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G.R. No.

102784 February 28, 1996

ROSA LIM, petitioner,


vs.
COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents.

DECISION

HERMOSISIMA, JR., J.:

This is a petition to review the Decision of the Court of Appeals in CA-G.R. CR No. 10290, entitled "People v. Rosa
Lim," promulgated on August 30, 1991.

On January 26, 1989, an Information for Estafa was filed against petitioner Rosa Lim before Branch 92 of the
Regional Trial Court of Quezon City.1 The Information reads:

That on or about the 8th day of October 1987, in Quezon City, Philippines and within the jurisdiction of this
Honorable Court, the said accused with intent to gain, with unfaithfulness and/or abuse of confidence, did,
then and there, wilfully, unlawfully and feloniously defraud one VICTORIA SUAREZ, in the following manner,
to wit: on the date and place aforementioned said accused got and received in trust from said complainant
one (1) ring 3.35 solo worth P169,000.00, Philippine Currency, with the obligation to sell the same on
commission basis and to turn over the proceeds of the sale to said complainant or to return said jewelry if
unsold, but the said accused once in possession thereof and far from complying with her obligation despite
repeated demands therefor, misapplied, misappropriated and converted the same to her own personal use
and benefit, to the damage and prejudice of the said offended party in the amount aforementioned and in
such other amount as may be awarded under the provisions of the Civil Code.

CONTRARY TO LAW.2

After arraignment and trial on the merits, the trial court rendered judgment, the dispositive portion of which reads:

WHEREFORE, in view of the foregoing, judgment is hereby rendered:

1. Finding accused Rosa Lim GUILTY beyond reasonable doubt of the offense of estafa as defined and
penalized under Article 315, paragraph 1(b) of the Revised Penal Code;

2. Sentencing her to suffer the Indeterminate penalty of FOUR (4) YEARS and TWO (2) MONTHS of prision
correccional as minimum, to TEN (10) YEARS of prision mayor as maximum;

3. Ordering her to return to the offended party Mrs. Victoria Suarez the ring or its value in the amount of
P169,000 without subsidiary imprisonment in case insolvency; and

4. To pay costs.3

On appeal, the Court of Appeals affirmed the judgment of conviction with the modification that the penalty imposed
shall be six (6) years, eight (8) months and twenty-one (21) days to twenty (20) years in accordance with Article 315,
paragraph 1 of the Revised Penal Code.4

Petitioner filed a motion for reconsideration before the appellate court on September 20, 1991, but the motion was
denied in a Resolution dated November 11, 1991.

In her final bid to exonerate herself, petitioner filed the instant petition for review alleging the following grounds:

THE RESPONDENT COURT VIOLATED THE CONSTITUTION, THE RULES OF COURT AND THE
DECISION OF THIS HONORABLE COURT IN NOT PASSING UPON THE FIRST AND THIRD ASSIGNED
ERRORS IN PETITIONER'S BRIEF;

II

THE RESPONDENT COURT FAILED TO APPLY THE PRINCIPLE THAT THE PAROL EVIDENCE RULE
WAS WAIVED WHEN THE PRIVATE PROSECUTOR CROSS-EXAMINED THE PETITIONER AND
AURELIA NADERA AND WHEN COMPLAINANT WAS CROSS-EXAMINED BY THE COUNSEL FOR THE
PETITIONER AS TO THE TRUE NATURE OF THE AGREEMENT BETWEEN THE PARTIES WHEREIN IT
WAS DISCLOSED THAT THE TRUE AGREEMENT OF THE PARTIES WAS A SALE OF JEWELRIES AND
NOT WHAT WAS EMBODIED IN THE RECEIPT MARKED AS EXHIBIT "A" WHICH WAS RELIED UPON
BY THE RESPONDENT COURT IN AFFIRMING THE JUDGMENT OF CONVICTION AGAINST HEREIN
PETITIONER; and

III

THE RESPONDENT COURT FAILED TO APPLY IN THIS CASE THE PRINCIPLE ENUNCIATED BY THIS
HONORABLE COURT TO THE EFFECT THAT "ACCUSATION" IS NOT, ACCORDING TO THE
FUNDAMENTAL LAW, SYNONYMOUS WITH GUILT: THE PROSECUTION MUST OVERTHROW THE
PRESUMPTION OF INNOCENCE WITH PROOF OF GUILT BEYOND REASONABLE DOUBT. TO MEET
THIS STANDARD, THERE IS NEED FOR THE MOST CAREFUL SCRUTINY OF THE TESTIMONY OF
THE STATE, BOTH ORAL AND DOCUMENTARY, INDEPENDENTLY OF WHATEVER DEFENSE IS
OFFERED BY THE ACCUSED. ONLY IF THE JUDGE BELOW AND THE APPELLATE TRIBUNAL COULD
ARRIVE AT A CONCLUSION THAT THE CRIME HAD BEEN COMMITTED PRECISELY BY THE PERSON
ON TRIAL UNDER SUCH AN EXACTING TEST SHOULD SENTENCE THUS REQUIRED THAT EVERY
INNOCENCE BE DULY TAKEN INTO ACCOUNT. THE PROOF AGAINST HIM MUST SURVIVE THE
TEST OF REASON; THE STRONGEST SUSPICION MUST NOT BE PERMITTED TO SWAY JUDGMENT.
(People v. Austria, 195 SCRA 700)5

Herein the pertinent facts as alleged by the prosecution.

On or about October 8, 1987, petitioner Rosa Lim who had come from Cebu received from private respondent
Victoria Suarez the following two pieces of jewelry; one (1) 3.35 carat diamond ring worth P169,000.00 and one (1)
bracelet worth P170,000.00, to be sold on commission basis. The agreement was reflected in a receipt marked as
Exhibit "A"6 for the prosecution. The transaction took place at the Sir Williams Apartelle in Timog Avenue, Quezon
City, where Rosa Lim was temporarily billeted.

On December 15, 1987, petitioner returned the bracelet to Vicky Suarez, but failed to return the diamond ring or to
turn over the proceeds thereof if sold. As a result, private complainant, aside from making verbal demands, wrote a
demand letter7 to petitioner asking for the return of said ring or the proceeds of the sale thereof. In response,
petitioner, thru counsel, wrote a letter8 to private respondent's counsel alleging that Rosa Lim had returned both ring
and bracelet to Vicky Suarez sometime in September, 1987, for which reason, petitioner had no longer any liability
to Mrs. Suarez insofar as the pieces of jewelry were concerned. Irked, Vicky Suarez filed a complaint for estafa
under Article 315, par l(b) of the Revised Penal Code for which the petitioner herein stands convicted.

Petitioner has a different version.

Rosa Lim admitted in court that she arrived in Manila from Cebu sometime in October 1987, together with one
Aurelia Nadera, who introduced petitioner to private respondent, and that they were lodged at the Williams Apartelle
in Timog, Quezon City. Petitioner denied that the transaction was for her to sell the two pieces of jewelry on
commission basis. She told Mrs. Suarez that she would consider buying the pieces of jewelry far her own use and
that she would inform the private complainant of such decision before she goes back to Cebu. Thereafter, the
petitioner took the pieces of jewelry and told Mrs. Suarez to prepare the "necessary paper for me to sign because I
was not yet prepare (d) to buy it."9 After the document was prepared, petitioner signed it. To prove that she did not
agree to the terms of the receipt regarding the sale on commission basis, petitioner insists that she signed the
aforesaid document on the upper portion thereof and not at the bottom where a space is provided for the signature
of the person(s) receiving the jewelry. 10

On October 12, 1987 before departing for Cebu, petitioner called up Mrs. Suarez by telephone in order to inform her
that she was no longer interested in the ring and bracelet. Mrs. Suarez replied that she was busy at the time and so,
she instructed the petitioner to give the pieces of jewelry to Aurelia Nadera who would in turn give them back to the
private complainant. The petitioner did as she was told and gave the two pieces of jewelry to Nadera as evidenced
by a handwritten receipt, dated October 12, 1987. 11

Two issues need to be resolved: First, what was the real transaction between Rosa Lim and Vicky Suarez a contract
of agency to sell on commission basis as set out in the receipt or a sale on credit; and, second, was the subject
diamond ring returned to Mrs. Suarez through Aurelia Nadera?

Petitioner maintains that she cannot be liable for estafa since she never received the jewelries in trust or on
commission basis from Vicky Suarez. The real agreement between her and the private respondent was a sale on
credit with Mrs. Suarez as the owner-seller and petitioner as the buyer, as indicated by the bet that petitioner did not
sign on the blank space provided for the signature of the person receiving the jewelry but at the upper portion
thereof immediately below the description of the items taken. 12

The contention is far from meritorious.

The receipt marked as Exhibit "A" which establishes a contract of agency to sell on commission basis between
Vicky Suarez and Rosa Lim is herein reproduced in order to come to a proper perspective:
THIS IS TO CERTIFY, that I received from Vicky Suarez PINATUTUNAYAN KO na aking tinanggap kay
___________ the following jewelries:

ang mga alahas na sumusunod:

Description Price
Mga Uri Halaga
l ring 3.35 dolo P 169,000.00
1 bracelet 9;170,000.00
total P 339,000.00
Kabuuan

in good condition, to be sold in CASH ONLY within . . . days from date of signing this receipt na nasa
mabuting kalagayan upang ipagbili ng KALIWAAN (ALCONTADO) lamang sa loob ng . . . araw mula ng
ating pagkalagdaan:

if I could not sell, I shall return all the jewelry within the period mentioned above; if I would be able to
sell, I shall immediately deliver and account the whole proceeds of sale thereof to the owner of the
jewelries at his/her residence; my compensation or commission shall be the over-price on the value
of each jewelry quoted above. I am prohibited to sell any jewelry on credit or by installment; deposit,
give for safekeeping: lend, pledge or give as security or guaranty under any circumstance or
manner, any jewelry to other person or persons.

kung hindi ko maipagbili ay isasauli ko ang lahat ng alahas sa loob ng taning na panahong nakatala
sa itaas; kung maipagbili ko naman ay dagli kong isusulit at ibibigay ang buong pinagbilhan sa may-
ari ng mga alahas sa kanyang bahay tahanan; ang aking gantimpala ay ang mapapahigit na halaga
sa nakatakdang halaga sa itaas ng bawat alahas HINDI ko ipinahihintulutang ipa-u-u-tang o ibibigay
na hulugan ang alin mang alahas, ilalagak, ipagkakatiwala; ipahihiram; isasangla o ipananagot kahit
sa anong paraan ang alin mang alahas sa ibang mga tao o tao.

I sign my name this . . . day of . . . 19 . . . at Manila, NILALAGDAAN ko ang kasunduang ito ngayong ika
_____ ng dito sa Maynila.

___________________
Signature of Persons who
received jewelries (Lagda
ng Tumanggap ng mga
Alahas)

Address: . . . . . . . . . . . .

Rosa Lim's signature indeed appears on the upper portion of the receipt immediately below the description of the
items taken: We find that this fact does not have the effect of altering the terms of the transaction from a contract of
agency to sell on commission basis to a contract of sale. Neither does it indicate absence or vitiation of consent
thereto on the part of Rosa Lim which would make the contract void or voidable. The moment she affixed her
signature thereon, petitioner became bound by all the terms stipulated in the receipt. She, thus, opened herself to all
the legal obligations that may arise from their breach. This is clear from Article 1356 of the New Civil Code which
provides:

Contracts shall be obligatory in whatever form they may have been entered into, provided all the essential
requisites for their validity are present. . . .

However, there are some provisions of the law which require certain formalities for particular contracts. The first is
when the form is required for the validity of the contract; the second is when it is required to make the contract
effective as against third parties such as those mentioned in Articles 1357 and 1358; and the third is when the form
is required for the purpose of proving the existence of the contract, such as those provided in the Statute of Frauds
in article 1403. 13 A contract of agency to sell on commission basis does not belong to any of these three categories,
hence it is valid and enforceable in whatever form it may be entered into.

Furthermore, there is only one type of legal instrument where the law strictly prescribes the location of the signature
of the parties thereto. This is in the case of notarial wills found in Article 805 of the Civil Code, to wit:

Every will, other than a holographic will, must be subscribed at the end thereof by the testator himself . . . .

