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G.R. No.

L-15568 November 8, 1919



company. By the plain language of sections 515 and 222 of our Code of
PHILPOTTS, petitioner,


against the corporation; and the respondent corporation in this case






BERRY, respondents.

Civil Procedure, the right of action in such a proceeding as this is given


was the only absolutely necessary party. In the Ohio case of Cincinnati
Volksblatt Co. vs. Hoffmister (61 Ohio St., 432; 48 L. R. A., 735), only




Crossfield and O'Brien for defendants.

the corporation was named as defendant, while the complaint, in

language almost identical with that in the case at bar, alleged a
demand upon and refusal by the corporation.

The petitioner, W. G. Philpotts, a stockholder in the Philippine

Nevertheless the propriety of naming the secretary of the corporation

Manufacturing Company, one of the respondents herein, seeks by this

as a codefendant cannot be questioned, since such official is

proceeding to obtain a writ of mandamus to compel the respondents to


permit the plaintiff, in person or by some authorized agent or attorney,

correspondence, and records of a corporation, and he is presumably

to inspect and examine the records of the business transacted by said

the person against whom the personal orders of the court would be

company since January 1, 1918. The petition is filed originally in this

made effective in case the relief sought should be granted. Certainly

court under the authority of section 515 of the Code of Civil Procedure,

there is nothing in the complaint to indicate that the secretary is an

which gives to this tribunal concurrent jurisdiction with the Court of

improper person to be joined. The petitioner might have named the

First Instance in cases, among others, where any corporation or person

president of the corporation as a respondent also; and this official

unlawfully excludes the plaintiff from the use and enjoyment of some

might be brought in later, even after judgment rendered, if necessary

right to which he is entitled. The respondents interposed a demurrer,

to the effectuation of the order of the court.








and the controversy is now before us for the determination of the

questions thus presented.

Section 222 of our Code of Civil Procedure is taken from the California








The first point made has reference to a supposed defect of parties, and

Barber vs. Mulford (117 Cal., 356) is quite clear upon the point that

it is said that the action can not be maintained jointly against the

both the corporation and its officers may be joined as defendants.

corporation and its secretary without the addition of the allegation that
the latter is the custodian of the business records of the respondent

The real controversy which has brought these litigants into court is
upon the question argued in connection with the second ground of

Now it is our opinion, and we accordingly hold, that the right of

demurrer, namely, whether the right which the law concedes to a

inspection given to a stockholder in the provision above quoted can be

stockholder to inspect the records can be exercised by a proper agent

exercised either by himself or by any proper representative or attorney

or attorney of the stockholder as well as by the stockholder in person.

in fact, and either with or without the attendance of the stockholder.

There is no pretense that the respondent corporation or any of its

This is in conformity with the general rule that what a man may do in

officials has refused to allow the petitioner himself to examine

person he may do through another; and we find nothing in the statute

anything relating to the affairs of the company, and the petition prays

that would justify us in qualifying the right in the manner suggested by

for a peremptory order commanding the respondents to place the

the respondents.

records of all business transactions of the company, during a specified

period, at the disposal of the plaintiff or his duly authorized agent or

This conclusion is supported by the undoubted weight of authority in

attorney, it being evident that the petitioner desires to exercise said

the United States, where it is generally held that the provisions of law

right through an agent or attorney. In the argument in support of the

conceding the right of inspection to stockholders of corporations are to

demurrer it is conceded by counsel for the respondents that there is a

be liberally construed and that said right may be exercised through

right of examination in the stockholder granted under section 51 of the

any other properly authorized person. As was said in Fostervs. White

Corporation Law, but it is insisted that this right must be exercised in

(86 Ala., 467), "The right may be regarded as personal, in the sense


that only a stockholder may enjoy it; but the inspection and
examination may be made by another. Otherwise it would be

The pertinent provision of our law is found in the second paragraph of

unavailing in many instances." An observation to the same effect is

section 51 of Act No. 1459, which reads as follows: "The record of all

contained in Martin vs. Bienville Oil Works Co. (28 La., 204), where it is

business transactions of the corporation and the minutes of any

said: "The possession of the right in question would be futile if the

meeting shall be open to the inspection of any director, member or

possessor of it, through lack of knowledge necessary to exercise it,

stockholder of the corporation at reasonable hours."

were debarred the right of procuring in his behalf the services of one
who could exercise it." In Deadreck vs. Wilson (8 Baxt. [Tenn.], 108),

This provision is to be read of course in connecting with the related

the court said: "That stockholders have the right to inspect the books

provisions of sections 51 and 52, defining the duty of the corporation

of the corporation, taking minutes from the same, at all reasonable

in respect to the keeping of its records.

times, and may be aided in this by experts and counsel, so as to make

the inspection valuable to them, is a principle too well settled to need


discussion." Authorities on this point could be accumulated in great

abundance, but as they may be found cited in any legal encyclopedia
or treaties devoted to the subject of corporations, it is unnecessary

At bench is a petition for review on certiorari under Rule 45 of the Rules of

here to refer to other cases announcing the same rule.

Court assailing the (1) July 27, 2010 Decision[1] of the Court of
Appeals (CA) in CA-G.R. CV No. 84725, which affirmed with modification the

In order that the rule above stated may not be taken in too sweeping a

September 27, 2004 Decision[2] of the Regional Trial Court, Branch 56,

sense, we deem it advisable to say that there are some things which a

Makati City (RTC) in Civil Case No. 01-507; and (2) its October 14, 2010

corporation may undoubtedly keep secret, notwithstanding the right of

Resolution,[3] which denied the motion for the reconsideration thereof.

inspection given by law to the stockholder; as for instance, where a

corporation, engaged in the business of manufacture, has acquired a


formula or process, not generally known, which has proved of utility to

On March 27, 2001, respondents Amos P. Francia, Jr., Cecilia Zamora and

it in the manufacture of its products. It is not our intention to declare

Benjamin Francia (the Francias) filed a Complaint for Collection of Sum of

that the authorities of the corporation, and more particularly the Board

Money and Damages[4] arising from their investments against petitioner

of Directors, might not adopt measures for the protection of such

Westmont Investment Corporation (Wincorp) and respondent Pearlbank

process form publicity. There is, however, nothing in the petition which

Securities Inc. (Pearlbank)before the RTC.

would indicate that the petitioner in this case is seeking to discover

anything which the corporation is entitled to keep secret; and if

Wincorp and Pearlbank filed their separate motions to dismiss.[5] Both

anything of the sort is involved in the case it may be brought out at a

motions were anchored on the ground that the complaint of the Francias

more advanced stage of the proceedings.

failed to state a cause of action. On July 16, 2001, after several exchanges
of pleadings, the RTC issued an order[6] dismissing the motions to dismiss

The demurrer is overruled; and it is ordered that the writ

of Wincorp and Pearlbank for lack of merit.

of mandamus shall issue as prayed, unless within 5 days from

notification hereof the respondents answer to the merits. So

Wincorp then filed its Answer,[7] while Pearlbank filed its Answer with


Counterclaim and Crossclaim (against Wincorp).[8]

Westmont Investment Corporation vs.

Francia, Jr

The case was set for pre-trial but before pre-trial conference could be held,

After several postponements requested by Wincorp, trial on the merits

Wincorp filed its Motion to Dismiss Crossclaim[9] of Pearlbank to which the

finally ensued. The gist of the testimony of Amos Francia, Jr. (Amos) is as

latter filed an opposition.[10] The RTC denied Wincorps motion to dismiss


1. Sometime in 1999, he was enticed by Ms. Lalaine Alcaraz, the bank
The pre-trial conference was later conducted after the parties had filed their

manager of Westmont Bank, Meycauayan, Bulacan Branch, to make an

respective pre-trial briefs. The parties agreed on the following stipulation of

investment with Wincorp, the banks financial investment arm, as it was

facts, as contained in the Pre-Trial Order[12] issued by the RTC on April 17,

offering interest rates that were 3% to 5% higher than regular bank interest


rates. Due to the promise of a good return of investment, he was convinced

to invest. He even invited his sister, Cecilia Zamora and his brother,

1. The personal and juridical circumstances of the parties meaning, the

Benjamin Francia, to join him. Eventually, they placed their investment in

plaintiffs and both corporate defendants;

the amounts of 1,420,352.72 and 2,522,745.34 with Wincorp in










2. That plaintiffs caused the service of a demand letter on Pearl Bank

spread. Thereafter, Wincorp, through Westmont Bank, issued Official

on February 13, 2001 marked as Exhibit E;

Receipt Nos. 470844[13] and 470845,[14] both dated January 27, 2000,
evidencing the said transactions.[15]

3. Plaintiffs do not have personal knowledge as to whether or not Pearl

Bank indeed borrowed the funds allegedly invested by the plaintiff from

2. When the 43-day placement matured, the Francias wanted to retire their

Wincorp; and

investments but they were told that Wincorp had no funds. Instead,







4. That the alleged confirmation advices which indicate Pearl Bank as

Advices[16] extending their placements for another 34 days. The said

alleged borrower of the funds allegedly invested by the plaintiffs in Wincorp

confirmation advices indicated the name of the borrower as Pearlbank. The

do not bear the signature or acknowledgment of Pearl Bank. (Emphases

maturity values were 1,435,108.61 and 2,548,953.86 with a due date


of April 13, 2000.

3. On April 13, 2000, they again tried to get back the principal amount they
invested plus interest but, again, they were frustrated.[17]

complaint against Pearlbank was dismissed, while the case was considered
4. Constrained,




Pearlbank[18] their

submitted for decision insofar as Wincorp was concerned.

investments. There were several attempts to settle the case, but all proved

On September 27, 2004, the RTC rendered a decision[25] in favor of the

Francias and held Wincorp solely liable to them. The dispositive portion

After the testimony of Amos Francia, Jr., the Francias filed their Formal Offer

thereof reads:

of Evidence.[19] Pearlbank filed its Comment/Objection,[20] while Wincorp

did not file any comment or objection. After all the exhibits of the Francias








were admitted for the purposes they were offered, the Francias rested their

Investment Corporation to pay the plaintiffs, the following amounts:


3,984,062.47 representing the aggregate amount of investment

placements made by plaintiffs, plus 11% per annum by way of stipulated

interest, to be counted from 10 March 2000 until fully paid; and
Thereafter, the case was set for the presentation of the defense evidence of
Wincorp. On March 7, 2003, three (3) days before the scheduled hearing,


10% of the above-mentioned amount as and for attorneys fees and

Wincorp filed a written motion to postpone the hearing on even date, as its

costs of suit.

witness, Antonio T. Ong, was unavailable because he had to attend a

congressional hearing. Wincorps substitute witness, Atty. Nemesio Briones,


was likewise unavailable due to a previous commitment in the Securities

Wincorp then filed a motion for reconsideration, but it was denied by the

and Exchange Commission.

RTC in its Order[26] dated November 10, 2004.

The RTC denied Wincorps Motion to Postpone and considered it to have

Not in conformity with the pronouncement of the RTC, Wincorp interposed

waived its right to present evidence.[21] The Motion for Reconsideration of

an appeal with the CA, alleging the following arguments:

Wincorp was likewise denied.[22]

On August 14, 2003, Pearlbank filed its Demurrer to Evidence.[23] The RTC









granted the same in its Order[24] dated January 12, 2004. Hence, the


of 3,984,062.47 plus 11% interest per annum computed from 10 March


2000 to plaintiffs-appellees.


Preliminarily, the Court will rule on the procedural issues raised to know


what pieces of evidence will be considered in this appeal.


Section 34, Rule 132 of the Rules on Evidence states that:


The court shall consider no evidence which has not been formally
offered. The purpose for which the evidence is offered must be specified.
The CA affirmed with modification the ruling of the RTC in its July 27,
2010 Decision, the decretal portion of which reads:

A formal offer is necessary because judges are mandated to rest their

findings of facts and their judgment only and strictly upon the evidence

WHEREFORE, premises considered, the present Appeal is DENIED. The

offered by the parties at the trial. Its function is to enable the trial judge to

Decision dated 27 September 2004 of the Regional Trial Court, Branch

know the purpose or purposes for which the proponent is presenting the

56, MakatiCity in


evidence. On the other hand, this allows opposing parties to examine the

MODIFICATION of the awards. Defendant-appellant Wincorp is hereby

evidence and object to its admissibility. Moreover, it facilitates review as the

ordered to pay plaintiffs-appellees the amounts of 3,984,062.47 plus 11%

appellate court will not be required to review documents not previously

per annum by way of stipulated interest to be computed from 13 April

scrutinized by the trial court. Evidence not formally offered during the trial

2000 until fully paid and 100,000.00 as attorneys fees and cost of suit.

can not be used for or against a party litigant. Neither may it be taken into







account on appeal.
The rule on formal offer of evidence is not a trivial matter. Failure to make a
The CA explained:

formal offer within a considerable period of time shall be deemed a waiver

to submit it.Consequently, any evidence that has not been offered shall be

After a careful and judicious scrutiny of the records of the present case,
together with the applicable laws and jurisprudence, this Court finds








excluded and rejected.

Prescinding therefrom, the very glaring conclusion is that all the documents

In the case at bench, a perusal of the records shows that the plaintiffs-

attached in the motion for reconsideration of the decision of the trial court


and all the documents attached in the defendant-appellants brief filed by

preponderance of evidence.The fact that on 27 January 2000, plaintiffs-

defendant-appellant Wincorp cannot be given any probative weight or

appellees placed their investment in the amounts of 1,420,352.72

credit for the sole reason that the said documents were not formally offered

and 2,522,754.34 with defendant-appellant Wincorp to earn a net interest

as evidence in the trial court because to consider them at this stage will

at the rate of 11% over a 43-day period was distinctly proved by the

deny the other parties the right to rebut them.

testimony of plaintiff-appellee Amos Francia, Jr. and supported by Official









Receipt Nos. 470844 and 470845 issued by defendant-appellant Wincorp

The arguments of defendant-appellant Wincorp that the plaintiffs-appellees

through Westmont Bank. The facts that plaintiffs-appellees failed to get

made an erroneous offer of evidence as the documents were offered to

back their investment after 43 days and that their investment was rolled

prove what is contrary to its content and that they made a violation of the

over for another 34 days were also established by their oral evidence and

parol evidence rule do not hold water.

confirmed by the Confirmation Advices issued by defendant-appellant






and 2,548,953.86






It is basic in the rule of evidence that objection to evidence must be made

to 1,435,108.61

on 13


after the evidence is formally offered. In case of documentary evidence,

2000. Likewise, the fact that plaintiffs-appellees investment was not

offer is made after all the witnesses of the party making the offer have

returned to them until this date by defendant-appellant Wincorp was proved

testified, specifying the purpose for which the evidence is being offered. It

by their evidence. To top it all, defendant-appellant Wincorp never negated

is only at this time, and not at any other, that objection to the documentary

these established facts because defendant-appellant Wincorps claim is that

evidence may be made.

it received the money of plaintiffs-appellees but it merely acted as an agent

of plaintiffs-appellees and that the actual borrower of plaintiffs-appellees

As to oral evidence, objection thereto must likewise be raised at the earliest







possible time, that is, after the objectionable question is asked or after the

Wincorp alleges that it should be the latter who must be held liable to the

answer is given if the objectionable issue becomes apparent only after the


answer was given.


However, the contract of agency and the fact that defendant-appellee

PearlBank actually received their money were never proven. The records
are bereft of any showing that defendant-appellee PearlBank is the actual

borrower of the money invested by plaintiffs-appellees as defendant-

money of plaintiffs-appellees, thus, the latter was forced to engage the

appellant Wincorp never presented any evidence to prove the same.

services of their counsel to protect their right. It is elementary that when

attorneys fees is awarded, they are so adjudicated, because it is in the

Moreover, the trial court did not err in dismissing defendant-appellant

nature of actual damages suffered by the party to whom it is awarded, as

Wincorps crossclaim as nothing in the records supports its claim. And such

he was constrained to engage the services of a counsel to represent him for

was solely due to defendant-appellant Wincorp because it failed to present

the protection of his interest. Thus, although the award of attorneys fees to

any scintilla of evidence that would implicate defendant-appellee PearlBank

plaintiffs-appellees was warranted by the circumstances obtained in this

to the transactions involved in this case. The fact that the name of

case, this Court finds it equitable to reduce the same from 10% of the total

defendant-appellee PearlBank was printed in the Confirmation Advices as

award to a fixed amount of 100,000.00.[28]

the actual borrower does not automatically makes defendant-appellee

PearlBank liable to the plaintiffs-appellees as nothing therein shows that
defendant-appellee PearlBank adhered or acknowledged that it is the actual

Wincorps Motion for Reconsideration was likewise denied by the CA in

borrower of the amount specified therein.

its October 14, 2010 Resolution.[29]

Clearly, the plaintiffs-appellees were able to establish their cause of action

Not in conformity, Wincorp seeks relief with this Court via this petition for

against defendant-appellant Wincorp, while the latter failed to establish its

review alleging that

cause of action against defendant-appellee Pearl Bank.

Hence, in view of all the foregoing, the Court finds defendant-appellant


Wincorp solely liable to pay the amount of 3,984,062.47 representing the


matured value of the plaintiffs-appellees investment as of 13 April 2000


plus 11% interest per annum by way of stipulated interest counted from
maturity date (13 April 2000).



As to the award of attorneys fees, this Court finds that the undeniable


source of the present controversy is the failure of defendant-appellant

Wincorp to return the principal amount and the interest of the investment


evidence on which they are based; (9) when the facts set forth in the
The core issue in this case is whether or not the CA is correct in finding

petition as well as in the petitioners main and reply briefs are not disputed

Wincorp solely liable to pay the Francias the amount of 3,984,062.47 plus

by the respondent; and (10) when the findings of fact are premised on the

interest of 11% per annum.

supposed absence of evidence and contradicted by the evidence on record.


Quite clearly, the case at bench presents a factual issue.

The Court finds that no cogent reason exists in this case to deviate from the
As a rule, a petition for review under Rule 45 of the Rules of Court

general rule.

covers only questions of law. Questions of fact are not reviewable and
cannot be passed upon by this Court in the exercise of its power to

Wincorp insists that the CA should have based its decision on the express

review. The distinction between questions of law and questions of fact is

terms, stipulations, and agreements provided for in the documents offered

established. A question of law exists when the doubt or difference centers

by the Francias as the legal relationship of the parties was clearly spelled

on what the law is on a certain state of facts. A question of fact, on the

out in the very documents introduced by them which indicated that it

other hand, exists if the doubt centers on the truth or falsity of the alleged

merely brokered the loan transaction between the Francias and Pearlbank.

facts.[31] This being so, the findings of fact of the CA are final and


conclusive and this Court will not review them on appeal.

Wincorp would want the Court to rule that there was a contract of agency
While it goes without saying that only questions of law can be raised in a

between it and the Francias with the latter authorizing the former as their

petition for review on certiorari under Rule 45, the same admits of

agent to lend money to Pearlbank. According to Wincorp, the two

exceptions, namely:(1) when the findings are grounded entirely on

Confirmation Advices presented as evidence by the Francias and admitted

speculations, surmises, or conjectures; (2) when the inference made is

by the court, were competent proof that the recipient of the loan proceeds

manifestly mistaken, absurd, or impossible; (3) when there is a grave abuse

was Pearlbank.[34]

of discretion; (4) when the judgment is based on misappreciation of

facts; (5) when the findings of fact are conflicting; (6) when in making its

The Court is not persuaded.

findings, the same are contrary to the admissions of both appellant and
appellee; (7) when the findings are contrary to those of the trial

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

court; (8) when the findings are conclusions without citation of specific

do something in representation or on behalf of another with the latters

consent.[35] It is said that the underlying principle of the contract of

Francias alleged that they did not have any personal knowledge if

agency is to accomplish results by using the services of others to do a great

Pearlbank was indeed the recipient/beneficiary of their investments.

variety of things. Its aim is to extend the personality of the principal or the
party for whom another acts and from whom he or she derives the

Although the subject Confirmation Advices indicate the name of Pearlbank

authority to act. Its basis is representation.[36]

as the purported borrower of the said investments, said documents do not

bear the signature or acknowledgment of Pearlbank or any of its officers.

Significantly, the elements of the contract of agency are: (1) consent,

This cannot prove the position of Wincorp that it was Pearlbank which

express or implied, of the parties to establish the relationship; (2) the object

received and benefited from the investments made by the Francias. There

is the execution of a juridical act in relation to a third person; (3) the agent

was not even a promissory note validly and duly executed by Pearlbank

acts as a representative and not for himself; (4) the agent acts within the

which would in any way serve as evidence of the said borrowing.

scope of his authority.[37]

In this case, the principal-agent relationship between the Francias and

Another significant point which would support the stand of Pearlbank that it

Wincorp was not duly established by evidence. The records are bereft of

was not the borrower of whatever funds supposedly invested by the

any showing that Wincorp merely brokered the loan transactions between

Francias was the fact that it initiated, filed and pursued several cases

the Francias and Pearlbank and the latter was the actual recipient of the

against Wincorp, questioning, among others, the latters acts of naming it as

money invested by the former. Pearlbank did not authorize Wincorp to

borrower of funds from investors.[39]

borrow money for it. Neither was there a ratification, expressly or impliedly,
that it had authorized or consented to said transaction.

It bears stressing too that all the documents attached by Wincorp to its
pleadings before the CA cannot be given any weight or evidentiary value

As to Pearlbank, records bear out that the Francias anchor their cause of

for the sole reason that, as correctly observed by the CA, these documents

action against it merely on the strength of the subject Confirmation Advices

were not formally offered as evidence in the trial court. To consider them

bearing the name PearlBank as the supposed borrower of their investments.

now would deny the other parties the right to examine and rebut them.

Apparently, the Francias ran after Pearlbank only after learning that

Section 34, Rule 132 of the Rules of Court provides:

Wincorp was reportedly bankrupt.[38]The Francias were consistent in

saying that they only dealt with Wincorp and not with Pearlbank. It bears

Section 34. Offer of evidence The court shall consider no evidence which

noting that even in their Complaint and during the pre-trial conference, the

has not been formally offered. The purpose for which the evidence is
offered must be specified.

This is a petition for review on certiorari under Rule 45 of the Revised Rules
of Court assailing the August 24, 2007 Decision [1] of the Court of Appeals
The offer of evidence is necessary because it is the duty of the court to rest

(CA) in CA-G.R. CV No. 82822, entitled R&B Insurance Corporation v. Glodel

its findings of fact and its judgment only and strictly upon the evidence

Brokerage Corporation and Loadmasters Customs Services, Inc., which held

offered by the parties. Unless and until admitted by the court in evidence

petitioner Loadmasters Customs Services, Inc. (Loadmasters) liable to

for the purpose or purposes for which such document is offered, the same


is merely a scrap of paper barren of probative weight.[40]

of P1,896,789.62




Corporation (Glodel) in







Insurance Corporation (R&B Insurance) paid to the insured-consignee,

Columbia Wire and Cable Corporation (Columbia).
The Court cannot, likewise, disturb the findings of the RTC and the CA as to
the evidence presented by the Francias. It is elementary that objection to


evidence must be made after evidence is formally offered.[41] It appears

that Wincorp was given ample opportunity to file its Comment/Objection to

On August 28, 2001, R&B Insurance issued Marine Policy No. MN-

the formal offer of evidence of the Francias but it chose not to file any.

00105/2001 in favor of Columbia to insure the shipment of 132 bundles of

electric copper cathodes against All Risks. On August 28, 2001, the cargoes

All told, the CA committed no reversible error in rendering the assailed July

were shipped on board the vessel Richard Rey from Isabela, Leyte, to Pier


10, North Harbor, Manila.They arrived on the same date.

2010 Decision





challenged October


2010 Resolution.
WHEREFORE, the petition is DENIED.

Columbia engaged the services of Glodel for the release and

withdrawal of the cargoes from the pier and the subsequent delivery to its
warehouses/plants.Glodel, in turn, engaged the services of Loadmasters for
the use of its delivery trucks to transport the cargoes to Columbias






warehouses/plants in Bulacan andValenzuela City.

Brokerage Corporation
The goods were loaded on board twelve (12) trucks owned by
Loadmasters, driven by its employed drivers and accompanied by its

employed truck helpers. Six (6) truckloads of copper cathodes were to be

delivered to Balagtas, Bulacan, while the other six (6) truckloads were

WHEREFORE, all premises considered, the plaintiff

destined for Lawang Bato, Valenzuela City. The cargoes in six truckloads for

having established by preponderance of evidence its claims

Lawang Bato were duly delivered in Columbias warehouses there. Of the six

against defendant Glodel Brokerage Corporation, judgment is

(6) trucks en route to Balagtas, Bulacan, however, only five (5) reached the

hereby rendered ordering the latter:

destination. One (1) truck, loaded with 11 bundles or 232 pieces of copper
cathodes, failed to deliver its cargo.

To pay plaintiff R&B Insurance Corporation

Later on, the said truck, an Isuzu with Plate No. NSD-117, was recovered

the sum of P1,896,789.62 as actual and

but without the copper cathodes. Because of this incident, Columbia filed

compensatory damages, with interest from

with R&B Insurance a claim for insurance indemnity in the amount

the date of complaint until fully paid;

of P1,903,335.39. After the requisite investigation and adjustment, R&B


paid Columbia the


of P1,896,789.62





To pay plaintiff R&B Insurance Corporation



R&B Insurance, thereafter, filed a complaint for damages against






02-103040. It










attorneys fees plusP1,500.00 per appearance

both Loadmasters and Glodel before the Regional Trial Court, Branch 14,


in Court;


reimbursement of the amount it had paid to Columbia for the loss of the
subject cargo. It claimed that it had been subrogated to the right of the


To pay plaintiff R&B Insurance Corporation

the sum of P22,427.18 as litigation expenses.

consignee to recover from the party/parties who may be held legally liable
for the loss.[2]






Services, Inc.s counterclaim for damages and attorneys fees

On November 19, 2003, the RTC rendered a decision


holding Glodel liable

against plaintiff are hereby dismissed.

for damages for the loss of the subject cargo and dismissing Loadmasters
counterclaim for damages and attorneys fees against R&B Insurance. The
dispositive portion of the decision reads:







Both R&B Insurance and Glodel appealed the RTC decision to the CA.
1. Can
On August 24, 2007, the CA rendered the assailed decision which
reads in part:







Respondent Glodel in spite of the fact that the latter

respondent Glodel did not file a cross-claim against it

Considering that appellee is an agent of appellant

Glodel, whatever liability the latter owes to appellant R&B

2. Under the set of facts established and undisputed

Insurance Corporation as insurance indemnity must likewise

in the case, can petitioner Loadmasters be legally

be the amount it shall be paid by appellee Loadmasters.

considered as an Agent of respondent Glodel? [6]

WHEREFORE, the foregoing considered, the appeal is

To totally exculpate itself from responsibility for the lost goods,

PARTLY GRANTED in that the appellee Loadmasters is likewise

Loadmasters argues that it cannot be considered an agent of Glodel



because it never represented the latter in its dealings with the consignee.


At any rate, it further contends that Glodel has no recourse against it for its

appellant Glodel has been held liable to appellant R&B

(Glodels) failure to file a cross-claim pursuant to Section 2, Rule 9 of the

Insurance Corporation.

1997 Rules of Civil Procedure.



of P1,896,789.62






Appellant Glodels appeal to absolve it from any

liability is herein DISMISSED.

Glodel, in its Comment,[7] counters that Loadmasters is liable to it under its

cross-claim because the latter was grossly negligent in the transportation of
the subject cargo. With respect to Loadmasters claim that it is already



estopped from filing a cross-claim, Glodel insists that it can still do so even
for the first time on appeal because there is no rule that provides

Hence, Loadmasters filed the present petition for review on

certiorari before this Court presenting the following

otherwise. Finally, Glodel argues that its relationship with Loadmasters is

that of Charter wherein the transporter (Loadmasters) is only hired for the
specific job of delivering the merchandise. Thus, the diligence required in


this case is merely ordinary diligence or that of a good father of the family,

recover the deficiency from the person causing the loss or

not the extraordinary diligence required of common carriers.


R&B Insurance, for its part, claims that Glodel is deemed to have interposed

As subrogee of the rights and interest of the consignee, R&B

a cross-claim against Loadmasters because it was not prevented from

Insurance has the right to seek reimbursement from either Loadmasters or

presenting evidence to prove its position even without amending its

Glodel or both for breach of contract and/or tort.

Answer. As to the relationship between Loadmasters and Glodel, it contends

that a contract of agency existed between the two corporations.[8]

The issue now is who, between Glodel and Loadmasters, is liable to pay
R&B Insurance for the amount of the indemnity it paid Columbia.

Subrogation is the substitution of one person in the place of another

with reference to a lawful claim or right, so that he who is substituted

At the outset, it is well to resolve the issue of whether Loadmasters and

succeeds to the rights of the other in relation to a debt or claim, including

Glodel are common carriers to determine their liability for the loss of the

its remedies or securities.


Doubtless, R&B Insurance is subrogated to the

subject cargo. Under Article 1732 of the Civil Code, common carriers are

rights of the insured to the extent of the amount it paid the consignee

persons, corporations, firms, or associations engaged in the business of

under the marine insurance, as provided under Article 2207 of the Civil

carrying or transporting passenger or goods, or both by land, water or air

Code, which reads:

for compensation, offering their services to the public.

Based on the aforecited definition, Loadmasters is a common carrier
because it is engaged in the business of transporting goods by land,

ART. 2207. If the plaintiffs property has been insured,

through its trucking service. It is a common carrier as distinguished from

and he has received indemnity from the insurance company

a private carrier wherein the carriage is generally undertaken by special

for the injury or loss arising out of the wrong or breach of

agreement and it does not hold itself out to carry goods for the general

contract complained of, the insurance company shall be

public.[10] The distinction is significant in the sense that the rights and

subrogated to the rights of the insured against the wrong-

obligations of the parties to a contract of private carriage are governed

doer or the person who has violated the contract. If the

principally by their stipulations, not by the law on common carriers. [11]

amount paid by the insurance company does not fully cover

the injury or loss, the aggrieved party shall be entitled to

In the present case, there is no indication that the undertaking in the

contract between Loadmasters and Glodel was private in character. There is

no showing that Loadmasters solely and exclusively rendered services to

negligence, however, may be rebutted by proof that the common carrier


has observed extraordinary diligence over the goods.

In fact, Loadmasters admitted that it is a common carrier.[12]

With respect to the time frame of this extraordinary responsibility,

the Civil Code provides that the exercise of extraordinary diligence lasts

In the same vein, Glodel is also considered a common carrier within

the context of Article 1732. In its Memorandum,


from the time the goods are unconditionally placed in the possession of,

it states that it is a

and received by, the carrier for transportation until the same are delivered,

corporation duly organized and existing under the laws of the Republic of

actually or constructively, by the carrier to the consignee, or to the person

the Philippines and is engaged in the business of customs brokering. It

who has a right to receive them.[18]

cannot be considered otherwise because as held by this Court in Schmitz

Transport & Brokerage Corporation v. Transport Venture, Inc., [14] a customs

Premises considered, the Court is of the view that both Loadmasters

broker is also regarded as a common carrier, the transportation of goods

and Glodel are jointly and severally liable to R & B Insurance for the loss of

being an integral part of its business.

the subject cargo. Under Article 2194 of the New Civil Code, the
responsibility of two or more persons who are liable for a quasi-delict is

Loadmasters and Glodel, being both common carriers, are mandated


from the nature of their business and for reasons of public policy, to
observe the extraordinary diligence in the vigilance over the goods

Loadmasters claim that it was never privy to the contract entered

transported by them according to all the circumstances of such case, as

into by Glodel with the consignee Columbia or R&B Insurance as subrogee,

required by Article 1733 of the Civil Code. When the Court speaks of

is not a valid defense. It may not have a direct contractual relation

extraordinary diligence, it is that extreme measure of care and caution

with Columbia, but it is liable for tort under the provisions of Article 2176 of

which persons of unusual prudence and circumspection observe for

the Civil Code on quasi-delicts which expressly provide:

securing and preserving their own property or rights.


This exacting

standard imposed on common carriers in a contract of carriage of goods is


2176. Whoever






intended to tilt the scales in favor of the shipper who is at the mercy of the

damage to another, there being fault or negligence, is

common carrier once the goods have been lodged for shipment. [16] Thus, in


case of loss of the goods, the common carrier is presumed to have been at

negligence, if there is no pre-existing contractual relation

fault or to have acted negligently.


This presumption of fault or






done. Such



between the parties, is called a quasi-delict and is governed

between Del Monte Produce and Mindanao Terminal, the

by the provisions of this Chapter.

allegation of negligence on the part of the defendant should

be sufficient to establish a cause of action arising from quasi-

Pertinent is the ruling enunciated in the case of Mindanao Terminal

delict. [Emphases supplied]

and Brokerage Service, Inc. v. Phoenix Assurance Company of New

York,/McGee & Co., Inc.[19] where this Court held that a tort may arise

In connection therewith, Article 2180 provides:

despite the absence of a contractual relationship, to wit:

ART. 2180. The obligation imposed by Article 2176 is
We agree with the Court of Appeals that the complaint filed

demandable not only for ones own acts or omissions, but also

by Phoenix and McGee against Mindanao Terminal, from

for those of persons for whom one is responsible.

which the present case has arisen, states a cause of action.


The present action is based on quasi-delict, arising from the

negligent and careless loading and stowing of the cargoes

Employers shall be liable for the damages caused by

belonging to Del Monte Produce. Even assuming that both

their employees and household helpers acting within the

Phoenix and McGee have only been subrogated in the rights

scope of their assigned tasks, even though the former are not

of Del Monte Produce, who is not a party to the contract of

engaged in any business or industry.

service between Mindanao Terminal and Del Monte, still the

insurance carriers may have a cause of action in light of the

It is not disputed that the subject cargo was lost while in the custody

Courts consistent ruling that the act that breaks the










contract may be also a tort. In fine, a liability for tort may

instrumental in the hijacking or robbery of the shipment. As employer,

arise even under a contract, where tort is that which

Loadmasters should be made answerable for the damages caused by its

breaches the contract. In the present case,Phoenix and

employees who acted within the scope of their assigned task of delivering

McGee are not suing for damages for injuries arising

the goods safely to the warehouse.

from the breach of the contract of service but from




manner by



Whenever an employees negligence causes damage or injury to

Terminal handled the cargoes belonging to Del Monte


Produce. Despite the absence of contractual relationship







presumption juris



tantum that


families in


selection (culpa in eligiendo) or supervision (culpa in vigilando) of its



To avoid liability

for a


committed by


Accordingly, there can be no contract of agency between the

parties. Loadmasters



Glodel. Neither




employee, an employer must overcome the presumption by presenting

authorized to make such representation. It is a settled rule that the basis for

convincing proof that he exercised the care and diligence of a good father

agency is representation, that is, the agent acts for and on behalf of the

of a family in the selection and supervision of his employee.


In this

regard, Loadmasters failed.

principal on matters within the scope of his authority and said acts have the
same legal effect as if they were personally executed by the principal. On
the part of the principal, there must be an actual intention to appoint or an

Glodel is also liable because of its failure to exercise extraordinary

intention naturally inferable from his words or actions, while on the part of

diligence. It failed to ensure that Loadmasters would fully comply with the

the agent, there must be an intention to accept the appointment and act on

undertaking to safely transport the subject cargo to the designated

it.[23] Such mutual intent is not obtaining in this case.

destination. It should have been more prudent in entrusting the goods to

Loadmasters by taking precautionary measures, such as providing escorts

What then is the extent of the respective liabilities of Loadmasters

to accompany the trucks in delivering the cargoes. Glodel should, therefore,

and Glodel? Each wrongdoer is liable for the total damage suffered by R&B

be held liable with Loadmasters. Its defense of force majeure is unavailing.

Insurance. Where there are several causes for the resulting damages, a
party is not relieved from liability, even partially. It is sufficient that the

At this juncture, the Court clarifies that there exists no principal-

negligence of a party is an efficient cause without which the damage would

agent relationship between Glodel and Loadmasters, as erroneously found

not have resulted. It is no defense to one of the concurrent tortfeasors that

by the CA. Article 1868 of the Civil Code provides: By the contract of

the damage would not have resulted from his negligence alone, without the

agency a person binds himself to render some service or to do something in

negligence or wrongful acts of the other concurrent tortfeasor. As stated in

representation or on behalf of another, with the consent or authority of the

the case of Far Eastern Shipping v. Court of Appeals,[24]

latter. The elements of a contract of agency are: (1) consent, express or

implied, of the parties to establish the relationship; (2) the object is the
execution of a juridical act in relation to a third person; (3) the agent acts as
a representative and not for himself; (4) the agent acts within the scope of
his authority.[22]

X x x. Where several causes producing an injury are

concurrent and each is an efficient cause without which the
injury would not have happened, the injury may be attributed
to all or any of the causes and recovery may be had against

any or all of the responsible persons although under the

the subject cargo. In this case, however, it cannot succeed in seeking

circumstances of the case, it may appear that one of them

judicial sanction against Loadmasters because the records disclose that it

was more culpable, and that the duty owed by them to the

did not properly interpose a cross-claim against the latter. Glodel did not

injured person was not the same. No actor's negligence

even pray that Loadmasters be liable for any and all claims that it may be

ceases to be a proximate cause merely because it does not

adjudged liable in favor of R&B Insurance. Under the Rules, a compulsory

exceed the negligence of other actors. Each wrongdoer is

counterclaim, or a cross-claim, not set up shall be barred.[25] Thus, a cross-

responsible for the entire result and is liable as though his

claim cannot be set up for the first time on appeal. For the

acts were the sole cause of the injury.

consequence, Glodel has no one to blame but itself. The Court cannot come
to its aid on equitable grounds. Equity, which has been aptly described as a

There is no contribution between joint tortfeasors

justice outside legality, is applied only in the absence of, and never against,

whose liability is solidary since both of them are liable for the

statutory law or judicial rules of procedure. [26] The Court cannot be a lawyer

total damage. Where the concurrent or successive negligent

and take the cudgels for a party who has been at fault or negligent.

acts or omissions of two or more persons, although acting

independently, are in combination the direct and proximate
cause of a single injury to a third person, it is impossible to

WHEREFORE, the petition is PARTIALLY GRANTED. The August

24, 2007 Decision of the Court of Appeals is MODIFIED to read as follows:

determine in what proportion each contributed to the injury

and either













injury. Where their concurring negligence resulted in injury


or damage to a third party, they become joint tortfeasors and


are solidarily liable for the resulting damage under Article

severally liable to respondent R&B Insurance Corporation for

2194 of the Civil Code. [Emphasis supplied]

the insurance indemnity it paid to consignee Columbia Wire &










Cable Corporation and ordering both parties to pay, jointly

The Court now resolves the issue of whether Glodel can collect from
Loadmasters, it having failed to file a cross-claim against the latter.
Undoubtedly, Glodel has a definite cause of action against Loadmasters for
breach of contract of service as the latter is primarily liable for the loss of

and severally, R&B Insurance Corporation a] the amount

of P1,896,789.62 representing the insurance indemnity; b]
the amount equivalent to ten (10%) percent thereof for
attorneys fees; and c] the amount of P22,427.18 for litigation

March 3, 1955, Concepcion Rallos died. On September 12, 1955, Simeon

The cross-claim belatedly prayed for by respondent

Rallos sold the undivided shares of his sisters Concepcion and Gerundia in

Glodel Brokerage Corporation against petitioner Loadmasters

lot 5983 to Felix Go Chan & Sons Realty Corporation for the sum of

Customs Services, Inc. is DENIED.

P10,686.90. The deed of sale was registered in the Registry of Deeds of

Cebu, TCT No. 11118 was cancelled, and a new transfer certificate of Title

RAMON RALLOS, Administrator of the Estate of CONCEPCION

No. 12989 was issued in the named of the vendee.

RALLOS, petitioner,

On May 18, 1956 Ramon Rallos as administrator of the Intestate Estate of


Concepcion Rallos filed a complaint docketed as Civil Case No. R-4530 of

APPEALS, respondents.

the Court of First Instance of Cebu, praying (1) that the sale of the
undivided share of the deceased Concepcion Rallos in lot 5983 be d

This is a case of an attorney-in-fact, Simeon Rallos, who after of his death of

unenforceable, and said share be reconveyed to her estate; (2) that the

his principal, Concepcion Rallos, sold the latter's undivided share in a parcel

Certificate of 'title issued in the name of Felix Go Chan & Sons Realty

of land pursuant to a power of attorney which the principal had executed in

Corporation be cancelled and another title be issued in the names of the

favor. The administrator of the estate of the went to court to have the sale

corporation and the "Intestate estate of Concepcion Rallos" in equal

declared uneanforceable and to recover the disposed share. The trial court

undivided and (3) that plaintiff be indemnified by way of attorney's fees and

granted the relief prayed for, but upon appeal the Court of Appeals uphold

payment of costs of suit. Named party defendants were Felix Go Chan &

the validity of the sale and the complaint.

Sons Realty Corporation, Simeon Rallos, and the Register of Deeds of Cebu,
but subsequently, the latter was dropped from the complaint. The

Hence, this Petition for Review on certiorari.

The following facts are not disputed. Concepcion and Gerundia both
surnamed Rallos were sisters and registered co-owners of a parcel of land
known as Lot No. 5983 of the Cadastral Survey of Cebu covered by Transfer
Certificate of Title No. 11116 of the Registry of Cebu. On April 21, 1954, the

complaint was amended twice; defendant Corporation's Answer contained a

crossclaim against its co-defendant, Simon Rallos while the latter filed thirdparty complaint against his sister, Gerundia Rallos While the case was
pending in the trial court, both Simon and his sister Gerundia died and they
were substituted by the respective administrators of their estates.

sisters executed a special power of attorney in favor of their brother,

After trial the court a quo rendered judgment with the following dispositive

Simeon Rallos, authorizing him to sell for and in their behalf lot 5983. On


A. On Plaintiffs Complaint

B. On GO CHANTS Cross-Claim:

(1) Declaring the deed of sale, Exh. "C", null





and void insofar as the one-half pro-indiviso


share of Concepcion Rallos in the property in

Simeon Rallos, to pay to defendant Felix Co

question, Lot 5983 of the Cadastral Survey

Chan & Sons Realty Corporation the sum of

of Cebu is concerned;

P5,343.45, representing the price of one-half








(1/2) share of lot 5983;

(2) Ordering the Register of Deeds of Cebu City
to cancel Transfer Certificate of Title No. 12989

(2) Ordering co-defendant Juan T. Borromeo,

covering Lot 5983 and to issue in lieu thereof

administrator of the Estate of Simeon Rallos, to

another in the names of FELIX GO CHAN &

pay in concept of reasonable attorney's fees to


Felix Go Chan & Sons Realty Corporation the

Concepcion Rallos in the proportion of one-half

sum of P500.00.

(1/2) share each pro-indiviso;

C. On Third-Party Complaint of defendant Juan T. Borromeo
(3) Ordering Felix Go Chan & Sons Realty

administrator of Estate of Simeon Rallos, against Josefina

Corporation to deliver the possession of an

Rallos special administratrix of the Estate of Gerundia Rallos:

undivided one-half (1/2) share of Lot 5983 to

the herein plaintiff;

(1) Dismissing the third-party complaint without prejudice to

filing either a complaint against the regular administrator of

(4) Sentencing the defendant Juan T. Borromeo,

the Estate of Gerundia Rallos or a claim in the Intestate-

administrator of the Estate of Simeon Rallos, to

Estate of Cerundia Rallos, covering the same subject-matter

pay to plaintiff in concept of reasonable

of the third-party complaint, at bar. (pp. 98-100, Record on

attorney's fees the sum of P1,000.00; and


(5) Ordering both defendants to pay the costs

Felix Go Chan & Sons Realty Corporation appealed in due time to the Court

jointly and severally.

of Appeals from the foregoing judgment insofar as it set aside the sale of

the one-half (1/2) share of Concepcion Rallos. The appellate tribunal, as

ART. 1403. The following contracts are unenforceable, unless

adverted to earlier, resolved the appeal on November 20, 1964 in favor of

they are justified:

the appellant corporation sustaining the sale in question.

The appellee
(1) Those entered into in the name of another person by one

administrator, Ramon Rallos, moved for a reconsider of the decision but the
same was denied in a resolution of March 4, 1965.

who hi - been given no authority or legal representation or

who has acted beyond his powers; ...

What is the legal effect of an act performed by an agent after the death of
his principal? Applied more particularly to the instant case, We have the

Out of the above given principles, sprung the creation and acceptance of

query. is the sale of the undivided share of Concepcion Rallos in lot 5983

the relationship

valid although it was executed by the agent after the death of his principal?

(mandante), authorizes another, called the agent (mandatario), to act for

What is the law in this jurisdiction as to the effect of the death of the

and in his behalf in transactions with third persons. The essential elements

principal on the authority of the agent to act for and in behalf of the latter?

of agency are: (1) there is consent, express or implied of the parties to

Is the fact of knowledge of the death of the principal a material factor in

establish the relationship; (2) the object is the execution of a juridical act in

determining the legal effect of an act performed after such death?

relation to a third person; (3) the agents acts as a representative and not


agency whereby





for himself, and (4) the agent acts within the scope of his authority.


Before proceedings to the issues, We shall briefly restate certain principles

of law relevant to the matter tinder consideration.

Agency is basically personal representative, and derivative in nature. The

authority of the agent to act emanates from the powers granted to him by

1. It is a basic axiom in civil law embodied in our Civil Code that no one may

his principal; his act is the act of the principal if done within the scope of

contract in the name of another without being authorized by the latter, or

the authority. Qui facit per alium facit se. "He who acts through another

unless he has by law a right to represent him.

A contract entered into in

acts himself".

the name of another by one who has no authority or the legal


representation or who has acted beyond his powers, shall be unenforceable,

2. There are various ways of extinguishing agency,

unless it is ratified, expressly or impliedly, by the person on whose behalf it

concerned only with one cause death of the principal Paragraph 3 of Art.

has been executed, before it is revoked by the other contracting

1919 of the Civil Code which was taken from Art. 1709 of the Spanish Civil

party. 4 Article 1403 (1) of the same Code also provides:

Code provides:
ART. 1919. Agency is extinguished.

but her We are

xxx xxx xxx

3. Is the general rule provided for in Article 1919 that the death of the
principal or of the agent extinguishes the agency, subject to any exception,

3. By the death, civil interdiction, insanity or insolvency of the

and if so, is the instant case within that exception? That is the

principal or of the agent; ... (Emphasis supplied)

determinative point in issue in this litigation. It is the contention of

By reason of the very nature of the relationship between Principal and

agent, agency is extinguished by the death of the principal or the agent.
This is the law in this jurisdiction. 8

the rationale for the law is found in thejuridical basis of agency which
is representation Them being an in. integration of the personality of the
principal integration that of the agent it is not possible for the



notwithstanding the death of the principal Concepcion Rallos the act of the
attorney-in-fact, Simeon Rallos in selling the former's sham in the property
is valid and enforceable inasmuch as the corporation acted in good faith in

Manresa commenting on Art. 1709 of the Spanish Civil Code explains that


respondent corporation which was sustained by respondent court that






Articles 1930 and 1931 of the Civil Code provide the exceptions to the
general rule afore-mentioned.


ART. 1930. The agency shall remain in full force and effect

establish. Pothier agrees with Manresa that by reason of the nature of

even after the death of the principal, if it has been

agency, death is a necessary cause for its extinction. Laurent says that the

constituted in the common interest of the latter and of the

juridical tie between the principal and the agent is severed ipso jure upon

agent, or in the interest of a third person who has accepted

the death of either without necessity for the heirs of the fact to notify the

the stipulation in his favor.

agent of the fact of death of the former.


buying the property in question.

ART. 1931. Anything done by the agent, without knowledge of

The same rule prevails at common law the death of the principal effects

the death of the principal or of any other cause which

instantaneous and absolute revocation of the authority of the agent unless

extinguishes the agency, is valid and shall be fully effective

the Power be coupled with an interest.


This is the prevalent rule in

American Jurisprudence where it is well-settled that a power without an

interest confer. red upon an agent is dissolved by the principal's death, and
any attempted execution of the power afterward is not binding on the heirs
or representatives of the deceased.


with respect to third persons who may have contracted with

him in good. faith.

Article 1930 is not involved because admittedly the special power of

knowledge on the part of the agent of the death of his principal; it is not

attorney executed in favor of Simeon Rallos was not coupled with an

enough that the third person acted in good faith. Thus in Buason & Reyes v.


Panuyas, the Court applying Article 1738 of the old Civil rode now Art. 1931
of the new Civil Code sustained the validity , of a sale made after the death

Article 1931 is the applicable law. Under this provision, an act done by the

of the principal because it was not shown that the agent knew of his

agent after the death of his principal is valid and effective only under two

principal's demise.

conditions, viz: (1) that the agent acted without knowledge of the death of

Kim Guan, et al., 1961, where in the words of Justice Jesus Barrera the Court

the principal and (2) that the third person who contracted with the agent



To the same effect is the case of Herrera, et al., v. Luy

himself acted in good faith. Good faith here means that the third person
was not aware of the death of the principal at the time he contracted with

... even granting arguemendo that Luis Herrera did die in

said agent. These two requisites must concur the absence of one will render

1936, plaintiffs presented no proof and there is no indication

the act of the agent invalid and unenforceable.

in the record, that the agent Luy Kim Guan was aware of the
death of his principal at the time he sold the property. The

In the instant case, it cannot be questioned that the agent, Simeon Rallos,

death 6f the principal does not render the act of an agent

knew of the death of his principal at the time he sold the latter's share in

unenforceable, where the latter had no knowledge of such

Lot No. 5983 to respondent corporation. The knowledge of the death is

extinguishment of the agency. (1 SCRA 406, 412)

clearly to be inferred from the pleadings filed by Simon Rallos before the
trial court.


That Simeon Rallos knew of the death of his sister Concepcion

is also a finding of fact of the court a quo


4. In sustaining the validity of the sale to respondent consideration the

and of respondent appellate

Court of Appeals reasoned out that there is no provision in the Code which

court when the latter stated that Simon Rallos 'must have known of the

provides that whatever is done by an agent having knowledge of the death

death of his sister, and yet he proceeded with the sale of the lot in the

of his principal is void even with respect to third persons who may have

name of both his sisters Concepcion and Gerundia Rallos without informing

contracted with him in good faith and without knowledge of the death of

appellant (the realty corporation) of the death of the former.


the principal.


On the basis of the established knowledge of Simon Rallos concerning the

We cannot see the merits of the foregoing argument as it ignores the

death of his principal Concepcion Rallos,Article 1931 of the Civil Code is

existence of the general rule enunciated in Article 1919 that the death of

inapplicable. The

the principal extinguishes the agency. That being the general rule it follows









a fortiorithat any act of an agent after the death of his principal is void ab

In case of a general power which does not specify the

initio unless the same fags under the exception provided for in the

persons to whom represents' on should be made, it is the

aforementioned Articles 1930 and 1931. Article 1931, being an exception to

general opinion that all acts, executed with third persons who

the general rule, is to be strictly construed, it is not to be given an


interpretation or application beyond the clear import of its terms for

revocation, are valid. In such case, the principal may exercise

otherwise the courts will be involved in a process of legislation outside of

his right against the agent, who, knowing of the revocation,

their judicial function.

continued to assume a personality which he no longer had.








(Manresa Vol. 11, pp. 561 and 575; pp. 15-16, rollo)
5. Another argument advanced by respondent court is that the vendee
acting in good faith relied on the power of attorney which was duly

The above discourse however, treats of revocation by an act of the principal

registered on the original certificate of title recorded in the Register of

as a mode of terminating an agency which is to be distinguished from

Deeds of the province of Cebu, that no notice of the death was aver

revocation by operation of law such as death of the principal which obtains

annotated on said certificate of title by the heirs of the principal and

in this case. On page six of this Opinion We stressed that by reason of the

accordingly they must suffer the consequences of such omission.


very nature of the relationship between principal and agent, agency is

extinguished ipso jure upon the death of either principal or agent. Although










in Manresa's Commentaries which We quote:

If the agency has been granted for the purpose of contracting
with certain persons, the revocation must be made known to
them. But if the agency is general iii nature, without
reference to particular person with whom the agent is to

a revocation of a power of attorney to be effective must be communicated

to the parties concerned,


yet a revocation by operation of law, such as by

death of the principal is, as a rule, instantaneously effective inasmuch as

"by legal fiction the agent's exercise of authority is regarded as an
execution of the principal's continuing will.


