Art. 1868.
By the contract of agency, a person binds himself to render some service The pre-trial conference was later conducted after the parties had filed their
or to do something in representation or on behalf of another, with the consent or
authority of the latter.
G.R. No. 194128 December 7, 2011
WESTMONT INVESTMENT CORPORATION, Petitioner,
vs.
AMOS P. FRANCIA, JR., CECILIA ZAMORA, BENJAMIN FRANCIA, and
PEARLBANK SECURITIES, INC.,Respondents.
DECISION
MENDOZA, J.:
At bench is a petition for review on certiorari under Rule 45 of the Rules of Court
assailing the (1) July 27, 2010 Decision1 of the Court of Appeals (CA) in CA-
G.R. CV No. 84725, which affirmed with modification the September 27, 2004
Decision2 of the Regional Trial Court, Branch 56, Makati City (RTC) in Civil
Case No. 01-507; and (2) its October 14, 2010 Resolution,3 which denied the
motion for the reconsideration thereof.
THE FACTS:
On March 27, 2001, respondents Amos P. Francia, Jr., Cecilia Zamora and
Benjamin Francia (the Francias) filed a Complaint for Collection of Sum of
Money and Damages4 arising from their investments against petitioner
Westmont Investment Corporation (Wincorp) and respondent Pearlbank
Securities Inc. (Pearlbank) before the RTC.
Wincorp and Pearlbank filed their separate motions to dismiss.5 Both motions
were anchored on the ground that the complaint of the Francias failed to state
a cause of action. On July 16, 2001, after several exchanges of pleadings, the
RTC issued an order6 dismissing the motions to dismiss of Wincorp and
Pearlbank for lack of merit.
Wincorp then filed its Answer,7 while Pearlbank filed its Answer with
Counterclaim and Crossclaim (against Wincorp).8
The case was set for pre-trial but before pre-trial conference could be held,
Wincorp filed its Motion to Dismiss Crossclaim9 of Pearlbank to which the latter
filed an opposition.10 The RTC denied Wincorp’s motion to dismiss crossclaim.11
respective pre-trial briefs. The parties agreed on the following stipulation of
facts, as contained in the Pre-Trial Order12 issued by the RTC on April 17, 2002:
1. The personal and juridical circumstances of the parties meaning, the
plaintiffs and both corporate defendants;
2. That plaintiffs caused the service of a demand letter on Pearl Bank
on February 13, 2001 marked as Exhibit E;
3. Plaintiffs do not have personal knowledge as to whether or not
Pearl Bank indeed borrowed the funds allegedly invested by the
plaintiff from Wincorp; and
4. That the alleged confirmation advices which indicate Pearl Bank
as alleged borrower of the funds allegedly invested by the
plaintiffs in Wincorp do not bear the signature or acknowledgment
of Pearl Bank. (Emphases supplied)
After several postponements requested by Wincorp, trial on the merits finally
ensued. The gist of the testimony of Amos Francia, Jr. (Amos) is as follows:
1. Sometime in 1999, he was enticed by Ms. Lalaine Alcaraz, the bank
manager of Westmont Bank, Meycauayan, Bulacan Branch, to make
an investment with Wincorp, the bank’s financial investment arm, as it
was offering interest rates that were 3% to 5% higher than regular bank
interest rates. Due to the promise of a good return of investment, he
was convinced to invest. He even invited his sister, Cecilia Zamora and
his brother, Benjamin Francia, to join him. Eventually, they placed their
investment in the amounts of ₱ 1,420,352.72 and ₱ 2,522,745.34 with
Wincorp in consideration of a net interest rate of 11% over a 43-day
spread. Thereafter, Wincorp, through Westmont Bank, issued Official
Receipt Nos. 47084413 and 470845,14both dated January 27, 2000,
evidencing the said transactions.15
2. When the 43-day placement matured, the Francias wanted to retire
their investments but they were told that Wincorp had no funds. Instead,
Wincorp "rolled-over" their placements and issued Confirmation
Advices16 extending their placements for another 34 days. The said
confirmation advices indicated the name of the borrower as Pearlbank.
The maturity values were ₱ 1,435,108.61 and ₱ 2,548,953.86 with a
due date of April 13, 2000.
3. On April 13, 2000, they again tried to get back the principal amount
they invested plus interest but, again, they were frustrated.17
 4. Constrained, they demanded from Pearlbank18 their investments.
There were several attempts to settle the case, but all proved futile.
After the testimony of Amos Francia, Jr., the Francias filed their Formal Offer of
Evidence.19 Pearlbank filed its Comment/Objection,20 while Wincorp did not file
any comment or objection. After all the exhibits of the Francias were admitted
for the purposes they were offered, the Francias rested their case.
Thereafter, the case was set for the presentation of the defense evidence of
Wincorp. On March 7, 2003, three (3) days before the scheduled hearing,
Wincorp filed a written motion to postpone the hearing on even date, as its
witness, Antonio T. Ong, was unavailable because he had to attend a
congressional hearing. Wincorp’s substitute witness, Atty. Nemesio Briones,
was likewise unavailable due to a previous commitment in the Securities and
Exchange Commission.
The RTC denied Wincorp’s Motion to Postpone and considered it to have
waived its right to present evidence.21The Motion for Reconsideration of
Wincorp was likewise denied.22
On August 14, 2003, Pearlbank filed its Demurrer to Evidence.23 The RTC
granted the same in its Order24 dated January 12, 2004. Hence, the complaint
against Pearlbank was dismissed, while the case was considered submitted for
decision insofar as Wincorp was concerned.
On September 27, 2004, the RTC rendered a decision25 in favor of the Francias
and held Wincorp solely liable to them. The dispositive portion thereof reads:
WHEREFORE, judgment is rendered ordering defendant Westmont Investment
Corporation to pay the plaintiffs, the following amounts:
1. ₱ 3,984,062.47 representing the aggregate amount of investment
placements made by plaintiffs, plus 11% per annum by way of stipulated
interest, to be counted from 10 March 2000 until fully paid; and
2. 10% of the above-mentioned amount as and for attorney’s fees and
costs of suit.
SO ORDERED.
Wincorp then filed a motion for reconsideration, but it was denied by the RTC
in its Order26 dated November 10, 2004.
Not in conformity with the pronouncement of the RTC, Wincorp interposed an
appeal with the CA, alleging the following arguments:
I. THE REGIONAL TRIAL COURT ERRED WHEN IT HELD THAT
WINCORP AS AGENT OF PLAINTIFFS-APPELLEES WAS LIABLE
TO THE LATTER NOTWITHSTANDING THE CLEAR WRITTEN
AGREEMENT TO THE CONTRARY;
II. THE REGIONAL TRIAL COURT ALSO ERRED WHEN IT HELD
THAT PEARLBANK, THE ACTUAL BORROWER AND RECIPIENT OF
THE MONEY INVOLVED IS NOT LIABLE TO THE PLAINTIFFS-
APPELLEES; and
III. THE REGIONAL TRIAL COURT ERRED IN DISMISSING ALL
TOGETHER THE CROSS-CLAIM OF WINCORP AGAINST
PEARLBANK.27
The CA affirmed with modification the ruling of the RTC in its July 27, 2010
Decision, the decretal portion of which reads:
WHEREFORE, premises considered, the present Appeal is DENIED. The
Decision dated 27 September 2004 of the Regional Trial Court, Branch 56,
Makati City in Civil Case No. 01-507 is hereby AFFIRMED WITH
MODIFICATIONof the awards. Defendant-appellant Wincorp is hereby ordered
to pay plaintiffs-appellees the amounts of ₱ 3,984,062.47 plus 11% per annum
by way of stipulated interest to be computed from 13 April 2000 until fully paid
and ₱ 100,000.00 as attorney’s fees and cost of suit."
SO ORDERED.
The CA explained:
After a careful and judicious scrutiny of the records of the present case, together
with the applicable laws and jurisprudence, this Court finds defendant-appellant
Wincorp solely liable to pay the amount of ₱ 3,984,062.47 plus 11% interest
per annum computed from 10 March 2000 to plaintiffs-appellees.
Preliminarily, the Court will rule on the procedural issues raised to know what
pieces of evidence will be considered in this appeal.
Section 34, Rule 132 of the Rules on Evidence states that:
"The court shall consider no evidence which has not been formally offered. The
purpose for which the evidence is offered must be specified."
A formal offer is necessary because judges are mandated to rest their findings
of facts and their judgment only and strictly upon the evidence offered by the
parties at the trial. Its function is to enable the trial judge to know the purpose
or purposes for which the proponent is presenting the evidence. On the other
hand, this allows opposing parties to examine the evidence and object to its
admissibility. Moreover, it facilitates review as the appellate court will not be
required to review documents not previously scrutinized by the trial court.
Evidence not formally offered during the trial can not be used for or against a
party litigant. Neither may it be taken into account on appeal.
The rule on formal offer of evidence is not a trivial matter. Failure to make a
formal offer within a considerable period of time shall be deemed a waiver to
submit it. Consequently, any evidence that has not been offered shall be
excluded and rejected.
Prescinding therefrom, the very glaring conclusion is that all the documents
attached in the motion for reconsideration of the decision of the trial court and
all the documents attached in the defendant-appellant’s brief filed by defendant-
appellant Wincorp cannot be given any probative weight or credit for the
sole reason that the said documents were not formally offered as
evidence in the trial court because to consider them at this stage will deny
the other parties the right to rebut them.
The arguments of defendant-appellant Wincorp that the plaintiffs-appellees
made an erroneous offer of evidence as the documents were offered to prove
what is contrary to its content and that they made a violation of the parol
evidence rule do not hold water.
It is basic in the rule of evidence that objection to evidence must be made after
the evidence is formally offered. In case of documentary evidence, offer is made
after all the witnesses of the party making the offer have testified, specifying the
purpose for which the evidence is being offered. It is only at this time, and not
at any other, that objection to the documentary evidence may be made.
As to oral evidence, objection thereto must likewise be raised at the earliest
possible time, that is, after the objectionable question is asked or after the
answer is given if the objectionable issue becomes apparent only after the
answer was given.
xxx
In the case at bench, a perusal of the records shows that the plaintiffs-appellees
have sufficiently established their cause of action by preponderance of
evidence. The fact that on 27 January 2000, plaintiffs-appellees placed their
investment in the amounts of ₱ 1,420,352.72 and ₱ 2,522,754.34 with
defendant-appellant Wincorp to earn a net interest at the rate of 11% over a 43-
day period was distinctly proved by the testimony of plaintiff-appellee Amos
Francia, Jr. and supported by Official Receipt Nos. 470844 and 470845 issued
by defendant-appellant Wincorp through Westmont Bank. The facts that
plaintiffs-appellees failed to get back their investment after 43 days and that
their investment was rolled over for another 34 days were also established by
their oral evidence and confirmed by the Confirmation Advices issued by
defendant-appellant Wincorp, which indicate that their investment already
amounted to ₱ 1,435,108.61 and ₱ 2,548,953.86 upon its maturity on 13 April
2000. Likewise, the fact that plaintiffs-appellees’ investment was not returned
to them until this date by defendant-appellant Wincorp was proved by their
evidence. To top it all, defendant-appellant Wincorp never negated these
established facts because defendant-appellant Wincorp’s claim is that it
received the money of plaintiffs-appellees but it merely acted as an agent of
plaintiffs-appellees and that the actual borrower of plaintiffs-appellees’ money
is defendant-appellee PearlBank. Hence, defendant-appellant Wincorp alleges
that it should be the latter who must be held liable to the plaintiffs-appellees.
However, the contract of agency and the fact that defendant-appellee
PearlBank actually received their money were never proven. The records are
bereft of any showing that defendant-appellee PearlBank is the actual borrower
of the money invested by plaintiffs-appellees as defendant-appellant Wincorp
never presented any evidence to prove the same.
Moreover, the trial court did not err in dismissing defendant-appellant Wincorp’s
crossclaim as nothing in the records supports its claim. And such was solely
due to defendant-appellant Wincorp because it failed to present any scintilla of
evidence that would implicate defendant-appellee PearlBank to the
transactions involved in this case. The fact that the name of defendant-appellee
PearlBank was printed in the Confirmation Advices as the actual borrower does
not automatically makes defendant-appellee PearlBank liable to the plaintiffs-
appellees as nothing therein shows that defendant-appellee PearlBank
adhered or acknowledged that it is the actual borrower of the amount specified
therein.
Clearly, the plaintiffs-appellees were able to establish their cause of action
against defendant-appellant Wincorp, while the latter failed to establish its
cause of action against defendant-appellee PearlBank.
Hence, in view of all the foregoing, the Court finds defendant-appellant Wincorp
solely liable to pay the amount of ₱ 3,984,062.47 representing the matured
value of the plaintiffs-appellees’ investment as of 13 April 2000 plus 11%
interest per annum by way of stipulated interest counted from maturity date (13
April 2000).
As to the award of attorney’s fees, this Court finds that the undeniable source
of the present controversy is the failure of defendant-appellant Wincorp to
return the principal amount and the interest of the investment money of
plaintiffs-appellees, thus, the latter was forced to engage the services of their
counsel to protect their right. It is elementary that when attorney’s fees is
awarded, they are so adjudicated, because it is in the nature of actual damages
suffered by the party to whom it is awarded, as he was constrained to engage
the services of a counsel to represent him for the protection of his interest. Thus,
although the award of attorney’s fees to plaintiffs-appellees was warranted by
the circumstances obtained in this case, this Court finds it equitable to reduce
the same from 10% of the total award to a fixed amount of ₱ 100,000.00.28
Wincorp’s Motion for Reconsideration was likewise denied by the CA in its
October 14, 2010 Resolution.29
Not in conformity, Wincorp seeks relief with this Court via this petition for review
alleging that −
PLAINTIFFS-RESPONDENTS HAVE NO CAUSE OF ACTION AGAINST
WINCORP AS THE EVIDENCE ON RECORD SHOWS THAT THE ACTUAL
BENEFICIARY OF THE PROCEEDS OF THE LOAN TRANSACTIONS WAS
PEARLBANK
SUBSTANTIAL JUSTICE DICTATES THAT THE EVIDENCE PROFERRED
BY WINCORP SHOULD BE CONSIDERED TO DETERMINE WHO, AMONG
THE PARTIES, ARE LIABLE TO PLAINTIFFS-RESPONDENTS30
ISSUE
The core issue in this case is whether or not the CA is correct in finding
Wincorp solely liable to pay the Francias the amount of ₱ 3,984,062.47 plus
interest of 11% per annum.
Quite clearly, the case at bench presents a factual issue.
As a rule, a petition for review under Rule 45 of the Rules of Court
covers only questions of law. Questions of fact are not reviewable and cannot
be passed upon by this Court in the exercise of its power to review. The
distinction between questions of law and questions of fact is established.
A question of law exists when the doubt or difference centers on what the law
is on a certain state of facts. A question of fact, on the other hand, exists if the
doubt centers on the truth or falsity of the alleged facts.31 This being so, the
findings of fact of the CA are final and conclusive and this Court will not review
them on appeal.
While it goes without saying that only questions of law can be raised in a petition
for review on certiorari under Rule 45, the same admits of exceptions, namely:
(1) when the findings are grounded entirely on speculations, surmises, or
conjectures; (2) when the inference made is manifestly mistaken, absurd, or
impossible; (3) when there is a grave abuse of discretion; (4) when the judgment
is based on misappreciation of facts; (5) when the findings of fact are conflicting;
(6) when in making its findings, the same are contrary to the admissions of both
appellant and appellee; (7) when the findings are contrary to those of the trial
court; (8) when the findings are conclusions without citation of specific evidence
on which they are based; (9) when the facts set forth in the petition as well as
in the petitioner’s main and reply briefs are not disputed by the respondent; and
(10) when the findings of fact are premised on the supposed absence of
evidence and contradicted by the evidence on record.32
The Court finds that no cogent reason exists in this case to deviate from the
general rule.
Wincorp insists that the CA should have based its decision on the express
terms, stipulations, and agreements provided for in the documents offered by
the Francias as the legal relationship of the parties was clearly spelled out in
the very documents introduced by them which indicated that it merely brokered
the loan transaction between the Francias and Pearlbank.33
Wincorp would want the Court to rule that there was a contract of agency
between it and the Francias with the latter authorizing the former as their agent
to lend money to Pearlbank. According to Wincorp, the two Confirmation
Advices presented as evidence by the Francias and admitted by the court, were
competent proof that the recipient of the loan proceeds was Pearlbank.34
The Court is not persuaded.
In a contract of agency, a person binds himself to render some service or to do
something in representation or on behalf of another with the latter’s consent.35 It
is said that the underlying principle of the contract of agency is to accomplish
results by using the services of others – to do a great variety of things. Its aim
is to extend the personality of the principal or the party for whom another acts
and from whom he or she derives the authority to act. Its basis is
representation.36
Significantly, the elements of the contract of agency are: (1) consent, express
or implied, of the parties to establish the relationship; (2) the object is the
execution of a juridical act in relation to a third person; (3) the agent acts as a
representative and not for himself; (4) the agent acts within the scope of his
authority.37
In this case, the principal-agent relationship between the Francias and Wincorp
was not duly established by evidence. The records are bereft of any showing
that Wincorp merely brokered the loan transactions between the Francias and
Pearlbank and the latter was the actual recipient of the money invested by the
former. Pearlbank did not authorize Wincorp to borrow money for it. Neither was
there a ratification, expressly or impliedly, that it had authorized or consented
to said transaction.
As to Pearlbank, records bear out that the Francias anchor their cause of action
against it merely on the strength of the subject Confirmation Advices bearing
the name "PearlBank" as the supposed borrower of their investments.
Apparently, the Francias ran after Pearlbank only after learning that Wincorp
was reportedly bankrupt.38 The Francias were consistent in saying that they
only dealt with Wincorp and not with Pearlbank. It bears noting that even in their
Complaint and during the pre-trial conference, the Francias alleged that they
did not have any personal knowledge if Pearlbank was indeed the
recipient/beneficiary of their investments.
Although the subject Confirmation Advices indicate the name of Pearlbank as
the purported borrower of the said investments, said documents do not bear
the signature or acknowledgment of Pearlbank or any of its officers. This cannot
prove the position of Wincorp that it was Pearlbank which received and
benefited from the investments made by the Francias. There was not even a
promissory note validly and duly executed by Pearlbank which would in any
way serve as evidence of the said borrowing.
Another significant point which would support the stand of Pearlbank that it was
not the borrower of whatever funds supposedly invested by the Francias was
the fact that it initiated, filed and pursued several cases against Wincorp,
questioning, among others, the latter’s acts of naming it as borrower of funds
from investors.391avv phi 1
It bears stressing too that all the documents attached by Wincorp to its
pleadings before the CA cannot be given any weight or evidentiary value for the
sole reason that, as correctly observed by the CA, these documents
were notformally offered as evidence in the trial court. To consider them now
would deny the other parties the right to examine and rebut them. Section 34,
Rule 132 of the Rules of Court provides:
Section 34. Offer of evidence —The court shall consider no evidence which has
not been formally offered. The purpose for which the evidence is offered must
be specified.
"The offer of evidence is necessary because it is the duty of the court to rest its
findings of fact and its judgment only and strictly upon the evidence offered by
the parties. Unless and until admitted by the court in evidence for the purpose
or purposes for which such document is offered, the same is merely a scrap of
paper barren of probative weight."40
The Court cannot, likewise, disturb the findings of the RTC and the CA as to
the evidence presented by the Francias. It is elementary that objection to
evidence must be made after evidence is formally offered.41 It appears that
Wincorp was given ample opportunity to file its Comment/Objection to the
formal offer of evidence of the Francias but it chose not to file any.
All told, the CA committed no reversible error in rendering the assailed July 27,
2010 Decision and in issuing the challenged October 14, 2010 Resolution.
WHEREFORE, the petition is DENIED.
SO ORDERED.
G.R. No. L-21601 December 28, 1968
NIELSON & COMPANY, INC., plaintiff-appellant,
vs.
LEPANTO CONSOLIDATED MINING COMPANY, defendant-appellee.
RESOLUTION
ZALDIVAR, J.:
Lepanto seeks the reconsideration of the decision rendered on December 17,
1966. The motion for reconsideration is based on two sets of grounds — the
first set consisting of four principal grounds, and the second set consisting of
five alternative grounds, as follows:
Principal Grounds:
1. The court erred in overlooking and failing to apply the proper law
applicable to the agency or management contract in question, namely,
Article 1733 of the Old Civil Code (Article 1920 of the new), by virtue of
which said agency was effectively revoked and terminated in 1945
when, as stated in paragraph 20 of the complaint, "defendant voluntarily
... prevented plaintiff from resuming management and operation of said
mining properties."
2. The court erred in holding that paragraph II of the management
contract (Exhibit C) suspended the period of said contract.
3. The court erred in reversing the ruling of the trial judge, based on
well-settled jurisprudence of this Supreme Court, that the management
agreement was only suspended but not extended on account of the
war.
 4. The court erred in reversing the finding of the trial judge that Nielson's
action had prescribed, but considering only the first claim and ignoring
the prescriptibility of the other claims.
Alternative Grounds:
5. The court erred in holding that the period of suspension of the
contract on account of the war lasted from February 1942 to June 26,
1948.
6. Assuming arguendo that Nielson is entitled to any relief, the court
erred in awarding as damages (a) 10% of the cash dividends declared
and paid in December, 1941; (b) the management fee of P2,500.00 for
the month of January, 1942; and (c) the full contract price for the
extended period of sixty months, since these damages were neither
demanded nor proved and, in any case, not allowable under the general
law of damages.
7. Assuming arguendo that appellant is entitled to any relief, the court
erred in ordering appellee to issue and deliver to appellant shares of
stock together with fruits thereof.
8. The court erred in awarding to appellant an undetermined amount of
shares of stock and/or cash, which award cannot be ascertained and
executed without further litigation.
9. The court erred in rendering judgment for attorney's fees.
We are going to dwell on these grounds in the order they are presented.
1. In its first principal ground Lepanto claims that its own counsel and this Court
had overlooked the real nature of the management contract entered into by and
between Lepanto and Nielson, and the law that is applicable on said contract.
Lepanto now asserts for the first time and this is done in a motion for
reconsideration - that the management contract in question is a contract of
agency such that it has the right to revoke and terminate the said contract, as
it did terminate the same, under the law of agency, and particularly pursuant to
Article 1733 of the Old Civil Code (Article 1920 of the New Civil Code).
We have taken note that Lepanto is advancing a new theory. We have carefully
examined the pleadings filed by Lepanto in the lower court, its memorandum
and its brief on appeal, and never did it assert the theory that it has the right to
terminate the management contract because that contract is one of agency
which it could terminate at will. While it is true that in its ninth and tenth special
affirmative defenses, in its answer in the court below, Lepanto pleaded that it
had the right to terminate the management contract in question, that plea of its
right to terminate was not based upon the ground that the relation between
Lepanto and Nielson was that of principal and agent but upon the ground that
Nielson had allegedly not complied with certain terms of the management
contract. If Lepanto had thought of considering the management contract as
one of agency it could have amended its answer by stating exactly its position.
It could have asserted its theory of agency in its memorandum for the lower
court and in its brief on appeal. This, Lepanto did not do. It is the rule, and the
settled doctrine of this Court, that a party cannot change his theory on appeal
— that is, that a party cannot raise in the appellate court any question of law or
of fact that was not raised in the court below or which was not within the issue
made by the parties in their pleadings (Section 19, Rule 49 of the old Rules of
Court, and also Section 18 of the new Rules of Court; Hautea vs. Magallon, L-
20345, November 28, 1964; Northern Motors, Inc. vs. Prince Line, L-13884,
February 29, 1960; American Express Co. vs. Natividad, 46 Phil. 207; Agoncillo
vs. Javier, 38 Phil. 424 and Molina vs. Somes, 24 Phil 49).
At any rate, even if we allow Lepanto to assert its new theory at this very late
stage of the proceedings, this Court cannot sustain the same.
Lepanto contends that the management contract in question (Exhibit C) is one
of agency because: (1) Nielson was to manage and operate the mining
properties and mill on behalf, and for the account, of Lepanto; and (2) Nielson
was authorized to represent Lepanto in entering, on Lepanto's behalf, into
contracts for the hiring of laborers, purchase of supplies, and the sale and
marketing of the ores mined. All these, Lepanto claims, show that Nielson was,
by the terms of the contract, destined to execute juridical acts not on its own
behalf but on behalf of Lepanto under the control of the Board of Directors of
Lepanto "at all times". Hence Lepanto claims that the contract is one of agency.
Lepanto then maintains that an agency is revocable at the will of the principal
(Article 1733 of the Old Civil Code), regardless of any term or period stipulated
in the contract, and it was in pursuance of that right that Lepanto terminated the
contract in 1945 when it took over and assumed exclusive management of the
work previously entrusted to Nielson under the contract. Lepanto finally
maintains that Nielson as an agent is not entitled to damages since the law
gives to the principal the right to terminate the agency at will.
Because of Lepanto's new theory We consider it necessary to determine
the nature of the management contract — whether it is a contract of agency or
a contract of lease of services. Incidentally, we have noted that the lower court,
in the decision appealed from, considered the management contract as a
contract of lease of services.
Article 1709 of the Old Civil Code, defining contract of agency, provides:
By the contract of agency, one person binds himself to render some
service or do something for the account or at the request of another.
Article 1544, defining contract of lease of service, provides:
In a lease of work or services, one of the parties binds himself to make
or construct something or to render a service to the other for a price
certain.
In both agency and lease of services one of the parties binds himself to render
some service to the other party. Agency, however, is distinguished from lease
of work or services in that the basis of agency is representation, while in the
lease of work or services the basis is employment. The lessor of services does
not represent his employer, while the agent represents his principal. Manresa,
in his "Commentarios al Codigo Civil Español" (1931, Tomo IX, pp. 372-373),
points out that the element of representation distinguishes agency from lease
of services, as follows:
Nuestro art. 1.709 como el art. 1.984 del Codigo de Napoleon y cuantos
textos legales citamos en las concordancias, expresan claramente esta
idea de la representacion, "hacer alguna cosa por cuenta o encargo de
otra" dice nuestro Codigo; "poder de hacer alguna cosa para el
mandante o en su nombre" dice el Codigo de Napoleon, y en tales
palabras aparece vivo y luminoso el concepto y la teoria de la
representacion, tan fecunda en ensenanzas, que a su sola luz es como
se explican las diferencias que separan el mandato del arrendamiento
de servicios, de los contratos inominados, del consejo y de la gestion
de negocios.
En efecto, en el arrendamiento de servicios al obligarse para su
ejecucion, se trabaja, en verdad, para el dueno que remunera la labor,
pero ni se le representa ni se obra en su nombre....
On the basis of the interpretation of Article 1709 of the old Civil Code, Article
1868 of the new Civil Code has defined the contract of agency in more explicit
terms, as follows:
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.
There is another obvious distinction between agency and lease of services.
Agency is a preparatory contract, as agency "does not stop with the agency
because the purpose is to enter into other contracts." The most characteristic
feature of an agency relationship is the agent's power to bring about business
relations between his principal and third persons. "The agent is destined to
execute juridical acts (creation, modification or extinction of relations with third
parties). Lease of services contemplate only material (non-juridical) acts."
(Reyes and Puno, "An Outline of Philippine Civil Law," Vol. V, p. 277).
In the light of the interpretations we have mentioned in the foregoing
paragraphs let us now determine the nature of the management contract in
question. Under the contract, Nielson had agreed, for a period of five years,
with the right to renew for a like period, to explore, develop and operate the
mining claims of Lepanto, and to mine, or mine and mill, such pay ore as may
be found therein and to market the metallic products recovered therefrom which
may prove to be marketable, as well as to render for Lepanto other services
specified in the contract. We gather from the contract that the work undertaken
by Nielson was to take complete charge subject at all times to the general
control of the Board of Directors of Lepanto, of the exploration and development
of the mining claims, of the hiring of a sufficient and competent staff and of
sufficient and capable laborers, of the prospecting and development of the
mine, of the erection and operation of the mill, and of the benefication and
marketing of the minerals found on the mining properties; and in carrying out
said obligation Nielson should proceed diligently and in accordance with the
best mining practice. In connection with its work Nielson was to submit reports,
maps, plans and recommendations with respect to the operation and
development of the mining properties, make recommendations and plans on
the erection or enlargement of any existing mill, dispatch mining engineers and
technicians to the mining properties as from time to time may reasonably be
required to investigate and make recommendations without cost or expense to
Lepanto. Nielson was also to "act as purchasing agent of supplies, equipment
and other necessary purchases by Lepanto, provided, however, that no
purchase shall be made without the prior approval of Lepanto; and provided
further, that no commission shall be claimed or retained by Nielson on such
purchase"; and "to submit all requisition for supplies, all constricts and
arrangement with engineers, and staff and all matters requiring the
expenditures of money, present or future, for prior approval by Lepanto; and
also to make contracts subject to the prior approve of Lepanto for the sale and
marketing of the minerals mined from said properties, when said products are
in a suitable condition for marketing."1
It thus appears that the principal and paramount undertaking of Nielson under
the management contract was the operation and development of the mine and
the operation of the mill. All the other undertakings mentioned in the contract
are necessary or incidental to the principal undertaking — these other
undertakings being dependent upon the work on the development of the mine
and the operation of the mill. In the performance of this principal undertaking
Nielson was not in any way executing juridical acts for Lepanto, destined to
create, modify or extinguish business relations between Lepanto and third
persons. In other words, in performing its principal undertaking Nielson was not
acting as an agent of Lepanto, in the sense that the term agent is interpreted
under the law of agency, but as one who was performing material acts for an
employer, for a compensation.
It is true that the management contract provides that Nielson would also act as
purchasing agent of supplies and enter into contracts regarding the sale of
mineral, but the contract also provides that Nielson could not make any
purchase, or sell the minerals, without the prior approval of Lepanto. It is clear,
therefore, that even in these cases Nielson could not execute juridical acts
which would bind Lepanto without first securing the approval of Lepanto.
Nielson, then, was to act only as an intermediary, not as an agent.
Lepanto contends that the management contract in question being one of
agency it had the right to terminate the contract at will pursuant to the provision
of Article 1733 of the old Civil Code. We find, however, a proviso in the
management contract which militates against this stand of Lepanto. Paragraph
XI of the contract provides:
Both parties to this agreement fully recognize that the terms of this
Agreement are made possible only because of the faith or confidence
that the Officials of each company have in the other; therefore, in order
to assure that such confidence and faith shall abide and continue,
NIELSON agrees that LEPANTO may cancel this Agreement at any
time upon ninety (90) days written notice, in the event that NIELSON
for any reason whatsoever, except acts of God, strike and other causes
beyond its control, shall cease to prosecute the operation and
development of the properties herein described, in good faith and in
accordance with approved mining practice.
It is thus seen, from the above-quoted provision of paragraph XI of the
management contract, that Lepanto could not terminate the agreement at will.
Lepanto could terminate or cancel the agreement by giving notice of termination
ninety days in advance only in the event that Nielson should prosecute in bad
faith and not in accordance with approved mining practice the operation and
development of the mining properties of Lepanto. Lepanto could not terminate
the agreement if Nielson should cease to prosecute the operation and
development of the mining properties by reason of acts of God, strike and other
causes beyond the control of Nielson.
The phrase "Both parties to this agreement fully recognize that the terms of this
agreement are made possible only because of the faith and confidence of the
officials of each company have in the other" in paragraph XI of the management
contract does not qualify the relation between Lepanto and Nielson as that of
principal and agent based on trust and confidence, such that the contractual
relation may be terminated by the principal at any time that the principal loses
trust and confidence in the agent. Rather, that phrase simply implies the
circumstance that brought about the execution of the management contract.
Thus, in the annual report for 19362, submitted by Mr. C. A. Dewit, President of
Lepanto, to its stockholders, under date of March 15, 1937, we read the
following:
To the stockholders
xxx xxx xxx
The incorporation of our Company was effected as a result of
negotiations with Messrs. Nielson & Co., Inc., and an offer by these
gentlemen to Messrs. C. I. Cookes and V. L. Lednicky, dated August
11, 1936, reading as follows:
Messrs. Cookes and Lednicky,
Present
Re: Mankayan Copper Mines
GENTLEMEN:
After an examination of your property by our engineers, we have
decided to offer as we hereby offer to underwrite the entire issue
of stock of a corporation to be formed for the purpose of taking
over said properties, said corporation to have an authorized
capital of P1,750,000.00, of which P700,000.00 will be issued
in escrow to the claim-owners in exchange for their claims, and
the balance of P1,050,000.00 we will sell to the public at par or
take ourselves.
The arrangement will be under the following conditions:
1. The subscriptions for cash shall be payable 50% at time of
subscription and the balance subject to the call of the Board of
Directors of the proposed corporation.
2. We shall have an underwriting and brokerage commission of
10% of the P1,050,000.00 to be sold for cash to the public, said
commission to be payable from the first payment of 50% on
each subscription.
3. We will bear the cost of preparing and mailing any prospectus
that may be required, but no such prospectus will be sent out
until the text thereof has been first approved by the Board of
Directors of the proposed corporation.
4. That after the organization of the corporation, all operating
contract be entered into between ourselves and said
corporation, under the terms which the property will be
developed and mined and a mill erected, under our supervision,
our compensation to be P2,000.00 per month until the property
is put on a profitable basis and P2,500.00 per month plus 10%
of the net profits for a period of five years thereafter.
 5. That we shall have the option to renew said operating
contract for an additional period of five years, on the same basis
as the original contract, upon the expiration thereof.
It is understood that the development and mining operations on
said property, and the erection of the mill thereon, and the
expenditures therefor shall be subject to the general control of
the Board of Directors of the proposed corporation, and, in case
you accept this proposition, that a detailed operating contract
will be entered into, covering the relationships between the
parties.
Yours very truly,
(Sgd.) L. R. Nielson
Pursuant to the provisions of paragraph 2 of this offer, Messrs. Nielson
& Co., took subscriptions for One Million Fifty Thousand Pesos
(P1,050,000.00) in shares of our Company and their underwriting and
brokerage commission has been paid. More than fifty per cent of these
subscriptions have been paid to the Company in cash. The claim
owners have transferred their claims to the Corporation, but the
P700,000.00 in stock which they are to receive therefor, is as yet held
in escrow.
Immediately upon the formation of the Corporation Messrs. Nielson &
Co., assumed the Management of the property under the control of the
Board of Directors. A modification in the Management Contract was
made with the consent of all the then stockholders, in virtue of which
the compensation of Messrs. Nielson & Co., was increased to
P2,500.00 per month when mill construction began. The formal
Management Contract was not entered into until January 30, 1937.
xxx xxx xxx
Manila, March 15, 1937
(Sgd.) C. A. DeWitt
President
We can gather from the foregoing statements in the annual report for 1936, and
from the provision of paragraph XI of the Management contract, that the
employment by Lepanto of Nielson to operate and manage its mines was
principally in consideration of the know-how and technical services that Nielson
offered Lepanto. The contract thus entered into pursuant to the offer made by
Nielson and accepted by Lepanto was a "detailed operating contract". It was
not a contract of agency. Nowhere in the record is it shown that Lepanto
considered Nielson as its agent and that Lepanto terminated the management
contract because it had lost its trust and confidence in Nielson.
The contention of Lepanto that it had terminated the management contract in
1945, following the liberation of the mines from Japanese control, because the
relation between it and Nielson was one of agency and as such it could
terminate the agency at will, is, therefore, untenable. On the other hand, it can
be said that, in asserting that it had terminated or cancelled the management
contract in 1945, Lepanto had thereby violated the express terms of the
management contract. The management contract was renewed to last until
January 31, 1947, so that the contract had yet almost two years to go — upon
the liberation of the mines in 1945. There is no showing that Nielson had ceased
to prosecute the operation and development of the mines in good faith and in
accordance with approved mining practice which would warrant the termination
of the contract upon ninety days written notice. In fact there was no such written
notice of termination. It is an admitted fact that Nielson ceased to operate and
develop the mines because of the war — a cause beyond the control of Nielson.
Indeed, if the management contract in question was intended to create a
relationship of principal and agent between Lepanto and Nielson, paragraph XI
of the contract should not have been inserted because, as provided in Article
1733 of the old Civil Code, agency is essentially revocable at the will of the
principal — that means, with or without cause. But precisely said paragraph XI
was inserted in the management contract to provide for the cause for its
revocation. The provision of paragraph XI must be given effect.
In the construction of an instrument where there are several provisions or
particulars, such a construction is, if possible, to be adopted as will give effect
to all,3 and if some stipulation of any contract should admit of several meanings,
it shall be understood as bearing that import which is most adequate to render
it effectual.4
It is Our considered view that by express stipulation of the parties, the
management contract in question is not revocable at the will of Lepanto. We
rule that this management contract is not a contract of agency as defined in
Article 1709 of the old Civil Code, but a contract of lease of services as defined
in Article 1544 of the same Code. This contract can not be unilaterally revoked
by Lepanto.
The first ground of the motion for reconsideration should, therefore, be brushed
aside.
2. In the second, third and fifth grounds of its motion for reconsideration,
Lepanto maintains that this Court erred, in holding that paragraph 11 of the
management contract suspended the period of said contract, in holding that the
agreement was not only suspended but was extended on account of the war,
and in holding that the period of suspension on account of the war lasted from
February, 1942 to June 26, 1948. We are going to discuss these three grounds
together because they are interrelated.
In our decision we have dwelt lengthily on the points that the management
contract was suspended because of the war, and that the period of the contract
was extended for a period equivalent to the time when Nielson was unable to
perform the work of mining and milling because of the adverse effects of the
war on the work of mining and milling.
It is the contention of Lepanto that the happening of those events, and the
effects of those events, simply suspended the performance of the obligations
by either party in the contract, but did not suspend the period of the contract,
much less extended the period of the contract.
We have conscientiously considered the arguments of Lepanto in support of
these three grounds, but We are not persuaded to reconsider the rulings that
We made in Our decision.
We want to say a little more on these points, however. Paragraph II of the
management contract provides as follows:
In the event of inundation, flooding of the mine, typhoon, earthquake or
any other force majeure, war, insurrection, civil commotion, organized
strike, riot, fire, injury to the machinery or other event or cause
reasonably beyond the control of NIELSON and which adversely affects
the work of mining and milling; NIELSON shall report such fact to
LEPANTO and without liability or breach of the terms of this
Agreement,the same shall remain in suspense, wholly or partially
during the terms of such inability. (Emphasis supplied)
A reading of the above-quoted paragraph II cannot but convey the idea that
upon the happening of any of the events enumerated therein, which adversely
affects the work of mining and milling, the agreement is deemed suspended for
as long as Nielson is unable to perform its work of mining and milling because
of the adverse effects of the happening of the event on the work of mining and
milling. During the period when the adverse effects on the work of mining and
milling exist, neither party in the contract would be held liable for non-
compliance of its obligation under the contract. In other words, the operation of
the contract is suspended for as long as the adverse effects of the happening
of any of those events had impeded or obstructed the work of mining and
milling. An analysis of the phraseology of the above-quoted paragraph II of the
management contract readily supports the conclusion that it is the agreement,
or the contract, that is suspended. The phrase "the same" can refer to no other
than the term "Agreement" which immediately precedes it. The "Agreement"
may be wholly or partially suspended, and this situation will depend on whether
the event wholly or partially affected adversely the work of mining and milling.
In the instant case, the war had adversely affected — and wholly at that — the
work of mining and milling. We have clearly stated in Our decision the
circumstances brought about by the war which caused the whole or total
suspension of the agreement or of the management contract.
LEPANTO itself admits that the management contract was suspended. We
quote from the brief of LEPANTO:
Probably, what Nielson meant was, it was prevented by Lepanto to
assume again the management of the mine in 1945, at the precise time
when defendant was at the feverish phase of rehabilitation and although
the contract had already been suspended. (Lepanto's Brief, p. 9).
... it was impossible, as a result of the destruction of the mine, for the
plaintiff to manage and operate the same and because, as provided in
the agreement, the contract was suspended by reason of the war
(Lepanto's Brief, pp. 9-10).
Clause II, by its terms, is clear that the contract is suspended in case
fortuitous event or force majeure, such as war, adversely affects the
work of mining and milling. (Lepanto's Brief, p. 49).
Lepanto is correct when it said that the obligations under the contract were
suspended upon the happening of any of the events enumerated in paragraph
II of the management contract. Indeed, those obligations were suspended
because the contract itself was suspended. When we talk of a contract that has
been suspended we certainly mean that the contract temporarily ceased to be
operative, and the contract becomes operative again upon the happening of a
condition — or when a situation obtains — which warrants the termination of
the suspension of the contract.
In Our decision We pointed out that the agreement in the management contract
would be suspended when two conditions concur, namely: (1) the happening of
the event constituting a force majeure that was reasonably beyond the control
of Nielson, and (2) that the event constituting the force majeure adversely
affected the work of mining and milling. The suspension, therefore, would last
not only while the event constituting the force majeure continued to occur but
also for as long as the adverse effects of the force majeure on the work of
mining and milling had not been eliminated. Under the management contract
the happening alone of the event constituting the force majeure which did not
affect adversely the work of mining and milling would not suspend the period of
the contract. It is only when the two conditions concur that the period of the
agreement is suspended.
It is not denied that because of the war, in February 1942, the mine, the original
mill, the original power plant, the supplies and equipment, and all installations
at the Mankayan mines of Lepanto, were destroyed upon order of the United
States Army, to prevent their utilization by the enemy. It is not denied that for
the duration of the war Nielson could not undertake the work of mining and
milling. When the mines were liberated from the enemy in August, 1945, the
condition of the mines, the mill, the power plant and other installations, was not
the same as in February 1942 when they were ordered destroyed by the US
army. Certainly, upon the liberation of the mines from the enemy, the work of
mining and milling could not be undertaken by Nielson under the same
favorable circumstances that obtained before February 1942. The work of
mining and milling, as undertaken by Nielson in January, 1942, could not be
resumed by Nielson soon after liberation because of the adverse effects of the
war, and this situation continued until June of 1948. Hence, the suspension of
the management contract did not end upon the liberation of the mines in August,
1945. The mines and the mill and the installations, laid waste by the ravages of
war, had to be reconstructed and rehabilitated, and it can be said that it was
only on June 26, 1948 that the adverse effects of the war on the work of mining
and milling had ended, because it was on that date that the operation of the
mines and the mill was resumed. The period of suspension should, therefore,
be reckoned from February 1942 until June 26, 1948, because it was during
this period that the war and the adverse effects of the war on the work of mining
and milling had lasted. The mines and the installations had to be rehabilitated
because of the adverse effects of the war. The work of rehabilitation started
soon after the liberation of the mines in August, 1945 and lasted until June 26,
1948 when, as stated in Lepanto's annual report to its stockholders for the year
1948, "June 28, 1948 marked the official return to operation of this company at
its properties at Mankayan, Mountain Province, Philippines" (Exh. F-1).
Lepanto would argue that if the management contract was suspended at all the
suspension should cease in August of 1945, contending that the effects of the
war should cease upon the liberation of the mines from the enemy. This
contention cannot be sustained, because the period of rehabilitation was still a
period when the physical effects of the war — the destruction of the mines and
of all the mining installations — adversely affected, and made impossible, the
work of mining and milling. Hence, the period of the reconstruction and
rehabilitation of the mines and the installations must be counted as part of the
period of suspension of the contract.
Lepanto claims that it would not be unfair to end the period of suspension upon
the liberation of the mines because soon after the liberation of the mines
Nielson insisted to resume the management work, and that Nielson was under
obligation to reconstruct the mill in the same way that it was under obligation to
construct the mill in 1937. This contention is untenable. It is true that Nielson
insisted to resume its management work after liberation, but this was only for
the purpose of restoring the mines, the mill, and other installations to their
operating and producing condition as of February 1942 when they were ordered
destroyed. It is not shown by any evidence in the record, that Nielson had
agreed, or would have agreed, that the period of suspension of the contract
would end upon the liberation of the mines. This is so because, as found by this
Court, the intention of the parties in the management contract, and as
understood by them, the management contract was suspended for as long as
the adverse effects of the force majeure on the work of mining and milling had
not been removed, and the contract would be extended for as long as it was
suspended. Under the management contract Nielson had the obligation to erect
and operate the mill, but not to erect or reconstruct the mill in case of its
destruction by force majeure.
It is the considered view of this court that it would not be fair to Nielson to
consider the suspension of the contract as terminated upon the liberation of the
mines because then Nielson would be placed in a situation whereby it would
have to suffer the adverse effects of the war on the work of mining and milling.
The evidence shows that as of January 1942 the operation of the mines under
the management of Nielson was already under beneficial conditions, so much
so that dividends were already declared by Lepanto for the years 1939, 1940
and 1941. To make the management contract immediately operative after the
liberation of the mines from the Japanese, at the time when the mines and all
its installations were laid waste as a result of the war, would be to place Nielson
in a situation whereby it would lose all the benefits of what it had accomplished
in placing the Lepanto mines in profitable operation before the outbreak of the
war in December, 1941. The record shows that Nielson started its management
operation way back in 1936, even before the management contract was entered
into. As early as August 1936 Nielson negotiated with Messrs. C. I. Cookes and
V. L. Lednicky for the operation of the Mankayan mines and it was the result of
those negotiations that Lepanto was incorporated; that it was Nielson that
helped to capitalize Lepanto, and that after the formation of the corporation
(Lepanto) Nielson immediately assumed the management of the mining
properties of Lepanto. It was not until January 30, 1937 when the management
contract in question was entered into between Lepanto and Nielson (Exhibit A).
A contract for the management and operation of mines calls for a speculative
and risky venture on the part of the manager-operator. The manager-operator
invests its technical know-how, undertakes back-breaking efforts and
tremendous spade-work, so to say, in the first years of its management and
operation of the mines, in the expectation that the investment and the efforts
employed might be rewarded later with success. This expected success may
never come. This had happened in the very case of the Mankayan mines where,
as recounted by Mr. Lednicky of Lepanto, various persons and entities of
different nationalities, including Lednicky himself, invested all their money and
failed. The manager-operator may not strike sufficient ore in the first, second,
third, or fourth year of the management contract, or he may not strike ore even
until the end of the fifth year. Unless the manager-operator strikes sufficient
quantity of ore he cannot expect profits or reward for his investment and efforts.
In the case of Nielson, its corps of competent engineers, geologists, and
technicians begun working on the Mankayan mines of Lepanto since the latter
part of 1936, and continued their work without success and profit through 1937,
1938, and the earlier part of 1939. It was only in December of 1939 when the
efforts of Nielson started to be rewarded when Lepanto realized profits and the
first dividends were declared. From that time on Nielson could expect profit to
come to it — as in fact Lepanto declared dividends for 1940 and 1941 — if the
development and operation of the mines and the mill would continue
unhampered. The operation, and the expected profits, however, would still be
subject to hazards due to the occurrence of fortuitous events, fires,
earthquakes, strikes, war, etc., constituting force majeure, which would result
in the destruction of the mines and the mill. One of these diverse causes, or
one after the other, may consume the whole period of the contract, and if it
should happen that way the manager-operator would reap no profit to
compensate for the first years of spade-work and investment of efforts and
know-how. Hence, in fairness to the manager-operator, so that he may not be
deprived of the benefits of the work he had accomplished, the force majeure
clause is incorporated as a standard clause in contracts for the management
and operation of mines.
The nature of the contract for the management and operation of mines justifies
the interpretation of the force majeure clause, that a period equal to the period
of suspension due to force majeure should be added to the original term of the
contract by way of an extension. We, therefore, reiterate the ruling in Our
decision that the management contract in the instant case was suspended from
February, 1942 to June 26, 1948, and that from the latter date the contract had
yet five years to go.
3. In the fourth ground of its motion for reconsideration, Lepanto maintains that
this Court erred in reversing the finding of the trial court that Nielson's action
has prescribed, by considering only the first claim and ignoring the
prescriptibility of the other claims.
This ground of the motion for reconsideration has no merit.
In Our decision We stated that the claims of Nielson are based on a written
document, and, as such, the cause of action prescribes in ten years.5 Inasmuch
as there are different claims which accrued on different dates the prescriptive
periods for all the claims are not the same. The claims of Nielson that have
been awarded by this Court are itemized in the dispositive part of the decision.
The first item of the awards in Our decision refers to Nielson's compensation in
the sum of P17,500.00, which is equivalent to 10% of the cash dividends
declared by Lepanto in December, 1941. As we have stated in Our decision,
this claim accrued on December 31, 1941, and the right to commence an action
thereon started on January 1, 1942. We declared that the action on this claim
did not prescribe although the complaint was filed on February 6, 1958 — or
after a lapse of 16 years, 1 month and 5 days — because of the operation of
the moratorium law.
We declared that under the applicable decisions of this Court6 the moratorium
period of 8 years, 2 months and 8 days should be deducted from the period that
had elapsed since the accrual of the cause of action to the date of the filing of
the complaint, so that there is a period of less than 8 years to be reckoned for
the purpose of prescription.
This claim of Nielson is covered by Executive Order No. 32, issued on March
10, 1945, which provides as follows:
Enforcement of payments of all debts and other monetary
obligations payable in the Philippines, except debts and other monetary
obligations entered into in any area after declaration by Presidential
Proclamation that such area has been freed from enemy occupation
and control, is temporarily suspended pending action by the
Commonwealth Government. (41 O.G. 56-57; Emphasis supplied)
Executive Order No. 32 covered all debts and monetary obligation contracted
before the war (or before December 8, 1941) and those contracted subsequent
to December 8, 1941 and during the Japanese occupation. Republic Act No.
342, approved on July 26, 1948, lifted the moratorium provided for in Executive
Order No. 32 on pre-war (or pre-December 8, 1941) debts of debtors who had
not filed war damage claims with the United States War Damage Commission.
In other words, after the effectivity of Republic Act No. 342, the debt moratorium
was limited: (1) to debts and other monetary obligations which were contracted
after December 8, 1941 and during the Japanese occupation, and (2) to those
pre-war (or pre-December 8, 1941) debts and other monetary obligations where
the debtors filed war damage claims. That was the situation up to May 18, 1953
when this Court declared Republic Act No. 342 unconstitutional.7 It has been
held by this Court, however, that from March 10, 1945 when Executive Order
No. 32 was issued, to May 18, 1953 when Republic Act No. 342 was declared
unconstitutional — or a period of 8 years, 2 months and 8 days — the debt
moratorium was in force, and had the effect of suspending the period of
prescription.8
Lepanto is wrong when in its motion for reconsideration it claims that the
moratorium provided for in Executive Order No. 32 was continued by Republic
Act No. 342 "only with respect to debtors of pre-war obligations or those
incurred prior to December 8, 1941," and that "the moratorium
was lifted and terminated with respect to obligations incurred after December
8, 1941."9
This Court has held that Republic Act No. 342 does not apply to debts
contracted during the war and did not lift the moratorium in relations thereto.10 In
the case of Abraham, et al. vs. Intestate Estate of Juan C. Ysmael, et al., L-
16741, Jan. 31, 1962, this Court said:
 Respondents, however, contend that Republic Act No. 342, which took
effect on July 26, 1948, lifted the moratorium on debts contracted during
the Japanese occupation. The court has already held that Republic Act
No. 342 did not lift the moratorium on debts contracted during the war
(Uy vs. Kalaw Katigbak, G.R. No. L-1830, Dec. 31, 1949) but modified
Executive Order No. 32 as to pre-war debts, making the protection
available only to debtors who had war damage claims (Sison v. Mirasol,
G.R. No. L-4711, Oct. 3, 1952).
We therefore reiterate the ruling in Our decision that the claim involved in the
first item awarded to Nielson had not prescribed.
What we have stated herein regarding the non-prescription of the cause of
action of the claim involved in the first item in the award also holds true with
respect to the second item in the award, which refers to Nielson's claim for
management fee of P2,500.00 for January, 1942. Lepanto admits that this
second item, like the first, is a monetary obligation. The right of action of Nielson
regarding this claim accrued on January 31, 1942.
As regards items 3, 4, 5, 6 and 7 in the awards in the decision, the moratorium
law is not applicable. That is the reason why in Our decision We did not discuss
the question of prescription regarding these items. The claims of Nielson
involved in these items are based on the management contract, and Nielson's
cause of action regarding these claims prescribes in ten years. Corollary to Our
ruling that the management contract was suspended from February, 1942 until
June 26, 1948, and that the contract was extended for five years from June 26,
1948, the right of action of Nielson to claim for what is due to it during that period
of extension accrued during the period from June 26, 1948 till the end of the
five-year extension period or until June 26, 1953. And so, even if We reckon
June 26, 1948 as the starting date of the ten-year period in connection with the
prescriptibility of the claims involved in items 3, 4, 5, 6 and 7 of the awards in
the decision, it is obvious that when the complaint was filed on February 6, 1958
the ten-year prescriptive period had not yet lapsed.
In Our decision We have also ruled that the right of action of Nielson against
Lepanto had not prescribed because of the arbitration clause in the
Management contract. We are satisfied that there is evidence that Nielson had
asked for arbitration, and an arbitration committee had been constituted. The
arbitration committee, however, failed to bring about any settlement of the
differences between Nielson and Lepanto. On June 25, 1957 counsel for
Lepanto definitely advised Nielson that they were not entertaining any claim of
Nielson. The complaint in this case was filed on February 6, 1958.
4. In the sixth ground of its motion for reconsideration, Lepanto maintains that
this Court "erred in awarding as damages (a) 10% of the cash dividends
declared and paid in December, 1941; (b) the management fee of P2,500.00
for the month of January 1942; and (c) the full contract price for the extended
period of 60 months, since the damages were never demanded nor proved and,
in any case, not allowable under the general law on damages."
We have stated in Our decision that the original agreement in the management
contract regarding the compensation of Nielson was modified, such that instead
of receiving a monthly compensation of P2,500.00 plus 10% of the net profits
from the operation of the properties for the preceding month,11 Nielson would
receive a compensation of P2,500.00 a month, plus (1) 10% of the dividends
declared and paid, when and as paid, during the period of the contract, and at
the end of each year, (2) 10% of any depletion reserve that may be set up, and
(3) 10% of any amount expended during the year out of surplus earnings for
capital account.
It is shown that in December, 1941, cash dividends amounting to P175,000.00
was declared by Lepanto.12 Nielson, therefore, should receive the equivalent of
10% of this amount, or the sum of P17,500.00. We have found that this amount
was not paid to Nielson.
In its motion for reconsideration, Lepanto inserted a photographic copy of page
127 of its cash disbursement book, allegedly for 1941, in an effort to show that
this amount of P17,500.00 had been paid to Nielson. It appears, however, in
this photographic copy of page 127 of the cash disbursement book that the sum
of P17,500.00 was entered on October 29 as "surplus a/c Nielson & Co. Inc."
The entry does not make any reference to dividends or participation of Nielson
in the profits. On the other hand, in the photographic copy of page 89 of the
1941 cash disbursement book, also attached to the motion for reconsideration,
there is an entry for P17,500.00 on April 23, 1941 which states "Accts. Pay.
Particip. Nielson & Co. Inc." This entry for April 23, 1941 may really be the
participation of Nielson in the profits based on dividends declared in April 1941
as shown in Exhibit L. But in the same Exhibit L it is not stated that any dividend
was declared in October 1941. On the contrary it is stated in Exhibit L that
dividends were declared in December 1941. We cannot entertain this piece of
evidence for several reasons: (1) because this evidence was not presented
during the trial in the court below; (2) there is no showing that this piece of
evidence is newly discovered and that Lepanto was not in possession of said
evidence when this case was being tried in the court below; and (3) according
to Exhibit L cash dividends of P175,000.00 were declared in December, 1941,
and so the sum of P17,500.00 which appears to have been paid to Nielson in
October 1941 could not be payment of the equivalent of 10% of the cash
dividends that were later declared in December, 1941.
As regards the management fee of Nielson corresponding to January, 1942, in
the sum of P2,500.00, We have also found that Nielson is entitled to be paid
this amount, and that this amount was not paid by Lepanto to Nielson. Whereas,
Lepanto was able to prove that it had paid the management fees of Nielson for
November and December, 1941,13 it was not able to present any evidence to
show that the management fee of P2,500.00 for January, 1942 had been paid.
It having been declared in Our decision, as well as in this resolution, that the
management contract had been extended for 5 years, or sixty months, from
June 27, 1948 to June 26, 1953, and that the cause of action of Nielson to claim
for its compensation during that period of extension had not prescribed, it
follows that Nielson should be awarded the management fees during the whole
period of extension, plus the 10% of the value of the dividends declared during
the said period of extension, the 10% of the depletion reserve that was set up,
and the 10% of any amount expended out of surplus earnings for capital
account.
5. In the seventh ground of its motion for reconsideration, Lepanto maintains
that this Court erred in ordering Lepanto to issue and deliver to Nielson shares
of stock together with fruits thereof.
In Our decision, We declared that pursuant to the modified agreement
regarding the compensation of Nielson which provides, among others, that
Nielson would receive 10% of any dividends declared and paid, when and as
paid, Nielson should be paid 10% of the stock dividends declared by Lepanto
during the period of extension of the contract.
It is not denied that on November 28, 1949, Lepanto declared stock dividends
worth P1,000,000.00; and on August 22, 1950, it declared stock dividends
worth P2,000,000.00). In other words, during the period of extension Lepanto
had declared stock dividends worth P3,000,000.00. We held in Our decision
that Nielson is entitled to receive l0% of the stock dividends declared, or shares
of stock worth P300,000.00 at the par value of P0.10 per share. We ordered
Lepanto to issue and deliver to Nielson those shares of stocks as well as all the
fruits or dividends that accrued to said shares.
In its motion for reconsideration, Lepanto contends that the payment to Nielson
of stock dividends as compensation for its services under the management
contract is a violation of the Corporation Law, and that it was not, and it could
not be, the intention of Lepanto and Nielson — as contracting parties — that
the services of Nielson should be paid in shares of stock taken out of stock
dividends declared by Lepanto. We have assiduously considered the
arguments adduced by Lepanto in support of its contention, as well as the
answer of Nielson in this connection, and We have arrived at the conclusion
that there is merit in the contention of Lepanto.
Section 16 of the Corporation Law, in part, provides as follows:
No corporation organized under this Act shall create or issue bills, notes
or other evidence of debt, for circulation as money, and no corporation
shall issue stock or bonds except in exchange for actual cash paid to
the corporation or for: (1) property actually received by it at a fair
valuation equal to the par or issued value of the stock or bonds so
issued; and in case of disagreement as to their value, the same shall
be presumed to be the assessed value or the value appearing in
invoices or other commercial documents, as the case may be; and the
burden or proof that the real present value of the property is greater
than the assessed value or value appearing in invoices or other
commercial documents, as the case may be, shall be upon the
corporation, or for (2) profits earned by it but not distributed among its
stockholders or members; Provided, however, That no stock or bond
dividend shall be issued without the approval of stockholders
representing not less than two-thirds of all stock then outstanding and
entitled to vote at a general meeting of the corporation or at a special
meeting duly called for the purpose.
xxx xxx xxx
No corporation shall make or declare any dividend except from the
surplus profits arising from its business, or divide or distribute its capital
stock or property other than actual profits among its members or
stockholders until after the payment of its debts and the termination of
its existence by limitation or lawful dissolution: Provided, That banking,
savings and loan, and trust corporations may receive deposits and
issue certificates of deposit, checks, drafts, and bills of exchange, and
the like in the transaction of the ordinary business of banking, savings
and loan, and trust corporations. (As amended by Act No. 2792, and
Act No. 3518; Emphasis supplied.)
From the above-quoted provision of Section 16 of the Corporation Law, the
consideration for which shares of stock may be issued are: (1) cash; (2)
property; and (3) undistributed profits. Shares of stock are given the special
name "stock dividends" only if they are issued in lieu of undistributed profits. If
shares of stocks are issued in exchange of cash or property then those shares
do not fall under the category of "stock dividends". A corporation may legally
issue shares of stock in consideration of services rendered to it by a person not
a stockholder, or in payment of its indebtedness. A share of stock issued to pay
for services rendered is equivalent to a stock issued in exchange of property,
because services is equivalent to property.14 Likewise a share of stock issued
in payment of indebtedness is equivalent to issuing a stock in exchange for
cash. But a share of stock thus issued should be part of the original capital stock
of the corporation upon its organization, or part of the stocks issued when the
increase of the capitalization of a corporation is properly authorized. In other
words, it is the shares of stock that are originally issued by the corporation and
forming part of the capital that can be exchanged for cash or services rendered,
or property; that is, if the corporation has original shares of stock unsold or
unsubscribed, either coming from the original capitalization or from the
increased capitalization. Those shares of stock may be issued to a person who
is not a stockholder, or to a person already a stockholder in exchange for
services rendered or for cash or property. But a share of stock coming from
stock dividends declared cannot be issued to one who is not a stockholder of a
corporation.
A "stock dividend" is any dividend payable in shares of stock of the corporation
declaring or authorizing such dividend. It is, what the term itself implies, a
distribution of the shares of stock of the corporation among the stockholders as
dividends. A stock dividend of a corporation is a dividend paid in shares of stock
instead of cash, and is properly payable only out of surplus profits.15 So, a stock
dividend is actually two things: (1) a dividend, and (2) the enforced use of the
dividend money to purchase additional shares of stock at par.16 When a
corporation issues stock dividends, it shows that the corporation's accumulated
profits have been capitalized instead of distributed to the stockholders or
retained as surplus available for distribution, in money or kind, should
opportunity offer. Far from being a realization of profits for the stockholder, it
tends rather to postpone said realization, in that the fund represented by the
new stock has been transferred from surplus to assets and no longer available
for actual distribution.17 Thus, it is apparent that stock dividends are issued only
to stockholders. This is so because only stockholders are entitled to dividends.
They are the only ones who have a right to a proportional share in that part of
the surplus which is declared as dividends. A stock dividend really adds nothing
to the interest of the stockholder; the proportional interest of each stockholder
remains the same.18If a stockholder is deprived of his stock dividends - and this
happens if the shares of stock forming part of the stock dividends are issued to
a non-stockholder — then the proportion of the stockholder's interest changes
radically. Stock dividends are civil fruits of the original investment, and to the
owners of the shares belong the civil fruits.19
The term "dividend" both in the technical sense and its ordinary acceptation, is
that part or portion of the profits of the enterprise which the corporation, by its
governing agents, sets apart for ratable division among the holders of the
capital stock. It means the fund actually set aside, and declared by the directors
of the corporation as dividends and duly ordered by the director, or by the
stockholders at a corporate meeting, to be divided or distributed among the
stockholders according to their respective interests.20
It is Our considered view, therefore, that under Section 16 of the Corporation
Law stock dividends can not be issued to a person who is not a stockholder in
payment of services rendered. And so, in the case at bar Nielson can not be
paid in shares of stock which form part of the stock dividends of Lepanto for
services it rendered under the management contract. We sustain the contention
of Lepanto that the understanding between Lepanto and Nielson was simply to
make the cash value of the stock dividends declared as the basis for
determining the amount of compensation that should be paid to Nielson, in the
proportion of 10% of the cash value of the stock dividends declared. And this
conclusion of Ours finds support in the record.
We had adverted to in Our decision that in 1940 there was some dispute
between Lepanto and Nielson regarding the application and interpretation of
certain provisions of the original contract particularly with regard to the 10%
participation of Nielson in the net profits, so that some adjustments had to be
made. In the minutes of the meeting of the Board of Directors of Lepanto on
August 21, 1940, We read the following:
The Chairman stated that he believed that it would be better to tie the
computation of the 10% participation of Nielson & Company, Inc. to the
dividend, because Nielson will then be able to definitely compute its net
participation by the amount of the dividends declared. In addition to the
dividend, we have been setting up a depletion reserve and it does not
seem fair to burden the 10% participation of Nielson with the depletion
reserve, as the depletion reserve should not be considered as an
operating expense. After a prolonged discussion, upon motion duly
made and seconded, it was —
RESOLVED, That the President, be, and he hereby is, authorized to
enter into an agreement with Nielson & Company, Inc., modifying
Paragraph V of management contract of January 30, 1937, effective
January 1, 1940, in such a way that Nielson & Company, Inc. shall
receive 10% of any dividends declared and paid, when and as paid
during the period of the contract and at the end of each year, 10% of
any depletion reserve that may be set up and 10% of any amount
expended during the year out of surplus earnings for capital account.
(Emphasis supplied.)
From the sentence, "The Chairman stated that he believed that it would be
better to tie the computation of the 10% participation of Nielson & Company,
Inc., to the dividend, because Nielson will then be able to definitely compute its
net participation by the amount of the dividends declared" the idea is conveyed
that the intention of Lepanto, as expressed by its Chairman C. A. DeWitt, was
to make the value of the dividends declared — whether the dividends were in
cash or in stock — as the basis for determining the amount of compensation
that should be paid to Nielson, in the proportion of 10% of the cash value of the
dividends so declared. It does not mean, however, that the compensation of
Nielson would be taken from the amount actually declared as cash dividend to
be distributed to the stockholder, nor from the shares of stocks to be issued to
the stockholders as stock dividends, but from the other assets or funds of the
corporation which are not burdened by the dividends thus declared. In other
words, if, for example, cash dividends of P300,000.00 are declared, Nielson
would be entitled to a compensation of P30,000.00, but this P30,000.00 should
not be taken from the P300,000.00 to be distributed as cash dividends to the
stockholders but from some other funds or assets of the corporation which are
not included in the amount to answer for the cash dividends thus declared. This
is so because if the P30,000.00 would be taken out from the P300,000.00
declared as cash dividends, then the stockholders would not be getting
P300,000.00 as dividends but only P270,000.00. There would be a dilution of
the dividend that corresponds to each share of stock held by the stockholders.
Similarly, if there were stock dividends worth one million pesos that were
declared, which means an issuance of ten million shares at the par value of ten
centavos per share, it does not mean that Nielson would be given 100,000
shares. It only means that Nielson should be given the equivalent of 10% of the
aggregate cash value of those shares issued as stock dividends. That this was
the understanding of Nielson itself is borne out by the fact that in its appeal brief
Nielson urged that it should be paid "P300,000.00 being 10% of the
P3,000,000.00 stock dividends declared on November 28, 1949 and August 20,
1950...."21
We, therefore, reconsider that part of Our decision which declares that Nielson
is entitled to shares of stock worth P300,000.00 based on the stock dividends
declared on November 28, 1949 and on August 20, 1950, together with all the
fruits accruing thereto. Instead, We declare that Nielson is entitled to payment
by Lepanto of P300,000.00 in cash, which is equivalent to 10% of the money
value of the stock dividends worth P3,000,000.00 which were declared on
November 28, 1949 and on August 20, 1950, with interest thereon at the rate
of 6% from February 6, 1958.
6. In the eighth ground of its motion for reconsideration Lepanto maintains that
this Court erred in awarding to Nielson an undetermined amount of shares of
stock and/or cash, which award can not be ascertained and executed without
further litigation.
In view of Our ruling in this resolution that Nielson is not entitled to receive
shares of stock as stock dividends in payment of its compensation under the
management contract, We do not consider it necessary to discuss this ground
of the motion for reconsideration. The awards in the present case are all
reduced to specific sums of money.
7. In the ninth ground of its motion for reconsideration Lepanto maintains that
this Court erred in rendering judgment or attorney's fees.
The matter of the award of attorney's fees is within the sound discretion of this
Court. In Our decision We have stated the reason why the award of P50,000.00
for attorney's fees is considered by this Court as reasonable.
Accordingly, We resolve to modify the decision that We rendered on December
17, 1966, in the sense that instead of awarding Nielson shares of stock worth
P300,000.00 at the par value of ten centavos (P0.10) per share based on the
stock dividends declared by Lepanto on November 28, 1949 and August 20,
1950, together with their fruits, Nielson should be awarded the sum of
P300,000.00 which is an amount equivalent to 10% of the cash value of the
stock dividends thus declared, as part of the compensation due Nielson under
the management contract. The dispositive portion of the decision should,
therefore, be amended, to read as follows:
IN VIEW OF THE FOREGOING CONSIDERATIONS, We hereby reverse the
decision of the court a quo and enter in lieu thereof another, ordering the
appellee Lepanto to pay the appellant Nielson the different amounts as
specified hereinbelow:
(1) Seventeen thousand five hundred pesos (P17,500.00), equivalent to 10%
of the cash dividends of December, 1941, with legal interest thereon from the
date of the filing of the complaint;
(2) Two thousand five hundred pesos (P2,500.00) as management fee for
January 1942, with legal interest thereon from the date of the filing of the
complaint;
(3) One hundred fifty thousand pesos (P150,000.00), representing
management fees for the sixty-month period of extension of the management
contract, with legal interest thereon from the date of the filing of the complaint;
(4) One million four hundred thousand pesos (P1,400,000.00), equivalent to
10% of the cash dividends declared during the period of extension of the
management contract, with legal interest thereon from the date of the filing of
the complaint;
(5) Three hundred thousand pesos (P300,000.00), equivalent to 10% of the
cash value of the stock dividends declared on November 28, 1949 and August
20, 1950, with legal interest thereon from the date of the filing of the complaint;
(6) Fifty three thousand nine hundred twenty eight pesos and eighty eight
centavos (P53,928.88), equivalent to 10% of the depletion reserve set up during
the period of extension, with legal interest thereon from the date of the filing of
the complaint;
(7) Six hundred ninety four thousand three hundred sixty four pesos and
seventy six centavos (P694,364.76), equivalent to 10% of the expenses for
capital account during the period of extension, with legal interest thereon from
the date of the filing of the complaint;
(8) Fifty thousand pesos (P50,000.00) as attorney's fees; and
(9) The costs.
It is so ordered.
G.R. No. 143978 December 3, 2002
MANUEL B. TAN, GREGG M. TECSON and ALEXANDER
SALDAÑA, petitioners,
vs.
EDUARDO R. GULLAS and NORMA S. GULLAS, respondents.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review seeking to set aside the decision1 of the Court of
Appeals2 in CA-G.R. CV No. 46539, which reversed and set aside the
decision3 of the Regional Trial Court of Cebu City, Branch 22 in Civil Case No.
CEB-12740.
The records show that private respondents, Spouses Eduardo R. Gullas and
Norma S. Gullas, were the registered owners of a parcel of land in the
Municipality of Minglanilla, Province of Cebu, measuring 104,114 sq. m., with
Transfer Certificate of Title No. 31465.4 On June 29, 1992, they executed a
special power of attorney5 authorizing petitioners Manuel B. Tan, a licensed real
estate broker,6 and his associates Gregg M. Tecson and Alexander Saldaña, to
negotiate for the sale of the land at Five Hundred Fifty Pesos (P550.00) per
square meter, at a commission of 3% of the gross price. The power of attorney
was non-exclusive and effective for one month from June 29, 1992.7
On the same date, petitioner Tan contacted Engineer Edsel Ledesma,
construction manager of the Sisters of Mary of Banneaux, Inc. (hereafter,
Sisters of Mary), a religious organization interested in acquiring a property in
the Minglanilla area.
In the morning of July 1, 1992, petitioner Tan visited the property with Engineer
Ledesma. Thereafter, the two men accompanied Sisters Michaela Kim and
Azucena Gaviola, representing the Sisters of Mary, to see private respondent
Eduardo Gullas in his office at the University of Visayas. The Sisters, who had
already seen and inspected the land, found the same suitable for their purpose
and expressed their desire to buy it.8 However, they requested that the selling
price be reduced to Five Hundred Thirty Pesos (P530.00) per square meter
instead of Five Hundred Fifty Pesos (P550.00) per square meter. Private
respondent Eduardo Gullas referred the prospective buyers to his wife.
It was the first time that the buyers came to know that private respondent
Eduardo Gullas was the owner of the property. On July 3, 1992, private
respondents agreed to sell the property to the Sisters of Mary, and
subsequently executed a special power of attorney9 in favor of Eufemia Cañete,
giving her the special authority to sell, transfer and convey the land at a fixed
price of Two Hundred Pesos (P200.00) per square meter.
On July 17, 1992, attorney-in-fact Eufemia Cañete executed a deed of sale in
favor of the Sisters of Mary for the price of Twenty Million Eight Hundred Twenty
Two Thousand Eight Hundred Pesos (P20,822.800.00), or at the rate of Two
Hundred Pesos (P200.00) per square meter.10 The buyers subsequently paid
the corresponding taxes.11Thereafter, the Register of Deeds of Cebu Province
issued TCT No. 75981 in the name of the Sisters of Mary of Banneaux, Inc.12
Earlier, on July 3, 1992, in the afternoon, petitioners went to see private
respondent Eduardo Gullas to claim their commission, but the latter told them
that he and his wife have already agreed to sell the property to the Sisters of
Mary. Private respondents refused to pay the broker’s fee and alleged that
another group of agents was responsible for the sale of land to the Sisters of
Mary.
On August 28, 1992, petitioners filed a complaint13 against the defendants for
recovery of their broker’s fee in the sum of One Million Six Hundred Fifty Five
Thousand Four Hundred Twelve and 60/100 Pesos (P1,655,412.60), as well as
moral and exemplary damages and attorney’s fees. They alleged that they were
the efficient procuring cause in bringing about the sale of the property to the
Sisters of Mary, but that their efforts in consummating the sale were frustrated
by the private respondents who, in evident bad faith, malice and in order to
evade payment of broker’s fee, dealt directly with the buyer whom petitioners
introduced to them. They further pointed out that the deed of sale was
undervalued obviously to evade payment of the correct amount of capital gains
tax, documentary stamps and other internal revenue taxes.
In their answer, private respondents countered that, contrary to petitioners’
claim, they were not the efficient procuring cause in bringing about the
consummation of the sale because another broker, Roberto Pacana, introduced
the property to the Sisters of Mary ahead of the petitioners.14 Private
respondents maintained that when petitioners introduced the buyers to private
respondent Eduardo Gullas, the former were already decided in buying the
property through Pacana, who had been paid his commission. Private
respondent Eduardo Gullas admitted that petitioners were in his office on July
3, 1992, but only to ask for the reimbursement of their cellular phone expenses.
In their reply and answer to counterclaim,15 petitioners alleged that although the
Sisters of Mary knew that the subject land was for sale through various agents,
it was petitioners who introduced them to the owners thereof.
After trial, the lower court rendered judgment in favor of petitioners, the
dispositive portion of which reads:
WHEREFORE, UPON THE AEGIS OF THE FOREGOING, judgment is hereby
rendered for the plaintiffs and against the defendants. By virtue hereof,
defendants Eduardo and Norma Gullas are hereby ordered to pay jointly and
severally plaintiffs Manuel Tan, Gregg Tecson and Alexander Saldaña;
1) The sum of SIX HUNDRED TWENTY FOUR THOUSAND AND SIX
HUNDRED EIGHTY FOUR PESOS (P624,684.00) as broker’s fee with
legal interest at the rate of 6% per annum from the date of filing of the
complaint; and
2) The sum of FIFTY THOUSAND PESOS (P50,000.00) as attorney’s
fees and costs of litigation.
For lack of merit, defendants’ counterclaim is hereby DISMISSED.
IT IS SO ORDERED.16
Both parties appealed to the Court of Appeals. Private respondents argued that
the lower court committed errors of fact and law in holding that it was petitioners’
efforts which brought about the sale of the property and disregarding the
previous negotiations between private respondent Norma Gullas and the
Sisters of Mary and Pacana. They further alleged that the lower court had no
basis for awarding broker’s fee, attorney’s fees and the costs of litigation to
petitioners.17
Petitioners, for their part, assailed the lower court’s basis of the award of
broker’s fee given to them. They contended that their 3% commission for the
sale of the property should be based on the price of P55,180.420.00, or at
P530.00 per square meter as agreed upon and not on the alleged actual selling
price of P20,822,800.00 or at P200.00 per square meter, since the actual
purchase price was undervalued for taxation purposes. They also claimed that
the lower court erred in not awarding moral and exemplary damages in spite of
its finding of bad faith; and that the amount of P50,000.00 as attorney’s fees
awarded to them is insufficient. Finally, petitioners argued that the legal interest
imposed on their claim should have been pegged at 12% per annum instead of
the 6% fixed by the court.18
The Court of Appeals reversed and set aside the lower court’s decision and
rendered another judgment dismissing the complaint.19
Hence, this appeal.
Petitioners raise following issues for resolution:
I.
THE APPELLATE COURT GROSSLY ERRED IN THEIR FINDING THAT THE
PETITIONERS ARE NOT ENTITLED TO THE BROKERAGE COMMISSION.
II.
IN DISMISSING THE COMPLAINT, THE APPELLATE COURT HAS
DEPRIVED THE PETITIONERS OF MORAL AND EXEMPLARY DAMAGES,
ATTORNEYS’ FEES AND INTEREST IN THE FOREBEARANCE OF MONEY.
The petition is impressed with merit.
The records show that petitioner Manuel B. Tan is a licensed real estate broker,
and petitioners Gregg M. Tecson and Alexander Saldaña are his associates. In
Schmid and Oberly v. RJL Martinez Fishing Corporation,20 we defined a
"broker" as "one who is engaged, for others, on a commission, negotiating
contracts relative to property with the custody of which he has no concern; the
negotiator between other parties, never acting in his own name but in the name
of those who employed him. x x x a broker is one whose occupation is to bring
the parties together, in matters of trade, commerce or navigation." (Emphasis
supplied)
During the trial, it was established that petitioners, as brokers, were authorized
by private respondents to negotiate for the sale of their land within a period of
one month reckoned from June 29, 1992. The authority given to petitioners was
non-exclusive, which meant that private respondents were not precluded from
granting the same authority to other agents with respect to the sale of the same
property. In fact, private respondent authorized another agent in the person of
Mr. Bobby Pacana to sell the same property. There was nothing illegal or amiss
in this arrangement, per se, considering the non-exclusivity of petitioners’
authority to sell. The problem arose when it eventually turned out that these
agents were entertaining one and the same buyer, the Sisters of Mary.
As correctly observed by the trial court, the argument of the private respondents
that Pacana was the one entitled to the stipulated 3% commission is untenable,
considering that it was the petitioners who were responsible for the introduction
of the representatives of the Sisters of Mary to private respondent Eduardo
Gullas. Private respondents, however, maintain that they were not aware that
their respective agents were negotiating to sell said property to the same buyer.
Private respondents failed to prove their contention that Pacana began
negotiations with private respondent Norma Gullas way ahead of petitioners.
They failed to present witnesses to substantiate this claim. It is curious that Mrs.
Gullas herself was not presented in court to testify about her dealings with
Pacana. Neither was Atty. Nachura who was supposedly the one actively
negotiating on behalf of the Sisters of Mary, ever presented in court.
Private respondents’ contention that Pacana was the one responsible for the
sale of the land is also unsubstantiated. There was nothing on record which
established the existence of a previous negotiation among Pacana, Mrs. Gullas
and the Sisters of Mary. The only piece of evidence that the private respondents
were able to present is an undated and unnotarized Special Power of Attorney
in favor of Pacana. While the lack of a date and an oath do not necessarily
render said Special Power of Attorney invalid, it should be borne in mind that
the contract involves a considerable amount of money. Hence, it is inconsistent
with sound business practice that the authority to sell is contained in an undated
and unnotarized Special Power of Attorney. Petitioners, on the other hand, were
given the written authority to sell by the private respondents.
The trial court’s evaluation of the witnesses is accorded great respect and
finality in the absence of any indication that it overlooked certain facts or
circumstances of weight and influence, which if reconsidered, would alter the
result of the case.21
Indeed, it is readily apparent that private respondents are trying to evade
payment of the commission which rightfully belong to petitioners as brokers with
respect to the sale. There was no dispute as to the role that petitioners played
in the transaction. At the very least, petitioners set the sale in motion. They were
not able to participate in its consummation only because they were prevented
from doing so by the acts of the private respondents. In the case of Alfred Hahn
v. Court of Appeals and Bayerische Motoren Werke Aktiengesellschaft
(BMW)22 we ruled that, "An agent receives a commission upon the successful
conclusion of a sale. On the other hand, a broker earns his pay merely by
bringing the buyer and the seller together, even if no sale is eventually made."
(Underscoring ours). Clearly, therefore, petitioners, as brokers, should be
entitled to the commission whether or not the sale of the property subject matter
of the contract was concluded through their efforts.
Having ruled that petitioners are entitled to the brokers’ commission, we should
now resolve how much commission are petitioners entitled to?
Following the stipulation in the Special Power of Attorney, petitioners are
entitled to 3% commission for the sale of the land in question. Petitioners
maintain that their commission should be based on the price at which the land
was offered for sale, i.e., P530.00 per square meter. However, the actual
purchase price for which the land was sold was only P200.00 per square meter.
Therefore, equity considerations dictate that petitioners’ commission must be
based on this price. To rule otherwise would constitute unjust enrichment on
the part of petitioners as brokers.
In the matter of attorney’s fees and expenses of litigation, we affirm the amount
of P50,000.00 awarded by the trial court to the petitioners.
WHEREFORE, in view of the foregoing, the petition is GRANTED. The May 29,
2000 decision of the Court of Appeals is REVERSED and SET ASIDE. The
decision of the Regional Trial Court of Cebu City, Branch 22, in Civil Case No.
CEB-12740 ordering private respondents Eduardo Gullas and Norma S. Gullas
to pay jointly and severally petitioners Manuel B. Tan, Gregg Tecson and
Alexander Saldaña the sum of Six Hundred Twenty-Four Thousand and Six
Hundred Eighty-Four Pesos (P624,684.00) as broker’s fee with legal interest at
the rate of 6% per annum from the filing of the complaint; and the sum of Fifty
Thousand Pesos (P50,000.00) as attorney’s fees and costs of litigation, is
REINSTATED.
SO ORDERED.
G.R. No. 188288 January 16, 2012
SPOUSES FERNANDO and LOURDES VILORIA, Petitioners,
vs.
CONTINENTAL AIRLINES, INC.,
DECISION
REYES, J.:
This is a petition for review under Rule 45 of the Rules of Court from the January
30, 2009 Decision1 of the Special Thirteenth Division of the Court of Appeals
(CA) in CA-G.R. CV No. 88586 entitled "Spouses Fernando and Lourdes Viloria
v. Continental Airlines, Inc.," the dispositive portion of which states:
WHEREFORE, the Decision of the Regional Trial Court, Branch 74, dated 03
April 2006, awarding US$800.00 or its peso equivalent at the time of payment,
plus legal rate of interest from 21 July 1997 until fully paid, [₱]100,000.00 as
moral damages, [₱]50,000.00 as exemplary damages, [₱]40,000.00 as
attorney’s fees and costs of suit to plaintiffs-appellees is
hereby REVERSED and SET ASIDE.
Defendant-appellant’s counterclaim is DENIED.
Costs against plaintiffs-appellees.
SO ORDERED.2
On April 3, 2006, the Regional Trial Court of Antipolo City, Branch 74 (RTC)
rendered a Decision, giving due course to the complaint for sum of money and
damages filed by petitioners Fernando Viloria (Fernando) and Lourdes Viloria
(Lourdes), collectively called Spouses Viloria, against respondent Continental
Airlines, Inc. (CAI). As culled from the records, below are the facts giving rise
to such complaint.
On or about July 21, 1997 and while in the United States, Fernando purchased
for himself and his wife, Lourdes, two (2) round trip airline tickets from San
Diego, California to Newark, New Jersey on board Continental Airlines.
Fernando purchased the tickets at US$400.00 each from a travel agency called
"Holiday Travel" and was attended to by a certain Margaret Mager (Mager).
According to Spouses Viloria, Fernando agreed to buy the said tickets after
Mager informed them that there were no available seats at Amtrak, an intercity
passenger train service provider in the United States. Per the tickets, Spouses
Viloria were scheduled to leave for Newark on August 13, 1997 and return to
San Diego on August 21, 1997.
Subsequently, Fernando requested Mager to reschedule their flight to Newark
to an earlier date or August 6, 1997. Mager informed him that flights to Newark
via Continental Airlines were already fully booked and offered the alternative of
a round trip flight via Frontier Air. Since flying with Frontier Air called for a higher
fare of US$526.00 per passenger and would mean traveling by night, Fernando
opted to request for a refund. Mager, however, denied his request as the subject
tickets are non-refundable and the only option that Continental Airlines can offer
is the re-issuance of new tickets within one (1) year from the date the subject
tickets were issued. Fernando decided to reserve two (2) seats with Frontier
Air.
As he was having second thoughts on traveling via Frontier Air, Fernando went
to the Greyhound Station where he saw an Amtrak station nearby. Fernando
made inquiries and was told that there are seats available and he can travel on
Amtrak anytime and any day he pleased. Fernando then purchased two (2)
tickets for Washington, D.C.
From Amtrak, Fernando went to Holiday Travel and confronted Mager with the
Amtrak tickets, telling her that she had misled them into buying the Continental
Airlines tickets by misrepresenting that Amtrak was already fully booked.
Fernando reiterated his demand for a refund but Mager was firm in her position
that the subject tickets are non-refundable.
Upon returning to the Philippines, Fernando sent a letter to CAI on February
11, 1998, demanding a refund and alleging that Mager had deluded them into
purchasing the subject tickets.3
In a letter dated February 24, 1998, Continental Micronesia informed Fernando
that his complaint had been referred to the Customer Refund Services of
Continental Airlines at Houston, Texas.4
In a letter dated March 24, 1998, Continental Micronesia denied Fernando’s
request for a refund and advised him that he may take the subject tickets to any
Continental ticketing location for the re-issuance of new tickets within two (2)
years from the date they were issued. Continental Micronesia informed
Fernando that the subject tickets may be used as a form of payment for the
purchase of another Continental ticket, albeit with a re-issuance fee.5
On June 17, 1999, Fernando went to Continental’s ticketing office at Ayala
Avenue, Makati City to have the subject tickets replaced by a single round trip
ticket to Los Angeles, California under his name. Therein, Fernando was
informed that Lourdes’ ticket was non-transferable, thus, cannot be used for the
purchase of a ticket in his favor. He was also informed that a round trip ticket to
Los Angeles was US$1,867.40 so he would have to pay what will not be
covered by the value of his San Diego to Newark round trip ticket.
In a letter dated June 21, 1999, Fernando demanded for the refund of the
subject tickets as he no longer wished to have them replaced. In addition to the
dubious circumstances under which the subject tickets were issued, Fernando
claimed that CAI’s act of charging him with US$1,867.40 for a round trip ticket
to Los Angeles, which other airlines priced at US$856.00, and refusal to allow
him to use Lourdes’ ticket, breached its undertaking under its March 24, 1998
letter.6
On September 8, 2000, Spouses Viloria filed a complaint against CAI, praying
that CAI be ordered to refund the money they used in the purchase of the
subject tickets with legal interest from July 21, 1997 and to pay ₱1,000,000.00
as moral damages, ₱500,000.00 as exemplary damages and ₱250,000.00 as
attorney’s fees.7
CAI interposed the following defenses: (a) Spouses Viloria have no right to ask
for a refund as the subject tickets are non-refundable; (b) Fernando cannot
insist on using the ticket in Lourdes’ name for the purchase of a round trip ticket
to Los Angeles since the same is non-transferable; (c) as Mager is not a CAI
employee, CAI is not liable for any of her acts; (d) CAI, its employees and
agents did not act in bad faith as to entitle Spouses Viloria to moral and
exemplary damages and attorney’s fees. CAI also invoked the following clause
printed on the subject tickets:
3. To the extent not in conflict with the foregoing carriage and other services
performed by each carrier are subject to: (i) provisions contained in this ticket,
(ii) applicable tariffs, (iii) carrier’s conditions of carriage and related regulations
which are made part hereof (and are available on application at the offices of
carrier), except in transportation between a place in the United States or
Canada and any place outside thereof to which tariffs in force in those countries
apply.8
According to CAI, one of the conditions attached to their contract of carriage is
the non-transferability and non-refundability of the subject tickets.
The RTC’s Ruling
Following a full-blown trial, the RTC rendered its April 3, 2006 Decision, holding
that Spouses Viloria are entitled to a refund in view of Mager’s
misrepresentation in obtaining their consent in the purchase of the subject
tickets.9 The relevant portion of the April 3, 2006 Decision states:
Continental Airlines agent Ms. Mager was in bad faith when she was less candid
and diligent in presenting to plaintiffs spouses their booking options. Plaintiff
Fernando clearly wanted to travel via AMTRAK, but defendant’s agent misled
him into purchasing Continental Airlines tickets instead on the fraudulent
misrepresentation that Amtrak was fully booked. In fact, defendant Airline did
not specifically denied (sic) this allegation.
Plainly, plaintiffs spouses, particularly plaintiff Fernando, were tricked into
buying Continental Airline tickets on Ms. Mager’s misleading
misrepresentations. Continental Airlines agent Ms. Mager further relied on and
exploited plaintiff Fernando’s need and told him that they must book a flight
immediately or risk not being able to travel at all on the couple’s preferred date.
Unfortunately, plaintiffs spouses fell prey to the airline’s and its agent’s
unethical tactics for baiting trusting customers."10
Citing Articles 1868 and 1869 of the Civil Code, the RTC ruled that Mager is
CAI’s agent, hence, bound by her bad faith and misrepresentation. As far as
the RTC is concerned, there is no issue as to whether Mager was CAI’s agent
in view of CAI’s implied recognition of her status as such in its March 24, 1998
letter.
The act of a travel agent or agency being involved here, the following are the
pertinent New Civil Code provisions on agency:
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.
Art. 1869. Agency may be express, or implied from the acts of the principal,
from his silence or lack of action, or his failure to repudiate the agency, knowing
that another person is acting on his behalf without authority.
Agency may be oral, unless the law requires a specific form.
As its very name implies, a travel agency binds itself to render some service or
to do something in representation or on behalf of another, with the consent or
authority of the latter. This court takes judicial notice of the common services
rendered by travel agencies that represent themselves as such, specifically the
reservation and booking of local and foreign tours as well as the issuance of
airline tickets for a commission or fee.
The services rendered by Ms. Mager of Holiday Travel agency to the plaintiff
spouses on July 21, 1997 were no different from those offered in any other
travel agency. Defendant airline impliedly if not expressly acknowledged its
principal-agent relationship with Ms. Mager by its offer in the letter dated March
24, 1998 – an obvious attempt to assuage plaintiffs spouses’ hurt feelings.11
Furthermore, the RTC ruled that CAI acted in bad faith in reneging on its
undertaking to replace the subject tickets within two (2) years from their date of
issue when it charged Fernando with the amount of US$1,867.40 for a round
trip ticket to Los Angeles and when it refused to allow Fernando to use Lourdes’
ticket. Specifically:
Tickets may be reissued for up to two years from the original date of issue.
When defendant airline still charged plaintiffs spouses US$1,867.40 or more
than double the then going rate of US$856.00 for the unused tickets when the
same were presented within two (2) years from date of issue, defendant airline
exhibited callous treatment of passengers.12
The Appellate Court’s Ruling
On appeal, the CA reversed the RTC’s April 3, 2006 Decision, holding that CAI
cannot be held liable for Mager’s act in the absence of any proof that a principal-
agent relationship existed between CAI and Holiday Travel. According to the
CA, Spouses Viloria, who have the burden of proof to establish the fact of
agency, failed to present evidence demonstrating that Holiday Travel is CAI’s
agent. Furthermore, contrary to Spouses Viloria’s claim, the contractual
relationship between Holiday Travel and CAI is not an agency but that of a sale.
Plaintiffs-appellees assert that Mager was a sub-agent of Holiday Travel who
was in turn a ticketing agent of Holiday Travel who was in turn a ticketing agent
of Continental Airlines. Proceeding from this premise, they contend that
Continental Airlines should be held liable for the acts of Mager. The trial court
held the same view.
We do not agree. By the contract of agency, a person binds him/herself to
render some service or to do something in representation or on behalf of
another, with the consent or authority of the latter. The elements of agency are:
(1) consent, express or implied, of the parties to establish the relationship; (2)
the object is the execution of a juridical act in relation to a third person; (3) the
agent acts as a representative and not for him/herself; and (4) the agent acts
within the scope of his/her authority. As the basis of agency is representation,
there must be, on the part of the principal, an actual intention to appoint, an
intention naturally inferable from the principal’s words or actions. In the same
manner, there must be an intention on the part of the agent to accept the
appointment and act upon it. Absent such mutual intent, there is generally no
agency. It is likewise a settled rule that persons dealing with an assumed agent
are bound at their peril, if they would hold the principal liable, to ascertain not
only the fact of agency but also the nature and extent of authority, and in case
either is controverted, the burden of proof is upon them to establish it. Agency
is never presumed, neither is it created by the mere use of the word in a trade
or business name. We have perused the evidence and documents so far
presented. We find nothing except bare allegations of plaintiffs-appellees that
Mager/Holiday Travel was acting in behalf of Continental Airlines. From all sides
of legal prism, the transaction in issue was simply a contract of sale, wherein
Holiday Travel buys airline tickets from Continental Airlines and then, through
its employees, Mager included, sells it at a premium to clients.13
The CA also ruled that refund is not available to Spouses Viloria as the word
"non-refundable" was clearly printed on the face of the subject tickets, which
constitute their contract with CAI. Therefore, the grant of their prayer for a
refund would violate the proscription against impairment of contracts.
Finally, the CA held that CAI did not act in bad faith when they charged Spouses
Viloria with the higher amount of US$1,867.40 for a round trip ticket to Los
Angeles. According to the CA, there is no compulsion for CAI to charge the
lower amount of US$856.00, which Spouses Viloria claim to be the fee charged
by other airlines. The matter of fixing the prices for its services is CAI’s
prerogative, which Spouses Viloria cannot intervene. In particular:
It is within the respective rights of persons owning and/or operating business
entities to peg the premium of the services and items which they provide at a
price which they deem fit, no matter how expensive or exhorbitant said price
may seem vis-à-vis those of the competing companies. The Spouses Viloria
may not intervene with the business judgment of Continental Airlines.14
The Petitioners’ Case
In this Petition, this Court is being asked to review the findings and conclusions
of the CA, as the latter’s reversal of the RTC’s April 3, 2006 Decision allegedly
lacks factual and legal bases. Spouses Viloria claim that CAI acted in bad faith
when it required them to pay a higher amount for a round trip ticket to Los
Angeles considering CAI’s undertaking to re-issue new tickets to them within
the period stated in their March 24, 1998 letter. CAI likewise acted in bad faith
when it disallowed Fernando to use Lourdes’ ticket to purchase a round trip to
Los Angeles given that there is nothing in Lourdes’ ticket indicating that it is
non-transferable. As a common carrier, it is CAI’s duty to inform its passengers
of the terms and conditions of their contract and passengers cannot be bound
by such terms and conditions which they are not made aware of. Also, the
subject contract of carriage is a contract of adhesion; therefore, any ambiguities
should be construed against CAI. Notably, the petitioners are no longer
questioning the validity of the subject contracts and limited its claim for a refund
on CAI’s alleged breach of its undertaking in its March 24, 1998 letter.
The Respondent’s Case
In its Comment, CAI claimed that Spouses Viloria’s allegation of bad faith is
negated by its willingness to issue new tickets to them and to credit the value
of the subject tickets against the value of the new ticket Fernando requested.
CAI argued that Spouses Viloria’s sole basis to claim that the price at which
CAI was willing to issue the new tickets is unconscionable is a piece of hearsay
evidence – an advertisement appearing on a newspaper stating that airfares
from Manila to Los Angeles or San Francisco cost US$818.00.15 Also, the
advertisement pertains to airfares in September 2000 and not to airfares
prevailing in June 1999, the time when Fernando asked CAI to apply the value
of the subject tickets for the purchase of a new one.16 CAI likewise argued that
it did not undertake to protect Spouses Viloria from any changes or fluctuations
in the prices of airline tickets and its only obligation was to apply the value of
the subject tickets to the purchase of the newly issued tickets.
With respect to Spouses Viloria’s claim that they are not aware of CAI’s
restrictions on the subject tickets and that the terms and conditions that are
printed on them are ambiguous, CAI denies any ambiguity and alleged that its
representative informed Fernando that the subject tickets are non-transferable
when he applied for the issuance of a new ticket. On the other hand, the word
"non-refundable" clearly appears on the face of the subject tickets.
CAI also denies that it is bound by the acts of Holiday Travel and Mager and
that no principal-agency relationship exists between them. As an independent
contractor, Holiday Travel was without capacity to bind CAI.
Issues
To determine the propriety of disturbing the CA’s January 30, 2009 Decision
and whether Spouses Viloria have the right to the reliefs they prayed for, this
Court deems it necessary to resolve the following issues:
a. Does a principal-agent relationship exist between CAI and Holiday
Travel?
 b. Assuming that an agency relationship exists between CAI and
Holiday Travel, is CAI bound by the acts of Holiday Travel’s agents and
employees such as Mager?
c. Assuming that CAI is bound by the acts of Holiday Travel’s agents
and employees, can the representation of Mager as to unavailability of
seats at Amtrak be considered fraudulent as to vitiate the consent of
Spouse Viloria in the purchase of the subject tickets?
d. Is CAI justified in insisting that the subject tickets are non-transferable
and non-refundable?
e. Is CAI justified in pegging a different price for the round trip ticket to
Los Angeles requested by Fernando?
f. Alternatively, did CAI act in bad faith or renege its obligation to
Spouses Viloria to apply the value of the subject tickets in the purchase
of new ones when it refused to allow Fernando to use Lourdes’ ticket
and in charging a higher price for a round trip ticket to Los Angeles?
This Court’s Ruling
I. A principal-agent relationship exists between CAI and Holiday Travel.
With respect to the first issue, which is a question of fact that would require this
Court to review and re-examine the evidence presented by the parties below,
this Court takes exception to the general rule that the CA’s findings of fact are
conclusive upon Us and our jurisdiction is limited to the review of questions of
law. It is well-settled to the point of being axiomatic that this Court is authorized
to resolve questions of fact if confronted with contrasting factual findings of the
trial court and appellate court and if the findings of the CA are contradicted by
the evidence on record.17
According to the CA, agency is never presumed and that he who alleges that it
exists has the burden of proof. Spouses Viloria, on whose shoulders such
burden rests, presented evidence that fell short of indubitably demonstrating
the existence of such agency.
We disagree. The CA failed to consider undisputed facts, discrediting CAI’s
denial that Holiday Travel is one of its agents. Furthermore, in erroneously
characterizing the contractual relationship between CAI and Holiday Travel as
a contract of sale, the CA failed to apply the fundamental civil law principles
governing agency and differentiating it from sale.
In Rallos v. Felix Go Chan & Sons Realty Corporation,18 this Court explained the
nature of an agency and spelled out the essential elements thereof:
Out of the above given principles, sprung the creation and acceptance of
the relationship of agencywhereby one party, called the principal (mandante),
authorizes another, called the agent (mandatario), to act for and in his behalf in
transactions with third persons. The essential elements of agency are: (1) there
is consent, express or implied of the parties to establish the relationship; (2) the
object is the execution of a juridical act in relation to a third person; (3) the agent
acts as a representative and not for himself, and (4) the agent acts within the
scope of his authority. 1avvphi 1
Agency is basically personal, representative, and derivative in nature. The
authority of the agent to act emanates from the powers granted to him by his
principal; his act is the act of the principal if done within the scope of the
authority. Qui facit per alium facit se. "He who acts through another acts
himself."19
Contrary to the findings of the CA, all the elements of an agency exist in this
case. The first and second elements are present as CAI does not deny that it
concluded an agreement with Holiday Travel, whereby Holiday Travel would
enter into contracts of carriage with third persons on CAI’s behalf. The third
element is also present as it is undisputed that Holiday Travel merely acted in
a representative capacity and it is CAI and not Holiday Travel who is bound by
the contracts of carriage entered into by Holiday Travel on its behalf. The fourth
element is also present considering that CAI has not made any allegation that
Holiday Travel exceeded the authority that was granted to it. In fact, CAI
consistently maintains the validity of the contracts of carriage that Holiday
Travel executed with Spouses Viloria and that Mager was not guilty of any
fraudulent misrepresentation. That CAI admits the authority of Holiday Travel
to enter into contracts of carriage on its behalf is easily discernible from its
February 24, 1998 and March 24, 1998 letters, where it impliedly recognized
the validity of the contracts entered into by Holiday Travel with Spouses Viloria.
When Fernando informed CAI that it was Holiday Travel who issued to them
the subject tickets, CAI did not deny that Holiday Travel is its authorized agent.
Prior to Spouses Viloria’s filing of a complaint against it, CAI never refuted that
it gave Holiday Travel the power and authority to conclude contracts of carriage
on its behalf. As clearly extant from the records, CAI recognized the validity of
the contracts of carriage that Holiday Travel entered into with Spouses Viloria
and considered itself bound with Spouses Viloria by the terms and conditions
thereof; and this constitutes an unequivocal testament to Holiday Travel’s
authority to act as its agent. This Court cannot therefore allow CAI to take an
altogether different position and deny that Holiday Travel is its agent without
condoning or giving imprimatur to whatever damage or prejudice that may result
from such denial or retraction to Spouses Viloria, who relied on good faith on
CAI’s acts in recognition of Holiday Travel’s authority. Estoppel is primarily
based on the doctrine of good faith and the avoidance of harm that will befall
an innocent party due to its injurious reliance, the failure to apply it in this case
would result in gross travesty of justice.20 Estoppel bars CAI from making such
denial.
As categorically provided under Article 1869 of the Civil Code, "[a]gency may
be express, or implied from the acts of the principal, from his silence or lack of
action, or his failure to repudiate the agency, knowing that another person is
acting on his behalf without authority."
Considering that the fundamental hallmarks of an agency are present, this
Court finds it rather peculiar that the CA had branded the contractual
relationship between CAI and Holiday Travel as one of sale. The distinctions
between a sale and an agency are not difficult to discern and this Court, as
early as 1970, had already formulated the guidelines that would aid in
differentiating the two (2) contracts. In Commissioner of Internal Revenue v.
Constantino,21 this Court extrapolated that the primordial differentiating
consideration between the two (2) contracts is the transfer of ownership or title
over the property subject of the contract. In an agency, the principal retains
ownership and control over the property and the agent merely acts on the
principal’s behalf and under his instructions in furtherance of the objectives for
which the agency was established. On the other hand, the contract is clearly a
sale if the parties intended that the delivery of the property will effect a
relinquishment of title, control and ownership in such a way that the recipient
may do with the property as he pleases.
Since the company retained ownership of the goods, even as it delivered
possession unto the dealer for resale to customers, the price and terms of which
were subject to the company's control, the relationship between the company
and the dealer is one of agency, tested under the following criterion:
"The difficulty in distinguishing between contracts of sale and the creation of an
agency to sell has led to the establishment of rules by the application of which
this difficulty may be solved. The decisions say the transfer of title or agreement
to transfer it for a price paid or promised is the essence of sale. If such transfer
puts the transferee in the attitude or position of an owner and makes him liable
to the transferor as a debtor for the agreed price, and not merely as an agent
who must account for the proceeds of a resale, the transaction is a sale; while
the essence of an agency to sell is the delivery to an agent, not as his property,
but as the property of the principal, who remains the owner and has the right to
control sales, fix the price, and terms, demand and receive the proceeds less
the agent's commission upon sales made. 1 Mechem on Sales, Sec. 43; 1
Mechem on Agency, Sec. 48; Williston on Sales, 1; Tiedeman on Sales, 1."
(Salisbury v. Brooks, 94 SE 117, 118-119)22
As to how the CA have arrived at the conclusion that the contract between CAI
and Holiday Travel is a sale is certainly confounding, considering that CAI is
the one bound by the contracts of carriage embodied by the tickets being sold
by Holiday Travel on its behalf. It is undisputed that CAI and not Holiday Travel
who is the party to the contracts of carriage executed by Holiday Travel with
third persons who desire to travel via Continental Airlines, and this conclusively
indicates the existence of a principal-agent relationship. That the principal is
bound by all the obligations contracted by the agent within the scope of the
authority granted to him is clearly provided under Article 1910 of the Civil Code
and this constitutes the very notion of agency.
II. In actions based on quasi-delict, a principal can only be held liable for
the tort committed by its agent’s employees if it has been established by
preponderance of evidence that the principal was also at fault or negligent
or that the principal exercise control and supervision over them.
Considering that Holiday Travel is CAI’s agent, does it necessarily follow that
CAI is liable for the fault or negligence of Holiday Travel’s employees?
Citing China Air Lines, Ltd. v. Court of Appeals, et al.,23CAI argues that it cannot
be held liable for the actions of the employee of its ticketing agent in the
absence of an employer-employee relationship.
An examination of this Court’s pronouncements in China Air Lines will reveal
that an airline company is not completely exonerated from any liability for the
tort committed by its agent’s employees. A prior determination of the nature of
the passenger’s cause of action is necessary. If the passenger’s cause of action
against the airline company is premised on culpa aquiliana or quasi-delict for a
tort committed by the employee of the airline company’s agent, there must be
an independent showing that the airline company was at fault or negligent or
has contributed to the negligence or tortuous conduct committed by the
employee of its agent. The mere fact that the employee of the airline company’s
agent has committed a tort is not sufficient to hold the airline company liable.
There is no vinculum juris between the airline company and its agent’s
employees and the contractual relationship between the airline company and
its agent does not operate to create a juridical tie between the airline company
and its agent’s employees. Article 2180 of the Civil Code does not make the
principal vicariously liable for the tort committed by its agent’s employees and
the principal-agency relationship per se does not make the principal a party to
such tort; hence, the need to prove the principal’s own fault or negligence.
On the other hand, if the passenger’s cause of action for damages against the
airline company is based on contractual breach or culpa contractual, it is not
necessary that there be evidence of the airline company’s fault or negligence.
As this Court previously stated in China Air Lines and reiterated in Air France
vs. Gillego,24 "in an action based on a breach of contract of carriage, the
aggrieved party does not have to prove that the common carrier was at fault or
was negligent. All that he has to prove is the existence of the contract and the
fact of its non-performance by the carrier."
Spouses Viloria’s cause of action on the basis of Mager’s alleged fraudulent
misrepresentation is clearly one of tort or quasi-delict, there being no pre-
existing contractual relationship between them. Therefore, it was incumbent
upon Spouses Viloria to prove that CAI was equally at fault.
However, the records are devoid of any evidence by which CAI’s alleged liability
can be substantiated. Apart from their claim that CAI must be held liable for
Mager’s supposed fraud because Holiday Travel is CAI’s agent, Spouses
Viloria did not present evidence that CAI was a party or had contributed to
Mager’s complained act either by instructing or authorizing Holiday Travel and
Mager to issue the said misrepresentation.
It may seem unjust at first glance that CAI would consider Spouses Viloria
bound by the terms and conditions of the subject contracts, which Mager
entered into with them on CAI’s behalf, in order to deny Spouses Viloria’s
request for a refund or Fernando’s use of Lourdes’ ticket for the re-issuance of
a new one, and simultaneously claim that they are not bound by Mager’s
supposed misrepresentation for purposes of avoiding Spouses Viloria’s claim
for damages and maintaining the validity of the subject contracts. It may
likewise be argued that CAI cannot deny liability as it benefited from Mager’s
acts, which were performed in compliance with Holiday Travel’s obligations as
CAI’s agent.
However, a person’s vicarious liability is anchored on his possession of control,
whether absolute or limited, on the tortfeasor. Without such control, there is
nothing which could justify extending the liability to a person other than the one
who committed the tort. As this Court explained in Cangco v. Manila Railroad
Co.:25
With respect to extra-contractual obligation arising from negligence,
whether of act or omission, it is competent for the legislature to elect — and
our Legislature has so elected — to limit such liability to cases in which the
person upon whom such an obligation is imposed is morally culpable or, on the
contrary, for reasons of public policy, to extend that liability, without
regard to the lack of moral culpability, so as to include responsibility for
the negligence of those persons whose acts or omissions are imputable,
by a legal fiction, to others who are in a position to exercise an absolute
or limited control over them. The legislature which adopted our Civil Code
has elected to limit extra-contractual liability — with certain well-defined
exceptions — to cases in which moral culpability can be directly imputed to the
persons to be charged. This moral responsibility may consist in having failed to
exercise due care in one's own acts, or in having failed to exercise due care in
the selection and control of one's agent or servants, or in the control of persons
who, by reasons of their status, occupy a position of dependency with respect
to the person made liable for their conduct.26(emphasis supplied)
It is incumbent upon Spouses Viloria to prove that CAI exercised control or
supervision over Mager by preponderant evidence. The existence of control or
supervision cannot be presumed and CAI is under no obligation to prove its
denial or nugatory assertion. Citing Belen v. Belen,27 this Court ruled in Jayme
v. Apostol,28 that:
In Belen v. Belen, this Court ruled that it was enough for defendant to deny an
alleged employment relationship. The defendant is under no obligation to prove
the negative averment. This Court said:
"It is an old and well-settled rule of the courts that the burden of proving the
action is upon the plaintiff, and that if he fails satisfactorily to show the facts
upon which he bases his claim, the defendant is under no obligation to prove
his exceptions. This [rule] is in harmony with the provisions of Section 297 of
the Code of Civil Procedure holding that each party must prove his own
affirmative allegations, etc."29 (citations omitted)
Therefore, without a modicum of evidence that CAI exercised control over
Holiday Travel’s employees or that CAI was equally at fault, no liability can be
imposed on CAI for Mager’s supposed misrepresentation.
III. Even on the assumption that CAI may be held liable for the acts of
Mager, still, Spouses Viloria are not entitled to a refund. Mager’s
statement cannot be considered a causal fraud that would justify the
annulment of the subject contracts that would oblige CAI to indemnify
Spouses Viloria and return the money they paid for the subject tickets.
Article 1390, in relation to Article 1391 of the Civil Code, provides that if the
consent of the contracting parties was obtained through fraud, the contract is
considered voidable and may be annulled within four (4) years from the time of
the discovery of the fraud. Once a contract is annulled, the parties are obliged
under Article 1398 of the same Code to restore to each other the things subject
matter of the contract, including their fruits and interest.
On the basis of the foregoing and given the allegation of Spouses Viloria that
Fernando’s consent to the subject contracts was supposedly secured by Mager
through fraudulent means, it is plainly apparent that their demand for a refund
is tantamount to seeking for an annulment of the subject contracts on the
ground of vitiated consent.
Whether the subject contracts are annullable, this Court is required to
determine whether Mager’s alleged misrepresentation constitutes causal fraud.
Similar to the dispute on the existence of an agency, whether fraud attended
the execution of a contract is factual in nature and this Court, as discussed
above, may scrutinize the records if the findings of the CA are contrary to those
of the RTC.
Under Article 1338 of the Civil Code, there is fraud when, through insidious
words or machinations of one of the contracting parties, the other is induced to
enter into a contract which, without them, he would not have agreed to. In order
that fraud may vitiate consent, it must be the causal (dolo causante), not merely
the incidental (dolo incidente), inducement to the making of the
contract.30 In Samson v. Court of Appeals,31 causal fraud was defined as "a
deception employed by one party prior to or simultaneous to the contract in
order to secure the consent of the other."32
Also, fraud must be serious and its existence must be established by clear and
convincing evidence. As ruled by this Court in Sierra v. Hon. Court of Appeals,
et al.,33 mere preponderance of evidence is not adequate:
Fraud must also be discounted, for according to the Civil Code:
Art. 1338. There is fraud when, through insidious words or machinations of one
of the contracting parties, the other is induced to enter into a contract which
without them, he would not have agreed to.
Art. 1344. In order that fraud may make a contract voidable, it should be serious
and should not have been employed by both contracting parties.
To quote Tolentino again, the "misrepresentation constituting the fraud must be
established by full, clear, and convincing evidence, and not merely by a
preponderance thereof. The deceit must be serious. The fraud is serious when
it is sufficient to impress, or to lead an ordinarily prudent person into error; that
which cannot deceive a prudent person cannot be a ground for nullity. The
circumstances of each case should be considered, taking into account the
personal conditions of the victim."34
After meticulously poring over the records, this Court finds that the fraud alleged
by Spouses Viloria has not been satisfactorily established as causal in nature
to warrant the annulment of the subject contracts. In fact, Spouses Viloria failed
to prove by clear and convincing evidence that Mager’s statement was
fraudulent. Specifically, Spouses Viloria failed to prove that (a) there were
indeed available seats at Amtrak for a trip to New Jersey on August 13, 1997
at the time they spoke with Mager on July 21, 1997; (b) Mager knew about this;
and (c) that she purposely informed them otherwise.
This Court finds the only proof of Mager’s alleged fraud, which is Fernando’s
testimony that an Amtrak had assured him of the perennial availability of seats
at Amtrak, to be wanting. As CAI correctly pointed out and as Fernando
admitted, it was possible that during the intervening period of three (3) weeks
from the time Fernando purchased the subject tickets to the time he talked to
said Amtrak employee, other passengers may have cancelled their bookings
and reservations with Amtrak, making it possible for Amtrak to accommodate
them. Indeed, the existence of fraud cannot be proved by mere speculations
and conjectures. Fraud is never lightly inferred; it is good faith that is. Under the
Rules of Court, it is presumed that "a person is innocent of crime or wrong" and
that "private transactions have been fair and regular."35 Spouses Viloria failed to
overcome this presumption.
IV. Assuming the contrary, Spouses Viloria are nevertheless deemed to
have ratified the subject contracts.
Even assuming that Mager’s representation is causal fraud, the subject
contracts have been impliedly ratified when Spouses Viloria decided to exercise
their right to use the subject tickets for the purchase of new ones. Under Article
1392 of the Civil Code, "ratification extinguishes the action to annul a voidable
contract."
Ratification of a voidable contract is defined under Article 1393 of the Civil Code
as follows:
Art. 1393. Ratification may be effected expressly or tacitly. It is understood that
there is a tacit ratification if, with knowledge of the reason which renders the
contract voidable and such reason having ceased, the person who has a right
to invoke it should execute an act which necessarily implies an intention to
waive his right.
Implied ratification may take diverse forms, such as by silence or acquiescence;
by acts showing approval or adoption of the contract; or by acceptance and
retention of benefits flowing therefrom.36
Simultaneous with their demand for a refund on the ground of Fernando’s
vitiated consent, Spouses Viloria likewise asked for a refund based on CAI’s
supposed bad faith in reneging on its undertaking to replace the subject tickets
with a round trip ticket from Manila to Los Angeles.
In doing so, Spouses Viloria are actually asking for a rescission of the subject
contracts based on contractual breach. Resolution, the action referred to in
Article 1191, is based on the defendant’s breach of faith, a violation of the
reciprocity between the parties37 and in Solar Harvest, Inc. v. Davao Corrugated
Carton Corporation,38 this Court ruled that a claim for a reimbursement in view
of the other party’s failure to comply with his obligations under the contract is
one for rescission or resolution.
However, annulment under Article 1390 of the Civil Code and rescission under
Article 1191 are two (2) inconsistent remedies. In resolution, all the elements to
make the contract valid are present; in annulment, one of the essential
elements to a formation of a contract, which is consent, is absent. In resolution,
the defect is in the consummation stage of the contract when the parties are in
the process of performing their respective obligations; in annulment, the defect
is already present at the time of the negotiation and perfection stages of the
contract. Accordingly, by pursuing the remedy of rescission under Article 1191,
the Vilorias had impliedly admitted the validity of the subject contracts, forfeiting
their right to demand their annulment. A party cannot rely on the contract and
claim rights or obligations under it and at the same time impugn its existence or
validity. Indeed, litigants are enjoined from taking inconsistent positions.39
V. Contracts cannot be rescinded for a slight or casual breach.
CAI cannot insist on the non-transferability of the subject tickets.
Considering that the subject contracts are not annullable on the ground of
vitiated consent, the next question is: "Do Spouses Viloria have the right to
rescind the contract on the ground of CAI’s supposed breach of its undertaking
to issue new tickets upon surrender of the subject tickets?"
Article 1191, as presently worded, states:
The power to rescind obligations is implied in reciprocal ones, in case one of
the obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfilment and the rescission of the
obligation, with the payment of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the latter should become
impossible.
The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who
have acquired the thing, in accordance with articles 1385 and 1388 and the
Mortgage Law.
According to Spouses Viloria, CAI acted in bad faith and breached the subject
contracts when it refused to apply the value of Lourdes’ ticket for Fernando’s
purchase of a round trip ticket to Los Angeles and in requiring him to pay an
amount higher than the price fixed by other airline companies.
In its March 24, 1998 letter, CAI stated that "non-refundable tickets may be used
as a form of payment toward the purchase of another Continental ticket for
$75.00, per ticket, reissue fee ($50.00, per ticket, for tickets purchased prior to
October 30, 1997)."
Clearly, there is nothing in the above-quoted section of CAI’s letter from which
the restriction on the non-transferability of the subject tickets can be inferred. In
fact, the words used by CAI in its letter supports the position of Spouses Viloria,
that each of them can use the ticket under their name for the purchase of new
tickets whether for themselves or for some other person.
Moreover, as CAI admitted, it was only when Fernando had expressed his
interest to use the subject tickets for the purchase of a round trip ticket between
Manila and Los Angeles that he was informed that he cannot use the ticket in
Lourdes’ name as payment.
Contrary to CAI’s claim, that the subject tickets are non-transferable cannot be
implied from a plain reading of the provision printed on the subject tickets stating
that "[t]o the extent not in conflict with the foregoing carriage and other services
performed by each carrier are subject to: (a) provisions contained in this ticket,
x x x (iii) carrier’s conditions of carriage and related regulations which are made
part hereof (and are available on application at the offices of carrier) x x x." As
a common carrier whose business is imbued with public interest, the exercise
of extraordinary diligence requires CAI to inform Spouses Viloria, or all of its
passengers for that matter, of all the terms and conditions governing their
contract of carriage. CAI is proscribed from taking advantage of any ambiguity
