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PHILPOTTS v PHIL MANUFACTURING ...........................................................................................................................

2
RALLOS v FELIX GO CHAN ............................................................................................................................................4
ORIENT AIR v CA ....................................................................................................................................................... 10
LITONJUA v ETERNIT ................................................................................................................................................. 15
DOLES v ANGELES ..................................................................................................................................................... 22
EUROTECH v CUIZON ................................................................................................................................................ 30
MANILA MEMORIAL v CUIZON .................................................................................................................................. 34
AMON TRADING v CA................................................................................................................................................ 40
NAGUIAT v CA .......................................................................................................................................................... 44
VELOSO v CA ............................................................................................................................................................ 47
PINEDA v CA ............................................................................................................................................................. 51
BPI v DE CARTER ....................................................................................................................................................... 58
SING JUCO v SUNYANTONG ....................................................................................................................................... 66
TOYOTA SHAW v CA .................................................................................................................................................. 69
BACALTOS COAL MINES v CA ..................................................................................................................................... 74
LITONJUA v FERNANDEZ............................................................................................................................................ 81
SPS. YU ENG CHO v PAN AMERICAN ........................................................................................................................... 88
MANILA REMNANTS v CA .......................................................................................................................................... 94
TERRADO v CA .......................................................................................................................................................... 98
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-15568 November 8, 1919

W. G. PHILPOTTS, petitioner,
vs.
PHILIPPINE MANUFACTURING COMPANY and F. N. BERRY, respondents.

Lawrence and Ross for petitioner.


Crossfield and O'Brien for defendants.

STREET, J.:

The petitioner, W. G. Philpotts, a stockholder in the Philippine Manufacturing Company, one of the respondents
herein, seeks by this proceeding to obtain a writ of mandamus to compel the respondents to permit the plaintiff, in
person or by some authorized agent or attorney, to inspect and examine the records of the business transacted by
said company since January 1, 1918. The petition is filed originally in this court under the authority of section 515 of
the Code of Civil Procedure, which gives to this tribunal concurrent jurisdiction with the Court of First Instance in
cases, among others, where any corporation or person unlawfully excludes the plaintiff from the use and enjoyment
of some right to which he is entitled. The respondents interposed a demurrer, and the controversy is now before us
for the determination of the questions thus presented.

The first point made has reference to a supposed defect of parties, and it is said that the action can not be
maintained jointly against the corporation and its secretary without the addition of the allegation that the latter is the
custodian of the business records of the respondent company.

By the plain language of sections 515 and 222 of our Code of Civil Procedure, the right of action in such a
proceeding as this is given against the corporation; and the respondent corporation in this case was the only
absolutely necessary party. In the Ohio case of Cincinnati Volksblatt Co. vs. Hoffmister (61 Ohio St., 432; 48 L. R.
A., 735), only the corporation was named as defendant, while the complaint, in language almost identical with that in
the case at bar, alleged a demand upon and refusal by the corporation.

Nevertheless the propriety of naming the secretary of the corporation as a codefendant cannot be questioned, since
such official is customarily charged with the custody of all documents, correspondence, and records of a
corporation, and he is presumably the person against whom the personal orders of the court would be made
effective in case the relief sought should be granted. Certainly there is nothing in the complaint to indicate that the
secretary is an improper person to be joined. The petitioner might have named the president of the corporation as a
respondent also; and this official might be brought in later, even after judgment rendered, if necessary to the
effectuation of the order of the court.

Section 222 of our Code of Civil Procedure is taken from the California Code, and a decision of the California
Supreme Court — Barber vs. Mulford (117 Cal., 356) — is quite clear upon the point that both the corporation and
its officers may be joined as defendants.

The real controversy which has brought these litigants into court is upon the question argued in connection with the
second ground of demurrer, namely, whether the right which the law concedes to a stockholder to inspect the
records can be exercised by a proper agent or attorney of the stockholder as well as by the stockholder in person.
There is no pretense that the respondent corporation or any of its officials has refused to allow the petitioner himself
to examine anything relating to the affairs of the company, and the petition prays for a peremptory order
commanding the respondents to place the records of all business transactions of the company, during a specified
period, at the disposal of the plaintiff or his duly authorized agent or attorney, it being evident that the petitioner
desires to exercise said right through an agent or attorney. In the argument in support of the demurrer it is conceded
by counsel for the respondents that there is a right of examination in the stockholder granted under section 51 of the
Corporation Law, but it is insisted that this right must be exercised in person.

The pertinent provision of our law is found in the second paragraph of section 51 of Act No. 1459, which reads as
follows: "The record of all business transactions of the corporation and the minutes of any meeting shall be open to
the inspection of any director, member or stockholder of the corporation at reasonable hours."
This provision is to be read of course in connecting with the related provisions of sections 51 and 52, defining the
duty of the corporation in respect to the keeping of its records.

Now it is our opinion, and we accordingly hold, that the right of inspection given to a stockholder in the provision
above quoted can be exercised either by himself or by any proper representative or attorney in fact, and either with
or without the attendance of the stockholder. This is in conformity with the general rule that what a man may do in
person he may do through another; and we find nothing in the statute that would justify us in qualifying the right in
the manner suggested by the respondents.

This conclusion is supported by the undoubted weight of authority in the United States, where it is generally held
that the provisions of law conceding the right of inspection to stockholders of corporations are to be liberally
construed and that said right may be exercised through any other properly authorized person. As was said in
Foster vs. White (86 Ala., 467), "The right may be regarded as personal, in the sense that only a stockholder may
enjoy it; but the inspection and examination may be made by another. Otherwise it would be unavailing in many
instances." An observation to the same effect is contained in Martin vs. Bienville Oil Works Co. (28 La., 204), where
it is said: "The possession of the right in question would be futile if the possessor of it, through lack of knowledge
necessary to exercise it, were debarred the right of procuring in his behalf the services of one who could exercise it."
In Deadreck vs. Wilson (8 Baxt. [Tenn.], 108), the court said: "That stockholders have the right to inspect the books
of the corporation, taking minutes from the same, at all reasonable times, and may be aided in this by experts and
counsel, so as to make the inspection valuable to them, is a principle too well settled to need discussion."
Authorities on this point could be accumulated in great abundance, but as they may be found cited in any legal
encyclopedia or treaties devoted to the subject of corporations, it is unnecessary here to refer to other cases
announcing the same rule.

In order that the rule above stated may not be taken in too sweeping a sense, we deem it advisable to say that there
are some things which a corporation may undoubtedly keep secret, notwithstanding the right of inspection given by
law to the stockholder; as for instance, where a corporation, engaged in the business of manufacture, has acquired
a formula or process, not generally known, which has proved of utility to it in the manufacture of its products. It is not
our intention to declare that the authorities of the corporation, and more particularly the Board of Directors, might not
adopt measures for the protection of such process form publicity. There is, however, nothing in the petition which
would indicate that the petitioner in this case is seeking to discover anything which the corporation is entitled to keep
secret; and if anything of the sort is involved in the case it may be brought out at a more advanced stage of the
proceedings. lawphil. net

The demurrer is overruled; and it is ordered that the writ of mandamus shall issue as prayed, unless within 5 days
from notification hereof the respondents answer to the merits. So ordered.
Republic of the Philippines
SUPREME COURT
Manila

G.R. No. L-24332 January 31, 1978

RAMON RALLOS, Administrator of the Estate of CONCEPCION RALLOS, petitioner,


vs.
FELIX GO CHAN & SONS REALTY CORPORATION and COURT OF APPEALS, respondents.

Seno, Mendoza & Associates for petitioner.

Ramon Duterte for private respondent.

MUÑOZ PALMA, J.:

This is a case of an attorney-in-fact, Simeon Rallos, who after of his death of his principal, Concepcion Rallos, sold
the latter's undivided share in a parcel of land pursuant to a power of attorney which the principal had executed in
favor. The administrator of the estate of the went to court to have the sale declared uneanforceable and to recover
the disposed share. The trial court granted the relief prayed for, but upon appeal the Court of Appeals uphold the
validity of the sale and the complaint.

Hence, this Petition for Review on certiorari.

The following facts are not disputed. Concepcion and Gerundia both surnamed Rallos were sisters and registered
co-owners of a parcel of land known as Lot No. 5983 of the Cadastral Survey of Cebu covered by Transfer
Certificate of Title No. 11116 of the Registry of Cebu. On April 21, 1954, the sisters executed a special power of
attorney in favor of their brother, Simeon Rallos, authorizing him to sell for and in their behalf lot 5983. On March 3,
1955, Concepcion Rallos died. On September 12, 1955, Simeon Rallos sold the undivided shares of his sisters
Concepcion and Gerundia in lot 5983 to Felix Go Chan & Sons Realty Corporation for the sum of P10,686.90. The
deed of sale was registered in the Registry of Deeds of Cebu, TCT No. 11118 was cancelled, and a new transfer
certificate of Title No. 12989 was issued in the named of the vendee.

On May 18, 1956 Ramon Rallos as administrator of the Intestate Estate of Concepcion Rallos filed a complaint
docketed as Civil Case No. R-4530 of the Court of First Instance of Cebu, praying (1) that the sale of the undivided
share of the deceased Concepcion Rallos in lot 5983 be d unenforceable, and said share be reconveyed to her
estate; (2) that the Certificate of 'title issued in the name of Felix Go Chan & Sons Realty Corporation be cancelled
and another title be issued in the names of the corporation and the "Intestate estate of Concepcion Rallos" in equal
undivided and (3) that plaintiff be indemnified by way of attorney's fees and payment of costs of suit. Named party
defendants were Felix Go Chan & Sons Realty Corporation, Simeon Rallos, and the Register of Deeds of Cebu, but
subsequently, the latter was dropped from the complaint. The complaint was amended twice; defendant
Corporation's Answer contained a crossclaim against its co-defendant, Simon Rallos while the latter filed third-party
complaint against his sister, Gerundia Rallos While the case was pending in the trial court, both Simon and his sister
Gerundia died and they were substituted by the respective administrators of their estates.

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

A. On Plaintiffs Complaint —

(1) Declaring the deed of sale, Exh. "C", null and void insofar as the one-half pro-
indiviso share of Concepcion Rallos in the property in question, — Lot 5983 of the
Cadastral Survey of Cebu — is concerned;

(2) Ordering the Register of Deeds of Cebu City to cancel Transfer Certificate of Title
No. 12989 covering Lot 5983 and to issue in lieu thereof another in the names of
FELIX GO CHAN & SONS REALTY CORPORATION and the Estate of Concepcion
Rallos in the proportion of one-half (1/2) share each pro-indiviso;

(3) Ordering Felix Go Chan & Sons Realty Corporation to deliver the possession of
an undivided one-half (1/2) share of Lot 5983 to the herein plaintiff;

(4) Sentencing the defendant Juan T. Borromeo, administrator of the Estate of


Simeon Rallos, to pay to plaintiff in concept of reasonable attorney's fees the sum of
P1,000.00; and
(5) Ordering both defendants to pay the costs jointly and severally.

B. On GO CHANTS Cross-Claim:

(1) Sentencing the co-defendant Juan T. Borromeo, administrator of the Estate of


Simeon Rallos, to pay to defendant Felix Co Chan & Sons Realty Corporation the
sum of P5,343.45, representing the price of one-half (1/2) share of lot 5983;

(2) Ordering co-defendant Juan T. Borromeo, administrator of the Estate of Simeon


Rallos, to pay in concept of reasonable attorney's fees to Felix Go Chan & Sons
Realty Corporation the sum of P500.00.

C. On Third-Party Complaint of defendant Juan T. Borromeo administrator of Estate of Simeon


Rallos, against Josefina Rallos special administratrix of the Estate of Gerundia Rallos:

(1) Dismissing the third-party complaint without prejudice to filing either a complaint against the
regular administrator of the Estate of Gerundia Rallos or a claim in the Intestate-Estate of Cerundia
Rallos, covering the same subject-matter of the third-party complaint, at bar. (pp. 98-100, Record on
Appeal)

Felix Go Chan & Sons Realty Corporation appealed in due time to the Court of Appeals from the foregoing judgment
insofar as it set aside the sale of the one-half (1/2) share of Concepcion Rallos. The appellate tribunal, as adverted
to earlier, resolved the appeal on November 20, 1964 in favor of the appellant corporation sustaining the sale in
question. 1 The appellee administrator, Ramon Rallos, moved for a reconsider of the decision but the same was
denied in a resolution of March 4, 1965. 2

What is the legal effect of an act performed by an agent after the death of his principal? Applied more particularly to
the instant case, We have the query. is the sale of the undivided share of Concepcion Rallos in lot 5983 valid
although it was executed by the agent after the death of his principal? What is the law in this jurisdiction as to the
effect of the death of the principal on the authority of the agent to act for and in behalf of the latter? Is the fact of
knowledge of the death of the principal a material factor in determining the legal effect of an act performed after
such death?

Before proceedings to the issues, We shall briefly restate certain principles of law relevant to the matter tinder
consideration.

1. It is a basic axiom in civil law embodied in our Civil Code that no one may contract in the name of another without
being authorized by the latter, or unless he has by law a right to represent him. 3 A contract entered into in the name
of another by one who has no authority or the legal representation or who has acted beyond his powers, shall be
unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf it has been executed,
before it is revoked by the other contracting party.4 Article 1403 (1) of the same Code also provides:

ART. 1403. The following contracts are unenforceable, unless they are justified:

(1) Those entered into in the name of another person by one who hi - been given no authority or
legal representation or who has acted beyond his powers; ...

Out of the above given principles, sprung the creation and acceptance of the relationship of agency whereby one
party, caged the principal (mandante), authorizes another, called the agent (mandatario), to act for and in his behalf
in transactions with third persons. The essential elements of agency are: (1) there is consent, express or implied of
the parties to establish the relationship; (2) the object is the execution of a juridical act in relation to a third person;
(3) the agents acts as a representative and not for himself, and (4) the agent acts within the scope of his authority. 5

Agency is basically personal representative, and derivative in nature. The authority of the agent to act emanates
from the powers granted to him by his principal; his act is the act of the principal if done within the scope of the
authority. Qui facit per alium facit se. "He who acts through another acts himself". 6

2. There are various ways of extinguishing agency, 7 but her We are concerned only with one cause — death of the
principal Paragraph 3 of Art. 1919 of the Civil Code which was taken from Art. 1709 of the Spanish Civil Code
provides:

ART. 1919. Agency is extinguished.

xxx xxx xxx

3. By the death, civil interdiction, insanity or insolvency of the principal or of the agent; ... (Emphasis
supplied)
By reason of the very nature of the relationship between Principal and agent, agency is extinguished by the death of
the principal or the agent. This is the law in this jurisdiction.8

Manresa commenting on Art. 1709 of the Spanish Civil Code explains that the rationale for the law is found in
the juridical basis of agency which is representation Them being an in. integration of the personality of the principal
integration that of the agent it is not possible for the representation to continue to exist once the death of either is
establish. Pothier agrees with Manresa that by reason of the nature of agency, death is a necessary cause for its
extinction. Laurent says that the juridical tie between the principal and the agent is severed ipso jure upon the death
of either without necessity for the heirs of the fact to notify the agent of the fact of death of the former. 9

The same rule prevails at common law — the death of the principal effects instantaneous and absolute revocation of
the authority of the agent unless the Power be coupled with an interest. 10 This is the prevalent rule in American
Jurisprudence where it is well-settled that a power without an interest confer. red upon an agent is dissolved by the
principal's death, and any attempted execution of the power afterward is not binding on the heirs or representatives
of the deceased. 11

3. Is the general rule provided for in Article 1919 that the death of the principal or of the agent extinguishes the
agency, subject to any exception, and if so, is the instant case within that exception? That is the determinative point
in issue in this litigation. It is the contention of respondent corporation which was sustained by respondent court that
notwithstanding the death of the principal Concepcion Rallos the act of the attorney-in-fact, Simeon Rallos in selling
the former's sham in the property is valid and enforceable inasmuch as the corporation acted in good faith in buying
the property in question.

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

ART. 1930. The agency shall remain in full force and effect even after the death of the principal, if it
has been constituted in the common interest of the latter and of the agent, or in the interest of a third
person who has accepted the stipulation in his favor.

ART. 1931. Anything done by the agent, without knowledge of the death of the principal or of any
other cause which extinguishes the agency, is valid and shall be fully effective with respect to third
persons who may have contracted with him in good. faith.

Article 1930 is not involved because admittedly the special power of attorney executed in favor of Simeon Rallos
was not coupled with an interest.

Article 1931 is the applicable law. Under this provision, an act done by the agent after the death of his principal is
valid and effective only under two conditions, viz: (1) that the agent acted without knowledge of the death of the
principal and (2) that the third person who contracted with the agent himself acted in good faith. Good faith here
means that the third person was not aware of the death of the principal at the time he contracted with said agent.
These two requisites must concur the absence of one will render the act of the agent invalid and unenforceable.

In the instant case, it cannot be questioned that the agent, Simeon Rallos, knew of the death of his principal at the
time he sold the latter's share in Lot No. 5983 to respondent corporation. The knowledge of the death is clearly to be
inferred from the pleadings filed by Simon Rallos before the trial court. 12 That Simeon Rallos knew of the death of
his sister Concepcion is also a finding of fact of the court a quo 13 and of respondent appellate court when the latter
stated that Simon Rallos 'must have known of the death of his sister, and yet he proceeded with the sale of the lot in
the name of both his sisters Concepcion and Gerundia Rallos without informing appellant (the realty corporation) of
the death of the former. 14

On the basis of the established knowledge of Simon Rallos concerning the death of his principal Concepcion
Rallos, Article 1931 of the Civil Code is inapplicable. The law expressly requires for its application lack of knowledge
on the part of the agent of the death of his principal; it is not enough that the third person acted in good faith. Thus in
Buason & Reyes v. Panuyas, the Court applying Article 1738 of the old Civil rode now Art. 1931 of the new Civil
Code sustained the validity , of a sale made after the death of the principal because it was not shown that the agent
knew of his principal's demise. 15 To the same effect is the case of Herrera, et al., v. Luy Kim Guan, et al., 1961,
where in the words of Justice Jesus Barrera the Court stated:

... even granting arguemendo that Luis Herrera did die in 1936, plaintiffs presented no proof and
there is no indication in the record, that the agent Luy Kim Guan was aware of the death of his
principal at the time he sold the property. The death 6f the principal does not render the act of an
agent unenforceable, where the latter had no knowledge of such extinguishment of the agency. (1
SCRA 406, 412)

4. In sustaining the validity of the sale to respondent consideration the Court of Appeals reasoned out that there is
no provision in the Code which provides that whatever is done by an agent having knowledge of the death of his
principal is void even with respect to third persons who may have contracted with him in good faith and without
knowledge of the death of the principal. 16
We cannot see the merits of the foregoing argument as it ignores the existence of the general rule enunciated in
Article 1919 that the death of the principal extinguishes the agency. That being the general rule it follows
a fortiorithat any act of an agent after the death of his principal is void ab initio unless the same fags under the
exception provided for in the aforementioned Articles 1930 and 1931. Article 1931, being an exception to the
general rule, is to be strictly construed, it is not to be given an interpretation or application beyond the clear import of
its terms for otherwise the courts will be involved in a process of legislation outside of their judicial function.

5. Another argument advanced by respondent court is that the vendee acting in good faith relied on the power of
attorney which was duly registered on the original certificate of title recorded in the Register of Deeds of the
province of Cebu, that no notice of the death was aver annotated on said certificate of title by the heirs of the
principal and accordingly they must suffer the consequences of such omission. 17

To support such argument reference is made to a portion in Manresa's Commentaries which We quote:

If the agency has been granted for the purpose of contracting with certain persons, the revocation
must be made known to them. But if the agency is general iii nature, without reference to particular
person with whom the agent is to contract, it is sufficient that the principal exercise due diligence to
make the revocation of the agency publicity known.

In case of a general power which does not specify the persons to whom represents' on should be
made, it is the general opinion that all acts, executed with third persons who contracted in good faith,
Without knowledge of the revocation, are valid. In such case, the principal may exercise his right
against the agent, who, knowing of the revocation, continued to assume a personality which he no
longer had. (Manresa Vol. 11, pp. 561 and 575; pp. 15-16, rollo)

The above discourse however, treats of revocation by an act of the principal as a mode of terminating an agency
which is to be distinguished from revocation by operation of law such as death of the principal which obtains in this
case. On page six of this Opinion We stressed that by reason of the very nature of the relationship between principal
and agent, agency is extinguished ipso jure upon the death of either principal or agent. Although a revocation of a
power of attorney to be effective must be communicated to the parties concerned, 18 yet a revocation by operation of
law, such as by death of the principal is, as a rule, instantaneously effective inasmuch as "by legal fiction the agent's
exercise of authority is regarded as an execution of the principal's continuing will. 19 With death, the principal's will
ceases or is the of authority is extinguished.

The Civil Code does not impose a duty on the heirs to notify the agent of the death of the principal What the Code
provides in Article 1932 is that, if the agent die his heirs must notify the principal thereof, and in the meantime adopt
such measures as the circumstances may demand in the interest of the latter. Hence, the fact that no notice of the
death of the principal was registered on the certificate of title of the property in the Office of the Register of Deeds, is
not fatal to the cause of the estate of the principal

6. Holding that the good faith of a third person in said with an agent affords the former sufficient protection,
respondent court drew a "parallel" between the instant case and that of an innocent purchaser for value of a land,
stating that if a person purchases a registered land from one who acquired it in bad faith — even to the extent of
foregoing or falsifying the deed of sale in his favor — the registered owner has no recourse against such innocent
purchaser for value but only against the forger. 20

To support the correctness of this respondent corporation, in its brief, cites the case of Blondeau, et al., v. Nano and
Vallejo, 61 Phil. 625. We quote from the brief:

In the case of Angel Blondeau et al. v. Agustin Nano et al., 61 Phil. 630, one Vallejo was a co-owner
of lands with Agustin Nano. The latter had a power of attorney supposedly executed by Vallejo Nano
in his favor. Vallejo delivered to Nano his land titles. The power was registered in the Office of the
Register of Deeds. When the lawyer-husband of Angela Blondeau went to that Office, he found all in
order including the power of attorney. But Vallejo denied having executed the power The lower court
sustained Vallejo and the plaintiff Blondeau appealed. Reversing the decision of the court a quo, the
Supreme Court, quoting the ruling in the case of Eliason v. Wilborn, 261 U.S. 457, held:

But there is a narrower ground on which the defenses of the defendant- appellee
must be overruled. Agustin Nano had possession of Jose Vallejo's title papers.
Without those title papers handed over to Nano with the acquiescence of Vallejo, a
fraud could not have been perpetuated. When Fernando de la Canters, a member of
the Philippine Bar and the husband of Angela Blondeau, the principal plaintiff,
searched the registration record, he found them in due form including the power of
attorney of Vallajo in favor of Nano. If this had not been so and if thereafter the
proper notation of the encumbrance could not have been made, Angela Blondeau
would not have sent P12,000.00 to the defendant Vallejo.' An executed transfer of
registered lands placed by the registered owner thereof in the hands of another
operates as a representation to a third party that the holder of the transfer is
authorized to deal with the land.
As between two innocent persons, one of whom must suffer the consequence of a
breach of trust, the one who made it possible by his act of coincidence bear the loss.
(pp. 19-21)

The Blondeau decision, however, is not on all fours with the case before Us because here We are confronted with
one who admittedly was an agent of his sister and who sold the property of the latter after her death with full
knowledge of such death. The situation is expressly covered by a provision of law on agency the terms of which are
clear and unmistakable leaving no room for an interpretation contrary to its tenor, in the same manner that the ruling
in Blondeau and the cases cited therein found a basis in Section 55 of the Land Registration Law which in part
provides:

xxx xxx xxx

The production of the owner's duplicate certificate whenever any voluntary instrument is presented
for registration shall be conclusive authority from the registered owner to the register of deeds to
enter a new certificate or to make a memorandum of registration in accordance with such
instruments, and the new certificate or memorandum Shall be binding upon the registered owner
and upon all persons claiming under him in favor of every purchaser for value and in good
faith: Provided however, That in all cases of registration provided by fraud, the owner may pursue all
his legal and equitable remedies against the parties to such fraud without prejudice, however, to the
right, of any innocent holder for value of a certificate of title. ... (Act No. 496 as amended)

7. One last point raised by respondent corporation in support of the appealed decision is an 1842 ruling of the
Supreme Court of Pennsylvania in Cassiday v. McKenzie wherein payments made to an agent after the death of the
principal were held to be "good", "the parties being ignorant of the death". Let us take note that the Opinion of
Justice Rogers was premised on the statement that the parties were ignorant of the death of the principal. We quote
from that decision the following:

... Here the precise point is, whether a payment to an agent when the Parties are ignorant of the
death is a good payment. in addition to the case in Campbell before cited, the same judge Lord
Ellenboruogh, has decided in 5 Esp. 117, the general question that a payment after the death of
principal is not good. Thus, a payment of sailor's wages to a person having a power of attorney to
receive them, has been held void when the principal was dead at the time of the payment. If, by this
case, it is meant merely to decide the general proposition that by operation of law the death of the
principal is a revocation of the powers of the attorney, no objection can be taken to it. But if it
intended to say that his principle applies where there was 110 notice of death, or opportunity of twice
I must be permitted to dissent from it.

... That a payment may be good today, or bad tomorrow, from the accident circumstance of the
death of the principal, which he did not know, and which by no possibility could he know? It would be
unjust to the agent and unjust to the debtor. In the civil law, the acts of the agent, done bona fide in
ignorance of the death of his principal are held valid and binding upon the heirs of the latter. The
same rule holds in the Scottish law, and I cannot believe the common law is so unreasonable... (39
Am. Dec. 76, 80, 81; emphasis supplied)

To avoid any wrong impression which the Opinion in Cassiday v. McKenzie may evoke, mention may be made that
the above represents the minority view in American jurisprudence. Thus in Clayton v. Merrett, the Court said.—

There are several cases which seem to hold that although, as a general principle, death revokes an
agency and renders null every act of the agent thereafter performed, yet that where a payment has
been made in ignorance of the death, such payment will be good. The leading case so holding is
that of Cassiday v. McKenzie, 4 Watts & S. (Pa) 282, 39 Am. 76, where, in an elaborate opinion, this
view ii broadly announced. It is referred to, and seems to have been followed, in the case of Dick v.
Page, 17 Mo. 234, 57 AmD 267; but in this latter case it appeared that the estate of the deceased
principal had received the benefit of the money paid, and therefore the representative of the estate
might well have been held to be estopped from suing for it again. . . . These cases, in so far, at least,
as they announce the doctrine under discussion, are exceptional. The Pennsylvania
Case, supra (Cassiday v. McKenzie 4 Watts & S. 282, 39 AmD 76), is believed to stand almost, if
not quite, alone in announcing the principle in its broadest scope. (52, Misc. 353, 357, cited in 2 C.J.
549)

So also in Travers v. Crane, speaking of Cassiday v. McKenzie, and pointing out that the opinion, except so far as it
related to the particular facts, was a mere dictum, Baldwin J. said:

The opinion, therefore, of the learned Judge may be regarded more as an extrajudicial indication of
his views on the general subject, than as the adjudication of the Court upon the point in question.
But accordingly all power weight to this opinion, as the judgment of a of great respectability, it stands
alone among common law authorities and is opposed by an array too formidable to permit us to
following it. (15 Cal. 12,17, cited in 2 C.J. 549)
Whatever conflict of legal opinion was generated by Cassiday v. McKenzie in American jurisprudence, no such
conflict exists in our own for the simple reason that our statute, the Civil Code, expressly provides for two exceptions
to the general rule that death of the principal revokes ipso jure the agency, to wit: (1) that the agency is coupled with
an interest (Art 1930), and (2) that the act of the agent was executed without knowledge of the death of the principal
and the third person who contracted with the agent acted also in good faith (Art. 1931). Exception No. 2 is the
doctrine followed in Cassiday, and again We stress the indispensable requirement that the agent acted without
knowledge or notice of the death of the principal In the case before Us the agent Ramon Rallos executed the sale
notwithstanding notice of the death of his principal Accordingly, the agent's act is unenforceable against the estate
of his principal.

IN VIEW OF ALL THE FOREGOING, We set aside the ecision of respondent appellate court, and We affirm en toto
the judgment rendered by then Hon. Amador E. Gomez of the Court of First Instance of Cebu, quoted in pages 2
and 3 of this Opinion, with costs against respondent realty corporation at all instances.

So Ordered.
Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 76931 May 29, 1991

ORIENT AIR SERVICES & HOTEL REPRESENTATIVES, petitioner,


vs.
COURT OF APPEALS and AMERICAN AIR-LINES INCORPORATED, respondents.

G.R. No. 76933 May 29, 1991

AMERICAN AIRLINES, INCORPORATED, petitioner,


vs.
COURT OF APPEALS and ORIENT AIR SERVICES & HOTEL REPRESENTATIVES,
INCORPORATED,respondents.

Francisco A. Lava, Jr. and Andresito X. Fornier for Orient Air Service and Hotel Representatives, Inc.
Sycip, Salazar, Hernandez & Gatmaitan for American Airlines, Inc.

PADILLA, J.:

This case is a consolidation of two (2) petitions for review on certiorari of a decision1 of the Court of Appeals in CA-
G.R. No. CV-04294, entitled "American Airlines, Inc. vs. Orient Air Services and Hotel Representatives, Inc." which
affirmed, with modification, the decision2 of the Regional Trial Court of Manila, Branch IV, which dismissed the
complaint and granted therein defendant's counterclaim for agent's overriding commission and damages.

The antecedent facts are as follows:

On 15 January 1977, American Airlines, Inc. (hereinafter referred to as American Air), an air carrier offering
passenger and air cargo transportation in the Philippines, and Orient Air Services and Hotel Representatives
(hereinafter referred to as Orient Air), entered into a General Sales Agency Agreement (hereinafter referred to as
the Agreement), whereby the former authorized the latter to act as its exclusive general sales agent within the
Philippines for the sale of air passenger transportation. Pertinent provisions of the agreement are reproduced, to wit:

WITNESSETH

In consideration of the mutual convenants herein contained, the parties hereto agree as follows:

1. Representation of American by Orient Air Services

Orient Air Services will act on American's behalf as its exclusive General Sales Agent within the Philippines,
including any United States military installation therein which are not serviced by an Air Carrier
Representation Office (ACRO), for the sale of air passenger transportation. The services to be performed by
Orient Air Services shall include:

(a) soliciting and promoting passenger traffic for the services of American and, if necessary,
employing staff competent and sufficient to do so;

(b) providing and maintaining a suitable area in its place of business to be used exclusively for the
transaction of the business of American;

(c) arranging for distribution of American's timetables, tariffs and promotional material to sales
agents and the general public in the assigned territory;

(d) servicing and supervising of sales agents (including such sub-agents as may be appointed by
Orient Air Services with the prior written consent of American) in the assigned territory including if
required by American the control of remittances and commissions retained; and
(e) holding out a passenger reservation facility to sales agents and the general public in the
assigned territory.

In connection with scheduled or non-scheduled air passenger transportation within the United States, neither
Orient Air Services nor its sub-agents will perform services for any other air carrier similar to those to be
performed hereunder for American without the prior written consent of American. Subject to periodic
instructions and continued consent from American, Orient Air Services may sell air passenger transportation
to be performed within the United States by other scheduled air carriers provided American does not provide
substantially equivalent schedules between the points involved.

xxx xxx xxx

4. Remittances

Orient Air Services shall remit in United States dollars to American the ticket stock or exchange orders, less
commissions to which Orient Air Services is entitled hereunder, not less frequently than semi-monthly, on
the 15th and last days of each month for sales made during the preceding half month.

All monies collected by Orient Air Services for transportation sold hereunder on American's ticket stock or on
exchange orders, less applicable commissions to which Orient Air Services is entitled hereunder, are the
property of American and shall be held in trust by Orient Air Services until satisfactorily accounted for to
American.

5. Commissions

American will pay Orient Air Services commission on transportation sold hereunder by Orient Air Services or
its sub-agents as follows:

(a) Sales agency commission

American will pay Orient Air Services a sales agency commission for all sales of transportation by Orient Air
Services or its sub-agents over American's services and any connecting through air transportation, when
made on American's ticket stock, equal to the following percentages of the tariff fares and charges:

(i) For transportation solely between points within the United States and between such points and
Canada: 7% or such other rate(s) as may be prescribed by the Air Traffic Conference of America.

(ii) For transportation included in a through ticket covering transportation between points other than
those described above: 8% or such other rate(s) as may be prescribed by the International Air
Transport Association.

(b) Overriding commission

In addition to the above commission American will pay Orient Air Services an overriding commission of 3%
of the tariff fares and charges for all sales of transportation over American's service by Orient Air Service or
its sub-agents.

xxx xxx xxx

10. Default

If Orient Air Services shall at any time default in observing or performing any of the provisions of this
Agreement or shall become bankrupt or make any assignment for the benefit of or enter into any agreement
or promise with its creditors or go into liquidation, or suffer any of its goods to be taken in execution, or if it
ceases to be in business, this Agreement may, at the option of American, be terminated forthwith and
American may, without prejudice to any of its rights under this Agreement, take possession of any ticket
forms, exchange orders, traffic material or other property or funds belonging to American.

11. IATA and ATC Rules

The provisions of this Agreement are subject to any applicable rules or resolutions of the International Air
Transport Association and the Air Traffic Conference of America, and such rules or resolutions shall control
in the event of any conflict with the provisions hereof.

xxx xxx xxx

13. Termination
American may terminate the Agreement on two days' notice in the event Orient Air Services is unable to
transfer to the United States the funds payable by Orient Air Services to American under this Agreement.
Either party may terminate the Agreement without cause by giving the other 30 days' notice by letter,
telegram or cable.

xxx xxx x x x3

On 11 May 1981, alleging that Orient Air had reneged on its obligations under the Agreement by failing to promptly
remit the net proceeds of sales for the months of January to March 1981 in the amount of US $254,400.40,
American Air by itself undertook the collection of the proceeds of tickets sold originally by Orient Air and terminated
forthwith the Agreement in accordance with Paragraph 13 thereof (Termination). Four (4) days later, or on 15 May
1981, American Air instituted suit against Orient Air with the Court of First Instance of Manila, Branch 24, for
Accounting with Preliminary Attachment or Garnishment, Mandatory Injunction and Restraining Order4 averring the
aforesaid basis for the termination of the Agreement as well as therein defendant's previous record of failures "to
promptly settle past outstanding refunds of which there were available funds in the possession of the defendant, . . .
to the damage and prejudice of plaintiff."5

In its Answer6 with counterclaim dated 9 July 1981, defendant Orient Air denied the material allegations of the
complaint with respect to plaintiff's entitlement to alleged unremitted amounts, contending that after application
thereof to the commissions due it under the Agreement, plaintiff in fact still owed Orient Air a balance in unpaid
overriding commissions. Further, the defendant contended that the actions taken by American Air in the course of
terminating the Agreement as well as the termination itself were untenable, Orient Air claiming that American Air's
precipitous conduct had occasioned prejudice to its business interests.

Finding that the record and the evidence substantiated the allegations of the defendant, the trial court ruled in its
favor, rendering a decision dated 16 July 1984, the dispositive portion of which reads:

WHEREFORE, all the foregoing premises considered, judgment is hereby rendered in favor of defendant
and against plaintiff dismissing the complaint and holding the termination made by the latter as affecting the
GSA agreement illegal and improper and order the plaintiff to reinstate defendant as its general sales agent
for passenger tranportation in the Philippines in accordance with said GSA agreement; plaintiff is ordered to
pay defendant the balance of the overriding commission on total flown revenue covering the period from
March 16, 1977 to December 31, 1980 in the amount of US$84,821.31 plus the additional amount of
US$8,000.00 by way of proper 3% overriding commission per month commencing from January 1, 1981
until such reinstatement or said amounts in its Philippine peso equivalent legally prevailing at the time of
payment plus legal interest to commence from the filing of the counterclaim up to the time of payment.
Further, plaintiff is directed to pay defendant the amount of One Million Five Hundred Thousand
(Pl,500,000.00) pesos as and for exemplary damages; and the amount of Three Hundred Thousand
(P300,000.00) pesos as and by way of attorney's fees.

Costs against plaintiff.7

On appeal, the Intermediate Appellate Court (now Court of Appeals) in a decision promulgated on 27 January 1986,
affirmed the findings of the court a quo on their material points but with some modifications with respect to the
monetary awards granted. The dispositive portion of the appellate court's decision is as follows:

WHEREFORE, with the following modifications —

1) American is ordered to pay Orient the sum of US$53,491.11 representing the balance of the latter's
overriding commission covering the period March 16, 1977 to December 31, 1980, or its Philippine peso
equivalent in accordance with the official rate of exchange legally prevailing on July 10, 1981, the date the
counterclaim was filed;

2) American is ordered to pay Orient the sum of US$7,440.00 as the latter's overriding commission per
month starting January 1, 1981 until date of termination, May 9, 1981 or its Philippine peso equivalent in
accordance with the official rate of exchange legally prevailing on July 10, 1981, the date the counterclaim
was filed

3) American is ordered to pay interest of 12% on said amounts from July 10, 1981 the date the answer with
counterclaim was filed, until full payment;

4) American is ordered to pay Orient exemplary damages of P200,000.00;

5) American is ordered to pay Orient the sum of P25,000.00 as attorney's fees.

the rest of the appealed decision is affirmed.

Costs against American.8


American Air moved for reconsideration of the aforementioned decision, assailing the substance thereof and arguing
for its reversal. The appellate court's decision was also the subject of a Motion for Partial Reconsideration by Orient
Air which prayed for the restoration of the trial court's ruling with respect to the monetary awards. The Court of
Appeals, by resolution promulgated on 17 December 1986, denied American Air's motion and with respect to that of
Orient Air, ruled thus:

Orient's motion for partial reconsideration is denied insofar as it prays for affirmance of the trial court's award
of exemplary damages and attorney's fees, but granted insofar as the rate of exchange is concerned. The
decision of January 27, 1986 is modified in paragraphs (1) and (2) of the dispositive part so that the payment
of the sums mentioned therein shall be at their Philippine peso equivalent in accordance with the official rate
of exchange legally prevailing on the date of actual payment.9

Both parties appealed the aforesaid resolution and decision of the respondent court, Orient Air as petitioner in G.R.
No. 76931 and American Air as petitioner in G.R. No. 76933. By resolution 10 of this Court dated 25 March 1987 both
petitions were consolidated, hence, the case at bar.

The principal issue for resolution by the Court is the extent of Orient Air's right to the 3% overriding commission. It is
the stand of American Air that such commission is based only on sales of its services actually negotiated or
transacted by Orient Air, otherwise referred to as "ticketed sales." As basis thereof, primary reliance is placed upon
paragraph 5(b) of the Agreement which, in reiteration, is quoted as follows:

5. Commissions

a) . . .

b) Overriding Commission

In addition to the above commission, American will pay Orient Air Services an overriding commission of 3%
of the tariff fees and charges for all sales of transportation over American's services by Orient Air Services or
itssub-agents. (Emphasis supplied)

Since Orient Air was allowed to carry only the ticket stocks of American Air, and the former not having opted to
appoint any sub-agents, it is American Air's contention that Orient Air can claim entitlement to the disputed
overriding commission based only on ticketed sales. This is supposed to be the clear meaning of the underscored
portion of the above provision. Thus, to be entitled to the 3% overriding commission, the sale must be made by
Orient Air and the sale must be done with the use of American Air's ticket stocks.

On the other hand, Orient Air contends that the contractual stipulation of a 3% overriding commission covers the
total revenue of American Air and not merely that derived from ticketed sales undertaken by Orient Air. The latter, in
justification of its submission, invokes its designation as the exclusive General Sales Agent of American Air, with the
corresponding obligations arising from such agency, such as, the promotion and solicitation for the services of its
principal. In effect, by virtue of such exclusivity, "all sales of transportation over American Air's services are
necessarily by Orient Air."11

It is a well settled legal principle that in the interpretation of a contract, the entirety thereof must be taken into
consideration to ascertain the meaning of its provisions.12 The various stipulations in the contract must be read
together to give effect to all.13 After a careful examination of the records, the Court finds merit in the contention of
Orient Air that the Agreement, when interpreted in accordance with the foregoing principles, entitles it to the 3%
overriding commission based on total revenue, or as referred to by the parties, "total flown revenue."

As the designated exclusive General Sales Agent of American Air, Orient Air was responsible for the promotion and
marketing of American Air's services for air passenger transportation, and the solicitation of sales therefor. In return
for such efforts and services, Orient Air was to be paid commissions of two (2) kinds: first, a sales agency
commission, ranging from 7-8% of tariff fares and charges from sales by Orient Air when made on American Air
ticket stock; and second, an overriding commission of 3% of tariff fares and charges for all sales of passenger
transportation over American Air services. It is immediately observed that the precondition attached to the first type
of commission does not obtain for the second type of commissions. The latter type of commissions would accrue for
sales of American Air services made not on its ticket stock but on the ticket stock of other air carriers sold by such
carriers or other authorized ticketing facilities or travel agents. To rule otherwise, i.e., to limit the basis of such
overriding commissions to sales from American Air ticket stock would erase any distinction between the two (2)
types of commissions and would lead to the absurd conclusion that the parties had entered into a contract with
meaningless provisions. Such an interpretation must at all times be avoided with every effort exerted to harmonize
the entire Agreement.

An additional point before finally disposing of this issue. It is clear from the records that American Air was the party
responsible for the preparation of the Agreement. Consequently, any ambiguity in this "contract of adhesion" is to be
taken "contra proferentem", i.e., construed against the party who caused the ambiguity and could have avoided it by
the exercise of a little more care. Thus, Article 1377 of the Civil Code provides that the interpretation of obscure
words or stipulations in a contract shall not favor the party who caused the obscurity. 14 To put it differently, when
several interpretations of a provision are otherwise equally proper, that interpretation or construction is to be
adopted which is most favorable to the party in whose favor the provision was made and who did not cause the
ambiguity.15 We therefore agree with the respondent appellate court's declaration that:

Any ambiguity in a contract, whose terms are susceptible of different interpretations, must be read against
the party who drafted it.16

We now turn to the propriety of American Air's termination of the Agreement. The respondent appellate court, on
this issue, ruled thus:

It is not denied that Orient withheld remittances but such action finds justification from paragraph 4 of the
Agreement, Exh. F, which provides for remittances to American less commissions to which Orient is entitled,
and from paragraph 5(d) which specifically allows Orient to retain the full amount of its commissions. Since,
as stated ante, Orient is entitled to the 3% override. American's premise, therefore, for the cancellation of
the Agreement did not exist. . . ."

We agree with the findings of the respondent appellate court. As earlier established, Orient Air was entitled to an
overriding commission based on total flown revenue. American Air's perception that Orient Air was remiss or in
default of its obligations under the Agreement was, in fact, a situation where the latter acted in accordance with the
Agreement—that of retaining from the sales proceeds its accrued commissions before remitting the balance to
American Air. Since the latter was still obligated to Orient Air by way of such commissions. Orient Air was clearly
justified in retaining and refusing to remit the sums claimed by American Air. The latter's termination of the
Agreement was, therefore, without cause and basis, for which it should be held liable to Orient Air.

On the matter of damages, the respondent appellate court modified by reduction the trial court's award of exemplary
damages and attorney's fees. This Court sees no error in such modification and, thus, affirms the same.

It is believed, however, that respondent appellate court erred in affirming the rest of the decision of the trial
court. We refer particularly to the lower court's decision ordering American Air to "reinstate defendant as its general
1âwphi1

sales agent for passenger transportation in the Philippines in accordance with said GSA Agreement."

