G.R. No.

L-20567 July 30, 1965

PHILIPPINE NATIONAL BANK, petitioner,

vs.
MANILA SURETY and FIDELITY CO., INC. and THE COURT OF APPEALS (Second Division), respondents.

Besa, Galang and Medina for petitioner.

De Santos and Delfino for respondents.

REYES, J.B.L., J.:

The Philippine National Bank petitions for the review and reversal of the decision rendered by the Court of Appeals (Second Division), in its case CA-G.R. No. 24232-R, dismissing the Bank's complaint against respondent Manila Surety & Fidelity Co., Inc., and modifying the judgment of the
Court of First Instance of Manila in its Civil Case No. 11263.

The material facts of the case, as found by the appellate Court, are as follows:

The Philippine National Bank had opened a letter of credit and advanced thereon $120,000.00 to Edgington Oil Refinery for 8,000 tons of hot asphalt. Of this amount, 2,000 tons worth P279,000.00 were released and delivered to Adams & Taguba Corporation (known as ATACO) under a trust
receipt guaranteed by Manila Surety & Fidelity Co. up to the amount of P75,000.00. To pay for the asphalt, ATACO constituted the Bank its assignee and attorney-in-fact to receive and collect from the Bureau of Public Works the amount aforesaid out of funds payable to the assignor under
Purchase Order No. 71947. This assignment (Exhibit "A") stipulated that:

The conditions of this assignment are as follows:

1. The same shall remain irrevocable until the said credit accomodation is fully liquidated.

2. The PHILIPPINE NATIONAL BANK is hereby appointed as our Attorney-in-Fact for us and in our name, place and stead, to collect and to receive the payments to be made by virtue of the aforesaid Purchase Order, with full power and authority to execute and deliver on our behalf, receipt for
all payments made to it; to endorse for deposit or encashment checks, money order and treasury warrants which said Bank may receive, and to apply said payments to the settlement of said credit accommodation.

This power of attorney shall also remain irrevocable until our total indebtedness to the said Bank have been fully liquidated. (Exhibit E)

ATACO delivered to the Bureau of Public Works, and the latter accepted, asphalt to the total value of P431,466.52. Of this amount the Bank regularly collected, from April 21, 1948 to November 18, 1948, P106,382.01. Thereafter, for unexplained reasons, the Bank ceased to collect, until in
1952 its investigators found that more moneys were payable to ATACO from the Public Works office, because the latter had allowed mother creditor to collect funds due to ATACO under the same purchase order to a total of P311,230.41.

Its demands on the principal debtor and the Surety having been refused, the Bank sued both in the Court of First Instance of Manila to recover the balance of P158,563.18 as of February 15, 1950, plus interests and costs.

On October 4, 1958, the trial court rendered a decision, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered as follows:

1. Ordering defendants, Adams & Taguba Corporation and Manila Surety & Fidelity Co., Inc., to pay plaintiff, Philippines National Bank, the sum of P174,462.34 as of February 24, 1956, minus the amount of P8,000 which defendant, Manila Surety Co., Inc. paid from March, 1956 to October,
1956 with interest at the rate of 5% per annum from February 25, 1956, until fully paid provided that the total amount that should be paid by defendant Manila Surety Co., Inc., on account of this case shall not exceed P75,000.00, and to pay the costs;

2. Orderinq cross-defendant, Adams & Taguba Corporation, and third-party defendant, Pedro A. Taguba, jointly and severally, to pay cross and third-party plaintiff, Manila Surety & Fidelity Co., Inc., whatever amount the latter has paid or shall pay under this judgment;

3. Dismissing the complaint insofar as the claim for 17% special tax is concerned; and

4. Dismissing the counterclaim of defendants Adams & Taguba Corporation and Manila Surety & Fidelity Co., Inc.

From said decision, only the defendant Surety Company has duly perfected its appeal. The Central Bank of the Philippines did not appeal, while defendant ATACO failed to perfect its appeal.

The Bank recoursed to the Court of Appeals, which rendered an adverse decision and modified the judgment of the court of origin as to the surety's liability. Its motions for reconsideration having proved unavailing, the Bank appealed to this Court.

The Court of Appeals found the Bank to have been negligent in having stopped collecting from the Bureau of Public Works the moneys falling due in favor of the principal debtor, ATACO, from and after November 18, 1948, before the debt was fully collected, thereby allowing such funds to be
taken and exhausted by other creditors to the prejudice of the surety, and held that the Bank's negligence resulted in exoneration of respondent Manila Surety & Fidelity Company.
This holding is now assailed by the Bank. It contends the power of attorney obtained from ATACO was merely in additional security in its favor, and that it was the duty of the surety, and not that of the creditor, owed see to it that the obligor fulfills his obligation, and that the creditor owed the
surety no duty of active diligence to collect any, sum from the principal debtor, citing Judge Advocate General vs. Court of Appeals, G.R. No. L-10671, October 23, 1958.

This argument of appellant Bank misses the point. The Court of Appeals did not hold the Bank answerable for negligence in failing to collect from the principal debtor but for its neglect in collecting the sums due to the debtor from the Bureau of Public Works, contrary to its duty as holder of an
exclusive and irrevocable power of attorney to make such collections, since an agent is required to act with the care of a good father of a family (Civ. Code, Art. 1887) and becomes liable for the damages which the principal may suffer through his non-performance (Civ. Code, Art. 1884).
Certainly, the Bank could not expect that the Bank would diligently perform its duty under its power of attorney, but because they could not have collected from the Bureau even if they had attempted to do so. It must not be forgotten that the Bank's power to collect was expressly
made irrevocable, so that the Bureau of Public Works could very well refuse to make payments to the principal debtor itself, and a fortiori reject any demands by the surety.

Even if the assignment with power of attorney from the principal debtor were considered as mere additional security still, by allowing the assigned funds to be exhausted without notifying the surety, the Bank deprived the former of any possibility of recoursing against that security. The Bank
thereby exonerated the surety, pursuant to Article 2080 of the Civil Code:

ART. 2080. The guarantors, even though they be solidary, are released from their obligation whenever by come act of the creditor they cannot be subrogated to the rights, mortgages and preferences of the latter. (Emphasis supplied.)

The appellant points out to its letter of demand, Exhibit "K", addressed to the Bureau of Public Works, on May 5, 1949, and its letter to ATACO, Exhibit "G", informing the debtor that as of its date, October 31, 1949, its outstanding balance was P156,374.83. Said Exhibit "G" has no bearing on
the issue whether the Bank has exercised due diligence in collecting from the Bureau of Public Works, since the letter was addressed to ATACO, and the funds were to come from elsewhere. As to the letter of demand on the Public Works office, it does not appear that any reply thereto was
made; nor that the demand was pressed, nor that the debtor or the surety were ever apprised that payment was not being made. The fact remains that because of the Bank's inactivity the other creditors were enabled to collect P173,870.31, when the balance due to appellant Bank was only
P158,563.18. The finding of negligence made by the Court of Appeals is thus not only conclusive on us but fully supported by the evidence.

Even if the Court of Appeals erred on the second reason it advanced in support of the decision now under appeal, because the rules on application of payments, giving preference to secured obligations are only operative in cases where there are several distinct debts, and not where there is
only one that is partially secured, the error is of no importance, since the principal reason based on the Bank's negligence furnishes adequate support to the decision of the Court of Appeals that the surety was thereby released.

WHEREFORE, the appealed decision is affirmed, with costs against appellant Philippine National Bank.

Bengzon, C.J., Concepcion, Paredes, Dizon, Regala, Makalintal, Bengzon, J.P., and Zaldivar, JJ., concur.
Bautista Angelo and Barerra, JJ., took no part.

G.R. No. 102998 July 5, 1996

BA FINANCE CORPORATION, petitioner,

vs.
HON. COURT OF APPEALS and ROBERTO M. REYES, respondents.

VITUG, J.:p

The case at bar is a suit for replevin and damages. The petition for review on certiorari assails the decision of the Court of Appeals1 in CA-G.R. CV No. 23605 affirming that of the Regional Trial Court of Manila, Branch
XX,2 which has disposed of its Civil Case No. 87-42270 in this wise:

WHEREFORE, the case against defendant-spouses (sic) Reynaldo Manahan is hereby dismissed without prejudice, for failure to prosecute. Plaintiff having failed to show the liability of defendant John Doe in the person of Roberto M. Reyes, the case against the latter should likewise be
dismissed. Moreover, plaintiff is hereby directed to return the vehicle seized by virtue of the order of seizure issued by this Court with all its accessories to the said Roberto M. Reyes. 3

The decisions of both the appellate court and the court a quo are based on a like finding of the facts hereinafter briefly narrated.

The spouses Reynaldo and Florencia Manahan executed, on 15 May 1980, a promissory note 4 binding themselves to pay Carmasters, Inc., the amount of P83,080.00 in thirty-six monthly installments commencing 01 July 1980. To secure payment, the Manahan spouses executed a deed of
chattel mortgage5 over a motor vehicle, a Ford Cortina 1.6 GL, with motor and serial number CUBFWE-801010. Carmasters later assigned6 the promissory note and the chattel mortgage to petitioner BA Finance Corporation with the conformity of the Manahans. When the latter failed to pay the
due installments, petitioner sent demand letters. The demands not having been heeded, petitioner, on 02 October 1987, filed a complaint for replevin with damages against the spouses, as well as against a John Doe, praying for the recovery of the vehicle with an alternative prayer for the
payment of a sum of money should the vehicle not be returned. Upon petitioner's motion and the filing of a bond in the amount of P169,161.00 the lower court issued a writ of replevin. The court, however, cautioned petitioner that should summons be not served on the defendants within thirty
(30) days from the writ's issuance, the case would be dismissed to failure to prosecute. 7 The warning was based on what the court perceived to be the deplorable practice of some mortgagees of "freezing (the) foreclosure or replevin cases" which they would so "conveniently utilize as a
leverage for the collection of unpaid installments on mortgaged chattels." 8

The service of summons upon the spouses Manahan was caused to be served by petitioner at No. 35 Lantana St., Cubao, Quezon City. The original of the summons had the name and the signature of private respondent Roberto M. Reyes indicating that he received, on 14 October 1987, a
copy of the summons and the complaint.9 Forthwith, petitioner, through its Legal Assistant, Danilo E. Solano, issued a certification to the effect that it had received from Orson R. Santiago, the deputy sheriff of the Regional Trial Court of Manila, Branch 20, the Ford Cortina seized from private
respondent Roberto M. Reyes, the John Doe referred to in the complaint, 10 in Sorsogon, Sorsogon. 11 On 20 October 1987, the lower court came out with an order of seizure.

Alleging possession in good faith, private respondent filed, on 26 October 1987, a motion for an extension of time within which to file his answer and/or a motion for intervention. The court granted the motion.
A few months later, or on 18 February 1988, the court issued an order which, in part, stated:

Perusal of the record shows that an order for the seizure of personal property was issued on October 20, 1987 in pursuance to a previous order of the Court dated October 13, 1987. However, to date, there is no showing that the principal defendants were served with summons inspite of the
lapse of four (4) months.

Considering, this is a replevin case and to forestall the evils that arise from this practice, plaintiff failing to heed the Order dated October 13, 1987, particularly second paragraph thereof, the above-entitled case is hereby ordered DISMISSED for failure to prosecute and further ordering the
plaintiff to return the property seized with all its accessories to defendant John Doe in the person of Roberto M. Reyes.

12
SO ORDERED.

On 26 February 1988, petitioner filed a notice of dismissal of the case "without prejudice and without pronouncement as to costs, before service of Summons and Answer, under Section 1, Rule 17, of the Rules of Court." 13 It also sought in another motion the withdrawal of the replevin bond. In
view of the earlier dismissal of the case (for petitioner's failure to prosecute), the court, on 02 March 1988, merely noted the notice of dismissal and denied the motion to withdraw the replevin bond considering that the writ of replevin had meanwhile been implemented. 14

On 09 March 1988, private respondent filed a motion praying that petitioner be directed to comply with the court order requiring petitioner to return the vehicle to him. In turn, petitioner filed, on 14 March 1988, a motion for the reconsideration of the orders of 18 February 1988 and 02 March
1988 contending that: (a) the dismissal of the case was tantamount to adjudication on the merits that thereby deprived it with the remedy to enforce the promissory note, the chattel mortgage and the deed of assignment, under Section 3, Rule 117, of the Rules of Court; (b) the order to return
the vehicle to private respondent was a departure from jurisprudence recognizing the right of the mortgagor to foreclose the property to respond to the unpaid obligation secured by the chattel mortgage, and (c) there were no legal and factual bases for the court's view that the filing of the
replevin case was "characterized (by) evil practices." 15

On 20 April 1988, the court granted petitioner's motion for reconsideration and accordingly recalled the order directing the return of the vehicle to private respondent, set aside the order dismissing the case, directed petitioner "to cause the service of summons together with a copy of the
complaint on the principal defendants within five (5) days from receipt" 16 thereof at petitioner's expense, and ordered private respondent to answer the complaint.

A few months later, or on 02 August 1988, petitioner filed a motion to declare private respondent in default. The court granted the motion on that same day and declared private respondent "in default for his failure to file the . . . answer within the reglementary period." 17 The court likewise
granted petitioner's motion to set the case for the presentation, ex parte, of evidence. Petitioner, thereupon, submitted the promissory note, the deed of chattel mortgage, the deed of assignment, a statement of account in the name of Florencia Manahan and two demand letters.

On 27 February 1989, the trial court rendered a decision dismissing the complaint against the Manahans for failure of petitioner to prosecute the case against them. It also dismissed the case against private respondent for failure of petitioner to show any legal basis for said respondent's
liability. The court ratiocinated:

. . . . Roberto M. Reyes is merely ancillary debtor in this case. The defendant spouses Manahan being the principal debtor(s) and as there is no showing that the latter has been brought before the jurisdiction of this court, it must necessarily follow that the plaintiff has no cause of action against
said Roberto M. Reyes herein before referred to as defendant John Doe. Under the circumstances, it is incumbent upon the plaintiff to return the seized vehicle unto the said Roberto M. Reyes. 18

In its appeal to the Court of Appeals, petitioner has asserted that a suit for replevin aimed at the foreclosure of the chattel is an action quasi in rem which does not necessitate the presence of the principal obligors as long as the court does not render any personal judgment against them. This
argument did not persuade the appellate court, the latter holding that

. . . . In action quasi in rem an individual is named as defendant and the purpose of the proceeding is to subject his interest therein to the obligation or lien burdening the property, such as proceedings having for their sole object the sale or disposition of the property of the defendant, whether by
attachment, foreclosure, or other form of remedy (Sandejas vs. Robles, 81 Phil. 421). In the case at bar, the court cannot render any judgment binding on the defendants spouses for having allegedly violated the terms and conditions of the promissory note and the contract of chattel mortgage
on the ground that the court has no jurisdiction over their persons no summons having been served on them. That judgment, it rendered, is void for having denied the defendants spouses due process of law which contemplates notice and opportunity to be heard before judgment is rendered,
affecting one's person or property (Macabingkil vs. Yatco, 26 SCRA 150, 157).

It is next contended by appellant that as between appellant, as mortgagee, and John Doe, whose right to possession is dubious if not totally non-existent, it is the former which has the superior right of possession.

We cannot agree.

It is an undisputed fact that the subject motor vehicle was taken from the possession of said Roberto M. Reyes, a third person with respect to the contract of chattel mortgage between the appellant and the defendants spouses Manahan.

The Civil Code expressly provides that every possessor has a right to be respected in his possession (Art. 539, New Civil Code); that good faith is always presumed, and upon him who alleges bad faith on the part of a possessor rests the burden of proof (Art. 527, ibid.); and that the
possession of movable property acquired in good faith is equivalent to a title; nevertheless, one who has lost any movable or has been unlawfully deprived thereof, may recover it from the person in possession of the same (Art. 559, ibid.). Thus, it has been held that a possessor in good faith is
entitled to be respected and protected in his possession as if he were the true owner thereof until a competent court rules otherwise (Chus Hai vs. Kapunan, 104 Phil. 110; Yu, et al. vs. Hon. Honrado, etc., et al., 99 SCRA 237). In the case at bar, the trial court did not err in holding that the
complaint does not state any cause of action against Roberto M. Reyes, and in ordering the return of the subject chattel to him. 19

The appellate court, subsequently, denied petitioner's motion for reconsideration.

In the instant appeal, petitioner insists that a mortgagee can maintain an action for replevin against any possessor of the object of a chattel mortgage even if the latter were not a party to the mortgage.

Replevin, broadly understood, is both a form of principal remedy and of a provisional relief. It may refer either to the action itself, i.e., to regain the possession of personal chattels being wrongfully detained from the plaintiff by another, or to the provisional remedy that would allow the plaintiff to
retain the thing during the pendency of the action and hold it pendente lite. 20 The action is primarily possessory in nature and generally determines nothing more than the right of possession. Replevin is so usually described as a mixed action, being partly in rem and partly in personam in
rem insofar as the recovery of specific property is concerned, and in personam as regards to damages involved. As an "action in rem," the gist of the replevin action is the right of the plaintiff to obtain possession of specific personal property by reason of his being the owner or of his having a
special interest therein. 21 Consequently, the person in possession of the property sought to be replevied is ordinary the proper and only necessary party defendant, and the plaintiff is not required to so join as defendants other persons claiming a right on the property but not in possession
thereof. Rule 60 of the Rules of Court allows an application for the immediate possession of the property but the plaintiff must show that he has a good legal basis, i.e., a clear title thereto, for seeking such interim possession.
Where the right of the plaintiff to the possession of the specific property is so conceded or evident, the action need only be maintained against him who so possesses the property. In rem actio est per quam rem nostram quae ab alio possidetur petimus, et semper adversus eum est qui rem
possidet. In Northern Motors, Inc. vs. Herrera, 22 the Court has said:

There can be no question that persons having a special right of property in the goods the recovery of which is sought; such as a chattel mortgagee, may maintain an action for replevin therefor. Where the mortgage authorizes the mortgagee to take possession of the property on default, he may
maintain an action to recover possession of the mortgaged chattels from the mortgagor or from any person in whose hands he may find them. 23

In effect then, the mortgagee, upon the mortgagor's default, is constituted an attorney-in-fact of the mortgagor enabling such mortgagee to act for and in behalf of the owner. Accordingly, that the defendant is not privy to the chattel mortgage should be inconsequential. By the fact that the object
of replevin is traced to his possession, one properly can be a defendant in an action for replevin. It is here assumed that the plaintiffs right to possess the thing is not or cannot be disputed.

