impleaded as a party-defendant/respondent in the instant suit, no liability
can therefore attach to it as a mere agent. Moreover, there is dearth of
evidence showing that it was responsible for the supposed defective
packing of the goods upon which the award was based.
The Court's Ruling
A bill of lading is defined as "an instrument in writing, signed by a carrier
or his agent, describing the freight so as to identify it, stating the name of
the consignor, the terms of the contract for carriage, and agreeing or
directing that the freight to be delivered to the order or assigns of a
specified person at a specified place." 21
151
It operates both as a receipt and as a contract. As a receipt, it recites the

date and place of shipment, describes the goods as to quantity, weight,
dimensions, identification marks and condition, quality, and value. As a
contract, it names the contracting parties, which include the consignee,
fixes the route, destination, and freight rates or charges, and stipulates
the rights and obligations assumed by the parties. 22 As such, it shall only
be binding upon the parties who make them, their assigns and heirs. 23
In this case, the original parties to the bill of lading are: (a) the shipper
CARDIA; (b) the carrier PAKARTI; and (c) the consignee HEINDRICH.
However, by virtue of their relationship with PAKARTI under separate
charter arrangements, SHINWA, KEE YEH and its agent SKY likewise
became parties to the bill of lading. In the same vein, ACENAV, as
admitted agent of CARDIA, also became a party to the said contract of
carriage.
The respondents, however, maintain 24 that ACENAV is a ship agent and
not a mere agent of CARDIA, as found by both the CA 25 and the RTC. 26
The Court disagrees.
Article 586 of the Code of Commerce provides:
ART. 586. The shipowner and the ship agent shall be civilly liable for the
acts of the captain and for the obligations contracted by the latter to
repair, equip, and provision the vessel, provided the creditor proves that
the amount claimed was invested therein.
By ship agent is understood the person entrusted with the provisioning
of a vessel, or who represents her in the port in which she may be
found. (Emphasis supplied)
Records show that the obligation of ACENAV was limited to informing
the consignee HEINDRICH of the arrival of the vessel in order for the
latter to immediately take possession of the goods. No evidence was
152
offered to establish that ACENAV had a hand in the provisioning of the

vessel or that it represented the carrier, its charterers, or the vessel at
any time during the unloading of the goods. Clearly, ACENAV's
participation was simply to assume responsibility over the cargo when
they were unloaded from the vessel. Hence, no reversible error was
committed by the courts a quo in holding that ACENAV was not a ship
agent within the meaning and context of Article 586 of the Code of
Commerce, but a mere agent of CARDIA, the shipper.
On this score, Article 1868 of the Civil Code states:
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.
Corollarily, Article 1897 of the same Code provides that an agent 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.
Both exceptions do not obtain in this case. Records are bereft of any
showing that ACENAV exceeded its authority in the discharge of its
duties as a mere agent of CARDIA. Neither was it alleged, much less
proved, that ACENAV's limited obligation as agent of the shipper,
CARDIA, was not known to HEINDRICH.
Furthermore, since CARDIA was not impleaded as a party in the instant
suit, the liability attributed upon it by the CA 27 on the basis of its finding
that the damage sustained by the cargo was due to improper packing
cannot be borne by ACENAV. As mere agent, ACENAV cannot be made
responsible or held accountable for the damage supposedly caused by
its principal. 28
Accordingly, the Court finds that theCA erred in ordering ACENAV jointly
and severally liable with CARDIA to pay 30o/o of the respondents' claim.
153
WHEREFORE, the assailed Decision and Resolution of the Court of

Appeals are hereby REVERSED. The complaint against petitioner Ace
Navigation Co., Inc. is hereby DISMISSED.
1awp++i1
SO ORDERED.
ESTELA M. PERLAS-BERNABE
Associate Justice
WE CONCUR:
DIOSDADO M. PERALTA*
Associate Justice
Acting Chairperson
ROBERTO A. ABAD
Associate Justice
MARTIN S. VILLARAMA, JR.**

Associate Justice
BIENVENIDO L. REYES***
Associate Justice
ATT E S TAT I O N
the Court's Division.
DIOSDADO M. PERALTA
Associate Justice
Acting Chairperson, Third Division
I certify that the conclusions in the above Decision had been reached in
the Court's Division.
154
ANTONIO T. CARPIO
Senior Associate Justice
(Per Section 12, R.A. 296, The Judiciary Act of 1948, as amended)
Footnotes
*
Per Special Order No. 1228 dated June 6, 2012.
Designated acting member in lieu of Justice Presbitero J.

Velasco, Jr., per Special Order No. 1229 dated June 6, 2012.
**
Designated member in lieu of Justice Jose C. Mendoza per

Raffle dated 08 February 2012.
***
Rollo (G.R. No. 171591), pp. 25-34.
Id. at 36-37.
Id. at 26.
Id. at 30.
Id. at 29.
Supra note 3.
Id.
Supra note 5.
Rollo (G.R. No. 171591), p. 27.
10
Id. at 26, 10.
11
Supra note 9.
155
12
Id.
13
Rollo (G.R. No. 171591), pp. 38-42.
14
Id. at 25-34.
15
Id. at 55.
16
Rollo (G.R. No. 171614), p. 9.
17
Id. at 35-36.
18
Rollo (G.R. No. 171663), pp. 349-354.
19
Id. at 355-356.
20
Id. at 357-358.
Martin, Commentaries and Jurisprudence on the Philippine

Commercial Laws, 1989 Revised Ed., Vol. 3, p. 91.
21
Iron Bulk Shipping Phil., Co., Ltd. v. Remington Industrial Sales

Corp., G.R. No. 136960, December 8, 2003, 417 SCRA 229, 234235.
22
23
Art. 1311, Civil Code.
24
Rollo (G.R. No. 171591), pp. 64-69.
25
Id. at 33.
26
Id. at 42.
27
ld.at33.
Maritime Agencies & Services, Inc. v. Court of Appeals, G.R.

Nos. 77638 and 77674, July 12. I 990, 187 SCRA 346, 355.
28
156
G.R. No. 171624
December 6, 2010
BF HOMES, INC. and the PHILIPPINE WATERWORKS AND

CONSTRUCTION CORP., Petitioners,
vs.
MANILA ELECTRIC COMPANY, Respondent.
DECISION
This Petition for Review on Certiorari under Rule 45 of the Rules of
Court assails the Decision1 dated October 27, 2005 of the Court of
Appeals in CA-G.R. SP No. 82826, nullifying and setting aside (1) the
Order2 dated November 21, 2003 of the Regional Trial Court (RTC),
Branch 202 of Las Pias City, in Civil Case No. 03-0151, thereby
dissolving the writ of injunction against respondent Manila Electric
Company (MERALCO); and (2) the Resolution3 dated February 7, 2006
of the Court of Appeals denying the Motion for Reconsideration of
petitioners BF Homes, Inc. (BF Homes) and Philippine Waterworks and
Construction Corporation (PWCC).
MERALCO is a corporation duly organized and existing under Philippine
laws engaged in the distribution and sale of electric power in Metro
Manila. On the other hand, BF Homes and PWCC are owners and
operators of waterworks systems delivering water to over 12,000
households and commercial buildings in BF Homes subdivisions in
Paraaque City, Las Pias City, Caloocan City, and Quezon City. The
water distributed in the waterworks systems owned and operated by BF
Homes and PWCC is drawn from deep wells using pumps run by
electricity supplied by MERALCO.
On June 23, 2003, BF Homes and PWCC filed a Petition [With Prayer
for the Issuance of Writ of Preliminary Injunction and for the Immediate
157
Issuance of Restraining Order] against MERALCO before the RTC,

docketed as Civil Case No. 03-0151.
In their Petition before the RTC, BF Homes and PWCC invoked their
right to refund based on the ruling of this Court in Republic v. Manila
Electric Company4:
7. It is of judicial notice that on November 15, 2002, in G.R. No.
141314, entitled Republic of the Philippines vs. Manila Electric
Company, and G.R. No. 141369, entitled Lawyers Against
Monopoly and Poverty (LAMP) et al. vs. Manila Electric Compnay
(MERALCO), (both cases shall hereafter be referred to as
"MERALCO Refund cases," for brevity), the Supreme Court
ordered MERALCO to refund its customers, which shall be credited
against the customers future consumption, the excess average
amount of P0.167 per kilowatt hour starting with the customers
billing cycles beginning February 1998. The dispositive portion of
the Supreme Court Decision in the MERALCO Refund cases
reads:
WHEREFORE, in view of the foregoing, the instant petitions are
GRANTED and the decision of the Court of Appeals in C.A. G.R.
SP No. 46888 is REVERSED. Respondent MERALCO is
authorized to adopt a rate adjustment in the amount of P0.017
kilowatthour, effective with respect to MERALCOs billing cycles
beginning February 1994. Further, in accordance with the decision
of the ERB dated February 16, 1998, the excess average amount
of P0.167 per kilowatt hour starting with the applicants billing
cycles beginning February 1998 is ordered to be refunded to
MERALCOs customers or correspondingly credited in their favor
for future consumption.
x x x x.
158
8. The Motion for Reconsideration filed by MERALCO in the

MERALCO Refund cases was DENIED WITH FINALITY (the
uppercase letters were used by the Supreme Court) in the
Resolution of the Supreme Court dated April 9, 2003.
9. The amount that MERALCO was mandated to refund to [BF
Homes and PWCC] pursuant to the MERALCO Refund cases is in
the amount of P11,834,570.91.5
BF Homes and PWCC then alleged in their RTC Petition that:
10. On May 20, 2003, without giving any notice whatsoever,
MERALCO disconnected electric supply to [BF Homes and
PWCCs] sixteen (16) water pumps located in BF Homes in
Paraaque, Caloocan, and Quezon City, which thus disrupted
water supply in those areas.
11. On June 4, 2003, [BF Homes and PWCC] received by facsimile
transmission a letter from MERALCO, x x x, in which MERALCO
demanded to [BF Homes and PWCC] the payment of electric bills
amounting toP4,717,768.15.
12. [MERALCO] replied in a letter dated June 11, 2003, x x x,
requesting MERALCO to apply theP4,717,768.15 electric bill
against the P11,834,570.91 that MERALCO was ordered to refund
to [BF Homes and PWCC] pursuant to the MERALCO Refund
cases. x x x
13. Displaying the arrogance that has become its distinction,
MERALCO, in its letter dated June 16, 2003, x x x, denied [BF
Homes and PWCCs] request alleging that it has not yet come up
with the schedule for the refund of large amounts, such as those of
[BF Homes and PWCC].
159
14. Even while MERALCO was serving its reply-letter to [BF

Homes and PWCC], MERALCO, again, without giving any notice,
cut off power supply to [BF Homes and PWCCs] five (5) water
pumps located in BF Homes Paraaque and BF Resort Village, in
Pamplona, Las Pias City.
15. In its letter dated June 4, 2003 (Annex A), MERALCO
threatened to cut off electric power connections to all of [BF Homes
and PWCCs] water pumps if [BF Homes and PWCC] failed to pay
their bills demanded by MERALCO by June 20, 2003.6
BF Homes and PWCC thus cited the following causes of action for
their RTC Petition:
16. In refusing to apply [MERALCOs] electric bills against the
amounts that it was ordered to refund to [BF Homes and PWCC]
pursuant to the MERALCO Refund cases and in making the
implementation of the refund ordered by the Supreme Court
dependent upon its own will and caprice, MERALCO acted with
utmost bad faith.
17. [BF Homes and PWCC] are clearly entitled to the remedies
under the law to compel MERALCO to consider [BF Homes and
PWCCs] electric bills fully paid by the amounts which MERALCO
was ordered to refund to [BF Homes and PWCC] pursuant to the
MERALCO Refund cases, to enjoin MERALCO to reconnect
electric power to all of [BF Homes and PWCCs] water pumps, and
to order MERALCO to desist from further cutting off power
connection to [BF Homes and PWCCs] water pumps.
18. MERALCOs unjust and oppressive acts have cast dishonor
upon [BF Homes and PWCCs] good name and besmirched their
reputation for which [BF Homes and PWCC] should be indemnified
by way of moral damages in the amount of not less
than P1,000,000.00.
160
19. As an example for the public good, to dissuade others from

emulating MERALCOs unjust, oppressive and mercenary conduct,
MERALCO should be directed to pay [BF Homes and PWCC]
exemplary damages of at least P1,000,000.00.
20. MERALCOs oppressive and inequitable conduct forced [BF
Homes and PWCC] to engage the services of counsel to defend
their rights and thereby incur litigation expenses in the amount of at
least P500,000.00 for which [BF Homes and PWCC] should be
indemnified.7
BF Homes and PWCC additionally prayed that the RTC issue a
writ of preliminary injunction and restraining order considering that:
21. As indicated in its letter dated June 4, 2003 (Annex A), unless
seasonably restrained, MERALCO will cut off electric power
connections to all of [BF Homes and PWCCs] water pumps on
June 20, 2003.
22. Part of the reliefs herein prayed for is to restrain MERALCO
from cutting off electric power connections to [BF Homes and
PWCCs] water pumps.
23. Unless MERALCOS announced intention to cut off electric
power connections to [BF Homes and PWCCs] water pumps is
restrained, [BF Homes and PWCC] will suffer great and irreparable
injury because they would not [be] able to supply water to their
customers.
24. [BF Homes and PWCC] therefore pray that a writ for
preliminary injunction be issued upon posting of a bond in an
amount as will be determined by this Honorable Court.
25. [BF Homes and PWCC] further pray that, in the meantime and
immediately upon the filing of the above captioned Petition, a
161
restraining order be issued before the matter of preliminary

injunction can be heard.8
On August 15, 2003, MERALCO filed before the RTC its Answer with
Counterclaims and Opposition to the Application for Writ of Preliminary
Injunction9 of BF Homes and PWCC.
According to MERALCO:
2.2. Both petitioners BF Homes, Incorporated and Philippine
Waterworks Corporation are admittedly the registered customers of
[MERALCO] by virtue of the service contracts executed between
them under which the latter undertook to supply electric energy to
the former for a fee. The following twenty-three (23) Service
Identification Nos. (SINs) are registered under the name of BF
Homes, Incorporated: x x x. While the following twenty-one (21)
Service Identification Nos. (SINs) are registered under the name of
Philippine Waterworks Construction Corporation: x x x
xxxx
2.4. The service contracts as well as the terms and conditions of
[MERALCOs] service as approved by BOE [Board of Energy], now
ERC [Energy Regulatory Commission], provide in relevant parts,
that [BF Homes and PWCC] agree as follows:
DISCONTINUANCE OF SERVICE:
The Company reserves the right to discontinue service in case the
customer is in arrears in the payment of bills or for failure to pay the
adjusted bills in those cases where the meter stopped or failed to
register the correct amount of energy consumed, or for failure to comply
with any of these terms and conditions, or in case of or to prevent fraud
upon the Company. Before disconnection is made in the case of, or to
prevent fraud, the Company may adjust the bill of said customer
162
accordingly and if the adjusted bill is not paid, the Company may
disconnect the same." (Emphasis supplied)
2.5. This contractual right of [MERALCO] to discontinue electric
service for default in the payment of its regular bills is sanctioned
and approved by the rules and regulations of ERB (now the ERC).
This right is necessary and reasonable means to properly protect
and enable [MERALCO] to perform and discharge its legal and
contractual obligation under its legislative franchise and the law.
Cutting off service for non-payment by the customers of the regular
monthly electric bills is the only practical way a public utility, such
as [MERALCO], can ensure and maintain efficient service in
accordance with the terms and conditions of its legislative
franchise and the law.
xxxx
2.14. Instead of paying their unpaid electric bills and before
[MERALCO] could effect its legal and contractual right to
disconnect [BF Homes and PWCCs] electric services, [BF Homes
and PWCC] filed the instant petition to avoid payment of
[MERALCOs] valid and legal claim for regular monthly electric
bills.
2.15. [BF Homes and PWCCs] unpaid regular bills totaled
P6,551,969.55 covering the May and June 2003 electric bills. x x x
xxxx
2.17. [BF Homes and PWCC] knew that [MERALCO] is already in
the process of implementing the decision of the Supreme Court as
to the refund case. But this refund has to be implemented in
accordance with the guidelines and schedule to be approved by
the ERC. Thus [BF Homes and PWCCs] filing of the instant
163
petition is merely to evade payment of their unpaid electric bills to

[MERALCO].10
Hence, MERALCO sought the dismissal of the RTC Petition of BF
Homes and PWCC on the following grounds:
3.1 The Honorable Court has no jurisdiction to award the relief prayed
for by [BF Homes and PWCC] because:
a) The petition is in effect preempting or defeating the power of the
ERC to implement the decision of the Supreme Court.
b) [MERALCO] is a utility company whose business activity is
wholly regulated by the ERC. The latter, being the regulatory
agency of the government having the authority over the
respondent, is the one tasked to approve the guidelines, schedules
and details of the refund.
c) The decision of the Supreme Court, dated November 15, 2002,
clearly states that respondent is directed to make the refund to its
customers in accordance with the decision of the ERC (formerly
ERB) dated February 16, 1998. Hence, [MERALCO] has to wait for
the schedule and details of the refund to be approved by the ERC
before it can comply with the Supreme Court decision.
3.2. [MERALCO] has the right to disconnect the electric service to [BF
Homes and PWCC] in that:
a) The service contracts between [MERALCO] and [BF Homes and
PWCC] expressly authorize the former to discontinue and
disconnect electric services of the latter for their failure to pay the
regular electric bills rendered.
b) It is [MERALCOs] legal duty as a public utility to furnish its
service to the general public without arbitrary discrimination and,
consequently, [MERALCO] is obligated to discontinue and
164
disconnect electric services to [BF Homes and PWCC] for their

refusal or failure to pay the electric energy actually used by them.11
For its compulsory counterclaims, MERALCO prayed that the RTC
orders BF Homes and PWCC to pay MERALCO P6,551,969.55 as
actual damages (representing the unpaid electric bills of BF Homes and
PWCC for May and June 2003), P1,500,000.00 as exemplary
damages, P1,500,000.00 as moral damages, andP1,000,000.00 as
attorneys fees.
Lastly, MERALCO opposed the application for writ of preliminary
injunction of BF Homes and PWCC because:
I
[MERALCO] HAS THE LEGAL AND CONTRACTUAL RIGHT TO
DEMAND PAYMENT OF THE ELECTRIC BILLS AND, IN CASE
OF NON-PAYMENT, TO DISCONTINUE THE ELECTRIC
SERVICES OF [BF HOMES and PWCC]
II
[BF HOMES and PWCC] HAVE NO CLEAR RIGHT WHICH
WARRANTS PROTECTION BY INJUNCTIVE PROCESS
After hearing,12 the RTC issued an Order on November 21, 2003
granting the application of BF Homes and PWCC for the issuance of a
writ of preliminary injunction. The RTC found that the records showed
that all requisites for the issuance of said writ were sufficiently satisfied
by BF Homes and PWCC. The RTC stated in its Order:
Albeit, this Court respects the right of a public utility company like
MERALCO, being a grantee of a legislative franchise under Republic Act
No. 9029, to collect overdue payments from its subscribers or customers
for their respective consumption of electric energy, such right must,
however, succumb to the paramount substantial and constitutional rights
165
of the public to the usage and enjoyment of waters in their community.