in the contract of carriage to impute knowledge on its passengers of and
demand compliance with a certain condition or undertaking that is not clearly
stipulated. Since the prohibition on transferability is not written on the face of
the subject tickets and CAI failed to inform Spouses Viloria thereof, CAI cannot
refuse to apply the value of Lourdes’ ticket as payment for Fernando’s purchase
of a new ticket.
CAI’s refusal to accept Lourdes’ ticket for the purchase of a new ticket for
Fernando is only a casual breach.
Nonetheless, the right to rescind a contract for non-performance of its
stipulations is not absolute. The general rule is that rescission of a contract will
not be permitted for a slight or casual breach, but only for such substantial and
fundamental violations as would defeat the very object of the parties in making
the agreement.40 Whether a breach is substantial is largely determined by the
attendant circumstances.41
While CAI’s refusal to allow Fernando to use the value of Lourdes’ ticket as
payment for the purchase of a new ticket is unjustified as the non-transferability
of the subject tickets was not clearly stipulated, it cannot, however be
considered substantial. The endorsability of the subject tickets is not an
essential part of the underlying contracts and CAI’s failure to comply is not
essential to its fulfillment of its undertaking to issue new tickets upon Spouses
Viloria’s surrender of the subject tickets. This Court takes note of CAI’s
willingness to perform its principal obligation and this is to apply the price of the
ticket in Fernando’s name to the price of the round trip ticket between Manila
and Los Angeles. CAI was likewise willing to accept the ticket in Lourdes’ name
as full or partial payment as the case may be for the purchase of any ticket,
albeit under her name and for her exclusive use. In other words, CAI’s
willingness to comply with its undertaking under its March 24, 1998 cannot be
doubted, albeit tainted with its erroneous insistence that Lourdes’ ticket is non-
transferable.
Moreover, Spouses Viloria’s demand for rescission cannot prosper as CAI
cannot be solely faulted for the fact that their agreement failed to consummate
and no new ticket was issued to Fernando. Spouses Viloria have no right to
insist that a single round trip ticket between Manila and Los Angeles should be
priced at around $856.00 and refuse to pay the difference between the price of
the subject tickets and the amount fixed by CAI. The petitioners failed to allege,
much less prove, that CAI had obliged itself to issue to them tickets for any flight
anywhere in the world upon their surrender of the subject tickets. In its March
24, 1998 letter, it was clearly stated that "[n]on-refundable tickets may be used
as a form of payment toward the purchase of another Continental ticket"42 and
there is nothing in it suggesting that CAI had obliged itself to protect Spouses
Viloria from any fluctuation in the prices of tickets or that the surrender of the
subject tickets will be considered as full payment for any ticket that the
petitioners intend to buy regardless of actual price and destination. The CA was
correct in holding that it is CAI’s right and exclusive prerogative to fix the prices
for its services and it may not be compelled to observe and maintain the prices
of other airline companies.43
The conflict as to the endorsability of the subject tickets is an altogether different
matter, which does not preclude CAI from fixing the price of a round trip ticket
between Manila and Los Angeles in an amount it deems proper and which does
not provide Spouses Viloria an excuse not to pay such price, albeit subject to a
reduction coming from the value of the subject tickets. It cannot be denied that
Spouses Viloria had the concomitant obligation to pay whatever is not covered
by the value of the subject tickets whether or not the subject tickets are
transferable or not.1avv phi 1
There is also no showing that Spouses Viloria were discriminated against in
bad faith by being charged with a higher rate. The only evidence the petitioners
presented to prove that the price of a round trip ticket between Manila and Los
Angeles at that time was only $856.00 is a newspaper advertisement for
another airline company, which is inadmissible for being "hearsay evidence,
twice removed." Newspaper clippings are hearsay if they were offered for the
purpose of proving the truth of the matter alleged. As ruled in Feria v. Court of
Appeals,:44
[N]ewspaper articles amount to "hearsay evidence, twice removed" and are
therefore not only inadmissible but without any probative value at all whether
objected to or not, unless offered for a purpose other than proving the truth of
the matter asserted. In this case, the news article is admissible only as evidence
that such publication does exist with the tenor of the news therein
stated.45 (citations omitted)
The records of this case demonstrate that both parties were equally in default;
hence, none of them can seek judicial redress for the cancellation or resolution
of the subject contracts and they are therefore bound to their respective
obligations thereunder. As the 1st sentence of Article 1192 provides:
Art. 1192. In case both parties have committed a breach of the obligation,
the liability of the first infractor shall be equitably tempered by the courts.
If it cannot be determined which of the parties first violated the contract, the
same shall be deemed extinguished, and each shall bear his own damages.
(emphasis supplied)
Therefore, CAI’s liability for damages for its refusal to accept Lourdes’ ticket for
the purchase of Fernando’s round trip ticket is offset by Spouses Viloria’s
liability for their refusal to pay the amount, which is not covered by the subject
tickets. Moreover, the contract between them remains, hence, CAI is duty
bound to issue new tickets for a destination chosen by Spouses Viloria upon
their surrender of the subject tickets and Spouses Viloria are obliged to pay
whatever amount is not covered by the value of the subject tickets.
This Court made a similar ruling in Central Bank of the Philippines v. Court of
Appeals.46 Thus:
Since both parties were in default in the performance of their respective
reciprocal obligations, that is, Island Savings Bank failed to comply with its
obligation to furnish the entire loan and Sulpicio M. Tolentino failed to comply
with his obligation to pay his ₱17,000.00 debt within 3 years as stipulated, they
are both liable for damages.
Article 1192 of the Civil Code provides that in case both parties have committed
a breach of their reciprocal obligations, the liability of the first infractor shall be
equitably tempered by the courts. WE rule that the liability of Island Savings
Bank for damages in not furnishing the entire loan is offset by the liability of
Sulpicio M. Tolentino for damages, in the form of penalties and surcharges, for
not paying his overdue ₱17,000.00 debt. x x x.47
Another consideration that militates against the propriety of holding CAI liable
for moral damages is the absence of a showing that the latter acted fraudulently
and in bad faith. Article 2220 of the Civil Code requires evidence of bad faith
and fraud and moral damages are generally not recoverable in culpa
contractual except when bad faith had been proven.48 The award of exemplary
damages is likewise not warranted. Apart from the requirement that the
defendant acted in a wanton, oppressive and malevolent manner, the claimant
must prove his entitlement to moral damages.49
WHEREFORE, premises considered, the instant Petition is DENIED.
SO ORDERED.
G.R. No. 158585 December 13, 2005
Amon trading corporation and juliana marketing, Petitioners,
vs.
HON. COURT OF APPEALS and TRI-REALTY DEVELOPMENT AND
CONSTRUCTION CORPORATION,Respondents.
DECISION
CHICO-NAZARIO, J.:
This is an appeal by certiorari from the Decision1 dated 28 November 2002 of
the Court of Appeals in CA-G.R. CV No. 60031, reversing the Decision of the
Regional Trial Court of Quezon City, Branch 104, and holding petitioners Amon
Trading Corporation and Juliana Marketing to be solidarily liable with Lines &
Spaces Interiors Center (Lines & Spaces) in refunding private respondent Tri-
Realty Development and Construction Corporation (Tri-Realty) the amount
corresponding to the value of undelivered bags of cement.
The undisputed facts:
Private respondent Tri-Realty is a developer and contractor with projects in
Bulacan and Quezon City. Sometime in February 1992, private respondent had
difficulty in purchasing cement needed for its projects. Lines & Spaces,
represented by Eleanor Bahia Sanchez, informed private respondent that it
could obtain cement to its satisfaction from petitioners, Amon Trading
Corporation and its sister company, Juliana Marketing. On the strength of such
representation, private respondent proceeded to order from Sanchez Six
Thousand Fifty (6,050) bags of cement from petitioner Amon Trading
Corporation, and from Juliana Marketing, Six Thousand (6,000) bags at
₱98.00/bag.
Private respondent, through Mrs. Sanchez of Lines & Spaces, paid in
advance the amount of ₱592,900.00 through Solidbank Manager’s Check No.
0011565 payable to Amon Trading Corporation, and the amount of
₱588,000.00 payable to Juliana Marketing, through Solidbank Manager’s
Check No. 0011566. A certain "Weng Chua" signed the check vouchers for
Lines & Spaces while Mrs. Sanchez issued receipts for the two manager’s
checks. Private respondent likewise paid to Lines & Spaces an advance fee for
the 12,050 cement bags at the rate of ₱7.00/bag, or a total of ₱84,350.00, in
consideration of the facilitation of the orders and certainty of delivery of the
same to the private respondent. Solidbank Manager’s Check Nos. 0011565 and
0011566 were paid by Sanchez to petitioners.
There were deliveries to private respondent from Amon Trading Corporation
and Juliana Marketing of 3,850 bags and 3,000 bags, respectively, during the
period from April to June 1992. However, the balance of 2,200 bags from Amon
Trading Corporation and 3,000 bags from Juliana Marketing, or a total of 5,200
bags, was not delivered. Private respondent, thus, sent petitioners written
demands but in reply, petitioners stated that they have already refunded the
amount of undelivered bags of cement to Lines and Spaces per written
instructions of Eleanor Sanchez.
Left high and dry, with news reaching it that Eleanor Sanchez had already fled
abroad, private respondent filed this case for sum of money against petitioners
and Lines & Spaces.
Petitioners plead in defense lack of right or cause of action, alleging that private
respondent had no privity of contract with them as it was Lines & Spaces/Tri-
Realty, through Mrs. Sanchez, that ordered or purchased several bags of
cement and paid the price thereof without informing them of any special
arrangement nor disclosing to them that Lines & Spaces and respondent
corporation are distinct and separate entities. They added that there were
purchases or orders made by Lines & Spaces/Tri-Realty which they were about
to deliver, but were cancelled by Mrs. Sanchez and the consideration of the
cancelled purchases or orders was later reimbursed to Lines & Spaces. The
refund was in the form of a check payable to Lines & Spaces.
Lines & Spaces denied in its Answer that it is represented by Eleanor B.
Sanchez and pleads in defense lack of cause of action and in the alternative, it
raised the defense that it was only an intermediary between the private
respondent and petitioners.2 Soon after, though, counsel for Lines & Spaces
moved to withdraw from the case for the reason that its client was beyond
contact.
On 29 January 1998, the Regional Trial Court of Quezon City, Branch 104,
found Lines & Spaces solely liable to private respondent and absolved
petitioners of any liability. The dispositive portion of the trial court’s Decision
reads:
Wherefore, judgment is hereby rendered ordering defendant Lines and Spaces
Interiors Center as follows: to pay plaintiff on the complaint the amount of
P47,950.00 as refund of the fee for the undelivered 5,200 bags of cement at
the rate of P7.00 per bag; the amount of P509,600.00 for the refund of the price
of the 5,200 undelivered bags of cement at P98.00 per bag; the amount of
P2,000,000.00 for compensatory damages; as well as the amount of
P639,387.50 as attorney’s fees; and to pay Amon Trading and Juliana
Marketing, Inc. on the crossclaim the sum of P200,000.00 as attorney’s fees.3
Private Respondent Tri-Realty partially appealed from the trial court’s decision
absolving Amon Trading Corporation and Juliana Marketing of any liability to
Tri-Realty. In the presently assailed Decision, the Court of Appeals reversed
the decision of the trial court and held petitioners Amon Trading Corporation
and Juliana Marketing to be jointly and severally liable with Lines & Spaces for
the undelivered bags of cement. The Court of Appeals disposed-
WHEREFORE, premises considered, the decision of the court a quo is hereby
REVERSED AND SET ASIDE, and another one is entered ordering the
following:
Defendant-appellee Amon Trading Corporation is held liable jointly and
severally with defendant-appellee Lines and Spaces Interiors Center in the
amount of P215,600.00 for the refund of the price of 2,200 undelivered bags of
cement.
Defendant-appellee Juliana Marketing is held liable jointly and severally with
defendant-appellee Lines and Spaces Interiors Center in the amount of
P294,000.00 for the refund of the price of 3,000 undelivered bags of cement.
The defendant-appellee Lines and Spaces Interiors Center is held solely in the
amount of P47,950.00 as refund of the fee for the 5,200 undelivered bags of
cement to the plaintiff-appellant Tri-Realty Development and Construction
Corporation.
The awards of compensatory damages and attorney’s fees are DELETED.
The cross claim of defendants-appellees Amon Trading Corporation and
Juliana Marketing is DISMISSED for lack of merit.
No pronouncement as to costs.4
Pained by the ruling, petitioners elevated the case to this Court via the present
petition for review to challenge the Decision and Resolution of the Court of
Appeals on the following issues:
I. WHETHER OR NOT THERE WAS A CONTRACT OF AGENCY BETWEEN
LINES AND SPACES INTERIOR CENTER AND RESPONDENT;
II. WHETHER OR NOT PETITIONERS AND RESPONDENT HAS PRIVITY OF
CONTRACT.5
At the focus of scrutiny is the issue of whether or not the Court of Appeals
committed reversible error in ruling that petitioners are solidarily liable with
Lines & Spaces. The key to unlocking this issue is to determine whether or not
Lines & Spaces is the private respondent’s agent and whether or not there is
privity of contract between petitioners and private respondent.
We shall consider these issues concurrently as they are interrelated.
Petitioners, in their brief, zealously make a case that there was no contract of
agency between Lines & Spaces and private respondent.6 Petitioners strongly
assert that they did not have a hint that Lines & Spaces and Tri-Realty are two
different and distinct entities inasmuch as Eleanor Sanchez whom they have
dealt with just represented herself to be from Lines & Spaces/Tri-Realty when
she placed her order for the delivery of the bags of cement. Hence, no privity
of contract can be said to exist between petitioners and private respondent.7
Private respondent, on the other hand, goes over the top in arguing that
contrary to their claim of innocence, petitioners had knowledge that Lines &
Spaces, as represented by Eleanor Sanchez, was a separate and distinct entity
from tri-realty.8 Then, too, private respondent stirs up support for its contention
that contrary to petitioners' claim, there was privity of contract between private
respondent and petitioners.9
Primarily, there was no written contract entered into between petitioners and
private respondent for the delivery of the bags of cement. As gleaned from the
records, and as private respondent itself admitted in its Complaint, private
respondent agreed with Eleanor Sanchez of Lines & Spaces for the latter to
source the cement needs of the former in consideration of ₱7.00 per bag of
cement. It is worthy to note that the payment in manager’s checks was made to
Eleanor Sanchez of Lines & Spaces and was not directly paid to petitioners.
While the manager’s check issued by respondent company was eventually paid
to petitioners for the delivery of the bags of cement, there is obviously nothing
from the face of said manager’s check to hint that private respondent was the
one making the payments. There was likewise no intimation from Sanchez that
the purchase order placed by her was for private respondent’s benefit. The
meeting of minds, therefore, was between private respondent and Eleanor
Sanchez of Lines & Spaces. This contract is distinct and separate from the
contract of sale between petitioners and Eleanor Sanchez who represented
herself to be from Lines & Spaces/Tri-Realty, which, per her representation,
was a single account or entity.
The records bear out, too, Annex "A" showing a check voucher payable to
Amon Trading Corporation for the 6,050 bags of cement received by a certain
"Weng Chua" for Mrs. Eleanor Sanchez of Lines & Spaces, and Annex "B"
which is a check voucher bearing the name of Juliana Marketing as payee, but
was received again by said "Weng Chua." Nowhere from the face of the check
vouchers is it shown that petitioners or any of their authorized representatives
received the payments from respondent company.
Also on record are the receipts issued by Lines & Spaces, signed by Eleanor
Bahia Sanchez, covering the said manager’s checks. As Engr. Guido
Ganhinhin of respondent Tri-Realty testified, it was Lines & Spaces, not
petitioners, which issued to them a receipt for the two (2) manager’s checks.
Thus-
Q: And what is your proof that Amon and Juliana were paid of the purchases
through manager’s checks?
A: Lines & Spaces who represented Amon Trading and Juliana Marketing
issued us receipts for the two (2) manager’s checks we paid to Amon Trading
and Juliana Marketing Corporation.
… and-shut case of agency between private respondent and Lines & Spaces.
Q: I am showing to you check no. 074 issued by Lines & Spaces Interiors
Center, what relation has this check to that check you mentioned earlier?
A: Official Receipt No. 074 issued by Lines & Spaces Interiors Center was for
the P592,900.00 we paid to Amon Trading Corporation for 6,050 bags of
cement.
Q: Now there appears a signature in that receipt above the printed words
authorized signature, whose signature is that?
A: The signature of Mrs. Eleanor Bahia Sanchez, the representative of Lines
and Spaces.
Q: Why do you know that that is her signature?
A: She is quite familiar with me and I saw her affix her signature upon issuance
of the receipt.10 (Emphasis supplied.)
Without doubt, no vinculum could be said to exist between petitioners and
private respondent.
There is likewise nothing meaty about the assertion of private respondent that
inasmuch as the delivery receipts as well as the purchase order were for the
account of Lines & Spaces/Tri-Realty, then petitioners should have been placed
on guard that it was private respondent which is the principal of Sanchez.
In China Banking Corp. v. Members of the Board of Trustees, Home
Development Mutual Fund11 and the later case of Romulo, Mabanta,
Buenaventura, Sayoc and De los Angeles v. Home Development Mutual
Fund,12 the term "and/or" was held to mean that effect shall be given to both the
conjunctive "and" and the disjunctive "or"; or that one word or the other may be
taken accordingly as one or the other will best effectuate the intended purpose.
It was accordingly ordinarily held that in using the term "and/or" the word "and"
and the word "or" are to be used interchangeably.
By analogy, the words "Lines & Spaces/Tri-Realty" mean that effect shall be
given to both Lines & Spaces and Tri-Realty or that Lines & Spaces and Tri-
Realty may be used interchangeably. Hence, petitioners were not remiss when
they believed Eleanor Sanchez’s representation that "Lines & Spaces/Tri-
Realty" refers to just one entity. There was, therefore, no error attributable to
petitioners when they refunded the value of the undelivered bags of cement to
Lines & Spaces only.
There is likewise a dearth of evidence to show that the case at bar is an open-
Neither Eleanor Sanchez nor Lines & Spaces was an agent for private
respondent, but rather a supplier for the latter’s cement needs. The Civil Code
defines a contract of agency as follows:
Art. 1868. By the contract of agency a person binds himself to render some
service or to do something in representation or on behalf of another, with the
consent or authority of the latter.
In a bevy of cases such as the avuncular case of Victorias Milling Co., Inc. v.
Court of Appeals,13 the Court decreed from Article 1868 that the basis of agency
is representation.
. . . On the part of the principal, there must be an actual intention to appoint or
an intention naturally inferable from his words or actions and on the part of the
agent, there must be an intention to accept the appointment and act on it, and
in the absence of such intent, there is generally no agency. One factor which
most clearly distinguishes agency from other legal concepts is control; one
person - the agent - agrees to act under the control or direction of another - the
principal. Indeed, the very word "agency" has come to connote control by the
principal. The control factor, more than any other, has caused the courts to put
contracts between principal and agent in a separate category.
Here, the intention of private respondent, as the Executive Officer of respondent
corporation testified on, was merely for Lines & Spaces, through Eleanor
Sanchez, to supply them with the needed bags of cement.
Q: Do you know the defendant Lines & Spaces in this case?
A: Yes, sir.
Q: How come you know this defendant?
A: Lines & Spaces represented by Eleanor Bahia Sanchez offered to supply us
cement when there was scarcity of cement experienced in our
projects.14 (Emphasis supplied)
We cannot go along the Court of Appeals’ disquisition that Amon Trading
Corporation and Juliana Marketing should have required a special power of
attorney form when they refunded Eleanor B. Sanchez the cost of the
undelivered bags of cement. All the quibbling about whether Lines & Spaces
acted as agent of private respondent is inane because as illustrated earlier,
petitioners took orders from Eleanor Sanchez who, after all, was the one who
paid them the manager’s checks for the purchase of cement. Sanchez
represented herself to be from Lines & Spaces/Tri-Realty, purportedly a single
entity. Inasmuch as they have never directly dealt with private respondent and
there is no paper trail on record to guide them that the private respondent, in
fact, is the beneficiary, petitioners had no reason to doubt the request of Eleanor
Sanchez later on to refund the value of the undelivered bags of cement to Lines
& Spaces. Moreover, the check refund was payable to Lines & Spaces, not to
Sanchez, so there was indeed no cause to suspect the scheme.
The fact that the deliveries were made at the construction sites of private
respondent does not by itself raise suspicion that petitioners were delivering for
private respondent. There was no sufficient showing that petitioners knew that
the delivery sites were that of private respondent and for another thing, the
deliveries were made by petitioners’ men who have no business nosing around
their client’s affairs.
Parenthetically, Eleanor Sanchez has absconded to the United States of
America and the story of what happened to the check refund may be forever
locked with her. Lines & Spaces, in its Answer to the Complaint, washed its
hands of the apparent ruse perpetuated by Sanchez, but argues that if at all, it
was merely an intermediary between petitioners and private respondent. With
no other way out, Lines & Spaces was a no-show at the trial proceedings so
that eventually, its counsel had to withdraw his appearance because of his
client’s vanishing act. Left with an empty bag, so to speak, private respondent
now puts the blame on petitioners. But this Court finds plausible the stance of
petitioners that they had no inkling of the deception that was forthcoming.
Indeed, without any contract or any hard evidence to show any privity of
contract between it and petitioners, private respondent’s claim against
petitioners lacks legal foothold.
Considering the vagaries of the case, private respondent brought the wrong
upon itself. As adeptly surmised by the trial court, between petitioners and
private respondent, it is the latter who had made possible the wrong that was
perpetuated by Eleanor Sanchez against it so it must bear its own loss. It is in
this sense that we must apply the equitable maxim that "as between two
innocent parties, the one who made it possible for the wrong to be done should
be the one to bear the resulting loss."15 First, private respondent was the one
who had reposed too much trust on Eleanor Sanchez for the latter to source its
cement needs. Second, it failed to employ safety nets to steer clear of the rip-
off. For such huge sums of money involved in this case, it is surprising that a
corporation such as private respondent would pay its construction materials in
advance instead of in credit thus opening a window of opportunity for Eleanor
Sanchez or Lines & Spaces to pocket the remaining balance of the amount paid
corresponding to the undelivered materials. Private respondent likewise paid in
advance the commission of Eleanor Sanchez for the materials that have yet to
be delivered so it really had no means of control over her. Finally, there is no
paper trail linking private respondent to petitioners thereby leaving the latter
clueless that private respondent was their true client. Private respondent should
have, at the very least, required petitioners to sign the check vouchers or to
issue receipts for the advance payments so that it could have a hold on
petitioners. In this case, it was the representative of Lines & Spaces who signed
the check vouchers. For its failure to establish any of these deterrent measures,
private respondent incurred the risk of not being able to recoup the value of the
materials it had paid good money for.
WHEREFORE, the present petition is hereby GRANTED. Accordingly, the
Decision and the Resolution dated 28 November 2002 and 10 June 2003, of
the Court of Appeals in CA-G.R CV No. 60031, are
hereby REVERSED and SET ASIDE. The Decision dated 29 January 1998 of
the Regional Trial Court of Quezon City, Branch 104, in Civil Case Q-92-14235
is hereby REINSTATED. No costs.
SO ORDERED.
G.R. No. 76931 May 29, 1991
ORIENT AIR SERVICES & HOTEL REPRESENTATIVES, petitioner,
vs.
COURT OF APPEALS and AMERICAN AIR-LINES
INCORPORATED, respondents.
G.R. No. 76933 May 29, 1991
AMERICAN AIRLINES, INCORPORATED, petitioner,
vs.
COURT OF APPEALS and ORIENT AIR SERVICES & HOTEL
REPRESENTATIVES, INCORPORATED,respondents.
Francisco A. Lava, Jr. and Andresito X. Fornier for Orient Air Service and
Hotel Representatives, Inc.
Sycip, Salazar, Hernandez & Gatmaitan for American Airlines, Inc.
PADILLA, J.:
This case is a consolidation of two (2) petitions for review on certiorari of a
decision1 of the Court of Appeals in CA-G.R. No. CV-04294, entitled "American
Airlines, Inc. vs. Orient Air Services and Hotel Representatives, Inc." which
affirmed, with modification, the decision2 of the Regional Trial Court of Manila,
Branch IV, which dismissed the complaint and granted therein defendant's
counterclaim for agent's overriding commission and damages.
The antecedent facts are as follows:
On 15 January 1977, American Airlines, Inc. (hereinafter referred to as
American Air), an air carrier offering passenger and air cargo transportation in
the Philippines, and Orient Air Services and Hotel Representatives (hereinafter
referred to as Orient Air), entered into a General Sales Agency Agreement
(hereinafter referred to as the Agreement), whereby the former authorized the
latter to act as its exclusive general sales agent within the Philippines for the
sale of air passenger transportation. Pertinent provisions of the agreement are
reproduced, to wit:
WITNESSETH
In consideration of the mutual convenants herein contained, the parties
hereto agree as follows:
1. Representation of American by Orient Air Services
Orient Air Services will act on American's behalf as its exclusive
General Sales Agent within the Philippines, including any United States
military installation therein which are not serviced by an Air Carrier
Representation Office (ACRO), for the sale of air passenger
transportation. The services to be performed by Orient Air Services
shall include:
(a) soliciting and promoting passenger traffic for the services of
American and, if necessary, employing staff competent and
sufficient to do so;
(b) providing and maintaining a suitable area in its place of
business to be used exclusively for the transaction of the
business of American;
(c) arranging for distribution of American's timetables, tariffs and
promotional material to sales agents and the general public in
the assigned territory;
(d) servicing and supervising of sales agents (including such
sub-agents as may be appointed by Orient Air Services with the
prior written consent of American) in the assigned territory
including if required by American the control of remittances and
commissions retained; and
(e) holding out a passenger reservation facility to sales agents
and the general public in the assigned territory.
In connection with scheduled or non-scheduled air passenger
transportation within the United States, neither Orient Air Services nor
its sub-agents will perform services for any other air carrier similar to
those to be performed hereunder for American without the prior written
consent of American. Subject to periodic instructions and continued
consent from American, Orient Air Services may sell air passenger
transportation to be performed within the United States by other
scheduled air carriers provided American does not provide substantially
equivalent schedules between the points involved.
xxx xxx xxx
4. Remittances
Orient Air Services shall remit in United States dollars to American the
ticket stock or exchange orders, less commissions to which Orient Air
Services is entitled hereunder, not less frequently than semi-monthly,
on the 15th and last days of each month for sales made during the
preceding half month.
All monies collected by Orient Air Services for transportation sold
hereunder on American's ticket stock or on exchange orders, less
applicable commissions to which Orient Air Services is entitled
hereunder, are the property of American and shall be held in trust by
Orient Air Services until satisfactorily accounted for to American.
5. Commissions
American will pay Orient Air Services commission on transportation
sold hereunder by Orient Air Services or its sub-agents as follows:
(a) Sales agency commission
American will pay Orient Air Services a sales agency commission for all
sales of transportation by Orient Air Services or its sub-agents over
American's services and any connecting through air transportation,
when made on American's ticket stock, equal to the following
percentages of the tariff fares and charges:
(i) For transportation solely between points within the United
States and between such points and Canada: 7% or such other
rate(s) as may be prescribed by the Air Traffic Conference of
America.
(ii) For transportation included in a through ticket covering
transportation between points other than those described
above: 8% or such other rate(s) as may be prescribed by the
International Air Transport Association.
(b) Overriding commission
In addition to the above commission American will pay Orient Air
Services an overriding commission of 3% of the tariff fares and charges
for all sales of transportation over American's service by Orient Air
Service or its sub-agents.
xxx xxx xxx
10. Default
If Orient Air Services shall at any time default in observing or performing
any of the provisions of this Agreement or shall become bankrupt or
make any assignment for the benefit of or enter into any agreement or
promise with its creditors or go into liquidation, or suffer any of its goods
to be taken in execution, or if it ceases to be in business, this Agreement
may, at the option of American, be terminated forthwith and American
may, without prejudice to any of its rights under this Agreement, take
possession of any ticket forms, exchange orders, traffic material or
other property or funds belonging to American.
11. IATA and ATC Rules
The provisions of this Agreement are subject to any applicable rules or
resolutions of the International Air Transport Association and the Air
Traffic Conference of America, and such rules or resolutions shall
control in the event of any conflict with the provisions hereof.
xxx xxx xxx
13. Termination
American may terminate the Agreement on two days' notice in the event
Orient Air Services is unable to transfer to the United States the funds
payable by Orient Air Services to American under this Agreement.
Either party may terminate the Agreement without cause by giving the
other 30 days' notice by letter, telegram or cable.
xxx xxx x x x3
On 11 May 1981, alleging that Orient Air had reneged on its obligations under
the Agreement by failing to promptly remit the net proceeds of sales for the
months of January to March 1981 in the amount of US $254,400.40, American
Air by itself undertook the collection of the proceeds of tickets sold originally by
Orient Air and terminated forthwith the Agreement in accordance with
Paragraph 13 thereof (Termination). Four (4) days later, or on 15 May 1981,
American Air instituted suit against Orient Air with the Court of First Instance of
Manila, Branch 24, for Accounting with Preliminary Attachment or Garnishment,
Mandatory Injunction and Restraining Order4 averring the aforesaid basis for
the termination of the Agreement as well as therein defendant's previous record
of failures "to promptly settle past outstanding refunds of which there were
available funds in the possession of the defendant, . . . to the damage and
prejudice of plaintiff."5
In its Answer6 with counterclaim dated 9 July 1981, defendant Orient Air denied
the material allegations of the complaint with respect to plaintiff's entitlement to
alleged unremitted amounts, contending that after application thereof to the
commissions due it under the Agreement, plaintiff in fact still owed Orient Air a
balance in unpaid overriding commissions. Further, the defendant contended
that the actions taken by American Air in the course of terminating the
Agreement as well as the termination itself were untenable, Orient Air claiming
that American Air's precipitous conduct had occasioned prejudice to its
business interests.
Finding that the record and the evidence substantiated the allegations of the
defendant, the trial court ruled in its favor, rendering a decision dated 16 July
1984, the dispositive portion of which reads:
WHEREFORE, all the foregoing premises considered, judgment is
hereby rendered in favor of defendant and against plaintiff dismissing
the complaint and holding the termination made by the latter as affecting
the GSA agreement illegal and improper and order the plaintiff to
reinstate defendant as its general sales agent for passenger
tranportation in the Philippines in accordance with said GSA
agreement; plaintiff is ordered to pay defendant the balance of the
overriding commission on total flown revenue covering the period from
March 16, 1977 to December 31, 1980 in the amount of US$84,821.31
plus the additional amount of US$8,000.00 by way of proper 3%
overriding commission per month commencing from January 1, 1981
until such reinstatement or said amounts in its Philippine peso
equivalent legally prevailing at the time of payment plus legal interest to
commence from the filing of the counterclaim up to the time of payment.
Further, plaintiff is directed to pay defendant the amount of One Million
Five Hundred Thousand (Pl,500,000.00) pesos as and for exemplary
damages; and the amount of Three Hundred Thousand (P300,000.00)
pesos as and by way of attorney's fees.
Costs against plaintiff.7
On appeal, the Intermediate Appellate Court (now Court of Appeals) in a
decision promulgated on 27 January 1986, affirmed the findings of the court a
quo on their material points but with some modifications with respect to the
monetary awards granted. The dispositive portion of the appellate court's
decision is as follows:
WHEREFORE, with the following modifications —
1) American is ordered to pay Orient the sum
of US$53,491.11 representing the balance of the latter's overriding
commission covering the period March 16, 1977 to December 31,
1980, or its Philippine peso equivalent in accordance with the official
rate of exchange legally prevailing on July 10, 1981, the date the
counterclaim was filed;
2) American is ordered to pay Orient the sum of US$7,440.00 as the
latter's overriding commission per month starting January 1, 1981 until
date of termination, May 9, 1981 or its Philippine peso equivalent in
accordance with the official rate of exchange legally prevailing on July
10, 1981, the date the counterclaim was filed
3) American is ordered to pay interest of 12% on said amounts from
July 10, 1981 the date the answer with counterclaim was filed, until full
payment;
4) American is ordered to pay Orient exemplary damages of
P200,000.00;
5) American is ordered to pay Orient the sum of P25,000.00 as
attorney's fees.
the rest of the appealed decision is affirmed.
Costs against American.8
American Air moved for reconsideration of the aforementioned decision,
assailing the substance thereof and arguing for its reversal. The appellate
court's decision was also the subject of a Motion for Partial Reconsideration by
Orient Air which prayed for the restoration of the trial court's ruling with respect
to the monetary awards. The Court of Appeals, by resolution promulgated on
17 December 1986, denied American Air's motion and with respect to that of
Orient Air, ruled thus:
Orient's motion for partial reconsideration is denied insofar as it prays
for affirmance of the trial court's award of exemplary damages and
attorney's fees, but granted insofar as the rate of exchange is
concerned. The decision of January 27, 1986 is modified in paragraphs
(1) and (2) of the dispositive part so that the payment of the sums
mentioned therein shall be at their Philippine peso equivalent in
accordance with the official rate of exchange legally prevailing on the
date of actual payment.9
Both parties appealed the aforesaid resolution and decision of the respondent
court, Orient Air as petitioner in G.R. No. 76931 and American Air as petitioner
in G.R. No. 76933. By resolution10 of this Court dated 25 March 1987 both
petitions were consolidated, hence, the case at bar.
The principal issue for resolution by the Court is the extent of Orient Air's right
to the 3% overriding commission. It is the stand of American Air that such
commission is based only on sales of its services actually negotiated or
transacted by Orient Air, otherwise referred to as "ticketed sales." As basis
thereof, primary reliance is placed upon paragraph 5(b) of the Agreement
which, in reiteration, is quoted as follows:
5. Commissions
a) . . .
b) Overriding Commission
In addition to the above commission, American will pay Orient Air
Services an overriding commission of 3% of the tariff fees and charges
for all sales of transportation over American's services by Orient Air
Services or itssub-agents. (Emphasis supplied)
Since Orient Air was allowed to carry only the ticket stocks of American Air, and
the former not having opted to appoint any sub-agents, it is American Air's
contention that Orient Air can claim entitlement to the disputed overriding
commission based only on ticketed sales. This is supposed to be the clear
meaning of the underscored portion of the above provision. Thus, to be entitled
to the 3% overriding commission, the sale must be made by Orient Air and the
sale must be done with the use of American Air's ticket stocks.
On the other hand, Orient Air contends that the contractual stipulation of a 3%
overriding commission covers the total revenue of American Air and not merely
that derived from ticketed sales undertaken by Orient Air. The latter, in
justification of its submission, invokes its designation as the exclusive General
Sales Agent of American Air, with the corresponding obligations arising from
such agency, such as, the promotion and solicitation for the services of its
principal. In effect, by virtue of such exclusivity, "all sales of transportation over
American Air's services are necessarily by Orient Air."11
It is a well settled legal principle that in the interpretation of a contract, the
entirety thereof must be taken into consideration to ascertain the meaning of its
provisions.12 The various stipulations in the contract must be read together to
give effect to all.13 After a careful examination of the records, the Court finds
merit in the contention of Orient Air that the Agreement, when interpreted in
accordance with the foregoing principles, entitles it to the 3% overriding
commission based on total revenue, or as referred to by the parties, "total flown
revenue."
As the designated exclusive General Sales Agent of American Air, Orient Air
was responsible for the promotion and marketing of American Air's services for
air passenger transportation, and the solicitation of sales therefor. In return for
such efforts and services, Orient Air was to be paid commissions of two (2)
kinds: first, a sales agency commission, ranging from 7-8% of tariff fares and
charges from sales by Orient Air when made on American Air ticket stock; and
second, an overriding commission of 3% of tariff fares and charges for all
sales of passenger transportation over American Air services. It is immediately
observed that the precondition attached to the first type of commission does not
obtain for the second type of commissions. The latter type of commissions
would accrue for sales of American Air services made not on its ticket stock but
on the ticket stock of other air carriers sold by such carriers or other authorized
ticketing facilities or travel agents. To rule otherwise, i.e., to limit the basis of
such overriding commissions to sales from American Air ticket stock would
erase any distinction between the two (2) types of commissions and would lead
to the absurd conclusion that the parties had entered into a contract with
meaningless provisions. Such an interpretation must at all times be avoided
with every effort exerted to harmonize the entire Agreement.
An additional point before finally disposing of this issue. It is clear from the
records that American Air was the party responsible for the preparation of the
Agreement. Consequently, any ambiguity in this "contract of adhesion" is to be
taken "contra proferentem", i.e., construed against the party who caused the
ambiguity and could have avoided it by the exercise of a little more care. Thus,
Article 1377 of the Civil Code provides that the interpretation of obscure words
or stipulations in a contract shall not favor the party who caused the
obscurity.14 To put it differently, when several interpretations of a provision are
otherwise equally proper, that interpretation or construction is to be adopted
which is most favorable to the party in whose favor the provision was made and
who did not cause the ambiguity.15 We therefore agree with the respondent
appellate court's declaration that:
Any ambiguity in a contract, whose terms are susceptible of different
interpretations, must be read against the party who drafted it.16
We now turn to the propriety of American Air's termination of the Agreement.
The respondent appellate court, on this issue, ruled thus:
It is not denied that Orient withheld remittances but such action finds
justification from paragraph 4 of the Agreement, Exh. F, which provides
for remittances to American less commissions to which Orient is
entitled, and from paragraph 5(d) which specifically allows Orient to
retain the full amount of its commissions. Since, as stated ante, Orient
is entitled to the 3% override. American's premise, therefore, for the
cancellation of the Agreement did not exist. . . ."
We agree with the findings of the respondent appellate court. As earlier
established, Orient Air was entitled to an overriding commission based on total
flown revenue. American Air's perception that Orient Air was remiss or in default
of its obligations under the Agreement was, in fact, a situation where the latter
acted in accordance with the Agreement—that of retaining from the sales
proceeds its accrued commissions before remitting the balance to American
Air. Since the latter was still obligated to Orient Air by way of such commissions.
Orient Air was clearly justified in retaining and refusing to remit the sums
claimed by American Air. The latter's termination of the Agreement was,
therefore, without cause and basis, for which it should be held liable to Orient
Air.
On the matter of damages, the respondent appellate court modified by
reduction the trial court's award of exemplary damages and attorney's fees.
This Court sees no error in such modification and, thus, affirms the same.
It is believed, however, that respondent appellate court erred in affirming the
rest of the decision of the trial court. We refer particularly to the lower court's
1âw phi 1
decision ordering American Air to "reinstate defendant as its general sales
agent for passenger transportation in the Philippines in accordance with said
GSA Agreement."
By affirming this ruling of the trial court, respondent appellate court, in effect,
compels American Air to extend its personality to Orient Air. Such would be
violative of the principles and essence of agency, defined by law as a contract
whereby "a person binds himself to render some service or to do something in
representation or on behalf of another, WITH THE CONSENT OR AUTHORITY
OF THE LATTER .17 (emphasis supplied) In an agent-principal relationship, the
personality of the principal is extended through the facility of the agent. In so
doing, the agent, by legal fiction, becomes the principal, authorized to perform
all acts which the latter would have him do. Such a relationship can only be
effected with the consent of the principal, which must not, in any way, be
compelled by law or by any court. The Agreement itself between the parties
states that "either party may terminate the Agreementwithout cause by giving
the other 30 days' notice by letter, telegram or cable." (emphasis supplied) We,
therefore, set aside the portion of the ruling of the respondent appellate court
reinstating Orient Air as general sales agent of American Air.
WHEREFORE, with the foregoing modification, the Court AFFIRMS the
decision and resolution of the respondent Court of Appeals, dated 27 January
1986 and 17 December 1986, respectively. Costs against petitioner American
Air.
SO ORDERED.
G.R. No. 117356 June 19, 2000
VICTORIAS MILLING CO., INC., petitioner,
vs.
COURT OF APPEALS and CONSOLIDATED SUGAR
CORPORATION, respondents.
DECISION
QUISUMBING, J.:
Before us is a petition for review on certiorari under Rule 45 of the Rules of
Court assailing the decision of the Court of Appeals dated February 24, 1994,
in CA-G.R. CV No. 31717, as well as the respondent court's resolution of
September 30, 1994 modifying said decision. Both decision and resolution
amended the judgment dated February 13, 1991, of the Regional Trial Court of
Makati City, Branch 147, in Civil Case No. 90-118.
The facts of this case as found by both the trial and appellate courts are as
follows:
St. Therese Merchandising (hereafter STM) regularly bought sugar from
petitioner Victorias Milling Co., Inc., (VMC). In the course of their dealings,
petitioner issued several Shipping List/Delivery Receipts (SLDRs) to STM as
proof of purchases. Among these was SLDR No. 1214M, which gave rise to the
instant case. Dated October 16, 1989, SLDR No. 1214M covers 25,000 bags
of sugar. Each bag contained 50 kilograms and priced at P638.00 per bag as
"per sales order VMC Marketing No. 042 dated October 16, 1989."1 The
transaction it covered was a "direct sale."2The SLDR also contains an additional
note which reads: "subject for (sic) availability of a (sic) stock at NAWACO
(warehouse)."3
On October 25, 1989, STM sold to private respondent Consolidated Sugar
Corporation (CSC) its rights in SLDR No. 1214M for P 14,750,000.00. CSC
issued one check dated October 25, 1989 and three checks postdated
November 13, 1989 in payment. That same day, CSC wrote petitioner that it
had been authorized by STM to withdraw the sugar covered by SLDR No.
1214M. Enclosed in the letter were a copy of SLDR No. 1214M and a letter of
authority from STM authorizing CSC "to withdraw for and in our behalf the
refined sugar covered by Shipping List/Delivery Receipt-Refined Sugar (SDR)
No. 1214 dated October 16, 1989 in the total quantity of 25,000 bags."4
On October 27, 1989, STM issued 16 checks in the total amount of
P31,900,000.00 with petitioner as payee. The latter, in turn, issued Official
Receipt No. 33743 dated October 27, 1989 acknowledging receipt of the said
checks in payment of 50,000 bags. Aside from SLDR No. 1214M, said checks
also covered SLDR No. 1213.
Private respondent CSC surrendered SLDR No. 1214M to the petitioner's
NAWACO warehouse and was allowed to withdraw sugar. However, after 2,000
bags had been released, petitioner refused to allow further withdrawals of sugar
against SLDR No. 1214M. CSC then sent petitioner a letter dated January 23,
1990 informing it that SLDR No. 1214M had been "sold and endorsed" to it but
that it had been refused further withdrawals of sugar from petitioner's
warehouse despite the fact that only 2,000 bags had been withdrawn.5 CSC thus
inquired when it would be allowed to withdraw the remaining 23,000 bags.
On January 31, 1990, petitioner replied that it could not allow any further
withdrawals of sugar against SLDR No. 1214M because STM had already
dwithdrawn all the sugar covered by the cleared checks.6
On March 2, 1990, CSC sent petitioner a letter demanding the release of the
balance of 23,000 bags.
Seven days later, petitioner reiterated that all the sugar corresponding to the
amount of STM's cleared checks had been fully withdrawn and hence, there
would be no more deliveries of the commodity to STM's account. Petitioner also
noted that CSC had represented itself to be STM's agent as it had withdrawn
the 2,000 bags against SLDR No. 1214M "for and in behalf" of STM.
On April 27, 1990, CSC filed a complaint for specific performance, docketed as
Civil Case No. 90-1118. Defendants were Teresita Ng Sy (doing business
under the name of St. Therese Merchandising) and herein petitioner. Since the
former could not be served with summons, the case proceeded only against the
latter. During the trial, it was discovered that Teresita Ng Go who testified for
CSC was the same Teresita Ng Sy who could not be reached through
summons.7 CSC, however, did not bother to pursue its case against her, but
instead used her as its witness.
CSC's complaint alleged that STM had fully paid petitioner for the sugar
covered by SLDR No. 1214M. Therefore, the latter had no justification for
refusing delivery of the sugar. CSC prayed that petitioner be ordered to deliver
the 23,000 bags covered by SLDR No. 1214M and sought the award of
P1,104,000.00 in unrealized profits, P3,000,000.00 as exemplary damages,
P2,200,000.00 as attorney's fees and litigation expenses.
Petitioner's primary defense a quo was that it was an unpaid seller for the
23,000 bags.8 Since STM had already drawn in full all the sugar corresponding
to the amount of its cleared checks, it could no longer authorize further delivery
of sugar to CSC. Petitioner also contended that it had no privity of contract with
CSC.
Petitioner explained that the SLDRs, which it had issued, were not documents
of title, but mere delivery receipts issued pursuant to a series of transactions
entered into between it and STM. The SLDRs prescribed delivery of the sugar
to the party specified therein and did not authorize the transfer of said party's
rights and interests.
Petitioner also alleged that CSC did not pay for the SLDR and was actually
STM's co-conspirator to defraud it through a misrepresentation that CSC was
an innocent purchaser for value and in good faith. Petitioner then prayed that
CSC be ordered to pay it the following sums: P10,000,000.00 as moral
damages; P10,000,000.00 as exemplary damages; and P1,500,000.00 as
attorney's fees. Petitioner also prayed that cross-defendant STM be ordered to
pay it P10,000,000.00 in exemplary damages, and P1,500,000.00 as attorney's
fees.
Since no settlement was reached at pre-trial, the trial court heard the case on
the merits.
As earlier stated, the trial court rendered its judgment favoring private
respondent CSC, as follows:
"WHEREFORE, in view of the foregoing, the Court hereby renders judgment in
favor of the plaintiff and against defendant Victorias Milling Company:
"1) Ordering defendant Victorias Milling Company to deliver to the
plaintiff 23,000 bags of refined sugar due under SLDR No. 1214;
"2) Ordering defendant Victorias Milling Company to pay the amount of
P920,000.00 as unrealized profits, the amount of P800,000.00 as
exemplary damages and the amount of P1,357,000.00, which is 10%
of the acquisition value of the undelivered bags of refined sugar in the
amount of P13,570,000.00, as attorney's fees, plus the costs.
"SO ORDERED."9
It made the following observations:
"[T]he testimony of plaintiff's witness Teresita Ng Go, that she had fully paid the
purchase price of P15,950,000.00 of the 25,000 bags of sugar bought by her
covered by SLDR No. 1214 as well as the purchase price of P15,950,000.00
for the 25,000 bags of sugar bought by her covered by SLDR No. 1213 on the
same date, October 16, 1989 (date of the two SLDRs) is duly supported by
Exhibits C to C-15 inclusive which are post-dated checks dated October 27,
1989 issued by St. Therese Merchandising in favor of Victorias Milling
Company at the time it purchased the 50,000 bags of sugar covered by SLDR
No. 1213 and 1214. Said checks appear to have been honored and duly
credited to the account of Victorias Milling Company because on October 27,
1989 Victorias Milling Company issued official receipt no. 34734 in favor of St.
Therese Merchandising for the amount of P31,900,000.00 (Exhibits B and B-
1). The testimony of Teresita Ng Go is further supported by Exhibit F, which is
a computer printout of defendant Victorias Milling Company showing the
quantity and value of the purchases made by St. Therese Merchandising, the
SLDR no. issued to cover the purchase, the official reciept no. and the status
of payment. It is clear in Exhibit 'F' that with respect to the sugar covered by
SLDR No. 1214 the same has been fully paid as indicated by the word 'cleared'
appearing under the column of 'status of payment.'
"On the other hand, the claim of defendant Victorias Milling Company that the
purchase price of the 25,000 bags of sugar purchased by St. Therese
Merchandising covered by SLDR No. 1214 has not been fully paid is supported
only by the testimony of Arnulfo Caintic, witness for defendant Victorias Milling
Company. The Court notes that the testimony of Arnulfo Caintic is merely a
sweeping barren assertion that the purchase price has not been fully paid and
is not corroborated by any positive evidence. There is an insinuation by Arnulfo
Caintic in his testimony that the postdated checks issued by the buyer in
payment of the purchased price were dishonored. However, said witness failed
to present in Court any dishonored check or any replacement check. Said
witness likewise failed to present any bank record showing that the checks
issued by the buyer, Teresita Ng Go, in payment of the purchase price of the
sugar covered by SLDR No. 1214 were dishonored."10
Petitioner appealed the trial court’s decision to the Court of Appeals.
On appeal, petitioner averred that the dealings between it and STM were part
of a series of transactions involving only one account or one general contract
of sale. Pursuant to this contract, STM or any of its authorized agents could
withdraw bags of sugar only against cleared checks of STM. SLDR No. 21214M
was only one of 22 SLDRs issued to STM and since the latter had already
withdrawn its full quota of sugar under the said SLDR, CSC was already
precluded from seeking delivery of the 23,000 bags of sugar.
Private respondent CSC countered that the sugar purchases involving SLDR
No. 1214M were separate and independent transactions and that the details of
the series of purchases were contained in a single statement with a
consolidated summary of cleared check payments and sugar stock withdrawals
because this a more convenient system than issuing separate statements for
each purchase.
The appellate court considered the following issues: (a) Whether or not the
transaction between petitioner and STM involving SLDR No. 1214M was a
separate, independent, and single transaction; (b) Whether or not CSC had the
capacity to sue on its own on SLDR No. 1214M; and (c) Whether or not CSC
as buyer from STM of the rights to 25,000 bags of sugar covered by SLDR No.
1214M could compel petitioner to deliver 23,000 bags allegedly unwithdrawn.
On February 24, 1994, the Court of Appeals rendered its decision modifying the
trial court's judgment, to wit:
"WHEREFORE, the Court hereby MODIFIES the assailed judgment and orders
defendant-appellant to:
"1) Deliver to plaintiff-appellee 12,586 bags of sugar covered by SLDR
No. 1214M;
"2) Pay to plaintiff-appellee P792,918.00 which is 10% of the value of
the undelivered bags of refined sugar, as attorneys fees;
"3) Pay the costs of suit.
"SO ORDERED."11
Both parties then seasonably filed separate motions for reconsideration.
In its resolution dated September 30, 1994, the appellate court modified its
decision to read:
"WHEREFORE, the Court hereby modifies the assailed judgment and orders
defendant-appellant to:
"(1) Deliver to plaintiff-appellee 23,000 bags of refined sugar under
SLDR No. 1214M;
"(2) Pay costs of suit.
"SO ORDERED."12
The appellate court explained the rationale for the modification as follows:
"There is merit in plaintiff-appellee's position.
"Exhibit ‘F' We relied upon in fixing the number of bags of sugar which remained
undelivered as 12,586 cannot be made the basis for such a finding. The rule is
explicit that courts should consider the evidence only for the purpose for which
it was offered. (People v. Abalos, et al, 1 CA Rep 783). The rationale for this is
to afford the party against whom the evidence is presented to object thereto if
he deems it necessary. Plaintiff-appellee is, therefore, correct in its argument
that Exhibit ‘F' which was offered to prove that checks in the total amount of
P15,950,000.00 had been cleared. (Formal Offer of Evidence for Plaintiff,
Records p. 58) cannot be used to prove the proposition that 12,586 bags of
sugar remained undelivered.
"Testimonial evidence (Testimonies of Teresita Ng [TSN, 10 October 1990, p.
33] and Marianito L. Santos [TSN, 17 October 1990, pp. 16, 18, and
36]) presented by plaintiff-appellee was to the effect that it had withdrawn only
2,000 bags of sugar from SLDR after which it was not allowed to withdraw
anymore. Documentary evidence (Exhibit I, Id., p. 78, Exhibit K, Id., p. 80) show
that plaintiff-appellee had sent demand letters to defendant-appellant asking
the latter to allow it to withdraw the remaining 23,000 bags of sugar from SLDR
1214M. Defendant-appellant, on the other hand, alleged that sugar delivery to
the STM corresponded only to the value of cleared checks; and that all sugar
corresponded to cleared checks had been withdrawn. Defendant-appellant did
not rebut plaintiff-appellee's assertions. It did not present evidence to show how
many bags of sugar had been withdrawn against SLDR No. 1214M, precisely
because of its theory that all sales in question were a series of one single
transaction and withdrawal of sugar depended on the clearing of checks paid
therefor.
"After a second look at the evidence, We see no reason to overturn the findings
of the trial court on this point."13
Hence, the instant petition, positing the following errors as grounds for review:
"1. The Court of Appeals erred in not holding that STM's and private
respondent's specially informing petitioner that respondent was
authorized by buyer STM to withdraw sugar against SLDR No. 1214M
"for and in our (STM) behalf," (emphasis in the original) private
respondent's withdrawing 2,000 bags of sugar for STM, and STM's
empowering other persons as its agents to withdraw sugar against the
same SLDR No. 1214M, rendered respondent like the other persons,
an agent of STM as held in Rallos v. Felix Go Chan & Realty Corp., 81
SCRA 252, and precluded it from subsequently claiming and proving
being an assignee of SLDR No. 1214M and from suing by itself for its
enforcement because it was conclusively presumed to be an agent
(Sec. 2, Rule 131, Rules of Court) and estopped from doing so. (Art.
1431, Civil Code).
"2. The Court of Appeals erred in manifestly and arbitrarily ignoring and
disregarding certain relevant and undisputed facts which, had they
been considered, would have shown that petitioner was not liable,
except for 69 bags of sugar, and which would justify review of its
conclusion of facts by this Honorable Court.
"3. The Court of Appeals misapplied the law on compensation under
Arts. 1279, 1285 and 1626 of the Civil Code when it ruled that
compensation applied only to credits from one SLDR or contract and
not to those from two or more distinct contracts between the same
parties; and erred in denying petitioner's right to setoff all its credits
arising prior to notice of assignment from other sales or SLDRs against
private respondent's claim as assignee under SLDR No. 1214M, so as
to extinguish or reduce its liability to 69 bags, because the law on
compensation applies precisely to two or more distinct contracts
between the same parties (emphasis in the original).
"4. The Court of Appeals erred in concluding that the settlement or
liquidation of accounts in Exh. ‘F’ between petitioner and STM,
respondent's admission of its balance, and STM's acquiescence thereto
by silence for almost one year did not render Exh. `F' an account stated
and its balance binding.
"5. The Court of Appeals erred in not holding that the conditions of the
assigned SLDR No. 1214, namely, (a) its subject matter being generic,
and (b) the sale of sugar being subject to its availability at the Nawaco
warehouse, made the sale conditional and prevented STM or private
respondent from acquiring title to the sugar; and the non-availability of
sugar freed petitioner from further obligation.
"6. The Court of Appeals erred in not holding that the "clean hands"
doctrine precluded respondent from seeking judicial reliefs (sic) from
petitioner, its only remedy being against its assignor."14
Simply stated, the issues now to be resolved are:
(1)....Whether or not the Court of Appeals erred in not ruling that CSC
was an agent of STM and hence, estopped to sue upon SLDR No.
1214M as an assignee.
(2)....Whether or not the Court of Appeals erred in applying the law on
compensation to the transaction under SLDR No. 1214M so as to
preclude petitioner from offsetting its credits on the other SLDRs.
(3)....Whether or not the Court of Appeals erred in not ruling that the
sale of sugar under SLDR No. 1214M was a conditional sale or a
contract to sell and hence freed petitioner from further obligations.
(4)....Whether or not the Court of Appeals committed an error of law in
not applying the "clean hands doctrine" to preclude CSC from seeking
judicial relief.
The issues will be discussed in seriatim.
Anent the first issue, we find from the records that petitioner raised this issue
for the first time on appeal. It is settled that an issue which was not raised
1avv phi 1
during the trial in the court below could not be raised for the first time on appeal
as to do so would be offensive to the basic rules of fair play, justice, and due
process.15 Nonetheless, the Court of Appeals opted to address this issue,
hence, now a matter for our consideration.
Petitioner heavily relies upon STM's letter of authority allowing CSC to withdraw
sugar against SLDR No. 1214M to show that the latter was STM's agent. The
pertinent portion of said letter reads:
"This is to authorize Consolidated Sugar Corporation or its representative to
withdraw for and in our behalf (stress supplied) the refined sugar covered by
Shipping List/Delivery Receipt = Refined Sugar (SDR) No. 1214 dated October
16, 1989 in the total quantity of 25, 000 bags."16
The Civil Code defines a contract of agency as follows:
"Art. 1868. By the contract of agency a person binds himself to render some
service or to do something in representation or on behalf of another, with the
consent or authority of the latter."
It is clear from Article 1868 that the basis of agency is representation.17 On the
part of the principal, there must be an actual intention to appoint18 or an intention
naturally inferable from his words or actions;19 and on the part of the agent, there
must be an intention to accept the appointment and act on it,20 and in the
absence of such intent, there is generally no agency.21 One factor which most
clearly distinguishes agency from other legal concepts is control; one person -
the agent - agrees to act under the control or direction of another - the principal.
Indeed, the very word "agency" has come to connote control by the
principal.22 The control factor, more than any other, has caused the courts to put
contracts between principal and agent in a separate category.23 The Court of
Appeals, in finding that CSC, was not an agent of STM, opined:
"This Court has ruled that where the relation of agency is dependent upon the
acts of the parties, the law makes no presumption of agency, and it is always a
fact to be proved, with the burden of proof resting upon the persons alleging the
agency, to show not only the fact of its existence, but also its nature and
extent (Antonio vs. Enriquez [CA], 51 O.G. 3536]. Here, defendant-appellant
failed to sufficiently establish the existence of an agency relation between
plaintiff-appellee and STM. The fact alone that it (STM) had authorized
withdrawal of sugar by plaintiff-appellee "for and in our (STM's) behalf" should
not be eyed as pointing to the existence of an agency relation ...It should be
viewed in the context of all the circumstances obtaining. Although it would seem
STM represented plaintiff-appellee as being its agent by the use of the phrase
"for and in our (STM's) behalf" the matter was cleared when on 23 January
1990, plaintiff-appellee informed defendant-appellant that SLDFR No. 1214M
had been "sold and endorsed" to it by STM (Exhibit I, Records, p. 78). Further,
plaintiff-appellee has shown that the 25, 000 bags of sugar covered by the
SLDR No. 1214M were sold and transferred by STM to it ...A conclusion that
there was a valid sale and transfer to plaintiff-appellee may, therefore, be made
thus capacitating plaintiff-appellee to sue in its own name, without need of
joining its imputed principal STM as co-plaintiff."24
In the instant case, it appears plain to us that private respondent CSC was a
buyer of the SLDFR form, and not an agent of STM. Private respondent CSC
was not subject to STM's control. The question of whether a contract is one of
sale or agency depends on the intention of the parties as gathered from the
whole scope and effect of the language employed.25 That the authorization given
to CSC contained the phrase "for and in our (STM's) behalf" did not establish
an agency. Ultimately, what is decisive is the intention of the parties.26 That no
agency was meant to be established by the CSC and STM is clearly shown by
CSC's communication to petitioner that SLDR No. 1214M had been "sold and
endorsed" to it.27 The use of the words "sold and endorsed" means that STM
and CSC intended a contract of sale, and not an agency. Hence, on this score,
no error was committed by the respondent appellate court when it held that
CSC was not STM's agent and could independently sue petitioner.
On the second issue, proceeding from the theory that the transactions entered
into between petitioner and STM are but serial parts of one account, petitioner
insists that its debt has been offset by its claim for STM's unpaid purchases,
pursuant to Article 1279 of the Civil Code.28 However, the trial court found, and
the Court of Appeals concurred, that the purchase of sugar covered by SLDR
No. 1214M was a separate and independent transaction; it was not a serial part
of a single transaction or of one account contrary to petitioner's insistence.
Evidence on record shows, without being rebutted, that petitioner had been paid
for the sugar purchased under SLDR No. 1214M. Petitioner clearly had the
obligation to deliver said commodity to STM or its assignee. Since said sugar
had been fully paid for, petitioner and CSC, as assignee of STM, were not
mutually creditors and debtors of each other. No reversible error could thereby
be imputed to respondent appellate court when, it refused to apply Article 1279
of the Civil Code to the present case.
Regarding the third issue, petitioner contends that the sale of sugar under
SLDR No. 1214M is a conditional sale or a contract to sell, with title to the sugar
still remaining with the vendor. Noteworthy, SLDR No. 1214M contains the
following terms and conditions:
"It is understood and agreed that by payment by buyer/trader of refined sugar
and/or receipt of this document by the buyer/trader personally or through a
representative, title to refined sugar is transferred to buyer/trader and delivery
to him/it is deemed effected and completed (stress supplied) and buyer/trader
assumes full responsibility therefore…"29
The aforequoted terms and conditions clearly show that petitioner transferred
title to the sugar to the buyer or his assignee upon payment of the purchase
price. Said terms clearly establish a contract of sale, not a contract to sell.
Petitioner is now estopped from alleging the contrary. The contract is the law
between the contracting parties.30 And where the terms and conditions so
stipulated are not contrary to law, morals, good customs, public policy or public
order, the contract is valid and must be upheld.31 Having transferred title to the
sugar in question, petitioner is now obliged to deliver it to the purchaser or its
assignee.
As to the fourth issue, petitioner submits that STM and private respondent CSC
have entered into a conspiracy to defraud it of its sugar. This conspiracy is
allegedly evidenced by: (a) the fact that STM's selling price to CSC was below
its purchasing price; (b) CSC's refusal to pursue its case against Teresita Ng
Go; and (c) the authority given by the latter to other persons to withdraw sugar
against SLDR No. 1214M after she had sold her rights under said SLDR to
CSC. Petitioner prays that the doctrine of "clean hands" should be applied to
preclude CSC from seeking judicial relief. However, despite careful scrutiny, we
find here the records bare of convincing evidence whatsoever to support the
petitioner's allegations of fraud. We are now constrained to deem this matter
purely speculative, bereft of concrete proof.
WHEREFORE, the instant petition is DENIED for lack of merit. Costs against
petitioner.
SO ORDERED.
Art. 1869. Agency may be express, or implied from the acts of the principal,
from his silence or lack of action, or his failure to repudiate the agency, knowing
that another person is acting on his behalf without authority.
G.R. No. 102784 February 28, 1996
ROSA LIM, petitioner,
vs.
COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents.
DECISION
HERMOSISIMA, JR., J.:
This is a petition to review the Decision of the Court of Appeals in CA-G.R. CR
No. 10290, entitled "People v. Rosa Lim," promulgated on August 30, 1991.
On January 26, 1989, an Information for Estafa was filed against petitioner
Rosa Lim before Branch 92 of the Regional Trial Court of Quezon City.1 The
Information reads:
That on or about the 8th day of October 1987, in Quezon City,
Philippines and within the jurisdiction of this Honorable Court, the said
accused with intent to gain, with unfaithfulness and/or abuse of
confidence, did, then and there, wilfully, unlawfully and feloniously
defraud one VICTORIA SUAREZ, in the following manner, to wit: on the
date and place aforementioned said accused got and received in trust
from said complainant one (1) ring 3.35 solo worth P169,000.00,
Philippine Currency, with the obligation to sell the same on commission
basis and to turn over the proceeds of the sale to said complainant or
to return said jewelry if unsold, but the said accused once in possession
thereof and far from complying with her obligation despite repeated
demands therefor, misapplied, misappropriated and converted the
same to her own personal use and benefit, to the damage and prejudice
of the said offended party in the amount aforementioned and in such
other amount as may be awarded under the provisions of the Civil
Code.
CONTRARY TO LAW.2
After arraignment and trial on the merits, the trial court rendered judgment, the
dispositive portion of which reads:
 WHEREFORE, in view of the foregoing, judgment is hereby rendered:
1. Finding accused Rosa Lim GUILTY beyond reasonable doubt of the
offense of estafa as defined and penalized under Article 315, paragraph
1(b) of the Revised Penal Code;
2. Sentencing her to suffer the Indeterminate penalty of FOUR (4)
YEARS and TWO (2) MONTHS of prision correccional as minimum, to
TEN (10) YEARS of prision mayor as maximum;
3. Ordering her to return to the offended party Mrs. Victoria Suarez the
ring or its value in the amount of P169,000 without subsidiary
imprisonment in case insolvency; and
4. To pay costs.3
On appeal, the Court of Appeals affirmed the judgment of conviction with the
modification that the penalty imposed shall be six (6) years, eight (8) months
and twenty-one (21) days to twenty (20) years in accordance with Article 315,
paragraph 1 of the Revised Penal Code.4
Petitioner filed a motion for reconsideration before the appellate court on
September 20, 1991, but the motion was denied in a Resolution dated
November 11, 1991.
In her final bid to exonerate herself, petitioner filed the instant petition for review
alleging the following grounds:
I jewelry; one (1) 3.35 carat diamond ring worth P169,000.00 and one (1)
THE RESPONDENT COURT VIOLATED THE CONSTITUTION, THE
RULES OF COURT AND THE DECISION OF THIS HONORABLE
COURT IN NOT PASSING UPON THE FIRST AND THIRD ASSIGNED
ERRORS IN PETITIONER'S BRIEF;
II
THE RESPONDENT COURT FAILED TO APPLY THE PRINCIPLE
THAT THE PAROL EVIDENCE RULE WAS WAIVED WHEN THE
PRIVATE PROSECUTOR CROSS-EXAMINED THE PETITIONER
AND AURELIA NADERA AND WHEN COMPLAINANT WAS CROSS-
EXAMINED BY THE COUNSEL FOR THE PETITIONER AS TO THE
TRUE NATURE OF THE AGREEMENT BETWEEN THE PARTIES
WHEREIN IT WAS DISCLOSED THAT THE TRUE AGREEMENT OF
THE PARTIES WAS A SALE OF JEWELRIES AND NOT WHAT WAS
EMBODIED IN THE RECEIPT MARKED AS EXHIBIT "A" WHICH WAS
RELIED UPON BY THE RESPONDENT COURT IN AFFIRMING THE
JUDGMENT OF CONVICTION AGAINST HEREIN PETITIONER; and
III
THE RESPONDENT COURT FAILED TO APPLY IN THIS CASE THE
PRINCIPLE ENUNCIATED BY THIS HONORABLE COURT TO THE
EFFECT THAT "ACCUSATION" IS NOT, ACCORDING TO THE
FUNDAMENTAL LAW, SYNONYMOUS WITH GUILT: THE
PROSECUTION MUST OVERTHROW THE PRESUMPTION OF
INNOCENCE WITH PROOF OF GUILT BEYOND REASONABLE
DOUBT. TO MEET THIS STANDARD, THERE IS NEED FOR THE
MOST CAREFUL SCRUTINY OF THE TESTIMONY OF THE STATE,
BOTH ORAL AND DOCUMENTARY, INDEPENDENTLY OF
WHATEVER DEFENSE IS OFFERED BY THE ACCUSED. ONLY IF
THE JUDGE BELOW AND THE APPELLATE TRIBUNAL COULD
ARRIVE AT A CONCLUSION THAT THE CRIME HAD BEEN
COMMITTED PRECISELY BY THE PERSON ON TRIAL UNDER
SUCH AN EXACTING TEST SHOULD SENTENCE THUS REQUIRED
THAT EVERY INNOCENCE BE DULY TAKEN INTO ACCOUNT. THE
PROOF AGAINST HIM MUST SURVIVE THE TEST OF REASON;
THE STRONGEST SUSPICION MUST NOT BE PERMITTED TO
SWAY JUDGMENT. (People v. Austria, 195 SCRA 700)5
Herein the pertinent facts as alleged by the prosecution.
On or about October 8, 1987, petitioner Rosa Lim who had come from Cebu
received from private respondent Victoria Suarez the following two pieces of
bracelet worth P170,000.00, to be sold on commission basis. The agreement
was reflected in a receipt marked as Exhibit "A"6 for the prosecution. The
transaction took place at the Sir Williams Apartelle in Timog Avenue, Quezon
City, where Rosa Lim was temporarily billeted.
On December 15, 1987, petitioner returned the bracelet to Vicky Suarez, but
failed to return the diamond ring or to turn over the proceeds thereof if sold. As
a result, private complainant, aside from making verbal demands, wrote a
demand letter7 to petitioner asking for the return of said ring or the proceeds of
the sale thereof. In response, petitioner, thru counsel, wrote a letter8 to private
respondent's counsel alleging that Rosa Lim had returned both ring and
bracelet to Vicky Suarez sometime in September, 1987, for which reason,
petitioner had no longer any liability to Mrs. Suarez insofar as the pieces of
jewelry were concerned. Irked, Vicky Suarez filed a complaint for estafa under
Article 315, par l(b) of the Revised Penal Code for which the petitioner herein
stands convicted.
Petitioner has a different version.
Rosa Lim admitted in court that she arrived in Manila from Cebu sometime in
October 1987, together with one Aurelia Nadera, who introduced petitioner to
private respondent, and that they were lodged at the Williams Apartelle in
Timog, Quezon City. Petitioner denied that the transaction was for her to sell
the two pieces of jewelry on commission basis. She told Mrs. Suarez that she
would consider buying the pieces of jewelry far her own use and that she would
inform the private complainant of such decision before she goes back to Cebu.
Thereafter, the petitioner took the pieces of jewelry and told Mrs. Suarez to
prepare the "necessary paper for me to sign because I was not yet prepare (d)
to buy it."9 After the document was prepared, petitioner signed it. To prove that
she did not agree to the terms of the receipt regarding the sale on commission
basis, petitioner insists that she signed the aforesaid document on the upper
portion thereof and not at the bottom where a space is provided for the signature
of the person(s) receiving the jewelry. 10
On October 12, 1987 before departing for Cebu, petitioner called up Mrs.
Suarez by telephone in order to inform her that she was no longer interested in
the ring and bracelet. Mrs. Suarez replied that she was busy at the time and so,
she instructed the petitioner to give the pieces of jewelry to Aurelia Nadera who
would in turn give them back to the private complainant. The petitioner did as
she was told and gave the two pieces of jewelry to Nadera as evidenced by a
handwritten receipt, dated October 12, 1987. 11
Two issues need to be resolved: First, what was the real transaction between
Rosa Lim and Vicky Suarez a contract of agency to sell on commission basis
as set out in the receipt or a sale on credit; and, second, was the subject
diamond ring returned to Mrs. Suarez through Aurelia Nadera?
Petitioner maintains that she cannot be liable for estafa since she never
received the jewelries in trust or on commission basis from Vicky Suarez. The
real agreement between her and the private respondent was a sale on credit
with Mrs. Suarez as the owner-seller and petitioner as the buyer, as indicated
by the bet that petitioner did not sign on the blank space provided for the
signature of the person receiving the jewelry but at the upper portion thereof
immediately below the description of the items taken. 12
The contention is far from meritorious.
The receipt marked as Exhibit "A" which establishes a contract of agency to sell
on commission basis between Vicky Suarez and Rosa Lim is herein reproduced
in order to come to a proper perspective:
THIS IS TO CERTIFY, that I received from Vicky
Suarez PINATUTUNAYAN KO na aking tinanggap kay ___________
the following jewelries:
ang mga alahas na sumusunod:
Description Price
Mga Uri Halaga
l ring 3.35 dolo P 169,000.00
1 bracelet 9;170,000.00
total P 339,000.00
Kabuuan
in good condition, to be sold in CASH ONLY within . . . days from date
of signing this receipt na nasa mabuting kalagayan upang ipagbili ng
KALIWAAN (ALCONTADO) lamang sa loob ng . . . araw mula ng ating
pagkalagdaan:
if I could not sell, I shall return all the jewelry within the period
mentioned above; if I would be able to sell, I shall immediately
deliver and account the whole proceeds of sale thereof to the
owner of the jewelries at his/her residence; my compensation
or commission shall be the over-price on the value of each
jewelry quoted above. I am prohibited to sell any jewelry on
credit or by installment; deposit, give for safekeeping: lend,
pledge or give as security or guaranty under any circumstance
or manner, any jewelry to other person or persons.
kung hindi ko maipagbili ay isasauli ko ang lahat ng alahas sa
loob ng taning na panahong nakatala sa itaas; kung maipagbili
ko naman ay dagli kong isusulit at ibibigay ang buong
pinagbilhan sa may-ari ng mga alahas sa kanyang bahay
tahanan; ang aking gantimpala ay ang mapapahigit na halaga
sa nakatakdang halaga sa itaas ng bawat alahas HINDI ko
ipinahihintulutang ipa-u-u-tang o ibibigay na hulugan ang alin
mang alahas, ilalagak, ipagkakatiwala; ipahihiram; isasangla o
ipananagot kahit sa anong paraan ang alin mang alahas sa
ibang mga tao o tao.
I sign my name this . . . day of . . . 19 . . . at Manila, NILALAGDAAN ko
ang kasunduang ito ngayong ika _____ ng dito sa Maynila.
 ___________________
Signature of Persons who
received jewelries (Lagda
ng Tumanggap ng mga
Alahas)
Address: . . . . . . . . . . . .
Rosa Lim's signature indeed appears on the upper portion of the receipt
immediately below the description of the items taken: We find that this fact does
not have the effect of altering the terms of the transaction from a contract of
agency to sell on commission basis to a contract of sale. Neither does it indicate
absence or vitiation of consent thereto on the part of Rosa Lim which would
make the contract void or voidable. The moment she affixed her signature
thereon, petitioner became bound by all the terms stipulated in the receipt. She,
thus, opened herself to all the legal obligations that may arise from their breach.
This is clear from Article 1356 of the New Civil Code which provides:
Contracts shall be obligatory in whatever form they may have been
entered into, provided all the essential requisites for their validity are
present. . . .
However, there are some provisions of the law which require certain formalities
for particular contracts. The first is when the form is required for the validity of
the contract; the second is when it is required to make the contract effective as
against third parties such as those mentioned in Articles 1357 and 1358; and
the third is when the form is required for the purpose of proving the existence
of the contract, such as those provided in the Statute of Frauds in article
1403. 13 A contract of agency to sell on commission basis does not belong to
any of these three categories, hence it is valid and enforceable in whatever form
it may be entered into.
Furthermore, there is only one type of legal instrument where the law strictly
prescribes the location of the signature of the parties thereto. This is in the case
of notarial wills found in Article 805 of the Civil Code, to wit:
Every will, other than a holographic will, must be subscribed at
the end thereof by the testator himself . . . .
The testator or the person requested by him to write his name and the
instrumental witnesses of the will, shall also sign, as aforesaid, each
and every page thereof, except the last, on the left margin. . . .
In the case before us, the parties did not execute a notarial will but a simple
contract of agency to sell on commission basis, thus making the position of
petitioner's signature thereto immaterial.
Petitioner insists, however, that the diamond ring had been returned to Vicky
Suarez through Aurelia Nadera, thus relieving her of any liability. Rosa Lim
testified to this effect on direct examination by her counsel:
Q: And when she left the jewelries with you, what did you do
thereafter?
A: On October 12, I was bound for Cebu. So I called up Vicky
through telephone and informed her that I am no longer interested in
the bracelet and ring and that I will just return it.
Q: And what was the reply of Vicky Suarez?
A: She told me that she could not come to the apartelle since she
was very busy. So, she asked me if Aurelia was there and when I
informed her that Aurelia was there, she instructed me to give the
pieces of jewelry to Aurelia who in turn will give it back to Vicky.
Q: And you gave the two (2) pieces of jewelry to Aurelia Nadera?
A: Yes, Your Honor. 14
This was supported by Aurelia Nadera in her direct examination by petitioner's
counsel:
Q: Do you know if Rosa Lim in fact returned the jewelries?
A: She gave the jewelries to me.
Q: Why did Rosa Lim give the jewelries to you?
A: Rosa Lim called up Vicky Suarez the following morning and told
Vicky Suarez that she was going home to Cebu and asked if she could
give the jewelries to me.
Q: And when did Rosa Lim give to you the jewelries?
A: Before she left for Cebu. 15
On rebuttal, these testimonies were belied by Vicky Suarez herself:
Q: It has been testified to here also by both Aurelia Nadera and
Rosa Lim that you gave authorization to Rosa Lim to turn over the two
(2) pieces of jewelries mentioned in Exhibit "A" to Aurelia Nadera, what
can you say about that?
A: That is not true sir, because at that time Aurelia Nadera is highly
indebted to me in the amount of P140,000.00, so if I gave it to Nadera,
I will be exposing myself to a high risk. 16<
The issue as to the return of the ring boils down to one of credibility. Weight of
evidence is not determined mathematically by the numerical superiority of the
witnesses testifying to a given fact. It depends upon its practical effect in
inducing belief on the part of the judge trying the case.17 In the case at bench,
both the trial court and the Court of Appeals gave weight to the testimony of
Vicky Suarez that she did not authorize Rosa Lim to return the pieces of jewelry
to Nadera. The respondent court, in affirming the trial court, said:
. . . This claim (that the ring had been returned to Suarez thru Nadera)
is disconcerting. It contravenes the very terms of Exhibit A. The
instruction by the complaining witness to appellant to deliver the ring to
Aurelia Nadera is vehemently denied by the complaining witness, who
declared that she did not authorize and/or instruct appellant to do so.
And thus, by delivering the ring to Aurelia without the express authority
and consent of the complaining witness, appellant assumed the right to
dispose of the jewelry as if it were hers, thereby committing conversion,
a clear breach of trust, punishable under Article 315, par. 1(b), Revised
Penal Code.
We shall not disturb this finding of the respondent court. It is well settled that
we should not interfere with the judgment of the trial court in determining the
credibility of witnesses, unless there appears in the record some fact or
circumstance of weight and influence which has been overlooked or the
significance of which has been misinterpreted. The reason is that the trial court
is in a better position to determine questions involving credibility having heard
the witnesses and having observed their deportment and manner of testifying
during the trial. 18
Article 315, par. 1(b) of the Revised Penal Code provides:
Art. 315. Swindling (estafa). Any person who shall defraud another by
any of the means mentioned hereinbelow shall be punished by:
xxx xxx xxx
(b) By misappropriating or converting, to the prejudice of another,
money, goods, or any other personal property received by the offender
in trust or on commission, or for administration, or under any other
obligation involving the duty to make delivery of or to return the same,
even though such obligation be totally or partially guaranteed by a bond;
or by denying having received such money, goods, or other property.
xxx xxx xxx
The elements of estafa with abuse of confidence under this subdivision are as
follows. (1) That money, goods, or other personal property be received by the
offender in trust, or on commission, or for administration, or under any other
obligation involving the duty to make delivery of, or to return, the same; (2) That
there be misappropriation or conversion of such money or property by the
offender or denial on his part of such receipt; (3) That such misappropriation or
conversion or denial is to the prejudice of another; and (4) That there is a
demand made by the offended party to the offender (Note: The 4th element is
not necessary when there is evidence of misappropriation of the goods by the
defendant) 19
All the elements of estafa under Article 315, Paragraph 1(b) of the Revised
Penal Code, are present in the case at bench. First, the receipt marked as
Exhibit "A" proves that petitioner Rosa Lim received the pieces of jewelry in
trust from Vicky Suarez to be sold on commission basis. Second, petitioner
misappropriated or converted the jewelry to her own use; and, third, such
misappropriation obviously caused damage and prejudice to the private
respondent.
WHEREFORE, the petition is DENIED and the Decision of the Court of Appeals
is hereby AFFIRMED.
Costs against petitioner.
SO ORDERED.
G.R. No. L-9608 August 7, 1915
DIEGO LIÑAN, plaintiff-appellee,
vs.
MARCOS P. PUNO, ET AL., defendants-appellants.
Mariano Escueta for appellants.
S. Lopez for appellee.
JOHNSON, J.:
The facts upon which the decision in this case depends are as follows:
(1) The the plaintiff, in the month of May, 1908, and for a long time prior thereto,
was the owner of a certain parcel of land particularly described in paragraph 2
of the complaint.
(2) That on the 16th day of May, 1908, the plaintiff executed the following
document, which conferred upon the defendant Marcos P. Puno the power,
duties and obligations therein contained:
I, Diego Liñan, of age, married, a resident of Daet, Province of Ambos
Camarines, Philippine Islands, and at the present time temporarily
residing in this city of Tarlac, capital of the Province of Tarlac, P.I., set
 forth that I hereby confer sufficient power, such as the law requires,
upon Mr. Marcos P. Puno, likewise a resident of this city of Tarlac,
capital of the Province of Tarlac, in order that in my name and
representation he may administer the interest I possess within this
municipality of Tarlac, purchase, sell, collect and pay, as well as sue
and be sued before any authority, appear before the courts of justice
and administrative officers in any proceeding or business concerning
the good administration and advancement of my said interests, and
may, in necessary cases, appoint attorneys at law or attorneys in fact
to represent him.
The meaning, purport, and power conferred by this document constitute the
very gist of the present action.
(3) That in June, 1911, the defendant Puno, for the sum of P800, sold and
delivered said parcel of land to the other defendants.
The plaintiff alleges that the said document (Exhibit A) did not confer upon the
defendant Puno the power to sell the land and prayed that the sale be set aside;
that the land be returned to him, together with damages.
The defendants at first presented a demurrer to the complaint, which was
overruled. To the order overruling the demurrer the defendants duly excepted.
They later answered. In their answer they first denied generally and specially
all of the important facts stated in the complaint. In their special answer or
defense they admitted the sale of the land by Puno to the other defendants and
alleged that the same was a valid sale and prayed to be relieved from the
liability under the complaint, with their costs.
Upon the issue thus presented the lower court decided: (1) That the document
Exhibit A did not give Puno authority to sell the land; (2) that the sale was illegal
and void; (3) That defendants should return to the land to the plaintiff; and (4)
That the defendants should pay to the plaintiff the sum of P1,000 as damages,
P400 of which the defendant Puno should alone be responsible for, and to pay
the costs.
From that decision the defendants appealed to this court and made the
following assignments of error:
I. The lower court erred in overruling the demurrer filed by the appellants
to the complaints.
II. The lower court erred in holding that the appellant Marcos P. Puno
was not authorized to sell the land in question and that the sale
executed by the said Marcos P. Puno to the other appellants, Enrique,
Vicente, Aquilina and Remedios, surnamed Maglanok, is null and void.
III. The lower court erred in ordering the appellee, Diego Liñan, to return
to the appellants, Enrique, Vicente, Aquilina, and Remedios Maglanok
the sum of P800, the selling price of the land question.
III. And, finally, the lower court erred in sentencing the appellants to pay
to the appellee the sum of P1,000, the value of the products collected,
and to pay the costs.
IV. And, finally, the lower court erred in sentencing the appellant to pay
to the appellee the sum of P1,000, the value of the products collected,
and to pay the costs.
With reference to the first assignment of error, we are of the opinion that the
facts stated in the opinion are sufficient to constitute a cause of action.
With reference to the second assignment of error, the plaintiff alleges that the
power of attorney, as contained in Exhibit A, did not authorize the defendant
Puno had full and complete power and authority to do what he did. The lower
court held that Exhibit A only gave Puno power and authority to administer the
land; that he was not authorized to sell it. Omitting the purely explanatory parts
of Exhibit A, it reads as follows: "I, Diego Liñan, ... set forth that I ... confer
sufficient power, such as the law requires, upon Mr. Marcos P. Puno ... in order
that in my name and representation he may administer ... purchase, sell, collect
and pay ... in any proceeding or business concerning the good administration
and advancement of my said interests, and may, in necessary cases, appoint
at law or attorneys in fact to represent him."
Contracts of agency as well as general powers of attorney must be interpreted
in accordance with the language used by the parties. the real intention of the
parties is primarily to be determined from the language used. The intention is
to be gathered from the whole instrument. In case of doubt resort must be had
to the situation, surroundings and relations of the parties. Whenever it is
possible, effect is to be given to every word and clause used by the parties. It
is to be presumed that the parties said what they intended to say and that they
used each word or clause with some purpose and that purpose is, if possible,
to be ascertained and enforced. The intention of the parties must be sustained
rather than defeated. If the contract be open to two constructions, one of which
would uphold while the other would overthrow it, the former is to be chosen. So,
if by one construction the contract would be illegal, and by another equally
permissible construction it would be lawful, the latter must be adopted. The acts
of the parties in carrying out the contract will be presumed to be done in good
faith. The acts of the parties will be presumed to have been done in conformity
with and not contrary to the intent of the contract. The meaning of generals
words must be construed with reference to the specific object to be
accomplished and limited by the recitals made in reference to such object.
With these general observations in mind, ,let us examine the terms of the power
conferred upon the defendant Puno (Exhibit A) and ascertain, if possible, what
was the real intent of the plaintiff. The lower court held that the "only power
conferred was the power to administer." Reading the contract we find it says
that the plaintiff "I confer ... power ... that ... he may administer ... purchase, sell,
collect and pay ... in any proceeding or business concerning the good
administration and advancement of my said interests." The words "administer,
purchase, sell," etc., seem to be used coordinately. Each has equal force with
the other. There seems to be no good reason for saying that Puno had authority
to administer and not to sell when "to sell" was as advantageous to the plaintiff
in the administration of his affairs as "to administer." To hold that the power was
"to administer" only when the power "to sell" was equally conferred would be to
give to special words of the contract a special and limited meaning to the
exclusion of other general words of equal import.
The record contains no allegation on proof that Puno acted in bad faith or
fraudulently in selling the land. It will be presumed that he acted in good faith
and in accordance with his power as he understood it. That his interpretation of
his power, as gathered from the contract (Exhibit A), is tenable cannot, we
believe, be successfully denied. In view of that fact and view of the fact that, so
far as the record shows, the other defendants acted in good faith, we are of the
opinion that the contract, liberally construed, as we think it should be, justifies
the interpretation given it by Puno. In reaching this conclusion, we have taken
into account the fact that the plaintiff delayed his action to annul said sale from
the month of June, 1911, until the 15th of February, 1913. Neither have we
overlooked the fact in the brief of the appellants that the plaintiff has not
returned, nor offered to return, nor indicated a willingness to return, the
purchase price. (Art. 1308 of the Civil Code; Manikis vs. Blas, No. 7585.1).
In view of all the foregoing, we are of the opinion that the lower court committed
the error complained of in the second assignment, and, without discussing the
other assignments of error, we are of the opinion, and so hold, that the judgment
of the lower court should be and is hereby revoked and that the appellants
should be relieved from all liability under the complaint. Without any finding as
to costs, it is so ordered.
Arellano, C.J., Torres, Carson, and Araullo, JJ., concur.
G.R. No. L-40242 December 15, 1982
DOMINGA CONDE, petitioner,
vs.
THE HONORABLE COURT OF APPEALS, MANILA PACIENTE
CORDERO, together with his wife, NICETAS ALTERA, RAMON CONDE,
together with his wife, CATALINA T. CONDE, respondents.
MELENCIO-HERRERA, J.:
An appeal by certiorari from the Decision of respondent Court of Appeals 1 (CA-
G.R. No. 48133- R) affirming the judgment of the Court of First Instance of Leyte,
Branch IX, Tacloban City (Civil Case No. B-110), which dismissed petitioner's
Complaint for Quieting of Title and ordered her to vacate the property in dispute
and deliver its possession to private respondents Ramon Conde and Catalina
Conde.
The established facts, as found by the Court of Appeals, show that on 7 April
1938. Margarita Conde, Bernardo Conde and the petitioner Dominga Conde,
as heirs of Santiago Conde, sold with right of repurchase, within ten (10) years
from said date, a parcel of agricultural land located in Maghubas Burauen
Leyte, (Lot 840), with an approximate area of one (1) hectare, to Casimira
Pasagui, married to Pio Altera (hereinafter referred to as the Alteras), for
P165.00. The "Pacto de Retro Sale" further provided:
... (4) if at the end of 10 years the said land is not repurchased,
a new agreement shall be made between the parties and in no
case title and ownership shall be vested in the hand of the party
of the SECOND PART (the Alteras).
xxx xxx xxx (Exhibit "B")
On 17 April 1941, the Cadastral Court of Leyte adjudicated Lot No. 840 to the
Alteras "subject to the right of redemption by Dominga Conde, within ten (10)
years counting from April 7, 1983, after returning the amount of P165.00 and
the amounts paid by the spouses in concept of land tax ... " (Exhibit "1"). Original
Certificate of Title No. N-534 in the name of the spouses Pio Altera and
Casimira Pasagui, subject to said right of repurchase, was transcribed in the
"Registration Book" of the Registry of Deeds of Leyte on 14 November 1956
(Exhibit "2").
On 28 November 1945, private respondent Paciente Cordero, son-in-law of the
Alteras, signed a document in the Visayan dialect, the English translation of
which reads:
MEMORANDUM OF REPURCHASE OVER A PARCEL OF LAND SOLD WITH
REPURCHASE WHICH DOCUMENT GOT LOST
WE, PIO ALTERA and PACIENTE CORDERO, both of legal age, and residents
of Burauen Leyte, Philippines, after having been duly sworn to in accordance
with law free from threats and intimidation, do hereby depose and say:
1. That I, PIO ALTERA bought with the right of repurchase two parcels
of land from DOMINGA CONDE, BERNARDO CONDE AND
MARGARITA CONDE, all brother and sisters.
2. That these two parcels of land were all inherited by the three.
3. That the document of SALE WITH THE RIGHT OF REPURCHASE
got lost in spite of the diligent efforts to locate the same which was lost
during the war.
4. That these two parcels of land which was the subject matter of a
Deed of Sale with the Right of Repurchase consists only of one
document which was lost.
5. Because it is about time to repurchase the land, I have allowed the
representative of Dominga Conde, Bernardo Conde and Margarita
Conde in the name of EUSEBIO AMARILLE to repurchase the same.
6. Now, this very day November 28, 1945, 1 or We have received
together with Paciente Cordero who is my son-in-law the amount of
ONE HUNDRED SIXTY-FIVE PESOS (P165. 00) Philippine Currency
of legal tender which was the consideration in that sale with the right of
repurchase with respect to the two parcels of land.
That we further covenant together with Paciente Cordero who is my son-in-law
that from this day the said Dominga Conde, Bernardo Conde and Margarita
Conde will again take possession of the aforementioned parcel of land because
they repurchased the same from me. If and when their possession over the said
parcel of land be disturbed by other persons, I and Paciente Cordero who is my
son-in-law will defend in behalf of the herein brother and sisters mentioned
above, because the same was already repurchased by them.
IN WITNESS WHEREOF, I or We have hereunto affixed our thumbmark or
signature to our respective names below this document or memorandum this
28th day of November 1945 at Burauen Leyte, Philippines, in the presence of
two witnesses.
PIO ALTERA (Sgd.) PACIENTE CORDERO
WITNESSES:
1. (SGD.) TEODORO C. AGUILLON
To be noted is the fact that neither of the vendees-a-retro, Pio Altera nor
Casimira Pasagui, was a signatory to the deed. Petitioner maintains that
because Pio Altera was very ill at the time, Paciente Cordero executed the deed
of resale for and on behalf of his father-in-law. Petitioner further states that she
redeemed the property with her own money as her co-heirs were bereft of funds
for the purpose.
The pacto de retro document was eventually found.
On 30 June 1965 Pio Altera sold the disputed lot to the spouses Ramon Conde
and Catalina T. Conde, who are also private respondents herein. Their
relationship to petitioner does not appear from the records. Nor has the
document of sale been exhibited.
Contending that she had validly repurchased the lot in question in 1945,
petitioner filed, on 16 January 1969, in the Court of First Instance of Leyte,
Branch IX, Tacloban City, a Complaint (Civil Case No. B-110), against Paciente
Cordero and his wife Nicetas Altera, Ramon Conde and his wife Catalina T.
Conde, and Casimira Pasagui Pio Altera having died in 1966), for quieting of
title to real property and declaration of ownership.
Petitioner's evidence is that Paciente Cordero signed the Memorandum of
Repurchase in representation of his father-in-law Pio Altera, who was seriously
sick on that occasion, and of his mother-in-law who was in Manila at the time,
and that Cordero received the repurchase price of P65.00.
Private respondents, for their part, adduced evidence that Paciente Cordero
signed the document of repurchase merely to show that he had no objection to
the repurchase; and that he did not receive the amount of P165.00 from
petitioner inasmuch as he had no authority from his parents-in-law who were
the vendees-a-retro.
After trial, the lower Court rendered its Decision dismissing the Complaint and
the counterclaim and ordering petitioner "to vacate the property in dispute and
deliver its peaceful possession to the defendants Ramon Conde and Catalina
T. Conde".
On appeal, the Court of Appeals upheld the findings of the Court a quo that
petitioner had failed to validly exercise her right of repurchase in view of the fact
that the Memorandum of Repurchase was signed by Paciente Cordero and not
by Pio Altera, the vendee-a-retro, and that there is nothing in said document to
show that Cordero was specifically authorized to act for and on behalf of the
vendee a retro, Pio Altera.
Reconsideration having been denied by the Appellate Court, the case is before
us on review.
There is no question that neither of the vendees-a-retro signed the
"Memorandum of Repurchase", and that there was no formal authorization from
the vendees for Paciente Cordero to act for and on their behalf.
Of significance, however, is the fact that from the execution of the repurchase
document in 1945, possession, which heretofore had been with the Alteras, has
been in the hands of petitioner as stipulated therein. Land taxes have also been
paid for by petitioner yearly from 1947 to 1969 inclusive (Exhibits "D" to "D-15";
and "E"). If, as opined by both the Court a quo and the Appellate Court,
petitioner had done nothing to formalize her repurchase, by the same token,
neither have the vendees-a-retro done anything to clear their title of the
encumbrance therein regarding petitioner's right to repurchase. No new
agreement was entered into by the parties as stipulated in the deed of pacto de
retro, if the vendors a retro failed to exercise their right of redemption after ten
years. If, as alleged, petitioner exerted no effort to procure the signature of Pio
Altera after he had recovered from his illness, neither did the Alteras repudiate
the deed that their son-in-law had signed. Thus, an implied agency must be
held to have been created from their silence or lack of action, or their failure to
repudiate the agency. 2
Possession of the lot in dispute having been adversely and uninterruptedly with
petitioner from 1945 when the document of repurchase was executed, to 1969,
when she instituted this action, or for 24 years, the Alteras must be deemed to
have incurred in laches. 3 That petitioner merely took advantage of the
abandonment of the land by the Alteras due to the separation of said spouses, and
that petitioner's possession was in the concept of a tenant, remain bare assertions
without proof.
Private respondents Ramon Conde and Catalina Conde, to whom Pio Altera
sold the disputed property in 1965, assuming that there was, indeed, such a
sale, cannot be said to be purchasers in good faith. OCT No. 534 in the name
of the Alteras specifically contained the condition that it was subject to the right
of repurchase within 10 years from 1938. Although the ten-year period had
lapsed in 1965 and there was no annotation of any repurchase by petitioner,
neither had the title been cleared of that encumbrance. The purchasers were
put on notice that some other person could have a right to or interest in the
property. It behooved Ramon Conde and Catalina Conde to have looked into
the right of redemption inscribed on the title, and particularly the matter of
possession, which, as also admitted by them at the pre-trial, had been with
petitioner since 1945.
Private respondent must be held bound by the clear terms of the Memorandum
of Repurchase that he had signed wherein he acknowledged the receipt of
P165.00 and assumed the obligation to maintain the repurchasers in peaceful
possession should they be "disturbed by other persons". It was executed in the
Visayan dialect which he understood. He cannot now be allowed to dispute the
same. "... If the contract is plain and unequivocal in its terms he is ordinarily
bound thereby. It is the duty of every contracting party to learn and know its
contents before he signs and delivers it." 4
There is nothing in the document of repurchase to show that Paciente Cordero
had signed the same merely to indicate that he had no objection to petitioner's
right of repurchase. Besides, he would have had no personality to object. To
uphold his oral testimony on that point, would be a departure from the parol
evidence rule 5 and would defeat the purpose for which the doctrine is intended.
... The purpose of the rule is to give stability to written
agreements, and to remove the temptation and possibility of
perjury, which would be afforded if parol evidence was
admissible. 6
In sum, although the contending parties were legally wanting in their respective
actuations, the repurchase by petitioner is supported by the admissions at the
pre-trial that petitioner has been in possession since the year 1945, the date of
the deed of repurchase, and has been paying land taxes thereon since then.
The imperatives of substantial justice, and the equitable principle of laches
brought about by private respondents' inaction and neglect for 24 years, loom
in petitioner's favor.
WHEREFORE, the judgment of respondent Court of Appeals is hereby
REVERSED and SET ASIDE, and petitioner is hereby declared the owner of
the disputed property. If the original of OCT No. N-534 of the Province of Leyte
is still extant at the office of the Register of Deeds, then said official is hereby
ordered to cancel the same and, in lieu thereof, issue a new Transfer Certificate
of Title in the name of petitioner, Dominga Conde.
No costs.
SO ORDERED.
G.R. No. 214567
DRA. MERCEDES OLIVER, Petitioner,
vs.
PHILIPPINE SAVINGS BANK and LILIA CASTRO, Respondents.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari seeking to reverse and set aside the
October 25, 2013 Decision1 and the September 12, 2014 Resolution2 of the
Court of Appeals (CA) in CA-G.R. CV No. 95656, which reversed the July 22,
2010 Order3 of the Regional Trial Court, Branch 276, Muntinlupa City (RTC) in
Civil Case No. 99-278, a case for injunction and damages.
Petitioner Mercedes Oliver (Oliver) was a depositor of respondent Philippine
Savings Bank (PSBank) with account number 2812-07991-6. dent Lilia
Castro (Castro) was the Assistant Vice President of the Acting Branch
Manager of PSBank San Pedro, Laguna.
Oliver’s Position
In her Complaint,4 dated October 5, 1999, Oliver alleged that sometime in 1997,
she made an initial deposit of P12 million into her PSBank account. During that
time, Castro convinced her to loan out her deposit as interim or bridge financing
for the approved loans of bank borrowers who were waiting for the actual
release of their loan proceeds.
Under this arrangement, Castro would first show the approved loan documents
to Oliver. Thereafter, Castro would withdraw the amount needed from Oliver’s
account. Upon the actual release of the loan by PSBank to the borrower, Castro
would then charge the rate of 4% a month from the loan proceeds as interim or
bridge financing interest. Together with the interest income, the principal
amount previously withdrawn from Oliver’s bank account would be deposited
back to her account. Meanwhile, Castro would earn a commission of 10% from
the interest.
Their arrangement went on smoothly for months. Due to the frequency of bank
transactions, Oliver even entrusted her passbook to Castro. Because Oliver
earned substantial profit, she was further convinced by Castro to avail of an
additional credit line in the amount of P10 million. The said credit line was
secured by a real estate mortgage on her house and lot in Ayala Alabang
covered by Transfer Certificate of Title (TCT) No. 137796.5
Oliver instructed Castro to pay P2 million monthly to PSBank starting on
September 3, 1998 so that her credit line for P10 million would be fully paid by
January 3, 1999.
Beginning September 1998, Castro stopped rendering an accounting for Oliver.
The latter then demanded the return of her passbook. When Castro showed
her the passbook sometime in late January or early February 1995, she noticed
several erasures and superimpositions therein. She became very suspicious of
the many erasures pertaining to the December 1998 entries so she requested
a copy of her transaction history register from PSBank.
When her transaction history register6 was shown to her, Oliver was surprised
to discover that the amount of P4,491,250.00 (estimated at P4.5 million) was
entered into her account on December 21, 1998. While a total of P7 million was
withdrawn from her account on the same day, Oliver asserted that she neither
applied for an additional loan of P4.5 million nor authorized the withdrawal of
P7 million. She also discovered another loan for P1,396,310.45, acquired on
January 5, 1999 and allegedly issued in connection with the P10 million credit
line.
In Oliver’s passbook, 7 there were no entries from December 17, 1998 to
December 27, 1998. The transaction history register, however, showed several
transactions on these very same dates including the crediting of P4.5 million
and the debiting of P7 million on December 21, 1998. Oliver then learned that
the additional P4.5 million and P1,396,310.45 loans were also secured by the
real estate mortgage,8 dated January 8, 1998, covering the same property in
Ayala Alabang. Oliver received two collection letters,9 dated May 13, 1999 and
June 18, 1999, from PSBank referring to the non-payment of unpaid loans, to
wit: (1) P4,491,250.00 from the additional loan and (2) P1,396,310.45 from the
P10 million credit line.10 In response, Oliver protested that she neither availed
of the said loans nor authorized the withdrawal of P7 million from her
account.11 She also claimed that the P10 million loan from her credit line was
already paid in full.12
On July 14, 1999, a final demand letter13 was sent to Oliver by PSBank,
requiring her to pay the unpaid loans. Oliver, however, still refused to pay.
Subsequently, Oliver received a notice of sale14 involving the property in Ayala
Alabang, issued by Notary Public Jose Celestino Torres on September 15,
1999. The said notice informed her of the impending extra-judicial foreclosure
and sale of her house and lot to be held on October 21, 1999.
As a result, Oliver filed the subject complaint against PSBank and Castro.
Castro’s Position
In her Answer,15 Castro admitted that she and Oliver agreed that the latter would
lend out money to borrowers at 4% to 5% interest per month provided that the
former would screen them. She also acknowledged having been instructed by
Oliver to pay the bank P2 million every month to settle the P10 million credit
line. Nonetheless, Castro informed Oliver that the payment thereof was subject
to the availability of funds in her account. She disclosed that she made some
alterations and erasures in Oliver’s passbook so as to reconcile the passbook
with the computer printout of the bank, but denied any attempt to hide the
passbook as she was able to return it sometime in January 1999.
Castro also denied the deceit imputed against her. She asserted that their
arrangement was not "interim or bridge financing" inasmuch as the loans were
entirely new and distinct from that granted by PSBank. When Oliver’s clients
multiplied, Castro advised her to apply for a credit line of P10 million. The said
credit line was first approved in December 1997 with a term of one year.16
Sometime in August 1998, Castro informed Oliver about the impending
expiration of her credit line. Subsequently, Oliver applied for another loan in the
amount of P4.5 million as evidenced by a promissory note,17 dated December
21, 1998. On January 5, 1999, another promissory note18 was executed by
Oliver to cover a loan in the amount of P1,396,310.45.
Castro asserted that, on December 21, 1998, upon Oliver’s instruction, a total
of P7 million was withdrawn from the latter’s account and was then deposited
to the account of one Ben Lim (Lim) on the same date. Lim was a businessman
who borrowed money from Oliver. Castro knew him because he was also a
depositor and borrower of PSBank San Pedro Branch.19
As to the amount of P1,396,310.45, Castro explained that it was a separate and
personal loan obtained by her from Oliver. To secure the payment of such
obligation, Castro mortgaged a property located in Camella Homes III in
Tunasan, Muntinlupa City.
Castro admitted that on October 19, 1999, she was terminated by PSBank
because of certain problems regarding client accommodation and loss of
confidence.20
PSBank’s Position
In its defense, PSBank averred that Oliver applied for a credit line of P10 million
which was granted by the bank and which secured by a real estate mortgage.
Because Oliver failed to pay the P10 million loan, she obtained another loan in
the amount of P4.5 million, as evidenced by a promissory note. Days later, she
again acquired a separate loan amounting to P1,396,310.45 as shown by
another promissory note. Both loans were secured by a real estate mortgage,
dated January 8, 1998, and the proceeds thereof were issued as proved by the
release tickets,21 dated December 21, 1998 and January 5, 1999, respectively.22
The RTC Decision
In its March 30, 2010 Decision,23 the RTC dismissed the complaint and rendered
judgment in favor of PSBank and Castro. According to the RTC, PSBank and
Castro should not be held liable for the loan of P4.5 million and the withdrawal
of the P7 million. Castro was able to submit the Debit Credit Memo 24 and the
Savings Account Check Deposit Slip25 to prove that there were some previous
loan transactions between Oliver and Lim. Considering that neither PSBank nor
Castro obtained the P7 million, there was no obligation on their part to return
the amount.
Moreover, the trial court stated that Oliver failed to controvert PSBank’s
allegation that she had unpaid loan obligations. Thus, it concluded that PSBank
had the right to foreclose the mortgaged property. The fallo reads:
WHEREFORE, finding lack of merit, the instant case is hereby DISMISSED.
Accordingly, the Writ of Preliminary Injunction is hereby LIFTED and SET
ASIDE.
SO ORDERED.26
Oliver seasonably filed her motion for reconsideration.27 She insisted that the
P7 million was unlawfully withdrawn. She claimed that what happened in this
case was a "cash savings withdrawal" and that there should have been a
corresponding withdrawal slip for such transaction. Also, if indeed the P7 million
was withdrawn from her account and was credited to the account of Lim, the
deposit slip for his account should have been presented.
The RTC Order
On July 22, 2010, the RTC resolved the motion and issued an
order reversing its earlier decision. According to the RTC, Oliver’s assertion
that the withdrawal was made without her consent prevailed in the absence of
any proof to the contrary. The cash savings withdrawal slips should have been
offered in evidence by either PSBank or Castro to settle the issue of whether
the amount of P7 million was actually withdrawn by Oliver or by her authorized
representative or agent.
The RTC also rejected the position of PSBank and Castro that the erasures and
alterations in Oliver’s passbook were made simply to reconcile the same with
the transaction history register of the bank because even after the alleged
corrections, the said documents still contained different entries. Although Oliver
and Lim had previous transactions, none of them pertained to the P7 million
purportedly transferred on December 21, 1998.
With regard to PSBank, the RTC stated that it failed to exercise utmost diligence
in safekeeping Oliver’s deposit. Had it not been for the unauthorized, withdrawal
which was attributable to the bank and Castro, the P4.5 million and the
P1,396,310.45 loans would not have remained outstanding, considering that
the improperly withdrawn P7 million was more than sufficient to discharge those
liabilities.28 The dispositive portion of the order reads:
WHEREFORE, premises considered, the Motion for Reconsideration is hereby
GRANTED. The Decision dated March 30, 2010 is hereby reconsidered and
set aside. In lieu thereof, a new one is hereby rendered ordering the defendants
Lilia Castro and Philippine Savings Bank to jointly and solidarily pay plaintiff
Dra. Mercedes Oliver, the sums of
1. P1,111,850.77 as actual damages;
2. P100,000.00 as moral damages;
3. P100,000.00 as attorney’s fees; and
4. P100,000.00 as exemplary damages
Moreover, the Writ of Preliminary Injunction is hereby made permanent.
SO ORDERED.29
Aggrieved, Castro and PSBank appealed before the CA.
The CA Decision
On October 25, 2013, the CA granted the appeal. It reversed the July 22, 2010
of the RTC order and reinstated its March 30, 2010 decision. The appellate
court found no compelling evidence to prove that fraud attended the processing
and release of the P4.5 million loan as well as the withdrawal of P7 million from
Oliver’s account. The CA found that Oliver admitted signing the loan
documents, the promissory notes and the release tickets pertaining to the
obligations that she had contracted with PSBank. In addition, the CA stated that
Oliver also failed to establish her assertion that she was manipulated and
defrauded into signing the said loan documents.
The CA also found that PSBank exercised extraordinary diligence in handling
Oliver’s account, thus, the awards of damages were deleted. The dispositive
portion of the CA decision reads:
WHEREFORE, the Appeal is hereby GRANTED. The Order dated 22 July 2010
of the Regional Trial Court of Muntinlupa City, Branch 276, is REVERSED and
SET ASIDE, and another one entered REINSTATING the Decision dated
March 30, 2010, in Civil Case No. 99-278.
SO ORDERED.30
Oliver filed her motion for reconsideration but the same was denied in the CA
Resolution, dated September 12, 2014.
Hence, this petition.
ISSUES
I
WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN
RULING THAT THE PETITIONER FAILED TO SHOW COMPELLING
EVIDENCE TO PROVE THAT FRAUD ATTENDED THE PROCESSING AND
RELEASE OF THE LOAN OF P4.5 MILLION AS WELL AS THE
WITHDRAWAL OF P7 MILLION PESOS FROM HER ACCOUNT.
II
WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED WHEN
IT RULED THAT THERE WAS NO EVIDENCE TO PROVE THAT THE SUM
OF P7 MILLION WAS DEBITED FROM THE ACCOUNT OF PETITIONER
SANS HER AUTHORIZATION.
III
WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED WHEN
IT RULED THAT THE RESPONDENTS TREATED THE PETITIONER’S
ACCOUNT WITH EXTRAORDINARY DILIGENCE.
IV
WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED WHEN
IT FAILED TO HOLD THAT THE RESPONDENTS ARE JOINTLY AND
SEVERALLY LIABLE TO THE PETITIONER FOR DAMAGES.31
In her petition for review,32 Oliver insisted that she had no knowledge of any loan
released because she never availed of any new loan from PSBank. Neither the
P4.5 million loan nor the cash withdrawal of P7 million was reflected in her
passbook.
Oliver further argued that the burden of proving that the withdrawal was made
with her authority would lie on the part of PSBank and Castro. The cash savings
withdrawal slip containing the signature of Oliver should have been presented
in court. While the respondents claimed that the amount withdrawn was lent to
Lim, the latter was never called to the witness stand as PSBank and Castro
opted not to present him in court. Castro, aside from her self-serving testimony,
failed to present any concrete proof to show that Oliver indeed lent the
withdrawn P7 million cash to Lim.
Finally, Oliver averred that the erasures and alterations in her passbook
undeniably established that Castro manipulated the same to conceal the loan
release and the cash withdrawal from her account.
In her Comment,33 Castro countered that the CA had more opportunity and
facilities to examine the facts. Hence, there was no reason to depart from the
rule that the findings of fact of the CA were final and conclusive and could not
be reviewed on appeal. She asserted that there was no proof that the P7 million
was withdrawn without Oliver’s authority. She added that Oliver was an astute
businesswoman who knew her clients and bank deposits and who was
knowledgeable of her bank transactions and was aware of her loaned amounts
from the bank.
In its Comment,34 PSBank asserted that the issues and arguments propounded
by Oliver had been judiciously passed upon. On the stated facts alone, the
petition, which was akin to a motion for reconsideration, should be denied
outright for being pro forma.
In her Reply,35 Oliver faulted PSBank and Castro for failing to present the cash
withdrawal slip which would show her signature to prove that the money was
withdrawn with her authority. She also reiterated that Lim should have been
presented as a witness to substantiate their defense that he actually received
the amount of P7 million.
The Court’s Ruling
The petition is impressed with merit.
There was an implied agency
between Oliver and Castro; the
loans were properly acquired
A contract of agency may be inferred from all the dealings between Oliver and
Castro. Agency can be express or implied from the acts of the principal, from
his silence or lack of action, or his failure to repudiate the agency knowing that
another person is acting on his behalf without authority.36 The question of
whether an agency has been created is ordinarily a question which may be
established in the same way as any other fact, either by direct or circumstantial
evidence. The question is ultimately one of intention.37
In this case, Oliver and Castro had a business agreement wherein Oliver would
obtain loans from the bank, through the help of Castro as its branch manager;
and after acquiring the loan proceeds, Castro would lend the acquired amount
to prospective borrowers who were waiting for the actual release of their loan
proceeds. Oliver would gain 4% to 5% interest per month from the loan
proceeds of her borrowers, while Castro would earn a commission of 10% from
the interests. Clearly, an agency was formed because Castro bound herself to
render some service in representation or on behalf of Oliver, in the furtherance
of their business pursuit.38
For months, the agency between Oliver and Castro benefited both parties.
Oliver, through Castro’s representations, was able to obtain loans, relend them
to borrowers, and earn interests; while Castro acquired commissions from the
transactions. Oliver even gave Castro her passbook to facilitate the
transactions.
Accordingly, the laws on agency apply to their relationship. Article 1881 of the
New Civil Code provides that the agent must act within the scope of his
authority. He may do such acts as may be conducive to the accomplishment of
the purpose of the agency. Thus, as long as the agent acts within the scope of
the authority given by his principal, the actions of the former shall bind the latter.
Oliver claims that the P4.5 million loan, released on December 21, 1998, and
the P1,396,310.45 loan, released on January 5, 1999, were not acquired with
her consent. Castro and PSBank, on the other hand, countered that these loans
were obtained with Oliver’s full consent. The Court finds that the said loans
were acquired with Oliver’s authority. The promissory notes39 and the release
tickets40 for the said loans bore her signatures. She failed to prove that her
signatures appearing on the loan documents were forged. Hence, the loan
documents were reliable and these proved that the loans were processed by
Castro within the scope of her authority. As the loans were validly obtained,
PSBank correctly stated that Oliver had incurred a debt of P4.5 million and
P1,396,310.45, or a total of P5,888,149.33.
P7 million was
improperly withdrawn;
agent acted beyond her
scope of authority
Although it was proven that Oliver authorized the loans, in the aggregate
amount of P5,888,149.33, there was nothing in the records which proved that
she also allowed the withdrawal of P7 million from her bank account. Oliver
vehemently denied that she gave any authority whatsoever to either Castro or
PSBank to withdraw the said amount. In her judicial affidavit before the RTC,
Castro initially claimed that Oliver authorized the withdrawal of P7 million from
her bank account, to wit:
Q: Do you know when was this 4.5 million pesos loan was credited to plaintiff’s
deposit account?
A: Based on the Transaction Ledge of PS Bank, the 4.5 million pesos was credit
to plaintiff’s deposit account on 21 December 21 1998
Q: What happened after the 4.5 million pesos loan was credited to plaintiff’s
account?
A: Upon plaintiff’s instruction, 7 million was withdrawn from her account
including her loaned amount to be deposited at Mr. Ben Lim’s account at PS
Bank, San Pedro Branch.41
[Emphasis Supplied]
During her cross-examination, however, Castro could no longer remember
whether Oliver gave her the authority to withdraw the P7 million from her
account. The transcript of stenographic notes reads:
Q: You said here, your statement here, "Upon Plaintiff’s instruction". So, my
question is, who did the Plaintiff instruct you, was it you?
A: I cannot remember, sir.
Q: You are not definite? Your statement here it is categorical. It’s on page 9 of
17 in the Judicial Affidavit, the question is "What happened after the 4.5 million
Pesos loan was credited to the Plaintiff’s account" And your answer was, "Upon
Plaintiff’s instruction Seven (7) million was withdrawn from her account. My
question is, this phrase, upon plaintiff’s instruction, who did the Plaintiff’s (sic)
instruct, was it you?
A: I cannot remember, sir because I still have other officers other than me, who
were assisting me during that time, so it could be the instruction even I said
upon the instruction of the plaintiff, but I cannot remember if I was the one
who received the instruction from the plaintiff. It could be other officers
of mine during that time, sir.
Q: May I remind you, this is Seven (7) million Pesos?
A: Yes, sir.42
[Emphasis Supplied]
Verily, Castro, as agent of Oliver and as branch manager of PS Bank, utterly
failed to secure the authorization of Oliver to withdraw such substantial amount.
As a standard banking practice intended precisely to prevent unauthorized and
fraudulent withdrawals, a bank manager must verify with the client-depositor to
authenticate and confirm that he or she has validly authorized such withdrawal.43
Castro’s lack of authority to withdraw the P7 million on behalf of Oliver became
more apparent when she altered the passbook to hide such transaction. It must
be remembered that Oliver entrusted her passbook to Castro. In the transaction
history register for her account, it was clear that there was a series of dealings
from December 17, 1998 to December 23, 1998. When compared with Oliver’s
passbook, the latter showed that the next transaction from December 16, 1998
was on December 28, 1998. It was also obvious to the naked eye that the
December 28, 1998 entry in the passbook was altered. As aptly observed by
the RTC, nowhere in the testimony of Castro could be gathered that she made
a detailed, plausible and acceptable explanation as to why she had to make
numerous corrections in the entries in the passbook.44 Even after the
corrections allegedly done to reconcile the records, the passbook and the
transaction history register still contained different entries.
Curiously, though she asserts that Oliver obtained a loan of P4.5 million and
authorized the withdrawal of P7 million,45 Castro could not explain why these
transactions were not reflected in the passbook which was in her possession.
Bearing in mind that the alleged unauthorized withdrawal happened on
December 21, 1998, while Castro was questionably withholding the passbook,
the Court is of the impression that she manipulated the entries therein to
conceal the P7 million withdrawal.
Further, Castro claims that Oliver instructed her to withdraw the P7 million from
her bank account and to deposit the same in Lim’s account. Glaringly, Lim was
not presented as a witness to substantiate her defense. Even though she
testified that the P7 million transfer from Oliver’s account to Lim’s was duly
documented, Castro never presented a single documentary proof of that
specific transaction.
The Court is convinced that Castro went beyond the scope of her authority in
withdrawing the P7 million from Oliver’s bank account. Her flimsy excuse that
the said amount was transferred to the account of a certain Lim deserves scant
consideration. Hence, Castro must be held liable for prejudicing Oliver.46
PSBank failed to
exercise the highest
degree of diligence
required of banking
institutions
Aside from Castro, PSBank must also be held liable because it failed to exercise
utmost diligence in the improper withdrawal of the P7 million from Oliver’s bank
account.
In the case of banks, the degree of diligence required is more than that of a
good father of a family. Considering the fiduciary nature of their relationship with
their depositors, banks are duty bound to treat the accounts of their clients with
the highest degree of care. The point is that as a business affected with public
interest and because of the nature of its functions, the bank is under obligation
to treat the accounts of its depositors with meticulous care, always having in
mind the fiduciary nature of their relationship.47
In Simex International v. Court of Appeals,48 the Court held that the depositor
expected the bank to treat his account with the utmost fidelity, whether such
account consisted 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. A blunder on the part
of the bank, such as the dishonor of a check without good reason, can cause
the depositor not a little embarrassment if not also financial loss and perhaps
even civil and criminal litigation.49
Time and again, the Court has emphasized that the bank is expected to ensure
that the depositor’s funds shall only be given to him or his authorized
representative. In Producers Bank of the Phil. v. Court of Appeals,50 the Court
held that the usual banking procedure was that withdrawals of savings deposits
could only be made by persons whose authorized signatures were in the
signature cards on file with the bank. In the said case, the bank therein allowed
an unauthorized person to withdraw from its depositor’s savings account, thus,
it failed to exercise the required diligence of banks and must be held liable.
With respect to withdrawal slips, the Court declared in Philippine National Bank
v. Pike51 that "[o]rdinarily, banks allow withdrawal by someone who is not the
account holder so long as the account holder authorizes his representative to
withdraw and receive from his account by signing on the space provided
particularly for such transactions, usually found at the back of withdrawal slips."
There, the bank violated its fiduciary duty because it allowed a withdrawal by a
representative even though the authorization portion of the withdrawal slip was
not signed by the depositor.
Finally, in Cagungun v. Planters Development Bank, a case very similar to the
52
present one, the depositors therein entrusted their passbook to the bank
employees for some specific transactions. The bank employees went beyond
their authority and were able to withdraw from the depositors’ account without
the latter’s consent. The bank was held liable therein for the acts of its
employees because it failed to safeguard the accounts of its depositors.
In the case at bench, it must be determined whether the P7 million was
withdrawn from the bank with the authority of Oliver. As testified to by Castro,
every withdrawal from the bank was duly evidenced by a cash withdrawal slip,
a copy of which is given both to the bank and to its client.53 Contrary to the
position of the CA and that of the respondents, Oliver cannot be required to
produce the cash withdrawal slip for the said transaction because,
precisely, she consistently denied giving authority to withdraw such
amount from her account.
Necessarily, the party that must have access to such crucial document would
either be PSBank or Castro. They must present the said cash withdrawal slip,
duly signed by Oliver, to prove that the withdrawal of P7 million was indeed
sanctioned. Unfortunately, both PSBank and Castro failed to present the cash
withdrawal slip.
During the trial, the counsel of PSBank conceded that the cash withdrawal slip
for the P7 million transaction could not be located, to quote:
ATTY DEJARESCO: Your Honor, excuse me just a comment for the record we
asked for two (2) years, Your Honor to subpoena this from the bank, the bank
never produce (sic) the withdrawal slip two (2) years (sic), Your Honor, this case
was delayed by the previous Court for two (2) years. Your Honor, no withdrawal
slip was produced by the bank, Your Honor. I would just like to place it on
record.
COURT: Were there subpoenas issued by the bank, was there an order?
ATTY. DEJARESCO: Yes Your Honor, I think the good counsel was the counsel
at that time would you able to confirm that it took us two (2) years to subpoena
and subpoena (sic) this withdrawal slip because there must be an authority to
withdraw, and it there is a signature of the plaintiff, we will admit that.
ATTY. CORPUZ: I remember having manifested that the withdrawal slip
cannot be located.
ATTY. DEJARESCO: Let’s put that on record, Your Honor.
ATTY. CORPUS: (sic) I remember having made that manifestation, Your
Honor.
COURT: That’s the reason why no document was produced in Court by the PS The party who alleges a fact has the burden of proving it. Section 1, Rule 131
Bank? of the Rules of Court defines "burden of proof" as "the duty of a party to present
evidence on the facts in issue necessary to establish his claim or defense by
ATTY. CORPUS: (sic) With respect to the withdrawal slip only, Your Honor on the amount of evidence required by law." In civil cases, the burden of proof
December 21. rests upon the plaintiff, who is required to establish his case by a
preponderance of evidence. Once the plaintiff establishes his case, the burden
ATTY. DEJARESCO: Of that Seven (7) million from the account. of evidence shifts to the defendant, who, in turn, bears the burden to establish
his defense.56
COURT: Make that on record.
Here, Oliver alleged that she did not authorize the withdrawal of P7 million from
her account. To establish her allegation, Oliver presented the following: (1) the
ATTY. CORPUS: Yes, Your Honor.54
transaction history register which showed the withdrawal of P7 million from her
account on December 21, 1998; (2) the passbook which contained alterations
[Emphasis Supplied] to conceal the withdrawal on December 21, 1998 while in the possession of
Castro; and (3) testimonial evidence that she did not allow the withdrawal of the
Castro, as agent of Oliver, could not produce either the said withdrawal slip said amount.57 The Court is of the view that Oliver had sufficiently discharged
allegedly authorizing the withdrawal of the P7 million, her testimony is quoted her burden in proving that P7 million was withdrawn from her account without
as follows: her authorization. Hence, the burden was shifted to the respondents to refute
the allegation of Oliver.
ATTY. DEJARESCO:
As discussed above, both Castro and PSBank failed to establish the burden of
Q: Can you show poof of the withdrawal slip? their defense. They failed to present proof that Oliver authorized the said
A: The withdrawal slip. transaction. They could have presented either the cash withdrawal slip for the
Q: I’m asking you do you have proof? P7 million on December 21, 1999 or Lim’s testimony to prove the transfer of
A: None, sir. funds to the latter’s account, but they did neither. Without an iota of proof to
Q: You cannot produce in Court in support of your Judicial Affidavit? substantiate the validity of the said transaction, the respondents unlawfully
A: None. deprived Oliver of her funds.
Q: And you cannot produce that in Court?
A: As far as the withdrawal slip as for myself, none.55 Indeed, the bank should be solidarily liable with its employee for the damages
committed to its depositor.58 Under Article 2180 of the Civil Code, employers
[Emphasis Supplied] shall be held primarily and solidarily liable for damages caused by their
employees acting within the scope of their assigned tasks.
From the foregoing, there was a clear showing of PSBank’s failure to exercise
the degree of diligence that it ought to have exercised in dealing with its clients. Castro, as acting branch manager of PSBank ,was able to facilitate the
It could not prove that the withdrawal of P7 million was duly authorized by questionable transaction as she was also entrusted with Oliver’s passbook. In
Oliver. As a banking institution, PSBank was expected to ensure that such other words, Castro was the representative of PSBank, and, at the same time,
substantial amount should only be transacted with the consent and authority of the agent of Oliver, earning commissions from their transactions. Oddly,
Oliver. PSBank, however, reneged on its fiduciary duty by allowing an PSBank, either consciously or through sheer negligence, allowed the double
encroachment upon its depositor’s account without the latter’s permission. dealings of its employee with its client. Such carelessness and lack of protection
Hence, PSBank must be held liable for such improper transaction. of the depositors from its own employees led to the unlawful withdrawal of the
P7 million from Oliver’s account. Although Castro was eventually terminated by
PSBank and Castro PSBank because of certain problems regarding client accommodation and loss
failed to discharge their of confidence, the damage to Oliver had already been done. Thus, both Castro
burden and must be held and PSBank must be held solidarily liable.
solidarily liable
Award of damages; hereby REINSTATED with the MODIFICATION that the award of exemplary
invalid foreclosure damages and attorney's fees be decreased to P50,000.00 each.

