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EUROTECH INDUSTRIAL TECHNOLOGIES, INC., Petitioner, vs.EDWIN CUIZON and ERWIN


CUIZON, Respondents.
CHICO-NAZARIO, J.:

G.R. No. 167552

April 23, 2007

Before Us is a petition for review by certiorari assailing the Decision1 of the Court of Appeals dated
10 August 2004 and its Resolution2 dated 17 March 2005 in CA-G.R. SP No. 71397 entitled,
"Eurotech Industrial Technologies, Inc. v. Hon. Antonio T. Echavez." The assailed Decision and
Resolution affirmed the Order3 dated 29 January 2002 rendered by Judge Antonio T. Echavez
ordering the dropping of respondent EDWIN Cuizon (EDWIN) as a party defendant in Civil Case
No. CEB-19672.
The generative facts of the case are as follows:
Petitioner is engaged in the business of importation and distribution of various European industrial
equipment for customers here in the Philippines. It has as one of its customers Impact Systems
Sales ("Impact Systems") which is a sole proprietorship owned by respondent ERWIN Cuizon
(ERWIN). Respondent EDWIN is the sales manager of Impact Systems and was impleaded in the
court a quo in said capacity.
From January to April 1995, petitioner sold to Impact Systems various products allegedly
amounting to ninety-one thousand three hundred thirty-eight (P91,338.00) pesos. Subsequently,
respondents sought to buy from petitioner one unit of sludge pump valued at P250,000.00 with
respondents making a down payment of fifty thousand pesos (P50,000.00).4 When the sludge
pump arrived from the United Kingdom, petitioner refused to deliver the same to respondents
without their having fully settled their indebtedness to petitioner. Thus, on 28 June 1995,
respondent EDWIN and Alberto de Jesus, general manager of petitioner, executed a Deed of
Assignment of receivables in favor of petitioner, the pertinent part of which states:
1.) That ASSIGNOR5 has an outstanding receivables from Toledo Power Corporation in the
amount of THREE HUNDRED SIXTY FIVE THOUSAND (P365,000.00) PESOS as payment
for the purchase of one unit of Selwood Spate 100D Sludge Pump;
2.) That said ASSIGNOR does hereby ASSIGN, TRANSFER, and CONVEY unto the
ASSIGNEE6 the said receivables from Toledo Power Corporation in the amount of THREE
HUNDRED SIXTY FIVE THOUSAND (P365,000.00) PESOS which receivables the
ASSIGNOR is the lawful recipient;
3.) That the ASSIGNEE does hereby accept this assignment.7
Following the execution of the Deed of Assignment, petitioner delivered to respondents the sludge
pump as shown by Invoice No. 12034 dated 30 June 1995. 8
Allegedly unbeknownst to petitioner, respondents, despite the existence of the Deed of
Assignment, proceeded to collect from Toledo Power Company the amount of P365,135.29 as
evidenced by Check Voucher No. 09339prepared by said power company and an official receipt
dated 15 August 1995 issued by Impact Systems.10Alarmed by this development, petitioner made
several demands upon respondents to pay their obligations. As a result, respondents were able to
make partial payments to petitioner. On 7 October 1996, petitioners counsel sent respondents a

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

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

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

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Applying the foregoing to the present case, we hold that Edwin Cuizon acted well-within his
authority when he signed the Deed of Assignment. To recall, petitioner refused to deliver the one
unit of sludge pump unless it received, in full, the payment for Impact Systems indebtedness. 36 We
may very well assume that Impact Systems desperately needed the sludge pump for its business
since after it paid the amount of fifty thousand pesos (P50,000.00) as down payment on 3 March
1995,37 it still persisted in negotiating with petitioner which culminated in the execution of the Deed
of Assignment of its receivables from Toledo Power Company on 28 June 1995.38The significant
amount of time spent on the negotiation for the sale of the sludge pump underscores Impact
Systems perseverance to get hold of the said equipment. There is, therefore, no doubt in our mind
that respondent EDWINs participation in the Deed of Assignment was "reasonably necessary" or
was required in order for him to protect the business of his principal. Had he not acted in the way
he did, the business of his principal would have been adversely affected and he would have
violated his fiduciary relation with his principal.
We likewise take note of the fact that in this case, petitioner is seeking to recover both from
respondents ERWIN, the principal, and EDWIN, the agent. It is well to state here that Article 1897
of the New Civil Code upon which petitioner anchors its claim against respondent EDWIN "does
not hold that in case of excess of authority, both the agent and the principal are liable to the other
contracting party."39 To reiterate, the first part of Article 1897 declares that the principal is liable in
cases when the agent acted within the bounds of his authority. Under this, the agent is completely
absolved of any liability. The second part of the said provision presents the situations when the
agent himself becomes liable to a third party when he expressly binds himself or he exceeds the
limits of his authority without giving notice of his powers to the third person. However, it must be
pointed out that in case of excess of authority by the agent, like what petitioner claims exists here,
the law does not say that a third person can recover from both the principal and the agent.40
As we declare that respondent EDWIN acted within his authority as an agent, who did not acquire
any right nor incur any liability arising from the Deed of Assignment, it follows that he is not a real
party in interest who should be impleaded in this case. A real party in interest is one who "stands to
be benefited or injured by the judgment in the suit, or the party entitled to the avails of the suit."41 In
this respect, we sustain his exclusion as a defendant in the suit before the court a quo.
WHEREFORE, premises considered, the present petition is DENIED and the Decision dated 10
August 2004 and Resolution dated 17 March 2005 of the Court of Appeals in CA-G.R. SP No.
71397, affirming the Order dated 29 January 2002 of the Regional Trial Court, Branch 8, Cebu
City, is AFFIRMED.
Let the records of this case be remanded to the Regional Trial Court, Branch 8, Cebu City, for the
continuation of the proceedings against respondent Erwin Cuizon. SO ORDERED.
ANTONIO B. BALTAZAR, petitioner,
vs.
HONORABLE OMBUDSMAN, EULOGIO M. MARIANO, JOSE D. JIMENEZ, JR., TORIBIO E.
ILAO, JR. and ERNESTO R. SALENGA, respondents.
VELASCO, JR., J.:

G.R. No. 136433

December 6, 2006

Ascribing grave abuse of discretion to respondent Ombudsman, this Petition for Review on
Certiorari,1 under Rule 45 pursuant to Section 27 of RA 6770,2 seeks to reverse and set aside the

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November 26, 1997 Order3 of the Office of the Special Prosecutor (OSP) in OMB-1-94-3425 duly
approved by then Ombudsman Aniano Desierto on August 21, 1998, which recommended the
dismissal of the Information4 in Criminal Case No. 23661 filed before the Sandiganbayan against
respondents Pampanga Provincial Adjudicator Toribio E. Ilao, Jr., Chief Legal Officer Eulogio M.
Mariano and Legal Officer Jose D. Jimenez, Jr. (both of the DAR Legal Division in San Fernando,
Pampanga), and Ernesto R. Salenga. The petition likewise seeks to set aside the October 30, 1998
Memorandum5 of the OSP duly approved by the Ombudsman on November 27, 1998 which denied
petitioner's Motion for Reconsideration.6 Previously, the filing of the Information against said
respondents was authorized by the May 10, 1996 Resolution 7 and October 3, 1996 Order8 of the
Ombudsman which found probable cause that they granted unwarranted benefits, advantage, and
preference to respondent Salenga in violation of Section 3 (e) of RA 3019. 9
The Facts
Paciencia Regala owns a seven (7)-hectare fishpond located at Sasmuan, Pampanga. Her
Attorney-in-Fact Faustino R. Mercado leased the fishpond for PhP 230,000.00 to Eduardo Lapid for
a three (3)-year period, that is, from August 7, 1990 to August 7, 1993. 10 Lessee Eduardo Lapid in
turn sub-leased the fishpond to Rafael Lopez for PhP 50,000.00 during the last seven (7) months
of the original lease, that is, from January 10, 1993 to August 7, 1993. 11 Respondent Ernesto
Salenga was hired by Eduardo Lapid as fishpond watchman (bante-encargado). In the sub-lease,
Rafael Lopez rehired respondent Salenga.
Meanwhile, on March 11, 1993, respondent Salenga, through a certain Francis Lagman, sent his
January 28, 1993 demand letter12 to Rafael Lopez and Lourdes Lapid for unpaid salaries and nonpayment of the 10% share in the harvest.
On June 5, 1993, sub-lessee Rafael Lopez wrote a letter to respondent Salenga informing the
latter that for the last two (2) months of the sub-lease, he had given the rights over the fishpond to
Mario Palad and Ambit Perez for PhP 20,000.00.13 This prompted respondent Salenga to file a
Complaint14 before the Provincial Agrarian Reform Adjudication Board (PARAB), Region III, San
Fernando, Pampanga docketed as DARAB Case No. 552-P93 entitled Ernesto R. Salenga v.
Rafael L. Lopez and Lourdes L. Lapid for Maintenance of Peaceful Possession, Collection of Sum
of Money and Supervision of Harvest. The Complaint was signed by respondent Jose D. Jimenez,
Jr., Legal Officer of the Department of Agrarian Reform (DAR) Region III Office in San Fernando,
Pampanga, as counsel for respondent Salenga; whereas respondent Eulogio M. Mariano was the
Chief Legal Officer of DAR Region III. The case was assigned to respondent Toribio E. Ilao, Jr.,
Provincial Adjudicator of DARAB, Pampanga.
On May 10, 1993, respondent Salenga amended his complaint. 15 The amendments included a
prayer for the issuance of a temporary restraining order (TRO) and preliminary injunction.
However, before the prayer for the issuance of a TRO could be acted upon, on June 16, 1993,
respondent Salenga filed a Motion to Maintain Status Quo and to Issue Restraining Order 16 which
was set for hearing on June 22, 1993. In the hearing, however, only respondent Salenga with his
counsel appeared despite notice to the other parties. Consequently, the ex-partepresentation of
respondent Salengas evidence in support of the prayer for the issuance of a restraining order was
allowed, since the motion was unopposed, and on July 21, 1993, respondent Ilao, Jr. issued a
TRO.17

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Thereafter, respondent Salenga asked for supervision of the harvest, which the board sheriff did.
Accordingly, defendants Lopez and Lapid received their respective shares while respondent
Salenga was given his share under protest. In the subsequent hearing for the issuance of a
preliminary injunction, again, only respondent Salenga appeared and presented his evidence for
the issuance of the writ.
Pending resolution of the case, Faustino Mercado, as Attorney-in-Fact of the fishpond owner
Paciencia Regala, filed a motion to intervene which was granted by respondent Ilao, Jr. through the
November 15, 1993 Order. After the trial, respondent Ilao, Jr. rendered a Decision on May 29,
1995 dismissing the Complaint for lack of merit; but losing plaintiff, respondent Salenga, appealed
the decision before the DARAB Appellate Board.
Complaint Before the Ombudsman
On November 24, 1994, pending resolution of the agrarian case, the instant case was instituted by
petitioner Antonio Baltazar, an alleged nephew of Faustino Mercado, through a ComplaintAffidavit18 against private respondents before the Office of the Ombudsman which was docketed
as OMB-1-94-3425 entitled Antonio B. Baltazar v. Eulogio Mariano, Jose Jimenez, Jr., Toribio Ilao,
Jr. and Ernesto Salenga for violation of RA 3019. Petitioner charged private respondents of
conspiracy through the issuance of the TRO in allowing respondent Salenga to retain possession
of the fishpond, operate it, harvest the produce, and keep the sales under the safekeeping of other
private respondents. Moreover, petitioner maintains that respondent Ilao, Jr. had no jurisdiction to
hear and act on DARAB Case No. 552-P93 filed by respondent Salenga as there was no tenancy
relation between respondent Salenga and Rafael L. Lopez, and thus, the complaint was
dismissible on its face.
Through the December 14, 1994 Order,19 the Ombudsman required private respondents to file
their counter-affidavits, affidavits of their witnesses, and other controverting evidence. While the
other respondents submitted their counter-affidavits, respondent Ilao, Jr. instead filed his February
9, 1995 motion to dismiss, February 21, 1995 Reply, and March 24, 1995 Rejoinder.
Ombudsmans Determination of Probable Cause
On May 10, 1996, the Ombudsman issued a Resolution 20 finding cause to bring respondents to
court, denying the motion to dismiss of respondent Ilao, Jr., and recommending the filing of an
Information for violation of Section 3 (e) of RA 3019. Subsequently, respondent Ilao, Jr. filed his
September 16, 1996 Motion for Reconsideration and/or Re-investigation21 which was denied
through the October 3, 1996 Order.22Consequently, the March 17, 1997 Information23 was filed
against all the private respondents before the Sandiganbayan which was docketed as Criminal
Case No. 23661.
Before the graft court, respondent Ilao, Jr. filed his May 19, 1997 Motion for Reconsideration and/or
Re-investigation which was granted through the August 29, 1997 Order. 24 On September 8, 1997,
respondent Ilao, Jr. subsequently filed his Counter-Affidavit25 with attachments while petitioner did
not file any reply-affidavit despite notice to him. The OSP of the Ombudsman conducted the reinvestigation; and the result of the re-investigation was embodied in the assailed November 26,
1997 Order26 which recommended the dismissal of the complaint in OMB-1-94-3425 against all
private respondents. Upon review, the Ombudsman approved the OSPs recommendation on
August 21, 1998.

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Petitioners Motion for Reconsideration27 was likewise denied by the OSP through the October 30,
1998 Memorandum28 which was approved by the Ombudsman on November 27, 1998.
Consequently, the trial prosecutor moved orally before the Sandiganbayan for the dismissal of
Criminal Case No. 23661 which was granted through the December 11, 1998 Order. 29
Thus, the instant petition is before us.
The Issues
Petitioner raises two assignments of errors, to wit:
THE HONORABLE OMBUDSMAN ERRED IN GIVING DUE COURSE A MISPLACED
COUNTER-AFFIDAVIT FILED AFTER THE TERMINATION OF THE PRELIMINARY
INVESTIGATION AND/OR THE CASE WAS ALREADY FILED BEFORE THE
SANDIGANBAYAN.
ASSUMING OTHERWISE, THE HONORABLE OMBUDSMAN LIKEWISE ERRED IN
REVERSING HIS OWN RESOLUTION WHERE IT WAS RESOLVED THAT ACCUSED AS
PROVINCIAL AGRARIAN ADJUDICATOR HAS NO JURISDICTION OVER A COMPLAINT
WHERE THERE EXIST [sic] NO TENANCY RELATIONSHIP CONSIDERING [sic]
COMPLAINANT IS NOT A TENANT BUT A "BANTE-ENCARGADO" OR WATCHMANOVERSEER HIRED FOR A SALARY OF P3,000.00 PER MONTH AS ALLEGED IN HIS
OWN COMPLAINT.30
Before delving into the errors raised by petitioner, we first address the preliminary procedural issue
of the authority and locus standi of petitioner to pursue the instant petition.
Preliminary Issue: Legal Standing
Locus standi is defined as "a right of appearance in a court of justice x x x on a given
question."31 In private suits, standing is governed by the "real-parties-in interest" rule found in
Section 2, Rule 3 of the 1997 Rules of Civil Procedure which provides that "every action must be
prosecuted or defended in the name of the real party in interest." Accordingly, the "real-party-in
interest" is "the party who stands to be benefited or injured by the judgment in the suit or the party
entitled to the avails of the suit."32 Succinctly put, the plaintiffs standing is based on their own right
to the relief sought.
The records show that petitioner is a non-lawyer appearing for himself and conducting litigation in
person. Petitioner instituted the instant case before the Ombudsman in his own name. In so far as
the Complaint-Affidavit filed before the Office of the Ombudsman is concerned, there is no question
on his authority and legal standing. Indeed, the Office of the Ombudsman is mandated to
"investigate and prosecute on its own or on complaint by any person, any act or omission of any
public officer or employee, office or agency, when such act or omission appears to be illegal,
unjust, improper or inefficient (emphasis supplied)."33 The Ombudsman can act on anonymous
complaints and motu proprio inquire into alleged improper official acts or omissions from whatever
source, e.g., a newspaper.34 Thus, any complainant may be entertained by the Ombudsman for the
latter to initiate an inquiry and investigation for alleged irregularities.

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However, filing the petition in person before this Court is another matter. The Rules allow a nonlawyer to conduct litigation in person and appear for oneself only when he is a party to a legal
controversy. Section 34 of Rule 138 pertinently provides, thus:
SEC. 34. By whom litigation conducted. In the court of a justice of the peace a party may
conduct his litigation in person, with the aid of an agent or friend appointed by him for that
purpose, or with the aid of an attorney. In any other court, a party may conduct his litigation
personally or by aid of an attorney, and hisappearance must be either personal or by a
duly authorized member of the bar (emphases supplied).
Petitioner has no legal standing
Is petitioner a party or a real party in interest to have the locus standi to pursue the instant petition?
We answer in the negative.
While petitioner may be the complainant in OMB-1-94-3425, he is not a real party in interest.
Section 2, Rule 3 of the 1997 Rules of Civil Procedure stipulates, thus:
SEC. 2. Parties in interest. A real party in interest is the party who stands to be benefited
or injured by the judgment in the suit, or the party entitled to the avails of the suit. Unless
otherwise authorized by law or these Rules, every action must be prosecuted or defended in
the name of the real party in interest.
The same concept is applied in criminal and administrative cases.
In the case at bar which involves a criminal proceeding stemming from a civil (agrarian) case, it is
clear that petitioner is not a real party in interest. Except being the complainant, the records show
that petitioner is a stranger to the agrarian case. It must be recalled that the undisputed owner of
the fishpond is Paciencia Regala, who intervened in DARAB Case No. 552-P93 through her
Attorney-in-Fact Faustino Mercado in order to protect her interest. The motion for intervention filed
by Faustino Mercado, as agent of Paciencia Regala, was granted by respondent Provincial
Adjudicator Ilao, Jr. through the November 15, 1993 Order in DARAB Case No. 552-P93.
Agency cannot be further delegated
Petitioner asserts that he is duly authorized by Faustino Mercado to institute the suit and presented
a Special Power of Attorney35 (SPA) from Faustino Mercado. However, such SPA is unavailing for
petitioner. For one, petitioners principal, Faustino Mercado, is an agent himself and as such
cannot further delegate his agency to another. Otherwise put, an agent cannot delegate to another
the same agency. The legal maxim potestas delegata non delegare potest; a power once
delegated cannot be re-delegated, while applied primarily in political law to the exercise of
legislative power, is a principle of agency.36 For another, a re-delegation of the agency would be
detrimental to the principal as the second agent has no privity of contract with the former. In the
instant case, petitioner has no privity of contract with Paciencia Regala, owner of the fishpond and
principal of Faustino Mercado.
Moreover, while the Civil Code under Article 189237 allows the agent to appoint a substitute, such
is not the situation in the instant case. The SPA clearly delegates the agency to petitioner to pursue

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the case and not merely as a substitute. Besides, it is clear in the aforecited Article that what is
allowed is a substitute and not a delegation of the agency.
Clearly, petitioner is neither a real party in interest with regard to the agrarian case, nor is he a real
party in interest in the criminal proceedings conducted by the Ombudsman as elevated to the
Sandiganbayan. He is not a party who will be benefited or injured by the results of both cases.
Petitioner: a stranger and not an injured private complainant
Petitioner only surfaced in November 1994 as complainant before the Ombudsman. Aside from
that, not being an agent of the parties in the agrarian case, he has no locus standi to pursue this
petition. He cannot be likened to an injured private complainant in a criminal complaint who has
direct interest in the outcome of the criminal case.
More so, we note that the petition is not pursued as a public suit with petitioner asserting a "public
right" in assailing an allegedly illegal official action, and doing so as a representative of the general
public. He is pursuing the instant case as an agent of an ineffective agency.
Petitioner has not shown entitlement to judicial protection
Even if we consider the instant petition as a public suit, where we may consider petitioner suing as
a "stranger," or in the category of a "citizen," or "taxpayer," still petitioner has not adequately shown
that he is entitled to seek judicial protection. In other words, petitioner has not made out a sufficient
interest in the vindication of the public order and the securing of relief as a "citizen" or "taxpayer";
more so when there is no showing that he was injured by the dismissal of the criminal complaint
before the Sandiganbayan.
Based on the foregoing discussion, petitioner indubitably does not have locus standi to pursue this
action and the instant petition must be forthwith dismissed on that score. Even
granting arguendo that he has locus standi, nonetheless, petitioner fails to show grave abuse of
discretion of respondent Ombudsman to warrant a reversal of the assailed November 26, 1997
Order and the October 30, 1998 Memorandum.
First Issue: Submission of Counter-Affidavit
The Sandiganbayan, not the Ombudsman, ordered re-investigation
On the substantive aspect, in the first assignment of error, petitioner imputes grave abuse of
discretion on public respondent Ombudsman for allowing respondent Ilao, Jr. to submit his
Counter-Affidavit when the preliminary investigation was already concluded and an Information
filed with the Sandiganbayan which assumed jurisdiction over the criminal case. This contention is
utterly erroneous.
The facts clearly show that it was not the Ombudsman through the OSP who allowed respondent
Ilao, Jr. to submit his Counter-Affidavit. It was the Sandiganbayan who granted the prayed for reinvestigation and ordered the OSP to conduct the re-investigation through its August 29, 1997
Order, as follows:

11 | A G E N C Y F U L L C a s e s A P R e l o x

Considering the manifestation of Prosecutor Cicero Jurado, Jr. that accused Toribio E. Ilao,
Jr. was not able to file his counter-affidavit in the preliminary investigation, there appears to
be some basis for granting the motion of said accused for reinvestigation.
WHEREFORE, accused Toribio E. Ilao, Jr. may file his counter-affidavit, with documentary
evidence attached, if any, with the Office of the Special Prosecutor within then (10) days
from today. Theprosecution is ordered to conduct a reinvestigation within a period of
thirty (30) days.38 (Emphases supplied.)
As it is, public respondent Ombudsman through the OSP did not exercise any discretion in allowing
respondent Ilao, Jr. to submit his Counter-Affidavit. The OSP simply followed the graft courts
directive to conduct the re-investigation after the Counter-Affidavit of respondent Ilao, Jr. was filed.
Indeed, petitioner did not contest nor question the August 29, 1997 Order of the graft court.
Moreover, petitioner did not file any reply-affidavit in the re-investigation despite notice.
Re-investigation upon sound discretion of graft court
Furthermore, neither can we fault the graft court in granting the prayed for re-investigation as it can
readily be seen from the antecedent facts that respondent Ilao, Jr. was not given the opportunity to
file his Counter-Affidavit. Respondent Ilao, Jr. filed a motion to dismiss with the Ombudsman but
such was not resolved before the Resolutionfinding cause to bring respondents to trialwas
issued. In fact, respondent Ilao, Jr.s motion to dismiss was resolved only through the May 10,
1996 Resolution which recommended the filing of an Information. Respondent Ilao, Jr.s Motion for
Reconsideration and/or Re-investigation was denied and the Information was filed with the graft
court.
Verily, courts are given wide latitude to accord the accused ample opportunity to present
controverting evidence even before trial as demanded by due process. Thus, we held in Villaflor v.
Vivar that "[a] component part of due process in criminal justice, preliminary investigation is a
statutory and substantive right accorded to the accused before trial. To deny their claim to a
preliminary investigation would be to deprive them of the full measure of their right to due
process."39
Second Issue: Agrarian Dispute
Anent the second assignment of error, petitioner contends that DARAB Case No. 552-P93 is not
an agrarian dispute and therefore outside the jurisdiction of the DARAB. He maintains that
respondent Salenga is not an agricultural tenant but a mere watchman of the fishpond owned by
Paciencia Regala. Moreover, petitioner further argues that Rafael Lopez and Lourdes Lapid, the
respondents in the DARAB case, are not the owners of the fishpond.
Nature of the case determined by allegations in the complaint
This argument is likewise bereft of merit. Indeed, as aptly pointed out by respondents and as borne
out by the antecedent facts, respondent Ilao, Jr. could not have acted otherwise. It is a settled rule
that jurisdiction over the subject matter is determined by the allegations of the complaint. 40 The
nature of an action is determined by the material averments in the complaint and the character of
the relief sought,41 not by the defenses asserted in the answer or motion to dismiss.42 Given that
respondent Salengas complaint and its attachment clearly spells out the jurisdictional allegations

12 | A G E N C Y F U L L C a s e s A P R e l o x

that he is an agricultural tenant in possession of the fishpond and is about to be ejected from it,
clearly, respondent Ilao, Jr. could not be faulted in assuming jurisdiction as said allegations
characterize an agricultural dispute. Besides, whatever defense asserted in an answer or motion to
dismiss is not to be considered in resolving the issue on jurisdiction as it cannot be made
dependent upon the allegations of the defendant.
Issuance of TRO upon the sound discretion of hearing officer
As regards the issuance of the TRO, considering the proper assumption of jurisdiction by
respondent Ilao, Jr., it can be readily culled from the antecedent facts that his issuance of the TRO
was a proper exercise of discretion. Firstly, the averments with evidence as to the existence of the
need for the issuance of the restraining order were manifest in respondent Salengas Motion to
Maintain Status Quo and to Issue Restraining Order,43 the attached Police Investigation
Report,44 and Medical Certificate.45 Secondly, only respondent Salenga attended the June 22,
1993 hearing despite notice to parties. Hence, Salengas motion was not only unopposed but his
evidence adduced ex-parte also adequately supported the issuance of the restraining order.
Premises considered, respondent Ilao, Jr. has correctly assumed jurisdiction and properly
exercised his discretion in issuing the TROas respondent Ilao, Jr. aptly maintained that giving
due course to the complaint and issuing the TRO do not reflect the final determination of the merits
of the case. Indeed, after hearing the case, respondent Ilao, Jr. rendered a Decision on May 29,
1995 dismissing DARAB Case No. 552-P93 for lack of merit.
Court will not review prosecutors determination of probable cause
Finally, we will not delve into the merits of the Ombudsmans reversal of its initial finding of
probable cause or cause to bring respondents to trial. Firstly, petitioner has not shown that the
Ombudsman committed grave abuse of discretion in rendering such reversal. Secondly, it is clear
from the records that the initial finding embodied in the May 10, 1996 Resolution was arrived at
before the filing of respondent Ilao, Jr.s Counter-Affidavit. Thirdly, it is the responsibility of the
public prosecutor, in this case the Ombudsman, to uphold the law, to prosecute the guilty, and to
protect the innocent. Lastly, the function of determining the existence of probable cause is proper
for the Ombudsman in this case and we will not tread on the realm of this executive function to
examine and assess evidence supplied by the parties, which is supposed to be exercised at the
start of criminal proceedings. In Perez v. Hagonoy Rural Bank, Inc.,46 as cited in Longos Rural
Waterworks and Sanitation Association, Inc. v. Hon. Desierto,47 we had occasion to rule that we
cannot pass upon the sufficiency or insufficiency of evidence to determine the existence of
probable cause.48
WHEREFORE, the instant petition is DENIED for lack of merit, and the November 26, 1997 Order
and the October 30, 1998 Memorandum of the Office of the Special Prosecutor in Criminal Case
No. 23661 (OMB-1-94-3425) are hereby AFFIRMED IN TOTO, with costs against petitioner.
SO ORDERED.

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EDWARD C. ONG, petitioner, vs. COURT OF APPEALS AND THE PEOPLE OF THE
PHILIPPINES, respondents.
G.R. No. 119858

April 29, 2003 CARPIO, J.:

Petitioner Edward C. Ong ("petitioner") filed this petition for review on certiorari1 to nullify the
Decision2 dated 27 October 1994 of the Court of Appeals in CA-G.R. C.R. No. 14031, and its
Resolution3 dated 18 April 1995, denying petitioner's motion for reconsideration. The assailed
Decision affirmed in toto petitioner's conviction4 by the Regional Trial Court of Manila, Branch
35,5 on two counts of estafa for violation of the Trust Receipts Law,6as follows:
WHEREFORE, judgment is rendered: (1) pronouncing accused EDWARD C. ONG guilty
beyond reasonable doubt on two counts, as principal on both counts, of ESTAFA defined
under No. 1 (b) of Article 315 of the Revised Penal Code in relation to Section 13 of
Presidential Decree No. 115, and penalized under the 1st paragraph of the same Article
315, and sentenced said accused in each count to TEN (10) YEARS of prision mayor, as
minimum, to TWENTY (20) YEARS of reclusion temporal, as maximum;
(2) ACQUITTING accused BENITO ONG of the crime charged against him, his guilt thereof
not having been established by the People beyond reasonable doubt;
(3) Ordering accused Edward C. Ong to pay private complainant Solid Bank Corporation the
aggregate sum of P2,976,576.37 as reparation for the damages said accused caused to the
private complainant, plus the interest thereon at the legal rate and the penalty of 1% per
month, both interest and penalty computed from July 15, 1991, until the principal obligation
is fully paid;
(4) Ordering Benito Ong to pay, jointly and severally with Edward C. Ong, the private
complainant the legal interest and the penalty of 1% per month due and accruing on the

14 | A G E N C Y F U L L C a s e s A P R e l o x

unpaid amount of P1,449,395.71, still owing to the private offended under the trust receipt
Exhibit C, computed from July 15, 1991, until the said unpaid obligation is fully paid;
(5) Ordering accused Edward C. Ong to pay the costs of these two actions.
SO ORDERED.7
The Charge
Assistant City Prosecutor Dina P. Teves of the City of Manila charged petitioner and Benito Ong
with two counts ofestafa under separate Informations dated 11 October 1991.
In Criminal Case No. 92-101989, the Information indicts petitioner and Benito Ong of the crime
of estafacommitted as follows:
That on or about July 23, 1990, in the City of Manila, Philippines, the said accused,
representing ARMAGRI International Corporation, conspiring and confederating together did
then and there willfully, unlawfully and feloniously defraud the SOLIDBANK Corporation
represented by its Accountant, DEMETRIO LAZARO, a corporation duly organized and
existing under the laws of the Philippines located at Juan Luna Street, Binondo, this City, in
the following manner, to wit: the said accused received in trust from said SOLIDBANK
Corporation the following, to wit:
10,000 bags of urea
valued at P2,050,000.00 specified in a Trust Receipt Agreement and covered by a Letter of
Credit No. DOM GD 90-009 in favor of the Fertiphil Corporation; under the express
obligation on the part of the said accused to account for said goods to Solidbank
Corporation and/or remit the proceeds of the sale thereof within the period specified in the
Agreement or return the goods, if unsold immediately or upon demand; but said accused,
once in possession of said goods, far from complying with the aforesaid obligation failed and
refused and still fails and refuses to do so despite repeated demands made upon him to that
effect and with intent to defraud, willfully, unlawfully and feloniously misapplied,
misappropriated and converted the same or the value thereof to his own personal use and
benefit, to the damage and prejudice of the said Solidbank Corporation in the aforesaid
amount of P2,050,000.00 Philippine Currency.
Contrary to law.
In Criminal Case No. 92-101990, the Information likewise charges petitioner of the crime
of estafa committed as follows:
That on or about July 6, 1990, in the City of Manila, Philippines, the said accused,
representing ARMAGRI International Corporation, did then and there willfully, unlawfully and
feloniously defraud the SOLIDBANK Corporation represented by its Accountant,
DEMETRIO LAZARO, a corporation duly organized and existing under the laws of the
Philippines located at Juan Luna Street, Binondo, this City, in the following manner, to wit:
the said accused received in trust from said SOLIDBANK Corporation the following goods,
to wit:

15 | A G E N C Y F U L L C a s e s A P R e l o x

125 pcs. Rear diff. assy RNZO 49"


50 pcs. Front & Rear diff assy. Isuzu Elof
85 units 1-Beam assy. Isuzu Spz
all valued at P2,532,500.00 specified in a Trust Receipt Agreement and covered by a
Domestic Letter of Credit No. DOM GD 90-006 in favor of the Metropole Industrial Sales
with address at P.O. Box AC 219, Quezon City; under the express obligation on the part of
the said accused to account for said goods to Solidbank Corporation and/or remit the
proceeds of the sale thereof within the period specified in the Agreement or return the
goods, if unsold immediately or upon demand; but said accused, once in possession of said
goods, far from complying with the aforesaid obligation failed and refused and still fails and
refuses to do so despite repeated demands made upon him to that effect and with intent to
defraud, willfully, unlawfully and feloniously misapplied, misappropriated and converted the
same or the value thereof to his own personal use and benefit, to the damage and prejudice
of the said Solidbank Corporation in the aforesaid amount of P2,532,500.00 Philippine
Currency.
Contrary to law.
Arraignment and Plea
With the assistance of counsel, petitioner and Benito Ong both pleaded not guilty when arraigned.
Thereafter, trial ensued.
Version of the Prosecution
The prosecution's evidence disclosed that on 22 June 1990, petitioner, representing ARMAGRI
International Corporation8 ("ARMAGRI"), applied for a letter of credit for P2,532,500.00 with
SOLIDBANK Corporation ("Bank") to finance the purchase of differential assemblies from
Metropole Industrial Sales. On 6 July 1990, petitioner, representing ARMAGRI, executed a trust
receipt9 acknowledging receipt from the Bank of the goods valued at P2,532,500.00.
On 12 July 1990, petitioner and Benito Ong, representing ARMAGRI, applied for another letter of
credit for P2,050,000.00 to finance the purchase of merchandise from Fertiphil Corporation. The
Bank approved the application, opened the letter of credit and paid to Fertiphil Corporation the
amount of P2,050,000.00. On 23 July 1990, petitioner, signing for ARMAGRI, executed another
trust receipt10 in favor of the Bank acknowledging receipt of the merchandise.
Both trust receipts contained the same stipulations. Under the trust receipts, ARMAGRI undertook
to account for the goods held in trust for the Bank, or if the goods are sold, to turn over the
proceeds to the Bank. ARMAGRI also undertook the obligation to keep the proceeds in the form of
money, bills or receivables as the separate property of the Bank or to return the goods upon
demand by the Bank, if not sold. In addition, petitioner executed the following additional
undertaking stamped on the dorsal portion of both trust receipts:
I/We jointly and severally agreed to any increase or decrease in the interest rate which may
occur after July 1, 1981, when the Central Bank floated the interest rates, and to pay

16 | A G E N C Y F U L L C a s e s A P R e l o x

additionally the penalty of 1% per month until the amount/s or installment/s due and unpaid
under the trust receipt on the reverse side hereof is/are fully paid. 11
Petitioner signed alone the foregoing additional undertaking in the Trust Receipt for P2,253,500.00,
while both petitioner and Benito Ong signed the additional undertaking in the Trust Receipt for
P2,050,000.00.
When the trust receipts became due and demandable, ARMAGRI failed to pay or deliver the goods
to the Bank despite several demand letters.12 Consequently, as of 31 May 1991, the unpaid
account under the first trust receipt amounted to P1,527,180.66, 13 while the unpaid account under
the second trust receipt amounted to P1,449,395.71.14
Version of the Defense
After the prosecution rested its case, petitioner and Benito Ong, through counsel, manifested in
open court that they were waiving their right to present evidence. The trial court then considered
the case submitted for decision.15
The Ruling of the Court of Appeals
Petitioner appealed his conviction to the Court of Appeals. On 27 October 1994, the Court of
Appeals affirmed the trial court's decision in toto. Petitioner filed a motion for reconsideration but
the same was denied by the Court of Appeals in the Resolution dated 18 April 1995.
The Court of Appeals held that although petitioner is neither a director nor an officer of ARMAGRI,
he certainly comes within the term "employees or other x x x persons therein responsible for the
offense" in Section 13 of the Trust Receipts Law. The Court of Appeals explained as follows:
It is not disputed that appellant transacted with the Solid Bank on behalf of ARMAGRI. This
is because the Corporation cannot by itself transact business or sign documents it being an
artificial person. It has to accomplish these through its agents. A corporation has a
personality distinct and separate from those acting on its behalf. In the fulfillment of its
purpose, the corporation by necessity has to employ persons to act on its behalf.
Being a mere artificial person, the law (Section 13, P.D. 115) recognizes the impossibility of
imposing the penalty of imprisonment on the corporation itself. For this reason, it is the
officers or employees or other persons whom the law holds responsible. 16
The Court of Appeals ruled that what made petitioner liable was his failure to account to the
entruster Bank what he undertook to perform under the trust receipts. The Court of Appeals held
that ARMAGRI, which petitioner represented, could not itself negotiate the execution of the trust
receipts, go to the Bank to receive, return or account for the entrusted goods. Based on the
representations of petitioner, the Bank accepted the trust receipts and, consequently, expected
petitioner to return or account for the goods entrusted.17
The Court of Appeals also ruled that the prosecution need not prove that petitioner is occupying a
position in ARMAGRI in the nature of an officer or similar position to hold him the "person(s)
therein responsible for the offense." The Court of Appeals held that petitioner's admission that his
participation was merely incidental still makes him fall within the purview of the law as one of the

17 | A G E N C Y F U L L C a s e s A P R e l o x

corporation's "employees or other officials or persons therein responsible for the offense."
Incidental or not, petitioner was then acting on behalf of ARMAGRI, carrying out the corporation's
decision when he signed the trust receipts.
The Court of Appeals further ruled that the prosecution need not prove that petitioner personally
received and misappropriated the goods subject of the trust receipts. Evidence of misappropriation
is not required under the Trust Receipts Law. To establish the crime of estafa, it is sufficient to
show failure by the entrustee to turn over the goods or the proceeds of the sale of the goods
covered by a trust receipt. Moreover, the bank is not obliged to determine if the goods came into
the actual possession of the entrustee. Trust receipts are issued to facilitate the purchase of
merchandise. To obligate the bank to examine the fact of actual possession by the entrustee of the
goods subject of every trust receipt will greatly impede commercial transactions.
Hence, this petition.
The Issues
Petitioner seeks to reverse his conviction by contending that the Court of Appeals erred:
1. IN RULING THAT, BY THE MERE CIRCUMSTANCE THAT PETITIONER ACTED AS
AGENT AND SIGNED FOR THE ENTRUSTEE CORPORATION, PETITIONER WAS
NECESSARILY THE ONE RESPONSIBLE FOR THE OFFENSE; AND
2. IN CONVICTING PETITIONER UNDER SPECIFICATIONS NOT ALLEGED IN THE
INFORMATION.
The Ruling of the Court
The Court sustains the conviction of petitioner.
First Assigned Error: Petitioner comes
within the purview of Section 13 of the Trust Receipts Law.
Petitioner contends that the Court of Appeals erred in finding him liable for the default of
ARMAGRI, arguing that in signing the trust receipts, he merely acted as an agent of ARMAGRI.
Petitioner asserts that nowhere in the trust receipts did he assume personal responsibility for the
undertakings of ARMAGRI which was the entrustee.
Petitioner's arguments fail to persuade us.
The pivotal issue for resolution is whether petitioner comes within the purview of Section 13 of the
Trust Receipts Law which provides:
x x x . If the violation is committed by a corporation, partnership, association or other
juridical entities, the penalty provided for in this Decree shall be imposed upon the directors,
officers, employees or other officials or persons therein responsible for the offense, without
prejudice to the civil liabilities arising from the offense. (Emphasis supplied)
We hold that petitioner is a person responsible for violation of the Trust Receipts Law.

18 | A G E N C Y F U L L C a s e s A P R e l o x

The relevant penal provision of the Trust Receipts Law reads:


SEC. 13. Penalty Clause. - The failure of the entrustee to turn over the proceeds of the sale
of the goods, documents or instruments covered by a trust receipt to the extent of the
amount owing to the entruster or as appears in the trust receipt or to return said goods,
documents or instruments if they were not sold or disposed of in accordance with the terms
of the trust receipt shall constitute the crime of estafa, punishable under the provisions of
Article Three Hundred and Fifteen, Paragraph One (b), of Act Numbered Three Thousand
Eight Hundred and Fifteen, as amended, otherwise known as the Revised Penal Code. If
the violation or offense is committed by a corporation, partnership, association or other
juridical entities, the penalty provided for in this Decree shall be imposed upon the directors,
officers, employees or other officials or persons therein responsible for the offense, without
prejudice to the civil liabilities arising from the criminal offense. (Emphasis supplied)
The Trust Receipts Law is violated whenever the entrustee fails to: (1) turn over the proceeds of
the sale of the goods, or (2) return the goods covered by the trust receipts if the goods are not
sold.18 The mere failure to account or return gives rise to the crime which is malum
prohibitum.19 There is no requirement to prove intent to defraud.20
The Trust Receipts Law recognizes the impossibility of imposing the penalty of imprisonment on a
corporation. Hence, if the entrustee is a corporation, the law makes the officers or employees
or other persons responsible for the offense liable to suffer the penalty of imprisonment. The
reason is obvious: corporations, partnerships, associations and other juridical entities cannot be
put to jail. Hence, the criminal liability falls on the human agent responsible for the violation of the
Trust Receipts Law.
In the instant case, the Bank was the entruster while ARMAGRI was the entrustee. Being the
entrustee, ARMAGRI was the one responsible to account for the goods or its proceeds in case of
sale. However, the criminal liability for violation of the Trust Receipts Law falls on the human agent
responsible for the violation. Petitioner, who admits being the agent of ARMAGRI, is the person
responsible for the offense for two reasons. First, petitioner is the signatory to the trust receipts, the
loan applications and the letters of credit. Second, despite being the signatory to the trust receipts
and the other documents, petitioner did not explain or show why he is not responsible for the failure
to turn over the proceeds of the sale or account for the goods covered by the trust receipts.
The Bank released the goods to ARMAGRI upon execution of the trust receipts and as part of the
loan transactions of ARMAGRI. The Bank had a right to demand from ARMAGRI payment or at
least a return of the goods. ARMAGRI failed to pay or return the goods despite repeated demands
by the Bank.
It is a well-settled doctrine long before the enactment of the Trust Receipts Law, that the failure to
account, upon demand, for funds or property held in trust is evidence of conversion or
misappropriation.21 Under the law, mere failure by the entrustee to account for the goods received
in trust constitutes estafa. The Trust Receipts Law punishes dishonesty and abuse of confidence in
the handling of money or goods to the prejudice of public order. 22 The mere failure to deliver the
proceeds of the sale or the goods if not sold constitutes a criminal offense that causes prejudice
not only to the creditor, but also to the public interest. 23 Evidently, the Bank suffered prejudice for
neither money nor the goods were turned over to the Bank.

19 | A G E N C Y F U L L C a s e s A P R e l o x

The Trust Receipts Law expressly makes the corporation's officers or employees or other persons
therein responsible for the offense liable to suffer the penalty of imprisonment. In the instant case,
petitioner signed the two trust receipts on behalf of ARMAGRI 24 as the latter could only act
through its agents. When petitioner signed the trust receipts, he acknowledged receipt of the goods
covered by the trust receipts. In addition, petitioner was fully aware of the terms and conditions
stated in the trust receipts, including the obligation to turn over the proceeds of the sale or return
the goods to the Bank, to wit:
Received, upon the TRUST hereinafter mentioned from SOLIDBANK CORPORATION
(hereafter referred to as the BANK), the following goods and merchandise, the property of
said BANK specified in the bill of lading as follows: x x x and in consideration thereof, I/we
hereby agree to hold said goods in Trust for the said BANK and as its property with liberty to
sell the same for its account but without authority to make any other disposition whatsoever
of the said goods or any part thereof (or the proceeds thereof) either by way of conditional
sale, pledge, or otherwise.
In case of sale I/we agree to hand the proceeds as soon as received to the BANK to apply
against the relative acceptance (as described above) and for the payment of any other
indebtedness of mine/ours to SOLIDBANK CORPORATION.
xxx

xxx

xxx.