By affirming this ruling of the trial court, respondent appellate court, in effect, compels American Air to extend its
personality to Orient Air. Such would be violative of the principles and essence of agency, defined by law as a
contract whereby "a person binds himself to render some service or to do something in representation or on behalf
of another, WITH THE CONSENT OR AUTHORITY OF THE LATTER . 17 (emphasis supplied) In an agent-principal
relationship, the personality of the principal is extended through the facility of the agent. In so doing, the agent, by
legal fiction, becomes the principal, authorized to perform all acts which the latter would have him do. Such a
relationship can only be effected with the consent of the principal, which must not, in any way, be compelled by law
or by any court. The Agreement itself between the parties states that "either party may terminate the
Agreementwithout cause by giving the other 30 days' notice by letter, telegram or cable." (emphasis supplied) We,
therefore, set aside the portion of the ruling of the respondent appellate court reinstating Orient Air as general sales
agent of American Air.

WHEREFORE, with the foregoing modification, the Court AFFIRMS the decision and resolution of the respondent
Court of Appeals, dated 27 January 1986 and 17 December 1986, respectively. Costs against petitioner American
Air.

SO ORDERED.
FIRST DIVISION

G.R. No. 144805 June 8, 2006

EDUARDO V. LINTONJUA, JR. and ANTONIO K. LITONJUA, Petitioners,


vs.
ETERNIT CORPORATION (now ETERTON MULTI-RESOURCES CORPORATION), ETEROUTREMER, S.A. and
FAR EAST BANK & TRUST COMPANY, Respondents.

DECISION

CALLEJO, SR., J.:

On appeal via a Petition for Review on Certiorari is the Decision1 of the Court of Appeals (CA) in CA-G.R. CV No.
51022, which affirmed the Decision of the Regional Trial Court (RTC), Pasig City, Branch 165, in Civil Case No.
54887, as well as the Resolution2 of the CA denying the motion for reconsideration thereof.

The Eternit Corporation (EC) is a corporation duly organized and registered under Philippine laws. Since 1950, it
had been engaged in the manufacture of roofing materials and pipe products. Its manufacturing operations were
conducted on eight parcels of land with a total area of 47,233 square meters. The properties, located in
Mandaluyong City, Metro Manila, were covered by Transfer Certificates of Title Nos. 451117, 451118, 451119,
451120, 451121, 451122, 451124 and 451125 under the name of Far East Bank & Trust Company, as trustee.
Ninety (90%) percent of the shares of stocks of EC were owned by Eteroutremer S.A. Corporation (ESAC), a
corporation organized and registered under the laws of Belgium.3 Jack Glanville, an Australian citizen, was the
General Manager and President of EC, while Claude Frederick Delsaux was the Regional Director for Asia of ESAC.
Both had their offices in Belgium.

In 1986, the management of ESAC grew concerned about the political situation in the Philippines and wanted to
stop its operations in the country. The Committee for Asia of ESAC instructed Michael Adams, a member of EC’s
Board of Directors, to dispose of the eight parcels of land. Adams engaged the services of realtor/broker Lauro G.
Marquez so that the properties could be offered for sale to prospective buyers. Glanville later showed the properties
to Marquez.

Marquez thereafter offered the parcels of land and the improvements thereon to Eduardo B. Litonjua, Jr. of the
Litonjua & Company, Inc. In a Letter dated September 12, 1986, Marquez declared that he was authorized to sell
the properties for P27,000,000.00 and that the terms of the sale were subject to negotiation. 4

Eduardo Litonjua, Jr. responded to the offer. Marquez showed the property to Eduardo Litonjua, Jr., and his brother
Antonio K. Litonjua. The Litonjua siblings offered to buy the property for P20,000,000.00 cash. Marquez apprised
Glanville of the Litonjua siblings’ offer and relayed the same to Delsaux in Belgium, but the latter did not respond.
On October 28, 1986, Glanville telexed Delsaux in Belgium, inquiring on his position/ counterproposal to the offer of
the Litonjua siblings. It was only on February 12, 1987 that Delsaux sent a telex to Glanville stating that, based on
the "Belgian/Swiss decision," the final offer was "US$1,000,000.00 and P2,500,000.00 to cover all existing
obligations prior to final liquidation."5

Marquez furnished Eduardo Litonjua, Jr. with a copy of the telex sent by Delsaux. Litonjua, Jr. accepted the
counterproposal of Delsaux. Marquez conferred with Glanville, and in a Letter dated February 26, 1987, confirmed
that the Litonjua siblings had accepted the counter-proposal of Delsaux. He also stated that the Litonjua siblings
would confirm full payment within 90 days after execution and preparation of all documents of sale, together with the
necessary governmental clearances.6

The Litonjua brothers deposited the amount of US$1,000,000.00 with the Security Bank & Trust Company, Ermita
Branch, and drafted an Escrow Agreement to expedite the sale. 7

Sometime later, Marquez and the Litonjua brothers inquired from Glanville when the sale would be implemented. In
a telex dated April 22, 1987, Glanville informed Delsaux that he had met with the buyer, which had given him the
impression that "he is prepared to press for a satisfactory conclusion to the sale."8 He also emphasized to Delsaux
that the buyers were concerned because they would incur expenses in bank commitment fees as a consequence of
prolonged period of inaction.9

Meanwhile, with the assumption of Corazon C. Aquino as President of the Republic of the Philippines, the political
situation in the Philippines had improved. Marquez received a telephone call from Glanville, advising that the sale
would no longer proceed. Glanville followed it up with a Letter dated May 7, 1987, confirming that he had been
instructed by his principal to inform Marquez that "the decision has been taken at a Board Meeting not to sell the
properties on which Eternit Corporation is situated."10

Delsaux himself later sent a letter dated May 22, 1987, confirming that the ESAC Regional Office had decided not to
proceed with the sale of the subject land, to wit:

May 22, 1987

Mr. L.G. Marquez


L.G. Marquez, Inc.
334 Makati Stock Exchange Bldg.
6767 Ayala Avenue
Makati, Metro Manila
Philippines

Dear Sir:

Re: Land of Eternit Corporation

I would like to confirm officially that our Group has decided not to proceed with the sale of the land which was
proposed to you.

The Committee for Asia of our Group met recently (meeting every six months) and examined the position as far as
the Philippines are (sic) concerned. Considering [the] new political situation since the departure of MR. MARCOS
and a certain stabilization in the Philippines, the Committee has decided not to stop our operations in Manila. In fact,
production has started again last week, and (sic) to recognize the participation in the Corporation.

We regret that we could not make a deal with you this time, but in case the policy would change at a later state, we
would consult you again.

xxx

Yours sincerely,

(Sgd.)
C.F. DELSAUX

cc. To: J. GLANVILLE (Eternit Corp.)11

When apprised of this development, the Litonjuas, through counsel, wrote EC, demanding payment for damages
they had suffered on account of the aborted sale. EC, however, rejected their demand.

The Litonjuas then filed a complaint for specific performance and damages against EC (now the Eterton Multi-
Resources Corporation) and the Far East Bank & Trust Company, and ESAC in the RTC of Pasig City. An amended
complaint was filed, in which defendant EC was substituted by Eterton Multi-Resources Corporation; Benito C. Tan,
Ruperto V. Tan, Stock Ha T. Tan and Deogracias G. Eufemio were impleaded as additional defendants on account
of their purchase of ESAC shares of stocks and were the controlling stockholders of EC.

In their answer to the complaint, EC and ESAC alleged that since Eteroutremer was not doing business in the
Philippines, it cannot be subject to the jurisdiction of Philippine courts; the Board and stockholders of EC never
approved any resolution to sell subject properties nor authorized Marquez to sell the same; and the telex dated
October 28, 1986 of Jack Glanville was his own personal making which did not bind EC.

On July 3, 1995, the trial court rendered judgment in favor of defendants and dismissed the amended
complaint.12The fallo of the decision reads:

WHEREFORE, the complaint against Eternit Corporation now Eterton Multi-Resources Corporation and
Eteroutremer, S.A. is dismissed on the ground that there is no valid and binding sale between the plaintiffs and said
defendants.

The complaint as against Far East Bank and Trust Company is likewise dismissed for lack of cause of action.
The counterclaim of Eternit Corporation now Eterton Multi-Resources Corporation and Eteroutremer, S.A. is also
dismissed for lack of merit.13

The trial court declared that since the authority of the agents/realtors was not in writing, the sale is void and not
merely unenforceable, and as such, could not have been ratified by the principal. In any event, such ratification
cannot be given any retroactive effect. Plaintiffs could not assume that defendants had agreed to sell the property
without a clear authorization from the corporation concerned, that is, through resolutions of the Board of Directors
and stockholders. The trial court also pointed out that the supposed sale involves substantially all the assets of
defendant EC which would result in the eventual total cessation of its operation. 14

The Litonjuas appealed the decision to the CA, alleging that "(1) the lower court erred in concluding that the real
estate broker in the instant case needed a written authority from appellee corporation and/or that said broker had no
such written authority; and (2) the lower court committed grave error of law in holding that appellee corporation is
not legally bound for specific performance and/or damages in the absence of an enabling resolution of the board of
directors."15 They averred that Marquez acted merely as a broker or go-between and not as agent of the corporation;
hence, it was not necessary for him to be empowered as such by any written authority. They further claimed that an
agency by estoppel was created when the corporation clothed Marquez with apparent authority to negotiate for the
sale of the properties. However, since it was a bilateral contract to buy and sell, it was equivalent to a perfected
contract of sale, which the corporation was obliged to consummate.

In reply, EC alleged that Marquez had no written authority from the Board of Directors to bind it; neither were
Glanville and Delsaux authorized by its board of directors to offer the property for sale. Since the sale involved
substantially all of the corporation’s assets, it would necessarily need the authority from the stockholders.

On June 16, 2000, the CA rendered judgment affirming the decision of the RTC. 16 The Litonjuas filed a motion for
reconsideration, which was also denied by the appellate court.

The CA ruled that Marquez, who was a real estate broker, was a special agent within the purview of Article 1874 of
the New Civil Code. Under Section 23 of the Corporation Code, he needed a special authority from EC’s board of
directors to bind such corporation to the sale of its properties. Delsaux, who was merely the representative of ESAC
(the majority stockholder of EC) had no authority to bind the latter. The CA pointed out that Delsaux was not even a
member of the board of directors of EC. Moreover, the Litonjuas failed to prove that an agency by estoppel had
been created between the parties.

In the instant petition for review, petitioners aver that

THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PERFECTED CONTRACT OF SALE.

II

THE APPELLATE COURT COMMITTED GRAVE ERROR OF LAW IN HOLDING THAT MARQUEZ NEEDED A
WRITTEN AUTHORITY FROM RESPONDENT ETERNIT BEFORE THE SALE CAN BE PERFECTED.

III

THE COURT OF APPEALS ERRED IN NOT HOLDING THAT GLANVILLE AND DELSAUX HAVE THE
NECESSARY AUTHORITY TO SELL THE SUBJECT PROPERTIES, OR AT THE VERY LEAST, WERE
KNOWINGLY PERMITTED BY RESPONDENT ETERNIT TO DO ACTS WITHIN THE SCOPE OF AN APPARENT
AUTHORITY, AND THUS HELD THEM OUT TO THE PUBLIC AS POSSESSING POWER TO SELL THE SAID
PROPERTIES.17

Petitioners maintain that, based on the facts of the case, there was a perfected contract of sale of the parcels of land
and the improvements thereon for "US$1,000,000.00 plus P2,500,000.00 to cover obligations prior to final
liquidation." Petitioners insist that they had accepted the counter-offer of respondent EC and that before the counter-
offer was withdrawn by respondents, the acceptance was made known to them through real estate broker Marquez.

Petitioners assert that there was no need for a written authority from the Board of Directors of EC for Marquez to
validly act as broker/middleman/intermediary. As broker, Marquez was not an ordinary agent because his authority
was of a special and limited character in most respects. His only job as a broker was to look for a buyer and to bring
together the parties to the transaction. He was not authorized to sell the properties or to make a binding contract to
respondent EC; hence, petitioners argue, Article 1874 of the New Civil Code does not apply.

In any event, petitioners aver, what is important and decisive was that Marquez was able to communicate both the
offer and counter-offer and their acceptance of respondent EC’s counter-offer, resulting in a perfected contract of
sale.
Petitioners posit that the testimonial and documentary evidence on record amply shows that Glanville, who was the
President and General Manager of respondent EC, and Delsaux, who was the Managing Director for ESAC Asia,
had the necessary authority to sell the subject property or, at least, had been allowed by respondent EC to hold
themselves out in the public as having the power to sell the subject properties. Petitioners identified such evidence,
thus:

1. The testimony of Marquez that he was chosen by Glanville as the then President and General Manager of
Eternit, to sell the properties of said corporation to any interested party, which authority, as hereinabove
discussed, need not be in writing.

2. The fact that the NEGOTIATIONS for the sale of the subject properties spanned SEVERAL MONTHS,
from 1986 to 1987;

3. The COUNTER-OFFER made by Eternit through GLANVILLE to sell its properties to the Petitioners;

4. The GOOD FAITH of Petitioners in believing Eternit’s offer to sell the properties as evidenced by the
Petitioners’ ACCEPTANCE of the counter-offer;

5. The fact that Petitioners DEPOSITED the price of [US]$1,000,000.00 with the Security Bank and that an
ESCROW agreement was drafted over the subject properties;

6. Glanville’s telex to Delsaux inquiring "WHEN WE (Respondents) WILL IMPLEMENT ACTION TO BUY
AND SELL";

7. More importantly, Exhibits "G" and "H" of the Respondents, which evidenced the fact that Petitioners’ offer
was allegedly REJECTED by both Glanville and Delsaux.18

Petitioners insist that it is incongruous for Glanville and Delsaux to make a counter-offer to petitioners’ offer and
thereafter reject such offer unless they were authorized to do so by respondent EC. Petitioners insist that Delsaux
confirmed his authority to sell the properties in his letter to Marquez, to wit:

Dear Sir,

Re: Land of Eternit Corporation

I would like to confirm officially that our Group has decided not to proceed with the sale of the land which was
proposed to you.

The Committee for Asia of our Group met recently (meeting every six months) and examined the position as far as
the Philippines are (sic) concerned. Considering the new political situation since the departure of MR. MARCOS and
a certain stabilization in the Philippines, the Committee has decided not to stop our operations in Manila[.] [I]n fact
production started again last week, and (sic) to reorganize the participation in the Corporation.

We regret that we could not make a deal with you this time, but in case the policy would change at a later stage we
would consult you again.

In the meantime, I remain

Yours sincerely,

C.F. DELSAUX19

Petitioners further emphasize that they acted in good faith when Glanville and Delsaux were knowingly permitted by
respondent EC to sell the properties within the scope of an apparent authority. Petitioners insist that respondents
held themselves to the public as possessing power to sell the subject properties.

By way of comment, respondents aver that the issues raised by the petitioners are factual, hence, are proscribed by
Rule 45 of the Rules of Court. On the merits of the petition, respondents EC (now EMC) and ESAC reiterate their
submissions in the CA. They maintain that Glanville, Delsaux and Marquez had no authority from the stockholders
of respondent EC and its Board of Directors to offer the properties for sale to the petitioners, or to any other person
or entity for that matter. They assert that the decision and resolution of the CA are in accord with law and the
evidence on record, and should be affirmed in toto.

Petitioners aver in their subsequent pleadings that respondent EC, through Glanville and Delsaux, conformed to the
written authority of Marquez to sell the properties. The authority of Glanville and Delsaux to bind respondent EC is
evidenced by the fact that Glanville and Delsaux negotiated for the sale of 90% of stocks of respondent EC to
Ruperto Tan on June 1, 1997. Given the significance of their positions and their duties in respondent EC at the time
of the transaction, and the fact that respondent ESAC owns 90% of the shares of stock of respondent EC, a formal
resolution of the Board of Directors would be a mere ceremonial formality. What is important, petitioners maintain, is
that Marquez was able to communicate the offer of respondent EC and the petitioners’ acceptance thereof. There
was no time that they acted without the knowledge of respondents. In fact, respondent EC never repudiated the acts
of Glanville, Marquez and Delsaux.

The petition has no merit.

Anent the first issue, we agree with the contention of respondents that the issues raised by petitioner in this case are
factual. Whether or not Marquez, Glanville, and Delsaux were authorized by respondent EC to act as its agents
relative to the sale of the properties of respondent EC, and if so, the boundaries of their authority as agents, is a
question of fact. In the absence of express written terms creating the relationship of an agency, the existence of an
agency is a fact question.20 Whether an agency by estoppel was created or whether a person acted within the
bounds of his apparent authority, and whether the principal is estopped to deny the apparent authority of its agent
are, likewise, questions of fact to be resolved on the basis of the evidence on record. 21 The findings of the trial court
on such issues, as affirmed by the CA, are conclusive on the Court, absent evidence that the trial and appellate
courts ignored, misconstrued, or misapplied facts and circumstances of substance which, if considered, would
warrant a modification or reversal of the outcome of the case.22

It must be stressed that issues of facts may not be raised in the Court under Rule 45 of the Rules of Court because
the Court is not a trier of facts. It is not to re-examine and assess the evidence on record, whether testimonial and
documentary. There are, however, recognized exceptions where the Court may delve into and resolve factual
issues, namely:

(1) When the conclusion is a finding grounded entirely on speculations, surmises, or conjectures; (2) when the
inference made is manifestly mistaken, absurd, or impossible; (3) when there is grave abuse of discretion; (4) when
the judgment is based on a misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the
Court of Appeals, in making its findings, went beyond the issues of the case and the same is contrary to the
admissions of both appellant and appellee; (7) when the findings of the Court of Appeals are contrary to those of the
trial court; (8) when the findings of fact are conclusions without citation of specific evidence on which they are
based; (9) when the Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties, which,
if properly considered, would justify a different conclusion; and (10) when the findings of fact of the Court of Appeals
are premised on the absence of evidence and are contradicted by the evidence on record. 23

We have reviewed the records thoroughly and find that the petitioners failed to establish that the instant case falls
under any of the foregoing exceptions. Indeed, the assailed decision of the Court of Appeals is supported by the
evidence on record and the law.

It was the duty of the petitioners to prove that respondent EC had decided to sell its properties and that it had
empowered Adams, Glanville and Delsaux or Marquez to offer the properties for sale to prospective buyers and to
accept any counter-offer. Petitioners likewise failed to prove that their counter-offer had been accepted by
respondent EC, through Glanville and Delsaux. It must be stressed that when specific performance is sought of a
contract made with an agent, the agency must be established by clear, certain and specific proof. 24

Section 23 of Batas Pambansa Bilang 68, otherwise known as the Corporation Code of the Philippines, provides:

SEC. 23. The Board of Directors or Trustees. – Unless otherwise provided in this Code, the corporate powers of all
corporations formed under this Code shall be exercised, all business conducted and all property of such
corporations controlled and held by the board of directors or trustees to be elected from among the holders of
stocks, or where there is no stock, from among the members of the corporation, who shall hold office for one (1)
year and until their successors are elected and qualified.

Indeed, a corporation is a juridical person separate and distinct from its members or stockholders and is not affected
by the personal rights,

obligations and transactions of the latter.25 It may act only through its board of directors or, when authorized either
by its by-laws or by its board resolution, through its officers or agents in the normal course of business. The general
principles of agency govern the relation between the corporation and its officers or agents, subject to the articles of
incorporation, by-laws, or relevant provisions of law.26

Under Section 36 of the Corporation Code, a corporation may sell or convey its real properties, subject to the
limitations prescribed by law and the Constitution, as follows:

SEC. 36. Corporate powers and capacity. – Every corporation incorporated under this Code has the power and
capacity:

xxxx

7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise deal with such real
and personal property, including securities and bonds of other corporations, as the transaction of a lawful business
of the corporation may reasonably and necessarily require, subject to the limitations prescribed by the law and the
Constitution.

The property of a corporation, however, is not the property of the stockholders or members, and as such, may not
be sold without express authority from the board of directors.27 Physical acts, like the offering of the properties of the
corporation for sale, or the acceptance of a counter-offer of prospective buyers of such properties and the execution
of the deed of sale covering such property, can be performed by the corporation only by officers or agents duly
authorized for the purpose by corporate by-laws or by specific acts of the board of directors.28 Absent such valid
delegation/authorization, the rule is that the declarations of an individual director relating to the affairs of the
corporation, but not in the course of, or connected with, the performance of authorized duties of such director, are
not binding on the corporation.29

While a corporation may appoint agents to negotiate for the sale of its real properties, the final say will have to be
with the board of directors through its officers and agents as authorized by a board resolution or by its by-laws.30 An
unauthorized act of an officer of the corporation is not binding on it unless the latter ratifies the same expressly or
impliedly by its board of directors. Any sale of real property of a corporation by a person purporting to be an agent
thereof but without written authority from the corporation is null and void. The declarations of the agent alone are
generally insufficient to establish the fact or extent of his/her authority.31

By the contract of agency, a person binds himself to render some service or to do something in representation on
behalf of another, with the consent or authority of the latter.32 Consent of both principal and agent is necessary to
create an agency. The principal must intend that the agent shall act for him; the agent must intend to accept the
authority and act on it, and the intention of the parties must find expression either in words or conduct between
them.33

An agency may be expressed or implied from the act of the principal, from his silence or lack of action, or his failure
to repudiate the agency knowing that another person is acting on his behalf without authority. Acceptance by the
agent may be expressed, or implied from his acts which carry out the agency, or from his silence or inaction
according to the circumstances.34 Agency may be oral unless the law requires a specific form.35 However, to create
or convey real rights over immovable property, a special power of attorney is necessary.36 Thus, when a sale of a
piece of land or any portion thereof is through an agent, the authority of the latter shall be in writing, otherwise, the
sale shall be void.37

In this case, the petitioners as plaintiffs below, failed to adduce in evidence any resolution of the Board of Directors
of respondent EC empowering Marquez, Glanville or Delsaux as its agents, to sell, let alone offer for sale, for and in
its behalf, the eight parcels of land owned by respondent EC including the improvements thereon. The bare fact that
Delsaux may have been authorized to sell to Ruperto Tan the shares of stock of respondent ESAC, on June 1,
1997, cannot be used as basis for petitioners’ claim that he had likewise been authorized by respondent EC to sell
the parcels of land.

Moreover, the evidence of petitioners shows that Adams and Glanville acted on the authority of Delsaux, who, in
turn, acted on the authority of respondent ESAC, through its Committee for Asia, 38 the Board of Directors of
respondent ESAC,39 and the Belgian/Swiss component of the management of respondent ESAC. 40 As such, Adams
and Glanville engaged the services of Marquez to offer to sell the properties to prospective buyers. Thus, on
September 12, 1986, Marquez wrote the petitioner that he was authorized to offer for sale the property
for P27,000,000.00 and the other terms of the sale subject to negotiations. When petitioners offered to purchase the
property for P20,000,000.00, through Marquez, the latter relayed petitioners’ offer to Glanville; Glanville had to send
a telex to Delsaux to inquire the position of respondent ESAC to petitioners’ offer. However, as admitted by
petitioners in their Memorandum, Delsaux was unable to reply immediately to the telex of Glanville because Delsaux
had to wait for confirmation from respondent ESAC.41 When Delsaux finally responded to Glanville on February 12,
1987, he made it clear that, based on the "Belgian/Swiss decision" the final offer of respondent ESAC was
US$1,000,000.00 plus P2,500,000.00 to cover all existing obligations prior to final liquidation. 42 The offer of Delsaux
emanated only from the "Belgian/Swiss decision," and not the entire management or Board of Directors of
respondent ESAC. While it is true that petitioners accepted the counter-offer of respondent ESAC, respondent EC
was not a party to the transaction between them; hence, EC was not bound by such acceptance.

While Glanville was the President and General Manager of respondent EC, and Adams and Delsaux were members
of its Board of Directors, the three acted for and in behalf of respondent ESAC, and not as duly authorized agents of
respondent EC; a board resolution evincing the grant of such authority is needed to bind EC to any agreement
regarding the sale of the subject properties. Such board resolution is not a mere formality but is a condition sine qua
non to bind respondent EC. Admittedly, respondent ESAC owned 90% of the shares of stocks of respondent EC;
however, the mere fact that a corporation owns a majority of the shares of stocks of another, or even all of such
shares of stocks, taken alone, will not justify their being treated as one corporation.43

It bears stressing that in an agent-principal relationship, the personality of the principal is extended through the
facility of the agent. In so doing, the agent, by legal fiction, becomes the principal, authorized to perform all acts
which the latter would have him do. Such a relationship can only be effected with the consent of the principal, which
must not, in any way, be compelled by law or by any court.44
The petitioners cannot feign ignorance of the absence of any regular and valid authority of respondent EC
empowering Adams, Glanville or Delsaux to offer the properties for sale and to sell the said properties to the
petitioners. 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. 45 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.46 In this case, the petitioners failed to discharge their burden; hence,
petitioners are not entitled to damages from respondent EC.

It appears that Marquez acted not only as real estate broker for the petitioners but also as their agent. As gleaned
from the letter of Marquez to Glanville, on February 26, 1987, he confirmed, for and in behalf of the petitioners, that
the latter had accepted such offer to sell the land and the improvements thereon. However, we agree with the ruling
of the appellate court that Marquez had no authority to bind respondent EC to sell the subject properties. A real
estate broker is one who negotiates the sale of real properties. His business, generally speaking, is only to find a
purchaser who is willing to buy the land upon terms fixed by the owner. He has no authority to bind the principal by
signing a contract of sale. Indeed, an authority to find a purchaser of real property does not include an authority to
sell.47

Equally barren of merit is petitioners’ contention that respondent EC is estopped to deny the existence of a principal-
agency relationship between it and Glanville or Delsaux. For an agency by estoppel to exist, the following must be
established: (1) the principal manifested a representation of the agent’s authority or knowlingly allowed the agent to
assume such authority; (2) the third person, in good faith, relied upon such representation; (3) relying upon such
representation, such third person has changed his position to his detriment.48 An agency by estoppel, which is
similar to the doctrine of apparent authority, requires proof of reliance upon the representations, and that, in turn,
needs proof that the representations predated the action taken in reliance.49 Such proof is lacking in this case. In
their communications to the petitioners, Glanville and Delsaux positively and unequivocally declared that they were
acting for and in behalf of respondent ESAC.

Neither may respondent EC be deemed to have ratified the transactions between the petitioners and respondent
ESAC, through Glanville, Delsaux and Marquez. The transactions and the various communications inter se were
never submitted to the Board of Directors of respondent EC for ratification.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against the petitioners.

SO ORDERED.
FIRST DIVISION

G.R. No. 149353 June 26, 2006

JOCELYN B. DOLES, Petitioner,


vs.
MA. AURA TINA ANGELES, Respondent.

DECISION

AUSTRIA-MARTINEZ, J.:

This refers to the Petition for Review on Certiorari under Rule 45 of the Rules of Court questioning the
Decision1dated April 30, 2001 of the Court of Appeals (CA) in C.A.-G.R. CV No. 66985, which reversed the Decision
dated July 29, 1998 of the Regional Trial Court (RTC), Branch 21, City of Manila; and the CA Resolution 2 dated
August 6, 2001 which denied petitioner’s Motion for Reconsideration.

The antecedents of the case follow:

On April 1, 1997, Ma. Aura Tina Angeles (respondent) filed with the RTC a complaint for Specific Performance with
Damages against Jocelyn B. Doles (petitioner), docketed as Civil Case No. 97-82716. Respondent alleged that
petitioner was indebted to the former in the concept of a personal loan amounting to P405,430.00 representing the
principal amount and interest; that on October 5, 1996, by virtue of a "Deed of Absolute Sale", 3 petitioner, as seller,
ceded to respondent, as buyer, a parcel of land, as well as the improvements thereon, with an area of 42 square
meters, covered by Transfer Certificate of Title No. 382532,4 and located at a subdivision project known as Camella
Townhomes Sorrente in Bacoor, Cavite, in order to satisfy her personal loan with respondent; that this property was
mortgaged to National Home Mortgage Finance Corporation (NHMFC) to secure petitioner’s loan in the sum
of P337,050.00 with that entity; that as a condition for the foregoing sale, respondent shall assume the undue
balance of the mortgage and pay the monthly amortization of P4,748.11 for the remainder of the 25 years which
began on September 3, 1994; that the property was at that time being occupied by a tenant paying a monthly rent
of P3,000.00; that upon verification with the NHMFC, respondent learned that petitioner had incurred arrearages
amounting to P26,744.09, inclusive of penalties and interest; that upon informing the petitioner of her arrears,
petitioner denied that she incurred them and refused to pay the same; that despite repeated demand, petitioner
refused to cooperate with respondent to execute the necessary documents and other formalities required by the
NHMFC to effect the transfer of the title over the property; that petitioner collected rent over the property for the
month of January 1997 and refused to remit the proceeds to respondent; and that respondent suffered damages as
a result and was forced to litigate.

Petitioner, then defendant, while admitting some allegations in the Complaint, denied that she borrowed money from
respondent, and averred that from June to September 1995, she referred her friends to respondent whom she knew
to be engaged in the business of lending money in exchange for personal checks through her capitalist Arsenio Pua.
She alleged that her friends, namely, Zenaida Romulo, Theresa Moratin, Julia Inocencio, Virginia Jacob, and
Elizabeth Tomelden, borrowed money from respondent and issued personal checks in payment of the loan; that the
checks bounced for insufficiency of funds; that despite her efforts to assist respondent to collect from the borrowers,
she could no longer locate them; that, because of this, respondent became furious and threatened petitioner that if
the accounts were not settled, a criminal case will be filed against her; that she was forced to issue eight checks
amounting to P350,000 to answer for the bounced checks of the borrowers she referred; that prior to the issuance of
the checks she informed respondent that they were not sufficiently funded but the latter nonetheless deposited the
checks and for which reason they were subsequently dishonored; that respondent then threatened to initiate a
criminal case against her for violation of Batas Pambansa Blg. 22; that she was forced by respondent to execute an
"Absolute Deed of Sale" over her property in Bacoor, Cavite, to avoid criminal prosecution; that the said deed had
no valid consideration; that she did not appear before a notary public; that the Community Tax Certificate number on
the deed was not hers and for which respondent may be prosecuted for falsification and perjury; and that she
suffered damages and lost rental as a result.

The RTC identified the issues as follows: first, whether the Deed of Absolute Sale is valid; second; if valid, whether
petitioner is obliged to sign and execute the necessary documents to effect the transfer of her rights over the
property to the respondent; and third, whether petitioner is liable for damages.
On July 29, 1998, the RTC rendered a decision the dispositive portion of which states:

WHEREFORE, premises considered, the Court hereby orders the dismissal of the complaint for insufficiency of
evidence. With costs against plaintiff.

SO ORDERED.

The RTC held that the sale was void for lack of cause or consideration:5

Plaintiff Angeles’ admission that the borrowers are the friends of defendant Doles and further admission that the
checks issued by these borrowers in payment of the loan obligation negates [sic] the cause or consideration of the
contract of sale executed by and between plaintiff and defendant. Moreover, the property is not solely owned by
defendant as appearing in Entry No. 9055 of Transfer Certificate of Title No. 382532 (Annex A, Complaint), thus:

"Entry No. 9055. Special Power of Attorney in favor of Jocelyn Doles covering the share of Teodorico Doles on the
parcel of land described in this certificate of title by virtue of the special power of attorney to mortgage, executed
before the notary public, etc."

The rule under the Civil Code is that contracts without a cause or consideration produce no effect whatsoever. (Art.
1352, Civil Code).

Respondent appealed to the CA. In her appeal brief, respondent interposed her sole assignment of error:

THE TRIAL COURT ERRED IN DISMISSING THE CASE AT BAR ON THE GROUND OF [sic] THE DEED OF
SALE BETWEEN THE PARTIES HAS NO CONSIDERATION OR INSUFFICIENCY OF EVIDENCE. 6

On April 30, 2001, the CA promulgated its Decision, the dispositive portion of which reads:

WHEREFORE, IN VIEW OF THE FOREGOING, this appeal is hereby GRANTED. The Decision of the lower court
dated July 29, 1998 is REVERSED and SET ASIDE. A new one is entered ordering defendant-appellee to execute
all necessary documents to effect transfer of subject property to plaintiff-appellant with the arrearages of the
former’s loan with the NHMFC, at the latter’s expense. No costs.

SO ORDERED.

The CA concluded that petitioner was the borrower and, in turn, would "re-lend" the amount borrowed from the
respondent to her friends. Hence, the Deed of Absolute Sale was supported by a valid consideration, which is the
sum of money petitioner owed respondent amounting to P405,430.00, representing both principal and interest.

The CA took into account the following circumstances in their entirety: the supposed friends of petitioner never
presented themselves to respondent and that all transactions were made by and between petitioner and
respondent;7 that the money borrowed was deposited with the bank account of the petitioner, while payments made
for the loan were deposited by the latter to respondent’s bank account;8 that petitioner herself admitted in open court
that she was "re-lending" the money loaned from respondent to other individuals for profit;9 and that the
documentary evidence shows that the actual borrowers, the friends of petitioner, consider her as their creditor and
not the respondent.10

Furthermore, the CA held that the alleged threat or intimidation by respondent did not vitiate consent, since the
same is considered just or legal if made to enforce one’s claim through competent authority under Article 133511 of
the Civil Code;12 that with respect to the arrearages of petitioner on her monthly amortization with the NHMFC in the
sum of P26,744.09, the same shall be deemed part of the balance of petitioner’s loan with the NHMFC which
respondent agreed to assume; and that the amount of P3,000.00 representing the rental for January 1997
supposedly collected by petitioner, as well as the claim for damages and attorney’s fees, is denied for insufficiency
of evidence.13

On May 29, 2001, petitioner filed her Motion for Reconsideration with the CA, arguing that respondent categorically
admitted in open court that she acted only as agent or representative of Arsenio Pua, the principal financier and,
hence, she had no legal capacity to sue petitioner; and that the CA failed to consider the fact that petitioner’s father,
who co-owned the subject property, was not impleaded as a defendant nor was he indebted to the respondent and,
hence, she cannot be made to sign the documents to effect the transfer of ownership over the entire property.

On August 6, 2001, the CA issued its Resolution denying the motion on the ground that the foregoing matters had
already been passed upon.

On August 13, 2001, petitioner received a copy of the CA Resolution. On August 28, 2001, petitioner filed the
present Petition and raised the following issues:

I.
WHETHER OR NOT THE PETITIONER CAN BE CONSIDERED AS A DEBTOR OF THE RESPONDENT.

II.

WHETHER OR NOT AN AGENT WHO WAS NOT AUTHORIZED BY THE PRINCIPAL TO COLLECT
DEBT IN HIS BEHALF COULD DIRECTLY COLLECT PAYMENT FROM THE DEBTOR.

III.

WHETHER OR NOT THE CONTRACT OF SALE WAS EXECUTED FOR A CAUSE. 14

Although, as a rule, it is not the business of this Court to review the findings of fact made by the lower courts,
jurisprudence has recognized several exceptions, at least three of which are present in the instant case, namely:
when the judgment is based on a misapprehension of facts; when the findings of facts of the courts a quo are
conflicting; and when the CA manifestly overlooked certain relevant facts not disputed by the parties, which, if
properly considered, could justify a different conclusion.15 To arrive at a proper judgment, therefore, the Court finds it
necessary to re-examine the evidence presented by the contending parties during the trial of the case.

The Petition is meritorious.

The principal issue is whether the Deed of Absolute Sale is supported by a valid consideration.

1. Petitioner argues that since she is merely the agent or representative of the alleged debtors, then she is not a
party to the loan; and that the Deed of Sale executed between her and the respondent in their own names, which
was predicated on that pre-existing debt, is void for lack of consideration.

Indeed, the Deed of Absolute Sale purports to be supported by a consideration in the form of a price certain in
money16 and that this sum indisputably pertains to the debt in issue. This Court has consistently held that a contract
of sale is null and void and produces no effect whatsoever where the same is without cause or consideration. 17 The
question that has to be resolved for the moment is whether this debt can be considered as a valid cause or
consideration for the sale.

To restate, the CA cited four instances in the record to support its holding that petitioner "re-lends" the amount
borrowed from respondent to her friends: first, the friends of petitioner never presented themselves to respondent
and that all transactions were made by and between petitioner and respondent; 18 second; the money passed
through the bank accounts of petitioner and respondent;19 third, petitioner herself admitted that she was "re-lending"
the money loaned to other individuals for profit;20 and fourth, the documentary evidence shows that the actual
borrowers, the friends of petitioner, consider her as their creditor and not the respondent.21

On the first, third, and fourth points, the CA cites the testimony of the petitioner, then defendant, during her cross-
examination:22

Atty. Diza:

q. You also mentioned that you were not the one indebted to the plaintiff?

witness:

a. Yes, sir.

Atty. Diza:

q. And you mentioned the persons[,] namely, Elizabeth Tomelden, Teresa Moraquin, Maria Luisa Inocencio,
Zenaida Romulo, they are your friends?

witness:

a. Inocencio and Moraquin are my friends while [as to] Jacob and Tomelden[,] they were just referred.

Atty. Diza:

q. And you have transact[ed] with the plaintiff?

witness:

a. Yes, sir.
Atty. Diza:

q. What is that transaction?

witness:

a. To refer those persons to Aura and to refer again to Arsenio Pua, sir.

Atty. Diza:

q. Did the plaintiff personally see the transactions with your friends?

witness:

a. No, sir.

Atty. Diza:

q. Your friends and the plaintiff did not meet personally?

witness:

a. Yes, sir.

Atty. Diza:

q. You are intermediaries?

witness:

a. We are both intermediaries. As evidenced by the checks of the debtors they were deposited to the name
of Arsenio Pua because the money came from Arsenio Pua.

xxxx

Atty. Diza:

q. Did the plaintiff knew [sic] that you will lend the money to your friends specifically the one you mentioned
[a] while ago?

witness:

a. Yes, she knows the money will go to those persons.

Atty. Diza:

q. You are re-lending the money?

witness:

a. Yes, sir.

Atty. Diza:

q. What profit do you have, do you have commission?

witness:

a. Yes, sir.

Atty. Diza:

q. How much?

witness:
a. Two percent to Tomelden, one percent to Jacob and then Inocencio and my friends none, sir.

Based on the foregoing, the CA concluded that petitioner is the real borrower, while the respondent, the real
lender.

But as correctly noted by the RTC, respondent, then plaintiff, made the following admission during her cross
examination:23

Atty. Villacorta:

q. Who is this Arsenio Pua?

witness:

a. Principal financier, sir.

Atty. Villacorta:

q. So the money came from Arsenio Pua?

witness:

a. Yes, because I am only representing him, sir.

Other portions of the testimony of respondent must likewise be considered:24

Atty. Villacorta:

q. So it is not actually your money but the money of Arsenio Pua?

witness:

a. Yes, sir.

Court:

q. It is not your money?

witness:

a. Yes, Your Honor.

Atty. Villacorta:

q. Is it not a fact Ms. Witness that the defendant borrowed from you to accommodate somebody, are you
aware of that?

witness:

a. I am aware of that.

Atty. Villacorta:

q. More or less she [accommodated] several friends of the defendant?

witness:

a. Yes, sir, I am aware of that.

xxxx

Atty. Villacorta:

q. And these friends of the defendant borrowed money from you with the assurance of the defendant?

witness:
a. They go direct to Jocelyn because I don’t know them.

xxxx

Atty. Villacorta:

q. And is it not also a fact Madam witness that everytime that the defendant borrowed money from you her
friends who [are] in need of money issued check[s] to you? There were checks issued to you?

witness:

a. Yes, there were checks issued.

Atty. Villacorta:

q. By the friends of the defendant, am I correct?

witness:

a. Yes, sir.

Atty. Villacorta:

q. And because of your assistance, the friends of the defendant who are in need of money were able to
obtain loan to [sic] Arsenio Pua through your assistance?

witness:

a. Yes, sir.

Atty. Villacorta:

q. So that occasion lasted for more than a year?

witness:

a. Yes, sir.

Atty. Villacorta:

q. And some of the checks that were issued by the friends of the defendant bounced, am I correct?

witness:

a. Yes, sir.

Atty. Villacorta:

q. And because of that Arsenio Pua got mad with you?

witness:

a. Yes, sir.

Respondent is estopped to deny that she herself acted as agent of a certain Arsenio Pua, her disclosed principal.
She is also estopped to deny that petitioner acted as agent for the alleged debtors, the friends whom she (petitioner)
referred.

This Court has affirmed that, under Article 1868 of the Civil Code, the basis of agency is representation. 25 The
question of whether an agency has been created is ordinarily a question which may be established in the same way
as any other fact, either by direct or circumstantial evidence. The question is ultimately one of intention. 26 Agency
may even be implied from the words and conduct of the parties and the circumstances of the particular
case.27Though the fact or extent of authority of the agents may not, as a general rule, be established from the
declarations of the agents alone, if one professes to act as agent for another, she may be estopped to deny her
agency both as against the asserted principal and the third persons interested in the transaction in which he or she
is engaged.28
In this case, petitioner knew that the financier of respondent is Pua; and respondent knew that the borrowers are
friends of petitioner.

The CA is incorrect when it considered the fact that the "supposed friends of [petitioner], the actual borrowers, did
not present themselves to [respondent]" as evidence that negates the agency relationship—it is sufficient that
petitioner disclosed to respondent that the former was acting in behalf of her principals, her friends whom she
referred to respondent. For an agency to arise, it is not necessary that the principal personally encounter the third
person with whom the agent interacts. The law in fact contemplates, and to a great degree, impersonal dealings
where the principal need not personally know or meet the third person with whom her agent transacts: precisely, the
purpose of agency is to extend the personality of the principal through the facility of the agent.29

In the case at bar, both petitioner and respondent have undeniably disclosed to each other that they are
representing someone else, and so both of them are estopped to deny the same. It is evident from the record that
petitioner merely refers actual borrowers and then collects and disburses the amounts of the loan upon which she
received a commission; and that respondent transacts on behalf of her "principal financier", a certain Arsenio Pua. If
their respective principals do not actually and personally know each other, such ignorance does not affect their
juridical standing as agents, especially since the very purpose of agency is to extend the personality of the principal
through the facility of the agent.

With respect to the admission of petitioner that she is "re-lending" the money loaned from respondent to other
individuals for profit, it must be stressed that the manner in which the parties designate the relationship is not
controlling. If an act done by one person in behalf of another is in its essential nature one of agency, the former is
the agent of the latter notwithstanding he or she is not so called.30 The question is to be determined by the fact that
one represents and is acting for another, and if relations exist which will constitute an agency, it will be an agency
whether the parties understood the exact nature of the relation or not. 31

That both parties acted as mere agents is shown by the undisputed fact that the friends of petitioner issued checks
in payment of the loan in the name of Pua. If it is true that petitioner was "re-lending", then the checks should have
been drawn in her name and not directly paid to Pua.

With respect to the second point, particularly, the finding of the CA that the disbursements and payments for the
loan were made through the bank accounts of petitioner and respondent,

suffice it to say that in the normal course of commercial dealings and for reasons of convenience and practical utility
it can be reasonably expected that the facilities of the agent, such as a bank account, may be employed, and that a
sub-agent be appointed, such as the bank itself, to carry out the task, especially where there is no stipulation to the
contrary.32

In view of the two agency relationships, petitioner and respondent are not privy to the contract of loan between their
principals. Since the sale is predicated on that loan, then the sale is void for lack of consideration.