With death, the principal's will

ceases or is the of authority is extinguished.

contract, it is sufficient that the principal exercise due

The Civil Code does not impose a duty on the heirs to notify the agent of

diligence to make the revocation of the agency publicity

the death of the principal What the Code provides in Article 1932 is that,


if the agent die his heirs must notify the principal thereof, and in the
meantime adopt such measures as the circumstances may demand in the
interest of the latter. Hence, the fact that no notice of the death of the

principal was registered on the certificate of title of the property in the

quo, the Supreme Court, quoting the ruling in the case

Office of the Register of Deeds, is not fatal to the cause of the estate of the

of Eliason v. Wilborn, 261 U.S. 457, held:

But there is a narrower ground on which the
6. Holding that the good faith of a third person in said with an agent affords

defenses of the defendant- appellee must be

the former sufficient protection, respondent court drew a "parallel" between

overruled. Agustin Nano had possession of Jose

the instant case and that of an innocent purchaser for value of a land,

Vallejo's title papers. Without those title papers

stating that if a person purchases a registered land from one who acquired

handed over to Nano with the acquiescence of

it in bad faith even to the extent of foregoing or falsifying the deed of


sale in his favor the registered owner has no recourse against such

perpetuated. When Fernando de la Canters, a

innocent purchaser for value but only against the forger.







member of the Philippine Bar and the husband

of Angela Blondeau, the principal plaintiff,

To support the correctness of this respondent corporation, in its brief, cites

searched the registration record, he found

the case of Blondeau, et al., v. Nano and Vallejo, 61 Phil. 625. We quote

them in due form including the power of

from the brief:

attorney of Vallajo in favor of Nano. If this had

In the case of Angel Blondeau et al. v. Agustin Nano et al., 61
Phil. 630, one Vallejo was a co-owner of lands with Agustin
Nano. The latter had a power of attorney supposedly
executed by Vallejo Nano in his favor. Vallejo delivered to
Nano his land titles. The power was registered in the Office of
the Register of Deeds. When the lawyer-husband of Angela
Blondeau went to that Office, he found all in order including
the power of attorney. But Vallejo denied having executed the
power The lower court sustained Vallejo and the plaintiff
Blondeau appealed. Reversing the decision of the court a

not been so and if thereafter the proper

notation of the encumbrance could not have
been made, Angela Blondeau would not have
sent P12,000.00 to the defendant Vallejo.' An
executed transfer of registered lands placed by
the registered owner thereof in the hands of
another operates as a representation to a third






transfer is

authorized to deal with the land.

As between two innocent persons, one of
whom must suffer the consequence of a

breach of trust, the one who made it possible

innocent holder for value of a certificate of title. ... (Act No.

by his act of coincidence bear the loss. (pp. 19-

496 as amended)

7. One last point raised by respondent corporation in support of the
The Blondeau decision, however, is not on all fours with the case before Us

appealed decision is an 1842 ruling of the Supreme Court of Pennsylvania

because here We are confronted with one who admittedly was an agent of

in Cassiday v. McKenzie wherein payments made to an agent after the

his sister and who sold the property of the latter after her death with full

death of the principal were held to be "good", "the parties being ignorant of

knowledge of such death. The situation is expressly covered by a provision

the death". Let us take note that the Opinion of Justice Rogers was

of law on agency the terms of which are clear and unmistakable leaving no

premised on the statement that the parties were ignorant of the death of

room for an interpretation contrary to its tenor, in the same manner that

the principal. We quote from that decision the following:

the ruling in Blondeau and the cases cited therein found a basis in Section
... Here the precise point is, whether a payment to an agent

55 of the Land Registration Law which in part provides:

when the Parties are ignorant of the death is a good

xxx xxx xxx

payment. in addition to the case in Campbell before cited,

the same judge Lord Ellenboruogh, has decided in 5 Esp. 117,

The production of the owner's duplicate certificate whenever

the general question that a payment after the death of

any voluntary instrument is presented for registration shall

principal is not good. Thus, a payment of sailor's wages to a

be conclusive authority from the registered owner to the

person having a power of attorney to receive them, has been

register of deeds to enter a new certificate or to make a

held void when the principal was dead at the time of the



payment. If, by this case, it is meant merely to decide the

instruments, and the new certificate or memorandum Shall

general proposition that by operation of law the death of the

be binding upon the registered owner and upon all persons

principal is a revocation of the powers of the attorney, no

claiming under him in favor of every purchaser for value and

objection can be taken to it. But if it intended to say that his

in good faith: Provided however, That in all cases of

principle applies where there was 110 notice of death, or

registration provided by fraud, the owner may pursue all his

opportunity of twice I must be permitted to dissent from it.






legal and equitable remedies against the parties to such

fraud without prejudice, however, to the right, of any

... That a payment may be good today, or bad tomorrow,

well have been held to be estopped from suing for it again. . .

from the accident circumstance of the death of the principal,

. These cases, in so far, at least, as they announce the

which he did not know, and which by no possibility could he

doctrine under discussion, are exceptional. The Pennsylvania

know? It would be unjust to the agent and unjust to the

Case, supra (Cassiday v. McKenzie 4 Watts & S. 282, 39 AmD

debtor. In the civil law, the acts of the agent, done bona fide

76), is believed to stand almost, if not quite, alone in

in ignorance of the death of his principal are held valid and

announcing the principle in its broadest scope. (52, Misc.

binding upon the heirs of the latter. The same rule holds in

353, 357, cited in 2 C.J. 549)

the Scottish law, and I cannot believe the common law is so

unreasonable... (39 Am. Dec. 76, 80, 81; emphasis supplied)

So also in Travers v. Crane, speaking of Cassiday v. McKenzie, and pointing

out that the opinion, except so far as it related to the particular facts, was a









in Cassiday


mere dictum, Baldwin J. said:

McKenzie may evoke, mention may be made that the above represents the
minority view in American jurisprudence. Thus in Clayton v. Merrett, the

The opinion, therefore, of the learned Judge may be regarded

Court said.

more as an extrajudicial indication of his views on the general

subject, than as the adjudication of the Court upon the point
There are several cases which seem to hold that although, as

in question. But accordingly all power weight to this opinion,

a general principle, death revokes an agency and renders null

as the judgment of a of great respectability, it stands alone

every act of the agent thereafter performed, yet that where a

among common law authorities and is opposed by an array

payment has been made in ignorance of the death, such

too formidable to permit us to following it. (15 Cal. 12,17,

payment will be good. The leading case so holding is that

cited in 2 C.J. 549)

ofCassiday v. McKenzie, 4 Watts & S. (Pa) 282, 39 Am. 76,

















by Cassiday


announced. It is referred to, and seems to have been

McKenzie in American jurisprudence, no such conflict exists in our own for

followed, in the case of Dick v. Page, 17 Mo. 234, 57 AmD

the simple reason that our statute, the Civil Code, expressly provides for

267; but in this latter case it appeared that the estate of the

two exceptions to the general rule that death of the principal revokes ipso

deceased principal had received the benefit of the money

jure the agency, to wit: (1) that the agency is coupled with an interest (Art

paid, and therefore the representative of the estate might

1930), and (2) that the act of the agent was executed without knowledge of

the death of the principal and the third person who contracted with the

Urban Bank, Inc., and several of its corporate officers and directors together

agent acted also in good faith (Art. 1931). Exception No. 2 is the doctrine

with the concomitant levying and sale in execution of the personal (even

followed in Cassiday, and again We stress the indispensable requirement

conjugal) properties of those officers and directors; and (4) the fact that

that the agent acted without knowledge or notice of the death of the

assets with declared conservative values of at least PhP181 Million which,

principal In the case before Us the agent Ramon Rallos executed the sale

together with those with undeclared values could reach very much more

notwithstanding notice of the death of his principal Accordingly, the agent's

than such amount,[1] were levied or sold on execution pending appeal to

act is unenforceable against the estate of his principal.

satisfy the PhP28.5 Million award in favor of Atty. Pea. Incidentally, two
supersedeas bonds worth PhP80 Million (2.8 times the amount of the

IN VIEW OF ALL THE FOREGOING, We set aside the decision of respondent

judgment) were filed by Urban Bank and some of its officers and directors

appellate court, and We affirm en toto the judgment rendered by then Hon.

to stay the execution pending appeal.

Amador E. Gomez of the Court of First Instance of Cebu, quoted in pages 2

and 3 of this Opinion, with costs against respondent realty corporation at all

Had the four attendant circumstances not afflicted the original case,
it would have been an open-and-shut review where this Court, applying

Urban Bank Incorporated v. Pena

even just the minimum equitable principle against unjust enrichment would
have easily affirmed the grant of fair recompense to Atty. Pea for services

These consolidated petitions began as a simple case for payment of
services rendered and for reimbursement of costs. The case spun a web of
suits and counter-suits because of: (1) the size of the award for agents fee
rendered in favor of Atty. Magdaleno Pea (Pea) PhP24,000,000 rendered by
the trial court; (2) the controversial execution of the full judgment award of
PhP28,500,000 (agents fee plus reimbursement for costs and other
damages) pending appeal; and (3) the finding of solidary liability against

he rendered for Urban Bank if such had been ordered by the trial court.
That Atty. Pea should be paid something by Urban Bank is not in dispute the
Court of Appeals (CA) and the Regional Trial Court (RTC) of Bago City,
agreed on that. What they disagreed on is the basis and the size of the
award. The trial court claims that the basis is an oral contract of agency and
the award should be PhP28,5000,000; while, the appellate court said that
Atty. Pea can only be paid under the legal principle against unjust
enrichment, and the total award in his favor should only amount to

In the eyes of the trial court, the controlling finding is that Atty. Pea should

creditor-friend from whom he borrowed PhP3,000,000 to finance the

be believed when he testified that in a telephone conversation, the

expenses for the services he rendered Urban Bank.

president of Urban Bank, Teodoro Borlongan, a respondent herein, agreed

to pay him for his services 10% of the value of the property then worth
PhP240,000,000, or PhP24,000,000. Costs and other awards additionally
amount to PhP4,500,000, for a total award of PhP28,500,000 according to

At the time the award of PhP28,500,000 by the trial court came out

the trial court. To the Court of Appeals, such an award has no basis, as in

in 1999, the net worth of Urban Bank was PhP2,219,781,104. [2] While the

fact, no contract of agency exists between Atty. Pea and Urban Bank.

bank would be closed by the Bangko Sentral ng Pilipinas (BSP) a year later

Hence, Atty. Pea should only be recompensed according to the principle of

for having unilaterally declared a bank holiday contrary to banking rules,

unjust enrichment, and that he should be awarded the amount of

there was no reason to believe that at the time such award came out it

PhP3,000,000 only for his services and reimbursements of costs.

could not satisfy a judgment of PhP28,500,000, a sum that was only 1% of





of PhP11,933,383,630.








In fact, no allegation of impending insolvency or

attempt to abscond was ever raised by Atty. Pea and yet, the trial court
The disparity in the size of the award given by the trial court vis--vis that of

granted execution pending appeal.

the Court of Appeals (PhP28,500,000 v. PhP3,000,000) must be placed in

the context of the service that Atty. Pea proved that he rendered for Urban
Bank. As the records bear, Atty. Peas services consisted of causing the







establishments in an entertainment compound along Roxas Boulevard. It

involved the filing of ejectment suits against them, Peas personal defense
in the counter-suits filed against him, his settlement with them to the tune
of PhP1,500,000, which he advanced from his own funds, and his retention
of security guards and expenditure for other costs amounting to more or
less PhP1,500,000. There is no claim by Atty. Pea of any service beyond
those. He claims damages from the threats to his life and safety from the
angry tenants, as well as a vexatious collection suit he had to face from a

Interestingly, Pea had included as co-defendants with Urban Bank in

the RTC case, several officers and board directors of Urban Bank. Not all
board directors were sued, however. With respect to those included in the
complaint, other than against Teodoro Borlongan, Corazon Bejasa, and
Arturo Manuel, no evidence was ever offered as to their individual actions
that gave rise to Atty. Peas cause of action the execution of the agency
contract and its breach and yet, these officers and directors were made
solidarily liable by the trial court with Urban Bank for the alleged breach of
the alleged corporate contract of agency. Execution pending appeal was
also granted against them for this solidary liability resulting in the levy and

sale in execution pending appeal of not only corporate properties of Urban

Bank but also personal properties of the individual bank officers and

At core, these petitions can be resolved if we answer the following


directors. It would have been interesting to find out what drove Atty. Pea to
sue the bank officers and directors of Urban Bank and why he chose to sue
only some, but not all of the board directors of Urban Bank, but there is
nothing on the record with which this analysis can be pursued.
Before us are: (a) the Petitions of Urban Bank (G. R. No. 145817) and
the De Leon Group (G R. No. 145822) questioning the propriety of the grant
of execution pending appeal, and (b) the Petition of Atty. Pea (G. R. No.
162562) assailing the CAs decision on the substantive merits of the case
with respect to his claims of compensation based on an agency agreement.

1. What is the legal basis for an award in favor of Pea

for the services he rendered to Urban Bank? Should it be a
contract of agency the fee for which was orally agreed on as
Pea claims? Should it be the application of the Civil Code
provisions on unjust enrichment? Or is it to be based on
something else or a combination of the legal findings of both
the RTC and the CA? How much should the award be?
2. Are the officers and directors of Urban Bank liable
in their personal capacities for the amount claimed by Pea?

Ordinarily, the final resolution by the Supreme Court of an appeal from a








consequences on an order issued by the trial court for execution pending

appeal. But this is no ordinary case, and the magnitude of the

3. What are the effects of our answers to questions (1)

and (2), on the various results of the execution pending
appeal that happened here?

disproportions in this case is too mind-boggling that this Court must exert
extra effort to correct whatever injustices have been occasioned in this
case. Thus, our dispositions will include detailed instructions for several
judicial officials to implement.
Factual Background of the Controversy
Urban Bank, Inc. (both petitioner and respondent in these two consolidated
cases),[4] was a domestic Philippine corporation, engaged in the business of

banking.[5]The eight individual respondents in G. R. No. 162562 were

Two weeks before the lease over the Pasay property was to expire,

officers and members of Urban Banks board of directors, who were sued in

ISCI and Urban Bank executed a Contract to Sell, whereby the latter would

their official and personal capacities. [6] On the other hand, Benjamin L. De

pay ISCI the amount of PhP241,612,000 in installments for the Pasay

Leon, Delfin C. Gonzalez, Jr., and Eric L. Lee, (hereinafter the de Leon

property.[19] Both parties agreed that the final installment of PhP25,000,000

Group), are the petitioners in G. R. No. 145822 and are three of the same

would be released by the bank upon ISCIs delivery of full and actual

bank officers and directors, who had separately filed the instant Petition

possession of the land, free from any tenants.[20] In the meantime, the

before the Court.

amount of the final installment would be held by the bank in escrow. The
escrow provision in the Contract to Sell, thus, reads:

Petitioner-respondent Atty. Magdaleno M. Pea (Pea) [7] is a lawyer by

profession and was formerly a stockholder, director and corporate secretary
of Isabel Sugar Company, Inc. (ISCI).[8]

The SELLER (ISCI) agrees that from the proceeds of

the purchase prices of the subject Property (Pasay property),
the BUYER (Urban Bank) shall withhold the amount of PHP
25,000,000.00 by way of escrow and shall release this
amount to the SELLER only upon its delivery to the
BUYER of the full and actual possession and control of

ISCI owned a parcel of land[9] located in Pasay City (the Pasay

property).[10] In 1984, ISCI leased the Pasay property for a period of 10
years.[11] Without its consent[12] and in violation of the lease contract,[13] the
lessee subleased the land to several tenants, who in turn put up 23
establishments, mostly beer houses and night clubs, inside the compound.

In 1994, a few months before the lease contract was to expire, ISCI

informed the lessee[15] and his tenants[16] that the lease would no longer be
renewed and that it intended to take over the Pasay property [17] for the
purpose of selling it.[18]

the Subject Property, free from tenants, occupants,

squatters or other structures or from any liens,
encumbrances, easements or any other obstruction or
impediment to the free use and occupancy by the
buyer of the subject Property or its exercise of the
rights to ownership over the subject Property, within a
period of sixty (60) days from the date of payment by the
BUYER of the purchase price of the subject Property net of
the amounts authorized to be deducted or withheld under
Item II (a) of this Contract.[21](Emphasis supplied)

to protect the said property of the corporation. In addition

you may take whatever steps or measures are necessary to
ISCI then instructed Pea, who was its director and corporate

ensure our continued possession of the property.

secretary, to take over possession of the Pasay property [22] against the
tenants upon the expiration of the lease. ISCIs president, Mr. Enrique G.
Montilla III (Montilla), faxed a letter to Pea, confirming the latters


engagement as the corporations agent to handle the eviction of the tenants


from the Pasay property, to wit:[23]

On 29 November 1994, the day the lease contract was to expire,

ISCI and Urban Bank executed a Deed of Absolute Sale [25] over the Pasay

TO: Atty. Magdaleno M. Pena

property for the amount agreed upon in the Contract to Sell, but subject to


the above escrow provision.[26] The title to the land was eventually

FROM: Enrique G. Montilla III

transferred to the name of Urban Bank on 05 December 1994.[27]

On 30 November 1994, the lessee duly surrendered possession of

DATE: 26 November 1994

the Pasay property to ISCI, [28] but the unauthorized sub-tenants refused to
leave the area.[29]Pursuant to his authority from ISCI, Pea had the gates of
You are hereby directed to recover and take

the property closed to keep the sub-tenants out.[30] He also posted security

possession of the property of the corporation situated

guards at the property,[31]services for which he advanced payments.

at Roxas Boulevard covered by TCT No. 5382 of the


Despite the closure of the gates and the posting of the guards, the sub-

Register of Deeds for Pasay City immediately upon the

tenants would come back in the evening, force open the gates, and proceed

expiration of the contract of lease over the said

to carry on with their businesses. [33] On three separate occasions, the sub-

property on 29 November 1994. For this purpose you are

tenants tried to break down the gates of the property, threw stones, and

authorized to engage the services of security guards to

even threatened to return and inflict greater harm on those guarding it. [34]

protect the property against intruders. You may also engage

the services of a lawyer in case there is a need to go to court

In the meantime, a certain Marilyn G. Ong, as representative of ISCI,

On 19 December 1994, when information reached the judge that the

faxed a letter to Urban Bank addressed to respondent Corazon Bejasa, who

Pasay property had already been transferred by ISCI to Urban Bank, the trial

was then the banks Senior Vice-President requesting the issuance of a

court recalled the TRO and issued a break-open order for the property.

formal authority for Pea.


Two days thereafter, Ms. Ong faxed another

According to Pea, it was the first time that he was apprised of the sale of

letter to the bank, this time addressed to its president, respondent Teodoro

the land by ISCI and of the transfer of its title in favor of the bank. [46] It is

Borlongan.[36] She repeated therein the earlier request for authority for Pea,

not clear from the records how such information reached the judge or what

since the tenants were questioning ISCIs authority to take over the Pasay

the break-open order was in response to.



In response to the letters of Ms. Ong, petitioner-respondent bank,

through individual respondents Bejasa and Arturo E. Manuel Senior VicePresident and Vice-President, respectively advised Pea [38] that the bank had
noted the engagement of his services by ISCI and stressed that ISCI
remained as the lawyers principal.[39]

On the same day that the TRO was recalled, petitioner-respondent

Pea immediately contacted ISCIs president, Mr. Montilla, who in turn
confirmed the sale of the Pasay property to Urban Bank. [47] Pea told Mr.
Montilla that because of the break-open order of the RTC-Pasay City, he
(Pea) would be recalling the security guards he had posted to secure the
property. Mr. Montilla, however, asked him to suspend the planned

To prevent the sub-tenants from further appropriating the Pasay property,


petitioner-respondent Pea, as director and representative of ISCI, filed a

withdrawal of the posted guards, so that ISCI could get in touch with
petitioner-respondent bank regarding the matter.[48]

complaint for injunction[41] (the First Injunction Complaint) with the RTCPasay City.[42] Acting on ISCIs prayer for preliminary relief, the trial court
favorably issued a temporary restraining order (TRO),[43] which was duly
implemented.[44] At the time the First Injunction Complaint was filed, a new
title to the Pasay property had already been issued in the name of Urban

Later that same day, Pea received a telephone call from respondent
Bejasa. After Pea informed her of the situation, she allegedly told him that
Urban Bank would be retaining his services in guarding the Pasay property,
and that he should continue his efforts in retaining possession thereof. He
insisted, however, on talking to the Banks president. Respondent Bejasa
gave him the contact details of respondent Borlongan, then president of
Urban Bank.[49]









Later that afternoon, Pea received the banks letter dated 19

correspondences are highly-controverted. Immediately after talking to

December 1994, which was signed by respondents Bejasa and Manuel, and

respondent Bejasa, Pea got in touch with Urban Banks president,

is quoted below:

respondent Borlongan. Pea explained that the policemen in Pasay City were
sympathetic to the tenants and were threatening to force their way into the
premises. He expressed his concern that violence might erupt between the
tenants, the city police, and the security guards posted in the Pasay
property. Respondent Borlongan supposedly assured him that the bank was
going to retain his services, and that the latter should not give up
possession of the subject land. Nevertheless, petitioner-respondent Pea
demanded a written letter of authority from the bank. Respondent
Borlongan acceded and instructed him to see respondent Bejasa for the

This is to confirm the engagement of your services as







specifically to hold and maintain possession of our

abovecaptioned property [Pasay property] and to
protect the same from former tenants, occupants or
any other person who are threatening to return to the
said property and/or interfere with your possession of
the said property for and in our behalf.


You are likewise authorized to represent Urban Bank in any

In the same telephone conversation, respondent Borlongan allegedly
asked Pea to maintain possession of the Pasay property and to represent
Urban Bank in any legal action that might be instituted relative to the
property. Pea supposedly demanded 10% of the market value of the
property as compensation and attorneys fees and reimbursement for all the

court action that you may institute to carry out the

aforementioned duties, and to prevent any intruder, squatter
or any other person not otherwise authorized in writing by
Urban [B]ank from entering or staying in the premises.

(Emphasis supplied)

expenses incurred from the time he took over land until possession was
turned over to Urban Bank. Respondent Borlongan purportedly agreed on
condition that possession would be turned over to the bank, free of tenants,

later than




compensation and attorneys fees. [51]






On even date, ISCI sent Urban Bank a letter, which acknowledged

ISCIs engagement of Pea and commitment to pay for any expenses that
may be incurred in the course of his services. ISCIs letter reads:

This has reference to your property located along

Roxas Boulevard, Pasay City [Pasay property] which you

be incurred to third parties shall be answerable by Isabela

Sugar Company.[53] (Emphasis supplied)

purchased from Isabela Sugar Company under a Deed of

Absolute Sale executed on December 1, 1994.
In line with our warranties as the Seller of the said
property and our undertaking to deliver to you the full and
actual possession and control of said property, free from









tenants, occupants or squatters and from any obstruction or

impediment to the free use and occupancy of the property by
Urban Bank, we have engaged the services of Atty.
Magdaleno M. Pea to hold and maintain possession of
the property and to prevent the former tenants or
occupants from entering or returning to the premises.
In view of the transfer of the ownership of the property to

Pea then moved for the dismissal of ISCIs First Injunction Complaint,
filed on behalf of ISCI, on the ground of lack of personality to continue the
action, since the Pasay property, subject of the suit, had already been
transferred to Urban Bank.[54] The RTC-Pasay City dismissed the complaint
and recalled its earlier break-open order.[55]

Urban Bank, it may be necessary for Urban Bank to appoint

Atty. Pea likewise as its authorized representative for

Thereafter, petitioner-respondent Pea, now in representation of

purposes of holding/maintaining continued possession of the

Urban Bank, filed a separate complaint [56] (the Second Injunction Complaint)

said property and to represent Urban Bank in any court

with the RTC-Makati City, to enjoin the tenants from entering the Pasay

action that may be instituted for the abovementioned

property.[57] Acting on Urban Banks preliminary prayer, the RTC-Makati City


issued a TRO.[58]

It is understood that any attorneys fees, cost of

litigation and any other charges or expenses that may
be incurred relative to the exercise by Atty. Pea of his
abovementioned duties shall be for the account of

While the Second Injunction Complaint was pending, Pea made

Isabela Sugar Company and any loss or damage that may

efforts to settle the issue of possession of the Pasay property with the subtenants. During the negotiations, he was exposed to several civil and

criminal cases they filed in connection with the task he had assumed for
Urban Bank, and he received several threats against his life. [59] The subtenants eventually agreed to stay off the property for a total consideration
of PhP1,500,000.[60] Pea advanced the payment for the full and final
settlement of their claims against Urban Bank.[61]

Pea thereafter made several attempts to contact respondents

Borlongan and Bejasa by telephone, but the bank officers would not take
any of his calls. On 24 January 1996, or nearly a year after he turned over
possession of the Pasay property, Pea formally demanded from Urban Bank
the payment of the 10% compensation and attorneys fees allegedly

Pea claims to have borrowed PhP3,000,000 from one of his friends in

order to maintain possession thereof on behalf of Urban Bank. [62] According

promised to him during his telephone conversation with Borlongan for

securing and maintaining peaceful possession of the property.[66]

to him, although his creditor-friend granted him several extensions, he

failed to pay his loan when it became due, and it later on became the
subject of a separate collection suit for payment with interest and attorneys


Proceedings on the Complaint for Compensation

This collection suit became the basis for Atty. Peas request for

discretionary execution pending appeal later on.

On 07 February 1995, within the four-month period allegedly agreed

upon in the telephone conversation, Pea formally informed Urban Bank that
it could already take possession of the Pasay property. [64] There was
however no mention of the compensation due and owed to him for the
services he had rendered.

On 28 January 1996, when Urban Bank refused to pay for his services in
connection with the Pasay property, Pea filed a complaint [67] for recovery of
agents compensation and expenses, damages and attorneys fees in RTCBago City in the province of Negros Occidental. [68] Interestingly, Pea sued
only six out of the eleven members of the Board of the Directors of Urban
Bank.[69] No reason was given why the six directors were selected and the
others excluded from Peas complaint. In fact, as pointed out, Atty. Pea
mistakenly impleaded as a defendant, Ben Y. Lim, Jr., who was never even a
member of the Board of Directors of Urban Bank; while, Ben T. Lim, Sr.,
father and namesake of Ben Y. Lim, Jr., who had been a director of the bank,

On 31 March 1995, the bank subsequently took actual possession of

the property and installed its own guards at the premises.[65]

already passed away in 1997.[70]

In response to the complaint of Atty. Pea, Urban Bank and individual


bank officers and directors argued that it was ISCI, the original owners of

Costs of suit.


the Pasay property, that had engaged the services of Pea in securing the
premises; and, consequently, they could not be held liable for the expenses
Pea had incurred.[71]

Urban Bank and the individual defendant bank directors and officers filed a
common Notice of Appeal,[74] which was given due course.[75] In the appeal,
On 28 May 1999, the RTC-Bago City [72] ruled in favor of Pea, after finding

they questioned the factual finding that an agency relationship existed

that an agency relationship had indeed been created between him and

between the bank and Pea.[76]

Urban Bank. The eight directors and bank officers were found to be
solidarily liable with the bank for the payment of agencys fees. The trial
court thus ordered Urban Bank and all eight defendant bank directors and
officers whom Pea sued to pay the total amount of PhP28,500,000

WHEREFORE, premised from the foregoing, judgment is

hereby rendered ordering defendants to pay plaintiff jointly





plaintiffs services plus the legal rate of interest from the time

reliance on the purported oral contract of agency and Peas claims for






Borlongan, which were allegedly incredible.

Meanwhile, Benjamin L. de Leon, Delfin Gonzalez, Jr., and Eric L. Lee
(the De Leon Group),[79] the petitioners in the instant Petition docketed as G.

of demand until fully paid;


In its Brief,[77] Urban Bank[78] assigned as errors the trial courts


and severally the following amounts:


lower court, Urban Bank and individual defendants contracted different

counsel and filed separate Briefs on appeal in the appellate court.

(excluding costs of suit):


Although they put up a single defense in the proceedings in the



plaintiffs expenses;


R. No. 145822, argued that, even on the assumption that there had been an
agency contract with the bank, the trial court committed reversible error in
holding them as bank directors solidarily liable with the corporation. [80]


P1,000,000 as and for attorneys fees;


P500,000 as exemplary damages;

On the other hand, Teodoro Borlongan, Corazon M. Bejasa, Arturo

occupants. The award of exemplary damages, attorneys

Manuel, Jr., Ben Y. Lim, Jr., and P. Siervo H. Dizon (the Borlongan Group)

fees and costs of suit are deleted, the same not having been


reiterated similar arguments as those of the De Leon Group, adding that

sufficiently proven. The petition for Indirect Contempt against

the claimed compensation of 10% of the purchase price of the Pasay

all the respondents is DISMISSED for utter lack of merit.

property was not reasonable.



Pea refuted all of their arguments [83] and prayed that the trial courts
Decision be affirmed.[84]

(Emphasis supplied)

Pea duly filed a Motion for Reconsideration of the unfavorable CA

Decision.[88] The appellate court, however, denied his motion. [89] The CA
Decision and Resolution were appealed by Pea to this Court, through one of
the three consolidated Rule 45 Petitions before us (G. R. No. 162562).

Acting favorably on the appeal, the Court of Appeals [85] annulled the
Decision of the RTC-Bago City and ruled that no agency relationship had
been created. Nevertheless, it ordered Urban Bank to reimburse Pea for his

Execution Pending Appeal

expenses and to give him reasonable compensation for his efforts in

clearing the Pasay property of tenants in the amount of PhP3,000,000, but
absolved the bank directors and officers from solidary liability. The
dispositive portion of the CA decision reads as follows:

On 07 June 1999, prior to the filing of the notice of appeal of Urban Bank

WHEREFORE, in view of the foregoing considerations,

the May 28, 2000 Decision [sic] and the October 19, 2000





officers,[90] Pea




of the Decision rendered by the RTC-Bago City,



which had

awarded him a total of PhP28,500,000 in compensation and damages. [93]

[sic] Special Order of the RTC of Bago City, Branch 62, [86] are
hereby ANNULLED AND SET ASIDE. However, the plaintiffappellee [Pea] in CA GR CV No. 65756 is awarded the

In supporting his prayer for discretionary execution, Pea cited the


pending separate civil action for collection filed against him by his creditor-

expenses as well as reasonable compensation for his

friend, who was demanding payment of a PhP3,000,000 loan. [94] According

efforts in clearing Urban Banks property of unlawful

to Pea, he had used the proceeds of the loan for securing the banks Pasay








property. No other reason for the prayer for execution pending

appeal was given by Pea other than this collection suit.


On 09 November 1999, the appellate court favorably granted the

TRO and preliminarily prohibited the implementation of the Special Order
and Writ of Execution.[103]

In opposition to the motion, Urban Bank countered that the

collection case was not a sufficient reason for allowing execution pending

On 12 January 2000, the CA eventually granted Urban Banks Rule 65

Petition, and the RTCs Special Order and Writ of Execution, which permitted
execution pending appeal, were annulled. The appellate court ruled: [104]

On 29 October 1999, the RTC-Bago City, through Judge Henry J. Trocino,


favorably granted Peas motion and issued a Special Order authorizing

execution pending appeal.[98] In accordance with this Special Order, Atty.

Josephine Mutia-Hagad, the clerk of court and ex officio sheriff, issued a

WHEREFORE, the instant petition is GRANTED. The Special

Order and writ of execution, both dated October 29, 1999,

Writ of Execution[99] on the same day.[100] The Special Order and Writ of

Respondents are directed to desist from further

Execution were directed at the properties owned by Urban Bank as well as


the properties of the eight individual bank directors and officers.

garnishment and levy made pursuant thereto. [105]

On 04 November 1999, affected by the trial courts grant of

execution pending appeal, Urban Bank[101] filed a Rule 65 Petition with the
CA to enjoin the Special Order and Writ of Execution issued by the trial
court with a prayer for a TRO.










On 02 February 2000, Pea moved for the reconsideration of the CAs

Decision;[106] while petitioners filed their corresponding Comment/Opposition

During the pendency of Peas Motion for Reconsideration, Urban

Bank declared a bank holiday on 26 April 2000 and was placed under

filed by Urban Bank and individual petitioners (G. R. Nos. 145817, 145818
and 145822).

receivership of the Philippine Deposit Insurance Corporation (PDIC). [108]

On the same day the CA denied its Motion for Reconsideration, the
In its Amended Decision dated 18 August 2000, the CA



granted Peas Motion for Reconsideration, and reversed its earlier Decision

De Leon Group immediately moved for the stay of execution pending

appeal upon the filing of a supersedeas bond.[118]

to allow execution pending appeal.[110] The appellate court found that the
bank holiday declared by the BSP after the promulgation of its earlier
Decision, PDICs receivership of Urban Bank, and the imminent insolvency
thereof constituted changes in the banks conditions that would justify

On 29 August 2000, Urban Bank and its officers moved for the



Decision. [112] The




subsequently filed several Supplemental Motions for Reconsideration.


upon the filing by the De Leon Group of a PhP40,000,000 bond in favor of

Pea.[120] Pea moved for the reconsideration of the stay order.[121]

execution pending appeal.[111]


On 31 October 2000, the CA[119] granted the stay of the execution

Thereafter, respondents Teodoro Borlongan and Corazon M. Bejasa also

filed their separate Supplemental Motion for Reconsideration, [114] as did

In its Resolution dated 08 December 2000, [122] the appellate court

denied Peas Motion for Reconsideration and a stay order over the execution
pending appeal was issued in favor of the De Leon Group, after they had
filed their supersedeas bond.[123] The stay of execution pending appeal,
however, excluded Urban Bank.[124]

petitioner Ben T. Lim, Jr.[115]

On 08 December 2000, Pea posted his indemnity bond as required
On 19 October 2000, the Court of Appeals denied the motion for

by the CA.[125]

reconsideration for lack of merit and the other subsequent Supplemental

Motions for Reconsideration for being filed out of time. [116] The appellate
court also ordered Pea to post an indemnity bond. [117] The Amended
Decision and the Resolution were the subjects of several Rule 45 Petitions

As mentioned earlier, Urban Bank, the De Leon Group, and the

Borlongan Group filed around December 2000 separate Rule 45 Petitions in
this Court, to assail the unfavorable CA Amended Decision and Resolution

that affirmed the execution pending appeal. The details of these Rule 45
Petitions will be discussed in detail later on.

The appellate court, however, merely noted Urban Banks motion on

the ground that there was no showing whether a petition to the Supreme
Court had been filed or given due course or denied. [132]

In the meantime, Export and Industry Bank (EIB) submitted its

proposal for rehabilitation of Urban Bank to the BSP, and requested that the

After the denial by the Court of Appeals of Urban Banks motion for

troubled bank be removed from receivership of the PDIC. On 12 July 2001,

approval of its supersedeas bond, some of the levied properties of Urban

or almost a year after the Court of Appeals amended its decision to allow

Bank and the other bank officers were sold on public auction. The table

execution pending appeal, the rehabilitation plan of Urban Bank was

below lists the properties that appear on record to have been levied and/or

approved by the Monetary Board of the BSP.[126] Thus, the Monetary Board

sold on execution pending appeal and the approximate value of some of

subsequently lifted PDICs statutory receivership of the bank.


these properties. They do not include properties covered by the Petition

docketed as G. R. No. 145818.

On 14 September 2001, Urban Bank, trying to follow the lead of the

De Leon Group, made a similar request with the Court of Appeals for


approval of its own supersedeas bond, [128] for the same amount of


PhP40,000,000, and prayed that the execution of the RTC-Bago Citys

Decision against it be stayed as well.[129]

Sometime in September and October 2001, Urban Bank began

receiving notices of levy and garnishment over its properties. After it
received Notice of the impending public execution sale of its shares in the
Tagaytay Highlands International Golf Club,[130] Urban Bank reiterated its
request for the approval of the supersedeas bond with the Court of Appeals
and the issuance of the corresponding stay order.




Estimated Value












International Golf




Public Auction











Shares in Makati



Sports, Club, Inc.

MSCI Club Shares








winning bidders

(MSCI) [Covered






and B-762][135]



in the auction

Makati City (CCT


with his creditor

No. 57698)[143]
A 64,677 sqm.



friend, Roberto

land in Tagaytay

estimate of Urban










85 Condominium



price obtained for




















of the

execution sale.[139]




auction sale for

P1M each or a
total of P10 M.






based on report of

unit, Makati City

Urban Bank[142]



57697) [141]




















Club (No. 3433)







Notice of Sale
on Execution on







One Club Share



was estimated to



Yacht Club[149]







One Club Share







Country Club[151]

One Club Share



One Club Share


units wasPhP1M at














MSCI Club Shares









One Club Share




was estimated at

on Execution on





P4 M for the share


One Club Share




and P1.05 M for





Membership) [No.



Real Property




Club (No. 3818)






Notice of Sale
on Execution on







One Club Share







Country Club.[159]





One Club Share

















Gonzales, Jr., Inc.



Certificate No. A-


One Club Share




















available as to



Notice of Sale






G. Dizon





was estimated at




Eric L. Lee




Gonzales, Jr., Inc.








De Leons share






L. de Leon


One Club Share






30,585 shares of










was estimated to

on Execution on




Club (2038)









pending appeal.
Notice of Sale

One Club Share






was estimated to


Club, Inc.[177]


available as to

One Club Share

Lees club share

in Sta. Elena Golf

was estimated to

Club, Inc. (Class








One Club Share





were estimated to


Golf Club, Inc. [181]





Lees club shares





pending appeal.


Notice of Sale


Real Property

on Execution on


Real Property[190]





Manuel, Jr.,








was estimated to







60,757 Shares of

P20.00 per share





of PhP181,919,190 does





properties and it is not difficult to believe that the total value covered


reached more than that.[191] In summary, the estimated values and/or


purchase prices at the auction sale of the properties of Urban Bank and its



officers amounted to no less than PhP181,919,190already. This amounts



to almost six times the value of the award given by the trial court.









P50.00 per share


Otherwise stated, Pea, as judgment creditor, was overly secured by the

levied and/or garnished properties for the amount of PhP28,500,000, where
the judgment award was still subject of reversal on appeal.









One Club Share



Ben T. Lim,


A Share)
Two Club Shares



On 22 October 2001, Urban Bank, with respect to its pending Rule

45 Petition in this Court, moved for the approval of its PhP40,000,000

supersedeas bond[192] and requested that the Court stay the execution

2001.[203] Pea moved for reconsideration of the approval, [204] but his motion

pending appeal.[193] Pea opposed the motion on the ground that it had

was subsequently denied by the Court.[205]

already been rendered moot and academic by the sale of the properties of
the bank.[194]
Proceedings in the Supreme Court (G. R. Nos. 145817, 145818 & 145822)
On 23 October 2002, or almost a year after some of the
condominium units were sold in a public auction, EIB, as the successor of

On 21 December 2000, Urban Bank, [206] represented by its receiver,

Urban Bank, expressed to the sheriff of RTC-Bago City an intent to redeem

PDIC,[207] filed a Rule 45 Petition with this Court (docketed as G. R. No.

the said condominium units.[195] Thus, EIB tendered three managers checks

145817) to assail the CAs Amended Decision and Resolution granting

in the total amount of PhP22,108,800[196]to redeem the properties that were

execution pending appeal.[208] In response, Pea moved for the denial of the

previously under the name of Urban Bank. [197] Although the trial court noted

petition on the grounds of lack merit, violation of the rule against forum

the banks Manifestation,[198] the sheriff returned the EIBs managers checks.

shopping, and non-payment of docket fees, among others.[209] In a separate

Thus, on 29 October 2002, EIB, through a motion, was prompted to turn

Comment,[210] Pea also argued that the appellate court had committed no

over the checks to the trial court itself.[199]

error when it considered the banks imminent insolvency as a good reason

for upholding the validity of the execution pending appeal.

When Urban Bank supposedly failed to redeem the condominium

units according to the sheriff, [200] final Certificates of Sale were issued in
favor of Unimega on 04 November 2002. [201] Upon the latters motion, RTC-

On the other hand, the Borlongan Group[211] filed a separate Rule 45

Bago City, in its Order dated 13 November 2002, ordered the Register of

Petition questioning the same Decision and Resolution, docketed as G. R.

Deeds of Makati to transfer the Condominium Certificates of Title to the

No. 145818.[212] This Court initially denied their petition on the ground that it

name of Unimega.[202] It has not been shown, though, whether this Order

failed to sufficiently show that the CA committed reversible order. [213] The

was followed.

Borlongan Group twice moved for the reconsideration of the denial of their
petition; but the Court nonetheless denied both motions for lack of merit.

This Court, acting on Urban Banks earlier motion to approve its

supersedeas bond, granted the same in its Resolution dated 19 November

This denial of the petition in G. R. No. 145818 became final and

executory, with the issuance of the Entry of Judgment.[215]

injunction or stay order, it had no other option but to comply with the trial
courts Order for the transfer. Eventually, however, it could not effect the
transfer of one of the shares to Pea because a club share had already been
Meanwhile, another Rule 45 Petition (G. R. No. 145822) [216] was filed
by the De Leon Group, assailing the same Decisions of the appellate court.
The Court also preliminarily denied this petition on the ground that the De
Leon Group failed to file the appeal within the reglementary period and to
pay certain fees.[217]

previously registered in his name, and the clubs bylaws prohibited a natural
person from owning more than one share.[225] Meanwhile, one of the winning
bidders in the public auction sale of the MSCI shares wrote to the latter to
demand that the club share previously owned by Urban Bank be transferred
to him.[226]

On 04 February 2002, considering the conflicting claims of Urban

Despite the denial of the Rule 45 Petition in G. R. No. 145822 filed by

Bank (through EIB) and the winning bidders of the club shares, MSCI filed a

the De Leon Group, the Court nonetheless ordered that the case be

Motion for Clarification of the Courts Resolution staying the execution

consolidated with Urban Banks own Rule 45 Petition in G. R. No. 145817.

pending appeal.[227]


The Court subsequently gave due course to both of these petitions.


In compliance with the Courts Order, [220] Urban Bank[221] and the De Leon

Group[222] filed their respective Memoranda.

In its Motion for Clarification dated 06 August 2002, Urban Bank

likewise requested clarification of whether the stay order suspended, as
well, its right to redeem the properties sold at a public auction. [228] The copy

As detailed earlier, the Court granted and approved Urban Banks

supersedeas bond and stayed the execution pending appeal.

of Urban Banks motion for clarification intended for Pea was mistakenly
sent to the wrong counsel.

Considering the favorable stay of execution pending appeal, EIB, as

In its Resolution dated 13 November 2002, the Court explained that

the new owner and successor of Urban Bank, immediately wrote to

its earlier stay order prohibited the MSCI from transferring the shares, and

tell[223] the corporate secretary of MSCI not to effect the cancellation or

that the one-year period for redemption of the banks properties was

transfer of Urban Banks three MSCI stock certificates previously sold in a

likewise suspended:

public auction. [224] In reply, MSCI explained that since there was no

WHEREFORE, the Court hereby RESOLVES to clarify

appeared and was questioned by the then members of the Courts First

that as a consequence of its approval of the supersedeas

Division, namely retired Chief Justice Hilario Davide, Justices Jose Vitug,

bond, the running of the one-year period for petitioner

Antonio Carpio and Adolfo Azcuna. Although the Petitions had earlier been

Urban Bank to redeem the properties sold at the

assigned to Justice Carpio, he has since taken no part in the proceedings of

public auctions held on October 4, 11 and 25, 2001 as

this case and this resulted in the re-raffling of the Petitions. The transfer

well as the consolidation of the titles in favor of the

and unloading of the case by the subsequently assigned Justices as well as



Peas numerous motions for inhibition and/or re-raffle has likewise cause

prohibited from transferring petitioner Urban Banks MSCI club

considerable delay in the disposition of the instant Petitions and the

shares to the winning bidders in the execution sale held on

Administrative Case.



October 11, 2001.






(Emphasis supplied)

On 09 December 2002, Pea moved that the Courts Resolution be

Unimega, which was the winning bidder of some of the publicly

recalled, because he was not given an opportunity to be heard on Urban

executed condominium units of Urban Bank, moved to intervene in the case

Banks Motion for Clarification, which was sent to a different counsel.

and to have the Courts same Resolution suspending the one-year period of


Interposing its objection, the bank argued that the error in mistakenly

redemption of the properties be reconsidered. [235] Unimega claimed that

sending the Motion for clarification to a different counsel was by sheer

ownership of the banks titles to the 10 condominium units had already



but Pea was nonetheless aware of the motion, and that


been transferred to the former at the time the Court issued the Resolution;
and, thus, there was no more execution to be suspended or stayed. Only

Courts clarification did not create or diminish his rights in any case.


Urban Bank[236] opposed the motion[237]of intervenor Unimega on the ground

that the latter was not a buyer in good faith, and that the purchase price
was grossly disproportional to the fair market value of the condominium

The Motion for Clarification filed by Urban Bank, the Courts


Resolution dated 13 November 2002 and Peas Omnibus Motion praying for
the recall of the said Resolution became the subject of an administrative
case (Administrative Case No. 6332), which was treated as a separate
matter and later on de-consolidated with the instant Petitions.


The Court eventually granted the Motion to Intervene considering

The Court

that the intervenors title to the condominium units purchased at the public

had even called for an executive session [234] in which Pea, among others,

auction would be affected, favorably or otherwise, by the judgment of the

Court in this case. However, it held in abeyance the resolution of

In summary, the Court shall resolve the substantial issues in the

intervenors Motion for Reconsideration, which might preempt the decision

following: (a) the Petition of Pea (G. R. No. 162562) assailing the CAs

with respect to the propriety of execution pending appeal. [239] Thereafter,

decision on the substantive merits of the case with respect to his claims of

the bank adopted its earlier Opposition to the intervention as its answer to

compensation based on an agency agreement; and (b) the Petitions of

Unimegas petition-in-intervention.


Also in answer thereto, the De Leon

Group adopted its earlier Manifestation and Comment.[241]

Intervenor Unimega then requested that a writ of possession be

issued in its favor covering the 10 condominium units sold during the public
auction.[242] The Court required the parties to file their comments on the
request.[243] The Lim[244] and Borlongan Groups[245] manifested separately
that they would not be affected by a resolution of the request of intervenor
Unimega, since the latter was not among the contending parties to the
incident. Pea similarly interposed no objection to the issuance of the writ of
possession.[246] In contrast, Urban Bank opposed the application of Unimega
on the ground that the latter was not entitled to possession of the levied
properties, because the rules of extrajudicial foreclosure were not
applicable to execution sales under Rule 39, and that intervenor was also
not a buyer in good faith.[247] In a similar vein, the De Leon Group opposed
the application for a writ of possession, and further argued that the Court
had already suspended the running of the one-year period of redemption in

Urban Bank (G. R. No. 145817) and the De Leon Group (G R. No. 145822)
questioning the propriety of the grant of execution pending appeal.
Pea is entitled to payment for compensation for
services rendered as agent of Urban Bank, but








enrichment and quantum meruit, and not on the

purported oral contract.
The Court finds that Pea should be paid for services rendered under
the agency relationship that existed between him and Urban Bank based on
the civil law principle against unjust enrichment, but the amount of
payment he is entitled to should be made, again, under the principle
against unjust enrichment and on the basis of quantum meruit.

the execution sale.[248] Accordingly, intervenor Unimega countered that the

right of redemption of the levied properties had already expired without
having been exercised by the judgment debtor.


In a contract of agency, agents bind themselves to render some

service or to do something in representation or on behalf of the principal,
with the consent or authority of the latter. [250] The basis of the civil law
relationship of agency is representation,


the elements of which include

the following: (a) the relationship is established by the parties consent,

the basis of his successful and peaceful ejectment of the sub-tenants, who

express or implied; (b) the object is the execution of a juridical act in

previously occupied the Pasay property.

relation to a third person; (c) agents act as representatives and not for
themselves; and (d) agents act within the scope of their authority. [252]
Based on the evidence on records and the proceedings
below, the Court concludes that Urban Bank constituted Atty. Pea
Whether or not an agency has been created is determined by the
fact that one is representing and acting for another.


as its agent to secure possession of the Pasay property. This

The law makes no

conclusion, however, is not determinative of the basis of the

presumption of agency; proving its existence, nature and extent is

amount of payment that must be made to him by the bank. The

incumbent upon the person alleging it.[254]

context in which the agency was created lays the basis for the
amount of compensation Atty. Pea is entitled to.

With respect to the status of Atty. Peas relationship with Urban Bank,
the trial and the appellate courts made conflicting findings that shall be

The transactional history and context of the sale between ISCI and

reconciled by the Court. On one end, the appellate court made a definitive

Urban Bank of the Pasay property, and Atty. Peas participation in the

ruling that no agency relationship existed at all between Pea and the

transfer of possession thereof to Urban Bank provide crucial linkages that

bank, despite the services performed by Pea with respect to the Pasay

establish the nature of the relationship between the lawyer and the

property purchased by the bank. Although the Court of Appeals ruled


against an award of agents compensation, it still saw fit to award Pea with
Ph3,000,000 for expenses incurred for his efforts in clearing the Pasay
property of tenants.[255] On the other extreme, the trial court heavily relied
on the sole telephone conversation between Pea and Urban Banks President
to establish that the principal-agent relationship created between them
included an agreement to pay Pea the huge amount of PhP24,000,000.
In its defense, Urban Bank insisted that Pea was never an agent of the
bank, but an agent of ISCI, since the latter, as seller of the Pasay property
committed to transferring it free from tenants. Meanwhile, Pea argues on

The evidence reveals that at the time that the Contract to Sell was
executed on 15 November 1994, and even when the Deed of Absolute Sale
was executed two weeks later on 29 November 1994, as far as Urban Bank
was concerned, Pea was nowhere in the picture. All discussions and
correspondences were between the President and Corporate Secretary of
Urban Bank, on one hand, and the President of ISCI, on the other. The title
to the Pasay property was transferred to Urban Bank on 5 December 1994.
Interestingly, Pea testifies that it was only on 19 December 1994 that he

learned that the land had already been sold by ISCI to Urban Bank,
notwithstanding the fact that Pea was a director of ISCI. Pea was not asked
to render any service for Urban Bank, neither did he perform any service for
Urban Bank at that point.

It was only on 7 December 1994, that Urban Bank was informed of

the services that Pea was rendering for ISCI. The faxed letter from ISCIs
Marilyn Ong reads:

ISCI undertook in the Contract to Sell, to physically deliver the

property to Urban Bank, within 60 days from 29 November 1994, [256] under
Atty. Magdaleno M. Pea, who has been assigned

conditions of full and actual possession and control ..., free from tenants,
occupants, squatters or other structures or from any liens, encumbrances,
easements or any other obstruction or impediment to the free use and
occupancy by the buyer of the subject Property or its exercise of the rights
to ownership over the subject Property.... [257] To guarantee this undertaking,

by Isabela Sugar Company, Inc., to take charge of

inspecting the tenants would like to request an authority
similar to this from the Bank, as new owners. Can you please
issue something like this today as he needs this.[260]

ISCI agreed to the escrow provision where PhP25,000,000 (which is a little

over 10% of the value of the Pasay property) would be withheld by Urban
Bank from the total contract price until there is full compliance with this

Two days later, on 9 December 1994, ISCI sent Urban Bank another
letter that reads:

Apparently to ensure that ISCI is able to deliver the property

Dear Mr. Borlongan, I would like to request for an

physically clean to Urban Bank, it was ISCIs president, Enrique Montilla who


directed on 26 November 1994 one of its directors, Pea, to immediately

immediately as

recover and take possession of the property upon expiration of the contract

authority of the people there who are helping us to

of lease on 29 November 1994.


Pea thus first came into the picture as a

director of ISCI who was constituted as its agent to recover the Pasay
property against the lessee as well as the sub-tenants who were occupying
the property in violation of the lease agreement. [259] He was able to obtain
possession of the property from the lessee on the following day, but the
unauthorized sub-tenants refused to vacate the property.




















It is clear from the above that ISCI was asking Urban Bank for help to

by and your principal remains to be the Isabela Sugar

comply with ISCIs own contractual obligation with the bank under the terms

Company, which as seller of the property and under the

of the sale of the Pasay property. Urban Bank could have ignored the

terms of our Contract to Sell dated November 29, 1994, has

request, since it was exclusively the obligation of ISCI, as the seller, to

committed to deliver the full and actual possession of the

deliver a clean property to Urban Bank without any help from the latter.

said property to the buyer, Urban Bank, within the stipulated

period. [262] (Emphasis supplied)

A full-bodied and confident interpretation of the contracts between

ISCI and Urban Bank should have led the latter to inform the unauthorized
sub-tenants that under its obligation as seller to Urban Bank, it was under
duty and had continuing authority to recover clean possession of the
property, despite the transfer of title. Yet, what unauthorized sub-tenant,
especially in the kind of operations being conducted within the Pasay

Up to this point, it is unmistakable that Urban Bank was staying

clear from making any contractual commitment to Pea and conveyed its
sense that whatever responsibilities arose in retaining Pea were to be
shouldered by ISCI.

property, would care to listen or even understand such argument?

According to the RTC-Bago City, in the reversed Decision, Atty. Pea
Urban Bank thus chose to cooperate with ISCI without realizing the
kind of trouble that it would reap in the process. In an apparent attempt to

only knew of the sale between ISCI and Urban Bank at the time the RTCPasay City recalled the TRO and issued a break-open order:

allow the efforts of ISCI to secure the property to succeed, it recognized

Peas role in helping ISCI, but stopped short of granting him authority to act
on its behalf. In response to the two written requests of ISCI, Urban Bank
sent this letter to Pea on 15 December 1994:
This is to advise you that we have noted the
engagement of your services by Isabela Sugar Company to
recover possession of the Roxas Boulevard property formerly
covered by TCT No. 5382, effective November 29, 1994. It is
understood that your services have been contracted

when information reached the (Pasay City) judge that

the Pasay property had already been transferred by ISCI to
Urban Bank, the trial court recalled the TRO and issued a
break-open order for the property. According to Pea, it was
the first time that he was apprised of the sale of the land by
ISCI and of the transfer of its title in favor of the bank.[263]

There is something contradictory between some of the trial courts

factual findings and Peas claim that it was only on 19 December 1994 that
he first learned of the sale of the property to Urban Bank. It is difficult to
believe Pea on this point considering: (1) that he was a board director of

Third, Montilla requested Pea to suspend the withdrawal of the

guards while ISCI gets in touch with Urban Bank.

