SECOND DIVISION ultimately, she and her husband, together with Deganos, petitioners in the past, the items
r with Deganos, petitioners in the past, the items involved were already paid
[G.R. No. 130148. December 15, 1997]
JOSE BORDADOR and LYDIA BORDADOR, petitioners,
vs. BRIGIDA D. LUZ, ERNESTO M. LUZ and NARCISO
DEGANOS, respondents.
DECISION
REGALADO, J.:
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.
Petitioners were engaged in the business of purchase and
sale of jewelry and respondent Brigida D. Luz, also known as
Aida D. Luz, was their regular customer. On several occasions
during the period from April 27, 1987 to September 4, 1987,
respondent Narciso Deganos, the brother of Brigida D. Luz,
received several pieces of gold and jewelry from petitioners
amounting to P382,816.00. [1] These items and their prices
were indicated in seventeen receipts covering the
same. Eleven of the receipts stated that they were received for
a certain Evelyn Aquino, a niece of Deganos, and the remaining
six indicated that they were received for Brigida D. Luz. [2]
Deganos was supposed to sell the items at a profit and
thereafter remit the proceeds and return the unsold items to
petitioners. Deganos remitted only the sum of P53,207.00. He
neither paid the balance of the sales proceeds, nor did he
return any unsold item to petitioners. By January 1990, the
total of his unpaid account to petitioners, including interest,
reached the sum of P725,463.98. [3] Petitioners eventually
filed a complaint in the barangay court against Deganos to
recover said amount.
In the barangay proceedings, Brigida D. Luz, who was not
impleaded in the case, appeared as a witness for Deganos and
signed a compromise agreement with petitioners. In that
compromise agreement, Deganos obligated himself to pay
petitioners, on installment basis, the balance of his account
plus interest thereon. However, he failed to comply with his
aforestated undertakings.
On June 25, 1990, petitioners instituted Civil Case No.
412-M-90 in the Regional Trial Court of Malolos, Bulacan
against Deganos and Brigida D. Luz for recovery of a sum of
money and damages, with an application for preliminary
attachment.[4] Ernesto Luz was impleaded therein as the
spouse of Brigida.
Four years later, or on March 29, 1994, Deganos and
Brigida D. Luz were charged with estafa[5] in the Regional Trial
Court of Malolos, Bulacan, which was docketed as Criminal
Case No. 785-M-94. That criminal case appears to be still
pending in said trial court.
During the trial of the civil case, petitioners claimed that
Deganos acted as the agent of Brigida D. Luz when he received
the subject items of jewelry and, because he failed to pay for
the same, Brigida, as principal, and her spouse are solidarily
liable with him therefor.
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 of P382,816.00 and not P725,463.98. He
further asserted that it was he alone who was involved in the
transaction with the petitioners; that he neither acted as agent
for nor was he authorized to act as an agent by Brigida D. Luz,
notwithstanding the fact that six of the receipts indicated that
the items were received by him for the latter. He further
claimed that 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 transactions between petitioners and Deganos. She
claimed that she never authorized Deganos to receive any item
of jewelry in her behalf and, 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 petitioners for the amount and damages claimed. It
held that while Brigida D. Luz did have transactions with
for and all that Brigida owed petitioners was the sum
of P21,483.00 representing interest on the principal account
which she had previously paid for.[6]
The trial court also found that it was petitioner Lydia
Bordador who indicated in the receipts that the items were
received by Deganos for Evelyn Aquino and Brigida D.
Luz. [7] Said court was persuaded that Brigida D. Luz was
behind Deganos, but because there was no memorandum to
this effect, the agreement between the parties was
unenforceable under the Statute of Frauds. [8] Absent the
required memorandum or any written document connecting
the respondent Luz spouses with the subject receipts, or
authorizing Deganos to act on their behalf, the alleged
agreement between petitioners and Brigida D. Luz was
unenforceable.
Deganos was ordered to pay petitioners the amount
of P725,463.98, plus legal interest thereon from June 25, 1990,
and attorneys fees. Brigida D. Luz was ordered to
pay P21,483.00 representing the interest on her own personal
loan. She and her co-defendant spouse were absolved from
any other or further liability. [9]
As stated at the outset, petitioners appealed the judgment
of the court a quo to the Court of Appeals which affirmed said
judgment. [10] The motion for reconsideration filed by
petitioners was subsequently dismissed, [11] hence the present
recourse to this Court.
The primary issue in the instant petition is whether or not
herein respondent spouses are liable to petitioners for the
latters claim for money and damages in the sum
of P725,463.98, plus interests and attorneys fees, despite the
fact that the evidence does not show that they signed any of
the subject receipts or authorized Deganos to receive the items
of jewelry on their behalf.
Petitioners argue that the Court of Appeals erred in
adopting the findings of the court a quo that respondent
spouses are not liable to them, as said conclusion of the trial
court is contradicted by the finding of fact of the appellate
court that (Deganos) acted as agent of his sister (Brigida
Luz). [12] In support of this contention, petitioners quoted
several letters sent to them by Brigida D. Luz wherein the
Page 1 of 62
latter acknowledged her obligation to petitioners and
requested for more time to fulfill the same. They likewise aver
that Brigida testified in the trial court that Deganos took some
gold articles from petitioners and delivered the same to her.
Both the Court of Appeals and the trial court, however,
found as a fact that the aforementioned letters concerned the
previous obligations of Brigida to petitioners, and had nothing
to do with the money sought to be recovered in the instant
case. Such concurrent factual findings are entitled to great
weight, hence, petitioners cannot plausibly claim in this
appellate review that the letters were in the nature of
acknowledgments by Brigida 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 cannot, therefore, be validly
said that she admitted her liability regarding the same.
Petitioners insist that Deganos was the agent of Brigida D.
Luz as the latter clothed him with apparent authority as her
agent and held him out to the public as such, hence Brigida can
not be permitted to deny said authority to innocent third
parties who dealt with Deganos under such
belief. [13] Petitioners further represent that the Court of
Appeals recognized in its decision that Deganos was an agent
of Brigida.[14]
The evidence does not support the theory of petitioners
that Deganos was an agent of Brigida D. Luz and that the latter
should consequently be held solidarily liable with Deganos in
his obligation to petitioners. While the quoted statement in the
findings of fact of the assailed appellate decision mentioned
that Deganos ostensibly acted as an agent of Brigida, the actual
conclusion and ruling of the Court of Appeals categorically
stated that, (Brigida Luz) never authorized her brother
(Deganos) to act for and in her behalf in any transaction with
Petitioners xx x. [15] It is clear, therefore, that even
assuming arguendo that Deganos acted as an agent of Brigida,
the latter never authorized him to act on her behalf with regard
to the transactions subject of this case.
The Civil Code provides:
Art. 1868. By the contract of agency a person binds himself to
render some service or to do something in representation or
on behalf of another, with the consent or authority of the latter.
The basis for agency is representation. Here, there is no
showing that Brigida consented to the acts of Deganos or
authorized him to act on her behalf, much less with respect to
the particular transactions involved. Petitioners attempt to
foist liability on respondent spouses through the supposed
agency relation with Deganos is groundless and ill-advised.
Besides, it was grossly and inexcusably negligent of
petitioners to entrust to Deganos, not once or twice but on at
least six occasions as evidenced by six receipts, several pieces
of jewelry of substantial value without requiring a written
authorization from his alleged principal. A person dealing with
an agent is put upon inquiry and must discover upon his peril
the authority of the agent. [16]
The records show that neither an express nor an implied
agency was proven to have existed between Deganos and
Brigida D. Luz. Evidently, petitioners, who were negligent in
their transactions with Deganos, cannot seek relief from the
effects of their negligence by conjuring a supposed agency
relation between the two respondents where no evidence
supports 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 sufficient evidence/proof
against Brigida D. Luz and Deganos for estafa in the pending
criminal case. They further aver that said appellate court erred
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 the criminal case.
By way of backdrop for this argument of petitioners,
herein respondents Brigida D. Luz and Deganos had filed a
demurrer to evidence and a motion for reconsideration in the
aforestated criminal case, both of which were denied by the
trial court. They then filed a petition for certiorari in the Court
of Appeals to set aside the denial of their demurrer and motion
for reconsideration but, as just stated, their petition therefor
was dismissed.[17]
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 case is equivalent to a finding that there
is sufficient evidence in the estafa case against Brigida D. Luz
and Deganos. Hence, as already stated, petitioners theorize
that the decision and resolution of the Court of Appeals now
being impugned in the case at bar would result in a possible
conflict with the prospective decision in the criminal
case. Instead of promulgating the present decision and
resolution under review, so they suggest, the Court of Appeals
should have awaited the decision in the criminal case, so as not
to render academic or preempt the same or, worse, create two
conflicting rulings. [18]
Petitioners have apparently lost sight of Article 33 of the
Civil Code which provides that in cases involving alleged
fraudulent acts, a civil action for damages, entirely separate
and distinct from the criminal action, may be brought by the
injured party. Such civil action shall proceed independently of
the criminal prosecution and shall require only a
preponderance of evidence.
It is worth noting that this civil case was instituted four
years before the criminal case for estafa was filed, and that
although there was a move to consolidate both cases, the same
was denied by the trial court. Consequently, it was the duty of
the two branches of the Regional Trial Court concerned to
independently proceed with the civil and criminal cases. It will
also be observed that a final judgment rendered in a civil
action absolving the defendant from civil liability is no bar to a
criminal action. [19]
It is clear, therefore, that this civil case may proceed
independently of the criminal case [20] especially because
while both cases are based on the same facts, the quantum of
proof required for holding the parties liable therein
differ. Thus, it is improvident of petitioners to claim that the
decision and resolution of the Court of Appeals in the present
case would be preemptive of the outcome of the criminal
case. Their fancied fear of possible conflict between the
disposition of this civil case and the outcome of the pending
criminal case is illusory.
Petitioners surprisingly postulate that the Court of
Appeals had lost its jurisdiction to issue the denial resolution
Page 2 of 62
dated August 18, 1997, as the same was tainted with
irregularities and badges of fraud perpetrated by its court
officers. [21] 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 said resolution was
drafted by the ponente, then signed and issued by the members
of the Eleventh Division of said court within one and a half days
from the elevation thereof by the division clerk of court to the
office of the ponente.
It is the thesis of petitioners that there was undue haste
in issuing the resolution as the same was made without
waiting for the lapse of the ten-day period for respondents to
file their comment and for petitioners to file their reply. It was
allegedly impossible for the Court of Appeals to resolve the
issue in just one and a half days, especially because its ponente,
the late Justice Maximiano C. Asuncion, was then recuperating
from surgery and, that, additionally, hundreds of more
important cases were pending. [22]
These lamentable allegation of irregularities in the Court
of Appeals 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, as already found by both
the trial and intermediate appellate courts, are devoid of
factual and legal substance. The regrettably irresponsible
attempt to tarnish the image of the intermediate appellate
tribunal and its judicial officers through ad
hominem imputations could well be contumacious, but we are
inclined to let that pass with a strict admonition that
petitioners refrain from indulging in such conduct in
litigations.
On July 9, 1997, the Court of Appeals rendered judgment
in this case affirming the trial courts decision. [23] Petitioners
moved for reconsideration and the Court of Appeals ordered
respondents to file a comment. Respondents filed the same on
August 5, 1997 [24] and petitioners filed their reply to said
comment on August 15, 1997. [25] The Eleventh Division of said
court issued the questioned resolution denying petitioners
motion for reconsideration on August 18, 1997.[26]
It is ironic that while some litigants malign the judiciary
for being supposedly slothful in disposing of cases, petitioners
are making a show of calling out for justice because the Court
of Appeals issued a resolution disposing of a case sooner than
expected of it. They would even deny the exercise of discretion
by the appellate court to prioritize its action on cases in line
with the procedure it has adopted in disposing thereof and in
declogging its dockets. It is definitely not for the parties to
determine and 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 policies for acting
thereon.
The fact that a resolution was issued by said court within
a relatively short period of time after the records of the case
were elevated to the office of the ponente cannot, by itself, be
deemed irregular. There is no showing whatsoever that the
resolution was issued without considering the reply filed by
petitioners. In fact, that brief pleading filed by petitioners does
not exhibit any esoteric or ponderous argument which could
not be analyzed within an hour. It is a legal presumption, born
of wisdom and experience, that official duty has been regularly
performed; [27] 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. [28] The burden of
proving 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 on a court of law on
the bases of conjectures or surmises, especially since one of the
petitioners appears to be a member of the Philippine Bar.
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. [29] They proceed on the premise that the Statute of
Frauds applies only to executory contracts and not to executed
or to partially executed ones. From there, they move on to
claim that the 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.
Petitioners claim is speciously unmeritorious. It should
be emphasized 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 Statute of Frauds which requires the presentation of
a note or 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 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.
WHEREFORE, no error having been committed by the
Court of Appeals in affirming the judgment of the court a
quo, its challenged decision and resolution are hereby
AFFIRMED and the instant petition is DENIED, with double
costs against petitioners
SO ORDERED.
FIRST DIVISION
[G.R. No. 142950. March 26, 2001]
EQUITABLE PCI BANK, formerly EQUITABLE BANKING
CORPORATION, petitioner, vs. ROSITA
KU, respondent.
DECISION
KAPUNAN, J.:
Can a person be evicted by virtue of a decision rendered
in an ejectment case where she was not joined as a party? This
was the issue that confronted the Court of Appeals, which
resolved the issue in the negative. To hold the contrary, it said,
would violate due process. Given the circumstances of the
present case, petitioner Equitable PCI Bank begs to
differ. Hence, this petition.
On February 4, 1982, respondent Rosita Ku, as treasurer
of Noddy Dairy Products, Inc., and Ku Giok Heng, as Vice-
President/General Manager of the same corporation,
mortgaged the subject property to the Equitable Banking
Corporation, now known as Equitable PCI Bank to secure
Noddy Inc.s loan to Equitable. The property, a residential
Page 3 of 62
house and lot located in La Vista, Quezon City, was registered
in respondents name.
Noddy, Inc. subsequently failed to pay the loan secured by
the mortgage, prompting petitioner to foreclose the property
extrajudicially. As the winning bidder in the foreclosure sale,
petitioner was issued a certificate of sale. Respondent failed to
redeem the property. Thus, on December 10, 1984, the
Register of Deeds canceled the Transfer Certificate of Title in
the name of respondent and a new one was issued in
petitioners name.
On May 10, 1989, petitioner instituted an action for
ejectment before the Quezon City Metropolitan Trial Court
(MeTC) against respondents father Ku Giok Heng. Petitioner
alleged that it allowed Ku Giok Heng to remain in the property
on the condition that the latter pay rent. Ku Giok Hengs failure
to pay rent prompted the MeTC to seek his ejectment. Ku Giok
Heng denied that there was any lease agreement over the
property.
On December 8, 1994, the MeTC rendered a decision in
favor of petitioner and ordered Ku Giok Heng to, among other
things, vacate the premises. It ruled:
x x x for his failure or refusal to pay rentals despite proper
demands, the defendant had not established his right for his
continued possession of or stay in the premises acquired by
the plaintiff thru foreclosure, the title of which had been duly
transferred in the name of the plaintiff. The absence of lease
agreement or agreement for the payment of rentals is of no
moment in the light of the prevailing Supreme Court ruling on
the matter. Thus: It is settled that the buyer in foreclosure sale
becomes the absolute owner of the property purchased if it is
not redeemed during the period of one (1) year after the
registration of the sale is as such he is entitled to the
possession of the property and the demand at any time
following the consolidation of ownership and the issuance to
him of a new certificate of title. The buyer can, in fact, demand
possession of the land even during the redemption period
except that he has to post a bond in accordance with Section 7
of Act No. 3155 as amended. Possession of the land then
becomes an absolute right of the purchaser as confirmed
owner. Upon proper application and proof of title, the issuance
of a writ of possession becomes a ministerial duty of the
court. (David Enterprises vs. IBAA[,] 191 SCRA 116).[1]
Ku Giok Heng did not appeal the decision of the
MeTC. Instead, he and his daughter, respondent Rosita Ku,
filed on December 20, 1994, an action before the Regional Trial
Court (RTC) of Quezon City to nullify the decision of the
MeTC. Finding no merit in the complaint, the RTC on
September 13, 1999 dismissed the same and ordered the
execution of the MeTC decision.
Respondent filed in the Court of Appeals (CA) a special
civil action for certiorari assailing the decision of the RTC. She
contended that she was not made a party to the ejectment suit
and was, therefore, deprived of due process. The CA agreed
and, on March 31, 2000, rendered a decision enjoining the
eviction of respondent from the premises.
On May 10, 2000, Equitable PCI Bank filed in this Court a
motion for an extension of 30 days from May 10, 2000 or until
June 9, 2000 to file its petition for review of the CA
decision. The motion alleged that the Bank received the CA
decision on April 25, 2000.[2] The Court granted the motion for
a 30-day extension counted from the expiration of the
reglementary period and conditioned upon the timeliness of
the filing of [the] motion [for extension].[3]
On June 13, 2000,[4] Equitable Bank filed its petition,
contending that there was no need to name respondent Rosita
Ku as a party in the action for ejectment since she was not a
resident of the premises nor was she in possession of the
property.
The petition is meritorious.
Generally, no man shall be affected by any proceeding to
which he is a stranger, and strangers to a case are not bound
by judgment rendered by the court.[5] Nevertheless, a
judgment in an ejectment suit is binding not only upon the
defendants in the suit but also against those not made parties
thereto, if they are:
a) trespassers, squatters or agents of the defendant
fraudulently occupying the property to frustrate the judgment;
b) guests or other occupants of the premises with the
permission of the defendant;
c) transferees pendente lite;
d) sub-lessees;
e) co-lessees; or
f) members of the family, relatives and other privies of the
defendant.[6]
Thus, even if respondent were a resident of the property,
a point disputed by the parties, she is nevertheless bound by
the judgment of the MeTC in the action for ejectment despite
her being a non-party thereto. Respondent is the daughter of
Ku Giok Heng, the defendant in the action for ejectment.
Respondent nevertheless claims that the petition is
defective. The bank alleged in its petition that it received a
copy of the CA decision on April 25, 2000. A Certification
dated June 6, 2000 issued by the Manila Central Post Office
reveals, however, that the copy was duly delivered to and
received by Joel Rosales (Authorized Representative) on April
24, 2000.[7] Petitioners motion for extension to file this
petition was filed on May 10, 2000, sixteen (16) days from the
petitioners receipt of the CA decision (April 24, 2000) and one
(1) day beyond the reglementary period for filing the petition
for review (May 9, 2000).
Petitioner however maintains its honest representation
of having received [a copy of the decision] on April 25,
2000.[8] Appended as Annex A to petitioners Reply is an
Affidavit[9] dated October 27, 2000 and executed by Joel
Rosales, who was mentioned in the Certification as having
received the decision. The Affidavit states:
(1) I am an employee of Unique Industrial & Allied Services,
Inc. (Unique) a corporation duly organized and existing under
Philippine laws with principal place of business at 1206 Vito
Cruz St., Malate, Manila, and I am assigned with the Equitable
PCI Bank, Mail and Courier Department, Equitable PCI Bank
Tower II, cor. Makati Avenue and H.V. dela Costa St., Makati
City, Metro Manila;
Page 4 of 62
(2) Under the contract of services between the Bank and
Unique, it is my official duty and responsibility to receive and
pick-up from the Manila Central Post Office (CPO) the various
mails, letters, correspondence, and other mail matters
intended for the banks various departments and offices at
Equitable Bank Building, 262 Juan Luna St., Binondo,
Manila. This building, however, also houses various other
offices or tenants not related to the Bank.
(3) I am not the constituted agent of Curato Divina Mabilog
Niedo Magturo Pagaduan Law Office whose former address is
at Rm. 405 4/F Equitable Bank Bldg., 262 Juan Luna St.,
Binondo, Manila, for purposes of receiving their incoming mail
matters; neither am I any such agent of the various other
tenants of the said Building. On occasions when I receive mail
matters for said law office, it is only to help them receive their
letters promptly.
(4) On April 24, 2000, I received the registered letter sent by
the Court of Appeals, covered by Registry Receipt No. 125234
and Delivery No. 4880 (copy of envelope attached as Annex A)
together with other mail matters, and brought them to the Mail
and Courier Department;
(5) After sorting out these mail matters, on April 25, 2000, I
erroneously recorded them on page 422 of my logbook as
having been received by me on said dated April 25, 2000 (copy
of page 422 is attached as Annex B).
(6) On April 27, 2000, this letter was sent by the Mail and
Courier Department to said Law Office whose receiving clerk
Darwin Bawar opened the letter and stamped on the Notice of
Judgment their actual date of receipt: April 27, 2000 (copy of
the said Notice with the date so stamped is attached as Annex
C).
(7) On May 8, 2000, Atty. Roland A. Niedo of said law office
inquired from me as to my actual date of receipt of this letter,
and I informed him that based on my logbook, I received it on
April 25, 2000.
(8) I discovered this error only on September 6, 2000, when I
was informed by Atty. Niedo that Postmaster VI Alfredo C.
Mabanag, Jr. of the Central Post Office, Manila, issued a
certification that I received the said mail on April 24, 2000.
(9) I hereby confirm that this error was caused by an honest
mistake.
Petitioner argues that receipt on April 25, 2000 by Joel
Rosales, who was not an agent of its counsels law office, did not
constitute notice to its counsel, as required by Sections
2[10] and 10,[11] Rule 13 of the Rules of Court. To support this
contention, petitioner cites Philippine Long Distance Telephone
Co. vs. NLRC.[12] In said case, the bailiff served the decision of
the National Labor Relations Commission at the ground floor
of the building of the petitioner therein, the Philippine Long
Distance Telephone Co., rather than on the office of its counsel,
whose address, as indicated in the notice of the decision, was
on the ninth floor of the building. We held that:
x x x practical considerations and the realities of the situation
dictate that the service made by the bailiff on March 23, 1981
at the ground floor of the petitioners building and not at the
address of record of petitioners counsel on record at the
9th floor of the PLDT building cannot be considered a valid
service. It was only when the Legal Services Division actually
received a copy of the decision on March 26, 1981 that a
proper and valid service may be deemed to have been made. x
x x.
Applying the foregoing provisions and jurisprudence,
petitioner submits that actual receipt by its counsel was on
April 27, 2000, not April 25, 2000. Following the argument to
its logical conclusion, the motion for extension to file the
petition for review was even filed two (2) days before the lapse
of the 15-day reglementary period. That counsel treated April
25, 2000 and not April 27, 2000 as the date of receipt was
purportedly intended to obviate respondents possible
argument that the 15-day period had to be counted from April
25, 2000.
The Court is not wholly convinced by petitioners
argument. The Affidavit of Joel Rosales states that he is not the
constituted agent of Curato Divina Mabilog Nedo Magturo
Pagaduan Law Office. An agency may be express but it may also
be implied from the acts of the principal, from his silence, or lack
of action, or his failure to repudiate the agency, knowing that
another person is acting on his behalf without
authority.[13] Likewise, acceptance by the agent may also be
express, although it may also be implied from his acts which
carry out the agency, or from his silence or inaction according
to the circumstances.[14] In this case, Joel Rosales averred that
[o]n occasions when I receive mail matters for said law office,
it is only to help them receive their letters promptly, implying
that counsel had allowed the practice of Rosales receiving mail
in behalf of the former. There is no showing that counsel had
objected to this practice or took steps to put a stop to it. The
facts are, therefore, inadequate for the Court to make a ruling
in petitioners favor.
Assuming the motion for extension was indeed one day
late, petitioner urges the Court, in any event, to suspend its
rules and admit the petition in the interest of justice. Petitioner
invokes Philippine National Bank vs. Court of Appeals,[15] where
the petition was filed three (3) days late. The Court held:
It has been said time and again that the perfection of an appeal
within the period fixed by the rules is mandatory and
jurisdictional. But, it is always in the power of this Court to
suspend its own rules, or to except a particular case from its
operation, whenever the purposes of justice require it. Strong
compelling reasons such as serving the ends of justice and
preventing a grave miscarriage thereof warrant the
suspension of the rules.
The Court proceeded to enumerate cases where the rules
on reglementary periods were suspended. Republic vs. Court of
Appeals[16] involved a delay of six days; Siguenza vs. Court of
Appeals,[17]thirteen days; Pacific Asia Overseas Shipping
Corporation vs. NLRC,[18] one day; Cortes vs. Court of
Appeals,[19] seven days; Olacao vs. NLRC,[20] two days; Legasto
vs. Court of Appeals,[21] two days; and City Fair Corporation vs.
NLRC,[22] which also concerned a tardy appeal.
The Court finds these arguments to be persuasive,
especially in light of the merits of the petition.
WHEREFORE, the petition is GIVEN DUE
COURSE and GRANTED. The decision of the Court of Appeals
is REVERSED.
Page 5 of 62
 SO ORDERED.
SECOND DIVISION
G.R. No. 163553 December 11, 2009
YUN KWAN BYUNG, Petitioner,
vs.
PHILIPPINE AMUSEMENT AND GAMING
CORPORATION, Respondent.
DECISION
CARPIO, J.:
The Case
Yun Kwan Byung (petitioner) filed this Petition for
Review1 assailing the Court of Appeals Decision2 dated 27
May 2003 in CA-G.R. CV No. 65699 as well as the
Resolution3 dated 7 May 2004 denying the Motion for
Reconsideration. In the assailed decision, the Court of Appeals
(CA) affirmed the Regional Trial Courts Decision4dated 6 May
1999. The Regional Trial Court of Manila, Branch 13 (trial
court), dismissed petitioners demand against respondent
Philippine Amusement and Gaming Corporation (PAGCOR) for
the redemption of gambling chips.
The Facts
PAGCOR is a government-owned and controlled corporation
tasked to establish and operate gambling clubs and casinos as
a means to promote tourism and generate sources of revenue
for the government. To achieve these objectives, PAGCOR is
vested with the power to enter into contracts of every kind and
for any lawful purpose that pertains to its business. Pursuant
to this authority, PAGCOR launched its Foreign Highroller
Marketing Program (Program). The Program aims to invite
patrons from foreign countries to play at the dollar pit of
designated PAGCOR-operated casinos under specified terms
and conditions and in accordance with industry practice.5
The Korean-based ABS Corporation was one of the
international groups that availed of the Program. In a letter-
agreement dated 25 April 1996 (Junket Agreement), ABS
Corporation agreed to bring in foreign players to play at the
five designated gaming tables of the Casino Filipino Silahis at
the Grand Boulevard Hotel in Manila (Casino Filipino). The
relevant stipulations of the Junket Agreement state:
1. PAGCOR will provide ABS Corporation with separate junket
chips. The junket chips will be distinguished from the chips
being used by other players in the gaming tables.
ABS Corporation will distribute these junket chips to its
players and at the end of the playing period, ABS Corporation
will collect the junket chips from its players and make an
accounting to the casino treasury.
2. ABS Corporation will assume sole responsibility to pay the
winnings of its foreign players and settle the collectibles from
losing players.
3. ABS Corporation shall hold PAGCOR absolutely free and
harmless from any damage, claim or liability which may arise
from any cause in connection with the Junket Agreement.
5. In providing the gaming facilities and services to these
foreign players, PAGCOR is entitled to receive from ABS
Corporation a 12.5% share in the gross winnings of ABS
Corporation or 1.5 million US dollars, whichever is higher, over
a playing period of 6 months. PAGCOR has the option to extend
the period.6
Petitioner, a Korean national, alleges that from November
1996 to March 1997, he came to the Philippines four times to
play for high stakes at the Casino Filipino.7 Petitioner claims
that in the course of the games, he was able to accumulate
gambling chips worth US$2.1 million. Petitioner presented as
evidence during the trial gambling chips with a face value of
US$1.1 million. Petitioner contends that when he presented
the gambling chips for encashment with PAGCORs employees
or agents, PAGCOR refused to redeem them.8
Petitioner brought an action against PAGCOR seeking the
redemption of gambling chips valued at US$2.1 million.
Petitioner claims that he won the gambling chips at the Casino
Filipino, playing continuously day and night. Petitioner alleges
that every time he would come to Manila, PAGCOR would
extend to him amenities deserving of a high roller. A PAGCOR
official who meets him at the airport would bring him to Casino
Filipino, a casino managed and operated by PAGCOR. The card
dealers were all PAGCOR employees, the gambling chips,
equipment and furnitures belonged to PAGCOR, and PAGCOR
enforced all the regulations dealing with the operation of
foreign exchange gambling pits. Petitioner states that he was
able to redeem his gambling chips with the cashier during his
first few winning trips. But later on, the casino cashier refused
to encash his gambling chips so he had no recourse but to
deposit his gambling chips at the Grand Boulevard Hotels
deposit box, every time he departed from Manila.9
PAGCOR claims that petitioner, who was brought into the
Philippines by ABS Corporation, is a junket player who played
in the dollar pit exclusively leased by ABS Corporation for its
junket players. PAGCOR alleges that it provided ABS
Corporation with distinct junket chips. ABS Corporation
distributed these chips to its junket players. At the end of each
playing period, the junket players would surrender the chips
to ABS Corporation. Only ABS Corporation would make an
accounting of these chips to PAGCORs casino treasury.10
As additional information for the junket players playing in the
gaming room leased to ABS Corporation, PAGCOR posted a
notice written in English and Korean languages which reads:
NOTICE
This GAMING ROOM is exclusively operated by ABS under
arrangement with PAGCOR, the former is solely accountable
for all PLAYING CHIPS wagered on the tables. Any financial
ARRANGEMENT/TRANSACTION between PLAYERS and ABS
shall only be binding upon said PLAYERS and ABS.11
Page 6 of 62
PAGCOR claims that this notice is a standard precautionary
measure12 to avoid confusion between junket players of ABS
Corporation and PAGCORs players.
PAGCOR argues that petitioner is not a PAGCOR player because
under PAGCORs gaming rules, gambling chips cannot be
brought outside the casino. The gambling chips must be
converted to cash at the end of every gaming period as they are
inventoried every shift. Under PAGCORs rules, it is impossible
for PAGCOR players to accumulate two million dollars worth
of gambling chips and to bring the chips out of the casino
premises.13
Since PAGCOR disclaimed liability for the winnings of players
recruited by ABS Corporation and refused to encash the
gambling chips, petitioner filed a complaint for a sum of money
before the trial court.14 PAGCOR filed a counterclaim against
petitioner. Then, trial ensued.
On 6 May 1999, the trial court dismissed the complaint and
counterclaim. Petitioner appealed the trial courts decision to
the CA. On 27 May 2003, the CA affirmed the appealed decision.
On 27 June 2003, petitioner moved for reconsideration which
was denied on 7 May 2004.
Aggrieved by the CAs decision and resolution, petitioner
elevated the case before this Court.
The Ruling of the Trial Court
The trial court ruled that based on PAGCORs
charter,15 PAGCOR has no authority to lease any portion of the
gambling tables to a private party like ABS Corporation.
Section 13 of Presidential Decree No. 1869 or the PAGCORs
charter states:
Sec. 13. Exemptions -
xxx
(4) Utilization of Foreign Currencies The Corporation shall
have the right and authority, solely and exclusively in
connection with the operations of the casino(s), to purchase,
receive, exchange and disburse foreign exchange, subject to
the following terms and conditions:
(a) A specific area in the casino(s) or gaming pit shall be put up
solely and exclusively for players and patrons utilizing foreign
currencies;
(b) The Corporation shall appoint and designate a duly
accredited commercial bank agent of the Central Bank, to
handle, administer and manage the use of foreign currencies
in the casino(s);
(c) The Corporation shall provide an office at casino(s)
exclusively for the employees of the designated bank, agent of
the Central Bank, where the Corporation shall maintain a
dollar account which will be utilized exclusively for the above
purpose and the casino dollar treasury employees;
(d) Only persons with foreign passports or certificates of
identity (for Hong Kong patron only) duly issued by the
government or country of their residence will be allowed to
play in the foreign exchange gaming pit;
(e) Only foreign exchange prescribed to form part of the
Philippine International Reserve and the following foreign
exchange currencies: Australian Dollar, Singapore Dollar,
Hong Kong Dollar, shall be used in this gaming pit;
(f) The disbursement, administration, management and
recording of foreign exchange currencies used in the casino(s)
shall be carried out in accordance with existing foreign
exchange regulations, and periodical reports of the
transactions in such foreign exchange currencies by the
Corporation shall be duly recorded and reported to the Central
Bank thru the designated Agent Bank; and
(g) The Corporation shall issue the necessary rules and
regulations for the guidance and information of players
qualified to participate in the foreign exchange gaming pit, in
order to make certain that the terms and conditions as above
set forth are strictly complied with.
The trial court held that only PAGCOR could use foreign
currency in its gaming tables. When PAGCOR accepted only a
fixed portion of the dollar earnings of ABS Corporation in the
concept of a lease of facilities, PAGCOR shared its franchise
with ABS Corporation in violation of the PAGCORs charter.
Hence, the Junket Agreement is void. Since the Junket
Agreement is not permitted by PAGCORs charter, the mutual
rights and obligations of the parties to this case would be
resolved based on agency and estoppel.16
The trial court found that the petitioner wanted to redeem
gambling chips that were specifically used by ABS Corporation
at its gaming tables. The gambling chips come in distinctive
orange or yellow colors with stickers bearing denominations
of 10,000 or 1,000. The 1,000 gambling chips are smaller in
size and the words "no cash value" marked on them. The
10,000 gambling chips do not reflect the "no cash value" sign.
The senior treasury head of PAGCOR testified that these were
the gambling chips used by the previous junket operators and
PAGCOR merely continued using them. However, the gambling
chips used in the regular casino games were of a different
quality.17
The trial court pointed out that PAGCOR had taken steps to
warn players brought in by all junket operators, including ABS
Corporation, that they were playing under special rules. Apart
from the different kinds of gambling chips used, the junket
players were confined to certain gaming rooms. In these
rooms, notices were posted that gambling chips could only be
encashed there and nowhere else. A photograph of one such
notice, printed in Korean and English, stated that the gaming
room was exclusively operated by ABS Corporation and that
ABS Corporation was solely accountable for all the chips
wagered on the gaming tables. Although petitioner denied
seeing this notice, this disclaimer has the effect of a negative
evidence that can hardly prevail against the positive assertions
of PAGCOR officials whose credibility is also not open to doubt.
The trial court concluded that petitioner had been alerted to
the existence of these special gambling rules, and the mere fact
that he continued to play under the same restrictions over a
period of several months confirms his acquiescence to them.
Otherwise, petitioner could have simply chose to stop
gambling.18
Page 7 of 62
In dismissing petitioners complaint, the trial court concluded
that petitioners demand against PAGCOR for the redemption
of the gambling chips could not stand. The trial court stated
that petitioner, a stranger to the agreement between PAGCOR
and ABS Corporation, could not under principles of equity be
charged with notice other than of the apparent authority with
which PAGCOR had clothed its employees and agents in
dealing with petitioner. Since petitioner was made aware of
the special rules by which he was playing at the Casino Filipino,
petitioner could not now claim that he was not bound by them.
The trial court explained that in an unlawful transaction, the
courts will extend equitable relief only to a party who was
unaware of all its dimensions and whose ignorance of them
exposed him to the risk of being exploited by the other. Where
the parties enter into such a relationship with the opportunity
to know all of its ramifications, as in this case, there is no room
for equitable considerations to come to the rescue of any party.
The trial court ruled that it would leave the parties where they
are.19
The Ruling of the Court of Appeals
In dismissing the appeal, the appellate court addressed the
four errors assigned by petitioner.
First, petitioner maintains that he was never a junket player of
ABS Corporation. Petitioner also denies seeing a notice that
certain gaming rooms were exclusively operated by entities
under special agreement.20
The CA ruled that the records do not support petitioners
theory. Petitioners own testimony reveals that he enjoyed
special accommodations at the Grand Boulevard Hotel. This
similar accommodation was extended to players brought in by
ABS Corporation and other junket operators. Petitioner cannot
disassociate himself from ABS Corporation for it is unlikely
that an unknown high roller would be accorded choice
accommodations by the hotel unless the accommodation was
facilitated by a junket operator who enjoyed such privilege.21
The CA added that the testimonies of PAGCORs employees
affirming that notices were posted in English and Korean in the
gaming areas are credible in the absence of any convincing
proof of ill motive. Further, the specified gaming areas used
only special chips that could be bought and exchanged at
certain cashier booths in that area.22
Second, petitioner attacks the validity of the contents of the
notice. Since the Junket Agreement is void, the notice, which
was issued pursuant to the Junket Agreement, is also void and
cannot affect petitioner.23
The CA reasoned that the trial court never declared the notice
valid and neither did it enforce the contents thereof. The CA
emphasized that it was the act of cautioning and alerting the
players that was upheld. The trial court ruled that signs and
warnings were in place to inform the public, petitioner
included, that special rules applied to certain gaming areas
even if the very agreement giving rise to these rules is void.24
Third, petitioner takes the position that an implied agency
existed between PAGCOR and ABS Corporation.25
The CA disagreed with petitioners view. A void contract has
no force and effect from the very beginning. It produces no
effect either against or in favor of anyone. Neither can it create,
modify or extinguish the juridical relation to which it refers.
Necessarily, the Junket Agreement, being void from the
beginning, cannot give rise to an implied agency. The CA
explained that it cannot see how the principle of implied
agency can be applied to this case. Article 1883 26of the Civil
Code applies only to a situation where the agent is authorized
by the principal to enter into a particular transaction, but
instead of contracting on behalf of the principal, the agent acts
in his own name.27
The CA concluded that no such legal fiction existed between
PAGCOR and ABS Corporation. PAGCOR entered into a Junket
Agreement to lease to ABS Corporation certain gaming areas.
It was never PAGCORs intention to deal with the junket
players. Neither did PAGCOR intend ABS Corporation to
represent PAGCOR in dealing with the junket players.
Representation is the basis of agency but unfortunately for
petitioner none is found in this case.28
The CA added that the special gaming chips, while belonging to
PAGCOR, are mere accessories in the void Junket Agreement
with ABS Corporation. In Article 1883, the phrase "things
belonging to the principal" refers only to those things or
properties subject of a particular transaction authorized by the
principal to be entered into by its purported agent.
