C.
THE AGENT
48 - G.R. No. 15823 September 12, 1921
JULIO DANON, plaintiff-appellee,
vs.
ANTONIO A. BRIMO & CO., defendant-appellant.
JOHNSON, J.:
This action was brought to recover the sum of P60,000, alleged to be the value of services
rendered to the defendant by the plaintiff as a broker. The plaintiff alleges that in the month of
August, 1918, the defendant company, through its manager, Antonio A. Brimo, employed him to
look for a purchaser of its factory known as "Holland American Oil Co.," for the sum of P1,200,000,
payable in cash; that the defendant promised to pay the plaintiff, as compensation for his services,
a commission of five per cent on the said sum of P1,200,000, if the sale was consummated, or if
the plaintiff should find a purchaser ready, able and willing to buy said factory for the said sum of
P1,200,000; that subsequently the plaintiff found such a purchaser, but that the defendant refused
to sell the said factory without any justifiable motive or reason therefor and without having
previously notified the plaintiff of its desistance or variation in the price and terms of the sale.
To that complaint the defendant interposed a general denial. Upon the issue thus presented, the
Honorable Simplicio del Rosario, judge, after hearing and considering the evidence adduced during
the trial of the cause, rendered a judgment in favor of the plaintiff and against the defendant for the
sum of P60,000, with costs. From that judgment the defendant appealed to this court.
The proof with regard to the authority of the plaintiff to sell the factory in question for the defendant,
on commission, is extremely unsatisfactory. It consists solely of the testimony of the plaintiff, on the
one hand, and of the manager of the defendant company, Antonio A. Brimo, on the other. From a
reading of their testimony we believe that neither of them has been entirely free from
prevarications. However, after giving due weight to the finding of the trial court in this regard and
after carefully considering the inherent probability or improbability of the testimony of each of said
witnesses, we believe we are approximating the truth in finding: (1) That Antonio A. Brimo, in a
conversation with the plaintiff, Julio Danon, about the middle of August, 1918, informed the latter
that he (Brimo) desired to sell his factory, the Holland American Oil Co., for the sum of P1,200,000;
(2) that he agreed and promised to pay to the plaintiff a commission of 5 per cent provided the
latter could sell said factory for that amount; and (3) that no definite period of time was fixed within
which the plaintiff should effect the sale. It seems that another broker, Sellner, was also negotiating
the sale, or trying to find a purchaser for the same property and that the plaintiff was informed of
the fact either by Brimo himself or by someone else; at least, it is probable that the plaintiff was
aware that he was not alone in the field, and his whole effort was to forestall his competitor by
being the first to find a purchaser and effect the sale. Such, we believe. was the contract between
the plaintiff and the defendant, upon which the present action is based.
The next question to determine is whether the plaintiff had performed all that was required of him
under that contract to entitle him to recover the commission agreed upon. The proof in this regard
is no less unsatisfactory. It seems that immediately after having an interview with Mr. Brimo, as
above stated, the plaintiff went to see Mr. Mauro Prieto, president of the Santa Ana Oil Mill, a
corporation, and offered to sell to him the defendant's property at P1,200,000. The said corporation
was at that time in need of such a factory as the plaintiff was offering for sale, and Mr. Prieto, its
president, instructed the manager, Samuel E. Kane, to see Mr. Brimo and ascertain whether he
really wanted to sell said factory, and, if so, to get permission from him to inspect the premises. Mr.
Kane inspected the factory and, presumably, made a favorable report to Mr. Prieto. The latter
asked for an appointment with Mr. Brimo to perfect the negotiation. In the meantime Sellner, the
other broker referred to, had found a purchaser for the same property, who ultimately bought it for
P1,300,000. For that reason Mr. Prieto, the would be purchaser found by the plaintiff, never came
to see Mr. Brimo to perfect the proposed negotiation.
Under the proofs in this case, the most that can be said as to what the plaintiff had accomplished
is, that he had found a person who might have bought the defendant's factory if the defendant had
not sold it to someone else. The evidence does not show that the Santa Ana Oil Mill
had definitely decided to buy the property in question at the fixed price of P1,200,000. The board of
directors of said corporation had not resolved to purchase said property; and even if its president
could legally make the purchase without previous formal authorization of the board of directors, yet
said president does not pretend that he had definitely and formally agreed to buy the factory in
question on behalf of his corporation at the price stated. On direct examination he testified for the
plaintiff as follows:
Q. You say that we were going to accept or that it was beneficial for us; will you say to whom your refer,
when you say "we?"
A. Our company, the Santa Ana Oil Mill.
Q. And is that company able to pay the sum of P1,200,000?
A. Yes, sir.
Q. And you accepted it at that price of P1,200.000?
A. Surely, because as I already said before, we were in the difficult position of not being able to operate
our factory, because of the obstacle placed by the Government.
Q. And did you inform Mr. Danon of this acceptance?
A. I did not explain to Mr. Danon.
On cross-examination the same witness testified:
Q. What actions did the board of directors of the Santa Ana Oil Mill take in order to acquire or to make
an offer to Mr. Brimo of the Holland American Oil Company?
A. But nothing was effected, because Mr. Danon stated that the property had been sold when I was
going to deal with him.
Q. But do you not say that you made an offer of P1,200,000?
A. No; it was Mr. Danon who made the offer and we were sure to put the deal through because we
have bound ourselves.
The plaintiff claims that the reasons why the sale to the Santa Ana Mill was not consummated was
because Mr. Brimo refused to sell to a Filipino firm and preferred an American buyer; that upon
learning such attitude of the defendant the plaintiff endeavored to procure another purchaser and
found a Mr. Leas, who delivered to the plaintiff a letter addressed to Mr. Brimo, offering to buy the
factory in question at P1,200,000. the offer being good for twenty-four; that said offer was not
accepted by Brimo because while he was reading the letter of Leas, Sellner came in, drew Brimo
into another room, and then and there closed the deal at P1,300,000. The last statement is
admitted by the defendant.
Such are the facts in this case, as nearly accurate as we can gather them from the conflicting
evidence before us. Under those facts, is the plaintiff entitled to recover the sum of P60,000,
claimed by him as compensation for his services? It will be noted that, according to the plaintiff's
own testimony, the defendant agreed and promised to pay him a commission of 5 per
cent provided he (the plaintiff) could sell the factory at P1,200.000 ("con tal que V. me venda la
fabrica en P1,200.000"). It will also be noted that all that the plaintiff had accomplished by way of
performance of his contract was, that he had found a person who might have bought the factory in
question had not the defendant sold it to someone else. (Beaumont vs. Prieto, 41 Phil., 670; 249
U.S., 554.)
Under these circumstances it is difficult to see how the plaintiff can recover anything in the
premises. The plaintiff's action is not one for damages for breach of contract; it is an action to
recover "the reasonable value" of services rendered. this is unmistakable both from the plaintiff's
complaint and his testimony as a witness during the trial.
Q. And what is the reasonable value of the services you rendered to Mr. Brimo?
A. Five per cent of the price at which it was sold.
Q. Upon what do you base your qualification that those services were reasonable?
A. First, because that is the common rate in the city, and, secondly, because of the big
gain that he obtained from the sale.
What benefit did the plaintiff, by his "services," bestow upon the defendant to entitle him to recover
from the latter the sum of P60,000? It is perfectly clear and undisputed that his "services" did not
any way contribute towards bringing about the sale of the factory in question. He was not "the
efficient agent or the procuring cause of the sale."
The broker must be the efficient agent or the procuring cause of sale. The means employed by
him and his efforts must result in the sale. He must find the purchaser, and the sale must
proceed from his efforts acting as broker. (Wylie vs. Marine National Bank, 61 N. Y., 414; 416;
citing: McClure vs. Paine, 49 N. Y., 561; Lloyd vs. Mathews, 51 id., 124; Lyon vs. Mitchell, 36 id.,
235; Briggs vs. Rowe, 4 Keyes, 424; Murray vs. Currie, 7 Carr. and Payne, 584;
Wilkinson vs. Martin, 8 id., 5.)
A leading case on the subject is that of Sibbald vs. Bethlehem Iron Co. (83 N. Y., 378; 38 Am.
Rep., 441). In the case, after an exhaustive review of various cases, the Court of Appeals of New
York stated the rule as follows:
In all the cases, under all and varying forms of expression, the fundamental and correct doctrine, is, that the
duty assumed by the broker is to bring the minds of the buyer and seller to an agreement for a sale, and the
price and terms on which it is to be made, and until that is done his right to commissions does not accrue.
(McGavock vs. Woodlief, 20 How., 221; Barnes vs. Roberts, 5 Bosw., 73; Holly vs. Gosling, 2 E. D., Smith,
262; Jacobs vs. Kolff, 2 Hilt., 133; Kock vs. Emmerling, 22 How., 72; Corning vs. Calvert, 2 Hilt., 56;
Trundy vs. N.Y. and Hartf. Steamboat Co., 6 Robt., 312; Van Lien vs. Burns, 1 Hilt., 134.)
xxx xxx xxx
It follows, as a necessary deduction from the established rule, that a broker is never entitled to commissions
for unsuccessful efforts. The risk of a failure is wholly his. The reward comes only with his success. That is the
plain contract and contemplation of the parties. The broker may devote his time and labor, and expend his
money with ever so much of devotion to the interest of his employer, and yet if he fails, if without effecting an
agreement or accomplishing a bargain, he abandons the effort, or his authority is fairly and in good faith
terminated, he gains no right to commissions. He loses the labor and effort which was staked upon success.
And in such event it matters not that after his failure, and the termination of his agency, what he has done
proves of use and benefit to the principal. In a multitude of cases that must necessarily result. He may have
introduced to each other parties who otherwise would have never met; he may have created impressions,
which under later and more favorable circumstances naturally lead to and materially assist in the
consummation of a sale; he may have planted the very seed from which others reap the harvest; but all that
gives him no claim. It was part of his risk that failing himself, not successful in fulfilling his obligation, others
might be left to some extent to avail themselves of the fruit of his labors. As we said in Wylie vs. Marine
National Bank (61 N.Y., 416), in such a case the principal violates no right of the broker by selling to the first
party who offers the price asked, and it matters not that sale is to the very party with whom the broker had
been negotiating. He failed to find or produce a purchaser upon the terms prescribed in his employment, and
the principal was under no obligation to wait longer that he might make further efforts. The failure therefore
and its consequences were the risk of the broker only. This however must be taken with one important and
necessary limitation. If the efforts of the broker are rendered a failure by the fault of the employer;
if capriciously he changes his mind after the purchaser, ready and willing, and consenting to the prescribed
terms, is produced; or if the latter declines to complete the contract because of some defect of title in the
ownership of the seller, some unremoved incumbrance, some defect which is the fault of the latter, then the
broker does not lose his commissions. And that upon the familiar principle that no one can avail himself of the
nonperformance of a condition precedent, who has himself occasioned its nonperformance. But this limitation
is not even an exception to the general rule affecting the broker's right for it goes on the ground that the broker
has done his duty, that he has brought buyer and seller to an agreement, but that the contract is not
consummated and fails though the after-fault of the seller. The cases are uniform in this respect.
(Moses vs.Burling, 31 N.Y., 462; Glentworth vs. Luther, 21 Barb., 147; Van Lien vs. Burns, 1 Hilt., 134.)
One other principle applicable to such a contract as existed in the present case needs to be kept in
view. Where no time for the continuance of the contract is fixed by its terms either party is at liberty to
terminate it at will, subject only to the ordinary requirements of good faith. Usually the broker is entitled to a
fair and reasonable opportunity to perform his obligation, subject of course to the right of the seller to sell
independently. But having been granted him, the right of the principal to terminate his authority
is absolute and unrestricted, except only that he may not do it in bad faith, and as a mere device to escape the
payment of the broker's commissions. Thus, if in the midst of negotiations instituted by the broker, and which
were plainly and evidently approaching success, the seller should revoke the authority of the broker, with the
view of concluding the bargain without his aid, and avoiding the payment of commission about to be earned, it
might be well said that the due performance his obligation by the broker was purposely prevented by the
principal. But if the latter acts in good faith, not seeking to escape the payment of commissions, but moved
fairly by a view of his own interest, he has the absolute right before a bargain is made while negotiations
remain unsuccessful, before commissions are earned, to revoke the broker's authority, and the latter cannot
thereafter claim compensation for a sale made by the principal, even though it be to a customer with whom the
broker unsuccessfully negotiated, and even though, to some extent, the seller might justly be said to have
availed himself of the fruits of the broker's labor. (Ibid. pp. 444, 445 and 446.)
The rule laid down in the foregoing case was adopted and followed in the cases of
Zeimer vs. Antisell (75 Cal. 509), and Ayres vs. Thomas (116 Cal., 140).
The undertaking to procure a purchaser requires of the party so undertaking, not simply to name
or introduce a person who may be willing to make any sort of contract in reference to the
property, but to produce a party capable, and who ultimately becomes the purchaser.
(Kimberly vs. Henderson and Lupton, 29 Md., 512, 515, citing: Keener vs. Harrod and Brooke, 2
Md. 63; McGavock vs. Woodlief, 20 How., 221. See also Richards, Executor, vs. Jackson, 31
Md., 250.)
The defendant sent a proposal to a broker in these words: If you send or cause to be sent to me,
by advertisement or otherwise, any party with whom I may see fit and proper to effect a sale or
exchange of my real estate, above described I will pay you the sum of $200. The broker found a
person who proposed to purchase the property, but the sale was not affected. Held: That the
broker was not entitled to compensation. (Walker vs. Tirrel, 3 Am. Rep., 352.)
It is clear from the foregoing authorities that, although the present plaintiff could probably have
effected the sale of the defendant's factory had not the defendant sold it to someone else, he is not
entitled to the commissions agreed upon because he had no intervention whatever in, and much
sale in question. It must be borne in mind that no definite period was fixed by the defendant within
which the plaintiff might effect the sale of its factory. Nor was the plaintiff given by the defendant
the exclusive agency of such sale. Therefore, the plaintiff cannot complaint of the defendant's
conduct in selling the property through another agent before the plaintiff's efforts were crowned
with success. "One who has employed a broker can himself sell the property to a purchaser whom
he has procured, without any aid from the broker." (Hungerford vs. Hicks, 39 Conn., 259;
Wylie vs. Marine National Bank, 61 N.Y., 415, 416.)
For the foregoing reasons the judgment appealed from is hereby revoked and the defendant is
hereby absolved from all liability under the plaintiff's complaint, with costs in both instances against
the plaintiff. So ordered.
C. THE AGENT
49 - G.R. No. 171052 January 28, 2008
PHILIPPINE HEALTH-CARE PROVIDERS, INC. (MAXICARE), petitioner,
vs.
CARMELA ESTRADA/CARA HEALTH SERVICES, respondent.
DECISION
NACHURA, J.:
1
This petition for review on certiorari assails the Decision dated June 16, 2005 of the Court of
2
Appeals (CA) in CA-G.R. CV No. 66040 which affirmed in toto the Decision dated October 8, 1999
of the Regional Trial Court (RTC), Branch 135, of Makati City in an action for breach of contract
and damages filed by respondent Carmela Estrada, sole proprietor of Cara Health Services,
against Philippine Health-Care Providers, Inc. (Maxicare).
The facts, as found by the CA and adopted by Maxicare in its petition, follow:
[Maxicare] is a domestic corporation engaged in selling health insurance plans whose
Chairman Dr. Roberto K. Macasaet, Chief Operating Officer Virgilio del Valle, and
Sales/Marketing Manager Josephine Cabrera were impleaded as defendants-appellants.
On September 15, 1990, [Maxicare] allegedly engaged the services of Carmela Estrada
who was doing business under the name of CARA HEALTH [SERVICES] to promote
and sell the prepaid group practice health care delivery program called MAXICARE Plan
with the position of Independent Account Executive. [Maxicare] formally appointed
[Estrada] as its "General Agent," evidenced by a letter-agreement dated February 16,
1991. The letter agreement provided for plaintiff-appellees [Estradas] compensation in
the form of commission, viz.:
Commission
In consideration of the performance of your functions and duties as specified in
this letter-agreement, [Maxicare] shall pay you a commission equivalent to 15
to 18% from individual, family, group accounts; 2.5 to 10% on tailored fit plans;
and 10% on standard plans of commissionable amount on corporate accounts
from all membership dues collected and remitted by you to [Maxicare].
[Maxicare] alleged that it followed a "franchising system" in dealing with its agents
whereby an agent had to first secure permission from [Maxicare] to list a prospective
company as client. [Estrada] alleged that it did apply with [Maxicare] for the MERALCO
account and other accounts, and in fact, its franchise to solicit corporate accounts,
MERALCO account included, was renewed on February 11, 1991.
Plaintiff-appellee [Estrada] submitted proposals and made representations to the officers
of MERALCO regarding the MAXICARE Plan but when MERALCO decided to subscribe
to the MAXICARE Plan, [Maxicare] directly negotiated with MERALCO regarding the
terms and conditions of the agreement and left plaintiff-appellee [Estrada] out of the
discussions on the terms and conditions.
On November 28, 1991, MERALCO eventually subscribed to the MAXICARE Plan and
signed a Service Agreement directly with [Maxicare] for medical coverage of its qualified
members, i.e.: 1) the enrolled dependent/s of regular MERALCO executives; 2) retired
executives and their dependents who have opted to enroll and/or continue their
MAXICARE membership up to age 65; and 3) regular MERALCO female executives
(exclusively for maternity benefits). Its duration was for one (1) year from December 1,
1991 to November 30, 1992. The contract was renewed twice for a term of three (3)
years each, the first started on December 1, 1992 while the second took effect on
December 1, 1995.
The premium amounts paid by MERALCO to [Maxicare] were alleged to be the following:
a) P215,788.00 in December 1991; b) P3,450,564.00 in 1992; c) P4,223,710.00 in 1993;
d) P4,782,873.00 in 1994; e) P5,102,108.00 in 1995; and P2,394,292.00 in May 1996.
As of May 1996, the total amount of premium paid by MERALCO to [Maxicare]
was P20,169,335.00.
On March 24, 1992, plaintiff-appellee [Estrada], through counsel, demanded from
[Maxicare] that it be paid commissions for the MERALCO account and nine (9) other
accounts. In reply, [Maxicare], through counsel, denied [Estradas] claims for commission
for the MERALCO and other accounts because [Maxicare] directly negotiated with
MERALCO and the other accounts(,) and that no agent was given the go signal to
intervene in the negotiations for the terms and conditions and the signing of the service
agreement with MERALCO and the other accounts so that if ever [Maxicare] was
indebted to [Estrada], it was only for P1,555.00 and P43.l2 as commissions on the
accounts of Overseas Freighters Co. and Mr. Enrique Acosta, respectively.
[Estrada] filed a complaint on March 18, 1993 against [Maxicare] and its officers with the
Regional Trial Court (RTC) of Makati City, docketed as Civil Case No. 93-935, raffled to
Branch 135.
Defendants-appellants [Maxicare] and its officers filed their Answer with Counterclaim on
September 13, 1993 and their Amended Answer with Counterclaim on September 28,
1993, alleging that: plaintiff-appellee [Estrada] had no cause of action; the cause of
action, if any, should be is against [Maxicare] only and not against its officers; CARA
HEALTHs appointment as agent under the February 16, 1991 letter-agreement to
promote the MAXICARE Plan was for a period of one (1) year only; said agency was not
renewed after the expiration of the one (1) year period; [Estrada] did not intervene in the
negotiations of the contract with MERALCO which was directly negotiated by MERALCO
with [Maxicare]; and [Estradas] alleged other clients/accounts were not accredited with
[Maxicare] as required, since the agency contract on the MAXICARE health plans were
not renewed. By way of counterclaim, defendants-appellants [Maxicare] and its officers
claimed P100,000.00 in moral damages for each of the officers of [Maxicare] impleaded
as defendant, P100,000.00 in exemplary damages, P100,000.00 in attorneys fees,
3
and P10,000.00 in litigation expenses.
After trial, the RTC found Maxicare liable for breach of contract and ordered it to pay Estrada actual
damages in the amount equivalent to 10% of P20,169,335.00, representing her commission for the
total premiums paid by Meralco to Maxicare from the year 1991 to 1996, plus legal interest
computed from the filing of the complaint on March 18, 1993, and attorneys fees in the amount
of P100,000.00.
On appeal, the CA affirmed in toto the RTCs decision. In ruling for Estrada, both the trial and
appellate courts held that Estrada was the "efficient procuring cause" in the execution of the
service agreement between Meralco and Maxicare consistent with our ruling in Manotok Brothers,
4
Inc. v. Court of Appeals.
Undaunted, Maxicare comes to this Court and insists on the reversal of the RTC Decision as
affirmed by the CA, raising the following issues, to wit:
1. Whether the Court of Appeals committed serious error in affirming Estradas
entitlement to commissions for the execution of the service agreement between Meralco
and Maxicare.
2. Corollarily, whether Estrada is entitled to commissions for the two (2) consecutive
5
renewals of the service agreement effective on December 1, 1992 and December 1,
6
1995.
We are in complete accord with the trial and appellate courts ruling. Estrada is entitled to
commissions for the premiums paid under the service agreement between Meralco and Maxicare
from 1991 to 1996.
Well-entrenched in jurisprudence is the rule that factual findings of the trial court, especially when
affirmed by the appellate court, are accorded the highest degree of respect and are considered
7
conclusive between the parties. A review of such findings by this Court is not warranted except
upon a showing of highly meritorious circumstances, such as: (1) when the findings of a trial court
are grounded entirely on speculation, surmises or conjectures; (2) when a lower courts inference
from its factual findings is manifestly mistaken, absurd or impossible; (3) when there is grave abuse
of discretion in the appreciation of facts; (4) when the findings of the appellate court go beyond the
issues of the case, or fail to notice certain relevant facts which, if properly considered, will justify a
different conclusion; (5) when there is a misappreciation of facts; (6) when the findings of fact are
conclusions without mention of the specific evidence on which they are based, are premised on the
8 which we desist from passing upon as it would entail delving into factual matters on which such
absence of evidence, or are contradicted by evidence on record. None of the foregoing exceptions
which would warrant a reversal of the assailed decision obtains in this instance.
Maxicare urges us that both the RTC and CA failed to take into account the stipulations contained
in the February 19, 1991 letter agreement authorizing the payment of commissions only upon
satisfaction of twin conditions, i.e., collection and contemporaneous remittance of premium dues by
Estrada to Maxicare. Allegedly, the lower courts disregarded Estradas admission that the
negotiations with Meralco failed. Thus, the flawed application of the "efficient procuring cause"
9
doctrine enunciated in Manotok Brothers, Inc. v. Court of Appeals, and the erroneous conclusion
upholding Estradas entitlement to commissions on contracts completed without her participation.
We are not persuaded.
Contrary to Maxicares assertion, the trial and the appellate courts carefully considered the factual
backdrop of the case as borne out by the records. Both courts were one in the conclusion that
Maxicare successfully landed the Meralco account for the sale of healthcare plans only by virtue of
Estradas involvement and participation in the negotiations. The assailed Decision aptly states:
There is no dispute as to the role that plaintiff-appellee [Estrada] played in selling
[Maxicares] health insurance plan to Meralco. Plaintiff-appellee [Estradas] efforts
consisted in being the first to offer the Maxicare plan to Meralco, using her connections
with some of Meralco Executives, inviting said executives to dinner meetings, making
submissions and representations regarding the health plan, sending follow-up letters,
etc.
These efforts were recognized by Meralco as shown by the certification issued by its
Manpower Planning and Research Staff Head Ruben A. Sapitula on September 5, 1991,
to wit:
"This is to certify that Ms. Carmela Estrada has initiated talks with us since
November 1990 with regards (sic) to the HMO requirements of both our rank
and file employees, managers and executives, and that it was favorably
recommended and the same be approved by the Meralco Management
Committee."
xxxx
This Court finds that plaintiff-appellee [Estradas] efforts were instrumental in introducing
the Meralco account to [Maxicare] in regard to the latters Maxicare health insurance
plans. Plaintiff-appellee [Estrada] was the efficient "intervening cause" in bringing about
the service agreement with Meralco. As pointed out by the trial court in its October 8,
1999 Decision, to wit:
"xxx Had not [Estrada] introduced Maxicare Plans to her bosom friends,
Messrs. Lopez and Guingona of Meralco, PHPI would still be an anonymity.
10
xxx"
Under the foregoing circumstances, we are hard pressed to disturb the findings of the RTC, which
the CA affirmed.
We cannot overemphasize the principle that in petitions for review on certiorari under Rules 45 of
the Rules of Court, only questions of law may be put into issue. Questions of fact are not
cognizable by this Court. The finding of "efficient procuring cause" by the CA is a question of fact
finding was based. To reiterate, the rule is that factual findings of the trial court, especially those
11
affirmed by the CA, are conclusive on this Court when supported by the evidence on record.
The jettisoning of the petition is inevitable even upon a close perusal of the merits of the case.
First. Maxicares contention that Estrada may only claim commissions from membership dues
which she has collected and remitted to Maxicare as expressly provided for in the letter-agreement
does not convince us. It is readily apparent that Maxicare is attempting to evade payment of the
commission which rightfully belongs to Estrada as the broker who brought the parties together. In
fact, Maxicares former Chairman Roberto K. Macasaet testified that Maxicare had been trying to
12
land the Meralco account for two (2) years prior to Estradas entry in 1990. Even without that
13
admission, we note that Meralcos Assistant Vice-President, Donatila San Juan, in a letter dated
January 21, 1992 to then Maxicare President Pedro R. Sen, categorically acknowledged Estradas
efforts relative to the sale of Maxicare health plans to Meralco, thus:
Sometime in 1989, Meralco received a proposal from Philippine Health-Care Providers,
Inc. (Maxicare) through the initiative and efforts of Ms. Carmela Estrada, who introduced
Maxicare to Meralco. Prior to this time, we did not know that Maxicare is a major health
care provider in the country. We have since negotiated and signed up with Maxicare to
provide a health maintenance plan for dependents of Meralco executives, effective
December 1, 1991 to November 30, 1992.
At the very least, Estrada penetrated the Meralco market, initially closed to Maxicare, and laid the
groundwork for a business relationship. The only reason Estrada was not able to participate in the
collection and remittance of premium dues to Maxicare was because she was prevented from
doing so by the acts of Maxicare, its officers, and employees.
14
In Tan v. Gullas, we had occasion to define a broker and distinguish it from an agent, thus:
 [O]ne who is engaged, for others, on a commission, negotiating contracts relative to
property with the custody of which he has no concern; the negotiator between the other
parties, never acting in his own name but in the name of those who employed him. [A]
broker is one whose occupation is to bring the parties together, in matter of trade,
15
commerce or navigation.
An agent receives a commission upon the successful conclusion of a sale. On the other
hand, a broker earns his pay merely by bringing the buyer and the seller together, even if
16
no sale is eventually made.
In relation thereto, we have held that the term "procuring cause" in describing a brokers activity,
refers to a cause originating a series of events which, without break in their continuity, result in the
accomplishment of the prime objective of the employment of the brokerproducing a purchaser
17
ready, willing and able to buy on the owners terms. To be regarded as the "procuring cause" of a
sale as to be entitled to a commission, a brokers efforts must have been the foundation on which
18
the negotiations resulting in a sale began. Verily, Estrada was instrumental in the sale of the
Maxicare health plans to Meralco. Without her intervention, no sale could have been
consummated.
Second. Maxicare next contends that Estrada herself admitted that her negotiations with Meralco
failed as shown in Annex "F" of the Complaint.
that her involvement as broker is the proximate cause which consummated the sale between
Meralco and Maxicare.
22
Moreover, Section 34, Rule 132 of the Rules of Court requires the purpose for which the
evidence is offered to be specified. Undeniably, the letter was attached to the Complaint, and
23
offered in evidence, to demonstrate Maxicares bad faith and ill will towards Estrada.
Even a cursory reading of the Complaint and all the pleadings filed thereafter before the RTC, CA,
and this Court, readily show that Estrada does not concede, at any point, that her negotiations with
Meralco failed. Clearly, Maxicares assertion that Estrada herself does not pretend to be the
"efficient procuring cause" in the execution of the service agreement between Meralco and
Maxicare is baseless and an outright falsehood.
After muddling the issues and representing that Estrada made an admission that her negotiations
with Meralco failed, Maxicares counsel then proceeds to cite a case which does not, by any stretch
of the imagination, bolster the flawed contention.
We, therefore, ADMONISH Maxicares counsel, and, in turn, remind every member of the Bar that
the practice of law carries with it responsibilities which are not to be trifled with. Maxicares counsel
24
ought to be reacquainted with Canon 10 of the Code of Professional Responsibility, specifically,
Rule 10.02, to wit:

The chicanery and disingenuousness of Maxicares counsel is not lost on this Court. We observe
Rule 10.02 A lawyer shall not knowingly misquote or misrepresent the contents of a
that this Annex "F" is, in fact, Maxicares counsels letter dated April 10, 1992 addressed to
paper, the language or the argument of opposing counsel, or the text of a decision or
Estrada. The letter contains a unilateral declaration by Maxicare that the efforts initiated and
authority, or knowingly cite as law a provision already rendered inoperative by repeal or
negotiations undertaken by Estrada failed, such that the service agreement with Meralco was
amendment, or assert as a fact that which has not been proved.
supposedly directly negotiated by Maxicare. Thus, the latter effectively declares that Estrada is not
the "efficient procuring cause" of the sale, and as such, is not entitled to commissions.
Third. Finally, we likewise affirm the uniform ruling of the RTC and CA that Estrada is entitled to
25
19 10% of the total amount of premiums paid by Meralco to Maxicare as of May 1996. Maxicares
Our holding in Atillo III v. Court of Appeals, ironically the case cited by Maxicare to bolster its
argument that assuming Estrada is entitled to commissions, such entitlement only covers the initial
position that the statement in Annex "F" amounted to an admission, provides a contrary answer to
year of the service agreement and should not include the premiums paid for the succeeding
Maxicares ridiculous contention. We intoned therein that in spite of the presence of judicial
renewals thereof, fails to impress. Considering that we have sustained the lower courts factual
admissions in a partys pleading, the trial court is still given leeway to consider other evidence
20 finding of Estradas close, proximate and causal connection to the sale of health plans, we are not
presented. We ruled, thus:
wont to disturb Estradas complete entitlement to commission for the total premiums paid until May
1996 in the amount of P20,169,335.00.
As provided for in Section 4 of Rule 129 of the Rules of Court, the general rule that a
judicial admission is conclusive upon the party making it and does not require proof
WHEREFORE, premises considered and finding no reversible error committed by the Court of
admits of two exceptions: 1) when it is shown that the admission was made through
Appeals, the petition is hereby DENIED. Costs against the petitioner.
palpable mistake, and 2) when it is shown that no such admission was in fact made. The
latter exception allows one to contradict an admission by denying that he made such an
admission. SO ORDERED.

For instance, if a party invokes an "admission" by an adverse party, but cites

the admission "out of context," then the one making the admission may show
that he made no "such" admission, or that his admission was taken out of
context.

This may be interpreted as to mean "not in the sense in which the admission is
21
made to appear." That is the reason for the modifier "such."

In this case, the letter, although part of Estradas Complaint, is not, ipso facto, an admission of the
statements contained therein, especially since the bone of contention relates to Estradas
entitlement to commissions for the sale of health plans she claims to have brokered. It is more than
obvious from the entirety of the records that Estrada has unequivocally and consistently declared
C. THE AGENT
50 - G.R. No. 141525 September 2, 2005
CARLOS SANCHEZ, Petitioners,
vs.
MEDICARD PHILIPPINES, INC., DR. NICANOR MONTOYA and CARLOS
EJERCITO, Respondent.
DECISION
SANDOVAL-GUTIERREZ, J.:
1
This petition for review on certiorari seeks to reverse the Decision of the Court of Appeals dated
February 24, 1999 and its Resolution dated January 12, 2000 in CA-G.R. CV No. 47681.
The facts, as established by the trial court and affirmed by the Court of Appeals, follow:
Sometime in 1987, Medicard Philippines, Inc. (Medicard), respondent, appointed petitioner as its
special corporate agent. As such agent, Medicard gave him a commission based on the "cash
brought in."
In September, 1988, through petitioners efforts, Medicard and United Laboratories Group of
Companies (Unilab) executed a Health Care Program Contract. Under this contract, Unilab shall
pay Medicard a fixed monthly premium for the health insurance of its personnel. Unilab paid
Medicard 4,148,005.00 representing the premium for one (1) year. Medicard then handed
petitioner 18% of said amount or 746,640.90 representing his commission.
Again, through petitioners initiative, the agency contract between Medicard and Unilab was
renewed for another year, or from October 1, 1989 to September 30, 1990, incorporating therein
the increase of premium from 4,148,005.00 to 7,456,896.00. Medicard paid petitioner
1,342,241.00 as his commission.
Prior to the expiration of the renewed contract, Medicard proposed to Unilab, through petitioner, an
increase of the premium for the next year. Unilab rejected the proposal "for the reason that it was
too high," prompting Dr. Nicanor Montoya (Medicards president and general manager), also a
respondent, to request petitioner to reduce his commission, but the latter refused.
In a letter dated October 3, 1990, Unilab, through Carlos Ejercito, another respondent, confirmed
its decision not to renew the health program contract with Medicard.
Meanwhile, in order not to prejudice its personnel by the termination of their health insurance,
Unilab, through respondent Ejercito, negotiated with Dr. Montoya and other officers of Medicard, to
discuss ways in order to continue the insurance coverage of those personnel.
Under the new scheme, Unilab shall pay Medicard only the amount corresponding to the actual
hospitalization expenses incurred by each personnel plus 15% service fee for using Medicard
facilities, which amount shall not be less than 780,000.00.
Medicard did not give petitioner any commission under the new scheme.
In a letter dated March 15, 1991, petitioner demanded from Medicard payment of 338,000.00 as
his commission plus damages, but the latter refused to heed his demand.
Thus, petitioner filed with the Regional Trial Court (RTC), Branch 66, Makati City, a complaint for
sum of money against Medicard, Dr. Nicanor Montoya and Carlos Ejercito, herein respondents.
After hearing, the RTC rendered its Decision dismissing petitioners complaint and respondents
counterclaim.
On appeal, the Court of Appeals affirmed the trial courts assailed Decision. The Appellate Court
held that there is no proof that the execution of the new contract between the parties under the
"cost plus" system is a strategy to deprive petitioner of his commission; that Medicard did not
commit any fraudulent act in revoking its agency contract with Sanchez; that when Unilab rejected
Medicards proposal for an increase of premium, their Health Care Program Contract on its third
year was effectively revoked; and that where the contract is ineffectual, then the agent is not
entitled to a commission.
Petitioner filed a motion for reconsideration, but this was denied by the Court of Appeals on
January 12, 2000.
Hence, the instant petition for review on certiorari.
The basic issue for our resolution is whether the Court of Appeals erred in holding that the contract
of agency has been revoked by Medicard, hence, petitioner is not entitled to a commission.
It is dictum that in order for an agent to be entitled to a commission, he must be the procuring
cause of the sale, which simply means that the measures employed by him and the efforts he
2
exerted must result in a sale. In other words, an agent receives his commission only upon the
3
successful conclusion of a sale. Conversely, it follows that where his efforts are unsuccessful, or
there was no effort on his part, he is not entitled to a commission.
4
In Prats vs. Court of Appeals, this Court held that for the purpose of equity, an agent who is not
the efficient procuring cause is nonetheless entitled to his commission, where said agent,
notwithstanding the expiration of his authority, nonetheless, took diligent steps to bring back
together the parties, such that a sale was finalized and consummated between
5
them. In Manotok Borthers vs. Court of Appeals, where the Deed of Sale was only executed after
the agents extended authority had expired, this Court, applying its ruling in Prats, held that the
agent (in Manotok) is entitled to a commission since he was the efficient procuring cause of the
sale, notwithstanding that the sale took place after his authority had lapsed. The proximate, close,
and causal connection between the agents efforts and the principals sale of his property can not
be ignored.
It may be recalled that through petitioners efforts, Medicard was able to enter into a one-year
Health Care Program Contract with Unilab. As a result, Medicard paid petitioner his commission.
Again, through his efforts, the contract was renewed and once more, he received his commission.
Before the expiration of the renewed contract, Medicard, through petitioner, proposed an increase
in premium, but Unilab rejected this proposal. Medicard then requested petitioner to reduce his
commission should the contract be renewed on its third year, but he was obstinate. Meantime, on
October 3, 1990, Unilab informed Medicard it was no longer renewing the Health Care Program
contract.
In order not to prejudice its personnel, Unilab, through respondent Ejercito, negotiated with
respondent Dr. Montoya of Medicard, in order to find mutually beneficial ways of continuing the
Health Care Program. The negotiations resulted in a new contract wherein Unilab shall pay
Medicard the hospitalization expenses actually incurred by each employees, plus a service fee.
Under the "cost plus" system which replaced the premium scheme, petitioner was not given a
commission.

It is clear that since petitioner refused to reduce his commission, Medicard directly negotiated with
Unilab, thus revoking its agency contract with petitioner. We hold that such revocation is authorized
by Article 1924 of the Civil Code which provides:

"Art. 1924. The agency is revoked if the principal directly manages the business entrusted to the
agent, dealing directly with third persons."

Moreover, as found by the lower courts, petitioner did not render services to Medicard, his
principal, to entitle him to a commission. There is no indication from the records that he exerted
any effort in order that Unilab and Medicard, after the expiration of the Health Care Program
Contract, can renew it for the third time. In fact, his refusal to reduce his commission constrained
Medicard to negotiate directly with Unilab. We find no reason in law or in equity to rule that he is
entitled to a commission. Obviously, he was not the agent or the "procuring cause" of the third
Health Care Program Contract between Medicard and Unilab.

WHEREFORE, the petition is DENIED. The challenged Decision and Resolution of the Court of
Appeals in CA-G.R. CV No. 47681 are AFFIRMED IN TOTO. Costs against petitioner.

SO ORDERED.
C. THE AGENT
51 - G.R. No. L-5180 August 31, 1953
CONSEJO INFANTE, petitioner,
vs.
JOSE CUNANAN, JUAN MIJARES and THE COURT OF APPEALS, SECOND
DIVISION, respondents.
BAUTISTA ANGELO, J.:
This is a petition for review of a decision of the Court of appeals affirming the judgement of the
court of origin which orders the defendant to pay the plaintiffs the sum of P2,500 with legal interest
thereon from February 2,1949 and the costs of action.
Consejo Infante, defendant herein, was the owner of two parcels of land, together with a house
built thereon, situated in the City of Manila and covered by Transfer Certificate of Title No. 61786.
On or before November 30, 1948, she contracted the services of Jose Cunanan and Juan Mijares,
plaintiff herein, to sell the above-mentioned property for a price of P30,000 subject to the condition
that the purchaser would assume the mortgage existing thereon in the favor of the Rehabilitation
Finance Corporation. She agreed to pay them a commission of 5 per cent on the purchase price
plus whatever overprice they may obtain for the property. Plaintiffs found one Pio S. Noche who
was willing to buy the property under the terms agreed upon with defendant, but when they
introduced him to defendant, the latter informed them that she was no longer interested in selling
the property and succeeded in making them sign a document stating therein that the written
authority she had given them was already can-celled. However, on December 20, 1948, defendant
dealt directly with Pio S. Noche selling to him the property for P31,000. Upon learning this
transaction, plaintiffs demanded from defendant the payment of their commission, but she refused
and so they brought the present action.
Defendant admitted having contracted the services of the plaintiffs to sell her property as set forth
in the complaint, but stated that she agreed to pay them a commission of P1,200 only on condition
that they buy her a property somewhere in Taft Avenue to where she might transfer after selling
her property. Defendant avers that while plaintiffs took steps to sell her property as agreed upon,
they sold the property at Taft Avenue to another party and because of this failure it was agreed that
the authority she had given them be cancelled.
The lower court found that the preponderance of evidence was in favor of the plaintiffs and
rendered judgement sentensing the defendant to pay the plaintiff the sum of P2,500 with legal
interest thereon from February 2,1949 plus the costs of action. This decision was affirmed in toto
by the Court of Appeals.
There is no dispute that respondents were authorized by petitioner to sell her property for the sum
of P30,000 with the understanding that they will be given a commission of 5 percent plus whatever
overprice they may obtain for the property. Petitioner, however, contends that authority has already
been withdrawn on November 30, 1948 when, by the voluntary act of respondents, they executed a
document stating that said authority shall be considered cancelled and without any effect, so that
when petitioner sold the property to Pio S. Noche on December 20, 1948, she was already free
from her commitment with respondents and, therefore, was not in duty bound to pay them any
commission for the transaction..
If the facts were as claimed by petitioner, there is in-deed no doubt that she would have no
obligation to pay respondents the commission which was promised them under the original
authority because, under the old Civil Code, her right to withdraw such authority is recognized. A
principal may withdraw the authority given to an agent at will. (Article 1733.) But this fact is
disputed. Thus, respondents claim that while they agreed to cancel the written authority given to
them, they did so merely upon the verbal assurance given by petitioner that, should the property be
sold to their own buyer, Pio S. Noche, they would be given the commission agreed upon. True, this
verbal assurance does not appear in the written cancellation, Exhibit 1, and, on the other hand, it is
disputed by petitioner, but respondents were allowed to present oral evidence to prove it, and this
is now assigned as error in this petition for review.
The plea that oral evidence should not have been allowed to prove the alleged verbal assurance is
well taken it appearing that the written authority given to respondents has been cancelled in a
written statement. The rule on this matter is that "When the terms of an agreement have been
reduced to writing, it is to be considered as containing all those terms, and, therefore, there can be,
between parties and their successors in interest, no evidence of the terms of the agreement other
than the contents of the writing." (Section 22, Rule 123, Rules of Court.) The only exceptions to this
rule are: "(a)Where a mistake or imperfection of the writing, or its failure to express the true intent
and agreement of the parties, or the validity of the agreement is put in issue by the pleadings"; and
"(b) Where there is an intrinsic ambiguity in the writing." (Ibid.) There is no doubt that the point
raised does not come under any of the cases excepted, for there is nothing therein that has been
put in issue by respondents in their complaint. The terms of the document, Exhibit 1, seem to be
clear and they do not contain any reservation which may in any way run counter to the clear
intention of the parties.
But even disregarding the oral evidence adduced by respondents in contravention of the parole
evidence rule, we are, however, of the opinion that there is enough justification for the conclusion
reached by the lower court as well as by the Court of Appeals to the effect that respondents are
entitled to the commission originally agreed upon. It is a fact found by the Court of Appeals that
after petitioner had given the written authority to respondents to sell her land for the sum of
P30,000, respondents found a buyer in the person of one Pio S. Noche who was willing to buy the
property under the terms agreed upon, and this matter was immediately brought to the knowledge
of petitioner. But the latter, perhaps by way of strategem, advised respondents that she was no
longer interested in the deal and was able to prevail upon them to sign a document agreeing to the
cancellation of the written authority.
That petitioner had changed her mind even if respondents had found a buyer who was willing to
close the deal, is a matter that would not give rise to a legal consequence if respondents agree to
call off the transaction in deference to the request of the petitioner. But the situation varies if one of
the parties takes advantage of the benevolence of the other and acts in a manner that would
promote his own selfish interest. This act is unfair as would amount to bad faith. This act cannot be
sanctioned without ac-cording to the party prejudiced the reward which is due him. This is the
situation in which respondents were placed by petitioner. Petitioner took advantage of the services
rendered by respondents, but believing that she could evade payment of their commission, she
made use of a ruse by inducing them to sign the deed of cancellation Exhibit 1. This act of
subversion cannot be sanctioned and cannot serve as basis for petitioner to escape payment of the
commission agreed upon.
Wherefore, the decision appealed from is hereby affirmed, with costs against petitioner.
C. THE AGENT Saban alleged that Ybaez told Lim that he (Saban) was not entitled to any commission for the
sale since he concealed the actual selling price of the lot from Ybaez and because he was not a
licensed real estate broker. Ybaez was able to convince Lim to cancel all four checks.
52 - G.R. No. 163720 December 16, 2004

Saban further averred that Ybaez and Lim connived to deprive him of his sales commission by
GENEVIEVE LIM, petitioner, withholding payment of the first three checks. He also claimed that Lim failed to make good the
vs. fourth check which was dishonored because the account against which it was drawn was closed.
FLORENCIO SABAN, respondents.

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

TINGA, J.: Lim, for her part, argued that she was not privy to the agreement between Ybaez and Saban, and
that she issued stop payment orders for the three checks because Ybaez requested her to pay
1
Before the Court is a Petition for Review on Certiorari assailing the Decision dated October 27, the purchase price directly to him, instead of coursing it through Saban. She also alleged that she
2
2003 of the Court of Appeals, Seventh Division, in CA-G.R. V No. 60392. agreed with Ybaez that the purchase price of the lot was only P200,000.00.

The late Eduardo Ybaez (Ybaez), the owner of a 1,000-square meter lot in Cebu City (the "lot"),
entered into an Agreement and Authority to Negotiate and Sell (Agency Agreement) with
respondent Florencio Saban (Saban) on February 8, 1994. Under the Agency Agreement, Ybaez
authorized Saban to look for a buyer of the lot for Two Hundred Thousand Pesos (P200,000.00)
and to mark up the selling price to include the amounts needed for payment of taxes, transfer of
3
title and other expenses incident to the sale, as well as Sabans commission for the sale.
Ybaez died during the pendency of the case before the RTC. Upon motion of his counsel, the trial
10
court dismissed the case only against him without any objection from the other parties.
11
On May 14, 1997, the RTC rendered its Decision dismissing Sabans complaint, declaring the
four (4) checks issued by Lim as stale and non-negotiable, and absolving Lim from any liability
towards Saban.

Through Sabans efforts, Ybaez and his wife were able to sell the lot to the petitioner Genevieve Saban appealed the trial courts Decision to the Court of Appeals.
Lim (Lim) and the spouses Benjamin and Lourdes Lim (the Spouses Lim) on March 10, 1994. The
price of the lot as indicated in the Deed of Absolute Sale is Two Hundred Thousand Pesos
4 12
(P200,000.00). It appears, however, that the vendees agreed to purchase the lot at the price of Six On October 27, 2003, the appellate court promulgated its Decision reversing the trial courts
13
Hundred Thousand Pesos (P600,000.00), inclusive of taxes and other incidental expenses of the ruling. It held that Saban was entitled to his commission amounting to P236,743.00.
sale. After the sale, Lim remitted to Saban the amounts of One Hundred Thirteen Thousand Two
Hundred Fifty Seven Pesos (P113,257.00) for payment of taxes due on the transaction as well as
5 The Court of Appeals ruled that Ybaezs revocation of his contract of agency with Saban was
Fifty Thousand Pesos (P50,000.00) as brokers commission. Lim also issued in the name of
invalid because the agency was coupled with an interest and Ybaez effected the revocation in
Saban four postdated checks in the aggregate amount of Two Hundred Thirty Six Thousand Seven 14
bad faith in order to deprive Saban of his commission and to keep the profits for himself.
Hundred Forty Three Pesos (P236,743.00). These checks were Bank of the Philippine Islands
(BPI) Check No. 1112645 dated June 12, 1994 for P25,000.00; BPI Check No. 1112647 dated
June 19, 1994 for P18,743.00; BPI Check No. 1112646 dated June 26, 1994 for P25,000.00; and The appellate court found that Ybaez and Lim connived to deprive Saban of his commission. It
Equitable PCI Bank Check No. 021491B dated June 20, 1994 for P168,000.00. declared that Lim is liable to pay Saban the amount of the purchase price of the lot corresponding
to his commission because she issued the four checks knowing that the total amount thereof
corresponded to Sabans commission for the sale, as the agent of Ybaez. The appellate court
Subsequently, Ybaez sent a letter dated June 10, 1994 addressed to Lim. In the letter Ybaez
further ruled that, in issuing the checks in payment of Sabans commission, Lim acted as an
asked Lim to cancel all the checks issued by her in Sabans favor and to "extend another partial
6 accommodation party. She signed the checks as drawer, without receiving value therefor, for the
payment" for the lot in his (Ybaezs) favor.
purpose of lending her name to a third person. As such, she is liable to pay Saban as the holder for
15
value of the checks.
After the four checks in his favor were dishonored upon presentment, Saban filed a Complaint for
collection of sum of money and damages against Ybaez and Lim with the Regional Trial Court
7 Lim filed a Motion for Reconsideration of the appellate courts Decision, but her Motion was denied
(RTC) of Cebu City on August 3, 1994. The case was assigned to Branch 20 of the RTC. 16
by the Court of Appeals in a Resolution dated May 6, 2004.

In his Complaint, Saban alleged that Lim and the Spouses Lim agreed to purchase the lot
Not satisfied with the decision of the Court of Appeals, Lim filed the present petition.
for P600,000.00, i.e., with a mark-up of Four Hundred Thousand Pesos (P400,000.00) from the
price set by Ybaez. Of the total purchase price of P600,000.00, P200,000.00 went to
Ybaez, P50,000.00 allegedly went to Lims agent, and P113,257.00 was given to Saban to cover Lim argues that the appellate court ignored the fact that after paying her agent and remitting to
8
taxes and other expenses incidental to the sale. Lim also issued four (4) postdated checks in favor Saban the amounts due for taxes and transfer of title, she paid the balance of the purchase price
9 17
of Saban for the remaining P236,743.00. directly to Ybaez.
She further contends that she is not liable for Ybaezs debt to Saban under the Agency
Agreement as she is not privy thereto, and that Saban has no one but himself to blame for
consenting to the dismissal of the case against Ybaez and not moving for his substitution by his
18
heirs.
Lim also assails the findings of the appellate court that she issued the checks as an
accommodation party for Ybaez and that she connived with the latter to deprive Saban of his
19
commission.
Lim prays that should she be found liable to pay Saban the amount of his commission, she should
only be held liable to the extent of one-third (1/3) of the amount, since she had two co-vendees (the
20
Spouses Lim) who should share such liability.
In his Comment, Saban maintains that Lim agreed to purchase the lot for P600,000.00, which
consisted of the P200,000.00 which would be paid to Ybaez, the P50,000.00 due to her broker,
the P113,257.00 earmarked for taxes and other expenses incidental to the sale and Sabans
commission as broker for Ybaez. According to Saban, Lim assumed the obligation to pay him his
commission. He insists that Lim and Ybaez connived to unjustly deprive him of his commission
21
from the negotiation of the sale.
The issues for the Courts resolution are whether Saban is entitled to receive his commission from
the sale; and, assuming that Saban is entitled thereto, whether it is Lim who is liable to pay Saban
his sales commission.
The Court gives due course to the petition, but agrees with the result reached by the Court of
Appeals.
The Court affirms the appellate courts finding that the agency was not revoked since Ybaez
requested that Lim make stop payment orders for the checks payable to Saban only after the
consummation of the sale on March 10, 1994. At that time, Saban had already performed his
obligation as Ybaezs agent when, through his (Sabans) efforts, Ybaez executed the Deed of
Absolute Sale of the lot with Lim and the Spouses Lim.
To deprive Saban of his commission subsequent to the sale which was consummated through his
efforts would be a breach of his contract of agency with Ybaez which expressly states that Saban
would be entitled to any excess in the purchase price after deducting the P200,000.00 due to
22
Ybaez and the transfer taxes and other incidental expenses of the sale.
23
In Macondray & Co. v. Sellner, the Court recognized the right of a broker to his commission for
finding a suitable buyer for the sellers property even though the seller himself consummated the
24
sale with the buyer. The Court held that it would be in the height of injustice to permit the principal
to terminate the contract of agency to the prejudice of the broker when he had already reaped the
benefits of the brokers efforts.
25
In Infante v. Cunanan, et al., the Court upheld the right of the brokers to their commissions
although the seller revoked their authority to act in his behalf after they had found a buyer for his
properties and negotiated the sale directly with the buyer whom he met through the brokers efforts.
The Court ruled that the sellers withdrawal in bad faith of the brokers authority cannot unjustly
deprive the brokers of their commissions as the sellers duly constituted agents.
The pronouncements of the Court in the aforecited cases are applicable to the present case,
especially considering that Saban had completely performed his obligations under his contract of
agency with Ybaez by finding a suitable buyer to preparing the Deed of Absolute Sale between
Ybaez and Lim and her co-vendees. Moreover, the contract of agency very clearly states that
Saban is entitled to the excess of the mark-up of the price of the lot after deducting Ybaezs share
of P200,000.00 and the taxes and other incidental expenses of the sale.
However, the Court does not agree with the appellate courts pronouncement that Sabans agency
was one coupled with an interest. Under Article 1927 of the Civil Code, an agency cannot be
revoked if a bilateral contract depends upon it, or if it is the means of fulfilling an obligation already
contracted, or if a partner is appointed manager of a partnership in the contract of partnership and
his removal from the management is unjustifiable. Stated differently, an agency is deemed as one
coupled with an interest where it is established for the mutual benefit of the principal and of the
agent, or for the interest of the principal and of third persons, and it cannot be revoked by the
principal so long as the interest of the agent or of a third person subsists. In an agency coupled
with an interest, the agents interest must be in the subject matter of the power conferred and not
merely an interest in the exercise of the power because it entitles him to compensation. When an
agents interest is confined to earning his agreed compensation, the agency is not one coupled
with an interest, since an agents interest in obtaining his compensation as such agent is an
26
ordinary incident of the agency relationship.
Sabans entitlement to his commission having been settled, the Court must now determine whether
Lim is the proper party against whom Saban should address his claim.
Sabans right to receive compensation for negotiating as broker for Ybaez arises from the Agency
Agreement between them. Lim is not a party to the contract. However, the record reveals that she
had knowledge of the fact that Ybaez set the price of the lot at P200,000.00 and that
the P600,000.00the price agreed upon by her and Sabanwas more than the amount set by
Ybaez because it included the amount for payment of taxes and for Sabans commission as
broker for Ybaez.
According to the trial court, Lim made the following payments for the lot: P113,257.00 for
taxes, P50,000.00 for her broker, and P400.000.00 directly to Ybaez, or a total of Five Hundred
27
Sixty Three Thousand Two Hundred Fifty Seven Pesos (P563,257.00). Lim, on the other hand,
claims that on March 10, 1994, the date of execution of the Deed of Absolute Sale, she paid
directly to Ybaez the amount of One Hundred Thousand Pesos (P100,000.00) only, and gave to
28
Saban P113,257.00 for payment of taxes and P50,000.00 as his commission, and One Hundred
29
Thirty Thousand Pesos (P130,000.00) on June 28, 1994, or a total of Three Hundred Ninety
Three Thousand Two Hundred Fifty Seven Pesos (P393,257.00). Ybaez, for his part,
acknowledged that Lim and her co-vendees paid him P400,000.00 which he said was the full
30
amount for the sale of the lot. It thus appears that he received P100,000.00 on March 10, 1994,
acknowledged receipt (through Saban) of the P113,257.00 earmarked for taxes and P50,000.00 for
commission, and received the balance of P130,000.00 on June 28, 1994. Thus, a total
of P230,000.00 went directly to Ybaez. Apparently, although the amount actually paid by Lim
was P393,257.00, Ybaez rounded off the amount to P400,000.00 and waived the difference.
Lims act of issuing the four checks amounting to P236,743.00 in Sabans favor belies her claim
that she and her co-vendees did not agree to purchase the lot at P600,000.00. If she did not agree
thereto, there would be no reason for her to issue those checks which is the balance
of P600,000.00 less the amounts of P200,000.00 (due to Ybaez), P50,000.00 (commission), and
the P113,257.00 (taxes). The only logical conclusion is that Lim changed her mind about agreeing
to purchase the lot at P600,000.00 after talking to Ybaez and ultimately realizing that Sabans
commission is even more than what Ybaez received as his share of the purchase price as vendor.
Obviously, this change of mind resulted to the prejudice of Saban whose efforts led to the
completion of the sale between the latter, and Lim and her co-vendees. This the Court cannot
countenance.
The ruling of the Court in Infante v. Cunanan, et al., cited earlier, is enlightening for the facts
therein are similar to the circumstances of the present case. In that case, Consejo Infante asked
Jose Cunanan and Juan Mijares to find a buyer for her two lots and the house built thereon for
Thirty Thousand Pesos (P30,000.00) . She promised to pay them five percent (5%) of the purchase
price plus whatever overprice they may obtain for the property. Cunanan and Mijares offered the
properties to Pio Noche who in turn expressed willingness to purchase the properties. Cunanan
and Mijares thereafter introduced Noche to Infante. However, the latter told Cunanan and Mijares
that she was no longer interested in selling the property and asked them to sign a document stating
that their written authority to act as her agents for the sale of the properties was already cancelled.
Subsequently, Infante sold the properties directly to Noche for Thirty One Thousand Pesos
(P31,000.00). The Court upheld the right of Cunanan and Mijares to their commission, explaining
that
The absence of the second requisite becomes pellucid when it is noted at the outset that Lim
issued the checks in question on account of her transaction, along with the other purchasers, with
Ybaez which was a sale and, therefore, a reciprocal contract. Specifically, she drew the checks in
payment of the balance of the purchase price of the lot subject of the transaction. And she had to
pay the agreed purchase price in consideration for the sale of the lot to her and her co-vendees. In
other words, the amounts covered by the checks form part of the cause or consideration from
Ybaezs end, as vendor, while the lot represented the cause or consideration on the side of Lim,
35
as vendee. Ergo, Lim received value for her signature on the checks.
Neither is there any indication that Lim issued the checks for the purpose of enabling Ybaez, or
any other person for that matter, to obtain credit or to raise money, thereby totally debunking the
presence of the third requisite of an accommodation party.

