You are on page 1of 136

[G.R. No. 76969.

June 9, 1997]

INLAND REALTY INVESTMENT SERVICE, INC. and ROMAN M. DE LOS


REYES, petitioners, vs. HON. COURT OF APPEALS, GREGORIO ARANETA,
INC. and J. ARMANDO EDUQUE, respondents.
DECISION
HERMOSISIMA, JR., J.:
Herein petitioners Inland Realty Investment Service, Inc. (hereafter, "Inland Realty")
and Roman M. de los Reyes seek the reversal of the Decision [1] of the Intermediate
Appellate Court (now Court of Appeals) [2] which affirmed the trial court's dismissal [3] of
petitioners' claim for unpaid agent's commission for brokering the sales transaction
involving 9,800 shares of stock in Architects' Bldg., Inc. (hereafter, "Architects'")
between private respondent Gregorio Araneta, Inc. (hereafter, "Araneta, Inc.") as seller
and Stanford Microsystems, Inc. (hereafter, "Stanford") as buyer.
Petitioners come to us with a two-fold agenda: (1) to obtain from us a declaration
that the trial court and the respondent appellate court gravely erred when appreciating
the facts of the case by disregarding Exhibits "L," a Letter dated October 28, 1976
signed by Gregorio Araneta II, renewing petitioners' authority to act as sales agent for a
period of thirty (30) days from same date, and Exhibit "M," a Letter dated November 16,
1976 signed by petitioner de los Reyes, naming four (4) other prospective buyers,
respectively; and (2) to obtain from us a categorical ruling that a broker is automatically
entitled to the stipulated commission merely upon securing for, and introducing to, the
seller the particular buyer who ultimately purchases from the former the object of the
sale, regardless of the expiration of the broker's contract of agency and authority to sell.
Before we proceed to address petitioners' objectives, there is a need to unfold the
facts of the case. For that purpose, we quote hereunder the findings of fact of the Court
of Appeals with which petitioners agree, except as to the respondent appellate court's
non-inclusion of the aforementioned Exhibits "L" and "M":
"From the evidence, the following facts appear undisputed: On September 16, 1975, defendant
corporation thru its co-defendant Assistant General Manager J. Armando Eduque, granted to
plaintiffs a 30-day authority to sell its x x x 9,800 shares of stock in Architects' Bldg., Inc. as
follows:
'September 16, 1975
TO WHOM IT MAY CONCERN:

This is to authorize Mr. R.M. de los Reyes, representing Inland Realty, to sell on a first come
first served basis the total holdings of Gregorio Araneta, Inc. in Architects' [Bldg.], Inc.
equivalent to 98% or 9,800 shares of stock at the price of P1,500.00 per share for a period of 30
days.
(SGD.) J. ARMANDO EDUQUE
Asst. General Manager'
Plaintiff Inland Realty Investment Service, Inc. (Inland Realty for short) is a corporation engaged
[in], among others x x x the real estate business [and] brokerages, duly licensed by the Bureau of
Domestic Trade x x x. [Inland Realty] planned their sales campaign, sending proposal letters to
prospective buyers. One such prospective buyer to whom a proposal letter was sent to was
Stanford Microsystems, Inc. x x x [that] counter-proposed to buy 9,800 shares offered
at P1,000.00 per share or for a total of P9,800,000.00, P4,900,000.00 payable in five years at
12% per annum interest until fully paid.
Upon plaintiffs' receipt of the said counter-proposal, it immediately [sic] wrote defendant a letter
to register Stanford Microsystems, Inc. as one of its prospective buyers x x x. Defendant Araneta,
Inc., thru its Assistant General Manager J. Armando Eduque, replied that the price offered by
Stanford was too low and suggested that plaintiffs see if the price and terms of payment can be
improved upon by Stanford x x x. Other prospective buyers were submitted to defendants among
whom were Atty. Maximo F. Belmonte and Mr. Joselito Hernandez. The authority to sell given to
plaintiffs by defendants was extended several times: the first being on October 2, 1975, for 30
days from said date (Exh. 'J'), the second on October 28, 1975 for 30 days from said date (Exh.
'L') and on December 2, 1975 for 30 days from said date (Exh. 'K').
Plaintiff Roman de los Reyes, manager of Inland Realty's brokerage division, who by contract
with Inland Realty would be entitled to 1/2 of the claim asserted herein, testified that when his
company was initially granted the authority to sell, he asked for an exclusive authority and for a
longer period but Armando Eduque would not give, but according to this witness, the life of the
authority could always be extended for the purpose of negotiation that would be continuing.
On July 8, 1977, plaintiffs finally sold the 9,800 shares of stock [in] Architects' [Bldg.], Inc. to
Stanford Microsystems, Inc. for P13,500,000.00 x x x.
On September 6, 1977, plaintiffs demanded formally [from] defendants, through a letter of
demand, for payment of their 5% broker['s] commission at P13,500,000.00 or a total amount
of P675,000.00 x x x which was declined by [defendants] on the ground that the claim has no
factual or legal basis."[4]
Ascribing merit to private respondents' defense that, after their authority to sell
expired thirty (30) days from December 2, 1975, or on January 1, 1976, petitioners
abandoned the sales transaction and were no longer privy to the consummation and
documentation thereof, the trial court dismissed petitioners' complaint for collection of
unpaid broker's commission.

Petitioners appealed, but the Court of Appeals was unswayed in the face of
evidence of the expiration of petitioners' agency contract and authority to sell on
January 1, 1976 and the consummation of the sale to Stanford on July 8, 1977 or more
than one (1) year and five (5) months after petitioners' agency contract and authority to
sell expired. Respondent appellate court dismissed petitioners' appeal in this wise:
" x x x The resolution would seem to hinge on the question of whether plaintiff was instrumental
in the final consummation of the sale to Stanford which was the same name of the company
submitted to defendants as a prospective buyer although their price was considered by defendant
to be too low and defendants wrote to plaintiff if the price may be improved upon by Stanford x
x x. This was on October 13, 1975. After that, there was an extension for 30 days from October
28, 1975 of the authority (Exh. 'L') and another on December 2, 1975 for another 30 days from
the said date x x x. x x x There is nothing in the record or in the testimonial evidence that the
authority extended 30 days from the last date of extension was ever reserved nor extended, nor
has there been any communication made to defendants that the plaintiff was actually negotiating
with Stanford a better price than what was previously offered by it x x x.
In fact there was no longer any agency after the last extension. Certainly, the length of time
which had transpired from the date of last extension of authority to the final consummation of the
sale with Stanford of about one (1) year and five (5) months without any communication at all
from plaintiffs to defendants with respect to the suggestion of defendants that Stanford's offer
was too low and suggested if plaintiffs may make it better. We have a case of proposal and
counter-proposal which would not constitute a definite closing of the transaction just because it
was plaintiff who solely suggested to defendants the name of Stanford as buyer x x x."[5]
Unable to accept the dismissal of its claim for unpaid broker's commission,
petitioners filed the instant petition for review asking us (1) to pass upon the factual
issue of the alleged extension of their agency contract and authority to sell and (2) to
rule in favor of a broker's automatic entitlement to the stipulated commission merely
upon securing for, and introducing to, the seller, the particular buyer who ultimately
purchases from the former the object of the sale, regardless of the expiration of the
broker's contract of agency and authority to sell.
We find for private respondents.
I
Petitioners take exception to the finding of the respondent Court of Appeals that
their contract of agency and authority to sell expired thirty (30) days from its last renewal
on December 2, 1975. They insist that, in the Letter dated October 28, 1976, Gregorio
Araneta III, in behalf of Araneta, Inc., renewed petitioner Inland Realty's authority to act
as agent to sell the former's 9,800 shares in Architects' for another thirty (30) days from
same date. This Letter dated October 28, 1976, petitioners claim, was marked as
Exhibit "L" during the trial proceedings before the trial court.
This claim is a blatant lie. In the first place, petitioners have conspicuously failed to
attach a certified copy of this Letter dated October 28, 1976. They have, in fact, not
attached even a machine copy thereof. All they gave this court is their word that said

Letter dated October 28, 1976 does exist, and on that basis, they expect us to
accordingly rule in their favor.
Such naivety, this court will not tolerate. We will not treat lightly petitioners' attempt
to mislead this court by claiming that the Letter dated October 28, 1976 was marked as
Exhibit "L" by the trial court, when the truth is that the trial court marked as Exhibit "L",
and the respondent Court of Appeals considered as Exhibit "L," private respondent
Araneta, Inc.'s Letter dated October 28, 1975, not 1976. Needless to say, this blatant
attempt to mislead this court, is contemptuous conduct that we sternly condemn.
II
The Letter dated November 16, 1976, claimed by petitioners to have been marked
as Exhibit "M", has no probative value, considering that its very existence remains
under a heavy cloud of doubt and that hypothetically assuming its existence, its alleged
content, namely, a listing of four (4) other prospective buyers, does not at all prove that
the agency contract and authority to sell in favor of petitioners was renewed or revived
after it expired on January 1, 1976. As in the case of the Letter dated October 28, 1976,
petitioners have miserably failed to attach any copy of the Letter dated November 16,
1976. A copy thereof would not help petitioners' failing cause, anyway, especially
considering that said letter was signed by petitioner De los Reyes and would therefore
take on the nature of a self-serving document that has no evidentiary value insofar as
petitioners are concerned.
III
Finally, petitioners asseverate that, regardless of whether or not their agency
contract and authority to sell had expired, they are automatically entitled to their broker's
commission merely upon securing for and introducing to private respondent Araneta,
Inc. the buyer in the person of Stanford which ultimately acquired ownership over
Araneta, Inc.'s 9,800 shares in Architects'.
Petitioners' asseverations are devoid of merit.
It is understandable, though, why petitioners have resorted to a campaign for an
automatic and blanket entitlement to brokerage commission upon doing nothing but
submitting to private respondent Araneta, Inc., the name of Stanford as prospective
buyer of the latter's shares in Architects'. Of course petitioners would advocate as such
because precisely petitioners did nothing but submit Stanford's name as prospective
buyer. Petitioners did not succeed in outrightly selling said shares under the
predetermined terms and conditions set out by Araneta, Inc., e.g., that the price per
share is P1,500.00. They admit that they could not dissuade Stanford from haggling for
the price of P1,000.00 per share with the balance of 50% of the total purchase price
payable in five (5) years at 12% interest per annum. From September 16, 1975 to
January 1, 1976, when petitioners' authority to sell was subsisting, if at all, petitioners
had nothing to show that they actively served their principal's interests, pursued to sell
the shares in accordance with their principal's terms and conditions, and performed
substantial acts that proximately and causatively led to the consummation of the sale to
Stanford of Araneta, Inc.'s 9,800 shares in Architects'.

The Court of Appeals cannot be faulted for emphasizing the lapse of more than one
(1) year and five (5) months between the expiration of petitioners' authority to sell and
the consummation of the sale to Stanford, to be a significant index of petitioners' nonparticipation in the really critical events leading to the consummation of said sale, i.e.,
the negotiations to convince Stanford to sell at Araneta, Inc.'s asking price, the
finalization of the terms and conditions of the sale, the drafting of the deed of sale, the
processing of pertinent documents, and the delivery of the shares of stock to
Stanford. Certainly, when the lapse of the period of more than one (1) year and five (5)
months between the expiration of petitioners' authority to sell and the consummation of
the sale, is viewed in the context of the utter lack of evidence of petitioners' involvement
in the negotiations between Araneta, Inc. and Stanford during that period and in the
subsequent processing of the documents pertinent to said sale, it becomes undeniable
that the respondent Court of Appeals did not at all err in affirming the trial court's
dismissal of petitioners' claim for unpaid brokerage commission.
Petitioners were not the efficient procuring cause [6] in bringing about the sale in
question on July 8, 1977 and are, therefore, not entitled to the stipulated broker's
commission of "5% on the total price."
WHEREFORE, the instant petition is HEREBY DISMISSED.
Costs against petitioners.
SO ORDERED.
Bellosillo, Vitug, and Kapunan, JJ., concur.
Padilla, J., (Chairman), on leave.

[1]

In AC-G.R. CV No. 00221, promulgated on May 29, 1986, and penned by Associate
Justices Floreliana Castro-Bartolome with Associate Justices Jorge R. Coquia
and Bienvenido C. Ejercito, concurring; Rollo, pp. 61-65.

[2]

Third Civil Cases Division.

[3]

Decision rendered on January 5, 1981 by the Court of First Instance (now Regional
Trial Court) of Manila, Branch VII.

[4]

Decision of the Court of Appeals dated May 29, 1986, pp. 2-3; Rollo, pp. 62-63.

[5]

Decision of the Court of Appeals dated May 29, 1986, pp. 3-5; Rollo, pp. 63-65.

[6]

Prats v. Court of Appeals, 81 SCRA 360, 381 [1978].

G.R. No. 94753. April 7, 1993.


MANOTOK BROTHERS, INC., petitioner,
vs.
THE HONORABLE COURT OF APPEALS, THE HONORABLE JUDGE OF THE

REGIONAL TRIAL COURT OF MANILA (Branch VI), and SALVADOR SALIGUMBA,


respondents.
Antonio C. Ravelo for petitioner.
Remigio M. Trinidad for private respondent.
SYLLABUS
1. CIVIL LAW; AGENCY; AGENT'S COMMISSION; WHEN ENTITLED' RULE;
APPLICATION IN CASE AT BAR. In an earlier case, this Court ruled that when there
is a close, proximate and causal connection between the agent's efforts and labor and
the principal's sale of his property, the agent is entitled to a commission. We agree with
respondent Court that the City of Manila ultimately became the purchaser of petitioner's
property mainly through the efforts of private respondent. Without discounting the fact
that when Municipal Ordinance No. 6603 was signed by the City Mayor on May 17,
1968, private respondent's authority had already expired, it is to be noted that the
ordinance was approved on April 26, 1968 when private respondent's authorization was
still in force. Moreover, the approval by the City Mayor came only three days after the
expiration of private respondent's authority. It is also worth emphasizing that from the
records, the only party given a written authority by petitioner to negotiate the sale from
July 5, 1966 to May 14, 1968 was private respondent.
DECISION
CAMPOS, JR., J p:
Petitioner Manotok Brothers., Inc., by way of the instant Petition docketed as G.R. No.
94753 sought relief from this Court's Resolution dated May 3, 1989, which reads:
"G.R. No. 78898 (Manotok Brothers, Inc. vs. Salvador Saligumba and Court of Appeals).
Considering the manifestation of compliance by counsel for petitioner dated April 14,
1989 with the resolution of March 13, 1989 which required the petitioner to locate
private respondent and to inform this Court of the present address of said private
respondent, the Court Resolved to DISMISS this case, as the issues cannot be joined
as private respondent's and counsel's addresses cannot be furnished by the petitioner
to this court." 1
In addition, petitioner prayed for the issuance of a preliminary injunction to prevent
irreparable injury to itself pending resolution by this Court of its cause. Petitioner
likewise urged this Court to hold in contempt private respondent for allegedly adopting
sinister ploy to deprive petitioner of its constitutional right to due process.

Acting on said Petition, this Court in a Resolution 2 dated October 1, 1990 set aside the
entry of judgment made on May 3, 1989 in case G.R. No. 78898; admitted the amended
petition; and issued a temporary restraining order to restrain the execution of the
judgment appealed from.
The amended petition 3 admitted, by this Court sought relief from this Court's
Resolution abovequoted. In the alternative, petitioner begged leave of court to re-file its
Petition for Certiorari 4 (G.R. No. 78898) grounded on the allegation that petitioner was
deprived of its opportunity to be heard.
The facts as found by the appellate court, revealed that petitioner herein (then
defendant-appellant) is the owner of a certain parcel of land and building which were
formerly leased by the City of Manila and used by the Claro M. Recto High School, at
M.F. Jhocson Street, Sampaloc Manila.
By means of a letter 5 dated July 5, 1966, petitioner authorized herein private
respondent Salvador Saligumba to negotiate with the City of Manila the sale of the
aforementioned property for not less than P425,000.00. In the same writing, petitioner
agreed to pay private respondent a five percent (5%) commission in the event the sale
is finally consummated and paid.
Petitioner, on March 4, 1967, executed another letter 6 extending the authority of private
respondent for 120 days. Thereafter, another extension was granted to him for 120
more days, as evidenced by another letter 7 dated June 26, 1967.
Finally, through another letter 8 dated November 16, 1967, the corporation with Rufino
Manotok, its President, as signatory, authorized private respondent to finalize and
consummate the sale of the property to the City of Manila for not less than P410,000.00.
With this letter came another extension of 180 days.
The Municipal Board of the City of Manila eventually, on April 26, 1968, passed
Ordinance No. 6603, appropriating the sum of P410,816.00 for the purchase of the
property which private respondent was authorized to sell. Said ordinance however, was
signed by the City Mayor only on May 17, 1968, one hundred eighty three (183) days
after the last letter of authorization.
On January 14, 1969, the parties signed the deed of sale of the subject property. The
initial payment of P200,000.00 having been made, the purchase price was fully satisfied
with a second payment on April 8, 1969 by a check in the amount of P210,816.00.

Notwithstanding the realization of the sale, private respondent never received any
commission, which should have amounted to P20,554.50. This was due to the refusal of
petitioner to pay private respondent said amount as the former does not recognize the
latter's role as agent in the transaction.
Consequently, on June 29, 1969, private respondent filed a complaint against petitioner,
alleging that he had successfully negotiated the sale of the property. He claimed that it
was because of his efforts that the Municipal Board of Manila passed Ordinance No.
6603 which appropriated the sum for the payment of the property subject of the sale.
Petitioner claimed otherwise. It denied the claim of private respondent on the following
grounds: (1) private respondent would be entitled to a commission only if the sale was
consummated and the price paid within the period given in the respective letters of
authority; and (2) private respondent was not the person responsible for the negotiation
and consummation of the sale, instead it was Filomeno E. Huelgas, the PTA president
for 1967-1968 of the Claro M. Recto High School. As a counterclaim, petitioner (then
defendant-appellant) demanded the sum of P4,000.00 as attorney's fees and for moral
damages.
Thereafter, trial ensued. Private respondent, then plaintiff, testified as to the efforts
undertaken by him to ensure the consummation of the sale. He recounted that it first
began at a meeting with Rufino Manotok at the office of Fructuoso Ancheta, principal of
C.M. Recto High School. Atty. Dominador Bisbal, then president of the PTA, was also
present. The meeting was set precisely to ask private respondent to negotiate the sale
of the school lot and building to the City of Manila. Private respondent then went to
Councilor Mariano Magsalin, the author of the Ordinance which appropriated the money
for the purchase of said property, to present the project. He also went to the Assessor's
Office for appraisal of the value of the property. While these transpired and his letters of
authority expired, Rufino Manotok always renewed the former's authorization until the
last was given, which was to remain in force until May 14, 1968. After securing the
report of the appraisal committee, he went to the City Mayor's Office, which indorsed the
matter to the Superintendent of City Schools of Manila. The latter office approved the
report and so private respondent went back to the City Mayor's Office, which thereafter
indorsed the same to the Municipal Board for appropriation. Subsequently, on April 26,
1968, Ordinance No. 6603 was passed by the Municipal Board for the appropriation of
the sum corresponding to the purchase price. Petitioner received the full payment of the
purchase price, but private respondent did not receive a single centavo as commission.
Fructuoso Ancheta and Atty. Dominador Bisbal both testified acknowledging the
authority of private respondent regarding the transaction.

Petitioner presented as its witnesses Filomeno Huelgas and the petitioner's President,
Rufino Manotok.
Huelgas testified to the effect that after being inducted as PTA president in August, 1967
he followed up the sale from the start with Councilor Magsalin until after it was approved
by the Mayor on May 17, 1968. He. also said that he came to know Rufino Manotok
only in August, 1968, at which meeting the latter told him that he would be given a
"gratification" in the amount of P20,000.00 if the sale was expedited.
Rufino Manotok confirmed that he knew Huelgas and that there was an agreement
between the two of them regarding the "gratification".
On rebuttal, Atty. Bisbal said that Huelgas was present in the PTA meetings from 1965
to 1967 but he never offered to help in the acquisition of said property. Moreover, he
testified that Huelgas was aware of the fact that it was private respondent who was
negotiating the sale of the subject property.
Thereafter, the then Court of First Instance (now, Regional Trial Court) rendered
judgment sentencing petitioner and/or Rufino Manotok to pay unto private respondent
the sum of P20,540.00 by way of his commission fees with legal interest thereon from
the date of the filing of the complaint until payment. The lower court also ordered
petitioner to pay private respondent the amount of P4,000.00 as and for attorney's fees.
9
Petitioner appealed said decision, but to no avail. Respondent Court of Appeals affirmed
the said ruling of the trial court. 10
Its Motion for Reconsideration having been denied by respondent appellate court in a
Resolution dated June 22, 1987, petitioner seasonably elevated its case on Petition for
Review on Certiorari on August 10, 1987 before this Court, docketed as G.R. No.
78898.
Acting on said Petition, this Court issued a Minute Resolution 11 dated August 31, 1987
ordering private respondent to comment on said Petition.
It appearing that the abovementioned Resolution was returned unserved with the
postmaster's notation "unclaimed", this Court in another Resolution 12 dated March 13,
1989, required petitioner to locate private respondent and to inform this Court of the
present address of private respondent within ten (10) days from notice. As petitioner
was unsuccessful in its efforts to locate private respondent, it opted to manifest that

private respondent's last address was the same as that address to which this. Court's
Resolution was forwarded.
Subsequently, this Court issued a Resolution dated May 3, 1989 dismissing petitioner's
case on the ground that the issues raised in the case at bar cannot be joined. Thus, the
above-entitled case became final and executory by the entry of judgment on May 3,
1989.
Thereafter, on January 9, 1990 private respondent filed a Motion to Execute the said
judgment before the court of origin. Upon discovery of said development, petitioner
verified with the court of origin the circumstances by which private respondent obtained
knowledge of the resolution of this Court. Sensing a fraudulent scheme employed by
private respondent, petitioner then instituted this instant Petition for Relief, on August
30, 1990. On September 13, 1990, said petition was amended to include, in the
alternative, its petition to re-file its Petition for Certiorari (G.R. No. 78898).
The sole issue to be addressed in this petition is whether or not private respondent is
entitled to the five percent (5%) agent's commission.
It is petitioner's contention that as a broker, private respondent's job is to bring together
the parties to a transaction. Accordingly, if the broker does not succeed in bringing the
minds of the purchaser and the vendor to an agreement with respect to the sale, he is
not entitled to a commission.
Private respondent, on the other hand, opposes petitioner's position maintaining that it
was because of his efforts that a purchase actually materialized between the parties.
We rule in favor of private respondent.
At first sight, it would seem that private respondent is not entitled to any commission as
he was not successful in consummating the sale between the parties, for the sole
reason that when the Deed of Sale was finally executed, his extended authority had
already expired. By this alone, one might be misled to believe that this case squarely
falls within the ambit of the established principle that a broker or agent is not entitled to
any commission until he has successfully done the job given to him. 13
Going deeper however into the case would reveal that it is within the coverage of the
exception rather than of the general rule, the exception being that enunciated in the
case of Prats vs. Court of Appeals. 14 In the said case, this Court ruled in favor of
claimant-agent, despite the expiration of his authority, when a sale was finally
consummated.