I/we agree to keep said goods, manufactured products, or proceeds thereof, whether in the
form of money or bills, receivables, or accounts, separate and capable of identification as
the property of the BANK.
I/we further agree to return the goods, documents, or instruments in the event of their nonsale, upon demand or within ____ days, at the option of the BANK.
xxx

xxx

xxx. (Emphasis supplied)25

True, petitioner acted on behalf of ARMAGRI. However, it is a well-settled rule that the law of
agency governing civil cases has no application in criminal cases. When a person participates in
the commission of a crime, he cannot escape punishment on the ground that he simply acted as an
agent of another party.26 In the instant case, the Bank accepted the trust receipts signed by
petitioner based on petitioner's representations. It is the fact of being the signatory to the two trust
receipts, and thus a direct participant to the crime, which makes petitioner a person responsible for
the offense.
Petitioner could have raised the defense that he had nothing to do with the failure to account for
the proceeds or to return the goods. Petitioner could have shown that he had severed his
relationship with ARMAGRI prior to the loss of the proceeds or the disappearance of the goods.
Petitioner, however, waived his right to present any evidence, and thus failed to show that he is not
responsible for the violation of the Trust Receipts Law.
There is no dispute that on 6 July 1990 and on 23 July 1990, petitioner signed the two trust
receipts27 on behalf of ARMAGRI. Petitioner, acting on behalf of ARMAGRI, expressly
acknowledged receipt of the goods in trust for the Bank. ARMAGRI failed to comply with its
undertakings under the trust receipts. On the other hand, petitioner failed to explain and

20 | A G E N C Y F U L L C a s e s A P R e l o x

communicate to the Bank what happened to the goods despite repeated demands from the Bank.
As of 13 May 1991, the unpaid account under the first and second trust receipts amounted to
P1,527,180.60 and P1,449,395.71, respectively.28
Second Assigned Error: Petitioner's conviction under the
allegations in the two Informations for Estafa.
Petitioner argues that he cannot be convicted on a new set of facts not alleged in the Informations.
Petitioner claims that the trial court's decision found that it was ARMAGRI that transacted with the
Bank, acting through petitioner as its agent. Petitioner asserts that this contradicts the specific
allegation in the Informations that it was petitioner who was constituted as the entrustee and was
thus obligated to account for the goods or its proceeds if sold. Petitioner maintains that this
absolves him from criminal liability.
We find no merit in petitioner's arguments.
Contrary to petitioner's assertions, the Informations explicitly allege that petitioner, representing
ARMAGRI, defrauded the Bank by failing to remit the proceeds of the sale or to return the goods
despite demands by the Bank, to the latter's prejudice. As an essential element of estafa with
abuse of confidence, it is sufficient that the Informations specifically allege that the entrustee
received the goods. The Informations expressly state that ARMAGRI, represented by petitioner,
received the goods in trust for the Bank under the express obligation to remit the proceeds of the
sale or to return the goods upon demand by the Bank. There is no need to allege in the
Informations in what capacity petitioner participated to hold him responsible for the offense. Under
the Trust Receipts Law, it is sufficient to allege and establish the failure of ARMAGRI, whom
petitioner represented, to remit the proceeds or to return the goods to the Bank.
When petitioner signed the trust receipts, he claimed he was representing ARMAGRI. The
corporation obviously acts only through its human agents and it is the conduct of such agents
which the law must deter.29 The existence of the corporate entity does not shield from prosecution
the agent who knowingly and intentionally commits a crime at the instance of a corporation. 30
Penalty for the crime of Estafa.
The penalty for the crime of estafa is prescribed in Article 315 of the Revised Penal Code, as
follows:
1st. The penalty of prision correccional in its maximum period to prision mayor in its
minimum period, if the amount of the fraud is over 12,000 pesos but does not exceed
22,000 pesos; and if such amount exceeds the latter sum, the penalty provided in this
paragraph shall be imposed in its maximum period, adding one year for each additional
10,000 pesos; but the total penalty which may be imposed should not exceed twenty years.
xxx.
In the instant case, the amount of the fraud in Criminal Case No. 92-101989 is P1,527,180.66. In
Criminal Case No. 92-101990, the amount of the fraud is P1,449,395.71. Since the amounts of the
fraud in each estafa exceeds P22,000.00, the penalty of prision correccional maximum to prision
mayor minimum should be imposed in its maximum period as prescribed in Article 315 of the
Revised Penal Code. The maximum indeterminate sentence should be taken from this maximum

21 | A G E N C Y F U L L C a s e s A P R e l o x

period which has a duration of 6 years, 8 months and 21 days to 8 years. One year is then added
for each additional P10,000.00, but the total penalty should not exceed 20 years. Thus, the
maximum penalty for each count of estafa in this case should be 20 years.
Under the Indeterminate Sentence Law, the minimum indeterminate sentence can be anywhere
within the range of the penalty next lower in degree to the penalty prescribed by the Code for the
offense. The minimum range of the penalty is determined without first considering any modifying
circumstance attendant to the commission of the crime and without reference to the periods into
which it may be subdivided.31 The modifying circumstances are considered only in the imposition of
the maximum term of the indeterminate sentence.32 Since the penalty prescribed in Article 315
is prision correccional maximum to prision mayor minimum, the penalty next lower in degree would
be prision correccional minimum to medium. Thus, the minimum term of the indeterminate penalty
should be anywhere within 6 months and 1 day to 4 years and 2 months.33
Accordingly, the Court finds a need to modify in part the penalties imposed by the trial court. The
minimum penalty for each count of estafa should be reduced to four (4) years and two (2) months
of prision correccional.
As for the civil liability arising from the criminal offense, the question is whether as the signatory for
ARMAGRI, petitioner is personally liable pursuant to the provision of Section 13 of the Trust
Receipts Law.
In Prudential Bank v. Intermediate Appellate Court,34 the Court discussed the imposition of civil
liability for violation of the Trust Receipts Law in this wise:
It is clear that if the violation or offense is committed by a corporation, partnership,
association or other juridical entities, the penalty shall be imposed upon the directors,
officers, employees or other officials or persons responsible for the offense. The penalty
referred to is imprisonment, the duration of which would depend on the amount of the fraud
as provided for in Article 315 of the Revised Penal Code. The reason for this is obvious:
corporation, partnership, association or other juridical entities cannot be put in jail.However,
it is these entities which are made liable for the civil liabilities arising from the criminal
offense. This is the import of the clause 'without prejudice to the civil liabilities arising from
the criminal offense'. (Emphasis supplied)
In Prudential Bank, the Court ruled that the person signing the trust receipt for the corporation is
not solidarily liable with the entrustee-corporation for the civil liability arising from the criminal
offense. He may, however, be personally liable if he bound himself to pay the debt of the
corporation under a separate contract of surety or guaranty.
In the instant case, petitioner did not sign in his personal capacity the solidary guarantee clause 35
found on the dorsal portion of the trust receipts. Petitioner placed his signature after the typewritten
words "ARMCO INDUSTRIAL CORPORATION" found at the end of the solidary guarantee clause.
Evidently, petitioner did not undertake to guaranty personally the payment of the principal and
interest of ARMAGRI's debt under the two trust receipts.
In contrast, petitioner signed the stamped additional undertaking without any indication he was
signing for ARMAGRI. Petitioner merely placed his signature after the additional undertaking.

22 | A G E N C Y F U L L C a s e s A P R e l o x

Clearly, what petitioner signed in his personal capacity was the stamped additional undertaking to
pay a monthly penalty of 1% of the total obligation in case of ARMAGRI's default.
In the additional undertaking, petitioner bound himself to pay "jointly and severally" a monthly
penalty of 1% in case of ARMAGRI's default. 35 Thus, petitioner is liable to the Bank for the
stipulated monthly penalty of 1% on the outstanding amount of each trust receipt. The penalty shall
be computed from 15 July 1991, when petitioner received the demand letter, 36 until the debt is
fully paid.
WHEREFORE, the assailed Decision is AFFIRMED with MODIFICATION. In Criminal Case No.
92-101989 and in Criminal Case No. 92-101990, for each count of estafa, petitioner EDWARD C.
ONG is sentenced to an indeterminate penalty of imprisonment from four (4) years and two (2)
months of prision correctional as MINIMUM, to twenty (20) years of reclusion temporal as
MAXIMUM. Petitioner is ordered to pay SOLIDBANK CORPORATION the stipulated penalty of 1%
per month on the outstanding balance of the two trust receipts to be computed from 15 July 1991
until the debt is fully paid.
SO ORDERED.

SUNACE INTERNATIONAL MANAGEMENT SERVICES, INC.Petitioner,


vs.
NATIONAL LABOR RELATIONS COMMISSION, Second Division; HON. ERNESTO S.
DINOPOL, in his capacity as Labor Arbiter, NLRC; NCR, Arbitration Branch, Quezon City
and DIVINA A. MONTEHERMOZO,Respondents.
G.R. No. 161757

January 25, 2006

CARPIO MORALES, J.:

Petitioner, Sunace International Management Services (Sunace), a corporation duly organized and
existing under the laws of the Philippines, deployed to Taiwan Divina A. Montehermozo (Divina) as
a domestic helper under a 12-month contract effective February 1, 1997.1 The deployment was
with the assistance of a Taiwanese broker, Edmund Wang, President of Jet Crown International
Co., Ltd.
After her 12-month contract expired on February 1, 1998, Divina continued working for her
Taiwanese employer, Hang Rui Xiong, for two more years, after which she returned to the
Philippines on February 4, 2000.
Shortly after her return or on February 14, 2000, Divina filed a complaint2 before the National Labor
Relations Commission (NLRC) against Sunace, one Adelaide Perez, the Taiwanese broker, and
the employer-foreign principal alleging that she was jailed for three months and that she was
underpaid.

23 | A G E N C Y F U L L C a s e s A P R e l o x

The following day or on February 15, 2000, Labor Arbitration Associate Regina T. Gavin issued
Summons3 to the Manager of Sunace, furnishing it with a copy of Divinas complaint and directing it
to appear for mandatory conference on February 28, 2000.
The scheduled mandatory conference was reset. It appears to have been concluded, however.
On April 6, 2000, Divina filed her Position Paper4 claiming that under her original one-year contract
and the 2-year extended contract which was with the knowledge and consent of Sunace, the
following amounts representing income tax and savings were deducted:
Year
1997
1998
1999

Deduction for Income Tax


NT10,450.00
NT9,500.00
NT13,300.00

Deduction for Savings


NT23,100.00
NT36,000.00
NT36,000.00;5

and while the amounts deducted in 1997 were refunded to her, those deducted in 1998 and 1999
were not. On even date, Sunace, by its Proprietor/General Manager Maria Luisa Olarte, filed its
Verified Answer and Position Paper,6 claiming as follows, quoted verbatim:
COMPLAINANT IS NOT ENTITLED FOR THE REFUND OF HER 24 MONTHS SAVINGS
3. Complainant could not anymore claim nor entitled for the refund of her 24 months savings as
she already took back her saving already last year and the employer did not deduct any money
from her salary, in accordance with a Fascimile Message from the respondent SUNACEs
employer, Jet Crown International Co. Ltd., a xerographic copy of which is herewith attached
as ANNEX "2" hereof;
COMPLAINANT IS NOT ENTITLED TO REFUND OF HER 14 MONTHS TAX AND PAYMENT
OF ATTORNEYS FEES
4. There is no basis for the grant of tax refund to the complainant as the she finished her one year
contract and hence, was not illegally dismissed by her employer. She could only lay claim over the
tax refund or much more be awarded of damages such as attorneys fees as said reliefs are
available only when the dismissal of a migrant worker is without just valid or lawful cause as
defined by law or contract.
The rationales behind the award of tax refund and payment of attorneys fees is not to enrich the
complainant but to compensate him for actual injury suffered. Complainant did not suffer injury,
hence, does not deserve to be compensated for whatever kind of damages.
Hence, the complainant has NO cause of action against respondent SUNACE for monetary claims,
considering that she has been totally paid of all the monetary benefits due her under her
Employment Contract to her full satisfaction.
6. Furthermore, the tax deducted from her salary is in compliance with the Taiwanese law, which
respondent SUNACE has no control and complainant has to obey and this Honorable Office has
no authority/jurisdiction to intervene because the power to tax is a sovereign power which the
Taiwanese Government is supreme in its own territory. The sovereign power of taxation of a state
is recognized under international law and among sovereign states.

24 | A G E N C Y F U L L C a s e s A P R e l o x

7. That respondent SUNACE respectfully reserves the right to file supplemental Verified Answer
and/or Position Paper to substantiate its prayer for the dismissal of the above case against the
herein respondent. AND BY WAY OF x x x x (Emphasis and underscoring supplied)
Reacting to Divinas Position Paper, Sunace filed on April 25, 2000 an ". . . answer to
complainants position paper"7 alleging that Divinas 2-year extension of her contract was without
its knowledge and consent, hence, it had no liability attaching to any claim arising therefrom, and
Divina in fact executed a Waiver/Quitclaim and Release of Responsibility and an Affidavit of
Desistance, copy of each document was annexed to said ". . . answer to complainants position
paper."
To Sunaces ". . . answer to complainants position paper," Divina filed a 2-page reply,8 without,
however, refuting Sunaces disclaimer of knowledge of the extension of her contract and without
saying anything about the Release, Waiver and Quitclaim and Affidavit of Desistance.
The Labor Arbiter, rejected Sunaces claim that the extension of Divinas contract for two more
years was without its knowledge and consent in this wise:
We reject Sunaces submission that it should not be held responsible for the amount withheld
because her contract was extended for 2 more years without its knowledge and consent
because as Annex "B"9 shows, Sunace and Edmund Wang have not stopped communicating with
each other and yet the matter of the contracts extension and Sunaces alleged non-consent
thereto has not been categorically established.
What Sunace should have done was to write to POEA about the extension and its objection
thereto, copy furnished the complainant herself, her foreign employer, Hang Rui Xiong and the
Taiwanese broker, Edmund Wang.
And because it did not, it is presumed to have consented to the extension and should be liable for
anything that resulted thereform (sic).10 (Underscoring supplied)
The Labor Arbiter rejected too Sunaces argument that it is not liable on account of Divinas
execution of a Waiver and Quitclaim and an Affidavit of Desistance. Observed the Labor Arbiter:
Should the parties arrive at any agreement as to the whole or any part of the dispute, the same
shall be reduced to writing and signed by the parties and their respective counsel (sic), if any,
before the Labor Arbiter.
The settlement shall be approved by the Labor Arbiter after being satisfied that it was voluntarily
entered into by the parties and after having explained to them the terms and consequences
thereof.
A compromise agreement entered into by the parties not in the presence of the Labor Arbiter
before whom the case is pending shall be approved by him, if after confronting the parties,
particularly the complainants, he is satisfied that they understand the terms and conditions of the
settlement and that it was entered into freely voluntarily (sic) by them and the agreement is not
contrary to law, morals, and public policy.

25 | A G E N C Y F U L L C a s e s A P R e l o x

And because no consideration is indicated in the documents, we strike them down as contrary to
law, morals, and public policy.11
He accordingly decided in favor of Divina, by decision of October 9, 2000, 12 the dispositive portion
of which reads:
Wherefore, judgment is hereby rendered ordering respondents SUNACE INTERNATIONAL
SERVICES and its owner ADELAIDA PERGE, both in their personal capacities and as agent of
Hang Rui Xiong/Edmund Wang to jointly and severally pay complainant DIVINA A.
MONTEHERMOZO the sum of NT91,950.00 in its peso equivalent at the date of payment, as
refund for the amounts which she is hereby adjudged entitled to as earlier discussed plus 10%
thereof as attorneys fees since compelled to litigate, complainant had to engage the services of
counsel.
SO ORDERED.13 (Underescoring supplied)
On appeal of Sunace, the NLRC, by Resolution of April 30, 2002,14 affirmed the Labor Arbiters
decision.
Via petition for certiorari,15 Sunace elevated the case to the Court of Appeals which dismissed it
outright by Resolution of November 12, 2002,16 the full text of which reads:
The petition for certiorari faces outright dismissal.
The petition failed to allege facts constitutive of grave abuse of discretion on the part of the public
respondent amounting to lack of jurisdiction when the NLRC affirmed the Labor Arbiters finding
that petitioner Sunace International Management Services impliedly consented to the extension of
the contract of private respondent Divina A. Montehermozo. It is undisputed that petitioner was
continually communicating with private respondents foreign employer (sic). As agent of the foreign
principal, "petitioner cannot profess ignorance of such extension as obviously, the act of the
principal extending complainant (sic) employment contract necessarily bound it." Grave
abuse of discretion is not present in the case at bar.
ACCORDINGLY, the petition is hereby DENIED DUE COURSE and DISMISSED.17
SO ORDERED.
(Emphasis on words in capital letters in the original; emphasis on words in small letters and
underscoring supplied)
Its Motion for Reconsideration having been denied by the appellate court by Resolution of January
14, 2004,18Sunace filed the present petition for review on certiorari.
The Court of Appeals affirmed the Labor Arbiter and NLRCs finding that Sunace knew of and
impliedly consented to the extension of Divinas 2-year contract. It went on to state that "It is
undisputed that [Sunace] was continually communicating with [Divinas] foreign employer." It thus
concluded that "[a]s agent of the foreign principal, petitioner cannot profess ignorance of such
extension as obviously, the act of the principal extending complainant (sic) employment contract
necessarily bound it."

26 | A G E N C Y F U L L C a s e s A P R e l o x

Contrary to the Court of Appeals finding, the alleged continuous communication was with the
Taiwanese brokerWang, not with the foreign employer Xiong.
The February 21, 2000 telefax message from the Taiwanese broker to Sunace, the only basis of a
finding of continuous communication, reads verbatim:
xxxx
Regarding to Divina, she did not say anything about her saving in police station. As we
contact with her employer, she took back her saving already last years. And they did not
deduct any money from her salary. Or she will call back her employer to check it again. If
her employer said yes! we will get it back for her.
Thank you and best regards.
(Sgd.)
Edmund Wang
President19
The finding of the Court of Appeals solely on the basis of the above-quoted telefax message, that
Sunace continually communicated with the foreign "principal" (sic) and therefore was aware of and
had consented to the execution of the extension of the contract is misplaced. The message does
not provide evidence that Sunace was privy to the new contract executed after the expiration on
February 1, 1998 of the original contract. That Sunace and the Taiwanese broker communicated
regarding Divinas allegedly withheld savings does not necessarily mean that Sunace ratified the
extension of the contract. As Sunace points out in its Reply20 filed before the Court of Appeals,
As can be seen from that letter communication, it was just an information given to the petitioner
that the private respondent had t[aken] already her savings from her foreign employer and that no
deduction was made on her salary. It contains nothing about the extension or the petitioners
consent thereto.21
Parenthetically, since the telefax message is dated February 21, 2000, it is safe to assume that it
was sent to enlighten Sunace who had been directed, by Summons issued on February 15, 2000,
to appear on February 28, 2000 for a mandatory conference following Divinas filing of the
complaint on February 14, 2000.
Respecting the Court of Appeals following dictum:
As agent of its foreign principal, [Sunace] cannot profess ignorance of such an extension as
obviously, the act of its principal extending [Divinas] employment contract necessarily bound it,22
it too is a misapplication, a misapplication of the theory of imputed knowledge.
The theory of imputed knowledge ascribes the knowledge of the agent, Sunace, to the principal,
employer Xiong,not the other way around.23 The knowledge of the principal-foreign employer
cannot, therefore, be imputed to its agent Sunace.

27 | A G E N C Y F U L L C a s e s A P R e l o x

There being no substantial proof that Sunace knew of and consented to be bound under the 2-year
employment contract extension, it cannot be said to be privy thereto. As such, it and its "owner"
cannot be held solidarily liable for any of Divinas claims arising from the 2-year employment
extension. As the New Civil Code provides,
Contracts take effect only between the parties, their assigns, and heirs, except in case where the
rights and obligations arising from the contract are not transmissible by their nature, or by
stipulation or by provision of law.24
Furthermore, as Sunace correctly points out, there was an implied revocation of its agency
relationship with its foreign principal when, after the termination of the original employment
contract, the foreign principal directly negotiated with Divina and entered into a new and separate
employment contract in Taiwan. Article 1924 of the New Civil Code reading
The agency is revoked if the principal directly manages the business entrusted to the agent,
dealing directly with third persons.
thus applies.
In light of the foregoing discussions, consideration of the validity of the Waiver and Affidavit of
Desistance which Divina executed in favor of Sunace is rendered unnecessary.
WHEREFORE, the petition is GRANTED. The challenged resolutions of the Court of Appeals are
herebyREVERSED and SET ASIDE. The complaint of respondent Divina A. Montehermozo
against petitioner isDISMISSED.
SO ORDERED.

28 | A G E N C Y F U L L C a s e s A P R e l o x

DR. CARLOS L. SEVILLA and LINA O. SEVILLA, petitioners-appellants, vs.


THE COURT OF APPEALS, TOURIST WORLD SERVICE, INC., ELISEO S.CANILAO, and
SEGUNDINA NOGUERA, respondents-appellees.
G.R. No. L-41182-3 April 16, 1988

SARMIENTO , J.:

The petitioners invoke the provisions on human relations of the Civil Code in this appeal by
certiorari. The facts are beyond dispute:
On the strength of a contract (Exhibit A for the appellant Exhibit 2 for the appellees)
entered into on Oct. 19, 1960 by and between Mrs. Segundina Noguera, party of the
first part; the Tourist World Service, Inc., represented by Mr. Eliseo Canilao as party
of the second part, and hereinafter referred to as appellants, the Tourist World
Service, Inc. leased the premises belonging to the party of the first part at Mabini St.,
Manila for the former-s use as a branch office. In the said contract the party of the
third part held herself solidarily liable with the party of the part for the prompt payment
of the monthly rental agreed on. When the branch office was opened, the same was
run by the herein appellant Una 0. Sevilla payable to Tourist World Service Inc. by
any airline for any fare brought in on the efforts of Mrs. Lina Sevilla, 4% was to go to
Lina Sevilla and 3% was to be withheld by the Tourist World Service, Inc.
On or about November 24, 1961 (Exhibit 16) the Tourist World Service, Inc. appears
to have been informed that Lina Sevilla was connected with a rival firm, the Philippine
Travel Bureau, and, since the branch office was anyhow losing, the Tourist World
Service considered closing down its office. This was firmed up by two resolutions of
the board of directors of Tourist World Service, Inc. dated Dec. 2, 1961 (Exhibits 12
and 13), the first abolishing the office of the manager and vice-president of the
Tourist World Service, Inc., Ermita Branch, and the second,authorizing the corporate
secretary to receive the properties of the Tourist World Service then located at the
said branch office. It further appears that on Jan. 3, 1962, the contract with the
appellees for the use of the Branch Office premises was terminated and while the
effectivity thereof was Jan. 31, 1962, the appellees no longer used it. As a matter of
fact appellants used it since Nov. 1961. Because of this, and to comply with the
mandate of the Tourist World Service, the corporate secretary Gabino Canilao went
over to the branch office, and, finding the premises locked, and, being unable to
contact Lina Sevilla, he padlocked the premises on June 4, 1962 to protect the
interests of the Tourist World Service. When neither the appellant Lina Sevilla nor

29 | A G E N C Y F U L L C a s e s A P R e l o x

any of her employees could enter the locked premises, a complaint wall filed by the
herein appellants against the appellees with a prayer for the issuance of mandatory
preliminary injunction. Both appellees answered with counterclaims. For apparent
lack of interest of the parties therein, the trial court ordered the dismissal of the case
without prejudice.
The appellee Segundina Noguera sought reconsideration of the order dismissing her
counterclaim which the court a quo, in an order dated June 8, 1963, granted
permitting her to present evidence in support of her counterclaim.
On June 17,1963, appellant Lina Sevilla refiled her case against the herein appellees
and after the issues were joined, the reinstated counterclaim of Segundina Noguera
and the new complaint of appellant Lina Sevilla were jointly heard following which the
court a quo ordered both cases dismiss for lack of merit, on the basis of which was
elevated the instant appeal on the following assignment of errors:
I. THE LOWER COURT ERRED EVEN IN APPRECIATING THE NATURE OF
PLAINTIFF-APPELLANT MRS. LINA O. SEVILLA'S COMPLAINT.
II. THE LOWER COURT ERRED IN HOLDING THAT APPELLANT MRS. LINA 0.
SEVILA'S ARRANGEMENT (WITH APPELLEE TOURIST WORLD SERVICE, INC.)
WAS ONE MERELY OF EMPLOYER-EMPLOYEE RELATION AND IN FAILING TO
HOLD THAT THE SAID ARRANGEMENT WAS ONE OF JOINT BUSINESS
VENTURE.
III. THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-APPELLANT MRS.
LINA O. SEVILLA IS ESTOPPED FROM DENYING THAT SHE WAS A MERE
EMPLOYEE OF DEFENDANT-APPELLEE TOURIST WORLD SERVICE, INC.
EVEN AS AGAINST THE LATTER.
IV. THE LOWER COURT ERRED IN NOT HOLDING THAT APPELLEES HAD NO
RIGHT TO EVICT APPELLANT MRS. LINA O. SEVILLA FROM THE A. MABINI
OFFICE BY TAKING THE LAW INTO THEIR OWN HANDS.
V. THE LOWER COURT ERRED IN NOT CONSIDERING AT .ALL APPELLEE
NOGUERA'S RESPONSIBILITY FOR APPELLANT LINA O. SEVILLA'S FORCIBLE
DISPOSSESSION OF THE A. MABINI PREMISES.
VI. THE LOWER COURT ERRED IN FINDING THAT APPELLANT APPELLANT
MRS. LINA O. SEVILLA SIGNED MERELY AS GUARANTOR FOR RENTALS.
On the foregoing facts and in the light of the errors asigned the issues to be resolved are:
1. Whether the appellee Tourist World Service unilaterally disco the telephone line at
the branch office on Ermita;
2. Whether or not the padlocking of the office by the Tourist World Service was
actionable or not; and

30 | A G E N C Y F U L L C a s e s A P R e l o x

3. Whether or not the lessee to the office premises belonging to the appellee
Noguera was appellees TWS or TWS and the appellant.
In this appeal, appealant Lina Sevilla claims that a joint bussiness venture was
entered into by and between her and appellee TWS with offices at the Ermita branch
office and that she was not an employee of the TWS to the end that her relationship
with TWS was one of a joint business venture appellant made declarations showing:
1. Appellant Mrs. Lina 0. Sevilla, a prominent figure and wife of an
eminent eye, ear and nose specialist as well as a imediately columnist
had been in the travel business prior to the establishment of the joint
business venture with appellee Tourist World Service, Inc. and appellee
Eliseo Canilao, her compadre, she being the godmother of one of his
children, with her own clientele, coming mostly from her own social
circle (pp. 3-6 tsn. February 16,1965).
2. Appellant Mrs. Sevilla was signatory to a lease agreement dated 19
October 1960 (Exh. 'A') covering the premises at A. Mabini St., she
expressly warranting and holding [sic] herself 'solidarily' liable with
appellee Tourist World Service, Inc. for the prompt payment of the
monthly rentals thereof to other appellee Mrs. Noguera (pp. 14-15, tsn.
Jan. 18,1964).
3. Appellant Mrs. Sevilla did not receive any salary from appellee
Tourist World Service, Inc., which had its own, separate office located
at the Trade & Commerce Building; nor was she an employee thereof,
having no participation in nor connection with said business at the
Trade & Commerce Building (pp. 16-18 tsn Id.).
4. Appellant Mrs. Sevilla earned commissions for her own passengers,
her own bookings her own business (and not for any of the business of
appellee Tourist World Service, Inc.) obtained from the airline
companies. She shared the 7% commissions given by the airline
companies giving appellee Tourist World Service, Lic. 3% thereof aid
retaining 4% for herself (pp. 18 tsn. Id.)
5. Appellant Mrs. Sevilla likewise shared in the expenses of maintaining
the A. Mabini St. office, paying for the salary of an office secretary, Miss
Obieta, and other sundry expenses, aside from desicion the office
furniture and supplying some of fice furnishings (pp. 15,18 tsn. April
6,1965), appellee Tourist World Service, Inc. shouldering the rental and
other expenses in consideration for the 3% split in the co procured by
appellant Mrs. Sevilla (p. 35 tsn Feb. 16,1965).
6. It was the understanding between them that appellant Mrs. Sevilla
would be given the title of branch manager for appearance's sake only
(p. 31 tsn. Id.), appellee Eliseo Canilao admit that it was just a title for
dignity (p. 36 tsn. June 18, 1965- testimony of appellee Eliseo Canilao

31 | A G E N C Y F U L L C a s e s A P R e l o x

pp. 38-39 tsn April 61965-testimony of corporate secretary Gabino


Canilao (pp- 2-5, Appellants' Reply Brief)
Upon the other hand, appellee TWS contend that the appellant was an employee of
the appellee Tourist World Service, Inc. and as such was designated manager. 1
The trial court 2 held for the private respondent on the premise that the private respondent, Tourist
World Service, Inc., being the true lessee, it was within its prerogative to terminate the lease and
padlock the premises. 3 It likewise found the petitioner, Lina Sevilla, to be a mere employee of said
Tourist World Service, Inc. and as such, she was bound by the acts of her employer. 4 The
respondent Court of Appeal 5 rendered an affirmance.
The petitioners now claim that the respondent Court, in sustaining the lower court, erred.
Specifically, they state:
I
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED
ITS DISCRETION IN HOLDING THAT "THE PADLOCKING OF THE PREMISES BY TOURIST
WORLD SERVICE INC. WITHOUT THE KNOWLEDGE AND CONSENT OF THE APPELLANT
LINA SEVILLA ... WITHOUT NOTIFYING MRS. LINA O. SEVILLA OR ANY OF HER
EMPLOYEES AND WITHOUT INFORMING COUNSEL FOR THE APPELLANT (SEVILIA), WHO
IMMEDIATELY BEFORE THE PADLOCKING INCIDENT, WAS IN CONFERENCE WITH THE
CORPORATE SECRETARY OF TOURIST WORLD SERVICE (ADMITTEDLY THE PERSON
WHO PADLOCKED THE SAID OFFICE), IN THEIR ATTEMP AMICABLY SETTLE THE
CONTROVERSY BETWEEN THE APPELLANT (SEVILLA) AND THE TOURIST WORLD
SERVICE ... (DID NOT) ENTITLE THE LATTER TO THE RELIEF OF DAMAGES" (ANNEX "A"
PP. 7,8 AND ANNEX "B" P. 2) DECISION AGAINST DUE PROCESS WHICH ADHERES TO THE
RULE OF LAW.
II
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED
ITS DISCRETION IN DENYING APPELLANT SEVILLA RELIEF BECAUSE SHE HAD "OFFERED
TO WITHDRAW HER COMP PROVIDED THAT ALL CLAIMS AND COUNTERCLAIMS LODGED
BY BOTH APPELLEES WERE WITHDRAWN." (ANNEX "A" P. 8)
III
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED
ITS DISCRETION IN DENYING-IN FACT NOT PASSING AND RESOLVING-APPELLANT
SEVILLAS CAUSE OF ACTION FOUNDED ON ARTICLES 19, 20 AND 21 OF THE CIVIL CODE
ON RELATIONS.
IV
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED
ITS DISCRETION IN DENYING APPEAL APPELLANT SEVILLA RELIEF YET NOT RESOLVING
HER CLAIM THAT SHE WAS IN JOINT VENTURE WITH TOURIST WORLD SERVICE INC. OR
AT LEAST ITS AGENT COUPLED WITH AN INTEREST WHICH COULD NOT BE TERMINATED
OR REVOKED UNILATERALLY BY TOURIST WORLD SERVICE INC. 6
As a preliminary inquiry, the Court is asked to declare the true nature of the relation between Lina
Sevilla and Tourist World Service, Inc. The respondent Court of see fit to rule on the question, the
crucial issue, in its opinion being "whether or not the padlocking of the premises by the Tourist
World Service, Inc. without the knowledge and consent of the appellant Lina Sevilla entitled the
latter to the relief of damages prayed for and whether or not the evidence for the said appellant

32 | A G E N C Y F U L L C a s e s A P R e l o x

supports the contention that the appellee Tourist World Service, Inc. unilaterally and without the
consent of the appellant disconnected the telephone lines of the Ermita branch office of the
appellee Tourist World Service, Inc. 7 Tourist World Service, Inc., insists, on the other hand, that
Lina SEVILLA was a mere employee, being "branch manager" of its Ermita "branch" office and that
inferentially, she had no say on the lease executed with the private respondent, Segundina
Noguera. The petitioners contend, however, that relation between the between parties was one of
joint venture, but concede that "whatever might have been the true relationship between Sevilla
and Tourist World Service," the Rule of Law enjoined Tourist World Service and Canilao from
taking the law into their own hands, 8 in reference to the padlocking now questioned.
The Court finds the resolution of the issue material, for if, as the private respondent, Tourist World
Service, Inc., maintains, that the relation between the parties was in the character of employer and
employee, the courts would have been without jurisdiction to try the case, labor disputes being the
exclusive domain of the Court of Industrial Relations, later, the Bureau Of Labor Relations,
pursuant to statutes then in force. 9
In this jurisdiction, there has been no uniform test to determine the evidence of an employeremployee relation. In general, we have relied on the so-called right of control test, "where the
person for whom the services are performed reserves a right to control not only the end to be
achieved but also the means to be used in reaching such end." 10 Subsequently, however, we have
considered, in addition to the standard of right-of control, the existing economic conditions
prevailing between the parties, like the inclusion of the employee in the payrolls, in determining the
existence of an employer-employee relationship. 11
The records will show that the petitioner, Lina Sevilla, was not subject to control by the private
respondent Tourist World Service, Inc., either as to the result of the enterprise or as to the means
used in connection therewith. In the first place, under the contract of lease covering the Tourist
Worlds Ermita office, she had bound herself insolidum as and for rental payments, an arrangement
that would be like claims of a master-servant relationship. True the respondent Court would later
minimize her participation in the lease as one of mere guaranty, 12 that does not make her an
employee of Tourist World, since in any case, a true employee cannot be made to part with his
own money in pursuance of his employer's business, or otherwise, assume any liability thereof. In
that event, the parties must be bound by some other relation, but certainly not employment.
In the second place, and as found by the Appellate Court, '[w]hen the branch office was opened,
the same was run by the herein appellant Lina O. Sevilla payable to Tourist World Service, Inc. by
any airline for any fare brought in on the effort of Mrs. Lina Sevilla. 13 Under these circumstances, it
cannot be said that Sevilla was under the control of Tourist World Service, Inc. "as to the means
used." Sevilla in pursuing the business, obviously relied on her own gifts and capabilities.
It is further admitted that Sevilla was not in the company's payroll. For her efforts, she retained 4%
in commissions from airline bookings, the remaining 3% going to Tourist World. Unlike an
employee then, who earns a fixed salary usually, she earned compensation in fluctuating amounts
depending on her booking successes.
The fact that Sevilla had been designated 'branch manager" does not make her, ergo, Tourist
World's employee. As we said, employment is determined by the right-of-control test and certain
economic parameters. But titles are weak indicators.

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In rejecting Tourist World Service, Inc.'s arguments however, we are not, as a consequence,
accepting Lina Sevilla's own, that is, that the parties had embarked on a joint venture or otherwise,
a partnership. And apparently, Sevilla herself did not recognize the existence of such a relation. In
her letter of November 28, 1961, she expressly 'concedes your [Tourist World Service, Inc.'s] right
to stop the operation of your branch office 14 in effect, accepting Tourist World Service, Inc.'s
control over the manner in which the business was run. A joint venture, including a partnership,
presupposes generally a of standing between the joint co-venturers or partners, in which each
party has an equal proprietary interest in the capital or property contributed 15 and where each
party exercises equal rights in the conduct of the business. 16 furthermore, the parties did not hold
themselves out as partners, and the building itself was embellished with the electric sign "Tourist
World Service, Inc. 17in lieu of a distinct partnership name.
It is the Court's considered opinion, that when the petitioner, Lina Sevilla, agreed to (wo)man the
private respondent, Tourist World Service, Inc.'s Ermita office, she must have done so pursuant to
a contract of agency. It is the essence of this contract that the agent renders services "in
representation or on behalf of another. 18 In the case at bar, Sevilla solicited airline fares, but she
did so for and on behalf of her principal, Tourist World Service, Inc. As compensation, she received
4% of the proceeds in the concept of commissions. And as we said, Sevilla herself based on her
letter of November 28, 1961, pre-assumed her principal's authority as owner of the business
undertaking. We are convinced, considering the circumstances and from the respondent Court's
recital of facts, that the ties had contemplated a principal agent relationship, rather than a joint
managament or a partnership..
But unlike simple grants of a power of attorney, the agency that we hereby declare to be
compatible with the intent of the parties, cannot be revoked at will. The reason is that it is one
coupled with an interest, the agency having been created for mutual interest, of the agent and the
principal. 19 It appears that Lina Sevilla is a bona fidetravel agent herself, and as such, she had
acquired an interest in the business entrusted to her. Moreover, she had assumed a personal
obligation for the operation thereof, holding herself solidarily liable for the payment of rentals. She
continued the business, using her own name, after Tourist World had stopped further operations.
Her interest, obviously, is not to the commissions she earned as a result of her business
transactions, but one that extends to the very subject matter of the power of management
delegated to her. It is an agency that, as we said, cannot be revoked at the pleasure of the
principal. Accordingly, the revocation complained of should entitle the petitioner, Lina Sevilla, to
damages.
As we have stated, the respondent Court avoided this issue, confining itself to the telephone
disconnection and padlocking incidents. Anent the disconnection issue, it is the holding of the
Court of Appeals that there is 'no evidence showing that the Tourist World Service, Inc.
disconnected the telephone lines at the branch office. 20Yet, what cannot be denied is the fact that
Tourist World Service, Inc. did not take pains to have them reconnected. Assuming, therefore, that
it had no hand in the disconnection now complained of, it had clearly condoned it, and as owner of
the telephone lines, it must shoulder responsibility therefor.
The Court of Appeals must likewise be held to be in error with respect to the padlocking incident.
For the fact that Tourist World Service, Inc. was the lessee named in the lease con-tract did not
accord it any authority to terminate that contract without notice to its actual occupant, and to
padlock the premises in such fashion. As this Court has ruled, the petitioner, Lina Sevilla, had
acquired a personal stake in the business itself, and necessarily, in the equipment pertaining

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thereto. Furthermore, Sevilla was not a stranger to that contract having been explicitly named
therein as a third party in charge of rental payments (solidarily with Tourist World, Inc.). She could
not be ousted from possession as summarily as one would eject an interloper.
The Court is satisfied that from the chronicle of events, there was indeed some malevolent design
to put the petitioner, Lina Sevilla, in a bad light following disclosures that she had worked for a rival
firm. To be sure, the respondent court speaks of alleged business losses to justify the
closure '21 but there is no clear showing that Tourist World Ermita Branch had in fact sustained
such reverses, let alone, the fact that Sevilla had moonlit for another company. What the evidence
discloses, on the other hand, is that following such an information (that Sevilla was working for
another company), Tourist World's board of directors adopted two resolutions abolishing the office
of 'manager" and authorizing the corporate secretary, the respondent Eliseo Canilao, to effect the
takeover of its branch office properties. On January 3, 1962, the private respondents ended the
lease over the branch office premises, incidentally, without notice to her.
It was only on June 4, 1962, and after office hours significantly, that the Ermita office was
padlocked, personally by the respondent Canilao, on the pretext that it was necessary to Protect
the interests of the Tourist World Service. " 22 It is strange indeed that Tourist World Service, Inc.
did not find such a need when it cancelled the lease five months earlier. While Tourist World
Service, Inc. would not pretend that it sought to locate Sevilla to inform her of the closure, but
surely, it was aware that after office hours, she could not have been anywhere near the premises.
Capping these series of "offensives," it cut the office's telephone lines, paralyzing completely its
business operations, and in the process, depriving Sevilla articipation therein.
This conduct on the part of Tourist World Service, Inc. betrays a sinister effort to punish Sevillsa it
had perceived to be disloyalty on her part. It is offensive, in any event, to elementary norms of
justice and fair play.
We rule therefore, that for its unwarranted revocation of the contract of agency, the private
respondent, Tourist World Service, Inc., should be sentenced to pay damages. Under the Civil
Code, moral damages may be awarded for "breaches of contract where the defendant acted ... in
bad faith. 23
We likewise condemn Tourist World Service, Inc. to pay further damages for the moral injury done
to Lina Sevilla from its brazen conduct subsequent to the cancellation of the power of attorney
granted to her on the authority of Article 21 of the Civil Code, in relation to Article 2219 (10) thereof

ART. 21. Any person who wilfully causes loss or injury to another in a manner that is
contrary to morals, good customs or public policy shall compensate the latter for the
damage. 24
ART. 2219. Moral damages 25 may be recovered in the following and analogous
cases:
xxx xxx xxx
(10) Acts and actions refered into article 21, 26, 27, 28, 29, 30, 32, 34, and 35.

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The respondent, Eliseo Canilao, as a joint tortfeasor is likewise hereby ordered to respond for the
same damages in a solidary capacity.
Insofar, however, as the private respondent, Segundina Noguera is concerned, no evidence has
been shown that she had connived with Tourist World Service, Inc. in the disconnection and
padlocking incidents. She cannot therefore be held liable as a cotortfeasor.
The Court considers the sums of P25,000.00 as and for moral damages,24 P10,000.00 as
exemplary damages,25 and P5,000.00 as nominal 26 and/or temperate 27 damages, to be just, fair,
and reasonable under the circumstances.
WHEREFORE, the Decision promulgated on January 23, 1975 as well as the Resolution issued on
July 31, 1975, by the respondent Court of Appeals is hereby REVERSED and SET ASIDE. The
private respondent, Tourist World Service, Inc., and Eliseo Canilao, are ORDERED jointly and
severally to indemnify the petitioner, Lina Sevilla, the sum of 25,00.00 as and for moral damages,
the sum of P10,000.00, as and for exemplary damages, and the sum of P5,000.00, as and for
nominal and/or temperate damages.
Costs against said private respondents.
SO ORDERED.

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ALFRED HAHN, petitioner, vs.


COURT OF APPEALS and BAYERSCHE MOTOREN WERKE AKTIENGSELLSCHAFT
(BMW), respondents.
G.R. No. 113074

January 22, 1997 MENDOZA, J.:

This is a petition for review of the decision 1 of the Court of Appeals dismissing a complaint for
specific performance which petitioner had filed against private respondent on the ground that the
Regional Trial Court of Quezon City did not acquire jurisdiction over private respondent, a
nonresident foreign corporation, and of the appellate court's order denying petitioner's motion for
reconsideration.
The following are the facts:
Petitioner Alfred Hahn is a Filipino citizen doing business under the name and style "Hahn-Manila."
On the other hand, private respondent Bayerische Motoren Werke Aktiengesellschaft (BMW) is a
nonresident foreign corporation existing under the laws of the former Federal Republic of Germany,
with principal office at Munich, Germany.
On March 7, 1967, petitioner executed in favor of private respondent a "Deed of Assignment with
Special Power of Attorney," which reads in full as follows:
WHEREAS, the ASSIGNOR is the present owner and holder of the BMW trademark and
device in the Philippines which ASSIGNOR uses and has been using on the products
manufactured by ASSIGNEE, and for which ASSIGNOR is the authorized exclusive Dealer
of the ASSIGNEE in the Philippines, the same being evidenced by certificate of registration
issued by the Director of Patents on 12 December 1963 and is referred to as Trademark No.
10625;
WHEREAS, the ASSIGNOR has agreed to transfer and consequently record said transfer of
the said BMW trademark and device in favor of the ASSIGNEE herein with the Philippines
Patent Office;
NOW THEREFORE, in view of the foregoing and in consideration of the stipulations
hereunder stated, the ASSIGNOR hereby affirms the said assignment and transfer in favor
of the ASSIGNEE under the following terms and conditions:
1. The ASSIGNEE shall take appropriate steps against any user other than ASSIGNOR or
infringer of the BMW trademark in the Philippines; for such purpose, the ASSIGNOR shall
inform the ASSIGNEE immediately of any such use or infringement of the said trademark
which comes to his knowledge and upon such information the ASSIGNOR shall
automatically act as Attorney-In-Fact of the ASSIGNEE for such case, with full power,
authority and responsibility to prosecute unilaterally or in concert with ASSIGNEE, any such
infringer of the subject mark and for purposes hereof the ASSIGNOR is hereby named and

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constituted as ASSIGNEE's Attorney-In-Fact, but any such suit without ASSIGNEE's


consent will exclusively be the responsibility and for the account of the ASSIGNOR,
2. That the ASSIGNOR and the ASSIGNEE shall continue business relations as has been
usual in the past without a formal contract, and for that purpose, the dealership of
ASSIGNOR shall cover the ASSIGNEE's complete production program with the only
limitation that, for the present, in view of ASSIGNEE's limited production, the latter shall not
be able to supply automobiles to ASSIGNOR.
Per the agreement, the parties "continue[d] business relations as has been usual in the past
without a formal contract." But on February 16, 1993, in a meeting with a BMW representative and
the president of Columbia Motors Corporation (CMC), Jose Alvarez, petitioner was informed that
BMW was arranging to grant the exclusive dealership of BMW cars and products to CMC, which
had expressed interest in acquiring the same. On February 24, 1993, petitioner received
confirmation of the information from BMW which, in a letter, expressed dissatisfaction with various
aspects of petitioner's business, mentioning among other things, decline in sales, deteriorating
services, and inadequate showroom and warehouse facilities, and petitioner's alleged failure to
comply with the standards for an exclusive BMW dealer. 2 Nonetheless, BMW expressed
willingness to continue business relations with the petitioner on the basis of a "standard BMW
importer" contract, otherwise, it said, if this was not acceptable to petitioner, BMW would have no
alternative but to terminate petitioner's exclusive dealership effective June 30, 1993.
Petitioner protested, claiming that the termination of his exclusive dealership would be a breach of
the Deed of Assignment. 3 Hahn insisted that as long as the assignment of its trademark and
device subsisted, he remained BMW's exclusive dealer in the Philippines because the assignment
was made in consideration of the exclusive dealership. In the same letter petitioner explained that
the decline in sales was due to lower prices offered for BMW cars in the United States and the fact
that few customers returned for repairs and servicing because of the durability of BMW parts and
the efficiency of petitioner's service.
Because of Hahn's insistence on the former business relation, BMW withdrew on March 26, 1993
its offer of a "standard importer contract" and terminated the exclusive dealer relationship effective
June 30, 1993. 4 At a conference of BMW Regional Importers held on April 26, 1993 in Singapore,
Hahn was surprised to find Alvarez among those invited from the Asian region. On April 29, 1993,
BMW proposed that Hahn and CMC jointly import and distribute BMW cars and parts.
Hahn found the proposal unacceptable. On May 14, 1993, he filed a complaint for specific
performance and damages against BMW to compel it to continue the exclusive dealership. Later
he filed an amended complaint to include an application for temporary restraining order and for
writs of preliminary, mandatory and prohibitory injunction to enjoin BMW from terminating his
exclusive dealership. Hahn's amended complaint alleged in pertinent parts:
2. Defendant [BMW] is a foreign corporation doing business in the Philippines with principal
offices at Munich, Germany. It may be served with summons and other court processes
through the Secretary of the Department of Trade and Industry of the Philippines. . . .
5. On March 7, 1967, Plaintiff executed in favor of defendant BMW a Deed of Assignment
with Special Power of Attorney covering the trademark and in consideration thereof, under

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its first whereas clause, Plaintiff was duly acknowledged as the "exclusive Dealer of the
Assignee in the Philippines. . . .
8. From the time the trademark "BMW & DEVICE" was first used by the Plaintiff in the
Philippines up to the present, Plaintiff, through its firm name "HAHN MANILA" and without
any monetary contribution from defendant BMW, established BMW's goodwill and market
presence in the Philippines. Pursuant thereto, Plaintiff has invested a lot of money and
resources in order to single-handedly compete against other motorcycle and car companies.
. . . Moreover, Plaintiff has built buildings and other infrastructures such as service centers
and showrooms to maintain and promote the car and products of defendant BMW.
10. In a letter dated February 24, 1993, defendant BMW advised Plaintiff that it was willing
to maintain with Plaintiff a relationship but only "on the basis of a standard BMW importer
contract as adjusted to reflect the particular situation in the Philippines" subject to certain
conditions, otherwise, defendant BMW would terminate Plaintiffs exclusive dealership and
any relationship for cause effective June 30, 1993. . . .
15. The actuations of defendant BMW are in breach of the assignment agreement between
itself and plaintiff since the consideration for the assignment of the BMW trademark is the
continuance of the exclusive dealership agreement. It thus, follows that the exclusive
dealership should continue for so long as defendant BMW enjoys the use and ownership of
the trademark assigned to it by Plaintiff.
The case was docketed as Civil Case No. Q-93-15933 and raffled to Branch 104 of the Quezon
City Regional Trial Court, which on June 14, 1993 issued a temporary restraining order. Summons
and copies of the complaint and amended complaint were thereafter served on the private
respondent through the Department of Trade and Industry, pursuant to Rule 14, 14 of the Rules of
Court. The order, summons and copies of the complaint and amended complaint were later sent by
the DTI to BMW via registered mail on June 15, 1993 5 and received by the latter on June 24, 1993.
On June 17, 1993, without proof of service on BMW, the hearing on the application for the writ of
preliminary injunction proceeded ex parte, with petitioner Hahn testifying. On June 30, 1993, the
trial court issued an order granting the writ of preliminary injunction upon the filing of a bond of
P100,000.00. On July 13, 1993, following the posting of the required bond, a writ of preliminary
injunction was issued.
On July 1, 1993, BMW moved to dismiss the case, contending that the trial court did not acquire
jurisdiction over it through the service of summons on the Department of Trade and Industry,
because it (BMW) was a foreign corporation and it was not doing business in the Philippines. It
contended that the execution of the Deed of Assignment was an isolated transaction; that Hahn
was not its agent because the latter undertook to assemble and sell BMW cars and products
without the participation of BMW and sold other products; and that Hahn was an indentor or
middleman transacting business in his own name and for his own account.
Petitioner Alfred Hahn opposed the motion. He argued that BMW was doing business in the
Philippines through him as its agent, as shown by the fact that BMW invoices and order forms were
used to document his transactions; that he gave warranties as exclusive BMW dealer; that BMW
officials periodically inspected standards of service rendered by him; and that he was described in

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service booklets and international publications of BMW as a "BMW Importer" or "BMW Trading
Company" in the Philippines.
The trial court 6 deferred resolution of the motion to dismiss until after trial on the merits for the
reason that the grounds advanced by BMW in its motion did not seem to be indubitable.
Without seeking reconsideration of the aforementioned order, BMW filed a petition
for certiorari with the Court of Appeals alleging that:
I. THE RESPONDENT JUDGE ACTED WITH UNDUE HASTE OR OTHERWISE
INJUDICIOUSLY IN PROCEEDINGS LEADING TOWARD THE ISSUANCE OF THE WRIT
OF PRELIMINARY INJUNCTION, AND IN PRESCRIBING THE TERMS FOR THE
ISSUANCE THEREOF.
II. THE RESPONDENT JUDGE PATENTLY ERRED IN DEFERRING RESOLUTION OF
THE MOTION TO DISMISS ON THE GROUND OF LACK OF JURISDICTION, AND
THEREBY FAILING TO IMMEDIATELY DISMISS THE CASE A QUO.
BMW asked for the immediate issuance of a temporary restraining order and, after hearing, for a
writ of preliminary injunction, to enjoin the trial court from proceeding further in Civil Case No. Q93-15933. Private respondent pointed out that, unless the trial court's order was set aside, it would
be forced to submit to the jurisdiction of the court by filing its answer or to accept judgment in
default, when the very question was whether the court had jurisdiction over it.
The Court of Appeals enjoined the trial court from hearing petitioner's complaint. On December 20,
1993, it rendered judgment finding the trial court guilty of grave abuse of discretion in deferring
resolution of the motion to dismiss. It stated:
Going by the pleadings already filed with the respondent court before it came out with its
questioned order of July 26, 1993, we rule and so hold that petitioner's (BMW) motion to
dismiss could be resolved then and there, and that the respondent judge's deferment of his
action thereon until after trial on the merit constitutes, to our mind, grave abuse of discretion.
. . . [T]here is not much appreciable disagreement as regards the factual matters relating to
the motion to dismiss. What truly divide (sic) the parties and to which they greatly differ is
the legal conclusions they respectively draw from such facts, (sic) with Hahn maintaining
that on the basis thereof, BMW is doing business in the Philippines while the latter asserts
that it is not.
Then, after stating that any ruling which the trial court might make on the motion to dismiss would
anyway be elevated to it on appeal, the Court of Appeals itself resolved the motion. It ruled that
BMW was not doing business in the country and, therefore, jurisdiction over it could not be
acquired through service of summons on the DTI pursuant to Rule 14, 14. 'The court upheld
private respondent's contention that Hahn acted in his own name and for his own account and
independently of BMW, based on Alfred Hahn's allegations that he had invested his own money
and resources in establishing BMW's goodwill in the Philippines and on BMW's claim that Hahn
sold products other than those of BMW. It held that petitioner was a mere indentor or broker and
not an agent through whom private respondent BMW transacted business in the Philippines.
Consequently, the Court of Appeals dismissed petitioner's complaint against BMW.

