/---!e-library! 6.

0 Philippines Copyright © 2000 by Sony Valdez---\

[1996V143] ROSA LIM, petitioner, vs. COURT OF APPEALS and PEOPLE

OF THE PHILIPPINES, respondents.1996 Feb 281st DivisionG.R. No.
102784HERMOSISIMA, 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
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
jewelry; one (1) 3.35 carat diamond ring worth P169,000.00 and one (1)
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 letter 7 to petitioner asking for the return of said ring or the
proceeds of the sale thereof. In response, petitioner, thru counsel, wrote a
letter 8 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 169,000.001 bracelet 170,000.00
total Kabuuan P 339,000.00

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 whoreceived jewelries

(Lagdang 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.

Padilla, Bellosillo and Kapunan, JJ., concur.

Vitug, J., concurs in the result.

/---!e-library! 6.0 Philippines Copyright © 2000 by Sony Valdez---\

[2007V503] EUROTECH INDUSTRIAL TECHNOLOGIES, INC., Petitioner,

versus EDWIN CUIZON and ERWIN CUIZON, Respondents.2007 Apr
233rd DivisionG.R. No. 167552D E C I S I O N

CHICO-NAZARIO, J.:

Before Us is a petition for review by certiorari assailing the Decision[1]

of the Court of Appeals dated 10 August 2004 and its Resolution[2] dated
17 March 2005 in CA-G.R. SP No. 71397 entitled, “Eurotech Industrial
Technologies, Inc. v. Hon. Antonio T. Echavez.” The assailed Decision and
Resolution affirmed the Order[3] dated 29 January 2002 rendered by Judge
Antonio T. Echavez ordering the dropping of respondent EDWIN Cuizon
(EDWIN) as a party defendant in Civil Case No. CEB-19672.

The generative facts of the case are as follows:

 Petitioner is engaged in the business of importation and distribution of
various European industrial equipment for customers here in the
Philippines. It has as one of its customers Impact Systems Sales (“Impact
Systems”) which is a sole proprietorship owned by respondent ERWIN
Cuizon (ERWIN). Respondent EDWIN is the sales manager of Impact
Systems and was impleaded in the court a quo in said capacity.

From January to April 1995, petitioner sold to Impact Systems various

products allegedly amounting to ninety-one thousand three hundred thirty-
eight (P91,338.00) pesos. Subsequently, respondents sought to buy from
petitioner one unit of sludge pump valued at P250,000.00 with respondents
making a down payment of fifty thousand pesos (P50,000.00).[4] When the
sludge pump arrived from the United Kingdom, petitioner refused to deliver
the same to respondents without their having fully settled their indebtedness
to petitioner. Thus, on 28 June 1995, respondent EDWIN and Alberto de
Jesus, general manager of petitioner, executed a Deed of Assignment of
receivables in favor of petitioner, the pertinent part of which states:

1.) That ASSIGNOR[5] has an outstanding receivables from Toledo

Power Corporation in the amount of THREE HUNDRED SIXTY FIVE
THOUSAND (P365,000.00) PESOS as payment for the purchase of one
unit of Selwood Spate 100D Sludge Pump;

2.) That said ASSIGNOR does hereby ASSIGN, TRANSFER, and

CONVEY unto the ASSIGNEE[6] the said receivables from Toledo Power
Corporation in the amount of THREE HUNDRED SIXTY FIVE THOUSAND
(P365,000.00) PESOS which receivables the ASSIGNOR is the lawful
recipient;

3.) That the ASSIGNEE does hereby accept this assignment.[7]

Following the execution of the Deed of Assignment, petitioner

delivered to respondents the sludge pump as shown by Invoice No. 12034
dated 30 June 1995.[8]

Allegedly unbeknownst to petitioner, respondents, despite the existence of

the Deed of Assignment, proceeded to collect from Toledo Power Company
the amount of P365,135.29 as evidenced by Check Voucher No. 0933[9]
prepared by said power company and an official receipt dated 15 August
1995 issued by Impact Systems.[10] Alarmed by this development,
petitioner made several demands upon respondents to pay their obligations.
As a result, respondents were able to make partial payments to petitioner.
On 7 October 1996, petitioner’s counsel sent respondents a final demand
letter wherein it was stated that as of 11 June 1996, respondents’ total
obligations stood at P295,000.00 excluding interests and attorney’s fees.
[11] Because of respondents’ failure to abide by said final demand letter,
petitioner instituted a complaint for sum of money, damages, with
application for preliminary attachment against herein respondents before the
Regional Trial Court of Cebu City.[12]

On 8 January 1997, the trial court granted petitioner’s prayer for the
issuance of writ of preliminary attachment.[13]

On 25 June 1997, respondent EDWIN filed his Answer[14] wherein he

admitted petitioner’s allegations with respect to the sale transactions
entered into by Impact Systems and petitioner between January and April
1995.[15] He, however, disputed the total amount of Impact Systems’
indebtedness to petitioner which, according to him, amounted to only
P220,000.00.[16]

By way of special and affirmative defenses, respondent EDWIN alleged that

he is not a real party in interest in this case. According to him, he was
acting as mere agent of his principal, which was the Impact Systems, in his
transaction with petitioner and the latter was very much aware of this fact.
In support of this argument, petitioner points to paragraphs 1.2 and 1.3 of
petitioner’s Complaint stating –

1.2. Defendant Erwin H. Cuizon, is of legal age, married, a

resident of Cebu City. He is the proprietor of a single proprietorship
business known as Impact Systems Sales (“Impact Systems” for brevity),
with office located at 46-A del Rosario Street, Cebu City, where he may be
served summons and other processes of the Honorable Court.

1.3. Defendant Edwin B. Cuizon is of legal age, Filipino, married,

a resident of Cebu City. He is the Sales Manager of Impact Systems and is
sued in this action in such capacity.[17]
On 26 June 1998, petitioner filed a Motion to Declare Defendant ERWIN in
Default with Motion for Summary Judgment. The trial court granted
petitioner’s motion to declare respondent ERWIN in default “for his failure to
answer within the prescribed period despite the opportunity granted”[18] but
it denied petitioner’s motion for summary judgment in its Order of 31 August
2001 and scheduled the pre-trial of the case on 16 October 2001.[19]
However, the conduct of the pre-trial conference was deferred pending the
resolution by the trial court of the special and affirmative defenses raised by
respondent EDWIN.[20]

After the filing of respondent EDWIN’s Memorandum[21] in support of his

special and affirmative defenses and petitioner’s opposition[22] thereto, the
trial court rendered its assailed Order dated 29 January 2002 dropping
respondent EDWIN as a party defendant in this case. According to the trial
court –

A study of Annex “G” to the complaint shows that in the Deed of

Assignment, defendant Edwin B. Cuizon acted in behalf of or represented
[Impact] Systems Sales; that [Impact] Systems Sale is a single
proprietorship entity and the complaint shows that defendant Erwin H.
Cuizon is the proprietor; that plaintiff corporation is represented by its
general manager Alberto de Jesus in the contract which is dated June 28,
1995. A study of Annex “H” to the complaint reveals that [Impact] Systems
Sales which is owned solely by defendant Erwin H. Cuizon, made a down
payment of P50,000.00 that Annex “H” is dated June 30, 1995 or two days
after the execution of Annex “G”, thereby showing that [Impact] Systems
Sales ratified the act of Edwin B. Cuizon; the records further show that
plaintiff knew that [Impact] Systems Sales, the principal, ratified the act of
Edwin B. Cuizon, the agent, when it accepted the down payment of
P50,000.00. Plaintiff, therefore, cannot say that it was deceived by
defendant Edwin B. Cuizon, since in the instant case the principal has
ratified the act of its agent and plaintiff knew about said ratification. Plaintiff
could not say that the subject contract was entered into by Edwin B. Cuizon
in excess of his powers since [Impact] Systems Sales made a down
payment of P50,000.00 two days later.

In view of the Foregoing, the Court directs that defendant Edwin B. Cuizon
be dropped as party defendant.[23]
 Aggrieved by the adverse ruling of the trial court, petitioner brought the
matter to the Court of Appeals which, however, affirmed the 29 January
2002 Order of the court a quo. The dispositive portion of the now assailed
Decision of the Court of Appeals states:

WHEREFORE, finding no viable legal ground to reverse or modify

the conclusions reached by the public respondent in his Order dated
January 29, 2002, it is hereby AFFIRMED.[24]

Petitioner’s motion for reconsideration was denied by the appellate

court in its Resolution promulgated on 17 March 2005. Hence, the present
petition raising, as sole ground for its allowance, the following:

THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN

IT RULED THAT RESPONDENT EDWIN CUIZON, AS AGENT OF IMPACT
SYSTEMS SALES/ERWIN CUIZON, IS NOT PERSONALLY LIABLE,
BECAUSE HE HAS NEITHER ACTED BEYOND THE SCOPE OF HIS
AGENCY NOR DID HE PARTICIPATE IN THE PERPETUATION OF A
FRAUD.[25]

To support its argument, petitioner points to Article 1897 of the New

Civil Code which states:

Art. 1897. The agent who acts as such is not personally liable to the
party with whom he contracts, unless he expressly binds himself or exceeds
the limits of his authority without giving such party sufficient notice of his
powers.

Petitioner contends that the Court of Appeals failed to appreciate the

effect of ERWIN’s act of collecting the receivables from the Toledo Power
Corporation notwithstanding the existence of the Deed of Assignment
signed by EDWIN on behalf of Impact Systems. While said collection did
not revoke the agency relations of respondents, petitioner insists that
ERWIN’s action repudiated EDWIN’s power to sign the Deed of
Assignment. As EDWIN did not sufficiently notify it of the extent of his
powers as an agent, petitioner claims that he should be made personally
liable for the obligations of his principal.[26]
 Petitioner also contends that it fell victim to the fraudulent scheme of
respondents who induced it into selling the one unit of sludge pump to
Impact Systems and signing the Deed of Assignment. Petitioner directs the
attention of this Court to the fact that respondents are bound not only by
their principal and agent relationship but are in fact full-blooded brothers
whose successive contravening acts bore the obvious signs of conspiracy to
defraud petitioner.[27]

In his Comment,[28] respondent EDWIN again posits the argument

that he is not a real party in interest in this case and it was proper for the
trial court to have him dropped as a defendant. He insists that he was a
mere agent of Impact Systems which is owned by ERWIN and that his
status as such is known even to petitioner as it is alleged in the Complaint
that he is being sued in his capacity as the sales manager of the said
business venture. Likewise, respondent EDWIN points to the Deed of
Assignment which clearly states that he was acting as a representative of
Impact Systems in said transaction.

We do not find merit in the petition.

In a contract of agency, a person binds himself to render some

service or to do something in representation or on behalf of another with the
latter’s consent.[29] The underlying principle of the contract of agency
is to accomplish results by using the services of others – to do a great
variety of things like selling, buying, manufacturing, and transporting.[30] Its
purpose is to extend the personality of the principal or the party for whom
another acts and from whom he or she derives the authority to act.[31] It is
said that the basis of agency is representation, that is, the agent acts for
and on behalf of the principal on matters within the scope of his authority
and said acts have the same legal effect as if they were personally executed
by the principal.[32] By this legal fiction, the actual or real absence of the
principal is converted into his legal or juridical presence – qui facit per alium
facit per se.[33]

The elements of the contract of agency are: (1) consent, express or

implied, of the parties to establish the relationship; (2) the object is the
execution of a juridical act in relation to a third person; (3) the agent acts as
a representative and not for himself; (4) the agent acts within the scope of
his authority.[34]
 In this case, the parties do not dispute the existence of the agency
relationship between respondents ERWIN as principal and EDWIN as
agent. The only cause of the present dispute is whether respondent EDWIN
exceeded his authority when he signed the Deed of Assignment thereby
binding himself personally to pay the obligations to petitioner. Petitioner
firmly believes that respondent EDWIN acted beyond the authority granted
by his principal and he should therefore bear the effect of his deed pursuant
to Article 1897 of the New Civil Code.

We disagree.

Article 1897 reinforces the familiar doctrine that an agent, who acts as
such, is not personally liable to the party with whom he contracts. The
same provision, however, presents two instances when an agent becomes
personally liable to a third person. The first is when he expressly binds
himself to the obligation and the second is when he exceeds his authority.
In the last instance, the agent can be held liable if he does not give the third
party sufficient notice of his powers. We hold that respondent EDWIN does
not fall within any of the exceptions contained in this provision.

The Deed of Assignment clearly states that respondent EDWIN

signed thereon as the sales manager of Impact Systems. As discussed
elsewhere, the position of manager is unique in that it presupposes the
grant of broad powers with which to conduct the business of the principal,
thus:

The powers of an agent are particularly broad in the case of one acting as a
general agent or manager; such a position presupposes a degree of
confidence reposed and investiture with liberal powers for the exercise of
judgment and discretion in transactions and concerns which are incidental
or appurtenant to the business entrusted to his care and management. In
the absence of an agreement to the contrary, a managing agent may enter
into any contracts that he deems reasonably necessary or requisite for the
protection of the interests of his principal entrusted to his management. x x
x.[35]

Applying the foregoing to the present case, we hold that Edwin

Cuizon acted well-within his authority when he signed the Deed of
Assignment. To recall, petitioner refused to deliver the one unit of sludge
pump unless it received, in full, the payment for Impact Systems’
indebtedness.[36] We may very well assume that Impact Systems
desperately needed the sludge pump for its business since after it paid the
amount of fifty thousand pesos (P50,000.00) as down payment on 3 March
1995,[37] it still persisted in negotiating with petitioner which culminated in
the execution of the Deed of Assignment of its receivables from Toledo
Power Company on 28 June 1995.[38] The significant amount of time spent
on the negotiation for the sale of the sludge pump underscores Impact
Systems’ perseverance to get hold of the said equipment. There is,
therefore, no doubt in our mind that respondent EDWIN’s participation in the
Deed of Assignment was “reasonably necessary” or was required in order
for him to protect the business of his principal. Had he not acted in the way
he did, the business of his principal would have been adversely affected and
he would have violated his fiduciary relation with his principal.

We likewise take note of the fact that in this case, petitioner is seeking
to recover both from respondents ERWIN, the principal, and EDWIN, the
agent. It is well to state here that Article 1897 of the New Civil Code upon
which petitioner anchors its claim against respondent EDWIN “does not hold
that in case of excess of authority, both the agent and the principal are liable
to the other contracting party.”[39] To reiterate, the first part of Article 1897
declares that the principal is liable in cases when the agent acted within the
bounds of his authority. Under this, the agent is completely absolved of any
liability. The second part of the said provision presents the situations when
the agent himself becomes liable to a third party when he expressly binds
himself or he exceeds the limits of his authority without giving notice of his
powers to the third person. However, it must be pointed out that in case of
excess of authority by the agent, like what petitioner claims exists here, the
law does not say that a third person can recover from both the principal and
the agent.[40]

As we declare that respondent EDWIN acted within his authority as

an agent, who did not acquire any right nor incur any liability arising from the
Deed of Assignment, it follows that he is not a real party in interest who
should be impleaded in this case. A real party in interest is one who “stands
to be benefited or injured by the judgment in the suit, or the party entitled to
the avails of the suit.”[41] In this respect, we sustain his exclusion as a
defendant in the suit before the court a quo.
 WHEREFORE, premises considered, the present petition is DENIED
and the Decision dated 10 August 2004 and Resolution dated 17 March
2005 of the Court of Appeals in CA-G.R. SP No. 71397, affirming the Order
dated 29 January 2002 of the Regional Trial Court, Branch 8, Cebu City, is
AFFIRMED.

Let the records of this case be remanded to the Regional Trial Court,
Branch 8, Cebu City, for the continuation of the proceedings against
respondent Erwin Cuizon.

SO ORDERED.

/---!e-library! 6.0 Philippines Copyright © 2000 by Sony Valdez---\

[2006V529] EDUARDO V. LINTONJUA, JR. and ANTONIO K. LITONJUA,

Petitioners, versus ETERNIT CORPORATION (now ETERTON MULTI-
RESOURCES CORPORATION), ETEROUTREMER, S.A. and FAR EAST
BANK & TRUST COMPANY, Respondents.2006 Jun 81st DivisionG.R. No.
144805D E C I S I O N

CALLEJO, SR., J.:

On appeal via a Petition for Review on Certiorari is the Decision[1] of

the Court of Appeals (CA) in CA-G.R. CV No. 51022, which affirmed the
Decision of the Regional Trial Court (RTC), Pasig City, Branch 165, in Civil
Case No. 54887, as well as the Resolution[2] of the CA denying the motion
for reconsideration thereof.

The Eternit Corporation (EC) is a corporation duly organized and

registered under Philippine laws. Since 1950, it had been engaged in the
manufacture of roofing materials and pipe products. Its manufacturing
operations were conducted on eight parcels of land with a total area of
47,233 square meters. The properties, located in Mandaluyong City, Metro
Manila, were covered by Transfer Certificates of Title Nos. 451117, 451118,
451119, 451120, 451121, 451122, 451124 and 451125 under the name of
Far East Bank & Trust Company, as trustee. Ninety (90%) percent of the
shares of stocks of EC were owned by Eteroutremer S.A. Corporation
(ESAC), a corporation organized and registered under the laws of Belgium.
[3] Jack Glanville, an Australian citizen, was the General Manager and
President of EC, while Claude Frederick Delsaux was the Regional Director
for Asia of ESAC. Both had their offices in Belgium.

In 1986, the management of ESAC grew concerned about the political

situation in the Philippines and wanted to stop its operations in the country.
The Committee for Asia of ESAC instructed Michael Adams, a member of
EC’s Board of Directors, to dispose of the eight parcels of land. Adams
engaged the services of realtor/broker Lauro G. Marquez so that the
properties could be offered for sale to prospective buyers. Glanville later
showed the properties to Marquez.