2. A further scrutiny of the record shows, however, that the sale might have been backed up by another
consideration that is separate and distinct from the debt: respondent averred in her complaint and testified that the
parties had agreed that as a condition for the conveyance of the property the respondent shall assume the balance
of the mortgage loan which petitioner allegedly owed to the NHMFC. 33 This Court in the recent past has declared
that an assumption of a mortgage debt may constitute a valid consideration for a sale. 34

Although the record shows that petitioner admitted at the time of trial that she owned the property described in the
TCT,35 the Court must stress that the Transfer Certificate of Title No. 38253236 on its face shows that the owner of
the property which admittedly forms the subject matter of the Deed of Absolute Sale refers neither to the petitioner
nor to her father, Teodorico Doles, the alleged co-owner. Rather, it states that the property is registered in the name
of "Household Development Corporation." Although there is an entry to the effect that the petitioner had been
granted a special power of attorney "covering the shares of Teodorico Doles on the parcel of land described in this
certificate,"37 it cannot be inferred from this bare notation, nor from any other evidence on the record, that the
petitioner or her father held any direct interest on the property in question so as to validly constitute a mortgage
thereon38 and, with more reason, to effect the delivery of the object of the sale at the consummation stage. 39 What is
worse, there is a notation that the TCT itself has been "cancelled."40

In view of these anomalies, the Court cannot entertain the

possibility that respondent agreed to assume the balance of the mortgage loan which petitioner allegedly owed to
the NHMFC, especially since the record is bereft of any factual finding that petitioner was, in the first place,
endowed with any ownership rights to validly mortgage and convey the property. As the complainant who initiated
the case, respondent bears the burden of proving the basis of her complaint. Having failed to discharge such
burden, the Court has no choice but to declare the sale void for lack of cause. And since the sale is void, the Court
finds it unnecessary to dwell on the issue of whether duress or intimidation had been foisted upon petitioner upon
the execution of the sale.
Moreover, even assuming the mortgage validly exists, the Court notes respondent’s allegation that the mortgage
with the NHMFC was for 25 years which began September 3, 1994. Respondent filed her Complaint for Specific
Performance in 1997. Since the 25 years had not lapsed, the prayer of respondent to compel petitioner to execute
necessary documents to effect the transfer of title is premature.

WHEREFORE, the petition is granted. The Decision and Resolution of the Court of Appeals
are REVERSED and SET ASIDE. The complaint of respondent in Civil Case No. 97-82716 is DISMISSED.

SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 167552 April 23, 2007

EUROTECH INDUSTRIAL TECHNOLOGIES, INC., Petitioner,


vs.
EDWIN CUIZON and ERWIN CUIZON, Respondents.

DECISION

CHICO-NAZARIO, J.:

Before Us is a petition for review by certiorari assailing the Decision1 of the Court of Appeals dated 10 August 2004
and its Resolution2 dated 17 March 2005 in CA-G.R. SP No. 71397 entitled, "Eurotech Industrial Technologies, Inc.
v. Hon. Antonio T. Echavez." The assailed Decision and Resolution affirmed the Order3 dated 29 January 2002
rendered by Judge Antonio T. Echavez ordering the dropping of respondent EDWIN Cuizon (EDWIN) as a party
defendant in Civil Case No. CEB-19672.

The generative facts of the case are as follows:

Petitioner is engaged in the business of importation and distribution of various European industrial equipment for
customers here in the Philippines. It has as one of its customers Impact Systems Sales ("Impact Systems") which is
a sole proprietorship owned by respondent ERWIN Cuizon (ERWIN). Respondent EDWIN is the sales manager of
Impact Systems and was impleaded in the court a quo in said capacity.

From January to April 1995, petitioner sold to Impact Systems various products allegedly amounting to ninety-one
thousand three hundred thirty-eight (₱91,338.00) pesos. Subsequently, respondents sought to buy from petitioner
one unit of sludge pump valued at ₱250,000.00 with respondents making a down payment of fifty thousand pesos
(₱50,000.00).4 When the sludge pump arrived from the United Kingdom, petitioner refused to deliver the same to
respondents without their having fully settled their indebtedness to petitioner. Thus, on 28 June 1995, respondent
EDWIN and Alberto de Jesus, general manager of petitioner, executed a Deed of Assignment of receivables in favor
of petitioner, the pertinent part of which states:

1.) That ASSIGNOR5 has an outstanding receivables from Toledo Power Corporation in the amount of
THREE HUNDRED SIXTY FIVE THOUSAND (₱365,000.00) PESOS as payment for the purchase of one
unit of Selwood Spate 100D Sludge Pump;

2.) That said ASSIGNOR does hereby ASSIGN, TRANSFER, and CONVEY unto the ASSIGNEE 6 the said
receivables from Toledo Power Corporation in the amount of THREE HUNDRED SIXTY FIVE THOUSAND
(₱365,000.00) PESOS which receivables the ASSIGNOR is the lawful recipient;

3.) That the ASSIGNEE does hereby accept this assignment.7

Following the execution of the Deed of Assignment, petitioner delivered to respondents the sludge pump as shown
by Invoice No. 12034 dated 30 June 1995.8

Allegedly unbeknownst to petitioner, respondents, despite the existence of the Deed of Assignment, proceeded to
collect from Toledo Power Company the amount of ₱365,135.29 as evidenced by Check Voucher No.
09339prepared by said power company and an official receipt dated 15 August 1995 issued by Impact
Systems.10Alarmed by this development, petitioner made several demands upon respondents to pay their
obligations. As a result, respondents were able to make partial payments to petitioner. On 7 October 1996,
petitioner’s counsel sent respondents a final demand letter wherein it was stated that as of 11 June 1996,
respondents’ total obligations stood at ₱295,000.00 excluding interests and attorney’s fees. 11 Because of
respondents’ failure to abide by said final demand letter, petitioner instituted a complaint for sum of money,
damages, with application for preliminary attachment against herein respondents before the Regional Trial Court of
Cebu City.12

On 8 January 1997, the trial court granted petitioner’s prayer for the issuance of writ of preliminary attachment. 13

On 25 June 1997, respondent EDWIN filed his Answer14 wherein he admitted petitioner’s allegations with respect to
the sale transactions entered into by Impact Systems and petitioner between January and April 1995. 15 He,
however, disputed the total amount of Impact Systems’ indebtedness to petitioner which, according to him,
amounted to only ₱220,000.00.16

By way of special and affirmative defenses, respondent EDWIN alleged that he is not a real party in interest in this
case. According to him, he was acting as mere agent of his principal, which was the Impact Systems, in his
transaction with petitioner and the latter was very much aware of this fact. In support of this argument, petitioner
points to paragraphs 1.2 and 1.3 of petitioner’s Complaint stating –

1.2. Defendant Erwin H. Cuizon, is of legal age, married, a resident of Cebu City. He is the proprietor of a
single proprietorship business known as Impact Systems Sales ("Impact Systems" for brevity), with office
located at 46-A del Rosario Street, Cebu City, where he may be served summons and other processes of
the Honorable Court.

1.3. Defendant Edwin B. Cuizon is of legal age, Filipino, married, a resident of Cebu City. He is the Sales
Manager of Impact Systems and is sued in this action in such capacity.17

On 26 June 1998, petitioner filed a Motion to Declare Defendant ERWIN in Default with Motion for Summary
Judgment. The trial court granted petitioner’s motion to declare respondent ERWIN in default "for his failure to
answer within the prescribed period despite the opportunity granted"18 but it denied petitioner’s motion for summary
judgment in its Order of 31 August 2001 and scheduled the pre-trial of the case on 16 October 2001.19 However, the
conduct of the pre-trial conference was deferred pending the resolution by the trial court of the special and
affirmative defenses raised by respondent EDWIN.20

After the filing of respondent EDWIN’s Memorandum21 in support of his special and affirmative defenses and
petitioner’s opposition22 thereto, the trial court rendered its assailed Order dated 29 January 2002 dropping
respondent EDWIN as a party defendant in this case. According to the trial court –

A study of Annex "G" to the complaint shows that in the Deed of Assignment, defendant Edwin B. Cuizon acted in
behalf of or represented [Impact] Systems Sales; that [Impact] Systems Sale is a single proprietorship entity and the
complaint shows that defendant Erwin H. Cuizon is the proprietor; that plaintiff corporation is represented by its
general manager Alberto de Jesus in the contract which is dated June 28, 1995. A study of Annex "H" to the
complaint reveals that [Impact] Systems Sales which is owned solely by defendant Erwin H. Cuizon, made a down
payment of ₱50,000.00 that Annex "H" is dated June 30, 1995 or two days after the execution of Annex "G", thereby
showing that [Impact] Systems Sales ratified the act of Edwin B. Cuizon; the records further show that plaintiff knew
that [Impact] Systems Sales, the principal, ratified the act of Edwin B. Cuizon, the agent, when it accepted the down
payment of ₱50,000.00. Plaintiff, therefore, cannot say that it was deceived by defendant Edwin B. Cuizon, since in
the instant case the principal has ratified the act of its agent and plaintiff knew about said ratification. Plaintiff could
not say that the subject contract was entered into by Edwin B. Cuizon in excess of his powers since [Impact]
Systems Sales made a down payment of ₱50,000.00 two days later.

In view of the Foregoing, the Court directs that defendant Edwin B. Cuizon be dropped as party defendant. 23

Aggrieved by the adverse ruling of the trial court, petitioner brought the matter to the Court of Appeals which,
however, affirmed the 29 January 2002 Order of the court a quo. The dispositive portion of the now assailed
Decision of the Court of Appeals states:

WHEREFORE, finding no viable legal ground to reverse or modify the conclusions reached by the public respondent
in his Order dated January 29, 2002, it is hereby AFFIRMED.24

Petitioner’s motion for reconsideration was denied by the appellate court in its Resolution promulgated on 17 March
2005. Hence, the present petition raising, as sole ground for its allowance, the following:

THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN IT RULED THAT RESPONDENT
EDWIN CUIZON, AS AGENT OF IMPACT SYSTEMS SALES/ERWIN CUIZON, IS NOT PERSONALLY LIABLE,
BECAUSE HE HAS NEITHER ACTED BEYOND THE SCOPE OF HIS AGENCY NOR DID HE PARTICIPATE IN
THE PERPETUATION OF A FRAUD.25

To support its argument, petitioner points to Article 1897 of the New Civil Code which states:

Art. 1897. The agent who acts as such is not personally liable to the party with whom he contracts, unless he
expressly binds himself or exceeds the limits of his authority without giving such party sufficient notice of his powers.

Petitioner contends that the Court of Appeals failed to appreciate the effect of ERWIN’s act of collecting the
receivables from the Toledo Power Corporation notwithstanding the existence of the Deed of Assignment signed by
EDWIN on behalf of Impact Systems. While said collection did not revoke the agency relations of respondents,
petitioner insists that ERWIN’s action repudiated EDWIN’s power to sign the Deed of Assignment. As EDWIN did
not sufficiently notify it of the extent of his powers as an agent, petitioner claims that he should be made personally
liable for the obligations of his principal.26
Petitioner also contends that it fell victim to the fraudulent scheme of respondents who induced it into selling the one
unit of sludge pump to Impact Systems and signing the Deed of Assignment. Petitioner directs the attention of this
Court to the fact that respondents are bound not only by their principal and agent relationship but are in fact full-
blooded brothers whose successive contravening acts bore the obvious signs of conspiracy to defraud petitioner.27

In his Comment,28 respondent EDWIN again posits the argument that he is not a real party in interest in this case
and it was proper for the trial court to have him dropped as a defendant. He insists that he was a mere agent of
Impact Systems which is owned by ERWIN and that his status as such is known even to petitioner as it is alleged in
the Complaint that he is being sued in his capacity as the sales manager of the said business venture. Likewise,
respondent EDWIN points to the Deed of Assignment which clearly states that he was acting as a representative of
Impact Systems in said transaction.

We do not find merit in the petition.

In a contract of agency, a person binds himself to render some service or to do something in representation or on
behalf of another with the latter’s consent.29 The underlying principle of the contract of agency is to accomplish
results by using the services of others – to do a great variety of things like selling, buying, manufacturing, and
transporting.30 Its purpose is to extend the personality of the principal or the party for whom another acts and from
whom he or she derives the authority to act.31 It is said that the basis of agency is representation, that is, the agent
acts for and on behalf of the principal on matters within the scope of his authority and said acts have the same legal
effect as if they were personally executed by the principal.32 By this legal fiction, the actual or real absence of the
principal is converted into his legal or juridical presence – qui facit per alium facit per se.33

The elements of the contract of agency are: (1) consent, express or implied, of the parties to establish the
relationship; (2) the object is the execution of a juridical act in relation to a third person; (3) the agent acts as a
representative and not for himself; (4) the agent acts within the scope of his authority.34

In this case, the parties do not dispute the existence of the agency relationship between respondents ERWIN as
principal and EDWIN as agent. The only cause of the present dispute is whether respondent EDWIN exceeded his
authority when he signed the Deed of Assignment thereby binding himself personally to pay the obligations to
petitioner. Petitioner firmly believes that respondent EDWIN acted beyond the authority granted by his principal and
he should therefore bear the effect of his deed pursuant to Article 1897 of the New Civil Code.

We disagree.

Article 1897 reinforces the familiar doctrine that an agent, who acts as such, is not personally liable to the party with
whom he contracts. The same provision, however, presents two instances when an agent becomes personally liable
to a third person. The first is when he expressly binds himself to the obligation and the second is when he exceeds
his authority. In the last instance, the agent can be held liable if he does not give the third party sufficient notice of
his powers. We hold that respondent EDWIN does not fall within any of the exceptions contained in this provision.

The Deed of Assignment clearly states that respondent EDWIN signed thereon as the sales manager of Impact
Systems. As discussed elsewhere, the position of manager is unique in that it presupposes the grant of broad
powers with which to conduct the business of the principal, thus:

The powers of an agent are particularly broad in the case of one acting as a general agent or manager; such a
position presupposes a degree of confidence reposed and investiture with liberal powers for the exercise of
judgment and discretion in transactions and concerns which are incidental or appurtenant to the business entrusted
to his care and management. In the absence of an agreement to the contrary, a managing agent may enter into any
contracts that he deems reasonably necessary or requisite for the protection of the interests of his principal
entrusted to his management. x x x.35

Applying the foregoing to the present case, we hold that Edwin Cuizon acted well-within his authority when he
signed the Deed of Assignment. To recall, petitioner refused to deliver the one unit of sludge pump unless it
received, in full, the payment for Impact Systems’ indebtedness.36 We may very well assume that Impact Systems
desperately needed the sludge pump for its business since after it paid the amount of fifty thousand pesos
(₱50,000.00) as down payment on 3 March 1995,37 it still persisted in negotiating with petitioner which culminated in
the execution of the Deed of Assignment of its receivables from Toledo Power Company on 28 June 1995.38 The
significant amount of time spent on the negotiation for the sale of the sludge pump underscores Impact Systems’
perseverance to get hold of the said equipment. There is, therefore, no doubt in our mind that respondent EDWIN’s
participation in the Deed of Assignment was "reasonably necessary" or was required in order for him to protect the
business of his principal. Had he not acted in the way he did, the business of his principal would have been
adversely affected and he would have violated his fiduciary relation with his principal.

We likewise take note of the fact that in this case, petitioner is seeking to recover both from respondents ERWIN,
the principal, and EDWIN, the agent. It is well to state here that Article 1897 of the New Civil Code upon which
petitioner anchors its claim against respondent EDWIN "does not hold that in case of excess of authority, both the
agent and the principal are liable to the other contracting party."39 To reiterate, the first part of Article 1897 declares
that the principal is liable in cases when the agent acted within the bounds of his authority. Under this, the agent is
completely absolved of any liability. The second part of the said provision presents the situations when the agent
himself becomes liable to a third party when he expressly binds himself or he exceeds the limits of his authority
without giving notice of his powers to the third person. However, it must be pointed out that in case of excess of
authority by the agent, like what petitioner claims exists here, the law does not say that a third person can recover
from both the principal and the agent.40

As we declare that respondent EDWIN acted within his authority as an agent, who did not acquire any right nor incur
any liability arising from the Deed of Assignment, it follows that he is not a real party in interest who should be
impleaded in this case. A real party in interest is one who "stands to be benefited or injured by the judgment in the
suit, or the party entitled to the avails of the suit."41 In this respect, we sustain his exclusion as a defendant in the suit
before the court a quo.

WHEREFORE, premises considered, the present petition is DENIED and the Decision dated 10 August 2004 and
Resolution dated 17 March 2005 of the Court of Appeals in CA-G.R. SP No. 71397, affirming the Order dated 29
January 2002 of the Regional Trial Court, Branch 8, Cebu City, is AFFIRMED.

Let the records of this case be remanded to the Regional Trial Court, Branch 8, Cebu City, for the continuation of
the proceedings against respondent Erwin Cuizon.

SO ORDERED.
SECOND DIVISION

G.R. No. 151319 November 22, 2004

MANILA MEMORIAL PARK CEMETERY, INC., petitioner,


vs.
PEDRO L. LINSANGAN, respondent.

DECISION

TINGA, J.:

For resolution in this case is a classic and interesting texbook question in the law on agency.

This is a petition for review assailing the Decision1 of the Court of Appeals dated 22 June 2001, and its
Resolution2dated 12 December 2001 in CA G.R. CV No. 49802 entitled "Pedro L. Linsangan v. Manila Memorial
Cemetery, Inc. et al.," finding Manila Memorial Park Cemetery, Inc. (MMPCI) jointly and severally liable with
Florencia C. Baluyot to respondent Atty. Pedro L. Linsangan.

The facts of the case are as follows:

Sometime in 1984, Florencia Baluyot offered Atty. Pedro L. Linsangan a lot called Garden State at the Holy Cross
Memorial Park owned by petitioner (MMPCI). According to Baluyot, a former owner of a memorial lot under Contract
No. 25012 was no longer interested in acquiring the lot and had opted to sell his rights subject to reimbursement of
the amounts he already paid. The contract was for P95,000.00. Baluyot reassured Atty. Linsangan that once
reimbursement is made to the former buyer, the contract would be transferred to him. Atty. Linsangan agreed and
gave Baluyot P35,295.00 representing the amount to be reimbursed to the original buyer and to complete the down
payment to MMPCI.3 Baluyot issued handwritten and typewritten receipts for these payments.4

Sometime in March 1985, Baluyot informed Atty. Linsangan that he would be issued Contract No. 28660, a new
contract covering the subject lot in the name of the latter instead of old Contract No. 25012. Atty. Linsangan
protested, but Baluyot assured him that he would still be paying the old price of P95,000.00 with P19,838.00
credited as full down payment leaving a balance of about P75,000.00.5

Subsequently, on 8 April 1985, Baluyot brought an Offer to Purchase Lot No. A11 (15), Block 83, Garden Estate I
denominated as Contract No. 28660 and the Official Receipt No. 118912 dated 6 April 1985 for the amount of
P19,838.00. Contract No. 28660 has a listed price of P132,250.00. Atty. Linsangan objected to the new contract
price, as the same was not the amount previously agreed upon. To convince Atty. Linsangan, Baluyot executed a
document6 confirming that while the contract price is P132,250.00, Atty. Linsangan would pay only the original price
of P95,000.00.

The document reads in part:

The monthly installment will start April 6, 1985; the amount of P1,800.00 and the difference will be issued as
discounted to conform to the previous price as previously agreed upon. --- P95,000.00

Prepared by:

(Signed)
(MRS.) FLORENCIA C. BALUYOT
Agency Manager
Holy Cross Memorial Park

4/18/85

Dear Atty. Linsangan:

This will confirm our agreement that while the offer to purchase under Contract No. 28660 states that the
total price of P132,250.00 your undertaking is to pay only the total sum of P95,000.00 under the old price.
Further the total sum of P19,838.00 already paid by you under O.R. # 118912 dated April 6, 1985 has been
credited in the total purchase price thereby leaving a balance of P75,162.00 on a monthly installment of
P1,800.00 including interests (sic) charges for a period of five (5) years.

(Signed)

FLORENCIA C. BALUYOT

By virtue of this letter, Atty. Linsangan signed Contract No. 28660 and accepted Official Receipt No. 118912. As
requested by Baluyot, Atty. Linsangan issued twelve (12) postdated checks of P1,800.00 each in favor of MMPCI.
The next year, or on 29 April 1986, Atty. Linsangan again issued twelve (12) postdated checks in favor of MMPCI.

On 25 May 1987, Baluyot verbally advised Atty. Linsangan that Contract No. 28660 was cancelled for reasons the
latter could not explain, and presented to him another proposal for the purchase of an equivalent property. He
refused the new proposal and insisted that Baluyot and MMPCI honor their undertaking.

For the alleged failure of MMPCI and Baluyot to conform to their agreement, Atty. Linsangan filed a Complaint7 for
Breach of Contract and Damages against the former.

Baluyot did not present any evidence. For its part, MMPCI alleged that Contract No. 28660 was cancelled
conformably with the terms of the contract8 because of non-payment of arrearages.9 MMPCI stated that Baluyot was
not an agent but an independent contractor, and as such was not authorized to represent MMPCI or to use its name
except as to the extent expressly stated in the Agency Manager Agreement.10 Moreover, MMPCI was not aware of
the arrangements entered into by Atty. Linsangan and Baluyot, as it in fact received a down payment and monthly
installments as indicated in the contract.11 Official receipts showing the application of payment were turned over to
Baluyot whom Atty. Linsangan had from the beginning allowed to receive the same in his behalf. Furthermore,
whatever misimpression that Atty. Linsangan may have had must have been rectified by the Account Updating
Arrangement signed by Atty. Linsangan which states that he "expressly admits that Contract No. 28660 'on account
of serious delinquency…is now due for cancellation under its terms and conditions.'''12

The trial court held MMPCI and Baluyot jointly and severally liable.13 It found that Baluyot was an agent of MMPCI
and that the latter was estopped from denying this agency, having received and enchased the checks issued by
Atty. Linsangan and given to it by Baluyot. While MMPCI insisted that Baluyot was authorized to receive only the
down payment, it allowed her to continue to receive postdated checks from Atty. Linsangan, which it in turn
consistently encashed.14

The dispositive portion of the decision reads:

WHEREFORE, judgment by preponderance of evidence is hereby rendered in favor of plaintiff declaring


Contract No. 28660 as valid and subsisting and ordering defendants to perform their undertakings thereof
which covers burial lot No. A11 (15), Block 83, Section Garden I, Holy Cross Memorial Park located at
Novaliches, Quezon City. All payments made by plaintiff to defendants should be credited for his accounts.
NO DAMAGES, NO ATTORNEY'S FEES but with costs against the defendants.

The cross claim of defendant Manila Memorial Cemetery Incorporated as against defendant Baluyot is
GRANTED up to the extent of the costs.

SO ORDERED.15

MMPCI appealed the trial court's decision to the Court of Appeals.16 It claimed that Atty. Linsangan is bound by the
written contract with MMPCI, the terms of which were clearly set forth therein and read, understood, and signed by
the former.17 It also alleged that Atty. Linsangan, a practicing lawyer for over thirteen (13) years at the time he
entered into the contract, is presumed to know his contractual obligations and is fully aware that he cannot belatedly
and unilaterally change the terms of the contract without the consent, much less the knowledge of the other
contracting party, which was MMPCI. And in this case, MMPCI did not agree to a change in the contract and in fact
implemented the same pursuant to its clear terms. In view thereof, because of Atty. Linsangan's delinquency,
MMPCI validly cancelled the contract.
MMPCI further alleged that it cannot be held jointly and solidarily liable with Baluyot as the latter exceeded the terms
of her agency, neither did MMPCI ratify Baluyot's acts. It added that it cannot be charged with making any
misrepresentation, nor of having allowed Baluyot to act as though she had full powers as the written contract
expressly stated the terms and conditions which Atty. Linsangan accepted and understood. In canceling the
contract, MMPCI merely enforced the terms and conditions imposed therein. 18

Imputing negligence on the part of Atty. Linsangan, MMPCI claimed that it was the former's obligation, as a party
knowingly dealing with an alleged agent, to determine the limitations of such agent's authority, particularly when
such alleged agent's actions were patently questionable. According to MMPCI, Atty. Linsangan did not even bother
to verify Baluyot's authority or ask copies of official receipts for his payments. 19

The Court of Appeals affirmed the decision of the trial court. It upheld the trial court's finding that Baluyot was an
agent of MMPCI at the time the disputed contract was entered into, having represented MMPCI's interest and acting
on its behalf in the dealings with clients and customers. Hence, MMPCI is considered estopped when it allowed
Baluyot to act and represent MMPCI even beyond her authority.20 The appellate court likewise found that the acts of
Baluyot bound MMPCI when the latter allowed the former to act for and in its behalf and stead. While Baluyot's
authority "may not have been expressly conferred upon her, the same may have been derived impliedly by habit or
custom, which may have been an accepted practice in the company for a long period of time."21 Thus, the Court of
Appeals noted, innocent third persons such as Atty. Linsangan should not be prejudiced where the principal failed to
adopt the needed measures to prevent misrepresentation. Furthermore, if an agent misrepresents to a purchaser
and the principal accepts the benefits of such misrepresentation, he cannot at the same time deny responsibility for
such misrepresentation.22 Finally, the Court of Appeals declared:

There being absolutely nothing on the record that would show that the court a quo overlooked, disregarded, or
misinterpreted facts of weight and significance, its factual findings and conclusions must be given great weight and
should not be disturbed by this Court on appeal.

WHEREFORE, in view of the foregoing, the appeal is hereby DENIED and the appealed decision in Civil
Case No. 88-1253 of the Regional Trial Court, National Capital Judicial Region, Branch 57 of Makati, is
hereby AFFIRMED in toto.

SO ORDERED.23

MMPCI filed its Motion for Reconsideration,24 but the same was denied for lack of merit.25

In the instant Petition for Review, MMPCI claims that the Court of Appeals seriously erred in disregarding the plain
terms of the written contract and Atty. Linsangan's failure to abide by the terms thereof, which justified its
cancellation. In addition, even assuming that Baluyot was an agent of MMPCI, she clearly exceeded her authority
and Atty. Linsangan knew or should have known about this considering his status as a long-practicing lawyer.
MMPCI likewise claims that the Court of Appeals erred in failing to consider that the facts and the applicable law do
not support a judgment against Baluyot only "up to the extent of costs."26

Atty. Linsangan argues that he did not violate the terms and conditions of the contract, and in fact faithfully
performed his contractual obligations and complied with them in good faith for at least two years.27 He claims that
contrary to MMPCI's position, his profession as a lawyer is immaterial to the validity of the subject contract and the
case at bar.28 According to him, MMPCI had practically admitted in its Petition that Baluyot was its agent, and thus,
the only issue left to be resolved is whether MMPCI allowed Baluyot to act as though she had full powers to be held
solidarily liable with the latter.29

We find for the petitioner MMPCI.

The jurisdiction of the Supreme Court in a petition for review under Rule 45 of the Rules of Court is limited to
reviewing only errors of law, not fact, unless the factual findings complained of are devoid of support by the
evidence on record or the assailed judgment is based on misapprehension of facts.30 In BPI Investment Corporation
v. D.G. Carreon Commercial Corporation,31 this Court ruled:

There are instances when the findings of fact of the trial court and/or Court of Appeals may be reviewed by
the Supreme Court, such as (1) when the conclusion is a finding grounded entirely on speculation, surmises
and conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) where there
is a grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the
findings of fact are conflicting; (6) when the Court of Appeals, in making its findings, went beyond the issues
of the case and the same is contrary to the admissions of both appellant and appellee; (7) when the findings
are contrary to those of the trial court; (8) when the findings of fact are conclusions without citation of
specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the
petitioners' main and reply briefs are not disputed by the respondents; and (10) the findings of fact of the
Court of Appeals are premised on the supposed absence of evidence and contradicted by the evidence on
record.32
In the case at bar, the Court of Appeals committed several errors in the apprehension of the facts of the case, as
well as made conclusions devoid of evidentiary support, hence we review its findings of fact.

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.33 Thus, the elements of agency are (i) consent, express
or implied, of the parties to establish the relationship; (ii) the object is the execution of a juridical act in relation to a
third person; (iii) the agent acts as a representative and not for himself; and (iv) the agent acts within the scope of
his authority.34

In an attempt to prove that Baluyot was not its agent, MMPCI pointed out that under its Agency Manager
Agreement; an agency manager such as Baluyot is considered an independent contractor and not an
agent.35However, in the same contract, Baluyot as agency manager was authorized to solicit and remit to MMPCI
offers to purchase interment spaces belonging to and sold by the latter.36 Notwithstanding the claim of MMPCI that
Baluyot was an independent contractor, the fact remains that she was authorized to solicit solely for and in behalf of
MMPCI. As properly found both by the trial court and the Court of Appeals, Baluyot was an agent of MMPCI, having
represented the interest of the latter, and having been allowed by MMPCI to represent it in her dealings with its
clients/prospective buyers.

Nevertheless, contrary to the findings of the Court of Appeals, MMPCI cannot be bound by the contract procured by
Atty. Linsangan and solicited by Baluyot.

Baluyot was authorized to solicit and remit to MMPCI offers to purchase interment spaces obtained on forms
provided by MMPCI. The terms of the offer to purchase, therefore, are contained in such forms and, when signed by
the buyer and an authorized officer of MMPCI, becomes binding on both parties.

The Offer to Purchase duly signed by Atty. Linsangan, and accepted and validated by MMPCI showed a total list
price of P132,250.00. Likewise, it was clearly stated therein that "Purchaser agrees that he has read or has had
read to him this agreement, that he understands its terms and conditions, and that there are no covenants,
conditions, warranties or representations other than those contained herein."37 By signing the Offer to Purchase, Atty.
Linsangan signified that he understood its contents. That he and Baluyot had an agreement different from that
contained in the Offer to Purchase is of no moment, and should not affect MMPCI, as it was obviously made outside
Baluyot's authority. To repeat, Baluyot's authority was limited only to soliciting purchasers. She had no authority to
alter the terms of the written contract provided by MMPCI. The document/letter "confirming" the agreement that Atty.
Linsangan would have to pay the old price was executed by Baluyot alone. Nowhere is there any indication that the
same came from MMPCI or any of its officers.

It is a settled rule that persons dealing with an agent are bound at their peril, if they would hold the principal liable, to
ascertain not only the fact of agency but also the nature and extent of authority, and in case either is controverted,
the burden of proof is upon them to establish it.38 The basis for agency is representation and a person dealing with
an agent is put upon inquiry and must discover upon his peril the authority of the agent. 39 If he 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.40

As noted by one author, the 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. 41 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.42

In the instant case, it has not been established that Atty. Linsangan even bothered to inquire whether Baluyot was
authorized to agree to terms contrary to those indicated in the written contract, much less bind MMPCI by her
commitment with respect to such agreements. Even if Baluyot was Atty. Linsangan's friend and known to be an
agent of MMPCI, her declarations and actions alone are not sufficient to establish the fact or extent of her
authority.43 Atty. Linsangan as a practicing lawyer for a relatively long period of time when he signed the contract
should have been put on guard when their agreement was not reflected in the contract. More importantly, Atty.
Linsangan should have been alerted by the fact that Baluyot failed to effect the transfer of rights earlier promised,
and was unable to make good her written commitment, nor convince MMPCI to assent thereto, as evidenced by
several attempts to induce him to enter into other contracts for a higher consideration. As properly pointed out by
MMPCI, as a lawyer, a greater degree of caution should be expected of Atty. Linsangan especially in dealings
involving legal documents. He did not even bother to ask for official receipts of his payments, nor inquire from
MMPCI directly to ascertain the real status of the contract, blindly relying on the representations of Baluyot. A lawyer
by profession, he knew what he was doing when he signed the written contract, knew the meaning and value of
every word or phrase used in the contract, and more importantly, knew the legal effects which said document
produced. He is bound to accept responsibility for his negligence.

The trial and appellate courts found MMPCI liable based on ratification and estoppel. For the trial court, MMPCI's
acts of accepting and encashing the checks issued by Atty. Linsangan as well as allowing Baluyot to receive checks
drawn in the name of MMPCI confirm and ratify the contract of agency. On the other hand, the Court of Appeals
faulted MMPCI in failing to adopt measures to prevent misrepresentation, and declared that in view of MMPCI's
acceptance of the benefits of Baluyot's misrepresentation, it can no longer deny responsibility therefor.

The 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. 1910. The principal must comply with all the obligations that 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.

Thus, the acts of an agent beyond the scope of his authority do not bind the principal, unless he ratifies them,
expressly or impliedly. Only the principal can ratify; the agent cannot ratify his own unauthorized acts. Moreover, the
principal must have knowledge of the acts he is to ratify.44

Ratification in agency is the adoption or confirmation by one person of an act performed on his behalf by another
without authority. The substance of the doctrine is confirmation after conduct, amounting to a substitute for a prior
authority. Ordinarily, the principal must have full knowledge at the time of ratification of all the material facts and
circumstances relating to the unauthorized act of the person who assumed to act as agent. Thus, if material facts
were suppressed or unknown, there can be no valid ratification and this regardless of the purpose or lack thereof in
concealing such facts and regardless of the parties between whom the question of ratification may
arise.45Nevertheless, 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.46 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.47

No ratification can be implied in the instant case.

A perusal of Baluyot's Answer48 reveals that the real arrangement between her and Atty. Linsangan was for the latter
to pay a monthly installment of P1,800.00 whereas Baluyot was to shoulder the counterpart amount of P1,455.00 to
meet the P3,255.00 monthly installments as indicated in the contract. Thus, every time an installment falls due,
payment was to be made through a check from Atty. Linsangan for P1,800.00 and a cash component of P1,455.00
from Baluyot.49 However, it appears that while Atty. Linsangan issued the post-dated checks, Baluyot failed to come
up with her part of the bargain. This was supported by Baluyot's statements in her letter50 to Mr. Clyde Williams, Jr.,
Sales Manager of MMPCI, two days after she received the copy of the Complaint. In the letter, she admitted that
she was remiss in her duties when she consented to Atty. Linsangan's proposal that he will pay the old price while
the difference will be shouldered by her. She likewise admitted that the contract suffered arrearages because while
Atty. Linsangan issued the agreed checks, she was unable to give her share of P1,455.00 due to her own financial
difficulties. Baluyot even asked for compassion from MMPCI for the error she committed.

Atty. Linsangan failed to show that MMPCI had knowledge of the arrangement. As far as MMPCI is concerned, the
contract price was P132,250.00, as stated in the Offer to Purchase signed by Atty. Linsangan and MMPCI's
authorized officer. The down payment of P19,838.00 given by Atty. Linsangan was in accordance with the contract
as well. Payments of P3,235.00 for at least two installments were likewise in accord with the contract, albeit made
through a check and partly in cash. In view of Baluyot's failure to give her share in the payment, MMPCI received
only P1,800.00 checks, which were clearly insufficient payment. In fact, Atty. Linsangan would have incurred
arrearages that could have caused the earlier cancellation of the contract, if not for MMPCI's application of some of
the checks to his account. However, the checks alone were not sufficient to cover his obligations.

If MMPCI was aware of the arrangement, it would have refused the latter's check payments for being insufficient. It
would not have applied to his account the P1,800.00 checks. Moreover, the fact that Baluyot had to practically
explain to MMPCI's Sales Manager the details of her "arrangement" with Atty. Linsangan and admit to having made
an error in entering such arrangement confirm that MMCPI had no knowledge of the said agreement. It was only
when Baluyot filed her Answer that she claimed that MMCPI was fully aware of the agreement.

Neither is there estoppel in the instant case. The essential elements of estoppel are (i) conduct of a party amounting
to false representation or concealment of material facts or at least calculated to convey the impression that the facts
are otherwise than, and inconsistent with, those which the party subsequently attempts to assert; (ii) intent, or at
least expectation, that this conduct shall be acted upon by, or at least influence, the other party; and (iii) knowledge,
actual or constructive, of the real facts.51
While there is no more question as to the agency relationship between Baluyot and MMPCI, there is no indication
that MMPCI let the public, or specifically, Atty. Linsangan to believe that Baluyot had the authority to alter the
standard contracts of the company. Neither is there any showing that prior to signing Contract No. 28660, MMPCI
had any knowledge of Baluyot's commitment to Atty. Linsangan. One who claims the benefit of an estoppel on the
ground that he has been misled by the representations of another must not have been misled through his own want
of reasonable care and circumspection.52 Even assuming that Atty. Linsangan was misled by MMPCI's actuations, he
still cannot invoke the principle of estoppel, as he was clearly negligent in his dealings with Baluyot, and could have
easily determined, had he only been cautious and prudent, whether said agent was clothed with the authority to
change the terms of the principal's written contract. Estoppel must be intentional and unequivocal, for when
misapplied, it can easily become a most convenient and effective means of injustice. 53 In view of the lack of sufficient
proof showing estoppel, we refuse to hold MMPCI liable on this score.

Likewise, this Court does not find favor in the Court of Appeals' findings that "the authority of defendant Baluyot may
not have been expressly conferred upon her; however, the same may have been derived impliedly by habit or
custom which may have been an accepted practice in their company in a long period of time." A perusal of the
records of the case fails to show any indication that there was such a habit or custom in MMPCI that allows its
agents to enter into agreements for lower prices of its interment spaces, nor to assume a portion of the purchase
price of the interment spaces sold at such lower price. No evidence was ever presented to this effect.

As the Court sees it, there are two obligations in the instant case. One is the Contract No. 28660 between MMPCI
and by Atty. Linsangan for the purchase of an interment space in the former's cemetery. The other is the agreement
between Baluyot and Atty. Linsangan for the former to shoulder the amount P1,455.00, or the difference between
P95,000.00, the original price, and P132,250.00, the actual contract price.

To repeat, the acts of the agent beyond the scope of his authority do not bind the principal unless the latter ratifies
the same. It also bears emphasis that when the third person knows that the agent was acting beyond his power or
authority, the principal cannot be held liable for the acts of the agent. If the said third person was aware of such
limits of authority, he is to blame and is not entitled to recover damages from the agent, unless the latter undertook
to secure the principal's ratification.54

This Court finds that Contract No. 28660 was validly entered into both by MMPCI and Atty. Linsangan. By affixing
his signature in the contract, Atty. Linsangan assented to the terms and conditions thereof. When Atty. Linsangan
incurred delinquencies in payment, MMCPI merely enforced its rights under the said contract by canceling the
same.

Being aware of the limits of Baluyot's authority, Atty. Linsangan cannot insist on what he claims to be the terms of
Contract No. 28660. The agreement, insofar as the P95,000.00 contract price is concerned, is void and cannot be
enforced as against MMPCI. Neither can he hold Baluyot liable for damages under the same contract, since there is
no evidence showing that Baluyot undertook to secure MMPCI's ratification. At best, the "agreement" between
Baluyot and Atty. Linsangan bound only the two of them. As far as MMPCI is concerned, it bound itself to sell its
interment space to Atty. Linsangan for P132,250.00 under Contract No. 28660, and had in fact received several
payments in accordance with the same contract. If the contract was cancelled due to arrearages, Atty. Linsangan's
recourse should only be against Baluyot who personally undertook to pay the difference between the true contract
price of P132,250.00 and the original proposed price of P95,000.00. To surmise that Baluyot was acting on behalf of
MMPCI when she promised to shoulder the said difference would be to conclude that MMPCI undertook to pay itself
the difference, a conclusion that is very illogical, if not antithetical to its business interests.

However, this does not preclude Atty. Linsangan from instituting a separate action to recover damages from
Baluyot, not as an agent of MMPCI, but in view of the latter's breach of their separate agreement. To review,
Baluyot obligated herself to pay P1,455.00 in addition to Atty. Linsangan's P1,800.00 to complete the monthly
installment payment under the contract, which, by her own admission, she was unable to do due to personal
financial difficulties. It is undisputed that Atty. Linsangan issued the P1,800.00 as agreed upon, and were it not for
Baluyot's failure to provide the balance, Contract No. 28660 would not have been cancelled. Thus, Atty. Linsangan
has a cause of action against Baluyot, which he can pursue in another case.

WHEREFORE, the instant petition is GRANTED. The Decision of the Court of Appeals dated 22 June 2001 and its
Resolution dated 12 December 2001 in CA- G.R. CV No. 49802, as well as the Decision in Civil Case No. 88-1253
of the Regional Trial Court, Makati City Branch 57, are hereby REVERSED and SET ASIDE. The Complaint in Civil
Case No. 88-1253 is DISMISSED for lack of cause of action. No pronouncement as to costs.

SO ORDERED.
Republic of the Philippines
SUPREME COURT

SECOND DIVISION

G.R. No. 158585 December 13, 2005

Amon trading corporation and juliana marketing, Petitioners,


vs.
HON. COURT OF APPEALS and TRI-REALTY DEVELOPMENT AND CONSTRUCTION
CORPORATION,Respondents.

DECISION

CHICO-NAZARIO, J.:

This is an appeal by certiorari from the Decision1 dated 28 November 2002 of the Court of Appeals in CA-G.R. CV
No. 60031, reversing the Decision of the Regional Trial Court of Quezon City, Branch 104, and holding petitioners
Amon Trading Corporation and Juliana Marketing to be solidarily liable with Lines & Spaces Interiors Center (Lines
& Spaces) in refunding private respondent Tri-Realty Development and Construction Corporation (Tri-Realty) the
amount corresponding to the value of undelivered bags of cement.

The undisputed facts:

Private respondent Tri-Realty is a developer and contractor with projects in Bulacan and Quezon City. Sometime in
February 1992, private respondent had difficulty in purchasing cement needed for its projects. Lines & Spaces,
represented by Eleanor Bahia Sanchez, informed private respondent that it could obtain cement to its satisfaction
from petitioners, Amon Trading Corporation and its sister company, Juliana Marketing. On the strength of such
representation, private respondent proceeded to order from Sanchez Six Thousand Fifty (6,050) bags of cement
from petitioner Amon Trading Corporation, and from Juliana Marketing, Six Thousand (6,000) bags at ₱98.00/bag.

Private respondent, through Mrs. Sanchez of Lines & Spaces, paid in advance the amount of ₱592,900.00 through
Solidbank Manager’s Check No. 0011565 payable to Amon Trading Corporation, and the amount of ₱588,000.00
payable to Juliana Marketing, through Solidbank Manager’s Check No. 0011566. A certain "Weng Chua" signed the
check vouchers for Lines & Spaces while Mrs. Sanchez issued receipts for the two manager’s checks. Private
respondent likewise paid to Lines & Spaces an advance fee for the 12,050 cement bags at the rate of ₱7.00/bag, or
a total of ₱84,350.00, in consideration of the facilitation of the orders and certainty of delivery of the same to the
private respondent. Solidbank Manager’s Check Nos. 0011565 and 0011566 were paid by Sanchez to petitioners.

There were deliveries to private respondent from Amon Trading Corporation and Juliana Marketing of 3,850 bags
and 3,000 bags, respectively, during the period from April to June 1992. However, the balance of 2,200 bags from
Amon Trading Corporation and 3,000 bags from Juliana Marketing, or a total of 5,200 bags, was not delivered.
Private respondent, thus, sent petitioners written demands but in reply, petitioners stated that they have already
refunded the amount of undelivered bags of cement to Lines and Spaces per written instructions of Eleanor
Sanchez.

Left high and dry, with news reaching it that Eleanor Sanchez had already fled abroad, private respondent filed this
case for sum of money against petitioners and Lines & Spaces.

Petitioners plead in defense lack of right or cause of action, alleging that private respondent had no privity of
contract with them as it was Lines & Spaces/Tri-Realty, through Mrs. Sanchez, that ordered or purchased several
bags of cement and paid the price thereof without informing them of any special arrangement nor disclosing to them
that Lines & Spaces and respondent corporation are distinct and separate entities. They added that there were
purchases or orders made by Lines & Spaces/Tri-Realty which they were about to deliver, but were cancelled by
Mrs. Sanchez and the consideration of the cancelled purchases or orders was later reimbursed to Lines & Spaces.
The refund was in the form of a check payable to Lines & Spaces.