Thus, there is an urgent need for the issuance of a writ of preliminary
injunction in order to prevent social unrest in the community for having
been deprived of the use and enjoyment of waters flowing through [BF
Homes and PWCCs] water pumps.13
The RTC decreed in the end:
WHEREFORE, in the light of the foregoing, [BF Homes and PWCCs]
prayer for the issuance of a writ of preliminary injunction is hereby
GRANTED. Respondent Manila Electric Company is permanently
restrained from proceeding with its announced intention to cut-off electric
power connection to [BF Homes and PWCCs] water pumps unless
otherwise ordered by this Court. Further, [BF Homes and PWCC] are
hereby ordered to post a bond in the amount of P500,000 to answer for
whatever injury or damage that may be caused by reason of the
preliminary injunction.14
The Motion for Reconsideration of MERALCO of the aforementioned
Order was denied by the RTC in another Order issued on January 9,
2004.15 The RTC reiterated its earlier finding that all the requisites for the
proper issuance of an injunction had been fully complied with by BF
Homes and PWCC, thus:
Records indubitably show that all the requisites for the proper issuance
of an injunction have been fully complied with in the instant case.
It should be noted that a disconnection of power supply would obviously
cause irreparable injury because the pumps that supply water to the BF
community will be without electricity, thereby rendering said community
without water. Water is a basic and endemic necessity of life. This is why
its enjoyment and use has been constitutionally safeguarded and
protected. Likewise, a community without water might create social
unrest, which situation this Court has the mandate to prevent. There is
an urgent and paramount necessity for the issuance of the injunctive writ
166
to prevent serious damage to the guaranteed rights of [BF Homes and

PWCC] and the residents of the community to use and enjoy water.16
The RTC resolved the issue on jurisdiction raised by MERALCO, as
follows:
As to the jurisdictional issue raised by respondent MERALCO, it can be
gleaned from a re-evaluation and re-assessment of the records that this
Court has jurisdiction to delve into the case. This Court gave both parties
the opportunity to be heard as they introduced evidence on the propriety
of the issuance of the injunctive writ. It is well-settled that no grave
abuse of discretion could be attributed to its issuance where a party was
not deprived of its day in court as it was heard and had exhaustively
presented all its arguments and defenses. (National Mines and Allied
Workers Union vs. Valero, 132 SCRA 578, 1984.)17
Aggrieved, MERALCO filed with the Court of Appeals a Petition for
Certiorari under Rule 65 of the Rules of Court, docketed as CA-G.R. SP
No. 82826. MERALCO sought the reversal of the RTC Orders dated
November 21, 2003 and January 9, 2004 granting a writ of preliminary
injunction in favor of BF Homes and PWCC. MERALCO asserted that
the RTC had no jurisdiction over the application of BF Homes and
PWCC for issuance of such a writ.
In its Decision dated October 27, 2005, the Court of Appeals agreed with
MERALCO that the RTC had no jurisdiction to issue a writ of preliminary
injunction in Civil Case No. 03-0151, as said trial court had no
jurisdiction over the subject matter of the case to begin with. It
ratiocinated in this wise:
For one, it cannot be gainsaid that the ERC has original and exclusive
jurisdiction over the case. Explicitly, Section 43(u) of Republic Act No.
9136, otherwise known as the "Electric Power Industry Reform Act," (RA
9136), states that the ERC shall have the original and exclusive
jurisdiction over all cases contesting rates, fees, fines and penalties
167
imposed by the ERC in the exercise of its powers, functions and

responsibilities and over all cases involving disputes between and
among participants or players in the energy sector. Section 4(o) of Rule
3 of the Implementing Rules and Regulations of RA 9136 likewise
provides that the ERC shall also be empowered to issue such other rules
that are essential in the discharge of its functions as an independent
quasi-judicial body.
For another, the respondent judge, instead of presiding over the case,
should have dismissed the same and yielded jurisdiction to the ERC
pursuant to the doctrine of primary jurisdiction. It is plain error on the part
of the respondent judge to determine, preliminary or otherwise, a
controversy involving a question which is within the jurisdiction of an
administrative tribunal, especially so where the question demands the
exercise of sound administrative discretion.
Needless to state, the doctrine of primary jurisdiction applies where the
administrative agency, as in the case of ERC, exercises its quasi-judicial
and adjudicatory function. Thus, in cases involving specialized disputes,
the practice has been to refer the same to an administrative agency of
special competence pursuant to the doctrine of primary jurisdiction. The
courts will not determine a controversy involving a question which is
within the jurisdiction of the administrative tribunal prior to the resolution
of that question by the administrative tribunal, where the question
demands the exercise of sound administrative discretion requiring the
special knowledge, experience and services of the administrative
tribunal to determine technical and intricate matters of fact, and a
uniformity of ruling is essential to comply with the premises of the
regulatory statute administered.
Verily, the cause of action of [BF Homes and PWCC] against
[MERALCO] originates from the Meralco Refund Decision as it involves
the perceived right of the former to compel the latter to set-off or apply
their refund to their present electric bill. The issue delves into the right of
168
the private respondents to collect their refund without submitting to the

approved schedule of the ERC, and in effect give unto themselves
preferential right over other equally situated consumers of [MERALCO].
Perforce, the ERC, as can be gleaned from the afore-stated legal
provisions, has primary, original and exclusive jurisdiction over the said
controversy.
Indeed, the respondent judge glaringly erred in enjoining the right of
[MERALCO] to disconnect its services to [BF Homes and PWCC] on the
premise that the court has jurisdiction to apply the provisions on
compensation or set-off in this case. Although [MERALCO] recognizes
the right of [BF Homes and PWCC] to the refund as provided in the
Meralco Refund Decision, it is the ERC which has the authority to
implement the same according to its approved schedule, it being a
dispute arising from the exercise of its jurisdiction.
Moreover, it bears to stress that the Meralco Refund Decision was
brought into fore by the Decision dated 16 February 1998 of the ERC
(then Energy Regulatory Board) granting refund to [MERALCOs]
consumers. Being the agency of origin, the ERC has the jurisdiction to
execute the same. Besides, as stated, it is empowered to promulgate
rules that are essential in the discharge of its functions as an
independent quasi-judicial body.18
The dispositive portion of the judgment of the appellate court reads:
WHEREFORE, the foregoing considered, the instant petition is hereby
GRANTED and the assailed Orders REVERSED and SET ASIDE.
Accordingly, the writ of injunction against [MERALCO] is hereby
DISSOLVED. No costs.19
In a Resolution dated February 7, 2006, the Court of Appeals denied the
Motion for Reconsideration of BF Homes and PWCC for failing to raise
new and persuasive and meritorious arguments.
169
Now, BF Homes and PWCC come before this Court via the instant
Petition, raising the following assignment of errors:
1. The Court of Appeals ERRED in saying that the respondent
judge committed grave abuse of discretion by issuing the disputed
writ of injunction pending the merits of the case including the issue
of subject matter jurisdiction.
2. The Court of Appeals ERRED in saying that the ERC under the
doctrine of primary jurisdiction has the original and EXCLUSIVE
jurisdiction to take cognizance of a petition for injunction to prevent
electrical disconnection to a customer entitled to a refund.
3. The Court of Appeals ERRED in NOT SAYING that the ERC as
a quasi-judicial body under RA 9136 has no power to issue any
injunctive relief or remedy to prevent disconnection.
4. The Court of Appeals ERRED in not resolving the issue as to the
violation of MERALCO of a standing injunction order while the case
remains undecided.20
At the core of the Petition is the issue of whether jurisdiction over the
subject matter of Civil Case No. 03-0151 lies with the RTC or the Energy
Regulatory Commission (ERC). If it is with the RTC, then the said trial
court also has jurisdiction to issue the writ of preliminary injunction
against MERALCO. If it is with the ERC, then the RTC also has no
jurisdiction to act on any incidents in Civil Case No. 03-0151, including
the application for issuance of a writ of preliminary injunction of BF
Homes and PWCC therein.
BF Homes and PWCC argued that due to the threat of MERALCO to
disconnect electric services, BF Homes and PWCC had no other
recourse but to seek an injunctive remedy from the RTC under its
general jurisdiction. The merits of Civil Case No. 03-0151 was not yet in
issue, only the propriety of issuing a writ of preliminary injunction to
170
prevent an irreparable injury. Even granting that the RTC has no

jurisdiction over the subject matter of Civil Case No. 03-0151, the ERC
by enabling law has no injunctive power to prevent the disconnection by
MERALCO of electric services to BF Homes and PWCC.
The Petition has no merit.
Settled is the rule that jurisdiction is conferred only by the Constitution or
the law.21 Republic v. Court of Appeals22 also enunciated that only a
statute can confer jurisdiction on courts and administrative agencies.
Related to the foregoing and equally well-settled is the rule that the
nature of an action and the subject matter thereof, as well as which court
or agency of the government has jurisdiction over the same, are
determined by the material allegations of the complaint in relation to the
law involved and the character of the reliefs prayed for, whether or not
the complainant/plaintiff is entitled to any or all of such reliefs. A prayer
or demand for relief is not part of the petition of the cause of action; nor
does it enlarge the cause of action stated or change the legal effect of
what is alleged. In determining which body has jurisdiction over a case,
the better policy is to consider not only the status or relationship of the
parties but also the nature of the action that is the subject of their
controversy.23
In Manila Electric Company v. Energy Regulatory Board,24 the Court
traced the legislative history of the regulatory agencies which preceded
the ERC, presenting a summary of these agencies, the statutes or
issuances that created them, and the extent of the jurisdiction conferred
upon them, viz:
1. The first regulatory body, the Board of Rate Regulation (BRR),
was created by virtue of Act No. 1779. Its regulatory mandate
under Section 5 of the law was limited to fixing or regulating rates
of every public service corporation.
171
2. In 1913, Act No. 2307 created the Board of Public Utility

Commissioners (BPUC) to take over the functions of the BRR. By
express provision of Act No. 2307, the BPUC was vested with
jurisdiction, supervision and control over all public utilities and their
properties and franchises.
3. On November 7, 1936, Commonwealth Act (C.A.) No. 146, or
the Public Service Act (PSA), was passed creating the Public
Service Commission (PSC) to replace the BPUC. Like the BPUC,
the PSC was expressly granted jurisdiction, supervision and
control over public services, with the concomitant authority of
calling on the public force to exercise its power, to wit:
"SEC. 13. Except as otherwise provided herein, the Commission shall
have general supervision and regulation of, jurisdiction and control over,
all public utilities, and also over their property, property rights,
equipment, facilities and franchises so far as may be necessary for the
purpose of carrying out the provisions of this Act, and in the exercise of
its authority it shall have the necessary powers and the aid of the public
force x x x."
Section 14 of C.A. No. 146 defines the term "public service" or "public
utility" as including "every individual, copartnership, association,
corporation or joint-stock company, . . . that now or hereafter may own,
operate, manage or control within the Philippines, for hire or
compensation, any common carrier, x x x, electric light, heat, power, x x
x, when owned, operated and managed for public use or service within
the Philippines x x x." Under the succeeding Section 17(a), the PSC has
the power even without prior hearing
(a) To investigate, upon its own initiative, or upon complaint in writing,
any matter concerning any public service as regards matters under its
jurisdiction; to require any public service to furnish safe, adequate and
proper service as the public interest may require and warrant, to enforce
172
compliance with any standard, rule, regulation, order or other

requirement of this Act or of the Commission, x x x.
4. Then came Presidential Decree (P.D.) No. 1, reorganizing the national
government and implementing the Integrated Reorganization Plan.
Under the reorganization plan, jurisdiction, supervision and control over
public services related to electric light, and power heretofore vested in
the PSC were transferred to the Board of Power and Waterworks
(BOPW).
Later, P.D. No. 1206 abolished the BOPW. Its powers and function
relative to power utilities, including its authority to grant provisional relief,
were transferred to the newly-created Board of Energy (BOE).
5. On May 8, 1987, then President Corazon C. Aquino issued E.O. No.
172 reconstituting the BOE into the ERB, transferring the formers
functions and powers under P.D. No. 1206 to the latter and consolidating
in and entrusting on the ERB "all the regulatory and adjudicatory
functions covering the energy sector." Section 14 of E.O. No. 172 states
that "(T)he applicable provisions of [C.A.] No. 146, as amended,
otherwise known as the Public Service Act; x x x and [P.D.] No. 1206,
as amended, creating the Department of Energy, shall continue to have
full force and effect, except insofar as inconsistent with this Order."25
Thereafter, on June 8, 2001, Republic Act No. 9136, known as the
Electric Power Industry Reform Act of 2001 (EPIRA), was enacted,
providing a framework for restructuring the electric power industry. One
of the avowed purposes of the EPIRA is to establish a strong and purely
independent regulatory body. The Energy Regulatory Board (ERB) was
abolished and its powers and functions not inconsistent with the
provision of the EPIRA were expressly transferred to the ERC.26
The powers and functions of the ERB not inconsistent with the EPIRA
were transferred to the ERC by virtue of Sections 44 and 80 of the
EPIRA, which read:
173
Sec. 44. Transfer of Powers and Functions. The powers and functions
of the Energy Regulatory Board not inconsistent with the provisions of
this Act are hereby transferred to the ERC. The foregoing transfer of
powers and functions shall include all applicable funds and
appropriations, records, equipment, property and personnel as may be
necessary.
Sec. 80. Applicability and Repealing Clause. The applicability
provisions of Commonwealth Act No. 146, as amended, otherwise
known as the "Public Service Act." Republic Act 6395, as amended,
revising the charter of NPC; Presidential Decree 269, as amended,
referred to as the National Electrification Decree; Republic Act 7638,
otherwise known as the "Department of Energy Act of 1992"; Executive
Order 172, as amended, creating the ERB; Republic Act 7832 otherwise
known as the "Anti-Electricity and Electric Transmission Lines/Materials
Pilferage Act of 1994"; shall continue to have full force and effect except
insofar as they are inconsistent with this Act.
The provisions with respect to electric power of Section 11(c) of Republic
Act 7916, as amended, and Section 5(f) of Republic Act 7227, are
hereby repealed or modified accordingly.
Presidential Decree No. 40 and all laws, decrees, rules and regulations,
or portions thereof, inconsistent with this Act are hereby repealed or
modified accordingly.
In addition to the foregoing, the EPIRA also conferred new powers upon
the ERC under Section 43, among which are:
SEC. 43. Functions of the ERC. The ERC shall promote competition,
encourage market development, ensure customer choice and penalize
abuse of market power in the restructured electricity industry. In
appropriate cases, the ERC is authorized to issue cease and desist
order after due notice and hearing. Towards this end, it shall be
responsible for the following key functions in the restructured industry:
174
xxxx
(f) In the public interest, establish and enforce a methodology for setting
transmission and distribution wheeling rates and retail rates for the
captive market of a distribution utility, taking into account all relevant
considerations, including the efficiency or inefficiency of the regulated
entities. The rates must be such as to allow the recovery of just and
reasonable costs and a reasonable return on rate base (RORB) to
enable the entity to operate viably. The ERC may adopt alternative forms
of internationally-accepted rate-setting methodology as it may deem
appropriate. The rate-setting methodology so adopted and applied must
ensure a reasonable price of electricity. The rates prescribed shall be
non-discriminatory. To achieve this objective and to ensure the complete
removal of cross subsidies, the cap on the recoverable rate of system
losses prescribed in Section 10 of Republic Act No. 7832, is hereby
amended and shall be replaced by caps which shall be determined by
the ERC based on load density, sales mix, cost of service, delivery
voltage and other technical considerations it may promulgate. The ERC
shall determine such form of rate-setting methodology, which shall
promote efficiency. x x x.
xxxx
(u) The ERC shall have the original and exclusive jurisdiction over all
cases contesting rates, fees, fines and penalties imposed by the ERC in
the exercise of the abovementioned powers, functions and
responsibilities and over all cases involving disputes between and
among participants or players in the energy sector.
All notices of hearings to be conducted by the ERC for the purpose of
fixing rates or fees shall be published at least twice for two successive
weeks in two (2) newspapers of nationwide circulation.
A careful review of the material allegations of BF Homes and PWCC in
their Petition before the RTC reveals that the very subject matter thereof
175
is the off-setting of the amount of refund they are supposed to receive

from MERALCO against the electric bills they are to pay to the same
company. This is squarely within the primary jurisdiction of the ERC.
The right of BF Homes and PWCC to refund, on which their claim for offsetting depends, originated from the MERALCO Refund cases. In said
cases, the Court (1) authorized MERALCO to adopt a rate adjustment in
the amount of P0.017 per kilowatthour, effective with respect to its billing
cycles beginning February 1994; and (2) ordered MERALCO to refund to
its customers or credit in said customers favor for future
consumption P0.167 per kilowatthour, starting with the customers billing
cycles that begin February 1998, in accordance with the ERB Decision
dated February 16, 1998.
It bears to stress that in the MERALCO Refund cases, this Court only
affirmed the February 16, 1998 Decision of the ERB (predecessor of the
ERC) fixing the just and reasonable rate for the electric services of
MERALCO and granting refund to MERALCO consumers of the amount
they overpaid. Said Decision was rendered by the ERB in the exercise of
its jurisdiction to determine and fix the just and reasonable rate of power
utilities such as MERALCO.
Presently, the ERC has original and exclusive jurisdiction under Rule
43(u) of the EPIRA over all cases contesting rates, fees, fines, and
penalties imposed by the ERC in the exercise of its powers, functions
and responsibilities, and over all cases involving disputes between and
among participants or players in the energy sector. Section 4(o) of the
EPIRA Implementing Rules and Regulation provides that the ERC "shall
also be empowered to issue such other rules that are essential in the
discharge of its functions as in independent quasi-judicial body."
Indubitably, the ERC is the regulatory agency of the government having
the authority and supervision over MERALCO. Thus, the task to approve
the guidelines, schedules, and details of the refund by MERALCO to its
consumers, to implement the judgment of this Court in the MERALCO
176
Refund cases, also falls upon the ERC. By filing their Petition before the
RTC, BF Homes and PWCC intend to collect their refund without
submitting to the approved schedule of the ERC, and in effect, enjoy
preferential right over the other equally situated MERALCO consumers.
Administrative agencies, like the ERC, are tribunals of limited jurisdiction
and, as such, could wield only such as are specifically granted to them
by the enabling statutes. In relation thereto is the doctrine of primary
jurisdiction involving matters that demand the special competence of
administrative agencies even if the question involved is also judicial in
nature. Courts cannot and will not resolve a controversy involving a
question within the jurisdiction of an administrative tribunal, especially
when the question demands the sound exercise of administrative
discretion requiring special knowledge, experience and services of the
administrative tribunal to determine technical and intricate matters of
fact. The court cannot arrogate into itself the authority to resolve a
controversy, the jurisdiction of which is initially lodged with the
administrative body of special competence.27
Since the RTC had no jurisdiction over the Petition of BF Homes and
PWCC in Civil Case No. 03-0151, then it was also devoid of any
authority to act on the application of BF Homes and PWCC for the
issuance of a writ of preliminary injunction contained in the same
Petition. The ancillary and provisional remedy of preliminary injunction
cannot exist except only as an incident of an independent action or
proceeding.28
Incidentally, BF Homes and PWCC seemed to have lost sight of Section
8 of Executive Order No. 172 which explicitly vested on the ERB, as an
incident of its principal function, the authority to grant provisional relief,
thus:
Section 8. Authority to Grant Provisional Relief. The Board may, upon
the filing of an application, petition or complaint or at any stage thereafter
and without prior hearing, on the basis of supporting papers duly verified
177
or authenticated, grant provisional relief on motion of a party in the case