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

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

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

Furthermore, since Ybaez received a total of P230,000.00 from Lim, or an excess of P30,000.00
from his asking price of P200,000.00, Saban may claim such excess from Ybaezs estate, if that
32
remedy is still available, in view of the trial courts dismissal of Sabans complaint as against
33
Ybaez, with Sabans express consent, due to the latters demise on November 11, 1994.

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

As gleaned from the text of Section 29 of the Negotiable Instruments Law, the accommodation
party is one who meets all these three requisites, viz: (1) he signed the instrument as maker,
drawer, acceptor, or indorser; (2) he did not receive value for the signature; and (3) he signed for
the purpose of lending his name to some other person. In the case at bar, while Lim signed as
drawer of the checks she did not satisfy the two other remaining requisites.
C. THE AGENT
53 - G.R. No. L-39822 January 31, 1978
ANTONIO E. PRATS, doing business under the name of Philippine Real Estate
Exchange, petitioner,
vs.
HON. COURT OF APPEALS, ALFONSO DORONILA and PHILIPPINE NATIONAL
BANK, respondents.
FERNANDEZ, J.:
This is a petition for certiorari to review the decision of the Court of Appeals in CA-G.R. No. 45974-
R entitled "Antonio E. Prats, doing business under the name of Philippine Real Estate Exchange,
vs. Alfonso Doronila and the Philippine National Bank", the dispositive part of which reads:
In view of all the foregoing, it is our considered opinion and so hold that the
decision of the lower court be, as it is hereby reversed, and the complaint,
dismissed. On appellant's counterclaim, judgment is hereby rendered directing
appellee to pay attorney's fees in the sum of P10,000 to appellant, no moral
damages as therein claimed being awarded for lack of evidence to justify the
same. The injunction issued by the lower court on the P2,000,000.00 cash
deposit of the appellant is hereby lifted. No special pronouncement as to costs.
1
SO ORDERED.
On September 23, 1968 Antonio E. Prats, doing business under the name of "Philippine Real
Estate Exchange" instituted against Alfonso Doronila and Philippine National Bank Civil Case No.
Q-12412 in the Court of First Instance of Rizal at Quezon City to recover a sum of money and
damages.
The complaint stated that defendant Alfonso Doronila was the registered owner of 300 hectares of
land situated in Montalban, Rizal, covered by Transfer Certificates of Title Nos. 77011, 77013,
216747 and 216750; that defendant Doronila had for sometime tried to sell his aforesaid 300
hectares of land and for that purpose had designated several agents; that at one time, he had
offered the same property to the Social Security System but failed to consummate any sale; that
his offer to sell to the Social Security System having failed, defendant Doronila on February 14,
1968 gave the plaintiff an exclusive option and authority in writing to negotiate the sale of his
aforementioned property, which exclusive option and authority the plaintiff caused to be published
in the Manila Times on February 22, 1968; that it was the agreement between plaintiff and
defendant Doronila that the basic price shall be P3.00 per square meter, that plaintiff shall be
entitled to a commission of 10% based on P2.10 per square meter or at any price finally agreed
upon and if the property be sold over and above P3.00 per square meter, the excess shall be
created and paid to the plaintiff in addition to his 10% commission based on P2.10 per square
meter; that as a result of the grant of the exclusive option and authority to negotiate the sale of his
300 hectares of land situated in Montalban, Rizal in favor of the plaintiff, the defendant Doronila, on
February 20, 1968, wrote a letter to the Social Security System withdrawing his previous offer to
sell the same land and requesting the return to him of all papers concerning his offered property
that the Social Security System, complying with said request of defendant Doronila, returned all the
papers thereon and defendant Doronila, in turn gave them to the plaintiff as his duly authorized real
estate broker; that by virtue of the exclusive written option and authority granted him and relying
upon the announced policy of the President of the Philippines to promote low housing program the
plaintiff immediately worked to negotiate the sale of defendant Doronila's 300 hectares of land to
the Social Security System, making the necessary contacts and representations to bring the parties
together, namely, the owner and the buyer, and bring about the ultimate sale of the land by
defendant Doronila to the Social Security System; that on February 27, 1968, after plaintiff had
already contacted the Social Security System, its Deputy Administrator, Reynaldo J. Gregorio,
wrote a letter to defendant Doronila inviting the latter to a conference regarding the property in
question with Administrator Teodoro, Chairman Gaviola and said Reynaldo J. Gregorio on March
4, 1968 at 10:00 o'clock in the morning, stating that the SSS would like to take up the offer of the
lot; that having granted plaintiff the exclusive written option and authority to negotiate the sale of
his 300 hectares of land, defendant Doronila in a letter dated February 28, 1968 declined the
invitation extended by the Social Security System to meet with its Administrator and Chairman and
requested them instead "to deal directly" with the plaintiff, that on March 16, 1968, at the
suggestion of defendant Doronila, the plaintiff wrote a letter to the Social Security System to the
effect that plaintiff would be glad to sit with the officials of the Social Security System to discuss the
sale of the property of the defendant Doronila; that on March 18, 1968, the Social Security System
sent a telegram to defendant Doronila to submit certain documents regarding the property offered;
that on May 6, 1968, a written offer to sell the 300 hectares of land belonging to defendant Doronila
was formally made by the plaintiff to the Social Security System and accordingly, on May 7, 1968,
the Social Security System Administrator dispatched the following telegram to defendant Doronila:
"SSS considering purchase your property for its housing project Administrator Teodoro"; that a few
days thereafter, the plaintiff accompanied the defendant Doronila to the China Banking Corporation
to arrange the matter of clearing payment by chock and delivery of the titles over the property to
the Society Security System; that having been brought together by the plaintiff, the defendant
Doronila and the offices of the Society Security System, on May 29, 1968 and on June 4, 1968,
met at the office of the SSS Administrator wherein the price for the purchase of the defendant
Doronila's 300 hectares of land was, among others, taken up; that on June 20, 1968, the Social
Security Commission passed Resolution No. 636 making a counter-offer of P3.25 per square meter
subject to an appraise report; that on June 27, 1968, Resolution No. 662 was adopted by the
Social Security Commission authorizing the Toples & Harding (Far East) Inc. to conduct an
appraisal of the property and to submit a report thereon; that pursuant thereto, the said company
submitted its appraisal report specifying that the present value of the property is P3.34 per square
meter and that a housing program development would represent the highest and best use thereof,
that on July 18, 1968, the Social Security Commission, at its regular meeting, taking note of the
favorable appraisal report of the Toples'& Harding (Far East) Inc., passed Resolution No. 738,
approving the purchase of defendant Doronila's 300 hectares of land in Montalban, Rizal at a price
of P3.25 per square meter or for a total purchase price of Nine Million Seven Hundred Fifty
Thousand Pesos (P9,750,000.00), appropriating the said amount for the purpose and authorizing
the SSS Administrator to sign the necessary documents to implement the said resolution; that on
July 30, 1968, defendant Doronila and the Social Security System executed the corresponding
deed of absolute sale over the 300 hectares of land in Montalban, Rizal covered by Transfer
Certificate of Title Nos. 77011, 77013, 216747 and 216750 under the terms of which the total price
of P9,750,000.00 shall be payable as follows: (a) 60% of the agreed purchase price, or Five Million
Eight Hundred Fifty Thousand Pesos (P5,860,000.00) immediately after signing the deed of sale.
and (b) the balance of 40% of the agreed price, or Three Million Nine Hundred Thousand Pesos
(P3,900,000.00) thirty days after the signing of the deed of absolute sale; that on August 21, 1968,
after payment of the purchase price, the deed absolute sale executed by defendant Doronila in
favor of the Social Security System was presented for registration in the Office of the Register of
Deeds of Rizal, and Transfer Certificates of Title Nos. 926574, 226575, 226576 and 226577 in the
name of the Social Security System were issued; that defendant Doronila has received the full
purchase price for his 300 hectares of land in the total amount of P9,750,000.00, which amount he
deposited in his bank Account No. 0012-443 with the defendant Philippine National Bank; that on
September 17, 1968, the plaintiff presented his statement to, and demanded of defendant Doronila
the payment of his processional fee as real estate broker as computed under the agreement of
February 14, 1968 in the total amount of P1,380,000.00; that notwithstanding such demand, the
defendant Doronila, in gross and evident bad faith after having availed of the services of plaintiff as
real estate broker, refused to pay the professional fees due him; that as a result of defendant
Doronila's gross and evident bad faith and unjustified refusal to pay plaintiff the professional fees
due him under the agreement, the latter has suffered and continues to suffer mental anguish,
serious anxiety, and social humiliation for which defendant Doronila shall be held liable to pay
moral damages; and, that by reason likewise of the aforesaid act of defendant Doronila, the plaintiff
has been compelled to file this action and to engage the services of counsel at a stipulated
professional fee of P250,000.00.
In his answer filed on November 18, 1968, the defendant Doronila alleged that when the plaintiff
offered the answering defendant's property to the Social Security System on May 6, 1968, said
defendant had already offered his property to, and had a closed transaction or contract of sale of,
said property with the Social Security System; that the letter agreement had become null and void
because defendant Doronila had not received any written offer from any prospective buyers of the
plaintiff during the agreed period of 60 days until the last day of the authorization which was April
13, 1968 counting from February 14, 1968; that it is not true that plaintiff brought together
defendant Doronila and the officials of the Social Security System to take up the purchase price of
defendant Doronila's property for the simple reason that the plaintiff's offer was P6.00 per square
meter and later on reduced to P4.50 per square meter because the SSS Chairman had already a
closed transaction with the defendant Doronila at the price of P3.25 per square meter and that the
offer of the plaintiff was refused by the officials of the Social Security System; and that defendant
Doronila did not answer the statement of collection of the plaintiff because the latter had not right to
demand the payment for services not rendered according to the agreement of the parties. The
answering defendant interposed a counterclaim for damages and attorney's fees.
On January 18, 1969, the plaintiff and defendant Alfonso Doronila submitted the following
stipulation of facts:
STIPULATION OF FACTS
COME NOW the plaintiff and defendant DORONILA, through their respective undersigned
counsel, and to this Honorable Court by way of abbreviating the proceeding i the case at bar,
without prejudice to presentation of explanatory evidence, respectfully submit the following
STIPULATION OF FACTS.
1.
The defendant Doronila was the registered owner of 300 hectares of land, situated in Montalban,
Rizal, covered by Transfer Certificates of Title Nos. 77011, 77013, 216747 (formerly TCT No.
116631) and 216750 (formerly TCT No. 77012).
2.
That on July 3, 1967, defendant DORONILA under his letter (marked Annex "1" of the answer)
addressed to the SSS Chairman, offered his said property to the Social Security System (SSS) at
P4.00 per square meter.
That on July 17, 1967 (Annex "2" of the Answer) the SSS Chairman, Mr. Ramon C. Gaviola, Jr.,
replied to defendant DORONILA, as follows:
This will acknowledge your letter of July 3rd, 1967 relative to your offer for sale of your real
estate property.
In this regard, may I please be informed as to how many hectares, out of the total 300 hectares
offered, are located in Quezon City and how many hectares are located in Montalban, Rizal.
Likewise, as regards your offer of P4.00 per square meter, would there be any possibility that the
same be reduced to P3.25 per square meter Finally and before I submit your proposal for
process it is requested that the NAWASA certify to the effect that they have no objection to
having this parcel of land subdivided for residential house purposes.
Thank you for your offer and may I hear from you at the earliest possible time.
2-a
That on July 19, 1967, defendant DORONILA wrote a letter (a xerox copy, attached hereto
marked as Annex "2-a" for DORONILA) to NAWASA, and that in reply thereto, on July 25, 1967,
the NAWASA wrote the following letter (Xerox copy attached hereto to be marked as Annex "2-b"
for DORONILA) to defendant DORONILA.
In connection with your proposed subdivision plan of your properties adjacent to our Novaliches
Watershed, this Office would like to impose the following conditions:
1. Since your property is an immediate boundary of our Novaliches Watershed, a 20-meter road
should be constructed along our common boundary.
2. That no waste or drainage water from the subdivision should flow towards the watershed.
3. That the liquid from the septic tanks or similar waste water should be treated before it is
drained to the Alat River above our Alat Dam.
The above conditions are all safeguards to the drinking water of the people of Manila and
Suburbs. It is therefore expected that we all cooperate to make our drinking water safer from any
pollution.
3.
That on July 19, 1967, defendant DORONILA wrote another letter (marked as Annex '3' on his
Answer) addressed to the SSS Chairman, Mr. Ramon Gaviola Jr., stating, among others, the
following:
In this connection, I have your counter-offer of P3.25 per square meter against my offer of P4.00
per square meter, although your counter-offer is lower comparing to the prices of adjacent
properties, I have to consider the difference as my privilege and opportunity to contribute or
support the Presidential policy to promote low cost housing in this country particularly to the SSS
members by accepting gladly your counter-offer of P3.25 per square meter with the condition
that it should be paid in cash and such payment shall be made within a period of 30 days from
the above stated date (2nd paragraph of letter dated July 18, 1967, Annex "3" of the Answer).
3.a
That on August 10, 1967, the SSS Chairman, Mr. Ramon Gaviola Jr., wrote the following (Xerox
copy attached hereto and marked as Annex '2-c' for DORONILA: addressed to defendant
DORONILA:
 With reference to your letter, dated July 1967, please be informed that the same is now with the
Administrator for study and comment. The Commission will act on receipt of information re such
studies.
With the assurance that you will be periodically informed of developments, we remain.
3-b
excess amount over P3.00 per square meter, unless paid by check which would then be
deductible as additional expenses.
3. This exclusive option and authority is good for a period of sixty (60) days from the date of your
conformity; provided, however, that should negotiations have been started with a buyer, said
period is automatically extended until said negotiations is terminated, but not more than fifteen
(15) days;

4. The written offers must be made by the prospective buyers, unless they prefer to have us take
That on October 30, 1967, Mr. Pastor B. Sajorda, 'By authority of Atty. Alfonso Doronila, property
the offer for and in their behalf some buyers do not want to be known in the early stages of the
owner', wrote the following request (Xerox copy attached hereto and marked as Annex '2-d' for
negotiations:
DORONILA) addressed to Realtor Vicente L. Narciso for a certification regarding the actual prices
of DORONILA's property, quoted as follows:
5. If no written offer is made to you until the last day of this authorization, this option and
authority shall expire and become null and void;
May I have the honor to request for your certification as a member of the Board of Realtor
regarding the actual prices of my real estate raw-land properties described as Lots 3-B-7, 26B, 6
and 4-C-3 all adjacent to each other, containing a total area of 3,000,000 square meters, all 6. It is clearly understood that prospective buyers and all parties interested in this property shall
registered in the name of Alfonso Doronila, covered by T.C.T. Nos. 116631, 77013, 77011, and be referred to us, and that you will not even quote a price directly to any agent or buyer. You
77012, located at Montalban, Rizal, all adjacent to the Northern portion of the NAWASA agree to refer all agents or brokers to us DURING the time this option is in force; and
properties in Quezon City including those other surrounding adjacent properties and even those
properties located before reaching my own properties coming from Manila.
7. There are some squatters occupying small portions of the property, which fact will be reported
to the prospective buyers, and said squatters will be removed at our expense. (Annex "A" of the
This request is purposely made for my references in case I decided to sell my said properties complaint)
mentioned above.
V
3-c e
r
y
That on November 3, 1967, Realtor Vicente Narciso wrote the following reply (Xerox copy
attached hereto and marked as Annex 2 for DORONILA) to Mr. Pastor B. Sajorda:
t
r
As per your request dated October 30, 1967, regarding prices of raw land, it is my finding that u
the fair market value of raw land in the vicinity of the NAWASA properties at Quezon City and l
Montalban, Rizal. including the properties of Atty. Alfonso Doronila. more particularly known as y
lots 3-B-7, 26-B, and 4-C-3 containing approximately 3,000,000 square meters is P3.00 to P3.50
per square meter. y
o
u
Current prices before reaching Doronila's property range from P6.00 to P7.00 per square meter. r
s
4. ,
P
That on February 14, 1968, defendant DORONILA granted plaintiff an exclusive option and H
authority (Annex 'A' of the complaint), under the following terms and conditions: I
L
I
1. The price of the property is THREE (P3.00) PESOS per square meter.
P
P
2. A commission of TEN (10%) PERCENT will be paid to us based on P2.10 per square meter, I
or at any price that you DORONILA finally agree upon, and all expenses shall be for our N
account, including preparation of the corresponding deed of conveyance, documentary stamps E
and registration fee, whether the sale is causes directly or indirectly by us within the time of this
option. If the property is sold over and above P3.00 per square meter, the excess amount shall R
be credited and paid to the herein workers. In addition to the 10% commission based on P2.10 E
per square meter, provided the brokers shall pay the corresponding taxes to the owner of the A
 L Date: February 14, 1968

E
5.
S
T
A That on February 19, 1968, plaintiff wrote the following letter to defendant DORONILA (Annex
T "4" of the Answer), quoted as follows:
E
F
E
X e
b
C
r
H
A u
a
N
r
C
E y

( 1
S 9
g ,
d
) 1
9
A 6
N 8
T
Don Alfonso Doronila
O
N Plaza Ferguzon
I
O Ermita, Manila
Dear Don Alfonso:
E
. In view of the exclusive option extended to us for the sale of your property
consisting 300 hectares located at Montalban, Rizal, we earnestly request that
P you take immediate steps to withdraw any and all papers pertaining to this
R property offered to the SOCIAL SECURITY SYSTEM
A
T V
S e
r
G y
e
n t
e r
r u
a l
l y

m y
a o
n u
a r
g s
e ,
r
P
CONFORME: H
I
(Sgt.) ALFONSO DORONILA
 L 8.
I
P
That on February 28, 1968, defendant DORONILA wrote the following letter (Annex "D" of the
P
complaint) to the SSS Deputy Administrator:
I
N
E Thank you for your invitation to meet Administrator Teodoro, Chairman Gaviola and your
goodself, to take up my former offer to sell my property to the Social Security System.
R
E
A Since the SSS had not acted on my offer dated July 19, 1967, more than seven (7) months
ago, I have asked for the return of my papers, as per my letter of February 20, 1968, and
L
which you have kindly returned to me.
E
S
As of February 20, 1968, I gave the Philippine Real Estate Exchange an exclusive option and
T authority to negotiate the sale of this 300 hectare land, and I am no longer at liberty to
A
negotiate its sale personally; I shall therefore request you communicate directly with the
T
Philippine Real Estate Exchange, P. O. Box 84, Quezon City, and deal with them directly if
E you are still interested in my property.
E
X With my kind personal regards, I am
C
H
9.
A
N
G That on March 16, 1968, plaintiff, acting upon the letter of defendant DORONILA dated February
E 28, 1968 (Annex 'D' for plaintiff), wrote the following letter to SSS Administrator:
(Sgd) ANTONIO E. PRATS
Don Alfonso Doronila, owner of the 300 hectare land located at Montalban, Rizal, adjoining the
General Manager Quezon City boundary, has informed us that the Administrator of the SOCIAL SECURITY'
SYSTEM, through Mr. Reynaldo J. Gregorio, has invited him to meet with the Administrator
AEP/acc
and Chairman Gaviola to take up the former offer to sell his property to the SSS.
RECEIVED ORIGINAL
By: (Sgd.) ROGELIO DAPITAN In his letter to the Administrator dated February 20, 1968 (which has been received by the SSS
on the same day), Mr. Doronila advised you that as of February 20,1968, he gave the
PHILIPPINE REAL ESTATE EXCHANGE (PHILREX) the exclusive option and authority to
6. negotiate the sale of his 300 hectare land in Montalban, and that he is no longer at liberty to
negotiate its sale personally, and that, if you are still interested in the property, the SSS should
That on February 20, 1968, pursuant to the letter dated February 19, 1968 of plaintiff, defendant communicate directly with the PHILIPPINE REAL ESTATE EXCHANGE.
DORONILA wrote a letter (Annex 'B' of the complaint) to the SSS Administrator stating:
It is by virtue of this arrangement that Mr. Doronila now refers to us invitation and his reply to
In as much as the SSS has not acted on my offer to sell a 300 hectare lot located in the SSS and has requested us to get in touch with you.
Montalban, Rizal, for the last five (5) months I respectfully requested for the return of all my
papers concerning this offered property. While, at present we have several prospective buyers interested in this property, we shall, in
compliance with the request of Mr. Doronila, be happy to sit down with you and Chairman
7. Ramon Gaviola, Jr.

That on February 27, 1968, defendant DORONILA received the following letter (Annex "C" of the
complaint) from the SSS Deputy Administrator, Mr. Reynaldo J. Gregorio, to wit:
May I take this opportunity of inviting you in behalf of Administrator Teodoro, to meet with him,
Chairman Gaviola and myself on Friday, March 4, 10:00 A.M. lot offer.
Thanks and regards.
Please let us know when it will be convenient to hold the conference.
10.
That on April 18, 1968, defendant DORONILA extended the plaintiff exclusive option and
authority to expire May 18, 1968.(annex 'B' Reply letter of Doronila to SSS Deputy
Administrator dated May 8, 1968).
11.
That on May 6,1968, plaintiff made a formal written offer to the Social Security System to sell the
300 hectares land of defendant DORONILA at the price of P6.00 per square meter, Xerox copy
of which bearing the stamp or receipt of Social Security System is attached hereof as Annex "D"
plaintiff.
12.
That on May 16, 1968 the defendant DORONILA received the following telegram (Annex 'E' of
the complaint) form the SSS Administrative, reading:
SSS CONSIDERING PURCHASE YOUR PROPERTY FOR ITS HOUSING PROJECT
13.
That on May 18, 1968, after plaintiff exclusive option and authority had been extended, plaintiff
wrote the following letter (Annex "A" Reply' of plaintiff's REPLY TO ANSWER) to defendant
DORONILA, to wit:
CONFIDENTIAL
In our conference last Monday, May 13, 1968, you have been definitely advised by
responsible parties that the SOCIAL SECURITY SYSTEM is acquiring your 300-hectare land
at Montalban, Rizal, adjoining the Quezon City Boundary and that said property will be
acquired in accordance with the exclusive option and authority you gave the PHILIPPINE
REAL ESTATE EXCHANCE. You were assured in that conference that the property will be
acquired definitely, but, as it has been mentioned during the conference, it may take from 30
to 60 days to have all the papers prepared and to effect the corresponding payment. The
telegram from the SSS confirming these negotiations has already been received by you, a
copy of which you yourself have kindly furnished us.
Pursuant to paragraph 3 of the terms of the option that you have kindly extended, we still have
fifteen days more from today, May 18, 1968, within which to finish the negotiations for the sale of
your property to the SSS. For your convenience, we quote the pertinent portion of paragraph 3
of the option:
... provided, however, that should negotiation have been started with a buyer, said period is
automatically extended until said negotiation is terminated, but no more than fifteen (15) days.
Please be assured that we will do our very best to complete these negotiations for the sale of
your property within this fifteen-day period. In the meantime' we hope you will also observe
the provisions of paragraph 6 of the exclusive option you have extended to us.
14.
That on May 18, 1968, plaintiff wrote the following letter (Xerox copy attached and marked
hereof as Annex 'H' for plaintiff) addressed defendant DORONILA, to wit:
By virtue of the exclusive option and authority you have granted the PHILIPPINE REAL
ESTATE EXCHANGE to negotiate the sale of your 300-hectare land located at Montalban,
Rizal, adjoining the Quezon City boundary, which properties are covered by Transfer
Certificate of Titles Nos. 116631, 77011, 77012 and 77013, of the Registry of Deeds for the
Province of Rizal, we hereby make a firm offer, for and in behalf of our buyer, to purchase said
property at the price of FOUR PESOS AND FIFTY CENTAVOS (P4.50) per square meter, or
the total amount of THIRTEEN MILLION FIVE HUNDRED THOUSAND (P13,500,000.00)
PESOS, Philippine Currency, payable in Cash and D.B.P. Progress Bonds, on a ratio to be
decided between you and our principal.
To expedite the negotiations, we suggest that we sit down sometime early next week with our
principal to take up the final arrangement and other details in connection with the purchase of
the subject property.
To give you further assurance of the validity of this offer, we refer you to the CHINA BANKING
CORPORATION (Trust Department) who has already been apprised of these negotiations, to
which ]sank we strongly recommend that this transaction be coursed through, for your own
security and protection.
15.
That on May 30, 1968, plaintiff wrote the following letter (Xerox copy attached hereto, and
marked as Annex 'I' for plaintiff) to defendant DORONILA, quoted as follows:
This is to advise you that the SOCIAL SECURITY SYSTEM agreed to purchase your 300-
hectare land located at Montalban, Rizal, which purchase can be conformed by the Chairman
of the SOCIAL SECURITY COMMISSION. The details will have to be taken up between you
and the Chairman, and we suggest that you communicate with the Chairman at your earliest
convenience.
This negotiation was made by virtue of the exclusive option and authority you have granted
the PHILIPPINE REAL ESTATE EXCHANGE, which option is in full force and effect, and
covers the transaction referred above.
16.
That on June 6,1968, defendant DORONILA wrote the following letter (Annex" 7" for
DORONILA), to the plaintiff, to wit:
I have to inform you officially, that I have not received any written offer from the SSS or
others, to purchase my Montalban property of which you were given an option and exclusive
authority as appearing in your letter- contract dated February 14, 1968, during the 60 days of
your exclusive authority which expired on April 14, 1968, nor during the extension which was
properly a new exclusive authority of 30 days from April 18, which expired on May 18, 1968,
nor during the provided 15 days grace, in case that you have closed any transaction to
terminate it during that period, which also expired on June 3, 1968.
As stated in said letter, we have the following condition:
5. If no written offer is made to you until the last day of this authorization, this option and
authority shall expire and becomes null and void.
As I have informed you, that on April 16, 1968 or two days after your option expired I have
signed an agreement to sell my property to a group of buyers to whom I asked later that the
 effectivity of said agreement will be after your new authority has expired will be on June 2,
1968, and they have accepted; As your option has expired, and they know that there was no
written offer made by the SSS for any price of my property, aside of their previous letter
announcing me that they are ready to pay, I was notified on June 4, 1968 by their
representative, calling my attention but our agreement; that is why I am writing you, that
having expired your option and exclusive authority to offer for sale my said property, I notified
only this afternoon said to comply our agreement.
Hoping for your consideration on the matter, as we have to be guided by contracts that we
have to comply, I hereby express to you my sincere sentiments.
17.
That on June 19, 1968, defendant DORONILA wrote the following letter (Annex "5" of the
Answer) to the SSS Administrator, renewing his offer to sell his 300 hectare land to the SSS at
P4.00 per square meter, to wit:
This is to renew my offer to sell my properties located at Montalban, Rizal Identified as Lot
Nos. 3-B-7, 26-8, 6, and 4-C-3 registered in my name in the office of the Registry of Deeds of
Rizal under T.C.T. Nos. 116631, 77013, 77011 and 216750, containing a total area of 300
hectares or 3,000,000 square meters.
You will recall that last year, I offered to the Social Security System the same properties at the
price of Four (P4.00) pesos per square meter. After 3 ocular inspection of Chairman Gaviola
one of said inspections accompanied by Commissioner Arroyo and after receiving the written
apprisal report of Manila realtor Vicente L. Narciso, the System then made a counter-offer of
Three pesos and twenty-five (P3.25) per square meter which I accepted under the condition
that the total amount be paid within a period of thirty (30) days from the date of my
acceptance (July 19, 1967). My acceptance was motivated by the fact that within said period
of time I had hoped to purchase my sugarcane hacienda in Iloilo with the proceeds I expected
from the sale. No action was however taken by the System thereon.
Recently the same properties were offered by Antonio E. Prats of the Philippine Real Estate
Exchange to the Presidential Assistant on Housing, at the price of six pesos (p6.00) per
square meter, who referred it to the System, but against no action had been taken by the
System.
Considering the lapse of time since our original offer during which prices of real estate have
increased considerably, on the one hand and in cooperation with the System's implementation
of our government's policy to provide low cost houses to its members, on the other hand, I am
renewing my offer to sell my properties to the system only at the same price of P4.00 per
square meter, or for a total amount of twelve million pesos (P12,000,000.00), provided the
total amount is paid in cash within a period of fifteen (15) days from this date.
18.
That on June 20, 1968, the Social Security Commission passed Resolution No. 636 by which the
SSS formalized its counter-offer of P3.25 per square meter. (See Annex 'F' of the complaint)
19.
That on June 25, 1968, the SSS Administrator, Mr. Gilberto Teodoro, wrote the following reply
letter (Annex '6' of the Answer) to defendant DORONILA, to wit:
This has reference to your letter dated June 19, 1966 renewing your offer to sell your
property located at Montalban, Rizal containing an area of 300 hectares at P4.00 per
square meter. Please be informed that the said letter was submitted for the consideration
of the Social Security Commission at its last meeting on June 20, 1968 and pursuant to
its Resolution No. 636, current series, it decided that the System reiterate its counter-
offer for P3.25 per square meter subject to a favorable appraisal report by a reputable
appraisal entity as regards particularly to price and housing project feasibility. Should this
counter-offer be acceptable to you, kindly so indicate by signing hereunder your
conformity thereon.
Trusting that the foregoing sufficiently advises you on the matter, I remain
Very truly yours,
GILBERTO TEODORO
Administrator
CONFORME: With condition that the sale will be consummated within Twenty (20) days
from this date.
ALFONSO DORONILA
Returned and received the original by
20.
That on June 27, 1968, the Social Security Commission passed Resolution No. 662
authorizing the Toples & Harding (Far East) to conduct an appraisal of the property of
defendant DORONILA and to submit a report thereon. (See Annex 'F' of the complaint)
21.
That on July 17, 1968, the Social Security Commission taking note of the report of Toples &
Harding (Far East), passed Resolution No. 736, approving the purchase of the 300 hectare
land of defendant DORONILA, at the price of P3.25 per square meter, for a total purchase
price of NINE MILLION SEVEN HUNDRED FIFTY THOUSAND PESOS (P9,750,000.00), and
appropriating the said amount of money for the purpose. (See Annex 'F' of the complaint).
22.
That on July 30, 1968, defendant DORONILA executed the deed of absolute sale (Annex "C"
of the complaint) over his 300-hectare land, situated in Montalban, Rizal, covered by TCT
Nos. 77011, 77013, 216747 (formerly TCT No. 116631) and 216750 (formerly TCT No.
77012), in favor of the Social Security System, for the total purchase price of NINE MILLION
SEVEN HUNDRED FIFTY THOUSAND PESOS (P9,750,000.00), Philippine currency, which
deed of sale was presented for registration in the Office of the Register of Deeds of Fiscal on
August 21, 1968.
23.
 That defendant DORONILA had received the full purchase price of NINE MILLION SEVEN P1,380,000.00 and interest on the P1,380,000.00 to be computed separately out of the
HUNDRED FIFTY THOUSAND PESOS (P9,750,000.00), Philippine Currency, in two P2,000,000.00 which it presently holds under a fixed time deposit.
installments.
SO ORDERED.
24.
December 12, 1969, Quezon City, Philippines.

That on September 17, 1968, plaintiff presented his STATEMENT OF ACCOUNT, dated (SGD.) LOURDES P. SAN DIEGO
September 16, 1968 (Xerox copy of which is attached hereto and marked as Annex plaintiff' to
defendant DORONILA for the payment of his professional services as real estate broker in the The defendant appealed to the Court of Appeals where the appeal was docketed as CA-G.R. No.
amount of P1,380,000.00, as computed on the basis of the letter-agreement, Annex "A" of the 45974-R.
complaint, which defendant failed to pay. Manila, for Quezon City, January 18,1968.

In a decision promulgated on September 19, 1974, the Court of Appeals reversed the derision of
Respectfully submitted: the trial court and dismissed the complaint because:
CRISPIN D. BAIZAS & ASSOCIATES
In any event, since it has been found that the authority of appellee expired on June 2, 1968,
and A.N. BOLINAO, JR.
rather than June 12, 1968 as the lower court opined, the inquiry would be whether up to that
By: (Sgd.) time, a written offer was made by appellee in behalf of the SSS. The stipulation is clear on this
point. There should be a written offer by the prospective buyer or by appellee for or in their
Counsel for the plaintiff behalf, and that if no such written offer is made until the last day of the authorization, the option
and authority shall expire and become null and void. Note that the emphasis is placed on the
Suite 305, ShurdutBldg.
need of a written offer to save the authority from an automatic termination on the last day of the
Intramuros, Manila authorization. We note such emphasis with special significance in receive of the condition
relative to automatic extension of not more than 15 days if negotiations have been started. The
(Sgd.) E. V. Obon question then is when are negotiations deemed started In the light of the provisions just cited, it
Atty. EUGENIO V. OBON should be when a response is given by the prospective buyer showing fits interest to buy the
property when an offer is made by the seller or broker and make an offer of the price. Strictly,
Counsel for the defendant therefore, prior to May 29, 1968, there were no negotiations yet started within contemplation of
the letter-agreement of brokerage (Exh. A). Nevertheless appellant extended appellee's
9 West Point Street exclusive authority to on May 18, 1968 (par. 10, Stipulation of Facts; R.A. p. 89), which was
automatically extended by 15 days under their agreement, to expire on June 2, 1968, if the
Quezon City period extended up to May 18, 1968 a necessary authority. For, it may even be considered as
taking the of the 15-days automatic extension, since appellee's pretension is that negotiations
have been started within the original period of 60 days. Appellant in fixing the expiry date on
ALFONSO DORONILA June 2, 1968, has thus made a liberal concession in favor of appellee, when he chose not to the
extension up to May 18, 1968 as the automatic extension which ougth to have been no more
4
Counsel for the defendant than 15 days, but which he stretched twice as long.

428 Plaza de Ferguson The petitioner assigned the following errors:

Ermita, Manila
2 I
THE RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT
The trial court rendered its decision dated December 12, 1969, the initiative part of which reads: PETITIONER WAS NOT THE EFFICIENT PROCURING CAUSE IN BRING
ABOUT THE SALE OF PRIVATE RESPONDENT DORONILA'S LAND TO
THE SSS.
WHEREFORE, judgment is hereby rendered in favor of plaintiff, ordering defendant Alfonso
Doronila, under the first cause of action, to pay to plaintiff the sum of P1,380,000.00 with interest II
thereon at the rate of 6% per annum from September 23, 1968 until fully paid; and under the
second Cause of Action, to pay plaintiff the sum of P200,000.00 as moral damages; the sum of THE RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT
P100,000.00 as exemplary damages; the sum of P150,000.00 as attorney's fees, including the THERE WAS FAILURE ON THE PART OF HEREIN PETITIONER TO
expenses of. litigation and costs of this suit. COMPLY WITH THE TERMS AND CONDITIONS OF HIS CONTRACT WITH
PRIVATE RESPONDENT.

The writ of preliminary injunction issued in this case is hereby made permanent; and the III
defendant Philippine National Bank is hereby ordered to pay to the plaintiff the amount of THE RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT
PETITIONER IS NOT ENTITLED TO HIS COMMISSION.
 IV
THE RESPONDENT COURT OF APPEALS ERRED IN AWARDING
ATTORNEY'S FEES TO PRIVATE RESPONDENT DORONILA INSTEAD OF
AFFIRMING THE AWARD OF MORAL AND EXEMPLARY DAMAGES AS
5
WELL As ATTORNEY FEES TO PETITIONER.
The Court in its Resolution of May 23, 1975 originally denied the petition for lack of merit but upon
petitioner's motion for reconsideration and supplemental petition invoking equity, resolved in its
Resolution of August 20, 1975 to give due course thereto.
From the stipulation of facts and the evidence of record, it is clear that the offer of defendant
Doronila to sell the 300 hectares of land in question to the Social Security System was formally
accepted by the System only on June 20, 1968 after the exclusive authority, Exhibit A, in favor of
the plaintiff, petitioner herein, had expired. The respondent court's factual findings that petitioner
was not the efficient procuring cause in bringing about the sale proceeding from the fact of
expiration of his exclusive authority) which are admittedly final for purposes of the present petition,
provide no basis law to grant relief to petitioner. The following pertinent excerpts from respondent
court's extensive decision amply demonstrate this:
It is noted, however, that even in his brief, when he said
According to the testimony of the plaintiff-appellee a few
days before May 29, 1968, he arranged with Mr. Gilberto
Teodoro, SSS Administrator, a meeting with the defendant
Manila. He talked with Mr. Teodoro over the telephone
and fixed the date of the meeting with defendant-appellant
Doronila for May 29, 1968, and that he was specifically
requested by Mr. Teodoro not to be present at the
meeting, as he, Teodoro, wanted to deal directly with the
defendant-appellant alone. (Tsn., pp. 4446, March 1,
1969). Finding nothing wrong with such a request, as the
sale could be caused directly or indirectly (Exh. 'A'), and
believing that as a broker all that he needed to do to be
entitled to his commission was to bring about a meeting
between the buyer and the seller as to ripen into a sale,
plaintiff-appellee readily acceded to the request.
appellee is not categorical that it was through his efforts that the meeting took
place on inlay 29, 1968. He refers to a telephone call he made "a few days
before May 29, 1968," but in the conversation he had with Mr. Teodoro, the
latter requested him not to be present in the meeting. From these facts, it is
manifest that the SSS officials never wanted to be in any way guided by, or
otherwise subject to, the mediation or intervention of, appellee relative to the
negotiation for the purchase of the property. It is thus more reasonable to
conclude that if a meeting was held on May 29, 1968, it was done
independently, and not by virtue of, appellee's wish or efforts to hold such
6
meeting.
xxx xxx xxx
... It is even doubtful if he tried to make any arrangement for meeting at all,
because on May 18, 1968, he told appellant:
... we hereby make a firm offer, for and in behalf of our
buyer, to purchase said property at the price of Four
Pesos and Fifty Centavos (P4.50) per square meter ....
As this offer is evidently made in behalf of buyer other than the SSS which had
never offered the price of P4.50 per square meter, appellee could not have at
the same time arranged a meeting between the SSS officials and appellant
with a view to consummating the sale in favor of the SSS which had made an
offer of only PS.25 per sq. m. and thus lose the much bigger profit he would
realize with a higher price of P4.50 per sq. meter. This 'firm offer' of P4.50 per
sq. m. made by appellee betrayed his lack of any efficient intervention in the
7
negotiations with the SSS for the purchase by it of appellant's property ...
xxx xxx xxx
... This becomes more evident when it is considered that on May 6, 1968 he
was making his first offer to sell the property at P6.00 per sq. m. to the SSS to
which offer he received no answer. It is this cold indifference of the SSS to him
that must have prompted him to look for other buyers, resulting in his making
the firm offer of 714.50 per sq. m. on May 18, 1968, a fact which only goes to
show that for being ignored by the SSS, he gave up all effort to deal with the
SSS. ...
8
xxx xxx xxx
... For him to claim that it was he who aroused the interest of the SSS in
buying appellant's property is to ignore the fact that as early as June, (July)
1967, the SSS had directly dealt with appellant to such an extent that the price
of P3.25 as offered by the SSS was accepted by appellant, the latter imposing
only the condition that the price should be paid in cash, and within 30 days
from the date of the acceptance. It can truly be said then that the interest of
SSS to acquire the property had been sufficiently aroused for there to be any
need for appellee to stimulate it further. Appellee should know this fact for
according to him, the 10-day grace period was agreed upon to give the SSS a
chance to pay the price of the land at P3.25 per sq. m., as a "compromise" to
appellant's insistence that the SSS be excluded from appellee's option or
9
authority to sell the land.
... There should be a written offer by the prospective buyer or by appellee for
or in their behalf, and that if no such written offer is made until the last day of
the authorization, the option and authority shall expired and become null and
10
void. ... Yet, no such written offer was made. ...
In equity, however, the Court notes that petitioner had Monthly taken steps to bring back together
respondent Doronila and the SSS, among which may be mentioned the following:
In July, 1967, prior to February 14, 1968, respondent Doronila had offered to sell the land in
question to the Social Security System Direct negotiations were made by Doronila with the SSS.
The SSS did not then accept the offer of Doronila. Thereafter, Doronila executed the exclusive
authority in favor of petitioner Prats on February 14, 1968.
Prats communicated with the Office of the Presidential Housing Commission on February 23, 1968
offering the Doronila property. Prats wrote a follow-up letter on April is, 1968 which was answered
by the Commission with the suggestion that the property be offered directly to the SSS. Prats wrote
the SSS on March 16, 1968, inviting Chairman Ramon Gaviola, Jr. to discuss the offer of the sale
of the property in question to the SSS. On May 6, 1968, Prats made a formal written offer to the
Social Security System to self the 300 hectare land of Doronila at the price of P6.00 per square
meter. Doronila received on May 17, 1968 from the SSS Administrator a telegram that the SSS
was considering the purchase of Doronilas property for its housing project. Prats and his witness
Raagas testified that Prats had several dinner and lunch meetings with Doronila and/or his
nephew, Atty. Manuel D. Asencio, regarding the progress of the negotiations with the SSS.

Atty. Asencio had declared that he and his uncle, Alfonso Doronila, were invited several times by
Prats, sometimes to luncheons and sometimes to dinner. On a Sunday, June 2, 1968, Prats and
Raagas had luncheon in Sulu Hotel in Quezon City and they were joined later by Chairman Gaviola
of the SSS.

The Court has noted on the other hand that Doronila finally sold the property to the Social Security
System at P3.25 per square meter which was the very same price counter-offered by the Social
Security System and accepted by him in July, 1967 when he alone was dealing exclusively with the
said buyer long before Prats came into the picture but that on the other hand Prats' efforts
somehow were instrumental in bringing them together again and finally consummating the
transaction at the same price of P3.25 square meter, although such finalization was after the
expiration of Prats' extended exclusive authority. Still such price was higher than that stipulated in
the exclusive authority granted by Doronila to Prats.

Under the circumstances, the Court grants in equity the sum of One Hundred Thousand Pesos
(P100,000.00) by way of compensation for his efforts and assistance in the transaction, which
however was finalized and consummated after the expiration of his exclusive authority and sets
aside the P10,000.00 attorneys' fees award adjudged against him by respondent court.

WHEREFORE, the derision appealed from is hereby affirmed, with the modification that private
respondent Alfonso Doronila in equity is ordered to pay petitioner or his heirs the amount of One
Hundred Thousand Pesos (P100,000.00) and that the portion of the said decision sell petitioner
Prats to pay respondent Doronila attorneys' fees in the sum of P10,000.00 is set aside.

The lifting of the injunction issued by the lower court on the P2,000,000.00 cash deposit of
respondent Doronila as ordered by respondent court is hereby with the exception of the sum of
One Hundred Thousand Pesos (P100,000.00) which is ordered segregated therefrom to satisfy the
award herein given to petitioner, the lifting of said injunction, as herein ordered, is immediately
executory upon promulgation hereof.

No pronouncement as to costs.
C. THE AGENT
54 - G.R. No. 94753. April 7, 1993.
MANOTOK BROTHERS, INC., petitioner,
vs.
THE HONORABLE COURT OF APPEALS, THE HONORABLE JUDGE OF THE REGIONAL
TRIAL COURT OF MANILA (Branch VI), and SALVADOR SALIGUMBA, respondents.
SYLLABUS
1. CIVIL LAW; AGENCY; AGENT'S COMMISSION; WHEN ENTITLED' RULE; APPLICATION IN
CASE AT BAR. In an earlier case, this Court ruled that when there is a close, proximate and
causal connection between the agent's efforts and labor and the principal's sale of his property, the
agent is entitled to a commission. We agree with respondent Court that the City of Manila
ultimately became the purchaser of petitioner's property mainly through the efforts of private
respondent. Without discounting the fact that when Municipal Ordinance No. 6603 was signed by
the City Mayor on May 17, 1968, private respondent's authority had already expired, it is to be
noted that the ordinance was approved on April 26, 1968 when private respondent's authorization
was still in force. Moreover, the approval by the City Mayor came only three days after the
expiration of private respondent's authority. It is also worth emphasizing that from the records, the
only party given a written authority by petitioner to negotiate the sale from July 5, 1966 to May 14,
1968 was private respondent.
DECISION
CAMPOS, JR., J p:
Petitioner Manotok Brothers., Inc., by way of the instant Petition docketed as G.R. No. 94753
sought relief from this Court's Resolution dated May 3, 1989, which reads:
"G.R. No. 78898 (Manotok Brothers, Inc. vs. Salvador Saligumba and Court of Appeals).
Considering the manifestation of compliance by counsel for petitioner dated April 14, 1989 with the
resolution of March 13, 1989 which required the petitioner to locate private respondent and to
inform this Court of the present address of said private respondent, the Court Resolved to
DISMISS this case, as the issues cannot be joined as private respondent's and counsel's
addresses cannot be furnished by the petitioner to this court." 1
In addition, petitioner prayed for the issuance of a preliminary injunction to prevent irreparable
injury to itself pending resolution by this Court of its cause. Petitioner likewise urged this Court to
hold in contempt private respondent for allegedly adopting sinister ploy to deprive petitioner of its
constitutional right to due process.
Acting on said Petition, this Court in a Resolution 2 dated October 1, 1990 set aside the entry of
judgment made on May 3, 1989 in case G.R. No. 78898; admitted the amended petition; and
issued a temporary restraining order to restrain the execution of the judgment appealed from.
The amended petition 3 admitted, by this Court sought relief from this Court's Resolution
abovequoted. In the alternative, petitioner begged leave of court to re-file its Petition for Certiorari 4
(G.R. No. 78898) grounded on the allegation that petitioner was deprived of its opportunity to be
heard.
The facts as found by the appellate court, revealed that petitioner herein (then defendant-appellant)
is the owner of a certain parcel of land and building which were formerly leased by the City of
Manila and used by the Claro M. Recto High School, at M.F. Jhocson Street, Sampaloc Manila.
By means of a letter 5 dated July 5, 1966, petitioner authorized herein private respondent Salvador
Saligumba to negotiate with the City of Manila the sale of the aforementioned property for not less
than P425,000.00. In the same writing, petitioner agreed to pay private respondent a five percent
(5%) commission in the event the sale is finally consummated and paid.
Petitioner, on March 4, 1967, executed another letter 6 extending the authority of private
respondent for 120 days. Thereafter, another extension was granted to him for 120 more days, as
evidenced by another letter 7 dated June 26, 1967.
Finally, through another letter 8 dated November 16, 1967, the corporation with Rufino Manotok, its
President, as signatory, authorized private respondent to finalize and consummate the sale of the
property to the City of Manila for not less than P410,000.00. With this letter came another
extension of 180 days.
The Municipal Board of the City of Manila eventually, on April 26, 1968, passed Ordinance No.
6603, appropriating the sum of P410,816.00 for the purchase of the property which private
respondent was authorized to sell. Said ordinance however, was signed by the City Mayor only on
May 17, 1968, one hundred eighty three (183) days after the last letter of authorization.
On January 14, 1969, the parties signed the deed of sale of the subject property. The initial
payment of P200,000.00 having been made, the purchase price was fully satisfied with a second
payment on April 8, 1969 by a check in the amount of P210,816.00.
Notwithstanding the realization of the sale, private respondent never received any commission,
which should have amounted to P20,554.50. This was due to the refusal of petitioner to pay private
respondent said amount as the former does not recognize the latter's role as agent in the
transaction.
Consequently, on June 29, 1969, private respondent filed a complaint against petitioner, alleging
that he had successfully negotiated the sale of the property. He claimed that it was because of his
efforts that the Municipal Board of Manila passed Ordinance No. 6603 which appropriated the sum
for the payment of the property subject of the sale.
Petitioner claimed otherwise. It denied the claim of private respondent on the following grounds: (1)
private respondent would be entitled to a commission only if the sale was consummated and the
price paid within the period given in the respective letters of authority; and (2) private respondent
was not the person responsible for the negotiation and consummation of the sale, instead it was
Filomeno E. Huelgas, the PTA president for 1967-1968 of the Claro M. Recto High School. As a
counterclaim, petitioner (then defendant-appellant) demanded the sum of P4,000.00 as attorney's
fees and for moral damages.
Thereafter, trial ensued. Private respondent, then plaintiff, testified as to the efforts undertaken by
him to ensure the consummation of the sale. He recounted that it first began at a meeting with
Rufino Manotok at the office of Fructuoso Ancheta, principal of C.M. Recto High School. Atty.
Dominador Bisbal, then president of the PTA, was also present. The meeting was set precisely to
ask private respondent to negotiate the sale of the school lot and building to the City of Manila.
Private respondent then went to Councilor Mariano Magsalin, the author of the Ordinance which
appropriated the money for the purchase of said property, to present the project. He also went to
the Assessor's Office for appraisal of the value of the property. While these transpired and his
letters of authority expired, Rufino Manotok always renewed the former's authorization until the last
was given, which was to remain in force until May 14, 1968. After securing the report of the
appraisal committee, he went to the City Mayor's Office, which indorsed the matter to the
Superintendent of City Schools of Manila. The latter office approved the report and so private
respondent went back to the City Mayor's Office, which thereafter indorsed the same to the
Municipal Board for appropriation. Subsequently, on April 26, 1968, Ordinance No. 6603 was
passed by the Municipal Board for the appropriation of the sum corresponding to the purchase
price. Petitioner received the full payment of the purchase price, but private respondent did not
receive a single centavo as commission.
Fructuoso Ancheta and Atty. Dominador Bisbal both testified acknowledging the authority of private
respondent regarding the transaction.
Petitioner presented as its witnesses Filomeno Huelgas and the petitioner's President, Rufino
Manotok.
Huelgas testified to the effect that after being inducted as PTA president in August, 1967 he
followed up the sale from the start with Councilor Magsalin until after it was approved by the Mayor
on May 17, 1968. He. also said that he came to know Rufino Manotok only in August, 1968, at
which meeting the latter told him that he would be given a "gratification" in the amount of
P20,000.00 if the sale was expedited.
Subsequently, this Court issued a Resolution dated May 3, 1989 dismissing petitioner's case on
the ground that the issues raised in the case at bar cannot be joined. Thus, the above-entitled case
became final and executory by the entry of judgment on May 3, 1989.
Thereafter, on January 9, 1990 private respondent filed a Motion to Execute the said judgment
before the court of origin. Upon discovery of said development, petitioner verified with the court of
origin the circumstances by which private respondent obtained knowledge of the resolution of this
Court. Sensing a fraudulent scheme employed by private respondent, petitioner then instituted this
instant Petition for Relief, on August 30, 1990. On September 13, 1990, said petition was amended
to include, in the alternative, its petition to re-file its Petition for Certiorari (G.R. No. 78898).
The sole issue to be addressed in this petition is whether or not private respondent is entitled to the
five percent (5%) agent's commission.
It is petitioner's contention that as a broker, private respondent's job is to bring together the parties
to a transaction. Accordingly, if the broker does not succeed in bringing the minds of the purchaser
and the vendor to an agreement with respect to the sale, he is not entitled to a commission.
Private respondent, on the other hand, opposes petitioner's position maintaining that it was
because of his efforts that a purchase actually materialized between the parties.