To recapitulate, the loans of Oliver from PSBank which were secured by real All awards shall earn interests at the rate of six percent (6%) per annum from
estate mortages amounted to P5,888,149.33. Finding PSBank and Castro the finality of this decision.
solidarily liable to Oliver in the amount of P7 million because it was improperly
withdrawn from her bank account, the Court agrees with the RTC that had it not SO ORDERED.
been for the said unauthorized withdrawal, Oliver’s debts amounting to
P5,888,149.33 would have been satisfied.

Consequently, PSBank’s foreclosure of the real estate mortgage covering the Art. 1870. Acceptance by the agent may also be express, or implied from his
two (2) loans in the total amount of P5,888,149.33 was improper. With PSBank acts which carry out the agency, or from his silence or inaction according to the
being found liable to Oliver for P7 million, after offsetting her loans would have circumstances. (n)
PSBank and Castro still owing her P1,111,850.77, which must be suitably paid
in the form of actual damages.
Art. 1871. Between persons who are present, the acceptance of the agency
may also be implied if the principal delivers his power of attorney to the agent
The award of moral damages must also be upheld. Specifically, in culpa and the latter receives it without any objection. (n)
contractual or breach of contract, like in the present case, moral damages are
recoverable only if the defendant has acted fraudulently or in bad faith, or is
Art. 1872. Between persons who are absent, the acceptance of the agency
found guilty of gross negligence amounting to bad faith, or in wanton disregard
cannot be implied from the silence of the agent, except:
of his contractual obligations. Verily, the breach must be wanton, reckless,
malicious, or in bad faith, oppressive or abusive.59
(1) When the principal transmits his power of attorney to the agent, who
receives it without any objection;
Here, Castro and PSBank were utterly reckless in allowing the withdrawal of a
huge amount from Oliver's account without her consent. The bank's 1âw phi1