In its decision in the abovecited case, this Court said, that while it was respondent
court's (referring to the Court of Appeals) factual findings that petitioner Prats (claimantagent) was not the efficient procuring cause in bringing about the sale (prescinding from
the fact of expiration of his exclusive authority), still petitioner was awarded
compensation for his services. And We quote:
"In equity, however, the Court notes that petitioner had diligently taken steps to bring
back together respondent Doronila and the SSS,.
xxx xxx xxx
The court has noted on the other hand that Doronila finally sold the property to the
Social Security System at P3.25 per square meter which was the very same price
counter-offered by the Social Security System and accepted by him in July, 1967 when
he alone was dealing exclusively with the said buyer long before Prats came into the
picture but that on the other hand Prats' efforts somehow were instrumental in bringing
them together again and finally consummating the transaction at the same price of
P3.25 per square meter, although such finalization was after the expiration of Prats'
extended exclusive authority.
xxx xxx xxx
Under the circumstances, the Court grants in equity the sum of One hundred Thousand
Pesos (P100,000.00) by way of compensation for his efforts and assistance in the
transaction, which however was finalized and consummated after the expiration of his
exclusive authority . . ." 15 (Emphasis supplied.).
From the foregoing, it follows then that private respondent herein, with more reason,
should be paid his commission, While in Prats vs. Court of Appeals, the agent was not
even the efficient procuring cause in bringing about the sale, unlike in the case at bar, it
was still held therein that the agent was entitled to compensation. In the case at bar,
private respondent is the efficient procuring cause for without his efforts, the municipality
would not have anything to pass and the Mayor would not have anything to approve.
In an earlier case, 16 this Court ruled that when there is a close, proximate and causal
connection between the agent's efforts and labor and the principal's sale of his property,
the agent is entitled to a commission.
We agree with respondent Court that the City of Manila ultimately became the
purchaser of petitioner's property mainly through the efforts of private respondent.
Without discounting the fact that when Municipal Ordinance No. 6603 was signed by the

City Mayor on May 17, 1968, private respondent's authority had already expired, it is to
be noted that the ordinance was approved on April 26, 1968 when private respondent's
authorization was still in force. Moreover, the approval by the City Mayor came only
three days after the expiration of private respondent's authority. It is also worth
emphasizing that from the records, the only party given a written authority by petitioner
to negotiate the sale from July 5, 1966 to May 14, 1968 was private respondent.
Contrary to what petitioner advances, the case of Danon vs. Brimo, 17 on which it
heavily anchors its justification for the denial of private respondent's claim, does not
apply squarely to the instant petition. Claimant-agent in said case fully comprehended
the possibility that he may not realize the agent's commission as he was informed that
another agent was also negotiating the sale and thus, compensation will pertain to the
one who finds a purchaser and eventually effects the sale. Such is not the case herein.
On the contrary, private respondent pursued with his goal of seeing that the parties
reach an agreement, on the belief that he alone was transacting the business with the
City Government as this was what petitioner made it to appear.
While it may be true that Filomeno Huelgas followed up the matter with Councilor
Magsalin, the author of Municipal Ordinance No. 6603 and Mayor Villegas, his
intervention regarding the purchase came only after the ordinance had already been
passed when the buyer has already agreed to the purchase and to the price for
which said property is to be paid. Without the efforts of private respondent then, Mayor
Villegas would have nothing to approve in the first place. It was actually private
respondent's labor that had set in motion the intervention of the third party that
produced the sale, hence he should be amply compensated.
WHEREFORE, in the light of the foregoing and finding no reversible error committed by
respondent Court, the decision of the Court of Appeals is hereby AFFIRMED. The
temporary restraining order issued by this Court in its Resolution dated October 1, 1990
is hereby lifted.
SO ORDERED.
Narvasa, C .J ., Padilla, Regalado and Nocon, JJ ., concur.
Footnotes
1. Rollo of G.R. No. 94753, p. 12.
2. Ibid., p. 77.
3. Ibid., p. 47.

4. Rollo of G.R. No. 78898, p. 12.


5. Supra, note 1 at p. 156.
6. Ibid., p. 160.
7. Ibid., p. 161.
8. Ibid., p. 162.
9. Decision rendered by then Court of Instance, Branch VI, Manila in Civil Case No.
76997, Rollo, pp. 13-18.
10. Penned by Associate Justice Vicente V. Mendoza and concurred in by Associate
Justices Manuel C. Herrera and Jorge S. Imperial. Rollo, pp. 19-28.
11. Supra, note 4 at p. 67.
12. Ibid., p. 69.
13. Ramos vs. Court of Appeals, 63 SCRA 331 (1975).
14. 81 SCRA 360 (1978).
15. Ibid., pp. 383-385.
16. Reyes vs. Manaoat, et al., 8 C.A. Rep. 2d 368 (1965).
17. 42 Phil. 133 (1921).
Facts:
Ricardo Manotoc Jr. was one of the two principal stockholders of TransInsular Management Inc. and the Manotoc Securities Inc., a
stock brokerage house. He was in US for a certain time. He went home
to file a petition with SEC for appointment of a management committee for
both businesses. Pending disposition of the case, the SEC requested the
Commissioner of Immigration not to clear Manotoc for departure, and
a memorandum to this effect was issued by the Commissioner. Meanwhile,
six clients of Manotoc Securities Inc. filed separate criminal complaints for
estafa against Manotoc. Manotoc posted bail in all cases. He then filed a

motion for permission to leave the country in each trial courts stating as
ground therefor his desire to go to the United States, "relative to
his business transactions and opportunities." His motion was denied. He also
wrote the Immigration Commissioner requesting the recall or withdrawal of
the latter's memorandum, but said request was also denied. Thus, he filed a
petition for certiorari and mandamus before the Court of Appeals seeking to
annul the judges' orders, as well as the communication-request of the SEC,
denying his leave to travel abroad. The same was denied; hence, he
appealed to the Supreme Court. He contends that having been admitted to
bail as a matter of right, the courts which granted him bail could not prevent
him
from
exercising
his constitutional right
to
travel.
Issue:
Whether a court has the power to prohibit a person admitted to bail from
leaving the Philippines.
Held:
A court has the power to prohibit a person admitted to bail from leaving the
Philippines. This is a necessary consequence of the nature and function of
a bail bond. Rule 114, Section 1 of the Rules of Court defines bail as the
security required and given for the release of a person who is in the custody
of the law, that he will appear before any court in which his appearance may
be required as stipulated in the bail bond or recognizance.
The condition imposed upon petitioner to make himself available at all times
whenever the court requires his presence operates as a valid restriction on
his right to travel. Indeed, if the accused were allowed to leave the
Philippines without sufficient reason, he may be placed beyond the reach of
the courts. (Manotoc vs Court of Appeals, G.R. No. L-62100, May 30,
1986)
- See more at: http://legalvault.blogspot.com/2014/12/manotoc-vs-courtof-appeals-digest.html#sthash.eIe0Ix34.dpuf
[G.R. No. 102784. February 28, 1996]
ROSA

LIM, petitioner, vs. COURT


PHILIPPINES, respondents.

OF

APPEALS

and

PEOPLE

OF

THE

SYLLABUS
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACTS ARE OBLIGATORY
IN WHATEVER FORM ENTERED; PLACE OF SIGNATURE IMMATERIAL;
PARTY BOUND THEREON THE MOMENT SHE AFFIXED HER SIGNATURE.
- Rosa Lims signature indeed appears on the upper portion of the receipt
immediately below the description of the items taken. We find that this fact does not
have the effect of altering the terms of the transaction from a contract of agency to
sell on commission basis to a contract of sale. Neither does it indicate absence or
vitiation of consent thereto on the part of Rosa Lim which would make the contract
void or voidable. The moment she affixed her signature thereon, petitioner became
bound by all the terms stipulated in the receipt. She, thus, opened herself to all the
legal obligations that may arise from their breach. This is clear from Article 1356 of
the New Civil Code which provides: Contracts shall be obligatory in whatever form
they may have been entered into, provided all the essential requisites for their
validity are present. In the case before us, the parties did not execute a notarial will
but a simple contract of agency to sell on commission basis, thus making the
position of petitioners signature thereto immaterial.
2. ID.; ID.; CONTRACT OF AGENCY; NO FORMALITIES REQUIRED. - There are
some provisions of the law which require certain formalities for particular
contracts. The first is when the form is required for the validity of the contract; the
second is when it is required to make the contract effective as against the third
parties such as those mentioned in Articles 1357 and 1358; and the third is when
the form is required for the purppose of proving the existence of the contract, such
as those provided in the Statute of Frauds in Article 1403. A contract of agency to
sell on commission basis does not belong to any of these three categories, hence, it
is valid and enforceable in whatever form it may be entered into.
3. REMEDIAL LAW; EVIDENCE; WEIGHT THEREOF NOT DETERMINED BY
SUPERIORITY IN NUMBERS OF WITNESSES. - Weight of evidence is not
determined mathematically by the numerical superiority of the witnesses testifying
to a given fact. It depends upon its practical effect in inducing belief on the part of
the judge trying the case.
4. ID.; ID.; CREDIBILITY; FINDINGS OF THE TRIAL AND APPELLATE COURTS
GENERALLY NOT INTERFERED WITH ON APPEAL. - In the case at bench, both
the trial court and the Court of Appeals gave weight to the testimony of Vicky
Suarez that she did not authorize Rosa Lim to return the pieces of jewelry to
Nadera. We shall not disturb this finding of the respondent court. It is well settled
that we should not interfere with the judgment of the trial court in determining the

credibility of witnesses, unless there appears in the record some fact or


circumstances of weight and influence which has been overlooked or the
significance of which has been misinterpreted. The reason is that the trial court is in
a better position to determine questions involving credibility having heard the
witnesses and having observed their deportment and manner of testifying during the
trial.
5. CRIMINAL LAW; ESTAFA WITH ABUSE OF CONFIDENCE; ELEMENTS. - The
elements of estafa with abuse of confidence under this subdivision are as follows:
(1) That money, goods, or other personal property be received by the offender in
trust, or on commission, or for administration, or under any other obligation involving
the duty to make delivery of, or to return, the same; (2) That there be
misappropriation or conversion of such money or property by the offender or denial
on his part of such receipt; (3) That such misappropriation or conversion or denial is
to the prejudice of another; and (4) That there is a demand made by the offended
party to the offender (Note: The 4th element is not necessary when there is
evidence of misappropriation of the goods by the defendant).
6. ID.; ID.; ID.; PRESENT IN CASE AT BAR. All the elements of estafa under Article
315, Paragraph 1(b) of the Revised Penal Code, are present in the case at
bench. First, the receipt marked as Exhibit A proves that petitioner Rosa Lim
received the pieces of jewelry in trust from Vicky Suarez to be sold on commission
basis. Second, petitioner misappropriated or converted the jewelry to her own use;
and, third, such misappropriation obviously caused damaged and prejudice to the
private respondent.
APPEARANCES OF COUNSEL
Zosa & Quijano Law Offices for petitioner.
The Solicitor General for respondents.
DECISION
HERMOSISIMA, JR., J.:
This is a petition to review the Decision of the Court of Appeals in CA-G.R. CR No.
10290, entitled People v. Rosa Lim, promulgated on August 30, 1991.
On January 26, 1989, an Information for Estafa was filed against petitioner Rosa
Lim before Branch 92 of the Regional Trial Court of Quezon City. [1] The Information
reads:

That on or about the 8th day of October 1987, in Quezon City, Philippines and within the
jurisdiction of this Honorable Court, the said accused with intent to gain, with unfaithfulness
and/or abuse of confidence, did, then and there, wilfully, unlawfully and feloniously defraud one
VICTORIA SUAREZ, in the following manner, to wit: on the date and place aforementioned
said accused got and received in trust from said complainant one (1) ring 3.35 solo worth
P169,000.00, Philippine Currency, with the obligation to sell the same on commission basis and
to turn over the proceeds of the sale to said complainant or to return said jewelry if unsold, but
the said accused once in possession thereof and far from complying with her obligation despite
repeated demands therefor, misapplied, misappropriated and converted the same to her own
personal use and benefit, to the damage and prejudice of the said offended party in the amount
aforementioned and in such other amount as may be awarded under the provisions of the Civil
Code.
CONTRARY TO LAW.[2]
After arraignment and trial on the merits, the trial court rendered judgment, the
dispositive portion of which reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered:
1. Finding accused Rosa Lim GUILTY beyond reasonable doubt of the offense of estafa as
defined and penalized under Article 315, paragraph 1(b) of the Revised Penal Code;
2. Sentencing her to suffer the Indeterminate penalty of FOUR (4) YEARS and TWO (2)
MONTHS of prision correccional as minimum, to TEN (10) YEARS of prision mayor as
maximum;
3. Ordering her to return to the offended party Mrs. Victoria Suarez the ring or its value in the
amount of P169,000 without subsidiary imprisonment in case of insolvency; and
4. To pay costs.[3]
On appeal, the Court of Appeals affirmed the Judgment of conviction with the
modification that the penalty imposed shall be six (6) years, eight (8) months and
twenty- one (21) days to twenty (20) years in accordance with Article 315, paragraph 1
of the Revised Penal Code.[4]
Petitioner filed a motion for reconsideration before the appellate court on September
20, 1991, but the motion was denied in a Resolution dated November 11, 1991.
In her final bid to exonerate herself, petitioner filed the instant petition for review
alleging the following grounds:

I
THE RESPONDENT COURT VIOLATED THE CONSTITUTION, THE RULES OF COURT
AND THE DECISION OF THIS HONORABLE COURT IN NOT PASSING UPON THE
FIRST AND THIRD ASSIGNED ERRORS IN PETITIONERS BRIEF;
II
THE RESPONDENT COURT FAILED TO APPLY THE PRINCIPLE THAT THE PAROL
EVIDENCE RULE WAS WAIVED WHEN THE PRIVATE PROSECUTOR CROSSEXAMINED THE PETITIONER AND AURELIA NADERA AND WHEN COMPLAINANT
WAS CROSS-EXAMINED BY THE COUNSEL FOR THE PETITIONER AS TO THE TRUE
NATURE OF THE AGREEMENT BETWEEN THE PARTIES WHEREIN IT WAS
DISCLOSED THAT THE TRUE AGREEMENT OF THE PARTIES WAS A SALE OF
JEWELRIES AND NOT WHAT WAS EMBODIED IN THE RECEIPT MARKED AS
EXHIBIT A WHICH WAS RELIED UPON BY THE RESPONDENT COURT IN AFFIRMING
THE JUDGMENT OF CONVICTION AGAINST HEREIN PETITIONER; and
III
THE RESPONDENT COURT FAILED TO APPLY IN THIS CASE THE PRINCIPLE
ENUNCIATED BY THIS HONORABLE COURT TO THE EFFECT THAT ACCUSATION IS
NOT, ACCORDING TO THE FUNDAMENTAL LAW, SYNONYMOUS WITH GUILT: THE
PROSECUTION MUST OVERTHROW THE PRESUMPTION OF INNOCENCE WITH
PROOF OF GUILT BEYOND REASONABLE DOUBT. TO MEET THIS STANDARD,
THERE IS NEED FOR THE MOST CAREFUL SCRUTINY OF THE TESTIMONY OF THE
STATE, BOTH ORAL AND DOCUMENTARY, INDEPENDENTLY OF WHATEVER
DEFENSE IS OFFERED BY THE ACCUSED. ONLY IF THE JUDGE BELOW AND THE
APPELLATE TRIBUNAL COULD ARRIVE AT A CONCLUSION THAT THE CRIME HAD
BEEN COMMITTED PRECISELY BY THE PERSON ON TRIAL UNDER SUCH AN
EXACTING TEST SHOULD SENTENCE THUS REQUIRED THAT EVERY INNOCENCE
BE DULY TAKEN INTO ACCOUNT. THE PROOF AGAINST HIM MUST SURVIVE THE
TEST OF REASON, THE STRONGEST SUSPICION MUST NOT BE PERMITTED TO
SWAY JUDGMENT. (People v. Austria, 195 SCRA 700)[5]
Herein the pertinent facts as alleged by the prosecution.
On or about October 8, 1987, petitioner Rosa Lim who had come from Cebu
received from private respondent Victoria Suarez the following two pieces of jewelry:
one (1) 3.35 carat diamond ring worth P169,000.00 and one (1) bracelet worth
P170,000.00, to be sold on commission basis. The agreement was reflected in a receipt

marked as Exhibit A[6] for the prosecution. The transaction took place at the Sir Williams
Apartelle in Timog Avenue, Quezon City, where Rosa Lim was temporarily billeted.
On December 15, 1987, petitioner returned the bracelet to Vicky Suarez, but failed
to return the diamond ring or to turn over the proceeds thereof if sold. As a result,
private complainant, aside from making verbal demands, wrote a demand letter [7] to
petitioner asking for the return of said ring or the proceeds of the sale thereof. In
response, petitioner, thru counsel, wrote a letter [8] to private respondents counsel
alleging that Rosa Lim had returned both ring and bracelet to Vicky Suarez sometime in
September, 1987, for which reason, petitioner had no longer any liability to Mrs. Suarez
insofar as the pieces of jewelry were concerned. Irked, Vicky Suarez filed a complaint
for estafa under Article 315, par. 1(b) of the Revised Penal Code for which the
petitioner herein stands convicted.
Petitioner has a different version.
Rosa Lim admitted in court that she arrived in Manila from Cebu sometime in
October 1987, together with one Aurelia Nadera, who introduced petitioner to private
respondent, and that they were lodged at the Williams Apartelle in Timog, Quezon
City.Petitioner denied that the transaction was for her to sell the two pieces of jewelry on
commission basis. She told Mrs. Suarez that she would consider buying the pieces of
jewelry for her own use and that she would inform the private complainant of such
decision before she goes back to Cebu. Thereafter, the petitioner took the pieces of
jewelry and told Mrs. Suarez to prepare the necessary paper for me to sign because I
was not yet prepare(d) to buy it. [9] After the document was prepared, petitioner signed
it. To prove that she did not agree to the terms of the receipt regarding the sale on
commission basis, petitioner insists that she signed the aforesaid document on the
upper portion thereof and not at the bottom where a space is provided for the signature
of the person(s) receiving the jewelry.[10]
On October 12, 1987 before departing for Cebu, petitioner called up Mrs. Suarez by
telephone in order to inform her that she was no longer interested in the ring and
bracelet. Mrs. Suarez replied that she was busy at the time and so, she instructed the
petitioner to give the pieces of jewelry to Aurelia Nadera who would in turn give them
back to the private complainant. The petitioner did as she was told and gave the two
pieces of jewelry to Nadera as evidenced by a handwritten receipt, dated October 12,
1987.[11]
Two issues need to be resolved: First, what was the real transaction between Rosa
Lim and Vicky Suarez - a contract of agency to sell on commission basis as set out in

the receipt or a sale on credit; and, second, was the subject diamond ring returned to
Mrs. Suarez through Aurelia Nadera?
Petitioner maintains that she cannot be liable for estafa since she never received
the jewelries in trust or on commission basis from Vicky Suarez. The real agreement
between her and the private respondent was a sale on credit with Mrs. Suarez as the
owner-seller and petitioner as the buyer, as indicated by the fact that petitioner did not
sign on the blank space provided for the signature of the person receiving the jewelry
but at the upper portion thereof immediately below the description of the items taken. [12]
The contention is far from meritorious.
The receipt marked as Exhibit A which establishes a contract of agency to sell on
commission basis between Vicky Suarez and Rosa Lim is herein reproduced in order to
come to a proper perspective:
THIS IS TO CERTIFY, that I received from Vicky Suarez PINATUTUNAYAN KO na aking
tinanggap kay _______________ the following jewelries:
ang mga alahas na sumusunod:
Description Price
Mga Uri Halaga
1 ring 3.35 dolo P 169,000.00
1 bracelet 170.000.00
total Kabuuan P 339.000.00
in good condition, to be sold in CASH ONLY within . . .days from date of signing this receipt na
nasa mabuting kalagayan upang ipagbili ng KALIWAAN (ALCONTADO) lamang sa loob ng. . .
araw mula ng ating pagkalagdaan:
if I could not sell, I shall return all the jewelry within the period mentioned above; if I would be
able to sell, I shall immediately deliver and account the whole proceeds of sale thereof to the
owner of the jewelries at his/her residence; my compensation or commission shall be the overprice on the value of each jewelry quoted above. I am prohibited to sell any jewelry on credit or
by installment; deposit, give for safekeeping; lend, pledge or give as security or guaranty under
any circumstance or manner, any jewelry to other person or persons.

kung hindi ko maipagbili ay isasauli ko ang lahat ng alahas sa loob ng taning na panahong
nakatala sa itaas; kung maipagbili ko naman ay dagli kong isusulit at ibibigay ang buong
pinagbilhan sa may-ari ng mga alahas sa kanyang bahay tahanan; ang aking gantimpala ay ang
mapapahigit na halaga sa nakatakdang halaga sa itaas ng bawat alahas HIND I ko
ipinahihintulutang ipa-u-u-tang o ibibigay na hulugan ang alin mang alahas, ilalagak,
ipagkakatiwala; ipahihiram; isasangla o ipananagot kahit sa anong paraan ang alin mang alahas
sa ibang mga tao o tao.
I sign my name this . . . day of. . . 19 . . . at Manila, NILALAGDAAN ko ang kasunduang ito
ngayong ika____ ng dito sa Maynila.
Signature of Persons who
received jewelries (Lagda
ng Tumanggap ng mga
Alahas)
Address: . . . . . . . . . . .
Rosa Lims signature indeed appears on the upper portion of the receipt immediately
below the description of the items taken. We find that this fact does not have the effect
of altering the terms of the transaction from a contract of agency to sell on commission
basis to a contract of sale. Neither does it indicate absence or vitiation of consent
thereto on the part of Rosa Lim which would make the contract void or voidable. The
moment she affixed her signature thereon, petitioner became bound by all the terms
stipulated in the receipt. She, thus, opened herself to all the legal obligations that may
arise from their breach. This is clear from Article 1356 of the New Civil Code which
provides:
Contracts shall be obligatory in whatever form they may have been entered into, provided all the
essential requisites for their validity are present. x x x.
However, there are some provisions of the law which require certain formalities for
particular contracts. The first is when the form is required for the validity of the contract;
the second is when it is required to make the contract effective as against third parties
such as those mentioned in Articles 1357 and 1358; and the third is when the form is
required for the purpose of proving the existence of the contract, such as those provided
in the Statute of Frauds in Article 1403. [13] A contract of agency to sell on commission
basis does not belong to any of these three categories, hence it is valid and enforceable
in whatever form it may be entered into.