Rufino Manotok confirmed that he knew Huelgas and that there was an agreement between the
We rule in favor of private respondent.
two of them regarding the "gratification".

At first sight, it would seem that private respondent is not entitled to any commission as he was not
On rebuttal, Atty. Bisbal said that Huelgas was present in the PTA meetings from 1965 to 1967 but
successful in consummating the sale between the parties, for the sole reason that when the Deed
he never offered to help in the acquisition of said property. Moreover, he testified that Huelgas was
of Sale was finally executed, his extended authority had already expired. By this alone, one might
aware of the fact that it was private respondent who was negotiating the sale of the subject
be misled to believe that this case squarely falls within the ambit of the established principle that a
property.
broker or agent is not entitled to any commission until he has successfully done the job given to
him. 13
Thereafter, the then Court of First Instance (now, Regional Trial Court) rendered judgment
sentencing petitioner and/or Rufino Manotok to pay unto private respondent the sum of P20,540.00
Going deeper however into the case would reveal that it is within the coverage of the exception
by way of his commission fees with legal interest thereon from the date of the filing of the complaint
rather than of the general rule, the exception being that enunciated in the case of Prats vs. Court of
until payment. The lower court also ordered petitioner to pay private respondent the amount of
Appeals. 14 In the said case, this Court ruled in favor of claimant-agent, despite the expiration of
P4,000.00 as and for attorney's fees. 9
his authority, when a sale was finally consummated.

Petitioner appealed said decision, but to no avail. Respondent Court of Appeals affirmed the said
In its decision in the abovecited case, this Court said, that while it was respondent court's (referring
ruling of the trial court. 10
to the Court of Appeals) factual findings that petitioner Prats (claimant-agent) was not the efficient
procuring cause in bringing about the sale (prescinding from the fact of expiration of his exclusive
Its Motion for Reconsideration having been denied by respondent appellate court in a Resolution authority), still petitioner was awarded compensation for his services. And We quote:
dated June 22, 1987, petitioner seasonably elevated its case on Petition for Review on Certiorari
on August 10, 1987 before this Court, docketed as G.R. No. 78898.
"In equity, however, the Court notes that petitioner had diligently taken steps to bring back together
respondent Doronila and the SSS,.
Acting on said Petition, this Court issued a Minute Resolution 11 dated August 31, 1987 ordering
private respondent to comment on said Petition.
xxx xxx xxx

It appearing that the abovementioned Resolution was returned unserved with the postmaster's
The court has noted on the other hand that Doronila finally sold the property to the Social Security
notation "unclaimed", this Court in another Resolution 12 dated March 13, 1989, required petitioner
System at P3.25 per square meter which was the very same price counter-offered by the Social
to locate private respondent and to inform this Court of the present address of private respondent
Security System and accepted by him in July, 1967 when he alone was dealing exclusively with the
within ten (10) days from notice. As petitioner was unsuccessful in its efforts to locate private
said buyer long before Prats came into the picture but that on the other hand Prats' efforts
respondent, it opted to manifest that private respondent's last address was the same as that
somehow were instrumental in bringing them together again and finally consummating the
address to which this. Court's Resolution was forwarded.
transaction at the same price of P3.25 per square meter, although such finalization was after the
expiration of Prats' extended exclusive authority.
xxx xxx xxx

Under the circumstances, the Court grants in equity the sum of One hundred Thousand Pesos
(P100,000.00) by way of compensation for his efforts and assistance in the transaction, which
however was finalized and consummated after the expiration of his exclusive authority . . ." 15
(Emphasis supplied.).

From the foregoing, it follows then that private respondent herein, with more reason, should be
paid his commission, While in Prats vs. Court of Appeals, the agent was not even the efficient
procuring cause in bringing about the sale, unlike in the case at bar, it was still held therein that the
agent was entitled to compensation. In the case at bar, private respondent is the efficient procuring
cause for without his efforts, the municipality would not have anything to pass and the Mayor would
not have anything to approve.

In an earlier case, 16 this Court ruled that when there is a close, proximate and causal connection
between the agent's efforts and labor and the principal's sale of his property, the agent is entitled to
a commission.

We agree with respondent Court that the City of Manila ultimately became the purchaser of
petitioner's property mainly through the efforts of private respondent. Without discounting the fact
that when Municipal Ordinance No. 6603 was signed by the City Mayor on May 17, 1968, private
respondent's authority had already expired, it is to be noted that the ordinance was approved on
April 26, 1968 when private respondent's authorization was still in force. Moreover, the approval by
the City Mayor came only three days after the expiration of private respondent's authority. It is also
worth emphasizing that from the records, the only party given a written authority by petitioner to
negotiate the sale from July 5, 1966 to May 14, 1968 was private respondent.

Contrary to what petitioner advances, the case of Danon vs. Brimo, 17 on which it heavily anchors
its justification for the denial of private respondent's claim, does not apply squarely to the instant
petition. Claimant-agent in said case fully comprehended the possibility that he may not realize the
agent's commission as he was informed that another agent was also negotiating the sale and thus,
compensation will pertain to the one who finds a purchaser and eventually effects the sale. Such is
not the case herein. On the contrary, private respondent pursued with his goal of seeing that the
parties reach an agreement, on the belief that he alone was transacting the business with the City
Government as this was what petitioner made it to appear.

While it may be true that Filomeno Huelgas followed up the matter with Councilor Magsalin, the
author of Municipal Ordinance No. 6603 and Mayor Villegas, his intervention regarding the
purchase came only after the ordinance had already been passed when the buyer has already
agreed to the purchase and to the price for which said property is to be paid. Without the efforts of
private respondent then, Mayor Villegas would have nothing to approve in the first place. It was
actually private respondent's labor that had set in motion the intervention of the third party that
produced the sale, hence he should be amply compensated.

WHEREFORE, in the light of the foregoing and finding no reversible error committed by
respondent Court, the decision of the Court of Appeals is hereby AFFIRMED. The temporary
restraining order issued by this Court in its Resolution dated October 1, 1990 is hereby lifted.

SO ORDERED.
C. THE AGENT
55 - G.R. No. 95909 August 16, 1991
UNILAND RESOURCES, petitioner,
vs.
DEVELOPMENT BANK OF THE PHILIPPINES,* respondent.
GANCAYCO, J.:
In the law on agency, it is elementary that when the main transaction between the principal parties
1
does not materialize, the claim for commission of the duly authorized broker is disallowed. How
about the instance when the sale was eventually consummated between parties introduced by a
middleman who, in the first place, had no authority, express or implied, from the seller to broker the
transaction? Should the interloper be allowed a commission? On these simplified terms rests the
nature of the controversy on which this case turns.
2
As stated by the respondent Court of Appeals, the ambient circumstances of this case are as
follows:
(1) [Petitioner] Uniland Resources is a private corporation engaged in real estate
brokerage and licensed as such (p. 2, Rec.), while [respondent] DBP, as we all know
[sic], is a government corporation engaged in finance and banking in a proprietary
capacity.
(2) Long before this case arose, Marinduque Mining Corporation obtained a loan from
the DBP and as security therefor, mortgaged certain real properties to the latter, among
them two lots located in Makati, M.M., described as follows:
(a) Corner lot, covered by TCT No. 114138, located at Pasong Tamo, Makati
with an area of 3,330 sq. mts. on which is constructed a [four]-story concrete
building, etc., which, for brevity, shall be called the office building lot; and
(b) Lot covered by TCT No. 16279 with 12,355 sq. mts located at Pasong
Tamo, Makati, on which is constructed a concrete/steel warehouse, etc.,
which, for brevity, shall be called the warehouse lot.
The aforesaid lots had, however, been previously mortgaged by Marinduque Mining
Corp., to Caltex, and the mortgage in favor of DBP was entered on their titles as a
second mortgage (Pre-Trial Order, p. 37, Rec.).
The account of the Marinduque Mining Corp., with the DBP was later transferred to the
Assets Privatization Trust (APT) pursuant to Proclamation No. 50.
(3) For failure of the Marinduque Mining Corp. to pay its obligations to Caltex, the latter
foreclosed its mortgage on the aforesaid two lots (pp. 37-38, Rec.). APT on the other
hand, to recover its investment on the Marinduque Account, offered for sale to the public
through DBP its right of redemption on said two lots by public bidding (Exhs. "1" and "2").
(4) Considering, however, that Caltex had required that both lots be redeemed, the
bidding guidelines set by DBP provided that any bid to purchase either of the two lots
would be considered only should there be two bids or a bid for the two items which,
when combined, would fully cover the sale of the two lots in question (Exh. "1").
(5) The aforesaid bidding was held on May 5, 1987 with only one bidder, the Counsel
Realty Corp. [an affiliate of Glaxo, Philippines, the client of petitioner], which offered a bid
only for the warehouse lot in the amount of P23,900,000.00. Said bid was thus rejected
by DBP.
(6) Seeing, however, that it would make a profit if it redeemed the two lots and then offer
them for sale, and as its right to redeem said lots from Caltex would expire on May 8,
1987, DBP retrieved the account from APT and, on the last day for the exercise of its
right of redemption, May 8, 1987, redeemed said lots from Caltex for P33,096,321.62
(Exh. "5"), thus acquiring them as its physical assets.
(7) In preparation for the sale of the two lots in question, DBP called a pre-bidding
conference wherein a new set of bidding guidelines were formulated (Exh. "3"). Then, on
July 30,1987, the public bidding for the sale of the two lots was held and again, there
was only one bidder, the Charges Realty Corp. [another affiliate of Glaxo, Philippines],
for only the warehouse lot and for the amount of P24,070,000.00, which is slightly higher
than the amount previously offered by Counsel Realty Corp., therefor at the May 5, 1987
bidding (see Exh. "5," p. 1 00, Rec.). No bid was submitted for the office building lot (id.).
(8) Notwithstanding that there was no bidder for the office building lot, the DBP approved
the sale of the warehouse lot to Charges Realty Corp., and on November 23, 1987, the
proper documentation of the sale was made (Exh. "D"). As for the office building lot, it
was later sold by DBP in a negotiated sale to the Bank of P.I. as trustee for the
"Perpetual Care Fund of the Manila Memorial Park" for P17,460,000.00, and proper
documentation of the sale was made on November 17, 1987 (Exh. "E" and
submarkings). The DBP admittedly paid the (five percent) broker's fee on this sale to the
DBP Management Corporation, which acted as broker for said negotiated sale (p. 15,
Appellant DBP's brief).
(9) After the aforesaid sale, [petitioner], through its President, wrote two letters to
[respondent DBP], the first through its Senior Vice President (Exh. "C"), and, the second
through its Vice Chairman (Exh. "4" [sic], asking for the payment of its broker's fee in
instrumenting the sale of its (DBP's) warehouse lot to Charges Realty Corp. The claim
was referred to the Bidding Committee chaired by Amanda S. Guiam which met on
November 9, 1987, and which, on November 18, 1987, issued a decision denying
[petitioner's] claim (Exh. "5"). Hence, the instant case filed by [petitioner] to recover from
[respondent] DBP the aforesaid broker's fee.
After trial, the lower court, on October 25, 1988, rendered judgment
ORDERING [respondent DBP] to pay [petitioner] the sum of P1,203,500,00
which is the equivalent of [five percent] broker's fee plus legal interest thereto
(sic) from the filing of the complaint on February 18, 1988 until fully paid and
the sum of P50,000.00 as and for attorney's fees. Costs against [respondent
DBP]. (p. 122, Rec.).
3
4
On appeal, the Court of Appeals reversed the judgment of the lower court and dismissed the
5
complaint. The motion for reconsideration filed by petitioner was also subsequently denied.
Petitioner is now before this Court alleging that the petition "RAISES A QUESTION OF LAW IN
THE SENSE THAT THE RESPONDENT COURT OF APPEALS BASED ITS DECISION ONLY ON
 6
THE CONTROVERSIAL FACTS FAVORABLE TO THE PRIVATE RESPONDENT DBP, primarily
making capital of the disparity between the factual conclusions of the trial court and of the appellate
court. Petitioner asserts that the respondent Court of Appeals disregarded evidence in its favor
consisting of its letters to respondent DBP's higher officers sent prior to the bidding and sale,
wherein petitioner requested accreditation as a broker and, in the process of informing that it had
offered the DBP properties for sale, also volunteered the name of its client, Glaxo, Philippines, as
7 a right to represent him. From this principle, among others, springs the relationship of agency
an interested prospective buyer.
The rule is that in petitions for certiorari as a mode of appeal, only questions of law distinctly set
8
forth may be raised. Such questions have been defined as those that do not call for any
9
examination of the probative value of the evidence presented by the parties. Petitioner's singular
assignment of error would, however, have this Court go over the facts of this case because it
necessarily involves the examination of the evidence and its subsequent reevaluation. Under the
present proceeding, the same, therefore, cannot be done.
It bears emphasizing that mere disagreement between the Court of Appeals and the trial court as
to the facts of a case does not of itself warrant this Court's review of the same. It has been held
that the doctrine that the findings of fact made by the Court of Appeals, being conclusive in nature,
are binding on this Court, applies even if the Court of Appeals was in disagreement with the lower
court as to the weight of evidence with a consequent reversal of its findings of fact, so long as the
findings of the Court of Appeals are borne out by the record or based on substantial
10
evidence. while the foregoing doctrine is not absolute, petitioner has not sufficiently proved that
11
his case falls under the known exceptions.
Be that as it may, the Court has perused the assailed decision of the Court of Appeals and still
finds the primary assertion of petitioner to be unfounded. The Court of Appeals has addressed all
the factual contentions of petitioner and chose not to give credence to petitioner's version.
Moreover, the findings of the Court of Appeals are consistent with, and sufficiently supported by,
the records of this case.
It is obvious that petitioner was never able to secure the required accreditation from respondent
DBP to transact business on behalf of the latter. The letters sent by petitioner to the higher officers
of the DBP and the APT are merely indicative of petitioner's desire to secure such accreditation. At
best these missives are self-serving; the most that they prove is that they were sent by petitioner
and received by respondent DBP, which clearly never agreed to be bound thereto. As declared by
the trial court even when it found in favor of petitioner, there was no express reply from the DBP or
12
the APT as to the accreditation sought by petitioner. From the very beginning, therefore,
petitioner was aware that it had no express authority from DBP to find buyers of its properties.
13
In its reply submitted pursuant to the resolution requiring the same petitioner also invokes Article
14
1869 of the new Civil Code in contending that an implied agency existed. Petitioner argues that it
"should have been stopped, disauthorized and outrightly prevented from dealing the 12,355 sq. m
15
(with warehouse) [sic] by the DBP from the inception." On the contrary, these steps were never
necessary. In the course of petitioner's dealings with the DBP, it was always made clear to
petitioner that only accredited brokers may look for buyers on behalf of respondent DBP. This is
not a situation wherein a third party was prejudiced by the refusal of respondent DBP to recognize
petitioner as its broker. The controversy is only between the DBP and petitioner, to whom it was
emphasized in no uncertain terms that the arrangement sought did not exist. Article 1869,
therefore, has no room for operation in this case.
concerned. They are designed and adopted specifically to prevent the occurrence of situations
similar to that obtaining in this case.
More importantly, petitioner's stance goes against the basic axiom in Civil Law that no one may
contract in the name of another without being authorized by the latter, unless the former has by law
17
which, as with other contracts, is one founded on mutual consent: the principal agrees to be bound
by the acts of the agent and the latter in turn consents to render service on behalf or in
18
representation of the principal.
Petitioner, however, also invokes equity considerations, and in equity, the Court recognizes the
efforts of petitioner in bringing together respondent DBP and an interested and financially-able
buyer. While not actively involved in the actual bidding and transfer of ownership of the warehouse
property, petitioner may be said to have initiated, albeit without proper authority, the transaction
that eventually took place. The Court is also aware that respondent DBP was able to realize a
substantial profit from the sale of its two properties. While purely circumstantial, there is sufficient
reason to believe that the DBP became more confident to venture and redeem the properties from
the APT due to the presence of a ready and willing buyer, as communicated and assured by
petitioner.
19
In Prats v. Court of Appeals, there was a finding that the petitioner therein as the agent was no
longer the efficient procuring cause in bringing about the sale proceeding from the fact of expiration
of his exclusive authority. There was therefore no basis in law to grant the relief sought.
Nevertheless, this Court in equity granted the sum of P100,000.00, out of the P1,380,000.00
claimed as commission, by way of compensation for the efforts and assistance rendered by the
agent in the transaction prior to the expiration of his authority. These consist in offering the lot for
sale to the eventual buyer, sending follow-up letters, inviting the buyer to dinner and luncheon
meetings, etc.
Parallel circumstances obtain in the case at bar. It was petitioner who advised Glaxo, Philippines of
the availability of the warehouse property and aroused its interest over the same. Through
petitioner, respondent DBP was directly informed of the existence of an interested buyer.
Petitioner's persistence in communicating with respondent DBP reinforced the seriousness of the
offer. This piece of information no doubt had a bearing on the subsequent decisions made by
respondent DBP as regards the disposition of its properties.
Petitioner claims the amount of P1,203,500.00 awarded by the trial court as commission computed
at five percent of the sale price of the warehouse property. Under the foregoing disquisition and
following the precedent, as well as roughly the proportion, set in Prats, the Court in equity grants
petitioner the sum of One Hundred Thousand Pesos (Pl00,000.00) for the role it played in the
transaction between respondent DBP and buyer Glaxo, Philippines. It is emphasized, however,
that the circumstances that came into play in this case do not meet the minimum legal standards
required for the existence of an agency relationship and that the award is based purely on equity
considerations. Accordingly, petitioner's other arguments need not now be discussed.
WHEREFORE, the decision appealed from is hereby AFFIRMED, with the MODIFICATION that in
equity respondent DBP is ordered to pay petitioner the amount of One Hundred Thousand Pesos
(P100,000.00). No pronouncement as to costs.

SO ORDERED.
Petitioner would also disparage the formality of accreditation as merely a mechanical act, which
requires not much discretion, as long as a person or entity looks for a buyer [and] initiate or
16
promote [sic] the interests of the seller. Being engaged in business, petitioner should do better to
adopt the opposite attitude and appreciate that formalities, such as the need for accreditation,
result from the evolution of sound business practices for the protection and benefit of all parties
C. THE AGENT
56 - 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.
MAKASIAR, J.:
Petitioner-appellant Vicente M. Domingo, now deceased and represented by his heirs, Antonina
Raymundo vda. de Domingo, Ricardo, Cesar, Amelia, Vicente Jr., Salvacion, Irene and Joselito, all
surnamed Domingo, sought the reversal of the majority decision dated, March 12, 1969 of the
Special Division of Five of the Court of Appeals affirming the judgment of the trial court, which
sentenced the said Vicente M. Domingo to pay Gregorio M. Domingo P2,307.50 and the intervenor
Teofilo P. Purisima P2,607.50 with interest on both amounts from the date of the filing of the
complaint, to pay Gregorio Domingo P1,000.00 as moral and exemplary damages and P500.00 as
attorney's fees plus costs.
The following facts were found to be established by the majority of the Special Division of Five of
the Court of Appeals:
In a document Exhibit "A" executed on June 2, 1956, Vicente M. Domingo granted Gregorio
Domingo, a real estate broker, the exclusive agency to sell his lot No. 883 of Piedad Estate with an
area of about 88,477 square meters at the rate of P2.00 per square meter (or for P176,954.00) with
a commission of 5% on the total price, if the property is sold by Vicente or by anyone else during
the 30-day duration of the agency or if the property is sold by Vicente within three months from the
termination of the agency to apurchaser to whom it was submitted by Gregorio during the
continuance of the agency with notice to Vicente. The said agency contract was in triplicate, one
copy was given to Vicente, while the original and another copy were retained by Gregorio.
On June 3, 1956, Gregorio authorized the intervenor Teofilo P. Purisima to look for a buyer,
promising him one-half of the 5% commission.
Thereafter, Teofilo Purisima introduced Oscar de Leon to Gregorio as a prospective buyer.
Oscar de Leon submitted a written offer which was very much lower than the price of P2.00 per
square meter (Exhibit "B"). Vicente directed Gregorio to tell Oscar de Leon to raise his offer. After
several conferences between Gregorio and Oscar de Leon, the latter raised his offer to
P109,000.00 on June 20, 1956 as evidenced by Exhibit "C", to which Vicente agreed by signing
Exhibit "C". Upon demand of Vicente, Oscar de Leon issued to him a check in the amount of
P1,000.00 as earnest money, after which Vicente advanced to Gregorio the sum of P300.00. Oscar
de Leon confirmed his former offer to pay for the property at P1.20 per square meter in another
letter, Exhibit "D". Subsequently, Vicente asked for an additional amount of P1,000.00 as earnest
money, which Oscar de Leon promised to deliver to him. Thereafter, Exhibit "C" was amended to
the effect that Oscar de Leon will vacate on or about September 15, 1956 his house and lot at
Denver Street, Quezon City which is part of the purchase price. It was again amended to the effect
that Oscar will vacate his house and lot on December 1, 1956, because his wife was on the family
way and Vicente could stay in lot No. 883 of Piedad Estate until June 1, 1957, in a document dated
June 30, 1956 (the year 1957 therein is a mere typographical error) and marked Exhibit "D".
Pursuant to his promise to Gregorio, Oscar gave him as a gift or propina the sum of One Thousand
Pesos (P1,000.00) for succeeding in persuading Vicente to sell his lot at P1.20 per square meter or
a total in round figure of One Hundred Nine Thousand Pesos (P109,000.00). This gift of One
Thousand Pesos (P1,000.00) was not disclosed by Gregorio to Vicente. Neither did Oscar pay
Vicente the additional amount of One Thousand Pesos (P1,000.00) by way of earnest money. In
the deed of sale was not executed on August 1, 1956 as stipulated in Exhibit "C" nor on August 15,
1956 as extended by Vicente, Oscar told Gregorio that he did not receive his money from his
brother in the United States, for which reason he was giving up the negotiation including the
amount of One Thousand Pesos (P1,000.00) given as earnest money to Vicente and the One
Thousand Pesos (P1,000.00) given to Gregorio 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
1
his principal.
Consequently, the decisive legal provisions are in found Articles 1891 and 1909 of the New Civil
Code.
Art. 1891. Every agent is bound to render an account of his transactions and to
deliver to the principal whatever he may have received by virtue of the agency,
even though it may not be owing to the principal.
Every stipulation exempting the agent from the obligation to render an account
shall be void.
xxx xxx xxx
Art. 1909. The agent is responsible not only for fraud but also for negligence,
which shall be judged with more less rigor by the courts, according to whether
the agency was or was not for a compensation.
Article 1891 of the New Civil Code amends Article 17 of the old Spanish Civil Code which provides
that:
Art. 1720. Every agent is bound to give an account of his transaction and to
pay to the principal whatever he may have received by virtue of the agency,
even though what he has received is not due to the principal.
The modification contained in the first paragraph Article 1891 consists in changing the phrase "to
pay" to "to deliver", which latter term is more comprehensive than the former.
Paragraph 2 of Article 1891 is a new addition designed to stress the highest loyalty that is required
to an agent condemning as void any stipulation exempting the agent from the duty and liability
imposed on him in paragraph one thereof.
Article 1909 of the New Civil Code is essentially a reinstatement of Article 1726 of the old Spanish
Civil Code which reads thus:
Art. 1726. The agent is liable not only for fraud, but also for negligence, which
shall be judged with more or less severity by the courts, according to whether
the agency was gratuitous or for a price or reward.
The aforecited provisions demand the utmost good faith, fidelity, honesty, candor and fairness on
the part of the agent, the real estate broker in this case, to his principal, the vendor. The law
imposes upon the agent the absolute obligation to make a full disclosure or complete account to
his principal of all his transactions and other material facts relevant to the agency, so much so that
the law as amended does not countenance any stipulation exempting the agent from such an
obligation and considers such an exemption as void. The duty of an agent is likened to that of a
trustee. This is not a technical or arbitrary rule but a rule founded on the highest and truest
2
principle of morality as well as of the strictest justice.
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
3
to prevent the possibility of any wrong, not to remedy or repair an actual damage. 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
4
of his employer as required by said Article 1720, said insurance agent was convicted estafa. 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
5
accepted the correctness of his account previously rendered.
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
6
cannot retain the commission pertaining to him by subtracting the same from his collections.
A lawyer is equally liable unnder said Article 1720 if he fails to deliver to his client all the money
7
and property received by him for his client despite his attorney's lien. The duty of a commission
agent to render a full account his operations to his principal was reiterated in Duhart, etc. vs.
8
Macias.
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 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.

The intent with which the agent took a secret profit has been held immaterial
As a necessary consequence of such breach of trust, defendant-appellee Gregorio Domingo must
where the agent has in fact entered into a relationship inconsistent with his
forfeit his right to the commission and must return the part of the commission he received from his
agency, since the law condemns the corrupting tendency of the inconsistent
9 principal.
relationship. Little vs. Phipps (1911) 94 NE 260.

Teofilo Purisima, the sub-agent of Gregorio Domingo, can only recover from Gregorio Domingo his
As a general rule, it is a breach of good faith and loyalty to his principal for an
one-half share of whatever amounts Gregorio Domingo received by virtue of the transaction as his
agent, while the agency exists, so to deal with the subject matter thereof, or
sub-agency contract was with Gregorio Domingo alone and not with Vicente Domingo, who was
with information acquired during the course of the agency, as to make a profit
not even aware of such sub-agency. Since Gregorio Domingo received from Vicente Domingo and
out of it for himself in excess of his lawful compensation; and if he does so he
Oscar de Leon respectively the amounts of Three Hundred Pesos (P300.00) and One Thousand
may be held as a trustee and may be compelled to account to his principal for
Pesos (P1,000.00) or a total of One Thousand Three Hundred Pesos (P1,300.00), one-half of the
all profits, advantages, rights, or privileges acquired by him in such dealings,
same, which is Six Hundred Fifty Pesos (P650.00), should be paid by Gregorio Domingo to Teofilo
whether in performance or in violation of his duties, and be required to transfer
Purisima.
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 Because Gregorio Domingo's clearly unfounded complaint caused Vicente Domingo mental
knowledge he has allowed the agent so as to change his condition that he anguish and serious anxiety as well as wounded feelings, petitioner-appellant Vicente Domingo
cannot be put in status quo. The application of this rule is not affected by the should be awarded moral damages in the reasonable amount of One Thousand Pesos (P1,000.00)
fact that the principal did not suffer any injury by reason of the agent's dealings attorney's fees in the reasonable amount of One Thousand Pesos (P1,000.00), considering that
or that he in fact obtained better results; nor is it affected by the fact that there this case has been pending for the last fifteen (15) years from its filing on October 3, 1956.
is a usage or custom to the contrary or that the agency is a gratuitous one.
10
(Emphasis applied.)
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
In the case at bar, defendant-appellee Gregorio Domingo as the broker, received a gift sum of One Thousand Pesos (P1,000.00) as moral damages and One Thousand Pesos
or propina in the amount of One Thousand Pesos (P1,000.00) from the prospective buyer Oscar de (P1,000.00) as attorney's fees; (2) to pay Teofilo Purisima the sum of Six Hundred Fifty Pesos
Leon, without the knowledge and consent of his principal, herein petitioner-appellant Vicente (P650.00); and (3) to pay the costs.
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
11
received from the purchaser and his principal did not object therto. 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.
C. THE AGENT
57 - G.R. No. 136433 December 6, 2006
ANTONIO B. BALTAZAR, petitioner,
vs.
HONORABLE OMBUDSMAN, EULOGIO M. MARIANO, JOSE D. JIMENEZ, JR., TORIBIO E.
ILAO, JR. and ERNESTO R. SALENGA, respondents.
DECISION
VELASCO, JR., J.:
The Case
Ascribing grave abuse of discretion to respondent Ombudsman, this Petition for Review on
1 2
Certiorari, under Rule 45 pursuant to Section 27 of RA 6770, seeks to reverse and set aside the
3
November 26, 1997 Order of the Office of the Special Prosecutor (OSP) in OMB-1-94-3425 duly
approved by then Ombudsman Aniano Desierto on August 21, 1998, which recommended the
4
dismissal of the Information in Criminal Case No. 23661 filed before the Sandiganbayan against
respondents Pampanga Provincial Adjudicator Toribio E. Ilao, Jr., Chief Legal Officer Eulogio M.
Mariano and Legal Officer Jose D. Jimenez, Jr. (both of the DAR Legal Division in San Fernando,
Pampanga), and Ernesto R. Salenga. The petition likewise seeks to set aside the October 30, 1998
5
Memorandum of the OSP duly approved by the Ombudsman on November 27, 1998 which denied
6
petitioner's Motion for Reconsideration. Previously, the filing of the Information against said
7 8
respondents was authorized by the May 10, 1996 Resolution and October 3, 1996 Order of the
Ombudsman which found probable cause that they granted unwarranted benefits, advantage, and
9
preference to respondent Salenga in violation of Section 3 (e) of RA 3019.
The Facts
Paciencia Regala owns a seven (7)-hectare fishpond located at Sasmuan, Pampanga. Her
Attorney-in-Fact Faustino R. Mercado leased the fishpond for PhP 230,000.00 to Eduardo Lapid for
10
a three (3)-year period, that is, from August 7, 1990 to August 7, 1993. Lessee Eduardo Lapid in
turn sub-leased the fishpond to Rafael Lopez for PhP 50,000.00 during the last seven (7) months
11
of the original lease, that is, from January 10, 1993 to August 7, 1993. Respondent Ernesto
Salenga was hired by Eduardo Lapid as fishpond watchman (bante-encargado). In the sub-lease,
Rafael Lopez rehired respondent Salenga.
Meanwhile, on March 11, 1993, respondent Salenga, through a certain Francis Lagman, sent his
12
January 28, 1993 demand letter to Rafael Lopez and Lourdes Lapid for unpaid salaries and non-
payment of the 10% share in the harvest.
On June 5, 1993, sub-lessee Rafael Lopez wrote a letter to respondent Salenga informing the
latter that for the last two (2) months of the sub-lease, he had given the rights over the fishpond to
13
Mario Palad and Ambit Perez for PhP 20,000.00. This prompted respondent Salenga to file a
14
Complaint before the Provincial Agrarian Reform Adjudication Board (PARAB), Region III, San
Fernando, Pampanga docketed as DARAB Case No. 552-P93 entitled Ernesto R. Salenga v.
Rafael L. Lopez and Lourdes L. Lapid for Maintenance of Peaceful Possession, Collection of Sum
of Money and Supervision of Harvest. The Complaint was signed by respondent Jose D. Jimenez,
Jr., Legal Officer of the Department of Agrarian Reform (DAR) Region III Office in San Fernando,
Pampanga, as counsel for respondent Salenga; whereas respondent Eulogio M. Mariano was the
Chief Legal Officer of DAR Region III. The case was assigned to respondent Toribio E. Ilao, Jr.,
Provincial Adjudicator of DARAB, Pampanga.
15
On May 10, 1993, respondent Salenga amended his complaint. The amendments included a
prayer for the issuance of a temporary restraining order (TRO) and preliminary injunction.
However, before the prayer for the issuance of a TRO could be acted upon, on June 16, 1993,
16
respondent Salenga filed a Motion to Maintain Status Quo and to Issue Restraining Order which
was set for hearing on June 22, 1993. In the hearing, however, only respondent Salenga with his
counsel appeared despite notice to the other parties. Consequently, the ex-partepresentation of
respondent Salengas evidence in support of the prayer for the issuance of a restraining order was
allowed, since the motion was unopposed, and on July 21, 1993, respondent Ilao, Jr. issued a
17
TRO.
Thereafter, respondent Salenga asked for supervision of the harvest, which the board sheriff did.
Accordingly, defendants Lopez and Lapid received their respective shares while respondent
Salenga was given his share under protest. In the subsequent hearing for the issuance of a
preliminary injunction, again, only respondent Salenga appeared and presented his evidence for
the issuance of the writ.
Pending resolution of the case, Faustino Mercado, as Attorney-in-Fact of the fishpond owner
Paciencia Regala, filed a motion to intervene which was granted by respondent Ilao, Jr. through the
November 15, 1993 Order. After the trial, respondent Ilao, Jr. rendered a Decision on May 29,
1995 dismissing the Complaint for lack of merit; but losing plaintiff, respondent Salenga, appealed
the decision before the DARAB Appellate Board.
Complaint Before the Ombudsman
On November 24, 1994, pending resolution of the agrarian case, the instant case was instituted by
petitioner Antonio Baltazar, an alleged nephew of Faustino Mercado, through a Complaint-
18
Affidavit against private respondents before the Office of the Ombudsman which was docketed as
OMB-1-94-3425 entitled Antonio B. Baltazar v. Eulogio Mariano, Jose Jimenez, Jr., Toribio Ilao, Jr.
and Ernesto Salenga for violation of RA 3019. Petitioner charged private respondents of
conspiracy through the issuance of the TRO in allowing respondent Salenga to retain possession
of the fishpond, operate it, harvest the produce, and keep the sales under the safekeeping of other
private respondents. Moreover, petitioner maintains that respondent Ilao, Jr. had no jurisdiction to
hear and act on DARAB Case No. 552-P93 filed by respondent Salenga as there was no tenancy
relation between respondent Salenga and Rafael L. Lopez, and thus, the complaint was
dismissible on its face.
19
Through the December 14, 1994 Order, the Ombudsman required private respondents to file their
counter-affidavits, affidavits of their witnesses, and other controverting evidence. While the other
respondents submitted their counter-affidavits, respondent Ilao, Jr. instead filed his February 9,
1995 motion to dismiss, February 21, 1995 Reply, and March 24, 1995 Rejoinder.
Ombudsmans Determination of Probable Cause
20
On May 10, 1996, the Ombudsman issued a Resolution finding cause to bring respondents to
court, denying the motion to dismiss of respondent Ilao, Jr., and recommending the filing of an
Information for violation of Section 3 (e) of RA 3019. Subsequently, respondent Ilao, Jr. filed his
21
September 16, 1996 Motion for Reconsideration and/or Re-investigation which was denied
22 23
through the October 3, 1996 Order. Consequently, the March 17, 1997 Information was filed
against all the private respondents before the Sandiganbayan which was docketed as Criminal
Case No. 23661.
Before the graft court, respondent Ilao, Jr. filed his May 19, 1997 Motion for Reconsideration and/or complaints and motu proprio inquire into alleged improper official acts or omissions from whatever
24 34
Re-investigation which was granted through the August 29, 1997 Order. On September 8, 1997, source, e.g., a newspaper. Thus, any complainant may be entertained by the Ombudsman for the
25
respondent Ilao, Jr. subsequently filed his Counter-Affidavit with attachments while petitioner did latter to initiate an inquiry and investigation for alleged irregularities.
not file any reply-affidavit despite notice to him. The OSP of the Ombudsman conducted the re-
investigation; and the result of the re-investigation was embodied in the assailed November 26,
26 However, filing the petition in person before this Court is another matter. The Rules allow a non-
1997 Order which recommended the dismissal of the complaint in OMB-1-94-3425 against all
lawyer to conduct litigation in person and appear for oneself only when he is a party to a legal
private respondents. Upon review, the Ombudsman approved the OSPs recommendation on
controversy. Section 34 of Rule 138 pertinently provides, thus:
August 21, 1998.

27 SEC. 34. By whom litigation conducted. In the court of a justice of the peace a party
Petitioners Motion for Reconsideration was likewise denied by the OSP through the October 30,
28 may conduct his litigation in person, with the aid of an agent or friend appointed by him
1998 Memorandum which was approved by the Ombudsman on November 27, 1998.
for that purpose, or with the aid of an attorney. In any other court, a party may conduct
Consequently, the trial prosecutor moved orally before the Sandiganbayan for the dismissal of
29 his litigation personally or by aid of an attorney, and his appearance must be
Criminal Case No. 23661 which was granted through the December 11, 1998 Order.
either personal or by a duly authorized member of the bar (emphases supplied).

Thus, the instant petition is before us.

Petitioner has no legal standing

The Issues
Is petitioner a party or a real party in interest to have the locus standi to pursue the instant petition?
We answer in the negative.
Petitioner raises two assignments of errors, to wit:
While petitioner may be the complainant in OMB-1-94-3425, he is not a real party in interest.
THE HONORABLE OMBUDSMAN ERRED IN GIVING DUE COURSE A MISPLACED Section 2, Rule 3 of the 1997 Rules of Civil Procedure stipulates, thus:
COUNTER-AFFIDAVIT FILED AFTER THE TERMINATION OF THE PRELIMINARY
INVESTIGATION AND/OR THE CASE WAS ALREADY FILED BEFORE THE
SEC. 2. Parties in interest. A real party in interest is the party who stands to be
SANDIGANBAYAN.
benefited or injured by the judgment in the suit, or the party entitled to the avails of the
suit. Unless otherwise authorized by law or these Rules, every action must be
ASSUMING OTHERWISE, THE HONORABLE OMBUDSMAN LIKEWISE ERRED IN prosecuted or defended in the name of the real party in interest.
REVERSING HIS OWN RESOLUTION WHERE IT WAS RESOLVED THAT ACCUSED
AS PROVINCIAL AGRARIAN ADJUDICATOR HAS NO JURISDICTION OVER A
The same concept is applied in criminal and administrative cases.
COMPLAINT WHERE THERE EXIST [sic] NO TENANCY RELATIONSHIP
CONSIDERING [sic] COMPLAINANT IS NOT A TENANT BUT A "BANTE-
ENCARGADO" OR WATCHMAN-OVERSEER HIRED FOR A SALARY OF P3,000.00 In the case at bar which involves a criminal proceeding stemming from a civil (agrarian) case, it is
30
PER MONTH AS ALLEGED IN HIS OWN COMPLAINT. clear that petitioner is not a real party in interest. Except being the complainant, the records show
that petitioner is a stranger to the agrarian case. It must be recalled that the undisputed owner of
the fishpond is Paciencia Regala, who intervened in DARAB Case No. 552-P93 through her
Before delving into the errors raised by petitioner, we first address the preliminary procedural issue
Attorney-in-Fact Faustino Mercado in order to protect her interest. The motion for intervention filed
of the authority and locus standi of petitioner to pursue the instant petition.
by Faustino Mercado, as agent of Paciencia Regala, was granted by respondent Provincial
Adjudicator Ilao, Jr. through the November 15, 1993 Order in DARAB Case No. 552-P93.
Preliminary Issue: Legal Standing
Agency cannot be further delegated
Locus standi is defined as "a right of appearance in a court of justice x x x on a given
31
question." In private suits, standing is governed by the "real-parties-in interest" rule found in
Petitioner asserts that he is duly authorized by Faustino Mercado to institute the suit and presented
Section 2, Rule 3 of the 1997 Rules of Civil Procedure which provides that "every action must be 35
a Special Power of Attorney (SPA) from Faustino Mercado. However, such SPA is unavailing for
prosecuted or defended in the name of the real party in interest." Accordingly, the "real-party-in
petitioner. For one, petitioners principal, Faustino Mercado, is an agent himself and as such
interest" is "the party who stands to be benefited or injured by the judgment in the suit or the party
32 cannot further delegate his agency to another. Otherwise put, an agent cannot delegate to another
entitled to the avails of the suit." Succinctly put, the plaintiffs standing is based on their own right
the same agency. The legal maxim potestas delegata non delegare potest; a power once
to the relief sought.
delegated cannot be re-delegated, while applied primarily in political law to the exercise of
36
legislative power, is a principle of agency. For another, a re-delegation of the agency would be
The records show that petitioner is a non-lawyer appearing for himself and conducting litigation in detrimental to the principal as the second agent has no privity of contract with the former. In the
person. Petitioner instituted the instant case before the Ombudsman in his own name. In so far as instant case, petitioner has no privity of contract with Paciencia Regala, owner of the fishpond and
the Complaint-Affidavit filed before the Office of the Ombudsman is concerned, there is no question principal of Faustino Mercado.
on his authority and legal standing. Indeed, the Office of the Ombudsman is mandated to
"investigate and prosecute on its own or on complaint by any person, any act or omission of any 37
Moreover, while the Civil Code under Article 1892 allows the agent to appoint a substitute, such
public officer or employee, office or agency, when such act or omission appears to be illegal,
33 is not the situation in the instant case. The SPA clearly delegates the agency to petitioner to pursue
unjust, improper or inefficient (emphasis supplied)." The Ombudsman can act on anonymous
the case and not merely as a substitute. Besides, it is clear in the aforecited Article that what is
allowed is a substitute and not a delegation of the agency.
Clearly, petitioner is neither a real party in interest with regard to the agrarian case, nor is he a real
party in interest in the criminal proceedings conducted by the Ombudsman as elevated to the
Sandiganbayan. He is not a party who will be benefited or injured by the results of both cases.
Petitioner: a stranger and not an injured private complainant
Petitioner only surfaced in November 1994 as complainant before the Ombudsman. Aside from
that, not being an agent of the parties in the agrarian case, he has no locus standi to pursue this
petition. He cannot be likened to an injured private complainant in a criminal complaint who has
direct interest in the outcome of the criminal case.
More so, we note that the petition is not pursued as a public suit with petitioner asserting a "public
right" in assailing an allegedly illegal official action, and doing so as a representative of the general
public. He is pursuing the instant case as an agent of an ineffective agency.
Petitioner has not shown entitlement to judicial protection
Even if we consider the instant petition as a public suit, where we may consider petitioner suing as
a "stranger," or in the category of a "citizen," or "taxpayer," still petitioner has not adequately shown
that he is entitled to seek judicial protection. In other words, petitioner has not made out a sufficient
interest in the vindication of the public order and the securing of relief as a "citizen" or "taxpayer";
more so when there is no showing that he was injured by the dismissal of the criminal complaint
before the Sandiganbayan.
Based on the foregoing discussion, petitioner indubitably does not have locus standi to pursue this
action and the instant petition must be forthwith dismissed on that score. Even
granting arguendo that he has locus standi, nonetheless, petitioner fails to show grave abuse of
discretion of respondent Ombudsman to warrant a reversal of the assailed November 26, 1997
Order and the October 30, 1998 Memorandum.
First Issue: Submission of Counter-Affidavit
The Sandiganbayan, not the Ombudsman, ordered re-investigation
On the substantive aspect, in the first assignment of error, petitioner imputes grave abuse of
discretion on public respondent Ombudsman for allowing respondent Ilao, Jr. to submit his
Counter-Affidavit when the preliminary investigation was already concluded and an Information
filed with the Sandiganbayan which assumed jurisdiction over the criminal case. This contention is
utterly erroneous.
The facts clearly show that it was not the Ombudsman through the OSP who allowed respondent
Ilao, Jr. to submit his Counter-Affidavit. It was the Sandiganbayan who granted the prayed for re-
investigation and ordered the OSP to conduct the re-investigation through its August 29, 1997
Order, as follows:
Considering the manifestation of Prosecutor Cicero Jurado, Jr. that accused Toribio E.
Ilao, Jr. was not able to file his counter-affidavit in the preliminary investigation, there
appears to be some basis for granting the motion of said accused for reinvestigation.
WHEREFORE, accused Toribio E. Ilao, Jr. may file his counter-affidavit, with
documentary evidence attached, if any, with the Office of the Special Prosecutor within
then (10) days from today. The prosecution is ordered to conduct a
38
reinvestigation within a period of thirty (30) days. (Emphases supplied.)
As it is, public respondent Ombudsman through the OSP did not exercise any discretion in allowing
respondent Ilao, Jr. to submit his Counter-Affidavit. The OSP simply followed the graft courts
directive to conduct the re-investigation after the Counter-Affidavit of respondent Ilao, Jr. was filed.
Indeed, petitioner did not contest nor question the August 29, 1997 Order of the graft court.
Moreover, petitioner did not file any reply-affidavit in the re-investigation despite notice.
Re-investigation upon sound discretion of graft court
Furthermore, neither can we fault the graft court in granting the prayed for re-investigation as it can
readily be seen from the antecedent facts that respondent Ilao, Jr. was not given the opportunity to
file his Counter-Affidavit. Respondent Ilao, Jr. filed a motion to dismiss with the Ombudsman but
such was not resolved before the Resolutionfinding cause to bring respondents to trialwas
issued. In fact, respondent Ilao, Jr.s motion to dismiss was resolved only through the May 10,
1996 Resolution which recommended the filing of an Information. Respondent Ilao, Jr.s Motion for
Reconsideration and/or Re-investigation was denied and the Information was filed with the graft
court.
Verily, courts are given wide latitude to accord the accused ample opportunity to present
controverting evidence even before trial as demanded by due process. Thus, we held in Villaflor v.
Vivar that "[a] component part of due process in criminal justice, preliminary investigation is a
statutory and substantive right accorded to the accused before trial. To deny their claim to a
preliminary investigation would be to deprive them of the full measure of their right to due
39
process."
Second Issue: Agrarian Dispute
Anent the second assignment of error, petitioner contends that DARAB Case No. 552-P93 is not
an agrarian dispute and therefore outside the jurisdiction of the DARAB. He maintains that
respondent Salenga is not an agricultural tenant but a mere watchman of the fishpond owned by
Paciencia Regala. Moreover, petitioner further argues that Rafael Lopez and Lourdes Lapid, the
respondents in the DARAB case, are not the owners of the fishpond.
Nature of the case determined by allegations in the complaint
This argument is likewise bereft of merit. Indeed, as aptly pointed out by respondents and as borne
out by the antecedent facts, respondent Ilao, Jr. could not have acted otherwise. It is a settled rule
40
that jurisdiction over the subject matter is determined by the allegations of the complaint. The
nature of an action is determined by the material averments in the complaint and the character of
41 42
the relief sought, not by the defenses asserted in the answer or motion to dismiss. Given that
respondent Salengas complaint and its attachment clearly spells out the jurisdictional allegations
that he is an agricultural tenant in possession of the fishpond and is about to be ejected from it,
clearly, respondent Ilao, Jr. could not be faulted in assuming jurisdiction as said allegations
characterize an agricultural dispute. Besides, whatever defense asserted in an answer or motion to
dismiss is not to be considered in resolving the issue on jurisdiction as it cannot be made
dependent upon the allegations of the defendant.
Issuance of TRO upon the sound discretion of hearing officer
As regards the issuance of the TRO, considering the proper assumption of jurisdiction by
respondent Ilao, Jr., it can be readily culled from the antecedent facts that his issuance of the TRO
was a proper exercise of discretion. Firstly, the averments with evidence as to the existence of the
need for the issuance of the restraining order were manifest in respondent Salengas Motion to
43
Maintain Status Quo and to Issue Restraining Order, the attached Police Investigation
44 45
Report, and Medical Certificate. Secondly, only respondent Salenga attended the June 22, 1993
hearing despite notice to parties. Hence, Salengas motion was not only unopposed but his
evidence adduced ex-parte also adequately supported the issuance of the restraining order.

Premises considered, respondent Ilao, Jr. has correctly assumed jurisdiction and properly
exercised his discretion in issuing the TROas respondent Ilao, Jr. aptly maintained that giving
due course to the complaint and issuing the TRO do not reflect the final determination of the merits
of the case. Indeed, after hearing the case, respondent Ilao, Jr. rendered a Decision on May 29,
1995 dismissing DARAB Case No. 552-P93 for lack of merit.

Court will not review prosecutors determination of probable cause

Finally, we will not delve into the merits of the Ombudsmans reversal of its initial finding of
probable cause or cause to bring respondents to trial. Firstly, petitioner has not shown that the
Ombudsman committed grave abuse of discretion in rendering such reversal. Secondly, it is clear
from the records that the initial finding embodied in the May 10, 1996 Resolution was arrived at
before the filing of respondent Ilao, Jr.s Counter-Affidavit. Thirdly, it is the responsibility of the
public prosecutor, in this case the Ombudsman, to uphold the law, to prosecute the guilty, and to
protect the innocent. Lastly, the function of determining the existence of probable cause is proper
for the Ombudsman in this case and we will not tread on the realm of this executive function to
examine and assess evidence supplied by the parties, which is supposed to be exercised at the
46
start of criminal proceedings. In Perez v. Hagonoy Rural Bank, Inc., as cited in Longos Rural
47
Waterworks and Sanitation Association, Inc. v. Hon. Desierto, we had occasion to rule that we
cannot pass upon the sufficiency or insufficiency of evidence to determine the existence of
48
probable cause.

WHEREFORE, the instant petition is DENIED for lack of merit, and the November 26, 1997 Order
and the October 30, 1998 Memorandum of the Office of the Special Prosecutor in Criminal Case
No. 23661 (OMB-1-94-3425) are hereby AFFIRMED IN TOTO, with costs against petitioner.

SO ORDERED.