In case the right of possession on the part of the plaintiff, or his authority to claim such possession or that of his principal, is put to great doubt (a contending party might contest the legal bases for plaintiffs cause of action or an adverse and independent claim of ownership or right of possession
is raised by that party), it could become essential to have other persons involved and accordingly impleaded for a complete determination and resolution of the controversy. For instance, in Servicewide Specialists, Inc., vs. Court of Appeals, et al., G.R. No. 103301, 08 December 1995, this
Court ruled.

While, in its present petition for review on certiorari, Servicewide has raised a number of points, the crucial issue still remains, however, to be whether or not an action filed by the mortgagee for replevin to effect a foreclosure of the property covered by the chattel mortgage would require that
the mortgagor be so impleaded as an indispensable party thereto.

Rule 60 of the Rules of Court allows a plaintiff, in an action for the recovery of possession of personal property, to apply for a writ of replevin if it can be shown that he is the owner of the property claimed . . . or is entitled to the possession thereof.' The plaintiff need not be the owner so long as
he is able to specify his right to the possession of the property and his legal basis therefor. The question then, insofar as the matter finds relation to the instant case, is whether or not the plaintiff (herein petitioner) who has predicated his right on being the mortgagee of a chattel mortgage
should implead the mortgagor in his complaint that seeks to recover possession of the encumbered property in order to effect its foreclosure.

The answer has to be in the affirmative. In a suit for replevin, a clear right of possession must be established. A foreclosure under a chattel mortgage may properly be commenced only once there is default on the part of the mortgagor of his obligation secured by the mortgage. The replevin in
the instant case has been sought to pave the way for the foreclosure of the object covered by the chattel mortgage. The conditions essential for that foreclosure would be to show, firstly, the existence of the chattel mortgage and, secondly, the default of the mortgagor. These requirements must
be established since the validity of the plaintiffs exercise of the right of foreclosure are inevitably dependent thereon. It would thus seem, considering particularly an adverse and independent claim of ownership by private respondent that the lower court acted improvidently when it granted the
dismissal of the complaint against Dollente, albeit on petitioner's (then plaintiff) plea, on the ground that the "non-service of summons upon Ernesto Dollente (would) only delay the determination of the merits of the case, to the prejudice of the parties." In Imson v. Court of Appeals, we have
explained:

. . . . An indispensable party is one whose interest will be affected by the court's action in the litigation, and without whom no final determination of the case can be had. The party's interest in the subject matter of the suit and in the relief sought are so inextricably intertwined with the other
parties' that his legal presence as a party to the proceeding is an absolute necessity. In his absence there cannot be a resolution of the dispute of the parties before the court which is effective, complete, or equitable.

Conversely, a party is not indispensable to the suit if his interest in the controversy or subject matter is distinct and divisible from the interest of the other parties and will not necessarily be prejudiced by a judgment which does complete justice to the parties in court. He is not indispensable if his
presence would merely permit complete relief between him and those already parties to the action or will simply avoid multiple litigation.

Without the presence of indispensable parties to a suit or proceeding, a judgment of a court cannot attain real finality. (Footnotes omitted.)

A chattel mortgagee, unlike a pledgee, need not be in, nor entitled to the possession of the property unless and until the mortgagor defaults and the mortgagee thereupon seeks to foreclose thereon. Since the mortgagee's right of possession is conditioned upon the actual fact of default which
itself may be controverted, the inclusion of other parties like the debtor or the mortgagor himself, may be required in order to allow a full and conclusive determination of the case. When the mortgagee seeks a replevin in order to effect the eventual foreclosure of the mortgage, it is not only the
existence of, but also the mortgagor's default on, the chattel mortgage that, among other things, can properly uphold the right to replevy the property. The burden to establish a valid justification for that action lies with the plaintiff. An adverse possessor, who is not the mortgagor, cannot just be
deprived of his possession, let alone be bound by the terms of the chattel mortgage contract, simply because the mortgagee brings up an action for replevin.

The appellate court, accordingly, acted well in arriving at its now questioned judgment.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED No costs.

SO ORDERED.

[G.R. No. 117356. June 19, 2000]

VICTORIAS MILLING CO., INC., petitioner, vs. COURT OF APPEALS and CONSOLIDATED SUGAR CORPORATION, respondents.

DECISION

QUISUMBING, J.:

Before us is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the decision of the Court of Appeals dated February 24, 1994, in CA-G.R. CV No. 31717, as well as the respondent court's resolution of September 30, 1994 modifying said decision. Both decision and
resolution amended the judgment dated February 13, 1991, of the Regional Trial Court of Makati City, Branch 147, in Civil Case No. 90-118.
The facts of this case as found by both the trial and appellate courts are as follows:

St. Therese Merchandising (hereafter STM) regularly bought sugar from petitioner Victorias Milling Co., Inc., (VMC). In the course of their dealings, petitioner issued several Shipping List/Delivery Receipts (SLDRs) to STM as proof of purchases. Among these was SLDR No. 1214M, which gave
rise to the instant case. Dated October 16, 1989, SLDR No. 1214M covers 25,000 bags of sugar. Each bag contained 50 kilograms and priced at P638.00 per bag as "per sales order VMC Marketing No. 042 dated October 16, 1989."[1] The transaction it covered was a "direct sale."[2] The SLDR
also contains an additional note which reads: "subject for (sic) availability of a (sic) stock at NAWACO (warehouse)."[3]

On October 25, 1989, STM sold to private respondent Consolidated Sugar Corporation (CSC) its rights in SLDR No. 1214M for P 14,750,000.00. CSC issued one check dated October 25, 1989 and three checks postdated November 13, 1989 in payment. That same day, CSC wrote petitioner
that it had been authorized by STM to withdraw the sugar covered by SLDR No. 1214M. Enclosed in the letter were a copy of SLDR No. 1214M and a letter of authority from STM authorizing CSC "to withdraw for and in our behalf the refined sugar covered by Shipping List/Delivery Receipt-
Refined Sugar (SDR) No. 1214 dated October 16, 1989 in the total quantity of 25,000 bags." [4]

On October 27, 1989, STM issued 16 checks in the total amount of P31,900,000.00 with petitioner as payee. The latter, in turn, issued Official Receipt No. 33743 dated October 27, 1989 acknowledging receipt of the said checks in payment of 50,000 bags. Aside from SLDR No. 1214M, said
checks also covered SLDR No. 1213.

Private respondent CSC surrendered SLDR No. 1214M to the petitioner's NAWACO warehouse and was allowed to withdraw sugar. However, after 2,000 bags had been released, petitioner refused to allow further withdrawals of sugar against SLDR No. 1214M. CSC then sent petitioner a
letter dated January 23, 1990 informing it that SLDR No. 1214M had been "sold and endorsed" to it but that it had been refused further withdrawals of sugar from petitioner's warehouse despite the fact that only 2,000 bags had been withdrawn.[5] CSC thus inquired when it would be allowed to
withdraw the remaining 23,000 bags.

On January 31, 1990, petitioner replied that it could not allow any further withdrawals of sugar against SLDR No. 1214M because STM had already dwithdrawn all the sugar covered by the cleared checks.[6]

On March 2, 1990, CSC sent petitioner a letter demanding the release of the balance of 23,000 bags.

Seven days later, petitioner reiterated that all the sugar corresponding to the amount of STM's cleared checks had been fully withdrawn and hence, there would be no more deliveries of the commodity to STM's account. Petitioner also noted that CSC had represented itself to be STM's agent
as it had withdrawn the 2,000 bags against SLDR No. 1214M "for and in behalf" of STM.

On April 27, 1990, CSC filed a complaint for specific performance, docketed as Civil Case No. 90-1118. Defendants were Teresita Ng Sy (doing business under the name of St. Therese Merchandising) and herein petitioner. Since the former could not be served with summons, the case
proceeded only against the latter. During the trial, it was discovered that Teresita Ng Go who testified for CSC was the same Teresita Ng Sy who could not be reached through summons. [7] CSC, however, did not bother to pursue its case against her, but instead used her as its witness.

CSC's complaint alleged that STM had fully paid petitioner for the sugar covered by SLDR No. 1214M. Therefore, the latter had no justification for refusing delivery of the sugar. CSC prayed that petitioner be ordered to deliver the 23,000 bags covered by SLDR No. 1214M and sought the
award of P1,104,000.00 in unrealized profits, P3,000,000.00 as exemplary damages, P2,200,000.00 as attorney's fees and litigation expenses.

Petitioner's primary defense a quo was that it was an unpaid seller for the 23,000 bags. [8] Since STM had already drawn in full all the sugar corresponding to the amount of its cleared checks, it could no longer authorize further delivery of sugar to CSC. Petitioner also contended that it had no
privity of contract with CSC.

Petitioner explained that the SLDRs, which it had issued, were not documents of title, but mere delivery receipts issued pursuant to a series of transactions entered into between it and STM. The SLDRs prescribed delivery of the sugar to the party specified therein and did not authorize the
transfer of said party's rights and interests.

Petitioner also alleged that CSC did not pay for the SLDR and was actually STM's co-conspirator to defraud it through a misrepresentation that CSC was an innocent purchaser for value and in good faith. Petitioner then prayed that CSC be ordered to pay it the following sums: P10,000,000.00
as moral damages; P10,000,000.00 as exemplary damages; and P1,500,000.00 as attorney's fees. Petitioner also prayed that cross-defendant STM be ordered to pay it P10,000,000.00 in exemplary damages, and P1,500,000.00 as attorney's fees.

Since no settlement was reached at pre-trial, the trial court heard the case on the merits.

As earlier stated, the trial court rendered its judgment favoring private respondent CSC, as follows:

"WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of the plaintiff and against defendant Victorias Milling Company:

"1) Ordering defendant Victorias Milling Company to deliver to the plaintiff 23,000 bags of refined sugar due under SLDR No. 1214;

"2) Ordering defendant Victorias Milling Company to pay the amount of P920,000.00 as unrealized profits, the amount of P800,000.00 as exemplary damages and the amount of P1,357,000.00, which is 10% of the acquisition value of the undelivered bags of refined sugar in the amount of
P13,570,000.00, as attorney's fees, plus the costs.

"SO ORDERED."[9]

It made the following observations:

"[T]he testimony of plaintiff's witness Teresita Ng Go, that she had fully paid the purchase price of P15,950,000.00 of the 25,000 bags of sugar bought by her covered by SLDR No. 1214 as well as the purchase price of P15,950,000.00 for the 25,000 bags of sugar bought by her covered by
SLDR No. 1213 on the same date, October 16, 1989 (date of the two SLDRs) is duly supported by Exhibits C to C-15 inclusive which are post-dated checks dated October 27, 1989 issued by St. Therese Merchandising in favor of Victorias Milling Company at the time it purchased the 50,000
bags of sugar covered by SLDR No. 1213 and 1214. Said checks appear to have been honored and duly credited to the account of Victorias Milling Company because on October 27, 1989 Victorias Milling Company issued offi cial receipt no. 34734 in favor of St. Therese Merchandising for the
amount of P31,900,000.00 (Exhibits B and B-1). The testimony of Teresita Ng Go is further supported by Exhibit F, which is a computer printout of defendant Victorias Milling Company showing the quantity and value of the purchases made by St. Therese Merchandising, the SLDR no. issued
to cover the purchase, the official reciept no. and the status of payment. It is clear in Exhibit 'F' that with respect to the sugar covered by SLDR No. 1214 the same has been fully paid as indicated by the word 'cleared' appearing under the column of 'status of payment.'

"On the other hand, the claim of defendant Victorias Milling Company that the purchase price of the 25,000 bags of sugar purchased by St. Therese Merchandising covered by SLDR No. 1214 has not been fully paid is supported only by the testimony of Arnulfo Caintic, witness for defendant
Victorias Milling Company. The Court notes that the testimony of Arnulfo Caintic is merely a sweeping barren assertion that the purchase price has not been fully paid and is not corroborated by any positive evidence. There is an insinuation by Arnulfo Caintic in his testimony that the postdated
checks issued by the buyer in payment of the purchased price were dishonored. However, said witness failed to present in Court any dishonored check or any replacement check. Said witness likewise failed to present any bank record showing that the checks issued by the buyer, Teresita Ng
Go, in payment of the purchase price of the sugar covered by SLDR No. 1214 were dishonored." [10]

Petitioner appealed the trial courts decision to the Court of Appeals.

On appeal, petitioner averred that the dealings between it and STM were part of a series of transactions involving only one account or one general contract of sale. Pursuant to this contract, STM or any of its authorized agents could withdraw bags of sugar only against cleared checks of STM.
SLDR No. 21214M was only one of 22 SLDRs issued to STM andsince the latter had already withdrawn its full quota of sugar under the said SLDR, CSC was already precluded from seeking delivery of the 23,000 bags of sugar.

Private respondent CSC countered that the sugar purchases involving SLDR No. 1214M were separate and independent transactions and that the details of the series of purchases were contained in a single statement with a consolidated summary of cleared check payments and sugar stock
withdrawals because this a more convenient system than issuing separate statements for each purchase.

The appellate court considered the following issues: (a) Whether or not the transaction between petitioner and STM involving SLDR No. 1214M was a separate, independent, and single transaction; (b) Whether or not CSC had the capacity to sue on its own on SLDR No. 1214M; and (c)
Whether or not CSC as buyer from STM of the rights to 25,000 bags of sugar covered by SLDR No. 1214M could compel petitioner to deliver 23,000 bags allegedly unwithdrawn.

On February 24, 1994, the Court of Appeals rendered its decision modifying the trial court's judgment, to wit:

"WHEREFORE, the Court hereby MODIFIES the assailed judgment and orders defendant-appellant to:

"1) Deliver to plaintiff-appellee 12,586 bags of sugar covered by SLDR No. 1214M;

" 2) Pay to plaintiff-appellee P792,918.00 which is 10% of the value of the undelivered bags of refined sugar, as attorneys fees;

"3) Pay the costs of suit.

"SO ORDERED."[11]

Both parties then seasonably filed separate motions for reconsideration.

In its resolution dated September 30, 1994, the appellate court modified its decision to read:

"WHEREFORE, the Court hereby modifies the assailed judgment and orders defendant-appellant to:

"(1) Deliver to plaintiff-appellee 23,000 bags of refined sugar under SLDR No. 1214M;

"(2) Pay costs of suit.

"SO ORDERED."[12]

The appellate court explained the rationale for the modification as follows:

"There is merit in plaintiff-appellee's position.

"Exhibit F' We relied upon in fixing the number of bags of sugar which remained undelivered as 12,586 cannot be made the basis for such a finding. The rule is explicit that courts should consider the evidence only for the purpose for which it was offered. (People v. Abalos, et al, 1 CA Rep 783).
The rationale for this is to afford the party against whom the evidence is presented to object thereto if he deems it necessary. Plaintiff-appellee is, therefore, correct in its argument that Exhibit F' which was offered to prove that checks in the total amount of P15,950,000.00 had been
cleared. (Formal Offer of Evidence for Plaintiff, Records p. 58) cannot be used to prove the proposition that 12,586 bags of sugar remained undelivered.

"Testimonial evidence (Testimonies of Teresita Ng [TSN, 10 October 1990, p. 33] and Marianito L. Santos [TSN, 17 October 1990, pp. 16, 18, and 36]) presented by plaintiff-appellee was to the effect that it had withdrawn only 2,000 bags of sugar from SLDR after which it was not allowed to
withdraw anymore. Documentary evidence (Exhibit I, Id., p. 78, Exhibit K, Id., p. 80) show that plaintiff-appellee had sent demand letters to defendant-appellant asking the latter to allow it to withdraw the remaining 23,000 bags of sugar from SLDR 1214M. Defendant-appellant, on the other
hand, alleged that sugar delivery to the STM corresponded only to the value of cleared checks; and that all sugar corresponded to cleared checks had been withdrawn. Defendant-appellant did not rebut plaintiff-appellee's assertions. It did not present evidence to show how many bags of sugar
had been withdrawn against SLDR No. 1214M, precisely because of its theory that all sales in question were a series of one single transaction and withdrawal of sugar depended on the clearing of checks paid therefor.

"After a second look at the evidence, We see no reason to overturn the findings of the trial court on this point."[13]

Hence, the instant petition, positing the following errors as grounds for review:

"1. The Court of Appeals erred in not holding that STM's and private respondent's specially informing petitioner that respondent was authorized by buyer STM to withdraw sugar against SLDR No. 1214M "for and in our (STM) behalf," (emphasis in the original) private respondent's withdrawing
2,000 bags of sugar for STM, and STM's empowering other persons as its agents to withdraw sugar against the same SLDR No. 1214M, rendered respondent like the other persons, an agent of STM as held in Rallos v. Felix Go Chan & Realty Corp., 81 SCRA 252, and precluded it from
subsequently claiming and proving being an assignee of SLDR No. 1214M and from suing by itself for its enforcement because it was conclusively presumed to be an agent (Sec. 2, Rule 131, Rules of Court) and estopped from doing so. (Art. 1431, Civil Code).