ISCI and a sale of this significant and valuable property of ISCI requires the
approval of the board of directors of ISCI; and (2) that ISCI twice requested

Fourth, apparently in view of Montillas efforts, Bejasa, an officer of

Urban Bank for authority to be issued in his favor (07 and 9 December

Urban Bank called Pea and according to the latter, told him that Urban Bank

1994), 12 and 10 days before 19 December 1994, since it would be

would continue retaining his services and for him to please continue with

contrary to human experience for Pea not to have been informed by an

his effort to secure the property.

officer of ISCI beforehand that a request for authority for him was being
sent to Urban Bank.
Fifth, this statement of Bejasa was not enough for Pea and he
insisted that he be enabled to talk with no less than the President of Urban
The sequence of fast-moving developments, edged with a sense of
panic, with respect to the decision of the RTC-Pasay City to recall the

Bank, Borlongan. At this point, Bejasa gave him the phone number of

temporary restraining order and issue a break-open order on 19 December

1994 in the First Injunction Complaint, is highly enlightening to this Court.
Sixth, immediately after the conversation with Bejasa, Pea calls
Borlongan and tells Borlongan that violence might erupt in the property
First, Pea allegedly called up the president of ISCI, Montilla, who,
according to Pea, confirmed to him that the Pasay property had indeed

because the Pasay City policemen, who were sympathetic to the tenants,
were threatening to force their way through the property.

been sold to Urban Bank.

At this point, if indeed this conversation took place, which Borlongan
Second, Pea allegedly told Montilla that he (Pea) would be

contests, what would have been the response of Borlongan? Any prudent

withdrawing his guards from the property because of the break-open order

president of a bank, which has just purchased a PhP240,000,000 property

from the RTC-Pasay City.

plagued by unauthorized and unruly sub-tenants of the previous owner,

would have sought to continue the possession of ISCI, thru Pea, and he

would have agreed to the reasonable requests of Pea. Borlongan could also

Urban Banks letter dated 19 December 1994 confirmed in no

have said that the problem of having the sub-tenants ejected is completely

uncertain terms Peas designation as its authorized representative to secure

ISCIs and ISCI should resolve the matter on its own that without bothering

and maintain possession of the Pasay property against the tenants. Under

the bank, with all its other problems. But the specter of violence, especially


as night was approaching in a newly-bought property of Urban Bank, was

engagement (a) to hold and maintain possession of the Pasay property;

not something that any publicly-listed bank would want publicized. To the

(b) to protect the same from former tenants, occupants or any other

extent that the violence could be prevented by the president of Urban

person who are threatening to return to the said property and/or interfere

Bank, it is expected that he would opt to have it prevented.

with your possession of the said property for and in our behalf; and (c) to









represent the bank in any instituted court action intended to prevent

any intruder from entering or staying in the premises.[264]
But could such response embrace the following legal consequences
as Pea claims to have arisen from the telephone conversation with
Borlongan: (1) A contract of agency was created between Pea and Urban

These three express directives of petitioner-respondent banks letter

Bank whereby Borlongan agreed to retain the services of Pea directly; (2)

admits of no other construction than that a specific and special authority

This contract of agency was to be embodied in a written letter of authority

was given to Pea to act on behalf of the bank with respect to the latters

from Urban Bank; and (3) The agency fee of Pea was to be 10% of the

claims of ownership over the property against the tenants. Having

market value as attorneys fees and compensation and reimbursement of all

stipulated on the due execution and genuineness of the letter during

expenses of Pea from the time he took over the land until possession is

pretrial,[265] the bank is bound by the terms thereof and is subject to the

turned over to Urban Bank.

necessary consequences of Peas reliance thereon. No amount of denial can

overcome the presumption that we give this letter that it means what it

This Court concludes that the legal consequences described in

statements (1) and (2) above indeed took place and that the facts support
them. However, the evidence does not support Peas claim that Urban Bank

In any case, the subsequent actions of Urban Bank resulted in the

agreed to attorneys fees and compensation of 10% of the market value of

ratification of Peas authority as an agent acting on its behalf with respect to

the property.

the Pasay property. By ratification, even an unauthorized act of an agent

becomes an authorized act of the principal.[266]

its agent by its acquiescence and acceptance of the benefits, namely, the
Both sides readily admit that it was Pea who was responsible for

peaceful turnover of possession of the property free from sub-tenants.

clearing the property of the tenants and other occupants, and who turned
over possession of the Pasay property to petitioner-respondent bank.

When the latter received full and actual possession of the property from

him, it did not protest or refute his authority as an agent to do so. Neither
did Urban Bank contest Peas occupation of the premises, or his installation
of security guards at the site, starting from the expiry of the lease until the
property was turned over to the bank, by which time it had already been
vested with ownership thereof. Furthermore, when Pea filed the Second
Injunction Complaint in the RTC-Makati City under the name of petitionerrespondent bank, the latter did not interpose any objection or move to
dismiss the complaint on the basis of his lack of authority to represent its
interest as the owner of the property. When he successfully negotiated with

Even if, however, Pea was constituted as the agent of Urban Bank, it
does not necessarily preclude that a third party would be liable for the
payment of the agency fee of Pea. Nor does it preclude the legal fact that
Pea while an agent of Urban Bank, was also an agent of ISCI, and that his
agency from the latter never terminated. This is because the authority
given to Pea by both ISCI and Urban Bank was common to secure the clean
possession of the property so that it may be turned over to Urban Bank.
This is an ordinary legal phenomenon that an agent would be an agent for
the purpose of pursuing a shared goal so that the common objective of a
transferor and a new transferee would be met.

the tenants regarding their departure from its Pasay property, still no

Indeed, the Civil Code expressly acknowledged instances when two

protest was heard from it. After possession was turned over to the bank, the

or more principals have granted a power of attorney to an agent for

tenants accepted PhP1,500,000 from Pea, in full and final settlement of

a common transaction.[269] The agency relationship between an agent and

their claims against Urban Bank, and not against ISCI.[268]

two principals may even be considered extinguished if the object or the

purpose of the agency is accomplished. [270] In this case, Peas services as an

In all these instances, petitioner-respondent bank did not repudiate

the actions of Pea, even if it was fully aware of his representations to third
parties on its behalf as owner of the Pasay property. Its tacit acquiescence
to his dealings with respect to the Pasay property and the tenants spoke of












agent of both ISCI and Urban Bank were engaged for one shared purpose or
transaction, which was to deliver the property free from unauthorized subtenants to the new owner a task that Pea was able to achieve and is
entitled to receive payment for.


assuming arguendo that it issued no written authority, and that the oral
contract was not substantially established, the bank duly ratified his acts as

That the agency between ISCI and Pea continued, that ISCI is to
shoulder the agency fee and reimbursement for costs of Pea, and that

Urban Bank never agreed to pay him a 10% agency fee is established and

Magdaleno M. Pea to hold and maintain possession of

supported by the following:

the property and to prevent the former tenants or

occupants from entering or returning to the premises.

First, the initial agency relationship between ISCI and Pea persisted.
No proof was ever offered that the letter of 26 November 1994 of Mr.
Montilla of ISCI to Pea, for the latter to immediately recover and take
possession of the property upon expiration of the contract of lease on 29
November 1994 was terminated. It is axiomatic that the appointment of a
new agent for the same business or transaction revokes the previous
agency from the day on which notice thereof was given to the former

In view of the transfer of the ownership of the property to

Urban Bank, it may be necessary for Urban Bank to appoint
Atty. Pea likewise as its authorized representative for
purposes of holding/maintaining continued possession of the
said property and to represent Urban Bank in any court
action that may be instituted for the abovementioned

agent.[271] If it is true that the agency relationship was to be borne by Urban

It is understood that any attorneys fees, cost of

Bank alone, Pea should have demonstrated that his previous agency

litigation and any other charges or expenses that may

relationship with ISCI is incompatible with his new relationship with Urban

be incurred relative to the exercise by Atty. Pea of his

Bank, and was thus terminated.

abovementioned duties shall be for the account of

Second, instead, what is on the record is that ISCI confirmed the

continuation of this agency between Pea and itself and committed to pay
for the services of Pea, in its letter to Urban Bank dated 19 December 1994

Isabela Sugar Company and any loss or damage that may

be incurred to third parties shall be answerable by Isabela
Sugar Company.[272] (Emphasis supplied)

which reads:

In line with our warranties as the Seller of the said

Third, Pea has never shown any written confirmation of his 10%

property and our undertaking to deliver to you the full and

agency fee, whether in a note, letter, memorandum or board resolution of

actual possession and control of said property, free from

Urban Bank. An agency fee amounting to PhP24,000,000 is not a trifling

tenants, occupants or squatters and from any obstruction or

amount, and corporations do not grant their presidents unilateral authority

impediment to the free use and occupancy of the property by

to bind the corporation to such an amount, especially not a banking

Urban Bank, we have engaged the services of Atty.

corporation which is closely supervised by the BSP for being a business

seriously imbued with public interest. There is nothing on record except the
self-serving testimony of Pea that Borlongan agreed to pay him this amount
in the controverted telephone conversation.

Fourth, while ordinarily, uncontradicted testimony will be accorded

its full weight, we cannot grant full probative value to the testimony of Pea
for the following reasons: (a) Pea is not a credible witness for testifying that
he only learned of the sale of the property of 19 December 1994 when the

Amount of Compensation
Agency is presumed to be for compensation. But because in this
case we find no evidence that Urban Bank agreed to pay Pea a specific
amount or percentage of amount for his services, we turn to the principle
against unjust enrichment and on the basis of quantum meruit.

acts of ISCI, of Urban Bank and his own up to that point all indicated that he
must have known about the sale to Urban Bank; and (b) it is incredible that
Urban Bank will agree to add another PhP24,000,000 to the cost of the
property by agreeing to the agency fee demanded by Pea. No prudent and
reasonable person would agree to expose his corporation to a new liability
of PhP24,000,000 even if, in this case, a refusal would lead to the Pasay
City policemen and unauthorized sub-tenants entering the guarded

Since there was no written agreement with respect to the

compensation due and owed to Atty. Pea under the letter dated 19
December 1994, the Court will resort to determining the amount based on
the well-established rules on quantum meruit.

property and would possibly erupt in violence.

Agency is presumed to be for compensation.[273] Unless the contrary

Peas account of an oral agreement with Urban Bank for the payment
of PhP24,000,000 is just too much for any court to believe. Whatever may
be the agreement between Pea and ISCI for compensation is not before this
Court. This is not to say, however, that Urban Bank has no liability to Pea. It
has. Payment to him is required because the Civil Code demands that no
one should be unjustly enriched at the expense of another. This payment is
to be measured by the standards ofquantum meruit.

intent is shown, a person who acts as an agent does so with the

expectation of payment according to the agreement and to the services
rendered or results effected. [274] We find that the agency of Pea comprised
of services ordinarily performed by a lawyer who is tasked with the job of
ensuring clean possession by the owner of a property. We thus measure
what he is entitled to for the legal services rendered.

A stipulation on a lawyers compensation in a written contract for

only. That means that each tenant received an average of PhP65,217.40

professional services ordinarily controls the amount of fees that the

only. Surely, the legal services of Pea cannot be much more than what the

contracting lawyer may be allowed to collect, unless the court finds the

sub-tenants were willing to settle for in the first place. We therefore award

amount to be unconscionable.


In the absence of a written contract for

him the equivalent amount of PhP1,500,000 for the legal and other related

professional services, the attorneys fees are fixed on the basis of quantum

services he rendered to eject the illegally staying tenants of Urban Banks

meruit,[276] i.e., the reasonable worth of the attorneys services. [277] When an


agent performs services for a principal at the latters request, the law will
normally imply a promise on the part of the principal to pay for the
The Court of Appeals correctly reversed the trial court and found it

reasonable worth of those services.[278] The intent of a principal to

compensate the agent for services performed on behalf of the former will

to have acted with grave abuse of discretion in granting astounding

monetary awards amounting to a total of PhP28,500,000 without any basis.

be inferred from the principals request for the agents.[279]


For the lower court to have latched on to the self-serving claims of a

telephone agreement as sufficient support for extending a multi-million

In this instance, no extra-ordinary skills employing advanced legal

peso award is highly irregular. Absent any clear basis for the amount of the

training nor sophisticated legal maneuvering were required to be employed

lawyers compensation, the trial court should have instinctively resorted

in ejecting 23 sub-tenants who have no lease contract with the property

to quantum meruit, instead of insisting on a figure with circumstantial and

owner, and whose only authority to enter the premises was unlawfully

spurious justification.

given by a former tenant whose own tenancy has clearly expired. The 23








establishments for which no sophisticated structure prevented easy entry.

After Pea succeeded in locking the gate of the compound, the sub-tenants
would open the padlock and resume their businesses at night. Indeed, it
appears that only security guards, chains and padlocks were needed to
keep them out. It was only the alleged connivance of Pasay City policemen
that Peas ability to retain the possession was rendered insecure. And how
much did it take Pea to enter into a settlement agreement with them and
make all these problems go away? By Peas own account, PhP1,500,000

We cannot also agree with the Decision penned by Judge Edgardo L.

Catilo characterizing Penas 10% fee as believable because it is nearly
congruent to the PhP25 Million retention money held in escrow for ISCI until
a clean physical and legal turn-over of the property is effected:








compensation prayed for by the plaintiff which is 10% of the









preposterous and glaringly excessive. Plaintiff [Pea] testified

that defendant Borlongan agreed to such an amount and this

does not normally approximate a one-to-one relationship to the services of

has not been denied by Ted Borlongan. The term current

ejecting unwanted occupants. They may be inclusive of other costs, and not

market value of the property is hereby interpreted by the

only legal costs, with enough allowances for contingencies, and may take

court to mean the current market value of the property at the

into consideration other liabilities as well. The amount can even be entirely

time the contract was entered into. To interpret it in

arbitrary, and may have been caused by the practice followed by Urban

accordance with the submission of the plaintiff that it is the

Bank as advised by its officers and lawyers or by industry practice in cases

current market value of the property at the time payment is

where an expensive property has some tenancy problems. In other words,

made would be preposterous. The only evidence on record

Judge Catilos statement is a non sequitur, is contrary to normal human

where the court can determine the market value of the

experience, and sounds like an argument being made to fit Peas demand

property at the time the contract of agency was entered into

for a shocking pay-out.

between plaintiff and defendant is the consideration stated in

the sales agreement between Isabela Sugar Company, Inc.
and Urban bank which is P241,612,000.00. Ten percent of
this amount is a reasonable compensation of the services
rendered by the plaintiff considering the no cure, no pay
arrangement between the parties and the risks which plaintiff
had to undertake.


In any case, 10% of the purchase price of the Pasay property a staggering
PhP24,161,200 is an unconscionable amount, which we find reason to
reduce. Neither will the Court accede to the settlement offer of Pea to
Urban Bank of at least PhP38,000,000 for alleged legal expenses incurred
during the course of the proceedings, [282]an amount that he has not
substantiated at any time.
Lawyering is not a business; it is a profession in which duty to public

In the first place, the Decision of Judge Catilo makes Peas demand of
an agency fee of PhP24 Million, an additional burden on Urban Bank. The
Decision does not make the retention money responsible for the same, or
acquit Urban Bank of any liability to ISCI if it pays the PhP24 Million directly
to Pena instead of ISCI. In the second place, the amount of money that is
retained by transferees of property transactions while the transferor is
undertaking acts to ensure a clean and peaceful transfer to the transferee






consideration. [283] The


of quantum meruitapplies if lawyers are employed without a price

agreed upon for their services, in which case they would be entitled to
receive what they merit for their services, or as much as they have earned.

In fixing a reasonable compensation for the services rendered by a

lawyer on the basis of quantum meruit, one may consider factors such as
the time spent and extent of services rendered; novelty and difficulty of the
questions involved; importance of the subject matter; skill demanded;

probability of losing other employment as a result of acceptance of the

discretion when it issued a ruling against the eight individual defendant

proffered case; customary charges for similar services; amount involved in

bank directors and officers and its Decision should be absolutely reversed

the controversy and the resulting benefits for the client; certainty of

and set aside.

compensation; character of employment; and professional standing of the

A corporation, as a juridical entity, may act only through its
directors, officers and employees.[286] Obligations incurred as a result of the
Hence, the Court affirms the appellate courts award of PhP3,000,000

acts of the directors and officers as corporate agents are not their personal

to Pea, for expenses incurred corresponding to the performance of his

liabilities but those of the corporation they represent. [287] To hold a director

services. An additional award of PhP1,500,000 is granted to him for the

or an officer personally liable for corporate obligations, two requisites must

services he performed as a lawyer in securing the rights of Urban Bank as

concur: (1) the complainant must allege in the complaint that the director

owner of the Pasay property.

or officer assented to patently unlawful acts of the corporation, or that the

officer was guilty of gross negligence or bad faith; and (2) the complainant


must clearly and convincingly prove such unlawful acts, negligence or bad

The corporate officers and directors of Urban

faith.[288] To hold a director, a trustee or an officer personally liable for the

Bank are not solidarily or personally liable with

debts of the corporation and, thus, pierce the veil of corporate fiction, bad

their properties for the corporate liability of

faith or gross negligence by the director, trustee or officer in directing the

Urban Bank to Atty. Pea.

corporate affairs must be established clearly and convincingly. [289]

Pea failed to allege and convincingly show that individual defendant

The obligation to pay Peas compensation, however, falls solely on Urban
Bank. Absent any proof that individual petitioners as bank officers acted in
bad faith or with gross negligence or assented to a patently unlawful act,
they cannot be held solidarily liable together with the corporation for
services performed by the latters agent to secure possession of the Pasay
property. Thus, the trial court had indeed committed grave abuse of

bank directors and officers assented to patently unlawful acts of the bank,
or that they were guilty of gross negligence or bad faith. Contrary to his
claim, the Complaint[290] in the lower court never alleged that individual
defendants acquiesced to an unlawful act or were grossly negligent or
acted in bad faith. [291] Neither is there any specific allegation of gross

negligence or action in bad faith that is attributable to the individual

defendants in performance of their official duties.

In ruling for the solidary liability of the other bank directors, the
decision of the trial court hinged solely on the purported admission of
Arturo Manuel, Jr., that the transactions with Atty. Pea were approved by the
Board of Directors:

In any event, Pea did not adduce any proof that the eight individual
defendants performed unlawful acts or were grossly negligent or in bad
faith. Aside from the general allegation that they were corporate officers or
members of the board of directors of Urban Bank, no specific acts were
alleged and proved to warrant a finding of solidary liability. At most,
petitioners Borlongan, Bejasa and Manuel were identified as those who had
processed the agency agreement with Pea through their telephone
conversations with him and/or written authorization letter.

In this case, plaintiff testified as to the personal

participation of defendants Ted Borlongan and Corazon
Bejasa in the subject transaction. On the other hand, with
respect to the other defendants, it was the defendants





Jr., who

admitted that all the transactions involved in this case

Aside from Borlongan, Bejasa and Manuel, Atty. Pea in the complaint

were approved by the board of directors. Thus, the

pointed to no specific act or circumstance to justify the inclusion of Delfin C.

court has sufficient basis to hold the directors jointly and

Gonzalez, Jr., Benjamin L. de Leon, P. Siervo H. Dizon, Eric L. Lee, and Ben T.

severally liable with defendant Urban Bank, Inc. [292] (Emphasis

Lim, Jr., except for the fact that they were members of the Board of


Directors of Urban Bank at that time. That the five other members of the
Board of Directors were excluded from Peas complaint highlights the
peculiarity of their inclusion. What is more, the complaint mistakenly
included Ben Y. Lim, Jr., who had not even been a member of the Board of
Directors of Urban Bank. In any case, his father and namesake, Ben T. Lim,
Sr., who had been a director of the bank at that time, had already passed
away in 1997.

The Decision of the RTC-Bago City must be utterly rejected on this

point because its conclusion of any cause of action, much less actual legal
liability on the part of Urban Banks corporate officers and directors are
shorn of any factual finding. That they assented to the transactions of the
bank with respect to Atty. Peas services without any showing that these
corporate actions were patently unlawful or that the officers were guilty of
gross negligence or bad faith is insufficient to hold them solidarily liable

with Urban Bank. It seems absurd that the trial court will hold the

said defense constituted a waiver on the part of individual defendants.

impleaded selected members of the Board of Directors only, but not the


The Court is not persuaded.

others who also purportedly approved the transactions. Neither is the

reason behind the finding of solidariness with Urban Bank in such liability
explained at all. It is void for completely being devoid of facts and the law
on which the finding of liability is based.

As the complainant on the trial court level, Pea carried the burden of
proving that the eight individual defendants performed specific acts that

The Court of Appeals correctly rejected the claim of personal liability

against the individual petitioners when it held as follows:

would make them personally liable for the obligations of the corporation.
This he failed to do. He cannot capitalize on their alleged failure to offer a
defense, when he had not discharged his responsibility of establishing their
personal liabilities in the first place. This Court cannot sustain the individual

The plaintiff-appellees complaint before the court a

quo does not point to any particular act of either one or all of
the defendants-appellants that will subject them to personal







Borlongan and Atty. Bejasa acted for and in behalf of Urban

Bank in securing his services in protecting the banks newly

liabilities of the bank officers when Pea, at the onset, has not persuasively
demonstrated their assent to patently unlawful acts of the bank, or that
they were guilty of gross negligence or bad faith, regardless of the
weaknesses of the defenses raised. This is too basic a requirement that this
Court must demand sufficient proof before we can disregard the separate
legal personality of the corporation from its offices.

acquired property. Hence, We cannot allow the same.[293]

Hence, only Urban Bank, not individual defendants, is liable to pay
Peas compensation for services he rendered in securing possession of the
Pasay property. Its liability in this case is, however, without prejudice to its
possible claim against ISCI for reimbursement under their separate
Pea had argued that individual defendant bank directors and officers
should be held personally and solidarily liable with petitioner-respondent
bank, since they failed to argue for limited corporate liability. [294] The trial
court subscribed to his reasoning and held that the failure to resort to the


Favorably acting on Peas motion, the RTC-Bago City, through Judge Henry J.

Trocino,[303] issued a Special Order authorizing execution pending appeal on

Considering the absolute nullification of the

the basis of Peas indebtedness to his creditor-friend. [304] In accordance with

trial courts Decision, the proceedings arising

this Special Order, Atty. Josephine Mutia-Hagad, the clerk of court and ex

from the execution pending appeal based on






officio sheriff, expeditiously issued a Writ of Execution on the same day.




The trial courts Special Order and Writ of Execution were the subjects of

a Rule 65 Petition filed by Urban Bank with the CA. [306]

Since the trial courts main Decision awarding PhP28,500,000 in

favor of Pea has been nullified above, the execution pending appeal

Both the Special Order and Writ of Execution are nullified for two

attendant thereto, as a result, no longer has any leg to stand on and is thus
completely vacated.


Since the Decision of the RTC-Bago City is

completely vacated, all its issuances pursuant to the

To recall, prior to the filing of Urban Bank of its notice of appeal in
the main case,[296] Pea moved on 07 June 1999 for execution pending
appeal[297] of


Decision,[298] which






Decision, including the Special Order and the Writ of

Execution are likewise vacated; and

The Special Order authorizing execution

In supporting his prayer

pending appeal based on the collection suit filed against Atty.

for discretionary execution, Pea cited no other reason than the

Pea had no basis under the Rules of Court, and the same

pending separate civil action for collection filed against him by a

infirmity thus afflicts the Writ of Execution issued pursuant



PhP28,500,000 in compensation and damages.










According to him, he had used the proceeds of the loan for securing the

banks Pasay property.[301] In opposition to the motion, Urban Bank countered

that the collection case was not a sufficient reason for allowing execution
pending appeal.[302]

Since the Decision of the RTC-Bago City is

producit effectum.[309] Hence, the validity of the execution pending appeal

vacated, all orders and writs pursuant thereto

will ultimately hinge on the courts findings with respect to the decision in

are likewise vacated.

which the execution is based.

Although discretionary execution can proceed independently while

Considering that the Special Order and Writ of Execution was a
result of the trial courts earlier award of PhP28,500,000, the nullification or
complete reversal of the said award necessarily translates to the vacation
as well of the processes arising therefrom, including all the proceedings for
the execution pending appeal.

the appeal on the merits is pending, the outcome of the main case will
greatly impact the execution pending appeal, especially in instances where
as in this case, there is a complete reversal of the trial courts decision.
Thus, if the decision on the merits is completely nullified, then the
concomitant execution pending appeal is likewise without any effect. In
fact, the Rules of Court expressly provide for the possibility of reversal,
complete or partial, of a final judgment which has been executed on appeal.

Considering the unconscionable award given by the trial court and


Precisely, the execution pending appeal does not bar the continuance of

the unjustified imposition of solidary liability against the eight bank officers,

the appeal on the merits, for the Rules of Court explicitly provide for

the Court is vacating the Decision of the RTC-Bago City Decision. The trial

restitution according to equity and justice in case the executed judgment is

court erroneously made solidarily liable Urban Banks directors and officers

reversed on appeal.[311]

without even any allegations, much less proof, of any acts of bad faith,
negligence or malice in the performance of their duties. In addition, the trial
court mistakenly anchored its astounding award of damages amounting
PhP28,500,000 on the basis of the mere account of Atty. Pea of a telephone
conversation, without even considering the surrounding circumstances and
the sheer disproportion to the legal services rendered to the bank.

Considering that the Decision of the RTC-Bago City has been

completely vacated and declared null and void, it produces no effect
whatsoever. Thus, the Special Order and its concomitant Writ of Execution










Consequently, all levies, garnishment and sales executed pending appeal

are declared null and void, with the concomitant duty of restitution under

A void judgment never acquires finality.


In contemplation of law,

that void decision is deemed non-existent. [308] Quod nullum est, nullum

the Rules of Court, as will be discussed later on.

In any case, the trial courts grant of execution







pending appeal lacks sufficient basis under the

illusory. The circumstances must be superior, outweighing

law and jurisprudence.

the injury or damages that might result should the losing

party secure a reversal of the judgment. Lesser reasons
would make of execution pending appeal, instead of an
instrument of solicitude and justice, a tool of oppression and

We rule that the pendency of a collection suit by a third party

inequity. (Emphasis supplied)

creditor which credit was obtained by the winning judgment creditor in

another case, is not a sufficiently good reason to allow execution pending
appeal as the Rules of Court provide. Execution pending appeal is an

Indeed, the presence or the absence of good reasons remains the

extraordinary remedy allowed only when there are reasons to believe that

yardstick in allowing the remedy of execution pending appeal, which should

the judgment debtor will not be able to satisfy the judgment debt if the

consist of exceptional circumstances of such urgency as to outweigh the

appeals process will still have to be awaited. It requires proof of

injury or damage that the losing party may suffer, should the appealed

circumstances such as insolvency or attempts to escape, abscond or evade

judgment be reversed later.[313]Thus, the Court held that even the financial

a just debt.

distress of the prevailing company is not sufficient reason to call for

execution pending appeal:

In Florendo v. Paramount Insurance, Corp.,[312] the Court explained

that the execution pending appeal is an exception to the general rule that

In addressing this issue, the Court must stress that the

execution issues as a matter of right, when a judgment has become final

execution of a judgment before its finality must be founded

and executory:

upon good reasons. The yardstick remains the presence or

the absence of good reasons consisting of exceptional
circumstances of such urgency as to outweigh the injury or

As such exception, the courts discretion in allowing it

damage that the losing party may suffer, should the

must be strictly construed and firmly grounded on the

appealed judgment be reversed later. Good reason imports a

existence of good reasons. Good reasons, it has been

superior circumstance that will outweigh injury or damage to

held, consist of compelling circumstances that justify

the adverse party. In the case at bar, petitioner failed to show

paramount and compelling reasons of urgency and justice.

prevailing party in a final judgment which was still pending appeal may not

Petitioner cites as good reason merely the fact that it is a

be likened to the situation of a natural person who is ill, of advanced age or


dying as to justify execution pending appeal:







protracted delay in the reimbursement of the advances it

made for the aforesaid increased costs of . . . construction of

Falcon is a juridical entity and not a natural person. Even

the [respondent's] buildings.





condition, however, is not by itself a jurisprudentially



It is significant to stress that private respondent



execution. The financial distress of a juridical entity is not

comparable to a case involving a natural person such as a
very old and sickly one without any means of livelihood, an
heir seeking an order for support and monthly allowance for
subsistence, or one who dies.

assuming that it was indeed in financial distress and

on the verge of facing civil or even criminal suits, the

execution of a






in its



situation may not be likened to a case of a natural

person who may be ill or may be of advanced
age. Even the danger of extinction of the corporation
will not per se justify a discretionary executionunless
there are showings of other good reasons, such as for

Indeed, the alleged financial distress of a corporation

instance, impending insolvency of the adverse party or the

does not outweigh the long standing general policy of

appeal being patently dilatory. But even as to the latter

enforcing only final and executory judgments. Certainly, a

reason, it was noted in Aquino vs. Santiago (161 SCRA 570

juridical entity like petitioner corporation has, other than

[1988]), that it is not for the trial judge to determine the

extraordinary execution, alternative remedies like loans,

merit of a decision he rendered as this is the role of the

advances, internal cash generation and the like to address its

appellate court. Hence, it is not within competence of the

precarious financial condition. (Emphasis supplied)

trial court, in resolving a motion for execution pending

appeal, to rule that the appeal is patently dilatory and rely on

In Philippine Bank of Communications v. Court of Appeals,[314] the

Court denied execution pending appeal to a juridical entity which allegedly
was in financial distress and was facing civil and criminal suits with respect
to the collection of a sum of money. It ruled that the financial distress of the

the same as its basis for finding good reason to grant the
motion. Only an appellate court can appreciate the dilatory
intent of an appeal as an additional good reason in upholding
an order for execution pending appeal which may have been

issued by the trial court for other good reasons, or in cases

It has been established that the plaintiff secured the

where the motion for execution pending appeal is filed with

loan for the purpose of using the money to comply with the

the appellate court in accordance with Section 2, paragraph

mandate of defendant bank to hold and maintain possession

(a), Rule 39 of the 1997 Rules of Court.

of the parcel of land in Pasay City and to prevent intruders

and former tenants from occupying the said property. The

What is worse, only one case was actually filed

against Falcon and this is the complaint for collection filed by









said. Other than said Solidbank case, Falcons survival








anticipated litigation. This notwithstanding, and even

assuming that there was a serious threat to Falcons
continued corporate existence, we hold that it is not
tantamount nor even similar to an impending death of a
natural person. The material existence of a juridical person is
not on the same plane as that of human life. The survival of a
juridical personality is clearly outweighed by the long
standing general policy of enforcing only final and executory
judgments. (Emphasis supplied)

purpose of the loan was very specific and the same was
made known to defendant bank through defendant Teodoro
Borlongan. The loan was not secured for some other purpose.
Truth to tell, the plaintiff accomplished his mission in clearing
the property of tenants, intruders and squatters, long before
the deadline given him by the defendant bank. The plaintiff
was assured by no less than the President of defendant bank
of the availability of funds for his compensation and
reimbursement of his expenses. Had he been paid by
defendant bank soon after he had fulfilled his obligation, he
could have settled his loan obligation with his creditor.
Defendants were benefitted by the services rendered
by the plaintiff. While plaintiff has complied with the
undertaking, the defendants, however, failed to perform their
obligation to the plaintiff.

In this case, the trial court supported its discretionary grant of

execution based on the alleged collection suit filed against Pea by his
creditor friend for PhP3,000,000:

The plaintiff stands to suffer greatly if the

collection case against him is not addressed. Firstly,
as shown in Exhibit C, plaintiffs total obligation with
Roberto Ignacio as of May 1999 is PhP24,192,000.00.
This amount, if left unpaid, will continue to increase
due to interest charges being imposed by the creditor

to the prejudice of plaintiff. Secondly, a preliminary

a mere ruse to provide justification for the execution pending appeal, no

attachment has already been issued and this would restrict

matter how flimsy.[316] As quoted above, the trial court noted Atty. Peas total

the plaintiff from freely exercising his rights over his property

obligation to his creditor-friend as of May 1999 was already the incredible

during the pendency of the case.

amount of PhP24,192,000.00, even when the Complaint dated 03 April

In their opposition, defendants claim that plaintiffs

indebtedness is a ruse, however, defendants failed to adduce
evidence to support its claim.
The court finds that the pendency of the case for
collection of money against plaintiff is a good reason for
immediate execution. [315]

1999 itself, which spawned the collection suit included only a prayer for
payment of PhP3,500,000 with attorneys fees of PhP100,000. [317] It seems
absurd that Atty. Pea would agree to obtaining a loan from his own friend,
when the Promissory Notes provided for a penalty of 5% interest per month
or 60% per annum for delay in the payment. [318] It sounds more like a
creative justification of the immediate execution of the PhP28.5 Million
judgment notwithstanding the appeal.
In fact, the Court of Appeals noted Atty. Peas admission of sufficient

The mere fact that Atty. Pea was already subjected to a collection
suit for payment of the loan proceeds he used to perform his services for
Urban Bank is not an acceptable reason to order the execution pending
appeal against the bank. Financial distress arising from a lone collection suit
and not due to the advanced age of the party is not an urgent or compelling
reason that would justify the immediate levy on the properties of Urban
Bank pending appeal. That Pea would made liable in the collection suit filed
by his creditor-friend would not reasonably result in rendering illusory the
final judgment in the instant action for agents compensation.
Peas purported difficulty in paying the loan proceeds used to
perform his services does not outweigh the injury or damages that might
result should Urban Bank obtain a reversal of the judgment, as it did in this
case. Urban Bank even asserts that the collection suit filed against Pea was

properties to answer for any liability arising from the collection suit arising
from his creditor-friend. In initially denying the execution pending appeal,
the appellate court held that:
On the other hand, private respondents claim that the
only way he could pay his indebtedness to Roberto Ignacio is
through the money that he expects to receive


petitioners in payment of his services is belied by his

testimony at the hearing conducted by the trial court on the
motion for execution pending appeal wherein petitioners
were able to secure an admission from him that he has some
assets which could be attached by Roberto Ignacio and that
he would probably have other assets left even after the

to abscond was ever raised by Atty. Pea and yet, the trial court granted
execution pending appeal.
Hence, to rule that a pending collection suit against Atty. Pea, which
has not been shown to result in his insolvency, would be to encourage
judgment creditors to indirectly and indiscriminately instigate collection
suits or cite pending actions, related or not, as a good reason to routinely

Since the original order granting execution pending appeal was completely
void for containing no justifiable reason, it follows that any affirmance of
the same by the Court of Appeals is likewise void.

avail of the remedy of discretionary execution. [320] As an exception to the

general rule on execution after final and executory judgment, the reasons
offered by Atty. Pea to justify execution pending appeal must be strictly

The Decision of the Court of Appeals in the case docketed as CA-G.R.

SP No. 55667, finding a new reason for granting execution pending
appeal, i.e., the receivership of Urban Bank, is likewise erroneous,
notwithstanding this Courts ruling in Lee v. Trocino.[324] In accordance with

Neither will the Court accept the trial courts unfounded assumption

the subsequent Resolution of the Court in abovementioned case of Lee v.

that Urban Banks appeal was merely dilatory, as in fact, the PhP28,500,000

Trocino,[325] we directly resolve the issue of the insufficiency of the reasons

award given by the trial court was overturned by the appellate court and

that led to the grant of execution pending appeal.

eventually by this Court.

In cases where the two or more defendants are made subsidiarily or
Moreover, at the time the Special Order of Judge Henry Trocio of the
RTC-Bago City came out in 1999, Urban Bank had assets worth more than
PhP11 Billion and had a net worth of more than PhP2 Billion. There was no
reason then to believe that Urban Bank could not satisfy a judgment of
PhP28,500,000, a sum that was only 1% of its net worth, and 1/5 of 1% of
its total assets of PhP11,933,383,630.[321] Urban Bank was even given a
Solvency, Liquidity and Management Rating of 82.89 over 100 by no less


BSP[322] and









In fact, no allegation of impending insolvency or attempt

solidarily liable by the final judgment of the trial court, discretionary

execution can be allowed if all the defendants have been found to be
insolvent. Considering that only Urban Bank, and not the other eight
individual defendants, was later on considered by the Court of Appeals to
have been in danger of insolvency, is not sufficient reason to allow
execution pending appeal, since the liability for the award to Pea was made
(albeit, mistakenly) solidarily liable together with the bank officers.

In Flexo Manufacturing Corp. v. Columbus Food, Inc., and Pacific

Meat Company, Inc.,






both Columbus Food, Inc., (Columbus Food) and

execution was present. In the case at bar, it

Pacific Meat Company, Inc., (Pacific Meat) were found by the trial court

is undisputed that, assuming MMIC is insolvent,

therein to be


solidarily liable

to Flexo Manufacturing,






not. It


Manufacturing) for the principal obligation of PhP2,957,270.00. The lower

therefore, be plausibly assumed that the

court also granted execution pending appeal on the basis of the insolvency

judgment might become illusory; if MMIC

of Columbus Food, even if Pacific Meat was not found to be insolvent.

cannot satisfy the judgment, PNB will

Affirming the reversal ordered by the Court of Appeals, this Court ruled that

answer for it. It will be observed that, under

since there was another party who was solidarily liable to pay for the


judgment debt, aside from the insolvent Columbus Food, there was no good

hereinbefore quoted, the liability of PNB is

reason to allow the execution pending appeal:

either subsidiary or solidary.

Regarding the state of insolvency of Columbus, the

case of Philippine National Bank v. Puno, held:

held that insolvency of the judgment debtor or

imminent danger thereof is a good reason for
discretionary execution, otherwise to await a
final and executory judgment may not only









Thus, when there are two or more defendants

and one is not insolvent, the insolvency of a co-

While this Court in several cases has




recovery on execution from said judgment

defendant is not a good reason to justify execution

pending appeal if their liability under the judgment is
either subsidiary or solidary. In this case, Pacific was
adjudged to be solidarily liable with Columbus. Therefore, the
latter is not the only party that may be answerable to
Flexo. Its insolvency does not amount to a good reason
to grant execution pending appeal. (Emphasis supplied)

debtor, We are constrained to rule otherwise in

this particular case. In the aforecited cases,
there was either only one defeated party

Similarly, the trial court in this case found Urban Bank and all eight

or judgment debtor who was, however,

individual bank officers solidarily liable to Atty. Pea for the payment of the


several such

PhP28,500,000 award. Hence, had the judgment been upheld on appeal,

parties but all were insolvent, hence the

Atty. Pea could have demanded payment from any of the nine defendants.

or there


Thus, it was a mistake for the Court of Appeals to have affirmed execution

gather and take charge of all the assets and liabilities of the bank and

pending appeal based solely on the receivership of Urban Bank, when there

administer the same for the benefit of its creditors and all of the banks

were eight other individual defendants, who were solidarily liable but were

assets shall be considered as under custodial legis and exempt from any

not shown to have been insolvent. Since Urban Banks co-defendants were

order of garnishment, levy, attachment or execution. [327] In the Minute

not found to have been insolvent, there was no good reason for the Court of

Resolution of the Monetary Board of the BSP, Urban Bank was not only

Appeals to immediately order execution pending appeal, since Atty. Peas

prevented from doing business in the Philippines but its asset and affairs

award could have been satisfied by the eight other defendants, especially

were placed under receivership as provided for under the same law. [328] In

when the de Leon Group filed its supersedeas bond.

fact, even Pea himself assured the PDIC, as receiver of Urban Bank, that he

It seems incongruous for Atty. Pea to be accorded the benefit of

erroneously impleading several bank directors, who had no direct hand in
the transaction, but at the same time, concentrating solely on Urban Banks
inability to pay to justify execution pending appeal, regardless of the
financial capacity of its other co-defendants. Worse, he capitalized on the
insolvency and/or receivership of Urban Bank to levy or garnish properties

would not schedule or undertake execution sales of the banks assets for as
long as the bank remains in receivership. [329]Until the approval of the
rehabilitation or the initiation of the liquidation proceedings, all creditors of
the bank under receivership shall stand on equal footing with respect to
demanding satisfaction of their debts, and cannot be extended preferred
status by an execution pending appeal with respect to the banks assets:

of the eight other individual defendants, who were never shown to have

[t]o execute the judgment would unduly deplete the

been incapable of paying the judgment debt in the first place. The

assets of respondent bank to the obvious prejudice of other

disposition on the execution pending appeal may have been different had

creditors. After the Monetary Board has declared that a bank

Atty. Pea filed suit against Urban Bank alone minus the bank officers and

is insolvent and has ordered it to cease operations, the Board

the same bank was found solely liable for the award and later on declared

becomes the trustee of its assets for the equal benefit of all

under receivership.

the depositors and creditors. After its insolvency, one creditor

In addition, a judgment creditor of a bank, which has been ordered

by the BSP to be subject of receivership, has to fall in line like every other
creditor of the bank and file its claim under the proper procedures for banks
that have been taken over by the PDIC. Under Section 30 of Republic Act
No. 7653, otherwise known as the New Central Bank Act, which prevailed at
that time, once a bank is under receivership, the receiver shall immediately

cannot obtain an advantage or preference over another by an

attachment, execution or otherwise. Until there is an







liquidation proceedings, creditors of the bank stand








satisfaction of their debts, and cannot be afforded

special treatment by an execution pending appeal

with respect to the banks assets.


(Emphasis supplied)

capacity of the eight other co-defendants, the approval of the supersedeas

bonds, the subsequent takeover by EIB, and the successor banks stable
financial condition,[335] which can answer for the judgment debt. Thus, Peas
interest as a judgment creditor is already well-protected.

Moreover, assuming that the CA was correct in finding a reason to

justify the execution pending appeal because of the supervening event of
Urban Banks closure, the assumption by the EIB of the liabilities of Urban

While there is a general rule that a final and executory judgment in

Bank meant that any execution pending appeal can be granted only if EIB

the main case will render moot and academic a petition questioning the

itself is shown to be unable to satisfy Peas judgment award of

exercise of the trial courts discretion in allowing execution pending appeal,

PhP28,500,000. That is not at all the case. In just one particular sale on

we find it necessary to rule categorically on this question because of the

execution herein, EIB offered to answer in cash for a substantial part of

magnitude of the aberrations that attended the execution pending appeal

Peas claims, as evidenced by EIBs capacity and willingness to redeem the

in the Decision of the RTC-Bago City.

executed properties (condominium units sold to intervenor Unimega) by

tendering managers checks for more than PhP22 Million [331] which is already

Irregularities in the Levy and Sale on Execution

77.57% of Peas total award from the trial court. [332] The fact that EIBs offer

Pending Appeal

to take over Urban Bank means it was able to satisfy the BSPs concern that
all legitimate liabilities of Urban Bank be duly discharged.
Assuming that the Special Order granting execution pending appeal
As an exception to the general rule that only final judgments may be
executed,[333] the grant of execution pending appeal must perforce be based
on good reasons. These reasons must consist of compelling or superior
circumstances demanding urgency which will outweigh the injury or
damages suffered, should the losing party secure a reversal of the
judgment or final order.[334] The circumstances that would reasonably justify
superior urgency, demanding interim execution of Peas claims for
compensation and/or damages, have already been settled by the financial

were valid, issues have been raised on alleged irregularities that mar the
levy and sale on execution of the properties of Urban Bank and its officers
and directors. Many of the facts have not been sufficiently litigated before
the trial and appellate courts for us to fully rule on the issue, nevertheless,
from what is on record, the following are the observations of this Court:

First, contrary to the general rules on execution, no opportunity was

given to Urban Bank or the other co-defendants to pay the judgment debt
in cash or certified check.[336] Before proceeding on the levying and
garnishing personal and real properties, demand must be made by the
sheriff against the judgment debtors, Urban Bank and the eight other
individual bank officers, for the immediate payment of the award subject of
the execution pending appeal. It has not been shown whether Urban Bank
and its officers and directors were afforded such an opportunity. Instead of
garnishing personal properties of the bank, the sheriff inexplicably
proceeded to levy substantial real properties of the bank and its officers at
the onset.

Third, the public auction sales conducted in the execution pending

appeal sold more properties of Urban Bank and the directors than what was
sufficient to satisfy the debt. Indeed, the conservative value of the









than PhP181,919,190, consisting of prime condominium units in the heart

of the Makati Business district, a lot in Tagaytay City, shares in exclusive
clubs, and shares of stock, among others, was more than sufficient to
answer for the PhP28,500,000 judgment debt six times over. Rather than
stop when the properties sold had approximated the monetary award, the
execution sale pending appeal continued and unduly benefitted Atty. Pea,
who, as judgment creditor and, at times, the winning bidder, purchased
most of the properties sold.

Second, assuming that Urban Bank and its officers did not possess
sufficient cash or funds to pay for the judgment debt pending appeal, they

Fourth, it was supremely disconcerting how Urban Bank, through its

should have been given the option to choose which of their properties to be

successor EIB, was unduly deprived of the opportunity to redeem the

garnished and/or levied. In this case, Urban Bank exercised its option by

properties, even after presenting managers checks [339] equal

presenting to the sheriff various parcels of land, whose values amount to

purchase price of the condominium units sold at the execution sale. No

more than PhP76,882,925 and were sufficient to satisfy the judgment debt.

reason was offered by the trial court[340] or the sheriff[341] for rejecting the


redemption price tendered by EIB in order to recover the properties

Among those presented by the bank, only the property located in

Tagaytay was levied upon by the sheriff.[338] No sufficient reason was raised

to the

executed and sold in public auction pending appeal.

why the banks chosen properties were rejected or inadequate for purposes
of securing the judgment debt pending appeal. Worse, the Sheriff
proceeded with garnishing and levying on as many properties of Urban
Bank and its officers, in disregard of their right to choose under the rules.

Finally, the Court cannot turn a blind eye to the fact that there was
already a sufficient supersedeas bond given to answer for whatever
monetary award will be given in the end. To recall, the De Leon Group had

already tendered a supersedeas bond of PhP40,000,000 in the Court of

The observation on the irregularities above-enumerated are made

Appeals to prevent execution pending appeal over their properties. In fact,

for the purpose of correcting the injustice that has been committed herein,

even Urban Bank tendered a separate supersedeas bond of equal amount

by allowing the Court to pursue the question of who was responsible for

with this Court, for a total of PhP80,000,000 to secure any judgment to be

such gross violation of the rules on execution, and for the Court to find

awarded to Atty. Pea. That execution sales over the properties of judgment

measures to improve the safeguards against abuse of court processes. It is

debtors proceeded despite the three-fold value of securities compared to

for this reason that the Office of the Court Administrator will be given a

the amount of the award indicates bad faith, if not malice, with respect to

special task by the Court on this matter. Judge Henry Trocino of RTC-Bago

the conduct of the execution pending appeal.

City, who issued the Special Order and had supervisory authority over the
proceedings of the execution pending appeal, would have been included
under such administrative investigation by the Office of the Court

Inasmuch as the RTC Decision has already been vacated and an

Administrator, were it not for his retirement from the judicial service.

independent finding has been made by this Court of the complete nullity of
the order granting execution pending appeal, it follows that all acts
pursuant to such order and its writ are also void. It does not follow however,
that the Courts Decision in Co v. Sillador,[342] is nullified, inasmuch as an
equally-important legal doctrine the immutability of Supreme Court final

The Courts Suspension Order of Execution

Pending Appeal

decisions is also to be considered. In any case, the factual circumstances

and the ruling on that case were limited to the actions of Sheriff Allan
Sillador with respect to properties levied under the same Special Order and
Writ of Execution, which were subject of third party claims made by the

Acting on Atty. Peas Omnibus Motion dated 09 December 2002 [344] and

spouses of Teodoro Borlongan, Corazon Bejasa and Arturo Manuel, Jr. [343] It

Unimegas Motion for Reconsideration dated 10 December 2002 [345] with

does not encompass other specific events and acts committed in the course

respect to the Courts Order dated 13 November 2002 [346] that clarified the

of the execution pending appeal that may warrant administrative or

earlier stay order against the execution pending appeal, [347] the Court

disciplinary actions. Having said that, this Court leaves it to the parties to

hereby denies both motions. The Court is fully correct in suspending the

explore avenues for redress in such a situation.

period for the running of the redemption period of the properties of Urban
Bank and its officers and directors that were levied and subject of execution
sale to satisfy the judgment debt in favor of Atty. Pea, the Court having

conclusively determined that the supersedeas bond filed was sufficient and

the corresponding request from each justice. Each justice is in fact, required

considering the subsequent finding that the said execution pending appeal

to make this request, otherwise the rollo of the cases of which he is

lacks any sufficient ground for the grant thereof.

Member-in-Charge will be retained by a Division in which he is no longer a

member. Indeed, Atty. Peas imagination has gotten the better of him.

As to the theory of Atty. Pea that the actuations of Justice Carpio, the
then ponente of







Order should

Thirdly, his insinuation (which he denies) that Justice Carpio may have been

positively impact his motion for reconsideration of the same, the Court finds

bribed because the latter has a new Mercedes Benz [349] is highly offensive

this argument utterly devoid of merit.

and has no place where his points should have been confined to legal
reasons and arguments.

In the first place, that questioned Order was not the decision of only a
single member of the Court, Justice Carpio, but of the entire division to

Incidentally, Atty. Pea has voiced the fear in the Letter of Complaint filed in

which he belonged, then composed of retired Chief Justice Hilario Davide,

the Courts Committee on Ethics and Ethical Standards, [350] which he brought

Justices Jose Vitug, Consuelo Ynares-Santiago and Adolfo Azcuna. This Order

against theponente of this Decision, that she will suppress material

was affirmed by the same Division as its duly-promulgated order. In relation

information regarding the issuance of the Order suspending the redemption

to this, the affirmation by the Division of this Order demonstrates that there

period because of her close relationship to Justice Carpio. Contrary to this

is no truth to Atty. Peas claim that Justice Carpio fabricated the Order.

fear, this Decision is frontally disposing of this claim by stating that there is
no basis to believe that the questioned Order was anything than the joint
decision of the five members of the then First Division, and that his

In the second place, Atty. Peas claim of undue interest against Justice
Carpio specifically with respect to the latter having the instant case
transferred to his new Division, is based on ignorance of the system of

arguments in his motion to reconsider does not persuade this Court to vary
in any form the questioned order. Moreover, our disposition of this case
renders moot his motion to reconsider the order.

assignment of cases in the Supreme Court. When a reorganization of the

Court takes place in the form of a change in the composition of Divisions,
due to the retirement or loss of a member, the Justices do not thereby lose

It must be emphasized that the prolonged resolution of the

their case assignments but bring the latter with them to their new Divisions.

procedural issue in the Petitions in G. R. Nos. 145817 and 145822 on the


execution pending appeal is due in no small part to the delays arising from

The cases are then transferred to the Justices new Divisions, by way of

Peas peculiar penchant for filing successive motions for inhibition and reraffle.


services of a lawyer so that 23 unwanted tenants leave a corporation's

The Court cannot sanction Peas repeated requests for voluntary

property lead to the loss or the impairment of use of more than PhP181

inhibition of members of the Court based on the sole ground of his own self-

Million worth of properties of that corporation and of its officers and

serving allegations of lack of faith and trust, and would like to reiterate, at

directors? Obviously, this Court must undertake corrective actions swiftly.

this point, the policy of the Court not to tolerate acts of litigants who, for
just about any conceivable reason, seek to disqualify a judge (or justice) for
their own purpose, under a plea of bias, hostility, prejudice or prejudgment.

The Court cannot allow the unnecessary and successive requests for

inhibition, lest it opens the floodgates to forum-shopping where litigants

look for a judge more friendly and sympathetic to their cause than previous

The rule is that, where the executed judgment is reversed totally or

partially, or annulled on appeal or otherwise the trial court may, on motion,
issue such orders of restitution or reparation of damages as equity and
justice may warrant under the circumstances.[354] The Rules of Court
precisely provides for restitution according to equity, in case the executed
judgment is reversed on appeal.[355] In an execution pending appeal, funds
are advanced by the losing party to the prevailing party withthe implied
obligation of the latter to repay the former, in case the appellate

Restitution of the Banks Executed Properties

court cancels or reduces the monetary award.[356]

The Court is still confronted with the supervening acts related to the
execution pending appeal and the reversal of the award of damages, which

In disposing of the main case subject of these Petitions, the Court

affect the rights of the parties as well as of the intervenors to the case,

totally reversed the staggering amount of damages given by the trial court,

specifically, intervenor Unimega. In completely resolving the differing

and limited on aquantum meruit basis the agents compensation to

claims and performing its educational function, the Court shall briefly

PhP4,500,000 only. However, properties of Urban Bank and individual

encapsulate and restate the operational rules governing execution pending

petitioners have been garnished and levied upon in the amount of

appeal when there has been a reversal of the trial courts Decision on the

supposedly more than PhP85,399,350.[357]

award of damages in order to guide the parties as well as the bench and
bar in general. The necessity of making these detailed instructions is
prompted by the most natural question an ordinary person with a sense of
justice will ask after reading the facts: How can an obligation to pay for the

Applying the foregoing rules, petitioner-respondent bank is entitled

to complete and full restitution of its levied properties, subject to the
payment of the PhP4,500,000. Meanwhile, petitioners bank officers, all of

whom have not been found individually or solidarily liable, are entitled to
full restitution of all their properties levied upon and garnished, since they
have been exonerated from corporate liability with respect to the banks
agency relationship with Pea.