negligence is a result of lack of due care and caution required of managers and (2) When the principal entrusts to him by letter or telegram a power of attorney
employees of a firm engaged in a business so sensitive and with respect to the business in which he is habitually engaged as an agent, and
demanding.60 Hence, the award of Pl00,000.00 as moral damages is warranted. he did not reply to the letter or telegram. (n)

The award of exemplary damages is also proper due to the failure of Castro
and PSBank to prevent the unauthorized withdrawal from Oliver's account. The
law allows the grant of exemplary damages to set an example for public G.R. No. 163928 January 21, 2015
good.61 The Court, however, finds that the amount of exemplary damages must
be decreased to P50,000.00. MANUEL JUSAYAN, ALFREDO JUSAYAN, AND MICHAEL
JUSAYAN Petitioners,
Finally; the Court agrees with the RTC that Castro and PSBank should be held vs.
solidarily liable for attorney's fees. Article 2208 of the Civil Code is clear that JORGE SOMBILLA, Respondent.
attorney's fees may be recovered when exemplary damages are awarded or
when the plaintiff, through the defendant's act or omission, has been compelled DECISION
to litigate with thirds persons. A decreased amount of P50,000.00 attorney's
fees should be sufficient. BERSAMIN, J.:

WHEREFORE, the petition is GRANTED. The October 25, 2013 Decision and The Court resolves whether a lease of agricultural land between the respondent
the September 12, 2014 Resolution of the Court of Appeals in CA-G.R. CV No. and the predecessor of the petitioners was a civil law lease or an agricultural
95656 are REVERSED and SET ASIDE. The July 22, 2010 Order of the lease. The resolution is determinative of whether or not the Regional Trial Court
Regional Trial Court, Branch 276, Muntinlupa City in Civil Case No. 99-278 is
(RTC) had original exclusive jurisdiction over the action commenced by the
predecessor of the petitioners against the respondent. The Case
Under review on certiorari is the decision promulgated on October 20,
2003,1 whereby the Court of Appeals (CA) reversed the judgment in favor of the
petitioners rendered on April 13, 1999 in CAR Case No. 17117 entitled Timoteo
Jusayan, Manuel Jusayan, Alfredo Jusayan and Michael Jusayan v. Jorge
Sombillaby the RTC, Branch 30, in Iloilo City.2
Antecedents
Wilson Jesena (Wilson) owned four parcels of land situated in New Lucena,
Iloilo. On June 20, 1970, Wilson entered into an agreement with respondent
Jorge Sombilla (Jorge),3 wherein Wilson designated Jorge as his agent to
supervise the tilling and farming of his riceland in crop year 1970-1971. On
August 20, 1971, before the expiration of the agreement, Wilson sold the four
parcels of land to Timoteo Jusayan (Timoteo).4 Jorge and Timoteo verbally
agreed that Jorge would retain possession of the parcels of land and would
deliver 110 cavans of palay annually to Timoteo without need for accounting of
the cultivation expenses provided that Jorge would pay the irrigation fees. From
1971 to 1983, Timoteo and Jorge followed the arrangement. In 1975, the
parcels of land were transferred in the names of Timoteo’s sons, namely;
Manuel, Alfredo and Michael (petitioners). In 1984, Timoteo sent several letters
to Jorge terminating his administration and demanding the return of the
possession of the parcels of land.5
Due to the failure of Jorge to render accounting and to return the possession of
the parcels of land despite demands, Timoteo filed on June 30, 1986 a
complaint for recovery of possession and accounting against Jorge in the RTC
(CAR Case No. 17117). Following Timoteo’s death on October 4, 1991, the
petitioners substituted him as the plaintiffs.
In his answer,6 Jorge asserted that he enjoyed security of tenure as the
agricultural lessee of Timoteo; and that he could not be dispossessed of his
landholding without valid cause.
Ruling of the RTC
In its decision rendered on April 13, 1999,7 the RTC upheld the contractual
relationship of agency between Timoteo and Jorge; and ordered Jorge to
deliver the possession of the parcels of land to the petitioners.
Judgment of the CA
Jorge appealed to the CA.
In the judgment promulgated on October 20, 2003,8 the CA reversed the RTC
and dismissed the case, declaring that the contractual relationship between the
parties was one of agricultural tenancy; and that the demand of Timoteo for the
delivery of his share in the harvest and the payment of irrigation fees constituted
an agrarian dispute that was outside the jurisdiction of the RTC, and well within
the exclusive jurisdiction of the Department of Agriculture (DAR) pursuant to
Section 3(d) of Republic Act No. 6657 (Comprehensive Agrarian Reform Law
of 1988).
Issues
The petitioners now appeal upon the following issues, namely:
a.) Whether or not the relationship between the petitioners and
respondent is that of agency or agricultural leasehold; and
b.) Whether or not RTC, Branch 30, Iloilo City as Regional Trial Court
and Court of Agrarian Relations, had jurisdiction over the herein case.9
Ruling of the Court
The petition for review lacks merit.
To properly resolve whether or not the relationship between Timoteo and Jorge
was that of an agency or a tenancy, an analysis of the concepts of agency and
tenancy is in order.
In agency, the agent binds himself to render some service or to do something
in representation or on behalf of the principal, with the consent or authority of
the latter.10 The basis of the civil law relationship of agency is
representation,11 the elements of which are, namely: (a) the relationship is
established by the parties’ consent, express or implied; (b) the object is the
execution of a juridical act in relation to a third person; (c) the agent acts as
representative and not for himself; and (d) the agent acts within the scope of
his authority.12 Whether or not an agency has been created is determined by
the fact that one is representing and acting for another.13 The law does not
presume agency; hence, proving its existence, nature and extent is incumbent
upon the person alleging it.14
The claim of Timoteo that Jorge was his agent contradicted the verbal
agreement he had fashioned with Jorge. By assenting to Jorge’s possession of
the land sans accounting of the cultivation expenses and actual produce of the
land provided that Jorge annually delivered to him 110 cavans of palay and paid
the irrigation fees belied the very nature of agency, which was representation.
The verbal agreement between Timoteo and Jorge left all matters of agricultural
production to the sole discretion of Jorge and practically divested Timoteo of
the right to exercise his authority over the acts to be performed by Jorge. While
inpossession of the land, therefore, Jorge was acting for himself instead offor
Timoteo. Unlike Jorge, Timoteo did not benefit whenever the production
increased, and did not suffer whenever the production decreased. Timoteo’s
interest was limited to the delivery of the 110 cavans of palay annually without
any concern about how the cultivation could be improved in order to yield more
produce.
On the other hand, to prove the tenancy relationship, Jorge presented
handwritten receipts15 indicating that the sacks of palay delivered to and
received by one Corazon Jusayan represented payment of rental. In this
regard, rental was the legal term for the consideration of the
lease.16 Consequently, the receipts substantially proved that the contractual
relationship between Jorge and Timoteo was a lease.
Yet, the lease of an agricultural land can be either a civil law or an agricultural
lease. In the civil law lease, one of the parties binds himself to give to another
1âwphi 1
the enjoyment or use ofa thing for a price certain, and for a period that may be
definite or indefinite.17 In the agricultural lease, also termed as a lease hold
tenancy, the physical possession of the land devoted to agriculture is given by
its owner or legal possessor (landholder) to another (tenant) for the purpose of
production through labor of the latter and of the members of his immediate farm
household, in consideration of which the latter agrees to share the harvest with
the landholder, or to pay a price certain or ascertainable, either in produce or in
money, or in both.18 Specifically, in Gabriel v. Pangilinan,19 this Court
differentiated between a leasehold tenancy and a civil law lease in the following
manner, namely: (1) the subject matter of a leasehold tenancy is limited to
agricultural land, but that of a civil law lease may be rural or urban property; (2)
as to attention and cultivation, the law requires the leasehold tenant to
personally attend to and cultivate the agricultural land; the civil law lessee need
not personally cultivate or work the thing leased; (3) as to purpose, the
landholding in leasehold tenancy is devoted to agriculture; in civil law lease, the
purpose may be for any other lawful pursuits; and(4) as to the law that governs,
the civil law lease is governed by the Civil Code, but the leasehold tenancy is
governed by special laws.
The sharing of the harvest in proportion to the respective contributions of the
landholder and tenant, otherwise called share tenancy,20 was abolished on
August 8, 1963 under Republic Act No. 3844. To date, the only permissible
system of agricultural tenancy is leasehold tenancy,21 a relationship wherein a
fixed consideration is paid instead of proportionately sharing the harvest as in
share tenancy.
In Teodoro v. Macaraeg,22 this Court has synthesized the elements of
agricultural tenancy to wit: (1) the object of the contract or the relationship is an
agricultural land that is leased or rented for the purpose of agricultural
production; (2) the size of the landholding is such that it is susceptible of
personal cultivation by a single person with the assistance of the members of
his immediate farm household; (3) the tenant-lessee must actually and
personally till, cultivate or operate the land, solely or with the aid of labor from
his immediate farm household; and (4) the landlord-lessor, who is either the
lawful owner or the legal possessor of the land, leases the same to the tenant-
lessee for a price certain or ascertainable either in an amount of money or
produce.
It can be gleaned that in both civil law lease of an agricultural land and
agricultural lease, the lessor gives to the lessee the use and possession of the
land for a price certain. Although the purpose of the civil law lease and the
agricultural lease may be agricultural cultivation and production, the distinctive
attribute that sets a civil law lease apart from an agricultural lease is the
personal cultivation by the lessee. An agricultural lessee cultivates by himself
and with the aid of those of his immediate farm household. Conversely, even
when the lessee is in possession of the leased agricultural land and paying a
consideration for it but is not personally cultivating the land, he or she is a civil
law lessee.
The only issue remaining to be resolved is whether or not Jorge personally
cultivated the leased agricultural land.
Cultivation is not limited to the plowing and harrowing of the land, but includes
the various phases of farm labor such as the maintenance, repair and weeding
of dikes, paddies and irrigation canals in the landholding. Moreover, it covers
attending to the care of the growing plants,23 and grown plants like fruit trees
that require watering, fertilizing, uprooting weeds, turning the soil, fumigating to
eliminate plant pests24 and all other activities designed to promote the growth
and care of the plants or trees and husbanding the earth, by general industry,
so that it may bring forth more products or fruits.25 In Tarona v. Court of
Appeals,26 this Court ruled that a tenant is not required to be physically present
in the land at all hours of the day and night provided that he lives close enough
to the land to be cultivated to make it physically possible for him to cultivate it
with some degree of constancy.
Nor was there any question that the parcels of agricultural land with a total area
of 7.9 hectares involved herein were susceptible of cultivation by a single
person with the help of the members of his immediate farm household. As the
Court has already observed, an agricultural land of an area of four hectares,27 or
even of an area as large as 17 hectares,28 could be personally cultivated by a
tenant by himself or with help of the members of his farm household.
It is elementary that he who alleges the affirmative of the issue has the burden
of proof.29 Hence, Jorge, as the one claiming to be an agricultural tenant, had to
prove all the requisites of his agricultural tenancy by substantial evidence.30 In
that regard, his knowledge of and familiarity with the landholding, its production
and the instances when the landholding was struck by drought definitely The parties are ordered to comply with their undertakings as agricultural lessor
established that he personally cultivated the land.31 His ability to farm the seven and agricultural lessee.
hectares of land despite his regular employment as an Agricultural Technician
at the Municipal Agriculture Office32 was not physically impossible for him to SO ORDERED.
accomplish considering that his daughter, a member of his immediate farm
household, was cultivating one of the parcels of the land.33 Indeed, the law did
not prohibit him as the agricultural lessee who generally worked the land himself
or with the aid of member of his immediate household from availing himself
Art. 1873. If a person specially informs another or states by public
occasionally or temporarily of the help of others in specific jobs.34 In short, the
advertisement that he has given a power of attorney to a third person, the latter
claim of the petitioners that the employment of Jorge as an Agricultural
thereby becomes a duly authorized agent, in the former case with respect to
Technician at the Municipal Agriculture Office disqualified him as a tenant
the person who received the special information, and in the latter case with
lacked factual or legal basis.
regard to any person.
Section 7 of Republic Act No. 3844 provides that once there is an agricultural
The power shall continue to be in full force until the notice is rescinded in the
tenancy, the agricultural tenant’s right to security of tenure is recognized and
same manner in which it was given. (n)
protected. The landowner cannot eject the agricultural tenant from the land
unless authorized by the proper court for causes provided by law. Section 36
of Republic Act No. 3844, as amended by Republic Act No. 6389, enumerates
the several grounds for the valid dispossession of the tenant.35 It is underscored,
however, that none of such grounds for valid dispossession of landholding was G.R. No. 163553 December 11, 2009
attendant in Jorge’s case.
YUN KWAN BYUNG, Petitioner,
Although the CA has correctly categorized Jorge’s case as an agrarian dispute, vs.
it ruled that the RTC lacked jurisdiction over the case based on Section 50 of PHILIPPINE AMUSEMENT AND GAMING CORPORATION, Respondent.
Republic Act No. 6657, which vested in the Department of Agrarian Reform
(DAR) the "primary jurisdiction to determine and adjudicate agrarian reform DECISION
matters" and the "exclusive original jurisdiction over all matters involving the
implementation of agrarian reform" except disputes falling under the exclusive CARPIO, J.:
jurisdiction of the Department of Agriculture and the Department of Environment
and Natural Resources. The Case