Necessarily, the gambling chips being mere incidents to the
void lease agreement cannot fall under this category.29
The CA ruled that Article 215230 of the Civil Code is also not
applicable. The circumstances relating to negotiorum
gestio are non-existent to warrant an officious manager to take
over the management and administration of PAGCOR.31
Fourth, petitioner asks for equitable relief.32
The CA explained that although petitioner was never a party to
the void Junket Agreement, petitioner cannot deny or feign
blindness to the signs and warnings all around him. The
notices, the special gambling chips, and the separate gaming
areas were more than enough to alert him that he was playing
under different terms. Petitioner persisted and continued to
play in the casino. Petitioner also enjoyed the perks extended
to junket players of ABS Corporation. For failing to heed these
signs and warnings, petitioner can no longer be permitted to
claim equitable relief. When parties do not come to court with
clean hands, they cannot be allowed to profit from their own
wrong doing.33
The Issues
Petitioners raise three issues in this petition:
1. Whether the CA erred in holding that PAGCOR is not liable
to petitioner, disregarding the doctrine of implied agency, or
agency by estoppel;
2. Whether the CA erred in using intent of the contracting
parties as the test for creation of agency, when such is not
relevant since the instant case involves liability of the
presumed principal in implied agency to a third party; and
Page 8 of 62
3. Whether the CA erred in failing to consider that PAGCOR
ratified, or at least adopted, the acts of the agent, ABS
Corporation.34
The Ruling of the Court
The petition lacks merit.
Courts will not enforce debts arising from illegal gambling
Gambling is prohibited by the laws of the Philippines as
specifically provided in Articles 195 to 199 of the Revised
Penal Code, as amended. Gambling is an act beyond the pale of
good morals,35 and is thus prohibited and punished to repress
an evil that undermines the social, moral, and economic
growth of the nation.36 Presidential Decree No. 1602 (PD
1602),37 which modified Articles 195-199 of the Revised Penal
Code and repealed inconsistent provisions,38 prescribed stiffer
penalties on illegal gambling.39
As a rule, all forms of gambling are illegal. The only form of
gambling allowed by law is that stipulated under Presidential
Decree No. 1869, which gave PAGCOR its franchise to maintain
and operate gambling casinos. The issue then turns on
whether PAGCOR can validly share its franchise with junket
operators to operate gambling casinos in the country. Section
3(h) of PAGCORs charter states:
Section 3. Corporate Powers. - The Corporation shall have the
following powers and functions, among others:
xxx
h) to enter into, make, perform, and carry out contracts of
every kind and for any lawful purpose pertaining to the
business of the Corporation, or in any manner incident thereto,
as principal, agent or otherwise, with any person, firm,
association, or corporation.
xxx
The Junket Agreement would be valid if under Section 3(h) of
PAGCORs charter, PAGCOR could share its gambling franchise
with another entity. In Senator Jaworski v. Phil. Amusement
and Gaming Corp.,40 the Court discussed the extent of the grant
of the legislative franchise to PAGCOR on its authority to
operate gambling casinos:
A legislative franchise is a special privilege granted by the state
to corporations. It is a privilege of public concern which cannot
be exercised at will and pleasure, but should be reserved for
public control and administration, either by the government
directly, or by public agents, under such conditions and
regulations as the government may impose on them in the
interest of the public. It is Congress that prescribes the
conditions on which the grant of the franchise may be made.
Thus the manner of granting the franchise, to whom it may be
granted, the mode of conducting the business, the charter and
the quality of the service to be rendered and the duty of the
grantee to the public in exercising the franchise are almost
always defined in clear and unequivocal language.
After a circumspect consideration of the foregoing discussion
and the contending positions of the parties, we hold that
PAGCOR has acted beyond the limits of its authority when it
passed on or shared its franchise to SAGE.
In the Del Mar case where a similar issue was raised when
PAGCOR entered into a joint venture agreement with two
other entities in the operation and management of jai alai
games, the Court, in an En Banc Resolution dated 24 August
2001, partially granted the motions for clarification filed by
respondents therein insofar as it prayed that PAGCOR has a
valid franchise, but only by itself (i.e. not in association with
any other person or entity), to operate, maintain and/or
manage the game of jai-alai.
In the case at bar, PAGCOR executed an agreement with SAGE
whereby the former grants the latter the authority to operate
and maintain sports betting stations and Internet gaming
operations. In essence, the grant of authority gives SAGE the
privilege to actively participate, partake and share PAGCORs
franchise to operate a gambling activity. The grant of franchise
is a special privilege that constitutes a right and a duty to be
performed by the grantee. The grantee must not perform its
activities arbitrarily and whimsically but must abide by the
limits set by its franchise and strictly adhere to its terms and
conditionalities. A corporation as a creature of the State is
presumed to exist for the common good. Hence, the special
privileges and franchises it receives are subject to the laws of
the State and the limitations of its charter. There is therefore a
reserved right of the State to inquire how these privileges had
been employed, and whether they have been abused.
(Emphasis supplied)
Thus, PAGCOR has the sole and exclusive authority to operate
a gambling activity. While PAGCOR is allowed under its charter
to enter into operators or management contracts, PAGCOR is
not allowed under the same charter to relinquish or share its
franchise. PAGCOR cannot delegate its power in view of the
legal principle of delegata potestas delegare non potest,
inasmuch as there is nothing in the charter to show that it has
been expressly authorized to do so.41
Similarly, in this case, PAGCOR, by taking only a percentage of
the earnings of ABS Corporation from its foreign currency
collection, allowed ABS Corporation to operate gaming tables
in the dollar pit. The Junket Agreement is in direct violation of
PAGCORs charter and is therefore void.
Since the Junket Agreement violates PAGCORs charter,
gambling between the junket player and the junket operator
under such agreement is illegal and may not be enforced by the
courts. Article 201442 of the Civil Code, which refers to illegal
gambling, states that no action can be maintained by the
winner for the collection of what he has won in a game of
chance.
Although not raised as an issue by petitioner, we deem it
necessary to discuss the applicability of Republic Act No.
948743 (RA 9487) to the present case.
RA 9487 amended the PAGCOR charter, granting PAGCOR the
power to enter into special agreement with third parties to
share the privileges under its franchise for the operation of
gambling casinos:
Section 1. The Philippine Amusement and Gaming Corporation
(PAGCOR) franchise granted under Presidential Decree No.
Page 9 of 62
1869 otherwise known as the PAGCOR Charter, is hereby
further amended to read as follows:
xxx
(2) Section 3(h) is hereby amended to read as follows:
"SEC. 3. Corporate Powers. -
"x x x
"(h) to enter into, make, conclude, perform, and carry out
contracts of every kind and nature and for any lawful purpose
which are necessary, appropriate, proper or incidental to any
business or purpose of the PAGCOR, including but not limited
to investment agreements, joint venture agreements,
management agreements, agency agreements, whether as
principal or as an agent, manpower supply agreements, or any
other similar agreements or arrangements with any person,
firm, association or corporation." (Boldfacing supplied)
PAGCOR sought the amendment of its charter precisely to
address and remedy the legal impediment raised in Senator
Jaworski v. Phil. Amusement and Gaming Corp.
Unfortunately for petitioner, RA 9487 cannot be applied to the
present case. The Junket Agreement was entered into between
PAGCOR and ABS Corporation on 25 April 1996 when the
PAGCOR charter then prevailing (PD 1869) prohibited
PAGCOR from entering into any arrangement with a third
party that would allow such party to actively participate in the
casino operations.
It is a basic principle that laws should only be applied
prospectively unless the legislative intent to give them
retroactive effect is expressly declared or is necessarily
implied from the language used.44 RA 9487 does not provide
for any retroactivity of its provisions. All laws operate
prospectively absent a clear contrary language in the
text,45 and that in every case of doubt, the doubt will be
resolved against the retroactive operation of laws.46
Thus, petitioner cannot avail of the provisions of RA 9487 as
this was not the law when the acts giving rise to the claimed
liabilities took place. This makes the gambling activity
participated in by petitioner illegal. Petitioner cannot sue
PAGCOR to redeem the cash value of the gambling chips or
recover damages arising from an illegal activity for two
reasons. First, petitioner engaged in gambling with ABS
Corporation and not with PAGCOR. Second, the court cannot
assist petitioner in enforcing an illegal act. Moreover, for a
court to grant petitioners prayer would mean enforcing the
Junket Agreement, which is void.
Now, to address the issues raised by petitioner in his petition,
petitioner claims that he is a third party proceeding against the
liability of a presumed principal and claims relief,
alternatively, on the basis of implied agency or agency by
estoppel.
Article 1869 of the Civil Code states that implied agency is
derived from the acts of the principal, from his silence or lack
of action, or his failure to repudiate the agency, knowing that
another person is acting on his behalf without authority.
Implied agency, being an actual agency, is a fact to be proved
by deductions or inferences from other facts.47
On the other hand, apparent authority is based on estoppel and
can arise from two instances. First, the principal may
knowingly permit the agent to hold himself out as having such
authority, and the principal becomes estopped to claim that
the agent does not have such authority. Second, the principal
may clothe the agent with the indicia of authority as to lead a
reasonably prudent person to believe that the agent actually
has such authority.48 In an agency by estoppel, there is no
agency at all, but the one assuming to act as agent has apparent
or ostensible, although not real, authority to represent
another.49
The law makes no presumption of agency and proving its
existence, nature and extent is incumbent upon the person
alleging it.50 Whether or not an agency has been created is a
question to be determined by the fact that one represents and
is acting for another. 51
Acts and conduct of PAGCOR negates the existence of an
implied agency or an agency by estoppel
Petitioner alleges that there is an implied agency.
Alternatively, petitioner claims that even assuming that no
actual agency existed between PAGCOR and ABS Corporation,
there is still an agency by estoppel based on the acts and
conduct of PAGCOR showing apparent authority in favor of
ABS Corporation. Petitioner states that one factor which
distinguishes agency from other legal precepts is control and
the following undisputed facts show a relationship of implied
agency:
1. Three floors of the Grand Boulevard Hotel52 were leased to
PAGCOR for conducting gambling operations;53
2. Of the three floors, PAGCOR allowed ABS Corporation to use
one whole floor for foreign exchange gambling, conducted by
PAGCOR dealers using PAGCOR facilities, operated by PAGCOR
employees and using PAGCOR chips bearing the PAGCOR
logo;54
3. PAGCOR controlled the release, withdrawal and return of all
the gambling chips given to ABS Corporation in that part of the
casino and at the end of the day, PAGCOR conducted an
inventory of the gambling chips;55
4. ABS Corporation accounted for all gambling chips with the
Commission on Audit (COA), the official auditor of PAGCOR;56
5. PAGCOR enforced, through its own manager, all the rules
and regulations on the operation of the gambling pit used by
ABS Corporation.57
Petitioners argument is clearly misplaced. The basis for
agency is representation,58 that is, the agent acts for and on
behalf of the principal on matters within the scope of his
authority and said acts have the same legal effect as if they
were personally executed by the principal.59 On the part of the
principal, there must be an actual intention to appoint or an
intention naturally inferable from his words or actions, while
on the part of the agent, there must be an intention to accept
Page 10 of 62
the appointment and act on it.60 Absent such mutual intent,
there is generally no agency.61
There is no implied agency in this case because PAGCOR did
not hold out to the public as the principal of ABS Corporation.
PAGCORs actions did not mislead the public into believing that
an agency can be implied from the arrangement with the
junket operators, nor did it hold out ABS Corporation with any
apparent authority to represent it in any capacity. The Junket
Agreement was merely a contract of lease of facilities and
services.
The players brought in by ABS Corporation were covered by a
different set of rules in acquiring and encashing chips. The
players used a different kind of chip than what was used in the
regular gaming areas of PAGCOR, and that such junket players
played specifically only in the third floor area and did not
mingle with the regular patrons of PAGCOR. Furthermore,
PAGCOR, in posting notices stating that the players are playing
under special rules, exercised the necessary precaution to
warn the gaming public that no agency relationship
exists.1avvphi1
For the second assigned error, petitioner claims that the
intention of the parties cannot apply to him as he is not a party
to the contract.
We disagree. The Court of Appeals correctly used the intent of
the contracting parties in determining whether an agency by
estoppel existed in this case. An agency by estoppel, which is
similar to the doctrine of apparent authority requires proof of
reliance upon the representations, and that, in turn, needs
proof that the representations predated the action taken in
reliance.62
There can be no apparent authority of an agent without acts or
conduct on the part of the principal and such acts or conduct
of the principal must have been known and relied upon in good
faith and as a result of the exercise of reasonable prudence by
a third person as claimant, and such must have produced a
change of position to its detriment.63 Such proof is lacking in
this case.
In the entire duration that petitioner played in Casino Filipino,
he was dealing only with ABS Corporation, and availing of the
privileges extended only to players brought in by ABS
Corporation. The facts that he enjoyed special treatment upon
his arrival in Manila and special accommodations in Grand
Boulevard Hotel, and that he was playing in special gaming
rooms are all indications that petitioner cannot claim good
faith that he believed he was dealing with PAGCOR. Petitioner
cannot be considered as an innocent third party and he cannot
claim entitlement to equitable relief as well.
For his third and final assigned error, petitioner asserts that
PAGCOR ratified the acts of ABS Corporation.
The trial court has declared, and we affirm, that the Junket
Agreement is void. A void or inexistent contract is one which
has no force and effect from the very beginning. Hence, it is as
if it has never been entered into and cannot be validated either
by the passage of time or by ratification.64 Article 1409 of the
Civil Code provides that contracts expressly prohibited or
declared void by law, such as gambling contracts, "cannot be
ratified."65
WHEREFORE, we DENY the petition. We AFFIRM the Court of
Appeals Decision dated 27 May 2003 as well as the Resolution
dated 7 May 2004 as modified by this Decision.
SO ORDERED.
EN BANC
G.R. No. L-439 November 11, 1901
GERMANN & CO., plaintiff-appellees,
vs.
DONALDSON, SIM & CO., defendants-appellants.
Fernando de la Cantera, for appellants.
Francisco Ortigas, for appellees.
LADD, J.:
This is an incident of want of personality of the plaintiff's
attorney. The action is to recover a sum claimed to be due for
freight under a charter party. It was brought by virtue of a
general power for suits, executed in Manila October 27, 1900,
by Fernando Kammerzell, and purporting to be a substitution
in favor of several attorneys of powers conferred upon
Kammerzell in an instrument executed in Berlin, Germany,
February 5, 1900, by Max Leonard Tornow, the sole owner of
the business carried on in Berlin and Manila under the name
of Gemann & Co. The first-named instrument was
authenticated by a notary with the formalities required by the
domestic laws. The other was not so authenticated. Both
Tornow and Kammerzell are citizens of Germany. Tornow is a
resident of Berlin and Kammerzell of Manila.
The defendants claim that the original power is invalid under
article 1280, No. 5, of the Civil Code, which provides that
powers for suits must be contained in a public instrument. No
claim is made that the document was not executed with the
formalities required by the German law in the case of such an
instrument. We see no reason why the general principle that
the formal validity of contracts is to be tested by the laws of the
country where they are executed should not apply. (Civil Code,
art. 11.)
The defendants also claim that the original power can not be
construed as conferring upon Kammerzell authority to
institute or defend suits, from which contention, if correct, it
would of course follow that the delegated power is invalid. In
support of this contention reliance is placed upon article 1713
of the Civil Code, by which it is provided that "an agency stated
in general terms only includes acts of administration," and that
"in order to compromise, alienate, mortgage, or to execute any
other act of strict ownership an express commission is
required."
It has been argued by counsel for the plaintiff that these
provisions of the domestic law are not applicable to the case of
Page 11 of 62
an agency conferred, as was that in question, by one foreigner
upon another in an instrument executed in the country of
which both were citizens. We shall not pass upon this question,
since we are clearly of opinion that the instrument contains an
explicit grant of a power broad enough to authorize the
bringing of the present action, even assuming the applicability
of the domestic law as claimed by the defendants.lawphil.net
By this instrument Tornow constitutes Kammerzell his "true
and lawful attorney with full power to enter the firm name of
Germann & Co. in the Commercial Registry of the city of Manila
as a branch of the house of Germann & Co. in Berlin, it being
the purpose of this power to invest said attorney will full legal
powers and authorization to direct and administer in the city
of Manila for us and in our name a branch of our general
commercial business of important and exportation, for which
purpose he may make contracts of lease and employ suitable
assistants, as well as sign every kind of documents, accounts,
and obligations connected with the business which may be
necessary, take charge in general of the receipt and delivery of
merchandise connected with the business, sign all receipts for
sums of money and collect them and exact their payment by
legal means, and in general execute all the acts and things
necessary for the perfect carrying on of the business
committed to his charge in the same manner as we could do
ourselves if we were present in the same place."
We should not be inclined to regard in institution of a suit like
the present, which appears to be brought to collect a claim
accruing in the ordinary course of the plaintiff's business, as
properly belonging to the class of acts described in article
1713 of the Civil Code as acts "of strict ownership." It seems
rather to be something which is necessarily a part of the mere
administration of such a business as that described in the
instrument in question and only incidentally, if at all, involving
a power to dispose of the title to property.
But whether regarded as an act of strict ownership or not, it
appears to be expressly and specially authorized by the clause
conferring the power to "exact the payment" of sums of money
"by legal means." This must mean the power to exact the
payment of debts due the concern by means of the institution
of suits for their recovery. If there could be any doubt as to the
meaning of this language taken by itself, it would be removed
by a consideration of the general scope and purpose of the
instrument in which it occurs. (See Civil Code, art. 1286.) The
main object of the instrument is clearly to make Kammerzell
the manager of the Manila branch of the plaintiff's business,
with the same general authority with reference to its conduct
which his principal would himself possess if he were
personally directing it. It can not be reasonably supposed, in
the absence of very clear language to that effect, that it was the
intention of the principal to withhold from his agent a power
so essential to the efficient management of the business
entrusted to his control as that to sue for the collection of
debts.
EN BANC
G.R. No. L-9608 August 7, 1915
DIEGO LIAN, plaintiff-appellee,
vs.
MARCOS P. PUNO, ET AL., defendants-appellants.
Mariano Escueta for appellants.
S. Lopez for appellee.
JOHNSON, J.:
The facts upon which the decision in this case depends are as
follows:
(1) The the plaintiff, in the month of May, 1908, and for a long
time prior thereto, was the owner of a certain parcel of land
particularly described in paragraph 2 of the complaint.
(2) That on the 16th day of May, 1908, the plaintiff executed
the following document, which conferred upon the defendant
Marcos P. Puno the power, duties and obligations therein
contained:
I, Diego Lian, of age, married, a resident of Daet, Province of
Ambos Camarines, Philippine Islands, and at the present time
temporarily residing in this city of Tarlac, capital of the
Province of Tarlac, P.I., set forth that I hereby confer sufficient
power, such as the law requires, upon Mr. Marcos P. Puno,
likewise a resident of this city of Tarlac, capital of the Province
of Tarlac, in order that in my name and representation he may
administer the interest I possess within this municipality of
Tarlac, purchase, sell, collect and pay, as well as sue and be
sued before any authority, appear before the courts of justice
and administrative officers in any proceeding or business
concerning the good administration and advancement of my
said interests, and may, in necessary cases, appoint attorneys
at law or attorneys in fact to represent him.
The meaning, purport, and power conferred by this document
constitute the very gist of the present action.
(3) That in June, 1911, the defendant Puno, for the sum of
P800, sold and delivered said parcel of land to the other
defendants.
The plaintiff alleges that the said document (Exhibit A) did not
confer upon the defendant Puno the power to sell the land and
prayed that the sale be set aside; that the land be returned to
him, together with damages.
The defendants at first presented a demurrer to the complaint,
which was overruled. To the order overruling the demurrer
the defendants duly excepted. They later answered. In their
answer they first denied generally and specially all of the
important facts stated in the complaint. In their special answer
or defense they admitted the sale of the land by Puno to the
other defendants and alleged that the same was a valid sale
and prayed to be relieved from the liability under the
complaint, with their costs.
Upon the issue thus presented the lower court decided: (1)
That the document Exhibit A did not give Puno authority to sell
the land; (2) that the sale was illegal and void; (3) That
defendants should return to the land to the plaintiff; and (4)
That the defendants should pay to the plaintiff the sum of
Page 12 of 62
P1,000 as damages, P400 of which the defendant Puno should
alone be responsible for, and to pay the costs.
From that decision the defendants appealed to this court and
made the following assignments of error:
I. The lower court erred in overruling the demurrer filed by the
appellants to the complaints.
II. The lower court erred in holding that the appellant Marcos
P. Puno was not authorized to sell the land in question and that
the sale executed by the said Marcos P. Puno to the other
appellants, Enrique, Vicente, Aquilina and Remedios,
surnamed Maglanok, is null and void.
III. The lower court erred in ordering the appellee, Diego
Lian, to return to the appellants, Enrique, Vicente, Aquilina,
and Remedios Maglanok the sum of P800, the selling price of
the land question.
III. And, finally, the lower court erred in sentencing the
appellants to pay to the appellee the sum of P1,000, the value
of the products collected, and to pay the costs.
IV. And, finally, the lower court erred in sentencing the
appellant to pay to the appellee the sum of P1,000, the value of
the products collected, and to pay the costs.
With reference to the first assignment of error, we are of the
opinion that the facts stated in the opinion are sufficient to
constitute a cause of action.
With reference to the second assignment of error, the plaintiff
alleges that the power of attorney, as contained in Exhibit A,
did not authorize the defendant Puno had full and complete
power and authority to do what he did. The lower court held
that Exhibit A only gave Puno power and authority to
administer the land; that he was not authorized to sell it.
Omitting the purely explanatory parts of Exhibit A, it reads as
follows: "I, Diego Lian, ... set forth that I ... confer sufficient
power, such as the law requires, upon Mr. Marcos P. Puno ... in
order that in my name and representation he may administer
... purchase, sell, collect and pay ... in any proceeding or
business concerning the good administration and
advancement of my said interests, and may, in necessary cases,
appoint at law or attorneys in fact to represent him."
Contracts of agency as well as general powers of attorney must
be interpreted in accordance with the language used by the
parties. the real intention of the parties is primarily to be
determined from the language used. The intention is to be
gathered from the whole instrument. In case of doubt resort
must be had to the situation, surroundings and relations of the
parties. Whenever it is possible, effect is to be given to every
word and clause used by the parties. It is to be presumed that
the parties said what they intended to say and that they used
each word or clause with some purpose and that purpose is, if
possible, to be ascertained and enforced. The intention of the
parties must be sustained rather than defeated. If the contract
be open to two constructions, one of which would uphold
while the other would overthrow it, the former is to be chosen.
So, if by one construction the contract would be illegal, and by
another equally permissible construction it would be lawful,
the latter must be adopted. The acts of the parties in carrying
out the contract will be presumed to be done in good faith. The
acts of the parties will be presumed to have been done in
conformity with and not contrary to the intent of the contract.
The meaning of generals words must be construed with
reference to the specific object to be accomplished and limited
by the recitals made in reference to such object.
With these general observations in mind, ,let us examine the
terms of the power conferred upon the defendant Puno
(Exhibit A) and ascertain, if possible, what was the real intent
of the plaintiff. The lower court held that the "only power
conferred was the power to administer." Reading the contract
we find it says that the plaintiff "I confer ... power ... that ... he
may administer ... purchase, sell, collect and pay ... in any
proceeding or business concerning the good administration
and advancement of my said interests." The words
"administer, purchase, sell," etc., seem to be used coordinately.
Each has equal force with the other. There seems to be no good
reason for saying that Puno had authority to administer and
not to sell when "to sell" was as advantageous to the plaintiff
in the administration of his affairs as "to administer." To hold
that the power was "to administer" only when the power "to
sell" was equally conferred would be to give to special words
of the contract a special and limited meaning to the exclusion
of other general words of equal import.
The record contains no allegation on proof that Puno acted in
bad faith or fraudulently in selling the land. It will be presumed
that he acted in good faith and in accordance with his power as
he understood it. That his interpretation of his power, as
gathered from the contract (Exhibit A), is tenable cannot, we
believe, be successfully denied. In view of that fact and view of
the fact that, so far as the record shows, the other defendants
acted in good faith, we are of the opinion that the contract,
liberally construed, as we think it should be, justifies the
interpretation given it by Puno. In reaching this conclusion, we
have taken into account the fact that the plaintiff delayed his
action to annul said sale from the month of June, 1911, until
the 15th of February, 1913. Neither have we overlooked the
fact in the brief of the appellants that the plaintiff has not
returned, nor offered to return, nor indicated a willingness to
return, the purchase price. (Art. 1308 of the Civil Code;
Manikis vs. Blas, No. 7585.1).
In view of all the foregoing, we are of the opinion that the lower
court committed the error complained of in the second
assignment, and, without discussing the other assignments of
error, we are of the opinion, and so hold, that the judgment of
the lower court should be and is hereby revoked and that the
appellants should be relieved from all liability under the
complaint. Without any finding as to costs, it is so ordered.
EN BANC
G.R. No. L-24904 March 25, 1926
ROBINSON, FLEMING AND CO., plaintiff-appellant,
vs.
CRUZ & TAN CHONG SAY, defendant-appellee.
Page 13 of 62
J. F. Boomer and C. de G. Alvear for appellant.
J. Perez Cardenas and Jose P. Osorio for appellee.
STATEMENT
Plaintiff is a partnership organized and existing under the laws
of Great Britain, with a resident attorney-in-fact in the
Philippine Islands.
The defendant is a domestic partnership doing business in the
City of Manila, and it is alleged that it is represented in London,
England, by a duly appointed agent and attorney-in-fact.
Plaintiff claims that under a written contract executed about
April 1, 1921, known in the record as Exhibit A, it bought from
the defendant 500 bales of Manila hemp grade J at 40 pounds
less 1 per cent, equivalent, in Philippine currency, to P364.66,
per ton of 20 cwt. net landed weight. That pursuant to the
contract, on May 31, 1921, the defendant shipped in two
parcels from Manila to London, for delivery to plaintiff, the 500
bales of Manila hemp grade JDC/J, freight and f. p. a. insurance
for the account of the defendant, which hemp upon being
weighed in London, and deducting the tare, as provided the
contract, amounted to 1182 cwt. 2 qtrs. 10 pounds
equivalent to 59.13 tons of 20 cwt. net weight, and after
deducting freight, commission, and insurance, as the contract
provides, it had an invoice value of 1872 pounds 6s 4d,
equivalent to P17,241.48, Philippine currency. That at the time
of the shipment, defendant drew upon plaintiff for P18,417.27,
which draft the plaintiff paid by means of a letter of credit, thus
leaving a balance due and owing the plaintiff of P1,175.79. That
upon the arrival of the hemp in London. it was found it was not
in merchantable condition, and was not so when it was
shipped from Manila. Therefore, arbitration was had under the
provisions of clause 9 of the contract at a cost of P218.17 for
the account of the defendant, which arbitration resulted in an
allowance to plaintiff of a reduction in the price of P13,150.04,
which arbitration and its findings were approved and accepted
by the defendant. That after the shipment, defendant did not,
without undue delay, provided plaintiff with Government
graders' certificates for the hemp, and by reason thereof,
plaintiff was obliged to lighter and store 250 bales of it pending
the arrival of the Government graders' certificates at a cost of
P135.37. That by reason of such acts, the defendant became
indebted to the plaintiff in the sum of P14,461.20, no part of
which has been paid, except the sum of P11,687.87, which was
the net value of 450 bales of Manila hemp grade J. shipped by
defendant to plaintiff during July, 1921, leaving a balance then
due and owing from defendant to plaintiff, on its first cause of
action, of P2,539.09, for which demand has been made and
payment refused.
Like allegations are made in a second cause of section, in which
plaintiff claims P722.53, and in the third cause of action, for
which it claims P3,526.71, and in the fourth cause of action
P3,673.09.
For answer the defendant made a general and specific denial
of all of the material allegations made in the complaint.
After the evidence was taken upon such issues, the lower court
rendered judgment for the defendant, to which the plaintiff
duly excepted and filed a motion for a new trial, which was
overruled.
The plaintiff appeals and assigns the following errors:
I. The trial court erred in that, after finding that Messrs. H. E.
Marchant and Francis Adams, during all the times material to
the issues in this case, had been agents of the defendant in
London for the purpose of selling and disposing of its hemp,
the nature, character, and scope of such agency not appearing
to have been limited, the trial court held that plaintiff was
obliged to show such agency to have included within scope
matters necessary and incidental to the selling and disposing
of defendant's hemp in London.
II. The trial court erred in holding that the plaintiff was bound
to show before the court what evidence was before the
arbitrators when they made up the award; that the action of
the arbitrators was not binding upon the court and that the
court was not bound to assume that such action was legal and
just.
III. The trial court erred in finding, in its final decision, that
plaintiff was a British Corporation.
IV. The trial court erred in finding in its final decision that it
had sustained objections to certain portions of the deposition
of the witness William Ernest Sibley, offered by plaintiff and
couched in the following words:
When the said 500 bales arrived in London, the plaintiffs,
found that the hemp was not in sound, dry condition in
accordance with the clause 9 of the said contract (Exhibit W. E.
S. 1). The arbitration which was duly held, resulted in an award
being made by the arbitrators appointed by the plaintiffs and
defendants, respectively in the plaintiffs' favor, whereby an
allowance was made to the plaintiffs on the price of the said
500 bales, &c.' B. E. 49.
V. The trial court erred in finding that there was not sufficient
evidence before the court to sustain the allegations of plaintiff.
IV. The trial court erred in deciding the issues in the case in
favor of the defendant and against the plaintiff.
JOHNS, J.:
This action is founded upon alleged written contract which the
plaintiff claims was executed in London on April 1, 1921, by
and between it and the defendant, acting by and through its
authorized agent, and an alleged copy of which is in the record,
and purports to have been executed by H. Marchant, now
deceased, who was then in London, and who, the defendant
admits in its own testimony, was at that time the London agent
of the defendant in the selling of its hemp.
In the very nature of things, an agent cannot sell hemp in a
foreign country without making some kind of a contract, and if
he had power to sell, it would carry with it the authority to
make and enter into the usual and customary contract for its
sale.
As we analyze the evidence, Marchant was the London agent
of the defendant, and in the ordinary course of business,
executed the contract known in the record as Exhibit A, and on
behalf of the defendant, as its agent, and as its act and deed,
Page 14 of 62
and, for such reason, the defendants is bound by the contract.
This is confirmed by the further fact that the defendant
undertook to carry out and perform the terms and provisions
of the contract, and, by and under its terms, to ship and deliver
the hemp, drew the draft, and took and accepted the money for
its payment.
We are clearly of the opinion that the contract in question is
valid and binding upon the defendant, and that Marchant, as
the agent of the defendant, not only had the authority to make
and enter into it for and on behalf of the defendant, but as a
matter of fact that contract was legally ratified and approved
by the subsequent acts and conduct of the defendant. It is very
apparent that the contract was executed in the ordinary course
of business, and that in executing it, Marchant was acting
within the scope of his authority as the agent of the defendant.
It will also be noted that under its terms and provisions, the
defendant was to deliver the hemp in London.
Clause 18 of the contract provides:
Arbitration. Any dispute arising out of this Contract, or in
any way relating to it or to its construction or fulfillment, shall
be referred to Arbitration in accordance with the By-Laws of
the Manila Hemp Association endorsed hereon, which shall be
deemed to form part of this Contract.
Clause 4 of the By-Laws of the Manila Hemp Association
provides:
All questions and matters referred to arbitration pursuant to
the annexed contract shall be referred to the arbitration of
Two Members or qualified Nominees or Associate Members of
the Manila Hemp Association, buyer and seller each
nominating one, and in case such arbitrators are unable to
agree, then to umpire who shall be appointed by the said
arbitrators; but in the event of their not appointing an umpire
before proceeding with the reference and within one week of
the date of their own appointment, then to an umpire who shall
be appointed, at the request of either of the parties to the
dispute, by the Chairman, Vice-Chairman or acting Chairman
for the time being of the Manila Hemp Association.
Provisions is then made for the manner of proceeding should
either party fail to appoint an arbitrator, and for an appeal on
certain specified conditions.
Clause 5 of the By-Laws provides:
Awards by Arbitrators shall be made out on the official form
issued by the Association, and shall be valid, notwithstanding
both arbitrators have no signed the same at the same time and
in the presence of each other.
And clause 8 provides that:
Appeals to the Committee of the Association may be heard
before a meeting of all or any four or more of the Members of
such Committee.
Clause 11 provides:
The evidence and proceedings upon arbitrations or appeals
may be taken in a mercantile way, without regarding legal
technicalities respecting evidence.
was present. Neither is there any competent evidence that the
Clause 12 provides:
Awards of the Committee on appeals shall be signed either by
the Chairman, Vice-Chairman, or acting Chairman of the
Association for the time being.
Plaintiff alleges that on the arrival in London of the hemp in
question, it was not in sound merchantable condition, and that
it was not of the grade specified in the contract. For such
reason, it demanded an arbitration under the provisions of the
contract. That an arbitration was had, and that it made findings
as alleged in the complaint, and that the defendant, through its
London agent, accepted and ratified the award of the
arbitrators, and in legal effect, plaintiff seeks to recover from
the defendant on the findings and the award made by the
arbitrators.
It is clear that under the contract, and upon the proof in the
record, plaintiff was legally entitled to an arbitration. It is
equally clear that, if an arbitration was had and held in the
manner and form provided by the contract, and that the
arbitrators made findings, and based thereon made the award,
as plaintiff alleges, plaintiff in this action would be entitled to
recover from the defendant the amount found due and owing
by the arbitrators, subject only to the legal right, and under a
proper plea, of the defendant to defend upon the ground of
fraud or mistake in the arbitration. But in an action to recover
founded upon the award of the arbitrators, the plaintiff must
both allege and prove, by competent evidence, that the
defendant had notice of the motion of the plaintiff to arbitrate;
that the arbitrators were selected in the manner and form as
provided for in the By-Laws of the Manila Hemp Association;
that the arbitrators met and performed their duties, and made
and presented their findings, based upon which, they made
and signed their award; and that the defendant was either
legally a party to the arbitration or that it ratified and
approved the arbitration after it was made. Upon all of such
questions, there is a failure of proof. There is no competent
evidence that arbitrators were ever selected, as the By-Laws
provides, who they were, or that they ever met in the discharge
of their duties, or of the time and place of their meeting, or who
arbitrators ever made or signed any findings. Neither is there
any competent evidence that the defendant was ever notified
of the proposed arbitration, or that it book part in it, or that it
ever ratified or approved the alleged findings. The proof of an
arbitration should conform to the spirit and intent of the By-
Laws of the Manila Hemp Association.
Under the By-Laws, for certain specified reasons, either party
has a legal right to an arbitration, and each person has a legal
right to select his own arbitrator, and it is the duty of the
person desiring an arbitration to notify the adverse party, so
that he can select his own arbitrator and be present or
represented in the arbitration, if he sees fit to do so. After the
arbitrators have been selected and a hearing is held and the
investigation made, it is then the duty of the arbitrators to
make their findings, based upon which they make their award,
which should be in writing. The only competent evidence of all
such matters is the finding and award which is made by the
arbitrators. In other words, where a person seeks to recover a
judgment upon the findings and award of arbitrators, he must
Page 15 of 62
both allege and prove that all of the conditions precedent, and
that the necessary legal steps were taken to have an
arbitration, and submit to the court either the original or an
authenticated copy of the findings and the award of the
arbitrators, or in the absence of such preliminary proof, he
must both allege and prove that the findings and award of the
arbitrators have been ratified and approved by the adverse
party.
There is no evidence of any one of those facts in the record. It
is true that the witness Sibley on behalf of the plaintiff testified
that: "The defendants, by their duly authorized attorney,
Francis Adams, accepted and approved of the award." That is
not proof of any fact. It is nothing more than the legal opinion
of the witness. The question as to whether the defendant
"accepted and approved of the award" is one for the court to
determine from the actual facts as to how, when and in what
manner the defendant "accepted and approved of the award."
What was said and done, by whom it was said, and when and
to whom it was said, and if it was in writing, the writing should
be produced. Upon the proof of the actual facts, it would then
be for the court, and not for the witness, to say whether or not
the defendants "accepted and approved of the award."
In the final analysis, where, as in this case, the plaintiff seeks to
recover upon the findings and the award of arbitrators, before
it can recover, it must both allege and prove a substantial
compliance with all of the material provisions of the By-Laws
of the Manila Hemp Association, and without such proof, it is
not entitled to a judgment upon the findings and award of the
arbitrators.
If it be a fact that the alleged findings and award of the
arbitrators was made in a substantial compliance with such
"By-Laws," and competent proof of that fact is submitted to the
court, plaintiff would then be entitled to judgment as prayed
for in its complaint. In such a case, the award of the arbitrators
could only be modified or set aside for a mistake apparent on
the face of the record, or upon the ground of fraud in the
arbitration, both of which must be alleged in a proper plea and
proven as any other fact, which could not be done under a
general denial.
Upon a mistake of fact, Corpus Juris, volume 5, p. 182, says:
Although an award cannot be avoided on account of a wrong
conclusion, drawn by the arbitrators from the facts before
them, which conclusion amounts to a mere mistake of
judgment, a plain misconception of the facts submitted, by
reason of which it is made to appear that the arbitrators must
have rendered a different decision had they proceeded in view
of the true state of facts, about the existence of which there
could be no reasonable question, may constitute a ground for
avoiding the award. . . .
Upon the question of fraud, on page 187, the author says:
It is ground for setting aside an award that it was obtained by
the fraud, imposition, or other undue means employed a party
to the arbitration, or his agent, . . .
And again on page 189:
Fraud corruption, or misconduct of the arbitrators is ground
for setting aside the award, especially where one of the parties
participates therein. And, for obvious reasons, it has been held
that the rule applies, although the submission provides that
the award shall not be subject to exception or appeal, or shall
be final or conclusive. . . .
As to the operation and effect of an award on the merits, the
same author, on page 160, says:
As between the parties and their privies, an award is entitled
to the respect which is due to the judgment of a court of last
resort. It is in fact a final adjudication by a court of the parties'
own choice, and, until impeached upon sufficient grounds in an
appropriate proceeding, an award which is regular on its face
is conclusive upon the merits of the controversy submitted,
and it is not for the courts to otherwise inquire whether the
determination was right or wrong, for the purpose of
interfering with it. The court possesses no general supervisory
power over awards and if arbitrators keep within their
jurisdiction their award will not be set because they have erred
in judgment either upon the facts or the law. . . . It is the general
rule that a valid award operates to merge and extinguish all
claims embraced in the stipulation. Thereafter the submission
and award furnish the only basis by which the rights of the
parties can be determined, . . . .