As a purchaser of properties under an execution sale, with an appeal

on the main case still pending, intervenor Unimega knew or was bound to
know that its title to the properties, purchased in the premature public
auction sale, was contingent on the outcome of the appeal and could

Considering the monetary award to Pea and the levy on and

execution of some of its properties pending appeal, Urban Bank, now EIB,
may satisfy the judgment in the main case and at the same time fully
recover all the properties executed owing to the complete reversal of the
trial courts awarded damages. It must immediately and fully pay the
judgment debt before the entire lot of levied properties, subject of the
execution pending appeal, is restored to it.[358]

possibly be reversed. Until the judgment on the main case on which the
execution pending appeal hinges is rendered final and executory in favor of
the prevailing judgment creditor, it is incumbent on the purchasers in the
execution sale to preserve the levied properties. They shall be personally
liable for their failure to do so, especially if the judgment is reversed, as in
this case.[361] In fact, if specific restitution becomes impracticable such as
when the properties pass on to innocent third parties the losing party in the
execution even becomes liable for the full value of the property at the time
of its seizure, with interest. The Court has ruled:

Due to the complete reversal of the trial courts award for damages,
which was the basis of the Special Order and Writ of Execution allowing
execution pending appeal, intervenor Unimega and other bidders who
participated in the public auction sales are liable to completely restore to
petitioner-respondent bank all of the properties sold and purchased therein.
Although execution pending appeal is sanctioned under the rules and
jurisprudence, when the executed decision is reversed, the premature
execution is considered to have lost its legal bases. The situation
necessarily requires equitable restitution to the party prejudiced thereby.

As a matter of principle, courts are authorized at any time to order the

return of property erroneously ordered to be delivered to one party, if the

order is found to have been issued without jurisdiction.[360]

When a judgment is executed pending appeal and

subsequently overturned in the appellate court, the party
who moved for immediate execution should, upon return of
the case to the lower court, be required to make specific
restitution of such property of the prevailing party as he or
any person acting in his behalf may have acquired at the

sale. If








becomes liable for the full value of the property at the

time of its seizure, with interest.

While the trial court may have acted judiciously under

participate in auction sales pending appeal are deemed to knowingly

the premises, its action resulted in grave injustice to the

assume and voluntarily accept the risks of a possible reversal of the


decision in the main case by the appellate court.


It cannot be

gainsaid that it is

incumbent upon the plaintiffs in execution (Arandas) to return

whatever they got by means of the judgment prior to its

reversal. And if perchance some of the properties might








remained under the name of the bank, owing to the supersedeas bond it

nonetheless to return the corresponding value of said



annotation of the sale and levied on the titles to those units, the titles have

in the case at bar, the Arandas are duty bound



condominium units to Urban Bank. Although the intervenor has caused the

have passed on to innocent third parties as happened



had filed and the Courts own orders that timely suspended the transfer of


the titles and further execution pending appeal.


The obligation to restore the properties to petitioner-respondent

bank is, however, without prejudice to the concurrent right of intervenor











condominium units bought during the public auction sale under the Special











unconscionable damages by the trial court. It cannot claim to be an

innocent third-party purchaser of the levied condominium units, since the
execution sale was precisely made pending appeal. It cannot simply
assume that whatever inaction or delay was incurred in the process of the





Unimega to the return of the PhP10,000,000 the latter paid for the
condominium units, which Pea received as judgment creditor in satisfaction
of the trial courts earlier Decision.[364]Consequently, intervenors earlier
request for the issuance of a writ of possession [365] over those units no
longer has any leg to stand on. Not being entitled to a writ of possession




Unimegas ex

parte petition


consequently denied.


automatically render the remedy dilatory in character. [363] Whatever rights

were acquired by intervenor Unimega from the execution sale under the

Upon the reversal of the main Decision, the levied properties itself,

trial courts Special Orders are conditional on the final outcome of the

subject of execution pending appeal must be returned to the judgment

appeal in the main case. Unlike in auction sales arising from final and

debtor, if those properties are still in the possession of the judgment

executory judgments, both the judgment creditor and the third parties who

creditor, plus compensation to the former for the deprivation and the use

thereof.[366] The obligation to return the property itself is likewise imposed

the excess received over and above that to which the former

on a third-party purchaser, like intervenor Unimega, in cases wherein

is entitled under the final judgment, with interest.

it directly participated in the public auction sale, and thetitle to the

executed property has not yet been transferred. The third-party
purchaser shall, however, be entitled to reimbursement from the judgment

In summary, Urban Bank is entitled to complete restoration and

return of the properties levied on execution considering the absolute

creditor, with interest.

reversal of the award of damages, upon the payment of the judgment debt
herein amounting to PhP4,500,000, with interest as indicated in the
Considering the foregoing points, the Court adopts with modification

dispositive portion. With respect to individual petitioners, they are entitled

the rules of restitution expounded by retired Justice Florenz D. Regalado in

to the absolute restitution of their executed properties, except when

his seminal work on civil procedure,


which the appellate court itself cited

restitution has become impossible, in which case Pea shall be liablefor the

In cases in which restitution of the prematurely executed

full value of the property at the time of its seizure, with interest. Whether

property is no longer possible, compensation shall be made in favor of the

Urban Bank and the bank officers and directors are entitled to any claim for

judgment debtor in the following manner:

damages against Pea and his indemnity bond is best ventilated before the



trial court, as prescribed under the procedural rules on execution pending


If the purchaser at the public auction is the

judgment creditor, he must pay the full value of the property

at the time of its seizure, with interest.

If the purchaser at the public auction is a third

party, and title to the property has already been validly

and timely transferred to the name of that party, the
judgment creditor must pay the amount realized from the
sheriffs sale of that property, with interest.

If the judgment award is reduced on appeal, the

judgment creditor must return to the judgment debtor only

WHEREFORE, the Court DENIES Atty. Magdaleno Peas Petition for

Review dated 23 April 2004 (G. R. No. 162562) and AFFIRMS WITH
MODIFICATION the Court of Appeals Decision dated 06 November 2003
having correctly found that the Regional Trial Court of Bago City gravely
abused its discretion in awarding unconscionable damages against Urban
Bank, Inc., and its officers. The Decision of the Regional Trial Court of Bago
City dated 28 May 1999 is hence VACATED.

Nevertheless, Urban Bank, Inc., is ORDERED to pay Atty. Pea the

if actual restitution of the property is impossible, then he

amount of PhP3,000,000 as reimbursement for his expenses and an

shall pay the full value of the property at the time of its

additional PhP1,500,000 as compensation for his services, with interest at

seizure, with interest;

6% per annum from 28 May 1999, without prejudice to the right of Urban
Bank to invoke payment of this sum under a right of set-off against the
amount of PhP25,000,000 that has been placed in escrow for the benefit of
Isabela Sugar Company, Inc. The Complaint against the eight other
individual petitioners, namely Teodoro Borlongan (+), Delfin C. Gonzales, Jr.,
Benjamin L. de Leon, P. Siervo G. Dizon, Eric L. Lee, Ben Y. Lim, Jr., Corazon
Bejasa, and Arturo Manuel, Jr., is hereby DISMISSED.


If the property levied or garnished has

been sold to a third party purchaser at the public auction,

and title to the property has not been validly and
timely transferred to the name of the third party, the
ownership and possession of the property shall be returned
to Urban Bank or respondent bank officers, subject to the
third partys right to claim restitution for the purchase price
paid at the execution sale against the judgment creditor;

The Petitions for Review on Certiorari filed by petitioners Urban


If the purchaser at the public auction is a

Bank (G. R. No. 145817) and Benjamin L. de Leon, Delfin Gonzalez, Jr., and

third party, and title to the property has already been

Eric L. Lee (G. R. No. 145822) are hereby GRANTED under the following

validly and timely transferred to the name of that


party, Atty. Pea must pay Urban Bank or respondent bank

officers the amount realized from the sheriffs sale of that
property, with interest from the time the property was seized.

Urban Bank, Teodoro Borlongan, Delfin C.

Gonzalez, Jr., Benjamin L. de Leon, P. Siervo H. Dizon, Eric L.

Lee, Ben Y. Lim, Jr., Corazon Bejasa, and Arturo Manuel, Jr.,

The Omnibus Motion dated 09 December 2002 filed by Atty. Pea and

(respondent bank officers) shall be restored to full ownership

Motion for Reconsideration dated 10 December 2002 filed by Unimega with

and possession of all properties executed pending appeal;

respect to the Courts Order dated 13 November 2002 is hereby DENIED.


If the property levied or garnished has

been sold on execution pending appeal and Atty. Magdaleno

Pea is the winning bidder or purchaser, he must fully restore
the property to Urban Bank or respondent bank officers, and

The Office of the Court Administrator is ordered to conduct an

investigation into the possible administrative liabilities of Atty. Josephine
Mutia-Hagad, the then RTC-Bago Citys Clerk of Court, and Allan D. Sillador,

the then Deputy Sheriff of Bago City, for the irregularities attending the

The Regional Trial Court of Makati City, to which the case shall be

execution pending appeal in this case, including all judicial officers or

raffled, is hereby designated as the court that will fully implement the

sheriffs in the various places in which execution was implemented, and to

restorative directives of this Decision with respect to the execution of the

submit a report thereon within 120 days from receipt of this Decision.

final judgment, return of properties wrongfully executed, or the payment of

the value of properties that can no longer be restored, in accordance with
Section 5, Rule 39 of the Rules of Court. The parties are directed to address












recommendations for the prevention of abuses of judicial processes in

the implementation of this part of the Decision to the sala to which the case
will be raffled.

relation to executions, especially those pending appeal, whether thru

administrative circulars from this Court or thru a revision of the Rules of
Court, within 30 days from submission of the report on administrative
liabilities adverted to above. Let a copy of the Courts Decision in this case
be sent to the Office of the Court Administrator.








The Presiding Judge of RTC Bago City shall make a full report on all incidents


related to the execution in this case, including all returns on the writ of
execution herein.
Because so much suspicious circumstances have attended the

The Case

execution in this case by the Regional Trial Court of Bago City, the
proceedings with respect to any restitution due and owing under the

This is an appeal via certiorari[1] from the decision of the Court of

circumstances shall be transferred to the Regional Trial Court in the

Appeals[2] affirming the decision[3] of the Regional Trial Court, Branch 44, San

National Capital Region, Makati City, a court with venue to hear cases

Fernando, Pampanga,

involving Urban Bank/Export and Industry Bank whose headquarters is

Corporation (Dominion) to pay Rodolfo S. Guevarra (Guevarra) the sum of

located in Makati City. The Executive Judge of the Regional Trial Court of

P156,473.90 representing the total amount advanced byGuevarra in the

Makati City is ordered to include the execution of the Decision and the

payment of the claims of Dominions clients.

proceedings for the restitution of the case in the next available raffle.






The Facts

defendant, third-party defendant and plaintiff, respectively, the rest were

postponed upon joint request of the parties.

The facts, as found by the Court of Appeals, are as follows:

On May 22, 1992 the case was again called for pre-trial conference. Only

On January 25, 1991, plaintiff Rodolfo S. Guevarra instituted Civil Case No.

plaintiff and counsel were present. Despite due notice, defendant and

8855 for sum of money against defendant Dominion Insurance Corporation.

counsel did not appear, although a messenger, RoyGamboa, submitted to

Plaintiff sought to recover thereunderthe sum of P156,473.90 which he

the trial court a handwritten note sent to him by defendants counsel which

claimed to have advanced in his capacity as manager of defendant to

instructed him to request for postponement. Plaintiffs counsel objected to

satisfy certain claims filed by defendants clients.

the desired postponement and moved to have defendant declared as in

default. This was granted by the trial court in the following order:

In its traverse, defendant denied any liability to plaintiff and asserted a








allegedly failed to remit.

When this case was called for pre-trial this afternoon only plaintiff and his

On August 8, 1991, defendant filed a third-party complaint against

counsel Atty. Romeo Maglalang appeared. When shown a note dated May

Fernando Austria, who, at the time relevant to the case, was its Regional

21, 1992 addressed to a certain Roy who was requested to ask for

Manager for Central Luzon area.

postponement, Atty. Maglalang vigorously objected to any postponement

on the ground that the note is but a mere scrap of paper and moved that

In due time, third-party defendant Austria filed his answer.

the defendant corporation be declared as in default for its failure to appear

in court despite due notice.

Thereafter the pre-trial conference was set on the following dates: October
18, 1991, November 12, 1991, March 29, 1991, December 12, 1991,

Finding the verbal motion of plaintiffs counsel to be meritorious and

January 17, 1992, January 29, 1992, February 28, 1992, March 17, 1992 and

considering that the pre-trial conference has been repeatedly postponed on

April 6, 1992, in all of which dates no pre-trial conference was held. The

motion of the defendant Corporation, the defendant Dominion Insurance

record shows that except for the settings on October 18, 1991, January 17,

Corporation is hereby declared (as) in default and plaintiff is allowed to

1992 and March 17, 1992 which were cancelled at the instance of

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.


WHEREFORE, premises considered, judgment is hereby rendered ordering:

Plaintiff presented his evidence on June 16, 1992. This was followed by a

1. The defendant Dominion Insurance Corporation to pay plaintiff the sum

written offer of documentary exhibits on July 8 and a supplemental offer of

of P156,473.90 representing the total amount advanced by plaintiff in the

additional exhibits on July 13, 1992. The exhibits were admitted in evidence

payment of the claims of defendants clients;

in an order dated July 17, 1992.

2. The defendant to pay plaintiff P10,000.00 as and by way of attorneys
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 pretrial conference was due to an unavoidable circumstance and that counsel

3. The dismissal of the counter-claim of the defendant and the third-party

had sent his representative on that date to inform the trial court of his


inability to appear. The Motion was vehemently opposed by plaintiff.

4. The defendant to pay the costs of suit.[4]

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

On December 14, 1992, Dominion appealed the decision to the Court of


meritorious defense.

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

On September 28, 1992 defendant moved for reconsideration of the

Court of Appeals a motion for reconsideration. [7] On July 16, 1997, the Court

aforesaid order. For the first time counsel revealed to the trial court that the

of Appeals denied the motion.[8]

reason for his nonappearance at the pre-trial conference was his illness. An

Hence, this appeal.[9]

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

The Issues

The issues raised are: (1) whether respondent Guevarra acted within

On November 18, 1992, the court a quo rendered judgment as follows:










respondent Guevarra is entitled to reimbursement of amounts he paid out

represented by Mr. Rodolfo Guevarra xxx to be our Agency Manager in

of his personal money in settling the claims of several insured.

San Fdo.,for our place and stead, to do and perform the following acts and

The Court's Ruling

1. To conduct, sign, manager (sic), carry on and transact Bonding

and Insurance business as usually pertain to a Agency Office, or

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]



defendant Austria)


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:

duly organized and existing under and by virtue of the laws of the Republic
of the Philippines, xxx represented by the undersigned as Regional





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
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
in connection with actions and all legal proceedings against the
said Corporation.[19] [Emphasis supplied]




ASSURANCE COMPANY, INC.,[18] may hereafter become due,

A perusal of the Special Power of Attorney [16] would show that petitioner


do hereby


RSG Guevarra Insurance


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

1. You are hereby given authority to settle and dispose of all motor car

power of attorney.

claims in the amount of P5,000.00 with prior approval of the Regional

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:









2. Full authority is given you on TPPI claims settlement.
xxx xxx xxx[24]


following cases:






respondent Guevarras authority is further limited by the written standard

(1) To make such payments as are not usually considered as acts of

respondent Guevarras revolving fund or collection. The authority to pay is

worded as follows:

xxx xxx xxx

This is to authorize you to withdraw from your revolving fund/collection the

(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


authority to pay,[25] which states that the payment shall come from







respondent Guevarra could settle the insurance claims of the insured.

Respondent Guevarras authority to settle claims is embodied in 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.

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:


Regional Manager[26]

xxx xxx xxx

[Emphasis supplied]

The instruction of petitioner as the principal could not be any clearer.

In this case, when the risk insured against occurred, petitioners liability

Respondent Guevarra was authorized to pay the claim of the insured, but









the payment shall come from the revolving fund or collection in his

respondent Guevarra paid the claims and obtained Release of Claim Loss


and Subrogation Receipts from the insured who were paid.

Having deviated from the instructions of the principal, the expenses

Thus, to the extent that the obligation of the petitioner has been

that respondent Guevarra incurred in the settlement of the claims of the

extinguished, respondent Guevarra may demand for reimbursement from

insured may not be reimbursed from petitioner Dominion. This conclusion is

his principal. To rule otherwise would result in unjust enrichment of

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:

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

(1) If the agent acted in contravention of the principals instructions, unless

Annexes C-2, D-1, E-1, F-1, G-1, H-1, I-1 and J-l, in the total amount of

the latter should wish to avail himself of the benefits derived from the



However, the amount of the revolving fund/collection that was then in

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:

the possession of respondent Guevarra as reflected in the statement of

account dated July 11, 1990would be deducted from the above amount.
The outstanding balance and the production/remittance for the period

debtor, he can recover only insofar as the payment has been beneficial to
the debtor.








P116,276.95, we get P112,672.11. This is the amount that may be

reimbursed to respondent Guevarra.

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


The Fallo

IN VIEW WHEREOF, we DENY the Petition. However, we MODIFY the

decision of the Court of Appeals


their dealings, petitioner issued several Shipping List/Delivery

and that of the Regional Trial Court,

Receipts (SLDRs) to STM as proof of purchases. Among these was

Branch 44, San Fernando,Pampanga,[29] in that petitioner is ordered to pay

SLDR No. 1214M, which gave rise to the instant case. Dated October

respondent Guevarra the amount of P112,672.11 representing the total

16, 1989, SLDR No. 1214M covers 25,000 bags of sugar. Each bag

amount advanced by the latter in the payment of the claims of petitioners

contained 50 kilograms and priced at P638.00 per bag as "per sales


order VMC Marketing No. 042 dated October 16, 1989." [1] The

No costs in this instance.




transaction it covered was a "direct sale." [2] The SLDR also contains
an additional note which reads: "subject for (sic) availability of a (sic)
stock at NAWACO (warehouse)."[3]
On October 25, 1989, STM sold to private respondent Consolidated
Sugar Corporation (CSC) its rights in SLDR No. 1214M for P
14,750,000.00. CSC issued one check dated October 25, 1989 and
three checks postdated November 13, 1989 in payment. That same
day, CSC wrote petitioner that it had been authorized by STM to

Before us is a petition for review on certiorari under Rule 45 of the Rules of

withdraw the sugar covered by SLDR No. 1214M. Enclosed in the

Court assailing the decision of the Court of Appeals dated February 24,

letter were a copy of SLDR No. 1214M and a letter of authority from

1994, in CA-G.R. CV No. 31717, as well as the respondent court's resolution

STM authorizing CSC "to withdraw for and in our behalf the refined

of September 30, 1994 modifying said decision. Both decision and

sugar covered by Shipping List/Delivery Receipt-Refined Sugar (SDR)

resolution amended the judgment dated February 13, 1991, of the Regional

No. 1214 dated October 16, 1989 in the total quantity of 25,000

Trial Court of Makati City, Branch 147, in Civil Case No. 90-118.


The facts of this case as found by both the trial and appellate courts are as

On October 27, 1989, STM issued 16 checks in the total amount of


P31,900,000.00 with petitioner as payee. The latter, in turn, issued

Official Receipt No. 33743 dated October 27, 1989 acknowledging

St. Therese Merchandising (hereafter STM) regularly bought sugar

receipt of the said checks in payment of 50,000 bags. Aside from

from petitioner Victorias Milling Co., Inc., (VMC). In the course of

SLDR No. 1214M, said checks also covered SLDR No. 1213.

Private respondent CSC surrendered SLDR No. 1214M to the

On April 27, 1990, CSC filed a complaint for specific performance,

petitioner's NAWACO warehouse and was allowed to withdraw sugar.

docketed as Civil Case No. 90-1118. Defendants were Teresita Ng Sy

However, after 2,000 bags had been released, petitioner refused to

(doing business under the name of St. Therese Merchandising) and

allow further withdrawals of sugar against SLDR No. 1214M. CSC

herein petitioner. Since the former could not be served with

then sent petitioner a letter dated January 23, 1990 informing it that

summons, the case proceeded only against the latter. During the

SLDR No. 1214M had been "sold and endorsed" to it but that it had

trial, it was discovered that Teresita Ng Go who testified for CSC was



the same Teresita Ng Sy who could not be reached through

warehouse despite the fact that only 2,000 bags had been

summons.[7] CSC, however, did not bother topursue its case against

withdrawn.[5] CSC thus inquired when it would be allowed to

her, but instead used her as its witness.







withdraw the remaining 23,000 bags.

CSC's complaint alleged that STM had fully paid petitioner for the
On January 31, 1990, petitioner replied that it could not allow any

sugar covered by SLDR No. 1214M. Therefore, the latter had no

further withdrawals of sugar against SLDR No. 1214M because STM

justification for refusing delivery of the sugar. CSC prayed that

had already dwithdrawn all the sugar covered by the cleared checks.

petitioner be ordered to deliver the 23,000 bags covered by SLDR


No. 1214M and sought the award of P1,104,000.00 in unrealized

profits, P3,000,000.00 as exemplary damages, P2,200,000.00 as

On March 2, 1990, CSC sent petitioner a letter demanding the

attorney's fees and litigation expenses.

release of the balance of 23,000 bags.

Petitioner's primary defense a quo was that it was an unpaid seller









for the 23,000 bags.[8] Since STM had already drawn in full all the

corresponding to the amount of STM's cleared checks had been fully

sugar corresponding to the amount of its cleared checks, it could no

withdrawn and hence, there would be no more deliveries of the

longer authorize further delivery of sugar to CSC. Petitioner also

commodity to STM's account. Petitioner also noted that CSC had

contended that it had no privity of contract with CSC.

represented itself to be STM's agent as it had withdrawn the 2,000

bags against SLDR No. 1214M "for and in behalf" of STM.

Petitioner explained that the SLDRs, which it had issued, were not
documents of title, but mere delivery receipts issued pursuant to a
series of transactions entered into between it and STM. The SLDRs

prescribed delivery of the sugar to the party specified therein and

"2) Ordering defendant Victorias Milling Company to pay the

did not authorize the transfer of said party's rights and interests.

amount of P920,000.00 as unrealized profits, the amount of

P800,000.00 as exemplary damages and the amount of

Petitioner also alleged that CSC did not pay for the SLDR and was

P1,357,000.00, which is 10% of the acquisition value of the









misrepresentation that CSC was an innocent purchaser for value and









P13,570,000.00, as attorney's fees, plus the costs.

in good faith. Petitioner then prayed that CSC be ordered to pay it









P10,000,000.00 as exemplary damages; and P1,500,000.00 as

attorney's fees. Petitioner also prayed that cross-defendant STM be
ordered to pay it P10,000,000.00 in exemplary damages, and
P1,500,000.00 as attorney's fees.

It made the following observations:

"[T]he testimony of plaintiff's witness Teresita Ng Go, that she
had fully paid the purchase price of P15,950,000.00 of the

Since no settlement was reached at pre-trial, the trial court heard

25,000 bags of sugar bought by her covered by SLDR No.

the case on the merits.

1214 as well as the purchase price of P15,950,000.00 for the

25,000 bags of sugar bought by her covered by SLDR No.

As earlier stated, the trial court rendered its judgment favoring

1213 on the same date, October 16, 1989 (date of the two

private respondent CSC, as follows:

SLDRs) is duly supported by Exhibits C to C-15 inclusive

which are post-dated checks dated October 27, 1989 issued

"WHEREFORE, in view of the foregoing, the Court hereby

by St. Therese Merchandising in favor of Victorias Milling

renders judgment in favor of the plaintiff and against

Company at the time it purchased the 50,000 bags of sugar

defendant Victorias Milling Company:

covered by SLDR No. 1213 and 1214. Said checks appear to

"1) Ordering defendant Victorias Milling Company to deliver

to the plaintiff 23,000 bags of refined sugar due under SLDR
No. 1214;

have been honored and duly credited to the account of

Victorias Milling Company because on October 27, 1989
Victorias Milling Company issued official receipt no. 34734 in
favor of St. Therese Merchandising for the amount of
P31,900,000.00 (Exhibits B and B-1). The testimony of

Teresita Ng Go is further supported by Exhibit F, which is a

Petitioner appealed the trial courts decision to the Court of Appeals.

computer printout of defendant Victorias Milling Company

showing the quantity and value of the purchases made by St.

On appeal, petitioner averred that the dealings between it and STM

Therese Merchandising, the SLDR no. issued to cover the

were part of a series of transactions involving only one account or

purchase, the official reciept no. and the status of payment. It

one general contract of sale. Pursuant to this contract, STM or any of

is clear in Exhibit 'F' that with respect to the sugar covered by

its authorized agents could withdraw bags of sugar only against

SLDR No. 1214 the same has been fully paid as indicated by

cleared checks of STM. SLDR No. 21214M was only one of 22 SLDRs

the word 'cleared' appearing under the column of 'status of

issued to STM and since the latter had already withdrawn its full


quota of sugar under the said SLDR, CSC was already precluded
from seeking delivery of the 23,000 bags of sugar.

"On the other hand, the claim of defendant Victorias Milling

Company that the purchase price of the 25,000 bags of sugar

Private respondent CSC countered that the sugar purchases

purchased by St. Therese Merchandising covered by SLDR


No. 1214 has not been fully paid is supported only by the

transactions and that the details of the series of purchases were

testimony of Arnulfo Caintic, witness for defendant Victorias

contained in a single statement with a consolidated summary of

Milling Company. The Court notes that the testimony of

cleared check payments and sugar stock withdrawals because this a

Arnulfo Caintic is merely a sweeping barren assertion that the

more convenient system than issuing separate statements for each
















insinuation by Arnulfo Caintic in his testimony that the

postdated checks issued by the buyer in payment of the
purchased price were dishonored. However, said witness
failed to present in Court any dishonored check or any
replacement check. Said witness likewise failed to present
any bank record showing that the checks issued by the
buyer, Teresita Ng Go, in payment of the purchase price of
the sugar covered by SLDR No. 1214 were dishonored."[10]








The appellate court considered the following issues: (a) Whether or

not the transaction between petitioner and STM involving SLDR No.
1214M was a separate, independent, and single transaction; (b)
Whether or not CSC had the capacity to sue on its own on SLDR No.
1214M; and (c) Whether or not CSC as buyer from STM of the rights
to 25,000 bags of sugar covered by SLDR No. 1214M could compel
petitioner to deliver 23,000 bags allegedly unwithdrawn.

On February 24, 1994, the Court of Appeals rendered its decision

"(2) Pay costs of suit.

modifying the trial court's judgment, to wit:




hereby MODIFIES the

The appellate court explained the rationale for the modification as

judgment and orders defendant-appellant to:

"1) Deliver to plaintiff-appellee 12,586 bags of sugar covered
by SLDR No. 1214M;

"There is merit in plaintiff-appellee's position.

" 2) Pay to plaintiff-appellee P792,918.00 which is 10% of the

"Exhibit F' We relied upon in fixing the number of bags of

value of the undelivered bags of refined sugar, as attorneys

sugar which remained undelivered as 12,586 cannot be made


the basis for such a finding. The rule is explicit that courts
should consider the evidence only for the purpose for which it

"3) Pay the costs of suit.

was offered. (People v. Abalos, et al, 1 CA Rep 783). The

rationale for this is to afford the party against whom the





evidence is presented to object thereto if he deems it







argument that Exhibit F' which was offered to prove that

checks in the total amount of P15,950,000.00 had been

In its resolution dated September 30, 1994, the appellate court

modified its decision to read:

necessary. Plaintiff-appellee is, therefore, correct in its



cleared. (Formal Offer of Evidence for Plaintiff, Records p.

58)cannot be used to prove the proposition that 12,586 bags
of sugar remained undelivered.





judgment and orders defendant-appellant to:

"Testimonial evidence (Testimonies of Teresita Ng [TSN, 10

October 1990, p. 33] and Marianito L. Santos [TSN, 17

"(1) Deliver to plaintiff-appellee 23,000 bags of refined sugar

October 1990, pp. 16, 18, and 36]) presented by plaintiff-

under SLDR No. 1214M;

appellee was to the effect that it had withdrawn only 2,000

bags of sugar from SLDR after which it was not allowed to

withdraw anymore. Documentary evidence (Exhibit I, Id., p.

persons as its agents to withdraw sugar against the same

78, Exhibit K, Id., p. 80) show that plaintiff-appellee had sent

SLDR No. 1214M, rendered respondent like the other persons,

demand letters to defendant-appellant asking the latter to

an agent of STM as held in Rallos v. Felix Go Chan & Realty

allow it to withdraw the remaining 23,000 bags of sugar from

Corp., 81 SCRA 252, and precluded it from subsequently

SLDR 1214M. Defendant-appellant, on the other hand,

claiming and proving being an assignee of SLDR No. 1214M

alleged that sugar delivery to the STM corresponded only to

and from suing by itself for its enforcement because it was

the value of cleared checks; and that all sugar corresponded

conclusively presumed to be an agent (Sec. 2, Rule 131,

to cleared checks had been withdrawn. Defendant-appellant

Rules of Court) and estopped from doing so. (Art. 1431, Civil

did not rebut plaintiff-appellee's assertions. It did not present


evidence to show how many bags of sugar had been

withdrawn against SLDR No. 1214M, precisely because of its

" 2. The Court of Appeals erred in manifestly and arbitrarily

theory that all sales in question were a series of one single

ignoring and disregarding certain relevant and undisputed

transaction and withdrawal of sugar depended on the

facts which, had they been considered, would have shown

clearing of checks paid therefor.

that petitioner was not liable, except for 69 bags of sugar,

and which would justify review of its conclusion of facts by

"After a second look at the evidence, We see no reason to

this Honorable Court.

overturn the findings of the trial court on this point." [13]











Hence, the instant petition, positing the following errors as grounds

compensation under Arts. 1279, 1285 and 1626 of the Civil

for review:

Code when it ruled that compensation applied only to credits

from one SLDR or contract and not to those from two or more

"1. The Court of Appeals erred in not holding that STM's and

distinct contracts between the same parties; and erred in



denying petitioner's right to setoff all its credits arising prior

respondent was authorized by buyer STM to withdraw sugar

to notice of assignment from other sales or SLDRs against

against SLDR No. 1214M "for and in our (STM) behalf,"

private respondent's claim as assignee under SLDR No.

(emphasis in the original) private respondent's withdrawing

1214M, so as to extinguish or reduce its liability to 69 bags,

2,000 bags of sugar for STM, and STM's empowering other

because the law on compensation applies precisely to two or





more distinct contracts between the same parties (emphasis

(2)....Whether or not the Court of Appeals erred in applying

in the original).

the law on compensation to the transaction under SLDR No.

1214M so as to preclude petitioner from offsetting its credits

"4. The Court of Appeals erred in concluding that the

on the other SLDRs.

settlement or liquidation of accounts in Exh. F between

petitioner and STM, respondent's admission of its balance,

(3)....Whether or not the Court of Appeals erred in not ruling

and STM's acquiescence thereto by silence for almost one

that the sale of sugar under SLDR No. 1214M was a

year did not render Exh. `F' an account stated and its

conditional sale or a contract to sell and hence freed

balance binding.

petitioner from further obligations.

"5. The Court of Appeals erred in not holding that the

(4)....Whether or not the Court of Appeals committed an error

conditions of the assigned SLDR No. 1214, namely, (a) its

of law in not applying the "clean hands doctrine" to preclude

subject matter being generic, and (b) the sale of sugar being

CSC from seeking judicial relief.

subject to its availability at the Nawaco warehouse, made the

sale conditional and prevented STM or private respondent
from acquiring title to the sugar; and the non-availability of
sugar freed petitioner from further obligation.

The issues will be discussed in seriatim.

Anent the first issue, we find from the records that petitioner raised
this issue for the first time on appeal. It is settled that an issue which

"6. The Court of Appeals erred in not holding that the "clean

was not raised during the trial in the court below could not be raised

hands" doctrine precluded respondent from seeking judicial

for the first time on appeal as to do so would be offensive to the

reliefs (sic) from petitioner, its only remedy being against its

basic rules of fair play, justice, and due process. [15] Nonetheless, the


Court of Appeals opted to address this issue, hence, now a matter

for our consideration.

Simply stated, the issues now to be resolved are:

Petitioner heavily relies upon STM's letter of authority allowing CSC
(1)....Whether or not the Court of Appeals erred in not ruling

to withdraw sugar against SLDR No. 1214M to show that the latter

that CSC was an agent of STM and hence, estopped to sue

was STM's agent. The pertinent portion of said letter reads:

upon SLDR No. 1214M as an assignee.

"This is to authorize Consolidated Sugar Corporation or its

"This Court has ruled that where the relation of agency is

representative to withdraw for and in our behalf (stress

dependent upon the acts of the parties, the law makes no

supplied) the refined sugar covered by Shipping List/Delivery

presumption of agency, and it is always a fact to be proved,

Receipt = Refined Sugar (SDR) No. 1214 dated October 16,

with the burden of proof resting upon the persons alleging

1989 in the total quantity of 25, 000 bags."


the agency, to show not only the fact of its existence, but
also its nature and extent(Antonio vs. Enriquez [CA], 51 O.G.

The Civil Code defines a contract of agency as follows:


"Art. 1868. By the contract of agency a person binds himself

to render some service or to do something in representation
or on behalf of another, with the consent or authority of the
It is clear from






establish the existence of an agency relation between

plaintiff-appellee and STM. The fact alone that it (STM) had
authorized withdrawal of sugar by plaintiff-appellee "for and
in our (STM's) behalf" should not be eyed as pointing to the
existence of an agency relation ...It should be viewed in the





basis of



representation.[17] On the part of the principal, there must be an

actual intention to appoint[18] or an intention naturally inferable from
his words or actions;[19] and on the part of the agent, there must be
an intention to accept the appointment and act on it, [20] and in the
absence of such intent, there is generally no agency. [21] One factor
which most clearly distinguishes agency from other legal concepts is
control; one person - the agent - agrees to act under the control or
direction of another - the principal. Indeed, the very word "agency"
has come to connote control by the principal. [22] The control factor,
more than any other, has caused the courts to put contracts
between principal and agent in a separate category. [23] The Court of
Appeals, in finding that CSC, was not an agent of STM, opined:

context of all the circumstances obtaining. Although it would

seem STM represented plaintiff-appellee as being its agent by
the use of the phrase "for and in our (STM's) behalf" the
matter was cleared when on 23 January 1990, plaintiffappellee






1214M had been "sold and endorsed" to it by STM (Exhibit I,

Records, p. 78). Further, plaintiff-appellee has shown that the
25, 000 bags of sugar covered by the SLDR No. 1214M were
sold and transferred by STM to it ...A conclusion that there
was a valid sale and transfer to plaintiff-appellee may,
therefore, be made thus capacitating plaintiff-appellee to sue
in its own name, without need of joining its imputed principal
STM as co-plaintiff."[24]

In the instant case, it appears plain to us that private respondent

deliver said commodity to STM or its assignee. Since said sugar had

CSC was a buyer of the SLDFR form, and not an agent of STM.

been fully paid for, petitioner and CSC, as assignee of STM, were not

Private respondent CSC was not subject to STM's control. The

mutually creditors and debtors of each other. No reversible error

question of whether a contract is one of sale or agency depends on

could thereby be imputed to respondent appellate court when, it

the intention of the parties as gathered from the whole scope and

refused to apply Article 1279 of the Civil Code to the present case.

effect of the language employed.[25] That the authorization given to

CSC contained the phrase "for and in our (STM's) behalf" did not

Regarding the third issue, petitioner contends that the sale of sugar

establish an agency. Ultimately, what is decisive is the intention of

under SLDR No. 1214M is a conditional sale or a contract to sell, with

the parties.[26] That no agency was meant to be established by the

title to the sugar still remaining with the vendor. Noteworthy, SLDR

CSC and STM is clearly shown by CSC's communication to petitioner

No. 1214M contains the following terms and conditions:

that SLDR No. 1214M had been "sold and endorsed" to it. [27] The use
of the words "sold and endorsed" means that STM and CSC intended
a contract of sale, and not an agency. Hence, on this score, no error
was committed by the respondent appellate court when it held that
CSC was not STM's agent and could independently sue petitioner.

the second

issue, proceeding














buyer/trader of refined sugar and/or receipt of this document




representative, title







buyer/trader and delivery to him/it is deemed effected and


transactions entered into between petitioner and STM are but serial
parts of one account, petitioner insists that its debt has been offset
by its claim for STM's unpaid purchases, pursuant to Article 1279 of
the Civil Code.[28] However, the trial court found, and the Court of
Appeals concurred, that the purchase of sugar covered by SLDR No.
1214M was a separate and independent transaction; it was not a
serial part of a single transaction or of one account contrary to
petitioner's insistence. Evidence on record shows, without being
rebutted, that petitioner had been paid for the sugar purchased
under SLDR No. 1214M. Petitioner clearly had the obligation to

completed (stress supplied) and buyer/trader assumes full

responsibility therefore"[29]
The aforequoted terms and conditions clearly show that petitioner
transferred title to the sugar to the buyer or his assignee upon
payment of the purchase price. Said terms clearly establish a
contract of sale, not a contract to sell. Petitioner is now estopped
from alleging the contrary. The contract is the law between the
contracting parties.[30] And where the terms and conditions so
stipulated are not contrary to law, morals, good customs, public
policy or public order, the contract is valid and must be upheld.


Having transferred title to the sugar in question, petitioner is now

obliged to deliver it to the purchaser or its assignee.

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

Court of Appeals (CA) in CA-G.R. CV No. 51022, which affirmed the Decision
of the Regional Trial Court (RTC), Pasig City, Branch 165, in Civil Case No.

As to the fourth issue, petitioner submits that STM and private

54887, as well as the Resolution[2] of the CA denying the motion for

respondent CSC have entered into a conspiracy to defraud it of its

reconsideration thereof.

sugar. This conspiracy is allegedly evidenced by: (a) the fact that
STM's selling price to CSC was below its purchasing price; (b) CSC's
refusal to pursue its case against Teresita Ng Go; and (c) the
authority given by the latter to other persons to withdraw sugar
against SLDR No. 1214M after she had sold her rights under said
SLDR to CSC. Petitioner prays that the doctrine of "clean hands"
should be applied to preclude CSC from seeking judicial relief.
However, despite careful scrutiny, we find here the records bare of







allegations of fraud. We are now constrained to deem this matter

purely speculative, bereft of concrete proof.
WHEREFORE, the instant petition is DENIED for lack of merit. Costs
against petitioner.

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

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

Litonjua, Jr v Eternit Corporation

ESAC. Both had their offices in Belgium.

In 1986, the management of ESAC grew concerned about the political
situation in the Philippines and wanted to stop its operations in the
country. The Committee for Asia of ESAC instructed Michael Adams, a
member of ECs Board of Directors, to dispose of the eight parcels of
land. Adams engaged the services of realtor/broker Lauro G. Marquez so

that the properties could be offered for sale to prospective buyers. Glanville
later showed the properties to Marquez.

The Litonjua brothers deposited the amount of US$1,000,000.00

with the Security Bank & Trust Company, Ermita Branch, and drafted an
Escrow Agreement to expedite the sale.[7]










improvements thereon to Eduardo B. Litonjua, Jr. of the Litonjua &

Sometime later, Marquez and the Litonjua brothers inquired from Glanville

Company, Inc. In a Letter datedSeptember 12, 1986, Marquez declared that

when the sale would be implemented. In a telex dated April 22, 1987,

he was authorized to sell the properties for P27,000,000.00 and that the

Glanville informed Delsaux that he had met with the buyer, which had

terms of the sale were subject to negotiation.


given him the impression that he is prepared to press for a satisfactory

conclusion to the sale.[8] He also emphasized to Delsaux that the buyers

Eduardo Litonjua, Jr. responded to the offer. Marquez showed the

property to Eduardo Litonjua, Jr., and his brother Antonio K. Litonjua. The

were concerned because they would incur expenses in bank commitment

fees as a consequence of prolonged period of inaction.[9]

Litonjua siblings offered to buy the property for P20,000,000.00 cash.

Marquez apprised Glanville of the Litonjua siblings offer and relayed the

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

same to Delsaux in Belgium, but the latter did not respond. On October 28,


1986, Glanville telexed Delsaux in Belgium, inquiring on his position/

the Philippines had improved. Marquez received a telephone call from

counterproposal to the offer of the Litonjua siblings. It was only on February

Glanville, advising that the sale would no longer proceed. Glanville followed

12, 1987 that Delsaux sent a telex to Glanville stating that, based on the

it up with a Letter dated May 7, 1987, confirming that he had been



instructed by his principal to inform Marquez that the decision has been


taken at a Board Meeting not to sell the properties on which Eternit






andP2,500,000.00 to cover all existing obligations prior to final liquidation.




the Philippines,





Corporation is situated.[10]
Marquez furnished Eduardo Litonjua, Jr. with a copy of the telex sent
by Delsaux. Litonjua, Jr. accepted the counterproposal of Delsaux. Marquez

Delsaux himself later sent a letter dated May 22, 1987, confirming

conferred with Glanville, and in a Letter dated February 26, 1987, confirmed

that the ESAC Regional Office had decided not to proceed with the sale of

that the Litonjua siblings had accepted the counter-proposal of Delsaux. He

the subject land, to wit:

also stated that the Litonjua siblings would confirm full payment within 90
days after execution and preparation of all documents of sale, together with
the necessary governmental clearances.


May 22, 1987

Mr. L.G. Marquez

L.G. Marquez, Inc.

We regret that we could not make a deal with you this

time, but in case the policy would change at a later state, we

334 Makati Stock Exchange Bldg.

would consult you again.

6767 Ayala Avenue

Makati, Metro Manila


Yours sincerely,
Dear Sir:


Re: Land of Eternit Corporation

cc. To: J. GLANVILLE (Eternit Corp.)[11]
I would like to confirm officially that our Group has
decided not to proceed with the sale of the land which was
proposed to you.

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

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

The Committee for Asia of our Group met recently

(meeting every six months) and examined the position as far

The Litonjuas then filed a complaint for specific performance and

as the Philippines are (sic) concerned. Considering [the]

damages against EC (now the Eterton Multi-Resources Corporation) and the

new political situation since the departure of MR.

Far East Bank & Trust Company, and ESAC in the RTC of Pasig City. An

MARCOS and a certain stabilization in the Philippines,

amended complaint was filed, in which defendant EC was substituted by

the Committee has decided not to stop our operations

Eterton Multi-Resources Corporation; Benito C. Tan, Ruperto V. Tan, Stock Ha

inManila. In fact, production has started again last

T. Tan and Deogracias G. Eufemio were impleaded as additional defendants

week, and (sic) to recognize the participation in the

on account of their purchase of ESAC shares of stocks and were the


controlling stockholders of EC.

In their answer to the complaint, EC and ESAC alleged that since
Eteroutremer was not doing business in the Philippines, it cannot be subject

to the jurisdiction of Philippine courts; the Board and stockholders of EC

clear authorization from the corporation concerned, that is, through

never approved any resolution to sell subject properties nor authorized

resolutions of the Board of Directors and stockholders. The trial court also

Marquez to sell the same; and the telex dated October 28, 1986 of Jack

pointed out that the supposed sale involves substantially all the assets of

Glanville was his own personal making which did not bind EC.

defendant EC which would result in the eventual total cessation of its


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

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

The Litonjuas appealed the decision to the CA, alleging that (1) the
lower court erred in concluding that the real estate broker in the instant
case needed a written authority from appellee corporation and/or that said






broker had no such written authority; and (2) the lower court committed

Corporation now Eterton Multi-Resources Corporation and

grave error of law in holding that appellee corporation is not legally bound

Eteroutremer, S.A. is dismissed on the ground that there is no

for specific performance and/or damages in the absence of an enabling

valid and binding sale between the plaintiffs and said

resolution of the board of directors.[15] They averred that Marquez acted


merely as a broker or go-between and not as agent of the corporation;

hence, it was not necessary for him to be empowered as such by any

The complaint as against Far East Bank and Trust

written authority. They further claimed that an agency by estoppel was

Company is likewise dismissed for lack of cause of action.

created when the corporation clothed Marquez with apparent authority to

negotiate for the sale of the properties. However, since it was a bilateral

The counterclaim of Eternit Corporation now Eterton

contract to buy and sell, it was equivalent to a perfected contract of sale,

Multi-Resources Corporation and Eteroutremer, S.A. is also

dismissed for lack of merit.

which the corporation was obliged to consummate.


In reply, EC alleged that Marquez had no written authority from the











Board of Directors to bind it; neither were Glanville and Delsaux authorized

agents/realtors was not in writing, the sale is void and not merely

by its board of directors to offer the property for sale. Since the sale

unenforceable, and as such, could not have been ratified by the principal. In

involved substantially all of the corporations assets, it would necessarily

any event, such ratification cannot be given any retroactive effect. Plaintiffs

need the authority from the stockholders.

could not assume that defendants had agreed to sell the property without a

On June 16, 2000, the CA rendered judgment affirming the decision

of the RTC. [16] The Litonjuas filed a motion for reconsideration, which was
also denied by the appellate court.


The CA ruled that Marquez, who was a real estate broker, was a


special agent within the purview of Article 1874 of the New Civil Code.


Under Section 23 of the Corporation Code, he needed a special authority


from ECs board of directors to bind such corporation to the sale of its


properties. Delsaux, who was merely the representative of ESAC (the


majority stockholder of EC) had no authority to bind the latter. The CA


pointed out that Delsaux was not even a member of the board of directors


of EC. Moreover, the Litonjuas failed to prove that an agency by estoppel

had been created between the parties.

Petitioners maintain that, based on the facts of the case, there was a
perfected contract of sale of the parcels of land and the improvements

In the instant petition for review, petitioners aver that

thereon for US$1,000,000.00 plus P2,500,000.00 to cover obligations prior

to final liquidation. Petitioners insist that they had accepted the counter-

offer of respondent EC and that before the counter-offer was withdrawn by

respondents, the acceptance was made known to them through real estate


broker Marquez.


Petitioners assert that there was no need for a written authority from the












broker/middleman/intermediary. As broker, Marquez was not an ordinary


agent because his authority was of a special and limited character in most


respects. His only job as a broker was to look for a buyer and to bring


together the parties to the transaction. He was not authorized to sell the


properties or to make a binding contract to respondent EC; hence,

petitioners argue, Article 1874 of the New Civil Code does not apply.

4. The GOOD





Eternits offer to sell the properties as evidenced by the

In any event, petitioners aver, what is important and decisive was

Petitioners ACCEPTANCE of the counter-offer;

that Marquez was able to communicate both the offer and counter-offer and
their acceptance of respondent ECs counter-offer, resulting in a perfected
contract of sale.

5. The fact that Petitioners DEPOSITED the price of

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

Petitioners posit that the testimonial and documentary evidence on

record amply shows that Glanville, who was the President and General

6. Glanvilles





Manager of respondent EC, and Delsaux, who was the Managing Director


for ESAC Asia, had the necessary authority to sell the subject property or, at


least, had been allowed by respondent EC to hold themselves out in the

public as having the power to sell the subject properties. Petitioners
identified such evidence, thus:

7. More importantly, Exhibits G and H of the

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

1. The testimony of Marquez that he was chosen by

Glanville as the then President and General Manager of

Petitioners insist that it is incongruous for Glanville and Delsaux to

Eternit, to sell the properties of said corporation to any

make a counter-offer to petitioners offer and thereafter reject such offer

interested party, which authority, as hereinabove discussed,

unless they were authorized to do so by respondent EC. Petitioners insist

need not be in writing.

that Delsaux confirmed his authority to sell the properties in his letter to

2. The fact that the NEGOTIATIONS for the sale of the

Marquez, to wit:

subject properties spanned SEVERAL MONTHS, from 1986

to 1987;
3. The COUNTER-OFFER made by Eternit through
GLANVILLE to sell its properties to the Petitioners;

Dear Sir,
Re: Land of Eternit Corporation

Petitioners further emphasize that they acted in good faith when Glanville
I would like to confirm officially that our Group has decided

and Delsaux were knowingly permitted by respondent EC to sell the

not to proceed with the sale of the land which was proposed

properties within the scope of an apparent authority. Petitioners insist that

to you.

respondents held themselves to the public as possessing power to sell the

subject properties.

The Committee for Asia of our Group met recently (meeting

every six months) and examined the position as far as
the Philippines are


concerned. Considering


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


petitioners are factual, hence, are proscribed by Rule 45 of the Rules of

political situation since the departure of MR. MARCOS and a

Court. On the merits of the petition, respondents EC (now EMC) and ESAC

certain stabilization in the Philippines, the Committee has

reiterate their submissions in the CA. They maintain that Glanville, Delsaux

decided not to stop our operations in Manila[.] [I]n fact

and Marquez had no authority from the stockholders of respondent EC and

production started again last week, and (sic) to reorganize

its Board of Directors to offer the properties for sale to the petitioners, or to

the participation in the Corporation.

any other person or entity for that matter.They assert that the decision and
resolution of the CA are in accord with law and the evidence on record, and

We regret that we could not make a deal with you this

should be affirmed in toto.

time, but in case the policy would change at a later

stage we would consult you again.

Petitioners aver in their subsequent pleadings that respondent EC,

through Glanville and Delsaux, conformed to the written authority of
Marquez to sell the properties. The authority of Glanville and Delsaux to

In the meantime, I remain

bind respondent EC is evidenced by the fact that Glanville and Delsaux

negotiated for the sale of 90% of stocks of respondent EC to Ruperto Tan

Yours sincerely,

on June 1, 1997. Given the significance of their positions and their duties in
respondent EC at the time of the transaction, and the fact that respondent


ESAC owns 90% of the shares of stock of respondent EC, a formal

resolution of the Board of Directors would be a mere ceremonial
formality. What is important, petitioners maintain, is that Marquez was able
to communicate the offer of respondent EC and the petitioners acceptance

thereof. There was no time that they acted without the knowledge of
respondents. In fact, respondent EC never repudiated the acts of Glanville,

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

Marquez and Delsaux.


The petition has no merit.











impossible; (3) when there is grave abuse of discretion; (4)

when the judgment is based on a misapprehension of facts;

Anent the first issue, we agree with the contention of respondents that the

(5) when the findings of fact are conflicting; (6) when the

issues raised by petitioner in this case are factual. Whether or not Marquez,

Court of Appeals, in making its findings, went beyond the

Glanville, and Delsaux were authorized by respondent EC to act as its

issues of the case and the same is contrary to the admissions

agents relative to the sale of the properties of respondent EC, and if so, the

of both appellant and appellee; (7) when the findings of the

boundaries of their authority as agents, is a question of fact. In the absence

Court of Appeals are contrary to those of the trial court; (8)

of express written terms creating the relationship of an agency, the

when the findings of fact are conclusions without citation of

existence of an agency is a fact question.


Whether an agency by estoppel

specific evidence on which they are based; (9) when the

was created or whether a person acted within the bounds of his apparent

Court of Appeals manifestly overlooked certain relevant facts

authority, and whether the principal is estopped to deny the apparent

not disputed by the parties, which, if properly considered,

authority of its agent are, likewise, questions of fact to be resolved on the

would justify a different conclusion; and (10) when the

basis of the evidence on record.[21] The findings of the trial court on such

findings of fact of the Court of Appeals are premised on the

issues, as affirmed by the CA, are conclusive on the Court, absent evidence

absence of evidence and are contradicted by the evidence on

that the trial and appellate courts ignored, misconstrued, or misapplied


facts and circumstances of substance which, if considered, would warrant a

modification or reversal of the outcome of the case.[22]

We have reviewed the records thoroughly and find that the petitioners
failed to establish that the instant case falls under any of the foregoing

It must be stressed that issues of facts may not be raised in the Court under

exceptions. Indeed, the assailed decision of the Court of Appeals is

Rule 45 of the Rules of Court because the Court is not a trier of facts. It is

supported by the evidence on record and the law.

not to re-examine and assess the evidence on record, whether testimonial

It was the duty of the petitioners to prove that respondent EC had

and documentary. There are, however, recognized exceptions where the

decided to sell its properties and that it had empowered Adams, Glanville

Court may delve into and resolve factual issues, namely:

and Delsaux or Marquez to offer the properties for sale to prospective

buyers and to accept any counter-offer. Petitioners likewise failed to prove

that their counter-offer had been accepted by respondent EC, through








incorporation, by-laws, or relevant provisions of law.






Glanville and Delsaux. It must be stressed that when specific performance

is sought of a contract made with an agent, the agency must be established
by clear, certain and specific proof.


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

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



of Batas


Bilang 68,





Corporation Code of the Philippines, provides:

SEC. 36. Corporate powers and capacity. Every corporation

incorporated under this Code has the power and capacity:

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











corporations formed under this Code shall be exercised, all

business conducted and all property of such corporations

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

controlled and held by the board of directors or trustees to be

lease, pledge, mortgage and otherwise deal with such real

elected from among the holders of stocks, or where there is

and personal property, including securities and bonds of

no stock, from among the members of the corporation, who

other corporations, as the transaction of a lawful business of

shall hold office for one (1) year and until their successors are

the corporation may reasonably and necessarily require,

elected and qualified.

subject to the limitations prescribed by the law and the


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

members or stockholders and is not affected by the personal rights,
The property of a corporation, however, is not the property of the
obligations and transactions of the latter.[25] It may act only through its

stockholders or members, and as such, may not be sold without express

board of directors or, when authorized either by its by-laws or by its board

authority from the board of directors. [27] Physical acts, like the offering of

resolution, through its officers or agents in the normal course of

the properties of the corporation for sale, or the acceptance of a counter-

business. The general principles of agency govern the relation between the

offer of prospective buyers of such properties and the execution of the deed
of sale covering such property, can be performed by the corporation only

by officers or agents duly authorized for the purpose by corporate by-laws

or by specific acts of the board of directors.