We hold that the CA gravely erred. The rule is settled that the jurisdiction of a
court is determined by the statute in force at the time of the commencement of
an action.36 In 1980, upon the passage of Batas Pambansa Blg. 129 (Judiciary
Reorganization Act), the Courts of Agrarian Relations were integrated into the
Regional Trial Courts and the jurisdiction of the Courts of Agrarian Relations
was vested in the Regional Trial Courts.37 It was only on August 29, 1987, when
Executive Order No. 229 took effect, that the general jurisdiction of the Regional
Trial Courts to try agrarian reform matters was transferred to the DAR.
Therefore, the RTC still had jurisdiction over the dispute at the time the
complaint was filed in the RTC on June 30, 1986.
WHEREFORE, the Court GRANTS the petition for review on certiorari by
PARTIALLY AFFIRMING the decision of the Court of Appeals to the extent that
it upheld the tenancy relationship of the parties; DISMISSES the complaint for
recovery of possession and accounting; and ORDERS the petitioners to pay
the costs of suit.
Yun Kwan Byung (petitioner) filed this Petition for Review1 assailing the Court
of Appeals’ Decision2 dated 27 May 2003 in CA-G.R. CV No. 65699 as well as
the Resolution3 dated 7 May 2004 denying the Motion for Reconsideration. In
the assailed decision, the Court of Appeals (CA) affirmed the Regional Trial
Court’s Decision4dated 6 May 1999. The Regional Trial Court of Manila, Branch
13 (trial court), dismissed petitioner’s demand against respondent Philippine
Amusement and Gaming Corporation (PAGCOR) for the redemption of
gambling chips.
The Facts
PAGCOR is a government-owned and controlled corporation tasked to
establish and operate gambling clubs and casinos as a means to promote
tourism and generate sources of revenue for the government. To achieve these
objectives, PAGCOR is vested with the power to enter into contracts of every
kind and for any lawful purpose that pertains to its business. Pursuant to this
authority, PAGCOR launched its Foreign Highroller Marketing Program
(Program). The Program aims to invite patrons from foreign countries to play at
the dollar pit of designated PAGCOR-operated casinos under specified terms
and conditions and in accordance with industry practice.5
The Korean-based ABS Corporation was one of the international groups that
availed of the Program. In a letter-agreement dated 25 April 1996 (Junket
Agreement), ABS Corporation agreed to bring in foreign players to play at the
five designated gaming tables of the Casino Filipino Silahis at the Grand
Boulevard Hotel in Manila (Casino Filipino). The relevant stipulations of the
Junket Agreement state:
1. PAGCOR will provide ABS Corporation with separate junket chips.
The junket chips will be distinguished from the chips being used by
other players in the gaming tables.
ABS Corporation will distribute these junket chips to its players and at
the end of the playing period, ABS Corporation will collect the junket
chips from its players and make an accounting to the casino treasury.
2. ABS Corporation will assume sole responsibility to pay the winnings
of its foreign players and settle the collectibles from losing players.
3. ABS Corporation shall hold PAGCOR absolutely free and harmless
from any damage, claim or liability which may arise from any cause in
connection with the Junket Agreement.
5. In providing the gaming facilities and services to these foreign
players, PAGCOR is entitled to receive from ABS Corporation a 12.5%
share in the gross winnings of ABS Corporation or 1.5 million US
dollars, whichever is higher, over a playing period of 6 months.
PAGCOR has the option to extend the period.6
Petitioner, a Korean national, alleges that from November 1996 to March 1997,
he came to the Philippines four times to play for high stakes at the Casino
Filipino.7 Petitioner claims that in the course of the games, he was able to
accumulate gambling chips worth US$2.1 million. Petitioner presented as
evidence during the trial gambling chips with a face value of US$1.1 million.
Petitioner contends that when he presented the gambling chips for encashment
with PAGCOR’s employees or agents, PAGCOR refused to redeem them.8
Petitioner brought an action against PAGCOR seeking the redemption of
gambling chips valued at US$2.1 million. Petitioner claims that he won the
gambling chips at the Casino Filipino, playing continuously day and night.
Petitioner alleges that every time he would come to Manila, PAGCOR would
extend to him amenities deserving of a high roller. A PAGCOR official who
meets him at the airport would bring him to Casino Filipino, a casino managed
and operated by PAGCOR. The card dealers were all PAGCOR employees,
the gambling chips, equipment and furnitures belonged to PAGCOR, and
PAGCOR enforced all the regulations dealing with the operation of foreign
exchange gambling pits. Petitioner states that he was able to redeem his
gambling chips with the cashier during his first few winning trips. But later on,
the casino cashier refused to encash his gambling chips so he had no recourse
but to deposit his gambling chips at the Grand Boulevard Hotel’s deposit box,
every time he departed from Manila.9
PAGCOR claims that petitioner, who was brought into the Philippines by ABS
Corporation, is a junket player who played in the dollar pit exclusively leased by
ABS Corporation for its junket players. PAGCOR alleges that it provided ABS
Corporation with distinct junket chips. ABS Corporation distributed these chips
to its junket players. At the end of each playing period, the junket players would
surrender the chips to ABS Corporation. Only ABS Corporation would make an
accounting of these chips to PAGCOR’s casino treasury.10
As additional information for the junket players playing in the gaming room
leased to ABS Corporation, PAGCOR posted a notice written in English and
Korean languages which reads:
NOTICE
This GAMING ROOM is exclusively operated by ABS under arrangement with
PAGCOR, the former is solely accountable for all PLAYING CHIPS wagered
on the tables. Any financial ARRANGEMENT/TRANSACTION between
PLAYERS and ABS shall only be binding upon said PLAYERS and ABS.11
PAGCOR claims that this notice is a standard precautionary measure12 to avoid
confusion between junket players of ABS Corporation and PAGCOR’s players.
PAGCOR argues that petitioner is not a PAGCOR player because under
PAGCOR’s gaming rules, gambling chips cannot be brought outside the casino.
The gambling chips must be converted to cash at the end of every gaming
period as they are inventoried every shift. Under PAGCOR’s rules, it is
impossible for PAGCOR players to accumulate two million dollars worth of
gambling chips and to bring the chips out of the casino premises.13
Since PAGCOR disclaimed liability for the winnings of players recruited by ABS
Corporation and refused to encash the gambling chips, petitioner filed a
complaint for a sum of money before the trial court.14 PAGCOR filed a
counterclaim against petitioner. Then, trial ensued.
On 6 May 1999, the trial court dismissed the complaint and counterclaim.
Petitioner appealed the trial court’s decision to the CA. On 27 May 2003, the
CA affirmed the appealed decision. On 27 June 2003, petitioner moved for
reconsideration which was denied on 7 May 2004.
Aggrieved by the CA’s decision and resolution, petitioner elevated the case
before this Court.
The Ruling of the Trial Court
The trial court ruled that based on PAGCOR’s charter,15 PAGCOR has no
authority to lease any portion of the gambling tables to a private party like ABS
Corporation. Section 13 of Presidential Decree No. 1869 or the PAGCOR’s
charter states:
Sec. 13. Exemptions -
xxx
(4) Utilization of Foreign Currencies – The Corporation shall have the right and
authority, solely and exclusively in connection with the operations of the
casino(s), to purchase, receive, exchange and disburse foreign exchange,
subject to the following terms and conditions:
(a) A specific area in the casino(s) or gaming pit shall be put up solely
and exclusively for players and patrons utilizing foreign currencies;
(b) The Corporation shall appoint and designate a duly accredited
commercial bank agent of the Central Bank, to handle, administer and
manage the use of foreign currencies in the casino(s);
(c) The Corporation shall provide an office at casino(s) exclusively for
the employees of the designated bank, agent of the Central Bank,
where the Corporation shall maintain a dollar account which will be
utilized exclusively for the above purpose and the casino dollar treasury
employees;
(d) Only persons with foreign passports or certificates of identity (for
Hong Kong patron only) duly issued by the government or country of
their residence will be allowed to play in the foreign exchange gaming
pit;
(e) Only foreign exchange prescribed to form part of the Philippine
International Reserve and the following foreign exchange currencies:
Australian Dollar, Singapore Dollar, Hong Kong Dollar, shall be used in
this gaming pit;
(f) The disbursement, administration, management and recording of
foreign exchange currencies used in the casino(s) shall be carried out
in accordance with existing foreign exchange regulations, and
periodical reports of the transactions in such foreign exchange
currencies by the Corporation shall be duly recorded and reported to
the Central Bank thru the designated Agent Bank; and
(g) The Corporation shall issue the necessary rules and regulations for
the guidance and information of players qualified to participate in the
foreign exchange gaming pit, in order to make certain that the terms
and conditions as above set forth are strictly complied with.
The trial court held that only PAGCOR could use foreign currency in its gaming
tables. When PAGCOR accepted only a fixed portion of the dollar earnings of
ABS Corporation in the concept of a lease of facilities, PAGCOR shared its
franchise with ABS Corporation in violation of the PAGCOR’s charter. Hence,
the Junket Agreement is void. Since the Junket Agreement is not permitted by
PAGCOR’s charter, the mutual rights and obligations of the parties to this case
would be resolved based on agency and estoppel.16
The trial court found that the petitioner wanted to redeem gambling chips that
were specifically used by ABS Corporation at its gaming tables. The gambling
chips come in distinctive orange or yellow colors with stickers bearing
denominations of 10,000 or 1,000. The 1,000 gambling chips are smaller in size
and the words "no cash value" marked on them. The 10,000 gambling chips do
not reflect the "no cash value" sign. The senior treasury head of PAGCOR
testified that these were the gambling chips used by the previous junket
operators and PAGCOR merely continued using them. However, the gambling
chips used in the regular casino games were of a different quality.17
The trial court pointed out that PAGCOR had taken steps to warn players
brought in by all junket operators, including ABS Corporation, that they were
playing under special rules. Apart from the different kinds of gambling chips
used, the junket players were confined to certain gaming rooms. In these
rooms, notices were posted that gambling chips could only be encashed there
and nowhere else. A photograph of one such notice, printed in Korean and
English, stated that the gaming room was exclusively operated by ABS
Corporation and that ABS Corporation was solely accountable for all the chips
wagered on the gaming tables. Although petitioner denied seeing this notice,
this disclaimer has the effect of a negative evidence that can hardly prevail
against the positive assertions of PAGCOR officials whose credibility is also not
open to doubt. The trial court concluded that petitioner had been alerted to the
existence of these special gambling rules, and the mere fact that he continued
to play under the same restrictions over a period of several months confirms
his acquiescence to them. Otherwise, petitioner could have simply chose to
stop gambling.18
In dismissing petitioner’s complaint, the trial court concluded that petitioner’s
demand against PAGCOR for the redemption of the gambling chips could not
stand. The trial court stated that petitioner, a stranger to the agreement between
PAGCOR and ABS Corporation, could not under principles of equity be charged
with notice other than of the apparent authority with which PAGCOR had
clothed its employees and agents in dealing with petitioner. Since petitioner was
made aware of the special rules by which he was playing at the Casino Filipino,
petitioner could not now claim that he was not bound by them. The trial court
explained that in an unlawful transaction, the courts will extend equitable relief
only to a party who was unaware of all its dimensions and whose ignorance of
them exposed him to the risk of being exploited by the other. Where the parties
enter into such a relationship with the opportunity to know all of its ramifications,
as in this case, there is no room for equitable considerations to come to the
rescue of any party. The trial court ruled that it would leave the parties where
they are.19
The Ruling of the Court of Appeals
In dismissing the appeal, the appellate court addressed the four errors assigned
by petitioner.
First, petitioner maintains that he was never a junket player of ABS Corporation.
Petitioner also denies seeing a notice that certain gaming rooms were
exclusively operated by entities under special agreement.20
The CA ruled that the records do not support petitioner’s theory. Petitioner’s
own testimony reveals that he enjoyed special accommodations at the Grand
Boulevard Hotel. This similar accommodation was extended to players brought
in by ABS Corporation and other junket operators. Petitioner cannot
disassociate himself from ABS Corporation for it is unlikely that an unknown
high roller would be accorded choice accommodations by the hotel unless the
accommodation was facilitated by a junket operator who enjoyed such
privilege.21
The CA added that the testimonies of PAGCOR’s employees affirming that
notices were posted in English and Korean in the gaming areas are credible in
the absence of any convincing proof of ill motive. Further, the specified gaming
areas used only special chips that could be bought and exchanged at certain
cashier booths in that area.22
Second, petitioner attacks the validity of the contents of the notice. Since the
Junket Agreement is void, the notice, which was issued pursuant to the Junket
Agreement, is also void and cannot affect petitioner.23
The CA reasoned that the trial court never declared the notice valid and neither
did it enforce the contents thereof. The CA emphasized that it was the act of
cautioning and alerting the players that was upheld. The trial court ruled that
signs and warnings were in place to inform the public, petitioner included, that
special rules applied to certain gaming areas even if the very agreement giving
rise to these rules is void.24
Third, petitioner takes the position that an implied agency existed between
PAGCOR and ABS Corporation.25
The CA disagreed with petitioner’s view. A void contract has no force and effect
from the very beginning. It produces no effect either against or in favor of
anyone. Neither can it create, modify or extinguish the juridical relation to which
it refers. Necessarily, the Junket Agreement, being void from the beginning,
cannot give rise to an implied agency. The CA explained that it cannot see how
the principle of implied agency can be applied to this case. Article 188326of the
Civil Code applies only to a situation where the agent is authorized by the
principal to enter into a particular transaction, but instead of contracting on
behalf of the principal, the agent acts in his own name.27
The CA concluded that no such legal fiction existed between PAGCOR and
ABS Corporation. PAGCOR entered into a Junket Agreement to lease to ABS
Corporation certain gaming areas. It was never PAGCOR’s intention to deal
with the junket players. Neither did PAGCOR intend ABS Corporation to
represent PAGCOR in dealing with the junket players. Representation is the
basis of agency but unfortunately for petitioner none is found in this case.28
The CA added that the special gaming chips, while belonging to PAGCOR, are
mere accessories in the void Junket Agreement with ABS Corporation. In Article
1883, the phrase "things belonging to the principal" refers only to those things
or properties subject of a particular transaction authorized by the principal to be
entered into by its purported agent. Necessarily, the gambling chips being mere
incidents to the void lease agreement cannot fall under this category.29
The CA ruled that Article 215230 of the Civil Code is also not applicable. The
circumstances relating to negotiorum gestio are non-existent to warrant an
officious manager to take over the management and administration of
PAGCOR.31
Fourth, petitioner asks for equitable relief.32
The CA explained that although petitioner was never a party to the void Junket
Agreement, petitioner cannot deny or feign blindness to the signs and warnings
all around him. The notices, the special gambling chips, and the separate
gaming areas were more than enough to alert him that he was playing under
different terms. Petitioner persisted and continued to play in the casino.
Petitioner also enjoyed the perks extended to junket players of ABS
Corporation. For failing to heed these signs and warnings, petitioner can no
longer be permitted to claim equitable relief. When parties do not come to court
with clean hands, they cannot be allowed to profit from their own wrong doing.33
The Issues
Petitioners raise three issues in this petition:
1. Whether the CA erred in holding that PAGCOR is not liable to
petitioner, disregarding the doctrine of implied agency, or agency by
estoppel;
2. Whether the CA erred in using intent of the contracting parties as the
test for creation of agency, when such is not relevant since the instant
case involves liability of the presumed principal in implied agency to a
third party; and
3. Whether the CA erred in failing to consider that PAGCOR ratified, or
at least adopted, the acts of the agent, ABS Corporation.34
The Ruling of the Court
The petition lacks merit.
Courts will not enforce debts arising from illegal gambling
Gambling is prohibited by the laws of the Philippines as specifically provided in
Articles 195 to 199 of the Revised Penal Code, as amended. Gambling is an
act beyond the pale of good morals,35 and is thus prohibited and punished to
repress an evil that undermines the social, moral, and economic growth of the
nation.36 Presidential Decree No. 1602 (PD 1602),37 which modified Articles
195-199 of the Revised Penal Code and repealed inconsistent
provisions,38 prescribed stiffer penalties on illegal gambling.39
As a rule, all forms of gambling are illegal. The only form of gambling allowed
by law is that stipulated under Presidential Decree No. 1869, which gave
PAGCOR its franchise to maintain and operate gambling casinos. The issue
then turns on whether PAGCOR can validly share its franchise with junket
operators to operate gambling casinos in the country. Section 3(h) of
PAGCOR’s charter states:
Section 3. Corporate Powers. - The Corporation shall have the following powers
and functions, among others:
xxx
h) to enter into, make, perform, and carry out contracts of every kind and for
any lawful purpose pertaining to the business of the Corporation, or in any
manner incident thereto, as principal, agent or otherwise, with any person, firm,
association, or corporation.
xxx
The Junket Agreement would be valid if under Section 3(h) of PAGCOR’s
charter, PAGCOR could share its gambling franchise with another entity. In
Senator Jaworski v. Phil. Amusement and Gaming Corp.,40 the Court discussed
the extent of the grant of the legislative franchise to PAGCOR on its authority
to operate gambling casinos:
A legislative franchise is a special privilege granted by the state to corporations.
It is a privilege of public concern which cannot be exercised at will and pleasure,
but should be reserved for public control and administration, either by the
government directly, or by public agents, under such conditions and regulations
as the government may impose on them in the interest of the public. It is
Congress that prescribes the conditions on which the grant of the franchise may
be made. Thus the manner of granting the franchise, to whom it may be
granted, the mode of conducting the business, the charter and the quality of the
service to be rendered and the duty of the grantee to the public in exercising
the franchise are almost always defined in clear and unequivocal language.
After a circumspect consideration of the foregoing discussion and the
contending positions of the parties, we hold that PAGCOR has acted beyond
the limits of its authority when it passed on or shared its franchise to SAGE.
In the Del Mar case where a similar issue was raised when PAGCOR entered
into a joint venture agreement with two other entities in the operation and
management of jai alai games, the Court, in an En Banc Resolution dated 24
August 2001, partially granted the motions for clarification filed by respondents
therein insofar as it prayed that PAGCOR has a valid franchise, but only by
itself (i.e. not in association with any other person or entity), to operate, maintain
and/or manage the game of jai-alai.
In the case at bar, PAGCOR executed an agreement with SAGE whereby the
former grants the latter the authority to operate and maintain sports betting
stations and Internet gaming operations. In essence, the grant of authority gives
SAGE the privilege to actively participate, partake and share PAGCOR’s
franchise to operate a gambling activity. The grant of franchise is a special
privilege that constitutes a right and a duty to be performed by the grantee. The
grantee must not perform its activities arbitrarily and whimsically but must abide
by the limits set by its franchise and strictly adhere to its terms and
conditionalities. A corporation as a creature of the State is presumed to exist
for the common good. Hence, the special privileges and franchises it receives
are subject to the laws of the State and the limitations of its charter. There is
therefore a reserved right of the State to inquire how these privileges had been
employed, and whether they have been abused. (Emphasis supplied)
Thus, PAGCOR has the sole and exclusive authority to operate a gambling
activity. While PAGCOR is allowed under its charter to enter into operator’s or
management contracts, PAGCOR is not allowed under the same charter to
relinquish or share its franchise. PAGCOR cannot delegate its power in view of
the legal principle of delegata potestas delegare non potest, inasmuch as there
is nothing in the charter to show that it has been expressly authorized to do
so.41
Similarly, in this case, PAGCOR, by taking only a percentage of the earnings of
ABS Corporation from its foreign currency collection, allowed ABS Corporation
to operate gaming tables in the dollar pit. The Junket Agreement is in direct
violation of PAGCOR’s charter and is therefore void.
Since the Junket Agreement violates PAGCOR’s charter, gambling between
the junket player and the junket operator under such agreement is illegal and
may not be enforced by the courts. Article 201442 of the Civil Code, which refers
to illegal gambling, states that no action can be maintained by the winner for
the collection of what he has won in a game of chance.
Although not raised as an issue by petitioner, we deem it necessary to discuss
the applicability of Republic Act No. 948743 (RA 9487) to the present case.
RA 9487 amended the PAGCOR charter, granting PAGCOR the power to enter
into special agreement with third parties to share the privileges under its
franchise for the operation of gambling casinos:
Section 1. The Philippine Amusement and Gaming Corporation (PAGCOR)
franchise granted under Presidential Decree No. 1869 otherwise known as the
PAGCOR Charter, is hereby further amended to read as follows:
xxx
(2) Section 3(h) is hereby amended to read as follows:
"SEC. 3. Corporate Powers. -
"x x x
"(h) to enter into, make, conclude, perform, and carry out contracts of every
kind and nature and for any lawful purpose which are necessary, appropriate,
proper or incidental to any business or purpose of the PAGCOR, including but
not limited to investment agreements, joint venture agreements, management
agreements, agency agreements, whether as principal or as an agent,
manpower supply agreements, or any other similar agreements or
arrangements with any person, firm, association or corporation." (Boldfacing
supplied)
PAGCOR sought the amendment of its charter precisely to address and remedy
the legal impediment raised in Senator Jaworski v. Phil. Amusement and
Gaming Corp.
Unfortunately for petitioner, RA 9487 cannot be applied to the present case.
The Junket Agreement was entered into between PAGCOR and ABS
Corporation on 25 April 1996 when the PAGCOR charter then prevailing (PD
1869) prohibited PAGCOR from entering into any arrangement with a third party
that would allow such party to actively participate in the casino operations.
It is a basic principle that laws should only be applied prospectively unless the
legislative intent to give them retroactive effect is expressly declared or is
necessarily implied from the language used.44 RA 9487 does not provide for
any retroactivity of its provisions. All laws operate prospectively absent a clear
contrary language in the text,45 and that in every case of doubt, the doubt will
be resolved against the retroactive operation of laws.46
Thus, petitioner cannot avail of the provisions of RA 9487 as this was not the
law when the acts giving rise to the claimed liabilities took place. This makes
the gambling activity participated in by petitioner illegal. Petitioner cannot sue
PAGCOR to redeem the cash value of the gambling chips or recover damages
arising from an illegal activity for two reasons. First, petitioner engaged in
gambling with ABS Corporation and not with PAGCOR. Second, the court
cannot assist petitioner in enforcing an illegal act. Moreover, for a court to grant
petitioner’s prayer would mean enforcing the Junket Agreement, which is void.
Now, to address the issues raised by petitioner in his petition, petitioner claims
that he is a third party proceeding against the liability of a presumed principal
and claims relief, alternatively, on the basis of implied agency or agency by
estoppel.
Article 1869 of the Civil Code states that implied agency is derived from the acts
of the principal, from his silence or lack of action, or his failure to repudiate the
agency, knowing that another person is acting on his behalf without authority.
Implied agency, being an actual agency, is a fact to be proved by deductions or
inferences from other facts.47
On the other hand, apparent authority is based on estoppel and can arise from
two instances. First, the principal may knowingly permit the agent to hold
himself out as having such authority, and the principal becomes estopped to
claim that the agent does not have such authority. Second, the principal may
clothe the agent with the indicia of authority as to lead a reasonably prudent
person to believe that the agent actually has such authority.48 In an agency by
estoppel, there is no agency at all, but the one assuming to act as agent has
apparent or ostensible, although not real, authority to represent another.49
The law makes no presumption of agency and proving its existence, nature and
extent is incumbent upon the person alleging it.50 Whether or not an agency has
been created is a question to be determined by the fact that one represents and
is acting for another. 51
Acts and conduct of PAGCOR negates the existence of an implied agency or
an agency by estoppel
Petitioner alleges that there is an implied agency. Alternatively, petitioner claims
that even assuming that no actual agency existed between PAGCOR and ABS
Corporation, there is still an agency by estoppel based on the acts and conduct
of PAGCOR showing apparent authority in favor of ABS Corporation. Petitioner
states that one factor which distinguishes agency from other legal precepts is
control and the following undisputed facts show a relationship of implied
agency:
1. Three floors of the Grand Boulevard Hotel52 were leased to PAGCOR
for conducting gambling operations;53
2. Of the three floors, PAGCOR allowed ABS Corporation to use one
whole floor for foreign exchange gambling, conducted by PAGCOR
dealers using PAGCOR facilities, operated by PAGCOR employees
and using PAGCOR chips bearing the PAGCOR logo;54
3. PAGCOR controlled the release, withdrawal and return of all the
gambling chips given to ABS Corporation in that part of the casino and
at the end of the day, PAGCOR conducted an inventory of the gambling
chips;55
4. ABS Corporation accounted for all gambling chips with the
Commission on Audit (COA), the official auditor of PAGCOR;56
5. PAGCOR enforced, through its own manager, all the rules and
regulations on the operation of the gambling pit used by ABS
Corporation.57
Petitioner’s argument is clearly misplaced. The basis for agency is
representation,58 that is, the agent acts for and on behalf of the principal on
matters within the scope of his authority and said acts have the same legal
effect as if they were personally executed by the principal.59 On the part of the
principal, there must be an actual intention to appoint or an intention naturally
inferable from his words or actions, while on the part of the agent, there must
be an intention to accept the appointment and act on it.60 Absent such mutual
intent, there is generally no agency.61
There is no implied agency in this case because PAGCOR did not hold out to
the public as the principal of ABS Corporation. PAGCOR’s actions did not
mislead the public into believing that an agency can be implied from the
arrangement with the junket operators, nor did it hold out ABS Corporation with
any apparent authority to represent it in any capacity. The Junket Agreement
was merely a contract of lease of facilities and services.
The players brought in by ABS Corporation were covered by a different set of
rules in acquiring and encashing chips. The players used a different kind of chip
than what was used in the regular gaming areas of PAGCOR, and that such
junket players played specifically only in the third floor area and did not mingle
with the regular patrons of PAGCOR. Furthermore, PAGCOR, in posting
notices stating that the players are playing under special rules, exercised the
necessary precaution to warn the gaming public that no agency relationship
exists.
1avvphi1
For the second assigned error, petitioner claims that the intention of the parties
cannot apply to him as he is not a party to the contract.
We disagree. The Court of Appeals correctly used the intent of the contracting
parties in determining whether an agency by estoppel existed in this case. An
agency by estoppel, which is similar to the doctrine of apparent authority
requires proof of reliance upon the representations, and that, in turn, needs
proof that the representations predated the action taken in reliance.62
There can be no apparent authority of an agent without acts or conduct on the
part of the principal and such acts or conduct of the principal must have been
known and relied upon in good faith and as a result of the exercise of
reasonable prudence by a third person as claimant, and such must have
produced a change of position to its detriment.63 Such proof is lacking in this
case.
In the entire duration that petitioner played in Casino Filipino, he was dealing
only with ABS Corporation, and availing of the privileges extended only to
players brought in by ABS Corporation. The facts that he enjoyed special
treatment upon his arrival in Manila and special accommodations in Grand
Boulevard Hotel, and that he was playing in special gaming rooms are all
indications that petitioner cannot claim good faith that he believed he was
dealing with PAGCOR. Petitioner cannot be considered as an innocent third
party and he cannot claim entitlement to equitable relief as well.
For his third and final assigned error, petitioner asserts that PAGCOR ratified
the acts of ABS Corporation.
The trial court has declared, and we affirm, that the Junket Agreement is void.
A void or inexistent contract is one which has no force and effect from the very
beginning. Hence, it is as if it has never been entered into and cannot be
validated either by the passage of time or by ratification.64 Article 1409 of the
Civil Code provides that contracts expressly prohibited or declared void by law,
such as gambling contracts, "cannot be ratified."65
WHEREFORE, we DENY the petition. We AFFIRM the Court of Appeals’
Decision dated 27 May 2003 as well as the Resolution dated 7 May 2004 as
modified by this Decision.
SO ORDERED.
Art. 1874. When a sale of a piece of land or any interest therein is through an
agent, the authority of the latter shall be in writing; otherwise, the sale shall be
void. (n)
G.R. No. 122544 January 28, 1999
REGINA P. DIZON, AMPARO D. BARTOLOME, FIDELINA D. BLAZA,
ESTER ABAD DIZON and JOSEPH ANTHONY DIZON, RAYMUND A.
DIZON, GERARD A. DIZON, and JOSE A. DIZON, JR., petitioners,
vs.
COURT OF APPEALS and OVERLAND EXPRESS LINES,
INC., respondents.
G.R. No. 124741 January 28, 1999
REGINA P. DIZON, AMPARO D. BARTOLOME, FIDELINA D. BALZA,
ESTER ABAD DIZON and JOSEPH ANTHONY DIZON, RAYMUND A.
DIZON, GERARD A. DIZON, and Jose A. DIZON, JR., petitioners,
vs.
COURT OF APPEALS, HON. MAXIMIANO C. ASUNCION, and OVERLAND
EXPRESS LINES, INC., respondents.
MARTINEZ, J.:
Two consolidated petitions were filed before us seeking to set aside and annul
the decisions and resolutions of respondent Court of Appeals. What seemed to
be a simple ejectment suit was juxtaposed with procedural intricacies which
finally found its way to this Court.
G.R. No. 122544:
On May 23, 1974, private respondent Overland Express Lines, Inc. (lessee)
entered into a Contract of Lease with Option to Buy with petitioners1 (lessors)
involving a 1,755.80 square meter parcel of land situated at corner MacArthur
Highway and South "H" Street, Diliman, Quezon City. The term of the lease was
for one (1) year commencing from May 16, 1974 up to May 15, 1975. During
this period, private respondent was granted an option to purchase for the
amount of P3,000.00 per square meter. Thereafter, the lease shall be on a per
month basis with a monthly rental of P3,000.00.
For failure of private respondent to pay the increased rental of P8,000.00 per
month effective June 1976, petitioners filed an action for ejectment (Civil Case
No. VIII-29155) on November 10, 1976 before the then City Court (now
Metropolitan Trial Court) of Quezon City, Branch VIII. On November 22, 1982,
the City Court rendered judgment 2ordering private respondent to vacate the
leased premises and to pay the sum of P624,000.00 representing rentals in
arrears and/or as damages in the form of reasonable compensation for the use
and occupation of the premises during the period of illegal detainer from June
1976 to November 1982 at the monthly rental of P8,000.00, less payments
made, plus 12% interest per annum from November 18, 1976, the date of filing
of the complaint, until fully paid, the sum of P8,000.00 a month starting
December 1982, until private respondent fully vacates the premises, and to pay
P20,000.00 as and by way of attorney's fees.
Private respondent filed a certiorari petition praying for the issuance of a
restraining order enjoining the enforcement of said judgment and dismissal of
the case for lack of jurisdiction of the City Court.
On September 26, 1984, the then Intermidiate Appellate Court 3 (now Court of
Appeals) rendered a decision 4stating that:
. . ., the alleged question of whether petitioner was granted an extension
of the option to buy the property; whether such option, if any, extended
the lease or whether petitioner actually paid the alleged P300,000.00 to
Fidela Dizon, as representative of private respondents in consideration
of the option and, whether petitioner thereafter offered to pay the
balance of the supposed purchase price, are all merely incidental and
do not remove the unlawful detainer case from the jurisdiction or
 respondent court. In consonance with the ruling in the case of Teodoro,
Jr. vs. Mirasol (supra), the above matters may be raised and decided in
the unlawful detainer suit as, to rule otherwise, would be a violation of
the principle prohibiting multiplicity of suits. (Original Records, pp. 38-
39).
The motion for reconsideration was denied. On review, this Court dismissed the
petition in a resolution dated June 19, 1985 and likewise denied private
respondent's subsequent motion for reconsideration in a resolution dated
September 9, 1985. 5
On October 7, 1985, private respondent filed before the Regional Trial Court
(RTC) of Quezon City (Civil Case No. Q-45541) an action for Specific
Performance and Fixing of Period for Obligation with prayer for the issuance of
a restraining order pending hearing on the prayer for a writ of preliminary
injunction. It sought to compel the execution of a deed of sale pursuant to the
option to purchase and the receipt of the partial payment, and to fix the period
to pay the balance. In an Order dated October 25, 1985, the trial court denied
the issuance of a writ of preliminary injunction on the ground that the decision
of the then City Court for the ejectment of the private respondent, having been
affirmed by the then Intermediate Appellate Court and the Supreme Court, has
become final and executory.
Unable to secure an injunction, private respondent also filed before the RTC of
Quezon City, Branch 102 (Civil Case No. Q-46487) on November 15, 1985 a
complaint for Annulment of and Relief from Judgment with injunction and
damages. In its decision 6 dated May 12, 1986, the trial court dismissed the
complaint for annulment on the ground of res judicata, and the writ of
preliminary injunction previously issued was dissolved. It also ordered private
respondent to pay P3,000.00 as attorney's fees. As a consequence of private
respondent's motion for reconsideration, the preliminary injunction was
reinstated, thereby restraining the execution of the City Court's judgment on the
ejectment case.
The two cases were the after consolidated before the RTC of Quezon City,
Branch 77. On April 28, 1989, a decision 7 was rendered dismissing private
respondent's complaint in Civil Case No. Q-45541 (specific performance case)
and denying its motion for reconsideration in Civil Case No. 46487 (annulment
of the ejectment case). The motion for reconsideration of said decision was
likewise denied.
On appeal, 8 respondent Court of Appeals rendered a decision 9 upholding the
jurisdiction of the City Court of Quezon City in the ejectment case. It also
concluded that there was a perfected contract of sale between the parties on
the leased premises and that pursuant to the option to buy agreement, private
respondent had acquired the rights of a vendee in a contract of sale. It opined
that the payment by private respondent of P300,000.00 on June 20, 1975 as
partial payment for the leased property, which petitioners accepted (through
Alice A. Dizon) and for which an official receipt was issued, was the operative
act that gave rise to a perfected contract of sale, and that for failure of
petitioners to deny receipt thereof, private respondent can therefore assume
that Alice A. Dizon, acting as agent of petitioners, was authorized by them to
receive the money in their behalf. The Court of Appeals went further by stating
that in fact, what was entered into was a "conditional contract of sale" wherein
ownership over the leased property shall not pass to the private respondent
until it has fully paid the purchase price. Since private respondent did not
consign to the court the balance of the purchase price and continued to occupy
the subject premises, it had the obligation to pay the amount of P1,700.00 in
monthly rentals until full payment of the purchase price. The dispositive portion
of said decision reads:
WHEREFORE, the appealed decision in Case No. 46387 is
AFFIRMED. The appealed decision in Case No. 45541 is, on the other
hand, ANNULLED and SET ASIDE. The defendants-appellees are
ordered to execute the deed of absolute sale of the property in question,
free from any lien or encumbrance whatsoever, in favor of the plaintiff-
appellant, and to deliver to the latter the said deed of sale, as well as
the owner's duplicate of the certificate of title to said property upon
payment of the balance of the purchase price by the plaintiff-appellant.
The plaintiff-appellant is ordered to pay P1,700.00 per month from June
1976, plus 6% interest per annum, until payment of the balance of the
purchase price, as previously agreed upon by the parties.
SO ORDERED.
Upon denial of the motion for partil reconsideration (Civil Case No. Q-45541)
by respondent Court of Appeals, 10petitioners elevated the case via petition
for certiorari questioning the authority of Alice A. Dizon as agent of petitioners
in receiving private respondent's partial payment amounting to P300,000.00
pursuant to the Contract of Lease with Option to Buy. Petitioner also assail the
propriety of private respondent's exercise of the option when it tendered the
said amount on June 20, 1975 which purportedly resulted in a perfected
contract of sale.
G.R. No. 124741:
Petitioners filed with respondent Court of Appeals a motion to remand the
records of Civil Case No. 38-29155 (ejectment case) to the Metropolitan Trial
Court (MTC), then City Court of Quezon City, Branch 38, for execution of the
judgment 11 dated November 22, 1982 which was granted in a resolution dated
June 29, 1992. Private respondent filed a motion to reconsider said resolution
which was denied.
Aggrieved, private respondent filed a petition for certiorari, prohibition with
preliminary injunction and/or restraining order with this Court (G.R. Nos.
106750-51) which was dismissed in a resolution dated September 16, 1992 on
the ground that the same was a refiled case previously dismissed for lack of
merit. On November 26, 1992, entry of judgment was issued by this Court.
On July 14, 1993, petitioners filed an urgent ex-parte motion for execution of
the decision in Civil Case No. 38-29155 with the MTC of Quezon City, Branch
38. On September 13, 1993, the trial court ordered the issuance of a third alias
writ of execution. In denying private respondent's motion for reconsideration, it
ordered the immediate implementation of the third writ of execution without
delay.
On December 22, 1993, private respondent filed with the Regional Trial Court
(RTC) of Quezon City, Branch 104 a petition for certiorari and prohibition with
preliminary injunction/restraining order (SP. PROC. No. 93-18722) challenging
the enforceability and validity of the MTC judgment as well as the order for its
execution.
On January 11, 1994, RTC of Quezon City, Branch 104 issued an
order12 granting the issuance of a writ of preliminary injunction upon private
respondent's' posting of an injunction bond of P50,000.00.
Assailing the aforequoted order after denial of their motion for partial
reconsideration, petitioners filed a petition 13 for certiorari and prohibition with a
prayer for a temporary restraining order and/or preliminary injunction with the
Court of Appeals. In its decision, 14 the Court of Appeals dismissed the petition
and ruled that:
The avowed purpose of this petition is to enjoin the public respondent
from restraining the ejectment of the private respondent. To grant the
petition would be to allow the ejectment of the private respondent. We
cannot do that now in view of the decision of this Court in CA-G.R. CV
Nos. 25153-54. Petitioners' alleged right to eject private respondent has
been demonstrated to be without basis in the said civil case. The
petitioners have been shown, after all, to have no right to eject private
respondents.
WHEREFORE, the petition is DENIED due course and is accordingly
DISMISSED.
SO ORDERED. 15
Petitioners' motion for reconsideration was denied in a resolution 16 by the Court
of Appeals stating that:
This court in its decision in CA-G.R. CV Nos. 25153-54 declared that
the plaintiff-appellant (private respondent herein) acquired the rights of
a vendee in a contract of sale, in effect, recognizing the right of the
private respondent to possess the subject premises. Considering said
decision, we should not allow ejectment; to do so would disturb
the status quo of the parties since the petitioners are not in possession
of the subject property. It would be unfair and unjust to deprive the
private respondent of its possession of the subject property after its
rights have been established in a subsequent ruling.
WHEREFORE, the motion for reconsideration is DENIED for lack of
merit.
SO ORDERED. 17
Hence, this instant petition.
We find both petitions impressed with merit.
First. Petitioners have established a right to evict private respondent from the
subject premises for non-payment of rentals. The term of the Contract of Lease
with Option to Buy was for a period of one (1) year (May 16, 1974 to May 15,
1975) during which the private respondent was given an option to purchase
said property at P3,000.00 square meter. After the expiration thereof, the lease
was for P3,000.00 per month.
Admittedly, no definite period beyond the one-year term of lease was agreed
upon by petitioners and private respondent. However, since the rent was paid
on a monthly basis, the period of lease is considered to be from month to month
in accordance with Article 1687 of the New Civil Code.18 Where the rentals are
paid monthly, the lease, even if verbal may be deemed to be on a monthly basis,
expiring at the end of every month pursuant to Article 1687, in relation to Article
1673 of the Civil Code. 19 In such case, a demand to vacate is not even
necessary for judicial action after the expiration of every month. 20
When private respondent failed to pay the increased rental of P8,000.00 per
month in June 1976, the petitioners had a cause of action to institute an
ejectment suit against the former with the then City Court. In this regard, the
City Court (now MTC) had exclusive jurisdiction over the ejectment suit. The
filing by private respondent of a suit with the Regional Trial Court for specific
performance to enforce the option to purchase did not divest the then City Court
of its jurisdiction to take cognizance over the ejectment case. Of note is the fact
that the decision of the City Court was affirmed by both the Intermediate
Appellate Court and this Court.
Second. Having failed to exercise the option within the stipulated one-year
period, private respondent cannot enforce its option to purchase anymore.
Moreover, even assuming arguendo that the right to exercise the option still
subsists at the time private respondent tendered the amount on June 20, 1975,
the suit for specific performance to enforce the option to purchase was filed only
on October 7, 1985 or more than ten (10) years after accrual of the cause of
action as provided under Article 1144 of the New Civil Code.21
In this case, there was a contract of lease for one (1) year with option to
purchase. The contract of lease expired without the private respondent, as
lessee, purchasing the property but remained in possession thereof. Hence,
there was an implicit renewal of the contract of lease on a monthly basis. The
other terms of the original contract of lease which are revived in the implied new
lease under Article 1670 of the New Civil Code 22 are only those terms which
are germane to the lessee's right of continued enjoyment of the property
leased. 23 Therefore, an implied new lease does not ipso facto carry with it any
implied revival of private respondent's option to purchase (as lessee thereof)
the leased premises. The provision entitling the lessee the option to purchase
the leased premises is not deemed incorporated in the impliedly renewed
contract because it is alien to the possession of the lessee. Private respondent's
right to exercise the option to purchase expired with the termination of the
original contract of lease for one year. The rationale of this Court is that:
This is a reasonable construction of the provision, which is based on
the presumption that when the lessor allows the lessee to continue
enjoying possession of the property for fifteen days after the expiration
of the contract he is willing that such enjoyment shall be for the entire
period corresponding to the rent which is customarily paid — in this
case up to the end of the month because the rent was paid monthly.
Necessarily, if the presumed will of the parties refers to the enjoyment
of possession the presumption covers the other terms of the contract
related to such possession, such as the amount of rental, the date when
it must be paid, the care of the property, the responsibility for repairs,
etc. But no such presumption may be indulged in with respect to special
agreements which by nature are foreign to the right of occupancy or
enjoyment inherent in a contract of lease. 24
Third. There was no perfected contract of sale between petitioners and private
respondent. Private respondent argued that it delivered the check of
P300,000.00 to Alice A. Dizon who acted as agent of petitioners pursuant to the
supposed authority given by petitioner Fidela Dizon, the payee thereof. Private
respondent further contended that petitioners' filing of the ejectment case
against it based on the contract of lease with option to buy holds petitioners in
estoppel to question the authority of petitioner Fidela Dizon. It insisted that the
payment of P300,000.00 as partial payment of the purchase price constituted a
valid exercise of the option to buy.
Under Article 1475 of the New Civil Code, "the contract of sale is perfected at
the moment there is a meeting of minds upon the thing which is the object of
the contract and upon the price. From that moment, the parties may reciprocally
demand performance, subject to the provisions of the law governing the form
of contracts." Thus, the elements of a contract of sale are consent, object, and
price in money or its equivalent. It bears stressing that the absence of any of
these essential elements negates the existence of a perfected contract of sale.
Sale is a consensual contract and he who alleges it must show its existence by
competent proof. 25
In an attempt to resurrect the lapsed option, private respondent gave
P300,000.00 to petitioners (thru Alice A. Dizon) on the erroneous presumption
that the said amount tendered would constitute a perfected contract of sale
pursuant to the contract of lease with option to buy. There was no valid consent
by the petitioners (as co-owners of the leased premises) on the supposed sale
entered into by Alice A. Dizon, as petitioners' alleged agent, and private
respondent. 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. 26 As provided in Article 1868 of the New Civil Code, 27 there was no
showing that petitioners consented to the act of Alice A. Dizon nor authorized
her to act on their behalf with regard to her transaction with private respondent.
The most prudent thing private respondent should have done was to ascertain
the extent of the authority of Alice A. Dizon. Being negligent in this regard,
private respondent cannot seek relief on the basis of a supposed agency.
In Bacaltos Coal Mines vs. Court of Appeals, 28 we explained the rule in dealing
with an agent:
Every person dealing with an agent is put upon inquiry and must
discover upon his peril the authority of the agent. If he does not make
such inquiry, he is chargeable with knowledge of the agent's authority,
and his ignorance of that authority will not be any excuse. Persons
dealing with an assumed agency, whether the assumed agency be a
general or special one, are bound at their peril, if they would hold the
principal, to ascertain not only the fact of the agency but also the nature
and extent of the authority, and in case either is controverted, the
burden of proof is upon them to establish it.
For the long years that private respondent was able to thwart the execution of
the ejectment suit rendered in favor of petitioners, we now write finis to this
controversy and shun further delay so as to ensure that this case would really
attain finality.
WHEREFORE, in view of the foregoing, both petitions are GRANTED. The
decision dated March 29, 1994 and the resolution dated October 19, 1995 in
CA-G.R. CV No. 25153-54, as well as the decision dated December 11, 1995
and the resolution dated April 23, 1997 in CA-G.R. SP No. 33113 of the Court
of Appeals are hereby REVERSED and SET ASIDE.
Let the records of this case be remanded to the trial court for immediate
execution of the judgment dated November 22, 1982 in Civil Case No. VIII-
29155 of the then City Court (now Metropolitan Trial Court) of Quezon City,
Branch VIII as affirmed in the decision dated September 26, 1984 of the then
Intermediate Appellate Court (now Court of Appeals) and in the resolution dated
June 19, 1985 of this Court.
However, petitioners are ordered to REFUND to private respondent the amount
of P300,000.00 which they received through Alice A. Dizon on June 20, 1975.
SO ORDERED.
Sometime in 1974, respondent Teresita Nacianceno succeeded in convincing
officials of the then Department of Education and Culture, hereinafter called
Department, to purchase without public bidding, one million pesos worth of
national flags for the use of public schools throughout the country. The
respondent was able to expedite the approval of the purchase by hand-carrying
the different indorsements from one office to another, so that by the first week
of September, 1974, all the legal requirements had been complied with, except
the release of the purchase orders. When Nacianceno was informed by the
Chief of the Budget Division of the Department that the purchase orders could
not be released unless a formal offer to deliver the flags in accordance with the
required specifications was first submitted for approval, she contacted the
1âwphi 1.nêt
owners of the United Flag Industry on September 17, 1974. The next day, after
the transaction was discussed, the following document (Exhibit A) was drawn
up:
Mrs. Tessie Nacianceno,