The testator or the person requested by him to write his name and the instrumental witnesses of the will,
shall also sign, as aforesaid, each and every page thereof, except the last, on the left margin. . . .
In the case before us, the parties did not execute a notarial will but a simple contract of agency to sell on
commission basis, thus making the position of petitioner's signature thereto immaterial.

Petitioner insists, however, that the diamond ring had been returned to Vicky Suarez through Aurelia Nadera, thus
relieving her of any liability. Rosa Lim testified to this effect on direct examination by her counsel:

Q: And when she left the jewelries with you, what did you do thereafter?

A: On October 12, I was bound for Cebu. So I called up Vicky through telephone and informed her that I
am no longer interested in the bracelet and ring and that I will just return it.

Q: And what was the reply of Vicky Suarez?

A: She told me that she could not come to the apartelle since she was very busy. So, she asked me if
Aurelia was there and when I informed her that Aurelia was there, she instructed me to give the pieces of
jewelry to Aurelia who in turn will give it back to Vicky.

Q: And you gave the two (2) pieces of jewelry to Aurelia Nadera?

A: Yes, Your Honor. 14

This was supported by Aurelia Nadera in her direct examination by petitioner's counsel:

Q: Do you know if Rosa Lim in fact returned the jewelries?

A: She gave the jewelries to me.

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

A: Rosa Lim called up Vicky Suarez the following morning and told Vicky Suarez that she was going
home to Cebu and asked if she could give the jewelries to me.

Q: And when did Rosa Lim give to you the jewelries?

A: Before she left for Cebu. 15

On rebuttal, these testimonies were belied by Vicky Suarez herself:

Q: It has been testified to here also by both Aurelia Nadera and Rosa Lim that you gave authorization to
Rosa Lim to turn over the two (2) pieces of jewelries mentioned in Exhibit "A" to Aurelia Nadera, what can
you say about that?

A: That is not true sir, because at that time Aurelia Nadera is highly indebted to me in the amount of
P140,000.00, so if I gave it to Nadera, I will be exposing myself to a high risk. 16<

The issue as to the return of the ring boils down to one of credibility. Weight of evidence is not determined
mathematically by the numerical superiority of the witnesses testifying to a given fact. It depends upon its practical
effect in inducing belief on the part of the judge trying the case.17 In the case at bench, both the trial court and the
Court of Appeals gave weight to the testimony of Vicky Suarez that she did not authorize Rosa Lim to return the
pieces of jewelry to Nadera. The respondent court, in affirming the trial court, said:

. . . This claim (that the ring had been returned to Suarez thru Nadera) is disconcerting. It contravenes the
very terms of Exhibit A. The instruction by the complaining witness to appellant to deliver the ring to Aurelia
Nadera is vehemently denied by the complaining witness, who declared that she did not authorize and/or
instruct appellant to do so. And thus, by delivering the ring to Aurelia without the express authority and
consent of the complaining witness, appellant assumed the right to dispose of the jewelry as if it were hers,
thereby committing conversion, a clear breach of trust, punishable under Article 315, par. 1(b), Revised
Penal Code.

We shall not disturb this finding of the respondent court. It is well settled that we should not interfere with the
judgment of the trial court in determining the credibility of witnesses, unless there appears in the record some fact or
circumstance of weight and influence which has been overlooked or the significance of which has been
misinterpreted. The reason is that the trial court is in a better position to determine questions involving credibility
having heard the witnesses and having observed their deportment and manner of testifying during the trial. 18

Article 315, par. 1(b) of the Revised Penal Code provides:


Art. 315. Swindling (estafa). Any person who shall defraud another by any of the means mentioned
hereinbelow shall be punished by:

xxx xxx xxx

(b) By misappropriating or converting, to the prejudice of another, money, goods, or any other personal
property received by the offender in trust or on commission, or for administration, or under any other
obligation involving the duty to make delivery of or to return the same, even though such obligation be totally
or partially guaranteed by a bond; or by denying having received such money, goods, or other property.

xxx xxx xxx

The elements of estafa with abuse of confidence under this subdivision are as follows. (1) That money, goods, or
other personal property be received by the offender in trust, or on commission, or for administration, or under any
other obligation involving the duty to make delivery of, or to return, the same; (2) That there be misappropriation or
conversion of such money or property by the offender or denial on his part of such receipt; (3) That such
misappropriation or conversion or denial is to the prejudice of another; and (4) That there is a demand made by the
offended party to the offender (Note: The 4th element is not necessary when there is evidence of misappropriation
of the goods by the defendant) 19

All the elements of estafa under Article 315, Paragraph 1(b) of the Revised Penal Code, are present in the case at
bench. First, the receipt marked as Exhibit "A" proves that petitioner Rosa Lim received the pieces of jewelry in trust
from Vicky Suarez to be sold on commission basis. Second, petitioner misappropriated or converted the jewelry to
her own use; and, third, such misappropriation obviously caused damage and prejudice to the private respondent.

WHEREFORE, the petition is DENIED and the Decision of the Court of Appeals is hereby AFFIRMED.

Costs against petitioner.

SO ORDERED.

Padilla, Bellosillo and Kapunan, JJ., concur.


Vitug, J., concurs in the result.

G.R. No. 130148 December 15, 1997

JOSE BORDADOR and LYDIA BORDADOR, petitioners,


vs.
BRIGIDA D. LUZ, ERNESTO M. LUZ and NARCISO DEGANOS, respondents.

REGALADO, J.:

In this appeal by certiorari, petitioners assail the judgment of the Court of Appeals in CA-G.R. CV No. 49175
affirming the adjudication of the Regional Trial Court of Malolos, Bulacan which found private respondent Narciso
Deganos liable to petitioners for actual damages, but absolved respondent spouses Brigida D. Luz and Ernesto M.
Luz of liability. Petitioners likewise belabor the subsequent resolution of the Court of Appeals which denied their
motion for reconsideration of its challenged decision.

Petitioners were engaged in the business of purchase and sale of jewelry and respondent Brigida D. Luz, also
known as Aida D. Luz, was their regular customer. On several occasions during the period from April 27, 1987 to
September 4, 1987, respondent Narciso Deganos, the brother to Brigida D. Luz, received several pieces of gold and
jewelry from petitioner amounting to P382,816.00.1 These items and their prices were indicated in seventeen
receipts covering the same. Eleven of the receipts stated that they were received for a certain Evelyn Aquino, a
niece of Deganos, and the remaining six indicated that they were received for Brigida D. Luz.2

Deganos was supposed to sell the items at a profit and thereafter remit the proceeds and return the unsold items to
petitioners. Deganos remitted only the sum of P53,207.00. He neither paid the balance of the sales proceeds, nor
did he return any unsold item to petitioners. By January 1990, the total of his unpaid account to petitioners, including
interest, reached the sum of P725,463.98. 3 Petitioners eventually filed a complaint in the barangay court against
Deganos to recover said amount.

In the barangay proceedings, Brigida D. Luz, who was not impleaded in the case, appeared as a witness for
Deganos and ultimately, she and her husband, together with Deganos, signed a compromise agreement with
petitioners. In that compromise agreement, Deganos obligated himself to pay petitioners, on installment basis, the
balance of his account plus interest thereon. However, he failed to comply with his aforestated undertakings.
On June 25, 1990, petitioners instituted Civil Case No. 412-M-90 in the Regional Trial Court of Malolos, Bulacan
against Deganos and Brigida, D. Luz for recovery of a sum of money and damages, with an application for
preliminary attachment. 4 Ernesto Luz was impleaded therein as the spouse of Brigida.

Four years later, or on March 29, 1994, Deganos and Brigida D. Luz were charged with estafa 5 in the Regional Trial
Court of Malolos, Bulacan, which was docketed as Criminal Case No. 785-M-94. That criminal case appears to be
still pending in said trial court.

During the trial of the civil case, petitioners claimed that Deganos acted as the agent of Brigida D. Luz when he
received the subject items of jewelry and, because he failed to pay for the same, Brigida, as principal, and her
spouse are solidarily liable with him therefor.

On the other hand, while Deganos admitted that he had an unpaid obligation to petitioners, he claimed that the
same was only in the sum of P382,816.00 and not P725,463.98. He further asserted that it was he alone who was
involved in the transaction with the petitioners; that he neither acted as agent for nor was he authorized to act as an
agent by Brigida D. Luz, notwithstanding the fact that six of the receipts indicated that the items were received by
him for the latter. He further claimed that he never delivered any of the items he received from petitioners to Brigida.

Brigida, on her part, denied that she had anything to do with the transactions between petitioners and Dangerous.
She claimed that she never authorized Deganos to receive any item of jewelry in her behalf and, for that matter,
neither did she actually receive any of the articles in question.

After trial, the court below found that only Deganos was liable to petitioners for the amount and damages claimed. It
held that while Brigida D. Luz did have transactions with petitioners in the past, the items involved were already paid
for and all that Brigida owed petitioners was the sum of P21,483.00 representing interest on the principal account
which she had previously paid for.6

The trial court also found that it was petitioner Lydia Bordador who indicated in the receipts that the items were
received by Deganos for Evelyn Aquino and Brigida D. Luz. 7 Said court was "persuaded that Brigida D. Luz was
behind Deganos," but because there was no memorandum to this effect, the agreement between the parties was
unenforceable under the Statute of Frauds.8 Absent the required memorandum or any written document connecting
the respondent Luz spouses with the subject receipts, or authorizing Deganos to act on their behalf, the alleged
agreement between petitioners and Brigida D. Luz was unenforceable.

Deganos was ordered to pay petitioners the amount of P725,463.98, plus legal interest thereon June 25, 1990, and
attorney's fees. Brigida D. Luz was ordered to pay P21,483.00 representing the interest on her own personal loan.
She and her co-defendant spouse were absolved from any other or further liability.9

As stated at the outset, petitioners appealed the judgment of the court a quo to the Court Appeals which affirmed
said judgment. 10 The motion for reconsideration filed by petitioners was subsequently dismissed, 11 hence the
present recourse to this Court.

The primary issue in the instant petition is whether or not herein respondent spouses are liable to petitioners for the
latter's claim for money and damages in the sum of P725,463.98, plus interests and attorney's fees, despite the fact
that the evidence does not show that they signed any of the subject receipts or authorized Deganos to received the
items of jewelry on their behalf.

Petitioners argue that the Court of Appeals erred in adopting the findings of the court a quo that respondent spouses
are not liable to them, as said conclusion of the trial court is contradicted by the finding of fact of the appellate court
that "(Deganos) acted as agent of his sister (Brigida Luz)." 12 In support of this contention, petitioners quoted several
letters sent to them by Brigida D. Luz wherein the latter acknowledged her obligation to petitioners and requested for
more time to fulfill the same. They likewise aver that Brigida testified in the trial court that Deganos took some gold
articles from petitioners and delivered the same to her.

Both the Court of Appeals and the trial court, however, found as a fact that the aforementioned letters concerned the
previous obligations of Brigida to petitioners, and had nothing to do with the money sought to be recovered in the
instant case. Such concurrent factual findings are entitled to great weight, hence, petitioners cannot plausibly claim
in this appellate review that the letters were in the nature of acknowledgments by Brigida that she was the principal
of Deganos in the subject transactions.

On the other hand, with regard to the testimony of Brigida admitting delivery of the gold to her, there is no showing
whatsoever that her statement referred to the items which are the subject matter of this case. It cannot, therefore, be
validly said that she admitted her liability regarding the same.

Petitioners insist that Deganos was the agent of Brigida D. Luz as the latter clothed him with apparent authority as
her agent and held him out to the public as such, hence Brigida can not be permitted to deny said authority to
innocent third parties who dealt with Deganos under such belief. 13 Petitioners further represent that the Court of
Appeals recognized in its decision that Deganos was an agent of Brigida. 14
The evidence does not support the theory of petitioners that Deganos was an agent of Brigida D. Luz and that the
latter should consequently be held solidarily liable with Deganos in his obligation to petitioners. While the quoted
statement in the findings of fact of the assailed appellate decision mentioned that Deganos ostensibly acted as an
agent of Brigida, the actual conclusion and ruling of the Court of Appeals categorically stated that, "(Brigida Luz)
never authorized her brother (Deganos) to act for and in her behalf in any transaction with Petitioners . . . . 15 It is
clear, therefore, that even assuming arguendo that Deganos acted as an agent of Brigida, the latter never
authorized him to act on her behalf with regard to the transaction subject of this case.