" 2. The Court of Appeals erred in manifestly and arbitrarily ignoring and disregarding certain relevant and undisputed facts which, had they been considered, would have shown that petitioner was not liable, except for 69 bags of sugar, and which would justify review of its conclusion of facts by
this Honorable Court.

" 3. The Court of Appeals misapplied the law on compensation under Arts. 1279, 1285 and 1626 of the Civil Code when it ruled that compensation applied only to credits from one SLDR or contract and not to those from two or more distinct contracts between the same parties; and erred in
denying petitioner's right to setoff all its credits arising prior to notice of assignment from other sales or SLDRs against private respondent's claim as assignee under SLDR No. 1214M, so as to extinguish or reduce its liability to 69 bags, because the law on compensation applies precisely to two
or more distinct contracts between the same parties (emphasis in the original).

"4. The Court of Appeals erred in concluding that the settlement or liquidation of accounts in Exh. F between petitioner and STM, respondent's admission of its balance, and STM's acquiescence thereto by silence for almost one year did not render Exh. `F' an account stated and its balance
binding.

"5. The Court of Appeals erred in not holding that the conditions of the assigned SLDR No. 1214, namely, (a) its subject matter being generic, and (b) the sale of sugar being subject to its availability at the Nawaco warehouse, made the sale conditional and prevented STM or private respondent
from acquiring title to the sugar; and the non-availability of sugar freed petitioner from further obligation.

"6. The Court of Appeals erred in not holding that the "clean hands" doctrine precluded respondent from seeking judicial reliefs (sic) from petitioner, its only remedy being against its assignor." [14]

Simply stated, the issues now to be resolved are:

(1)....Whether or not the Court of Appeals erred in not ruling that CSC was an agent of STM and hence, estopped to sue upon SLDR No. 1214M as an assignee.

(2)....Whether or not the Court of Appeals erred in applying the law on compensation to the transaction under SLDR No. 1214M so as to preclude petitioner from offsetting its credits on the other SLDRs.

(3)....Whether or not the Court of Appeals erred in not ruling that the sale of sugar under SLDR No. 1214M was a conditional sale or a contract to sell and hence freed petitioner from further obligations.

(4)....Whether or not the Court of Appeals committed an error of law in not applying the "clean hands doctrine" to preclude CSC from seeking judicial relief.

The issues will be discussed in seriatim.

Anent the first issue, we find from the records that petitioner raised this issue for the first time on appeal. It is settled that an issue which was not raised during the trial in the court below could not be raised for the first time on appeal as to do so would be offensive to the basic rules of fair play,
justice, and due process.[15] Nonetheless, the Court of Appeals opted to address this issue, hence, now a matter for our consideration.

Petitioner heavily relies upon STM's letter of authority allowing CSC to withdraw sugar against SLDR No. 1214M to show that the latter was STM's agent. The pertinent portion of said letter reads:

"This is to authorize Consolidated Sugar Corporation or its representative to withdraw for and in our behalf (stress supplied) the refined sugar covered by Shipping List/Delivery Receipt = Refined Sugar (SDR) No. 1214 dated October 16, 1989 in the total quantity of 25, 000 bags." [16]

The Civil Code defines a contract of agency as follows:

"Art. 1868. By the contract of agency a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter."

It is clear from Article 1868 that the basis of agency is representation. [17] On the part of the principal, there must be an actual intention to appoint [18] or an intention naturally inferable from his words or actions; [19] and on the part of the agent, there must be an intention to accept the appointment
and act on it,[20] and in the absence of such intent, there is generally no agency. [21] One factor which most clearly distinguishes agency from other legal concepts is control; one person - the agent - agrees to act under the control or direction of another - the principal. Indeed, the very word
"agency" has come to connote control by the principal. [22] The control factor, more than any other, has caused the courts to put contracts between principal and agent in a separate category.[23] The Court of Appeals, in finding that CSC, was not an agent of STM, opined:

"This Court has ruled that where the relation of agency is dependent upon the acts of the parties, the law makes no presumption of agency, and it is always a fact to be proved, with the burden of proof resting upon the persons alleging the agency, to show not only the fact of its existence, but
also its nature and extent (Antonio vs. Enriquez [CA], 51 O.G. 3536]. Here, defendant-appellant failed to sufficiently establish the existence of an agency relation between plaintiff-appellee and STM. The fact alone that it (STM) had authorized withdrawal of sugar by plaintiff-appellee "for and in
our (STM's) behalf" should not be eyed as pointing to the existence of an agency relation ...It should be viewed in the context of all the circumstances obtaining. Although it would seem STM represented plaintiff-appellee as being its agent by the use of the phrase "for and in our (STM's) behalf"
the matter was cleared when on 23 January 1990, plaintiff-appellee informed defendant-appellant that SLDFR No. 1214M had been "sold and endorsed" to it by STM (Exhibit I, Records, p. 78). Further, plaintiff-appellee has shown that the 25, 000 bags of sugar covered by the SLDR No.
1214M were sold and transferred by STM to it ...A conclusion that there was a valid sale and transfer to plaintiff-appellee may, therefore, be made thus capacitating plaintiff-appellee to sue in its own name, without need of joining its imputed principal STM as co-plaintiff."[24]

In the instant case, it appears plain to us that private respondent CSC was a buyer of the SLDFR form, and not an agent of STM. Private respondent CSC was not subject to STM's control. The question of whether a contract is one of sale or agency depends on the intention of the parties as
gathered from the whole scope and effect of the language employed.[25]That the authorization given to CSC contained the phrase "for and in our (STM's) behalf" did not establish an agency. Ultimately, what is decisive is the intention of the parties. [26] That no agency was meant to be
established by the CSC and STM is clearly shown by CSC's communication to petitioner that SLDR No. 1214M had been "sold and endorsed" to it. [27]The use of the words "sold and endorsed" means that STM and CSC intended a contract of sale, and not an agency. Hence, on this score, no
error was committed by the respondent appellate court when it held that CSC was not STM's agent and could independently sue petitioner.

On the second issue, proceeding from the theory that the transactions entered into between petitioner and STM are but serial parts of one account, petitioner insists that its debt has been offset by its claim for STM's unpaid purchases, pursuant to Article 1279 of the Civil Code. [28] However, the
trial court found, and the Court of Appeals concurred, that the purchase of sugar covered by SLDR No. 1214M was a separate and independent transaction; it was not a serial part of a single transaction or of one account contrary to petitioner's insistence. Evidence on record shows, without
being rebutted, that petitioner had been paid for the sugar purchased under SLDR No. 1214M. Petitioner clearly had the obligation to deliver said commodity to STM or its assignee. Since said sugar had been fully paid for, petitioner and CSC, as assignee of STM, were not mutually creditors
and debtors of each other. No reversible error could thereby be imputed to respondent appellate court when, it refused to apply Article 1279 of the Civil Code to the present case.

Regarding the third issue, petitioner contends that the sale of sugar under SLDR No. 1214M is a conditional sale or a contract to sell, with title to the sugar still remaining with the vendor. Noteworthy, SLDR No. 1214M contains the following terms and conditions:

"It is understood and agreed that by payment by buyer/trader of refined sugar and/or receipt of this document by the buyer/trader personally or through a representative, title to refined sugar is transferred to buyer/trader and delivery to him/it is deemed effected and completed (stress supplied)
and buyer/trader assumes full responsibility therefore" [29]

The aforequoted terms and conditions clearly show that petitioner transferred title to the sugar to the buyer or his assignee upon payment of the purchase price. Said terms clearly establish a contract of sale, not a contract to sell. Petitioner is now estopped from alleging the contrary. The
contract is the law between the contracting parties. [30] And where the terms and conditions so stipulated are not contrary to law, morals, good customs, public policy or public order, the contract is valid and must be upheld.[31] Having transferred title to the sugar in question, petitioner is now
obliged to deliver it to the purchaser or its assignee.

As to the fourth issue, petitioner submits that STM and private respondent CSC have entered into a conspiracy to defraud it of its sugar. This conspiracy is allegedly evidenced by: (a) the fact that STM's selling price to CSC was below its purchasing price; (b) CSC's refusal to pursue its case
against Teresita Ng Go; and (c) the authority given by the latter to other persons to withdraw sugar against SLDR No. 1214M after she had sold her rights under said SLDR to CSC. Petitioner prays that the doctrine of "clean hands" should be applied to preclude CSC from seeking judicial relief.
However, despite careful scrutiny, we find here the records bare of convincing evidence whatsoever to support the petitioner's allegations of fraud. We are now constrained to deem this matter purely speculative, bereft of concrete proof.

WHEREFORE, the instant petition is DENIED for lack of merit. Costs against petitioner.

SO ORDERED.

EDUARDO B. OLAGUER, G.R. No. 158907

Petitioner,
Present:

YNARES-SANTIAGO, J.,
Chairperson,
- versus - AUSTRIA-MARTINEZ,
CALLEJO, SR.,
CHICO-NAZARIO, and
NACHURA, * JJ.

EMILIO PURUGGANAN, JR. AND RAUL LOCSIN, Promulgated:

Respo ndent s.
February 12, 2007
x--------------------------------------------------x

DECISION

CHICO-NAZARIO, J.:

This is a Petition for Review on Certiorari, under Rule 45 of the Rules of Court, assailing the Decision, [1] dated 30 June 2003, promulgated by the Court of Appeals, affirming the Decision of the Regional Trial Court, dated 26 July 1995, dismissing the petitioners suit.
The parties presented conflicting accounts of the facts.

EDUARDO B. OLAGUERS VERSION

Petitioner Eduardo B. Olaguer alleges that he was the owner of 60,000 shares of stock of Businessday Corporation (Businessday) with a total par value of P600,000.00, with Certificates of Stock No. 005, No. 028, No. 034, No. 070, and No. 100.[2] At the time he was employed with the corporation as Executive Vice-
President of Businessday, and President of Businessday Information Systems and Services and of Businessday Marketing Corporation, petitioner, together with respondent Raul Locsin (Locsin) and Enrique Joaquin (Joaquin), was active in the political opposition against the Marcos dictatorship. [3] Anticipating the
possibility that petitioner would be arrested and detained by the Marcos military, Locsin, Joaquin, and Hector Holifea had an unwritten agreement that, in the event that petitioner was arrested, they would support the petitioners family by the continued payment of his salary. [4] Petitioner also executed a Special Power of
Attorney (SPA), on 26 May 1979, appointing as his attorneys-in-fact Locsin, Joaquin and Hofileafor the purpose of selling or transferring petitioners shares of stock with Businessday. During the trial, petitioner testified that he agreed to execute the SPA in order to cancel his shares of stock, even before they are sold, for
the purpose of concealing that he was a stockholder of Businessday, in the event of a military crackdown against the opposition. [5]The parties acknowledged the SPA before respondent Emilio Purugganan, Jr., who was then the Corporate Secretary of Businessday, and at the same time, a notary public for Quezon City.[6]
On 24 December 1979, petitioner was arrested by the Marcos military by virtue of an Arrest, Search and Seizure Order and detained for allegedly committing arson. During the petitioners detention, respondent Locsin ordered fellow respondent Purugganan to cancel the petitioners shares in the books of the corporation and
to transfer them to respondent Locsins name.[7]

As part of his scheme to defraud the petitioner, respondent Locsin sent Rebecca Fernando, an employee of Businessday, to Camp Crame where the petitioner was detained, to pretend to borrow Certificate of Stock No. 100 for the purpose of using it as additional collateral for Businessdays then outstanding loan with the
National Investment and Development Corporation. When Fernando returned the borrowed stock certificate, the word cancelled was already written therein. When the petitioner became upset, Fernando explained that this was merely a mistake committed by respondent Locsins secretary.[8]

During the trial, petitioner also agreed to stipulate that from 1980 to 1982, Businessday made regular deposits, each amounting to P10,000.00, to the Metropolitan Bank and Trust Company accounts of Manuel and Genaro Pantig, petitioners in-laws. The deposits were made on every 15th and 30th of the month.[9] Petitioner
alleged that these funds consisted of his monthly salary, which Businessday agreed to continue paying after his arrest for the financial support of his family. [10] After receiving a total of P600,000.00, the payments stopped. Thereafter, respondent Locsin and Fernando went to ask petitioner to endorse and deliver the rest of
his stock certificates to respondent Locsin, but petitioner refused. [11]

On 16 January 1986, petitioner was finally released from detention. He then discovered that he was no longer registered as stockholder of Businessday in its corporate books. He also learned that Purugganan, as the Corporate Secretary of Businessday, had already recorded the transfer of shares in favor of
respondent Locsin, while petitioner was detained.When petitioner demanded that respondents restore to him full ownership of his shares of stock, they refused to do so. On 29 July 1986, petitioner filed a Complaint before the trial court against respondents Purugganan and Locsin to declare as illegal the sale of the shares of
stock, to restore to the petitioner full ownership of the shares, and payment of damages. [12]

RESPONDENT RAUL LOCSINS VERSION

In his version of the facts, respondent Locsin contended that petitioner approached him and requested him to sell, and, if necessary, buy petitioners shares of stock in Businessday, to assure support for petitioners family in the event that something should happen to him, particularly if he was jailed, exiled or forced to go
underground.[13] At the time petitioner was employed with Businessday, respondent Locsin was unaware that petitioner was part of a group, Light-a-Fire Movement, which actively sought the overthrow of the Marcos government through an armed struggle. [14] He denied that he made any arrangements to continue paying
the petitioners salary in the event of the latters imprisonment. [15]

When petitioner was detained, respondent Locsin tried to sell petitioners shares, but nobody wanted to buy them. Petitioners reputation as an oppositionist resulted in the poor financial condition of Businessday and discouraged any buyers for the shares of stock. [16] In view of petitioners previous instructions,
respondent Locsin decided to buy the shares himself. Although the capital deficiency suffered by Businessday caused the book value of the shares to plummet below par value, respondent Locsin, nevertheless, bought the shares at par value. [17] However, he had to borrow from Businessday the funds he used in purchasing
the shares from petitioner, and had to pay the petitioner in installments of P10,000.00 every 15th and 30th of each month.[18]

The trial court in its Decision, dated 26 July 1995, dismissed the Complaint filed by the petitioner. It ruled that the sale of shares between petitioner and respondent Locsin was valid. The trial court concluded that petitioner had intended to sell the shares of stock to anyone, including respondent Locsin, in order to provide
for the needs of his family should he be jailed or forced to go underground; and that the SPA drafted by the petitioner empowered respondent Locsin, and two other agents, to sell the shares for such price and under such terms and conditions that the agents may deem proper. It further found that petitioner consented to have
respondent Locsin buy the shares himself. It also ruled that petitioner, through his wife, received from respondent Locsin the amount of P600,000.00 as payment for the shares of stock.[19] The dispositive part of the trial courts Decision reads:

WHEREFORE, for failure of the [herein petitioner] to prove by preponderance of evidence, his causes of action and of the facts alleged in his complaint, the instant suit is hereby ordered DISMISSED, without pronouncement as to costs.

[Herein respondents] counterclaims, however, are hereby DISMISSED, likewise, for dearth of substantial evidentiary support. [20]

On appeal, the Court of Appeals affirmed the Decision of the trial court that there was a perfected contract of sale.[21] It further ruled that granting that there was no perfected contract of sale, petitioner, nevertheless, ratified the sale to respondent Locsin by his receipt of the purchase price, and his failure to raise any protest
over the said sale.[22] The Court of Appeals refused to credit the petitioners allegation that the money his wife received constituted his salary from Businessday since the amount he received as his salary, P24,000.00 per month, did not correspond to the amount he received during his detention, P20,000.00 per month
(deposits of P10,000.00 on every 15th and 30th of each month in the accounts of the petitioners in-laws). On the other hand, the total amount received, P600,000.00, corresponds to the aggregate par value of petitioners shares in Businessday.Moreover, the financial condition of Businessday prevented it from granting any
form of financial assistance in favor of the petitioner, who was placed in an indefinite leave of absence, and, therefore, not entitled to any salary. [23]

The Court of Appeals also ruled that although the manner of the cancellation of the petitioners certificates of stock and the subsequent issuance of the new certificate of stock in favor of respondent Locsin was irregular, this irregularity will not relieve petitioner of the consequences of a consummated sale. [24]

Finally, the Court of Appeals affirmed the Decision of the trial court disallowing respondent Locsins claims for moral and exemplary damages due to lack of supporting evidence. [25]

Hence, the present petition, where the following issues were raised:

I.

THE APPELLATE COURT ERRED IN RULING THAT THERE WAS A PERFECTED CONTRACT OF SALE BETWEEN PETITIONER AND MR. LOCSIN OVER THE SHARES;

II.

THE APPELLATE COURT ERRED IN RULING THAT PETITIONER CONSENTED TO THE ALLEGED SALE OF THE SHARES TO MR. LOCSIN;

III.
THE APPELLATE COURT ERRED IN RULING THAT THE AMOUNTS RECEIVED BY PETITIONERS IN LAWS WERE NOT PETITIONERS SALARY FROM THE CORPORATION BUT INSTALLMENT PAYMENTS FOR THE SHARES;

IV.

THE APPELLATE COURT ERRED IN RULING THAT MR. LOCSIN WAS THE PARTY TO THE ALLEGED SALE OF THE SHARES AND NOT THE CORPORATION; AND

V.

THE APPELLATE COURT ERRED IN RULING THAT THE ALLEGED SALE OF THE SHARES WAS VALID ALTHOUGH THE CANCELLATION OF THE SHARES WAS IRREGULAR. [26]

The petition is without merit.