Marquez thereafter offered the parcels of land and the improvements

thereon to Eduardo B. Litonjua, Jr. of the Litonjua & Company, Inc. In a
Letter dated September 12, 1986, Marquez declared that he was authorized
to sell the properties for P27,000,000.00 and that the terms of the sale were
subject to negotiation.[4]

Eduardo Litonjua, Jr. responded to the offer. Marquez showed the property
to Eduardo Litonjua, Jr., and his brother Antonio K. Litonjua. The Litonjua
siblings offered to buy the property for P20,000,000.00 cash. Marquez
apprised Glanville of the Litonjua siblings’ offer and relayed the same to
Delsaux in Belgium, but the latter did not respond. On October 28, 1986,
Glanville telexed Delsaux in Belgium, inquiring on his position/
counterproposal to the offer of the Litonjua siblings. It was only on February
12, 1987 that Delsaux sent a telex to Glanville stating that, based on the
“Belgian/Swiss decision,” the final offer was “US$1,000,000.00 and
P2,500,000.00 to cover all existing obligations prior to final liquidation.”[5]

Marquez furnished Eduardo Litonjua, Jr. with a copy of the telex sent by
Delsaux. Litonjua, Jr. accepted the counterproposal of Delsaux. Marquez
conferred with Glanville, and in a Letter dated February 26, 1987, confirmed
that the Litonjua siblings had accepted the counter-proposal of Delsaux. He
also stated that the Litonjua siblings would confirm full payment within 90
days after execution and preparation of all documents of sale, together with
the necessary governmental clearances.[6]
The Litonjua brothers deposited the amount of US$1,000,000.00 with the
Security Bank & Trust Company, Ermita Branch, and drafted an Escrow
Agreement to expedite the sale.[7]

Sometime later, Marquez and the Litonjua brothers inquired from

Glanville when the sale would be implemented. In a telex dated April 22,
1987, Glanville informed Delsaux that he had met with the buyer, which had
given him the impression that “he is prepared to press for a satisfactory
conclusion to the sale.”[8] He also emphasized to Delsaux that the buyers
were concerned because they would incur expenses in bank commitment
fees as a consequence of prolonged period of inaction.[9]

Meanwhile, with the assumption of Corazon C. Aquino as President of the

Republic of the Philippines, the political situation in the Philippines had
improved. Marquez received a telephone call from Glanville, advising that
the sale would no longer proceed. Glanville followed it up with a Letter dated
May 7, 1987, confirming that he had been instructed by his principal to
inform Marquez that “the decision has been taken at a Board Meeting not to
sell the properties on which Eternit Corporation is situated.”[10]

Delsaux himself later sent a letter dated May 22, 1987, confirming that the
ESAC Regional Office had decided not to proceed with the sale of the
subject land, to wit:

May 22, 1987

Mr. L.G. Marquez

L.G. Marquez, Inc.
334 Makati Stock Exchange Bldg.
6767 Ayala Avenue
Makati, Metro Manila
Philippines

Dear Sir:

Re: Land of Eternit Corporation

I would like to confirm officially that our Group has decided not to proceed
with the sale of the land which was proposed to you.

The Committee for Asia of our Group met recently (meeting every six
months) and examined the position as far as the Philippines are (sic)
concerned. Considering [the] new political situation since the departure of
MR. MARCOS and a certain stabilization in the Philippines, the Committee
has decided not to stop our operations in Manila. In fact, production has
started again last week, and (sic) to recognize the participation in the
Corporation.

We regret that we could not make a deal with you this time, but in case the
policy would change at a later state, we would consult you again.

xxx

Yours sincerely,
(Sgd.)
C.F. DELSAUX

cc. To: J. GLANVILLE (Eternit Corp.)[11]

When apprised of this development, the Litonjuas, through counsel, wrote

EC, demanding payment for damages they had suffered on account of the
aborted sale. EC, however, rejected their demand.

The Litonjuas then filed a complaint for specific performance and damages
against EC (now the Eterton Multi-Resources Corporation) and the Far East
Bank & Trust Company, and ESAC in the RTC of Pasig City. An amended
complaint was filed, in which defendant EC was substituted by Eterton Multi-
Resources Corporation; Benito C. Tan, Ruperto V. Tan, Stock Ha T. Tan
and Deogracias G. Eufemio were impleaded as additional defendants on
account of their purchase of ESAC shares of stocks and were the controlling
stockholders of EC.

In their answer to the complaint, EC and ESAC alleged that since

Eteroutremer was not doing business in the Philippines, it cannot be subject
to the jurisdiction of Philippine courts; the Board and stockholders of EC
never approved any resolution to sell subject properties nor authorized
Marquez to sell the same; and the telex dated October 28, 1986 of Jack
Glanville was his own personal making which did not bind EC.

On July 3, 1995, the trial court rendered judgment in favor of defendants

and dismissed the amended complaint.[12] The fallo of the decision reads:

WHEREFORE, the complaint against Eternit Corporation now Eterton Multi-

Resources Corporation and Eteroutremer, S.A. is dismissed on the ground
that there is no valid and binding sale between the plaintiffs and said
defendants.

The complaint as against Far East Bank and Trust Company is likewise
dismissed for lack of cause of action.

The counterclaim of Eternit Corporation now Eterton Multi-Resources

Corporation and Eteroutremer, S.A. is also dismissed for lack of merit.[13]

The trial court declared that since the authority of the agents/realtors was
not in writing, the sale is void and not merely unenforceable, and as such,
could not have been ratified by the principal. In any event, such ratification
cannot be given any retroactive effect. Plaintiffs could not assume that
defendants had agreed to sell the property without a clear authorization
from the corporation concerned, that is, through resolutions of the Board of
Directors and stockholders. The trial court also pointed out that the
supposed sale involves substantially all the assets of defendant EC which
would result in the eventual total cessation of its operation.[14]

The Litonjuas appealed the decision to the CA, alleging that “(1) the lower
court erred in concluding that the real estate broker in the instant case
needed a written authority from appellee corporation and/or that said broker
had no such written authority; and (2) the lower court committed grave error
of law in holding that appellee corporation is not legally bound for specific
performance and/or damages in the absence of an enabling resolution of
the board of directors.”[15] They averred that Marquez acted merely as a
broker or go-between and not as agent of the corporation; hence, it was not
necessary for him to be empowered as such by any written authority. They
further claimed that an agency by estoppel was created when the
corporation clothed Marquez with apparent authority to negotiate for the
sale of the properties. However, since it was a bilateral contract to buy and
sell, it was equivalent to a perfected contract of sale, which the corporation
was obliged to consummate.

In reply, EC alleged that Marquez had no written authority from the Board of
Directors to bind it; neither were Glanville and Delsaux authorized by its
board of directors to offer the property for sale. Since the sale involved
substantially all of the corporation’s assets, it would necessarily need the
authority from the stockholders.

On June 16, 2000, the CA rendered judgment affirming the decision of the
RTC. [16] The Litonjuas filed a motion for reconsideration, which was also
denied by the appellate court.

The CA ruled that Marquez, who was a real estate broker, was a special
agent within the purview of Article 1874 of the New Civil Code. Under
Section 23 of the Corporation Code, he needed a special authority from
EC’s board of directors to bind such corporation to the sale of its properties.
Delsaux, who was merely the representative of ESAC (the majority
stockholder of EC) had no authority to bind the latter. The CA pointed out
that Delsaux was not even a member of the board of directors of EC.
Moreover, the Litonjuas failed to prove that an agency by estoppel had been
created between the parties.

In the instant petition for review, petitioners aver that

THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO

PERFECTED CONTRACT OF SALE.

II

THE APPELLATE COURT COMMITTED GRAVE ERROR OF LAW IN

HOLDING THAT MARQUEZ NEEDED A WRITTEN AUTHORITY FROM
RESPONDENT ETERNIT BEFORE THE SALE CAN BE PERFECTED.

III
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT GLANVILLE
AND DELSAUX HAVE THE NECESSARY AUTHORITY TO SELL THE
SUBJECT PROPERTIES, OR AT THE VERY LEAST, WERE KNOWINGLY
PERMITTED BY RESPONDENT ETERNIT TO DO ACTS WITHIN THE
SCOPE OF AN APPARENT AUTHORITY, AND THUS HELD THEM OUT
TO THE PUBLIC AS POSSESSING POWER TO SELL THE SAID
PROPERTIES.[17]

Petitioners maintain that, based on the facts of the case, there was a
perfected contract of sale of the parcels of land and the improvements
thereon for “US$1,000,000.00 plus P2,500,000.00 to cover obligations prior
to final liquidation.” Petitioners insist that they had accepted the counter-
offer of respondent EC and that before the counter-offer was withdrawn by
respondents, the acceptance was made known to them through real estate
broker Marquez.

Petitioners assert that there was no need for a written authority from
the Board of Directors of EC for Marquez to validly act as
broker/middleman/intermediary. As broker, Marquez was not an ordinary
agent because his authority was of a special and limited character in most
respects. His only job as a broker was to look for a buyer and to bring
together the parties to the transaction. He was not authorized to sell the
properties or to make a binding contract to respondent EC; hence,
petitioners argue, Article 1874 of the New Civil Code does not apply.

In any event, petitioners aver, what is important and decisive was that
Marquez was able to communicate both the offer and counter-offer and their
acceptance of respondent EC’s counter-offer, resulting in a perfected
contract of sale.

Petitioners posit that the testimonial and documentary evidence on record

amply shows that Glanville, who was the President and General Manager of
respondent EC, and Delsaux, who was the Managing Director for ESAC
Asia, had the necessary authority to sell the subject property or, at least,
had been allowed by respondent EC to hold themselves out in the public as
having the power to sell the subject properties. Petitioners identified such
evidence, thus:
1. The testimony of Marquez that he was chosen by Glanville as the
then President and General Manager of Eternit, to sell the properties of said
corporation to any interested party, which authority, as hereinabove
discussed, need not be in writing.

2. The fact that the NEGOTIATIONS for the sale of the subject
properties spanned SEVERAL MONTHS, from 1986 to 1987;

3. The COUNTER-OFFER made by Eternit through GLANVILLE to sell

its properties to the Petitioners;

4. The GOOD FAITH of Petitioners in believing Eternit’s offer to sell the

properties as evidenced by the Petitioners’ ACCEPTANCE of the counter-
offer;

5. The fact that Petitioners DEPOSITED the price of [US]

$1,000,000.00 with the Security Bank and that an ESCROW agreement was
drafted over the subject properties;

6. Glanville’s telex to Delsaux inquiring “WHEN WE (Respondents)

WILL IMPLEMENT ACTION TO BUY AND SELL”;

7. More importantly, Exhibits “G” and “H” of the Respondents, which

evidenced the fact that Petitioners’ offer was allegedly REJECTED by both
Glanville and Delsaux.[18]

Petitioners insist that it is incongruous for Glanville and Delsaux to make a

counter-offer to petitioners’ offer and thereafter reject such offer unless they
were authorized to do so by respondent EC. Petitioners insist that Delsaux
confirmed his authority to sell the properties in his letter to Marquez, to wit:

Dear Sir,

Re: Land of Eternit Corporation

I would like to confirm officially that our Group has decided not to
proceed with the sale of the land which was proposed to you.
 The Committee for Asia of our Group met recently (meeting every
six months) and examined the position as far as the Philippines are (sic)
concerned. Considering the new political situation since the departure of
MR. MARCOS and a certain stabilization in the Philippines, the Committee
has decided not to stop our operations in Manila[.] [I]n fact production
started again last week, and (sic) to reorganize the participation in the
Corporation.

We regret that we could not make a deal with you this time, but in
case the policy would change at a later stage we would consult you again.

In the meantime, I remain

Yours sincerely,

C.F. DELSAUX[19]

Petitioners further emphasize that they acted in good faith when

Glanville and Delsaux were knowingly permitted by respondent EC to sell
the properties within the scope of an apparent authority. Petitioners insist
that respondents held themselves to the public as possessing power to sell
the subject properties.

By way of comment, respondents aver that the issues raised by the

petitioners are factual, hence, are proscribed by Rule 45 of the Rules of
Court. On the merits of the petition, respondents EC (now EMC) and ESAC
reiterate their submissions in the CA. They maintain that Glanville, Delsaux
and Marquez had no authority from the stockholders of respondent EC and
its Board of Directors to offer the properties for sale to the petitioners, or to
any other person or entity for that matter. They assert that the decision and
resolution of the CA are in accord with law and the evidence on record, and
should be affirmed in toto.

Petitioners aver in their subsequent pleadings that respondent EC, through

Glanville and Delsaux, conformed to the written authority of Marquez to sell
the properties. The authority of Glanville and Delsaux to bind respondent
EC is evidenced by the fact that Glanville and Delsaux negotiated for the
sale of 90% of stocks of respondent EC to Ruperto Tan on June 1, 1997.
Given the significance of their positions and their duties in respondent EC at
the time of the transaction, and the fact that respondent ESAC owns 90% of
the shares of stock of respondent EC, a formal
resolution of the Board of Directors would be a mere ceremonial formality.
What is important, petitioners maintain, is that Marquez was able to
communicate the offer of respondent EC and the petitioners’ acceptance
thereof. There was no time that they acted without the knowledge of
respondents. In fact, respondent EC never repudiated the acts of Glanville,
Marquez and Delsaux.

The petition has no merit.

Anent the first issue, we agree with the contention of respondents that
the issues raised by petitioner in this case are factual. Whether or not
Marquez, Glanville, and Delsaux were authorized by respondent EC to act
as its agents relative to the sale of the properties of respondent EC, and if
so, the boundaries of their authority as agents, is a question of fact. In the
absence of express written terms creating the relationship of an agency, the
existence of an agency is a fact question.[20] Whether an agency by
estoppel was created or whether a person acted within the bounds of his
apparent authority, and whether the principal is estopped to deny the
apparent authority of its agent are, likewise, questions of fact to be resolved
on the basis of the evidence on record.[21] The findings of the trial court on
such issues, as affirmed by the CA, are conclusive on the Court, absent
evidence that the trial and appellate courts ignored, misconstrued, or
misapplied facts and circumstances of substance which, if considered,
would warrant a modification or reversal of the outcome of the case.[22]

It must be stressed that issues of facts may not be raised in the Court
under Rule 45 of the Rules of Court because the Court is not a trier of facts.
It is not to re-examine and assess the evidence on record, whether
testimonial and documentary. There are, however, recognized exceptions
where the Court may delve into and resolve factual issues, namely:

(1) When the conclusion is a finding grounded entirely on

speculations, surmises, or conjectures; (2) when the inference made is
manifestly mistaken, absurd, or impossible; (3) when there is grave abuse of
discretion; (4) when the judgment is based on a misapprehension of facts;
(5) when the findings of fact are conflicting; (6) when the Court of Appeals,
in making its findings, went beyond the issues of the case and the same is
contrary to the admissions of both appellant and appellee; (7) when
the findings of the Court of Appeals are contrary to those of the trial court;
(8) when the findings of fact are conclusions without citation of specific
evidence on which they are based; (9) when the Court of Appeals manifestly
overlooked certain relevant facts not disputed by the parties, which, if
properly considered, would justify a different conclusion; and (10) when the
findings of fact of the Court of Appeals are premised on the absence of
evidence and are contradicted by the evidence on record.[23]

We have reviewed the records thoroughly and find that the petitioners
failed to establish that the instant case falls under any of the foregoing
exceptions. Indeed, the assailed decision of the Court of Appeals is
supported by the evidence on record and the law.

It was the duty of the petitioners to prove that respondent EC had decided to
sell its properties and that it had empowered Adams, Glanville and Delsaux
or Marquez to offer the properties for sale to prospective buyers and to
accept any counter-offer. Petitioners likewise failed to prove that their
counter-offer had been accepted by respondent EC, through Glanville and
Delsaux. It must be stressed that when specific performance is sought of a
contract made with an agent, the agency must be established by clear,
certain and specific proof.[24]

Section 23 of Batas Pambansa Bilang 68, otherwise known as the

Corporation Code of the Philippines, provides:

SEC. 23. The Board of Directors or Trustees. – Unless otherwise

provided in this Code, the corporate powers of all corporations formed under
this Code shall be exercised, all business conducted and all property of
such corporations controlled and held by the board of directors or trustees
to be elected from among the holders of stocks, or where there is no stock,
from among the members of the corporation, who shall hold office for one
(1) year and until their successors are elected and qualified.

Indeed, a corporation is a juridical person separate and distinct from

its members or stockholders and is not affected by the personal rights,
obligations and transactions of the latter.[25] It may act only through its
board of directors or, when authorized either by its by-laws or by its board
resolution, through its officers or agents in the normal course of business.
The general principles of agency govern the relation between the
corporation and its officers or agents, subject to the articles of incorporation,
by-laws, or relevant provisions of law.[26]

Under Section 36 of the Corporation Code, a corporation may sell or

convey its real properties, subject to the limitations prescribed by law and
the Constitution, as follows:

SEC. 36. Corporate powers and capacity. – Every corporation

incorporated under this Code has the power and capacity:

xxxx

7. To purchase, receive, take or grant, hold, convey, sell, lease,

pledge, mortgage and otherwise deal with such real and personal property,
including securities and bonds of other corporations, as the transaction of a
lawful business of the corporation may reasonably and necessarily require,
subject to the limitations prescribed by the law and the Constitution.

The property of a corporation, however, is not the property of the

stockholders or members, and as such, may not be sold without express
authority from the board of directors.[27] Physical acts, like the offering of
the properties of the corporation for sale, or the acceptance of a counter-
offer of prospective buyers of such properties and the execution of the deed
of sale covering such property, can be performed by the corporation only by
officers or agents duly authorized for the purpose by corporate by-laws or by
specific acts of the board of directors.[28] Absent such valid
delegation/authorization, the rule is that the declarations of an individual
director relating to the affairs of the corporation, but not in the course of, or
connected with, the performance of authorized duties of such director, are
not binding on the corporation.[29]

While a corporation may appoint agents to negotiate for the sale of its
real properties, the final say will have to be with the board of directors
through its officers and agents as authorized by a board resolution or by its
by-laws.[30] An unauthorized act of an officer of the corporation is not
binding on it unless the latter ratifies the same expressly or impliedly by its
board of directors. Any sale of real property of a corporation by a person
purporting to be an agent thereof but without written authority from the
corporation is null and void. The declarations of the agent alone are
generally insufficient to establish the fact or extent of his/her authority.[31]

By the contract of agency, a person binds himself to render some

service or to do something in representation on behalf of another, with the
consent or authority of the latter.[32] Consent of both principal and agent is
necessary to create an agency. The principal must intend that the agent
shall act for him; the agent must intend to accept the authority and act on it,
and the intention of the parties must find expression either in words or
conduct between them.[33]

An agency may be expressed or implied from the act of the principal,

from his silence or lack of action, or his failure to repudiate the agency
knowing that another person is acting on his behalf without authority.
Acceptance by the agent may be expressed, or implied from his acts which
carry out the agency, or from his silence or inaction according to the
circumstances.[34] Agency may be oral unless the law requires a specific
form.[35] However, to create or convey real rights over immovable property,
a special power of attorney is necessary.[36] Thus, when a sale of a piece
of land or any portion thereof is through an agent, the authority of the latter
shall be in writing, otherwise, the sale shall be void.[37]

In this case, the petitioners as plaintiffs below, failed to adduce in

evidence any resolution of the Board of Directors of respondent EC
empowering Marquez, Glanville or Delsaux as its agents, to sell, let alone
offer for sale, for and in its behalf, the eight parcels of land owned by
respondent EC including the improvements thereon. The bare fact that
Delsaux may have been authorized to sell to Ruperto Tan the shares of
stock of respondent ESAC, on June 1, 1997, cannot be used as basis for
petitioners’ claim that he had likewise been authorized by respondent EC to
sell the parcels of land.