The Civil Code provides:

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

The basis for agency is representation. Here, there is no showing that Brigida consented to the acts of
Deganos or authorized him to act on her behalf, much less with respect to the particular transactions
involved. Petitioners' attempt to foist liability on respondent spouses through the supposed agency relation
with Deganos is groundless and ill-advised.

Besides, it was grossly and inexcusably negligent of petitioners to entrust to Deganos, not once or twice but on at
least six occasions as evidenced by six receipts, several pieces of jewelry of substantial value without requiring a
written authorization from his alleged principal. A person dealing with an agent is put upon inquiry and must discover
upon his peril the authority of the agent.16

The records show that neither an express nor an implied agency was proven to have existed between Deganos and
Brigida D. Luz. Evidently, petitioners, who were negligent in their transactions with Deganos, cannot seek relief from
the effects of their negligence by conjuring a supposed agency relation between the two respondents where no
evidence supports such claim.

Petitioners next allege that the Court of Appeals erred in ignoring the fact that the decision of the court below, which
it affirmed, is "null and void" as it contradicted its ruling in CA-G.R. SP No. 39445 holding that there is "sufficient
evidence/proof" against Brigida D. Luz and Deganos for estafa in the pending criminal case. They further aver that
said appellate court erred in ruling against them in this civil action since the same would result in an inevitable
conflict of decisions should be trial court convict the accused in the criminal case.

By way of backdrop for this argument of petitioners, herein respondents Brigida D. Luz and Deganos had filed a
demurrer to evidence and a motion for reconsideration in the aforestated criminal case, both of which were denied
by the trial court. They then filed a petition for certiorari in the Court of Appeals to set aside the denial of their
demurrer and motion for reconsideration but, as just stated, their petition therefor was dismissed. 17

Petitioners now claim that the aforesaid dismissal by the Court of Appeals of the petition in CA-G.R. SP No. 39445
with respect to the criminal case is equivalent to a finding that there is sufficient evidence in the estafa case against
Brigida D. Luz and Deganos. Hence, as already stated, petitioners theorize that the decision and resolution of the
Court of Appeals now being impugned in the case at bar would result in a possible conflict with the prospective
decision in the criminal case. Instead of promulgating the present decision and resolution under review, so they
suggest, the Court of Appeals should have awaited the decision in the criminal case, so as not to render academic
or preempt the same or, worse, create two conflicting rulings. 18

Petitioners have apparently lost sight of Article 33 of the Civil Code which provides that in cases involving alleged
fraudulent acts, a civil action for damages, entirely separate and distinct from the criminal action, may be brought by
the injured party. Such civil action shall proceed independently of the criminal prosecution and shall require only a
preponderance of evidence.

It is worth noting that this civil case was instituted four years before the criminal case for estafa was filed, and that
although there was a move to consolidate both cases, the same was denied by the trial court. Consequently, it was
the duty of the two branches of the Regional Trial Court concerned to independently proceed with the civil and
criminal cases. It will also be observed that a final judgment rendered in a civil action absolving the defendant from
civil liability is no bar to a criminal action.19

It is clear, therefore, that this civil case may proceed independently of the criminal case 20 especially because while
both cases are based on the same facts, the quantum of proof required for holding the parties liable therein differ.
Thus, it is improvident of petitioners to claim that the decision and resolution of the Court of Appeals in the present
case would be preemptive of the outcome of the criminal case. Their fancied fear of possible conflict between the
disposition of this civil case and the coutcome of the pending criminal case is illusory.

Petitioners surprisingly postulate that the Court of Appeals had lost its jurisdiction to issue the denial resolution
dated August 18, 1997, as the same was tainted with irregularities and badges of fraud perpetrated by its court
officers. 21 They charge that said appellate court, through conspiracy and fraud on the part of its officers, gravely
abused its discretion in issuing that resolution denying their motion for reconsideration. They claim that said
resolution was drafted by the ponente, then signed and issued by the members of the Eleventh Division of said court
within one and a half days from the elevation thereof by the division clerk of court to the office of the ponente.

It is the thesis of petitioners that there was undue haste in issuing the resolution as the same was made without
waiting for the lapse of the ten-day period for respondents to file their comment and for petitioners to file their reply.
It was allegedly impossible for the Court of Appeals to resolve the issue in just one and a half days, especially
because its ponente, the late Justice Maximiano C. Asuncion, was then recuperating from surgery and, that,
additionally, "hundreds of more important cases were pending."22

These lamentable allegation of irregularities in the Court of Appeals and in the conduct of its officers strikes us as a
desperate attempt of petitioners to induce this Court to give credence to their arguments which, as already found by
both the trial and intermediate appellate courts, are devoid of factual and legal substance. The regrettably
irresponsible attempt to tarnish the image of the intermediate appellate tribunal and its judicial officers through ad
hominem imputations could well be contumacious, but we are inclined to let that pass with a strict admonition that
petitioners refrain from indulging in such conduct in litigations.

On July 9, 1997, the Court of Appeals rendered judgment in this case affirming the trial court's decision. 23Petitioners
moved for reconsideration and the Court of Appeals ordered respondents to file a comment. Respondents filed the
same on August 5, 1997 24 and petitioners filed their reply to said comment on August 15, 1997. 25 The Eleventh
Division of said court issued the questioned resolution denying petitioner's motion for reconsideration on August 18,
1997.26

It is ironic that while some litigants malign the judiciary for being supposedly slothful in disposing of cases,
petitioners are making a show of calling out for justice because the Court of Appeals issued a resolution disposing of
a case sooner than expected of it. They would even deny the exercise of discretion by the appellate court to
prioritize its action on cases in line with the procedure it has adopted in disposing thereof and in declogging its
dockets. It is definitely not for the parties to determine and dictate when and how a tribunal should act upon those
cases since they are not even aware of the status of the dockets and the internal rules and policies for acting
thereon.

The fact that a resolution was issued by said court within a relatively short period of time after the records of the
case were elevated to the office of the ponente cannot, by itself, be deemed irregular. There is no showing
whatsoever that the resolution was issued without considering the reply filed by petitioners. In fact, that brief
pleading filed by petitioners does not exhibit any esoteric or ponderous argument which could not be analyzed within
an hour. It is a legal presumption, born of wisdom and experience, that official duty has been regularly
performed; 27that the proceedings of a judicial tribunal are regular and valid, and that judicial acts and duties have
been and will be duly and properly performed. 28 The burden of proving irregularity in official conduct is on the part of
petitioners and they have utterly failed to do so. It is thus reprehensible for them to cast aspersions on a court of law
on the bases of conjectures or surmises, especially since one of the petitioners appears to be a member of the
Philippine Bar.

Lastly, petitioners fault the trial court's holding that whatever contract of agency was established between Brigida D.
Luz and Narciso Deganos is unenforceable under the Statute of Frauds as that aspect of this case allegedly is not
covered thereby. 29 They proceed on the premise that the Statute of Frauds applies only to executory contracts and
not to executed or to partially executed ones. From there, they move on to claim that the contract involved in this
case was an executed contract as the items had already been delivered by petitioners to Brigida D. Luz, hence,
such delivery resulted in the execution of the contract and removed the same from the coverage of the Statute of
Frauds.

Petitioners' claim is speciously unmeritorious. It should be emphasized that neither the trial court nor the appellate
court categorically stated that there was such a contractual relation between these two respondents. The trial court
merely said that if there was such an agency existing between them, the same is unenforceable as the contract
would fall under the Statute of Frauds which requires the presentation of a note or memorandum thereof in order to
be enforceable in court. That was merely a preparatory statement of a principle of law. What was finally proven as a
matter of fact is that there was no such contract between Brigida D. Luz and Narciso Deganos, executed or partially
executed, and no delivery of any of the items subject of this case was ever made to the former.

WHEREFORE, no error having been committed by the Court of Appeals in affirming the judgment of the court a
quo, its challenged decision and resolution are hereby AFFIRMED and the instant petition is DENIED, with double
costs against petitioners.

SO ORDERED.

Puno, Mendoza and Martinez, JJ., concur.

G.R. No. 166044 June 18, 2012

COUNTRY BANKERS INSURANCE CORPORATION, Petitioner,


vs.
KEPPEL CEBU SHIPYARD, UNIMARINE SHIPPING LINES, INC., PAUL RODRIGUEZ, PETER RODRIGUEZ,
ALBERT HONTANOSAS, and BETHOVEN QUINAIN, Respondents.

DECISION

LEONARDO-DE CASTRO, J.:

This is a petition for review on certiorari1 to reverse and set aside the January 29, 2004 Decision2 and October 28,
2004 Resolution3 of the Court of Appeals in CA-G.R. CV No. 58001, wherein the Court of Appeals affirmed with
modification the February 10, 1997 Decision4 of the Regional Trial Court (RTC) of Cebu City, Branch 7, in Civil Case
No. CBB-13447.

Hereunder are the undisputed facts as culled from the records of the case.

On January 27, 1992, Unimarine Shipping Lines, Inc. (Unimarine), a corporation engaged in the shipping industry,
contracted the services of Keppel Cebu Shipyard, formerly known as Cebu Shipyard and Engineering Works, Inc.
(Cebu Shipyard), for dry docking and ship repair works on its vessel, the M/V Pacific Fortune.5

On February 14, 1992, Cebu Shipyard issued Bill No. 26035 to Unimarine in consideration for its services, which
amounted to ₱4,486,052.00.6 Negotiations between Cebu Shipyard and Unimarine led to the reduction of this
amount to ₱3,850,000.00. The terms of this agreement were embodied in Cebu Shipyard’s February 18, 1992 letter
to the President/General Manager of Unimarine, Paul Rodriguez, who signed his conformity to said letter, quoted in
full below:

18 February 1992
Ref No.: LL92/0383

UNIMARINE SHIPPING LINES, INC.


C/O Autographics, Inc.
Gorordo Avenue, Lahug, Cebu City

Attention: Mr. Paul Rodriguez


President/General Manager

This is to confirm our agreement on the shiprepair bills charged for the repair of MV Pacific Fortune, our invoice no.
26035.

The shiprepair bill (Bill No. 26035) is agreed at a negotiated amount of ₱3,850,000.00 excluding VAT.

Unimarine Shipping Lines, Inc. ("Unimarine") will pay the above amount of [₱3,850,000.00] in US Dollars to be fixed
at the prevailing USDollar to Philippine Peso exchange rate at the time of payment. The payment terms to be
extended to Unimarine is as follows:

Installments Amount Due Date


1st Installment ₱2,350,000.00 30 May 1992
2nd Installment ₱1,500,000.00 30 Jun 1992

Unimarine will deposit post-dated checks equivalent to the above amounts in Philippine Peso and an additional
check amount of ₱385,000.00, representing 10% [Value Added Tax] VAT on the above bill of ₱3,850,000.00. In the
event that Unimarine fails to make full payment on the above due dates in US Dollars, the post-dated checks will be
deposited by CSEW in payment of the amounts owned by Unimarine and Unimarine agree that the 10% VAT
(₱385,000.00) shall also become payable to CSEW.

Unimarine in consideration of the credit terms extended by CSEW and the release of the vessel before full payment
of the above debt, agree to present CSEW surety bonds equal to 120% of the value of the credit extended. The total
bond amount shall be ₱4,620,000.00.