C. THE AGENT
58 - G.R. No. 130423 November 18, 2002
VIRGIE SERONA, petitioner,
vs.
HON. COURT OF APPEALS and THE PEOPLE OF THE PHILIPPINES, respondents.
DECISION
YNARES-SANTIAGO, J.:
During the period from July 1992 to September 1992, Leonida Quilatan delivered pieces of jewelry
to petitioner Virgie Serona to be sold on commission basis. By oral agreement of the parties,
petitioner shall remit payment or return the pieces of jewelry if not sold to Quilatan, both within 30
days from receipt of the items.
Upon petitioners failure to pay on September 24, 1992, Quilatan required her to execute an
acknowledgment receipt (Exhibit B) indicating their agreement and the total amount due, to wit:
Ako, si Virginia Serona, nakatira sa Mother Earth Subd., Las Pinas, ay kumuha ng mga alahas kay
Gng. Leonida Quilatan na may kabuohang halaga na P567,750.00 para ipagbili para ako
magkakomisyon at ibibigay ang benta kung mabibili o ibabalik sa kanya ang mga nasabing alahas
kung hindi mabibili sa loob ng 30 araw.
1
Las Pinas, September 24, 1992.
The receipt was signed by petitioner and a witness, Rufina G. Navarette.
Unknown to Quilatan, petitioner had earlier entrusted the jewelry to one Marichu Labrador for the
latter to sell on commission basis. Petitioner was not able to collect payment from Labrador, which
caused her to likewise fail to pay her obligation to Quilatan.
2
Subsequently, Quilatan, through counsel, sent a formal letter of demand to petitioner for failure to
3
settle her obligation. Quilatan executed a complaint affidavit against petitioner before the Office of
the Assistant Provincial Prosecutor. Thereafter, an information for estafa under Article 315,
4
paragraph 1(b) of the Revised Penal Code was filed against petitioner, which was raffled to
Branch 255 of the Regional Trial Court of Las Pinas. The information alleged:
That on or about and sometime during the period from July 1992 up to September 1992, in the
Municipality of Las Pinas, Metro Manila, Philippines, and within the jurisdiction of this Honorable
Court, the said accused received in trust from the complainant Leonida E. Quilatan various pieces
of jewelry in the total value of P567,750.00 to be sold on commission basis under the express duty
and obligation of remitting the proceeds thereof to the said complainant if sold or returning the
same to the latter if unsold but the said accused once in possession of said various pieces of
jewelry, with unfaithfulness and abuse of confidence and with intent to defraud, did then and there
willfully, unlawfully and feloniously misappropriate and convert the same for her own personal use
and benefit and despite oral and written demands, she failed and refused to account for said
jewelry or the proceeds of sale thereof, to the damage and prejudice of complainant Leonida E.
Quilatan in the aforestated total amount of P567,750.00.
5
CONTRARY TO LAW.
6
Petitioner pleaded not guilty to the charge upon arraignment. Trial on the merits thereafter ensued.
Quilatan testified that petitioner was able to remit P100,000.00 and returned P43,000.00 worth of
7
jewelriy; that at the start, petitioner was prompt in settling her obligation; however, subsequently
8 9
the payments were remitted late; that petitioner still owed her in the amount of P424,750.00.
On the other hand, petitioner admitted that she received several pieces of jewelry from Quilatan
and that she indeed failed to pay for the same. She claimed that she entrusted the pieces of
jewelry to Marichu Labrador who failed to pay for the same, thereby causing her to default in
10 11
paying Quilatan. She presented handwritten receipts (Exhibits 1 & 2) evidencing payments
made to Quilatan prior to the filing of the criminal case.
Marichu Labrador confirmed that she received pieces of jewelry from petitioner worth P441,035.00.
12
She identified an acknowledgment receipt (Exhibit 3) signed by her dated July 5, 1992 and
testified that she sold the jewelry to a person who absconded without paying her. Labrador also
explained that in the past, she too had directly transacted with Quilatan for the sale of jewelry on
commission basis; however, due to her outstanding account with the latter, she got jewelry from
13
petitioner instead.
On November 17, 1994, the trial court rendered a decision finding petitioner guilty of estafa, the
dispositive portion of which reads:
WHEREFORE, in the light of the foregoing, the court finds the accused Virgie Serona guilty beyond
reasonable doubt, and as the amount misappropriated is P424,750.00 the penalty provided under
the first paragraph of Article 315 of the Revised Penal Code has to be imposed which shall be in
the maximum period plus one (1) year for every additional P10,000.00.
Applying the Indeterminate Sentence Law, the said accused is hereby sentenced to suffer the
penalty of imprisonment ranging from FOUR (4) YEARS and ONE (1) DAY of prision correccional
as minimum to TEN (10) YEARS and ONE (1) DAY of prision mayor as maximum; to pay the sum
of P424,750.00 as cost for the unreturned jewelries; to suffer the accessory penalties provided by
law; and to pay the costs.
SO ORDERED.
14
Petitioner appealed to the Court of Appeals, which affirmed the judgment of conviction but modified
the penalty as follows:
WHEREFORE, the appealed decision finding the accused-appellant guilty beyond reasonable
doubt of the crime of estafa is hereby AFFIRMED with the following MODIFICATION:
Considering that the amount involved is P424,750.00, the penalty should be imposed in its
maximum period adding one (1) year for each additional P10,000.00 albeit the total penalty should
not exceed Twenty (20) Years (Art. 315). Hence, accused-appellant is hereby SENTENCED to
suffer the penalty of imprisonment ranging from Four (4) Years and One (1) Day of Prision
Correccional as minimum to Twenty (20) Years of Reclusion Temporal.
15
SO ORDERED.
 16
Upon denial of her motion for reconsideration, petitioner filed the instant petition under Rule 45,
alleging that:
I
RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN CONCLUDING THAT THERE
WAS AN ABUSE OF CONFIDENCE ON THE PART OF PETITIONER IN ENTRUSTING THE
SUBJECT JEWELRIES (sic) TO HER SUB-AGENT FOR SALE ON COMMISSION TO
PROSPECTIVE BUYERS.
II
RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN CONCLUDING THAT THERE
WAS MISAPPROPRIATION OR CONVERSION ON THE PART OF PETITIONER WHEN SHE
17
FAILED TO RETURN THE SUBJECT JEWELRIES (sic) TO PRIVATE COMPLAINANT.
Petitioner argues that the prosecution failed to establish the elements of estafa as penalized under
Article 315, par. 1(b) of the Revised Penal Code. In particular, she submits that she neither abused
the confidence reposed upon her by Quilatan nor converted or misappropriated the subject jewelry;
that her giving the pieces of jewelry to a sub-agent for sale on commission basis did not violate her
undertaking with Quilatan. Moreover, petitioner delivered the jewelry to Labrador under the same
terms upon which it was originally entrusted to her. It was established that petitioner had not
derived any personal benefit from the loss of the jewelry. Consequently, it cannot be said that she
misappropriated or converted the same.
We find merit in the petition.
The elements of estafa through misappropriation or conversion as defined in Article 315, par. 1(b)
of the Revised Penal Code are: (1) that the money, good or other personal property is received by
the offender in trust, or on commission, or for administration, or under any other obligation involving
the duty to make delivery of, or to return, the same; (2) that there be misappropriation or
conversion of such money or property by the offender or denial on his part of such receipt; (3) that
such misappropriation or conversion or denial is to the prejudice of another; and (4) that there is a
18
demand made by the offended party on the offender. While the first, third and fourth elements are
concededly present, we find the second element of misappropriation or conversion to be lacking in
the case at bar.
Petitioner did not ipso facto commit the crime of estafa through conversion or misappropriation by
delivering the jewelry to a sub-agent for sale on commission basis. We are unable to agree with the
lower courts conclusion that this fact alone is sufficient ground for holding that petitioner disposed
19
of the jewelry "as if it were hers, thereby committing conversion and a clear breach of trust."
It must be pointed out that the law on agency in our jurisdiction allows the appointment by an agent
of a substitute or sub-agent in the absence of an express agreement to the contrary between the
20
agent and the principal. In the case at bar, the appointment of Labrador as petitioners sub-agent
was not expressly prohibited by Quilatan, as the acknowledgment receipt, Exhibit B, does not
contain any such limitation. Neither does it appear that petitioner was verbally forbidden by
Quilatan from passing on the jewelry to another person before the acknowledgment receipt was
executed or at any other time. Thus, it cannot be said that petitioners act of entrusting the jewelry
to Labrador is characterized by abuse of confidence because such an act was not proscribed and
is, in fact, legally sanctioned.
The essence of estafa under Article 315, par. 1(b) is the appropriation or conversion of money or
property received to the prejudice of the owner. The words "convert" and "misappropriated"
connote an act of using or disposing of anothers property as if it were ones own, or of devoting it
to a purpose or use different from that agreed upon. To misappropriate for ones own use includes
not only conversion to ones personal advantage, but also every attempt to dispose of the property
21
of another without right.
In the case at bar, it was established that the inability of petitioner as agent to comply with her duty
to return either the pieces of jewelry or the proceeds of its sale to her principal Quilatan was due, in
turn, to the failure of Labrador to abide by her agreement with petitioner. Notably, Labrador testified
that she obligated herself to sell the jewelry in behalf of petitioner also on commission basis or to
return the same if not sold. In other words, the pieces of jewelry were given by petitioner to
Labrador to achieve the very same end for which they were delivered to her in the first place.
Consequently, there is no conversion since the pieces of jewelry were not devoted to a purpose or
use different from that agreed upon.
Similarly, it cannot be said that petitioner misappropriated the jewelry or delivered them to Labrador
"without right." Aside from the fact that no condition or limitation was imposed on the mode or
manner by which petitioner was to effect the sale, it is also consistent with usual practice for the
seller to necessarily part with the valuables in order to find a buyer and allow inspection of the
items for sale.
22
In People v. Nepomuceno, the accused-appellant was acquitted of estafa on facts similar to the
instant case. Accused-appellant therein undertook to sell two diamond rings in behalf of the
complainant on commission basis, with the obligation to return the same in a few days if not sold.
However, by reason of the fact that the rings were delivered also for sale on commission to sub-
agents who failed to account for the rings or the proceeds of its sale, accused-appellant likewise
failed to make good his obligation to the complainant thereby giving rise to the charge of estafa. In
absolving the accused-appellant of the crime charged, we held:
Where, as in the present case, the agents to whom personal property was entrusted for sale,
conclusively proves the inability to return the same is solely due to malfeasance of a subagent to
whom the first agent had actually entrusted the property in good faith, and for the same purpose for
which it was received; there being no prohibition to do so and the chattel being delivered to the
subagent before the owner demands its return or before such return becomes due, we hold that
the first agent can not be held guilty of estafa by either misappropriation or conversion. The abuse
23
of confidence that is characteristic of this offense is missing under the circumstances.
Accordingly, petitioner herein must be acquitted. The lower courts reliance on People v.
24 25
Flores and U.S. v. Panes to justify petitioners conviction is misplaced, considering that the
factual background of the cited cases differ from those which obtain in the case at bar. In Flores,
the accused received a ring to sell under the condition that she would return it the following day if
not sold and without authority to retain the ring or to give it to a sub-agent. The accused in Panes,
meanwhile, was obliged to return the jewelry he received upon demand, but passed on the same to
a sub-agent even after demand for its return had already been made. In the foregoing cases, it was
held that there was conversion or misappropriation.
26
Furthermore, in Lim v. Court of Appeals, the Court, citing Nepomuceno and the case of People v.
27
Trinidad, held that:
In cases of estafa the profit or gain must be obtained by the accused personally, through his own
acts, and his mere negligence in permitting another to take advantage or benefit from the entrusted
chattel cannot constitute estafa under Article 315, paragraph 1-b, of the Revised Penal Code;
unless of course the evidence should disclose that the agent acted in conspiracy or connivance
with the one who carried out the actual misappropriation, then the accused would be answerable
for the acts of his co-conspirators. If there is no such evidence, direct or circumstantial, and if the
proof is clear that the accused herself was the innocent victim of her sub-agents faithlessness, her
28
acquittal is in order. (Italics copied)

Labrador admitted that she received the jewelry from petitioner and sold the same to a third
person. She further acknowledged that she owed petitioner P441,035.00, thereby negating any
criminal intent on the part of petitioner. There is no showing that petitioner derived personal benefit
from or conspired with Labrador to deprive Quilatan of the jewelry or its value. Consequently, there
is no estafa within contemplation of the law.

Notwithstanding the above, however, petitioner is not entirely free from any liability towards
Quilatan. The rule is that an accused acquitted of estafa may nevertheless be held civilly liable
where the facts established by the evidence so warrant. Then too, an agent who is not prohibited
from appointing a sub-agent but does so without express authority is responsible for the acts of the
29
sub-agent. Considering that the civil action for the recovery of civil liability arising from the offense
30
is deemed instituted with the criminal action, petitioner is liable to pay complainant Quilatan the
value of the unpaid pieces of jewelry.

WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals in CA-G.R. CR No.
17222 dated April 30,1997 and its resolution dated August 28, 1997 are REVERSED and SET
ASIDE. Petitioner Virgie Serona is ACQUITTED of the crime charged, but is held civilly liable in the
amount of P424,750.00 as actual damages, plus legal interest, without subsidiary imprisonment in
case of insolvency.

SO ORDERED.
 10
C. THE AGENT in Calauag, Quezon, where there were no humps along the road. Pingol stopped the van in Daet,
11
Camarines Norte, and examined the van underneath, but found no abnormalities or defects. But
as he drove the van to Naga City, the squeaking sound persisted.
59 - G.R. No. 162822 August 25, 2005 Believing that the van merely needed grease, Pingol stopped at a Shell gasoline station where it
was examined. The mechanic discovered that some parts underneath the van had been welded.
JAIME GUINHAWA, Petitioners, When Pingol complained to Guinhawa, the latter told him that the defects were mere factory
vs. defects. As the defects persisted, the spouses Silo requested that Guinhawa change the van with
PEOPLE OF THE PHILIPPINES, Respondent. two Charade-Daihatsu vehicles within a week or two, with the additional costs to be taken from
their downpayment. Meanwhile, the couple stopped paying the monthly amortization on their loan,
pending the replacement of the van. Guinhawa initially agreed to the couples proposal, but later
DECISION changed his mind and told them that he had to sell the van first. The spouses then brought the
vehicle to the Rx Auto Clinic in Naga City for examination. Jesus Rex Raquitico, Jr., the mechanic,
CALLEJO, SR., J.: examined the van and discovered that it was the left front stabilizer that was producing the
12
annoying sound, and that it had been repaired. Raquitico prepared a Job Order containing the
following notations and recommendations:
Jaime Guinhawa was engaged in the business of selling brand new motor vehicles, including
Mitsubishi vans, under the business name of Guinrox Motor Sales. His office and display room for
cars were located along Panganiban Avenue, Naga City. He employed Gil Azotea as his sales 1. CHECK UP SUSPENSION (FRONT)
manager.
2. REPLACE THE ROD END

On March 17, 1995, Guinhawa purchased a brand new Mitsubishi L-300 Versa Van with Motor No. 3. REPLACE BUSHING
4D56A-C8929 and Serial No. L069WQZJL-07970 from the Union Motors Corporation (UMC) in NOTE: FRONT STEP BOARD HAS BEEN ALREADY DAMAGED AND REPAIRED.
Paco, Manila. The van bore Plate No. DLK 406. Guinhawas driver, Leopoldo Olayan, drove the
van from Manila to Naga City. However, while the van was traveling along the highway in Labo, NOTE: FRONT LEFT SUSPENSION MOUNTING IS NOT ON SPECIFIED
13
Daet, Camarines Norte, Olayan suffered a heart attack. The van went out of control, traversed the ALIGNMENT/MEASUREMENT
1
highway onto the opposite lane, and was ditched into the canal parallel to the highway. The van
was damaged, and the left front tire had to be replaced. Josephine Silo filed a complaint for the rescission of the sale and the refund of their money before
the Department of Trade and Industry (DTI). During the confrontation between her and Guinhawa,
2
The incident was reported to the local police authorities and was recorded in the police blotter. The Josephine learned that Guinhawa had bought the van from UMC before it was sold to them, and
3
van was repaired and later offered for sale in Guinhawas showroom. after it was damaged in Daet. Subsequently, the spouses Silo withdrew their complaint from the
DTI.
Sometime in October 1995, the spouses Ralph and Josephine Silo wanted to buy a new van for
4
their garment business; they purchased items in Manila and sold them in Naga City. They went to On February 14, 1996, Josephine Silo filed a criminal complaint for violation of paragraph 1, Article
Guinhawas office, and were shown the L-300 Versa Van which was on display. The couple 318 of the Revised Penal Code against Guinhawa in the Office of the City Prosecutor of Naga City.
inspected its interior portion and found it beautiful. They no longer inspected the under chassis After the requisite investigation, an Information was filed against Guinhawa in the Municipal Trial
5
since they presumed that the vehicle was brand new. Unaware that the van had been damaged Court (MTC) of Naga City. The inculpatory portion reads:
and repaired on account of the accident in Daet, the couple decided to purchase the van for
591,000.00. Azotea suggested that the couple make a downpayment of 118,200.00, and pay
The undersigned Assistant Prosecutor of Naga City accuses Jaime Guinhawa of the crime of
the balance of the purchase price by installments via a loan from the United Coconut Planters Bank
OTHER DECEITS defined and penalized under Art. 318, par. 1 of the Revised Penal Code,
(UCPB), Naga Branch, with the L-300 Versa Van as collateral. Azotea offered to make the
committed as follows:
necessary arrangements with the UCPB for the consummation of the loan transaction. The couple
6
agreed. On November 10, 1995, the spouses executed a Promissory Note for the amount of
692,676.00 as payment of the balance on the purchase price, and as evidence of the chattel "That on or about October 11, 1995, in the City of Naga, Philippines, and within the jurisdiction of
mortgage over the van in favor of UCPB. this Honorable Court, the said accused, being a motor vehicle dealer using the trade name of
Guinhawa Motor Sales at Panganiban Avenue, Naga City, and a dealer of brand new cars, by
means of false pretenses and fraudulent acts, did then and there willfully, unlawfully and
On October 11, 1995, the couple arrived in Guinhawas office to take delivery of the van. Guinhawa
feloniously defraud private complainant, JOSEPHINE P. SILO, as follows: said accused by means
executed the deed of sale, and the couple paid the 161,470.00 downpayment, for which they
7 8 of false manifestations and fraudulent representations, sold to said private complainant, as brand
were issued Receipt No. 0309. They were furnished a Service Manual which contained the
new, an automobile with trade name L-300 Versa Van colored beige and the latter paid for the
warranty terms and conditions. Azotea instructed the couple on how to start the van and to operate
same in the amount of 591,000.00, when, in truth and in fact, the same was not brand new
its radio. Ralph Silo no longer conducted a test drive; he and his wife assumed that there were no
9 because it was discovered less than a month after it was sold to said Josephine P. Silo that said L-
defects in the van as it was brand new.
300 Versa Van had defects in the underchassis and stepboard and repairs had already been done
thereat even before said sale, as was found upon check-up by an auto mechanic; that private
On October 12, 1995, Josephine Silo, accompanied by Glenda Pingol, went to Manila on board the complainant returned said L-300 Versa Van to the accused and demanded its replacement with a
L-300 Versa Van, with Glendas husband, Bayani Pingol III, as the driver. Their trip to Manila was new one or the return of its purchase price from said accused but despite follow-up demands no
uneventful. However, on the return trip to Naga from Manila on October 15 or 16, 1995, Bayani replacement was made nor was the purchase price returned to private complainant up to the
Pingol heard a squeaking sound which seemed to be coming from underneath the van. They were
present to her damage and prejudice in the amount of 591,000.00, Philippine Currency, plus "Art. 2202. In crimes and quasi-delicts, the defendant shall be liable for all damages which are the
14
other damages that may be proven in court." natural and probable consequences of the act or omission complained of. It is not necessary that
such damages have been foreseen or could have reasonably been foreseen by the defendant."
Guinhawa testified that he was a dealer of brand new Toyota, Mazda, Honda and Mitsubishi cars,
under the business name Guinrox Motor Sales. He purchased Toyota cars from Toyota Thus, accused is condemned to pay actual damages in the amount of One Hundred Eighty
15
Philippines, and Mitsubishi cars from UMC in Paco, Manila. He bought the van from the UMC in Thousand Seven Hundred and Eleven Pesos (Php180,711.00), which represents the 20%
16
March 1995, but did not use it; he merely had it displayed in his showroom in Naga City. He downpayment and other miscellaneous expenses paid by the complainant plus the amount of
17
insisted that the van was a brand new unit when he sold it to the couple. The spouses Silo bought Nineteen Thousand Two Hundred Forty-One (Php19,241.00) Pesos, representing the 1st
18
the van and took delivery only after inspecting and taking it for a road tests. His sales manager, installment payment made by the private complainant to the bank. Accused is, likewise, ordered to
Azotea, informed him sometime in November 1995 that the spouses Silo had complained about the pay moral damages in the amount of One Hundred Thousand Pesos (Php100,000.00) in view of
defects under the left front portion of the van. By then, the van had a kilometer reading of 4,000 the moral pain suffered by the complainant; for exemplary damages in the amount of Two Hundred
19
kilometers. He insisted that he did not make any false statement or fraudulent misrepresentation Thousand Pesos (Php200,000.00) to serve as deterrent for those businessmen similarly inclined to
to the couple about the van, either before or simultaneous with its purchase. He posited that the take undue advantage over the publics innocence. As for attorneys fees, the reasonable amount
defects noticed by the couple were not major ones, and could be repaired. However, the couple of One Hundred Thousand Pesos (Php100,000.00) is hereby awarded.
refused to have the van repaired and insisted on a refund of their payment for the van which he
20
could not allow. He then had the defects repaired by the UMC. He claimed that the van was never 31
SO ORDERED.
involved in any accident, and denied that his driver, Olayan, met an accident and sustained
21
physical injuries when he drove the van from Manila to Naga City. He even denied meeting
Bayani Pingol. The trial court declared that the accused made false pretenses or misrepresentations that the van
was a brand new one when, in fact, it had figured in an accident in Labo, Daet, Camarines Norte,
22 and sustained serious damages before it was sold to the private complainant.
The accused claimed that the couple filed a Complaint against him with the DTI on January 25,
23
1996, only to withdraw it later. The couple then failed to pay the amortizations for the van, which
caused the UCPB to file a petition for the foreclosure of the chattel mortgage and the sale of the Guinhawa appealed the decision to the Regional Trial Court (RTC) of Naga City, Branch 19, in
24
van at public auction. which he alleged that:

Azotea testified that he had been a car salesman for 16 years and that he sold brand new 1. The lower court erred in its finding that the repair works on the left front portion and
25
vans. Before the couple took delivery of the vehicle, Pingol inspected its exterior, interior, and underchassis of the van was the result of the accident in Labo, Camarines Norte, where its driver
26
underside, and even drove it for the couple. He was present when the van was brought to the Rx suffered an attack of hypertension.
27
Auto Clinic, where he noticed the dent on its front side. He claimed that the van never figured in
28
any vehicular accident in Labo, Daet, Camarines Norte on March 17, 1995. In fact, he declared,
29 2. The lower court erred in its four (4) findings of fact that accused-appellant made
he found no police record of a vehicular accident involving the van on the said date. He admitted
that Olayan was their driver, and was in charge of taking delivery of cars purchased from the misrepresentation or false pretenses "that the van was a brand new car," which constituted deceit
30 as defined in Article 318, paragraph 1 of the Revised Penal Code.
manufacturer in Manila.

On November 6, 2001, the trial court rendered judgment convicting Guinhawa. The fallo of the 3. The lower court erred in finding accused-appellant civilly liable to complainant Josephine Silo.
But, even if there be such liability, the action therefor has already prescribed and the amount
decision reads: 32
awarded was exhorbitant, excessive and unconscionable.

WHEREFORE, premises considered, judgment is hereby rendered declaring the accused, JAIME
Guinhawa insisted that he never talked to the couple about the sale of the van; hence, could not
GUINHAWA, guilty of the crime of Other Deceits defined and penalized under Art. 318(1) of the
have made any false pretense or misrepresentation.
Revised Penal Code, the prosecution having proven the guilt of the accused beyond reasonable
doubt and hereby imposes upon him the penalty of imprisonment from 2 months and 1 day to 4
33
months of Arresto Mayor and a fine of One Hundred Eighty Thousand Seven Hundred and Eleven On August 1, 2002, the RTC affirmed the appealed judgment.
Pesos (180,711.00) the total amount of the actual damages caused to private complainant.
Guinhawa filed a petition for review with the Court of Appeals (CA), where he averred that:
As to the civil aspect of this case which have been deemed instituted with this criminal case,
Articles 2201 and 2202 of the Civil Code provides:
I

"Art. 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in good
faith is liable shall be those that are the natural and probable consequences of the breach of the
obligation, and which the parties have foreseen or could have reasonably foreseen at the time the
obligation was constituted.
THE COURT A QUO ERRED IN CONVICTING PETITIONER OF THE CRIME OF OTHER
DECEITS AND SENTENCING HIM TO SUFFER IMPRISONMENT OF TWO MONTHS AND ONE
DAY TO FOUR MONTHS OF ARRESTO MAYOR AND TO PAY FINE IN THE AMOUNT OF
180,711.00.

"In case of fraud, malice or wanton attitude, the obligor shall be responsible for all damages which
may be reasonably attributed to the non-performance of the obligation." II
THE COURT A QUO ERRED IN ORDERING PETITIONER TO PAY PRIVATE COMPLAINANT
180,711.00 AS DOWNPAYMENT, 19,241.00 AS FIRST INSTALLMENT WITH UCPB NAGA,
100,000.00 AS MORAL DAMAGES, 200,000.00 AS EXEMPLARY DAMAGES AND
34
100,000.00 AS ATTORNEYS FEES.
On January 5, 2004, the CA rendered judgment affirming with modification the decision of the RTC.
The fallo of the decision reads:
WHEREFORE, premises considered, the instant petition is hereby partially granted insofar as the
following are concerned: a) the award of moral damages is hereby REDUCED to 10,000.00 and
b) the award of attorneys fees and exemplary damages are hereby DELETED for lack of factual
basis. In all other respects, We affirm the decision under review.
Costs against petitioner.
35
SO ORDERED.
The CA ruled that the private complainant had the right to assume that the van was brand new
because Guinhawa held himself out as a dealer of brand new vans. According to the appellate
court, the act of displaying the van in the showroom without notice to any would-be buyer that it
was not a brand new unit was tantamount to deceit. Thus, in concealing the vans true condition
from the buyer, Guinhawa committed deceit.
The appellate court denied Guinhawas motion for reconsideration, prompting him to file the
present petition for review on certiorari, where he contends:
I That on or about October 11, 1995, in the City of Naga, Philippines, and within the jurisdiction of
THE COURT A QUO ERRED IN NOT HOLDING THAT THE INFORMATION CHARGED
AGAINST PETITIONER DID NOT INFORM HIM OF A CHARGE OF OTHER DECEITS.
II
THE COURT A QUO ERRED IN HOLDING THAT PETITIONER EMPLOYED FRAUD OR DECEIT
AS DEFINED UNDER ARTICLE 318, REVISED PENAL CODE.
III
THE COURT A QUO ERRED IN NOT CONSIDERING THE CIRCUMSTANCES POINTING TO
THE INNOCENCE OF THE PETITIONER.
36
The issues for resolution are (1) whether, under the Information, the petitioner was charged of
other deceits under paragraph 1, Article 318 of the Revised Penal Code; and (2) whether the
respondent adduced proof beyond reasonable doubt of the petitioners guilt for the crime charged.
The petitioner asserts that based on the allegations in the Information, he was charged
with estafa through false pretenses under paragraph 2, Article 315 of the Revised Penal Code.
Considering the allegation that the private complainant was defrauded of 591,000.00, it is the
RTC, not the MTC, which has exclusive jurisdiction over the case. The petitioner maintains that he
is not estopped from assailing this matter because the trial courts lack of jurisdiction can be
assailed at any time, even on appeal, which defect cannot even be cured by the evidence adduced
during the trial. The petitioner further avers that he was convicted of other deceits under paragraph
1, Article 318 of the Revised Penal Code, a crime for which he was not charged; hence, he was
deprived of his constitutional right to be informed of the nature of the charge against him. And in
any case, even if he had been charged of other deceits under paragraph 1 of Article 318, the CA
erred in finding him guilty. He insists that the private complainant merely assumed that the van was
brand new, and that he did not make any misrepresentation to that effect. He avers that deceit
cannot be committed by concealment, the absence of any notice to the public that the van was not
brand new does not amount to deceit. He posits that based on the principle of caveat emptor, if the
private complainant purchased the van without first inspecting it, she must suffer the
consequences. Moreover, he did not attend to the private complainant when they examined the
van; thus, he could not have deceived them.
The petitioner maintains that, absent evidence of conspiracy, he is not criminally liable for any
representation Azotea may have made to the private complainant, that the van was brand new. He
insists that the respondent was estopped from adducing evidence that the vehicle was involved in
an accident in Daet, Camarines Norte on March 17, 1995, because such fact was not alleged in the
Information.
In its comment on the petition, the Office of the Solicitor General avers that, as gleaned from the
material averments of the Information, the petitioner was charged with other deceits under
paragraph 1, Article 318 of the Revised Penal Code, a felony within the exclusive jurisdiction of the
MTC. The petitioner was correctly charged and convicted, since he falsely claimed that the vehicle
was brand new when he sold the same to the private complainant. The petitioners concealment of
the fact that the van sustained serious damages as an aftermath of the accident in Daet,
Camarines Norte constituted deceit within the meaning of paragraph 1 of Article 318.
The Information filed against the petitioner reads:
this Honorable Court, the said accused, being a motor vehicle dealer using the trade name of
Guinhawa Motor Sales at Panganiban Avenue, Naga City, and dealer of brand new cars, by means
of false pretenses and fraudulent acts, did then and there, willfully, unlawfully and feloniously
defraud private complainant, JOSEPHINE P. SILO, as follows: said accused by means of false
manifestations and fraudulent representations, sold to said private complainant, as brand new, an
automobile with trade name L-300 Versa Van colored beige and the latter paid for the same in the
amount of 591,000.00, when, in truth and in fact, the same was not brand new because it was
discovered less than a month after it was sold to said Josephine P. Silo that said L-300 Versa Van
had defects in the underchassis and stepboard and repairs have already been done thereat even
before said sale, as was found upon check-up by an auto mechanic; that private complainant
returned said L-300 Versa Van to the accused and demanded its replacement with a new one or
the return of its purchase price from said accused but despite follow-up demands no replacement
was made nor was the purchase price returned to private complainant up to the present to her
damage and prejudice in the amount of 591,000.00, Philippine Currency, plus other damages that
may be proven in court.
37
CONTRARY TO LAW.
Section 6, Rule 110 of the Rules of Criminal Procedure requires that the Information must allege
the acts or omissions complained of as constituting the offense:
SEC. 6. Sufficiency of complaint or information. A complaint or information is sufficient if it states
the name of the accused; the designation of the offense given by the statute; the acts or omissions
complained of as constituting the offense; the name of the offended party; the approximate date of
the commission of the offense; and the place where the offense was committed.
When an offense is committed by more than one person, all of them shall be included in the
complaint or information.
The real nature of the offense charged is to be ascertained by the facts alleged in the body of the
Information and the punishment provided by law, not by the designation or title or caption given by
38
the Prosecutor in the Information. The Information must allege clearly and accurately the
39
elements of the crime charged.
As can be gleaned from its averments, the Information alleged the essential elements of the crime
under paragraph 1, Article 318 of the Revised Penal Code.
The false or fraudulent representation by a seller that what he offers for sale is brand new (when, in
fact, it is not) is one of those deceitful acts envisaged in paragraph 1, Article 318 of the Revised
Penal Code. The provision reads:
Art. 318. Other deceits. The penalty of arresto mayor and a fine of not less than the amount of
the damage caused and not more than twice such amount shall be imposed upon any person who
shall defraud or damage another by any other deceit not mentioned in the preceding articles of this
chapter.
This provision was taken from Article 554 of the Spanish Penal Code which provides:
El que defraudare o perjudicare a otro, usando de cualquier engao que no se halle expresado en
los artculos anteriores de esta seccin, ser castigado con una multa del tanto al duplo del
perjuicio que irrogare; y en caso de reincidencia, con la del duplo y arresto mayor en su grado
medio al mximo.
For one to be liable for "other deceits" under the law, it is required that the prosecution must prove
the following essential elements: (a) false pretense, fraudulent act or pretense other than those in
the preceding articles;
(b) such false pretense, fraudulent act or pretense must be made or executed prior to or
simultaneously with the commission of the fraud; and (c) as a result, the offended party suffered
40
damage or prejudice. It is essential that such false statement or fraudulent representation
constitutes the very cause or the only motive for the private complainant to part with her property.
The provision includes any kind of conceivable deceit other than those enumerated in Articles 315
41
to 317 of the Revised Penal Code. It is intended as the catchall provision for that purpose with its
42
broad scope and intendment.
Thus, the petitioners reliance on paragraph 2(a), Article 315 of the Revised Penal Code is
misplaced. The said provision reads:
2. By means of any of the following false pretenses or fraudulent acts executed prior to or
simultaneously with the commission of the fraud:
(a) By using fictitious name, or falsely pretending to possess power, influence, qualifications,
property, credit, agency, business or imaginary transactions; or by means of other similar deceits.
The fraudulent representation of the seller, in this case, that the van to be sold is brand new, is not
the deceit contemplated in the law. Under the principle of ejusdem generis, where a statement
ascribes things of a particular class or kind accompanied by words of a generic character, the
generic words will usually be limited to things of a similar nature with those particularly enumerated
43
unless there be something in the context to the contrary.
Jurisdiction is conferred by the Constitution or by law. It cannot be conferred by the will of the
parties, nor diminished or waived by them. The jurisdiction of the court is determined by the
averments of the complaint or Information, in relation to the law prevailing at the time of the filing of
the criminal complaint or Information, and the penalty provided by law for the crime charged at the
time of its commission.
Section 32 of Batas Pambansa Blg. 129, as amended by Republic Act No. 7691, provides that the
MTC has exclusive jurisdiction over offenses punishable with imprisonment not exceeding six
years, irrespective of the amount of the fine:
Sec. 32. Jurisdiction of Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial
Courts in Criminal Cases. Except in cases falling within the exclusive original jurisdiction of
Regional Trial Courts and of the Sandiganbayan, the Metropolitan Trial Courts, Municipal Trial
Courts, and Municipal Circuit Trial Courts shall exercise:
(1) Exclusive original jurisdiction over all violations of city or municipal ordinances committed within
their respective territorial jurisdiction; and
(2) Exclusive original jurisdiction over all offenses punishable with imprisonment not exceeding six
(6) years irrespective of the amount of fine, and regardless of other imposable accessory or other
penalties, including the civil liability arising from such offenses or predicated thereon, irrespective
of kind, nature, value or amount thereof: Provided, however, That in offenses involving damage to
property through criminal negligence, they shall have exclusive original jurisdiction thereof.
Since the felony of other deceits is punishable by arresto mayor, the MTC had exclusive jurisdiction
over the offense lodged against the petitioner.
On the merits of the petition, the Court agrees with the petitioners contention that there is no
evidence on record that he made direct and positive representations or assertions to the private
complainant that the van was brand new. The record shows that the private complainant and her
husband Ralph Silo were, in fact, attended to by Azotea. However, it bears stressing that the
representation may be in the form of words, or conduct resorted to by an individual to serve as an
advantage over another. Indeed, as declared by the CA based on the evidence on record:
Petitioner cannot barefacedly claim that he made no personal representation that the herein
subject van was brand new for the simple reason that nowhere in the records did he ever refute the
allegation in the complaint, which held him out as a dealer of brand new cars. It has thus become
admitted that the petitioner was dealing with brand new vehicles a fact which, up to now,
petitioner has not categorically denied. Therefore, when private complainant went to petitioners
showroom, the former had every right to assume that she was being sold brand new vehicles there
being nothing to indicate otherwise. But as it turned out, not only did private complainant get a
defective and used van, the vehicle had also earlier figured in a road accident when driven by no
44
less than petitioners own driver.
Indeed, the petitioner and Azotea obdurately insisted in the trial court that the van was brand new,
and that it had never figured in vehicular accident. This representation was accentuated by the fact
that the petitioner gave the Service Manual to the private complainant, which manual
contained the warranty terms and conditions, signifying that the van was "brand new." Believing
this good faith, the private complainant decided to purchase the van for her buy-and-sell and
garment business, and even made a downpayment of the purchase price.
As supported by the evidence on record, the van was defective when the petitioner sold it to the
private complainant. It had ditched onto the shoulder of the highway in Daet, Camarines Norte on
its way from Manila to Naga City. The van was damaged and had to be repaired; the rod end and
bushing had to be replaced, while the left front stabilizer which gave out a persistent annoying
sound was repaired. Some parts underneath the van were even welded together. Azotea and the
petitioner deliberately concealed these facts from the private complainant when she bought the
van, obviously so as not to derail the sale and the profit from the transaction.
The CA is correct in ruling that fraud or deceit may be committed by omission. As the Court held
45
in People v. Balasa:
Fraud, in its general sense, is deemed to comprise anything calculated to deceive, including all
acts, omissions, and concealment involving a breach of legal or equitable duty, trust, or confidence
justly reposed, resulting in damage to another, or by which an undue and unconscientious
advantage is taken of another. It is a generic term embracing all multifarious means which human
ingenuity can device, and which are resorted to by one individual to secure an advantage over
another by false suggestions or by suppression of truth and includes all surprise, trick, cunning,
dissembling and any unfair way by which another is cheated. On the other hand, deceit is the false
representation of a matter of fact whether by words or conduct, by false or misleading allegations,
or by concealment of that which should have been disclosed which deceives or is intended to
46
deceive another so that he shall act upon it to his legal injury.
It is true that mere silence is not in itself concealment. Concealment which the law denounces as
47
fraudulent implies a purpose or design to hide facts which the other party sought to know. Failure
to reveal a fact which the seller is, in good faith, bound to disclose may generally be classified as a
48
deceptive act due to its inherent capacity to deceive. Suppression of a material fact which a party
49
is bound in good faith to disclose is equivalent to a false representation. Moreover, a
representation is not confined to words or positive assertions; it may consist as well of deeds, acts
or artifacts of a nature calculated to mislead another and thus allow the fraud-feasor to obtain an
50
undue advantage.
Fraudulent nondisclosure and fraudulent concealment are of the same genre. Fraudulent
concealment presupposes a duty to disclose the truth and that disclosure was not made when
opportunity to speak and inform was presented, and that the party to whom the duty of disclosure,
51
as to a material fact was due, was induced thereby to act to his injury.
Article 1389 of the New Civil Code provides that failure to disclose facts when there is a duty to
reveal them constitutes fraud. In a contract of sale, a buyer and seller do not deal from equal
bargaining positions when the latter has knowledge, a material fact which, if communicated to the
52
buyer, would render the grounds unacceptable or, at least, substantially less desirable. If, in a
contract of sale, the vendor knowingly allowed the vendee to be deceived as to the thing sold in a
material matter by failing to disclose an intrinsic circumstance that is vital to the contract, knowing
that the vendee is acting upon the presumption that no such fact exists, deceit is accomplished by
53
the suppression of the truth.
In the present case, the petitioner and Azotea knew that the van had figured in an accident, was
damaged and had to be repaired. Nevertheless, the van was placed in the showroom, thus making
it appear to the public that it was a brand new unit. The petitioner was mandated to reveal the
foregoing facts to the private complainant. But the petitioner and Azotea even obdurately declared
when they testified in the court a quo that the vehicle did not figure in an accident, nor had it been
repaired; they maintained that the van was brand new, knowing that the private complainant was
going to use it for her garment business. Thus, the private complainant bought the van, believing it
was brand new.
Significantly, even when the petitioner was apprised that the private complainant had discovered
the vans defects, the petitioner agreed to replace the van, but changed his mind and insisted that it
must be first sold.
The petitioner is not relieved of his criminal liability for deceitful concealment of material facts, even
if the private complainant made a visual inspection of the vans interior and exterior before she
agreed to buy it and
failed to inspect its under chassis. Case law has it that where the vendee made only a partial
investigation and relies, in part, upon the representation of the vendee, and is deceived by such
54
representation to his injury, he may maintain an action for such deceit. The seller cannot be heard
to say that the vendee should not have relied upon the fraudulent concealment; that negligence, on
the part of the vendee, should not be a defense in order to prevent the vendor from unjustifiably
escaping with the fruits of the fraud.
55
In one case, the defendant who repainted an automobile, worked it over to resemble a new one
and delivered it to the plaintiff was found to have warranted and represented that the automobile
being sold was new. This was found to be "a false representation of an existing fact; and, if it was
material and induced the plaintiff to accept something entirely different from that which he had
contracted for, it clearly was a fraud which, upon its discovery and a tender of the property back to
56
the seller, [it] entitled the plaintiff to rescind the trade and recover the purchase money."
On the petitioners insistence that the private complainant was proscribed from charging him
with estafa based on the principle of caveat emptor, case law has it that this rule only requires the
purchaser to exercise such care and attention as is usually exercised by ordinarily prudent men in
like business affairs, and only applies to defects which are open and patent to the service of one
57
exercising such care. In an avuncular case, it was held that:
The rule of caveat emptor, like the rule of sweet charity, has often been invoked to cover a
multitude of sins; but we think its protecting mantle has never been stretched to this extent. It can
only be applied where it is shown or conceded that the parties to the contract stand on equal
footing and have equal knowledge or equal means of knowledge and there is no relation of trust or
confidence between them. But, where one party undertakes to sell to another property situated at a
distance and of which he has or claims to have personal knowledge and of which the buyer knows
nothing except as he is informed by the seller, the buyer may rightfully rely on the truth of the
sellers representations as to its kind, quality, and value made in the course of negotiation for the
purpose of inducing the purchase. If, in such case, the representations prove to be false, neither
law nor equity will permit the seller to escape responsibility by the plea that the buyer ought not to
58
have believed him or ought to have applied to other sources to ascertain the facts.
It bears stressing that Azotea and the petitioner had every opportunity to reveal to the private
complainant that the van was defective. They resolved to maintain their silence, to the prejudice of
the private complainant, who was a garment merchant and who had no special knowledge of parts
of motor vehicles. Based on the surrounding circumstances, she relied on her belief that the van
was brand new. In fine, she was the innocent victim of the petitioners fraudulent nondisclosure or
concealment.
The petitioner cannot pin criminal liability for his fraudulent omission on his general manager,
Azotea. The two are equally liable for their collective fraudulent silence. Case law has it that
wherever the doing of a
certain act or the transaction of a given affair, or the performance of certain business is confided to
an agent, the authority to so act will, in accordance with a general rule often referred to, carry with
it by implication the authority to do all of the collateral acts which are the natural and ordinary
59
incidents of the main act or business authorized.
The MTC sentenced the petitioner to suffer imprisonment of from two months and one day, as
minimum, to four months of arresto mayor, as maximum. The CA affirmed the penalty imposed by
the trial court. This is erroneous. Section 2 of Act 4103, as amended, otherwise known as the
Indeterminate Sentence Law, provides that the law will not apply if the maximum term of
imprisonment does not exceed one year:

SEC. 2. This Act shall not apply to persons convicted of offenses punished with death penalty or
life-imprisonment; to those convicted of treason, conspiracy or proposal to commit treason; to
those convicted of misprision of treason, rebellion, sedition or espionage; to those convicted of
piracy; to those who are habitual delinquents; to those who shall have escaped from confinement
or evaded sentence; to those who having been granted conditional pardon by the Chief Executive
shall have violated the terms thereof; to those whose maximum term of imprisonment does not
exceed one year, not to those already sentenced by final judgment at the time of approval of this
Act, except as provided in Section 5 hereof. (As amended by Act No. 4225.)

In this case, the maximum term of imprisonment imposed on the petitioner was four months and
one day of arresto mayor. Hence, the MTC was proscribed from imposing an indeterminate penalty
on the petitioner. An indeterminate penalty may be imposed if the minimum of the penalty is
one year or less, and the maximum exceeds one year. For example, the trial court may impose an
indeterminate penalty of six months of arresto mayor, as minimum, to two years and four months
of prision correccional, as maximum, since the maximum term of imprisonment it imposed exceeds
one year. If the trial court opts to impose a penalty of imprisonment of one year or less, it should
not impose an indeterminate penalty, but a straight penalty of one year or less instead. Thus, the
petitioner may be sentenced to a straight penalty of one year, or a straight penalty of less than one
year, i.e., ten months or eleven months. We believe that considering the attendant circumstances,
a straight penalty of imprisonment of six months is reasonable.

Conformably with Article 39 in relation to paragraph 3, Article 38 of the Revised Penal Code, the
petitioner shall suffer subsidiary imprisonment if he has no property with which to pay the penalty of
fine.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The assailed Decision and
Resolution are AFFIRMED WITH MODIFICATION. Considering the surrounding circumstances of
the case, the petitioner is hereby sentenced to suffer a straight penalty of six (6) months
imprisonment. The petitioner shall suffer subsidiary imprisonment in case of insolvency.

Costs against the petitioner.

SO ORDERED.
C. THE AGENT
60 - G.R. No. L-18805 August 14, 1967
1 supervened. Four devastating typhoons visited the Philippines: the first in October, the second and
THE BOARD OF LIQUIDATORS representing THE GOVERNMENT OF THE REPUBLIC OF
THE PHILIPPINES,plaintiff-appellant,
vs.
2
HEIRS OF MAXIMO M. KALAW, JUAN BOCAR, ESTATE OF THE DECEASED CASIMIRO
3
GARCIA, and LEONOR MOLL, defendants-appellees.
SANCHEZ, J.:
The National Coconut Corporation (NACOCO, for short) was chartered as a non-profit
governmental organization on May 7, 1940 by Commonwealth Act 518 avowedly for the protection,
preservation and development of the coconut industry in the Philippines. On August 1, 1946,
NACOCO's charter was amended [Republic Act 5] to grant that corporation the express power "to
buy, sell, barter, export, and in any other manner deal in, coconut, copra, and dessicated coconut,
as well as their by-products, and to act as agent, broker or commission merchant of the producers,
dealers or merchants" thereof. The charter amendment was enacted to stabilize copra prices, to
serve coconut producers by securing advantageous prices for them, to cut down to a minimum, if
4
not altogether eliminate, the margin of middlemen, mostly aliens.
General manager and board chairman was Maximo M. Kalaw; defendants Juan Bocar and
Casimiro Garcia were members of the Board; defendant Leonor Moll became director only on
December 22, 1947.
NACOCO, after the passage of Republic Act 5, embarked on copra trading activities. Amongst the
scores of contracts executed by general manager Kalaw are the disputed contracts, for the delivery
of copra, viz:
(a) July 30, 1947: Alexander Adamson & Co., for 2,000 long tons, $167.00: per ton, f. o. b.,
delivery: August and September, 1947. This contract was later assigned to Louis Dreyfus & Co.
(Overseas) Ltd.
(b) August 14, 1947: Alexander Adamson & Co., for 2,000 long tons $145.00 per long ton, f.o.b.,
Philippine ports, to be shipped: September-October, 1947. This contract was also assigned to
Louis Dreyfus & Co. (Overseas) Ltd.
(c) August 22, 1947: Pacific Vegetable Co., for 3,000 tons, $137.50 per ton, delivery:
September, 1947.
(d) September 5, 1947: Spencer Kellog & Sons, for 1,000 long tons, $160.00 per ton, c.i.f., Los
Angeles, California, delivery: November, 1947.
(e) September 9, 1947: Franklin Baker Division of General Foods Corporation, for 1,500 long
tons, $164,00 per ton, c.i.f., New York, to be shipped in November, 1947.
(f) September 12, 1947: Louis Dreyfus & Co. (Overseas) Ltd., for 3,000 long tons, $154.00 per
ton, f.o.b., 3 Philippine ports, delivery: November, 1947.
(g) September 13, 1947: Juan Cojuangco, for 2,000 tons, $175.00 per ton, delivery: November
and December, 1947. This contract was assigned to Pacific Vegetable Co.
(h) October 27, 1947: Fairwood & Co., for 1,000 tons, $210.00 per short ton, c.i.f., Pacific ports,
delivery: December, 1947 and January, 1948. This contract was assigned to Pacific Vegetable
Co.
(i) October 28, 1947: Fairwood & Co., for 1,000 tons, $210.00 per short ton, c.i.f., Pacific ports,
delivery: January, 1948. This contract was assigned to Pacific Vegetable Co.
An unhappy chain of events conspired to deter NACOCO from fulfilling these contracts. Nature
third in November, and the fourth in December, 1947. Coconut trees throughout the country
suffered extensive damage. Copra production decreased. Prices spiralled. Warehouses were
destroyed. Cash requirements doubled. Deprivation of export facilities increased the time
necessary to accumulate shiploads of copra. Quick turnovers became impossible, financing a
problem.
When it became clear that the contracts would be unprofitable, Kalaw submitted them to the board
for approval. It was not until December 22, 1947 when the membership was completed. Defendant
Moll took her oath on that date. A meeting was then held. Kalaw made a full disclosure of the
situation, apprised the board of the impending heavy losses. No action was taken on the contracts.
Neither did the board vote thereon at the meeting of January 7, 1948 following. Then, on January
11, 1948, President Roxas made a statement that the NACOCO head did his best to avert the
losses, emphasized that government concerns faced the same risks that confronted private
companies, that NACOCO was recouping its losses, and that Kalaw was to remain in his post. Not
long thereafter, that is, on January 30, 1948, the board met again with Kalaw, Bocar, Garcia and
Moll in attendance. They unanimously approved the contracts hereinbefore enumerated.
As was to be expected, NACOCO but partially performed the contracts, as follows:
Buyers Tons Delivered Undelivered
Pacific Vegetable Oil 2,386.45 4,613.55
Spencer Kellog None 1,000
Franklin Baker 1,000 500
Louis Dreyfus 800 2,200
Louis Dreyfus (Adamson contract of July 30, 1947) 1,150 850
Louis Dreyfus (Adamson Contract of August 14, 1947) 1,755 245
TOTALS
7,091.45 9,408.55
The buyers threatened damage suits. Some of the claims were settled, viz: Pacific Vegetable Oil
Co., in copra delivered by NACOCO, P539,000.00; Franklin Baker Corporation, P78,210.00;
Spencer Kellog & Sons, P159,040.00.
But one buyer, Louis Dreyfus & Go. (Overseas) Ltd., did in fact sue before the Court of First
Instance of Manila, upon claims as follows: For the undelivered copra under the July 30 contract
(Civil Case 4459); P287,028.00; for the balance on the August 14 contract (Civil Case 4398),
P75,098.63; for that per the September 12 contract reduced to judgment (Civil Case 4322,
appealed to this Court in L-2829), P447,908.40. These cases culminated in an out-of-court
amicable settlement when the Kalaw management was already out. The corporation thereunder
paid Dreyfus P567,024.52 representing 70% of the total claims. With particular reference to the
Dreyfus claims, NACOCO put up the defenses that: (1) the contracts were void because Louis
Dreyfus & Co. (Overseas) Ltd. did not have license to do business here; and (2) failure to deliver
was due to force majeure, the typhoons. To project the utter unreasonableness of this compromise,
we reproduce in haec verba this finding below:
x x x However, in similar cases brought by the same claimant [Louis Dreyfus & Co.
(Overseas) Ltd.] against Santiago Syjuco for non-delivery of copra also involving a claim
of P345,654.68 wherein defendant set up same defenses as above, plaintiff accepted
a promise of P5,000.00 only (Exhs. 31 & 32 Heirs.) Following the same proportion, the
claim of Dreyfus against NACOCO should have been compromised for only P10,000.00,
 if at all. Now, why should defendants be held liable for the large sum paid as
compromise by the Board of Liquidators? This is just a sample to show how unjust it
would be to hold defendants liable for the readiness with which the Board of Liquidators
disposed of the NACOCO funds, although there was much possibility of successfully
resisting the claims, or at least settlement for nominal sums like what happened in the
5
Syjuco case.
All the settlements sum up to P1,343,274.52.
In this suit started in February, 1949, NACOCO seeks to recover the above sum of P1,343,274.52
from general manager and board chairman Maximo M. Kalaw, and directors Juan Bocar, Casimiro
Garcia and Leonor Moll. It charges Kalaw with negligence under Article 1902 of the old Civil Code
(now Article 2176, new Civil Code); and defendant board members, including Kalaw, with bad faith
and/or breach of trust for having approved the contracts. The fifth amended complaint, on which
this case was tried, was filed on July 2, 1959. Defendants resisted the action upon defenses
hereinafter in this opinion to be discussed.
The lower court came out with a judgment dismissing the complaint without costs as well as
defendants' counterclaims, except that plaintiff was ordered to pay the heirs of Maximo Kalaw the
sum of P2,601.94 for unpaid salaries and cash deposit due the deceased Kalaw from NACOCO.
Plaintiff appealed direct to this Court.
Plaintiff's brief did not, question the judgment on Kalaw's counterclaim for the sum of P2,601.94.
Right at the outset, two preliminary questions raised before, but adversely decided by, the court
below, arrest our attention. On appeal, defendants renew their bid. And this, upon established
jurisprudence that an appellate court may base its decision of affirmance of the judgment below on
6
a point or points ignored by the trial court or in which said court was in error.
1. First of the threshold questions is that advanced by defendants that plaintiff Board of Liquidators
has lost its legal personality to continue with this suit.
Accepted in this jurisdiction are three methods by which a corporation may wind up its affairs: (1)
under Section 3, Rule 104, of the Rules of Court [which superseded Section 66 of the Corporation
7
Law] whereby, upon voluntary dissolution of a corporation, the court may direct "such disposition
of its assets as justice requires, and may appoint a receiver to collect such assets and pay the
debts of the corporation;" (2) under Section 77 of the Corporation Law, whereby a corporation
whose corporate existence is terminated, "shall nevertheless be continued as a body corporate for
three years after the time when it would have been so dissolved, for the purpose of prosecuting
and defending suits by or against it and of enabling it gradually to settle and close its affairs, to
dispose of and convey its property and to divide its capital stock, but not for the purpose of
continuing the business for which it was established;" and (3) under Section 78 of the Corporation
Law, by virtue of which the corporation, within the three year period just mentioned, "is authorized
and empowered to convey all of its property to trustees for the benefit of members, stockholders,
8
creditors, and others interested."
It is defendants' pose that their case comes within the coverage of the second method. They
reason out that suit was commenced in February, 1949; that by Executive Order 372, dated
November 24, 1950, NACOCO, together with other government-owned corporations, was
abolished, and the Board of Liquidators was entrusted with the function of settling and closing its
affairs; and that, since the three year period has elapsed, the Board of Liquidators may not now
continue with, and prosecute, the present case to its conclusion, because Executive Order 372
provides in Section 1 thereof that
Sec.1. The National Abaca and Other Fibers Corporation, the National Coconut
Corporation, the National Tobacco Corporation, the National Food Producer Corporation
and the former enemy-owned or controlled corporations or associations, . . . are hereby
abolished. The said corporations shall be liquidated in accordance with law, the
provisions of this Order, and/or in such manner as the President of the Philippines may
direct; Provided, however, That each of the said corporations shall nevertheless be
continued as a body corporate for a period of three (3) years from the effective date of
this Executive Order for the purpose of prosecuting and defending suits by or against it
and of enabling the Board of Liquidators gradually to settle and close its affairs, to
dispose of and, convey its property in the manner hereinafter provided.
Citing Mr. Justice Fisher, defendants proceed to argue that even where it may be found impossible
within the 3 year period to reduce disputed claims to judgment, nonetheless, "suits by or against a
corporation abate when it ceases to be an entity capable of suing or being sued" (Fisher, The
Philippine Law of Stock Corporations, pp. 390-391). Corpus Juris Secundum likewise is authority
for the statement that "[t]he dissolution of a corporation ends its existence so that there must be
9
statutory authority for prolongation of its life even for purposes of pending litigation" and that suit
"cannot be continued or revived; nor can a valid judgment be rendered therein, and a judgment, if
10
rendered, is not only erroneous, but void and subject to collateral attack." So it is, that abatement
of pending actions follows as a matter of course upon the expiration of the legal period for
11
liquidation, unless the statute merely requires a commencement of suit within the added
12 13
time. For, the court cannot extend the time alloted by statute.
We, however, express the view that the executive order abolishing NACOCO and creating the
Board of Liquidators should be examined in context. The proviso in Section 1 of Executive Order
372, whereby the corporate existence of NACOCO was continued for a period of three years from
the effectivity of the order for "the purpose of prosecuting and defending suits by or against it and
of enabling the Board of Liquidators gradually to settle and close its affairs, to dispose of and
convey its property in the manner hereinafter provided", is to be read not as an isolated provision
but in conjunction with the whole. So reading, it will be readily observed that no time limit has been
tacked to the existence of the Board of Liquidators and its function of closing the affairs of the
various government owned corporations, including NACOCO.
By Section 2 of the executive order, while the boards of directors of the various corporations were
abolished, their powers and functions and duties under existing laws were to be assumed and
exercised by the Board of Liquidators. The President thought it best to do away with the boards of
directors of the defunct corporations; at the same time, however, the President had chosen to see
to it that the Board of Liquidators step into the vacuum. And nowhere in the executive order was
there any mention of the lifespan of the Board of Liquidators. A glance at the other provisions of the
executive order buttresses our conclusion. Thus, liquidation by the Board of Liquidators may, under
section 1, proceed in accordance with law, the provisions of the executive order, "and/or in such
manner as the President of the Philippines may direct." By Section 4, when any property, fund, or
project is transferred to any governmental instrumentality "for administration or continuance of any
project," the necessary funds therefor shall be taken from the corresponding special fund created
in Section 5. Section 5, in turn, talks of special funds established from the "net proceeds of the
liquidation" of the various corporations abolished. And by Section, 7, fifty per centum of the fees
collected from the copra standardization and inspection service shall accrue "to the special fund
created in section 5 hereof for the rehabilitation and development of the coconut industry." Implicit
in all these, is that the term of life of the Board of Liquidators is without time limit. Contemporary
history gives us the fact that the Board of Liquidators still exists as an office with officials and
numerous employees continuing the job of liquidation and prosecution of several court actions.
Not that our views on the power of the Board of Liquidators to proceed to the final determination of
the present case is without jurisprudential support. The first judicial test before this Court
is National Abaca and Other Fibers Corporation vs. Pore, L-16779, August 16, 1961. In that case,
the corporation, already dissolved, commenced suit within the three-year extended period for
liquidation. That suit was for recovery of money advanced to defendant for the purchase of hemp in
behalf of the corporation. She failed to account for that money. Defendant moved to dismiss,
questioned the corporation's capacity to sue. The lower court ordered plaintiff to include as co-
party plaintiff, The Board of Liquidators, to which the corporation's liquidation was entrusted
by Executive Order 372. Plaintiff failed to effect inclusion. The lower court dismissed the suit.
Plaintiff moved to reconsider. Ground: excusable negligence, in that its counsel prepared the
amended complaint, as directed, and instructed the board's incoming and outgoing
correspondence clerk, Mrs. Receda Vda. de Ocampo, to mail the original thereof to the court and a
copy of the same to defendant's counsel. She mailed the copy to the latter but failed to send the
original to the court. This motion was rejected below. Plaintiff came to this Court on appeal. We
there said that "the rule appears to be well settled that, in the absence of statutory provision to the
contrary, pending actions by or against a corporation are abated upon expiration of the period
allowed by law for the liquidation of its affairs." We there said that "[o]ur Corporation Law contains
no provision authorizing a corporation, after three (3) years from the expiration of its lifetime, to
continue in its corporate name actions instituted by it within said period of three (3)
14
years." However, these precepts notwithstanding, we, in effect, held in that case that the Board
of Liquidators escapes from the operation thereof for the reason that "[o]bviously, the complete
loss of plaintiff's corporate existence after the expiration of the period of three (3) years for the
settlement of its affairs is what impelled the President to create a Board of Liquidators, to continue
15
the management of such matters as may then be pending." We accordingly directed the record
of said case to be returned to the lower court, with instructions to admit plaintiff's amended
complaint to include, as party plaintiff, the Board of Liquidators.
Defendants' position is vulnerable to attack from another direction.
By Executive Order 372, the government, the sole stockholder, abolished NACOCO, and placed its
assets in the hands of the Board of Liquidators. The Board of Liquidators thus became
the trustee on behalf of the government. It was an express trust. The legal interest became vested
in the trustee the Board of Liquidators. The beneficial interest remained with the sole
stockholder the government. At no time had the government withdrawn the property, or the
authority to continue the present suit, from the Board of Liquidators. If for this reason alone, we
cannot stay the hand of the Board of Liquidators from prosecuting this case to its final
16
conclusion. The provisions of Section 78 of the Corporation Law the third method of winding
up corporate affairs find application.
We, accordingly, rule that the Board of Liquidators has personality to proceed as: party-plaintiff in
this case.
2. Defendants' second poser is that the action is unenforceable against the heirs of Kalaw.
17
Appellee heirs of Kalaw raised in their motion to dismiss, which was overruled, and in their
nineteenth special defense, that plaintiff's action is personal to the deceased Maximo M. Kalaw,
18
and may not be deemed to have survived after his death. They say that the controlling statute is
19
Section 5, Rule 87, of the 1940 Rules of Court. which provides that "[a]ll claims for money against
the decedent, arising from contract, express or implied", must be filed in the estate proceedings of
the deceased. We disagree.
The suit here revolves around the alleged negligent acts of Kalaw for having entered into the
questioned contracts without prior approval of the board of directors, to the damage and prejudice
of plaintiff; and is against Kalaw and the other directors for having subsequently approved the said
contracts in bad faith and/or breach of trust." Clearly then, the present case is not a mere action for
the recovery of money nor a claim for money arising from contract. The suit involves alleged
tortious acts. And the action is embraced in suits filed "to recover damages for an injury to person
20
or property, real or personal", which survive.
The leading expositor of the law on this point is Aguas vs. Llemos, L-18107, August 30, 1962.
There, plaintiffs sought to recover damages from defendant Llemos. The complaint averred that
Llemos had served plaintiff by registered mail with a copy of a petition for a writ of possession in
Civil Case 4824 of the Court of First Instance at Catbalogan, Samar, with notice that the same
would be submitted to the Samar court on February 23, 1960 at 8:00 a.m.; that in view of the copy
and notice served, plaintiffs proceeded to the said court of Samar from their residence in Manila
accompanied by their lawyers, only to discover that no such petition had been filed; and that
defendant Llemos maliciously failed to appear in court, so that plaintiffs' expenditure and trouble
turned out to be in vain, causing them mental anguish and undue embarrassment. Defendant died
before he could answer the complaint. Upon leave of court, plaintiffs amended their complaint to
include the heirs of the deceased. The heirs moved to dismiss. The court dismissed the complaint
on the ground that the legal representative, and not the heirs, should have been made the party
defendant; and that, anyway, the action being for recovery of money, testate or intestate
proceedings should be initiated and the claim filed therein. This Court, thru Mr. Justice Jose B. L.
Reyes, there declared:
Plaintiffs argue with considerable cogency that contrasting the correlated provisions of
the Rules of Court, those concerning claims that are barred if not filed in the estate
settlement proceedings (Rule 87, sec. 5) and those defining actions that survive and may
be prosecuted against the executor or administrator (Rule 88, sec. 1), it is apparent that
actions for damages caused by tortious conduct of a defendant (as in the case at bar)
survive the death of the latter. Under Rule 87, section 5, the actions that are abated by
death are: (1) claims for funeral expenses and those for the last sickness of the
decedent; (2) judgments for money; and (3) "all claims for money against the
decedent, arising from contract express or implied." None of these includes that of the
plaintiffs-appellants; for it is not enough that the claim against the deceased party be for
money, but it must arise from "contract express or implied", and these words (also used
by the Rules in connection with attachments and derived from the common law) were
construed in Leung Ben vs. O'Brien, 38 Phil. 182, 189-194,
"to include all purely personal obligations other than those which have their
source in delict or tort."
Upon the other hand, Rule 88, section 1, enumerates actions that survive against a
decedent's executors or administrators, and they are: (1) actions to recover real and
personal property from the estate; (2) actions to enforce a lien thereon; and (3) actions to
recover damages for an injury to person or property. The present suit is one for damages
under the last class, it having been held that "injury to property" is not limited to injuries
to specific property, but extends to other wrongs by which personal estate is injured or
diminished (Baker vs. Crandall, 47 Am. Rep. 126; also 171 A.L.R., 1395). To maliciously
cause a party to incur unnecessary expenses, as charged in this case, is certainly injury
to that party's property (Javier vs. Araneta, L-4369, Aug. 31, 1953).
The ruling in the preceding case was hammered out of facts comparable to those of the present.
No cogent reason exists why we should break away from the views just expressed. And, the
conclusion remains: Action against the Kalaw heirs and, for the matter, against the Estate of
Casimiro Garcia survives.
The preliminaries out of the way, we now go to the core of the controversy.
3. Plaintiff levelled a major attack on the lower court's holding that Kalaw justifiedly entered into the
controverted contracts without the prior approval of the corporation's directorate. Plaintiff leans
heavily on NACOCO's corporate by-laws. Article IV (b), Chapter III thereof, recites, as amongst the
duties of the general manager, the obligation: "(b) To perform or execute on behalf of the
Corporation upon prior approval of the Board, all contracts necessary and essential to the proper warehouse of the latter. On the same date, the board gave its nod to a contract for renewal of the
accomplishment for which the Corporation was organized." services of Dr. Manuel L. Roxas. In fact, also on that date, the board requested Kalaw to report for
action all copra contracts signed by him "at the meeting immediately following the signing of the
contracts." This practice was observed in a later instance when, on January 7, 1948, the board
Not of de minimis importance in a proper approach to the problem at hand, is the nature of a
approved two previous contracts for the sale of 1,000 tons of copra each to a certain "SCAP" and a
general manager's position in the corporate structure. A rule that has gained acceptance through
certain "GNAPO".
the years is that a corporate officer "intrusted with the general management and control of its
business, has implied authority to make any contract or do any other act which is necessary or
21
appropriate to the conduct of the ordinary business of the corporation. As such officer, "he may, And more. On December 19, 1946, the board resolved to ratify the brokerage commission of 2% of
without any special authority from the Board of Directors perform all acts of an ordinary nature, Smith, Bell and Co., Ltd., in the sale of 4,300 long tons of copra to the French Government. Such
which by usage or necessity are incident to his office, and may bind the corporation by contracts in ratification was necessary because, as stated by Kalaw in that same meeting, "under an existing
22
matters arising in the usual course of business. resolution he is authorized to give a brokerage fee of only 1% on sales of copra made through
brokers." On January 15, 1947, the brokerage fee agreements of 1-1/2% on three export contracts,
and 2% on three others, for the sale of copra were approved by the board with a proviso
The problem, therefore, is whether the case at bar is to be taken out of the general concept of the
authorizing the general manager to pay a commission up to the amount of 1-1/2% "without further
powers of a general manager, given the cited provision of the NACOCO by-laws requiring prior
action by the Board." On February 5, 1947, the brokerage fee of 2% of J. Cojuangco & Co. on the
directorate approval of NACOCO contracts.
sale of 2,000 tons of copra was favorably acted upon by the board. On March 19, 1947, a 2%
brokerage commission was similarly approved by the board for Pacific Trading Corporation on the
The peculiar nature of copra trading, at this point, deserves express articulation. Ordinary in this sale of 2,000 tons of copra.
enterprise are copra sales for future delivery. The movement of the market requires that sales
agreements be entered into, even though the goods are not yet in the hands of the seller. Known in
It is to be noted in the foregoing cases that only the brokerage fee agreements were passed upon
business parlance as forward sales, it is concededly the practice of the trade. A certain amount of
by the board, not the sales contracts themselves. And even those fee agreements were
speculation is inherent in the undertaking. NACOCO was much more conservative than the
submitted only when the commission exceeded the ceiling fixed by the board.
exporters with big capital. This short-selling was inevitable at the time in the light of other factors
such as availability of vessels, the quantity required before being accepted for loading, the labor
needed to prepare and sack the copra for market. To NACOCO, forward sales were a necessity. Knowledge by the board is also discernible from other recorded instances.1wph1.t
Copra could not stay long in its hands; it would lose weight, its value decrease. Above all,
NACOCO's limited funds necessitated a quick turnover. Copra contracts then had to be executed
When the board met on May 10, 1947, the directors discussed the copra situation: There was a
on short notice at times within twenty-four hours. To be appreciated then is the difficulty of
slow downward trend but belief was entertained that the nadir might have already been reached
calling a formal meeting of the board.
and an improvement in prices was expected. In view thereof, Kalaw informed the board that "he
23
intends to wait until he has signed contracts to sell before starting to buy copra."
Such were the environmental circumstances when Kalaw went into copra trading.
In the board meeting of July 29, 1947, Kalaw reported on the copra price conditions then current:
Long before the disputed contracts came into being, Kalaw contracted by himself alone as The copra market appeared to have become fairly steady; it was not expected that copra prices
general manager for forward sales of copra. For the fiscal year ending June 30, 1947, Kalaw would again rise very high as in the unprecedented boom during January-April, 1947; the prices
signed some 60 such contracts for the sale of copra to divers parties. During that period, from seemed to oscillate between $140 to $150 per ton; a radical rise or decrease was not indicated by
those copra sales, NACOCO reaped a gross profit of P3,631,181.48. So pleased was NACOCO's the trends. Kalaw continued to say that "the Corporation has been closing contracts for the sale of
24
board of directors that, on December 5, 1946, in Kalaw's absence, it voted to grant him a special copra generally with a margin of P5.00 to P7.00 per hundred kilos."
bonus "in recognition of the signal achievement rendered by him in putting the Corporation's
business on a self-sufficient basis within a few months after assuming office, despite numerous
We now lift the following excerpts from the minutes of that same board meeting of July 29, 1947:
handicaps and difficulties."