The first issue that the petitioner raised is that there was no valid sale since respondent Locsin exceeded his authority under the SPA[27] issued in his, Joaquin and Holifenasfavor. He alleged that the authority of the afore-named agents to sell the shares of stock was limited to the following conditions: (1) in the event of the
petitioners absence and incapacity; and (2) for the limited purpose of applying the proceeds of the sale to the satisfaction of petitioners subsisting obligations with the companies adverted to in the SPA.[28]

Petitioner sought to impose a strict construction of the SPA by limiting the definition of the word absence to a condition wherein a person disappears from his domicile, his whereabouts being unknown, without leaving an agent to administer his property, [29] citing Article 381 of the Civil Code, the entire provision hereunder
quoted:

ART 381. When a person disappears from his domicile, his whereabouts being unknown, and without leaving an agent to administer his property, the judge, at the instance of an interested party, a relative, or a friend, may appoint a person to represent him in all that may be necessary.

This same rule shall be observed when under similar circumstances the power conferred by the absentee has expired.
Petitioner also puts forward that the word incapacity would be limited to mean minority, insanity, imbecility, the state of being deaf-mute, prodigality and civil interdiction.[30]He cites Article 38 of the Civil Code, in support of this definition, which is hereunder quoted:

ART. 38 Minority, insanity or imbecility, the state of being a deaf-mute, prodigality and civil interdiction are mere restrictions on capacity to act, and do not exempt the incapacitated person, from certain obligations, as when the latter arise from his acts or from property relations, such as easements.

Petitioner, thus, claims that his arrest and subsequent detention are not among the instances covered by the terms absence or incapacity, as provided under the SPA he executed in favor of respondent Locsin.

Petitioners arguments are unpersuasive. It is a general rule that a power of attorney must be strictly construed; the instrument will be held to grant only those powers that are specified, and the agent may neither go beyond nor deviate from the power of attorney. However, the rule is not absolute and should not be applied to
the extent of destroying the very purpose of the power. If the language will permit, the construction that should be adopted is that which will carry out instead of defeat the purpose of the appointment.Clauses in a power of attorney that are repugnant to each other should be reconciled so as to give effect to the instrument in
accordance with its general intent or predominant purpose. Furthermore, the instrument should always be deemed to give such powers as essential or usual in effectuating the express powers.[31]

In the present case, limiting the definitions of absence to that provided under Article 381 of the Civil Code and of incapacity under Article 38 of the same Code negates the effect of the power of attorney by creating absurd, if not impossible, legal situations. Article 381 provides the necessarily stringent standards that would
justify the appointment of a representative by a judge. Among the standards the said article enumerates is that no agent has been appointed to administer the property. In the present case, petitioner himself had already authorized agents to do specific acts of administration and thus, no longer necessitated the appointment of
one by the court. Likewise, limiting the construction of incapacity to minority, insanity, imbecility, the state of being a deaf-mute, prodigality and civil interdiction, as provided under Article 38, would render the SPA ineffective.Article 1919(3) of the Civil Code provides that the death, civil interdiction, insanity or
insolvency of the principal or of the agent extinguishes the agency. It would be equally incongruous, if not outright impossible, for the petitioner to require himself to qualify as a minor, an imbecile, a deaf-mute, or a prodigal before the SPA becomes operative. In such cases, not only would he be prevented from appointing
an agent, he himself would be unable to administer his property.

On the other hand, defining the terms absence and incapacity by their everyday usage makes for a reasonable construction, that is, the state of not being present and the inability to act, given the context that the SPA authorizes the agents to attend stockholders meetings and vote in behalf of petitioner, to sell the shares of
stock, and other related acts. This construction covers the situation wherein petitioner was arrested and detained. This much is admitted by petitioner in his testimony. [32]

Petitioners contention that the shares may only be sold for the sole purpose of applying the proceeds of the sale to the satisfaction of petitioners subsisting obligations to the company is far-fetched. The construction, which will carry out the purpose, is that which should be applied. Petitioner had not submitted evidence that
he was in debt with Businessday at the time he had executed the SPA. Nor could he have considered incurring any debts since he admitted that, at the time of its execution, he was concerned about his possible arrest, death and disappearance. The language of the SPA clearly enumerates, as among those acts that the agents
were authorized to do, the act of applying the proceeds of the sale of the shares to any obligations petitioner might have against the Businessday group of companies. This interpretation is supported by the use of the word and in enumerating the authorized acts, instead of phrases such as only for, for the purpose of, in order
to or any similar terms to indicate that the petitioner intended that the SPA be used only for a limited purpose, that of paying any liabilities with the Businessday group of companies.

Secondly, petitioner argued that the records failed to show that he gave his consent to the sale of the shares to respondent Locsin for the price of P600,000.00. This argument is unsustainable. Petitioner received from respondent Locsin, through his wife and in-laws, the installment payments for a total of P600,000.00 from
1980 to 1982, without any protest or complaint. It was only four years after 1982 when petitioner demanded the return of the shares. The petitioners claim that he did not instruct respondent Locsin to deposit the money to the bank accounts of his in-laws fails to prove that petitioner did not give his consent to the sale since
respondent Locsin was authorized, under the SPA, to negotiate the terms and conditions of the sale including the manner of payment. Moreover, had respondent Locsin given the proceeds directly to the petitioner, as the latter suggested in this petition, the proceeds were likely to have been included among petitioners
properties which were confiscated by the military. Instead, respondent Locsindeposited the money in the bank accounts of petitioners in-laws, and consequently, assured that the petitioners wife received these amounts. Article 1882 of the Civil Code provides that the limits of an agents authority shall not be considered
exceeded should it have been performed in a manner more advantageous to the principal than that specified by him.

In addition, petitioner made two inconsistent statements when he alleged that (1) respondent Locsin had not asked the petitioner to endorse and deliver the shares of stock, and (2) when Rebecca Fernando asked the petitioner to endorse and deliver the certificates of stock, but petitioner refused and even became upset.[33] In
either case, both statements only prove that petitioner refused to honor his part as seller of the shares, even after receiving payments from the buyer. Had the petitioner not known of or given his consent to the sale, he would have given back the payments as soon as Fernando asked him to endorse and deliver the certificates
of stock, an incident which unequivocally confirmed that the funds he received, through his wife and his in-laws, were intended as payment for his shares of stocks. Instead, petitioner held on to the proceeds of the sale after it had been made clear to him that respondent Locsin had considered the P600,000.00 as payment for
the shares, and asked petitioner, through Fernando, to endorse and deliver the stock certificates for cancellation.

As regards the third issue, petitioners allegation that the installment payments he was adjudged to have received for the shares were actually salaries which Businessday promised to pay him during his detention is unsupported and implausible. Petitioner received P20,000.00 per month through his in-laws; this amount does
not correspond to his monthly salary at P24,000.00.[34] Nor does the amount received correspond to the amount which Businessday was supposed to be obliged to pay petitioner, which was only P45,000.00 to P60,000.00 per annum.[35] Secondly, the petitioners wife did not receive funds from
respondent Locsin or Businessday for the entire duration of petitioners detention. Instead, when the total amount received by the petitioner reached the aggregate amount of his shares at par value -- P600,000.00 -- the payments stopped. Petitioner even testified that when respondent Locsin denied knowing the petitioner
soon after his arrest, he believed respondent Locsins commitment to pay his salaries during his detention to be nothing more than lip-service.[36]

Granting that petitioner was able to prove his allegations, such an act of gratuity, on the part of Businessday in favor of petitioner, would be void. An arrangement whereby petitioner will receive salaries for work he will not perform, which is not a demandable debt since petitioner was on an extended leave of absence,
constitutes a donation under Article 726[37] of the Civil Code. Under Article 748 of the Civil Code, if the value of the personal property donated exceeds P5,000.00, the donation and the acceptance shall have to be made in writing. Otherwise, the donation will be void. In the present case, petitioner admitted in his
testimony[38] that such arrangement was not made in writing and, hence, is void.

The fact that some of the deposit slips and communications made to petitioners wife contain the phrase household expenses does not disprove the sale of the shares. The money was being deposited to the bank accounts of the petitioners in-laws, and not to the account of the petitioner or his wife, precisely because some of
his property had already been confiscated by the military. Had they used the phrase sale of shares, it would have defeated the purpose of not using their own bank accounts, which was to conceal from the military any transaction involving the petitioners property.

Petitioner raised as his fourth issue that granting that there was a sale, Businessday, and not respondent Locsin, was the party to the transaction. The curious facts that the payments were received on the 15 th and 30th of each month and that the payor named in the checks was Businessday, were adequately explained by
respondent Locsin.Respondent Locsin had obtained cash advances from the company, paid to him on the 15 th and 30th of the month, so that he can pay petitioner for the shares. To support his claim, he presented Businessdays financial records and the testimony of Leo Atienza, the Companys Accounting Manager. When
asked why the term shares of stock was used for the entries, instead of cash advances, Atienza explained that the term shares of stock was more specific rather than the broader phrase cash advances.[39] More to the point, had the entries been for shares of stock, the issuance of shares should have been reflected in the stock
and transfer books of Businessday, which the petitioner presented as evidence.Instead the stock and transfer books reveal that the increase in respondent Locsins shares was a result of the cancellation and transfer of petitioners shares in favor of respondent Locsin.

Petitioner alleges that the purported sale between himself and respondent Locsin of the disputed shares of stock is void since it contravenes Article 1491 of the Civil Code, which provides that:

ART. 1491. The following persons cannot acquire by purchase, even at a public or judicial auction, either in person or through the mediation of another:

xxxx

(2) Agents, the property whose administration or sale may have been entrusted to them, unless the consent of the principal has been given; x x x.
It is, indeed, a familiar and universally recognized doctrine that a person who undertakes to act as agent for another cannot be permitted to deal in the agency matter on his own account and for his own benefit without the consent of his principal, freely given, with full knowledge of every detail known to the agent which
might affect the transaction.[40]The prohibition against agents purchasing property in their hands for sale or management is, however, clearly, not absolute. It does not apply where the principal consents to the sale of the property in the hands of the agent or administrator. [41]

In the present case, the parties have conflicting allegations. While respondent Locsin averred that petitioner had permitted him to purchase petitioners shares, petitioner vehemently denies having known of the transaction. However, records show that petitioners position is less credible than that taken by
respondent Locsin given petitioners contemporaneous and subsequent acts. [42] In 1980, when Fernando returned a stock certificate she borrowed from the petitioner, it was marked cancelled. Although the petitioner alleged that he was furious when he saw the word cancelled, he had not demanded the issuance of a new
certificate in his name. Instead of having been put on his guard, petitioner remained silent over this obvious red flag and continued receiving, through his wife, payments which totalled to the aggregate amount of the shares of stock valued at par. When the payments stopped, no demand was made by either petitioner or his
wife for further payments.

From the foregoing, it is clear that petitioner knew of the transaction, agreed to the purchase price of P600,000.00 for the shares of stock, and had in fact facilitated the implementation of the terms of the payment by providing respondent Locsin, through petitioners wife, with the information on the bank accounts of his in-
laws. Petitioners wife and his son even provided receipts for the payments that were made to them by respondent Locsin,[43] a practice that bespeaks of an onerous transaction and not an act of gratuity.

Lastly, petitioner claims that the cancellation of the shares and the subsequent transfer thereof were fraudulent, and, therefore, illegal. In the present case, the shares were transferred in the name of the buyer, respondent Locsin, without the petitioner delivering to the buyer his certificates of stock. Section 63 of the
Corporation Code provides that:

Sec.63. Certificate of stock and transfer of shares. xxx Shares of stock so issued are personal property and may be transferred by delivery of the certificate or certificates indorsed by the owner or his attorney-in-fact or other person legally authorized to make the transfer. No transfer, however, shall be valid, except as
between the parties, until the transfer is recorded in the books of the corporation showing the names of the parties to the transaction, the date of the transfer, the number of the certificate or certificates and the number of shares transferred. (Emphasis provided.)
The aforequoted provision furnishes the procedure for the transfer of shares the delivery of the endorsed certificates, in order to prevent the fraudulent transfer of shares of stock.However, this rule cannot be applied in the present case without causing the injustice sought to be avoided. As had been amply demonstrated,
there was a valid sale of stocks.Petitioners failure to deliver the shares to their rightful buyer is a breach of his duty as a seller, which he cannot use to unjustly profit himself by denying the validity of such sale.Thus, while the manner of the cancellation of petitioners certificates of stock and the issuance of the new
certificates in favor of respondent Locsin was highly irregular, we must, nonetheless, declare the validity of the sale between the parties. Neither does this irregularity prove that the transfer was fraudulent. In his testimony, petitioner admitted that they had intended to conceal his being a stockholder of Businessday.[44] The
cancellation of his name from the stock and transfer book, even before the shares were actually sold, had been done with his consent. As earlier explained, even the subsequent sale of the shares in favor of Locsin had been done with his consent.

IN VIEW OF THE FOREGOING, the instant Petition is DENIED. This Court AFFIRMS the assailed Decision of the Court of Appeals, promulgated on 30 June 2003, affirming the validity of the sale of the shares of stock in favor of respondent Locsin. No costs.

SO ORDERED.

CAROLINA HERNANDEZ-NIEVERA, DEMETRIO P. HERNANDEZ, JR., and MARGARITA

G.R.
H.No.
MALVAR,
171165
Petitioners,
Present:

- versus
CARPIO, J., Chairperson,
NACHURA,
PERALTA, MOVERS
WILFREDO HERNANDEZ, HOME INSURANCE AND GUARANTY CORPORATION, PROJECT
ABAD,
REALTY AND DEVELOPMENT CORPORATION, MARIO P. VILLAMOR and LAND and OF THE
BANK
PHILIPPINES, MENDOZA, JJ.
Respondents.

Promulgated:

February 14, 2011

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

DECISION

PERALTA, J.:

This Rule 45 petition for review assails the October 19, 2005 Decision[1] of the Court of Appeals in CA-G.R. CV No. 83852,[2] as well as the January 11, 2006 Resolution[3] in the same case which denied reconsideration. The said decision had reversed and set aside the August 30, 2004 judgment [4] rendered by the Regional
Trial Court (RTC) of San Pablo City, Laguna, Branch 32 in Civil Case No. SP-5742(2000) one for rescission of a memorandum of agreement and declaration of nullity of a deed of assignment and conveyance, with prayer for preliminary injunction and damages.

The facts follow.

Project Movers Realty & Development Corporation (PMRDC), one of the respondents herein, is a duly organized domestic corporation engaged in real estate development.Sometime in 1995, it entered through its president, respondent Mario Villamor (Villamor), into various agreements with co-respondents
Home Insurance & Guaranty Corporation (HIGC)[5] and Land Bank of the Philippines (LBP), in connection with the construction of the Isabel Homes housing project in Batangas and of the Monumento Plaza commercial and recreation complex in Caloocan City. In its Asset Pool Formation Agreement, PMRDC conveyed
to HIGC the constituent assets of the two projects, [6] whereas LBP agreed to act as trustee of the resulting Asset Pool[7] for a consideration.[8] The execution of the projects would be funded largely through securitization, a method of sourcing development funds by the issuance of participation certificates against the direct
backing assets of the projects,[9] whereby LBP would act as the nominal issuer of such certificates with the Asset Pool itself acting as the real issuer. [10] HIGC, in turn, would provide guaranty coverage to these participation certificates in accordance with its Contract of Guarant y with PMRDC and LBP. [11]

On November 13, 1997, PMRDC entered into a Memorandum of Agreement (MOA) whereby it was given the option to buy pieces of land owned by petitioners Carolina Hernandez-Nievera (Carolina), Margarita H. Malvar (Margarita) and Demetrio P. Hernandez, Jr. (Demetrio). Demetrio, under authority of
a Special Power of Attorney to Sell or Mortgage, [12] signed the MOA also in behalf of Carolina and Margarita. In the aggregate, the realty measured 4,580,451 square meters and was segregated by agreement into Area I and Area II, respectively pertaining to the parcels covered by Transfer Certificate of Title (TCT) Nos. T-
3137, T-3138, T-3139 and T-3140 on the one hand, and on the other by TCT Nos. T-3132, T-3133, T-3134, T-3135 and T-3136, all issued by the Register of Deeds of Laguna. The MOA materially provides:

1. THAT, the consideration for the sale of the parcels of land (Areas I and II) shall be TWENTY-FIVE PESOS (Php 25.00) per square meter or a total of PESOS: ONE HUNDRED FOURTEEN MILLION FIVE HUNDRED ELEVEN TWO HUNDRED SEVENTY (Php114,511,270.00);

1. THAT, the VENDEE shall have the option to purchase the above-described parcels of land within a period of twelve (12) months from the date of this instrument and that the VENDEE shall pay the vendor option money in the following amounts and on the dates herein specified:

Area I
PESOS: SIX MILLION (Php6,000,000.00) payable in two (2) equal installments of PESOS: THREE MILLION (Php3,000,000.00), the first installment due on or before November 20, 1997; the second installment due on or before December 15, 1997, both installments to be covered by postdated checks
upon signing of this Agreement.

Area II
Option money of PESOS: EIGHT MILLION FIVE HUNDRED THOUSAND (Php8,500,000.00) payable within thirty (30) days after conveyance to the Isabel Homes Asset Pool.
2. THAT, should the VENDEE exercise the option to purchase the parcels of land within the stipulated period, the VENDEE shall complete the TWENTY-FIVE (25%) PERCENT downpayment inclusive of the option money within the said stipulated period. Balance of the TWENTY FIVE (25%) PERCENT
downpayment exclusive of the option money for Area I is PESOS: TEN MILLION FOUR HUNDRED EIGHTY-TWO THOUSAND TWO HUNDRED SIXTY-TWO (Php10,482,262.00) and for Area II is PESOS: THREE MILLION SIX HUNDRED FORTY-FIVE THOUSAND FIVE HUNDRED FIFTY- SIX
(Php3,645,556.00).