Moreover, the evidence of petitioners shows that Adams and Glanville

acted on the authority of Delsaux, who, in turn, acted on the authority of
respondent ESAC, through its Committee for Asia,[38] the Board of
Directors of respondent ESAC,[39] and the Belgian/Swiss component of the
management of respondent ESAC.[40] As such, Adams and Glanville
engaged the services of Marquez to offer to sell the properties to
prospective buyers. Thus, on September 12, 1986, Marquez wrote the
petitioner that he was authorized to offer for sale the property for
P27,000,000.00 and the other terms of the sale subject to negotiations.
When petitioners offered to purchase the property for P20,000,000.00,
through Marquez, the latter relayed petitioners’ offer to Glanville; Glanville
had to send a telex to Delsaux to inquire the position of respondent ESAC to
petitioners’ offer. However, as admitted by petitioners in their
Memorandum, Delsaux was unable to reply immediately to the telex of
Glanville because Delsaux had to wait for confirmation from respondent
ESAC.[41] When Delsaux finally responded to Glanville on February 12,
1987, he made it clear that, based on the “Belgian/Swiss decision” the final
offer of respondent ESAC was US$1,000,000.00 plus P2,500,000.00 to
cover all existing obligations prior to final liquidation.[42] The offer of
Delsaux emanated only from the “Belgian/Swiss decision,” and not the
entire management or Board of Directors of respondent ESAC. While it is
true that petitioners accepted the counter-offer of respondent ESAC,
respondent EC was not a party to the transaction between them; hence, EC
was not bound by such acceptance.

While Glanville was the President and General Manager of

respondent EC, and Adams and Delsaux were members of its Board of
Directors, the three acted for and in behalf of respondent ESAC, and not as
duly authorized agents of respondent EC; a board resolution evincing the
grant of such authority is needed to bind EC to any agreement regarding the
sale of the subject properties. Such board resolution is not a mere formality
but is a condition sine qua non to bind respondent EC. Admittedly,
respondent ESAC owned 90% of the shares of stocks of respondent EC;
however, the mere fact that a corporation owns a majority of the shares of
stocks of another, or even all of such shares of stocks, taken alone, will not
justify their being treated as one corporation.[43]

It bears stressing that in an agent-principal relationship, the

personality of the principal is extended through the facility of the agent. In
so doing, the agent, by legal fiction, becomes the principal, authorized to
perform all acts which the latter would have him do. Such a relationship can
only be effected with the consent of the principal, which must not, in any
way, be compelled by law or by any court.[44]
 The petitioners cannot feign ignorance of the absence of any regular
and valid authority of respondent EC empowering Adams, Glanville or
Delsaux to offer the properties for sale and to sell the said properties to the
petitioners. A person dealing with a known agent is not authorized, under
any circumstances, blindly to trust the agents; statements as to the extent of
his powers; such person must not act negligently but must use reasonable
diligence and prudence to ascertain whether the agent acts within the scope
of his authority.[45] The settled rule is that, persons dealing with an
assumed agent are bound at their peril, and if they would hold the principal
liable, to ascertain not only the fact of agency but also the nature and extent
of authority, and in case either is controverted, the burden of proof is upon
them to prove it.[46] In this case, the petitioners failed to discharge their
burden; hence, petitioners are not entitled to damages from respondent EC.

It appears that Marquez acted not only as real estate broker for the
petitioners but also as their agent. As gleaned from the letter of Marquez to
Glanville, on February 26, 1987, he confirmed, for and in behalf of the
petitioners, that the latter had accepted such offer to sell the land and the
improvements thereon. However, we agree with the ruling of the appellate
court that Marquez had no authority to bind respondent EC to sell the
subject properties. A real estate broker is one who negotiates the sale of
real properties. His business, generally speaking, is only to find a purchaser
who is willing to buy the land upon terms fixed by the owner. He has no
authority to bind the principal by signing a contract of sale. Indeed, an
authority to find a purchaser of real property does not include an authority to
sell.[47]

Equally barren of merit is petitioners’ contention that respondent EC is

estopped to deny the existence of a principal-agency relationship between it
and Glanville or Delsaux. For an agency by estoppel to exist, the following
must be established: (1) the principal manifested a representation of the
agent’s authority or knowlingly allowed the agent to assume such

authority; (2) the third person, in good faith, relied upon such representation;
(3) relying upon such representation, such third person has changed his
position to his detriment.[48] An agency by estoppel, which is similar to the
doctrine of apparent authority, requires proof of reliance upon the
representations, and that, in turn, needs proof that the representations
predated the action taken in reliance.[49] Such proof is lacking in this case.
In their communications to the petitioners, Glanville and Delsaux positively
and unequivocally declared that they were acting for and in behalf of
respondent ESAC.

Neither may respondent EC be deemed to have ratified the

transactions between the petitioners and respondent ESAC, through
Glanville, Delsaux and Marquez. The transactions and the various
communications inter se were never submitted to the Board of Directors of
respondent EC for ratification.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack

of merit. Costs against the petitioners.

SO ORDERED.

/---!e-library! 6.0 Philippines Copyright © 2000 by Sony Valdez---\

[2005V1463] Amon Trading Corporation and Juliana Marketing, Petitioners,

versus HON. COURT OF APPEALS and TRI-REALTY DEVELOPMENT
AND CONSTRUCTION CORPORATION, Respondents.2005 Dec 132nd
DivisionG.R. No. 158585D E C I S I O N

CHICO-NAZARIO, J.:

This is an appeal by certiorari from the Decision[1] dated 28 November

2002 of the Court of Appeals in CA-G.R. CV No. 60031, reversing the
Decision of the Regional Trial Court of Quezon City, Branch 104, and
holding petitioners Amon Trading Corporation and Juliana Marketing to be
solidarily liable with Lines & Spaces Interiors Center (Lines & Spaces) in
refunding private respondent Tri-Realty Development and Construction
Corporation (Tri-Realty) the amount corresponding to the value of
undelivered bags of cement.
The undisputed facts:

Private respondent Tri-Realty is a developer and contractor with projects in

Bulacan and Quezon City. Sometime in February 1992, private respondent
had difficulty in purchasing cement needed for its projects. Lines & Spaces,
represented by Eleanor Bahia Sanchez, informed private respondent that it
could obtain cement to its satisfaction from petitioners, Amon Trading
Corporation and its sister company, Juliana Marketing. On the strength of
such representation, private respondent proceeded to order from Sanchez
Six Thousand Fifty (6,050) bags of cement from petitioner Amon Trading
Corporation, and from Juliana Marketing, Six Thousand (6,000) bags at
P98.00/bag.

Private respondent, through Mrs. Sanchez of Lines & Spaces, paid in

advance the amount of P592,900.00 through Solidbank Manager’s Check
No. 0011565 payable to Amon Trading Corporation, and the amount of
P588,000.00 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 P7.00/bag, or a total of
P84,350.00, in consideration of the facilitation of the orders and certainty of
delivery of the same to the private respondent. Solidbank 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 P7.00
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.

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] ( mphasis 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 Fund[11] 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-and-shut case of agency between private respondent and Lines &
Spaces. Neither Eleanor Sanchez nor Lines & Spaces was an agent for
private respondent, but rather a supplier for the 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] mphasis 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.

PHILIPPINE JURISPRUDENCE - FULL TEXT

The Lawphil Project - Arellano Law Foundation
G.R. No. 151319 November 22, 2004
MANILA MEMORIAL PARK CEMETERY, INC. vs.
PEDRO L. LINSANGAN

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 151319 November 22, 2004

MANILA MEMORIAL PARK CEMETERY, INC., petitioner,

vs.
PEDRO L. LINSANGAN, respondent.

DECISION

TINGA, J.:

For resolution in this case is a classic and interesting texbook

question in the law on agency.

This is a petition for review assailing the Decision1 of the Court of

Appeals dated 22 June 2001, and its Resolution2 dated 12
December 2001 in CA G.R. CV No. 49802 entitled "Pedro L.
Linsangan v. Manila Memorial Cemetery, Inc. et al.," finding Manila
Memorial Park Cemetery, Inc. (MMPCI) jointly and severally liable
with Florencia C. Baluyot to respondent Atty. Pedro L. Linsangan.

The facts of the case are as follows:

Sometime in 1984, Florencia Baluyot offered Atty. Pedro L.

Linsangan a lot called Garden State at the Holy Cross Memorial
Park owned by petitioner (MMPCI). According to Baluyot, a former
owner of a memorial lot under Contract No. 25012 was no longer
interested in acquiring the lot and had opted to sell his rights subject
to reimbursement of the amounts he already paid. The contract was
for P95,000.00. Baluyot reassured Atty. Linsangan that once
reimbursement is made to the former buyer, the contract would be
transferred to him. Atty. Linsangan agreed and gave Baluyot
P35,295.00 representing the amount to be reimbursed to the original
buyer and to complete the down payment to MMPCI.3 Baluyot issued
handwritten and typewritten receipts for these payments.4

Sometime in March 1985, Baluyot informed Atty. Linsangan that he

would be issued Contract No. 28660, a new contract covering the
subject lot in the name of the latter instead of old Contract No.
25012. Atty. Linsangan protested, but Baluyot assured him that he
would still be paying the old price of P95,000.00 with P19,838.00
credited as full down payment leaving a balance of about
P75,000.00.5

Subsequently, on 8 April 1985, Baluyot brought an Offer to Purchase

Lot No. A11 (15), Block 83, Garden Estate I denominated as
Contract No. 28660 and the Official Receipt No. 118912 dated 6
April 1985 for the amount of P19,838.00. Contract No. 28660 has a
listed price of P132,250.00. Atty. Linsangan objected to the new
contract price, as the same was not the amount previously agreed
upon. To convince Atty. Linsangan, Baluyot executed a
document6 confirming that while the contract price is P132,250.00,
Atty. Linsangan would pay only the original price of P95,000.00.

The document reads in part:

The monthly installment will start April 6, 1985; the amount of

P1,800.00 and the difference will be issued as discounted to
 conform to the previous price as previously agreed upon. ---
P95,000.00

Prepared by:

(Signed)

(MRS.) FLORENCIA C. BALUYOT

Agency Manager
Holy Cross Memorial Park

4/18/85

Dear Atty. Linsangan:

This will confirm our agreement that while the offer to purchase
under Contract No. 28660 states that the total price of
P132,250.00 your undertaking is to pay only the total sum of
P95,000.00 under the old price. Further the total sum of
P19,838.00 already paid by you under O.R. # 118912 dated
April 6, 1985 has been credited in the total purchase price
thereby leaving a balance of P75,162.00 on a monthly
installment of P1,800.00 including interests (sic) charges for a
period of five (5) years.

(Signed)

FLORENCIA C. BALUYOT

By virtue of this letter, Atty. Linsangan signed Contract No. 28660

and accepted Official Receipt No. 118912. As requested by Baluyot,
Atty. Linsangan issued twelve (12) postdated checks of P1,800.00
each in favor of MMPCI. The next year, or on 29 April 1986, Atty.
Linsangan again issued twelve (12) postdated checks in favor of
MMPCI.

On 25 May 1987, Baluyot verbally advised Atty. Linsangan that

Contract No. 28660 was cancelled for reasons the latter could not
explain, and presented to him another proposal for the purchase of
an equivalent property. He refused the new proposal and insisted
that Baluyot and MMPCI honor their undertaking.

For the alleged failure of MMPCI and Baluyot to conform to their

agreement, Atty. Linsangan filed a Complaint7 for Breach of Contract
and Damages against the former.

Baluyot did not present any evidence. For its part, MMPCI alleged
that Contract No. 28660 was cancelled conformably with the terms of
the contract8 because of non-payment of arrearages.9 MMPCI stated
that Baluyot was not an agent but an independent contractor, and as
such was not authorized to represent MMPCI or to use its name
except as to the extent expressly stated in the Agency Manager
Agreement.10 Moreover, MMPCI was not aware of the arrangements
entered into by Atty. Linsangan and Baluyot, as it in fact received a
down payment and monthly installments as indicated in the
contract.11 Official receipts showing the application of payment were
turned over to Baluyot whom Atty. Linsangan had from the beginning
allowed to receive the same in his behalf. Furthermore, whatever
misimpression that Atty. Linsangan may have had must have been
rectified by the Account Updating Arrangement signed by Atty.
Linsangan which states that he "expressly admits that Contract No.
28660 'on account of serious delinquency…is now due for
cancellation under its terms and conditions.'''12

The trial court held MMPCI and Baluyot jointly and severally
liable.13 It found that Baluyot was an agent of MMPCI and that the
latter was estopped from denying this agency, having received and
enchased the checks issued by Atty. Linsangan and given to it by
Baluyot. While MMPCI insisted that Baluyot was authorized to
receive only the down payment, it allowed her to continue to receive
postdated checks from Atty. Linsangan, which it in turn consistently
encashed.14

The dispositive portion of the decision reads:

WHEREFORE, judgment by preponderance of evidence is

hereby rendered in favor of plaintiff declaring Contract No.
28660 as valid and subsisting and ordering defendants to
perform their undertakings thereof which covers burial lot No.
 A11 (15), Block 83, Section Garden I, Holy Cross Memorial
Park located at Novaliches, Quezon City. All payments made
by plaintiff to defendants should be credited for his accounts.
NO DAMAGES, NO ATTORNEY'S FEES but with costs against
the defendants.

The cross claim of defendant Manila Memorial Cemetery

Incorporated as against defendant Baluyot is GRANTED up to
the extent of the costs.

SO ORDERED.15

MMPCI appealed the trial court's decision to the Court of

Appeals.16 It claimed that Atty. Linsangan is bound by the written
contract with MMPCI, the terms of which were clearly set forth
therein and read, understood, and signed by the former.17 It also
alleged that Atty. Linsangan, a practicing lawyer for over thirteen (13)
years at the time he entered into the contract, is presumed to know
his contractual obligations and is fully aware that he cannot belatedly
and unilaterally change the terms of the contract without the consent,
much less the knowledge of the other contracting party, which was
MMPCI. And in this case, MMPCI did not agree to a change in the
contract and in fact implemented the same pursuant to its clear
terms. In view thereof, because of Atty. Linsangan's delinquency,
MMPCI validly cancelled the contract.

MMPCI further alleged that it cannot be held jointly and solidarily

liable with Baluyot as the latter exceeded the terms of her agency,
neither did MMPCI ratify Baluyot's acts. It added that it cannot be
charged with making any misrepresentation, nor of having allowed
Baluyot to act as though she had full powers as the written contract
expressly stated the terms and conditions which Atty. Linsangan
accepted and understood. In canceling the contract, MMPCI merely
enforced the terms and conditions imposed therein.18

Imputing negligence on the part of Atty. Linsangan, MMPCI claimed

that it was the former's obligation, as a party knowingly dealing with
an alleged agent, to determine the limitations of such agent's
authority, particularly when such alleged agent's actions were
patently questionable. According to MMPCI, Atty. Linsangan did not
even bother to verify Baluyot's authority or ask copies of official
receipts for his payments.19

The Court of Appeals affirmed the decision of the trial court. It upheld
the trial court's finding that Baluyot was an agent of MMPCI at the
time the disputed contract was entered into, having represented
MMPCI's interest and acting on its behalf in the dealings with clients
and customers. Hence, MMPCI is considered estopped when it
allowed Baluyot to act and represent MMPCI even beyond her
authority.20 The appellate court likewise found that the acts of
Baluyot bound MMPCI when the latter allowed the former to act for
and in its behalf and stead. While Baluyot's authority "may not have
been expressly conferred upon her, the same may have been
derived impliedly by habit or custom, which may have been an
accepted practice in the company for a long period of time."21 Thus,
the Court of Appeals noted, innocent third persons such as Atty.
Linsangan should not be prejudiced where the principal failed to
adopt the needed measures to prevent misrepresentation.
Furthermore, if an agent misrepresents to a purchaser and the
principal accepts the benefits of such misrepresentation, he cannot
at the same time deny responsibility for such
misrepresentation.22 Finally, the Court of Appeals declared:

There being absolutely nothing on the record that would show that
the court a quo overlooked, disregarded, or misinterpreted facts of
weight and significance, its factual findings and conclusions must be
given great weight and should not be disturbed by this Court on
appeal.

WHEREFORE, in view of the foregoing, the appeal is hereby

DENIED and the appealed decision in Civil Case No. 88-1253
of the Regional Trial Court, National Capital Judicial Region,
Branch 57 of Makati, is hereby AFFIRMED in toto.

SO ORDERED.23

MMPCI filed its Motion for Reconsideration,24 but the same was
denied for lack of merit.25

In the instant Petition for Review, MMPCI claims that the Court of
Appeals seriously erred in disregarding the plain terms of the written
contract and Atty. Linsangan's failure to abide by the terms thereof,
which justified its cancellation. In addition, even assuming that
Baluyot was an agent of MMPCI, she clearly exceeded her authority
and Atty. Linsangan knew or should have known about this
considering his status as a long-practicing lawyer. MMPCI likewise
claims that the Court of Appeals erred in failing to consider that the
facts and the applicable law do not support a judgment against
Baluyot only "up to the extent of costs."26

Atty. Linsangan argues that he did not violate the terms and
conditions of the contract, and in fact faithfully performed his
contractual obligations and complied with them in good faith for at
least two years.27 He claims that contrary to MMPCI's position, his
profession as a lawyer is immaterial to the validity of the subject
contract and the case at bar.28According to him, MMPCI had
practically admitted in its Petition that Baluyot was its agent, and
thus, the only issue left to be resolved is whether MMPCI allowed
Baluyot to act as though she had full powers to be held solidarily
liable with the latter.29

We find for the petitioner MMPCI.