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Hence, this appeal. Petitioner contends that the Court of Appeals erred (1) in finding that the trial
court gravely abused its discretion in deferring action on the motion to dismiss and (2) in finding
that private respondent BMW is not doing business in the Philippines and, for this reason,
dismissing petitioner's case.
Petitioner's appeal is well taken. Rule 14, 14 provides:
14. Service upon private foreign corporations. If the defendant is a foreign corporation,
or a nonresident joint stock company or association, doing business in the Philippines,
service may be made on its resident agent designated in accordance with law for that
purpose, or, if there be no such agent, on the government official designated by law to that
effect, or on any of its officers or agents within the Philippines. (Emphasis added).
What acts are considered "doing business in the Philippines" are enumerated in 3(d) of the
Foreign Investments Act of 1991 (R.A. No. 7042) as follows: 7
d) the phrase "doing business" shall include soliciting orders, service contracts, opening
offices, whether called "liaison" offices or branches; appointing representatives or
distributors domiciled in the Philippines or who in any calendar year stay in the country for a
period or periods totalling one hundred eighty (180) days or more; participating in the
management, supervision or control of any domestic business, firm, entity or corporation in
the Philippines;and any other act or acts that imply a continuity of commercial dealings or
arrangements, and contemplate to that extent the performance of acts or works, or the
exercise of some of the functions normally incident to, and in progressive prosecution of,
commercial gain or of the purpose and object of the business organization: Provided,
however, That the phrase "doing business" shall not be deemed to include mere investment
as a shareholder by a foreign entity in domestic corporations duly registered to do business,
and/or the exercise of rights as such investor; nor having a nominee director or officer to
represent its interests in such corporation; nor appointing a representative or distributor
domiciled in the Philippines which transacts business in its own name and for its own
account. (Emphasis supplied)
Thus, the phrase includes "appointing representatives or distributors in the Philippines" but not
when the representative or distributor "transacts business in its name and for its own account." In
addition, 1(f)(1) of the Rules and Regulations implementing (IRR) the Omnibus Investment Code
of 1987 (E.O. No. 226) provided:
(f) "Doing business" shall be any act or combination of acts, enumerated in Article 44 of the
Code. In particular, "doing business" includes:
(1) . . . A foreign firm which does business through middlemen acting in their own names,
such as indentors, commercial brokers or commission merchants, shall not be deemed
doing business in the Philippines. But such indentors, commercial brokers or commission
merchants shall be the ones deemed to be doing business in the Philippines.
The question is whether petitioner Alfred Hahn is the agent or distributor in the Philippines of
private respondent BMW. If he is, BMW may be considered doing business in the Philippines and
the trial court acquired jurisdiction over it (BMW) by virtue of the service of summons on the
Department of Trade and Industry. Otherwise, if Hahn is not the agent of BMW but an independent

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dealer, albeit of BMW cars and products, BMW, a foreign corporation, is not considered doing
business in the Philippines within the meaning of the Foreign Investments Act of 1991 and the IRR,
and the trial court did not acquire jurisdiction over it (BMW).
The Court of Appeals held that petitioner Alfred Hahn acted in his own name and for his own
account and not as agent or distributor in the Philippines of BMW on the ground that "he alone had
contacts with individuals or entities interested in acquiring BMW vehicles. Independence
characterizes Hahn's undertakings, for which reason he is to be considered, under governing
statutes, as doing business." (p. 13) In support of this conclusion, the appellate court cited the
following allegations in Hahn's amended complaint:
8. From the time the trademark "BMW & DEVICE" was first used by the Plaintiff in the
Philippines up to the present, Plaintiff, through its firm name "HAHN MANILA" and without
any monetary contributions from defendant BMW, established BMW's goodwill and market
presence in the Philippines. Pursuant thereto, Plaintiff invested a lot of money and
resources in order to single-handedly compete against other motorcycle and car companies.
. . . Moreover, Plaintiff has built buildings and other infrastructures such as service centers
and showrooms to maintain and promote the car and products of defendant BMW.
As the above quoted allegations of the amended complaint show, however, there is nothing to
support the appellate court's finding that Hahn solicited orders alone and for his own account and
without "interference from, let alone direction of, BMW." (p. 13) To the contrary, Hahn claimed he
took orders for BMW cars and transmitted them to BMW. Upon receipt of the orders, BMW fixed
the downpayment and pricing charges, notified Hahn of the scheduled production month for the
orders, and reconfirmed the orders by signing and returning to Hahn the acceptance sheets.
Payment was made by the buyer directly to BMW. Title to cars purchased passed directly to the
buyer and Hahn never paid for the purchase price of BMW cars sold in the Philippines. Hahn was
credited with a commission equal to 14% of the purchase price upon the invoicing of a vehicle
order by BMW. Upon confirmation in writing that the vehicles had been registered in the Philippines
and serviced by him, Hahn received an additional 3% of the full purchase price. Hahn performed
after-sale services, including warranty services, for which he received reimbursement from BMW.
All orders were on invoices and forms of BMW. 8
These allegations were substantially admitted by BMW which, in its petition for certiorari before the
Court of Appeals, stated: 9
9.4. As soon as the vehicles are fully manufactured and full payment of the purchase prices
are made, the vehicles are shipped to the Philippines. (The payments may be made by the
purchasers or third-persons or even by Hahn.) The bills of lading are made up in the name
of the purchasers, but Hahn-Manila is therein indicated as the person to be notified.
9.5. It is Hahn who picks up the vehicles from the Philippine ports, for purposes of
conducting pre-delivery inspections. Thereafter, he delivers the vehicles to the purchasers.
9.6. As soon as BMW invoices the vehicle ordered, Hahn is credited with a commission of
fourteen percent (14%) of the full purchase price thereof, and as soon as he confirms in
writing that the vehicles have been registered in the Philippines and have been serviced by
him, he will receive an additional three percent (3%) of the full purchase prices as
commission.

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Contrary to the appellate court's conclusion, this arrangement shows an agency. An agent receives
a commission upon the successful conclusion of a sale. On the other hand, a broker earns his pay
merely by bringing the buyer and the seller together, even if no sale is eventually made.
As to the service centers and showrooms which he said he had put up at his own expense, Hahn
said that he had to follow BMW specifications as exclusive dealer of BMW in the Philippines.
According to Hahn, BMW periodically inspected the service centers to see to it that BMW
standards were maintained. Indeed, it would seem from BMW's letter to Hahn that it was for Hahn's
alleged failure to maintain BMW standards that BMW was terminating Hahn's dealership.
The fact that Hahn invested his own money to put up these service centers and showrooms does
not necessarily prove that he is not an agent of BMW. For as already noted, there are facts in the
record which suggest that BMW exercised control over Hahn's activities as a dealer and made
regular inspections of Hahn's premises to enforce compliance with BMW standards and
specifications. 10 For example, in its letter to Hahn dated February 23, 1996, BMW stated:
In the last years we have pointed out to you in several discussions and letters that we have
to tackle the Philippine market more professionally and that we are through your present
activities not adequately prepared to cope with the forthcoming challenges. 11
In effect, BMW was holding Hahn accountable to it under the 1967 Agreement.
This case fits into the mould of Communications Materials, Inc. v. Court of Appeals, 12 in which the
foreign corporation entered into a "Representative Agreement" and a "Licensing Agreement" with a
domestic corporation, by virtue of which the latter was appointed "exclusive representative" in the
Philippines for a stipulated commission. Pursuant to these contracts, the domestic corporation sold
products exported by the foreign corporation and put up a service center for the products sold
locally. This Court held that these acts constituted doing business in the Philippines. The
arrangement showed that the foreign corporation's purpose was to penetrate the Philippine market
and establish its presence in the Philippines.
In addition, BMW held out private respondent Hahn as its exclusive distributor in the Philippines,
even as it announced in the Asian region that Hahn was the "official BMW agent" in the
Philippines. 13
The Court of Appeals also found that petitioner Alfred Hahn dealt in other products, and not
exclusively in BMW products, and, on this basis, ruled that Hahn was not an agent of BMW. (p. 14)
This finding is based entirely on allegations of BMW in its motion to dismiss filed in the trial court
and in its petition for certiorari before the Court of Appeals. 14 But this allegation was denied by
Hahn 15 and therefore the Court of Appeals should not have cited it as if it were the fact.
Indeed this is not the only factual issue raised, which should have indicated to the Court of Appeals
the necessity of affirming the trial court's order deferring resolution of BMW's motion to dismiss.
Petitioner alleged that whether or not he is considered an agent of BMW, the fact is that BMW did
business in the Philippines because it sold cars directly to Philippine buyers. 16 This was denied by
BMW, which claimed that Hahn was not its agent and that, while it was true that it had sold cars to
Philippine buyers, this was done without solicitation on its part. 17

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It is not true then that the question whether BMW is doing business could have been resolved
simply by considering the parties' pleadings. There are genuine issues of facts which can only be
determined on the basis of evidence duly presented. BMW cannot short circuit the process on the
plea that to compel it to go to trial would be to deny its right not to submit to the jurisdiction of the
trial court which precisely it denies. Rule 16, 3 authorizes courts to defer the resolution of a
motion to dismiss until after the trial if the ground on which the motion is based does not appear to
be indubitable. Here the record of the case bristles with factual issues and it is not at all clear
whether some allegations correspond to the proof.
Anyway, private respondent need not apprehend that by responding to the summons it would be
waiving its objection to the trial court's jurisdiction. It is now settled that, for purposes of having
summons served on a foreign corporation in accordance with Rule 14, 14, it is sufficient that it be
alleged in the complaint that the foreign corporation is doing business in the Philippines. The court
need not go beyond the allegations of the complaint in order to determine whether it has
Jurisdiction. 18 A determination that the foreign corporation is doing business is only tentative and is
made only for the purpose of enabling the local court to acquire jurisdiction over the foreign
corporation through service of summons pursuant to Rule 14, 14. Such determination does not
foreclose a contrary finding should evidence later show that it is not transacting business in the
country. As this Court has explained:
This is not to say, however, that the petitioner's right to question the jurisdiction of the court
over its person is now to be deemed a foreclosed matter. If it is true, as Signetics claims,
that its only involvement in the Philippines was through a passive investment in Sigfil, which
it even later disposed of, and that TEAM Pacific is not its agent, then it cannot really be said
to be doing business in the Philippines. It is a defense, however, that requires the
contravention of the allegations of the complaint, as well as a full ventilation, in effect, of the
main merits of the case, which should not thus be within the province of a mere motion to
dismiss. So, also, the issue posed by the petitioner as to whether a foreign corporation
which has done business in the country, but which has ceased to do business at the time of
the filing of a complaint, can still be made to answer for a cause of action which accrued
while it was doing business, is another matter that would yet have to await the reception and
admission of evidence. Since these points have seasonably been raised by the petitioner,
there should be no real cause for what may understandably be its apprehension,i.e., that by
its participation during the trial on the merits, it may, absent an invocation of separate or
independent reliefs of its own, be considered to have voluntarily submitted itself to the
court's jurisdiction. 19
Far from committing an abuse of discretion, the trial court properly deferred resolution of the motion
to dismiss and thus avoided prematurely deciding a question which requires a factual basis, with
the same result if it had denied the motion and conditionally assumed jurisdiction. It is the Court of
Appeals which, by ruling that BMW is not doing business on the basis merely of uncertain
allegations in the pleadings, disposed of the whole case with finality and thereby deprived
petitioner of his right to be heard on his cause of action. Nor was there justification for nullifying the
writ of preliminary injunction issued by the trial court. Although the injunction was issued ex parte,
the fact is that BMW was subsequently heard on its defense by filing a motion to dismiss.
WHEREFORE, the decision of the Court of Appeals is REVERSED and the case is REMANDED to
the trial court for further proceedings.

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SO ORDERED.

TIRSO UYTENGSU III, Complainant, vs.ATTY. JOSEPH M. BADUEL, Respondent.


ADM. CASE No. 5134

December 14, 2005

Tinga, J.:

A sworn letter-complaint1 dated 1 July 19992 was filed by Tirso Uytengsu III (complainant) against
Atty. Joseph M. Baduel (respondent) for violation of Rule 1.01 3 of the Code of Professional
Responsibility.
Complainant is one of the heirs of Tirso Uytengsu, Jr. He and his co-heirs had a pending patent
application. He alleges that sometime in December 1998 respondent requested him to sign a
special power of attorney (SPA) authorizing Luis Wee (Wee) and/or Thomas Jacobo (Jacobo) to
claim, demand, acknowledge and receive on his behalf the certificates of title from the Register of
Deeds, General Santos City, Department of Environment and Natural Resources and from any
government office or agency due to complainant and his co-heirs by reason of their application for
Homestead Patent II.A. No. 37 142 (E 37 124) over Lot 924-A Cad. II-013120-D with an area of
5.3876 hectares and II.A. No. 116303 over Lot No. 924-B Cad. II-013120-D with an area of 5,1526
hectares, both situated in Lagao, General Santos City.
Complainant refused to sign the SPA as he wanted to obtain the documents personally.
Subsequently though, before he could get the title and other documents, complainant learned that
respondent caused to have the SPA signed by Connie U. Kokseng (Kokseng), the former guardian
of the heirs of Tirso Uytengsu, Jr. Complainant maintains that the document signed by Kokseng
was the same SPA which was presented to him for signature by respondent in December 1998. As
a result, the titles and other documents were received and taken by other persons without his or his
co-heirs knowledge and consent.
Complainant contends that the said SPA was prepared and notarized by the law office of
respondent and the latter stood as a witness to the public instrument. Complainant further avers
that respondent used to do some legal work for him and knew fully well that Kokseng has already
ceased to be his and his co-heirs guardian when the Regional Trial Court, Branch 19 of Cebu City
terminated the letters of guardianship over her youngest sibling on 30 August 1985 in the case
entitled "In the Matter of Guardianship of Tirso M. Uytengsu III, Kathleen Anne M. Uytengsu, and
Barbara Anne M. Uytengsu," docketed as SP Proc. No. 3039-R.
In essence, complainant asserts that respondent caused Kokseng to execute an SPA in favor of
Wee and/or Jacobo to the damage and prejudice of the heirs of Tirso Uytengsu, Jr. even if he knew
that Kokseng had no authority to do so.
Respondent in his comment,4 argues that the allegations of complainant are purely hearsay. He
stresses that complaint was instituted to harass him because he was the counsel of an opposing
litigant against complainants corporation in an ejectment case entitled "General Milling Corporation
v. Cebu Autometic Motors, Inc. and Tirso Uytengsu III."
On 9 August 2000, this Court referred the case to the Integrated Bar of the Philippines (IBP) for
investigation, report and recommendation.5

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Notices of hearing were sent to both parties between 11 January 2001 and 8 May 2001. However,
no actual hearings were conducted then due to the unavailability of either or both parties. Finally,
on 26 June 2001, both parties appeared before the investigating commissioner. They were then
directed to file their position papers and their respective replies thereto.
Investigating Commissioner Tyrone Cimafranca submitted his Report and Recommendation dated
2 April 2002, recommending the dismissal of the case. The Commissioner characterized the
evidence against respondent as hearsay. Moreover, the Commissioner concluded that Kokseng
had legal basis to execute the SPA in favor of a substitute, the records showing that complainant
and his co-heirs have constituted Kokseng as their attorney-in-fact for the purpose of filing the
homestead application.6
Thereafter, the IBP submitted their resolution dated 29 June 2002 approving and adopting the
report and recommendation of the investigating commissioner, dismissing the complaint against
respondent.7 Complainant filed his motion for reconsideration8 but was denied by the IBP in its
resolution dated 19 October 2002 on the ground that the IBP no longer had jurisdiction to consider
and resolve a matter already endorsed to this Court.9This notwithstanding, the Court
remanded10 the administrative case for immediate resolution of the motion for reconsideration on
the merits to the IBP in the Courts resolution dated 20 January 2003. 11
On 27 February 2004, the IBP filed its resolution adopting and approving the investigating
commissioners report and recommendation denying complainants motion for reconsideration. 12
Subsequently, on 1 July 2004,13 complainant filed a petition for review on certiorari14 assailing the
resolution of the IBP dated 27 February 2004.
In his petition for review, complainant questions the findings of the IBP that complainants
allegations were based on hearsay and in finding that Kokseng had the authority to execute the
special power of attorney in favor of Wee and/or Jacobo.
We dismiss the complaint.
At the outset, the Court finds that herein respondent was in fact the counsel in the homestead
patent application of the heirs of Tirso Uytengsu, Jr. This can be deduced from the letters 15 dated 9
October 1991 and 15 January 1993, addressed to respondent by Victoria Villasor-Inong (VillasorInong), Accounts Liquidation Officer III of the Board of Liquidators of General Santos City.
In said letters, Villasor-Inong communicated to respondent the requirements for the grant of the
homestead patent to herein complainant and his co-heirs. From the tenor of the letters, it would
seem that respondent actively participated in representing complainant and his co-heirs in their
patent application for the subject land. Apparently, he stood as counsel for the heirs of Tirso
Uytengsu, Jr.
With that ostensible representation and without any evidence to show that complainant or his coheirs withdrew such authority from respondent, the latter himself can even claim the certificates of
titles and other documents with regard to the homestead patents.

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It should be remembered that the first letter of Villasor-Inong addressed to respondent was on 9
October 1991.16The addressees of the said letter were "The Heirs of Tirso Uytengsu, Jr., Rep. by
Connie Uytengsu Kokseng, c/o Atty. Joseph Baduel."
Complainant also presented a letter17 dated 23 September 1992 addressed to Villasor-Inong by the
general manager of the Board of Liquidators, directing the former to personally contact the heirs of
Tirso Uytengsu, Jr. to ascertain who among the persons giving conflicting directives as to the
course of the patent application is the true authorized representative of the heirs of Tirso Uytengsu,
Jr.
After four (4) months, respondent received from Villasor Inong another letter, 18 dated 15 January
1993, also attached to complainants position paper and petition for review, furnishing respondent
the requirements needed for the homestead patent application of complainant and his co-heirs.
Complainant himself submitted all the aforementioned letters clearly showing that respondent was
indeed the counsel or representative of complainant in the application for patent.
The relation of attorney and client is in many respects one of agency and the general rules of
ordinary agency apply to such relation.19 The extent of authority of a lawyer, when acting on behalf
of his client outside of court, is measured by the same test as that which is applied to an ordinary
agent.20
Such being the case, even respondent himself can acquire the certificates of title and other
documents without need of an SPA from complainant and his co-heirs.
In addition, the Court agrees with the investigating commissioner that the allegations of
complainant constitutes mere hearsay evidence and may not be admissible in any proceeding.
In Marcelo v. Javier,21 it was held that:
In all cases the determination whether an attorney should be disbarred or merely suspended for a
period involves the exercise of a sound judicial discretion, mindful always of the fact that
disbarment is the most severe form of disciplinary action and should be resorted to only in cases
where the lawyer demonstrates an attitude or course of conduct wholly inconsistent with approved
professional standards. In cases of lighter offenses or of first delinquency, an order of suspension,
which is correctional in nature, should be inflicted. In view of the nature and consequences of a
disciplinary proceedings, observance of due process, as in other judicial determination, is
imperative along with presumption of innocence in favor of the lawyer. Consequently, the burden of
proof is on the complainant to overcome such presumption and establish his charges by clear
preponderance of evidence.22
Procedural due process demands that respondent lawyer should be given an opportunity to crossexamine the witnesses against him. He enjoys the legal presumption that he is innocent of the
charges against him until the contrary is proved. The case must be established by clear, convincing
and satisfactory proof.23
In the case at bar, other than the bare assertions of complainant, the evidence presented by the
latter does not suffice to tip the scale of justice to his side.

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It should be stressed that in administrative proceedings, complainant has the burden of proving the
allegations in the complaint. We cannot depend on mere conjectures and speculations. There must
be substantial evidence to support respondents guilt.24
Complainant averred that: (1) the SPA which the respondent asked him to sign was the same
document that Kokseng executed; (2) the document was notarized by a notary public from the
office of the respondent; and (3) the respondent was a witness in the SPA.
As correctly observed by the investigating commissioner, all the aforementioned charges are not
based on his personal knowledge of the acts complained of but acquired from other sources.
Complainant charges that respondent committed an act meriting disbarment when the latter
caused to have a special power of attorney, which the former reused to sign earlier, executed by
Mrs. Connie Kokseng, former guardian of complainant and his co-heirs, authorizing certain
individuals to secure the release from the Register of Deeds and other government offices in
General Santos City, titles and other documents pertaining to complainants and his co-heirs
homestead application. However, this charge is not based on his own personal knowledge of the
acts complained of but acquired from another source. In other words, what he offered in evidence
to prove his charge is a second-hand version. Complainant identified his source but failed to
present any sworn statement or affidavit of said witness. In other words, what he presented in
evidence to prove his charge is hearsay.25
The hearsay rule provides that no assertion offered as testimony can be received unless it is or has
been open to test by cross-examination or an opportunity for cross-examination, except as
provided otherwise by the rules on evidence, by rules of court, or by statute. The chief reasons for
the rule are that out-of-court statements amounting to hearsay are not made under oath and are
not subject to cross-examination.26
He did not submit to this Court or to the IBP any witness or documentary evidence to support his
claim that respondent has indeed caused the execution of the disputed special power of attorney.
Furthermore, complainant in his reply27 to respondents comment stated that he has a credible
witness in the person of Edward U. Kokseng, son of Kokseng, who has first hand knowledge of
Koksengs signing of the SPA. However, he failed to present his witness before the IBP or
submitted an affidavit of his witness to affirm his allegations. Neither did he present any witness,
whether expert nor otherwise, to attest to the genuiness of the signature of respondent which was
allegedly found in the SPA, if that was his objective.
This is not to say that complainant was not given any advice by the Court to make the proper
attachment to pleadings. As early as 21 July 1999, Atty. Erlinda C. Versoza, the then Deputy Clerk
of Court and Bar Confidant, sent word to complainant through a letter that
complainants letter-complaint must be verified and the supporting documents duly authenticated. 28
As a basic rule in evidence, the burden of proof lies on the party who makes the allegationsei
incumbit probatio, qui decit, non qui negat; cum per rerum naturam factum negantis probatio nulla
sit.29
It is also worth noting that complainants claim that he suffered damage and prejudice due to the
alleged unauthorized procurement of the certificates of titles and other documents was not

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substantiated by independent evidence. Complainants silence as to the extent of the alleged


damage and the lack of material evidence to show that his rights were impaired by the acts of
respondent would lead this Court to believe that complainant has suffered no or minimal injury,
should there be any.
As held in Metropolitan Bank and Trust Co. v. Tan,30 "no right of action is given where no injury is
sustained. A wrongful violation of a legal right is not a sufficient element of a cause of action unless
it has resulted in an injury causing loss or damage. There must be therefore, both wrongful
violation and damages. The one without the other is not sufficient." 31
Complainant made no statement on whether or not, at present, other persons who procured the
certificates of title and other documents are still in possession of the same. He also has not stated
the direct injury that was produced by the acts of respondent.
With all the foregoing, the Court finds that complainant did not overcome the presumption of
innocence of respondent.
We need not dwell on the other factual issues of the case as it involves the presentation of
concrete evidence that, sadly, complainant was not able to offer.
WHEREFORE, premises considered, the instant case against respondent is hereby DISMISSED
for lack of merit.
SO ORDERED.

J-PHIL MARINE, INC. and/or JESUS CANDAVA and NORMAN SHIPPING


SERVICES, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION and WARLITO E. DUMALAOG, respondents.
G.R. No. 175366

August 11, 2008

CARPIO MORALES, J.:

Warlito E. Dumalaog (respondent), who served as cook aboard vessels plying overseas, filed on
March 4, 2002 before the National Labor Relations Commission (NLRC) a pro-forma
complaint1against petitioners manning agency J-Phil Marine, Inc. (J-Phil), its then president
Jesus Candava, and its foreign principal Norman Shipping Services for unpaid money claims,
moral and exemplary damages, and attorneys fees.
Respondent thereafter filed two amended pro forma complaints2 praying for the award of overtime
pay, vacation leave pay, sick leave pay, and disability/medical benefits, he having, by his claim,

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contracted enlargement of the heart and severe thyroid enlargement in the discharge of his duties
as cook which rendered him disabled.
Respondents total claim against petitioners was P864,343.30 plus P117,557.60 representing
interest and P195,928.66 representing attorneys fees.3
By Decision4 of August 29, 2003, Labor Arbiter Fe Superiaso-Cellan dismissed respondents
complaint for lack of merit.
On appeal,5 the NLRC, by Decision of September 27, 2004, reversed the Labor Arbiters decision
and awarded US$50,000.00 disability benefit to respondent. It dismissed respondents other
claims, however, for lack of basis or jurisdiction.6 Petitioners Motion for Reconsideration7 having
been denied by the NLRC,8 they filed a petition for certiorari9 before the Court of Appeals.
By Resolution10 of September 22, 2005, the Court of Appeals dismissed petitioners petition for,
inter alia, failure to attach to the petition all material documents, and for defective verification and
certification. Petitioners Motion for Reconsideration of the appellate courts Resolution was
denied;11hence, they filed the present Petition for Review on Certiorari.
During the pendency of the case before this Court, respondent, against the advice of his counsel,
entered into a compromise agreement with petitioners. He thereupon signed a Quitclaim and
Release subscribed and sworn to before the Labor Arbiter.12
On May 8, 2007, petitioners filed before this Court a Manifestation 13 dated May 7, 2007 informing
that, inter alia, they and respondent had forged an amicable settlement.
On July 2, 2007, respondents counsel filed before this Court a Comment and Opposition (to
Petitioners Manifestation of May 7, 2007)14 interposing no objection to the dismissal of the petition
but objecting to "the absolution" of petitioners from paying respondent the total amount of Fifty
Thousand US Dollars (US$50,000.00) or approximately P2,300,000.00, the amount awarded by
the NLRC, he adding that:
There being already a payment of P450,000.00, and invoking the doctrine of parens
patriae, we pray then [to] this Honorable Supreme Court that the said amount be deducted
from the [NLRC] judgment award of US$50,000.00, or approximately P2,300,000.00, and
petitioners be furthermore ordered to pay in favor of herein respondent [the] remaining
balance thereof.
x x x x15 (Emphasis in the original; underscoring supplied)
Respondents counsel also filed before this Court, purportedly on behalf of respondent, a
Comment16on the present petition.
The parties having forged a compromise agreement as respondent in fact has executed a
Quitclaim and Release, the Court dismisses the petition.
Article 227 of the Labor Code provides:

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Any compromise settlement, including those involving labor standard laws, voluntarily
agreed upon by the parties with the assistance of the Department of Labor, shall be final
and binding upon the parties. The National Labor Relations Commission or any court shall
not assume jurisdiction over issues involved therein except in case of non-compliance
thereof or if there isprima facie evidence that the settlement was obtained through fraud,
misrepresentation, or coercion. (Emphasis and underscoring supplied)
In Olaybar v. NLRC,17 the Court, recognizing the conclusiveness of compromise settlements as a
means to end labor disputes, held that Article 2037 of the Civil Code, which provides that "[a]
compromise has upon the parties the effect and authority of res judicata," applies suppletorily to
labor cases even if the compromise is not judicially approved.18
That respondent was not assisted by his counsel when he entered into the compromise does not
render it null and void. Eurotech Hair Systems, Inc. v. Go19 so enlightens:
A compromise agreement is valid as long as the consideration is reasonable and
the employee signed the waiver voluntarily, with a full understanding of what he was
entering into. All that is required for the compromise to be deemed voluntarily entered into is
personal and specific individual consent. Thus, contrary to respondents contention, the
employees counsel need not be present at the time of the signing of the compromise
agreement.20 (Underscoring supplied)
It bears noting that, as reflected earlier, the Quitclaim and Waiver was subscribed and sworn to
before the Labor Arbiter.
Respondents counsel nevertheless argues that "[t]he amount of Four Hundred Fifty Thousand
Pesos (P450,000.00) given to respondent on April 4, 2007, as full and final settlement of judgment
award, is unconscionably low, and un-[C]hristian, to say the least."21 Only respondent, however,
can impugn the consideration of the compromise as being unconscionable.
The relation of attorney and client is in many respects one of agency, and the general rules of
agency apply to such relation.22 The acts of an agent are deemed the acts of the principal only if
the agent acts within the scope of his authority.23 The circumstances of this case indicate that
respondents counsel is acting beyond the scope of his authority in questioning the compromise
agreement.
That a client has undoubtedly the right to compromise a suit without the intervention of his
lawyer24cannot be gainsaid, the only qualification being that if such compromise is entered into with
the intent of defrauding the lawyer of the fees justly due him, the compromise must be subject to
the said fees.25 In the case at bar, there is no showing that respondent intended to defraud his
counsel of his fees. In fact, the Quitclaim and Release, the execution of which was witnessed by
petitioner J-Phils president Eulalio C. Candava and one Antonio C. Casim, notes that the 20%
attorneys fees would be "paid 12 April 2007 P90,000."
WHEREFORE, the petition is, in light of all the foregoing discussion, DISMISSED.
Let a copy of this Decision be furnished respondent, Warlito E. Dumalaog, at his given address at
No. 5-B Illinois Street, Cubao, Quezon City.

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SO ORDERED.

GENEVIEVE LIM, petitioner, vs.FLORENCIO SABAN, respondents.


G.R. No. 163720

December 16, 2004

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 Ybaez (Ybaez), the owner of a 1,000-square meter lot in Cebu City (the "lot"),
entered into anAgreement and Authority to Negotiate and Sell (Agency Agreement) with
respondent Florencio Saban (Saban) on February 8, 1994. Under the Agency Agreement, Ybaez
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 Sabans commission for the sale. 3
Through Sabans efforts, Ybaez 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

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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 brokers 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 forP168,000.00.
Subsequently, Ybaez sent a letter dated June 10, 1994 addressed to Lim. In the letter Ybaez
asked Lim to cancel all the checks issued by her in Sabans favor and to "extend another partial
payment" for the lot in his (Ybaezs) 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 Ybaez 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 Ybaez. Of the total purchase price of P600,000.00, P200,000.00 went to
Ybaez, P50,000.00 allegedly went to Lims agent, andP113,257.00 was given to Saban to cover
taxes and other expenses incidental to the sale. Lim also issued four (4) postdated checks 8 in favor
of Saban for the remaining P236,743.00.9
Saban alleged that Ybaez 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 Ybaez and because he was not a
licensed real estate broker. Ybaez was able to convince Lim to cancel all four checks.
Saban further averred that Ybaez 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, Ybaez 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 Ybaez and Saban, and
that she issued stop payment orders for the three checks because Ybaez requested her to pay
the purchase price directly to him, instead of coursing it through Saban. She also alleged that she
agreed with Ybaez that the purchase price of the lot was only P200,000.00.
Ybaez 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 Sabans 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 courts Decision to the Court of Appeals.

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On October 27, 2003, the appellate court promulgated its Decision12 reversing the trial courts
ruling. It held that Saban was entitled to his commission amounting to P236,743.00.13
The Court of Appeals ruled that Ybaezs revocation of his contract of agency with Saban was
invalid because the agency was coupled with an interest and Ybaez 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 Ybaez 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 Sabans commission for the sale, as the agent of Ybaez. The appellate court
further ruled that, in issuing the checks in payment of Sabans 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 courts 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 Ybaez.17
She further contends that she is not liable for Ybaezs 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 Ybaez 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 Ybaez 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 theP200,000.00 which would be paid to Ybaez, the P50,000.00 due to her broker,
the P113,257.00 earmarked for taxes and other expenses incidental to the sale and Sabans
commission as broker for Ybaez. According to Saban, Lim assumed the obligation to pay him his
commission. He insists that Lim and Ybaez connived to unjustly deprive him of his commission
from the negotiation of the sale.21
The issues for the Courts 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.

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The Court gives due course to the petition, but agrees with the result reached by the Court of
Appeals.
The Court affirms the appellate courts finding that the agency was not revoked since Ybaez
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 Ybaezs agent when, through his (Sabans) efforts, Ybaez 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 Ybaez which expressly states that Saban
would be entitled to any excess in the purchase price after deducting the P200,000.00 due to
Ybaez 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 sellers property even though the seller himself consummated the
sale with the buyer.24The 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 brokers 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 sellers withdrawal in bad faith of the brokers authority cannot unjustly
deprive the brokers of their commissions as the sellers 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 Ybaez by finding a suitable buyer to preparing the Deed of Absolute Sale between
Ybaez 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 Ybaezs share
of P200,000.00 and the taxes and other incidental expenses of the sale.
However, the Court does not agree with the appellate courts pronouncement that Sabans 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 agents 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
agents interest is confined to earning his agreed compensation, the agency is not one coupled
with an interest, since an agents interest in obtaining his compensation as such agent is an
ordinary incident of the agency relationship.26
Sabans 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.

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Sabans right to receive compensation for negotiating as broker for Ybaez 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 Ybaez set the price of the lot at P200,000.00 and that
the P600,000.00the price agreed upon by her and Sabanwas more than the amount set by
Ybaez because it included the amount for payment of taxes and for Sabans commission as
broker for Ybaez.
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 Ybaez, 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 Ybaez the amount of One Hundred Thousand Pesos (P100,000.00) only, and gave to
Saban P113,257.00 for payment of taxes and P50,000.00 as his commission,28and 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). Ybaez, 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 theP113,257.00 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 Ybaez. Apparently, although the amount actually paid by Lim
was P393,257.00, Ybaez rounded off the amount to P400,000.00 and waived the difference.
Lims act of issuing the four checks amounting to P236,743.00 in Sabans 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 Ybaez), 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 Ybaez and ultimately realizing that Sabans
commission is even more than what Ybaez 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

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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 Ybaez 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 Ybaez 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 Ybaezs estate, if that
remedy is still available,32 in view of the trial courts dismissal of Sabans complaint as against
Ybaez, with Sabans express consent, due to the latters 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
Ybaez 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
Ybaezs 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.

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Neither is there any indication that Lim issued the checks for the purpose of enabling Ybaez, 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.

FRANCISCO A. VELOSO, petitioner,


vs.
COURT OF APPEALS, AGLALOMA B. ESCARIO, assisted by her husband GREGORIO L.
ESCARIO, the REGISTER OF DEEDS FOR THE CITY OF MANILA, respondents.
G.R. No. 102737 August 21, 1996 TORRES, JR., J.:p
This petition for review assails the decision of the Court of Appeals, dated July 29, 1991, the
dispositive portion of which reads:
WHEREFORE, the decision appealed from is hereby AFFIRMED IN TOTO. Costs
against appellant. 1
The following are the antecedent facts:

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Petitioner Francisco Veloso was the owner of a parcel of land situated in the district of
Tondo, Manila, with an area of one hundred seventy seven (177) square meters and
covered by Transfer Certificate of Title No. 49138 issued by the Registry of Deeds of
Manila. 2 The title was registered in the name of Francisco A. Veloso, single, 3 on October 4,
1957. 4 The said title was subsequently cancelled and a new one, Transfer Certificate of
Title No. 180685, was issued in the name of Aglaloma B. Escario, married to Gregorio L.
Escario, on May 24, 1988. 5
On August 24, 1988, petitioner Veloso filed an action for annulment of documents,
reconveyance of property with damages and preliminary injunction and/or restraining order.
The complaint, docketed as Civil Case No. 88-45926, was raffled to the Regional Trial
Court, Branch 45, Manila. Petitioner alleged therein that he was the absolute owner of the
subject property and he never authorized anybody, not even his wife, to sell it. He alleged
that he was in possession of the title but when his wife, Irma, left for abroad, he found out
that his copy was missing. He then verified with the Registry of Deeds of Manila and there
he discovered that his title was already cancelled in favor of defendant Aglaloma Escario.
The transfer of property was supported by a General Power of Attorney 6 dated November
29, 1985 and Deed of Absolute Sale, dated November 2, 1987, executed by Irma Veloso,
wife of the petitioner and appearing as his attorney-in-fact, and defendant Aglaloma
Escario. 7 Petitioner Veloso, however, denied having executed the power of attorney and
alleged that his signature was falsified. He also denied having seen or even known
Rosemarie Reyes and Imelda Santos, the supposed witnesses in the execution of the power
of attorney. He vehemently denied having met or transacted with the defendant. Thus, he
contended that the sale of the property, and the subsequent transfer thereof, were null and
void. Petitioner Veloso, therefore, prayed that a temporary restraining order be issued to
prevent the transfer of the subject property; that the General Power of Attorney, the Deed of
Absolute Sale and the Transfer Certificate of Title No. 180685 be annulled; and the subject
property be reconveyed to him.
Defendant Aglaloma Escario in her answer alleged that she was a buyer in good faith and
denied any knowledge of the alleged irregularity. She allegedly relied on the general power
of attorney of Irma Veloso which was sufficient in form and substance and was duly
notarized. She contended that plaintiff (herein petitioner), had no cause of action against
her. In seeking for the declaration of nullity of the documents, the real party in interest was
Irma Veloso, the wife of the plaintiff. She should have been impleaded in the case. In fact,
Plaintiff's cause of action should have been against his wife, Irma. Consequently, defendant
Escario prayed for the dismissal of the complaint and the payment to her of damages. 8
Pre-trial was conducted. The sole issue to be resolved by the trial court was whether or not
there was a valid sale of the subject property. 9
During the trial, plaintiff (herein petitioner) Francisco Veloso testified that he acquired the
subject property from the Philippine Building Corporation, as evidenced by a Deed of Sale
dated October 1, 1957. 10 He married Irma Lazatin on January 20, 1962. 11 Hence, the
property did not belong to their conjugal partnership. Plaintiff further asserted that he did not
sign the power of attorney and as proof that his signature was falsified, he presented Allied
Bank Checks Nos. 16634640, 16634641 and 16634643, which allegedly bore his genuine
signature.