or on its own initiative, without prejudice to a final decision after hearing,
should the Board find that the pleadings, together with such affidavits,
documents and other evidence which may be submitted in support of the
motion, substantially support the provisional order:Provided, That the
Board shall immediately schedule and conduct a hearing thereon within
thirty (30) days thereafter, upon publication and notice to all affected
parties.
The aforequoted provision is still applicable to the ERC as it succeeded
the ERB, by virtue of Section 80 of the EPIRA. A writ of preliminary
injunction is one such provisional relief which a party in a case before
the ERC may move for.
Lastly, the Court herein already declared that the RTC not only lacked
the jurisdiction to issue the writ of preliminary injunction against
MERALCO, but that the RTC actually had no jurisdiction at all over the
subject matter of the Petition of BF Homes and PWCC in Civil Case No.
03-0151. Therefore, in addition to the dissolution of the writ of
preliminary injunction issued by the RTC, the Court also deems it
appropriate to already order the dismissal of the Petition of BF Homes
and PWCC in Civil Case No. 03-0151 for lack of jurisdiction of the RTC
over the subject matter of the same. Although only the matter of the writ
of preliminary injunction was brought before this Court in the instant
Petition, the Court is already taking cognizance of the issue on the
jurisdiction of the RTC over the subject matter of the Petition. The Court
may motu proprio consider the issue of jurisdiction. The Court has
discretion to determine whether the RTC validly acquired jurisdiction
over Civil Case No. 03-0151 since, to reiterate, jurisdiction over the
subject matter is conferred only by law. Jurisdiction over the subject
matter cannot be acquired through, or waived by, any act or omission of
the parties. Neither would the active participation of the parties nor
estoppel operate to confer jurisdiction on the RTC where the latter has
178
none over a cause of action.29Indeed, when a court has no jurisdiction

over the subject matter, the only power it has is to dismiss the action.30
WHEREFORE, the instant Petition for Review is DENIED. The Decision
dated October 27, 2005 of the Court of Appeals in CA-G.R. SP No.
82826 is AFFIRMED with the MODIFICATION that the Regional Trial
Court, Branch 202 of Las Pias City, is ORDERED to dismiss the
Petition [With Prayer for the Issuance of Writ of Preliminary Injunction
and for the Immediate Issuance of Restraining Order] of BF Homes, Inc.
and Philippine Waterworks and Construction Corporation in Civil Case
No. 03-0151. Costs against BF Homes, Inc. and Philippine Waterworks
and Construction Corporation.
SO ORDERED.
TERESITA J. LEONARDO-DE CASTRO
Associate Justice
WE CONCUR:
RENATO C. CORONA
Chief Justice
Chairperson
Associate Justice
ROBERTO A. ABAD*
Associate Justice
JOSE PORTUGAL PEREZ

Associate Justice
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.
179
RENATO C. CORONA
Chief Justice
G.R. No. 171468
August 24, 2011
NEW WORLD INTERNATIONAL DEVELOPMENT (PHILS.),

INC., Petitioner,
vs.
NYK-FILJAPAN SHIPPING CORP., LEP PROFIT INTERNATIONAL,
INC. (ORD), LEP INTERNATIONAL PHILIPPINES, INC., DMT CORP.,
ADVATECH INDUSTRIES, INC., MARINA PORT SERVICES, INC.,
SERBROS CARRIER CORPORATION, and SEABOARD-EASTERN
INSURANCE CO., INC., Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 174241
NEW WORLD INTERNATIONAL DEVELOPMENT (PHILS.),
INC., Petitioner,
vs.
SEABOARD-EASTERN INSURANCE CO., INC., Respondent.
DECISION
ABAD, J.:
These consolidated petitions involve a cargo owners right to recover
damages from the loss of insured goods under the Carriage of Goods by
Sea Act and the Insurance Code.
Petitioner New World International Development (Phils.), Inc. (New
World) bought from DMT Corporation (DMT) through its agent, Advatech
180
Industries, Inc. (Advatech) three emergency generator sets worth

US$721,500.00.
DMT shipped the generator sets by truck from Wisconsin, United States,
to LEP Profit International, Inc. (LEP Profit) in Chicago, Illinois. From
there, the shipment went by train to Oakland, California, where it was
loaded on S/S California Luna V59, owned and operated by NYK FilJapan Shipping Corporation (NYK) for delivery to petitioner New World
in Manila. NYK issued a bill of lading, declaring that it received the goods
in good condition.
NYK unloaded the shipment in Hong Kong and transshipped it to S/S
ACX Ruby V/72 that it also owned and operated. On its journey to
Manila, however, ACX Ruby encountered typhoon Kadiang whose
captain filed a sea protest on arrival at the Manila South Harbor on
October 5, 1993 respecting the loss and damage that the goods on
board his vessel suffered.
Marina Port Services, Inc. (Marina), the Manila South Harbor arrastre or
cargo-handling operator, received the shipment on October 7, 1993.
Upon inspection of the three container vans separately carrying the
generator sets, two vans bore signs of external damage while the third
van appeared unscathed. The shipment remained at Pier 3s Container
Yard under Marinas care pending clearance from the Bureau of
Customs. Eventually, on October 20, 1993 customs authorities allowed
petitioners customs broker, Serbros Carrier Corporation (Serbros), to
withdraw the shipment and deliver the same to petitioner New Worlds
job site in Makati City.
An examination of the three generator sets in the presence of petitioner
New Worlds representatives, Federal Builders (the project contractor)
and surveyors of petitioner New Worlds insurer, SeaboardEastern
Insurance Company (Seaboard), revealed that all three sets suffered
extensive damage and could no longer be repaired. For these reasons,
New World demanded recompense for its loss from respondents NYK,
181
DMT, Advatech, LEP Profit, LEP International Philippines, Inc. (LEP),

Marina, and Serbros. While LEP and NYK acknowledged receipt of the
demand, both denied liability for the loss.
Since Seaboard covered the goods with a marine insurance policy,
petitioner New World sent it a formal claim dated November 16, 1993.
Replying on February 14, 1994, Seaboard required petitioner New World
to submit to it an itemized list of the damaged units, parts, and
accessories, with corresponding values, for the processing of the claim.
But petitioner New World did not submit what was required of it, insisting
that the insurance policy did not include the submission of such a list in
connection with an insurance claim. Reacting to this, Seaboard refused
to process the claim.
On October 11, 1994 petitioner New World filed an action for specific
performance and damages against all the respondents before the
Regional Trial Court (RTC) of Makati City, Branch 62, in Civil Case 942770.
On August 16, 2001 the RTC rendered a decision absolving the various
respondents from liability with the exception of NYK. The RTC found that
the generator sets were damaged during transit while in the care of
NYKs vessel, ACX Ruby. The latter failed, according to the RTC, to
exercise the degree of diligence required of it in the face of a foretold
raging typhoon in its path.
The RTC ruled, however, that petitioner New World filed its claim against
the vessel owner NYK beyond the one year provided under the Carriage
of Goods by Sea Act (COGSA). New World filed its complaint on October
11, 1994 when the deadline for filing the action (on or before October 7,
1994) had already lapsed. The RTC held that the one-year period should
be counted from the date the goods were delivered to the arrastre
operator and not from the date they were delivered to petitioners job
site.1
182
As regards petitioner New Worlds claim against Seaboard, its insurer,

the RTC held that the latter cannot be faulted for denying the claim
against it since New World refused to submit the itemized list that
Seaboard needed for assessing the damage to the shipment. Likewise,
the belated filing of the complaint prejudiced Seaboards right to pursue
a claim against NYK in the event of subrogation.
On appeal, the Court of Appeals (CA) rendered judgment on January 31,
2006,2 affirming the RTCs rulings except with respect to Seaboards
liability. The CA held that petitioner New World can still recoup its loss
from Seaboards marine insurance policy, considering a) that the
submission of the itemized listing is an unreasonable imposition and b)
that the one-year prescriptive period under the COGSA did not affect
New Worlds right under the insurance policy since it was the Insurance
Code that governed the relation between the insurer and the insured.
Although petitioner New World promptly filed a petition for review of the
CA decision before the Court in G.R. 171468, Seaboard chose to file a
motion for reconsideration of that decision. On August 17, 2006 the CA
rendered an amended decision, reversing itself as regards the claim
against Seaboard. The CA held that the submission of the itemized
listing was a reasonable requirement that Seaboard asked of New
World. Further, the CA held that the one-year prescriptive period for
maritime claims applied to Seaboard, as insurer and subrogee of New
Worlds right against the vessel owner. New Worlds failure to comply
promptly with what was required of it prejudiced such right.
Instead of filing a motion for reconsideration, petitioner instituted a
second petition for review before the Court in G.R. 174241, assailing the
CAs amended decision.
183
a) In G.R. 171468, whether or not the CA erred in affirming the

RTCs release from liability of respondents DMT, Advatech, LEP,
LEP Profit, Marina, and Serbros who were at one time or another
involved in handling the shipment; and
b) In G.R. 174241, 1) whether or not the CA erred in ruling that
Seaboards request from petitioner New World for an itemized list
is a reasonable imposition and did not violate the insurance
contract between them; and 2) whether or not the CA erred in
failing to rule that the one-year COGSA prescriptive period for
marine claims does not apply to petitioner New Worlds prosecution
of its claim against Seaboard, its insurer.
The Courts Rulings
In G.R. 171468 -Petitioner New World asserts that the roles of respondents DMT,
Advatech, LEP, LEP Profit, Marina and Serbros in handling and
transporting its shipment from Wisconsin to Manila collectively resulted
in the damage to the same, rendering such respondents solidarily liable
with NYK, the vessel owner.
But the issue regarding which of the parties to a dispute incurred
negligence is factual and is not a proper subject of a petition for review
on certiorari. And petitioner New World has been unable to make out an
exception to this rule.3 Consequently, the Court will not disturb the finding
of the RTC, affirmed by the CA, that the generator sets were totally
damaged during the typhoon which beset the vessels voyage from Hong
Kong to Manila and that it was her negligence in continuing with that
journey despite the adverse condition which caused petitioner New
Worlds loss.
That the loss was occasioned by a typhoon, an exempting cause under
Article 1734 of the Civil Code, does not automatically relieve the
184
common carrier of liability. The latter had the burden of proving that the
typhoon was the proximate and only cause of loss and that it exercised
due diligence to prevent or minimize such loss before, during, and after
the disastrous typhoon.4 As found by the RTC and the CA, NYK failed to
discharge this burden.
In G.R. 174241 -One. The Court does not regard as substantial the question of
reasonableness of Seaboards additional requirement of an itemized
listing of the damage that the generator sets suffered. The record shows
that petitioner New World complied with the documentary requirements
evidencing damage to its generator sets.
The marine open policy that Seaboard issued to New World was an allrisk policy. Such a policy insured against all causes of conceivable loss
or damage except when otherwise excluded or when the loss or damage
was due to fraud or intentional misconduct committed by the insured.
The policy covered all losses during the voyage whether or not arising
from a marine peril.5
Here, the policy enumerated certain exceptions like unsuitable
packaging, inherent vice, delay in voyage, or vessels unseaworthiness,
among others.6 But Seaboard had been unable to show that petitioner
New Worlds loss or damage fell within some or one of the enumerated
exceptions.
What is more, Seaboard had been unable to explain how it could not
verify the damage that New Worlds goods suffered going by the
documents that it already submitted, namely, (1) copy of the Suppliers
Invoice KL2504; (2) copy of the Packing List; (3) copy of the Bill of
Lading 01130E93004458; (4) the Delivery of Waybill Receipts 1135,
1222, and 1224; (5) original copy of Marine Insurance Policy MA-HO000266; (6) copies of Damage Report from Supplier and Insurance
Adjusters; (7) Consumption Report from the Customs Examiner; and (8)
185
Copies of Received Formal Claim from the following: a) LEP

International Philippines, Inc.; b) Marina Port Services, Inc.; and c)
Serbros Carrier Corporation.7 Notably, Seaboards own marine surveyor
attended the inspection of the generator sets.
Seaboard cannot pretend that the above documents are inadequate
since they were precisely the documents listed in its insurance
policy.8 Being a contract of adhesion, an insurance policy is construed
strongly against the insurer who prepared it. The Court cannot read a
requirement in the policy that was not there.
Further, it appears from the exchanges of communications between
Seaboard and Advatech that submission of the requested itemized listing
was incumbent on the latter as the seller DMTs local agent. Petitioner
New World should not be made to suffer for Advatechs shortcomings.
Two. Regarding prescription of claims, Section 3(6) of the COGSA
provides that the carrier and the ship shall be discharged from all liability
in case of loss or damage unless the suit is brought within one year after
delivery of the goods or the date when the goods should have been
delivered.
But whose fault was it that the suit against NYK, the common carrier,
was not brought to court on time? The last day for filing such a suit fell
on October 7, 1994. The record shows that petitioner New World filed its
formal claim for its loss with Seaboard, its insurer, a remedy it had the
right to take, as early as November 16, 1993 or about 11 months before
the suit against NYK would have fallen due.
In the ordinary course, if Seaboard had processed that claim and paid
the same, Seaboard would have been subrogated to petitioner New
Worlds right to recover from NYK. And it could have then filed the suit as
a subrogee. But, as discussed above, Seaboard made an unreasonable
demand on February 14, 1994 for an itemized list of the damaged units,
parts, and accessories, with corresponding values when it appeared
186
settled that New Worlds loss was total and when the insurance policy
did not require the production of such a list in the event of a claim.
Besides, when petitioner New World declined to comply with the demand
for the list, Seaboard against whom a formal claim was pending should
not have remained obstinate in refusing to process that claim. It should
have examined the same, found it unsubstantiated by documents if that
were the case, and formally rejected it. That would have at least given
petitioner New World a clear signal that it needed to promptly file its suit
directly against NYK and the others. Ultimately, the fault for the delayed
court suit could be brought to Seaboards doorstep.
Section 241 of the Insurance Code provides that no insurance company
doing business in the Philippines shall refuse without just cause to pay
or settle claims arising under coverages provided by its policies. And,
under Section 243, the insurer has 30 days after proof of loss is received
and ascertainment of the loss or damage within which to pay the claim. If
such ascertainment is not had within 60 days from receipt of evidence of
loss, the insurer has 90 days to pay or settle the claim. And, in case the
insurer refuses or fails to pay within the prescribed time, the insured
shall be entitled to interest on the proceeds of the policy for the duration
of delay at the rate of twice the ceiling prescribed by the Monetary
Board.
Notably, Seaboard already incurred delay when it failed to settle
petitioner New Worlds claim as Section 243 required. Under Section
244, a prima facie evidence of unreasonable delay in payment of the
claim is created by the failure of the insurer to pay the claim within the
time fixed in Section 243.
Consequently, Seaboard should pay interest on the proceeds of the
policy for the duration of the delay until the claim is fully satisfied at the
rate of twice the ceiling prescribed by the Monetary Board. The term
"ceiling prescribed by the Monetary Board" means the legal rate of
interest of 12% per annum provided in Central Bank Circular 416,
187
pursuant to Presidential Decree 116.9 Section 244 of the Insurance Code

also provides for an award of attorneys fees and other expenses
incurred by the assured due to the unreasonable withholding of payment
of his claim.
In Prudential Guarantee and Assurance, Inc. v. Trans-Asia Shipping
Lines, Inc.,10 the Court regarded as proper an award of 10% of the
insurance proceeds as attorneys fees. Such amount is fair considering
the length of time that has passed in prosecuting the claim.11 Pursuant to
the Courts ruling in Eastern Shipping Lines, Inc. v. Court of Appeals,12 a
12% interest per annum from the finality of judgment until full satisfaction
of the claim should likewise be imposed, the interim period equivalent to
a forbearance of credit.
1avvphi1
Petitioner New World is entitled to the value stated in the policy which is
commensurate to the value of the three emergency generator sets or
US$721,500.00 with double interest plus attorneys fees as discussed
above.
WHEREFORE, the Court DENIES the petition in G.R. 171468 and
AFFIRMS the Court of Appeals decision of January 31, 2006 insofar as
petitioner New World International Development (Phils.), Inc. is not
allowed to recover against respondents DMT Corporation, Advatech
Industries, Inc., LEP International Philippines, Inc., LEP Profit
International, Inc., Marina Port Services, Inc. and Serbros Carrier
Corporation.
With respect to G.R. 174241, the Court GRANTS the petition and
REVERSES and SETS ASIDE the Court of Appeals Amended Decision
of August 17, 2006. The Court DIRECTS Seaboard-Eastern Insurance
Company, Inc. to pay petitioner New World International Development
(Phils.), Inc. US$721,500.00 under Policy MA-HO-000266, with 24%
interest per annum for the duration of delay in accordance with Sections
243 and 244 of the Insurance Code and attorneys fees equivalent to
10% of the insurance proceeds. Seaboard shall also pay, from finality of
188
judgment, a 12% interest per annum on the total amount due to

SO ORDERED.
ROBERTO A. ABAD
Associate Justice
WE CONCUR:
PRESBITERO J. VELASCO, JR.
Associate Justice
Chairperson
TERESITA J. LEONARDO-DE
CASTRO*
Associate Justice
DIOSDADO M. PERALTA
Associate Justice
JOSE CATRAL MENDOZA

Associate Justice
ATT E S TAT I O N
Associate Justice
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.
189
RENATO C. CORONA
Chief Justice
Footnotes
Designated as additional member in lieu of Associate Justice
Maria Lourdes P. A. Sereno, per Special Order 1069 dated August
23, 2011.
*
Union Carbide Philippines, Inc. v. Manila Railroad Co., 168 Phil.