The jurisdiction of the Supreme Court in a petition for review under

Rule 45 of the Rules of Court is limited to reviewing only errors of
law, not fact, unless the factual findings complained of are devoid of
support by the evidence on record or the assailed judgment is based
on misapprehension of facts.30 In BPI Investment Corporation v. D.G.
Carreon Commercial Corporation,31 this Court ruled:

There are instances when the findings of fact of the trial court
and/or Court of Appeals may be reviewed by the Supreme
Court, such as (1) when the conclusion is a finding grounded
entirely on speculation, surmises and conjectures; (2) when the
inference made is manifestly mistaken, absurd or impossible;
(3) where there is a grave abuse of discretion; (4) when the
 judgment is based on a misapprehension of facts; (5) when the
findings of fact are conflicting; (6) when the Court of Appeals, in
making its findings, went beyond the issues of the case and the
same is contrary to the admissions of both appellant and
appellee; (7) when the findings are contrary to those of the trial
court; (8) when the findings of fact are conclusions without
citation of specific evidence on which they are based; (9) when
the facts set forth in the petition as well as in the petitioners'
main and reply briefs are not disputed by the respondents; and
(10) the findings of fact of the Court of Appeals are premised on
the supposed absence of evidence and contradicted by the
evidence on record.32

In the case at bar, the Court of Appeals committed several errors in

the apprehension of the facts of the case, as well as made
conclusions devoid of evidentiary support, hence we review its
findings of fact.

By the contract of agency, a person binds himself to render some

service or to do something in representation or on behalf of another,
with the consent or authority of the latter.33 Thus, the elements of
agency are (i) consent, express or implied, of the parties to establish
the relationship; (ii) the object is the execution of a juridical act in
relation to a third person; (iii) the agent acts as a representative and
not for himself; and (iv) the agent acts within the scope of his
authority.34

In an attempt to prove that Baluyot was not its agent, MMPCI pointed
out that under its Agency Manager Agreement; an agency manager
such as Baluyot is considered an independent contractor and not an
agent.35 However, in the same contract, Baluyot as agency manager
was authorized to solicit and remit to MMPCI offers to purchase
interment spaces belonging to and sold by the
latter.36 Notwithstanding the claim of MMPCI that Baluyot was an
independent contractor, the fact remains that she was authorized to
solicit solely for and in behalf of MMPCI. As properly found both by
the trial court and the Court of Appeals, Baluyot was an agent of
MMPCI, having represented the interest of the latter, and having
been allowed by MMPCI to represent it in her dealings with its
/---!e-library! 6.0 Philippines Copyright © 2000 by S

[2000V428] SPOUSES YU ENG CHO and FRANCISCO TAO YU,

petitioners, vs. PAN AMERICAN WORLD AIRWAYS, INC., TOURIST
WORLD SERVICES, INC., JULIETA CANILAO and CLAUDIA
TAGUNICAR, respondents.2000 Mar 271st DivisionG.R. No. 123560D E C I
SION

PUNO, J.:

This petition for review seeks a reversal of the 31 August 1995 Decision1
[Penned by Associate Justice Antonio M. Martinez, with Consuelo Ynares-
Santiago and Ruben T. Reyes, JJ., concurring; Rollo, 35-49.] and 11
January 1998 Resolution2 [Ibid., 51.] of the Court of Appeals holding private
respondent Claudia Tagunicar solely liable for moral and exemplary
damages and attorney’s fees, and deleting the trial court’s award for actual
damages.

The facts as found by the trial court are as follows:

"Plaintiff Yu Eng Cho is the owner of Young Hardware Co. and Achilles
Marketing. In connection with [this] business, he travels from time to time to
Malaysia, Taipei and Hongkong. On July 10, 1976, plaintiffs bought plane
tickets (Exhs. A & B) from defendant Claudia Tagunicar who represented
herself to be an agent of defendant Tourist World Services, Inc. (TWSI). The
destination[s] are Hongkong, Tokyo, San Francisco, U.S.A., for the amount
of P25,000.00 per computation of said defendant Claudia Tagunicar (Exhs.
C & C-1). The purpose of this trip is to go to Fairfield, New Jersey, U.S.A. to
buy two (2) lines of infrared heating system processing textured plastic
article (Exh. K).

"On said date, only the passage from Manila to Hongkong, then to Tokyo,
were confirmed. [PAA] Flight 002 from Tokyo to San Francisco was on "RQ"
status, meaning "on request". Per instruction of defendant Claudia
Tagunicar, plaintiffs returned after a few days for the confirmation of the
Tokyo-San Francisco segment of the trip. After calling up Canilao of TWSI,
defendant Tagunicar told plaintiffs that their flight is now confirmed all the
way. Thereafter, she attached the confirmation stickers on the plane tickets
(Exhs. A & B).

"A few days before the scheduled flight of plaintiffs, their son, Adrian Yu,
called the Pan Am office to verify the status of the flight. According to said
Adrian Yu, a personnel of defendant Pan Am told him over the phone that
plaintiffs’ booking[s] are confirmed.

"On July 23, 1978, plaintiffs left for Hongkong and stayed there for five (5)
days. They left Hongkong for Tokyo on July 28, 1978. Upon their arrival in
Tokyo, they called up Pan-Am office for reconfirmation of their flight to San
Francisco. Said office, however, informed them that their names are not in
the manifest. Since plaintiffs were supposed to leave on the 29th of July,
1978, and could not remain in Japan for more than 72 hours, they were
constrained to agree to accept airline tickets for Taipei instead, per advise of
JAL officials. This is the only option left to them because Northwest Airlines
was then on strike, hence, there was no chance for the plaintiffs to obtain
airline seats to the United States within 72 hours. Plaintiffs paid for these
tickets.

"Upon reaching Taipei, there were no flight[s] available for plaintiffs, thus,
they were forced to return back to Manila on August 3, 1978, instead of
proceeding to the United States. [Japan] Air Lines (JAL) refunded the
plaintiffs the difference of the price for Tokyo-Taipei [and] Tokyo-San
Francisco (Exhs. I & J) in the total amount of P2,602.00.

"In view of their failure to reach Fairfield, New Jersey, Radiant Heat
Enterprises, Inc. cancelled Yu Eng Cho’s option to buy the two lines of infra-
red heating system (Exh. K). The agreement was for him to inspect the
equipment and make final arrangement[s] with the said company not later
than August 7, 1978. From this business transaction, plaintiff Yu Eng Cho
expected to realize a profit of P300,000.00 to P400,000.00."

"[A] scrutiny of defendants’ respective evidence reveals the following:

"Plaintiffs, who were intending to go to the United States, were referred to

defendant Claudia Tagunicar, an independent travel solicitor, for the
purchase of their plane tickets. As such travel solicitor, she helps in the
processing of travel papers like passport, plane tickets, booking of
passengers and some assistance at the airport. She is known to defendants
Pan-Am, TWSI/Julieta Canilao, because she has been dealing with them in
the past years. Defendant Tagunicar advised plaintiffs to take Pan-Am
because Northwest Airlines was then on strike and plaintiffs are passing
Hongkong, Tokyo, then San Francisco and Pan-Am has a flight from Tokyo
to San Francisco. After verifying from defendant TWSI, thru Julieta Canilao,
she informed plaintiffs that the fare would be P25,093.93 giving them a
discount of P738.95 (Exhs. C, C-1). Plaintiffs, however, gave her a check in
the amount of P25,000.00 only for the two round trip tickets. Out of this
transaction, Tagunicar received a 7% commission and 1% commission for
defendant TWSI.

Defendant Claudia Tagunicar purchased the two round-trip Pan-Am tickets

from defendant Julieta Canilao with the following schedules:

Origin Destination Airline Date Time/Travel

Manila Hongkong CX900 7-23-78 1135/1325hrs

Hongkong Tokyo CS500 7-28-78 1615/2115hrs

Tokyo San Francisco PA002 7-29-78 1930/1640hrs

The use of another airline, like in this case it is Cathay Pacific out of Manila,
is allowed, although the tickets issued are Pan-Am tickets, as long as it is in
connection with a Pan-Am flight. When the two (2) tickets (Exhs. A & B)
were issued to plaintiffs, the letter "RQ" appears below the printed word
"status" for the flights from Tokyo to San Francisco which means "under
request," (Exh. 3-A, 4-A Pan-Am). Before the date of the scheduled
departure, defendant Tagunicar received several calls from the plaintiffs
inquiring about the status of their bookings. Tagunicar in turn called up
TWSI/Canilao to verify; and if Canilao would answer that the bookings are
not yet confirmed, she would relate that to the plaintiffs.

"Defendant Tagunicar claims that on July 13, 1978, a few days before the
scheduled flight, plaintiff Yu Eng Cho personally went to her office, pressing
her about their flight. She called up defendant Julieta Canilao, and the latter
told her "o sige Claudia, confirm na." She even noted this in her index card
(Exh. L), that it was Julieta who confirmed the booking (Exh. L-1). It was
then that she allegedly attached the confirmation stickers (Exhs. 2, 2-B
TWSI) to the tickets. These stickers came from TWSI.

Defendant Tagunicar alleges that it was only in the first week of August,
1978 that she learned from Adrian Yu, son of plaintiffs, that the latter were
not able to take the flight from Tokyo to San Francisco, U.S.A. After a few
days, said Adrian Yu came over with a gentleman and a lady, who turned
out to be a lawyer and his secretary. Defendant Tagunicar claims that
plaintiffs were asking for her help so that they could file an action against
Pan-Am. Because of plaintiffs’ promise she will not be involved, she agreed
to sign the affidavit (Exh. M) prepared by the lawyer.

Defendants TWSI/Canilao denied having confirmed the Tokyo-San

Francisco segment of plaintiffs’ flight because flights then were really tight
because of the on-going strike at Northwest Airlines. Defendant Claudia
Tagunicar is very much aware that [said] particular segment was not
confirmed, because on the very day of plaintiffs’ departure, Tagunicar called
up TWSI from the airport; defendant Canilao asked her why she attached
stickers on the tickets when in fact that portion of the flight was not yet
confirmed. Neither TWSI nor Pan-Am confirmed the flight and never
authorized defendant Tagunicar to attach the confirmation stickers. In fact,
the confirmation stickers used by defendant Tagunicar are stickers
exclusively for use of Pan-Am only. Furthermore, if it is the travel agency
that confirms the booking, the IATA number of said agency should appear
on the validation or confirmation stickers. The IATA number that appears on
the stickers attached to plaintiffs’ tickets (Exhs. A & B) is 2-82-0770 (Exhs.
1, 1-A TWSI), when in fact TWSI’s IATA number is 2-83-0770 (Exhs. 5, 5-A
TWSI)."3 [Original Records, 647-650.]

A complaint for damages was filed by petitioners against private

respondents Pan American World Airways, Inc.(Pan Am), Tourist World
Services, Inc. (TWSI), Julieta Canilao (Canilao), and Claudia Tagunicar
(Tagunicar) for expenses allegedly incurred such as costs of tickets and
hotel accommodations when petitioners were compelled to stay in
Hongkong and then in Tokyo by reason of the non-confirmation of their
booking with Pan-Am. In a Decision dated November 14, 1991, the
Regional Trial Court of Manila, Branch 3, held the defendants jointly and
severally liable, except defendant Julieta Canilao, thus:
"WHEREFORE, judgment is hereby rendered for the plaintiffs and ordering
defendants Pan American World Airways, Inc., Tourist World Services, Inc.
and Claudia Tagunicar, jointly and severally, to pay plaintiffs the sum of
P200,000.00 as actual damages, minus P2,602.00 already refunded to the
plaintiffs; P200,000.00 as moral damages; P100,000.00 as exemplary
damages; an amount equivalent to 20% of the award for and as attorney’s
fees, plus the sum of P30,000.00 as litigation expenses.

Defendants’ counterclaims are hereby dismissed for lack of merit.

SO ORDERED."

Only respondents Pan Am and Tagunicar appealed to the Court of Appeals.

On 11 August 1995, the appellate court rendered judgment modifying the
amount of damages awarded, holding private respondent Tagunicar solely
liable therefor, and absolving respondents Pan Am and TWSI from any and
all liability, thus:

"PREMISES CONSIDERED, the decision of the Regional Trial Court is

hereby SET ASIDE and a new one entered declaring appellant Tagunicar
solely liable for:

1) Moral damages in the amount of P50,000.00;

2) Exemplary damages in the amount of P25,000.00; and

3) Attorney’s fees in the amount of P10,000.00 plus costs of suit.

The award of actual damages is hereby DELETED.

SO ORDERED."

In so ruling, respondent court found that Tagunicar is an independent travel

solicitor and is not a duly authorized agent or representative of either Pan
Am or TWSI. It held that their business transactions are not sufficient to
consider Pan Am as the principal, and Tagunicar and TWSI as its agent and
sub-agent, respectively. It further held that Tagunicar was not authorized to
confirm the bookings of, nor issue validation stickers to, herein petitioners
and hence, Pan Am and TWSI cannot be held responsible for her actions.
Finally, it deleted the award for actual damages for lack of proof.

Hence this petition based on the following assignment of errors:

1. the Court of Appeals, in reversing the decision of the trial court,

misapplied the ruling in Nicos Industrial Corporation vs. Court of Appeals,
et. al. [206 SCRA 127]; and

2. the findings of the Court of Appeals that petitioners’ ticket reservations in

question were not confirmed and that there is no agency relationship among
PAN-AM, TWSI and Tagunicar are contrary to the judicial admissions of
PAN-AM, TWSI and Tagunicar and likewise contrary to the findings of fact
of the trial court.

We affirm.

I. The first issue deserves scant consideration. Petitioners contend that

contrary to the ruling of the Court of Appeals, the decision of the trial court
conforms to the standards of an ideal decision set in Nicos Industrial
Corporation, et. al. vs. Court of Appeals, et. al.,4 [206 SCRA 127 (1992).] as
"that which, with welcome economy of words, arrives at the factual findings,
reaches the legal conclusions, renders its ruling and, having done so, ends."
It is averred that the trial court’s decision contains a detailed statement of
the relevant facts and evidence adduced by the parties which thereafter
became the bases for the court’s conclusions.

A careful scrutiny of the decision rendered by the trial court will show that
after narrating the evidence of the parties, it proceeded to dispose of the
case with a one-paragraph generalization, to wit:

"On the basis of the foregoing facts, the Court is constrained to conclude
that defendant Pan-Am is the principal, and defendants TWSI and
Tagunicar, its authorized agent and sub-agent, respectively. Consequently,
defendants Pan-Am, TWSI and Claudia Tagunicar should be held jointly
and severally liable to plaintiffs for damages. Defendant Julieta Canilao,
who acted in her official capacity as Office Manager of defendant TWSI
should not be held personally liable."5 [Original Record, 650.]
The trial court’s finding of facts is but a summary of the testimonies of the
witnesses and the documentary evidence presented by the parties. It did not
distinctly and clearly set forth, nor substantiate, the factual and legal bases
for holding respondents TWSI, Pan Am and Tagunicar jointly and severally
liable. In Del Mundo vs. CA, et al.6 [240 SCRA 348 (1995).] where the trial
court, after summarizing the conflicting asseverations of the parties,
disposed of the kernel issue in just two (2) paragraphs, we held:

"It is understandable that courts, with their heavy dockets and time
constraints, often find themselves with little to spare in the preparation of
decisions to the extent most desirable. We have thus pointed out that
judges might learn to synthesize and to simplify their pronouncements.
Nevertheless, concisely written such as they may be, decisions must still
distinctly and clearly express, at least in minimum essence, its factual and
legal bases."

For failing to explain clearly and well the factual and legal bases of its award
of moral damages, we set it aside in said case. Once more, we stress that
nothing less than Section 14 of Article VIII of the Constitution requires that
"no decision shall be rendered by any court without expressing therein
clearly and distinctly the facts and the law on which it is based." This is
demanded by the due process clause of the Constitution. In the case at bar,
the decision of the trial court leaves much to be desired both in form and
substance. Even while said decision infringes the Constitution, we will not
belabor this infirmity and rather examine the sufficiency of the evidence
submitted by the petitioners.

II. Petitioners assert that Tagunicar is a sub-agent of TWSI while TWSI is a

duly authorized ticketing agent of Pan Am. Proceeding from this premise,
they contend that TWSI and Pan Am should be held liable as principals for
the acts of Tagunicar. Petitioners stubbornly insist that the existence of the
agency relationship has been established by the judicial admissions
allegedly made by respondents herein, to wit: (1) the admission made by
Pan Am in its Answer that TWSI is its authorized ticket agent; (2) the
affidavit executed by Tagunicar where she admitted that she is a duly
authorized agent of TWSI; and (3) the admission made by Canilao that
TWSI received commissions from ticket sales made by Tagunicar.
We do not agree. By the contract of agency, a person binds himself to
render some service or to do something in representation or on behalf of
another, with the consent or authority of the latter.7 [New Civil Code, Article
1868.] The elements of agency are: (1) consent, express or implied, of the
parties to establish the relationship; (2) the object is the execution of a
juridical act in relation to a third person; (3) the agent acts as a
representative and not for himself; (4) the agent acts within the scope of his
authority.8 [Tolentino, Civil Code of the Phils., Vol. V, 1992 ed., p. 396.] It is
a settled rule that persons dealing with an assumed agent are bound at their
peril, if they would hold the principal liable, to ascertain not only the fact of
agency but also the nature and extent of authority, and in case either is
controverted, the burden of proof is upon them to establish it.9 [BA Finance
v. CA, et al., 211 SCRA 112 (1992).]