Lines & Spaces denied in its Answer that it is represented by Eleanor B. Sanchez and pleads in defense lack of
cause of action and in the alternative, it raised the defense that it was only an intermediary between the private
respondent and petitioners.2 Soon after, though, counsel for Lines & Spaces moved to withdraw from the case for
the reason that its client was beyond contact.

On 29 January 1998, the Regional Trial Court of Quezon City, Branch 104, found Lines & Spaces solely liable to
private respondent and absolved petitioners of any liability. The dispositive portion of the trial court’s Decision reads:
Wherefore, judgment is hereby rendered ordering defendant Lines and Spaces Interiors Center as follows: to pay
plaintiff on the complaint the amount of P47,950.00 as refund of the fee for the undelivered 5,200 bags of cement at
the rate of P7.00 per bag; the amount of P509,600.00 for the refund of the price of the 5,200 undelivered bags of
cement at P98.00 per bag; the amount of P2,000,000.00 for compensatory damages; as well as the amount of
P639,387.50 as attorney’s fees; and to pay Amon Trading and Juliana Marketing, Inc. on the crossclaim the sum of
P200,000.00 as attorney’s fees.3

Private Respondent Tri-Realty partially appealed from the trial court’s decision absolving Amon Trading Corporation
and Juliana Marketing of any liability to Tri-Realty. In the presently assailed Decision, the Court of Appeals reversed
the decision of the trial court and held petitioners Amon Trading Corporation and Juliana Marketing to be jointly and
severally liable with Lines & Spaces for the undelivered bags of cement. The Court of Appeals disposed-

WHEREFORE, premises considered, the decision of the court a quo is hereby REVERSED AND SET ASIDE, and
another one is entered ordering the following:

Defendant-appellee Amon Trading Corporation is held liable jointly and severally with defendant-appellee Lines and
Spaces Interiors Center in the amount of P215,600.00 for the refund of the price of 2,200 undelivered bags of
cement.

Defendant-appellee Juliana Marketing is held liable jointly and severally with defendant-appellee Lines and Spaces
Interiors Center in the amount of P294,000.00 for the refund of the price of 3,000 undelivered bags of cement.

The defendant-appellee Lines and Spaces Interiors Center is held solely in the amount of P47,950.00 as refund of
the fee for the 5,200 undelivered bags of cement to the plaintiff-appellant Tri-Realty Development and Construction
Corporation.

The awards of compensatory damages and attorney’s fees are DELETED.

The cross claim of defendants-appellees Amon Trading Corporation and Juliana Marketing is DISMISSED for lack
of merit.

No pronouncement as to costs.4

Pained by the ruling, petitioners elevated the case to this Court via the present petition for review to challenge the
Decision and Resolution of the Court of Appeals on the following issues:

I. WHETHER OR NOT THERE WAS A CONTRACT OF AGENCY BETWEEN LINES AND SPACES INTERIOR
CENTER AND RESPONDENT;

II. WHETHER OR NOT PETITIONERS AND RESPONDENT HAS PRIVITY OF CONTRACT. 5

At the focus of scrutiny is the issue of whether or not the Court of Appeals committed reversible error in ruling that
petitioners are solidarily liable with Lines & Spaces. The key to unlocking this issue is to determine whether or not
Lines & Spaces is the private respondent’s agent and whether or not there is privity of contract between petitioners
and private respondent.

We shall consider these issues concurrently as they are interrelated.

Petitioners, in their brief, zealously make a case that there was no contract of agency between Lines & Spaces and
private respondent.6 Petitioners strongly assert that they did not have a hint that Lines & Spaces and Tri-Realty are
two different and distinct entities inasmuch as Eleanor Sanchez whom they have dealt with just represented herself
to be from Lines & Spaces/Tri-Realty when she placed her order for the delivery of the bags of cement. Hence, no
privity of contract can be said to exist between petitioners and private respondent. 7

Private respondent, on the other hand, goes over the top in arguing that contrary to their claim of innocence,
petitioners had knowledge that Lines & Spaces, as represented by Eleanor Sanchez, was a separate and distinct
entity from tri-realty.8 Then, too, private respondent stirs up support for its contention that contrary to petitioners'
claim, there was privity of contract between private respondent and petitioners. 9

Primarily, there was no written contract entered into between petitioners and private respondent for the delivery of
the bags of cement. As gleaned from the records, and as private respondent itself admitted in its Complaint, private
respondent agreed with Eleanor Sanchez of Lines & Spaces for the latter to source the cement needs of the former
in consideration of ₱7.00 per bag of cement. It is worthy to note that the payment in manager’s checks was made to
Eleanor Sanchez of Lines & Spaces and was not directly paid to petitioners. While the manager’s check issued by
respondent company was eventually paid to petitioners for the delivery of the bags of cement, there is obviously
nothing from the face of said manager’s check to hint that private respondent was the one making the payments.
There was likewise no intimation from Sanchez that the purchase order placed by her was for private respondent’s
benefit. The meeting of minds, therefore, was between private respondent and Eleanor Sanchez of Lines & Spaces.
This contract is distinct and separate from the contract of sale between petitioners and Eleanor Sanchez who
represented herself to be from Lines & Spaces/Tri-Realty, which, per her representation, was a single account or
entity.

The records bear out, too, Annex "A" showing a check voucher payable to Amon Trading Corporation for the 6,050
bags of cement received by a certain "Weng Chua" for Mrs. Eleanor Sanchez of Lines & Spaces, and Annex "B"
which is a check voucher bearing the name of Juliana Marketing as payee, but was received again by said "Weng
Chua." Nowhere from the face of the check vouchers is it shown that petitioners or any of their authorized
representatives received the payments from respondent company.

Also on record are the receipts issued by Lines & Spaces, signed by Eleanor Bahia Sanchez, covering the said
manager’s checks. As Engr. Guido Ganhinhin of respondent Tri-Realty testified, it was Lines & Spaces, not
petitioners, which issued to them a receipt for the two (2) manager’s checks. Thus-

Q: And what is your proof that Amon and Juliana were paid of the purchases through manager’s checks?

A: Lines & Spaces who represented Amon Trading and Juliana Marketing issued us receipts for the two (2)
manager’s checks we paid to Amon Trading and Juliana Marketing Corporation.

Q: I am showing to you check no. 074 issued by Lines & Spaces Interiors Center, what relation has this check to
that check you mentioned earlier?

A: Official Receipt No. 074 issued by Lines & Spaces Interiors Center was for the P592,900.00 we paid to Amon
Trading Corporation for 6,050 bags of cement.

Q: Now there appears a signature in that receipt above the printed words authorized signature, whose signature is
that?

A: The signature of Mrs. Eleanor Bahia Sanchez, the representative of Lines and Spaces.

Q: Why do you know that that is her signature?

A: She is quite familiar with me and I saw her affix her signature upon issuance of the receipt. 10 (Emphasis supplied.)

Without doubt, no vinculum could be said to exist between petitioners and private respondent.

There is likewise nothing meaty about the assertion of private respondent that inasmuch as the delivery receipts as
well as the purchase order were for the account of Lines & Spaces/Tri-Realty, then petitioners should have been
placed on guard that it was private respondent which is the principal of Sanchez. In China Banking Corp. v.
Members of the Board of Trustees, Home Development Mutual Fund 11 and the later case of Romulo, Mabanta,
Buenaventura, Sayoc and De los Angeles v. Home Development Mutual Fund,12 the term "and/or" was held to mean
that effect shall be given to both the conjunctive "and" and the disjunctive "or"; or that one word or the other may be
taken accordingly as one or the other will best effectuate the intended purpose. It was accordingly ordinarily held
that in using the term "and/or" the word "and" and the word "or" are to be used interchangeably.

By analogy, the words "Lines & Spaces/Tri-Realty" mean that effect shall be given to both Lines & Spaces and Tri-
Realty or that Lines & Spaces and Tri-Realty may be used interchangeably. Hence, petitioners were not remiss
when they believed Eleanor Sanchez’s representation that "Lines & Spaces/Tri-Realty" refers to just one entity.
There was, therefore, no error attributable to petitioners when they refunded the value of the undelivered bags of
cement to Lines & Spaces only.

There is likewise a dearth of evidence to show that the case at bar is an open-and-shut case of agency between
private respondent and Lines & Spaces. Neither Eleanor Sanchez nor Lines & Spaces was an agent for private
respondent, but rather a supplier for the latter’s cement needs. The Civil Code defines a contract of agency as
follows:

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

In a bevy of cases such as the avuncular case of Victorias Milling Co., Inc. v. Court of Appeals,13 the Court decreed
from Article 1868 that the basis of agency is representation.

. . . On the part of the principal, there must be an actual intention to appoint or an intention naturally inferable from
his words or actions and on the part of the agent, there must be an intention to accept the appointment and act on it,
and in the absence of such intent, there is generally no agency. One factor which most clearly distinguishes agency
from other legal concepts is control; one person - the agent - agrees to act under the control or direction of another -
the principal. Indeed, the very word "agency" has come to connote control by the principal. The control factor, more
than any other, has caused the courts to put contracts between principal and agent in a separate category.

Here, the intention of private respondent, as the Executive Officer of respondent corporation testified on, was merely
for Lines & Spaces, through Eleanor Sanchez, to supply them with the needed bags of cement.

Q: Do you know the defendant Lines & Spaces in this case?

A: Yes, sir.

Q: How come you know this defendant?

A: Lines & Spaces represented by Eleanor Bahia Sanchez offered to supply us cement when there was scarcity of
cement experienced in our projects.14 (Emphasis supplied)

We cannot go along the Court of Appeals’ disquisition that Amon Trading Corporation and Juliana Marketing should
have required a special power of attorney form when they refunded Eleanor B. Sanchez the cost of the undelivered
bags of cement. All the quibbling about whether Lines & Spaces acted as agent of private respondent is inane
because as illustrated earlier, petitioners took orders from Eleanor Sanchez who, after all, was the one who paid
them the manager’s checks for the purchase of cement. Sanchez represented herself to be from Lines &
Spaces/Tri-Realty, purportedly a single entity. Inasmuch as they have never directly dealt with private respondent
and there is no paper trail on record to guide them that the private respondent, in fact, is the beneficiary, petitioners
had no reason to doubt the request of Eleanor Sanchez later on to refund the value of the undelivered bags of
cement to Lines & Spaces. Moreover, the check refund was payable to Lines & Spaces, not to Sanchez, so there
was indeed no cause to suspect the scheme.

The fact that the deliveries were made at the construction sites of private respondent does not by itself raise
suspicion that petitioners were delivering for private respondent. There was no sufficient showing that petitioners
knew that the delivery sites were that of private respondent and for another thing, the deliveries were made by
petitioners’ men who have no business nosing around their client’s affairs.

Parenthetically, Eleanor Sanchez has absconded to the United States of America and the story of what happened to
the check refund may be forever locked with her. Lines & Spaces, in its Answer to the Complaint, washed its hands
of the apparent ruse perpetuated by Sanchez, but argues that if at all, it was merely an intermediary between
petitioners and private respondent. With no other way out, Lines & Spaces was a no-show at the trial proceedings
so that eventually, its counsel had to withdraw his appearance because of his client’s vanishing act. Left with an
empty bag, so to speak, private respondent now puts the blame on petitioners. But this Court finds plausible the
stance of petitioners that they had no inkling of the deception that was forthcoming. Indeed, without any contract or
any hard evidence to show any privity of contract between it and petitioners, private respondent’s claim against
petitioners lacks legal foothold.

Considering the vagaries of the case, private respondent brought the wrong upon itself. As adeptly surmised by the
trial court, between petitioners and private respondent, it is the latter who had made possible the wrong that was
perpetuated by Eleanor Sanchez against it so it must bear its own loss. It is in this sense that we must apply the
equitable maxim that "as between two innocent parties, the one who made it possible for the wrong to be done
should be the one to bear the resulting loss."15 First, private respondent was the one who had reposed too much trust
on Eleanor Sanchez for the latter to source its cement needs. Second, it failed to employ safety nets to steer clear of
the rip-off. For such huge sums of money involved in this case, it is surprising that a corporation such as private
respondent would pay its construction materials in advance instead of in credit thus opening a window of
opportunity for Eleanor Sanchez or Lines & Spaces to pocket the remaining balance of the amount paid
corresponding to the undelivered materials. Private respondent likewise paid in advance the commission of Eleanor
Sanchez for the materials that have yet to be delivered so it really had no means of control over her. Finally, there is
no paper trail linking private respondent to petitioners thereby leaving the latter clueless that private respondent was
their true client. Private respondent should have, at the very least, required petitioners to sign the check vouchers or
to issue receipts for the advance payments so that it could have a hold on petitioners. In this case, it was the
representative of Lines & Spaces who signed the check vouchers. For its failure to establish any of these deterrent
measures, private respondent incurred the risk of not being able to recoup the value of the materials it had paid
good money for.

WHEREFORE, the present petition is hereby GRANTED. Accordingly, the Decision and the Resolution dated 28
November 2002 and 10 June 2003, of the Court of Appeals in CA-G.R CV No. 60031, are
hereby REVERSED and SET ASIDE. The Decision dated 29 January 1998 of the Regional Trial Court of Quezon
City, Branch 104, in Civil Case Q-92-14235 is hereby REINSTATED. No costs.

SO ORDERED.
SECOND DIVISION

G.R. No. 118375 October 3, 2003

CELESTINA T. NAGUIAT, petitioner,


vs.
COURT OF APPEALS and AURORA QUEAÑO, respondents.

DECISION

TINGA, J.:

Before us is a Petition for Review on Certiorari under Rule 45, assailing the decision of the Sixteenth Division of the
respondent Court of Appeals promulgated on 21 December 19941 , which affirmed in toto the decision handed down
by the Regional Trial Court (RTC) of Pasay City.2

The case arose when on 11 August 1981, private respondent Aurora Queaño (Queaño) filed a complaint before the
Pasay City RTC for cancellation of a Real Estate Mortgage she had entered into with petitioner Celestina Naguiat
(Naguiat). The RTC rendered a decision, declaring the questioned Real Estate Mortgage void, which Naguiat
appealed to the Court of Appeals. After the Court of Appeals upheld the RTC decision, Naguiat instituted the
present petition.
1ª vvphi1. nét

The operative facts follow:

Queaño applied with Naguiat for a loan in the amount of Two Hundred Thousand Pesos (₱200,000.00), which
Naguiat granted. On 11 August 1980, Naguiat indorsed to Queaño Associated Bank Check No. 090990 (dated 11
August 1980) for the amount of Ninety Five Thousand Pesos (₱95,000.00), which was earlier issued to Naguiat by
the Corporate Resources Financing Corporation. She also issued her own Filmanbank Check No. 065314, to the
order of Queaño, also dated 11 August 1980 and for the amount of Ninety Five Thousand Pesos (₱95,000.00). The
proceeds of these checks were to constitute the loan granted by Naguiat to Queaño. 3

To secure the loan, Queaño executed a Deed of Real Estate Mortgage dated 11 August 1980 in favor of Naguiat,
and surrendered to the latter the owner’s duplicates of the titles covering the mortgaged properties. 4 On the same
day, the mortgage deed was notarized, and Queaño issued to Naguiat a promissory note for the amount of TWO
HUNDRED THOUSAND PESOS (₱200,000.00), with interest at 12% per annum, payable on 11 September
1980.5Queaño also issued a Security Bank and Trust Company check, postdated 11 September 1980, for the
amount of TWO HUNDRED THOUSAND PESOS (₱200,000.00) and payable to the order of Naguiat.

Upon presentment on its maturity date, the Security Bank check was dishonored for insufficiency of funds. On the
following day, 12 September 1980, Queaño requested Security Bank to stop payment of her postdated check, but
the bank rejected the request pursuant to its policy not to honor such requests if the check is drawn against
insufficient funds.6

On 16 October 1980, Queaño received a letter from Naguiat’s lawyer, demanding settlement of the loan. Shortly
thereafter, Queaño and one Ruby Ruebenfeldt (Ruebenfeldt) met with Naguiat. At the meeting, Queaño told Naguiat
that she did not receive the proceeds of the loan, adding that the checks were retained by Ruebenfeldt, who
purportedly was Naguiat’s agent.7

Naguiat applied for the extrajudicial foreclosure of the mortgage with the Sheriff of Rizal Province, who then
scheduled the foreclosure sale on 14 August 1981. Three days before the scheduled sale, Queaño filed the case
before the Pasay City RTC,8 seeking the annulment of the mortgage deed. The trial court eventually stopped the
auction sale.9

On 8 March 1991, the RTC rendered judgment, declaring the Deed of Real Estate Mortgage null and void, and
ordering Naguiat to return to Queaño the owner’s duplicates of her titles to the mortgaged lots. 10 Naguiat appealed
the decision before the Court of Appeals, making no less than eleven assignments of error. The Court of Appeals
promulgated the decision now assailed before us that affirmed in toto the RTC decision. Hence, the present petition.
Naguiat questions the findings of facts made by the Court of Appeals, especially on the issue of whether Queaño
had actually received the loan proceeds which were supposed to be covered by the two checks Naguiat had issued
or indorsed. Naguiat claims that being a notarial instrument or public document, the mortgage deed enjoys the
presumption that the recitals therein are true. Naguiat also questions the admissibility of various representations and
pronouncements of Ruebenfeldt, invoking the rule on the non-binding effect of the admissions of third persons.11

The resolution of the issues presented before this Court by Naguiat involves the determination of facts, a function
which this Court does not exercise in an appeal by certiorari. Under Rule 45 which governs appeal by certiorari, only
questions of law may be raised12 as the Supreme Court is not a trier of facts.13 The resolution of factual issues is the
function of lower courts, whose findings on these matters are received with respect and are in fact generally binding
on the Supreme Court.14 A question of law which the Court may pass upon must not involve an examination of the
probative value of the evidence presented by the litigants.15 There is a question of law in a given case when the
doubt or difference arises as to what the law is on a certain state of facts; there is a question of fact when the doubt
or difference arises as to the truth or the falsehood of alleged facts.16

Surely, there are established exceptions to the rule on the conclusiveness of the findings of facts of the lower
courts.17 But Naguiat’s case does not fall under any of the exceptions. In any event, both the decisions of the
appellate and trial courts are supported by the evidence on record and the applicable laws.

Against the common finding of the courts below, Naguiat vigorously insists that Queaño received the loan proceeds.
Capitalizing on the status of the mortgage deed as a public document, she cites the rule that a public document
enjoys the presumption of validity and truthfulness of its contents. The Court of Appeals, however, is correct in ruling
that the presumption of truthfulness of the recitals in a public document was defeated by the clear and convincing
evidence in this case that pointed to the absence of consideration.18 This Court has held that the presumption of
truthfulness engendered by notarized documents is rebuttable, yielding as it does to clear and convincing evidence
to the contrary, as in this case.19

On the other hand, absolutely no evidence was submitted by Naguiat that the checks she issued or endorsed were
actually encashed or deposited. The mere issuance of the checks did not result in the perfection of the contract of
loan. For the Civil Code provides that the delivery of bills of exchange and mercantile documents such as checks
shall produce the effect of payment only when they have been cashed.20 It is only after the checks have produced the
effect of payment that the contract of loan may be deemed perfected. Art. 1934 of the Civil Code provides:

"An accepted promise to deliver something by way of commodatum or simple loan is binding upon the parties, but
the commodatum or simple loan itself shall not be perfected until the delivery of the object of the contract."

A loan contract is a real contract, not consensual, and, as such, is perfected only upon the delivery of the object of
the contract.21 In this case, the objects of the contract are the loan proceeds which Queaño would enjoy only upon
the encashment of the checks signed or indorsed by Naguiat. If indeed the checks were encashed or deposited,
Naguiat would have certainly presented the corresponding documentary evidence, such as the returned checks and
the pertinent bank records. Since Naguiat presented no such proof, it follows that the checks were not encashed or
credited to Queaño’s account. 1awphi1. nét

Naguiat questions the admissibility of the various written representations made by Ruebenfeldt on the ground that
they could not bind her following the res inter alia acta alteri nocere non debet rule. The Court of Appeals rejected
the argument, holding that since Ruebenfeldt was an authorized representative or agent of Naguiat the situation falls
under a recognized exception to the rule.22 Still, Naguiat insists that Ruebenfeldt was not her agent.

Suffice to say, however, the existence of an agency relationship between Naguiat and Ruebenfeldt is supported by
ample evidence. As correctly pointed out by the Court of Appeals, Ruebenfeldt was not a stranger or an
unauthorized person. Naguiat instructed Ruebenfeldt to withhold from Queaño the checks she issued or indorsed to
Queaño, pending delivery by the latter of additional collateral. Ruebenfeldt served as agent of Naguiat on the loan
application of Queaño’s friend, Marilou Farralese, and it was in connection with that transaction that Queaño came
to know Naguiat.23 It was also Ruebenfeldt who accompanied Queaño in her meeting with Naguiat and on that
occasion, on her own and without Queaño asking for it, Reubenfeldt actually drew a check for the sum of
₱220,000.00 payable to Naguiat, to cover for Queaño’s alleged liability to Naguiat under the loan agreement. 24

The Court of Appeals recognized the existence of an "agency by estoppel 25 citing Article 1873 of the Civil
Code.26Apparently, it considered that at the very least, as a consequence of the interaction between Naguiat and
Ruebenfeldt, Queaño got the impression that Ruebenfeldt was the agent of Naguiat, but Naguiat did nothing to
correct Queaño’s impression. In that situation, the rule is clear. One who clothes another with apparent authority as
his agent, and holds him out to the public as such, cannot be permitted to deny the authority of such person to act
as his agent, to the prejudice of innocent third parties dealing with such person in good faith, and in the honest belief
that he is what he appears to be.27 The Court of Appeals is correct in invoking the said rule on agency by estoppel. 1awphi1. nét

More fundamentally, whatever was the true relationship between Naguiat and Ruebenfeldt is irrelevant in the face of
the fact that the checks issued or indorsed to Queaño were never encashed or deposited to her account of Naguiat.
All told, we find no compelling reason to disturb the finding of the courts a quo that the lender did not remit and the
borrower did not receive the proceeds of the loan. That being the case, it follows that the mortgage which is
supposed to secure the loan is null and void. The consideration of the mortgage contract is the same as that of the
principal contract from which it receives life, and without which it cannot exist as an independent contract.28 A
mortgage contract being a mere accessory contract, its validity would depend on the validity of the loan secured by
it.29

WHEREFORE, the petition is denied and the assailed decision is affirmed. Costs against petitioner.

SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 102737 August 21, 1996

FRANCISCO A. VELOSO, petitioner,


vs.
COURT OF APPEALS, AGLALOMA B. ESCARIO, assisted by her husband GREGORIO L. ESCARIO, the
REGISTER OF DEEDS FOR THE CITY OF MANILA, respondents.

TORRES, JR., J.:p

This petition for review assails the decision of the Court of Appeals, dated July 29, 1991, the dispositive portion of which reads:

WHEREFORE, the decision appealed from is hereby AFFIRMED IN TOTO. Costs against
appellant.1

The following are the antecedent facts:

Petitioner Francisco Veloso was the owner of a parcel of land situated in the district of Tondo, Manila, with
an area of one hundred seventy seven (177) square meters and covered by Transfer Certificate of Title No.
49138 issued by the Registry of Deeds of Manila.2 The title was registered in the name of Francisco A.
Veloso, single,3 on October 4, 1957.4 The said title was subsequently cancelled and a new one, Transfer
Certificate of Title No. 180685, was issued in the name of Aglaloma B. Escario, married to Gregorio L.
Escario, on May 24, 1988.5

On August 24, 1988, petitioner Veloso filed an action for annulment of documents, reconveyance of property
with damages and preliminary injunction and/or restraining order. The complaint, docketed as Civil Case No.
88-45926, was raffled to the Regional Trial Court, Branch 45, Manila. Petitioner alleged therein that he was
the absolute owner of the subject property and he never authorized anybody, not even his wife, to sell it. He
alleged that he was in possession of the title but when his wife, Irma, left for abroad, he found out that his
copy was missing. He then verified with the Registry of Deeds of Manila and there he discovered that his
title was already cancelled in favor of defendant Aglaloma Escario. The transfer of property was supported
by a General Power of Attorney6 dated November 29, 1985 and Deed of Absolute Sale, dated November 2,
1987, executed by Irma Veloso, wife of the petitioner and appearing as his attorney-in-fact, and defendant
Aglaloma Escario.7 Petitioner Veloso, however, denied having executed the power of attorney and alleged
that his signature was falsified. He also denied having seen or even known Rosemarie Reyes and Imelda
Santos, the supposed witnesses in the execution of the power of attorney. He vehemently denied having
met or transacted with the defendant. Thus, he contended that the sale of the property, and the subsequent
transfer thereof, were null and void. Petitioner Veloso, therefore, prayed that a temporary restraining order
be issued to prevent the transfer of the subject property; that the General Power of Attorney, the Deed of
Absolute Sale and the Transfer Certificate of Title No. 180685 be annulled; and the subject property be
reconveyed to him.

Defendant Aglaloma Escario in her answer alleged that she was a buyer in good faith and denied any
knowledge of the alleged irregularity. She allegedly relied on the general power of attorney of Irma Veloso
which was sufficient in form and substance and was duly notarized. She contended that plaintiff (herein
petitioner), had no cause of action against her. In seeking for the declaration of nullity of the documents, the
real party in interest was Irma Veloso, the wife of the plaintiff. She should have been impleaded in the case.
In fact, Plaintiff's cause of action should have been against his wife, Irma. Consequently, defendant Escario
prayed for the dismissal of the complaint and the payment to her of damages.8

Pre-trial was conducted. The sole issue to be resolved by the trial court was whether or not there was a valid
sale of the subject property.9

During the trial, plaintiff (herein petitioner) Francisco Veloso testified that he acquired the subject property
from the Philippine Building Corporation, as evidenced by a Deed of Sale dated October 1, 1957. 10 He
married Irma Lazatin on January 20, 1962.11 Hence, the property did not belong to their conjugal partnership.
Plaintiff further asserted that he did not sign the power of attorney and as proof that his signature was
falsified, he presented Allied Bank Checks Nos. 16634640, 16634641 and 16634643, which allegedly bore
his genuine signature.

Witness for the plaintiff Atty. Julian G. Tubig denied any participation in the execution of the general power
of attorney. He attested that he did not sign thereon, and the same was never entered in his Notarial
Register on November 29, 1985.

In the decision of the trial court dated March 9, 1990,12 defendant Aglaloma Escario was adjudged the lawful
owner of the property as she was deemed an innocent purchaser for value. The assailed general power of
attorney was held to be valid and sufficient for the purpose. The trial court ruled that there was no need for a
special power of attorney when the special power was already mentioned in the general one. It also
declared that plaintiff failed to substantiate his allegation of fraud. The court also stressed that plaintiff was
not entirely blameless for although he admitted to be the only person who had access to the title and other
important documents, his wife was still able to possess the copy. Citing Section 55 of Act 496, the court held
that Irma's possession and production of the certificate of title was deemed a conclusive authority from the
plaintiff to the Register of Deeds to enter a new certificate. Then applying the principle of equitable estoppel,
plaintiff was held to bear the loss for it was he who made the wrong possible. Thus:

WHEREFORE, the Court finds for the defendants and against plaintiff —

a. declaring that there was a valid sale of the subject property in favor of the
defendant;

b. denying all other claims of the parties for want of legal and factual basis.

Without pronouncement as to costs.

SO ORDERED.

Not satisfied with the decision, petitioner Veloso filed his appeal with the Court of Appeals. The respondent
court affirmed in toto the findings of the trial court.

Hence, this petition for review before Us.

This petition for review was initially dismissed for failure to submit an affidavit of service of a copy of the
petition on the counsel for private respondent.13 A motion for reconsideration of the resolution was filed but it
was denied in are resolution dated March 30, 1992.14 A second motion for reconsideration was filed and in a
resolution dated Aug. 3, 1992, the motion was granted and the petition for review was reinstated. 15

A supplemental petition was filed on October 9, 1992 with the following assignment of errors:

The Court of Appeals committed a grave error in not finding that the forgery of the power of attorney
(Exh . "C") had been adequately proven, despite the preponderant evidence, and in doing so, it has
so far departed from the applicable provisions of law and the decisions of this Honorable Court, as to
warrant the grant of this petition for review on certiorari.

II

There are principles of justice and equity that warrant a review of the decision.

III

The Court of Appeals erred in affirming the decision of the trial court which misapplied the principle
of equitable estoppel since the petitioner did not fail in his duty of observing due diligence in the
safekeeping of the title to the property.

We find petitioner's contentions not meritorious.

An examination of the records showed that the assailed power of attorney was valid and regular on its face.
It was notarized and as such, it carries the evidentiary weight conferred upon it with respect to its due
execution. While it is true that it was denominated as a general power of attorney, a perusal thereof revealed
that it stated an authority to sell, to wit:

2. To buy or sell, hire or lease, mortgage or otherwise hypothecate lands, tenements and
hereditaments or other forms of real property, more specifically TCT No. 49138, upon such terms
and conditions and under such covenants as my said attorney shall deem fit and proper. 16
Thus, there was no need to execute a separate and special power of attorney since the general power of
attorney had expressly authorized the agent or attorney in fact the power to sell the subject property. The
special power of attorney can be included in the general power when it is specified therein the act or
transaction for which the special power is required.

The general power of attorney was accepted by the Register of Deeds when the title to the subject property
was cancelled and transferred in the name of private respondent. In LRC Consulta No. 123, Register of
Deeds of Albay, Nov. 10, 1956, it stated that:

Whether the instrument be denominated as "general power of attorney" or "special power of


attorney", what matters is the extent of the power or powers contemplated upon the agent or
attorney in fact. If the power is couched in general terms, then such power cannot go beyond acts of
administration. However, where the power to sell is specific, it not being merely implied, much less
couched in general terms, there can not be any doubt that the attorney in fact may execute a valid
sale. An instrument may be captioned as "special power of attorney" but if the powers granted are
couched in general terms without mentioning any specific power to sell or mortgage or to do other
specific acts of strict dominion, then in that case only acts of administration may be deemed
conferred.

Petitioner contends that his signature on the power of attorney was falsified. He also alleges that the same
was not duly notarized for as testified by Atty. Tubig himself, he did not sign thereon nor was it ever
recorded in his notarial register. To bolster his argument, petitioner had presented checks, marriage
certificate and his residence certificate to prove his alleged genuine signature which when compared to the
signature in the power of attorney, showed some difference.

We found, however, that the basis presented by the petitioner was inadequate to sustain his allegation of
forgery. Mere variance of the signatures cannot be considered as conclusive proof that the same were
forged. Forgery cannot be presumed17 Petitioner, however, failed to prove his allegation and simply relied on
the apparent difference of the signatures. His denial had not established that the signature on the power of
attorney was not his.

We agree with the conclusion of the lower court that private respondent was an innocent purchaser for
value. Respondent Aglaloma relied on the power of attorney presented by petitioner's wife, Irma. Being the
wife of the owner and having with her the title of the property, there was no reason for the private
respondent not to believe in her authority. Moreover, the power of attorney was notarized and as such,
carried with it the presumption of its due execution. Thus, having had no inkling on any irregularity and
having no participation thereof, private respondent was a buyer in good faith. It has been consistently held
that a purchaser in good faith is one who buys property of another, without notice that some other person
has a right to, or interest in such property and pays a full and fair price for the same, at the time of such
purchase, or before he has notice of the claim or interest of some other person in the property. 18

Documents acknowledged before a notary public have the evidentiary weight with respect to their due
execution. The questioned power of attorney and deed of sale, were notarized and therefore, presumed to
be valid and duly executed. Atty. Tubig denied having notarized the said documents and alleged that his
signature had also been falsified. He presented samples of his signature to prove his contention. Forgery
should be proved by clear and convincing evidence and whoever alleges it has the burden of proving the
same. Just like the petitioner, witness Atty. Tubig merely pointed out that his signature was different from
that in the power of attorney and deed of sale. There had never been an accurate examination of the
signature, even that of the petitioner. To determine forgery, it was held in Cesar
vs. Sandiganbayan19 (quoting Osborn, The Problem of Proof) that:

The process of identification, therefore, must include the determination of the extent, kind, and
significance of this resemblance as well as of the variation. It then becomes necessary to determine
whether the variation is due to the operation of a different personality, or is only the expected and
inevitable variation found in the genuine writing of the same writer. It is also necessary to decide
whether the resemblance is the result of a more or less skillful imitation, or is the habitual and
characteristic resemblance which naturally appears in a genuine writing. When these two questions
are correctly answered the whole problem of identification is solved.

Even granting for the sake of argument, that the petitioner's signature was falsified and consequently, the
power of attorney and the deed of sale were null and void, such fact would not revoke the title subsequently
issued in favor of private respondent Aglaloma. In Tenio-Obsequio vs. Court of Appeals,20 it was held, viz:

The right of an innocent purchaser for value must be respected and protected, even if the seller
obtained his title through fraud. The remedy of the person prejudiced is to bring an action for
damages against those who caused or employed the fraud, and if the latter are insolvent, an action
against the Treasurer of the Philippines may be filed for recovery of damages against the Assurance
Fund.
Finally; the trial court did not err in applying equitable estoppel in this case. The principle of equitable
estoppel states that where one or two innocent persons must suffer a loss, he who by his conduct made the
loss possible must bear it. From the evidence adduced, it should be the petitioner who should bear the loss.
As the court a quo found:

Besides, the records of this case disclosed that the plaintiff is not entirely free from blame. He
admitted that he is the sole person who has access to TCT No. 49138 and other documents
appertaining thereto (TSN, May 23, 1989, pp. 7-12) However, the fact remains that the Certificate of
Title, as well as other documents necessary for the transfer of title were in the possession of
plaintiff's wife, Irma L. Veloso, consequently leaving no doubt or any suspicion on the part of the
defendant as to her authority. Under Section 55 of Act 496, as amended, Irma's possession and
production of the Certificate of Title to defendant operated as "conclusive authority from the plaintiff
to the Register of Deeds to enter a new certificate."21

Considering the foregoing premises, we found no error in the appreciation of facts and application of law by
the lower court which will warrant the reversal or modification of the appealed decision.

ACCORDINGLY, the petition for review is hereby DENIED for lack of merit.

SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 105562 September 27, 1993

LUZ PINEDA, MARILOU MONTENEGRO, VIRGINIA ALARCON, DINA LORENA AYO, CELIA CALUMBAG and
LUCIA LONTOK, petitioners,
vs.
HON. COURT OF APPEALS and THE INSULAR LIFE ASSURANCE COMPANY, LIMITED, respondents.

Mariano V. Ampil, Jr. for petitioners.

Ramon S. Caguiao for private respondent.

DAVIDE, JR., J.:

This is an appeal by certiorari to review and set aside the Decision of the public respondent Court of Appeals in CA-
G.R. SP No. 229501 and its Resolution denying the petitioners' motion for reconsideration.2 The challenged decision
modified the decision of the Insurance Commission in IC Case
No. RD-058. 3

The petitioners were the complainants in IC Case No. RD-058, an administrative complaint against private
respondent Insular Life Assurance Company, Ltd. (hereinafter Insular Life), which was filed with the Insurance
Commission on 20 September 1989. 4 They prayed therein that after due proceedings, Insular Life "be ordered to
pay the claimants their insurance claims" and that "proper sanctions/penalties be imposed on" it "for its deliberate,
feckless violation of its contractual obligations to the complainants, and of the Insurance Code." 5 Insular Life's
motion to dismiss the complaint on the ground that "the claims of complainants are all respectively beyond the
jurisdiction of the Insurance Commission as provided in Section 416 of the Insurance Code,"6 having been denied in
the Order of 14 November 1989, 7 it filed its answer on 5 December 1989. 8 Thereafter, hearings were conducted on
various dates.

On 20 June 1990, the Commission rendered its decision9 in favor of the complainants, the dispositive portion of
which reads as follows:

WHEREFORE, this Commission merely orders the respondent company to:

a) Pay a fine of FIVE HUNDRED PESOS (P500.00) a day from the receipt of a copy of this Decision
until actual payment thereof;

b) Pay and settle the claims of DINA AYO and LUCIA LONTOK, for P50,000.00 and P40,000.00,
respectively;

c) Notify henceforth it should notify individual beneficiaries designated under any Group Policy, in
the event of the death of insured(s), where the corresponding claims are filed by the Policyholder;

d) Show cause within ten days why its other responsible officers who have handled this case should
not be subjected to disciplinary and other administrative sanctions for deliberately releasing to Capt.
Nuval the check intended for spouses ALARCON, in the absence of any Special Power of Attorney
for that matter, and for negligence with respect to the release of the other five checks.

SO ORDERED. 10

In holding for the petitioners, the Insurance Commission made the following findings and conclusions:

After taking into consideration the evidences [sic], testimonial and documentary for the complainants
and the respondent, the Commission finds that; First: The respondent erred in appreciating that the
powers of attorney executed by five (5) of the several beneficiaries convey absolute authority to
Capt. Nuval, to demand, receive, receipt and take delivery of insurance proceeds from respondent
Insular Life. A cursory reading of the questioned powers of authority would disclosed [sic] that they
do not contain in unequivocal and clear terms authority to Capt. Nuval to obtain, receive, receipt
from respondent company insurance proceeds arising from the death of the seaman-insured. On the
contrary, the said powers of attorney are couched in terms which could easily arouse suspicion of an
ordinary
man. . . .

Second: The testimony of the complainants' rebuttal witness,


Mrs. Trinidad Alarcon, who declared in no uncertain terms that neither she nor her husband,
executed a special power of attorney in favor of Captain Rosendo Nuval, authorizing him to claim,
receive, receipt and take delivery of any insurance proceeds from Insular Life arising out of the death
of their insured/seaman son, is not convincingly refuted.

Third: Respondent Insular Life did not observe Section 180 of the Insurance Code, when it issued or
released two checks in the amount of P150,000.00 for the three minor children (P50,000.00 each) of
complainant, Dina Ayo and another check of P40,000.00 for minor beneficiary Marissa Lontok,
daughter of another complainant Lucia Lontok, there being no showing of any court authorization
presented or the requisite bond posted.

Section 180 is quotes [sic] partly as follows:

. . . In the absence of a judicial guardian, the father, or in the latter's absence or


incapacity, the mother of any minor, who is an insured or a beneficiary under a
contract of life, health or accident insurance, may exercise, in behalf of said minor,
any right, under the policy, without necessity of court authority or the giving of a
bond where the interest of the minor in the particular act involved does not exceed
twenty thousand pesos . . . . 11

Insular Life appealed the decision to the public respondent which docketed the case as CA-G.R. SP No. 22950. The
appeal urged the appellate court to reverse the decision because the Insurance Commission (a) had no jurisdiction
over the case considering that the claims exceeded P100,000.00,
(b) erred in holding that the powers of attorney relied upon by Insular Life were insufficient to convey absolute
authority to Capt. Nuval to demand, receive and take delivery of the insurance proceeds pertaining to the
petitioners, (c) erred in not giving credit to the version of Insular Life that the power of attorney supposed to have
been executed in favor of the Alarcons was missing, and
(d) erred in holding that Insular Life was liable for violating Section 180 of the Insurance Code for having released to
the surviving mothers the insurance proceeds pertaining to the beneficiaries who were still minors despite the failure
of the former to obtain a court authorization or to post a bond.

On 10 October 1991, the public respondent rendered a decision, 12 the decretal portion of which reads:

WHEREFORE, the decision appealed from is modified by eliminating therefrom the award to Dina
Ayo and Lucia Lontok in the amounts of P50,000.00 and P40,000.00, respectively. 13

It found the following facts to have been duly established:

It appears that on 23 September 1983, Prime Marine Services, Inc. (PMSI, for brevity), a
crewing/manning outfit, procured Group PoIicy
No. G-004694 from respondent-appellant Insular Life Assurance Co., Ltd. to provide life insurance
coverage to its sea-based employees enrolled under the plan. On 17 February 1986, during the
effectivity of the policy, six covered employees of the PMSI perished at sea when their vessel, M/V
Nemos, a Greek cargo vessel, sunk somewhere in El Jadida, Morocco. They were survived by
complainants-appellees, the beneficiaries under the policy.

Following the tragic demise of their loved ones, complainants-appellees sought to claim death
benefits due them and, for this purpose, they approached the President and General Manager of
PMSI, Capt. Roberto Nuval. The latter evinced willingness to assist complainants-appellees to
recover Overseas Workers Welfare Administration (OWWA) benefits from the POEA and to work for
the increase of their PANDIMAN and other benefits arising from the deaths of their husbands/sons.
They were thus made to execute, with the exception of the spouses Alarcon, special powers of
attorney authorizing Capt. Nuval to, among others, "follow up, ask, demand, collect and receive" for
their benefit indemnities of sums of money due them relative to the sinking of M/V Nemos. By virtue
of these written powers of attorney, complainants-appellees were able to receive their respective
death benefits. Unknown to them, however, the PMSI, in its capacity as employer and policyholder
of the life insurance of its deceased workers, filed with respondent-appellant formal claims for and in
behalf of the beneficiaries, through its President, Capt. Nuval. Among the documents submitted by
the latter for the processing of the claims were five special powers of attorney executed by
complainants-appellees. On the basis of these and other documents duly submitted, respondent-
appellant drew against its account with the Bank of the Philippine Islands on 27 May 1986 six (6)
checks, four for P200,00.00 each, one for P50,000.00 and another for P40,00.00, payable to the
order of complainants-appellees. These checks were released to the treasurer of PMSI upon
instructions of
Capt. Nuval over the phone to Mr. Mariano Urbano, Assistant Department Manager for Group
Administration Department of respondent-appellant. Capt. Nuval, upon receipt of these checks from
the treasurer, who happened to be his son-in-law, endorsed and deposited them in his account with
the Commercial Bank of Manila, now Boston Bank.

On 3 July 1989, after complainants-appellees learned that they were entitled, as beneficiaries, to life
insurance benefits under a group policy with respondent-appellant, they sought to recover these
benefits from Insular Life but the latter denied their claim on the ground that the liability to
complainants-appellees was already extinguished upon delivery to and receipt by PMSI of the six (6)
checks issued in their names.14

On the basis thereof, the public respondent held that the Insurance Commission had jurisdiction over the case on
the ground that although some of the claims exceed P100,000.00, the petitioners had asked for administrative
sanctions against Insular Life which are within the Commission's jurisdiction to grant; hence, "there was merely a
misjoinder of causes of action . . . and, like misjoinder of parties, it is not a ground for the dismissal of the action as it
does not affect the other reliefs prayed for." 15 It also rejected Insular Life's claim that the Alarcons had submitted a
special power of attorney which they (Insular Life) later misplaced.