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

Absent such valid

his silence or lack of action, or his failure to repudiate the agency knowing

delegation/authorization, the rule is that the declarations of an individual

that another person is acting on his behalf without authority. Acceptance by

director relating to the affairs of the corporation, but not in the course of,

the agent may be expressed, or implied from his acts which carry out the


agency, or from his silence or inaction according to the circumstances.

connected with, the performance of authorized duties of such director, are


not binding on the corporation.[29]

to create or convey real rights over immovable property, a special power of

Agency may be oral unless the law requires a specific form. [35] However,

attorney is necessary.[36] Thus, when a sale of a piece of land or any portion

While a corporation may appoint agents to negotiate for the sale of its real

thereof is through an agent, the authority of the latter shall be in writing,

properties, the final say will have to be with the board of directors through

otherwise, the sale shall be void.[37]

its officers and agents as authorized by a board resolution or by its by-laws.


An unauthorized act of an officer of the corporation is not binding on it

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

unless the latter ratifies the same expressly or impliedly by its board of

any resolution of the Board of Directors of respondent EC empowering

directors. Any sale of real property of a corporation by a person purporting

Marquez, Glanville or Delsaux as its agents, to sell, let alone offer for sale,

to be an agent thereof but without written authority from the corporation is

for and in its behalf, the eight parcels of land owned by respondent EC

null and void. The declarations of the agent alone are generally insufficient

including the improvements thereon. The bare fact that Delsaux may have

to establish the fact or extent of his/her authority.[31]

been authorized to sell to Ruperto Tan the shares of stock of respondent

ESAC, on June 1, 1997, cannot be used as basis for petitioners claim that he

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

had likewise been authorized by respondent EC to sell the parcels of land.

to do something in representation on behalf of another, with the consent or

authority of the latter.[32] Consent of both principal and agent is necessary

Moreover, the evidence of petitioners shows that Adams and Glanville acted

to create an agency. The principal must intend that the agent shall act for

on the authority of Delsaux, who, in turn, acted on the authority of

him; the agent must intend to accept the authority and act on it, and the

respondent ESAC, through its Committee for Asia,[38] the Board of Directors

intention of the parties must find expression either in words or conduct


between them.[33]

management of respondent ESAC.[40]As such, Adams and Glanville engaged


ESAC,[39] and






the services of Marquez to offer to sell the properties to prospective

buyers. Thus, on September 12, 1986, Marquez wrote the petitioner that he

was authorized to offer for sale the property for P27,000,000.00 and the

or even all of such shares of stocks, taken alone, will not justify their being

other terms of the sale subject to negotiations. When petitioners offered to

treated as one corporation.[43]

purchase the property for P20,000,000.00, through Marquez, the latter

relayed petitioners offer to Glanville; Glanville had to send a telex to

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

Delsaux to inquire the position of respondent ESAC to petitioners

the principal is extended through the facility of the agent. In so doing, the

offer. However, as admitted by petitioners in their Memorandum, Delsaux

agent, by legal fiction, becomes the principal, authorized to perform all acts

was unable to reply immediately to the telex of Glanville because Delsaux

which the latter would have him do. Such a relationship can only be

had to wait for confirmation from respondent ESAC.


When Delsaux finally

responded to Glanville on February 12, 1987, he made it clear that, based

effected with the consent of the principal, which must not, in any way, be
compelled by law or by any court.[44]

on the Belgian/Swiss decision the final offer of respondent ESAC was

US$1,000,000.00 plus P2,500,000.00 to cover all existing obligations prior

The petitioners cannot feign ignorance of the absence of any regular and

to final liquidation.[42] The offer of Delsaux emanated only from the

valid authority of respondent EC empowering Adams, Glanville or Delsaux

Belgian/Swiss decision, and not the entire management or Board of

to offer the properties for sale and to sell the said properties to the

Directors of respondent ESAC.While it is true that petitioners accepted the

petitioners. A person dealing with a known agent is not authorized, under

counter-offer of respondent ESAC, respondent EC was not a party to the

any circumstances, blindly to trust the agents; statements as to the extent

transaction between them; hence, EC was not bound by such acceptance.

of his powers; such person must not act negligently but must use
reasonable diligence and prudence to ascertain whether the agent acts

While Glanville was the President and General Manager of respondent EC,

within the scope of his authority.[45] The settled rule is that, persons dealing

and Adams and Delsaux were members of its Board of Directors, the three

with an assumed agent are bound at their peril, and if they would hold the

acted for and in behalf of respondent ESAC, and not as duly authorized

principal liable, to ascertain not only the fact of agency but also the nature

agents of respondent EC; a board resolution evincing the grant of such

and extent of authority, and in case either is controverted, the burden of

authority is needed to bind EC to any agreement regarding the sale of the

proof is upon them to prove it. [46] In this case, the petitioners failed to

subject properties. Such board resolution is not a mere formality but is a

discharge their burden; hence, petitioners are not entitled to damages from

condition sine qua non to bind respondent EC. Admittedly, respondent ESAC

respondent EC.

owned 90% of the shares of stocks of respondent EC; however, the mere
fact that a corporation owns a majority of the shares of stocks of another,

It appears that Marquez acted not only as real estate broker for the
petitioners but also as their agent. As gleaned from the letter of Marquez to

Glanville, on February 26, 1987, he confirmed, for and in behalf of the

Neither may respondent EC be deemed to have ratified the transactions

petitioners, that the latter had accepted such offer to sell the land and the

between the petitioners and respondent ESAC, through Glanville, Delsaux

improvements thereon. However, we agree with the ruling of the appellate

and Marquez. The transactions and the various communications inter

court that Marquez had no authority to bind respondent EC to sell the

se were never submitted to the Board of Directors of respondent EC for

subject properties. A real estate broker is one who negotiates the sale of


real properties. His business, generally speaking, is only to find a purchaser

who is willing to buy the land upon terms fixed by the owner. He has no

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

authority to bind the principal by signing a contract of sale. Indeed, an

merit. Costs against the petitioners.

authority to find a purchaser of real property does not include an authority


to sell.


Equally barren of merit is petitioners contention that respondent EC

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











representation; (3) relying upon such representation, such third person has



DOLES, Petitioner,


changed his position to his detriment.[48] An agency by estoppel, which is

similar to the doctrine of apparent authority, requires proof of reliance upon

This refers to the Petition for Review on Certiorari under Rule 45 of the

the representations, and that, in turn, needs proof that the representations

Rules of Court questioning the Decision 1dated April 30, 2001 of the Court of

predated the action taken in reliance. [49] Such proof is lacking in this case. In

Appeals (CA) in C.A.-G.R. CV No. 66985, which reversed the Decision dated

their communications to the petitioners, Glanville and Delsaux positively

July 29, 1998 of the Regional Trial Court (RTC), Branch 21, City of Manila;

and unequivocally declared that they were acting for and in behalf of

and the CA Resolution2 dated August 6, 2001 which denied petitioners

respondent ESAC.

Motion for Reconsideration.

The antecedents of the case follow:

On April 1, 1997, Ma. Aura Tina Angeles (respondent) filed with the RTC a

Petitioner, then defendant, while admitting some allegations in the

complaint for Specific Performance with Damages against Jocelyn B. Doles

Complaint, denied that she borrowed money from respondent, and averred

(petitioner), docketed as Civil Case No. 97-82716. Respondent alleged that

that from June to September 1995, she referred her friends to respondent

petitioner was indebted to the former in the concept of a personal loan

whom she knew to be engaged in the business of lending money in

amounting to P405,430.00 representing the principal amount and interest;

exchange for personal checks through her capitalist Arsenio Pua. She

that on October 5, 1996, by virtue of a "Deed of Absolute Sale", 3 petitioner,

alleged that her friends, namely, Zenaida Romulo, Theresa Moratin, Julia

as seller, ceded to respondent, as buyer, a parcel of land, as well as the

Inocencio, Virginia Jacob, and Elizabeth Tomelden, borrowed money from

improvements thereon, with an area of 42 square meters, covered by

respondent and issued personal checks in payment of the loan; that the

Transfer Certificate of Title No. 382532,4 and located at a subdivision project

checks bounced for insufficiency of funds; that despite her efforts to assist

known as Camella Townhomes Sorrente in Bacoor, Cavite, in order to satisfy

respondent to collect from the borrowers, she could no longer locate them;

her personal loan with respondent; that this property was mortgaged to

that, because of this, respondent became furious and threatened petitioner



that if the accounts were not settled, a criminal case will be filed against

petitioners loan in the sum ofP337,050.00 with that entity; that as a

her; that she was forced to issue eight checks amounting to P350,000 to

condition for the foregoing sale, respondent shall assume the undue

answer for the bounced checks of the borrowers she referred; that prior to

balance of the mortgage and pay the monthly amortization of P4,748.11 for

the issuance of the checks she informed respondent that they were not

the remainder of the 25 years which began on September 3, 1994; that the

sufficiently funded but the latter nonetheless deposited the checks and for

property was at that time being occupied by a tenant paying a monthly rent

which reason they were subsequently dishonored; that respondent then

ofP3,000.00; that upon verification with the NHMFC, respondent learned

threatened to initiate a criminal case against her for violation of Batas

that petitioner had incurred arrearages amounting to P26,744.09, inclusive

Pambansa Blg. 22; that she was forced by respondent to execute an

of penalties and interest; that upon informing the petitioner of her arrears,

"Absolute Deed of Sale" over her property in Bacoor, Cavite, to avoid

petitioner denied that she incurred them and refused to pay the same; that

criminal prosecution; that the said deed had no valid consideration; that

despite repeated demand, petitioner refused to cooperate with respondent

she did not appear before a notary public; that the Community Tax

to execute the necessary documents and other formalities required by the

Certificate number on the deed was not hers and for which respondent may

NHMFC to effect the transfer of the title over the property; that petitioner

be prosecuted for falsification and perjury; and that she suffered damages

collected rent over the property for the month of January 1997 and refused

and lost rental as a result.







to remit the proceeds to respondent; and that respondent suffered

damages as a result and was forced to litigate.

The RTC identified the issues as follows: first, whether the Deed of Absolute

The rule under the Civil Code is that contracts without a cause or

Sale is valid; second; if valid, whether petitioner is obliged to sign and

consideration produce no effect whatsoever. (Art. 1352, Civil Code).

execute the necessary documents to effect the transfer of her rights over
the property to the respondent; and third, whether petitioner is liable for

Respondent appealed to the CA. In her appeal brief, respondent interposed


her sole assignment of error:

On July 29, 1998, the RTC rendered a decision the dispositive portion of


which states:



WHEREFORE, premises considered, the Court hereby orders the dismissal of

the complaint for insufficiency of evidence. With costs against plaintiff.

On April 30, 2001, the CA promulgated its Decision, the dispositive portion
of which reads:

The RTC held that the sale was void for lack of cause or consideration:

The Decision of the lower court dated July 29, 1998 is REVERSED and SET
ASIDE. A new one is entered ordering defendant-appellee to execute all

Plaintiff Angeles admission that the borrowers are the friends of defendant

necessary documents to effect transfer of subject property to plaintiff-

Doles and further admission that the checks issued by these borrowers in

appellant with the arrearages of the formers loan with the NHMFC, at the

payment of the loan obligation negates [sic] the cause or consideration of

latters expense. No costs.

the contract of sale executed by and between plaintiff and defendant.

Moreover, the property is not solely owned by defendant as appearing in


Entry No. 9055 of Transfer Certificate of Title No. 382532 (Annex A,

Complaint), thus:

The CA concluded that petitioner was the borrower and, in turn, would "relend" the amount borrowed from the respondent to her friends. Hence, the

"Entry No. 9055. Special Power of Attorney in favor of Jocelyn Doles

Deed of Absolute Sale was supported by a valid consideration, which is the

covering the share of Teodorico Doles on the parcel of land described in this

sum of money petitioner owed respondent amounting to P405,430.00,

certificate of title by virtue of the special power of attorney to mortgage,

representing both principal and interest.

executed before the notary public, etc."

The CA took into account the following circumstances in their entirety: the

subject property, was not impleaded as a defendant nor was he indebted to

supposed friends of petitioner never presented themselves to respondent

the respondent and, hence, she cannot be made to sign the documents to

and that all transactions were made by and between petitioner and

effect the transfer of ownership over the entire property.

respondent; that the money borrowed was deposited with the bank
account of the petitioner, while payments made for the loan were deposited

On August 6, 2001, the CA issued its Resolution denying the motion on the

by the latter to respondents bank account;8 that petitioner herself admitted

ground that the foregoing matters had already been passed upon.

in open court that she was "re-lending" the money loaned from respondent
to other individuals for profit;9 and that the documentary evidence shows
that the actual borrowers, the friends of petitioner, consider her as their
creditor and not the respondent.10
Furthermore, the CA held that the alleged threat or intimidation by
respondent did not vitiate consent, since the same is considered just or
legal if made to enforce ones claim through competent authority under
Article 133511 of the Civil Code;12 that with respect to the arrearages of
petitioner on her monthly amortization with the NHMFC in the sum

On August 13, 2001, petitioner received a copy of the CA Resolution. On

August 28, 2001, petitioner filed the present Petition and raised the
following issues:

of P26,744.09, the same shall be deemed part of the balance of petitioners

loan with the NHMFC which respondent agreed to assume; and that the


amount of P3,000.00 representing the rental for January 1997 supposedly


collected by petitioner, as well as the claim for damages and attorneys


fees, is denied for insufficiency of evidence.


On May 29, 2001, petitioner filed her Motion for Reconsideration with the
CA, arguing that respondent categorically admitted in open court that she


acted only as agent or representative of Arsenio Pua, the principal financier


and, hence, she had no legal capacity to sue petitioner; and that the CA
failed to consider the fact that petitioners father, who co-owned the

Although, as a rule, it is not the business of this Court to review the findings

Indeed, the Deed of Absolute Sale purports to be supported by a

of fact made by the lower courts, jurisprudence has recognized several

consideration in the form of a price certain in money 16 and that this sum

exceptions, at least three of which are present in the instant case, namely:

indisputably pertains to the debt in issue. This Court has consistently held

when the judgment is based on a misapprehension of facts; when the

that a contract of sale is null and void and produces no effect whatsoever

findings of facts of the courts a quo are conflicting; and when the CA

where the same is without cause or consideration. 17 The question that has

manifestly overlooked certain relevant facts not disputed by the parties,

to be resolved for the moment is whether this debt can be considered as a

which, if properly considered, could justify a different conclusion.


To arrive

valid cause or consideration for the sale.

at a proper judgment, therefore, the Court finds it necessary to re-examine

the evidence presented by the contending parties during the trial of the

To restate, the CA cited four instances in the record to support its holding


that petitioner "re-lends" the amount borrowed from respondent to her

friends: first, the friends of petitioner never presented themselves to

The Petition is meritorious.

respondent and that all transactions were made by and between petitioner
and respondent;18 second; the money passed through the bank accounts of

The principal issue is whether the Deed of Absolute Sale is supported by a

petitioner and respondent;19 third, petitioner herself admitted that she was

valid consideration.

"re-lending" the money loaned to other individuals for profit; 20 and fourth,

1. Petitioner argues that since she is merely the agent or representative of

the alleged debtors, then she is not a party to the loan; and that the Deed

the documentary evidence shows that the actual borrowers, the friends of
petitioner, consider her as their creditor and not the respondent. 21

of Sale executed between her and the respondent in their own names,

On the first, third, and fourth points, the CA cites the testimony of the

which was predicated on that pre-existing debt, is void for lack of

petitioner, then defendant, during her cross-examination:22

Atty. Diza:
q. You also mentioned that you were not the one indebted to the

a. Yes, sir.

Atty. Diza:

Atty. Diza:

q. Did the plaintiff personally see the transactions with your friends?

q. And you mentioned the persons[,] namely, Elizabeth Tomelden,


Teresa Moraquin, Maria Luisa Inocencio, Zenaida Romulo, they are

your friends?

a. No, sir.


Atty. Diza:

a. Inocencio and Moraquin are my friends while [as to] Jacob and

q. Your friends and the plaintiff did not meet personally?

Tomelden[,] they were just referred.

Atty. Diza:
q. And you have transact[ed] with the plaintiff?
a. Yes, sir.
Atty. Diza:
q. What is that transaction?

a. Yes, sir.
Atty. Diza:
q. You are intermediaries?
a. We are both intermediaries. As evidenced by the checks of the
debtors they were deposited to the name of Arsenio Pua because
the money came from Arsenio Pua.

a. To refer those persons to Aura and to refer again to Arsenio Pua,

Atty. Diza:

q. Did the plaintiff knew [sic] that you will lend the money to your

a. Two percent to Tomelden, one percent to Jacob and then Inocencio

friends specifically the one you mentioned [a] while ago?

and my friends none, sir.


Based on the foregoing, the CA concluded that petitioner is the real

borrower, while the respondent, the real lender.

a. Yes, she knows the money will go to those persons.

But as correctly noted by the RTC, respondent, then plaintiff, made
Atty. Diza:

the following admission during her cross examination:23

q. You are re-lending the money?

Atty. Villacorta:


q. Who is this Arsenio Pua?

a. Yes, sir.


Atty. Diza:

a. Principal financier, sir.

q. What profit do you have, do you have commission?

Atty. Villacorta:


q. So the money came from Arsenio Pua?

a. Yes, sir.


Atty. Diza:

a. Yes, because I am only representing him, sir.

q. How much?

Other portions of the testimony of respondent must likewise be


Atty. Villacorta:

q. So it is not actually your money but the money of Arsenio Pua?

a. Yes, sir, I am aware of that.



a. Yes, sir.

Atty. Villacorta:


q. And these friends of the defendant borrowed money from you

with the assurance of the defendant?

q. It is not your money?

a. They go direct to Jocelyn because I dont know them.
a. Yes, Your Honor.
Atty. Villacorta:
Atty. Villacorta:
q. Is it not a fact Ms. Witness that the defendant borrowed from you
to accommodate somebody, are you aware of that?

q. And is it not also a fact Madam witness that everytime that the
defendant borrowed money from you her friends who [are] in need


of money issued check[s] to you? There were checks issued to you?

a. I am aware of that.


Atty. Villacorta:

a. Yes, there were checks issued.

q. More or less she [accommodated] several friends of the

Atty. Villacorta:

q. By the friends of the defendant, am I correct?


a. Yes, sir.

a. Yes, sir.

Atty. Villacorta:

Atty. Villacorta:

q. And because of that Arsenio Pua got mad with you?

q. And because of your assistance, the friends of the defendant who


are in need of money were able to obtain loan to [sic] Arsenio Pua
through your assistance?

a. Yes, sir.
Respondent is estopped to deny that she herself acted as agent of a certain
Arsenio Pua, her disclosed principal. She is also estopped to deny that

a. Yes, sir.

petitioner acted as agent for the alleged debtors, the friends whom she
(petitioner) referred.

Atty. Villacorta:
This Court has affirmed that, under Article 1868 of the Civil Code, the basis
q. So that occasion lasted for more than a year?
a. Yes, sir.
Atty. Villacorta:

of agency is representation.25 The question of whether an agency has been

created is ordinarily a question which may be established in the same way
as any other fact, either by direct or circumstantial evidence. The question
is ultimately one of intention.26 Agency may even be implied from the words
and conduct of the parties and the circumstances of the particular
case.27Though the fact or extent of authority of the agents may not, as a
general rule, be established from the declarations of the agents alone, if

q. And some of the checks that were issued by the friends of the

one professes to act as agent for another, she may be estopped to deny her

defendant bounced, am I correct?

agency both as against the asserted principal and the third persons
interested in the transaction in which he or she is engaged. 28


In this case, petitioner knew that the financier of respondent is Pua; and

With respect to the admission of petitioner that she is "re-lending" the

respondent knew that the borrowers are friends of petitioner.

money loaned from respondent to other individuals for profit, it must be

stressed that the manner in which the parties designate the relationship is

The CA is incorrect when it considered the fact that the "supposed friends

not controlling. If an act done by one person in behalf of another is in its

of [petitioner], the actual borrowers, did not present themselves to

essential nature one of agency, the former is the agent of the latter

[respondent]" as evidence that negates the agency relationshipit is

notwithstanding he or she is not so called. 30 The question is to be

sufficient that petitioner disclosed to respondent that the former was acting

determined by the fact that one represents and is acting for another, and if

in behalf of her principals, her friends whom she referred to respondent. For

relations exist which will constitute an agency, it will be an agency whether

an agency to arise, it is not necessary that the principal personally

the parties understood the exact nature of the relation or not. 31

encounter the third person with whom the agent interacts. The law in fact
contemplates, and to a great degree, impersonal dealings where the

That both parties acted as mere agents is shown by the undisputed fact

principal need not personally know or meet the third person with whom her

that the friends of petitioner issued checks in payment of the loan in the

agent transacts: precisely, the purpose of agency is to extend the

name of Pua. If it is true that petitioner was "re-lending", then the checks

personality of the principal through the facility of the agent. 29

should have been drawn in her name and not directly paid to Pua.

In the case at bar, both petitioner and respondent have undeniably

With respect to the second point, particularly, the finding of the CA that the

disclosed to each other that they are representing someone else, and so

disbursements and payments for the loan were made through the bank

both of them are estopped to deny the same. It is evident from the record

accounts of petitioner and respondent,

that petitioner merely refers actual borrowers and then collects and
disburses the amounts of the loan upon which she received a commission;

suffice it to say that in the normal course of commercial dealings and for

and that respondent transacts on behalf of her "principal financier", a

reasons of convenience and practical utility it can be reasonably expected

certain Arsenio Pua. If their respective principals do not actually and

that the facilities of the agent, such as a bank account, may be employed,

personally know each other, such ignorance does not affect their juridical

and that a sub-agent be appointed, such as the bank itself, to carry out the

standing as agents, especially since the very purpose of agency is to

task, especially where there is no stipulation to the contrary. 32

extend the personality of the principal through the facility of the agent.

In view of the two agency relationships, petitioner and respondent are not

Although the record shows that petitioner admitted at the time of trial that

privy to the contract of loan between their principals. Since the sale is

she owned the property described in the TCT, 35 the Court must stress that

predicated on that loan, then the sale is void for lack of consideration.

the Transfer Certificate of Title No. 382532 36 on its face shows that the
owner of the property which admittedly forms the subject matter of the

2. A further scrutiny of the record shows, however, that the sale might have

Deed of Absolute Sale refers neither to the petitioner nor to her father,

been backed up by another consideration that is separate and distinct from

Teodorico Doles, the alleged co-owner. Rather, it states that the property is

the debt: respondent averred in her complaint and testified that the parties

registered in the name of "Household Development Corporation." Although

had agreed that as a condition for the conveyance of the property the

there is an entry to the effect that the petitioner had been granted a special

respondent shall assume the balance of the mortgage loan which petitioner

power of attorney "covering the shares of Teodorico Doles on the parcel of

allegedly owed to the NHMFC.33 This Court in the recent past has declared

land described in this certificate,"37 it cannot be inferred from this bare

that an assumption of a mortgage debt may constitute a valid consideration

notation, nor from any other evidence on the record, that the petitioner or

for a sale.


her father held any direct interest on the property in question so as to

validly constitute a mortgage thereon 38 and, with more reason, to effect the
delivery of the object of the sale at the consummation stage. 39 What is
worse, there is a notation that the TCT itself has been "cancelled." 40
In view of these anomalies, the Court cannot entertain the
possibility that respondent agreed to assume the balance of the mortgage
loan which petitioner allegedly owed to the NHMFC, especially since the
record is bereft of any factual finding that petitioner was, in the first place,
endowed with any ownership rights to validly mortgage and convey the
property. As the complainant who initiated the case, respondent bears the
burden of proving the basis of her complaint. Having failed to discharge
such burden, the Court has no choice but to declare the sale void for lack of
cause. And since the sale is void, the Court finds it unnecessary to dwell on

the issue of whether duress or intimidation had been foisted upon petitioner

in CA G.R. CV No. 49802 entitled Pedro L. Linsangan v. Manila Memorial

upon the execution of the sale.

Cemetery, Inc. et al., finding Manila Memorial Park Cemetery, Inc. (MMPCI)
jointly and severally liable with Florencia C. Baluyot to respondent Atty.

Moreover, even assuming the mortgage validly exists, the Court notes

Pedro L. Linsangan.

respondents allegation that the mortgage with the NHMFC was for 25 years
which began September 3, 1994. Respondent filed her Complaint for

The facts of the case are as follows:

Specific Performance in 1997. Since the 25 years had not lapsed, the prayer
of respondent to compel petitioner to execute necessary documents to

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

lot called Garden State at the Holy Cross Memorial Park owned by petitioner

effect the transfer of title is premature.

(MMPCI). According to Baluyot, a former owner of a memorial lot under

WHEREFORE, the petition is granted. The Decision and Resolution of the

Contract No. 25012 was no longer interested in acquiring the lot and had

Court of Appeals are REVERSED andSET

opted to sell his rights subject to reimbursement of the amounts he already


complaint of

respondent in Civil Case No. 97-82716 is DISMISSED.

paid. The contract was for P95,000.00. Baluyot reassured Atty. Linsangan
that once reimbursement is made to the former buyer, the contract would

LINSANGAN, respondent.
For resolution in this case is a classic and interesting texbook question
in the law on agency.

be transferred to him. Atty. Linsangan agreed and gave Baluyot P35,295.00

representing the amount to be reimbursed to the original buyer and to
complete the down payment to MMPCI. [3] Baluyot issued handwritten and
typewritten receipts for these payments.[4]
Sometime in March 1985, Baluyot informed Atty. Linsangan that he
would be issued Contract No. 28660, a new contract covering the subject
lot in the name of the latter instead of old Contract No. 25012. Atty.
Linsangan protested, but Baluyot assured him that he would still be paying
the old price of P95,000.00 with P19,838.00 credited as full down payment
leaving a balance of about P75,000.00.[5]

This is a petition for review assailing the Decision[1] of the Court of

Appeals dated 22 June 2001, and its Resolution[2] dated 12 December 2001

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

Dear Atty. Linsangan:

Lot No. A11 (15), Block 83, Garden Estate I denominated as Contract No.
28660 and the Official Receipt No. 118912 dated 6 April 1985 for the

This will confirm our agreement that while the offer to purchase under



Contract No. 28660 states that the total price of P132,250.00 your

of P132,250.00. Atty. Linsangan objected to the new contract price, as the

undertaking is to pay only the total sum of P95,000.00 under the old price.

same was not the amount previously agreed upon. To convince Atty.

Further the total sum of P19,838.00 already paid by you under O.R. #

Linsangan, Baluyot executed a document[6] confirming that while the

118912 dated April 6, 1985 has been credited in the total purchase price

contract price is P132,250.00, Atty. Linsangan would pay only the original


price of P95,000.00.

of P1,800.00 including interests (sic) charges for a period of five (5) years.

of P19,838.00.






leaving a balance


on a monthly installment


The document reads in part:


The monthly installment will start April 6, 1985; the amount of P1,800.00
and the difference will be issued as discounted to conform to the previous
price as previously agreed upon. ---P95,000.00

By virtue of this letter, Atty. Linsangan signed Contract No. 28660 and
accepted Official Receipt No. 118912. As requested by Baluyot, Atty.
Linsangan issued twelve (12) postdated checks of P1,800.00 each in favor

Prepared by:

of MMPCI. The next year, or on 29 April 1986, Atty. Linsangan again issued

twelve (12) postdated checks in favor of MMPCI.


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

Contract No. 28660 was cancelled for reasons the latter could not explain,

Agency Manager
Holy Cross Memorial Park

and presented to him another proposal for the purchase of an equivalent

property. He refused the new proposal and insisted that Baluyot and MMPCI
honor their undertaking.

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

The trial court held MMPCI and Baluyot jointly and severally liable. [13] It

agreement, Atty. Linsangan filed a Complaint[7] for Breach of Contract and

found that Baluyot was an agent of MMPCI and that the latter was estopped

Damages against the former.

from denying this agency, having received and enchased the checks issued
by Atty. Linsangan and given to it by Baluyot. While MMPCI insisted that

Baluyot did not present any evidence. For its part, MMPCI alleged that

Baluyot was authorized to receive only the down payment, it allowed her to

Contract No. 28660 was cancelled conformably with the terms of the

continue to receive postdated checks from Atty. Linsangan, which it in turn

contract[8] because of non-payment of arrearages.[9] MMPCI stated that

consistently encashed.[14]

Baluyot was not an agent but an independent contractor, and as such was
not authorized to represent MMPCI or to use its name except as to the
extent expressly stated in the Agency Manager Agreement.


The dispositive portion of the decision reads:


MMPCI was not aware of the arrangements entered into by Atty. Linsangan

WHEREFORE, judgment by preponderance of evidence is hereby rendered

and Baluyot, as it in fact received a down payment and monthly

in favor of plaintiff declaring Contract No. 28660 as valid and subsisting and

installments as indicated in the contract. [11] Official receipts showing the

ordering defendants to perform their undertakings thereof which covers

application of payment were turned over to Baluyot whom Atty. Linsangan

burial lot No. A11 (15), Block 83, Section Garden I, Holy Cross Memorial Park

had from the beginning allowed to receive the same in his behalf.

located at Novaliches, Quezon City. All payments made by plaintiff to

Furthermore, whatever misimpression that Atty. Linsangan may have had

defendants should be credited for his accounts. NO DAMAGES, NO

must have been rectified by the Account Updating Arrangement signed by

ATTORNEYS FEES but with costs against the defendants.

Atty. Linsangan which states that he expressly admits that Contract No.
28660 on account of serious delinquencyis now due for cancellation under
its terms and conditions.[12]

The cross claim of defendant Manila Memorial Cemetery Incorporated as

against defendant Baluyot is GRANTED up to the extent of the costs.
MMPCI appealed the trial courts decision to the Court of Appeals. [16] It
claimed that Atty. Linsangan is bound by the written contract with MMPCI,
the terms of which were clearly set forth therein and read, understood, and
signed by the former.[17] It also alleged that Atty. Linsangan, a practicing
lawyer for over thirteen (13) years at the time he entered into the contract,

is presumed to know his contractual obligations and is fully aware that he

and acting on its behalf in the dealings with clients and customers. Hence,

cannot belatedly and unilaterally change the terms of the contract without

MMPCI is considered estopped when it allowed Baluyot to act and represent

the consent, much less the knowledge of the other contracting party, which

MMPCI even beyond her authority.[20] The appellate court likewise found that

was MMPCI. And in this case, MMPCI did not agree to a change in the

the acts of Baluyot bound MMPCI when the latter allowed the former to act

contract and in fact implemented the same pursuant to its clear terms. In

for and in its behalf and stead. While Baluyots authority may not have been

view thereof, because of Atty. Linsangans delinquency, MMPCI validly

expressly conferred upon her, the same may have been derived impliedly

cancelled the contract.

by habit or custom, which may have been an accepted practice in the

company for a long period of time. [21] Thus, the Court of Appeals noted,

MMPCI further alleged that it cannot be held jointly and solidarily liable

innocent third persons such as Atty. Linsangan should not be prejudiced

with Baluyot as the latter exceeded the terms of her agency, neither did

where the principal failed to adopt the needed measures to prevent

MMPCI ratify Baluyots acts. It added that it cannot be charged with making

misrepresentation. Furthermore, if an agent misrepresents to a purchaser

any misrepresentation, nor of having allowed Baluyot to act as though she

and the principal accepts the benefits of such misrepresentation, he cannot

had full powers as the written contract expressly stated the terms and

at the same time deny responsibility for such misrepresentation. [22] Finally,

conditions which Atty. Linsangan accepted and understood. In canceling the

the Court of Appeals declared:

contract, MMPCI merely enforced the terms and conditions imposed therein.

There being absolutely nothing on the record that would show that the
court a quo overlooked, disregarded, or misinterpreted facts of weight and
Imputing negligence on the part of Atty. Linsangan, MMPCI claimed that

it was the formers obligation, as a party knowingly dealing with an alleged

significance, its factual findings and conclusions must be given great weight
and should not be disturbed by this Court on appeal.

agent, to determine the limitations of such agents authority, particularly

when such alleged agents actions were patently questionable. According to

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

MMPCI, Atty. Linsangan did not even bother to verify Baluyots authority or

the appealed decision in Civil Case No. 88-1253 of the Regional Trial Court,

ask copies of official receipts for his payments.





hereby AFFIRMED in toto.

The Court of Appeals affirmed the decision of the trial court. It upheld
the trial courts finding that Baluyot was an agent of MMPCI at the time the
disputed contract was entered into, having represented MMPCIs interest








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


fact, unless the factual findings complained of are devoid of support by the
evidence on record or the assailed judgment is based on misapprehension
of facts.[30] In BPI Investment Corporation v. D.G. Carreon Commercial

In the instant Petition for Review, MMPCI claims that the Court of

Corporation,[31] this Court ruled:

Appeals seriously erred in disregarding the plain terms of the written

contract and Atty. Linsangans failure to abide by the terms thereof, which

There are instances when the findings of fact of the trial court and/or Court

justified its cancellation. In addition, even assuming that Baluyot was an

of Appeals may be reviewed by the Supreme Court, such as (1) when the

agent of MMPCI, she clearly exceeded her authority and Atty. Linsangan

conclusion is a finding grounded entirely on speculation, surmises and

knew or should have known about this considering his status as a long-

conjectures; (2) when the inference made is manifestly mistaken, absurd or

practicing lawyer. MMPCI likewise claims that the Court of Appeals erred in

impossible; (3) where there is a grave abuse of discretion; (4) when the

failing to consider that the facts and the applicable law do not support a

judgment is based on a misapprehension of facts; (5) when the findings of

judgment against Baluyot only up to the extent of costs.


fact are conflicting; (6) when the Court of Appeals, in making its findings,
went beyond the issues of the case and the same is contrary to the

Atty. Linsangan argues that he did not violate the terms and conditions

admissions of both appellant and appellee; (7) when the findings are

of the contract, and in fact faithfully performed his contractual obligations

contrary to those of the trial court; (8) when the findings of fact are

and complied with them in good faith for at least two years.


He claims

conclusions without citation of specific evidence on which they are based;

that contrary to MMPCIs position, his profession as a lawyer is immaterial to

(9) when the facts set forth in the petition as well as in the petitioners main

the validity of the subject contract and the case at bar. [28] According to him,

and reply briefs are not disputed by the respondents; and (10) the findings

MMPCI had practically admitted in its Petition that Baluyot was its agent,

of fact of the Court of Appeals are premised on the supposed absence of

and thus, the only issue left to be resolved is whether MMPCI allowed

evidence and contradicted by the evidence on record.[32]

Baluyot to act as though she had full powers to be held solidarily liable with
the latter.[29]

In the case at bar, the Court of Appeals committed several errors in the
apprehension of the facts of the case, as well as made conclusions devoid

We find for the petitioner MMPCI.

of evidentiary support, hence we review its findings of fact.

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

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

Rule 45 of the Rules of Court is limited to reviewing only errors of law, not

service or to do something in representation or on behalf of another, with

the consent or authority of the latter.[33] Thus, the elements of agency are (i)

Baluyot was authorized to solicit and remit to MMPCI offers to purchase

consent, express or implied, of the parties to establish the relationship; (ii)

interment spaces obtained on forms provided by MMPCI. The terms of the

the object is the execution of a juridical act in relation to a third person; (iii)

offer to purchase, therefore, are contained in such forms and, when signed

the agent acts as a representative and not for himself; and (iv) the agent

by the buyer and an authorized officer of MMPCI, becomes binding on both

acts within the scope of his authority.



In an attempt to prove that Baluyot was not its agent, MMPCI pointed

The Offer to Purchase duly signed by Atty. Linsangan, and accepted and

out that under its Agency Manager Agreement; an agency manager such as

validated by MMPCI showed a total list price of P132,250.00. Likewise, it

Baluyot is considered an independent contractor and not an agent.

was clearly stated therein that Purchaser agrees that he has read or has


However, in the same contract, Baluyot as agency manager was

had read to him this agreement, that he understands its terms and

authorized to solicit and remit to MMPCI offers to purchase interment

conditions, and that there are no covenants, conditions, warranties

Notwithstanding the claim of

or representations other than those contained herein.[37] By signing

MMPCI that Baluyot was an independent contractor, the fact remains that

the Offer to Purchase, Atty. Linsangan signified that he understood its

she was authorized to solicit solely for and in behalf of MMPCI. As properly

contents. That he and Baluyot had an agreement different from that

found both by the trial court and the Court of Appeals, Baluyot was an

contained in the Offer to Purchase is of no moment, and should not affect

agent of MMPCI, having represented the interest of the latter, and having

MMPCI, as it was obviously made outside Baluyots authority. To repeat,

been allowed by MMPCI to represent it in her dealings with its

Baluyots authority was limited only to soliciting purchasers. She had no

clients/prospective buyers.

authority to alter the terms of the written contract provided by MMPCI. The

spaces belonging to and sold by the latter.


document/letter confirming the agreement that Atty. Linsangan would have

Nevertheless, contrary to the findings of the Court of Appeals, MMPCI
cannot be bound by the contract procured by Atty. Linsangan and solicited

to pay the old price was executed by Baluyot alone. Nowhere is there any
indication that the same came from MMPCI or any of its officers.

by Baluyot.
It is a settled rule that persons dealing with an agent are bound at their
peril, if they would hold the principal liable, to ascertain not only the fact of
agency but also the nature and extent of authority, and in case either is
controverted, the burden of proof is upon them to establish it. [38] The basis
for agency is representation and a person dealing with an agent is put upon

inquiry and must discover upon his peril the authority of the agent. [39] If he

assent thereto, as evidenced by several attempts to induce him to enter

does not make such an inquiry, he is chargeable with knowledge of the

into other contracts for a higher consideration. As properly pointed out by

agents authority and his ignorance of that authority will not be any excuse.

MMPCI, as a lawyer, a greater degree of caution should be expected of Atty.


Linsangan especially in dealings involving legal documents. He did not even

bother to ask for official receipts of his payments, nor inquire from MMPCI
As noted by one author, the ignorance of a person dealing with an

directly to ascertain the real status of the contract, blindly relying on the

agent as to the scope of the latters authority is no excuse to such person

representations of Baluyot. A lawyer by profession, he knew what he was

and the fault cannot be thrown upon the principal.


A person dealing with

doing when he signed the written contract, knew the meaning and value of

an agent assumes the risk of lack of authority in the agent. He cannot

every word or phrase used in the contract, and more importantly, knew the

charge the principal by relying upon the agents assumption of authority

legal effects which said document produced. He is bound to accept

that proves to be unfounded. The principal, on the other hand, may act on

responsibility for his negligence.

the presumption that third persons dealing with his agent will not be
negligent in failing to ascertain the extent of his authority as well as the
existence of his agency.[42]

The trial and appellate courts found MMPCI liable based on ratification
and estoppel. For the trial court, MMPCIs acts of accepting and encashing
the checks issued by Atty. Linsangan as well as allowing Baluyot to receive

In the instant case, it has not been established that Atty. Linsangan

checks drawn in the name of MMPCI confirm and ratify the contract of

even bothered to inquire whether Baluyot was authorized to agree to terms

agency. On the other hand, the Court of Appeals faulted MMPCI in failing to

contrary to those indicated in the written contract, much less bind MMPCI

adopt measures to prevent misrepresentation, and declared that in view of

by her commitment with respect to such agreements. Even if Baluyot was

MMPCIs acceptance of the benefits of Baluyots misrepresentation, it can no

Atty. Linsangans friend and known to be an agent of MMPCI, her

longer deny responsibility therefor.

declarations and actions alone are not sufficient to establish the fact or
extent of her authority. [43] Atty. Linsangan as a practicing lawyer for a
relatively long period of time when he signed the contract should have

The Court does not agree. Pertinent to this case are the following
provisions of the Civil Code:

been put on guard when their agreement was not reflected in the contract.
More importantly, Atty. Linsangan should have been alerted by the fact that

Art. 1898. If the agent contracts in the name of the principal, exceeding the

Baluyot failed to effect the transfer of rights earlier promised, and was

scope of his authority, and the principal does not ratify the contract, it shall

unable to make good her written commitment, nor convince MMPCI to

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

principals ignorance of the material facts and circumstances was willful, or

liable if he undertook to secure the principals ratification.

that the principal chooses to act in ignorance of the facts. [46]However, in the
absence of circumstances putting a reasonably prudent man on inquiry,

Art. 1910. The principal must comply with all the obligations that the agent

ratification cannot be implied as against the principal who is ignorant of the

may have contracted within the scope of his authority.


As for any obligation wherein the agent has exceeded his power, the

No ratification can be implied in the instant case.

principal is not bound except when he ratifies it expressly or tacitly.

A perusal of Baluyots Answer[48] reveals that the real arrangement
Art. 1911. Even when the agent has exceeded his authority, the principal is

between her and Atty. Linsangan was for the latter to pay a monthly

solidarily liable with the agent if the former allowed the latter to act as

installment of P1,800.00 whereas Baluyot was to shoulder the counterpart

though he had full powers.

amount of P1,455.00 to meet the P3,255.00 monthly installments as

Thus, the acts of an agent beyond the scope of his authority do not
bind the principal, unless he ratifies them, expressly or impliedly. Only the
principal can ratify; the agent cannot ratify his own unauthorized acts.
Moreover, the principal must have knowledge of the acts he is to ratify. [44]
Ratification in agency is the adoption or confirmation by one person of
an act performed on his behalf by another without authority. The substance
of the doctrine is confirmation after conduct, amounting to a substitute for
a prior authority. Ordinarily, the principal must have full knowledge at the
time of ratification of all the material facts and circumstances relating to
the unauthorized act of the person who assumed to act as agent. Thus, if
material facts were suppressed or unknown, there can be no valid
ratification and this regardless of the purpose or lack thereof in concealing
such facts and regardless of the parties between whom the question of
ratification may arise.[45] Nevertheless, this principle does not apply if the

indicated in the contract. Thus, every time an installment falls due,

payment was to be made through a check from Atty. Linsangan
for P1,800.00




of P1,455.00



However, it appears that while Atty. Linsangan issued the post-dated

checks, Baluyot failed to come up with her part of the bargain. This was
supported by Baluyots statements in her letter [50] to Mr. Clyde Williams, Jr.,
Sales Manager of MMPCI, two days after she received the copy of
the Complaint. In the letter, she admitted that she was remiss in her duties
when she consented to Atty. Linsangans proposal that he will pay the old
price while the difference will be shouldered by her. She likewise admitted
that the contract suffered arrearages because while Atty. Linsangan issued
the agreed checks, she was unable to give her share of P1,455.00 due to
her own financial difficulties. Baluyot even asked for compassion from
MMPCI for the error she committed.

Atty. Linsangan failed to show that MMPCI had knowledge of the










which the party subsequently attempts to assert; (ii) intent, or at least


expectation, that this conduct shall be acted upon by, or at least influence,

was P132,250.00, as stated in the Offer to Purchase signed by Atty.

the other party; and (iii) knowledge, actual or constructive, of the real facts.

Linsangan and MMPCIs authorized officer. The down payment of P19,838.00


given by Atty. Linsangan was in accordance with the contract as well.

Payments of P3,235.00 for at least two installments were likewise in accord

While there is no more question as to the agency relationship between

with the contract, albeit made through a check and partly in cash. In view

Baluyot and MMPCI, there is no indication that MMPCI let the public, or

of Baluyots failure to give her share in the payment, MMPCI received

specifically, Atty. Linsangan to believe that Baluyot had the authority to

only P1,800.00 checks, which were clearly insufficient payment. In fact,

alter the standard contracts of the company. Neither is there any showing

Atty. Linsangan would have incurred arrearages that could have caused the

that prior to signing Contract No. 28660, MMPCI had any knowledge of

earlier cancellation of the contract, if not for MMPCIs application of some of

Baluyots commitment to Atty. Linsangan. One who claims the benefit of an

the checks to his account. However, the checks alone were not sufficient to

estoppel on the ground that he has been misled by the representations of

cover his obligations.

another must not have been misled through his own want of reasonable
care and circumspection.[52] Even assuming that Atty. Linsangan was misled

If MMPCI was aware of the arrangement, it would have refused the

by MMPCIs actuations, he still cannot invoke the principle of estoppel, as he

latters check payments for being insufficient. It would not have applied to

was clearly negligent in his dealings with Baluyot, and could have easily

his account the P1,800.00 checks. Moreover, the fact that Baluyot had to

determined, had he only been cautious and prudent, whether said agent

practically explain to MMPCIs Sales Manager the details of her arrangement

was clothed with the authority to change the terms of the principals written

with Atty. Linsangan and admit to having made an error in entering such


arrangement confirm that MMCPI had no knowledge of the said agreement.

misapplied, it can easily become a most convenient and effective means of

It was only when Baluyot filed her Answer that she claimed that MMCPI was

injustice.[53] In view of the lack of sufficient proof showing estoppel, we

fully aware of the agreement.

refuse to hold MMPCI liable on this score.









Neither is there estoppel in the instant case. The essential elements of

Likewise, this Court does not find favor in the Court of Appeals findings

estoppel are (i) conduct of a party amounting to false representation or

that the authority of defendant Baluyot may not have been expressly

concealment of material facts or at least calculated to convey the

conferred upon her; however, the same may have been derived impliedly

impression that the facts are otherwise than, and inconsistent with, those

by habit or custom which may have been an accepted practice in their

company in a long period of time. A perusal of the records of the case fails

Being aware of the limits of Baluyots authority, Atty. Linsangan cannot

to show any indication that there was such a habit or custom in MMPCI that

insist on what he claims to be the terms of Contract No. 28660. The

allows its agents to enter into agreements for lower prices of its interment

agreement, insofar as theP95,000.00 contract price is concerned, is void

spaces, nor to assume a portion of the purchase price of the interment

and cannot be enforced as against MMPCI. Neither can he hold Baluyot

spaces sold at such lower price. No evidence was ever presented to this

liable for damages under the same contract, since there is no evidence


showing that Baluyot undertook to secure MMPCIs ratification. At best, the

agreement between Baluyot and Atty. Linsangan bound only the two of

As the Court sees it, there are two obligations in the instant case. One

them. As far as MMPCI is concerned, it bound itself to sell its interment

is the Contract No. 28660 between MMPCI and by Atty. Linsangan for the

space to Atty. Linsangan for P132,250.00 under Contract No. 28660, and

purchase of an interment space in the formers cemetery. The other is the

had in fact received several payments in accordance with the same

agreement between Baluyot and Atty. Linsangan for the former to shoulder

contract. If the contract was cancelled due to arrearages, Atty. Linsangans

the amount P1,455.00, or the difference betweenP95,000.00, the original

recourse should only be against Baluyot who personally undertook to pay

price, and P132,250.00, the actual contract price.

the difference between the true contract price of P132,250.00 and the

To repeat, the acts of the agent beyond the scope of his authority do
not bind the principal unless the latter ratifies the same. It also bears
emphasis that when the third person knows that the agent was acting
beyond his power or authority, the principal cannot be held liable for the

original proposed price of P95,000.00. To surmise that Baluyot was acting

on behalf of MMPCI when she promised to shoulder the said difference
would be to conclude that MMPCI undertook to pay itself the difference, a
conclusion that is very illogical, if not antithetical to its business interests.

acts of the agent. If the said third person was aware of such limits of

However, this does not preclude Atty. Linsangan from instituting a

authority, he is to blame and is not entitled to recover damages from the

separate action to recover damages from Baluyot, not as an agent of

agent, unless the latter undertook to secure the principals ratification. [54]

MMPCI, but in view of the latters breach of their separate agreement. To

This Court finds that Contract No. 28660 was validly entered into both
by MMPCI and Atty. Linsangan. By affixing his signature in the contract, Atty.
Linsangan assented to the terms and conditions thereof. When Atty.
Linsangan incurred delinquencies in payment, MMCPI merely enforced its
rights under the said contract by canceling the same.

review, Baluyot obligated herself to pay P1,455.00 in addition to Atty.

Linsangans P1,800.00 to complete the monthly installment payment under
the contract, which, by her own admission, she was unable to do due to
personal financial difficulties. It is undisputed that Atty. Linsangan issued
the P1,800.00 as agreed upon, and were it not for Baluyots failure to
provide the balance, Contract No. 28660 would not have been cancelled.

Thus, Atty. Linsangan has a cause of action against Baluyot, which he can


pursue in another case.

This case is a consolidation of two (2) petitions for review on certiorari of a
WHEREFORE, the instant petition is GRANTED. The Decision of the


of the Court of Appeals in CA-G.R. No. CV-04294, entitled

Court of Appeals dated 22 June 2001 and its Resolution dated 12 December

"American Airlines, Inc. vs. Orient Air Services and Hotel Representatives,

2001 in CA- G.R. CV No. 49802, as well as the Decision in Civil Case No. 88-

Inc." which affirmed, with modification, the decision

1253 of the Regional Trial Court, Makati City Branch 57, are hereby

Court of Manila, Branch IV, which dismissed the complaint and granted

REVERSED and SET ASIDE. The Complaint in Civil Case No. 88-1253 is

therein defendant's counterclaim for agent's overriding commission and

DISMISSED for lack of cause of action. No pronouncement as to costs.



The antecedent facts are as follows:






of the Regional Trial







On 15 January 1977, American Airlines, Inc. (hereinafter referred to as

American Air), an air carrier offering passenger and air cargo transportation

INCORPORATED, respondents.

in the Philippines, and Orient Air Services and Hotel Representatives

G.R. No. 76933

May 29, 1991

(hereinafter referred to as Orient Air), entered into a General Sales Agency

Agreement (hereinafter referred to as the Agreement), whereby the former



INCORPORATED, petitioner,


authorized the latter to act as its exclusive general sales agent within the
Philippines for the sale of air passenger transportation. Pertinent provisions









of the agreement are reproduced, to wit:

Francisco A. Lava, Jr. and Andresito X. Fornier for Orient Air Service and


Sycip, Salazar, Hernandez & Gatmaitan for American Airlines, Inc.


In consideration of the mutual convenants herein contained, the

parties hereto agree as follows:
1. Representation of American by Orient Air Services

Orient Air Services will act on American's behalf as its exclusive

In connection with scheduled or non-scheduled air passenger

General Sales Agent within the Philippines, including any United

transportation within the United States, neither Orient Air Services

States military installation therein which are not serviced by an Air

nor its sub-agents will perform services for any other air carrier

Carrier Representation Office (ACRO), for the sale of air passenger

similar to those to be performed hereunder for American without the

transportation. The services to be performed by Orient Air Services

prior written consent of American. Subject to periodic instructions

shall include:

and continued consent from American, Orient Air Services may sell
air passenger transportation to be performed within the United

(a) soliciting and promoting passenger traffic for the services

States by other scheduled air carriers provided American does not

of American and, if necessary, employing staff competent

provide substantially equivalent schedules between the points

and sufficient to do so;


(b) providing and maintaining a suitable area in its place of




business to be used exclusively for the transaction of the

business of American;

4. Remittances

(c) arranging for distribution of American's timetables, tariffs

Orient Air Services shall remit in United States dollars to American

and promotional material to sales agents and the general

the ticket stock or exchange orders, less commissions to which

public in the assigned territory;

Orient Air Services is entitled hereunder, not less frequently than

semi-monthly, on the 15th and last days of each month for sales

(d) servicing and supervising of sales agents (including such

made during the preceding half month.

sub-agents as may be appointed by Orient Air Services with

the prior written consent of American) in the assigned

All monies collected by Orient Air Services for transportation sold

territory including if required by American the control of

hereunder on American's ticket stock or on exchange orders, less

remittances and commissions retained; and

applicable commissions to which Orient Air Services is entitled

hereunder, are the property of American and shall be held in trust by

(e) holding out a passenger reservation facility to sales

Orient Air Services until satisfactorily accounted for to American.

agents and the general public in the assigned territory.

5. Commissions

American will pay Orient Air Services commission on transportation




sold hereunder by Orient Air Services or its sub-agents as follows:

10. Default
(a) Sales agency commission
If Orient Air Services shall at any time default in observing or
American will pay Orient Air Services a sales agency commission for

performing any of the provisions of this Agreement or shall become

all sales of transportation by Orient Air Services or its sub-agents

bankrupt or make any assignment for the benefit of or enter into any



agreement or promise with its creditors or go into liquidation, or

transportation, when made on American's ticket stock, equal to the

suffer any of its goods to be taken in execution, or if it ceases to be

following percentages of the tariff fares and charges:

in business, this Agreement may, at the option of American, be







terminated forthwith and American may, without prejudice to any of

(i) For transportation solely between points within the United

its rights under this Agreement, take possession of any ticket forms,

States and between such points and Canada: 7% or such

exchange orders, traffic material or other property or funds

other rate(s) as may be prescribed by the Air Traffic

belonging to American.

Conference of America.
11. IATA and ATC Rules
(ii) For transportation included in a through ticket covering
transportation between points other than those described

The provisions of this Agreement are subject to any applicable rules

above: 8% or such other rate(s) as may be prescribed by the

or resolutions of the International Air Transport Association and the

International Air Transport Association.

Air Traffic Conference of America, and such rules or resolutions shall

control in the event of any conflict with the provisions hereof.