In the case at bar, petitioners rely on the affidavit of respondent Tagunicar

where she stated that she is an authorized agent of TWSI. This affidavit,
however, has weak probative value in light of respondent Tagunicar’s
testimony in court to the contrary. Affidavits, being taken ex parte, are
almost always incomplete and often inaccurate, sometimes from partial
suggestion, or for want of suggestion and inquiries. Their infirmity as a
species of evidence is a matter of judicial experience and are thus
considered inferior to the testimony given in court.10 [People v. Diaz, 262
SCRA 723 (1996).] Further, affidavits are not complete reproductions of
what the declarant has in mind because they are generally prepared by the
administering officer and the affiant simply signs them after the same have
been read to her.11 [People v. Gondora, 265 SCRA 408 (1996).]
Respondent Tagunicar testified that her affidavit was prepared and
typewritten by the secretary of petitioners’ lawyer, Atty. Acebedo, who both
came with Adrian Yu, son of petitioners, when the latter went to see her at
her office. This was confirmed by Adrian Yu who testified that Atty. Acebedo
brought his notarial seal and notarized the affidavit of the same day.12
[TSN, December 16, 1982, pp. 17-19.] The circumstances under which said
affidavit was prepared put in doubt petitioners’ claim that it was executed
voluntarily by respondent Tagunicar. It appears that the affidavit was
prepared and was based on the answers which respondent Tagunicar gave
to the questions propounded to her by Atty. Acebedo.13 [TSN, September
29, 1983, pp. 12-13.] They never told her that the affidavit would be used in
a case to be filed against her.14 [TSN, December 16, 1982, p. 17.] They
even assured her that she would not be included as defendant if she agreed
to execute the affidavit.15 [TSN, September 29, 1983, pp. 16-17.]
Respondent Tagunicar was prevailed upon by petitioners’ son and their
lawyer to sign the affidavit despite her objection to the statement therein that
she was an agent of TWSI. They assured her that "it is immaterial"16 [TSN,
July 22, 1983, p. 43.] and that "if we file a suit against you we cannot get
anything from you."17 [Ibid., p. 38.] This purported admission of respondent
Tagunicar cannot be used by petitioners to prove their agency relationship.
At any rate, even if such affidavit is to be given any probative value, the
existence of the agency relationship cannot be established on its sole basis.
The declarations of the agent alone are generally insufficient to establish the
fact or extent of his authority.18 [Reuschlein & Gregory, The Law of Agency
and Partnership, 1990, Second ed., p. 28; BA Finance v. CA, et al., 211
SCRA 112 (1992).] In addition, as between the negative allegation of
respondents Canilao and Tagunicar that neither is an agent nor principal of
the other, and the affirmative allegation of petitioners that an agency
relationship exists, it is the latter who have the burden of evidence to prove
their allegation,19 [Martinez v. NLRC, et al., 272 SCRA 793 (1997).] failing
in which, their claim must necessarily fail.

We stress that respondent Tagunicar categorically denied in open court that

she is a duly authorized agent of TWSI, and declared that she is an
independent travel agent.20 [TSN, July 22, 1983, p. 44; August 12, 1983,
pp. 6-7.] We have consistently ruled that in case of conflict between
statements in the affidavit and testimonial declarations, the latter command
greater weight.21 [People v. Aliposa, 263 SCRA 471 (1996).]

As further proofs of agency, petitioners call our attention to TWSI’s Exhibits

"7", "7-A", and "8" which show that Tagunicar and TWSI received sales
commissions from Pan Am. Exhibit "7"22 [Original Records, p. 448.] is the
Ticket Sales Report submitted by TWSI to Pan Am reflecting the
commissions received by TWSI as an agent of Pan Am. Exhibit "7-A"23
[Ibid., 449.] is a listing of the routes taken by passengers who were audited
to TWSI’s sales report. Exhibit "8"24 [Ibid., 450.] is a receipt issued by TWSI
covering the payment made by Tagunicar for the tickets she bought from
TWSI. These documents cannot justify the deduction that Tagunicar was
paid a commission either by TWSI or Pan Am. On the contrary, Tagunicar
testified that when she pays TWSI, she already deducts in advance her
commission and merely gives the net amount to TWSI.25 [TSN, July 22,
1983, p. 50.] From all sides of the legal prism, the transaction is simply a
contract of sale wherein Tagunicar buys airline tickets from TWSI and then
sells it at a premium to her clients.

III. Petitioners included respondent Pan Am in the complaint on the

supposition that since TWSI is its duly authorized agent, and respondent
Tagunicar is an agent of TWSI, then Pan Am should also be held
responsible for the acts of respondent Tagunicar. Our disquisitions above
show that this contention lacks factual and legal bases. Indeed, there is
nothing in the records to show that respondent Tagunicar has been
employed by Pan Am as its agent, except the bare allegation of petitioners.
The real motive of petitioners in suing Pan Am appears in its Amended
Complaint that "[d]efendants TWSI, Canilao and Tagunicar may not be
financially capable of paying plaintiffs the amounts herein sought to be
recovered, and in such event, defendant Pan Am, being their ultimate
principal, is primarily and/or subsidiarily liable to pay said amounts to
plaintiffs."26 [Original Records, p. 46.] This lends credence to respondent
Tagunicar’s testimony that she was persuaded to execute an affidavit
implicating respondents because petitioners knew they would not be able to
get anything of value from her. In the past, we have warned that this Court
will not tolerate an abuse of the judicial process by passengers in order to
pry on international airlines for damage awards, like "trophies in a safari."27
[Alitalia Airways vs. CA, et al., 187 SCRA 763 (1990).]

This meritless suit against Pan Am becomes more glaring with petitioners’
inaction after they were bumped off in Tokyo. If petitioners were of the
honest belief that Pan Am was responsible for the misfortune which beset
them, there is no evidence to show that they lodged a protest with Pan Am’s
Tokyo office immediately after they were refused passage for the flight to
San Francisco, or even upon their arrival in Manila. The testimony of
petitioner Yu Eng Cho in this regard is of little value, viz.:

"Atty. Jalandoni: x x x

q Upon arrival at the Tokyo airport, what did you do if any in connection with
your schedule[d] trip?

a I went to the Hotel, Holiday Inn and from there I immediately called up Pan
Am office in Tokyo to reconfirm my flight, but they told me that our names
were not listed in the manifest, so next morning, very early in the morning I
went to the airport, Pan Am office in the airport to verify and they told me the
same and we were not allowed to leave.

q You were scheduled to be in Tokyo for how long Mr. Yu?

a We have to leave the next day 29th.

q In other words, what was your status as a passenger?

a Transient passengers. We cannot stay there for more than 72 hours.

xxxxxxxxx

q As a consequence of the fact that you claimed that the Pan Am office in
Tokyo told you that your names were not in the manifest, what did you do, if
any?

a I ask[ed] them if I can go anywhere in the States? They told me I can go to

LA via Japan Airlines and I accepted it.

q Do you have the tickets with you that they issued for Los Angeles?

a It was taken by the Japanese Airlines instead they issue[d] me a ticket to

Taipei.

xxxxxxxxx

q Were you able to take the trip to Los Angeles via Pan Am tickets that was
issued to you in lieu of the tickets to San Francisco?

a No, sir.

q Why not?

a The Japanese Airlines said that there were no more available seats.

q And as a consequence of that, what did you do, if any?

a I am so much scared and worried, so the Japanese Airlines advised us to
go to Taipei and I accepted it.

xxxxxxxxx

q Why did you accept the Japan Airlines offer for you to go to Taipei?

a Because there is no chance for us to go to the United States within 72

hours because during that time Northwest Airlines [was] on strike so the
seats are very scarce. So they advised me better left (sic) before the 72
hours otherwise you will have trouble with the Japanese immigration.

q As a consequence of that you were force[d] to take the trip to Taipei?

a Yes, sir."28 [TSN, August 20, 1981, pp. 18-28.]

It grinds against the grain of human experience that petitioners did not insist
that they be allowed to board, considering that it was then doubly difficult to
get seats because of the ongoing Northwest Airlines strike. It is also
perplexing that petitioners readily accepted whatever the Tokyo office had to
offer as an alternative. Inexplicably too, no demand letter was sent to
respondents TWSI and Canilao.29 [TSN, November 23, 1983, p. 35.] Nor
was a demand letter sent to respondent Pan Am. To say the least, the
motive of petitioners in suing Pan Am is suspect.

We hasten to add that it is not sufficient to prove that Pan Am did not allow
petitioners to board to justify petitioners’ claim for damages. Mere refusal to
accede to the passenger’s wishes does not necessarily translate into
damages in the absence of bad faith.30 [Air France v. CA, et al., 171 SCRA
399 (1989).] The settled rule is that the law presumes good faith such that
any person who seeks to be awarded damages due to acts of another has
the burden of proving that the latter acted in bad faith or with ill motive.31
[Ford Phils., Inc. v. CA, et al., 267 SCRA 320 (1997).] In the case at bar, we
find the evidence presented by petitioners insufficient to overcome the
presumption of good faith. They have failed to show any wanton, malevolent
or reckless misconduct imputable to respondent Pan Am in its refusal to
accommodate petitioners in its Tokyo-San Francisco flight. Pan Am could
not have acted in bad faith because petitioners did not have confirmed
tickets and more importantly, they were not in the passenger manifest.
In not a few cases, this Court did not hesitable to hold an airline liable for
damages for having acted in bad faith in refusing to accommodate a
passenger who had a confirmed ticket and whose name appeared in the
passenger manifest. In Ortigas Jr. v. Lufthansa German Airlines Inc.32 [64
SCRA 610 (1975).] we ruled that there was a valid and binding contract
between the airline and its passenger after finding that validating sticker on
the passenger’s ticket had the letters "O.K." appearing in the ‘Res. Status’
box which means "space confirmed" and that the ticket is confirmed or
validated. In Pan American World Airways Inc. v. IAC, et al.33 [153 SCRA
521 (1987).] where a would-be-passenger had the necessary ticket,
baggage claim and clearance from immigration all clearly showing that she
was a confirmed passenger and included in the passenger manifest and yet
was denied accommodation in said flight, we awarded damages. In Armovit,
et al. v. CA, et al.,34 [184 SCRA 476 (1990).] we upheld the award of
damages made against an airline for gross negligence committed in the
issuance of tickets with erroneous entries as to the time of flight. In Alitalia
Airways v. CA, et al.,35 [187 SCRA 763 (1990).] we held that when airline
issues a ticket to a passenger confirmed on a particular flight, on a certain
date, a contract of carriage arises, and the passenger has every right to
expect that he would fly on that flight and on that date. If he does not, then
the carrier opens itself to a suit for breach of contract of carriage. And
finally, an award of damages was held proper in the case of Zalamea, et al.
v. CA, et al.,36 [228 SCRA 23 (1993).] where a confirmed passenger
included in the manifest was denied accommodation in such flight.

On the other hand, the respondent airline in Sarreal, Sr. v. Japan Airlines
Co., Ltd.,37 [207 SCRA 359 (1992).] was held not liable for damages where
the passenger was not allowed to board the plane because his ticket had
not been confirmed. We ruled that "[t]he stub that the lady employee put on
the petitioner’s ticket showed among other coded items, under the column
"status" the letters "RQ" which was understood to mean "Request." Clearly,
this does not mean a confirmation but only a request. JAL Traffic Supervisor
explained that it would have been different if what was written on the stub
were the letter "ok" in which case the petitioner would have been assured of
a seat on said flight. But in this case, the petitioner was more of a wait-listed
passenger than a regularly booked passenger."
In the case at bar, petitioners’ ticket were on "RQ" status. They were not
confirmed passengers and their names were not listed in the passenger
manifest. In other words, this is not a case where Pan Am bound itself to
transport petitioners and thereafter reneged on its obligation. Hence,
respondent airline cannot be held liable for damages.

IV. We hold that respondent Court of Appeals correctly ruled that the tickets
were never confirmed for good reasons: (1) The persistent calls made by
respondent Tagunicar to Canilao, and those made by petitioners at the
Manila, Hongkong and Tokyo offices of Pan Am, are eloquent indications
that petitioners knew that their tickets have not been confirmed. For, as
correctly observed by Pan Am, why would one continually try to have one’s
ticket confirmed if it had already been confirmed? (2) The validation stickers
which respondent Tagunicar attached to petitioners’ tickets were those
intended for the exclusive use of airline companies. She had no authority to
use them. Hence, said validation stickers, wherein the word "OK" appears in
the status box, are not valid and binding. (3) The names of petitioners do
not appear in the passenger manifest. (4) Respondent Tagunicar’s "Exhibit
1"38 [Original Records, p. 292.] shows that the status of the San Francisco-
New York segment was "Ok", meaning it was confirmed, but that the status
of the Tokyo-San Francisco segment was still "on request". (5) Respondent
Canilao testified that on the day that petitioners were to depart for
Hongkong, respondent Tagunicar called her from the airport asking for
confirmation of the Tokyo-San Francisco flight, and that when she told
respondent Tagunicar that she should not have allowed petitioners to leave
because their tickets have not been confirmed, respondent Tagunicar
merely said "Bahala na."39 [TSN, November 23, 1983, pp. 29-31.] This was
never controverted nor refuted by respondent Tagunicar. (6) To prove that it
really did not confirm the bookings of petitioners, respondent Canilao
pointed out that the validation stickers which respondent Tagunicar attached
to the tickets of petitioners had IATA No. 2-82-0770 stamped on it, whereas
the IATA number of TWSI is 28-30770.40 [Ibid., p. 14.]

Undoubtedly, respondent Tagunicar should be liable for having acted in bad

faith in misrepresenting to petitioners that their tickets have been confirmed.
Her culpability, however, was properly mitigated. Petitioner Yu Eng Cho
testified that he repeatedly tried to follow up on the confirmation of their
tickets with Pan Am because he doubted the confirmation made by
respondent Tagunicar.41 [TSN, August 27, 1981, p. 42.] This is clear proof
that petitioners knew that they might be bumped off at Tokyo when they
decided to proceed with the trip. Aware of this risk, petitioners exerted
efforts to confirm their tickets in Manila, then in Hongkong, and finally in
Tokyo. Resultantly, we find the modification as to the amount of damages
awarded just and equitable under the circumstances.

WHEREFORE, the decision appealed from is hereby AFFIRMED. Cost

against petitioners.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Kapunan, and Pardo, JJ., concur.

Ynares-Santiago, J., no part.

\---!e-library! 6.0 Philippines Copyright © 2000 by Sony Valdez---/

([2000V428] SPOUSES YU ENG CHO and FRANCISCO TAO YU,

petitioners, vs. PAN AMERICAN WORLD AIRWAYS, INC., TOURIST
WORLD SERVICES, INC., JULIETA CANILAO and CLAUDIA
TAGUNICAR, respondents., G.R. No. 123560, 2000 Mar 27, 1st Division)

SECOND DIVISION

[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."[2] The 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 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
appoint[18] 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.
 Bellosillo, (Chairman), Mendoza, Buena, and De Leon, Jr., JJ., concur.

/---!e-library! 6.0 Philippines Copyright © 2000 by Sony Valdez---\

[1999V56] 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 and OVERLAND EXPRESS LINES,
INC., respondents.1999 Jan 281st DivisionG.R. No. 122544D E C I S I O N

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 [The
original petitioners were Fidela P. Dizon, Regina Dizon, Amparo D.
Bartolome, Ester A. Dizon, Alice A. Dizon and Fidelina D. Balza.] (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 judgment2 [Per Judge Fernando
Gorospe, Jr.] ordering 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 Intermediate Appellate Court3 [The

Intermediate Appellate Court took cognizance over the case after it was
referred by the Supreme Court.] (now Court of Appeals) rendered a
decision4 [Penned by Justice Simeon M. Gopengco and concurred in by
Justices Lino M. Patajo, Jose F. Racela, Jr. and Fidel P. Purisima; Annex
"A" of Petition; Rollo, p. 60.] stating that:

"x x x, 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 of 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 ["Whatever claims petitioner (private respondent
herein) may have as to what it allegedly paid to and received by private
respondent Fidela Dizon, under the receipt issued by Mrs. Alicia Dizon, or
with regard to the enforceability or non-enforceability of its stated option to
buy, against the private respondents (petitioners herein), which were
matters merely raised as defenses of the petitioner in the unlawful detainer
suit filed against it may be better presented for ultimate resolution in a
separate suit and before the proper forum"; Annex "A" of Petition in G.R.
No. 124741; Rollo, p. 48.]

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 decision6 [Per Judge Wilhelmo C. Fortun.] 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 thereafter consolidated before the RTC of Quezon City,
Branch 77. On April 28, 1989, a decision7 [Per Judge Ignacio L. Salvador.]
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 [Docketed as CA-G.R. CV No. 25153-54, entitled "OVERLAND
EXPRESS LINES, INC., Plaintiff-Appellant vs. FIDELA P. DIZON, ET.AL.,
Defendants-Appellees."] respondent Court of Appeals rendered a decision9
[CA Decision (Eighth Division) dated March 29, 1994, penned by Justice
Eubulo G. Verzola, and concurred in by Justice Ricardo J. Francisco,
Chairman and Justice Serafin V.C. Guingona; Annex "A" of Petition; Rollo,
pp. 57-72.] 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. 46487 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 partial reconsideration (Civil Case No. Q-
45541) by respondent Court of Appeals,10 [CA Resolution (Thirteenth
Division) dated October 19, 1995, penned by Justice Eubulo G. Verzola,
and concurred in by Justice Justo P. Torres, Jr., Chairman and Justice
Oswaldo D. Agcaoili; Annex "B" of Petition; Rollo, pp. 74-78.] petitioners
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. Petitioners 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 judgment11 [See note 2] 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
Per Judge Maximiano C. Asuncion, ruling that:

"After evaluating the evidence and arguments presented by the parties

during the hearing of this case, the Court believes that the petitioner (herein
private respondent) will suffer an irreparable injury unless a writ of
preliminary injunction be issued enjoining the respondents (herein
petitioners) or any person acting in their behalf from implementing the
execution of the Judgment and the Resolution of the MTC, Br. 38 of Quezon
City. Likewise, in view of the pendency of cases before the Court of Appeals
under CA-G.R. No. 25153-54 for Specific Performance and for Annulment
and Relief of Judgment, following the ruling of Supreme Court in the case of
Vda. de Sayman vs. Court of Appeals, 121 SCRA 650, ‘That it is the rule
when a petition for relief is filed, the Court may issue preliminary injunction
as may be necessary for the preservation of the rights of the parties.’
Further, it said that ‘The judgment of the trial court, the enforcement of
which is sought to be restrained has not yet attained the status of being
beyond modification or reversal. Hence, the enforcement of the same at this
stage of the proceedings is premature’." (Annex "A" of Petition; Rollo, pp.
50-51)] 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 petition13 [Docketed as CA-G.R. SP No.
33113, entitled "AMPARO DIZON, ET.AL., Petitioners vs. HON.
MAXIMIANO C. ASUNCION, as RTC Judge of Quezon City, Branch 104
and OVERLAND EXPRESS LINES, INC., Respondents."] 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 [CA Decision
(Thirteenth Division) dated December 11, 1995, penned by Justice Eubulo
G. Verzola, and concurred in by Justice Justo P. Torres, Jr., Chairman and
Justice Oswaldo D. Agcaoili; Annex "A" of Petition; Rollo, pp. 46-53.