This case involves the application and construction of the By-
Laws of the Manila Hemp Association, is important to the
hemp industry, and is one of first impression in this court.
In the interest of justice, and so that the case may be tried and
decided upon its actual merits, the judgment of the lower court
is reversed, and the case is remanded, with leave to the
plaintiff to submit competent evidence of the arbitration and
the findings and award of the arbitrators, and that the
arbitration was made in a substantial compliance with the By-
Laws of the Manila Hemp Association, and with leave to the
defendant, in its discretion, to amend its answer, and to both
allege and prove that the arbitration was fraudulent por that
the arbitrators made a mistake, which is apparent on the face
of the record. Neither party to recover costs. So ordered.
THIRD DIVISION
G.R. No. 160346 August 25, 2009
PURITA PAHUD, SOLEDAD PAHUD, and IAN LEE CASTILLA
(represented by Mother and Attorney-in-Fact VIRGINIA
CASTILLA), Petitioners,
vs.
COURT OF APPEALS, SPOUSES ISAGANI BELARMINO and
LETICIA OCAMPO, EUFEMIA SAN AGUSTIN-MAGSINO,
ZENAIDA SAN AGUSTIN-McCRAE, MILAGROS SAN
AGUSTIN-FORTMAN, MINERVA SAN AGUSTIN-ATKINSON,
FERDINAND SAN AGUSTIN, RAUL SAN AGUSTIN,
ISABELITA SAN AGUSTIN-LUSTENBERGER and VIRGILIO
SAN AGUSTIN, Respondents.
DECISION
Page 16 of 62
NACHURA, J.:
For our resolution is a petition for review on certiorari
assailing the April 23, 2003 Decision1 and October 8, 2003
Resolution2 of the Court of Appeals (CA) in CA-G.R. CV No.
59426. The appellate court, in the said decision and resolution,
reversed and set aside the January 14, 1998 Decision3 of the
Regional Trial Court (RTC), which ruled in favor of petitioners.
The dispute stemmed from the following facts.
During their lifetime, spouses Pedro San Agustin and Agatona
Genil were able to acquire a 246-square meter parcel of land
situated in Barangay Anos, Los Baos, Laguna and covered by
Original Certificate of Title (OCT) No. O-(1655) 0-15.4 Agatona
Genil died on September 13, 1990 while Pedro San Agustin
died on September 14, 1991. Both died intestate, survived by
their eight (8) children: respondents Eufemia, Raul, Ferdinand,
Zenaida, Milagros, Minerva, Isabelita and Virgilio.
Sometime in 1992, Eufemia, Ferdinand and Raul executed a
Deed of Absolute Sale of Undivided Shares5conveying in favor
of petitioners (the Pahuds, for brevity) their respective shares
from the lot they inherited from their deceased parents
for P525,000.00.6 Eufemia also signed the deed on behalf of
her four (4) other co-heirs, namely: Isabelita on the basis of a
special power of attorney executed on September 28,
1991,7 and also for Milagros, Minerva, and Zenaida but without
their apparent written authority.8 The deed of sale was also
not notarized.9
On July 21, 1992, the Pahuds paid P35,792.31 to the Los Baos
Rural Bank where the subject property was mortgaged.10 The
bank issued a release of mortgage and turned over the owners
copy of the OCT to the Pahuds.11 Over the following months,
the Pahuds made more payments to Eufemia and her siblings
totaling to P350,000.00.12 They agreed to use the
remaining P87,500.0013 to defray the payment for taxes and
the expenses in transferring the title of the property.14 When
Eufemia and her co-heirs drafted an extra-judicial settlement
of estate to facilitate the transfer of the title to the Pahuds,
Virgilio refused to sign it.15
On July 8, 1993, Virgilios co-heirs filed a complaint16 for
judicial partition of the subject property before the RTC of
Calamba, Laguna. On November 28, 1994, in the course of the
proceedings for judicial partition, a Compromise
Agreement17 was signed with seven (7) of the co-heirs
agreeing to sell their undivided shares to Virgilio
for P700,000.00. The compromise agreement was, however,
not approved by the trial court because Atty. Dimetrio Hilbero,
lawyer for Eufemia and her six (6) co-heirs, refused to sign the
agreement because he knew of the previous sale made to the
Pahuds.18lawphil.net
On December 1, 1994, Eufemia acknowledged having
received P700,000.00 from Virgilio.19 Virgilio then sold the
entire property to spouses Isagani Belarmino and Leticia
Ocampo (Belarminos) sometime in 1994. The Belarminos
immediately constructed a building on the subject property.
Alarmed and bewildered by the ongoing construction on the
lot they purchased, the Pahuds immediately confronted
Eufemia who confirmed to them that Virgilio had sold the
property to the Belarminos.20 Aggrieved, the Pahuds filed a
complaint in intervention21 in the pending case for judicial
partition.1avvphil
After trial, the RTC upheld the validity of the sale to petitioners.
The dispositive portion of the decision reads:
WHEREFORE, the foregoing considered, the Court orders:
1. the sale of the 7/8 portion of the property covered by OCT
No. O (1655) O-15 by the plaintiffs as heirs of deceased Sps.
Pedro San Agustin and Agatona Genil in favor of the
Intervenors-Third Party plaintiffs as valid and enforceable, but
obligating the Intervenors-Third Party plaintiffs to complete
the payment of the purchase price of P437,500.00 by paying
the balance of P87,500.00 to defendant Fe (sic) San Agustin
Magsino. Upon receipt of the balance, the plaintiff shall
formalize the sale of the 7/8 portion in favor of the
Intervenor[s]-Third Party plaintiffs;
2. declaring the document entitled "Salaysay sa Pagsang-ayon
sa Bilihan" (Exh. "2-a") signed by plaintiff Eufemia San Agustin
attached to the unapproved Compromise Agreement (Exh. "2")
as not a valid sale in favor of defendant Virgilio San Agustin;
3. declaring the sale (Exh. "4") made by defendant Virgilio San
Agustin of the property covered by OCT No. O (1655)-O-15
registered in the names of Spouses Pedro San Agustin and
Agatona Genil in favor of Third-party defendant Spouses
Isagani and Leticia Belarmino as not a valid sale and as
inexistent;
4. declaring the defendant Virgilio San Agustin and the Third-
Party defendants spouses Isagani and Leticia Belarmino as in
bad faith in buying the portion of the property already sold by
the plaintiffs in favor of the Intervenors-Third Party Plaintiffs
and the Third-Party Defendant Sps. Isagani and Leticia
Belarmino in constructing the two-[storey] building in (sic)
the property subject of this case; and
5. declaring the parties as not entitled to any damages, with the
parties shouldering their respective responsibilities regarding
the payment of attorney[]s fees to their respective lawyers.
No pronouncement as to costs.
SO ORDERED.22
Not satisfied, respondents appealed the decision to the CA
arguing, in the main, that the sale made by Eufemia for and on
behalf of her other co-heirs to the Pahuds should have been
declared void and inexistent for want of a written authority
from her co-heirs. The CA yielded and set aside the findings of
the trial court. In disposing the issue, the CA ruled:
WHEREFORE, in view of the foregoing, the Decision dated
January 14, 1998, rendered by the Regional Trial Court of
Calamba, Laguna, Branch 92 in Civil Case No. 2011-93-C for
Judicial Partition is hereby REVERSED and SET ASIDE, and a
new one entered, as follows:
(1) The case for partition among the plaintiffs-appellees and
appellant Virgilio is now considered closed and terminated;
(2) Ordering plaintiffs-appellees to return to intervenors-
appellees the total amount they received from the latter, plus
Page 17 of 62
an interest of 12% per annum from the time the complaint [in]
intervention was filed on April 12, 1995 until actual payment
of the same;
(3) Declaring the sale of appellant Virgilio San Agustin to
appellants spouses, Isagani and Leticia Belarmino[,] as valid
and binding;
(4) Declaring appellants-spouses as buyers in good faith and
for value and are the owners of the subject property.
No pronouncement as to costs.
SO ORDERED.23
Petitioners now come to this Court raising the following
arguments:
I. The Court of Appeals committed grave and reversible error
when it did not apply the second paragraph of Article 1317 of
the New Civil Code insofar as ratification is concerned to the
sale of the 4/8 portion of the subject property executed by
respondents San Agustin in favor of petitioners;
II. The Court of Appeals committed grave and reversible error
in holding that respondents spouses Belarminos are in good
faith when they bought the subject property from respondent
Virgilio San Agustin despite the findings of fact by the court a
quo that they were in bad faith which clearly contravenes the
presence of long line of case laws upholding the task of giving
utmost weight and value to the factual findings of the trial
court during appeals; [and]
III. The Court of Appeals committed grave and reversible error
in holding that respondents spouses Belarminos have superior
rights over the property in question than petitioners despite
the fact that the latter were prior in possession thereby
misapplying the provisions of Article 1544 of the New Civil
Code.24
The focal issue to be resolved is the status of the sale of the
subject property by Eufemia and her co-heirs to the Pahuds.
We find the transaction to be valid and enforceable.
Article 1874 of the Civil Code plainly provides:
Art. 1874. When a sale of a piece of land or any interest therein
is through an agent, the authority of the latter shall be in
writing; otherwise, the sale shall be void.
Also, under Article 1878,25 a special power of attorney is
necessary for an agent to enter into a contract by which the
ownership of an immovable property is transmitted or
acquired, either gratuitously or for a valuable consideration.
Such stringent statutory requirement has been explained in
Cosmic Lumber Corporation v. Court of Appeals:26
[T]he authority of an agent to execute a contract [of] sale of
real estate must be conferred in writing and must give him
specific authority, either to conduct the general business of the
principal or to execute a binding contract containing terms and
conditions which are in the contract he did execute. A special
power of attorney is necessary to enter into any contract by
which the ownership of an immovable is transmitted or
acquired either gratuitously or for a valuable consideration.
The express mandate required by law to enable an appointee
of an agency (couched) in general terms to sell must be one
that expressly mentions a sale or that includes a sale as a
necessary ingredient of the act mentioned. For the principal to
confer the right upon an agent to sell real estate, a power of
attorney must so express the powers of the agent in clear and
unmistakable language. When there is any reasonable doubt
that the language so used conveys such power, no such
construction shall be given the document.27
In several cases, we have repeatedly held that the absence of a
written authority to sell a piece of land is, ipso jure,
void,28 precisely to protect the interest of an unsuspecting
owner from being prejudiced by the unwarranted act of
another.
Based on the foregoing, it is not difficult to conclude, in
principle, that the sale made by Eufemia, Isabelita and her two
brothers to the Pahuds sometime in 1992 should be valid only
with respect to the 4/8 portion of the subject property. The
sale with respect to the 3/8 portion, representing the shares of
Zenaida, Milagros, and Minerva, is void because Eufemia could
not dispose of the interest of her co-heirs in the said lot absent
any written authority from the latter, as explicitly required by
law. This was, in fact, the ruling of the CA.
Still, in their petition, the Pahuds argue that the sale with
respect to the 3/8 portion of the land should have been
deemed ratified when the three co-heirs, namely: Milagros,
Minerva, and Zenaida, executed their respective special power
of attorneys29 authorizing Eufemia to represent them in the
sale of their shares in the subject property.30
While the sale with respect to the 3/8 portion is void by
express provision of law and not susceptible to
ratification,31we nevertheless uphold its validity on the basis
of the common law principle of estoppel.
Article 1431 of the Civil Code provides:
Art. 1431. Through estoppel an admission or representation is
rendered conclusive upon the person making it, and cannot be
denied or disproved as against the person relying thereon.
True, at the time of the sale to the Pahuds, Eufemia was not
armed with the requisite special power of attorney to dispose
of the 3/8 portion of the property. Initially, in their answer to
the complaint in intervention,32 Eufemia and her other co-
heirs denied having sold their shares to the Pahuds. During the
pre-trial conference, however, they admitted that they had
indeed sold 7/8 of the property to the Pahuds sometime in
1992.33 Thus, the previous denial was superseded, if not
accordingly amended, by their subsequent
admission.34 Moreover, in their Comment,35 the said co-heirs
again admitted the sale made to petitioners.36
Interestingly, in no instance did the three (3) heirs concerned
assail the validity of the transaction made by Eufemia to the
Pahuds on the basis of want of written authority to sell. They
could have easily filed a case for annulment of the sale of their
respective shares against Eufemia and the Pahuds. Instead,
they opted to remain silent and left the task of raising the
validity of the sale as an issue to their co-heir, Virgilio, who is
not privy to the said transaction. They cannot be allowed to
Page 18 of 62
rely on Eufemia, their attorney-in-fact, to impugn the validity
of the first transaction because to allow them to do so would
be tantamount to giving premium to their sisters dishonest
and fraudulent deed. Undeniably, therefore, the silence and
passivity of the three co-heirs on the issue bar them from
making a contrary claim.
It is a basic rule in the law of agency that a principal is subject
to liability for loss caused to another by the latters reliance
upon a deceitful representation by an agent in the course of his
employment (1) if the representation is authorized; (2) if it is
within the implied authority of the agent to make for the
principal; or (3) if it is apparently authorized, regardless of
whether the agent was authorized by him or not to make the
representation.37
By their continued silence, Zenaida, Milagros and Minerva
have caused the Pahuds to believe that they have indeed
clothed Eufemia with the authority to transact on their behalf.
Clearly, the three co-heirs are now estopped from impugning
the validity of the sale from assailing the authority of Eufemia
to enter into such transaction.
Accordingly, the subsequent sale made by the seven co-heirs
to Virgilio was void because they no longer had any interest
over the subject property which they could alienate at the time
of the second transaction.38 Nemo dat quod non habet. Virgilio,
however, could still alienate his 1/8 undivided share to the
Belarminos.
The Belarminos, for their part, cannot argue that they
purchased the property from Virgilio in good faith. As a general
rule, a purchaser of a real property is not required to make any
further inquiry beyond what the certificate of title indicates on
its face.39 But the rule excludes those who purchase with
knowledge of the defect in the title of the vendor or of facts
sufficient to induce a reasonable and prudent person to
inquire into the status of the property.40Such purchaser cannot
close his eyes to facts which should put a reasonable man on
guard, and later claim that he acted in good faith on the belief
that there was no defect in the title of the vendor. His mere
refusal to believe that such defect exists, or his obvious neglect
by closing his eyes to the possibility of the existence of a defect
in the vendors title, will not make him an innocent purchaser
for value, if afterwards it turns out that the title was, in fact,
defective. In such a case, he is deemed to have bought the
property at his own risk, and any injury or prejudice
occasioned by such transaction must be borne by him.41
In the case at bar, the Belarminos were fully aware that the
property was registered not in the name of the immediate
transferor, Virgilio, but remained in the name of Pedro San FIRST DIVISION
Agustin and Agatona Genil.42 This fact alone is sufficient [G.R. No. 114311. November 29, 1996]
impetus to make further inquiry and, thus, negate their claim
that they are purchasers for value in good faith.43 They knew COSMIC LUMBER CORPORATION, petitioner, vs. COURT OF
that the property was still subject of partition proceedings APPEALS and ISIDRO PEREZ, respondents.
before the trial court, and that the compromise agreement
signed by the heirs was not approved by the RTC following the DECISION
opposition of the counsel for Eufemia and her six other co-
BELLOSILLO, J.:
heirs.44 The Belarminos, being transferees pendente lite, are
deemed buyers in mala fide, and they stand exactly in the COSMIC LUMBER CORPORATION through its General Manager
shoes of the transferor and are bound by any judgment or executed on 28 January 1985 a Special Power of Attorney
decree which may be rendered for or against the appointing Paz G. Villamil-Estrada as attorney-in-fact -
transferor.45 Furthermore, had they verified the status of the
x x x to initiate, institute and file any court action for the
property by asking the neighboring residents, they would have
ejectment of third persons and/or squatters of the entire lot
been able to talk to the Pahuds who occupy an adjoining
9127 and 443 and covered by TCT Nos. 37648 and 37649, for
business establishment46 and would have known that a
the said squatters to remove their houses and vacate the
portion of the property had already been sold. All these
premises in order that the corporation may take material
existing and readily verifiable facts are sufficient to suggest
possession of the entire lot, and for this purpose, to appear at
that the Belarminos knew that they were buying the property
the pre-trial conference and enter into any stipulation of facts
at their own risk.
and/or compromise agreement so far as it shall protect the
WHEREFORE, premises considered, the April 23, 2003 rights and interest of the corporation in the aforementioned
Decision of the Court of Appeals as well as its October 8, 2003 lots.[1]
Resolution in CA-G.R. CV No. 59426, are REVERSED and SET
On 11 March 1985 Paz G. Villamil-Estrada, by virtue of her
ASIDE. Accordingly, the January 14, 1998 Decision of Branch
power of attorney, instituted an action for the ejectment of
92 of the Regional Trial Court of Calamba, Laguna is
private respondent Isidro Perez and recover the possession of
REINSTATED with the MODIFICATION that the sale made by
a portion of Lot No. 443 before the Regional Trial Court of
respondent Virgilio San Agustin to respondent spouses Isagani
Dagupan, docketed as Civil Case No. D-7750.[2]
Belarmino and Leticia Ocampo is valid only with respect to the
1/8 portion of the subject property. The trial court is ordered On 25 November 1985 Villamil-Estrada entered into a
to proceed with the partition of the property with dispatch. Compromise Agreement with respondent Perez, the terms of
which follow:
SO ORDERED.
Page 19 of 62
1. That as per relocation sketch plan dated June 5, 1985
prepared by Engineer Rodolfo dela Cruz the area at present
occupied by defendant wherein his house is located is 333
square meters on the easternmost part of lot 443 and which
portion has been occupied by defendant for several years now;
2. That to buy peace said defendant pays unto the plaintiff
through herein attorney-in-fact the sum of P26,640.00
computed at P80.00/square meter;
3. That plaintiff hereby recognizes ownership and possession
of the defendant by virtue of this compromise agreement over
said portion of 333 square m. of lot 443 which portion will be
located on the easternmost part as indicated in the sketch as
annex A;
4. Whatever expenses of subdivision, registration, and other
incidental expenses shall be shouldered by the defendant. [3]
On 27 November 1985 the Compromise Agreement was
approved by the trial court and judgment was rendered in
accordance therewith.[4]
Although the decision became final and executory it was not
executed within the 5-year period from date of its finality
allegedly due to the failure of petitioner to produce the owners
duplicate copy of Title No. 37649 needed to segregate from Lot
No. 443 the portion sold by the attorney-in-fact, Paz G.
Villamil-Estrada, to private respondent under the compromise
agreement. Thus on 25 January 1993 respondent filed a
complaint to revive the judgment, docketed as Civil Case No. D-
10459.[5]
Petitioner asserts that it was only when the summons in Civil
Case No. D-10459 for the revival of judgment was served upon
it that it came to know of the compromise agreement entered
into between Paz G. Villamil-Estrada and respondent Isidro
Perez upon which the trial court based its decision of 26 July
1993 in Civil Case No. D-7750. Forthwith, upon learning of the
fraudulent transaction, petitioner sought annulment of the
decision of the trial court before respondent Court of Appeals
on the ground that the compromise agreement was void
because: (a) the attorney-in-fact did not have the authority to
dispose of, sell, encumber or divest the plaintiff of its
ownership over its real property or any portion thereof; (b)
the authority of the attorney-in-fact was confined to the
institution and filing of an ejectment case against third
persons/squatters on the property of the plaintiff, and to cause
their eviction therefrom; (c) while the special power of
attorney made mention of an authority to enter into a
compromise agreement, such authority was in connection
with, and limited to, the eviction of third persons/squatters
thereat, in order that the corporation may take material
possession of the entire lot; (d) the amount of P26,640.00
alluded to as alleged consideration of said agreement was
never received by the plaintiff; (e) the private defendant acted
in bad faith in the execution of said agreement knowing fully
well the want of authority of the attorney-in-fact to sell,
encumber or dispose of the real property of plaintiff; and, (f)
the disposal of a corporate property indispensably requires a
Board Resolution of its Directors, a fact which is wanting in
said Civil Case No. D-7750, and the General Manager is not the
proper officer to encumber a corporate property.[6]
On 29 October 1993 respondent court dismissed the
complaint on the basis of its finding that not one of the grounds
for annulment, namely, lack of jurisdiction, fraud or illegality
was shown to exist.[7] It also denied the motion for
reconsideration filed by petitioner, discoursing that the
alleged nullity of the compromise judgment on the ground that
petitioners attorney in fact Villamit-Estrada was not
authorized to sell the subject property may be raised as a
defense in the execution of the compromise judgment as it
does not bind petitioner, but not as a ground for annulment of
judgment because it does not affect the jurisdiction of the trial
court over the action nor does it amount to extrinsic fraud.[8]
Petitioner challenges this verdict. It argues that the decision of
the trial court is void because the compromise agreement
upon which it was based is void. Attorney-in-fact Villamil-
Estrada did not possess the authority to sell or was she armed
with a Board Resolution authorizing the sale of its
property. She was merely empowered to enter into a
compromise agreement in the recovery suit she was
authorized to file against persons squatting on Lot No. 443,
such authority being expressly confined to the ejectment of
third persons or squatters of x x x lot x x x (No.) 443 x x x for the
said squatters to remove their houses and vacate the premises in
order that the corporation may take material possession of the
entire lot x x x x
We agree with petitioner. The authority granted Villamil-
Estrada under the special power of attorney was explicit and
exclusionary: for her to institute any action in court to eject all
persons found on Lots Nos. 9127 and 443 so that petitioner
could take material possession thereof, and for this purpose, to
appear at the pre-trial and enter into any stipulation of facts
and/or compromise agreement but only insofar as this was
protective of the rights and interests of petitioner in the
property. Nowhere in this authorization was Villamil-Estrada
granted expressly or impliedly any power to sell the subject
property nor a portion thereof. Neither can a conferment of the
power to sell be validly inferred from the specific authority to
enter into a compromise agreement because of the explicit
limitation fixed by the grantor that the compromise entered
into shall only be so far as it shall protect the rights and interest
of the corporation in the aforementioned lots. In the context of
the specific investiture of powers to Villamil-Estrada,
alienation by sale of an immovable certainly cannot be deemed
protective of the right of petitioner to physically possess the
same, more so when the land was being sold for a price
of P80.00 per square meter, very much less than its assessed
value of P250.00 per square meter, and considering further
that petitioner never received the proceeds of the sale.
When the sale of a piece of land or any interest thereon is
through an agent, the authority of the latter shall be in writing;
otherwise, the sale shall be void.[9] Thus the authority of an
agent to execute a contract for the sale of real estate must be
conferred in writing and must give him specific authority,
either to conduct the general business of the principal or to
execute a binding contract containing terms and conditions
which are in the contract he did execute.[10] A special power of
attorney is necessary to enter into any contract by which the
ownership of an immovable is transmitted or acquired either
Page 20 of 62
gratuitously or for a valuable consideration.[11] The express
mandate required by law to enable an appointee of an agency
(couched) in general terms to sell must be one that expressly
mentions a sale or that includes a sale as a necessary
ingredient of the act mentioned.[12] For the principal to confer
the right upon an agent to sell real estate, a power of attorney
must so express the powers of the agent in clear and
unmistakable language. When there is any reasonable doubt
that the language so used conveys such power, no such
construction shall be given the document.[13]
It is therefore clear that by selling to respondent Perez a
portion of petitioners land through a compromise agreement,
Villamil-Estrada acted without or in obvious authority. The
saleipso jure is consequently void. So is the compromise
agreement. This being the case, the judgment based thereon is
necessarily void. Antipodal to the opinion expressed by
respondent court in resolving petitioners motion for
reconsideration, the nullity of the settlement between Villamil-
Estrada and Perez impaired the jurisdiction of the trial court
to render its decision based on the compromise
agreement. In Alviar v. Court of First Instance of La
Union,[14] the Court held -
x x x x this court does not hesitate to hold that the judgment in
question is null and void ab initio. It is not binding upon and
cannot be executed against the petitioners. It is evident that
the compromise upon which the judgment was based was not
subscribed by them x x x x Neither could Attorney Ortega bind
them validly in the compromise because he had no special
authority x x x x
As the judgment in question is null and void ab initio, it is
evident that the court acquired no jurisdiction to render it,
much less to order the execution thereof x x x
x x x x A judgment, which is null and void ab initio, rendered by
a court without jurisdiction to do so, is without legal efficacy
and may properly be impugned in any proceeding by the party
against whom it is sought to be enforced x x x x
This ruling was adopted in Jacinto v. Montesa,[15] by Mr. Justice
J.B.L. Reyes, a much-respected authority on civil law, where the
Court declared that a judgment based on a compromise
entered into by an attorney without specific authority from the
client is void. Such judgment may be impugned and its
execution restrained in any proceeding by the party against
whom it is sought to be enforced. The Court also observed that
a defendant against whom a judgment based on a compromise
is sought to be enforced may file a petition for certiorari to
quash the execution. He could not move to have the
compromise set aside and then appeal from the order of denial
since he was not a party to the compromise. Thus it would
appear that the obiter of the appellate court that the
alleged nullity of the compromise agreement should be raised
as a defense against its enforcement is not legally
feasible. Petitioner could not be in a position to question the
compromise agreement in the action to revive the compromise
judgment since it was never privy to such agreement. Villamil-
Estrada who signed the compromise agreement may have
been the attorney-in-fact but she could not legally bind
petitioner thereto as she was not entrusted with a special
authority to sell the land, as required in Art. 1878, par. (5), of
the Civil Code.
Under authority of Sec. 9, par. (2), of B.P. Blg. 129, a party may
now petition the Court of Appeals to annul and set aside
judgments of Regional Trial Courts.[16] Thus, the Intermediate
Appellate Court (now Court of Appeals) shall exercise x x x x
(2) Exclusive original jurisdiction over action for annulment of
judgments of the Regional Trial Courts x x x x However, certain
requisites must first be established before a final and
executory judgment can be the subject of an action for
annulment. It must either be void for want of jurisdiction or for
lack of due process of law, or it has been obtained by fraud.[17]
Conformably with law and the above-cited authorities, the
petition to annul the decision of the trial court in Civil Case No.
D-7750 before the Court of Appeals was proper. Emanating as
it did from a void compromise agreement, the trial court had
no jurisdiction to render a judgment based thereon.[18]
It would also appear, and quite contrary to the finding of the
appellate court that the highly reprehensible conduct of
attorney-in-fact Villamil-Estrada in Civil Case No. 7750
constituted an extrinsic or collateral fraud by reason of which
the judgment rendered thereon should have been struck
down. Not all the legal semantics in the world can becloud the
unassailable fact that petitioner was deceived and betrayed by
its attorney-in-fact. Villamil-Estrada deliberately concealed
from petitioner, her principal, that a compromise agreement
had been forged with the end-result that a portion of
petitioners property was sold to the deforciant, literally for a
song. Thus completely kept unaware of its agents artifice,
petitioner was not accorded even a fighting chance to
repudiate the settlement so much so that the judgment based
thereon became final and executory.
For sure, the Court of Appeals restricted the concept of
fraudulent acts within too narrow limits. Fraud may assume
different shapes and be committed in as many different ways
and here lies the danger of attempting to define fraud. For man
in his ingenuity and fertile imagination will always contrive
new schemes to fool the unwary.
There is extrinsic fraud within the meaning of Sec. 9, par. (2),
of B.P. Blg. 129, where it is one the effect of which prevents a
party from hearing a trial, or real contest, or from presenting
all of his case to the court, or where it operates upon matters,
not pertaining to the judgment itself, but to the manner in
which it was procured so that there is not a fair submission of
the controversy. In other words, extrinsic fraud refers to any
fraudulent act of the prevailing party in the litigation which is
committed outside of the trial of the case, whereby the
defeated party has been prevented from exhibiting fully his
side of the case by fraud or deception practiced on him by his
opponent.[19] Fraud is extrinsic where the unsuccessful party
has been prevented from exhibiting fully his case, by fraud or
deception practiced on him by his opponent, as by keeping him
away from court, a false promise of a compromise; or where
the defendant never had knowledge of the suit, being kept in
ignorance by the acts of the plaintiff; or where an attorney
fraudulently or without authority connives at his defeat; these
Page 21 of 62
and similar cases which show that there has never been a real
contest in the trial or hearing of the case are reasons for which
a new suit may be sustained to set aside and annul the former
judgment and open the case for a new and fair hearing.[20]
It may be argued that petitioner knew of the compromise
agreement since the principal is chargeable with and bound by
the knowledge of or notice to his agent received while the
agent was acting as such. But the general rule is intended to
protect those who exercise good faith and not as a shield for
unfair dealing. Hence there is a well-established exception to
the general rule as where the conduct and dealings of the agent
are such as to raise a clear presumption that he will not
communicate to the principal the facts in controversy.[21] The
logical reason for this exception is that where the agent is
committing a fraud, it would be contrary to common sense to
presume or to expect that he would communicate the facts to
the principal.Verily, when an agent is engaged in the
perpetration of a fraud upon his principal for his own exclusive
benefit, he is not really acting for the principal but is really
acting for himself, entirely outside the scope of his
agency.[22] Indeed, the basic tenets of agency rest on the
highest considerations of justice, equity and fair play, and an
agent will not be permitted to pervert his authority to his own
personal advantage, and his act in secret hostility to the
interests of his principal transcends the power afforded
him.[23]
WHEREFORE, the petition is GRANTED. The decision and
resolution of respondent Court of Appeals dated 29 October
1993 and 10 March 1994, respectively, as well as the decision
of the Regional Trial Court of Dagupan City in Civil Case No. D-
7750 dated 27 November 1985, are NULLIFIED and SET
ASIDE. The Compromise Agreement entered into between
Attorney-in-fact Paz G. Villamil-Estrada and respondent Isidro
Perez is declared VOID. This is without prejudice to the right
of petitioner to pursue its complaint against private
respondent Isidro Perez in Civil Case No. D-7750 for the
recovery of possession of a portion of Lot No. 443.
SO ORDERED.
EN BANC
[G.R. No. L-42958. October 21, 1936.]
C.N. HODGES, Plaintiff-Appellant, v. CARLOTA SALAS and
PAZ SALAS, Defendants-Appellees.
Jose P. Orozco and Gibbs, McDonough & Ozaeta
for Appellant.
Vicente Varela and Conrado V. Sanchez for Appellees.
SYLLABUS
1. EVIDENCE; PROBATORY VALUE OF SECONDARY
EVIDENCE ADMITTED WITHOUT OBJECTION. It is
universally accepted that when secondary or incompetent
evidence is presented and accepted without any objection on
the part of the other party, the latter is bound thereby and the
court is obliged to grant it the probatory value it deserves.
(City of Manila v. Cabangis, 10 Phil., 151; Bersabal v. Bernal,
13 Phil., 463; Kuenzle & Streiff v. Jiongco, 22 Phil., 110; U.S. v.
Choa Tong, 22 Phil., 562; U.S. v. Ong Shiu, 28 Phil., 242; De
Leon v. Director of Prisons, 31 Phil., 60; U.S. v. Hernandez, 31
Phil., 342; 23 C.J., 39, section 1783, and the cases therein
cited; 10 R.C.L., 1008, paragraph 197, and the cases therein
cited.)
2. MORTGAGES; LOANS; CHARGING COMPOUND INTEREST;
APPLICATION OF THE SAME. The fact of charging illegal
interest, although it exceeds the maximum limit of interest
that may be charged, does not make the loan or the mortgage
usurious because the transactions took place subsequent to
the execution of said contracts and the latter do not appear to
be void ab initio (66 C.J., pages 243, 244, section 194). Said
interest should be applied first to the payment of the
stipulated and unpaid interest and, later, to that of the capital.
(Aguilar v. Rubiato and Gonzalez Vila, 40 Phil., 570; Go Chioco
v. Martinez, 45 Phil., 256; Gui Jong & Co. v. Rivera and Avellar,
45 Phil., 778; Lopez and Javelona v. El Hogar Filipino, 47 Phil.,
249; Sajo v. Gustilo, 48 Phil., 451.)
3. ID.; ID.; CHARGING INTEREST IN ADVANCE. Section 5 of
Act No. 2655, as amended by section 3 of Act No. 3291,
expressly permits a creditor to charge in advance interest
corresponding to not more than one year, whatever the
duration of the loan. What is prohibited is the charging in
advance of interest for more than one year. Section 6
reiterates said rule in exempting a creditor found guilty of
usury from the obligation to return the interest and
commissions collected by him in advance, provided said
interest and commissions are not for a period of more than
one year and the rate of interest does not exceed the
maximum limit fixed by law.
4. USURY, ACTION FOR; PRESCRIPTION; REQUISITES FOR
PRESCRIPTION TO CONSTITUTE VALID DEFENSE. In
order that prescription may constitute a valid defense and it
may be considered on appeal, it must be specifically pleaded
in the answer and proven with the same degree of certainty
with which an essential allegation in a civil action is
established. Otherwise it will not be taken into consideration,
much less if it is alleged for the first time on appeal. (Aldeguer
v. Hoskyn, 2 Phil., 500; Domingo v. Osorio, 7 Phil., 405;
Marzon v. Udtujan, 20 Phil., 232; Pelaez v. Abreu, 26 Phil.,
415; Corporacion de PP. Agustinos Recoletos v. Crisostomo,
32 Phil., 427; Karagdag v. Barado, 33 Phil., 529.)
5. AGENCY; POWERS OF THE AGENT; LIMITATIONS. The
pertinent clauses of the power of attorney from which may be
determined the intention of the principals in authorizing their
agent to obtain a loan, securing it with their real property,
were quoted at the beginning of the decision. The terms
thereof are limited; the agent was thereby authorized only to
borrow any amount of money which he deemed necessary.
There is nothing, however, to indicate that the defendants
had likewise authorized him to convert the money obtained
by him to his personal use. With respect to a power of
Page 22 of 62
attorney of special character, it cannot be interpreted as also
authorizing the agent to use the money as he pleased,
particularly when it does not appear that such was the
intention of the principals, and in applying part of the funds
to pay his personal obligations, he exceeded his authority
(art. 1714, Civil Code; Bank of the Philippine Islands v. De
Coster, 47 Phil., 594 and 49 Phil., 574). In cases like the
present one, it should be understood that the agent was
obliged to turn over the money to the principals or, at least,
place it at their disposal.
DECISION
IMPERIAL, J.:
The action was brought by the plaintiff to foreclose a certain
real estate mortgage constituted by the defendants to secure
a loan. The plaintiff appealed from the judgment of the Court
of First Instance of Occidental Negros absolving the
defendants from the complaint and stating: That of the capital
of P28,000 referred to in Exhibit A, the defendants were liable
only for the sum of P14,451.71; that the transactions and
negotiations specified in Exhibit A as well as the interest
charged are usurious; that the sum of P14,778.77 paid by the
defendants to the plaintiff should be applied to the payment
of the capital of P14,451.71; that the plaintiff must refund the
sum of P3,327.06 to the defendants and, lastly, he must pay
the costs.
On September 2, 1923, the defendants executed a power of
attorney in favor of their brother-in-law Felix S. Yulo to
enable him to obtain a loan and secure it with a mortgage on
the real property described in transfer certificate of title No.
3335. The power of attorney was registered in the registry of
deeds of the Province of Occidental Negros and the pertinent
clauses thereof read as follows:red:chanrobles.com.ph
"That we confer upon our brother-in-law Mr. Felix S. Yulo,
married, of age and resident of the municipality of Bago,
Province of Occidental Negros, P.I., as required by law, a
special power of attorney to obtain, in our respective names
and representation, a loan in any amount which our said
brother-in-law may deem necessary, being empowered, by
virtue of the authority conferred in this power of attorney, to
constitute a mortgage on a parcel of land absolutely
belonging to us, the technical description of which is as
follows:jgc:chanrobles.com.ph
"TRANSFER CERTIFICATE OF TITLE NO. 3335
"A parcel of land (lot No. 2464 of the Cadastral Survey of
Bago) with the improvements thereon, situated in the
municipality of Bago. Bounded on the NE. and NW. by the
Lonoy Sapa and lot No. 2465; on the SE. by the Ilabo Sapa;
and on the SW by the Ilabo Sapa, lot No. 2508 and the Sapa
Talaptapan. Containing an area of one million nine hundred
ninety-four thousand eight hundred and thirty-four square
meters (1,994,834), more or less.
"That we confer and grant to our said brother-in-law Mr. Felix
S. Yulo power and authority to perform and execute each and
every act necessary to the performance of his trust, which
acts shall be for all purposes as if we had performed or
executed them personally, hereby ratifying and confirming
everything that our said brother-in-law Mr. Felix S. Yulo may
execute or cause to be executed."cralaw virtua1aw library
Acting under said power of attorney, Felix S. Yulo, on March
27, 1926, obtained a loan of P28,000 from the plaintiff,
binding his principals jointly and severally to pay it within
ten (10) years, together with interest thereon at 12 per cent
per annum payable annually in advance, to which effect he
signed a promissory note for said amount and executed a
deed of mortgage of the real property described in transfer
certificate of title No. 3335 and the improvements thereon
consisting in concrete buildings. It was stated in the deed that
in case the defendants failed to pay the stipulated interest
and the taxes on the real property mortgaged and if the
plaintiff were compelled to bring an action to recover his
credit, said defendants would be obliged to pay 10 per cent
more on the unpaid capital, as fees for the plaintiffs
attorneys. The mortgage so constituted was registered in the
registry of deeds of the Province of Occidental Negros and
noted on the back of the transfer certificate of title.
The sum of P28,000 was not delivered to Felix S. Yulo, but by
agreement between him and the plaintiff, it was employed as
follows:chanrob1es virtual 1aw library
Interest for one year from March 27, 1926,
to March 26, 1927, collected in
advance by the plaintiff P3,360.00
Paid for the mortgage constituted by
Felix S. Yulo, cancelled on the date of the loan 8,188.29
Paid by Felix S. Yulo on account of the purchase
price of the real property bought by him
on Ortiz Street 2,000.00
Check No. 4590 delivered to Felix S. Yulo 3,391.71
Check No. 4597 in the name of Rafael Santos,
paid to him to cancel the mortgage constituted
by the defendants 9,200.00
Check No. 4598 delivered to Felix S. Yulo 1,860.00
_________
Total 28,000.00
Page 23 of 62

=========
The defendants failed to pay at maturity the interest
stipulated, which would have been paid one year in advance.