521. In connection with the buying and selling of copra the Board inquired whether it is
These previous contract it should be stressed, were signed by Kalaw without prior authority from
the practice of the management to close contracts of sale first before buying. The
the board. Said contracts were known all along to the board members. Nothing was said by them.
General Manager replied that this practice is generally followed but that it is not always
The aforesaid contracts stand to prove one thing: Obviously, NACOCO board met the difficulties
possible to do so for two reasons:
attendant to forward sales by leaving the adoption of means to end, to the sound discretion of
NACOCO's general manager Maximo M. Kalaw.
(1) The role of the Nacoco to stabilize the prices of copra requires that it should not
cease buying even when it does not have actual contracts of sale since the suspension
Liberally spread on the record are instances of contracts executed by NACOCO's general manager
of buying by the Nacoco will result in middlemen taking advantage of the temporary
and submitted to the board after their consummation, not before. These agreements were not
inactivity of the Corporation to lower the prices to the detriment of the producers.
Kalaw's alone. One at least was executed by a predecessor way back in 1940, soon after
NACOCO was chartered. It was a contract of lease executed on November 16, 1940 by the then
general manager and board chairman, Maximo Rodriguez, and A. Soriano y Cia., for the lease of a (2) The movement of the market is such that it may not be practical always to wait for the
space in Soriano Building On November 14, 1946, NACOCO, thru its general manager Kalaw, sold consummation of contracts of sale before beginning to buy copra.
3,000 tons of copra to the Food Ministry, London, thru Sebastian Palanca. On December 22, 1947,
when the controversy over the present contract cropped up, the board voted to approve a lease
contract previously executed between Kalaw and Fidel Isberto and Ulpiana Isberto covering a
 The General Manager explained that in this connection a certain amount of speculation
is unavoidable. However, he said that the Nacoco is much more conservative than the
25
other big exporters in this respect.
Settled jurisprudence has it that where similar acts have been approved by the directors as a
matter of general practice, custom, and policy, the general manager may bind the company without
26
formal authorization of the board of directors. In varying language, existence of such authority is
established, by proof of the course of business, the usage and practices of the company and by
the knowledge which the board of directors has, or must bepresumed to have, of acts and doings
27
of its subordinates in and about the affairs of the corporation. So also,
x x x authority to act for and bind a corporation may be presumed from acts of
28
recognition in other instances where the power was in fact exercised.
x x x Thus, when, in the usual course of business of a corporation, an officer has been
allowed in his official capacity to manage its affairs, his authority to represent the
corporation may be implied from the manner in which he has been permitted by the
29
directors to manage its business.
In the case at bar, the practice of the corporation has been to allow its general manager to
negotiate and execute contracts in its copra trading activities for and in NACOCO's
behalf without prior board approval. If the by-laws were to be literally followed, the board should
give its stamp of prior approval on all corporate contracts. But that board itself, by its acts and
through acquiescence, practically laid aside the by-law requirement of prior approval.
Under the given circumstances, the Kalaw contracts are valid corporate acts.
4. But if more were required, we need but turn to the board's ratification of the contracts in dispute
on January 30, 1948, though it is our (and the lower court's) belief that ratification here is nothing
more than a mere formality.
Authorities, great in number, are one in the idea that "ratification by a corporation of an
unauthorized act or contract by its officers or others relates back to the time of the act or contract
ratified, and is equivalent to original authority;" and that " [t]he corporation and the other party to
the transaction are in precisely the same position as if the act or contract had been authorized at
30
the time." The language of one case is expressive: "The adoption or ratification of a contract by a
corporation is nothing more or less than the making of an original contract. The theory of corporate
ratification is predicated on the right of a corporation to contract, and any ratification or adoption
31
is equivalent to a grant of prior authority."
Indeed, our law pronounces that "[r]atification cleanses the contract from all its defects from the
32
moment it was constituted." By corporate confirmation, the contracts executed by Kalaw are thus
33
purged of whatever vice or defect they may have.
In sum, a case is here presented whereunder, even in the face of an express by-law requirement of
prior approval, the law on corporations is not to be held so rigid and inflexible as to fail to recognize
equitable considerations. And, the conclusion inevitably is that the embattled contracts remain
valid.
5. It would be difficult, even with hostile eyes, to read the record in terms of "bad faith and/or
breach of trust" in the board's ratification of the contracts without prior approval of the board. For, in
reality, all that we have on the government's side of the scale is that the board knew that the
contracts so confirmed would cause heavy losses.
As we have earlier expressed, Kalaw had authority to execute the contracts without need of prior
approval. Everybody, including Kalaw himself, thought so, and for a long time. Doubts were first
thrown on the way only when the contracts turned out to be unprofitable for NACOCO.
Rightfully had it been said that bad faith does not simply connote bad judgment or negligence; it
imports a dishonest purpose or some moral obliquity and conscious doing of wrong; it means
breach of a known duty thru some motive or interest or ill will; it partakes of the nature of
34
fraud. Applying this precept to the given facts herein, we find that there was no "dishonest
purpose," or "some moral obliquity," or "conscious doing of wrong," or "breach of a known duty," or
"Some motive or interest or ill will" that "partakes of the nature of fraud."
Nor was it even intimated here that the NACOCO directors acted for personal reasons, or to serve
35
their own private interests, or to pocket money at the expense of the corporation. We have had
occasion to affirm that bad faith contemplates a "state of mind affirmatively operating with furtive
36
design or with some motive of self-interest or ill will or for ulterior purposes." Briggs vs.
Spaulding, 141 U.S. 132, 148-149, 35 L. ed. 662, 669, quotes with approval from Judge
Sharswood (in Spering's App., 71 Pa. 11), the following: "Upon a close examination of all the
reported cases, although there are many dicta not easily reconcilable, yet I have found no
judgment or decree which has held directors to account, except when they have themselves been
personally guilty of some fraud on the corporation, or have known and connived at some fraud in
others, or where such fraud might have been prevented had they given ordinary attention to their
duties. . . ." Plaintiff did not even dare charge its defendant-directors with any of these malevolent
acts.
Obviously, the board thought that to jettison Kalaw's contracts would contravene basic dictates of
fairness. They did not think of raising their voice in protest against past contracts which brought in
enormous profits to the corporation. By the same token, fair dealing disagrees with the idea that
similar contracts, when unprofitable, should not merit the same treatment. Profit or loss resulting
from business ventures is no justification for turning one's back on contracts entered into. The
truth, then, of the matter is that in the words of the trial court the ratification of the contracts
was "an act of simple justice and fairness to the general manager and the best interest of the
corporation whose prestige would have been seriously impaired by a rejection by the board of
37
those contracts which proved disadvantageous."
The directors are not liable."
38
6. To what then may we trace the damage suffered by NACOCO.
The facts yield the answer. Four typhoons wreaked havoc then on our copra-producing regions.
Result: Copra production was impaired, prices spiralled, warehouses destroyed. Quick turnovers
could not be expected. NACOCO was not alone in this misfortune. The record discloses that
private traders, old, experienced, with bigger facilities, were not spared; also suffered tremendous
losses. Roughly estimated, eleven principal trading concerns did run losses to about
P10,300,000.00. Plaintiff's witness Sisenando Barretto, head of the copra marketing department of
NACOCO, observed that from late 1947 to early 1948 "there were many who lost money in the
39
trade." NACOCO was not immune from such usual business risk.
The typhoons were known to plaintiff. In fact, NACOCO resisted the suits filed by Louis Dreyfus &
Co. by pleading in its answers force majeure as an affirmative defense and there vehemently
asserted that "as a result of the said typhoons, extensive damage was caused to the coconut trees
in the copra producing regions of the Philippines and according to estimates of competent
authorities, it will take about one year until the coconut producing regions will be able to produce
their normal coconut yield and it will take some time until the price of copra will reach normal
levels;" and that "it had never been the intention of the contracting parties in entering into the
contract in question that, in the event of a sharp rise in the price of copra in the Philippine market
produce by force majeure or by caused beyond defendant's control, the defendant should buy the
copra contracted for at exorbitant prices far beyond the buying price of the plaintiff under the
40
contract."
A high regard for formal judicial admissions made in court pleadings would suffice to deter us from
permitting plaintiff to stray away therefrom, to charge now that the damage suffered was because
41
of Kalaw's negligence, or for that matter, by reason of the board's ratification of the contracts.
42
Indeed, were it not for the typhoons, NACOCO could have, with ease, met its contractual
obligations. Stock accessibility was no problem. NACOCO had 90 buying agencies spread
throughout the islands. It could purchase 2,000 tons of copra a day. The various contracts involved
delivery of but 16,500 tons over a five-month period. Despite the typhoons, NACOCO was still able
to deliver a little short of 50% of the tonnage required under the contracts.
As the trial court correctly observed, this is a case of damnum absque injuria. Conjunction of
damage and wrong is here absent. There cannot be an actionable wrong if either one or the other
43
is wanting.
"They (the directors) hold such office charged with the duty to act for the corporation according to
their best judgment, and in so doing they cannot be controlled in the reasonable exercise and
performance of such duty. Whether the business of a corporation should be operated at a loss
during a business depression, or closed down at a smaller loss, is a purely business and economic
problem to be determined by the directors of the corporation, and not by the court. It is a well
known rule of law that questions of policy of management are left solely to the honest decision of
officers and directors of a corporation, and the court is without authority to substitute its judgment
for the judgment of the board of directors; the board is the business manager of the corporation,
and so long as it acts in good faith its orders are not reviewable by the courts." (Fletcher on
48
Corporations, Vol. 2, p. 390.)
49
Kalaw's good faith, and that of the other directors, clinch the case for defendants.
Viewed in the light of the entire record, the judgment under review must be, as it is hereby,
affirmed.
Without costs. So ordered.

7. On top of all these, is that no assertion is made and no proof is presented which would link
Kalaw's acts ratified by the board to a matrix for defraudation of the government. Kalaw is
44
clear of the stigma of bad faith. Plaintiff's corporate counsel concedes that Kalaw all along
thought that he had authority to enter into the contracts, that he did so in the best interests of the
corporation; that he entered into the contracts in pursuance of an overall policy to stabilize prices,
to free the producers from the clutches of the middlemen. The prices for which NACOCO
contracted in the disputed agreements, were at a level calculated to produce profits and higher
than those prevailing in the local market. Plaintiff's witness, Barretto, categorically stated that "it
would be foolish to think that one would sign (a) contract when you are going to lose money" and
45
that no contract was executed "at a price unsafe for the Nacoco." Really, on the basis of prices
46
then prevailing, NACOCO envisioned a profit of around P752,440.00.

Kalaw's acts were not the result of haphazard decisions either. Kalaw invariably consulted with
NACOCO's Chief Buyer, Sisenando Barretto, or the Assistant General Manager. The dailies and
quotations from abroad were guideposts to him.

Of course, Kalaw could not have been an insurer of profits. He could not be expected to predict the
coming of unpredictable typhoons. And even as typhoons supervened Kalaw was not remissed in
his duty. He exerted efforts to stave off losses. He asked the Philippine National Bank to implement
its commitment to extend a P400,000.00 loan. The bank did not release the loan, not even the sum
of P200,000.00, which, in October, 1947, was approved by the bank's board of directors. In
frustration, on December 12, 1947, Kalaw turned to the President, complained about the bank's
short-sighted policy. In the end, nothing came out of the negotiations with the bank. NACOCO
eventually faltered in its contractual obligations.

That Kalaw cannot be tagged with crassa negligentia or as much as simple negligence, would
seem to be supported by the fact that even as the contracts were being questioned in Congress
and in the NACOCO board itself, President Roxas defended the actuations of Kalaw. On
December 27, 1947, President Roxas expressed his desire "that the Board of Directors should
47
reelect Hon. Maximo M. Kalaw as General Manager of the National Coconut Corporation." And,
on January 7, 1948, at a time when the contracts had already been openly disputed, the board, at
its regular meeting, appointed Maximo M. Kalaw as acting general manager of the corporation.

Well may we profit from the following passage from Montelibano vs. Bacolod-Murcia Milling Co.,
Inc., L-15092, May 18, 1962:
C. THE AGENT
61 - G.R. No. 129459 September 29, 1998
SAN JUAN STRUCTURAL AND STEEL FABRICATORS, INC., petitioner,
vs.
COURT OF APPEALS, MOTORICH SALES CORPORATION, NENITA LEE GRUENBERG, ACL
DEVELOPMENT CORP. and JNM REALTY AND DEVELOPMENT CORP., respondents.
PANGANIBAN, J.:
May corporate treasurer, by herself and without any authorization from he board of directors,
validly sell a parcel of land owned by the corporation?. May the veil of corporate fiction be pierced
on the mere ground that almost all of the shares of stock of the corporation are owned by said
treasurer and her husband?
The Case
These questions are answered in the negative by this Court in resolving the Petition for Review
1 2
on Certiorari before us, assailing the March 18, 1997 Decision of the Court of Appeals in CA GR
CV No. 46801 which, in turn, modified the July 18, 1994 Decision of the Regional Trial Court of
3
Makati, Metro Manila, Branch 63 in Civil Case No. 89-3511. The RTC dismissed both the
Complaint and the Counterclaim filed by the parties. On the other hand, the Court of Appeals ruled:
WHEREFORE, premises considered, the appealed decision is AFFIRMED WITH
MODIFICATION ordering defendant-appellee Nenita Lee Gruenberg to REFUND or return to
plaintiff-appellant the downpayment of P100,000.00 which she received from plaintiff-appellant.
There is no pronouncement as to costs.
4 plaintiff knew this from the very beginning as it was presented a copy of the Transfer of Rights
5
The petition also challenges the June 10, 1997 CA Resolution denying reconsideration.
The Facts
The facts as found by the Court of Appeals are as follows:
Plaintiff-appellant San Juan Structural and Steel Fabricators, Inc.'s amended complaint alleged
that on 14 February 1989, plaintiff-appellant entered into an agreement with defendant-appellee
Motorich Sales Corporation for the transfer to it of a parcel of land identified as Lot 30, Block 1 of
the Acropolis Greens Subdivision located in the District of Murphy, Quezon City. Metro Manila,
containing an area of Four Hundred Fourteen (414) square meters, covered by TCT No. (362909)
2876: that as stipulated in the Agreement of 14 February 1989, plaintiff-appellant paid the
downpayment in the sum of One Hundred Thousand (P100,000.00) Pesos, the balance to be paid
on or before March 2, 1989; that on March 1, 1989. Mr. Andres T. Co, president of plaintiff-
appellant corporation, wrote a letter to defendant-appellee Motorich Sales Corporation requesting
for a computation of the balance to be paid: that said letter was coursed through defendant-
appellee's broker. Linda Aduca, who wrote the computation of the balance: that on March 2,
1989, plaintiff-appellant was ready with the amount corresponding to the balance, covered by
Metrobank Cashier's Check No. 004223, payable to defendant-appellee Motorich Sales
Corporation; that plaintiff-appellant and defendant-appellee Motorich Sales Corporation were
supposed to meet in the office of plaintiff-appellant but defendant-appellee's treasurer, Nenita Lee
Gruenberg, did not appear; that defendant-appellee Motorich Sales Corporation despite repeated
demands and in utter disregard of its commitments had refused to execute the Transfer of
Rights/Deed of Assignment which is necessary to transfer the certificate of title; that defendant
ACL Development Corp. is impleaded as a necessary party since Transfer Certificate of Title No.
(362909) 2876 is still in the name of said defendant; while defendant JNM Realty & Development
Corp. is likewise impleaded as a necessary party in view of the fact that it is the transferor of right
in favor of defendant-appellee Motorich Sales Corporation: that on April 6, 1989, defendant ACL
Development Corporation and Motorich Sales Corporation entered into a Deed of Absolute Sale
whereby the former transferred to the latter the subject property; that by reason of said transfer,
the Registry of Deeds of Quezon City issued a new title in the name of Motorich Sales
Corporation, represented by defendant-appellee Nenita Lee Gruenberg and Reynaldo L.
Gruenberg, under Transfer Certificate of Title No. 3571; that as a result of defendants-appellees
Nenita Lee Gruenberg and Motorich Sales Corporation's bad faith in refusing to execute a formal
Transfer of Rights/Deed of Assignment, plaintiff-appellant suffered moral and nominal damages
which may be assessed against defendants-appellees in the sum of Five Hundred Thousand
(500,000.00) Pesos; that as a result of defendants-appellees Nenita Lee Gruenberg and Motorich
Sales Corporation's unjustified and unwarranted failure to execute the required Transfer of
Rights/Deed of Assignment or formal deed of sale in favor of plaintiff-appellant, defendants-
appellees should be assessed exemplary damages in the sum of One Hundred Thousand
(P100,000.00) Pesos; that by reason of defendants-appellees' bad faith in refusing to execute a
Transfer of Rights/Deed of Assignment in favor of plaintiff-appellant, the latter lost the opportunity
to construct a residential building in the sum of One Hundred Thousand (P100,000.00) Pesos;
and that as a consequence of defendants-appellees Nenita Lee Gruenberg and Motorich Sales
Corporation's bad faith in refusing to execute a deed of sale in favor of plaintiff-appellant, it has
been constrained to obtain the services of counsel at an agreed fee of One Hundred Thousand
(P100,000.00) Pesos plus appearance fee for every appearance in court hearings.
In its answer, defendants-appellees Motorich Sales Corporation and Nenita Lee Gruenberg
interposed as affirmative defense that the President and Chairman of Motorich did not sign the
agreement adverted to in par. 3 of the amended complaint; that Mrs. Gruenberg's signature on
the agreement (ref: par. 3 of Amended Complaint) is inadequate to bind Motorich. The other
signature, that of Mr. Reynaldo Gruenberg, President and Chairman of Motorich, is required: that
(Annex B of amended complaint) at the time the Agreement (Annex B of amended complaint) was
signed; that plaintiff-appellant itself drafted the Agreement and insisted that Mrs. Gruenberg
accept the P100,000.00 as earnest money; that granting, without admitting, the enforceability of
the agreement, plaintiff-appellant nonetheless failed to pay in legal tender within the stipulated
period (up to March 2, 1989); that it was the understanding between Mrs. Gruenberg and plaintiff-
appellant that the Transfer of Rights/Deed of Assignment will be signed only upon receipt of cash
payment; thus they agreed that if the payment be in check, they will meet at a bank designated by
plaintiff-appellant where they will encash the check and sign the Transfer of Rights/Deed.
However, plaintiff-appellant informed Mrs. Gruenberg of the alleged availability of the check, by
phone, only after banking hours.
On the basis of the evidence, the court a quo rendered the judgment appealed from[,] dismissing
plaintiff-appellant's complaint, ruling that:
The issue to be resolved is: whether plaintiff had the right to compel defendants to execute a
deed of absolute sale in accordance with the agreement of February 14, 1989: and if so,
whether plaintiff is entitled to damage.
As to the first question, there is no evidence to show that defendant Nenita Lee Gruenberg
was indeed authorized by defendant corporation. Motorich Sales, to dispose of that property
covered by T.C.T. No. (362909) 2876. Since the property is clearly owned by the corporation.
Motorich Sales, then its disposition should be governed by the requirement laid down in Sec.
40. of the Corporation Code of the Philippines, to wit:
 Sec. 40, Sale or other disposition of assets. Subject to the provisions of existing laws on
illegal combination and monopolies, a corporation may by a majority vote of its board of
directors . . . sell, lease, exchange, mortgage, pledge or otherwise dispose of all or
substantially all of its property and assets including its goodwill . . . when authorized by the
vote of the stockholders representing at least two third (2/3) of the outstanding capital stock
...
No such vote was obtained by defendant Nenita Lee Gruenberg for that proposed sale[;]
neither was there evidence to show that the supposed transaction was ratified by the
corporation. Plaintiff should have been on the look out under these circumstances. More so,
plaintiff himself [owns] several corporations (tsn dated August 16, 1993, p. 3) which makes
him knowledgeable on corporation matters.
Regarding the question of damages, the Court likewise, does not find substantial evidence to
hold defendant Nenita Lee Gruenberg liable considering that she did not in anyway
misrepresent herself to be authorized by the corporation to sell the property to plaintiff (tsn
dated September 27, 1991, p. 8).
In the light of the foregoing, the Court hereby renders judgment DISMISSING the complaint at
instance for lack of merit.
"Defendants" counterclaim is also DISMISSED for lack of basis. (Decision, pp. 7-8; Rollo, pp.
34-35)
For clarity, the Agreement dated February 14, 1989 is reproduced hereunder:
AGREEMENT
KNOW ALL MEN BY THESE PRESENTS:
This Agreement, made and entered into by and between:
MOTORICH SALES CORPORATION, a corporation duly organized and existing under and by
virtue of Philippine Laws, with principal office address at 5510 South Super Hi-way cor.
Balderama St., Pio del Pilar. Makati, Metro Manila, represented herein by its Treasurer,
NENITA LEE GRUENBERG, hereinafter referred to as the TRANSFEROR;
and
SAN JUAN STRUCTURAL & STEEL FABRICATORS, a corporation duly organized and
existing under and by virtue of the laws of the Philippines, with principal office address at
Sumulong Highway, Barrio Mambungan, Antipolo, Rizal, represented herein by its President,
ANDRES T. CO, hereinafter referred to as the TRANSFEREE.
WITNESSETH, That:
WHEREAS, the TRANSFEROR is the owner of a parcel of land identified as Lot 30 Block 1 of
the ACROPOLIS GREENS SUBDIVISION located at the District of Murphy, Quezon City, Metro
Manila, containing an area of FOUR HUNDRED FOURTEEN (414) SQUARE METERS, covered
by a TRANSFER OF RIGHTS between JNM Realty & Dev. Corp. as the Transferor and Motorich
Sales Corp. as the Transferee;
NOW, THEREFORE, for and in consideration of the foregoing premises, the parties have agreed
as follows:
1. That the purchase price shall be at FIVE THOUSAND TWO HUNDRED PESOS (P5,200.00)
per square meter; subject to the following terms:
a. Earnest money amounting to ONE HUNDRED THOUSAND PESOS (P100,000.00), will be
paid upon the execution of this agreement and shall form part of the total purchase price;
b. Balance shall be payable on or before March 2, 1989;
2. That the monthly amortization for the month of February 1989 shall be for the account of the
Transferor; and that the monthly amortization starting March 21, 1989 shall be for the account of
the Transferee;
The transferor warrants that he [sic] is the lawful owner of the above-described property and that
there [are] no existing liens and/or encumbrances of whatsoever nature;
In case of failure by the Transferee to pay the balance on the date specified on 1, (b), the
earnest money shall be forfeited in favor of the Transferor.
That upon full payment of the balance, the TRANSFEROR agrees to execute a TRANSFER OF
RIGHTS/DEED OF ASSIGNMENT in favor of the TRANSFEREE.
IN WITNESS WHEREOF, the parties have hereunto set their hands this 14th day of February,
1989 at Greenhills, San Juan, Metro Manila, Philippines.
MOTORICH SALES CORPORATION SAN JUAN STRUCTURAL & STEEL FABRICATORS
TRANSFEROR TRANSFEREE
[SGD.] [SGD.]
By. NENITA LEE GRUENBERG
By: ANDRES T. CO
Treasurer President
Signed In the presence of:
[SGD.] [SGD.]
6
In its recourse before the Court of Appeals, petitioner insisted:
1. Appellant is entitled to compel the appellees to execute
a Deed of Absolute Sale in accordance with the
Agreement of February 14, 1989,
2. Plaintiff is entitled to damages.
7
As stated earlier, the Court of Appeals debunked petitioner's arguments and affirmed the Decision
of the RTC with the modification that Respondent Nenita Lee Gruenberg was ordered to refund
P100,000 to petitioner, the amount remitted as "downpayment" or "earnest money." Hence, this
8
petition before us.
The Issues
Before this Court, petitioner raises the following issues:
I. Whether or not the doctrine of piercing the veil of corporate fiction is applicable in the instant
case
II. Whether or not the appellate court may consider matters which the parties failed to raise in
the lower court
III. Whether or not there is a valid and enforceable contract between the petitioner and the
respondent corporation
 IV. Whether or not the Court of Appeals erred in holding that there is a valid
correction/substitution of answer in the transcript of stenographic note[s].
9 officer or agent, and such apparent powers as the corporation has caused persons dealing with the
V. Whether or not respondents are liable for damages and attorney's fees
The Court synthesized the foregoing and will thus discuss them seriatim as follows:
1. Was there a valid contract of sale between petitioner and Motorich?
2. May the doctrine of piercing the veil of corporate fiction be applied to Motorich?
3. Is the alleged alteration of Gruenberg's testimony as recorded in the transcript of stenographic
notes material to the disposition of this case?
4. Are respondents liable for damages and attorney's
fees?
The Court's Ruling
The petition is devoid of merit.
First Issue: Validity of Agreement
Petitioner San Juan Structural and Steel Fabricators, Inc. alleges that on February 14, 1989, it
entered through its president, Andres Co, into the disputed Agreement with Respondent Motorich
Sales Corporation, which was in turn allegedly represented by its treasurer, Nenita Lee Gruenberg.
Petitioner insists that "[w]hen Gruenberg and Co affixed their signatures on the contract they both
consented to be bound by the terms thereof." Ergo, petitioner contends that the contract is binding
on the two corporations. We do not agree.
True, Gruenberg and Co signed on February 14, 1989, the Agreement, according to which a lot
owned by Motorich Sales Corporation was purportedly sold. Such contract, however, cannot bind
Motorich, because it never authorized or ratified such sale.
A corporation is a juridical person separate and distinct from its stockholders or members.
Accordingly, the property of the corporation is not the property of its stockholders or members and
may not be sold by the stockholders or members without express authorization from the
10
corporation's board of directors. Section 23 of BP 68, otherwise known as the Corporation Code
of the Philippines, provides;
Sec. 23. The Board of Directors or Trustees. Unless otherwise provided in this Code, the
corporate powers of all corporations formed under this Code shall be exercised, all business
conducted and all property of such corporations controlled and held by the board of directors or
trustees to be elected from among the holders of stocks, or where there is no stock, from among
the members of the corporation, who shall hold office for one (1) year and until their successors
are elected and qualified.
Indubitably, a corporation may act only through its board of directors or, when authorized either by
its bylaws or by its board resolution, through its officers or agents in the normal course of business.
The general principles of agency govern the relation between the corporation and its officers or
11
agents, subject to the articles of incorporation, bylaws, or relevant provisions of law. Thus, this
Court has held that "a corporate officer or agent may represent and bind the corporation in
transactions with third persons to the extent that the authority to do so has been conferred upon
him, and this includes powers which have been intentionally conferred, and also such powers as, in
the usual course of the particular business, are incidental to, or may be implied from, the powers
intentionally conferred, powers added by custom and usage, as usually pertaining to the particular
officer or agent to believe that it has conferred."
12
Furthermore, the Court has also recognized the rule that "persons dealing with an assumed agent,
whether the assumed agency be a general or special one bound at their peril, if they would hold
the principal liable, to ascertain not only the fact of agency but also the nature and extent of
authority, and in case either is controverted, the burden of proof is upon them to establish it (Harry
13
Keeler v. Rodriguez, 4 Phil. 19)." Unless duly authorized, a treasurer, whose powers are limited,
14
cannot bind the corporation in a sale of its assets.
In the case at bar, Respondent Motorich categorically denies that it ever authorized Nenita
15
Gruenberg, its treasurer, to sell the subject parcel of land. Consequently, petitioner had the
burden of proving that Nenita Gruenberg was in fact authorized to represent and bind Motorich in
the transaction. Petitioner failed to discharge this burden. Its offer of evidence before the trial court
16
contained no proof of such authority. It has not shown any provision of said respondent's articles
of incorporation, bylaws or board resolution to prove that Nenita Gruenberg possessed such
power.
That Nenita Gruenberg is the treasurer of Motorich does not free petitioner from the responsibility
of ascertaining the extent of her authority to represent the corporation. Petitioner cannot assume
that she, by virtue of her position, was authorized to sell the property of the corporation. Selling is
obviously foreign to a corporate treasurer's function, which generally has been described as "to
receive and keep the funds of the corporation, and to disburse them in accordance with the
17
authority given him by the board or the properly authorized officers."
Neither was such real estate sale shown to be a normal business activity of Motorich. The primary
purpose of Motorich is marketing, distribution, export and import in relation to a general
18
merchandising business. Unmistakably, its treasurer is not cloaked with actual or apparent
authority to buy or sell real property, an activity which falls way beyond the scope of her general
authority.
Art. 1874 and 1878 of the Civil Code of the Philippines 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.
Art. 1878. Special powers of attorney are necessary in the following case:
xxx xxx xxx
(5) To enter any contract by which the ownership of an immovable is transmitted or acquired
either gratuitously or for a valuable consideration;
xxx xxx xxx.
Petitioner further contends that Respondent Motorich has ratified said contract of sale because of
its "acceptance of benefits," as evidenced by the receipt issued by Respondent
19
Gruenberg. Petitioner is clutching at straws.
As a general rule, the acts of corporate officers within the scope of their authority are binding on
the corporation. But when these officers exceed their authority, their actions "cannot bind the
20
corporation, unless it has ratified such acts or is estopped from disclaiming them."
In this case, there is a clear absence of proof that Motorich ever authorized Nenita Gruenberg, or
made it appear to any third person that she had the authority, to sell its land or to receive the
earnest money. Neither was there any proof that Motorich ratified, expressly or impliedly, the
contract. Petitioner rests its argument on the receipt which, however, does not prove the fact of
ratification. The document is a hand-written one, not a corporate receipt, and it bears only Nenita
Gruenberg's signature. Certainly, this document alone does not prove that her acts were
authorized or ratified by Motorich.
Art. 1318 of the Civil Code lists the requisites of a valid and perfected contract: "(1) consent of the
contracting parties; (2) object certain which is the subject matter of the contract; (3) cause of the
21
obligation which is established." As found by the trial court and affirmed by the Court of
22
Appeals, there is no evidence that Gruenberg was authorized to enter into the contract of sale, or
that the said contract was ratified by Motorich. This factual finding of the two courts is binding on
23
this Court. As the consent of the seller was not obtained, no contract to bind the obligor was
perfected. Therefore, there can be no valid contract of sale between petitioner and Motorich.
Because Motorich had never given a written authorization to Respondent Gruenberg to sell its
parcel of land, we hold that the February 14, 1989 Agreement entered into by the latter with
petitioner is void under Article 1874 of the Civil Code. Being inexistent and void from the beginning,
24
said contract cannot be ratified.
Second Issue:
Piercing the Corporate Veil Not Justified
Petitioner also argues that the veil of corporate fiction of Motorich should be pierced, because the
latter is a close corporation. Since "Spouses Reynaldo L. Gruenberg and Nenita R. Gruenberg
25
owned all or almost all or 99.866% to be accurate, of the subscribed capital stock" of Motorich,
petitioner argues that Gruenberg needed no authorization from the board to enter into the subject
26
contract. It adds that, being solely owned by the Spouses Gruenberg, the company can treated
as a close corporation which can be bound by the acts of its principal stockholder who needs no
specific authority. The Court is not persuaded.
27
First, petitioner itself concedes having raised the issue belatedly, not having done so during the
28
trial, but only when it filed its sur-rejoinder before the Court of Appeals. Thus, this Court cannot
entertain said issue at this late stage of the proceedings. It is well-settled the points of law, theories
and arguments not brought to the attention of the trial court need not be, and ordinarily will not be,
29
considered by a reviewing court, as they cannot be raised for the first time on appeal. Allowing
petitioner to change horses in midstream, as it were, is to run roughshod over the basic principles
of fair play, justice and due process.
Second, even if the above mentioned argument were to be addressed at this time, the Court still
finds no reason to uphold it. True, one of the advantages of a corporate form of business
30
organization is the limitation of an investor's liability to the amount of the investment. This feature
flows from the legal theory that a corporate entity is separate and distinct from its stockholders.
However, the statutorily granted privilege of a corporate veil may be used only for legitimate
31
purposes. On equitable considerations, the veil can be disregarded when it is utilized as a shield
to commit fraud, illegality or inequity; defeat public convenience; confuse legitimate issues; or
serve as a mere alter ego or business conduit of a person or an instrumentality, agency or adjunct
32
of another corporation.
Thus, the Court has consistently ruled that "[w]hen the fiction is used as a means of perpetrating a
fraud or an illegal act or as vehicle for the evasion of an existing obligation, the circumvention of
statutes, the achievement or perfection of a monopoly or generally the perpetration of knavery or
crime, the veil with which the law covers and isolates the corporation from the members or
stockholders who compose it will be lifted to allow for its consideration merely as an aggregation of
33
individuals."
We stress that the corporate fiction should be set aside when it becomes a shield against liability
for fraud, illegality or inequity committed on third persons. The question of piercing the veil of
corporate fiction is essentially, then, a matter of proof. In the present case, however, the Court
finds no reason to pierce the corporate veil of Respondent Motorich. Petitioner utterly failed to
establish that said corporation was formed, or that it is operated, for the purpose of shielding any
alleged fraudulent or illegal activities of its officers or stockholders; or that the said veil was used to
conceal fraud, illegality or inequity at the expense of third persons like petitioner.
Petitioner claims that Motorich is a close corporation. We rule that it is not. Section 96 of the
Corporation Code defines a close corporation as follows:
Sec. 96. Definition and Applicability of Title. A close corporation, within the meaning of this
Code, is one whose articles of incorporation provide that: (1) All of the corporation's issued stock
of all classes, exclusive of treasury shares, shall be held of record by not more than a specified
number of persons, not exceeding twenty (20); (2) All of the issued stock of all classes shall be
subject to one or more specified restrictions on transfer permitted by this Title; and (3) The
corporation shall not list in any stock exchange or make any public offering of any of its stock of
any class. Notwithstanding the foregoing, a corporation shall be deemed not a close corporation
when at least two-thirds (2/3) of its voting stock or voting rights is owned or controlled by another
corporation which is not a close corporation within the meaning of this Code. . . . .
34
The articles of incorporation of Motorich Sales Corporation does not contain any provision stating
that (1) the number of stockholders shall not exceed 20, or (2) a preemption of shares is restricted
in favor of any stockholder or of the corporation, or (3) listing its stocks in any stock exchange or
making a public offering of such stocks is prohibited. From its articles, it is clear that Respondent
35
Motorich is not a close corporation. Motorich does not become one either, just because Spouses
Reynaldo and Nenita Gruenberg owned 99.866% of its subscribed capital stock. The "[m]ere
ownership by a single stockholder or by another corporation of all or capital stock of a corporation
36
is not of itself sufficient ground for disregarding the separate corporate personalities." So, too, a
narrow distribution of ownership does not, by itself, make a close corporation.
37
Petitioner cites Manuel R. Dulay Enterprises, Inc. v. Court of Appeals wherein the Court ruled
that ". . . petitioner corporation is classified as a close corporation and, consequently, a board
resolution authorizing the sale or mortgage of the subject property is not necessary to bind the
38
corporation for the action of its president." But the factual milieu in Dulay is not on all fours with
the present case. In Dulay, the sale of real property was contracted by the president of a close
39
corporation with the knowledge and acquiescence of its board of directors. In the present case,
Motorich is not a close corporation, as previously discussed, and the agreement was entered into
by the corporate treasurer without the knowledge of the board of directors.
The Court is not unaware that there are exceptional cases where "an action by a director, who
singly is the controlling stockholder, may be considered as a binding corporate act and a board
40
action as nothing more than a mere formality." The present case, however, is not one of them.
As stated by petitioner, Spouses Reynaldo and Nenita Gruenberg own "almost 99.866%" of
41
Respondent Motorich. Since Nenita is not the sole controlling stockholder of Motorich, the
aforementioned exception does not apply. Granting arguendo that the corporate veil of Motorich is
to be disregarded, the subject parcel of land would then be treated as conjugal property of
Spouses Gruenberg, because the same was acquired during their marriage. There being no
indication that said spouses, who appear to have been married before the effectivity of the Family
Code, have agreed to a different property regime, their property relations would be governed by
42
conjugal partnership of gains. As a consequence, Nenita Gruenberg could not have effected a
sale of the subject lot because "[t]here is no co-ownership between the spouses in the properties of
the conjugal partnership of gains. Hence, neither spouse can alienate in favor of another his or
interest in the partnership or in any property belonging to it; neither spouse can ask for a partition
43
of the properties before the partnership has been legally dissolved."
Assuming further, for the sake of argument, that the spouses' property regime is the absolute
community of property, the sale would still be invalid. Under this regime, "alienation of community
property must have the written consent of the other spouse or he authority of the court without
44
which the disposition or encumbrance is void." Both requirements are manifestly absent in the
instant case.
Third Issue: Challenged Portion of TSN Immaterial
Petitioner calls our attention to the following excerpt of the transcript of stenographic notes (TSN):
Q Did you ever represent to Mr. Co that you were authorized by the corporation to sell the
property?
45
A Yes, sir.
Petitioner claims that the answer "Yes" was crossed out, and, in its place was written a "No" with
46
an initial scribbled above it. This, however, is insufficient to prove that Nenita Gruenberg was
authorized to represent Respondent Motorich in the sale of its immovable property. Said excerpt be
understood in the context of her whole testimony. During her cross-examination. Respondent
Gruenberg testified:
Q So, you signed in your capacity as the treasurer?
[A] Yes, sir.
Q Even then you kn[e]w all along that you [were] not authorized?
A Yes, sir.
Q You stated on direct examination that you did not represent that you were authorized to sell
the property?
A Yes, sir.
Q But you also did not say that you were not authorized to sell the property, you did not tell that
to Mr. Co, is that correct?
A That was not asked of me.
Q Yes, just answer it.
A I just told them that I was the treasurer of the corporation and it [was] also the president who
[was] also authorized to sign on behalf of the corporation.
Q You did not say that you were not authorized nor did you say that you were authorized?
A Mr. Co was very interested to purchase the property and he offered to put up a P100,000.00
earnest money at that time. That was our first meeting. 47
Clearly then, Nenita Gruenberg did not testify that Motorich had authorized her to sell its property.
On the other hand, her testimony demonstrates that the president of Petitioner Corporation, in his
great desire to buy the property, threw caution to the wind by offering and paying the earnest
money without first verifying Gruenberg's authority to sell the lot.
Fourth Issue:
Damages and Attorney's Fees
Finally, petitioner prays for damages and attorney's fees, alleging that "[i]n an utter display of
malice and bad faith, respondents attempted and succeeded in impressing on the trial court and
[the] Court of Appeals that Gruenberg did not represent herself as authorized by Respondent
Motorich despite the receipt issued by the former specifically indicating that she was signing on
behalf of Motorich Sales Corporation. Respondent Motorich likewise acted in bad faith when it
claimed it did not authorize Respondent Gruenberg and that the contract [was] not binding,
[insofar] as it [was] concerned, despite receipt and enjoyment of the proceeds of Gruenberg's
48
act." Assuming that Respondent Motorich was not a party to the alleged fraud, petitioner
maintains that Respondent Gruenberg should be held liable because she "acted fraudulently and in
49
bad faith [in] representing herself as duly authorized by [R]espondent [C]orporation."
As already stated, we sustain the findings of both the trial and the appellate courts that the
foregoing allegations lack factual bases. Hence, an award of damages or attorney's fees cannot be
justified. The amount paid as "earnest money" was not proven to have redounded to the benefit of
Respondent Motorich. Petitioner claims that said amount was deposited to the account of
Respondent Motorich, because "it was deposited with the account of Aren Commercial c/o
50
Motorich Sales Corporation." Respondent Gruenberg, however, disputes the allegations of
petitioner. She testified as follows:
Q You voluntarily accepted the P100,000.00, as a matter of fact, that was encashed, the check
was encashed.
A Yes. sir, the check was paid in my name and I deposit[ed] it.
Q In your account?
51
A Yes, sir.
In any event, Gruenberg offered to return the amount to petitioner ". . . since the sale did
52
not push through."
Moreover, we note that Andres Co is not a neophyte in the world of corporate business. He has
been the president of Petitioner Corporation for more than ten years and has also served as chief
53
executive of two other corporate entities. Co cannot feign ignorance of the scope of the authority
of a corporate treasurer such as Gruenberg. Neither can he be oblivious to his duty to ascertain the
scope of Gruenberg's authorization to enter into a contract to sell a parcel of land belonging to
Motorich.
Indeed, petitioner's claim of fraud and bad faith is unsubstantiated and fails to persuade the Court.
Indubitably, petitioner appears to be the victim of its own officer's negligence in entering into a
contract with and paying an unauthorized officer of another corporation.
As correctly ruled by the Court of Appeals, however, Nenita Gruenberg should be ordered to return
to petitioner the amount she received as earnest money, as "no one shall enrich himself at the
54 55
expense of another." a principle embodied in Article 2154 of Civil Code. Although there was no
binding relation between them, petitioner paid Gruenberg on the mistaken belief that she had the
56
authority to sell the property of Motorich. Article 2155 of Civil Code provides that "[p]ayment by
reason of a mistake in the contruction or application of a difficult question of law may come within
the scope of the preceding article."
WHEREFORE, the petition is hereby DENIED and the assailed Decision is AFFIRMED.
C. THE AGENT 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
62 - G.R. No. 121824 January 29, 1998 as transfer to BA.
8

BRITISH AIRWAYS, petitioner, After appropriate proceedings and trial, on March 4, 1993, the trial court rendered its decision in
vs. 9
favor of Mahtani, the dispositive portion of which reads as follows:
COURT OF APPEALS, GOP MAHTANI, and PHILIPPINE AIRLINES, respondents.

ROMERO, J.:
In this appeal by certiorari, petitioner British Airways (BA) seeks to set aside the decision of
1
respondent Court of Appeals promulgated on September 7, 1995, which affirmed the award of
damages and attorney's 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
2
complaint against Philippine Airlines (PAL).
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,
3
purchased a ticket from BA where the following itinerary was indicated:
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 plaintiff's 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 attorney's 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 court's
findings. Thus:

CARRIER FLIGHT DATE TIME STATUS WHEREFORE, in view of all the foregoing considerations, finding the Decision appealed
MANILA MNL PR 310 Y 16 APR. 1730 OK from to be in accordance with law and evidence, the same is hereby AFFIRMED in toto,
HONGKONG HKG BA 20 M 16 APR. 2100 OK with costs against defendant-appellant.
BOMBAY BOM BA 19 M 23 APR. 0840 OK
HONGKONG HKG PR 311 Y
10
MANILA MNL SO ORDERED.