NOTE: CA-G.R. SP No. 33113 was transferred to the Thirteenth Division by

virtue of the Resolution from the Fifteenth Division dated January 16, 1994
(pursuant to Section 7, Rule 3 of the Revised Internal Rules of the Court of
Appeals) which states that a Special Case may be consolidated to the
Justice to whom the civil case is assigned for study or report when the
cases involve the same parties and/or related questions of fact and/or law.]
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 [Ibid., Rollo, p. 52.]

Petitioners’ motion for reconsideration was denied in a resolution16 [CA

Resolution (Special Former Thirteenth Division) dated April 23, 1997,
penned by Justice Eubulo G. Verzola, and concurred in by Justice Jaime M.
Lantin (New member vice J. Torres, Jr.) and Justice B.A. Adefuin-dela Cruz
(Vice J. Agcaoili, pursuant to Office Order No. 19-96-DP); Annex "B" of
Petition; Rollo, pp. 55-57.] 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 [Ibid., Rollo, pp. 56-57.]

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 per 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
["Article 1687. If the period for the lease has not been fixed; it is understood
to be from year to year, if the rent agreed upon is annual; from month to
month, if it is monthly; from week to week, if the rent is weekly; and from day
to day, if the rent is to be paid daily."] 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 [Heirs of Manuel T. Suico vs. Court of Appeals, 266
SCRA 444, 456 (1997), citing Rantael vs. Court of Appeals, 97 SCRA 453,
460 (1980); Cruz vs. Puno, 120 SCRA 497, 502 (1983); Lesaca vs. Cuevas,
125 SCRA 384, 388 (1983); Baens vs. Court of Appeals, 125 SCRA 634,
644 (1983); Zablan vs. Court of Appeals, 154 SCRA 487, 493 (1987).

"Article 1673. The lessor may judicially eject the lessee for any of the
following causes:

(1) When the period agreed upon, or that which is fixed for the duration of
lease under Articles 1682 and 1687, has expired; x x x."] In such case, a
demand to vacate is not even necessary for judicial action after the
expiration of every month.20 [Ibid., citing Racaza vs. Susan Realty, Inc., 18
SCRA 1172, 1176-1177 (1966)]

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 ["Article 1144. The following actions must be brought within ten
years from the time the right of action accrues:

(1) Upon a written contract;

x x x x x x."]

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 Code22 ["Article
1670. If at the end of the contract, the lessee should continue enjoying the
thing leased for fifteen days with the acquiescence of the lessor, and unless
a notice to the contrary by either party has previously been given, it is
understood that there is an implied new lease, not for the period of the
original contract, but for the time established in Articles 1682 and 1687. The
other terms of the original contract shall be revived."] are only those terms
which are germane to the lessee’s right of continued enjoyment of the
property leased.23 [Dizon vs. Magsaysay, 57 SCRA 250, 254 (1974)]
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 [Ibid.]

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 [Villanueva vs.
Court of Appeals, 267 SCRA 89, 101 (1997)]
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 [See Bordador vs.
Luz, 283 SCRA 374, 382 (1997)] As provided in Article 1868 of the New
Civil Code,27 ["Article 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."] 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 [245 SCRA 460, 467 citing
the cases of Pineda vs. Court of Appeals, 226 SCRA 754 (1993), Veloso vs.
La Urbana, 58 Phil. 681 (1933), Harry E. Keller Electric Co. vs. Rodriguez,
44 Phil. 19 (1922), Deen vs. Pacific Commercial Co., 42 Phil. 738 (1922),
and Strong vs. Repide, 6 Phil. 680 (1906)] 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
agent, whether the assumed agency be a general or special one, are bound
at their peril, if they would hold the principal, to ascertain not only the fact of
the agency but also the nature and extent of the authority, and in case either
is controverted, the burden of proof is upon them to establish it."

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.

Davide, Jr., C.J. (Chairman), Melo, Kapunan and Pardo, JJ., concur.

\---!e-library! 6.0 Philippines Copyright © 2000 by Sony Valdez---/

([1999V56] 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 and OVERLAND EXPRESS LINES,
INC., respondents., G.R. No. 122544, 1999 Jan 28, 1st Division)

/---!e-library! 6.0 Philippines Copyright © 2000 by Sony Valdez---\

[2008V422] PHILEX MINING CORPORATION, Petitioner, versus
COMMISSIONER OF INTERNAL REVENUE, Respondent.2008 Apr 163rd
DivisionG.R. No. 148187DECISION

YNARES-SANTIAGO, J.:

This is a petition for review on certiorari of the June 30, 2000

Decision[1] of the Court of Appeals in CA-G.R. SP No. 49385, which
affirmed the Decision[2] of the Court of Tax Appeals in C.T.A. Case No.
5200. Also assailed is the April 3, 2001 Resolution[3] denying the motion for
reconsideration.

The facts of the case are as follows:

On April 16, 1971, petitioner Philex Mining Corporation (Philex Mining),

entered into an agreement[4] with Baguio Gold Mining Company (”Baguio
Gold”) for the former to manage and operate the latter’s mining claim,
known as the Sto. Nino mine, located in Atok and Tublay, Benguet
Province. The parties’ agreement was denominated as “Power of Attorney”
and provided for the following terms:

4. Within three (3) years from date thereof, the PRINCIPAL (Baguio
Gold) shall make available to the MANAGERS (Philex Mining) up to
ELEVEN MILLION PESOS (P11,000,000.00), in such amounts as from time
to time may be required by the MANAGERS within the said 3-year period,
for use in the MANAGEMENT of the STO. NINO MINE. The said ELEVEN
MILLION PESOS (P11,000,000.00) shall be deemed, for internal audit
purposes, as the owner’s account in the Sto. Nino PROJECT. Any part of
any income of the PRINCIPAL from the STO. NINO MINE, which is left with
the Sto. Nino PROJECT, shall be added to such owner’s account.

5. Whenever the MANAGERS shall deem it necessary and convenient

in connection with the MANAGEMENT of the STO. NINO MINE, they may
transfer their own funds or property to the Sto. Nino PROJECT, in
accordance with the following arrangements:
 (a) The properties shall be appraised and, together with the
cash, shall be carried by the Sto. Nino PROJECT as a special fund to be
known as the MANAGERS’ account.

(b) The total of the MANAGERS’ account shall not exceed

P11,000,000.00, except with prior approval of the PRINCIPAL; provided,
however, that if the compensation of the MANAGERS as herein provided
cannot be paid in cash from the Sto. Nino PROJECT, the amount not so
paid in cash shall be added to the MANAGERS’ account.

(c) The cash and property shall not thereafter be withdrawn from
the Sto. Nino PROJECT until termination of this Agency.

(d) The MANAGERS’ account shall not accrue interest. Since it

is the desire of the PRINCIPAL to extend to the MANAGERS the benefit of
subsequent appreciation of property, upon a projected termination of this
Agency, the ratio which the MANAGERS’ account has to the owner’s
account will be determined, and the corresponding proportion of the entire
assets of the STO. NINO MINE, excluding the claims, shall be transferred to
the MANAGERS, except that such transferred assets shall not include mine
development, roads, buildings, and similar property which will be valueless,
or of slight value, to the MANAGERS. The MANAGERS can, on the other
hand, require at their option that property originally transferred by them to
the Sto. Nino PROJECT be re-transferred to them. Until such assets are
transferred to the MANAGERS, this Agency shall remain subsisting.

xxxx

12. The compensation of the MANAGER shall be fifty per cent (50%) of
the net profit of the Sto. Nino PROJECT before income tax. It is understood
that the MANAGERS shall pay income tax on their compensation, while the
PRINCIPAL shall pay income tax on the net profit of the Sto. Nino
PROJECT after deduction therefrom of the MANAGERS’ compensation.

xxxx

16. The PRINCIPAL has current pecuniary obligation in favor of the

MANAGERS and, in the future, may incur other obligations in favor of the
MANAGERS. This Power of Attorney has been executed as security for the
payment and satisfaction of all such obligations of the PRINCIPAL in favor
of the MANAGERS and as a means to fulfill the same. Therefore, this
Agency shall be irrevocable while any obligation of the PRINCIPAL in favor
of the MANAGERS is outstanding, inclusive of the MANAGERS’ account.
After all obligations of the PRINCIPAL in favor of the MANAGERS have
been paid and satisfied in full, this Agency shall be revocable by the
PRINCIPAL upon 36-month notice to the MANAGERS.

17. Notwithstanding any agreement or understanding between the

PRINCIPAL and the MANAGERS to the contrary, the MANAGERS may
withdraw from this Agency by giving 6-month notice to the PRINCIPAL. The
MANAGERS shall not in any manner be held liable to the PRINCIPAL by
reason alone of such withdrawal. Paragraph 5(d) hereof shall be operative
in case of the MANAGERS’ withdrawal.

x x x x[5]

In the course of managing and operating the project, Philex Mining

made advances of cash and property in accordance with paragraph 5 of the
agreement. However, the mine suffered continuing losses over the years
which resulted to petitioner’s withdrawal as manager of the mine on January
28, 1982 and in the eventual cessation of mine operations on February 20,
1982.[6]

Thereafter, on September 27, 1982, the parties executed a

“Compromise with Dation in Payment”[7] wherein Baguio Gold admitted an
indebtedness to petitioner in the amount of P179,394,000.00 and agreed to
pay the same in three segments by first assigning Baguio Gold’s tangible
assets to petitioner, transferring to the latter Baguio Gold’s equitable title in
its Philodrill assets and finally settling the remaining liability through
properties that Baguio Gold may acquire in the future.

On December 31, 1982, the parties executed an “Amendment to

Compromise with Dation in Payment”[8] where the parties determined that
Baguio Gold’s indebtedness to petitioner actually amounted to
P259,137,245.00, which sum included liabilities of Baguio Gold to other
creditors that petitioner had assumed as guarantor. These liabilities
pertained to long-term loans amounting to US$11,000,000.00 contracted by
Baguio Gold from the Bank of America NT & SA and Citibank N.A. This
time, Baguio Gold undertook to pay petitioner in two segments by first
assigning its tangible assets for P127,838,051.00 and then transferring its
equitable title in its Philodrill assets for P16,302,426.00. The parties then
ascertained that Baguio Gold had a remaining outstanding indebtedness to
petitioner in the amount of P114,996,768.00.

Subsequently, petitioner wrote off in its 1982 books of account the

remaining outstanding indebtedness of Baguio Gold by charging
P112,136,000.00 to allowances and reserves that were set up in 1981 and
P2,860,768.00 to the 1982 operations.

In its 1982 annual income tax return, petitioner deducted from its
gross income the amount of P112,136,000.00 as “loss on settlement of
receivables from Baguio Gold against reserves and allowances.”[9]
However, the Bureau of Internal Revenue (BIR) disallowed the amount as
deduction for bad debt and assessed petitioner a deficiency income tax of
P62,811,161.39.

Petitioner protested before the BIR arguing that the deduction must
be allowed since all requisites for a bad debt deduction were satisfied, to
wit: (a) there was a valid and existing debt; (b) the debt was ascertained to
be worthless; and (c) it was charged off within the taxable year when it was
determined to be worthless.

Petitioner emphasized that the debt arose out of a valid management

contract it entered into with Baguio Gold. The bad debt deduction
represented advances made by petitioner which, pursuant to the
management contract, formed part of Baguio Gold’s “pecuniary obligations”
to petitioner. It also included payments made by petitioner as guarantor of
Baguio Gold’s long-term loans which legally entitled petitioner to be
subrogated to the rights of the original creditor.

Petitioner also asserted that due to Baguio Gold’s irreversible losses, it

became evident that it would not be able to recover the advances and
payments it had made in behalf of Baguio Gold. For a debt to be
considered worthless, petitioner claimed that it was neither required to
institute a judicial action for collection against the debtor nor to sell or
dispose of collateral assets in satisfaction of the debt. It is enough that a
taxpayer exerted diligent efforts to enforce collection and exhausted all
reasonable means to collect.

On October 28, 1994, the BIR denied petitioner’s protest for lack of legal
and factual basis. It held that the alleged debt was not ascertained to be
worthless since Baguio Gold remained existing and had not filed a petition
for bankruptcy; and that the deduction did not consist of a valid and
subsisting debt considering that, under the management contract, petitioner
was to be paid fifty percent (50%) of the project’s net profit.[10]

Petitioner appealed before the Court of Tax Appeals (CTA) which rendered
judgment, as follows:

WHEREFORE, in view of the foregoing, the instant Petition for Review is

hereby DENIED for lack of merit. The assessment in question, viz: FAS-1-
82-88-003067 for deficiency income tax in the amount of P62,811,161.39 is
hereby AFFIRMED.

ACCORDINGLY, petitioner Philex Mining Corporation is hereby ORDERED

to PAY respondent Commissioner of Internal Revenue the amount of
P62,811,161.39, plus, 20% delinquency interest due computed from
February 10, 1995, which is the date after the 20-day grace period given by
the respondent within which petitioner has to pay the deficiency amount x x
x up to actual date of payment.

SO ORDERED.[11]

The CTA rejected petitioner’s assertion that the advances it made for the
Sto. Nino mine were in the nature of a loan. It instead characterized the
advances as petitioner’s investment in a partnership with Baguio Gold for
the development and exploitation of the Sto. Nino mine. The CTA held that
the “Power of Attorney” executed by petitioner and Baguio Gold was
actually a partnership agreement. Since the advanced amount partook of
the nature of an investment, it could not be deducted as a bad debt from
petitioner’s gross income.

The CTA likewise held that the amount paid by petitioner for the long-term
loan obligations of Baguio Gold could not be allowed as a bad debt
deduction. At the time the payments were made, Baguio Gold was not in
default since its loans were not yet due and demandable. What petitioner
did was to pre-pay the loans as evidenced by the notice sent by Bank of
America showing that it was merely demanding payment of the installment
and interests due. Moreover, Citibank imposed and collected a “pre-
termination penalty” for the pre-payment.

The Court of Appeals affirmed the decision of the CTA.[12] Hence, upon
denial of its motion for reconsideration,[13] petitioner took this recourse
under Rule 45 of the Rules of Court, alleging that:

I.

The Court of Appeals erred in construing that the advances made by Philex
in the management of the Sto. Nino Mine pursuant to the Power of Attorney
partook of the nature of an investment rather than a loan.

II.

The Court of Appeals erred in ruling that the 50%-50% sharing in the net
profits of the Sto. Nino Mine indicates that Philex is a partner of Baguio Gold
in the development of the Sto. Nino Mine notwithstanding the clear absence
of any intent on the part of Philex and Baguio Gold to form a partnership.

III.

The Court of Appeals erred in relying only on the Power of Attorney and in
completely disregarding the Compromise Agreement and the Amended
Compromise Agreement when it construed the nature of the advances
made by Philex.

IV.

The Court of Appeals erred in refusing to delve upon the issue of the
propriety of the bad debts write-off.[14]

Petitioner insists that in determining the nature of its business relationship

with Baguio Gold, we should not only rely on the “Power of Attorney”, but
also on the subsequent “Compromise with Dation in Payment” and
“Amended Compromise with Dation in Payment” that the parties executed in
1982. These documents, allegedly evinced the parties’ intent to treat the
advances and payments as a loan and establish a creditor-debtor
relationship between them.

The petition lacks merit.

The lower courts correctly held that the “Power of Attorney” is the instrument
that is material in determining the true nature of the business relationship
between petitioner and Baguio Gold. Before resort may be had to the two
compromise agreements, the parties’ contractual intent must first be
discovered from the expressed language of the primary contract under
which the parties’ business relations were founded. It should be noted that
the compromise agreements were mere collateral documents executed by
the parties pursuant to the termination of their business relationship created
under the “Power of Attorney”. On the other hand, it is the latter which
established the juridical relation of the parties and defined the parameters of
their dealings with one another.

The execution of the two compromise agreements can hardly be considered

as a subsequent or contemporaneous act that is reflective of the parties’
true intent. The compromise agreements were executed eleven years after
the “Power of Attorney” and merely laid out a plan or procedure by which
petitioner could recover the advances and payments it made under the
“Power of Attorney”. The parties entered into the compromise agreements
as a consequence of the dissolution of their business relationship. It did not
define that relationship or indicate its real character.

An examination of the “Power of Attorney” reveals that a partnership or joint

venture was indeed intended by the parties. Under a contract of
partnership, two or more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of dividing the
profits among themselves.[15] While a corporation, like petitioner, cannot
generally enter into a contract of partnership unless authorized by law or its
charter, it has been held that it may enter into a joint venture which is akin to
a particular partnership:

The legal concept of a joint venture is of common law origin. It has no

precise legal definition, but it has been generally understood to mean an
organization formed for some temporary purpose. x x x It is in fact hardly
distinguishable from the partnership, since their elements are similar –
community of interest in the business, sharing of profits and losses, and a
mutual right of control. x x x The main distinction cited by most opinions in
common law jurisdictions is that the partnership contemplates a general
business with some degree of continuity, while the joint venture is formed
for the execution of a single transaction, and is thus of a temporary nature. x
x x This observation is not entirely accurate in this jurisdiction, since under
the Civil Code, a partnership may be particular or universal, and a particular
partnership may have for its object a specific undertaking. x x x It would
seem therefore that under Philippine law, a joint venture is a form of
partnership and should be governed by the law of partnerships. The
Supreme Court has however recognized a distinction between these two
business forms, and has held that although a corporation cannot enter into a
partnership contract, it may however engage in a joint venture with others. x
x x (Citations omitted) [16]

Perusal of the agreement denominated as the “Power of Attorney” indicates

that the parties had intended to create a partnership and establish a
common fund for the purpose. They also had a joint interest in the profits of
the business as shown by a 50-50 sharing in the income of the mine.