All the sums paid by them on account of accrued interest up
to March 27, 1934, on which the complaint was filed, together
with the corresponding exhibits, are as follows:chanrob1es
virtual 1aw library
Date Amount.
Exhibit 1 April 5, 1927 P1,500.00
Exhibit 2 May 2, 1927 500.00
Exhibit 4 August 30, 1927 336.00
Exhibit 7 June 4, 1928 3,360.00
Exhibit 8 May 15, 1929 67.20
Exhibit 9 June 19, 1929 67.20
Exhibit 10 July 25, 1929 33.60
Exhibit 11 August 26, 1929 33.60
Exhibit 12 October 7, 1929 392.55
Exhibit 13 October 7, 1929 30.00
Exhibit 14 November 9, 1929 29.67
Exhibit 15 November 9, 1929 938.95
Exhibit 16 February 8, 1930 61.04
Exhibit 17 February 8, 1930 936.46
Exhibit 18 No date 498.75
Exhibit 19 February 10, 1931 498.75
Exhibit 20 August 20, 1931 498.75
Exhibit 21 July 7, 1932 498.75
Exhibit 22 July 29, 1932 500.00
Exhibit 23 September 23, 1932 500.00
Exhibit 24 December 17, 1932 997.50
Exhibit 25 No date 1,000.00
Exhibit 26 January 23, 1934 500.00
________
Total 14,778.77
========
To the foregoing amount must be added the sum of P3,360
deducted by the plaintiff upon granting the loan, as interest
for one year, thereby making the total amount of interest paid
by the defendants and received by the plaintiff P18,138.77.
The foregoing are facts inferred from the evidence and are
not controverted by the parties, with the exception of the
existence of the promissory note, the registration of the
mortgage deed and the notation thereof on the back of the
certificate of title.
I. The action brought by the plaintiff was for the foreclosure
of a mortgage in accordance with the provision of sections
254 to 261 of the Code of Civil Procedure. It was not
expressly alleged in the complaint that the mortgage deed
had been registered in accordance with Act No. 496, which
was the law applicable in the case of the real property
registered under the Torrens system. A copy of the mortgage
deed was attached to the complaint and made a part thereof,
but said copy did not show that the original had been duly
registered. In paragraph 3 of the complaint, however, it was
alleged that the mortgage deed had been noted on the back of
transfer certificate of title No. 3335 by the register of deeds of
the Province of Occidental Negros, in accordance with the
provisions of the Mortgage Law. This specific allegation is
equivalent to a statement that the mortgage deed had been
duly registered.
At the trial of the case, the attorney for the plaintiff did not
present the mortgage deed showing the registration thereof
in the registry, or the owners transfer certificate of title. In
their stead the plaintiff testified that the mortgage had been
duly registered in the registry of deeds of Occidental Negros
and had been noted on the back of the transfer certificate of
title. The oral evidence was admitted without any objection
on the part of the attorney for the defendants. In the appealed
decision the court held that the plaintiff had failed to
substantiate his foreclosure suit and, not having presented
competent evidence, the action arising from his evidence was
merely a personal action for the recovery of a certain sum of
money. The plaintiff excepted to this conclusion and assigns it
in his brief as the first error of law committed by the court.
Section 284 of the Code of Civil Procedure requires the
contents of a writing to be proven by the writing itself, except
in cases therein specified. Section 313, No. 6, provides that
official or public documents must be proven by presenting
the original or a copy certified by the legal keeper thereof.
According to this, the plaintiff was obliged to present the
original or a certified copy of the mortgage deed showing the
registration thereof, as well as the owners transfer certificate
of title. Both would have been the best evidence to prove the
registration of the mortgage and the notation thereof on the
back of the title. Had the defendants objected to the oral
evidence offered, there is no doubt that it would have been
rejected as incompetent. But it is universally accepted that
when secondary or incompetent evidence is presented and
accepted without any objection on the part of the other party,
the latter is bound thereby and the court is obliged to grant it
Page 24 of 62
the probatory value it deserves. (City of Manila v. Cabangis,
10 Phil., 151; Bersabal v. Bernal, 13 Phil., 463; Kuenzle &
Streiff v. Jiongco, 22 Phil., 110; U.S. v. Choa Tong, 22 Phil., 562;
U.S. v. Ong Shiu, 28 Phil., 242; De Leon v. Director of Prisons,
31 Phil., 60; U.S. v. Hernandez, 31 Phil., 342; 23 C.J., 39, section
1783, and the cases therein cited; 10 R.C.L., 1008, paragraph
197, and the cases therein cited.) .
Inasmuch as the registration of the mortgage and the notation
thereof on the back of the transfer certificate of title have
been established by the oral evidence abovestated, the court
was without authority to conclude that the action was
personal in character and, consequently, the first assignment
of error is well founded.
II. The court held that the loan and the mortgage were
usurious and illegal for two reasons: First, because the
plaintiff charged compound interest notwithstanding the fact
that it had not been stipulated, and second, because the
plaintiff charged interest yearly in advance in accordance
with the agreement. These conclusions are the subject matter
of the plaintiffs second assignment of error.
The plaintiff categorically denied having charged compound
interest, stating in his brief that all the interest charged by
him should be applied to the interest unpaid by the
defendants. We have examined Exhibits 8 to 17 of the
defendants, which are the evidence offered to establish the
fact that compound interest had been charged, and we have,
without any difficulty, arrived at the conclusion that the
plaintiff has really charged said unauthorized and
unstipulated interest. If there is any doubt on this fact, it is
dispelled by Exhibit 10, in the handwriting of the plaintiff
himself, wherein it appears that the sum of P33.60 was
charged by him on account of interest on unpaid interest. But
the fact of charging illegal interest, although it exceeds the
maximum limit of interest that may be charged, does not
make the loan or the mortgage usurious because the
transactions took place subsequent to the execution of said
contracts and the latter do not appear to be void ab initio
(66 C.J., pages 243, 244, section 194). Said interest should be
applied first to the payment of the stipulated and unpaid
interest and, later, to that of the capital. (Aguilar v. Rubiato
and Gonzalez Vila, 40 Phil., 570; Go Chioco v. Martinez, 45
Phil., 256; Gui Jong & Co. v. Rivera and Avellar, 45 Phil., 778;
Lopez and Javelona v. El Hogar Filipino, 47 Phil., 249; Sajo v.
Gustilo, 48 Phil., 451.)
The plaintiff admits having charged in advance the interest
corresponding to the first year. The mortgage deed contains
the stipulation that the defendants should pay in advance the
stipulated interest corresponding to each year. The court
declared the contract usurious for this reason, basing its
opinion upon some American authorities holding the same
point of view. This court cannot adopt said doctrine in this
jurisdiction. Section 5 of Act No. 2655, as amended by section
3 of Act No. 3291, expressly permits a creditor to charge in
advance interest corresponding to not more than one year,
whatever the duration of the loan. What is prohibited is the
charging in advance of interest for more than one year.
Section 6 reiterates said rule in exempting a creditor found
guilty of usury from the obligation to return the interest and
commissions collected by him in advance, provided said
interest and commissions are not for a period of more than
one year and the rate of interest does not exceed the
maximum limit fixed by law.
This court concludes, therefore, that the second assignment
of error is well founded in the sense that both the loan and
the mortgage are not usurious or illegal.
III. In his third assignment of error, the plaintiff contends that
the court should have declared the action for usury
interposed by the defendants in their cross-complaint barred
by the statute of limitations, in accordance with the provision
of section 6 of Act No. 2655, as amended by section 4 of Act
No. 3291. It is true that according to the evidence more than
two years have already elapsed from the time the defendants
paid and the plaintiff received the usurious interest to the
registration of the cross-complaint, but the plaintiff cannot
successfully invoke the defense of prescription because he
failed to allege it in his reply to the cross-complaint. In order
that prescription may constitute a valid defense and it may be
considered on appeal, it must be specifically pleaded in the
answer and proven with the same degree of certainty with
which an essential allegation in a civil action is established.
Otherwise it will not be taken into consideration, much less if
it is alleged for the first time on appeal. (Aldeguer v. Hoskyn,
2 Phil., 500; Domingo v. Osorio, 7 Phil., 405; Marzon v.
Udtujan, 20 Phil., 232; Pelaez. Abreu, 26 Phil., 415;
Corporacion de PP. Agustinos Recoletos v. Crisostomo, 32
Phil., 427; Karagdag v. Barado, 33 Phil., 529.) .
IV. The defendants proved that their attorneys fees were
contracted at P3,000. The evidence has not been
contradicted. The amount so fixed is not unreasonable or
unconscionable. In the fourth assignment or error, the
plaintiff questions that part of the judgment ordering him to
pay said fees. He contends that he is not responsible for the
payment thereof because neither the loan nor the mortgage is
usurious. However, this court has already stated that the
plaintiff violated the Usury Law in charging compound
interest notwithstanding the fact that it has not been so
stipulated and that adding these sums to the stipulated
interest the average thereof exceeds the maximum rate of
interest that may be charged for the loan which has been the
subject matter of the transaction. This violation falls under
the precept of section 6 of the Usury Law and the plaintiff is
obliged to pay the fees of the attorney for the defendants.
This court holds that the fourth assignment or error is
unfounded.
V. In the fifth assignment of error, the plaintiff alleges that the
judgment is erroneous for not having declared that the
defendants ratified all the obligations contracted by their
attorney in fact. In the sixth assignment or error he contends
that an error was likewise committed in not declaring that by
virtue of the authority conferred by the defendants, agent
Yulo was authorized to borrow money and invest it as he
wished, without being obliged to apply it necessarily for the
benefit of his principals. In the seventh assignment of error
the plaintiff alleges that the court erred in fixing the capital,
which the defendants are obliged to pay him by virtue of the
Page 25 of 62
power of attorney executed by them, at only P14,451.71. In
the eighth and last assignment of error, he insists that the
court should have ordered the defendants to pay the entire
capital owed, with interest thereon in accordance with the
mortgage deed, together with 10 per cent thereof as
attorneys fees, the action having been instituted due to
nonfeasance on the part of the defendants.
These four assignments of error refer to the interpretation
and scope of the power of attorney and to the computation of
the capital and the interest to be paid by the defendants and,
finally, to whether or not be paid by the defendants and,
finally, to whether or not the latter are obliged to pay the fees
of the attorney for the plaintiff. For this reason, this court
passes upon them jointly.
The pertinent clauses of the power of attorney from which
may be determined the intention of the principals in
authorizing their agent to obtain a loan, securing it with their
real property, were quoted at the beginning. The terms
thereof are limited; the agent was thereby authorized only to
borrow any amount of money which he deemed necessary.
There is nothing, however, to indicate that the defendants
had likewise authorized him to convert the money obtained
by him to him personal use. With respect to a power of
attorney of special character, it cannot be interpreted as also
authorizing the agent to dispose of the money as he pleased,
particularly when it does not appear that such was the
intention of the principals, and in applying part of the funds
to pay his personal obligations, he exceeded his authority
(art. 1714, Civil Code; Bank of the Philippine Islands v. De
Coster, 47 Phil., 594 and 49 Phil., 574). In cases like the
present one, it should be understood that the agent was
obliged to turn over the money to the principals or, at least,
place it at their disposal. In the case of Manila Trading &
Supply Co. v. Uy Tiepo (G.R. No. 30339, March 2, 1929, not
reported), referring to a power of attorney to borrow any
amount of money in cash and to guarantee the payment
thereof by the mortgage of certain property belonging to the
principals, this court held that the agent exceeded his
authority in guaranteeing his personal account for
automobile parts by the mortgage, not having been specially
authorized to do so. This court then
said:jgc:chanrobles.com.ph
"Inasmuch as Jose S. Uy Tiepo, as agent of Daniel Ramos and
Emilio Villarosa, was only authorized to borrow any amount
of cash, and to guaranty the payment of the sums of money
so borrowed by the mortgage of the property stated in the
power of attorney, he exceeded the authority conferred upon
him in mortgaging him principals property to secure the
payment of his personal debt for automobile parts, and the
guaranties so made are null and void, the principals in
question not being responsible for said obligations."cralaw
virtua1aw library
The plaintiff contends that the agents act of employing part
of the loan to pay his personal debts was ratified by the
defendants in their letter to him dated August 21, 1927
(Exhibit E). This court has carefully read the contents of said
document and has found nothing implying ratification or
approval of the agents act. In it the defendants confined
themselves to stating that they would notify their agent of the
maturity of the obligation contracted by him. They said
nothing about whether or not their agent was authorized to
use the funds obtained by him in the payment of his personal
obligations.
In view of the foregoing, this court concludes that the fifth
and sixth assignments of error are unfounded.
In the seventh assignment of error, the plaintiff insists that
the defendants should answer for the entire loan plus the
stipulated interest thereon. This court has already stated the
manner in which the agent employed the loan, according to
the plaintiff. Of the loan of P28,000, the agent applied the sum
of P10,188.29 to the payment of his personal debt to the
plaintiff. The balance of P17,811.71 constitutes the capital
which the defendants are obliged to pay by virtue of the
power conferred upon their agent and the mortgage deed.
In connection with the stipulated interest, it appears that the
capital of P17,811.71 bore interest at 12 per cent per annum
from March 277, 1926, to September 30, 1936, equivalent to
P22,460.56. All the interest paid by the defendants to the
plaintiff, including that which is considered indebted in said
concept in the sum of P4,321.79. Adding this sum to the
capital of P17,811.71, makes a total of P22,133.50, from
which the sum of P3,000 constituting the fees of the attorney
for the defendants must be deducted, defendants must pay to
the plaintiff up to said date.
The foregoing disposes of the seventh assignment of error.
In the mortgage deed the defendants bound themselves to
pay the fees of the attorney for the plaintiff in case they failed
to comply with the terms thereof or pay the land tax, or the
plaintiff were to resort to the courts to foreclose the
mortgage. Said fees were fixed at 10 per cent of the capital
which the defendants might owe. This penalty, according to
what has been stated heretofore, amounts to P1,781,17 which
would have to be added to the total amount to be paid to the
plaintiff by the defendants. The court, having declared the
contracts usurious, did not order the defendants to pay the
penalty and for this reason the plaintiff assigns the omission
as the eighth and last assignment of alleged error. Inasmuch
as the fees agreed upon are neither excessive nor
unreasonable, this court finds no good reason to disapprove
it, particularly because the defendants were also granted a
larger amount in the same concept.
In view of the conclusions arrived at, the motion for a new
trial filed by the attorneys for the plaintiff on March 12, 1935,
is denied, and the amendments to the complaint proposed by
them in their pleading of March 20 of said year are admitted.
For all the foregoing reasons, the appealed judgment is
modified and the defendants are ordered to pay jointly and
severally to the plaintiff the sums of P19,133.50 and
P1,781.17. Within three months they shall make payment of
said two sums of money or deposit them with the clerk or
court, at the disposal of the plaintiff, upon failure to do which
the real property mortgaged with the improvements thereon
Page 26 of 62
shall be sold at public auction and the proceeds thereon
applied to the payment of the two sums of money above-
stated; without special pronouncement as to the costs of this
instance. So ordered.
Avancea, C.J., Villa-Real, Abad Santos, Diaz and Laurel, JJ.,
concur.
RESOLUTION UPON MOTION FOR RECONSIDERATION
December 29, 1936 - IMPERIAL, J.:
The motion for reconsideration presented by the appellees is
based upon three grounds: (1) That the capital for which they
must answer to the appellant should be only P16,422.39, not
P17,811.71 as stated in the decision; (2) that the computation
of the payments made is incorrect, and (3) that the oral
evidence relative to the registration of the mortgage is
insufficient.
I. It is claimed that as the true capital for which the appellees
were held responsible amounts only to P16,422.39, excluding
the sum of P3,360 paid in advance as interest corresponding
to the first year, this latter sum should not be paid in its
entirety by the appellees but only that part thereof in
proportion to the capital owed. The contention is without any
foundation because, as was already stated in the decision, the
agent was expressly authorized to borrow and receive the
total amount of P28,000. On the other hand, as it was
stipulated that the interest should be paid annually in
advance, it is evident and just that the entire sum of P3,360
representing said interest be paid by the appellees who
contracted the debt through an agent. The fact that after the
contract had been consummated and the interest for the first
year paid, the agent, exceeding his authority, unduly used
part of the funds intrusted to him, does not relieve the
appellees of their obligation to answer for the entire interest
for the first year. For this reason, this court declares that the
first ground is unfounded.
II. In the computation of the interest paid by the appellees
and of that which they should pay to the appellant by virtue
of the terms of the contract, this court proceeded to
determine the time that elapsed from the date the contract
became effective and debited to the appellees the interest at
the rate agreed upon, deducting therefrom what they had
paid in said concept, including the interest paid by them for
the first year because the computation commenced from the
date fixed in the contract, which is March 27, 1926. The
difference represents the interest unpaid by the appellees up
to September 30, 1936, considered by this court as the date
on which the appellees account with the appellant was finally
liquidated and closed, and added to the capital they represent
the amount appearing in the decision. This court sees no
error of accounting in this computation.
III. The appellees insist that the oral evidence upon which this
court based its opinion in declaring that the mortgage deed is
registered, is insufficient. What has been said in the decision
on this point is so clear and understandable that this court
believes itself relieved from the obligation of reproducing it.
There is no merit in the last ground of the motion.
In answering the appellees motion for reconsideration, the
appellant likewise seeks reconsideration of the decision,
alleging that he is entitled to a larger amount. Without going
into details, because this court deems it unnecessary, it is
held that the appellant is not entitled to ask for
reconsideration of the decision of the ground that his petition
to that effect has been filed too late, after the decision in
question became final with respect to him.
The appellees motion for reconsideration is denied.
SECOND DIVISION
G.R. No. 82040 August 27, 1991
BA FINANCE CORPORATION, petitioner,
vs.
HON. COURT OF APPEALS, Hon. Presiding Judge of
Regional Trial Court of Manila, Branch 43, MANUEL
CUADY and LILIA CUADY, respondents.
Valera, Urmeneta & Associates for petitioner.
Pompeyo L. Bautista for private respondents.
PARAS, J.:p
This is a petition for review on certiorari which seeks to
reverse and set aside (1) the decision of the Court of Appeals
dated July 21, 1987 in CA-G.R. No. CV-06522 entitled "B.A.
Finance Corporation, Plaintiff-Appellant, vs. Manuel Cuady and
Lilia Cuady, Defendants-Appellees," affirming the decision of
the Regional Trial Court of Manila, Branch 43, which dismissed
the complaint in Civil Case No. 82-10478, and (2) the
resolution dated February 9, 1988 denying petitioner's motion
for reconsideration.
As gathered from the records, the facts are as follows:
On July 15, 1977, private respondents Manuel Cuady and Lilia
Cuady obtained from Supercars, Inc. a credit of P39,574.80,
which amount covered the cost of one unit of Ford Escort
1300, four-door sedan. Said obligation was evidenced by a
promissory note executed by private respondents in favor of
Supercars, Inc., obligating themselves to pay the latter or order
the sum of P39,574.80, inclusive of interest at 14% per annum,
payable on monthly installments of P1,098.00 starting August
16, 1977, and on the 16th day of the next 35 months from
September 16, 1977 until full payment thereof. There was also
stipulated a penalty of P10.00 for every month of late
installment payment. To secure the faithful and prompt
compliance of the obligation under the said promissory note,
the Cuady spouses constituted a chattel mortage on the
aforementioned motor vehicle. On July 25, 1977, Supercars,
Inc. assigned the promissory note, together with the chattel
Page 27 of 62
mortgage, to B.A. Finance Corporation. The Cuadys paid a total
of P36,730.15 to the B.A. Finance Corporation, thus leaving an
unpaid balance of P2,344.65 as of July 18, 1980. In addition
thereto, the Cuadys owe B.A. Finance Corporation P460.00
representing penalties or surcharges for tardy monthly
installments (Rollo, pp. 27-29).
Parenthetically, the B.A. Finance Corporation, as the assignee
of the mortgage lien obtained the renewal of the insurance
coverage over the aforementioned motor vehicle for the year
1980 with Zenith Insurance Corporation, when the Cuadys
failed to renew said insurance coverage themselves. Under the
terms and conditions of the said insurance coverage, any loss
under the policy shall be payable to the B.A. Finance
Corporation (Memorandum for Private Respondents, pp. 3-4).
On April 18, 1980, the aforementioned motor vehicle figured
in an accident and was badly damaged. The unfortunate
happening was reported to the B.A. Finance Corporation and
to the insurer, Zenith Insurance Corporation. The Cuadys
asked the B.A. Finance Corporation to consider the same as a
total loss, and to claim from the insurer the face value of the
car insurance policy and apply the same to the payment of
their remaining account and give them the surplus thereof, if
any. But instead of heeding the request of the Cuadys, B.A.
Finance Corporation prevailed upon the former to just have
the car repaired. Not long thereafter, however, the car bogged
down. The Cuadys wrote B.A. Finance Corporation requesting
the latter to pursue their prior instruction of enforcing the
total loss provision in the insurance coverage. When B.A.
Finance Corporation did not respond favorably to their
request, the Cuadys stopped paying their monthly installments
on the promissory note (Ibid., pp. 45).
On June 29, 1982, in view of the failure of the Cuadys to pay the
remaining installments on the note, B.A. Finance Corporation
sued them in the Regional Trial Court of Manila, Branch 43, for
the recovery of the said remaining installments (Memorandum
for the Petitioner, p. 1).
After the termination of the pre-trial conference, the case was
set for trial on the merits on April 25, 1984. B.A. Finance
Corporation's evidence was presented on even date and the
presentation of Cuady's evidence was set on August 15, 1984.
On August 7,1984, Atty. Noel Ebarle, counsel for the petitioner,
filed a motion for postponement, the reason being that the
"handling" counsel, Atty. Ferdinand Macibay was temporarily
assigned in Cebu City and would not be back until after August
15, 1984. Said motion was, however, denied by the trial court
on August 10, 1984. On August 15, 1984, the date of hearing,
the trial court allowed private respondents to adduce
evidence ex-parte in the form of an affidavit to be sworn to
before any authorized officer. B.A. Finance Corporation filed a
motion for reconsideration of the order of the trial court
denying its motion for postponement. Said motion was
granted in an order dated September 26, 1984, thus:
The Court grants plaintiff's motion for reconsideration dated
August 22, 1984, in the sense that plaintiff is allowed to adduce
evidence in the form of counter-affidavits of its witnesses, to
be sworn to before any person authorized to administer oaths,
within ten days from notice hereof. (Ibid., pp. 1-2).
B.A. Finance Corporation, however, never complied with the
above-mentioned order, paving the way for the trial court to
render its decision on January 18, 1985, the dispositive portion
of which reads as follows:
IN VIEW WHEREOF, the Court DISMISSES the complaint
without costs.
SO ORDERED. (Rollo, p. 143)
On appeal, the respondent appellate court * affirmed the
decision of the trial court. The decretal portion of the said
decision reads as follows:
WHEREFORE, after consultation among the undersigned
members of this Division, in compliance with the provision of
Section 13, Article VIII of the Constitution; and finding no
reversible error in the judgment appealed from, the same is
hereby AFFIRMED, without any pronouncement as to costs.
(Ibid., p. 33)
B.A. Finance Corporation moved for the reconsideration of the
above decision, but the motion was denied by the respondent
appellate court in a resolution dated February 9, 1988 (Ibid., p.
38).
Hence, this present recourse.
On July 11, 1990, this Court gave due course to the petition and
required the parties to submit their respective memoranda.
The parties having complied with the submission of their
memoranda, the case was submitted for decision.
The real issue to be resolved in the case at bar is whether or
not B.A. Finance Corporation has waived its right to collect the
unpaid balance of the Cuady spouses on the promissory note
for failure of the former to enforce the total loss provision in
the insurance coverage of the motor vehicle subject of the
chattel mortgage.
It is the contention of B.A. Finance Corporation that even if it
failed to enforce the total loss provision in the insurance policy
of the motor vehicle subject of the chattel mortgage, said
failure does not operate to extinguish the unpaid balance on
the promissory note, considering that the circumstances
obtaining in the case at bar do not fall under Article 1231 of
the Civil Code relative to the modes of extinguishment of
obligations (Memorandum for the Petitioner, p. 11).
On the other hand, the Cuadys insist that owing to its failure to
enforce the total loss provision in the insurance policy, B.A.
Finance Corporation lost not only its opportunity to collect the
insurance proceeds on the mortgaged motor vehicle in its
capacity as the assignee of the said insurance proceeds
pursuant to the memorandum in the insurance policy which
states that the "LOSS: IF ANY, under this policy shall be payable
to BA FINANCE CORP., as their respective rights and interest
may appear" (Rollo, p. 91) but also the remaining balance on
the promissory note (Memorandum for the Respondents, pp.
16-17).
The petition is devoid of merit.
Page 28 of 62
B.A. Finance Corporation was deemed subrogated to the rights
and obligations of Supercars, Inc. when the latter assigned the
promissory note, together with the chattel mortgage
constituted on the motor vehicle in question in favor of the
former. Consequently, B.A. Finance Corporation is bound by
the terms and conditions of the chattel mortgage executed
between the Cuadys and Supercars, Inc. Under the deed of
chattel mortgage, B.A. Finance Corporation was constituted
attorney-in-fact with full power and authority to file, follow-
up, prosecute, compromise or settle insurance claims; to sign
execute and deliver the corresponding papers, receipts and
documents to the Insurance Company as may be necessary to
prove the claim, and to collect from the latter the proceeds of
insurance to the extent of its interests, in the event that the
mortgaged car suffers any loss or damage (Rollo, p. 89). In
granting B.A. Finance Corporation the aforementioned powers
and prerogatives, the Cuady spouses created in the former's
favor an agency. Thus, under Article 1884 of the Civil Code of
the Philippines, B.A. Finance Corporation is bound by its
acceptance to carry out the agency, and is liable for damages
which, through its non-performance, the Cuadys, the principal
in the case at bar, may suffer.
Unquestionably, the Cuadys suffered pecuniary loss in the
form of salvage value of the motor vehicle in question, not to
mention the amount equivalent to the unpaid balance on the
promissory note, when B.A. Finance Corporation steadfastly
refused and refrained from proceeding against the insurer for
the payment of a clearly valid insurance claim, and continued
to ignore the yearning of the Cuadys to enforce the total loss
provision in the insurance policy, despite the undeniable fact
that Rea Auto Center, the auto repair shop chosen by the
insurer itself to repair the aforementioned motor vehicle,
misrepaired and rendered it completely useless and
unserviceable (Ibid., p. 31).
Accordingly, there is no reason to depart from the ruling set
down by the respondent appellate court. In this connection,
the Court of Appeals said:
... Under the established facts and circumstances, it is unjust,
unfair and inequitable to require the chattel mortgagors,
appellees herein, to still pay the unpaid balance of their
mortgage debt on the said car, the non-payment of which
account was due to the stubborn refusal and failure of
appellant mortgagee to avail of the insurance money which
became due and demandable after the insured motor vehicle
was badly damaged in a vehicular accident covered by the
insurance risk. ... (Ibid.)
On the allegation that the respondent court's findings that B.A.
Finance Corporation failed to claim for the damage to the car
was not supported by evidence, the records show that instead
of acting on the instruction of the Cuadys to enforce the total
loss provision in the insurance policy, the petitioner insisted
on just having the motor vehicle repaired, to which private
respondents reluctantly acceded. As heretofore mentioned,
the repair shop chosen was not able to restore the
aforementioned motor vehicle to its condition prior to the
accident. Thus, the said vehicle bogged down shortly
thereafter. The subsequent request of the Cuadys for the B.A.
Finance Corporation to file a claim for total loss with the
insurer fell on deaf ears, prompting the Cuadys to stop paying
the remaining balance on the promissory note (Memorandum
for the Respondents, pp. 4-5).
Moreover, B.A. Finance Corporation would have this Court
review and reverse the factual findings of the respondent
appellate court. This, of course, the Court cannot and will not
generally do. It is axiomatic that the judgment of the Court of
Appeals is conclusive as to the facts and may not ordinarily be
reviewed by the Supreme Court. The doctrine is, to be sure,
subject to certain specific exceptions none of which, however,
obtains in the instant case (Luzon Brokerage Corporation v.
Court of Appeals, 176 SCRA 483 [1989]).
Finally, B.A. Finance Corporation contends that respondent
trial court committed grave abuses of discretion in two
instances: First, when it denied the petitioner's motion for
reconsideration praying that the counsel be allowed to cross-
examine the affiant, and; second, when it seriously considered
the evidence adduced ex-parte by the Cuadys, and heavily
relied thereon, when in truth and in fact, the same was not
formally admitted as part of the evidence for the private
respondents (Memorandum for the Petitioner, p. 10). This
Court does not have to unduly dwell on this issue which was
only raised by B.A. Finance Corporation for the first time on
appeal. A review of the records of the case shows that B.A.
Finance Corporation failed to directly raise or ventilate in the
trial court nor in the respondent appellate court the validity of
the evidence adduced ex-parte by private respondents. It was
only when the petitioner filed the instant petition with this
Court that it later raised the aforementioned issue. As ruled by
this Court in a long line of cases, issues not raised and/or
ventilated in the trial court, let alone in the Court of Appeals,
cannot be raised for the first time on appeal as it would be
offensive to the basic rules of fair play, justice and due process
(Galicia v. Polo, 179 SCRA 375 [1989]; Ramos v. Intermediate
Appellate Court, 175 SCRA 70 [1989]; Dulos Realty &
Development Corporation v. Court of Appeals, 157 SCRA 425
[1988]; Dihiansan, et al. v. Court of Appeals, et al., 153 SCRA
712 [1987]; De la Santa v. Court of Appeals, et al., 140 SCRA 44
[1985]).
PREMISES CONSIDERED, the instant petition is DENIED, and
the decision appealed from is AFFIRMED.
SO ORDERED.
THIRD DIVISION
[G.R. No. 121824. January 29, 1998]
BRITISH AIRWAYS, petitioner, vs. COURT OF APPEALS,
GOP MAHTANI, and PHILIPPINE AIRLINES, respondents.
DECISION
ROMERO, J.:
In this appeal by certiorari, petitioner British Airways (BA)
seeks to set aside the decision of respondent Court of
Page 29 of 62
Appeals[1] promulgated on September 7, 1995, which affirmed
the award of damages and attorneys fees made by the Regional
Trial Court of Cebu, 7th Judicial Region, Branch 17, in favor of
private respondent GOP Mahtani as well as the dismissal of its
third-party complaint against Philippine Airlines (PAL).[2]
The material and relevant facts are as follows:
On April 16, 1989, Mahtani decided to visit his relatives in
Bombay, India. In anticipation of his visit, he obtained the
services of a certain Mr. Gumar to prepare his travel plans. The
latter, in turn, purchased a ticket from BA where the following
itinerary was indicated:[3]
CARRIER FLIGHT DATE TIME STATUS
MANILA MNL PR 310Y 16 APR 1730 OK
HONGKONG HKG BA 20 M 16 APR 2100 OK
BOMBAY BOM BA 19 M 23 APR 0840 OK
MANILA MNL"
Since BA had no direct flights from Manila to Bombay, Mahtani
had to take a flight to Hongkong via PAL, and upon arrival in
Hongkong he had to take a connecting flight to Bombay on
board BA.
Prior to his departure, Mahtani checked in at the PAL counter
in Manila his two pieces of luggage containing his clothings and
personal effects, confident that upon reaching Hongkong, the
same would be transferred to the BA flight bound for Bombay.
Unfortunately, when Mahtani arrived in Bombay he
discovered that his luggage was missing and that upon inquiry
from the BA representatives, he was told that the same might
have been diverted to London. After patiently waiting for his
luggage for one week, BA finally advised him to file a claim by
accomplishing the Property Irregularity Report.[4]
Back in the Philippines, specifically on June 11, 1990, Mahtani
filed his complaint for damages and attorneys fees [5] against
BA and Mr. Gumar before the trial court, docketed as Civil Case
No. CEB-9076.
On September 4, 1990, BA filed its answer with counter
claim[6] to the complaint raising, as special and affirmative
defenses, that Mahtani did not have a cause of action against
it.Likewise, on November 9, 1990, BA filed a third-party
complaint[7] against PAL alleging that the reason for the non-
transfer of the luggage was due to the latters late arrival in
Hongkong, thus leaving hardly any time for the proper transfer
of Mahtanis luggage to the BA aircraft bound for Bombay.
On February 25, 1991, PAL filed its answer to the third-party
complaint, wherein it disclaimed any liability, arguing that
there was, in fact, adequate time to transfer the luggage to BA
facilities in Hongkong. Furthermore, the transfer of the
luggage to Hongkong authorities should be considered as
transfer to BA.[8]
After appropriate proceedings and trial, on March 4, 1993, the
trial court rendered its decision in favor of Mahtani,[9] the
dispositive portion of which reads as follows:
WHEREFORE, premises considered, judgment is rendered for
the plaintiff and against the defendant for which defendant is
ordered to pay plaintiff the sum of Seven Thousand
(P7,000.00) Pesos for the value of the two (2) suit cases; Four
Hundred U.S. ($400.00) Dollars representing the value of the
contents of plaintiffs luggage; Fifty Thousand (P50,000.00)
Pesos for moral and actual damages and twenty percent (20%)
of the total amount imposed against the defendant for
attorneys fees and costs of this action.
The Third-Party Complaint against third-party defendant
Philippine Airlines is DISMISSED for lack of cause of action.
SO ORDERED.
Dissatisfied, BA appealed to the Court of Appeals, which
however, affirmed the trial courts findings. Thus:
WHEREFORE, in view of all the foregoing considerations,
finding the Decision appealed from to be in accordance with
law and evidence, the same is hereby AFFIRMED in toto, with
costs against defendant-appellant.
SO ORDERED.[10]
BA is now before us seeking the reversal of the Court of
Appeals decision.
In essence, BA assails the award of compensatory damages and
attorneys fees, as well as the dismissal of its third-party
complaint against PAL.[11]
Regarding the first assigned issue, BA asserts that the award of
compensatory damages in the separate sum of P7,000.00 for
the loss of Mahtanis two pieces of luggage was without basis
since Mahtani in his complaint[12] stated the following as the
value of his personal belongings:
8. On said travel, plaintiff took with him the following items
and its corresponding value, to wit:
1. personal belonging - - - - - - - - - - - - - - P10,000.00
2. gifts for his parents and relatives - - - - - $5,000.00
Moreover, he failed to declare a higher valuation with respect
to his luggage, a condition provided for in the ticket, which
reads:[13]
Liability for loss, delay, or damage to baggage is limited unless
a higher value is declared in advance and additional charges
are paid:
1. For most international travel (including domestic
corporations of international journeys) the liability limit is
approximately U.S. $9.07 per pound (U.S. $20.00) per kilo for
checked baggage and U.S. $400 per passenger for unchecked
baggage.
Before we resolve the issues raised by BA, it is needful to state
that the nature of an airlines contract of carriage partakes of
two types, namely: a contract to deliver a cargo or
merchandise to its destination and a contract to transport
passengers to their destination. A business intended to serve
the travelling public primarily, it is imbued with public
interest, hence, the law governing common carriers imposes
an exacting standard.[14] Neglect or malfeasance by the
carriers employees could predictably furnish bases for an
action for damages.[15]
Page 30 of 62
In the instant case, it is apparent that the contract of carriage
was between Mahtani and BA. Moreover, it is indubitable that
his luggage never arrived in Bombay on time. Therefore, as in
a number of cases[16] we have assessed the airlines culpability
in the form of damages for breach of contract involving
misplaced luggage.
In determining the amount of compensatory damages in this
kind of cases, it is vital that the claimant satisfactorily prove
during the trial the existence of the factual basis of the
damages and its causal connection to defendants acts.[17]
In this regard, the trial court granted the following award as
compensatory damages:
Since plaintiff did not declare the value of the contents in his
luggage and even failed to show receipts of the alleged gifts for
the members of his family in Bombay, the most that can be
expected for compensation of his lost luggage (2 suit cases) is
Twenty U.S. Dollars ($20.00) per kilo, or a combined value of
Four Hundred ($400.00) U.S. Dollars for Twenty kilos
representing the contents plus Seven Thousand (P7,000.00)
Pesos representing the purchase price of the two (2) suit cases.
However, as earlier stated, it is the position of BA that there
should have been no separate award for the luggage and the
contents thereof since Mahtani failed to declare a separate
higher valuation for the luggage,[18] and therefore, its liability
is limited, at most, only to the amount stated in the ticket.
Considering the facts of the case, we cannot assent to such
specious argument.
Admittedly, in a contract of air carriage a declaration by the
passenger of a higher value is needed to recover a greater
amount. Article 22(1) of the Warsaw Convention,[19] provides
as follows:
xxxxxxxxx
(2) In the transportation of checked baggage and goods, the
liability of the carrier shall be limited to a sum of 250 francs
per kilogram, unless the consignor has made, at the time the
package was handed over to the carrier, a special declaration
of the value at delivery and has paid a supplementary sum if
the case so requires. In that case the carrier will be liable to pay
a sum not exceeding the declared sum, unless he proves that
the sum is greater than the actual value to the consignor at
delivery.
American jurisprudence provides that an air carrier is not
liable for the loss of baggage in an amount in excess of the
limits specified in the tariff which was filed with the proper
authorities, such tariff being binding on the passenger
regardless of the passengers lack of knowledge thereof or
assent thereto.[20] This doctrine is recognized in this
jurisdiction.[21]
Notwithstanding the foregoing, we have, nevertheless, ruled
against blind reliance on adhesion contracts where the facts
and circumstances justify that they should be disregarded.[22]
In addition, we have held that benefits of limited liability are
subject to waiver such as when the air carrier failed to raise
timely objections during the trial when questions and answers
regarding the actual claims and damages sustained by the
passenger were asked.[23]
Given the foregoing postulates, the inescapable conclusion is
that BA had waived the defense of limited liability when it
allowed Mahtani to testify as to the actual damages he incurred
due to the misplacement of his luggage, without any
objection. In this regard, we quote the pertinent transcript of
stenographic notes of Mahtanis direct testimony:[24]
Q - How much are you going to ask from this court?
A - P100,000.00.
Q - What else?