Furthermore, there is only one type of legal instrument where the law strictly
prescribes the location of the signature of the parties thereto. This is in the case of
notarial wills found in Article 805 of the Civil Code, to wit:
Every will, other than a holographic will, must be subscribed at the end thereof by the testator
himself x x x.
The testator or the person requested by him to write his name and the instrumental witnesses of
the will, shall also sign, as aforesaid, each and every page thereof, except the last, on the left
margin x x x.
In the case before us, the parties did not execute a notarial will but a simple contract
of agency to sell on commission basis, thus making the position of petitioners signature
thereto immaterial.
Petitioner insists, however, that the diamond ring had been returned to Vicky Suarez
through Aurelia Nadera, thus relieving her of any liability. Rosa Lim testified to this effect
on direct examination by her counsel:
Q: And when she left the jewelries with you, what did you do thereafter?
A: On October 12, I was bound for Cebu. So I called up Vicky through
telephone and informed her that I am no longer interested in the bracelet
and ring and that 1 will just return it.
Q: And what was the reply of Vicky Suarez?
A: She told me that she could not come to the apartelle since she was very
busy. So, she asked me if Aurelia was there and when I informed her that
Aurelia was there, she instructed me to give the pieces of jewelry to Aurelia
who in turn will give it back to Vicky.
Q: And you gave the two (2) pieces of jewelry to Aurelia Nadera?
A: Yes, Your Honor.[14]
This was supported by Aurelia Nadera in her direct examination by petitioners
counsel:
Q: Do you know if Rosa Lim in fact returned the jewelries ?
A: She gave the jewelries to me.

Q: Why did Rosa Lim give the jewelries to you?


A: Rosa Lim called up Vicky Suarez the following morning and told Vicky
Suarez that she was going home to Cebu and asked if she could give the
jewelries to me.
Q: And when did Rosa Lim give to you the jewelries?
A: Before she left for Cebu.[15]
On rebuttal, these testimonies were belied by Vicky Suarez herself:
Q: It has been testified to here also by both Aurelia Nadera and Rosa Lim that
you gave authorization to Rosa Lim to turn over the two (2) pieces of
jewelries mentioned in Exhibit A to Aurelia Nadera, what can you say about
that?
A:. That is not true sir, because at that time Aurelia Nadera is highly indebted to
me in the amount of P 140,000.00, so if I gave it to Nadera, I will be
exposing myself to a high risk.[16]
The issue as to the return of the ring boils down to one of credibility. Weight of
evidence is not determined mathematically by the numerical superiority of the witnesses
testifying to a given fact. It depends upon its practical effect in inducing belief on the part
of the judge trying the case. [17] In the case at bench, both the trial court and the Court of
Appeals gave weight to the testimony of Vicky Suarez that she did not authorize Rosa
Lim to return the pieces of jewelry to Nadera. The respondent court, in affirming the trial
court, said:
x x x This claim (that the ring had been returned to Suarez thru Nadera) is disconcerting. It
contravenes the very terms of Exhibit A. The instruction by the complaining witness to appellant
to deliver the ring to Aurelia Nadera is vehemently denied by the complaining witness, who
declared that she did not authorize and/or instruct appellant to do so. And thus, by delivering the
ring to Aurelia without the express authority and consent of the complaining witness, appellant
assumed the right to dispose of the jewelry as if it were hers, thereby committing conversion, a
clear breach of trust, punishable under Article 315, par. 1(b), Revised Penal Code.
We shall not disturb this finding of the respondent court. It is well settled that we
should not interfere with the judgment of the trial court in determining the credibility of
witnesses, unless there appears in the record some fact or circumstance of weight and
influence which has been overlooked or the significance of which has been
misinterpreted. The reason is that the trial court is in a better position to determine

questions involving credibility having heard the witnesses and having observed their
deportment and manner of testifying during the trial. [18]
Article 315, par. 1(b) of the Revised Penal Code provides:
ART. 315. Swindling (estafa). - Any person who shall defraud another by any of the means
mentioned hereinbelow shall be punished by:
xxx xxx xxx
(b) By misappropriating or converting, to the prejudice of another, money, goods, or any other
personal property received by the offender in trust or on commission, or for administration, or
under any other obligation involving the duty to make delivery of or to return the same, even
though such obligation be totally or partially guaranteed by a bond; or by denying having
received such money, goods, or other property.
xxx xxx xxx
The elements of estafa with abuse of confidence under this subdivision are as
follows: (1) That money, goods, or other personal property be received by the offender
in trust, or on commission, or for administration, or under any other obligation involving
the duty to make delivery of, or to return, the same; (2) That there be misappropriation
or conversion of such money or property by the offender or denial on his part of such
receipt; (3) That such misappropriation or conversion or denial is to the prejudice of
another; and (4) That there is a demand made by the offended party to the offender
(Note: The 4th element is not necessary when there is evidence of misappropriation of
the goods by the defendant).[19]
All the elements of estafa under Article 315, Paragraph 1(b) of the Revised Penal
Code, are present in the case at bench. First, the receipt marked as Exhibit A proves
that petitioner Rosa Lim received the pieces of jewelry in trust from Vicky Suarez to be
sold on commission basis. Second, petitioner misappropriated or converted the jewelry
to her own use; and, third, such misappropriation obviously caused damage and
prejudice to the private respondent.
WHEREFORE, the petition is DENIED and the Decision of the Court of Appeals is
hereby AFFIRMED.
Costs against petitioner.
SO ORDERED.

Padilla (Chairman), Bellosillo, and Kapunan, JJ., concur.


Vitug, J., In the results.

G.R. No. L-30573 October 29, 1971


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, intervenorrespondent.
Teofilo Leonin for petitioners-appellants.
Osorio, Osorio & Osorio for respondent-appellee.
Teofilo P. Purisima in his own behalf as intervenor-respondent.

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 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% 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
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 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 inDuhart, 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 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 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 petitionerappellant 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.
Concepcion, C.J., Reyes, J.B.L., Makalintal, Zaldivar, Castro, Fernando, Teehankee,
Barredo and Villamor, JJ., concur.

Footnotes
THIRD DIVISION
G.R. No. 171052

January 28, 2008

PHILIPPINE HEALTH-CARE PROVIDERS, INC. (MAXICARE),petitioner,


vs.
CARMELA ESTRADA/CARA HEALTH SERVICES, respondent.
DECISION
NACHURA, J.:
This petition for review on certiorari assails the Decision1 dated June 16, 2005 of the
Court of Appeals (CA) in CA-G.R. CV No. 66040 which affirmed in toto the
Decision2 dated October 8, 1999 of the Regional Trial Court (RTC), Branch 135, of
Makati City in an action for breach of contract and damages filed by respondent
Carmela Estrada, sole proprietor of Cara Health Services, against Philippine HealthCare Providers, Inc. (Maxicare).
The facts, as found by the CA and adopted by Maxicare in its petition, follow:
[Maxicare] is a domestic corporation engaged in selling health insurance plans
whose Chairman Dr. Roberto K. Macasaet, Chief Operating Officer Virgilio del
Valle, and Sales/Marketing Manager Josephine Cabrera were impleaded as
defendants-appellants.

On September 15, 1990, [Maxicare] allegedly engaged the services of Carmela


Estrada who was doing business under the name of CARA HEALTH [SERVICES]
to promote and sell the prepaid group practice health care delivery program
called MAXICARE Plan with the position of Independent Account Executive.
[Maxicare] formally appointed [Estrada] as its "General Agent," evidenced by a
letter-agreement dated February 16, 1991. The letter agreement provided for
plaintiff-appellees [Estradas] compensation in the form of commission, viz.:
Commission
In consideration of the performance of your functions and duties as
specified in this letter-agreement, [Maxicare] shall pay you a commission
equivalent to 15 to 18% from individual, family, group accounts; 2.5 to
10% on tailored fit plans; and 10% on standard plans of commissionable
amount on corporate accounts from all membership dues collected and
remitted by you to [Maxicare].
[Maxicare] alleged that it followed a "franchising system" in dealing with its
agents whereby an agent had to first secure permission from [Maxicare] to list a
prospective company as client. [Estrada] alleged that it did apply with [Maxicare]
for the MERALCO account and other accounts, and in fact, its franchise to solicit
corporate accounts, MERALCO account included, was renewed on February 11,
1991.
Plaintiff-appellee [Estrada] submitted proposals and made representations to the
officers of MERALCO regarding the MAXICARE Plan but when MERALCO
decided to subscribe to the MAXICARE Plan, [Maxicare] directly negotiated with
MERALCO regarding the terms and conditions of the agreement and left plaintiffappellee [Estrada] out of the discussions on the terms and conditions.
On November 28, 1991, MERALCO eventually subscribed to the MAXICARE
Plan and signed a Service Agreement directly with [Maxicare] for medical
coverage of its qualified members, i.e.: 1) the enrolled dependent/s of regular
MERALCO executives; 2) retired executives and their dependents who have
opted to enroll and/or continue their MAXICARE membership up to age 65; and
3) regular MERALCO female executives (exclusively for maternity benefits). Its
duration was for one (1) year from December 1, 1991 to November 30, 1992.
The contract was renewed twice for a term of three (3) years each, the first
started on December 1, 1992 while the second took effect on December 1, 1995.

The premium amounts paid by MERALCO to [Maxicare] were alleged to be the


following: a) P215,788.00 in December 1991; b)P3,450,564.00 in 1992;
c) P4,223,710.00 in 1993; d)P4,782,873.00 in 1994; e) P5,102,108.00 in 1995;
andP2,394,292.00 in May 1996. As of May 1996, the total amount of premium
paid by MERALCO to [Maxicare] was P20,169,335.00.
On March 24, 1992, plaintiff-appellee [Estrada], through counsel, demanded from
[Maxicare] that it be paid commissions for the MERALCO account and nine (9)
other accounts. In reply, [Maxicare], through counsel, denied [Estradas] claims
for commission for the MERALCO and other accounts because [Maxicare]
directly negotiated with MERALCO and the other accounts(,) and that no agent
was given the go signal to intervene in the negotiations for the terms and
conditions and the signing of the service agreement with MERALCO and the
other accounts so that if ever [Maxicare] was indebted to [Estrada], it was only
forP1,555.00 and P43.l2 as commissions on the accounts of Overseas Freighters
Co. and Mr. Enrique Acosta, respectively.
[Estrada] filed a complaint on March 18, 1993 against [Maxicare] and its officers
with the Regional Trial Court (RTC) of Makati City, docketed as Civil Case No.
93-935, raffled to Branch 135.
Defendants-appellants [Maxicare] and its officers filed their Answer with
Counterclaim on September 13, 1993 and their Amended Answer with
Counterclaim on September 28, 1993, alleging that: plaintiff-appellee [Estrada]
had no cause of action; the cause of action, if any, should be is against
[Maxicare] only and not against its officers; CARA HEALTHs appointment as
agent under the February 16, 1991 letter-agreement to promote the MAXICARE
Plan was for a period of one (1) year only; said agency was not renewed after the
expiration of the one (1) year period; [Estrada] did not intervene in the
negotiations of the contract with MERALCO which was directly negotiated by
MERALCO with [Maxicare]; and [Estradas] alleged other clients/accounts were
not accredited with [Maxicare] as required, since the agency contract on the
MAXICARE health plans were not renewed. By way of counterclaim, defendantsappellants [Maxicare] and its officers claimed P100,000.00 in moral damages for
each of the officers of [Maxicare] impleaded as defendant,P100,000.00 in
exemplary damages, P100,000.00 in attorneys fees, and P10,000.00 in litigation
expenses.3
After trial, the RTC found Maxicare liable for breach of contract and ordered it to pay
Estrada actual damages in the amount equivalent to 10% of P20,169,335.00,
representing her commission for the total premiums paid by Meralco to Maxicare from

the year 1991 to 1996, plus legal interest computed from the filing of the complaint on
March 18, 1993, and attorneys fees in the amount of P100,000.00.
On appeal, the CA affirmed in toto the RTCs decision. In ruling for Estrada, both the
trial and appellate courts held that Estrada was the "efficient procuring cause" in the
execution of the service agreement between Meralco and Maxicare consistent with our
ruling in Manotok Brothers, Inc. v. Court of Appeals.4
Undaunted, Maxicare comes to this Court and insists on the reversal of the RTC
Decision as affirmed by the CA, raising the following issues, to wit:
1. Whether the Court of Appeals committed serious error in affirming Estradas
entitlement to commissions for the execution of the service agreement between
Meralco and Maxicare.
2. Corollarily, whether Estrada is entitled to commissions for the two (2)
consecutive renewals of the service agreement effective on December 1,
19925 and December 1, 1995.6
We are in complete accord with the trial and appellate courts ruling. Estrada is entitled
to commissions for the premiums paid under the service agreement between Meralco
and Maxicare from 1991 to 1996.
Well-entrenched in jurisprudence is the rule that factual findings of the trial court,
especially when affirmed by the appellate court, are accorded the highest degree of
respect and are considered conclusive between the parties. 7 A review of such findings
by this Court is not warranted except upon a showing of highly meritorious
circumstances, such as: (1) when the findings of a trial court are grounded entirely on
speculation, surmises or conjectures; (2) when a lower courts inference from its factual
findings is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of
discretion in the appreciation of facts; (4) when the findings of the appellate court go
beyond the issues of the case, or fail to notice certain relevant facts which, if properly
considered, will justify a different conclusion; (5) when there is a misappreciation of
facts; (6) when the findings of fact are conclusions without mention of the specific
evidence on which they are based, are premised on the absence of evidence, or are
contradicted by evidence on record. 8 None of the foregoing exceptions which would
warrant a reversal of the assailed decision obtains in this instance.
Maxicare urges us that both the RTC and CA failed to take into account the stipulations
contained in the February 19, 1991 letter agreement authorizing the payment of
commissions only upon satisfaction of twin conditions, i.e., collection and

contemporaneous remittance of premium dues by Estrada to Maxicare. Allegedly, the


lower courts disregarded Estradas admission that the negotiations with Meralco failed.
Thus, the flawed application of the "efficient procuring cause" doctrine enunciated
in Manotok Brothers, Inc. v. Court of Appeals,9 and the erroneous conclusion upholding
Estradas entitlement to commissions on contracts completed without her participation.
We are not persuaded.
Contrary to Maxicares assertion, the trial and the appellate courts carefully considered
the factual backdrop of the case as borne out by the records. Both courts were one in
the conclusion that Maxicare successfully landed the Meralco account for the sale of
healthcare plans only by virtue of Estradas involvement and participation in the
negotiations. The assailed Decision aptly states:
There is no dispute as to the role that plaintiff-appellee [Estrada] played in selling
[Maxicares] health insurance plan to Meralco. Plaintiff-appellee [Estradas]
efforts consisted in being the first to offer the Maxicare plan to Meralco, using her
connections with some of Meralco Executives, inviting said executives to dinner
meetings, making submissions and representations regarding the health plan,
sending follow-up letters, etc.
These efforts were recognized by Meralco as shown by the certification issued by
its Manpower Planning and Research Staff Head Ruben A. Sapitula on
September 5, 1991, to wit:
"This is to certify that Ms. Carmela Estrada has initiated talks with us since
November 1990 with regards (sic) to the HMO requirements of both our
rank and file employees, managers and executives, and that it was
favorably recommended and the same be approved by the Meralco
Management Committee."
xxxx
This Court finds that plaintiff-appellee [Estradas] efforts were instrumental in
introducing the Meralco account to [Maxicare] in regard to the latters Maxicare
health insurance plans. Plaintiff-appellee [Estrada] was the efficient "intervening
cause" in bringing about the service agreement with Meralco. As pointed out by
the trial court in its October 8, 1999 Decision, to wit:

"xxx Had not [Estrada] introduced Maxicare Plans to her bosom friends,
Messrs. Lopez and Guingona of Meralco, PHPI would still be an
anonymity. xxx"10
Under the foregoing circumstances, we are hard pressed to disturb the findings of the
RTC, which the CA affirmed.
We cannot overemphasize the principle that in petitions for review oncertiorari under
Rules 45 of the Rules of Court, only questions of law may be put into issue. Questions
of fact are not cognizable by this Court. The finding of "efficient procuring cause" by the
CA is a question of fact which we desist from passing upon as it would entail delving
into factual matters on which such finding was based. To reiterate, the rule is that factual
findings of the trial court, especially those affirmed by the CA, are conclusive on this
Court when supported by the evidence on record. 11
The jettisoning of the petition is inevitable even upon a close perusal of the merits of the
case.
First. Maxicares contention that Estrada may only claim commissions from membership
dues which she has collected and remitted to Maxicare as expressly provided for in the
letter-agreement does not convince us. It is readily apparent that Maxicare is attempting
to evade payment of the commission which rightfully belongs to Estrada as the broker
who brought the parties together. In fact, Maxicares former Chairman Roberto K.
Macasaet testified that Maxicare had been trying to land the Meralco account for two (2)
years prior to Estradas entry in 1990.12 Even without that admission, we note that
Meralcos Assistant Vice-President, Donatila San Juan, in a letter 13dated January 21,
1992 to then Maxicare President Pedro R. Sen, categorically acknowledged Estradas
efforts relative to the sale of Maxicare health plans to Meralco, thus:
Sometime in 1989, Meralco received a proposal from Philippine Health-Care
Providers, Inc. (Maxicare) through the initiative and efforts of Ms. Carmela
Estrada, who introduced Maxicare to Meralco. Prior to this time, we did not know
that Maxicare is a major health care provider in the country. We have since
negotiated and signed up with Maxicare to provide a health maintenance plan for
dependents of Meralco executives, effective December 1, 1991 to November 30,
1992.
At the very least, Estrada penetrated the Meralco market, initially closed to Maxicare,
and laid the groundwork for a business relationship. The only reason Estrada was not
able to participate in the collection and remittance of premium dues to Maxicare was

because she was prevented from doing so by the acts of Maxicare, its officers, and
employees.
In Tan v. Gullas,14 we had occasion to define a broker and distinguish it from an agent,
thus:
[O]ne who is engaged, for others, on a commission, negotiating contracts relative
to property with the custody of which he has no concern; the negotiator between
the other parties, never acting in his own name but in the name of those who
employed him. [A] broker is one whose occupation is to bring the parties
together, in matter of trade, commerce or navigation. 15
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.16
In relation thereto, we have held that the term "procuring cause" in describing a brokers
activity, refers to a cause originating a series of events which, without break in their
continuity, result in the accomplishment of the prime objective of the employment of the
brokerproducing a purchaser ready, willing and able to buy on the owners terms. 17 To
be regarded as the "procuring cause" of a sale as to be entitled to a commission, a
brokers efforts must have been the foundation on which the negotiations resulting in a
sale began.18Verily, Estrada was instrumental in the sale of the Maxicare health plans to
Meralco. Without her intervention, no sale could have been consummated.
Second. Maxicare next contends that Estrada herself admitted that her negotiations with
Meralco failed as shown in Annex "F" of the Complaint.
The chicanery and disingenuousness of Maxicares counsel is not lost on this Court. We
observe that this Annex "F" is, in fact, Maxicares counsels letter dated April 10, 1992
addressed to Estrada. The letter contains a unilateral declaration by Maxicare that the
efforts initiated and negotiations undertaken by Estrada failed, such that the service
agreement with Meralco was supposedly directly negotiated by Maxicare. Thus, the
latter effectively declares that Estrada is not the "efficient procuring cause" of the sale,
and as such, is not entitled to commissions.
Our holding in Atillo III v. Court of Appeals,19 ironically the case cited by Maxicare to
bolster its position that the statement in Annex "F" amounted to an admission, provides
a contrary answer to Maxicares ridiculous contention. We intoned therein that in spite of
the presence of judicial admissions in a partys pleading, the trial court is still given
leeway to consider other evidence presented.20 We ruled, thus:

As provided for in Section 4 of Rule 129 of the Rules of Court, the general rule
that a judicial admission is conclusive upon the party making it and does not
require proof admits of two exceptions: 1) when it is shown that the admission
was made through palpable mistake, and 2) when it is shown that no such
admission was in fact made. The latter exception allows one to contradict an
admission by denying that he made such an admission.
For instance, if a party invokes an "admission" by an adverse party, but
cites the admission "out of context," then the one making the admission
may show that he made no "such" admission, or that his admission was
taken out of context.
This may be interpreted as to mean "not in the sense in which the
admission is made to appear." That is the reason for the modifier "such." 21
In this case, the letter, although part of Estradas Complaint, is not, ipso facto, an
admission of the statements contained therein, especially since the bone of contention
relates to Estradas entitlement to commissions for the sale of health plans she claims
to have brokered. It is more than obvious from the entirety of the records that Estrada
has unequivocally and consistently declared that her involvement as broker is the
proximate cause which consummated the sale between Meralco and Maxicare.
Moreover, Section 34,22 Rule 132 of the Rules of Court requires the purpose for which
the evidence is offered to be specified. Undeniably, the letter was attached to the
Complaint, and offered in evidence, to demonstrate Maxicares bad faith and ill will
towards Estrada.23
Even a cursory reading of the Complaint and all the pleadings filed thereafter before the
RTC, CA, and this Court, readily show that Estrada does not concede, at any point, that
her negotiations with Meralco failed. Clearly, Maxicares assertion that Estrada herself
does not pretend to be the "efficient procuring cause" in the execution of the service
agreement between Meralco and Maxicare is baseless and an outright falsehood.
After muddling the issues and representing that Estrada made an admission that her
negotiations with Meralco failed, Maxicares counsel then proceeds to cite a case which
does not, by any stretch of the imagination, bolster the flawed contention.
We, therefore, ADMONISH Maxicares counsel, and, in turn, remind every member of
the Bar that the practice of law carries with it responsibilities which are not to be trifled
with. Maxicares counsel ought to be reacquainted with Canon 10 24 of the Code of
Professional Responsibility, specifically, Rule 10.02, to wit:

Rule 10.02 A lawyer shall not knowingly misquote or misrepresent the contents
of a paper, the language or the argument of opposing counsel, or the text of a
decision or authority, or knowingly cite as law a provision already rendered
inoperative by repeal or amendment, or assert as a fact that which has not been
proved.
Third. Finally, we likewise affirm the uniform ruling of the RTC and CA that Estrada is
entitled to 10% of the total amount of premiums paid 25 by Meralco to Maxicare as of
May 1996. Maxicares argument that assuming Estrada is entitled to commissions, such
entitlement only covers the initial year of the service agreement and should not include
the premiums paid for the succeeding renewals thereof, fails to impress. Considering
that we have sustained the lower courts factual finding of Estradas close, proximate
and causal connection to the sale of health plans, we are not wont to disturb Estradas
complete entitlement to commission for the total premiums paid until May 1996 in the
amount of P20,169,335.00.
WHEREFORE, premises considered and finding no reversible error committed by the
Court of Appeals, the petition is hereby DENIED. Costs against the petitioner.
SO ORDERED.
G.R. No. 137686

February 8, 2000

RURAL BANK OF MILAOR (CAMARINES SUR), petitioner,


vs.
FRANCISCA OCFEMIA, ROWENA BARROGO, MARIFE O. NIO, FELICISIMO
OCFEMIA, RENATO OCFEMIA JR, and WINSTON OCFEMIA, respondents.
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
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. Acertiorari 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, 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.
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-963513, 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 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.