The balance of the purchase price in the amount of PESOS: EIGHTY-FIVE MILLION EIGHT HUNDRED EIGHTY-THREE FOUR HUNDRED FIFTY-SIX (Php85,883,456.00) shall be payable within two (2) years in eight (8) quarterly installments covered by postdated checks. Schedule of payments
shall be as follows:

January 31, 1999 Php 10,735,432.00

April 30, 1999 10,735,432.00
July 31, 1999 10,735,432.00
October 31, 1999 10,735,432.00
January 31, 2000 10,735,432.00
April 30, 2000 10,735,432.00
July 30, 2000 10,735,432.00
October 31, 2000 10,735,432.00

3. THAT, should the VENDEE fail to exercise its option to purchase the said described parcels of land within the stipulated period, the option money shall be forfeited in favor of the VENDOR and that the VENDEE shall return to the VENDOR all the Transfer Certificates of Title covering the
said described parcels of land within a period of THIRTY (30) DAYS from the stipulated period, FREE FROM ALL LIENS AND ENCUMBRANCES;

4. THAT, the VENDOR, at the request of the VENDEE, shall agree to convey the parcels of land to any bank or financial institution by way of mortgage or to a Trustee by way of a Trust Agreement at any time from the date of this instrument, PROVIDED, HOWEVER, that the VENDOR is not liable for any
mortgage or loans or obligations that will be incurred by way of mortgage of Trust Agreement that the VENDEE might enter into;

5. It is agreed that the VENDOR shall have the sole responsibility in the settlement of the tenants and eviction of the tenants and eviction of the occupants of the described parcels of land after all consideration have been fully paid by the VENDEE to the VENDOR;

6. THAT, all taxes including capital gains tax, transfer tax and documentary stamps tax shall be for the account of the VENDOR;

7. THAT, the VENDOR hereby warrants valid title to, and peaceful possession of the said described parcels of land after all considerations have been fully paid.[13]

As an implementation of the MOA, the lands within Area I were then mortgaged to Solid Bank for which petitioners received consideration from PMRDC.[14]

Later on, PMRDC saw the need to convey additional properties to and augment the value of its Asset Pool to support the collateralization of additional participation certificates to be issued.[15] Thus, on March 23, 1998, it entered with LBP and Demetrio the latter purportedly acting under authority of the
same special power of attorney as in the MOA into a Deed of Assignment and Conveyance (DAC) [16] whereby the lands within Area II covered by TCT Nos. T-3132, T-3133, T-3134, T-3135 and T-3136 were transferred and assigned to the Asset Pool in exchange for a number of shares of stock which supposedly had
already been issued in the name and in favor of Demetrio. These pieces of land are the subject of the present controversy as far as they are affected by the explicit provision in the DAC which dispensed with the stipulated obligation of PMRDC in the MOA to pay option money should it opt to buy the properties. [17]

PMRDC admittedly did not avail of its option to purchase the lands in Area II in the twelve months that passed after the execution of the MOA. Although PMRDC delivered to petitioners certain checks representing the money, the same however allegedly bounced.[18] Hence, on January 8, 1999, petitioners
demanded the return of the corresponding TCTs. [19] In its January 21, 1999 letter to Demetrio, however, PMRDC, through Villamor, stated that the TCTs could no longer be delivered back to petitioners as the covered properties had already been conveyed and assigned to the Asset Pool pursuant to the March 23, 1998
DAC. In the correspondence that ensued, petitioners disowned Demetrios signature in the DAC and labeled it a mere forgery. They explained that Demetrio could not have entered into the said agreement as his power of attorney was limited only to selling or mortgaging the properties and not conveying the same to the
Asset Pool. Boldly, they asserted that the fraudulent execution of the DAC was made possible through the connivance of all the respondents.[20]

With that final word, petitioners instituted an action before the RTC of San Pablo City, Laguna, Branch 32 for the rescission of the MOA, as well as for the declaration of nullity of the DAC. They prayed for the issuance of a writ of preliminary injunction and for the payment of damages. [21]

Ruling for petitioners, the trial court, on August 30, 2004, declared the MOA to be an option contract and ordered its rescission. It, likewise, declared the DAC null and void as it made a definite finding of forgery of Demetrios signature as well as fraud in its execution, and accordingly, adjudged respondents PMRDC and
Villamor liable to petitioner for damages. [22] The dispositive portion of the decision reads:

WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered in the favor of the plaintiffs and against the defendants as follows:

1. Rescinding the Memorandum of Agreement (MOA) executed between the plaintiffs and Project Movers Realty [&] Development Corporation (PMRDC);

2. Declaring null and void the Deed of Assignment and Conveyance (DAC) executed between Project Movers Realty [&] Development Corporation, Land Bank of the Philippines and Demetrio Hernandez whose signature is forged;
3. Ordering Transfer Certificate of Title Nos. T-3132, T-3133, T-3134 and T-3135, all in the names of the plaintiffs, which are in the custody of the Court, to be delivered to plaintiffs immediately and the plaintiffs are ordered to issue a corresponding receipt of said certificates of title signed by all the
plaintiffs to be submitted to the OIC-Branch Clerk of Court of this Court within five (5) days from receipt of said titles;

4. Ordering defendants Mario Villamor and Wilfredo Hernandez to pay plaintiffs, jointly and severally, the following:

a. Actual damages of P500,000.00;

b. Moral damages of P200,000.00;
c. Exemplary damages of P200,000.00;
d. Attorneys fees in the amount of P300,000.00;
e. And the costs of the suit.

SO ORDERED.[23]

Aggrieved, respondents filed a notice of appeal and elevated the matter to the Court of Appeals. On October 19, 2005, the Court of Appeals issued the assailed Decision reversing and setting aside the trial courts decision as follows:

WHEREFORE, based on the foregoing, the appeal is GRANTED. The decision dated August 30, 2004 of the Regional Trial Court, Branch 32, San Pablo City in Civil Case No. SP-5742 (2000) is REVERSED and SET ASIDE and a new one is entered declaring the Deed of Conveyance valid and thus, the Transfer
Certificates of Title subject of this case are ordered returned to HIGC.No costs.
SO ORDERED.[24]

Central to the ruling of the Court of Appeals is its contrary finding that the allegation of forgery of Demetrios signature in the DAC was not established by the evidence and, hence, following the legal presumption of regularity in the execution of notarized deeds, it upheld the validity of the DAC.[25] The Court of Appeals
noted that the incompatibility in the terms of the MOA and the DAC clearly signified the intention of the parties to have the MOA novated by subsequent agreement and have the properties conveyed to the Asset Pool in exchange for PMRDC shares to be issued to Demetrio. This, according to the appellate court,
completely changed the original obligations of PMRDC as provided in the MOA. It noted further that it was premature to order the release of the subject TCTs to petitioners at this stage of the proceedings, because that would amount to an execution of the decision. [26]

With the denial of their motion for reconsideration, [27] petitioners filed the instant petition for review attributing error to the Court of Appeals in declining to rescind the MOA and declare the DAC null and void.
 Petitioners insist that the obligation of PMRDC to deliver back the TCTs arises on its failure to exercise the option to purchase the lands according to the terms of the MOA, and that the deliberate refusal of PMRDC to perform such obligation gives ground for the rescission of the MOA. This thesis is perched
on petitioners argument that the MOA could not have possibly been novated by the DAC because first, Demetrios signature therein has been forged, and second, Demetrio could not have validly assented to the DAC in behalf of Carolina and Margarita because his special power was limited only to selling or mortgaging the
properties and excludes conveying and assigning the said properties to the Asset Pool for consideration. [28] They also point out that the DAC itself is infirm insofar as it stipulated to convey the lands to the Asset Pool as the latter supposedly is neither a registered corporation nor a partnership and does not possess a legal
personality.[29]

Commenting on the petition, PMRDC and Villamor advance that petitioners allegation of fraud and forgery are all factual matters that are inappropriate in a Rule 45 petition.[30]More importantly, they aver that the novation of the MOA by the DAC is unmistakable as the DAC itself has made an express reference to the
MOA provisions on the payment of option money and, hence, has expressly modified the pertinent terms thereof. [31]

HIGC and its president, Wilfredo Hernandez, both represented by the Office of the Government Corporate Counsel (OGCC), [32] and LBP[33] are of the same view.[34] In addition, HIGC explains that contrary to petitioners belief, the transfer of the properties under the DAC is valid as the conveyance has been
made to the Asset Pool with LBP, an entity with juridical entity, acting as trustee thereof. [35] Addressing the issue of forgery and fraud in the execution of the DAC, HIGC maintains that these factual matters remain to be mere allegations which nothing in the records of the case could conclusively prove, except the self-
serving testimony of petitioners themselves.[36]

The Court denies the petition.

Petitioners cause stems from the failure of PMRDC to restore to petitioners the possession of the TCTs of the lands within Area II upon its failure to exercise the option to purchase within the 12-month period stipulated in the MOA. Respondents maintain, however, that said obligation, dependent as it is on
the exercise of the option to purchase, has altogether been expressly obliterated by the terms of the DAC whereby petitioners, through Demetrio as attorney-in-fact, have agreed to novate the terms of the MOA by extinguishing the core obligations of PMRDC on the payment of option money. This seems to suggest that
with the execution of the DAC, PMRDC has already entered into the exercise of its option except that its obligation to deliver the option money has, by subsequent agreement embodied in the DAC, been substituted instead by the obligation to issue participation certificates in Demetrios name but which, likewise, has not
yet been performed by PMRDC. But petitioners stand against the validity of the DAC on the ground that the signature of Demetrio therein was spurious.

Firmly settled is the jurisprudential rule that forgery cannot be presumed from a mere allegation but rather must be proved by clear, positive and convincing evidence by the party alleging the same.[37] The burden to prove the allegation of forgery in this case has not been conclusively discharged by
petitioners because first, nothing in the records supports the allegation except only perhaps Demetrios explicit self-serving disavowal of his signature in open court.[38] Second, while in fact Demetrio at the trial of the case had committed to have the subject signature examined by an expert, [39] nevertheless, the trial had
terminated without the results of the examination being submitted in evidence.Third, the claim of forgery, unsubstantiated as it is, becomes even more unremarkable in light of the fact that the DAC involved in this case is a notarized deed guaranteed by public attestation in accordance with law, such that the execution
thereof enjoys the legal presumption of regularity in the absence of compelling proof to the contrary. [40]

Yet the inquiry on the validity of the DAC does not terminate with the finding alone of the genuineness of Demetrios signature therein, because petitioners also stand against its validity on the ground of Demetrios non-authority to execute the same. They claim that the execution of the DAC would be beyond
the power of Demetrio to perform as his authority is limited only to selling or mortgaging the properties and does not include assigning and conveying said properties to the Asset Pool in consideration of shares of stocks for his lone benefit. For their part, respondents, who believe Demetrios power of attorney was broad
enough to effectuate a novation of PMRDCs core obligations in the MOA or, at the least, implement the provisions thereof through the DAC, invoke the 4 th and 5th whereas-clauses in the DAC which, in relation to each other, supposedly pertain to that certain provision in the MOA which authorizes the conveyance of the
properties to the Asset Pool in exchange for corporate shares. [41]
The 4th and 5th whereas-clauses in the DAC read as follows:

WHEREAS, on November 3, 1997, PMRDC and LANDOWNER have entered into a Memorandum of Agreement whereby the former agreed to convey to the Isabel Homes Asset Pool certain real properties located at Sta. Maria, Laguna;

[WHEREAS], the LANDOWNER and PMRDC have agreed to revise and modify the said Memorandum of Agreement, whereby the LANDOWNER shall dispense with the option money as a requisite to the sale and purchase of the properties by PMRDC, and agreed to convey absolutely
and unqualifiedly the same properties directly to the Isabel Homes Asset Pool for and in exchange of shares of stock or equity in PMRDC.[42]

While indeed we find no provision in the MOA such as that alluded to in the aforequoted 4 th whereas-clause in the DAC which purportedly embodies an agreement by the parties to assign and convey the subject properties to the Asset Pool, we surmise that the clause could be referring to paragraph 5 of the MOA which
stipulates a commitment on the part of petitioners to give their consent to an assignment and conveyance of the properties to the Asset Pool but only once a request therefor is made by PMRDC. Paragraph 5 reads:

5. THAT, the VENDOR at the request of the VENDEE shall agree to convey the parcels of land to any bank or financial institution by way of mortgage or to a Trustee by way of a Trust Agreement at any time from the date of this instrument, PROVIDED, HOWEVER, that the VENDOR is
not liable for any mortgage or loans or obligations that will be incurred by way of mortgage of Trust Agreement that the VENDEE might enter into;[43]

Petitioners profess, however, that no such request was ever intimated to them at any time during the subsistence of the PMRDCs right to exercise the option to buy. But respondents are quick to reason that a request is unnecessary because Demetrio has been legally enabled by his special power to give such consent and
accordingly execute the DAC, effect a novation of the MOA, and extinguish the stipulated obligations of PMRDC therein, or at least that he could assent to the implementation of the MOA provisions in the way that transpired. We agree.

Demetrios special power of attorney granting the powers to sell and/or mortgage reads in part:

1. To sell and/or mortgage in favor of any person, corporation, partnership, private banking or financial institution, government or semi-government banking or financial institution for such price or amount and under such terms and conditions as our aforesaid attorney-in-fact may deem just and proper, parcels of
land more particularly described as follows:
xxx
2. To carry out the authority aforestated, to sign, execute and deliver such deeds, instruments and other papers that may be required or necessary;
3. To further attain the authority herein given, to do and perform such acts and things that may be necessary or incidental to fully carry out the authority herein granted. [44]

It is in the context of this vesture of power that Demetrio, representing his shared interest with Carolina and Margarita, entered into the MOA with PMRDC. It is likewise within this same context that Demetrio later on entered into the DAC and accordingly extinguished the previously subsisting obligation of
PMRDC to deliver the stipulated option money and replaced said obligation with the delivery instead of participation certificates in favor of Demetrio.
The powers conferred on Demetrio were exclusive only to selling and mortgaging the properties. Between these two specific powers, the power to sell is quite controversial because it is the sale transaction which bears close resemblance to the deal contemplated in the DAC. In fact, part of the testimony of
Atty. Danilo Javier, counsel for respondent HIGC and head of its legal department at the time, is that in the execution of the DAC, respondents had relied on Demetrios special power of attorney and also on his supposed agreement to be paid in kind, i.e., in shares of stock, as consideration for the assignment and
conveyance of the subject properties to the Asset Pool. [45] What petitioners miss, however, is that the power conferred on Demetrio to sell for such price or amount [46] is broad enough to cover the exchange contemplated in the DAC between the properties and the corresponding corporate shares in PMRDC, with the latter
replacing the cash equivalent of the option money initially agreed to be paid by PMRDC under the MOA. Suffice it to say that price is understood to mean the cost at which something is obtained, or something which one ordinarily accepts voluntarily in exchange for something else, or the consideration given for the
purchase of a thing.[47]

Thus, it becomes clear that Demetrios special power of attorney to sell is sufficient to enable him to make a binding commitment under the DAC in behalf of Carolina and Margarita. In particular, it does include the authority to extinguish PMRDCs obligation under the MOA to deliver option money and
agree to a more flexible term by agreeing instead to receive shares of stock in lieu thereof and in consideration of the assignment and conveyance of the properties to the Asset Pool. Indeed, the terms of his special power of attorney allow much leeway to accommodate not only the terms of the MOA but also those of the
subsequent agreement in the DAC which, in this case, necessarily and consequently has resulted in a novation of PMRDCs integral obligations. On this score, we quote with approval the decision of the Court of Appeals, aptly citing the case of California Bus Lines, Inc. v. State Investment House, Inc. [48] thus

There are two ways which could indicate, in fine, the presence of novation and thereby produce the effect of extinguishing an obligation by another which substitutes the same. The first is when novation has been explicitly stated and declared in unequivocal terms. The second is when the old and the new obligations are
incompatible on every point. The test of incompatibility is whether the two obligations can stand together, each one having its independent existence. If they cannot, they are incompatible, and the latter obligation novates the first. Corollarily, changes that breed incompatibility must be essential in nature and not merely
accidental. The incompatibility must take place in any of the essential elements of the obligation such as its object, cause or principal conditions thereof; otherwise, the change would be merely modificatory in nature and insufficient to extinguish the original obligation. [49]

In view of the foregoing, the Court finds no useful purpose in addressing all the other issues raised in this petition.

A final note. Section 10, Book IV, Title III, Chapter 3[50] of the Revised Administrative Code of 1987 has designated the OGCC to act as the principal law office of government-owned or controlled corporations (GOCCs) in connection with any judicial or quasi-judicial proceeding. Yet between the two
respondents GOCCs in this case LBP and HIGC it is only the latter for which the OGCC has entered its appearance. Nowhere in the records is it shown that the OGCC has ever entered its appearance in this case as principal legal counsel of respondent LBP, or that at the very least it has given express conformity to the LBP
legal departments representation.[51]

In Land Bank of the Philippines v. Martinez,[52] citing Land Bank of the Philippines v. Panlilio-Luciano,[53] we explained that the legal department of LBP is not expressly authorized by its charter to appear in behalf of the corporation in any proceeding as the mandate of the law is explicit enough to place the
said department under the OGCCs power of control and supervision. We held in that case:
 [Section 10] mandates the OGCC, and not the LBP Legal Department, as the principal law office of the LBP. Moreover, it establishes the proper hierarchical order in that the LBP Legal Department remains under the control and supervision of the OGCC. x x x

At the same time, the existence of the OGCC does not render the LBP Legal Department a superfluity. We do not doubt that the LBP Legal Department carries out vital legal services to LBP. However, the performance of such functions cannot deprive the OGCCs role as overseer of the LBP Legal
Department and its mandate of exercising control and supervision over all GOCC legal departments. For the purpose of filing petitions and making submissions before this Court, such control and supervision imply express participation by the OGCC as principal legal counsel of LBP. x x x

It should also be noted that the aforementioned Section 10, Book IV, Title III, Chapter 3 of the Administrative Code of 1987 authorizes the OGCC to receive the attorney's fees adjudged in favor of their client GOCCs, such fees accruing to a special fund of the OGCC. Evidently, the non-participation of the
OGCC in litigations pursued by GOCCs would deprive the former of its due funding as authorized by law. Hence, this is another reason why we cannot sustain Attys. Beramo and Berbao's position that the OGCC need not participate in litigations pursued by LBP.