A - Exemplary damages.
Q - How much?
A - P100,000.00.
Q - What else?
A - The things I lost, $5,000.00 for the gifts I lost and my
personal belongings, P10,000.00.
Q - What about the filing of this case?
A - The court expenses and attorneys fees is 30%.
Indeed, it is a well-settled doctrine that where the proponent
offers evidence deemed by counsel of the adverse party to be
inadmissible for any reason, the latter has the right to
object.However, such right is a mere privilege which can be
waived. Necessarily, the objection must be made at the earliest
opportunity, lest silence when there is opportunity to speak
may operate as a waiver of objections.[25] BA has precisely
failed in this regard.
To compound matters for BA, its counsel failed, not only to
interpose a timely objection, but even conducted his own
cross-examination as well.[26] In the early case of Abrenica v.
Gonda,[27] we ruled that:
x x x (I)t has been repeatedly laid down as a rule of evidence
that a protest or objection against the admission of any
evidence must be made at the proper time, and that if not so
made it will be understood to have been waived. The proper
time to make a protest or objection is when, from the question
addressed to the witness, or from the answer thereto, or from
the presentation of proof, the inadmissibility of evidence is, or
may be inferred.
Needless to say, factual findings of the trial court, as affirmed
by the Court of Appeals, are entitled to great respect.[28] Since
the actual value of the luggage involved appreciation of
evidence, a task within the competence of the Court of Appeals,
its ruling regarding the amount is assuredly a question of fact,
thus, a finding not reviewable by this Court.[29]
As to the issue of the dismissal of BAs third-party complaint
against PAL, the Court of Appeals justified its ruling in this
wise, and we quote:[30]
Lastly, we sustain the trial courts ruling dismissing appellants
third-party complaint against PAL.
Page 31 of 62
The contract of air transportation in this case pursuant to the
ticket issued by appellant to plaintiff-appellee was exclusively
between the plaintiff Mahtani and defendant-appellant
BA. When plaintiff boarded the PAL plane from Manila to
Hongkong, PAL was merely acting as a subcontractor or agent
of BA. This is shown by the fact that in the ticket issued by
appellant to plaintiff-appellee, it is specifically provided on the
Conditions of Contract, paragraph 4 thereof that:
4. x x x carriage to be performed hereunder by several
successive carriers is regarded as a single operation.
The rule that carriage by plane although performed by
successive carriers is regarded as a single operation and that
the carrier issuing the passengers ticket is considered the
principal party and the other carrier merely subcontractors or
agent, is a settled issue.
We cannot agree with the dismissal of the third-complaint.
In Firestone Tire and Rubber Company of the
Philippines v. Tempengko,[31] we expounded on the nature of a
third-party complaint thus:
The third-party complaint is, therefore, a procedural device
whereby a third party who is neither a party nor privy to the
act or deed complained of by the plaintiff, may be brought into
the case with leave of court, by the defendant, who acts as
third-party plaintiff to enforce against such third-party
defendant a right for contribution, indemnity, subrogation or
any other relief, in respect of the plaintiffs claim. The third-
party complaint is actually independent of and separate and
distinct from the plaintiffs complaint. Were it not for this
provision of the Rules of Court, it would have to be filed
independently and separately from the original complaint by
the defendant against the third-party. But the Rules permit
defendant to bring in a third-party defendant or so to speak, to
litigate his separate cause of action in respect of plaintiffs claim
against a third-party in the original and principal case with the
object of avoiding circuitry of action and unnecessary
proliferation of law suits and of disposing expeditiously in one
litigation the entire subject matter arising from one particular
set of facts.
Undeniably, for the loss of his luggage, Mahtani is entitled to
damages from BA, in view of their contract of carriage. Yet, BA
adamantly disclaimed its liability and instead imputed it to
PAL which the latter naturally denies. In other words, BA and
PAL are blaming each other for the incident.
In resolving this issue, it is worth observing that the contract
of air transportation was exclusively between Mahtani and BA,
the latter merely endorsing the Manila to Hongkong leg of the
formers journey to PAL, as its subcontractor or agent. In fact,
the fourth paragraph of the Conditions of Contracts of the
ticket[32] issued by BA to Mahtani confirms that the contract
was one of continuous air transportation from Manila to
Bombay.
4. x x x carriage to be performed hereunder by several
successive carriers is regarded as a single operation.
Prescinding from the above discussion, it is undisputed that
PAL, in transporting Mahtani from Manila to Hongkong acted
as the agent of BA.
Parenthetically, the Court of Appeals should have been
cognizant of the well-settled rule that an agent
is also responsible for any negligence in the performance of its
function[33] and is liable for damages which the principal may
suffer by reason of its negligent act.[34] Hence, the Court of
Appeals erred when it opined that BA, being the principal, had
no cause of action against PAL, its agent or sub-contractor.
Also, it is worth mentioning that both BA and PAL are members
of the International Air Transport Association (IATA), wherein
member airlines are regarded as agents of each other in the
issuance of the tickets and other matters pertaining to their
relationship.[35] Therefore, in the instant case, the contractual
relationship between BA and PAL is one of agency, the former
being the principal, since it was the one which issued the
confirmed ticket, and the latter the agent.
Our pronouncement that BA is the principal is consistent with
our ruling in Lufthansa German Airlines v. Court of
Appeals.[36] In that case, Lufthansa issued a confirmed ticket to
Tirso Antiporda covering five-leg trip aboard different
airlines. Unfortunately, Air Kenya, one of the airlines which
was to carry Antiporda to a specific destination bumped him
off.
An action for damages was filed against Lufthansa which,
however, denied any liability, contending that its
responsibility towards its passenger is limited to the
occurrence of a mishap on its own line. Consequently, when
Antiporda transferred to Air Kenya, its obligation as a principal
in the contract of carriage ceased; from there on, it merely
acted as a ticketing agent for Air Kenya.
In rejecting Lufthansas argument, we ruled:
In the very nature of their contract, Lufthansa is clearly the
principal in the contract of carriage with Antiporda and
remains to be so, regardless of those instances when actual
carriage was to be performed by various carriers. The issuance
of confirmed Lufthansa ticket in favor of Antiporda covering
his entire five-leg trip aboard successive carriers concretely
attest to this.
Since the instant petition was based on breach of contract of
carriage, Mahtani can only sue BA alone, and not PAL, since the
latter was not a party to the contract. However, this is not to
say that PAL is relieved from any liability due to any of its
negligent acts. In China Air Lines, Ltd. v. Court of
Appeals,[37] while not exactly in point, the case, however,
illustrates the principle which governs this particular
situation. In that case, we recognized that a carrier (PAL),
acting as an agent of another carrier, is also liable for its own
negligent acts or omission in the performance of its duties.
Accordingly, to deny BA the procedural remedy of filing a
third-party complaint against PAL for the purpose of
ultimately determining who was primarily at fault as between
them, is without legal basis. After all, such proceeding is in
accord with the doctrine against multiplicity of cases which
Page 32 of 62
would entail receiving the same or similar evidence for both
cases and enforcing separate judgments therefor. It must be
borne in mind that the purpose of a third-party complaint is
precisely to avoid delay and circuity of action and to enable the
controversy to be disposed of in one suit.[38] It is but logical,
fair and equitable to allow BA to sue PAL for indemnification,
if it is proven that the latters negligence was the proximate
cause of Mahtanis unfortunate experience, instead of totally
absolving PAL from any liability.
WHEREFORE, in view of the foregoing, the decision of the
Court of Appeals in CA-G.R. CV No. 43309 dated September 7,
1995 is hereby MODIFIED, reinstating the third-party
complaint filed by British Airways dated November 9, 1990
against Philippine Airlines. No costs.
SO ORDERED.
EN BANC
G.R. No. L-20274 October 30, 1969
ELOY MIGUEL and DEMETRIO MIGUEL, petitioners,
vs.
THE COURT OF APPEALS and ANACLETA M. VDA. DE
REYES, respondents.
Silvestre Br. Bello for petitioners.
Teofilo A. Leonin for respondent.
CASTRO, J.:
Petition for review on certiorari of the decision and the two
resolutions of the Court of Appeals promulgated on May 10,
July 23, and September 5, all in the year 1962, in CA-G.R.-
16497-R, entitled "Eloy Miguel and Demetrio Miguel,
plaintiffs-appellees vs. Anacleta M. Vda. de Reyes, defendant-
appellant."
During the Spanish regime and prior to July 26, 1894, Eloy
Miguel, then single and resident of Laoag, Ilocos Norte, went to
Isabela and for some appreciable period of time stayed with
his kinsman Juan Felipe in Barrio Ingud Norte, Municipality of
Angadanan. There he spotted an uncultivated parcel of land,
one hectare of which he forthwith occupied, and then cleared
and planted to corn. After the Philippine Revolution, he
returned to Laoag, Ilocos Norte and took a wife. In the early
years of the ensuing American regime, Eloy Miguel returned to
Ingud Norte with his family, resettled on the same land,
cultivated and planted it to rice, declared it for taxation
purposes, and paid the annual realty taxes thereon.
During the year 1932, Leonor Reyes, an ambulatory notary
public and husband of the private respondent Anacleta M.
Reyes, used to visit Barrio Ingud Norte, looking for documents
to notarize. He and Eloy Miguel became acquaintances. Later,
Leonor Reyes asked Miguel if he wanted to secure
expeditiously a title to his landholding. Having received an
affirmative answer and after Eloy Miguel had handed to him
the tax declaration and tax receipts covering the land, Leonor
Reyes prepared and filed a homestead application in the name
of Eloy Miguel and, furthermore, promised to work for the
early approval of the said application. Reyes handed to Miguel
the receipt for the filing fee (exh. A) corresponding to the
homestead application, advising the latter to keep it, but he
(Reyes) withheld other papers including the tax declaration
and tax receipts, assuring Miguel that he would return them as
soon as the homestead patent was issued in Miguel's name.
Reyes likewise advised Miguel to cease paying the land taxes
until the patent shall have been issued by the Bureau of Lands.
After a long wait and becoming impatient about the issuance
of the promised title, Eloy Miguel inquired from Leonor Reyes
about the status of his application. Reyes promised to send a
letter-tracer to the Bureau of Lands, and, in fact, asked Eloy
Miguel to affix his thumbmark to a blank paper upon which
was supposed to be written a letter-tracer. However, World
War II broke out in the Pacific, and Miguel did not hear of and
about his homestead application; after the war he had no way
of ascertaining the outcome of his application because Leonor
Reyes had died meanwhile during the Japanese occupation of
the Philippines.
For the services rendered and still to be rendered by Leonor
Reyes in preparing the homestead application and in securing
the issuance of the correspondent patent, Miguel gave the
former 1/5 of his yearly harvest from the land. After the death
of Leonor Reyes Miguel continued to deliver an equal number
of cavanes of palay to the former's widow, Anacleta M. Vda. de
Reyes, who likewise promised to help him secure the
necessary homestead patent.
Meanwhile, Demetrio Miguel helped his father, Eloy Miguel,
clear and cultivate the land. Sometime in 1932, on the occasion
of the marriage of Demetrio, Eloy Miguel ceded to Demetrio 14
hectares of the southern portion of the land as a gift propter
nuptias. Demetrio forthwith declared the said portion for
taxation purposes in his name, as evidenced by tax declaration
7408 (exh. G).
However, unknown to Eloy and Demetrio Miguel, Leonor
Reyes on June 25, 1935 filed sales application 20240 in the
name of his wife, Anacleta M. Vda. de Reyes (hereinafter
referred to as the private respondent), covering the same
parcel of land occupied and cultivated by the Miguels and the
subject of Eloy Miguel's homestead-application. The sales
application was duly acknowledged by the Bureau of Lands on
June 29, 1935, and a sale at public auction took place on August
3, 1939 whereat the private respondent was the sole bidder.
The Director of lands awarded the land to her on March 7,
1940, the value of which was to be paid on installments.
Sometime in 1950, the private respondent had the land
surveyed by Maximo Lorenzo who, in the course of the survey,
assured Eloy Miguel that the land was being surveyed in the
latter's name. The private respondent, who was present during
the survey, made the same assurance to Eloy Miguel. However,
because his suspicions were aroused by the act of the private
respondent of having the land surveyed, Eloy Miguel directed
his son, Demetrio, to inquire from the office of the district land
officer of Ilagan, Isabela, about the status of his (Eloy's)
homestead application. Demetrio discovered that their land
was covered by the sales application of the private respondent.
Eloy Miguel forthwith filed on February 16, 1950 a protest
with the Bureau of Lands against sales application 20240 of
Page 33 of 62
the private respondent. Consequently, on February 21, 1950,
the Director of Lands ordered an investigation. Hearing of the
protest was scheduled for May 26, 1950 by deputy public lands
inspector Alejandro Ramos of Land District 4, Bureau of Lands,
Ilagan, Isabela, but was postponed at the instance of the
private respondent. The hearing was then reset for February
10, 1951, by assistant public lands inspector Hilarion Briones.
However, the Miguels had in the interim discovered that
notwithstanding their protest and the investigation ostensibly
being conducted by the administrative branch of the
Government, sales patent V-522 and original certificate of title
P-1433, covering the parcel of land in question, were granted
and issued to the private respondent on January 10, 1951 and
January 22, 1951, respectively.
Consequently, on February 17, 1951 Eloy and Demetrio Miguel
lodged a complaint with the Court of First Instance of Isabela
against the private respondent, Anacleta M. Vda. de Reyes, the
Director of Lands, and the Register of Deeds of Isabela, for the
annulment of sales patent V-522 and the cancellation of
original certificate of title P-1433. That case, docketed as civil
case 315 of the Court of First Instance of Isabela, was
dismissed by that court on grounds that the plaintiffs did not
have personality to institute the action, and that it was
prematurely filed the Miguels not having exhausted all
administrative remedies, more specifically not appealing to
the Secretary of Agriculture and Natural Resources from the
grant by the Director of Land of the patent to the private
respondent. On appeal to this Court, the dismissal was
affirmed on the second ground (G.R. No. L-4851, promulgated
July 31, 1953).
On September 7, 1953, Eloy and Demetrio Miguel commenced
the action (civil case 616) in the Court of First Instance of
Isabela against the private respondent to compel her to
reconvey to them the land covered by the abovementioned
patent and title. After due hearing, the trial court found that
Eloy Miguel "has always been, and up to this time, in physical
possession of the whole tract of land in question under claim
of ownership thru occupancy, he having occupied and
cultivated the land since the Spanish regime;" that he was a
homestead applicant way back in 1932 for the land possessed
by him; that there exists a trust relationship Eloy Miguel would
himself have personally attented to his own application; and
that, through fraud and misrepresentations, Leonor Reyes
caused the filing and approval of an application and the
issuance by the Bureau of Lands of a sales patent covering the
property in the name of his wife, the private respondent,
without the consent and knowledge of the Miguels. The lower
court, however, held that reconveyance is not proper because
the land in question is not the private property of the Miguels
since time immemorial but remains a part of the public
domain, and instead declared that Eloy Miguel "should be
given priority to acquire the land under the foregoing
premises, the court a quo rendered judgment ordering (1) the
Director of Land to cancel patent V-522 issued in the name of
Anacleta M. Vda. de Reyes, (2) the Registrar of Deeds of Isabela
to cancel original certificate of title P-1433 in the name of
Anacleta M. Vda. de Reyes and to return Patent V-522 to the
Bureau of Lands, and (3) the Director of Lands to give due
course to the homestead application of Eloy Miguel over the
land.
The private respondent appealed to the Court of Appeals
(hereafter referred to as the respondent Court) which
dismissed the complaint upon the ground that the judgment
appealed from could not and did not bind the Director of Lands
and the Registrar of Deeds of Isabela who were not parties
thereto. Eloy and, Demetrio Miguel (hereafter referred to as
the petitioners) filed a motion for reconsideration, wherein
they argued that while the trial court might have incurred
error in the legal conclusions drawn from its own findings of
fact, the respondent Court was not legally precluded by the
Rules of Court and applicable jurisprudence to modify the
judgment of the trial court, so as to make it conform to the
evidence, and to grant the relief of reconveyance sought in the
action, in which action the Director of Land and the Register of
Deeds of Isabela are not proper or necessary parties. The
motion for reconsideration wag denied in an extended
resolution of the respondent Court Promulgated on July 23,
1962, which ruled that the petitioners should have appealed
from the decision of the trial court. A second motion for
reconsideration was denied in a minute resolution dated
September 5, 1962.
The petitioners are now before us on appeal by certiorari,
assigning as errors (1) the Court of Appeals' holding that they
should have appealed from the decision of the trial court, and
(2) its finding that, assuming that reconveyance in favor of the
petitioners as mere appellees is still proper, the cases cited in
the latter's first motion for reconsideration are not in point.
It has been postulated and, we think, correctly that the
Supreme Court is vested with ample authority to review
matters not assigned as errors in an appeal, if it finds that their
consideration and resolution are indispensable or necessary in
arriving at a just decision in a given case.1 Thus, before passing
upon the foregoing assigned errors, we shall first resolve in
seriatim the matters raised in both the appealed decision and
resolutions of the respondent Court because to do so is
imperative in arriving at a fair and equitable adjudication of
this case.
1. The respondent Court points up the failure of the petitioners
to present a petition for judicial confirmation of imperfect title,
if they indeed had been in possession of the land since July 26,
1894, in accordance with the Public Land Act. Eloy Miguel
should not, however, be expected to file such a petition
because all along he was relying on the solemn assurances of
Leonor Reyes and later his wife, the private respondent, that
they were in the process of securing a homestead patent for
him.
2. The respondent Court observed in its decision that the
evidence on the allegation that Leonor Reyes acted
fraudulently in applying for the purchase of the land and later
transferring his right to his wife, is sharply conflicting, and that
even granting that there was fraud in the obtention of the
issuance of the patent, any objection based on that ground
should have been interposed within one year from the date of
its issuance.
We cannot give our approval to this view. As found by the court
below, the petitioners have proven by preponderance of
Page 34 of 62
evidence the fraud perpetrated by the private respondent and
her husband on Eloy Miguel. The weight of evidence leans
heavily in favor of the fact of occupation by Eloy Miguel of the
land from prior to July 26, 1894. This was the finding of the
lower court which belies the private respondent's
allegation that Eloy Miguel entered as her tenant only in 1935.
There is also the receipt, exh. A, evidencing the payment of a
filing fee for a homestead application, which receipt, in the
session of Eloy Miguel, raises at least the presumption that he
had filed a homestead application. That the records of the
Bureau of Lands or of any of its units, particularly the district
land office at Ilagan, Isabela, do not show that such application
was ever filed, supports the petitioners' thesis, concurred in by
the trial court, that the blank paper which Eloy Miguel
thumbmarked at the behest of Leonor Reyes was used by the
latter to withdraw the formers application instead of to trace
the application. Finally, there is the private respondent's and
her husband's act of misleading the Bureau of Lands by falsely
stating in their application for a sales patent that there was no
improvement on the land, when, as found by the lower court,
the land had already been cultivated and improved by Eloy
Miguel since 1932, by the latest. (This misleading statement,
noted by the court a quo on exh. 15 dated March 28, 1939 of
the private respondent, significantly, is not impugned by the
latter.) In fact, the lower court observed that the private
respondent herself affirmed on the witness stand that Eloy
Miguel was in 1935 already working on the land, although
supposedly as her tenant. Therefore, at the time the private
respondent's sales patent application was filed in 1935,
Leonor Reyes and she led the Bureau of Lands to believe that
the land was uncultivated and unoccupied by other claimants.
The very relevant question arises: Why did the Reyes spouses
conceal from the Bureau of Lands the fact that the land was
occupied and being cultivated by the Miguels, when there
existed no prohibition against having the land cultivated for
them by tenants? There are only two logical reasons for the
mysterious conduct of the Reyes spouses. First, had they stated
in their sales application that the whole parcel of land was
under cultivation by the petitioners, the Director of Lands
would have in all probability discovered that the land applied
for was covered by the prior homestead application of Eloy
Miguel and most likely would have disapproved the sales
application of the private respondent. Second, had a survey of
the land been conducted earlier, this would have aroused the
suspicions of Eloy Miguel earlier and enabled him to discover
much sooner the fraud perpetrated by Leonor Reyes before
the sales application of the private respondent was given due
course. Indeed, the private respondent waited until she had
just about paid all the installments on the land before ordering
a final survey thereof. It was this survey which aroused Eloy
Miguel's suspicions and enabled him and his son to discover
the fraud perpetrated upon them.
The respondent Court's holding that any objection based on
fraud should have been interposed within one year from the
date the issuance of the sales patent has no relevance to the
case at bar. This is an action for the enforcement of
a constructive trust the ultimate object of which is the
reconveyance of property lost through breach of fiduciary
relations and/or fraud. Therefore, it can be filed within four
years from the discovery of the fraud.2 And since the
petitioners discovered the fraud committed against them by
the Reyes spouses in 1950, they had until 1954 within which
to bring this action. This action was seasonably instituted
because the complaint was filed on September 7, 1953.
3. The respondent Court also held that the only remedy
available at the time the action below was instituted was for
the Government (through the Solicitor General) to file an
action for the reversion of the land to the public domain based
on the illegality of the grant a suit which a private person is
not authorized to file. The foregoing rule is correct but
inapplicable in this case, which, as earlier mentioned, is an
action for reconveyance of a piece of land through
enforcement of a constructive trust. For this same reason, the
provision of Land Administrative Order 6 of the Secretary of
Agriculture and Natural Resources, cited in the respondent
court's decision, is likewise inapt.
4. The respondent Court attributes error to the lower court's
finding that Eloy Miguel filed a homestead application for the
land in question, stating that no other evidence was presented
to show that such application was filed except the testimony of
Eloy Miguel and the receipt for the filing fee of a homestead
application; and that if such application was really filed, some
trace or tell-tale evidence of it would be extant, and the
application could have been easily reconstituted after the
liberation in 1945 when the Government adopted a policy to
enable all public land applicants to reconstitute their
applications. It is too well-settled to require any citation of
authority that the lower Court's findings of fact are entitled to
considerable weight, especially with respect to the
appreciation of the testimony of witnesses on the stand, since
it was in the best position to observe the demeanor of the
witnesses. The testimony of Eloy Miguel regarding his filing of
a homestead application over the parcel of land as found by
the lower court should not therefore lightly be brushed
aside. The receipt, exh. A, for the filing of the homestead
application raises a presumption in favor of Eloy Miguel's
having filed such an application. As earlier explained, if no
trace of the said application could be found among the records
of the Bureau of Lands or of any of its units particularly the
district land office at Ilagan, Isabela, it is because through fraud
i.e., by asking Eloy Miguel to thumbmark a blank piece of
paper Leonor Reyes succeeded in withdrawing the
application of Miguel. And he did this to pave the way for his
wife, the private respondent herein, herself to apply for the
land under a sales application. Of course, having relied on the
assurances of the Reyes spouses that they would help him
secure a homestead patent, Eloy Miguel found no need to
reconstitute his homestead application. It is not even
farfetched to suppose that Miguel, being illiterate, never even
came to learn of the Government's policy of enabling public
land applicants to reconstitute their applications.
5. Coming now to the assigned errors, the respondent Court's
view is not correct that it cannot grant the relief of
reconveyance because the petitioners did not appeal from the
decision of the lower court. There exist sufficient bases,
hereinafter to be discussed, for the respondent Court to award
said relief in the exercise of its broad appellate powers to
affirm, reverse or modify the judgment or order appealed
from.
Page 35 of 62
To start with, the petitioners cannot entirely be blamed if they
thought it the better part of prudence not to appeal. For
although it did not incorporate a decree of reconveyance, still
the decision of the court below was favorable to them because
it vindicated their actual possession of the land under a bona
fide claim of ownership since the Spanish regime, and
adjudged them as having a better right to the land and the
priority to own it under the Public Land Act. Besides, it was
their legitimate desire to avoid incurring additional expenses
incident to the bringing of an appeal.
However, as appellees in the Court of Appeals, the petitioners
pointedly called the attention of the respondent Court in their
brief to several questions decided against them in the court
below. Thus, working on the theory that it was plain error for
the trial court to order the Director of Lands and the Register
of Deeds of Isabela to implement its decision, the petitioners
called the attention of the respondent Court to the precise
nature of the action below in which the Director of Lands and
the Register of Deeds of Isabela need not be impleaded.
... The action in this case is reconveyance, the purpose of which
is to compel the defendant to return to the plaintiffs-appellees
the land in question which she has acquired through
fraudulent means. Such being the case, it would have been
utterly improper for the plaintiffs to have impleaded the
Director of Lands or the Register of Deeds of Isabela inasmuch
as the action is personal in nature directed against the person
of the defendant." .
The petitioners likewise called the attention of the respondent
Court to the trust relationship existing between them, on one
hand, and the Reyes spouses, on the other, which was breached
by the latter. Thus, to justify the reconveyance to them of the
property, they stated that:
Moreover, a situation of trust has been created in the instant
case between the plaintiff and the defendant-appellant
deceased husband upon whom the plaintiff Eloy Miguel relied
through his (Reyes') representations that the corresponding
title to said land would be secured in favor of the plaintiff Eloy
Miguel. The evidence likewise shows that the defendant Vda.
de Reyes promised the plaintiff to continue the work begun by
her late husband with the ultimate result of securing the said
homestead patent and title in favor of the plaintiff Eloy Miguel.
Inasmuch as the said promise was violated by the defendant
who secretly worked toward the acquisition of the said land
for her own self, fraudulently and stealthily, no prescription
can run as against plaintiffs' right to claim ownership of the
said property.
We held in one case that appellants need not make specific
assignment of errors provided they discuss at length and assail
in their brief the correctness of the trial court's findings
regarding the matter. Said discussion warrants the appellate
court to rule upon the point because it substantially complies
with sec. 7, Rule 51 of the Revised Rules of Court, intended
merely to compel the appellant to specify the questions which
he wants to raise and be disposed of in his appeal. A clear
discussion regarding an error allegedly committed by the trial
court accomplishes the purpose of a particular assignment of
error.3
Reasoning a fortiori from the above-cited authority, an
appellee who occupies a purely defensive position and is not
required to make assignments of errors, need only discuss or
call the attention of the appellate court in his brief to the issues
erroneously decided against him by the trial court.4 Here the
petitioners (appellees in the Court of Appeals) stated quite
explicitly in their brief that since the action was for
reconveyance, it was utterly improper to implead the Director
of Lands and the Register of Deeds in effect calling the
attention of the respondent Court to a plain error committed
by the trial court in ordering the Director of Lands and the
Register of Deeds to nullify the sales patent and original
certificate of title issued to the private respondent. And, in
discussing the trust relationship between the Miguels and the
Reyes spouses which was breached by the latter, the
petitioners (as appellees) also clearly brought to the attention
of the respondent Court a valid ground disregarded by the
lower court as a basis for granting the relief of reconveyance.
Moreover, the Rules of Court5 and jurisprudence authorize a
tribunal to consider errors, although unassigned, if they
involve (1) errors affecting the lower court's jurisdiction over
the subject matter, (2) plain errors 6 not specified, and (3)
clerical errors. Certainly, the mandate contained in the
dispositive portion of the lower court's decision and addressed
to the Director of Lands and the Register of Deeds, who were
not parties to the case, is a plain error which the respondent
Court properly corrected. As aforenarrated, the petitioners (as
appellees) brought this error to the attention of the
respondent Court. Another plain error which the respondent
Court should have considered was the court a quo's conclusion
that the land in litigation was still part of the public domain, in
the face of the parties' mutual allegations to the contrary and
despite the admitted fact that a sales patent and an original
certificate of title over the land had already been issued, thus
segregating the land from the public domain and making it
private land.
It is noteworthy that the complaint for reconveyance was not
dismissed by the trial court. What it denied was merely the
relief or remedy of reconveyance. However, in its decision, the
trial court made certain findings of fact which justified the
relief of reconveyance e.g., that Eloy Miguel "has always
been, and up to this time, in physical possession of the whole
tract of land in question under claim of ownership thru
occupancy, he having occupied and cultivated the land since
the Spanish regime;" that there was a trust relationship
between Eloy Miguel and the Reyes spouses; and that the
Reyes spouses have fraudulently and in bad faith breached
that trust. Hence, in reiterating their positions before the
respondent Court on the private nature of the land, on the
impropriety of impleading the Director of Lands and the
Register of Deeds of Isabela, and on the existence of a trust
relationship between the petitioners and the Reyes spouses,
the petitioners were in point of fact inviting the respondent
Court's attention to questions erroneously decided against
them by the trial court, in the hope that the respondent Court
would render judgment in accordance with the facts adjudged
by the trial court as proven.
If the complaint states a claim upon which any relief can be
given, it is immaterial what the plaintiff has asked for in his
Page 36 of 62
prayer or whether he has asked for the proper relief; the court
will grant him the relief to which he is entitled under the facts
proven (Kansas City St. L. and C. R. Co. v. Alton R. Co., 5 Fed.
Rules Service, p. 638; U.S. Circuit Court of Appeals, Seventh
Circuit, Dec. 18, 1941).
On appeal to the respondent Court by the private respondent,
the suit was, as it has always been in the court of origin, one for
reconveyance. And of course, the petitioners did not ask the
respondent Court for an affirmative relief different from what
was logically justified by the facts found by and proven in the
court a quo.
6. The respondent Court opined that the cases cited by the
petitioners in their motion for reconsideration (i.e., Republic
of the Philippines v. Carle Heirs, L-12485, July 21, 1959, and
Roco, et al. v. Gimeda L-11651, Dec. 27, 1958) are not
applicable because they involved properties which admittedly
belonged to the parties entitled to reconveyance, unlike the
herein petitioners who are mere public land applicants and
have not acquired title under the Public Land Act. Assuming
the respondent Court to be correct, a legion of cases there are
which can be cited in favor of the petitioners' position. Since
the law of trust has been more frequently applied in England
and in the United States than it has been in Spain, we may draw
freely upon American precedents in determining the effects of
trusts, especially so because the trusts known to American and
English equity jurisprudence are derived from thefidei
commissa of the Roman Law and are based entirely upon civil
law principles.7 Furthermore, because the case presents
problems not directly covered by statutory provisions or by
Spanish or local precedents, resort for their solution must be
had to the underlying principles of the law on the subject.
Besides, our Civil Code itself directs the adoption of the
principles of the general law of trusts, insofar as they are not
in conflict with said Code, the Code of Commerce, the Rules of
Court and special laws.8
In holding that the cases cited by the petitioners in their
motion for reconsideration (i,e., Republic of the Philippines v.
Carle Heirs, supra, and Roco, et al. v. Gimeda, supra) are
inapplicable, the respondent Court advances the theory that an
action for reconveyance based on constructive trust will
prosper only if the properties involved belong to the parties
suing for and entitled to reconveyance. This is not entirely
accurate. In Fox v. Simons9 the plaintiff employed the
defendant to assist him in obtaining oil leases in a certain
locality in Illinois, the former paying the latter a salary and his
expenses. The defendant acquired some leases for the plaintiff
and others for himself. Whereupon, the plaintiff brought suit
to compel the defendant to assign the leases which he had
acquired for himself. The court found for the plaintiff, holding
that it was a breach of the defendant's fiduciary duty to
purchase for himself the kind of property which he was
employed to purchase for the plaintiff. 10
It is to be observed that in Fox v. Simons, supra, the plaintiff was
not the original owner of the oil leases. He merely employed
the defendant to obtain them for him, but the latter obtained
some for the plaintiff and some for himself. Yet, despite the
absence of this former-ownership circumstance, the court
there did not hesitate to order the defendant to assign or
convey the leases he obtained for himself to the plaintiff
because of the breach of fiduciary duty committed by said
defendant. Indeed, there need only be a fiduciary relation and
a breach of fiduciary duty before reconveyance may be
adjudged. In fact, a fiduciary may even be chargeable as a
constructive trustee of property which he purchases for
himself, even though he has not undertaken to purchase it for
the beneficiary if in purchasing it he was improperly
competing with the beneficiary.11
Parenthetically, a fiduciary relation arises where one man
assumes to act as agent for another and the other reposes
confidence in him, although there is no written contract or no
contract at all. If the agent violates his duty as fiduciary, a
constructive trust arises. It is immaterial that there was no
antecedent fiduciary relation and that it arose
contemporaneously with the particular transaction. 12
In the case at bar, Leonor Reyes, the private respondent's
husband, suggested that Eloy Miguel file a homestead
application over the land and offered his services in assisting
the latter to secure a homestead patent. Eloy Miguel accepted
Leonor Reyes' offer of services, thereby relying, on his word
and reposing confidence in him. And in payment for the
services rendered by Leonor Reyes in preparing and filing the
homestead application and those still to be rendered by him in
securing the homestead patent, Eloy Miguel delivered to Reyes
1/5 of his yearly harvest from the said land. When Leonor
Reyes died, the petitioners continued to deliver the same
percentage of their annual harvest to the private respondent
who undertook to continue assisting the former to secure a
homestead patent over said land. However, in breach of their
fiduciary duty and through fraud, Leonor Reyes and the
private respondent filed a sales application and obtained a
sales patent and ultimately an original certificate of title over
the same parcel of land. Therefore, following the ruling in Fox
v. Simons, supra, the private respondent can be compelled to
reconvey or assign to the petitioners the parcel of land in the
proportion of nine hectares in favor of Eloy Miguel and 14
hectares in favor of Demetrio Miguel, respectively.
The private respondent argues that there is no violation of
trust relationship because the petitioners could have
participated in the public bidding. She avers that the alleged
fraud supposedly committed upon the petitioners, and on
which the claim for reconveyance is founded, is clearly of no
moment because the sales patent in question was not the
necessary consequence thereof, but rather, it was granted in
consideration of her being the highest bidder and the
purchaser of the land. In refutation of the foregoing argument,
it must be observed, firstly, that the petitioners because of
the fraud practised on them by the Reyes spouses never
came to know about the public bidding in which the land was
offered for sale and therefore could not have participated
therein. Had not the Reyes spouses misrepresented in their
sales application that the land was uncultivated and
unoccupied, the Director of Lands would in all probability have
found out about the occupancy and cultivation of the said land
by the petitioners and about Eloy Miguel's homestead
application over the same, and consequently would have
denied the sales application of the Reyes spouses. Secondly, it
may justifiably be postulated that equity will convert one who,
for any reason recognized by courts of equity as a ground for
Page 37 of 62
interference, has received legal title from the Government to
lands, which in equity and by the laws of Congress ought to
have gone to another, into a trustee for such other and compel
him to convey the legal title accordingly.13 Thirdly, Eloy Miguel
could have very easily obtained title to the said parcel of land
in either of two ways, had he not been inveigled by Leonor
Reyes to file a homestead application. Thus, since he is a
natural-born Filipino citizen, who is not an owner of more than
twenty-four hectares of land, and who since prior to July 4,
1926 (under R.A. 782, approved June 21, 1952, occupation and
cultivation since July 4, 1945, or prior thereto, is deemed
sufficient) has continuously occupied and cultivated a parcel
of land not more than twenty-four hectares in area, he was
entitled to apply for a free patent for, or gratuitous grant, of
said land. This is known as confirmation of imperfect or
incomplete titles by administrative legalization.14Or, since
Eloy Miguel has possessed the land prior to July 26, 1894 and
said possession has been continuous, uninterrupted, open,
adverse and in the concept of an owner, there is a
presumption juris et de jure that all necessary conditions for a
grant by the State have been complied with, and he would have
been by force of law entitled pursuant to the provisions of
sec. 48(b) of the Public Land Act to the registration of his
title to the land. 15
ACCORDINGLY, the decision of the Court of Appeals of May 10,
1962 and its resolutions of July 23 and September 5, 1962, are
set aside. Another judgment is hereby entered, ordering the
private respondent Anacleta M. Vda. de Reyes to convey the
land subject matter of the complaint, in fee simple, to the
petitioners, in the proportion of nine (9) hectares in favor of
Eloy Miguel and fourteen (14) hectares in favor of Demetrio
Miguel. In the event of failure of the said private respondent,
for any reason whatsoever, to convey within thirty (30) days
from the date this judgment becomes final, it is hereby decreed
that at the end of that period she will be automatically divested
of her title to the property in dispute, and this decision shall be
authority for the Register of Deeds to forthwith cancel the
original of the original certificate of title P1433 in his office and
the owner's copy thereof in the name of Anacleta M. Vda. de
Reyes, and to issue in favor of Eloy Miguel and Demetrio
Miguel new Torrens titles over the land in the proportion
above indicated. Costs against the private respondent Reyes.
EN BANC
G.R. No. L-30573 October 29, 1971
VICENTE M. DOMINGO, represented by his heirs,
ANTONINA RAYMUNDO VDA. DE DOMINGO, RICARDO,
CESAR, AMELIA, VICENTE JR., SALVADOR, IRENE and
JOSELITO, all surnamed DOMINGO, petitioners-appellants,
vs.
GREGORIO M. DOMINGO, respondent-appellee, TEOFILO P.
PURISIMA, intervenor-respondent.
Teofilo Leonin for petitioners-appellants.
Osorio, Osorio & Osorio for respondent-appellee.
Gregorio as a prospective buyer.
Teofilo P. Purisima in his own behalf as intervenor-respondent.
MAKASIAR, J.:
Petitioner-appellant Vicente M. Domingo, now deceased and
represented by his heirs, Antonina Raymundo vda. de
Domingo, Ricardo, Cesar, Amelia, Vicente Jr., Salvacion, Irene
and Joselito, all surnamed Domingo, sought the reversal of the
majority decision dated, March 12, 1969 of the Special Division
of Five of the Court of Appeals affirming the judgment of the
trial court, which sentenced the said Vicente M. Domingo to
pay Gregorio M. Domingo P2,307.50 and the intervenor Teofilo
P. Purisima P2,607.50 with interest on both amounts from the
date of the filing of the complaint, to pay Gregorio Domingo
P1,000.00 as moral and exemplary damages and P500.00 as
attorney's fees plus costs.
The following facts were found to be established by the
majority of the Special Division of Five of the Court of Appeals:
In a document Exhibit "A" executed on June 2, 1956, Vicente M.