On the other hand, the public respondent ruled that the powers of attorney, Exhibits "1" to "5," relied upon by Insular
Life were sufficient to authorize Capt. Nuval to receive the proceeds of the insurance pertaining to the beneficiaries.
It stated:

When the officers of respondent-appellant read these written powers, they must have assumed
Capt. Nuval indeed had authority to collect the insurance proceeds in behalf of the beneficiaries who
duly affixed their signatures therein. The written power is specific enough to define the authority of
the agent to collect any sum of money pertaining to the sinking of the fatal vessel. Respondent-
appellant interpreted this power to include the collection of insurance proceeds in behalf of the
beneficiaries concerned. We believe this is a reasonable interpretation even by an officer of
respondent-appellant unschooled in the law. Had respondent appellant, consulted its legal
department it would not have received a contrary view. There is nothing in the law which mandates a
specific or special power of attorney to be executed to collect insurance proceeds. Such authority is
not included in the enumeration of Art. 1878 of the New Civil Code. Neither do we perceive collection
of insurance claims as an act of strict dominion as to require a special power of attorney. Moreover,
respondent-appellant had no reason to doubt Capt. Nuval. Not only was he armed with a seemingly
genuine authorization, he also appeared to be the proper person to deal with respondent-appellant
being the President and General Manager of the PMSI, the policyholder with whom respondent-
appellant always dealt. The fact that there was a verbal agreement between complainants-appellees
and Capt. Nuval limiting the authority of the latter to claiming specified death benefits cannot
prejudice the insurance company which relied on the terms of the powers of attorney which on their
face do not disclose such limitation. Under the circumstances, it appearing that complainants-
appellees have failed to point to a positive provision of law or stipulation in the policy requiring a
specific power of attorney to be presented, respondents-appellant's reliance on the written powers
was in order and it cannot be penalized for such an act. 16

Insofar as the minor children of Dina Ayo and Lucia Lontok were concerned, it ruled that the requirement in Section
180 of the Insurance Code which provides in part that:

In the absence of a judicial guardian, the father, or in the latter's absence or incapacity, the mother,
of any minor, who is an insured or a beneficiary under a contract of life, health or accident insurance,
may exercise, in behalf of said minor, any right under the policy, without necessity of court authority
or the giving of a bond, where the interest of the minor in the particular act involved does not exceed
twenty thousand pesos. Such a right, may include, but shall not be limited to, obtaining a policy loan,
surrendering the policy, receiving the proceeds of the policy, and giving the minor's consent to any
transaction on the policy.

has been amended by the Family Code 17 which grants the father and mother joint legal guardianship over
the property of their unemancipated common child without the necessity of a court appointment; however,
when the market value of the property or the annual income of the child exceeds P50,000.00, the parent
concerned shall be required to put up a bond in such amount as the court may determine.

Hence, this petition for review on certiorari which we gave due course after the private respondent had filed the
required comment thereon and the petitioners their reply to the comment.

We rule for the petitioners.


We have carefully examined the specific powers of attorney, Exhibits "1" to "5," which were executed by petitioners
Luz Pineda, Lucia B. Lontok, Dina Ayo, Celia Calumag, and Marilyn Montenegro, respectively, on 14 May 1986 18and
uniformly granted to Capt. Rosendo Nuval the following powers:

To follow-up, ask, demand, collect and receipt for my benefit indemnities or sum of money due me
relative to the sinking of M.V. NEMOS in the vicinity of El Jadida, Casablanca, Morocco on the
evening of February 17, 1986; and

To sign receipts, documents, pertinent waivers of indemnities or other writings of whatsoever nature
with any and all third persons, concerns and entities, upon terms and conditions acceptable to my
said attorney.

We agree with the Insurance Commission that the special powers of attorney "do not contain in unequivocal and
clear terms authority to Capt. Nuval to obtain, receive, receipt from respondent company insurance proceeds arising
from the death of the seaman-insured. On the contrary, the said powers of attorney are couched in terms which
could easily arouse suspicion of an ordinary man." 19 The holding of the public respondent to the contrary is
principally premised on its opinion that:

[t]here is nothing in the law which mandates a specific or special power of attorney to be executed to
collect insurance proceeds. Such authority is not included in the enumeration of art. 1878 of the New
Civil Code. Neither do we perceive collection of insurance claims as an act of strict dominion as to
require a special power of attorney.

If this be so, then they could not have been meant to be a general power of attorney since Exhibits "1" to "5"
are special powers of attorney. The execution by the principals of special powers of attorney, which clearly
appeared to be in prepared forms and only had to be filled up with their names, residences, dates of
execution, dates of acknowledgment and others, excludes any intent to grant a general power of attorney or
to constitute a universal agency. Being special powers of attorney, they must be strictly construed.

Certainly, it would be highly imprudent to read into the special powers of attorney in question the power to collect
and receive the insurance proceeds due the petitioners from Group Policy No. G-004694. Insular Life knew that a
power of attorney in favor of Capt. Nuval for the collection and receipt of such proceeds was a deviation from its
practice with respect to group policies. Such practice was testified to by Mr. Marciano Urbano, Insular Life's
Assistant Manager of the Group Administrative Department, thus:

ATTY. CAGUIOA:

Can you explain to us why in this case, the claim was filed by a certain Capt. Noval
[sic]?

WITNESS:

a The practice of our company in claim pertaining to group insurance, the


policyholder is the one who files the claim for the beneficiaries of the deceased. At
that time, Capt. Noval [sic] is the President and General Manager of Prime Marine.

q What is the reason why policyholders are the ones who file the claim and not the
designated beneficiaries of the employees of the policyholders?

a Yes because group insurance is normally taken by the employer as an employee-


benefit program and as such, the benefit should be awarded by the policyholder to
make it appear that the benefit really is given by the employer. 20

On cross-examination, Urbano further elaborated that even payments, among other things, are coursed through the
policyholder:

q What is the corporate concept of group insurance insofar as Insular Life is


concerned?

WITNESS:

a Group insurance is a contract where a group of individuals are covered under one
master contract. The individual underwriting characteristics of each individual is not
considered in the determination of whether the individual is insurable or not. The
contract is between the policyholder and the insurance company. In our case, it is
Prime Marine and Insular Life. We do not have contractual obligations with the
individual employees; it is between Prime Marine and Insular Life.
q And so it is part of that concept that all inquiries, follow-up, payment of claims,
premium billings, etc. should always be coursed thru the policyholder?

a Yes that is our practice.

q And when you say claim payments should always be coursed thru the policyholder,
do you require a power of attorney to be presented by the policyholder or not?

a Not necessarily.

q In other words, under a group insurance policy like the one in this case, Insular Life
could pay the claims to the policyholder himself even without the presentation of any
power of attorney from the designated beneficiaries?

xxx xxx xxx

WITNESS:

a No. Sir.

ATTY. AMPIL:

q Why? Is this case, the present case different from the cases which you answered
that no power of attorney is necessary in claims payments?

WITNESS:

a We did not pay Prime Marine; we paid the beneficiaries.

q Will you now tell the Honorable Commission why you did not pay Prime Marine and
instead paid the beneficiaries, the designated beneficiaries?

xxx xxx xxx

ATTY. AMPIL:

I will rephrase the question.

q Will you tell the Commission what circumstances led you to pay the designated
beneficiaries, the complainants in this case, instead of the policyholder when as you
answered a while ago, it is your practice in group insurance that claims payments,
etc., are coursed thru the policyholder?

WITNESS:

a It is coursed but, it is not paid to the policyholder.

q And so in this case, you gave the checks to the policyholder only coursing them
thru said policyholder?

a That is right, Sir.

q Not directly to the designated beneficiaries?

a Yes, Sir. 21

This practice is usual in the group insurance business and is consistent with the jurisprudence thereon in the State
of California — from whose laws our Insurance Code has been mainly patterned — which holds that the employer-
policyholder is the agent of the insurer.

Group insurance is a comparatively new form of insurance. In the United States, the first modern group insurance
policies appear to have been issued in 1911 by the Equitable Life Assurance Society. 22 Group insurance is
essentially a single insurance contract that provides coverage for many individuals. In its original and most common
form, group insurance provides life or health insurance coverage for the employees of one employer.

The coverage terms for group insurance are usually stated in a master agreement or policy that is issued by the
insurer to a representative of the group or to an administrator of the insurance program, such as an employer. 23 The
employer acts as a functionary in the collection and payment of premiums and in performing related duties. Likewise
falling within the ambit of administration of a group policy is the disbursement of insurance payments by the
employer to the employees. 24 Most policies, such as the one in this case, require an employee to pay a portion of
the premium, which the employer deducts from wages while the remainder is paid by the employer. This is known
as a contributory plan as compared to a non-contributory plan where the premiums are solely paid by the employer.

Although the employer may be the titular or named insured, the insurance is actually related to the life and health of
the employee. Indeed, the employee is in the position of a real party to the master policy, and even in a non-
contributory plan, the payment by the employer of the entire premium is a part of the total compensation paid for the
services of the employee. 25 Put differently, the labor of the employees is the true source of the benefits, which are a
form of additional compensation to them.

It has been stated that every problem concerning group insurance presented to a court should be approached with
the purpose of giving to it every legitimate opportunity of becoming a social agency of real consequence considering
that the primary aim is to provide the employer with a means of procuring insurance protection for his employees
and their families at the lowest possible cost, and in so doing, the employer creates goodwill with his employees,
enables the employees to carry a larger amount of insurance than they could otherwise, and helps to attract and
hold a permanent class of employees. 26

In Elfstrom vs. New York Life Insurance Company, 27 the California Supreme Court explicitly ruled that in group
insurance policies, the employer is the agent of the insurer. Thus:

We are convinced that the employer is the agent of the insurer in performing the duties of
administering group insurance policies. It cannot be said that the employer acts entirely for its own
benefit or for the benefit of its employees in undertaking administrative functions. While a reduced
premium may result if the employer relieves the insurer of these tasks, and this, of course, is
advantageous to both the employer and the employees, the insurer also enjoys significant
advantages from the arrangement. The reduction in the premium which results from employer-
administration permits the insurer to realize a larger volume of sales, and at the same time the
insurer's own administrative costs are markedly reduced.

xxx xxx xxx

The most persuasive rationale for adopting the view that the employer acts as the agent of the
insurer, however, is that the employee has no knowledge of or control over the employer's actions in
handling the policy or its administration. An agency relationship is based upon consent by one
person that another shall act in his behalf and be subject to his control. It is clear from the evidence
regarding procedural techniques here that the insurer-employer relationship meets this agency test
with regard to the administration of the policy, whereas that between the employer and its
employees fails to reflect true agency. The insurer directs the performance of the employer's
administrative acts, and if these duties are not undertaken properly the insurer is in a position to
exercise more constricted control over the employer's conduct.

In Neider vs. Continental Assurance Company, 28 which was cited in Elfstrom, it was held that:

[t]he employer owes to the employee the duty of good faith and due care in attending to the policy,
and that the employer should make clear to the employee anything required of him to keep the policy
in effect, and the time that the obligations are due. In its position as administrator of the policy, we
feel also that the employer should be considered as the agent of the insurer, and any omission of
duty to the employee in its administration should be attributable to the insurer.

The ruling in Elfstrom was subsequently reiterated in the cases of Bass vs. John Hancock Mutual Life Insurance
Co. 29 and Metropolitan Life Insurance Co. vs. State Board of Equalization.30

In the light of the above disquisitions and after an examination of the facts of this case, we hold that PMSI, through
its President and General Manager, Capt. Nuval, acted as the agent of Insular Life. The latter is thus bound by the
misconduct of its agent.

Insular Life, however, likewise recognized Capt. Nuval as the attorney-in-fact of the petitioners. Unfortunately,
through its official, Mr. Urbano, it acted imprudently and negligently in the premises by relying without question on
the special power of attorney. In Strong vs. Repide, 31 this Court ruled that it is among the established principles in
the civil law of Europe as well as the common law of American that third persons deal with agents at their peril and
are bound to inquire as to the extent of the power of the agent with whom they contract. And in Harry E. Keller
Electric Co. vs. Rodriguez, 32 this Court, quoting Mechem on Agency, 33 stated that:

The person dealing with an agent must also act with ordinary prudence and reasonable diligence.
Obviously, if he knows or has good reason to believe that the agent is exceeding his authority, he
cannot claim protection. So if the suggestions of probable limitations be of such a clear and
reasonable quality, or if the character assumed by the agent is of such a suspicious or unreasonable
nature, or if the authority which he seeks to exercise is of such an unusual or improbable character,
as would suffice to put an ordinarily prudent man upon his guard, the party dealing with him may not
shut his eyes to the real state of the case, but should either refuse to deal with the agent at all, or
should ascertain from the principal the true condition of affairs. (emphasis supplied)

Even granting for the sake of argument that the special powers of attorney were in due form, Insular Life was
grossly negligent in delivering the checks, drawn in favor of the petitioners, to a party who is not the agent
mentioned in the special power of attorney.

Nor can we agree with the opinion of the public respondent that since the shares of the minors in the insurance
proceeds are less than P50,000.00, then under Article 225 of the Family Code their mothers could receive such
shares without need of either court appointments as guardian or the posting of a bond. It is of the view that said
Article had repealed the third paragraph of Section 180 of the Insurance Code. 34 The pertinent portion of Article 225
of the Family Code reads as follows:

Art. 225. The father and the mother shall jointly exercise legal guardianship over the property of their
unemancipated common child without the necessity of a court appointment. In case of
disagreement, the father's decision shall prevail, unless there is judicial order to the contrary.

Where the market value of the property or the annual income of the child exceeds P50,000, the
parent concerned shall be required to furnish a bond in such amount as the court may determine,
but not less than ten per centum (10%) of the value of the property or annual income, to guarantee
the performance of the obligations prescribed for general guardians.

It is clear from the said Article that regardless of the value of the unemancipated common child's property, the father
and mother ipso jure become the legal guardian of the child's property. However, if the market value of the property
or the annual income of the child exceeds P50,000.00, a bond has to be posted by the parents concerned to
guarantee the performance of the obligations of a general guardian.

It must, however, be noted that the second paragraph of Article 225 of the Family Code speaks of the "market value
of the property or the annual income of the child," which means, therefore, the aggregate of the child's property or
annual income; if this exceeds P50,000.00, a bond is required. There is no evidence that the share of each of the
minors in the proceeds of the group policy in question is the minor's only property. Without such evidence, it would
not be safe to conclude that, indeed, that is his only property.

WHEREFORE, the instant petition is GRANTED. The Decision of


10 October 1991 and the Resolution of 19 May 1992 of the public respondent in CA-G.R. SP No. 22950 are SET
ASIDE and the Decision of the Insurance Commission in IC Case No. RD-058 is REINSTATED.

Costs against the private respondent.

SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-23181 March 16, 1925

THE BANK OF THE PHILIPPINE ISLANDS, plaintiff-appellee,


vs.
GABRIELA ANDREA DE COSTER Y ROXAS, ET AL., defendants.
LA ORDEN DE DOMINICOS or PP. PREDICADORES DE LA PROVINCIA DEL SANTISIMO
ROSARIO,defendants-appellees;
GABRIELA ANDREA DE COSTER Y ROXAS, defendant-appellant.

Antonio M. Opisso for appellant.


Araneta and Zaragoza for the bank as appellee.
Perfecto Gabriel for the Dominican Corporation as appellee.

STATEMENT

March 10, 1924, the plaintiff filed a complaint in which it was alleged that it was a domestic banking corporation with
its principal office and place of business in the City of Manila; that the defendant Gabriela Andrea de Coster y Roxas
was the wife of the defendant Jean M. Poizat, both of whom were residents of the City of Manila; that the defendant
J. M. Poizat and Co. was a duly registered partnership with its principal office and place of business in the City of
Manila; that the defendant La Orden de Dominicos or PP. Predicadores de la Provincia del Santisimo Rosario was a
religious corporation duly organized and existing under the laws of the Philippine Islands with its principal office and
place of business in the City of Manila; that on December 29, 1921, for value, the defendant Gabriela Andrea de
Coster y Roxas, having the consent and permission of her husband, and he acting as her agent, said defendants
made to the plaintiff a certain promissory note for P292,000, payable one year after date, with interest of 9 per cent
per annum, payable monthly, in which, among other things, it is provided that in the event of a suit or action, the
defendants should pay the further sum of P10,000, as attorney's fees; that the note in question was a joint and
several note; that to secure the payment thereof, the defendants Jean M. Poizat and J. M. Poizat and Co. executed
a chattel mortgage to the plaintiff on the steamers Roger Poizat and Gabrielle Poizat, with the machinery and
materials belonging to the Poizat Vegetable Oil Mills and certain merchandise; that at the same time and for the
same purpose, the defendant Gabriela Andrea de Coster y Roxas, having the consent and permission of her
husband, and he acting as her agent, they acknowledged and delivered to this plaintiff a mortgage on certain real
property lying and being situated in the City of Manila, which is specifically described in the mortgage; that the real
property was subject to a prior mortgage in favor of La Orden de Dominicos or PP. Predicadores de la Provincia del
Santisimo Rosario, hence it is made a party defendant; that the note in question is long past due and owing. The
plaintiff having brought action against the defendants on the note in the Court of First Instance of the City of Manila,
civil case No. 25218; that in such case the court rendered judgment against the defendants Gabriela Andrea de
Coster y Roxas, Jean M. Poizat and J. M. Poizat and Co. jointly and severally for P292,000, with interest at the rate
of 9 per cent per annum from the 31st of August, 1923, P10,000 as attorney's fees, and P2,500 for and in account of
insurance upon the steamer Gabrielle Poizat, with interest on that amount from February 9, 1924, at the rate of 9
per cent per annum, and costs; that the said defendants have not paid the judgment or any part thereof, and that the
full amount of the debt secured by the mortgaged on the property described in the complaint is now due and owing.
Wherefore, plaintiff prays for an order of the court to direct the sheriff of the City of Manila to take immediate
possession of the property described in the chattel mortgage and sell the same according to the Chattel Mortgage
Law; that the property described in the real mortgage or so much thereof as may be required to pay the amount due
the plaintiff be sold according to law; that out of such sales plaintiff shall be paid the amount due and owing it; and
that such defendants be adjudged to pay any remaining deficiency.

Copies of the chattel and real mortgage are attached to, and made a part of, the complaint and marked,
respectively, Exhibits A and B.

On April 24, 1924, the La Orden de Dominicos or PP. Predicadores de la Provincia del Santisimo Rosario appeared
in the suit and filed the following plea:

The defendant corporation, La Orden de Dominicos or PP. Predicadores de la Provincia del Santisimo
Rosario, for answer to the complaint, shows:

I. That the encumbrance above-mentioned, but not determined in paragraph V of the complaint, consisting
of a first mortgage in favor of the aforesaid religious corporation on the property described in paragraph IV of
the same complaint is P125,000 with interest of 10 per cent per annum;
II. That the mortgagors Jean M. Poizat and Gabriela Andrea de Coster y Roxas, have not paid the principal
or the interest stipulated and agreed upon from the 16th of December, 1921 up to the present date;

III. The interest due up to the 30th of April of the present year 1924 amounts to a total sum of P27,925.34.

Wherefore, it is prayed that the credit above-mentioned be taken into account when the second mortgage is
foreclosed.

May 3, 1924, on motion of the plaintiff, for failure to appear or answer, the defendants Gabriela Andrea de Coster y
Roxas and Jean M. Poizat and J.M. Poizat & Co. were declared in default.

Without giving any notice of the defendants Jean M. Poizat, J.M. Poizat & Co. and Gabriela Andrea de Coster y
Roxas, and after the introduction of evidence on the part of the plaintiff and the defendant Dominican Fathers, on
June 24, 1924, the court rendered an opinion in substance and to the effect that the plaintiff should have judgment
as prayed for in its complaint, and that the Dominican Fathers should have judgment for the amount of their claim,
and that the property should be sold and the proceeds applied to satisfy the respective judgments.

About August 26, although her attorney, the defendant Gabriela Andrea de Coster y Roxas filed a motion in which
she recites that she is the legitimate wife of the defendant Jean M. Poizat; that she had been absent from the
Philippine Islands and residing in the City of Paris from the year 1908 to April 30, 1924, when she returned to
Manila; that at that time of the filing of the complaint and the issuance of the summons, she was absent from the
Philippine Islands; that the summons was delivered by the sheriff of the City of Manila to her husband, and that
through his malicious negligence, default was taken and judgment entered for the respective amounts; that she
never had any knowledge of the actual facts until the latter part of July, 1924, when, through the local newspapers,
she learned that a default judgment had been rendered against her on July 28, 1924; that when she first knew of
that fact, she was unable to obtain the rendition of accounts, because her husband had left the Philippine Islands
two days previous and gone to Hongkong; that she then went to Hongkong and learned that her husband had left
there under a false name and had gone to the port of Singapore from whence he went to other places unknown to
thus defendant; that she then returned to Manila, and that in August, 1924, she came into possession of documents
showing the illegally of the notes and mortgage in question; that she has a good and legal defense to the action,
which involves the validity of the order of the Dominican Fathers in this, that their mortgage does not guarantee any
loan made to this defendant; that it is a security only given for a credit of a third person; that the mortgage was
executed without the marital consent of the wife; and that he did not have nay authority to make her liable as surety
on the debt of a third person; that as regards the notes to the plaintiff: First, it does not represent any money paid to
the defendant by the bank; second, that it is exclusively the personal debt of the defendants Jean M. Poizat and
J.M. Poizat & Co., third, that it was executed by her husband, because the bank desired more security for the
payment of her husband's debt to the bank; fourth, that it was executed by her husband in excess of the powers
given to him under his power of attorney; fifth, that it was executed as the result of collusion between the bank and
the defendant liable for the obligation of a third person. That as to the mortgage: First, it was executed to secure a
void obligation; second, it does not guarantee any loan made to this defendant; third, it was executed to secure a
void litigation; second, it does not guarantee any loan made to third defendant; third, it was executed without the
express marital consent which the law requires; fourth, it was executed through collusion. That if the judgment is not
set aside, the defendant will suffer irreparable injury; that through surprise and negligence, for which she was not
responsible, this defendant was prevented from defending herself in this action; that this is a case which comes
under section 113 of the Code of Civil Procedure. She prays that the judgment annulled and set aside and the case
be reopened, and that she be permitted to file an answer, and that the case be tried on its merits, and that a final
judgment be rendered, absolving her from all liability.

The motion was based upon, and supported by, the affidavit of the defendant wife, to which was attached a large
number of exhibits all of which tended to support the motion.

After counter showings by the bank and the Dominican Fathers and the arguments of respective counsel, the motion
to set aside and vacate the judgment was denied. A motion for a reconsideration was then made, and the motion of
the defendant to file an answer and make a defense was again denied. The defendant Gabriela Andrea de Coster y
Roxas appeals, assigning the following errors;

PART I
AS TO THE JURISDICTION

I. The lower court erred in holding that it had acquired jurisdiction on the defendant Gabriela Andrea de
Coster y Roxas,

(1) There having been no service of the summons on her in the manner required by section 396 of
the Code of Civil Procedure, she being absent from the Philippine Islands at the time of the filing of
the complaint and of the issuance of the summons in this case, and a resident of Paris, France,
where she had lived permanently and continuously for fifteen years prior thereof, and

(2) There having been no se rive by publication in the manner required by section 398 of the Code of
Civil Procedure.
II. The lower court erred in considering that in a case where the wife is the only necessary party, service of
the summons on the husband, at a place which is not "the usual place of residence" of the wife and where
the wife has never lived or resided, is sufficient to give the court jurisdiction on the person and property of
the wife and to render judgment by default against her.

III. The court erred in admitting and considering evidence, outside of the sheriff's return, of the fact that the
husband of the defendant Gabriela Andrea de Coster y Roxas was her attorney in fact with power to appear
for the defendant in court.

IV. The court erred in holding that the non-appearance of an agent of the defendant when service of the
summons has been made on him not as the agent of the defendant but in other capacity, will entitle the
plaintiff who has misstated the material jurisdictional facts of the complaint to a judgment by default against
the principal.

V. The lower court erred in refusing to vacate a judgment by default against the defendant Gabriela Andrea
de Coster y Roxas rendered on a defective summons, served in a manner not provided for by the law, and
in a case where the complaint shows that plaintiff has no right of action.

PART II
AS TO THE MERITS OF THE DEFENSE

I. The lower court erred, with abuse of discretion, in holding that the negligence, if any, of J.M. Poizat in not
appearing on behalf of the defendant Gabriela Andrea de Coster y Roxas, can be imputed to this defendant,
without redress, and to the advantage of the plaintiff bank who in collusion with said J.M. Poizat caused the
latter to contract beyond the scope of his powers as agent of this defendant the obligation which is the
subject matter of this case.

II. The lower court erred in holding that the relief on the part of J.M. Poizat that there was no defense against
the claim of the plaintiff on an obligation contracted by said J.M. Poizat apparently as agent of the defendant
Gabriela Andrea de Coster y Roxas, but in truth beyond the scope of his authority, and with knowledge on
the part of the plaintiff bank that he was so acting beyond his powers, was such an error was can be
imputed to this defendant, and against which she can obtain no redress.

III. The lower court erred in not holding that a principal is not liable for an obligation contracted by his agent
beyond his power even when both the creditor and the agent believed that the latter was acting within the
scope of his powers.

IV. The lower court erred in holding that because the agent of the defendant Gabriela Andrea de Coster y
Roxas had power to appear for her in court, his non-appearance could render this defendant liable to a
judgment by default, when the record shows that there was no service of the summons in accordance with
any of the forms of service provided by law.

V. The lower court erred in holding that J.M. Poizat was summoned as agent of hi wife, the defendant
Gabriela Andrea de Coster y Roxas, and was, in that capacity, notified of all the decisions rendered in this
case, there being nothing in the record to support the truth of such finding.

VI. The lower court erred in holding that in contracting the obligations in favor of the plaintiff Bank of the
Philippine Islands and of the defendant Orden de PP. Predicadores de la Provincia del Santisimo Rosario,
the agent of the defendant Gabriela Andrea de Coster y Roxas acted within the scope of his powers.

VII. The lower court erred in not holding that the plaintiff Bank of the Philippine Islands and the defendant
Orden de PP. Predicadores de la Provincia del Santisimo Rosario had knowledge of the fact that J.M. Poizat
in contracting the respective obligations in their favor, pretending to act as agent of the defendant Gabriela
Andrea de Coster y Roxas, was acting beyond the scope of his powers as such agent.

VIII. The lower court erred in making the following statement:

"It is however alleged, by the petitioner, that these loans were obtained to pay debts, of strangers.
Even so, this would not render the loan obtained by the attorney in fact null and void. The
circumstance that the agent used the money, borrowed by him within the scope of his powers, to
purposes for which he was not authorized by his principal, may entitle the latter to demand from him
the corresponding liability for the damages suffered, but it cannot prejudice the creditor and cause
the nullity of the loan. But, even admitting that the money borrowed was used by Poizat to pay debts
which did not belong to his principal, even then, he would have acted within his powers, since his
principal, together with the power to borrow money, had given her agent power to loan any amount
of money, and the payment of the debts of a stranger would amount to a loan made by the agent on
behalf of his principal to the person or entity whose debt was paid with the money obtained from the
creditors."
IX. The lower court erred in applying to this case the principle involved in the case of Palanca vs. Smith, Bell
and Co., 9 Phil., 131.

X. The court erred in supplying from its own imagination facts which did not take place, of which there is no
evidence in the record, and which the parties never claimed to have existed, and then draw the conclusion
that if under those hypothetical facts the transaction between J.M. Poizat and the Bank of the Philippine
Islands might have been legal, then the transaction as it actually took place was also legal.

XI. The lower court erred in holding that defendant has not alleged any of the grounds enumerated in section
113 of the Code of Civil Procedure.

XII. The lower court erred in holding that this defendant-appellant has no meritorious defense against the
Dominican Order and the Bank of the Philippine Islands.

XIII. The lower court erred in taking into consideration Exhibit A appearing at pages 156-165 of the bill of
exceptions.

XIV. The lower court erred in denying the motion filed by this defendant-appellant.

XV. The lower court has acted throughout these proceedings with a clear abuse of discretion.

JOHNS, J.:

We will decide the case of the bank first

The petition of the appellant states under oath:

II. That this defendant has been absent from the Philippine Islands and residing in the City of Paris, France,
since the year 1908 (1909), up to April 30, 1924, on which date she arrived in this City of Manila, Philippine
Islands.

III. That at the time when the complaint in this case was filed and the summons issued, she was still absent
from the Philippine Islands and had no knowledge either of the filing of this action or of the facts which led to
it.

Under oath the plaintiff, through its acting president, says:

I-II. That it admits the allegations contained in paragraphs I and II of the aforesaid motion.

III. That it admits the first part of this paragraph, to wit: That at the time that the complaint in the above
entitled case was filed, the defendant Gabriela Andrea de Coster y Roxas was absent from the Philippine
Islands.

Paragraph 6 of section 396 of the Code of Civil Procedure provides:

In all other cases, to the defendant personally, or by leaving a copy at his usual place of residence, in the
hands of some person resident therein of sufficient discretion to receive the same. But service upon a
corporation, as provided in subsections one and two, may be made by leaving the copy at the office of the
proper officer thereof if such officer cannot be found.

The return of the sheriff as to the service is as follows:

On this date I have served a copy of the within summons, and of the complaint attached, upon Jean
M. Poizat, personally, and the copies corresponding to J.M. Poizat and Co., a company duly
organized under the laws of the Philippine Islands, by delivering said copies to its President Mr. Jean
M. Poizat, personally, and the copies corresponding to Gabriela Andrea de Coster y Roxas, by
leaving the same in the place of her usual residence in the City of Manila and in the hands of her
husband, Mr. J.M. Poizat, a person residing therein and of sufficient discretion to receive it,
personally.

Done at Manila, P.I., this 13th day of March, 1924.

RICARDO SUMMERS
Sheriff of Manila
By GREGORIO GARCIA
I hereby certify that on this date I have delivered a copy of this summons and of the complaint
corresponding to the "La Orden de Dominicos or PP. Predicadores de la Provincia del Santisimo
Rosario," through Father Pedro Pratt, Procurador General of said Orden de Dominicos or PP.
Predicadores de la Provincia del Santisimo Rosario, personally.

Manila, P.I., April 1, 1924.

RICARDO SUMMERS
Sheriff of Manila
By SIMEON D. SERDEÑA

It will be noted that the service of summons and complaint was made on this defendant on the 13th day of March,
1924, and that it is a stipulated fact that since the year 1908 and up to April 30, 1924, she was "residing in the City
of Paris, France." Even so, it is contended that the service was valid by reason of the fact that it was made at the
usual place of residence and abode of the defendant husband, and that legally the residence of the wife is that of
the husband. That contention is in direct conflict with the admission of the plaintiff that since the year 1908 and up to
April 30, 1924, the wife was residing in the City of Paris. The residence of the wife in the City of Paris covered a
period of sixteen years.

It may be that where in the ordinary course of business the wife is absent from the residence of husband on a
pleasure trip or for business reasons or to visit friends or relatives that, in the nature of such things, the residence of
the wife would continue and remain to be that of the husband. That is not this case. For sixteen years the residence
of the husband was in the City of Manila, and the residence of the wife was in the City of Paris.

Upon the admitted facts, we are clearly of the opinion that the residence of the husband was not the usual place of
residence of the wife. Giving full force and effect to the legal presumption that the usual place of residence of the
wife is that of her husband, that presumption is overcome by the admitted fact that the wife was "residing in the City
of Paris, France, since the year 1908 up to April 30, 1924."

Without placing a limitation upon the length of time sufficient to overcome the legal presumption, suffice it to say that
sixteen years is amply sufficient.

It follows that the substituted service attempted to be made under the provisions of section 396 of the Code of Civil
Procedure is null and void, and that by such service the court never acquired jurisdiction of the person of the
defendant wife. In that event the plaintiff contends that under his power of attorney, the husband was the general
agent of the wife with authority to accept service of process for her and in her name, and that by reason of the fact
that the husband was duly served and that he failed or neglected to appear or answer, his actions and conduct were
binding on the defendant wife. Be that as it may, there is nothing in the record tending to show that the husband
accepted service of any process for or on account of his wife or as her agent, or that he was acting for or
representing her in his failure and neglect to appear or answer.

The first appearance in court of the defendant wife was made when she filed the motion of August 26, 1924, in
which she prays in legal effect that the judgment against her be annulled and set aside and the case reopened, and
that she be permitted to file an answer and to have the case tried on its merits. That was a general appearance as
distinguished from a special appearance. When she filed that motion asking to be relieved from the legal force and
effect of the judgment, she submitted herself to the jurisdiction of the court. If, in the first instance, she had made a
special appearance to question only the jurisdiction of the court, and had not appeared for any other or different
purpose, another and a different question would have been presented. Having made a general appearance for one
purpose, she is now in court for all purposes.

It is an elementary rule of law that as a condition precedent, to entitle a party to relief from a judgment "taken
against him through his mistake, inadvertence, surprise or excusable neglect," that, among other things, he must
show to the court that he has a meritorious defense. Based upon that legal principle the bank contends that no such
a showing has been made by the defendant wife. That involves the legal construction of the power of attorney
which, it is admitted, the wife gave to her husband on August 25, 1903, which, among other things material to this
opinion, recites that she gave to him:

Such full and ample power as required or necessary, to the end that he may perform on my behalf, and in
my name and availing himself of all my rights and actions, the following acts:

5. Loan or borrow any sums of money or fungible things at the rate of interest and for the time and under the
conditions which he might deem convenient, collecting or paying the capital or the interest on their
respective due dates; executing and signing the corresponding public or private documents related thereto,
and making all these transactions with or without mortgages, pledges or personal guaranty.

6. Enter into any kind of contracts whether civil or mercantile, giving due form thereof either by private
documents or public deeds with all clauses and requisites provided by law for their validity and effect, having
due regard to the nature of each contract.
7. Draw, endorse, accept, issue and negotiate any drafts, bills of exchange, letters of credit, letters of
payment, bills, vales, promissory notes and all kinds of documents representative of value; paying or
collecting the value thereof on their respective due dates, or protesting them for non-acceptance or non-
payment, utilizing in this case the rights granted by the Code of Commerce now in force, in order to collect
the value thereof, interests, expenses and damages against whomsoever should be liable therefor.

8. Institute before the competent courts the corresponding action in justification of the possession which I
have or might have over any real estate, filing the necessary pleadings, evidencing them by means of
documentary or oral testimony admissible by law; accepting notices and summons, and instituting all
necessary proceedings for the termination thereof and the consequent inscription of said action in the
corresponding office of the Register of Deeds, in the same manner in which I might do if personally present
and acting.

9. Represent me in all cases before the municipal courts, justice of the peace courts, courts of first instance,
supreme court and all other courts of regular or any other special jurisdiction, appearing before them in any
civil or criminal proceedings, instituting and filing criminal and ordinary civil actions, claims in intestate and
testamentary proceedings, insolvencies and other actions provided by law; filing complaints, answers,
counterclaims, cross complaints, criminal complaints and such other pleadings as might be necessary; filing
demurrers, taking and offering judicial admissions, documentary, expert, oral evidence, and others provided
by law, objecting to and opposing whatever contrary actions are taken, offered and presented; accepting
notices, citations and summons and acknowledging their receipt to the proper judicial officials.

10. For to the end stated above and the incidents related thereto, I confer on him ample and complete
power, binding myself in the most solemn manner as required by law to recognize as existing and valid all
that he might do by virtue hereof.

It is admitted that on December 29, 1921, the defendant husband signed the name of the defendant wife to the
promissory note in question, and that to secure the payment of the note, upon the same date and as attorney in fact
for his wife, the husband signed the real mortgage in question in favor of the bank, and that the mortgage was duly
executed.

Based upon such admissions, the bank vigorously contends that the defendant wife has not shown a meritorious
defense. In fact that it appears from her own showing that she does not have a legal defense. It must be admitted
that upon the face of the instruments, that fact appears to be true. To meet that contention, the defendant wife
points out, first, that the note in question is a joint and several note, and, second, that it appears from the evidence,
which she submitted, that she is nothing more than an accommodation maker of the note. She also submits
evidence which tends to show:

First. That prior to July 25, 1921, Jean M. Poizat was personally indebted to the Bank of the Philippine
Islands in the sum of P290,050.02 (Exhibit H, page 66, bill of exceptions);

Second. That on July 25, 1921, the personal indebtedness of Jean M. Poizat was converted into six
promissory notes aggregating the sum of P308,458.58 of which P16,180 were paid, leaving an outstanding
balance of P292,278.58 (Exhibits D, E, F, G, H and I, pages 75-80, bill of exceptions);

Third. That on December 29, 1921, the above promissory notes were cancelled and substituted by a joint
and several note signed by Jean M. Poizat in his personal capacity and as agent of Gabriela Andrea de
Coster y Roxas and as member of the firm J.M. Poizat and Co.

In other words, that under the power of attorney, the husband had no authority for and on behalf of the wife to
execute a joint and several note or to make her liable as an accommodation maker. That the debt in question was a
preexisting debt of her husband and of the firm of J.M. Poizat and Co., to which she was not a party, and for which
she was under no legal obligation to pay. That she never borrowed any money from the bank, and that previous to
the signing of the note, she never had any dealings with the bank and was not indebted to the bank in any amount.
That the old, original debts of her husband and J.M. Poizat and Co. to the bank, to which she was not a party, were
all taken up and merged in the new note of December 29, 1921, in question, and that at the time the note was
signed, she did not borrow any money, and that no money was loaned by the bank to the makers of the note.

Assuming such facts to be true, it would be a valid defense by the defendant wife to the payment of the note. There
is no claim or pretense that the bank was misled or deceived. If it had made an actual loan of P292,000 at the time
the note was executed, another and a different question would be presented. In the ordinary course of its business,
the bank knew that not a dollar was loaned or borrowed on the strength of the note. It was given at the urgent and
pressing demand of the bank to obtain security for the six different notes which it held against J.M. Poizat and Co.
and Jean M. Poizat of date July 25, 1921, aggregating about P292,000, and at the time it was given, those notes
were taken up and merged in the note of December 29, 1921, now in question. Upon the record before us, there is
no evidence that the defendant wife was a party to the notes of July 25, 1921, or that she was under any legal
liability to pay them.
The note and mortgage in question show upon their face that at the time they were executed, the husband was
attorney in fact for the defendant wife, and the bank knew or should have known the nature and extent of his
authority and the limitations upon his power.

You will search the terms and provisions of the power of attorney in vain to find any authority for the husband to
make his wife liable as a surety for the payment of the preexisting debt of a third person.

Paragraph 5 of the power of attorney above quoted authorizes the husband for in the name of his wife to "loan or
borrow any sums of money or fungible things, etc." This should be construed to mean that the husband had power
only to loan his wife's money and to borrow money for or on account of his wife as her agent and attorney in fact.
That does not carry with it or imply that he had the legal right to make his wife liable as a surety for the preexisting
debt of a third person.

Paragraph 6 authorizes him to "enter into any kind of contracts whether civil or mercantile, giving due form thereof
either by private documents or public deeds, etc."

Paragraph 7 authorizes him to "draw, endorse, accept, issue and negotiate any drafts, bills of exchange, letters of
credit, letters of payment, bills, vales, promissory notes, etc."

The foregoing are the clauses in the power of attorney upon which the bank relies for the authority of the husband to
execute promissory notes for and on behalf of his wife and as her agent.

It will be noted that there is no provision in either of them which authorizes or empowers him to sign anything or to
do anything which would make his wife liable as a surety for a preexisting debt.

It is fundamental rule of construction that where in an instrument powers and duties are specified and defined, that
all of such powers and duties are limited and confined to those which are specified and defined, and that all other
powers and duties are excluded.

Paragraph 8 of the power of attorney authorizes the husband to institute, prosecute and defend all actions or
proceedings in a court of justice, including "accepting notices and summons."

There is nothing in the record tending to show that the husband accepted the service of any notice or summons in
the action on behalf of the bank, and even so, if he had, it would not be a defense to open up and vacate a judgment
under section 113 of the Code of Civil Procedure. The same thing is true as to paragraph 9 of the power of attorney.

The fact that an agent failed and neglected to perform his duties and to represent the interests of his principal is not
a bar to the principal obtaining legal relief for the negligence of her agent, provided that the application for such a
relief is duly and properly made under the provisions of section 113.

It is very apparent from the face of the instrument that the whole purpose and intent of the power of attorney was to
empower and authorize the husband to look after and protect the interests of the wife and for her and in her name to
transact any and all of her business. But nowhere does it provide or authorize him to make her liable as a surety for
the payment of the preexisting debt of a third person.

Hence, it follows that the husband was not authorized or empowered to sign the note in question for and on behalf
of the wife as her act and deed, and that as to her the note is void for want of power of her husband to execute it.

The same thing is true as to the real mortgage to the bank. It was given to secure the note in question and was not
given for any other purpose. The real property described in the mortgage to the bank was and is the property of the
wife. The note being void as to her, it follows that as to her the real mortgage to the bank is also void for want of
power to execute it.

It appears that before the motion in question was filed, there were certain negotiations between the bank and the
attorney for the wife with a view of a compromise or settlement of the bank's claim against her, and that during such
negotiations, there was some evidence or admissions on the part of her attorney that she was liable for the bank's
claim. It now contends that as a result of such negotiations and admissions, the wife is estopped to deny her liability.
but it also appears that during such negotiations, both the wife and her attorney did not have any knowledge of the
actual facts, and that she was then ignorant of the defense upon which she now relies. Be that as it may, such
negotiations were more or less in the nature of a compromise which was rejected by the bank, and it appears that in
any event both the wife and her attorney did not have any knowledge of the facts upon which they now rely as a
defense.

There is no claim or pretense that the debt in question was contracted for or on account of the "usual daily expenses
of the family, incurred by the wife or by her order, with the tacit consent of the husband," as provided for in article
1362 of the Civil Code. Neither is there any evidence tending to show that the wife was legally liable for any portion
of the original debt evidence by the note in question.
This decision as to the bank on this motion is based on the assumption that the facts are true as set forth and
alleged in the petition to set aside and vacate the judgment as to the wife, but we are not making any finding as to
the actual truth of such facts. That remains for the defendant wife to prove such alleged facts when the case is tried
on its merits.

It follows that the opinion of the lower court in refusing to set aside and vacate the judgment of the plaintiff bank
against the defendant wife is reversed, and that judgment is vacated and set aside, and as to the bank the case is
remanded to the lower court, with leave for the wife to file an answer to plaintiff's cause of action, and to have the
case tried on its merits and for any further proceedings not inconsistent with this opinion.

As to the judgment in favor of the Dominican Fathers, it appears that their plea above quoted in the statement of
facts was filed on April 24, 1924. In that plea they say that they have a first mortgage on the property described in
paragraph IV of the complaint for P125,000 with interest at 10 per cent per annum. That the mortgagors Jean M.
Poizat and Gabriela Andrea de Coster y Roxas have not paid the principal or the stipulated interest from December
16, 1921, to date, which up to the 30th day of April, 1924, amounts to P27,925.34. Wherefore, it is prayed that the
credit above-mentioned be taken into account when the second mortgage is foreclosed.

No other plea of any kind, nature or description was filed by it. The record shows that a copy of this alleged plea was
served upon the attorneys for the plaintiff bank. There is nothing in the record which shows or tends to show that a
copy of it was ever served on either one of the defendants. Neither is there any evidence that either of the
defendants ever appeared in the original action. In fact, judgment was rendered against them by default.

Under such a state of facts, the judgment in favor of the Dominican Fathers cannot be sustained. In the first place,
the plea above quoted filed on April 24, 1924, would not be sufficient to sustain a judgment. It does not even ask for
a judgment of the foreclosure of its mortgage. In the second place, no copy of the plea was ever served upon either
of the defendants, who were the real parties in interest, and against whom a judgment was rendered for the full
amount of the note and the foreclosure of the mortgage. Such a proceeding cannot be sustained on any legal
principle.

Unless waived, a defendant has a legal right to service of process, to his day in court and to be heard in his
defense.

From what has been said, it follows that, if the transaction between the Dominican Fathers and Jean M. Poizat as
attorney in fact for his wife was an original one and the P125,000 was actually loaned at the time the note and
mortgage were executed and the money was in good faith delivered to the husband as the agent and attorney in
fact of the wife, it would then be a valid exercise of the power given to the husband, regardless of the question as to
what he may have done with the money.