22, 31 (1977).
1
Penned by Associate Justice Vicente S.E. Veloso with the

concurrence of Associate Justices Edgardo F. Sundiam and Aurora
S. Lagman, rollo (G.R. 171468), pp. 9-41.
2
See Cang v. Cullen, G.R. No. 163078, November 25, 2009, 605
SCRA 391.
3
Civil Code, Article 1739.
Choa Tiek Seng v. Court of Appeals, 262 Phil. 245, 255 (1990).
Rollo (G.R. 174241), p. 163.
Exhibit "BB" for petitioner, id. at 216.
For documentation of claims, the policy requires submission of:

(1) Original policy or certificate of insurance; (2) Original copy of
shipping invoices together with shipping specifications and/or
weight notes; (3) Original Bill of Lading and/or other contract of
carriage; (4) Survey report or other documentary evidence to show
the extent of the loss or damage; (5) Landing account and weight
notes at final destination, and; (6) Correspondence exchanged with
8
190
the Carrier and other parties regarding the liability for the loss or
damage, id. at 165.
Otherwise known as "Amending Further Certain Sections of Act
Numbered Two Thousand Six Hundred Fifty-Five, as amended,
otherwise known as "The Usury Law."
9
10
G.R. Nos. 151890 and 151991, June 20, 2006, 491 SCRA 411.
Cathay Insurance Company, Inc. v. Court of Appeals, 255 Phil.

714, 723 (1989).
11
12
G.R. No. 97412, July 12, 1994, 234 SCRA 78.
NEW WORLD INTERNATIONAL G.R. No. 171468

DEVELOPMENT (PHILS.), INC.,
Petitioner, Present:
VELASCO, JR., J., Chairperson,
- versus - LEONARDO-DE CASTRO,*
PERALTA,
ABAD, and
MENDOZA, JJ.
NYK-FILJAPAN SHIPPING CORP.,
LEP PROFIT INTERNATIONAL,
INC. (ORD), LEP INTERNATIONAL
PHILIPPINES, INC., DMT CORP.,
ADVATECH INDUSTRIES, INC.,
MARINA PORT SERVICES, INC.,
191
SERBROS CARRIER CORPORATION,

and SEABOARD-EASTERN
INSURANCE CO., INC.,
Respondents.
x ------------------------------------------------- x
NEW WORLD INTERNATIONAL G.R. No. 174241

DEVELOPMENT (PHILS.), INC.,
Petitioner,
- versus -
SEABOARD-EASTERN Promulgated:
INSURANCE CO., INC.,
Respondent. August 24, 2011
x --------------------------------------------------------------------------------------- x
DECISION
ABAD, J.:
192
These consolidated petitions involve a cargo owners right to

recover damages from the loss of insured goods under the
Carriage of Goods by Sea Act and the Insurance Code.

Petitioner New World International Development (Phils.), Inc. (New
World) bought from DMT Corporation (DMT) through its agent,
Advatech Industries, Inc. (Advatech) three emergency generator
sets worth US$721,500.00.
DMT
shipped
the
generator
sets
by
truck
from Wisconsin, United States, to LEP Profit International, Inc. (LEP

Profit) in Chicago, Illinois. From there, the shipment went by train
to Oakland, California, where it was loaded on S/S California Luna
V59, owned and operated by NYK Fil-Japan Shipping Corporation
(NYK) for delivery to petitioner New World in Manila. NYK issued a
bill of lading, declaring that it received the goods in good
condition.
193
NYK unloaded the shipment in Hong Kong and transshipped it to

S/S ACX Ruby V/72 that it also owned and operated. On its journey
to Manila,
however,
ACX
Ruby
encountered
typhoon Kadiang whose captain filed a sea protest on arrival at

the Manila South Harbor on October 5, 1993 respecting the loss
and damage that the goods on board his vessel suffered.
Marina
Port
Services,
the Manila South Harbor arrastre
or
Inc.
(Marina),
cargo-handling
operator,
received the shipment on October 7, 1993. Upon inspection of the

three container vans separately carrying the generator sets, two
vans bore signs of external damage while the third van appeared
unscathed. The shipment remained at Pier 3s Container Yard
under Marinas care pending clearance from the Bureau of
Customs. Eventually, on October 20, 1993 customs authorities
allowed petitioners customs broker, Serbros Carrier Corporation
(Serbros), to withdraw the shipment and deliver the same to
petitioner New Worlds job site in Makati City.
194
An examination of the three generator sets in the presence of

petitioner New Worlds representatives, Federal Builders (the
project contractor) and surveyors of petitioner New Worlds
insurer,
SeaboardEastern
Insurance
Company
(Seaboard),
revealed that all three sets suffered extensive damage and could
no longer be repaired. For these reasons, New World demanded
recompense for its loss from respondents NYK, DMT, Advatech,
LEP Profit, LEP International Philippines, Inc. (LEP), Marina, and
Serbros. While LEP and NYK acknowledged receipt of the demand,
both denied liability for the loss.
Since Seaboard covered the goods with a marine insurance policy,

petitioner New World sent it a formal claim dated November 16,
1993. Replying
on
February
14,
1994,
Seaboard
required
petitioner New World to submit to it an itemized list of the

damaged units, parts, and accessories, with corresponding
values, for the processing of the claim. But petitioner New
World did not submit what was required of it, insisting that the
insurance policy did not include the submission of such a list in
connection with an insurance claim. Reacting to this, Seaboard
refused to process the claim.
195
On October 11, 1994 petitioner New World filed an action for

specific performance and damages against all the respondents
before the Regional Trial Court (RTC) of Makati City, Branch 62, in
Civil Case 94-2770.
On August 16, 2001 the RTC rendered a decision absolving the

various respondents from liability with the exception of NYK. The
RTC found that the generator sets were damaged during transit
while in the care of NYKs vessel, ACX Ruby. The latter failed,
according to the RTC, to exercise the degree of diligence required
of it in the face of a foretold raging typhoon in its path.
The RTC ruled, however, that petitioner New World filed its claim
against the vessel owner NYK beyond the one year provided
under the Carriage of Goods by Sea Act (COGSA). New World filed
its complaint on October 11, 1994 when the deadline for filing the
action (on or before October 7, 1994) had already lapsed. The RTC
held that the one-year period should be counted from the date
196
the goods were delivered to the arrastre operator and not from
the date they were delivered to petitioners job site. [1]
As regards petitioner New Worlds claim against Seaboard, its

insurer, the RTC held that the latter cannot be faulted for denying
the claim against it since New Worldrefused to submit the
itemized list that Seaboard needed for assessing the damage to
the shipment. Likewise, the belated filing of the complaint
prejudiced Seaboards right to pursue a claim against NYK in the
event of subrogation.
On appeal, the Court of Appeals (CA) rendered judgment on

January 31, 2006,[2] affirming the RTCs rulings except with respect
to Seaboards liability. The CA held that petitioner New World can
still recoup its loss from Seaboards marine insurance policy,
considering a) that the submission of the itemized listing is an
unreasonable imposition and b) that the one-year prescriptive
period under the COGSA did not affect New Worlds right under the
insurance policy since it was the Insurance Code that governed
the relation between the insurer and the insured.
197
Although petitioner New World promptly filed a petition for review

of the CA decision before the Court in G.R. 171468, Seaboard
chose to file a motion for reconsideration of that decision. On
August 17, 2006 the CA rendered an amended decision, reversing
itself as regards the claim against Seaboard. The CA held that the
submission of the itemized listing was a reasonable requirement
that Seaboard asked of New World. Further, the CA held that the
one-year prescriptive period for maritime claims applied to
Seaboard, as insurer and subrogee of New Worlds right against
the vessel owner. New Worlds failure to comply promptly with
what was required of it prejudiced such right.
Instead of filing a motion for reconsideration, petitioner instituted

a
second
petition
for
review
before
the
174241, assailing the CAs amended decision.
Court
in
G.R.
198
a) In G.R. 171468, whether or not the CA erred in affirming

the RTCs release from liability of respondents DMT, Advatech, LEP,
LEP Profit, Marina, and Serbros who were at one time or another
involved in handling the shipment; and
b) In G.R. 174241, 1) whether or not the CA erred in ruling that

Seaboards request from petitioner New World for an itemized list
is a reasonable imposition and did not violate the insurance
contract between them; and 2) whether or not the CA erred in
failing to rule that the one-year COGSA prescriptive period for
marine
claims
does
not
apply
to
petitioner
prosecution of its claim against Seaboard, its insurer.
The Courts Rulings
In G.R. 171468 --
New
Worlds
199
Petitioner New World asserts that the roles of respondents

DMT, Advatech, LEP, LEP Profit, Marina and Serbros in handling
and
transporting
its
shipment
from Wisconsin to Manila collectively resulted in the damage to

the same, rendering such respondents solidarily liable with NYK,
the vessel owner.
But the issue regarding which of the parties to a dispute

incurred negligence is factual and is not a proper subject of a
petition for review on certiorari. And petitioner New World has
been
[3]
unable
to
make
out
an
exception
to
this
rule.
Consequently, the Court will not disturb the finding of the RTC,
affirmed by the CA, that the generator sets were totally damaged
during the typhoon which beset the vessels voyage from Hong
Kong to Manila and that it was her negligence in continuing with
that
journey
despite
the
adverse
condition
which
caused
petitioner New Worlds loss.
That the loss was occasioned by a typhoon, an exempting

cause under Article 1734 of the Civil Code, does not automatically
relieve the common carrier of liability. The latter had the burden
200
of proving that the typhoon was the proximate and only cause of
loss and that it exercised due diligence to prevent or minimize
such loss before, during, and after the disastrous typhoon. [4] As
found by the RTC and the CA, NYK failed to discharge this burden.
In G.R. 174241 --
One. The Court does not regard as substantial the question

of reasonableness of Seaboards additional requirement of an
itemized
listing
of
the
damage
that
the
generator
sets
suffered. The record shows that petitioner New World complied

with the documentary requirements evidencing damage to its
generator sets.
The marine open policy that Seaboard issued to New

World was an all-risk policy. Such a policy insured against all
causes of conceivable loss or damage except when otherwise
excluded or when the loss or damage was due to fraud or
intentional misconduct committed by the insured. The policy
201
covered all losses during the voyage whether or not arising from a
marine peril.[5]
Here,
the
policy
enumerated
certain
exceptions
like
unsuitable packaging, inherent vice, delay in voyage, or vessels

unseaworthiness, among others.[6] But Seaboard had been unable
to show that petitioner New Worlds loss or damage fell within
some or one of the enumerated exceptions.
What is more, Seaboard had been unable to explain how it

could not verify the damage that New Worlds goods suffered
going by the documents that it already submitted, namely, (1)
copy of the Suppliers Invoice KL2504; (2) copy of the Packing List;
(3) copy of the Bill of Lading 01130E93004458; (4) the Delivery of
Waybill Receipts 1135, 1222, and 1224; (5) original copy of
Marine Insurance Policy MA-HO-000266; (6) copies of Damage
Report from Supplier and Insurance Adjusters; (7) Consumption
Report from the Customs Examiner; and (8) Copies of Received
Formal Claim from the following: a) LEP International Philippines,
Inc.; b) Marina Port Services, Inc.; and c) Serbros Carrier
202
Corporation.[7] Notably, Seaboards own marine surveyor attended

the inspection of the generator sets.
Seaboard cannot pretend that the above documents are

inadequate since they were precisely the documents listed in its
insurance policy.[8] Being a contract of adhesion, an insurance
policy is construed strongly against the insurer who prepared
it. The Court cannot read a requirement in the policy that was not
there.
Further, it appears from the exchanges of communications

between
Seaboard
and
Advatech
that
submission
of
the
requested itemized listing was incumbent on the latter as the

seller DMTs local agent. Petitioner New World should not be made
to suffer for Advatechs shortcomings.
Two. Regarding prescription of claims, Section 3(6) of the

COGSA provides that the carrier and the ship shall be discharged
from all liability in case of loss or damage unless the suit is
203
brought within one year after delivery of the goods or the date
when the goods should have been delivered.
But whose fault was it that the suit against NYK, the common
carrier, was not brought to court on time? The last day for filing
such a suit fell on October 7, 1994. The record shows that
petitioner New World filed its formal claim for its loss with
Seaboard, its insurer, a remedy it had the right to take, as early
as November 16, 1993 or about 11 months before the suit against
NYK would have fallen due.
In the ordinary course, if Seaboard had processed that claim

and paid the same, Seaboard would have been subrogated to
petitioner New Worlds right to recover from NYK. And it could
have then filed the suit as a subrogee. But, as discussed above,
Seaboard made an unreasonable demand on February 14, 1994
for an itemized list of the damaged units, parts, and accessories,
with corresponding values when it appeared settled that New
Worlds loss was total and when the insurance policy did not
require the production of such a list in the event of a claim.
204
Besides, when petitioner New World declined to comply with

the demand for the list, Seaboard against whom a formal claim
was pending should not have remained obstinate in refusing to
process that claim. It should have examined the same, found it
unsubstantiated by documents if that were the case, and formally
rejected it. That would have at least given petitioner New World a
clear signal that it needed to promptly file its suit directly against
NYK and the others. Ultimately, the fault for the delayed court suit
could be brought to Seaboards doorstep.
Section 241 of the Insurance Code provides that no

insurance company doing business in the Philippines shall refuse
without just cause to pay or settle claims arising under coverages
provided by its policies. And, under Section 243, the insurer has
30 days after proof of loss is received and ascertainment of the
loss
or
damage
within
which
to
pay
the
claim. If
such
ascertainment is not had within 60 days from receipt of evidence

of loss, the insurer has 90 days to pay or settle the claim. And, in
case the insurer refuses or fails to pay within the prescribed time,
the insured shall be entitled to interest on the proceeds of the
205
policy for the duration of delay at the rate of twice the ceiling
prescribed by the Monetary Board.
Notably, Seaboard already incurred delay when it failed to

settle petitioner New Worlds claim as Section 243 required. Under
Section 244, a prima facieevidence of unreasonable delay in
payment of the claim is created by the failure of the insurer to
pay the claim within the time fixed in Section 243.
Consequently, Seaboard should pay interest on the proceeds

of the policy for the duration of the delay until the claim is fully
satisfied at the rate of twice the ceiling prescribed by the
Monetary Board. The term ceiling prescribed by the Monetary
Board means the legal rate of interest of 12% per annum provided
in Central Bank Circular 416, pursuant to Presidential Decree 116.
[9]
Section 244 of the Insurance Code also provides for an award of
attorneys fees and other expenses incurred by the assured due to

the unreasonable withholding of payment of his claim.
206
In Prudential Guarantee and Assurance,
Inc.
v.
Trans-
Asia Shipping Lines, Inc.,[10] the Court regarded as proper an

award of 10% of the insurance proceeds as attorneys fees. Such
amount is fair considering the length of time that has passed in
prosecuting the claim.[11] Pursuant to the Courts ruling in Eastern
Shipping Lines, Inc. v. Court of Appeals,[12] a 12% interest per
annum from the finality of judgment until full satisfaction of the
claim should likewise be imposed, the interim period equivalent to
a forbearance of credit.
Petitioner New World is entitled to the value stated in the

policy which is commensurate to the value of the three
emergency generator sets or US$721,500.00 with double interest
plus attorneys fees as discussed above.
WHEREFORE, the Court DENIES the petition in G.R. 171468

and AFFIRMS the Court of Appeals decision of January 31, 2006
insofar as petitioner New World International Development
(Phils.), Inc. is not allowed to recover against respondents DMT
Corporation,
Advatech
Industries,
Inc.,
LEP
International
207
Philippines,
Inc.,
LEP
Profit International,
Inc.,
Marina Port
Services, Inc. and Serbros Carrier Corporation.
With respect to G.R. 174241, the Court GRANTS the petition

and REVERSES and SETS ASIDE the Court of Appeals Amended
Decision of August 17, 2006. The Court DIRECTS SeaboardEastern
Insurance
Company,
Inc.
to
pay
petitioner New
World International Development (Phils.), Inc. US$721,500.00

under Policy MA-HO-000266, with 24% interest per annum for the
duration of delay in accordance with Sections 243 and 244 of the
Insurance Code and attorneys fees equivalent to 10% of the
insurance proceeds. Seaboard shall also pay, from finality of
judgment, a 12% interest per annum on the total amount due to
SO ORDERED.
ROBERTO A. ABAD
Associate Justice
208
WE CONCUR:

Associate Justice
Chairperson
TERESITA J. LEONARDO-DE CASTRO DIOSDADO M. PERALTA

Associate Justice Associate Justice
JOSE CATRAL MENDOZA

Associate Justice
209
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.