Domingo granted Gregorio Domingo, a real estate broker, the
exclusive agency to sell his lot No. 883 of Piedad Estate with an
area of about 88,477 square meters at the rate of P2.00 per
square meter (or for P176,954.00) with a commission of 5%
on the total price, if the property is sold by Vicente or by
anyone else during the 30-day duration of the agency or if the
property is sold by Vicente within three months from the
termination of the agency to apurchaser to whom it was
submitted by Gregorio during the continuance of the agency
with notice to Vicente. The said agency contract was in
triplicate, one copy was given to Vicente, while the original and
another copy were retained by Gregorio.
On June 3, 1956, Gregorio authorized the intervenor Teofilo P.
Purisima to look for a buyer, promising him one-half of the 5%
commission.
Thereafter, Teofilo Purisima introduced Oscar de Leon to
Oscar de Leon submitted a written offer which was very much
lower than the price of P2.00 per square meter (Exhibit "B").
Vicente directed Gregorio to tell Oscar de Leon to raise his
offer. After several conferences between Gregorio and Oscar
de Leon, the latter raised his offer to P109,000.00 on June 20,
1956 as evidenced by Exhibit "C", to which Vicente agreed by
signing Exhibit "C". Upon demand of Vicente, Oscar de Leon
issued to him a check in the amount of P1,000.00 as earnest
money, after which Vicente advanced to Gregorio the sum of
P300.00. Oscar de Leon confirmed his former offer to pay for
the property at P1.20 per square meter in another letter,
Exhibit "D". Subsequently, Vicente asked for an additional
amount of P1,000.00 as earnest money, which Oscar de Leon
promised to deliver to him. Thereafter, Exhibit "C" was
amended to the effect that Oscar de Leon will vacate on or
about September 15, 1956 his house and lot at Denver Street,
Quezon City which is part of the purchase price. It was again
amended to the effect that Oscar will vacate his house and lot
Page 38 of 62
on December 1, 1956, because his wife was on the family way
and Vicente could stay in lot No. 883 of Piedad Estate until June
1, 1957, in a document dated June 30, 1956 (the year 1957
therein is a mere typographical error) and marked Exhibit "D".
Pursuant to his promise to Gregorio, Oscar gave him as a gift
or propina the sum of One Thousand Pesos (P1,000.00) for
succeeding in persuading Vicente to sell his lot at P1.20 per
square meter or a total in round figure of One Hundred Nine
Thousand Pesos (P109,000.00). This gift of One Thousand
Pesos (P1,000.00) was not disclosed by Gregorio to Vicente.
Neither did Oscar pay Vicente the additional amount of One
Thousand Pesos (P1,000.00) by way of earnest money. In the
deed of sale was not executed on August 1, 1956 as stipulated
in Exhibit "C" nor on August 15, 1956 as extended by Vicente,
Oscar told Gregorio that he did not receive his money from his
brother in the United States, for which reason he was giving up
the negotiation including the amount of One Thousand Pesos
(P1,000.00) given as earnest money to Vicente and the One
Thousand Pesos (P1,000.00) given to Gregorio aspropina or
gift. When Oscar did not see him after several weeks, Gregorio
sensed something fishy. So, he went to Vicente and read a
portion of Exhibit "A" marked habit "A-1" to the effect that
Vicente was still committed to pay him 5% commission, if the
sale is consummated within three months after the expiration
of the 30-day period of the exclusive agency in his favor from
the execution of the agency contract on June 2, 1956 to a
purchaser brought by Gregorio to Vicente during the said 30-
day period. Vicente grabbed the original of Exhibit "A" and tore
it to pieces. Gregorio held his peace, not wanting to antagonize
Vicente further, because he had still duplicate of Exhibit "A".
From his meeting with Vicente, Gregorio proceeded to the
office of the Register of Deeds of Quezon City, where he
discovered Exhibit "G' deed of sale executed on September 17,
1956 by Amparo Diaz, wife of Oscar de Leon, over their house
and lot No. 40 Denver Street, Cubao, Quezon City, in favor
Vicente as down payment by Oscar de Leon on the purchase
price of Vicente's lot No. 883 of Piedad Estate. Upon thus
learning that Vicente sold his property to the same buyer,
Oscar de Leon and his wife, he demanded in writting payment
of his commission on the sale price of One Hundred Nine
Thousand Pesos (P109,000.00), Exhibit "H". He also conferred
with Oscar de Leon, who told him that Vicente went to him and
asked him to eliminate Gregorio in the transaction and that he
would sell his property to him for One Hundred Four
Thousand Pesos (P104,000.0 In Vicente's reply to Gregorio's
letter, Exhibit "H", Vicente stated that Gregorio is not entitled
to the 5% commission because he sold the property not to
Gregorio's buyer, Oscar de Leon, but to another buyer, Amparo
Diaz, wife of Oscar de Leon.
The Court of Appeals found from the evidence that Exhibit "A",
the exclusive agency contract, is genuine; that Amparo Diaz,
the vendee, being the wife of Oscar de Leon the sale by Vicente
of his property is practically a sale to Oscar de Leon since
husband and wife have common or identical interests; that
Gregorio and intervenor Teofilo Purisima were the efficient
cause in the consummation of the sale in favor of the spouses
Oscar de Leon and Amparo Diaz; that Oscar de Leon paid
Gregorio the sum of One Thousand Pesos (P1,000.00) as
"propina" or gift and not as additional earnest money to be
given to the plaintiff, because Exhibit "66", Vicente's letter
addressed to Oscar de Leon with respect to the additional
earnest money, does not appear to have been answered by
Oscar de Leon and therefore there is no writing or document
supporting Oscar de Leon's testimony that he paid an
additional earnest money of One Thousand Pesos (P1,000.00)
to Gregorio for delivery to Vicente, unlike the first amount of
One Thousand Pesos (P1,000.00) paid by Oscar de Leon to
Vicente as earnest money, evidenced by the letter Exhibit "4";
and that Vicente did not even mention such additional earnest
money in his two replies Exhibits "I" and "J" to Gregorio's letter
of demand of the 5% commission.
The three issues in this appeal are (1) whether the failure on
the part of Gregorio to disclose to Vicente the payment to him
by Oscar de Leon of the amount of One Thousand Pesos
(P1,000.00) as gift or "propina" for having persuaded Vicente
to reduce the purchase price from P2.00 to P1.20 per square
meter, so constitutes fraud as to cause a forfeiture of his
commission on the sale price; (2) whether Vicente or Gregorio
should be liable directly to the intervenor Teofilo Purisima for
the latter's share in the expected commission of Gregorio by
reason of the sale; and (3) whether the award of legal interest,
moral and exemplary damages, attorney's fees and costs, was
proper.
Unfortunately, the majority opinion penned by Justice
Edilberto Soriano and concurred in by Justice Juan Enriquez
did not touch on these issues which were extensively
discussed by Justice Magno Gatmaitan in his dissenting
opinion. However, Justice Esguerra, in his concurring opinion,
affirmed that it does not constitute breach of trust or fraud on
the part of the broker and regarded same as merely part of the
whole process of bringing about the meeting of the minds of
the seller and the purchaser and that the commitment from the
prospect buyer that he would give a reward to Gregorio if he
could effect better terms for him from the seller, independent
of his legitimate commission, is not fraudulent, because the
principal can reject the terms offered by the prospective buyer
if he believes that such terms are onerous disadvantageous to
him. On the other hand, Justice Gatmaitan, with whom Justice
Antonio Cafizares corner held the view that such an act on the
part of Gregorio was fraudulent and constituted a breach of
trust, which should deprive him of his right to the commission.
The duties and liabilities of a broker to his employer are
essentially those which an agent owes to his principal. 1
Consequently, the decisive legal provisions are in found
Articles 1891 and 1909 of the New Civil Code.
Art. 1891. Every agent is bound to render an account of his
transactions and to deliver to the principal whatever he may
have received by virtue of the agency, even though it may not
be owing to the principal.
Every stipulation exempting the agent from the obligation to
render an account shall be void.
xxx xxx xxx
Art. 1909. The agent is responsible not only for fraud but also
for negligence, which shall be judged with more less rigor by
the courts, according to whether the agency was or was not for
a compensation.
Page 39 of 62
Article 1891 of the New Civil Code amends Article 17 of the old
Spanish Civil Code which provides that:
Art. 1720. Every agent is bound to give an account of his
transaction and to pay to the principal whatever he may have
received by virtue of the agency, even though what he has
received is not due to the principal.
The modification contained in the first paragraph Article 1891
consists in changing the phrase "to pay" to "to deliver", which
latter term is more comprehensive than the former.
Paragraph 2 of Article 1891 is a new addition designed to
stress the highest loyalty that is required to an agent
condemning as void any stipulation exempting the agent from
the duty and liability imposed on him in paragraph one
thereof.
Article 1909 of the New Civil Code is essentially a
reinstatement of Article 1726 of the old Spanish Civil Code
which reads thus:
Art. 1726. The agent is liable not only for fraud, but also for
negligence, which shall be judged with more or less severity by
the courts, according to whether the agency was gratuitous or
for a price or reward.
The aforecited provisions demand the utmost good faith,
fidelity, honesty, candor and fairness on the part of the agent,
the real estate broker in this case, to his principal, the vendor.
The law imposes upon the agent the absolute obligation to
make a full disclosure or complete account to his principal of
all his transactions and other material facts relevant to the
agency, so much so that the law as amended does not
countenance any stipulation exempting the agent from such an
obligation and considers such an exemption as void. The duty
of an agent is likened to that of a trustee. This is not a technical
or arbitrary rule but a rule founded on the highest and truest
principle of morality as well as of the strictest justice. 2
Hence, an agent who takes a secret profit in the nature of a
bonus, gratuity or personal benefit from the vendee, without
revealing the same to his principal, the vendor, is guilty of a
breach of his loyalty to the principal and forfeits his right to
collect the commission from his principal, even if the principal
does not suffer any injury by reason of such breach of fidelity,
or that he obtained better results or that the agency is a
gratuitous one, or that usage or custom allows it; because the
rule is to prevent the possibility of any wrong, not to remedy
or repair an actual damage. 3 By taking such profit or bonus or
gift or propina from the vendee, the agent thereby assumes a
position wholly inconsistent with that of being an agent for
hisprincipal, who has a right to treat him, insofar as his
commission is concerned, as if no agency had existed. The fact
that the principal may have been benefited by the valuable
services of the said agent does not exculpate the agent who has
only himself to blame for such a result by reason of his
treachery or perfidy.
This Court has been consistent in the rigorous application of
Article 1720 of the old Spanish Civil Code. Thus, for failure to
deliver sums of money paid to him as an insurance agent for
the account of his employer as required by said Article 1720,
said insurance agent was convicted estafa. 4 An administrator
of an estate was likewise under the same Article 1720 for
failure to render an account of his administration to the heirs
unless the heirs consented thereto or are estopped by having
accepted the correctness of his account previously rendered. 5
Because of his responsibility under the aforecited article 1720,
an agent is likewise liable for estafa for failure to deliver to his
principal the total amount collected by him in behalf of his
principal and cannot retain the commission pertaining to him
by subtracting the same from his collections. 6
A lawyer is equally liable unnder said Article 1720 if he fails to
deliver to his client all the money and property received by
him for his client despite his attorney's lien. 7 The duty of a
commission agent to render a full account his operations to his
principal was reiterated in Duhart, etc. vs. Macias. 8
The American jurisprudence on this score is well-nigh
unanimous.
Where a principal has paid an agent or broker a commission
while ignorant of the fact that the latter has been unfaithful,
the principal may recover back the commission paid, since an
agent or broker who has been unfaithful is not entitled to any
compensation.
xxx xxx xxx
In discussing the right of the principal to recover commissions
retained by an unfaithful agent, the court in Little vs.
Phipps (1911) 208 Mass. 331, 94 NE 260, 34 LRA (NS) 1046,
said: "It is well settled that the agent is bound to exercise the
utmost good faith in his dealings with his principal. As Lord
Cairns said, this rule "is not a technical or arbitrary rule. It is a
rule founded on the highest and truest principles, of
morality." Parker vs. McKenna (1874) LR 10,Ch(Eng) 96,118 ...
If the agent does not conduct himself with entire fidelity
towards his principal, but is guilty of taking a secret profit or
commission in regard the matter in which he is employed, he
loses his right to compensation on the ground that he has taken
a position wholly inconsistent with that of agent for his
employer, and which gives his employer, upon discovering it,
the right to treat him so far as compensation, at least, is
concerned as if no agency had existed. This may operate to give
to the principal the benefit of valuable services rendered by
the agent, but the agent has only himself to blame for that
result."
xxx xxx xxx
The intent with which the agent took a secret profit has been
held immaterial where the agent has in fact entered into a
relationship inconsistent with his agency, since the law
condemns the corrupting tendency of the inconsistent
relationship. Little vs. Phipps (1911) 94 NE 260. 9
As a general rule, it is a breach of good faith and loyalty to his
principal for an agent, while the agency exists, so to deal with
the subject matter thereof, or with information acquired
during the course of the agency, as to make a profit out of it for
himself in excess of his lawful compensation; and if he does so
he may be held as a trustee and may be compelled to account to
Page 40 of 62
his principal for all profits, advantages, rights, or privileges
acquired by him in such dealings, whether in performance or in
violation of his duties, and be required to transfer them to his
principal upon being reimbursed for his expenditures for the
same, unless the principal has consented to or ratified the
transaction knowing that benefit or profit would accrue or had
accrued, to the agent, or unless with such knowledge he has
allowed the agent so as to change his condition that he cannot
be put in status quo. The application of this rule is not affected
by the fact that the principal did not suffer any injury by reason
of the agent's dealings or that he in fact obtained better results;
nor is it affected by the fact that there is a usage or custom to the
contrary or that the agency is a gratuitous one. (Emphasis
applied.) 10
In the case at bar, defendant-appellee Gregorio Domingo as the
broker, received a gift or propina in the amount of One
Thousand Pesos (P1,000.00) from the prospective buyer Oscar
de Leon, without the knowledge and consent of his principal,
herein petitioner-appellant Vicente Domingo. His acceptance
of said substantial monetary gift corrupted his duty to serve
the interests only of his principal and undermined his loyalty
to his principal, who gave him partial advance of Three
Hundred Pesos (P300.00) on his commission. As a
consequence, instead of exerting his best to persuade his
prospective buyer to purchase the property on the most
advantageous terms desired by his principal, the broker,
herein defendant-appellee Gregorio Domingo, succeeded in
persuading his principal to accept the counter-offer of the
prospective buyer to purchase the property at P1.20 per
square meter or One Hundred Nine Thousand Pesos
(P109,000.00) in round figure for the lot of 88,477 square
meters, which is very much lower the the price of P2.00 per
square meter or One Hundred Seventy-Six Thousand Nine
Hundred Fifty-Four Pesos (P176,954.00) for said lot originally
offered by his principal.
The duty embodied in Article 1891 of the New Civil Code will
not apply if the agent or broker acted only as a middleman with
the task of merely bringing together the vendor and vendee,
who themselves thereafter will negotiate on the terms and
conditions of the transaction. Neither would the rule apply if
the agent or broker had informed the principal of the gift or
bonus or profit he received from the purchaser and his
principal did not object therto. 11 Herein defendant-appellee
Gregorio Domingo was not merely a middleman of the
petitioner-appellant Vicente Domingo and the buyer Oscar de
Leon. He was the broker and agent of said petitioner-appellant
only. And therein petitioner-appellant was not aware of the
gift of One Thousand Pesos (P1,000.00) received by Gregorio
Domingo from the prospective buyer; much less did he consent
to his agent's accepting such a gift.
The fact that the buyer appearing in the deed of sale is Amparo
Diaz, the wife of Oscar de Leon, does not materially alter the
situation; because the transaction, to be valid, must
necessarily be with the consent of the husband Oscar de Leon,
who is the administrator of their conjugal assets including
their house and lot at No. 40 Denver Street, Cubao, Quezon
City, which were given as part of and constituted the down
payment on, the purchase price of herein petitioner-
appellant's lot No. 883 of Piedad Estate. Hence, both in law and
in fact, it was still Oscar de Leon who was the buyer.
As a necessary consequence of such breach of trust, defendant-
appellee Gregorio Domingo must forfeit his right to the
commission and must return the part of the commission he
received from his principal.
Teofilo Purisima, the sub-agent of Gregorio Domingo, can only
recover from Gregorio Domingo his one-half share of whatever
amounts Gregorio Domingo received by virtue of the
transaction as his sub-agency contract was with Gregorio
Domingo alone and not with Vicente Domingo, who was not
even aware of such sub-agency. Since Gregorio Domingo
received from Vicente Domingo and Oscar de Leon
respectively the amounts of Three Hundred Pesos (P300.00)
and One Thousand Pesos (P1,000.00) or a total of One
Thousand Three Hundred Pesos (P1,300.00), one-half of the
same, which is Six Hundred Fifty Pesos (P650.00), should be
paid by Gregorio Domingo to Teofilo Purisima.
Because Gregorio Domingo's clearly unfounded complaint
caused Vicente Domingo mental anguish and serious anxiety
as well as wounded feelings, petitioner-appellant Vicente
Domingo should be awarded moral damages in the reasonable
amount of One Thousand Pesos (P1,000.00) attorney's fees in
the reasonable amount of One Thousand Pesos (P1,000.00),
considering that this case has been pending for the last fifteen
(15) years from its filing on October 3, 1956.
WHEREFORE, the judgment is hereby rendered, reversing the
decision of the Court of Appeals and directing defendant-
appellee Gregorio Domingo: (1) to pay to the heirs of Vicente
Domingo the sum of One Thousand Pesos (P1,000.00) as moral
damages and One Thousand Pesos (P1,000.00) as attorney's
fees; (2) to pay Teofilo Purisima the sum of Six Hundred Fifty
Pesos (P650.00); and (3) to pay the costs.
FIRST DIVISION
G.R. No. 137162 January 24, 2007
CORAZON L. ESCUETA, assisted by her husband EDGAR
ESCUETA, IGNACIO E. RUBIO, THE HEIRS OF LUZ R.
BALOLOY, namely, ALEJANDRINO R. BALOLOY and
BAYANI R. BALOLOY, Petitioners,
vs.
RUFINA LIM, Respondent.
DECISION
AZCUNA, J.:
This is an appeal by certiorari1 to annul and set aside the
Decision and Resolution of the Court of Appeals (CA) dated
October 26, 1998 and January 11, 1999, respectively, in CA-
G.R. CV No. 48282, entitled "Rufina Lim v. Corazon L. Escueta,
etc., et. al."
The facts2 appear as follows:
Page 41 of 62
Respondent Rufina Lim filed an action to remove cloud on, or
quiet title to, real property, with preliminary injunction and
issuance of [a hold-departure order] from the Philippines
against Ignacio E. Rubio. Respondent amended her complaint
to include specific performance and damages.
In her amended complaint, respondent averred inter alia that
she bought the hereditary shares (consisting of 10 lots) of
Ignacio Rubio [and] the heirs of Luz Baloloy, namely:
Alejandrino, Bayani, and other co-heirs; that said vendors
executed a contract of sale dated April 10, 1990 in her favor;
that Ignacio Rubio and the heirs of Luz Baloloy received [a
down payment] or earnest money in the amount
of P102,169.86 and P450,000, respectively; that it was agreed
in the contract of sale that the vendors would secure
certificates of title covering their respective hereditary shares;
that the balance of the purchase price would be paid to each
heir upon presentation of their individual certificate[s] of
[title]; that Ignacio Rubio refused to receive the other half of
the down payment which is P[100,000]; that Ignacio Rubio
refused and still refuses to deliver to [respondent] the
certificates of title covering his share on the two lots; that with
respect to the heirs of Luz Baloloy, they also refused and still
refuse to perform the delivery of the two certificates of title
covering their share in the disputed lots; that respondent was
and is ready and willing to pay Ignacio Rubio and the heirs of
Luz Baloloy upon presentation of their individual certificates
of title, free from whatever lien and encumbrance;
As to petitioner Corazon Escueta, in spite of her knowledge
that the disputed lots have already been sold by Ignacio Rubio
to respondent, it is alleged that a simulated deed of sale
involving said lots was effected by Ignacio Rubio in her favor;
and that the simulated deed of sale by Rubio to Escueta has
raised doubts and clouds over respondents title.
In their separate amended answers, petitioners denied the
material allegations of the complaint and alleged inter alia the
following:
For the heirs of Luz Baloloy (Baloloys for brevity):
Respondent has no cause of action, because the subject
contract of sale has no more force and effect as far as the
Baloloys are concerned, since they have withdrawn their offer
to sell for the reason that respondent failed to pay the balance
of the purchase price as orally promised on or before May 1,
1990.
For petitioners Ignacio Rubio (Rubio for brevity) and Corazon
Escueta (Escueta for brevity):
Respondent has no cause of action, because Rubio has not
entered into a contract of sale with her; that he has appointed
his daughter Patricia Llamas to be his attorney-in-fact and not
in favor of Virginia Rubio Laygo Lim (Lim for brevity) who was
the one who represented him in the sale of the disputed lots in
favor of respondent; that the P100,000 respondent claimed he
received as down payment for the lots is a simple transaction
by way of a loan with Lim.
The Baloloys failed to appear at the pre-trial. Upon motion of
respondent, the trial court declared the Baloloys in default.
They then filed a motion to lift the order declaring them in
default, which was denied by the trial court in an order dated
November 27, 1991. Consequently, respondent was allowed to
adduce evidence ex parte. Thereafter, the trial court rendered
a partial decision dated July 23, 1993 against the Baloloys, the
dispositive portion of which reads as follows:
IN VIEW OF THE FOREGOING, judgment is hereby rendered in
favor of [respondent] and against [petitioners, heirs] of Luz R.
Balolo[y], namely: Alejandrino Baloloy and Bayani Baloloy.
The [petitioners] Alejandrino Baloloy and Bayani Baloloy are
ordered to immediately execute an [Absolute] Deed of Sale
over their hereditary share in the properties covered by TCT
No. 74392 and TCT No. 74394, after payment to them by
[respondent] the amount of P[1,050,000] or consignation of
said amount in Court. [For] failure of [petitioners] Alejandrino
Baloloy and Bayani Baloloy to execute the Absolute Deed of
Sale over their hereditary share in the property covered by
TCT No. T-74392 and TCT No. T-74394 in favor of
[respondent], the Clerk of Court is ordered to execute the
necessary Absolute Deed of Sale in behalf of the Baloloys in
favor of [respondent,] with a consideration of P[1,500,000].
Further[,] [petitioners] Alejandrino Baloloy and Bayani
Baloloy are ordered to jointly and severally pay [respondent]
moral damages in the amount of P[50,000] and P[20,000] for
attorneys fees. The adverse claim annotated at the back of TCT
No. T-74392 and TCT No. T-74394[,] insofar as the shares of
Alejandrino Baloloy and Bayani Baloloy are concerned[,] [is]
ordered cancelled.
With costs against [petitioners] Alejandrino Baloloy and
Bayani Baloloy.
SO ORDERED.3
The Baloloys filed a petition for relief from judgment and order
dated July 4, 1994 and supplemental petition dated July 7,
1994. This was denied by the trial court in an order dated
September 16, 1994. Hence, appeal to the Court of Appeals was
taken challenging the order denying the petition for relief.
Trial on the merits ensued between respondent and Rubio and
Escueta. After trial, the trial court rendered its assailed
Decision, as follows:
IN VIEW OF THE FOREGOING, the complaint [and] amended
complaint are dismissed against [petitioners] Corazon L.
Escueta, Ignacio E. Rubio[,] and the Register of Deeds. The
counterclaim of [petitioners] [is] also dismissed. However,
[petitioner] Ignacio E. Rubio is ordered to return to the
[respondent], Rufina Lim[,] the amount of P102,169.80[,] with
interest at the rate of six percent (6%) per annum from April
10, [1990] until the same is fully paid. Without pronouncement
as to costs.
SO ORDERED.4
On appeal, the CA affirmed the trial courts order and partial
decision, but reversed the later decision. The dispositive
portion of its assailed Decision reads:
WHEREFORE, upon all the foregoing premises considered, this
Court rules:
Page 42 of 62
1. the appeal of the Baloloys from the Order denying the
Petition for Relief from Judgment and Orders dated July 4,
1994 and Supplemental Petition dated July 7, 1994 is
DISMISSED. The Order appealed from is AFFIRMED.
2. the Decision dismissing [respondents] complaint is
REVERSED and SET ASIDE and a new one is entered.
Accordingly,
a. the validity of the subject contract of sale in favor of
[respondent] is upheld.
b. Rubio is directed to execute a Deed of Absolute Sale
conditioned upon the payment of the balance of the purchase
price by [respondent] within 30 days from the receipt of the
entry of judgment of this Decision.
c. the contracts of sale between Rubio and Escueta involving
Rubios share in the disputed properties is declared NULL and
VOID.
d. Rubio and Escueta are ordered to pay jointly and severally
the [respondent] the amount of P[20,000] as moral damages
and P[20,000] as attorneys fees.
3. the appeal of Rubio and Escueta on the denial of their
counterclaim is DISMISSED.
SO ORDERED.5
Petitioners Motion for Reconsideration of the CA Decision was
denied. Hence, this petition.
The issues are:
I petition for relief on time.
THE HONORABLE COURT OF APPEALS ERRED IN DENYING
THE PETITION FOR RELIEF FROM JUDGMENT FILED BY THE
BALOLOYS.
II
THE HONORABLE COURT OF APPEALS ERRED IN
REINSTATING THE COMPLAINT AND IN AWARDING MORAL
DAMAGES AND ATTORNEYS FEES IN FAVOR OF
RESPONDENT RUFINA L. LIM CONSIDERING THAT:
A. IGNACIO E. RUBIO IS NOT BOUND BY THE CONTRACT OF
SALE BETWEEN VIRGINIA LAYGO-LIM AND RUFINA LIM.
B. THE CONTRACT ENTERED INTO BETWEEN RUFINA LIM
AND VIRGINIA LAYGO-LIM IS A CONTRACT TO SELL AND NOT
A CONTRACT OF SALE.
C. RUFINA LIM FAILED TO FAITHFULLY COMPLY WITH HER
OBLIGATIONS UNDER THE CONTRACT TO SELL THEREBY
WARRANTING THE CANCELLATION THEREOF.
D. CORAZON L. ESCUETA ACTED IN UTMOST GOOD FAITH IN
ENTERING INTO THE CONTRACT OF SALE WITH IGNACIO E.
RUBIO.
III
THE CONTRACT OF SALE EXECUTED BETWEEN IGNACIO E.
RUBIO AND CORAZON L. ESCUETA IS VALID.
IV
THE HONORABLE COURT OF APPEALS ERRED IN DISMISSING
PETITIONERS COUNTERCLAIMS.
Briefly, the issue is whether the contract of sale between
petitioners and respondent is valid.
Petitioners argue, as follows:
First, the CA did not consider the circumstances surrounding
petitioners failure to appear at the pre-trial and to file the
As to the failure to appear at the pre-trial, there was fraud,
accident and/or excusable neglect, because petitioner Bayani
was in the United States. There was no service of the notice of
pre-trial or order. Neither did the former counsel of record
inform him. Consequently, the order declaring him in default
is void, and all subsequent proceedings, orders, or decision are
void.
Furthermore, petitioner Alejandrino was not clothed with a
power of attorney to appear on behalf of Bayani at the pre-trial
conference.
Second, the sale by Virginia to respondent is not binding.
Petitioner Rubio did not authorize Virginia to transact
business in his behalf pertaining to the property. The Special
Power of Attorney was constituted in favor of Llamas, and the
latter was not empowered to designate a substitute attorney-
in-fact. Llamas even disowned her signature appearing on the
"Joint Special Power of Attorney," which constituted Virginia
as her true and lawful attorney-in-fact in selling Rubios
properties.
Dealing with an assumed agent, respondent should ascertain
not only the fact of agency, but also the nature and extent of
the formers authority. Besides, Virginia exceeded the
authority for failing to comply with her obligations under the
"Joint Special Power of Attorney."
The amount encashed by Rubio represented not the down
payment, but the payment of respondents debt. His
acceptance and encashment of the check was not a ratification
of the contract of sale.
Third, the contract between respondent and Virginia is a
contract to sell, not a contract of sale. The real character of the
contract is not the title given, but the intention of the parties.
They intended to reserve ownership of the property to
petitioners pending full payment of the purchase price.
Together with taxes and other fees due on the properties,
these are conditions precedent for the perfection of the sale.
Even assuming that the contract is ambiguous, the same must
be resolved against respondent, the party who caused the
same.
Fourth, Respondent failed to faithfully fulfill her part of the
obligation. Thus, Rubio had the right to sell his properties to
Escueta who exercised due diligence in ascertaining
ownership of the properties sold to her. Besides, a purchaser
need not inquire beyond what appears in a Torrens title.
Page 43 of 62
The petition lacks merit. The contract of sale between
petitioners and respondent is valid.lawphil.net
Bayani Baloloy was represented by his attorney-in-fact,
Alejandrino Baloloy. In the Baloloys answer to the original
complaint and amended complaint, the allegations relating to
the personal circumstances of the Baloloys are clearly
admitted.
"An admission, verbal or written, made by a party in the course
of the proceedings in the same case, does not require
proof."6 The "factual admission in the pleadings on record
[dispenses] with the need x x x to present evidence to prove
the admitted fact."7 It cannot, therefore, "be controverted by
the party making such admission, and [is] conclusive" 8 as to
them. All proofs submitted by them "contrary thereto or
inconsistent therewith should be ignored whether objection is
interposed by a party or not."9 Besides, there is no showing
that a palpable mistake has been committed in their admission
or that no admission has been made by them.
Pre-trial is mandatory.10 The notices of pre-trial had been sent
to both the Baloloys and their former counsel of record. Being
served with notice, he is "charged with the duty of notifying
the party represented by him."11 He must "see to it that his
client receives such notice and attends the pre-trial."12 What
the Baloloys and their former counsel have alleged instead in
their Motion to Lift Order of As In Default dated December 11,
1991 is the belated receipt of Bayani Baloloys special power
of attorney in favor of their former counsel, not that they have
not received the notice or been informed of the scheduled pre-
trial. Not having raised the ground of lack of a special power of
attorney in their motion, they are now deemed to have waived
it. Certainly, they cannot raise it at this late stage of the
proceedings. For lack of representation, Bayani Baloloy was
properly declared in default.
Section 3 of Rule 38 of the Rules of Court states:
SEC. 3. Time for filing petition; contents and verification. A
petition provided for in either of the preceding sections of this
Rule must be verified, filed within sixty (60) days after the
petitioner learns of the judgment, final order, or other
proceeding to be set aside, and not more than six (6) months
after such judgment or final order was entered, or such
proceeding was taken; and must be accompanied with
affidavits showing the fraud, accident, mistake, or excusable
negligence relied upon, and the facts constituting the
petitioners good and substantial cause of action or defense, as
the case may be.
There is no reason for the Baloloys to ignore the effects of the
above-cited rule. "The 60-day period is reckoned from the time
the party acquired knowledge of the order, judgment or
proceedings and not from the date he actually read the
same."13 As aptly put by the appellate court:
The evidence on record as far as this issue is concerned shows
that Atty. Arsenio Villalon, Jr., the former counsel of record of
the Baloloys received a copy of the partial decision dated June
23, 1993 on April 5, 1994. At that time, said former counsel is
still their counsel of record. The reckoning of the 60 day period
therefore is the date when the said counsel of record received
a copy of the partial decision which was on April 5, 1994. The
petition for relief was filed by the new counsel on July 4, 1994
which means that 90 days have already lapsed or 30 days
beyond the 60 day period. Moreover, the records further show
that the Baloloys received the partial decision on September
13, 1993 as evidenced by Registry return cards which bear the
numbers 02597 and 02598 signed by Mr. Alejandrino Baloloy.
The Baloloys[,] apparently in an attempt to cure the lapse of
the aforesaid reglementary period to file a petition for relief
from judgment[,] included in its petition the two Orders dated
May 6, 1994 and June 29, 1994. The first Order denied
Baloloys motion to fix the period within which plaintiffs-
appellants pay the balance of the purchase price. The second
Order refers to the grant of partial execution, i.e. on the aspect
of damages. These Orders are only consequences of the partial
decision subject of the petition for relief, and thus, cannot be
considered in the determination of the reglementary period
within which to file the said petition for relief.
Furthermore, no fraud, accident, mistake, or excusable
negligence exists in order that the petition for relief may be
granted.14 There is no proof of extrinsic fraud that "prevents a
party from having a trial x x x or from presenting all of his case
to the court"15 or an "accident x x x which ordinary prudence
could not have guarded against, and by reason of which the
party applying has probably been impaired in his
rights."16 There is also no proof of either a "mistake x x x of
law"17 or an excusable negligence "caused by failure to receive
notice of x x x the trial x x x that it would not be necessary for
him to take an active part in the case x x x by relying on another
person to attend to the case for him, when such other person x
x x was chargeable with that duty x x x, or by other
circumstances not involving fault of the moving party."18
Article 1892 of the Civil Code provides:
Art. 1892. The agent may appoint a substitute if the principal
has not prohibited him from doing so; but he shall be
responsible for the acts of the substitute:
(1) When he was not given the power to appoint one x x x.
Applying the above-quoted provision to the special power of
attorney executed by Ignacio Rubio in favor of his daughter
Patricia Llamas, it is clear that she is not prohibited from
appointing a substitute. By authorizing Virginia Lim to sell the
subject properties, Patricia merely acted within the limits of
the authority given by her father, but she will have to be
"responsible for the acts of the sub-agent,"19 among which is
precisely the sale of the subject properties in favor of
respondent.
Even assuming that Virginia Lim has no authority to sell the
subject properties, the contract she executed in favor of
respondent is not void, but simply unenforceable, under the
second paragraph of Article 1317 of the Civil Code which
reads:
Art. 1317. x x x
A contract entered into in the name of another by one who has
no authority or legal representation, or who has acted beyond
Page 44 of 62
his powers, shall be unenforceable, unless it is ratified,
expressly or impliedly, by the person on whose behalf it has
been executed, before it is revoked by the other contracting
party.
Ignacio Rubio merely denies the contract of sale. He claims,
without substantiation, that what he received was a loan, not
the down payment for the sale of the subject properties. His
acceptance and encashment of the check, however, constitute
ratification of the contract of sale and "produce the effects of
an express power of agency."20 "[H]is action necessarily
implies that he waived his right of action to avoid the contract,
and, consequently, it also implies the tacit, if not express,
confirmation of the said sale effected" by Virginia Lim in favor
of respondent.
Similarly, the Baloloys have ratified the contract of sale when
they accepted and enjoyed its benefits. "The doctrine of
estoppel applicable to petitioners here is not only that which
prohibits a party from assuming inconsistent positions, based
on the principle of election, but that which precludes him from
repudiating an obligation voluntarily assumed after having
accepted benefits therefrom. To countenance such repudiation
would be contrary to equity, and would put a premium on
fraud or misrepresentation."21
Indeed, Virginia Lim and respondent have entered into a
contract of sale. Not only has the title to the subject properties
passed to the latter upon delivery of the thing sold, but there is
also no stipulation in the contract that states the ownership is
to be reserved in or "retained by the vendor until full payment
of the price."22
Applying Article 1544 of the Civil Code, a second buyer of the
property who may have had actual or constructive knowledge
of such defect in the sellers title, or at least was charged with
the obligation to discover such defect, cannot be a registrant in
good faith. Such second buyer cannot defeat the first buyers
title. In case a title is issued to the second buyer, the first buyer
may seek reconveyance of the property subject of the
sale.23 Even the argument that a purchaser need not inquire
beyond what appears in a Torrens title does not hold water. A
perusal of the certificates of title alone will reveal that the
subject properties are registered in common, not in the
individual names of the heirs.
Nothing in the contract "prevents the obligation of the vendor
to convey title from becoming effective"24 or gives "the vendor
the right to unilaterally resolve the contract the moment the
buyer fails to pay within a fixed period."25Petitioners
themselves have failed to deliver their individual certificates
of title, for which reason it is obvious that respondent cannot
be expected to pay the stipulated taxes, fees, and expenses.
"[A]ll the elements of a valid contract of sale under Article
1458 of the Civil Code are present, such as: (1) consent or
meeting of the minds; (2) determinate subject matter; and (3)
price certain in money or its equivalent."26 Ignacio Rubio, the
Baloloys, and their co-heirs sold their hereditary shares for a
price certain to which respondent agreed to buy and pay for
the subject properties. "The offer and the acceptance are
concurrent, since the minds of the contracting parties meet in
the terms of the agreement."27
In fact, earnest money has been given by respondent. "[I]t shall
be considered as part of the price and as proof of the perfection
of the contract.28 It constitutes an advance payment to "be
deducted from the total price."29
Article 1477 of the same Code also states that "[t]he ownership
of the thing sold shall be transferred to the vendee upon actual
or constructive delivery thereof."30 In the present case, there
is actual delivery as manifested by acts simultaneous with and
subsequent to the contract of sale when respondent not only
took possession of the subject properties but also allowed
their use as parking terminal for jeepneys and buses.
Moreover, the execution itself of the contract of sale is
constructive delivery.
Consequently, Ignacio Rubio could no longer sell the subject
properties to Corazon Escueta, after having sold them to
respondent. "[I]n a contract of sale, the vendor loses
ownership over the property and cannot recover it until and
unless the contract is resolved or rescinded x x x." 31 The
records do not show that Ignacio Rubio asked for a rescission
of the contract. What he adduced was a belated revocation of
the special power of attorney he executed in favor of Patricia
Llamas. "In the sale of immovable property, even though it may
have been stipulated that upon failure to pay the price at the
time agreed upon the rescission of the contract shall of right
take place, the vendee may pay, even after the expiration of the
period, as long as no demand for rescission of the contract has
been made upon him either judicially or by a notarial act." 32
WHEREFORE, the petition is DENIED. The Decision and
Resolution of the Court of Appeals in CA-G.R. CV No. 48282,
dated
October 26, 1998 and January 11, 1999, respectively, are
hereby AFFIRMED. Costs against petitioners.
SO ORDERED.
FIRST DIVISION
G.R. No. 114091 June 29, 1995
BACALTOS COAL MINES and GERMAN A.
BACALTOS, petitioners,
vs.
HON. COURT OF APPEALS and SAN MIGUEL
CORPORATION, respondents.
DAVIDE, JR., J.:
Petitioners seek the reversal of the decision of 30 September
1993 of the Court of Appeals in CA-G.R. CV No. 35180, 1 entitled
"San Miguel Corporation vs. Bacaltos Coal Mines, German A.