Under the “Power of Attorney”, petitioner and Baguio Gold undertook to

contribute money, property and industry to the common fund known as the
Sto. Niño mine.[17] In this regard, we note that there is a substantive
equivalence in the respective contributions of the parties to the development
and operation of the mine. Pursuant to paragraphs 4 and 5 of the
agreement, petitioner and Baguio Gold were to contribute equally to the joint
venture assets under their respective accounts. Baguio Gold would
contribute P11M under its owner’s account plus any of its income that is left
in the project, in addition to its actual mining claim. Meanwhile, petitioner’s
contribution would consist of its expertise in the management and operation
of mines, as well as the manager’s account which is comprised of P11M in
funds and property and petitioner’s “compensation” as manager that cannot
be paid in cash.

However, petitioner asserts that it could not have entered into a partnership
agreement with Baguio Gold because it did not “bind” itself to contribute
money or property to the project; that under paragraph 5 of the agreement,
it was only optional for petitioner to transfer funds or property to the Sto.
Niño project “(w)henever the MANAGERS shall deem it necessary and
convenient in connection with the MANAGEMENT of the STO. NIÑO
MINE.”[18]

The wording of the parties’ agreement as to petitioner’s contribution to the

common fund does not detract from the fact that petitioner transferred its
funds and property to the project as specified in paragraph 5, thus rendering
effective the other stipulations of the contract, particularly paragraph 5(c)
which prohibits petitioner from withdrawing the advances until termination of
the parties’ business relations. As can be seen, petitioner became bound
by its contributions once the transfers were made. The contributions
acquired an obligatory nature as soon as petitioner had chosen to exercise
its option under paragraph 5.

There is no merit to petitioner’s claim that the prohibition in paragraph 5(c)

against withdrawal of advances should not be taken as an indication that it
had entered into a partnership with Baguio Gold; that the stipulation only
showed that what the parties entered into was actually a contract of agency
coupled with an interest which is not revocable at will and not a partnership.

In an agency coupled with interest, it is the agency that cannot be revoked

or withdrawn by the principal due to an interest of a third party that depends
upon it, or the mutual interest of both principal and agent.[19] In this case,
the non-revocation or non-withdrawal under paragraph 5(c) applies to the
advances made by petitioner who is supposedly the agent and not the
principal under the contract. Thus, it cannot be inferred from the stipulation
that the parties’ relation under the agreement is one of agency coupled with
an interest and not a partnership.

Neither can paragraph 16 of the agreement be taken as an indication that

the relationship of the parties was one of agency and not a partnership.
Although the said provision states that “this Agency shall be irrevocable
while any obligation of the PRINCIPAL in favor of the MANAGERS is
outstanding, inclusive of the MANAGERS’ account,” it does not necessarily
follow that the parties entered into an agency contract coupled with an
interest that cannot be withdrawn by Baguio Gold.

It should be stressed that the main object of the “Power of Attorney” was not
to confer a power in favor of petitioner to contract with third persons on
behalf of Baguio Gold but to create a business relationship between
petitioner and Baguio Gold, in which the former was to manage and operate
the latter’s mine through the parties’ mutual contribution of material
resources and industry. The essence of an agency, even one that is
coupled with interest, is the agent’s ability to represent his principal and
bring about business relations between the latter and third persons.[20]
Where representation for and in behalf of the principal is merely incidental
or necessary for the proper discharge of one’s paramount undertaking
under a contract, the latter may not necessarily be a contract of agency, but
some other agreement depending on the ultimate undertaking of the parties.
[21]

In this case, the totality of the circumstances and the stipulations in the
parties’ agreement indubitably lead to the conclusion that a partnership was
formed between petitioner and Baguio Gold.

First, it does not appear that Baguio Gold was unconditionally obligated to
return the advances made by petitioner under the agreement. Paragraph 5
(d) thereof provides that upon termination of the parties’ business relations,
“the ratio which the MANAGER’S account has to the owner’s account will be
determined, and the corresponding proportion of the entire assets of the
STO. NINO MINE, excluding the claims” shall be transferred to petitioner.
[22] As pointed out by the Court of Tax Appeals, petitioner was merely
entitled to a proportionate return of the mine’s assets upon dissolution of the
parties’ business relations. There was nothing in the agreement that would
require Baguio Gold to make payments of the advances to petitioner as
would be recognized as an item of obligation or “accounts payable” for
Baguio Gold.

Thus, the tax court correctly concluded that the agreement provided for a
distribution of assets of the Sto. Niño mine upon termination, a provision
that is more consistent with a partnership than a creditor-debtor relationship.
It should be pointed out that in a contract of loan, a person who receives a
loan or money or any fungible thing acquires ownership thereof and is
bound to pay the creditor an equal amount of the same kind and quality.[23]
In this case, however, there was no stipulation for Baguio Gold to actually
repay petitioner the cash and property that it had advanced, but only the
return of an amount pegged at a ratio which the manager’s account had to
the owner’s account.
In this connection, we find no contractual basis for the execution of the two
compromise agreements in which Baguio Gold recognized a debt in favor of
petitioner, which supposedly arose from the termination of their business
relations over the Sto. Nino mine. The “Power of Attorney” clearly provides
that petitioner would only be entitled to the return of a proportionate share of
the mine assets to be computed at a ratio that the manager’s account had to
the owner’s account. Except to provide a basis for claiming the advances
as a bad debt deduction, there is no reason for Baguio Gold to hold itself
liable to petitioner under the compromise agreements, for any amount over
and above the proportion agreed upon in the “Power of Attorney”.

Next, the tax court correctly observed that it was unlikely for a business
corporation to lend hundreds of millions of pesos to another corporation with
neither security, or collateral, nor a specific deed evidencing the terms and
conditions of such loans. The parties also did not provide a specific maturity
date for the advances to become due and demandable, and the manner of
payment was unclear. All these point to the inevitable conclusion that the
advances were not loans but capital contributions to a partnership.

The strongest indication that petitioner was a partner in the Sto Niño mine is
the fact that it would receive 50% of the net profits as “compensation” under
paragraph 12 of the agreement. The entirety of the parties’ contractual
stipulations simply leads to no other conclusion than that petitioner’s
“compensation” is actually its share in the income of the joint venture.

Article 1769 (4) of the Civil Code explicitly provides that the “receipt by a
person of a share in the profits of a business is prima facie evidence that he
is a partner in the business.” Petitioner asserts, however, that no such
inference can be drawn against it since its share in the profits of the Sto
Niño project was in the nature of compensation or “wages of an employee”,
under the exception provided in Article 1769 (4) (b).[24]

On this score, the tax court correctly noted that petitioner was not an
employee of Baguio Gold who will be paid “wages” pursuant to an
employer-employee relationship. To begin with, petitioner was the manager
of the project and had put substantial sums into the venture in order to
ensure its viability and profitability. By pegging its compensation to profits,
petitioner also stood not to be remunerated in case the mine had no income.
It is hard to believe that petitioner would take the risk of not being paid at all
for its services, if it were truly just an ordinary employee.

Consequently, we find that petitioner’s “compensation” under paragraph 12

of the agreement actually constitutes its share in the net profits of the
partnership. Indeed, petitioner would not be entitled to an equal share in the
income of the mine if it were just an employee of Baguio Gold.[25] It is not
surprising that petitioner was to receive a 50% share in the net profits,
considering that the “Power of Attorney” also provided for an almost equal
contribution of the parties to the St. Nino mine. The “compensation” agreed
upon only serves to reinforce the notion that the parties’ relations were
indeed of partners and not employer-employee.

All told, the lower courts did not err in treating petitioner’s advances as
investments in a partnership known as the Sto. Nino mine. The advances
were not “debts” of Baguio Gold to petitioner inasmuch as the latter was
under no unconditional obligation to return the same to the former under the
“Power of Attorney”. As for the amounts that petitioner paid as guarantor to
Baguio Gold’s creditors, we find no reason to depart from the tax court’s
factual finding that Baguio Gold’s debts were not yet due and demandable
at the time that petitioner paid the same. Verily, petitioner pre-paid Baguio
Gold’s outstanding loans to its bank creditors and this conclusion is
supported by the evidence on record.[26]

In sum, petitioner cannot claim the advances as a bad debt deduction from
its gross income. Deductions for income tax purposes partake of the nature
of tax exemptions and are strictly construed against the taxpayer, who must
prove by convincing evidence that he is entitled to the deduction claimed.
[27] In this case, petitioner failed to substantiate its assertion that the
advances were subsisting debts of Baguio Gold that could be deducted from
its gross income. Consequently, it could not claim the advances as a valid
bad debt deduction.

WHEREFORE, the petition is DENIED. The decision of the Court of

Appeals in CA-G.R. SP No. 49385 dated June 30, 2000, which affirmed the
decision of the Court of Tax Appeals in C.T.A. Case No. 5200 is
AFFIRMED. Petitioner Philex Mining Corporation is ORDERED to PAY the
deficiency tax on its 1982 income in the amount of P62,811,161.31, with
20% delinquency interest computed from February 10, 1995, which is the
due date given for the payment of the deficiency income tax, up to the
actual date of payment.

SO ORDERED.

/---!e-library! 6.0 Philippines Copyright © 2000 by Sony Valdez---\

[2008V95] FILIPINAS LIFE ASSURANCE COMPANY (now AYALA LIFE

ASSURANCE, INC.), Petitioner, versus CLEMENTE N. PEDROSO,
TERESITA O. PEDROSO and JENNIFER N. PALACIO thru her Attorney-in-
Fact PONCIANO C. MARQUEZ, Respondents.2008 Feb 42nd DivisionG.R.
No. 159489DECISION

QUISUMBING, J.:

This petition for review on certiorari seeks the reversal of the Decision[1]
and Resolution,[2] dated November 29, 2002 and August 5, 2003,
respectively, of the Court of Appeals in CA-G.R. CV No. 33568. The
appellate court had affirmed the Decision[3] dated October 10, 1989 of the
Regional Trial Court (RTC) of Manila, Branch 3, finding petitioner as
defendant and the co-defendants below jointly and severally liable to the
plaintiffs, now herein respondents.

The antecedent facts are as follows:

Respondent Teresita O. Pedroso is a policyholder of a 20-year

endowment life insurance issued by petitioner Filipinas Life Assurance
Company (Filipinas Life). Pedroso claims Renato Valle was her insurance
agent since 1972 and Valle collected her monthly premiums. In the first
week of January 1977, Valle told her that the Filipinas Life Escolta Office
was holding a promotional investment program for policyholders. It was
offering 8% prepaid interest a month for certain amounts deposited on a
monthly basis. Enticed, she initially invested and issued a post-dated check
dated January 7, 1977 for P10,000.[4] In return, Valle issued Pedroso his
personal check for P800 for the 8%[5] prepaid interest and a Filipinas Life
“Agent’s Receipt” No. 807838.[6]

Subsequently, she called the Escolta office and talked to Francisco

Alcantara, the administrative assistant, who referred her to the branch
manager, Angel Apetrior. Pedroso inquired about the promotional
investment and Apetrior confirmed that there was such a promotion. She
was even told she could “push through with the check” she issued. From
the records, the check, with the endorsement of Alcantara at the back, was
deposited in the account of Filipinas Life with the Commercial Bank and
Trust Company (CBTC), Escolta Branch.

Relying on the representations made by the petitioner’s duly authorized

representatives Apetrior and Alcantara, as well as having known agent Valle
for quite some time, Pedroso waited for the maturity of her initial investment.
A month after, her investment of P10,000 was returned to her after she
made a written request for its refund. The formal written request, dated
February 3, 1977, was written on an inter-office memorandum form of
Filipinas Life prepared by Alcantara.[7] To collect the amount, Pedroso
personally went to the Escolta branch where Alcantara gave her the
P10,000 in cash. After a second investment, she made 7 to 8 more
investments in varying amounts, totaling P37,000 but at a lower rate of
5%[8] prepaid interest a month. Upon maturity of Pedroso’s subsequent
investments, Valle would take back from Pedroso the corresponding yellow-
colored agent’s receipt he issued to the latter.

Pedroso told respondent Jennifer N. Palacio, also a Filipinas Life insurance

policyholder, about the investment plan. Palacio made a total investment of
P49,550[9] but at only 5% prepaid interest. However, when Pedroso tried to
withdraw her investment, Valle did not want to return some P17,000 worth
of it. Palacio also tried to withdraw hers, but Filipinas Life, despite
demands, refused to return her money. With the assistance of their lawyer,
they went to Filipinas Life Escolta Office to collect their respective
investments, and to inquire why they had not seen Valle for quite some
time. But their attempts were futile. Hence, respondents filed an action for
the recovery of a sum of money.
After trial, the RTC, Branch 3, Manila, held Filipinas Life and its co-
defendants Valle, Apetrior and Alcantara jointly and solidarily liable to the
respondents.

On appeal, the Court of Appeals affirmed the trial court’s ruling and
subsequently denied the motion for reconsideration.

Petitioner now comes before us raising a single issue:

Whether or not the Court of Appeals committed a reversible error and

gravely abused its discretion in affirming the decision of the lower court
holding FLAC [Filipinas LIFE] to be jointly and severally liable with its co-
defendants on the claim of respondents instead of holding its agent, Renato
Valle, solely liable to the respondents.[10]

Simply put, did the Court of Appeals err in holding petitioner and its co-
defendants jointly and severally liable to the herein respondents?

Filipinas Life does not dispute that Valle was its agent, but claims that it was
only a life insurance company and was not engaged in the business of
collecting investment money. It contends that the investment scheme
offered to respondents by Valle, Apetrior and Alcantara was outside the
scope of their authority as agents of Filipinas Life such that, it cannot be
held liable to the respondents.[11]

On the other hand, respondents contend that Filipinas Life authorized Valle
to solicit investments from them. In fact, Filipinas Life’s official documents
and facilities were used in consummating the transactions. These
transactions, according to respondents, were confirmed by its officers
Apetrior and Alcantara. Respondents assert they exercised all the diligence
required of them in ascertaining the authority of petitioner’s agents; and it is
Filipinas Life that failed in its duty to ensure that its agents act within the
scope of their authority.

Considering the issue raised in the light of the submissions of the parties,
we find that the petition lacks merit. The Court of Appeals committed no
reversible error nor abused gravely its discretion in rendering the assailed
decision and resolution.
It appears indisputable that respondents Pedroso and Palacio had invested
P47,000 and P49,550, respectively. These were received by Valle and
remitted to Filipinas Life, using Filipinas Life’s official receipts, whose
authenticity were not disputed. Valle’s authority to solicit and receive
investments was also established by the parties. When respondents sought
confirmation, Alcantara, holding a supervisory position, and Apetrior, the
branch manager, confirmed that Valle had authority. While it is true that a
person dealing with an agent is put upon inquiry and must discover at his
own peril the agent’s authority, in this case, respondents did exercise due
diligence in removing all doubts and in confirming the validity of the
representations made by Valle.

Filipinas Life, as the principal, is liable for obligations contracted by its agent
Valle. By the contract of agency, a person binds himself to render some
service or to do something in representation or on behalf of another, with
the consent or authority of the latter.[12] The general rule is that the
principal is responsible for the acts of its agent done within the scope of its
authority, and should bear the damage caused to third persons.[13] When
the agent exceeds his authority, the agent becomes personally liable for the
damage.[14] But even when the agent exceeds his authority, the principal
is still solidarily liable together with the agent if the principal allowed the
agent to act as though the agent had full powers.[15] In other words, the
acts of an agent beyond the scope of his authority do not bind the principal,
unless the principal ratifies them, expressly or impliedly.[16] Ratification in
agency is the adoption or confirmation by one person of an act performed
on his behalf by another without authority.[17]

Filipinas Life cannot profess ignorance of Valle’s acts. Even if Valle’s

representations were beyond his authority as a debit/insurance agent,
Filipinas Life thru Alcantara and Apetrior expressly and knowingly ratified
Valle’s acts. It cannot even be denied that Filipinas Life benefited from the
investments deposited by Valle in the account of Filipinas Life. In our
considered view, Filipinas Life had clothed Valle with apparent authority;
hence, it is now estopped to deny said authority. Innocent third persons
should not be prejudiced if the principal failed to adopt the needed
measures to prevent misrepresentation, much more so if the principal
ratified his agent’s acts beyond the latter’s authority. The act of the agent is
considered that of the principal itself. Qui per alium facit per seipsum facere
videtur. “He who does a thing by an agent is considered as doing it
himself.”[18]

WHEREFORE, the petition is DENIED for lack of merit. The Decision and
Resolution, dated November 29, 2002 and August 5, 2003, respectively, of
the Court of Appeals in CA-G.R. CV No. 33568 are AFFIRMED.

Costs against the petitioner.

SO ORDERED.

PHILIPPINE JURISPRUDENCE - FULL TEXT

The Lawphil Project - Arellano Law Foundation
G.R. No. 163720 December 16, 2004
GENEVIEVE LIM vs. FLORENCIO SABAN

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 163720 December 16, 2004

GENEVIEVE LIM, petitioner,

vs.
FLORENCIO SABAN, respondents.

DECISION

TINGA, J.:
Before the Court is a Petition for Review on Certiorari assailing
the Decision1 dated October 27, 2003 of the Court of Appeals,
Seventh Division, in CA-G.R. V No. 60392.2

The late Eduardo Ybañez (Ybañez), the owner of a 1,000-square

meter lot in Cebu City (the "lot"), entered into an Agreement and
Authority to Negotiate and Sell (Agency Agreement) with respondent
Florencio Saban (Saban) on February 8, 1994. Under the Agency
Agreement, Ybañez authorized Saban to look for a buyer of the lot
for Two Hundred Thousand Pesos (P200,000.00) and to mark up the
selling price to include the amounts needed for payment of taxes,
transfer of title and other expenses incident to the sale, as well as
Saban’s commission for the sale.3

Through Saban’s efforts, Ybañez and his wife were able to sell the
lot to the petitioner Genevieve Lim (Lim) and the spouses Benjamin
and Lourdes Lim (the Spouses Lim) on March 10, 1994. The price of
the lot as indicated in the Deed of Absolute Sale is Two Hundred
Thousand Pesos (P200,000.00).4 It appears, however, that the
vendees agreed to purchase the lot at the price of Six Hundred
Thousand Pesos (P600,000.00), inclusive of taxes and other
incidental expenses of the sale. After the sale, Lim remitted to Saban
the amounts of One Hundred Thirteen Thousand Two Hundred Fifty
Seven Pesos (P113,257.00) for payment of taxes due on the
transaction as well as Fifty Thousand Pesos (P50,000.00) as
broker’s commission.5 Lim also issued in the name of Saban four
postdated checks in the aggregate amount of Two Hundred Thirty
Six Thousand Seven Hundred Forty Three Pesos (P236,743.00).
These checks were Bank of the Philippine Islands (BPI) Check No.
1112645 dated June 12, 1994 for P25,000.00; BPI Check No.
1112647 dated June 19, 1994 for P18,743.00; BPI Check No.
1112646 dated June 26, 1994 for P25,000.00; and Equitable PCI
Bank Check No. 021491B dated June 20, 1994 for P168,000.00.