It may strike as disruptive to the flow of a GOCCs daily grind to require the participation of the OGCC as its principal law office, or the exercise of control and supervision by the OGCC over the acts of the GOCCs legal departments. For reasons such as proximity and comfort, the GOCC may find it
convenient to rely instead on its in-house legal departments, or more irregularly, on private practitioners. Yet the statutory role of the OGCC as principal law office of GOCCs is one of long-standing, and we have to recognize such function as part of public policy. Since the jurisdiction of the OGCC includes all
GOCCs, its perspective is less myopic than that maintained by a particular legal department of a GOCC. It is not inconceivable that left to its own devices, the legal department of a given GOCC may adopt a legal position inconsistent with or detrimental to other GOCCs. Since GOCCs fall within the
same governmental framework, it would be detrimental to have GOCCs foisted into adversarial positions by their respective legal departments. Hence, there is indubitable wisdom in having one overseer over all these legal departments which would ensure that the legal positions adopted by the GOCCs
would not conflict with each other or the government.

x x x Certainly, Section 10, Book IV, Title III, Chapter 3 of the Administrative Code of 1987 can be invoked by adverse parties or by the courts in citing as deficient the exclusive representation of LBP by its Legal Department. Then again, if neither the adverse parties nor the courts of jurisdiction choose to contest this
point, there would be no impediment to the litigation to maintain. x x x[54]

WHEREFORE, the Petition is DENIED. The October 19, 2005 Decision and January 11, 2006 Resolution of the Court of Appeals, in CA- G.R. CV No. 83852, are hereby AFFIRMED.

SO ORDERED.

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

VICENTE M. DOMINGO, represented by his heirs, ANTONINA RAYMUNDO VDA. DE DOMINGO, RICARDO, CESAR, AMELIA, VICENTE JR., SALVADOR, IRENE and JOSELITO, all surnamed DOMINGO, petitioners-appellants,
vs.
GREGORIO M. DOMINGO, respondent-appellee, TEOFILO P. PURISIMA, intervenor-respondent.

Teofilo Leonin for petitioners-appellants.

Osorio, Osorio & Osorio for respondent-appellee.

Teofilo P. Purisima in his own behalf as intervenor-respondent.

MAKASIAR, J.:

Petitioner-appellant Vicente M. Domingo, now deceased and represented by his heirs, Antonina Raymundo vda. de Domingo, Ricardo, Cesar, Amelia, Vicente Jr., Salvacion, Irene and Joselito, all surnamed Domingo, sought the reversal of the majority decision dated, March 12, 1969 of the
Special Division of Five of the Court of Appeals affirming the judgment of the trial court, which sentenced the said Vicente M. Domingo to pay Gregorio M. Domingo P2,307.50 and the intervenor Teofilo P. Purisima P2,607.50 with interest on both amounts from the date of the filing of the
complaint, to pay Gregorio Domingo P1,000.00 as moral and exemplary damages and P500.00 as attorney's fees plus costs.

The following facts were found to be established by the majority of the Special Division of Five of the Court of Appeals:

In a document Exhibit "A" executed on June 2, 1956, Vicente M. Domingo granted Gregorio Domingo, a real estate broker, the exclusive agency to sell his lot No. 883 of Piedad Estate with an area of about 88,477 square meters at the rate of P2.00 per square meter (or for P176,954.00) with a
commission of 5% on the total price, if the property is sold by Vicente or by anyone else during the 30-day duration of the agency or if the property is sold by Vicente within three months from the termination of the agency to apurchaser to whom it was submitted by Gregorio during the
continuance of the agency with notice to Vicente. The said agency contract was in triplicate, one copy was given to Vicente, while the original and another copy were retained by Gregorio.

On June 3, 1956, Gregorio authorized the intervenor Teofilo P. Purisima to look for a buyer, promising him one-half of the 5% commission.

Thereafter, Teofilo Purisima introduced Oscar de Leon to Gregorio as a prospective buyer.

Oscar de Leon submitted a written offer which was very much lower than the price of P2.00 per square meter (Exhibit "B"). Vicente directed Gregorio to tell Oscar de Leon to raise his offer. After several conferences between Gregorio and Oscar de Leon, the latter raised his offer to
P109,000.00 on June 20, 1956 as evidenced by Exhibit "C", to which Vicente agreed by signing Exhibit "C". Upon demand of Vicente, Oscar de Leon issued to him a check in the amount of P1,000.00 as earnest money, after which Vicente advanced to Gregorio the sum of P300.00. Oscar de
Leon confirmed his former offer to pay for the property at P1.20 per square meter in another letter, Exhibit "D". Subsequently, Vicente asked for an additional amount of P1,000.00 as earnest money, which Oscar de Leon promised to deliver to him. Thereafter, Exhibit "C" was amended to the
effect that Oscar de Leon will vacate on or about September 15, 1956 his house and lot at Denver Street, Quezon City which is part of the purchase price. It was again amended to the effect that Oscar will vacate his house and lot on December 1, 1956, because his wife was on the family way
and Vicente could stay in lot No. 883 of Piedad Estate until June 1, 1957, in a document dated June 30, 1956 (the year 1957 therein is a mere typographical error) and marked Exhibit "D". Pursuant to his promise to Gregorio, Oscar gave him as a gift or propina the sum of One Thousand Pesos
(P1,000.00) for succeeding in persuading Vicente to sell his lot at P1.20 per square meter or a total in round figure of One Hundred Nine Thousand Pesos (P109,000.00). This gift of One Thousand Pesos (P1,000.00) was not disclosed by Gregorio to Vicente. Neither did Oscar pay Vicente the
additional amount of One Thousand Pesos (P1,000.00) by way of earnest money. In the deed of sale was not executed on August 1, 1956 as stipulated in Exhibit "C" nor on August 15, 1956 as extended by Vicente, Oscar told Gregorio that he did not receive his money from his brother in the
United States, for which reason he was giving up the negotiation including the amount of One Thousand Pesos (P1,000.00) given as earnest money to Vicente and the One Thousand Pesos (P1,000.00) given to Gregorio aspropina or gift. When Oscar did not see him after several weeks,
Gregorio sensed something fishy. So, he went to Vicente and read a portion of Exhibit "A" marked habit "A-1" to the effect that Vicente was still committed to pay him 5% commission, if the sale is consummated within three months after the expiration of the 30-day period of the exclusive
agency in his favor from the execution of the agency contract on June 2, 1956 to a purchaser brought by Gregorio to Vicente during the said 30-day period. Vicente grabbed the original of Exhibit "A" and tore it to pieces. Gregorio held his peace, not wanting to antagonize Vicente further,
because he had still duplicate of Exhibit "A". From his meeting with Vicente, Gregorio proceeded to the office of the Register of Deeds of Quezon City, where he discovered Exhibit "G' deed of sale executed on September 17, 1956 by Amparo Diaz, wife of Oscar de Leon, over their house and
lot No. 40 Denver Street, Cubao, Quezon City, in favor Vicente as down payment by Oscar de Leon on the purchase price of Vicente's lot No. 883 of Piedad Estate. Upon thus learning that Vicente sold his property to the same buyer, Oscar de Leon and his wife, he demanded in writting
payment of his commission on the sale price of One Hundred Nine Thousand Pesos (P109,000.00), Exhibit "H". He also conferred with Oscar de Leon, who told him that Vicente went to him and asked him to eliminate Gregorio in the transaction and that he would sell his property to him for
One Hundred Four Thousand Pesos (P104,000.0 In Vicente's reply to Gregorio's letter, Exhibit "H", Vicente stated that Gregorio is not entitled to the 5% commission because he sold the property not to Gregorio's buyer, Oscar de Leon, but to another buyer, Amparo Diaz, wife of Oscar de
Leon.

The Court of Appeals found from the evidence that Exhibit "A", the exclusive agency contract, is genuine; that Amparo Diaz, the vendee, being the wife of Oscar de Leon the sale by Vicente of his property is practically a sale to Oscar de Leon since husband and wife have common or identical
interests; that Gregorio and intervenor Teofilo Purisima were the efficient cause in the consummation of the sale in favor of the spouses Oscar de Leon and Amparo Diaz; that Oscar de Leon paid Gregorio the sum of One Thousand Pesos (P1,000.00) as "propina" or gift and not as additional
earnest money to be given to the plaintiff, because Exhibit "66", Vicente's letter addressed to Oscar de Leon with respect to the additional earnest money, does not appear to have been answered by Oscar de Leon and therefore there is no writing or document supporting Oscar de Leon's
testimony that he paid an additional earnest money of One Thousand Pesos (P1,000.00) to Gregorio for delivery to Vicente, unlike the first amount of One Thousand Pesos (P1,000.00) paid by Oscar de Leon to Vicente as earnest money, evidenced by the letter Exhibit "4"; and that Vicente did
not even mention such additional earnest money in his two replies Exhibits "I" and "J" to Gregorio's letter of demand of the 5% commission.

The three issues in this appeal are (1) whether the failure on the part of Gregorio to disclose to Vicente the payment to him by Oscar de Leon of the amount of One Thousand Pesos (P1,000.00) as gift or "propina" for having persuaded Vicente to reduce the purchase price from P2.00 to P1.20
per square meter, so constitutes fraud as to cause a forfeiture of his commission on the sale price; (2) whether Vicente or Gregorio should be liable directly to the intervenor Teofilo Purisima for the latter's share in the expected commission of Gregorio by reason of the sale; and (3) whether the
award of legal interest, moral and exemplary damages, attorney's fees and costs, was proper.

Unfortunately, the majority opinion penned by Justice Edilberto Soriano and concurred in by Justice Juan Enriquez did not touch on these issues which were extensively discussed by Justice Magno Gatmaitan in his dissenting opinion. However, Justice Esguerra, in his concurring opinion,
affirmed that it does not constitute breach of trust or fraud on the part of the broker and regarded same as merely part of the whole process of bringing about the meeting of the minds of the seller and the purchaser and that the commitment from the prospect buyer that he would give a reward
to Gregorio if he could effect better terms for him from the seller, independent of his legitimate commission, is not fraudulent, because the principal can reject the terms offered by the prospective buyer if he believes that such terms are onerous disadvantageous to him. On the other hand,
Justice Gatmaitan, with whom Justice Antonio Cafizares corner held the view that such an act on the part of Gregorio was fraudulent and constituted a breach of trust, which should deprive him of his right to the commission.

The duties and liabilities of a broker to his employer are essentially those which an agent owes to his principal. 1

Consequently, the decisive legal provisions are in found Articles 1891 and 1909 of the New Civil Code.

Art. 1891. Every agent is bound to render an account of his transactions and to deliver to the principal whatever he may have received by virtue of the agency, even though it may not be owing to the principal.

Every stipulation exempting the agent from the obligation to render an account shall be void.

xxx xxx xxx

Art. 1909. The agent is responsible not only for fraud but also for negligence, which shall be judged with more less rigor by the courts, according to whether the agency was or was not for a compensation.

Article 1891 of the New Civil Code amends Article 17 of the old Spanish Civil Code which provides that:

Art. 1720. Every agent is bound to give an account of his transaction and to pay to the principal whatever he may have received by virtue of the agency, even though what he has received is not due to the principal.

The modification contained in the first paragraph Article 1891 consists in changing the phrase "to pay" to "to deliver", which latter term is more comprehensive than the former.

Paragraph 2 of Article 1891 is a new addition designed to stress the highest loyalty that is required to an agent condemning as void any stipulation exempting the agent from the duty and liability imposed on him in paragraph one thereof.

Article 1909 of the New Civil Code is essentially a reinstatement of Article 1726 of the old Spanish Civil Code which reads thus:

Art. 1726. The agent is liable not only for fraud, but also for negligence, which shall be judged with more or less severity by the courts, according to whether the agency was gratuitous or for a price or reward.

The aforecited provisions demand the utmost good faith, fidelity, honesty, candor and fairness on the part of the agent, the real estate broker in this case, to his principal, the vendor. The law imposes upon the agent the absolute obligation to make a full disclosure or complete account to his
principal of all his transactions and other material facts relevant to the agency, so much so that the law as amended does not countenance any stipulation exempting the agent from such an obligation and considers such an exemption as void. The duty of an agent is likened to that of a trustee.
This is not a technical or arbitrary rule but a rule founded on the highest and truest principle of morality as well as of the strictest justice.2

Hence, an agent who takes a secret profit in the nature of a bonus, gratuity or personal benefit from the vendee, without revealing the same to his principal, the vendor, is guilty of a breach of his loyalty to the principal and forfeits his right to collect the commission from his principal, even if the
principal does not suffer any injury by reason of such breach of fidelity, or that he obtained better results or that the agency is a gratuitous one, or that usage or custom allows it; because the rule is to prevent the possibility of any wrong, not to remedy or repair an actual damage. 3 By taking
such profit or bonus or gift or propina from the vendee, the agent thereby assumes a position wholly inconsistent with that of being an agent for hisprincipal, who has a right to treat him, insofar as his commission is concerned, as if no agency had existed. The fact that the principal may have
been benefited by the valuable services of the said agent does not exculpate the agent who has only himself to blame for such a result by reason of his treachery or perfidy.

This Court has been consistent in the rigorous application of Article 1720 of the old Spanish Civil Code. Thus, for failure to deliver sums of money paid to him as an insurance agent for the account of his employer as required by said Article 1720, said insurance agent was convicted estafa. 4 An
administrator of an estate was likewise under the same Article 1720 for failure to render an account of his administration to the heirs unless the heirs consented thereto or are estopped by having accepted the correctness of his account previously rendered.5
Because of his responsibility under the aforecited article 1720, an agent is likewise liable for estafa for failure to deli ver to his principal the total amount collected by him in behalf of his principal and cannot retain the commission pertaining to him by subtracting the same from his collections. 6

A lawyer is equally liable unnder said Article 1720 if he fails to deliver to his client all the money and property received by him for his client despite his attorney's lien.7 The duty of a commission agent to render a full account his operations to his principal was reiterated in Duhart, etc. vs.
Macias.8

The American jurisprudence on this score is well-nigh unanimous.

Where a principal has paid an agent or broker a commission while ignorant of the fact that the latter has been unfaithful, the principal may recover back the commission paid, since an agent or broker who has been unfaithful is not entitled to any compensation.

xxx xxx xxx

In discussing the right of the principal to recover commissions retained by an unfaithful agent, the court in Little vs. Phipps (1911) 208 Mass. 331, 94 NE 260, 34 LRA (NS) 1046, said: "It is well settled that the agent is bound to exercise the utmost good faith in his dealings with his principal. As
Lord Cairns said, this rule "is not a technical or arbitrary rule. It is a rule founded on the highest and truest principles, of morality." Parker vs. McKenna (1874) LR 10,Ch(Eng) 96,118 ... If the agent does not conduct himself with entire fidelity towards his principal, but is guilty of taking a secret
profit or commission in regard the matter in which he is employed, he loses his right to compensation on the ground that he has taken a position wholly inconsistent with that of agent for his employer, and which gives his employer, upon discovering it, the right to treat him so far as
compensation, at least, is concerned as if no agency had existed. This may operate to give to the principal the benefit of valuable services rendered by the agent, but the agent has only himself to blame for that result."

xxx xxx xxx

The intent with which the agent took a secret profit has been held immaterial where the agent has in fact entered into a relationship inconsistent with his agency, since the law condemns the corrupting tendency of the inconsistent relationship. Little vs. Phipps (1911) 94 NE 260.9

As a general rule, it is a breach of good faith and loyalty to his principal for an agent, while the agency exists, so to deal with the subject matter thereof, or with information acquired during the course of the agency, as to make a profit out of it for himself in excess of his lawful compensation; and
if he does so he may be held as a trustee and may be compelled to account to his principal for all profits, advantages, rights, or privileges acquired by him in such dealings, whether in performance or in violation of his duties, and be required to transfer them to his principal upon being
reimbursed for his expenditures for the same, unless the principal has consented to or ratified the transaction knowing that benefit or profit would accrue or had accrued, to the agent, or unless with such knowledge he has allowed the agent so as to change his condition that he cannot be put in
status quo. The application of this rule is not affected by the fact that the principal did not suffer any injury by reason of the agent's dealings or that he in fact obtained better results; nor is it affected by the fact that there is a usage or custom to the contrary or that the agency is a gratuitous one.
(Emphasis applied.) 10

In the case at bar, defendant-appellee Gregorio Domingo as the broker, received a gift or propina in the amount of One Thousand Pesos (P1,000.00) from the prospective buyer Oscar de Leon, without the knowledge and consent of his principal, herein petitioner-appellant Vicente Domingo.
His acceptance of said substantial monetary gift corrupted his duty to serve the interests only of his principal and undermined his loyalty to his principal, who gave him partial advance of Three Hundred Pesos (P300.00) on his commission. As a consequence, instead of exerting his best to
persuade his prospective buyer to purchase the property on the most advantageous terms desired by his principal, the broker, herein defendant-appellee Gregorio Domingo, succeeded in persuading his principal to accept the counter-offer of the prospective buyer to purchase the property at
P1.20 per square meter or One Hundred Nine Thousand Pesos (P109,000.00) in round figure for the lot of 88,477 square meters, which is very much lower the the price of P2.00 per square meter or One Hundred Seventy-Six Thousand Nine Hundred Fifty-Four Pesos (P176,954.00) for said lot
originally offered by his principal.