Yours faithfully,

CEBU SHIPYARD & ENG'G WORKS, INC. Conforme:


(SGD) (SGD)
SEET KENG TAT
Treasurer/VP-Admin. PAUL RODRIGUEZ
Unimarine Shipping
Lines, Inc.7
In compliance with the agreement, Unimarine, through Paul Rodriguez, secured from Country Bankers Insurance
Corp. (CBIC), through the latter’s agent, Bethoven Quinain (Quinain), CBIC Surety Bond No. G (16) 294198 (the
surety bond) on January 15, 1992 in the amount of ₱3,000,000.00. The expiration of this surety bond was extended
to January 15, 1993, through Endorsement No. 331529 (the endorsement), which was later on attached to and
formed part of the surety bond. In addition to this, Unimarine, on February 19, 1992, obtained another bond from
Plaridel Surety and Insurance Co. (Plaridel), PSIC Bond No. G (16)-0036510 in the amount of ₱1,620,000.00.

On February 17, 1992, Unimarine executed a Contract of Undertaking in favor of Cebu Shipyard. The pertinent
portions of the contract read as follows:

Messrs, Uni-Marine Shipping Lines, Inc. ("the Debtor") of Gorordo Avenue, Cebu City hereby acknowledges that in
consideration of Cebu Shipyard & Engineering Works, Inc. ("Cebu Shipyard") at our request agreeing to release the
vessel specified in part A of the Schedule ("name of vessel") prior to the receipt of the sum specified in part B of the
Schedule ("Moneys Payable") payable in respect of certain works performed or to be performed by Cebu Shipyard
and/or its subcontractors and/or material and equipment supplied or to be supplied by Cebu Shipyard and/or its
subcontractors in connection with the vessel for the party specified in part C of the Schedule ("the Debtor"), we
hereby unconditionally, irrevocably undertake to make punctual payment to Cebu Shipyard of the Moneys Payable
on the terms and conditions as set out in part B of the Schedule. We likewise hereby expressly waive whatever right
of excussion we may have under the law and equity.

This contract shall be binding upon Uni-Marine Shipping Lines, Inc., its heirs, executors, administrators, successors,
and assigns and shall not be discharged until all obligation of this contract shall have been faithfully and fully
performed by the Debtor.11

Because Unimarine failed to remit the first installment when it became due on May 30, 1992, Cebu Shipyard was
constrained to deposit the peso check corresponding to the initial installment of ₱2,350,000.00. The check,
however, was dishonored by the bank due to insufficient funds.12 Cebu Shipyard faxed a message to Unimarine,
informing it of the situation, and reminding it to settle its account immediately.13

On June 24, 1992, Cebu Shipyard again faxed a message14 to Unimarine, to confirm Paul Rodriguez’s promise that
Unimarine will pay in full the ₱3,850,000.00, in US Dollars on July 1, 1992.

Since Unimarine failed to deliver on the above promise, Cebu Shipyard, on July 2, 1992, through a faxed letter,
asked Unimarine if the payment could be picked up the next day. This was followed by another faxed message on
July 6, 1992, wherein Cebu Shipyard reminded Unimarine of its promise to pay in full on July 28, 1992. On August
24, 1992, Cebu Shipyard again faxed15 Unimarine, to inform it that interest charges will have to be imposed on their
outstanding debt, and if it still fails to pay before August 28, 1992, Cebu Shipyard will have to enforce payment
against the sureties and take legal action.

On November 18, 1992, Cebu Shipyard, through its counsel, sent Unimarine a letter,16 demanding payment, within
seven days from receipt of the letter, the amount of ₱4,859,458.00, broken down as follows:

B#26035 MV PACIFIC FORTUNE 4,486,052.00


LESS: ADJUSTMENT:
CN#00515-03/19/92 (636,052.00)
--------------------
3,850,000.00
Add: VAT on repair bill no. 26035 385,000.00
--------------------
4,235,000.00
Add: Interest/penalty charges: 189,888.00
Debit Note No. 02381
Debit Note No. 02382 434,570.00
--------------------
4,859,458.0017

Due to Unimarine’s failure to heed Cebu Shipyard’s repeated demands, Cebu Shipyard, through counsel, wrote the
sureties CBIC18 on November 18, 1992, and Plaridel,19 on November 19, 1992, to inform them of Unimarine’s
nonpayment, and to ask them to fulfill their obligations as sureties, and to respond within seven days from receipt of
the demand.

However, even the sureties failed to discharge their obligations, and so Cebu Shipyard filed a Complaint dated
January 8, 1993, before the RTC, Branch 18 of Cebu City, against Unimarine, CBIC, and Plaridel. This was
docketed as Civil Case No. CBB-13447.
CBIC, in its Answer,20 said that Cebu Shipyard’s complaint states no cause of action. CBIC alleged that the surety
bond was issued by its agent, Quinain, in excess of his authority. CBIC claimed that Cebu Shipyard should have
doubted the authority of Quinain to issue the surety bond based on the following:

1. The nature of the bond undertaking (guarantee payment), and the amount involved.

2. The surety bond could only be issued in favor of the Department of Public Works and Highways, as
stamped on the upper right portion of the face of the bond.21 This stamp was covered by documentary
stamps.

3. The issuance of the surety bond was not reported, and the corresponding premiums were not remitted to
CBIC.22

CBIC added that its liability was extinguished when, without its knowledge and consent, Cebu Shipyard and
Unimarine novated their agreement several times. Furthermore, CBIC stated that Cebu Shipyard’s claim had
already been paid or extinguished when Unimarine executed an Assignment of Claims23 of the proceeds of the sale
of its vessel M/V Headline in favor of Cebu Shipyard. CBIC also averred that Cebu Shipyard’s claim had already
prescribed as the endorsement that extended the surety bond’s expiry date, was not reported to CBIC. Finally, CBIC
asseverated that if it were held to be liable, its liability should be limited to the face value of the bond and not for
exemplary damages, attorney’s fees, and costs of litigation.24

Subsequently, CBIC filed a Motion to Admit Cross and Third Party Complaint25 against Unimarine, as cross
defendant; Paul Rodriguez, Albert Hontanosas, and Peter Rodriguez, as signatories to the Indemnity Agreement
they executed in favor of CBIC; and Bethoven Quinain, as the agent who issued the surety bond and endorsement
in excess of his authority, as third party defendants.26

CBIC claimed that Paul Rodriguez, Albert Hontanosas, and Peter Rodriguez executed an Indemnity Agreement,
wherein they bound themselves, jointly and severally, to indemnify CBIC for any amount it may sustain or incur in
connection with the issuance of the surety bond and the endorsement.27 As for Quinain, CBIC alleged that he
exceeded his authority as stated in the Special Power of Attorney, wherein he was authorized to solicit business and
issue surety bonds not exceeding ₱500,000.00 but only in favor of the Department of Public Works and Highways,
National Power Corporation, and other government agencies.28

On August 23, 1993, third party defendant Hontanosas filed his Answer with Counterclaim, to the Cross and Third
Party Complaint. Hontanosas claimed that he had no financial interest in Unimarine and was neither a stockholder,
director nor an officer of Unimarine. He asseverated that his relationship to Unimarine was limited to his capacity as
a lawyer, being its retained counsel. He further denied having any participation in the Indemnity Agreement
executed in favor of CBIC, and alleged that his signature therein was forged, as he neither signed it nor appeared
before the Notary Public who acknowledged such undertaking.29

Various witnesses were presented by the parties during the course of the trial of the case. Myrna Obrinaga testified
for Cebu Shipyard. She was the Chief Accountant in charge of the custody of the documents of the company. She
corroborated Cebu Shipyard’s allegations and produced in court the documents to support Cebu Shipyard’s claim.
She also testified that while it was true that the proceeds of the sale of Unimarine’s vessel, M/V Headline, were
assigned to Cebu Shipyard, nothing was turned over to them.30

Paul Rodriguez admitted that Unimarine failed to pay Cebu Shipyard for the repairs it did on M/V Pacific Fortune,
despite the extensions granted to Unimarine. He claimed that he signed the Indemnity Agreement because he
trusted Quinain that it was a mere pre-requisite for the issuance of the surety bond. He added that he did not bother
to read the documents and he was not aware of the consequences of signing an Indemnity Agreement. Paul
Rodriguez also alleged to not having noticed the limitation "Valid only in favor of DPWH" stamped on the surety
bond.31 However, Paul Rodriguez did not contradict the fact that Unimarine failed to pay Cebu Shipyard its
obligation.32

CBIC presented Dakila Rianzares, the Senior Manager of its Bonding Department. Her duties included the
evaluation and approval of all applications for and reviews of bonds issued by their agents, as authorized under the
Special Power of Attorney and General Agency Contract of CBIC. Rianzares testified that she only learned of the
existence of CBIC Surety Bond No. G (16) 29419 when she received the summons for this case. Upon investigation,
she found out that the surety bond was not reported to CBIC by Quinain, the issuing agent, in violation of their
General Agency Contract, which provides that all bonds issued by the agent be reported to CBIC’s office within one
week from the date of issuance. She further stated that the surety bond issued in favor of Unimarine was issued
beyond Quinain’s authority. Rianzares added that she was not aware that an endorsement pertaining to the surety
bond was also issued by Quinain.33

After the trial, the RTC was faced with the lone issue of whether or not CBIC was liable to Cebu Shipyard based on
Surety Bond No. G (16) 29419.34

On February 10, 1997, the RTC rendered its Decision, the fallo of which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff Cebu Shipyard & Engineering Works,
Incorporated and against the defendants:

1. Ordering the defendants Unimarine Shipping Lines, Incorporated, Country Bankers Insurance Corporation
and Plaridel Surety and Insurance Corporation to pay plaintiff jointly and severally the amount of
₱4,620,000.00 equivalent to the value of the surety bonds;

2. Ordering further defendant Unimarine to pay plaintiff the amount of ₱259,458.00 to complete its entire
obligation of ₱4,859,458.00;

3. To pay plaintiff jointly and severally the amount of ₱100,000.00 in attorney’s fees and litigation expenses;

4. For Cross defendant Unimarine Shipping Lines, Incorporated and Third party defendants Paul Rodriguez,
Peter Rodriguez and Alber[t] Hontanosas: To indemnify jointly and severally, cross plaintiff and third party
plaintiff Country Bankers Insurance Corporation whatever amount the latter is made to pay to plaintiff.35

The RTC held that CBIC, "in its capacity as surety is bound with its principal jointly and severally to the extent of the
surety bond it issued in favor of [Cebu Shipyard]" because "although the contract of surety is in essence secondary
only to a valid principal obligation, his liability to [the] creditor is said to be direct, primary[,] and absolute, in other
words, he is bound by the principal."36 The RTC added:

Solidary obligations on the part of Unimarine and CBIC having been established and expressly stated in the Surety
Bond No. 29419 (Exh. "C"), [Cebu Shipyard], therefore, is entitled to collect and enforce said obligation against any
and or both of them, and if and when CBIC pays, it can compel its co-defendant Unimarine to reimburse to it the
amount it has paid.37

The RTC found CBIC’s contention that Quinain acted in excess of his authority in issuing the surety bond untenable.
The RTC held that CBIC is bound by the surety bond issued by its agent who acted within the apparent scope of his
authority. The RTC said:

[A]s far as third persons are concerned, an act is deemed to have been performed within the scope of the agent’s
authority, if such act is within the terms of the powers of attorney as written, even if the agent has in fact exceeded
the limits of his authority according to an understanding between the principal and the agent.38

All the defendants appealed this Decision to the Court of Appeals.

Unimarine, Paul Rodriguez, Peter Rodriguez, and Albert Hontanosas argued that Unimarine’s obligation under Bill
No. 26035 had been extinguished by novation, as Cebu Shipyard had agreed to accept the proceeds of the sale of
the M/V Headline as payment for the ship repair works it did on M/V Pacific Fortune. Paul Rodriguez and Peter
Rodriguez added that such novation also freed them from their liability under the Indemnity Agreement they signed
in favor of CBIC. Albert Hontanosas in turn reiterated that he did not sign the Indemnity Agreement.39 [SC1

CBIC, in its Appellant’s Brief,40 claimed that the RTC erred in enforcing its liability on the surety bond as it was issued
in excess of Quinain’s authority. Moreover, CBIC averred, its liability under such surety had been extinguished by
reasons of novation, payment, and prescription. CBIC also questioned the RTC’s order, holding it jointly and
severally liable with Unimarine and Plaridel for the amount of ₱4,620,000.00, a sum larger than the face value of
CBIC Surety Bond No. G (16) 29419, and why the RTC did not hold Quinain liable to indemnify CBIC for whatever
amount it was ordered to pay Cebu Shipyard.