Subsequently, Ybañez sent a letter dated June 10, 1994 addressed

to Lim. In the letter Ybañez asked Lim to cancel all the checks
issued by her in Saban’s favor and to "extend another partial
payment" for the lot in his (Ybañez’s) favor.6
After the four checks in his favor were dishonored upon
presentment, Saban filed a Complaint for collection of sum of money
and damages against Ybañez and Lim with the Regional Trial Court
(RTC) of Cebu City on August 3, 1994.7 The case was assigned to
Branch 20 of the RTC.

In his Complaint, Saban alleged that Lim and the Spouses Lim
agreed to purchase the lot for P600,000.00, i.e., with a mark-up of
Four Hundred Thousand Pesos (P400,000.00) from the price set by
Ybañez. Of the total purchase price of P600,000.00, P200,000.00
went to Ybañez, P50,000.00 allegedly went to Lim’s agent,
and P113,257.00 was given to Saban to cover taxes and other
expenses incidental to the sale. Lim also issued four (4) postdated
checks8 in favor of Saban for the remaining P236,743.00.9

Saban alleged that Ybañez told Lim that he (Saban) was not entitled
to any commission for the sale since he concealed the actual selling
price of the lot from Ybañez and because he was not a licensed real
estate broker. Ybañez was able to convince Lim to cancel all four
checks.

Saban further averred that Ybañez and Lim connived to deprive him
of his sales commission by withholding payment of the first three
checks. He also claimed that Lim failed to make good the fourth
check which was dishonored because the account against which it
was drawn was closed.

In his Answer, Ybañez claimed that Saban was not entitled to any
commission because he concealed the actual selling price from him
and because he was not a licensed real estate broker.

Lim, for her part, argued that she was not privy to the agreement
between Ybañez and Saban, and that she issued stop payment
orders for the three checks because Ybañez requested her to pay
the purchase price directly to him, instead of coursing it through
Saban. She also alleged that she agreed with Ybañez that the
purchase price of the lot was only P200,000.00.

Ybañez died during the pendency of the case before the RTC. Upon
motion of his counsel, the trial court dismissed the case only against
him without any objection from the other parties.10

On May 14, 1997, the RTC rendered its Decision11 dismissing

Saban’s complaint, declaring the four (4) checks issued by Lim as
stale and non-negotiable, and absolving Lim from any liability
towards Saban.

Saban appealed the trial court’s Decision to the Court of Appeals.

On October 27, 2003, the appellate court promulgated

its Decision12 reversing the trial court’s ruling. It held that Saban was
entitled to his commission amounting toP236,743.00.13

The Court of Appeals ruled that Ybañez’s revocation of his contract

of agency with Saban was invalid because the agency was coupled
with an interest and Ybañez effected the revocation in bad faith in
order to deprive Saban of his commission and to keep the profits for
himself.14

The appellate court found that Ybañez and Lim connived to deprive
Saban of his commission. It declared that Lim is liable to pay Saban
the amount of the purchase price of the lot corresponding to his
commission because she issued the four checks knowing that the
total amount thereof corresponded to Saban’s commission for the
sale, as the agent of Ybañez. The appellate court further ruled that,
in issuing the checks in payment of Saban’s commission, Lim acted
as an accommodation party. She signed the checks as drawer,
without receiving value therefor, for the purpose of lending her name
to a third person. As such, she is liable to pay Saban as the holder
for value of the checks.15

Lim filed a Motion for Reconsideration of the appellate

court’s Decision, but her Motion was denied by the Court of Appeals
in a Resolution dated May 6, 2004.16

Not satisfied with the decision of the Court of Appeals, Lim filed the
present petition.

Lim argues that the appellate court ignored the fact that after paying
her agent and remitting to Saban the amounts due for taxes and
transfer of title, she paid the balance of the purchase price directly to
Ybañez.17

She further contends that she is not liable for Ybañez’s debt to
Saban under the Agency Agreement as she is not privy thereto, and
that Saban has no one but himself to blame for consenting to the
dismissal of the case against Ybañez and not moving for his
substitution by his heirs.18

Lim also assails the findings of the appellate court that she issued
the checks as an accommodation party for Ybañez and that she
connived with the latter to deprive Saban of his commission.19

Lim prays that should she be found liable to pay Saban the amount
of his commission, she should only be held liable to the extent of
one-third (1/3) of the amount, since she had two co-vendees (the
Spouses Lim) who should share such liability.20

In his Comment, Saban maintains that Lim agreed to purchase the

lot for P600,000.00, which consisted of the P200,000.00 which would
be paid to Ybañez, the P50,000.00 due to her broker,
the P113,257.00 earmarked for taxes and other expenses incidental
to the sale and Saban’s commission as broker for Ybañez.
According to Saban, Lim assumed the obligation to pay him his
commission. He insists that Lim and Ybañez connived to unjustly
deprive him of his commission from the negotiation of the sale.21

The issues for the Court’s resolution are whether Saban is entitled to
receive his commission from the sale; and, assuming that Saban is
entitled thereto, whether it is Lim who is liable to pay Saban his sales
commission.

The Court gives due course to the petition, but agrees with the result
reached by the Court of Appeals.

The Court affirms the appellate court’s finding that the agency was
not revoked since Ybañez requested that Lim make stop payment
orders for the checks payable to Saban only after the consummation
of the sale on March 10, 1994. At that time, Saban had already
performed his obligation as Ybañez’s agent when, through his
(Saban’s) efforts, Ybañez executed the Deed of Absolute Sale of the
lot with Lim and the Spouses Lim.

To deprive Saban of his commission subsequent to the sale which

was consummated through his efforts would be a breach of his
contract of agency with Ybañez which expressly states that Saban
would be entitled to any excess in the purchase price after deducting
the P200,000.00 due to Ybañez and the transfer taxes and other
incidental expenses of the sale.22

In Macondray & Co. v. Sellner,23 the Court recognized the right of a

broker to his commission for finding a suitable buyer for the seller’s
property even though the seller himself consummated the sale with
the buyer.24 The Court held that it would be in the height of injustice
to permit the principal to terminate the contract of agency to the
prejudice of the broker when he had already reaped the benefits of
the broker’s efforts.

In Infante v. Cunanan, et al.,25 the Court upheld the right of the

brokers to their commissions although the seller revoked their
authority to act in his behalf after they had found a buyer for his
properties and negotiated the sale directly with the buyer whom he
met through the brokers’ efforts. The Court ruled that the seller’s
withdrawal in bad faith of the brokers’ authority cannot unjustly
deprive the brokers of their commissions as the seller’s duly
constituted agents.

The pronouncements of the Court in the aforecited cases are

applicable to the present case, especially considering that Saban
had completely performed his obligations under his contract of
agency with Ybañez by finding a suitable buyer to preparing
the Deed of Absolute Sale between Ybañez and Lim and her co-
vendees. Moreover, the contract of agency very clearly states that
Saban is entitled to the excess of the mark-up of the price of the lot
after deducting Ybañez’s share of P200,000.00 and the taxes and
other incidental expenses of the sale.
However, the Court does not agree with the appellate court’s
pronouncement that Saban’s agency was one coupled with an
interest. Under Article 1927 of the Civil Code, an agency cannot be
revoked if a bilateral contract depends upon it, or if it is the means of
fulfilling an obligation already contracted, or if a partner is appointed
manager of a partnership in the contract of partnership and his
removal from the management is unjustifiable. Stated differently, an
agency is deemed as one coupled with an interest where it is
established for the mutual benefit of the principal and of the agent, or
for the interest of the principal and of third persons, and it cannot be
revoked by the principal so long as the interest of the agent or of a
third person subsists. In an agency coupled with an interest, the
agent’s interest must be in the subject matter of the power conferred
and not merely an interest in the exercise of the power because it
entitles him to compensation. When an agent’s interest is confined to
earning his agreed compensation, the agency is not one coupled
with an interest, since an agent’s interest in obtaining his
compensation as such agent is an ordinary incident of the agency
relationship.26

Saban’s entitlement to his commission having been settled, the

Court must now determine whether Lim is the proper party against
whom Saban should address his claim.

Saban’s right to receive compensation for negotiating as broker for

Ybañez arises from the Agency Agreement between them. Lim is not
a party to the contract. However, the record reveals that she had
knowledge of the fact that Ybañez set the price of the lot
at P200,000.00 and that the P600,000.00—the price agreed upon by
her and Saban—was more than the amount set by Ybañez because
it included the amount for payment of taxes and for Saban’s
commission as broker for Ybañez.

According to the trial court, Lim made the following payments for the
lot: P113,257.00 for taxes, P50,000.00 for her broker,
and P400.000.00 directly to Ybañez, or a total of Five Hundred Sixty
Three Thousand Two Hundred Fifty Seven Pesos
(P563,257.00).27 Lim, on the other hand, claims that on March 10,
1994, the date of execution of the Deed of Absolute Sale, she paid
directly to Ybañez the amount of One Hundred Thousand Pesos
(P100,000.00) only, and gave to Saban P113,257.00 for payment of
taxes andP50,000.00 as his commission,28 and One Hundred Thirty
Thousand Pesos (P130,000.00) on June 28, 1994,29 or a total of
Three Hundred Ninety Three Thousand Two Hundred Fifty Seven
Pesos (P393,257.00). Ybañez, for his part, acknowledged that Lim
and her co-vendees paid him P400,000.00 which he said was the full
amount for the sale of the lot.30 It thus appears that he
received P100,000.00 on March 10, 1994, acknowledged receipt
(through Saban) of the P113,257.00 earmarked for taxes
and P50,000.00 for commission, and received the balance
of P130,000.00 on June 28, 1994. Thus, a total of P230,000.00 went
directly to Ybañez. Apparently, although the amount actually paid by
Lim was P393,257.00, Ybañez rounded off the amount
to P400,000.00 and waived the difference.

Lim’s act of issuing the four checks amounting to P236,743.00 in

Saban’s favor belies her claim that she and her co-vendees did not
agree to purchase the lot at P600,000.00. If she did not agree
thereto, there would be no reason for her to issue those checks
which is the balance of P600,000.00 less the amounts
of P200,000.00 (due to Ybañez),P50,000.00 (commission), and
the P113,257.00 (taxes). The only logical conclusion is that Lim
changed her mind about agreeing to purchase the lot at P600,000.00
after talking to Ybañez and ultimately realizing that Saban’s
commission is even more than what Ybañez received as his share of
the purchase price as vendor. Obviously, this change of mind
resulted to the prejudice of Saban whose efforts led to the
completion of the sale between the latter, and Lim and her co-
vendees. This the Court cannot countenance.

The ruling of the Court in Infante v. Cunanan, et al., cited earlier, is

enlightening for the facts therein are similar to the circumstances of
the present case. In that case, Consejo Infante asked Jose Cunanan
and Juan Mijares to find a buyer for her two lots and the house built
thereon for Thirty Thousand Pesos (P30,000.00) . She promised to
pay them five percent (5%) of the purchase price plus whatever
overprice they may obtain for the property. Cunanan and Mijares
offered the properties to Pio Noche who in turn expressed
willingness to purchase the properties. Cunanan and Mijares
thereafter introduced Noche to Infante. However, the latter told
Cunanan and Mijares that she was no longer interested in selling the
property and asked them to sign a document stating that their written
authority to act as her agents for the sale of the properties was
already cancelled. Subsequently, Infante sold the properties directly
to Noche for Thirty One Thousand Pesos (P31,000.00). The Court
upheld the right of Cunanan and Mijares to their commission,
explaining that—

…[Infante] had changed her mind even if respondent had found

a buyer who was willing to close the deal, is a matter that would
not give rise to a legal consequence if [Cunanan and Mijares]
agreed to call off the transaction in deference to the request of
[Infante]. But the situation varies if one of the parties takes
advantage of the benevolence of the other and acts in a
manner that would promote his own selfish interest. This act is
unfair as would amount to bad faith. This act cannot be
sanctioned without according the party prejudiced the reward
which is due him. This is the situation in which [Cunanan and
Mijares] were placed by [Infante]. [Infante] took advantage of
the services rendered by [Cunanan and Mijares], but believing
that she could evade payment of their commission, she made
use of a ruse by inducing them to sign the deed of
cancellation….This act of subversion cannot be sanctioned and
cannot serve as basis for [Infante] to escape payment of the
commission agreed upon.31

The appellate court therefore had sufficient basis for concluding that
Ybañez and Lim connived to deprive Saban of his commission by
dealing with each other directly and reducing the purchase price of
the lot and leaving nothing to compensate Saban for his efforts.

Considering the circumstances surrounding the case, and the

undisputed fact that Lim had not yet paid the balance of P200,000.00
of the purchase price of P600,000.00, it is just and proper for her to
pay Saban the balance of P200,000.00.

Furthermore, since Ybañez received a total of P230,000.00 from

Lim, or an excess of P30,000.00 from his asking price
of P200,000.00, Saban may claim such excess from Ybañez’s
estate, if that remedy is still available,32 in view of the trial court’s
dismissal of Saban’s complaint as against Ybañez, with Saban’s
express consent, due to the latter’s demise on November 11, 1994.33

The appellate court however erred in ruling that Lim is liable on the
checks because she issued them as an accommodation party.
Section 29 of the Negotiable Instruments Law defines an
accommodation party as a person "who has signed the negotiable
instrument as maker, drawer, acceptor or indorser, without receiving
value therefor, for the purpose of lending his name to some other
person." The accommodation party is liable on the instrument to a
holder for value even though the holder at the time of taking the
instrument knew him or her to be merely an accommodation party.
The accommodation party may of course seek reimbursement from
the party accommodated.34

As gleaned from the text of Section 29 of the Negotiable Instruments

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

The absence of the second requisite becomes pellucid when it is

noted at the outset that Lim issued the checks in question on
account of her transaction, along with the other purchasers, with
Ybañez which was a sale and, therefore, a reciprocal contract.
Specifically, she drew the checks in payment of the balance of the
purchase price of the lot subject of the transaction. And she had to
pay the agreed purchase price in consideration for the sale of the lot
to her and her co-vendees. In other words, the amounts covered by
the checks form part of the cause or consideration from Ybañez’s
end, as vendor, while the lot represented the cause or consideration
on the side of Lim, as vendee.35 Ergo, Lim received value for her
signature on the checks.

Neither is there any indication that Lim issued the checks for the
purpose of enabling Ybañez, or any other person for that matter, to
obtain credit or to raise money, thereby totally debunking the
presence of the third requisite of an accommodation party.

WHEREFORE, in view of the foregoing, the petition is DISMISSED.

SO ORDERED.

Puno, J., Chairman, Austria-Martinez, Chico-Nazario, JJ. concur.

Callejo, Sr., on leave.

Footnotes
1
Penned by Associate Justice Edgardo P. Cruz and concurred
in by Associate Justices Ruben T. Reyes and Noel G. Tijam.
2
Florencio Saban, Plaintiff-Appellant v. Eduardo Ybanez and
Genevieve Lim, Defendants; Genevieve Lim, Defendant-
Appellee.
3
The agency agreement between Ybañez and Saban provides:

…That I[,] Engr. Eduardo Ybañez … have agreed and

allowed to (sic) Mr. Florencio Saban, Sr. and his associate
to look for a buyer, and further agreed to sell and dispose
the above-mention (sic) lot, at the price of P200.00 per
square meters [sic] (equivalent to P200,000.00) net, and
any amount over and above for the stated price resulting
from the sale shall belong to Mr. Florencio Saban, Sr. and
his associate. Furthermore it is agreed and covenanted
that the total expenses covering the sale and transfer of
the title such as, capital gain (sic) tax, documentary stamp,
transfer tax and other relative expenses, for the said sale
shall be borne to the agent, and or to the buyer, except the
 payment of realty taxes. (RTC Records, p. 5)
4
RTC Records, p. 6.
5
Lim on direct examination, TSN, March 3, 1997, p. 8; Rose
Villarosa (Lim’s broker) on direct examination, TSN, October
22, 1996, p. 7.
6
RTC Records, p. 25.
7
Id. at 1.
8
Annexes "B" to "E," RTC Records, pp. 32-35.
9
Id. at 2.
10
Order dated March 6, 1995, RTC Records, p. 48.
11
Rollo, pp. 29-39.
12
Rollo, pp. 22-28.
13
The amount of the purchase price less the P200,000.00
payable to Ybañez and the incidental expenses of the sale.
14
Rollo, pp. 25-26.
15
Id. at 27.
16
Rollo, p. 46.
17
Petition, Id. at 17.
18
Id. at 14 and 16.
19
Id. at 18.
20
Id. at 17.
21
Id. at 114-115.
22
Supra note 3.
 23
33 Phil 370 (1916).
24
Id. at 377.
25
93 Phil. 691 (1953).
26
See I Restatement of the Law In Agency 2d 340 (1957).
27
RTC Decision, Rollo, p. 33.
28
TSN, March 3, 1997, p. 8.
29
Id., see also, Acknolwedgement Receipt issued by Ybañez in
favor of Lim, RTC Records, p. 114.
30
See Acknowledgement Receipt dated June 28, 1994, Id., and
Ybañez’s Affidavit dated June 28, 1994, Id. at 115.
31
Supra note 25, at pp. 695-96.
32
Rule 86 (Claims Against Estate), Revised Rules of Court.
33
Order of the RTC dated March 6, 1995, RTC Records, p. 48.
34
Agro Conglomerates, Inc. v. Court of Appeals, G.R. No.
117660, December 18, 2000, 348 SCRA 450; Bank of the
Philippine Islands v. Court of Appeals, 383 Phil. 538 (2000).
35
See Arts. 1350 and 1458, Civil Code.

The Lawphil Project - Arellano Law Foundation