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Witness for the plaintiff Atty. Julian G. Tubig denied any participation in the execution of the
general power of attorney. He attested that he did not sign thereon, and the same was never
entered in his Notarial Register on November 29, 1985.
In the decision of the trial court dated March 9, 1990, 12 defendant Aglaloma Escario was
adjudged the lawful owner of the property as she was deemed an innocent purchaser for
value. The assailed general power of attorney was held to be valid and sufficient for the
purpose. The trial court ruled that there was no need for a special power of attorney when
the special power was already mentioned in the general one. It also declared that plaintiff
failed to substantiate his allegation of fraud. The court also stressed that plaintiff was not
entirely blameless for although he admitted to be the only person who had access to the title
and other important documents, his wife was still able to possess the copy. Citing Section
55 of Act 496, the court held that Irma's possession and production of the certificate of title
was deemed a conclusive authority from the plaintiff to the Register of Deeds to enter a new
certificate. Then applying the principle of equitable estoppel, plaintiff was held to bear the
loss for it was he who made the wrong possible. Thus:
WHEREFORE, the Court finds for the defendants and against plaintiff
a. declaring that there was a valid sale of the subject property in favor of
the defendant;
b. denying all other claims of the parties for want of legal and factual
basis.
Without pronouncement as to costs.
SO ORDERED.
Not satisfied with the decision, petitioner Veloso filed his appeal with the Court of Appeals.
The respondent court affirmed in toto the findings of the trial court.
Hence, this petition for review before Us.
This petition for review was initially dismissed for failure to submit an affidavit of service of a
copy of the petition on the counsel for private respondent. 13 A motion for reconsideration of
the resolution was filed but it was denied in are resolution dated March 30, 1992. 14 A
second motion for reconsideration was filed and in a resolution dated Aug. 3, 1992, the
motion was granted and the petition for review was reinstated. 15
A supplemental petition was filed on October 9, 1992 with the following assignment of
errors:
I
The Court of Appeals committed a grave error in not finding that the forgery of the
power of attorney (Exh . "C") had been adequately proven, despite the preponderant
evidence, and in doing so, it has so far departed from the applicable provisions of law

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and the decisions of this Honorable Court, as to warrant the grant of this petition for
review on certiorari.
II
There are principles of justice and equity that warrant a review of the decision.
III
The Court of Appeals erred in affirming the decision of the trial court which
misapplied the principle of equitable estoppel since the petitioner did not fail in his
duty of observing due diligence in the safekeeping of the title to the property.
We find petitioner's contentions not meritorious.
An examination of the records showed that the assailed power of attorney was valid and
regular on its face. It was notarized and as such, it carries the evidentiary weight conferred
upon it with respect to its due execution. While it is true that it was denominated as a
general power of attorney, a perusal thereof revealed that it stated an authority to sell, to wit:
2. To buy or sell, hire or lease, mortgage or otherwise hypothecate lands, tenements
and hereditaments or other forms of real property, more specifically TCT No. 49138,
upon such terms and conditions and under such covenants as my said attorney shall
deem fit and proper. 16
Thus, there was no need to execute a separate and special power of attorney since the
general power of attorney had expressly authorized the agent or attorney in fact the power
to sell the subject property. The special power of attorney can be included in the general
power when it is specified therein the act or transaction for which the special power is
required.
The general power of attorney was accepted by the Register of Deeds when the title to the
subject property was cancelled and transferred in the name of private respondent. In LRC
Consulta No. 123, Register of Deeds of Albay, Nov. 10, 1956, it stated that:
Whether the instrument be denominated as "general power of attorney" or "special
power of attorney", what matters is the extent of the power or powers contemplated
upon the agent or attorney in fact. If the power is couched in general terms, then such
power cannot go beyond acts of administration. However, where the power to sell is
specific, it not being merely implied, much less couched in general terms, there can
not be any doubt that the attorney in fact may execute a valid sale. An instrument
may be captioned as "special power of attorney" but if the powers granted are
couched in general terms without mentioning any specific power to sell or mortgage
or to do other specific acts of strict dominion, then in that case only acts of
administration may be deemed conferred.
Petitioner contends that his signature on the power of attorney was falsified. He also alleges
that the same was not duly notarized for as testified by Atty. Tubig himself, he did not sign
thereon nor was it ever recorded in his notarial register. To bolster his argument, petitioner

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had presented checks, marriage certificate and his residence certificate to prove his alleged
genuine signature which when compared to the signature in the power of attorney, showed
some difference.
We found, however, that the basis presented by the petitioner was inadequate to sustain his
allegation of forgery. Mere variance of the signatures cannot be considered as conclusive
proof that the same were forged. Forgery cannot be presumed 17 Petitioner, however, failed
to prove his allegation and simply relied on the apparent difference of the signatures. His
denial had not established that the signature on the power of attorney was not his.
We agree with the conclusion of the lower court that private respondent was an innocent
purchaser for value. Respondent Aglaloma relied on the power of attorney presented by
petitioner's wife, Irma. Being the wife of the owner and having with her the title of the
property, there was no reason for the private respondent not to believe in her authority.
Moreover, the power of attorney was notarized and as such, carried with it the presumption
of its due execution. Thus, having had no inkling on any irregularity and having no
participation thereof, private respondent was a buyer in good faith. It has been consistently
held that a purchaser in good faith is one who buys property of another, without notice that
some other person has a right to, or interest in such property and pays a full and fair price
for the same, at the time of such purchase, or before he has notice of the claim or interest of
some other person in the property. 18
Documents acknowledged before a notary public have the evidentiary weight with respect to
their due execution. The questioned power of attorney and deed of sale, were notarized and
therefore, presumed to be valid and duly executed. Atty. Tubig denied having notarized the
said documents and alleged that his signature had also been falsified. He presented
samples of his signature to prove his contention. Forgery should be proved by clear and
convincing evidence and whoever alleges it has the burden of proving the same. Just like
the petitioner, witness Atty. Tubig merely pointed out that his signature was different from
that in the power of attorney and deed of sale. There had never been an accurate
examination of the signature, even that of the petitioner. To determine forgery, it was held
in Cesar vs. Sandiganbayan 19(quoting Osborn, The Problem of Proof) that:
The process of identification, therefore, must include the determination of the extent,
kind, and significance of this resemblance as well as of the variation. It then becomes
necessary to determine whether the variation is due to the operation of a different
personality, or is only the expected and inevitable variation found in the genuine
writing of the same writer. It is also necessary to decide whether the resemblance is
the result of a more or less skillful imitation, or is the habitual and characteristic
resemblance which naturally appears in a genuine writing. When these two questions
are correctly answered the whole problem of identification is solved.
Even granting for the sake of argument, that the petitioner's signature was falsified and
consequently, the power of attorney and the deed of sale were null and void, such fact
would not revoke the title subsequently issued in favor of private respondent Aglaloma.
In Tenio-Obsequio vs. Court of Appeals, 20 it was held, viz:
The right of an innocent purchaser for value must be respected and protected, even if
the seller obtained his title through fraud. The remedy of the person prejudiced is to

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bring an action for damages against those who caused or employed the fraud, and if
the latter are insolvent, an action against the Treasurer of the Philippines may be filed
for recovery of damages against the Assurance Fund.
Finally; the trial court did not err in applying equitable estoppel in this case. The principle of
equitable estoppel states that where one or two innocent persons must suffer a loss, he who
by his conduct made the loss possible must bear it. From the evidence adduced, it should
be the petitioner who should bear the loss. As the court a quo found:
Besides, the records of this case disclosed that the plaintiff is not entirely free from
blame. He admitted that he is the sole person who has access to TCT No. 49138 and
other documents appertaining thereto (TSN, May 23, 1989, pp. 7-12) However, the
fact remains that the Certificate of Title, as well as other documents necessary for the
transfer of title were in the possession of plaintiff's wife, Irma L. Veloso, consequently
leaving no doubt or any suspicion on the part of the defendant as to her authority.
Under Section 55 of Act 496, as amended, Irma's possession and production of the
Certificate of Title to defendant operated as "conclusive authority from the plaintiff to
the Register of Deeds to enter a new certificate." 21
Considering the foregoing premises, we found no error in the appreciation of facts and
application of law by the lower court which will warrant the reversal or modification of the
appealed decision.
ACCORDINGLY, the petition for review is hereby DENIED for lack of merit. SO ORDERED.
ESTATE OF LINO OLAGUER, Represented by Linda O. Olaguer, and LINDA O.
MONTAYRE,petitioners,
vs.
EMILIANO M. ONGJOCO, respondent.
G.R. No. 173312

August 26, 2008

CHICO-NAZARIO, J.:

Assailed in this Petition for Review on Certiorari1 is the Decision2 of the Court of Appeals dated 27
February 2006 in CA-G.R. CV No. 71710. Said decision modified the Decision 3 and the
subsequent Order4 of the Regional Trial Court (RTC) of Legazpi City, Branch 6, in Civil Case No.
6223, and upheld the validity of the sales of properties to respondent Emiliano M. Ongjoco.
The relevant factual antecedents of the case, as found by the trial court and adapted by the Court
of Appeals, are as follows:
The plaintiffs Sor Mary Edith Olaguer, Aurora O. de Guzman, Clarissa O. Trinidad, Lina
Olaguer and Ma. Linda O. Montayre are the legitimate children of the spouses Lino Olaguer
and defendant Olivia P. Olaguer.
Lino Olaguer died on October 3, 1957 so Special Proceedings No. 528 for probate of will
was filed in the then Court of First Instance of Albay. Defendant Olivia P. Olaguer was
appointed as administrator pursuant to the will. Later, defendant Eduardo Olaguer was
appointed as co-administrator. x x x

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On October 15, 1959 defendant Olivia P. Olaguer got married to defendant Jose A. Olaguer
before the then Justice of the Peace of Sto. Domingo (Libog) Albay. (Exhibit "NNNN") On
January 24, 1965 they were married in church. (Exhibit "XX")
In the order of the probate court dated April 4, 1961, some properties of the estate were
authorized to be sold to pay obligations of the estate. Pursuant to this authority,
administrators Olivia P. Olaguer and Eduardo Olaguer on December 12, 1962 sold to Pastor
Bacani for [P]25,000 Pesos, twelve (12) parcels of land, particularly, Lots 4518, 4526, 4359,
8750, 7514, 6608, 8582, 8157, 7999, 6167, 8266, and 76 with a total area of 99 hectares.
(Exhibit "A" Deed of Sale notarized by defendant Jose A. Olaguer)
This sale of twelve (12) parcels of land to Pastor Bacani was approved by the Probate Court
on December 12, 1962. (Exhibit "15")
The following day, December 13, 1962, Pastor Bacani sold back to Eduardo Olaguer
and Olivia Olaguer for [P]12,000.00 Pesos, one of the twelve (12) lots he bought the
day before, particularly, Lot No. 76 in the proportion of 7/13 and 6/13 pro-indiviso
respectively. (Exhibit "B" Deed of Sale notarized by Felipe A. Cevallos, Sr.)
Simultaneously, on the same day December 13, 1962, Pastor Bacani sold back to Olivia
Olaguer and Eduardo Olaguer the other eleven (11) parcels he bought from them as follows:
To Olivia Olaguer Four (4) parcels for 10,700 Pesos, particularly Lots 4518, 4526,
4359, 8750 with a total area of 84 hectares. (Exhibit "E" Deed of Sale notarized by
Felipe A. Cevallos, Sr.)
To Eduardo Olaguer Seven (7) parcels of land for 2,500 Pesos, particularly Lots
7514, 6608, 8582, 8157, 7999, 6167, and 8266 with a total area of 15 hectares.
(Exhibit "C" Deed of Sale notarized by defendant Jose A. Olaguer)
Relying upon the same order of April 4, 1961 but without prior notice or permission from the
Probate Court, defendants Olivia P. Olaguer and Eduardo Olaguer on November 1, 1965
sold to Estanislao Olaguer for 7,000 Pesos, ten (10) parcels of land, particularly, (a) TCT
No. T-4011 Lot No. 578, (b) TCT No. T-1417 Lot No. 1557, (c) TCT No. T-4031 Lot
No. 1676, (d) TCT No. T-4034 Lot No. 4521, (e) TCT No. T-4035 Lot No. 4522, (f) TCT
No. 4013 Lot No. 8635, (g) TCT No. T-4014 Lot 8638, (h) TCT No. T-4603 Lot No.
7589, (i) TCT No. 4604 Lot No. 7593, and (j) TCT No. T-4605 Lot No. 7396. (Exhibit "D"
Deed of Sale notarized by Rodrigo R. Reantaso)
This sale to Estanislao Olaguer was approved by the Probate Court on November 12, 1965.
After the foregoing sale to Estanislao Olaguer, the following transactions took place:
1) On July 7, 1966, defendant Olivia P. Olaguer executed a Special Power of Attorney
notarized by Rodrigo R. Reantaso (Exhibit "T") in favor of defendant Jose A. Olaguer,
authorizing the latter to "sell, mortgage, assign, transfer, endorse and deliver" the
properties covered by TCT No. 14654 for Lot 76 6/13 share only, T-13983, T-14658, T14655, T-14656, and T-14657.

64 | A G E N C Y F U L L C a s e s A P R e l o x

2) On July 7, 1966, Estanislao Olaguer executed a Special Power of Attorney in favor of


Jose A. Olaguer (Exhibit "X") notarized by Rodrigo R. Reantaso authorizing the latter to
"sell, mortgage, assign, transfer, endorse and deliver" the properties covered by TCT No. T20221, T-20222, T-20225 for Lot No. 8635, T-20226 for Lot No. 8638, T-20227, T-20228,
and T-20229.
By virtue of this Special Power of Attorney, on March 1, 1967, Jose A. Olaguer as Attorneyin-Fact of Estanislao Olaguer mortgaged Lots 7589, 7593 and 7396 to defendant Philippine
National Bank (PNB) as security for a loan of 10,000 Pesos. The mortgage was foreclosed
by the PNB on June 13, 1973 and the properties mortgage were sold at public auction to
PNB. On December 10, 1990, the PNB transferred the properties to the Republic of the
Philippines pursuant to Exec. Order No. 407 dated June 14, 1990 for agrarian reform
purposes. (records, vol. 1, page 66)
3) On October 29, 1966, Estanislao Olaguer executed a General Power of Attorney
notarized by Rodrigo R. Reantaso (Exhibit "Y") in favor of Jose A. Olaguer, authorizing the
latter to exercise general control and supervision over all of his business and properties, and
among others, to sell or mortgage any of his properties.
4) On December 29, 1966, Estanislao Olaguer sold to Jose A. Olaguer for 15,000 Pesos,
(Exhibit "UU") the ten (10) parcels of land (Lots 578, 4521, 4522, 1557, 1676, 8635, 8638,
7589, 7593 and 7396) he bought from Olivia P. Olaguer and Eduardo Olaguer under Exhibit
"D".
5) On March 16, 1968, Estanislao Olaguer sold to Jose A. Olaguer for 1 Peso and other
valuable consideration Lot No. 4521 TCT No. T-20223 and Lot 4522 TCT No. 20224
with a total area of 2.5 hectares. (records, vol. 1, page 33)
6) On June 5, 1968, Estanislao Olaguer sold Lot No. 8635 under TCT No. T-20225, and Lot
No. 8638 under TCT No. 20226 to Jose A. Olaguer for 1 Peso and other valuable
consideration. (Exhibit "F") Deed of Sale was notarized by Rodrigo R. Reantaso.
7) On May 13, 1971, Jose A. Olaguer in his capacity as Attorney in-Fact of Estanislao
Olaguer sold to his son Virgilio Olaguer for 1 Peso and other valuable consideration Lot No.
1557 TCT No. 20221 and Lot No. 1676 TCT No. 20222. The deed of sale was notarized
by Otilio Sy Bongon.
8) On July 15, 1974, Jose A. Olaguer sold to his son Virgilio Olaguer Lot No. 4521 and Lot
No. 4522 for 1,000 Pesos. Deed of Sale was notarized by Otilio Sy Bongon. (records, vol. 1,
page 34)
9) On September 16, 1978 Virgilio Olaguer executed a General Power of Attorney in favor of
Jose A. Olaguer notarized by Otilio Sy Bongon (Exhibit "V") authorizing the latter to exercise
general control and supervision over all of his business and properties and among others, to
sell or mortgage the same.
Olivia P. Olaguer and Eduardo Olaguer were removed as administrators of the estate and
on February 12, 1980, plaintiff Ma. Linda Olaguer Montayre was appointed administrator by
the Probate Court.

65 | A G E N C Y F U L L C a s e s A P R e l o x

Defendant Jose A. Olaguer died on January 24, 1985. (Exhibit "NN") He was survived by his
children, namely the defendants Nimfa Olaguer Taguay, Corazon Olaguer Uy, Jose
Olaguer, Jr., Virgilio Olaguer, Jacinto Olaguer, and Ramon Olaguer.
Defendant Olivia P. Olaguer died on August 21, 1997 (Exhibit "OO") and was survived by all
the plaintiffs as the only heirs.
The decedent Lino Olaguer have had three marriages. He was first married to Margarita
Ofemaria who died April 6, 1925. His second wife was Gloria Buenaventura who died on
July 2, 1937. The third wife was the defendant Olivia P. Olaguer.
Lot No. 76 with an area of 2,363 square meters is in the heart of the Poblacion of
Guinobatan, Albay. The deceased Lino Olaguer inherited this property from his
parents. On it was erected their ancestral home.
As already said above, Lot No. 76 was among the twelve (12) lots sold for 25,000
Pesos, by administrators Olivia P. Olaguer and Eduardo Olaguer to Pastor Bacani on
December 12, 1962. The sale was approved by the probate court on December 12,
1962.
But, the following day, December 13, 1962 Pastor Bacani sold back the same 12 lots to
Olivia P. Olaguer and Eduardo Olaguer for 25,200 Pesos, as follows:
a) Lot No. 76 was sold back to Olivia P. Olaguer and Eduardo Olaguer for
12,000 Pesos, in the proportion of [6/13] and [7/13] respectively. (Exhibit "B")
b) 4 of the 12 lots namely, Lots 4518, 4526, 4359, and 8750 were sold back to Olivia
Olaguer for 10,700 Pesos. (Exhibit "E")
c) 7 of the 12 lots namely, Lots 7514, 6608, 8582, 8157, 7999, 6167, and 8266 were
sold back to Eduardo Olaguer for 2,500 Pesos. (Exhibit "C")
d) Lot No. 76 was thus issued TCT No. T-14654 on December 13, 1962 in the
names of Eduardo B. Olaguer married to Daisy Pantig and Olivia P. Olaguer
married to Jose A. Olaguer to the extent of 7/13 and 6/13 pro-indiviso,
respectively. (Exhibit "FF" also "14-a)
e) It appears from Plan (LRC) Psd-180629 (Exhibit "3") that defendant Jose A.
Olaguer caused the subdivision survey of Lot 76 into eleven (11) lots,
namely, 76-A, 76-B, 76-C, 76-D, 76-E, 76-F, 76-G, 76-H, 76-I, 76-J, and 76-K,
sometime on April 3, 1972. The subdivision survey was approved on October 5,
1973. After the approval of the subdivision survey of Lot 76, a subdivision
agreement was entered into on November 17, 1973, among Domingo
Candelaria, Olivia P. Olaguer, Domingo O. de la Torre and Emiliano M.
[Ongjoco]. (records, vol. 2, page 109).
This subdivision agreement is annotated in TCT No. 14654 (Exhibit "14" "14-d") as
follows:

66 | A G E N C Y F U L L C a s e s A P R e l o x

Owner

Lot
No.

Area in
sq. m.

TCT
No.

Vol.

Page

Domingo Candelaria

76-A

300

T36277

206

97

Olivia P. Olaguer

76-B

200

T36278

"

98

- do -

76-C

171

T36279

"

99

- do -

76-D

171

T36280

"

100

- do -

76-E

171

T36281

"

101

- do -

76-F

171

T36282

"

102

- do -

76-G

202

T36283

"

103

Domingo O. de la
Torre

76-H

168

T36284

"

104

- do -

76-I

168

T36285

"

105

- do -

76-J

168

T36286

"

106

Emiliano M.
[Ongjoco]

76-K

473

T36287

"

107

After Lot 76 was subdivided as aforesaid, Jose A. Olaguer as attorney-in-fact of Olivia


P. Olaguer, sold to his son Virgilio Olaguer Lots 76-B, 76-C, 76-D, 76-E, 76-F, and 76G on January 9, 1974 for 3,000 Pesos. (Exhibit "G") The deed of absolute sale was
notarized by Otilio Sy Bongon.
Lots 76-B and 76-C were consolidated and then subdivided anew and designated
as Lot No. 1 with an area of 186 square meters and Lot No. 2 with an area of 185
square meters of the Consolidation Subdivision Plan (LRC) Pcs-20015. (Please sketch
plan marked as Exhibit "4", records, vol. 2, page 68)
On January 15, 1976, Jose A. Olaguer claiming to be the attorney-in-fact of his son
Virgilio Olaguer under a general power of attorney Doc. No. 141, Page No. 100, Book
No. 7, Series of 1972 of Notary Public Otilio Sy Bongon, sold Lot No. 1 to defendant
Emiliano M. [Ongjoco] for 10,000 Pesos per the deed of absolute sale notarized by

67 | A G E N C Y F U L L C a s e s A P R e l o x

Otilio Sy Bongon. (Exhibit "H") The alleged general power of attorney however was not
presented or marked nor formally offered in evidence.
On September 7, 1976, Jose A. Olaguer again claiming to be the attorney-in-fact of
Virgilio Olaguer under the same general power of attorney referred to in the deed of
absolute sale of Lot 1, sold Lot No. 2 to Emiliano M. [Ongjoco] for 10,000
Pesos. (Exhibit "I") The deed of absolute sale was notarized by Otilio Sy Bongon.
On July 16, 1979, Jose A. Olaguer as attorney-in-fact of Virgilio Olaguer under a
general power of attorney Doc. No. 378, Page No. 76, Book No. 14, Series of 1978
sold Lot No. 76-D to Emiliano M. [Ongjoco] for 5,000 Pesos. The deed of absolute sale
is Doc. No. 571, Page No. 20, Book No. 16, Series of 1979 of Notary Public Otilio Sy
Bongon. (Exhibit "K")
The same Lot No. 76-D was sold on October 22, 1979 by Jose A. Olaguer as attorneyin-fact of Virgilio Olaguer under a general power of attorney Doc. No. 378, Page No.
76, Book No. 14, Series of 1978 of Notary Public Otilio Sy Bongon sold Lot No. 76-D to
Emiliano M. [Ongjoco] for 10,000 Pesos. The deed of absolute sale is Doc. No. 478,
Page No. 97, Book NO. XXII, Series of 1979 of Notary Public Antonio A.
Arcangel. (Exhibit "J")
On July 3, 1979, Jose A. Olaguer as attorney-in-fact of Virgilio Olaguer sold Lots 76-E
and 76-F to Emiliano M. [Ongjoco] for 15,000 Pesos. The deed of absolute sale is Doc.
No. 526, Page No. 11, Book No. 16, Series of 1979 of Notary Public Otilio Sy
Bongon.(Exhibit "M")
The same Lots 76-E and 76-F were sold on October 25, 1979, by Jose A. Olaguer as
attorney-in-fact of Virgilio Olaguer under the same general power of attorney of 1978
referred to above to Emiliano M. [Ongjoco] for 30,000 Pesos. The deed of absolute
sale is Doc. No. 47, Page No. 11, Book No. XXIII, Series of 1972 of Notary Public
Antonio A. Arcangel. (Exhibit "L")
On July 2, 1979 Jose A. Olaguer as attorney-in-fact of Virgilio Olaguer sold Lot No. 76Gto Emiliano M. [Ongjoco] for 10,000 Pesos. The deed of sale is Doc. No. 516, Page
No. 9, Book No. 16, Series of 1979 of Notary Public Otilio Sy Bongon. (Exhibit "N")
The same Lot 76-G was sold on February 29, 1980 by Jose A. Olaguer as attorney-infact of Virgilio Olaguer under the same general power of attorney of 1978 referred to
above to Emiliano M. [Ongjoco] for 10,000 Pesos. The deed of absolute sale is Doc.
No. l02, Page No. 30, Book No. 17, Series of 1980 of Notary Public Otilio Sy
Bongon. (Exhibit "O")5(Emphases ours.)
Thus, on 28 January 1980, the Estate of Lino Olaguer represented by the legitimate children of the
spouses Lino Olaguer and defendant Olivia P. Olaguer, namely, Sor Mary Edith Olaguer, Aurora
O. de Guzman, Clarissa O. Trinidad, Lina Olaguer and Ma. Linda O. Montayre, as attorney-in-fact
and in her own behalf, filed an action for the Annulment of Sales of Real Property and/or
Cancellation of Titles6 in the then Court of First Instance of Albay.7

68 | A G E N C Y F U L L C a s e s A P R e l o x

Docketed as Civil Case No. 6223, the action named as defendants the spouses Olivia P. Olaguer
and Jose A. Olaguer; Eduardo Olaguer; Virgilio Olaguer; Cipriano Duran; the Heirs of Estanislao O.
Olaguer, represented by Maria Juan Vda. de Olaguer; and the Philippine National Bank (PNB).
In the original complaint, the plaintiffs therein alleged that the sales of the following properties
belonging to the Estate of Lino Olaguer to Estanislao Olaguer were absolutely simulated or
fictitious, particularly: Lots Nos. 578, 1557, 1676, 4521, 4522, 8635, 8638, 7589, 7593, and 7396.
In praying that the sale be declared as null and void, the plaintiffs likewise prayed that the resulting
Transfer Certificates of Title issued to Jose Olaguer, Virgilio Olaguer, Cipriano Duran and the PNB
be annulled.
Defendant PNB claimed in its Answer,8 inter alia, that it was a mortgagee in good faith and for
value of Lots Nos. 7589, 7593 and 7396, which were mortgaged as security for a loan
of P10,000.00; the mortgage contract and other loan documents were signed by the spouses
Estanislao and Maria Olaguer as registered owners; the proceeds of the loan were received by the
mortgagors themselves; Linda Olaguer Montayre had no legal capacity to sue as attorney-in-fact;
plaintiffs as well as Maria Olaguer were in estoppel; and the action was already barred by
prescription. PNB set up a compulsory counterclaim for damages, costs of litigation and attorneys
fees. It also filed a cross-claim against Maria Olaguer for the payment of the value of the loan plus
the agreed interests in the event that judgment would be rendered against it.
Defendants Olivia P. Olaguer, Jose A. Olaguer and Virgilio Olaguer, in their Answer, 9 denied the
material allegations in the complaint. They maintained that the sales of the properties to Pastor
Bacani and Estanislao Olaguer were judicially approved; the complaint did not state a sufficient
cause of action; it was barred by laches and/or prescription; lis pendens existed; that the long
possession of the vendees have ripened into acquisitive prescription in their favor, and the
properties no longer formed part of the Estate of Lino Olaguer; until the liquidation of the conjugal
properties of Lino Olaguer and his former wives, the plaintiffs were not the proper parties in interest
to sue in the action; and in order to afford complete relief, the other conjugal properties of Lino
Olaguer with his former wives, and his capital property that had been conveyed without the
approval of the testate court should also be included for recovery in the instant case.
Defendant Maria Juan Vda. de Olaguer, representing the heirs of Estanislao Olaguer, in her
Answer,10 likewise denied the material allegations of the complaint and insisted that the plaintiffs
had no valid cause of action against the heirs of the late Estanislao Olaguer, as the latter did not
participate in the alleged transfer of properties by Olivia P. Olaguer and Eduardo Olaguer in favor
of the late Estanislao Olaguer.
Defendant Cipriano Duran claimed, in his Answer,11 that the complaint stated no cause of action;
he was merely instituted by his late sister-in-law Josefina Duran to take over the management of
Lots Nos. 8635 and 8638 in 1971; and the real party-in-interest in the case was the administrator of
the estate of Josefina Duran.
On 11 January 1995, an Amended Complaint12 was filed in order to implead respondent Emiliano
M. Ongjoco as the transferee of Virgilio Olaguer with respect to portions of Lot No. 76, namely Lots
Nos. 1, 2, 76-D, 76-E, 76-F, and 76-G.
In his Answer with Counterclaim and Motion to Dismiss,13 respondent Ongjoco denied the material
allegations of the amended complaint and interposed, as affirmative defenses the statute of

69 | A G E N C Y F U L L C a s e s A P R e l o x

limitations, that he was a buyer in good faith, that plaintiffs had no cause of action against him, and
that the sale of property to Pastor Bacani, from whom Ongjoco derived his title, was judicially
approved.
On 23 January 1996, plaintiffs filed a Re-Amended Complaint,14 in which the heirs of Estanislao
Olaguer were identified, namely, Maria Juan Vda. de Olaguer, Peter Olaguer, Yolanda Olaguer
and Antonio Bong Olaguer.
In their Answer,15 the heirs of Estanislao Olaguer reiterated their claim that Estanislao Olaguer
never had any transactions or dealings with the Estate of Lino Olaguer; nor did they mortgage any
property to the PNB.
On 5 August 1998, the heirs of Estanislao Olaguer and petitioner Ma. Linda Olaguer Montayre
submitted a compromise agreement,16 which was approved by the trial court.
On 6 October 1999, Cipriano Duran filed a Manifestation 17 in which he waived any claim on Lots
Nos. 8635 and 8638. Upon motion, Duran was ordered dropped from the complaint by the trial
court in an order18 dated 20 October 1999.
In a Decision19 dated 13 July 2001, the RTC ruled in favor of the plaintiffs. The pertinent portions of
the decision provide:
The entirety of the evidence adduced clearly show that the sale of the 12 lots to Pastor
Bacani pursuant to Exhibit "A" and the sale of the 10 lots to Estanislao Olaguer pursuant to
Exhibit "D" were absolutely simulated sales and thus void ab initio. The two deeds of sales
Exhibits "A" and "D" are even worse than fictitious, they are completely null and void for lack
of consideration and the parties therein never intended to be bound by the terms thereof and
the action or defense for the declaration of their inexistence does not prescribe. (Art. 1410,
Civil Code) Aside from being simulated they were clearly and unequivocally intended to
deprive the compulsory heirs of their legitime x x x.
The deeds of sale, Exhibits "A" and "D" being void ab initio, they are deemed as nonexistent and the approval thereof by the probate court becomes immaterial and of no
consequence, because the approval by the probate court did not change the character of
the sale from void to valid x x x.
xxxx
Defendant Jose A. Olaguer simulated the sales and had them approved by the probate
court so that these properties would appear then to cease being a part of the estate and the
vendee may then be at liberty to dispose of the same in any manner he may want. They
probably believed that by making it appear that the properties were bought back from Pastor
Bacani under a simulated sale, they (Olivia Olaguer and Eduardo Olaguer) would appear
then as the owners of the properties already in their personal capacities that disposals
thereof will no longer require court intervention. x x x.
xxxx

70 | A G E N C Y F U L L C a s e s A P R e l o x

[Jose A. Olaguer] had Olivia P. Olaguer execute a Special Power of Attorney (Exhibit
"T") authorizing him (Jose A. Olaguer) to sell or encumber the properties allegedly
bought back from Pastor Bacani which Jose A. Olaguer did with respect to the 6/13
share of Olivia P. Olaguer on Lot No. 76 by selling it to his son Virgilio for only 3,000
Pesos, then caused Virgilio to execute a power of attorney authorizing him to sell or
encumber the 6/13 share which he did by selling the same to defendant Emiliano M.
[Ongjoco].
Virgilio Olaguer however executed an affidavit (Exhibit "CC") wherein he denied having
bought any property from the estate of Lino Olaguer and that if there are documents
showing that fact he does not know how it came about. x x x.
The 1972 power of attorney referred to by Jose A. Olaguer as his authority for the sale
ofLots 1 and 2 (formerly lots 76-B and 76-C) was not presented nor offered in
evidence.
There are two deeds of sale over Lot 76-D, (Exhibits "K" and "J") in favor of defendant
Emiliano M. [Ongjoco] with different dates of execution, different amount of
consideration, different Notary Public.
There are two deeds of sale over Lots 76-E and 76-F (Exhibits "M" and "L") in favor of
defendant Emiliano M. [Ongjoco] with different dates of execution, different amount
of consideration and different Notary Public.
There are two deeds of sale over Lot 76-G (Exhibits "N" and "O") in favor of Emiliano
M. [Ongjoco] with different dates of execution with the same amount of consideration
and the same Notary Public.
While Lot 76-D was allegedly sold already to Emiliano M. [Ongjoco] in 1979, yet it was
still Jose A. Olaguer who filed a petition for the issuance of a second owners copy as
attorney in fact of Virgilio Olaguer on August 8, 1980 (Exhibit "SS") and no mention
was made about the sale.
Under these circumstances, the documents of defendant Emiliano M. [Ongjoco] on
lots 76 therefore, in so far as the portions he allegedly bought from Jose A. Olaguer
as attorney in fact of Virgilio Olaguer suffers seriously from infirmities and appear
dubious.
Defendant Emiliano M. [Ongjoco] cannot claim good faith because according to him,
when these lots 76-[B] to 76-G were offered to him his condition was to transfer the
title in his name and then he pays. He did not bother to verify the title of his vendor. x
x x.
So with respect to the sale of Lots 76-B to 76-G, Emiliano M. [Ongjoco] has no
protection as innocent purchaser for good faith affords protection only to purchasers
for value from the registered owners. x x x. Knowing that he was dealing only with an
agent x x x, it behooves upon defendant Emiliano M. [Ongjoco] to find out the extent
of the authority of Jose A. Olaguer as well as the title of the owner of the property,
because as early as 1973 pursuant to the subdivision agreement, (records, vol. 2,

71 | A G E N C Y F U L L C a s e s A P R e l o x

page 109 and Exhibit "14" and "14-d") he already knew fully well that Lots 76-B to 76G he was buying was owned by Olivia P. Olaguer and not by Virgilio Olaguer.
xxxx
With respect to the 10 lots sold to [Eduardo] Olaguer (Exhibit "D") Jose A. Olaguer had
Estanislao Olaguer execute a power of attorney (Exhibit "X") authorizing him (Jose A.
Olaguer) to sell or encumber the 10 lots allegedly bought by Estanislao from the estate. With
this power of attorney, he mortgaged lots 7589, 7593 and 7398 to the PNB. He sold lots
1557 and 1676 to his son Virgilio Olaguer. While under Exhibit "UU" dated December 29,
1966, he bought the 10 parcels of land, among which is lots 4521 and 4522 from Estanislao
Olaguer, yet, on March 16, 1968, he again bought lots 4521 and 4522 (records, vol. 1, page
38) from Estanislao Olaguer. While lots 8635 and 8638 were among those sold to him under
Exhibit "UU", it appears that he again bought the same on June 5, 1968 under Exhibit "F".
The heirs of Estanislao Olaguer however denied having bought any parcel of land from the
estate of Lino Olaguer. Estanislao Olaguers widow, Maria Juan vda. de Olaguer, executed
an affidavit (Exhibit "BB") that they did not buy any property from the estate of Lino Olaguer,
they did not sell any property of the estate and that they did not mortgage any property with
the PNB. She repeated this in her deposition. (records, vol. 2, page 51) This was
corroborated by no less than former co-administrator Eduardo Olaguer in his deposition too
(Exhibit "RRRR") that the sale of the 10 parcels of land to Estanislao Olaguer was but a
simulated sale without any consideration. x x x.
xxxx
A partial decision was already rendered by this court in its order of August 5, 1998 (records,
vol. 2, page 64) approving the compromise agreement with defendants Heirs of Estanislao
Olaguer. (records, vol. 2 page 57).
Defendant Cipriano Duran was dropped from the complaint per the order of the court dated
October 20, 1999 (records, vol. 2, page 155) because he waived any right or claim over lots
8635 and 8638. (records, vol. 2, page 150). (Emphasis ours.)
The dispositive portion of the above decision was, however, amended by the trial court in an
Order20dated 23 July 2001 to read as follows:
WHEREFORE, premises considered, decision is hereby rendered in favor of the plaintiffs as
follows:
1) The deed of sale to Pastor Bacani (Exhibit "A") and the deed of sale to Estanislao
Olaguer (Exhibit "D") are hereby declared as null and void and without force and effect and
all the subsequent transfers and certificates arising therefrom likewise declared null and void
and cancelled as without force and effect, except as herein provided for.
2) Lot Nos. 4518, 4526, 4359 and 8750 are hereby ordered reverted back to the estate
of Lino Olaguer and for this purpose, within ten (10) days from the finality of this
decision, the heirs of Olivia P. Olaguer (the plaintiffs herein) [sic] are hereby ordered

72 | A G E N C Y F U L L C a s e s A P R e l o x

to execute the necessary document of reconveyance, failure for which, the Clerk of
Court is hereby ordered to execute the said deed of reconveyance.
3) Lot Nos. 7514, 6608, 8582, 8157, 7999, 6167 and 8266 are hereby ordered reverted
back to the estate of Lino Olaguer and for this purpose, within ten (10) days from the
finality of this decision, defendant Eduardo Olaguer is hereby ordered to execute the
necessary document of reconveyance, failure for which, the Clerk of Court is hereby
ordered to execute the said deed of reconveyance.
4) Lots 1 and 2, Pcs-20015, and Lots 76-D, 76-E, 76-F and 76-G, Psd-180629 sold to
Emiliano M. [Ongjoco] are hereby ordered reverted back to the estate of Lino Olaguer. For
this purpose, within ten (10) days from the finality of this decision, defendant Emiliano M.
[Ongjoco] is hereby ordered to execute the necessary deed of reconveyance, otherwise, the
Clerk of Court shall be ordered to execute the said reconveyance and have the same
registered with the Register of Deeds so that new titles shall be issued in the name of the
estate of Lino Olaguer and the titles of Emiliano [Ongjoco] cancelled.
5) The parties have acquiesced to the sale of the 7/13 portion of Lot 76 to Eduardo Olaguer
as well as to the latters disposition thereof and are now in estoppel to question the
same. The court will leave the parties where they are with respect to the 7/13 share of Lot
76.
6) Lots 578, 1557, 1676, 4521, 4522, 8635, 8638, are hereby reverted back to the estate of
Lino Olaguer and for this purpose, the Clerk of [Court] is hereby ordered to execute the
necessary deed of reconveyance within ten days from the finality of this decision and cause
its registration for the issuance of new titles in the name of the Estate of Lino Olaguer and
the cancellation of existing ones over the same.
7) While the mortgage with the defendant PNB is null and void, Lots 7589, 7593 and 7396
shall remain with the Republic of the Philippines as a transferee in good faith.
Both the petitioners and respondent filed their respective Notices of Appeal 21 from the above
decision. The case was docketed in the Court of Appeals as CA-G.R. CV No. 71710.
In their Plaintiff-Appellants Brief22 filed before the Court of Appeals, petitioner Estate argued that
the trial court erred in not ordering the restitution and/or compensation to them of the value of the
parcels of land that were mortgaged to PNB, notwithstanding the fact that the mortgage was
declared null and void. Petitioners maintain that the PNB benefited from a void transaction and
should thus be made liable for the value of the land, minus the cost of the mortgage and the
reasonable expenses for the foreclosure, consolidation and transfer of the lots.
Ongjoco, on the other hand, argued in his Defendant-Appellants Brief23 that the trial court erred in:
declaring as null and void the Deeds of Sale in favor of Pastor Bacani and Eduardo Olaguer and
the subsequent transfers and certificates arising therefrom; ordering the reconveyance of the lots
sold to him (Ongjoco); and failing to resolve the affirmative defenses of prescription, the authority of
Olivia and Eduardo to dispose of properties formerly belonging to the estate of Lino Olaguer,
recourse in a court of co-equal jurisdiction, and forum shopping.

73 | A G E N C Y F U L L C a s e s A P R e l o x

Petitioner Linda O. Montayre was likewise allowed to file a Brief 24 on her own behalf, as PlaintiffAppellee and Plaintiff-Appellant.25 She refuted therein the assignment of errors made by
Defendant-Appellant Ongjoco and assigned as error the ruling of the trial court that the lots
mortgaged to the PNB should remain with the Republic of the Philippines as a transferee in good
faith.
On 27 February 2006, the Court of Appeals rendered the assailed Decision, the dispositive portion
of which reads:
WHEREFORE, premises considered, the appealed Decision is hereby MODIFIED, in that
Paragraph 4 of the amended decision is hereby Ordered Deleted, and the questioned sales
to defendant-appellant Emiliano M. Ongjoco are UPHELD.26
In denying the appeal interposed by petitioners, the appellate court reasoned that the claim for the
value of the lots mortgaged with the PNB were not prayed for in the original Complaint, the
Amended Complaint or even in the Re-Amended Complaint. What was sought therein was merely
the declaration of the nullity of the mortgage contract with PNB. As the relief prayed for in the
appeal was not contained in the complaint, the same was thus barred.
The Court of Appeals also ruled that the evidence of petitioners failed to rebut the presumption that
PNB was a mortgagee in good faith. Contrarily, what was proven was the fact that Olivia Olaguer
and Jose A. Olaguer were the persons responsible for the fraudulent transactions involving the
questioned properties. Thus, the claim for restitution of the value of the mortgaged properties
should be made against them.
As regards the appeal of respondent Ongjoco, the appellate court found the same to be
meritorious. The said court ruled that when the sale of real property is made through an agent, the
buyer need not investigate the principals title. What the law merely requires for the validity of the
sale is that the agents authority be in writing.
Furthermore, the evidence adduced by petitioners was ruled to be inadequate to support the
conclusion that Ongjoco knew of facts indicative of the defect in the title of Olivia Olaguer or Virgilio
Olaguer.
Petitioners moved for a partial reconsideration27 of the Court of Appeals decision in order to
question the ruling that respondent Ongjoco was a buyer in good faith. The motion was, however,
denied in a Resolution28 dated 29 June 2006.
Aggrieved, petitioners filed the instant Petition for Review on Certiorari under Rule 45 of the
Revised Rules of Court, raising the following assignment of errors:
I.
THE COURT OF APPEALS COMMITTED AN ERROR IN LAW WHEN IT RULED, ON
SPECULATION, THAT RESPONDENT EMILIANO M. ONGJOCO WAS A BUYER IN
GOOD FAITH OF THE PROPERTIES OF THE ESTATE OF LINO OLAGUER, DESPITE
THE EXISTENCE OF FACTS AND CIRCUMSTANCES FOUND BY THE TRIAL COURT
THAT OUGHT TO PUT EMILIANO M. ONGJOCO ON NOTICE THAT THE PETITIONERS-

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APPELLANTS HAVE A RIGHT OR INTEREST OVER THE SAID PROPERTIES, AND


CONTRARY TO PREVAILING JURISPRUDENCE.
II.
THE COURT OF APPEALS COMMITTED AN ERROR IN LAW WHEN IT DISREGARDED
THE CLEAR FINDINGS OF FACTS AND CONCLUSIONS MADE BY THE TRIAL COURT,
IN THE ABSENCE OF ANY STRONG AND COGENT REASONS TO REVERSE THE SAID
FINDINGS, CONTRARY TO PREVAILING JURISPRUDENCE.29
Essentially, the question that has been brought before us for consideration is whether or not, under
the facts and circumstances of this case, respondent Ongjoco can be considered an innocent
purchaser for value.
Petitioners agree with the pronouncement of the trial court that respondent Ongjoco could not have
been a buyer in good faith since he did not bother to verify the title and the capacity of his vendor
to convey the properties involved to him. Knowing that Olivia P. Olaguer owned the properties in
1973 and that he merely dealt with Jose A. Olaguer as an agent in January 1976, Ongjoco should
have ascertained the extent of Joses authority, as well as the title of Virgilio as the principal and
owner of the properties.
Petitioners likewise cite the following incidents that were considered by the trial court in declaring
that respondent was a buyer in bad faith, namely: (1) that Virgilio Olaguer executed an
affidavit,30 wherein he denied having bought any property from the estate of Lino Olaguer, and that
if there are documents showing that fact, he does not know how they came about; (2) that the
power of attorney referred to by Jose A. Olaguer as his authority for the sale of Lots 1 and 2
(formerly Lots 76-B and 76-C) was not presented or offered in evidence; (3) that there are two
deeds of sale31 over Lot 76-D in favor of Ongjoco; (4) that there are two deeds of sale32 over Lots
76-E and 76-F in favor of Ongjoco; (5) that there are two deeds of sale33 over Lot 76-G in favor of
Ongjoco; and (6) that while Lot 76-D was already sold to Ongjoco in 1979, it was still Jose A.
Olaguer as attorney in fact of Virgilio Olaguer who filed on 8 August 1980 a petition for the
issuance of a second owners copy34 of the title to the property, and no mention was made about
the sale to Ongjoco.
Respondent Ongjoco, on the other hand, invokes the ruling of the Court of Appeals that he was an
innocent purchaser for value. His adamant stance is that, when he acquired the subject properties,
the same were already owned by Virgilio Olaguer. Respondent insists that Jose A. Olaguer was
duly authorized by a written power of attorney when the properties were sold to him (Ongjoco). He
posits that this fact alone validated the sales of the properties and foreclosed the need for any
inquiry beyond the title to the principal. All the law requires, respondent concludes, is that the
agents authority be in writing in order for the agents transactions to be considered valid.
Respondent Ongjocos posture is only partly correct.
According to the provisions of Article 187435 of the Civil Code on Agency, when the sale of a piece
of land or any interest therein is made through an agent, the authority of the latter shall be in
writing. Absent this requirement, the sale shall be void. Also, under Article 1878, 36 a special power
of attorney is necessary in order for an agent to enter into a contract by which the ownership of an
immovable property is transmitted or acquired, either gratuitously or for a valuable consideration.

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We note that the resolution of this case, therefore, hinges on the existence of the written power of
attorney upon which respondent Ongjoco bases his good faith.
When Lots Nos. 1 and 2 were sold to respondent Ongjoco through Jose A. Olaguer, the Transfer
Certificates of Title of said properties were in Virgilios name.37 Unfortunately for respondent, the
power of attorney that was purportedly issued by Virgilio in favor of Jose Olaguer with respect to
the sale of Lots Nos. 1 and 2 was never presented to the trial court. Neither was respondent able to
explain the omission. Other than the self-serving statement of respondent, no evidence was offered
at all to prove the alleged written power of attorney. This of course was fatal to his case.
As it stands, there is no written power of attorney to speak of. The trial court was thus correct in
disregarding the claim of its existence. Accordingly, respondent Ongjocos claim of good faith in the
sale of Lots Nos. 1 and 2 has no leg to stand on.
As regards Lots Nos. 76-D, 76-E, 76-F and 76-G, Ongjoco was able to present a general power of
attorney that was executed by Virgilio Olaguer. While the law requires a special power of attorney,
the general power of attorney was sufficient in this case, as Jose A. Olaguer was expressly
empowered to sell any of Virgilios properties; and to sign, execute, acknowledge and deliver any
agreement therefor.38 Even if a document is designated as a general power of attorney, the
requirement of a special power of attorney is met if there is a clear mandate from the principal
specifically authorizing the performance of the act.39 The special power of attorney can be included
in the general power when the act or transaction for which the special power is required is specified
therein.40
On its face, the written power of attorney contained the signature of Virgilio Olaguer and was duly
notarized. As such, the same is considered a public document and it has in its favor the
presumption of authenticity and due execution, which can only be contradicted by clear and
convincing evidence.41
No evidence was presented to overcome the presumption in favor of the duly notarized power of
attorney. Neither was there a showing of any circumstance involving the said document that would
arouse the suspicion of respondent and spur him to inquire beyond its four corners, in the exercise
of that reasonable degree of prudence required of a man in a similar situation. We therefore rule
that respondent Ongjoco had every right to rely on the power of attorney in entering into the
contracts of sale of Lots Nos. 76-D to 76-G with Jose A. Olaguer.
With respect to the affidavit of Virgilio Olaguer in which he allegedly disavowed any claim or
participation in the purchase of any of the properties of the deceased Lino Olaguer, we hold that
the same is rather irrelevant. The affidavit was executed only on 1 August 1986 or six years after
the last sale of the properties was entered into in 1980. In the determination of whether or not a
buyer is in good faith, the point in time to be considered is the moment when the parties actually
entered into the contract of sale.
Furthermore, the fact that Lots Nos. 76-D to 76-G were sold to respondent Ongjoco twice does not
warrant the conclusion that he was a buyer in bad faith. While the said incidents might point to
other obscured motives and arrangements of the parties, the same do not indicate that respondent
knew of any defect in the title of the owner of the property.

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As to the petition filed by Jose A. Olaguer for the issuance of a second owners copy of the title to
Lot No. 76-D, after the property was already sold to respondent Ongjoco, the same does not
inevitably indicate that respondent was in bad faith. It is more likely that Jose A. Olaguer was
merely compiling the documents necessary for the transfer of the subject property. Indeed, it is to
be expected that if the title to the property is lost before the same is transferred to the name of the
purchaser, it would be the responsibility of the vendor to cause its reconstitution.
In sum, we hold that respondent Emiliano M. Ongjoco was in bad faith when he bought Lots Nos. 1
and 2 from Jose A. Olaguer, as the latter was not proven to be duly authorized to sell the said
properties.
However, respondent Ongjoco was an innocent purchaser for value with regard to Lots Nos. 76-D,
76-E, 76-F and 76-G since it was entirely proper for him to rely on the duly notarized written power
of attorney executed in favor of Jose A. Olaguer.
WHEREFORE, premises considered, the instant petition is hereby PARTIALLY GRANTED. The
assailed Decision of the Court of Appeals dated 27 February 2006 in CA-G.R. CV NO. 71710
isMODIFIED in that Paragraph 4 of the Decision dated 13 July 2001 of the Regional Trial Court of
Legazpi City, Branch 6, and the Order dated 23 July 2001 shall read as follows:
4) Lots 1 and 2, Pcs-20015 sold to Emiliano M. Ongjoco are hereby ordered reverted back
to the estate of Lino Olaguer. For this purpose, within ten (10) days from the finality of this
decision, defendant Emiliano M. Ongjoco is hereby ordered to execute the necessary deed
of reconveyance, otherwise, the Clerk of Court shall be ordered to execute the said
reconveyance and have the same registered with the Register of Deeds so that new titles
shall be issued in the name of the estate of Lino Olaguer and the titles of Emiliano Ongjoco
cancelled.
No costs.
SO ORDERED.