On January 29, 2004, the Court of Appeals promulgated its decision, with the following dispositive portion:

WHEREFORE, in view of the foregoing, the respective appeal[s] filed by Defendants-Appellants Unimarine Shipping
Lines, Inc. and Country Bankers Insurance Corporation; Cross-Defendant-Appellant Unimarine Shipping Lines, Inc.
and; Third-Party Defendants-Appellants Paul Rodriguez, Peter Rodriguez and Albert Hontanosas are hereby
DENIED. The decision of the RTC in Civil Case No. CEB-13447 dated February 10, 1997 is AFFIRMED with
modification that Mr. Bethoven Quinain, CBIC’s agent is hereby held jointly and severally liable with CBIC by virtue
of Surety Bond No. 29419 executed in favor of plaintiff-appellee CSEW.41

In its decision, the Court of Appeals resolved the following issues, as it had summarized from the parties’ pleadings:

I. Whether or not UNIMARINE is liable to [Cebu Shipyard] for a sum of money arising from the ship-repair
contract;

II. Whether or not the obligation of UNIMARINE to [Cebu Shipyard] has been extinguished by novation;

III. Whether or not Defendant-Appellant CBIC, allegedly being the Surety of UNIMARINE is liable under
Surety Bond No. 29419[;]
IV. Whether or not Cross Defendant-Appellant UNIMARINE and Third-Party Defendants-Appellants Paul
Rodriguez, Peter Rodriguez, Albert Hontanosas and Third-Party Defendant Bethoven Quinain are liable by
virtue of the Indemnity Agreement executed between them and Cross and Third Party Plaintiff CBIC;

V. Whether or not Plaintiff-Appellee [Cebu Shipyard] is entitled to the award of ₱100,000.00 in attorney’s
fees and litigation expenses.42

The Court of Appeals held that it was duly proven that Unimarine was liable to Cebu Shipyard for the ship repair
works it did on the former’s M/V Pacific Fortune. The Court of Appeals dismissed CBIC’s contention of novation for
lack of merit.43 CBIC was held liable under the surety bond as there was no novation on the agreement between
Unimarine and Cebu Shipyard that would discharge CBIC from its obligation. The Court of Appeals also did not
allow CBIC to disclaim liability on the ground that Quinain exceeded his authority because third persons had relied
upon Quinain’s representation, as CBIC’s agent.44 Quinain was, however, held solidarily liable with CBIC under
Article 1911 of the Civil Code.45

Anent the liability of the signatories to the Indemnity Agreement, the Court of Appeals held Paul Rodriguez, Peter
Rodriguez, and Albert Hontanosas jointly and severally liable thereunder. The Court of Appeals rejected
Hontanosas’s claim that his signature in the Indemnity Agreement was forged, as he was not able to prove it.46

The Court of Appeals affirmed the award of attorney’s fees and litigation expenses to Cebu Shipyard since it was
able to clearly establish the defendants’ liability, which they tried to dodge by setting up defenses to release
themselves from their obligation.47

CBIC48 and Unimarine, together with third party defendants-appellants49 filed their respective Motions for
Reconsideration. This was, however, denied by the Court of Appeals in its October 28, 2004 Resolution for lack of
merit.

Unimarine elevated its case to this Court via a petition for review on certiorari, docketed as G.R. No. 166023, which
was denied in a Resolution dated January 19, 2005.50

The lone petitioner in this case, CBIC, is now before this Court, seeking the reversal of the Court of Appeals’
decision and resolution on the following grounds:

A.

THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN APPLYING THE PROVISIONS OF


ARTICLE 1911 OF THE CIVIL CODE TO HOLD PETITIONER LIABLE FOR THE ACTS DONE BY ITS
AGENT IN EXCESS OF AUTHORITY.

B.

THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN HOLDING THAT AN EXTENSION OF


THE PERIOD FOR THE PERFORMANCE OF AN OBLIGATION GRANTED BY THE CREDITOR TO THE
PRINCIPAL DEBTOR IS NOT SUFFICIENT TO RELEASE THE SURETY.

C.

ASSUMING THAT PETITIONER IS LIABLE UNDER THE BOND, THE HONORABLE COURT OF
APPEALS NONETHELESS SERIOUSLY ERRED IN AFFIRMING THE SOLIDARY LIABILITY OF
PETITIONER BEYOND THE VALUE OF THE BOND.

D.

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING PETITIONER JOINTLY AND SEVERALLY
LIABLE FOR ATTORNEY’S FEES IN THE AMOUNT OF ₱100,000.00.51

Issue

The crux of the controversy lies in CBIC’s liability on the surety bond Quinain issued to Unimarine, in favor of Cebu
Shipyard.

CBIC avers that the Court of Appeals erred in interpreting and applying the rules governing the contract of agency. It
argued that the Special Power of Attorney granted to Quinain clearly set forth the extent and limits of his authority
with regard to businesses he can transact for and in behalf of CBIC. CBIC added that it was incumbent upon Cebu
Shipyard to inquire and look into the power of authority conferred to Quinain. CBIC said:

The authority to bind a principal as a guarantor or surety is one of those powers which requires a Special Power of
Attorney pursuant to Article 1878 of the Civil Code. Such power could not be simply assumed or inferred from the
mere existence of an agency. A person who enters into a contract of suretyship with an agent without confirming the
extent of the latter’s authority does so at his peril. x x x.52

CBIC claims that the foregoing is true even if Quinain was granted the authority to transact in the business of
insurance in general, as "the authority to bind the principal in a contract of suretyship could nonetheless never be
presumed."53 Thus, CBIC claims, that:

[T]hird persons seeking to hold the principal liable for transactions entered into by an agent should establish the
following, in case the same is controverted:

6.6.1. The fact or existence of the agency.

6.6.2. The nature and extent of authority.54

To go a little further, CBIC said that the correct Civil Code provision to apply in this case is Article 1898. CBIC
asserts that "Cebu Shipyard was charged with knowledge of the extent of the authority conferred on Mr. Quinain by
its failure to perform due diligence investigations."55

Cebu Shipyard, in its Comment56 first assailed the propriety of the petition for raising factual issues. In support, Cebu
Shipyard claimed that the Court of Appeals’ application of Article 1911 of the Civil Code was founded on findings of
facts that CBIC now disputes. Thus, the question is not purely of law.

Discussion

The fact that Quinain was an agent of CBIC was never put in issue. What has always been debated by the parties is
the extent of authority or, at the very least, apparent authority, extended to Quinain by CBIC to transact insurance
business for and in its behalf.

In a contract of agency, a person, the agent, binds himself to represent another, the principal, with the latter’s
consent or authority.57 Thus, agency is based on representation, where the agent acts for and in behalf of the
principal on matters within the scope of the authority conferred upon him.58 Such "acts have the same legal effect as
if they were personally done by the principal. By this legal fiction of representation, the actual or legal absence of the
principal is converted into his legal or juridical presence."59

The RTC applied Articles 1900 and 1911 of the Civil Code in holding CBIC liable for the surety bond. It held that
CBIC could not be allowed to disclaim liability because Quinain’s actions were within the terms of the special power
of attorney given to him.60 The Court of Appeals agreed that CBIC could not be permitted to abandon its obligation
especially since third persons had relied on Quinain’s representations. It based its decision on Article 1911 of the
Civil Code and found CBIC to have been negligent and less than prudent in conducting its insurance business for its
failure to supervise and monitor the acts of its agents, to regulate the distribution of its insurance forms, and to
devise schemes to prevent fraudulent misrepresentations of its agents.61

This Court does not agree. Pertinent to this case are the following provisions of the Civil Code:

Art. 1898. If the agent contracts in the name of the principal, exceeding the scope of his authority, and the principal
does not ratify the contract, it shall be void if the party with whom the agent contracted is aware of the limits of the
powers granted by the principal. In this case, however, the agent is liable if he undertook to secure the principal’s
ratification.

Art. 1900. So far as third persons are concerned, an act is deemed to have been performed within the scope of the
agent’s authority, if such act is within the terms of the power of attorney, as written, even if the agent has in fact
exceeded the limits of his authority according to an understanding between the principal and the agent.

Art. 1902. A third person with whom the agent wishes to contract on behalf of the principal may require the
presentation of the power of attorney, or the instructions as regards the agency. Private or secret orders and
instructions of the principal do not prejudice third persons who have relied upon the power of attorney or instructions
shown to them.

Art. 1910. The principal must comply with all the obligations which the agent may have contracted within the scope
of his authority.

As for any obligation wherein the agent has exceeded his power, the principal is not bound except when he ratifies it
expressly or tacitly.

Art. 1911. Even when the agent has exceeded his authority, the principal is solidarily liable with the agent if the
former allowed the latter to act as though he had full powers.
Our law mandates an agent to act within the scope of his authority.62 The scope of an agent’s authority is what
appears in the written terms of the power of attorney granted upon him.63 Under Article 1878(11) of the Civil Code, a
special power of attorney is necessary to obligate the principal as a guarantor or surety.

In the case at bar, CBIC could be held liable even if Quinain exceeded the scope of his authority only if Quinain’s act
of issuing Surety Bond No. G (16) 29419 is deemed to have been performed within the written terms of the power of
attorney he was granted.64

However, contrary to what the RTC held, the Special Power of Attorney accorded to Quinain clearly states the limits
of his authority and particularly provides that in case of surety bonds, it can only be issued in favor of the
Department of Public Works and Highways, the National Power Corporation, and other government agencies;
furthermore, the amount of the surety bond is limited to ₱500,000.00, to wit:

SPECIAL POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

That, COUNTRY BANKERS INSURANCE CORPORATION, a corporation duly organized and existing under and by
virtue of the laws of the Philippines, with head offices at 8th Floor, G.F. Antonino Building, T.M. Kalaw Street,
Ermita, Manila, now and hereinafter referred to as "the Company" hereby appoints BETHOVEN B. QUINAIN with
address at x x x to be its General Agent and Attorney-in-Fact, for and in its place, name and stead, and for its own
use and benefit, to do and perform the following acts and things:

1. To conduct, manage, carry on and transact insurance business as usually pertains to a General
Agency of Fire, Personal Accident, Bond, Marine, Motor Car (Except Lancer).

2. To accept, underwrite and subscribe policies of insurance for and in behalf of the Company under
the terms and conditions specified in the General Agency Contract executed and entered into by and
between it and its said Attorney-in-Fact subject to the following Schedule of Limits:

- SCHEDULE OF LIMITS -

a. FIRE:

xxxx

b. PERSONAL ACCIDENT:

xxxx

c. MOTOR CAR:

xxxx

d. MARINE:

xxxx

e. BONDS:

xxxx

Surety Bond (in favor of Dept. of Pub. Works and


Highways, Nat’l. Power Corp. & other…. 500,000.00
Government agencies)65

CBIC does not anchor its defense on a secret agreement, mutual understanding, or any verbal instruction to
Quinain. CBIC’s stance is grounded on its contract with Quinain, and the clear, written terms therein. This Court
finds that the terms of the foregoing contract specifically provided for the extent and scope of Quinain’s authority,
and Quinain has indeed exceeded them.

Under Articles 1898 and 1910, an agent’s act, even if done beyond the scope of his authority, may bind the principal
if he ratifies them, whether expressly or tacitly. It must be stressed though that only the principal, and not the agent,
can ratify the unauthorized acts, which the principal must have knowledge of.66 Expounding on the concept and
doctrine of ratification in agency, this Court said:

Ratification in agency is the adoption or confirmation by one person of an act performed on his behalf by another
without authority. The substance of the doctrine is confirmation after conduct, amounting to a substitute for a prior
authority. Ordinarily, the principal must have full knowledge at the time of ratification of all the material facts and
circumstances relating to the unauthorized act of the person who assumed to act as agent. Thus, if material facts
were suppressed or unknown, there can be no valid ratification and this regardless of the purpose or lack thereof in
concealing such facts and regardless of the parties between whom the question of ratification may arise.
Nevertheless, this principle does not apply if the principal’s ignorance of the material facts and circumstances was
willful, or that the principal chooses to act in ignorance of the facts. However, in the absence of circumstances
putting a reasonably prudent man on inquiry, ratification cannot be implied as against the principal who is ignorant of
the facts.67 (Emphases supplied.)