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. 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. Petitioner-bank 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.
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, 4the act has been described as
void 5 or, as unenforceable, 6 or as ineffective 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 onuswould ordinarily be with
him.1wphi1.nt

Footnotes
1

Special Thirteenth Division composed of J. Renato C. Dacudao,ponente; and JJ


Salvador J. Valdez Jr. (chairman) and Roberto A. Barrios (member), both
concurring.
2

Penned by Judge Antonio N. Gerona.

CA Decision, p. 9; rollo, p. 25.

RTC Decision, p. 6; rollo, p. 49.

Rollo, pp. 36-37.

RTC Decision, pp. 1-3; rollo, pp. 44-46.

The case was deemed submitted for resolution on October 27, 1999, upon
receipt by this Court of the respective Memoranda of the petitioner and the
respondents. The Memorandum of Petitioner was signed by Atty. David C. Naval,
while that of respondents was signed by Atty. Eustaquio S. Beltran.
8

Rollo, p. 117.

Rollo, pp. 153-160.

10

Ibid., p. 154.

11

Santiago v. Guingona, 298 SCRA 756, 766, November 18, 1998; Bernate v.
CA, 263 SCRA 323, October 18, 1996; Sandel v. CA, 262 SCRA 101, September
19, 1996.
12

Rule 8 of the Rules of Court.

13

Imperial Textile Mills, Inc. v. C.A., 183 SCRA 1, March 22, 1990.

14

First Philippine International Bank v. CA, infra, note 17.

15

20 SCRA 987, 1005, August 14, 1967, per Sanchez, J.

16

Francisco v. GSIS, 7 SCRA 577, 583-584, March 30, 1963, per Reyes, J.B.L.,

J.
17

First International Bank v. CA, 252 SCRA 259, January 24, 1996; People's
Aircargo and Warehousing Co., Inc. v. CA, 297 SCRA 170, 184-185, October 7,
1998.

VITUG, J., concurring opinion;


1

Republic vs. Acoje Mining Co , Inc., 7 SCRA 361. Although in this case the
Supreme Court held that the opening of a post office branch by a corporation
falls under its implied powers and, therefore, not an ultra vires act, since said
facility is needed for the convenience of its personnel and employees.
2

National Power Corporation vs. Judge Vera, 170 SCRA 721.

Such as an the sale of all or substantially all of the corporate assets or an


investment in another corporation outside corporate purposes.
4

Like the removal of a director.

Pea vs. Court of Appeals, 193 SCRA 717.

Ricafort vs. Moya, 195 SCRA 247.

Natino vs. Intermediate Appellate Court, 197 SCRA 323.

Gokongwei, Jr. vs. Securities & Exchange Commission, 89 SCRA 336 97 SCRA
78.

Board of Liquidators vs. Heirs of Kalaw, 20 SCRA 987.

10

In Yao Ka Sin Trading vs. Court of Appeals, the Court said. The rule is, of
course settled that although an officer or agent acts without or in excess of, his
actual authority however, if he acts within the scope of an apparent authority with
which the corporation has clothed him by holding him out or permitting him to
appear as having such authority, the corporation is bound thereby in favor of a
person who deals with him in good faith in reliance on that apparent authority, as
where an officer is allowed to exercise a particular authority with respect to the
business, or a particular branch of it, continuously and publicly, for a considerable
time. Also, "if a private corporation intentionally or negligently clothes its officers
or agent with apparent power to perform acts for it, the corporation will be
estopped to deny that such apparent authority is real, as to innocent third
persons dealing in good faith with such officers or agents. (Fletcher, op, cit. 340)
This "apparent authority may result from (1) the general manner by which the
corporation holds out an officer or agent as having power to act or, in other
words, the apparent authority with which it clothes him to act in general, or (2) the
acquiescence in his acts of a particular nature, with actual or constructive
knowledge thereof, whether within or without the scope of his ordinary powers."
11

Art. 5. Acts executed against the provisions of mandatory or prohibitory laws


shall be void except when the law itself authorities their validity.
12

Art. 1403. The following contracts are unenforceable, unless they are ratified.
(1) Those entered into in the name of another person by one who has
been given no authority or legal representation, or who has acted beyond
his powers;
(2) Those that do not comply with the Statute of Frauds as set forth in this
number. In the following cases an agreement hereafter made shall be
unenforceable by action unless the same, or some note or memorandum
thereof, be in writing, and subscribed and by the party charged, or by his
agent; evidence, therefore, of the agreement cannot be received without
the writing, or a secondary evidence of its contents:
(a) An agreement that by its terms is not to be performed within a
year from the making thereof;
(b) A special promise to answer for the debt, default or miscarriage
of another;
(c) An agreement made in consideration of marriage, other than a
mutual promise to marry;

(d) An agreement for the sale of goods, chattels or things in action,


at a price not less than five hundred pesos, unless the buyer accept
and receive part of such goods and chattels, or the evidences, or
some of them of such things in action, or pay at the time some part
of the purchase money; but when a sale is made by auction and
entry is made by the auctioneer in his sales book, at the time of the
sale, of the amount and kind of property sold, terms of sale, price,
names of the purchasers and person on whose account the sale is
made, it is a sufficient memorandum;
(e) An agreement for the leasing for a longer period than one year,
or for the sale of real property or of an interest therein;
(f) A representation as to the credit of a third person;
(3) Those where both parties are incapable of giving consent to a contract.
13

If the agent contracts in the name of the principal, exceeding the scope of his
authority and the principal does not ratify the contract, it shall be void if the party
with whom the agent contracted is aware of the limits of the powers granted by
the principal. In this case, however, the agent is liable if he undertook to secure
the principal's ratification.
RURAL BANK OF MILAOR v. OCFEMIA
G.R. No. 137686; February 8, 2000
Ponente: J. Vitug
FACTS:
The evidence presented by the respondents through the testimony of Marife
O. Nio, shows that she is the daughter of Francisca Ocfemia 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.
Marife O. Nio knows the five (5) parcels of land which are located in
Bombon, Camarines Sur and that they are the ones possessing them which
were originally owned by her grandparents. During the lifetime of her
grandparents, respondents mortgaged the said five (5) parcels of land and
two
(2)
others
to
the
Rural
Bank
of
Milaor.
The spouses Felicisimo Ocfemia and Juanita Arellano Ocfemia were not able
to redeem the mortgaged properties consisting of 7 parcels of land and so
the mortgage was foreclosed and thereafter ownership thereof was
transferred to the bank. Out of the 7 parcels that were foreclosed, 5 of them
are in the possession of the respondents because these 5 parcels of land
were sold by the bank to the parents of Marife O. Nio as evidenced by a

Deed

of

Sale

executed

in

January

1988.

The aforementioned 5 parcels of land subject of the deed of sale, have not
been, however transferred in the name of the parents of Merife O. Nio after
they were sold to her parents by the 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 in order to have the same registered.
The Register of Deeds, however, informed her that the document of sale
cannot be registered without a board resolution of the Bank. Marife Nio then
went to the bank, showed to it the Deed of Sale, the tax declaration and
receipt of tax payments and requested the bank 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.
Despite several requests, the bank refused her request for a board resolution
and made many alibis. She was told that the bank had a new manager and
it
had
no
record
of
the
sale.
ISSUE:
Whether the board of directors of a rural banking corporation be compelled
to confirm a deed of absolute sale of real property which deed of sale was
executed by the bank manager without prior authority of the board of
directors
of
the
rural
banking
corporation
HELD:
Yes, the board of directors can be compelled to confirm a deed of absolute
sale even though the bank manager executed such deed without prior
authority
from
the
banking
corporation.
The Supreme Court ruled that the bank acknowledged, by its own acts or
failure to act, the authority of the manager 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.
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.
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 respondents. 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.

DOMINION INSURANCE CORPORATION vs. COURT OF APPEALS, RODOLFO S.


GUEVARRA, and FERNANDO AUSTRIA

FACTS:
Rodolfo Guevarra (Guevarra) filed a civil case for sum of money against
Dominion Insurance Corp. (Dominion) for the amount advanced by Guevarra
in his capacity as manager of defendant to satisfy certain claims filed by
defendants client.

The pre-trial was always postponed, and during one of the pre-trial
conference dominion failed to arrive therefore the court declared them to be
in default. Dominion filed several Motions to Lift Order of Default but was
always denied by the court. The RTC rendered its decision making Dominion
liable to repay Guevarra for the sum advanced and other damages and fees.
Dominion appealed but CA affirmed the decision of RTC and denied the
appeal of Dominion.

ISSUE:
(a) W/N Guevarra acted within his authority as agent of petitioner.
(b) W/N Guevarra must be reimbursed for the amount advanced.

HELD:

(a) NO. Even though the contact entered into by Guevarra and Dominion was
with the word special the contents of the document was actually a general
agency. A general power permits the agent to do all acts for which the law
does not require a special power and the contents in the document did not
require a special power of attorney.

Art 1878 of the civil code provides instances when a special power of
attorney is required.:
1) To make such payment as are not usually considered as acts of
administration.
15) any other act of dominion

The payment of claims is not an act of administration which requires a


special power of attorney before Guevarra could settle the insurance claims
of the insured.

Also Guevarra was instructed that the payment for the insured must come
from the revolving fund or collection in his possession, Gueverra should not
have paid the insured through his own capacity. Under 1918 of civil code an
agent who acted in contravention of the principals instruction the principal
will not be liable for the expenses incurred by the agent.

(b) YES. Even if the law on agency prohibits Gueverra from obtaining
reimbursement his right to recover may be justified under the article 1236 of
the civil code.[1] Thus Guevarra must be reimbursed but only to the extent
that Dominion has benefited without interest or demand for damages.
[G. R. No. 129919. February 6, 2002]
DOMINION INSURANCE CORPORATION, petitioner, vs. COURT OF APPEALS,
RODOLFO S. GUEVARRA, and FERNANDO AUSTRIA, respondents.
DECISION
PARDO, J.:

The Case
This is an appeal via certiorari[1] from the decision of the Court of Appeals [2] affirming
the decision[3] of the Regional Trial Court, Branch 44, San Fernando, Pampanga, which
ordered petitioner Dominion Insurance Corporation (Dominion) to pay Rodolfo
S. Guevarra (Guevarra) the sum of P156,473.90 representing the total amount
advanced by Guevarra in the payment of the claims of Dominions clients.
The Facts
The facts, as found by the Court of Appeals, are as follows:
On January 25, 1991, plaintiff Rodolfo S. Guevarra instituted Civil Case No. 8855 for sum of
money against defendant Dominion Insurance Corporation. Plaintiff sought to
recover thereunder the sum of P156,473.90 which he claimed to have advanced in his capacity as
manager of defendant to satisfy certain claims filed by defendants clients.
In its traverse, defendant denied any liability to plaintiff and asserted a counterclaim for
P249,672.53, representing premiums that plaintiff allegedly failed to remit.
On August 8, 1991, defendant filed a third-party complaint against Fernando Austria, who, at the
time relevant to the case, was its Regional Manager for Central Luzon area.
In due time, third-party defendant Austria filed his answer.
Thereafter the pre-trial conference was set on the following dates: October 18, 1991, November
12, 1991, March 29, 1991, December 12, 1991, January 17, 1992, January 29, 1992, February
28, 1992, March 17, 1992 and April 6, 1992, in all of which dates no pre-trial conference was
held. The record shows that except for the settings on October 18, 1991, January 17,
1992 and March 17, 1992 which were cancelled at the instance of defendant, third-party
defendant and plaintiff, respectively, the rest were postponed upon joint request of the parties.
On May 22, 1992 the case was again called for pre-trial conference. Only plaintiff and counsel
were present. Despite due notice, defendant and counsel did not appear, although a messenger,
Roy Gamboa, submitted to the trial court a handwritten note sent to him by defendants counsel
which instructed him to request for postponement. Plaintiffs counsel objected to the desired
postponement and moved to have defendant declared as in default. This was granted by the trial
court in the following order:
ORDER

When this case was called for pre-trial this afternoon only plaintiff and his counsel Atty.
Romeo Maglalang appeared. When shown a note dated May 21, 1992 addressed to a certain Roy
who was requested to ask for postponement, Atty. Maglalang vigorously objected to any
postponement on the ground that the note is but a mere scrap of paper and moved that the
defendant corporation be declared as in default for its failure to appear in court despite due
notice.
Finding the verbal motion of plaintiffs counsel to be meritorious and considering that the pretrial conference has been repeatedly postponed on motion of the defendant Corporation, the
defendant Dominion Insurance Corporation is hereby declared (as) in default and plaintiff is
allowed to present his evidence on June 16, 1992 at 9:00 oclock in the morning.
The plaintiff and his counsel are notified of this order in open court.
SO ORDERED.
Plaintiff presented his evidence on June 16, 1992. This was followed by a written offer of
documentary exhibits on July 8 and a supplemental offer of additional exhibits on July 13, 1992.
The exhibits were admitted in evidence in an order dated July 17, 1992.
On August 7, 1992 defendant corporation filed a MOTION TO LIFT ORDER OF DEFAULT. It
alleged therein that the failure of counsel to attend the pre-trial conference was due to an
unavoidable circumstance and that counsel had sent his representative on that date to inform the
trial court of his inability to appear. The Motion was vehemently opposed by plaintiff.
On August 25, 1992 the trial court denied defendants motion for reasons, among others, that it
was neither verified nor supported by an affidavit of merit and that it further failed to allege or
specify the facts constituting his meritorious defense.
On September 28, 1992 defendant moved for reconsideration of the aforesaid order. For the first
time counsel revealed to the trial court that the reason for his nonappearance at the pre-trial
conference was his illness. An Affidavit of Merit executed by its Executive Vice-President
purporting to explain its meritorious defense was attached to the said Motion. Just the same, in
an Order dated November 13, 1992, the trial court denied said Motion.
On November 18, 1992, the court a quo rendered judgment as follows:
WHEREFORE, premises considered, judgment is hereby rendered ordering:
1. The defendant Dominion Insurance Corporation to pay plaintiff the sum of P156,473.90
representing the total amount advanced by plaintiff in the payment of the claims of defendants
clients;

2. The defendant to pay plaintiff P10,000.00 as and by way of attorneys fees;


3. The dismissal of the counter-claim of the defendant and the third-party complaint;
4. The defendant to pay the costs of suit.[4]
On December 14, 1992, Dominion appealed the decision to the Court of Appeals. [5]
On July 19, 1996, the Court of Appeals promulgated a decision affirming that of the
trial court.[6] On September 3, 1996, Dominion filed with the Court of Appeals a motion
for reconsideration.[7] On July 16, 1997, the Court of Appeals denied the motion. [8]
Hence, this appeal.[9]
The Issues
The issues raised are: (1) whether respondent Guevarra acted within his authority
as agent for petitioner, and (2) whether respondent Guevarra is entitled to
reimbursement of amounts he paid out of his personal money in settling the claims of
several insured.
The Court's Ruling
The petition is without merit.
By the contract of agency, a person binds himself to render some service or to do
something in representation or on behalf of another, with the consent or authority of the
latter.[10] The basis for agency is representation. [11] On the part of the principal, there
must be an actual intention to appoint[12] or an intention naturally inferrable from his
words or actions;[13] and on the part of the agent, there must be an intention to accept
the appointment and act on it,[14] and in the absence of such intent, there is generally no
agency.[15]
A perusal of the Special Power of Attorney[16] would show that petitioner
(represented by third-party defendant Austria) and respondent Guevarra intended to
enter into a principal-agent relationship. Despite the word special in the title of the
document, the contents reveal that what was constituted was actually a general agency.
The terms of the agreement read:
That we, FIRST CONTINENTAL ASSURANCE COMPANY, INC.,[17] a corporation duly
organized and existing under and by virtue of the laws of the Republic of the Philippines, xxx
represented by the undersigned as Regional Manager, xxx do hereby appoint

RSG Guevarra Insurance Services represented by Mr. Rodolfo Guevarra xxx to be our Agency
Manager in San Fdo., for our place and stead, to do and perform the following acts and things:
1. To conduct, sign, manager (sic), carry on and transact Bonding and
Insurance business as usually pertain to a Agency Office, or FIRE, MARINE,
MOTOR CAR, PERSONAL ACCIDENT, and BONDING with the right, upon
our prior written consent, to appoint agents and sub-agents.
2. To accept, underwrite and subscribed (sic) cover notes or Policies of
Insurance and Bonds for and on our behalf.
3. To demand, sue, for (sic) collect, deposit, enforce payment, deliver and
transfer for and receive and give effectual receipts and discharge for all
money to which the FIRST CONTINENTAL ASSURANCE COMPANY, INC.,
[18]
may hereafter become due, owing payable or transferable to said
Corporation by reason of or in connection with the above-mentioned
appointment.
4. To receive notices, summons, and legal processes for and in behalf of the
FIRST CONTINENTAL ASSURANCE COMPANY, INC., in connection with
actions and all legal proceedings against the said Corporation. [19] [Emphasis
supplied]
The agency comprises all the business of the principal, [20] but, couched in general
terms, it is limited only to acts of administration.[21]
A general power permits the agent to do all acts for which the law does not require a
special power.[22] Thus, the acts enumerated in or similar to those enumerated in the
Special Power of Attorney do not require a special power of attorney.
Article 1878, Civil Code, enumerates the instances when a special power of
attorney is required. The pertinent portion that applies to this case provides that:
Article 1878. Special powers of attorney are necessary in the following cases:
(1) To make such payments as are not usually considered as acts of
administration;
xxx xxx xxx
(15) Any other act of strict dominion.

The payment of claims is not an act of administration. The settlement of claims is


not included among the acts enumerated in the Special Power of Attorney, neither is it
of a character similar to the acts enumerated therein. A special power of attorney is
required before respondent Guevarra could settle the insurance claims of the insured.
Respondent Guevarras authority to settle claims is embodied in the Memorandum
of Management Agreement[23] dated February 18, 1987 which enumerates the scope of
respondent Guevarras duties and responsibilities as agency manager for San
Fernando, Pampanga, as follows:
xxx xxx xxx
1. You are hereby given authority to settle and dispose of all motor car claims in the amount of
P5,000.00 with prior approval of the Regional Office.
2. Full authority is given you on TPPI claims settlement.
xxx xxx xxx[24]
In settling the claims mentioned above, respondent Guevarras authority is further
limited by the written standard authority to pay,[25] which states that the payment shall
come from respondent Guevarras revolving fund or collection. The authority to pay is
worded as follows:
This is to authorize you to withdraw from your revolving fund/collection the amount of PESOS
__________________ (P ) representing the payment on the _________________ claim of
assured _______________ under Policy No. ______ in that accident of ___________ at
____________.
It is further expected, release papers will be signed and authorized by the concerned and attached
to the corresponding claim folder after effecting payment of the claim.
(sgd.) FERNANDO C. AUSTRIA
Regional Manager[26]
[Emphasis supplied]
The instruction of petitioner as the principal could not be any clearer.
Respondent Guevarra was authorized to pay the claim of the insured, but the payment
shall come from the revolving fund or collection in his possession.

Having deviated from the instructions of the principal, the expenses that
respondent Guevarra incurred in the settlement of the claims of the insured may not be
reimbursed from petitioner Dominion. This conclusion is in accord with Article 1918, Civil
Code, which states that:
The principal is not liable for the expenses incurred by the agent in the following cases:
(1) If the agent acted in contravention of the principals instructions, unless the latter should wish
to avail himself of the benefits derived from the contract;
xxx xxx xxx
However, while the law on agency prohibits respondent Guevarra from obtaining
reimbursement, his right to recover may still be justified under the general law on
obligations and contracts.
Article 1236, second paragraph, Civil Code, provides:
Whoever pays for another may demand from the debtor what he has paid, except that if he paid
without the knowledge or against the will of the debtor, he can recover only insofar as the
payment has been beneficial to the debtor.
In this case, when the risk insured against occurred, petitioners liability as insurer
arose. This obligation was extinguished when respondent Guevarra paid the claims and
obtained Release of Claim Loss and Subrogation Receipts from the insured who were
paid.
Thus, to the extent that the obligation of the petitioner has been extinguished,
respondent Guevarra may demand for reimbursement from his principal. To rule
otherwise would result in unjust enrichment of petitioner.
The extent to which petitioner was benefited by the settlement of the insurance
claims could best be proven by the Release of Claim Loss and Subrogation
Receipts[27] which were attached to the original complaint as Annexes C-2, D-1, E-1, F-1,
G-1, H-1, I-1 and J-l, in the total amount of P116,276.95.
However, the amount of the revolving fund/collection that was then in the
possession of respondent Guevarra as reflected in the statement of account dated July
11, 1990 would be deducted from the above amount.

The outstanding balance and the production/remittance for the period


corresponding to the claims was P3,604.84. Deducting this from P116,276.95, we get
P112,672.11. This is the amount that may be reimbursed to respondent Guevarra.
The Fallo
IN VIEW WHEREOF, we DENY the Petition. However, we MODIFY the decision of
the Court of Appeals[28] and that of the Regional Trial Court, Branch 44, San
Fernando, Pampanga,[29] in that petitioner is ordered to pay respondent Guevarra the
amount of P112,672.11 representing the total amount advanced by the latter in the
payment of the claims of petitioners clients.
No costs in this instance.
SO ORDERED.
Davide, Jr., (Chairman), Puno, Kapunan, and Ynares-Santiago, JJ., concur.
G.R. No. L-41420 July 10, 1992
CMS LOGGING, INC., petitioner,
vs.
THE COURT OF APPEALS and D.R. AGUINALDO CORPORATION, respondents.