Associate Justice
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.
210
RENATO C. CORONA
Chief Justice
G.R. No. 167622
November 7, 2008
GREGORIO V. TONGKO, petitioner

vs.
THE MANUFACTURERS LIFE INSURANCE CO. (PHILS.), INC. and
RENATO A. VERGEL DE DIOS, respondents.
DECISION
VELASCO, JR., J.:
The Case
This Petition for Review on Certiorari under Rule 45 seeks the reversal of the
March 29, 2005 Decision1 of the Court of Appeals (CA) in CA-G.R. SP No.
88253, entitled The Manufacturers Life Insurance Co. (Phils.), Inc. v. National
Labor Relations Commission and Gregorio V. Tongko. The assailed decision
set aside the Decision dated September 27, 2004 and Resolution dated
December 16, 2004 rendered by the National Labor Relations Commission
(NLRC) in NLRC NCR CA No. 040220-04.
The Facts
Manufacturers Life Insurance Co. (Phils.), Inc. (Manulife) is a domestic
corporation engaged in life insurance business. Renato A. Vergel De Dios
was, during the period material, its President and Chief Executive Officer.
Gregorio V. Tongko started his professional relationship with Manulife on July
1, 1977 by virtue of a Career Agent's Agreement2 (Agreement) he executed
with Manulife.
211
In the Agreement, it is provided that:

It is understood and agreed that the Agent is an independent contractor
and nothing contained herein shall be construed or interpreted as
creating an employer-employee relationship between the Company and
the Agent.
xxxx
a) The Agent shall canvass for applications for Life Insurance, Annuities,
Group policies and other products offered by the Company, and collect,
in exchange for provisional receipts issued by the Agent, money due or
to become due to the Company in respect of applications or policies
obtained by or through the Agent or from policyholders allotted by the
Company to the Agent for servicing, subject to subsequent confirmation
of receipt of payment by the Company as evidenced by an Official
Receipt issued by the Company directly to the policyholder.
xxxx
The Company may terminate this Agreement for any breach or violation
of any of the provisions hereof by the Agent by giving written notice to
the Agent within fifteen (15) days from the time of the discovery of the
breach. No waiver, extinguishment, abandonment, withdrawal or
cancellation of the right to terminate this Agreement by the Company
shall be construed for any previous failure to exercise its right under any
provision of this Agreement.
Either of the parties hereto may likewise terminate his Agreement at any
time without cause, by giving to the other party fifteen (15) days notice
in writing. x x x
In 1983, Tongko was named as a Unit Manager in Manulife's Sales Agency
Organization. In 1990, he became a Branch Manager. As the CA found,
Tongko's gross earnings from his work at Manulife, consisting of commissions,
persistency income, and management overrides, may be summarized as
follows:
212
January to December 10, 2002
P 865,096.07
2001
6,214,737.11
2000
8,003,180.38
1999
6,797,814.05
1998
4,805,166.34
1997
2,822,620.003
The problem started sometime in 2001, when Manulife instituted manpower

development programs in the regional sales management level. Relative
thereto, De Dios addressed a letter dated November 6, 20014 to Tongko
regarding an October 18, 2001 Metro North Sales Managers Meeting. In the
letter, De Dios stated:
The first step to transforming Manulife into a big league player has been
very clear - to increase the number of agents to at least 1,000 strong for
a start. This may seem diametrically opposed to the way Manulife was
run when you first joined the organization. Since then, however,
substantial changes have taken place in the organization, as these have
been influenced by developments both from within and without the
company.
xxxx
The issues around agent recruiting are central to the intended
objectives hence the need for a Senior Managers' meeting earlier last
month when Kevin O'Connor, SVP - Agency, took to the floor to
determine from our senior agency leaders what more could be done to
bolster manpower development. At earlier meetings, Kevin had
presented information where evidently, your Region was the lowest
performer (on a per Manager basis) in terms of recruiting in 2000 and,
as of today, continues to remain one of the laggards in this area.
213
While discussions, in general, were positive other than for certain

comments from your end which were perceived to be uncalled for, it
became clear that a one-on-one meeting with you was necessary to
ensure that you and management, were on the same plane. As gleaned
from some of your previous comments in prior meetings (both in group
and one-on-one), it was not clear that we were proceeding in the same
direction.
Kevin held subsequent series of meetings with you as a result, one of
which I joined briefly. In those subsequent meetings you reiterated
certain views, the validity of which we challenged and subsequently
found as having no basis.
With such views coming from you, I was a bit concerned that the rest of
the Metro North Managers may be a bit confused as to the directions
the company was taking. For this reason, I sought a meeting with
everyone in your management team, including you, to clear the air, so to
speak.
This note is intended to confirm the items that were discussed at the
said Metro North Region's Sales Managers meeting held at the 7/F
Conference room last 18 October.
xxxx
Issue # 2: "Some Managers are unhappy with their earnings and would
want to revert to the position of agents."
This is an often repeated issue you have raised with me and with Kevin.
For this reason, I placed the issue on the table before the rest of your
Region's Sales Managers to verify its validity. As you must have noted,
no Sales Manager came forward on their own to confirm your statement
and it took you to name Malou Samson as a source of the same, an
allegation that Malou herself denied at our meeting and in your very
presence.
214
This only confirms, Greg, that those prior comments have no solid basis
at all. I now believe what I had thought all along, that these allegations
were simply meant to muddle the issues surrounding the inability of your
Region to meet its agency development objectives!
Issue # 3: "Sales Managers are doing what the company asks them to
do but, in the process, they earn less."
xxxx
All the above notwithstanding, we had your own records checked and
we found that you made a lot more money in the Year 2000 versus
1999. In addition, you also volunteered the information to Kevin when
you said that you probably will make more money in the Year 2001
compared to Year 2000. Obviously, your above statement about making
"less money" did not refer to you but the way you argued this point had
us almost believing that you were spouting the gospel of truth when you
were not. x x x
xxxx
All of a sudden, Greg, I have become much more worried about your
ability to lead this group towards the new direction that we have been
discussing these past few weeks, i.e., Manulife's goal to become a
major agency-led distribution company in the Philippines. While as you
claim, you have not stopped anyone from recruiting, I have never heard
you proactively push for greater agency recruiting. You have not been
proactive all these years when it comes to agency growth.
xxxx
I cannot afford to see a major region fail to deliver on its developmental
goals next year and so, we are making the following changes in the
interim:
1. You will hire at your expense a competent assistant who can
unload you of much of the routine tasks which can be easily
delegated. This assistant should be so chosen as to complement
215
your skills and help you in the areas where you feel "may not be
your cup of tea".
You have stated, if not implied, that your work as Regional
Manager may be too taxing for you and for your health. The above
could solve this problem.
xxxx
2. Effective immediately, Kevin and the rest of the Agency
Operations will deal with the North Star Branch (NSB) in
autonomous fashion. x x x
I have decided to make this change so as to reduce your span of
control and allow you to concentrate more fully on overseeing the
remaining groups under Metro North, your Central Unit and the
rest of the Sales Managers in Metro North. I will hold you solely
responsible for meeting the objectives of these remaining groups.
xxxx
The above changes can end at this point and they need not go any
further. This, however, is entirely dependent upon you. But you have to
understand that meeting corporate objectives by everyone is primary
and will not be compromised. We are meeting tough challenges next
year and I would want everybody on board. Any resistance or holding
back by anyone will be dealt with accordingly.
Subsequently, De Dios wrote Tongko another letter dated December 18,
2001,5 terminating Tongko's services, thus:
It would appear, however, that despite the series of meetings and
communications, both one-on-one meetings between yourself and SVP
Kevin O'Connor, some of them with me, as well as group meetings with
your Sales Managers, all these efforts have failed in helping you align
your directions with Management's avowed agency growth policy.
xxxx
216
On account thereof, Management is exercising its prerogative under

Section 14 of your Agents Contract as we are now issuing this notice of
termination of your Agency Agreement with us effective fifteen days from
Therefrom, Tongko filed a Complaint dated November 25, 2002 with the NLRC
against Manulife for illegal dismissal. The case, docketed as NLRC NCR Case
No. 11-10330-02, was raffled to Labor Arbiter Marita V. Padolina.
In the Complaint, Tongko, in a bid to establish an employer-employee
relationship, alleged that De Dios gave him specific directives on how to
manage his area of responsibility in the latter's letter dated November 6, 2001.
He further claimed that Manulife exercised control over him as follows:
Such control was certainly exercised by respondents over the herein
complainant. It was Manulife who hired, promoted and gave various
assignments to him. It was the company who set objectives as regards
productions, recruitment, training programs and all activities pertaining
to its business. Manulife prescribed a Code of Conduct which would
govern in minute detail all aspects of the work to be undertaken by
employees, including the sales process, the underwriting process,
signatures, handling of money, policyholder service, confidentiality, legal
and regulatory requirements and grounds for termination of
employment. The letter of Mr. De Dios dated 06 November 2001 left no
doubt as to who was in control. The subsequent termination letter dated
18 December 2001 again established in no uncertain terms the authority
of the herein respondents to control the employees of Manulife. Plainly,
the respondents wielded control not only as to the ends to be achieved
but the ways and means of attaining such ends.6
Tongko bolstered his argument by citing Insular Life Assurance Co., Ltd. v.
NLRC (4th Division)7 andGreat Pacific Life Assurance Corporation v.
NLRC,8 which Tongko claimed to be similar to the instant case.
Tongko further claimed that his dismissal was without basis and that he was
not afforded due process. He also cited the Manulife Code of Conduct by
which his actions were controlled by the company.
217
Manulife then filed a Position Paper with Motion to Dismiss dated February
27, 2003,9 in which it alleged that Tongko is not its employee, and that it did
not exercise "control" over him. Thus, Manulife claimed that the NLRC has no
jurisdiction over the case.
In a Decision dated April 15, 2004, Labor Arbiter Marita V. Padolina dismissed
the complaint for lack of an employer-employee relationship. Padolina found
that applying the four-fold test in determining the existence of an employeremployee relationship, none was found in the instant case. The dispositive
portion thereof states:
WHEREFORE, premises considered, judgment is hereby rendered
DISMISSING the instant complaint for lack of jurisdiction, there being no
employer-employee relationship between the parties.
SO ORDERED.
Tongko appealed the arbiter's Decision to the NLRC which reversed the same
and rendered a Decision dated September 27, 2004 finding Tongko to have
been illegally dismissed.
The NLRC's First Division, while finding an employer-employee relationship
between Manulife and Tongko applying the four-fold test, held Manulife liable
for illegal dismissal. It further stated that Manulife exercised control over
Tongko as evidenced by the letter dated November 6, 2001 of De Dios and
wrote:
The above-mentioned letter shows the extent to which respondents
controlled complainant's manner and means of doing his work and
achieving the goals set by respondents. The letter shows how
respondents concerned themselves with the manner complainant
managed the Metro North Region as Regional Sales Manager, to the
point that respondents even had a say on how complainant interacted
with other individuals in the Metro North Region. The letter is in fact
replete with comments and criticisms on how complainant carried out
his functions as Regional Sales Manager.
218
More importantly, the letter contains an abundance of directives or

orders that are intended to directly affect complainant's authority and
manner of carrying out his functions as Regional Sales Manager.10 x x x
Additionally, the First Division also ruled that:
Further evidence of [respondents'] control over complainant can be
found in the records of the case. [These] are the different codes of
conduct such as the Agent Code of Conduct, the Manulife Financial
Code of Conduct, and the Manulife Financial Code of Conduct
Agreement, which serve as the foundations of the power of control
wielded by respondents over complainant that is further manifested in
the different administrative and other tasks that he is required to
perform. These codes of conduct corroborate and reinforce the display
of respondents' power of control in their 06 November 2001 Letter to
complainant.11
The fallo of the September 27, 2004 Decision reads:
WHEREFORE, premises considered, the appealed Decision is hereby
reversed and set aside. We find complainant to be a regular employee
of respondent Manulife and that he was illegally dismissed from
employment by respondents.
In lieu of reinstatement, respondent Manulife is hereby ordered to pay
complainant separation pay as above set forth. Respondent Manulife is
further ordered to pay complainant backwages from the time he was
dismissed on 02 January 2002 up to the finality of this decision also as
indicated above.
xxxx
All other claims are hereby dismissed for utter lack of merit.
From this Decision, Manulife filed a motion for reconsideration which was
denied by the NLRC First Division in a Resolution dated December 16, 2004.12
219
Thus, Manulife filed an appeal with the CA docketed as CA-G.R. SP No.

88253. Thereafter, the CA issued the assailed Decision dated March 29, 2005,
finding the absence of an employer-employee relationship between the parties
and deeming the NLRC with no jurisdiction over the case. The CA arrived at
this conclusion while again applying the four-fold test. The CA found that
Manulife did not exercise control over Tongko that would render the latter an
employee of Manulife. The dispositive portion reads:
WHEREFORE, premises considered, the present petition is hereby
GRANTED and the writ prayed for accordingly GRANTED. The assailed
Decision dated September 27, 2004 and Resolution dated December
16, 2004 of the National Labor Relations Commission in NLRC NCR
Case No. 00-11-10330-2002 (NLRC NCR CA No. 040220-04) are
hereby ANNULLED and SET ASIDE. The Decision dated April 15, 2004
of Labor Arbiter Marita V. Padolina is hereby REINSTATED.
Hence, Tongko filed this petition and presented the following issues:
A
The Court of Appeals committed grave abuse of discretion in granting
respondents' petition for certiorari.
B
The Court of Appeals committed grave abuse of discretion in annulling
and setting aside the Decision dated September 27, 2004 and
Resolution dated December 16, 2004 in finding that there is no
employer-employee relationship between petitioner and respondent.
C
The Court of Appeals committed grave abuse of discretion in annulling
and setting aside the Decision dated September 27, 2004 and
Resolution dated December 16, 2004 which found petitioner to have
been illegally dismissed and ordered his reinstatement with payment of
backwages.13
220
Restated, the issues are: (1) Was there an employer-employee relationship

between Manulife and Tongko? and (2) If yes, was Manulife guilty of illegal
dismissal?
The Court's Ruling
This petition is meritorious.
Tongko Was An Employee of Manulife
The basic issue of whether or not the NLRC has jurisdiction over the case
resolves itself into the question of whether an employer-employee relationship
existed between Manulife and Tongko. If no employer-employee relationship
existed between the two parties, then jurisdiction over the case properly lies
with the Regional Trial Court.
In the determination of whether an employer-employee relationship exists
between two parties, this Court applies the four-fold test to determine the
existence of the elements of such relationship. InPacific Consultants
International Asia, Inc. v. Schonfeld, the Court set out the elements of an
employer-employee relationship, thus:
Jurisprudence is firmly settled that whenever the existence of an
employment relationship is in dispute, four elements constitute the
reliable yardstick: (a) the selection and engagement of the employee;
(b) the payment of wages; (c) the power of dismissal; and (d) the
employer's power to control the employee's conduct. It is the so-called
"control test" which constitutes the most important index of the
existence of the employer-employee relationship that is, whether the
employer controls or has reserved the right to control the employee not
only as to the result of the work to be done but also as to the means and
methods by which the same is to be accomplished. Stated otherwise, an
employer-employee relationship exists where the person for whom the
services are performed reserves the right to control not only the end to
be achieved but also the means to be used in reaching such end.14
221
The NLRC, for its part, applied the four-fold test and found the existence of all
the elements and declared Tongko an employee of Manulife. The CA, on the
other hand, found that the element of control as an indicator of the existence
of an employer-employee relationship was lacking in this case. The NLRC and
the CA based their rulings on the same findings of fact but differed in their
interpretations.
The NLRC arrived at its conclusion, first, on the basis of the letter dated
November 6, 2001 addressed by De Dios to Tongko. According to the NLRC,
the letter contained "an abundance of directives or orders that are intended to
directly affect complainant's authority and manner of carrying out his functions
as Regional Sales Manager." It enumerated these "directives" or "orders" as
follows:
1. You will hire at your expense a competent assistant who can unload
you of much of the routine tasks which can be easily delegated. x x x
xxxx
This assistant should be hired immediately.
2. Effective immediately, Kevin and the rest of the Agency Operations
will deal with the North Star Branch (NSB) in autonomous fashion x x x.
xxxx
I have decided to make this change so as to reduce your span of control
and allow you to concentrate more fully on overseeing the remaining
groups under Metro North, your Central Unit and the rest of the Sales
Managers in Metro North. x x x
3. Any resistance or holding back by anyone will be dealt with
accordingly.
4. I have been straightforward in this my letter and I know that we can
continue to work together but it will have to be on my terms. Anything
else is unacceptable!
222
The NLRC further ruled that the different codes of conduct that were
applicable to Tongko served as the foundations of the power of control
wielded by Manulife over Tongko that is further manifested in the different
administrative and other tasks that he was required to perform.
The NLRC also found that Tongko was required to render exclusive service to
Manulife, further bolstering the existence of an employer-employee
relationship.
Finally, the NLRC ruled that Tongko was integrated into a management
structure over which Manulife exercised control, including the actions of its
officers. The NLRC held that such integration added to the fact that Tongko
did not have his own agency belied Manulife's claim that Tongko was an
independent contractor.
The CA, however, considered the finding of the existence of an employeremployee relationship by the NLRC as far too sweeping having as its only
basis the letter dated November 6, 2001 of De Dios. The CA did not concur
with the NLRC's ruling that the elements of control as pointed out by the
NLRC are "sufficient indicia of control that negates independent contractorship
and conclusively establish an employer-employee relationship
between"15 Tongko and Manulife. The CA ruled that there is no employeremployee relationship between Tongko and Manulife.
An impasse appears to have been reached between the CA and the NLRC on
the sole issue of control over an employee's conduct. It bears clarifying that
such control not only applies to the work or goal to be done but also to the
means and methods to accomplish it.16 In Sonza v. ABS-CBN Broadcasting
Corporation, we explained that not all forms of control would establish an
employer-employee relationship, to wit:
Further, not every form of control that a party reserves to himself over
the conduct of the other party in relation to the services being rendered
may be accorded the effect of establishing an employer-employee
relationship. The facts of this case fall squarely with the case of Insular
Life Assurance Co., Ltd. vs. NLRC. In said case, we held that:
223
Logically, the line should be drawn between rules that merely