The duty embodied in Article 1891 of the New Civil Code will not apply if the agent or broker acted only as a middleman with the task of merely bringing together the vendor and vendee, who themselves thereafter will negotiate on the terms and conditions of the transaction. Neither would the
rule apply if the agent or broker had informed the principal of the gift or bonus or profit he received from the purchaser and his principal did not object therto. 11 Herein defendant-appellee Gregorio Domingo was not merely a middleman of the petitioner-appellant Vicente Domingo and the buyer
Oscar de Leon. He was the broker and agent of said petitioner-appellant only. And therein petitioner-appellant was not aware of the gift of One Thousand Pesos (P1,000.00) received by Gregorio Domingo from the prospective buyer; much less did he consent to his agent's accepting such a
gift.

The fact that the buyer appearing in the deed of sale is Amparo Diaz, the wife of Oscar de Leon, does not materially alter the situation; because the transaction, to be valid, must necessarily be with the consent of the husband Oscar de Leon, who is the administrator of their conjugal assets
including their house and lot at No. 40 Denver Street, Cubao, Quezon City, which were given as part of and constituted the down payment on, the purchase price of herein petitioner-appellant's lot No. 883 of Piedad Estate. Hence, both in law and in fact, it was still Oscar de Leon who was the
buyer.

As a necessary consequence of such breach of trust, defendant-appellee Gregorio Domingo must forfeit his right to the commission and must return the part of the commission he received from his principal.

Teofilo Purisima, the sub-agent of Gregorio Domingo, can only recover from Gregorio Domingo his one-half share of whatever amounts Gregorio Domingo received by virtue of the transaction as his sub-agency contract was with Gregorio Domingo alone and not with Vicente Domingo, who
was not even aware of such sub-agency. Since Gregorio Domingo received from Vicente Domingo and Oscar de Leon respectively the amounts of Three Hundred Pesos (P300.00) and One Thousand Pesos (P1,000.00) or a total of One Thousand Three Hundred Pesos (P1,300.00), one-half
of the same, which is Six Hundred Fifty Pesos (P650.00), should be paid by Gregorio Domingo to Teofilo Purisima.

Because Gregorio Domingo's clearly unfounded complaint caused Vicente Domingo mental anguish and serious anxiety as well as wounded feelings, petitioner-appellant Vicente Domingo should be awarded moral damages in the reasonable amount of One Thousand Pesos (P1,000.00)
attorney's fees in the reasonable amount of One Thousand Pesos (P1,000.00), considering that this case has been pending for the last fifteen (15) years from its filing on October 3, 1956.

WHEREFORE, the judgment is hereby rendered, reversing the decision of the Court of Appeals and directing defendant-appellee Gregorio Domingo: (1) to pay to the heirs of Vicente Domingo the sum of One Thousand Pesos (P1,000.00) as moral damages and One Thousand Pesos
(P1,000.00) as attorney's fees; (2) to pay Teofilo Purisima the sum of Six Hundred Fifty Pesos (P650.00); and (3) to pay the costs.

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

GR No. L-46472 January 23, 1940

TAN TIONG TECK, recurrent,
vs.
THE COMMISSION OF SECURITIES AND BAGS, and CUA OH & CO., Appealed.

D. Jose B. Laurel in representation of the appellant.

D. Emerito M. Ramos in representation of the respondents.

DIAZ, J .:

The question here is whether the respondent Cua Oh & Co. is obligated to pay the appellant the difference between the value of certain 10,000 shares of Gold Shares of his property, which he had given him to sell, computed at the price of P0.15 each, and the actual price at which they were
sold. It was then the appellant a stock broker, registered as such in the records of the Securities and Exchange Commission.

In the administrative file No. 31 of the aforementioned Securities and Exchanges Commission, which the appellant had to promote against the respondent to complain against her and to force her to pay that difference, for having refused to do so voluntarily, the latter admitted receiving in effect
the aforementioned actions to sell them not at a fixed price but at a price not less than P0.15 each.

Upon receipt of the complainant's complaint, the Commission issued its decision of June 25, 1938, in which, after declaring that the appellant's claim was not based on a prima facie case that his shares were not sold, the file, without further processing, because, despite requesting the
reconsideration of his decision, I do not reconsider it.

Against the decision of the Securities and Exchange Commission, the appellant filed an appeal, so that it could be reviewed.

Without ignoring the provisions of Article 35 of Act No. 83 of the Commonwealth, which say that the findings of fact of the Securities and Exchanges Commission in matters of the nature of the present should be considered conclusive in case of appeal, see you required to declare that the
decision appealed is not settled by law for the following reasons: there was an error on the part of the Commission when considering the written pleadings of the parties; when considering the facts proven in the act of the hearing; and when interpreting the scope and meaning of the Exhibits A
and B documents that constitute the main basis of their decision, considering them as an absolutely certain fact.

It must be said first of all that in the written complaint of the appellant, in the aforementioned administrative file No. 31, the following allegations appear:

1. That the complainant is of legal age, married, and a resident of the City of Manila, Philippines, with mailing address at 142 Rosario, Manila;

2. That the respondent is a stock broker duly registered in the Register of Brokers of this Commission and a member of the International Stock Exchange with mailing address at 119 Crystal Arcade, Manila;

3. That on June 15, 1937, the complainant gave an order to sell 10,000 Gold Shares at a minimum price of P0.15 to the respondent thru his salesman Mr. And Eng Ho; and that said respondent delivered to him (complainant) a copy of its confirmation slip that 10,000 Gold Shares of the
complainant have been sold at P0.15 each;

4. That said sale of said 10,000 Gold Shares at P0.15 also appeared in the Statement of Account of the complainant sent to him on or about June 30, 1937;

5. That the complainant was discovered that there was no such transaction appearing in the Quotation issued by the International Stock Exchange on June 15, 1937, nor were any Gold Shares sold at P0.15 each.

And it also appears in the respondent's answer, in a way that does not doubt, the following unequivocal admission:

That I admit paragraphs 1, 2, 3, 4 and the first part of paragraph 5.

The facts that appear and are derived from the aforementioned writings are things that we can not do without when proceeding to review the decision appealed, because it refers to these writings and constitute themselves the best test or the best story that can occur of the true facts.

The respondent, intending to comply with Rule No. 3 of the Provisional Regulations of the Securities and Exchanges Commission, which by virtue of the provisions of Article 33 of Commonwealth Law No. 83 have the force of law, sends its report to the Complainant or report Exhibit A, on June
15, 1937, saying there that he sold his 10,000 shares at the price of P0.15 a, on the morning of that day, subject to the rules of the International Stock Exchange. However, Exhibit B is the report that the International Stock Exchange presented to the Securities and Exchanges Commission to
demonstrate the transactions it had on that day, June 15, 1937, in compliance with the provisions of rule 22. of the aforementioned Regulations, which if sold then, 1,195,000 shares of Gold Shares, none was sold at the price of P0.15. All sales went to the following prices: 25,000 shares at
P0.16 one; 45,000 shares at P0.163 one; 420,000 shares at P0.17 a; 275,000 shares at P0.185 one; 25,000 shares at P0.19 a; and 40,000 shares to P.0195 a. Therefore, the claim of the respondent that he sold the 10,000 shares of the appellant at the price of P0.15 must be rejected,
because, if he had done so, such a transaction would appear on Exhibit B, and the truth is that none of this is there. . The idea that the aforementioned 10,000 actions of the appellant were sold through the intervention of another securities office should also be rejected, because being the
recourse member of the International Stock Exchange, it was there where he had to make the sale; in addition, the intelligence that existed between her and the appellant, according to Exhibit A, it was that the sale would be made subject to the rules of the International Stock Exchange. On the
other hand, there is nothing to indicate that the sale was made with the intervention of another securities office.

If we are to accept, as we can not do otherwise, the figures expressed in Exhibit B, we must necessarily conclude that on the morning of the same day there were 20 sales of shares of the Gold Shares and that under them 725,000 shares were exchanged, at prices that ranged between P0.16
and P0.195, making the price of P0.175 predominated because almost half of said sales were made at that price, closely following those made at P0 .17 because it went to that price as 215,000 shares were sold. In the afternoon transactions of the same day, there were only 7 sales, and all
together were 470,000 shares, at a price that has ranged between P0.17 and P0.185.

Therefore, it is justified that the appellant sold the actions of the appellant at a price not less than P0.16, or at least P0.175, one.
Bearing in mind the facts admitted by the respondent in his reply, it is clear that it is wrong to state that by giving the appellant to the respondent the task of selling its 10,000 shares, he did so by fixing the unalterable price of P0.15 each action. It is not this, as we see, that the parties agreed,
but precisely what is said. There is therefore no reason not to declare that the respondent should have made the sale at the highest price at which the shares were quoted on the day; in other terms, having as it had the necessary authorization to sell the appellant's shares at a price greater
than P0.15 each, it is only fair that he be made to answer for the difference between the price at which he admitted having sold said shares and said higher price in that, according to the evidence,prima facieas the Securities and Exchanges Commission described it, it sold them. And there is
no reason why we do not adopt and apply in this jurisdiction the "Highest Intermediate Value" rule, adopted in the United States, which is a just rule that is universally accepted (8 Am. Jur., Brokers, Damages in Stock Transactions , 217, Galigher v. Jones, 129 US 193, 9 Sup. Ct. 335, 32 Law,
ed. 658, Ling v. Malcom, 77 Conn. 517, 59 A. 598; Wiggin v. Federal Stock, etc. Co., 77 Conn. 507, 59 A. 627, Shaefer v. Dickinson, 141 Ill. A. 234, Rickerts v. Crittenden, 2 Ky. Op. 499, Dancy v. Hayward, 4 LA [Orleans] 111; Mullen v. Quinlan, 195 NY 109, 87 NE 1078, 23 LRANS 511;
Gruman v. Smith, 81 NY 25; Baker v. Drake, 53 NY 211, 13 Am. Rep. 507; Barber v. Ellingwood, 144 App. Div. 512, 129 NYS 414; Rosenbaum v. Stiebel, 137 App. Div. 912 mem., 122 NYS 131; Keller v. Halsey, 130 App. Div. 389, 103 NY Super. 430; Peschke v. Wright, 93 Misc. 145, 156
NYS 773; Burridge v. Anthony, 1 NY City Ct. 244; Miller v. Lyons, 113 Va. 275, 74 SE 194; Wahl v. Tracy, 139 Misc. 668, 121 NW 660; Carnegie v. Federal Bank, 5 Ont. 418), and is also not in conflict with any principle or provision of law in force in our country.

But, even if we were to dispense with the aforementioned rule, we would nevertheless arrive at the same conclusion because here we have laws that force us to resolve the question in that sense.

El articulo 255 del Codigo de Comercio prescribe que un comisionista debe obrar con la prudencia y tacto que son de esperar de un buen padre de familia, cuidando del negocio que se le encomienda como si fuese suyo propio. Teniendo presente esta disposicion de ley, cotizandose como se
cotizaban en el mercado las acciones de Gold Shares, en la fecha de autos, a mucho mas de P0.15 la accion, era de esperar que la recurrida vendiese las acciones del recurrente al precio mas alto posible, y no al precio de P0.15 que por cierto no se registro en dicha ocasion. Seria absurdo
suponer siquiera que la recurrida obrase de distinto modo. En la indicada fecha (15 de junio de 1937), las ventas hechas de las acciones de la Gold Shares montaron a 1,195,000 acciones, segun las cifras que muestran en su faz el Exhibit B, cuya autenticidad no ha sido negada por las
partes.

The aforementioned article 255 of the Commercial Code says the following:

In matters not provided for and expressly prescribed by the principal, the commission agent shall consult him, provided the nature of the business permits.

But if he is authorized to act at his discretion, or if it is not possible to consult, he will do what is prudent and more according to the use of commerce, taking care of the business as his own. . . .

An equal rule we have in articles 1714 and 1715 of the Civil Code. The first of these articles says that the president should not transgress the limits of the mandate; and the last one says that the limits of the mandate are not considered transferred, if it were fulfilled in a more advantageous
manner for the principal than the one indicated by it. What the rules prohibit is that the commission agent or agent or broker of commerce sells the things that he receives from his principal at a price lower than fixed by this; they do not prevent you from selling them at a higher price, if such a
price can be obtained.

To all this must be added this other consideration: had the appellant sold the actions of the appellant at a price less than P0.16, since there were then buyers for a higher price, we would have the unusual case of having the respondent worked or acted against. his own interests, because
having the right, by law, to collect from the appellant the corresponding commission according to the result of his work, a commission that would have been greater if his sale had also been at a higher price, has waived said right.

The facts on which the observations and considerations made are based are not contrary or different from those that are expressed and those that clearly arise from the decision of the Commissioner of Securities and Exchanges, subject to revision. Having made mention of the Commissioner,
in his decision, of the claim of the appellant, the respondent's response and Exhibits A and B, the four must necessarily be considered not only as a complement to the aforementioned decision, as to the facts that each one of them contains and shows in its face, but also as a story or part of
the account of the true facts, made by the Commissioner. Therefore, the possible objection that can not be taken into account more facts than those declared proven by the Commissioner, under the aforementioned article 35 of Law No. 83, has no reason to be.

In conclusion, we modified the sentence of the Commissioner of Securities and Exchanges, ordering the appellant to pay the appellant, in addition to the sum of P1,500 on account of the amount of the 10,000 shares of Gold Shares, of his property, based on P0 .15 each share, the difference
between said sum and that of P1,750 total amount this last of the aforementioned 10,000 shares at the rate of P0.175 each, that is, the amount of P250.

Tasense the costs against the challenged Cua Oh & Co. So ordered.

G.R. No. 121824 January 29, 1998

BRITISH AIRWAYS, petitioner,

vs.
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 respondent Court of Appeals 1 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 complaint against Philippine Airlines (PAL).2

The material and relevant facts are as follows:

On April 16, 1989, Mahtani decided to visit his relatives in Bombay, India. In anticipation of his visit, he obtained the services of a certain Mr. Gumar to prepare his travel plans. The latter, in turn, purchased a ticket from BA where the following itinerary was indicated:3

CARRIER FLIGHT DATE TIME STATUS

MANILA MNL PR 310 Y 16 APR. 1730 OK

HONGKONG HKG BA 20 M 16 APR. 2100 OK

BOMBAY BOM BA 19 M 23 APR. 0840 OK

HONGKONG HKG PR 311 Y

MANILA MNL

Since BA had no direct flights from Manila to Bombay, Mahtani had to take a flight to Hongkong via PAL, and upon arrival in Hongkong he had to take a connecting flight to Bombay on board BA.

Prior to his departure, Mahtani checked in at the PAL counter in Manila his two pieces of luggage containing his clothings and personal effects, confident that upon reaching Hongkong, the same would be transferred to the BA flight bound for Bombay.

Unfortunately, when Mahtani arrived in Bombay he discovered that his luggage was missing and that upon inquiry from the BA representatives, he was told that the same might have been diverted to London. After patiently waiting for his luggage for one week, BA finally
advised him to file a claim by accomplishing the "Property Irregularity Report." 4

Back in the Philippines, specifically on June 11, 1990, Mahtani filed his complaint for damages and attorney's fees 5 against BA and Mr. Gumar before the trial court, docketed as Civil Case No. CEB-9076.

On September 4, 1990, BA filed its answer with counter claim6 to the complaint raising, as special and affirmative defenses, that Mahtani did not have a cause of action against it. Likewise, on November 9, 1990, BA filed a third-party complaint 7 against PAL alleging that the
reason for the non-transfer of the luggage was due to the 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.

On February 25, 1991, PAL filed its answer to the third-party complaint, wherein it disclaimed any liability, arguing that there was, in fact, adequate time to transfer the luggage to BA facilities in Hongkong. Furthermore, the transfer of the luggage to Hongkong authorities
should be considered as transfer to BA.8

After appropriate proceedings and trial, on March 4, 1993, the trial court rendered its decision in favor of Mahtani, 9 the dispositive portion of which reads as follows:

WHEREFORE, premises considered, judgment is rendered for the plaintiff and against the defendant for which defendant is ordered to pay plaintiff the sum of Seven Thousand (P7,000.00) Pesos for the value of the two (2) suit cases; Four Hundred U.S. ($400.00) Dollars
representing the value of the contents of 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:

WHEREFORE, in view of all the foregoing considerations, finding the Decision appealed from to be in accordance with law and evidence, the same is hereby AFFIRMED in toto, with costs against defendant-appellant.

10
SO ORDERED.

BA is now before us seeking the reversal of the Court of Appeals' decision.

In essence, BA assails the award of compensatory damages and attorney's fees, as well as the dismissal of its third-party complaint against PAL.11

Regarding the first assigned issue, BA asserts that the award of compensatory damages in the separate sum of P7,000.00 for the loss of Mahtani's two pieces of luggage was without basis since Mahtani in his complaint 12 stated the following as the value of his personal
belongings:

8. On the said travel, plaintiff took with him the following items and its corresponding value, to wit:

1. personal belonging P10,000.00

2. gifts for his parents and relatives $5,000.00

Moreover, he failed to declare a higher valuation with respect to his luggage, a condition provided for in the ticket, which reads: 13
Liability for loss, delay, or damage to baggage is limited unless a higher value is declared in advance and additional charges are paid:

1. For most international travel (including domestic corporations of international journeys) the liability limit is approximately U.S. $9.07 per pound (U.S. $20.000) 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 common carriers imposes an exacting standard.14 Neglect or malfeasance by the carrier's employees could predictably furnish bases for an action for
damages.15

In the instant case, it is apparent that the contract of carriage was between Mahtani and BA. Moreover, it is indubitable that his luggage never arrived in Bombay on time. Therefore, as in a number of cases 16 we have assessed the airlines' culpability in the form of damages
for breach of contract involving misplaced luggage.