VICENTE M. DOMINGO, represented by his heirs, ANTONINA RAYMUNDO VDA. DE


DOMINGO, RICARDO, CESAR, AMELIA, VICENTE JR., SALVADOR, IRENE and JOSELITO,
all surnamed DOMINGO, petitioners-appellants,
vs.
GREGORIO M. DOMINGO, respondent-appellee, TEOFILO P. PURISIMA, intervenor-respondent.
G.R. No. L-30573

October 29, 1971 MAKASIAR, J.:

Petitioner-appellant Vicente M. Domingo, now deceased and represented by his heirs, Antonina
Raymundo vda. de Domingo, Ricardo, Cesar, Amelia, Vicente Jr., Salvacion, Irene and Joselito, all
surnamed Domingo, sought the reversal of the majority decision dated, March 12, 1969 of the

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Special Division of Five of the Court of Appeals affirming the judgment of the trial court, which
sentenced the said Vicente M. Domingo to pay Gregorio M. Domingo P2,307.50 and the intervenor
Teofilo P. Purisima P2,607.50 with interest on both amounts from the date of the filing of the
complaint, to pay Gregorio Domingo P1,000.00 as moral and exemplary damages and P500.00 as
attorney's fees plus costs.
The following facts were found to be established by the majority of the Special Division of Five of
the Court of Appeals:
In a document Exhibit "A" executed on June 2, 1956, Vicente M. Domingo granted Gregorio
Domingo, a real estate broker, the exclusive agency to sell his lot No. 883 of Piedad Estate with an
area of about 88,477 square meters at the rate of P2.00 per square meter (or for P176,954.00) with
a commission of 5% on the total price, if the property is sold by Vicente or by anyone else during
the 30-day duration of the agency or if the property is sold by Vicente within three months from the
termination of the agency to apurchaser to whom it was submitted by Gregorio during the
continuance of the agency with notice to Vicente. The said agency contract was in triplicate, one
copy was given to Vicente, while the original and another copy were retained by Gregorio.
On June 3, 1956, Gregorio authorized the intervenor Teofilo P. Purisima to look for a buyer,
promising him one-half of the 5% commission.
Thereafter, Teofilo Purisima introduced Oscar de Leon to Gregorio as a prospective buyer.
Oscar de Leon submitted a written offer which was very much lower than the price of P2.00 per
square meter (Exhibit "B"). Vicente directed Gregorio to tell Oscar de Leon to raise his offer. After
several conferences between Gregorio and Oscar de Leon, the latter raised his offer to
P109,000.00 on June 20, 1956 as evidenced by Exhibit "C", to which Vicente agreed by signing
Exhibit "C". Upon demand of Vicente, Oscar de Leon issued to him a check in the amount of
P1,000.00 as earnest money, after which Vicente advanced to Gregorio the sum of P300.00. Oscar
de Leon confirmed his former offer to pay for the property at P1.20 per square meter in another
letter, Exhibit "D". Subsequently, Vicente asked for an additional amount of P1,000.00 as earnest
money, which Oscar de Leon promised to deliver to him. Thereafter, Exhibit "C" was amended to
the effect that Oscar de Leon will vacate on or about September 15, 1956 his house and lot at
Denver Street, Quezon City which is part of the purchase price. It was again amended to the effect
that Oscar will vacate his house and lot on December 1, 1956, because his wife was on the family
way and Vicente could stay in lot No. 883 of Piedad Estate until June 1, 1957, in a document dated
June 30, 1956 (the year 1957 therein is a mere typographical error) and marked Exhibit "D".
Pursuant to his promise to Gregorio, Oscar gave him as a gift or propina the sum of One Thousand
Pesos (P1,000.00) for succeeding in persuading Vicente to sell his lot at P1.20 per square meter or
a total in round figure of One Hundred Nine Thousand Pesos (P109,000.00). This gift of One
Thousand Pesos (P1,000.00) was not disclosed by Gregorio to Vicente. Neither did Oscar pay
Vicente the additional amount of One Thousand Pesos (P1,000.00) by way of earnest money. In
the deed of sale was not executed on August 1, 1956 as stipulated in Exhibit "C" nor on August 15,
1956 as extended by Vicente, Oscar told Gregorio that he did not receive his money from his
brother in the United States, for which reason he was giving up the negotiation including the
amount of One Thousand Pesos (P1,000.00) given as earnest money to Vicente and the One
Thousand Pesos (P1,000.00) given to Gregorio as propina or gift. When Oscar did not see him
after several weeks, Gregorio sensed something fishy. So, he went to Vicente and read a portion of
Exhibit "A" marked habit "A-1" to the effect that Vicente was still committed to pay him 5%

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commission, if the sale is consummated within three months after the expiration of the 30-day
period of the exclusive agency in his favor from the execution of the agency contract on June 2,
1956 to a purchaser brought by Gregorio to Vicente during the said 30-day period. Vicente grabbed
the original of Exhibit "A" and tore it to pieces. Gregorio held his peace, not wanting to antagonize
Vicente further, because he had still duplicate of Exhibit "A". From his meeting with Vicente,
Gregorio proceeded to the office of the Register of Deeds of Quezon City, where he discovered
Exhibit "G' deed of sale executed on September 17, 1956 by Amparo Diaz, wife of Oscar de Leon,
over their house and lot No. 40 Denver Street, Cubao, Quezon City, in favor Vicente as down
payment by Oscar de Leon on the purchase price of Vicente's lot No. 883 of Piedad Estate. Upon
thus learning that Vicente sold his property to the same buyer, Oscar de Leon and his wife, he
demanded in writting payment of his commission on the sale price of One Hundred Nine Thousand
Pesos (P109,000.00), Exhibit "H". He also conferred with Oscar de Leon, who told him that Vicente
went to him and asked him to eliminate Gregorio in the transaction and that he would sell his
property to him for One Hundred Four Thousand Pesos (P104,000.0 In Vicente's reply to
Gregorio's letter, Exhibit "H", Vicente stated that Gregorio is not entitled to the 5% commission
because he sold the property not to Gregorio's buyer, Oscar de Leon, but to another buyer,
Amparo Diaz, wife of Oscar de Leon.
The Court of Appeals found from the evidence that Exhibit "A", the exclusive agency contract, is
genuine; that Amparo Diaz, the vendee, being the wife of Oscar de Leon the sale by Vicente of his
property is practically a sale to Oscar de Leon since husband and wife have common or identical
interests; that Gregorio and intervenor Teofilo Purisima were the efficient cause in the
consummation of the sale in favor of the spouses Oscar de Leon and Amparo Diaz; that Oscar de
Leon paid Gregorio the sum of One Thousand Pesos (P1,000.00) as "propina" or gift and not as
additional earnest money to be given to the plaintiff, because Exhibit "66", Vicente's letter
addressed to Oscar de Leon with respect to the additional earnest money, does not appear to have
been answered by Oscar de Leon and therefore there is no writing or document supporting Oscar
de Leon's testimony that he paid an additional earnest money of One Thousand Pesos (P1,000.00)
to Gregorio for delivery to Vicente, unlike the first amount of One Thousand Pesos (P1,000.00)
paid by Oscar de Leon to Vicente as earnest money, evidenced by the letter Exhibit "4"; and that
Vicente did not even mention such additional earnest money in his two replies Exhibits "I" and "J"
to Gregorio's letter of demand of the 5% commission.
The three issues in this appeal are (1) whether the failure on the part of Gregorio to disclose to
Vicente the payment to him by Oscar de Leon of the amount of One Thousand Pesos (P1,000.00)
as gift or "propina" for having persuaded Vicente to reduce the purchase price from P2.00 to P1.20
per square meter, so constitutes fraud as to cause a forfeiture of his commission on the sale price;
(2) whether Vicente or Gregorio should be liable directly to the intervenor Teofilo Purisima for the
latter's share in the expected commission of Gregorio by reason of the sale; and (3) whether the
award of legal interest, moral and exemplary damages, attorney's fees and costs, was proper.
Unfortunately, the majority opinion penned by Justice Edilberto Soriano and concurred in by
Justice Juan Enriquez did not touch on these issues which were extensively discussed by Justice
Magno Gatmaitan in his dissenting opinion. However, Justice Esguerra, in his concurring opinion,
affirmed that it does not constitute breach of trust or fraud on the part of the broker and regarded
same as merely part of the whole process of bringing about the meeting of the minds of the seller
and the purchaser and that the commitment from the prospect buyer that he would give a reward to
Gregorio if he could effect better terms for him from the seller, independent of his legitimate
commission, is not fraudulent, because the principal can reject the terms offered by the prospective

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buyer if he believes that such terms are onerous disadvantageous to him. On the other hand,
Justice Gatmaitan, with whom Justice Antonio Cafizares corner held the view that such an act on
the part of Gregorio was fraudulent and constituted a breach of trust, which should deprive him of
his right to the commission.
The duties and liabilities of a broker to his employer are essentially those which an agent owes to
his principal. 1
Consequently, the decisive legal provisions are in found Articles 1891 and 1909 of the New Civil
Code.
Art. 1891. Every agent is bound to render an account of his transactions and to
deliver to the principal whatever he may have received by virtue of the agency, even
though it may not be owing to the principal.
Every stipulation exempting the agent from the obligation to render an account shall
be void.
xxx xxx xxx
Art. 1909. The agent is responsible not only for fraud but also for negligence, which
shall be judged with more less rigor by the courts, according to whether the agency
was or was not for a compensation.
Article 1891 of the New Civil Code amends Article 17 of the old Spanish Civil Code which provides
that:
Art. 1720. Every agent is bound to give an account of his transaction and to pay to
the principal whatever he may have received by virtue of the agency, even though
what he has received is not due to the principal.
The modification contained in the first paragraph Article 1891 consists in changing the phrase "to
pay" to "to deliver", which latter term is more comprehensive than the former.
Paragraph 2 of Article 1891 is a new addition designed to stress the highest loyalty that is required
to an agent condemning as void any stipulation exempting the agent from the duty and liability
imposed on him in paragraph one thereof.
Article 1909 of the New Civil Code is essentially a reinstatement of Article 1726 of the old Spanish
Civil Code which reads thus:
Art. 1726. The agent is liable not only for fraud, but also for negligence, which shall
be judged with more or less severity by the courts, according to whether the agency
was gratuitous or for a price or reward.
The aforecited provisions demand the utmost good faith, fidelity, honesty, candor and fairness on
the part of the agent, the real estate broker in this case, to his principal, the vendor. The law
imposes upon the agent the absolute obligation to make a full disclosure or complete account to
his principal of all his transactions and other material facts relevant to the agency, so much so that

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the law as amended does not countenance any stipulation exempting the agent from such an
obligation and considers such an exemption as void. The duty of an agent is likened to that of a
trustee. This is not a technical or arbitrary rule but a rule founded on the highest and truest
principle of morality as well as of the strictest justice. 2
Hence, an agent who takes a secret profit in the nature of a bonus, gratuity or personal benefit
from the vendee, without revealing the same to his principal, the vendor, is guilty of a breach of his
loyalty to the principal and forfeits his right to collect the commission from his principal, even if the
principal does not suffer any injury by reason of such breach of fidelity, or that he obtained better
results or that the agency is a gratuitous one, or that usage or custom allows it; because the rule is
to prevent the possibility of any wrong, not to remedy or repair an actual damage. 3 By taking such
profit or bonus or gift or propina from the vendee, the agent thereby assumes a position wholly
inconsistent with that of being an agent for hisprincipal, who has a right to treat him, insofar as his
commission is concerned, as if no agency had existed. The fact that the principal may have been
benefited by the valuable services of the said agent does not exculpate the agent who has only
himself to blame for such a result by reason of his treachery or perfidy.
This Court has been consistent in the rigorous application of Article 1720 of the old Spanish Civil
Code. Thus, for failure to deliver sums of money paid to him as an insurance agent for the account
of his employer as required by said Article 1720, said insurance agent was convicted estafa. 4 An
administrator of an estate was likewise under the same Article 1720 for failure to render an account
of his administration to the heirs unless the heirs consented thereto or are estopped by having
accepted the correctness of his account previously rendered. 5
Because of his responsibility under the aforecited article 1720, an agent is likewise liable for estafa
for failure to deliver to his principal the total amount collected by him in behalf of his principal and
cannot retain the commission pertaining to him by subtracting the same from his collections. 6
A lawyer is equally liable unnder said Article 1720 if he fails to deliver to his client all the money
and property received by him for his client despite his attorney's lien. 7 The duty of a commission
agent to render a full account his operations to his principal was reiterated in Duhart, etc. vs.
Macias. 8
The American jurisprudence on this score is well-nigh unanimous.
Where a principal has paid an agent or broker a commission while ignorant of the fact
that the latter has been unfaithful, the principal may recover back the commission
paid, since an agent or broker who has been unfaithful is not entitled to any
compensation.
xxx xxx xxx
In discussing the right of the principal to recover commissions retained by an
unfaithful agent, the court in Little vs. Phipps (1911) 208 Mass. 331, 94 NE 260, 34
LRA (NS) 1046, said: "It is well settled that the agent is bound to exercise the utmost
good faith in his dealings with his principal. As Lord Cairns said, this rule "is not a
technical or arbitrary rule. It is a rule founded on the highest and truest principles, of
morality." Parker vs. McKenna (1874) LR 10,Ch(Eng) 96,118 ... If the agent does not
conduct himself with entire fidelity towards his principal, but is guilty of taking a secret

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profit or commission in regard the matter in which he is employed, he loses his right
to compensation on the ground that he has taken a position wholly inconsistent with
that of agent for his employer, and which gives his employer, upon discovering it, the
right to treat him so far as compensation, at least, is concerned as if no agency had
existed. This may operate to give to the principal the benefit of valuable services
rendered by the agent, but the agent has only himself to blame for that result."
xxx xxx xxx
The intent with which the agent took a secret profit has been held immaterial where
the agent has in fact entered into a relationship inconsistent with his agency, since
the law condemns the corrupting tendency of the inconsistent relationship. Little vs.
Phipps (1911) 94 NE 260. 9
As a general rule, it is a breach of good faith and loyalty to his principal for an agent,
while the agency exists, so to deal with the subject matter thereof, or with information
acquired during the course of the agency, as to make a profit out of it for himself in
excess of his lawful compensation; and if he does so he may be held as a trustee and
may be compelled to account to his principal for all profits, advantages, rights, or
privileges acquired by him in such dealings, whether in performance or in violation of
his duties, and be required to transfer them to his principal upon being reimbursed for
his expenditures for the same, unless the principal has consented to or ratified the
transaction knowing that benefit or profit would accrue or had accrued, to the agent,
or unless with such knowledge he has allowed the agent so as to change his
condition that he cannot be put in status quo. The application of this rule is not
affected by the fact that the principal did not suffer any injury by reason of the agent's
dealings or that he in fact obtained better results; nor is it affected by the fact that
there is a usage or custom to the contrary or that the agency is a gratuitous one.
(Emphasis applied.) 10
In the case at bar, defendant-appellee Gregorio Domingo as the broker, received a gift
or propina in the amount of One Thousand Pesos (P1,000.00) from the prospective buyer Oscar de
Leon, without the knowledge and consent of his principal, herein petitioner-appellant Vicente
Domingo. His acceptance of said substantial monetary gift corrupted his duty to serve the interests
only of his principal and undermined his loyalty to his principal, who gave him partial advance of
Three Hundred Pesos (P300.00) on his commission. As a consequence, instead of exerting his
best to persuade his prospective buyer to purchase the property on the most advantageous terms
desired by his principal, the broker, herein defendant-appellee Gregorio Domingo, succeeded in
persuading his principal to accept the counter-offer of the prospective buyer to purchase the
property at P1.20 per square meter or One Hundred Nine Thousand Pesos (P109,000.00) in round
figure for the lot of 88,477 square meters, which is very much lower the the price of P2.00 per
square meter or One Hundred Seventy-Six Thousand Nine Hundred Fifty-Four Pesos
(P176,954.00) for said lot originally offered by his principal.
The duty embodied in Article 1891 of the New Civil Code will not apply if the agent or broker acted
only as a middleman with the task of merely bringing together the vendor and vendee, who
themselves thereafter will negotiate on the terms and conditions of the transaction. Neither would
the rule apply if the agent or broker had informed the principal of the gift or bonus or profit he
received from the purchaser and his principal did not object therto. 11 Herein defendant-appellee

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Gregorio Domingo was not merely a middleman of the petitioner-appellant Vicente Domingo and
the buyer Oscar de Leon. He was the broker and agent of said petitioner-appellant only. And
therein petitioner-appellant was not aware of the gift of One Thousand Pesos (P1,000.00) received
by Gregorio Domingo from the prospective buyer; much less did he consent to his agent's
accepting such a gift.
The fact that the buyer appearing in the deed of sale is Amparo Diaz, the wife of Oscar de Leon,
does not materially alter the situation; because the transaction, to be valid, must necessarily be
with the consent of the husband Oscar de Leon, who is the administrator of their conjugal assets
including their house and lot at No. 40 Denver Street, Cubao, Quezon City, which were given as
part of and constituted the down payment on, the purchase price of herein petitioner-appellant's lot
No. 883 of Piedad Estate. Hence, both in law and in fact, it was still Oscar de Leon who was the
buyer.
As a necessary consequence of such breach of trust, defendant-appellee Gregorio Domingo must
forfeit his right to the commission and must return the part of the commission he received from his
principal.
Teofilo Purisima, the sub-agent of Gregorio Domingo, can only recover from Gregorio Domingo his
one-half share of whatever amounts Gregorio Domingo received by virtue of the transaction as his
sub-agency contract was with Gregorio Domingo alone and not with Vicente Domingo, who was
not even aware of such sub-agency. Since Gregorio Domingo received from Vicente Domingo and
Oscar de Leon respectively the amounts of Three Hundred Pesos (P300.00) and One Thousand
Pesos (P1,000.00) or a total of One Thousand Three Hundred Pesos (P1,300.00), one-half of the
same, which is Six Hundred Fifty Pesos (P650.00), should be paid by Gregorio Domingo to Teofilo
Purisima.
Because Gregorio Domingo's clearly unfounded complaint caused Vicente Domingo mental
anguish and serious anxiety as well as wounded feelings, petitioner-appellant Vicente Domingo
should be awarded moral damages in the reasonable amount of One Thousand Pesos (P1,000.00)
attorney's fees in the reasonable amount of One Thousand Pesos (P1,000.00), considering that
this case has been pending for the last fifteen (15) years from its filing on October 3, 1956.
WHEREFORE, the judgment is hereby rendered, reversing the decision of the Court of Appeals
and directing defendant-appellee Gregorio Domingo: (1) to pay to the heirs of Vicente Domingo the
sum of One Thousand Pesos (P1,000.00) as moral damages and One Thousand Pesos
(P1,000.00) as attorney's fees; (2) to pay Teofilo Purisima the sum of Six Hundred Fifty Pesos
(P650.00); and (3) to pay the costs.

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NATIONAL POWER CORPORATION, Plaintiff-Appellant, v. NATIONAL MERCHANDISING


CORPORATION and DOMESTIC INSURANCE COMPANY OF THE PHILIPPINES, DefendantsAppellants.
[G.R. Nos. L-33819 and L-33897. October 23, 1982.]
SYNOPSIS
Plaintiff-appellant National Power Corporation (NPC) and defendant- appellant National
Merchandising Corporation (NAMERCO), the Philippine representative of New York-based
International Commodities Corporation, executed a contract of sale of sulfur with a stipulation for
liquidated damages in case of breach. Defendant-appellant Domestic Insurance Company
executed a performance bond in favor of NPC to guarantee the sellers obligation. In entering into
the contract, Namerco, however, did not disclose to NPC that Namercos principal, in a cabled
instruction, stated that the sale was subject to availability of a steamer, and contrary to its
principals instruction, Namerco agreed that non-availability of a steamer was not a justification for
non-payment of liquidated damages. The New York supplier was not able to deliver the sulfur due
to its inability to secure shipping space. Consequently, the Government Corporate Counsel
rescinded the contract of sale due to the suppliers non-performance of its obligations, and
demanded payment of liquidated damages from both Namerco and the surety. Thereafter, NPC
sued for recovery of the stipulated liquidated damages. After trial, the Court of First Instance
rendered judgment ordering defendants-appellants to pay solidarity to the NPC reduced liquidated
damages with interest.
The Supreme Court held that Namerco is liable fur damages because under Article 1897 of the
Civil Code the agent who exceeds the limits of his authority without giving the party with whom he
contracts sufficient notice of his powers is personally liable to such party. The Court, however,
further reduced the solidary liability of defendants-appellants for liquidated damages.
SYLLABUS
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; AGENCY; AN AGENT WHO EXCEEDS THE
LIMITS OF HIS AUTHORITY IS PERSONALLY LIABLE. Under Article 1897 of the Civil Code
the agent who exceeds the limits of his authority without giving the party with whom he contracts
sufficient notice of his powers is personally liable to such party.
2. ID.; ID.; ID.; ID.; CASE AT BAR. In the present case, Namerco, the agent of a New York-

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based principal, entered into a contract of sale with the National Power Corporation without
disclosing to the NPC the limits of its powers and, contrary to its principals prior cabled instructions
that the sale should be subject to availability of a steamer, it agreed that non-availability of a
steamer was not a justification for nonpayment of the liquidated damages. Namerco. therefore, is
liable for damages.
3. ID.; ID.; ID.; THE RULE THAT EVERY PERSON DEALING WITH AN AGENT IS PUT UPON AN
INQUIRY AND MUST DISCOVER UPON HIS PERIL THE AUTHORITY OF THE AGENT IS NOT
APPLICABLE WHERE THE AGENT, NOT THE PRINCIPAL, IS SOUGHT TO BE HELD LIABLE
ON THE CONTRACT. The rule that every person dealing with an agent is put upon inquiry and
must discover upon his peril the authority of the agent would apply only in cases where the
principal is sought to be held liable on the contract entered into by the agent. The said rule is not
applicable in the instant case since it is the agent, not the principal, that is sought to be held liable
on the contract of sale which was expressly repudiated by the principal because the agent took
chances, it exceeded its authority and, in effect. it acted in its own name.
4. ID.; ID.; ID.; THE CONTRACT ENTERED INTO BY AN AGENT WHO ACTED BEYOND HIS
POWERS IS UNENFORCEABLE ONLY AS AGAINST THE PRINCIPAL BUT NOT AGAINST THE
AGENT AND ITS SURETY. Article 1403 of the Civil Code which provides that a contract
entered into in the name of another person by one who has acted beyond his powers is
unenforceable, refers to the unenforceability of the contract against the principal. In the instant
case, the contract containing the stipulation for liquidated damages is not being enforced against
its principal but against the agent and its surety. It being enforced against the agent because
Article 1897 implies that the agent who acts in excess of his authority is personally liable to the
party with whom he contracted. And that rule is complimented by Article 1898 of the Civil Code
which provides that "if the agent contracts, in the name of the principal, exceeding the scope of his
authority, and the principal does not ratify the contract, it shall be void if the party with whom the
agent contracted is aware of the limits of the powers granted by the principal." Namerco never
disclosed to the NPC the cabled or written instructions of its principal. For that reason and because
Namerco exceeded the limits of its authority, it virtually acted in its own name and not as agent and
it is, therefore, bound by the contract of sale which, however, it not enforceable against its
principal. If, as contemplated in Articles 1897 and 1898, Namerco is bound under the contract of
sale, then it follows that it is bound by the stipulation for liquidated damages in that contract.
5. ID.; ID.; ID.; THE LIABILITY OF AN AGENT WHO EXCEEDS THE LIMITS OF HIS AUTHORITY
IS BASED ON CONTRACT AND NOT ON TORT OR QUASI-DELICT; CASE AT BAR.
Defendants contention that Namercos liability should be based on tort or quasi-delict, as held in
some American cases, like Mendelson v. Holton, 149 N.E. 38,42 ACR 1307, is not well-taken. As
correctly argued by the NPC, it would be unjust and inequitable for Namerco to escape liability of
the contract after it had deceived the NPC by not disclosing the limits of its powers and entering
into the contract with stipulations contrary to its principals instructions.
6. ID.; ID.; ID.; LIABILITY OF THE SURETY ON THE OBLIGATION CONTRACTED BY AN
AGENT WHO EXCEEDED HIS AUTHORITY IS NOT AFFECTED THEREBY. The contention of
the defendants that the Domestic Insurance Company is not liable to the NPC because its bond
was posted, not to Namerco, the agent, but for the New York firm which is not liable on the contract
of sale, cannot be sustained because it was Namerco that actually solicited the bond from the
Domestic Insurance Company and, Namerco is being held liable under the contract of sale
because it virtually acted in its own name. In the last analysis, the Domestic Insurance Company

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acted as surety for Namerco. The rule is that "want of authority of the person who executes an
obligation as the agent or representative of the principal will not, as a general rule, affect the surety
thereon, especially in the absence of fraud, even though the obligation is not binding on the
principal." (72 C.J.S. 525).
7. CIVIL LAW; DAMAGES; IMPOSITION OF INTEREST THEREON NOT WARRANTED WHERE
THE DISPOSITION OF THE CASE HAS BEEN DELAYED DUE TO NO FAULT OF
DEFENDANTS. With respect to the imposition of the legal rate of interest on the damages from
the filing of the complaint in 1957, or a quarter of a century ago, defendants contention that
interest should not be collected on the amount of damages is meritorious. It should be manifestly
iniquitous to collect interest on the damages especially considering that the disposition of this case
has been considerably delayed due to no fault of the defendants
8. ID.; ID.; LIQUIDATED DAMAGES; NO PROOF OF PECUNIARY LOSS IS REQUIRED FOR
RECOVERY THEREOF. No proof of pecuniary lost is required for the recovery of liquited
damages. The stipulatian for liquidated damages is intended to obviate controversy on the amount
of damages. There can be no question that the NPC suffered damages because its production of
fertilizer was disrupted or diminished by reason of the non-delivery of the sulfur. The parties
foresaw that it might be difficult to ascertain the exact amount of damages for non-delivey of the
sulfur. So, they fixed the liquidated damages to be paid as indemnity to the NPC.
9. ID.; ID.; NOMINAL DAMAGES; NOT A CASE OF. Nominal damages are damages in name
only or are in fact the same as no damages (25 C.J.S. 466). It would not be correct to hold in this
case that the NPC suffered damages in name only or that the breach of contract "as merely
technical in character since the NPC suffered damages because its production of fertilizer "as
disrupted or diminished by reason of the non-delivery of the sulfur.

DECISION

AQUINO, J.:
This case is about the recovery of liquidated damages from a sellers agent that allegedly
exceeded its authority in negotiating the sale.
Plaintiff National Power Corporation appealed on questions of law from the decision of the Court of
First Instance of Manila dated October 10, 1966, ordering defendants National Merchandising
Corporation and Domestic Insurance Company of the Philippines to pay solidarily to the National
Power Corporation reduced liquidated damages in the sum of P72,114.66 plus legal, rate of
interest from the filing of the complaint and the costs (Civil Case No. 33114).
The two defendants appealed from the same decision allegedly because it is contrary to law and
the evidence. As the amount originally involved is P360,572.80 and defendants appeal is tied up
with plaintiffs appeal on questions of law, defendants appeal can be entertained under Republic
Act No. 2613 which amended section 17 of the Judiciary Law.
On October 17, 1956, the National Power Corporation and National Merchandising Corporation

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(Namerco) of 3111 Nagtahan Street, Manila, as the representative of the International


Commodities Corporation of 11 Mercer Street, New York City (Exh. C), executed in Manila a
contract for the purchase by the NPC from the New York firm of four thousand long tons of crude
sulfur for its Maria Cristina Fertilizer Plant in Iligan City at a total price of (450,716 (Exh. E).
On that same date, a performance bond in the sum of P90,143.20 was executed by the Domestic
Insurance Company in favor of the NPC to guarantee the sellers obligations (Exh. F).
It was stipulated in the contract of sale that the seller would deliver the sulfur at Iligan City within
sixty days from notice of the establishment in its favor of a letter of credit for $212,120 and that
failure to effect delivery would subject the seller and its surety to the payment of liquidated
damages at the rate of two-fifth of one percent of the full contract price for the first thirty days of
default and four-fifth of one percent for every day thereafter until complete delivery is made (Art. 8,
p. 111, Defendants Record on Appeal).
In a letter dated November 12, 1956, the NPC advised John Z. Sycip, the president of Namerco, of
the opening on November 8 of a letter of credit for $212,120 in favor of International Commodities
Corporation which would expire on January 31, 1957 (Exh. I). Notice of that letter of credit was,
received by cable by the New York firm on November 15, 1956 (Exh. 80-Wallick). Thus, the
deadline for the delivery of the sulfur was January 15, 1957.
The New York supplier was not able to deliver the sulfur due to its inability to secure shipping
space. During the period from January 20 to 26, 1957 there was a shutdown of the NPCs fertilizer
plant because there was no sulfur. No fertilizer was produced (Exh. K).
In a letter dated February 27, 1957, the general manager of the NPC advised Namerco and the
Domestic Insurance Company that under Article 9 of the contract of sale "non-availability of bottom
or vessel" was not a fortuitous event that would excuse non-performance and that the NPC would
resort to legal remedies to enforce its rights (Exh. L and M).
The Government Corporate Counsel in his letter to Sycip dated May 8, 1957 rescinded the contract
of sale due to the New York suppliers non-performance of its obligations (Exh. G). The same
counsel in his letter of June 8, 1957 demanded from Namerco the payment of P360,572.80 as
liquidated damages. He explained that time was of the essence of the contract. A similar demand
was made upon the surety (Exh. H and H-1).
The liquidated damages were computed on the basis of the 115-day period between January 15,
1957, the deadline for the delivery of the sulfur at Iligan City, and May 9, 1957 when Namerco was
notified of the rescission of the contract, or P54,085.92 for the first thirty days and P306,486.88 for
the remaining eighty-five days. Total: P360,572.80.
On November 5, 1957, the NPC sued the New York firm, Namerco and the Domestic Insurance
Company for the recovery of the stipulated liquidated damages (Civil Case No. 33114).
The trial court in its order of January 17, 1958 dismissed the case as to the New York firm for lack
of jurisdiction because it was not doing business in the Philippines (p. 60, Defendants Record on
Appeal).
On the other hand, Melvin Wallick, as the assignee of the New York corporation and after the latter

87 | A G E N C Y F U L L C a s e s A P R e l o x

was dropped as a defendant in Civil Case No. 33114, sued Namerco for damages in connection
with the same sulfur transaction (Civil Case No. 37019). The two cases, both filed in the Court of
First Instance of Manila, were consolidated. A joint trial was held. The lower court rendered
separate decisions in the two cases on the same date.
In Civil Case No. 37019, the trial court dismissed Wallicks action for damages against Namerco
because the assignment in favor of Wallick was champertous in character. Wallick appealed to this
Court. The appeal was dismissed because the record on appeal did not disclose that the appeal
was perfected on time (Res. of July 11, 1972 in L-33893).In this Civil Case No. 33114, although the
records on appeal were approved in 1967, inexplicably, they were elevated to this Court in 1971.
That anomaly initially contributed to the delay in the adjudication of this case.
Defendants appeal L-33819. They contend that the delivery of the sulfur was conditioned on the
availability of a vessel to carry the shipment and that Namerco acted within the scope of its
authority as agent in signing the contract of sale.
The documentary evidence belies these contentions. The invitation to bid issued by the NPC
provides that non-availability of a steamer to transport the sulfur is not a ground for non-payment of
the liquidated damages in case of non-performance by the seller.
"4. Responsibility for availability of vessel. The availability of vessel to transport the quantity of
sulfur within the time specified in item 14 of this specification shall be the responsibility of the
bidder. In case of award of contract, failure to ship on time allegedly due to non-availability of
vessels shall not exempt the Contractor from payment of liquidated damages provided in item 15 of
this specification."cralaw virtua1aw library
"15. Liquidated damages. . . .
"Availability of vessel being a responsibility of the Contractor as specified in item 4 of this
specification, the terms unforeseeable causes beyond the control and without the fault or
negligence of the Contractor and force majeure as used herein shall not be deemed to embrace
or include lack or nonavailability of bottom or vessel. It is agreed that prior to making his bid, a
bidder shall have made previous arrangements regarding shipments within the required time. It is
clearly understood that in no event shall the Contractor be exempt from the payment of liquidated
damages herein specified for reason of lack of bottom or vessel. Lack of bottom or nonavailability
of vessel shall, in no case, be considered as a ground for extension of time. . . . ."cralaw virtua1aw
library
Namercos bid or offer is even more explicit. It provides that it was "responsible for the availability
of bottom or vessel" and that it "guarantees the availability of bottom or vessel to ship the quantity
of sulfur within the time specified in this bid" (Exh. B, p. 22, Defendants Record on Appeal).
In the contract of sale itself item 15 of the invitation to bid is reproduced in Article 9 which provides
that "it is clearly understood that in no event shall the seller be entitled to an extension of time or be
exempt from the payment of liquidated damages herein specified for reason of lack of bottom or
vessel" (Exh. E, p. 36, Record on Appeal).
It is true that the New York corporation in its cable to Namerco dated August 9, 1956 stated that
the sale was subject to availability of a steamer (Exh. N). However, Namerco did not disclose that

88 | A G E N C Y F U L L C a s e s A P R e l o x

cable to the NPC and, contrary to its principals instruction, it agreed that nonavailability of a
steamer was not a justification for nonpayment of the liquidated damages.
The trial court rightly concluded that Namerco acted beyond the bounds of its authority because it
violated its principals cabled instructions (1) that the delivery of the sulfur should be "C & F
Manila", not "C & F Iligan City" ; (2) that the sale be subject to the availability of a steamer and (3)
that the seller should be allowed to withdraw right away the full amount of the letter of credit and
not merely eighty percent thereof (pp- 123-124, Record on Appeal).
The defendants argue that it was incumbent upon the NPC to inquire into the extent of the agents
authority and, for its failure to do so, it could not claim any liquidated damages which, according to
the defendants, were provided for merely to make the seller more diligent in looking for a steamer
to transport the sulfur.
The NPC counter-argues that Namerco should have advised the NPC of the limitations on its
authority to negotiate the sale.
We agree with the trial court that Namerco is liable for damages because under article 1897 of the
Civil Code the agent who exceeds the limits of his authority without giving the party with whom he
contracts sufficient notice of his powers is personally liable to such party.
The truth is that even before the contract of sale was signed Namerco was already aware that its
principal was having difficulties in booking shipping space. In a cable dated October 16, 1956, or
one day before the contract of sale was signed, the New York supplier advised Namerco that the
latter should not sign the contract unless it (Namerco) wished to assume sole responsibility for the
shipment (Exh. T).
Sycip, Namercos president, replied in his letter to the seller dated also October 16, 1956, that he
had no choice but to finalize the contract of sale because the NPC would forfeit Namercos bidders
bond in the sum of P45,100 posted by the Domestic Insurance Company if the contract was not
formalized (Exh. 14, 14-A and Exh. V).
Three days later, or on October 19, the New York firm cabled Namerco that the firm did not
consider itself bound by the contract of sale and that Namerco signed the contract on its own
responsibility (Exh. W).
In its letters dated November 8 and 19, 1956, the New York corporation informed Namerco that
since the latter acted contrary to the formers cabled instructions, the former disclaimed
responsibility for the contract and that the responsibility for the sale rested on Namerco (Exh. Y and
Y-1).
The letters of the New York firm dated November 26 and December 11, 1956 were even more
revealing. It bluntly told Namerco that the latter was never authorized to enter into the contract and
that it acted contrary to the repeated instructions of the former (Exh. U and Z). Said the vicepresident of the New York firm to Namerco:chanrobles virtual lawlibrary
"As we have pointed out to you before, you have acted strictly contrary to our repeated instructions
and, however regretfully, you have no one but yourselves to blame."cralaw virtua1aw library

89 | A G E N C Y F U L L C a s e s A P R e l o x

The rule relied upon by the defendants-appellants that every person dealing with an agent is put
upon inquiry and must discover upon his peril the authority of the agent would apply in this case if
the principal is sought to be held liable on the contract entered into by the agent.
That is not so in this case. Here, it is the agent that it sought to be held liable on a contract of sale
which was expressly repudiated by the principal because the agent took chances, it exceeded its
authority, and, in effect, it acted in its own name.
As observed by Castan Tobeas, an agent "que haya traspasado los limites dew mandato, lo que
equivale a obrar sin mandato" (4 Derecho Civil Espaol, 8th Ed., 1956, p. 520).
As opined by Olivieri, "si el mandante contesta o impugna el negocio juridico concluido por el
mandatario con el tercero, aduciendo el exceso de los limites impuestos, es justo que el
mandatario, que ha tratado con engao al tercero, sea responsable personalmente respecto de el
des las consecuencias de tal falta de aceptacion por parte del mandate. Tal responsabilidad del
mandatario se informa en el principio de la falta de garantia de la existencia del mandato y de la
cualidad de mandatario, garantia impuesta coactivamente por la ley, que quire que aquel que
contrata como mandatario este obligado a garantizar al tercero la efectiva existencia de los
poderes que afirma se halla investido, siempre que el tercero mismo sea de buena fe. Efecto de tal
garantia es el resarcimiento de los daos causados al tercero como consecuencia de la negativa
del mandante a reconocer lo actuado por el mandatario." (26, part II, Scaveola, Codigo Civil, 1951,
pp. 358-9).
Manresa says that the agent who exceeds the limits of his authority is personally liable "porque
realmente obra sin poderes" and the third person who contracts with the agent in such a case
would be defrauded if he would not be allowed to sue the agent (11 Codigo Civil, 6th Ed., 1972, p.
725).
The defendants also contend that the trial court erred in holding as enforceable the stipulation for
liquidated damages despite its finding that the contract was executed by the agent in excess of its
authority and is, therefore, allegedly unenforceable.
In support of that contention, the defendants cite article 1403 of the Civil Code which provides that
a contract entered into in the name of another person by one who has acted beyond his powers is
unenforceable.
We hold that defendants contention is untenable because article 1403 refers to the
unenforceability of the contract against the principal. In the instant case, the contract containing the
stipulation for liquidated damages is not being enforced against it principal but against the agent
and its surety.
It is being enforced against the agent because article 1807 implies that the agent who acts in
excess of his authority is personally liable to the party with whom he contracted.
And that rule is complemented by article 1898 of the Civil Code which provides that "if the agent
contracts in the name of the principal, exceeding the scope of his authority, and the principal does
not ratify the contract, it shall be void if the party with whom the agent contracted is aware of the
limits of the powers granted by the principal."

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It is being enforced against the agent because article 1897 implies that the agent who acts in
excess of his authority is personally liable to the party with whom he contracted.
And the rule is complemented by article 1898 of the Civil Code which provides that "if the agent
contracts in the name of the principal, exceeding the scope of his authority, and the principal does
not ratify the contract, it shall be void if the party with whom the agent contracted is aware of the
limits of the powers granted by the principal."
As priorly discussed, namerco, as agent, exceeded the limits of its authority in contracting with the
NPC in the name of its principal. The NPC was unaware of the limitations on the powers granted
by the New York firm to Namerco.chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph
The New York corporation in its letter of April 26, 1956 said:jgc:chanrobles.com.ph
"We hereby certify that National Merchandising Corporation . . . are our exclusive representatives
in the Philippines for the sale of our products.
"Furthermore, we certify that they are empowered to present our offers in our behalf in accordance
with our cabled or written instructions." (Exh. C).
Namerco never disclosed to the NPC the cabled or written instructions of its principal. For that
reason and because Namerco exceeded the limits of its authority, it virtually acted in its own name
and not as agent and it is, therefore, bound by the contract of sale which, however, is not
enforceable against its principal.
If, as contemplated in articles 1897 and 1898, Namerco is bound under the contract of sale, then it
follows that it is bound by the stipulation for liquidated damages in that contract.
Defendants contention that Namercos liability should be based on tort or quasi-delict, as held in
some American cases, like Mendelsohn v. Holton, 149 N.E. 38, 42 ALR 1307, is not well-taken. As
correctly argued by the NPC, it would be unjust and inequitable for Namerco to escape liability after
it had deceived the NPC.
Another contention of the defendants is that the Domestic Insurance Company is not liable to the
NPC because its bond was posted, not for Namerco, the agent, but for the New York firm which is
not liable on the contract of sale.
That contention cannot be sustained because it was Namerco that actually solicited the bond from
the Domestic Insurance Company and, as explained already, Namerco is being held liable under
the contract of sale because it virtually acted in its own name. It became the principal in the
performance bond. In the last analysis, the Domestic Insurance Company acted as surety for
Namerco.
The rule is that "want of authority of the person who executes an obligation as the agent or
representative of the principal will not, as a general rule, affect the suretys liability thereon,
especially in the absence of fraud, even though the obligation is not binding on the principal" (72
C.J.S. 525).
Defendants other contentions are that they should be held liable only for nominal damages, that

91 | A G E N C Y F U L L C a s e s A P R e l o x

interest should not be collected on the amount of damages and that the damages should be
computed on the basis of a forty-five day period and not for a period of one hundred fifteen days.
With respect to the imposition of the legal rate of interest on the damages from the filing of the
complaint in 1957, or a quarter of a century ago, defendants contention is meritorious. It would be
manifestly inequitable to collect interest on the damages especially considering that the disposition
of this case has been considerably delayed due to no fault of the defendants.
The contention that only nominal damages should be adjudged is contrary to the intention of the
parties (NPC, Namerco and its surety) because it is clearly provided that liquidated damages are
recoverable for delay in the delivery of the sulfur and, with more reason, for nondelivery.
No proof of pecuniary loss is required for the recovery of liquidated damages. the stipulation for
liquidated damages is intended to obviate controversy on the amount of damages. There can be no
question that the NPC suffered damages because its production of fertilizer was disrupted or
diminished by reason of the nondelivery of the sulfur.chanrobles.com.ph : virtual law library
The parties foresaw that it might be difficult to ascertain the exact amount of damages for
nondelivery of the sulfur. So, they fixed the liquidated damages to be paid as indemnity to the NPC.
On the other hand, nominal damages are damages in name only or are in fact the same as no
damages (25 C.J.S. 466). It would not be correct to hold in this case that the NPC suffered
damages in name only or that the breach of contract was merely technical in character.
As to the contention that the damages should be computed on the basis of forty-five days, the
period required by a vessel leaving Galveston, Texas to reach Iligan City, that point need not be
resolved in view of our conclusion that the liquidated damages should be equivalent to the amount
of the bidders bond posted by Namerco.
NPCs appeal, L-33897. The trial court reduced the liquidated damages to twenty percent of the
stipulated amount. the NPC contends the it is entitled to the full amount of liquidated damages in
the sum of P360,572.80.
In reducing the liquidated damages, the trial court relied on article 2227 of the Civil Code which
provides that "liquidated damages, whether intended as an indemnity or a penalty, shall be
equitably reduced if they are iniquitous or unconscionable."
Apparently, the trial court regarded as an equitable consideration the persistent efforts of Namerco
and its principal to charter a steamer and that the failure of the New York firm to secure shipping
space was not attributable to its fault or negligence.
The trial court also took into account the fact that the selling price of the sulfur was P450,716 and
that to award as liquidated damages more than eighty percent of the price would not be altogether
reasonable.
The NPC contends that Namerco was an obligor in bad faith and, therefore, it should be
responsible for all damages which could be reasonably attributed to its nonperformance of the
obligation as provided in article 2201 of the Civil Code.

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On the other hand, the defendants argue that Namerco having acted as a mere agent, was not
liable for the liquidated damages stipulated in the alleged unenforceable contract of sale; that, as
already noted, Namercos liability should be based on tort or quasi-delict and not on the contract of
sale; that if Namerco is not liable, then the insurance company, its surety, is likewise not liable; that
the NPC is entitled only to nominal damages because it was able to secure the sulfur from another
source (58-59 tsn November 10, 1960) and that the reduced award of stipulated damages is highly
iniquitous, considering that Namerco acted in good faith and that the NPC did not suffer any actual
damages.chanrobles law library : red
These contentions have already been resolved in the preceding discussion. We find no sanction or
justification for NPCs claim that it is entitled to the full payment of the liquidated damages
computed by its official.
Ruling on the amount of damages. A painstaking evaluation of the equities of the case in the
light of the arguments of the parties as expounded in their five briefs leads to the conclusion that
the damages due from the defendants should be further reduced to P45,100 which is equivalent to
their bidders bond or to about ten percent of the selling price of the sulfur.
WHEREFORE, the lower courts judgment is modified and defendants National Merchandising
Corporation and Domestic Insurance Company of the Philippines are ordered to pay solidarily to
the National Power Corporation the sum of P45,100.00 as liquidated damages. No costs.
SO ORDERED.

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DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,


vs.
COURT OF APPEALS and the ESTATE OF THE LATE JUAN B. DANS, represented by
CANDIDA G. DANS, and the DBP MORTGAGE REDEMPTION INSURANCE
POOL, respondents.
G.R. No. L-109937 March 21, 1994 QUIASON, J.:
This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court to reverse
and set aside the decision of the Court of Appeals in CA-G.R CV No. 26434 and its resolution
denying reconsideration thereof.
We affirm the decision of the Court of Appeals with modification.
I
In May 1987, Juan B. Dans, together with his wife Candida, his son and daughter-in-law, applied
for a loan of P500,000.00 with the Development Bank of the Philippines (DBP), Basilan Branch. As
the principal mortgagor, Dans, then 76 years of age, was advised by DBP to obtain a mortgage
redemption insurance (MRI) with the DBP Mortgage Redemption Insurance Pool (DBP MRI Pool).
A loan, in the reduced amount of P300,000.00, was approved by DBP on August 4, 1987 and
released on August 11, 1987. From the proceeds of the loan, DBP deducted the amount of
P1,476.00 as payment for the MRI premium. On August 15, 1987, Dans accomplished and
submitted the "MRI Application for Insurance" and the "Health Statement for DBP MRI Pool."
On August 20, 1987, the MRI premium of Dans, less the DBP service fee of 10 percent, was
credited by DBP to the savings account of the DBP MRI Pool. Accordingly, the DBP MRI Pool was
advised of the credit.
On September 3, 1987, Dans died of cardiac arrest. The DBP, upon notice, relayed this information
to the DBP MRI Pool. On September 23, 1987, the DBP MRI Pool notified DBP that Dans was not
eligible for MRI coverage, being over the acceptance age limit of 60 years at the time of
application.
On October 21, 1987, DBP apprised Candida Dans of the disapproval of her late husband's MRI
application. The DBP offered to refund the premium of P1,476.00 which the deceased had paid,
but Candida Dans refused to accept the same, demanding payment of the face value of the MRI or
an amount equivalent to the loan. She, likewise, refused to accept an ex gratia settlement of
P30,000.00, which the DBP later offered.
On February 10, 1989, respondent Estate, through Candida Dans as administratrix, filed a
complaint with the Regional Trial Court, Branch I, Basilan, against DBP and the insurance pool for
"Collection of Sum of Money with Damages." Respondent Estate alleged that Dans became
insured by the DBP MRI Pool when DBP, with full knowledge of Dans' age at the time of
application, required him to apply for MRI, and later collected the insurance premium thereon.
Respondent Estate therefore prayed: (1) that the sum of P139,500.00, which it paid under protest
for the loan, be reimbursed; (2) that the mortgage debt of the deceased be declared fully paid; and
(3) that damages be awarded.