Paragraph 5 of the power of attorney specifically authorizes him to borrow money for and on account of his wife and
her name, "and making all these transactions with or without mortgages, pledges or personal guaranty."

It follows that the judgment of the lower court in favor of La Orden de Dominicos or PP. Predicadores de la Provincia
del Santisimo Rosario is reversed, without prejudice to its right to either file an original suit to foreclose its mortgage
or to file a good and sufficient plea as intervenor in the instant suit, setting forth the facts upon which it relies for a
judgment on its note and the foreclosure of its mortgage, copies of which should be served upon the defendants.

Neither party to recover costs. So ordered.

Ostrand and Romualdez, JJ., concur.


Johnson and Malcolm, JJ., concur in the result.

Separate Opinions

VILLAMOR, J., concurring and dissenting:

I concur in the result reached by the court in ordering the remanding of the case for further proceedings, for in my
opinion, the defendant-appellant, against whom a judgment by default was rendered, has the right, under section
113 of the Code of Civil Procedure, to have said judgment set aside and to be given an opportunity to appear,
having alleged facts which, if proven, would constitute a good defense, but I dissent from the opinion of the majority
in so far as it attempts to decide certain features of the case raised by the defendant-appellant, without waiting for
the outcome of the new trial wherein the other parties must naturally have the same opportunity to present their
defenses against the facts alleged by the appellant. In my opinion, the merits of the question should not now be
discussed without giving the trial court an opportunity to pass upon the allegations and evidence of the parties
litigant.
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-17131 June 30, 1922

SING JUCO and SING BENGCO, plaintiffs-appellees,


vs.
ANTONIO SUNYANTONG and his wife VICENTA LLORENTE DE SUNYANTONG, defendants-appellants.

Montinola, Montinola and Hontiveros for appellants.


Fisher and De Witt for appellees.

ROMUALDEZ, J.:

On May 20, 1919, the plaintiffs obtained from Maria Gay a written option to purchase an estate known as "San
Antonio Estate," containing more than 2,000 hectares situated in the municipality of Passi, Province of Iloilo,
together with the large cattle existing on said estate. The term of the option expired, but the plaintiffs had it extended
verbally until 12 o 'clock noon of June 17, 1919.

The defendant Antonio Sunyantong was at the time an employee of the plaintiffs, and the preponderance of
evidence shows that they reposed confidence in him and did not mind disclosing their plans to him, concerning the
purchase of the aforesaid estate and the progress of their negotiations with Maria Gay.

It also sufficiently established in the records that in one of the conferences held by the plaintiffs among themselves,
relative to the purchase of the aforesaid estate, at which the defendant was present, the latter remarked that it would
be advisable to let some days elapse before accepting the terms of the transfer as proposed by Maria Gay, in order
that the latter might not think that they were coveting said property. This mere remark along in itself cannot be taken
to mean any wrongful intent on the part of said defendant, but it ceases to be innocent when taken in connection
with the fact, also proven, that when the defendant met Alipio de los Santos after the latter's return to Iloilo, sent by
the plaintiffs to examine the estate and satisfy himself of its condition, and Alipio de los Santos told him of his
favorable impression of the estate, he advised De los Santos not to report the estate to the plaintiffs as being so
highly valuable, for if it proved failure they might blame him, De los Santos. One becomes more strongly convinced
that this defendant has been unfaithful to his principals, the plaintiffs, when these circumstances are considered in
connection with the fact at an early hour in the morning of June 17, 1919, only the midday of which the term of
plaintiff's when these circumstances are considered in connection with the fact that at an early hour in the morning
of June 17, 1919, on the midday of which the term of plaintiff's option to purchase was to expire, said defendant
Antonio Sunyantong called at the house of Mari Gay when she was having breakfast, and offered to buy the estate
on the same terms proposed by her not yet accepted by the plaintiffs, making the offer to buy not for the benefit of
the plaintiff's, but for own wife, his codefendant Vicenta Llorente de Sunyatong. In view of the opportunity that
offered itself, but respecting the option granted the plaintiffs, Maria Gay communicated by telephone with Manuel
Sotelo, who was communicated by telephone with Manuel Sotelo, who was acting as broker for the plaintiffs in
these transactions, and told him that another buyer of the estate had presented himself who would accept the terms
proposed by her and that she would like to know immediately what decision had been reached by the plaintiffs on
the matter. In view of Maria Gay's insistence that the plaintiff give a categorical answer, Sing Bengco, one of the
plaintiffs who happened to be present at the time the telephone conversation between Maria Gay and Manuel Sotelo
took place, instructed Sotelo to inform her at the time that if she did not care to wait until 12 o'clock, "ella cuidado":
(she could do as she pleased). This is a purely Philippine phrase, an exact translation of the Tagalog, "siya ang
bahala" and approximately of the Visayan "ambut sa iya," which has very different, and even contradictory,
meanings. It might be interpreted in several different ways, such as a threat on the part of Sing Bengco to take legal
action against Maria Gay in case she did not wait until the expiration of the option, or that they would waive all
claims to the option and be agreeable to whatever action she might take. Interpreting the phrase to mean that the
plaintiffs waived their option to buy, Maria Gay closed the sale of the estate in favor of the defendant Antonio
Sunyantong.

Even supposing that this latter interpretation of the phrase in question was actual intention of Sing Bengco, the
action of the defendant Sunyantong in intervening in the negotiations in the manner in which he did does not make
him innocent of infidelity in view of the fact that he was an employee of the plaintiffs to whom he owed loyalty and
faithfullnes.

Even though it be concede that when he closed the contract of sale with Maria Gay the plaintiffs' option had expired,
but the fact cannot be denied that he was the cause of the option having precipitously come to such an end. His
disloyalty to his employers was responsible for Maria Gay not accepting the terms proposed by the plaintiffs,
because of being certain of another less exigent buyer. Without such intervention on the part of the defendant it is
presumed, taking into account all the circumstances of the case, that the sale of the estate in question would have
been consummated between Maria Gay and the plaintiffs, perhaps with such advantages to the plaintiffs, as they
expected to obtain by prolonging negotiations.

Such an act of infidelity committed by a trusted employee calculated to redound to his own benefit and to the
detriment of his employers cannot pass without legal sanction. Nemo debet aliena jactura locupletari; nemo ex suo
delicto meliorem suam conditionem facere potest. It is an illicit act committed with culpa and, therefore, its agent is
liable (art. 1089, Civil Code), for the damage caused (art. 1902, ibidem). Not identical, but similar, to this infidelity is
the abuse of the confidence sanctioned in our Penal Code as a generic circumstances, nay as specific aggravating
one, and even as an essential element of certain crimes.

This reparation provided for in the Civil Code and applied to the case at bar seems to be limited to the
indemnification of damages, as we are not aware of any express provision in said Code which imposes upon the
person thus held liable, any obligation, such as that of transferring to plaintiffs the estate in question.

Such principle, however, in case of this nature is generally recognized in our laws, since the case of commercial
agents ( factories) it is expressly established. Undoubtedly, formerly under the circumstances then prevailing such
sanction was not necessary in the field of civil law, because is sphere of action is the general relations of society;
but event then it was deemed necessary expressly to protect with such sanction the commercial relations wherein
the question of gain was involved, which is sometimes so imperatives as to ignore everything, even the very
principles of loyalty, honesty, and fidelity.

This specific relief, however, has already come to be applied in this jurisdiction in similar cases, among which can
be cited that of Camacho vs. Municipality of Baliuag (28 Phil., 466.)

And in the North American law such sanction is expressly recognized, and the transaction of this nature might be
regarded as an "equitable trust" by virtue of which the things acquired by an employee is deemed not to have been
acquired for his own benefit or that of any other person but for his principal, and held in trust for the latter (21 R. C.
L., 825; 2 Corpus Juris, 353).

After examination and consideration of the case we do not find in the appealed judgment any of errors assigned to
it; wherefore the same is affirmed with costs against the appellants. So ordered.

Araullo, C.J., Malcolm, Avanceña and Ostrand, JJ., concur.

Separate Opinions

VILLAMOR, J., dissenting:

In my opinion,. the judgment of the lower court ordering the defendants to execute a deed of conveyance to the
plaintiffs of the San Antonio Estate for the same price and with the same conditions as those of the purchase thereof
from Maria Gay, which is now in question, should be reversed, for I think that the case has been decided from a
point of view which, it may be stated, is strictly moral, but not juridical, as is required in judicial cases.

The defendant Sunyantong is held civilly liable for having purchased the land in question in behalf of his wife,
Vicenta Llorente, with knowledge of the fact that the plaintiffs, by whom he was employed, were negotiating with the
owner of the land for the purchase of the same. And he is held guilty of infidelity and even of abuse of confidence,
under the provisions of article 1902 of the Civil Code.

Accepting the statement of facts which appears in the majority opinion the liability of the defendant Sunyantong
should consist in the reparation of the damage caused to the plaintiff. Has any damage been proven to have arisen
from the culpable act of the defendant Sunyantong? I do not think that it has, and indeed no damage could have
been caused to the plaintiff Sing Bengco, for the record shows, that he had every opportunity to take advantage of
the option that was granted him to buy the land, and until the last moment the owner, in view of the fact that another
offer to purchase, which was that of the defendant Sunyantong, was being made to her, requested said Sing
Bengco to give her a definite answer and the latter simply answered through Manuel Sotelo that "if she (the owner)
could not wait until 12 o'clock ella cuidado (she could do as she pleased)." By this the plaintiff Sing Bengco gave it
to understand that he waived his right to the option and the owner was free to dispose of the estate. Application is to
be made here of the juridical principle scienti et volenti nihil fit injuria.

The court itself says in its decision: "This reparation provided for in the Civil Code (art. 1902) and applied to the case
at bar seems to be limited to the indemnification of damages, as we are not aware of any express provision in said
Code, which imposes upon the person thus held liable, any obligation, such as that of transferring to plaintiffs the
estate in question." But, in an attempt to solve the difficulty, the case of commercial agents and the doctrine laid
down in the case of Camacho vs. Municipality of Baliuag (28 Phil., 466) are invoked. With all due respect to the
opinion of my worthy colleagues, permit me to say that, case at bar of article 288 of the Code of Commerce which
says:
Factors can not transact business for their own account, nor interest themselves in their own name or in that
of another person, in negotiations of the same character as those they are engaged in for their principals,
unless the latter expressly authorize them thereto.

Should they negotiate without this authorization, the profits of the negotiation shall be for the principal and
the losses for the account of the factor.

If the principal has granted the factor authorization to make transactions for his own account or in union with
other persons, the former shall not be entitled to the profits, nor shall he participate in the losses which may
be suffered.

If the principal has permitted the factor to have an interest in some transaction, the participation of the latter
in the profits shall be, unless there is an agreement to the contrary, in proportion to the capital he may have
contributed and should he not have contributed any capital, he shall be considered a working partner.

It is not necessary to enter in to a lengthy discussion in order to demonstrate the inapplicability of the article cited to
the case under consideration; it is sufficient to say that, as shown in the record, the plaintiffs, as merchants, were
dealing in dry goods and sugar and other articles connected with the sugar business. It does not appear that the firm
was also engaged in the purchase of real properties. There is no proof that the defendant Sunyantong was in
charge of a commercial establishment, managing it in the name of the plaintiffs. Also, I do not think that the decision
of this court in the case of Camacho vs. Municipality of Baliuag, supra, can be invoked in support of the appealed
judgment. In the syllabus of that decision it is said: "The settled doctrine in this jurisdiction is that realty acquired with
funds and the instance of another in the discharge of an undisclosed agency express or implied, belongs to the
principal, and an action lies in favor of such undisclosed principal to compel a conveyance to himself so long as the
rights of innocent third parties have not intervened."

This is the doctrine maintained in the case of Camacho vs. Municipality of Baliuag, above cited, and in that of Uy
Aloc vs. Cho Jan Ling (19 Phil., 202).

In the first case, Camacho succeeded in registering in his name the two parcels of land occupied by the municipality
of Baliuag as school and municipal building site. It was proven that the plaintiff Camacho bought said parcels of land
at a public auction, having paid the price with money furnished by the then parish priest of the town, Father Prada,
who had been requested by influential persons in the locality to furnish the money for the purchase of said lands in
order that the same might remain in the hands of the municipality, with the understanding that the latter would repay
it to him at a future date. The court held that the plaintiff should execute a conveyance of the lands in dispute to the
municipality.

In Uy Aloc vs. Cho Jan Ling, the members of Chinese club agreed to acquire certain real property and for that
purpose subscribed a fund and placed it in the hands of the defendants, who made the purchase in his own name.
Subsequently he refused to account for the rents of the estate and claimed it as his own. This court held that the
parol proof of the trust was sufficient to throw down the rights which the plaintiff had by reason of the duly registered
title deeds, and decreed that a conveyance be made by the defendant to the members of the association.

In the cited case of Camacho vs. Municipality of Baliuag the court said: "There have been a number of cases before
this court in which a title to real property was acquired by a person, in his own name while acting in a fiduciary
capacity, and who afterwards sought to take advantage of the property for himself. This court has invariably held
such evidence competent as between the fiduciary and the cestui que trust."

But in the case under consideration there is no proof of the defendants having acquired the land in question in the
name or in behalf of the plaintiffs, or at the request of the latter, or with funds furnished by them. Said defendants
had legal capacity to buy (art. 1457, Civil Code) and are not within any of the cases prohibited by article 1459 of the
same Code.

To my mind, there is in the cause no sufficient ground for compelling the defendants to transfer the land in question
to plaintiffs, and so I am constrained to dissent from the opinion of the majority.
Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-116650 May 23, 1995

TOYOTA SHAW, INC., petitioner,


vs.
COURT OF APPEALS and LUNA L. SOSA, respondents.

DAVIDE, JR., J.:

At the heart of the present controversy is the document marked Exhibit "A" 1 for the private respondent, which was
signed by a sales representative of Toyota Shaw, Inc. named Popong Bernardo. The document reads as follows:

AGREEMENTS BETWEEN MR. SOSA


& POPONG BERNARDO OF TOYOTA
SHAW, INC.

1. all necessary documents will be submitted to TOYOTA SHAW, INC. (POPONG BERNARDO) a
week after, upon arrival of Mr. Sosa from the Province (Marinduque) where the unit will be used on
the 19th of June.

2. the downpayment of P100,000.00 will be paid by Mr. Sosa on June 15, 1989.

3. the TOYOTA SHAW, INC. LITE ACE yellow, will be pick-up [sic] and released by TOYOTA
SHAW, INC. on the 17th of June at 10 a.m.

(Sgd.) POPONG
BERNARDO.
Was this document, executed and signed by the petitioner's sales representative, a perfected contract of sale,
binding upon the petitioner, breach of which would entitle the private respondent to damages and attorney's fees?
The trial court and the Court of Appeals took the affirmative view. The petitioner disagrees. Hence, this petition for
review on certiorari.

The antecedents as disclosed in the decisions of both the trial court and the Court of Appeals, as well as in the
pleadings of petitioner Toyota Shaw, Inc. (hereinafter Toyota) and respondent Luna L. Sosa (hereinafter Sosa) are
as follows. Sometime in June of 1989, Luna L. Sosa wanted to purchase a Toyota Lite Ace. It was then a seller's
market and Sosa had difficulty finding a dealer with an available unit for sale. But upon contacting Toyota Shaw,
Inc., he was told that there was an available unit. So on 14 June 1989, Sosa and his son, Gilbert, went to the Toyota
office at Shaw Boulevard, Pasig, Metro Manila. There they met Popong Bernardo, a sales representative of Toyota.

Sosa emphasized to Bernardo that he needed the Lite Ace not later than 17 June 1989 because he, his family, and
a balikbayan guest would use it on 18 June 1989 to go to Marinduque, his home province, where he would celebrate
his birthday on the 19th of June. He added that if he does not arrive in his hometown with the new car, he would
become a "laughing stock." Bernardo assured Sosa that a unit would be ready for pick up at 10:00 a.m. on 17 June
1989. Bernardo then signed the aforequoted "Agreements Between Mr. Sosa & Popong Bernardo of Toyota Shaw,
Inc." It was also agreed upon by the parties that the balance of the purchase price would be paid by credit financing
through B.A. Finance, and for this Gilbert, on behalf of his father, signed the documents of Toyota and B.A. Finance
pertaining to the application for financing.

The next day, 15 June 1989, Sosa and Gilbert went to Toyota to deliver the downpayment of P100,000.00. They
met Bernardo who then accomplished a printed Vehicle Sales Proposal (VSP) No. 928, 2 on which Gilbert signed
under the subheading CONFORME. This document shows that the customer's name is "MR. LUNA SOSA" with
home address at No. 2316 Guijo Street, United Parañaque II; that the model series of the vehicle is a "Lite Ace
1500" described as "4 Dr minibus"; that payment is by "installment," to be financed by "B.A.," 3 with the initial cash
outlay of P100,000.00 broken down as follows:

a) downpayment — P 53,148.00
b) insurance — P 13,970.00
c) BLT registration fee — P 1,067.00
CHMO fee — P 2,715.00
service fee — P 500.00
accessories — P 29,000.00

and that the "BALANCE TO BE FINANCED" is "P274,137.00." The spaces provided for "Delivery Terms" were not
filled-up. It also contains the following pertinent provisions:

CONDITIONS OF SALES

1. This sale is subject to availability of unit.

2. Stated Price is subject to change without prior notice, Price prevailing and in effect at time of
selling will apply. . . .

Rodrigo Quirante, the Sales Supervisor of Bernardo, checked and approved the VSP.

On 17 June 1989, at around 9:30 a.m., Bernardo called Gilbert to inform him that the vehicle would not be ready for
pick up at 10:00 a.m. as previously agreed upon but at 2:00 p.m. that same day. At 2:00 p.m., Sosa and Gilbert met
Bernardo at the latter's office. According to Sosa, Bernardo informed them that the Lite Ace was being readied for
delivery. After waiting for about an hour, Bernardo told them that the car could not be delivered because "nasulot
ang unit ng ibang malakas."

Toyota contends, however, that the Lite Ace was not delivered to Sosa because of the disapproval by B.A. Finance
of the credit financing application of Sosa. It further alleged that a particular unit had already been reserved and
earmarked for Sosa but could not be released due to the uncertainty of payment of the balance of the purchase
price. Toyota then gave Sosa the option to purchase the unit by paying the full purchase price in cash but Sosa
refused.

After it became clear that the Lite Ace would not be delivered to him, Sosa asked that his downpayment be
refunded. Toyota did so on the very same day by issuing a Far East Bank check for the full amount of
P100,000.00, 4 the receipt of which was shown by a check voucher of Toyota,5 which Sosa signed with the
reservation, "without prejudice to our future claims for damages."
Thereafter, Sosa sent two letters to Toyota. In the first letter, dated 27 June 1989 and signed by him, he demanded
the refund, within five days from receipt, of the downpayment of P100,000.00 plus interest from the time he paid it
and the payment of damages with a warning that in case of Toyota's failure to do so he would be constrained to take
legal action. 6 The second, dated 4 November 1989 and signed by M. O. Caballes, Sosa's counsel, demanded one
million pesos representing interest and damages, again, with a warning that legal action would be taken if payment
was not made within three days.7 Toyota's counsel answered through a letter dated 27 November 1989 8 refusing to
accede to the demands of Sosa. But even before this answer was made and received by Sosa, the latter filed on 20
November 1989 with Branch 38 of the Regional Trial Court (RTC) of Marinduque a complaint against Toyota for
damages under Articles 19 and 21 of the Civil Code in the total amount of P1,230,000.00.9 He alleges, inter
alia, that:

9. As a result of defendant's failure and/or refusal to deliver the vehicle to plaintiff, plaintiff suffered
embarrassment, humiliation, ridicule, mental anguish and sleepless nights because: (i) he and his
family were constrained to take the public transportation from Manila to Lucena City on their way to
Marinduque; (ii) his balikbayan-guest canceled his scheduled first visit to Marinduque in order to
avoid the inconvenience of taking public transportation; and (iii) his relatives, friends, neighbors and
other provincemates, continuously irked him about "his Brand-New Toyota Lite Ace — that never
was." Under the circumstances, defendant should be made liable to the plaintiff for moral damages
in the amount of One Million Pesos (P1,000,000.00). 10

In its answer to the complaint, Toyota alleged that no sale was entered into between it and Sosa, that Bernardo had
no authority to sign Exhibit "A" for and in its behalf, and that Bernardo signed Exhibit "A" in his personal capacity. As
special and affirmative defenses, it alleged that: the VSP did not state date of delivery; Sosa had not completed the
documents required by the financing company, and as a matter of policy, the vehicle could not and would not be
released prior to full compliance with financing requirements, submission of all documents, and execution of the
sales agreement/invoice; the P100,000.00 was returned to and received by Sosa; the venue was improperly laid;
and Sosa did not have a sufficient cause of action against it. It also interposed compulsory counterclaims.

After trial on the issues agreed upon during the pre-trial session, 11 the trial court rendered on 18 February 1992 a
decision in favor of Sosa. 12 It ruled that Exhibit "A," the "AGREEMENTS BETWEEN MR. SOSA AND POPONG
BERNARDO," was a valid perfected contract of sale between Sosa and Toyota which bound Toyota to deliver the
vehicle to Sosa, and further agreed with Sosa that Toyota acted in bad faith in selling to another the unit already
reserved for him.

As to Toyota's contention that Bernardo had no authority to bind it through Exhibit "A," the trial court held that the
extent of Bernardo's authority "was not made known to plaintiff," for as testified to by Quirante, "they do not
volunteer any information as to the company's sales policy and guidelines because they are internal
matters." 13 Moreover, "[f]rom the beginning of the transaction up to its consummation when the downpayment was
made by the plaintiff, the defendants had made known to the plaintiff the impression that Popong Bernardo is an
authorized sales executive as it permitted the latter to do acts within the scope of an apparent authority holding him
out to the public as possessing power to do these acts." 14 Bernardo then "was an agent of the defendant Toyota
Shaw, Inc. and hence bound the defendants." 15

The court further declared that "Luna Sosa proved his social standing in the community and suffered besmirched
reputation, wounded feelings and sleepless nights for which he ought to be compensated." 16 Accordingly, it
disposed as follows:

WHEREFORE, viewed from the above findings, judgment is hereby rendered in favor of the plaintiff
and against the defendant:

1. ordering the defendant to pay to the plaintiff the sum of P75,000.00 for moral
damages;

2. ordering the defendant to pay the plaintiff the sum of P10,000.00 for exemplary
damages;

3. ordering the defendant to pay the sum of P30,000.00 attorney's fees plus
P2,000.00 lawyer's transportation fare per trip in attending to the hearing of this case;

4. ordering the defendant to pay the plaintiff the sum of P2,000.00 transportation fare
per trip of the plaintiff in attending the hearing of this case; and

5. ordering the defendant to pay the cost of suit.

SO ORDERED.

Dissatisfied with the trial court's judgment, Toyota appealed to the Court of Appeals. The case was docketed as CA-
G.R. CV No. 40043. In its decision promulgated on 29 July 1994,17 the Court of Appeals affirmed in toto the
appealed decision.
Toyota now comes before this Court via this petition and raises the core issue stated at the beginning of
the ponenciaand also the following related issues: (a) whether or not the standard VSP was the true and
documented understanding of the parties which would have led to the ultimate contract of sale, (b) whether or not
Sosa has any legal and demandable right to the delivery of the vehicle despite the non-payment of the consideration
and the non-approval of his credit application by B.A. Finance, (c) whether or not Toyota acted in good faith when it
did not release the vehicle to Sosa, and (d) whether or not Toyota may be held liable for damages.

We find merit in the petition.

Neither logic nor recourse to one's imagination can lead to the conclusion that Exhibit "A" is a perfected contract of
sale.

Article 1458 of the Civil Code defines a contract of sale as follows:

Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in
money or its equivalent.

A contract of sale may be absolute or conditional.

and Article 1475 specifically provides when it is deemed perfected:

Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the thing
which is the object of the contract and upon the price.

From that moment, the parties may reciprocally demand performance, subject to the provisions of
the law governing the form of contracts.

What is clear from Exhibit "A" is not what the trial court and the Court of Appeals appear to see. It is not a contract of
sale. No obligation on the part of Toyota to transfer ownership of a determinate thing to Sosa and no correlative
obligation on the part of the latter to pay therefor a price certain appears therein. The provision on the downpayment
of P100,000.00 made no specific reference to a sale of a vehicle. If it was intended for a contract of sale, it could
only refer to a sale on installment basis, as the VSP executed the following day confirmed. But nothing was
mentioned about the full purchase price and the manner the installments were to be paid.

This Court had already ruled that a definite agreement on the manner of payment of the price is an essential
element in the formation of a binding and enforceable contract of sale. 18 This is so because the agreement as to the
manner of payment goes into the price such that a disagreement on the manner of payment is tantamount to a
failure to agree on the price. Definiteness as to the price is an essential element of a binding agreement to sell
personal property. 19

Moreover, Exhibit "A" shows the absence of a meeting of minds between Toyota and Sosa. For one thing, Sosa did
not even sign it. For another, Sosa was well aware from its title, written in bold letters, viz.,

AGREEMENTS BETWEEN MR. SOSA & POPONG BERNARDO OF TOYOTA


SHAW, INC.

that he was not dealing with Toyota but with Popong Bernardo and that the latter did not misrepresent that he had
the authority to sell any Toyota vehicle. He knew that Bernardo was only a sales representative of Toyota and hence
a mere agent of the latter. It was incumbent upon Sosa to act with ordinary prudence and reasonable diligence to
know the extent of Bernardo's authority as an
agent20 in respect of contracts to sell Toyota's vehicles. A person dealing with an agent is put upon inquiry and must
discover upon his peril the authority of the agent.21

At the most, Exhibit "A" may be considered as part of the initial phase of the generation or negotiation stage of a
contract of sale. There are three stages in the contract of sale, namely:

(a) preparation, conception, or generation, which is the period of negotiation and bargaining, ending
at the moment of agreement of the parties;

(b) perfection or birth of the contract, which is the moment when the parties come to agree on the
terms of the contract; and

(c) consummation or death, which is the fulfillment or performance of the terms agreed upon in the
contract.22

The second phase of the generation or negotiation stage in this case was the execution of the VSP. It must be
emphasized that thereunder, the downpayment of the purchase price was P53,148.00 while the balance to be paid
on installment should be financed by B.A. Finance Corporation. It is, of course, to be assumed that B.A. Finance
Corp. was acceptable to Toyota, otherwise it should not have mentioned B.A. Finance in the VSP.

Financing companies are defined in Section 3(a) of R.A. No. 5980, as amended by P.D. No. 1454 and P.D. No.
1793, as "corporations or partnerships, except those regulated by the Central Bank of the Philippines, the Insurance
Commission and the Cooperatives Administration Office, which are primarily organized for the purpose of extending
credit facilities to consumers and to industrial, commercial, or agricultural enterprises, either by discounting or
factoring commercial papers or accounts receivables, or by buying and selling contracts, leases, chattel mortgages,
or other evidence of indebtedness, or by leasing of motor vehicles, heavy equipment and industrial machinery,
business and office machines and equipment, appliances and other movable property." 23

Accordingly, in a sale on installment basis which is financed by a financing company, three parties are thus involved:
the buyer who executes a note or notes for the unpaid balance of the price of the thing purchased on installment,
the seller who assigns the notes or discounts them with a financing company, and the financing company which is
subrogated in the place of the seller, as the creditor of the installment buyer. 24 Since B.A. Finance did not approve
Sosa's application, there was then no meeting of minds on the sale on installment basis.

We are inclined to believe Toyota's version that B.A. Finance disapproved Sosa's application for which reason it
suggested to Sosa that he pay the full purchase price. When the latter refused, Toyota cancelled the VSP and
returned to him his P100,000.00. Sosa's version that the VSP was cancelled because, according to Bernardo, the
vehicle was delivered to another who was "mas malakas" does not inspire belief and was obviously a delayed
afterthought. It is claimed that Bernardo said, "Pasensiya kayo, nasulot ang unit ng ibang malakas," while the Sosas
had already been waiting for an hour for the delivery of the vehicle in the afternoon of 17 June 1989. However, in
paragraph 7 of his complaint, Sosa solemnly states:

On June 17, 1989 at around 9:30 o'clock in the morning, defendant's sales representative, Mr.
Popong Bernardo, called plaintiff's house and informed the plaintiff's son that the vehicle will not be
ready for pick-up at 10:00 a.m. of June 17, 1989 but at 2:00 p.m. of that day instead. Plaintiff and his
son went to defendant's office on June 17 1989 at 2:00 p.m. in order to pick-up the vehicle but the
defendant for reasons known only to its representatives, refused and/or failed to release the vehicle
to the plaintiff. Plaintiff demanded for an explanation, but nothing was given; . . . (Emphasis
supplied). 25

The VSP was a mere proposal which was aborted in lieu of subsequent events. It follows that the VSP created no
demandable right in favor of Sosa for the delivery of the vehicle to him, and its non-delivery did not cause any legally
indemnifiable injury.

The award then of moral and exemplary damages and attorney's fees and costs of suit is without legal basis.
Besides, the only ground upon which Sosa claimed moral damages is that since it was known to his friends,
townmates, and relatives that he was buying a Toyota Lite Ace which they expected to see on his birthday, he
suffered humiliation, shame, and sleepless nights when the van was not delivered. The van became the subject
matter of talks during his celebration that he may not have paid for it, and this created an impression against his
business standing and reputation. At the bottom of this claim is nothing but misplaced pride and ego. He should not
have announced his plan to buy a Toyota Lite Ace knowing that he might not be able to pay the full purchase price.
It was he who brought embarrassment upon himself by bragging about a thing which he did not own yet.

Since Sosa is not entitled to moral damages and there being no award for temperate, liquidated, or compensatory
damages, he is likewise not entitled to exemplary damages. Under Article 2229 of the Civil Code, exemplary or
corrective damages are imposed by way of example or correction for the public good, in addition to moral,
temperate, liquidated, or compensatory damages.

Also, it is settled that for attorney's fees to be granted, the court must explicitly state in the body of the decision, and
not only in the dispositive portion thereof, the legal reason for the award of attorney's fees. 26 No such explicit
determination thereon was made in the body of the decision of the trial court. No reason thus exists for such an
award.

WHEREFORE, the instant petition is GRANTED. The challenged decision of the Court of Appeals in CA-G.R. CV
NO. 40043 as well as that of Branch 38 of the Regional Trial Court of Marinduque in Civil Case No. 89-14 are
REVERSED and SET ASIDE and the complaint in Civil Case No. 89-14 is DISMISSED. The counterclaim therein is
likewise DISMISSED.

No pronouncement as to costs.

SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 114091 June 29, 1995

BACALTOS COAL MINES and GERMAN A. BACALTOS, petitioners,


vs.
HON. COURT OF APPEALS and SAN MIGUEL CORPORATION, respondents.

DAVIDE, JR., J.:

Petitioners seek the reversal of the decision of 30 September 1993 of the Court of Appeals in CA-G.R. CV No.
35180,1 entitled "San Miguel Corporation vs. Bacaltos Coal Mines, German A. Bacaltos and Rene R. Savellon,"
which affirmed the decision of 19 August 1991 of the Regional Trial Court (RTC) of Cebu, Branch 9, in Civil Case
No. CEB-81872 holding petitioners Bacaltos Coal Mines and German A. Bacaltos and their co-defendant Rene R.
Savellon jointly and severally liable to private respondent San Miguel Corporation under a Trip Charter Party.

The paramount issue raised is whether Savellon was duly authorized by the petitioners to enter into the Trip Charter
Party (Exhibit "A") 3 under and by virtue of an Authorization (Exhibit "C" and Exhibit "1"),4 dated 1 March 1988, the
pertinent portions of which read as follows:

I. GERMAN A. BACALTOS, of legal age, Filipino, widower, and residing at second street, Espina
Village, Cebu City, province of Cebu, Philippines, do hereby authorize RENE R. SAVELLON, of legal
age, Filipino and residing at 376-R Osmeña Blvd., Cebu City, Province of Cebu, Philippines, to use
the coal operating contract of BACALTOS COAL MINES of which I am the proprietor, for any
legitimate purpose that it may serve. Namely, but not by way of limitation, as follows:

(1) To acquire purchase orders for and in behalf of BACALTOS COAL MINES;

(2) To engage in trading under the style of BACALTOS COAL MINES/RENE


SAVELLON;

(3) To collect all receivables due or in arrears from people or companies having
dealings under BACALTOS COAL MINES/RENE SAVELLON;

(4) To extend to any person or company by substitution the same extent of authority
that is granted to Rene Savellon;

(5) In connection with the preceeding paragraphs to execute and sign documents,
contracts, and other pertinent papers.

Further, I hereby give and grant to RENE SAVELLON full authority to do and perform all and every
lawful act requisite or necessary to carry into effect the foregoing stipulations as fully to all intents
and purposes as I might or would lawfully do if personally present, with full power of substitution and
revocation.

The Trip Charter Party was executed on 19 October 1988 "by and between BACALTOS COAL MINES, represented
by its Chief Operating Officer, RENE ROSEL SAVELLON" and private respondent San Miguel Corporation
(hereinafter SMC), represented by Francisco B. Manzon, Jr., its "SAVP and Director, Plant Operations-Mandaue"
Thereunder, Savellon claims that Bacaltos Coal Mines is the owner of the vessel M/V Premship II and that for
P650,000.00 to be paid within seven days after the execution of the contract, it "lets, demises" the vessel to
charterer SMC "for three round trips to Davao."

As payment of the aforesaid consideration, SMC issued a check (Exhibit "B") 5 payable to "RENE SAVELLON IN
TRUST FOR BACALTOS COAL MINES" for which Savellon issued a receipt under the heading of BACALTOS
COAL MINES with the address at No 376-R Osmeña Blvd., Cebu City (Exhibit "B-1"). 6

The vessel was able to make only one trip. Its demands to comply with the contract having been unheeded, SMC
filed against the petitioners and Rene Savellon the complaint in Civil Case No. CEB-8187 for specific performance
and damages. In their Answer,7 the petitioners alleged that Savellon was not their Chief Operating Officer and that
the powers granted to him are only those clearly expressed in the Authorization which do not include the power to
enter into any contract with SMC. They further claimed that if it is true that SMC entered into a contract with them, it
should have issued the check in their favor. They setup counterclaims for moral and exemplary damages and
attorney's fees.

Savellon did not file his Answer and was declared in default on 17 July 1990. 8

At the pre-trial conference on 1 February 1991, the petitioners and SMC agreed to submit the following issues for
resolution:

Plaintiff —

1. Whether or not defendants are jointly liable to plaintiff for damages on account of breach of
contract;

2. Whether or not the defendants acted in good faith in its representations to the plaintiff;

3. Whether or not defendant Bacaltos was duly enriched on the payment made by the plaintiff for the
use of the vessel;

4. Whether or not defendant Bacaltos is estopped to deny the authorization given to defendant
Savellon;

Defendants —

1. Whether or not the plaintiff should have first investigated the ownership of vessel M/V PREM
[SHIP] II before entering into any contract with defendant Savellon;

2. Whether or not defendant Savellon was authorized to enter into a shipping contract with the
[plaintiff] corporation;

3. Whether or not the plaintiff was correct and not mistaken in issuing the checks in payment of the
contract in the name of defendant Savellon and not in the name of defendant Bacaltos Coal Mines;

4. Whether or not the plaintiff is liable on defendants'


counterclaim.9

After trial, the lower court rendered the assailed decision in favor of SMC and against the petitioners and Savellon
as follows:

WHEREFORE, by preponderance of evidence, the Court hereby renders judgment in favor of


plaintiff and against defendants, ordering defendants Rene Savellon, Bacaltos Coal Mines and
German A. Bacaltos, jointly and severally, to pay to plaintiff:

1. The amount of P433,000.00 by way of reimbursement of the consideration paid by plaintiff, plus
12% interest to start from date of written demand, which is June 14, 1989;

2. The amount of P20,000.00 by way of exemplary damages;

3. The amount of P20,000.00 as attorney's fees and P5,000.00 as Litigation expenses. Plus costs. 10

It ruled that the Authorization given by German Bacaltos to Savellon necessarily included the power to enter into the
Trip Charter Party. It did not give credence to the petitioners' claim that the authorization refers only to coal or coal
mining and not to shipping because, according to it, "the business of coal mining may also involve the shipping of
products" and "a company such as a coal mining company is not prohibited to engage in entering into a Trip Charter
Party contract." It further reasoned out that even assuming that the petitioners did not intend to authorize Savellon to
enter into the Trip Charter Party, they are still liable because: (a) SMC appears to be an innocent party which has no
knowledge of the real intent of the parties to the Authorization and has reason to rely on the written Authorization
submitted by Savellon pursuant to Articles 1900 and 1902 of the Civil Code; (b) Savellon issued an official receipt of
Bacaltos Coal Mines (Exhibit "B-1") for the consideration of the Trip Charter Party, and the petitioners denial that
they caused the printing of such official receipt is "lame" because they submitted only a cash voucher and not their
official receipt; (c) the "Notice of Readiness" (Exhibit "A-1") is written on a paper with the letterhead "Bacaltos Coal
Mines" and the logo therein is the same as that appearing in their voucher; (d) the petitioners were benefited by the
payment because the real payee in the check is actually Bacaltos Coal Mines and since in the Authorization they
authorized Savellon to collect receivables due or in arrears, the check was then properly delivered to Savellon; and,
(e) if indeed Savellon had not been authorized or if indeed he exceeded his authority or if the Trip Charter Party was
personal to him and the petitioners have nothing to do with it, then Savellon should have "bother[ed] to answer" the
complaint and the petitioners should have filed "a cross-claim" against him.

In their appeal to the Court of Appeals in CA-G.R. CV No. 35180, the petitioners asserted that the trial court erred in:
(a) not holding that SMC was negligent in (1) not verifying the credentials of Savellon and the ownership of the
vessel, (2) issuing the check in the name of Savellon in trust for Bacaltos Coal Mines thereby allowing Savellon to
encash the check, and, (3) making full payment of P650,000.00 after the vessel made only one trip and before it
completed three trips as required in the Trip Charter Party; (b) holding that under the authority given to him Savellon
was authorized to enter into the Trip Charter Party; and, (c) holding German Bacaltos jointly and severally liable with
Savellon and Bacaltos Coal Mines. 11

As stated at the beginning, the Court of Appeals affirmed in toto the judgment of the trial court. It held that: (a) the
credentials of Savellon is not an issue since the petitioners impliedly admitted the agency while the ownership of the
vessel was warranted on the face of the Trip Charter Party; (b) SMC was not negligent when it issued the check in
the name of Savellon in trust for Bacaltos Coal Mines since the Authorization clearly provides that collectibles of the
petitioners can be coursed through Savellon as the agent; (c) the Authorization includes the power to enter into the
Trip Charter Party because the "five prerogatives" enumerated in the former is prefaced by the phrase "but not by
way of limitation"; (d) the petitioners' statement that the check should have been issued in the name of Bacaltos
Coal Mines is another implicit admission that the Trip Charter Party is part and parcel of the petitioners' business
notwithstanding German Bacaltos's contrary interpretation when he testified, and in any event, the construction of
obscure words should not favor him since he prepared the Authorization in favor of Savellon; and, (e) German
Bacaltos admitted in the Answer that he is the proprietor of Bacaltos Coal Mines and he likewise represented
himself to be so in the Authorization itself, hence he should not now be permitted to disavow what he initially stated
to be true and to interpose the defense that Bacaltos Coal Mines has a distinct legal personality.

Their motion for a reconsideration of the above decision having been denied, the petitioners filed the instant petition
wherein they raise the following errors:

I. THE RESPONDENT COURT ERRED IN HOLDING THAT RENE SAVELLON


WAS AUTHORIZED TO ENTER INTO A TRIP CHARTER PARTY CONTRACT
WITH PRIVATE RESPONDENT INSPITE OF ITS FINDING THAT SUCH
AUTHORITY CANNOT BE FOUND IN THE FOUR CORNERS OF THE
AUTHORIZATION;

II. THE RESPONDENT COURT ERRED IN NOT HOLDING THAT BY ISSUING THE
CHECK IN THE NAME OF RENE SAVELLON IN TRUST FOR BACALTOS COAL
MINES, THE PRIVATE RESPONDENT WAS THE AUTHOR OF ITS OWN
DAMAGE; AND

III. THE RESPONDENT COURT ERRED IN HOLDING PETITIONER GERMAN


BACALTOS JOINTLY AND SEVERALLY LIABLE WITH RENE SAVELLON AND
CO-PETITIONER BACALTOS COAL MINES IN SPITE OF THE FINDING OF THE
COURT A QUO THAT PETITIONER BACALTOS COAL MINES AND PETITIONER
BACALTOS ARE TWO DISTINCT AND SEPARATE LEGAL PERSONALITIES. 12

After due deliberations on the allegations, issues raised, and arguments adduced in the petition, and the comment
thereto and reply to the comment, the Court resolved to give due course to the petition.

Every person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent. If
he does not make such inquiry, he is chargeable with knowledge of the agent's authority, and his ignorance of that
authority will not be any excuse. Persons dealing with an assumed agent, whether the assumed agency be a
general or special one, are bound at their peril, if they would hold the principal, to ascertain not only the fact of the
agency but also the nature and extent of the authority, and in case either is controverted, the burden of proof is upon
them to establish it. 13 American jurisprudence 14 summarizes the rule in dealing with an agent as follows:

A third person dealing with a known agent may not act negligently with regard to the extent of the
agent's authority or blindly trust the agent's statements in such respect. Rather, he must use
reasonable diligence and prudence to ascertain whether the agent is acting and dealing with him
within the scope of his powers. The mere opinion of an agent as to the extent of his powers, or his
mere assumption of authority without foundation, will not bind the principal; and a third person
dealing with a known agent must bear the burden of determining for himself, by the exercise of
reasonable diligence and prudence, the existence or nonexistence of the agent's authority to act in
the premises. In other words, whether the agency is general or special, the third person is bound to
ascertain not only the fact of agency, but the nature and extent of the authority. The principal, on the
other hand, may act on the presumption that third persons dealing with his agent will not be
negligent in failing to ascertain the extent of his authority as well as the existence of his agency.

Or, as stated in Harry E. Keller Electric Co. vs. Rodriguez, 15 quoting Mechem on Agency:
The person dealing with the agent must also act with ordinary prudence and reasonable diligence.
Obviously, if he knows or has good reason to believe that the agent is exceeding his authority, he
cannot claim protection. So if the suggestions of probable limitations be of such a clear and
reasonable quality, or if the character assumed by the agent is of such a suspicious or unreasonable
nature, or if the authority which he seeks to exercise is of such an unusual or improbable character,
as would suffice to put an ordinarily prudent man upon his guard, the party dealing with him may not
shut his eyes to the real estate of the case, but should either refuse to deal with the agent at all, or
should ascertain from the principal the true condition of affairs. [emphasis supplied].

In the instant case, since the agency of Savellon is based on a written document, the Authorization of 1 March 1988
(Exhibits "C" and "1"), the extent and scope of his powers must be determined on the basis thereof. The language of
the Authorization is clear. It pertinently states as follows:

I. GERMAN A. BACALTOS do hereby authorize RENE R. SAVELLON . . . to use the coal operating contract of
BACALTOS COAL MINES, of which I am the proprietor, for any legitimate purpose that it may serve. Namely, but
not by way of limitation, as follows . . . [emphasis supplied].