(b) Overriding commission




In addition to the above commission American will pay Orient Air

Services an overriding commission of 3% of the tariff fares and

13. Termination

charges for all sales of transportation over American's service by

Orient Air Service or its sub-agents.

American may terminate the Agreement on two days' notice in the

event Orient Air Services is unable to transfer to the United States

the funds payable by Orient Air Services to American under this

the course of terminating the Agreement as well as the termination itself

Agreement. Either party may terminate the Agreement without

were untenable, Orient Air claiming that American Air's precipitous conduct

cause by giving the other 30 days' notice by letter, telegram or

had occasioned prejudice to its business interests.

Finding that the record and the evidence substantiated the allegations of


x x x3

the defendant, the trial court ruled in its favor, rendering a decision dated
16 July 1984, the dispositive portion of which reads:

On 11 May 1981, alleging that Orient Air had reneged on its obligations
under the Agreement by failing to promptly remit the net proceeds of sales

WHEREFORE, all the foregoing premises considered, judgment is

for the months of January to March 1981 in the amount of US $254,400.40,

hereby rendered in favor of defendant and against plaintiff

American Air by itself undertook the collection of the proceeds of tickets

dismissing the complaint and holding the termination made by the

sold originally by Orient Air and terminated forthwith the Agreement in

latter as affecting the GSA agreement illegal and improper and order

accordance with Paragraph 13 thereof (Termination). Four (4) days later, or

the plaintiff to reinstate defendant as its general sales agent for

on 15 May 1981, American Air instituted suit against Orient Air with the

passenger tranportation in the Philippines in accordance with said

Court of First Instance of Manila, Branch 24, for Accounting with Preliminary

GSA agreement; plaintiff is ordered to pay defendant the balance of



the overriding commission on total flown revenue covering the

averring the aforesaid basis for the termination of the Agreement as

period from March 16, 1977 to December 31, 1980 in the amount of

well as therein defendant's previous record of failures "to promptly settle

US$84,821.31 plus the additional amount of US$8,000.00 by way of

past outstanding refunds of which there were available funds in the

proper 3% overriding commission per month commencing from







possession of the defendant, . . . to the damage and prejudice of plaintiff."

January 1, 1981 until such reinstatement or said amounts in its

Philippine peso equivalent legally prevailing at the time of payment

In its Answer

with counterclaim dated 9 July 1981, defendant Orient Air

plus legal interest to commence from the filing of the counterclaim

denied the material allegations of the complaint with respect to plaintiff's

up to the time of payment. Further, plaintiff is directed to pay



defendant the amount of One Million Five Hundred Thousand

application thereof to the commissions due it under the Agreement, plaintiff

(Pl,500,000.00) pesos as and for exemplary damages; and the

in fact still owed Orient Air a balance in unpaid overriding commissions.

amount of Three Hundred Thousand (P300,000.00) pesos as and by

Further, the defendant contended that the actions taken by American Air in

way of attorney's fees.







Costs against plaintiff.

4) American is ordered to pay Orient exemplary damages of


On appeal, the Intermediate Appellate Court (now Court of Appeals) in a

decision promulgated on 27 January 1986, affirmed the findings of the

5) American is ordered to pay Orient the sum of P25,000.00 as

court a quo on their material points but with some modifications with

attorney's fees.

respect to the monetary awards granted. The dispositive portion of the

the rest of the appealed decision is affirmed.

appellate court's decision is as follows:

Costs against American.8

WHEREFORE, with the following modifications


American Air moved for reconsideration of the aforementioned decision,

of US$53,491.11 representing the balance of the latter's overriding

assailing the substance thereof and arguing for its reversal. The appellate

commission covering the period March 16, 1977 to December 31,

court's decision was also the subject of a Motion for Partial Reconsideration

1980, or its Philippine peso equivalent in accordance with the official

by Orient Air which prayed for the restoration of the trial court's ruling with

rate of exchange legally prevailing on July 10, 1981, the date the

respect to the monetary awards. The Court of Appeals, by resolution

counterclaim was filed;

promulgated on 17 December 1986, denied American Air's motion and with









respect to that of Orient Air, ruled thus:

2) American is ordered to pay Orient the sum of US$7,440.00 as the
latter's overriding commission per month starting January 1,

Orient's motion for partial reconsideration is denied insofar as it

1981 until date of termination, May 9, 1981 or its Philippine peso

prays for affirmance of the trial court's award of exemplary damages

equivalent in accordance with the official rate of exchange legally

and attorney's fees, but granted insofar as the rate of exchange is

prevailing on July 10, 1981, the date the counterclaim was filed

concerned. The decision of January 27, 1986 is modified in

paragraphs (1) and (2) of the dispositive part so that the payment of

3) American is ordered to pay interest of 12% on said amounts from

the sums mentioned therein shall be at their Philippine peso

July 10, 1981 the date the answer with counterclaim was filed, until

equivalent in accordance with the official rate of exchange legally

full payment;

prevailing on the date of actual payment.

Both parties appealed the aforesaid resolution and decision of the

to be entitled to the 3% overriding commission, the sale must be made by

respondent court, Orient Air as petitioner in G.R. No. 76931 and American

Orient Air and the sale must be done with the use of American Air's ticket

Air as petitioner in G.R. No. 76933. By resolution


of this Court dated 25


March 1987 both petitions were consolidated, hence, the case at bar.
On the other hand, Orient Air contends that the contractual stipulation of a
The principal issue for resolution by the Court is the extent of Orient Air's

3% overriding commission covers the total revenue of American Air and not

right to the 3% overriding commission. It is the stand of American Air that

merely that derived from ticketed sales undertaken by Orient Air. The latter,

such commission is based only on sales of its services actually negotiated


or transacted by Orient Air, otherwise referred to as "ticketed sales." As

the exclusive General Sales Agent of American Air, with the corresponding

basis thereof, primary reliance is placed upon paragraph 5(b) of the

obligations arising from such agency, such as, the promotion and

Agreement which, in reiteration, is quoted as follows:

solicitation for the services of its principal. In effect, by virtue of such









exclusivity, "all sales of transportation over American Air's services are

5. Commissions

necessarily by Orient Air."

a) . . .

It is a well settled legal principle that in the interpretation of a contract, the

b) Overriding Commission
In addition to the above commission, American will pay Orient Air
Services an overriding commission of 3% of the tariff fees and
charges for all sales of transportation over American's services by
Orient Air Services or itssub-agents. (Emphasis supplied)
Since Orient Air was allowed to carry only the ticket stocks of American Air,
and the former not having opted to appoint any sub-agents, it is American
Air's contention that Orient Air can claim entitlement to the disputed
overriding commission based only on ticketed sales. This is supposed to be
the clear meaning of the underscored portion of the above provision. Thus,


entirety thereof must be taken into consideration to ascertain the meaning

of its provisions.


The various stipulations in the contract must be read

together to give effect to all.


After a careful examination of the records,

the Court finds merit in the contention of Orient Air that the Agreement,
when interpreted in accordance with the foregoing principles, entitles it to
the 3% overriding commission based on total revenue, or as referred to by
the parties, "total flown revenue."
As the designated exclusive General Sales Agent of American Air, Orient Air
was responsible for the promotion and marketing of American Air's services
for air passenger transportation, and the solicitation of sales therefor. In
return for such efforts and services, Orient Air was to be paid commissions


of two (2) kinds: first, a sales agency commission, ranging from 7-8% of


We therefore agree with the respondent appellate court's

tariff fares and charges from sales by Orient Air when made on American

declaration that:

Air ticket stock; and second, an overriding commission of 3% of tariff fares

and charges for all sales of passenger transportation over American Air

Any ambiguity in a contract, whose terms are susceptible of different

services. It is immediately observed that the precondition attached to the

interpretations, must be read against the party who drafted it.

first type of commission does not obtain for the second type of
commissions. The latter type of commissions would accrue for sales of
American Air services made not on its ticket stock but on the ticket stock of
other air carriers sold by such carriers or other authorized ticketing facilities
or travel agents. To rule otherwise, i.e., to limit the basis of such overriding
commissions to sales from American Air ticket stock would erase any
distinction between the two (2) types of commissions and would lead to the
absurd conclusion that the parties had entered into a contract with
meaningless provisions. Such an interpretation must at all times be avoided
with every effort exerted to harmonize the entire Agreement.

records that American Air was the party responsible for the preparation of
the Agreement. Consequently, any ambiguity in this "contract of adhesion"
is to be taken "contra proferentem", i.e., construed against the party who
caused the ambiguity and could have avoided it by the exercise of a little
more care. Thus, Article 1377 of the Civil Code provides that the
interpretation of obscure words or stipulations in a contract shall not favor





To put it differently, when several



We now turn to the propriety of American Air's termination of the

Agreement. The respondent appellate court, on this issue, ruled thus:
It is not denied that Orient withheld remittances but such action
finds justification from paragraph 4 of the Agreement, Exh. F, which
provides for remittances to American less commissions to which
Orient is entitled, and from paragraph 5(d) which specifically allows
Orient to retain the full amount of its commissions. Since, as stated
ante, Orient is entitled to the 3% override. American's premise,
therefore, for the cancellation of the Agreement did not exist. . . ."

An additional point before finally disposing of this issue. It is clear from the

the party who caused the obscurity.




interpretation or construction is to be adopted which is most favorable to

the party in whose favor the provision was made and who did not cause the

We agree with the findings of the respondent appellate court. As earlier

established, Orient Air was entitled to an overriding commission based on
total flown revenue. American Air's perception that Orient Air was remiss or
in default of its obligations under the Agreement was, in fact, a situation
where the latter acted in accordance with the Agreementthat of retaining
from the sales proceeds its accrued commissions before remitting the
balance to American Air. Since the latter was still obligated to Orient Air by
way of such commissions. Orient Air was clearly justified in retaining and
refusing to remit the sums claimed by American Air. The latter's termination

of the Agreement was, therefore, without cause and basis, for which it

aside the portion of the ruling of the respondent appellate court reinstating

should be held liable to Orient Air.

Orient Air as general sales agent of American Air.

On the matter of damages, the respondent appellate court modified by

WHEREFORE, with the foregoing modification, the Court AFFIRMS the

reduction the trial court's award of exemplary damages and attorney's fees.

decision and resolution of the respondent Court of Appeals, dated 27

This Court sees no error in such modification and, thus, affirms the same.

January 1986 and 17 December 1986, respectively. Costs against petitioner

American Air.

It is believed, however, that respondent appellate court erred in affirming

the rest of the decision of the trial court.1wphi1We refer particularly to the
lower court's decision ordering American Air to "reinstate defendant as its
general sales agent for passenger transportation in the Philippines in


accordance with said GSA Agreement."

By affirming this ruling of the trial court, respondent appellate court, in
effect, compels American Air to extend its personality to Orient Air. Such
would be violative of the principles and essence of agency, defined by law
as a contract whereby "a person binds himself to render some service or to
do something in representation or on behalf of another, WITH THE



(emphasis supplied) In an

agent-principal relationship, the personality of the principal is extended

through the facility of the agent. In so doing, the agent, by legal fiction,
becomes the principal, authorized to perform all acts which the latter would
have him do. Such a relationship can only be effected with the consent of
the principal, which must not, in any way, be compelled by law or by any

In this appeal by certiorari, petitioners assail the judgment of the Court
of Appeals in CA-G.R. CV No. 49175 affirming the adjudication of the
Regional Trial Court of Malolos, Bulacan which found private respondent
Narciso Deganos liable to petitioners for actual damages, but absolved
respondent spouses Brigida D. Luz and Ernesto M. Luz of liability. Petitioners
likewise belabor the subsequent resolution of the Court of Appeals which
denied their motion for reconsideration of its challenged decision.

court. The Agreement itself between the parties states that "either party

Petitioners were engaged in the business of purchase and sale of

may terminate the Agreementwithout cause by giving the other 30 days'

jewelry and respondent Brigida D. Luz, also known as Aida D. Luz, was their

notice by letter, telegram or cable." (emphasis supplied) We, therefore, set

regular customer. On several occasions during the period from April 27,

1987 to September 4, 1987, respondent Narciso Deganos, the brother of

preliminary attachment.[4] Ernesto Luz was impleaded therein as the spouse

Brigida D. Luz, received several pieces of gold and jewelry from petitioners

of Brigida.

amounting to P382,816.00.


These items and their prices were indicated

in seventeen receipts covering the same. Eleven of the receipts stated that

Four years later, or on March 29, 1994, Deganos and Brigida D. Luz

they were received for a certain Evelyn Aquino, a niece of Deganos, and the

were charged with estafa[5] in the Regional Trial Court of Malolos, Bulacan,

remaining six indicated that they were received for Brigida D. Luz.


which was docketed as Criminal Case No. 785-M-94. That criminal case
appears to be still pending in said trial court.

Deganos was supposed to sell the items at a profit and thereafter remit
the proceeds and return the unsold items to petitioners. Deganos remitted

During the trial of the civil case, petitioners claimed that Deganos

only the sum ofP53,207.00. He neither paid the balance of the sales

acted as the agent of Brigida D. Luz when he received the subject items of

proceeds, nor did he return any unsold item to petitioners. By January 1990,

jewelry and, because he failed to pay for the same, Brigida, as principal,

the total of his unpaid account to petitioners, including interest, reached

and her spouse are solidarily liable with him therefor.

the sum of P725,463.98.


Petitioners eventually filed a complaint in

the barangay court against Deganos to recover said amount.

On the other hand, while Deganos admitted that he had an unpaid

obligation to petitioners, he claimed that the same was only in the sum

In the barangay proceedings, Brigida D. Luz, who was not impleaded in

of P382,816.00 and notP725,463.98. He further asserted that it was he

the case, appeared as a witness for Deganos and ultimately, she and her

alone who was involved in the transaction with the petitioners; that he

husband, together with Deganos, signed a compromise agreement with

neither acted as agent for nor was he authorized to act as an agent by

petitioners. In that compromise agreement, Deganos obligated himself to

Brigida D. Luz, notwithstanding the fact that six of the receipts indicated

pay petitioners, on installment basis, the balance of his account plus

that the items were received by him for the latter. He further claimed that

interest thereon. However, he failed to comply with his aforestated

he never delivered any of the items he received from petitioners to Brigida.


Brigida, on her part, denied that she had anything to do with the

On June 25, 1990, petitioners instituted Civil Case No. 412-M-90 in the

transactions between petitioners and Deganos. She claimed that she never

Regional Trial Court of Malolos, Bulacan against Deganos and Brigida D. Luz

authorized Deganos to receive any item of jewelry in her behalf and, for

for recovery of a sum of money and damages, with an application for

that matter, neither did she actually receive any of the articles in question.

After trial, the court below found that only Deganos was liable to

The primary issue in the instant petition is whether or not herein

petitioners for the amount and damages claimed. It held that while Brigida

respondent spouses are liable to petitioners for the latters claim for money

D. Luz did have transactions with petitioners in the past, the items involved

and damages in the sum ofP725,463.98, plus interests and attorneys fees,

were already paid for and all that Brigida owed petitioners was the sum

despite the fact that the evidence does not show that they signed any of

of P21,483.00 representing interest on the principal account which she had

the subject receipts or authorized Deganos to receive the items of jewelry

previously paid for.[6]

on their behalf.

The trial court also found that it was petitioner Lydia Bordador who

Petitioners argue that the Court of Appeals erred in adopting the

indicated in the receipts that the items were received by Deganos for

findings of the court a quo that respondent spouses are not liable to them,

Evelyn Aquino and Brigida D. Luz.


Said court was persuaded that Brigida

as said conclusion of the trial court is contradicted by the finding of fact of

D. Luz was behind Deganos, but because there was no memorandum to this

the appellate court that (Deganos) acted as agent of his sister (Brigida

effect, the agreement between the parties was unenforceable under the


Statute of Frauds.



In support of this contention, petitioners quoted several letters sent

Absent the required memorandum or any written

to them by Brigida D. Luz wherein the latter acknowledged her obligation to

document connecting the respondent Luz spouses with the subject receipts,

petitioners and requested for more time to fulfill the same. They likewise

or authorizing Deganos to act on their behalf, the alleged agreement

aver that Brigida testified in the trial court that Deganos took some gold

between petitioners and Brigida D. Luz was unenforceable.

articles from petitioners and delivered the same to her.

Deganos was ordered to pay petitioners the amount of P725,463.98,

Both the Court of Appeals and the trial court, however, found as a fact

plus legal interest thereon from June 25, 1990, and attorneys fees. Brigida

that the aforementioned letters concerned the previous obligations of

D. Luz was ordered to payP21,483.00 representing the interest on her own

Brigida to petitioners, and had nothing to do with the money sought to be

personal loan. She and her co-defendant spouse were absolved from any

recovered in the instant case. Such concurrent factual findings are entitled

other or further liability.


to great weight, hence, petitioners cannot plausibly claim in this appellate

review that the letters were in the nature of acknowledgments by Brigida

As stated at the outset, petitioners appealed the judgment of the

court a quo to the Court of Appeals which affirmed said judgment.








hence the present recourse to this Court.



that she was the principal of Deganos in the subject transactions.



On the other hand, with regard to the testimony of Brigida admitting

delivery of the gold to her, there is no showing whatsoever that her

statement referred to the items which are the subject matter of this case. It

Art. 1868. By the contract of agency a person binds himself to render some

cannot, therefore, be validly said that she admitted her liability regarding

service or to do something in representation or on behalf of another, with

the same.

the consent or authority of the latter.

Petitioners insist that Deganos was the agent of Brigida D. Luz as the

The basis for agency is representation. Here, there is no showing that

latter clothed him with apparent authority as her agent and held him out to

Brigida consented to the acts of Deganos or authorized him to act on her

the public as such, hence Brigida can not be permitted to deny said


authority to innocent third parties who dealt with Deganos under such

involved. Petitioners attempt to foist liability on respondent spouses



Petitioners further represent that the Court of Appeals recognized

in its decision that Deganos was an agent of Brigida.










through the supposed agency relation with Deganos is groundless and illadvised.

The evidence does not support the theory of petitioners that Deganos

Besides, it was grossly and inexcusably negligent of petitioners to

was an agent of Brigida D. Luz and that the latter should consequently be

entrust to Deganos, not once or twice but on at least six occasions as

held solidarily liable with Deganos in his obligation to petitioners. While the

evidenced by six receipts, several pieces of jewelry of substantial value

quoted statement in the findings of fact of the assailed appellate decision

without requiring a written authorization from his alleged principal. A

mentioned that Deganos ostensibly acted as an agent of Brigida, the actual

person dealing with an agent is put upon inquiry and must discover upon

conclusion and ruling of the Court of Appeals categorically stated that,

his peril the authority of the agent.


(Brigida Luz) never authorized her brother (Deganos) to act for and in her
It is clear, therefore, that

The records show that neither an express nor an implied agency was

even assuming arguendo that Deganos acted as an agent of Brigida, the

proven to have existed between Deganos and Brigida D. Luz. Evidently,

latter never authorized him to act on her behalf with regard to the

petitioners, who were negligent in their transactions with Deganos, cannot

transactions subject of this case.

seek relief from the effects of their negligence by conjuring a supposed

behalf in any transaction with Petitioners x x x.


agency relation between the two respondents where no evidence supports

The Civil Code provides:

such claim.
Petitioners next allege that the Court of Appeals erred in ignoring the
fact that the decision of the court below, which it affirmed, is null and void

as it contradicted its ruling in CA-G.R. SP No. 39445 holding that there is

Petitioners have apparently lost sight of Article 33 of the Civil Code

sufficient evidence/proof against Brigida D. Luz and Deganos for estafa in

which provides that in cases involving alleged fraudulent acts, a civil action

the pending criminal case. They further aver that said appellate court erred

for damages, entirely separate and distinct from the criminal action, may

in ruling against them in this civil action since the same would result in an


inevitable conflict of decisions should the trial court convict the accused in

independently of the criminal prosecution and shall require only a

the criminal case.

preponderance of evidence.










court. Consequently, it was the duty of the two branches of the Regional

for certiorari in the Court of Appeals to set aside the denial of their

Trial Court concerned to independently proceed with the civil and criminal

demurrer and motion for reconsideration but, as just stated, their petition

cases. It will also be observed that a final judgment rendered in a civil

therefor was dismissed.[17]

action absolving the defendant from civil liability is no bar to a criminal

court. They



and a motion for reconsideration in the aforestated criminal case, both of



party. Such

criminal case for estafa was filed, and that although there was a move to




respondents Brigida D. Luz and Deganos had filed a demurrer to evidence




It is worth noting that this civil case was instituted four years before the





















Petitioners now claim that the aforesaid dismissal by the Court of

Appeals of the petition in CA-G.R. SP No. 39445 with respect to the criminal

It is clear, therefore, that this civil case may proceed independently of


case is equivalent to a finding that there is sufficient evidence in the estafa

the criminal case

especially because while both cases are based on the

case against Brigida D. Luz and Deganos. Hence, as already stated,

same facts, the quantum of proof required for holding the parties liable

petitioners theorize that the decision and resolution of the Court of Appeals

therein differ. Thus, it is improvident of petitioners to claim that the decision

now being impugned in the case at bar would result in a possible conflict

and resolution of the Court of Appeals in the present case would be

with the prospective decision in the criminal case. Instead of promulgating

preemptive of the outcome of the criminal case. Their fancied fear of

the present decision and resolution under review, so they suggest, the

possible conflict between the disposition of this civil case and the outcome

Court of Appeals should have awaited the decision in the criminal case, so

of the pending criminal case is illusory.

as not to render academic or preempt the same or, worse, create two
conflicting rulings.


Petitioners surprisingly postulate that the Court of Appeals had lost its
jurisdiction to issue the denial resolution dated August 18, 1997, as the

same was tainted with irregularities and badges of fraud perpetrated by its
court officers.


They charge that said appellate court, through conspiracy

and fraud on the part of its officers, gravely abused its discretion in issuing
that resolution denying their motion for reconsideration. They claim that

On July 9, 1997, the Court of Appeals rendered judgment in this case

affirming the trial courts decision.






Petitioners moved for reconsideration



comment. Respondents filed the same on August 5, 1997




and petitioners


said resolution was drafted by the ponente, then signed and issued by the

filed their reply to said comment on August 15, 1997.

The Eleventh

members of the Eleventh Division of said court within one and a half days

Division of said court issued the questioned resolution denying petitioners

from the elevation thereof by the division clerk of court to the office of

motion for reconsideration on August 18, 1997.[26]

the ponente.
It is ironic that while some litigants malign the judiciary for being
It is the thesis of petitioners that there was undue haste in issuing the

supposedly slothful in disposing of cases, petitioners are making a show of

resolution as the same was made without waiting for the lapse of the ten-

calling out for justice because the Court of Appeals issued a resolution

day period for respondents to file their comment and for petitioners to file

disposing of a case sooner than expected of it. They would even deny the

their reply. It was allegedly impossible for the Court of Appeals to resolve

exercise of discretion by the appellate court to prioritize its action on cases

the issue in just one and a half days, especially because itsponente, the

in line with the procedure it has adopted in disposing thereof and in

late Justice Maximiano C. Asuncion, was then recuperating from surgery

declogging its dockets. It is definitely not for the parties to determine and

and, that, additionally, hundreds of more important cases were pending.


dictate when and how a tribunal should act upon those cases since they are
not even aware of the status of the dockets and the internal rules and

These lamentable allegation of irregularities in the Court of Appeals

policies for acting thereon.

and in the conduct of its officers strikes us as a desperate attempt of

petitioners to induce this Court to give credence to their arguments which,

The fact that a resolution was issued by said court within a relatively

as already found by both the trial and intermediate appellate courts, are

short period of time after the records of the case were elevated to the office

devoid of factual and legal substance. The regrettably irresponsible attempt

of the ponente cannot, by itself, be deemed irregular. There is no showing

to tarnish the image of the intermediate appellate tribunal and its judicial

whatsoever that the resolution was issued without considering the reply

officers through ad hominem imputations could well be contumacious, but

filed by petitioners. In fact, that brief pleading filed by petitioners does not

we are inclined to let that pass with a strict admonition that petitioners

exhibit any esoteric or ponderous argument which could not be analyzed

refrain from indulging in such conduct in litigations.

within an hour. It is a legal presumption, born of wisdom and experience,

that official duty has been regularly performed;


that the proceedings of a

judicial tribunal are regular and valid, and that judicial acts and duties have
been and will be duly and properly performed.


The burden of proving

and Narciso Deganos, executed or partially executed, and no delivery of

any of the items subject of this case was ever made to the former.

irregularity in official conduct is on the part of petitioners and they have

utterly failed to do so. It is thus reprehensible for them to cast aspersions

WHEREFORE, no error having been committed by the Court of Appeals

on a court of law on the bases of conjectures or surmises, especially since

in affirming the judgment of the court a quo, its challenged decision and

one of the petitioners appears to be a member of the Philippine Bar.

resolution are hereby AFFIRMED and the instant petition is DENIED, with
double costs against petitioners

Lastly, petitioners fault the trial courts holding that whatever contract
of agency was established between Brigida D. Luz and Narciso Deganos is


unenforceable under the Statute of Frauds as that aspect of this case


allegedly is not covered thereby.


They proceed on the premise that the






Statute of Frauds applies only to executory contracts and not to executed or

JR., petitioners,

to partially executed ones. From there, they move on to claim that the

EXPRESS LINES, INC.,respondents.

contract involved in this case was an executed contract as the items had
already been delivered by petitioners to Brigida D. Luz, hence, such
delivery resulted in the execution of the contract and removed the same
from the coverage of the Statute of Frauds.

that neither the trial court nor the appellate court categorically stated that
there was such a contractual relation between these two respondents. The
trial court merely said that if there was such an agency existing between
them, the same is unenforceable as the contract would fall under the











[G.R. No. 124741. January 28, 1999]


Petitioners claim is speciously unmeritorious. It should be emphasized








memorandum thereof in order to be enforceable in court. That was merely

a preparatory statement of a principle of law. What was finally proven as a
matter of fact is that there was no such contract between Brigida D. Luz













INC., respondents.




Two consolidated petitions were filed before us seeking to set aside and

interest per annum from November 18, 1976, the date of filing of the

annul the decisions and resolutions of respondent Court of Appeals. What

complaint, until fully paid, the sum of P8,000.00 a month starting December

seemed to be a simple ejectment suit was juxtaposed with procedural

1982, until private respondent fully vacates the premises, and to

intricacies which finally found its way to this Court.

pay P20,000.00 as and by way of attorney's fees.

G. R. NO. 122544:

Private respondent filed a certiorari petition praying for the issuance of

a restraining order enjoining the enforcement of said judgment and

On May 23, 1974, private respondent Overland Express Lines, Inc.

dismissal of the case for lack of jurisdiction of the City Court.

(lessee) entered into a Contract of Lease with Option to Buy with

petitioners[1] (lessors) involving a 1,755.80 square meter parcel of land
situated at corner MacArthur Highway and South "H" Street, Diliman,

On September 26, 1984, the then Intermediate Appellate Court [3] (now
Court of Appeals) rendered a decision[4] stating that:

Quezon City. The term of the lease was for one (1) year commencing from
May 16, 1974 up to May 15, 1975. During this period, private respondent

"x x x, the alleged question of whether petitioner was granted an

was granted an option to purchase for the amount of P3,000.00 per square

extension of the option to buy the property; whether such option, if

meter. Thereafter, the lease shall be on a per month basis with a monthly

any, extended the lease or whether petitioner actually paid the

rental of P3,000.00.

alleged P300,000.00 to Fidela Dizon, as representative of private

respondents in consideration of the option and, whether petitioner

For failure

of private

respondent to pay


increased rental

thereafter offered to pay the balance of the supposed purchase

of P8,000.00 per month effective June 1976, petitioners filed an action for

price, are all merely incidental and do not remove the unlawful

ejectment (Civil Case No. VIII-29155) on November 10, 1976 before the


then City Court (now Metropolitan Trial Court) of Quezon City, Branch

consonance with the ruling in the case of Teodoro, Jr. vs. Mirasol

VIII. On November 22, 1982, the City Court rendered judgment








court. In


(supra), the above matters may be raised and decided in the

private respondent to vacate the leased premises and to pay the sum

unlawful detainer suit as, to rule otherwise, would be a violation of

of P624,000.00 representing rentals in arrears and/or as damages in the

the principle prohibiting multiplicity of suits. (Original Records, pp.

form of reasonable compensation for the use and occupation of the


premises during the period of illegal detainer from June 1976 to November
1982 at the monthly rental of P8,000.00, less payments made, plus 12%

The motion for reconsideration was denied. On review, this Court

The two cases were thereafter consolidated before the RTC of Quezon

dismissed the petition in a resolution dated June 19, 1985 and likewise

City, Branch 77. On April 28, 1989, a decision [7] was rendered dismissing

denied private respondent's subsequent motion for reconsideration in a

private respondent's complaint in Civil Case No. Q-45541 (specific

resolution dated September 9, 1985.


performance case) and denying its motion for reconsideration in Civil Case

On October 7, 1985, private respondent filed before the Regional Trial






case). The




reconsideration of said decision was likewise denied.

Court (RTC) of Quezon City (Civil Case No. Q-45541) an action for Specific
Performance and Fixing of Period for Obligation with prayer for the issuance

appeal,[8] respondent





of a restraining order pending hearing on the prayer for a writ of


upholding the jurisdiction of the City Court of Quezon City in the

preliminary injunction. It sought to compel the execution of a deed of sale

ejectment case. It also concluded that there was a perfected contract of

pursuant to the option to purchase and the receipt of the partial payment,

sale between the parties on the leased premises and that pursuant to the

and to fix the period to pay the balance. In an Order dated October 25,

option to buy agreement, private respondent had acquired the rights of a

1985, the trial court denied the issuance of a writ of preliminary injunction

vendee in a contract of sale.It opined that the payment by private

on the ground that the decision of the then City Court for the ejectment of

respondent of P300,000.00 on June 20, 1975 as partial payment for the

the private respondent, having been affirmed by the then Intermediate

leased property, which petitioners accepted (through Alice A. Dizon) and for

Appellate Court and the Supreme Court, has become final and executory.

which an official receipt was issued, was the operative act that gave rise to
a perfected contract of sale, and that for failure of petitioners to deny

Unable to secure an injunction, private respondent also filed before the

receipt thereof, private respondent can therefore assume that Alice A.

RTC of Quezon City, Branch 102 (Civil Case No. Q-46487) on November 15,

Dizon, acting as agent of petitioners, was authorized by them to receive the

1985 a complaint for Annulment of and Relief from Judgment with injunction

money in their behalf. The Court of Appeals went further by stating that in

and damages. In its decision[6] dated May 12, 1986, the trial court dismissed

fact, what was entered into was a "conditional contract of sale" wherein

the complaint for annulment on the ground of res judicata, and the writ of

ownership over the leased property shall not pass to the private respondent

preliminary injunction previously issued was dissolved. It also ordered

until it has fully paid the purchase price. Since private respondent did not

private respondent to pay P3,000.00 as attorney's fees. As a consequence

consign to the court the balance of the purchase price and continued to



occupy the subject premises, it had the obligation to pay the amount

injunction was reinstated, thereby restraining the execution of the City

of P1,700.00 in monthly rentals until full payment of the purchase

Court's judgment on the ejectment case.

price. The dispositive portion of said decision reads:







"WHEREFORE, the appealed decision in Case No. 46487 is

Petitioners filed with respondent Court of Appeals a motion to remand

AFFIRMED. The appealed decision in Case No. 45541 is, on the other

the records of Civil Case No. 38-29155 (ejectment case) to the Metropolitan

hand, ANNULLED and SET ASIDE. The defendants-appellees are

Trial Court (MTC), then City Court of Quezon City, Branch 38, for execution

ordered to execute the deed of absolute sale of the property in

of the judgment[11] dated November 22, 1982 which was granted in a

question, free from any lien or encumbrance whatsoever, in favor of

resolution dated June 29, 1992. Private respondent filed a motion to

the plaintiff-appellant, and to deliver to the latter the said deed of

reconsider said resolution which was denied.

sale, as well as the owner's duplicate of the certificate of title to said

property upon payment of the balance of the purchase price by the

Aggrieved, private respondent filed a petition for certiorari, prohibition

plaintiff-appellant. The plaintiff-appellant is ordered to pay P1,700.00

with preliminary injunction and/or restraining order with this Court (G.R.

per month from June 1976, plus 6% interest per annum, until

Nos. 106750-51) which was dismissed in a resolution dated September 16,

payment of the balance of the purchase price, as previously agreed

1992 on the ground that the same was a refiled case previously dismissed

upon by the parties.

for lack of merit. On November 26, 1992, entry of judgment was issued by
this Court.

On July 14, 1993, petitioners filed an urgent ex-parte motion for
Upon denial of the motion for partial reconsideration (Civil Case No. Q45541) by respondent Court of Appeals,


execution of the decision in Civil Case No. 38-29155 with the MTC of

petitioners elevated the

Quezon City, Branch 38. On September 13, 1993, the trial court ordered the

case via petition for certiorari questioning the authority of Alice A. Dizon as

issuance of a third alias writ of execution. In denying private respondent's

agent of petitioners in receiving private respondent's partial payment

motion for reconsideration, it ordered the immediate implementation of the

amounting to P300,000.00 pursuant to the Contract of Lease with Option to

third writ of execution without delay.

Buy. Petitioners also assail the propriety of private respondent's exercise of

the option when it tendered the said amount on June 20, 1975 which
purportedly resulted in a perfected contract of sale.

On December 22, 1993, private respondent filed with the Regional Trial
Court (RTC) of Quezon City, Branch 104 a petition for certiorari and
prohibition with preliminary injunction/restraining order (SP. PROC. No. 93-

G. R. NO. 124741:

18722) challenging the enforceability and validity of the MTC judgment as

well as the order for its execution.

On January 11, 1994, RTC of Quezon City, Branch 104 issued an



"This court in its decision in CA-G.R. CV Nos. 25153-54 declared

granting the issuance of a writ of preliminary injunction upon

that the plaintiff-appellant (private respondent herein) acquired the

private respondent's posting of an injunction bond ofP50,000.00.

rights of a vendee in a contract of sale, in effect, recognizing the


Assailing the aforequoted order after denial of their motion for partial
reconsideration, petitioners filed a petition










premises. Considering said decision, we should not allow ejectment;

for certiorari and prohibition

to do so would disturb the status quo of the parties since the

with a prayer for a temporary restraining order and/or preliminary

petitioners are not in possession of the subject property. It would be

injunction with the Court of Appeals. In its decision,


the Court of Appeals

unfair and unjust to deprive the private respondent of its possession

dismissed the petition and ruled that:

of the subject property after its rights have been established in a

subsequent ruling.

"The avowed purpose of this petition is to enjoin the public

respondent from restraining the ejectment of the private
respondent. To grant the petition would be to allow the

WHEREFORE, the motion for reconsideration is DENIED for lack of


ejectment of the private respondent. We cannot do that now in

view of the decision of this Court in CA-G.R. CV Nos. 25153-


54. Petitioners' alleged right to eject private respondent has

been demonstrated to be without basis in the said civil case. The
petitioners have been shown, after all, to have no right to eject
private respondents.
WHEREFORE, the petition is DENIED due course and is
accordingly DISMISSED.

Hence, this instant petition.

We find both petitions impressed with merit.
First. Petitioners have established a right to evict private respondent
from the subject premises for non-payment of rentals. The term of the
Contract of Lease with Option to Buy was for a period of one (1) year (May
16, 1974 to May 15, 1975) during which the private respondent was given
an option to purchase said property at P3,000.00 per square meter. After

Petitioners' motion for reconsideration was denied in a resolution [16] by

the Court of Appeals stating that:

the expiration thereof, the lease was for P3,000.00 per month.

Admittedly, no definite period beyond the one-year term of lease was

Second. Having failed to exercise the option within the stipulated one-

agreed upon by petitioners and private respondent. However, since the rent

year period, private respondent cannot enforce its option to purchase

was paid on a monthly basis, the period of lease is considered to be from

anymore. Moreover, even assuming arguendo that the right to exercise the

month to month in accordance with Article 1687 of the New Civil Code.

option still subsists at the time private respondent tendered the amount on


Where the rentals are paid monthly, the lease, even if verbal may be

June 20, 1975, the suit for specific performance to enforce the option to

deemed to be on a monthly basis, expiring at the end of every month

purchase was filed only on October 7, 1985 or more than ten (10) years

pursuant to Article 1687, in relation to Article 1673 of the Civil Code.



such case, a demand to vacate is not even necessary for judicial action

after accrual of the cause of action as provided under Article 1144 of the
New Civil Code.[21]

after the expiration of every month.[20]

In this case, there was a contract of lease for one (1) year with option



failed to





to purchase. The contract of lease expired without the private respondent,

of P8,000.00 per month in June 1976, the petitioners had a cause of action




to institute an ejectment suit against the former with the then City Court. In

thereof. Hence, there was an implicit renewal of the contract of lease on a

this regard, the City Court (now MTC) had exclusive jurisdiction over the

monthly basis. The other terms of the original contract of lease which are

ejectment suit. The filing by private respondent of a suit with the Regional

revived in the implied new lease under Article 1670 of the New Civil

Trial Court for specific performance to enforce the option to purchase did

Code[22] are only those terms which are germane to the lessees right of

not divest the then City Court of its jurisdiction to take cognizance over the

continued enjoyment of the property leased. [23] Therefore, an implied new

ejectment case. Of note is the fact that the decision of the City Court was

lease does not ipso facto carry with it any implied revival of private

affirmed by both the Intermediate Appellate Court and this Court.
















premises. The provision entitling the lessee the option to purchase the
leased premises is not deemed incorporated in the impliedly renewed
contract because it is alien to the possession of the lessee. Private
respondents right to exercise the option to purchase expired with the
termination of the original contract of lease for one year. The rationale of
this Court is that:

This is a reasonable construction of the provision, which is based on the

parties may reciprocally demand performance, subject to the provisions of

presumption that when the lessor allows the lessee to continue enjoying

the law governing the form of contracts. Thus, the elements of a contract of

possession of the property for fifteen days after the expiration of the

sale are consent, object, and price in money or its equivalent. It bears

contract he is willing that such enjoyment shall be for the entire period

stressing that the absence of any of these essential elements negates the

corresponding to the rent which is customarily paid in this case up to the

existence of a perfected contract of sale. Sale is a consensual contract and

end of the month because the rent was paid monthly. Necessarily, if the

he who alleges it must show its existence by competent proof. [25]

presumed will of the parties refers to the enjoyment of possession the

presumption covers the other terms of the contract related to such

In an attempt to resurrect the lapsed option, private respondent

possession, such as the amount of rental, the date when it must be paid,

gave P300,000.00 to petitioners (thru Alice A. Dizon) on the erroneous

the care of the property, the responsibility for repairs, etc. But no such

presumption that the said amount tendered would constitute a perfected

presumption may be indulged in with respect to special agreements which

contract of sale pursuant to the contract of lease with option to buy. There

by nature are foreign to the right of occupancy or enjoyment inherent in a

was no valid consent by the petitioners (as co-owners of the leased

contract of lease.[24]

premises) on the supposed sale entered into by Alice A. Dizon, as

petitioners alleged agent, and private respondent. The basis for agency is

Third. There was no perfected contract of sale between petitioners and

representation and a person dealing with an agent is put upon inquiry and

private respondent. Private respondent argued that it delivered the check

must discover upon his peril the authority of the agent. [26] As provided in

of P300,000.00 to Alice A. Dizon who acted as agent of petitioners pursuant

Article 1868 of the New Civil Code,[27] there was no showing that petitioners

to the supposed authority given by petitioner Fidela Dizon, the payee

consented to the act of Alice A. Dizon nor authorized her to act on their

thereof. Private respondent further contended that petitioners filing of the

behalf with regard to her transaction with private respondent. The most

ejectment case against it based on the contract of lease with option to buy

prudent thing private respondent should have done was to ascertain the

holds petitioners in estoppel to question the authority of petitioner Fidela

extent of the authority of Alice A. Dizon. Being negligent in this regard,

Dizon. It insisted that the payment of P300,000.00 as partial payment of

private respondent cannot seek relief on the basis of a supposed agency.

the purchase price constituted a valid exercise of the option to buy.

In Bacaltos Coal Mines vs. Court of Appeals,[28] we explained the
Under Article 1475 of the New Civil Code, the contract of sale is
perfected at the moment there is a meeting of minds upon the thing which
is the object of the contract and upon the price.From that moment, the

rule in dealing with an agent:

Every person dealing with an agent is put upon inquiry and must discover

However, petitioners are ordered to REFUND to private respondent the

upon his peril the authority of the agent. If he does not make such inquiry,

amount of P300,000.00 which they received through Alice A. Dizon on June

he is chargeable with knowledge of the agents authority, and his ignorance

20, 1975.

of that authority will not be any excuse. Persons dealing with an assumed
agent, whether the assumed agency be a general or special one, are bound
at their peril, if they would hold the principal, to ascertain not only the fact
of the agency but also the nature and extent of the authority, and in case


either is controverted, the burden of proof is upon them to establish it.

For the long years that private respondent was able to thwart the
execution of the ejectment suit rendered in favor of petitioners, we now


write finis to this controversy and shun further delay so as to ensure that
this case would really attain finality.




Assailed in the present petition for review on certiorari under Rule 45 of the





GRANTED. The decision dated March 29, 1994 and the resolution dated
October 19, 1995 in CA-G.R. CV No. 25153-54, as well as the decision dated
December 11, 1995 and the resolution dated April 23, 1997 in CA-G.R. SP
No. 33113 of the Court of Appeals are hereby REVERSED and SET ASIDE.
Let the records of this case be remanded to the trial court for

Rules of Court is the June 29, 2001 Decision[1] of the Court of Appeals (CA)
in CA-G.R. CV No. 59699 affirming with modification the Decision of the
Regional Trial Court (RTC) of Quezon City, Branch 81 in Civil Case No. Q-907405;



Resolution[2] promulgated

on April


2002 denying

petitioners Motion for Partial Reconsideration.

The facts are as follows:

immediate execution of the judgment dated November 22, 1982 in Civil

On October 18, 1989, the spouses George and Susan Tan (spouses Tan)

Case No. VIII-29155 of the then City Court (now Metropolitan Trial Court) of

entered into a contract with G.V.T. Engineering Services (G.V.T.), through its

Quezon City, Branch VIII as affirmed in the decision dated September 26,

owner/manager Gerino Tactaquin (Tactaquin) for the construction of their

1984 of the then Intermediate Appellate Court (now Court of Appeals) and

residential house at Ifugao St., La Vista, Quezon City. The contract price

in the resolution dated June 19, 1985 of this Court.

was P1,700,000.00. Since the spouses Tan have no knowledge about

building construction, they hired the services of Engineer Rudy Cadag






construction. In





To begin with, it is not disputed that there was delay in

construction, the spouses Tan caused several changes in the plans and

the delivery of the needed construction materials which in

specifications and ordered the deletion of some items in G.V.T.s scope of

turn caused tremendous delay in project completion. The

work. This brought about differences between the spouses Tan and Cadag,


on one hand, and Tactaquin, on the other. Subsequently, the latter stopped

practically during the entire period that he was working on

the construction of the subject house.

the project, complained to defendants about the non-delivery







on time of the materials on the project site (Exhs. D, G, H, HOn December 4, 1990, G.V.T., through Tactaquin, filed a Complaint for

1, H-2, H-3, H-4, and H-5). Plaintiffs request for prompt

specific performance and damages against the spouses Tan and Cadag with

delivery of materials fell on deaf ears.

the RTC of Quezon City contending that by reason of the changes in the
plans and specifications of the construction project ordered by Cadag and


the spouses Tan, it was forced to borrow money from third persons at
exorbitant interest; that several portions of their contract were deleted but

Plaintiffs losses as a result of the delay were

only to be awarded later to other contractors; that it suffered tremendous

aggravated by cancellation by defendants of major portions

delay in the completion of the project brought about by the spouses Tans

of the project such as skylight roofing, installation of cement

delay in the delivery of construction materials on the jobsite; that all the

tiles, soil poisoning and finishing among others, which were

aforementioned acts caused undue prejudice and damage to it.

all included in the construction agreement but were assigned

to other contractors (TSN, 9/6/91); Exh. I).

In their Answer with Counterclaims, the spouses Tan and Cadag alleged,
among others, that G.V.T. performed several defective works; that to avert

In his testimony, defendant Cadag declared that

further losses, the spouses Tan deleted some portions of the project

thirteen (13) items in the construction agreement were

covered by G.V.T.s contract and awarded other portions to another

deleted mainly due to the lack of technical know-how of the

contractor; that the changes ordered by the spouses Tan were agreed upon

plaintiff, coupled with lack of qualified personnel; that he

by the parties; that G.V.T., being a mere single proprietorship has no legal

immediately notified the plaintiff upon discovering the

personality and cannot be a party in a civil action.

defective workmanship (TSN, 5/26/93); and that he became

Trial ensued and the court a quo made the following factual findings:

aware of the imperfection in plaintiffs work as early as during

the plastering of the walls (TSN, 10/12/97). The evidence is

clear however that plaintiffs attention about the alleged

It is therefore the finding of this Court that defendants

faulty work was called for the first time only on November 16,

conclusions as to the workmanship and competence of

1990 when plaintiff was furnished with defendants letter

plaintiff are unsupported and without basis and that their act

bearing date of November 10, 1990 (Exh. 20) as their reply to

of deleting several major items from plaintiffs scope of work

plaintiffs letter of even date.

was uncalled for, if not done in bad faith. Defendantss [sic]

acts forced plaintiff to withdraw from the project.[4]


It bears pointing out that defendant Cadag testified

that during the construction of the house of defendant

Accordingly, the RTC rendered a Decision [5] with the following

dispositive portion:

spouses he was at the job site everyday to see to it that the

construction was being done according to the plans and

WHEREFORE, judgment is hereby rendered as follows:

specifications (TSN, 9/31/94). He was assisted in the project






of defendants spouses, namely, Engr. Rogelio Menguito, Engr.

1. Ordering defendants Rodovaldo Cadag and spouses

George and Susan Tan to pay plaintiff, jointly and severally:

Armando Menguito and Arch. Hans Palma who went to the

project site to attend the weekly meetings. It thus appears

a) the sum of P366,340.00 representing the balance of

that there was a close monitoring by the defendant of the

construction by the plaintiff.


the contract price;

b) the amount of P49,578.56 representing the 5%
retention fee;

the amount of P45,000.00 as moral damages;


the amount of P100,000.00 for and as attorneys

On the basis of the foregoing findings, the trial court concluded thus:

fees; and

the amount

of P17,000.00



2. Dismissing defendants counterclaims.

moral damages, attorneys fees and litigation expenses and

dismissing the case against appellant Rodovaldo Cadag. In all

Costs against defendants.

other respect, the challenged judgment is AFFIRMED. Costs

against the appellant-spouses George and Susan Tan.




Aggrieved by the trial courts decision, the spouses Tan

filed an appeal with the CA contending that the trial court
erred in not dismissing the complaint on the ground that G.V.T.
has no legal capacity to sue; in not finding that it was G.V.T.

Both parties filed their respective Motions for Partial Reconsideration but
these were denied by the CA in its Resolution of April 10, 2002.[8]
Hence, herein petition by the spouses Tan based on the following
assignments of errors:

which caused the delay in the construction of the subject

residential house; in awarding amounts in favor of G.V.T.
representing the balance of the contract price, retention fee,
moral damages and attorneys fees; and in finding Cadag
jointly and severally liable with the spouses Tan.




In its Decision of June 29, 2001, the CA affirmed with modification

the judgment of the trial court, to wit:


decision is hereby MODIFIED by deleting the awards for

AND P49,578.56




OF P1,700,000.00



be held liable because they merely relied upon and followed the advice and


instructions of Cadag whom they hired to supervise the construction of their




Anent the last assigned error, petitioners argue that G.V.T., being a sole
proprietorship, is not a juridical person and, hence, has no legal personality


to institute the complaint with the trial court. Consequently, the trial court


did not acquire jurisdiction over the case and all proceedings conducted by


it are null and void. Petitioners contend that they raised this issue in their



Answer to the Complaint and in their appeal to the CA.

In their Supplemental Petition, petitioners contend that under their contract

Petitioners contend that since Tactaquin consented and acquiesced to the

with G.V.T., the latter agreed to employ only labor in the construction of the

changes and alterations made in the plan of the subject house he cannot

subject house and that petitioners shall supply the materials; that it was

complain and discontinue the construction of the said house. Petitioners

error on the part of the CA and the trial court to award the remaining

assert that it would be highly unfair and unjust for them to be required to

balance of the contract price in favor of respondent despite the fact that

pay the amount representing the cost of the remaining unfinished portion of

some items from the latters scope of work were deleted with its

the house after it was abandoned by Tactaquin, for to do so would enable

consent. Petitioners argue that since the above-mentioned items were

the latter to unjustly enrich himself at their expense. With respect to the

deleted, it follows that respondent should not be compensated for the work

retention fee, petitioners argue that this amount is payable only after the

which it has not accomplished. Petitioners went further to claim that the

house is completed and turned over to them. Since respondent never

value of the deleted items should, in fact, be deducted from the original

completed the construction of the subject house, petitioners claim that they

contract price. As to the delay in the construction of the subject house,

should not be required to pay the retention fee. Petitioners also contend

petitioners assert that said delay was attributable to respondent which

that respondent failed to prove that it is entitled to actual damages.

failed to pay the wages of its workers who, in turn, refused to continue
working; that petitioners were even forced to pay the workers wages for the

As to the second assigned error, petitioners contend that since the CA

dismissed the complaint against Cadag it follows that they should not also

construction to continue.

In its Comment, respondent contends that the CA and the trial court are

The Court finds the petition without merit.

one in finding that petitioners are the ones responsible for breach of
contract, for unjustifiably deleting items agreed upon and delaying delivery
of construction materials, and that these findings were never rebutted by
contrary evidence. Respondent asserts that findings of fact of the trial court
especially when affirmed by the CA are conclusive on the Supreme Court

The Court finds it proper to discuss first the issue regarding G.V.T.s
lack of legal personality to sue.

when supported by the evidence on record and that the Supreme Courts
jurisdiction in cases brought before it from the CA via Rule 45 of the Rules
of Court is limited to reviewing errors of law.

Petitioners raised the issue of G.V.T.s lack of legal personality to be a

party in a civil action as a defense in their Answer with Counterclaims and,
thus, are not estopped from raising this issue before the CA or this Court.

As to the second assigned error, respondent asserts that petitioners

argument is fallacious because the courts ruling absolving Cadag from
liability is based on the fact that the there is no privity of contract between
him and respondent. This, respondent argues, cannot be said with respect
to it and petitioners.
As to the last assigned error, respondent quoted portions of this Courts
ruling in the case of Yao Ka Sin Trading v. Court of Appeals[10], as cited by
the CA in its challenged Decision. In the said case, the Court basically held
that no one has been misled by the error in the name of the party plaintiff
and to send the case back to the trial court for amendment and new trial
for the simple purpose of changing the name of the plaintiff is not justified
considering that there would be, on re-trial, the same complaint, answer,
defense, interests, witnesses and evidence.

It is true that G.V.T. Engineering Services, being a sole proprietorship, is

not vested with a legal personality to bring suit or defend an action in

court. A perusal of the records of the present case shows that respondents
complaint filed with the trial court as well as its Appellees Brief submitted
to the CA and its Comment filed before this Court are all captioned as G.V.T.








Tactaquin. In fact, the first paragraph of the complaint refers to G.V.T. as the
plaintiff. On this basis, it can be inferred that G.V.T. was the one which filed
the complaint and that it is only acting through its proprietor. However,
subsequent allegations in the complaint show that the suit is actually
brought by Tactaquin.Averments therein refer to the plaintiff as a natural
person. In fact, one of the prayers in the complaint is for the recovery of
moral damages by reason of his sufferings, mental anguish, moral shock,
sleepless nights, serious anxiety and besmirch[ed] reputation as an
Engineer and Contractor. It is settled that, as a rule, juridical persons are
not entitled to moral damages because, unlike a natural person, it cannot
experience physical suffering or such sentiments as wounded feelings,

serious anxiety, mental anguish or moral shock. [12] From these, it can be

litigant must be afforded the amplest opportunity for the

inferred that it was actually Tactaquin who is the complainant. As such, the

proper and just determination of his cause, free from the

proper caption should have been Gerino Tactaquin doing business under the

unacceptable plea of technicalities.

name and style of G.V.T. Engineering Services, as is usually done in cases

appeals purely on technical grounds is frowned upon where

filed involving sole proprietorships.Nonetheless, these are matters of form

the policy of the court is to encourage hearings of appeals on

and the Court finds the defect merely technical, which does not, in any way,

their merits and the rules of procedure ought not to be

affect its jurisdiction.

applied in a very rigid, technical sense; rules of procedure are

Thus, dismissal of

used only to help secure, not override substantial justice. It

is a far better and more prudent course of action for the court
to excuse a technical lapse and afford the parties a review of
This Court has held time and again that rules of procedure should be

the case on appeal to attain the ends of justice rather than

viewed as mere tools designed to aid the courts in the speedy, just and

dispose of the case on technicality and cause a grave

inexpensive determination of the cases before them. [13] Liberal construction



speedy disposal of cases while actually resulting in more





to effect substantial justice.