NOCON, J.:
This is a petition for review on certiorari from the decision dated July 31, 1975 of the
Court of Appeals in CA-G.R. No. 47763-R which affirmed in toto the decision of the
Court of First Instance of Manila, Branch VII, in Civil Case No. 56355 dismissing the
complaint filed by petitioner CMS Logging, Inc. (CMS, for brevity) against private
respondent D.R. Aguinaldo Corporation (DRACOR, for brevity) and ordering the former
to pay the latter attorney's fees in the amount of P1,000.00 and the costs.
The facts of the case are as follows: Petitioner CMS is a forest concessionaire engaged
in the logging business, while private respondent DRACOR is engaged in the business
of exporting and selling logs and lumber. On August 28, 1957, CMS and DRACOR
entered into a contract of agency 1 whereby the former appointed the latter as its
exclusive export and sales agent for all logs that the former may produce, for a period of
five (5) years. The pertinent portions of the agreement, which was drawn up by
DRACOR, 2 are as follows:

1. SISON [CMS] hereby appoints DRACOR as his sole and exclusive


export sales agent with full authority, subject to the conditions and
limitations hereinafter set forth, to sell and export under a firm sales
contract acceptable to SISON, all logs produced by SISON for a period of
five (5) years commencing upon the execution of the agreement and upon
the terms and conditions hereinafter provided and DRACOR hereby
accepts such appointment;
xxx xxx xxx
3. It is expressly agreed that DRACOR shall handle exclusively all
negotiations of all export sales of SISON with the buyers and arrange the
procurement and schedules of the vessel or vessels for the shipment of
SISON's logs in accordance with SISON's written requests, but DRACOR
shall not in anyway [sic] be liable or responsible for any delay, default or
failure of the vessel or vessels to comply with the schedules agreed upon;
xxx xxx xxx
9. It is expressly agreed by the parties hereto that DRACOR shall receive
five (5%) per cent commission of the gross sales of logs of SISON based
on F.O.B. invoice value which commission shall be deducted from the
proceeds of any and/or all moneys received by DRACOR for and in behalf
and for the account of SISON;
By virtue of the aforesaid agreement, CMS was able to sell through DRACOR a total of
77,264,672 board feet of logs in Japan, from September 20, 1957 to April 4, 1962.
About six months prior to the expiration of the agreement, while on a trip to Tokyo,
Japan, CMS's president, Atty. Carlos Moran Sison, and general manager and legal
counsel, Atty. Teodoro R. Dominguez, discovered that DRACOR had used Shinko
Trading Co., Ltd. (Shinko for brevity) as agent, representative or liaison officer in selling
CMS's logs in Japan for which Shinko earned a commission of U.S. $1.00 per 1,000
board feet from the buyer of the logs. Under this arrangement, Shinko was able to
collect a total of U.S. $77,264.67. 3
CMS claimed that this commission paid to Shinko was in violation of the agreement and
that it (CMS) is entitled to this amount as part of the proceeds of the sale of the logs.
CMS contended that since DRACOR had been paid the 5% commission under the
agreement, it is no longer entitled to the additional commission paid to Shinko as this
tantamount to DRACOR receiving double compensation for the services it rendered.

After this discovery, CMS sold and shipped logs valued at U.S. $739,321.13 or
P2,883,351.90, 4 directly to several firms in Japan without the aid or intervention of
DRACOR.
CMS sued DRACOR for the commission received by Shinko and for moral and
exemplary damages, while DRACOR counterclaimed for its commission, amounting to
P144,167.59, from the sales made by CMS of logs to Japanese firms. In its reply, CMS
averred as a defense to the counterclaim that DRACOR had retained the sum of
P101,167.59 as part of its commission for the sales made by CMS. 5Thus, as its
counterclaim to DRACOR's counterclaim, CMS demanded DRACOR return the amount
it unlawfully retained. DRACOR later filed an amended counterclaim, alleging that the
balance of its commission on the sales made by CMS was P42,630.82, 6 thus impliedly
admitting that it retained the amount alleged by CMS.
In dismissing the complaint, the trial court ruled that no evidence was presented to show
that Shinko received the commission of U.S. $77,264.67 arising from the sale of CMS's
logs in Japan, though the trial court stated that "Shinko was able to collect the total
amount of $77,264.67 US Dollars (Exhs. M and M-1)." 7 The counterclaim was likewise
dismissed, as it was shown that DRACOR had waived its rights to the balance of its
commission in a letter dated February 2, 1963 to Atty. Carlos Moran Sison, president of
CMS. 8 From said decision, only CMS appealed to the Court of Appeals.
The Court of Appeals, in a 3 to 2 decision, 9 affirmed the dismissal of the complaint
since "[t]he trial court could not have made a categorical finding that Shinko collected
commissions from the buyers of Sison's logs in Japan, and could not have held that
Sison is entitled to recover from Dracor the amount collected by Shinko as
commissions, plaintiff-appellant having failed to prove by competent evidence its
claims." 10
Moreover, the appellate court held:
There is reason to believe that Shinko Trading Co. Ltd., was paid by
defendant-appellee out of its own commission of 5%, as indicated in the
letter of its president to the president of Sison, dated February 2, 1963
(Exhibit "N"), and in the Agreement between Aguinaldo Development
Corporation (ADECOR) and Shinko Trading Co., Ltd. (Exhibit "9"). Daniel
R. Aguinaldo stated in his said letter:
. . . , I informed you that if you wanted to pay me for the service, then it
would be no more than at the standard rate of 5% commission because in
our own case, we pay our Japanese agents 2-1/2%. Accordingly, we

would only add a similar amount of 2-1/2% for the service which we would
render you in the Philippines. 11
Aggrieved, CMS appealed to this Court by way of a petition for review
on certiorari, alleging (1) that the Court of Appeals erred in not making a complete
findings of fact; (2) that the testimony of Atty. Teodoro R. Dominguez, regarding the
admission by Shinko's president and director that it collected a commission of U.S.
$1.00 per 1,000 board feet of logs from the Japanese buyers, is admissible against
DRACOR; (3) that the statement of DRACOR's chief legal counsel in his memorandum
dated May 31, 1965, Exhibit "K", is an admission that Shinko was able to collect the
commission in question; (4) that the fact that Shinko received the questioned
commissions is deemed admitted by DRACOR by its silence under Section 23, Rule
130 of the Rules of Court when it failed to reply to Atty. Carlos Moran Sison's letter
dated February 6, 1962; (5) that DRACOR is not entitled to its 5% commission arising
from the direct sales made by CMS to buyers in Japan; and (6) that DRACOR is guilty
of fraud and bad faith in its dealings with CMS.
With regard to CMS's arguments concerning whether or not Shinko received the
commission in question, We find the same unmeritorious.
To begin with, these arguments question the findings of fact made by the Court of
Appeals, which are final and conclusive and can not be reviewed on appeal to the
Supreme Court. 12
Moreover, while it is true that the evidence adduced establishes the fact that Shinko is
DRACOR's agent or liaison in Japan, 13 there is no evidence which established the fact
that Shinko did receive the amount of U.S. $77,264.67 as commission arising from the
sale of CMS's logs to various Japanese firms.
The fact that Shinko received the commissions in question was not established by the
testimony of Atty. Teodoro R. Dominguez to the effect that Shinko's president and
director told him that Shinko received a commission of U.S. $1.00 for every 1,000 board
feet of logs sold, since the same is hearsay. Similarly, the letter of Mr. K. Shibata of Toyo
Menka Kaisha, Ltd. 14 is also hearsay since Mr. Shibata was not presented to testify on
his letter.
CMS's other evidence have little or no probative value at all. The statements made in
the memorandum of Atty. Simplicio R. Ciocon to DRACOR dated May 31, 1965, 15 the
letter dated February 2, 1963 of Daniel
R. Aguinaldo, 16 president of DRACOR, and the reply-letter dated January 9, 1964 17 by
DRACOR's counsel Atty. V. E. Del Rosario to CMS's demand letter dated September

25, 1963 can not be categorized as admissions that Shinko did receive the
commissions in question.
The alleged admission made by Atty. Ciocon, to wit
Furthermore, as per our records, our shipment of logs to Toyo Menka
Kaisha, Ltd., is only for a net volume of 67,747,732 board feet which
should enable Shinko to collect a commission of US $67,747.73 only
can not be considered as such since the statement was made in the context of
questioning CMS's tally of logs delivered to various Japanese firms.
Similarly, the statement of Daniel R. Aguinaldo, to wit
. . . Knowing as we do that Toyo Menka is a large and reputable company,
it is obvious that they paid Shinko for certain services which Shinko must
have satisfactorily performed for them in Japan otherwise they would not
have paid Shinko
and that of Atty. V. E. Del Rosario,
. . . It does not seem proper, therefore, for CMS Logging, Inc., as principal,
to concern itself with, much less question, the right of Shinko Trading Co.,
Ltd. with which our client debt directly, to whatever benefits it might have
derived form the ultimate consumer/buyer of these logs, Toyo Menka
Kaisha, Ltd. There appears to be no justification for your client's
contention that these benefits, whether they can be considered as
commissions paid by Toyo Menka Kaisha to Shinko Trading, are to be
regarded part of the gross sales.
can not be considered admissions that Shinko received the questioned
commissions since neither statements declared categorically that Shinko did in
fact receive the commissions and that these arose from the sale of CMS's logs.
As correctly stated by the appellate court:
It is a rule that "a statement is not competent as an admission where it
does not, under a reasonable construction, appear to admit or
acknowledge the fact which is sought to be proved by it". An admission or
declaration to be competent must have been expressed in definite, certain
and unequivocal language (Bank of the Philippine Islands vs. Fidelity &
Surety Co., 51 Phil. 57, 64). 18

CMS's contention that DRACOR had admitted by its silence the allegation that Shinko
received the commissions in question when it failed to respond to Atty. Carlos Moran
Sison's letter dated February 6, 1963, is not supported by the evidence. DRACOR did in
fact reply to the letter of Atty. Sison, through the letter dated March 5, 1963 of F.A.
Novenario, 19 which stated:
This is to acknowledge receipt of your letter dated February 6, 1963, and
addressed to Mr. D. R. Aguinaldo, who is at present out of the country.
xxx xxx xxx
We have no record or knowledge of any such payment of commission
made by Toyo Menka to Shinko. If the payment was made by Toyo Menka
to Shinko, as stated in your letter, we knew nothing about it and had
nothing to do with it.
The finding of fact made by the trial court, i.e., that "Shinko was able to collect the total
amount of $77,264.67 US Dollars," can not be given weight since this was based on the
summary prepared by CMS itself, Exhibits "M" and "M-1".
Moreover, even if it was shown that Shinko did in fact receive the commissions in
question, CMS is not entitled thereto since these were apparently paid by the buyers to
Shinko for arranging the sale. This is therefore not part of the gross sales of CMS's logs.
However, We find merit in CMS's contention that the appellate court erred in holding
that DRACOR was entitled to its commission from the sales made by CMS to Japanese
firms.
The principal may revoke a contract of agency at will, and such revocation may be
express, or implied, 20 and may be availed of even if the period fixed in the contract of
agency as not yet expired. 21 As the principal has this absolute right to revoke the
agency, the agent can not object thereto; neither may he claim damages arising from
such revocation, 22 unless it is shown that such was done in order to evade the payment
of agent's commission. 23
In the case at bar, CMS appointed DRACOR as its agent for the sale of its logs to
Japanese firms. Yet, during the existence of the contract of agency, DRACOR admitted
that CMS sold its logs directly to several Japanese firms. This act constituted an implied
revocation of the contract of agency under Article 1924 of the Civil Code, which
provides:

Art. 1924 The agency is revoked if the principal directly manages the
business entrusted to the agent, dealing directly with third persons.
In New Manila Lumber Company, Inc. vs. Republic of the Philippines, 24 this Court ruled
that the act of a contractor, who, after executing powers of attorney in favor of another
empowering the latter to collect whatever amounts may be due to him from the
Government, and thereafter demanded and collected from the government the money
the collection of which he entrusted to his attorney-in-fact, constituted revocation of the
agency in favor of the attorney-in-fact.
Since the contract of agency was revoked by CMS when it sold its logs to Japanese
firms without the intervention of DRACOR, the latter is no longer entitled to its
commission from the proceeds of such sale and is not entitled to retain whatever
moneys it may have received as its commission for said transactions. Neither would
DRACOR be entitled to collect damages from CMS, since damages are generally not
awarded to the agent for the revocation of the agency, and the case at bar is not one
falling under the exception mentioned, which is to evade the payment of the agent's
commission.
Regarding CMS's contention that the Court of Appeals erred in not finding that
DRACOR had committed acts of fraud and bad faith, We find the same unmeritorious.
Like the contention involving Shinko and the questioned commissions, the findings of
the Court of Appeals on the matter were based on its appreciation of the evidence, and
these findings are binding on this Court.
In fine, We affirm the ruling of the Court of Appeals that there is no evidence to support
CMS's contention that Shinko earned a separate commission of U.S. $1.00 for every
1,000 board feet of logs from the buyer of CMS's logs. However, We reverse the ruling
of the Court of Appeals with regard to DRACOR's right to retain the amount of
P101,536.77 as part of its commission from the sale of logs by CMS, and hold that
DRACOR has no right to its commission. Consequently, DRACOR is hereby ordered to
remit to CMS the amount of P101,536.77.
WHEREFORE, the decision appealed from is hereby MODIFIED as stated in the
preceding paragraph. Costs de officio.
SO ORDERED.
CMS LOGGING V CA
FACTS:

Petitioner CMS is a forest concessionaire engaged in the logging business, while private
respondent DRACOR is engaged in the business of exporting and selling logs and lumber. On
August 28, 1957, CMS and DRACOR entered into a contract of agency whereby the former
appointed the latter as its exclusive export and sales agent for all logs that the former may
produce, for a period of five (5) years.
CMS was able to sell through DRACOR a total of 77,264,672 board feet of logs in Japan, from
September 20, 1957 to April 4, 1962. Six months prior the end of their agreement, CMS found
out that DRACOR was using Shingko Trading to sell their logs and earned commission for it.
CMS claimed that it was a violation of their agreement since DRACOR already received 5%
commission and is no longer entitled to the additional commission to Shinko. After the
discovery, CMS directly transacted with Japanese firms without the aid if DRACOR. CMS sued
DRACOR for the commission Shingko received while DRACOR counterclaimed for the
commission of the sales made by CMS with the Japanese firms.
ISSUE:
w/n DRACOR is entitled to its commissions from the sales made by CMS to Japanese firms
HELD:
The principal may revoke a contract of agency at will, and such revocation may be express, or
implied, and may be availed of even if the period fixed in the contract of agency as not yet
expired. As the principal has this absolute right to revoke the agency, the agent can not object
thereto; neither may he claim damages arising from such revocation, unless it is shown that such
was done in order to evade the payment of agent's commission. During the existence of the
contract of agency, DRACOR admitted that CMS sold its logs directly to several Japanese firms.
This act constituted an implied revocation of the contract of agency under Article 1924 of the
Civil Code, which provides: Art. 1924 The agency is revoked if the principal directly manages
the business entrusted to the agent, dealing directly with third persons. DRACOR is not entitled
to commission since it was revoked by CMS when they transacted directly with the Japanese
firms
G.R. No. L-40681
October 2, 1934
DY BUNCIO & COMPANY, INC., plaintiff-appelle,
vs.
ONG GUAN CAN, ET AL., defendants.
JUAN TONG and PUA GIOK ENG, appellants.
Pedro Escolin for appellants.
G. Viola Fernando for appellee.

HULL, J.:

This is a suit over a rice mill and camarin situated at Dao, Province of Capiz. Plaintiff
claims that the property belongs to its judgment debtor, Ong Guan Can, while
defendants Juan Tong and Pua Giok Eng claim as owner and lessee of the owner by
virtue of a deed dated July 31, 1931, by Ong Guan Can, Jr.
After trial the Court of First Instance of Capiz held that the deed was invalid and that the
property was subject to the execution which has been levied on said properties by the
judgment creditor of the owner. Defendants Juan Tong and Pua Giok bring this appeal
and insist that the deed of the 31st of July, 1931, is valid.
The first recital of the deed is that Ong Guan Can, Jr., as agent of Ong Guan Can, the
proprietor of the commercial firm of Ong Guan Can & Sons, sells the rice-mill
and camarin for P13,000 and gives as his authority the power of attorney dated the 23d
of May, 1928, a copy of this public instrument being attached to the deed and recorded
with the deed in the office of the register of deeds of Capiz. The receipt of the money
acknowledged in the deed was to the agent, and the deed was signed by the agent in
his own name and without any words indicating that he was signing it for the principal.
Leaving aside the irregularities of the deed and coming to the power of attorney referred
to in the deed and registered therewith, it is at once seen that it is not a general power
of attorney but a limited one and does not give the express power to alienate the
properties in question. (Article 1713 of the Civil Code.)
Appellants claim that this defect is cured by Exhibit 1, which purports to be a general
power of attorney given to the same agent in 1920. Article 1732 of the Civil Code is
silent over the partial termination of an agency. The making and accepting of a new
power of attorney, whether it enlarges or decreases the power of the agent under a prior
power of attorney, must be held to supplant and revoke the latter when the two are
inconsistent. If the new appointment with limited powers does not revoke the general
power of attorney, the execution of the second power of attorney would be a mere futile
gesture.lawphi1.net
The title of Ong Guan Can not having been divested by the so-called deed of July 31,
1931, his properties are subject to attachment and execution.
The judgment appealed from is therefore affirmed. Costs against appellants. So
ordered.
Avancea, C.J., Abad Santos, Vickers and Diaz, JJ., concur.
G.R. No. 115024

February 7, 1996

MA. LOURDES VALENZUELA, petitioner,


vs.
COURT OF APPEALS, RICHARD LI and ALEXANDER COMMERCIAL,
INC., respondents.
x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x
G.R. No. 117944

February 7, 1996

RICHARD LI, petitioner,


vs.
COURT OF APPEALS and LOURDES VALENZUELA,respondents.
DECISION
KAPUNAN, J.:
These two petitions for review on certiorari under Rule 45 of the Revised Rules of Court
stem from an action to recover damages by petitioner Lourdes Valenzuela in the
Regional Trial Court of Quezon City for injuries sustained by her in a vehicular accident
in the early morning of June 24, 1990. The facts found by the trial court are succinctly
summarized by the Court of Appeals below:
This is an action to recover damages based on quasi-delict, for serious physical
injuries sustained in a vehicular accident.
Plaintiff's version of the accident is as follows: At around 2:00 in the morning of
June 24, 1990, plaintiff Ma. Lourdes Valenzuela was driving a blue Mitsubishi
lancer with Plate No. FFU 542 from her restaurant at Marcos highway to her
home at Palanza Street, Araneta Avenue. She was travelling along Aurora Blvd.
with a companion, Cecilia Ramon, heading towards the direction of Manila.
Before reaching A. Lake Street, she noticed something wrong with her tires; she
stopped at a lighted place where there were people, to verify whether she had a
flat tire and to solicit help if needed. Having been told by the people present that
her rear right tire was flat and that she cannot reach her home in that car's
condition, she parked along the sidewalk, about 1-1/2 feet away, put on her
emergency lights, alighted from the car, and went to the rear to open the trunk.
She was standing at the left side of the rear of her car pointing to the tools to a
man who will help her fix the tire when she was suddenly bumped by a 1987
Mitsubishi Lancer driven by defendant Richard Li and registered in the name of
defendant Alexander Commercial, Inc. Because of the impact plaintiff was thrown

against the windshield of the car of the defendant, which was destroyed, and
then fell to the ground. She was pulled out from under defendant's car. Plaintiff's
left leg was severed up to the middle of her thigh, with only some skin and sucle
connected to the rest of the body. She was brought to the UERM Medical
Memorial Center where she was found to have a "traumatic amputation, leg, left
up to distal thigh (above knee)". She was confined in the hospital for twenty (20)
days and was eventually fitted with an artificial leg. The expenses for the hospital
confinement (P120,000.00) and the cost of the artificial leg (P27,000.00) were
paid by defendants from the car insurance.
In her complaint, plaintiff prayed for moral damages in the amount of P1 million,
exemplary damages in the amount of P100,000.00 and other medical and related
expenses amounting to a total of P180,000.00, including loss of expected
earnings.
Defendant Richard Li denied that he was negligent. He was on his way home,
travelling at 55 kph; considering that it was raining, visibility was affected and the
road was wet. Traffic was light. He testified that he was driving along the inner
portion of the right lane of Aurora Blvd. towards the direction of Araneta Avenue,
when he was suddenly confronted, in the vicinity of A. Lake Street, San Juan,
with a car coming from the opposite direction, travelling at 80 kph, with "full bright
lights". Temporarily blinded, he instinctively swerved to the right to avoid colliding
with the oncoming vehicle, and bumped plaintiff's car, which he did not see
because it was midnight blue in color, with no parking lights or early warning
device, and the area was poorly lighted. He alleged in his defense that the left
rear portion of plaintiff's car was protruding as it was then "at a standstill
diagonally" on the outer portion of the right lane towards Araneta Avenue (par.
18, Answer). He confirmed the testimony of plaintiff's witness that after being
bumped the car of the plaintiff swerved to the right and hit another car parked on
the sidewalk. Defendants counterclaimed for damages, alleging that plaintiff was
reckless or negligent, as she was not a licensed driver.
The police investigator, Pfc. Felic Ramos, who prepared the vehicular accident
report and the sketch of the three cars involved in the accident, testified that the
plaintiff's car was "near the sidewalk"; this witness did not remember whether the
hazard lights of plaintiff's car were on, and did not notice if there was an early
warning device; there was a street light at the corner of Aurora Blvd. and F.
Roman, about 100 meters away. It was not mostly dark, i.e. "things can be seen"
(p. 16, tsn, Oct. 28, 1991).