Since BA had no direct flights from Manila to Bombay, Mahtani had to take a flight to Hongkong via BA is now before us seeking the reversal of the Court of Appeals' decision.
PAL, and upon arrival in Hongkong he had to take a connecting flight to Bombay on board BA.
In essence, BA assails the award of compensatory damages and attorney's fees, as well as the
11
Prior to his departure, Mahtani checked in at the PAL counter in Manila his two pieces of luggage dismissal of its third-party complaint against PAL.
containing his clothings and personal effects, confident that upon reaching Hongkong, the same
would be transferred to the BA flight bound for Bombay.
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 Mahtani's two pieces of luggage was without basis since
12
Unfortunately, when Mahtani arrived in Bombay he discovered that his luggage was missing and Mahtani in his complaint stated the following as the value of his personal belongings:
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
4 8. On the said travel, plaintiff took with him the following items and its corresponding
by accomplishing the "Property Irregularity Report."
value, to wit:

Back in the Philippines, specifically on June 11, 1990, Mahtani filed his complaint for damages and
5 1. personal belonging P10,000.00
attorney's fees against BA and Mr. Gumar before the trial court, docketed as Civil Case No. CEB-
9076.
2. gifts for his parents and relatives $5,000.00
6
On September 4, 1990, BA filed its answer with counter claim to the complaint raising, as special
and affirmative defenses, that Mahtani did not have a cause of action against it. Likewise, on Moreover, he failed to declare a higher valuation with respect to his luggage, a condition provided
7 13
November 9, 1990, BA filed a third-party complaint against PAL alleging that the reason for the for in the ticket, which reads:
non-transfer of the luggage was due to the latter's late arrival in Hongkong, thus leaving hardly any
time for the proper transfer of Mahtani's luggage to the BA aircraft bound for Bombay.
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. $20.000) 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 airline's
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 traveling public primarily, it is imbued with public interest, hence, the law governing
14
common carriers imposes an exacting standard. Neglect or malfeasance by the carrier's
15
employees could predictably furnish bases for an action for damages.
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
16
number of cases 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
17
its causal connection to defendant's acts.
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 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
18
for the luggage, 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
19
to recover a greater amount. Article 22(1) of the Warsaw Convention, provides as follows:
xxx xxx xxx
(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 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 passenger's lack of knowledge thereof or
20 21
assent thereto. This doctrine is recognized in this jurisdiction.
Notwithstanding the foregoing, we have, nevertheless, ruled against blind reliance on adhesion
22
contracts where the facts and circumstances justify that they should be disregarded.
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
23
actual claims and damages sustained by the passenger were asked.
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
24
of stenographic notes of Mahtani's direct testimony:
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 attorney's 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
25
objections. BA has precisely failed in this regard.
To compound matters for BA, its counsel failed, not only to interpose a timely objection, but even
26 27
conducted his own cross-examination as well. In the early case of Abrenica v. Gonda, we ruled
that:
. . . (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
28
to great respect. 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 BA's third-party complaint against PAL, the Court of Appeals
30
justified its ruling in this wise, and we quote:
Lastly, we sustain the trial court's ruling dismissing appellant's third-party complaint
against PAL.
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. . . . 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 passenger's 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.
31
In Firestone Tire and Rubber Company of the Philippines v. Tempengko, we expounded on the
nature of a third-party complaint thus:
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
35
of the tickets and other matters pertaining to their relationship. 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
36
Airlines v.Court of Appeals. 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 Lufthansa's argument, we ruled:

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 plaintiff's claim. The third-party complaint is actually
independent of and separate and distinct from the plaintiff's 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 plaintiff's 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.
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 abroad 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
37
Appeals, 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.

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 former's
journey to PAL, as its subcontractor or agent. In fact, the fourth paragraph of the "Conditions of
32
Contracts" of the ticket issued by BA to Mahtani confirms that the contract was one of continuous
air transportation from Manila to Bombay.
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
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 circuitry of action and to enable the controversy to be disposed of in one
38
suit. It is but logical, fair and equitable to allow BA to sue PAL for indemnification, if it is proven
that the latter's negligence was the proximate cause of Mahtani's 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.
4. . . . carriage to be performed hereunder by several successive carriers is regarded as
43309 dated September 7, 1995 is hereby MODIFIED, reinstating the third-party complaint filed by
a single operation.
British Airways dated November 9, 1990 against Philippine Airlines. No costs.

Prescinding from the above discussion, it is undisputed that PAL, in transporting Mahtani from
SO ORDERED.
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
33
agent is also responsible for any negligence in the performance of its function. and is liable for
34
damages which the principal may suffer by reason of its negligent act. 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.
C. THE AGENT
63 - G.R. No. L-2886 August 22, 1952
GREGORIO ARANETA, INC., plaintiff-appellant,
vs.
PAZ TUASON DE PATERNO and JOSE VIDAL, defendants-appellants.
TUASON, J.:
This is a three-cornered contest between the purchasers, the seller, and the mortgagee of certain
portions (approximately 40,703 square meters) of a big block of residential land in the district of
Santa Mesa, Manila. The plaintiff, which is the purchaser, and the mortgagee elevated this appeal.
Though not an appellant, the seller and mortgagor has made assignments of error in her brief,
some to strengthen the judgment and others for the purpose of new trial.
The case is extremely complicated and multiple issues were raised.
The salient facts in so far as they are not controverted are these. Paz Tuason de Paterno is the
registered owner of the aforesaid land, which was subdivided into city lots. Most of these lots were
occupied by lessees who had contracts of lease which were to expire on December 31,1952, and
carried a stipulation to the effect that in the event the owner and lessor should decide to sell the
property the lessees were to be given priority over other buyers if they should desire to buy their
leaseholds, all things being equal. Smaller lots were occupied by tenants without formal contract.
In 1940 and 1941 Paz Tuason obtained from Jose Vidal several loans totalling P90,098 and
constituted a first mortgage on the aforesaid property to secure the debt. In January and April,
1943, she obtained additional loans of P30,000 and P20,000 upon the same security. On each of
the last-mentioned occasions the previous contract of mortgage was renewed and the amounts
received were consolidated. In the first novated contract the time of payment was fixed at two
years and in the second and last at four years. New conditions not relevant here were also
incorporated into the new contracts.
There was, besides, a separate written agreement entitled "Penalidad del Documento de Novacion
de Esta Fecha" which, unlike the principal contracts, was not registered. The tenor of this separate
agreement, all copies, of which were alleged to have been destroyed or lost, was in dispute and
became the subject of conflicting evidence. The lower court did not make categorical findings on
this point, however, and it will be our task to do so at the appropriate place in this decision.
In 1943 Paz Tuason decided to sell the entire property for the net amount of P400,000 and entered
into negotiations with Gregorio Araneta, Inc. for this purpose. The result of the negotiations was the
execution on October 19, 1943, of a contract called "Promesa de Compra y Venta" and identified
as Exhibit "1." This contract provided that subject to the preferred right of the lessees and that of
Jose Vidal as mortgagee, Paz Tuason would sell to Gregorio Araneta, Inc. and the latter would buy
for the said amount of P400,000 the entire estate under these terms.
El precio sera pagado como sigue: un 40 por ciento juntamente con la carta de
aceptacion del arrendatario, un 20 por ciento delprecio al otorgarse la escritura de
compromiso de venta, y el remanente 40 por ciento al otorgarse la escritura de venta
definitiva, la cual sera otorgada despues de que se habiese canceladola hipoteca a favor
de Jose Vidal que pesa sobre dichos lotes. Lacomision del 5 por ciento que corresponde
a Jose Araneta serapagada al otorgarse la escritura de compromiso de venta.
Paz Tuason se obliga a entregar mediante un propio las cartasque dirigira a este efecto
a los arrendatarios, de conformidad con el formulario adjunto, que se marca como
Apendice A.
Expirado el plazo arriba mencionado, Paz Tuason otorgara las escrituras
correspondientes de venta a los arrendatarios que hayan decidido comprar sus
respectivos lotes.
9. Los alquieres correspondientes a este ao se prorratearan entre la vendedora y el
comprador, correspondiendo al comprador los alquileres correspondientes a Noviembre
y Diciembre de este ao y asimismo sera por cuenta del comprador el amillaramiento
correspondiente a dichos meses.
10. Paz Tuason, reconoce haver recibido en este acto de Gregorio Araneta, Inc., la
suma de Ciento Noventa Mil Pesos (P190,000)como adelanto del precio de venta que
Gregorio Araneta, Inc., tuviere que pagar a Paz Tuason.
La cantidad que Paz Tuason recibe en este acto sera aplicadapor ella a saldar su deuda
con Jose Vidal, los amillaramientos, sobre el utilizado por Paz Tuason para otros fines.
11. Una vez determinados los lotes que Paz Tuason podra vendera Gregorio Araneta,
Inc., Paz Tuason otorgara una escritura deventa definitiva sobre dichos lotes a favor de
Gregorio Araneta, Inc.
Gregorio Araneta, Inc., pagara el precio de venta como sigue: 90 por ciento del mismo al
otorgarse la escritura de venta definitiva descontandose de la cantidad que entonces se
tenga que pagar de adelanto de P190,000 que se entrega en virtud de esta escritura. El
10 por ciento remanente se pagara a Paz Tuazon, una vez se haya cancelado la
hipoteca que pesa actualmente sobre el terreno.
No obstante la dispuesto en el parrafo 8, cualquier arrendatario que decida comprar el
lote que occupa con contrato de arrendamiento podra optar por pedir el otorgamiento
inmediato a su favor el acto de la escritura de venta definitiva pagando en el acto el 50
por ciento del precio (ademas del 40 por ciento que debio incluir en su carta de
aceptacion) y el remanente de 10 por ciento inmediatemente despues de cancelarse la
hipoteca que pesa sobre el terreno.
12. Si la mencionada cantidad de P190,000 excediere del 90 por ciento de la cantidad
que Gregorio Araneta, Inc., tuviere que vender a dicho comprador, el saldo sera pagado
inmediatamente por Paz Tuazon, tomandolo de las cantidades que reciba de los
arrendatarios como precio de venta.
In furtherance of this promise to buy and sell, letters were sent the lessees giving them until August
31, 1943, an option to buy the lots they occupied at the price and terms stated in said letters. Most
of the tenants who held contracts of lease took advantage of the opportunity thus extended and
after making the stipulated payments were giving their deeds of conveyance. These sales, as far
as the record would show, have been respected by the seller.
With the elimination of the lots sold or be sold to the tenants there remained unencumbered,
except for the mortgage to Jose Vidal, Lots 1, 8-16 and 18 which have an aggregate area of
14,810.20 square meters; and on December 2, 1943, Paz Tuason and Gregorio Araneta, Inc.
executed with regard to these lots an absolute deed of sale, the terms of which, except in two
respects, were similar to those of the sale to the lessees. This deed, copy of which is attached to
the plaintiff's complaint as Exhibit A, provided, among other things, as follows: GREGORIO ARANETA, INCORPORATED
Por;
(Fdo.) "JOSE ARANETA
The aforesaid lots are being sold by he Vendor to the Vendee separately at the prices Presidente
mentioned in paragraph (6) of the aforesaid contract entitled "Promesa de Compra y
Venta," making a total sum of One Hundred Thirty-Nine Thousand Eighty-three pesos
and Thirty-two centavos (P139,083.32), ninety (90%) per cent of which amount, i.e., the Recibido cheque No. C-288642 BIF-P493.23
sum of One Hundred Twenty-five Thousand One Hundred Seventy-four Pesos and
Ninety-nine centavos (P125,174.99), the Vendor acknowledges to have received by
virtue of the advance of One Hundred Ninety Thousand (P190,000) Pesos made by the Por:
Vendee to the Vendor upon the execution of the aforesaid contract entitled "Promesa de (Fdo.) "M.J. GONZALEZ
Compra y Venta". The balance of Sixty-Four Thousand Eight Hundred Twenty-five
Pesos and One centavo (P64,825.01) between the sum of P125,174.99, has been
returned by the Vendor to the Vendee, which amount the Vendee acknowledges to have In view of the foregoing liquidation, the vendor acknowledges fully and unconditionally,
received by these presents; having received the sum of P125,174.99 of the present legal currency and hereby
expressly declares that she will not hold the Vendee responsible for any loss that she
The aforesaid sum of P190,000 was delivered by the Vendee to the Vendor by virtue of might suffer due to the fact that two of the checks paid to her by the Vendee were issued
four checks issued by the Vendee against the Bank of the Philippine Islands, as follows: in favor of Jose Vidal and the latter has, up to the present time, not yet collected the
same.
No. C-286445 in favor of Paz Tuason de Paterno P13,476.62
No. C-286444 in favor of the City Treasurer, Manila 3,373.38 The ten (10%) per cent balance of the purchase price not yet paid in the total sum of
No. C-286443 in favor of Jose Vidal 30,000.00 P13,908.33 will be paid by the Vendee to the Vendor when the existing mortgage over
No. C-286442 in favor of Jose Vidal 143,150.00 the property sold by the Vendor to the Vendee is duly cancelled in the office of the
Total P190,000.00 Register of Deeds, or sooner at the option of the Vendee.

The return of the sum of P64,825.01 was made by the Vendor to the Vendee in a This Deed of Sale is executed by the Vendor free from all liens and encumbrances, with
liquidation which reads as follows: the only exception of the existing lease contracts on parcels Nos. 1, 10, 11, and 16,
which lease contracts will expire on December 31, 1953, with the understanding,
however, that this sale is being executed free from any option or right on the part of the
Hemos recibido de Da. Paz Tuason de Paterno la cantidad de P190,000.00 lessees to purchase the lots respectively leased by them.
Sesenta y Cuatro mil Ochocientos Veinticinco Pesos y un centimo
(P64,825.01) enconcepto de devolucion que nos hace del excesode lo
pagadoa ella de It is therefore clearly understood that the Vendor will pay the existing mortgage on her
Menos el 90% de P139,083.32, importe de los lotes que vamos a 125,174.99 property in favor of Jose Vidal.
comprar
Exceso 64,825.01 The liquidation of the amounts respectively due between the Vendor and the Vendee in
Cheque BIF No. D-442988 de Simplicio del Rosario 21,984.20 connection with the rents and real estate taxes as stipulated in paragraph (9) of the
Cheque PNB No. 177863-K de L.E. Dumas 21,688.60 contract entitled "Promesa de Compara y Venta" will be adjusted between the parties in
Cheque PNB No. 267682-K de Alfonso Sycip 20,000.00 a separate document.
Cheque PNB No. 83940 de Josefina de Pabalan 4,847.96
Billetes recibidos de Alfonso Sycip 42.96
P68,563.21 Should any of the aforesaid lessees of lots Nos. 2, 3, 4, 5, 6, 7, 9 and 17 fail to carry out
their respective obligations under the option to purchase exercised by them so that the
Menos las comisiones de 5 % recibidas de Josefina de P538.60 rights of the lessee to purchase the respective property leased by him is cancelled, the
Pabalan Vendor shall be bound to sell the same to the herein Vendee, Gregorio Araneta,
L.E. Dumas 1,084.43 Incorporated, in conformity with the terms and conditions provided in the aforesaid
Angela S. Tuason 1,621.94 3,244.97 contract of "Promesa de Compra y Venta";
P65,318.24
Menos cheque BIF No. C-288642 a favor de Da. Paz 493.23
Tuason de Paterno que le entregamos como exceso The documentary stamps to be affixed to this deed will be for the account of the Vendor
P64,825.01 while the expenses for the registration of this document will be for the account of the
Vendee.
Manila, Noviembre 2, 1943
The remaining area of the property of the Vendor subject to Transfer Certificates of Title
Nos. 60471 and 60472, are lots Nos. 2, 3, 4, 5, 6, 7, 9, and 17, all of the Consolidation of
lots Nos. 20 and 117 of plan II-4755, G.L.R.O. Record No. 7680.
Before the execution of the above deed, that is, on October 20, 1943, the day immediately which was the expiry of the tenants' option to buy, and the lots included in the absolute of which
following the signing of the agreement to buy and sell, Paz Tuason had offered to Vidal the check the occupants' option to buy lapsed unconditionally. Such deed as Exhibit A was then in a
for P143,150 mentioned in Exhibit A, in full settlement of her mortgage obligation, but the condition to be made.
mortgagee had refused to receive that check or to cancel the mortgage, contending that by the
separate agreement before mentioned payment of the mortgage was not to be effected totally or
Vidal's mortgage was not an obstacle to the sale. An amount had been set aside to take care of it,
partially before the end of four years from April, 1943.
and the parties, it would appear, were confident that the suit against the mortgagee would succeed.
The only doubt in their minds was in the amount to which Vidal was entitled. The failure of the court
Because of this refusal of Vidal's Paz Tuason, through Atty. Alfonso Ponce Enrile, commenced an to try and decide that the case was not foreseen either.
action against the mortgagee in October or the early paret of November 1943. the record of that
case was destroyed and no copy of the complaint was presented in evidence. Attached to the
This refutes, were think, the charge that there was undue rush on the part of the plaintiff to push
complaint or deposited with the clerk of court by Attorney Ponce Enrile simultaneously with the
across the sale. The fact that simultaneously with Exhibit A similar deeds were given the lessees
docketing of the suit were the check for P143,150 previously turned down by Vidal, another
who had elected to buy their leaseholds, which comprise an area about twice as big as the lots
certified check for P12,932.61, also drawn by Gregorio Araneta, Inc., in favor of Vidal, and one
described in Exhibit A, and the further fact that the sale to the lessees have never been questioned
ordinary check for P30,000 issued by Paz Tuazon. These three checks were supposed to cover
and the proceeds thereof have been received by the defendant, should add to dispel any suspicion
the whole indebtedness to Vidal including the principal and interest up to that time and the penalty
of bad faith on the part of the plaintiff. If anyone was in a hurry it could have been the defendant.
provided in the separate agreement.
The clear preponderance of the evidence that Paz Tuason was pressed for cash and that the
payment of the mortgage was only an incident, or a necessary means to effectuate the sale.
But the action against Vidal never came on for trial and the record and the checks were destroyed Otherwise she could have settled her mortgage obligation merely by selling a portion of her estate,
during the war operations in January or February, 1945; and neither was the case reconstituted say, some of the lots leased to tenants who, except two who were in concentration camps, were
afterward. This failure of the suit for the cancellation of Vidal's mortgage, coupled with the only too anxious to buy and own the lots on which their houses were built.
destruction of the checks tendered to the mortgagee, the nullification of the bank deposit on which
those checks had been drawn, and the tremendous rise of real estate value following the
Whatever the terms of Exhibit 1, the plaintiff and the defendant were at perfect liberty to make a
termination of the war, gave occasion to the breaking off the schemes outlined in Exhibits 1 and A;
new agreement different from or even contrary to the provisions of that document. The validity of
Paz Tuason after liberation repudiated them for the reasons to be hereafter set forth. The instant
the subsequent sale must of necessity depend on what it said and not on the provisions of the
action was the offshoot, begun by Gregorio Araneta, Inc. to compel Paz Tuason to deliver to the
promise to buy and sell.
plaintiff a clear title to the lots described in Exhibit A free from all liens and encumbrances, and a
deed of cancellation of the mortgage to Vidal. Vidal came into the case in virtue of a summon
issued by order of the court, and filed a cross-claim against Paz Tuazon to foreclose his mortgage. It is as possible proof or fraud that the discrepancies between the two documents bear some
attention. It was alleged that Attorneys Salvador Araneta and J. Antonio Araneta who the
defendant said had been her attorneys and had drawn Exhibit A, and not informed or had
It should be stated that the outset that all the parties are in agreement that Vidal's loans are still
misinformed her about its contents; that being English, she had not read the deed of sale; that if
outstanding. Paz Tuason's counsel concede that the tender of payment to Vidal was legally
she had not trusted the said attorneys she would not have been so foolish as to affix her signature
defective and did not operate to discharge the mortgage, while the plaintiff is apparently
to a contract so one-sided.
uninterested in this feature of the case considering the matter one largely between the mortgagor
and the mortgagee, although to a certain degree this notion is incorrect. At any rate, the points of
discord between Paz Tuason and Vidal concern only the accrual of interest on the loans, Vidal's The evidence does not support the defendant. Except in two particulars, Exhibit A was a
claim to attorney's fees, and the application of the debt moratorium law which the debtor now substantial compliance with Exhibit 1 in furtherance of which Exhibit A was made. One departure
invokes. These matters will be taken up in the discussion of the controversy between Paz Tuason was the proviso that 10 per cent of the purchase price should be paid only after Vidal's mortgage
and Jose Vidal. should have been cancelled. This provisional deduction was not onerous or unusual. It was not
onerous or unusual that the vendee should withhold a relatively small portion of the purchase price
before all the impediments to the final consummation of the sale had been removed. The tenants
The principal bone of contention between Gregorio Araneta, Inc., and Paz Tuason was the validity
who had bought their lots had been granted the privilege to deduct as much as 40 per cent of the
of the deed of sale of Exhibit A on which the suit was predicated. The lower court's judgment was
stipulated price pending discharge of the mortgage, although his percentage was later reduced to
that this contract was invalid and was so declared, "sin per juicio de que la demandada Paz
10 as in the case of Gregorio Araneta, Inc. It has also been that the validity of the sales to the
Tuason de Paterno pague a la entidad demandante todas las cantidades que habia estado
tenants has not been contested; that these sales embraced in the aggregate 24,245.40 square
recibiendo de lareferida entidad demandante, en concepto de pago de losterrenos, en moneda
meters for P260,916.68 as compared to 14,811.20 square meters sold to Gregorio Araneta, Inc. for
corriente, segun el cambio que debiaregir al tiempo de otorgarse la escritura segun la escalade
P139,083.32; that the seller has already received from the tenant purchasers 90 per cent of the
"Ballentine", descontando, sin embargo, de dichas cantidades cualesquiera que la demandante
purchase money.
haya estadorecibiendo como alquileres de los terrenos supuestamentevendidos a ella." The court
based its opinion that Exhibit 1. His Honor, Judge Sotero Rodas, agreedwith the defendant that
under paragraph 8 of Exhibit 1 there was to be no absolute sale to Gregorio Araneta, Inc., unless There is good reason to believe that had Gregorio Araneta, Inc. not insisted on charging to the
Vidal's mortgage was cancelled. defendant the loss of the checks deposited with the court, the sale in question would have gone the
smooth way of the sales to the tenants. Thus Dindo Gonzales, defendant's son, declared:
In our opinion the trial court was in error in its interpretation of Exhibit 1. The contemplated
execution of an absolute deed of sale was not contingent on the cancellation of Vidal's mortgage. P. Despues de haberse presentado esta demanda, recuerda usted haber tenido conversacion
What Exhibit 1 did provide (eleventh paragraph) was that such deed of absolute sale should be con Salvador Araneta acerca de este asunto?
executed "una vez determinado los lotes que Paz Tuason podra vender a Gregorio Araneta, Inc." R. Si Seor.
The lots which could be sold to Gregorio Araneta, Inc. were definitely known by October 31, 1943, P. Usted fue quien se acerco al seor Salvador Araneta?
 R. Si, seor.
P. Quiero usted decir al Honorable Juzgado que era lo que usted dijo al seor Salvador Araneta?
R. No creo que es propio que yo diga, por tratarse de mi madre.
P. En otras palabras, usted quiere decir que no quiere usted que se vuelva decir o repetir ante
este Honorable Juzgado lo que usted dijo al seor Salvador Araneta, pues, se trata de su madre?
R. No, seor.
P. Puede usted decirnos que quiso usted decir cuando que no quisiera decir?
R. Voy a decir lo que Salvador Araneta, yo me acerque a Don Salvador Araneta, y yo le dije que
es una verguenza de que nosotros, en la familia tengamos que ir a la Corte por este, y tambien
dije que mi madre de por si quiere vender el terreno a ellos, porque mi madre quiere pagar al
seor Vidal, y que es una verguenza, siendo entre parientes, tener que venir por este; era lo que
yo dije al seor Salvador Araneta.
xxx xxx xxx
P. No recuerda usted tambien dijo al seor Salvador Araneta que usted no comulgaba con ella
(su madre) en este asunto?
R. Si, Seor; porque yo creia que mi madre solamente queria anular esta venta, pero cuando me
dijo el seor La O y sus abogados que, encima de quitar la propiedad, todavia tendria ella que
pagar al seor Vidal, este no veso claro.
xxx xxx xxx
P. Ahora bien; de tal suerte que, tal como nosotros desperendemos de su testimonio, tanto, usted
como, su madre, esteban muy conformes en la venta, es asi?
R. Si, seor.
The other stipulation embodied in Exhibit A which had no counterpart in Exhibit 1 was that by which
Gregorio Araneta Inc. would hold Paz Tuason liable for the lost checks and which, as stated,
appeared to be at the root of the whole trouble between the plaintiff and the defendant.
The stipulation reads:
In view of the foregoing liquidation, the Vendor acknowledges fully and unconditionally,
having received the sum of P125,174.99 of the present legal currency and hereby
expressly declares that she will not hold the Vendee responsible for any loss that she
might suffer due to the fact that two of the checks paid to her by the Vendee were used
in favor of Jose Vidal and the latter has, up to the present time, not yet collected the
same.
It was argued that no person in his or her right senses would knowingly have agreed to a covenant
so iniquitous and unreasonable.
In the light of all the circumstances, it is difficult to believe that the defendant was deceived into
signing Exhibit A, in spite of the provision of which she and her son complaint. Intelligent and well
educated who had been managing her affairs, she had an able attorney who was assisting her in
the suit against Vidal, a case which was instituted precisely to carry into effect Exhibit A or Exhibit
1, and a son who is leading citizen and a business-man and knew the English language very well if
she did not. Dindo Gonzalez took active part in, if he was not the initiator of the negotiations that
led to the execution of Exhibit 1, of which he was an attesting witness besides. If the defendant
signed Exhibit A without being apprised of its import, it can hardly be conceived that she did not
have her attorney or her son read it to her afterward. The transaction involved the alienation of
property then already worth a fortune and now assessed by the defendant at several times higher.
Doubts in defendant's veracity are enhanced by the fact that she denied or at least pretended in
her answer to be ignorant of the existence of Exhibit A, and that only after she was confronted with
the signed copy of the document on the witness did she spring up the defense of fraud. It would
look as if she gambled on the chance that no signed copy of the deed had been saved from the
war. She could not have forgotten having signed so important a document even if she had not
understood some of its provisions.
From the unreasonableness and inequity of the aforequoted Exhibit A it is not to be presumed that
the defendant did not understand it. It was highly possible that she did not attach much importance
to it, convinced that Vidal could be forced to accept the checks and not foreseeing the fate that lay
in store for the case against the mortgagee.
Technical objections are made against the deed of sale.
First of these is that Jose Araneta, since deceased, was defendant's agent and at the same time
the president of Gregorio Araneta, Inc.
The trial court found that Jose Araneta was not Paz Tuason's agent or broker. This finding is
contrary to the clear weight of the evidence, although the point would be irrelevant, if the court
were right in its holding that Exhibit A was void on another ground, i.e., it was inconsistent with
Exhibit 1.
Without taking into account defendant's Exhibit 7 and 8, which the court rejected and which, in our
opinion, should have been admitted, Exhibit 1 is decisive of the defendant's assertion. In paragraph
8 of Exhibit 1 Jose Araneta was referred to as defendant's agent or broker "who acts in this
transaction" and who as such was to receive a commission of 5 per cent, although the commission
was to be charged to the purchasers, while in paragraph 13 the defendant promised, in
consideration of Jose Araneta's services rendered to her, to assign to him all her right, title and
interest to and in certain lots not embraced in the sales to Gregorio Araneta, Inc. or the tenants.
However, the trial court hypothetically admitting the existence of the relation of principal and agent
between Paz Tuason and Jose Araneta, pointed out that not Jose Araneta but Gregorio Araneta,
Inc. was the purchaser, and cited the well-known distinction between the corporation and its
stockholders. In other words, the court opined that the sale to Gregorio Araneta, Inc. was not a sale
to Jose Araneta the agent or broker.
The defendant would have the court ignore this distinction and apply to this case the other well-
known principle which is thus stated in 18 C.J.S. 380: "The courts, at law and in equity, will
disregard the fiction of corporate entity apart from the members of the corporation when it is
attempted to be used as a means of accomplishing a fraud or an illegal act.".
It will at once be noted that this principle does not fit in with the facts of the case at bar. Gregorio
Araneta, Inc. had long been organized and engaged in real estate business. The corporate entity
was not used to circumvent the law or perpetrate deception. There is no denying that Gregorio
Araneta, Inc. entered into the contract for itself and for its benefit as a corporation. The contract
and the roles of the parties who participated therein were exactly as they purported to be and were
fully revealed to the seller. There is no pretense, nor is there reason to suppose, that if Paz Tuason
had known Jose Araneta to Gregorio Araneta, Inc's president, which she knew, she would not have
gone ahead with the deal. From her point of view and from the point of view of public interest, it
would have made no difference, except for the brokerage fee, whether Gregorio Araneta, Inc. or
Jose Araneta was the purchaser. Under these circumstances the result of the suggested disregard
of a technicality would be, not to stop the commission of deceit by the purchaser but to pave the
way for the evasion of a legitimate and binding commitment buy the seller. The principle invoked by
the defendant is resorted to by the courts as a measure or protection against deceit and not to
open the door to deceit. "The courts," it has been said, "will not ignore the corporate entity in order
to further the perpetration of a fraud." (18 C.J.S. 381.)
The corporate theory aside, and granting for the nonce that Jose Araneta and Gregorio Araneta,
Inc. were identical and that the acts of one where the acts of the other, the relation between the
defendant and Jose Araneta did not fall within the purview of article 1459 of the Spanish Civil
1
Code.
Agency is defined in article 1709 in broad term, and we have not come across any commentary or From the pronouncement that Exhibit A is valid, however, it does not follow that the defendant
decision dealing directly with the precise meaning of agency as employed in article 1459. But in the should be held liable for the loss of the certified checks attached to the complaint against Vidal or
opinion of Manresa(10 Manresa 4th ed. 100), agent in the sense there used is one who accepts deposited with the court, or of the funds against which they had been issued. The matter of who
another's representation to perform in his name certain acts of more or less transcendency, while should bear this loss does not depend upon the validity of the sale but on the extent and scope of
Scaevola (Vol. 23, p. 403) says that the agent's in capacity to buy his principal's property rests in the clause hereinbefore quoted as applied to the facts of the present case.
the fact that the agent and the principal form one juridicial person. In this connection Scaevola
observes that the fear that greed might get the better of the sentiments of loyalty and
The law and the evidence on this branch of the case revealed these facts, of some of which
disinterestedness which should animate an administrator or agent, is the reason underlying various
passing mention has already been made.
classes of incapacity enumerated in article 1459. And as American courts commenting on similar
prohibition at common law put it, the law does not trust human nature to resist the temptations
likely to arise of antogonism between the interest of the seller and the buyer. The aforesaid checks, one for P143,150 and one for P12,932.61, were issued by Gregorio
Araneta, Inc. and payable to Vidal, and were drawn against the Bank of the Philippines with which
Gregorio Araneta, Inc. had a deposit in the certification stated that they were to be "void if not
So the ban of paragraph 2 of article 1459 connotes the idea of trust and confidence; and so where
presented for payment date of acceptance" office (Bank) within 90 days from date of acceptance."
the relationship does not involve considerations of good faith and integrity the prohibition should
not and does not apply. To come under the prohibition, the agent must be in a fiduciary with his
principal. Under banking laws and practice, by the clarification" the funds represented by the check were
transferred from the credit of the maker to that of the payee or holder, and, for all intents and
purposes, the latter became the depositor of the drawee bank, with rights and duties of one such
Tested by this standard, Jose Araneta was not an agent within the meaning of article 1459. By
relation." But the transfer of the corresponding funds from the credit of the depositor to that of that
Exhibits 7 and 8 he was to be nothing more than a go-between or middleman between the
of the payee had to be co-extensive with the life of the checks, which in the case was 90 days. If
defendant and the purchaser, bringing them together to make the contract themselves. There was
the checks were not presented for payment within that period they became invalid and the funds
no confidence to be betrayed. Jose Araneta was not authorize to make a binding contract for the
were automatically restored to the credit of the drawer though not as a current deposit but as
defendant. He was not to sell and he did not sell the defendant's property. He was to look for a
special deposit. This is the consensus of the evidence for both parties which does not materially
buyer and the owner herself was to make, and did make, the sale. He was not to fix the price of the
differ on this proposition.
sale because the price had been already fixed in his commission. He was not to make the terms of
payment because these, too, were clearly specified in his commission. In fine, Jose Araneta was
left no power or discretion whatsoever, which he could abuse to his advantage and to the owner's The checks were never collected and the account against which they were drawn was not used or
prejudice. claimed by Gregorio Araneta, Inc.; and since that account "was opened during the Japanese
occupation and in Japanese currency," the checks "became obsolete as the account subject
thereto is considered null and void in accordance with Executive Order No. 49 of the President of
Defendant's other ground for repudiating Exhibit A is that the law firm of Araneta & Araneta who
the Philippines", according to the Bank.
handled the preparation of that deed and represented by Gregorio Araneta, Inc. were her attorneys
also. On this point the trial court's opinion is likewise against the defendant.
Whether the Bank of the Philippines could lawfully limit the negotiability of certified checks to a
period less than the period provided by the Statute of Limitations does not seem material. The
Since attorney Ponce Enrile was the defendant's lawyer in the suit against Vidal, it was not likely
limitation imposed by the Bank as to time would adversely affect the payee, Jose Vidal, who is not
that she employed Atty. Salvador Araneta and J. Antonio Araneta as her attorneys in her dealings
trying to recover on the instruments but on the contrary rejected them from the outset, insisting that
with Gregorio Araneta, Inc., knowing, as she did, their identity with the buyer. If she had needed
the payment was premature. As far as Vidal was concerned, it was of no importance whether the
legal counsels, in this transaction it seems certain that she would have availed herself of the
certification was or was not restricted. On the other hand, neither the plaintiff nor the defendant
services of Mr. Ponce Enrile who was allegedly representing her in another case to pave the way
now insists that Vidal should present, or should have presented, the checks for collection. They in
for the sale.
fact agree that the offer of those checks to Vidal did not, for technical reason, work to wipe out the
mortgage.
The fact that Attys. Salvador and Araneta and J. Antonio Araneta drew Exhibits 1 and A, undertook
to write the letters to the tenants and the deeds of sale to the latter, and charged the defendant the
But as to Gregorio Araneta and Paz Tuason, the conditions specified in the certification and the
corresponding fees for all this work, did not themselves prove that they were the seller's attorneys.
prevailing regulations of the Bank were the law of the case. Not only this, but they were aware of
These letters and documents were wrapped up with the contemplated sale in which Gregorio
and abided by those regulations and practice, as instanced by the fact that the parties presented
Araneta, Inc. was interested, and could very well have been written by Attorneys Araneta and
testimony to prove those regulations and practice. And that Gregorio Araneta, Inc. knew that Vidal
Araneta in furtherance of Gregorio Araneta's own interest. In collecting the fees from the defendant
had not cashed the checks within 90 days is not, and could not successfully be denied.
they did what any other buyer could have appropriately done since all such expenses normally
were to be defrayed by the seller.
In these circumstances, the stipulation in Exhibit A that the defendant or seller "shall not hold the
vendee responsible for any loss of these checks" was unconscionable, void and unenforceable in
Granting that Attorney Araneta and Araneta were attorneys for the defendant, yet they were not
so far as the said stipulation would stretch the defendant's liability for this checks beyond 90 days.
forbidden to buy the property in question. Attorneys are only prohibited from buying their client's
It was not in accord with law, equity or good conscience to hold a party responsible for something
property which is the subject of litigation. (Art. 1459, No. 5, Spanish Civil Code.) The questioned
he or she had no access to and could not make use of but which was under the absolute control
sale was effected before the subject thereof became involved in the present action. There was
and disposition of the other party. To make Paz Tuason responsible for those checks after they
already at the time of the sale a litigation over this property between the defendant and Vidal, but
expired and when they were absolutely useless would be like holding an obligor to answer for the
Attys. Salvador Araneta and J. Antonio Araneta were not her attorneys in that case.
loss or destruction of something which the obligee kept in its safe with no power given the obligor
to protect it or interfere with the obligee's possession.
To the extent that the contract Exhibit A would hold the vendor responsible for those checks after
they had lapsed, the said contract was without consideration. The checks having become obsolete,
the benefit in exchange for which the defendant had consented to be responsible for them had
vanished. The sole motivation on her part for the stipulation was the fact that by the checks the
mortgage might or was to be released. After 90 days the defendant stood to gain absolutely
nothing by them, which had become veritable scraps of paper, while the ownership of the deposit
had reverted to the plaintiff which alone could withdraw and make use of it.
What the plaintiff could and should have done if the disputed stipulation was to be kept alive was to
keep the funds accessible for the purpose of paying the mortgage, by writing new checks either to
Vidal or to the defendant, as was done with the check for P30,000, or placing the deposit at the
defendant's disposal. The check for P30,000 intended for the penalty previously had been issued
in the name of Vidal and certified, too, but by mutual agreement it was changed to an ordinary
check payable to Paz Tuason. Although that check was also deposited with the court and lost, its
loss undoubtedly was imputable to the defendant's account, and she did not seem to disown her
liability for it.
Let it be remembered that the idea of certifying the lost checks was all the plaintiff's. The plaintiff
would not trust the defendant and studiously so arranged matters that she could not by any
possibility put a finger on the money. For all the practical intents and purposes the plaintiff dealt
directly with the mortgagee and excluded the defendant from meddling in the manner of payment
to Vidal. And let it also be kept in mind that Gregorio Araneta, Inc. was not a mere accommodator
in writing these checks. It was as much interested in the cancellation of the mortgage as Paz
Tuason.
Coming down to Vidal's cross-claim Judge Rodas rendered no judgment other than declaring that
the mortgage remained intact and subsisting. The amount to be paid Vidal was not named and the
question whether interest and attorney's fees were due was not passed upon. The motion for
reconsideration of the decision by Vidal's attorney's praying that Paz Tuason be sentenced to pay
the creditor P244,917.90 plus interest at the rate of 1 percent monthly from September 10, 1948
and that the mortgaged property be ordered sold in case of default within 90 days, and another
motion by the defendant seeking specification of the amount she had to pay the mortgagee were
summarily denied by Judge Potenciano Pecson, to whom the motions were submitted, Judge
Rodas by that time having been appointed to the Court of Appeals.
All the facts and evidence on this subject are on the record, however, and we may just as well
determine from these facts and evidence the amount to which the mortgagee is entitled, instead of
remanding the case for new trial, if only to avoid further delay if the disposition of this case.
It is obvious that Vidal had a right to judgment for his credit and to foreclose the mortgage if the
credit was not paid.
There is no dispute as to the amount of the principal and there is agreement that the loans made in
1943, in Japanese war notes, should be computed under the Ballantyne conversion table. As has
been said, where the parties do not see eye-to-eye was in regard to the mortgagee's claim to
attorney's fees and interest from October, 1943, which was reached a considerable amount. It was
contended that, having offered to pay Vidal her debt in that month, the defendant was relieved
thereafter from paying such interest.
It is to be recalled that Paz Tuason deposited with the court three checks which were intended to
cover the principal and interest up to October, 1943, plus the penalty provided in the instrument
"Penalidad del Documento de Novacion de Esta Fecha." The mortgagor maintains that although
these checks may not have constituted a valid payment for the purpose of discharging the debt, yet
they did for the purpose of stopping the running of interest. The defendant draws attention to the
following citations:
An offer in writing to pay a particular sum of money or to deliver a written instrument or
specific personal property is, if rejected, equivalent to the actual production and tender of
the money, instrument or property. (Sec. 24, Rule 123.)
It is not accord with either the letter or the spirit of the law to impose upon the person
affecting a redemption of property, in addition to 12 per cent interest per annum up to the
time of the offer to redeem, a further payment of 6 per cent per annum from the date of
the officer to redeem. (Fabros vs. Villa Agustin, 18 Phil., 336.)
A tender by the debtor of the amount of this debt, if made in the proper manner, will
suspend the running of interest on the debt for the time of such tender. (30 Am. Jur., 42.)
In the case of Fabrosa vs. Villa Agustin, supra, a parcel of land had been sold on execution to one
Tabliga. Within the period of redemption Fabros, to whom the land had been mortgaged by the
execution debtor, had offered to redeem the land from the execution creditor and purchaser at
public auction. The trial court ruled that the redemptioner was not obliged to pay the stipulated
interest of 12 per cent after he offered to redeem the property; nevertheless he was sentenced to
pay 6 per cent interest from the date of the offer.
This court on appeal held that "there is no reason for this other (6 per cent) interest, which appears
to be a penalty for delinquency while there was no delinquency." The court cited an earlier
decision, Martinez vs. Campbell, 10 Phil., 626, where this doctrine was laid down: "When the right
of redemption is exercised within the term fixed by section 465 of the Code of Civil Procedure, and
an offer is made of the amount due for the repurchase of the property to which said right refers, it is
neither reasonable nor just that the repurchaser should pay interest on the redemption money after
the time when he offered to repurchase and tendered the money therefor."
In the light of these decisions and law, the next query is; Did the mortgagor have the right under
the contract to pay the mortgage on October 20, 1943? The answer to this question requires an
inquiry into the provision of the "Penalidad del Documento de Novacion de Esta Fecha."
Vidal introduced oral evidence to the effect that he reserved unto himself in that agreement the
right "to accept or refuse the total payment of the loan outstanding . . ., if at the time of such offer of
payment he considered it advantageous to his interest." This was gist of Vidal's testimony and that
of Lucio M. Tiangco, one of Vidal's former attorneys who, as notary public, had authenticated the
document. Vidal's above testimony was ordered stricken out as hearsay, for Vidal was blind and,
according to him, only had his other lawyer read the document to him.
We are of the opinion that the court erred in excluding Vidal's statement. There is no reason to
suspect that Vidal's attorney did not correctly read the paper to him. The reading was a
contemporaneous incident of the writing and the circumstances under which the document was
read precluded every possibility of design, premeditation, or fabrication.
Nevertheless, Vidal's testimony, like the testimony of Lucio M. Tiangco's, was based on
recollection which, with the lapse of time, was for from infallible. By contrast, the testimony of
Attorneys Ponce Enrile, Salvador Araneta, and J. Antonio Araneta does not suffer from such
weakness and is entitled to full faith and credit. The document was the subject of a close and
concerted study on their part with the object of finding the rights and obligations of the mortgagee
and the mortgagor in the premises and mapping out the course to be pursued. And the results of
their study and deliberation were translated into concrete action and embodied in a letter which has
been preserved. In line with the results of their study, action was instituted in court to compel
acceptance by Vidal of the checks consigned with the complaint, and before the suit was
commenced, and with the document before him, Atty. Ponce Enrile, in behalf of his client, wrote
Vidal demanding that he accept the payment and execute a deed of cancellation of the mortgage.
In his letter Atty. Ponce Enrile reminded Vidal that the recital in the "Penalidad del Documento de
Novacion de Esta Fecha" was "to the effect that should the debtor wish to pay the debt before the
expiration of the period the reinstated (two years) such debtor would have to pay, in addition to
interest due, the penalty of P30,000 this is in addition to the penalty clause of 10 per cent of the
total amount due inserted in the document of mortgage of January 20, 1943."
The contract of sale Exhibit A was valid and enforceable, but the loss of the checks for P143,150
and P12,932.61 and invalidation of the corresponding deposit is to be borne by the buyer. Gregorio
Araneta, Inc. the value of these checks as well as the several payments made by Paz Tuason to
Gregorio Araneta, Inc. shall be deducted from the sum of P190,000 which the buyer advanced to
the seller on the execution of Exhibit 1.

Atty. Ponce Enrile's concept of the agreement, formed after mature and careful reading of it, jibes The buyer shall be entitled to the rents on the land which was the subject of the sale, rents which
with the only possible reason for the insertion of the penalty provision. There was no reason for the may have been collected by Paz Tuason after the date of the sale.
penalty unless it was for defendant's paying her debt before the end of the agreed period. It was to
Vidal's interest that the mortgage be not settled in the near future, first, because his money was
Paz Tuason shall pay Jose Vidal the amount of the mortgage and the stipulated interest up to
earning good interest and was guaranteed by a solid security, and second, which was more
October 20,1943, plus the penalty of P30,000, provided that the loans obtained during the
important, he, in all probability, shared the common belief that Japanese war notes were headed
Japanese occupation shall be reduced according to the Ballantyne scale of payment, and provided
for a crash and that four years thence, judging by the trends of the war, the hostilities would be
that the date basis of the computation as to the penalty is the date of the filing of the suit against
over.
Vidal.

To say, as Vidal says, that the debtor could not pay the mortgage within four years and, at the
Paz Tuason shall pay the amount that shall have been found due under the contracts of mortgage
same time, that there would be penalty if she paid after that period, would be a contradiction.
within 90 days from the time the court's judgment upon the liquidation shall have become final,
Moreover, adequate remedy was provided for failure to pay or after the expiration of the mortgage:
otherwise the property mortgaged shall be ordered sold provided by law.
increased rate or interest, foreclosure of the mortgage, and attorney's fees.

It is therefore to be concluded that the defendant's offer to pay Vidal in October, 1943, was in
accordance with the parties' contract and terminated the debtor's obligation to pay interest. The
technical defects of the consignation had to do with the discharge of the mortgage, which is
conceded on all sides to be still in force because of the defects. But the matter of the suspension of
the running of interest on the loan stands of a different footing and is governed by different
principles. These principles regard reality rather than technicality, substance rather than form.
Good faith of the offer or and ability to make good the offer should in simple justice excuse the
debtor from paying interest after the offer was rejected. A debtor can not be considered delinquent
who offered checks backed by sufficient deposit or ready to pay cash if the creditor chose that
means of payment. Technical defects of the offer cannot be adduced to destroy its effects when
the objection to accept the payment was based on entirely different grounds. If the creditor had told
the debtor that he wanted cash or an ordinary check, which Vidal now seems to think Paz Tuason
should have tendered, certainly Vidal's wishes would have been fulfilled, gladly.
The plain truth was that the mortgagee bent all his efforts to put off the payment, and thanks to the
defects which he now, with obvious inconsistency, points out, the mortgage has not perished with
the checks.
Vidal's mortgage is superior to the purchaser's right under Exhibit A, which is hereby declared
subject to said mortgage. Should Gregorio Araneta, Inc. be forced to pay the mortgage, it will be
subrogated to the right of the mortgagee.
This case will be remanded to the court of origin with instruction to hold a rehearing for the purpose
of liquidation as herein provided. The court also shall hear and decide all other controversies
relative to the liquidation which may have been overlooked at this decision, in a manner not
inconsistent with the above findings and judgment.
The mortgagor is not entitled to suspension of payment under the debt moratorium law or orders.
Among other reasons: the bulk of the debt was a pre-war obligation and the moratorium as to such
obligations has been abrogated unless the debtor has suffered war damages and has filed claim
for them; there is no allegation or proof that she has. In the second place, the debtor herself
caused her creditor to be brought into the case which resulted in the filing of the cross-claim to
foreclose the mortgage. In the third place, prompt settlement of the mortgage is necessary to the
settlement of the dispute and liquidation between Gregorio Araneta, Inc. and Paz Tuason. If for no
other reason, Paz Tuason would do well to forego the benefits of the moratorium law.

Falling within the reasons for the stoppage of interest are attorney's fees. In fact there is less merit There shall be no special judgments as to costs of either instance.
in the claim for attorney's fees than in the claim for interest; for the creditor it was who by his
refusal brought upon himself this litigation, refusal which, as just shown, resulted greatly to his
RESOLUTION
benefit.

Vidal, however, is entitled to the penalty, a point which the debtor seems to a grant. The December 22, 1952
suspension of the running of the interest is premised on the thesis that the debt was considered
paid as of the date the offer to pay the principal was made. It is precisely the mortgagor's
contention that he was to pay said penalty if and when she paid the mortgage before the expiration
of the four-year period provided in the mortgage contract. This penalty was designed to take the TUASON, J.:
place of the interest which the creditor would be entitled to collect if the duration of the mortgage
had not been cut short and from which interest the debtor has been relieved. "In obligations with a
The motion for reconsideration of the plaintiff, Gregorio Araneta, Inc., and the defendant, Paz
penalty clause the penalty shall substitute indemnity for damages and the payment of interest. . ."
Tuason de Paterno, are in large part devoted to the question, extensively discussed in the
(Art. 1152, Civil Code of Spain.).
decision, of the validity of the contract of sale Exhibit A. The arguments are not new and at least
were given due consideration in the deliberation and study of the case. We find no reason for
To summarize, the following are our findings and decision: disturbing our decision on this phase of the case.
The plaintiff-appellant's alternative proposition to wit: "Should this Honorable Court declare that RESOLUTION
the purchase price was not paid and that plaintiff has to bear the loss due to the invalidation of the
occupation currency, its loss should be limited to: (a) the purchase price of P139,083.32 less
P47,825.70 which plaintiff paid and the defendant actually collected during the occupation, or the January 26, 1953
sum of P92,233.32, or at most, (b) the purchase price of the lot in the sum of P139,083.32," as
well as the alleged over-payment by the defendant-appellee, may be taken up in the liquidation
under the reservation in the judgment that "the court (below) shall hold a rehearing for the purpose
of liquidation as herein provided" and "shall also hear and decide all other controversies relative to TUASON, J.:
the liquidation which may have been overlooked in this decision, in the manner not inconsistent
with the above findings and judgment." In the second motion for reconsideration by defendant-appellee it is urged that the sale be resolved
for failure of plaintiff-appellant to pay the entire purchase price of the property sold.
These payments and disbursement are matters of accounting which, not having been put directly in
issue or given due attention at the trial and in the appealed decision, can better be treshed out in Rescission of the contract, it is true, was alternative prayer in the cross-complaint, but the trial court
the proposed rehearing where each party will have an opportunity to put forward his views and declared the sale void in accordance with the main contention of the defendant, and passed no
reasons, with supporting evidence if necessary, on how the various items in question should be judgment on the matter of rescission. For this reason, and because rescission was not pressed on
regarded and credited, in the light of our decision. appeal, we deemed unnecessary, if not uncalled for, any pronouncement touching this point.

As to Jose Vidal's motion: There is nothing to add to or detract from what has been said in the
decision relative to the interest on the loans and attorney's fees. There are no substantial features
of the case that have not been weighed carefully in arriving at our conclusions. It is our considered
opinion that the decision is in accord with law, reason and equity.
The vehement protest that this court should not modify the conclusion of the lower court on interest
and attorney's fees is actually and entirely contrary to the cross-claimant's own suggestion in his
brief. From page 20 of his brief, we copy these passages:
We submit that this Honorable Court is in a position now to render judgment in the
foreclosure of mortgage suit as no further issue of fact need be acted upon by the trial
court. Defendant Paz Tuason has admitted the amount of capital due. That is a fact. She
only requests that interest be granted up to October 20,1943, and that the moratorium
law be applied. Whether this is possible or not is a legal question, which can be decided
by this court. Unnecessary loss of time and expenses to the parties herein will be
avoided by this Honorable Court by rendering judgment in the foreclosure of mortgage
suit as follows:
xxx xxx xxx
In the second place, the nonpayment of a portion, albeit big portion, of the price was not, in our
opinion, such failure as would justify recission under Articles 1124 and 1505 et seq. of the Civil
Code of Spain, which was still in force when this case was tried. "The general rule is that recission
will not be permitted for a slight or casual breach of the contract, but only for such breaches as are
so substantial and fundamental as to defeat the object of the parties." (Song Fo & Co. vs.
Hawaiian-Philippine Co., 47 Phil., 821, 827.)
In the present case, the vendee did not fail or refuse to pay by plan or design, granting there was
failure or refusal to pay. As a matter of fact, the portion of the purchase price which is said not to
have been satisfied until now was actually received by checks by the vendor and deposited by her
with the court in the suit against Vidal, in accordance with the understanding if not express
agreement between vendor and vendee. The question of who should bear the loss of this amount,
the checks having been destroyed and the funds against which they were drawn having become of
no value, was one of the most bitterly debated issues, and in adjudging the vendee to be the party
to shoulder the said loss and ordering the said vendee to pay the amount to the vendor, this
Court's judgment was not, and was not intended to be, in the nature of an extension of time of
payment. In contemplation of the Civil Code there was no default, except possibly in connection
with the alleged overcharges by the vendee arising from honest mistakes of accounting, mistakes
which, by our decision, are to be corrected in a new trial thereby ordered.

The second motion for reconsideration is, therefore, denied.

In reality, the judgment did not adjudicate the foreclosure of the mortgage nor did it fix the amount
due on the mortgage. The pronouncement that the mortgage was in full force and effect was a
conclusion which the mortgagor did not and does not now question. There was therefore virtually
no decision that could be executed.

Vidal himself moved in the Court of First Instance for amendment of the decision alleging, correctly,
that "the court failed to act on the cross-claim of Jose Vidal dated April 22, 1947, where he
demanded foreclosure of the mortgage . . . ." That motion like Paz Tuason's motion to complete the
judgment, was summarily denied.

In strict accordance with the procedure, the case should have been remanded to the court of origin
for further proceedings in the form stated by Paz Tuason's counsel. Both the mortgagor and the
mortgagee agree on this. We did not follow the above course believing it best, in the interest of the
parties themselves and following Vidal's attorney's own suggestion, to decide the controversies
between Vidal and Paz Tuason upon the records and the briefs already submitted.

The three motions for reconsideration are denied.