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The DBP and the DBP MRI Pool separately filed their answers, with the former asserting a crossclaim against the latter.
At the pre-trial, DBP and the DBP MRI Pool admitted all the documents and exhibits submitted by
respondent Estate. As a result of these admissions, the trial court narrowed down the issues and,
without opposition from the parties, found the case ripe for summary judgment. Consequently, the
trial court ordered the parties to submit their respective position papers and documentary evidence,
which may serve as basis for the judgment.
On March 10, 1990, the trial court rendered a decision in favor of respondent Estate and against
DBP. The DBP MRI Pool, however, was absolved from liability, after the trial court found no privity
of contract between it and the deceased. The trial court declared DBP in estoppel for having led
Dans into applying for MRI and actually collecting the premium and the service fee, despite
knowledge of his age ineligibility. The dispositive portion of the decision read as follows:
WHEREFORE, in view of the foregoing consideration and in the furtherance of justice
and equity, the Court finds judgment for the plaintiff and against Defendant DBP,
ordering the latter:
1. To return and reimburse plaintiff the amount of P139,500.00 plus legal rate of
interest as amortization payment paid under protest;
2. To consider the mortgage loan of P300,000.00 including all interest accumulated
or otherwise to have been settled, satisfied or set-off by virtue of the insurance
coverage of the late Juan B. Dans;
3. To pay plaintiff the amount of P10,000.00 as attorney's fees;
4. To pay plaintiff in the amount of P10,000.00 as costs of litigation and other
expenses, and other relief just and equitable.
The Counterclaims of Defendants DBP and DBP MRI POOL are hereby dismissed.
The Cross-claim of Defendant DBP is likewise dismissed (Rollo, p. 79)
The DBP appealed to the Court of Appeals. In a decision dated September 7, 1992, the appellate
court affirmedin toto the decision of the trial court. The DBP's motion for reconsideration was
denied in a resolution dated April 20, 1993.
Hence, this recourse.
II
When Dans applied for MRI, he filled up and personally signed a "Health Statement for DBP MRI
Pool" (Exh. "5-Bank") with the following declaration:
I hereby declare and agree that all the statements and answers contained herein are
true, complete and correct to the best of my knowledge and belief and form part of
my application for insurance. It is understood and agreed that no insurance coverage

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shall be effected unless and until this application is approved and the full premium is
paid during my continued good health (Records, p. 40).
Under the aforementioned provisions, the MRI coverage shall take effect: (1) when the application
shall be approved by the insurance pool; and (2) when the full premium is paid during the
continued good health of the applicant. These two conditions, being joined conjunctively, must
concur.
Undisputably, the power to approve MRI applications is lodged with the DBP MRI Pool. The pool,
however, did not approve the application of Dans. There is also no showing that it accepted the
sum of P1,476.00, which DBP credited to its account with full knowledge that it was payment for
Dan's premium. There was, as a result, no perfected contract of insurance; hence, the DBP MRI
Pool cannot be held liable on a contract that does not exist.
The liability of DBP is another matter.
It was DBP, as a matter of policy and practice, that required Dans, the borrower, to secure MRI
coverage. Instead of allowing Dans to look for his own insurance carrier or some other form of
insurance policy, DBP compelled him to apply with the DBP MRI Pool for MRI coverage. When
Dan's loan was released on August 11, 1987, DBP already deducted from the proceeds thereof the
MRI premium. Four days latter, DBP made Dans fill up and sign his application for MRI, as well as
his health statement. The DBP later submitted both the application form and health statement to
the DBP MRI Pool at the DBP Main Building, Makati Metro Manila. As service fee, DBP deducted
10 percent of the premium collected by it from Dans.
In dealing with Dans, DBP was wearing two legal hats: the first as a lender, and the second as an
insurance agent.
As an insurance agent, DBP made Dans go through the motion of applying for said insurance,
thereby leading him and his family to believe that they had already fulfilled all the requirements for
the MRI and that the issuance of their policy was forthcoming. Apparently, DBP had full knowledge
that Dan's application was never going to be approved. The maximum age for MRI acceptance is
60 years as clearly and specifically provided in Article 1 of the Group Mortgage Redemption
Insurance Policy signed in 1984 by all the insurance companies concerned (Exh. "1-Pool").
Under Article 1987 of the Civil Code of the Philippines, "the agent who acts as such is not
personally liable to the party with whom he contracts, unless he expressly binds himself or exceeds
the limits of his authority without giving such party sufficient notice of his powers."
The DBP is not authorized to accept applications for MRI when its clients are more than 60 years
of age (Exh. "1-Pool"). Knowing all the while that Dans was ineligible for MRI coverage because of
his advanced age, DBP exceeded the scope of its authority when it accepted Dan's application for
MRI by collecting the insurance premium, and deducting its agent's commission and service fee.
The liability of an agent who exceeds the scope of his authority depends upon whether the third
person is aware of the limits of the agent's powers. There is no showing that Dans knew of the
limitation on DBP's authority to solicit applications for MRI.

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If the third person dealing with an agent is unaware of the limits of the authority conferred by the
principal on the agent and he (third person) has been deceived by the non-disclosure thereof by
the agent, then the latter is liable for damages to him (V Tolentino, Commentaries and
Jurisprudence on the Civil Code of the Philippines, p. 422 [1992], citing Sentencia [Cuba] of
September 25, 1907). The rule that the agent is liable when he acts without authority is founded
upon the supposition that there has been some wrong or omission on his part either in
misrepresenting, or in affirming, or concealing the authority under which he assumes to act
(Francisco, V., Agency 307 [1952], citing Hall v. Lauderdale, 46 N.Y. 70, 75). Inasmuch as the nondisclosure of the limits of the agency carries with it the implication that a deception was perpetrated
on the unsuspecting client, the provisions of Articles 19, 20 and 21 of the Civil Code of the
Philippines come into play.
Article 19 provides:
Every person must, in the exercise of his rights and in the performance of his duties,
act with justice give everyone his due and observe honesty and good faith.
Article 20 provides:
Every person who, contrary to law, willfully or negligently causes damage to another,
shall indemnify the latter for the same.
Article 21 provides:
Any person, who willfully causes loss or injury to another in a manner that is contrary
to morals, good customs or public policy shall compensate the latter for the damage.
The DBP's liability, however, cannot be for the entire value of the insurance policy. To assume that
were it not for DBP's concealment of the limits of its authority, Dans would have secured an MRI
from another insurance company, and therefore would have been fully insured by the time he died,
is highly speculative. Considering his advanced age, there is no absolute certainty that Dans could
obtain an insurance coverage from another company. It must also be noted that Dans died almost
immediately, i.e., on the nineteenth day after applying for the MRI, and on the twenty-third day from
the date of release of his loan.
One is entitled to an adequate compensation only for such pecuniary loss suffered by him as he
has duly proved (Civil Code of the Philippines, Art. 2199). Damages, to be recoverable, must not
only be capable of proof, but must be actually proved with a reasonable degree of certainty
(Refractories Corporation v. Intermediate Appellate Court, 176 SCRA 539 [1989]; Choa Tek Hee v.
Philippine Publishing Co., 34 Phil. 447 [1916]). Speculative damages are too remote to be included
in an accurate estimate of damages (Sun Life Assurance v. Rueda Hermanos, 37 Phil. 844 [1918]).
While Dans is not entitled to compensatory damages, he is entitled to moral damages. No proof of
pecuniary loss is required in the assessment of said kind of damages (Civil Code of Philippines,
Art. 2216). The same may be recovered in acts referred to in Article 2219 of the Civil Code.
The assessment of moral damages is left to the discretion of the court according to the
circumstances of each case (Civil Code of the Philippines, Art. 2216). Considering that DBP had
offered to pay P30,000.00 to respondent Estate in ex gratia settlement of its claim and that DBP's

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non-disclosure of the limits of its authority amounted to a deception to its client, an award of moral
damages in the amount of P50,000.00 would be reasonable.
The award of attorney's fees is also just and equitable under the circumstances (Civil Code of the
Philippines, Article 2208 [11]).
WHEREFORE, the decision of the Court of Appeals in CA G.R.-CV
No. 26434 is MODIFIED and petitioner DBP is ORDERED: (1) to REIMBURSE respondent Estate
of Juan B. Dans the amount of P1,476.00 with legal interest from the date of the filing of the
complaint until fully paid; and (2) to PAY said Estate the amount of Fifty Thousand Pesos
(P50,000.00) as moral damages and the amount of Ten Thousand Pesos (P10,000.00) as
attorney's fees. With costs against petitioner.
SO ORDERED.

SAFIC ALCAN & CIE, petitioner, vs. IMPERIAL VEGETABLE OIL CO., INC., respondent.
G.R. No. 126751

March 28, 2001

YNARES-SANTIAGO, J.:

Petitioner Safic Alcan & Cie (hereinafter, "Safic") is a French corporation engaged in the
international purchase, sale and trading of coconut oil. It filed with the Regional Trial Court of
Manila, Branch XXV, a complaint dated February 26, 1987 against private respondent Imperial
Vegetable Oil Co., Inc. (hereinafter, "IVO"), docketed as Civil Case No. 87- 39597. Petitioner Safic
alleged that on July 1, 1986 and September 25, 1986, it placed purchase orders with IVO for 2,000
long tons of crude coconut oil, valued at US$222.50 per ton, covered by Purchase Contract Nos.
A601446 and A601655, respectively, to be delivered within the month of January 1987. Private
respondent, however, failed to deliver the said coconut oil and, instead, offered a "wash out"
settlement, whereby the coconut oil subject of the purchase contracts were to be "sold back" to
IVO at the prevailing price in the international market at the time of wash out. Thus, IVO bound
itself to pay to Safic the difference between the said prevailing price and the contract price of the
2,000 long tons of crude coconut oil, which amounted to US$293,500.00. IVO failed to pay this
amount despite repeated oral and written demands.
Under its second cause of action, Safic alleged that on eight occasions between April 24, 1986 and
October 31, 1986, it placed purchase orders with IVO for a total of 4,750 tons of crude coconut oil,
covered by Purchase Contract Nos. A601297A/B, A601384, A601385, A601391, A601415,
A601681, A601683 and A601770A/B/C/. When IVO failed to honor its obligation under the wash
out settlement narrated above, Safic demanded that IVO make marginal deposits within forty-eight
hours on the eight purchase contracts in amounts equivalent to the difference between the contract
price and the market price of the coconut oil, to compensate it for the damages it suffered when it
was forced to acquire coconut oil at a higher price. IVO failed to make the prescribed marginal

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deposits on the eight contracts, in the aggregate amount of US$391,593.62, despite written
demand therefor.
The demand for marginal deposits was based on the customs of the trade, as governed by the
provisions of the standard N.I.O.P. Contract arid the FOSFA Contract, to wit:
N.I.O.P. Contract, Rule 54 - If the financial condition of either party to a contract subject to
these rules becomes so impaired as to create a reasonable doubt as to the ability of such
party to perform its obligations under the contract, the other party may from time to time
demand marginal deposits to be made within forty-eight (48) hours after receipt of such
demand, such deposits not to exceed the difference between the contract price and the
market price of the goods covered by the contract on the day upon which such demand is
made, such deposit to bear interest at the prime rate plus one percent (1%) per annum.
Failure to make such deposit within the time specified shall constitute a breach of contract
by the party upon whom demand for deposit is made, and all losses and expenses resulting
from such breach shall be for the account of the party upon whom such demand is made.
(Underscoring ours.)1
FOSFA Contract, Rule 54 - BANKRUPTCY/INSOLVENCY: If before the fulfillment of this
contract either party shall suspend payment, commit an act of bankruptcy, notify any of his
creditors that he is unable to meet his debts or that he has suspended payment or that he is
about to suspend payment of his debts, convene, call or hold a meeting either of his
creditors or to pass a resolution to go into liquidation (except for a voluntary winding up of a
solvent company for the purpose of reconstruction or amalgamation) or shall apply for an
official moratorium, have a petition presented for winding up or shal1i have a Receiver
appointed, the contract shall forthwith be closed either at the market price then current for
similar goods or, at the option of the other party at a price to be ascertained by repurchase
or resale and the difference between the contract price and such closing-out price shall be
the amount which the other party shall be entitled to claim shall be liable to account for
under this contract (sic). Should either party be dissatisfied with the price, the matter shall
be referred to arbitration. Where no such resale or repurchase takes place, the closing-out
price shall be fixed by a Price Settlement Committee appointed by the Federation.
(Underscoring ours.)2
Hence, Safic prayed that IVO be ordered to pay the sums of US$293,500.00 and US$391,593.62,
plus attorney's fees and litigation expenses. The complaint also included an application for a writ of
preliminary attachment against the properties of IVO.
Upon Safic's posting of the requisite bond, the trial court issued a writ of preliminary attachment.
Subsequently, the trial court ordered that the assets of IVO be placed under receivership, in order
to ensure the preservation of the same.
In its answer, IVO raised the following special affirmative defenses: Safic had no legal capacity to
sue because it was doing business in the Philippines without the requisite license or authority; the
subject contracts were speculative contracts entered into by IVO's then President, Dominador
Monteverde, in contravention of the prohibition by the Board of Directors against engaging in
speculative paper trading, and despite IVO's lack of the necessary license from Central Bank to
engage in such kind of trading activity; and that under Article 2018 of the Civil Code, if a contract
which purports to be for the delivery of goods, securities or shares of stock is entered into with the

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intention that the difference between the price stipulated and the exchange or market price at the
time of the pretended delivery shall be paid by the loser to the winner, the transaction is null and
void.1wphi1.nt
IVO set up counterclaims anchored on harassment, paralyzation of business, financial losses,
rumor-mongering and oppressive action. Later, IVO filed a supplemental counterclaim alleging that
it was unable to operate its business normally because of the arrest of most of its physical assets;
that its suppliers were driven away; and that its major creditors have inundated it with claims for
immediate payment of its debts, and China Banking Corporation had foreclosed its chattel and real
estate mortgages.
During the trial, the lower court found that in 1985, prior to the date of the contracts sued upon, the
parties had entered into and consummated a number of contracts for the sale of crude coconut oil.
In those transactions, Safic placed several orders and IVO faithfully filled up those orders by
shipping out the required crude coconut oil to Safic, totaling 3,500 metric tons. Anent the 1986
contracts being sued upon, the trial court refused to declare the same as gambling transactions, as
defined in Article 2018 of the Civil Code, although they involved some degree of speculation. After
all, the court noted, every business enterprise carries with it a certain measure of speculation or
risk. However, the contracts performed in 1985, on one hand, and the 1986 contracts subject of
this case, on the other hand, differed in that under the 1985 contracts, deliveries were to be made
within two months. This, as alleged by Safic, was the time needed for milling and building up oil
inventory. Meanwhile, the 1986 contracts stipulated that the coconut oil were to be delivered within
period ranging from eight months to eleven to twelve months after the placing of orders. The
coconuts that were supposed to be milled were in all likelihood not yet growing when Dominador
Monteverde sold the crude coconut oil. As such, the 1986 contracts constituted trading in futures or
in mere expectations.
The lower court further held that the subject contracts were ultra vires and were entered into by
Dominador Monteverde without authority from the Board of Directors. It distinguished between the
1985 contracts, where Safic likewise dealt with Dominador Monteverde, who was presumably
authorized to bind IVO, and the 1986 contracts, which were highly speculative in character.
Moreover, the 1985 contracts were covered by letters of credit, while the 1986 contracts were
payable by telegraphic transfers, which were nothing more than mere promises to pay once the
shipments became ready. For these reasons, the lower court held that Safic cannot invoke the
1985 contracts as an implied corporate sanction for the high-risk 1986 contracts, which were
evidently entered into by Monteverde for his personal benefit.
The trial court ruled that Safic failed to substantiate its claim for actual damages. Likewise, it
rejected IVO's counterclaim and supplemental counterclaim.
Thus, on August 28, 1992, the trial court rendered judgment as follows:
WHEREFORE, judgment is hereby rendered dismissing the complaint of plaintiff Safic Alcan
& Cie, without prejudice to any action it might subsequently institute against Dominador
Monteverde, the former President of Imperial Vegetable Oil Co., Inc., arising from the
subject matter of this case. The counterclaim and supplemental counterclaim of the latter
defendant are likewise hereby dismissed for lack of merit. No pronouncement as to costs.

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The writ of preliminary attachment issued in this case as well as the order placing Imperial
Vegetable Oil Co., Inc. under receivership are hereby dissolved and set aside. 3
Both IVO and Safic appealed to the Court of Appeals, jointly docketed as CA-G.R. CV No.40820.
IVO raised only one assignment of error, viz:
THE TRIAL COURT ERRED IN HOLDING 'I'HAT THE ISSUANCE OF THE WRIT OF
PRELIMINARY ATTACHMENT WAS NOT THE MAIN CAUSE OF THE DAMAGES
SUFFERED BY DEFENDANT AND IN NOT AWARDING DEFENDANT-APPELLANT SUCH
DAMAGES.
For its part, Safic argued that:
THE TRIAL COURT ERRED IN HOLDING THAT IVO'S PRESIDENT, DOMINADOR
MONTEVERDE, ENTERED INTO CONTRACTS WHICH WERE ULTRA VIRES AND
WHICH DID NOT BIND OR MAKE IVO LIABLE.
THE TRIAL COURT ERRED IN HOLDING THA SAFIC WAS UNABLE TO PROVE THE
DAMAGES SUFFERED BY IT AND IN NOT AWARDING SUCH DAMAGES.
THE TRIAL COURT ERRED IN NOT HOLDING THAT IVO IS LIABLE UNDER THE WASH
OUT CONTRACTS.
On September 12, 1996, the Court of Appeals rendered the assailed Decision dismissing the,
appeals and affirming the judgment appealed from in toto. 4
Hence, Safic filed the instant petition for review with this Court, substantially reiterating the errors it
raised before the Court of Appeals and maintaining that the Court of Appeals grievously erred
when:
a. it declared that the 1986 forward contracts (i.e., Contracts Nos. A601446 and A60155
(sic) involving 2,000 long tons of crude coconut oil, and Contracts Nos. A60l297A/B,
A601385, A60l39l, A60l4l5, A601681. A601683 and A60l770A/B/C involving 4,500 tons of
crude coconut oil) were unauthorized acts of Dominador Monteverde which do not bind IVO
in whose name they were entered into. In this connection, the Court of Appeals erred when
(i) it ignored its own finding that (a) Dominador Monteverde, as IVO's President, had "an
implied authority to make any contract necessary or appropriate to the contract of the
ordinary business of the company"; and (b) Dominador Monteverde had validly entered into
similar forward contracts for and on behalf of IVO in 1985; (ii) it distinguished between the
1986 forward contracts despite the fact that the Manila RTC has struck down IVO's
objection to the 1986 forward contracts (i.e. that they were highly speculative paper trading
which the IVO Board of Directors had prohibited Dominador Monteverde from engaging in
because it is a form of gambling where the parties do not intend actual delivery of the
coconut oil sold) and instead found that the 1986 forward contracts were not gambling; (iii) it
relied on the testimony of Mr. Rodrigo Monteverde in concluding that the IVO Board of
Directors did not authorize its President, Dominador Monteverde, to enter into the 1986
forward contracts; and (iv) it did not find IVO, in any case, estopped from denying
responsibility for, and liability under, the 1986 forward contracts because IVO had

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recognized itself bound to similar forward contracts which Dominador Monteverde entered
into (for and on behalf of IVO) with Safic in 1985 notwithstanding that Dominador
Monteverde was (like in the 1986 forward contracts) not expressly authorized by the IVO
Board of Directors to enter into such forward contracts;
b. it declared that Safic was not able, to prove damages suffered by it, despite the fact that
Safic had presented not only testimonial, but also documentary, evidence which proved the
higher amount it had to pay for crude coconut oil (vis--vis the contract price it was to pay to
IVO) when IVO refused to deliver the crude coconut oil bought by Safic under the 1986
forward contracts; and
c. it failed to resolve the issue of whether or not IVO is liable to Safic under the wash out
contracts involving Contracts Nos. A601446 and A60155 (sic), despite the fact that Safic
had properly raised the issue on its appeal, and the evidence and the law support Safic's
position that IVO is so liable to Safic.
In fine, Safic insists that the appellate court grievously erred when it did not declare that IVO's
President, Dominador Monteverde, validly entered into the 1986 contracts for and on behalf of IVO.
We disagree.
Article III, Section 3 [g] of the By-Laws5 of IVO provides, among others, that
Section 3. Powers and Duties of the President. - The President shall be elected by the
Board of Directors from their own number .
He shall have the following duties:
xxxxxxxxx
[g] Have direct and active management of the business and operation of the corporation,
conducting the same according to, the orders, resolutions and instruction of the Board of
Directors and according to his own discretion whenever and wherever the same is not
expressly limited by such orders, resolutions and instructions.
It can be clearly seen from the foregoing provision of IVO's By-laws that Monteverde had no
blanket authority to bind IVO to any contract. He must act according to the instructions of the Board
of Directors. Even in instances when he was authorized to act according to his discretion, that
discretion must not conflict with prior Board orders, resolutions and instructions. The evidence
shows that the IVO Board knew nothing of the 1986 contracts 6 and that it did not authorize
Monteverde to enter into speculative contracts.7 In fact, Monteverde had earlier proposed that the
company engage in such transactions but the IVO Board rejected his proposal.8 Since the 1986
contracts marked a sharp departure from past IVO transactions, Safic should have obtained from
Monteverde the prior authorization of the IVO Board. Safic can not rely on the doctrine of implied
agency because before the controversial 1986 contracts, IVO did not enter into identical contracts
with Safic. 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. 9 In the case of Bacaltos Coal
Mines v. Court of Appeals,10 we elucidated the rule on dealing with an agent thus:

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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.11
The most prudent thing petitioner should have done was to ascertain the extent of the authority of
Dominador Monteverde. Being remiss in this regard, petitioner can not seek relief on the basis of a
supposed agency.
Under Article 189812 of the Civil Code, the acts of an agent beyond the scope of his authority do
not bind the principal unless the latter ratifies the same expressly or impliedly. It also bears
emphasizing that when the third person knows that the agent was acting beyond his power or
authority, the principal can not be held liable for the acts of the agent. If the said third person is
aware of such limits of authority, he is to blame, and is not entitled to recover damages from the
agent, unless the latter undertook to secure the principal's ratification. 13
There was no such ratification in this case. When Monteverde entered into the speculative
contracts with Safic, he did not secure the Board's approval.14 He also did not submit the contracts
to the Board after their consummation so there was, in fact, no occasion at all for ratification. The
contracts were not reported in IVO's export sales book and turn-out book.15 Neither were they
reflected in other books and records of the corporation.16 It must be pointed out that the Board of
Directors, not Monteverde, exercises corporate power.17 Clearly, Monteverde's speculative
contracts with Safic never bound IVO and Safic can not therefore enforce those contracts against
IVO.
To bolster its cause, Safic raises the novel point that the IVO Board of Directors did not set
limitations on the extent of Monteverde's authority to sell coconut oil. It must be borne in mind in
this regard that a question that was never raised in the courts below can not be allowed to be
raised for the first time on appeal without offending basic rules of fair play, justice and due
process.18 Such an issue was not brought to the fore either in the trial court or the appellate court,
and would have been disregarded by the latter tribunal for the reasons previously stated. With
more reason, the same does not deserve consideration by this Court.
Be that as it may, Safic's belated contention that the IVO Board of Directors did not set limitations
on Monteverde's authority to sell coconut oil is belied by what appears on the record. Rodrigo
Monteverde, who succeeded Dominador Monteverde as IVO President, testified that the IVO
Board had set down the policy of engaging in purely physical trading thus:
Q. Now you said that IVO is engaged in trading. With whom does, it usually trade its oil?
A. I am not too familiar with trading because as of March 1987, I was not yet an officer of the
corporation, although I was at the time already a stockholder, I think IVO is engaged in
trading oil.
Q. As far as you know, what kind of trading was IVO engaged with?

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A. It was purely on physical trading.


Q. How did you know this?
A. As a stockholder, rather as member of [the] Board of Directors, I frequently visited the
plant and from my observation, as I have to supervise and monitor purchases of copras and
also the sale of the same, I observed that the policy of the corporation is for the company to
engaged (sic) or to purely engaged (sic) in physical trading.
Q. What do you mean by physical trading?
A. Physical Trading means - we buy and sell copras that are only available to us. We only
have to sell the available stocks in our inventory.
Q. And what is the other form of trading?
Atty. Fernando
No basis, your Honor.
Atty. Abad
Well, the witness said they are engaged in physical trading and what I am saying [is]
if there are any other kind or form of trading.
Court
Witness may answer if he knows.
Witness
A. Trading future[s] contracts wherein the trader commits a price and to deliver
coconut oil in the future in which he is yet to acquire the stocks in the future.
Atty. Abad
Q. Who established the so-called physical trading in IVO?
A. The Board of Directors, sir.
Atty. Abad.
Q. How did you know that?
A. There was a meeting held in the office at the factory and it was brought out and
suggested by our former president, Dominador Monteverde, that the company should
engaged (sic) in future[s] contract[s] but it was rejected by the Board of Directors. It was only
Ador Monteverde who then wanted to engaged (sic) in this future[s] contract[s].

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Q. Do you know where this meeting took place?


A. As far as I know it was sometime in 1985.
Q. Do you know why the Board of Directors rejected the proposal of Dominador Monteverde
that the company should engaged (sic) in future[s] contracts?
Atty. Fernando
Objection, your Honor, no basis.
Court
Why don't you lay the basis?
Atty. Abad
Q. Were you a member of the board at the time?
A. In 1975, I am already a stockholder and a member.
Q. Then would [you] now answer my question?
Atty. Fernando
No basis, your Honor. What we are talking is about 1985.
Atty. Abad
Q. When you mentioned about the meeting in 1985 wherein the Board of Directors rejected
the future[s] contract[s], were you already a member of the Board of Directors at that time?
A. Yes, sir.
Q. Do you know the reason why the said proposal of Mr. Dominador Monteverde to engage
in future[s] contract[s] was rejected by the Board of Directors?
A. Because this future[s] contract is too risky and it partakes of gambling.
Q. Do you keep records of the Board meetings of the company?
A. Yes, sir.
Q. Do you have a copy of the minutes of your meeting in 1985?
A. Incidentally our Secretary of the Board of Directors, Mr. Elfren Sarte, died in 1987 or
1988, and despite [the] request of our office for us to be furnished a copy he was not able to
furnish us a copy.19

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xxxxxxxxx
Atty. Abad
Q. You said the Board of Directors were against the company engaging in future[s]
contracts. As far as you know, has this policy of the Board of Directors been observed or
followed?
Witness
A. Yes, sir.
Q. How far has this Dominador Monteverde been using the name of I.V.0. in selling future
contracts without the proper authority and consent of the company's Board of Directors?
A. Dominador Monteverde never records those transactions he entered into in connection
with these future[s] contracts in the company's books of accounts.
Atty. Abad
Q. What do you mean by that the future[s] contracts were not entered into the books of
accounts of the company?
Witness
A. Those were not recorded at all in the books of accounts of the company, sir. 20
Q. What did you do when you discovered these transactions?
A. There was again a meeting by the Board of Directors of the corporation and that we
agreed to remove the president and then I was made to replace him as president.
Q. What else?
A. And a resolution was passed disowning the illegal activities of the former president.21
Petitioner next argues that there was actually no difference between the 1985 physical contracts
and the 1986 futures contracts.
The contention is unpersuasive for, as aptly pointed out by the trial court and sustained by the
appellate court
Rejecting IVO's position, SAFIC claims that there is no distinction between the 1985 and
1986 contracts, both of which groups of contracts were signed or authorized by IVO's
President, Dominador Monteverde. The 1986 contracts, SAFIC would bewail, were similarly
with their 1985 predecessors, forward sales contracts in which IVO had undertaken to
deliver the crude coconut oil months after such contracts were entered into. The lead time
between the closing of the deal and the delivery of the oil supposedly allowed the seller to
accumulate enough copra to mill and to build up its inventory and so meet its delivery

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commitment to its foreign buyers. SAFIC concludes that the 1986 contracts were equally
binding, as the 1985 contracts were, on IVO.
Subjecting the evidence on both sides to close scrutiny, the Court has found some
remarkable distinctions between the 1985 and 1986 contracts. x x x
1. The 1985 contracts were performed within an average of two months from the date of the
sale. On the other hand, the 1986 contracts were to be performed within an average of eight
and a half months from the dates of the sale. All the supposed performances fell in 1987.
Indeed, the contract covered by Exhibit J was to be performed 11 to 12 months from the
execution of the contract. These pattern (sic) belies plaintiffs contention that the lead time
merely allowed for milling and building up of oil inventory. It is evident that the 1986
contracts constituted trading in futures or in mere expectations. In all likelihood, the
coconuts that were supposed to be milled for oil were not yet on their trees when Dominador
Monteverde sold the crude oil to SAFIC.
2. The mode of payment agreed on by the parties in their 1985 contracts was uniformly thru
the opening of a letter of credit LC by SAFIC in favor of IVO. Since the buyer's letter of credit
guarantees payment to the seller as soon as the latter is able to present the shipping
documents covering the cargo, its opening usually mark[s] the fact that the transaction
would be consummated. On the other hand, seven out of the ten 1986 contracts were to be
paid by telegraphic transfer upon presentation of the shipping documents. Unlike the letter
of credit, a mere promise to pay by telegraphic transfer gives no assurance of [the] buyer's
compliance with its contracts. This fact lends an uncertain element in the 1986
contracts.1wphi1.nt
3. Apart from the above, it is not disputed that with respect to the 1985 contracts, IVO
faithfully complied with Central Bank Circular No. 151 dated April 1, 1963, requiring a
coconut oil exporter to submit a Report of Foreign Sales within twenty-four (24) hours "after
the closing of the relative sales contract" with a foreign buyer of coconut oil. But with respect
to the disputed 1986 contracts, the parties stipulated during the hearing that none of these
contracts were ever reported to the Central Bank, in violation of its above requirement. (See
Stipulation of Facts dated June 13, 1990). The 1986 sales were, therefore suspect.
4. It is not disputed that, unlike the 1985 contacts, the 1986 contracts were never recorded
either in the 1986 accounting books of IVO or in its annual financial statement for 1986, a
document that was prepared prior to the controversy. (Exhibits 6 to 6-0 and 7 to 7-1).
Emelita Ortega, formerly an assistant of Dominador Monteverde, testified that they were
strange goings-on about the 1986 contract. They were neither recorded in the books nor
reported to the Central Bank. What is more, in those unreported cases where profits were
made, such profits were ordered remitted to unknown accounts in California, U.S.A., by
Dominador Monteverde.
Evidently, Dominador Monteverde made business or himself, using the name of IVO but
concealing from it his speculative transactions.
Petitioner further contends that both the trial and appellate courts erred in concluding that Safic
was not able to prove its claim for damages. Petitioner first points out that its wash out agreements
with Monteverde where IVO allegedly agreed to pay US$293,500.00 for some of the failed

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contracts was proof enough and, second, that it presented purchases of coconut oil it made from
others during the period of IVO's default.
We remain unconvinced. The so-called "wash out" agreements are clearly ultra vires and not
binding on IVO. Furthermore, such agreements did not prove Safic's actual losses in the
transactions in question. The fact is that Safic did not pay for the coconut oil that it supposedly
ordered from IVO through Monteverede. Safic only claims that, since it was ready to pay when IVO
was not ready to deliver, Safic suffered damages to the extent that they had to buy the same
commodity from others at higher prices.
The foregoing claim of petitioner is not, however, substantiated by the evidence and only raises
several questions, to wit: 1.] Did Safic commit to deliver the quantity of oil covered by the 1986
contracts to its own buyers? Who were these buyers? What were the terms of those contracts with
respect to quantity, price and date of delivery? 2.] Did Safic pay damages to its buyers? Where
were the receipts? Did Safic have to procure the equivalent oil from other sources? If so, who were
these sources? Where were their contracts and what were the terms of these contracts as to
quantity, price and date of delivery?
The records disclose that during the course of the proceedings in the trial court, IVO filed an
amended motion22for production and inspection of the following documents: a.] contracts of resale
of coconut oil that Safic bought from IVO; b.] the records of the pooling and sales contracts
covering the oil from such pooling, if the coconut oil has been pooled and sold as general oil; c.]
the contracts of the purchase of oil that, according to Safic, it had to resort to in order to fill up
alleged undelivered commitments of IVO; d.] all other contracts, confirmations, invoices, wash out
agreements and other documents of sale related to (a), (b) and (c). This amended motion was
opposed by Safic.23 The trial court, however, in its September 16, 1988 Order ,24 ruled that:
From the analysis of the parties' respective positions, conclusion can easily be drawn
therefrom that there is materiality in the defendant's move: firstly, plaintiff seeks to recover
damages from the defendant and these are intimately related to plaintiffs alleged losses
which it attributes to the default of the defendant in its contractual commitments; secondly,
the documents are specified in the amended motion. As such, plaintiff would entertain no
confusion as to what, which documents to locate and produce considering plaintiff to be
(without doubt) a reputable going concern in the management of the affairs which is
serviced by competent, industrious, hardworking and diligent personnel; thirdly, the desired
production and inspection of the documents was precipitated by the testimony of plaintiffs
witness (Donald O'Meara) who admitted, in open court, that they are available. If the said
witness represented that the documents, as generally described, are available, reason there
would be none for the same witness to say later that they could not be produced, even after
they have been clearly described.
Besides, if the Court may additionally dwell on the issue of damages, the production and
inspection of the desired documents would be of tremendous help in the ultimate resolution
thereof. Plaintiff claims for the award of liquidated or actual damages to the tune of
US$391,593.62 which, certainly, is a huge amount in terms of pesos, and which defendant
disputes. As the defendant cannot be precluded in taking exceptions to the correctness and
validity of such claim which plaintiffs witness (Donald O'Meara) testified to, and as, by this
nature of the plaintiffs claim for damages, proof thereof is a must which can be better
served, if not amply ascertained by examining the records of the related sales admitted to

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be in plaintiffs possession, the amended motion for production and inspection of the
defendant is in order.
The interest of justice will be served best, if there would be a full disclosure by the parties on
both sides of all documents related to the transactions in litigation.
Notwithstanding the foregoing ruling of the trial court, Safic did not produce the required
documents, prompting the court a quo to assume that if produced, the documents would have been
adverse to Safic's cause. In its efforts to bolster its claim for damages it purportedly sustained,
Safic suggests a substitute mode of computing its damages by getting the average price it paid for
certain quantities of coconut oil that it allegedly bought in 1987 and deducting this from the average
price of the 1986 contracts. But this mode of computation if flawed .because: 1.] it is conjectural
since it rests on average prices not on actual prices multiplied by the actual volume of coconut oil
per contract; and 2.] it is based on the unproven assumption that the 1987 contracts of purchase
provided the coconut oil needed to make up for the failed 1986 contracts. There is also no
evidence that Safic had contracted to supply third parties with coconut oil from the 1986 contracts
and that Safic had to buy such oil from others to meet the requirement.
Along the same vein, it is worthy to note that the quantities of oil covered by its 1987 contracts with
third parties do not match the quantities of oil provided under the 1986 contracts. Had Safic
produced the documents that the trial court required, a substantially correct determination of its
actual damages would have been possible. This, unfortunately, was not the case. Suffice it to state
in this regard that "[T]he power of the courts to grant damages and attorney's fees demands
factual, legal and equitable justification; its basis cannot be left to speculation and conjecture." 25
WHEREFORE, in view of all the foregoing, the petition is DENIED for lack of merit.
SO ORDERED.

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FILIPINAS LIFE ASSURANCE COMPANY (now AYALA LIFE ASSURANCE, INC.), petitioner,
vs.
CLEMENTE N. PEDROSO, TERESITA O. PEDROSO and JENNIFER N. PALACIO thru her
Attorney-in-Fact PONCIANO C. MARQUEZ, respondents.
G.R. No. 159489

February 4, 2008

QUISUMBING, J.:

This petition for review on certiorari seeks the reversal of the Decision1 and Resolution,2 dated
November 29, 2002 and August 5, 2003, respectively, of the Court of Appeals in CA-G.R. CV No.
33568. The appellate court had affirmed the Decision3 dated October 10, 1989 of the Regional
Trial Court (RTC) of Manila, Branch 3, finding petitioner as defendant and the co-defendants below
jointly and severally liable to the plaintiffs, now herein respondents.
The antecedent facts are as follows:
Respondent Teresita O. Pedroso is a policyholder of a 20-year endowment life insurance issued by
petitioner Filipinas Life Assurance Company (Filipinas Life). Pedroso claims Renato Valle was her
insurance agent since 1972 and Valle collected her monthly premiums. In the first week of January
1977, Valle told her that the Filipinas Life Escolta Office was holding a promotional investment
program for policyholders. It was offering 8% prepaid interest a month for certain amounts
deposited on a monthly basis. Enticed, she initially invested and issued a post-dated check dated
January 7, 1977 for P10,000.4 In return, Valle issued Pedroso his personal check forP800 for the
8%5 prepaid interest and a Filipinas Life "Agents Receipt" No. 807838.6
Subsequently, she called the Escolta office and talked to Francisco Alcantara, the administrative
assistant, who referred her to the branch manager, Angel Apetrior. Pedroso inquired about the
promotional investment and Apetrior confirmed that there was such a promotion. She was even
told she could "push through with the check" she issued. From the records, the check, with the
endorsement of Alcantara at the back, was deposited in the account of Filipinas Life with the
Commercial Bank and Trust Company (CBTC), Escolta Branch.
Relying on the representations made by the petitioners duly authorized representatives Apetrior
and Alcantara, as well as having known agent Valle for quite some time, Pedroso waited for the
maturity of her initial investment. A month after, her investment of P10,000 was returned to her
after she made a written request for its refund. The formal written request, dated February 3, 1977,
was written on an inter-office memorandum form of Filipinas Life prepared by Alcantara. 7 To collect
the amount, Pedroso personally went to the Escolta branch where Alcantara gave her the P10,000

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in cash. After a second investment, she made 7 to 8 more investments in varying amounts,
totaling P37,000 but at a lower rate of 5%8 prepaid interest a month. Upon maturity of Pedrosos
subsequent investments, Valle would take back from Pedroso the corresponding yellow-colored
agents receipt he issued to the latter.
Pedroso told respondent Jennifer N. Palacio, also a Filipinas Life insurance policyholder, about the
investment plan. Palacio made a total investment of P49,5509 but at only 5% prepaid interest.
However, when Pedroso tried to withdraw her investment, Valle did not want to return
some P17,000 worth of it. Palacio also tried to withdraw hers, but Filipinas Life, despite demands,
refused to return her money. With the assistance of their lawyer, they went to Filipinas Life Escolta
Office to collect their respective investments, and to inquire why they had not seen Valle for quite
some time. But their attempts were futile. Hence, respondents filed an action for the recovery of a
sum of money.
After trial, the RTC, Branch 3, Manila, held Filipinas Life and its co-defendants Valle, Apetrior and
Alcantara jointly and solidarily liable to the respondents.
On appeal, the Court of Appeals affirmed the trial courts ruling and subsequently denied the
motion for reconsideration.
Petitioner now comes before us raising a single issue:
WHETHER OR NOT THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR
AND GRAVELY ABUSED ITS DISCRETION IN AFFIRMING THE DECISION OF THE
LOWER COURT HOLDING FLAC [FILIPINAS LIFE] TO BE JOINTLY AND SEVERALLY
LIABLE WITH ITS CO-DEFENDANTS ON THE CLAIM OF RESPONDENTS INSTEAD OF
HOLDING ITS AGENT, RENATO VALLE, SOLELY LIABLE TO THE RESPONDENTS. 10
Simply put, did the Court of Appeals err in holding petitioner and its co-defendants jointly and
severally liable to the herein respondents?
Filipinas Life does not dispute that Valle was its agent, but claims that it was only a life insurance
company and was not engaged in the business of collecting investment money. It contends that the
investment scheme offered to respondents by Valle, Apetrior and Alcantara was outside the scope
of their authority as agents of Filipinas Life such that, it cannot be held liable to the respondents.11
On the other hand, respondents contend that Filipinas Life authorized Valle to solicit investments
from them. In fact, Filipinas Lifes official documents and facilities were used in consummating the
transactions. These transactions, according to respondents, were confirmed by its officers Apetrior
and Alcantara. Respondents assert they exercised all the diligence required of them in ascertaining
the authority of petitioners agents; and it is Filipinas Life that failed in its duty to ensure that its
agents act within the scope of their authority.
Considering the issue raised in the light of the submissions of the parties, we find that the petition
lacks merit. The Court of Appeals committed no reversible error nor abused gravely its discretion in
rendering the assailed decision and resolution.
It appears indisputable that respondents Pedroso and Palacio had invested P47,000 and P49,550,
respectively. These were received by Valle and remitted to Filipinas Life, using Filipinas Lifes

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official receipts, whose authenticity were not disputed. Valles authority to solicit and receive
investments was also established by the parties. When respondents sought confirmation,
Alcantara, holding a supervisory position, and Apetrior, the branch manager, confirmed that Valle
had authority. While it is true that a person dealing with an agent is put upon inquiry and must
discover at his own peril the agents authority, in this case, respondents did exercise due diligence
in removing all doubts and in confirming the validity of the representations made by Valle.
Filipinas Life, as the principal, is liable for obligations contracted by its agent Valle. By the contract
of agency, a person binds himself to render some service or to do something in representation or
on behalf of another, with the consent or authority of the latter.12 The general rule is that the
principal is responsible for the acts of its agent done within the scope of its authority, and should
bear the damage caused to third persons.13 When the agent exceeds his authority, the agent
becomes personally liable for the damage.14 But even when the agent exceeds his authority, the
principal is still solidarily liable together with the agent if the principal allowed the agent to act as
though the agent had full powers.15 In other words, the acts of an agent beyond the scope of his
authority do not bind the principal, unless the principal ratifies them, expressly or
impliedly.16 Ratification in agency is the adoption or confirmation by one person of an act
performed on his behalf by another without authority. 17
Filipinas Life cannot profess ignorance of Valles acts. Even if Valles representations were beyond
his authority as a debit/insurance agent, Filipinas Life thru Alcantara and Apetrior expressly and
knowingly ratified Valles acts. It cannot even be denied that Filipinas Life benefited from the
investments deposited by Valle in the account of Filipinas Life. In our considered view, Filipinas
Life had clothed Valle with apparent authority; hence, it is now estopped to deny said authority.
Innocent third persons should not be prejudiced if the principal failed to adopt the needed
measures to prevent misrepresentation, much more so if the principal ratified his agents acts
beyond the latters authority. The act of the agent is considered that of the principal itself. Qui per
alium facit per seipsum facere videtur. "He who does a thing by an agent is considered as doing it
himself."18
WHEREFORE, the petition is DENIED for lack of merit. The Decision and Resolution, dated
November 29, 2002 and August 5, 2003, respectively, of the Court of Appeals in CA-G.R. CV No.
33568 are AFFIRMED.
Costs against the petitioner.
SO ORDERED.