This is to formalize our agreement for you to represent United

Art. 1875. Agency is presumed to be for a compensation, unless there is proof
to the contrary. (n)
Art. 1876. An agency is either general or special.
The former comprises all the business of the principal. The latter, one or more
specific transactions. (1712)
G.R. No. L-67889 October 10, 1985
PRIMITIVO SIASAT and MARCELINO SIASAT, petitioners,
vs.
INTERMEDIATE APPELLATE COURT and TERESITA
NACIANCENO, respondents.
Payawal, Jimenez & Associates for petitioners.
Nelson A. Loyola for private respondent.
GUTIERREZ, JR., J.:
This is a petition for review of the decision of the Intermediate Appellate Court
affirming in toto the judgment of the Court of First Instance of Manila, Branch
XXI, which ordered the petitioner to pay respondent the thirty percent (30%)
commission on 15,666 pieces of Philippine flags worth P936,960.00, moral
damages, attorney's fees and the costs of the suit.
Flag Industry to deal with any entity or organization, private or
government in connection with the marketing of our products-
flags and all its accessories.
For your service, you will be entitled to a commission of thirty
(30%) percent.
Signed
Mr. Primitive Siasat
Owner and Gen. Manager
On October 16, 1974, the first delivery of 7,933 flags was made by the United
Flag Industry. The next day, on October 17, 1974, the respondent's authority to
represent the United Flag Industry was revoked by petitioner Primitivo Siasat.
According to the findings of the courts below, Siasat, after receiving the
payment of P469,980.00 on October 23, 1974 for the first delivery, tendered the
amount of P23,900.00 or five percent (5%) of the amount received, to the
respondent as payment of her commission. The latter allegedly protested. She
refused to accept the said amount insisting on the 30% commission agreed
upon. The respondent was prevailed upon to accept the same, however,
because of the assurance of the petitioners that they would pay the commission
in full after they delivered the other half of the order. The respondent states that
she later on learned that petitioner Siasat had already received payment for the
second delivery of 7,833 flags. When she confronted the petitioners, they
vehemently denied receipt of the payment, at the same time claiming that the
respondent had no participation whatsoever with regard to the second delivery
of flags and that the agency had already been revoked.
The respondent originally filed a complaint with the Complaints and
Investigation Office in Malacañang but when nothing came of the complaint,
she filed an action in the Court of First Instance of Manila to recover the
following commissions: 25%, as balance on the first delivery and 30%, on the
second delivery.
The trial court decided in favor of the respondent. The dispositive portion of the
decision reads as follows:
WHEREFORE, judgment is hereby rendered sentencing Primitivo
Siasat to pay to the plaintiff the sum of P281,988.00, minus the sum
P23,900.00, with legal interest from the date of this decision, and
ordering the defendants to pay jointly and solidarily the sum of
P25,000.00 as moral damages, and P25,000.00 as attorney's fees, also
with legal interest from the date of this decision, and the costs.
The decision was affirmed in toto by the Intermediate Appellate Court. After
their motion for reconsideration was denied, the petitioners went to this Court
on a petition for review on August 6, 1984.
In assailing the appellate court's decision, the petition tenders the following
arguments: first, the authorization making the respondent the petitioner's
representative merely states that she could deal with any entity in connection
with the marketing of their products for a commission of 30%. There was no
specific authorization for the sale of 15,666 Philippine flags to the Department;
second, there were two transactions involved evidenced by the separate
purchase orders and separate delivery receipts, Exhibit 6-C for the purchase
and deliver on October 16, 1974, and Exhibits 7 to 7-C, for the purchase and
delivery on November 6, 1974. The revocation of agency effected by the parties
with mutual consent on October 17, 1974, therefore, forecloses the
respondent's claim of 30% commission on the second transaction; and last,
there was no basis for the granting of attorney's fees and moral damages
because there was no showing of bad faith on the part of the petitioner. It was
respondent who showed bad faith in denying having received her commission
on the first delivery. The petitioner's counterclaim, therefore, should have been
granted.
This petition was initially dismissed for lack of merit in a minute resolution.On a
motion for reconsideration, however,this Court give due course to the petition
on November 14, 1984.
After a careful review of the records, we are constrained to sustain with some
modifications the decision of the appellate court.
We find respondent's argument regarding respondent's incapacity to represent
them in the transaction with the Department untenable. There are several kinds
of agents. To quote a commentator on the matter:
An agent may be (1) universal: (2) general, or (3) special. A universal;
agent is one authorized to do all acts for his principal which can lawfully
be delegated to an agent. So far as such a condition is possible, such
an agent may be said to have universal authority. (Mec. Sec. 58).
A general agent is one authorized to do all acts pertaining to a business
of a certain kind or at a particular place, or all acts pertaining to a
business of a particular class or series. He has usually authority either
expressly conferred in general terms or in effect made general by the
usages, customs or nature of the business which he is authorized to
transact.
An agent, therefore, who is empowered to transact all the business of
his principal of a particular kind or in a particular place, would, for this
reason, be ordinarily deemed a general agent. (Mec Sec. ,30).
A special agent is one authorized to do some particular act or to act
upon some particular occasion. lie acts usually in accordance with
specific instructions or under limitations necessarily implied from the
nature of the act to be done. (Mec. Sec. 61) (Padilla, Civil Law The Civil
Code Annotated, Vol. VI, 1969 Edition, p. 204).
One does not have to undertake a close scrutiny of the document embodying
the agreement between the petitioners and the respondent to deduce that the
'latter was instituted as a general agent. Indeed, it can easily be seen by the
way general words were employed in the agreement that no restrictions were
intended as to the manner the agency was to be carried out or in the place
where it was to be executed. The power granted to the respondent was so
broad that it practically covers the negotiations leading to, and the execution of,
a contract of sale of petitioners' merchandise with any entity or organization.
There is no merit in petitioners' allegations that the contract of agency between
the parties was entered into under fraudulent representation because
respondent "would not disclose the agency with which she was supposed to
transact and made the petitioner believe that she would be dealing with The
Visayas", and that "the petitioner had known of the transactions and/or project
for the said purchase of the Philippine flags by the Department of Education
and Culture and precisely it was the one being followed up also by the
petitioner."
If the circumstances were as claimed by the petitioners, they would have
exerted efforts to protect their interests by limiting the respondent's authority.
There was nothing to prevent the petitioners from stating in the contract of
agency that the respondent could represent them only in the Visayas. Or to
state that the Department of Education and Culture and the Department of
National Defense, which alone would need a million pesos worth of flags, are
outside the scope of the agency. As the trial court opined, it is incredible that
they could be so careless after being in the business for fifteen years.
A cardinal rule of evidence embodied in Section 7 Rule 130 of our Revised
Rules of Court states that "when the terms of an agreement have been reduced
to writing, it is to be considered as containing all such terms, and, therefore,
there can be between the parties and their successors-in-interest, no evidence
of the terms of the agreement other than the contents of the writing", except in
cases specifically mentioned in the same rule. Petitioners have failed to show
that their agreement falls under any of these exceptions. The respondent was
given ample authority to transact with the Department in behalf of the
petitioners. Equally without merit is the petitioners' proposition that the
transaction involved two separate contracts because there were two purchase
orders and two deliveries. The petitioners' evidence is overcome by other
pieces of evidence proving that there was only one transaction.
The indorsement of then Assistant Executive Secretary Roberto Reyes to the
Budget Commission on September 3, 1974 (Exhibit "C") attests to the fact that
out of the total budget of the Department for the fiscal year 1975,
"P1,000,000.00 is for the purchase of national flags." This is also reflected in
the Financial and Work Plan Request for Allotment (Exhibit "F") submitted by
Secretary Juan Manuel for fiscal year 1975 which however, divided the
allocation and release of the funds into three, corresponding to the second,
third, and fourth quarters of the said year. Later correspondence between the
Department and the Budget Commission (Exhibits "D" and "E") show that the
first allotment of P500.000.00 was released during the second quarter.
However, due to the necessity of furnishing all of the public schools in the
country with the Philippine flag, Secretary Manuel requested for the immediate
release of the programmed allotments intended for the third and fourth quarters.
These circumstances explain why two purchase orders and two deliveries had
to be made on one transaction.
The petitioners' evidence does not necessarily prove that there were two
separate transactions. Exhibit "6" is a general indorsement made by Secretary
Manuel for the purchase of the national flags for public schools. It contains no
reference to the number of flags to be ordered or the amount of funds to be
released. Exhibit "7" is a letter request for a "similar authority" to purchase flags
from the United Flag Industry. This was, however, written by Dr. Narciso
Albarracin who was appointed Acting Secretary of the Department after
Secretary Manuel's tenure, and who may not have known the real nature of the
transaction.
If the contracts were separate and distinct from one another, the whole or at
least a substantial part of the government's supply procurement process would
have been repeated. In this case, what were issued were mere indorsements
for the release of funds and authorization for the next purchase.
Since only one transaction was involved, we deny the petitioners' contention
that respondent Nacianceno is not entitled to the stipulated commission on the
second delivery because of the revocation of the agency effected after the first
delivery. The revocation of agency could not prevent the respondent from
earning her commission because as the trial court opined, it came too late, the
contract of sale having been already perfected and partly executed.
In Macondray & Co. v. Sellner (33 Phil. 370, 377), a case analogous to this one
in principle, this Court held:
We do not mean to question the general doctrine as to the power of a
principal to revoke the authority of his agent at will, in the absence of a
contract fixing the duration of the agency (subject, however, to some
well defined exceptions). Our ruling is that at the time fixed by the
manager of the plaintiff company for the termination of the negotiations,
the defendant real estate agent had already earned the commissions
agreed upon, and could not be deprived thereof by the arbitrary action
of the plaintiff company in declining to execute the contract of sale for
some reason personal to itself.
The principal cannot deprive his agent of the commission agreed upon by
cancelling the agency and, thereafter, dealing directly with the buyer. (Infante
v. Cunanan, 93 Phil. 691).
The appellate courts citation of its previous ruling in Heimbrod et al. v.
Ledesma (C.A. 49 O.G. 1507) is correct:
The appellee is entitled to recovery. No citation is necessary to show
that the general law of contracts the equitable principle of estoppel. and
the expense of another, uphold payment of compensation for services
rendered.
There is merit, however, in the petitioners' contention that the agent's
commission on the first delivery was fully paid. The evidence does not sustain
the respondent's claim that the petitioners paid her only 5% and that their right
to collect another 25% commission on the first delivery must be upheld.
When respondent Nacianceno asked the Malacanang Complaints and
Investigation Office to help her collect her commission, her statement under
oath referred exclusively to the 30% commission on the second delivery. The
statement was emphatic that "now" her demand was for the 30% commission
on the (second) release of P469,980.00. The demand letter of the respondent's
lawyer dated November 13, 1984 asked petitioner Siasat only for the 30%
commission due from the second delivery. The fact that the respondent
demanded only the commission on the second delivery without reference to the
alleged unpaid balance which was only slightly less than the amount claimed
can only mean that the commission on the first delivery was already fully paid,
Considering the sizeable sum involved, such an omission is too glaringly remiss
to be regarded as an oversight.
Moreover, the respondent's authorization letter (Exhibit "5") bears her signature
with the handwritten words "Fully Paid", inscribed above it.
The respondent contested her signature as a forgery, Handwriting experts from
two government agencies testified on the matter. The reason given by the trial
court in ruling for the respondent is too flimsy to warrant a finding of forgery.
The court stated that in thirteen documents presented as exhibits, the private
respondent signed her name as "Tessie Nacianceno" while in this particular
instance, she signed as "T. Nacianceno."
The stated basis is inadequate to sustain the respondent's allegation of forgery.
A variance in the manner the respondent signed her name can not be
considered as conclusive proof that the questioned signature is a forgery. The
mere fact that the respondent signed thirteen documents using her full name
does not rule out the possibility of her having signed the notation "Fully Paid",
with her initial for the given came and the surname written in full. What she was
signing was a mere acknowledgment.
This leaves the expert testimony as the sole basis for the verdict of forgery.
In support of their allegation of full payment as evidenced by the signed
authorization letter (Exhibit "5-A"), the petitioners presented as witness Mr.
Francisco Cruz. Jr., a senior document examiner of the Philippine Constabulary
Crime laboratory. In rebuttal, the respondent presented Mr. Arcadio Ramos, a
junior document examiner of the National Bureau of Investigation.
While the experts testified in a civil case, the principles in criminal cases
involving forgery are applicable. Forgery cannot be presumed. It must be
proved.
In Borromeo v. Court of Appeals (131 SCRA 318, 326) we held that:
xxx xxx xxx
... Where the evidence, as here, gives rise to two probabilities, one
consistent with the defendant's innocence and another indicative of his
guilt, that which is favorable to the accused should be considered. The
constitutional presumption of innocence continues until overthrown by
proof of guilt beyond reasonable doubt, which requires moral certainty
which convinces and satisfies the reason and conscience of those who
are to act upon it. (People v. Clores, et al., 125 SCRA 67; People v.
Bautista, 81 Phil. 78).
We ruled in another case that where the supposed expert's testimony would
constitute the sole ground for conviction and there is equally convincing expert
testimony to the contrary, the constitutional presumption of innocence must
prevail. (Lorenzo Ga. Cesar v. Hon. Sandiganbayan and People of the
Philippines, 134 SCRA 105). In the present case, the circumstances earlier
mentioned taken with the testimony of the PC senior document examiner lead
us to rule against forgery.
We also rule against the respondent's allegation that the petitioners acted in
bad faith when they revoked the agency given to the respondent.
Fraud and bad faith are matters not to be presumed but matters to be alleged
with sufficient facts. To support a judgment for damages, facts which justify the
inference of a lack or absence of good faith must be alleged and proven.
(Bacolod-Murcia Milling Co., Inc. vs. First Farmers Milling Co., Inc., Etc., 103
SCRA 436).
There is no evidence on record from which to conclude that the revocation of
the agency was deliberately effected by the petitioners to avoid payment of the
respondent's commission. What appears before us is only the petitioner's use
in court of such a factual allegation as a defense against the respondent's claim.
This alone does not per se make the petitioners guilty of bad faith for that
defense should have been fully litigated.
Moral damages cannot be awarded in the absence of a wrongful act or omission
or of fraud or bad faith. (R & B Surety & Insurance Co., Inc. vs. Intermediate
Appellate Court, 129 SCRA 736).
We therefore, rule that the award of P25,000.00 as moral damages is without
basis.
The additional award of P25,000.00 damages by way of attorney's fees, was
given by the courts below on the basis of Article 2208, Paragraph 2, of the Civil
Code, which provides: "When the defendant's act or omission has compelled
the plaintiff to litigate with third persons or to incur expenses to protect his
interests;" attorney's fees may be awarded as damages. (Pirovano et al. v. De
la Rama Steamship Co., 96 Phil. 335).
The underlying circumstances of this case lead us to rule out any award of
attorney's fees. For one thing, the respondent did not come to court with
completely clean hands. For another, the petitioners apparently believed they
could legally revoke the agency in the manner they did and deal directly with
education officials handling the purchase of Philippine flags. They had reason
to sincerely believe they did not have to pay a commission for the second
delivery of flags.
We cannot close this case without commenting adversely on the inexplicably
strange procurement policies of the Department of Education and Culture in its
purchase of Philippine flags. There is no reason why a shocking 30% of the
taxpayers' money should go to an agent or facilitator who had no flags to sell
and whose only work was to secure and handcarry the indorsements of
education and budget officials. There are only a few manufacturers of flags in
our country with the petitioners claiming to have supplied flags for our public
schools on earlier occasions. If public bidding was deemed unnecessary, the
Department should have negotiated directly with flag manufacturers.
Considering the sad plight of underpaid and overworked classroom teachers
whose pitiful salaries and allowances cannot sometimes be paid on time, a
P300,000.00 fee for a P1,000,000.00 purchase of flags is not only clearly
unnecessary but a scandalous waste of public funds as well.
WHEREFORE, the decision of the respondent court is hereby MODIFIED. The
petitioners are ordered to pay the respondent the amount of ONE HUNDRED
FOURTY THOUSAND NINE HUNDRED AND NINETY FOUR PESOS
(P140,994.00) as her commission on the second delivery of flags with legal
interest from the date of the trial court's decision. No pronouncement as to
costs.
SO ORDERED.
Art. 1877. An agency couched in general terms comprises only acts of
administration, even if the principal should state that he withholds no power or
that the agent may execute such acts as he may consider appropriate, or even
though the agency should authorize a general and unlimited management. (n)
G.R. No. 214057
FLORENTINA BAUTISTASPILLE represented by her Attorney-in-fact,
Manuel B. Flores, Jr., Petitioner
vs.
NICORP MANAGEMENT ND DEVELOPMENT CORPORATION, BENJAMIN
G. BAUTISTA and INTERNATIONAL EXCHANGE BANK, Respondents
DECISION
MENDOZA, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the Rules
of Court assailing the March 19, 2014 Decision1 and the August 18, 2014
Resolution2 of the Court of Appeals (CA) in CA-G.R. CV No. 97682, which
reversed and set aside the May 24, 2010 Decision3 of the Regional Trial Court,
Branch 90, Dasmarifias, Cavite (RTC), in Civil Case No. 0321-04, declaring a
contract to sell null and void.
The Facts:
Petitioner Florentina Bautista-Spille (petitioner) is the registered owner of a
parcel of land covered by Transfer Certificate of Title (TCT) No. T-197, located
in Imus City, Cavite, with an area of more or less 33,052 square meters (subject
property).
On June 20, 1996, petitioner and her spouse, Harold E. Spille, executed a
document denominated as General Power of Attomey4 in favor of her brother,
respondent Benjamin Bautista (Benjamin), authorizing the latter to administer
all her businesses and properties in the Philippines. The said document was
notarized before the Consulate General of the Philippines, New York, United
States of America.
On August 13, 2004, Benjamin and NICORP Management and Development
Corporation (NJCORP) entered into a contract to sell5 which pertained to the
parcel of land covered by TCT No. T-197 for the agreed amount of
P15,000,000.00. In the said contract, NICORP agreed to give a down payment
equivalent to 20% of the purchase price and pay the remaining balance in eight
(8) months. It was also agreed that upon receipt of the down payment, the TCT
of the subject property would be deposited with the International Exchange
Bank (IE Bank) and placed in escrow. It would only be released upon full
payment of the agreed amount. Furthermore, Benjamin was required to submit
a special power of attorney (SPA) covering the sale transaction, otherwise, the
payment of the balance would be suspended and a penalty of P150,000.00
every month would be imposed.
Pursuant thereto, an Escrow Agreement,6 dated October 13, 2004, was
executed designating IE Bank as the Escrow Agent, obliging the latter to hold
and take custody of TCT No. T-197, and to release the said title to NICORP
upon full payment of the subject property.
On October 14, 2004, NICORP issued a check in the amount of P2,250,000.00,
representing the down payment of the subject property.7 Thereafter, the TCT
was deposited with IE Bank and placed in escrow.
When petitioner discovered the sale, her lawyer immediately sent demand
letters8 to NICORP and Benjamin, both dated October 27, 2004, and to IE Bank,
dated October 28, 2004, informing them that she was opposing the sale of the
subject property and that Benjamin was not clothed with authority to enter into
a contract to sell and demanding the return of the owner's copy of the certificate
of title to her true and lawful attorney-in-fact, Manuel B. Flores, Jr. (Flores).
NICORP, Benjamin and IE Bank, however, failed and refused to return the title
of the subject property.
Consequently, petitioner filed a complaint9 before the RTC against Benjamin,
NICORP and IE Bank for declaration of nullity of the contract to sell, injunction,
recovery of possession and damages with prayer for the issuance of a
temporary restraining order and/or preliminary injunction because NICORP was
starting the development of the subject property into a residential subdivision
and was planning to sell the lots to prospective buyers. Petitioner denied
receiving the down payment for the subject property.
The RTC granted the writ of preliminary injunction in its Order,10 dated January
24, 2005, enjoining NICORP and all persons acting on its behalf from making
or introducing improvements, subdividing and selling any subdivided lot of the
subject property.
In its Answer,11 NICORP asked for the dismissal of the case for lack of a cause
of action and averred that Benjamin was empowered to enter into a contract to
sell by virtue of the general power of attorney; that the said authority was valid
and subsisting as there was no specific instrument that specifically revoked his
authority; that assuming Bautista exceeded his authority when he executed the
contract to sell, the agreement was still valid and enforceable as the agency
was already "coupled with interest" because of the partial payment in the
amount of P3,000,000.00; and that the contract could not just be revoked
without NICORP being reimbursed of its down payment and the costs for the
initial development it had incurred in developing the subject property into a
residential subdivision.
For its part, IE Bank denied any liability and alleged that petitioner had no cause
of action against it. IE Bank asserted that, at the time of its constitution as an
escrow agent, Benjamin possessed the necessary authority from petitioner; that
because the contract to sell remained valid, it was duty-
bound to observe its duties and obligations under the Escrow Agreement; and
that in the absence of any order from the court, it was proper for the bank not
to comply with petitioner's demand for the surrender of the certificate of title.12
Benjamin, on the other hand, did not file any responsive pleading. Hence, he
was declared in default in the RTC Order,13 dated August 25, 2005.
On May 24, 2010, the RTC rendered its judgment, declaring the contract to sell
null and void.14 It explained that the general power of authority only pertained to
acts of administration over petitioner's businesses and properties in the
Philippines and did not include authority to sell the subject property. It pointed
out that NICORP was well aware of Benjamin's lack of authority to sell the
subject property as gleaned from the contract to sell which required the latter to
procure the SPA from petitioner and even imposed a penalty of P150,000.00
per month if he would be delayed in securing the SPA. The dispositive portion
of the RTC decision reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of
the plaintiff and against the defendants, declaring the Contract to Sell, dated
October 13, 2004 between the defendant Bautista and NICORP to be null and
void, and the writ of preliminary injunction is now made permanent, and further
ordering the defendants NICORP and International Exchange Bank as follows
-
(a)To return to the plaintiff the peaceful possession of the subject property
covered by Transfer Certificate of Title No. T-197 of the Register of Deeds of
the Province of Cavite;
(b)To return to the plaintiff the Original Owner's Duplicate of Title No. T-197 of
the Register of Deeds of the Province of Cavite;
(c)To pay to the plaintiff the amount of Php250,000.000 by way of attorney's
fees; and Costs
(d)The of suit.
SO ORDERED.15
Aggrieved, NICORP appealed before the CA.
In the assailed decision, the CA reversed the RTC decision, explaining that the
general power of attorney executed by petitioner in favor of Benjamin
authorized the latter not only to perform acts of administration over her
properties but also to perform acts of dominion which included, among others,
the power to dispose the subject property.
Petitioner filed a motion for reconsideration, but it was denied in the assailed
CA Resolution, dated August 18, 2014.
Hence, this petition anchored on the following
GROUNDS
A. THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ERROR
IN HOLDING THAT THE GENERAL POWER OF ATTORNEY EXECUTED BY
PETITIONER AUTHORIZED BENJAMIN BAUTISTA TO ENTER INTO THE
CONTRACT TO SELL WITH RESPONDENT; IN CONTRAVENTION OF THE
ESTABLISHED PRONOUNCEMENT OF THE SUPREME COURT IN THE
CASE OF LILLIAN N. MERCADO ET AL. ·vs. ALLIED BANKING
CORPORATION (G.R. NO. 171460, 24 JULY 2007.
B. THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ERROR
IN APPLYING THE CASE OF ESTATE OF LINO OLAGUER VS. ONGJOCO
(G.R. NO. 173312, 26 AUGUST 2008) TO THE INSTANT CASE
CONSIDERING THAT THE ESTABLISHED FACTS HEREIN ARE NOT IN
ALL FOURS WITH THE FACTS SURROUNDING THE DECISION IN THE
OLAGUER VS. ONGJOCO CASE.
C. THE HONORABLE COURT OF APPEALS ERRED IN DISREGARDING (I)
RESPONDENT'S JUDICIAL ADMISSION AS TO BENJAMIN BAUTISTA'S
LACK OF AUTHORITY TO ENTER INTO A CONTRACT TO SELL THE
SUBJECT PROPERTY, AND (II) RESPONDENT'S KNOWLEDGE OF THE
INSUFFICIENCY OF THE GENERAL POWER OF ATTORNEY, INDICATING
BAD FAITH OF THE RESPONDENT.
D.THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT
THE TRIAL COURT ERRED IN DECLARING THE CONTRACT TO SELL
NULL AND VOID.16
Petitioner argues that the general power of attorney did not clothe Benjamin
with the authority to enter into a contract to sell the subject property. She
1âw phi 1
contends that the general power of attorney pertained to the power to buy, sell,
negotiate and contract over the business and personal property but did not
specifically authorize the sale of the subject property.
Petitioner asserts that the CA erred when it disregarded the stipulation made
by NICORP during the pre-trial proceedings as stated in the pre-trial order that
Benjamin "acted beyond the scope of his authority when he failed to inform
plaintiff personally as to his dealing or negotiation with NICORP and when he
signed the Contract to Sell xxx."17 According to petitioner, such an admission
was an indication that NICORP did not consider the general power of authority
as an SPA which would have authorized Benjamin to enter into the contract to
sell.
NICORP counters that the general power of attorney sufficiently conferred
authority on Benjamin to enter into the contract to sell. It asserts that the written
authority, while denominated as a general power of attorney, expressly
authorized him to sell the subject property. NICORP insists that it was a buyer
in good faith and was never negligent in ascertaining the extent of his authority
to sell the property. It explains that though the general power of attorney
sufficiently clothed Bautista with authority to sell the subject property, it
nonetheless required him to submit the SPA in order to comply with the
requirements of the Register of Deeds and the Bureau of Internal Revenue.
The issue for resolution is whether or not Benjamin was authorized to sell the
subject property.
The Court's Ruling
The Court finds the petition meritorious.
In petitions for review on certiorari under Rule 45 of the Rules of Civil
Procedure, only questions of law may be raised by the parties and passed upon
by this Court. It is not a function of this Court to analyze and weigh the evidence
presented by the parties all over again.18 This rule, however, has several well-
recognized exceptions, such as when the factual findings of the CA and the trial
court are conflicting or contradictory.19
The well-established rule is when a sale of a parcel of land or any interest
therein is through an agent, the authority of the latter shall be in writing,
otherwise the sale shall be void. Articles 1874 and 1878 of the Civil Code
explicitly provide:
Art. 1874. When a sale of a piece of land or any interest therein is through an
agent, the authority of the latter shall be in writing; otherwise, the sale shall be
void.
Art. 1878. Special powers of attorney are necessary in the following cases:
(1)x xx
(5)To enter into any contract by which the ownership of an immovable is
transmitted or acquired either gratuitously or for a valuable
consideration;
x x x . [Emphasis Supplied]
From the foregoing, it is clear that an SPA in the conveyance of real rights over
immovable property is necessary.20In Cosmic Lumber Corporation v. Court of
Appeals,21 the Court enunciated,
When the sale of a piece of land or any interest thereon is through an agent,
the authority of the latter shall be in writing; otherwise, the sale shall be void.
Thus, the authority of an agent to execute a contract for the sale of real estate
must be conferred in writing and must give him specific authority, either to
conduct the general business of the principal or to execute a binding contract
containing terms and conditions which are in the contract he did execute. A
special power of attorney is necessary to enter into any contract by which
the ownership of an immovable is transmitted or acquired either
gratuitously or for a valuable consideration. The express mandate required
by law to enable an appointee of an agency (couched) in general terms to sell
must be one that expressly mentions a sale or that includes a sale as a
necessary ingredient of the act mentioned. For the principal to confer the right
upon an
agent to sell real estate, a power of attorney must so express the powers of the
agent in clear and unmistakable language. When there is any reasonable
1âwphi1
doubt that the language so used conveys such power, no such
construction shall be given the document."22
[Emphases Supplied]
To reiterate, such authority must be conferred in writing and must express the
powers of the agent in clear and unmistakable language in order for the
principal to confer the right upon an agent to sell the real property.23 It is a
general rule that a power of attorney must be strictly construed, and courts will
not infer or presume broad powers from deeds which do not sufficiently include
property or subject under which the agent is to deal.24 Thus, when the authority
is couched in general terms, without mentioning any specific power to sell or
mortgage or to do other specific acts of strict dominion, then only acts of
administration are deemed conferred.25
In the case at bench, the only evidence adduced by NICORP to prove
Benjamin's authority to sell petitioner's property was the document
denominated as General Power of Attorney, dated June 20, 1996. The pertinent
portions of the said document reads:
KNOW ALL MEN BY THESE PRESENTS:
THAT I/WE FLORENTINA B. SPILLE, of legal age, single/married to HAROLD
E. SPILLE and residents of x x x do hereby appoint, name and constitute
BENJAMIN G. BAUTISTA resident(s) of x x x to be my/our truelawfuland
attorney(s), to administer and conduct all my/our affairs and for that purpose in
my/our name(s) and on my/our behalf, to do and execute any or all of the
following acts, deeds and things to wit:
1.To exercise administration, general control and supervision over my/our
business and property in the Philippines, and to act as my/our general
representative(s) and agent(s) with full authority to buy, sell, negotiate and
contract for me/us and my/our behalf;
2. To ask, demand, sue for, recover and receive all sums of money, debts, dues,
goods, wares, merchandise, chattels, effects and thing of whatsoever nature or
description, which now or hereafter shall be or become due, owing, payable or
belonging to me/us in or by any right, title, ways or means howsoever, and upon
receipt thereof or any part thereof, to make, sign, execute and deliver such
receipts, releases or other discharges ;
xxx26
Doubtless, there was no perfected contract to sell between petitioner and
NICORP. Nowhere in the General Power of Attorney was Benjamin granted,
expressly or impliedly, any power to sell the subject property or a portion
thereof. The authority expressed in the General Power of Attorney was couched
in very broad terms covering petitioner's businesses and properties. Time and
again, this Court has stressed that the power of administration does not include
acts of disposition, which are acts of strict ownership. As such, an authority to
dispose cannot proceed from an authority to administer, and vice versa, for the
two powers may only be exercised by an agent by following the provisions on
agency of the Civil Code.27
In the same vein, NICORP cannot be considered a purchaser in good faith. The
well-settled rule is that a person dealing with an assumed agent is bound to
ascertain not only the fact of agency but also the nature and extent of the
agent's authority.28 The law requireshighera degree of prudence from one who
buys from a person who is not the registered owner. He is expected to examine
all factual circumstances necessary for him to determine if there are any flaws
in the title of the transferor, or in his capacity to transfer the land.29 In
ascertaining good faith, or the lack of it, which is a question of intention, courts
are necessarily controlled by the evidence as to the conduct and outward acts
by which alone the inward motive may, with safety, be determined. Good faith,
or want of it, is not a visible, tangible fact that can be seen or touched, but rather
a state or condition of mind which can only be judged by actual or fancied token
or signs.30
Here, the Court agrees with the RTC that NICORP was fully aware that
Benjamin was not properly authorized to enter into any transaction regarding
the sale of petitioner's property. In fact, in the contract to sell, NICORP required
Benjamin to secure the SPA from petitioner within ninety (90) days from the
execution of the contract and even imposed a substantial amount of penalty in
the amount of P150,000.00 a month in case of non- compliance plus
suspension of payment of the balance of the contract price.
Petitioner's explanation that it obliged Benjamin to secure the SPA in order to
comply with the requirements of the Register of Deeds and the Bureau of
Internal Revenue is bereft of merit. NICORP is a real estate company which is
familiar with the intricacies of the realty business. Moreover, there was no
evidence that petitioner ratified Benjamin's act of selling the subject property.
On the contrary, immediately after the execution of the contract to sell,
petitioner wrote NICORP, IE Bank and Benjamin to inform them of her
opposition to the sale of the subject property and of his lack of authority to sell
it and demand the return of the certificate of title. Clearly, NICORP was
negligent in its dealings with Bautista.
In sum, the Court agrees with the findings and conclusion of the RTC. The
consent of petitioner in the contract to sell was not obtained, hence, not
enforceable. Furthermore, because NICORP is considered a builder in bad
faith, it has no right to be refunded the value of whatever improvements it
introduced on the subject property.31
WHEREFORE, the petition is GRANTED. The March 19, 2014 Decision and
the August 18, 2014 Resolution of the Court of Appeals in CA-G.R. CV No.
97682 are REVERSED and SET ASIDE. The May 24, 2010 Decision of the
Regional Trial Court, Branch 90, Dasmarifias, Cavite, is REINSTATED.
SO ORDERED.
G.R. No. L-22450 December 3, 1924
YU CHUCK, MACK YUENG, and DING MOON, plaintiffs-appellees,
vs.
"KONG LI PO," defendant-appellant.
J. W. Ferrier for appellant.
G. E. Campbell for appellees.
OSTRAND, J.:
The defendant is a domestic corporation organized in accordance with the laws
of the Philippine Islands and engaged in the publication of a Chinese
newspaper styled Kong Li Po. Its articles of incorporation and by-laws are in
the usual form and provide for a board of directors and for other officers among
them a president whose duty it is to "sign all contracts and other instruments of
writing." No special provision is made for a business or general manager.
Some time during the year 1919 one C. C. Chen or T. C. Chen was appointed
general business manager of the newspaper. During the month of December
of that year he entered into an agreement with the plaintiffs by which the latter
bound themselves to do the necessary printing for the newspaper for the sum
of P580 per month as alleged in the complaint. Under this agreement the
plaintiffs worked for the defendant from January 1, 1920, until January 31, 1921,
when they were discharged by the new manager, Tan Tian Hong, who had
been appointed in the meantime, C. C. Chen having left for China. The letter of
dismissal stated no special reasons for the discharge of the plaintiffs.
The plaintiffs thereupon brought the present action alleging, among other
things, in the complaint that their contract of employment was for a term of three
years from the first day of January, 1920; that in the case of their discharge by
the defendant without just cause before the expiration of the term of the
contract, they were to receive full pay for the remaining portion of the term; that
they had been so discharged without just cause and therefore asked judgment
for damages in the sum of P20,880.
In its amended answer the defendant denies generally and specifically the
allegations of the complaint and sets up five special defenses and
counterclaims. The first of these is to the effect that C. C. Chen, the person
whose name appears to have been signed to the contract of employment was
not authorized by the defendant to execute such a contract in its behalf. The
second special defense and counterclaim is to the effect that during the month
of January, 1921, the plaintiffs purposely delayed the issuance of defendant's
newspaper on three separate and distinct occasions causing damage and injury
to the defendant in the amount of P300. Under the third special defense and
counterclaim it is alleged that the plaintiffs failed, neglected, and refused to
prepare extra pages for the January 1, 1921, issue of the defendant's
newspaper and thus compelled the defendant to secure the preparation of said
extra pages by other persons at a cost of P110. In the fourth special defense
and counterclaim the defendant alleged that the plaintiffs neglected and failed
to correct errors in advertisements appearing in defendant's newspaper,
although their attention was specifically called to such errors and they were
requested to make the corrections, as a result of which certain advertisers
withdrew their patronage from the paper and refused to pay for the
advertisements, thus causing a loss to the defendant of P160.50. For its fifth
special defense and counterclaim the defendant alleged that the plaintiffs
neglected and refused to do certain job printing such neglect and refusal
causing injury and damage to the defendant in the sum of P150.
At the trial of the case the plaintiffs presented in evidence Exhibit A which
purports to be a contract between Chen and the plaintiffs and which provides
that in the event the plaintiffs should be discharged without cause before the
expirations of the term of three years from January 1, 1920, they would be given
full pay for the unexpired portion of the term "even if the said paper has to fall
into bankruptcy." The contract is signed by the plaintiffs and also bears the
signature "C. C. Chen, manager of Kong Li Po." The authenticity of the latter
signature is questioned by the defendant, but the court below found that the
evidence upon this point preponderate in favor of the plaintiffs and there
appears to be no sufficient reason to disturb this finding.
The trial court further found that the contract had been impliedly ratified by the
defendant and rendered judgment in favor of the plaintiffs for the sum of
P13,340, with interest from the date of the filing of the complaint and the costs.
From this judgment the defendant appeals to this court and makes eighteen
assignments of error. The fourth and seventeenth assignments relate to
defendant's special defense and counterclaims; the sum and substance of the
other assignments is that the contract on which the action is based was not
signed by C. C. Chen; that, in any event, C. C. Chen had no power or authority
to bind the defendant corporation by such contract; and that there was no
ratification of the contract by the corporation.
Before entering upon a discussion of the questions raised by the assignments
of error, we may draw attention to a matter which as not been mentioned either
by counsel or by the court below, but which, to prevent misunderstanding,
should be briefly explained: It is averred in the complaint that it is accompanied
by a copy of the contract between the parties (Exhibit A) which copy, by the
terms of the complaint, is made a part thereof. The copy is not set forth in the
bill of exceptions and aside from said avernment, there is no indication that the
copy actually accompanied the complaint, but an examination of the record of
the case in the Court of First Instance shows that a translation of the contract
was attached to the complaint and served upon the defendant. As this
translation may be considered a copy and as the defendant failed to deny its
authenticity under oath, it will perhaps be said that under section 103 of the
Code of Civil Procedure the omission to so deny it constitutes an admission of
the genuineness and due execution of the document as well as of the agent's
authority to bind the defendant. (Merchant vs.International Banking
Corporation, 6 Phil., 314.)
In ordinary circumstances that would be true. But this case appears to have
been tried upon the theory that the rule did not apply; at least, it was wholly
overlooked or disregarded by both parties. The plaintiffs at the beginning of the
trial presented a number of witnesses to prove the due execution of the
document as well as the agent's authority; no objections were made to the
defendant's evidence in refutation and no exceptions taken; and the matter is
not mentioned in the decision of the trial court.
The object of the rule is "to relieve a party of the trouble and expense of proving
in the first instance an alleged fact, the existence or nonexistence of which is
necessarily within the knowledge of the adverse party, and of the necessity (to
his opponent's case) of establishing which such adverse party is notified by his
opponent's pleading." (Nery Lim-Chingco vs. Terariray, 5 Phil., at p. 124.) lawphi1.net
The plaintiff may, of course, waive the rule and that is what he must be
considered to have done in the present case by introducing evidence as to the
execution of the document and failing to object to the defendant's evidence in
refutation; all this evidence is now competent and the case must be decided
thereupon. Moreover, the question as to the applicability of the rule is not even
suggested in the briefs and is not properly this court. In these circumstances it
would, indeed, be grossly unfair to the defendant if this court should take up the
question on its own motion and make it decisive of the case, and such is not
the law. Nothing of what has here been said is in conflict with former decisions
of this court; it will be found upon examination that in all cases where the
applicability of the rule has been sustained the party invoking it has relied on it
in the court below and conducted his case accordingly.
The principal question presented by the assignments of error is whether Chen
had the power to bind the corporation by a contract of the character indicated.
It is conceded that he had no express authority to do so, but the evidence is
conclusive that he, at the time the contract was entered into, was in effect the
general business manager of the newspaper Kong Li Po and that he, as such,
had charge of the printing of the paper, and the plaintiff maintain that he, as
such general business manager, had implied authority to employ them on the
terms stated and that the defendant corporation is bound by his action. The
general rule is that the power to bind a corporation by contract lies with its board
of directors or trustees, but this power may either expressly or impliedly be
delegated to other officers or agents of the corporation, and it is well settled that
except where the authority of employing servants and agent is expressly vested
in the board of directors or trustees, an officer or agent who has general control
and management of the corporation's business, or a specific part thereof, may
bind the corporation by the employment of such agent and employees as are
usual and necessary in the conduct of such business. But the contracts of In his decision his Honor, the learned judge of the court below appears to have
employment must be reasonable. (14a C. J., 431.) placed some weight on a notice inserted in the January 14th issue of the Kong
Li Po by T. C. Chen and which, in translation, reads as follows:
In regard to the length of the term of employment, Corpus Juris says:
To Whom It May Concern: Announcement is hereby given that
In the absence of express limitations, a manager has authority to hire thereafter all contracts, agreements and receipts are considered to be
an employee for such a period as is customary or proper under the null and void unless duly signed by T. C. Chen, General Manager of
circumstances, such as for a year, for the season, or for two season. this paper.
But unless he is either expressly authorized, or held out as having such
authority, he cannot make a contract of employment for a long future (Sgd.) CHEN YOU MAN
period, such as for three years, although the contract is not rendered General Manager of this paper
invalid by the mere fact that the employment extends beyond the term
of the manager's own employment. . . . (14a C. J., 431.)
(The evidence shows that Chen You Man and T. C. Chen is one and the same
person.)
From what has been said, there can be no doubt that Chen, as general manager
of the Kong Li Po, had implied authority to bind the defendant corporation by a
His Honor evidently overestimated the importance of this notice. It was
reasonable and usual contract of employment with the plaintiffs, but we do not
published nearly a month after the contract in question is alleged to have been
think that the contract here in question can be so considered. Not only is the
entered into and can therefore not have been one of the circumstances which
term of employment unusually long, but the conditions are otherwise so
led the plaintiffs to think that Chen had authority to make the contract. It may
onerous to the defendant that the possibility of the corporation being thrown
further be observed that the notice confers no special powers, but is, in effect,
into insolvency thereby is expressly contemplated in the same contract. This
only an assertion by Chen that he would recognize no contracts, agreements,
fact in itself was, in our opinion, sufficient to put the plaintiffs upon inquiry as to
and receipts not duty signed by him. It may be presumed that the contracts,
the extent of the business manager's authority; they had not the rights to
agreements, and receipts were such as were ordinarily made in the course of
presume that he or any other single officer or employee of the corporation had
the business of managing the newspaper. There is no evidence to show that
implied authority to enter into a contract of employment which might bring about
the notice was ever brought to the attention of the officers of the defendant
its ruin.
corporation.
Neither do we think that the contention that the corporation impliedly ratified the
The defendant's counterclaims have not been sufficiently established by the
contract is supported by the evidence. The contention is based principally on
evidence.
the fact that Te Kim Hua, the president of the corporation for the year 1920,
admitted on the witness stand that he saw the plaintiffs work as printers in the
office of the newspaper. He denied, however, any knowledge of the existence The judgment appealed from is reversed and the defendant corporation is
of the contract and asserted that it was never presented neither to him nor to absolved from the complaint. No costs will be allowed. So ordered.
the board of directors. Before a contract can be ratified knowledge of its
existence must, of course, be brought home to the parties who have authority Johns, Avanceña and Romualdez, JJ., concur.
to ratify it or circumstances must be shown from which such knowledge may be
presumed. No such knowledge or circumstances have been shown here. That
the president of the corporation saw the plaintiffs working in its office is of little
significance; there were other printers working there at that time and as the
president had nothing to do with their employment, it was hardly to be expected
that be would inquire into the terms of their contracts. Moreover, a ratification
by him would have been of no avail; in order to validate a contract, a ratification
by the board of directors was necessary. The fact that the president was
required by the by-laws to sign the documents evidencing contracts of the
corporation, does not mean that he had power to make the contracts.
G.R. No. 165803 September 1, 2010
SPOUSES REX AND CONCEPCION AGGABAO, Petitioners,
vs.
DIONISIO Z. PARULAN, JR. and MA. ELENA PARULAN, Respondents.
DECISION
BERSAMIN, J.:
On July 26, 2000, the Regional Trial Court (RTC), Branch 136, in Makati City
annulled the deed of absolute sale executed in favor of the petitioners covering
two parcels of registered land the respondents owned for want of the written
consent of respondent husband Dionisio Parulan, Jr. On July 2, 2004, in C.A.-
G.R. CV No. 69044,1 the Court of Appeals (CA) affirmed the RTC decision.
Hence, the petitioners appeal by petition for review on certiorari, seeking to
reverse the decision of the CA. They present as the main issue whether the
sale of conjugal property made by respondent wife by presenting a special
power of attorney to sell (SPA) purportedly executed by respondent husband in
her favor was validly made to the vendees, who allegedly acted in good faith
and paid the full purchase price, despite the showing by the husband that his
signature on the SPA had been forged and that the SPA had been executed
during his absence from the country.
We resolve the main issue against the vendees and sustain the CA’s finding
that the vendees were not buyers in good faith, because they did not exercise
the necessary prudence to inquire into the wife’s authority to sell. We hold that
the sale of conjugal property without the consent of the husband was not merely
voidable but void; hence, it could not be ratified.
Antecedents
Involved in this action are two parcels of land and their improvements (property)
located at No. 49 Miguel Cuaderno Street, Executive Village, BF Homes,
Parañaque City and registered under Transfer Certificate of Title (TCT) No.
633762 and TCT No. 633773 in the name of respondents Spouses Maria Elena
A. Parulan (Ma. Elena) and Dionisio Z. Parulan, Jr. (Dionisio), who have been
estranged from one another.
In January 1991, real estate broker Marta K. Atanacio (Atanacio) offered the
property to the petitioners, who initially did not show interest due to the rundown
condition of the improvements. But Atanacio’s persistence prevailed upon
them, so that on February 2, 1991, they and Atanacio met with Ma. Elena at the
site of the property. During their meeting, Ma. Elena showed to them the
following documents, namely: (a) the owner’s original copy of TCT No. 63376;
(b) a certified true copy of TCT No. 63377; (c) three tax declarations; and (d) a
copy of the special power of attorney (SPA) dated January 7, 1991 executed
by Dionisio authorizing Ma. Elena to sell the property.4 Before the meeting
ended, they paid ₱20,000.00 as earnest money, for which Ma. Elena executed
a handwritten Receipt of Earnest Money, whereby the parties stipulated that:
(a) they would pay an additional payment of ₱130,000.00 on February 4, 1991;
(b) they would pay the balance of the bank loan of the respondents amounting
to ₱650,000.00 on or before February 15, 1991; and (c) they would make the
final payment of ₱700,000.00 once Ma. Elena turned over the property on
March 31, 1991.5
On February 4, 1991, the petitioners went to the Office of the Register of Deeds
and the Assessor’s Office of Parañaque City to verify the TCTs shown by Ma.
Elena in the company of Atanacio and her husband (also a licensed
broker).6 There, they discovered that the lot under TCT No. 63376 had been
encumbered to Banco Filipino in 1983 or 1984, but that the encumbrance had
already been cancelled due to the full payment of the obligation.7They noticed
that the Banco Filipino loan had been effected through an SPA executed by
Dionisio in favor of Ma. Elena.8 They found on TCT No. 63377 the annotation
of an existing mortgage in favor of the Los Baños Rural Bank, also effected
through an SPA executed by Dionisio in favor of Ma. Elena, coupled with a copy
of a court order authorizing Ma. Elena to mortgage the lot to secure a loan of
₱500,000.00.9
The petitioners and Atanacio next inquired about the mortgage and the court
order annotated on TCT No. 63377 at the Los Baños Rural Bank. There, they
met with Atty. Noel Zarate, the bank’s legal counsel, who related that the bank
had asked for the court order because the lot involved was conjugal property.10
Following their verification, the petitioners delivered ₱130,000.00 as additional
down payment on February 4, 1991; and ₱650,000.00 to the Los Baños Rural
Bank on February 12, 1991, which then released the owner’s duplicate copy of
TCT No. 63377 to them.11
On March 18, 1991, the petitioners delivered the final amount of ₱700,000.00
to Ma. Elena, who executed a deed of absolute sale in their favor. However,
Ma. Elena did not turn over the owner’s duplicate copy of TCT No. 63376,
claiming that said copy was in the possession of a relative who was then in
Hongkong.12 She assured them that the owner’s duplicate copy of TCT No.
63376 would be turned over after a week.
On March 19, 1991, TCT No. 63377 was cancelled and a new one was issued
in the name of the petitioners.
Ma. Elena did not turn over the duplicate owner’s copy of TCT No. 63376 as
promised. In due time, the petitioners learned that the duplicate owner’s copy
of TCT No. 63376 had been all along in the custody of Atty. Jeremy Z. Parulan,
who appeared to hold an SPA executed by his brother Dionisio authorizing him
to sell both lots.13
At Atanacio’s instance, the petitioners met on March 25, 1991 with Atty. Parulan
at the Manila Peninsula.14 For that meeting, they were accompanied by one
Atty. Olandesca.15 They recalled that Atty. Parulan "smugly demanded
₱800,000.00" in exchange for the duplicate owner’s copy of TCT No. 63376,
because Atty. Parulan represented the current value of the property to be ₱1.5
million. As a counter-offer, however, they tendered ₱250,000.00, which Atty.
Parulan declined,16 giving them only until April 5, 1991 to decide.
Hearing nothing more from the petitioners, Atty. Parulan decided to call them
on April 5, 1991, but they informed him that they had already fully paid to Ma.
Elena.17
Thus, on April 15, 1991, Dionisio, through Atty. Parulan, commenced an action
(Civil Case No. 91-1005 entitledDionisio Z. Parulan, Jr., represented by Jeremy
Z. Parulan, as attorney in fact, v. Ma. Elena Parulan, Sps. Rex and Coney
Aggabao), praying for the declaration of the nullity of the deed of absolute sale
executed by Ma. Elena, and the cancellation of the title issued to the petitioners
by virtue thereof.
In turn, the petitioners filed on July 12, 1991 their own action for specific
performance with damages against the respondents.
Both cases were consolidated for trial and judgment in the RTC.18
Ruling of the RTC
After trial, the RTC rendered judgment, as follows:
WHEREFORE, and in consideration of the foregoing, judgment is hereby
rendered in favor of plaintiff Dionisio A. Parulan, Jr. and against defendants Ma.
Elena Parulan and the Sps. Rex and Concepcion Aggabao, without prejudice
to any action that may be filed by the Sps. Aggabao against co-defendant Ma.
Elena Parulan for the amounts they paid her for the purchase of the subject
lots, as follows:
1. The Deed of Absolute Sale dated March 18, 1991 covering the sale
of the lot located at No. 49 M. Cuaderno St., Executive Village, BF
Homes, Parañaque, Metro Manila, and covered by TCT Nos. 63376
and 63377 is declared null and void.
2. Defendant Mrs. Elena Parulan is directed to pay litigation expenses
amounting to ₱50,000.00 and the costs of the suit.
SO ORDERED.19
The RTC declared that the SPA in the hands of Ma. Elena was a forgery, based
on its finding that Dionisio had been out of the country at the time of the
execution of the SPA;20 that NBI Sr. Document Examiner Rhoda B. Flores had
certified that the signature appearing on the SPA purporting to be that of
Dionisio and the set of standard sample signatures of Dionisio had not been
written by one and the same person;21 and that Record Officer III Eliseo O.
Terenco and Clerk of Court Jesus P. Maningas of the Manila RTC had issued
a certification to the effect that Atty. Alfred Datingaling, the Notary Public who
had notarized the SPA, had not been included in the list of Notaries Public in
Manila for the year 1990-1991.22
The RTC rejected the petitioners’ defense of being buyers in good faith because
of their failure to exercise ordinary prudence, including demanding from Ma.
Elena a court order authorizing her to sell the properties similar to the order that
the Los Baños Rural Bank had required before accepting the mortgage of the
property.23 It observed that they had appeared to be in a hurry to consummate
the transaction despite Atanacio’s advice that they first consult a lawyer before
buying the property; that with ordinary prudence, they should first have obtained
the owner’s duplicate copies of the TCTs before paying the full amount of the
consideration; and that the sale was void pursuant to Article 124 of the Family
Code.24
Ruling of the CA
As stated, the CA affirmed the RTC, opining that Article 124 of the Family Code
applied because Dionisio had not consented to the sale of the conjugal property
by Ma. Elena; and that the RTC correctly found the SPA to be a forgery.
The CA denied the petitioners’ motion for reconsideration.25
Issues
The petitioners now make two arguments: (1) they were buyers in good faith;
and (2) the CA erred in affirming the RTC’s finding that the sale between Mrs.
Elena and the petitioners had been a nullity under Article 124 of the Family
Code.
The petitioners impute error to the CA for not applying the "ordinary prudent
man’s standard" in determining their status as buyers in good faith. They
contend that the more appropriate law to apply was Article 173 of the Civil Code,
not Article 124 of the Family Code; and that even if the SPA held by Ma. Elena
was a forgery, the ruling in Veloso v. Court of Appeals26 warranted a judgment
in their favor.
Restated, the issues for consideration and resolution are as follows:
1) Which between Article 173 of the Civil Code and Article 124 of the
Family Code should apply to the sale of the conjugal property executed
without the consent of Dionisio?
2) Might the petitioners be considered in good faith at the time of their
purchase of the property?
3) Might the ruling in Veloso v. Court of Appeals be applied in favor of
the petitioners despite the finding of forgery of the SPA?
Ruling
The petition has no merit. We sustain the CA.
1.
Article 124, Family Code, applies to sale of conjugal
properties made after the effectivity of the Family Code
The petitioners submit that Article 173 of the Civil Code, not Article 124 of the
Family Code, governed the property relations of the respondents because they
had been married prior to the effectivity of the Family Code; and that the second
paragraph of Article 124 of the Family Code should not apply because the other
spouse held the administration over the conjugal property. They argue that
notwithstanding his absence from the country Dionisio still held the
administration of the conjugal property by virtue of his execution of the SPA in
favor of his brother; and that even assuming that Article 124 of the Family Code
properly applied, Dionisio ratified the sale through Atty. Parulan’s counter-offer
during the March 25, 1991 meeting.
We do not subscribe to the petitioners’ submissions.
To start with, Article 25427 the Family Code has expressly repealed several titles
under the Civil Code, among them the entire Title VI in which the provisions on
the property relations between husband and wife, Article 173 included, are
found.
Secondly, the sale was made on March 18, 1991, or after August 3, 1988, the
effectivity of the Family Code. The proper law to apply is, therefore, Article 124
of the Family Code, for it is settled that any alienation or encumbrance of
conjugal property made during the effectivity of the Family Code is governed by
Article 124 of the Family Code.28
Article 124 of the Family Code provides:
Article 124. The administration and enjoyment of the conjugal partnership
property shall belong to both spouses jointly. In case of disagreement, the
husband’s decision shall prevail, subject to recourse to the court by the wife for
proper remedy, which must be availed of within five years from the date of the
contract implementing such decision.
In the event that one spouse is incapacitated or otherwise unable to
participate in the administration of the conjugal properties, the other
spouse may assume sole powers of administration. These powers do not
include disposition or encumbrance without authority of the court or the
written consent of the other spouse. In the absence of such authority or
consent, the disposition or encumbrance shall be void. However, the
transaction shall be construed as a continuing offer on the part of the consenting
spouse and the third person, and may be perfected as a binding contract upon
the acceptance by the other spouse or authorization by the court before the
offer is withdrawn by either or both offerors.
Thirdly, according to Article 25629 of the Family Code, the provisions of the
Family Code may apply retroactively provided no vested rights are impaired.
In Tumlos v. Fernandez,30 the Court rejected the petitioner’s argument that the
Family Code did not apply because the acquisition of the contested property
had occurred prior to the effectivity of the Family Code, and pointed out that
Article 256 provided that the Family Code could apply retroactively if the
application would not prejudice vested or acquired rights existing before the
effectivity of the Family Code. Herein, however, the petitioners did not show any
vested right in the property acquired prior to August 3, 1988 that exempted their
situation from the retroactive application of the Family Code.
Fourthly, the petitioners failed to substantiate their contention that Dionisio,
while holding the administration over the property, had delegated to his brother,
Atty. Parulan, the administration of the property, considering that they did not
present in court the SPA granting to Atty. Parulan the authority for the
administration.
Nonetheless, we stress that the power of administration does not include acts
of disposition or encumbrance, which are acts of strict ownership. As such, an
authority to dispose cannot proceed from an authority to administer, and vice
versa, for the two powers may only be exercised by an agent by following the
provisions on agency of the Civil Code (from Article 1876 to Article 1878).
Specifically, the apparent authority of Atty. Parulan, being a special agency,
was limited to the sale of the property in question, and did not include or extend
to the power to administer the property.31
Lastly, the petitioners’ insistence that Atty. Parulan’s making of a counter-offer
during the March 25, 1991 meeting ratified the sale merits no consideration.
Under Article 124 of the Family Code, the transaction executed sans the written
consent of Dionisio or the proper court order was void; hence, ratification did
not occur, for a void contract could not be ratified.32
On the other hand, we agree with Dionisio that the void sale was a continuing
offer from the petitioners and Ma. Elena that Dionisio had the option of
accepting or rejecting before the offer was withdrawn by either or both Ma.
Elena and the petitioners. The last sentence of the second paragraph of Article
124 of the Family Code makes this clear, stating that in the absence of the other
spouse’s consent, the transaction should be construed as a continuing offer on
the part of the consenting spouse and the third person, and may be perfected
as a binding contract upon the acceptance by the other spouse or upon
authorization by the court before the offer is withdrawn by either or both offerors.
2.
Due diligence required in verifying not only vendor’s title,
but also agent’s authority to sell the property
A purchaser in good faith is one who buys the property of another, without
notice that some other person has a right to, or interest in, such property, and
pays the full and fair price for it at the time of such purchase or before he has
notice of the claim or interest of some other persons in the property. He buys
the property with the belief that the person from whom he receives the thing
was the owner and could convey title to the property. He cannot close his eyes
to facts that should put a reasonable man on his guard and still claim he acted
in good faith.33 The status of a buyer in good faith is never presumed but must
be proven by the person invoking it.34
Here, the petitioners disagree with the CA for not applying the "ordinary prudent
man’s standard" in determining their status as buyers in good faith. They insist
that they exercised due diligence by verifying the status of the TCTs, as well as
by inquiring about the details surrounding the mortgage extended by the Los
Baños Rural Bank. They lament the holding of the CA that they should have
been put on their guard when they learned that the Los Baños Rural Bank had
first required a court order before granting the loan to the respondents secured
by their mortgage of the property.
The petitioners miss the whole point.
Article 124 of the Family Code categorically requires the consent of both
spouses before the conjugal property may be disposed of by sale, mortgage,
or other modes of disposition. In Bautista v. Silva,35 the Court erected a
standard to determine the good faith of the buyers dealing with
a seller who had title to and possession of the land but whose capacity to sell
was restricted, in that the consent of the other spouse was required before the
conveyance, declaring that in order to prove good faith in such a situation, the
buyers must show that they inquired not only into the title of the seller but also
into the seller’s capacity to sell.36Thus, the buyers of conjugal property must
observe two kinds of requisite diligence, namely: (a) the diligence in verifying
the validity of the title covering the property; and (b) the diligence in inquiring
into the authority of the transacting spouse to sell conjugal property in behalf of
the other spouse.
It is true that a buyer of registered land needs only to show that he has relied
on the face of the certificate of title to the property, for he is not required to
explore beyond what the certificate indicates on its face.37 In this respect, the
petitioners sufficiently proved that they had checked on the authenticity of TCT
No. 63376 and TCT No. 63377 with the Office of the Register of Deeds in Pasay
City as the custodian of the land records; and that they had also gone to the
Los Baños Rural Bank to inquire about the mortgage annotated on TCT No.
63377. Thereby, the petitioners observed the requisite diligence in examining
the validity of the TCTs concerned.
Yet, it ought to be plain enough to the petitioners that the issue was whether or
not they had diligently inquired into the authority of Ma. Elena to convey the
property, not whether or not the TCT had been valid and authentic, as to which
there was no doubt. Thus, we cannot side with them.
Firstly, the petitioners knew fully well that the law demanded the written consent
of Dionisio to the sale, but yet they did not present evidence to show that they
had made inquiries into the circumstances behind the execution of the SPA
purportedly executed by Dionisio in favor of Ma. Elena. Had they made the
appropriate inquiries, and not simply accepted the SPA for what it represented
on its face, they would have uncovered soon enough that the respondents had
been estranged from each other and were under de facto separation, and that
they probably held conflicting interests that would negate the existence of an
agency between them. To lift this doubt, they must, of necessity, further inquire
into the SPA of Ma. Elena. The omission to inquire indicated their not being
buyers in good faith, for, as fittingly observed in Domingo v. Reed:38 1avvphi 1
What was required of them by the appellate court, which we affirm, was merely
to investigate – as any prudent vendee should – the authority of Lolita to sell
the property and to bind the partnership. They had knowledge of facts that
should have led them to inquire and to investigate, in order to acquaint
themselves with possible defects in her title. The law requires them to act with
the diligence of a prudent person; in this case, their only prudent course of
action was to investigate whether respondent had indeed given his consent to
the sale and authorized his wife to sell the property.39
Indeed, an unquestioning reliance by the petitioners on Ma. Elena’s SPA
without first taking precautions to verify its authenticity was not a prudent
buyer’s move.40 They should have done everything within their means and
power to ascertain whether the SPA had been genuine and authentic. If they
did not investigate on the relations of the respondents vis-à-vis each other, they
could have done other things towards the same end, like attempting to locate
the notary public who had notarized the SPA, or checked with the RTC in Manila
to confirm the authority of Notary Public Atty. Datingaling. It turned out that Atty.
Datingaling was not authorized to act as a Notary Public for Manila during the
period 1990-1991, which was a fact that they could easily discover with a
modicum of zeal.
Secondly, the final payment of ₱700,000.00 even without the owner’s duplicate
copy of the TCT No. 63376 being handed to them by Ma. Elena indicated a
revealing lack of precaution on the part of the petitioners. It is true that she
promised to produce and deliver the owner’s copy within a week because her
relative having custody of it had gone to Hongkong, but their passivity in such
an essential matter was puzzling light of their earlier alacrity in immediately and
diligently validating the TCTs to the extent of inquiring at the Los Baños Rural
Bank about the annotated mortgage. Yet, they could have rightly withheld the
final payment of the balance. That they did not do so reflected their lack of due
care in dealing with Ma. Elena.
Lastly, another reason rendered the petitioners’ good faith incredible. They did
not take immediate action against Ma. Elena upon discovering that the owner’s
original copy of TCT No. 63376 was in the possession of Atty. Parulan, contrary
to Elena’s representation. Human experience would have impelled them to
exert every effort to proceed against Ma. Elena, including demanding the return
of the substantial amounts paid to her. But they seemed not to mind her inability
to produce the TCT, and, instead, they contented themselves with meeting with
Atty. Parulan to negotiate for the possible turnover of the TCT to them.
3.
Veloso v. Court of Appeals cannot help petitioners
The petitioners contend that the forgery of the SPA notwithstanding, the CA
could still have decided in their favor conformably with Veloso v. Court of
Appeals,41 a case where the petitioner husband claimed that his signature and
that of the notary public who had notarized the SPA the petitioner supposedly
executed to authorize his wife to sell the property had been forged. In denying
relief, the Court upheld the right of the vendee as an innocent purchaser for
value.
Veloso is inapplicable, however, because the contested property therein was
exclusively owned by the petitioner and did not belong to the conjugal
regime. Veloso being upon conjugal property, Article 124 of the Family Code
did not apply.
In contrast, the property involved herein pertained to the conjugal regime, and,
consequently, the lack of the written consent of the husband rendered the sale
void pursuant to Article 124 of the Family Code. Moreover, evenassuming that
the property involved in Veloso was conjugal, its sale was made on November
2, 1987, or prior to the effectivity of the Family Code; hence, the sale was still
properly covered by Article 173 of the Civil Code, which provides that a sale
effected without the consent of one of the spouses is only voidable, not void.
However, the sale herein was made already during the effectivity of the Family
Code, rendering the application of Article 124 of the Family Code clear and
indubitable.
The fault of the petitioner in Veloso was that he did not adduce sufficient
evidence to prove that his signature and that of the notary public on the SPA
had been forged. The Court pointed out that his mere allegation that the
signatures had been forged could not be sustained without clear and convincing
proof to substantiate the allegation. Herein, however, both the RTC and the CA
found from the testimonies and evidence presented by Dionisio that his
signature had been definitely forged, as borne out by the entries in his passport
showing that he was out of the country at the time of the execution of the
questioned SPA; and that the alleged notary public, Atty. Datingaling, had no
authority to act as a Notary Public for Manila during the period of 1990-1991.
WHEREFORE, we deny the petition for review on certiorari, and affirm the
decision dated July 2, 2004 rendered by the Court of Appeals in C.A.-G.R. CV
No. 69044 entitled "Dionisio Z. Parulan, Jr. vs. Ma. Elena Parulan and Sps. Rex
and Concepcion Aggabao" and "Sps. Rex and Concepcion Aggabao vs.
Dionisio Z. Parulan, Jr. and Ma. Elena Parulan."
Costs of suit to be paid by the petitioners.
SO ORDERED.
G.R. No. 129919 February 6, 2002
DOMINION INSURANCE CORPORATION, petitioner,
vs.
COURT OF APPEALS, RODOLFO S. GUEVARRA, and FERNANDO
AUSTRIA, respondents.
DECISION
PARDO, J.:
The Case
This is an appeal via certiorari from the decision of the Court of
1
Appeals2 affirming the decision3 of the Regional Trial Court, Branch 44, San
Fernando, Pampanga, which ordered petitioner Dominion Insurance
Corporation (Dominion) to pay Rodolfo S. Guevarra (Guevarra) the sum of
P156,473.90 representing the total amount advanced by Guevarra in the
payment of the claims of Dominion’s clients.
The Facts
The facts, as found by the Court of Appeals, are as follows:
"On January 25, 1991, plaintiff Rodolfo S. Guevarra instituted Civil Case No.
8855 for sum of money against defendant Dominion Insurance Corporation.
Plaintiff sought to recover thereunder the sum of P156,473.90 which he claimed
to have advanced in his capacity as manager of defendant to satisfy certain
claims filed by defendant’s clients.
"In its traverse, defendant denied any liability to plaintiff and asserted a
counterclaim for P249,672.53, representing premiums that plaintiff allegedly
failed to remit.
"On August 8, 1991, defendant filed a third-party complaint against Fernando
Austria, who, at the time relevant to the case, was its Regional Manager for
Central Luzon area.
"In due time, third-party defendant Austria filed his answer.
"Thereafter the pre-trial conference was set on the following dates: October 18,
1991, November 12, 1991, March 29, 1991, December 12, 1991, January 17,
1992, January 29, 1992, February 28, 1992, March 17, 1992 and April 6, 1992,
in all of which dates no pre-trial conference was held. The record shows that
except for the settings on October 18, 1991, January 17, 1992 and March 17,
1992 which were cancelled at the instance of defendant, third-party defendant
and plaintiff, respectively, the rest were postponed upon joint request of the
parties.
"On May 22, 1992 the case was again called for pre-trial conference. Only
plaintiff and counsel were present. Despite due notice, defendant and counsel
did not appear, although a messenger, Roy Gamboa, submitted to the trial court
a handwritten note sent to him by defendant’s counsel which instructed him to
request for postponement. Plaintiff’s counsel objected to the desired
postponement and moved to have defendant declared as in default. This was
granted by the trial court in the following order:
"ORDER
"When this case was called for pre-trial this afternoon only plaintiff and his
counsel Atty. Romeo Maglalang appeared. When shown a note dated May 21,
1992 addressed to a certain Roy who was requested to ask for postponement,
Atty. Maglalang vigorously objected to any postponement on the ground that
the note is but a mere scrap of paper and moved that the defendant corporation
be declared as in default for its failure to appear in court despite due notice.
"Finding the verbal motion of plaintiff’s counsel to be meritorious and
considering that the pre-trial conference has been repeatedly postponed on
motion of the defendant Corporation, the defendant Dominion Insurance
Corporation is hereby declared (as) in default and plaintiff is allowed to present
his evidence on June 16, 1992 at 9:00 o’clock in the morning.
"The plaintiff and his counsel are notified of this order in open court.
"SO ORDERED.
"Plaintiff presented his evidence on June 16, 1992. This was followed by a
written offer of documentary exhibits on July 8 and a supplemental offer of
additional exhibits on July 13, 1992. The exhibits were admitted in evidence in
an order dated July 17, 1992.
"On August 7, 1992 defendant corporation filed a ‘MOTION TO LIFT ORDER
OF DEFAULT.’ It alleged therein that the failure of counsel to attend the pre-
trial conference was ‘due to an unavoidable circumstance’ and that counsel had
sent his representative on that date to inform the trial court of his inability to
appear. The Motion was vehemently opposed by plaintiff.
"On August 25, 1992 the trial court denied defendant’s motion for reasons,
among others, that it was neither verified nor supported by an affidavit of merit
and that it further failed to allege or specify the facts constituting his meritorious
defense.
"On September 28, 1992 defendant moved for reconsideration of the aforesaid
order. For the first time counsel revealed to the trial court that the reason for his
nonappearance at the pre-trial conference was his illness. An Affidavit of Merit
executed by its Executive Vice-President purporting to explain its meritorious
defense was attached to the said Motion. Just the same, in an Order dated
November 13, 1992, the trial court denied said Motion.
"On November 18, 1992, the court a quo rendered judgment as follows:
"WHEREFORE, premises considered, judgment is hereby rendered ordering:
"1. The defendant Dominion Insurance Corporation to pay plaintiff the
sum of P156,473.90 representing the total amount advanced by plaintiff
in the payment of the claims of defendant’s clients;
"2. The defendant to pay plaintiff P10,000.00 as and by way of
attorney’s fees;
"3. The dismissal of the counter-claim of the defendant and the third-
party complaint;
"4. The defendant to pay the costs of suit."4
On December 14, 1992, Dominion appealed the decision to the Court of
Appeals.5
On July 19, 1996, the Court of Appeals promulgated a decision affirming that
of the trial court.6 On September 3, 1996, Dominion filed with the Court of
Appeals a motion for reconsideration.7 On July 16, 1997, the Court of Appeals
denied the motion.8
Hence, this appeal.9
The Issues
The issues raised are: (1) whether respondent Guevarra acted within his
authority as agent for petitioner, and (2) whether respondent Guevarra is
entitled to reimbursement of amounts he paid out of his personal money in
settling the claims of several insured.
The Court's Ruling
The petition is without merit.
By the contract of agency, a person binds himself to render some service or to
do something in representation or on behalf of another, with the consent or
authority of the latter.10 The basis for agency is representation.11 On the part of
the principal, there must be an actual intention to appoint12 or an intention
naturally inferrable from his words or actions;13 and on the part of the agent,
there must be an intention to accept the appointment and act on it,14 and in the
absence of such intent, there is generally no agency.15
A perusal of the Special Power of Attorney16 would show that petitioner
(represented by third-party defendant Austria) and respondent Guevarra
intended to enter into a principal-agent relationship. Despite the word "special"
in the title of the document, the contents reveal that what was constituted was
actually a general agency. The terms of the agreement read:
"That we, FIRST CONTINENTAL ASSURANCE COMPANY, INC.,17 a
corporation duly organized and existing under and by virtue of the laws of the
Republic of the Philippines, xxx represented by the undersigned as Regional
Manager, xxx do hereby appoint RSG Guevarra Insurance Services
represented by Mr. Rodolfo Guevarra xxx to be our Agency Manager in San
Fdo., for our place and stead, to do and perform the following acts and things:
"1. To conduct, sign, manager (sic), carry on and transact Bonding and
Insurance business as usually pertain to a Agency Office, or FIRE,
MARINE, MOTOR CAR, PERSONAL ACCIDENT, and BONDING with
the right, upon our prior written consent, to appoint agents and sub-
agents.
"2. To accept, underwrite and subscribed (sic) cover notes or Policies of
Insurance and Bonds for and on our behalf.
"3. To demand, sue, for (sic) collect, deposit, enforce payment, deliver
and transfer for and receive and give effectual receipts and
discharge for all money to which the FIRST CONTINENTAL
ASSURANCE COMPANY, INC.,18 may hereafter become due, owing
payable or transferable to said Corporation by reason of or in
connection with the above-mentioned appointment.
"4. To receive notices, summons, and legal processes for and in behalf
of the FIRST CONTINENTAL ASSURANCE COMPANY, INC., in
connection with actions and all legal proceedings against the said
Corporation."19 [Emphasis supplied]
The agency comprises all the business of the principal,20 but, couched in general
terms, it is limited only to acts of administration.21
A general power permits the agent to do all acts for which the law does not
require a special power.22 Thus, the acts enumerated in or similar to those
enumerated in the Special Power of Attorney do not require a special power of
attorney.
Article 1878, Civil Code, enumerates the instances when a special power of
attorney is required. The pertinent portion that applies to this case provides that:
"Article 1878. Special powers of attorney are necessary in the following cases:
"(1) To make such payments as are not usually considered as acts of
administration;
"x x x xxx xxx
"(15) Any other act of strict dominion."
The payment of claims is not an act of administration. The settlement of claims
is not included among the acts enumerated in the Special Power of Attorney,
neither is it of a character similar to the acts enumerated therein. A special
power of attorney is required before respondent Guevarra could settle the
insurance claims of the insured.
Respondent Guevarra’s authority to settle claims is embodied in the
Memorandum of Management Agreement23dated February 18, 1987 which
enumerates the scope of respondent Guevarra’s duties and responsibilities as
agency manager for San Fernando, Pampanga, as follows:
"x x x xxx xxx
"1. You are hereby given authority to settle and dispose of all motor car
claims in the amount of P5,000.00 with prior approval of the Regional
Office.
"2. Full authority is given you on TPPI claims settlement.
"xxx xxx x x x "24
In settling the claims mentioned above, respondent Guevarra’s authority is
further limited by the written standard authority to pay,25 which states that the
payment shall come from respondent Guevarra’s revolving fund or collection.
The authority to pay is worded as follows:
"This is to authorize you to withdraw from your revolving fund/collection the
amount of PESOS __________________ (P ) representing the payment on the
_________________ claim of assured _______________ under Policy No.
______ in that accident of ___________ at ____________.
"It is further expected, release papers will be signed and authorized by the
concerned and attached to the corresponding claim folder after effecting
payment of the claim.
"(sgd.) FERNANDO C. AUSTRIA
Regional Manager" 26
[Emphasis supplied]
The instruction of petitioner as the principal could not be any
clearer. Respondent Guevarra was authorized to pay the claim of the insured,
1âw phi 1
but the payment shall come from the revolving fund or collection in his
possession.
Having deviated from the instructions of the principal, the expenses that
respondent Guevarra incurred in the settlement of the claims of the insured may
not be reimbursed from petitioner Dominion. This conclusion is in accord with
Article 1918, Civil Code, which states that:
"The principal is not liable for the expenses incurred by the agent in the following
cases:
"(1) If the agent acted in contravention of the principal’s
instructions, unless the latter should wish to avail himself of the benefits
derived from the contract;
"xxx xxx xxx"
However, while the law on agency prohibits respondent Guevarra from
obtaining reimbursement, his right to recover may still be justified under the
general law on obligations and contracts.
Article 1236, second paragraph, Civil Code, provides:
"Whoever pays for another may demand from the debtor what he has paid,
except that if he paid without the knowledge or against the will of the debtor, he
can recover only insofar as the payment has been beneficial to the debtor."
In this case, when the risk insured against occurred, petitioner’s liability as
insurer arose. This obligation was extinguished when respondent Guevarra
1âw phi 1
paid the claims and obtained Release of Claim Loss and Subrogation Receipts
from the insured who were paid.
Thus, to the extent that the obligation of the petitioner has been extinguished,
respondent Guevarra may demand for reimbursement from his principal. To
rule otherwise would result in unjust enrichment of petitioner.
The extent to which petitioner was benefited by the settlement of the insurance
claims could best be proven by the Release of Claim Loss and Subrogation
Receipts27 which were attached to the original complaint as Annexes C-2, D-1,
E-1, F-1, G-1, H-1, I-1 and J-l, in the total amount of P116,276.95.
However, the amount of the revolving fund/collection that was then in the
possession of respondent Guevarra as reflected in the statement of account
dated July 11, 1990 would be deducted from the above amount.
The outstanding balance and the production/remittance for the period
corresponding to the claims was P3,604.84. Deducting this from
P116,276.95, we get P112,672.11. This is the amount that may be reimbursed
to respondent Guevarra.
The Fallo
IN VIEW WHEREOF, we DENY the Petition. However, we MODIFY the
decision of the Court of Appeals28 and that of the Regional Trial Court, Branch
44, San Fernando, Pampanga,29 in that petitioner is ordered to pay respondent
Guevarra the amount of P112,672.11 representing the total amount advanced
by the latter in the payment of the claims of petitioner’s clients.
No costs in this instance.
SO ORDERED.
Art. 1878. Special powers of attorney are necessary in the following cases:
(1) To make such payments as are not usually considered as acts of
administration;
(2) To effect novations which put an end to obligations already in existence at
the time the agency was constituted;
(3) To compromise, to submit questions to arbitration, to renounce the right to
appeal from a judgment, to waive objections to the venue of an action or to
abandon a prescription already acquired;
(4) To waive any obligation gratuitously;
(5) To enter into any contract by which the ownership of an immovable is
transmitted or acquired either gratuitously or for a valuable consideration;
(6) To make gifts, except customary ones for charity or those made to
employees in the business managed by the agent;
(7) To loan or borrow money, unless the latter act be urgent and indispensable
for the preservation of the things which are under administration;
(8) To lease any real property to another person for more than one year;
(9) To bind the principal to render some service without compensation;
(10) To bind the principal in a contract of partnership;
(11) To obligate the principal as a guarantor or surety;
(12) To create or convey real rights over immovable property;
(13) To accept or repudiate an inheritance;
(14) To ratify or recognize obligations contracted before the agency;
(15) Any other act of strict dominion. (n)
G.R. No. 187769 June 4, 2014
ALVIN PATRIMONIO, Petitioner,
vs.
NAPOLEON GUTIERREZ and OCTAVIO MARASIGAN III, Respondents.
DECISION
BRION, J.:
Assailed in this petition for review on certiorari1 under Rule 45 of the Revised
Rules of Court is the decision2 dated September 24, 2008 and the
resolution3 dated April 30, 2009 of the Court of Appeals (CA) in CA-G.R. CV No.
82301. The appellate court affirmed the decision of the Regional Trial Court
(RTC) of Quezon City, Branch 77, dismissing the complaint for declaration of
nullity of loan filed by petitioner Alvin Patrimonio and ordering him to pay
respondent Octavio Marasigan III (Marasigan) the sum of ₱200,000.00.
The Factual Background
The facts of the case, as shown by the records, are briefly summarized below.
The petitioner and the respondent Napoleon Gutierrez (Gutierrez) entered into
a business venture under the name of Slam Dunk Corporation (Slum Dunk), a
production outfit that produced mini-concerts and shows related to basketball.
Petitioner was already then a decorated professional basketball player while
Gutierrez was a well-known sports columnist.
In the course of their business, the petitioner pre-signed several checks to
answer for the expenses of Slam Dunk. Although signed, these checks had no
payee’s name, date or amount. The blank checks were entrusted to Gutierrez
with the specific instruction not to fill them out without previous notification to
and approval by the petitioner. According to petitioner, the arrangement was
made so that he could verify the validity of the payment and make the proper
arrangements to fund the account.
In the middle of 1993, without the petitioner’s knowledge and consent, Gutierrez
went to Marasigan (the petitioner’s former teammate), to secure a loan in the
amount of ₱200,000.00 on the excuse that the petitioner needed the money for
the construction of his house. In addition to the payment of the principal,
Gutierrez assured Marasigan that he would be paid an interest of 5% per month
from March to May 1994.
After much contemplation and taking into account his relationship with the
petitioner and Gutierrez, Marasigan acceded to Gutierrez’ request and gave
him ₱200,000.00 sometime in February 1994. Gutierrez simultaneously
delivered to Marasigan one of the blank checks the petitioner pre-signed with
Pilipinas Bank, Greenhills Branch, Check No. 21001764 with the blank portions
filled out with the words "Cash" "Two Hundred Thousand Pesos Only", and the
amount of "₱200,000.00". The upper right portion of the check corresponding
to the date was also filled out with the words "May 23, 1994" but the petitioner
contended that the same was not written by Gutierrez.
On May 24, 1994, Marasigan deposited the check but it was dishonored for the
reason "ACCOUNT CLOSED." It was later revealed that petitioner’s account
with the bank had been closed since May 28, 1993.
Marasigan sought recovery from Gutierrez, to no avail. He thereafter sent
several demand letters to the petitioner asking for the payment of ₱200,000.00,
but his demands likewise went unheeded. Consequently, he filed a criminal
case for violation of B.P. 22 against the petitioner, docketed as Criminal Case
No. 42816.
On September 10, 1997, the petitioner filed before the Regional Trial Court
(RTC) a Complaint for Declaration of Nullity of Loan and Recovery of Damages
against Gutierrez and co-respondent Marasigan. He completely denied
authorizing the loan or the check’s negotiation, and asserted that he was not
privy to the parties’ loan agreement.
Only Marasigan filed his answer to the complaint. In the RTC’s order dated
December 22, 1997,Gutierrez was declared in default.
The Ruling of the RTC
The RTC ruled on February 3,2003 in favor of Marasigan.4 It found that the
petitioner, in issuing the pre-signed blank checks, had the intention of issuing a
negotiable instrument, albeit with specific instructions to Gutierrez not to
negotiate or issue the check without his approval. While under Section 14 of
the Negotiable Instruments Law Gutierrez had the prima facie authority to
complete the checks by filling up the blanks therein, the RTC ruled that he
deliberately violated petitioner’s specific instructions and took advantage of the
trust reposed in him by the latter.
Nonetheless, the RTC declared Marasigan as a holder in due course and
accordingly dismissed the petitioner’s complaint for declaration of nullity of the
loan. It ordered the petitioner to pay Marasigan the face value of the check with
a right to claim reimbursement from Gutierrez.
The petitioner elevated the case to the Court of Appeals (CA), insisting that
Marasigan is not a holder in due course. He contended that when Marasigan
received the check, he knew that the same was without a date, and hence,
incomplete. He also alleged that the loan was actually between Marasigan and
Gutierrez with his check being used only as a security.
The Ruling of the CA
On September 24, 2008, the CA affirmed the RTC ruling, although premised on
different factual findings. After careful analysis, the CA agreed with the
petitioner that Marasigan is not a holder in due course as he did not receive the
check in good faith.
The CA also concluded that the check had been strictly filled out by Gutierrez
in accordance with the petitioner’s authority. It held that the loan may not be
nullified since it is grounded on an obligation arising from law and ruled that the
petitioner is still liable to pay Marasigan the sum of ₱200,000.00.
After the CA denied the subsequent motion for reconsideration that followed,
the petitioner filed the present petition for review on certiorari under Rule 45 of
the Revised Rules of Court.
The Petition
The petitioner argues that: (1) there was no loan between him and Marasigan
since he never authorized the borrowing of money nor the check’s negotiation
to the latter; (2) under Article 1878 of the Civil Code, a special power of attorney
is necessary for an individual to make a loan or borrow money in behalf of
another; (3) the loan transaction was between Gutierrez and Marasigan, with
his check being used only as a security; (4) the check had not been completely
and strictly filled out in accordance with his authority since the condition that the
subject check can only be used provided there is prior approval from him, was
not complied with; (5) even if the check was strictly filled up as instructed by the
petitioner, Marasigan is still not entitled to claim the check’s value as he was
not a holder in due course; and (6) by reason of the bad faith in the dealings
between the respondents, he is entitled to claim for damages.
The Issues
Reduced to its basics, the case presents to us the following issues:
1. Whether the contract of loan in the amount of ₱200,000.00 granted
by respondent Marasigan to petitioner, through respondent Gutierrez,
may be nullified for being void;
2. Whether there is basis to hold the petitioner liable for the payment of
the ₱200,000.00 loan;
3. Whether respondent Gutierrez has completely filled out the subject
check strictly under the authority given by the petitioner; and
4. Whether Marasigan is a holder in due course.
The Court’s Ruling
The petition is impressed with merit.
We note at the outset that the issues raised in this petition are essentially factual
in nature. The main point of inquiry of whether the contract of loan may be
nullified, hinges on the very existence of the contract of loan – a question that,
as presented, is essentially, one of fact. Whether the petitioner authorized the
borrowing; whether Gutierrez completely filled out the subject check strictly
under the petitioner’s authority; and whether Marasigan is a holder in due
course are also questions of fact, that, as a general rule, are beyond the scope
of a Rule 45 petition.
The rule that questions of fact are not the proper subject of an appeal by
certiorari, as a petition for review under Rule 45 is limited only to questions of
law, is not an absolute rule that admits of no exceptions. One notable exception
is when the findings off act of both the trial court and the CA are conflicting,
making their review necessary.5 In the present case, the tribunals below arrived
at two conflicting factual findings, albeit with the same conclusion, i.e., dismissal
of the complaint for nullity of the loan. Accordingly, we will examine the parties’
evidence presented.
I. Liability Under the Contract of Loan
The petitioner seeks to nullify the contract of loan on the ground that he never
authorized the borrowing of money. He points to Article 1878, paragraph 7 of
the Civil Code, which explicitly requires a written authority when the loan is
contracted through an agent. The petitioner contends that absent such authority
in writing, he should not be held liable for the face value of the check because
he was not a party or privy to the agreement.
Contracts of Agency May be Oral Unless The Law Requires a Specific Form
Article 1868 of the Civil Code defines a contract of agency as a contract
whereby a person "binds himself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the
latter." Agency may be express, or implied from the acts of the principal, from
his silence or lack of action, or his failure to repudiate the agency, knowing that
another person is acting on his behalf without authority.
As a general rule, a contract of agency may be oral.6 However, it must be written
when the law requires a specific form, for example, in a sale of a piece of land
or any interest therein through an agent.
Article 1878 paragraph 7 of the Civil Code expressly requires a special power
of authority before an agent can loan or borrow money in behalf of the principal,
to wit:
Art. 1878. Special powers of attorney are necessary in the following cases:
xxxx
(7) To loan or borrow money, unless the latter act be urgent and indispensable
for the preservation of the things which are under administration. (emphasis
supplied)
Article 1878 does not state that the authority be in writing. As long as the
mandate is express, such authority may be either oral or written. We
unequivocably declared in Lim Pin v. Liao Tian, et al.,7 that the requirement
under Article 1878 of the Civil Code refers to the nature of the authorization and
not to its form. Be that as it may, the authority must be duly established by
competent and convincing evidence other than the self serving assertion of the
party claiming that such authority was verbally given, thus:
The requirements of a special power of attorney in Article 1878 of the Civil Code
and of a special authority in Rule 138 of the Rules of Court refer to the nature
of the authorization and not its form. The requirements are met if there is a clear
mandate from the principal specifically authorizing the performance of the act.
As early as 1906, this Court in Strong v. Gutierrez-Repide (6 Phil. 680) stated
that such a mandate may be either oral or written, the one vital thing being that
it shall be express. And more recently, We stated that, if the special authority is
not written, then it must be duly established by evidence:
x x x the Rules require, for attorneys to compromise the litigation of their clients,
a special authority. And while the same does not state that the special authority
be in writing the Court has every reason to expect that, if not in writing, the same
be duly established by evidence other than the self-serving assertion of counsel
himself that such authority was verbally given him.(Home Insurance Company
vs. United States lines Company, et al., 21 SCRA 863; 866: Vicente vs.
Geraldez, 52 SCRA 210; 225). (emphasis supplied).
The Contract of Loan Entered Into by Gutierrez in Behalf of the Petitioner
Should be Nullified for Being Void; Petitioner is Not Bound by the Contract of
Loan.
A review of the records reveals that Gutierrez did not have any authority to
borrow money in behalf of the petitioner. Records do not show that the
1âwphi 1
petitioner executed any special power of attorney (SPA) in favor of Gutierrez.
In fact, the petitioner’s testimony confirmed that he never authorized Gutierrez
(or anyone for that matter), whether verbally or in writing, to borrow money in
his behalf, nor was he aware of any such transaction:
ALVIN PATRIMONIO (witness)
ATTY. DE VERA: Did you give Nap Gutierrez any Special Power of Attorney in
writing authorizing him to borrow using your money?
WITNESS: No, sir. (T.S.N., Alvin Patrimonio, Nov. 11, 1999, p. 105)8
xxxx
Marasigan however submits that the petitioner’s acts of pre-signing the blank
checks and releasing them to Gutierrez suffice to establish that the petitioner
had authorized Gutierrez to fill them out and contract the loan in his behalf.
Marasigan’s submission fails to persuade us.
In the absence of any authorization, Gutierrez could not enter into a contract of
loan in behalf of the petitioner. As held in Yasuma v. Heirs of De Villa,9 involving
a loan contracted by de Villa secured by real estate mortgages in the name of
East Cordillera Mining Corporation, in the absence of an SPA conferring
authority on de Villa, there is no basis to hold the corporation liable, to wit:
The power to borrow money is one of those cases where corporate officers as
agents of the corporation need a special power of attorney. In the case at bar,
no special power of attorney conferring authority on de Villa was ever
presented. x x x There was no showing that respondent corporation ever
authorized de Villa to obtain the loans on its behalf.
xxxx
Therefore, on the first issue, the loan was personal to de Villa. There was no
basis to hold the corporation liable since there was no authority, express,
implied or apparent, given to de Villa to borrow money from petitioner. Neither
was there any subsequent ratification of his act.
xxxx
The liability arising from the loan was the sole indebtedness of de Villa (or of
his estate after his death). (citations omitted; emphasis supplied).
This principle was also reiterated in the case of Gozun v. Mercado,10 where this
court held:
Petitioner submits that his following testimony suffices to establish that
respondent had authorized Lilian to obtain a loan from him.
xxxx
Petitioner’s testimony failed to categorically state, however, whether the loan
was made on behalf of respondent or of his wife. While petitioner claims that
Lilian was authorized by respondent, the statement of account marked as
Exhibit "A" states that the amount was received by Lilian "in behalf of Mrs. Annie
Mercado.
It bears noting that Lilian signed in the receipt in her name alone, without
indicating therein that she was acting for and in behalf of respondent. She thus
bound herself in her personal capacity and not as an agent of respondent or
anyone for that matter.
It is a general rule in the law of agency that, in order to bind the principal by a
mortgage on real property executed by an agent, it must upon its face purport
to be made, signed and sealed in the name of the principal, otherwise, it will
bind the agent only. It is not enough merely that the agent was in fact authorized
to make the mortgage, if he has not acted in the name of the principal. x x x
(emphasis supplied).
In the absence of any showing of any agency relations or special authority to
act for and in behalf of the petitioner, the loan agreement Gutierrez entered into
with Marasigan is null and void. Thus, the petitioner is not bound by the parties’
loan agreement.
Furthermore, that the petitioner entrusted the blank pre-signed checks to
Gutierrez is not legally sufficient because the authority to enter into a loan can
never be presumed. The contract of agency and the special fiduciary
relationship inherent in this contract must exist as a matter of fact. The person
alleging it has the burden of proof to show, not only the fact of agency, but also
its nature and extent.11 As we held in People v. Yabut:12
Modesto Yambao's receipt of the bad checks from Cecilia Que Yabut or
Geminiano Yabut, Jr., in Caloocan City cannot, contrary to the holding of the
respondent Judges, be licitly taken as delivery of the checks to the complainant
Alicia P. Andan at Caloocan City to fix the venue there. He did not take delivery
of the checks as holder, i.e., as "payee" or "indorsee." And there appears to