Neither Unimarine nor Cebu Shipyard was able to repudiate CBIC’s testimony that it was unaware of the existence
of Surety Bond No. G (16) 29419 and Endorsement No. 33152. There were no allegations either that CBIC should
have been put on alert with regard to Quinain’s business transactions done on its behalf. It is clear, and undisputed
therefore, that there can be no ratification in this case, whether express or implied.

Article 1911, on the other hand, is based on the principle of estoppel, which is necessary for the protection of third
persons. It states that the principal is solidarily liable with the agent even when the latter has exceeded his authority,
if the principal allowed him to act as though he had full powers. However, for an agency by estoppel to exist, the
following must be established:

1. The principal manifested a representation of the agent’s authority or knowingly allowed the agent to
assume such authority;

2. The third person, in good faith, relied upon such representation; and

3. Relying upon such representation, such third person has changed his position to his detriment.68

In Litonjua, Jr. v. Eternit Corp.,69 this Court said that "[a]n agency by estoppel, which is similar to the doctrine of
apparent authority, requires proof of reliance upon the representations, and that, in turn, needs proof that the
representations predated the action taken in reliance."70

This Court cannot agree with the Court of Appeals’ pronouncement of negligence on CBIC’s part. CBIC not only
clearly stated the limits of its agents’ powers in their contracts, it even stamped its surety bonds with the restrictions,
in order to alert the concerned parties. Moreover, its company procedures, such as reporting requirements, show
that it has designed a system to monitor the insurance contracts issued by its agents. CBIC cannot be faulted for
Quinain’s deliberate failure to notify it of his transactions with Unimarine. In fact, CBIC did not even receive the
premiums paid by Unimarine to Quinain.

Furthermore, nowhere in the decisions of the lower courts was it stated that CBIC let the public, or specifically
Unimarine, believe that Quinain had the authority to issue a surety bond in favor of companies other than the
Department of Public Works and Highways, the National Power Corporation, and other government agencies.
Neither was it shown that CBIC knew of the existence of the surety bond before the endorsement extending the life
of the bond, was issued to Unimarine. For one to successfully claim the benefit of estoppel on the ground that he
has been misled by the representations of another, he must show that he was not misled through his own want of
reasonable care and circumspection.71

It is apparent that Unimarine had been negligent or less than prudent in its dealings with Quinain. In Manila
Memorial Park Cemetery, Inc. v. Linsangan,72 this Court held:

It is a settled rule that persons dealing with an agent are bound at their peril, if they would hold the principal liable, to
ascertain not only the fact of agency but also the nature and extent of authority, and in case either is controverted,
the burden of proof is upon them to establish it. The basis for agency is representation and a person dealing with an
agent is put upon inquiry and must discover upon his peril the authority of the agent. If he does not make such an
inquiry, he is chargeable with knowledge of the agent’s authority and his ignorance of that authority will not be any
excuse.

In the same case, this Court added:

[T]he ignorance of a person dealing with an agent as to the scope of the latter’s authority is no excuse to such
person and the fault cannot be thrown upon the principal. A person dealing with an agent assumes the risk of lack of
authority in the agent. He cannot charge the principal by relying upon the agent’s assumption of authority that
proves to be unfounded. The principal, on the other hand, may act on the presumption that third persons dealing
with his agent will not be negligent in failing to ascertain the extent of his authority as well as the existence of his
agency.73

Unimarine undoubtedly failed to establish that it even bothered to inquire if Quinain was authorized to agree to terms
beyond the limits indicated in his special power of attorney. While Paul Rodriguez stated that he has done business
with Quinain more than once, he was not able to show that he was misled by CBIC as to the extent of authority it
granted Quinain. Paul Rodriguez did not even allege that he asked for documents to prove Quinain’s authority to
contract business for CBIC, such as their contract of agency and power of attorney. It is also worthy to note that
even with the Indemnity Agreement, Paul Rodriguez signed it on Quinain’s mere assurance and without truly
understanding the consequences of the terms of the said agreement. Moreover, both Unimarine and Paul Rodriguez
could have inquired directly from CBIC to verify the validity and effectivity of the surety bond and endorsement; but,
instead, they blindly relied on the representations of Quinain. As this Court held in Litonjua, Jr. v. Eternit Corp.74 :

A person dealing with a known agent is not authorized, under any circumstances, blindly to trust the agents;
statements as to the extent of his powers; such person must not act negligently but must use reasonable diligence
and prudence to ascertain whether the agent acts within the scope of his authority. The settled rule is that, persons
dealing with an assumed agent are bound at their peril, and if they would hold the principal liable, to ascertain not
only the fact of agency but also the nature and extent of authority, and in case either is controverted, the burden of
proof is upon them to prove it. In this case, the petitioners failed to discharge their burden; hence, petitioners are not
entitled to damages from respondent EC.75

In light of the foregoing, this Court is constrained to release CBIC from its liability on Surety Bond No. G (16) 29419
and Endorsement No. 33152. This Court sees no need to dwell on the other grounds propounded by CBIC in
support of its prayer.

WHEREFORE, this petition is hereby GRANTED and the complaint against CBIC is DISMISSED for lack of merit.
The January 29, 2004 Decision and October 28, 2004 Resolution of the Court of Appeals in CA-G.R. CV No. 58001
is MODIFIED insofar as it affirmed CBIC’s liability on Surety Bond No. G (16) 29419 and Endorsement No. 33152.

SO ORDERED.

TERESITA J. LEONARDO-DE CASTRO*


Associate Justice
Acting Chairperson, First Division

G.R. No. 169442 October 14, 2015

REPUBLIC OF THE PHILIPPINES, represented by the PRIVATIZATION AND MANAGEMENT OFFICE


(PMO),Petitioner
vs.
ANTONIO V. BANEZ, LUISITA BANEZ VALERA, NENA BANEZ HOJILLA, and EDGARDO B. HOJILLA, JR.,
Respondents

DECISION

PEREZ, J.:

Assailed and sought to be annulled in this Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil
Procedure is the Decision1 of the Court of Appeals dated 23 August 2005 in CA-G.R. CV No. 70137, entitled
"Cellophil Resources Corporation v. Antonio V. Banez, Luisita Banez Valera, Nena Banez Hojilla and Edgardo B.
Hojilla, Jr.," which affirmed the Order2 of the Regional Trial Court (RTC), Branch 1, Bangued, Abra, dated 16 August
2000, that dismissed the complaint of petitioner Republic of the Philippines, represented by Privatization and
Management Office (PMO), for specific performance, recovery of possession, and damages against respondents
Antonio V. Banez, Luisita Bañez Valera, Nena Bañez Hojilla and Edgardo B. Hojilla, Jr., docketed as Civil Case No.
1853.

The facts as culled from the records are as follows:

In 1976, Antonio V. Bañez, Luisita Bañez Valera, and Nena Bañez Hojilla (collectively, respondents) offered for sale
a parcel of land (subject property), with an area of 20,000 sq m in Barangay Calaba, Bangued, Abra to Cellophil
Resources Corporation (CRC). Pursuant to the offer to sell on 7 December 1981, respondents executed a Letter
Agreement irrevocably giving CRC the option to purchase the subject property, which CRC accepted. The pertinent
portion of the Letter Agreement (hereinafter referred to as Contract), to wit:

1. The purchase price shall be Twenty Pesos xxx per square meter or a total amount of Four Hundred Thousand
Pesos (₱400,000.00).

2. The co-owners shall take all necessary steps to cause the CRC Portion to be brought under the operation
of Republic Act No. 496, as amended, and to cause the issuance in their name of the corresponding original
certificate of title, all of the foregoing to be accomplished within a reasonable time from date hereof. xxx

xxxx
7. The co-owners hereby confirm their agreement and permission to CRC’s entry into, construction of building[s] and
improvements, and occupancy of, any portion of the Property, and xxx waive any right of action they may have
against CRC respecting such entry, construction, or occupancy by the latter of any Portion of the Property.

8. An absolute deed of sale containing the above provisions and standard warranties on conveyances of
real property shall be executed by the co-owners in favor of CRC or its assignee/s and the same delivered to
the latter together with the original certificate of title upon payment of the purchase price less the advances made by
CRC in accordance with Paragraphs 2 and 3 above; provided, that payment shall be made by CRC only upon
presentation by the co-owners to CRC of certificate/s and/or clearances, with corresponding receipts,
issued by the appropriate government office/s or agency/ies to the effect that capital gains tax, real estate
taxes on the Property and local transfer tax and other taxes, fees or charges due on the transaction and/or
on the Property have been paid.

9. This option shall be effective from [the] date of your acceptance as indicated by your conformity below and for a
period of one (1) month from and after CRC shall have been notified in writing by the co-owners that an original
certificate of title has been issued in their names and that they are ready to execute the xxx deed of
sale.3 (Emphasis and underscoring ours)

Respondents asked for several cash advances which reached the total amount of, more or less, Two Hundred
Seventeen Thousand Pesos (P217,000.00), to be deducted from the purchase price of Four Hundred Thousand
Pesos (₱400,000.00). After paying cash advances to respondents, CRC constructed staff houses and introduced
improvements on the subject property. As respondents would be staying abroad for a time, they executed a Special
Power of Attorney (SPA) in favor of Edgardo B. Hojilla (Hojilla). The SPA authorized Hojilla to perform the following:

1. To take all steps necessary to cause a portion of the lot covered by Tax Declaration No. 40185 in the name of
Urbano Bañez which is the subject of our "Offer to Sell" to Cellophil Resources Corporation containing an area xxx
to be brought under the operation of Republic Act No. 496, as amended, and to cause the issuance in our name of
the corresponding original certificate of title.

2. To do all acts and things and to execute all papers and documents of whatever nature or kind required for the
accomplishments of the aforesaid purpose.

HEREBY GRANTING AND GIVING unto our said attorney full power and authority whatsoever requisite or
necessary or proper to be done in or about the premises as fully to all intents and purposes as we might or could
lawfully do if personally present (with power of substitution and revocation), and hereby ratifying and confirming all
that our said attorney shall do or cause to be done under and by virtue of these presents.4

However, CRC stopped its operation. The Development Bank of the Philippines and National Development
Company took over CRC’s operation and turned over CRC’s equity to Asset Privatization Trust (APT), which is a
government agency created by virtue of Proclamation No. 50, as amended. The APT’s function is to take title to and
possession of, provisionally manage and dispose of nonperforming assets of government financial institutions. Upon
the expiration of APT’s term on 31 December 2000, the government issued Executive Order (E.O.) No. 323, which
created the Privatization and Management Office (PMO). By virtue of E.O. No. 323, the powers, functions, and
duties of APT were transferred to the PMO. Thus, the original party, CRC, is now represented by the Republic of the
Philippines through the PMO (hereinafter referred to as petitioner), the successor of the defunct APT.

As alleged by petitioner, respondents declared afterwards the subject property as Urbano Bañez property, rented
out to third parties the staff houses petitioner constructed, and ordered its guards to prohibit the petitioner from
entering the compound, which impelled petitioner to file a complaint for specific performance, recovery of
possession, and damages against respondents, including Hojilla, on 10 April 2000. Among others, the complaint
prayed for respondents to surrender and deliver the title of the subject property, and execute a deed of absolute sale
in favor of petitioner upon full payment. It mentioned three letters sent to respondents on 29 May 1991, 24 October
1991, and 6 July 1999.