There is only one express power granted to Savellon, viz., to use the coal operating contract for
anylegitimate purpose it may serve. The enumerated "five prerogatives" — to employ the term used by the
Court of Appeals — are nothing but the specific prerogatives subsumed under or classified as part of or as
examples of the power to use the coal operating contract. The clause "but not by way of limitation" which
precedes the enumeration could only refer to or contemplate other prerogatives which must exclusively
pertain or relate or be germane to the power to use the coal operating contract. The conclusion then of the
Court of Appeals that the Authorization includes the power to enter into the Trip Chapter Party because the
"five prerogatives" are prefaced by such clause, is seriously flawed. It fails to note that the broadest scope of
Savellon's authority is limited to the use of the coal operating contract and the clause cannot contemplate
any other power not included in the enumeration or which are unrelated either to the power to use the coal
operating contract or to those already enumerated. In short, while the clause allows some room for flexibility,
it can comprehend only additional prerogatives falling within the primary power and within the same class as
those enumerated. The trial court, however, went further by hastily making a sweeping conclusion that "a
company such as a coal mining company is not prohibited to engage in entering into a Trip Charter Party
contract." 16 But what the trial court failed to consider was that there is no evidence at all that Bacaltos Coal
Mines as a coal mining company owns and operates vessels, and even if it owned any such vessels, that it
was allowed to charter or lease them. The trial court also failed to note that the Authorization is not a general
power of attorney. It is a special power of attorney for it refers to a clear mandate specifically authorizing the
performance of a specific power and of express acts subsumed therein. 17 In short, both courts below
unreasonably expanded the express terms of or otherwise gave unrestricted meaning to a clause which was
precisely intended to prevent unwarranted and unlimited expansion of the powers entrusted to Savellon. The
suggestion of the Court of Appeals that there is obscurity in the Authorization which must be construed
against German Bacaltos because he prepared the Authorization has no leg to stand on inasmuch as there
is no obscurity or ambiguity in the instrument. If any obscurity or ambiguity indeed existed, then there will be
more reason to place SMC on guard and for it to exercise due diligence in seeking clarification or
enlightenment thereon, for that was part of its duty to discover upon its peril the nature and extent of
Savellon's written agency. Unfortunately, it did not.

Howsoever viewed, the foregoing conclusions of the Court of Appeals and the trial court are tenuous and farfetched,
bringing to unreasonable limits the clear parameters of the powers granted in the Authorization.

Furthermore, had SMC exercised due diligence and prudence, it should have known in no time that there is
absolutely nothing on the face of the Authorization that confers upon Savellon the authority to enter into any Trip
Charter Party. Its conclusion to the contrary is based solely on the second prerogative under the Authorization, to
wit:

(2) To engage in trading under the style of BACALTOS COAL MINES/RENE SAVELLON;

unmindful that such is but a part of the primary authority to use the coal operating contract which it did not
even require Savellon to produce. Its principal witness, Mr. Valdescona, expressly so admitted on cross-
examination, thus:

Atty. Zosa (to witness — ON CROSS)

Q You said that in your office Mr. Rene Savellon presented to you this authorization
marked Exhibit "C" and Exhibit "1" for the defendant?

A Yes, sir.

Q Did you read in the first part[y] of this authorization Mr. Valdescona that Mr. Rene
Savellon was authorized as the coal operating contract of Bacaltos Coal Mines?
A Yes, sir.

Q Did it not occur to you that you should have examined further the authorization of
Mr. Rene Savellon, whether or not this coal operating contract allows Mr. Savellon to
enter into a trip charter party?

A Yes, sir. We discussed about the extent of his authorization and he referred us to
the number 2 provision of this authorization which is to engage in trading under the
style of Bacaltos Coal Mines/Rene Savellon, which we followed up to the check
preparation because it is part of the authority.

Q In other words, you examined this and you found out that Mr. Savellon is
authorized to use the coal operating contract of Bacaltos Coal Mines?

A Yes, sir.

Q You doubted his authority but you found out in paragraph 2 that he is authorized
that's why you agreed and entered into that trip charter party?

A We did not doubt his authority but we were questioning as to the extent of his
operating contract.

Q Did you not require Mr. Savellon to produce that coal operating contract of
Bacaltos Coal Mines?

A No sir. We did not. 18

Since the principal subject of the Authorization is the coal operating contract, SMC should have required its
presentation to determine what it is and how it may be used by Savellon. Such a determination is indispensable to
an inquiry into the extent or scope of his authority. For this reason, we now deem it necessary to examine the nature
of a coal operating contract.

A coal operating contract is governed by P.D. No. 972 (The Coal Development Act of 1976), as amended by P.D.
No. 1174. It is one of the authorized ways of active exploration, development, and production of coal resources 19 in
a specified contract area. 20 Section 9 of the decree prescribes the obligation of the contractor, thus:

Sec. 9. Obligations of Operator in Coal Operating Contract. — The operator under a coal operating
contract shall undertake, manage and execute the coal operations which shall include:

(a) The examination and investigation of lands supposed to contain coal, by detailed surface
geologic mapping, core drilling, trenching, test pitting and other appropriate means, for the purpose
of probing the presence of coal deposits and the extent thereof;

(b) Steps necessary to reach the coal deposit so that it can be mined, including but not limited to
shaft sinking and tunneling; and

(c) The extraction and utilization of coal deposits.

The Government shall oversee the management of the operation contemplated in a coal operating
contract and in this connection, shall require the operator to:

(a) Provide all the necessary service and technology;

(b) Provide the requisite financing;

(c) Perform the work obligations and program prescribed in the coal operating contract which shall
not be less than those prescribed in this Decree;

(d) Operate the area on behalf of the Government in accordance with good coal mining practices
using modern methods appropriate for the geological conditions of the area to enable maximum
economic production of coal, avoiding hazards to life, health and property, avoiding pollution of air,
lands and waters, and pursuant to an efficient and economic program of operation;

(e) Furnish the Energy Development Board promptly with all information, data and reports which it
may require;.

(f) Maintain detailed technical records and account of its expenditures;


(g) Conform to regulations regarding, among others, safety demarcation of agreement acreage and
work areas, non-interference
with the rights of the other petroleum, mineral and natural resources operators; —

(h) Maintain all necessary equipment in good order and allow access to these as well as to the
exploration, development and production sites and operations to inspectors authorized by the
Energy Development Board;

(i) Allow representatives authorized by the Energy Development Board full access to their accounts,
books and records for tax and other fiscal purposes.

Section 11 thereof provides for the minimum terms and conditions of a coal operating contract.

From the foregoing, it is obvious that a scrutiny of the coal operating contract of Bacaltos Coal Mines would have
provided SMC knowledge of the activities which are germane, related, or incident to the power to use it. But it did
not even require Savellon to produce the same.

SMC's negligence was further compounded by its failure to verify if Bacaltos Coal Mines owned a vessel. A party
desiring to charter a vessel must satisfy itself that the other party is the owner of the vessel or is at least entitled to
its possession with power to lease or charter the vessel. In the instant case, SMC made no such attempt. It merely
satisfied itself with the claim of Savellon that the vessel it was leasing is owned by Bacaltos Coal Mines and relied
on the presentation of the Authorization as well as its test on the sea worthiness of the vessel. Valdescona thus
declared on direct examination as follows:

A In October, a certain Rene Savellon called our office offering us shipping services.
So I told him to give us a formal proposal and also for him to come to our office so
that we can go over his proposal and formally discuss his offer.

Q Did Mr. Rene Savellon go to your office?

A Few days later he came to our office and gave us his proposal verbally offering a
vessel for us to use for our cargo.

Q Did he mention the owner of that vessel?

A Yes, sir. That it is Bacaltos.

Q Did he present a document to you?

A Yes, sir. He presented to us the authorization.

Q When Mr. Rene Savellon presented to you the authorization what did you do?.

A On the strength of that authorization we initially asked him for us to check the
vessel to see its sea worthiness, and we assigned our in-house surveyor to check
the sea worthiness of the vessel which was on dry dock that time in Danao.

Q What was the result of your inspection?

A We found out the vessel's sea worthiness to be our cargo carrier.

Q After that what did you do?

A After that we were discussing the condition of the contract.

Q Were you able to execute that contract?

A Yes, sir .21

He further declared as follows:

Q When you entered into a trip charter contract did you check the ownership of M/V
Premship?

A The representation made by Mr. Rene Savellon was that Bacaltos Coal Mines
operates the vessel and on the strength of the authorization he showed us we were
made to believe that it was Bacaltos Coal Mines that owned it.
COURT: (to witness)

Q In other words, you just believed Rene Savellon?

A Yes, sir.

COURT: (to witness)

Q You did not check with Bacaltos Coal Mines?

A That is the representation he made.

Q Did he show you document regarding this M/V Premship II?

A No document shown.22

The Authorization itself does not state that Bacaltos Coal Mines owns any vessel, and since it is clear therefrom that
it is not engaged in shipping but in coal mining or in coal business, SMC should have required the presentation of
pertinent documentary proof of ownership of the vessel to be chartered. Its in-house surveyor who saw the vessel
while drydocked in Danao and thereafter conducted a sea worthiness test could not have failed to ascertain the
registered owner of the vessel. The petitioners themselves declared in open court that they have not leased any
vessel for they do not need it in their coal operations23 thereby implying that they do not even own one.

The Court of Appeals' asseveration that there was no need to verify the ownership of the vessel because such
ownership is warranted on the face of the trip charter party begs the question since Savellon's authority to enter into
that contract is the very heart of the controversy.

We are not prepared to accept SMC's contention that the petitioners' claim that they are not engaged in shipping
and do not own any ship is belied by the fact that they maintained a pre-printed business form known as a "Notice of
Readiness" (Exhibit "A-1"). 24 This paper is only a photocopy and, despite its reservation to present the original for
purposes of comparison at the next
hearing, 25 SMC failed to produce the latter. This "Notice of Readiness" is not, therefore, the best evidence, hence
inadmissible under Section 3, Rule 130 of the Rules of Court. It is true that when SMC made a formal offer of its
exhibits, the petitioners did not object to the admission of Exhibit "A-1," the "Notice of Readiness," under the best
evidence rule but on the ground that Savellon was not authorized to enter into the Trip Charter Party and that the
party who signed it, one Elmer Baliquig, is not the petitioners' employee but of Premier Shipping Lines, the owner of
the vessel in question. 26 The petitioners raised the issue of inadmissibility under the best evidence rule only
belatedly in this petition. But although Exhibit "A-1" remains admissible for not having been timely objected to, it has
no probative value as to the ownership of the vessel.

There is likewise no proof that the petitioners received the consideration of the Trip Charter Party. The petitioners
denied having received it. 27 The evidence for SMC established beyond doubt that it was Savellon who requested in
writing on 19 October 1988 that the check in payment therefor be drawn in favor of BACALTOS COAL
MINES/RENE SAVELLON (Exhibit "B-3") and that SMC drew the check in favor of RENE SAVELLON IN TRUST
FOR BACALTOS COALMINES (Exhibit "B") and delivered it to Savellon who there upon issued a receipt (Exhibit
"B-1"). We agree with the petitioners that SMC committed negligence in drawing the check in the manner
aforestated. It even disregarded the request of Savellon that it be drawn in favor of BACALTOS COAL
MINES/RENE SAVELLON. Furthermore, assuming that the transaction was permitted in the Authorization, the
check should still have been drawn in favor of the principal. SMC then made possible the wrong done. There is an
equitable maxim that between two innocent parties, the one who made it possible for the wrong to be done should
be the one to bear the resulting loss. 28 For this rule to apply, the condition precedent is that both parties must be
innocent. In the present case, however, SMC is guilty of not ascertaining the extent and limits of the authority of
Savellon. In not doing so, SMC dealt with Savellon at its own peril.

Having thus found that SMC was the author of its own damage and that the petitioners are, therefore, free from any
liability, it has become unnecessary to discuss the issue of whether Bacaltos Coal Mines is a corporation with a
personality distinct and separate from German Bacaltos.

WHEREFORE, the instant petition is GRANTED and the challenged decision of 30 September 1993 of the Court of
Appeals in CA-G.R. CV No. 35180 is hereby REVERSED and SET ASIDE and another judgment is hereby
rendered MODIFYING the judgment of the Regional Trial Court of Cebu, Branch 9, in Civil Case No. CEB-8187 by
setting aside the declaration of solidary liability, holding defendant RENE R. SAVELLON solely liable for the
amounts adjudged, and ordering the dismissal of the case as against herein petitioners.

SO ORDERED.
SECOND DIVISION

G.R. No. 148116 April 14, 2004

ANTONIO K. LITONJUA and AURELIO K. LITONJUA, JR., petitioners,


vs.
MARY ANN GRACE FERNANDEZ, HEIRS OF PAZ TICZON ELEOSIDA, represented by GREGORIO T.
ELEOSIDA, HEIRS OF DOMINGO B. TICZON, represented by MARY MEDIATRIX T. FERNANDEZ, CRISTETA
TICZON, EVANGELINE JILL R. TICZON, ERLINDA T. BENITEZ, DOMINIC TICZON, JOSEFINA LUISA
PIAMONTE, JOHN DOES and JANE DOES, respondents.

DECISION

CALLEJO, SR., J.:

This is a petition for review on certiorari of the Decision1 of the Court of Appeals in CA-G.R. CV No. 64940, which
reversed and set aside the June 23, 1999 Decision2 of the Regional Trial Court of Pasig City, Branch 68, in Civil
Case No. 65629, as well as its Resolution dated April 30, 2001 denying the petitioners’ motion for reconsideration of
the aforesaid decision.

The heirs of Domingo B. Ticzon3 are the owners of a parcel of land located in San Pablo City, covered by Transfer
Certificate of Title (TCT) No. T-36766 of the Register of Deeds of San Pablo City.4 On the other hand, the heirs of
Paz Ticzon Eleosida, represented by Gregorio T. Eleosida, are the owners of a parcel of land located in San Pablo
City, covered by TCT No. 36754, also of the Register of Deeds of San Pablo City. 5

The Case for the Petitioners

Sometime in September 1995, Mrs. Lourdes Alimario and Agapito Fisico who worked as brokers, offered to sell to
the petitioners, Antonio K. Litonjua and Aurelio K. Litonjua, Jr., the parcels of land covered by TCT Nos. 36754 and
36766. The petitioners were shown a locator plan and copies of the titles showing that the owners of the properties
were represented by Mary Mediatrix Fernandez and Gregorio T. Eleosida, respectively. The brokers told the
petitioners that they were authorized by respondent Fernandez to offer the property for sale. The petitioners,
thereafter, made two ocular inspections of the property, in the course of which they saw some people gathering
coconuts.

In the afternoon of November 27, 1995, the petitioners met with respondent Fernandez and the two brokers at the
petitioners’ office in Mandaluyong City.6 The petitioners and respondent Fernandez agreed that the petitioners would
buy the property consisting of 36,742 square meters, for the price of P150 per square meter, or the total sum of
P5,098,500. They also agreed that the owners would shoulder the capital gains tax, transfer tax and the expenses
for the documentation of the sale. The petitioners and respondent Fernandez also agreed to meet on December 8,
1995 to finalize the sale. It was also agreed upon that on the said date, respondent Fernandez would present a
special power of attorney executed by the owners of the property, authorizing her to sell the property for and in their
behalf, and to execute a deed of absolute sale thereon. The petitioners would also remit the purchase price to the
owners, through respondent Fernandez. However, only Agapito Fisico attended the meeting. He informed the
petitioners that respondent Fernandez was encountering some problems with the tenants and was trying to work out
a settlement with them.7 After a few weeks of waiting, the petitioners wrote respondent Fernandez on January 5,
1995, demanding that their transaction be finalized by January 30, 1996.8

When the petitioners received no response from respondent Fernandez, the petitioners sent her another
Letter9dated February 1, 1996, asking that the Deed of Absolute Sale covering the property be executed in
accordance with their verbal agreement dated November 27, 1995. The petitioners also demanded the turnover of
the subject properties to them within fifteen days from receipt of the said letter; otherwise, they would have no option
but to protect their interest through legal means.

Upon receipt of the above letter, respondent Fernandez wrote the petitioners on February 14, 1996 10 and clarified her
stand on the matter in this wise:

1) It is not true I agreed to shoulder registration fees and other miscellaneous expenses, etc. I do not recall
we ever discussed about them. Nonetheless, I made an assurance at that time that there was no
liens/encumbrances and tenants on my property (TCT – 36755).

2) It is not true that we agreed to meet on December 8, 1995 in order to sign the Deed of Absolute Sale. The
truth of the matter is that you were the one who emphatically stated that you would prepare a Contract to
Sell and requested us to come back first week of December as you would be leaving the country then. In
fact, what you were demanding from us was to apprise you of the status of the property, whether we would
be able to ascertain that there are really no tenants. Ms. Alimario and I left your office, but we did not assure
you that we would be back on the first week of December.

Unfortunately, some people suddenly appeared and claiming to be "tenants" for the entire properties
(including those belonging to my other relatives.) Another thing, the Barangay Captain now refuses to give a
certification that our properties are not tenanted.

Thereafter, I informed my broker, Ms. Lulu Alimario, to relay to Mr. Agapito that due to the appearance of
"alleged tenants" who are demanding for a one-hectare share, my cousin and I have thereby changed our
mind and that the sale will no longer push through. I specifically instructed her to inform you thru your broker
that we will not be attending the meeting to be held sometime first week of December.

In view thereof, I regret to formally inform you now that we are no longer selling the property until all
problems are fully settled. We have not demanded and received from you any earnest money, thereby, no
obligations exist. In the meantime, we hope that in the future we will eventually be able to transact business
since we still have other properties in San Pablo City.11

Appended thereto was a copy of respondent Fernandez’ letter to the petitioners dated January 16, 1996, in
response to the latter’s January 5, 1996 letter.12

On April 12, 1996, the petitioners filed the instant Complaint for specific performance with damages 13 against
respondent Fernandez and the registered owners of the property. In their complaint, the petitioners alleged, inter
alia, the following:

4. On 27 November 1995, defendants offered to sell to plaintiffs two (2) parcels of land covered by Transfer
Certificates of Title Nos. 36766 and 36754 measuring a total of 36,742 square meters in Barrio Concepcion,
San Pablo City. … After a brief negotiation, defendants committed and specifically agreed to sell to plaintiffs
33,990 square meters of the two (2) aforementioned parcels of land at P150.00 per square meter.

5. The parties also unequivocally agreed to the following:

(a) The transfer tax and all the other fees and expenses for the titling of the subject property in plaintiffs’
names would be for defendants’ account.

(b) The plaintiffs would pay the entire purchase price of P5,098,500.00 for the aforementioned 33,990
square meters of land in plaintiffs’ office on 8 December 1995.

6. Defendants repeatedly assured plaintiffs that the two (2) subject parcels of land were free from all liens
and encumbrances and that no squatters or tenants occupied them.

7. Plaintiffs, true to their word, and relying in good faith on the commitment of defendants, pursued the
purchase of the subject parcels of lands. On 5 January 1996, plaintiffs sent a letter of even date to
defendants, … setting the date of sale and payment on 30 January 1996.

7.1 Defendants received the letter on 12 January 1996 but did not reply to it.

8. On 1 February 1996, plaintiffs again sent a letter of even date to defendants demanding execution of the
Deed of Sale.

8.1 Defendants received the same on 6 February 1996. Again, there was no reply. Defendants thus
reneged on their commitment a second time.

9. On 14 February 1996, defendant Fernandez sent a written communication of the same date to plaintiffs
enclosing therein a copy of her 16 January 1996 letter to plaintiffs which plaintiffs never received before.
Defendant Fernandez stated in her 16 January 1996 letter that despite the meeting of minds among the
parties over the 33,990 square meters of land for P150.00 per square meter on 27 November 1995,
defendants suddenly had a change of heart and no longer wished to sell the same. Paragraph 6 thereof
unquestionably shows defendants’ previous agreement as above-mentioned and their unjustified breach of
their obligations under it. …

10. Defendants cannot unilaterally, whimsically and capriciously cancel a perfected contract to sell. …

11. Plaintiffs intended to use the subject property for their subdivision project to support plaintiffs’ quarry
operations, processing of aggregate products and manufacture of construction materials. Consequently, by
reason of defendants’ failure to honor their just obligations, plaintiffs suffered, and continue to suffer, actual
damages, consisting in unrealized profits and cost of money, in the amount of at least P5 Million.

12. Plaintiffs also suffered sleepless nights and mental anxiety on account of defendants’ fraudulent
actuations for which reason defendants are liable to plaintiffs for moral damages in the amount of at least
P1.5 Million.

13. By reason of defendants’ above-described fraudulent actuations, plaintiffs, despite their willingness and
ability to pay the agreed purchase price, have to date been unable to take delivery of the title to the subject
property. Defendants acted in a wanton, fraudulent and malevolent manner in violating the contract to sell.
By way of example or correction for the public good, defendants are liable to plaintiff for exemplary damages
in the amount of P500,000.00.

14. Defendants’ bad faith and refusal to honor their just obligations to plaintiffs constrained the latter to
litigate and to engage the services of undersigned counsel for a fee in the amount of at least P250,000.00.14

The petitioners prayed that, after due hearing, judgment be rendered in their favor ordering the respondents to –

(a) Secure at defendants’ expense all clearances from the appropriate government agencies that will enable
defendants to comply with their obligations under the Contract to Sell;

(b) Execute a Contract to Sell with terms agreed upon by the parties;

(c) Solidarily pay the plaintiffs the following amounts:

1. P5,000,000.00 in actual damages;

2. P1,500,000.00 in moral damages;

3. P500,000.00 in exemplary damages;

4. P250,000.00 in attorney’s fees.15

On July 5, 1996, respondent Fernandez filed her Answer to the complaint.16 She claimed that while the petitioners
offered to buy the property during the meeting of November 27, 1995, she did not accept the offer; thus, no verbal
contract to sell was ever perfected. She specifically alleged that the said contract to sell was unenforceable for
failure to comply with the statute of frauds. She also maintained that even assuming arguendo that she had, indeed,
made a commitment or promise to sell the property to the petitioners, the same was not binding upon her in the
absence of any consideration distinct and separate from the price. She, thus, prayed that judgment be rendered as
follows:

1. Dismissing the Complaint, with costs against the plaintiffs;

2. On the COUNTERCLAIM, ordering plaintiffs to pay defendant moral damages in the amount of not less
than P2,000,000.00 and exemplary damages in the amount of not less than P500,000.00 and attorney’s
fees and reimbursement expenses of litigation in the amount of P300,000.00. 17

On September 24, 1997, the trial court, upon motion of the petitioners, declared the other respondents in default for
failure to file their responsive pleading within the reglementary period. 18 At the pre-trial conference held on March 2,
1998, the parties agreed that the following issues were to be resolved by the trial court: (1) whether or not there was
a perfected contract to sell; (2) in the event that there was, indeed, a perfected contract to sell, whether or not the
respondents breached the said contract to sell; and (3) the corollary issue of damages. 19

Respondent Fernandez testified that she requested Lourdes Alimario to look for a buyer of the properties in San
Pablo City "on a best offer basis." She was later informed by Alimario that the petitioners were interested to buy the
properties. On November 27, 1995, along with Alimario and another person, she met with the petitioners in the
latter’s office and told them that she was at the conference merely to hear their offer, that she could not bind the
owners of the properties as she had no written authority to sell the same. The petitioners offered to buy the property
at P150 per square meter. After the meeting, respondent Fernandez requested Joy Marquez to secure a barangay
clearance stating that the property was free of any tenants. She was surprised to learn that the clearance could not
be secured. She contacted a cousin of hers, also one of the owners of the property, and informed him that there was
a prospective buyer of the property but that there were tenants thereon. Her cousin told her that he was not selling
his share of the property and that he was not agreeable to the price of P150 per square meter. She no longer
informed the other owners of the petitioners’ offer. Respondent Fernandez then asked Alimario to apprise the
petitioners of the foregoing developments, through their agent, Agapito Fisico. She was surprised to receive a letter
from the petitioners dated January 5, 1996. Nonetheless, she informed the petitioners that she had changed her
mind in pursuing the negotiations in a Letter dated January 18, 1996. When she received petitioners’ February 1,
1996 Letter, she sent a Reply-Letter dated February 14, 1996.

After trial on the merits, the trial court rendered judgment in favor of the petitioners on June 23, 1999, 20 the
dispositive portion of which reads:

WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of plaintiffs ANTONIO
K. LITONJUA and AURELIO K. LITONJUA and against defendants MARY MEDIATRIX T. FERNANDEZ,
HEIRS OF PAZ TICZON ELEOSIDA, represented by GREGORIO T. ELEOSIDA, JOHN DOES and JANE
DOES; HEIRS OF DOMINGO B. TICZON, represented by MARY MEDIATRIX T. FERNANDEZ, CRISTETA
TICZON, EVANGELINE JILL R. TICZON, ERLINDA T. BENITEZ, DOMINIC TICZON, JOSEFINA LUISA
PIAMONTE, JOHN DOES and JANE DOES, ordering defendants to:

1. execute a Contract of Sale and/or Absolute Deed of Sale with the terms agreed upon by the
parties and to secure all clearances from the concerned government agencies and removal of any
tenants from the subject property at their expense to enable defendants to comply with their
obligations under the perfected agreement to sell; and

2. pay to plaintiffs the sum of Two Hundred Thousand (P200,000.00) Pesos as and by way of
attorney’s fees.21

On appeal to the Court of Appeals, the respondents ascribed the following errors to the court a quo:

I. THE LOWER COURT ERRED IN HOLDING THAT THERE WAS A PERFECTED CONTRACT OF SALE
OF THE TWO LOTS ON NOVEMBER 27, 1995.

II. THE LOWER COURT ERRED IN NOT HOLDING THAT THE VERBAL CONTRACT OF SALE AS
CLAIMED BY PLAINTIFFS-APPELLEES ANTONIO LITONJUA AND AURELIO LITONJUA WAS
UNENFORCEABLE.

III. THE LOWER COURT ERRED IN HOLDING THAT THE LETTER OF DEFENDANT-APPELLANT
FERNANDEZ DATED JANUARY 16, 1996 WAS A CONFIRMATION OF THE PERFECTED SALE AND
CONSTITUTED AS WRITTEN EVIDENCE THEREOF.

IV. THE LOWER COURT ERRED IN NOT HOLDING THAT A SPECIAL POWER OF ATTORNEY WAS
REQUIRED IN ORDER THAT DEFENDANT-APPELLANT FERNANDEZ COULD NEGOTIATE THE SALE
ON BEHALF OF THE OTHER REGISTERED CO-OWNERS OF THE TWO LOTS.

V. THE LOWER COURT ERRED IN AWARDING ATTORNEY’S FEES IN THE DISPOSITIVE PORTION OF
THE DECISION WITHOUT STATING THE BASIS IN THE TEXT OF SAID DECISION. 22

On February 28, 2001, the appellate court promulgated its decision reversing and setting aside the judgment of the
trial court and dismissing the petitioners’ complaint, as well as the respondents’ counterclaim. 23 The appellate court
ruled that the petitioners failed to prove that a sale or a contract to sell over the property between the petitioners and
the private respondent had been perfected.

Hence, the instant petition for review on certiorari under Rule 45 of the Revised Rules of Court.

The petitioners submit the following issues for the Court’s resolution:

A. WHETHER OR NOT THERE WAS A PERFECTED CONTRACT OF SALE BETWEEN THE PARTIES.

B. WHETHER OR NOT THE CONTRACT FALLS UNDER THE COVERAGE OF THE STATUTE OF
FRAUDS.

C. WHETHER OR NOT THE DEFENDANTS DECLARED IN DEFAULT ARE BENEFITED BY THE


ASSAILED DECISION OF THE COURT OF APPEALS.24

The petition has no merit.


The general rule is that the Court’s jurisdiction under Rule 45 of the Rules of Court is limited to the review of errors
of law committed by the appellate court. As the findings of fact of the appellate court are deemed continued, this
Court is not duty-bound to analyze and calibrate all over again the evidence adduced by the parties in the court a
quo.25 This rule, however, is not without exceptions, such as where the factual findings of the Court of Appeals and
the trial court are conflicting or contradictory.26 Indeed, in this case, the findings of the trial court and its conclusion
based on the said findings contradict those of the appellate court. However, upon careful review of the records of
this case, we find no justification to grant the petition. We, thus, affirm the decision of the appellate court.

On the first and second assignment of errors, the petitioners assert that there was a perfected contract of sale
between the petitioners as buyers and the respondents-owners, through respondent Fernandez, as sellers. The
petitioners contend that the perfection of the said contract is evidenced by the January 16, 1996 Letter of
respondent Fernandez.27 The pertinent portions of the said letter are as follows:

… [M]y cousin and I have thereby changed our mind and that the sale will no longer push through. I
specifically instructed her to inform you thru your broker that we will not be attending the meeting to be held
sometime first week of December.

In view thereof, I regret to formally inform you now that we are no longer selling the property until all
problems are fully settled. We have not demanded and received from you any earnest money, thereby, no
obligations exist…28

The petitioners argue that the letter is a sufficient note or memorandum of the perfected contract, thus, removing it
from the coverage of the statute of frauds. The letter specifically makes reference to a sale which respondent
Fernandez agreed to initially, but which the latter withdrew because of the emergence of some people who claimed
to be tenants on both parcels of land. According to the petitioners, the respondents-owners, in their answer to the
complaint, as well as respondent Fernandez when she testified, admitted the authenticity and due execution of the
said letter. Besides, when the petitioner Antonio Litonjua testified on the contract of sale entered into between
themselves and the respondents-owners, the latter did not object thereto. Consequently, the respondents-owners
thereby ratified the said contract of sale. The petitioners thus contend that the appellate court’s declaration that
there was no perfected contract of sale between the petitioners and the respondents-owners is belied by the
evidence, the pleadings of the parties, and the law.

The petitioners’ contention is bereft of merit. In its decision, the appellate court ruled that the Letter of respondent
Fernandez dated January 16, 1996 is hardly the note or memorandum contemplated under Article 1403(2)(e) of the
New Civil Code, which reads:

Art. 1403. The following contracts are unenforceable, unless they are ratified:

(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an
agreement hereafter made shall be unenforceable by action, unless the same, or some note or
memorandum thereof, be in writing, and subscribed by the party charged, or by his agent; evidence,
therefore, of the agreement cannot be received without the writing, or secondary evidence of its contents:

(e) An agreement for the leasing for a longer period than one year, or for the sale of real property
or of an interest therein.29

The appellate court based its ruling on the following disquisitions:

In the case at bar, the letter dated January 16, 1996 of defendant-appellant can hardly be said to constitute
the note or memorandum evidencing the agreement of the parties to enter into a contract of sale as it is very
clear that defendant-appellant as seller did not accept the condition that she will be the one to pay the
registration fees and miscellaneous expenses and therein also categorically denied she had already
committed to execute the deed of sale as claimed by the plaintiffs-appellees. The letter, in fact, stated the
reasons beyond the control of the defendant-appellant, why the sale could no longer push through –
because of the problem with tenants. The trial court zeroed in on the statement of the defendant-appellant
that she and her cousin changed their minds, thereby concluding that defendant-appellant had unilaterally
cancelled the sale or backed out of her previous commitment. However, the tenor of the letter actually
reveals a consistent denial that there was any such commitment on the part of defendant-appellant to sell
the subject lands to plaintiffs-appellees. When defendant-appellant used the words "changed our mind," she
was clearly referring to the decision to sell the property at all (not necessarily to plaintiffs-appellees) and not
in selling the property to herein plaintiffs-appellees as defendant-appellant had not yet made the final
decision to sell the property to said plaintiffs-appellees. This conclusion is buttressed by the last paragraph
of the subject letter stating that "we are no longer selling the property until all problems are fully settled." To
read a definite previous agreement for the sale of the property in favor of plaintiffs-appellees into the
contents of this letter is to unduly restrict the freedom of the contracting parties to negotiate and prejudice
the right of every property owner to secure the best possible offer and terms in such sale transactions. We
believe, therefore, that the trial court committed a reversible error in finding that there was a perfected
contract of sale or contract to sell under the foregoing circumstances. Hence, the defendant-appellant may
not be held liable in this action for specific performance with damages.30

In Rosencor Development Corporation vs. Court of Appeals,31 the term "statute of frauds" is descriptive of statutes
which require certain classes of contracts to be in writing. The statute does not deprive the parties of the right to
contract with respect to the matters therein involved, but merely regulates the formalities of the contract necessary
to render it enforceable. The purpose of the statute is to prevent fraud and perjury in the enforcement of obligations,
depending for their existence on the unassisted memory of witnesses, by requiring certain enumerated contracts
and transactions to be evidenced by a writing signed by the party to be charged. The statute is satisfied or, as it is
often stated, a contract or bargain is taken within the statute by making and executing a note or memorandum of the
contract which is sufficient to state the requirements of the statute.32 The application of such statute presupposes the
existence of a perfected contract. However, for a note or memorandum to satisfy the statute, it must be complete in
itself and cannot rest partly in writing and partly in parol. The note or memorandum must contain the names of the
parties, the terms and conditions of the contract and a description of the property sufficient to render it capable of
identification.33 Such note or memorandum must contain the essential elements of the contract expressed with
certainty that may be ascertained from the note or memorandum itself, or some other writing to which it refers or
within which it is connected, without resorting to parol evidence.34 To be binding on the persons to be charged, such
note or memorandum must be signed by the said party or by his agent duly authorized in writing.35

In City of Cebu v. Heirs of Rubi,36 we held that the exchange of written correspondence between the parties may
constitute sufficient writing to evidence the agreement for purposes of complying with the statute of frauds.

In this case, we agree with the findings of the appellate court that there was no perfected contract of sale between
the respondents-owners, as sellers, and the petitioners, as buyers.

There is no documentary evidence on record that the respondents-owners specifically authorized respondent
Fernandez to sell their properties to another, including the petitioners. Article 1878 of the New Civil Code provides
that a special power of attorney is necessary to enter into any contract by which the ownership of an immovable is
transmitted or acquired either gratuitously or for a valuable consideration,37 or to create or convey real rights over
immovable property,38 or for any other act of strict dominion.39 Any sale of real property by one purporting to be the
agent of the registered owner without any authority therefor in writing from the said owner is null and void.40 The
declarations of the agent alone are generally insufficient to establish the fact or extent of her authority. 41 In this case,
the only evidence adduced by the petitioners to prove that respondent Fernandez was authorized by the
respondents-owners is the testimony of petitioner Antonio Litonjua that respondent Fernandez openly represented
herself to be the representative of the respondents-owners,42 and that she promised to present to the petitioners on
December 8, 1996 a written authority to sell the properties.43 However, the petitioners’ claim was belied by
respondent Fernandez when she testified, thus:

Q Madam Witness, what else did you tell to the plaintiffs?

A I told them that I was there representing myself as one of the owners of the properties, and I was just
there to listen to his proposal because that time, we were just looking for the best offer and I did not have yet
any written authorities from my brother and sisters and relatives. I cannot agree on anything yet since it is
just a preliminary meeting, and so, I have to secure authorities and relate the matters to my relatives, brother
and sisters, sir.

Q And what else was taken up?

A Mr. Antonio Litonjua told me that they will be leaving for another country and he requested me to come
back on the first week of December and in the meantime, I should make an assurance that there are no
tenants in our properties, sir.44

The petitioners cannot feign ignorance of respondent Fernandez’ lack of authority to sell the properties for the
respondents-owners. It must be stressed that the petitioners are noted businessmen who ought to be very familiar
with the intricacies of business transactions, such as the sale of real property.

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.45 In this case, respondent Fernandez specifically denied
that she was authorized by the respondents-owners to sell the properties, both in her answer to the complaint and
when she testified. The Letter dated January 16, 1996 relied upon by the petitioners was signed by respondent
Fernandez alone, without any authority from the respondents-owners. There is no evidence on record that the
respondents-owners ratified all the actuations of respondent Fernandez in connection with her dealings with the
petitioners. As such, said letter is not binding on the respondents as owners of the subject properties.

Contrary to the petitioners’ contention, the letter of January 16, 199646 is not a note or memorandum within the
context of Article 1403(2) because it does not contain the following: (a) all the essential terms and conditions of the
sale of the properties; (b) an accurate description of the property subject of the sale; and, (c) the names of the
respondents-owners of the properties. Furthermore, the letter made reference to only one property, that covered by
TCT No. T-36755.

We note that the petitioners themselves were uncertain as to the specific area of the properties they were seeking to
buy. In their complaint, they alleged to have agreed to buy from the respondents-owners 33,990 square meters of
the total acreage of the two lots consisting of 36,742 square meters. In their Letter to respondent Fernandez dated
January 5, 1996, the petitioners stated that they agreed to buy the two lots, with a total area of 36,742 square
meters.47 However, in their Letter dated February 1, 1996, the petitioners declared that they agreed to buy a portion
of the properties consisting of 33,990 square meters.48 When he testified, petitioner Antonio Litonjua declared that
the petitioners agreed to buy from the respondents-owners 36,742 square meters at P150 per square meter or for
the total price of P5,098,500.49

The failure of respondent Fernandez to object to parol evidence to prove (a) the essential terms and conditions of
the contract asserted by the petitioners and, (b) her authority to sell the properties for the respondents-registered
owners did not and should not prejudice the respondents-owners who had been declared in default.50

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The decision of the appellate court is AFFIRMED IN
TOTO. Costs against the petitioners.

SO ORDERED.
FIRST DIVISION

G.R. No. 123560 March 27, 2000

SPOUSES YU ENG CHO and FRANCISCO TAO YU, petitioners,


vs.
PAN AMERICAN WORLD AIRWAYS, INC., TOURIST WORLD SERVICES, INC., JULIETA CANILAO and
CLAUDIA TAGUNICAR, respondents.

PUNO, J.:

This petition for review seeks a reversal of the 31 August 1995 Decision 1 and 11 January 1998 Resolution 2 of the
Court of Appeals holding private respondent Claudia Tagunicar solely liable for moral and exemplary damages and
attorney's fees, and deleting the trial court's award for actual damages.

The facts as found by the trial court are as follows:

Plaintiff Yu Eng Cho is the owner of Young Hardware Co. and Achilles Marketing. In connection with [this]
business, he travels from time to time to Malaysia, Taipei and Hongkong. On July 10, 1976, plaintiffs bought
plane tickets (Exhs. A & B) from defendant Claudia Tagunicar who represented herself to be an agent of
defendant Tourist World Services, Inc. (TWSI). The destination[s] are Hongkong, Tokyo, San Francisco,
U.S.A., for the amount of P25,000.00 per computation of said defendant Claudia Tagunicar (Exhs. C & C-1).
The purpose of this trip is to go to Fairfield, New Jersey, U.S.A. to buy to two (2) lines of infrared heating
system processing textured plastic article (Exh. K).

On said date, only the passage from Manila to Hongkong, then to Tokyo, were confirmed. [PAA] Flight 002
from Tokyo to San Francisco was on "RQ" status, meaning "on request". Per instruction of defendant
Claudia Tagunicar, plaintiffs returned after a few days for the confirmation of the Tokyo-San Francisco
segment of the trip. After calling up Canilao of TWSI, defendant Tagunicar told plaintiffs that their flight is
now confirmed all the way. Thereafter, she attached the confirmation stickers on the plane tickets (Exhs. A &
B).

A few days before the scheduled flight of plaintiffs, their son, Adrian Yu, called the Pan Am office to verify
the status of the flight. According to said Adrian Yu, a personnel of defendant Pan Am told him over the
phone that plaintiffs' booking[s] are confirmed.

On July 23, 1978, plaintiffs left for Hongkong and stayed there for five (5) days. They left Hongkong for
Tokyo on July 28, 1978. Upon their arrival in Tokyo, they called up Pan-Am office for reconfirmation of their
flight to San Francisco. Said office, however, informed them that their names are not in the manifest. Since
plaintiffs were supposed to leave on the 29th of July, 1978, and could not remain in Japan for more than 72
hours, they were constrained to agree to accept airline tickets for Taipei instead, per advise of JAL officials.
This is the only option left to them because Northwest Airlines was then on strike, hence, there was no
chance for the plaintiffs to obtain airline seats to the United States within 72 hours. Plaintiffs paid for these
tickets.

Upon reaching Taipei, there were no flight[s] available for plaintiffs, thus, they were forced to return back to
Manila on August 3, 1978, instead of proceeding to the United States. [Japan] Air Lines (JAL) refunded the
plaintiffs the difference of the price for Tokyo-Taipei [and] Tokyo-San Francisco (Exhs. I & J) in the total
amount of P2,602.00.

In view of their failure to reach Fairfield, New Jersey, Radiant Heat Enterprises, Inc. cancelled Yu Eng Cho's
option to buy the two lines of infra-red heating system (Exh. K). The agreement was for him to inspect the
equipment and make final arrangement[s] with the said company not later than August 7, 1978. From this
business transaction, plaintiff Yu Eng Cho expected to realize a profit of P300,000.00 to P400,000.00.

[A] scrutiny of defendants' respective evidence reveals the following:


Plaintiffs, who were intending to go to the United States, were referred to defendant Claudia Tagunicar, an
independent travel solicitor, for the purchase of their plane tickets. As such travel solicitor, she helps in the
processing of travel papers like passport, plane tickets, booking of passengers and some assistance at the
airport. She is known to defendants Pan-Am, TWSI/Julieta Canilao, because she has been dealing with
them in the past years. Defendant Tagunicar advised plaintiffs to take Pan-Am because Northwest Airlines
was then on strike and plaintiffs are passing Hongkong, Tokyo, then San Francisco and Pan-Am has a flight
from Tokyo to San Francisco. After verifying from defendant TWSI, thru Julieta Canilao, she informed
plaintiffs that the fare would be P25,093.93 giving them a discount of P738.95 (Exhs. C, C-1). Plaintiffs,
however, gave her a check in the amount of P25,000.00 only for the two round trip tickets. Out of this
transaction, Tagunicar received a 7% commission and 1% commission for defendant TWSI.

Defendant Claudia Tagunicar purchased the two round-trip Pan-Am tickets from defendant Julieta Canilao
with the following schedules:

Origin Destination Airline Date Time/Travel

Manila Hongkong CX900 7-23-78 1135/1325hrs

Hongkong Tokyo CS500 7-28-78 1615/2115hrs

Tokyo San Francisco PA002 7-29-78 1930/1640hrs

The use of another airline, like in this case it is Cathay Pacific out of Manila, is allowed, although the tickets
issued are Pan-Am tickets, as long as it is in connection with a Pan-Am flight. When the two (2) tickets
(Exhs. A & B) were issued to plaintiffs, the letter "RQ" appears below the printed word "status" for the flights
from Tokyo to San Francisco which means "under request," (Exh. 3-A, 4-A Pan-Am). Before the date of the
scheduled departure, defendant Tagunicar received several calls from the plaintiffs inquiring about the
status of their bookings. Tagunicar in turn called up TWSI/Canilao to verify; and if Canilao would answer that
the bookings are not yet confirmed, she would relate that to the plaintiffs.

Defendant Tagunicar claims that on July 13, 1978, a few days before the scheduled flight, plaintiff Yu Eng
Cho personally went to her office, pressing her about their flight. She called up defendant Julieta Canilao,
and the latter told her "o sige Claudia, confirm na." She even noted this in her index card (Exh. L), that it was
Julieta who confirmed the booking (Exh. L-1). It was then that she allegedly attached the confirmation
stickers (Exhs. 2, 2-B TWSI) to the tickets. These stickers came from TWSI.

Defendant Tagunicar alleges that it was only in the first week of August, 1978 that she learned from Adrian
Yu, son of plaintiffs, that the latter were not able to take the flight from Tokyo to San Francisco, U.S.A. After
a few days, said Adrian Yu came over with a gentleman and a lady, who turned out to be a lawyer and his
secretary. Defendant Tagunicar claims that plaintiffs were asking for her help so that they could file an action
against Pan-Am. Because of plaintiffs' promise she will not be involved, she agreed to sign the affidavit (Exh.
M) prepared by the lawyer.