In fact, this Court is not impervious to





a false



delay, if not a miscarriage of justice.[18]

instances when rules of procedure must yield to the loftier demands of

substantial justice and equity.[15] Citing Aguam v. Court of Appeals[16], this
Court held in Barnes v. Quijano[17] that:

More importantly, there is no showing that respondents failure to

place the correct caption in the complaint or to amend the same later

The law abhors technicalities that impede the cause of

resulted in any prejudice on the part of petitioners. Thus, this Court held as

justice. The court's primary duty is to render or dispense

early as the case of Alonso v. Villamor,[19] that:

justice. A litigation is not a game of technicalities. Lawsuits

unlike duels are not to be won by a rapier's thrust.

No one has been misled by the error in the name of

Technicality, when it deserts its proper office as an aid to

the party plaintiff. If we should by reason of this error send

justice and becomes its great hindrance and chief enemy,

this case back for amendment and new trial, there would be

deserves scant consideration from courts. Litigations must be

on the retrial the same complaint, the same answer, the

decided on their merits and not on technicality. Every party

same defense, the same interests, the same witnesses, and




The Court upholds the factual findings of the trial and appellate

constitute the only difference between the old trial and the

courts with respect to petitioners liability for breach of their contract with

new. In our judgment there is not enough in a name to justify

respondent. Questions of facts are beyond the pale of Rule 45 of the Rules

such action.

evidence. The






of Court as a petition for review may only raise questions of law.


Moreover, factual findings of the trial court, particularly when affirmed

by the Court of Appeals, are generally binding on this Court. [24] More so, as
In the same manner, it would be an unjustifiable abandonment of the

in this case, where petitioners have failed to show that the courts below

principles laid down in the above-mentioned cases if the Court would nullify

overlooked or disregarded certain facts or circumstances of such import as

the proceedings had in the present case by the lower and appellate courts

would have altered the outcome of the case. [25] The Court, thus, finds no

on the simple ground that the complaint filed with the trial court was not

reason to set aside the lower courts factual findings.

properly captioned.
Coming to the merits of the case, the Court finds for the respondent.
An examination of the records shows that respondent, indeed,
As to the first assigned error, respondent did not refute petitioners
contention that he gave his consent and acquiesced to the decision of

refused to give his consent to the abovementioned deletions as evidenced






1990[26] and November


petitioners to change or alter the construction plan of the subject


addressed to the spouses Tan. Moreover, petitioners delay in the

house. However, respondent contends that he did not agree to the

delivery of construction materials is also evidenced by the minutes of the

deletions made by petitioners of some of the items of work covered by their

meeting held among the representatives of petitioners and respondent

contract. Both the trial and appellate courts gave credence to respondents

on May 5, 1990[28] as well as the letter of respondent to petitioners

contention when they ruled that petitioners were guilty of deleting several

dated June 15, 1990.[29]

major items from plaintiffs (herein respondents) scope of work [21] or of

Having resolved that petitioners are guilty of breach of contract, the

unjustifiably deleting items agreed upon in the construction agreement and






materials [22] thereby













respondent to withdraw from the project. From these acts of petitioners,

of P366,340.00 and P49,578.56, which supposedly represent the balance of

both the trial and appellate courts made categorical findings that

the price of their contract with respondent and 5% retention fee,

petitioners are the ones guilty of breach of contract.


There is no question that petitioners are liable for damages for

The Court finds no cogent reason to depart from the ruling of the

having breached their contract with respondent. Article 1170 of the Civil

trial court, as affirmed by the CA, that since petitioners are guilty of breach

Code provides that those who in the performance of their obligations are

of contract by deleting the above-mentioned items from respondents scope

guilty of fraud, negligence or delay and those who in any manner

of work, the value of the said items should be credited in respondents

contravene the tenor thereof are liable for damages. Moreover, the Court

favor. It is established that if the above-mentioned deleted items would

agrees with the trial court that under Article 1234 of the Civil Code, if the

have been performed by respondent, as it should have been pursuant to

obligation has been substantially performed in good faith, the obligor may

their contract, the construction is already 96% completed. [32] Hence,

recover as though there had been a strict and complete fulfillment less

respondent should be paid 96% of the total contract price of P1,700,000,

damages suffered by the obligee. In the present case, it is not disputed that

or P1,632,000.00. The

respondent withdrew from the project on November 23, 1990. Prior to such

petitioners already paid respondent the total amount of P1,265,660.00, the

withdrawal, respondents gave to petitioners its 22


Billing, dated October









former should be held liable to pay the balance of P366,340.00.

29, 1990, where the approximated percentage of work completed as of that

date was 74% and the portion of the contract paid by petitioners so far
was P1,265,660.60.[30] This





As to the 5% retention fee which respondent seeks to recover,

petitioners. Hence,

petitioners do not deny that they have retained the same in their

respondent was able to establish that he has substantially performed his

custody. The only contentionpetitioners advance is that respondent is not

obligation in good faith.

entitled to recover this fee because it is stipulated under their contract that
petitioners shall only give them to respondent upon completion of the

It is also established that a substantial part of the remaining items of

project and the same is turned over to them. In the present case,

work which were supposed to be done by respondent were deleted by

respondent was not able to complete the project. However, his failure to

petitioners from his scope of work and awarded to other contractors, thus,

complete his obligation under the contract was not due to his fault but

forcing him to withdraw from the contract. These works include the

because he was forced to withdraw therefrom by reason of the breach

following: 1) soil poisoning; 2) T & G ceiling and flooring; 3) wood parquet;

committed by petitioners.Nonetheless, as earlier discussed, at the time that

4) vitrified floor tiles; 5) glazed and unglazed tiles; 6) washout; 7) marble

respondent withdrew from the contract, he has already performed in good

flooring; 8) vinyl flooring; 9) plywood sheeting; 10) plain GI sheets; 11)

faith a substantial portion of his obligation.Considering that he was not at

cement tiles; 12) skylights; 13) Fixtures electrical works; and, 14) Fixtures

fault, the law provides that he is entitled to recover as though there has

and accessories and plumbing works.


been a strict and complete fulfillment of his obligation. [33] On this basis, the

Court finds no error in the ruling of the trial and appellate courts that
respondent is entitled to the recovery of 5% retention fee.
The Court finds that respondent was only able to establish the

The Court finds no error on the part of the CA in ruling

that it is a basic principle in civil law, on relativity of contracts,
that contracts can only bind the parties who had entered into it

amount of P20,772.05, which is the sum of all the retention fees appearing

and it cannot favor or prejudice third persons. Contracts take

in the bills presented by respondent in evidence. [34] Settled is the rule that

effect only between the parties, their successors in interest,

actual or compensatory damages cannot be presumed but must be proved

heirs and assigns.[38]Moreover, every cause of action ex

with reasonable degree of certainty. [35] A court cannot rely on speculations,

contractu must be founded upon a contract, oral or written,

conjectures or guesswork as to the fact of damage but must depend upon

competent proof that they have indeed been suffered by the injured party

either express or implied.[39] In the present case, the complaint

and on the basis of the best evidence obtainable as to the actual amount

for specific performance filed by herein respondent with the

thereof.[36] It must point out specific facts that could provide the gauge for

trial court was based on the failure of the spouses Tan to

measuring whatever compensatory or actual damages were borne.

faithfully comply with the provisions of their contract. In other


Considering that the documentary evidence presented by respondent to

prove the sum of retention fees sought to be recovered totals an amount

which is less than that granted by the trial court, it is only proper to reduce
such award in accordance with the evidence presented.

words, respondents cause of action was the breach of contract

committed by the spouses Tan. Cadag is not a party to this
contract. Neither












house. Hence, considering that respondents cause of action

As to the second assigned error, it is wrong for
petitioners to argue that since Cadag, whom they hired to
supervise the construction of their house, was absolved by the
court from liability, they should not also be held liable.

was breach of contract and since there is no privity of contract

between him and Cadag, there is no obligation or liability to
speak about and thus no cause of action arises. Clearly, Cadag,
not being privy to the transaction between respondent and the
spouses Tan, should not be made to answer for the latters


Furthermore, Cadag was employed by the spouses Tan to

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

supervise the construction of their house. Acting as such, his

Court of Appeals dated 10 August 2004 and its Resolution[2] dated 17 March

role is merely that of an agent. The essence of agency being

the representation of another, it is evident that the obligations

2005 in CA-G.R. SP No. 71397 entitled, Eurotech Industrial Technologies,

Inc. v. Hon. Antonio T. Echavez. The assailed Decision and Resolution
affirmed the Order[3] dated29 January 2002 rendered by Judge Antonio T.

contracted are for and on behalf of the principal. [40] A

Echavez ordering the dropping of respondent EDWIN Cuizon (EDWIN) as a

consequence of this representation is the liability of the

party defendant in Civil Case No. CEB-19672.

principal for the acts of his agent performed within the limits of
his authority that is equivalent to the performance by the

The generative facts of the case are as follows:

principal himself who should answer therefor. [41] In the present

Petitioner is engaged in the business of importation and distribution of

case, since there is neither allegation nor evidence that Cadag


exceeded his authority, all his acts are considered as those of

the Philippines. It has as one of its customers Impact Systems Sales (Impact

his principal, the spouses Tan, who are, therefore, the ones

Systems) which is a sole proprietorship owned by respondent ERWIN Cuizon

answerable for such acts.








(ERWIN). Respondent EDWIN is the sales manager of Impact Systems and

was impleaded in the court a quo in said capacity.
From January to April 1995, petitioner sold to Impact Systems various








partly GRANTED. The





are AFFIRMED with MODIFICATIONwhereby the amount of retention fee






from P49,578.56 to P20,772.05.

EUROTECH Industrial Techologies v Cuizon




products allegedly amounting to ninety-one thousand three hundred thirtyeight (P91,338.00) pesos. Subsequently, respondents sought to buy from
petitioner one unit of sludge pump valued at P250,000.00 with respondents
making a down payment of fifty thousand pesos (P50,000.00).[4] When the
sludge pump arrived from the United Kingdom, petitioner refused to deliver










indebtedness to petitioner. Thus, on 28 June 1995, respondent EDWIN and

Alberto de Jesus, general manager of petitioner, executed a Deed of

development, petitioner made several demands upon respondents to pay

Assignment of receivables in favor of petitioner, the pertinent part of which

their obligations. As a result, respondents were able to make partial


payments to petitioner. On 7 October 1996, petitioners counsel sent

respondents a final demand letter wherein it was stated that as of 11 June


has an outstanding receivables






at P295,000.00


from Toledo Power Corporation in the amount of THREE

interests and attorneys fees.[11] Because of respondents failure to abide by


said final demand letter, petitioner instituted a complaint for sum of money,

payment for the purchase of one unit of Selwood Spate 100D

damages, with application for preliminary attachment against herein

Sludge Pump;

respondents before the Regional Trial Court of CebuCity.[12]

2.) That








the said

receivables from Toledo Power Corporation in the amount of



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









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

admitted petitioners allegations with respect to the sale transactions
entered into by Impact Systems and petitioner between January and April

3.) That







1995.[15] He, however, disputed the total amount of Impact Systems


Following the execution of the Deed of Assignment, petitioner delivered to


only P220,000.00.









respondents the sludge pump as shown by Invoice No. 12034 dated 30 June

By way of special and affirmative defenses, respondent EDWIN

alleged that he is not a real party in interest in this case. According to him,

Allegedly unbeknownst to petitioner, respondents, despite the

he was acting as mere agent of his principal, which was the Impact

existence of the Deed of Assignment, proceeded to collect from Toledo

Systems, in his transaction with petitioner and the latter was very much

Power Company the amount of P365,135.29 as evidenced by Check

aware of this fact. In support of this argument, petitioner points to

Voucher No. 0933


prepared by said power company and an official receipt

dated 15 August 1995 issued by Impact Systems.


Alarmed by this

paragraphs 1.2 and 1.3 of petitioners Complaint stating

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


of Cebu City. He






A study of Annex G to the complaint shows that in the

proprietorship business known as Impact Systems Sales

Deed of Assignment, defendant Edwin B. Cuizon acted in

(Impact Systems for brevity), with office located at 46-A del

behalf of or represented [Impact] Systems Sales; that

Rosario Street, Cebu City, where he may be served summons

[Impact] Systems Sale is a single proprietorship entity and

and other processes of the Honorable Court.

the complaint shows that defendant Erwin H. Cuizon is the

proprietor; that plaintiff corporation is represented by its

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

general manager Alberto de Jesus in the contract which is

married, a resident of Cebu City. He is the Sales Manager of

dated June 28, 1995. A study of Annex H to the complaint

Impact Systems and is sued in this action in such capacity.


reveals that [Impact] Systems Sales which is owned solely by








of P50,000.00 that Annex H is dated June 30, 1995 or two

On 26 June 1998, petitioner filed a Motion to Declare Defendant

days after the execution of Annex G, thereby showing that

ERWIN in Default with Motion for Summary Judgment. The trial court

[Impact] Systems Sales ratified the act of Edwin B. Cuizon;

granted petitioners motion to declare respondent ERWIN in default for his

the records further show that plaintiff knew that [Impact]

failure to answer within the prescribed period despite the opportunity

Systems Sales, the principal, ratified the act of Edwin B.

granted[18] but it denied petitioners motion for summary judgment in its

Cuizon, the agent, when it accepted the down payment

Order of 31 August 2001 and scheduled the pre-trial of the case on 16

of P50,000.00. Plaintiff, therefore, cannot say that it was

October 2001.


However, the conduct of the pre-trial conference was

deceived by defendant Edwin B. Cuizon, since in the instant

deferred pending the resolution by the trial court of the special and

case the principal has ratified the act of its agent and plaintiff

affirmative defenses raised by respondent EDWIN.


knew about said ratification. Plaintiff could not say that the
subject contract was entered into by Edwin B. Cuizon in

After the filing of respondent EDWINs Memorandum [21] in support of

his special and affirmative defenses and petitioners opposition



excess of his powers since [Impact] Systems Sales made a

down payment of P50,000.00 two days later.

the trial court rendered its assailed Order dated 29 January 2002 dropping
respondent EDWIN as a party defendant in this case. According to the trial

In view of the Foregoing, the Court directs that

defendant Edwin B. Cuizon be dropped as party defendant. [23]

Art. 1897. The agent who acts as such is not personally

liable to the party with whom he contracts, unless he
Aggrieved by the adverse ruling of the trial court, petitioner brought the

expressly binds himself or exceeds the limits of his authority

matter to the Court of Appeals which, however, affirmed the 29 January

without giving such party sufficient notice of his powers.

2002 Order of the court a quo. The dispositive portion of the now assailed
Decision of the Court of Appeals states:

Petitioner contends that the Court of Appeals failed to appreciate the effect
of ERWINs act of collecting the receivables from the Toledo Power

WHEREFORE, finding no viable legal ground to reverse or

Corporation notwithstanding the existence of the Deed of Assignment

modify the conclusions reached by the public respondent in

signed by EDWIN on behalf of Impact Systems. While said collection did not

his Order dated January 29, 2002, it is herebyAFFIRMED.


revoke the agency relations of respondents, petitioner insists that ERWINs

action repudiated EDWINs power to sign the Deed of Assignment. As EDWIN

Petitioners motion for reconsideration was denied by the appellate court in

did not sufficiently notify it of the extent of his powers as an agent,

its Resolution promulgated on 17 March 2005. Hence, the present petition

petitioner claims that he should be made personally liable for the

raising, as sole ground for its allowance, the following:

obligations of his principal.[26]


Petitioner also contends that it fell victim to the fraudulent scheme of


respondents who induced it into selling the one unit of sludge pump to


Impact Systems and signing the Deed of Assignment. Petitioner directs the


attention of this Court to the fact that respondents are bound not only by


their principal and agent relationship but are in fact full-blooded brothers











whose successive contravening acts bore the obvious signs of conspiracy to

defraud petitioner.[27]

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

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

Code which states:

not a real party in interest in this case and it was proper for the trial court
to have him dropped as a defendant. He insists that he was a mere agent
of Impact Systems which is owned by ERWIN and that his status as such is

known even to petitioner as it is alleged in the Complaint that he is being

sued in his capacity as the sales manager of the said business

In this case, the parties do not dispute the existence of the agency

venture. Likewise, respondent EDWIN points to the Deed of Assignment

relationship between respondents ERWIN as principal and EDWIN as

which clearly states that he was acting as a representative of Impact

agent. The only cause of the present dispute is whether respondent EDWIN

Systems in said transaction.

exceeded his authority when he signed the Deed of Assignment thereby

binding himself personally to pay the obligations to petitioner. Petitioner

We do not find merit in the petition.

firmly believes that respondent EDWIN acted beyond the authority granted
by his principal and he should therefore bear the effect of his deed

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

pursuant to Article 1897 of the New Civil Code.

do something in representation or on behalf of another with the latters

consent.[29] The underlying principle of the contract of agency is to

We disagree.

accomplish results by using the services of others to do a great variety of

Article 1897 reinforces the familiar doctrine that an agent, who acts as

things like selling, buying, manufacturing, and transporting.


Its purpose

such, is not personally liable to the party with whom he contracts. The

is to extend the personality of the principal or the party for whom another

same provision, however, presents two instances when an agent becomes

acts and from whom he or she derives the authority to act.


It is said that

personally liable to a third person. The first is when he expressly binds

the basis of agency is representation, that is, the agent acts for and on

himself to the obligation and the second is when he exceeds his

behalf of the principal on matters within the scope of his authority and said

authority. In the last instance, the agent can be held liable if he does not

acts have the same legal effect as if they were personally executed by the

give the third party sufficient notice of his powers. We hold that respondent



By this legal fiction, the actual or real absence of the principal

EDWIN does not fall within any of the exceptions contained in this provision.

is converted into his legal or juridical presence qui facit per alium facit per

The Deed of Assignment clearly states that respondent EDWIN signed

thereon as the sales manager of Impact Systems. As discussed elsewhere,

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

the position of manager is unique in that it presupposes the grant of broad

of the parties to establish the relationship; (2) the object is the execution of

powers with which to conduct the business of the principal, thus:

a juridical act in relation to a third person; (3) the agent acts as a

representative and not for himself; (4) the agent acts within the scope of
his authority.


The powers of an agent are particularly broad in the

case of one acting as a general agent or manager; such a

position presupposes a degree of confidence reposed and

investiture with liberal powers for the exercise of judgment

We likewise take note of the fact that in this case, petitioner is seeking to

and discretion in transactions and concerns which are

recover both from respondents ERWIN, the principal, and EDWIN, the

incidental or appurtenant to the business entrusted to his

agent. It is well to state here that Article 1897 of the New Civil Code upon

care and management. In the absence of an agreement to

which petitioner anchors its claim against respondent EDWIN does not hold

the contrary, a managing agent may enter into any contracts

that in case of excess of authority, both the agent and the principal are

that he deems reasonably necessary or requisite for the

liable to the other contracting party. [39] To reiterate, the first part of Article

protection of the interests of his principal entrusted to his

1897 declares that the principal is liable in cases when the agent acted

management. x x x.[35]

within the bounds of his authority. Under this, the agent is completely
absolved of any liability. The second part of the said provision presents the

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

situations when the agent himself becomes liable to a third party when he

acted well-within his authority when he signed the Deed of Assignment. To

expressly binds himself or he exceeds the limits of his authority without

recall, petitioner refused to deliver the one unit of sludge pump unless it

giving notice of his powers to the third person. However, it must be pointed

received, in full, the payment for Impact Systems indebtedness. [36] We may

out that in case of excess of authority by the agent, like what petitioner

very well assume that Impact Systems desperately needed the sludge

claims exists here, the law does not say that a third person can recover

pump for its business since after it paid the amount of fifty thousand pesos

from both the principal and the agent.[40]

(P50,000.00) as down payment on 3 March 1995, [37] it still persisted in

negotiating with petitioner which culminated in the execution of the Deed

As we declare that respondent EDWIN acted within his authority as an

of Assignment of its receivables from Toledo Power Company on 28 June

agent, who did not acquire any right nor incur any liability arising from the

1995.[38] The significant amount of time spent on the negotiation for the

Deed of Assignment, it follows that he is not a real party in interest who

sale of the sludge pump underscores Impact Systems perseverance to get

should be impleaded in this case. A real party in interest is one who stands

hold of the said equipment. There is, therefore, no doubt in our mind that

to be benefited or injured by the judgment in the suit, or the party entitled

respondent EDWINs participation in the Deed of Assignment was

to the avails of the suit. [41] In this respect, we sustain his exclusion as a

reasonably necessary or was required in order for him to protect the

defendant in the suit before the court a quo.

business of his principal. Had he not acted in the way he did, the business
of his principal would have been adversely affected and he would have

WHEREFORE, premises considered, the present petition is DENIED and

violated his fiduciary relation with his principal.

the Decision dated 10 August 2004 and Resolution dated 17 March 2005 of

the Court of Appeals in CA-G.R. SP No. 71397, affirming the Order dated 29

dismissing the Complaint of private respondents for damages arising from


breach of contract of carriage, and awarding instead P90,000.00 as moral

2002 of






8, Cebu City,



Let the records of this case be remanded to the Regional Trial Court,

Sometime in February, 1970, the late Jose G. Gana and his family,

Branch 8, Cebu City, for the continuation of the proceedings against

numbering nine (the GANAS), purchased from AIR FRANCE through Imperial

respondent ERWIN CUIZON.

Travels, Incorporated, a duly authorized travel agent, nine (9) "open-dated"


air passage tickets for the Manila/Osaka/Tokyo/Manila route. The GANAS

paid a total of US$2,528.85 for their economy and first class fares. Said


FRANCE, petitioner,


tickets were bought at the then prevailing exchange rate of P3.90 per
US$1.00. The GANAS also paid travel taxes of P100.00 for each passenger.














aforementioned tickets with other tickets for the same route. At this time,

and EMILY SAN JUAN, respondents.

the GANAS were booked for the Manila/Osaka segment on AIR FRANCE
Flight 184 for 8 May 1970, and for the Tokyo/Manila return trip on AIR

Benjamin S. Valte for petitioner.

FRANCE Flight 187 on 22 May 1970. The aforesaid tickets were valid until 8
May 1971, the date written under the printed words "Non valuable apres de

Napoleon Garcia for private respondents.

(meaning, "not valid after the").

The GANAS did not depart on 8 May 1970.


Sometime in January, 1971, Jose Gana sought the assistance of Teresita

In this petition for review on certiorari, petitioner AIR FRANCE assails the
Decision of then respondent Court of Appeals

promulgated on 15

December 1980 in CA-G.R. No. 58164-R, entitled "Jose G. Gana, et al. vs.
Sociedad Nacionale Air France", which reversed the Trial Court's judgment

Manucdoc, a Secretary of the Sta. Clara Lumber Company where Jose Gana
was the Director and Treasurer, for the extension of the validity of their
tickets, which were due to expire on 8 May 1971. Teresita enlisted the help
of Lee Ella Manager of the Philippine Travel Bureau, who used to handle

travel arrangements for the personnel of the Sta. Clara Lumber Company.

Notwithstanding the warnings, the GANAS departed from Manila in the

Ella sent the tickets to Cesar Rillo, Office Manager of AIR FRANCE. The

afternoon of 7 May 1971 on board AIR FRANCE Flight 184 for Osaka, Japan.

tickets were returned to Ella who was informed that extension was not

There is no question with respect to this leg of the trip.

possible unless the fare differentials resulting from the increase in fares
triggered by an increase of the exchange rate of the US dollar to the

However, for the Osaka/Tokyo flight on 17 May 1971, Japan Airlines refused

Philippine peso and the increased travel tax were first paid. Ella then

to honor the tickets because of their expiration, and the GANAS had to

returned the tickets to Teresita and informed her of the impossibility of

purchase new tickets. They encountered the same difficulty with respect to


their return trip to Manila as AIR FRANCE also refused to honor their tickets.
They were able to return only after pre-payment in Manila, through their

In the meantime, the GANAS had scheduled their departure on 7 May 1971

relatives, of the readjusted rates. They finally flew back to Manila on

or one day before the expiry date. In the morning of the very day of their

separate Air France Frights on 19 May 1971 for Jose Gana and 26 May 1971

scheduled departure on the first leg of their trip, Teresita requested travel

for the rest of the family.

agent Ella to arrange the revalidation of the tickets. Ella gave the same
negative answer and warned her that although the tickets could be used by

On 25 August 1971, the GANAS commenced before the then Court of First

the GANAS if they left on 7 May 1971, the tickets would no longer be valid

Instance of Manila, Branch III, Civil Case No. 84111 for damages arising

for the rest of their trip because the tickets would then have expired on 8

from breach of contract of carriage.

May 1971. Teresita replied that it will be up to the GANAS to make the
arrangements. With that assurance, Ella on his own, attached to the tickets
validating stickers for the Osaka/Tokyo flight, one a JAL. sticker and the
other an SAS (Scandinavian Airways System) sticker. The SAS sticker
indicates thereon that it was "Reevaluated by: the Philippine Travel Bureau,
Branch No. 2" (as shown by a circular rubber stamp) and signed "Ador", and
the date is handwritten in the center of the circle. Then appear under
printed headings the notations: JL. 108 (Flight), 16 May (Date), 1040 (Time),
OK (status). Apparently, Ella made no more attempt to contact AIR FRANCE
as there was no more time.

AIR FRANCE traversed the material allegations of the Complaint and alleged
that the GANAS brought upon themselves the predicament they found
themselves in and assumed the consequential risks; that travel agent Ella's
affixing of validating stickers on the tickets without the knowledge and
consent of AIR FRANCE, violated airline tariff rules and regulations and was
beyond the scope of his authority as a travel agent; and that AIR FRANCE
was not guilty of any fraudulent conduct or bad faith.

On 29 May 1975, the Trial Court dismissed the Complaint based on Partial











and Additional Stipulations of Fact as wen as on the documentary and

Transportation Association (IATA), included in paragraphs 9, 10, and 11 of

testimonial evidence.

the Stipulations of Fact between the parties in the Trial Court, dated 31
March 1973, an airplane ticket is valid for one year. "The passenger must

The GANAS appealed to respondent Appellate Court. During the pendency

undertake the final portion of his journey by departing from the last point at

of the appeal, Jose Gana, the principal plaintiff, died.

which he has made a voluntary stop before the expiry of this limit (parag.

On 15 December 1980, respondent Appellate Court set aside and reversed

the Trial Court's judgment in a Decision, which decreed:
WHEREFORE, the decision appealed from is set aside. Air
France is hereby ordered to pay appellants moral damages in
the total sum of NINETY THOUSAND PESOS (P90,000.00) plus

3.1.2. ) ... That is the time allowed a passenger to begin and to complete
his trip (parags. 3.2 and 3.3.). ... A ticket can no longer be used for travel if
its validity has expired before the passenger completes his trip (parag.
3.5.1.) ... To complete the trip, the passenger must purchase a new ticket
for the remaining portion of the journey" (ibid.)

From the foregoing rules, it is clear that AIR FRANCE cannot be faulted for
breach of contract when it dishonored the tickets of the GANAS after 8 May

1971 since those tickets expired on said date; nor when it required the
GANAS to buy new tickets or have their tickets re-issued for the

Reconsideration sought by AIR FRANCE was denied, hence, petitioner's

Tokyo/Manila segment of their trip. Neither can it be said that, when upon

recourse before this instance, to which we gave due course.

sale of the new tickets, it imposed additional charges representing fare

differentials, it was motivated by self-interest or unjust enrichment

The crucial issue is whether or not, under the environmental milieu the

considering that an increase of fares took effect, as authorized by the Civil

GANAS have made out a case for breach of contract of carriage entitling

Aeronautics Board (CAB) in April, 1971. This procedure is well in accord with

them to an award of damages.

the IATA tariff rules which provide:

We are constrained to reverse respondent Appellate Court's affirmative


ruling thereon.

3.1 General Rule.

returned the tickets spin, that they could not

be extended. They could be extended by

All journeys must be charged for at the fare (or charge) in

paying the additional fare, additional tax and

effect on the date on which transportation commences from

additional exchange during that time.

the point of origin. Any ticket sold prior to a change of fare or

charge (increase or decrease) occurring between the date of

Q You said so to Mrs. Manucdoc?

commencement of the journey, is subject to the above

A Yes, sir." ...

general rule and must be adjusted accordingly. A new ticket

must be issued and the difference is to be collected or
refunded as the case may be. No adjustment is necessary if
the increase or decrease in fare (or charge) occurs when the
journey is already commenced.

The ruling relied on by respondent Appellate Court, therefore, in KLM. vs.

Court of Appeals, 65 SCRA 237 (1975), holding that it would be unfair to
charge respondents therein with automatic knowledge or notice of
conditions in contracts of adhesion, is inapplicable. To all legal intents and

The GANAS cannot defend by contending lack of knowledge of those rules

purposes, Teresita was the agent of the GANAS and notice to her of the


rejection of the request for extension of the validity of the tickets was










arrangements for the GANAS, was duly informed by travel agent Ella of the
advice of Reno, the Office Manager of Air France, that the tickets in
question could not be extended beyond the period of their validity without
paying the fare differentials and additional travel taxes brought about by
the increased fare rate and travel taxes.

notice to the GANAS, her principals.

The SAS validating sticker for the Osaka/Tokyo flight affixed by Era showing
reservations for JAL. Flight 108 for 16 May 1971, without clearing the same
with AIR FRANCE allegedly because of the imminent departure of the
GANAS on the same day so that he could not get in touch with Air


was certainly in contravention of IATA rules although as he had

explained, he did so upon Teresita's assurance that for the onward flight
Q What did you tell Mrs. Manucdoc, in turn

from Osaka and return, the GANAS would make other arrangements.

after being told this by Mr. Rillo?

Q Referring you to page 33 of the transcript of
A I told her, because that is the reason why

the last session, I had this question which

they accepted again the tickets when we

reads as follows: 'But did she say anything to

you when you said that the tickets were about

A The arrangement for the airline because the

to expire?' Your answer was: 'I am the one who

tickets would expire on May 7, and they

asked her. At that time I told her if the tickets

insisted on leaving. I asked Mrs. Manucdoc

being used ... I was telling her what about their

what about the return onward portion because

bookings on the return. What about their travel

they would be travelling to Osaka, and her

on the return? She told me it is up for the

answer was, it is up to for the Ganas to make

Ganas to make the arrangement.' May I know

the arrangement.

from you what did you mean by this testimony

Q Exactly what were the words of Mrs.

of yours?

Manucdoc when you told her that? If you can

A That was on the day when they were asking

remember, what were her exact words?

me on May 7, 1971 when they were checking

the tickets. I told Mrs. Manucdoc that I was

A Her words only, it is up for the Ganas to

going to get the tickets. I asked her what about

make the arrangement.

the tickets onward from the return from Tokyo,

Q This was in Tagalog or in English?

and her answer was it is up for the Ganas to

make the arrangement, because I told her that

A I think it was in English. ...

they could leave on the seventh, but they

could take care of that when they arrived in

The circumstances that AIR FRANCE personnel at the ticket counter in the


airport allowed the GANAS to leave is not tantamount to an implied

Q What do you mean?

A The Ganas will make the arrangement from
Osaka, Tokyo and Manila.
Q What arrangement?

ratification of travel agent Ella's irregular actuations. It should be recalled

that the GANAS left in Manila the day before the expiry date of their tickets
and that "other arrangements" were to be made with respect to the
remaining segments. Besides, the validating stickers that Ella affixed on his
own merely reflect the status of reservations on the specified flight and
could not legally serve to extend the validity of a ticket or revive an expired

The conclusion is inevitable that the GANAS brought upon themselves the

This is a petition for certiorari to review the decision of the Court of Appeals

predicament they were in for having insisted on using tickets that were due

promulgated on January 29, 1968 in CA-G. R. NO. 35721-R entitled "Claro L.

to expire in an effort, perhaps, to beat the deadline and in the thought that

Laureta, plaintiff-appellee versus Marcos Mata, Codidi Mata and Fermin

by commencing the trip the day before the expiry date, they could

Caram, Jr., defendants- appellants; Tampino (Mansaca), et al. Intervenors-

complete the trip even thereafter. It should be recalled that AIR FRANCE

appellants," affirming the decision of the Court of First Instance of Davao in

was even unaware of the validating SAS and JAL. stickers that Ella had

Civil Case No. 3083.

affixed spuriously. Consequently, Japan Air Lines and AIR FRANCE merely
acted within their contractual rights when they dishonored the tickets on

On June 25, 1959, Claro L. Laureta filed in the Court of First Instance of

the remaining segments of the trip and when AIR FRANCE demanded

Davao an action for nullity, recovery of ownership and/or reconveyance

payment of the adjusted fare rates and travel taxes for the Tokyo/Manila

with damages and attorney's fees against Marcos Mata, Codidi Mata, Fermin


Z. Caram, Jr. and the Register of Deeds of Davao City.

WHEREFORE, the judgment under review is hereby reversed and set aside,

On June 10, 1945, Marcos Mata conveyed a large tract of agricultural land

and the Amended Complaint filed by private respondents hereby dismissed.

covered by Original Certificate of Title No. 3019 in favor of Claro Laureta,

plaintiff, the respondent herein. The deed of absolute sale in favor of the
G.R. No. L-28740 February 24, 1981

plaintiff was not registered because it was not acknowledged before a

notary public or any other authorized officer. At the time the sale was




JR., petitioner,

executed, there was no authorized officer before whom the sale could be


acknowledged inasmuch as the civil government in Tagum, Davao was not

CLARO L. LAURETA, respondent.

as yet organized. However, the defendant Marcos Mata delivered to Laureta


the peaceful and lawful possession of the premises of the land together
with the pertinent papers thereof such as the Owner's Duplicate Original
Certificate of Title No. 3019, sketch plan, tax declaration, tax receipts and
other papers related thereto.

Since June 10, 1945, the plaintiff Laureta had

been and is stin in continuous, adverse and notorious occupation of said

land, without being molested, disturbed or stopped by any of the
defendants or their representatives. In fact, Laureta had been paying realty

taxes due thereon and had introduced improvements worth not less than
P20,000.00 at the time of the filing of the complaint.

requests were laws; that although the defendant Mata did not like to sell his
property or sign the document without even understanding the same, he
was ordered to accept P650.00 Mindanao Emergency notes; and that due to

On May 5, 1947, the same land covered by Original Certificate of Title No.

his fear of harm or danger that will happen to him or to his family, if he

3019 was sold by Marcos Mata to defendant Fermin Z. Caram, Jr., petitioner

refused he had no other alternative but to sign the document.

herein. The deed of sale in favor of Caram was acknowledged before Atty.
Abelardo Aportadera. On May 22, 1947, Marcos Mata, through Attys.

The defendants Marcos Mata and Codidi Mata also admit the existence of a

Abelardo Aportadera and Gumercindo Arcilla, filed with the Court of First

record in the Registry of Deeds regarding a document allegedly signed by

Instance of Davao a petition for the issuance of a new Owner's Duplicate of

him in favor of his co-defendant Fermin Caram, Jr. but denies that he ever

Original Certificate of Title No. 3019, alleging as ground therefor the loss of

signed the document for he knew before hand that he had signed a deed of

said title in the evacuation place of defendant Marcos Mata in Magugpo,

sale in favor of the plaintiff and that the plaintiff was in possession of the

Tagum, Davao. On June 5, 1947, the Court of First Instance of Davao issued

certificate of title; that if ever his thumb mark appeared in the document

an order directing the Register of Deeds of Davao to issue a new Owner's

purportedly alienating the property to Fermin Caram, did his consent was

Duplicate Certificate of Title No. 3019 in favor of Marcos Mata and declaring

obtained through fraud and misrepresentation for the defendant Mata is

the lost title as null and void. On December 9, 1947, the second sale

illiterate and ignorant and did not know what he was signing; and that he

between Marcos Mata and Fermin Caram, Jr. was registered with the

did not receive a consideration for the said sale.

Register of Deeds. On the same date, Transfer Certificate of Title No. 140
was issued in favor of Fermin Caram Jr.

The defendant Fermin Caram Jr. filed his answer on October 23, 1959
alleging that he has no knowledge or information about the previous

On August 29, 1959, the defendants Marcos Mata and Codidi Mata filed

encumbrances, transactions, and alienations in favor of plaintiff until the

their answer with counterclaim admitting the existence of a private

filing of the complaints.

absolute deed of sale of his only property in favor of Claro L. Laureta but
alleging that he signed the same as he was subjected to duress, threat and

The trial court rendered a decision dated February 29, 1964, the dispositive

intimidation for the plaintiff was the commanding officer of the 10th division

portion of which reads:

USFIP operating in the unoccupied areas of Northern Davao with its

headquarters at Project No. 7 (Km. 60, Davao Agusan Highways), in the
Municipality of Tagum, Province of Davao; that Laureta's words and

1. Declaring that the deed of sale, Exhibit A, executed by

acknowledged by him and approved by the Secretary of

Marcos Mata in favor of Claro L. Laureta stands and prevails

Agriculture and Natural Resources, and

over the deed of sale, Exhibit F, in favor of Fermin Caram, Jr.;

8. Dismissing the counterclaim and cross claim of Marcos
2. Declaring as null and void the deed of sale Exhibit F, in

Mata and Codidi Mata, the counterclaim of Caram, Jr., the

favor of Fermin Caram, Jr.;

answer in intervention, counterclaim and cross-claim of the


3. Directing Marcos Mata to acknowledge the deed of sale,

Exhibit A, in favor of Claro L. Laureta;

The Court makes no pronouncement as to costs.

4. Directing Claro L. Laureta to secure the approval of the


Secretary of Agriculture and Natural Resources on the deed,


Exhibit A, after Marcos Mata shall have acknowledged the

The defendants appealed from the judgment to the Court of Appeals.

same before a notary public;

appeal was docketed as CA-G.R. NO. 35721- R.

5. Directing Claro L. Laureta to surrender to the Register of

The Court of Appeals promulgated its decision on January 29, 1968

Deeds for the City and Province of Davao the Owner's

affirming the judgment of the trial court.

Duplicate of Original Certificate of Title No. 3019 and the

latter to cancel the same;
6. Ordering the Register of Deeds for the City and Province of
Davao to cancel Transfer Certificate of Title No. T-140 in the
name of Fermin Caram, Jr.;
7. Directing the Register of Deeds for the City and Province of
Davao to issue a title in favor of Claro L. Laureta, Filipino,
resident of Quezon City, upon presentation of the deed
executed by Marcos Mata in his favor, Exhibit A, duly

In his brief, the petitioner assigns the following errors:






























other alleged representative, Atty. Aportadera, merely acted as a notary

public in the execution of the deed of sale.



The contention of the petitioner has no merit. The facts of record show that


Mata, the vendor, and Caram, the second vendee had never met. During
the trial, Marcos Mata testified that he knows Atty. Aportadera but did not


know Caram.


Thus, the sale of the property could have only been through

Caram's representatives, Irespe and Aportadera. The petitioner, in his


answer, admitted that Atty. Aportadera acted as his notary public and


attorney-in-fact at the same time in the purchase of the property.










The petitioner contends that he cannot be considered to have acted in bad

faith because there is no direct proof showing that Irespe and Aportadera,
his alleged agents, had knowledge of the first sale to Laureta. This


contention is also without merit.


The Court of Appeals, in affirming the decision of the trial court, said:




The trial court, in holding that appellant Caram. Jr. was not a
purchaser in good faith, at the time he bought the same

The petitioner assails the finding of the trial court that the second sale of

property from appellant Mata, on May 5, 1947, entirely

the property was made through his representatives, Pedro Irespe and Atty.

discredited the testimony of Aportadera. Thus it stated in its

Abelardo Aportadera. He argues that Pedro Irespe was acting merely as a


broker or intermediary with the specific task and duty to pay Marcos Mata
the sum of P1,000.00 for the latter's property and to see to it that the

The testimony of Atty. Aportadera quoted elsewhere in this

requisite deed of sale covering the purchase was properly executed by

decision is hollow. There is every reason to believe that

Marcos Mata; that the Identity of the property to be bought and the price of

Irespe and he had known of the sale of the property in

the purchase had already been agreed upon by the parties; and that the










accompanied by Leaning Mansaca, went to the office of Atty.

We agree with His Honor's conclusion on this particular point,

Aportadera for the sale of the same property to Caram, Jr.,

on two grounds the first, the same concerns matters

represented by Irespe as attorney-in-fact. Ining Mansaca was

affecting the credibility of a witness of which the findings of

with the two Irespe and Mata to engage the services 6f

the trial court command great weight, and second, the same

Atty. Aportadera in the annulment of the sale of his land to

is borne out by the testimony of Atty. Aportadera himself.

Laureta. When Leaning Mansaca narrated to Atty. Aportadera

(t.s.n., pp. 187-190, 213-215, Restauro).

the circumstances under which his property had been sold to

Laureta, he must have included in the narration the sale of

Even if Irespe and Aportadera did not have actual knowledge of the first

the land of Mata, for the two properties had been sold on the

sale, still their actions have not satisfied the requirement of good faith. Bad

same occassion and under the same circumstances. Even as

faith is not based solely on the fact that a vendee had knowledge of the

early as immediately after liberation, Irespe, who was the

defect or lack of title of his vendor. In the case of Leung Yee vs. F. L. Strong

witness in most of the cases filed by Atty. Aportadera in his

Machinery Co. and Williamson, this Court held:

capacity as Provincial Fiscal of Davao against Laureta, must

have known of the purchases of lands made by Laureta when
he was regimental commander, one of which was the sale
made by Mata. It was not a mere coincidence that Irespe was

guardian ad

litem of





suggestion of Atty. Aportadera and attorney-in-fact of Caram,

The Court cannot help being convinced that Irespe, attorneyin-fact of Caram, Jr. had knowledge of the prior existing
transaction, Exhibit A, between Mata and Laureta over the
land, subject matter of this litigation, when the deed, Exhibit
F, was executed by Mata in favor of Caram, Jr. And this
knowledge has the effect of registration as to Caram, Jr. RA
pp. 123-124)


One who purchases real estate with knowledge of a defect or

lack of title in his vendor can not claim that he has acquired
title thereto in good faith, as against the true owner of the
land or of an interest therein, and the same rule must be
applied to one who has knowledge of facts which should have
put him upon such inquiry and investigation as might be
necessary to acquaint him with the defects in the title of his
In the instant case, Irespe and Aportadera had knowledge of circumstances
which ought to have put them an inquiry. Both of them knew that Mata's
certificate of title together with other papers pertaining to the land was
taken by soldiers under the command of Col. Claro L. Laureta.


Added to

this is the fact that at the time of the second sale Laureta was already in

possession of the land. Irespe and Aportadera should have investigated the

Art. 1544. If the same thing should have been sold to

nature of Laureta's possession. If they failed to exercise the ordinary care

different vendees, the ownership shall be transferred to the

expected of a buyer of real estate they must suffer the consequences. The

person who may have first taken possession thereof in good

rule of caveat emptor requires the purchaser to be aware of the supposed

faith, if it should be movable property.

title of the vendor and one who buys without checking the vendor's title
takes all the risks and losses consequent to such failure.


Should it be immovable property, the ownership shall belong

to the person acquiring it who in good faith first recordered it

The principle that a person dealing with the owner of the registered land is

in the Registry of Property.

not bound to go behind the certificate and inquire into transactions the
should not apply in this case. It

Should there be no inscription, the ownership shag pertain to

was of common knowledge that at the time the soldiers of Laureta took the

the person who in good faith was first in the possession; and,

documents from Mata, the civil government of Tagum was not yet

in the absence thereof, to the person who presents the oldest

established and that there were no officials to ratify contracts of sale and

title, provided there is good faith. (1473)

existence of which is not there intimated


make them registerable. Obviously, Aportadera and Irespe knew that even
if Mata previously had sold t he Disputed such sale could not have been
There is no doubt then that Irespe and Aportadera, acting as agents of
Caram, purchased the property of Mata in bad faith. Applying the principle
of agency, Caram as principal, should also be deemed to have acted in bad
Article 1544 of the New Civil Code provides that:

Since Caram was a registrant in bad faith, the situation is as if there was no
registration at all.


The question to be determined now is, who was first in possession in good
faith? A possessor in good faith is one who is not aware that there exists in
his title or mode of acquisition any flaw which invalidates it.


Laureta was

first in possession of the property. He is also a possessor in good faith. It is

true that Mata had alleged that the deed of sale in favor of Laureta was
procured by force.


Such defect, however, was cured when, after the lapse

of four years from the time the intimidation ceased, Marcos Mata lost both
his rights to file an action for annulment or to set up nullity of the contract
as a defense in an action to enforce the same.

Anent the fourth error assigned, the petitioner contends that the second

Since the second deed of sale is not a voidable contract, Article 1391, Civil

deed of sale, Exhibit "F", is a voidable contract. Being a voidable contract,

Code of the Philippines which provides that the action for annulment shall

the action for annulment of the same on the ground of fraud must be

be brought within four (4) years from the time of the discovery of fraud

brought within four (4) years from the discovery of the fraud. In the case at

does not apply. Moreover, Laureta has been in continuous possession of the

bar, Laureta is deemed to have discovered that the land in question has

land since he bought it in June 1945.

been sold to Caram to his prejudice on December 9, 1947, when the Deed
of Sale, Exhibit "F" was recorded and entered in the Original Certificate of

A more important reason why Laureta's action could not have prescribed is

Title by the Register of Deeds and a new Certificate of Title No. 140 was

that the second contract of sale, having been registered in bad faith, is null

issued in the name of Caram. Therefore, when the present case was filed on

and void. Article 1410 of the Civil Code of the Philippines provides that any

June 29, 1959, plaintiff's cause of action had long prescribed.

action or defense for the declaration of the inexistence of a contract does

not prescribe.

The petitioner's conclusion that the second deed of sale, "Exhibit F", is a

voidable contract is not correct. I n order that fraud can be a ground for the

In a Memorandum of Authorities

annulment of a contract, it must be employed prior to or simultaneous to

1978, the petitioner insists that the action of Laureta against Caram has

the, consent or creation of the contract. The fraud or dolo causante must be

prescribed because the second contract of sale is not void under Article

that which determines or is the essential cause of the contract. Dolo


causante as a ground for the annulment of contract is specifically described

contracts which are considered void. Moreover, Article 1544 of the New Civil

in Article 1338 of the New Civil Code of the Philippines as "insidious words

Code of the Philippines does not declare void a second sale of immovable

or machinations of one of the contracting parties" which induced the other

registered in bad faith.

to enter into a contract, and "without them, he would not have agreed to".


submitted to this Court on March 13,

of the Civil Code of the Philippines which enumerates the kinds of

The fact that the second contract is not considered void under Article 1409

The second deed of sale in favor of Caram is not a voidable contract. No

and that Article 1544 does not declare void a deed of sale registered in bad



faith does not mean that said contract is not void. Article 1544 specifically

machinations, the representatives of Caram, Irespe and Aportadera had

provides who shall be the owner in case of a double sale of an immovable

induced Mata to enter into the contract.

property. To give full effect to this provision, the status of the two contracts








must be declared valid so that one vendee may contract must be declared

void to cut off all rights which may arise from said contract. Otherwise,

and, instead, offered a wash out settlement, whereby the coconut oil

Article 1544 win be meaningless.

subject of the purchase contracts were to be sold back to IVO at the

prevailing price in the international market at the time of wash out. Thus,

The first sale in favor of Laureta prevails over the sale in favor of Caram.
WHEREFORE, the petition is hereby denied and the decision of the Court of
Appeals sought to be reviewed is affirmed, without pronouncement as to
INC., respondent.

IVO bound itself to pay to Safic the difference between the said prevailing
price and the contract price of the 2,000 long tons of crude coconut oil,
which amounted to US$293,500.00. IVO failed to pay this amount despite
repeated oral and written demands.
Under its second cause of action, Safic alleged that on eight occasions
between April 24, 1986 and October 31, 1986, it placed purchase orders
with IVO for a total of 4,750 tons of crude coconut oil, covered by Purchase
Contract Nos.






A601681, A601683 and A601770A/B/C/. When IVO failed to honor its

obligation under the wash out settlement narrated above, Safic demanded
that IVO make marginal deposits within forty-eight hours on the eight


purchase contracts in amounts equivalent to the difference between the

contract price and the market price of the coconut oil, to compensate it for

Petitioner Safic Alcan & Cie (hereinafter, Safic) is a French corporation

the damages it suffered when it was forced to acquire coconut oil at a

engaged in the international purchase, sale and trading of coconut oil. It

higher price. IVO failed to make the prescribed marginal deposits on the

filed with the Regional Trial Court of Manila, Branch XXV, a complaint dated

eight contracts, in the aggregate amount of US$391,593.62, despite written

February 26, 1987 against private respondent Imperial Vegetable Oil Co.,

demand therefor.

Inc. (hereinafter, IVO), docketed as Civil Case No. 87-39597. Petitioner Safic
alleged that on July 1, 1986 and September 25, 1986, it placed purchase

The demand for marginal deposits was based on the customs of the

orders with IVO for 2,000 long tons of crude coconut oil, valued at

trade, as governed by the provisions of the standard N.I.O.P. Contract and

US$222.50 per ton, covered by Purchase Contract Nos. A601446 and

the FOSFA Contract, to wit:

A601655, respectively, to be delivered within the month of January

1987. Private respondent, however, failed to deliver the said coconut oil

N.I.O.P. Contract, Rule 54 If the financial condition of either party to a

claim shall be liable to account for under this contract (sic). Should either

contract subject to these rules becomes so impaired as to create a

party be dissatisfied with the price, the matter shall be referred to

reasonable doubt as to the ability of such party to perform its obligations

arbitration. Where no such resale or repurchase takes place, the closing-out

under the contract, the other party may from time to time demand

price shall be fixed by a Price Settlement Committee appointed by the

marginal deposits to be made within forty-eight (48) hours after receipt of

Federation. (Underscoring ours.)[2]

such demand, such deposits not to exceed the difference between the
contract price and the market price of the goods covered by the contract on

Hence, Safic prayed that IVO be ordered to pay the sums of

the day upon which such demand is made, such deposit to bear interest at

US$293,500.00 and US$391,593.62, plus attorneys fees and litigation

the prime rate plus one percent (1%) per annum. Failure to make such

expenses. The complaint also included an application for a writ of

deposit within the time specified shall constitute a breach of contract by the

preliminary attachment against the properties of IVO.

party upon whom demand for deposit is made, and all losses and expenses
resulting from such breach shall be for the account of the party upon whom
such demand is made. (Underscoring ours.)[1]
FOSFA Contract, Rule 54 BANKRUPTCY/INSOLVENCY: If before the fulfillment
of this contract either party shall suspend payment, commit an act of
bankruptcy, notify any of his creditors that he is unable to meet his debts or
that he has suspended payment or that he is about to suspend payment of
his debts, convene, call or hold a meeting either of his creditors or to pass a
resolution to go into liquidation (except for a voluntary winding up of a
solvent company for the purpose of reconstruction or amalgamation) or
shall apply for an official moratorium, have a petition presented for winding
up or shall have a Receiver appointed, the contract shall forthwith be
closed, either at the market price then current for similar goods or, at the
option of the other party at a price to be ascertained by repurchase or
resale and the difference between the contract price and such closing-out
price shall be the amount which the other party shall be entitled to

Upon Safics posting of the requisite bond, the trial court issued a writ of
preliminary attachment. Subsequently, the trial court ordered that the
assets of IVO be placed under receivership, in order to ensure the
preservation of the same.









defenses: Safic had no legal capacity to sue because it was doing business
in the Philippines without the requisite license or authority; the subject
contracts were speculative contracts entered into by IVOs then President,
Dominador Monteverde, in contravention of the prohibition by the Board of
Directors against engaging in speculative paper trading, and despite IVOs
lack of the necessary license from Central Bank to engage in such kind of
trading activity; and that under Article 2018 of the Civil Code, if a contract
which purports to be for the delivery of goods, securities or shares of stock
is entered into with the intention that the difference between the price
stipulated and the exchange or market price at the time of the pretended

delivery shall be paid by the loser to the winner, the transaction is null and

supposed to be milled were in all likelihood not yet growing when


Dominador Monteverde sold the crude coconut oil. As such, the 1986
contracts constituted trading in futures or in mere expectations.