A witness for the plaintiff, Rogelio Rodriguez, testified that after plaintiff alighted
from her car and opened the trunk compartment, defendant's car came
approaching very fast ten meters from the scene; the car was "zigzagging". The
rear left side of plaintiff's car was bumped by the front right portion of defendant's
car; as a consequence, the plaintiff's car swerved to the right and hit the parked
car on the sidewalk. Plaintiff was thrown to the windshield of defendant's car,
which was destroyed, and landed under the car. He stated that defendant was
under the influence of liquor as he could "smell it very well" (pp. 43, 79, tsn, June
17, 1991).
After trial, the lower court sustained the plaintiff's submissions and found defendant
Richard Li guilty of gross negligence and liable for damages under Article 2176 of the
Civil Code. The trial court likewise held Alexander Commercial, Inc., Li's employer,
jointly and severally liable for damages pursuant to Article 2180. It ordered the
defendants to jointly and severally pay the following amounts:
1. P41,840.00, as actual damages, representing the miscellaneous expenses of
the plaintiff as a result of her severed left leg;
2. The sums of (a) P37,500.00, for the unrealized profits because of the
stoppage of plaintiff's Bistro La Conga restaurant three (3) weeks after the
accident on June 24, 1990; (b) P20,000.00, a month, as unrealized profits of the
plaintiff in her Bistro La Conga restaurant, from August, 1990 until the date of this
judgment and (c) P30,000.00, a month for unrealized profits in plaintiff's two (2)
beauty salons from July, 1990 until the date of this decision;
3. P1,000,000.00, in moral damages;
4. P50,000.00, as exemplary damages;
5. P60,000.00, as reasonable attorney's fees; and
6. Costs.
As a result of the trial court's decision, defendants filed an Omnibus Motion for New Trial
and for Reconsideration, citing testimony in Criminal Case O.C. No. 804367 (People vs.
Richard Li), tending to show that the point of impact, as depicted by the pieces of
glass/debris from the parties' cars, appeared to be at the center of the right lane of
Aurora Blvd. The trial court denied the motion. Defendants forthwith filed an appeal with
the respondent Court of Appeals. In a Decision rendered March 30, 1994, the Court of
Appeals found that there was "ample basis from the evidence of record for the trial

court's finding that the plaintiff's car was properly parked at the right, beside the
sidewalk when it was bumped by defendant's car." 1Dismissing the defendants' argument
that the plaintiff's car was improperly parked, almost at the center of the road, the
respondent court noted that evidence which was supposed to prove that the car was at
or near center of the right lane was never presented during the trial of the case. 2 The
respondent court furthermore observed that:
Defendant Li's testimony that he was driving at a safe speed of 55 km./hour is
self serving; it was not corroborated. It was in fact contradicted by eyewitness
Rodriguez who stated that he was outside his beerhouse located at Aurora
Boulevard after A. Lake Street, at or about 2:00 a.m. of June 24, 1990 when his
attention was caught by a beautiful lady (referring to the plaintiff) alighting from
her car and opening the trunk compartment; he noticed the car of Richard Li
"approaching very fast ten (10) meters away from the scene"; defendant's car
was zigzagging", although there were no holes and hazards on the street, and
"bumped the leg of the plaintiff" who was thrown against the windshield of
defendant's care, causing its destruction. He came to the rescue of the plaintiff,
who was pulled out from under defendant's car and was able to say "hurting
words" to Richard Li because he noticed that the latter was under the influence of
liquor, because he "could smell it very well" (p. 36, et. seq., tsn, June 17, 1991).
He knew that plaintiff owned a beerhouse in Sta. Mesa in the 1970's, but did not
know either plaintiff or defendant Li before the accident.
In agreeing with the trial court that the defendant Li was liable for the injuries sustained
by the plaintiff, the Court of Appeals, in its decision, however, absolved the Li's
employer, Alexander Commercial, Inc. from any liability towards petitioner Lourdes
Valenzuela and reduced the amount of moral damages to P500,000.00. Finding
justification for exemplary damages, the respondent court allowed an award of
P50,000.00 for the same, in addition to costs, attorney's fees and the other damages.
The Court of Appeals, likewise, dismissed the defendants' counterclaims. 3
Consequently, both parties assail the respondent court's decision by filing two separate
petitions before this Court. Richard Li, in G.R. No. 117944, contends that he should not
be held liable for damages because the proximate cause of the accident was Ma.
Lourdes Valenzuela's own negligence. Alternatively, he argues that in the event that this
Court finds him negligent, such negligence ought to be mitigated by the contributory
negligence of Valenzuela.
On the other hand, in G.R. No. 115024, Ma. Lourdes Valenzuela assails the respondent
court's decision insofar as it absolves Alexander Commercial, Inc. from liability as the

owner of the car driven by Richard Li and insofar as it reduces the amount of the actual
and moral damages awarded by the trial court.4
As the issues are intimately related, both petitions are hereby consolidated.
It is plainly evident that the petition for review in G.R. No. 117944 raises no substantial
questions of law. What it, in effect, attempts to have this Court review are factual
findings of the trial court, as sustained by the Court of Appeals finding Richard Li grossly
negligent in driving the Mitsubishi Lancer provided by his company in the early morning
hours of June 24, 1990. This we will not do. As a general rule, findings of fact of the
Court of Appeals are binding and conclusive upon us, and this Court will not normally
disturb such factual findings unless the findings of fact of the said court are palpably
unsupported by the evidence on record or unless the judgment itself is based on a
misapprehension of facts.5
In the first place, Valenzuela's version of the incident was fully corroborated by an
uninterested witness, Rogelio Rodriguez, the owner-operator of an establishment
located just across the scene of the accident. On trial, he testified that he observed a
car being driven at a "very fast" speed, racing towards the general direction of Araneta
Avenue.6 Rodriguez further added that he was standing in front of his establishment,
just ten to twenty feet away from the scene of the accident, when he saw the car hit
Valenzuela, hurtling her against the windshield of the defendant's Mitsubishi Lancer,
from where she eventually fell under the defendant's car. Spontaneously reacting to the
incident, he crossed the street, noting that a man reeking with the smell of liquor had
alighted from the offending vehicle in order to survey the incident. 7 Equally important,
Rodriguez declared that he observed Valenzuela's car parked parallel and very near the
sidewalk,8contrary to Li's allegation that Valenzuela's car was close to the center of the
right lane. We agree that as between Li's "self-serving" asseverations and the
observations of a witness who did not even know the accident victim personally and
who immediately gave a statement of the incident similar to his testimony to the
investigator immediately after the incident, the latter's testimony deserves greater
weight. As the court emphasized:
The issue is one of credibility and from Our own examination of the transcript,
We are not prepared to set aside the trial court's reliance on the testimony of
Rodriguez negating defendant's assertion that he was driving at a safe speed.
While Rodriguez drives only a motorcycle, his perception of speed is not
necessarily impaired. He was subjected to cross-examination and no attempt
was made to question .his competence or the accuracy of his statement that
defendant was driving "very fast". This was the same statement he gave to the

police investigator after the incident, as told to a newspaper report (Exh. "P"). We
see no compelling basis for disregarding his testimony.
The alleged inconsistencies in Rodriguez' testimony are not borne out by an
examination of the testimony. Rodriguez testified that the scene of the accident
was across the street where his beerhouse is located about ten to twenty feet
away (pp. 35-36, tsn, June 17, 1991). He did not state that the accident
transpired immediately in front of his establishment. The ownership of the
Lambingan se Kambingan is not material; the business is registered in the name
of his mother, but he explained that he owns the establishment (p. 5, tsn, June
20, 1991). Moreover, the testimony that the streetlights on his side of Aurora
Boulevard were on the night the accident transpired (p. 8) is not necessarily
contradictory to the testimony of Pfc. Ramos that there was a streetlight at the
corner of Aurora Boulevard and F. Roman Street (p. 45, tsn, Oct. 20, 1991).
With respect to the weather condition, Rodriguez testified that there was only a
drizzle, not a heavy rain and the rain has stopped and he was outside his
establishment at the time the accident transpired (pp. 64-65, tsn, June 17, 1991).
This was consistent with plaintiff's testimony that it was no longer raining when
she left Bistro La Conga (pp. 10-11, tsn, April 29, 1991). It was defendant Li who
stated that it was raining all the way in an attempt to explain why he was
travelling at only 50-55 kph. (p. 11, tsn, Oct. 14, 1991). As to the testimony of Pfc.
Ramos that it was raining, he arrived at the scene only in response to a
telephone call after the accident had transpired (pp. 9-10, tsn, Oct. 28, 1991). We
find no substantial inconsistencies in Rodriguez's testimony that would impair the
essential integrity of his testimony or reflect on his honesty. We are compelled to
affirm the trial court's acceptance of the testimony of said eyewitness.
Against the unassailable testimony of witness Rodriguez we note that Li's testimony
was peppered with so many inconsistencies leading us to conclude that his version of
the accident was merely adroitly crafted to provide a version, obviously self-serving,
which would exculpate him from any and all liability in the incident. Against Valenzuela's
corroborated claims, his allegations were neither backed up by other witnesses nor by
the circumstances proven in the course of trial. He claimed that he was driving merely at
a speed of 55 kph. when "out of nowhere he saw a dark maroon lancer right in front of
him, which was (the) plaintiff's car". He alleged that upon seeing this sudden
"apparition" he put on his brakes to no avail as the road was slippery.9
One will have to suspend disbelief in order to give credence to Li's disingenuous and
patently self-serving asseverations. The average motorist alert to road conditions will
have no difficulty applying the brakes to a car traveling at the speed claimed by Li.

Given a light rainfall, the visibility of the street, and the road conditions on a principal
metropolitan thoroughfare like Aurora Boulevard, Li would have had ample time to react
to the changing conditions of the road if he were alert - as every driver should be - to
those conditions. Driving exacts a more than usual toll on the senses. Physiological
"fight or flight" 10 mechanisms are at work, provided such mechanisms were not dulled
by drugs, alcohol, exhaustion, drowsiness, etc. 11 Li's failure to react in a manner which
would have avoided the accident could therefore have been only due to either or both of
the two factors: 1) that he was driving at a "very fast" speed as testified by Rodriguez;
and 2) that he was under the influence of alcohol. 12 Either factor working independently
would have diminished his responsiveness to road conditions, since normally he would
have slowed down prior to reaching Valenzuela's car, rather than be in a situation
forcing him to suddenly apply his brakes. As the trial court noted (quoted with approval
by respondent court):
Secondly, as narrated by defendant Richard Li to the San Juan Police
immediately after the incident, he said that while driving along Aurora Blvd., out
of nowhere he saw a dark maroon lancer right in front of him which was plaintiff's
car, indicating, again, thereby that, indeed, he was driving very fast, oblivious of
his surroundings and the road ahead of him, because if he was not, then he
could not have missed noticing at a still far distance the parked car of the plaintiff
at the right side near the sidewalk which had its emergency lights on, thereby
avoiding forcefully bumping at the plaintiff who was then standing at the left rear
edge of her car.
Since, according to him, in his narration to the San Juan Police, he put on his
brakes when he saw the plaintiff's car in front of him, but that it failed as the road
was wet and slippery, this goes to show again, that, contrary to his claim, he was,
indeed, running very fast. For, were it otherwise, he could have easily completely
stopped his car, thereby avoiding the bumping of the plaintiff, notwithstanding
that the road was wet and slippery. Verily, since, if, indeed, he was running slow,
as he claimed, at only about 55 kilometers per hour, then, inspite of the wet and
slippery road, he could have avoided hitting the plaintiff by the mere expedient or
applying his brakes at the proper time and distance.
It could not be true, therefore, as he now claims during his testimony, which is
contrary to what he told the police immediately after the accident and is,
therefore, more believable, that he did not actually step on his brakes but simply
swerved a little to the right when he saw the on-coming car with glaring
headlights, from the opposite direction, in order to avoid it.

For, had this been what he did, he would not have bumped the car of the plaintiff
which was properly parked at the right beside the sidewalk. And, it was not even
necessary for him to swerve a little to the right in order to safely avoid a collision
with the on-coming car, considering that Aurora Blvd. is a double lane avenue
separated at the center by a dotted white paint, and there is plenty of space for
both cars, since her car was running at the right lane going towards Manila on
the on-coming car was also on its right lane going to Cubao. 13
Having come to the conclusion that Li was negligent in driving his company-issued
Mitsubishi Lancer, the next question for us to determine is whether or not Valenzuela
was likewise guilty of contributory negligence in parking her car alongside Aurora
Boulevard, which entire area Li points out, is a no parking zone.
We agree with the respondent court that Valenzuela was not guilty of contributory
negligence.
Contributory negligence is conduct on the part of the injured party, contributing as a
legal cause to the harm he has suffered, which falls below the standard to which he is
required to conform for his own protection.14 Based on the foregoing definition, the
standard or act to which, according to petitioner Li, Valenzuela ought to have conformed
for her own protection was not to park at all at any point of Aurora Boulevard, a no
parking zone. We cannot agree.
Courts have traditionally been compelled to recognize that an actor who is confronted
with an emergency is not to be held up to the standard of conduct normally applied to
an individual who is in no such situation. The law takes stock of impulses of humanity
when placed in threatening or dangerous situations and does not require the same
standard of thoughtful and reflective care from persons confronted by unusual and
oftentimes threatening conditions.15
Under the "emergency rule" adopted by this Court in Gan vs. Court of Appeals,16 an
individual who suddenly finds himself in a situation of danger and is required to act
without much time to consider the best means that may be adopted to avoid the
impending danger, is not guilty of negligence if he fails to undertake what subsequently
and upon reflection may appear to be a better solution, unless the emergency was
brought by his own negligence.17
Applying this principle to a case in which the victims in a vehicular accident swerved to
the wrong lane to avoid hitting two children suddenly darting into the street, we held,
in Mc Kee vs. Intermediate Appellate Court,18 that the driver therein, Jose Koh, "adopted
the best means possible in the given situation" to avoid hitting the children. Using the

"emergency rule" the Court concluded that Koh, in spite of the fact that he was in the
wrong lane when the collision with an oncoming truck occurred, was not guilty of
negligence.19
While the emergency rule applies to those cases in which reflective thought, or the
opportunity to adequately weigh a threatening situation is absent, the conduct which is
required of an individual in such cases is dictated not exclusively by the suddenness of
the event which absolutely negates thoroughful care, but by the over-all nature of the
circumstances. A woman driving a vehicle suddenly crippled by a flat tire on a rainy
night will not be faulted for stopping at a point which is both convenient for her to do so
and which is not a hazard to other motorists. She is not expected to run the entire
boulevard in search for a parking zone or turn on a dark street or alley where she would
likely find no one to help her. It would be hazardous for her not to stop and assess the
emergency (simply because the entire length of Aurora Boulevard is a no-parking zone)
because the hobbling vehicle would be both a threat to her safety and to other
motorists. In the instant case, Valenzuela, upon reaching that portion of Aurora
Boulevard close to A. Lake St., noticed that she had a flat tire. To avoid putting herself
and other motorists in danger, she did what was best under the situation. As narrated by
respondent court: "She stopped at a lighted place where there were people, to verify
whether she had a flat tire and to solicit help if needed. Having been told by the people
present that her rear right tire was flat and that she cannot reach her home she parked
along the sidewalk, about 1 1/2 feet away, behind a Toyota Corona Car." 20 In fact,
respondent court noted, Pfc. Felix Ramos, the investigator on the scene of the accident
confirmed that Valenzuela's car was parked very close to the sidewalk. 21 The sketch
which he prepared after the incident showed Valenzuela's car partly straddling the
sidewalk, clear and at a convenient distance from motorists passing the right lane of
Aurora Boulevard. This fact was itself corroborated by the testimony of witness
Rodriguez.22
Under the circumstances described, Valenzuela did exercise the standard reasonably
dictated by the emergency and could not be considered to have contributed to the
unfortunate circumstances which eventually led to the amputation of one of her lower
extremities. The emergency which led her to park her car on a sidewalk in Aurora
Boulevard was not of her own making, and it was evident that she had taken all
reasonable precautions.
Obviously in the case at bench, the only negligence ascribable was the negligence of Li
on the night of the accident. "Negligence, as it is commonly understood is conduct
which creates an undue risk of harm to others." 23 It is the failure to observe that degree
of care, precaution, and vigilance which the circumstances justly demand, whereby

such other person suffers injury.24 We stressed, in Corliss vs. Manila Railroad
Company,25 that negligence is the want of care required by the circumstances.
The circumstances established by the evidence adduced in the court below plainly
demonstrate that Li was grossly negligent in driving his Mitsubishi Lancer. It bears
emphasis that he was driving at a fast speed at about 2:00 A.M. after a heavy downpour
had settled into a drizzle rendering the street slippery. There is ample testimonial
evidence on record to show that he was under the influence of liquor. Under these
conditions, his chances of effectively dealing with changing conditions on the road were
significantly lessened. As Presser and Keaton emphasize:
[U]nder present day traffic conditions, any driver of an automobile must be
prepared for the sudden appearance of obstacles and persons on the highway,
and of other vehicles at intersections, such as one who sees a child on the curb
may be required to anticipate its sudden dash into the street, and his failure to
act properly when they appear may be found to amount to negligence. 26
Li's obvious unpreparedness to cope with the situation confronting him on the night of
the accident was clearly of his own making.
We now come to the question of the liability of Alexander Commercial, Inc. Li's
employer. In denying liability on the part of Alexander Commercial, the respondent court
held that:
There is no evidence, not even defendant Li's testimony, that the visit was in
connection with official matters. His functions as assistant manager sometimes
required him to perform work outside the office as he has to visit buyers and
company clients, but he admitted that on the night of the accident he came from
BF Homes Paranaque he did not have "business from the company" (pp. 25-26,
ten, Sept. 23, 1991). The use of the company car was partly required by the
nature of his work, but the privilege of using it for non-official business is a
"benefit", apparently referring to the fringe benefits attaching to his position.
Under the civil law, an employer is liable for the negligence of his employees in
the discharge of their respective duties, the basis of which liability is
not respondeat superior, but the relationship ofpater familias, which theory bases
the liability of the master ultimately on his own negligence and not on that of his
servant (Cuison v. Norton and Harrison Co., 55 Phil. 18). Before an employer
may be held liable for the negligence of his employee, the act or omission which
caused damage must have occurred while an employee was in the actual
performance of his assigned tasks or duties (Francis High School vs. Court of

Appeals, 194 SCRA 341). In defining an employer's liability for the acts done
within the scope of the employee's assigned tasks, the Supreme Court has held
that this includes any act done by an employee, in furtherance of the interests of
the employer or for the account of the employer at the time of the infliction of the
injury or damage (Filamer Christian Institute vs. Intermediate Appellate Court,
212 SCRA 637). An employer is expected to impose upon its employees the
necessary discipline called for in the performance of any act "indispensable to
the business and beneficial to their employer" (at p. 645).
In light of the foregoing, We are unable to sustain the trial court's finding that
since defendant Li was authorized by the company to use the company car
"either officially or socially or even bring it home", he can be considered as using
the company car in the service of his employer or on the occasion of his
functions. Driving the company car was not among his functions as assistant
manager; using it for non-official purposes would appear to be a fringe benefit,
one of the perks attached to his position. But to impose liability upon the
employer under Article 2180 of the Civil Code, earlier quoted, there must be a
showing that the damage was caused by their employees in the service of the
employer or on the occasion of their functions. There is no evidence that Richard
Li was at the time of the accident performing any act in furtherance of the
company's business or its interests, or at least for its benefit. The imposition of
solidary liability against defendant Alexander Commercial Corporation must
therefore fail.27
We agree with the respondent court that the relationship in question is not based on the
principle of respondeat superior, which holds the master liable for acts of the servant,
but that of pater familias, in which the liability ultimately falls upon the employer, for his
failure to exercise the diligence of a good father of the family in the selection and
supervision of his employees. It is up to this point, however, that our agreement with the
respondent court ends. Utilizing the bonus pater familias standard expressed in Article
2180 of the Civil Code, 28we are of the opinion that Li's employer, Alexander
Commercial, Inc. is jointly and solidarily liable for the damage caused by the accident of
June 24, 1990.
First, the case of St. Francis High School vs. Court of Appeals29upon which respondent
court has placed undue reliance, dealt with the subject of a school and its teacher's
supervision of students during an extracurricular activity. These cases now fall under the
provision on special parental authority found in Art. 218 of the Family Code which
generally encompasses all authorized school activities, whether inside or outside school
premises.

Second, the employer's primary liability under the concept of pater familias embodied by
Art 2180 (in relation to Art. 2176) of the Civil Code is quasi-delictual or tortious in
character. His liability is relieved on a showing that he exercised the diligence of a good
father of the family in the selection and supervision of its employees. Once evidence is
introduced showing that the employer exercised the required amount of care in
selecting its employees, half of the employer's burden is overcome. The question of
diligent supervision, however, depends on the circumstances of employment.
Ordinarily, evidence demonstrating that the employer has exercised diligent supervision
of its employee during the performance of the latter's assigned tasks would be enough
to relieve him of the liability imposed by Article 2180 in relation to Article 2176 of the
Civil Code. The employer is not expected to exercise supervision over either the
employee's private activities or during the performance of tasks either unsanctioned by
the former or unrelated to the employee's tasks. The case at bench presents a situation
of a different character, involving a practice utilized by large companies with either their
employees of managerial rank or their representatives.
It is customary for large companies to provide certain classes of their employees with
courtesy vehicles. These company cars are either wholly owned and maintained by the
company itself or are subject to various plans through which employees eventually
acquire their vehicles after a given period of service, or after paying a token amount.
Many companies provide liberal "car plans" to enable their managerial or other
employees of rank to purchase cars, which, given the cost of vehicles these days, they
would not otherwise be able to purchase on their own.
Under the first example, the company actually owns and maintains the car up to the
point of turnover of ownership to the employee; in the second example, the car is really
owned and maintained by the employee himself. In furnishing vehicles to such
employees, are companies totally absolved of responsibility when an accident involving
a company-issued car occurs during private use after normal office hours?
Most pharmaceutical companies, for instance, which provide cars under the first plan,
require rigorous tests of road worthiness from their agents prior to turning over the car
(subject of company maintenance) to their representatives. In other words, like a good
father of a family, they entrust the company vehicle only after they are satisfied that the
employee to whom the car has been given full use of the said company car for company
or private purposes will not be a threat or menace to himself, the company or to others.
When a company gives full use and enjoyment of a company car to its employee, it in
effect guarantees that it is, like every good father, satisfied that its employee will use the
privilege reasonably and responsively.