beno contract of agency between Yambao and Andan so as to bind the latter
for the acts of the former. Alicia P. Andan declared in that sworn testimony
before the investigating fiscal that Yambao is but her "messenger" or "part-time
employee." There was no special fiduciary relationship that permeated their
dealings. For a contract of agency to exist, the consent of both parties is
essential, the principal consents that the other party, the agent, shall act on his
behalf, and the agent consents so to act. It must exist as a fact. The law makes
no presumption thereof. The person alleging it has the burden of proof to show,
not only the fact of its existence, but also its nature and extent. This is more
imperative when it is considered that the transaction dealt with involves checks,
which are not legal tender, and the creditor may validly refuse the same as
payment of obligation.(at p. 630). (emphasis supplied)
The records show that Marasigan merely relied on the words of Gutierrez
without securing a copy of the SPA in favor of the latter and without verifying
from the petitioner whether he had authorized the borrowing of money or
release of the check. He was thus bound by the risk accompanying his trust on
the mere assurances of Gutierrez.
No Contract of Loan Was Perfected Between Marasigan And Petitioner, as The
Latter’s Consent Was Not Obtained.
Another significant point that the lower courts failed to consider is that a contract
of loan, like any other contract, is subject to the rules governing the requisites
and validity of contracts in general.13 Article 1318 of the Civil Code14enumerates
the essential requisites for a valid contract, namely:
1. consent of the contracting parties;
2. object certain which is the subject matter of the contract; and
3. cause of the obligation which is established.
In this case, the petitioner denied liability on the ground that the contract lacked
the essential element of consent. We agree with the petitioner. As we explained
above, Gutierrez did not have the petitioner’s written/verbal authority to enter
into a contract of loan. While there may be a meeting of the minds between
Gutierrez and Marasigan, such agreement cannot bind the petitioner whose
consent was not obtained and who was not privy to the loan agreement. Hence,
only Gutierrez is bound by the contract of loan.
True, the petitioner had issued several pre-signed checks to Gutierrez, one of
which fell into the hands of Marasigan. This act, however, does not constitute
sufficient authority to borrow money in his behalf and neither should it be
construed as petitioner’s grant of consent to the parties’ loan agreement.
Without any evidence to prove Gutierrez’ authority, the petitioner’s signature in
the check cannot be taken, even remotely, as sufficient authorization, much
less, consent to the contract of loan. Without the consent given by one party in
a purported contract, such contract could not have been perfected; there simply
was no contract to speak of.15
With the loan issue out of the way, we now proceed to determine whether the
petitioner can be made liable under the check he signed.
II. Liability Under the Instrument
The answer is supplied by the applicable statutory provision found in Section
14 of the Negotiable Instruments Law (NIL) which states:
Sec. 14. Blanks; when may be filled.- Where the instrument is wanting in any
material particular, the person in possession thereof has a prima facie authority
to complete it by filling up the blanks therein. And a signature on a blank paper
delivered by the person making the signature in order that the paper may be
converted into a negotiable instrument operates as a prima facie authority to fill
it up as such for any amount. In order, however, that any such instrument when
completed may be enforced against any person who became a party thereto
prior to its completion, it must be filled up strictly in accordance with the authority
given and within a reasonable time. But if any such instrument, after completion,
is negotiated to a holder in due course, it is valid and effectual for all purposes
in his hands, and he may enforce it as if it had been filled up strictly in
accordance with the authority given and within a reasonable time.
This provision applies to an incomplete but delivered instrument. Under this
rule, if the maker or drawer delivers a pre-signed blank paper to another person
for the purpose of converting it into a negotiable instrument, that person is
deemed to have prima facie authority to fill it up. It merely requires that the
instrument be in the possession of a person other than the drawer or maker and
from such possession, together with the fact that the instrument is wanting in a
material particular, the law presumes agency to fill up the blanks.16
In order however that one who is not a holder in due course can enforce the
instrument against a party prior to the instrument’s completion, two requisites
must exist: (1) that the blank must be filled strictly in accordance with the
authority given; and (2) it must be filled up within a reasonable time. If it was
proven that the instrument had not been filled up strictly in accordance with the
authority given and within a reasonable time, the maker can set this up as a
personal defense and avoid liability. However, if the holder is a holder in due
course, there is a conclusive presumption that authority to fill it up had been
given and that the same was not in excess of authority.17
In the present case, the petitioner contends that there is no legal basis to hold
him liable both under the contract and loan and under the check because: first,
the subject check was not completely filled out strictly under the authority he
has given and second, Marasigan was not a holder in due course.
Marasigan is Not a Holder in Due Course
The Negotiable Instruments Law (NIL) defines a holder in due course, thus:
Sec. 52 — A holder in due course is a holder who has taken the instrument
under the following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without
notice that it had been previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him he had no notice of any
infirmity in the instrument or defect in the title of the person negotiating
it.(emphasis supplied)
Section 52(c) of the NIL states that a holder in due course is one who takes the
instrument "in good faith and for value." It also provides in Section 52(d) that in
order that one may be a holder in due course, it is necessary that at the time it
was negotiated to him he had no notice of any infirmity in the instrument or
defect in the title of the person negotiating it.
Acquisition in good faith means taking without knowledge or notice of equities
of any sort which could beset up against a prior holder of the instrument.18 It
means that he does not have any knowledge of fact which would render it
dishonest for him to take a negotiable paper. The absence of the defense, when
the instrument was taken, is the essential element of good faith.19
As held in De Ocampo v. Gatchalian:20
In order to show that the defendant had "knowledge of such facts that his action
in taking the instrument amounted to bad faith," it is not necessary to prove that
the defendant knew the exact fraud that was practiced upon the plaintiff by the
defendant's assignor, it being sufficient to show that the defendant had notice
that there was something wrong about his assignor's acquisition of title,
although he did not have notice of the particular wrong that was committed.
It is sufficient that the buyer of a note had notice or knowledge that the note
was in some way tainted with fraud. It is not necessary that he should know the
particulars or even the nature of the fraud, since all that is required is knowledge
of such facts that his action in taking the note amounted bad faith.
The term ‘bad faith’ does not necessarily involve furtive motives, but means bad
faith in a commercial sense. The manner in which the defendants conducted
their Liberty Loan department provided an easy way for thieves to dispose of
their plunder. It was a case of "no questions asked." Although gross negligence
does not of itself constitute bad faith, it is evidence from which bad faith may be
inferred. The circumstances thrust the duty upon the defendants to make further
inquiries and they had no right to shut their eyes deliberately to obvious facts.
(emphasis supplied).
In the present case, Marasigan’s knowledge that the petitioner is not a party or
a privy to the contract of loan, and correspondingly had no obligation or liability
to him, renders him dishonest, hence, in bad faith. The following exchange is
significant on this point:
WITNESS: AMBET NABUS
Q: Now, I refer to the second call… after your birthday. Tell us what you talked
about?
A: Since I celebrated my birthday in that place where Nap and I live together
with the other crew, there were several visitors that included Danny Espiritu. So
a week after my birthday, Bong Marasigan called me up again and he was
fuming mad. Nagmumura na siya. Hinahanap niya si… hinahanap niya si Nap,
dahil pinagtataguan na siya at sinabi na niya na kailangan I-settle na niya yung
utang ni Nap, dahil…
xxxx
WITNESS: Yes. Sinabi niya sa akin na kailangan ayusin na bago pa mauwi sa
kung saan ang tsekeng tumalbog… (He told me that we have to fix it up before
it…) mauwi pa kung saan…
xxxx
Q: What was your reply, if any?
A: I actually asked him. Kanino ba ang tseke na sinasabi mo?
(Whose check is it that you are referring to or talking about?)
Q: What was his answer?
A: It was Alvin’s check.
Q: What was your reply, if any?
A: I told him do you know that it is not really Alvin who borrowed money from
you or what you want to appear…
xxxx
Q: What was his reply?
A: Yes, it was Nap, pero tseke pa rin ni Alvin ang hawak ko at si Alvin ang
maiipit dito.(T.S.N., Ambet Nabus, July 27, 2000; pp.65-71; emphasis
supplied)21
Since he knew that the underlying obligation was not actually for the petitioner,
the rule that a possessor of the instrument is prima facie a holder in due course
is inapplicable. As correctly noted by the CA, his inaction and failure to verify,
despite knowledge of that the petitioner was not a party to the loan, may be
construed as gross negligence amounting to bad faith.
Yet, it does not follow that simply because he is not a holder in due course,
Marasigan is already totally barred from recovery. The NIL does not provide
that a holder who is not a holder in due course may not in any case recover on
the instrument.22 The only disadvantage of a holder who is not in due course is
that the negotiable instrument is subject to defenses as if it were non-
negotiable.23 Among such defenses is the filling up blank not within the authority.
On this point, the petitioner argues that the subject check was not filled up
strictly on the basis of the authority he gave. He points to his instruction not to
use the check without his prior approval and argues that the check was filled
up in violation of said instruction.
Check Was Not Completed Strictly Under The Authority Given by The Petitioner
Our own examination of the records tells us that Gutierrez has exceeded the
authority to fill up the blanks and use the check. To repeat, petitioner gave
1âwphi 1
Gutierrez pre-signed checks to be used in their business provided that he could
only use them upon his approval. His instruction could not be any clearer as
Gutierrez’ authority was limited to the use of the checks for the operation of their
business, and on the condition that the petitioner’s prior approval be first
secured.
While under the law, Gutierrez had a prima facie authority to complete the
check, such prima facie authority does not extend to its use (i.e., subsequent
transfer or negotiation)once the check is completed. In other words, only the
authority to complete the check is presumed. Further, the law used the term
"prima facie" to underscore the fact that the authority which the law accords to
a holder is a presumption juris tantumonly; hence, subject to subject to contrary
proof. Thus, evidence that there was no authority or that the authority granted
has been exceeded may be presented by the maker in order to avoid liability
under the instrument.
In the present case, no evidence is on record that Gutierrez ever secured prior
approval from the petitioner to fill up the blank or to use the check. In his
testimony, petitioner asserted that he never authorized nor approved the filling
up of the blank checks, thus:
ATTY. DE VERA: Did you authorize anyone including Nap Gutierrez to write
the date, May 23, 1994?
WITNESS: No, sir.
Q: Did you authorize anyone including Nap Gutierrez to put the word cash? In
the check?
A: No, sir.
Q: Did you authorize anyone including Nap Gutierrez to write the figure
₱200,000 in this check?
A: No, sir.
Q: And lastly, did you authorize anyone including Nap Gutierrez to write the
words ₱200,000 only xx in this check?
A: No, sir. (T.S.N., Alvin Patrimonio, November 11, 1999).24
Notably, Gutierrez was only authorized to use the check for business expenses;
thus, he exceeded the authority when he used the check to pay the loan he
supposedly contracted for the construction of petitioner's house. This is a clear
violation of the petitioner's instruction to use the checks for the expenses of
Slam Dunk. It cannot therefore be validly concluded that the check was
completed strictly in accordance with the authority given by the petitioner.
Considering that Marasigan is not a holder in due course, the petitioner can
validly set up the personal defense that the blanks were not filled up in
accordance with the authority he gave. Consequently, Marasigan has no right
to enforce payment against the petitioner and the latter cannot be obliged to
pay the face value of the check.
WHEREFORE, in view of the foregoing, judgment is hereby rendered
GRANTING the petitioner Alvin Patrimonio's petition for review on certiorari.
The appealed Decision dated September 24, 2008 and the Resolution dated
April 30, 2009 of the Court of Appeals are consequently ANNULLED AND SET
ASIDE. Costs against the respondents.
SO ORDERED.
G.R. No. L-38816 November 3, 1933
INSULAR DRUG CO., INC., plaintiff-appellee,
vs.
THE PHILIPPINE NATIONAL BANK, ET AL., defendants.
THE PHILIPPINE NATIONAL BANK, appellant.
Camus and Delgado for appellant.
Franco and Reinoso for appellee.
MALCOLM, J.:
This is an appeal taken by Philippine National Bank from a judgment of the
Court of First Instance of Manila requiring bank to pay to the Insular Drug Co.,
Inc., the sum of P18,285.92 with legal interest and costs.
The record consists of the testimony of Alfred Von Arend, President and
Manager of the Insular Drug Co., Inc., and of exhibits obtained from the
Philippine National Bank showing transactions of U.E. Foerster with the bank.
The Philippine National Bank was content to submit the case without presenting
evidence in its behalf. The meagre record and the statement of facts agreed
upon by the attorneys for the contending parties disclose the following facts:
The Insular Drug Co., Inc., is a Philippine corporation with offices in the City of
Manila. U.E. Foerster was formerly a salesman of drug company for the Islands
of Panay and Negros. Foerster also acted as a collector for the company. He
was instructed to take the checks which came to his hands for the drug
company to the Iloilo branch of the Chartered Bank of India, Australia and China
and deposit the amounts to the credit of the drug company. Instead, Foerster
deposited checks, including those of Juan Llorente, Dolores Salcedo,
Estanislao Salcedo, and a fourth party, with the Iloilo branch of the Philippine
National Bank. The checks were in that bank placed in the personal account of
Foerster. Some of the checks were drawn against the Bank of Philippine
National Bank. After the indorsement on the checks was written "Received
payment prior indorsement guaranteed by Philippine National bank, Iloilo
Branch, Angel Padilla, Manager." The indorsement on the checks took various
forms, some being "Insular Drug Company, Inc., By: (Sgd.) U. Foerster, Agent.
(Sgd.) U. Foerster" other being "Insular Drug Co., Inc., By: (Sgd.) Carmen E.
de Foerster, Agent (Sgd.) Carmen E. de Foerster"; others "Insular Drug Co.,
Inc., By: (Sgd.) Carmen E. de Foerster, Carmen E. de Froster"; others "(Sgd.)
Carmen E. de Foerster, (Sgd.) Carmen E. de Foerster"; one (Sgd.) U. Foerster.
(Sgd.) U. Foerster"; others; "Insular Drug Co., Inc., Carmen E. de Foerster, By:
(Sgd.) V. Bacaldo," etc. In this connection it should be explained that Carmen
E. de Foerster was his stenographer. As a consequence of the indorsements
on checks the amounts therein stated were subsequently withdrawn by U. E.,
Foerster and Carmen E. de Foerster.
Eventually the Manila office of the drug company investigated the transactions
of Foerster. Upon the discovery of anomalies, Foerster committed suicide. But
there is no evidence showing that the bank knew that Foerster was
misappropriating the funds of his principal. The Insular Drug Company claims
that it never received the face value of 132 checks here in the question covering
a total of P18,285.92.lawphil.net
There is no Philippine authority which directly fits the proven facts. The case of
Fulton Iron Works Co., vs. China Banking Corporation ([1930], 55 Phil., 208),
mentioned by both parties rest on a different states of facts. However, there are
elementary principles governing the relationship between a bank and its
customers which are controlling.
In first place, the bank argues that the drug company was never defrauded at
all. While the evidence on the extent of the loss suffered by the drug company
is not nearly as clear as it should be, it is a sufficient answer to state that no
such special defense was relied upon by the bank in the trial court. The drug
company saw fit to stand on the proposition that checks drawn in its favor were
improperly and illegally cashed by the bank for Foerster and placed in his
personal account, thus making it possible for Foerster to defraud the drug
company, and the bank did not try to go back of this proposition.
The next point relied upon by the bank, to the effect that Foerster had implied
authority to indorse all checks made out in the name of the Insular Drug Co.,
Inc., has even less force. Not only did the bank permit Foerster to indorse
checks and then place them to his personal account, but it went farther and
permitted Foerster's wife and clerk to indorse the checks. The right of an agent
to indorse commercial paper is a very responsible power and will not be lightly
inferred. A salesman with authority to collect money belonging to his principal
does not have the implied authority to indorse checks received in payment. Any
person taking checks made payable to a corporation, which can act only by
agent does so at his peril, and must same by the consequences if the agent
who indorses the same is without authority. (Arcade Realty Co. vs. Bank of
Commerce [1919], 180 Cal., 318; Standard Steam Specialty Co., vs. Corn
Exchange Bank [1917], 220 N.Y., 278; People vs. Bank of North America
[1879], 75 N.Y., 547; Graham vs. United States Savings Institution [1870], 46
Mo., 186.) Further speaking to the errors specified by the bank, it is sufficient to
state that no trust fund was involved; that the fact that bank acted in good faith
does not relieve it from responsibility; that no proof was adduced, admitting that
Foerster had right to indorse the checks, indicative of right of his wife and clerk
to do the same , and that the checks drawn on the Bank of the Philippine Islands
can not be differentiated from those drawn on the Philippine National Bank
because of the indorsement by the latter.
In brief, this is a case where 132 checks made out in the name of the Insular
Drug Co., Inc., were brought to the branch office of the Philippine National Bank
in Iloilo by Foerster, a salesman of the drug company, Foerster's wife, and
Foerster's clerk. The bank could tell by the checks themselves that the money
belonged to the Insular Drug Co., Inc., and not to Foerster or his wife or his
clerk. When the bank credited those checks to the personal account of Foerster
and permitted Foerster and his wife to make withdrawals without there being
made authority from the drug company to do so, the bank made itself
responsible to the drug company for the amounts represented by the checks.
The bank could relieve itself from responsibility by pleading and proving that
after the money was withdrawn from the bank it passed to the drug company
which thus suffered no loss, but the bank has not done so. Much more could
be said about this case, but it suffices to state in conclusion that bank will have
to stand the loss occasioned by the negligence of its agents.
Overruling the errors assigned, judgment of the trial court will be affirmed, the
costs of this instance to be paid by appellant.
G.R. No. 150350 August 22, 2006
KOJI YASUMA, Petitioner,
vs.
HEIRS OF CECILIO S. DE VILLA and EAST CORDILLERA MINING
CORPORATION, Respondents.
DECISION
CORONA, J.:
This is a petition for review on certiorari1 of a decision2 of the Court of Appeals
(CA) dated October 18, 2001 in CA-G.R. CV No. 61755.
The antecedent facts follow.
On September 15, 1988, October 21, 1988 and December 5, 1988, Cecilio S.
de Villa obtained loans from petitioner Koji Yasuma in the amounts
of P1,100,000, P100,000 and P100,000, respectively, for the total amount
of P1.3 million. These loans were evidenced by three promissory notes signed
by de Villa as borrower. The last promissory note in the amount of P1,300,000
cancelled the first two notes.
The loans were initially secured by three separate real estate mortgages on a
parcel of land with Transfer Certificate of Title No. 176575 in the name of
respondent East Cordillera Mining Corporation. The deeds of mortgage were
executed on the dates the loans were obtained, signed by de Villa as president
of respondent corporation. The third real estate mortgage later cancelled the
first two.3
For failure of de Villa to pay, petitioner filed a collection suit in the Regional Trial
Court of Makati City, Branch 148 (RTC-Br. 148) against de Villa and respondent
corporation.4 The RTC-Br. 148 declared de Villa and respondent corporation in
default and resolved the case in favor of petitioner. On appeal, however, the
judgment of RTC-Br. 148 was annulled on the ground of improper service of
summons.5 Thus, the case was remanded for retrial.
During the pendency of the case in the RTC-Br. 148, de Villa died. Petitioner
consequently amended the complaint and impleaded the heirs of de Villa as
defendants.6
After the case was re-heard, the RTC of Makati City, Branch 139 (RTC-Br. 139)
rendered judgment on November 13, 1998 in favor of petitioner and against
respondent corporation. It ordered respondent corporation to pay
petitioner P1.3 million plus legal interest, attorney’s fees, liquidated damages
and costs of suit. The complaint was dismissed against respondent heirs.7
On appeal, the CA reversed and set aside the decision of RTC-Br. 139. It held
that the loan was personal to de Villa and that the mortgage was null and void
for lack of authority from the corporation.
Petitioner is now before this Court with the following assignment of errors:
1. THE [CA], WITH ALL DUE RESPECT, COMMITTED PALPABLE AND
REVERSIBLE ERROR OF LAW WHEN IT DECLARED THAT THE
CORPORATION DID NOT RATIFY THE ACT OF ITS PRESIDENT IN
OBTAINING LOANS FROM PETITIONER DESPITE ITS ADMISSION THAT IT
RECEIVED THE MONEY OF THE PETITIONER.
2. THE [CA], WITH ALL DUE RESPECT, COMMITTED PALPABLE AND
REVERSIBLE ERROR OF LAW WHEN IT TOTALLY DISREGARDED THE
ADMITTED FACTS AND ISSUES AGREED UPON BY THE PARTIES AND
APPROVED BY THE TRIAL COURT DURING THE PRE-TRIAL.
3. THE [CA], WITH ALL DUE RESPECT, COMMITTED PALPABLE AND
REVERSIBLE ERROR OF LAW WHEN IT SET ASIDE THE REAL ESTATE
MORTGAGE AND THE AWARD OF ATTORNEY’S FEES, 10% LIQUIDATED
DAMAGES AND THE COSTS OF SUIT.
4. THE [CA], WITH ALL DUE RESPECT, COMMITTED PALPABLE AND
REVERSIBLE ERROR OF LAW WHEN IT SET ASIDE THE AWARD OF
INTEREST BY WAY OF DAMAGES IN FAVOR OF PETITIONER.8
The issues to be resolved are the following:
1) whether the loans were personal liabilities of de Villa or debts of respondent
corporation and
2) whether the mortgage on respondent corporation’s property was null and
void for having been executed without its authority.
We begin with a brief study of some well-settled legal doctrines relevant to the
disposition of this case.
Personal or Corporate Liability?
A corporation is a juridical person, separate and distinct from its stockholders.
Being a juridical entity, a corporation may act through its board of directors, as
provided in Section 23 of the Corporation Code of the Philippines:9
Sec. 23. The Board of Directors or Trustees. – Unless otherwise provided in
this Code, the corporate powers of all corporations formed under this Code shall
be exercised, all business conducted and all property of such corporations
controlled and held by the board of directors or trustees …
xxx xxx xxx
The corporation can also act through its corporate officers who may be
authorized either expressly by the by-laws or board resolutions or impliedly
such as by general practice or policy or as are implied from express
powers.10 The general principles of agency govern the relation between the
corporation and its officers or agents.11 When authorized, their acts can bind
the corporation. Conversely, when unauthorized, their acts cannot bind it.
However, the corporation may ratify the unauthorized act of its corporate
officer.12 Ratification means that the principal voluntarily adopts, confirms and
gives sanction to some unauthorized act of its agent on its behalf. It is this
voluntary choice, knowingly made, which amounts to a ratification of what was
theretofore unauthorized and becomes the authorized act of the party so
making the ratification.13 The substance of the doctrine is confirmation after
conduct, amounting to a substitute for a prior authority.14 Ratification can be
made either expressly or impliedly. Implied ratification may take various forms
— like silence or acquiescence, acts showing approval or adoption of the act,
or acceptance and retention of benefits flowing therefrom.15
The power to borrow money is one of those cases where corporate officers as
agents of the corporation need a special power of attorney.16 In the case at bar,
no special power of attorney conferring authority on de Villa was ever
presented. The promissory notes evidencing the loans were signed by de Villa
(who was the president of respondent corporation) as borrower without
indicating in what capacity he was signing them. In fact, there was no mention
at all of respondent corporation. On their face, they appeared to be personal
loans of de Villa.
Petitioner, however, contends that respondent corporation’s admission that it
received the total amount of P1.3 million was effectively a ratification of the act
of its former president.17 It appears that, in the pre-trial order dated March 4,
1997 issued by RTC-Br. 139, respondent corporation indeed admitted the
following:
xxx xxx xxx
3. Defendants ADMIT that the total amount of P1.3 Million subject matter
of the Promissory Notes was RECEIVED by the Defendant-
Corporation;18 (emphasis supplied)
xxx xxx xxx
In its answer, respondent corporation stated:
7. The sum of money which [petitioner] sought to recover form herein
[respondents] is not really a loan but his investment to the mining project of
[respondent] corporation which unfortunately did not succeed due to the delays
caused by typhoons and bad rainy season in the Benguet mountains causing
landslides in the mining and milling site during the latter part of 1988, and the
killer earthquake of 1990 which destroyed the mining area. As investment to a
losing business venture, he is not entitled to claim payment neither could he
treat it as a loan.19
The CA held that this admission was not tantamount to ratification because
what respondent corporation admitted was that the money was in fact received
as an investment. It concluded that:
… even if the [respondent corporation] received the money, it cannot be held
responsible for not knowing the preceding transaction between the [p]resident
and the [petitioner] as in fact there was a misrepresentation made to the
[respondent corporation], to the effect that the money was an investment and
not a loan. The alleged investment is actually a personal loan of Cecilio de
Villa.20
Petitioner’s contention has no merit. There was no showing that respondent
corporation ever authorized de Villa to obtain the loans on its behalf. The notes
did not show that de Villa acted on behalf of the corporation. Actually, the
corporation would not have figured in the transaction at all had it not been for
its admission that it received the amount of P1.3 million. As could be gleaned
from the promissory notes, it was a stranger to the transaction.
Thus, we conclude that petitioner himself did not consider the corporation to be
his debtor for if he really knew that de Villa was obtaining the loan on behalf of
the corporation, then why did he allow the notes to reflect only the personal
liability of de Villa?21 Even the demand letters of petitioner were personally
addressed to de Villa and not to respondent corporation.22 Undoubtedly,
petitioner dealt with de Villa purely in his personal capacity.
Respondent corporation could not have ratified the act of de Villa because there
was no proof that it knew that he took out a loan on its behalf. As stated earlier,
ratification is a voluntary choice that is knowingly made. The corporation could
not have ratified an act it had no knowledge of:
xxx xxx xxx
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 …. 23
The fact that the corporation admitted receiving the proceeds of the loan did not
amount to ratification of the loan. It accepted the amount from de Villa, its
president at that time, in good faith. Good faith is always presumed.24Petitioner
did not show that the corporation acted in bad faith.
It follows that respondent corporation was not liable for the subsequent loss of
the money which it accepted as an investment. It could not be faulted for not
knowing that it was the proceeds of a loan obtained by de Villa. It was under no
obligation to check the source of the investments which went into its coffers. As
long as the investment was used for legitimate corporate purposes, the investor
bore the risk of loss.
Therefore, on the first issue, the loan was personal to de Villa. There was no
basis to hold the corporation liable since there was no authority, express,
implied or apparent, given to de Villa to borrow money from petitioner. Neither
was there any subsequent ratification of his act.
Was the Mortgage Valid or Void?
Petitioner insists that the mortgage executed by de Villa, as president of the
corporation, was ratified by the latter since the mortgage was an accessory
contract of the loan.25 We disagree.
A special power of attorney is necessary to create or convey real rights over
immovable property.26 Furthermore, the special power of attorney must appear
in a public document.27 In the absence of a special power of attorney in favor of
de Villa as president of the corporation, no valid mortgage could have been
executed by him.28 Since the mortgage was void, it could not be ratified.
Petitioner cannot blame anyone but himself. He did not check if the person he
was dealing with had the authority to mortgage the property being offered as
collateral.
Given that the loan and mortgage were not binding on respondent corporation,
the latter cannot be held liable for interest, attorney’s fees and liquidated
damages arising from the loan.
Personal Liability of De Villa
The liability arising from the loan was the sole indebtedness of de Villa (or of
his estate after his death). Petitioner vigorously sought to make respondent
corporation liable but exerted no effort at all to argue for the liability of
respondent heirs. The trial court correctly dismissed the case against the latter.
Petitioner’s remedy now is to file a money claim in the settlement proceedings
of de Villa’s estate, if not too late, as indicated in
Rule 8629 of the Rules of Court.
WHEREFORE, the petition is hereby DENIED. The October 18, 2001 decision
of the Court of Appeals in CA-G.R. CV No. 61755 is AFFIRMED.
Costs against petitioner.
SO ORDERED.
G.R. No. L-24543 July 12, 1926
ROSA VILLA MONNA, plaintiff-appellee,
vs.
GUILLERMO GARCIA BOSQUE, ET AL., defendants.
GUILLERMO GARCIA BOSQUE, F. H. GOULETTE, and R. G.
FRANCE, appellants.
Eiguren and Razon for the appellant Garcia Bosque.
Benj. S. Ohnick for the appellants France and Goulette.
Fisher, DeWitt, Perkins and Brady and John R. McFie, jr., for appellee.
STREET, J.:
This action was instituted in the Court of First Instance of Manila by Rosa Villa
y Monna, widow of Enrique Bota, for the purpose of recovering from the
defendants, Guillermo Garcia Bosque and Jose Romar Ruiz, as principals, and
from the defendants R. G. France and F. H. Goulette, as solidary sureties for
said principals, the sum of P20,509.71, with interest, as a balance alleged to be
due to the plaintiff upon the purchase price of a printing establishment and
bookstore located at 89 Escolta, Manila, which had been sold to Bosque and
Ruiz by the plaintiff, acting through her attorney in fact, one Manuel Pirretas y
Monros. The defendant Ruiz put in no appearance, and after publication
judgment by default was entered against him. The other defendants answered
with a general denial and various special defenses. Upon hearing the cause the
trial judge gave judgment in favor of the plaintiff, requiring all of the defendants,
jointly and severally, to pay to the plaintiff the sum of P19,230.01, as capital,
with stipulated interest at the rate of 7 per centum per annum, plus the further
sum of P1,279.70 as interest already accrued and unpaid upon the date of the
institution of the action, with interest upon the latter amount at the rate of 6 per
centum per annum. From this judgment Guillermo Garcia Bosque, as principal,
and R. G. France and F.H. Goulette, as sureties. appealed.
It appears that prior to September 17, 1919, the plaintiff, Rosa Villa y Monna,
viuda de E. Bota, was the owner of a printing establishment and bookstore
located at 89 Escolta, Manila, and known as La Flor de Cataluna, Viuda de E.
Bota, with the machinery, motors, bindery, type material furniture, and stock
appurtenant thereto. Upon the date stated, the plaintiff, then and now a resident
of Barcelona, Spain, acting through Manuel Pirretas, as attorney in fact, sold
the establishment above-mentioned to the defendants Guillermo Garcia
Bosque and Jose Pomar Ruiz, residents of the City of Manila, for the stipulated
sum of P55,000, payable as follows: Fifteen thousand pesos (P15,000) on
November 1, next ensuing upon the execution of the contract, being the date
when the purchasers were to take possession; ten thousand pesos (P10,000)
at one year from the same date; fifteen thousand pesos (P15,000) at two years;
and the remaining fifteen thousand pesos (P15,000) at the end of three years.
By the contract of sale the deferred installments bear interest at the rate of 7
per centum per annum. In the same document the defendants France and
Goulette obligated themselves as solidary sureties with the principals Bosque
and Ruiz, to answer for any balance, including interest, which should remain
due and unpaid after the dates stipulated for payment of said installments,
expressly renouncing the benefit of exhaustion of the property of the principals.
The first installment of P15,000 was paid conformably to agreement.
In the year 1920, Manuel Pirretas y Monros, the attorney in fact of the plaintiff,
absented himself from the Philippine Islands on a prolonged visit to Spain; and
in contemplation of his departure he executed a document, dated January 22,
1920, purporting to be a partial substitution of agency, whereby he transferred
to "the mercantile entity Figueras Hermanos, or the person, or persons, having
legal representation of the same," the powers that had been previously
conferred on Pirretas by the plaintiff "in order that," so the document runs, "they
may be able to effect the collection of such sums of money as may be due to
the plaintiff by reason of the sale of the bookstore and printing establishment
already mentioned, issuing for such purpose the receipts, vouchers, letters of
payment, and other necessary documents for whatever they shall have
received and collected of the character indicated."
When the time came for the payment of the second installment and accrued
interest due at the time, the purchasers were unable to comply with their
obligation, and after certain negotiations between said purchasers and one
Alfredo Rocha, representative of Figueras Hermanos, acting as attorney in fact
for the plaintiff, an agreement was reached, whereby Figueras Hermanos
accepted the payment of P5,800 on November 10, 1920, and received for the
balance five promissory notes payable, respectively, on December 1, 1920,
January 1, 1921, February 1, 1921, March 1, 1921, and April 1, 1921. The first
three of these notes were in the amount of P1,000 each, and the last two for
P2,000 each, making a total of P7,000. It was furthermore agreed that the
debtors should pay 9 per centum per annum on said deferred installments,
instead of the 7 per centum mentioned in the contract of sale. These notes were
not paid promptly at maturity but the balance due upon them was finally paid in
full by Bosque on December 24, 1921.
About this time the owners of the business La Flor de Cataluña, appear to have
converted it into a limited partnership under the style of Guillermo Garcia
Bosque, S. en C.;" and presently a corporation was formed to take over the
business under the name "Bota Printing Company, Inc." By a document
executed on April 21, 1922, the partnership appears to have conveyed all its
assets to this corporation for the purported consideration of P15,000,
Meanwhile the seven notes representing the unpaid balance of the second
installment and interest were failing due without being paid. Induced by this
dilatoriness on the part the debtor and supposedly animated by a desire to get
the matter into better shape, M. T. Figueras entered into the agreement
attached as Exhibit 1 to the answer of Bosque. In this document it is recited that
Guillermo Garcia Bosque. S. en C., is indebted to Rosa Villa, viuda de E. Bota,
in the amount of P32,000 for which R. G. France and F. H. Goulette are bound
as joint and several sureties, and that the partnership mentioned had
transferred all its assets to the Bota Printing Company, Inc., of which one
George Andrews was a principal stockholder. It is then stipulated that France
and Goulette shall be relieved from all liability on their contract as sureties and
that in lieu thereof the creditor, Doña Rosa Villa y Monna, accepts the Bota
Printing Company, Inc., as debtor to the extent of P20,000, which indebtedness
was expressly assumed by it, and George Andrews as debtor to the extent of
P12,000, which he undertook to pay at the rate of P200 per month thereafter.
To this contract the name of the partnership Guillermo Garcia Bosque, S. en
C., was affixed by Guillermo Garcia Bosque while the name of the Bota Printing
Company, Inc., was signed by G. Andrews, the latter also signing in his
individual capacity. The name of the plaintiff was affixed by M.T. Figueras in the
following style: "p.p. Rosa Villa, viuda de E. Bota, M. T. Figueras, party of the
second part."
No question is made as to the authenticity of this document or as to the intention
of Figueras to release the sureties; and the latter rely upon the discharge as
complete defense to the action. The defendant Bosque also relies upon the
same agreement as constituting a novation such as to relieve him from personal
liability. All of the defendants furthermore maintain that even supposing that M.
T. Figueras authority to novate the original contract and discharge the sureties
therefrom, nevertheless the plaintiff has ratified the agreement by accepting
part payment of the amount due thereunder with full knowledge of its terms. In
her amended complaint the plaintiff asserts that Figueras had no authority to
execute the contract containing the release (Exhibit 1) and that the same had
never been ratified by her.
The question thus raised as to whether the plaintiff is bound by Exhibit 1
constitutes the main controversy in the case, since if this point should be
determined in the affirmative the plaintiff obviously has no right of action against
any of the defendants. We accordingly address ourselves to this point first.
The partial substitution of agency (Exhibit B to amended complaint) purports to
confer on Figueras Hermanos or the person or persons exercising legal
representation of the same all of the powers that had been conferred on Pirretas
by the plaintiff in the original power of attorney. This original power of attorney
is not before us, but assuming, as is stated in Exhibit B, that this document
contained a general power to Pirretas to sell the business known as La Flor de
Cataluña upon conditions to be fixed by him and power to collect money due to
the plaintiff upon any account, with a further power of substitution, yet it is
obvious upon the face of the act of substitution (Exhibit B) that the sole purpose
was to authorize Figueras Hermanos to collect the balance due to the plaintiff
upon the price of La Flor de Cataluña, the sale of which had already been
affected by Pirretas. The words of Exhibit B on this point are quite explicit ("to
the end that the said lady may be able to collect the balance of the selling price
of the Printing Establishment and Bookstore above-mentioned, which has been
sold to Messrs. Bosque and Pomar"). There is nothing here that can be
construed to authorize Figueras Hermanos to discharge any of the debtors
without payment or to novate the contract by which their obligation was created.
On the contrary the terms of the substitution shows the limited extent of the
power. A further noteworthy feature of the contract Exhibit 1 has reference to
the personality of the purported attorney in fact and the manner in which the
contract was signed. Under the Exhibit B the substituted authority should be
exercised by the mercantile entity Figueras Hermanos or the person duly
authorized to represent the same. In the actual execution of Exhibit 1, M. T.
Figueras intervenes as purpoted attorney in fact without anything whatever to
show that he is in fact the legal representative of Figueras Hermanos or that he
is there acting in such capacity. The act of substitution conferred no authority
whatever on M. T. Figueras as an individual. In view of these defects in the
granting and exercise of the substituted power, we agree with the trial judge
that the Exhibit 1 is not binding on the plaintiff. Figueras had no authority to
execute the contract of release and novation in the manner attempted; and
apart from this it is shown that in releasing the sureties Figueras acted contrary
to instructions. For instance, in a letter from Figueras in Manila, dated March 4,
1922, to Pirretas, then in Barcelona, the former stated that he was attempting
to settle the affair to the best advantage and expected to put through an
arrangement whereby Doña Rosa would receive P20,000 in cash, the balance
to be paid in installments, "with the guaranty of France and Goulette." In his
reply of April 29 to this letter, Pirretas expresses the conformity of Doña Rosa
in any adjustment of the claim that Figueras should see fit to make, based upon
payment of P20,000 in cash, the balance in installments, payable in the shortest
practicable periods, it being understood, however, that the guaranty of Messrs.
France and Goulette should remain intact. Again, on May 9, Pirretas repeats
his assurance that the plaintiff would be willing to accept P20,000 down with
the balance in interest-bearing installments "with the guaranty of France and
Goulette." From this it is obvious that Figueras had no actual authority whatever
to release the sureties or to make a novation of the contract without their
additional guaranty.
But it is asserted that the plaintiff ratified the contract (Exhibit 1) by accepting
and retaining the sum of P14,000 which, it is asserted, was paid by the Bota
Printing Co., Inc., under that contract. In this connection it should be noted that
when the firm of Guillermo Garcia Bosque, S. en C., conveyed all it assets on
April 21, 1922 to the newly formed corporation, Bota Printing Co., Inc., the latter
obligated itself to pay al the debts of the partnership, including the sum of
P32,000 due to the plaintiff. On April 23, thereafter, Bosque, acting for the Bota
Printing Co., Inc., paid to Figueras the sum of P8,000 upon the third installment
due to the plaintiff under the original contract of sale, and the same was credited
by Figueras accordingly. On May 16 a further sum of P5,000 was similarly paid
and credited; and on May 25, a further sum of P200 was likewise paid, making
P14,000 in all. Now, it will be remembered that in the contract (Exhibit 1),
executed on May 17, 1922, the Bota Printing Co., Inc., undertook to pay the
sum of P20,00; and the parties to the agreement considered that the sum of
P13,800 then already paid by the Bota Printing Co., Inc., should be treated as
a partial satisfaction of the larger sum of P20,000 which the Bota Printing Co.,
Inc., had obligated itself to pay. In the light of these facts the proposition of the
defendants to the effect that the plaintiff has ratified Exhibit 1 by retaining the
sum of P14,000, paid by the Bota Printing Co., Inc., as above stated, is
untenable. By the assumption of the debts of its predecessor the Bota Printing
Co., Inc., had become a primary debtor to the plaintiff; and she therefore had a
right to accept the payments made by the latter and to apply the same to the
satisfaction of the third installment of the original indebtedness. Nearly all of this
money was so paid prior to the execution of Exhibit 1 and although the sum of
P200 was paid a few days later, we are of the opinion that the plaintiff was
entitled to accept and retain the whole, applying it in the manner above stated.
In other words the plaintiff may lawfully retain that money notwithstanding her
refusal to be bound by Exhibit 1.
A contention submitted exclusively in behalf of France and Goulette, the
appellant sureties, is that they were discharged by the agreement between the
principal debtor and Figueras Hermanos, as attorney in fact for the plaintiff,
whereby the period for the payment of the second installment was extended,
without the assent of the sureties, and new promissory notes for unpaid balance
were executed in the manner already mentioned in this opinion. The execution
of these new promissory notes undoubtedly constituted and extension of time
as to the obligation included therein, such as would release a surety, even
though of the solidary type, under article 1851 of the Civil Code. Nevertheless
it is to be borne in mind that said extension and novation related only to the
second installment of the original obligation and interest accrued up to that time.
Furthermore, the total amount of these notes was afterwards paid in full, and
they are not now the subject of controversy. It results that the extension thus
effected could not discharge the sureties from their liability as to other
installments upon which alone they have been sued in this action. The rule that
an extension of time granted to the debtor by the creditor, without the consent
of the sureties, extinguishes the latter's liability is common both to Spanish
jurisprudence and the common law; and it is well settled in English and
American jurisprudence that where a surety is liable for different payments,
such as installments of rent, or upon a series of promissory notes, an extension
of time as to one or more will not affect the liability of the surety for the others.
(32 Cyc., 196; Hopkirk vs. McConico, 1 Brock., 220; 12 Fed. Cas., No. 6696;
Coe vs. Cassidy, 72 N. Y., 133; Cohn vs. Spitzer, 129 N. Y. Supp., 104;
Shephard Land Co. vs. Banigan, 36 R. I., 1; I. J. Cooper Rubber Co. vs.
Johnson, 133 Tenn., 562; Bleeker vs. Johnson, 190, N. W. 1010.) The
contention of the sureties on this point is therefore untenable.
There is one stipulation in the contract (Exhibit A) which, at first suggests a
doubt as to propriety of applying the doctrine above stated to the case before
us. We refer to cause (f) which declares that the non-fulfillment on the part of
the debtors of the stipulation with respect to the payment of any installment of
the indebtedness, with interest, will give to the creditor the right to treat and
declare all of said installments as immediately due. If the stipulation had been
to the effect that the failure to pay any installment when due would ipso facto
cause to other installments to fall due at once, it might be plausibly contended
that after default of the payment of one installment the act of the creditor in
extending the time as to such installment would interfere with the right of the
surety to exercise his legal rights against the debtor, and that the surety would
in such case be discharged by the extension of time, in conformity with articles
1851 and 1852 of the Civil Code. But it will be noted that in the contract now
under consideration the stipulation is not that the maturity of the later
installments shall be ipso facto accelerated by default in the payment of a prior
installment, but only that it shall give the creditor a right to treat the subsequent
installments as due, and in this case it does not appear that the creditor has
exercised this election. On the contrary, this action was not instituted until after
all of the installments had fallen due in conformity with the original contract. It
results that the stipulation contained in paragraph (f) does not affect the
application of the doctrine above enunciated to the case before us.
Finally, it is contended by the appellant sureties that they were discharged by a
fraud practiced upon them by the plaintiff in failing to require the debtor to
execute a mortgage upon the printing establishment to secure the debt which
is the subject of this suit. In this connection t is insisted that at the time France
and Goulette entered into the contract of suretyship, it was represented to them
that they would be protected by the execution of a mortgage upon the printing
establishment by the purchasers Bosque and Pomar. No such mortgage was
in fact executed and in the end another creditor appears to have obtained a
mortgage upon the plant which is admitted to be superior to the claim of the
plaintiff. The failure of the creditor to require a mortgage is alleged to operate
as a discharge of the sureties. With this insistence we are unable to agree, for
the reason that the proof does not show, in our opinion, that the creditor, on her
attorney in fact, was a party to any such agreement. On the other hand it is to
be collected from the evidence that the suggestion that a mortgage would be
executed on the plant to secure the purchase price and that this mortgage
would operate for the protection of the sureties came from the principal and not
from any representative of the plaintiff.
As a result of our examination of the case we find no error in the record
prejudicial to any of the appellants, and the judgment appealed from will be
affirmed, So ordered, with costs against the appellants.
Avanceña, C. J., Villamor, Ostrand, Johns, Romualdez and Villa-Real, JJ.,
concur.
G.R. No. 148775 January 13, 2004
SHOPPER’S PARADISE REALTY & DEVELOPMENT
CORPORATION, petitioner,
vs.
EFREN P. ROQUE, respondent.
DECISION
VITUG, J.:
On 23 December 1993, petitioner Shopper’s Paradise Realty & Development
Corporation, represented by its president, Veredigno Atienza, entered into a
twenty-five year lease with Dr. Felipe C. Roque, now deceased, over a parcel
of land, with an area of two thousand and thirty six (2,036) square meters,
situated at Plaza Novaliches, Quezon City, covered by Transfer of Certificate
of Title (TCT) No. 30591 of the Register of Deeds of Quezon City in the name
of Dr. Roque. Petitioner issued to Dr. Roque a check for P250,000.00 by way
of "reservation payment." Simultaneously, petitioner and Dr. Roque likewise
entered into a memorandum of agreement for the construction, development
and operation of a commercial building complex on the property. Conformably
with the agreement, petitioner issued a check for another P250,000.00
"downpayment" to Dr. Roque.
The contract of lease and the memorandum of agreement, both notarized, were
to be annotated on TCT No. 30591 within sixty (60) days from 23 December
1993 or until 23 February 1994. The annotations, however, were never made
because of the untimely demise of Dr. Felipe C. Roque. The death of Dr. Roque
on 10 February 1994 constrained petitioner to deal with respondent Efren P.
Roque, one of the surviving children of the late Dr. Roque, but the negotiations
broke down due to some disagreements. In a letter, dated 3 November 1994,
respondent advised petitioner "to desist from any attempt to enforce the
aforementioned contract of lease and memorandum of agreement". On 15
February 1995, respondent filed a case for annulment of the contract of lease
and the memorandum of agreement, with a prayer for the issuance of a
preliminary injunction, before Branch 222 of the Regional Trial Court of Quezon
City. Efren P. Roque alleged that he had long been the absolute owner of the
subject property by virtue of a deed of donation inter vivos executed in his favor
by his parents, Dr. Felipe Roque and Elisa Roque, on 26 December 1978, and
that the late Dr. Felipe Roque had no authority to enter into the assailed
agreements with petitioner. The donation was made in a public instrument duly
acknowledged by the donor-spouses before a notary public and duly accepted
on the same day by respondent before the notary public in the same instrument
of donation. The title to the property, however, remained in the name of Dr.
Felipe C. Roque, and it was only transferred to and in the name of respondent
sixteen years later, or on 11 May 1994, under TCT No. 109754 of the Register
of Deeds of Quezon City. Respondent, while he resided in the United States of
America, delegated to his father the mere administration of the property.
Respondent came to know of the assailed contracts with petitioner only after
retiring to the Philippines upon the death of his father.
On 9 August 1996, the trial court dismissed the complaint of respondent; it
explained:
"Ordinarily, a deed of donation need not be registered in order to be
valid between the parties. Registration, however, is important in binding
third persons. Thus, when Felipe Roque entered into a leased contract
with defendant corporation, plaintiff Efren Roque (could) no longer
assert the unregistered deed of donation and say that his father, Felipe,
was no longer the owner of the subject property at the time the lease
on the subject property was agreed upon.
"The registration of the Deed of Donation after the execution of the
lease contract did not affect the latter unless he had knowledge thereof
at the time of the registration which plaintiff had not been able to
establish. Plaintiff knew very well of the existence of the lease. He, in
fact, met with the officers of the defendant corporation at least once
before he caused the registration of the deed of donation in his favor
and although the lease itself was not registered, it remains valid
considering that no third person is involved. Plaintiff cannot be the third
person because he is the successor-in-interest of his father, Felipe
Roque, the lessor, and it is a rule that contracts take effect not only
between the parties themselves but also between their assigns and
heirs (Article 1311, Civil Code) and therefore, the lease contract
together with the memorandum of agreement would be conclusive on
plaintiff Efren Roque. He is bound by the contract even if he did not
participate therein. Moreover, the agreements have been perfected and
partially executed by the receipt of his father of the downpayment and
deposit totaling to P500,000.00."1
The Trial court ordered respondent to surrender TCT No. 109754 to the
Register of Deeds of Quezon City for the annotation of the questioned Contract
of Lease and Memorandum of Agreement.
On appeal, the Court of Appeals reversed the decision of the trial court and held
to be invalid the Contract of Lease and Memorandum of Agreement. While it
shared the view expressed by the trial court that a deed of donation would have
to be registered in order to bind third persons, the appellate court, however,
concluded that petitioner was not a lessee in good faith having had prior
knowledge of the donation in favor of respondent, and that such actual
knowledge had the effect of registration insofar as petitioner was concerned.
The appellate court based its findings largely on the testimony of Veredigno
Atienza during cross-examination, viz;
 "Q. Aside from these two lots, the first in the name of Ruben Roque and
the second, the subject of the construction involved in this case, you
said there is another lot which was part of development project?
"A. Yes, this was the main concept of Dr. Roque so that the adjoining
properties of his two sons, Ruben and Cesar, will comprise one whole.
The other whole property belongs to Cesar.
"Q. You were informed by Dr. Roque that this property was given to his
three (3) sons; one to Ruben Roque, the other to Efren, and the other
to Cesar Roque?
"A. Yes.
"Q. You did the inquiry from him, how was this property given to them?
"A. By inheritance.
"Q. Inheritance in the form of donation?
"A. I mean inheritance.
"Q. What I am only asking you is, were you told by Dr. Felipe C. Roque
at the time of your transaction with him that all these three properties
were given to his children by way of donation?
"A. What Architect Biglang-awa told us in his exact word: "Yang mga
yan pupunta sa mga anak. Yong kay Ruben pupunta kay Ruben. Yong
kay Efren palibhasa nasa America sya, nasa pangalan pa ni Dr. Felipe
C. Roque."
"x x x xxx xxx
"Q. When was the information supplied to you by Biglang-awa? Before
the execution of the Contract of Lease and Memorandum of
Agreement?
"A. Yes.
"Q. That being the case, at the time of the execution of the agreement
or soon before, did you have such information confirmed by Dr. Felipe
C. Roque himself?
"A. Biglang-awa did it for us.
"Q. But you yourself did not?
"A. No, because I was doing certain things. We were a team and so
Biglang-awa did it for us.
"Q. So in effect, any information gathered by Biglang-awa was of the
same effect as if received by you because you were members of the
same team?
"A. Yes."2
In the instant petition for review, petitioner seeks a reversal of the decision of
the Court of Appeals and the reinstatement of the ruling of the Regional Trial
Court; it argues that the presumption of good faith it so enjoys as a party dealing
in registered land has not been overturned by the aforequoted testimonial
evidence, and that, in any event, respondent is barred by laches and estoppel
from denying the contracts.
The existence, albeit unregistered, of the donation in favor of respondent is
undisputed. The trial court and the appellate court have not erred in holding that
the non-registration of a deed of donation does not affect its validity. As being
itself a mode of acquiring ownership, donation results in an effective transfer of
title over the property from the donor to the donee.3 In donations of immovable
property, the law requires for its validity that it should be contained in a public
document, specifying therein the property donated and the value of the charges
which the donee must satisfy.4 The Civil Code provides, however, that "titles of
ownership, or other rights over immovable property, which are not duly
inscribed or annotated in the Registry of Property (now Registry of Land Titles
and Deeds) shall not prejudice third persons."5 It is enough, between the parties
to a donation of an immovable property, that the donation be made in a public
document but, in order to bind third persons, the donation must be registered
in the registry of Property (Registry of Land Titles and Deeds).6 Consistently,
Section 50 of Act No. 496 (Land Registration Act), as so amended by Section
51 of P.D. No. 1529 (Property Registration Decree), states:
"SECTION 51. Conveyance and other dealings by registered owner.-
An owner of registered land may convey, mortgage, lease, charge or
otherwise deal with the same in accordance with existing laws. He may
use such forms of deeds, mortgages, leases or other voluntary
instruments as are sufficient in law. But no deed, mortgage, lease, or
other voluntary instrument, except a will purporting to convey or affect
registered land shall take effect as a conveyance or bind the land, but
shall operate only as a contract between the parties and as evidence of
authority to the Register of Deeds to make registration.
"The act of registration shall be the operative act to convey or affect the
land insofar as third persons are concerned, and in all cases under this
Decree, the registration shall be made in the office of the Register of
Deeds for the province or city where the land lies." (emphasis supplied)
A person dealing with registered land may thus safely rely on the correctness
of the certificate of title issued therefore, and he is not required to go beyond
the certificate to determine the condition of the property7 but, where such party
has knowledge of a prior existing interest which is unregistered at the time he
acquired a right thereto, his knowledge of that prior unregistered interest would
have the effect of registration as regards to him.8
The appellate court was not without substantial basis when it found petitioner
to have had knowledge of the donation at the time it entered into the two
agreements with Dr. Roque. During their negotiation, petitioner, through its
representatives, was apprised of the fact that the subject property actually
belonged to respondent.
It was not shown that Dr. Felipe C. Roque had been an authorized agent of
respondent.
In a contract of agency, the agent acts in representation or in behalf of another
with the consent of the latter.9 Article 1878 of the Civil Code expresses that a
special power of attorney is necessary to lease any real property to another
person for more than one year. The lease of real property for more than one
year is considered not merely an act of administration but an act of strict
dominion or of ownership. A special power of attorney is thus necessary for its
execution through an agent. 1awphil.ne+
The Court cannot accept petitioner’s argument that respondent is guilty of
laches. Laches, in its real sense, is the failure or neglect, for an unreasonable
and unexplained length of time, to do that which, by exercising due diligence,
could or should have been done earlier; it is negligence or omission to assert a
right within a reasonable time, warranting a presumption that the party entitled
to assert it either has abandoned or declined to assert it.10
Respondent learned of the contracts only in February 1994 after the death of
his father, and in the same year, during November, he assailed the validity of
the agreements. Hardly, could respondent then be said to have neglected to
assert his case for unreasonable length of time.
Neither is respondent estopped from repudiating the contracts. The essential
elements of estoppel in pais, in relation to the party sought to be estopped, are:
1) a clear conduct amounting to false representation or concealment of material
facts or, at least, calculated to convey the impression that the facts are
otherwise than, and inconsistent with, those which the party subsequently
attempts to assert; 2) an intent or, at least, an expectation, that this conduct
shall influence, or be acted upon by, the other party; and 3) the knowledge,
actual or constructive, by him of the real facts.11 With respect to the party
claiming the estoppel, the conditions he must satisfy are: 1) lack of knowledge
or of the means of knowledge of the truth as to the facts in question; 2) reliance,
in good faith, upon the conduct or statements of the party to be estopped; and
3) action or inaction based thereon of such character as to change his position
or status calculated to cause him injury or prejudice.12 It has not been shown
that respondent intended to conceal the actual facts concerning the property;
more importantly, petitioner has been shown not to be totally unaware of the
real ownership of the subject property.
Altogether, there is no cogent reason to reverse the Court of Appeals in its
assailed decision.
WHEREFORE, the petition is DENIED, and the decision of the Court of Appeals
declaring the contract of lease and memorandum of agreement entered into
between Dr. Felipe C. Roque and Shopper’s Paradise Realty & Development
Corporation not to be binding on respondent is AFFIRMED. No costs.
SO ORDERED.
G.R. No. L-30181 July 12, 1929
THE DIRECTOR OF PUBLIC WORKS, plaintiff-appellee,
vs.
SING JUCO, ET AL., defendants.
SING JUCO, SING BENGCO and PHILIPPINE NATIONAL
BANK, appellants.
Roman J. Lacson for appellant National Bank.
Soriano and Nepomuceno for appellants Sing Juco and Sing Bengco.
Attorney-General Jaranilla for appellee.
STREET, J.:
From Torrens certificate of title No. 1359 relating to land in the municipality of
Iloilo, it appears that on September 28, 1920, the title of the property described
therein was owned, in undivided shares, by Mariano de la Rama, Gonzalo
Mariano Tanboontien, Sing Juco and Sing Bengco. The interest vested by said
certificate in Mariano de la Rama was subsequently transferred to sale to
Enrique Enchaus. It further appears that on November 23, 1020, the owners of
the property covered by the said certificate conveyed it by way of a mortgage
to the Philippine National Bank for the purpose of securing a credit in current
account in a mount not in excess of P170,000, with interest at a rate of 12
percent per annum. The indebtedness covered by this mortgage has not been
satisfied, and upon the date of the decision of the court below it amounted to
the sum of P170,000, plus interest at 12 percent per annum from November 24,
1920.
The land above referred to contains an area of nearly 16 hectares, or to be
exact, 158,589.44 square meters according to the certificate. It is located on
"Point Llorente" at the mouth of Iloilo river, near the City of Iloilo, and it is of so
low a level that, prior to the improvement to which reference is to be made, it
was subject to frequent flooding. In 1921, the Government of the Philippine
Islands was planning extensive harbor improvements in this vicinity, requiring
extensive dredging by the Bureau of Public Works in the mouth of said river.
The conduct of these dredging operations made it necessary for the Director of
Public Works to find a place of deposit for the dirt and mud taken from the place,
or places, dredged. As the land already referred to was low and easily
accessible to the spot where dredging was to be conducted, it was obviously
for the interest of the Government and the said owners of the land that the
material taken out by the dredges should be deposited on the said property.
Accordingly, after preliminary negotiations to this effect have been conducted,
a contract was made between the Director of Public Works, representing the
Government of the Philippine Islands, and the four owners, M. de la Rama, Sing
Juco, G. M. Tanboontien, and Seng Bengco, of which, as modified by some
respects by subsequent agreement, the following features are noteworthy.
(1) The Bureau of Public Works agreed to deposit the material to be dredged
by it from the Iloilo River, in connection with the contempted improvement, upon
the lot of the land, already described as covered by certificate No. 1359, at a
price to be determined at the actual cost of the filling, with certain surcharges
to be determined by the Director of Public Works. It was contemplated in the
original draft of the contract that the Bureau would be able to furnish some
250,000 cubic meters of dredged material for filling in the land, was limited to
the material which should be dredged from the river as a result of the proposed
improvement. To this stipulation the four owners of the property assented on
March 14, 1921.
(2) With respect to the compensation it was agreed that the amount due should
be determined by the Director of Public Works, under certain conditions
mentioned in the contract, of an amount of not less that 20 nor more than 75
centavos per cubic meter. It was further agreed that, when the work should be
finished, the cost thereof should be paid by the owners in 5 annual installments
and that for failure to pay such installment the whole of the amount thereafter
to accrue should become at once due. This contract was noted in the Torrens
certificate of title on January 8, 1924.
In connection with the making of the contract abovementioned, the, Director of
Public Works required a bond to be supplied by the owners in the penal amount
of P150,000, approximately twice the estimated cost of the filling, conditioned
for the payment of the amount due from the owners. This bond was executed
contemporaneously with the main contract; and in connection therewith it
should be noted that one of the names appearing upon said contract was that
of "Casa Viuda de Tan Toco," purporting to be signed by M. de la Rama.
The dredging operation were conducted by the Bureau of Public Works in
substantial accomplice, we find, with the terms of said agreement; and after the
account with the owners were liquidated and the amount due from them
determined, demand was made upon them for the payment of the first
installment. No such payment was, however, made as a consequence this
action was instituted by the Director of Public Works on October 14, 1926, for
the purpose of recovering the amount due to the Government under the
contract from the original owners of the property from the sureties whose names
were signed to the contract of suretyship, and to enforce the obligation as a real
lien upon the property. In said action the Philippine National Bank was made a
party defendant, as having an interest under its prior mortgage upon the
property, while Enrique Enchaus was made defendant as successor in interest
of M. de la Rama, and Tan Ong Sze widow of Tan Toco, was also made
defendant by reason of her supposed liability derived from the act of De la
Rama in signing the firm "Casa Viuda de Tan Toco" as a surety on bond. It was
noteworthy that in the complaint it was asked that, in the enforcement of the
government's lien, the property should be sold "subject to the first mortgage in
favor of the Philippine National Bank."
To this complaint different defenses were set up, as follows: On behalf of the
owners of the property, it was contended that the government has not complied
with that contract, in that dredged material deposited on the land had not been
sufficient in quantity to raise the level of the land above high water, and that, as
a consequence, the land had not been much benefited. It is therefore asserted
that the owners of the property are not obligated to pay the filling operation.
These defendants sought to recover further damages by way of cross-
complaint for the same supposed breach of contract on the part of the
Government. On the part of Viuda de Tan Toco the defense was interposed
that the name "Casa Viuda de Tan Toco" signed to the contract of suretyship
by Mariano de la Rama was signed without authority; while on the part of the
Philippine National Bank was asserted that the mortgage credit pertaining to
the bank is superior to the Governments lien for improvement, and by way of
counterclaim the bank asked that its mortgage be foreclosed for the amount of
its mortgage credit, and that the four mortgagors, Sing Juco, Sing Bengco, M.
de la Rama and G.M. Tanboontien, be required to pay the amount due to the
bank, and that in case of their failure to do so the mortgaged property should
be sold and the proceeds paid preferentially to the bank upon its mortgage.
Upon hearing the cause the trial court, ignoring that part of the original
complaint wherein the Government seeks to enforce its lien in subordination to
its first mortgage, made pronouncements:
(1) Declaring Sing Juco, Sing Bengco, M. de la Rama and G. M.
Tanboontien indebted to the Government in the amount of P70, 938,
with interest from the date of the filing of the complaint, and requiring
them to pay the said sum to the plaintiff;
(2) Declaring, in effect, that the lien of the Government for the filing
improvement was superior to the mortgage of the Philippine National
Bank; and finally
(3) Declaring the defendant Tan Ong Sze, Viuda de Tan Toco,
personally liable upon the contract of suretyship, in case the four
principal obligors should not satisfy their indebtedness to the
Government, or if the land should not sell enough to satisfy the same.
From this judgment various parties defendant appealed as follows: All of the
defendants, except the Philippine National Bank, appealed from so much of the
decision as held that the defendant owners and signatories to the contract of
suretyship has not been released by non-performance of the contract on the
part of the Bureau of Public Works, and from the refusal of the court to give to
the defendant owners damages for breach of contract on the part of the
Government. On the part of Tan Ong Sze, Viuda de Tan Toco, error is assigned
to the action of the court in holding said defendant liable upon the contract of
suretyship. Finally, the Philippine National Bank appealed from so much of the
decision as gave the lien of the Government for improvement priority over the
mortgagee executed in favor of the bank.
Dealing with these contentions in the order indicated, we find the contention of
the appellants (except the Philippine National Bank), to the effect that the
Director of Public Works has failed to comply with the obligations imposed upon
the government by the contract, is wholly untenable. By said contract, the
Government was not obligated to raise the land on which the dredged material
was deposited to any specified level. The Government only obligated itself upon
said land the material should be dredged from the mouth of the Iloilo River in
the course of the improvement undertaken by the Government in and near that
place. Under the original contract as originally drafted, the Government agreed
to furnish 250,000 cubic meters, more or less, of dredged material; but on Mar.
14, 1921, the owners of the property indicated their acceptance of a
modification of the contract effected by the Director of Public Works and the
Secretary of Commerce and Communications, in which it was made clear that
the material to be supplied would be such only as should be dredged from the
river as a result of the proposed improvement. In the endorsement of the
Director of Public Works, thus accepted by the owners, it was made clear that
the Bureau of Public Works did not undertake to furnish material to complete
the filling of the land to any specified level. Proof submitted on the part of the
owners tends to show that parts of the filled land are still subject to inundation
in rainy weather; and it is contended, that the owners have, for this reason,
been able to sell in lots the property to individual occupants. the sum of
P15,000, which is claimed upon this account, as damages by the owners, is the
amount of interest alleged to have been accrued upon their investment, owing
to their inability to place the land advantageously upon the market. The claim
is, as already suggested, untenable. There has been no breach on the part of
the Government in fulfilling the contract. In fact it appears that the Government
deposited in the period covered by the contract 236,460 cubic meters, and after
the amount thus deposited had been reduced by 21,840 cubic meters, owing
to the natural process of drying, the Bureau of Public Works further deposited
53,000 cubic meters on the same land. In this connection, the district engineer
testified that the filling which has been charged to the owners at P70,938
actually cost the Government the amount of P88,297.85. The charge made for
the work was evidently computed on a very moderate basis; and the owners of
the property have no just ground of complaint whatever.
The contention of Tan Ong Sze, widow of Tan Toco, to the effect that she was
not, and is not, bound by the contract of suretyship, is our pinion, well-founded.
It will be remembered that said contract purports to have been signed by
Mariano de la Rama, acting for this defendant under the power of attorney. But
the Government has exhibited no power of attorney which would authorize the
creation, by the attorney-in-fact, of an obligation in the nature of suretyship
binding upon this principal.
It is true that the Government introduced in evidence 2 documents exhibiting
powers of attorney, conferred by these documents (Exhibit K, identical with
Exhibit 5) Mariano de la Rama was given the power which reads as follows:
. . . and also for me and in my name to sign, seal and execute, and as
my act and deed deliver, any lease or any other deed for the conveying
any real or personal property or the other matter or thing wherein I am
or may be personally interested or concerned. And I do hereby further
authorize and empower my said attorney to substitute and point any
other attorney or attorneys under him for the purposes aforesaid, and
the same again and pleasure to revoke; and generally for me and in my
name to do, perform, and execute all and any other lawful and
reasonable acts and things whatsoever as fully and effectually as I, the
said Tan Ong Sze might or could do if personally present.
In another document, (Exhibits L and M), executed in favor of the same Mariano
de la Rama by his uncle Tan Lien Co, attorney-in-fact of Tan Ong Sze, with
power of substitution, there appears the following:
. . . and also for her and for her name to sign, seal and execute, and as
her act and deed deliver, any lease, release, bargain, sale, assignment,
conveyance or assurance, any other deed for the conveying any real or
personal property or other matter or thing wherein she or may be
personally interested or concerned.
Neither of these powers officially confers upon Mariano de la Rama the power
to bind a principal by a contract of suretyship. The clauses noted relate more
specifically to the execution of contracts relating to property; and the more
general words at the close of the quoted clauses should be interpreted, under
the general rule ejusdem generis, as referring to the contracts of like character.
Power to execute a contract so exceptional a nature as a contract of suretyship
or guaranty cannot be inferred from the general words contained in these
powers.
In article 1827 of the Civil Code it is declared that guaranty shall not be
presumed; it must be expressed and cannot be extended beyond its specified
limits. By analogy a power of attorney to execute a contract of guaranty should
not be inferred from vague or general words, especially when such words have
their origin and explanation in particular powers of a wholly different nature. It
results that the trial court was in error in giving personal judgment against Tan
Ong Sze upon the bond upon which she was sued in this case.
We now proceed to consider the last important disputed question involved in
this case, which is, whether the indebtedness owing to the Government under
the contract for filling the parcel of land already mentioned is entitled to
preference over the mortgage credit due to the Philippine National Bank, as the
trial judge held, or whether on the contrary, the latter claim is entitled to priority
over the claim of the Government Upon entering into the discussion of the
feature of the case it is well to recall the fact that the bank's mortgage was
registered in the office of the Register of Deeds of the province of Iloilo on
November 26, 1920, while the filing contract was registered on January 8, 1924,
that is to say, there is a priority of more than three years, in point of time, in the
inscription of the mortgage credit under the filling contract was made an express
lien upon the property which was the subject of improvement.
In the brief submitted in behalf of the bank it appears to be assumed that the
Government credit under the filling contract is a true refectionary credit (credito
refacionario) under subsection 2 of Article 1923 of the Civil Code. It may be
observed, however, that in a precise and technical sense, this credit is not
exactly of the nature of the refectionary credit as known to the civil law. In the
civil law the refectionary credit is primarily an indebtedness incurred in the repair
or reconstruction of something previously made, such repair or reconstruction
being made necessary by the deterioration or destruction as it formerly existed.
The conception does not ordinarily include an entirely new work, though
Spanish jurisprudence appears to have sanctioned this broader conception in
certain cases as may be gathered from the decision in the Enciclopedia Juridica
Espanola (vol. 26, pp. 888-890) s. v. Refaccionario. The question whether the
credit we are considering falls precisely under the conception of the refectionary
credit in the civil law is in this case academic rather than practical, for the reason
that by the express terms of the filling contract the credit was constituted a lien
upon the improved property. But assuming, as might be tenable in the state of
jurisprudence, that said credit is a refectionary credit enjoying preference under
subsection 3 or article 1923 of the Civil code , then the mortgage credit must
be given priority under subsection 2 of the article 1927 of the same code, for
the reason that the mortgage was registered first.
Possibly the simpler view of the situation is to consider the Government's right
under the stipulation expressly making the credit a lien upon the property, for it
was certainly lawful for the parties to the filling contract to declare the credit a
lien upon the property to be improved — to the extent hereinafter define —
whether the credit precisely fulfills the conception of refectionary credit or not.
In this aspect we have before us a competition between the real lien created by
the filling contract of the later registration. The true solution to the problem is,
in our opinion, not open to doubt; and again the result is that priority must be
conceded to the mortgage. The mortgage was created by the lawful owners at
a time when no other competing interest existed in the property. The lien of the
mortgage therefore attached to the fee, or unlimited interest of the owners in
the property. On the other hand, the lien created by the filling contract was
created after the mortgage had been made and registered, and therefore, after
the owners of the property had parted with the interest created by the mortgage.
The Government's lien owes its origin to the contract, and derives its efficacy
from the volition of the contracting parties. But no party can by contract create
a right in another intrinsically greater than that which he himself possess. The
owners, at the time this contract was made, were owners of the equity of
redemption only and not of the entire interest in the property, and the lien
created by the contract could only operate upon the equity of redemption.
In this connection, we observed that, as the new material was deposited from
the Government dredges upon the property in question, it became an integral
part of the soil and an irremovable fixture; and the deposit having been made
under contract between the Government and the owners of the equity of
redemption, without the concurrence of the mortgage creditor in said contract
the latter could not be prejudiced thereby. The trial court, in declaring that the
Government's lien should have preference over the mortgage, seems to have
proceeded upon the idea that, at the time the mortgage was created, the new
soil had yet been deposited under the filling contract and that as a consequence
the mortgage lien should not been considered as attaching to the value added
by deposit of the additional material. This proposition, however, overlooks the
fact that the deposited material became an irremovable fixture, by the act and
intention of the parties to the filling contract, and the lien of the mortgage
undoubtedly attached to the increment thus spread over and affixed to the
mortgaged land. If the idea which prevailed in the trial court should be accepted
as law upon this point, the result would be that a mortgage creditor could, by
the act of strangers, be entirely proved out of his property by making of
improvements to which he has not assented. This cannot be accepted as good
law.
We may add that the case cannot, on this point, be resolved favorably to the
contention of the Director of Public Works, upon the authority of Unson vs.
Urquijo, Zuluoaga and Escubi (50 Phil., 160), for the reason that upon the
deposit of the dredged material on the land such material lost its identity. In the
case cited the machinery in respect to which the vendor's preference was
upheld by this court retained its separate existence and remained perfectly
capable of identification at all times.
From what it has been said it results that the appealed judgment must be
affirmed, and the same is hereby affirmed, in dismissing, in effect, the cross-
complaint filed by some of the defendants against the plaintiff, the Director of
Public Works. Such judgment is further affirmed in its findings, which are not
dispute, with respect to the amount of the Government's claim under the filling
contract and the amount of mortgage credit of the bank, as it is also affirmed in
respect to the joint and several judgment entered in favor of the plaintiff against
Sing Juco, Sing Bengco, Tanboontien and Mariano de la Rama Tanbunco (alias
Mariano de la Rama) for the amount due to the Government
Said judgment, however, must be reversed and the same is being reversed in
so far as it holds that Tan Ong Sze, Viuda de Tan Toco, is liable upon the
contract of suretyship, and she is hereby absolved from the complaint. The
judgment must also be reversed in so far as it declares that the Government's
lien under the filling contract is entitled to priority over the bank's mortgage. On
the contrary it is hereby declared that the bank's credit is entitled to priority out
of the proceeds of the foreclosure sale, the residue, if any, to be applied to the
Government's lien created by the filling contract and otherwise in accordance
with law. For further proceedings in conformity with this opinion, the cause is
hereby remanded to the cause of origin, without pronouncements as to costs.
So ordered.
G.R. No. 105562 September 27, 1993
LUZ PINEDA, MARILOU MONTENEGRO, VIRGINIA ALARCON, DINA
LORENA AYO, CELIA CALUMBAG and LUCIA LONTOK, petitioners,
vs.
HON. COURT OF APPEALS and THE INSULAR LIFE ASSURANCE
COMPANY, LIMITED, respondents.
Mariano V. Ampil, Jr. for petitioners.
Ramon S. Caguiao for private respondent.
DAVIDE, JR., J.:
This is an appeal by certiorari to review and set aside the Decision of the public
respondent Court of Appeals in CA-G.R. SP No. 229501 and its Resolution
denying the petitioners' motion for reconsideration.2 The challenged decision
modified the decision of the Insurance Commission in IC Case
No. RD-058. 3
The petitioners were the complainants in IC Case No. RD-058, an
administrative complaint against private respondent Insular Life Assurance
Company, Ltd. (hereinafter Insular Life), which was filed with the Insurance
Commission on 20 September 1989. 4 They prayed therein that after due
proceedings, Insular Life "be ordered to pay the claimants their insurance
claims" and that "proper sanctions/penalties be imposed on" it "for its deliberate,
feckless violation of its contractual obligations to the complainants, and of the
Insurance Code." 5 Insular Life's motion to dismiss the complaint on the ground
that "the claims of complainants are all respectively beyond the jurisdiction of
the Insurance Commission as provided in Section 416 of the Insurance
Code,"6 having been denied in the Order of 14 November 1989, 7 it filed its
answer on 5 December 1989. 8 Thereafter, hearings were conducted on various
dates.
On 20 June 1990, the Commission rendered its decision9 in favor of the
complainants, the dispositive portion of which reads as follows:
WHEREFORE, this Commission merely orders the respondent
company to:
a) Pay a fine of FIVE HUNDRED PESOS (P500.00) a day from the
receipt of a copy of this Decision until actual payment thereof;
b) Pay and settle the claims of DINA AYO and LUCIA LONTOK, for
P50,000.00 and P40,000.00, respectively;
c) Notify henceforth it should notify individual beneficiaries designated
under any Group Policy, in the event of the death of insured(s), where
the corresponding claims are filed by the Policyholder;
d) Show cause within ten days why its other responsible officers who
have handled this case should not be subjected to disciplinary and other
administrative sanctions for deliberately releasing to Capt. Nuval the
check intended for spouses ALARCON, in the absence of any Special
Power of Attorney for that matter, and for negligence with respect to the
release of the other five checks.
SO ORDERED. 10
In holding for the petitioners, the Insurance Commission made the following
findings and conclusions:
After taking into consideration the evidences [sic], testimonial and
documentary for the complainants and the respondent, the Commission
finds that; First: The respondent erred in appreciating that the powers
of attorney executed by five (5) of the several beneficiaries convey
absolute authority to Capt. Nuval, to demand, receive, receipt and take
delivery of insurance proceeds from respondent Insular Life. A cursory
reading of the questioned powers of authority would disclosed [sic] that
they do not contain in unequivocal and clear terms authority to Capt.
Nuval to obtain, receive, receipt from respondent company insurance
proceeds arising from the death of the seaman-insured. On the
contrary, the said powers of attorney are couched in terms which could
easily arouse suspicion of an ordinary
man. . . .
 Second: The testimony of the complainants' rebuttal witness,
Mrs. Trinidad Alarcon, who declared in no uncertain terms that neither
she nor her husband, executed a special power of attorney in favor of
Captain Rosendo Nuval, authorizing him to claim, receive, receipt and
take delivery of any insurance proceeds from Insular Life arising out of
the death of their insured/seaman son, is not convincingly refuted.
Third: Respondent Insular Life did not observe Section 180 of the
Insurance Code, when it issued or released two checks in the amount
of P150,000.00 for the three minor children (P50,000.00 each) of
complainant, Dina Ayo and another check of P40,000.00 for minor
beneficiary Marissa Lontok, daughter of another complainant Lucia
Lontok, there being no showing of any court authorization presented or
the requisite bond posted.
Section 180 is quotes [sic] partly as follows:
. . . In the absence of a judicial guardian, the father, or in the
latter's absence or incapacity, the mother of any minor, who is
an insured or a beneficiary under a contract of life, health or
accident insurance, may exercise, in behalf of said minor, any
right, under the policy, without necessity of court authority or the
giving of a bond where the interest of the minor in the particular
act involved does not exceed twenty thousand pesos . . . . 11
Insular Life appealed the decision to the public respondent which docketed the
case as CA-G.R. SP No. 22950. The appeal urged the appellate court to
reverse the decision because the Insurance Commission (a) had no jurisdiction
over the case considering that the claims exceeded P100,000.00,
(b) erred in holding that the powers of attorney relied upon by Insular Life were
insufficient to convey absolute authority to Capt. Nuval to demand, receive and
take delivery of the insurance proceeds pertaining to the petitioners, (c) erred
in not giving credit to the version of Insular Life that the power of attorney
supposed to have been executed in favor of the Alarcons was missing, and
(d) erred in holding that Insular Life was liable for violating Section 180 of the
Insurance Code for having released to the surviving mothers the insurance
proceeds pertaining to the beneficiaries who were still minors despite the failure
of the former to obtain a court authorization or to post a bond.
On 10 October 1991, the public respondent rendered a decision, 12 the decretal
portion of which reads:
WHEREFORE, the decision appealed from is modified by
eliminating therefrom the award to Dina Ayo and Lucia Lontok
in the amounts of P50,000.00 and P40,000.00, respectively. 13
It found the following facts to have been duly established:
It appears that on 23 September 1983, Prime Marine Services, Inc.
(PMSI, for brevity), a crewing/manning outfit, procured Group PoIicy
No. G-004694 from respondent-appellant Insular Life Assurance Co.,
Ltd. to provide life insurance coverage to its sea-based employees
enrolled under the plan. On 17 February 1986, during the effectivity of
the policy, six covered employees of the PMSI perished at sea when
their vessel, M/V Nemos, a Greek cargo vessel, sunk somewhere in El
Jadida, Morocco. They were survived by complainants-appellees, the
beneficiaries under the policy.
Following the tragic demise of their loved ones, complainants-appellees
sought to claim death benefits due them and, for this purpose, they
approached the President and General Manager of PMSI, Capt.
Roberto Nuval. The latter evinced willingness to assist complainants-
appellees to recover Overseas Workers Welfare Administration
(OWWA) benefits from the POEA and to work for the increase of their
PANDIMAN and other benefits arising from the deaths of their
husbands/sons. They were thus made to execute, with the exception of
the spouses Alarcon, special powers of attorney authorizing Capt.
Nuval to, among others, "follow up, ask, demand, collect and receive"
for their benefit indemnities of sums of money due them relative to the
sinking of M/V Nemos. By virtue of these written powers of attorney,
complainants-appellees were able to receive their respective death
benefits. Unknown to them, however, the PMSI, in its capacity as
employer and policyholder of the life insurance of its deceased workers,
filed with respondent-appellant formal claims for and in behalf of the
beneficiaries, through its President, Capt. Nuval. Among the documents
submitted by the latter for the processing of the claims were five special
powers of attorney executed by complainants-appellees. On the basis
of these and other documents duly submitted, respondent-appellant
drew against its account with the Bank of the Philippine Islands on 27
May 1986 six (6) checks, four for P200,00.00 each, one for P50,000.00
and another for P40,00.00, payable to the order of complainants-
appellees. These checks were released to the treasurer of PMSI upon
instructions of
Capt. Nuval over the phone to Mr. Mariano Urbano, Assistant
Department Manager for Group Administration Department of
respondent-appellant. Capt. Nuval, upon receipt of these checks from
the treasurer, who happened to be his son-in-law, endorsed and
deposited them in his account with the Commercial Bank of Manila, now
Boston Bank.
On 3 July 1989, after complainants-appellees learned that they were
entitled, as beneficiaries, to life insurance benefits under a group policy
with respondent-appellant, they sought to recover these benefits from
 Insular Life but the latter denied their claim on the ground that the
liability to complainants-appellees was already extinguished upon
delivery to and receipt by PMSI of the six (6) checks issued in their
names.14
On the basis thereof, the public respondent held that the Insurance Commission
had jurisdiction over the case on the ground that although some of the claims
exceed P100,000.00, the petitioners had asked for administrative sanctions
against Insular Life which are within the Commission's jurisdiction to grant;
hence, "there was merely a misjoinder of causes of action . . . and, like
misjoinder of parties, it is not a ground for the dismissal of the action as it does
not affect the other reliefs prayed for." 15 It also rejected Insular Life's claim that
the Alarcons had submitted a special power of attorney which they (Insular Life)
later misplaced.
On the other hand, the public respondent ruled that the powers of attorney,
Exhibits "1" to "5," relied upon by Insular Life were sufficient to authorize Capt.
Nuval to receive the proceeds of the insurance pertaining to the beneficiaries.
It stated:
When the officers of respondent-appellant read these written powers,
they must have assumed Capt. Nuval indeed had authority to collect
the insurance proceeds in behalf of the beneficiaries who duly affixed
their signatures therein. The written power is specific enough to define
the authority of the agent to collect any sum of money pertaining to the
sinking of the fatal vessel. Respondent-appellant interpreted this power
to include the collection of insurance proceeds in behalf of the
beneficiaries concerned. We believe this is a reasonable interpretation
even by an officer of respondent-appellant unschooled in the law. Had
respondent appellant, consulted its legal department it would not have
received a contrary view. There is nothing in the law which mandates a
specific or special power of attorney to be executed to collect insurance
proceeds. Such authority is not included in the enumeration of Art. 1878
of the New Civil Code. Neither do we perceive collection of insurance
claims as an act of strict dominion as to require a special power of
attorney. Moreover, respondent-appellant had no reason to doubt Capt.
Nuval. Not only was he armed with a seemingly genuine authorization,
he also appeared to be the proper person to deal with respondent-
appellant being the President and General Manager of the PMSI, the
policyholder with whom respondent-appellant always dealt. The fact
that there was a verbal agreement between complainants-appellees
and Capt. Nuval limiting the authority of the latter to claiming specified
death benefits cannot prejudice the insurance company which relied on
the terms of the powers of attorney which on their face do not disclose
such limitation. Under the circumstances, it appearing that
complainants-appellees have failed to point to a positive provision of
law or stipulation in the policy requiring a specific power of attorney to
be presented, respondents-appellant's reliance on the written powers
was in order and it cannot be penalized for such an act. 16
Insofar as the minor children of Dina Ayo and Lucia Lontok were concerned, it
ruled that the requirement in Section 180 of the Insurance Code which provides
in part that:
In the absence of a judicial guardian, the father, or in the latter's
absence or incapacity, the mother, of any minor, who is an
insured or a beneficiary under a contract of life, health or
accident insurance, may exercise, in behalf of said minor, any
right under the policy, without necessity of court authority or the
giving of a bond, where the interest of the minor in the particular
act involved does not exceed twenty thousand pesos. Such a
right, may include, but shall not be limited to, obtaining a policy
loan, surrendering the policy, receiving the proceeds of the
policy, and giving the minor's consent to any transaction on the
policy.
has been amended by the Family Code 17 which grants the father and
mother joint legal guardianship over the property of their
unemancipated common child without the necessity of a court
appointment; however, when the market value of the property or the
annual income of the child exceeds P50,000.00, the parent concerned
shall be required to put up a bond in such amount as the court may
determine.
Hence, this petition for review on certiorari which we gave due course after the
private respondent had filed the required comment thereon and the petitioners
their reply to the comment.
We rule for the petitioners.
We have carefully examined the specific powers of attorney, Exhibits "1" to "5,"
which were executed by petitioners Luz Pineda, Lucia B. Lontok, Dina Ayo,
Celia Calumag, and Marilyn Montenegro, respectively, on 14 May 198618and
uniformly granted to Capt. Rosendo Nuval the following powers:
To follow-up, ask, demand, collect and receipt for my benefit
indemnities or sum of money due me relative to the sinking of
M.V. NEMOS in the vicinity of El Jadida, Casablanca, Morocco
on the evening of February 17, 1986; and
To sign receipts, documents, pertinent waivers of indemnities
or other writings of whatsoever nature with any and all third
 persons, concerns and entities, upon terms and conditions
acceptable to my said attorney.
We agree with the Insurance Commission that the special powers of attorney
"do not contain in unequivocal and clear terms authority to Capt. Nuval to
obtain, receive, receipt from respondent company insurance proceeds arising
from the death of the seaman-insured. On the contrary, the said powers of
attorney are couched in terms which could easily arouse suspicion of an
ordinary man." 19 The holding of the public respondent to the contrary is
principally premised on its opinion that:
[t]here is nothing in the law which mandates a specific or special
power of attorney to be executed to collect insurance proceeds.
Such authority is not included in the enumeration of art. 1878 of
the New Civil Code. Neither do we perceive collection of
insurance claims as an act of strict dominion as to require a
special power of attorney.
If this be so, then they could not have been meant to be a general power
of attorney since Exhibits "1" to "5" are special powers of attorney. The
execution by the principals of special powers of attorney, which clearly
appeared to be in prepared forms and only had to be filled up with their
names, residences, dates of execution, dates of acknowledgment and
others, excludes any intent to grant a general power of attorney or to
constitute a universal agency. Being special powers of attorney, they
must be strictly construed.
Certainly, it would be highly imprudent to read into the special powers of
attorney in question the power to collect and receive the insurance proceeds
due the petitioners from Group Policy No. G-004694. Insular Life knew that a
power of attorney in favor of Capt. Nuval for the collection and receipt of such
proceeds was a deviation from its practice with respect to group policies. Such
practice was testified to by Mr. Marciano Urbano, Insular Life's Assistant
Manager of the Group Administrative Department, thus:
ATTY. CAGUIOA:
Can you explain to us why in this case, the claim was filed by a
certain Capt. Noval [sic]?
WITNESS:
a The practice of our company in claim pertaining to group
insurance, the policyholder is the one who files the claim for the
beneficiaries of the deceased. At that time, Capt. Noval [sic] is
the President and General Manager of Prime Marine.
q What is the reason why policyholders are the ones who file
the claim and not the designated beneficiaries of the employees
of the policyholders?
a Yes because group insurance is normally taken by the
employer as an employee-benefit program and as such, the
benefit should be awarded by the policyholder to make it appear
that the benefit really is given by the employer. 20
On cross-examination, Urbano further elaborated that even payments, among
other things, are coursed through the policyholder:
q What is the corporate concept of group insurance insofar as
Insular Life is concerned?
WITNESS:
a Group insurance is a contract where a group of individuals are
covered under one master contract. The individual underwriting
characteristics of each individual is not considered in the
determination of whether the individual is insurable or not. The
contract is between the policyholder and the insurance
company. In our case, it is Prime Marine and Insular Life. We
do not have contractual obligations with the individual
employees; it is between Prime Marine and Insular Life.
q And so it is part of that concept that all inquiries, follow-up,
payment of claims, premium billings, etc. should always be
coursed thru the policyholder?
a Yes that is our practice.
q And when you say claim payments should always be coursed
thru the policyholder, do you require a power of attorney to be
presented by the policyholder or not?
a Not necessarily.
q In other words, under a group insurance policy like the one in
this case, Insular Life could pay the claims to the policyholder
himself even without the presentation of any power of attorney
from the designated beneficiaries?
xxx xxx xxx
 WITNESS: This practice is usual in the group insurance business and is consistent with the
jurisprudence thereon in the State of California — from whose laws our
a No. Sir. Insurance Code has been mainly patterned — which holds that the employer-
policyholder is the agent of the insurer.
ATTY. AMPIL:
Group insurance is a comparatively new form of insurance. In the United States,
q Why? Is this case, the present case different from the cases which the first modern group insurance policies appear to have been issued in 1911
you answered that no power of attorney is necessary in claims by the Equitable Life Assurance Society. 22 Group insurance is essentially a
payments? single insurance contract that provides coverage for many individuals. In its
original and most common form, group insurance provides life or health
insurance coverage for the employees of one employer.
WITNESS:
The coverage terms for group insurance are usually stated in a master
a We did not pay Prime Marine; we paid the beneficiaries.
agreement or policy that is issued by the insurer to a representative of the group
or to an administrator of the insurance program, such as an employer. 23 The
q Will you now tell the Honorable Commission why you did not pay employer acts as a functionary in the collection and payment of premiums and
Prime Marine and instead paid the beneficiaries, the designated in performing related duties. Likewise falling within the ambit of administration
beneficiaries? of a group policy is the disbursement of insurance payments by the employer
to the employees. 24 Most policies, such as the one in this case, require an
xxx xxx xxx employee to pay a portion of the premium, which the employer deducts from
wages while the remainder is paid by the employer. This is known as a
ATTY. AMPIL: contributory plan as compared to a non-contributory plan where the premiums
are solely paid by the employer.
I will rephrase the question.
Although the employer may be the titular or named insured, the insurance is
q Will you tell the Commission what circumstances led you to pay the actually related to the life and health of the employee. Indeed, the employee is
designated beneficiaries, the complainants in this case, instead of the in the position of a real party to the master policy, and even in a non-contributory
policyholder when as you answered a while ago, it is your practice in plan, the payment by the employer of the entire premium is a part of the total
group insurance that claims payments, etc., are coursed thru the compensation paid for the services of the employee. 25 Put differently, the labor
policyholder? of the employees is the true source of the benefits, which are a form of
additional compensation to them.
WITNESS:
It has been stated that every problem concerning group insurance presented to
a It is coursed but, it is not paid to the policyholder. a court should be approached with the purpose of giving to it every legitimate
opportunity of becoming a social agency of real consequence considering that
the primary aim is to provide the employer with a means of procuring insurance
q And so in this case, you gave the checks to the policyholder only
protection for his employees and their families at the lowest possible cost, and
coursing them thru said policyholder?
in so doing, the employer creates goodwill with his employees, enables the
employees to carry a larger amount of insurance than they could otherwise, and
a That is right, Sir. helps to attract and hold a permanent class of employees. 26