IVO set up counterclaims anchored on harassment, paralyzation of

business, financial losses, rumor-mongering and oppressive action. Later,

The lower court further held that the subject contracts were ultra

IVO filed a supplemental counterclaim alleging that it was unable to operate

vires and were entered into by Dominador Monteverde without authority

its business normally because of the arrest of most of its physical assets;

from the Board of Directors. It distinguished between the 1985 contracts,

that its suppliers were driven away; and that its major creditors have


inundated it with claims for immediate payment of its debts, and China

presumably authorized to bind IVO, and the 1986 contracts, which were

Banking Corporation had foreclosed its chattel and real estate mortgages.

highly speculative in character. Moreover, the 1985 contracts were covered









by letters of credit, while the 1986 contracts were payable by telegraphic

During the trial, the lower court found that in 1985, prior to the date of

transfers, which were nothing more than mere promises to pay once the

the contracts sued upon, the parties had entered into and consummated a

shipments became ready. For these reasons, the lower court held that Safic

number of contracts for the sale of crude coconut oil. In those transactions,

cannot invoke the 1985 contracts as an implied corporate sanction for the

Safic placed several orders and IVO faithfully filled up those orders by

high-risk 1986 contracts, which were evidently entered into by Monteverde

shipping out the required crude coconut oil to Safic, totalling 3,500 metric

for his personal benefit.

tons. Anent the 1986 contracts being sued upon, the trial court refused to
declare the same as gambling transactions, as defined in Article 2018 of

The trial court ruled that Safic failed to substantiate its claim for actual

the Civil Code, although they involved some degree of speculation. After all,

damages. Likewise,

the court noted, every business enterprise carries with it a certain measure








of speculation or risk. However, the contracts performed in 1985, on one

hand, and the 1986 contracts subject of this case, on the other hand,
differed in that under the 1985 contracts, deliveries were to be made within
two months. This, as alleged by Safic, was the time needed for milling and
building up oil inventory. Meanwhile, the 1986 contracts stipulated that the
coconut oil were to be delivered within period ranging from eight months to
eleven to twelve months after the placing of orders. The coconuts that were

Thus, on August 28, 1992, the trial court rendered judgment as follows:
WHEREFORE, judgment is hereby rendered dismissing the complaint of
plaintiff Safic Alcan & Cie, without prejudice to any action it might
subsequently institute against Dominador Monteverde, the former President
of Imperial Vegetable Oil Co., Inc., arising from the subject matter of this

case. The counterclaim and supplemental counterclaim of the latter













pronouncement as to costs.
On September 12, 1996, the Court of Appeals rendered the assailed
The writ of preliminary attachment issued in this case as well as the order

Decision dismissing the appeals and affirming the judgment appealed

placing Imperial Vegetable Oil Co., Inc. under receivership are hereby

from in toto.[4]

dissolved and set aside.[3]

Hence, Safic filed the instant petition for review with this Court,
Both IVO and Safic appealed to the Court of Appeals, jointly docketed
as CA-G.R. CV No. 40820.
IVO raised only one assignment of error, viz:

substantially reiterating the errors it raised before the Court of Appeals and
maintaining that the Court of Appeals grievously erred when:
a. it declared that the 1986 forward contracts (i.e., Contracts Nos. A601446
and A60155 (sic) involving 2,000 long tons of crude coconut oil, and


Contracts Nos. A601297A/B, A601385, A601391, A601415, A601681.


A601683 and A601770A/B/C involving 4,500 tons of crude coconut oil) were


unauthorized acts of Dominador Monteverde which do not bind IVO in


whose name they were entered into. In this connection, the Court of

For its part, Safic argued that:


Appeals erred when (i) it ignored its own finding that (a) Dominador
Monteverde, as IVOs President, had an implied authority to make any
contract necessary or appropriate to the contract of the ordinary business
of the company; and (b) Dominador Monteverde had validly entered into
similar forward contracts for and on behalf of IVO in 1985; (ii) it
distinguished between the 1986 forward contracts despite the fact that the


Manila RTC has struck down IVOs objection to the 1986 forward contracts


(i.e. that they were highly speculative paper trading which the IVO Board of
Directors had prohibited Dominador Monteverde from engaging in because
it is a form of gambling where the parties do not intend actual delivery of

the coconut oil sold) and instead found that the 1986 forward contracts

In fine, Safic insists that the appellate court grievously erred when it

were not gambling; (iii) it relied on the testimony of Mr. Rodrigo Monteverde

did not declare that IVOs President, Dominador Monteverde, validly entered

in concluding that the IVO Board of Directors did not authorize its President,

into the 1986 contracts for and on behalf of IVO.

Dominador Monteverde, to enter into the 1986 forward contracts; and (iv) it
We disagree.

did not find IVO, in any case, estopped from denying responsibility for, and
liability under, the 1986 forward contracts because IVO had recognized
itself bound to similar forward contracts which Dominador Monteverde
entered into (for and on behalf of IVO) with Safic in 1985 notwithstanding
that Dominador Monteverde was (like in the 1986 forward contracts) not
expressly authorized by the IVO Board of Directors to enter into such
forward contracts;
b. it declared that Safic was not able to prove damages suffered by it,
despite the fact that Safic had presented not only testimonial, but also

Article III, Section 3 [g] of the By-Laws[5] of IVO provides, among others,
Section 3. Powers and Duties of the President. The President shall be
elected by the Board of Directors from their own number.
He shall have the following duties:

documentary, evidence which proved the higher amount it had to pay for
crude coconut oil (vis--vis the contract price it was to pay to IVO) when IVO

[g] Have direct and active management of the business and operation of

refused to deliver the crude coconut oil bought by Safic under the 1986

the corporation, conducting the same according to the orders, resolutions

forward contracts; and

and instruction of the Board of Directors and according to his own discretion
whenever and wherever the same is not expressly limited by such orders,

c. it failed to resolve the issue of whether or not IVO is liable to Safic under

resolutions and instructions.

the wash out contracts involving Contracts Nos. A601446 and A60155 (sic),
despite the fact that Safic had properly raised the issue on its appeal, and

It can be clearly seen from the foregoing provision of IVOs By-laws that

the evidence and the law support Safics position that IVO is so liable to

Monteverde had no blanket authority to bind IVO to any contract. He must


act according to the instructions of the Board of Directors. Even in instances

when he was authorized to act according to his discretion, that discretion
must not conflict with prior Board orders, resolutions and instructions. The











contracts[6] and that it did not authorize Monteverde to enter into

Under Article 1898[12] of the Civil Code, the acts of an agent beyond the

speculative contracts.[7] In fact, Monteverde had earlier proposed that the

scope of his authority do not bind the principal unless the latter ratifies the

company engage in such transactions but the IVO Board rejected his

same expressly or impliedly. It also bears emphasizing that when the third



Since the 1986 contracts marked a sharp departure from past

person knows that the agent was acting beyond his power or authority, the

IVO transactions, Safic should have obtained from Monteverde the prior

principal can not be held liable for the acts of the agent. If the said third

authorization of the IVO Board. Safic can not rely on the doctrine of implied

person is aware of such limits of authority, he is to blame, and is not

agency because before the controversial 1986 contracts, IVO did not enter

entitled to recover damages from the agent, unless the latter undertook to

into identical contracts with Safic. The basis for agency is representation

secure the principals ratification. [13]

and a person dealing with an agent is put upon inquiry and must discover
upon his peril the authority of the agent. [9] In the case of Bacaltos Coal

There was no such ratification in this case. When Monteverde entered

Mines v. Court of Appeals,[10] we elucidated the rule on dealing with an

into the speculative contracts with Safic, he did not secure the Boards

agent thus:

approval.[14] He also did not submit the contracts to the Board after their
consummation so there was, in fact, no occasion at all for ratification. The

Every person dealing with an agent is put upon inquiry and must discover

contracts were not reported in IVOs export sales book and turn-out book.

upon his peril the authority of the agent. If he does not make such inquiry,


he is chargeable with knowledge of the agents authority, and his ignorance

corporation.[16] It must be pointed out that the Board of Directors, not

of that authority will not be any excuse. Persons dealing with an assumed

Monteverde, exercises corporate power. [17] Clearly, Monteverdes speculative

agent, whether the assumed agency be a general or special one, are bound

contracts with Safic never bound IVO and Safic can not therefore enforce

at their peril, if they would hold the principal, to ascertain not only the fact

those contracts against IVO.

Neither were they reflected in other books and records of the

of the agency but also the nature and extent of the authority, and in case
either is controverted, the burden of proof is upon them to establish it. [11]

To bolster its cause, Safic raises the novel point that the IVO Board of
Directors did not set limitations on the extent of Monteverdes authority to

The most prudent thing petitioner should have done was to ascertain

sell coconut oil. It must be borne in mind in this regard that a question that

the extent of the authority of Dominador Monteverde. Being remiss in this

was never raised in the courts below can not be allowed to be raised for the

regard, petitioner can not seek relief on the basis of a supposed agency.

first time on appeal without offending basic rules of fair play, justice and
due process.[18] Such an issue was not brought to the fore either in the trial
court or the appellate court, and would have been disregarded by the latter

tribunal for the reasons previously stated. With more reason, the same does

Q. What do you mean by physical trading?

not deserve consideration by this Court.

A. Physical Trading means we buy and sell copras that are only available
Be that as it may, Safics belated contention that the IVO Board of

to us. We only have to sell the available stocks in our inventory.

Directors did not set limitations on Monteverdes authority to sell coconut oil
is belied by what appears on the record.Rodrigo Monteverde, who
succeeded Dominador Monteverde as IVO President, testified that the IVO
Board had set down the policy of engaging in purely physical trading thus:
Q. Now you said that IVO is engaged in trading. With whom does it
usually trade its oil?
A. I am not too familiar with trading because as of March 1987, I was not
yet an officer of the corporation, although I was at the time already
a stockholder, I think IVO is engaged in trading oil.
Q. As far as you know, what kind of trading was IVO engaged with?
A. It was purely on physical trading.
Q. How did you know this?
A. As a stockholder, rather as member of [the] Board of Directors, I
frequently visited the plant and from my observation, as I have to
supervise and monitor purchases of copras and also the sale of the
same, I observed that the policy of the corporation is for the

Q. And what is the other form of trading?

Atty. Fernando
No basis, your Honor.
Atty. Abad
Well, the witness said they are engaged in physical trading and what I
am saying [is] if there are any other kind or form of trading.
Witness may answer if he knows.
A. Trading future[s] contracts wherein the trader commits a price and to
deliver coconut oil in the future in which he is yet to acquire the
stocks in the future.
Atty. Abad

company to engaged (sic) or to purely engaged (sic)in physical


Q. Who established the so-called physical trading in IVO?

A. The Board of Directors, sir.

Atty. Abad

Atty. Abad.

Q. Were you a member of the board at the time?

Q. How did you know that?

A. In 1975, I am already a stockholder and a member.

A. There was a meeting held in the office at the factory and it was

Q. Then would [you] now answer my question?

brought out and suggested by our former president, Dominador

Monteverde, that the company should engaged (sic) in future[s]
contract[s] but it was rejected by the Board of Directors. It was only
Ador Monteverde who then wanted to engaged (sic) in this future[s]
Q. Do you know where this meeting took place?
A. As far as I know it was sometime in 1985.
Q. Do you know why the Board of Directors rejected the proposal of
Dominador Monteverde that the company should engaged (sic) in
future[s] contracts?
Atty. Fernando
Objection, your Honor, no basis.
Why dont you lay the basis?

Atty. Fernando
No basis, your Honor. What we are talking is about 1985.
Atty. Abad
Q. When you mentioned about the meeting in 1985 wherein the Board of
Directors rejected the future[s] contract[s], were you already a
member of the Board of Directors at that time?
A. Yes, sir.
Q. Do you know the reason why the said proposal of Mr. Dominador
Monteverde to engage in future[s] contract[s] was rejected by the
Board of Directors?
A. Because this future[s] contract is too risky and it partakes of
Q. Do you keep records of the Board meetings of the company?

A. Yes, sir.

Q. What do you mean by that the future[s] contracts were not entered
into the books of accounts of the company?

Q. Do you have a copy of the minutes of your meeting in 1985?

A. Incidentally our Secretary of the Board of Directors, Mr. Elfren Sarte,
died in 1987 or 1988, and despite [the] request of our office for us to
be furnished a copy he was not able to furnish us a copy.



A. Those were not recorded at all in the books of accounts of the

company, sir.[20]

Atty. Abad

Q. What did you do when you discovered these transactions?

Q. You said the Board of Directors were against the company engaging in

A. There was again a meeting by the Board of Directors of the

future[s] contracts. As far as you know, has this policy of the Board

corporation and that we agreed to remove the president and then I

of Directors been observed or followed?

was made to replace him as president.


Q. What else?

A. Yes, sir.

A. And a resolution was passed disowning the illegal activities of the

former president.[21]

Q. How far has this Dominador Monteverde been using the name of I.V.O.
in selling future contracts without the proper authority and consent
of the companys Board of Directors?
A. Dominador Monteverde never records those transactions he entered
into in connection with these future[s] contracts in the companys

Petitioner next argues that there was actually no difference between

the 1985 physical contracts and the 1986 futures contracts.
The contention is unpersuasive for, as aptly pointed out by the trial
court and sustained by the appellate court

books of accounts.
Rejecting IVOs position, SAFIC claims that there is no distinction between
Atty. Abad

the 1985 and 1986 contracts, both of which groups of contracts were

signed or authorized by IVOs President, Dominador Monteverde. The 1986

IVO. Since the buyers letter of credit guarantees payment to the seller as

contracts, SAFIC would bewail, were similarly with their 1985 predecessors,

soon as the latter is able to present the shipping documents covering the

forward sales contracts in which IVO had undertaken to deliver the crude

cargo, its opening usually mark[s] the fact that the transaction would be

coconut oil months after such contracts were entered into. The lead time

consummated.On the other hand, seven out of the ten 1986 contracts were

between the closing of the deal and the delivery of the oil supposedly

to be paid by telegraphic transfer upon presentation of the shipping

allowed the seller to accumulate enough copra to mill and to build up its

documents. Unlike the letter of credit, a mere promise to pay by telegraphic

inventory and so meet its delivery commitment to its foreign buyers. SAFIC


concludes that the 1986 contracts were equally binding, as the 1985

contracts. This fact lends an uncertain element in the 1986 contracts.










contracts were, on IVO.

3. Apart from the above, it is not disputed that with respect to the 1985
Subjecting the evidence on both sides to close scrutiny, the Court has found

contracts, IVO faithfully complied with Central Bank Circular No. 151 dated

some remarkable distinctions between the 1985 and 1986 contracts. x x x

April 1, 1963, requiring a coconut oil exporter to submit a Report of Foreign

Sales within twenty-four (24) hours after the closing of the relative sales

1. The 1985 contracts were performed within an average of two months

contract with a foreign buyer of coconut oil. But with respect to the

from the date of the sale. On the other hand, the 1986 contracts were to be

disputed 1986 contracts, the parties stipulated during the hearing that

performed within an average of eight and a half months from the dates of

none of these contracts were ever reported to the Central Bank, in violation

the sale. All the supposed performances fell in 1987. Indeed, the contract

of its above requirement. (See Stipulation of Facts dated June 13,

covered by Exhibit J was to be performed 11 to 12 months from the

1990). The 1986 sales were, therefore suspect.

execution of the contract.These pattern (sic) belies plaintiffs contention that

the lead time merely allowed for milling and building up of oil inventory. It is

4. It is not disputed that, unlike the 1985 contacts, the 1986 contracts were

evident that the 1986 contracts constituted trading in futures or in mere

never recorded either in the 1986 accounting books of IVO or in its annual

expectations. In all likelihood, the coconuts that were supposed to be milled

financial statement for 1986, a document that was prepared prior to the

for oil were not yet on their trees when Dominador Monteverde sold the

controversy. (Exhibits 6 to 6-0 and 7 to 7-I). Emelita Ortega, formerly an

crude oil to SAFIC.

assistant of Dominador Monteverde, testified that they were strange

goings-on about the 1986 contract. They were neither recorded in the

2. The mode of payment agreed on by the parties in their 1985 contracts

was uniformly thru the opening of a letter of credit LC by SAFIC in favor of

books nor reported to the Central Bank. What is more, in those unreported

cases where profits were made, such profits were ordered remitted to

with respect to quantity, price and date of delivery? 2.] Did Safic pay

unknown accounts in California, U.S.A., by Dominador Monteverde.

damages to its buyers?Where were the receipts? Did Safic have to procure
the equivalent oil from other sources? If so, who were these sources? Where

Evidently, Dominador Monteverde made business for himself, using the
name of IVO but concealing from it his speculative transactions.
Petitioner further contends that both the trial and appellate courts
erred in concluding that Safic was not able to prove its claim for
damages. Petitioner first points out that its wash out agreements with
Monteverde where IVO allegedly agreed to pay US$293,500.00 for some of
the failed contracts was proof enough and, second, that it presented
purchases of coconut oil it made from others during the period of IVOs
We remain unconvinced. The so-called wash out agreements are
clearly ultra vires and not binding on IVO. Furthermore, such agreements
did not prove Safics actual losses in the transactions in question. The fact is
that Safic did not pay for the coconut oil that it supposedly ordered from
IVO through Monteverede. Safic only claims that, since it was ready to pay
when IVO was not ready to deliver, Safic suffered damages to the extent
that they had to buy the same commodity from others at higher prices.
The foregoing claim of petitioner is not, however, substantiated by the
evidence and only raises several questions, to wit: 1.] Did Safic commit to
deliver the quantity of oil covered by the 1986 contracts to its own
buyers? Who were these buyers? What were the terms of those contracts

were their contracts and what were the terms of these contracts as to
quantity, price and date of delivery?
The records disclose that during the course of the proceedings in the
trial court, IVO filed an amended motion [22] for production and inspection of
the following documents: a.] contracts of resale of coconut oil that Safic
bought from IVO; b.] the records of the pooling and sales contracts covering
the oil from such pooling, if the coconut oil has been pooled and sold as
general oil; c.] the contracts of the purchase of oil that, according to Safic, it
had to resort to in order to fill up alleged undelivered commitments of IVO;
d.] all other contracts, confirmations, invoices, wash out agreements and
other documents of sale related to (a), (b) and (c). This amended motion
was opposed by Safic.[23] The trial court, however, in its September 16, 1988
Order,[24] ruled that:
From the analysis of the parties respective positions, conclusion can easily
be drawn therefrom that there is materiality in the defendants move: firstly,
plaintiff seeks to recover damages from the defendant and these are
intimately related to plaintiffs alleged losses which it attributes to the
default of the defendant in its contractual commitments; secondly, the
documents are specified in the amended motion. As such, plaintiff would
entertain no confusion as to what, which documents to locate and produce
considering plaintiff to be (without doubt) a reputable going concern in the
management of the affairs which is serviced by competent, industrious,

hardworking and diligent personnel; thirdly, the desired production and

if produced, the documents would have been adverse to Safics cause. In its

inspection of the documents was precipitated by the testimony of plaintiffs

efforts to bolster its claim for damages it purportedly sustained, Safic

witness (Donald OMeara) who admitted, in open court, that they are

suggests a substitute mode of computing its damages by getting the

available. If the said witness represented that the documents, as generally

average price it paid for certain quantities of coconut oil that it allegedly

described, are available, reason there would be none for the same witness

bought in 1987 and deducting this from the average price of the 1986

to say later that they could not be produced, even after they have been

contracts. But this mode of computation if flawed because: 1.] it is

clearly described.

conjectural since it rests on average prices not on actual prices multiplied

by the actual volume of coconut oil per contract; and 2.] it is based on the

Besides, if the Court may additionally dwell on the issue of damages, the

unproven assumption that the 1987 contracts of purchase provided the

production and inspection of the desired documents would be of

coconut oil needed to make up for the failed 1986 contracts. There is also

tremendous help in the ultimate resolution thereof.Plaintiff claims for the

no evidence that Safic had contracted to supply third parties with coconut

award of liquidated or actual damages to the tune of US$391,593.62 which,

oil from the 1986 contracts and that Safic had to buy such oil from others to

certainly, is a huge amount in terms of pesos, and which defendant

meet the requirement.

disputes. As the defendant cannot be precluded in taking exceptions to the

correctness and validity of such claim which plaintiffs witness (Donald

Along the same vein, it is worthy to note that the quantities of oil

OMeara) testified to, and as, by this nature of the plaintiffs claim for

covered by its 1987 contracts with third parties do not match the quantities

damages, proof thereof is a must which can be better served, if not amply

of oil provided under the 1986 contracts. Had Safic produced the

ascertained by examining the records of the related sales admitted to be in


plaintiffs possession, the amended motion for production and inspection of

determination of its actual damages would have been possible. This,

the defendant is in order.

unfortunately, was not the case. Suffice it to state in this regard that [T]he








power of the courts to grant damages and attorneys fees demands factual,
The interest of justice will be served best, if there would be a full disclosure

legal and equitable justification; its basis cannot be left to speculation and

by the parties on both sides of all documents related to the transactions in


WHEREFORE, in view of all the foregoing, the petition is DENIED for
Notwithstanding the foregoing ruling of the trial court, Safic did not
produce the required documents, prompting the court a quo to assume that

lack of merit.


The lower court rendered a judgment recognizing the plaintiff Fabiola

Severino as the acknowledged natural child of the said Melecio Severino
and ordering the defendant to convey 428 hectares of the land in question

G.R. No. L-18058

to the intervenor as administratrix of the estate of the said Melecio

January 16, 1923


Severino, to deliver to her the proceeds in his possession of a certain

SEVERINO, plaintiff-appellee,


SEVERINO, defendant-appellant.

FELICITAS VILLANUEVA, intervenor-appellee.







mortgage placed thereon by him and to pay the costs. From this judgment
only the defendant appeals.
The land described in the complaint forms one continuous tract and
consists of lots Nos. 827, 828, 834, and 874 of the cadaster of Silay,




Jose Ma. Arroyo, Jose Lopez Vito, and Fisher and DeWitt for appellees.

Province of Occidental Negros, which measure, respectively, 61 hectares,

74 ares, and 79 centiares; 76 hectares, 34 ares, and 79 centiares; 52
hectares, 86 ares, and 60 centiares and 608 hectares, 77 ares and 28


centiares, or a total of 799 hectares, 75 ares, and 46 centiares.

This is an action brought by the plaintiff as the alleged natural daughter

The evidence shows that Melecio Severino died on the 25th day of May,

and sole heir of one Melecio Severino, deceased, to compel the defendant

1915; that some 428 hectares of the land were recorded in the Mortgage

Guillermo Severino to convey to her four parcels of land described in the

Law Register in his name in the year 1901 by virtue of possessory

complaint, or in default thereof to pay her the sum of P800,000 in damages

information proceedings instituted on the 9th day of May of that year by his

for wrongfully causing said land to be registered in his own name. Felicitas

brother Agapito Severino in his behalf; that during the lifetime of Melecio

Villanueva, in her capacity as administratrix of the estate of Melecio

Severino the land was worked by the defendant, Guillermo Severino, his

Severino, has filed a complaint in intervention claiming in the same relief as

brother, as administrator for and on behalf of the said Melecio Severino;

the original plaintiff, except in so far as she prays that the conveyance be

that after Melecio's death, the defendant Guillermo Severino continued to

made, or damages paid, to the estate instead of to the plaintiff Fabiola

occupy the land; that in 1916 a parcel survey was made of the lands in the

Severino. The defendant answered both complaints with a general denial.

municipality of Silay, including the land here in question, and cadastral

proceedings were instituted for the registration of the lands titles within the
surveyed area; that in the cadastral proceedings the land here in question

was described as four separate lots numbered as above stated; that Roque

3. The trial court erred in rejecting the evidence offered by

Hofilea, as lawyer for Guillermo Severino, filed answers in behalf of the

defendant to establish the absence of fraud on his part in securing

latter in said proceedings claiming the lots mentioned as the property of his

title to the lands in Nacayao.

client; that no opposition was presented in the proceedings to the claims of

Guillermo Severino and the court therefore decreed the title in his favor, in

4. The trial court erred in concluding that the evidence adduced by

pursuance of which decree certificates of title were issued to him in the

plaintiff and intervenor established that defendant was guilty of

month of March, 1917.

fraud in procuring title to the lands in question in his name.

It may be further observed that at the time of the cadastral proceedings the

5. The trial court erred in declaring that the land that was formerly

plaintiff Fabiola Severino was a minor; that Guillermo Severino did not

placed in the name of Melecio Severino had an extent of either 434

appear personally in the proceedings and did not there testify; that the only

or 428 hectares at the time of his death.

testimony in support of his claims was that of his attorney Hofilea, who
swore that he knew the land and that he also knew that Guillermo Severino
inherited the land from his father and that he, by himself, and through his
predecessors in interest, had possessed the land for thirty years.

attachment without first giving the defendant an opportunity to be


1. The trial court erred in admitting the evidence that was offered by
plaintiff in order to establish the fact that said plaintiff was the







2. The trial court erred in finding that, under the evidence presented,
plaintiff was the legally acknowledged natural child of Melecio

litigation is P500 per hectare.

7. The trial court erred in granting the petition of the plaintiff for an

The appellant presents the following nine assignments of error:


6. The trial court erred in declaring that the value of the land in

8. The trial court erred in ordering the conveyance of 428 hectares

of land by defendant to the administratrix.
9. The trial court erred in failing or refusing to make any finding as to
the defendant's contention that the petition for attachment was
utterly devoid of any reasonable ground.
In regard to the first two assignments of error, we agree with the appellant
that the trial court erred in making a declaration in the present case as to

the recognition of Fabiola Severino as the natural child of Melecio Severino.

given to Melecio's brother Donato during the lifetime of the father Ramon

We have held in the case of Briz vs. Briz and Remigio (43 Phil., 763), that

Severino. As it appears that Ramon Severino died in 1896 and that the

"The legitimate heirs or kin of a deceased person who would be prejudiced

possessory information proceedings, upon which the finding of the trial

by a declaration that another person is entitled to recognition as the natural

court as to the area of the land is principally based, were not instituted until

child of such decedent, are necessary and indispensable parties to any

the year 1901, we are not disposed to disturb the conclusions of the trial

action in which a judgment declaring the right to recognition is sought." In

court on this point. Moreover, in the year 1913, the defendant Guillermo

the present action only the widow, the alleged natural child, and one of the

Severino testified under oath, in the case of Montelibano vs. Severino, that

brothers of the deceased are parties; the other potential heirs have not

the area of the land owned by Melecio Severino and of which he (Guillermo)

been included. But, inasmuch as the judgment appealed from is in favor of

was the administrator, embraced an area of 424 hectares. The fact that

the intervenor and not of the plaintiff, except to the extent of holding that

Melecio Severino, in declaring the land for taxation in 1906, stated that the

the latter is a recognized natural child of the deceased, this question is,

area was only 324 hectares and 60 ares while entitled to some weight is not

from the view we take of the case, of no importance in its final disposition.

conclusive and is not sufficient to overcome the positive statement of the

We may say, however, in this connection, that the point urged in appellant's

defendant and the recitals in the record of the possessory information

brief that it does not appear affirmatively from the evidence that, at the


time of the conception of Fabiola, her mother was a single woman, may be
sufficiently disposed of by a reference to article 130 of the Civil Code and

The sixth assignment of error is also of minor importance in view of the fact

subsection 1 of section 334 of the Code of Civil Procedure which create the

that in the dispositive part of the decision of the trial court, the only relief

presumption that a child born out of wedlock is natural rather than

given is an order requiring the appellant to convey to the administratrix the

illegitimate. The question of the status of the plaintiff Fabiola Severino and

land in question, together with such parts of the proceeds of the mortgage

her right to share in the inheritance may, upon notice to all the interested

thereon as remain in his hands. We may say further that the court's

parties, be determined in the probate proceedings for the settlement of the

estimate of the value of the land does not appear unreasonable and that,

estate of the deceased.

upon the evidence before us, it will not be disturbed.

The fifth assignment of error relates to the finding of the trial court that the

The seventh and within assignments of error relate to the ex parte granting

land belonging to Melecio Severino had an area of 428 hectares. The

by the trial court of a preliminary attachment in the case and the refusal of

appellant contends that the court should have found that there were only

the court to dissolve the same. We find no merit whatever in these

324 hectares inasmuch as one hundred hectares of the original area were

assignments and a detailed discussion of them is unnecessary.

The third, fourth, and eight assignments of error involve the vital points in

That the defendant came into the possession of the property here in

the case, are inter-related and may be conveniently considered together.












administration of the property, cannot be successfully disputed. His

The defendant argues that the gist of the instant action is the alleged fraud

testimony in the case ofMontelibano vs. Severino (civil case No. 902 of the

on his part in causing the land in question to be registered in his name; that

Court of First Instance of Occidental Negros and which forms a part of the

the trial court therefore erred in rejecting his offer of evidence to the effect

evidence in the present case) is, in fact, conclusive in this respect. He there

that the land was owned in common by all the heirs of Ramon Severino and

stated under oath that from the year 1902 up to the time the testimony

did not belong to Melecio Severino exclusively; that such evidence, if

was given, in the year 1913, he had been continuously in charge and

admitted, would have shown that he did not act with fraudulent intent in

occupation of the land as the encargado or administrator of Melecio

taking title to the land; that the trial court erred in holding him estopped

Severino; that he had always known the land as the property of Melecio

from denying Melecio's title; that more than a year having elapsed since

Severino; and that the possession of the latter had been peaceful,

the entry of the final decree adjudicating the land to the defendant, said

continuous, and exclusive. In his answer filed in the same case, the same

decree cannot now be reopened; that the ordering of the defendant to

defendant, through his attorney, disclaimed all personal interest in the land

convey the decreed land to the administratrix is, for all practical purposes,

and averred that it was wholly the property of his brother Melecio.

equivalent to the reopening of the decree of registration; that under section

38 of the Land Registration Act the defendant has an indefeasible title to

Neither is it disputed that the possession enjoyed by the defendant at the

the land; and that the question of ownership of the land being thus

time of obtaining his decree was of the same character as that held during

judicially settled, the question as to the previous relations between the

the lifetime of his brother, except in so far as shortly before the trial of the

parties cannot now be inquired into.

cadastral case the defendant had secured from his brothers and sisters a
relinguishment in his favor of such rights as they might have in the land.

Upon no point can the defendant's contentions be sustained. It may first be

observed that this is not an action under section 38 of the Land Registration

The relations of an agent to his principal are fiduciary and it is an

Act to reopen or set aside a decree; it is an action in personam against an

elementary and very old rule that in regard to property forming the subject-

agent to compel him to return, or retransfer, to the heirs or the estate of its

matter of the agency, he is estopped from acquiring or asserting a title

principal, the property committed to his custody as such agent, to execute

adverse to that of the principal. His position is analogous to that of a

the necessary documents of conveyance to effect such retransfer or, in

trustee and he cannot consistently, with the principles of good faith, be

default thereof, to pay damages.

allowed to create in himself an interest in opposition to that of his principal

or cestui que trust. Upon this ground, and substantially in harmony with the

In the case of Massie vs. Watts (6 Cranch, 148), the United States Supreme

principles of the Civil Law (see sentence of the supreme court of Spain of

Court, speaking through Chief Justice Marshall, said:

May 1, 1900), the English Chancellors held that in general whatever a

trustee does for the advantage of the trust estate inures to the benefit of

But Massie, the agent of Oneale, has entered and surveyed a portion

the cestui que trust. (Greenlaw vs. King, 5 Jur., 18; Ex parte Burnell, 7 Jur.,

of that land for himself and obtained a patent for it in his own name.



According to the clearest and best established principles of equity,

Oliver vs. Court, 8 Price, 127.) The same principle has been consistently

the agent who so acts becomes a trustee for his principal. He cannot

adhered to in so many American cases and is so well established that

hold the land under an entry for himself otherwise than as trustee

exhaustive citations of authorities are superfluous and we shall therefore

for his principal.

parte Hughes,


617; Ex

parte James,


limit ourselves to quoting a few of the numerous judicial expressions upon

the subject. The principle is well stated in the case of Gilbert vs. Hewetson
(79 Minn., 326):
A receiver, trustee, attorney, agent, or any other person occupying
fiduciary relations respecting property or persons, is utterly disabled
from acquiring for his own benefit the property committed to his
custody for management. This rule is entirely independent of the
fact whether any fraud has intervened. No fraud in fact need be
shown, and no excuse will be heard from the trustee. It is to avoid
the necessity of any such inquiry that the rule takes so general a
form. The rule stands on the moral obligation to refrain from placing
one's self in positions which ordinarily excite conflicts between selfinterest and integrity. It seeks to remove the temptation that might
arise out of such a relation to serve one's self-interest at the
expense of one's integrity and duty to another, by making it
impossible to profit by yielding to temptation. It applies universally
to all who come within its principle.

In the case of Felix vs. Patrick (145 U. S., 317), the United States Supreme
Court, after examining the authorities, said:
The substance of these authorities is that, wherever a person
obtains the legal title to land by any artifice or concealment, or by
making use of facilities intended for the benefit of another, a court
of equity will impress upon the land so held by him a trust in favor of
the party who is justly entitled to them, and will order the trust
executed by decreeing their conveyance to the party in whose favor
the trust was created. (Citing Bank of Metropolis vs. Guttschlick, 14



Moses vs. Murgatroyd,




Cumberland vs.Codrington, 3 Johns. Ch., 229, 261; Neilson vs. Blight,

1 Johns. Cas., 205; Weston vs. Barker, 12 Johns., 276.)
The same doctrine has also been adopted in the Philippines. In the case
of Uy Aloc vs. Cho Jan Ling (19 Phil., 202), the facts are stated by the court
as follows:

From the facts proven at the trial it appears that a number of

In the case at bar the legal title of the holder of the registered title is

Chinese merchants raised a fund by voluntary subscription with

not questioned; it is admitted that the members of the association

which they purchased a valuable tract of land and erected a large

voluntarily obtained the inscription in the name of Cho Jan Ling, and

building to be used as a sort of club house for the mutual benefit of

that they had no right to have that inscription cancelled; they do not

the subscribers to the fund. The subscribers organized themselves

seek such cancellation, and on the contrary they allege and prove

into an irregular association, which had no regular articles of

that the duly registered legal title to the property is in Cho Jan Ling,



but they maintain, and we think that they rightly maintain, that he

commercial registry or elsewhere. The association not having any

holds it under an obligation, both express and implied, to deal with it

existence as a legal entity, it was agreed to have the title to the

exclusively for the benefit of the members of the association, and

property placed in the name of one of the members, the defendant,

subject to their will.








Cho Jan Ling, who on his part accepted the trust, and agreed to hold
the property as the agent of the members of the association. After

In the case of Camacho vs. Municipality of Baliuag (28 Phil., 466), the

the club building was completed with the funds of the members of

plaintiff, Camacho, took title to the land in his own name, while acting as

the association, Cho Jan Ling collected some P25,000 in rents for

agent for the municipality. The court said:

which he failed and refused to account, and upon proceedings being

instituted to compel him to do so, he set up title in himself to the
club property as well as to the rents accruing therefrom, falsely
alleging that he had bought the real estate and constructed the
building with his own funds, and denying the claims of the members
of the association that it was their funds which had been used for
that purpose.
The decree of the court provided, among other things, for the conveyance
of the club house and the land on which it stood from the defendant, Cho
Jan Ling, in whose name it was registered, to the members of the
association. In affirming the decree, this court said:

There have been a number of cases before this court in which a title
to real property was acquired by a person in his own name, while
acting under a fiduciary capacity, and who afterwards sought to take
advantage of the confidence reposed in him by claiming the
ownership of the property for himself. This court has invariably held
such evidence competent as between the fiduciary and the cestui
que trust.



What judgment ought to be entered in this case? The court below

simply absolved the defendant from the complaint. The defendant

municipality does not ask for a cancellation of the deed. On the

that this superior equitable right be made effective by compelling the

contrary, the deed is relied upon the supplement the oral evidence

defendant, as the holder of the legal title, to transfer it to the estate.

showing that the title to the land is in the defendant. As we have

indicated in Consunji vs. Tison, 15 Phil., 81, and Uy Aloc vs. Cho Jan

We have already shown that before the issuance of the decree of

Ling, 19 Phil., 202, the proper procedure in such a case, so long as

registration it was the undoubted duty of the defendant to restore the

the rights of innocent third persons have not intervened, is to

property committed to his custody to his principal, or to the latter's estate,

compel a conveyance to the rightful owner. This ought and can be

and that the principal had a right of action in personam to enforce the

done under the issues raised and the proof presented in the case at

performance of this duty and to compel the defendant to execute the


necessary conveyance to that effect. The only question remaining for

consideration is, therefore, whether the decree of registration extinguishing

The case of Sy-Juco and Viardo vs. Sy-Juco (40 Phil., 634) is also in point.

this personal right of action.

As will be seen from the authorities quoted, and agent is not only estopped

In Australia and New Zealand, under statutes in this respect similar to ours,

from denying his principal's title to the property, but he is also disable from

courts of equity exercise general jurisdiction in matters of fraud and error

acquiring interests therein adverse to those of his principal during the term

with reference to Torrens registered lands, and giving attention to the

of the agency. But the defendant argues that his title has become res

special provisions of the Torrens acts, will issue such orders and direction to

adjudicata through the decree of registration and cannot now be disturbed.

all the parties to the proceedings as may seem just and proper under the
circumstances. They may order parties to make deeds of conveyance and if

This contention may, at first sight, appear to possess some force, but on

the order is disobeyed, they may cause proper conveyances to be made by

closer examination it proves untenable. The decree of registration

a Master in Chancery or Commissioner in accordance with the practice in

determined the legal title to the land as the date of the decree; as to that

equity (Hogg, Australian Torrens System, p. 847).

there is no question. That, under section 38 of the Land Registration Act,

this decree became conclusive after one year from the date of the entry is

In the Untied States courts have even gone so far in the exercise of their

not disputed and no one attempts to disturb the decree or the proceedings

equity jurisdiction as to set aside final decrees after the expiration of the

upon which it is based; the plaintiff in intervention merely contends that in


equity the legal title so acquired inured to the benefit of the estate of

(Baart vs. Martin, 99 Minn., 197). But, considering that equity follows the

Melecio Severino, the defendant's principal and cestui que trust and asks

law and that our statutes expressly prohibit the reopening of a decree after










one year from the date of its entry, this practice would probably be out of

Section 102 of the Act, after providing for actions for damages in which the

question here, especially so as the ends of justice may be attained by other

Insular Treasurer, as the Custodian of the Assurance Fund is a party,

equally effective, and less objectionable means.

contains the following proviso:

Turning to our own Land Registration Act, we find no indication there of an

Provided, however, That nothing in this Act shall be construed to

intention to cut off, through the issuance of a decree of registration,

deprive the plaintiff of any action which he may have against any

equitable rights or remedies such as those here in question. On the

person for such loss or damage or deprivation of land or of any

contrary, section 70 of the Act provides:

estate or interest therein without joining the Treasurer of the

Philippine Archipelago as a defendant therein.

Registered lands and ownership therein, shall in all respects be

subject to the same burdens and incidents attached by law to

That an action such as the present one is covered by this proviso can hardly

unregistered land. Nothing contained in this Act shall in any way be

admit of doubt. Such was also the view taken by this court in the case

construed to relieve registered land or the owners thereof from any

of Medina Ong-Quingco vs. Imaz and Warner, Barnes & Co. (27 Phil., 314),

rights incident to the relation of husband and wife, or from liability to

in which the plaintiff was seeking to take advantage of his possession of a

attachment on mesne process or levy on execution, or from liability

certificate of title to deprive the defendant of land included in that

to any lien of any description established by law on land and the

certificate and sold to him by the former owner before the land was

buildings thereon, or the interest of the owner in such land or

registered. The court decided adversely to plaintiff and in so doing said:

buildings, or to change the laws of descent, or the rights of partition

between coparceners, joint tenants and other cotenants, or the right

As between them no question as to the indefeasibility of a Torrens

to take the same by eminent domain, or to relieve such land from

title could arise. Such an action could have been maintained at any

liability to be appropriated in any lawful manner for the payment of

time while the property remained in the hands of the purchaser. The

debts, or to change or affect in any other way any other rights or

peculiar force of a Torrens title would have been brought into play

liabilities created by law and applicable to unregistered land, except

only when the purchaser had sold to an innocent third person for

as otherwise expressly provided in this Act or in the amendments

value the lands described in his conveyance. . . . Generally speaking,


as between the vendor and the purchaser the same rights and
remedies exist with reference to land registered under Act No. 496,
as exist in relation to land not so registered.

In Cabanos vs. Register of Deeds of Laguna and Obiana (40 Phil., 620), it

The judgment of the trial court is in accordance with the facts and the law.

was held that, while a purchaser of land under a pacto de retro cannot

In order to prevent unnecessary delay and further litigation it may,

institute a real action for the recovery thereof where the vendor under said

however, be well to attach some additional directions to its dipositive

sale has caused such lands to be registered in his name without said

clauses. It will be observed that lots Nos. 827, 828, and 834 of a total area

vendee's consent, yet he may have his personal action based on the

of approximately 191 hectares, lie wholly within the area to be conveyed to

contract of sale to compel the execution of an unconditional deed for the

the plaintiff in intervention and these lots may, therefore, be so conveyed

said lands when the period for repurchase has passed.

without subdivision. The remaining 237 hectares to be conveyed lie within

the western part of lot No. 874 and before a conveyance of this portion can

Torrens titles being on judicial decrees there is, of course, a strong

be effected a subdivision of that lot must be made and a technical

presumption in favor of their regularity or validity, and in order to maintain

description of the portion to be conveyed, as well as of the remaining

an action such as the present the proof as to the fiduciary relation of the

portion of the lot, must be prepared. The subdivision shall be made by an

parties and of the breach of trust must be clear and convincing. Such proof

authorized surveyor and in accordance with the provisions of Circular No.

is, as we have seen, not lacking in this case.

31 of the General Land Registration Office, and the subdivision and

But once the relation and the breach of trust on the part of the fiduciary in
thus established, there is no reason, neither practical nor legal, why he
should not be compelled to make such reparation as may lie within his
power for the injury caused by his wrong, and as long as the land stands
registered in the name of the party who is guilty of the breach of trust and
no rights of innocent third parties are adversely affected, there can be no
reason why such reparation should not, in the proper case, take the form of
a conveyance or transfer of the title to the cestui que trust. No reasons of
public policy demand that a person guilty of fraud or breach of trust be
permitted to use his certificate of title as a shield against the consequences
of his own wrong.

technical descriptions shall be submitted to the Chief of that office for his
approval. Within thirty days after being notified of the approval of said
subdivision and technical descriptions, the defendant Guillermo Severino
shall execute good and sufficient deed or deeds of conveyance in favor of
the administratrix of the estate of the deceased Melecio Severino for said
lots Nos. 827, 828, 834, and the 237 hectares segregated from the western
part of lot No. 874 and shall deliver to the register of deeds his duplicate
certificates of title for all of the four lots in order that said certificates may
be cancelled and new certificates issued. The cost of the subdivision and
the fees of the register of deeds will be paid by the plaintiff in intervention.
It is so ordered
With these additional directions the judgment appealed from is affirmed,
with the costs against the appellant. The right of the plaintiff Fabiola

Severino to establish in the probate proceedings of the estate of Melecio

Calimlim, representing the Republic of the Philippines, and as then head of

Severino her status as his recognized natural child is reserved.

the Intelligence Service of the Armed Forces of the Philippines and the
Presidential Security Group, entered into a Memorandum of Agreement
(MOA) with one Ciriaco Reyes. The MOA granted Reyes a permit to hunt for


CALIMLIM, in his capacity as former Chief of the Intelligence
Service, Armed Forces of the Philippines (ISAFP), and former
Commanding General, Presidential Security Group (PSG),
and MAJ. DAVID B. DICIANO, in his capacity as an Officer of
ISAFP and former member of the PSG, petitioners, vs. HON.
VICTORINO EVANGELISTA, in his capacity as Presiding Judge,
Regional Trial Court, Branch 223, Quezon City, and DANTE






Gutierrez, respondents.

together with petitioners, started, digging, tunneling and blasting works on

the said land of Legaspi. The complaint also alleged that petitioner Calimlim
assigned about 80 military personnel to guard the area and encamp
thereon to intimidate Legaspi and other occupants of the area from going
near the subject land.
On February 15, 2000, Legaspi executed a special power of attorney
(SPA) appointing his nephew, private respondent Gutierrez, as his attorneyactivities on Legaspis land and to file charges against those who may enter
it without the latters authority.[3] Legaspi agreed to give Gutierrez 40% of
the treasure that may be found in the land.

The case at bar stems from a complaint for damages, with prayer for
the issuance of a writ of preliminary injunction, filed by private respondent

the MOA as a witness.[2] It was further alleged that thereafter, Reyes,

in-fact. Gutierrez was given the power to deal with the treasure hunting



treasure in a land in Bigte, Norzagaray, Bulacan. Petitioner Diciano signed







petitioners Gen. Jose M. Calimlim, Ciriaco Reyes and Maj. David Diciano
before the Regional Trial Court (RTC) of Quezon City.[1]
The Complaint alleged that private respondent Legaspi is the owner of
a land located in Bigte, Norzagaray, Bulacan. In November 1999, petitioner

On February 29, 2000, Gutierrez filed a case for damages and

injunction against petitioners for illegally entering Legaspis land. He hired
the legal services of Atty. Homobono Adaza. Their contract provided that as
legal fees, Atty. Adaza shall be entitled to 30% of Legaspis share in
whatever treasure may be found in the land. In addition, Gutierrez agreed
to pay Atty. Adaza P5,000.00 as appearance fee per court hearing and
defray all expenses for the cost of the litigation. [4] Upon the filing of the

complaint, then Executive Judge Perlita J. Tria Tirona issued a 72-hour

THOUSAND PESOS (P100,000.00), let a Writ of Preliminary Injunction issue

temporary restraining order (TRO) against petitioners.











representatives from continuing to occupy and encamp on the land of the

The case[5] was subsequently raffled to the RTC of Quezon City, Branch

plaintiff LEGASPI as well as the vicinity thereof; from digging, tunneling and

223, then presided by public respondent Judge Victorino P. Evangelista. On

blasting the said land of plaintiff LEGASPI; from removing whatever treasure

March 2, 2000, respondent judge issued another 72-hour TRO and a

may be found on the said land; from preventing and threatening the

summary hearing for its extension was set on March 7, 2000.

plaintiffs and their representatives from entering the said land and

On March 14, 2000, petitioners filed a Motion to Dismiss [6] contending:

first, there is no real party-in-interest as the SPA of Gutierrez to bring the

performing acts of ownership; from threatening the plaintiffs and their

representatives as well as plaintiffs lawyer.

suit was already revoked by Legaspi on March 7, 2000, as evidenced by a

Deed of Revocation,


On even date,



court issued

another Order [10] denying

and, second, Gutierrez failed to establish that the

petitioners motion to dismiss and requiring petitioners to answer the

alleged armed men guarding the area were acting on orders of petitioners.

complaint. On April 4, 2000, it likewise denied petitioners motion for

On March 17, 2000, petitioners also filed a Motion for Inhibition


of the


respondent judge on the ground of alleged partiality in favor of private


On appeal, the Court of Appeals affirmed the decision of the trial court.

On March 23, 2000, the trial court granted private respondents

application for a writ of preliminary injunction on the following grounds: (1)

Hence this petition, with the following assigned errors:

the diggings and blastings appear to have been made on the land of
Legaspi, hence, there is an urgent need to maintain the status quo to
prevent serious damage to Legaspis land; and, (2) the SPA granted to
Gutierrez continues to be valid.[9] The trial court ordered thus:
WHEREFORE, in view of all the foregoing, the Court hereby resolves to
GRANT plaintiffs application for a writ of preliminary injunction. Upon
plaintiffs filing of an injunction bond in the amount of ONE HUNDRED


the agency.[15] The reason for its irrevocability is because the agency


becomes part of another obligation or agreement. It is not solely the rights


of the principal but also that of the agent and third persons which are


affected. Hence, the law provides that in such cases, the agency cannot be
revoked at the sole will of the principal.

We find no merit in the petition.

On the first issue, petitioners claim that the special power of attorney
of Gutierrez to represent Legaspi has already been revoked by the latter.
Private respondent Gutierrez, however, contends that the unilateral
revocation is invalid as his agency is coupled with interest.

In the case at bar, we agree with the finding of the trial and appellate
courts that the agency granted by Legaspi to Gutierrez is coupled with
interest as a bilateral contract depends on it. It is clear from the records
that Gutierrez was given by Legaspi, inter alia, the power to
manage the treasure hunting activities in the subject land; to file
any case against anyone who enters the land without authority

We agree with private respondent.

from Legaspi; to engage the services of lawyers to carry out the

Art. 1868 of the Civil Code provides that by the contract of agency, an
agent binds himself to render some service or do

something in

agency; and, to dig for any treasure within the land and enter into


thereto. It





representation or on behalf of another, known as the principal, with the

that Gutierrez shall be entitled to 40% of whatever treasure may be

consent or authority of the latter.[13]

found in the land. Pursuant to this authority and to protect Legaspis land
from the alleged illegal entry of petitioners, agent Gutierrez hired the

A contract of agency is generally revocable as it is a personal contract

services of Atty. Adaza to prosecute the case for damages and injunction

of representation based on trust and confidence reposed by the principal on

against petitioners. As payment for legal services, Gutierrez agreed

his agent. As the power of the agent to act depends on the will and license

to assign to Atty. Adaza 30% of Legaspis share in whatever

of the principal he represents, the power of the agent ceases when the will

treasure may be recovered in the subject land. It is clear that the

or permission is withdrawn by the principal. Thus, generally, the agency

treasure that may be found in the land is the subject matter of the agency;

may be revoked by the principal at will.


that under the SPA, Gutierrez can enter into contract for the legal services
of Atty. Adaza; and, thus Gutierrez and Atty. Adaza have an interest in the

However, an exception to the revocability of a contract of agency is

subject matter of the agency, i.e., in the treasures that may be found in the

when it is coupled with interest, i.e., if a bilateral contract depends upon

land. This bilateral contract depends on the agency and thus renders it as

one coupled with interest, irrevocable at the sole will of the principal


performance of an act or acts, either for a limited period or

When an agency is constituted as a clause in a bilateral


contract, that is, when the agency is inserted in another agreement, the
agency ceases to be revocable at the pleasure of the principal as the

(b) that the commission, continuance or non-performance of the act or

agency shall now follow the condition of the bilateral agreement.

acts complained of during the litigation would probably work


injustice to the applicant; or

Consequently, the Deed of Revocation executed by Legaspi has no

effect. The authority of Gutierrez to file and continue with the prosecution
of the case at bar is unaffected.

(c) that a party, court, agency or a person is doing, threatening, or is

attempting to do, or is procuring or suffering to be done, some act

On the second issue, we hold that the issuance of the writ of

or acts probably in violation of the rights of the applicant

preliminary injunction is justified. A writ of preliminary injunction is an

respecting the subject of the action or proceeding, and tending to

ancilliary or preventive remedy that is resorted to by a litigant to protect or

render the judgment ineffectual.

preserve his rights or interests and for no other purpose during the
pendency of the principal action.[18] It is issued by the court to prevent
threatened or continuous irremediable injury to the applicant before his
claim can be thoroughly studied and adjudicated. [19] Its aim is to preserve
the status quo ante until the merits of the case can be heard fully, upon the
applicants showing of two important conditions, viz.: (1) the right to be
protected prima facie exists; and, (2) the acts sought to be enjoined are
violative of that right.[20]
Section 3, Rule 58 of the 1997 Rules of Civil Procedure provides that a
writ of preliminary injunction may be issued when it is established:
(a) that the applicant is entitled to the relief demanded, the whole or

It is crystal clear that at the hearing for the issuance of a writ of

preliminary injunction, mere prima facie evidence is needed to establish the
applicants rights or interests in the subject matter of the main action. [21] It is
not required that the applicant should conclusively show that there was a
violation of his rights as this issue will still be fully litigated in the main
case.[22] Thus, an applicant for a writ is required only to show that he
has an ostensible right to the final relief prayed for in his
complaint. [23]
In the case at bar, we find that respondent judge had sufficient basis to
issue the writ of preliminary injunction. It was established, prima facie,









part of such relief consists in restraining the commission or

land, pendente lite. Legaspi had title to the subject land. It was likewise

continuance of the act or acts complained of, or in requiring the

established that the diggings were conducted by petitioners in the enclosed

area of Legaspis land. Whether the land fenced by Gutierrez and

vs. People,[25] the adverse and erroneous rulings of a judge on the various

claimed to be included in the land of Legaspi covered an area

motions of a party do not sufficiently prove bias and prejudice to disqualify

beyond that which is included in the title of Legaspi is a factual

him. To be disqualifying, it must be shown that the bias and prejudice

issue still subject to litigation and proof by the parties in the main

stemmed from an extrajudicial source and result in an opinion on the merits

case for damages. It was necessary for the trial court to issue the writ of

on some basis other than what the judge learned from his participation in

preliminary injunction during the pendency of the main case in order to

the case. Opinions formed in the course of judicial proceedings, although

preserve the rights and interests of private respondents Legaspi and

erroneous, as long as based on the evidence adduced, do not prove bias or


prejudice. We also emphasized that repeated rulings against a litigant, no

matter how erroneously, vigorously and consistently expressed, do not

On the third issue, petitioners charge that the respondent judge lacked
the neutrality of an impartial judge. They fault the respondent judge for not

amount to bias and prejudice which can be a bases for the disqualification
of a judge.

giving credence to the testimony of their surveyor that the diggings were
conducted outside the land of Legaspi. They also claim that respondent

Finally, the inhibition of respondent judge in hearing the case for

judges rulings on objections raised by the parties were biased against

damages has become moot and academic in view of the latters death


during the pendency of the case. The main case for damages shall now be
heard and tried before another judge.

We have carefully examined the records and we find no sufficient basis

to hold that respondent judge should have recused himself from hearing

IN VIEW WHEREOF, the impugned Orders of the trial court in Civil

the case. There is no discernible pattern of bias on the rulings of the

Case No. Q-00-40115, dated March 23 and April 4, 2000, are AFFIRMED. The

respondent judge. Bias and partiality can never be presumed. Bare

presiding judge of the Regional Trial Court of Quezon City to whom Civil

allegations of partiality will not suffice in an absence of a clear showing that

Case No. Q-00-40115 was assigned is directed to proceed with dispatch in

will overcome the presumption that the judge dispensed justice without

hearing the main case for damages. No pronouncement as to costs.

fear or favor.


It bears to stress again that a judges appreciation or

misappreciation of the sufficiency of evidence adduced by the parties, or

the correctness of a judges orders or rulings on the objections of counsels
during the hearing, without proof of malice on the part of respondent judge,
is not sufficient to show bias or partiality. As we held in the case of Webb