In the ordinary course of business, not all company employees are given the privilege of
using a company-issued car. For large companies other than those cited in the example
of the preceding paragraph, the privilege serves important business purposes either
related to the image of success an entity intends to present to its clients and to the
public in general, or - for practical and utilitarian reasons - to enable its managerial and
other employees of rank or its sales agents to reach clients conveniently. In most cases,
providing a company car serves both purposes. Since important business transactions
and decisions may occur at all hours in all sorts of situations and under all kinds of
guises, the provision for the unlimited use of a company car therefore principally serves
the business and goodwill of a company and only incidentally the private purposes of
the individual who actually uses the car, the managerial employee or company sales
agent. As such, in providing for a company car for business use and/or for the purpose
of furthering the company's image, a company owes a responsibility to the public to see
to it that the managerial or other employees to whom it entrusts virtually unlimited use of
a company issued car are able to use the company issue capably and responsibly.
In the instant case, Li was an Assistant Manager of Alexander Commercial, Inc. In his
testimony before the trial court, he admitted that his functions as Assistant Manager did
not require him to scrupulously keep normal office hours as he was required quite often
to perform work outside the office, visiting prospective buyers and contacting and
meeting with company clients. 30 These meetings, clearly, were not strictly confined to
routine hours because, as a managerial employee tasked with the job of representing
his company with its clients, meetings with clients were both social as well as workrelated functions. The service car assigned to Li by Alexander Commercial, Inc.
therefore enabled both Li - as well as the corporation - to put up the front of a highly
successful entity, increasing the latter's goodwill before its clientele. It also facilitated
meeting between Li and its clients by providing the former with a convenient mode of
travel.
Moreover, Li's claim that he happened to be on the road on the night of the accident
because he was coming from a social visit with an officemate in Paranaque was a bare
allegation which was never corroborated in the court below. It was obviously selfserving. Assuming he really came from his officemate's place, the same could give rise
to speculation that he and his officemate had just been from a work-related function, or
they were together to discuss sales and other work related strategies.
In fine, Alexander Commercial, inc. has not demonstrated, to our satisfaction, that it
exercised the care and diligence of a good father of the family in entrusting its company
car to Li. No allegations were made as to whether or not the company took the steps
necessary to determine or ascertain the driving proficiency and history of Li, to whom it
gave full and unlimited use of a company car.31 Not having been able to overcome the

burden of demonstrating that it should be absolved of liability for entrusting its company
car to Li, said company, based on the principle of bonus pater familias, ought to be
jointly and severally liable with the former for the injuries sustained by Ma. Lourdes
Valenzuela during the accident.
Finally, we find no reason to overturn the amount of damages awarded by the
respondent court, except as to the amount of moral damages. In the case of moral
damages, while the said damages are not intended to enrich the plaintiff at the expense
of a defendant, the award should nonetheless be commensurate to the suffering
inflicted. In the instant case we are of the opinion that the reduction in moral damages
from an amount of P1,000,000.00 to P800,000,00 by the Court of Appeals was not
justified considering the nature of the resulting damage and the predictable sequelae of
the injury.
As a result of the accident, Ma. Lourdes Valenzuela underwent a traumatic amputation
of her left lower extremity at the distal left thigh just above the knee. Because of this,
Valenzuela will forever be deprived of the full ambulatory functions of her left extremity,
even with the use of state of the art prosthetic technology. Well beyond the period of
hospitalization (which was paid for by Li), she will be required to undergo adjustments in
her prosthetic devise due to the shrinkage of the stump from the process of healing.
These adjustments entail costs, prosthetic replacements and months of physical and
occupational rehabilitation and therapy. During her lifetime, the prosthetic devise will
have to be replaced and re-adjusted to changes in the size of her lower limb effected by
the biological changes of middle-age, menopause and aging. Assuming she reaches
menopause, for example, the prosthetic will have to be adjusted to respond to the
changes in bone resulting from a precipitate decrease in calcium levels observed in the
bones of all post-menopausal women. In other words, the damage done to her would
not only be permanent and lasting, it would also be permanently changing and adjusting
to the physiologic changes which her body would normally undergo through the years.
The replacements, changes, and adjustments will require corresponding adjustive
physical and occupational therapy. All of these adjustments, it has been documented,
are painful.
The foregoing discussion does not even scratch the surface of the nature of the
resulting damage because it would be highly speculative to estimate the amount of
psychological pain, damage and injury which goes with the sudden severing of a vital
portion of the human body. A prosthetic device, however technologically advanced, will
only allow a reasonable amount of functional restoration of the motor functions of the
lower limb. The sensory functions are forever lost. The resultant anxiety, sleeplessness,
psychological injury, mental and physical pain are inestimable.

As the amount of moral damages are subject to this Court's discretion, we are of the
opinion that the amount of P1,000,000.00 granted by the trial court is in greater accord
with the extent and nature of the injury - physical and psychological - suffered by
Valenzuela as a result of Li's grossly negligent driving of his Mitsubishi Lancer in the
early morning hours of the accident.
WHEREFORE, PREMISES CONSIDERED, the decision of the Court of Appeals is
modified with the effect of REINSTATING the judgment of the Regional Trial Court.
SO ORDERED.
FACTS:
Valenzuela, General Agent of Philippine American General Insurance
Company, Inc authorized to sell in behalf of Philamgen solicited marine
insurance from Delta Motors, Inc. amounting to P4.4M entitling him to a
32% commission or P1.6M

1976-1978: premium payments of P1,946,886 were paid directly to


Philamgen. Philamgen wanted a 50% share of Valenzuela's commission
but Valenzuela refused.

Because of his refusal, the officers of Philamgen reversed his


commission due him, placed agency transactions on a cash and carry
basis thus removing the 60-day credit for premiums due, threatened to
cancel policies issued by his agency and leaked out the news that he has
substantial accounts with Philamgen.

December 27, 1978: His agency with Philamgen was terminated

Valenzuela sought relief from the RTC

RTC: favored Valenzuela with reinstatement, commission with interest,


monthly compensatory damages, moral damages, attorney's fees and
cost of suit

CA modified by holding Philamgen and Valenzuela jointly and severally


liable for the premium
ISSUE: W/N Valuenuela should be NOT be held liable since non-payment of
the premium renders the policy invalid

HELD: YES. petition is GRANTED. RTC reinstated with modification that upon
satisfaction of the judgment, contractual relationship is terminated

The principal may not defeat the agent's right to indemnification by a


termination of the contract of agency. Where the principal terminates or
repudiates the agent's employment in violation of the contract of
employment and without cause ... the agent is entitled to receive either
the amount of net losses caused and gains prevented by the breach, or
the reasonable value of the services rendered. Thus, the agent is entitled
to prospective profits which he would have made except for such wrongful
termination provided that such profits are not conjectural, or speculative
but are capable of determination upon some fairly reliable basis.
If a principal violates a contractual or quasi-contractual duty which he
owes his agent, the agent may as a rule bring an appropriate action for
the breach of that duty. The agent may in a proper case maintain an
action at law for compensation or damages
question of whether or not the agency agreement is coupled with
interest is helpful to the petitioners' cause but is not the primary and
compelling reason
Section 77 of the Insurance Code, the remedy for the non-payment of
premiums is to put an end to and render the insurance policy not binding
unless premium is paid, an insurance contract does not take effect
since admittedly the premiums have not been paid, the policies issued
have lapsed
to sue Valenzuela for the unpaid premiums would be the height
of injustice and unfair dealing
Under Article 2200 of the new Civil Code, "indemnification for damages
shall comprehend not only the value of the loss suffered, but also that of
the profits which the obligee failed to obtain."
SECOND DIVISION

GENEVIEVE LIM, G.R. No. 163720


Petitioner,
Present:

PUNO, J.,
- versus - Chairman,
AUSTRIA-MARTINEZ,

CALLEJO, SR.,
TINGA, and
FLORENCIO SABAN, CHICO-NAZARIO, JJ.
Respondent.

Promulgated:
December 16, 2004

x-------------------------------------------------------------------x

DECISION

TINGA, J.:

Before the Court is a Petition for Review on Certiorari assailing


the Decision[1] 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 an Agreement 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 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 for P168,000.00.

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, and P113,257.00 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 Decision[11] dismissing Sabans
complaint, declaring the four (4) checks issued by Lim as stale and nonnegotiable, and absolving Lim from any liability towards Saban.

Saban appealed the trial courts Decision to the Court of Appeals.

On October 27, 2003, the appellate court promulgated its Decision[12] 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 the P200,000.00 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.

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. [24] The Court held that
it would be in the height of injustice to permit the principal to terminate the
contract of agency to the prejudice of the broker when he had already reaped
the benefits of the 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 covendees. 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.

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,[28] and One Hundred Thirty Thousand Pesos (P130,000.00) on
June 28, 1994,[29] or a total of Three Hundred Ninety Three Thousand Two
Hundred Fifty Seven Pesos (P393,257.00). 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 the P113,257.00
earmarked for taxes and P50,000.00 for commission, and received the balance
of P130,000.00 on June 28, 1994. Thus, a total of P230,000.00 went directly to
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 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.

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.
LIM v. SABAN
G.R. No. 163720; December 16, 2004
Ponente: J. Tinga
FACTS:
Under an 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 Saban's commission
for
the
sale.
Through Saban's 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). It
appears, however, that the vendees agreed to purchase the lot at the price
of Six Hundred Thousand Pesos (P600,000.00), inclusive of taxes and other
incidental
expenses
of
the
sale.
After the sale, Lim remitted to Saban the amounts of P113,257 for payment
of taxes due on the transaction as well as P50,000.00 as broker's
commission. Lim also issued in the name of Saban four postdated checks in
the
aggregate
amount
of
P236,743.00.
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 Saban's
favor and to "extend another partial payment" for the lot in his (Ybaez's)
favor.
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
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.
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.
ISSUE:
Whether Saban is entitled to receive his commission from the sale
HELD:
Yes, Saban is entitled to receive his commission from the sale.
The Supreme Court held that 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.
Moreover, the Court has already decided in earlier cases that would be
in the height of injustice to permit the principal to terminate the contract of
agency to the prejudice of the broker when he had already reaped the
benefits of the broker's efforts.

[G.R. No. 125704. August 28, 1998]

PHILEX MINING CORPORATION, petitioner, vs. COMMISSIONER OF INTERNAL


REVENUE, COURT OF APPEALS, and THE COURT OF TAX
APPEALS, respondents.
DECISION
ROMERO, J.:
Petitioner Philex Mining Corp. assails the decision of the Court of Appeals
promulgated on April 8, 1996 in CA-G.R. SP No. 36975 [1] affirming the Court of Tax
Appeals decision in CTA Case No. 4872 dated March 16, 1995 [2] ordering it to pay the
amount of P110,677,668.52 as excise tax liability for the period from the 2nd quarter of
1991 to the 2nd quarter of 1992 plus 20% annual interest from August 6, 1994 until fully
paid pursuant to Sections 248 and 249 of the Tax Code of 1977.
The facts show that on August 5, 1992, the BIR sent a letter to Philex asking it to
settle its tax liabilities for the 2nd, 3rd and 4th quarter of 1991 as well as the 1st and 2nd
quarter of 1992 in the total amount of P123,821,982.52 computed as follows:
PERIOD COVERED BASIC TAX 25% SURCHARGE INTEREST TOTAL EXCISE
TAX DUE
2nd Qtr., 1991 12,911,124.60 3,227,781.15 3,378,116.16 19,517,021.91
3rd Qtr., 1991 14,994,749.21 3,748,687.30 2,978,409.09 21,721,845.60
4th Qtr., 1991 19,406,480.13 4,851,620.03 2,631,837.72 26,889,937.88
------------------- ----------------- ----------------- --------------------47,312,353.94 11,828,088.48 8,988,362.97 68,128,805.39
1st Qtr., 1992 23,341,849.94 5,835,462.49 1,710,669.82 30,887,982.25

2nd Qtr., 1992 19,671,691.76 4,917,922.94 215,580.18 24,805,194.88


43,013,541.70 10,753,385.43 1,926,250.00 55,693,177.13
90,325,895.64 22,581,473.91 10,914,612.97 123,821,982.52
========== ========== =========== ===========[3]
In a letter dated August 20, 1992, [4] Philex protested the demand for payment of the
tax liabilities stating that it has pending claims for VAT input credit/refund for the taxes it
paid for the years 1989 to 1991 in the amount of P119,977,037.02 plus
interest. Therefore, these claims for tax credit/refund should be applied against the tax
liabilities, citing our ruling in Commissioner of Internal Revenue v. Itogon-Suyoc Mines,
Inc.[5]
In reply, the BIR, in a letter dated September 7, 1992, [6] found no merit in Philexs
position. Since these pending claims have not yet been established or determined with
certainty, it follows that no legal compensation can take place. Hence, he BIR reiterated
its demand that Philex settle the amount plus interest within 30 days from the receipt of
the letter.
In view of the BIRs denial of the offsetting of Philexs claim for VAT input
credit/refund against its exercise tax obligation, Philex raised the issue to the Court of
Tax Appeals on November 6, 1992. [7] In the course of the proceedings, the BIR issued a
Tax Credit Certificate SN 001795 in the amount of P13,144,313.88 which, applied to the
total tax liabilities of Philex of P123,821,982.52; effectively lowered the latters tax
obligation of P110,677,688.52.
Despite the reduction of its tax liabilities, the CTA still ordered Philex to pay the
remaining balance of P110,677,688.52 plus interest, elucidating its reason, to wit:
Thus, for legal compensation to take place, both obligations must be liquidated and
demandable. Liquidated debts are those where the exact amount has already been
determined (PARAS, Civil Code of the Philippines, Annotated, Vol. IV, Ninth Edition, p.
259). In the instant case, the claims of the Petitioner for VAT refund is still pending
litigation, and still has to be determined by this Court (C.T.A. Case No. 4707). A fortiori,
the liquidated debt of the Petitioner to the government cannot, therefore, be set-off
against the unliquidated claim which Petitioner conceived to exist in its favor (see
Compaia General de Tabacos vs. French and Unson, No. 14027, November 8, 1918, 39
Phil. 34).[8]
Moreover, the Court of Tax Appeals ruled that taxes cannot be subject to set-off on
compensation since claim for taxes is not a debt or contract. [9] The dispositive portion of
the CTA decision[10] provides:
In all the foregoing, this Petition for Review is hereby DENIED for lack of merit and
Petitioner is hereby ORDERED to PAY the Respondent the amount of P110,677,668.52
representing excise tax liability for the period from the 2nd quarter of 1991 to the

2nd quarter of 1992 plus 20% annual interest from August 6, 1994 until fully paid
pursuant to Section 248 and 249 of the Tax Code, as amended.
Aggrieved with the decision, Philex appealed the case before the Court of Appeals
docketed as CA-G.R. CV No. 36975. [11] Nonetheless, on April 8, 1996, the Court of
Appeals affirmed the Court of Tax Appeals observation. The pertinent portion of which
reads:[12]
WHEREFORE, the appeal by way of petition for review is hereby DISMISSED and the
decision dated March 16, 1995 is AFFIRMED.
Philex filed a motion for reconsideration which was, nevertheless, denied in a
Resolution dated July 11, 1996.[13]
However, a few days after the denial of its motion for reconsideration, Philex was
able to obtain its VAT input credit/refund not only for the taxable year 1989 to 1991 but
also for 1992 and 1994, computed as follows:[14]
Period Covered By Tax Credit Certificate Date Of Issue Amount
Claims For Vat Number
refund/credit
1994 (2nd Quarter) 007730 11 July 1996 P25,317,534.01
1994 (4th Quarter) 007731 11 July 1996 P21,791,020.61
1989 007732 11 July 1996 P37,322,799.19
1990-1991 007751 16 July 1996 P84,662,787.46
1992 (1st-3rd Quarter) 007755 23 July 1996 P36,501,147.95
In view of the grant of its VAT input credit/refund, Philex now contends that the
same should, ipso jure, off-set its excise tax liabilities[15] since both had already become
due and demandable, as well as fully liquidated; [16] hence, legal compensation can
properly take place.
We see no merit in this contention.
In several instances prior to the instant case, we have already made the
pronouncement that taxes cannot be subject to compensation for the simple reason that
the government and the taxpayer are not creditors and debtors of each other. [17] There is
a material distinction between a tax and debt. Debts are due to the Government in its
corporate capacity, while taxes are due to the Government in its sovereign capacity.
[18]
We find no cogent reason to deviate from the aforementioned distinction.
Prescinding from this premise, in Francia v. Intermediate Appellate Court, [19] we
categorically held that taxes cannot be subject to set-off or compensation, thus:

We have consistently ruled that there can be no off-setting of taxes against the claims
that the taxpayer may have against the government. A person cannot refuse to pay a
tax on the ground that the government owes him an amount equal to or greater than the
tax being collected. The collection of tax cannot await the results of a lawsuit against the
government.
The ruling in Francia has been applied to the subsequent case of Caltex
Philippines, Inc. v. Commission on Audit,[20] which reiterated that:
x x x a taxpayer may not offset taxes due from the claims that he may have against the
government. Taxes cannot be the subject of compensation because the government
and taxpayer are not mutually creditors and debtors of each other and a claim for taxes
is not such a debt, demand, contract or judgment as is allowed to be set-off.
Further, Philexs reliance on our holding in Commissioner of Internal Revenue v.
Itogon-Suyoc Mines, Inc., wherein we ruled that a pending refund may be set off against
an existing tax liability even though the refund has not yet been approved by the
Commissioner,[21] is no longer without any support in statutory law.
It is important to note that the premise of our ruling in the aforementioned case was
anchored on Section 51(d) of the National Revenue Code of 1939. However, when the
National Internal Revenue Code of 1977 was enacted, the same provision upon which
the Itogon-Suyoc pronouncement was based was omitted. [22] Accordingly, the doctrine
enunciated in Itogon-Suyoc cannot be invoked by Philex.
Despite the foregoing rulings clearly adverse to Philexs position, it asserts that the
imposition of surcharge and interest for the non-payment of the excise taxes within the
time prescribed was unjustified. Philex posits the theory that it had no obligation to pay
the excise liabilities within the prescribed period since, after all, it still has pending
claims for VAT input credit/refund with BIR.[23]
We fail to see the logic of Philexs claim for this is an outright disregard of the basic
principle in tax law that taxes are the lifeblood of the government and so should be
collected without unnecessary hindrance. [24] Evidently, to countenance Philexs
whimsical reason would render ineffective our tax collection system. Too simplistic, it
finds no support in law or in jurisprudence.
To be sure, we cannot allow Philex to refuse the payment of its tax liabilities on the
ground that it has a pending tax claim for refund or credit against the government which
has not yet been granted. It must be noted that a distinguishing feature of a tax is that it
is compulsory rather than a matter of bargain. [25] Hence, a tax does not depend upon the
consent of the taxpayer.[26] If any payer can defer the payment of taxes by raising the
defense that it still has a pending claim for refund or credit, this would adversely affect
the government revenue system. A taxpayer cannot refuse to pay his taxes when they
fall due simply because he has a claim against the government or that the collection of
the tax is contingent on the result of the lawsuit it filed against the government.
[27]
Moreover, Philex's theory that would automatically apply its VAT input credit/refund
against its tax liabilities can easily give rise to confusion and abuse, depriving the

government of authority over the manner by which taxpayers credit and offset their tax
liabilities.
Corollarily, the fact that Philex has pending claims for VAT input claim/refund with
the government is immaterial for the imposition of charges and penalties prescribed
under Section 248 and 249 of the Tax Code of 1977. The payment of the surcharge is
mandatory and the BIR is not vested with any authority to waive the collection thereof.
[28]
The same cannot be condoned for flimsy reasons, [29] similar to the one advanced by
Philex in justifying its non-payment of its tax liabilities.
Finally, Philex asserts that the BIR violated Section 106(e) [30] of the National Internal
Revenue Code of 1977, which requires the refund of input taxes within 60 days,
[31]
when it took five years for the latter to grant its tax claim for VAT input credit/refund. [32]
In this regard, we agree with Philex. While there is no dispute that a claimant
has the burden of proof to establish the factual basis of his or her claim for tax credit or
refund,[33] however, once the claimant has submitted all the required documents, it is the
function of the BIR to assess these documents with purposeful dispatch. After all, since
taxpayers owe honesty to government it is but just that government render fair service
to the taxpayers.[34]
In the instant case, the VAT input taxes were paid between 1989 to 1991 but the
refund of these erroneously paid taxes was only granted in 1996. Obviously, had the
BIR been more diligent and judicious with their duty, it could have granted the refund
earlier. We need not remind the BIR that simple justice requires the speedy refund of
wrongly-held taxes.[35] Fair dealing and nothing less, is expected by the taxpayer from
the BIR in the latter's discharge of its function. As aptly held inRoxas v. Court of Tax
Appeals:[36]
"The power of taxation is sometimes called also the power to destroy. Therefore it
should be exercised with caution to minimize injury to the proprietary rights of a
taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collectot kill the
'hen that lays the golden egg.' And, in the order to maintain the general public's trust
and confidence in the Government this power must be used justly and not
treacherously."
Despite our concern with the lethargic manner by which the BIR handled Philex's
tax claim, it is a settled rule that in the performance of governmental function, the State
is not bound by the neglect of its agents and officers. Nowhere is this more true than in
the field of taxation.[37] Again, while we understand Philex's predicament, it must be
stressed that the same is not valid reason for the non- payment of its tax liabilities.
To be sure, this is not state that the taxpayer is devoid of remedy against public
servants or employees especially BIR examiners who, in investigating tax claims are
seen to drag their feet needlessly. First, if the BIR takes time in acting upon the
taxpayer's claims for refund, the latter can seek judicial remedy before the Court of Tax
Appeals in the manner prescribed by law.[38] Second, if the inaction can be characterized
as willful neglect of duty, then recourse under the Civil Code and the Tax Code can also
be availed of.

Article 27 of the Civil Code provides:


"Art. 27. Any person suffering material or moral loss because a public servant or
employee refuses or neglects, without just cause, to perform his official duty may file an
action for damages and other relief against the latter, without prejudice to any
disciplinary action that may be taken."
More importantly, Section 269 (c) of the National Internal Revenue Act of 1997
states:
"xxx xxx xxx
(c) wilfully neglecting to give receipts, as by law required for any sum collected in the
performance of duty or wilfully neglecting to perform, any other duties enjoined by law."
Simply put, both provisions abhor official inaction, willful neglect and unreasonable
delay in the performance of official duties.[39] In no uncertain terms must we stress that
every public employee or servant must strive to render service to the people with utmost
diligence and efficiency. Insolence and delay have no place in government service. The
BIR, being the government collecting arm, must and should do no less. It simply cannot
be apathetic and laggard in rendering service to the taxpayer if it wishes to remain true
to its mission of hastening the country's development. We take judicial notice of the
taxpayer's generally negative perception towards the BIR; hence, it is up to the latter to
prove its detractors wrong.
In sum, while we can never condone the BIR's apparent callousness in performing
its duties, still, the same cannot justify Philex's non-payment of its tax liabilities. The
adage "no one should take the law into his own hands" should have guided Philex's
action.
WHEREFORE, in view of the foregoing, the instant petition is hereby DISMISSED.
The assailed decision of the Court of Appeals dated April 8, 1996 is hereby AFFIRMED.
SO ORDERED.
Narvasa, C.J., (Chairman), Kapunan and Purisima, JJ., concur.
G.R. No. 148187
April 16, 2008
PHILEX MINING CORPORATION, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
DECISION
YNARES-SANTIAGO, J.:

This is a petition for review on certiorari of the June 30, 2000 Decision 1 of the Court of
Appeals in CA-G.R. SP No. 49385, which affirmed the Decision 2 of the Court of Tax
Appeals in C.T.A. Case No. 5200. Also assailed is the April 3, 2001 Resolution 3 denying
the motion for reconsideration.
The facts of the case are as follows:
On April 16, 1971, petitioner Philex Mining Corporation (Philex Mining), entered into an
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:
(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 6-month notice to the PRINCIPAL. The MANAGERS shall not
in any manner be held liable to the PRINCIPAL by reason alone of such
withdrawal. Paragraph 5(d) hereof shall be operative in case of the MANAGERS
withdrawal.

x x x 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 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 20-day grace period given by the respondent
within which petitioner has to pay the deficiency amount x x x up to actual date of
payment.
SO ORDERED.11
The CTA rejected 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 "pretermination 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.
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 creditordebtor relationship between them.
The petition lacks merit.
The lower courts correctly held that the "Power of Attorney" is the instrument that is
material in determining the true nature of the business relationship between petitioner
and Baguio Gold. Before resort may be had to the two compromise agreements, the
parties contractual intent must first be discovered from the expressed language of the
primary contract under which the parties business relations were founded. It should be
noted that the compromise agreements were mere collateral documents executed by
the parties pursuant to the termination of their business relationship created under the
"Power of Attorney". On the other hand, it is the latter which established the juridical
relation of the parties and defined the parameters of their dealings with one another.
The execution of the two compromise agreements can hardly be considered as a
subsequent or contemporaneous act that is reflective of the parties true intent. The
compromise agreements were executed eleven years after the "Power of Attorney" and
merely laid out a plan or procedure by which petitioner could recover the advances and
payments it made under the "Power of Attorney". The parties entered into the
compromise agreements as a consequence of the dissolution of their business
relationship. It did not define that relationship or indicate its real character.
An examination of the "Power of Attorney" reveals that a partnership or joint venture
was indeed intended by the parties. Under a contract of partnership, two or more
persons bind themselves to contribute money, property, or industry to a common fund,
with the intention of dividing the profits among themselves. 15 While a corporation, like
petitioner, cannot generally enter into a contract of partnership unless authorized by law
or its charter, it has been held that it may enter into a joint venture which is akin to a
particular partnership:
The legal concept of a joint venture is of common law origin. It has no precise
legal definition, but it has been generally understood to mean an organization
formed for some temporary purpose. x x x It is in fact hardly distinguishable from
the partnership, since their elements are similar community of interest in the
business, sharing of profits and losses, and a mutual right of control. x x x The
main distinction cited by most opinions in common law jurisdictions is that the

partnership contemplates a general business with some degree of continuity,


while the joint venture is formed for the execution of a single transaction, and is
thus of a temporary nature. x x x This observation is not entirely accurate in this
jurisdiction, since under the Civil Code, a partnership may be particular or
universal, and a particular partnership may have for its object a specific
undertaking. x x x It would seem therefore that under Philippine law, a joint
venture is a form of partnership and should be governed by the law of
partnerships. The Supreme Court has however recognized a distinction between
these two business forms, and has held that although a corporation cannot enter
into a partnership contract, it may however engage in a joint venture with others.
x x x (Citations omitted) 16
Perusal of the agreement denominated as the "Power of Attorney" indicates that the
parties had intended to create a partnership and establish a common fund for the
purpose. They also had a joint interest in the profits of the business as shown by a 5050 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.
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 nonwithdrawal 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 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
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.