serve as guidelines towards the achievement of the mutually
desired result without dictating the means or methods to be
employed in attaining it, and those that control or fix the
methodology and bind or restrict the party hired to the use of
such means. The first, which aim only to promote the result,
create no employer-employee relationship unlike the second,
which address both the result and the means used to achieve
it.17 (Emphasis supplied.)
We ruled in Insular Life Assurance Co., Ltd. v. NLRC (Insular) that:
It is, therefore, usual and expected for an insurance company to
promulgate a set of rules to guide its commission agents in selling its
policies that they may not run afoul of the law and what it requires or
prohibits. Of such a character are the rules which prescribe the
qualifications of persons who may be insured, subject insurance
applications to processing and approval by the Company, and also
reserve to the Company the determination of the premiums to be paid
and the schedules of payment. None of these really invades the agent's
contractual prerogative to adopt his own selling methods or to sell
insurance at his own time and convenience, hence cannot justifiably be
said to establish an employer-employee relationship between him and
the company.18
Hence, we ruled in Insular that no employer-employee relationship existed
therein. However, such ruling was tempered with the qualification that had
there been evidence that the company promulgated rules or regulations that
effectively controlled or restricted an insurance agent's choice of methods or
the methods themselves in selling insurance, an employer-employee
relationship would have existed. In other words, the Court in Insular in no way
definitively held that insurance agents are not employees of insurance
companies, but rather made the same a case-to-case basis. We held:
The respondents limit themselves to pointing out that Basiao's contract
with the Company bound him to observe and conform to such rules and
regulations as the latter might from time to time prescribe. No showing
224
has been made that any such rules or regulations were in fact
promulgated, much less that any rules existed or were issued
which effectively controlled or restricted his choice of methods or
the methods themselves of selling insurance. Absent such
showing, the Court will not speculate that any exceptions or
qualifications were imposed on the express provision of the
contract leaving Basiao "... free to exercise his own judgment as to
the time, place and means of soliciting insurance."19 (Emphasis
supplied.)
There is no conflict between our rulings in Insular and in Great Pacific Life
Assurance Corporation. We said in the latter case:
[I]t cannot be gain said that Grepalife had control over private
respondents' performance as well as the result of their efforts. A
cursory reading of their respective functions as enumerated in
their contracts reveals that the company practically dictates the
manner by which their jobs are to be carried out. For instance, the
District Manager must properly account, record and document the
company's funds spot-check and audit the work of the zone supervisors,
conserve the company's business in the district through
reinstatements', follow up the submission of weekly remittance reports
of the debit agents and zone supervisors, preserve company property in
good condition, train understudies for the position of district manager,
and maintain his quota of sales (the failure of which is a ground for
termination). On the other hand, a zone supervisor must direct and
supervise the sales activities of the debit agents under him, conserve
company property through "reinstatements", undertake and discharge
the functions of absentee debit agents, spot-check the records of debit
agents, and insure proper documentation of sales and collections by the
debit agents.20 (Emphasis supplied.)
Based on the foregoing cases, if the specific rules and regulations that are
enforced against insurance agents or managers are such that would directly
affect the means and methods by which such agents or managers would
achieve the objectives set by the insurance company, they are employees of
the insurance company.
225
In the instant case, Manulife had the power of control over Tongko that would
make him its employee. Several factors contribute to this conclusion.
In the Agreement dated July 1, 1977 executed between Tongko and Manulife,
it is provided that:
The Agent hereby agrees to comply with all regulations and
requirements of the Company as herein provided as well as maintain a
standard of knowledge and competency in the sale of the Company's
products which satisfies those set by the Company and sufficiently
meets the volume of new business required of Production Club
membership.21
Under this provision, an agent of Manulife must comply with three (3)
requirements: (1) compliance with the regulations and requirements of the
company; (2) maintenance of a level of knowledge of the company's products
that is satisfactory to the company; and (3) compliance with a quota of new
businesses.
Among the company regulations of Manulife are the different codes of conduct
such as the Agent Code of Conduct, Manulife Financial Code of Conduct, and
Manulife Financial Code of Conduct Agreement, which demonstrate the power
of control exercised by the company over Tongko. The fact that Tongko was
obliged to obey and comply with the codes of conduct was not disowned by
respondents.
Thus, with the company regulations and requirements alone, the fact that
Tongko was an employee of Manulife may already be established. Certainly,
these requirements controlled the means and methods by which Tongko was
to achieve the company's goals.
More importantly, Manulife's evidence establishes the fact that Tongko was
tasked to perform administrative duties that establishes his employment with
Manulife.
In its Comment (Re: Petition for Review dated 15 April 2005) dated August 5,
2005, Manulife attached affidavits of its agents purportedly to support its claim
226
that Tongko, as a Regional Sales Manager, did not perform any administrative
functions. An examination of these affidavits would, however, prove the
opposite.
In an Affidavit dated April 28, 2003,22 John D. Chua, a Regional Sales
Manager of Manulife, stated:
4. On September 1, 1996, my services were engaged by Manulife as an
Agency Regional Sales Manager ("RSM") for Metro South Region
pursuant to an Agency Contract. As such RSM, I have the following
functions:
1. Refer and recommend prospective agents to Manulife
2. Coach agents to become productive
3. Regularly meet with, and coordinate activities of agents
affiliated to my region.
While Amada Toledo, a Branch Manager of Manulife, stated in her Affidavit
dated April 29, 200323that:
3. In January 1997, I was assigned as a Branch Manager ("BM") of
Manulife for the Metro North Sector;
4. As such BM, I render the following services:
a. Refer and recommend prospective agents to Manulife;
b. Train and coordinate activities of other commission agents;
c. Coordinate activities of Agency Managers who, in turn, train
and coordinate activites of other commission agents;
d. Achieve agreed production objectives in terms of Net
Annualized Commissions and Case Count and recruitment goals;
and
e. Sell the various products of Manulife to my personal clients.
227
While Ma. Lourdes Samson, a Unit Manager of Manulife, stated in her Affidavit
dated April 28, 200324that:
3. In 1977, I was assigned as a Unit Manager ("UM") of North Peaks
Unit, North Star Branch, Metro North Region;
4. As such UM, I render the following services:
a. To render or recommend prospective agents to be licensed,
trained and contracted to sell Manulife products and who will be
part of my Unit;
b. To coordinate activities of the agents under my Unit in their
daily, weekly and monthly selling activities, making sure that their
respective sales targets are met;
c. To conduct periodic training sessions for my agents to further
enhance their sales skills.
d. To assist my agents with their sales activities by way of joint
fieldwork, consultations and one-on- one evaluation and analysis
of particular accounts.
e. To provide opportunities to motivate my agents to succeed like
conducting promos to increase sales activities and encouraging
them to be involved in company and industry activities.
f. To provide opportunities for professional growth to my agents by
encouraging them to be a member of the LUCAP (Life
Underwriters Association of the Philippines).
A comparison of the above functions and those contained in the Agreement
with those cited in Great Pacific Life Assurance Corporation25 reveals a
striking similarity that would more than support a similar finding as in that
case. Thus, there was an employer-employee relationship between the
parties.
228
Additionally, it must be pointed out that the fact that Tongko was tasked with
recruiting a certain number of agents, in addition to his other administrative
functions, leads to no other conclusion that he was an employee of Manulife.
In his letter dated November 6, 2001, De Dios harped on the direction of
Manulife of becoming a major agency-led distribution company whereby
greater agency recruitment is required of the managers, including Tongko. De
Dios made it clear that agent recruitment has become the primary means by
which Manulife intends to sell more policies. More importantly, it is Tongko's
alleged failure to follow this principle of recruitment that led to the termination
of his employment with Manulife. With this, it is inescapable that Tongko was
an employee of Manulife.
Tongko Was Illegally Dismissed
In its Petition for Certiorari dated January 7, 200526 filed before the CA,
Manulife argued that even if Tongko is considered as its employee, his
employment was validly terminated on the ground of gross and habitual
neglect of duties, inefficiency, as well as willful disobedience of the lawful
orders of Manulife. Manulife stated:
In the instant case, private respondent, despite the written reminder
from Mr. De Dios refused to shape up and altogether disregarded the
latter's advice resulting in his laggard performance clearly indicative of
his willful disobedience of the lawful orders of his superior. x x x
xxxx
As private respondent has patently failed to perform a very fundamental
duty, and that is to yield obedience to all reasonable rules, orders and
instructions of the Company, as well as gross failure to reach at least
minimum quota, the termination of his engagement from Manulife is
highly warranted and therefore, there is no illegal dismissal to speak of.
It is readily evident from the above-quoted portions of Manulife's petition that it
failed to cite a single iota of evidence to support its claims. Manulife did not
even point out which order or rule that Tongko disobeyed. More importantly,
229
Manulife did not point out the specific acts that Tongko was guilty of that would
constitute gross and habitual neglect of duty or disobedience. Manulife merely
cited Tongko's alleged "laggard performance," without substantiating such
claim, and equated the same to disobedience and neglect of duty.
We cannot, therefore, accept Manulife's position.
In Quebec, Sr. v. National Labor Relations Commission, we ruled that:
When there is no showing of a clear, valid and legal cause for the
termination of employment, the law considers the matter a case of
illegal dismissal and the burden is on the employer to prove that the
termination was for a valid or authorized cause. This burden of proof
appropriately lies on the shoulders of the employer and not on the
employee because a worker's job has some of the characteristics of
property rights and is therefore within the constitutional mantle of
protection. No person shall be deprived of life, liberty or property without
due process of law, nor shall any person be denied the equal protection
of the laws.
Apropos thereto, Art. 277, par. (b), of the Labor Code mandates in
explicit terms that the burden of proving the validity of the termination of
employment rests on the employer. Failure to discharge this evidential
burden would necessarily mean that the dismissal was not justified, and,
therefore, illegal.27
We again ruled in Times Transportation Co., Inc. v. National Labor Relations
Commission that:
The law mandates that the burden of proving the validity of the
termination of employment rests with the employer. Failure to discharge
this evidentiary burden would necessarily mean that the dismissal was
not justified, and, therefore, illegal. Unsubstantiated suspicions,
accusations and conclusions of employers do not provide for legal
justification for dismissing employees. In case of doubt, such cases
should be resolved in favor of labor, pursuant to the social justice policy
of our labor laws and Constitution.28
230
This burden of proof was clarified in Community Rural Bank of San Isidro
(N.E.), Inc. v. Paez to mean substantial evidence, to wit:
The Labor Code provides that an employer may terminate the services
of an employee for just cause and this must be supported by substantial
evidence. The settled rule in administrative and quasi-judicial
proceedings is that proof beyond reasonable doubt is not required in
determining the legality of an employer's dismissal of an employee, and
not even a preponderance of evidence is necessary as substantial
evidence is considered sufficient. Substantial evidence is more than a
mere scintilla of evidence or relevant evidence as a reasonable mind
might accept as adequate to support a conclusion, even if other minds,
equally reasonable, might conceivably opine otherwise.29
Here, Manulife failed to overcome such burden of proof. It must be reiterated
that Manulife even failed to identify the specific acts by which Tongko's
employment was terminated much less support the same with substantial
evidence. To repeat, mere conjectures cannot work to deprive employees of
their means of livelihood. Thus, it must be concluded that Tongko was illegally
dismissed.
Moreover, as to Manulife's failure to comply with the twin notice rule, it
reasons that Tongko not being its employee is not entitled to such notices.
Since we have ruled that Tongko is its employee, however, Manulife clearly
failed to afford Tongko said notices. Thus, on this ground too, Manulife is guilty
of illegal dismissal. In Quebec, Sr., we also stated:
Furthermore, not only does our legal system dictate that the reasons for
dismissing a worker must be pertinently substantiated, it also mandates
that the manner of dismissal must be properly done, otherwise, the
termination itself is gravely defective and may be declared unlawful.30
For breach of the due process requirements, Manulife is liable to Tongko in
the amount of PhP 30,000 as indemnity in the form of nominal damages.31
Finally, Manulife raises the issue of the correctness of the computation of the
award to Tongko made by the NLRC by claiming that Songco v. National
231
Labor Relations Commission32 is inapplicable to the instant case, considering

that Songco was dismissed on the ground of retrenchment.
An examination of Songco reveals that it may be applied to the present case.
In that case, Jose Songco was a salesman of F.E. Zuellig (M), Inc. which
terminated the services of Songco on the ground of retrenchment due to
financial losses. The issue raised to the Court, however, was whether
commissions are considered as part of wages in order to determine
separation pay. Thus, the fact that Songco was dismissed due to
retrenchment does not hamper the application thereof to the instant case.
What is pivotal is that we ruled in Songco that commissions are part of wages
for the determination of separation pay.
Article 279 of the Labor Code on security of tenure pertinently provides that:
In cases of regular employment the employer shall not terminate the
services of an employee except for a just cause or when authorized by
this Title. An employee who is unjustly dismissed from work shall be
entitled to reinstatement without loss of seniority rights and other
privileges and to his full backwages, inclusive of allowances, and to his
other benefits or their monetary equivalent computed from the time his
compensation was withheld from him up to the time of his actual
reinstatement.
In Triad Security & Allied Services, Inc. v. Ortega, Jr. (Triad), we thus stated
that an illegally dismissed employee shall be entitled to backwages and
separation pay, if reinstatement is no longer viable:
As the law now stands, an illegally dismissed employee is entitled to two
reliefs, namely: backwages and reinstatement. These are separate and
distinct from each other. However, separation pay is granted where
reinstatement is no longer feasible because of strained relations
between the employee and the employer. In effect, an illegally
dismissed employee is entitled to either reinstatement, if viable, or
separation pay if reinstatement is no longer viable and backwages.33
232
Taking into consideration the cases of Songco and Triad, we find correct the
computation of the NLRC that the monthly gross wage of Tongko in 2001 was
PhP 518,144.76. For having been illegally dismissed, Tongko is entitled to
reinstatement with full backwages under Art. 279 of the Labor Code. Due to
the strained relationship between Manulife and Tongko, reinstatement,
however, is no longer advisable. Thus, Tongko will be entitled to backwages
from January 2, 2002 (date of dismissal) up to the finality of this decision.
Moreover, Manulife will pay Tongko separation pay of one (1) month salary for
every year of service that is from 1977 to 2001 amounting to PhP
12,435,474.24, considering that reinstatement is not feasible. Tongko shall
also be entitled to an award of attorney's fees in the amount of ten percent
(10%) of the aggregate amount of the above awards.
WHEREFORE, the petition is hereby GRANTED. The assailed March 29,
2005 Decision of the CA in CA-G.R. SP No. 88253 is REVERSED and SET
ASIDE. The Decision dated September 27, 2004 of the NLRC
is REINSTATED with the following modifications:
Manulife shall pay Tongko the following:
(1) Full backwages, inclusive of allowances and other benefits or their
monetary equivalent from January 2, 2002 up to the finality of this
Decision;
(2) Separation pay of one (1) month salary for every year of service
from 1977 up to 2001 amounting to PhP 12,435,474.24;
(3) Nominal damages of PhP 30,000 as indemnity for violation of the
due process requirements; and
(4) Attorney's fees equivalent to ten percent (10%) of the
aforementioned backwages and separation pay.
Costs against respondent Manulife.
SO ORDERED.
233

Associate Justice
WE CONCUR:
DISSENTING OPINION
LEONARDO A. QUISUMBING
Associate Justice
Chairperson
Associate Justice
DANTE O. TINGA
Associate Justice
ARTURO D. BRION
Associate Justice
ATTESTATION
consultation before the case was assigned to the writer of the opinion of the
Court's Division.
Associate Justice
Chairperson
CERTIFICATION
234
Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairperson's 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 Court's Division.
REYNATO S. PUNO
Chief Justice
x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x
SECOND DIVISION
G.R. No. 167622
November 7, 2008
GREGORIO V. TONGKO, petitioner

vs.
THE MANUFACTURERS LIFE INSURANCE CO. (PHILS.), INC. and
RENATO A. VERGEL DE DIOS, respondents.
DISSENTING OPINION
QUISUMBING, J.:
With due respect, I cannot concur in the majority opinion. I vote to deny the
petition and affirm the decision of the Court of Appeals holding that the
National Labor Relations Commission had no jurisdiction over this case due to
the absence of an employer-employee relationship between petitioner
Gregorio V. Tongko and respondent Manufacturers Life Insurance Co. (Phils.),
Inc. (Manulife).
The majority opinion states that Manulife had the power of control over
petitioner that would make him its employee. It advances several reasons that
do not persuade me.
235
In my view, two points require stressing: (1) Manulife has no power of control
over petitioner in the pursuit of his own business; and (2) petitioner is
compensated through sales agency commissions and not through fixed
wages or salary.
Time and again, the Court has indeed applied the "four-fold" test in
determining the existence of an employer-employee relationship. This test
considers the following elements: (1) the power to hire; (2) the payment of
wages; (3) the power to dismiss; and (4) the power to control, the last being
the most important element.1
The difficulty lies in correctly assessing if certain factors or elements properly
indicate the presence of control.2 The company's codes of conduct such as
the Agent Code of Conduct, Manulife Financial Code of Conduct, and
Manulife Financial Code of Conduct Agreement cannot be justifiably said to
establish an employer-employee relationship. These merely served as general
guidelines for agents in selling Manulife policies in keeping with ethical
principles governing the insurance business and in accordance with the rules
promulgated by the Insurance Commissioner for proper regulation of the
industry. None of these rules and regulations negated petitioner's contractual
prerogative to adopt his own selling methods or to sell insurance at his own
time and convenience.4 Nor did it overturn company or industry practices.
Petitioner made his own strategy on how to generate more insurance sales. In
fact, he derived his income from the agents under him through their sales
volume. He was not bound to observe any work schedule or any working
hours. He had freedom to adopt his own methods in selling insurance policies,
so long as he and his recruited agents meet their quotas.
So too, petitioner's administrative functions are not indicative of control. Such
functions which consisted of recruitment of new agents, training, and
supervision were exercised over other sales agents and not employees of
Manulife. Such functions relate to the insurance agents' work in pursuit of their
agency's contractual obligations.
Neither can the Letter dated November 6, 20014 addressed by Renato A.
Vergel De Dios, Manulife's President and Chief Executive Officer, to petitioner
regarding greater agency recruitment be considered as control. While the
236
letter reminded petitioner that his Region was the lowest performer in terms of
agency recruitment, it did not dictate how petitioner would achieve this goal.
Contrary to the finding of the main opinion,5 the letter did not contain "an
abundance of directives or orders" other than suggesting to petitioner to hire a
competent assistant to whom he could unload routine tasks. It is obvious that
said assistant would be paid by petitioner as part of his agency's staff, not of
the company's office personnel.
Clearly, following industry practice, petitioner had never been an employee of
Manulife. He is an independent contractor as stated in the Career Agent's
Agreement. Although he was eventually promoted as Regional Sales
Manager, the Agreement subsisted since he still received commissions from
insurance he directly sold to third persons aside from the override
commissions he received from his own recruited agents' sales. The
Agreement was never changed or altered by the parties.
Anent petitioner's compensation, he was paid through commissions from
premium payments instead of fixed wages or salary. Petitioner's commissions
varied, based on the computed premiums paid in full and actually received on
policies obtained through his agency. His summary of commission,
persistency, and management overrides constituted the income earned from
business activities, not traditional office employment by Manulife, as follows:
2001
P6,214,737.11
2000
P8,003,180.38
1999
P6,797,814.05
1998
P4,805,166.34
1997
P2,822,620.006
Indeed, petitioner's earnings by way of commissions varied, depending on the

clientele or those who availed of the insurance policies he procured. As also
noted by the Labor Arbiter, his annual income was duly reflected in petitioner's
237
income tax returns as agency earnings from which were deducted operating
expenses and taxes withheld at source by Manulife. His returns did not reflect
regular wages or salaries paid by the company.
Since no employer-employee relationship existed between petitioner and
Manulife, there is no basis to award backwages and separation pay to
petitioner. There is no reason to apply Songco v. National Labor Relations
Commission7 which considered commission as part of the employee's salary
in the computation of separation pay. Here, there exists no employeremployee relationship. A contrary ruling will reverse an industry practice long
accepted in the insurance business. Such reversal could prove detrimental to
the insurance public.
To reiterate, the present case does not involve an employer-employee
relationship which warrants the application of the Labor Code provisions;
rather, it calls for the implementation of the Career Agent's Agreement that
should be construed in an ordinary civil action.
I vote to DENY the petition.
Associate Justice
G.R. No. 166044
June 18, 2012
COUNTRY BANKERS INSURANCE CORPORATION, Petitioner,

vs.
KEPPEL CEBU SHIPYARD, UNIMARINE SHIPPING LINES, INC.,
PAUL RODRIGUEZ, PETER RODRIGUEZ, ALBERT HONTANOSAS,
and BETHOVEN QUINAIN, Respondents.
DECISION
238