In the Complaint, it was alleged that:

"[t]here is no justification, legal or otherwise for the [respondents] to dispossess (sic) the [petitioner] from the subject
property. [Petitioner] is more than willing and able to pay the [respondents] the balance of the purchase price of the
subject parcel of land but its inability to do so was due to the [respondents’] failure to produce the original certificate
of title of the subject parcel of land and to execute the pertinent deed of sale, as well as the unjustified occupation by
the [respondents] of the property and [of] the staff houses built by [petitioner and that] such actions of the
[respondents] are contrary to their undertaking under condition no. 7 of the subject letter agreement, that is, for
[respondents] to permit [petitioner’s] entry into and occupancy of any portion of the subject property and their waiver
of any right of action they may have against [petitioner] respecting such entry and occupancy of any portion of the
property. And despite repeated demands made by [petitioner] upon the [respondents] for them to vacate and
turnover the subject parcel of land and the staff houses to [petitioner], the last of which was in a letter dated July 6,
1999, the said [respondents] have failed and neglected and still fail and neglect to do so up to the present time."5

Ruling of the RTC


On 23 June 2000, Hojilla filed a Motion to Dismiss on the grounds that he was not a real party-in-interest and that
the action was barred by the Statute of Limitations, which Motion the RTC granted in an Order dated 16 August
2000 based on Article 1144(1) of the Civil Code, which bars actions filed beyond ten (10) years upon the execution
of the written contract. According to the RTC, the letters petitioner sent to respondents were not demands for
respondents to comply with their obligation to deliver the title as to interrupt the running of the prescriptive period.
The pertinent portion of the RTC Order reads:

In the instant case, the defendants were given [enough] time from December 7, 1981 to comply with their obligation,
hence, after a reasonable period of time, the plaintiff should have demanded compliance of defendants’
undertakings or initiated any other action to protect its interest without waiting for the statute of limitations to bar their
claim.6

The RTC resolved that because the written contract was executed on 7 December 1981, then the complaint that
was filed more than eighteen (18) years since the contract was executed was beyond the 10-year prescriptive
period. Within that 18-year period, there was no act on the part of petitioner, whether judicial or extrajudicial, to
interrupt prescription.

While petitioner paid cash advances to respondents for the processing of the registration of the title, "which totaled
to more or less ₱217,000.00 as of September 7, 1984 xxx to the filing of this suit, [petitioner] has not demanded
compliance by [respondents] of their obligation, that is, the execution of the absolute deed of sale and the delivery of
the Original Certificate of Title to the property to [petitioner] upon payment of the purchase price stipulated. There
were letters addressed to [respondents] but these were not demands for compliance of [respondents’] obligation and
which is not sufficient under the law to interrupt the prescriptive period."7

The RTC further stated that:

"[t]he parties could not have contemplated that the delivery of the property and the payment thereof could be made
indefinitely and render uncertain the status of the land. The failure of either [of the] parties to demand performance
of the obligation of the other for an unreasonable length of time renders the contract ineffective."8

The motion for reconsideration was likewise denied in an Order dated 5 January 2001.

On appeal, petitioner argued that the RTC erred when it dismissed the complaint. Petitioner averred that: (1) its
claim was not yet barred by prescription; (2) the period of prescription had been interrupted by extrajudicial demand;
(3) the Statute of Limitation did not run against the State; (4) petitioner’s claim not having prescribed, laches could
not have set in; (5) the laches of one nullified the laches of the other; and (6) laches cannot be used to defeat justice
or to perpetuate fraud and injustice.

Ruling of the Court of Appeals

The Court of Appeals affirmed the ruling of the RTC in a Decision dated 23 August 2005 on the ground that the
complaint was barred by the Statute of Limitations. Contrary to petitioner’s arguments, the Court of Appeals found
that the extrajudicial demand to respondents did not serve to toll the running of the prescriptive period. The Court of
Appeals ruled that the record is bereft of evidence that would attest that written extrajudicial demands were sent to
respondents. While petitioner sent demand letters dated 29 May 1991 and 24 October 1991, these demand letters
were not considered as demand letters because the letters simply called the attention of Hojilla to return the
properties and unlock the gates. As regards the letter dated 6 July 1999, the Court of Appeals ruled that because
the letter was addressed to Hojilla, who was only an attorney-in-fact authorized to register the property, it was not
binding upon the respondents. The Court of Appeals also gave no probative value to the 6 July 1999 letter for
having no proof of service.

With regard to the issue of running of prescriptive period against the State, the Court of Appeals opined that
because the subject property is a patrimonial property of the State when APT became the controlling stockholder of
CRC, prescription may run against the State. Thus, the reasonable period within which to register the property is
three (3) years. According to the Court of Appeals, the cause of action of petitioner accrued three (3) years from the
time the Contract was executed on 7 December 1981 or, to say the least, on 15 August 1984 when Hojilla sent the
acknowledgment letter dated 15 August 1984, at which time it became clear that respondents could no longer fulfill
their obligation.

Hence, petitioner is before us raising the following arguments:

A. The Court of Appeals erred in ruling that the running of the prescriptive period was not interrupted when
respondents acknowledged their still unfulfilled obligation to initiate proceedings for the registration of title of
the subject property and at the same time committed that they will only claim the full payment of the property
upon presentation of a clean title and execution of a Deed of Sale signed by the heirs as stated in the letter
dated August 15, 1984.

B. The Court of Appeals erred in affirming the outright dismissal of petitioner’s suit for specific performance,
recovery of possession and damages on the basis of prescription even as it is evident that there is a need to
fix a period considering that the performance of the condition or obligation is dependent upon the will of
respondents.

C. The Court of Appeals erred in ignoring certain manifest equitable considerations which militate against a
resort to a purely mathematical computation of the prescriptive period and in disregarding the provision of
the irrevocable offer that the option remains effective for a period of one month from and after notice that a
certificate of title has been issued.9

The main issue is whether or not the complaint for specific performance was filed beyond the prescriptive period.

Petitioner’s Arguments

The petitioner argues that although there is a 10-year limitation within which to file a case based on a written
contract, the period was interrupted due to a written acknowledgment of respondents’ obligation and demand by
petitioner. The argument is based on Article 1155 of the Civil Code, which provides that the running of the
prescriptive period is interrupted when there is a written extrajudicial demand by the creditors, and when there is any
written acknowledgment of the debt by the debtor.

The petitioner referred to the letter sent by Hojilla to the former dated 15 August 1984, and letters given by petitioner
to Hojilla dated 29 May 1991, 24 October 1991, and 6 July 1999. In the letter dated 15 August 1984, respondents
affirmed their undertaking that they will claim full payment of the property upon presentation of a clean title and the
execution of the Absolute Deed of Sale, which reads, "[t]he Bañez heirs will only claim for the full payment of the
property upon presentation of a clean title and execution of a Deed of Sale signed by the heirs."10

Based on Hojilla’s representation as stated in the letter dated 15 August 1984, petitioner argues that Hojilla is
estopped by his own acts and for misleading petitioner because "respondents not only failed to comply with their
commitment to deliver a certificate of title but where [sic] they also [misled] petitioner into believing that they were
working on the title of the subject property even as they had[,] at the back of their mind[s], the running of the statute
of limitations as an arsenal once petitioner demands the fulfillment of their obligation."11

The petitioner further added that because there was no period fixed for the fulfillment or performance of the
obligation to deliver the title, the least the court should have done was to fix the period pursuant to Article 1197 of
the Civil Code.

Finally, the petitioner posits that pursuant to paragraph 9 of the Contract, its obligation is conditioned upon
respondents’ obligation, which is to deliver the title. Thus, because the respondents failed to deliver such, the
obligation of petitioner never ripened.

Respondents’ Arguments

The arguments of respondents, which are aligned with the reasons of the lower courts, rely on Article 1144 of the
Civil Code, which provides that actions upon a written contract must be brought within ten (10) years from execution.
Because the complaint was filed beyond the 10-year prescriptive period, the action was already barred by the
Statute of Limitations. Further, during such period, petitioner failed to act either judicially or extrajudicially to
effectively interrupt the running of the prescriptive period. Thus, the complaint must be dismissed for having been
extinguished by the Statute of Limitations.

Our Ruling

We rule in favor of the petitioner.

We deem material, for the resolution of the issues in this case, the letters that were exchanged by the parties.

We shall discuss each letter in seriatim.

Hojilla’s letter dated 15 August 1984

In Hojilla’s letter to petitioner dated 15 August 1984, Hojilla updated petitioner of the status of the subject property’s
title, in this wise:

The preparation of the advance survey plan, technical description and Engineer’s Certificate pursuant to Land
Administrative Order No. 10- 4 has been submitted to the Regional Land Office, and approved by the Regional
Director.

Atty. Valera is now in the process of preparing the petition papers of the Calaba property for submission to the local
court.12
There is no other logical conclusion but that the 15 August 1984 letter is an acknowledgment of respondents’
commitment under the Contract. The letter served to update petitioner of the status of the subject property’s title, an
obligation agreed upon by the parties in the Contract. It would be specious to argue that respondents did not
acknowledge the existence of the Contract and yet, send correspondence to petitioner updating it of the status of
the application for title on the subject property. Therefore, the letter dated 15 August 1984 served as a written
acknowledgment of debt or obligation of respondents.

In Philippine National Railways v. NLRC,13 it was stated that a written acknowledgment of debt or obligation
effectively interrupts the running of the prescriptive period and sets the same running anew.14 Hence, because
Hojilla’s letter dated 15 August 1984 served as a written acknowledgement of the respondents’ debt or obligation, it
interrupted the running of the prescriptive period and set the same running anew with a new expiry period of 15
August 1994.

Petitioner’s letters dated 29 May


1991 and 24 October 1991

With regard to the letters petitioner sent to Hojilla dated 29 May 1991 and 24 October 1991, the RTC ruled that
these letters were insufficient under the law to interrupt the prescriptive period because these were not demand
letters. We lift the pertinent portion from the letter dated 29 May 1991, which demanded respondents to return the
properties and to unlock the gates:

Under the agreement to purchase the lot, APT-CRC shall pay the whole of the purchase price thereof when the
certificate of title and other documents enumerated therein are presented to it. Clearly, the consummation of the
sale is within your control. x x x

In view of the foregoing, demand is hereby made upon you and your principals, the heirs of Urbano Bañez,
to return the properties withdrawn and to unlock the gates leading to the staffhouses (sic), within fifteen
(15) days from receipt thereof, otherwise we will be constrained to institute the necessary action to protect
the interest of APT-CRC.15 (Emphasis and underscoring ours)

In the same vein, the letter dated 24 October 1991 demanded respondents to discontinue the construction, repair,
demolition, and occupancy of several staff houses. A pertinent portion of the 24 October 1991 letter reads:

Considering that these action (sic) are unauthorized, they constitute violations of the irrevocable option to purchase
dated December 7, 1981, which remains valid, binding and effective to this day. Demand is hereby made upon
you to discontinue such unauthorized acts and vacate the premises within fifteen (15) days from receipt
hereof.16 x x x (Emphasis and underscoring ours)

We do not agree with the lower courts. Clearly, the 29 May 1991 and 24 October 1991 letters demanded
respondents to return the properties, discontinue the construction, repair, demolition and occupancy of several staff
houses, and unlock the gates, which is to enforce respondents’ obligations pursuant to paragraph 7 of the Contract
which reads:

7. The co-owners hereby confirm their agreement and permission to CRC’s entry into, construction of building and
improvements, and occupancy of, any portion of the Property, and hereby accordingly waive any right of action they
may have against CRC respecting such entry, construction, or occupancy by the latter of any Portion of the
Property.17

The letters dated 29 May 1991 and 24 October 1991 are deemed demand letters as contemplated under Article
1155. They are demand letters to enforce respondents’ obligation under the Contract, which is to cede possession
to petitioner. The letters interrupted the running of the prescriptive period which commenced to run anew.

Petitioner’s letter dated 6 July 1999

Compared to the letters dated 29 May and 24 October 1991, which demanded Hojilla to surrender possession of the
subject property, this time, in petitioner’s letter to Hojilla dated 6 July 1999, petitioner demanded Hojilla to produce
the title of the subject property. However, despite the fact that the letter was a clear demand of the nature
contemplated by law that would interrupt the prescriptive period, the Court of Appeals found that (1) the letter did not
effectively interrupt the prescriptive period because the complaint had long prescribed; (2) the letter was addressed
to the wrong party; and, finally, (3) the letter did not bear any proof of service or receipt.

We do not agree.

Hojilla’s SPA

We refer to the SPA, which granted the authority of Hojilla.