C. THE AGENT
64 - G.R. No. 141485 June 30, 2005
PABLITO MURAO and NELIO HUERTAZUELA, petitioners,.
vs.
PEOPLE OF THE PHILIPPINES, respondent.
DECISION
CHICO-NAZARIO, J.:
In this Petition for Review on Certiorari under Rule 45 of the Rules of Court, petitioners pray for the
reversal of the Decision of the Court of Appeals in CA-G.R. CR No. 21134, dated 31 May
1
1999, affirming with modification the Judgment of the Regional Trial Court (RTC) of Puerto
2
Princesa City, Palawan, in Criminal Case No. 11943, dated 05 May 1997, finding petitioners guilty
beyond reasonable doubt of the crime of estafa under Article 315(1)(b) of the Revised Penal Code.
Petitioner Pablito Murao is the sole owner of Lorna Murao Industrial Commercial Enterprises
(LMICE), a company engaged in the business of selling and refilling fire extinguishers, with
branches in Palawan, Naga, Legaspi, Mindoro, Aurora, Quezon, Isabela, and Laguna. Petitioner
3
Nelio Huertazuela is the Branch Manager of LMICE in Puerto Princesa City, Palawan.
On 01 September 1994, petitioner Murao and private complainant Chito Federico entered into a
Dealership Agreement for the marketing, distribution, and refilling of fire extinguishers within Puerto
4
Princesa City. According to the Dealership Agreement, private complainant Federico, as a dealer
for LMICE, could obtain fire extinguishers from LMICE at a 50% discount, provided that he sets up
his own sales force, acquires and issues his own sales invoice, and posts a bond with LMICE as
security for the credit line extended to him by LMICE. Failing to comply with the conditions under
the said Dealership Agreement, private complainant Federico, nonetheless, was still allowed to act
as a part-time sales agent for LMICE entitled to a percentage commission from the sales of fire
5
extinguishers.
The amount of private complainant Federicos commission as sales agent for LMICE was under
contention. Private complainant Federico claimed that he was entitled to a commission equivalent
6
to 50% of the gross sales he had made on behalf of LMICE, while petitioners maintained that he
should receive only 30% of the net sales. Petitioners even contended that as company policy, part-
time sales agents were entitled to a commission of only 25% of the net sales, but since private
complainant Federico helped in establishing the LMICE branch office in Puerto Princesa City, he
was to receive the same commission as the full-time sales agents of LMICE, which was 30% of the
7
net sales.
Private complainant Federicos first successful transaction as sales agent of LMICE involved two
fire extinguishers sold to Landbank of the Philippines (Landbank), Puerto Princesa City Branch, for
the price of 7,200.00. Landbank issued a check, dated 08 November 1993, pay to the order of
8
"L.M. Industrial Comml. Enterprises c/o Chito Federico," for the amount of 5,936.40, after
deducting from the original sales price the 15% discount granted by private complainant Federico
to Landbank and the 3% withholding tax. Private complainant Federico encashed the check at
Landbank and remitted only 2,436.40 to LMICE, while he kept 3,500.00 for himself as his
9
commission from the sale.
Petitioners alleged that it was contrary to the standard operating procedure of LMICE that private
complainant Federico was named payee of the Landbank check on behalf of LMICE, and that
private complainant Federico was not authorized to encash the said check. Despite the supposed
irregularities committed by private complainant Federico in the collection of the payment from
Landbank and in the premature withholding of his commission from the said payment, petitioners
forgave private complainant Federico because the latter promised to make-up for his misdeeds in
10
the next transaction.
Private complainant Federico, on behalf of LMICE, subsequently facilitated a transaction with the
City Government of Puerto Princesa for the refill of 202 fire extinguishers. Because of the
considerable cost, the City Government of Puerto Princesa requested that the transaction be split
into two purchase orders, and the City Government of Puerto Princesa shall pay for each of the
11
purchase orders separately. Pursuant to the two purchase orders, LMICE refilled and delivered
all 202 fire extinguishers to the City Government of Puerto Princesa: 154 units on 06 January 1994,
43 more units on 12 January 1994, and the last five units on 13 January 1994.
12
The subject of this Petition is limited to the first purchase order, Purchase Order No. GSO-856,
13
dated 03 January 1994, for the refill of 99 fire extinguishers, with a total cost of 309,000.00. On
16 June 1994, the City Government of Puerto Princesa issued Check No. 611437 to LMICE to pay
for Purchase Order No. GSO-856, in the amount of 300,572.73, net of the 3% withholding
14
tax. Within the same day, petitioner Huertazuela claimed Check No. 611437 from the City
Government of Puerto Princesa and deposited it under the current account of LMICE with
15
PCIBank.
On 17 June 1994, private complainant Federico went to see petitioner Huertazuela at the LMICE
branch office in Puerto Princesa City to demand for the amount of 154,500.00 as his commission
from the payment of Purchase Order No. GSO-856 by the City Government of Puerto Princesa.
Petitioner Huertazuela, however, refused to pay private complainant Federico his commission
16
since the two of them could not agree on the proper amount thereof.
Also on 17 June 1994, private complainant Federico went to the police station to file an Affidavit-
17
Complaint for estafa against petitioners. Petitioners submitted their Joint Counter-Affidavit on 12
18
July 1994. The City Prosecution Office of Puerto Princesa City issued a Resolution, dated 15
August 1994, finding that a prima faciecase for estafa existed against the petitioners and
recommending the filing of an information for estafa against both of them.
19
The Information, docketed as Criminal Case No. 11943 and raffled to the RTC of Puerto Princesa
City, Palawan, Branch 52, reads as follows
INFORMATION
The undersigned accuses PABLITO MURAO and NELIO C. HUERTAZUELA of the crime of
ESTAFA, committed as follows:
That on or about the 16th day of June, 1994, at Puerto Princesa City, Philippines, and within the
jurisdiction of this Honorable Court, the said accused, conspiring and confederating together and
mutually helping one another, after having received the amount of 309,000.00 as payment of the
99 tanks of refilled fire extinguisher (sic) from the City Government of Puerto Princesa, through
deceit, fraud and misrepresentation, did then and there willfully, unlawfully and feloniously defraud
one Chito Federico in the following manner, to wit: said accused, well knowing that Chito Federico
agent of LM Industrial Commercial Enterprises is entitled to 50% commission of the gross sales as
per their Dealership Contract or the amount of 154,500.00 as his commission for his sale of 99
refilled fire extinguishers worth 309,000.00, and accused once in possession of said amount of
309,000.00 misappropriate, misapply and convert the amount of 154,500.00 for their own
personal use and benefit and despite repeated demands made upon them by complainant to
deliver the amount of 154,500.00, accused failed and refused and still fails and refuses to do so,
to the damage and prejudice of said Chito Federico in the amount of 154,500.00, Philippine
20
Currency.
After holding trial, the RTC rendered its Judgment on 05 May 1997 finding petitioners guilty beyond
reasonable doubt as co-principals of the crime of estafa defined and penalized in Article 315(1)(b)
of the Revised Penal Code. Estafa, under the said provision, is committed by
ART. 315. Swindling (estafa). Any person who shall defraud another by any of the means
mentioned hereinbelow . . .
1. With unfaithfulness or abuse of confidence, namely:
(a)
(b) By misappropriating or converting, to the prejudice of another, money, goods, or any
other personal property received by the offender in trust or on commission, or for
administration, or under any other obligation involving the duty to make delivery of or to
return the same, even though such obligation be totally or partially guaranteed by a
bond; or by denying having received such money, goods, or other property; . . .
In the same Judgment, the RTC expounded on its finding of guilt, thus
For the afore-quoted provision of the Revised Penal Code to be committed, the following requisites
must concur:
1. That money, goods or other personal property be received by the offender in trust, or
on commission, or for administration, or under any other obligation involving the duty to
make delivery of, or to return, the same;
2. That there be misappropriation or conversion of such money or property by the
offender, or denial on his part of such receipt;
3. That such misappropriation or conversion or denial is to the prejudice of another; and
4. That there is demand made by the offended party to the offender. (Reyes, Revised
Penal Code of the Philippines, p. 716; Manuel Manahan, Jr. vs. Court of Appeals, Et Al.,
G.R. No. 111656, March 20, 1996)
All the foregoing elements are present in this case. The aborted testimony of Mrs. Norma Dacuan,
Cashier III of the Treasurers Office of the City of Puerto Princesa established the fact that indeed,
on June 16, 1994, co-accused Nelio Huertazuela took delivery of Check No. 611437 with face
value of 300,572.73, representing payment for the refill of 99 cylinders of fire extinguishers.
Although the relationship between complaining witness Chito Federico and LMIC is not fiduciary in
nature, still the clause "any other obligation involving the duty to make delivery of or to return"
personal property is broad enough to include a "civil obligation" (Manahan vs. C.A., Et. Al., Mar. 20,
1996).
The second element cannot be gainsaid. Both Pablito Murao and Nelio Huertazuela categorically
admitted that they did not give to Chito Federico his commission. Instead, they deposited the full
amount of the consideration, with the PCIBank in the Current Account of LMIC.
The refusal by the accused to give Chito Federico what ever percentage his commission
necessarily caused him prejudice which constitute the third element of estafa. Demand for
payment, although not an essential element of estafa was nonetheless made by the complainant
but was rebuffed by the accused. The fraudulent intent by the accused is indubitably indicated by
their refusal to pay Chito Federico any percentage of the gross sales as commission. If it were true
that what the dealer/sales Agent is entitled to by way of commission is only 30% of the gross sales,
then by all means the accused should have paid Chito Federico 30%. If he refused, they could
have it deposited in his name. In that way they may not be said to have misappropriated for
themselves what pertained to their Agent by way of commission.
WHEREFORE, premises considered judgment is hereby rendered finding the accused PABLITO
MURAO and NELIO HUERTAZUELA guilty beyond reasonable doubt as co-principals, of the crime
of estafa defined and penalized in Article 315 par. 1(b) of the Revised Penal Code, and applying
the provisions of the Indeterminate Sentence Law, both accused are hereby sentenced to an
indeterminate penalty ranging from a minimum of TWO (2) YEARS, FOUR (4) MONTHS and ONE
(1) DAY of prision correccional in its medium period, to a maximum of TWENTY (20) YEARS of
reclusion temporal in its maximum period; to pay Chito Federico, jointly and severally:
a. Sales Commission equivalent to
50% of 309,000.00 or ------------------- 154,500.00
with legal interest thereon from
June 17, 1994 until fully paid;
21
b. Attorneys fees ---------------------------- 30,0000.00.
Resolving the appeal filed by the petitioners before it, the Court of Appeals, in its Decision, dated
31 May 1999, affirmed the aforementioned RTC Judgment, finding petitioners guilty of estafa, but
modifying the sentence imposed on the petitioners. The dispositive portion of the Decision of the
Court of Appeals reads
WHEREFORE, the appealed decision is hereby AFFIRMED with the MODIFICATION that
appellants PABLITO MURAO and NELIO HUERTAZUELA are hereby each sentenced to an
indeterminate penalty of eight (8) years and One (1) day of prision mayor, as minimum, to Twenty
(20) years of reclusion temporal, as maximum. The award for attorneys fee of 30,000.00 is
deleted because the prosecution of criminal action is the task of the State prosecutors. All other
22
aspects of the appealed decision are maintained.
23
When the Court of Appeals, in its Resolution, dated 19 January 2000, denied their Motion for
24
Reconsideration, petitioners filed the present Petition for Review before this Court, raising the
following errors allegedly committed by the Court of Appeals in its Decision, dated 31 May 1999
I
WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS GRAVELY ERRED WHEN IT
RULED THAT PETITIONERS ARE LIABLE FOR ESTAFA UNDER ARTICLE 315 1(B) OF THE
REVISED PENAL CODE UNDER THE FOREGOING SET OF FACTS, WHEN IT IS CLEAR
FROM THE SAID UNDISPUTED FACTS THAT THE LIABILITY IS CIVIL IN NATURE.
 II
WITH DUE RESPECT, THE HONORABLE COURT ERRED WHEN IT UPHOLD (sic) PRIVATE
COMPLAINANTS CLAIM THAT HE IS ENTITLED TO A FIFTY (50%) PERCENT COMMISSION
WITHOUT EVIDENCE TO SUPPORT SUCH CLAIM.
This Court finds the instant Petition impressed with merit. Absent herein are two essential elements
of the crime of estafa by misappropriation or conversion under Article 315(1)(b) of the Revised
Penal Code, namely: (1) That money, goods or other personal property be received by the offender
in trust, or on commission, or for administration, or under any other obligation involving the duty to
make delivery of, or to return, the same; and (2) That there be a misappropriation or conversion of
such money or property by the offender.
The findings of the RTC and the Court of Appeals that petitioners committed estafa rest on the
erroneous belief that private complainant Federico, due to his right to commission, already owned
50% of the amount paid by the City Government of Puerto Princesa to LMICE by virtue of Check
No. 611437, so that the collection and deposit of the said check by petitioners under the account of
LMICE constituted misappropriation or conversion of private complainant Federicos commission.
However, his right to a commission does not make private complainant Federico a joint
owner of the moneypaid to LMICE by the City Government of Puerto Princesa, but merely
25
establishes the relation of agent and principal. It is unequivocal that an agency existed between
LMICE and private complainant Federico. Article 1868 of the Civil Code defines agency as a
special contract whereby "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." Although private
complainant Federico never had the opportunity to operate as a dealer for LMICE under the terms
of the Dealership Agreement, he was allowed to act as a sales agent for LMICE. He can negotiate
for and on behalf of LMICE for the refill and delivery of fire extinguishers, which he, in fact, did on
two occasions with Landbank and with the City Government of Puerto Princesa. Unlike the
Dealership Agreement, however, the agreement that private complainant Federico may act as
26
sales agent of LMICE was based on an oral agreement.
As a sales agent, private complainant Federico entered into negotiations with prospective clients
for and on behalf of his principal, LMICE. When negotiations for the sale or refill of fire
extinguishers were successful, private complainant Federico prepared the necessary
documentation. Purchase orders, invoices, and receipts were all in the name of LMICE. It was
LMICE who had the primary duty of picking up the empty fire extinguishers, filling them up, and
delivering the refilled tanks to the clients, even though private complainant Federico personally
helped in hauling and carrying the fire extinguishers during pick-up from and delivery to clients.
All profits made and any advantage gained by an agent in the execution of his agency should
27
belong to the principal. In the instant case, whether the transactions negotiated by the sales
agent were for the sale of brand new fire extinguishers or for the refill of empty tanks, evidently, the
business belonged to LMICE. Consequently, payments made by clients for the fire extinguishers
pertained to LMICE. When petitioner Huertazuela, as the Branch Manager of LMICE in Puerto
Princesa City, with the permission of petitioner Murao, the sole proprietor of LMICE, personally
picked up Check No. 611437 from the City Government of Puerto Princesa, and deposited the
same under the Current Account of LMICE with PCIBank, he was merely collecting what rightfully
belonged to LMICE. Indeed, Check No. 611437 named LMICE as the lone payee. Private
complainant Federico may claim commission, allegedly equivalent to 50% of the payment received
by LMICE from the City Government of Puerto Princesa, based on his right to just compensation
28
under his agency contract with LMICE, but not as the automatic owner of the 50% portion of the
said payment.
Since LMICE is the lawful owner of the entire proceeds of the check payment from the City
Government of Puerto Princesa, then the petitioners who collected the payment on behalf of
LMICE did not receive the same or any part thereof in trust, or on commission, or for
administration, or under any other obligation involving the duty to make delivery of, or to return, the
same to private complainant Federico, thus, the RTC correctly found that no fiduciary relationship
existed between petitioners and private complainant Federico. A fiduciary relationship between the
complainant and the accused is an essential element of estafa by misappropriation or conversion,
29
without which the accused could not have committed estafa.
30
The RTC used the case of Manahan, Jr. v. Court of Appeals to support its position that even in
the absence of a fiduciary relationship, the petitioners still had the civil obligation to return and
deliver to private complainant Federico his commission. The RTC failed to discern the substantial
differences in the factual background of the Manahan case from the present Petition.
The Manahan case involved the lease of a dump truck. Although a contract of lease may not be
fiduciary in character, the lessee clearly had the civil obligation to return the truck to the lessor at
the end of the lease period; and failure of the lessee to return the truck as provided for in the
contract may constitute estafa. The phrase "or any other obligation involving the duty to make
delivery of, or to return the same" refers to contracts of bailment, such as, contract of lease of
personal property, contract of deposit, and commodatum, wherein juridical possession of the thing
was transferred to the lessee, depositary or borrower, and wherein the latter is obligated to return
31
the same thing.
In contrast, the current Petition concerns an agency contract whereby the principal already
received payment from the client but refused to give the sales agent, who negotiated the sale, his
commission. As has been established by this Court in the foregoing paragraphs, LMICE had a right
to the full amount paid by the City Government of Puerto Princesa. Since LMICE, through
petitioners, directly collected the payment, then it was already in possession of the amount, and no
transfer of juridical possession thereof was involved herein. Given that private complainant
Federico could not claim ownership over the said payment or any portion thereof, LMICE had
nothing at all to deliver and return to him. The obligation of LMICE to pay private complainant
Federico his commission does not arise from any duty to deliver or return the money to its
supposed owner, but rather from the duty of a principal to give just compensation to its agent for
the services rendered by the latter.
Furthermore, the Court of Appeals, in its Decision, dated 31 May 1999, defined the words "convert"
and "misappropriate" in the following manner
The High Court in Saddul v. Court of Appeals [192 SCRA 277] enunciated that the words "convert"
and "misappropriate" in the crime of estafa punished under Art. 315, par. 1(b) connote an act of
using or disposing of anothers property as if it were ones own, or if devoting it to a purpose or use
different from that agreed upon. To misappropriate to ones use includes, not only conversion to
ones personal advantage, but also every attempt to dispose of the property of another without
32
right.
Based on the very same definition, this Court finds that petitioners did not convert nor
misappropriate the proceeds from Check No. 611437 because the same belonged to LMICE, and
was not "anothers property." Petitioners collected the said check from the City Government of
Puerto Princesa and deposited the same under the Current Account of LMICE with PCIBank. Since
the money was already with its owner, LMICE, it could not be said that the same had been
converted or misappropriated for one could not very well fraudulently appropriate to himself money
33
that is his own.
Although petitioners refusal to pay private complainant Federico his commission caused prejudice
or damage to the latter, said act does not constitute a crime, particularly estafa by conversion or
misappropriation punishable under Article 315(1)(b) of the Revised Penal Code. Without the
essential elements for the commission thereof, petitioners cannot be deemed to have committed
the crime.

While petitioners may have no criminal liability, petitioners themselves admit their civil liability to the
private complainant Federico for the latters commission from the sale, whether it be 30% of the net
sales or 50% of the gross sales. However, this Court is precluded from making a determination and
an award of the civil liability for the reason that the said civil liability of petitioners to pay private
complainant Federico his commission arises from a violation of the agency contract and not from a
34
criminal act. It would be improper and unwarranted for this Court to impose in a criminal action
the civil liability arising from a civil contract, which should have been the subject of a separate and
35
independent civil action.

WHEREFORE, the assailed Decision of the Court of Appeals in CA-G.R. CR No. 21134, dated 31
May 1999, affirming with modification the Judgment of the RTC of Puerto Princesa City, Palawan,
in Criminal Case No. 11943, dated 05 May 1997, finding petitioners guilty beyond reasonable
doubt of estafa by conversion or misappropriation under Article 315(1)(b) of the Revised Penal
Code, and awarding the amount of 154,500.00 as sales commission to private complainant
Federico, is hereby REVERSED and SET ASIDE. A new Judgment is hereby entered
ACQUITTING petitioners based on the foregoing findings of this Court that their actions did not
constitute the crime of estafa by conversion or misappropriation under Article 315(1)(b) of the
Revised Penal Code. The cash bonds posted by the petitioners for their provisional liberty are
hereby ordered RELEASED and the amounts thereof RETURNED to the petitioners, subject to the
usual accounting and auditing procedures.

SO ORDERED.
C. THE AGENT
65 - G.R. No. 88866 February 18, 1991
METROPOLITAN BANK & TRUST COMPANY, petitioner,
vs.
COURT OF APPEALS, GOLDEN SAVINGS & LOAN ASSOCIATION, INC., LUCIA CASTILLO,
MAGNO CASTILLO and GLORIA CASTILLO, respondents.
CRUZ, J.:
This case, for all its seeming complexity, turns on a simple question of negligence. The facts,
pruned of all non-essentials, are easily told.
The Metropolitan Bank and Trust Co. is a commercial bank with branches throughout the
Philippines and even abroad. Golden Savings and Loan Association was, at the time these events
happened, operating in Calapan, Mindoro, with the other private respondents as its principal
officers.
In January 1979, a certain Eduardo Gomez opened an account with Golden Savings and deposited
over a period of two months 38 treasury warrants with a total value of P1,755,228.37. They were all
drawn by the Philippine Fish Marketing Authority and purportedly signed by its General Manager
and countersigned by its Auditor. Six of these were directly payable to Gomez while the others
appeared to have been indorsed by their respective payees, followed by Gomez as second
1
indorser.
On various dates between June 25 and July 16, 1979, all these warrants were subsequently
indorsed by Gloria Castillo as Cashier of Golden Savings and deposited to its Savings Account No.
2498 in the Metrobank branch in Calapan, Mindoro. They were then sent for clearing by the branch
office to the principal office of Metrobank, which forwarded them to the Bureau of Treasury for
2 petition for review on the following grounds:
special clearing.
More than two weeks after the deposits, Gloria Castillo went to the Calapan branch several times
to ask whether the warrants had been cleared. She was told to wait. Accordingly, Gomez was
meanwhile not allowed to withdraw from his account. Later, however, "exasperated" over Gloria's
repeated inquiries and also as an accommodation for a "valued client," the petitioner says it finally
decided to allow Golden Savings to withdraw from the proceeds of the
3
warrants.
The first withdrawal was made on July 9, 1979, in the amount of P508,000.00, the second on July
13, 1979, in the amount of P310,000.00, and the third on July 16, 1979, in the amount of
4
P150,000.00. The total withdrawal was P968.000.00.
In turn, Golden Savings subsequently allowed Gomez to make withdrawals from his own account,
eventually collecting the total amount of P1,167,500.00 from the proceeds of the apparently
cleared warrants. The last withdrawal was made on July 16, 1979.
On July 21, 1979, Metrobank informed Golden Savings that 32 of the warrants had been
dishonored by the Bureau of Treasury on July 19, 1979, and demanded the refund by Golden
Savings of the amount it had previously withdrawn, to make up the deficit in its account.
The demand was rejected. Metrobank then sued Golden Savings in the Regional Trial Court of
5
Mindoro. After trial, judgment was rendered in favor of Golden Savings, which, however, filed a
motion for reconsideration even as Metrobank filed its notice of appeal. On November 4, 1986, the
lower court modified its decision thus:
ACCORDINGLY, judgment is hereby rendered:
1. Dismissing the complaint with costs against the plaintiff;
2. Dissolving and lifting the writ of attachment of the properties of defendant Golden
Savings and Loan Association, Inc. and defendant Spouses Magno Castillo and Lucia
Castillo;
3. Directing the plaintiff to reverse its action of debiting Savings Account No. 2498 of the
sum of P1,754,089.00 and to reinstate and credit to such account such amount existing
before the debit was made including the amount of P812,033.37 in favor of defendant
Golden Savings and Loan Association, Inc. and thereafter, to allow defendant Golden
Savings and Loan Association, Inc. to withdraw the amount outstanding thereon before
the debit;
4. Ordering the plaintiff to pay the defendant Golden Savings and Loan Association, Inc.
attorney's fees and expenses of litigation in the amount of P200,000.00.
5. Ordering the plaintiff to pay the defendant Spouses Magno Castillo and Lucia Castillo
attorney's fees and expenses of litigation in the amount of P100,000.00.
SO ORDERED.
6
On appeal to the respondent court, the decision was affirmed, prompting Metrobank to file this
1. Respondent Court of Appeals erred in disregarding and failing to apply the clear
contractual terms and conditions on the deposit slips allowing Metrobank to charge back
any amount erroneously credited.
(a) Metrobank's right to charge back is not limited to instances where the
checks or treasury warrants are forged or unauthorized.
(b) Until such time as Metrobank is actually paid, its obligation is that of a mere
collecting agent which cannot be held liable for its failure to collect on the
warrants.
2. Under the lower court's decision, affirmed by respondent Court of Appeals, Metrobank
is made to pay for warrants already dishonored, thereby perpetuating the fraud
committed by Eduardo Gomez.
3. Respondent Court of Appeals erred in not finding that as between Metrobank and
Golden Savings, the latter should bear the loss.
4. Respondent Court of Appeals erred in holding that the treasury warrants involved in
this case are not negotiable instruments.
The petition has no merit.
From the above undisputed facts, it would appear to the Court that Metrobank was indeed
negligent in giving Golden Savings the impression that the treasury warrants had been cleared and
that, consequently, it was safe to allow Gomez to withdraw the proceeds thereof from his account
with it. Without such assurance, Golden Savings would not have allowed the withdrawals; with
such assurance, there was no reason not to allow the withdrawal. Indeed, Golden Savings might
even have incurred liability for its refusal to return the money that to all appearances belonged to
the depositor, who could therefore withdraw it any time and for any reason he saw fit.
It was, in fact, to secure the clearance of the treasury warrants that Golden Savings deposited
them to its account with Metrobank. Golden Savings had no clearing facilities of its own. It relied on
Metrobank to determine the validity of the warrants through its own services. The proceeds of the
warrants were withheld from Gomez until Metrobank allowed Golden Savings itself to withdraw
7
them from its own deposit. It was only when Metrobank gave the go-signal that Gomez was finally
allowed by Golden Savings to withdraw them from his own account.
The argument of Metrobank that Golden Savings should have exercised more care in checking the
personal circumstances of Gomez before accepting his deposit does not hold water. It was Gomez
who was entrusting the warrants, not Golden Savings that was extending him a loan; and
moreover, the treasury warrants were subject to clearing, pending which the depositor could not
withdraw its proceeds. There was no question of Gomez's identity or of the genuineness of his
signature as checked by Golden Savings. In fact, the treasury warrants were dishonored allegedly
because of the forgery of the signatures of the drawers, not of Gomez as payee or indorser. Under
the circumstances, it is clear that Golden Savings acted with due care and diligence and cannot be
faulted for the withdrawals it allowed Gomez to make.
By contrast, Metrobank exhibited extraordinary carelessness. The amount involved was not trifling
more than one and a half million pesos (and this was 1979). There was no reason why it should
not have waited until the treasury warrants had been cleared; it would not have lost a single
centavo by waiting. Yet, despite the lack of such clearance and notwithstanding that it had not
received a single centavo from the proceeds of the treasury warrants, as it now repeatedly stresses
it allowed Golden Savings to withdraw not once, not twice, but thrice from
the uncleared treasury warrants in the total amount of P968,000.00
Its reason? It was "exasperated" over the persistent inquiries of Gloria Castillo about the clearance
and it also wanted to "accommodate" a valued client. It "presumed" that the warrants had been
8
cleared simply because of "the lapse of one week." For a bank with its long experience, this
explanation is unbelievably naive.
And now, to gloss over its carelessness, Metrobank would invoke the conditions printed on the
dorsal side of the deposit slips through which the treasury warrants were deposited by Golden
Savings with its Calapan branch. The conditions read as follows:
Kindly note that in receiving items on deposit, the bank obligates itself only as the
depositor's collecting agent, assuming no responsibility beyond care in selecting
correspondents, and until such time as actual payment shall have come into possession
of this bank, the right is reserved to charge back to the depositor's account any amount
previously credited, whether or not such item is returned. This also applies to
checks drawn on local banks and bankers and their branches as well as on this
bank, which are unpaid due to insufficiency of funds, forgery, unauthorized overdraft
or any other reason. (Emphasis supplied.)
According to Metrobank, the said conditions clearly show that it was acting only as a collecting
agent for Golden Savings and give it the right to "charge back to the depositor's account any
amount previously credited, whether or not such item is returned. This also applies to checks ". . .
which are unpaid due to insufficiency of funds, forgery, unauthorized overdraft of any other
reason." It is claimed that the said conditions are in the nature of contractual stipulations and
became binding on Golden Savings when Gloria Castillo, as its Cashier, signed the deposit slips.
Doubt may be expressed about the binding force of the conditions, considering that they have
apparently been imposed by the bank unilaterally, without the consent of the depositor. Indeed, it
could be argued that the depositor, in signing the deposit slip, does so only to identify himself and
not to agree to the conditions set forth in the given permit at the back of the deposit slip. We do not
have to rule on this matter at this time. At any rate, the Court feels that even if the deposit slip were
considered a contract, the petitioner could still not validly disclaim responsibility thereunder in the
light of the circumstances of this case.
In stressing that it was acting only as a collecting agent for Golden Savings, Metrobank seems to
be suggesting that as a mere agent it cannot be liable to the principal. This is not exactly true. On
the contrary, Article 1909 of the Civil Code clearly provides that
Art. 1909. The agent is responsible not only for fraud, but also for negligence, which
shall be judged 'with more or less rigor by the courts, according to whether the agency
was or was not for a compensation.
The negligence of Metrobank has been sufficiently established. To repeat for emphasis, it was the
clearance given by it that assured Golden Savings it was already safe to allow Gomez to withdraw
the proceeds of the treasury warrants he had deposited Metrobank misled Golden Savings. There
may have been no express clearance, as Metrobank insists (although this is refuted by Golden
Savings) but in any case that clearance could be implied from its allowing Golden Savings to
withdraw from its account not only once or even twice but three times. The total withdrawal was in
excess of its original balance before the treasury warrants were deposited, which only added to its
belief that the treasury warrants had indeed been cleared.
Metrobank's argument that it may recover the disputed amount if the warrants are not paid for any
reason is not acceptable. Any reason does not mean no reason at all. Otherwise, there would have
been no need at all for Golden Savings to deposit the treasury warrants with it for clearance. There
would have been no need for it to wait until the warrants had been cleared before paying the
proceeds thereof to Gomez. Such a condition, if interpreted in the way the petitioner suggests, is
not binding for being arbitrary and unconscionable. And it becomes more so in the case at bar
when it is considered that the supposed dishonor of the warrants was not communicated to Golden
Savings before it made its own payment to Gomez.
The belated notification aggravated the petitioner's earlier negligence in giving express or at least
implied clearance to the treasury warrants and allowing payments therefrom to Golden Savings.
But that is not all. On top of this, the supposed reason for the dishonor, to wit, the forgery of the
signatures of the general manager and the auditor of the drawer corporation, has not been
9
established. This was the finding of the lower courts which we see no reason to disturb. And as we
10
said in MWSS v. Court of Appeals:
Forgery cannot be presumed (Siasat, et al. v. IAC, et al., 139 SCRA 238). It must be
established by clear, positive and convincing evidence. This was not done in the present
case.
A no less important consideration is the circumstance that the treasury warrants in question are not
negotiable instruments. Clearly stamped on their face is the word "non-negotiable." Moreover, and
this is of equal significance, it is indicated that they are payable from a particular fund, to wit, Fund
501.
The following sections of the Negotiable Instruments Law, especially the underscored parts, are
pertinent:
Sec. 1. Form of negotiable instruments. An instrument to be negotiable must
conform to the following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
negotiable treasury warrants. The indorsement was made by Gloria Castillo not for the purpose of
guaranteeing the genuineness of the warrants but merely to deposit them with Metrobank for
clearing. It was in fact Metrobank that made the guarantee when it stamped on the back of the
warrants: "All prior indorsement and/or lack of endorsements guaranteed, Metropolitan Bank &
Trust Co., Calapan Branch."
12
The petitioner lays heavy stress on Jai Alai Corporation v. Bank of the Philippine Islands, but we
feel this case is inapplicable to the present controversy.1wphi1 That case involved checks
whereas this case involves treasury warrants. Golden Savings never represented that the warrants
were negotiable but signed them only for the purpose of depositing them for clearance. Also, the
fact of forgery was proved in that case but not in the case before us. Finally, the Court found the
Jai Alai Corporation negligent in accepting the checks without question from one Antonio Ramirez
notwithstanding that the payee was the Inter-Island Gas Services, Inc. and it did not appear that he
was authorized to indorse it. No similar negligence can be imputed to Golden Savings.

(c) Must be payable on demand, or at a fixed or determinable future time;

We find the challenged decision to be basically correct. However, we will have to amend it insofar
as it directs the petitioner to credit Golden Savings with the full amount of the treasury checks
(d) Must be payable to order or to bearer; and deposited to its account.

(e) Where the instrument is addressed to a drawee, he must be named or otherwise The total value of the 32 treasury warrants dishonored was P1,754,089.00, from which Gomez was
indicated therein with reasonable certainty. allowed to withdraw P1,167,500.00 before Golden Savings was notified of the dishonor. The
amount he has withdrawn must be charged not to Golden Savings but to Metrobank, which must
bear the consequences of its own negligence. But the balance of P586,589.00 should be debited to
xxx xxx xxx Golden Savings, as obviously Gomez can no longer be permitted to withdraw this amount from his
deposit because of the dishonor of the warrants. Gomez has in fact disappeared. To also credit the
Sec. 3. When promise is unconditional. An unqualified order or promise to pay is balance to Golden Savings would unduly enrich it at the expense of Metrobank, let alone the fact
unconditional within the meaning of this Act though coupled with that it has already been informed of the dishonor of the treasury warrants.

(a) An indication of a particular fund out of which reimbursement is to be made or a WHEREFORE, the challenged decision is AFFIRMED, with the modification that Paragraph 3 of
particular account to be debited with the amount; or the dispositive portion of the judgment of the lower court shall be reworded as follows:

(b) A statement of the transaction which gives rise to the instrument judgment. 3. Debiting Savings Account No. 2498 in the sum of P586,589.00 only and thereafter
allowing defendant Golden Savings & Loan Association, Inc. to withdraw the amount
outstanding thereon, if any, after the debit.
But an order or promise to pay out of a particular fund is not unconditional.

SO ORDERED.
The indication of Fund 501 as the source of the payment to be made on the treasury warrants
makes the order or promise to pay "not unconditional" and the warrants themselves non-
negotiable. There should be no question that the exception on Section 3 of the Negotiable
Instruments Law is applicable in the case at bar. This conclusion conforms to Abubakar vs. Auditor
11
General where the Court held:

The petitioner argues that he is a holder in good faith and for value of a negotiable
instrument and is entitled to the rights and privileges of a holder in due course, free from
defenses. But this treasury warrant is not within the scope of the negotiable instrument
law. For one thing, the document bearing on its face the words "payable from the
appropriation for food administration, is actually an Order for payment out of "a particular
fund," and is not unconditional and does not fulfill one of the essential requirements of a
negotiable instrument (Sec. 3 last sentence and section [1(b)] of the Negotiable
Instruments Law).

Metrobank cannot contend that by indorsing the warrants in general, Golden Savings assumed that
they were "genuine and in all respects what they purport to be," in accordance with Section 66 of
the Negotiable Instruments Law. The simple reason is that this law is not applicable to the non-
C. THE AGENT
66 - G.R. No. L-109937 March 21, 1994
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,
vs.
COURT OF APPEALS and the ESTATE OF THE LATE JUAN B. DANS, represented by
CANDIDA G. DANS, and the DBP MORTGAGE REDEMPTION INSURANCE
POOL, respondents.
QUIASON, J.:
This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court to reverse
and set aside the decision of the Court of Appeals in CA-G.R CV No. 26434 and its resolution
denying reconsideration thereof.
We affirm the decision of the Court of Appeals with modification.
I
In May 1987, Juan B. Dans, together with his wife Candida, his son and daughter-in-law, applied
for a loan of P500,000.00 with the Development Bank of the Philippines (DBP), Basilan Branch. As
the principal mortgagor, Dans, then 76 years of age, was advised by DBP to obtain a mortgage
redemption insurance (MRI) with the DBP Mortgage Redemption Insurance Pool (DBP MRI Pool).
A loan, in the reduced amount of P300,000.00, was approved by DBP on August 4, 1987 and
released on August 11, 1987. From the proceeds of the loan, DBP deducted the amount of
P1,476.00 as payment for the MRI premium. On August 15, 1987, Dans accomplished and
submitted the "MRI Application for Insurance" and the "Health Statement for DBP MRI Pool."
On August 20, 1987, the MRI premium of Dans, less the DBP service fee of 10 percent, was
credited by DBP to the savings account of the DBP MRI Pool. Accordingly, the DBP MRI Pool was
advised of the credit.
On September 3, 1987, Dans died of cardiac arrest. The DBP, upon notice, relayed this information
to the DBP MRI Pool. On September 23, 1987, the DBP MRI Pool notified DBP that Dans was not
eligible for MRI coverage, being over the acceptance age limit of 60 years at the time of
application.
On October 21, 1987, DBP apprised Candida Dans of the disapproval of her late husband's MRI
application. The DBP offered to refund the premium of P1,476.00 which the deceased had paid,
but Candida Dans refused to accept the same, demanding payment of the face value of the MRI or
an amount equivalent to the loan. She, likewise, refused to accept an ex gratia settlement of
P30,000.00, which the DBP later offered.
On February 10, 1989, respondent Estate, through Candida Dans as administratrix, filed a
complaint with the Regional Trial Court, Branch I, Basilan, against DBP and the insurance pool for
"Collection of Sum of Money with Damages." Respondent Estate alleged that Dans became
insured by the DBP MRI Pool when DBP, with full knowledge of Dans' age at the time of
application, required him to apply for MRI, and later collected the insurance premium thereon.
Respondent Estate therefore prayed: (1) that the sum of P139,500.00, which it paid under protest
for the loan, be reimbursed; (2) that the mortgage debt of the deceased be declared fully paid; and
(3) that damages be awarded.
The DBP and the DBP MRI Pool separately filed their answers, with the former asserting a cross-
claim against the latter.
At the pre-trial, DBP and the DBP MRI Pool admitted all the documents and exhibits submitted by
respondent Estate. As a result of these admissions, the trial court narrowed down the issues and,
without opposition from the parties, found the case ripe for summary judgment. Consequently, the
trial court ordered the parties to submit their respective position papers and documentary evidence,
which may serve as basis for the judgment.
On March 10, 1990, the trial court rendered a decision in favor of respondent Estate and against
DBP. The DBP MRI Pool, however, was absolved from liability, after the trial court found no privity
of contract between it and the deceased. The trial court declared DBP in estoppel for having led
Dans into applying for MRI and actually collecting the premium and the service fee, despite
knowledge of his age ineligibility. The dispositive portion of the decision read as follows:
WHEREFORE, in view of the foregoing consideration and in the furtherance of justice and
equity, the Court finds judgment for the plaintiff and against Defendant DBP, ordering the latter:
1. To return and reimburse plaintiff the amount of P139,500.00 plus legal rate of interest as
amortization payment paid under protest;
2. To consider the mortgage loan of P300,000.00 including all interest accumulated or otherwise
to have been settled, satisfied or set-off by virtue of the insurance coverage of the late Juan B.
Dans;
3. To pay plaintiff the amount of P10,000.00 as attorney's fees;
4. To pay plaintiff in the amount of P10,000.00 as costs of litigation and other expenses, and
other relief just and equitable.
The Counterclaims of Defendants DBP and DBP MRI POOL are hereby dismissed. The Cross-
claim of Defendant DBP is likewise dismissed (Rollo, p. 79)
The DBP appealed to the Court of Appeals. In a decision dated September 7, 1992, the appellate
court affirmed in toto the decision of the trial court. The DBP's motion for reconsideration was
denied in a resolution dated April 20, 1993.
Hence, this recourse.
II
When Dans applied for MRI, he filled up and personally signed a "Health Statement for DBP MRI
Pool" (Exh. "5-Bank") with the following declaration:
I hereby declare and agree that all the statements and answers contained herein are true,
complete and correct to the best of my knowledge and belief and form part of my application for
insurance. It is understood and agreed that no insurance coverage shall be effected unless and
until this application is approved and the full premium is paid during my continued good health
(Records, p. 40).
Under the aforementioned provisions, the MRI coverage shall take effect: (1) when the application
shall be approved by the insurance pool; and (2) when the full premium is paid during the
continued good health of the applicant. These two conditions, being joined conjunctively, must
concur.
Undisputably, the power to approve MRI applications is lodged with the DBP MRI Pool. The pool,
however, did not approve the application of Dans. There is also no showing that it accepted the
sum of P1,476.00, which DBP credited to its account with full knowledge that it was payment for
Dan's premium. There was, as a result, no perfected contract of insurance; hence, the DBP MRI
Pool cannot be held liable on a contract that does not exist.
The liability of DBP is another matter.
It was DBP, as a matter of policy and practice, that required Dans, the borrower, to secure MRI
coverage. Instead of allowing Dans to look for his own insurance carrier or some other form of
insurance policy, DBP compelled him to apply with the DBP MRI Pool for MRI coverage. When
Dan's loan was released on August 11, 1987, DBP already deducted from the proceeds thereof the
MRI premium. Four days latter, DBP made Dans fill up and sign his application for MRI, as well as
his health statement. The DBP later submitted both the application form and health statement to
the DBP MRI Pool at the DBP Main Building, Makati Metro Manila. As service fee, DBP deducted
10 percent of the premium collected by it from Dans.
In dealing with Dans, DBP was wearing two legal hats: the first as a lender, and the second as an
insurance agent.
As an insurance agent, DBP made Dans go through the motion of applying for said insurance,
thereby leading him and his family to believe that they had already fulfilled all the requirements for
the MRI and that the issuance of their policy was forthcoming. Apparently, DBP had full knowledge
that Dan's application was never going to be approved. The maximum age for MRI acceptance is
60 years as clearly and specifically provided in Article 1 of the Group Mortgage Redemption
Insurance Policy signed in 1984 by all the insurance companies concerned (Exh. "1-Pool").
Under Article 1987 of the Civil Code of the Philippines, "the agent who acts as such is not
personally liable to the party with whom he contracts, unless he expressly binds himself or exceeds
the limits of his authority without giving such party sufficient notice of his powers."
The DBP is not authorized to accept applications for MRI when its clients are more than 60 years
of age (Exh. "1-Pool"). Knowing all the while that Dans was ineligible for MRI coverage because of
his advanced age, DBP exceeded the scope of its authority when it accepted Dan's application for
MRI by collecting the insurance premium, and deducting its agent's commission and service fee.
The liability of an agent who exceeds the scope of his authority depends upon whether the third
person is aware of the limits of the agent's powers. There is no showing that Dans knew of the
limitation on DBP's authority to solicit applications for MRI.
If the third person dealing with an agent is unaware of the limits of the authority conferred by the
principal on the agent and he (third person) has been deceived by the non-disclosure thereof by
the agent, then the latter is liable for damages to him (V Tolentino, Commentaries and
Jurisprudence on the Civil Code of the Philippines, p. 422 [1992], citing Sentencia [Cuba] of
September 25, 1907). The rule that the agent is liable when he acts without authority is founded
upon the supposition that there has been some wrong or omission on his part either in
misrepresenting, or in affirming, or concealing the authority under which he assumes to act
(Francisco, V., Agency 307 [1952], citing Hall v. Lauderdale, 46 N.Y. 70, 75). Inasmuch as the non-
disclosure of the limits of the agency carries with it the implication that a deception was perpetrated
on the unsuspecting client, the provisions of Articles 19, 20 and 21 of the Civil Code of the
Philippines come into play.
Article 19 provides:
Every person must, in the exercise of his rights and in the performance of his duties, act with
justice give everyone his due and observe honesty and good faith.
Article 20 provides:
Every person who, contrary to law, willfully or negligently causes damage to another, shall
indemnify the latter for the same.
Article 21 provides:
Any person, who willfully causes loss or injury to another in a manner that is contrary to morals,
good customs or public policy shall compensate the latter for the damage.
The DBP's liability, however, cannot be for the entire value of the insurance policy. To assume that
were it not for DBP's concealment of the limits of its authority, Dans would have secured an MRI
from another insurance company, and therefore would have been fully insured by the time he died,
is highly speculative. Considering his advanced age, there is no absolute certainty that Dans could
obtain an insurance coverage from another company. It must also be noted that Dans died almost
immediately, i.e., on the nineteenth day after applying for the MRI, and on the twenty-third day from
the date of release of his loan.
One is entitled to an adequate compensation only for such pecuniary loss suffered by him as he
has duly proved (Civil Code of the Philippines, Art. 2199). Damages, to be recoverable, must not
only be capable of proof, but must be actually proved with a reasonable degree of certainty
(Refractories Corporation v. Intermediate Appellate Court, 176 SCRA 539 [1989]; Choa Tek Hee v.
Philippine Publishing Co., 34 Phil. 447 [1916]). Speculative damages are too remote to be included
in an accurate estimate of damages (Sun Life Assurance v. Rueda Hermanos, 37 Phil. 844 [1918]).
While Dans is not entitled to compensatory damages, he is entitled to moral damages. No proof of
pecuniary loss is required in the assessment of said kind of damages (Civil Code of Philippines,
Art. 2216). The same may be recovered in acts referred to in Article 2219 of the Civil Code.
The assessment of moral damages is left to the discretion of the court according to the
circumstances of each case (Civil Code of the Philippines, Art. 2216). Considering that DBP had
offered to pay P30,000.00 to respondent Estate in ex gratia settlement of its claim and that DBP's
non-disclosure of the limits of its authority amounted to a deception to its client, an award of moral
damages in the amount of P50,000.00 would be reasonable.
The award of attorney's fees is also just and equitable under the circumstances (Civil Code of the
Philippines, Article 2208 [11]).
WHEREFORE, the decision of the Court of Appeals in CA G.R.-CV
No. 26434 is MODIFIED and petitioner DBP is ORDERED: (1) to REIMBURSE respondent Estate
of Juan B. Dans the amount of P1,476.00 with legal interest from the date of the filing of the
complaint until fully paid; and (2) to PAY said Estate the amount of Fifty Thousand Pesos
(P50,000.00) as moral damages and the amount of Ten Thousand Pesos (P10,000.00) as
attorney's fees. With costs against petitioner.
SO ORDERED.
C. THE AGENT
67 - G.R. No. L-8988 March 30, 1916
HARTFORD BEAUMONT, assignee of W. Borck, plaintiff-appellee,
vs.
MAURO PRIETO, BENITO LEGARDA, JR., and BENITO VALDES as administrator of the
estate of Benito Legarda, deceased, and BENITO VALDES, defendants and appellants. (See
U.S. Supreme Court decision in this same case., p. 985, post.)
ARAULLO, J.:
Negotiations having been had, prior to December 4, 1911, between W. Borck and Benito Valdes,
relative to the purchase, at first, of a part of the Nagtajan Hacienda, situated in the district of
Sampaloc of this city of Manila and belonging to Benito Legarda, and later on, of the
entire hacienda, said Benito Valdes, on the date above-mentioned, addressed to said Borck the
following letter (Exhibit E):
MANILA, December 4, 1911.
Mr. W. BORCK,
Real Estate Agent,
Manila, P.I.
SIR: In compliance with your request I herewith give you an option for three months to
buy the property of Mr. Benito Legarda known as the Nagtahan Hacienda, situated in the
district of Sampaloc, Manila, and consisting of about, 1,993,000 sq. meters of land, for
the price of its assessed government valuation.
B. VALDES.
Subsequent to the said date, W. Borck addressed to Benito Valdes several letters relative to the
purchase and sale of the hacienda, and as he did not obtain what he expected or believe he was
entitled to obtain from Valdes, he filed the complaint that originated these proceedings, which was
amended on the 10th of the following month, April, by bringing his action not only against Benito
Valdes but also against Benito Legarda, referred to in the letter above quoted.
In said amended complaint it is alleged that the defendant Benito Legarda was the owners of fee
simple of the Nagtajan Hacienda, and that Benito Valdes was his attorney in fact and had acted as
such on the occasions reffered to in the complaint by virtue of a power of attorney duly executed
under notarial seal and presented in the office of the register of deeds, a copy of which, marked as
Exhibit A, was attached to the complaint; that on or above December 4, 1911, the defendant Benito
Valdez gave to the plaintiff the document written and signed by him, Valdes, quoted at the
beginning of this decision, to wit, the letter afore-mentioned, which document is inserted in the
amendment to the complaint; that on January 19, 1912, while the offer or option mentioned in said
document still stood, the plaintiff in writing accepted the terms of said offer and requested of Valdes
to be allowed to inspect the property, titles and other documents pertaining to the property, and
offered to pay to the defendant, immediately and in cash as soon as a reasonable examination
could be made of said property titles and other documents, the price stipulated in the contract for
said hacienda which is also described in the complaint, as well as its value and the revenue
annually obtainable therefrom; that, in spite of the frequent demands made by the plaintiff, the
defendants ha persistently refused to deliver to him the property titles and other documents relative
to said property and to execute any instrument of conveyance thereof in his favor; that the plaintiff,
on account of said refusal on the part of the defendant Valdes, based on instructions from the
defendant Legarda, had suffered damages in the amount of P760,000, and, by the tardiness,
failure and refusal of the defend to comply with his obligation, the plaintiff had incurred great
expense and suffered great losses, whereby he was prejudiced in the mount of P80,000; that the
plaintiff was and had been, on all occasions, willing to comply with the obligation imposed upon him
to pay to the defendants the full stipulated price. The plaintiff concluded by praying: (1) That the
defendant Valdes be ordered to execute the necessary formal document as proof of the contract or
obligation before referred to, and to incorporate the same in a public instrument, and that the
defendant Legarda be ordered to convey in absolute sale to the plaintiff, either directly or through
the defendant Valdes, by a property deed, the said Nagtajan Hacienda, described in the complaint;
(2) that both defendants and each of them be ordered and required to render an account to the
plaintiff of such rents and profits as they may have collected from the said property from the 19th of
January, 1912, until the date of the execution of the judgment that may be rendered in these
proceedings, together with legal interest on the amounts thereof; (3) that, in case it can shown that
specific performance of the contract is impossible, that the defendant be ordered to pay the plaintiff
damages in the sum of P760,000; and finally, that the plaintiff have recovered the interests and the
costs in these proceedings.
While this complaint was not yet amended, the defendant Valdes filed a demurer, on the grounds
that there was a misjoinder of parties on account of the erroneous inclusion therein of the
defendant Valdes, that the complaint did not set forth fact that constituted a cause of action against
said defendant, and that it was ambiguous, unintelligible and vague. This demurrer was overruled
on April 11, 1912.
The defendant Benito Legarda also interposed a demurrer to the amended complaint on the
grounds that the facts therein set forth did not constitute a right of action against him. This
demurrer was likewise overruled on June 26, 1912.
On the 22nd of the same month of June, the court, ruling on a petition made in voluntary
insolvency proceedings brought on May 10, 1912, by the plaintiff W. Borck, and in view of the
agreement entered into in said proceedings by all of the latter's creditors, ordered that the plaintiff
Borck be substituted in the instant proceedings by Hartford Beaumont, as the trustee appointed
therein and representative of the said plaintiff's creditors, the assignee of his rights, in said
proceedings.
The defendant Benito Valdes, answering the complaint as amended, denied each and all of the
allegations thereof from paragraph 4, except those which the admitted in the special defense, in
which he alleged: (1) That the option given by him to the plaintiff was an option without
consideration and subject to the approval of the defendant Legarda; (2) that, as the defendant
Legarda has not approved said option, it had no value whatever, according to the understanding
and agreement between himself and the plaintiff; (3) that the option offered by him to the plaintiff
had not been accepted by the latter within a reasonable period of time nor during the time it was in
force, in accordance with the conditions agreed upon between the parties; (4) that he sighed the
letter of December 4, in which he tendered to the plaintiff the option which has given rise to this
suit, through deceit employed by the plaintiff with respect to its contents, for the plaintiff had stated
to him that it was written in accordance with what had been agreed upon by both parties, without
which statement he would not have signed it; (5) that the plaintiff, on the prior to January 19, 1912,
was insolvent, and had neither proven his solvency nor offered to pay the price in cash, as he had
agreed to do; and (6) that he, Valdes, was merely a general attorney in fact of the defendant Benito
Legarda and had no interest whatever in the subject-matter of the suit, nor in the litigation, and in
all his acts had carried out the instructions of the said Legarda. He finally prayed that the complaint
be dismissed with costs against the plaintiff.
The defendant Benito Legarda, answering the complaint, denied each and all of the allegations
thereof, from paragraph 3, except such as he expressly admitted and were contained in the special
defense inserted in said answer, in which he alleged: (1) That his codefendant Benito Valdes,
though his attorney-in-fact, had instructions not to give any option on the hacienda in question
without Legarda's previous knowledge and consent; (2) that on and before December 4, 1911, the
plaintiff had knowledge of the scope and limitations of the powers conferred upon the defendant
Valdes; (3) that the latter gave the option, alleged by the plaintiff, without his (Legarda's)
knowledge or consent, thus violating the instructions he had given to the said Valdes; (4) that he
had disapproved and rejected the option in question as soon as he had learned of it; (5) that he
had been informed, and therefore alleged as true, that the option said to have been executed in
behalf of the plaintiff had been obtained by the latter by a false and malicious interruption of the
letter of December 4, 1911, and that the plaintiff, availing himself of such interpretation, induced the
defendant Valdes to sign the said option; (6) that the option said to have been tendered to the
plaintiff had not been legally accepted; and (7) that on the subsequently to January 19, 1912, the
date on which, according to the plaintiff, a tender of payment of the price of the Nagtajan Hacienda,
in accordance with its assessed value, was made to his codefendant Valdes, as well as to the date
of the answer, the plaintiff was insolvent.
After the hearing, in which the respective parties presented their evidence, the Court of First
Instance of this city of Manila, on February 12, 1912, rendered judgment in which he found; (1)
That the instrument Exhibit E that is, the letter of December 4, 1911, quoted at the beginning of this
decision), as supported by Exhibit A (the power of attorney, a copy of which accompanied the
complaint) and as confirmed by Exhibit G (the letter of January 19, 1912, addressed by the plaintiff
Borck to the defendant Valdes, presented in evidence at the trial and of which mention will be
made elsewhere herein), constituted a contract by which the principal defendant undertook to
convey to the plaintiff the property therein described; (2) that the plaintiff made a sufficient tender of
performance, of his part, of the contract, in accordance with section 347 of the Code of Civil
Procedure; (3) that the defendants had failed to execute such conveyance in accordance with said
contract, and that the plaintiff was entitled to the specific performance thereof, and to the net
income, if any, obtained from the land since January 19, 1912, but that he had not shown sufficient
loss which entitle him to additional damage unless it subsequently should appear that a
conveyance could not be made. The court accordingly decreed: (1) That upon the payment by the
plaintiff to the principal defendant, Benito Legarda, or to the clerk of the court, of the sum of
P307,000, the said defendant, or his codefendant and attorney-in-fact, should execute and deliver
to the plaintiff good and sufficient conveyance, free of all incumbrance, of the property described in
Exhibits B and C, attached to the plaintiffs complaint, so far as the same was included within the
terms of Exhibit G; (2) that upon the said defendants' failure to execute such conveyance within a
reasonable time after such payment, the clear of the court should execute one, and the same
together with the decree, should constitute a true conveyance; (3) that if for any sufficient reason
such conveyance could not then be made, the plaintiff should have and recover from the defendant
Legarda, as alternative damages, the sum of P73,000, with interest thereon at 6 per cent per
annum from March 13, 1912; and (4) that the defendants should render an accounting, within thirty
days, of the income and profits derived from said property since January 19, 1912, and pay the
costs of the proceedings.
The parties having being notified of this judgment, the defendant Benito Legarda and Benito
Valdes excepted thereto and at the same time prayed that it be se aside and that they be granted a
new trial on the grounds that the judgment was not sufficiently supported by the evidence and was
contrary to law, and that the findings of fact therein contained were manifestly and openly contrary
to the weight of the evidence. Their prayer having been denied by a ruling to which they also
excepted, they have brought these proceedings on appeal to the Supreme Court by the proper bill
of exceptions, and have specified in their respective briefs several errors which they allege the
lower court committed. Some of these errors consist in that the trial judge overruled the demurrer
filed to the complaint; others, in that he admitted certain evidence and excluded others, this being
the alleged cause of the erroneous consideration of the instrument Exhibit E and of the rights and
obligations derived from it, both with respect to the plaintiff and the two defendants' and still others
refer to the various statements in the judgment resulting from those findings and on which the
conclusions arrived at, have been founded.
The defendant Benito Legarda also alleged, among the said errors, as especially affecting his
rights, that the court held that Benito Valdes was his agent, empowered to execute contracts in his
(Legarda's) name in respect to real property; that the court admitted in evidence the document
Exhibit A, introduced by the plaintiff, to wit, the copy of the power of attorney attached to the
complaint, which never was offered as such; and that he based one of his findings thereon.
The defendant Benito Valdes specified, also particularly with reference to himself, other errors
consisting in the court having held that he voluntarily executed the option in question, instead of
holding that it was obtained through fraud; and likewise in holding that the document Exhibit E was
a contract of option and not an offer to sell, and in not holding that said option was an offer subject
to the approval of the defendant Legarda.
Inasmuch as it does not appear from the bill of exceptions that the defendants recorded the
exceptions to the overruling of the demurrer respectively filed to the complaint by both defendants,
the assignment of error relative to the said ruling cannot be taken into consideration by this
Supreme Court.
The plaintiff's action is based on the failure of the defendant Valdes, as the agent or attorney in fact
of the other defendant Benito Legarda, to perform the obligation contracted by the Benito Valdes to
sell to the plaintiff the property belonging to the said Legarda, mentioned in the letter of December
4, 1911 (Exhibit E), within the period and for the price specified therein; and the object or purpose
of these proceedings is to require fulfillment of the said obligation and to secure the payment of a
proper indemnity for damages to the plaintiff because of its not having been duly and timely
complied with.
Inasmuch as it was set forth in the document Exhibit E that the property known as the Nagtajan
Hacienda, (an option to buy which was given by the defendant Valdes to the plaintiff Borck)
belonged to Benito Legarda; as negotiations had been undertaken prior to the execution of the said
document, between the plaintiff Borck and the defendant Valdes with respect to the maters set
forth in that document, by virtue of which Borck knew that Valdes was Legarda's agent or attorney-
in-fact, although it appears in said instrument that the agent Valdes acted in his own name; and,
further, as the plaintiff in the complaint made the necessary allegations to explain the relations that
existed between the principal Legarda and the agent Valdez with regard to the said document
Exhibit E and the failure alleged by the plaintiff, to fulfill the stipulations therein contained;
therefore, the facts alleged in the complaint did constitute a right of action against either or both
defendants, and the lower court did not err in so holding, for, though the person who contracts with
an agent has no action against the principal, pursuant to article 1717 of the Civil Code, when the
agent acts in his own name, as in such a case the agent would be directly liable to the person with
whom he contracted as if it were a personal matter of the agent's yet this does not occur when the
acts performed by the agent involved the principal's own things, and in the document Exhibit E,
which was inserted in the complaint when the latter was amended, it appears that the defendant
Valdes, who signed the said document, stated that the property, the option to buy which he gave to
the plaintiff, Borck, belonged to Legarda. And as it is unquestionable that, pursuant to the above-
cited provision of law, the action was properly brought against Benito Legarda as Valdes' principal,
it is also unquestionable that Valdes was properly included in the complaint as one of the
defendant, for said article 1717, in providing that in cases like the one here in question the person
who contracted with the agent has an action against the principal, does not say that such person
does not have, and cannot bring an action against the agent also, and the silence of the statute on
this point should not be construed in that sense, when the rights and obligations, the matter
brought into discussion by means of the action prosecuted, cannot be legally and juridically
determined without hearing both the principal and the agent.
Section 114 of the Code of Civil Procedure in force, treating of the parties who should be included
in an action as defendants, includes any person who has or claims an interest in the controversy or
the subject-mater thereof adverse to the plaintiff, or who is a necessary party to a complete
determination or settlement of the questions involved therein; and there can be no doubt whatever,
and the record itself shows, that the agent Benito Valdes was and in a necessary party in these
proceedings for the complete and proper determination of the matter involved.
As one of the allegations of the complaint was that the defendant Benito Valdes was the attorney in
fact of Benito Legarda, the owner of the Nagtajan Hacienda, the option to buy which was granted
by the said defendant Valdes to the plaintiff Borck, in the letter of December 4, 1911, Exhibit E,
there was attached to the complaint a copy of the power of attorney marked Exhibit A, by virtue of
which, as therein also set forth, the defendant Benito Valdes, the attorney-in-fact of Benito
Legarda, in giving to the plaintiff the option to buy the said hacienda, had acted according to the
aforesaid document Exhibit F, which was likewise inserted in the amended complaint as a part
thereof.
Inasmuch as the relation which, according to the plaintiff, existed between Benito Legarda and
Benito Valdes as to the obligation contracted by means of Exhibit E, and the fulfillment thereof was
established by means of the said allegations, supported, as it appeared, by the power of attorney
Exhibit A, and by the letter or document Exhibit E (which were made by the plaintiff a part of the
complaint), the joining of the copy of the power of attorney to the complaint cannot be considered
to have been done merely for the purpose of attesting the personality of either of the defendants,
but to show the legal status of each of them in the obligation referred to, in view of the terms of the
document Exhibit E, the authority under which the defendant Valdes acted in executing this
document, as well as the fact of hi having been granted such authority by the defendant Legarda,
by means of said power of attorney. So that as said two documents, to wit, Exhibit A or the power
of attorney executed by Legarda in favor of Valdes, authorizing him to perform various acts, among
them, that of selling, exchanging, ceding, admitting in payment or by way of compensation or in
any other manner acquiring or conveying all kinds of real property for such prices and on such
conditions he might deem proper, and the document Exhibit E, or the letter setting forth the option
given to the plaintiff Valdes to buy the said Nagtajan Hacienda belonging to Legarda, cannot be
considered separately, in view of the allegations of the complaint and the action brought thereon
against the two defendants; and as said two documents, each of complement of the other,
constituted the basis of the action brought in the complaint, and as their genuineness and due
execution were not denied under oath by either of the two defendants, as they might have done,
pursuant to section 103 of the Code of Civil Procedure, the plaintiff was not obliged to present at
the trial, as proof, the aforementioned power of attorney to prove its existence and the fact of
Valdes being his attorney in fact, vested with the powers specified in this instrument,
notwithstanding the general denial made by the defendant Legarda in his answer of the allegations
contained in the complaint from its third paragraph on, in which paragraph that averment is made,
supported by the copy of the said power of attorney attached to the complaint.
On the contrary, as the said document Exhibit A constitutes prima facie proof of the fact that Benito
Valdes is the attorney-in-fact of Benito Legarda, and that he is vested with the powers specified
therein, on account of Legarda's not having denied under oath the genuiness and due execution of
the said document, it was therefore incumbent upon Legarda himself to prove that he had not
executed the said power of attorney in Valdes' favor and that he had not conferred upon him, by
virtue thereof, the powers therein mentioned. (Merchant vs. International Banking Corporation, 6
Phil., 314; Papa vs. Martinez, 12 Phil., 613; Chinese Chamber of Commerce vs. Pua Te Ching, 14
Phil., 222; Banco Espanol-Filipino vs. McKay & Zoeller, 27 Phil., 183; Knight vs. Whitmore, 125
Cal., 198; McCormick Harvesting Machine Co., vs. Doucette, 61 Minn., 40.)
The lower court, therefore, did not err in holding that Benito Valdes was the agent of Benito
Legarda, vested with powers to execute contracts for the sale of real estate in the latter's name;
nor in considering as proof the power of attorney, the plaintiff's Exhibit A, and making it the basis of
one of the conclusions of the judgment, notwithstand that it was not offered as such proof by the
plaintiff. Consequently, the court likewise did not err in admitting the evidence introduced by the
plaintiff himself to show the existence of the contractual obligation on the part of the defendant
Legarda, as principal of the other defendant, Valdes, and which was contended by the plaintiff to
be one of the grounds of the action brought in this complaint against the two defendants.
It is unquestionable that, by means of the document Exhibit E, to wit, the letter of December 4,
1911, quoted at the beginning of this decision, the defendant Valdes granted to the plaintiff Borck
the right to purchase the Nagtajan Hacienda belonging to Benito Legarda, during the period of
three months and for its assessed valuation, a grant which necessarily implied the offer or
obligation on the part of the defendant Valdes to sell to Borck the said hacienda during the period
and for the price mentioned, and as the grant made by Valdes to Borck in the said letter was made
as a result of the requests of Borck himself, as stated in the letter, and of the negotiations
previously entered into between the latter and Valdes with respect to the purchase of the hacienda,
as shown in the letter of the 2d of the same month of December, that is, the letter which two days
before was addressed by Borck to Valdes, Exhibit C, the terms of the said document Exhibit E
appear to be of the nature of an option contract between Valdes and Borck, inasmuch as, by
means of said document, the former finally accepted the propositions of the latter with respect to
the granting of that right to Borck. There was, therefore a meeting of minds on the part of the one
and the other, with regard to the stipulations made in the said document. But it is not shown that
there was any cause or consideration for that agreement, and this omission is a bar which
precludes our holding that the stipulations contained in Exhibit E is a contract of option, for,
pursuant to article 121 of the Civil Code, there can be no contract without the requisite, among
others, of the cause for the obligation to be established.
In his Law Dictionary, edition of 1897, Bouvier defines an option as a contract, in the following
language:
A contract by virtue of which A, in consideration of the payment of a certain sum to B,
acquires the privilege of buying from, or selling to, B certain securities or properties
within a limited time at a specified price. (Story vs.Salamon, 71 N.Y., 420.)
From vol. 6, page 5001, of the work "Words and Phrases," citing the case of Ide vs. Leiser (24
Pac., 695; 10 Mont., 5; 24 Am. St. Rep., 17) the following quotation has been taken:
An agreement in writing to give a person the `option' to purchase lands within a given
time at a named price is neither a sale nor an agreement to sell. It is simply a contract by
which the owner of property agrees with another person that he shall have the right to
buy his property at a fixed price within a certain time. He does not sell his land; he does
not then agree to sell it; but he does sell something; that is, the right or privilege to buy at
the election or option of the other party. The second party gets in praesenti, not lands,
nor an agreement that he shall have lands, but he does get something of value; that is,
the right to call for the receive lands if he elects. The owner parts with his right to sell his
lands, except to the second party, for a limited period. The second party receives this
right, or, rather, from his point of view, he receives the right to elect to buy.
But the two definitions above cited refer to the contract of option, or, what amounts to the same
thing, to the case where there was cause or consideration for the obligation, the subject of the
agreement made by the parties; while in the case at bar there was no such cause or consideration.
The lower court in the judgment appealed from said:
There is some discussion in the briefs as to whether this instrument constitutes a mere
offer to sell or an actual contract of option. In terms it purports to be the latter and in fact
recites the acceptance of a "request" or offer, by the plaintiff. But viewing the instrument
 as in itself no more than an offer, it was at least a continuing one, "for three months," and
as it is not claimed to have been withdrawn during that period, nor afterward, the plaintiff
could at any time enter into an actual contract, if it were not such already, by mere
acceptance.
So the, the lower court did not insist that, by the said document Exhibit E, a real contract of option
was executed. He stated that it was at least a continuing offer for three months an offer which it
was neither alleged nor proven to have been withdrawn during that period and held that but the
plaintiff's mere acceptance at any time during the course of said period, the terms of the said
document became a contract, if such it were not already.
There is therefor no foundation for the third assignment of error made by the defendant Valdes, to
wit, that the lower court erred in holding that the document Exhibit E was a contract of option and
not an offer to sell.
A certainly this document Exhibit E contains an offer or promise on the part of the defendant
Valdes, who signed it, to sell the hacienda in question to the plaintiff Borck, at its assessed
valuation, to whom was granted three months within which to make use of his right to purchase the
property. In order that such an offer, or proposal, or promise on the part of Valdes, to sell the
said hacienda might be converted into a binding contract for him and for Borck, it was necessary
that the latter should have accepted the offer, by making use of the right thereby granted him,
within the period stipulated, and paying the price agreed upon in that document.
Referring particularly to the sale of real estate, there is in fact practically no difference between a
contract of option to purchase land and an offer or promise to sell it. In both cases the purchaser
has the right to decide whether he will buy the land, and that right becomes a contract when it is
exercised, or, what amounts to the same thing, when use is made of the option, or when the offer
or promise to sell the property is accepted in conformity with the terms and conditions specified in
such option, offer, or promise.
An option for the purchase of a real estate is merely a right of election to purchase which
when exercised, by comes a contract. (Hopwood vs. McCausland, 120 Iowa, 218.)
So that in the case at bar it is immaterial whether the contents of the document be considered as
an option granted by the defendant Valdes to the plaintiff to purchase the Nagtajan Hacienda, or as
an offer or promise on the part of the former to sell the estate to the latter within the period and for
the price specified in Exhibit E.
In the defendants' answer no concrete allegation was made that either of them had withdrawn said
offer to sell, but the defendant Valdes introduced evidence to prove that the withdrawal of the offer
was made before the plaintiff had accepted it, that is, before January 17, 1912, and for this purpose
presented a letter from the defendant Legarda (p. 103, part 1 of the record), dated November 13,
1911, and addressed from Paris to Mauro Prieto, also one of Legarda's attorneys in fact. In this
letter Legarda stated to Prieto, among other things, that, with reference to the steps taken by Borck
for the purchase of the Nagtajan Hacienda, the addressee might say to Borck that the writer was
not very anxious to sell the property except for a price greater than P400,000 in cash. The
defendant Valdes testified that the contents of this letter were communicated by him to Borck,
though he did not state positively on what date. Valdes also presented the witnesses Alejandro
Roces and Jose E. Alemany. The first testified that sometime during the second half of January, on
an occasion when he was in Dr. Valdes' office, he heard the latter and Borck speaking, and that
Borck said something to Dr. Valdes about P300,000, and that it would be difficult to find a
purchaser for cash; and that he also heard them talk about P400,000. The second witness, Dr.
Jose E. Alemany, also testified that about the 12th or 15th of January, at a time when he was in Dr.
Valdes' office, he heard a conversation between Valdes and Borck in which the former said to the
latter that what Borck wanted was impossible, and that the latter replied to Valdes that it was very
dear, that he did not want it, that he did not have the money. On this occasion, this witness also
heard them talking about P400,000.
As the record does not show positively that the defendant Valdes, on the occasion above referred
to, told the plaintiff Borck that he (Valdes) withdrew the offer of sale contained in the document
Exhibit E, for here merely communicated to Borck the contents of the said letter from Legarda to
Prieto, as the date when he did this does not appear; and as the statements made by the
witnesses with regard to the conversation they heard between Valdes and Borck are vague and as
it cannot be deduced therefrom that such statements referred expressly to the fact that Valdes
withdrew the offer on that occasion, it must be concluded that there is no proof on this point. But,
though it had been proven that the withdrawal of the offer was made in the month of December,
1911, or before January 17, 1912, as stated by Valdes' counsel in his brief, such a fact could not
be a bar to, or annul the acceptance by the plaintiff Borck, of said offer on any date prior to the
expiration of the three months fixed in the document Exhibit E, to wit, March 4, 1912, because the
offer or promise to sell therein contained was not made without period or limitation whatever (in
which case Valdes might have withdrawn it and the latter have accepted it at nay time until it was
withdrawn) but for three months, that is, for a specific period of time; and, as the plaintiff Borck had
a right to accept the offer during that period, it was Valdes' corresponding duty not to withdraw the
offer during the same period. Therefore the withdrawal of the offer claimed to have been made by
this defendant was null and void.
Consequently, the lower court did not err in holding that the offer and not been withdrawn during
the three months mentioned and that it could be converted into a real contract by the plaintiff
Borck's mere acceptance within the same period.
One of the allegations made by the plaintiff in the complaint, as we have seen, is that on January
19, 1912, while the said offer was still open, the plaintiff accepted it in writing, in conformity with its
terms, and requested permission of the defendant Valdes to inspect the property titles and other
documents pertaining to the estate, and offered to pay the defendant Valdes as soon as a
reasonable examination could be made of the said property titles and other documents,
immediately and in cash the price stipulated and agreed upon in the contract for the said stipulated
and agreed upon in the contract for the said hacienda. To prove this allegation, the plaintiff
presented the document Exhibit G, which reads as follows:
MANILA, January 19, 1912.
DR. BENITO VALDES,
195 San Sebastian,
City.
SIR: I hereby advise you that I am ready to purchase the Hacienda Nagtahan, situated in
the district of Sampaloc and Nagtahan, Manila, and in the Province of Rizal, consisting of
about 1,993,000, square meters of land, property of Mr. Benito Legarda, for the sum of
three hundred and seven thousand (307,000) pesos Ph. c. the price quoted in the option
given my by you.
Full payment will be made on or before the third day of March 1912, provided all
documents in connection with the Hacienda Nagtahan, as Torrens title deed, contracts of
leases and other matters be immediately placed at my disposal for inspection and if such
papers have been found in good order.
Very truly yours,