Bacaltos and Rene R. Savellon," which affirmed the decision of
19 August 1991 of the Regional Trial Court (RTC) of Cebu,
Branch 9, in Civil Case No. CEB-8187 2holding petitioners
Page 45 of 62
Bacaltos Coal Mines and German A. Bacaltos and their co-
defendant Rene R. Savellon jointly and severally liable to
private respondent San Miguel Corporation under a Trip
Charter Party.
The paramount issue raised is whether Savellon was duly
authorized by the petitioners to enter into the Trip Charter
Party (Exhibit "A") 3 under and by virtue of an Authorization
(Exhibit "C" and Exhibit "1"), 4 dated 1 March 1988, the
pertinent portions of which read as follows:
I. GERMAN A. BACALTOS, of legal age, Filipino, widower, and
residing at second street, Espina Village, Cebu City, province of
Cebu, Philippines, do hereby authorize RENE R. SAVELLON, of
legal age, Filipino and residing at 376-R Osmea Blvd., Cebu
City, Province of Cebu, Philippines, to use the coal operating
contract of BACALTOS COAL MINES of which I am the
proprietor, for any legitimate purpose that it may serve.
Namely, but not by way of limitation, as follows:
(1) To acquire purchase orders for and in behalf of BACALTOS
COAL MINES;
(2) To engage in trading under the style of BACALTOS COAL
MINES/RENE SAVELLON;
(3) To collect all receivables due or in arrears from people or
companies having dealings under BACALTOS COAL
MINES/RENE SAVELLON;
(4) To extend to any person or company by substitution the
same extent of authority that is granted to Rene Savellon;
(5) In connection with the preceeding paragraphs to execute
and sign documents, contracts, and other pertinent papers.
Further, I hereby give and grant to RENE SAVELLON full
authority to do and perform all and every lawful act requisite
or necessary to carry into effect the foregoing stipulations as
fully to all intents and purposes as I might or would lawfully
do if personally present, with full power of substitution and
revocation.
The Trip Charter Party was executed on 19 October 1988 "by
and between BACALTOS COAL MINES, represented by its Chief
Operating Officer, RENE ROSEL SAVELLON" and private
respondent San Miguel Corporation (hereinafter SMC),
represented by Francisco B. Manzon, Jr., its "SAVP and
Director, Plant Operations-Mandaue" Thereunder, Savellon
claims that Bacaltos Coal Mines is the owner of the vessel M/V
Premship II and that for P650,000.00 to be paid within seven
days after the execution of the contract, it "lets, demises" the
vessel to charterer SMC "for three round trips to Davao."
As payment of the aforesaid consideration, SMC issued a check
(Exhibit "B") 5 payable to "RENE SAVELLON IN TRUST FOR
BACALTOS COAL MINES" for which Savellon issued a receipt
under the heading of BACALTOS COAL MINES with the address
at No 376-R Osmea Blvd., Cebu City (Exhibit "B-1"). 6
The vessel was able to make only one trip. Its demands to
comply with the contract having been unheeded, SMC filed
against the petitioners and Rene Savellon the complaint in
Civil Case No. CEB-8187 for specific performance and
damages. In their Answer, 7 the petitioners alleged that
Savellon was not their Chief Operating Officer and that the
powers granted to him are only those clearly expressed in the
Authorization which do not include the power to enter into any
contract with SMC. They further claimed that if it is true that
SMC entered into a contract with them, it should have issued
the check in their favor. They setup counterclaims for moral
and exemplary damages and attorney's fees.
Savellon did not file his Answer and was declared in default on
17 July 1990. 8
At the pre-trial conference on 1 February 1991, the petitioners
and SMC agreed to submit the following issues for resolution:
Plaintiff
1. Whether or not defendants are jointly liable to plaintiff for
damages on account of breach of contract;
2. Whether or not the defendants acted in good faith in its
representations to the plaintiff;
3. Whether or not defendant Bacaltos was duly enriched on the
payment made by the plaintiff for the use of the vessel;
4. Whether or not defendant Bacaltos is estopped to deny the
authorization given to defendant Savellon;
Defendants
1. Whether or not the plaintiff should have first investigated
the ownership of vessel M/V PREM [SHIP] II before entering
into any contract with defendant Savellon;
2. Whether or not defendant Savellon was authorized to enter
into a shipping contract with the [plaintiff] corporation;
3. Whether or not the plaintiff was correct and not mistaken in
issuing the checks in payment of the contract in the name of
defendant Savellon and not in the name of defendant Bacaltos
Coal Mines;
4. Whether or not the plaintiff is liable on defendants'
counterclaim. 9
After trial, the lower court rendered the assailed decision in
favor of SMC and against the petitioners and Savellon as
follows:
WHEREFORE, by preponderance of evidence, the Court hereby
renders judgment in favor of plaintiff and against defendants,
ordering defendants Rene Savellon, Bacaltos Coal Mines and
German A. Bacaltos, jointly and severally, to pay to plaintiff:
1. The amount of P433,000.00 by way of reimbursement of the
consideration paid by plaintiff, plus 12% interest to start from
date of written demand, which is June 14, 1989;
2. The amount of P20,000.00 by way of exemplary damages;
3. The amount of P20,000.00 as attorney's fees and P5,000.00
as Litigation expenses. Plus costs. 10
It ruled that the Authorization given by German Bacaltos to
Savellon necessarily included the power to enter into the Trip
Charter Party. It did not give credence to the petitioners' claim
that the authorization refers only to coal or coal mining and
Page 46 of 62
not to shipping because, according to it, "the business of coal
mining may also involve the shipping of products" and "a
company such as a coal mining company is not prohibited to
engage in entering into a Trip Charter Party contract." It
further reasoned out that even assuming that the petitioners
did not intend to authorize Savellon to enter into the Trip
Charter Party, they are still liable because: (a) SMC appears to
be an innocent party which has no knowledge of the real intent
of the parties to the Authorization and has reason to rely on
the written Authorization submitted by Savellon pursuant to
Articles 1900 and 1902 of the Civil Code; (b) Savellon issued
an official receipt of Bacaltos Coal Mines (Exhibit "B-1") for the
consideration of the Trip Charter Party, and the petitioners
denial that they caused the printing of such official receipt is
"lame" because they submitted only a cash voucher and not
their official receipt; (c) the "Notice of Readiness" (Exhibit "A-
1") is written on a paper with the letterhead "Bacaltos Coal
Mines" and the logo therein is the same as that appearing in
their voucher; (d) the petitioners were benefited by the
payment because the real payee in the check is actually
Bacaltos Coal Mines and since in the Authorization they
authorized Savellon to collect receivables due or in arrears, the
check was then properly delivered to Savellon; and, (e) if
indeed Savellon had not been authorized or if indeed he
exceeded his authority or if the Trip Charter Party was
personal to him and the petitioners have nothing to do with it,
then Savellon should have "bother[ed] to answer" the
complaint and the petitioners should have filed "a cross-claim"
against him.
In their appeal to the Court of Appeals in CA-G.R. CV No. 35180,
the petitioners asserted that the trial court erred in: (a) not
holding that SMC was negligent in (1) not verifying the
credentials of Savellon and the ownership of the vessel, (2)
issuing the check in the name of Savellon in trust for Bacaltos
Coal Mines thereby allowing Savellon to encash the check, and,
(3) making full payment of P650,000.00 after the vessel made
only one trip and before it completed three trips as required in
the Trip Charter Party; (b) holding that under the authority
given to him Savellon was authorized to enter into the Trip
Charter Party; and, (c) holding German Bacaltos jointly and
severally liable with Savellon and Bacaltos Coal Mines. 11
As stated at the beginning, the Court of Appeals affirmed in
toto the judgment of the trial court. It held that: (a) the
credentials of Savellon is not an issue since the petitioners
impliedly admitted the agency while the ownership of the
vessel was warranted on the face of the Trip Charter Party; (b)
SMC was not negligent when it issued the check in the name of
Savellon in trust for Bacaltos Coal Mines since the
Authorization clearly provides that collectibles of the
petitioners can be coursed through Savellon as the agent; (c)
the Authorization includes the power to enter into the Trip
Charter Party because the "five prerogatives" enumerated in
the former is prefaced by the phrase "but not by way of
limitation"; (d) the petitioners' statement that the check
should have been issued in the name of Bacaltos Coal Mines is
another implicit admission that the Trip Charter Party is part
and parcel of the petitioners' business notwithstanding
German Bacaltos's contrary interpretation when he testified,
and in any event, the construction of obscure words should not
favor him since he prepared the Authorization in favor of
Savellon; and, (e) German Bacaltos admitted in the Answer
that he is the proprietor of Bacaltos Coal Mines and he likewise
represented himself to be so in the Authorization itself, hence
he should not now be permitted to disavow what he initially
stated to be true and to interpose the defense that Bacaltos
Coal Mines has a distinct legal personality.
Their motion for a reconsideration of the above decision
having been denied, the petitioners filed the instant petition
wherein they raise the following errors:
I. THE RESPONDENT COURT ERRED IN HOLDING THAT RENE
SAVELLON WAS AUTHORIZED TO ENTER INTO A TRIP
CHARTER PARTY CONTRACT WITH PRIVATE RESPONDENT
INSPITE OF ITS FINDING THAT SUCH AUTHORITY CANNOT
BE FOUND IN THE FOUR CORNERS OF THE AUTHORIZATION;
II. THE RESPONDENT COURT ERRED IN NOT HOLDING THAT
BY ISSUING THE CHECK IN THE NAME OF RENE SAVELLON IN
TRUST FOR BACALTOS COAL MINES, THE PRIVATE
RESPONDENT WAS THE AUTHOR OF ITS OWN DAMAGE; AND
III. THE RESPONDENT COURT ERRED IN HOLDING
PETITIONER GERMAN BACALTOS JOINTLY AND SEVERALLY
LIABLE WITH RENE SAVELLON AND CO-PETITIONER
BACALTOS COAL MINES IN SPITE OF THE FINDING OF THE
COURT A QUO THAT PETITIONER BACALTOS COAL MINES
AND PETITIONER BACALTOS ARE TWO DISTINCT AND
SEPARATE LEGAL PERSONALITIES. 12
After due deliberations on the allegations, issues raised, and
arguments adduced in the petition, and the comment thereto
and reply to the comment, the Court resolved to give due
course to the petition.
Every person dealing with an agent is put upon inquiry and
must discover upon his peril the authority of the agent. If he
does not make such inquiry, he is chargeable with knowledge
of the agent's authority, and his ignorance of that authority will
not be any excuse. Persons dealing with an assumed agent,
whether the assumed agency be a general or special one, are
bound at their peril, if they would hold the principal, to
ascertain not only the fact of the agency but also the nature and
extent of the authority, and in case either is controverted, the
burden of proof is upon them to establish it. 13 American
jurisprudence 14 summarizes the rule in dealing with an agent
as follows:
A third person dealing with a known agent may not act
negligently with regard to the extent of the agent's authority
or blindly trust the agent's statements in such respect. Rather,
he must use reasonable diligence and prudence to ascertain
whether the agent is acting and dealing with him within the
scope of his powers. The mere opinion of an agent as to the
extent of his powers, or his mere assumption of authority
without foundation, will not bind the principal; and a third
person dealing with a known agent must bear the burden of
determining for himself, by the exercise of reasonable
diligence and prudence, the existence or nonexistence of the
agent's authority to act in the premises. In other words,
whether the agency is general or special, the third person is
Page 47 of 62
bound to ascertain not only the fact of agency, but the nature
and extent of the authority. The principal, on the other hand,
may act on 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.
Or, as stated in Harry E. Keller Electric
Co. vs. Rodriguez, 15 quoting Mechem on Agency:
The person dealing with the agent must also act with ordinary
prudence and reasonable diligence. Obviously, if he knows or
has good reason to believe that the agent is exceeding his
authority, he cannot claim protection. So if the suggestions of
probable limitations be of such a clear and reasonable quality,
or if the character assumed by the agent is of such a suspicious
or unreasonable nature, or if the authority which he seeks to
exercise is of such an unusual or improbable character, as
would suffice to put an ordinarily prudent man upon his guard,
the party dealing with him may not shut his eyes to the real
estate of the case, but should either refuse to deal with the
agent at all, or should ascertain from the principal the true
condition of affairs. [emphasis supplied].
In the instant case, since the agency of Savellon is based on a
written document, the Authorization of 1 March 1988
(Exhibits "C" and "1"), the extent and scope of his powers must
be determined on the basis thereof. The language of the
Authorization is clear. It pertinently states as follows:
I. GERMAN A. BACALTOS do hereby authorize RENE R.
SAVELLON . . . to use the coal operating contract of BACALTOS
COAL MINES, of which I am the proprietor, for any legitimate
purpose that it may serve. Namely, but not by way of limitation,
as follows . . . [emphasis supplied].
There is only one express power granted to Savellon, viz., to
use the coal operating contract for anylegitimate purpose it may
serve. The enumerated "five prerogatives" to employ the
term used by the Court of Appeals are nothing but the
specific prerogatives subsumed under or classified as part of
or as examples of the power to use the coal operating contract.
The clause "but not by way of limitation" which precedes the
enumeration could only refer to or contemplate other
prerogatives which must exclusively pertain or relate or be
germane to the power to use the coal operating contract. The
conclusion then of the Court of Appeals that the Authorization
includes the power to enter into the Trip Chapter Party
because the "five prerogatives" are prefaced by such clause, is
seriously flawed. It fails to note that the broadest scope of
Savellon's authority is limited to the use of the coal operating
contract and the clause cannot contemplate any other power
not included in the enumeration or which are unrelated either
to the power to use the coal operating contract or to those
already enumerated. In short, while the clause allows some
room for flexibility, it can comprehend only additional
prerogatives falling within the primary power and within the
same class as those enumerated. The trial court, however,
went further by hastily making a sweeping conclusion that "a
company such as a coal mining company is not prohibited to
engage in entering into a Trip Charter Party contract." 16 But
what the trial court failed to consider was that there is no
evidence at all that Bacaltos Coal Mines as a coal mining
company owns and operates vessels, and even if it owned any
such vessels, that it was allowed to charter or lease them. The
trial court also failed to note that the Authorization is not a
general power of attorney. It is a special power of attorney for it
refers to a clear mandate specifically authorizing the
performance of a specific power and of express acts subsumed
therein. 17 In short, both courts below unreasonably expanded
the express terms of or otherwise gave unrestricted meaning
to a clause which was precisely intended to prevent
unwarranted and unlimited expansion of the powers
entrusted to Savellon. The suggestion of the Court of Appeals
that there is obscurity in the Authorization which must be
construed against German Bacaltos because he prepared the
Authorization has no leg to stand on inasmuch as there is no
obscurity or ambiguity in the instrument. If any obscurity or
ambiguity indeed existed, then there will be more reason to
place SMC on guard and for it to exercise due diligence in
seeking clarification or enlightenment thereon, for that was
part of its duty to discover upon its peril the nature and extent
of Savellon's written agency. Unfortunately, it did not.
Howsoever viewed, the foregoing conclusions of the Court of
Appeals and the trial court are tenuous and farfetched,
bringing to unreasonable limits the clear parameters of the
powers granted in the Authorization.
Furthermore, had SMC exercised due diligence and prudence,
it should have known in no time that there is absolutely
nothing on the face of the Authorization that confers upon
Savellon the authority to enter into any Trip Charter Party. Its
conclusion to the contrary is based solely on the second
prerogative under the Authorization, to wit:
(2) To engage in trading under the style of BACALTOS COAL
MINES/RENE SAVELLON;
unmindful that such is but a part of the primary authority to
use the coal operating contract which it did not even require
Savellon to produce. Its principal witness, Mr. Valdescona,
expressly so admitted on cross-examination, thus:
Atty. Zosa (to witness ON CROSS)
Q You said that in your office Mr. Rene Savellon presented to
you this authorization marked Exhibit "C" and Exhibit "1" for
the defendant?
A Yes, sir.
Q Did you read in the first part[y] of this authorization Mr.
Valdescona that Mr. Rene Savellon was authorized as the coal
operating contract of Bacaltos Coal Mines?
A Yes, sir.
Q Did it not occur to you that you should have examined
further the authorization of Mr. Rene Savellon, whether or not
this coal operating contract allows Mr. Savellon to enter into a
trip charter party?
A Yes, sir. We discussed about the extent of his authorization
and he referred us to the number 2 provision of this
authorization which is to engage in trading under the style of
Bacaltos Coal Mines/Rene Savellon, which we followed up to
the check preparation because it is part of the authority.
Page 48 of 62
Q In other words, you examined this and you found out that
Mr. Savellon is authorized to use the coal operating contract of
Bacaltos Coal Mines?
A Yes, sir.
Q You doubted his authority but you found out in paragraph 2
that he is authorized that's why you agreed and entered into
that trip charter party?
A We did not doubt his authority but we were questioning as
to the extent of his operating contract.
Q Did you not require Mr. Savellon to produce that coal
operating contract of Bacaltos Coal Mines?
A No sir. We did not. 18
Since the principal subject of the Authorization is the coal
operating contract, SMC should have required its presentation
to determine what it is and how it may be used by Savellon.
Such a determination is indispensable to an inquiry into the
extent or scope of his authority. For this reason, we now deem
it necessary to examine the nature of a coal operating contract.
A coal operating contract is governed by P.D. No. 972 (The Coal
Development Act of 1976), as amended by P.D. No. 1174. It is
one of the authorized ways of active exploration, development,
and production of coal resources 19 in a specified contract
area. 20 Section 9 of the decree prescribes the obligation of the
contractor, thus:
Sec. 9. Obligations of Operator in Coal Operating Contract.
The operator under a coal operating contract shall undertake,
manage and execute the coal operations which shall include:
(a) The examination and investigation of lands supposed to
contain coal, by detailed surface geologic mapping, core
drilling, trenching, test pitting and other appropriate means,
for the purpose of probing the presence of coal deposits and
the extent thereof;
(b) Steps necessary to reach the coal deposit so that it can be
mined, including but not limited to shaft sinking and tunneling;
and
(c) The extraction and utilization of coal deposits.
The Government shall oversee the management of the
operation contemplated in a coal operating contract and in this
connection, shall require the operator to:
(a) Provide all the necessary service and technology;
(b) Provide the requisite financing;
(c) Perform the work obligations and program prescribed in
the coal operating contract which shall not be less than those
prescribed in this Decree;
(d) Operate the area on behalf of the Government in
accordance with good coal mining practices using modern
methods appropriate for the geological conditions of the area
to enable maximum economic production of coal, avoiding
hazards to life, health and property, avoiding pollution of air,
lands and waters, and pursuant to an efficient and economic
program of operation;
(e) Furnish the Energy Development Board promptly with all
information, data and reports which it may require;.
(f) Maintain detailed technical records and account of its
expenditures;
(g) Conform to regulations regarding, among others, safety
demarcation of agreement acreage and work areas, non-
interference
with the rights of the other petroleum, mineral and natural
resources operators;
(h) Maintain all necessary equipment in good order and allow
access to these as well as to the exploration, development and
production sites and operations to inspectors authorized by
the Energy Development Board;
(i) Allow representatives authorized by the Energy
Development Board full access to their accounts, books and
records for tax and other fiscal purposes.
Section 11 thereof provides for the minimum terms and
conditions of a coal operating contract.
From the foregoing, it is obvious that a scrutiny of the coal
operating contract of Bacaltos Coal Mines would have
provided SMC knowledge of the activities which are germane,
related, or incident to the power to use it. But it did not even
require Savellon to produce the same.
SMC's negligence was further compounded by its failure to
verify if Bacaltos Coal Mines owned a vessel. A party desiring
to charter a vessel must satisfy itself that the other party is the
owner of the vessel or is at least entitled to its possession with
power to lease or charter the vessel. In the instant case, SMC
made no such attempt. It merely satisfied itself with the claim
of Savellon that the vessel it was leasing is owned by Bacaltos
Coal Mines and relied on the presentation of the Authorization
as well as its test on the sea worthiness of the vessel.
Valdescona thus declared on direct examination as follows:
A In October, a certain Rene Savellon called our office offering
us shipping services. So I told him to give us a formal proposal
and also for him to come to our office so that we can go over
his proposal and formally discuss his offer.
Q Did Mr. Rene Savellon go to your office?
A Few days later he came to our office and gave us his proposal
verbally offering a vessel for us to use for our cargo.
Q Did he mention the owner of that vessel?
A Yes, sir. That it is Bacaltos.
Q Did he present a document to you?
A Yes, sir. He presented to us the authorization.
Q When Mr. Rene Savellon presented to you the authorization
what did you do?.
Page 49 of 62
A On the strength of that authorization we initially asked him
for us to check the vessel to see its sea worthiness, and we
assigned our in-house surveyor to check the sea worthiness of
the vessel which was on dry dock that time in Danao.
Q What was the result of your inspection?
A We found out the vessel's sea worthiness to be our cargo
carrier.
Q After that what did you do?
A After that we were discussing the condition of the contract.
Q Were you able to execute that contract?
A Yes, sir . 21
He further declared as follows:
Q When you entered into a trip charter contract did you check
the ownership of M/V Premship?
A The representation made by Mr. Rene Savellon was that
Bacaltos Coal Mines operates the vessel and on the strength of
the authorization he showed us we were made to believe that
it was Bacaltos Coal Mines that owned it.
COURT: (to witness)
Q In other words, you just believed Rene Savellon?
A Yes, sir.
COURT: (to witness)
Q You did not check with Bacaltos Coal Mines?
A That is the representation he made.
Q Did he show you document regarding this M/V Premship II?
A No document shown. 22
The Authorization itself does not state that Bacaltos Coal
Mines owns any vessel, and since it is clear therefrom that it is
not engaged in shipping but in coal mining or in coal business,
SMC should have required the presentation of pertinent
documentary proof of ownership of the vessel to be chartered.
Its in-house surveyor who saw the vessel while drydocked in
Danao and thereafter conducted a sea worthiness test could
not have failed to ascertain the registered owner of the vessel.
The petitioners themselves declared in open court that they
have not leased any vessel for they do not need it in their coal
operations 23 thereby implying that they do not even own one.
The Court of Appeals' asseveration that there was no need to
verify the ownership of the vessel because such ownership is
warranted on the face of the trip charter party begs the
question since Savellon's authority to enter into that contract
is the very heart of the controversy.
We are not prepared to accept SMC's contention that the
petitioners' claim that they are not engaged in shipping and do
not own any ship is belied by the fact that they maintained a
pre-printed business form known as a "Notice of Readiness"
(Exhibit "A-1"). 24 This paper is only a photocopy and, despite
its reservation to present the original for purposes of
comparison at the next
hearing, 25 SMC failed to produce the latter. This "Notice of
Readiness" is not, therefore, the best evidence, hence
inadmissible under Section 3, Rule 130 of the Rules of Court. It
is true that when SMC made a formal offer of its exhibits, the
petitioners did not object to the admission of Exhibit "A-1," the
"Notice of Readiness," under the best evidence rule but on the
ground that Savellon was not authorized to enter into the Trip
Charter Party and that the party who signed it, one Elmer
Baliquig, is not the petitioners' employee but of Premier
Shipping Lines, the owner of the vessel in question. 26 The
petitioners raised the issue of inadmissibility under the best
evidence rule only belatedly in this petition. But although
Exhibit "A-1" remains admissible for not having been timely
objected to, it has no probative value as to the ownership of the
vessel.
There is likewise no proof that the petitioners received the
consideration of the Trip Charter Party. The petitioners denied
having received it. 27 The evidence for SMC established beyond
doubt that it was Savellon who requested in writing on 19
October 1988 that the check in payment therefor be drawn in
favor of BACALTOS COAL MINES/RENE SAVELLON (Exhibit
"B-3") and that SMC drew the check in favor of RENE
SAVELLON IN TRUST FOR BACALTOS COALMINES (Exhibit
"B") and delivered it to Savellon who there upon issued a
receipt (Exhibit "B-1"). We agree with the petitioners that SMC
committed negligence in drawing the check in the manner
aforestated. It even disregarded the request of Savellon that it
be drawn in favor of BACALTOS COAL MINES/RENE
SAVELLON. Furthermore, assuming that the transaction was
permitted in the Authorization, the check should still have
been drawn in favor of the principal. SMC then made possible
the wrong done. There is an equitable maxim that between two
innocent parties, the one who made it possible for the wrong
to be done should be the one to bear the resulting loss. 28 For
this rule to apply, the condition precedent is that both parties
must be innocent. In the present case, however, SMC is guilty
of not ascertaining the extent and limits of the authority of
Savellon. In not doing so, SMC dealt with Savellon at its own
peril.
Having thus found that SMC was the author of its own damage
and that the petitioners are, therefore, free from any liability,
it has become unnecessary to discuss the issue of whether
Bacaltos Coal Mines is a corporation with a personality distinct
and separate from German Bacaltos.
WHEREFORE, the instant petition is GRANTED and the
challenged decision of 30 September 1993 of the Court of
Appeals in CA-G.R. CV No. 35180 is hereby REVERSED and SET
ASIDE and another judgment is hereby rendered MODIFYING
the judgment of the Regional Trial Court of Cebu, Branch 9, in
Civil Case No. CEB-8187 by setting aside the declaration of
solidary liability, holding defendant RENE R. SAVELLON solely
liable for the amounts adjudged, and ordering the dismissal of
the case as against herein petitioners.
SO ORDERED.
Page 50 of 62
THIRD DIVISION
G.R. No. 110668 February 6, 1997
SMITH, BELL & CO., INC., petitioner,
vs.
COURT OF APPEALS and JOSEPH BENGZON
CHUA, 1 respondents.
PANGANIBAN, J.:
The main issue raised in this case is whether a local claim or
settling agent is personally and/or solidarily liable upon a
marine insurance policy issued by its disclosed foreign
principal.
This is a petition for review on certiorari of the Decision of
respondent Court 2 promulgated on January 20, 1993 in CA-
G.R. CV No. 31812 affirming the decision 3 of the trial
court 4 which disposed as follows: 5
Wherefore, the Court renders judgment condemning the
defendants (petitioner and First Insurance Co. Ltd.) jointly and
severally to pay the plaintiff (private respondent) the amount
of US$7,359.78. plus 24% interest thereon annually until the
claim is fully paid, 10% as and for attorney's fees, and the cost.
The Facts
The facts are undisputed by the parties, 6 and are narrated by
respondent Court, quoting the trial court, as follows: 7
The undisputed facts of the case have been succintly (sic)
summarized by the lower court(,) as follows:
. . . in July 1982, the plaintiffs, doing business under the style of
Tic Hin Chiong, Importer, bought and imported to the
Philippines from the firm Chin Gact Co., Ltd. of Taipei; Taiwan,
50 metric tons of Dicalcium Phosphate, Feed Grade F-15%
valued at US$13,000.00 CIF Manila. These were contained in
1,250 bags and shipped from the Port of Kaohsiung, Taiwan on
Board S.S. "GOLDEN WEALTH" for the Port on (sic) Manila. On
July 27, 1982, this shipment was insured by the defendant First
Insurance Co. for US$19,500.00 "against all risks" at port of
departure under Marine Policy No. 1000M82070033219, with
the note "Claim, if any, payable in U.S. currency at Manila (Exh.
"1", 'D" for the plaintiff) and with defendant Smith, Bell, and
Co. stamped at the lower left side of the policy as "Claim
Agent."
The cargo arrived at the Port of Manila on September 1, 1982
aboard the above-mentioned carrying vessel and landed at
port on September 2, 1982. thereafter, the entire cargo was
discharged to the local arrastre contractor, Metroport Services
Inc. with a number of the cargo in apparent bad order
condition. On September 27, 1982, the plaintiff secured the
services of a cargo surveyor to conduct a survey of the
damaged cargo which were (sic) delivered by plaintiff's broker
on said date to the plaintiffs premises at 12th Avenue, Grace
Park, Caloocan City. The surveyor's report (Exh. "E") showed
that of the 1,250 bags of the imported material, 600 were
damaged by tearing at the sides of the container bags and the
contents partly empty. Upon weighing, the contents of the
damaged bags were found to be 18,546.0 kg short.
Accordingly, on October 16 following, the plaintiff filed with
Smith, Bell, and Co., Inc. a formal statement of claim (Exh. "G")
with proof of loss and a demand for settlement of the
corresponding value of the losses, in the sum of
US$7,357.78.00. (sic) After purportedly conveying the claim to
its principal, Smith, Bell, and Co., Inc. informed the plaintiff by
letter dated February 15, 1983 (Exh."G-2") that its principal
offered only 50% of the claim or US$3,616.17 as redress, on
the alleged ground of discrepancy between the amounts
contained in the shipping agent's reply to the claimant of only
US$90.48 with that of Metroport's. The offer not being
acceptable to the plaintiff, the latter wrote Smith, Bell, & Co.
expressing his refusal to the "redress" offer. contending that
the discrepancy was a result of loss from vessel to arrastre to
consignees' warehouse\which losses were still within the "all
risk" insurance cover. No settlement of the claim having been
made, the plaintiff then caused the instant case to be filed. (p.
2, RTC Decision; p. 142, Record).
Denying any liability, defendant-appellant averred in its
answer that it is merely a settling or claim agent of defendant
insurance company and as SUCH agent, it is not personally
liable under the policy in which it has not even taken part of. It
then alleged that plaintiff-appellee has no cause of action
against it.
Defendant The First Insurance Co. Ltd. did not file an Answer,
hence it was declared in default.
After due trial and proceeding, the lower court rendered a
decision favorable to plaintiff-appellee. It ruled that plaintiff-
appellee has fully established the liability of the insurance firm
on the subject insurance contract as the former presented
concrete evidence of the amount of losses resulting from the
risks insured against which were supported, by reliable report
and assessment of professional cargo surveyor. As regards
defendant-appellant, the lower court held that since it is
admittedly a claim agent of the foreign insurance firm doing
business in the Philippines justice is better served if said agent
is made liable without prejudice to its right of action against its
principal, the insurance firm. . . .
The Issue
"Whether or not a local settling or claim agent of a disclosed
principal a foreign insurance company can be held jointly
and severally liable with said principal under the latter's
marine cargo insurance policy, given that the agent is not a
party to the insurance contract" 8 is the sole issue-raised by
petitioner.
Petitioner rejects liability under the said insurance contract,
claiming that: (1) it is merely an agent and thus not personally
liable to the party with whom it contracts on behalf of its
principal; (2) it had no participation at all in the contract of
insurance; and (3) the suit is not brought against the real
party-in-interest. 9
On the other hand, respondent Court in ruling against
petitioner disposed of the main issue by citing a case it decided
in 1987, where petitioner was also a party-litigant. 10 In that
case, respondent Court held that petitioner as resident agent
Page 51 of 62
of First Insurance Co. Ltd. was "authorized to settle claims
against its principal. Its defense that its authority excluded
personal liability must be proven satisfactorily. There is a
complete dearth of evidence supportive of appellant's non-
responsibility as resident agent." The ruling continued with
the statement that "the interest of justice is better served by
holding the settling or claim agent jointly and severally liable
with its principal." 11
Likewise, private respondent disputed the applicability of the
cases of E Macias & Co. vs. Warner, Barnes & Co. 12and Salonga
vs. Warner, Barnes & Co., Ltd. 13 invoked by petitioner in its
appeal. According to private respondent, these two cases
impleaded only the "insurance agent" and did not include the
principal. While both the foreign principal which was
declared in default by the trial court and petitioner, as claim
agent, were found to be solidarily liable in this case, petitioner
still had "recourse" against its foreign principal. Also, being a
contract of adhesion, an insurance agreement must be strictly
construed against the insurer. 14
The Court's Ruling
There are three reasons why we find for petitioner.
First Reason: Existing Jurisprudence
Petitioner, undisputedly a settling agent acting within the
scope of its authority, cannot be held personally and/or
solidarily liable for the obligations of its disclosed principal
merely because there is allegedly a need for a speedy
settlement of the claim of private respondent. In the leading
case of Salonga vs. Warner, Barnes & Co., Ltd. this Court ruled
in this wise: 15
We agree with counsel for the appellee that the defendant is a
settlement and adjustment agent of the foreign insurance
company and that as such agent it has the authority to settle
all the losses and claims that may arise under the policies that
may be issued by or in behalf of said company in accordance
with the instructions it may receive from time to time from its
principal, but we disagree with counsel in his contention that
as such adjustment and settlement agent, the defendant has
assumed personal liability under said policies, and, therefore,
it can be sued in its own right. An adjustment and settlement
agent is no different from any other agent from the point of
view of his responsibility (sic), for he also acts in a
representative capacity. Whenever he adjusts or settles a
claim, he does it in behalf of his principal, and his action is
binding not upon himself but upon his principal. And here
again, the ordinary rule of agency applies. The following
authorities bear this out:
"An insurance adjuster is ordinarily a special agent for the
person or company for whom he acts, and his authority
is prima facie coextensive with the business intrusted to him. .
. ."
both of Taiwan, and was signed in Taipei, Taiwan by the
"An adjuster does not discharge functions of a quasi-judicial
nature, but represents his employer, to whom he owes faithful
service, and for his acts, in the employer's interest, the
employer is responsible so long as the acts are done while the
agent is acting within the scope of his employment." (45 C.J.S.,
1338- 1340.)
It, therefore, clearly appears that the scope and extent of the
functions of an adjustment and settlement agent do not include
personal liability. His functions are merely to settle and adjusts
claims in behalf of his principal if those claims are proven and
undisputed, and if the claim is disputed or is disapproved by the
principal, like in the instant case, the agent does not assume any
personal liability. The recourse of the insured is to press his
claim against the principal. (Emphasis supplied).
The foregoing doctrine may have been enunciated by this
Court in 1951, but the passage of time has not eroded its value
or merit. It still applies with equal force and vigor.
Private respondent's contention that Salonga does not apply
simply because only the agent was sued therein while here
both agent and principal were impleaded and found solidarily
liable is without merit.
Such distinction is immaterial. The agent can not be sued nor
held liable whether singly or solidarily with its principal.
Every cause of action ex contractu must be founded upon a
contract, oral or written, either express or implied. 16The only
"involvement" of petitioner in the subject contract of
insurance was having its name stamped at the bottom left
portion of the policy as "Claim Agent." Without anything else
to back it up, such stamp cannot even be deemed by the
remotest interpretation to mean that petitioner participated in
the preparation of said contract. Hence, there is no privity of
contract, and correspondingly there can be no obligation or
liability, and thus no Cause of action against petitioner
attaches. Under Article 1311 17 of the Civil Code, contracts are
binding only upon the parties (and their assigns and heirs)
who execute them. The subject cargo insurance was between
the First Insurance Company, Ltd. and the Chin Gact Co., Ltd.,
president of the First Insurance Company, Ltd. and the
president of the Chin Gact Co., Ltd. 18 There is absolutely
nothing in the contract which mentions the personal liability
of petitioner.
Second Reason: Absence of Solidarity Liability
May then petitioner, in its capacity as resident agent (as found
in the case cited by the respondent Court 19) be held solidarily
liable with the foreign insurer? Article 1207 of the Civil Code
clearly provides that "(t)here is a solidary liability only when
the obligation expressly so states, or when the law or the
nature of the obligation requires solidarity." The well-
entrenched rule is that solidary obligation cannot lightly be
inferred. It must be positively and clearly expressed. The
contention that, in the end, it would really be First Insurance
Company, Ltd. which would be held liable is specious and
cannot be accepted. Such a stance would inflict injustice upon
petitioner which would be made to advance the funds to settle
the claim without any assurance that it can collect from the
principal which disapproved such claim, in the first place.
More importantly, such ,position would have absolutely no
legal basis.
The Insurance Code is quite clear as to the Purpose and role of
a resident agent. Such agent, as a representative of the foreign
insurance company, is tasked only to receive legal processes
Page 52 of 62
on behalf of its principal and not to answer personally for any
insurance claims. We quote:
Sec. 190. The Commissioner must require as a condition
precedent to the transaction of insurance business in the
Philippines by any foreign insurance company, that such
company file in his office a written power of attorney
designating some person who shall be a resident of the
Philippines as its general agent, on whom any notice provided
by law or by any insurance policy, proof summons and other
legal processes may be served in all actions or other legal
proceedings against such company, and consenting that service
upon such general agent shall be admitted and held as valid as
if served upon the foreign company at its home office. Any such
foreign company shall, as further condition precedent to the
transaction of insurance business in the Philippines, make and
file with the Commissioner an agreement or stipulation,
executed by the proper authorities of said company in form
and substance as follows:
The (name of company) does hereby stipulate and agree in
consideration of the permission granted by the Insurance
Commissioner to transact business in the Philippines, that if at
any time such company shall leave the Philippines, or cease to
transact business therein, or shall be without any agent in the
Philippines on whom any notice, proof of loss, summons, or
legal process may be served, then in any action or proceeding
arising out of any business or transaction which occurred in
the Philippines, service of any notice provided by law, or
insurance policy, proof of loss, summons, or other legal
process may be made upon the Insurance Commissioner shall
have the same force and effect as if made upon the company.
Whenever such service of notice, proof of loss, summons or
other legal process shall be made upon the Commissioner he
must, within ten days thereafter, transmit by mail, postage
paid, a copy of such notice, proof of loss, summons, or other
legal process to the company at its home or principal office.
The sending of such copy of the Commissioner shall be
necessary part of the service of the notice, proof of loss, or
other legal process. (Emphasis supplied).
Further, we note that in the case cited by respondent Court,
petitioner was found to be a resident agent of First Insurance
Co. Ltd. In the instant case however, the trial court had to order
the service of summons upon First Insurance Co., Ltd. which
would not have been necessary if petitioner was its resident
agent. Indeed, from our reading of the records of this case, we
find no factual and legal bases for the finding of respondent
Court that petitioner is the resident agent of First Insurance
Co., Ltd.
Third Reason: Not Real Party-In-Interest
Lastly, being a mere agent and representative, petitioner is
also not the real party-in-interest in this case. An action is
brought for a practical purpose, that is, to obtain actual and
positive relief. If the party sued is not the proper party, any
decision that may be rendered against him would be futile, for
the decision cannot be enforced or executed. Section 2, Rule 3
of the Rules of Court identifies who the real parties-in-interest
are, thus:
Sec. 2. Parties in interest. Every action must be prosecuted
and defended in the name of the real party in interest. All
persons having an interest in the subject of the action and in
obtaining the relief demanded shall be joined as plaintiffs. All
persons who claim an interest in the controversy or the subject
thereof adverse to the, plaintiff, or who are necessary to a
complete determination or settlement of the questions
involved therein shall be joined as defendants.