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RURAL BANK OF MILAOR (CAMARINES SUR), petitioner,


vs.
FRANCISCA OCFEMIA, ROWENA BARROGO, MARIFE O. NIO, FELICISIMO OCFEMIA,
RENATO OCFEMIA JR, and WINSTON OCFEMIA, respondents.
G.R. No. 137686

February 8, 2000

PANGANIBAN, J.:

When a bank, by its acts and failure to act, has clearly clothed its manager with apparent authority
to sell an acquired asset in the normal course of business, it is legally obliged to confirm the
transaction by issuing a board resolution to enable the buyers to register the property in their
names. It has a duty to perform necessary and lawful acts to enable the other parties to enjoy all
benefits of the contract which it had authorized.
The Case
Before this Court is a Petition for Review on Certiorari challenging the December 18, 1998
Decision of the Court of Appeals 1 (CA) in CA-GR SP No. 46246, which affirmed the May 20, 1997
Decision 2 of the Regional Trial Court (RTC) of Naga City (Branch 28). The CA disposed as
follows:
Wherefore, premises considered, the Judgment appealed from is hereby AFFIRMED. Costs
against the respondent-appellant. 3
The dispositive portion of the judgment affirmed by the CA ruled in this wise:
WHEREFORE, in view of all the foregoing findings, decision is hereby rendered whereby
the [petitioner] Rural Bank of Milaor (Camarines Sur), Inc. through its Board of Directors is
hereby ordered to immediately issue a Board Resolution confirming the Deed of Sale it
executed in favor of Renato Ocfemia marked Exhibits C, C-1 and C-2); to pay [respondents]
the sum of FIVE HUNDRED (P500.00) PESOS as actual damages; TEN THOUSAND
(P10,000.00) PESOS as attorney's fees; THIRTY THOUSAND (P30,000.00) PESOS as
moral damages; THIRTY THOUSAND (P30,000.00) PESOS as exemplary damages; and to
pay the costs. 4
Also assailed is the February 26, 1999 CA Resolution 5 which denied petitioner's Motion for
Reconsideration.
The Facts

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The trial court's summary of the undisputed facts was reproduced in the CA Decision as follows:
This is an action for mandamus with damages. On April 10, 1996, [herein petitioner] was
declared in default on motion of the [respondents] for failure to file an answer within the
reglementary-period after it was duly served with summons. On April 26, 1996, [herein
petitioner] filed a motion to set aside the order of default with objection thereto filed by
[herein respondents].
On June 17, 1996, an order was issued denying [petitioner's] motion to set aside the order
of default. On July 10, 1996, the defendant filed a motion for reconsideration of the order of
June 17, 1996 with objection thereto by [respondents]. On July 12, 1996, an order was
issued denying [petitioner's] motion for reconsideration. On July 31, 1996, [respondents]
filed a motion to set case for hearing. A copy thereof was duly furnished the [petitioner] but
the latter did not file any opposition and so [respondents] were allowed to present their
evidence ex-parte. A certiorari case was filed by the [petitioner] with the Court of Appeals
docketed as CA GR No. 41497-SP but the petition was denied in a decision rendered on
March 31, 1997 and the same is now final.
The evidence presented by the [respondents] through the testimony of Marife O. Nio, one
of the [respondents] in this case, show[s] that she is the daughter of Francisca Ocfemia, a
co-[respondent] in this case, and the late Renato Ocfemia who died on July 23, 1994. The
parents of her father, Renato Ocfemia, were Juanita Arellano Ocfemia and Felicisimo
Ocfemia. Her other co-[respondents] Rowena O. Barrogo, Felicisimo Ocfemia, Renato
Ocfemia, Jr. and Winston Ocfemia are her brothers and sisters.1wphi1.nt
Marife O. Nio knows the five (5) parcels of land described in paragraph 6 of the petition
which are located in Bombon, Camarines Sur and that they are the ones possessing them
which [were] originally owned by her grandparents, Juanita Arellano Ocfemia and Felicisimo
Ocfemia. During the lifetime of her grandparents, [respondents] mortgaged the said five (5)
parcels of land and two (2) others to the [petitioner] Rural Bank of Milaor as shown by the
Deed of Real Estate Mortgage (Exhs. A and A-1) and the Promissory Note (Exh. B).
The spouses Felicisimo Ocfemia and Juanita Arellano Ocfemia were not able to redeem the
mortgaged properties consisting of seven (7) parcels of land and so the mortgage was
foreclosed and thereafter ownership thereof was transferred to the [petitioner] bank. Out of
the seven (7) parcels that were foreclosed, five (5) of them are in the possession of the
[respondents] because these five (5) parcels of land described in paragraph 6 of the petition
were sold by the [petitioner] bank to the parents of Marife O. Nio as evidenced by a Deed
of Sale executed in January 1988 (Exhs. C, C-1 and C-2).
The aforementioned five (5) parcels of land subject of the deed of sale (Exh. C), have not
been, however transferred in the name of the parents of Merife O. Nio after they were sold
to her parents by the [petitioner] bank because according to the Assessor's Office the five
(5) parcels of land, subject of the sale, cannot be transferred in the name of the buyers as
there is a need to have the document of sale registered with the Register of Deeds of
Camarines Sur.
In view of the foregoing, Marife O. Nio went to the Register of Deeds of Camarines Sur
with the Deed of Sale (Exh. C) in order to have the same registered. The Register of Deeds,

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however, informed her that the document of sale cannot be registered without a board
resolution of the [petitioner] Bank. Marife Nio then went to the bank, showed to if the Deed
of Sale (Exh. C), the tax declaration and receipt of tax payments and requested the
[petitioner] for a board resolution so that the property can be transferred to the name of
Renato Ocfemia the husband of petitioner Francisca Ocfemia and the father of the other
[respondents] having died already.
The [petitioner] bank refused her request for a board resolution and made many alibi[s]. She
was told that the [petitioner] bank ha[d] a new manager and it had no record of the sale. She
was asked and she complied with the request of the [petitioner] for a copy of the deed of
sale and receipt of payment. The president of the [petitioner] bank told her to get an
authority from her parents and other [respondents] and receipts evidencing payment of the
consideration appearing in the deed of sale. She complied with said requirements and after
she gave all these documents, Marife O. Nio was again told to wait for two (2) weeks
because the [petitioner] bank would still study the matter.
After two (2) weeks, Marife O. Nio returned to the [petitioner] bank and she was told that
the resolution of the board would not be released because the [petitioner] bank ha[d] no
records from the old manager. Because of this, Marife O. Nio brought the matter to her
lawyer and the latter wrote a letter on December 22, 1995 to the [petitioner] bank inquiring
why no action was taken by the board of the request for the issuance of the resolution
considering that the bank was already fully paid [for] the consideration of the sale since
January 1988 as shown by the deed of sale itself (Exh. D and D-1 ).
On January 15, 1996 the [petitioner] bank answered [respondents'] lawyer's letter (Exh. D
and D-1) informing the latter that the request for board resolution ha[d] already been
referred to the board of directors of the [petitioner] bank with another request that the latter
should be furnished with a certified machine copy of the receipt of payment covering the
sale between the [respondents] and the [petitioner] (Exh. E). This request of the [petitioner]
bank was already complied [with] by Marife O. Nio even before she brought the matter to
her lawyer.
On January 23, 1996 [respondents'] lawyer wrote back the branch manager of the
[petitioner] bank informing the latter that they were already furnished the receipts the bank
was asking [for] and that the [respondents] want[ed] already to know the stand of the bank
whether the board [would] issue the required board resolution as the deed of sale itself
already show[ed] that the [respondents were] clearly entitled to the land subject of the sale
(Exh. F). The manager of the [petitioner] bank received the letter which was served
personally to him and the latter told Marife O. Nio that since he was the one himself who
received the letter he would not sign anymore a copy showing him as having already
received said letter (Exh. F).
After several days from receipt of the letter (Exh. F) when Marife O. Nio went to the
[petitioner] again and reiterated her request, the manager of the [petitioner] bank told her
that they could not issue the required board resolution as the [petitioner] bank ha[d] no
records of the sale. Because of this Merife O. Nio already went to their lawyer and ha[d]
this petition filed.

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The [respondents] are interested in having the property described in paragraph 6 of the
petition transferred to their names because their mother and co-petitioner, Francisca
Ocfemia, is very sickly and they want to mortgage the property for the medical expenses of
Francisca Ocfemia. The illness of Francisca Ocfemia beg[a]n after her husband died and
her suffering from arthritis and pulmonary disease already became serious before
December 1995.
Marife O. Nio declared that her mother is now in serious condition and they could not have
her hospitalized for treatment as they do not have any money and this is causing the family
sleepless nights and mental anguish, thinking that their mother may die because they could
not submit her for medication as they do not have money. 6
The trial court granted the Petition. As noted earlier, the CA affirmed the RTC Decision.
Hence, this recourse. 7 In a Resolution dated June 23, 1999, this Court issued a Temporary
Restraining Order directing the trial court "to refrain and desist from executing [pending appeal] the
decision dated May 20, 1997 in Civil Case No. RTC-96-3513, effective immediately until further
orders from this Court." 8
Ruling of the Court of Appeals
The CA held that herein respondents were "able to prove their present cause of action" against
petitioner. It ruled that the RTC had jurisdiction over the case, because (1) the Petition involved a
matter incapable of pecuniary estimation; (2) mandamus fell within the jurisdiction of RTC; and (3)
assuming that the action was for specific performance as argued by the petitioner, it was still
cognizable by the said court.
Issues
In its Memorandum, 9 the bank posed the following questions:
1. Question of Jurisdiction of the Regional Trial Court. Has a Regional Trial Court original
jurisdiction over an action involving title to real property with a total assessed value of less
than P20,000.00?
2. Question of Law. May the board of directors of a rural banking corporation be
compelled to confirm a deed of absolute sale of real property owned by the corporation
which deed of sale was executed by the bank manager without prior authority of the board
of directors of the rural banking corporation? 10
This Court's Ruling
The present Petition has no merit.
First Issue:
Jurisdiction of the Regional Trial Court
Petitioner submits that the RTC had no jurisdiction over the case. Disputing the ruling of the
appellate court that the present action was incapable of pecuniary estimation, petitioner argues that

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the matter in fact involved title to real property worth less than P20,000. Thus, under RA 7691, the
case should have been filed before a metropolitan trial court, a municipal trial court or a municipal
circuit trial court.
We disagree. The well-settled rule is that jurisdiction is determined by the allegations of the
complaint. 11 In the present case, the Petition for Mandamus filed by respondents before the trial
court prayed that petitioner-bank be compelled to issue a board resolution confirming the Deed of
Sale covering five parcels of unregistered land, which the bank manager had executed in their
favor. The RTC has jurisdiction over such action pursuant to Section 21 of BP 129, which provides:
Sec. 21. Original jurisdiction in other cases. Regional Trial Courts shall exercise original
jurisdiction;
(1) in the issuance of writ of certiorari, prohibition, mandamus, quo warranto, habeas
corpus and injunction which may be enforced in any part of their respective regions; and
(2) In actions affecting ambassadors and other public ministers and consuls.
A perusal of the Petition shows that the respondents did not raise any question involving the title to
the property, but merely asked that petitioner's board of directors be directed to issue the subject
resolution. Moreover, the bank did not controvert the allegations in the said Petition. To repeat, the
issue therein was not the title to the property; it was respondents' right to compel the bank to issue
a board resolution confirming the Deed of Sale.
Second Issue:
Authority of the Bank Manager
Respondents initiated the present proceedings, so that they could transfer to their names the
subject five parcels of land; and subsequently, to mortgage said lots and to use the loan proceeds
for the medical expenses of their ailing mother. For the property to be transferred in their names,
however, the register of deeds required the submission of a board resolution from the bank
confirming both the Deed of Sale and the authority of the bank manager, Fe S. Tena, to enter into
such transaction. Petitioner refused. After being given the runaround by the bank, respondents
sued in exasperation.
Allegations in the Petition for Mandamus Deemed Admitted
Respondents based their action before the trial court on the Deed of Sale, the substance of which
was alleged in and a copy thereof was attached to the Petition for Mandamus. The Deed named Fe
S. Tena as the representative of the bank. Petitioner, however, failed to specifically deny under
oath the allegations in that contract. In fact, it filed no answer at all, for which reason it was
declared in default. Pertinent provisions of the Rules of Court read:
Sec. 7. Action or defense based on document. Whenever an action or defense is based
upon a written instrument or document, the substance of such instrument or document shall
be set forth in the pleading, and the original or a copy thereof shall be attached to the
pleading as an exhibit, which shall be deemed to be a part of the pleading, or said copy may
with like effect be set forth in the pleading.

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Sec. 8. How to contest genuineness of such documents. When an action or defense is


founded upon a written instrument, copied in or attached to the corresponding pleading as
provided in the preceding section, the genuineness and due execution of the instrument
shall be deemed admitted unless the adverse party, under oath, specifically denies them,
and sets forth what he claims to be the facts; but this provision does not apply when the
adverse party does not appear to be a party to the instrument or when compliance with an
order for an inspection of the original instrument is refused. 12
In failing to file its answer specifically denying under oath the Deed of Sale, the bank admitted the
due execution of the said contract. Such admission means that it acknowledged that Tena was
authorized to sign the Deed of Sale on its behalf. 13 Thus, defenses that are inconsistent with the
due execution and the genuineness of the written instrument are cut off by an admission implied
from a failure to make a verified specific denial.
Other Acts of the Bank
In any event, the bank acknowledged, by its own acts or failure to act, the authority of Fe S. Tena
to enter into binding contracts. After the execution of the Deed of Sale, respondents occupied the
properties in dispute and paid the real estate taxes due thereon. If the bank management believed
that it had title to the property, it should have taken some measures to prevent the infringement or
invasion of its title thereto and possession thereof.
Likewise, Tena had previously transacted business on behalf of the bank, and the latter had
acknowledged her authority. A bank is liable to innocent third persons where representation is
made in the course of its normal business by an agent like Manager Tena, even though such agent
is abusing her authority. 14 Clearly, persons dealing with her could not be blamed for believing that
she was authorized to transact business for and on behalf of the bank. Thus, this Court has ruled
in Board of Liquidators v. Kalaw: 15
Settled jurisprudence has it that where similar acts have been approved by the directors as
a matter of general practice, custom, and policy, the general manager may bind the
company without formal authorization of the board of directors. In varying language,
existence of such authority is established, by proof of the course of business, the usages
and practices of the company and by the knowledge which the board of directors has, or
must be presumed to have, of acts and doings of its subordinates in and about the affairs of
the corporation. So also,
. . . authority to act for and bind a corporation may be presumed from acts of recognition in
other instances where the power was in fact exercised.
. . . Thus, when, in the usual course of business of a corporation, an officer has been
allowed in his official capacity to manage its affairs, his authority to represent the corporation
may be implied from the manner in which he has been permitted by the directors to manage
its business.
Notwithstanding the putative authority of the manager to bind the bank in the Deed of Sale,
petitioner has failed to file an answer to the Petition below within the reglementary period, let alone
present evidence controverting such authority. Indeed, when one of herein respondents, Marife S.
Nino, went to the bank to ask for the board resolution, she was merely told to bring the receipts.

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The bank failed to categorically declare that Tena had no authority. This Court stresses the
following:
. . . Corporate transactions would speedily come to a standstill were every person dealing
with a corporation held duty-bound to disbelieve every act of its responsible officers, no
matter how regular they should appear on their face. This Court has observed in Ramirez
vs. Orientalist Co., 38 Phil. 634, 654-655, that
In passing upon the liability of a corporation in cases of this kind it is always well to
keep in mind the situation as it presents itself to the third party with whom the
contract is made. Naturally he can have little or no information as to what occurs in
corporate meetings; and he must necessarily rely upon the external manifestation of
corporate consent. The integrity of commercial transactions can only be maintained
by holding the corporation strictly to the liability fixed upon it by its agents in
accordance with law; and we would be sorry to announce a doctrine which would
permit the property of man in the city of Paris to be whisked out of his hands and
carried into a remote quarter of the earth without recourse against the corporation
whose name and authority had been used in the manner disclosed in this case. As
already observed, it is familiar doctrine that if a corporation knowingly permits one of
its officers, or any other agent, to do acts within the scope of an apparent authority,
and thus holds him out to the public as possessing power to do those acts, the
corporation will, as against any one who has in good faith dealt with the corporation
through such agent, be estopped from denying his authority; and where it is said "if
the corporation permits this means the same as "if the thing is permitted by the
directing power of the corporation." 16
In this light, the bank is estopped from questioning the authority of the bank manager to enter into
the contract of sale. If a corporation knowingly permits one of its officers or any other agent to act
within the scope of an apparent authority, it holds the agent out to the public as possessing the
power to do those acts; thus, the corporation will, as against anyone who has in good faith dealt
with it through such agent, be estopped from denying the agent's authority. 17
Unquestionably, petitioner has authorized Tena to enter into the Deed of Sale. Accordingly, it has a
clear legal duty to issue the board resolution sought by respondent's. Having authorized her to sell
the property, it behooves the bank to confirm the Deed of Sale so that the buyers may enjoy its full
use.
The board resolution is, in fact, mere paper work. Nonetheless, it is paper work necessary in the
orderly operations of the register of deeds and the full enjoyment of respondents' rights. Petitionerbank persistently and unjustifiably refused to perform its legal duty. Worse, it was less than candid
in dealing with respondents regarding this matter. In this light, the Court finds it proper to assess
the bank treble costs, in addition to the award of damages.
WHEREFORE, the Petition is hereby DENIED and the assailed Decision and Resolution
AFFIRMED. The Temporary Restraining Order issued by this Court is hereby LIFTED. Treble costs
against petitioner.
SO ORDERED.

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Melo, Purisima and Gonzaga-Reyes, JJ., concur.


Vitug, J., please see concurring opinion.

Separate Opinions
VITUG, J., concurring opinion;
I share the views expressed in the ponencia written for the Court by our esteemed colleague Mr.
Justice Artemio V. Panganiban. There is just a brief clarificatory statement that I thought could be
made.
The Civil Code, being a law of general application, can be suppletory to special laws and certainly
not preclusive of those that govern commercial transactions. Indeed, in its generic sense, civil law
can rightly be said to encompass commercial law. Jus civile, in ancient Rome, was merely used to
distinguish it from jus gentium or the law common to all the nations within the empire and, at some
time later, only in contrast to international law. In more recent times, civil law is so referred to as
private law in distinction from public law and criminal law. Today, it may not be totally inaccurate to
consider commercial law, among some other special laws, as being a branch of civil law.
Sec. 45 of the Corporation Code provides:
Sec. 45. Ultra vires acts of corporations. No corporation under this Code shall possess or
exercise any corporate powers except those conferred by this Code or by its articles of
incorporation and except such as are necessary or incidental to the exercise of the powers
so conferred.
The language of the Code appears to confine the term ultra vires to an act outside or beyond
express, implied and incidental corporate powers. Nevertheless, the concept can also include
those acts that may ostensibly be within such powers but are, by general or special laws, either
proscribed or declared illegal. In general, although perhaps loosely, ultra vires has also been used
to designate those acts of the board of directors or of corporate officers when acting beyond their
respective spheres of authority. In the context that the law has used the term in Article 45 of the
Corporation Code, an ultra vires act would be void and not susceptible to ratification. 1 In
determining whether or not a corporation may perform an act, one considers the logical and
necessary relation between the act assailed and the corporate purpose expressed by the law or in
the charter. For if the act were one which is lawful in itself or not otherwise prohibited and done for
the purpose of serving corporate ends or reasonably contributes to the promotion of those ends in
a substantial and not merely in a remote and fanciful sense, it may be fairly considered within
corporate powers. 2
Sec. 23 of the Corporation Code states that the corporate powers are to be exercised, all business
conducted, and all property of corporations controlled and held, by the Board of Directors. When
the act of the board is within corporate powers but it is done without the concurrence of the
shareholders as and when such approval is required by law 3 or when the act is beyond its
competence to do, 4 the act has been described as void 5 or, as unenforceable, 6 or as ineffective

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and not legally binding. 7 These holdings notwithstanding, the act cannot accurately be likened to
an ultra vires act of the corporation itself defined in Section 45 of the Code. Where the act is within
corporate powers but the board has acted without being competent to independently do so, the
action is not necessarily and totally devoid of effects, and it may generally be ratified expressly or
impliedly. Thus, an acceptance of benefits derived by the shareholders from an outside investment
made by the board without the required concurrence of the stockholders may, nonetheless, be so
considered as an effective investment. 8 It may be said, however, that when the board resolution is
yet executory, the act should aptly be deemed inoperative and specific performance cannot be
validly demanded but, if for any reason, the contemplated action is carried out, such principles as
ratification or prescription when applicable, normally unknown in void contracts, can serve to
negate a claim for the total nullity thereof.
Corporate officers, in their case, may act on such matters as may be authorized either expressly by
the By-laws or Board Resolutions or impliedly such as by general practice or policy or as are
implied by express powers. When officers are allowed to act in certain particular cases, their acts
conformably therewith can bind the company. Hence, a corporate officer entrusted with general
management and control of the business has the implied authority to act or contract for the
corporation which may be necessary or appropriate to conduct the ordinary business. 9 If the act of
corporate officers comes within corporate powers but it is done without any express or implied
authority therefor from the by-laws, board resolutions or corporate practices, such an act does not
bind the corporation. The Board, however, acting within its competence, may ratify the
unauthorized act of the corporate officer. So, too, a corporation may be held in estoppel from
denying as against innocent third persons the authority of its officers or agents who have been
clothed by it with ostensible or apparent authority. 10
The Corporation Code itself has not been that explicit with respect to the consequences of ultra
vires acts; hence, the varied ascriptions to its effects heretofore expressed. It may well be to
consider futile any further attempt to have these situations bear any exact equivalence to the civil
law precepts of defective contracts. Nevertheless, general statements could be made. Here
reiterated, while an act of the corporation which is either illegal or outside of express, implied or
incidental powers as so provided by law or the charter would be void under Article 5 11 of the Civil
Code, and the act is not susceptible to ratification, an unauthorized act (if within corporate powers)
of the board or a corporate officer, however, would only be unenforceable conformably with Article
1403 12 of the Civil Code but, if the party with whom the agent has contracted is aware of the
latter's limits of powers, the unauthorized act is declared void by Article 1898 13 of the same Code,
although still susceptible thereunder to ratification by the principal. Any person dealing with
corporate boards and officers may be said to be charged with the knowledge that the latter can
only act within their respective limits of power, and he is put to notice accordingly. Thus, it would
generally behoove such a person to look into the extent of the authority of corporate agents since
the onus would ordinarily be with him.

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AIR FRANCE, petitioner,


vs.
HONORABLE COURT OF APPEALS, JOSE G. GANA (Deceased), CLARA A. GANA, RAMON
GANA, MANUEL GANA, MARIA TERESA GANA, ROBERTO GANA, JAIME JAVIER GANA,
CLOTILDE VDA. DE AREVALO, and EMILY SAN JUAN, respondents.
G.R. No. L-57339

December 29, 1983

MELENCIO-HERRERA, J.:

In this petition for review on certiorari, petitioner AIR FRANCE assails the Decision of then
respondent Court of Appeals 1 promulgated on 15 December 1980 in CA-G.R. No. 58164-R,
entitled "Jose G. Gana, et al. vs. Sociedad Nacionale Air France", which reversed the Trial Court's
judgment dismissing the Complaint of private respondents for damages arising from breach of
contract of carriage, and awarding instead P90,000.00 as moral damages.
Sometime in February, 1970, the late Jose G. Gana and his family, numbering nine (the GANAS),
purchased from AIR FRANCE through Imperial Travels, Incorporated, a duly authorized travel
agent, nine (9) "open-dated" air passage tickets for the Manila/Osaka/Tokyo/Manila route. The
GANAS paid a total of US$2,528.85 for their economy and first class fares. Said tickets were
bought at the then prevailing exchange rate of P3.90 per US$1.00. The GANAS also paid travel
taxes of P100.00 for each passenger.
On 24 April 1970, AIR FRANCE exchanged or substituted the aforementioned tickets with other
tickets for the same route. At this time, the GANAS were booked for the Manila/Osaka segment on
AIR FRANCE Flight 184 for 8 May 1970, and for the Tokyo/Manila return trip on AIR FRANCE
Flight 187 on 22 May 1970. The aforesaid tickets were valid until 8 May 1971, the date written
under the printed words "Non valuable apres de (meaning, "not valid after the").

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The GANAS did not depart on 8 May 1970.


Sometime in January, 1971, Jose Gana sought the assistance of Teresita Manucdoc, a Secretary
of the Sta. Clara Lumber Company where Jose Gana was the Director and Treasurer, for the
extension of the validity of their tickets, which were due to expire on 8 May 1971. Teresita enlisted
the help of Lee Ella Manager of the Philippine Travel Bureau, who used to handle travel
arrangements for the personnel of the Sta. Clara Lumber Company. Ella sent the tickets to Cesar
Rillo, Office Manager of AIR FRANCE. The tickets were returned to Ella who was informed that
extension was not possible unless the fare differentials resulting from the increase in fares
triggered by an increase of the exchange rate of the US dollar to the Philippine peso and the
increased travel tax were first paid. Ella then returned the tickets to Teresita and informed her of
the impossibility of extension.
In the meantime, the GANAS had scheduled their departure on 7 May 1971 or one day before the
expiry date. In the morning of the very day of their scheduled departure on the first leg of their trip,
Teresita requested travel agent Ella to arrange the revalidation of the tickets. Ella gave the same
negative answer and warned her that although the tickets could be used by the GANAS if they left
on 7 May 1971, the tickets would no longer be valid for the rest of their trip because the tickets
would then have expired on 8 May 1971. Teresita replied that it will be up to the GANAS to make
the arrangements. With that assurance, Ella on his own, attached to the tickets validating stickers
for the Osaka/Tokyo flight, one a JAL. sticker and the other an SAS (Scandinavian Airways
System) sticker. The SAS sticker indicates thereon that it was "Reevaluated by: the Philippine
Travel Bureau, Branch No. 2" (as shown by a circular rubber stamp) and signed "Ador", and the
date is handwritten in the center of the circle. Then appear under printed headings the notations:
JL. 108 (Flight), 16 May (Date), 1040 (Time), OK (status). Apparently, Ella made no more attempt
to contact AIR FRANCE as there was no more time.
Notwithstanding the warnings, the GANAS departed from Manila in the afternoon of 7 May 1971 on
board AIR FRANCE Flight 184 for Osaka, Japan. There is no question with respect to this leg of
the trip.
However, for the Osaka/Tokyo flight on 17 May 1971, Japan Airlines refused to honor the tickets
because of their expiration, and the GANAS had to purchase new tickets. They encountered the
same difficulty with respect to their return trip to Manila as AIR FRANCE also refused to honor their
tickets. They were able to return only after pre-payment in Manila, through their relatives, of the
readjusted rates. They finally flew back to Manila on separate Air France Frights on 19 May 1971
for Jose Gana and 26 May 1971 for the rest of the family.
On 25 August 1971, the GANAS commenced before the then Court of First Instance of Manila,
Branch III, Civil Case No. 84111 for damages arising from breach of contract of carriage.
AIR FRANCE traversed the material allegations of the Complaint and alleged that the GANAS
brought upon themselves the predicament they found themselves in and assumed the
consequential risks; that travel agent Ella's affixing of validating stickers on the tickets without the
knowledge and consent of AIR FRANCE, violated airline tariff rules and regulations and was
beyond the scope of his authority as a travel agent; and that AIR FRANCE was not guilty of any
fraudulent conduct or bad faith.

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On 29 May 1975, the Trial Court dismissed the Complaint based on Partial and Additional
Stipulations of Fact as wen as on the documentary and testimonial evidence.
The GANAS appealed to respondent Appellate Court. During the pendency of the appeal, Jose
Gana, the principal plaintiff, died.
On 15 December 1980, respondent Appellate Court set aside and reversed the Trial Court's
judgment in a Decision, which decreed:
WHEREFORE, the decision appealed from is set aside. Air France is hereby ordered
to pay appellants moral damages in the total sum of NINETY THOUSAND PESOS
(P90,000.00) plus costs.
SO ORDERED. 2
Reconsideration sought by AIR FRANCE was denied, hence, petitioner's recourse before this
instance, to which we gave due course.
The crucial issue is whether or not, under the environmental milieu the GANAS have made out a
case for breach of contract of carriage entitling them to an award of damages.
We are constrained to reverse respondent Appellate Court's affirmative ruling thereon.
Pursuant to tariff rules and regulations of the International Air Transportation Association (IATA),
included in paragraphs 9, 10, and 11 of the Stipulations of Fact between the parties in the Trial
Court, dated 31 March 1973, an airplane ticket is valid for one year. "The passenger must
undertake the final portion of his journey by departing from the last point at which he has made a
voluntary stop before the expiry of this limit (parag. 3.1.2. ) ... That is the time allowed a passenger
to begin and to complete his trip (parags. 3.2 and 3.3.). ... A ticket can no longer be used for travel
if its validity has expired before the passenger completes his trip (parag. 3.5.1.) ... To complete the
trip, the passenger must purchase a new ticket for the remaining portion of the journey" (ibid.) 3
From the foregoing rules, it is clear that AIR FRANCE cannot be faulted for breach of contract
when it dishonored the tickets of the GANAS after 8 May 1971 since those tickets expired on said
date; nor when it required the GANAS to buy new tickets or have their tickets re-issued for the
Tokyo/Manila segment of their trip. Neither can it be said that, when upon sale of the new tickets, it
imposed additional charges representing fare differentials, it was motivated by self-interest or
unjust enrichment considering that an increase of fares took effect, as authorized by the Civil
Aeronautics Board (CAB) in April, 1971. This procedure is well in accord with the IATA tariff rules
which provide:
6. TARIFF RULES
7. APPLICABLE FARE ON THE DATE OF DEPARTURE
3.1 General Rule.
All journeys must be charged for at the fare (or charge) in effect on the date on which
transportation commences from the point of origin. Any ticket sold prior to a change

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of fare or charge (increase or decrease) occurring between the date of


commencement of the journey, is subject to the above general rule and must be
adjusted accordingly. A new ticket must be issued and the difference is to be
collected or refunded as the case may be. No adjustment is necessary if the increase
or decrease in fare (or charge) occurs when the journey is already commenced. 4
The GANAS cannot defend by contending lack of knowledge of those rules since the evidence
bears out that Teresita, who handled travel arrangements for the GANAS, was duly informed by
travel agent Ella of the advice of Reno, the Office Manager of Air France, that the tickets in
question could not be extended beyond the period of their validity without paying the fare
differentials and additional travel taxes brought about by the increased fare rate and travel taxes.
ATTY. VALTE
Q What did you tell Mrs. Manucdoc, in turn after being told this by Mr.
Rillo?
A I told her, because that is the reason why they accepted again the
tickets when we returned the tickets spin, that they could not be
extended. They could be extended by paying the additional fare,
additional tax and additional exchange during that time.
Q You said so to Mrs. Manucdoc?
A Yes, sir." ... 5
The ruling relied on by respondent Appellate Court, therefore, in KLM. vs. Court of Appeals, 65
SCRA 237 (1975), holding that it would be unfair to charge respondents therein with automatic
knowledge or notice of conditions in contracts of adhesion, is inapplicable. To all legal intents and
purposes, Teresita was the agent of the GANAS and notice to her of the rejection of the request for
extension of the validity of the tickets was notice to the GANAS, her principals.
The SAS validating sticker for the Osaka/Tokyo flight affixed by Era showing reservations for JAL.
Flight 108 for 16 May 1971, without clearing the same with AIR FRANCE allegedly because of the
imminent departure of the GANAS on the same day so that he could not get in touch with Air
France 6 was certainly in contravention of IATA rules although as he had explained, he did so upon
Teresita's assurance that for the onward flight from Osaka and return, the GANAS would make
other arrangements.
Q Referring you to page 33 of the transcript of the last session, I had
this question which reads as follows: 'But did she say anything to you
when you said that the tickets were about to expire?' Your answer was:
'I am the one who asked her. At that time I told her if the tickets being
used ... I was telling her what about their bookings on the return. What
about their travel on the return? She told me it is up for the Ganas to
make the arrangement.' May I know from you what did you mean by this
testimony of yours?

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A That was on the day when they were asking me on May 7, 1971
when they were checking the tickets. I told Mrs. Manucdoc that I was
going to get the tickets. I asked her what about the tickets onward from
the return from Tokyo, and her answer was it is up for the Ganas to
make the arrangement, because I told her that they could leave on the
seventh, but they could take care of that when they arrived in Osaka.
Q What do you mean?
A The Ganas will make the arrangement from Osaka, Tokyo and
Manila.
Q What arrangement?
A The arrangement for the airline because the tickets would expire on
May 7, and they insisted on leaving. I asked Mrs. Manucdoc what about
the return onward portion because they would be travelling to Osaka,
and her answer was, it is up to for the Ganas to make the arrangement.
Q Exactly what were the words of Mrs. Manucdoc when you told her
that? If you can remember, what were her exact words?
A Her words only, it is up for the Ganas to make the arrangement.
Q This was in Tagalog or in English?
A I think it was in English. ... 7
The circumstances that AIR FRANCE personnel at the ticket counter in the airport allowed the
GANAS to leave is not tantamount to an implied ratification of travel agent Ella's irregular
actuations. It should be recalled that the GANAS left in Manila the day before the expiry date of
their tickets and that "other arrangements" were to be made with respect to the remaining
segments. Besides, the validating stickers that Ella affixed on his own merely reflect the status of
reservations on the specified flight and could not legally serve to extend the validity of a ticket or
revive an expired one.
The conclusion is inevitable that the GANAS brought upon themselves the predicament they were
in for having insisted on using tickets that were due to expire in an effort, perhaps, to beat the
deadline and in the thought that by commencing the trip the day before the expiry date, they could
complete the trip even thereafter. It should be recalled that AIR FRANCE was even unaware of the
validating SAS and JAL. stickers that Ella had affixed spuriously. Consequently, Japan Air Lines
and AIR FRANCE merely acted within their contractual rights when they dishonored the tickets on
the remaining segments of the trip and when AIR FRANCE demanded payment of the adjusted
fare rates and travel taxes for the Tokyo/Manila flight.
WHEREFORE, the judgment under review is hereby reversed and set aside, and the Amended
Complaint filed by private respondents hereby dismissed.
No costs.

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SO ORDERED.
PHILIPPINE NATIONAL BANK, petitioner,
vs.
THE HONORABLE INTERMEDIATE APPELLATE COURT (First Civil Cases Division) and
ROMEO ALCEDO,respondents.
G.R. No. 66715

September 18, 1990

GRIO-AQUINO, J.:

This is a petition for certiorari which seeks to set aside: (a) the decision dated November 29, 1983
of the Intermediate Appellate Court (now Court of Appeals) in
CA-G.R. CV No. 68021 which affirmed the decision of the Court of First Instance of Negros
Occidental (now Regional Trial Court), Branch IV, Bacolod City, in Civil Case No. 11393; and (b)
respondent court's resolution dated February 29, 1984 denying petitioner Philippine National
Bank's (PNB for short) motion for reconsideration.
The facts of the case are the following:
On March 20, 1968, Leticia de la Vina-Sepe executed a real estate mortgage in favor of PNB, San
Carlos Branch, over a lot registered in her name under TCT No. T-31913 to secure the payment of
a sugar crop loan of P3,400. Later, Leticia Sepe, acting as attorney-in-fact for her brother-in-law,
private respondent Romeo Alcedo, executed an amended real estate mortgage to include his
(Alcedo's) Lot No. 1626 (being a portion of Lot No. 1402, covered by TCT 52705 of the Isabela
Cadastre) as additional collateral for Sepe's increased loan of P16,500 (pp. 5-6, PNB's Brief, p. 74,
Rollo). Leticia Sepe and private respondent Alcedo verbally agreed to split fifty-fifty (50-50) the
proceeds of the loan (p. 94, Rollo) but failing to receive his one-half share from her, Alcedo wrote a
letter on May 12, 1970 to the PNB, San Carlos Branch, revoking the Special Power of Attorney
which he had given to Leticia Sepe to mortgage his Lot No. 1626 (p. 95, Rollo). Replying on May
22, 1970, the PNB Branch Manager, Jose T. Gellegani advised Alcedo that his land had already
been included as collateral for Sepe's 1970-71 sugar crop loan, which the latter had already
availed of, nevertheless, he assured Alcedo that the bank would exclude his lot as collateral for
Sepe's forthcoming (1971-72) sugar crop loan (p. 95, Rollo). The letter reads:
May 22, 1970
Mr. Romeo Alcedo
Mamballo, M. Padilla
Negros Occidental
Dear Mr. Alcedo:
This is to acknowledge receipt of your letter dated May 12, 1970, requesting us to
revoke the 'Special Power of Attorney' you have executed in favor of Mrs. Leticia de
la Vina-Sepe, on February 18, 1969, on Lot No. 1402, Isabela Cadastre, covered by
Transfer Certificate of Title No. 52705, with an area of 20.9200 hectares.

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In this connection, we wish to advise you that the aforementioned parcel of land had
been included as collateral to secure the 1970-71 sugar crop loan of Mrs. Leticia de
la Vina-Sepe, which she had already availed of. In view of your late request, please
be advised and assured that we shall exclude the aforementioned lot as a collateral
of Leticia de la Vina-Sepe in our recommendation for her 1971-72 sugar crop loan.
For your information, we enclose a copy of our letter to Mrs. Sepe, which is selfexplanatory,
Thank you.
Very truly yours,
(Sgd.) JOSE T. GELLEGANI Manager
On the same day, May 22, 1970, PNB advised Sepe in writing to replace Lot No. 1402 with another
collateral of equal or higher value.
May 22, 1970
Mrs. Leticia de la Vina-Sepe
Canla-on City
Dear Mrs. Sepe:
We wish to advice you that Mr. Romeo Alcedo, in a letter written to us, has plans to
revoke the 'Special Power of Attorney' he executed in 1969 in your favor, affecting
Lot No. 1402, Isabela Cadastre, covered by Transfer Certificate of Title No. 52705
with an area of 20.9200 Hectares. Our record shows that this parcel of land is
mortgaged to us to secure the agricultural sugar crop loans we have granted you.
Mr. Alcedo made us understand that this said property shall serve as security for your
1969/70 sugar crop loan only. As it already secures your 1970-71 crop loan, which
you have already availed, the same may be excluded as security for future crop
loans. In the meantime, it is requested that you replace Lot No. 1402, abovementioned, with the same or more appraised value.
Kindly call on us regarding this matter at your earliest convenience.
Thank you.
Very truly yours,
(Sgd.) JOSE T. GELLEGANI
Manager

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Despite the above advice from PNB, Sepe was still able to obtain an additional loan from PNB
increasing her debt of P 16,500 to P56,638.69 on the security of Alcedo's property as collateral. On
January 15, 1974, Alcedo received two (2) letters from PNB: (1) informing him of Sepe's failure to
pay her loan in the total amount of P 56,638.69; and (2) giving him six (6) days to settle Sepe's
outstanding obligation, as otherwise, foreclosure proceedings would be commenced against his
property (p. 33, Rollo). Alcedo requested Sepe to pay her accounts to forestall foreclosure
proceedings against his property, but to no avail (p. 15, Rollo).
On April 17, 1974, Alcedo sued Sepe and PNB in the Court of First Instance of Negros Occidental
for collection and injunction with damages (p. 33, Rollo).
During the pendency of the case, PNB filed in the Office of the Sheriff at Pasig, Metro Manila, a
petition for extrajudicial foreclosure of its real estate mortgage on Alcedo's land. On November 19,
1974, the property was sold to PNB as the highest bidder in the sale. The corresponding Sheriffs
Certificate of Sale was issued to the Bank (p. 33, Rollo).
On October 18, 1975, Alcedo filed an amended complaint against Leticia and her husband Elias
Sepe, and the Provincial Sheriff of Negros Occidental praying additionally for annulment of the
extrajudicial foreclosure sale and reconveyance of the land to him free from liens and
encumbrances, with damages.
With leave of court, Alcedo filed a second amended complaint withdrawing his action to collect his
one-half share (amounting to P28,319.34) out of the proceeds of the sugar crop loans obtained by
Sepe (p. 34, Rollo).
In its answer, PNB alleged that it had no knowledge of the agreement between Mrs. Sepe and
Alcedo to split the crop loan proceeds between them. It required Sepe to put up other collaterals
when it granted her an additional loan because Alcedo informed the Bank that he was revoking the
Special Power of Attorney he gave Sepe; that the revocation was not formalized in accordance
with law; and that in any event, the revocation of the Special Power of Attorney on May 12, 1970 by
Alcedo did not impair the real estate mortgage earlier executed on April 28, 1969 by Sepe in favor
of the Bank (p. 36, Rollo).
On March 14, 1980, the trial court rendered judgment in favor of Alcedo1. Declaring the public auction sale and the certificate of sale executed by the
Provincial Sheriff of Negros Occidental relative to Lot No. 1626, Isabela Cadastre
(TCT No. T-52705), as null and void;
2. Ordering the defendant Philippine National Bank to reconvey to plaintiff the title to
aforesaid Lot No. 1626 free from all liens and encumbrances relative to the loans
obtained by defendant Leticia de la Vina-Sepe;
3. Ordering defendant spouses Leticia de la Vina-Sepe and Elias Sepe and the
Philippine National Bank, in solidum, to pay to the plaintiff moral damages in the sum
of Pl 0,000.00, and another sum of P5,000.00 as attorney's fees and expenses of
litigation;

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4. On the cross-claim of defendant PNB against Leticia de la Vina-Sepe, considering


that no evidence has been adduced regarding the updated actual accountability of
the latter with the former, it is hereby directed that PNB proceed to collect against the
cross-defendant whatever outstanding obligation the latter owes the former arising
from transactions in connection with the instant case. No pronouncement as to costs.
(pp. 10-11, Rollo.)
The bank appealed but to no avail for on November 29,1983, the Intermediate Appellate Court
affirmed in toto the judgment of the trial court (p. 54, Rollo.) The appellate court reasoned out that
the Bank was estopped from foreclosing the mortgage on Alcedo's lot to pay Sepe's 1971-72 sugar
crop loan, after having assured Alcedo on May 22, 1970 "that we shall exclude the aforementioned
lot as a collateral of Leticia de la Vina-Sepe in our recommendation for her 1971-72 sugar crop
loan" (p. 37, Rollo). The Court of Appeals held:
... Plaintiff-appellee's letter was unequivocal and clear to the effect that defendant
Leticia de la Vina Sepe was no longer empowered to bind, encumber or mortgage his
property. Although We may not hold this revocation to retroact to April 28, 1969 which
was the date of the original mortgage, We can neither interpret it in any other way
than that from the moment of notice to the PNB, it was the absolute intention of the
owner to withdraw all authority from said defendant to further bind or encumber his
property. This was clearly understood by the defendant-appellant PNB. There was no
question on its part that Leticia de la Vina Sepe was no longer authorized to offer
plaintiff-appellee's property as collateral for her contract of mortgage with the PNB.
Defendant-appellant, therefore, acknowledged this revocation of the agency and in
no uncertain terms assured the plaintiff-appellee that indeed, the latter's property will
no longer be accepted by it as collateral for the sugar crop loan of the
aforementioned defendant for the year 1971 to 1972. This meeting of the minds
between the plaintiff-appellee and defendant-appellant took place not through verbal
communications only, but in writing, as shown by their letters dated May 12, 1970
and May 22, 1970, respectively. ...
... To Our minds, the aforementioned act and declaration of defendant-appellant PNB
as embodied in said letter binds said bank under the principle of estoppel by deed
and defined as follows:
A doctrine in American jurisprudence whereby a party creating an appearance of fact
which is not true is held bound by that appearance as against another person who
has acted on the faith of it. (Strong v. Gutierrez Repide, 6 Phil. 685).
which is provided for in Articles 1431 and 1433 of the New Civil Code in conjunction
with Section 3, paragraph (a), Rule 131 of the Rules of Court, all of which provide:
Art. 1431. Through estoppel an admission or representation is rendered conclusive
upon the person making it, and cannot be denied or disproved as against the person
relying thereon.' '
Art. 1433. Estoppel may be in pais or by deed.

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Sec. 3. Conclusive presumptions. The following are instances of conclusive


presumptions:
(a) Whenever a party has,by his own declaration, act, or omission, intentionally and
deliberately led another to believe a particular thing true, and to act upon such belief,
he cannot, in any litigation arising out of such declaration, act, or omission, be
permitted to falsify it.
and which was enunciated in the following decisions of the Supreme Court:
Whenever a party has, by his own declaration, act or omission intentionally and
deliberately led another to believe a particular thing true and to act upon such belief,
he cannot, in any litigation arising out of such declaration, act, or omission, be
permitted to falsify it.
Estoppel arises when one, by his acts, representations, or admissions, or by his
silence when he ought to speak out, intentionally or through culpable negligence
induces another to believe certain facts to exist and such other rightfully relies and
acts on such belief, so that he will be prejudiced if the former is permitted to deny the
existence of such facts (Huyatid v. Huyatid 47265-R, Jan. 4, 1978).
The doctrine of estoppel is based upon the grounds of public policy, fair dealing, good
faith and justice, and its purpose is to forbid one to speak against his own act,
representations, or commitments to the injury of one to whom they were directed and
who reasonably relied thereon. Said doctrine springs from equitable principles and
the equities of the case. It is designed to aid the law in the administration of justice
where without its aid injustice might result.' (Philippine National Bank v. Court of
Appeals, L-30831, November 21, 1979, 94 SCRA 368)
By its letter dated May 22, 1970, defendant-appellant PNB led plaintiff-appellee to
believe that his property covered by TCT T-52705 would no longer be included as
collateral in the sugar crop loan of defendant Leticia de la Vina Sepe for the year
1971-72. It led said plaintiff-appellee to believe that his property as of said year will
no longer be encumbered and will be free from any lien or mortgage. Plaintiffappellee had the light to rely on said belief, because of the aforementioned act and
declaration of defendant-appellant bank. Under the laws and jurisprudence
aforequoted, defendant-appellant bank can no longer be allowed to deny or falsify its
act or declaration, or to renege from it. This is one of the conclusive presumptions
provided for by the Rules of Court. (pp. 37, 38-39, Rollo.)
PNB seeks a review of that decision on the grounds that:
1. the doctrine of promissory estoppel does not apply to this case;
2. PNB was a mortgagee in good faith and for value; and
3. PNB adduced substantial evidence in support of its cross-claim against defendant Leticia Sepe
(p. 15, Rollo).