When respondents went abroad pending the performance of their obligations in the Contract, they authorized Hojilla
to register the subject property— a single obligation in the whole range of obligations in the Contract. The SPA
appeared to have left no representative to fulfill respondents’ obligations in the Contract on their behalf except for
Hojilla’s authority to register the subject property. The pertinent portion of the SPA reads:

1. To take all steps necessary to cause a portion of the lot covered by Tax Declaration No. 40185 in the
name of Urbano Bañez which is the subject of our "Offer to Sell" to Cellophil Resources Corporation
containing an area xxx to be brought under the operation of Republic Act No. 496, as amended, and to
cause the issuance in our name of the corresponding original certificate of title.

2. To do all acts and things and to execute all papers and documents of whatever nature or kind required for the
accomplishments of the aforesaid purpose.

HEREBY GRANTING AND GIVING unto our said attorney full power and authority whatsoever requisite or
necessary or proper to be done in or about the premises as fully to all intents and purposes as we might or could
lawfully do if personally present (with power of substitution and revocation), and hereby ratifying and confirming all
that our said attorney shall do or cause to be done under and by virtue of these presents.18 (Emphasis and
underscoring ours)

This was read simply by the lower courts as limiting Hojilla’s authority to the registration of the subject property
under the name of his principal, and all the necessary acts for such purpose. It observed that nowhere in the SPA
was Hojilla authorized as administrator or agent of respondents with respect to the execution of the Contract.

In the case at bar, the reliefs prayed for by petitioner include the execution of the Contract such as delivery of the
subject title, recovery of possession of the subject property, execution of the deed of sale or transfer of absolute
ownership upon full payment of the balance, and damages for alleged violation of respondents of the Contract for
non-delivery of the title and refusal to vacate the subject property. Indeed, following the reading of the lower courts
of the scope of Hojilla’s authority, Hojilla is neither the proper party to execute the Contract nor the proper party to
receive the demand letters on behalf of respondents.

This strict construction of the tenor of the SPA will render the obligatory force of the Contract ineffective.
Construction is not a tool to prejudice or commit fraud or to obstruct, but to attain justice. Ea Est Accipienda
Interpretatio Quae Vitio Caret. To favor the lower court’s interpretation of the scope of Hojilla’s power is to defeat the
juridical tie of the Contract—the vinculum juris of the parties. As no one was authorized to represent respondents in
the Contract, then petitioner cannot enforce the Contract, as it were. This is an absurd interpretation of the SPA. It
renders the Contract ineffective for lack of a party to execute the Contract.

Contrary to the findings of the lower court, the present case is a case of an express agency, where, Hojilla, the
agent, binds himself to represent another, the principal, who are herein respondents, with the latter’s express
consent or authority.19 In a contract of agency, the agent acts for and in behalf of the principal on matters within the
scope of the authority conferred upon him, such that, the acts of the agent have the same legal effect as if they were
personally done by the principal.20 Because there is an express authority granted upon Hojilla to represent the
respondents as evidenced by the SPA, Hojilla’s actions bind the respondents.

As agent, the representations and guarantees of Hojilla are considered representations and guarantees of the
principal. This is the principle of agency by promissory estoppel. We refer to the evidence on record. It was Hojilla
who administered and/or managed the subject property.21 Based on Hojilla’s letter dated 15 August 1984 to
petitioner, Hojilla made the representation that besides being the attorney-in-fact of the respondents with limited
authority to register the property, he was also their agent with regard to respondents’ other obligations related to the
Contract. The pertinent portion of the 15 August 1984 letter of Hojilla to petitioner reads:

Regarding our loan with the National Electrification Administration (NEA), Hon. Mel Mathay who is helping the
Bañez heirs has initiated negotiations with NEA for Abreco to purchase our lot in front of the Provincial Jail to offset
our loan with NEA.22

Also, one glaring fact that cannot escape us is Hojilla’s representation and guarantee that petitioner’s obligation will
only arise upon presentation of a clean title and execution of a Deed of Sale signed by the respondents’ heirs, which
reads, "[t]he Bañez heirs will only claim for the full payment of the property upon presentation of a clean
title and execution of a Deed of Sale signed by the heirs."23

If Hojilla knew that he had no authority to execute the Contract and receive the letters on behalf of respondents, he
should have opposed petitioner’s demand letters. However, having received the several demand letters from
petitioner, Hojilla continuously represented himself as the duly authorized agent of respondents, authorized not only
to administer and/or manage the subject property, but also authorized to register the subject property and represent
the respondents with regard to the latter’s obligations in the Contract. Hojilla also assured petitioner that petitioner’s
obligation to pay will arise only upon presentation of the title.

Clearly, the respondents are estopped by the acts and representations of their agent. Falling squarely in the case at
bar is our pronouncement in Philippine National Bank v. IAC (First Civil Cases Div.),24 "[h]aving given that assurance,
[Hojilla] may not turn around and do the exact opposite of what [he] said [he] would do. One may not take
inconsistent positions. A party may not go back on his own acts and representations to the prejudice of the other
party who relied upon them."25

Assuming further that Hojilla exceeded his authority, the respondents are still solidarily liable because they allowed
Hojilla to act as though he had full powers by impliedly ratifying Hojilla’s actions—through action by omission.26 This
is the import of the principle of agency by estoppel or the doctrine of apparent authority.

In an agency by estoppel or apparent authority, "[t]he principal is bound by the acts of his agent with the apparent
authority which he knowingly permits the agent to assume, or which he holds the agent out to the public as
possessing."27

The respondents’ acquiescence of Hojilla’s acts was made when they failed to repudiate the latter’s acts. They
knowingly permitted Hojilla to represent them and petitioners were clearly misled into believing Hojilla’s authority.
Thus, the respondents are now estopped from repudiating Hojilla’s authority, and Hojilla’s actions are binding upon
the respondents.

Receipt of the Letters

Time and time again, this Court has reiterated it is not a trier of facts and parties may raise only questions of
law. The jurisdiction of the Court is limited to reviewing errors of law and findings of fact of the Court of Appeals are
1âw phi 1

conclusive because it is not the Court’s function to review, examine, and evaluate or weigh the evidence all over
again.28 The rule, however, is not without exceptions, viz.:

(1) [W]hen the [conclusion is a finding] grounded entirely on speculations, surmises [and] conjectures;

(2) [W]hen the inference made is manifestly mistaken, absurd or impossible;

(3) [W]hen there is grave abuse of discretion;

(4) [W]hen the judgment is based on a misapprehension of facts;

(5) [W]hen the findings of fact are conflicting;

(6) [W]hen xxx the Court of Appeals[, in making its findings,] went beyond the issues of the case [and the same is]
contrary to the admissions of both the appellant and the appellee;

(7) [W]hen the findings are contrary to [those] of the trial court;

(8) [W]hen the findings [of fact] are conclusions without citation of specific evidence on which they are based;

(9) [W]hen the facts set forth in the petition as well as in the petitioner’s main and reply briefs are not disputed by the
respondents;

(10) [W]hen the findings of fact [of the Court of Appeals] are premised on the supposed absence of evidence and
contradicted by the evidence on record and

(11) [When] the Court of Appeals manifestly overlooked certain irrelevant facts not disputed by the parties, which, if
properly considered, would justify a different conclusion.29

In the case at bar, the findings of the RTC and the Court of Appeals are contradictory: the RTC did not make any
finding on the receipt of the demand letters by Hojilla, while the Court of Appeals resolved that assuming arguendo
that the letters were demand letters contemplated under Article 1155 of the Civil Code, the same are unavailing
because the letters do not bear any proof of service of receipt by respondents.

A perusal of the records reveals that only the 24 October 1991 letter has no proof of receipt.30 The demand letters
dated 29 May 199131 and 6 July 199932 contain proofs of receipt.

Thus, the core issue of whether or not the action has prescribed.

An action based on a written contract must be brought within ten (10) years from the time the right of action accrued.
Accordingly, a cause of action on a written contract accrues only when an actual breach or violation thereof
occurs.33 A cause of action has three elements, to wit: (1) a right in favor of the plaintiff by whatever means and
under whatever law it arises or is created; (2) an obligation on the part of the named defendant to respect or not to
violate such right; and (3) an act or omission on the part of such defendant violative of the right of the plaintiff or
constituting a breach of the obligation of the defendant to the plaintiff.34

By the contract between the herein parties, the cause of action accrued at the point when the reasonable time within
which to present the title lapsed. The parties did not determine the date when the respondents must present the title
and other documents to the petitioner. The parties only agreed that the respondents must present the same within a
"reasonable time." Reasonable time means "so much time as is necessary under the circumstances for a
reasonably prudent and diligent man to do, conveniently, what the contract or duty requires that should be done,
having a regard for the rights and possibility of loss, if any, to the other party."35 Such reasonable time was
determined by the respondents through the letter dated 15 August 1984. The respondents acknowledged their
obligation to deliver the title and asked for a new period to do so. It states:

The preparation of the advance survey plan, technical description and Engineer’s Certificate pursuant to Land
Administrative Order No. 10-4 has been submitted to the Regional Land Office, and approved by the Regional
Director.

Atty. Valera is now in the process of preparing the petition papers of the Calaba property for submission to the local
court.

xxxx

The Bañez heirs will only claim for the full payment of the property upon presentation of a clean title and execution
of a Deed of Sale signed by the heirs.36

The accrual of the cause of action to demand the titling of the land cannot be earlier than 15 August 1984. So that,
the petitioner can sue on the contract until 15 August 1994. Prior to the expiration of the aforesaid period, the
petitioner sent a demand letter to Hojilla dated 29 May 1991. A few months thereafter, petitioner sent another
demand letter to Hojilla dated 24 October 1991.37 The prescriptive period was interrupted on 29 May 1991.The
consequence is stated in Article 1155 of the Civil Code. It states, "[t]he prescription of actions is interrupted when
they are filed before the court, when there is a written extrajudicial demand by the creditors, and when there is any
written acknowledgment of the debt by the debtor." Following the law, the new ten-year period for the filing of a case
by the petitioner should be counted from 29 May 1991, ending on 29 May 2001. The complaint at bar was filed on
10 April 2000, well within the required period.

Notably, before the expiration of the new prescriptive period, the petitioner again sent a new demand letter on 6 July
1999, which again caused the same to run anew, which will expire on 6 July 2009. The complaint filed on 10 April
2000 was timely.

The Contract and True Intent of the Parties

Based on the stipulation in the Contract, the parties agreed that payment shall be made only upon presentation of
the title and other documents of the subject property to petitioner. Paragraph 8 of the Contract reads:

8. An absolute deed of sale containing the above provisions and standard warranties on conveyances of real
property shall be executed by the co-owners in favor of CRC or its assignee/s and the same delivered to the latter
together with the original certificate of title upon payment of the purchase price less the advances made by CRC in
accordance with Paragraphs 2 and 3 above; provided, that payment shall be made by CRC only upon
presentation by the co-owners to CRC of certificate/s and/or clearances, with corresponding receipts,
issued by the appropriate government office/s or agency/ies to the effect that capital gains tax, real estate
taxes on the Property and local transfer tax and other taxes, fees or charges due on the transaction and/or
on the Property have been paid.38 (Emphasis and underscoring ours)

The true intent of the parties is further enunciated in Hojilla's letter to petitioner dated 15 August 1984, which stated,
"[t]he Baiiez heirs will only claim for the full payment of the property upon presentation of a clean title and execution
of a Deed of Sale signed by the heirs."39

To rule in favor of respondents despite their failure to perform their obligations is the height of injustice.
Respondents cannot benefit from their own inaction and failure to comply with their obligations in the Contract and
let the petitioner suffer from respondents' own default.

WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals dated 23 August 2005 in CA-G.R.
CV No. 70137, affirming the Order of the Regional Trial Court, which ruled that the action has prescribed, is
reversed and set aside. Let the records of this case be REMANDED to the court of origin, which is DIRECTED to
admit the Answer with Counterclaim of the petitioner for further trial on the merits. The respondents are further
ordered to return possession of the subject property to petitioner. No pronouncement as to costs.

SO ORDERED.

JOSE PORTUGAL PEREZ


Associate Justice