This is a petition for review on certiorari1 to reverse and set aside the
January 29, 2004 Decision2 and October 28, 2004 Resolution3 of the
Court of Appeals in CA-G.R. CV No. 58001, wherein the Court of
Appeals affirmed with modification the February 10, 1997 Decision4 of
the Regional Trial Court (RTC) of Cebu City, Branch 7, in Civil Case No.
CBB-13447.
Hereunder are the undisputed facts as culled from the records of the
case.
On January 27, 1992, Unimarine Shipping Lines, Inc. (Unimarine), a
corporation engaged in the shipping industry, contracted the services of
Keppel Cebu Shipyard, formerly known as Cebu Shipyard and
Engineering Works, Inc. (Cebu Shipyard), for dry docking and ship repair
works on its vessel, the M/V Pacific Fortune.5
On February 14, 1992, Cebu Shipyard issued Bill No. 26035 to
Unimarine in consideration for its services, which amounted
to P4,486,052.00.6 Negotiations between Cebu Shipyard and Unimarine
led to the reduction of this amount to P3,850,000.00. The terms of this
agreement were embodied in Cebu Shipyards February 18, 1992 letter
to the President/General Manager of Unimarine, Paul Rodriguez, who
signed his conformity to said letter, quoted in full below:
18 February 1992
Ref No.: LL92/0383
UNIMARINE SHIPPING LINES, INC.
C/O Autographics, Inc.
Gorordo Avenue, Lahug, Cebu City
Attention: Mr. Paul Rodriguez
President/General Manager
239
This is to confirm our agreement on the shiprepair bills charged for the
repair of MV Pacific Fortune, our invoice no. 26035.
The shiprepair bill (Bill No. 26035) is agreed at a negotiated amount
of P3,850,000.00 excluding VAT.
Unimarine Shipping Lines, Inc. ("Unimarine") will pay the above amount
of [P3,850,000.00] in US Dollars to be fixed at the prevailing USDollar to
Philippine Peso exchange rate at the time of payment. The payment
terms to be extended to Unimarine is as follows:
Installments
Amount
Due Date
1st Installment
P2,350,000.00
30 May 1992
2nd Installment
P1,500,000.00
30 Jun 1992
Unimarine will deposit post-dated checks equivalent to the above

amounts in Philippine Peso and an additional check amount
of P385,000.00, representing 10% [Value Added Tax] VAT on the above
bill of P3,850,000.00. In the event that Unimarine fails to make full
payment on the above due dates in US Dollars, the post-dated checks
will be deposited by CSEW in payment of the amounts owned by
Unimarine and Unimarine agree that the 10% VAT (P385,000.00) shall
also become payable to CSEW.
Unimarine in consideration of the credit terms extended by CSEW and
the release of the vessel before full payment of the above debt, agree to
present CSEW surety bonds equal to 120% of the value of the credit
extended. The total bond amount shall be P4,620,000.00.
Yours faithfully,
CEBU SHIPYARD & ENG'G WORKS,
INC.
Conforme:
240
(SGD)
SEET KENG TAT
Treasurer/VP-Admin.
(SGD)
PAUL
RODRIGUEZ
Unimarine
Shipping
Lines, Inc.7
In compliance with the agreement, Unimarine, through Paul Rodriguez,

secured from Country Bankers Insurance Corp. (CBIC), through the
latters agent, Bethoven Quinain (Quinain), CBIC Surety Bond No. G
(16) 294198 (the surety bond) on January 15, 1992 in the amount
of P3,000,000.00. The expiration of this surety bond was extended to
January 15, 1993, through Endorsement No. 331529 (the endorsement),
which was later on attached to and formed part of the surety bond. In
addition to this, Unimarine, on February 19, 1992, obtained another bond
from Plaridel Surety and Insurance Co. (Plaridel), PSIC Bond No. G
(16)-0036510 in the amount ofP1,620,000.00.
On February 17, 1992, Unimarine executed a Contract of Undertaking in
favor of Cebu Shipyard. The pertinent portions of the contract read as
follows:
Messrs, Uni-Marine Shipping Lines, Inc. ("the Debtor") of Gorordo
Avenue, Cebu City hereby acknowledges that in consideration of Cebu
Shipyard & Engineering Works, Inc. ("Cebu Shipyard") at our request
agreeing to release the vessel specified in part A of the Schedule ("name
of vessel") prior to the receipt of the sum specified in part B of the
Schedule ("Moneys Payable") payable in respect of certain works
performed or to be performed by Cebu Shipyard and/or its
subcontractors and/or material and equipment supplied or to be supplied
by Cebu Shipyard and/or its subcontractors in connection with the vessel
for the party specified in part C of the Schedule ("the Debtor"), we
hereby unconditionally, irrevocably undertake to make punctual payment
241
to Cebu Shipyard of the Moneys Payable on the terms and conditions as

set out in part B of the Schedule. We likewise hereby expressly waive
whatever right of excussion we may have under the law and equity.
This contract shall be binding upon Uni-Marine Shipping Lines, Inc., its
heirs, executors, administrators, successors, and assigns and shall not
be discharged until all obligation of this contract shall have been faithfully
and fully performed by the Debtor.11
Because Unimarine failed to remit the first installment when it became
due on May 30, 1992, Cebu Shipyard was constrained to deposit the
peso check corresponding to the initial installment of P2,350,000.00. The
check, however, was dishonored by the bank due to insufficient
funds.12 Cebu Shipyard faxed a message to Unimarine, informing it of the
situation, and reminding it to settle its account immediately.13
On June 24, 1992, Cebu Shipyard again faxed a message14 to
Unimarine, to confirm Paul Rodriguezs promise that Unimarine will pay
in full the P3,850,000.00, in US Dollars on July 1, 1992.
Since Unimarine failed to deliver on the above promise, Cebu Shipyard,
on July 2, 1992, through a faxed letter, asked Unimarine if the payment
could be picked up the next day. This was followed by another faxed
message on July 6, 1992, wherein Cebu Shipyard reminded Unimarine
of its promise to pay in full on July 28, 1992. On August 24, 1992, Cebu
Shipyard again faxed15 Unimarine, to inform it that interest charges will
have to be imposed on their outstanding debt, and if it still fails to pay
before August 28, 1992, Cebu Shipyard will have to enforce payment
against the sureties and take legal action.
On November 18, 1992, Cebu Shipyard, through its counsel, sent
Unimarine a letter,16 demanding payment, within seven days from receipt
of the letter, the amount of P4,859,458.00, broken down as follows:
B#26035 MV PACIFIC FORTUNE
4,486,052.00
242
LESS: ADJUSTMENT:
CN#00515-03/19/92
(636,052.00)
-------------------3,850,000.00
Add: VAT on repair bill no. 26035
385,000.00
-------------------4,235,000.00
Add: Interest/penalty charges:

189,888.00
434,570.00
-------------------4,859,458.0017
Due to Unimarines failure to heed Cebu Shipyards repeated demands,

Cebu Shipyard, through counsel, wrote the sureties CBIC18 on November
18, 1992, and Plaridel,19 on November 19, 1992, to inform them of
Unimarines nonpayment, and to ask them to fulfill their obligations as
sureties, and to respond within seven days from receipt of the demand.
However, even the sureties failed to discharge their obligations, and so
Cebu Shipyard filed a Complaint dated January 8, 1993, before the RTC,
Branch 18 of Cebu City, against Unimarine, CBIC, and Plaridel. This was
docketed as Civil Case No. CBB-13447.
CBIC, in its Answer,20 said that Cebu Shipyards complaint states no
cause of action. CBIC alleged that the surety bond was issued by its
agent, Quinain, in excess of his authority. CBIC claimed that Cebu
Shipyard should have doubted the authority of Quinain to issue the
surety bond based on the following:
243
1. The nature of the bond undertaking (guarantee payment), and

the amount involved.
2. The surety bond could only be issued in favor of the Department
of Public Works and Highways, as stamped on the upper right
portion of the face of the bond.21 This stamp was covered by
documentary stamps.
3. The issuance of the surety bond was not reported, and the
corresponding premiums were not remitted to CBIC.22
CBIC added that its liability was extinguished when, without its
knowledge and consent, Cebu Shipyard and Unimarine novated their
agreement several times. Furthermore, CBIC stated that Cebu
Shipyards claim had already been paid or extinguished when Unimarine
executed an Assignment of Claims23 of the proceeds of the sale of its
vessel M/V Headline in favor of Cebu Shipyard. CBIC also averred that
Cebu Shipyards claim had already prescribed as the endorsement that
extended the surety bonds expiry date, was not reported to CBIC.
Finally, CBIC asseverated that if it were held to be liable, its liability
should be limited to the face value of the bond and not for exemplary
damages, attorneys fees, and costs of litigation.24
Subsequently, CBIC filed a Motion to Admit Cross and Third Party
Complaint25 against Unimarine, as cross defendant; Paul Rodriguez,
Albert Hontanosas, and Peter Rodriguez, as signatories to the Indemnity
Agreement they executed in favor of CBIC; and Bethoven Quinain, as
the agent who issued the surety bond and endorsement in excess of his
authority, as third party defendants.26
CBIC claimed that Paul Rodriguez, Albert Hontanosas, and Peter
Rodriguez executed an Indemnity Agreement, wherein they bound
themselves, jointly and severally, to indemnify CBIC for any amount it
may sustain or incur in connection with the issuance of the surety bond
and the endorsement.27 As for Quinain, CBIC alleged that he exceeded
244
his authority as stated in the Special Power of Attorney, wherein he was

authorized to solicit business and issue surety bonds not
exceeding P500,000.00 but only in favor of the Department of Public
Works and Highways, National Power Corporation, and other
government agencies.28
On August 23, 1993, third party defendant Hontanosas filed his Answer
with Counterclaim, to the Cross and Third Party Complaint. Hontanosas
claimed that he had no financial interest in Unimarine and was neither a
stockholder, director nor an officer of Unimarine. He asseverated that his
relationship to Unimarine was limited to his capacity as a lawyer, being
its retained counsel. He further denied having any participation in the
Indemnity Agreement executed in favor of CBIC, and alleged that his
signature therein was forged, as he neither signed it nor appeared
before the Notary Public who acknowledged such undertaking.29
Various witnesses were presented by the parties during the course of the
trial of the case. Myrna Obrinaga testified for Cebu Shipyard. She was
the Chief Accountant in charge of the custody of the documents of the
company. She corroborated Cebu Shipyards allegations and produced
in court the documents to support Cebu Shipyards claim. She also
testified that while it was true that the proceeds of the sale of
Unimarines vessel, M/V Headline, were assigned to Cebu Shipyard,
nothing was turned over to them.30
Paul Rodriguez admitted that Unimarine failed to pay Cebu Shipyard for
the repairs it did on M/V Pacific Fortune, despite the extensions granted
to Unimarine. He claimed that he signed the Indemnity Agreement
because he trusted Quinain that it was a mere pre-requisite for the
issuance of the surety bond. He added that he did not bother to read the
documents and he was not aware of the consequences of signing an
Indemnity Agreement. Paul Rodriguez also alleged to not having noticed
the limitation "Valid only in favor of DPWH" stamped on the surety
245
bond.31 However, Paul Rodriguez did not contradict the fact that
Unimarine failed to pay Cebu Shipyard its obligation.32
CBIC presented Dakila Rianzares, the Senior Manager of its Bonding
Department. Her duties included the evaluation and approval of all
applications for and reviews of bonds issued by their agents, as
authorized under the Special Power of Attorney and General Agency
Contract of CBIC. Rianzares testified that she only learned of the
existence of CBIC Surety Bond No. G (16) 29419 when she received the
summons for this case. Upon investigation, she found out that the surety
bond was not reported to CBIC by Quinain, the issuing agent, in violation
of their General Agency Contract, which provides that all bonds issued
by the agent be reported to CBICs office within one week from the date
of issuance. She further stated that the surety bond issued in favor of
Unimarine was issued beyond Quinains authority. Rianzares added that
she was not aware that an endorsement pertaining to the surety bond
was also issued by Quinain.33
After the trial, the RTC was faced with the lone issue of whether or not
CBIC was liable to Cebu Shipyard based on Surety Bond No. G (16)
29419.34
On February 10, 1997, the RTC rendered its Decision, the fallo of which
reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff Cebu
Shipyard & Engineering Works, Incorporated and against the
defendants:
1. Ordering the defendants Unimarine Shipping Lines,
Incorporated, Country Bankers Insurance Corporation and Plaridel
Surety and Insurance Corporation to pay plaintiff jointly and
severally the amount of P4,620,000.00 equivalent to the value of
the surety bonds;
246
2. Ordering further defendant Unimarine to pay plaintiff the amount

of P259,458.00 to complete its entire obligation of P4,859,458.00;
3. To pay plaintiff jointly and severally the amount of P100,000.00
in attorneys fees and litigation expenses;
4. For Cross defendant Unimarine Shipping Lines, Incorporated
and Third party defendants Paul Rodriguez, Peter Rodriguez and
Alber[t] Hontanosas: To indemnify jointly and severally, cross
plaintiff and third party plaintiff Country Bankers Insurance
Corporation whatever amount the latter is made to pay to plaintiff.35
The RTC held that CBIC, "in its capacity as surety is bound with its
principal jointly and severally to the extent of the surety bond it issued in
favor of [Cebu Shipyard]" because "although the contract of surety is in
essence secondary only to a valid principal obligation, his liability to [the]
creditor is said to be direct, primary[,] and absolute, in other words, he is
bound by the principal."36 The RTC added:
Solidary obligations on the part of Unimarine and CBIC having been
established and expressly stated in the Surety Bond No. 29419 (Exh.
"C"), [Cebu Shipyard], therefore, is entitled to collect and enforce said
obligation against any and or both of them, and if and when CBIC pays,
it can compel its co-defendant Unimarine to reimburse to it the amount it
has paid.37
The RTC found CBICs contention that Quinain acted in excess of his
authority in issuing the surety bond untenable. The RTC held that CBIC
is bound by the surety bond issued by its agent who acted within the
apparent scope of his authority. The RTC said:
[A]s far as third persons are concerned, an act is deemed to have been
performed within the scope of the agents authority, if such act is within
the terms of the powers of attorney as written, even if the agent has in
247
fact exceeded the limits of his authority according to an understanding

between the principal and the agent.38
All the defendants appealed this Decision to the Court of Appeals.
Unimarine, Paul Rodriguez, Peter Rodriguez, and Albert Hontanosas
argued that Unimarines obligation under Bill No. 26035 had been
extinguished by novation, as Cebu Shipyard had agreed to accept the
proceeds of the sale of the M/V Headline as payment for the ship repair
works it did on M/V Pacific Fortune. Paul Rodriguez and Peter Rodriguez
added that such novation also freed them from their liability under the
Indemnity Agreement they signed in favor of CBIC. Albert Hontanosas in
turn reiterated that he did not sign the Indemnity Agreement.39[SC1
CBIC, in its Appellants Brief,40 claimed that the RTC erred in enforcing its
liability on the surety bond as it was issued in excess of Quinains
authority. Moreover, CBIC averred, its liability under such surety had
been extinguished by reasons of novation, payment, and prescription.
CBIC also questioned the RTCs order, holding it jointly and severally
liable with Unimarine and Plaridel for the amount of P4,620,000.00, a
sum larger than the face value of CBIC Surety Bond No. G (16) 29419,
and why the RTC did not hold Quinain liable to indemnify CBIC for
whatever amount it was ordered to pay Cebu Shipyard.
On January 29, 2004, the Court of Appeals promulgated its decision,
with the following dispositive portion:
WHEREFORE, in view of the foregoing, the respective appeal[s] filed by
Defendants-Appellants Unimarine Shipping Lines, Inc. and Country
Bankers Insurance Corporation; Cross-Defendant-Appellant Unimarine
Shipping Lines, Inc. and; Third-Party Defendants-Appellants Paul
Rodriguez, Peter Rodriguez and Albert Hontanosas are hereby DENIED.
The decision of the RTC in Civil Case No. CEB-13447 dated February
10, 1997 is AFFIRMED with modification that Mr. Bethoven Quinain,
CBICs agent is hereby held jointly and severally liable with CBIC by
248
virtue of Surety Bond No. 29419 executed in favor of plaintiff-appellee

CSEW.41
In its decision, the Court of Appeals resolved the following issues, as it
had summarized from the parties pleadings:
I. Whether or not UNIMARINE is liable to [Cebu Shipyard] for a
sum of money arising from the ship-repair contract;
II. Whether or not the obligation of UNIMARINE to [Cebu Shipyard]
has been extinguished by novation;
III. Whether or not Defendant-Appellant CBIC, allegedly being the
Surety of UNIMARINE is liable under Surety Bond No. 29419[;]
IV. Whether or not Cross Defendant-Appellant UNIMARINE and
Third-Party Defendants-Appellants Paul Rodriguez, Peter
Rodriguez, Albert Hontanosas and Third-Party Defendant
Bethoven Quinain are liable by virtue of the Indemnity Agreement
executed between them and Cross and Third Party Plaintiff CBIC;
V. Whether or not Plaintiff-Appellee [Cebu Shipyard] is entitled to
the award of P100,000.00 in attorneys fees and litigation
expenses.42
The Court of Appeals held that it was duly proven that Unimarine was
liable to Cebu Shipyard for the ship repair works it did on the formers
M/V Pacific Fortune. The Court of Appeals dismissed CBICs contention
of novation for lack of merit.43 CBIC was held liable under the surety
bond as there was no novation on the agreement between Unimarine
and Cebu Shipyard that would discharge CBIC from its obligation. The
Court of Appeals also did not allow CBIC to disclaim liability on the
ground that Quinain exceeded his authority because third persons had
relied upon Quinains representation, as CBICs agent.44 Quinain was,
249
however, held solidarily liable with CBIC under Article 1911 of the Civil
Code.45
Anent the liability of the signatories to the Indemnity Agreement, the
Court of Appeals held Paul Rodriguez, Peter Rodriguez, and Albert
Hontanosas jointly and severally liable thereunder. The Court of Appeals
rejected Hontanosass claim that his signature in the Indemnity
Agreement was forged, as he was not able to prove it.46
The Court of Appeals affirmed the award of attorneys fees and litigation
expenses to Cebu Shipyard since it was able to clearly establish the
defendants liability, which they tried to dodge by setting up defenses to
release themselves from their obligation.47
CBIC48and Unimarine, together with third party defendantsappellants49 filed their respective Motions for Reconsideration. This was,
however, denied by the Court of Appeals in its October 28, 2004
Resolution for lack of merit.
Unimarine elevated its case to this Court via a petition for review on
certiorari, docketed as G.R. No. 166023, which was denied in a
Resolution dated January 19, 2005.50
The lone petitioner in this case, CBIC, is now before this Court, seeking
the reversal of the Court of Appeals decision and resolution on the
following grounds:
A.
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN
APPLYING THE PROVISIONS OF ARTICLE 1911 OF THE CIVIL
CODE TO HOLD PETITIONER LIABLE FOR THE ACTS DONE
BY ITS AGENT IN EXCESS OF AUTHORITY.
B.
250
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN

HOLDING THAT AN EXTENSION OF THE PERIOD FOR THE
PERFORMANCE OF AN OBLIGATION GRANTED BY THE
CREDITOR TO THE PRINCIPAL DEBTOR IS NOT SUFFICIENT
TO RELEASE THE SURETY.
C.
ASSUMING THAT PETITIONER IS LIABLE UNDER THE BOND,
THE HONORABLE COURT OF APPEALS NONETHELESS
SERIOUSLY ERRED IN AFFIRMING THE SOLIDARY LIABILITY
OF PETITIONER BEYOND THE VALUE OF THE BOND.
D.
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING
PETITIONER JOINTLY AND SEVERALLY LIABLE FOR
ATTORNEYS FEES IN THE AMOUNT OF P100,000.00.51
Issue
The crux of the controversy lies in CBICs liability on the surety bond
Quinain issued to Unimarine, in favor of Cebu Shipyard.
CBIC avers that the Court of Appeals erred in interpreting and applying
the rules governing the contract of agency. It argued that the Special
Power of Attorney granted to Quinain clearly set forth the extent and
limits of his authority with regard to businesses he can transact for and in
behalf of CBIC. CBIC added that it was incumbent upon Cebu Shipyard
to inquire and look into the power of authority conferred to Quinain. CBIC
said:
The authority to bind a principal as a guarantor or surety is one of those
powers which requires a Special Power of Attorney pursuant to Article
1878 of the Civil Code. Such power could not be simply assumed or
inferred from the mere existence of an agency. A person who enters into
251
a contract of suretyship with an agent without confirming the extent of

the latters authority does so at his peril. x x x.52
CBIC claims that the foregoing is true even if Quinain was granted the
authority to transact in the business of insurance in general, as "the
authority to bind the principal in a contract of suretyship could
nonetheless never be presumed."53 Thus, CBIC claims, that:
[T]hird persons seeking to hold the principal liable for transactions
entered into by an agent should establish the following, in case the same
is controverted:
6.6.1. The fact or existence of the agency.
6.6.2. The nature and extent of authority.54
To go a little further, CBIC said that the correct Civil Code provision to
apply in this case is Article 1898. CBIC asserts that "Cebu Shipyard was
charged with knowledge of the extent of the authority conferred on Mr.
Quinain by its failure to perform due diligence investigations."55
Cebu Shipyard, in its Comment56 first assailed the propriety of the
petition for raising factual issues. In support, Cebu Shipyard claimed that
the Court of Appeals application of Article 1911 of the Civil Code was
founded on findings of facts that CBIC now disputes. Thus, the question
is not purely of law.
Discussion
The fact that Quinain was an agent of CBIC was never put in issue.
What has always been debated by the parties is the extent of authority
or, at the very least, apparent authority, extended to Quinain by CBIC to
transact insurance business for and in its behalf.
In a contract of agency, a person, the agent, binds himself to represent
another, the principal, with the latters consent or authority.57 Thus,
252
agency is based on representation, where the agent acts for and in

behalf of the principal on matters within the scope of the authority
conferred upon him.58 Such "acts have the same legal effect as if they
were personally done by the principal. By this legal fiction of
representation, the actual or legal absence of the principal is converted
into his legal or juridical presence."59
The RTC applied Articles 1900 and 1911 of the Civil Code in holding
CBIC liable for the surety bond. It held that CBIC could not be allowed to
disclaim liability because Quinains actions were within the terms of the
special power of attorney given to him.60 The Court of Appeals agreed
that CBIC could not be permitted to abandon its obligation especially
since third persons had relied on Quinains representations. It based its
decision on Article 1911 of the Civil Code and found CBIC to have been
negligent and less than prudent in conducting its insurance business for
its failure to supervise and monitor the acts of its agents, to regulate the
distribution of its insurance forms, and to devise schemes to prevent
fraudulent misrepresentations of its agents.61
This Court does not agree. Pertinent to this case are the following
provisions of the Civil Code:
Art. 1898. If the agent contracts in the name of the principal, exceeding
the scope of his authority, and the principal does not ratify the contract, it
shall be void if the party with whom the agent contracted is aware of the
limits of the powers granted by the principal. In this case, however, the
agent is liable if he undertook to secure the principals ratification.
Art. 1900. So far as third persons are concerned, an act is deemed to
have been performed within the scope of the agents authority, if such
act is within the terms of the power of attorney, as written, even if the
agent has in fact exceeded the limits of his authority according to an
understanding between the principal and the agent.
253
Art. 1902. A third person with whom the agent wishes to contract on
behalf of the principal may require the presentation of the power of
attorney, or the instructions as regards the agency. Private or secret
orders and instructions of the principal do not prejudice third persons
who have relied upon the power of attorney or instructions shown to
them.
Art. 1910. The principal must comply with all the obligations which the
agent may have contracted within the scope of his authority.
As for any obligation wherein the agent has exceeded his power, the
principal is not bound except when he ratifies it expressly or tacitly.
Art. 1911. Even when the agent has exceeded his authority, the principal
is solidarily liable with the agent if the former allowed the latter to act as
though he had full powers.
Our law mandates an agent to act within the scope of his authority.62 The
scope of an agents authority is what appears in the written terms of the
power of attorney granted upon him.63 Under Article 1878(11) of the Civil
Code, a special power of attorney is necessary to obligate the principal
as a guarantor or surety.
In the case at bar, CBIC could be held liable even if Quinain exceeded
the scope of his authority only if Quinains act of issuing Surety Bond No.
G (16) 29419 is deemed to have been performed within the written terms
of the power of attorney he was granted.64
However, contrary to what the RTC held, the Special Power of Attorney
accorded to Quinain clearly states the limits of his authority and
particularly provides that in case of surety bonds, it can only be issued in
favor of the Department of Public Works and Highways, the National
Power Corporation, and other government agencies; furthermore, the
amount of the surety bond is limited to P500,000.00, to wit:
254
SPECIAL POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:
That, COUNTRY BANKERS INSURANCE CORPORATION, a
corporation duly organized and existing under and by virtue of the laws
of the Philippines, with head offices at 8th Floor, G.F. Antonino Building,
T.M. Kalaw Street, Ermita, Manila, now and hereinafter referred to as
"the Company" hereby appoints BETHOVEN B. QUINAIN with address
at x x x to be its General Agent and Attorney-in-Fact, for and in its place,
name and stead, and for its own use and benefit, to do and perform the
following acts and things:
1. To conduct, manage, carry on and transact insurance business
as usually pertains to a General Agency of Fire, Personal Accident,
Bond, Marine, Motor Car (Except Lancer).
2. To accept, underwrite and subscribe policies of insurance for
and in behalf of the Company under the terms and conditions
specified in the General Agency Contract executed and entered
into by and between it and its said Attorney-in-Fact subject to the
following Schedule of Limits:
- SCHEDULE OF LIMITS a. FIRE:
xxxx
b. PERSONAL ACCIDENT:
xxxx
c. MOTOR CAR:
xxxx
255
d. MARINE:
xxxx
e. BONDS:
xxxx
Surety Bond (in favor of Dept. of Pub. Works and
Highways, Natl. Power Corp. & other. 500,000.00
Government agencies)65
CBIC does not anchor its defense on a secret agreement, mutual
understanding, or any verbal instruction to Quinain. CBICs stance is
grounded on its contract with Quinain, and the clear, written terms
therein. This Court finds that the terms of the foregoing contract
specifically provided for the extent and scope of Quinains authority, and
Quinain has indeed exceeded them.
Under Articles 1898 and 1910, an agents act, even if done beyond the
scope of his authority, may bind the principal if he ratifies them, whether
expressly or tacitly. It must be stressed though that only the principal,
and not the agent, can ratify the unauthorized acts, which the principal
must have knowledge of.66 Expounding on the concept and doctrine of
ratification in agency, this Court said:
Ratification in agency is the adoption or confirmation by one person of
an act performed on his behalf by another without authority. The
substance of the doctrine is confirmation after conduct, amounting to a
substitute for a prior authority. Ordinarily, the principal must have full
knowledge at the time of ratification of all the material facts and
circumstances relating to the unauthorized act of the person who
assumed to act as agent. Thus, if material facts were suppressed or
unknown, there can be no valid ratification and this regardless of the
purpose or lack thereof in concealing such facts and regardless of the
256
parties between whom the question of ratification may arise.

Nevertheless, this principle does not apply if the principals ignorance of
the material facts and circumstances was willful, or that the principal
chooses to act in ignorance of the facts. However, in the absence of
circumstances putting a reasonably prudent man on inquiry, ratification
cannot be implied as against the principal who is ignorant of the
facts.67 (Emphases supplied.)
Neither Unimarine nor Cebu Shipyard was able to repudiate CBICs
testimony that it was unaware of the existence of Surety Bond No. G
(16) 29419 and Endorsement No. 33152. There were no allegations
either that CBIC should have been put on alert with regard to Quinains
business transactions done on its behalf. It is clear, and undisputed
therefore, that there can be no ratification in this case, whether express
or implied.
Article 1911, on the other hand, is based on the principle of estoppel,
which is necessary for the protection of third persons. It states that the
principal is solidarily liable with the agent even when the latter has
exceeded his authority, if the principal allowed him to act as though he
had full powers. However, for an agency by estoppel to exist, the
following must be established:
1. The principal manifested a representation of the agents
authority or knowingly allowed the agent to assume such authority;
2. The third person, in good faith, relied upon such representation;
and
3. Relying upon such representation, such third person has
changed his position to his detriment.68
In Litonjua, Jr. v. Eternit Corp.,69 this Court said that "[a]n agency by
estoppel, which is similar to the doctrine of apparent authority, requires
257
proof of reliance upon the representations, and that, in turn, needs proof
that the representations predated the action taken in reliance."70
This Court cannot agree with the Court of Appeals pronouncement of
negligence on CBICs part. CBIC not only clearly stated the limits of its
agents powers in their contracts, it even stamped its surety bonds with
the restrictions, in order to alert the concerned parties. Moreover, its
company procedures, such as reporting requirements, show that it has
designed a system to monitor the insurance contracts issued by its
agents. CBIC cannot be faulted for Quinains deliberate failure to notify it
of his transactions with Unimarine. In fact, CBIC did not even receive the
premiums paid by Unimarine to Quinain.
Furthermore, nowhere in the decisions of the lower courts was it stated
that CBIC let the public, or specifically Unimarine, believe that Quinain
had the authority to issue a surety bond in favor of companies other than
the Department of Public Works and Highways, the National Power
Corporation, and other government agencies. Neither was it shown that
CBIC knew of the existence of the surety bond before the endorsement
extending the life of the bond, was issued to Unimarine. For one to
successfully claim the benefit of estoppel on the ground that he has
been misled by the representations of another, he must show that he
was not misled through his own want of reasonable care and
circumspection.71
It is apparent that Unimarine had been negligent or less than prudent in
its dealings with Quinain. In Manila Memorial Park Cemetery, Inc. v.
Linsangan,72 this Court held:
It is a settled rule that persons dealing with an agent are bound at their
peril, if they would hold the principal liable, to ascertain not only the fact
of agency but also the nature and extent of authority, and in case either
is controverted, the burden of proof is upon them to establish it. The
basis for agency is representation and a person dealing with an agent is
put upon inquiry and must discover upon his peril the authority of the
258
agent. If he does not make such an inquiry, he is chargeable with

knowledge of the agents authority and his ignorance of that authority will
not be any excuse.
In the same case, this Court added:
[T]he ignorance of a person dealing with an agent as to the scope of the
latters authority is no excuse to such person and the fault cannot be
thrown upon the principal. A person dealing with an agent assumes the
risk of lack of authority in the agent. He cannot charge the principal by
relying upon the agents assumption of authority that proves to be
unfounded. The principal, on the other hand, may act on the
presumption that third persons dealing with his agent will not be
negligent in failing to ascertain the extent of his authority as well as the
existence of his agency.73
Unimarine undoubtedly failed to establish that it even bothered to inquire
if Quinain was authorized to agree to terms beyond the limits indicated in
his special power of attorney. While Paul Rodriguez stated that he has
done business with Quinain more than once, he was not able to show
that he was misled by CBIC as to the extent of authority it granted
Quinain. Paul Rodriguez did not even allege that he asked for
documents to prove Quinains authority to contract business for CBIC,
such as their contract of agency and power of attorney. It is also worthy
to note that even with the Indemnity Agreement, Paul Rodriguez signed
it on Quinains mere assurance and without truly understanding the
consequences of the terms of the said agreement. Moreover, both
Unimarine and Paul Rodriguez could have inquired directly from CBIC to
verify the validity and effectivity of the surety bond and endorsement;
but, instead, they blindly relied on the representations of Quinain. As this
Court held in Litonjua, Jr. v. Eternit Corp.74:
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
259
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, 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. In this case, the petitioners
failed to discharge their burden; hence, petitioners are not entitled to
damages from respondent EC.75
In light of the foregoing, this Court is constrained to release CBIC from
its liability on Surety Bond No. G (16) 29419 and Endorsement No.
33152. This Court sees no need to dwell on the other grounds
propounded by CBIC in support of its prayer.
WHEREFORE, this petition is hereby GRANTED and the complaint
against CBIC is DISMISSED for lack of merit. The January 29, 2004
Decision and October 28, 2004 Resolution of the Court of Appeals in
CA-G.R. CV No. 58001 is MODIFIED insofar as it affirmed CBICs
liability on Surety Bond No. G (16) 29419 and Endorsement No. 33152.
SO ORDERED.
TERESITA J. LEONARDO-DE CASTRO*
Associate Justice
Acting Chairperson, First Division
WE CONCUR:
LUCAS P. BERSAMIN
Associate Justice
Associate Justice
MARTIN S. VILLARAMA, JR.

Associate Justice
ESTELA M. PERLAS-BERNABE**
Associate Justice
260
ATT E S TAT I O N
TERESITA J. LEONARDO-DE CASTRO
Associate Justice
Acting Chairperson, First Division
Pursuant to Section 13, Article VIII of the Constitution and the Division
Acting 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.
ANTONIO T. CARPIO
Senior Associate Justice
(Per Section 12, R.A. 296, The Judiciary Act of 1948, as amended)

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1

In 1984, RMC ceased business operations. Nonetheless, petitioner continued to

2. Defendant Philippine Banking Corporation (now [Global Bank]) is hereby

PAYMENT OF THE LOAN OBLIGATIONS OF RIVERSIDE MILLS

Petitioner contends that it was justified in supposing that reversion had

The provision makes reference to a member-employee who is dismissed for

On the other hand, a dismissal for an authorized cause under Article

In San Miguel Corporation v. Lao, we reversed the CA ruling which granted

To be sure, the cessation of business by RMC is an authorized cause for the

of a dissolved corporation may commence a suit which can proceed to final

dated March 5, 2007 of the Court of Appeals in CA-G.R. CV No. 76642

CONCHITA CARPIO MORALES

MARIANO C. DEL CASTILLO

MARIA LOURDES P. A. SERENO

G.R. No. 179096

February 06, 2013

JOSEPH GOYANKO, JR., as administrator of the Estate of Joseph

We resolve the petition for review on certiorari1 filed by petitioner Joseph

parties.28 No written words are required to create an express trust. This is

Contrary to the petitioners contention, PALIIs letters and UCPBs

MARIANO C. DEL CASTILLO

JOSE PORTUGAL PEREZ

Penned by Associate Justice Priscila Baltazar-Padilla, and

Dated August 27, 2008 per the CA decision: id at 9.

The amount deposited was P1,485,685.09 per the CA decision

From the dispositive portion of the RTC decision, as quoted by

The petitioner cites the Courts ruling in Estate of Edward Grimm

Rollo, pp. 34-36, 115-116.

G.R. No. 144516, February 11, 2004, 422 SCRA 459.

Rollo, pp. 35, 116-117.

Id. at 36-40, 119-123.

Andrada v. Pilhino Sales Corporation, G.R. No. 156448, February

Lorzano v. Tabayag, Jr. supra note 15, at 46-47; Republic v. De

Lorzano v. Tabayag, Jr., supra note 15, at 46-47; Republic v. De

Among the recognized exceptions to the restriction are:

See rollo, pp. 12-13.

Id. at 34-36, 115-116.

Morla v. Belmonte, G.R. No. 171146, December 7, 2011, 661

Pea v. Tolentino, G.R. Nos. 155227-28, February 9, 2011, 642

Estate of Margarita D. Cabacungan v. Laigo, G.R. No. 175073,

Estate of Margarita D. Cabacungan v. Laigo, supra, at 376. See

Art. 1444. No particular words are required for the creation of an

Philippine National Bank v. Aznar, supra note 26, at 230.

329 Phil. 789, 805-806, citing Mindanao Development Authority

x x x our client will be constrained to bring an action

Id. at 62-64. UCPBs witness testified that the ACCOUNT was

See Torbela v. Rosario, supra note 26, at 661.

Consolidated Bank and Trust Corporation v. Court of

Article 1980 of the Civil Code provides:

See Central Bank of the Philippines v. Citytrust Banking

Consolidated Bank and Trust Corporation v. Court of Appeals,

Samsung Construction Co. Phils., Inc. v. FEBTC, supra note 41,

Article 1173. Civil Code of the Philippines provides:"Negligence

55 Phil. 208; 216-217 (1930).

NAI Rathschild & Sons (Australia) Limited v. Lepanto

Section 2 of the Rules of Court provides:

G.R. No. 192371, January 15, 2014

Trust Account No. Date Opened Beginning Balance

You shall have full power and authority:

(a)to treat all the Fund as one aggregate amount for

securities from the Fund;

Proceedings before the Regional Trial Court