In determining the amount of compensatory damages in this kind of cases, it is vital that the claimant satisfactorily prove during the trial the existence of the factual basis of the damages and its causal connection to defendant's acts. 17

In this regard, the trial court granted the following award as compensatory damages:

Since plaintiff did not declare the value of the contents in his luggage and even failed to show receipts of the alleged gifts for the members of his family in Bombay, the most that can be expected for compensation of his lost luggage (2 suit cases) is Twenty U.S. Dollars
($20.00) per kilo, or combined value of Four Hundred ($400.00) U.S. Dollars for Twenty kilos representing the contents plus Seven Thousand (P7,000.00) Pesos representing the purchase price of the two (2) suit cases.

However, as earlier stated, it is the position of BA that there should have been no separate award for the luggage and the contents thereof since Mahtani failed to declare a separate higher valuation for the luggage, 18 and therefore, its liability is limited, at most, only to the
amount stated in the ticket.

Considering the facts of the case, we cannot assent to such specious argument.

Admittedly, in a contract of air carriage a declaration by the passenger of a higher value is needed to recover a greater amount. Article 22(1) of the Warsaw Convention,19 provides as follows:

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 assent thereto.20 This doctrine is recognized in this jurisdiction.21

Notwithstanding the foregoing, we have, nevertheless, ruled against blind reliance on adhesion contracts where the facts and circumstances justify that they should be disregarded. 22

In addition, we have held that benefits of limited liability are subject to waiver such as when the air carrier failed to raise timely objections during the trial when questions and answers regarding the actual claims and damages sustained by the passenger were asked. 23

Given the foregoing postulates, the inescapable conclusion is that BA had waived the defense of limited liability when it allowed Mahtani to testify as to the actual damages he incurred due to the misplacement of his luggage, without any objection. In this regard, we quote
the pertinent transcript of stenographic notes of Mahtani's direct testimony: 24

Q How much are you going to ask from this court?

A P100,000.00.

Q What else?

A Exemplary damages.

Q How much?

A P100,000.00.

Q What else?
A The things I lost, $5,000.00 for the gifts I lost and my personal belongings, P10,000.00.

Q What about the filing of this case?

A The court expenses and 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 objections.25 BA has precisely failed in this regard.

To compound matters for BA, its counsel failed, not only to interpose a timely objection, but even conducted his own cross-examination as well.26 In the early case of Abrenica v. Gonda,27 we ruled that:

. . . (I)t has been repeatedly laid down as a rule of evidence that a protest or objection against the admission of any evidence must be made at the proper time, and that if not so made it will be understood to have been waived. The proper time to make a protest or objection
is when, from the question addressed to the witness, or from the answer thereto, or from the presentation of proof, the inadmissibility of evidence is, or may be inferred.

Needless to say, factual findings of the trial court, as affirmed by the Court of Appeals, are entitled to great respect. 28 Since the actual value of the luggage involved appreciation of evidence, a task within the competence of the Court of Appeals, its ruling regarding the
amount is assuredly a question of fact, thus, a finding not reviewable by this Court. 29

As to the issue of the dismissal of BA's third-party complaint against PAL, the Court of Appeals justified its ruling in this wise, and we quote: 30

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.

In Firestone Tire and Rubber Company of the Philippines v. Tempengko,31 we expounded on the nature of a third-party complaint thus:

The third-party complaint is, therefore, a procedural device whereby a "third party" who is neither a party nor privy to the act or deed complained of by the plaintiff, may be brought into the case with leave of court, by the defendant, who acts, as third-party plaintiff to
enforce against such third-party defendant a right for contribution, indemnity, subrogation or any other relief, in respect of the 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.

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 Contracts" of the ticket 32issued by BA to Mahtani confirms that the contract was one of continuous air transportation from Manila to Bombay.

4. . . . carriage to be performed hereunder by several successive carriers is regarded as a single operation.

Prescinding from the above discussion, it is undisputed that PAL, in transporting Mahtani from Manila to Hongkong acted as the agent of BA.

Parenthetically, the Court of Appeals should have been cognizant of the well-settled rule that an agent is also responsible for any negligence in the performance of its function.33 and is liable for damages which the principal may suffer by reason of its negligent act. 34 Hence,
the Court of Appeals erred when it opined that BA, being the principal, had no cause of action against PAL, its agent or sub-contractor.

Also, it is worth mentioning that both BA and PAL are members of the International Air Transport Association (IATA), wherein member airlines are regarded as agents of each other in the issuance of the tickets and other matters pertaining to their relationship. 35 Therefore,
in the instant case, the contractual relationship between BA and PAL is one of agency, the former being the principal, since it was the one which issued the confirmed ticket, and the latter the agent.
Our pronouncement that BA is the principal is consistent with our ruling in Lufthansa German Airlines v.Court of Appeals.36 In that case, Lufthansa issued a confirmed ticket to Tirso Antiporda covering five-leg trip aboard different airlines. Unfortunately, Air Kenya, one of
the airlines which was to carry Antiporda to a specific destination "bumped" him off.

An action for damages was filed against Lufthansa which, however, denied any liability, contending that its responsibility towards its passenger is limited to the occurrence of a mishap on its own line. Consequently, when Antiporda transferred to Air Kenya, its obligation
as a principal in the contract of carriage ceased; from there on, it merely acted as a ticketing agent for Air Kenya.

In rejecting Lufthansa's argument, we ruled:

In the very nature of their contract, Lufthansa is clearly the principal in the contract of carriage with Antiporda and remains to be so, regardless of those instances when actual carriage was to be performed by various carriers. The issuance of confirmed Lufthansa ticket in
favor of Antiporda covering his entire five-leg trip 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 Appeals,37 while not exactly in point, the case, however, illustrates the principle which governs this particular situation. In that case, we recognized that a carrier (PAL), acting as an agent of another carrier, is also liable for its own negligent acts or
omission in the performance of its duties.

Accordingly, to deny BA the procedural remedy of filing a third-party complaint against PAL for the purpose of ultimately determining who was primarily at fault as between them, is without legal basis. After all, such proceeding is in accord with the doctrine against
multiplicity of cases which 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 suit.38 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. 43309 dated September 7, 1995 is hereby MODIFIED, reinstating the third-party complaint filed by British Airways dated November 9, 1990 against Philippine Airlines. No costs.

SO ORDERED.

G.R. No. L-19893 March 31, 1923

ARNALDO F. DE SILVA, plaintiff-appellant,

vs.
ABOITIZ & COMPANY, INC., defendant-appellee.

Del Rosario and Del Rosario and Andres Jayme for appellant.
Rodriguez and Zacarias for appellee.

ARAULLO, C. J.:

The plaintiff subscribed for 650 shares of stock of the defendant corporation of the value of P500 each, of which he has paid only the total value of 200 shares, there remaining 450 shares unpaid, for which he was indebted to the corporation in the sum of P225,000, the value thereof. On April
22, 1922, he was notified by the secretary of the corporation of a resolution adopted by the board of directors of the corporation on the preceding day, declaring the unpaid subscriptions to the capital stock of the corporation to have become due and payable on the following May 31st at the
office thereof, the payment to be made to the treasurer, and stating that all such shares as may have not been paid then, with the accrued interest up to that date, will be declared delinquent, advertised for sale at public auction, and sold on the following June 16th, for the purpose of paying up
the amount of the subscription and accrued interest, with the expenses of the advertisement and sale, unless said payment was made before. The proper advertisement having been published, as announced in the aforesaid notice, the plaintiff filed a complaint in the Court of First Instance of
Cebu on May 5th of the same year against the said corporation, wherein, after relating the above-mentioned facts, he prayed for a judgment in his favor, decreeing that, in prescribing another method of paying the subscription to the capital stock different from that provided in article 46 of its by-
laws, in declaring the aforesaid 450 shares delinquent, and in directing the sale thereof, as advertised, the corporation had exceeded its executive authority, and as a consequence thereof he asked that a writ of injunction be issued against the said defendant, enjoining it from taking any further
action of whatever nature in connection with the acts complained of and that it pay the costs of this suit.

The plaintiff alleged as the grounds of his petition: (1) That, according to aforesaid article 46 of the by-law of the corporation, which was inserted in the complaint, all the shares subscribed to by the incorporation that were not paid for at the time of the incorporation, shall be paid out of the 70
per cent of the profit obtained, the same to be distributed among the subscribers, who shall not receive any dividend until said shares were paid in full; (2) that in declaring the plaintiff's unpaid subscription to the capital stock to have become due and payable on May 31st, and in publishing the
aforesaid notice declaring his unpaid shares delinquent, the defendant corporation has violated the aforesaid article, which prescribes an operative method of paying for the shares continuously until their full amortization, thus violating and disregarding a right of the plaintiff vested under the
said by-laws; (3) that the aforesaid acts of the defendant corporation were in excess of its powers and executive authority and the plaintiff had no other plain, speedy and adequate remedy in the ordinary course of law than that prayed for in the said complaint, to prevent the defendant from
taking any further action in connection with the sale and alienation of the said shares.

A preliminary injunction having been issued against the defendant, as prayed for by the plaintiff, upon the giving of the proper bond, and the defendant having been summoned, the latter filed a demurrer to the complaint on the ground that the facts alleged therein did not constitute a cause of
action, and that even supposing the plaintiff to have any lawful claim against the defendant corporation, the special remedy applied for by the plaintiff was not the most adequate and speedy.

Hearing having been had the court below by an order dated September 21, 1922, sustained the aforesaid demurrer on the first ground, giving the plaintiff five days within which to amend his complaint, but the said period having elapsed without the plaintiff having amended his complaint, upon
motion of the defendant, that court, by an order dated the 2d of the following month of October, dismissed the complaint and ordered the dissolution of the preliminary injunction previously issued, with costs, to which orders the plaintiff excepted, asking at the same time for the annulment
thereof and a new hearing, which motion was denied by the lower court. To that ruling the plaintiff also excepted, and brought the case to this court by the proper bill of exceptions.

Assuming the truth of the facts alleged in the complaint filed against the herein defendant, as the filling of a demurrer to a complaint is made on that assumption, the question to be decided reduces itself to determining whether or not, under the provision of article 46 of the by-laws of the
defendant corporation, the latter may declare the unpaid shares delinquent, or collect their value by another method different from that prescribed in the aforecited article.
Said article reads thus:

ART. 46. The net profit resulting from the annual liquidation shall be distributed as follows: Ten per cent (10%) for the Board of Directors and in the manner prescribed in article twenty-six (26) of these by-laws; ten per cent (10%) for the general manager; ten per cent (10%) for the reserve fund,
and seventy per cent (70%) for the shareholders in equal parts; Provided, however, That from this seventy per cent dividend the Board of Directors may deduct such amount as it may deem fit for the payment of the unpaid subscription to the capital stock and not pay any dividend to the holders
of the said unpaid shares until they are fully paid; Provided, further, That when all the shares have been paid in full as provided in the preceding paragraph, the Board of Directors may also deduct such amount as it may deem fit for the creation of an emergency special fund, or extraordinary
reserve fund when in its judgment the same may convenient for the development of the business of the corporation or for meeting any such contingencies as may arise from its operation, whenever the distributable dividend is found, after the foregoing deduction, to be not less than ten per cent
(10%) of the paid up capital stock.

No dividend shall be declared or paid, except when there remains a net profit after the payment of all the expenses incurred, or allowances made, by the corporation to carry out the operation of its business; so that no such dividend may be declared as may affect the capital of the corporation.

As will be seen from the context of the said article, its first part specifies the manner in which the net profit from the annual liquidation should be distributed, fixing a certain per cent for the board of directors; another for the general manager; another for the reserve fund, and the remaining 70
per cent to be distributed in equal parts among the shareholders. But it authorizes or empowers the board of directors to collect the value of the shares subscribed to and not fully paid by deducting from the 70 per cent, distributable in equal parts among the shareholders, such amount as may
be deemed convenient, to be applied on the payment of the said shares, and not to pay the subscriber until the same are fully paid up. In no other way can the words "Provided, however, that from this seventy per cent dividend the board of directors may deduct such amount as it may deem fit
for the payment, etc." And this is so clear that in that same article the board of directors is also authorized to create a special emergency fund or extraordinary reserve fund, when, in its judgment, and in case all the shares subscribed to have been fully paid, the same is convenient for the
development of the business of the corporation or for meeting any such contingencies as my arise from its operation, applying said 70 per cent of the profit on the payment of the shares that may have not been fully paid, provided that the distributable dividend remaining after the deduction to
be made for the creation of the said special emergency fund or extraordinary reserve fund is not less than 10 per cent of the capital actually paid. So that it is discretionary on the part of the board of directors to do whatever is provided in the said article relative to the application of a part of the
70 per cent of the profit distributable in equal parts on the payment of the shares subscribed to and not fully paid, and to the creation of a special emergency fund or extraordinary reserve fund; and the fact itself that said special fund may not be created when the dividend appearing to be
distributable, after deducting from the said 70 per cent the amount to be applied on the payment of the unpaid subscription, is less than 10 per cent of the capital actually paid, shows that it is the board of directors and not the delinquent subscriber that may and must judge and decide whether
or not such value must be paid out of a part of the 70 per cent of the profit distributable in equal parts among the shareholders, as provided in the first part of the said article. It lies therefore, within the discretion of the board of directors to make use of such authority.

If the board of directors does not wish to make, or does not make, use of said authority it has two other remedies for accomplishing the same purpose. As was said by this court in the case of Velasco vs. Poizat (37 Phil., 802):

The first and most special remedy given by the statute consists in permitting the corporation to put the unpaid stock for sale and dispose of it for the account of the delinquent subscriber. In this case the provisions of sections 38 to 48, inclusive, of the Corporation Law are applicable and must
be followed. The other remedy is by action in court concerning which we find in section 49 the following provision:

"Nothing in this Act prevent the directors from collecting, by action in any court of proper jurisdiction, the amount due on any unpaid subscription, together with accrued interest and costs and expenses incurred."

In the instant case the board of directors of the defendant corporation elected to avail itself of the first of said two remedies, and, complying strictly with the provisions of sections 37 to 49, inclusive, of the aforesaid Corporation Law, which is binding upon it and its stockholders. it being an
artificial entity created by virtue of that same law (sec. 2), the board of directors made use of the discretionary power granted to it by that law and declared that payment of plaintiff's subscription to 450 shares which had not been paid by him was due, and that said shares were delinquent, and
performed all the other acts subsequent to said declaration that are mentioned in the complaint, as it did not deem it advantageous to the corporation to apply on the payment of said shares, as was authorized by the by-law, a part of the profit that was, or might have been realized, and was
distributable among the stockholders in equal parts, as to the existence of which profit no allegation is made in the complaint, or to enforce payment of such shares by bringing in court the proper action against the debtor or delinquent stockholders. It is, however, alleged by the appellant that
the by-law of the corporation being of the nature of a contract between it and its stockholders or members, and article 46 of the by-laws of the said corporation providing an operative method for the payment of stock subscriptions continuously until the full amortization thereof, application cannot
be made in the present case of the provisions above cited of the Corporation Law for the purpose contemplated by the defendant, as the provision of said article must prevail against that law.

Admitting that the provision of article 46 of the said by-laws maybe regarded as a contract between the defendant corporation and its stockholders , yet as it is only to the board of directors of the corporation that said articles gives the authority or right to apply on the payment of unpaid
subscriptions such amount of the 70 per cent of the profit distributable among the shareholders in equal parts as may be deemed fit, it cannot be maintained that the said article has prescribe an operative method for the payment of said subscription continuously until their full amortization, or,
what would be the same thing, that said article has prescribe that sole and exclusive method for that purpose, for, in the first place, the adoption of that method for the purpose of collecting the value of subscriptions due and unpaid lies, according to said article, within the discretion of the board
of directions, that is, it is subject to this condition, and this can in no way be reconciled with the idea of method, which implies something fixed as a rule or permanent standard, and not variable at the will of somebody and according to the circumstances; and, in the second place, in connection
with the provision of the said article relative to the aforesaid discretionary power of the board of directors to adopt that method, there is also the discretionary power granted the same board of directors to avail itself, for the same purpose, to either of the two remedies prescribed in sections 38 to
49, inclusive, of the aforecited Corporation Law.

In the instant case, the defendant corporation, through its board of directors, made use of its discretionary power, taking advantage of the first of the two remedies provided by the aforesaid law. On the other hand, the plaintiff has no right whatsoever under the provision of the above cited article
46 of the said by-laws to prevent the board of directors from following, for that purpose, any other method than that mentioned in the said article, for the very reason that the same does not give the stockholders any right in connection with the determination of the question whether or not there
should be deducted from the 70 per cent of the profit distributable among the stockholders such amount as may be deemed fit for the payment of subscriptions due and unpaid. Therefore, it is evident that the defendant corporation has not violated, nor disregarded any right of the plaintiff
recognized by the said by-laws, nor exceeded its authority in the discharge of its executive functions, nor abused its discretion when it performed the acts mentioned in the complaint as grounds thereof, and, consequently, the facts therein alleged do not constitute a cause of action.

For the foregoing, the orders appealed from are affirmed, with the costs of both instances against the appellant. So ordered.