W. BORCK.
In the preceding letter that plaintiff in fact did state that he accepted the offer made to him or the
option given to him by the defendant Valdes in the document or letter of December 4, 1911, Exhibit
E, for, even though it was not stated therein what option it was that was mentioned in the said letter
it is unquestionable that it could refer to no other than to the option or offer mentioned in the said
Exhibit E, as no other was then pending between the plaintiff and this defendant.
But aside from the fact that the complete payment of the P307,000 mentioned in the said letter was
made to depend on the condition that all the documents relative to the Nagtahan Hacienda, such
as the Torrens title, etc., be immediately placed at the plaintiff's disposal for his inspection, and be
found satisfactory, the said tender of payment was offered to be made on or before March 3, 1912.
A simple statement of the last part of the letter is enough to convince that the plaintiff did not offer
to pay, immediately and in cash to the defendant Valdes as he alleged in his complaint, the price
stipulated and agreed upon between themselves in the said document Exhibit E. Of court, it is
undeniable that the plaintiff Borck had a right to examine the title deed and all the documents
relative to the Nagtajan Hacienda, before the sale of the property should be consummated by
means of the execution of the proper deed of conveyance in his favor by the defendant Valdes as
the attorney-in-fact of the other defendant Legarda, and, consequently, the plaintiff Borck was also
entitled to refrain from making payment as long as he should not find the documents relative to the
said property complete and satisfactory, an indispensable condition in order that the said deed of
conveyance might be executed in his favor. But at the very moment this instrument was executed
and signed by the vendor, the payment of the stipulated price should have been made in order that
it might be an immediate cash payment. Pursuant to the language of that part of the document or
letter Exhibit G to which we now refer in respect to the payment, it cannot be understood that the
plaintiff tendered payment to the defendant immediately and in cash, for the simple reason that if
the documents had been placed by the defendant at the plaintiff's disposal for his inspection, for
example, on January 20th, the day following the date of the letter Exhibit G, and the plaintiff had
examined and found them satisfactory, and the defendant Valdes had executed in the plaintiff's
favor the proper deed of conveyance or sale of the hacienda on the 25th of the same month of
January, according to the exact terms of the letter of acceptance of the offer, Exhibit G, dated
January 19, 1912, the plaintiff, that is, the purchaser Borck, could have made full payment to the
defendant Valdes, of the P307,000, the price of the property, on the 3d of March, 1912, or on any
date on which the deed of conveyance was issued, from the 25th of January up to the said 3d day
of March, for nothing else can be understood by, and no other meaning and scope can attach to,
the words "full payment will be made on or before the third day of March 1912." In short, by the
way the part of said document Exhibit G relative to the offer of payment in the example above
given is drawn, the purchaser Borck might pay the stipulated price of the property, or have the
period from the 25th of January to the 3d of March within which to pay it, and meanwhile the
ownership of the estate would already have been conveyed, by means of the proper deed, to the
purchaser Borck, and he could not have been obliged to pay the said price until the very day of
March 3, 1912, by reason of the contents of the said letter, Exhibit G.
In connection with the allegation we have just been discussing, to wit, that the plaintiff Borck made
a tender of payment to the defendant Valdes "immediately and in cash" of the price of
the hacienda fixed in the instrument Exhibit G, the plaintiff also presented as proof, in relation to
the allegation as to the presentation of the letter of January 19, 1912, Exhibit G, another letter
written by himself, and also addressed to the defendant Valdes, under date of the 23rd of the same
month of January This document is marked Exhibit J and is of the following tenor:
January 23, 1912.
DR. BENITO VALDES,
195 Calle San Sebastian,
City.
SIR. I have the pleasure to inform you that I can improve the conditions of payment for
the Hacienda Nagtahan in so far as to agree to pay the whole amount of purchase price,
three hundred and seven thousand (307,000) pesos, Ph., c., ten days after the Torrens
title deeds and all papers in connection with the hacienda have been placed at my
disposal for inspection and these documents and papers have been found in good order.
Respectfully yours,
As may be seen by the language in which the preceding letter is couched, the plaintiff virtually
recognized, just as he had done in the letter of January 19th, that is, the one written four days
before, Exhibit G, that the tender of payment to the defendant Valdes, of the price of the hacienda,
could not be understood to have been a tender of "immediate and cash" payment, as alleged in the
complaint, but that payment might be made on any date prior to March 3, or on this same date,
even though he may have found satisfactory all the documents that the defendant might have
placed at his disposal to be examined, and consequently, although the proper deed of conveyance
of the property should have been executed in his favor. Nothing else is meant by the statement
made by the plaintiff Borck to the defendant Valdes in the letter of January 23, Exhibit J, that he
had the pleasure to inform him that he could improve the conditions of payment for the Hacienda
Nagtajan in so far as to agree to pay the whole amount of purchase price, P307,000, ten days after
the Torrens title deeds and all papers in connection with the hacienda should have been placed at
his disposal for inspection and should have been found satisfactory, for the payment which Borck
offered to make to Valdes, of the price of the property, in said letter Exhibit J, was not indeed to be
effected on the third of March or prior thereto, but within the limited period of ten days after the
documents-relative to the property should have been delivered to the plaintiff for his inspection and
been found satisfactory. And were they any doubt that the meaning or the sense; of said offer was
not as just above stated, it would be removed by a mere perusal of the statement made therein by
the plaintiff telling the defendant Valdes that he, the former, had the pleasure to inform he latter
that he, Borck, could improve the conditions of payment for the hacienda, to wit, those mentioned
in the letter written' four days before, that is, on January 19th, Exhibit G, in the manner
aforementioned by paying the whole amount of the purchase price ten days after the documents
should have been delivered to the plaintiff and he should have found them satisfactory.
But, the letter of January 23, Exhibit J, is drawn up_in such a way that it also does not contain any
tender of "immediate and cash" payment by the plaintiff Borck to the defendant Valdes.
Indeed, as said letter makes the total payment of the price of the property depend on the delivery
by the defendant Valdes to the plaintiff Borck of all the documents relative to the hacienda, and of
the further condition that, the latter should find such documents in good order and satisfactory, and
as a period of ten days was fixed for the said payment, counting from the date of the delivery of the
documents, and on the condition that Borck should find them satisfactory, the date of payment
cannot be-understood to have been fixed for any certain day after those ten days, or for the
eleventh day, for the simple reason that, for example, if the documents were delivered to Borck on
February 1 for his inspection, and after the lapse of ten days thereafter he had not finished
examining them and had kept them in his possession for this purpose for ten days longer, that is,
until February 20, and then had found them satisfactory, the result would be that the payment
would have had to be made, not ten days, but twenty days, after the delivery of the said
documents, and this would have been authorized by the ambiguous terms in which the tender of
payment are couched.
But supposing that as appears to be the case, it had been the purpose of the plaintiff Borck, in
fixing those ten days in the letter Exhibit J, for the payment, that there should be an interval of said
ten days between the delivery and inspection of the said titles and the determination of whether
they were satisfactory or not, it might also have happened that on the third day after the delivery of
the titles, these might have been found by the purchaser to be satisfactory, and that the vendor
might immediately have executed the proper deed of conveyance of the property in the purchaser's
favor. In that event, according to the terms of said letter Exhibit J, the purchaser Borck would not
be obliged to make payment to the vendor Valdes until seven days after the execution of the deed
of conveyance and the transfer of the property to the former that is, not until the expiration of the
period of ten days counting from the date of the delivery of the documents tothe purchaser; and it
is evident that such a payment would not be in cash, pursuant to the provisions of article 1462, in
connection with article 1500, of the Civil Code.
Furthermore: The plaintiff Borck also presented another letter in connection with his
aforementioned allegation made in the complaint, and related to the other two previous letters,
Exhibit G and J, to prove what he had intended to accomplish by means of the latter, to wit, that the
tender of payment made by him to the defendant was made in accordance with the said allegation,
"immediately and in cash."
This letter (Exhibit K) bears the date of February 28,t1912, and reads as follows:
MANILA, P.I., February 28, 1912.
DR. BENITO VALDES,
Attorney-in-fact for Benito Legarda
Manila.
DEAR SIR: To prevent any misunderstanding, I wish to advise you that the purchase
price of the Hacienda Nagtahan is ready to be paid over to you, and I request you to
notify me whenever it is convenient for you to place at my disposal for inspection the title
deed and papers in connection with said estate.
Very respectfully,
W. BORCK.
As may also be seen by the very terms employed by the-plaintiff in this letter, he virtually admits,
clearly acknowledges, that in the two previous letters, Exhibits G and J, he had made the tender of
payment of the price for the Nagtajan Hacienda in such a manner that it could not be understood to
have been in accordance with the agreement entered into between himself and Valdes, that is, that
the payment should be in cash.
The letter Exhibit K in fact begins with these words:
"To prevent any misunderstanding." and then says: I wish to advise you that the
purchase price for the Hacienda Nagtahan is ready to be paid over to you, and request
you to notify me whenever it is convenient for you to place at my disposal for inspection
the title deed and papers in connection with said estate.
The first words of the letter of course indicate that the plaintiff Borck himself, in writing them,
feared, at least the was not sure, that, in accepting, in the letter of January 19th, Exhibit G, the offer
of the sale of the hacienda to him by Valdes, and in making therein the tender of payment band in
renewing this tender in the letter, Exhibit J, of the 23 of the same month, he, the plaintiff, had not
conformed to the terms of the offer of sale or of the option to buy, given to him by Valdes by means
of the document Exhibit E, for in the said last letter, Exhibit K, he takes it for granted that there was
or might be some misunderstanding between himself and the defendant Valdes with)respect to the
tender made by him of the price of the estate. According to the admission of the plaintiff Borck in
his complaint, this price was to be paid "at one and in cash." In the said letter Exhibit K, to avoid
that misunderstanding, the plaintiff Borck stated to the defendant Valdes that the purchase price for
the hacienda was ready to be paid over to hi, and requested to be notified by Valdes when it would
be convenient for him to place at the plaintiff's disposal for inspection the title deed and papers in
connection with said estate.
The notification contained in this letter written by Borck to Valdes, that the purchase price of the
estate was ready to be paid over to the latter, and the mention made in this same letter,
immediately after the notification, of the inspection which the plaintiff wished to make of the titles
which he desired should be delivered to him for this purpose, show that this last letter, Exhibit K,
relates to the one that preceded it, dated January 23, Exhibit J, or, what amounts to the same
thing, is a result of it, for it is virtually said therein that the price of P307,000 (which according to his
previous letter, he had agreed to pay for the hacienda, ten days after the delivery to him of the
documents relative to the estate and their having been found by him to be satisfactory) was already
held in readiness by the plaintiff for delivery to the defendant, but this delivery of the price was
subordinated to the delivery requested by the plaintiff to those titles and other documents,and to
the plaintiff's finding such documents satisfactory, and the delivery of the price was also
subordinate to the period of the ten days, mentioned in the said letter Exhibit J. The letter Exhibit K
can have no meaningwhatever in that part thereof where reference is made tothe offer of
payment of the price of the hacienda, or to the payment itself, except in connection with the
previous Exhibit J, inasmuch as the letter Exhibit K does not state when Borck was to deliver to
Valdes the price which, according to this same letter, the plaintiff already had in readiness for that
purpose. So that neither in the letter Exhibit K is any specific offer of payment made by the plaintiff
Borck to the defendant Valdes, of the price stipulated in the document Exhibit E to be paid "at open
and in cash," notwithstanding its being said therein that the plaintiff had the money ready to be
turned over to the defendant.
Upon the plaintiff Borck's testifying at the trial as witness, said documents Exhibits E, G., J, and K,
and also others marked from A to M, including the four just referred to, were presented in evidence.
Among these documents is found Exhibit F, which reads as follows:
MANILA, January 17, 1912.
DR. BENITO VALDES,
194 San Sebastian,
City.
SIR: In reference to our negotiations regarding the Hacienda Nagtahan at Manila,
property of Mr. Benito Legarda, consisting of about 1,993,000 sq. meters of land, I offer
to purchase said property for the sum of three hundred and seven thousand (307,000)
pesos P. c., cash, net to you, payable the first day of May 1912 or before and with
delivery of a Torrens title free of all encumbrances as taxes and other debts.
Respectfully,

YOURS,
On said documents being presented in evidence at the trial, the defendants objected to their
admission; the court reserved his decision thereon and in the judgment appealed from made no
mention as to the contents of said documentExhibit F, and in ruling on the defendants' motion for a
new trial, in which motion they signed as one of the error of the said judgment the fact that no
notice whatever had been taken therein of the said Exhibit F, which defendants claimed to be one
of the their most important proofs, the court stated as a reason for the omission that this Exhibit F
was unsigned, unidentified and was not attested by anyone, besides the fact that no conclusion,
either in favorof or against the plaintiff, could be based on its because, although the said letter, that
is, Exhibit F, might have been actually delivered, no right whatever could be predicated thereon,
nor any liability, and it was, therefore, inadmissible.
The record shows that when Exhibit F and Exhibits G, J, K, L, and M, were shown to the defendant
Valdes by the plaintiff's counsel Beaumont, for their identification and in order that Valdes might
state to the court whether he had received the originals and, if so, where they were, defendant
merely said in reply that he had received three originals from Borck and two originals from
Beaumont (p. 14 of the transcription of the stenographic notes), and exhibited the originals of
Exhibits C, M. L., K, and G, but not that ofExhibit F. The plaintiff Borck having been presented as a
witness, after he had been asked the first four questions by Attorney Hartford Beaumont, the latter
made the following statement: "I would like to interrupt the witness at this moment in order to
present all the Exhibits A to M, which were identified by the previous witness." Counsel for the
defendant Legarda objected to the admission of the said documents on the ground that they were
incompetent, immaterial and irrelevant. The same objection was also made by counsel for the
defendant Valdes in behalf of his client, and the court said that he would reserve his decision (pp.
24 and 25 of the record).
During the examination of plaintiff Borck, in which Attorney Beaumont plied him with questions in
regard to the aforementioned documents, beginning with Exhibit A and showed him the documents
themselves, on coming to Exhibit F, after having given attention to other exhibits among which was
Exhibit O, which we shall mention later on, the plaintiff answered the questions put to him with
respect to Exhibit F in the following manner as found in the transcription of the stenographic notes
in English(p. 61 on the record):
Q. Now I will show you Exhibit F, and call you attention to the fact that it has the
same date, January 17, as Exhibit O, and ask you to state the circumstances under
which Exhibit O was signed
A. This is may acceptance of the option of Dr. Valdes.
Q. How does it happen that it has the same date as Exhibit O?
A. Because I don't believe in hanging back with my business. I conclude it as soon
as possible. As soon as I got the offer, I made my acceptance to Dr. Valdes.
The document Exhibit F, as has been seen, is unsigned but the document Exhibit J, to wit, the
aforementioned letter of January 23, 1912, is in the same condition. It is true that although the
document Exhibit J is unsigned because it is a copy of the letter addressed on that same date to
Valdes by Borck, Valdes kept the original in his possession and he did not present the original of
Exhibit Fibut only the other letters before mentioned, although he stated with reference to the letter
he had received from Borck, that as he was not a business man and was not acquainted with that
kind of business, he sometimes read the letters and, after taking notes of their contents,
transmitted their substance to Mr. Legarda, and at other times sent to him the letters themselves,
from which testimony of Valdes it is concluded that he was not in the habit of keeping the originals
he received from Borck. However, as has already been seen, notwithstanding that Exhibit F was
not identified by Valdes, the plaintiff Borck, However, as has already been seen, notwithstanding
that Exhibit F was not identified by Valdes, the plaintiff Borck, referring to the said document on its
being shown to him by his attorney, who called his attention to the fact that it has the same date,
January 17, as Exhibit O, and asked him to state the circumstances under which Exhibit O was
signed, said that Exhibit F was his acceptance of Dr. Valdes' option; and in answering the next
question, explained the reason why Exhibit F bore the same date as Exhibit O, saying that "he did
not believe in hangingback with his business;" that he "concluded it as soon as possible;" and that
"as soon as he got the offer, he made his acceptance to Dr. Valdes."
Exhibit O is as follows:
MANILA, January 17, 1912.
W. BORCK, Esq.,
Manila.
DEAR SIR: Referring to our recent conversation regarding_the proposed purchase by
clients of ours of the property known as the Hacienda Nagtajan, I beg to advise you that
our clients, after investigation of the physical conditions of the property, are prepared to
make an offer for the purchase of the same at the price named by you, to wit, P380,000,
cash, provided that there is good titled to the property, that it contains substantially and
area represented, namely, 1,993,000 square meters, and that the existing leases upon
certain portions of the said property are found to be in proper form. It is the desire of our
clients to have an opportunity to investigate the legality of_the title and leases at the
earliest practicable moment, and they have authorized us to say that if the conditions are
satisfactory with regard to these matters, they are prepared to make you a firm offer of
the amount above named, and to make a deposit of a reasonable amount as an
evidence of good faith.
Very truly yours,
BRUCE LAWRENCE, ROSS, AND BLOCK,
"JAMES ROSS."
Connecting the contents of this document Exhibit O with those of the previous Exhibit F, and taking
into account the testimony given by Borck, as above quoted, in answering the questions put to him
by his own attorney, relative to the said exhibits, it is clearly understood that on Borck's receiving
the letter of January 17m 1912, from the law firm of Bruce, Lawrence, Ross and Block, and signed
by James Ross, Exhibit O, in which these gentlemen stated that they were prepared to make an
offer for the purchase of the Hacienda Nagtajan at the price of P380,000 cash, he wrote on the
same date, January 17, to Dr. Valdes the letter, a copy of which is Exhibit F, in which, referring to
the negotiations between them regarding the said Nagtajan Hacienda, he offered to purchase this
property for P307,000, cash and net, payable on or before the first day of May, 1912, delivery to be
made to him to a Torrens title free of all encumbrance, such as taxes and other debts. For this
reason the plaintiff Borck stated in his testimony that the said letter Exhibit F was his acceptance of
Dr. Valdes option, for, not believing in hanging back with his business and desiring to conclude it
as soon as possible, as soon as he received the officer, contained in the letter Exhibit O, from the
said law firm, he transmitted or made known his acceptance to Dr. Valdes.
We do not think there could be a better identification of the letter Exhibit F than that made by it
sown writer, the plaintiff Borck, for he admitted in his testimony that he wrote this letter, and
although the defendant Valdes did not present the original of the said letter Exhibit F, perhaps
because it was one of those which he did not keep in his possession, there can be no doubt
whatever that the original of the said Exhibit F was transmitted to Valdes by the plaintiff Borck, of
the latter explicitly said so in stating that letter was his acceptance of Dr. Valdes' option, the plaintiff
explaining why he had written said letter, on referring to the relation between said Exhibit F and the
Exhibit C, on account of the same date both letters bore, on making further explanations in the
matter, hand saying: "As soon as I got the offer, I made my acceptance to Dr. Valdes."
Furthermore, if there were still any doubt whatever about this, it would disappear after a
consideration of the following quotation taken from the plaintiff's written brief file before the lower
court rendered judgment, in which mention is made of the said brief and of the questions discussed
therein said brief is found on pages 190 to 206 of the record and is signed, by the plaintiff's
attorneys, Aitken and Beaumont.
On page 195 thereof, appears the following:
3. THE ACCEPTANCE.
On the 17th of January, 1912, Mr. Borck received a written offer (Exhibit O) for the
property from Mr. James Ross of this city for the price of P380,000 and thereupon on the
same day wrote Dr. Valdes the letter which appears as Exhibit T (pp. 56, 169 of the
record). No question arises as to the validity of this acceptance for reasons which will
presently appear. . . .
As may be seen, in the paragraph of that brief signed by the plaintiff's attorney there is a
restatement of what the plaintiff had said in his testimony, to with, that as soon as he received, on
January 17, 1912, a written offer Exhibit O, from Mr. James Ross of this city for the property in
question and for the price of P380,000, he wrote on the same day the letter of Dr. Valdes that
appears as Exhibit T (pp. 56, 169, of the record). In this same brief the statement was also made
that no question had arisen as to the validity of this acceptance, for the reasons which would
presently appear.
It is to be noted that Exhibit T, mentioned in the preceding paragraph transcribed from the brief, is
the same Exhibit F, which was erroneously marked with the letter T in the said paragraph, as
shown by the fact that in this paragraph Exhibit T is referred to as being found on page 56 of the
record, which page containes Exhibit F, and on page 169 of the record, which contains a copy of
the same Exhibit F,_the date of this latter exhibit, January 17, being also that of the Exhibit O,
mentioned in the said brief.
The trial court therefore erred in not admitting in evidencesaid document Exhibit F and,
consequently, in not taking it into consideration in the judgment appealed from. This rejection
cannot be warranted by the fact that the defendants themselves opposed its admission, for the
latter also opposed the admission of all the documents presented by the plaintiff, on the
understanding that, as they were not bound by the documents Exhibits A and E, the one as
principal and the other as agent, such documents were immaterial, incompetent and irrelevant,
nevertheless the trial court admitted some of those documents and considered them for the
purpose of drawing his conclusions in the judgment rendered.
It is hardly necessary now to show that said letter of January 17, 1912 (Exhibit F) was Borck's
acceptance of the option or offer of sale made to him by the defendant Valdes in his letter of
December 4, 1911 (Exhibit E), for the plaintiff Borck himself admitted in his testimony at the trial
that the letter Exhibit F was his acceptance of said option.
In fact, the plaintiff Borck, referring in the letter, Exhibit F, to the negotiations between himself and
Valdes regarding the Nagtajan Hacienda belonging to Benito Legarda, offers to purchase said
property for the sum of P307,000, cash and net, payable the first day of May 1912, or before, the
plaintiff to be furnished with a Torrens title free of all encumbrances, such as taxes and other
debts. The offer of sale or option of purchase contained in the document Exhibit E, was for the
period of three months, from December 4, 1911, for the assessed valuation of the property,
understood to be P307,000, though subsequently at the trial it was fixed by agreement of the
parties at P306,954 and payment was to be made in cash, for, even though this was not stated in
the document, that failure itself so to state created the understanding that the price was to be paid
in cash when delivery of the property was made, in accordance with the provisions of article 1462,
in connection with article 1500, of the Civil Code. The plaintiff Borck recognized this in his
complaint, in making the allegation we considered at the beginning of this decision, to with, that he
accepted in writing the said offer in conformity with its terms and offered to pay to the said Valdes,
"immediately and in cash" the price stipulated; and he also so testified atthe trial, saying, in
reference to the conditions of the payment of the purchase price, that "the conditions were not
discussed, because the payment was to be made in cash on exhibition of the documents." Now
then, in the document Exhibit F, that is, the letter of January 17, 1912, it is stated that payment of
the net amount would be made in cash on_the first day of May, 1912, or before. So that it may be
said with all the more reason that in relation to the other offers of payment contained in the
documents F, G, J, and K, that in the letter, Exhibit F, the plaintiff Borck, in accepting the offer of
sale, did not make an offer to pay the price "immediately and in cash," as stated in his allegation
set forth in the complaint, for, by virtue of the said documents, he reserved to himself the right to
make the payment on the first day of May, 1912, or on any date prior thereto, as might suit him,
that i, two months after the termination of the option or of the offer, which would be, on or before
March 4, 1912, although the deed of conveyance of the property in his favor should have been
executed by the defendant Valdes on any date within the period of the option, that is, within the
three months which ended on the said 4th day of March, 1912, whereby the plaintiff virtually gave
himself five months from the date of the offer of sale or option of purchase, to effect the said
payment. This is evidently not an offer to pay "immediately and in cash," nor is it a payment in
cash, as the law provides, nor such a payment as the plaintiff Borck himself understood it to be,
when he stated in his testimony that the payment was to be made in cash upon exhibition of the
documents.
Duly considering the documents Exhibits F, G, J, andk, that is, the statements made by the plaintiff
Borck in the letter of January 17, 19 and 23, 1912, and February 28th of the same year, addressed
by him to the defendant Valdes, in accepting the option that the latter had granted him for the
purchase of the Nagtajan Hacienda, or the offer of sale of the said hacienda defendant made to the
plaintiff, with respect to the payment of the price therof, it is seen that in the said documents the
plaintiff Borck offered to pay to the defendant Valdes the said price, first within the period of five
months from December 4, 1911, afterwards within the terms of three months from the same date of
December 4, and, finally, within a period which could as well be ten days as twenty or thirty of more
days from the time Valdes should put at the plaintiff's disposal to be inspected, the titles and other
documents relative to the said hacienda, and the plaintiff should find them satisfactory and the
proper deed of conveyance should, in consequence thereof, be executed in his favor by Valdes;
and this evidently is an offer of payment in installments, and not an "immediate and cash" payment.
The lower court in the judgment appealed from says that as the document Exhibit E, dated
December 4, 1911, gave the plaintiff a three months' option for the purchase of the property, a
period which expired, therefore, on March 4, 1912, this necessarily allowed the plaintiff them for the
payment until this last date, and as in the letter Exhibit G, of the date of January 19, 1912, the
plaintiff said that he would pay before the expiration of the said period, in no manner could this
have modified the option, rather, on the contrary, it coincided with it, the court adding, moreover,
that a payment made on or before the 4th of March would have been a payment in cash, if this was
required by Exhibit E.
It is true that the period granted by the defendant Valdes to the plaintiff for purchasing the property,
was three months from December 4, 1912, but not because this period expired on March 4, 1912,
that is, the last day of the said three months, may it be understood that the defendant granted to
the plaintiff the period for payment until the very last day, March 4, 1912, for the simple reason that,
the period for the purchase being three months, that is,the time during which the plaintiff Borck
could make use of the power or the right granted by him by Valdes to arrange for the purchase of,
and to purchase in fact, the said property, if Borck purchased it on any date prior to March 4, 1912
(on January 19, 1912, for example) the result would be that the proper deed of sale being
consequently executed in his favor on the said date of January 19, and the time that payment
would be made not having been fixed in the said document Exhibit E, such payment wouldhave to
be made at the time of the delivery of the thing sold, pursuant to article 1500 of the Civil Code; but
as, in accordance with article 1462 of the same code, the execution of the deed of sale is
equivalent to the delivery of the thing which is the object of the contract, the payment would not be
in cash if it were not made on the same 19th day of January, 1912, and were postponed until some
other later day, or until March 4, 1912. In short, it is impossible to confound the period of the option
granted to the plaintiff Borck for the purchase of the Nagtajan Hacienda, with the period for the
payment of it price, had he purchased it. The plaintiff Borck had three months, from December 4,
1911, within which to make the purchase; to make the payment he did not have a single day after
the date on which the proper deed of sale would have been executed in his favor; he was to pay
the price at the very moment the said deed was executed, because, by this means, the property
would have been delivered to his, although there still might have been lacking one or two months
of the three months' period of the said option. This is the payment in cash to which the law refers in
the sale of real estate in cases where the time for making payment has not been fixed, and the
plaintiff himself, Borck, so understood when he stated in his testimony, as we have before said,
that, as the conditions for the payment had notbeen discussed, payment was to be made in cash
on exhibition of the documents, or, what amounts to the same thing, on the execution of the proper
deed of sale of the property in his favor. It is therefore evident was not fixed therein, the document
Exhibit E, dated December 4, 1911, required the payment to be made in cash, and the lower court
erred in holding that the plaintiff Borck's letter, Exhibit G, of the date of January 19, 1912, in stating
that the payment would be made on or before March 4, 1912, in no manner modified the option or
offer of sale contained in the document Exhibit E, but that on the contrary it coincided therewith;
also in holding that a payment made on or before March 4, 1912, would have been a cash
payment.
The letter of December 4, 1911, Exhibit E, contained, as aforesaid, an offer of sale or a proposal of
sale on the partof the defendant Valdes to the plaintiff Borck, of the Nagtajan Hacienda, for the
assessed valuation of the same, effective during the period of three months counting from the said
date. Such proposal or offer was an expression of the will only of the defendant Valdes, manifested
to the plaintiff Borck. In order that such a proposal might have the force of a contract, it was
necessary that the plaintiff Borck's will should have been expressed in harmony with all the terms
of the said proposal.
Consent is shown by the concurrence of the offer and the acceptance of the thing and
the cause which are to constitute the contract. (Art. 1262, Civil Code.)
There is no contract unless, among other requisites, there is consent of the contracting
parties. (Art. 1261, par. 1, of the same code.)
Contracts are perfected by mere consent, and from that time they are binding, not only
with regard to the fulfillment of what has been expressly stipulated, but also with regard
to all the consequences which, according to their character, are in accordance with good
faith, use, and law. (Art. 1258, Civil Code.)
Promises are binding in just so far as they are accepted in the explicit terms in which
they are made; it not being lawful to alter, against the will of the promisor, the conditions
imposed by him (Decision of the supreme court of Spain, of November 25, 1858); for
only thus may the indispensable consent of the parties exist for the perfection of the
contract. (Decision of the same court, of September 26, 1871.)
An option is an unaccepted offer. It states the terms and conditions on which the owner
is willing to sell or lease his land, if the holder elects to accept them withinthe time
limited. If the holder does so elect, he must give notice to the other party, and the
accepted offer thereupon becomes a valid and binding contract. If an acceptance is not
made within the time fixed, the owner is no longer bound by his offer, and the option is at
an end. (words and Phrases, vol. 6, p. 5000, citing McMillan vs. Philadelphia Co., 28 Atl.,
220; 159 Pa., 142.)
An offer of a bargain by one person to another, imposes no obligation upon the former,
unless it be accepted by the latter, according to the terms in which the offer was made.
Any qualification or, or departure from, those terms, invalidates the offer, unless the
same be agreed to by the person who made it. (Eliason et al. vs.Henshaw, 4 Wheaton,
225.)
In order that an acceptance of proposition may be operative it must be unequivocal,
unconditional, and without variance of any sort between it and the proposal, . . . . An
absolute acceptance of a proposal, coupled with any qualification or condition, will not be
regarded as a complete contract, because there at no time exists the requisite mutual
assent to the same thing in the same senses. (Bruner et al. vs. Wheaton, 46 Mo., 363.)
As already seen while we were considering the documents Exhibits F, G, J, and K, the plaintiff
Borck accepted the offer of sale made to hi, or the option of purchase given him in document
Exhibit E by the defendant Valdes, of the Nagtajan Hacienda, for the assessed valuation of the
same, but his acceptance was not in accordance with the condition with regard to the payment of
the price of the property, under which the offer or the option was made for, while this payment was
to be paid in cash, as the plaintiff Borck himself admitted and the defendant Valdes positively
stated in his testimony, and also a provided by law, for the reason that the time was not fixed in
said offer or option when the payment should be made in the aforesaid four documents Exhibits F,
G, J, and K, the plaintiff Borck made the offer to pay the said price, in the first of them, within the
period of five months from December 14, 1911; in the second, within the period of three months
from the same date, and, finally, in the other two documents, within an indefinite period which could
as well be ten days as twenty or thirty or more, counting from the date when the muniments of title
relative to the said hacienda should have been placed at his disposal to be inspected and he
should have found them satisfactory and, in consequence thereof, the deed of conveyance should
have been executed in his favor by the defendant Valdes.
So that there was no concurrence of the offer and the acceptance as to one of the conditions
related to the cause of the contract, to wit, the form in which the payment should be made. The
expression of Borck's will was not in accordance with all the terms of Valdes' proposal, or, what
amounts to the same thing, the latter's promise was not accepted by the former in the specific
terms, in which it was made, and finally, the acceptance of the said proposal on Borck's part was
not unequivocal and without variance of any sort between it and the proposal, because, in view of
the terms in which the payment was offered by Borck in his said letters of January 17, 19 and 23,
Exhibits F, G, J, and K, there was variance from the moment in which according to said terms, in
the first two letters, the payment of the price should be made on or before the 1st of May and on or
before the 3d of March, 1912, respectively, that is, within a period limited in those letters, and the
offer of payment was equivocal inasmuch as, by the last two letters, it was made to depend on
certain acts as a basis for fixing the period in which the said payment should have to be made;
finally, there was no mutual conformity between the person who made the proposal or offer,
Valdes, and the person who accepted it, Borck, in the same sense with respect to the form of
payment, and Borck deviated from the terms of the proposition with regard to the form of payment
and the record does not show that Valdes assented to such variance.
It is, therefore, evident that, in accordance with the provision of law and the principles laid down in
the decisions above cited, the proposal or offer of sale made by the defendant Valdes to the
plaintiff Borck, or the option of purchase granted by the former to the latter, with respect to the
Nagtajan Hacienda, in the document Exhibit E, was not converted into a perfect and binding
contract for the, and that as Valdes did not assent to the modification introduced by Borck in the
offer of sale made by this defendant in regard to one of its terms, to with, the form of payment, the
said offer became null and void, and, consequently, Borck has no right to demand of the defendant
Valdes and of the latter's principal, the other defendant, Legarda, or of the administrators of the
estate left by Legarda at his death which occurred during the course of these proceedings, and
whose names appear at the beginning of this decision, the fulfillment of that offer, nor, therefore,
any indemnity whatever for such nonfulfillment.

The lower court erred, than, in finding otherwise in the three conclusions of law contained in the
judgment appealed from which were mentioned at the beginning of this decision and on which, in
short, the pronouncement made in that judgment was founded.

As the power of attorney conferred by Benito Legarda upon Benito Valdes was explicit and
positive, according to the document Exhibit A, a copy of which was attached to the complaint, to
sell and convey all kinds of real estate at such prices and on such conditions as Valdes might
deem proper, and also as the terms of the option granted by Valdes to Borck, or of the offer of sale
made by the former to the latter in the document Exhibit E, of the Nagtajan Hacienda belonging to
Benito Legarda, are clear; and, furthermore, as the plaintiff made the said documents an integral
part of the complaint as the grounds thereof, the testimony introduced by the defendant Valdes to
prove that said offer of sale made by him to Borck was subject to the approval of his, Valdes',
principal was improper (sections 103 and 285, Code Civ. Proc.) and the lower court did not err in
not taking that testimony into consideration in his judgment. Likewise the evidence presented by
the defendant Valdes in an endeavor to prove that said offer of sale was obtained from him by the
plaintiff Borck by means of fraud and deceit, was improper. Consequently the trial court did not err
by making no finding in the judgment on those two points.

In conclusion, as the offer of sale of the Nagtajan Hacienda, made by Valdes to Borck, or the
option of purchase thereof granted by the former to the latter by the letter of December 4, 1911,
Exhibit E, did not constitute a perfect contract and, consequently, was not binding upon the
defendants Valdes and Legarda or the plaintiff Borck, by reason of the lack of the mutual assent of
the parties concerned therein, which is wholly in accordance with the terms of the said offer, there
can be no obligation demandable in law by virtue of the stipulations contained in said document,
and the action prosecuted by the plaintiff for that purpose in these proceedings in improper.

For the foregoing reasons the judgment appealed from is reversed and we absolve the defendants
from the complaint. The costs of the first instance shall be imposed upon the plaintiff. No special
finding is made with respect to those of this second instance.

So ordered.