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These issues boil down to whether or not PNB validly foreclosed the real estate mortgage on
Alcedo's property despite notice of Alcedo's revocation of the Special Power of Attorney
authorizing Leticia Sepe to mortgage his property as security for her sugar crop loans and despite
the Bank's written assurance to Alcedo that it would exclude his property as collateral for Sepe's
future loan obligations.
After careful deliberation, the Court is not persuaded to disturb the decisions of the trial court and
the Court of Appeals in this case.
We agree with the opinion of the appellate court that under the doctrine of promissory estoppel
enunciated in the case of Republic Flour Mills Inc. vs. Central Bank, L-23542, August 11, 1979, the
act and assurance given by the PNB to Alcedo "that we shall exclude the aforementioned lot [Lot
No. 1402] as a collateral of Leticia de la Vina-Sepe in our recommendation for her 1971-72 sugar
crop loan" (p. 37, Rollo) is binding on the bank. Having given that assurance, the bank may not
turn around and do the exact opposite of what it said it would not do. One may not take
inconsistent positions (Republic vs. Court of Appeals, 133 SCRA 505). A party may not go back on
his own acts and representations to the prejudice of the other party who relied upon them (Lazo vs.
Republic Surety & Insurance Co., Inc., 31 SCRA 329.)
In the case of Philippine National Bank vs. Court of Appeals (94 SCRA 357), where the bank
manager assured the heirs of the debtor-mortgagor that they would be allowed to pay the
remaining obligation of their deceased parents, the Supreme Court held that the bank must abide
by its representations.
On equitable principles, particularly on the ground of estoppel, we must rule against
petitioner Bank. The doctrine of estoppel is based upon the grounds of public policy,
fair dealing, good faith and justice, and its purpose is to forbid one to speak against
its own act, representations, or commitments to the injury of one to whom they were
directed and who reasonably relied thereon. The doctrine of estoppel springs from
equitable principles and the equities in the case. It is designed to aid the law in the
administration of justice where without its aid injustice might result. It has been
applied by this Court wherever and whenever the special circumstances of a case so
demands.
In the case at bar, since PNB had promised to exclude Alcedo's property as collateral for Sepe's
1971-72 sugar crop loan, it should have released the property to Alcedo. The mortgage which
Sepe gave to the bank on Alcedo's lot as collateral for her 1971-72 sugar crop loan was null and
void for having been already disauthorized by Alcedo. Since Alcedo's property secured
only P13,100.00 of Sepe's 1970-71 sugar crop loan of P16,500.00 (because P3,400 was secured
by Sepe's own property), Alcedo's property may be held to answer for only the unpaid balance, if
any, of Sepe's 1970-71 loan, but not the 1971-72 crop loan.
While Article 1358 of the New Civil Code requires that the revocation of Alcedo's Special Power of
Attorney to mortgage his property should appear in a public instrument:
Art. 1358. The following must appear in a public document:

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(1) Acts or contracts which have for their object the creation, transmission,
modification or extinguishment of real rights over immovable property; sales of real
property or of an interest therein are governed by Articles 1403, No. 2 and 1405.
nevertheless, a revocation embodied in a private writing is valid and binding between the parties
(Doliendo v. Depino, 12 Phil. 758; Hawaiian-Philippines Co. vs. Hernaez, 45 Phil. 746) for
The legalization by a public writing and the recording of the same in the registry are
not essential requisites of a contract entered into, as between the parties, but mere
conditions of form or solemnities which the law imposes in order that such contract
may be valid as against third persons, and to insure that a publicly executed and
recorded agreement shall be respected by the latter. (Alano, et al. vs. Babasa, 10
Phil. 511.)
The PNB acted with bad faith in proceeding against Alcedo's property to satisfy Sepe's unpaid
1971-72 sugar crop loan. The extrajudicial foreclosure being null and void ab initio, the certificate of
sale which the Sheriff delivered to PNB as the highest bidder at the sale is also null and void.
WHEREFORE, finding no reversible error in the decision of the Court of Appeals, the petition for
review is denied for lack of merit.
SO ORDERED.

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PHILEX MINING CORPORATION, petitioner, vs.COMMISSIONER OF INTERNAL


REVENUE, respondent.
G.R. No. 148187

April 16, 2008 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 Decision2 of the Court of Tax Appeals in C.T.A. Case
No. 5200. Also assailed is the April 3, 2001 Resolution3 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
agreement4 with Baguio Gold Mining Company ("Baguio Gold") for the former to manage and
operate the latters 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 owners 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 owners 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:

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(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 owners 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 6month 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.

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x x x x5
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 petitioners 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 Golds
tangible assets to petitioner, transferring to the latter Baguio Golds 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 Golds 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 Golds "pecuniary obligations" to petitioner. It also
included payments made by petitioner as guarantor of Baguio Golds long-term loans which legally
entitled petitioner to be subrogated to the rights of the original creditor.
Petitioner also asserted that due to Baguio Golds 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

136 | A G E N C Y F U L L C a s e s A P R e l o x

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 petitioners 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 projects 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 20day 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 petitioners assertion that the advances it made for the Sto. Nino mine were in
the nature of a loan. It instead characterized the advances as petitioners 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 petitioners 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,13petitioner 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.

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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:

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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. Nio 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 owners account plus any of its income that is left in the
project, in addition to its actual mining claim. Meanwhile, petitioners contribution would consist of
its expertise in the management and operation of mines, as well as the managers account which
is comprised of P11M in funds and property and petitioners "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. Nio project "(w)henever the MANAGERS shall deem it necessary and convenient in
connection with the MANAGEMENT of the STO. NIO MINE." 18
The wording of the parties agreement as to petitioners 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 petitioners 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.

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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 latters 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 agents 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 ones 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 MANAGERS account has to the owners
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.22As pointed out by the Court of
Tax Appeals, petitioner was merely entitled to a proportionate return of the mines 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. Nio 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 managers account had to the owners
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

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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 managers account had to the owners 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 Nio 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
petitioners "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
Nio 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 petitioners "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 petitioners 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
Golds creditors, we find no reason to depart from the tax courts factual finding that Baguio Golds
debts were not yet due and demandable at the time that petitioner paid the same. Verily, petitioner
pre-paid Baguio Golds outstanding loans to its bank creditors and this conclusion is supported by
the evidence on record.26

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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.
THE ESTATE OF HILARIO M. RUIZ, EDMOND RUIZ, Executor, petitioner,
vs.
THE COURT OF APPEALS (Former Special Sixth Division), MARIA PILAR RUIZ-MONTES,
MARIA CATHRYN RUIZ, CANDICE ALBERTINE RUIZ, MARIA ANGELINE RUIZ and THE
PRESIDING JUDGE OF THE REGIONAL TRIAL COURT OF PASIG, respondents.
G.R. No. 118671

January 29, 1996

PUNO, J.:

This petition for review on certiorari seeks to annul and set aside the decision dated November 10,
1994 and the resolution dated January 5, 1995 of the Court of Appeals in CA-G.R. SP No. 33045.
The facts show that on June 27, 1987, Hilario M. Ruiz1 executed a holographic will naming as his
heirs his only son, Edmond Ruiz, his adopted daughter, private respondent Maria Pilar Ruiz
Montes, and his three granddaughters, private respondents Maria Cathryn, Candice Albertine and
Maria Angeline, all children of Edmond Ruiz. The testator bequeathed to his heirs substantial cash,
personal and real properties and named Edmond Ruiz executor of his estate. 2
On April 12, 1988, Hilario Ruiz died. Immediately thereafter, the cash component of his estate was
distributed among Edmond Ruiz and private respondents in accordance with the decedent's will.
For unbeknown reasons, Edmond, the named executor, did not take any action for the probate of
his father's holographic will.
On June 29, 1992, four years after the testator's death, it was private respondent Maria Pilar Ruiz
Montes who filed before the Regional Trial Court, Branch 156, Pasig, a petition for the probate and
approval of Hilario Ruiz's will and for the issuance of letters testamentary to Edmond
Ruiz,3 Surprisingly, Edmond opposed the petition on the ground that the will was executed under
undue influence.
On November 2, 1992, one of the properties of the estate the house and lot at No. 2 Oliva
Street, Valle Verde IV, Pasig which the testator bequeathed to Maria Cathryn, Candice Albertine
and Maria Angeline4 was leased out by Edmond Ruiz to third persons.
On January 19, 1993, the probate court ordered Edmond to deposit with the Branch Clerk of Court
the rental deposit and payments totalling P540,000.00 representing the one-year lease of the Valle
Verde property. In compliance, on January 25, 1993, Edmond turned over the amount of

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P348,583.56, representing the balance of the rent after deducting P191,416.14 for repair and
maintenance expenses on the estate.5
In March 1993, Edmond moved for the release of P50,000.00 to pay the real estate taxes on the
real properties of the estate. The probate court approved the release of P7,722.00. 6
On May 14, 1993, Edmond withdrew his opposition to the probate of the will. Consequently, the
probate court, on May 18, 1993, admitted the will to probate and ordered the issuance of letters
testamentary to Edmond conditioned upon the filing of a bond in the amount of P50,000.00. The
letters testamentary were issued on June 23, 1993.
On July 28, 1993, petitioner Testate Estate of Hilario Ruiz, with Edmond Ruiz as executor, filed an
"Ex-Parte Motion for Release of Funds." It prayed for the release of the rent payments deposited
with the Branch Clerk of Court. Respondent Montes opposed the motion and concurrently filed a
"Motion for Release of Funds to Certain Heirs" and "Motion for Issuance of Certificate of Allowance
of Probate Will." Montes prayed for the release of the said rent payments to Maria Cathryn,
Candice Albertine and Maria Angeline and for the distribution of the testator's properties,
specifically the Valle Verde property and the Blue Ridge apartments, in accordance with the
provisions of the holographic will.
On August 26, 1993, the probate court denied petitioner's motion for release of funds but granted
respondent Montes' motion in view of petitioner's lack of opposition. It thus ordered the release of
the rent payments to the decedent's three granddaughters. It further ordered the delivery of the
titles to and possession of the properties bequeathed to the three granddaughters and respondent
Montes upon the filing of a bond of P50,000.00.
Petitioner moved for reconsideration alleging that he actually filed his opposition to respondent
Montes's motion for release of rent payments which opposition the court failed to consider.
Petitioner likewise reiterated his previous motion for release of funds.
On November 23, 1993, petitioner, through counsel, manifested that he was withdrawing his
motion for release of funds in view of the fact that the lease contract over the Valle Verde property
had been renewed for another year.7
Despite petitioner's manifestation, the probate court, on December 22, 1993, ordered the release
of the funds to Edmond but only "such amount as may be necessary to cover the expenses of
administration and allowances for support" of the testator's three granddaughters subject to
collation and deductible from their share in the inheritance. The court, however, held in abeyance
the release of the titles to respondent Montes and the three granddaughters until the lapse of six
months from the date of first publication of the notice to creditors.8 The court stated thus:
xxx

xxx

xxx

After consideration of the arguments set forth thereon by the parties the court resolves to
allow Administrator Edmond M. Ruiz to take possession of the rental payments deposited
with the Clerk of Court, Pasig Regional Trial Court, but only such amount as may
be necessary to cover the expenses of administration and allowances for support of Maria
Cathryn Veronique, Candice Albertine and Maria Angeli, which are subject to collation and

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deductible from the share in the inheritance of said heirs and insofar as they exceed the
fruits or rents pertaining to them.
As to the release of the titles bequeathed to petitioner Maria Pilar Ruiz-Montes and the
above-named heirs, the same is hereby reconsidered and held in abeyance until the lapse
of six (6) months from the date of first publication of Notice to Creditors.
WHEREFORE, Administrator Edmond M. Ruiz is hereby ordered to submit an accounting of
the expenses necessary for administration including provisions for the support Of Maria
Cathryn Veronique Ruiz, Candice Albertine Ruiz and Maria Angeli Ruiz before the amount
required can be withdrawn and cause the publication of the notice to creditors with
reasonable dispatch.9
Petitioner assailed this order before the Court of Appeals. Finding no grave abuse of discretion on
the part of respondent judge, the appellate court dismissed the petition and sustained the probate
court's order in a decision dated November 10, 199410 and a resolution dated January 5, 1995.11
Hence, this petition.
Petitioner claims that:
THE PUBLIC RESPONDENT COURT OF APPEALS COMMITTED GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN AFFIRMING
AND CONFIRMING THE ORDER OF RESPONDENT REGIONAL TRIAL COURT OF
PASIG, BRANCH 156, DATED DECEMBER 22, 1993, WHICH WHEN GIVEN DUE
COURSE AND IS EFFECTED WOULD: (1) DISALLOW THE
EXECUTOR/ADMINISTRATOR OF THE ESTATE OF THE LATE HILARIO M. RUIZ TO
TAKE POSSESSION OF ALL THE REAL AND PERSONAL PROPERTIES OF THE
ESTATE; (2) GRANT SUPPORT, DURING THE PENDENCY OF THE SETTLEMENT OF
AN ESTATE, TO CERTAIN PERSONS NOT ENTITLED THERETO; AND (3)
PREMATURELY PARTITION AND DISTRIBUTE THE ESTATE PURSUANT TO THE
PROVISIONS OF THE HOLOGRAPHIC WILL EVEN BEFORE ITS INTRINSIC VALIDITY
HAS BEEN DETERMINED, AND DESPITE THE EXISTENCE OF UNPAID DEBTS AND
OBLIGATIONS OF THE ESTATE.12
The issue for resolution is whether the probate court, after admitting the will to probate but before
payment of the estate's debts and obligations, has the authority: (1) to grant an allowance from the
funds of the estate for the support of the testator's grandchildren; (2) to order the release of the
titles to certain heirs; and (3) to grant possession of all properties of the estate to the executor of
the will.
On the matter of allowance, Section 3 of Rule 83 of the Revised Rules of Court provides:
Sec. 3. Allowance to widow and family. The widow and minor or incapacitated children of
a deceased person, during the settlement of the estate, shall receive therefrom under the
direction of the court, such allowance as are provided by law.
Petitioner alleges that this provision only gives the widow and the minor or incapacitated children of
the deceased the right to receive allowances for support during the settlement of estate

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proceedings. He contends that the testator's three granddaughters do not qualify for an allowance
because they are not incapacitated and are no longer minors but of legal age, married and gainfully
employed. In addition, the provision expressly states "children" of the deceased which excludes the
latter's grandchildren.
It is settled that allowances for support under Section 3 of Rule 83 should not be limited to the
"minor or incapacitated" children of the deceased. Article 188 13 of the Civil Code of the Philippines,
the substantive law in force at the time of the testator's death, provides that during the liquidation of
the conjugal partnership, the deceased's legitimate spouse and children, regardless of their age,
civil status or gainful employment, are entitled to provisional support from the funds of the
estate.14 The law is rooted on the fact that the right and duty to support, especially the right to
education, subsist even beyond the age of majority.15
Be that as it may, grandchildren are not entitled to provisional support from the funds of the
decedent's estate. The law clearly limits the allowance to "widow and children" and does not
extend it to the deceased's grandchildren, regardless of their minority or incapacity. 16 It was error,
therefore, for the appellate court to sustain the probate court's order granting an allowance to the
grandchildren of the testator pending settlement of his estate.
Respondent courts also erred when they ordered the release of the titles of the bequeathed
properties to private respondents six months after the date of first publication of notice to creditors.
An order releasing titles to properties of the estate amounts to an advance distribution of the estate
which is allowed only under the following conditions:
Sec. 2. Advance distribution in special proceedings. Nothwithstanding a pending
controversy or appeal in proceedings to settle the estate of a decedent, the court may, in its
discretion and upon such terms as it may deem proper and just, permit that such part of the
estate as may not be affected by the controversy or appeal be distributed among the heirs
or legatees, upon compliance with the conditions set forth in Rule 90 of these Rules. 17
And Rule 90 provides that:
Sec. 1. When order for distribution of residue made. When the debts, funeral charges,
and expenses of administration the allowance to the widow, and inheritance tax if any,
chargeable to the estate in accordance with law, have been paid, the court, on the
application of the executor or administrator, or of a person interested in the estate, and after
hearing upon notice shall assign the residue of the estate to the persons entitled to the
same, naming them and the proportions or parts, to which each is entitled, and such
persons may demand and recover their respective shares from the executor or
administrator, or any other person having the same in his possession. If there is a
controversy before the court as to who are the lawful heirs of the deceased person or as to
the distributive shares to which each person is entitled under the law, the controversy shall
be heard and decided as in ordinary cases.
No distribution shall be allowed until the payment of the obligations above-mentioned has
been made or provided for, unless the distributees, or any of them, give a bond, in a sum to
be fixed by the court, conditioned for the payment of said obligations within such time as the
court directs.18

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In settlement of estate proceedings, the distribution of the estate properties can only be made: (1)
after all the debts, funeral charges, expenses of administration, allowance to the widow, and estate
tax have been paid; or (2) before payment of said obligations only if the distributees or any of them
gives a bond in a sum fixed by the court conditioned upon the payment of said obligations within
such time as the court directs, or when provision is made to meet those obligations. 19
In the case at bar, the probate court ordered the release of the titles to the Valle Verde property
and the Blue Ridge apartments to the private respondents after the lapse of six months from the
date of first publication of the notice to creditors. The questioned order speaks of "notice" to
creditors, not payment of debts and obligations. Hilario Ruiz allegedly left no debts when he died
but the taxes on his estate had not hitherto been paid, much less ascertained. The estate tax is
one of those obligations that must be paid before distribution of the estate. If not yet paid, the rule
requires that the distributees post a bond or make such provisions as to meet the said tax
obligation in proportion to their respective shares in the inheritance. 20 Notably, at the time the order
was issued the properties of the estate had not yet been inventoried and appraised.
It was also too early in the day for the probate court to order the release of the titles six months
after admitting the will to probate. The probate of a will is conclusive as to its due execution and
extrinsic validity21 and settles only the question of whether the testator, being of sound mind, freely
executed it in accordance with the formalities prescribed by law. 22 Questions as to the intrinsic
validity and efficacy of the provisions of the will, the legality of any devise or legacy may be raised
even after the will has been authenticated.23
The intrinsic validity of Hilario's holographic will was controverted by petitioner before the probate
court in his Reply to Montes' Opposition to his motion for release of funds 24 and his motion for
reconsideration of the August 26, 1993 order of the said court.25 Therein, petitioner assailed the
distributive shares of the devisees and legatees inasmuch as his father's will included the estate of
his mother and allegedly impaired his legitime as an intestate heir of his mother. The Rules provide
that if there is a controversy as to who are the lawful heirs of the decedent and their distributive
shares in his estate, the probate court shall proceed to hear and decide the same as in ordinary
cases.26
Still and all, petitioner cannot correctly claim that the assailed order deprived him of his right to take
possession of all the real and personal properties of the estate. The right of an executor or
administrator to the possession and management of the real and personal properties of the
deceased is not absolute and can only be exercised "so long as it is necessary for the payment of
the debts and expenses of administration,"27 Section 3 of Rule 84 of the Revised Rules of Court
explicitly provides:
Sec. 3. Executor or administrator to retain whole estate to pay debts, and to administer
estate not willed. An executor or administrator shall have the right to the possession and
management of the real as well as the personal estate of the deceased so long as it is
necessary for the payment of the debts and expenses for administration.28
When petitioner moved for further release of the funds deposited with the clerk of court, he had
been previously granted by the probate court certain amounts for repair and maintenance
expenses on the properties of the estate, and payment of the real estate taxes thereon. But
petitioner moved again for the release of additional funds for the same reasons he previously cited.

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It was correct for the probate court to require him to submit an accounting of the necessary
expenses for administration before releasing any further money in his favor.
It was relevantly noted by the probate court that petitioner had deposited with it only a portion of
the one-year rental income from the Valle Verde property. Petitioner did not deposit its succeeding
rents after renewal of the lease.29 Neither did he render an accounting of such funds.
Petitioner must be reminded that his right of ownership over the properties of his father is merely
inchoate as long as the estate has not been fully settled and partitioned.30 As executor, he is a
mere trustee of his father's estate. The funds of the estate in his hands are trust funds and he is
held to the duties and responsibilities of a trustee of the highest order.31 He cannot unilaterally
assign to himself and possess all his parents' properties and the fruits thereof without first
submitting an inventory and appraisal of all real and personal properties of the deceased, rendering
a true account of his administration, the expenses of administration, the amount of the obligations
and estate tax, all of which are subject to a determination by the court as to their veracity, propriety
and justness.32
IN VIEW WHEREOF, the decision and resolution of the Court of Appeals in CA-G.R. SP No. 33045
affirming the order dated December 22, 1993 of the Regional Trial Court, Branch 156, Pasig in SP
Proc. No. 10259 are affirmed with the modification that those portions of the order granting an
allowance to the testator's grandchildren and ordering the release of the titles to the private
respondents upon notice to creditors are annulled and set aside.
Respondent judge is ordered to proceed with dispatch in the proceedings below.
SO ORDERED.

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ANITA UNGAB-VALEROSO, joined in by her husband, RUSELO VALEROSO, Petitioners,


vs.
AMANCIA UNGAB-GRADO, FELIX UNGAB, represented by his son ROSENDO UNGAB,
ESPENILA UNGAB-JAICTIN and RUSTICINA UNGAB-TAMALA, Respondents.
G.R. No. 163081

June 15, 2007

QUISUMBING, J.:

This petition for review assails both the Decision1 dated September 19, 2003 of the Court of
Appeals in CA-G.R. CV No. 68895 and its Resolution2 dated March 2, 2004, which denied
petitioners motion for reconsideration. The Court of Appeals had affirmed with modification the
Decision3 dated December 20, 1999 of the Regional Trial Court (RTC) of Iligan City, Branch 3, in
Civil Case No. 4048.
The antecedent facts, borne by the records, are as follows:
Subject of this case is a 14.3375-hectare land in Binuni, Kolambugan, Lanao (now Binuni, Bacolod,
Lanao del Norte) registered in the name of Timoteo Ungab under Original Certificate of Title (OCT)
No. (P-41)-1,550.4Petitioner Anita Ungab is the only child of Timoteo, now deceased. Respondent
Felix Ungab is the brother of Timoteo while the other respondents are the heirs of Timoteos other
brothers and sisters, namely Simeona, Eugenia, Lorenzo, Lazaro, and Margarito.
In 1972, the heirs of Ciriaco Ungab filed a complaint docketed as Civil Case No. II-74 in the Court
of First Instance (CFI) of Iligan City, Lanao del Norte against the brothers, sisters and heirs of
Timoteo for the partition, accounting and reconveyance of the subject land. When the case was
called for trial, the parties submitted a written compromise agreement.
On February 15, 1973, the CFI rendered judgment adopting in toto the compromise agreement.
The decretal portion reads:
WHEREFORE, judgment is hereby rendered as follows: (1) that the plaintiffs will be given an area
of 4,779 square meters of the coconut land which is a portion of the titled land in the name of Heirs

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of Timoteo Ungab, under Original Certificate of Title No. T-41 (should be P-41), Homestead Patent
No. V-4777, located at Binoni, Bacolod, Lanao del Norte (formerly Kolambugan, Lanao); (2) that
defendants are entitled to an area of 138,596 square meters (13.8596 Has.) from said titled land
abovementioned; (3) that the expenses for segregation survey of the 4,779 square meters will be
shouldered equally among the nine (9) heirs 3 heirs representing the plaintiffs and the 6 heirs
representing the defendants; (4) that the squatters of the above-described titled parcels of land to
wit: (a) Dioscoro Buco, (b) Porferio Sugabo, (c) heirs of Severo Buco, (d) Jesus Buco, (e) and
others inside the said titled land will be ejected with damages thru Court action, all expenses will be
borne equally among the heirs aforementioned, for each recovery; and whatever damages that will
be awarded by the court in said ejectment action will be equally divided among the nine sets of
heirs, as well as the produce of the income of the squatted area; (5) that meantime that the
squatters on the land will not be as yet finally ejected, the 4,779 square meters of the plaintiffs will
not as yet be segregated and plaintiffs cannot as yet enjoy the produce, and income thereof, until
the squatters will be ejected; and all expenses of the ejectment suits against the squatters will be
borne by Margarito Ungab and his wife, subject to the reimbursement with receipts upon the final
ejectment of the squatters by all nine sets of heirs aforementioned; (6) the portion pertaining to
Simona Ungab is acknowledged to have been sold under Pacto de Retro for the sum of P3,000.00
more or less (the Pacto de Retro Sale consideration controls) unto Margarito Ungab and wife which
should be paid likewise by the nine sets of heirs both plaintiffs and defendants; (8) all other prayers
and remedies invoked in the complaint and counter-complaint are hereby denied, and (9) no costs
is adjudged in this proceeding.
SO ORDERED.5
The parties did not have the land partitioned but divided the proceeds of the land in accordance
with the decision. However, in December 1996, Anita refused to give respondents their respective
shares. Respondents then filed against petitioners Anita and her husband Ruselo Valeroso, a
complaint for recovery of possession, partition, enforcement of compromise agreement and
damages docketed as Civil Case No. 4048 with the RTC of Iligan City.
During the pre-trial, respondents presented in court the affidavit dated March 13, 1939 of Timoteo
acknowledging that he co-owned with his brothers and sisters, Simeona, Eugenia, Lorenzo,
Lazaro, Felix and Margarito, a parcel of land with an area of 18.8993 hectares in Binuni,
Kolambugan, Lanao under Homestead Application No. 218565.6 Respondents also presented the
Affidavit of Acknowledgment dated August 4, 1960 of Anita Ungab and her mother Aurelia Ungab
acknowledging the rights of Simeona, Eugenia, Lorenzo, Lazaro, Felix and Margarito as co-owners
of the land.7
In their defense, the Spouses Anita and Ruselo claimed that Anita exclusively owns the land as
sole heir of Timoteo. They maintained that the decision in Civil Case No. II-74 had become
dormant and could no longer be executed. Besides, they aver, Anita was not privy to the
compromise agreement, which led to the decision in Civil Case No. II-74.
On December 1999, the RTC held that the compromise agreement bound all the parties thereto
including their heirs and assigns, and Timoteos affidavit whose presumption of regularity
petitioners failed to overcome, and the compromise agreement created an express trust which has
not yet prescribed. The RTC ruled as follows:

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WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs (herein
respondents) and against the defendant, Anita Ungab-Valeroso ordering the latter:
1) To have the property, OCT No. (P-41)-1,550, partitioned for her to retain only one-seventh (1/7)
share; another one-seventh (1/7) to Felix Ungab and the remaining 5/7 to the heirs of Simeona,
Eugenia, Lorenzo, Lazaro, and Margarito, all surnamed Ungab;
2) To reimburse Amancia Ungab-Grado and Espenila Ungab Jaictin the sum of P24,000.00 for
their shares for three (3) years at a rate of P2,000.00 per harvest in every three (3) months; the
sum of P24,000.00 for plaintiff Felix Ungab and another P24,000.00 for Rusticina Ungab-Tamala;
3) To pay plaintiffs attorneys fees and appearance fees of P30,000.00.
SO ORDERED.8
Petitioners elevated the case to the Court of Appeals, which affirmed the trial courts decision but
deleted the award of attorneys fees. It held there is evidence showing that the land under OCT No.
(P-41)-1,550 was owned in common by the parties, and that Anita is estopped by her own act of
signing the Affidavit of Acknowledgment dated August 4, 1960 from denying the co-ownership.
The dispositive portion of the decision dated September 19, 2003 of the Court of Appeals states:
WHEREFORE, premises considered, the decision dated December 20, 1999, of the Regional Trial
Court of Iligan City, Twelfth Judicial Region, Branch 3, in Civil Case No. 4048 is
hereby AFFIRMED with MODIFICATION as to attorneys fees, the award thereof is deleted. Costs
against the appellants.
SO ORDERED.9
Petitioners moved for reconsideration but it was denied in the Resolution dated March 2, 2004.
Petitioners now come before us raising the following issues:
I.
WHETHER OR NOT RESPONDENTS ARE CO-OWNERS OF THE PARCEL OF LAND
COVERED BY OCT No. (P-41)-1,550;
II.
WHETHER OR NOT RESPONDENTS SUIT FOR PARTITION IN THE COURT BELOW IS
LEGALLY PROPER.10
The main issue before us is: Did the Court of Appeals commit a reversible error of law which merits
review by this Court under Rule 45 of the Rules of Court?
We rule in the negative.
Petitioners point that the property was registered in the name of Timoteo. They assert that by the
law of intestate succession, Anita, being the sole heir of Timoteo, is the sole owner of the land.

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Petitioners maintain that respondents could not base their claim on Timoteos affidavit dated March
13, 1939 because this referred to a different parcel of land. Considering that the description of the
property in the OCT and in Timoteos affidavit differed, petitioners maintain that respondents bear
the burden of proving that these lots in the affidavit are the same as those under OCT No. (P-41)1,550. However, according to petitioners, respondents failed to discharge this burden.
Respondents counter that the case is not about succession. They are not claiming as heirs of
Timoteo, but as his co-owners. They assert that where one does not have any rightful claim over
real property, the Torrens system of registration can confirm or record nothing. They claim that the
land was already governed by a state of co-ownership even before the title was issued. According
to respondents, this fact is shown by the Affidavit of Acknowledgment signed by Anita herself.
At the outset, we agree that the instant case does not involve successional rights as correctly
pointed out by respondents, who are claiming an alleged right of co-ownership existing prior to the
issuance of the land title in the name of Timoteo. The threshold issue is whether respondents are
truly co-owners of the land.
The records lack evidence sufficiently showing that the land covered by Homestead Application
No. 218565 referred to in the Affidavit of Timoteo is the same land covered by OCT No. (P-41)1,550 which originated from Homestead Patent No. V-4777. The records do not show whether
Homestead Application No. 218565 was the one granted in Homestead Patent No. V-4777. The
court cannot just fill in the deficiency in the evidence submitted by the concerned parties.
We note, however, that even without the Affidavit of Timoteo, there is still evidence on record
proving that the respondents and Timoteo indeed own the land in common. For one, there is the
Affidavit of Acknowledgment dated August 4, 1960.
Petitioners contend that respondents cannot use the Affidavit of Acknowledgment signed by Anita
and her mother as Anita was misled in signing it. A question involving the due execution of the
Affidavit of Acknowledgment would require an inquiry into the appreciation of evidence by the trial
court, a matter which this Court cannot do in a petition for review on certiorari under Rule 45. 11 The
truth or falsehood of the Affidavit of Acknowledgment is a question of fact, of which this Court
cannot take cognizance.12 Moreover, the Affidavit of Acknowledgment, being a notarized
document, enjoys the presumption of regularity.13 Petitioners mere allegation that Anita was misled
by her mother into signing the affidavit could not overcome this presumption.
Petitioners claim that by respondents failure to execute the judgment within the ten-year
prescription period, the judgment had prescribed. It could not be used to convey any right. This
claim, in our view, is unmeritorious. When the parties started sharing the proceeds of the land, they
had in effect partially executed the compromise agreement and the judgment in Civil Case No. II74. Such partial execution weighs heavily as evidence that they agreed on the co-ownership
arrangement. Note also that the judgment did not explicitly order the partition of the land itself, but
merely identified the rights to and respective shares of the parties in said land.
Petitioners argue that the co-ownership was already extinguished because the Civil Code provides
that an agreement to keep a thing undivided shall not exceed ten years. Indeed, the law limits the
term of a co-ownership to ten years, but this term limit may nevertheless be extended. 14 The action
to reconvey does not prescribe so long as the property stands in the name of the trustee. To allow

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prescription would be tantamount to allowing a trustee to acquire title against his principal and true
owner.15
Moreover, as properly held by the trial and appellate courts, the execution of the Affidavit of
Acknowledgment and the compromise agreement established an express trust wherein the
respondents, as trustors, reposed their confidence on petitioner Anita and her mother, as trustees,
that they will hold the land subject of the co-ownership. There are no particular words required in
the creation of an express trust, it being sufficient that a trust is clearly intended. 16 This express
trust is shown in the two documents. Express trusts do not prescribe except when the trustee
repudiates the trust.17
Petitioners contend that an affidavit of acknowledgment is not one of the modes of acquiring
ownership recognized under the Civil Code. They cite Acap v. Court of Appeals,18 where we held
that a stranger to succession cannot conclusively claim ownership over a lot on the sole basis of a
waiver document which does not cite the elements of any of the derivative modes of acquiring
ownership.
But we find that the ruling in Acap is not applicable to this case. In Acap, the claim of a right over
the property was based on a "declaration of heirship and waiver of rights," and a notice of adverse
claim. Therein we held that the "declaration of heirship and waiver of rights" relates to an
abdication of a right in favor of other persons who are co-heirs in the succession. A stranger to a
succession cannot conclusively claim ownership over the property on the sole basis thereof. We
also held that a notice of adverse claim is nothing but a notice of claim adverse to the registered
owner, the validity of which is yet to be established in court. Hence, the "declaration of heirship and
waiver of rights" and a notice of adverse claim did not sufficiently show how a stranger to the
succession acquired ownership of the property. In the present case, the Affidavit of
Acknowledgment and the compromise agreement were presented not to show how respondents
acquired their rights over the property but as proof that their rights therein exist.
WHEREFORE, the petition is DENIED for lack of merit. The Decision dated September 19, 2003
and the Resolution dated March 2, 2004 of the Court of Appeals in CA-G.R. CV No. 68895
are AFFIRMED.
Costs against petitioners.
SO ORDERED.

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FELOMINA ABELLANA, petitioner, vs.


SPOUSES ROMEO PONCE and LUCILA PONCE and the REGISTER OF DEEDS of BUTUAN
CITY,respondents.
G.R. No. 160488

September 3, 2004

YNARES-SANTIAGO, J.:

This is a petition for review on certiorari assailing the June 16, 2003 decision 2 of the Court of
Appeals in CA-G.R. CV No. 69213, which reversed and set aside the August 28, 2000 decision 3 of
the Regional Trial Court of Butuan City, Branch 2, in Civil Case No. 4270.
The facts as testified to by petitioner Felomina Abellana are as follows:
On July 15, 1981, Felomina, a spinster, pharmacist and aunt of private respondent Lucila Ponce,
purchased from the late Estela Caldoza-Pacres a 44,2974 square meter agricultural lot5 with the
intention of giving said lot to her niece, Lucila. Thus, in the deed of sale,6 the latter was designated
as the buyer of Lot 3, Pcs-10-000198, covered by Original Certificate of Title No. P-27, Homestead
Patent No. V-1551 and located at Los Angeles, Butuan City.7The total consideration of the sale
was P16,500.00, but only P4,500.00 was stated in the deed upon the request of the seller. 8
Subsequently, Felomina applied for the issuance of title in the name of her niece. On April 28,
1992, Transfer Certificate of Title (TCT) No. 28749 over the subject lot was issued in the name of
Lucila.10 Said title, however, remained in the possession of Felomina who developed the lot
through Juanario Torreon11 and paid real property taxes thereon.12
The relationship between Felomina and respondent spouses Romeo and Lucila Ponce, however,
turned sour. The latter allegedly became disrespectful and ungrateful to the point of hurling her
insults and even attempting to hurt her physically. Hence, Felomina filed the instant case for
revocation of implied trust to recover legal title over the property.13
Private respondent spouses Lucila, also a pharmacist, and Romeo, a marine engineer, on the
other hand, claimed that the purchase price of the lot was only P4,500.00 and that it was them who
paid the same. The payment and signing of the deed of sale allegedly took place in the office of
Atty. Teodoro Emboy in the presence of the seller and her siblings namely, Aquilino Caldoza and
the late Lilia Caldoza.14
A year later, Juanario approached Lucila and volunteered to till the lot, to which she agreed.15 In
1987, the spouses consented to Felominas proposal to develop and lease the lot. They, however,
shouldered the real property taxes on the lot, which was paid through Felomina. In 1990, the
spouses demanded rental from Felomina but she refused to pay because her agricultural endeavor
was allegedly not profitable.16
When Lucila learned that a certificate of title in her name had already been issued, she confronted
Felomina who claimed that she already gave her the title. Thinking that she might have misplaced
the title, Lucila executed an affidavit of loss which led to the issuance of another certificate of title in
her name.17
On August 28, 2000, the trial court rendered a decision holding that an implied trust existed
between Felomina and Lucila, such that the latter is merely holding the lot for the benefit of the

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former. It thus ordered the conveyance of the subject lot in favor of Felomina. The dispositive
portion thereof, reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered declaring, directing and
ordering that:
a) An implied trust was created with plaintiff as trustor and private defendant Lucila A.
Ponce married to private defendant Engr. Romeo D. Ponce as trustee pursuant to
Article 1448 of the New Civil Code;
b) The implied trust, having been created without the consent of the trustee and
without any condition, is revoked;
c) The private defendants, who are spouses, execute the necessary deed of
conveyance in favor of the plaintiff of the land, covered by and embraced in TCT NO.
T-2874, in controversy and in the event private defendants refuse to execute the
deed of conveyance, the public defendant City Register of Deeds of Butuan to cancel
TCT No. T-2874 and issue a new one in lieu thereof in the name of the plaintiff;
d) The private defendants spouses to pay jointly and severally plaintiff the sum of
PhP25,000.00 as attorneys fees and PhP4,000.00 as expenses of litigation;
e) The dismissal of the counterclaim of private defendants spouses[;] and
f) The private defendants to pay the costs.

SO ORDERED.18

Private respondent spouses appealed to the Court of Appeals which set aside the decision of the
trial court ruling that Felomina failed to prove the existence of an implied trust and upheld
respondent spouses ownership over the litigated lot. The appellate court further held that even
assuming that Felomina paid the purchase price of the lot, the situation falls within the exception
stated in Article 1448 of the Civil Code which raises a disputable presumption that the property was
purchased by Felomina as a gift to Lucila whom she considered as her own daughter. The decretal
portion thereof, states
WHEREFORE, premises considered, the appealed decision of the Regional Trial Court,
Branch 2, Butuan City, in Civil Case No. 4270, is hereby REVERSED AND SET ASIDE. A
new one is heretofore rendered dismissing the complaint below of plaintiff-appellee,
F[e]lomina Abellana. SO ORDERED.19
Felomina filed a motion for reconsideration but the same was denied. 20 Hence, the instant petition.
The issue before us is: Who, as between Felomina and respondent spouses, is the lawful owner of
the controverted lot? To resolve this issue, it is necessary to determine who paid the purchase
price of the lot.
After a thorough examination of the records and transcript of stenographic notes, we find that it
was Felomina and not Lucila who truly purchased the questioned lot from Estela. The positive and
consistent testimony of Felomina alone, that she was the real vendee of the lot, is credible to
debunk the contrary claim of respondent spouses. Indeed, the lone testimony of a witness, if

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credible, is sufficient as in the present case.21 Moreover, Aquilino Caldoza, brother of the vendor
and one of the witnesses22 to the deed of sale, categorically declared that Felomina was the buyer
and the one who paid the purchase price to her sister, Estela. 23
Then too, Juanario, who was allegedly hired by Lucila to develop the lot, vehemently denied that
he approached and convinced Lucila to let him till the land. According to Juanario, he had never
spoken to Lucila about the lot and it was Felomina who recruited him to be the caretaker of the
litigated property.24
The fact that it was Felomina who bought the lot was further bolstered by her possession of the
following documents from the time of their issuance up to the present, to wit: (1) the transfer
certificate of title25 and tax declaration in the name of Lucila;26 (2) the receipts of real property taxes
in the name of Felomina Abellana for the years 1982-1984, 1992-1994 and 1995;27 and (3) the
survey plan of the lot.28
Having determined that it was Felomina who paid the purchase price of the subject lot, the next
question to resolve is the nature of the transaction between her and Lucila.
It appears that Felomina, being of advanced age29 with no family of her own, used to purchase
properties and afterwards give them to her nieces. In fact, aside from the lot she bought for Lucila
(marked as Exhibit "R-2"), she also purchased 2 lots, one from Aquilino Caldoza (marked as
Exhibit "R-1") and the other from Domiciano Caldoza (marked as Exhibit "R-3"), which she gave to
Zaida Bascones (sister of Lucila), thus:
Q I am showing to you again Exhibit R, according to you[,] you bought Exhibits R-1, R-2 and
R-3, do you remember that?
A Yes sir.
xxx

xxx

xxx

Q Aquilin[o] Caldoza conveyed this land in Exhibit R-1 to you?


A Yes, sir.
Q Is this now titled in your name?
A No. I was planning to give this land to my nieces. One of which [was] already given to Mrs.
[Lucila] Ponce.
Q I am talking only about this lot in Exhibit R-1[.]
A Not in my name.
Q In whose name was this lot in Exhibit R-1 now?
A In the name of Zaida Bascones.
Q Who prepared the deed of sale?

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A At the start it was in the name of Rudy [Torreon].30 Because Rudy [Torreon] knew that
there is some trouble already about that lot he made a deed of sale to the name of Zaida
Bascones, which I planned to give that land to her (sic).
Q As regards Exhibit R-1, you bought it actually?
A Yes, sir.
Q But the original deed of sale was in the name of Rudolfo [Torreon]?
A Yes, sir.
Q And later on Rudolfo [Torreon] again transferred it to Zaida Bascones?
A Yes, sir.31
Likewise, in the case of Lucila, though it was Felomina who paid for the lot, she had Lucila
designated in the deed as the vendee thereof and had the title of the lot issued in Lucilas name. It
is clear therefore that Felomina donated the land to Lucila. This is evident from her
declarations, viz:
Witness
A In 1981 there was a riceland offered so I told her that I will buy that land and I will give
to her later (sic), because since 1981 up to 1992 Mrs. Lucila Ponce has no job.
Q Where is the land located?
A In Los Angeles, Butuan City.
Q Who was the owner of this land?
A The owner of that land is Mrs. Estela Caldoza-Pacr[e]s.
The husband is Pacr[e]s.
xxx

xxx

xxx

Q What did you do with this land belonging to Mrs. Estela-Caldoza- Pacr[e]s?
A I paid the lot, then worked the lot, since at the start of my buying the lot until now (sic).
Q You said that you told Lucila Ponce that you would give the land to her later on,
what did you do in connection with this intention of yours to give the land to her?
A So I put the name of the title in her name in good faith (sic).
Q You mean to tell the court that when you purchased this land located at Los Angeles,
Butuan City, the instrument of sale or the deed of sale was in the name of Lucila Ponce?

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A Yes, sir.32
xxx

xxx

xxx

Q Did you not ask your adviser Rudolfo [Torreon] whether it was wise for you to place the
property in the name of Lucila Ponce when you are the one who is the owner?
A Because we have really the intention to give it to her.33
Generally, contracts are obligatory in whatever form they may have been entered into, provided all
the essential requisites for their validity are present. When, however, the law requires that a
contract be in some form in order that it may be valid, that requirement is absolute and
indispensable. Its non-observance renders the contract void and of no effect.34 Thus, under Article
749 of the Civil Code
Article 749. In order that the donation of an immovable property may be valid, it must be
made in a public document, specifying therein the property donated and the value of the
charges which the donee must satisfy.
The acceptance may be made in the same deed of donation or in a separate public document, but
it shall not take effect unless it is done during the lifetime of the donor.
If the acceptance is made in a separate instrument, the donor shall be notified thereof in an
authentic form, and this step shall be noted in both instruments.
In the instant case, what transpired between Felomina and Lucila was a donation of an immovable
property which was not embodied in a public instrument as required by the foregoing article. Being
an oral donation, the transaction was void.35 Moreover, even if Felomina enjoyed the fruits of the
land with the intention of giving effect to the donation after her demise, the conveyance is still a
void donation mortis causa, for non-compliance with the formalities of a will.36 No valid title passed
regardless of the intention of Felomina to donate the property to Lucila, because the naked intent
to convey without the required solemnities does not suffice for gratuitous alienations, even as
between the parties inter se.37 At any rate, Felomina now seeks to recover title over the property
because of the alleged ingratitude of the respondent spouses.
Unlike ordinary contracts (which are perfected by the concurrence of the requisites of consent,
object and cause pursuant to Article 131838 of the Civil Code), solemn contracts like donations are
perfected only upon compliance with the legal formalities under Articles 748 39 and 749.40 Otherwise
stated, absent the solemnity requirements for validity, the mere intention of the parties does not
give rise to a contract. The oral donation in the case at bar is therefore legally inexistent and an
action for the declaration of the inexistence of a contract does not prescribe.41Hence, Felomina can
still recover title from Lucila.
Article 144842 of the Civil Code on implied trust finds no application in the instant case. The
concept of implied trusts is that from the facts and circumstances of a given case, the existence of
a trust relationship is inferred in order to effect the presumed intention of the parties. 43 Thus, one of
the recognized exceptions to the establishment of an implied trust is where a contrary intention is
proved,44 as in the present case. From the testimony of Felomina herself, she wanted to give the
lot to Lucila as a gift. To her mind, the execution of a deed with Lucila as the buyer and the

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subsequent issuance of title in the latters name were the acts that would effectuate her generosity.
In so carrying out what she conceived, Felomina evidently displayed her unequivocal intention to
transfer ownership of the lot to Lucila and not merely to constitute her as a trustee thereof. It was
only when their relationship soured that she sought to revoke the donation on the theory of implied
trust, though as previously discussed, there is nothing to revoke because the donation was never
perfected.
In declaring Lucila as the owner of the disputed lot, the Court of Appeals applied, among others,
the second sentence of Article 1448 which states
"x x x However, if the person to whom the title is conveyed is a child, legitimate or
illegitimate, of the one paying the price of the sale, no trust is implied by law, it being
disputably presumed that there is a gift in favor of the child."
Said presumption also arises where the property is given to a person to whom the person paying
the price stands in loco parentis or as a substitute parent.45
The abovecited provision, however, is also not applicable here because, first, it was not
established that Felomina stood as a substitute parent of Lucila; and second, even assuming that
she did, the donation is still void because the transfer and acceptance was not embodied in a
public instrument. We note that said provision merely raised a presumption that the conveyance
was a gift but nothing therein exempts the parties from complying with the formalities of a donation.
Dispensation of such solemnities would give rise to anomalous situations where the formalities of a
donation and a will in donations inter vivos, and donations mortis causa, respectively, would be
done away with when the transfer of the property is made in favor of a child or one to whom the
donor stands inloco parentis. Such a scenario is clearly repugnant to the mandatory nature of the
law on donation.
While Felomina sought to recover the litigated lot on the ground of implied trust and not on the
invalidity of donation, the Court is clothed with ample authority to address the latter issue in order
to arrive at a just decision that completely disposes of the controversy.46 Since rules of procedure
are mere tools designed to facilitate the attainment of justice, they must be applied in a way that
equitably and completely resolve the rights and obligations of the parties.47
As to the trial courts award of attorneys fees and litigation expenses, the same should be deleted
for lack of basis. Aside from the allegations in the complaint, no evidence was presented in support
of said claims. The trial court made these awards in the dispositive portion of its decision without
stating any justification therefor in theratio decidendi. Their deletion is therefore proper.48
Finally, in deciding in favor of Felomina, the trial court ordered respondent spouses to execute a
deed of sale over the subject lot in favor of Felomina in order to effect the transfer of title to the
latter. The proper remedy, however, is provided under Section 10 (a), Rule 39 of the Revised Rules
of Civil Procedure which provides that "x x x [i]f real or personal property is situated within the
Philippines, the court in lieu of directing a conveyance thereof may by an order divest the title of
any party and vest it in others, which shall have the force and effect of a conveyance executed in
due form of law."
WHEREFORE, in view of all the foregoing, the petition is GRANTED and the June 16, 2003
decision of the Court of Appeals in CA-G.R. CV No. 69213 is REVERSED and SET ASIDE. The

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August 28, 2000 decision of the Regional Trial Court of Butuan City, Branch 2, in Civil Case No.
4270, is REINSTATED with the followingMODIFICATIONS:
(1) Declaring petitioner Felomina Abellana as the absolute owner of Lot 3, Pcs-10-000198;
(2) Ordering the Register of Deeds of Butuan City to cancel TCT No. T-2874 in the name of
respondent Lucila Ponce and to issue a new one in the name of petitioner Felomina
Abellana; and
(3) Deleting the awards of attorneys fees and litigation expenses for lack of basis.
No pronouncement as to costs.
SO ORDERED.