The cause of action of private respondent is based on a
contract of insurance which as already shown was not
participated in by petitioner. It is not a "person who claim(s)
an interest adverse to the plaintiff" nor is said respondent
"necessary to a complete determination or settlement of the
questions involved" in the controversy. Petitioner is
improperly impleaded for not being a real-party-interest. It
will not benefit or suffer in case the action prospers. 20
Resort to Equity Misplaced
Finally, respondent Court also contends that "the interest of
justice is better served by holding the settling agent jointly and
severally liable with its principal." As no law backs up such
pronouncement, the appellate Court is thus resorting to equity.
However, equity which has been aptly described as "justice
outside legality," is availed of only in the absence of, and never
against, statutory law or judicial pronouncements. 21 Upon the
other hand the liability of agents is clearly provided for by our
laws and existing jurisprudence.
WHEREFORE, in view of the foregoing considerations, the
Petition is GRANTED and the Decision appealed from is
REVERSED and SET ASIDE.
No costs.
SO ORDERED.
[G.R. No. 126751. March 28, 2001]
SAFIC ALCAN & CIE, petitioner, vs. IMPERIAL VEGETABLE
OIL CO., INC., respondent.
DECISION
YNARES-SANTIAGO, J.:
Petitioner Safic Alcan & Cie (hereinafter, Safic) is a French
corporation engaged in the international purchase, sale and
trading of coconut oil. It filed with the Regional Trial Court of
Manila, Branch XXV, a complaint dated February 26, 1987
against private respondent Imperial Vegetable Oil Co., Inc.
(hereinafter, IVO), docketed as Civil Case No. 87-
39597. Petitioner Safic alleged that on July 1, 1986 and
September 25, 1986, it placed purchase orders with IVO for
2,000 long tons of crude coconut oil, valued at US$222.50 per
ton, covered by Purchase Contract Nos. A601446 and
A601655, respectively, to be delivered within the month of
January 1987. Private respondent, however, failed to deliver
the said coconut oil and, instead, offered a wash out
settlement, whereby the coconut oil subject of the purchase
contracts were to be sold back to IVO at the prevailing price in
Page 53 of 62
the international market at the time of wash out. Thus, IVO
bound itself to pay to Safic the difference between the said
prevailing price and the contract price of the 2,000 long tons
of crude coconut oil, which amounted to US$293,500.00. IVO
failed to pay this amount despite repeated oral and written
demands.
Under its second cause of action, Safic alleged that on eight
occasions between April 24, 1986 and October 31, 1986, it
placed purchase orders with IVO for a total of 4,750 tons of
crude coconut oil, covered by Purchase Contract Nos.
A601297A/B, A601384, A601385, A601391, A601415,
A601681, A601683 and A601770A/B/C/. When IVO failed to
honor its obligation under the wash out settlement narrated
above, Safic demanded that IVO make marginal deposits
within forty-eight hours on the eight purchase contracts in
amounts equivalent to the difference between the contract
price and the market price of the coconut oil, to compensate it
for the damages it suffered when it was forced to acquire
coconut oil at a higher price. IVO failed to make the prescribed
marginal deposits on the eight contracts, in the aggregate
amount of US$391,593.62, despite written demand therefor.
The demand for marginal deposits was based on the customs
of the trade, as governed by the provisions of the standard
N.I.O.P. Contract and the FOSFA Contract, to wit:
N.I.O.P. Contract, Rule 54 If the financial condition of either
party to a contract subject to these rules becomes so impaired
as to create a reasonable doubt as to the ability of such party
to perform its obligations under the contract, the other party
may from time to time demand marginal deposits to be made
within forty-eight (48) hours after receipt of such demand,
such deposits not to exceed the difference between the
contract price and the market price of the goods covered by
the contract on the day upon which such demand is made, such
deposit to bear interest at the prime rate plus one percent
(1%) per annum. Failure to make such deposit within the time
specified shall constitute a breach of contract by the party
upon whom demand for deposit is made, and all losses and
expenses resulting from such breach shall be for the account
of the party upon whom such demand is made. (Underscoring
ours.)[1]
FOSFA Contract, Rule 54 BANKRUPTCY/INSOLVENCY: If
before the fulfillment of this contract either party shall
suspend payment, commit an act of bankruptcy, notify any of
his creditors that he is unable to meet his debts or that he has
suspended payment or that he is about to suspend payment of
his debts, convene, call or hold a meeting either of his creditors
or to pass a resolution to go into liquidation (except for a
voluntary winding up of a solvent company for the purpose of
reconstruction or amalgamation) or shall apply for an official
moratorium, have a petition presented for winding up or 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
claim shall be liable to account for under this
contract (sic). Should either party be dissatisfied with the
price, the matter shall be referred to arbitration. Where no
such resale or repurchase takes place, the closing-out price
shall be fixed by a Price Settlement Committee appointed by
the Federation. (Underscoring ours.)[2]
Hence, Safic prayed that IVO be ordered to pay the sums of
US$293,500.00 and US$391,593.62, plus attorneys fees and
litigation expenses. The complaint also included an application
for a writ of preliminary attachment against the properties of
IVO.
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.
In its answer, IVO raised the following special affirmative
defenses: Safic had no legal capacity to sue because it was
doing business in the Philippines without the requisite license
or authority; the subject contracts were speculative contracts
entered into by 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 void.
IVO set up counterclaims anchored on harassment,
paralyzation of business, financial losses, rumor-mongering
and oppressive action. Later, IVO filed a supplemental
counterclaim alleging that it was unable to operate its business
normally because of the arrest of most of its physical assets;
that its suppliers were driven away; and that its major
creditors have inundated it with claims for immediate
payment of its debts, and China Banking Corporation had
foreclosed its chattel and real estate mortgages.
During the trial, the lower court found that in 1985, prior to
the date of the contracts sued upon, the parties had entered
into and consummated a number of contracts for the sale of
crude coconut oil. In those transactions, Safic placed several
orders and IVO faithfully filled up those orders by shipping out
the required crude coconut oil to Safic, totalling 3,500 metric
tons. Anent the 1986 contracts being sued upon, the trial court
refused to declare the same as gambling transactions, as
defined in Article 2018 of the Civil Code, although they
involved some degree of speculation. After all, the court noted,
every business enterprise carries with it a certain measure of
speculation or risk. However, the contracts performed in 1985,
on one hand, and the 1986 contracts subject of this case, on the
other hand, differed in that under the 1985 contracts,
deliveries were to be made within two months. This, as alleged
by Safic, was the time needed for milling and building up oil
inventory. Meanwhile, the 1986 contracts stipulated that the
coconut oil were to be delivered within period ranging from
eight months to eleven to twelve months after the placing of
orders. The coconuts that were supposed to be milled were in
Page 54 of 62
all likelihood not yet growing when Dominador Monteverde
sold the crude coconut oil. As such, the 1986 contracts
constituted trading in futures or in mere expectations.
The lower court further held that the subject contracts
were ultra vires and were entered into by Dominador
Monteverde without authority from the Board of Directors. It
distinguished between the 1985 contracts, where Safic
likewise dealt with Dominador Monteverde, who was
presumably authorized to bind IVO, and the 1986 contracts,
which were highly speculative in character. Moreover, the
1985 contracts were covered by letters of credit, while the
1986 contracts were payable by telegraphic transfers, which
were nothing more than mere promises to pay once the
shipments became ready. For these reasons, the lower court
held that Safic cannot invoke the 1985 contracts as an implied
corporate sanction for the high-risk 1986 contracts, which
were evidently entered into by Monteverde for his personal
benefit.
The trial court ruled that Safic failed to substantiate its claim
for actual damages. Likewise, it rejected IVOs counterclaim
and supplemental counterclaim.
Thus, on August 28, 1992, the trial court rendered judgment as
follows:
WHEREFORE, judgment is hereby rendered dismissing the
complaint of plaintiff Safic Alcan & Cie, without prejudice to
any action it might subsequently institute against Dominador
Monteverde, the former President of Imperial Vegetable Oil
Co., Inc., arising from the subject matter of this case. The
counterclaim and supplemental counterclaim of the latter
defendant are likewise hereby dismissed for lack of merit. No
pronouncement as to costs.
The writ of preliminary attachment issued in this case as well
as the order placing Imperial Vegetable Oil Co., Inc. under
receivership are hereby dissolved and set aside.[3]
Both IVO and Safic appealed to the Court of Appeals, jointly
docketed as CA-G.R. CV No. 40820.
IVO raised only one assignment of error, viz:
THE TRIAL COURT ERRED IN HOLDING THAT THE ISSUANCE
OF THE WRIT OF PRELIMINARY ATTACHMENT WAS NOT
THE MAIN CAUSE OF THE DAMAGES SUFFERED BY
DEFENDANT AND IN NOT AWARDING DEFENDANT-
APPELLANT SUCH DAMAGES.
For its part, Safic argued that:
THE TRIAL COURT ERRED IN HOLDING THAT IVOS
PRESIDENT, DOMINADOR MONTEVERDE, ENTERED INTO
CONTRACTS WHICH WERE ULTRA VIRES AND WHICH DID
NOT BIND OR MAKE IVO LIABLE.
THE TRIAL COURT ERRED IN HOLDING THAT SAFIC WAS
UNABLE TO PROVE THE DAMAGES SUFFERED BY IT AND IN
NOT AWARDING SUCH DAMAGES.
THE TRIAL COURT ERRED IN NOT HOLDING THAT IVO IS
LIABLE UNDER THE WASH OUT CONTRACTS.
On September 12, 1996, the Court of Appeals rendered the
assailed Decision dismissing the appeals and affirming the
judgment appealed from in toto.[4]
Hence, Safic filed the instant petition for review with this
Court, substantially reiterating the errors it raised before the
Court of Appeals and maintaining that the Court of Appeals
grievously erred when:
a. it declared that the 1986 forward contracts (i.e., Contracts
Nos. A601446 and A60155 (sic) involving 2,000 long tons of
crude coconut oil, and Contracts Nos. 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 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 were not gambling; (iii) it relied on the testimony of
Mr. Rodrigo Monteverde in concluding that the IVO Board of
Directors did not authorize its President, Dominador
Monteverde, to enter into the 1986 forward contracts; and (iv)
it did not find IVO, in any case, estopped from denying
responsibility for, and liability under, the 1986 forward
contracts because IVO had recognized itself bound to similar
forward contracts which Dominador Monteverde entered into
(for and on behalf of IVO) with Safic in 1985 notwithstanding
that Dominador Monteverde was (like in the 1986 forward
contracts) not expressly authorized by the IVO Board of
Directors to enter into such forward contracts;
b. it declared that Safic was not able to prove damages suffered
by it, despite the fact that Safic had presented not only
testimonial, but also documentary, evidence which proved the
higher amount it had to pay for crude coconut oil (vis--vis the
contract price it was to pay to IVO) when IVO refused to deliver
the crude coconut oil bought by Safic under the 1986 forward
contracts; and
c. it failed to resolve the issue of whether or not IVO is liable to
Safic under the wash out contracts involving Contracts Nos.
A601446 and A60155 (sic), despite the fact that Safic had
properly raised the issue on its appeal, and the evidence and
the law support Safics position that IVO is so liable to Safic.
In fine, Safic insists that the appellate court grievously erred
when it did not declare that IVOs President, Dominador
Monteverde, validly entered into the 1986 contracts for and on
behalf of IVO.
We disagree.
Page 55 of 62
Article III, Section 3 [g] of the By-Laws[5] of IVO provides,
among others, that
Section 3. Powers and Duties of the President. The President
shall be elected by the Board of Directors from their own
number.
He shall have the following duties:
xxxxxxxxx
[g] Have direct and active management of the business and
operation of the corporation, conducting the same according
to the orders, resolutions and instruction of the Board of
Directors and according to his own discretion whenever and
wherever the same is not expressly limited by such orders,
resolutions and instructions.
It can be clearly seen from the foregoing provision of IVOs By-
laws that Monteverde had no blanket authority to bind IVO to
any contract. He must act according to the instructions of the
Board of Directors. Even in instances when he was authorized
to act according to his discretion, that discretion must not
conflict with prior Board orders, resolutions and
instructions. The evidence shows that the IVO Board knew
nothing of the 1986 contracts[6] and that it did not authorize
Monteverde to enter into speculative contracts. [7] In fact,
Monteverde had earlier proposed that the company engage in
such transactions but the IVO Board rejected his
proposal.[8] Since the 1986 contracts marked a sharp
departure from past IVO transactions, Safic should have
obtained from Monteverde the prior authorization of the IVO
Board. Safic can not rely on the doctrine of implied agency
because before the controversial 1986 contracts, IVO did not
enter into identical contracts with Safic. The basis for agency
is representation and a person dealing with an agent is put
upon inquiry and must discover upon his peril the authority of
the agent.[9] In the case of Bacaltos Coal Mines v. Court of
Appeals,[10] we elucidated the rule on dealing with an agent
thus:
Every person dealing with an agent is put upon inquiry and
must discover upon his peril the authority of the agent. If he
does not make such inquiry, he is chargeable with knowledge
of the agents authority, and his ignorance of that authority will
not be any excuse. Persons dealing with an assumed agent,
whether the assumed agency be a general or special one, are
bound at their peril, if they would hold the principal, to
ascertain not only the fact of the agency but also the nature and
extent of the authority, and in case either is controverted, the
burden of proof is upon them to establish it.[11]
The most prudent thing petitioner should have done was to
ascertain the extent of the authority of Dominador
Monteverde. Being remiss in this regard, petitioner can not
seek relief on the basis of a supposed agency.
Under Article 1898[12] of the Civil Code, the acts of an agent
beyond the scope of his authority do not bind the principal
unless the latter ratifies the same expressly or impliedly. It
also bears emphasizing that when the third person knows that
the agent was acting beyond his power or authority, the
principal can not be held liable for the acts of the agent. If the
said third person is aware of such limits of authority, he is to
blame, and is not entitled to recover damages from the agent,
unless the latter undertook to secure the principals
ratification.[13]
There was no such ratification in this case. When Monteverde
entered into the speculative contracts with Safic, he did not
secure the Boards approval.[14] He also did not submit the
contracts to the Board after their consummation so there was,
in fact, no occasion at all for ratification. The contracts were
not reported in IVOs export sales book and turn-out
book.[15] Neither were they reflected in other books and
records of the corporation.[16] It must be pointed out that the
Board of Directors, not Monteverde, exercises corporate
power.[17] Clearly, Monteverdes speculative contracts with
Safic never bound IVO and Safic can not therefore enforce
those contracts against IVO.
To bolster its cause, Safic raises the novel point that the IVO
Board of Directors did not set limitations on the extent of
Monteverdes authority to sell coconut oil. It must be borne in
mind in this regard that a question that was never raised in the
courts below can not be allowed to be raised for the first time
on appeal without offending basic rules of fair play, justice and
due process.[18] Such an issue was not brought to the fore
either in the trial court or the appellate court, and would have
been disregarded by the latter tribunal for the reasons
previously stated. With more reason, the same does not
deserve consideration by this Court.
Be that as it may, Safics belated contention that the IVO Board
of 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 company to engaged (sic) or to
purely engaged (sic)in physical trading.
Q. What do you mean by physical trading?
A. Physical Trading means we buy and sell copras that are only
available to us. We only have to sell the available stocks in our
inventory.
Q. And what is the other form of trading?
Page 56 of 62
Atty. Fernando
No basis, your Honor.
Atty. Abad
Well, the witness said they are engaged in physical trading and
what I am saying [is] if there are any other kind or form of
trading.
Court
Witness may answer if he knows.
Witness
A. Trading future[s] contracts wherein the trader commits a
price and to deliver coconut oil in the future in which he is yet
to acquire the stocks in the future.
Atty. Abad
Q. Who established the so-called physical trading in IVO?
A. The Board of Directors, sir.
Atty. Abad.
Q. How did you know that?
A. There was a meeting held in the office at the factory and it
was brought out and suggested by our former president,
Dominador Monteverde, that the company should engaged
(sic) in future[s] contract[s] but it was rejected by the Board of
Directors. It was only Ador Monteverde who then wanted to
engaged (sic) in this future[s] contract[s].
Q. Do you know where this meeting took place?
A. As far as I know it was sometime in 1985.
Q. Do you know why the Board of Directors rejected the
proposal of Dominador Monteverde that the company should
engaged (sic) in future[s] contracts?
Atty. Fernando
Objection, your Honor, no basis.
Court
Why dont you lay the basis?
Atty. Abad
Q. Were you a member of the board at the time?
A. In 1975, I am already a stockholder and a member.
Q. Then would [you] now answer my question?
Atty. Fernando
No basis, your Honor. What we are talking is about 1985.
Atty. Abad
Q. When you mentioned about the meeting in 1985 wherein
the Board of Directors rejected the future[s] contract[s], were
you already a member of the Board of Directors at that time?
A. Yes, sir.
Q. Do you know the reason why the said proposal of Mr.
Dominador Monteverde to engage in future[s] contract[s] was
rejected by the Board of Directors?
A. Because this future[s] contract is too risky and it partakes of
gambling.
Q. Do you keep records of the Board meetings of the company?
A. Yes, sir.
Q. Do you have a copy of the minutes of your meeting in 1985?
A. Incidentally our Secretary of the Board of Directors, Mr.
Elfren Sarte, died in 1987 or 1988, and despite [the] request of
our office for us to be furnished a copy he was not able to
furnish us a copy.[19]
xxxxxxxxx
Atty. Abad
Q. You said the Board of Directors were against the company
engaging in future[s] contracts. As far as you know, has this
policy of the Board of Directors been observed or followed?
Witness
A. Yes, sir.
Q. How far has this Dominador Monteverde been using the
name of I.V.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 books of accounts.
Atty. Abad
Q. What do you mean by that the future[s] contracts were not
entered into the books of accounts of the company?
Witness
A. Those were not recorded at all in the books of accounts of
the company, sir.[20]
xxxxxxxxx
Q. What did you do when you discovered these transactions?
A. There was again a meeting by the Board of Directors of the
corporation and that we agreed to remove the president and
then I was made to replace him as president.
Q. What else?
A. And a resolution was passed disowning the illegal activities
of the former president.[21]
Petitioner next argues that there was actually no difference
between the 1985 physical contracts and the 1986 futures
contracts.
The contention is unpersuasive for, as aptly pointed out by the
trial court and sustained by the appellate court
Page 57 of 62
Rejecting IVOs position, SAFIC claims that there is no
distinction between the 1985 and 1986 contracts, both of
which groups of contracts were signed or authorized by IVOs
President, Dominador Monteverde. The 1986 contracts, SAFIC
would bewail, were similarly with their 1985 predecessors,
forward sales contracts in which IVO had undertaken to
deliver the crude coconut oil months after such contracts were
entered into. The lead time between the closing of the deal and
the delivery of the oil supposedly allowed the seller to
accumulate enough copra to mill and to build up its inventory
and so meet its delivery commitment to its foreign
buyers. SAFIC concludes that the 1986 contracts were equally
binding, as the 1985 contracts were, on IVO.
Subjecting the evidence on both sides to close scrutiny, the
Court has found some remarkable distinctions between the
1985 and 1986 contracts. x x x
1. The 1985 contracts were performed within an average of
two months from the date of the sale. On the other hand, the
1986 contracts were to be performed within an average of
eight and a half months from the dates of the sale. All the
supposed performances fell in 1987. Indeed, the contract
covered by Exhibit J was to be performed 11 to 12 months from
the execution of the contract. These pattern (sic) belies
plaintiffs contention that the lead time merely allowed for
milling and building up of oil inventory. It is evident that the
1986 contracts constituted trading in futures or in mere
expectations. In all likelihood, the coconuts that were
supposed to be milled for oil were not yet on their trees when
Dominador Monteverde sold the crude oil to SAFIC.
2. The mode of payment agreed on by the parties in their 1985
contracts was uniformly thru the opening of a letter of credit
LC by SAFIC in favor of IVO. Since the buyers letter of credit
guarantees payment to the seller as soon as the latter is able to
present the shipping documents covering the cargo, its
opening usually mark[s] the fact that the transaction would be
consummated. On the other hand, seven out of the ten 1986
contracts were to be paid by telegraphic transfer upon
presentation of the shipping documents. Unlike the letter of
credit, a mere promise to pay by telegraphic transfer gives no
assurance of [the] buyers compliance with its contracts. This
fact lends an uncertain element in the 1986 contracts.
3. Apart from the above, it is not disputed that with respect to
the 1985 contracts, IVO faithfully complied with Central Bank
Circular No. 151 dated April 1, 1963, requiring a coconut oil
exporter to submit a Report of Foreign Sales within twenty-
four (24) hours after the closing of the relative sales contract
with a foreign buyer of coconut oil. But with respect to the
disputed 1986 contracts, the parties stipulated during the
hearing that none of these contracts were ever reported to the
Central Bank, in violation of its above requirement. (See
Stipulation of Facts dated June 13, 1990). The 1986 sales were,
therefore suspect.
4. It is not disputed that, unlike the 1985 contacts, the 1986
contracts were never recorded either in the 1986 accounting
books of IVO or in its annual financial statement for 1986, a
document that was prepared prior to the
controversy. (Exhibits 6 to 6-0 and 7 to 7-I). Emelita Ortega,
formerly an assistant of Dominador Monteverde, testified that
they were strange goings-on about the 1986 contract. They
were neither recorded in the books nor reported to the Central
Bank. What is more, in those unreported cases where profits
were made, such profits were ordered remitted to unknown
accounts in California, U.S.A., by Dominador Monteverde.
xxxxxxxxx
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 default.
We remain unconvinced. The so-called wash out agreements
are clearly ultra vires and not binding on IVO. Furthermore,
such agreements did not prove 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
with respect to quantity, price and date of delivery? 2.] Did
Safic pay damages to its buyers? Where were the receipts? Did
Safic have to procure the equivalent oil from other sources? If
so, who were these sources? Where were their contracts and
what were the terms of these contracts as to quantity, price
and date of delivery?
The records disclose that during the course of the proceedings
in the trial court, IVO filed an amended 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
Page 58 of 62
what, which documents to locate and produce considering
plaintiff to be (without doubt) a reputable going concern in the
management of the affairs which is serviced by competent,
industrious, hardworking and diligent personnel; thirdly, the
desired production and inspection of the documents was
precipitated by the testimony of plaintiffs witness (Donald
OMeara) who admitted, in open court, that they are
available. If the said witness represented that the documents,
as generally described, are available, reason there would be
none for the same witness to say later that they could not be
produced, even after they have been clearly described.
Besides, if the Court may additionally dwell on the issue of
damages, the production and inspection of the desired
documents would be of tremendous help in the ultimate
resolution thereof. Plaintiff claims for the award of liquidated
or actual damages to the tune of US$391,593.62 which,
certainly, is a huge amount in terms of pesos, and which
defendant disputes. As the defendant cannot be precluded in
taking exceptions to the correctness and validity of such claim
which plaintiffs witness (Donald OMeara) testified to, and as,
by this nature of the plaintiffs claim for damages, proof thereof
is a must which can be better served, if not amply ascertained
by examining the records of the related sales admitted to be in
plaintiffs possession, the amended motion for production and
inspection of the defendant is in order.
The interest of justice will be served best, if there would be a
full disclosure by the parties on both sides of all documents
related to the transactions in litigation.
Notwithstanding the foregoing ruling of the trial court, Safic
did not produce the required documents, prompting the
court a quo to assume that if produced, the documents would
have been adverse to Safics cause. In its efforts to bolster its
claim for damages it purportedly sustained, Safic suggests a
substitute mode of computing its damages by getting the
average price it paid for certain quantities of coconut oil that it
allegedly bought in 1987 and deducting this from the average
price of the 1986 contracts. But this mode of computation if
flawed because: 1.] it is conjectural since it rests on average
prices not on actual prices multiplied by the actual volume of
coconut oil per contract; and 2.] it is based on the unproven
assumption that the 1987 contracts of purchase provided the
coconut oil needed to make up for the failed 1986
contracts. There is also no evidence that Safic had contracted
to supply third parties with coconut oil from the 1986
contracts and that Safic had to buy such oil from others to meet
the requirement.
Along the same vein, it is worthy to note that the quantities of
oil covered by its 1987 contracts with third parties do not
match the quantities of oil provided under the 1986
contracts. Had Safic produced the documents that the trial
court required, a substantially correct determination of its
actual damages would have been possible. This, unfortunately,
was not the case. Suffice it to state in this regard that [T]he
power of the courts to grant damages and attorneys fees
demands factual, legal and equitable justification; its basis
cannot be left to speculation and conjecture.[25]
WHEREFORE, in view of all the foregoing, the petition is
DENIED for lack of merit.
SO ORDERED.
FIRST DIVISION
G.R. No. 95703 August 3, 1992
RURAL BANK OF BOMBON (CAMARINES SUR),
INC., petitioner,
vs.
HON. COURT OF APPEALS, EDERLINDA M. GALLARDO,
DANIEL MANZO and RUFINO S. AQUINO, respondents.
L.M. Maggay & Associates for petitioner.
GRIO-AQUINO, J.:
This petition for review seeks reversal of the decision dated
September 18, 1990 of the Court of Appeals, reversing the
decision of the Regional Trial Court of Makati, Branch 150,
which dismissed the private respondents' complaint and
awarded damages to the petitioner, Rural Bank of Bombon.
On January 12, 1981, Ederlinda M. Gallardo, married to Daniel
Manzo, executed a special power of attorney in favor of Rufina
S. Aquino authorizing him:
1. To secure a loan from any bank or lending institution for any
amount or otherwise mortgage the property covered by
Transfer Certificate of Title No. S-79238 situated at Las Pias,
Rizal, the same being my paraphernal property, and in that
connection, to sign, or execute any deed of mortgage and sign
other document requisite and necessary in securing said loan
and to receive the proceeds thereof in cash or in check and to
sign the receipt therefor and thereafter endorse the check
representing the proceeds of loan. (p. 10, Rollo.)
Thereupon, Gallardo delivered to Aquino both the special
power of attorney and her owner's copy of Transfer Certificate
of Title No. S-79238 (19963-A).
On August 26, 1981, a Deed of Real Estate Mortgage was
executed by Rufino S. Aquino in favor of the Rural Bank of
Bombon (Camarines Sur), Inc. (hereafter, defendant Rural
Bank) over the three parcels of land covered by TCT No. S-
79238. The deed stated that the property was being given as
security for the payment of "certain loans, advances, or other
accommodations obtained by the mortgagor from the
mortgagee in the total sum of Three Hundred Fifty Thousand
Pesos only (P350,000.00), plus interest at the rate of fourteen
(14%) per annum . . ." (p. 11, Rollo).
On January 6, 1984, the spouses Ederlinda Gallardo and Daniel
Manzo filed an action against Rufino Aquino and the Bank
because Aquino allegedly left his residence at San Pascual,
Hagonoy, Bulacan, and transferred to an unknown place in
Bicol. She discovered that Aquino first resided at Sta. Isabel,
Calabanga, Camarines Sur, and then later, at San Vicente,
Calabanga, Camarines Sur, and that they (plaintiffs) were
Page 59 of 62
allegedly surprised to discover that the property was
mortgaged to pay personal loans obtained by Aquino from the
Bank solely for personal use and benefit of Aquino; that the
mortgagor in the deed was defendant Aquino instead of
plaintiff Gallardo whose address up to now is Manuyo, Las
Pias, M.M., per the title (TCT No. S-79238) and in the deed
vesting power of attorney to Aquino; that correspondence
relative to the mortgage was sent to Aquino's address at "Sta.
Isabel, Calabanga, Camarines Sur" instead of Gallardo's postal
address at Las Pias, Metro Manila; and that defendant Aquino,
in the real estate mortgage, appointed defendant Rural Bank
as attorney in fact, and in case of judicial foreclosure as
receiver with corresponding power to sell and that although
without any express authority from Gallardo, defendant
Aquino waived Gallardo's rights under Section 12, Rule 39, of
the Rules of Court and the proper venue of the foreclosure suit.
On January 23, 1984, the trial court, thru the Honorable
Fernando P. Agdamag, temporarily restrained the Rural Bank
"from enforcing the real estate mortgage and from foreclosing
it either judicially or extrajudicially until further orders from
the court" (p.36, Rollo).
Rufino S. Aquino in his answer said that the plaintiff
authorized him to mortgage her property to a bank so that he
could use the proceeds to liquidate her obligation of P350,000
to him. The obligation to pay the Rural Bank devolved on
Gallardo. Of late, however, she asked him to pay the Bank but
defendant Aquino set terms and conditions which plaintiff did
not agree to. Aquino asked for payment to him of moral
damages in the sum of P50,000 and lawyer's fees of P35,000.
The Bank moved to dismiss the complaint and filed counter-
claims for litigation expenses, exemplary damages, and
attorney's fees. It also filed a crossclaim against Aquino for
P350,000 with interest, other bank charges and damages if the
mortgage be declared unauthorized.
Meanwhile, on August 30, 1984, the Bank filed a complaint
against Ederlinda Gallardo and Rufino Aquino for "Foreclosure
of Mortgage" docketed as Civil Case No. 8330 in Branch 141,
RTC Makati. On motion of the plaintiff, the foreclosure case and
the annulment case (Civil Case No. 6062) were consolidated.
On January 16, 1986, the trial court rendered a summary
judgment in Civil Case No. 6062, dismissing the complaint for
annulment of mortgage and declaring the Rural Bank entitled
to damages the amount of which will be determined in
appropriate proceedings. The court lifted the writ of
preliminary injunction it previously issued.
under the special power of attorney she made in his favor
On April 23, 1986, the trial court, in Civil Case No. 8330, issued
an order suspending the foreclosure proceedings until after
the decision in the annulment case (Civil Case No. 6062) shall
have become final and executory.
The plaintiff in Civil Case No. 6062 appealed to the Court of
Appeals, which on September 18, 1990, reversed the trial
court. The dispositive portion of the decision reads:
UPON ALL THESE, the summary judgment entered by the
lower court is hereby REVERSED and in lieu thereof, judgment
is hereby RENDERED, declaring the deed of real estate
mortgage dated August 26, 1981, executed between Rufino S.
Aquino with the marital consent of his wife Bibiana Aquino
with the appellee Rural Bank of Bombon, Camarines Sur,
unauthorized, void and unenforceable against plaintiff
Ederlinda Gallardo; ordering the reinstatement of the
preliminary injunction issued at the onset of the case and at
the same time, ordering said injunction made permanent.
Appellee Rural Bank to pay the costs. (p. 46, Rollo.)
Hence, this petition for review by the Rural Bank of Bombon,
Camarines Sur, alleging that the Court of Appeals erred:
1. in declaring that the Deed of Real Estate Mortgage was
unauthorized, void, and unenforceable against the private
respondent Ederlinda Gallardo; and
2. in not upholding the validity of the Real Estate Mortgage
executed by Rufino S. Aquino as attorney-in-fact for Gallardo,
in favor of the Rural Bank of Bombon, (Cam. Sur), Inc.
Both assignments of error boil down to the lone issue of the
validity of the Deed of Real Estate Mortgage dated August 26,
1981, executed by Rufino S. Aquino, as attorney-in-fact of
Ederlinda Gallardo, in favor of the Rural Bank of Bombon (Cam.
Sur), Inc.
The Rural Bank contends that the real estate mortgage
executed by respondent Aquino is valid because he was
expressly authorized by Gallardo to mortgage her property
which was duly registered and annotated on Gallardo's title.
Since the Special Power of Attorney did not specify or indicate
that the loan would be for Gallardo's benefit, then it could be
for the use and benefit of the attorney-in-fact, Aquino.
However, the Court of Appeals ruled otherwise. It held:
The Special Power of Attorney above quoted shows the extent
of authority given by the plaintiff to defendant Aquino. But
defendant Aquino in executing the deed of Real Estate
Mortgage in favor of the rural bank over the three parcels of
land covered by Gallardo's title named himself as the
mortgagor without stating that his signature on the deed was
for and in behalf of Ederlinda Gallardo in his capacity as her
attorney-in-fact.
At the beginning of the deed mention was made of "attorney-
in-fact of Ederlinda H. Gallardo," thus: " (T)his MORTGAGE
executed by Rufino S. Aquino attorney in fact of Ederlinda H.
Gallardo, of legal age, Filipino, married to Bibiana Panganiban
with postal address at Sta. Isabel . . .," but which of itself, was
merely descriptive of the person of defendant Aquino.
Defendant Aquino even signed it plainly as mortgagor with the
marital consent yet of his wife Bibiana P. Aquino who signed
the deed as "wife of mortgagor."
xxx xxx xxx
The three (3) promissory notes respectively dated August 31,
1981, September 23, 1981 and October 26, 1981, were each
signed by Rufino Aquino on top of a line beneath which is
written "signature of mortgagor" and by Bibiana P. Aquino on
top of a line under which is written "signature of spouse,"
Page 60 of 62
without any mention that execution thereof was for and in
behalf of the plaintiff as mortgagor. It results, borne out from
what were written on the deed, that the amounts were the
personal loans of defendant Aquino. As pointed out by the
appellant, Aquino's wife has not been appointed co-agent of
defendant Aquino and her signature on the deed and on the
promissory notes can only mean that the obligation was
personally incurred by them and for their own personal
account.
The deed of mortgage stipulated that the amount obtained
from the loans shall be used or applied only for "fishpond
(bangus and sugpo production)." As pointed out by the
plaintiff, the defendant Rural Bank in its Answer had not
categorically denied the allegation in the complaint that
defendant Aquino in the deed of mortgage was the intended
user and beneficiary of the loans and not the plaintiff. And the
special power of attorney could not be stretched to include the
authority to obtain a loan in said defendant Aquino's own
benefit. (pp. 40-41, Rollo.)
The decision of the Court of Appeals is correct. This case is
governed by the general rule in the law of agency which this
Court, applied in "Philippine Sugar Estates Development Co.
vs. Poizat," 48 Phil. 536, 538:
It is a general rule in the law of agency that, in order to bind
the principal by a mortgage on real property executed by an
agent, it must upon its face purport to be made, signed and
sealed in the name of the principal, otherwise, it will bind the
agent only. It is not enough merely that the agent was in fact
authorized to make the mortgage, if he has not acted in the
name of the principal. Neither is it ordinarily sufficient that in
the mortgage the agent describes himself as acting by virtue of
a power of attorney, if in fact the agent has acted in his own
name and has set his own hand and seal to the mortgage. This
is especially true where the agent himself is a party to the
instrument. However clearly the body of the mortgage may
show and intend that it shall be the act of the principal, yet,
unless in fact it is executed by the agent for and on behalf of his
principal and as the act and deed of the principal, it is not valid
as to the principal.
In view of this rule, Aquino's act of signing the Deed of Real
Estate Mortgage in his name alone as mortgagor, without any
indication that he was signing for and in behalf of the property
owner, Ederlinda Gallardo, bound himself alone in his personal
capacity as a debtor of the petitioner Bank and not as the agent
or attorney-in-fact of Gallardo. The Court of Appeals further
observed:
It will also be observed that the deed of mortgage was
executed on August 26, 1981 therein clearly stipulating that it
was being executed "as security for the payment of certain
loans, advances or other accommodation obtained by the
Mortgagor from the Mortgagee in the total sum of Three
Hundred Fifty Thousand Pesos only (P350,000.00)" although
at the time no such loan or advance had been obtained. The
promissory notes were dated August 31, September 23 and
October 26, 1981 which were subsequent to the execution of
the deed of mortgage. The appellant is correct in claiming that
the defendant Rural Bank should not have agreed to extend or
constitute the mortgage on the properties of Gallardo who had
no existing indebtedness with it at the time.
Under the facts the defendant Rural Bank appeared to have
ignored the representative capacity of Aquino and dealt with
him and his wife in their personal capacities. Said appellee
Rural Bank also did not conduct an inquiry on whether the
subject loans were to benefit the interest of the principal
(plaintiff Gallardo) rather than that of the agent although the
deed of mortgage was explicit that the loan was for purpose of
the bangus and sugpo production of defendant Aquino.
In effect, with the execution of the mortgage under the
circumstances and assuming it to be valid but because the loan
taken was to be used exclusively for Aquino's business in the
"bangus" and "sugpo" production, Gallardo in effect becomes a
surety who is made primarily answerable for loans taken by
Aquino in his personal capacity in the event Aquino defaults in
such payment. Under Art. 1878 of the Civil Code, to obligate the
principal as a guarantor or surety, a special power of attorney
is required. No such special power of attorney for Gallardo to
be a surety of Aquino had been executed. (pp. 42-43, Rollo.)
Petitioner claims that the Deed of Real Estate Mortgage is
enforceable against Gallardo since it was executed in
accordance with Article 1883 which provides:
Art. 1883. If an agent acts in his own name, the principal has
no right of action against the persons with whom the agent has
contracted; neither have such persons against the principal.
In such case the agent is the one directly bound in favor of the
person with whom he has contracted, as if the transaction
were his own, except when the contract involves things
belonging to the principal.
The above provision of the Civil Code relied upon by the
petitioner Bank, is not applicable to the case at bar. Herein
respondent Aquino acted purportedly as an agent of Gallardo,
but actually acted in his personal capacity. Involved herein are
properties titled in the name of respondent Gallardo against
which the Bank proposes to foreclose the mortgage
constituted by an agent (Aquino) acting in his personal
capacity. Under these circumstances, we hold, as we did
in Philippine Sugar Estates Development Co. vs. Poizat, supra,
that Gallardo's property is not liable on the real estate
mortgage:
There is no principle of law by which a person can become
liable on a real mortgage which she never executed either in
person or by attorney in fact. It should be noted that this is a
mortgage upon real property, the title to which cannot be
divested except by sale on execution or the formalities of a will
or deed. For such reasons, the law requires that a power of
attorney to mortgage or sell real property should be executed
with all of the formalities required in a deed. For the same
reason that the personal signature of Poizat, standing alone,
would not convey the title of his wife in her own real property,
such a signature would not bind her as a mortgagor in real
property, the title to which was in her name. (p. 548.)
WHEREFORE, finding no reversible error in the decision of the
Court of Appeals, we AFFIRM it in toto. Costs against the
petitioner.
SO ORDERED.
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