q Not directly to the designated beneficiaries? In Elfstrom vs. New York Life Insurance Company, 27 the California Supreme
Court explicitly ruled that in group insurance policies, the employer is the agent
a Yes, Sir. 21 of the insurer. Thus:
 We are convinced that the employer is the agent of the insurer
in performing the duties of administering group insurance
policies. It cannot be said that the employer acts entirely for its
own benefit or for the benefit of its employees in undertaking
administrative functions. While a reduced premium may result
if the employer relieves the insurer of these tasks, and this, of
course, is advantageous to both the employer and the
employees, the insurer also enjoys significant advantages from
the arrangement. The reduction in the premium which results
from employer-administration permits the insurer to realize a
larger volume of sales, and at the same time the insurer's own
administrative costs are markedly reduced.
xxx xxx xxx
The most persuasive rationale for adopting the view that the
employer acts as the agent of the insurer, however, is that the
employee has no knowledge of or control over the employer's
actions in handling the policy or its administration. An agency
relationship is based upon consent by one person that another
shall act in his behalf and be subject to his control. It is clear
from the evidence regarding procedural techniques here that
the insurer-employer relationship meets this agency test with
regard to the administration of the policy, whereas that between
the employer and its employees fails to reflect true agency. The
insurer directs the performance of the employer's administrative
acts, and if these duties are not undertaken properly the insurer
is in a position to exercise more constricted control over the
employer's conduct.
In Neider vs. Continental Assurance Company, 28 which was cited in Elfstrom, it
was held that:
[t]he employer owes to the employee the duty of good faith and
due care in attending to the policy, and that the employer should
make clear to the employee anything required of him to keep
the policy in effect, and the time that the obligations are due. In
its position as administrator of the policy, we feel also that the
employer should be considered as the agent of the insurer,
and any omission of duty to the employee in its administration
should be attributable to the insurer.
The ruling in Elfstrom was subsequently reiterated in the cases of Bass
vs. John Hancock Mutual Life Insurance Co. 29 and Metropolitan Life Insurance
Co. vs. State Board of Equalization.30
In the light of the above disquisitions and after an examination of the facts of
this case, we hold that PMSI, through its President and General Manager, Capt.
Nuval, acted as the agent of Insular Life. The latter is thus bound by the
misconduct of its agent.
Insular Life, however, likewise recognized Capt. Nuval as the attorney-in-fact of
the petitioners. Unfortunately, through its official, Mr. Urbano, it acted
imprudently and negligently in the premises by relying without question on the
special power of attorney. In Strong vs. Repide, 31 this Court ruled that it is
among the established principles in the civil law of Europe as well as the
common law of American that third persons deal with agents at their peril and
are bound to inquire as to the extent of the power of the agent with whom they
contract. And in Harry E. Keller Electric Co. vs. Rodriguez, 32 this Court,
quoting Mechem on Agency, 33 stated that:
The person dealing with an agent must also act with ordinary prudence
and reasonable diligence. Obviously, if he knows or has good reason
to believe that the agent is exceeding his authority, he cannot claim
protection. So if the suggestions of probable limitations be of such a
clear and reasonable quality, or if the character assumed by the agent
is of such a suspicious or unreasonable nature, or if the authority which
he seeks to exercise is of such an unusual or improbable character, as
would suffice to put an ordinarily prudent man upon his guard, the party
dealing with him may not shut his eyes to the real state of the case, but
should either refuse to deal with the agent at all, or should ascertain
from the principal the true condition of affairs. (emphasis supplied)
Even granting for the sake of argument that the special powers of attorney were
in due form, Insular Life was grossly negligent in delivering the checks, drawn
in favor of the petitioners, to a party who is not the agent mentioned in the
special power of attorney.
Nor can we agree with the opinion of the public respondent that since the shares
of the minors in the insurance proceeds are less than P50,000.00, then under
Article 225 of the Family Code their mothers could receive such shares without
need of either court appointments as guardian or the posting of a bond. It is of
the view that said Article had repealed the third paragraph of Section 180 of the
Insurance Code. 34 The pertinent portion of Article 225 of the Family Code reads
as follows:
Art. 225. The father and the mother shall jointly exercise legal
guardianship over the property of their unemancipated common
child without the necessity of a court appointment. In case of
disagreement, the father's decision shall prevail, unless there is
judicial order to the contrary.
 Where the market value of the property or the annual income of Art. 1879. A special power to sell excludes the power to mortgage; and a special
the child exceeds P50,000, the parent concerned shall be power to mortgage does not include the power to sell. (n)
required to furnish a bond in such amount as the court may
determine, but not less than ten per centum (10%) of the value G.R. No. 167812 December 19, 2006
of the property or annual income, to guarantee the performance
of the obligations prescribed for general guardians. JESUS M. GOZUN, petitioner,
vs.
It is clear from the said Article that regardless of the value of the unemancipated JOSE TEOFILO T. MERCADO a.k.a. ‘DON PEPITO
common child's property, the father and mother ipso jure become the legal MERCADO, respondent.
guardian of the child's property. However, if the market value of the property or
the annual income of the child exceeds P50,000.00, a bond has to be posted DECISION
by the parents concerned to guarantee the performance of the obligations of a
general guardian.
CARPIO MORALES, J.:
It must, however, be noted that the second paragraph of Article 225 of the
On challenge via petition for review on certiorari is the Court of Appeals’
Family Code speaks of the "market value of the property or the annual income
Decision of December 8, 2004 and Resolution of April 14, 2005 in CA-G.R. CV
of the child," which means, therefore, the aggregate of the child's property or
No. 763091 reversing the trial court’s decision2 against Jose Teofilo T. Mercado
annual income; if this exceeds P50,000.00, a bond is required. There is no
a.k.a. Don Pepito Mercado (respondent) and accordingly dismissing the
evidence that the share of each of the minors in the proceeds of the group policy
complaint of Jesus M. Gozun (petitioner).
in question is the minor's only property. Without such evidence, it would not be
safe to conclude that, indeed, that is his only property.
In the local elections of 1995, respondent vied for the gubernatorial post in
Pampanga. Upon respondent’s request, petitioner, owner of JMG Publishing
WHEREFORE, the instant petition is GRANTED. The Decision of
House, a printing shop located in San Fernando, Pampanga, submitted to
10 October 1991 and the Resolution of 19 May 1992 of the public respondent
respondent draft samples and price quotation of campaign materials.
in CA-G.R. SP No. 22950 are SET ASIDE and the Decision of the Insurance
Commission in IC Case No. RD-058 is REINSTATED.
By petitioner’s claim, respondent’s wife had told him that respondent already
approved his price quotation and that he could start printing the campaign
Costs against the private respondent.
materials, hence, he did print campaign materials like posters bearing
respondent’s photograph,3 leaflets containing the slate of party
SO ORDERED. candidates,4 sample ballots,5 poll watcher identification cards,6 and stickers.

Given the urgency and limited time to do the job order, petitioner availed of the
services and facilities of Metro Angeles Printing and of St. Joseph Printing
Press, owned by his daughter Jennifer Gozun and mother Epifania Macalino
Gozun, respectively.7

Petitioner delivered the campaign materials to respondent’s headquarters

along Gapan-Olongapo Road in San Fernando, Pampanga.8

Meanwhile, on March 31, 1995, respondent’s sister-in-law, Lilian Soriano

(Lilian) obtained from petitioner "cash advance" of P253,000 allegedly for the
allowances of poll watchers who were attending a seminar and for other related
expenses. Lilian acknowledged on petitioner’s 1995 diary9 receipt of the
amount.10
Petitioner later sent respondent a Statement of Account11 in the total amount
of P2,177,906 itemized as follows: P640,310 for JMG Publishing
House; P837,696 for Metro Angeles Printing; P446,900 for St. Joseph Printing
Press; and P253,000, the "cash advance" obtained by Lilian.
On August 11, 1995, respondent’s wife partially paid P1,000,000 to petitioner
who issued a receipt12 therefor.
Despite repeated demands and respondent’s promise to pay, respondent failed
to settle the balance of his account to petitioner.
Petitioner and respondent being compadres, they having been principal
sponsors at the weddings of their respective daughters, waited for more than
three (3) years for respondent to honor his promise but to no avail, compelling
petitioner to endorse the matter to his counsel who sent respondent a demand
letter.13 Respondent, however, failed to heed the demand.14
Petitioner thus filed with the Regional Trial Court of Angeles City on November
25, 1998 a complaint15 against respondent to collect the remaining amount
of P1,177,906 plus "inflationary adjustment" and attorney’s fees.
In his Answer with Compulsory Counterclaim,16 respondent denied having
transacted with petitioner or entering into any contract for the printing of
campaign materials. He alleged that the various campaign materials delivered
to him were represented as donations from his family, friends and political
supporters. He added that all contracts involving his personal expenses were
coursed through and signed by him to ensure compliance with pertinent election
laws.
On petitioner’s claim that Lilian, on his (respondent’s) behalf, had obtained from
him a cash advance of P253,000, respondent denied having given her authority
to do so and having received the same.
At the witness stand, respondent, reiterating his allegations in his Answer,
claimed that petitioner was his over-all coordinator in charge of the conduct of
seminars for volunteers and the monitoring of other matters bearing on his
candidacy; and that while his campaign manager, Juanito "Johnny" Cabalu
(Cabalu), who was authorized to approve details with regard to printing
materials, presented him some campaign materials, those were partly
donated.17
When confronted with the official receipt issued to his wife acknowledging her
payment to JMG Publishing House of the amount of P1,000,000, respondent
claimed that it was his first time to see the receipt, albeit he belatedly came to
know from his wife and Cabalu that the P1,000,000 represented "compensation
[to petitioner] who helped a lot in the campaign as a gesture of goodwill."18
Acknowledging that petitioner is engaged in the printing business, respondent
explained that he sometimes discussed with petitioner strategies relating to his
candidacy, he (petitioner) having actively volunteered to help in his campaign;
that his wife was not authorized to enter into a contract with petitioner regarding
campaign materials as she knew her limitations; that he no longer questioned
the P1,000,000 his wife gave petitioner as he thought that it was just proper to
compensate him for a job well done; and that he came to know about
petitioner’s claim against him only after receiving a copy of the complaint, which
surprised him because he knew fully well that the campaign materials were
donations.19
Upon questioning by the trial court, respondent could not, however, confirm if it
was his understanding that the campaign materials delivered by petitioner were
donations from third parties.20
Finally, respondent, disclaiming knowledge of the Comelec rule that if a
campaign material is donated, it must be so stated on its face, acknowledged
that nothing of that sort was written on all the materials made by petitioner.21
As adverted to earlier, the trial court rendered judgment in favor of petitioner,
the dispositive portion of which reads:
WHEREFORE, the plaintiff having proven its (sic) cause of action by
preponderance of evidence, the Court hereby renders a decision in
favor of the plaintiff ordering the defendant as follows:
1. To pay the plaintiff the sum of P1,177,906.00 plus 12% interest per
annum from the filing of this complaint until fully paid;
2. To pay the sum of P50,000.00 as attorney’s fees and the costs of
suit.
SO ORDERED.22
Also as earlier adverted to, the Court of Appeals reversed the trial court’s
decision and dismissed the complaint for lack of cause of action.
In reversing the trial court’s decision, the Court of Appeals held that other than
petitioner’s testimony, there was no evidence to support his claim that Lilian
was authorized by respondent to borrow money on his behalf. It noted that the
acknowledgment receipt23 signed by Lilian did not specify in what capacity she
received the money. Thus, applying Article 131724 of the Civil Code, it held that
petitioner’s claim for P253,000 is unenforceable.
On the accounts claimed to be due JMG Publishing House – P640,310, Metro
Angeles Printing – P837,696, and St. Joseph Printing Press – P446,900, the
appellate court, noting that since the owners of the last two printing presses
were not impleaded as parties to the case and it was not shown that petitioner
was authorized to prosecute the same in their behalf, held that petitioner could
not collect the amounts due them.
Finally, the appellate court, noting that respondent’s wife had paid P1,000,000
to petitioner, the latter’s claim of P640,310 (after excluding the P253,000) had
already been settled.
Hence, the present petition, faulting the appellate court to have erred:
1. . . . when it dismissed the complaint on the ground that there is no
evidence, other than petitioner’s own testimony, to prove that Lilian R.
Soriano was authorized by the respondent to receive the cash advance
from the petitioner in the amount of P253,000.00.
xxxx
2. . . . when it dismissed the complaint, with respect to the amounts due
to the Metro Angeles Press and St. Joseph Printing Press on the ground
that the complaint was not brought by the real party in interest.
x x x x25
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.26 Contracts entered into in the name of another person
by one who has been given no authority or legal representation or who has
acted beyond his powers are classified as unauthorized contracts and are
declared unenforceable, unless they are ratified.27
Generally, the agency may be oral, unless the law requires a specific
form.28 However, a special power of attorney is necessary for an agent to, as in
this case, borrow money, unless it be urgent and indispensable for the
preservation of the things which are under administration.29 Since nothing in this
case involves the preservation of things under administration, a determination
of whether Soriano had the special authority to borrow money on behalf of
respondent is in order.
Lim Pin v. Liao Tian, et al.30 held that the requirement of a special power of
attorney refers to the nature of the authorization and not to its form.
. . . The requirements are met if there is a clear mandate from the
principal specifically authorizing the performance of the act. As early as
1906, this Court in Strong v. Gutierrez-Repide (6 Phil. 680) stated that
such a mandate may be either oral or written. The one thing vital being
that it shall be express. And more recently, We stated that, if the special
authority is not written, then it must be duly established by evidence:
"…the Rules require, for attorneys to compromise the litigation of their
clients, a special authority. And while the same does not state that the
special authority be in writing the Court has every reason to expect that,
if not in writing, the same be duly established by evidence other than
the self-serving assertion of counsel himself that such authority was
verbally given him."31 (Emphasis and underscoring supplied)
Petitioner submits that his following testimony suffices to establish that
respondent had authorized Lilian to obtain a loan from him, viz:
Q : Another caption appearing on Exhibit "A" is cash advance, it states
given on 3-31-95 received by Mrs. Lilian Soriano in behalf of Mrs.
Annie Mercado, amount P253,000.00, will you kindly tell the Court and
explain what does that caption means?
A : It is the amount representing the money borrowed from me by the
defendant when one morning they came very early and talked to
me and told me that they were not able to go to the bank to get money
for the allowances of Poll Watchers who were having a seminar at the
headquarters plus other election related expenses during that day, sir.
Q : Considering that this is a substantial amount which according to you
was taken by Lilian Soriano, did you happen to make her acknowledge
the amount at that time?
A : Yes, sir.32 (Emphasis supplied)
Petitioner’s testimony failed to categorically state, however, whether the loan
was made on behalf of respondent or of his wife. While petitioner claims that
Lilian was authorized by respondent, the statement of account marked as
Exhibit "A" states that the amount was received by Lilian "in behalf of Mrs. Annie
Mercado."
Invoking Article 187333 of the Civil Code, petitioner submits that respondent
informed him that he had authorized Lilian to obtain the loan, hence,
following Macke v. Camps34 which holds that one who clothes another with
apparent authority as his agent, and holds him out to the public as such,
respondent cannot be permitted to deny the authority.
Petitioner’s submission does not persuade. As the appellate court observed:
. . . Exhibit "B" [the receipt issued by petitioner] presented by plaintiff-
appellee to support his claim unfortunately only indicates the Two
 Hundred Fifty Three Thousand Pesos (P253,0000.00) was received by
one Lilian R. Soriano on 31 March 1995, but without specifying for what
reason the said amount was delivered and in what capacity did Lilian
R. Soriano received [sic] the money. The note reads:
"3-31-95
261,120 ADVANCE MONEY FOR TRAINEE –
RECEIVED BY
RECEIVED FROM JMG THE AMOUNT OF 253,000 TWO
HUNDRED FIFTY THREE THOUSAND PESOS
(SIGNED)
LILIAN R. SORIANO
3-31-95"
Nowhere in the note can it be inferred that defendant-appellant was
connected with the said transaction. Under Article 1317 of the New Civil
Code, a person cannot be bound by contracts he did not authorize to
be entered into his behalf.35 (Underscoring supplied)
It bears noting that Lilian signed in the receipt in her name alone, without
indicating therein that she was acting for and in behalf of respondent. She thus
bound herself in her personal capacity and not as an agent of respondent or
anyone for that matter.
It is a general rule in the law of agency that, in order to bind the principal by a
mortgage on real property executed by an agent, it must upon its face purport
to be made, signed and sealed in the name of the principal, otherwise, it will
bind the agent only. It is not enough merely that the agent was in fact authorized
to make the mortgage, if he has not acted in the name of the principal. x x
x36 (Emphasis and underscoring supplied)
On the amount due him and the other two printing presses, petitioner explains
that he was the one who personally and directly contracted with respondent and
he merely sub-contracted the two printing establishments in order to deliver on
time the campaign materials ordered by respondent.
Respondent counters that the claim of sub-contracting is a change in
petitioner’s theory of the case which is not allowed on appeal.
In Oco v. Limbaring,37 this Court ruled:
The parties to a contract are the real parties in interest in an action upon
it, as consistently held by the Court. Only the contracting parties are
bound by the stipulations in the contract; they are the ones who would
benefit from and could violate it. Thus, one who is not a party to a
contract, and for whose benefit it was not expressly made, cannot
maintain an action on it. One cannot do so, even if the contract
performed by the contracting parties would incidentally inure to one's
benefit.38 (Underscoring supplied)
In light thereof, petitioner is the real party in interest in this case. The trial court’s
findings on the matter were affirmed by the appellate court.39 It erred, however,
in not declaring petitioner as a real party in interest insofar as recovery of the
cost of campaign materials made by petitioner’s mother and sister are
concerned, upon the wrong notion that they should have been, but were not,
impleaded as plaintiffs.
In sum, respondent has the obligation to pay the total cost of printing his
campaign materials delivered by petitioner in the total of P1,924,906, less the
partial payment of P1,000,000, or P924,906.
WHEREFORE, the petition is GRANTED. The Decision dated December 8,
2004 and the Resolution dated April 14, 2005 of the Court of Appeals are
hereby REVERSED and SET ASIDE.
The April 10, 2002 Decision of the Regional Trial Court of Angeles City, Branch
57, is REINSTATED mutatis mutandis, in light of the foregoing discussions. The
trial court’s decision is modified in that the amount payable by respondent to
petitioner is reduced to P924,906.
SO ORDERED.
G.R. No. L-24765 August 29, 1969
PHILIPPINE NATIONAL BANK, plaintiff-appellee,
vs.
MAXIMO STA. MARIA, ET AL., defendant,
VALERIANA, EMETERIA, TEOFILO, QUINTIN, ROSARIO and LEONILA,
all surnamed STA. MARIA,defendants-appellants.
Tomas Besa and Jose B. Galang for plaintiff-appellee.
G.P. Nuguid, Jr. for defendants-appellants.
TEEHANKEE, J.:
In this appeal certified to this Court by the Court of Appeals as involving purely
legal issues, we hold that a special power of attorney to mortgage real estate is
limited to such authority to mortgage and does not bind the grantor personally
to other obligations contracted by the grantee, in the absence of any ratification
or other similar act that would estop the grantor from questioning or disowning
such other obligations contracted by the grantee.
Plaintiff bank filed this action on February 10, 1961 against defendant Maximo
Sta. Maria and his six brothers and sisters, defendants-appellants, Valeriana,
Emeteria, Teofilo, Quintin, Rosario and Leonila, all surnamed Sta. Maria, and
the Associated Insurance & Surety Co., Inc. as surety, for the collection of
certain amounts representing unpaid balances on two agricultural sugar crop
loans due allegedly from defendants. 1
The said sugar crop loans were obtained by defendant Maximo Sta. Maria from
plaintiff bank under a special power of attorney, executed in his favor by his six
brothers and sisters, defendants-appellants herein, to mortgage a 16-odd
hectare parcel of land, jointly owned by all of them, the pertinent portion of which
reads as follows:
That we, VALERIANA, EMETERIA, TEOFILO, QUINTIN, ROSARIO
and LEONILA all surnamed STA. MARIA, sole heirs of our deceased
parents CANDIDO STA. MARIA and FRANCISCA DE LOS REYES, all
of legal age, Filipinos, and residents of Dinalupihan, Bataan, do hereby
name, constitute and appoint Dr. MAXIMO STA. MARIA, of legal age,
married, and residing at Dinalupihan, Bataan to be our true and lawful
attorney of and in our place, name and stead to mortgage, or convey
as security to any bank, company or to any natural or juridical person,
our undivided shares over a certain parcel of land together the
improvements thereon which parcel of land is more particularly
described as follows, to wit:
"Situated in the Barrio of Pinulot, Municipality of Dinalupihan,
Bataan, containing an area of 16.7249 hectares and bounded
as follows to wit: North by property of Alejandro Benito; on the
Northeast, by public land and property of Tomas Tulop; on the
southeast, by property of Ramindo Agustin; on the southwest,
by properties of Jose V. Reyes and Emilio Reyes; and on the
northwest, by excluded portion claimed by Emilio Reyes."
of which parcel of land aforementioned we are together with our said
attorney who is our brother, the owners in equal undivided shares as
evidenced by Transfer Certificate of Title No. T-2785 of the Registry of
Deeds of Bataan dated Feb. 26th 1951. (Exh. E)2
In addition, Valeriana Sta. Maria alone also executed in favor of her brother,
Maximo, a special power of attorney to borrow money and mortgage any real
estate owned by her, granting him the following authority:
For me and in my name to borrow money and make, execute, sign and
deliver mortgages of real estate now owned by me standing in my name
and to make, execute, sign and deliver any and all promissory notes
necessary in the premises. (Exh. E-I)3
By virtue of the two above powers, Maximo Sta. Maria applied for two separate
crop loans, for the 1952-1953 and 1953-1954 crop years, with plaintiff bank,
one in the amount of P15,000.00, of which only the sum of P13,216.11 was
actually extended by plaintiff, and the other in the amount of P23,000.00, of
which only the sum of P12,427.57 was actually extended by plaintiff. As security
for the two loans, Maximo Sta. Maria executed in his own name in favor of
plaintiff bank two chattel mortgages on the standing crops, guaranteed by
surety bonds for the full authorized amounts of the loans executed by the
Associated Insurance & Surety Co., Inc. as surety with Maximo Sta. Maria as
principal. The records of the crop loan application further disclose that among
the securities given by Maximo for the loans were a "2nd mortgage on 25.3023
Has. of sugarland, including sugar quota rights therein" including, the parcel of
land jointly owned by Maximo and his six brothers and sisters herein for the
1952-1953 crop loan, with the notation that the bank already held a first
mortgage on the same properties for the 1951-1952 crop loan of Maximo, 4 and
a 3rd mortgage on the same properties for the 1953-1954 crop loan. 5
The trial court rendered judgment in favor of plaintiff and against defendants
thus:1äw phï1.ñët
WHEREFORE premises considered, judgment is hereby rendered
condemning the defendant Maximo R. Sta. Maria and his co-
defendants Valeriana, Quintin, Rosario, Emeteria, Teofilo, and Leonila
all surnamed Sta. Maria and the Associated Insurance and Surety
Company, Inc., jointly and severally, to pay the plaintiff, the Philippine
National Bank, Del Carmen Branch, as follows:
1. On the first cause of action, the sum of P8,500.72 with a daily interest
of P0.83 on P6,100.00 at 6% per annum beginning August 21, 1963
until fully paid;
2. On the second cause of action, the sum of P14,299.79 with a daily
interest of P1.53 on P9,346.44 at 6% per annum until fully paid; and
3. On both causes of action the further sum equivalent to 10% of the
total amount due as attorney's fee as of the date of the execution of this
decision, and the costs.6
Defendant Maximo Sta. Maria and his surety, defendant Associated Insurance
& Surety Co., Inc. who did not resist the action, did not appeal the judgment.
This appeals been taken by his six brothers and sisters, defendants-appellants
who reiterate in their brief their main contention in their answer to the complaint
that under this special power of attorney, Exh. E, they had not given their
brother, Maximo, the authority to borrow money but only to mortgage the real
estate jointly owned by them; and that if they are liable at all, their liability should
not go beyond the value of the property which they had authorized to be given
as security for the loans obtained by Maximo. In their answer, defendants-
appellants had further contended that they did not benefit whatsoever from the
loans, and that the plaintiff bank's only recourse against them is to foreclose on
the property which they had authorized Maximo to mortgage.
We find the appeal of defendants-appellants, except for defendant Valeriana
Sta. Maria who had executed another special power of attorney, Exh. E-1,
expressly authorizing Maximo to borrow money on her behalf, to be well taken.
1. Plaintiff bank has not made out a cause of action against defendants-
appellants (except Valeriana), so as to hold them liable for the unpaid
balances of the loans obtained by Maximo under the chattel mortgages
executed by him in his own name alone. In the early case of Bank of
P.I. vs. De Coster, this Court, in holding that the broad power of attorney
given by the wife to the husband to look after and protect the wife's
interests and to transact her business did not authorize him to make her
liable as a surety for the payment of the pre-existing debt of a third
person, cited the fundamental construction rule that "where in an
instrument powers and duties are specified and defined, that all of such
powers and duties are limited andconfined to those which are specified
and defined, and all other powers and duties are excluded." 7 This is but
in accord with the disinclination of courts to enlarge an authority granted
beyond the powers expressly given and those which incidentally flow or
derive therefrom as being usual or reasonably necessary and proper
for the performance of such express powers. Even before the filing of
the present action, this Court in the similar case of De Villa vs.
Fabricante 8 had already ruled that where the power of attorney given
to the husband by the wife was limited to a grant of authority to
mortgage a parcel of land titled in the wife's name, the wife may not be
held liable for the payment of the mortgage debt contracted by the
husband, as the authority to mortgage does not carry with it the
authority to contract obligation. This Court thus held in the said case:
Appellant claims that the trial court erred in holding that only
Cesario A. Fabricante is liable to pay the mortgage debt and not
his wife who is exempt from liability. The trial court said: "Only
the defendant Cesario A. Fabricante is liable for the payment of
this amount because it does not appear that the other defendant
Maria G. de Fabricante had authorized Cesario A. Fabricante
to contract the debt also in her name. The power of attorney
was not presented and it is to be presumed that the power (of
attorney) was limited to a grant of authority to Cesario A.
Fabricante to mortgage the parcel of land covered by Transfer
Certificate of Title in the name of Maria G. de Fabricante.
We went over the contents of the deed of mortgage executed
by Cesario Fabricante in favor of Appellant on April 18, 1944,
and there is really nothing therein from which we may infer that
Cesario was authorized by his wife to construct the obligation in
her name. The deed shows that the authority was limited to the
execution of the mortgage insofar as the property of the wife is
concerned. There is a difference between authority to mortgage
and authority to contract obligation. Since the power of attorney
was not presented as evidence, the trial court was correct in
presuming that the power was merely limited to a grant of
authority to mortgage unless the contrary is shown.9
2. The authority granted by defendants-appellants (except Valeriana)
unto their brother, Maximo, was merely to mortgage the property jointly
owned by them. They did not grant Maximo any authority to contract for
any loans in their names and behalf. Maximo alone, with Valeriana who
authorized him to borrow money, must answer for said loans and the
other defendants-appellants' only liability is that the real estate
authorized by them to be mortgaged would be subject to foreclosure
and sale to respond for the obligations contracted by Maximo. But they
cannot be held personally liable for the payment of such obligations, as
erroneously held by the trial court.
3. The fact that Maximo presented to the plaintiff bank Valeriana's
additional special power of attorney expressly authorizing him to borrow
money, Exh. E-1, aside from the authority to mortgage executed by
Valeriana together with the other defendants-appellants also in
Maximo's favor, lends support to our view that the bank was not
satisfied with the authority to mortgage alone. For otherwise, such
authority to borrow would have been deemed unnecessary and a
surplusage. And having failed to require that Maximo submit a similar
authority to borrow, from the other defendants-appellants, plaintiff,
which apparently was satisfied with the surety bond for repayment put
up by Maximo, cannot now seek to hold said defendants-appellants
similarly liable for the unpaid loans. Plaintiff's argument that "a
mortgage is simply an accessory contract, and that to effect the
mortgage, a loan has to be secured" 10 falls, far short of the mark.
Maximo had indeed, secured the loan on his own account and the
defendants-appellants had authorized him to mortgage their respective
undivided shares of the real property jointly owned by them as security
for the loan. But that was the extent of their authority land consequent
liability, to have the real property answer for the loan in case of non-
payment. It is not unusual in family and business circles that one would
allow his property or an undivided share in real estate to be mortgaged
by another as security, either as an accommodation or for valuable
consideration, but the grant of such authority does not extend to
assuming personal liability, much less solidary liability, for any loan
secured by the grantee in the absence of express authority so given by
the grantor.
4. The outcome might be different if there had been an express
ratification of the loans by defendants-appellants or if it had been shown
that they had been benefited by the crop loans so as to put them in
estoppel. But the burden of establishing such ratification or estoppel
falls squarely upon plaintiff bank. It has not only failed to discharge this
burden, but the record stands undisputed that defendant-appellant
Quintin Sta. Maria testified that he and his co-defendants executed the
authority to mortgage "to accommodate (my) brother Dr. Maximo Sta.
the bank's statements of August 20, 1963, (Exhs. Q-1 and BB-1,
respectively) should be sufficient.
WHEREFORE, the judgment of the trial court against defendants-appellants
Emeteria, Teofilo, Quintin, Rosario and Leonila, all surnamed Sta. Maria is
hereby reversed and set aside, with costs in both instances against plaintiff.
The judgment against defendant-appellant Valeriana Sta. Maria is modified in
that her liability is held to be joint and not solidary, and the award of attorney's
fees is reduced as set forth in the preceding paragraph, without costs in this
instance.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Fernando,
Capistrano and Barredo, JJ., concur.
Reyes, J.B.L., J., is on official leave.
1äw phï1.ñët

Maria ... and because he is my brother, I signed it to accommodate him

as security for whatever he may apply as loan. Only for that land, we
gave him as, security" and that "we brothers did not receive any centavo
as benefit." 11 The record further shows plaintiff bank itself admitted
during the trial that defendants-appellants "did not profit from the loan"
and that they "did not receive any money (the loan proceeds) from
(Maximo)." 12 No estoppel, therefore, can be claimed by plaintiff as
against defendants-appellants.

5. Now, as to the extent of defendant Valeriana Sta. Maria's liability to

plaintiff. As already stated above, Valeriana stands liable not merely on
the mortgage of her share in the property, but also for the loans which
Maximo had obtained from plaintiff bank, since she had expressly
granted Maximo the authority to incur such loans. (Exh. E-1.) Although
the question has not been raised in appellants' brief, we hold that
Valeriana's liability for the loans secured by Maximo is not joint and
several or solidary as adjudged by the trial court, but only joint,
pursuant to the provisions of Article 1207 of the Civil Code that "the
concurrence ... of two or more debtors in one and the same obligation
does not imply that ... each one of the (debtors) is bound to render entire
compliance with the prestation. There is a solidary liability only when
the obligation expressly so states, or when the law or the nature of the
obligation requires solidarity." It should be noted that in the additional
special power of attorney, Exh. E-1, executed by Valeriana, she did not
grant Maximo the authority to bind her solidarity with him on any loans
he might secure thereunder.

6. Finally, as to the 10% award of attorney's fees, this Court believes

that considering the resources of plaintiff bank and the fact that the
principal debtor, Maximo Sta. Maria, had not contested the suit, an
award of five (5%) per cent of the balance due on the principal,
exclusive of interests, i.e., a balance of P6,100.00 on the first cause of
action and a balance of P9,346.44 on the second cause of action, per