ZENAIDA G. MENDOZA, G.R. No. 175885


Petitioner,
Present:
Ynares-Santiago, J. (Chairperson),

- versus - Austria-Martinez,
Chico-Nazario,
Nachura, and
Peralta, JJ.
ENGR. EDUARDO PAULE,
ENGR. ALEXANDER COLOMA
and NATIONAL IRRIGATION
ADMINISTRATION (NIA
MUOZ, NUEVA ECIJA),
Respondents.

x ------------------------------------------------------ x

MANUEL DELA CRUZ, G.R. No. 176271


Petitioner,

- versus ENGR. EDUARDO M. PAULE,


ENGR. ALEXANDER COLOMA
and NATIONAL IRRIGATION Promulgated:
ADMINISTRATION (NIA
MUOZ, NUEVA ECIJA),
Respondents. February 13, 2009

x ---------------------------------------------------------------------------------------- x

DECISION

YNARES-SANTIAGO, J.:

These consolidated petitions assail the August 28, 2006 Decision [1] of
the Court of Appeals in CA-G.R. CV No. 80819 dismissing the complaint in
Civil

Case

No.

18-SD

(2000),[2] and

its

December

11,

2006

Resolution[3] denying the herein petitioners motion for reconsideration.

Engineer Eduardo M. Paule (PAULE) is the proprietor of E.M. Paule


Construction and Trading (EMPCT). On May 24, 1999, PAULE executed a
special power of attorney (SPA) authorizing Zenaida G. Mendoza (MENDOZA)
to participate in the pre-qualification and bidding of a National Irrigation
Administration (NIA) project and to represent him in all transactions related
thereto, to wit:

1. To represent E.M. PAULE CONSTRUCTION & TRADING of which I


(PAULE) am the General Manager in all my business
transactions with National Irrigation Authority, Muoz,
Nueva Ecija.

2. To participate in the bidding, to secure bid bonds and other


documents pre-requisite in the bidding of Casicnan MultiPurpose Irrigation and Power Plant (CMIPPL 04-99), National
Irrigation Authority, Muoz, Nueva Ecija.

3. To receive and collect payment in check in behalf of E.M.


PAULE CONSTRUCTION & TRADING.

4. To do and perform such acts and things that may be necessary


and/or required to make the herein authority effective.[4]

On September 29, 1999, EMPCT, through MENDOZA, participated in


the bidding of the NIA-Casecnan Multi-Purpose Irrigation and Power Project
(NIA-CMIPP) and was awarded Packages A-10 and B-11 of the NIA-CMIPP
Schedule A. On November 16, 1999, MENDOZA received the Notice of Award
which was signed by Engineer Alexander M. Coloma (COLOMA), then Acting
Project Manager for the NIA-CMIPP. Packages A-10 and B-11 involved the
construction of a road system, canal structures and drainage box culverts
with a project cost of P5,613,591.69.

When Manuel de la Cruz (CRUZ) learned that MENDOZA is in need of


heavy equipment for use in the NIA project, he met up with MENDOZA in
Bayuga, Muoz, Nueva Ecija, in an apartment where the latter was holding
office under an EMPCT signboard. A series of meetings followed in said
EMPCT office among CRUZ, MENDOZA and PAULE.

On December 2 and 20, 1999, MENDOZA and CRUZ signed two Job
Orders/Agreements[5] for the lease of the latters heavy equipment (dump
trucks for hauling purposes) to EMPCT.

On April 27, 2000, PAULE revoked[6] the SPA he previously issued in


favor of MENDOZA; consequently, NIA refused to make payment to
MENDOZA on her billings. CRUZ, therefore, could not be paid for the rent of
the equipment. Upon advice of MENDOZA, CRUZ addressed his demands for
payment of lease rentals directly to NIA but the latter refused to
acknowledge the same and informed CRUZ that it would be remitting
payment only to EMPCT as the winning contractor for the project.

In a letter dated April 5, 2000, CRUZ demanded from MENDOZA and/or


EMPCT payment of the outstanding rentals which amounted to P726,000.00
as of March 31, 2000.

On June 30, 2000, CRUZ filed Civil Case No. 18-SD (2000) with Branch
37 of the Regional Trial Court of Nueva Ecija, for collection of sum of money
with damages and a prayer for the issuance of a writ of preliminary
injunction against PAULE, COLOMA and the NIA. PAULE in turn filed a third-

party complaint against MENDOZA, who filed her answer thereto, with a
cross-claim against PAULE.

MENDOZA alleged in her cross-claim that because of PAULEs whimsical


revocation of the SPA, she was barred from collecting payments from NIA,
thus resulting in her inability to fund her checks which she had issued to
suppliers of materials, equipment and labor for the project. She claimed that
estafa and B.P. Blg. 22 cases were filed against her; that she could no longer
finance her childrens education; that she was evicted from her home; that
her vehicle was foreclosed upon; and that her reputation was destroyed, thus
entitling her to actual and moral damages in the respective amounts of P3
million and P1 million.

Meanwhile, on August 23, 2000, PAULE again constituted MENDOZA as


his attorney-in-fact

1. To represent me (PAULE), in my capacity as General


Manager of the E.M. PAULE CONSTRUCTION AND TRADING, in all
meetings, conferences and transactions exclusively for the
construction of the projects known as Package A-10 of Schedule
A and Package No. B-11 Schedule B, which are 38.61% and
63.18% finished as of June 21, 2000, per attached
Accomplishment Reports x x x;

2. To implement, execute, administer and supervise the


said projects in whatever stage they are in as of to date, to
collect checks and other payments due on said projects and act
as the Project Manager for E.M. PAULE CONSTRUCTION AND
TRADING;

3. To do and perform such acts and things that may be


necessary and required to make the herein power and authority
effective.[7]

At the pre-trial conference, the other parties were declared as in


default and CRUZ was allowed to present his evidence ex parte. Among the
witnesses he presented was MENDOZA, who was impleaded as defendant in
PAULEs third-party complaint.

On March 6, 2003, MENDOZA filed a motion to declare third-party


plaintiff PAULE non-suited with prayer that she be allowed to present her
evidence ex parte.

However, without resolving MENDOZAs motion to declare PAULE nonsuited, and without granting her the opportunity to present her evidence ex
parte, the trial court rendered its decision dated August 7, 2003, the
dispositive portion of which states, as follows:

WHEREFORE, judgment is hereby rendered in favor of the


plaintiff as follows:

1. Ordering defendant Paule to pay the plaintiff the sum of


P726,000.00 by way of actual damages or compensation for the
services rendered by him;

2. Ordering defendant Paule to pay plaintiff the sum of


P500,000.00 by way of moral damages;

3. Ordering defendant Paule to pay plaintiff the sum of


P50,000.00 by way of reasonable attorneys fees;

4. Ordering defendant Paule to pay the costs of suit; and

5. Ordering defendant National Irrigation Administration


(NIA) to withhold the balance still due from it to defendant
Paule/E.M. Paule Construction and Trading under NIA-CMIPP
Contract Package A-10 and to pay plaintiff therefrom to the
extent of defendant Paules liability herein adjudged.

SO ORDERED.[8]

In holding PAULE liable, the trial court found that MENDOZA was duly
constituted as EMPCTs agent for purposes of the NIA project and that
MENDOZA validly contracted with CRUZ for the rental of heavy equipment
that was to be used therefor. It found unavailing PAULEs assertion that

MENDOZA merely borrowed and used his contractors license in exchange for
a consideration of 3% of the aggregate amount of the project. The trial court
held that through the SPAs he executed, PAULE clothed MENDOZA with
apparent authority and held her out to the public as his agent; as principal,
PAULE must comply with the obligations which MENDOZA contracted within
the scope of her authority and for his benefit. Furthermore, PAULE knew of
the transactions which MENDOZA entered into since at various times when
she and CRUZ met at the EMPCT office, PAULE was present and offered no
objections. The trial court declared that it would be unfair to allow PAULE to
enrich himself and disown his acts at the expense of CRUZ.

PAULE and MENDOZA both appealed the trial courts decision to the
Court of Appeals.

PAULE claimed that he did not receive a copy of the order of default;
that it was improper for MENDOZA, as third-party defendant, to have taken
the stand as plaintiff CRUZs witness; and that the trial court erred in finding
that an agency was created between him and MENDOZA, and that he was
liable as principal thereunder.

On the other hand, MENDOZA argued that the trial court erred in
deciding the case without affording her the opportunity to present evidence
on her cross-claim against PAULE; that, as a result, her cross-claim against
PAULE was not resolved, leaving her unable to collect the amounts of
P3,018,864.04, P500,000.00, and P839,450.88 which allegedly represent the
unpaid costs of the project and the amount PAULE received in excess of
payments made by NIA.

On August 28, 2006, the Court of Appeals rendered the assailed


Decision

which

dismissed

CRUZs

complaint,

as

well

as

MENDOZAs

appeal. The appellate court held that the SPAs issued in MENDOZAs favor did
not grant the latter the authority to enter into contract with CRUZ for hauling
services; the SPAs limit MENDOZAs authority to only represent EMPCT in its
business transactions with NIA, to participate in the bidding of the project, to
receive and collect payment in behalf of EMPCT, and to perform such acts as
may be necessary and/or required to make the said authority effective. Thus,
the engagement of CRUZs hauling services was done beyond the scope of
MENDOZAs authority.

As for CRUZ, the Court of Appeals held that he knew the limits of
MENDOZAs

authority

under

the

SPAs

yet

he

still

transacted

with

her. Citing Manila Memorial Park Cemetery, Inc. v. Linsangan,[9] the appellate

court declared that the principal (PAULE) may not be bound by the acts of
the agent (MENDOZA) where the third person (CRUZ) transacting with the
agent knew that the latter was acting beyond the scope of her power or
authority under the agency.

With respect to MENDOZAs appeal, the Court of Appeals held that


when the trial court rendered judgment, not only did it rule on the plaintiffs
complaint; in effect, it resolved the third-party complaint as well; [10] that the
trial court correctly dismissed the cross-claim and did not unduly ignore or
disregard it; that MENDOZA may not claim, on appeal, the amounts of
P3,018,864.04, P500,000.00, and P839,450.88 which allegedly represent the
unpaid costs of the project and the amount PAULE received in excess of
payments made by NIA, as these are not covered by her cross-claim in the
court a quo, which seeks reimbursement only of the amounts of P3 million
and P1 million, respectively, for actual damages (debts to suppliers, laborers,
lessors of heavy equipment, lost personal property) and moral damages she
claims she suffered as a result of PAULEs revocation of the SPAs; and that the
revocation of the SPAs is a prerogative that is allowed to PAULE under Article
1920[11] of the Civil Code.

CRUZ and MENDOZAs motions for reconsideration were denied; hence,


these consolidated petitions:

G.R. No. 175885 (MENDOZA PETITION)

a) The Court of Appeals erred in sustaining the trial courts


failure to resolve her motion praying that PAULE be declared nonsuited on his third-party complaint, as well as her motion seeking
that she be allowed to present evidence ex parte on her crossclaim;

b) The Court of Appeals erred when it sanctioned the trial


courts failure to resolve her cross-claim against PAULE; and,

c) The Court of Appeals erred in its application of Article


1920 of the Civil Code, and in adjudging that MENDOZA had no
right to claim actual damages from PAULE for debts incurred on
account of the SPAs issued to her.

G.R. No. 176271 (CRUZ PETITION)

CRUZ argues that the decision of the Court of Appeals is


contrary to the provisions of law on agency, and conflicts with
the Resolution of the Court in G.R. No. 173275, which affirmed
the Court of Appeals decision in CA-G.R. CV No. 81175, finding
the existence of an agency relation and where PAULE was
declared as MENDOZAs principal under the subject SPAs and,
thus, liable for obligations (unpaid construction materials, fuel
and heavy equipment rentals) incurred by the latter for the
purpose of implementing and carrying out the NIA project
awarded to EMPCT.

CRUZ argues that MENDOZA was acting within the scope of her
authority when she hired his services as hauler of debris because the NIA
project (both Packages A-10 and B-11 of the NIA-CMIPP) consisted of
construction of canal structures, which involved the clearing and disposal of
waste, acts that are necessary and incidental to PAULEs obligation under the
NIA project; and that the decision in a civil case involving the same SPAs,
where PAULE was found liable as MENDOZAs principal already became final
and executory; that in Civil Case No. 90-SD filed by MENDOZA against PAULE,
[12]

the latter was adjudged liable to the former for unpaid rentals of heavy

equipment and for construction materials which MENDOZA obtained for use
in the subject NIA project. On September 15, 2003, judgment was rendered
in said civil case against PAULE, to wit:

WHEREFORE, judgment is hereby rendered in favor of the


plaintiff (MENDOZA) and against the defendant (PAULE) as
follows:

1. Ordering defendant Paule to pay plaintiff the sum of


P138,304.00 representing the obligation incurred by the plaintiff
with LGH Construction;

2. Ordering defendant Paule to pay plaintiff the sum of


P200,000.00 representing the balance of the obligation incurred
by the plaintiff with Artemio Alejandrino;

3. Ordering defendant Paule to pay plaintiff the sum of


P520,000.00 by way of moral damages, and further sum of
P100,000.00 by way of exemplary damages;

4. Ordering defendant Paule to pay plaintiff the sum of


P25,000.00 as for attorneys fees; and

5. To pay the cost of suit.[13]

PAULE appealed[14] the above decision, but it was dismissed by the


Court of Appeals in a Decision[15] which reads, in part:

As to the finding of the trial court that the principle of


agency is applicable in this case, this Court agrees therewith. It
must be emphasized that appellant (PAULE) authorized appellee
(MENDOZA) to perform any and all acts necessary to make the
business transaction of EMPCT with NIA effective. Needless to
state, said business transaction pertained to the construction of
canal structures which necessitated the utilization of
construction materials and equipments.Having given said
authority, appellant cannot be allowed to turn its back on the
transactions entered into by appellee in behalf of EMPCT.

The amount of moral damages and attorneys fees awarded


by the trial court being justifiable and commensurate to the
damage suffered by appellee, this Court shall not disturb the
same. It is well-settled that the award of damages as well as
attorneys fees lies upon the discretion of the court in the context
of the facts and circumstances of each case.

WHEREFORE, the appeal is DISMISSED and the appealed


Decision is AFFIRMED.

SO ORDERED.[16]
MENDOZA V PAULE
G.R. No. 175885
February 13, 2009
By: Jeah Dominguez
FACTS:
Engineer Paule is the proprietor of E.M. Paule Construction and Trading
(EMPCT). PAULE
executed an SPA authorizing Mendoza to participate in the pre-qualification
and bidding of a
National Irrigation Administration (NIA) project, the Casicnan Multi-Purpose
Irrigation and
Power Plant (CMIPPL). Mendoza was given the power to bid and secure bonds
with the NIA
as well as receive and collect payments. EMPCT, through Mendoza, was
awarded the project.
When Cruz learned the Mendoza was in need of heavy equipment for use in
the NIA project,
he met up with him to discuss an agreement for such project. The product of
their agreement
was two job orders for dump trucks on December of 1999.
On April 2000, Paule revoked the SPA of Mendoza prompting NIA to refuse
payment on her
billings. CRUZ, therefore, could not be paid for the rent of the equipment.
Upon advice of
MENDOZA, CRUZ addressed his demands for payment of lease rentals
directly to NIA but
the latter refused to acknowledge the same and informed CRUZ that it would
be remitting
payment only to EMPCT as the winning contractor for the project.
Cruz then sued Paule (EMPTC) and NIA. Paule proceeds against Mendoza.
MENDOZA
alleged in her cross-claim that because of PAULEs whimsical revocation of
the SPA, she was
barred from collecting payments from NIA, thus resulting in her inability to
fund her checks
which she had issued to suppliers of materials, equipment and labor for the
project. She

claimed that estafa and B.P. Blg. 22 cases were filed against her.
RECAP!
Cruz: Mendoza/Paule/EMPTC/NIA needs to pay because Mendoza was the
agent of EMPTC
and she incurred liabilities pursuant to the NIA project!
Paule: I shouldnt pay nor forward the money I have from NIA because
Mendoza acted
outside the scope of her authority!
Mendoza: I acted within the scope of my authority and am now facing
charges with liabilities
I incurred which werent even mine to begin with since I was just an agent!
Paule/EMPTC/NIA should pay me!
Lower Court said Paule is liable as Mendoza acted as agent while CA reversed
and said that
Mendoza was in excess so Paule was not liable.
ISSUES:
1. On Paules and Mendozas side: Whether or not Mendoza, as agent, could
claim from
Paule/EMPTC for debts she incurred from Cruz?
2. On Cruzs side: Whether or not Paule/EMPTC is liable as Mendoza was an
agent that
acted within the scope of her authority?
HELD:
BIGLA NALANG MAY PARTNERSHIP WHOA. Records show that PAULE (or,
more
appropriately, EMPCT) and MENDOZA had entered into a PARTNERSHIP in
regard to the
NIA project. PAULEs contribution thereto is his contractors license and
expertise, while
MENDOZA would provide and secure the needed funds for labor, materials
and services;
deal with the suppliers and sub-contractors; and in general and together with
PAULE, oversee
the effective implementation of the project. For this, PAULE would receive as
his share three
per cent (3%) of the project cost while the rest of the profits shall go to
MENDOZA. PAULE
admits to this arrangement in all his pleadings.
1. YES. Although the SPA limited Mendoza only to bid on behalf of EMPTC
with
regard the project, MENDOZAs actions were in accord with what she and
PAULE
originally agreed upon, as to division of labor and delineation of functions
within their
partnership. Under the Civil Code, every partner is an agent of the
partnership for the

purpose of its business; each one may separately execute all acts of
administration, unless
a specification of their respective duties has been agreed upon, or else it is
stipulated that
any one of them shall not act without the consent of all the others. At any
rate, PAULE
does not have any valid cause for opposition because his only role in the
partnership is to
provide his contractors license and expertise, while the sourcing of funds,
materials, labor
and equipment has been relegated to MENDOZA.
2. YES. Given the present factual milieu, CRUZ has a cause of action against
PAULE
and MENDOZA. Thus, the Court of Appeals erred in dismissing CRUZs
complaint on a
finding of exceeded agency. There was no valid reason for PAULE to revoke
MENDOZAs SPAs. Since MENDOZA took care of the funding and sourcing of
labor,
materials and equipment for the project, it is only logical that she controls
the finances,
which means that the SPAs issued to her were necessary for the proper
performance of her
role in the partnership, and to discharge the obligations she had already
contracted prior to
revocation. Without the SPAs, she could not collect from NIA, because as far
as it is
concerned, EMPCT and not the PAULE-MENDOZA partnership is the entity it
had
contracted with. Without these payments from NIA, there would be no source
of funds to
complete the project and to pay off obligations incurred. As MENDOZA
correctly argues,
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.
Moreover, PAULE should be made civilly liable for abandoning the
partnership, leaving
MENDOZA to fend for her own, and for unduly revoking her authority to
collect payments
from NIA, payments which were necessary for the settlement of obligations
contracted for

and already owing to laborers and suppliers of materials and equipment like
CRUZ, not to
mention the agreed profits to be derived from the venture that are owing to
MENDOZA by
reason of their partnership agreement.
PHILEX
GR
No.
294 SCRA 687

MINING
125704,

CORP.
August

v.
28,

CIR
1998

FACTS: Petitioner Philex Mining Corp. assails the decision of the Court of Appeals
affirming the Court of Tax
Appeals decision ordering it to pay the amount of P110.7 M as excise tax liability for the
period from the 2nd
quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from 1994 until
fully paid pursuant to
Sections 248 and 249 of the Tax Code of 1977. Philex protested the demand for
payment of the tax liabilities
stating that it has pending claims for VAT input credit/refund for the taxes it paid for the
years 1989 to 1991 in
the amount of P120 M plus interest. Therefore these claims for tax credit/refund should
be applied against the
tax liabilities.
ISSUE: Can there be an off-setting between the tax liabilities vis-a-vis claims of tax
refund of the petitioner?
HELD: No. Philex's claim is an outright disregard of the basic principle in tax law that
taxes are the lifeblood of the
government and so should be collected without unnecessary hindrance. Evidently, to
countenance Philex's
whimsical reason would render ineffective our tax collection system. Too simplistic, it
finds no support in law or in
jurisprudence.
To be sure, Philex cannot be allowed to refuse the payment of its tax liabilities on the
ground that it has a
pending tax claim for refund or credit against the government which has not yet been
granted.Taxes cannot be
subject to compensation for the simple reason that the government and the taxpayer
are not creditors and
debtors of each other. There is a material distinction between a tax and debt. Debts are
due to the Government

in its corporate capacity, while taxes are due to the Government in its sovereign
capacity. xxx There can be no
off-setting of taxes against the claims that the taxpayer may have against the
government. A person cannot
refuse to pay a tax on the ground that the government owes him an amount equal to or
greater than the tax
being collected. The collection of a tax cannot await the results of a lawsuit against the
government.