Defendants TWSI/Canilao denied having confirmed the Tokyo-San Francisco segment of plaintiffs' flight
because flights then were really tight because of the on-going strike at Northwest Airlines. Defendant
Claudia Tagunicar is very much aware that [said] particular segment was not confirmed, because on the
very day of plaintiffs' departure, Tagunicar called up TWSI from the airport; defendant Canilao asked her
why she attached stickers on the tickets when in fact that portion of the flight was not yet confirmed. Neither
TWSI nor Pan-Am confirmed the flight and never authorized defendant Tagunicar to attach the confirmation
stickers. In fact, the confirmation stickers used by defendant Tagunicar are stickers exclusively for use of
Pan-Am only. Furthermore, if it is the travel agency that confirms the booking, the IATA number of said
agency should appear on the validation or confirmation stickers. The IATA number that appears on the
stickers attached to plaintiffs' tickets (Exhs. A & B) is 2-82-0770 (Exhs. 1, 1-A TWSI), when in fact TWSI's
IATA number is 2-83-0770 (Exhs. 5, 5-A TWSI). 3

A complaint for damages was filed by petitioners against private respondents Pan American World Airways, Inc.
(Pan Am), Tourist World Services, Inc. (TWSI), Julieta Canilao (Canilao), and Claudia Tagunicar (Tagunicar) for
expenses allegedly incurred such as costs of tickets and hotel accommodations when petitioners were compelled to
stay in Hongkong and then in Tokyo by reason of the non-confirmation of their booking with Pan-Am. In a Decision
dated November 14, 1991, the Regional Trial Court of Manila, Branch 3, held the defendants jointly and severally
liable, except defendant Julieta Canilao, thus:

WHEREFORE, judgment is hereby rendered for the plaintiffs and ordering defendants Pan American World
Airways, Inc., Tourist World Services, Inc. and Claudia Tagunicar, jointly and severally, to pay plaintiffs the
sum of P200,000.00 as actual damages, minus P2,602.00 already refunded to the plaintiffs; P200,000.00 as
moral damages; P100,000.00 as exemplary damages; an amount equivalent to 20% of the award for and as
attorney's fees, plus the sum of P30,000.00 as litigation expenses.

Defendants' counterclaims are hereby dismissed for lack of merit.


SO ORDERED.

Only respondents Pan Am and Tagunicar appealed to the Court of Appeals. On 11 August 1995, the appellate court
rendered judgment modifying the amount of damages awarded, holding private respondent Tagunicar solely liable
therefor, and absolving respondents Pan Am and TWSI from any and all liability, thus:

PREMISES CONSIDERED, the decision of the Regional Trial Court is hereby SET ASIDE and a new one
entered declaring appellant Tagunicar solely liable for:

1) Moral damages in the amount of P50,000.00;


2) Exemplary damages in the amount of P25,000.00; and
3) Attorney's fees in the amount of P10,000.00 plus costs of suit.

The award of actual damages is hereby DELETED.

SO ORDERED.

In so ruling, respondent court found that Tagunicar is an independent travel solicitor and is not a duly authorized
agent or representative of either Pan Am or TWSI. It held that their business transactions are not sufficient to
consider Pan Am as the principal, and Tagunicar and TWSI as its agent and sub-agent, respectively. It further held
that Tagunicar was not authorized to confirm the bookings of, nor issue validation stickers to, herein petitioners and
hence, Pan Am and TWSI cannot be held responsible for her actions. Finally, it deleted the award for actual
damages for lack of proof.

Hence this petition based on the following assignment of errors:

1. the Court of Appeals, in reversing the decision of the trial court, misapplied the ruling in Nicos Industrial
Corporation vs. Court of Appeals, et. al. [206 SCRA 127]; and

2. the findings of the Court of Appeals that petitioners' ticket reservations in question were not confirmed and
that there is no agency relationship among PAN-AM, TWSI and Tagunicar are contrary to the judicial
admissions of PAN-AM, TWSI and Tagunicar and likewise contrary to the findings of fact of the trial court.

We affirm.

I. The first issue deserves scant consideration. Petitioners contend that contrary to the ruling of the Court of
Appeals, the decision of the trial court conforms to the standards of an ideal decision set in Nicos Industrial
Corporation, et. al. vs. Court of Appeals, et. al., 4 as "that which, with welcome economy of words, arrives at the
factual findings, reaches the legal conclusions, renders its ruling and, having done so, ends." It is averred that the
trial court's decision contains a detailed statement of the relevant facts and evidence adduced by the parties which
thereafter became the bases for the court's conclusions.

A careful scrutiny of the decision rendered by the trial court will show that after narrating the evidence of the parties,
it proceeded to dispose of the case with a one-paragraph generalization, to wit:

On the basis of the foregoing facts, the Court is constrained to conclude that defendant Pan-Am is the
principal, and defendants TWSI and Tagunicar, its authorized agent and sub-agent, respectively.
Consequently, defendants Pan-Am, TWSI and Claudia Tagunicar should be held jointly and severally liable
to plaintiffs for damages. Defendant Julieta Canilao, who acted in her official capacity as Office Manager of
defendant TWSI should not be held personally liable. 5

The trial court's finding of facts is but a summary of the testimonies of the witnesses and the documentary evidence
presented by the parties. It did not distinctly and clearly set forth, nor substantiate, the factual and legal bases for
holding respondents TWSI, Pan Am and Tagunicar jointly and severally liable. In Del Mundo vs. CA, et al. 6 where
the trial court, after summarizing the conflicting asseverations of the parties, disposed of the kernel issue in just two
(2) paragraphs, we held:

It is understandable that courts, with their heavy dockets and time constraints, often find themselves with
little to spare in the preparation of decisions to the extent most desirable. We have thus pointed out that
judges might learn to synthesize and to simplify their pronouncements. Nevertheless, concisely written such
as they may be, decisions must still distinctly and clearly express, at least in minimum essence, its factual
and legal bases.

For failing to explain clearly and well the factual and legal bases of its award of moral damages, we set it aside in
said case. Once more, we stress that nothing less than Section 14 of Article VIII of the Constitution requires that "no
decision shall be rendered by any court without expressing therein clearly and distinctly the facts and the law on
which it is based." This is demanded by the due process clause of the Constitution. In the case at bar, the decision
of the trial court leaves much to be desired both in form and substance. Even while said decision infringes the
Constitution, we will not belabor this infirmity and rather examine the sufficiency of the evidence submitted by the
petitioners.

II. Petitioners assert that Tagunicar is a sub-agent of TWSI while TWSI is a duly authorized ticketing agent of Pan
Am. Proceeding from this premise, they contend that TWSI and Pan Am should be held liable as principals for the
acts of Tagunicar. Petitioners stubbornly insist that the existence of the agency relationship has been established by
the judicial admissions allegedly made by respondents herein, to wit: (1) the admission made by Pan Am in its
Answer that TWSI is its authorized ticket agent; (2) the affidavit executed by Tagunicar where she admitted that she
is a duly authorized agent of TWSI; and (3) the admission made by Canilao that TWSI received commissions from
ticket sales made by Tagunicar.

We do not agree. 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. 7 The elements of agency are: (1)
consent, express or implied, of the parties to establish the relationship; (2) the object is the execution of a juridical
act in relation to a third person; (3) the agent acts as a representative and not for himself; (4) the agent acts within
the scope of his authority. 8 It is a settled rule that persons dealing with an assumed 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. 9

In the case at bar, petitioners rely on the affidavit of respondent Tagunicar where she stated that she is an
authorized agent of TWSI. This affidavit, however, has weak probative value in light of respondent Tagunicar's
testimony in court to the contrary. Affidavits, being taken ex parte, are almost always incomplete and often
inaccurate, sometimes from partial suggestion, or for want of suggestion and inquiries. Their infirmity as a species of
evidence is a matter of judicial experience and are thus considered inferior to the testimony given in court. 10 Further,
affidavits are not complete reproductions of what the declarant has in mind because they are generally prepared by
the administering officer and the affiant simply signs them after the same have been read to her. 11 Respondent
Tagunicar testified that her affidavit was prepared and typewritten by the secretary of petitioners' lawyer, Atty.
Acebedo, who both came with Adrian Yu, son of petitioners, when the latter went to see her at her office. This was
confirmed by Adrian Yu who testified that Atty. Acebedo brought his notarial seal and notarized the affidavit of the
same day. 12 The circumstances under which said affidavit was prepared put in doubt petitioners' claim that it was
executed voluntarily by respondent Tagunicar. It appears that the affidavit was prepared and was based on the
answers which respondent Tagunicar gave to the questions propounded to her by Atty. Acebedo. 13 They never told
her that the affidavit would be used in a case to be filed against her. 14 They even assured her that she would not be
included as defendant if she agreed to execute the affidavit. 15 Respondent Tagunicar was prevailed upon by
petitioners' son and their lawyer to sign the affidavit despite her objection to the statement therein that she was an
agent of TWSI. They assured her that "it is immaterial"16 and that "if we file a suit against you we cannot get
anything from you." 17 This purported admission of respondent Tagunicar cannot be used by petitioners to prove their
agency relationship. At any rate, even if such affidavit is to be given any probative value, the existence of the
agency relationship cannot be established on its sole basis. The declarations of the agent alone are generally
insufficient to establish the fact or extent of his authority. 18 In addition, as between the negative allegation of
respondents Canilao and Tagunicar that neither is an agent nor principal of the other, and the affirmative allegation
of petitioners that an agency relationship exists, it is the latter who have the burden of evidence to prove their
allegation, 19 failing in which, their claim must necessarily fail.

We stress that respondent Tagunicar categorically denied in open court that she is a duly authorized agent of TWSI,
and declared that she is an independent travel agent. 20 We have consistently ruled that in case of conflict between
statements in the affidavit and testimonial declarations, the latter command greater weight. 21

As further proofs of agency, petitioners call our attention to TWSI's Exhibits "7", "7-A", and "8" which show that
Tagunicar and TWSI received sales commissions from Pan Am. Exhibit "7" 22 is the Ticket Sales Report submitted by
TWSI to Pan Am reflecting the commissions received by TWSI as an agent of Pan Am. Exhibit "7-A" 23 is a listing of
the routes taken by passengers who were audited to TWSI's sales report. Exhibit "8" 24 is a receipt issued by TWSI
covering the payment made by Tagunicar for the tickets she bought from TWSI. These documents cannot justify the
decision that Tagunicar was paid a commission either by TWSI or Pan Am. On the contrary, Tagunicar testified that
when she pays TWSI, she already deducts in advance her commission and merely gives the net amount to
TWSI. 25 From all sides of the legal prism, the transaction is simply a contract of sale wherein Tagunicar buys airline
tickets from TWSI and then sells it at a premium to her clients.

III. Petitioners included respondent Pan Am in the complainant on the supposition that since TWSI is its duly
authorized agent, and respondent Tagunicar is an agent of TWSI, then Pan Am should also be held responsible for
the acts of respondent Tagunicar. Our disquisitions above show that this contention lacks factual and legal bases.
Indeed, there is nothing in the records to show that respondent Tagunicar has been employed by Pan Am as its
agent, except the bare allegation of petitioners. The real motive of petitioners in suing Pan Am appears in its
Amended Complaint that "[d]efendants TWSI, Canilao and Tagunicar may not be financially capable of paying
plaintiffs the amounts herein sought to be recovered, and in such event, defendant Pan Am, being their ultimate
principal, is primarily and/or subsidiary liable to pay the said amounts to plaintiffs." 26 This lends credence to
respondent Tagunicar's testimony that she was persuaded to execute an affidavit implicating respondents because
petitioners knew they would not be able to get anything of value from her. In the past, we have warned that this
Court will not tolerate an abuse of judicial process by passengers in order to pry on international airlines for damage
awards, like "trophies in a safari." 27
This meritless suit against Pan Am becomes more glaring with petitioner' inaction after they were bumped off in
Tokyo. If petitioners were of the honest belief that Pan Am was responsible for the misfortune which beset them,
there is no evidence to show that they lodged a protest with Pan Am's Tokyo office immediately after they were
refused passage for the flight to San Francisco, or even upon their arrival in Manila. The testimony of petitioner Yu
Eng Cho in this regard is of title value, viz:

Atty. Jalandoni: . . .

q Upon arrival at the Tokyo airport, what did you do if any in connection with your schedule[d] trip?

a I went to the Hotel, Holiday Inn and from there I immediately called up Pan Am office in Tokyo to reconfirm
my flight, but they told me that our names were not listed in the manifest, so next morning, very early in the
morning I went to the airport, Pan Am office in the airport to verify and they told me the same and we were
not allowed to leave.

q You were scheduled to be in Tokyo for how long Mr. Yu?

a We have to leave the next day 29th.

q In other words, what was your status as a passenger?

a Transient passengers. We cannot stay for more than 72 hours.

xxx xxx xxx

q As a consequence of the fact that you claimed that the Pan Am office in Tokyo told you that your names
were not in the manifest, what did you do, if any?

a I ask[ed] them if I can go anywhere in the State? They told me I can go to LA via Japan Airlines and I
accepted it.

q Do you have the tickets with you that they issued for Los Angels?

a It was taken by the Japanese Airlines instead they issue[d] me a ticket to Taipei.

xxx xxx xxx

q Were you able to take the trip to Los Angeles via Pan Am tickets that was issued to you in lieu of the
tickets to San Francisco?

a No, sir.

q Why not?

a The Japanese Airlines said that there were no more available seats.

q And as a consequence of that, what did you do, if any?

a I am so much scared and worried, so the Japanese Airlines advised us to go to Taipei and I accepted it.

xxx xxx xxx

q Why did you accept the Japan Airlines offer for you to go to Taipei?

a Because there is no chance for us to go to the United States within 72 hours because during that time
Northwest Airlines [was] on strike so the seats are very scarce. So they advised me better left (sic) before
the 72 hours otherwise you will have trouble with the Japanese immigration.

q As a consequence of that you were force[d] to take the trip to Taipei?

a Yes, sir. 28 (emphasis supplied)

It grinds against the grain of human experience that petitioners did not insist that they be allowed to board,
considering that it was then doubly difficult to get seats because of the ongoing Northwest Airlines strike. It is also
perplexing that petitioners readily accepted whatever the Tokyo office had to offer as an alternative. Inexplicably too,
no demand letter was sent to respondents TWSI and Canilao. 29 Nor was a demand letter sent to respondent Pan
Am. To say the least, the motive of petitioners in suing Pan Am is suspect.
We hasten to add that it is not sufficient to prove that Pan Am did not allow petitioners to board to justify petitioners'
claim for damages. Mere refusal to accede to the passenger's wishes does not necessarily translate into damages
in the absence of bad faith. 30 The settled rule is that the law presumes good faith such that any person who seeks to
be awarded damages due to acts of another has the burden of proving that the latter acted in bad faith or with ill
motive. 31 In the case at bar, we find the evidence presented by petitioners insufficient to overcome the presumption
of good faith. They have failed to show any wanton, malevolent or reckless misconduct imputable to respondent Pan
Am in its refusal to accommodate petitioners in its Tokyo-San Francisco flight. Pan Am could not have acted in bad
faith because petitioners did not have confirmed tickets and more importantly, they were not in the passenger
manifest.

In not a few cases, this Court did not hesitable to hold an airline liable for damages for having acted in bad faith in
refusing to accommodate a passenger who had a confirmed ticket and whose name appeared in the passenger
manifest. In Ortigas Jr. v. Lufthansa German Airlines Inc., 32 we ruled that there was a valid and binding contract
between the airline and its passenger after finding that validating sticker on the passenger's ticket had the letters
"O.K." appearing in the "Res. Status" box which means "space confirmed" and that the ticket is confirmed or
validated. In Pan American World Airways Inc. v. IAC, et al. 33 where a would-be-passenger had the necessary ticket,
baggage claim and clearance from immigration all clearly showing that she was a confirmed passenger and
included in the passenger manifest and yet was denied accommodation in said flight, we awarded damages.
In Armovit, et al. v. CA, et al., 34 we upheld the award of damages made against an airline for gross negligence
committed in the issuance of tickets with erroneous entries as to the time of flight. In Alitalia Airways v. CA, et
al., 35we held that when airline issues a ticket to a passenger confirmed on a particular flight, on a certain date, a
contract of carriage arises, and the passenger has every right to expect that he would fly on that flight and on that
date. If he does not, then the carrier opens itself to a suit for breach of contract of carriage. And finally, an award of
damages was held proper in the case of Zalamea, et al. v. CA, et al., 36 where a confirmed passenger included in the
manifest was denied accommodation in such flight.

On the other hand, the respondent airline in Sarreal, Sr. v. Japan Airlines Co., Ltd., 37 was held not liable for
damages where the passenger was not allowed to board the plane because his ticket had not been confirmed. We
ruled that "[t]he stub that the lady employee put on the petitioner's ticket showed among other coded items, under
the column "status" the letters "RQ" — which was understood to mean "Request." Clearly, this does not mean a
confirmation but only a request. JAL Traffic Supervisor explained that it would have been different if what was
written in the stub were the letter "ok" in which case the petitioner would have been assured of a seat on said flight.
But in this case, the petitioner was more of a wait-listed passenger than a regularly booked passenger."

In the case at bar, petitioners' ticket were on "RQ" status. They were not confirmed passengers and their names
were not listed in the passenger manifest. In other words, this is not a case where Pan Am bound itself to transport
petitioners and thereafter reneged on its obligation. Hence, respondent airline cannot be held liable for damages.

IV. We hold that respondent Court of Appeals correctly rules that the tickets were never confirmed for good reasons:
(1) The persistent calls made by respondent Tagunicar to Canilao, and those made by petitioners at the Manila,
Hongkong and Tokyo offices in Pan Am, are eloquent indications that petitioners knew that their tickets have not
been confirmed. For, as correctly observed by Pan Am, why would one continually try to have one's ticket confirmed
if it had already been confirmed? (2) The validation stickers which respondent Tagunicar attached to petitioners'
tickets were those intended for the exclusive use of airline companies. She had no authority to use them. Hence,
said validation stickers, wherein the word "OK" appears in the status box, are not valid and binding. (3) The names
of petitioners do not appear in the passengers manifest. (4) Respondent Tagunicar's "Exhibit 1" 38 shows that the
status of the San Francisco-New York segment was "Ok", meaning it was confirmed, but that the status of the
Tokyo-San Francisco segment was still "on request". (5) Respondent Canilao testified that on the day that
petitioners were to depart for Hongkong, respondent Tagunicar called her from the airport asking for confirmation of
the Tokyo-San Francisco flight, and that when she told respondent Tagunicar that she should not have allowed
petitioners to leave because their tickets have not been confirmed, respondent Tagunicar merely said "Bahala
na." 39This was never controverted nor refuted by respondent Tagunicar. (6) To prove that it really did not confirm the
bookings of petitioners, respondent Canilao pointed out that the validation stickers which respondent Tagunicar
attached to the tickets of petitioners had IATA No. 2-82-0770 stamped on it, whereas the IATA number of TWSI is
28-30770. 40

Undoubtedly, respondent Tagunicar should be liable for having acted in bad faith in misrepresenting to petitioners
that their tickets have been confirmed. Her culpability, however, was properly mitigated. Petitioner Yu Eng Cho
testified that he repeatedly tried to follow up on the confirmation of their tickets with Pan Am because he doubted the
confirmation made by respondent Tagunicar. 41 This is clear proof that petitioners knew that they might be bumped
off at Tokyo when they decided to proceed with the trip. Aware of this risk, petitioners exerted efforts to confirm their
tickets in Manila, then in Hongkong, and finally in Tokyo. Resultantly, we find the modification as to the amount of
damages awarded just and equitable under the circumstances.

WHEREFORE, the decision appealed from is hereby AFFIRMED. Cost against petitioners. 1âwphi1. nêt

SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 107282 March 16, 1994

THE MANILA REMNANT CO., INC., petitioner,


vs.
HON. COURT OF APPEALS, AND SPS. OSCAR C. VENTANILLA AND CARMEN GLORIA DIAZ, respondents.

Tabalingcos & Associates Law Office for petitioner.

Oscar C. Ventanilla, Jr. and Augusto Garmaitan for private respondents.

CRUZ, J.:

The present petition is an offshoot of our decision in Manila Remnant Co., Inc., (MRCI) v. Court of Appeals,
promulgated on November 22, 1990.

That case involved parcels of land in Quezon City which were owned by petitioner MRCI and became the subject of
its agreement with A.U. Valencia and Co., Inc., (AUVCI) by virtue of which the latter was to act as the petitioner's
agent in the development and sale of the property. For a stipulated fee, AUVCI was to convert the lands into a
subdivision, manage the sale of the lots, execute contracts and issue official receipts to the lot buyers. At the time of
the agreement, the president of both MRCI and AUVCI was Artemio U. Valencia.

Pursuant to the above agreement, AUVCI executed two contracts to sell dated March 3, 1970, covering Lots 1 and
2, Block 17, in favor of spouses Oscar C. Ventanilla and Carmen Gloria Diaz for the combined contract price of
P66,571.00, payable monthly in ten years. After ten days and without the knowledge of the Ventanilla couple,
Valencia, as president of MRCI, resold the same parcels to Carlos Crisostomo, one of his sales agents, without any
consideration. Upon orders of Valencia, the monthly payments of the Ventanillas were remitted to the MRCI as
payments of Crisostomo, for which receipts were issued in his name. The receipts were kept by Valencia without the
knowledge of the Ventanillas and Crisostomo. The Ventanillas continued paying their monthly installments.

On May 30, 1973, MRCI informed AUVCI that it was terminating their agreement because of discrepancies
discovered in the latter's collections and remittances. On June 6, 1973, Valencia was removed by the board of
directors of MRCI as its president.

On November 21, 1978, the Ventanilla spouses, having learned of the supposed sale of their lots to Crisostomo,
commenced an action for specific performance, annulment of deeds, and damages against Manila Remnant Co.,
Inc., A.U. Valencia and Co., Inc., and Carlos Crisostomo. It was docketed as Civil Case No. 26411 in the Court of
First Instance of Quezon City, Branch
7-B.

On November 17, 1980, the trial court rendered a decision declaring the contracts to sell in favor of the Ventanillas
valid and subsisting, and annulling the contract to sell in favor of Crisostomo. It ordered the MRCI to execute an
absolute deed of sale in favor of the Ventanillas, free from all liens and encumbrances. Damages and attorney's
fees in the total amount of P210,000.00 were also awarded to the Ventanillas for which the MRCI, AUVCI, and
Crisostomo were held solidarily liable.

The lower court ruled further that if for any reason the transfer of the lots could not be effected, the defendants
would be solidarily liable to the Ventanillas for reimbursement of the sum of P73,122.35, representing the amount
paid for the two lots, and legal interest thereon from March 1970, plus the decreed damages and attorney's fees.
Valencia was also held liable to MRCI for moral and exemplary damages and attorney's fees.

From this decision, separate appeals were filed by Valencia and MRCI. The appellate court, however, sustained the
trial court in toto.

MRCI then filed before this Court a petition for certiorari to review the portion of the decision of the Court of Appeals
upholding the solidary liability of MRCI, AUVCI and Carlos Crisostomo for the payment of moral and exemplary
damages and attorney's fees to the Ventanillas.
On November 22, 1990, this Court affirmed the decision by the Court of Appeals and declared the judgment of the
trial court immediately executory.

The Present Case

On January 25, 1991, the spouses Ventanilla filed with the trial court a motion for the issuance of a writ of execution
in Civil Case No. 26411. The writ was issued on May 3, 1991, and served upon MRCI on May 9, 1991.

In a manifestation and motion filed by MRCI with the trial court on May 24, 1991, the petitioner alleged that the
subject properties could not be delivered to the Ventanillas because they had already been sold to Samuel Marquez
on February 7, 1990, while their petition was pending in this Court. Nevertheless, MRCI offered to reimburse the
amount paid by the respondents, including legal interest plus the aforestated damages. MRCI also prayed that its
tender of payment be accepted and all garnishments on their accounts lifted.

The Ventanillas accepted the amount of P210,000.00 as damages and attorney's fees but opposed the
reimbursement offered by MRCI in lieu of the execution of the absolute deed of sale. They contended that the
alleged sale to Samuel Marquez was void, fraudulent, and in contempt of court and that no claim of ownership over
the properties in question had ever been made by Marquez.

On July 19, 1991, Judge Elsie Ligot-Telan issued the following order:

To ensure that there is enough amount to cover the value of the lots involved if transfer thereof to
plaintiff may no longer be effected, pending litigation of said issue, the garnishment made by the
Sheriff upon the bank account of Manila Remnant may be lifted only upon the deposit to the Court of
the amount of P500,000.00 in cash.

MRCI then filed a manifestation and motion for reconsideration praying that it be ordered to reimburse the
Ventanillas in the amount of P263,074.10 and that the garnishment of its bank deposit be lifted. This motion was
denied by the trial court in its order dated September 30, 1991. A second manifestation and motion filed by MRCI
was denied on December 18, 1991. The trial court also required MRCI to show cause why it should not be cited for
contempt for disobedience of its judgment.

These orders were questioned by MRCI in a petition for certiorari before the respondent court on the ground that
they were issued with grave abuse of discretion.

The Court of Appeals ruled that the contract to sell in favor of Marquez did not constitute a legal impediment to the
immediate execution of the judgment. Furthermore, the cash bond fixed by the trial court for the lifting of the
garnishment was fair and reasonable because the value of the lot in question had increased considerably. The
appellate court also set aside the show-cause order and held that the trial court should have proceeded under
Section 10, Rule 39 of the Rules of Court and not Section 9 thereof. 1

In the petition now before us, it is submitted that the trial court and the Court of Appeals committed certain reversible
errors to the prejudice of MRCI.

The petitioner contends that the trial court may not enforce it garnishment order after the monetary judgment for
damages had already been satisfied and the amount for reimbursement had already been deposited with the sheriff.
Garnishment as a remedy is intended to secure the payment of a judgment debt when a well-founded belief exists
that the erring party will abscond or deliberately render the execution of the judgment nugatory. As there is no such
situation in this case, there is no need for a garnishment order.

It is also averred that the trial court gravely abused its discretion when it arbitrarily fixed the amount of the cash bond
for the lifting of the garnishment order at P500,000.00.

MRCI further maintains that the sale to Samuel Marquez was valid and constitutes a legal impediment to the
execution of the absolute deed of sale to the Ventanillas. At the time of the sale to Marquez, the issue of the validity
of the sale to the Ventanillas had not yet been resolved. Furthermore, there was no specific injunction against the
petitioner re-selling the property.

Lastly, the petitioner insists that Marquez was a buyer in good faith and had a right to rely on the recitals in the
certificate of title. The subject matter of the controversy having passed to an innocent purchaser for value, the
respondent court erred in ordering the execution of the absolute deed of sale in favor of the Ventanillas.

For their part, the respondents argue that the validity of the sale to them had already been established even while
the previous petition was still pending resolution. That petition only questioned the solidary liability of MRCI to the
Ventanillas. The portion of the decision ordering the MRCI to execute an absolute deed of sale in favor of the
Ventanillas became final and executory when the petitioner failed to appeal it to the Supreme Court. There was no
need then for an order enjoining the petitioner from re-selling the property in litigation.
They also point to the unusual lack of interest of Marquez in protecting and asserting his right to the disputed
property, a clear indication that the alleged sale to him was merely a ploy of the petitioner to evade the execution of
the absolute deed of sale in their favor.

The petition must fail.

The validity of the contract to sell in favor of the Ventanilla spouses is not disputed by the parties. Even in the
previous petition, the recognition of that contract was not assigned as error of either the trial court or appellate court.
The fact that the MRCI did not question the legality of the award for damages to the Ventanillas also shows that it
even then already acknowledged the validity of the contract to sell in favor of the private respondents.

On top of all this, there are other circumstances that cast suspicion on the validity, not to say the very existence, of
the contract with Marquez.

First, the contract to sell in favor of Marquez was entered into after the lapse of almost ten years from the rendition
of the judgment of the trial court upholding the sale to the Ventanillas.

Second, the petitioner did not invoke the contract with Marquez during the hearing on the motion for the issuance of
the writ of execution filed by the private respondents. It disclosed the contract only after the writ of execution had
been served upon it.

Third, in its manifestation and motion dated December 21, 1990, the petitioner said it was ready to deliver the titles
to the Ventanillas provided that their counterclaims against private respondents were paid or offset first. There was
no mention of the contract to sell with Marquez on February 7, 1990.

Fourth, Marquez has not intervened in any of these proceedings to assert and protect his rights to the subject
property as an alleged purchaser in good faith.

At any rate, even if it be assumed that the contract to sell in favor of Marquez is valid, it cannot prevail over the final
and executory judgment ordering MRCI to execute an absolute deed of sale in favor of the Ventanillas. No less
importantly, the records do not show that Marquez has already paid the supposed balance amounting to
P616,000.00 of the original price of over P800,000.00.2

The Court notes that the petitioner stands to benefit more from the supposed contract with Marquez than from the
contract with the Ventanillas with the agreed price of only P66,571.00. Even if it paid the P210,000.00 damages to
the private respondents as decreed by the trial court, the petitioner would still earn more profit if the Marquez
contract were to be sustained.

We come now to the order of the trial court requiring the posting of the sum of P500,000.00 for the lifting of its
garnishment order.

While the petitioners have readily complied with the order of the trial court for the payment of damages to the
Ventanillas, they have, however, refused to execute the absolute deed of sale. It was for the purpose of ensuring
their compliance with this portion of the judgment that the trial court issued the garnishment order which by its term
could be lifted only upon the filling of a cash bond of P500,000.00.

The petitioner questions the propriety of this order on the ground that it has already partially complied with the
judgment and that it has always expressed its willingness to reimburse the amount paid by the respondents. It says
that there is no need for a garnishment order because it is willing to reimburse the Ventanillas in lieu of execution of
the absolute deed of sale.

The alternative judgment of reimbursement is applicable only if the conveyance of the lots is not possible, but it has
not been shown that there is an obstacle to such conveyance. As the main obligation of the petitioner is to execute
the absolute deed of sale in favor of the Ventanillas, its unjustified refusal to do so warranted the issuance of the
garnishment order.

Garnishment is a species of attachment for reaching credits belonging to the judgment debtor and owing to him from
a stranger to the litigation.3 It is an attachment by means of which the plaintiff seeks to subject to his claim property
of the defendant in the hands of a third person or money owed by such third person or garnishee to the
defendant.4The rules on attachment also apply to garnishment proceedings.

A garnishment order shall be lifted if it established that:

(a) the party whose accounts have been garnished has posted a counterbond or has made the
requisite cash deposit;5

(b) the order was improperly or irregularly issued6 as where there is no ground for garnishment7 or
the affidavit and/or bond filed therefor are defective or insufficient;8
(c) the property attached is exempt from execution, hence exempt from preliminary attachment 9 or

(d) the judgment is rendered against the attaching or garnishing creditor.10

Partial execution of the judgment is not included in the above enumeration of the legal grounds for the discharge of
a garnishment order. Neither does the petitioner's willingness to reimburse render the garnishment order
unnecessary. As for the counterbond, the lower court did not err when it fixed the same at P500,000.00. As correctly
pointed out by the respondent court, that amount corresponds to the current fair market value of the property in
litigation and was a reasonable basis for determining the amount of the counterbond.

Regarding the refusal of the petitioner to execute the absolute deed of sale, Section 10 of Rule 39 of the Rules of
Court reads as follows:

Sec. 10. Judgment for specific act; vesting title — If a judgment directs a party to execute a
conveyance of land, or to deliver deeds or other documents, or to perform any other specific act, and
the party fails to comply within the time specified, the court may direct the act to be done at the cost
of the disobedient party by some other person appointed by the court and the act when so done
shall have like effect as if done by the party. If real or personal property is within the Philippines, the
court in lieu of directing a conveyance thereof may enter judgment divesting the title of any party and
vesting it in others and such judgment shall have the force and effect of a conveyance executed in
due form of law.

Against the unjustified refusal of the petitioner to accept payment of the balance of the contract price, the remedy of
the respondents is consignation, conformably to the following provisions of the Civil Code:

Art. 1256. If the creditor to whom tender of payment has been made refuses without just cause to
accept it, the debtor shall be released from responsibility by the consignation of the thing or sum
due. . .

Art. 1258. Consignation shall be made by depositing the things due at the disposal of the judicial
authority, before whom the tender of payment shall be proved, in a proper case, and the
announcement of the consignation in other cases.

The consignation having been made, the interested parties shall also be notified thereof.

Art. 1260. Once the consignation has been duly made, the debtor may ask the judge to order the
cancellation of the obligation.

Accordingly, upon consignation by the Ventanillas of the sum due, the trial court may enter judgment canceling the
title of the petitioner over the property and transferring the same to the respondents. This judgment shall have the
same force and effect as conveyance duly executed in accordance with the requirements of the law.

In sum, we find that:

1. No legal impediment exists to the execution, either by the petitioner or the trial court, of an absolute deed of sale
of the subject property in favor of the respondent Ventanillas; and

2. The lower court did not abuse its discretion when it required the posting of a P500,000.00 cash bond for the lifting
of the garnishment order.

WHEREFORE, the petition is DENIED and the challenged decision of the Court of Appeals is AFFIRMED in toto,
with costs against the petitioner. It is so ordered.
Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-58794 August 24, 1984

SPOUSES LYDIA TERRADO & MARTIN ROSARIO, and DOMINGO FERNANDEZ, petitioners,
vs.
HON. COURT OF APPEALS, HON. FELICIDAD CARANDANG VILLALON, Judge, CFI of Pangasinan, Deputy
Sheriff OSCAR SIBUNA of Pangasinan, and GERUNCIO LACUESTA, respondents.

G.R. No. L-64489 August 24, 1984

SPOUSES LYDIA TERRADO & MARTIN ROSARIO, DOMINGO FERNANDEZ, and EMILIANO
GARLITOS petitioners,
vs.
INTERMEDIATE APPELLATE COURT, DEPUTY SHERIFF OF PANGASINAN FELIPE M. AQUINO, and
GERUNCIO LACUESTA, respondents.

Gerry Calub and Ricardo Perez for petitioner in L-58794.

Rogelio Terrado for petitioner in L-64489.

Geruncio Lacuesta for and in his own behalf as private respondent in 58794 and 64489.

GUERRERO, J.:

Pursuant to Act No. 4041 of the Philippine Legislature approved January 21, 1983, the Fisheries situated in the
locality known as Mangabul, Bayambang, Pangasinan, and falling within Plan No. Ipd Ninety-two of the Bureau of
Lands and recently declared by the courts as public land was reserved and the usufruct thereof ceded to the
municipality of Bayambang, Province of Pangasinan, to be used or disposed of in accordance with the general
municipal law relative to the letting of fisheries in municipal waters: Provided, That the timber and other forest
products therein shall be placed under the administration and control of the forest service; Provided further, that the
cession shall not be interpreted as limiting the power of the Secretary of Agriculture and Natural Resources to
prescribe rules and regulations for the protection of game birds, mammals or fish within the area ceded to the
municipality of Bayambang. (Section 1, Act 4041. This Act was declared enforced by Proclamation No. 545 (1933).

On May 15, 1974, the Sanggunian Bayan of Bayambang, Pangasinan passed Resolution No. 35 enacting
Ordinance NO. 8, series of 1974, establishing the Bayambang Fishery and Hunting Park and Municipal Water Shed
embracing all the vast area of the Mangabul Fisheries consisting of about 2,061 hectares with 19 fishponds and not
less than 1,500 hectares of watershed area. In the said ordinance, the municipality designated appointed and
constituted private respondent Geruncio Lacuesta as Manager-Administrator for a period of 25 years, renewable for
another 25 years, under the condition that said respondent shall pay the municipality. a sum equivalent to 10% of
the annual gross income that may be derived from the sale of forest products, wild game and fish, which amount
shall not be less than P200,000.00 annually. He was further required to post a bond in the amount of P200,000.00
to guaranty payment of the 10% due the municipality.

Municipal Ordinance No. 8 was approved by the Provincial Board of Pangasinan on October 11, 1974 and thereafter
was forwarded to the then Secretary of Agriculture and Natural Resources for approval pursuant to the provisions of
the Fisheries Act, Act No. 4003.

On April 4, 1975, the Secretary disapproved the Ordinance because it grants fishery privileges to respondent
Lacuesta without the benefit of competitive public hearing in contravention of the provisions of Act 4003 as
amended.

Respondent Lacuesta interposed an appeal from the disapproval by the Secretary of Agriculture and Natural
Resources to the Office of the President but the appeal was withdrawn by said respondent in his letter dated July
14, 1977.

The Municipality then informed respondent Lacuesta of the disapproval of the Ordinance by the Secretary of
Agriculture & Natural Resources and directed him to refrain and desist from acting as Administrator-Manager under
the contract but the latter refused and insisted in maintaining possession of the fisheries. Inspite of such refusal, the
Sanggunian Bayan of Bayambang, Pangasinan passed Resolution No. 31, series of 1977, resolving to advertise for
public bidding all fisheries at the Mangabul area for four years and to direct the Municipal Treasurer to prepare the
necessary notices of public bidding, and accordingly, the Municipal Mayor and the Municipal Treasurer caused to
issue a Notice of Public Bidding scheduled July 5, 6, and 7, 1977. Among the winning bidders were the petitioners
herein, the spouses Lydia Terrado and Martin Rosario and Domingo Fernandez who were immediately placed in
possession of the Mangabul fisheries as of July 6, 1977.

Private respondent Geruncio Lacuesta immediately filed on July 8, 1977 a petition for prohibition and mandamus
with damages with the Court of First Instance of Pangasinan, Branch IX in San Carlos City, presided by Judge
Augusto Saroca against the Municipal Mayor, the Municipal Treasurer, the Sanggunian Bayan and the members
thereof, praying that the respondent municipal officials named therein be prohibited from executing any contract of
lease with the winning bidders and from enforcing Resolution No. 31, series of 1977, and further asked that a
temporary restraining order be issued against said respondent officials from performing the acts enjoined.

Pursuant to the prayer in the petition for prohibition in Civil Case No. 516, Judge Saroca issued a restraining order
enjoining and prohibiting all the respondents, their agents, representatives and/or anybody acting for and on their
own behalf, from executing any contract of lease with the winning bidders in the biddings conducted on July 5, 6,
and 7, 1977 and from enforcing Resolution No. 31, series of 1977 until further orders from the court. Respondents in
this Civil Case No. 516 filed a motion to dissolve the temporary restraining order but was denied on August 17,
1977.

Upon ex-parte motion by Lacuesta asking that the Sheriff of the court be authorized to enforce the restraining order
of July 11, 1977 and to arrest and keep in his custody all persons violating the same, Judge Saroca issued on
October 7, 1977 an order directing Deputy Sheriff Alberto V. Soriano to proceed to the Mangabul fisheries and
enforce the restraining order of July 11, 1977 against the respondent municipal officials, their agents and
representatives and to arrest and keep in custody any and - all persons found to be violating said order. Thereafter,
the Deputy Sheriff informed the court on October 26, 1977 that he served copies of the restraining order dated July
11, 1977 on all parties concerned and that they peacefully vacated and gave the possession of the fisheries without
interposing any formal objection, to the plaintiffs, Geruncio Lacuesta, et al.

Still in Civil Case No. 516, Lacuesta filed a petition dated September 16, 1977 asking that the defendants named in
said petition including the spouses Lydia Terrado Rosario and Martin Rosario and others be ordered to explain why
they should not be punished for contempt and that they be arrested immediately and kept in custody until they stop
violating the restraining order of July 11, 1977, further alleging that said spouses employing misrepresentation,
strategies, deceit, threat and force took over the Mayor fishery and illegally fished therein and are continuing to fish
the same including the Manansan Alangigan, Tubor and Banawang na Dueg Fisheries which they had previously
took over from the movant Lacuesta.

The situation became serious as on October 10, 1977 the Sanggunian Bayan passed Resolution No. 34, series of
1977 "requesting the assistance from the Department of Natural Resources, the Philippine Constabulary,
Department of Justice, the Provincial Fiscal, the Provincial Governor and other agencies, for them to enjoin
respondent from disturbing and interfering with the administration by the Municipality of Mangabul Fisheries and
other areas."

In the meantime that these incidents were pending before Judge Saroca, the members of the Sanggunian Bayan as
petitioners filed on November 15, 1977 a petition for certiorari with the defunct Court of Appeals against Judge
Saroca, the INP Station Commander, Deputy Sheriff Soriano, and Geruncio Lacuesta and others assailing the order
issued on July 11, 1977 as well as the order issued October 7, 1977 as null and void, the same having been issued
without jurisdiction and with grave abuse of discretion, the case docketed as CA-G.R. No. SP-07252-R. The
appellate court denied the petition for certiorari and held that Judge Saroca did not act without or in excess of
jurisdiction or with grave abuse of discretion in issuing the restraining order of July 11, 1977. The Sanggunian Bayan
members elevated the case on a petition for review on certiorari, G.R. No. 49064 but was denied for lack of merit
per Our resolution dated October 16, 1978.

While the certiorari proceeding was pending before the Court of Appeals, the resolution on the motion for contempt
before Judge Saroca was held in abeyance but upon final decision by the court, Lacuesta moved the court on July
15, 1979 to resolve the contempt motion as well as for the order of their arrest. After hearing, Judge Saroca issued
the order dated August 30, 1979 holding that the continued possession of the spouses Lydia Terrado Rosario and
Martin Rollo Rosario as winning bidders constituted disobedience to and unlawful interference with the temporary
restraining order of July 11, 1977 and directed Deputy Sheriff Soriano to enforce the July 11 and October 7, 1977
orders, to cause the arrest of said Rosario spouses including their agents and representatives and any and all
person representing themselves as winning bidders in the public bidding held on July v, 1977 and to hold them in
custody until further orders of the court, unless said spouses and their agents and the winning bidders voluntarily
refrain from disobeying and interfering with the process of the court, in which case they may be discharged from
custody. In the same order, Judge Saroca set a pre-trial conference and hearing on the merits on September 25, 26,
and 27, 1979.

Having been adjudged in contempt of court and their immediate arrest ordered by Judge Saroca in the order
mentioned above dated August 30, 1979, the spouses Lydia Terrado Rosario and Martin Rosario filed the petition
for prohibition with the prayer for a writ of preliminary mandatory injunction assailing the questioned order as null
and void, having been issued in grave abuse of discretion amounting to lack of jurisdiction and praying that
respondent Judge Saroca be restrained from implementing the same, the petition docketed as CA-G.R. No. SP-
09724.

Resolving the petition (CA-G.R. No. SP-09724), the Court of Appeals, acting through the Former Eleventh Division
with Justices Victoriano, J., ponente, and Reyes and Nocon, JJ., concurring, ruled and set aside the assailed order
of August 30, 1979, holding that the Rosario spouses were not parties to the case, hence, they could not be bound
by the restraining order of July 11, 1977 which enjoined and prohibited the parties: "(1) from executing any contract
of lease with the winning bidders in the bidding conducted on July 5, 6, and 7, 1977; and/or (2) from enforcing
resolution No. 31, series of 1977 of the Sangguniang Bayan of Bayambang, Pangasinan, until further orders from
this court." The order of Judge Saroca dated August 30, 1979 was, therefore, ordered set aside as having been
issued in excess of jurisdiction and with grave abuse of discretion. The decision of the Court of Appeals in CA-G.R.
No. SP-09724 was promulgated January 24, 1980 thereby upholding the possession of the spouses Lydia Terrado
and Martin Rosario.

Meanwhile, the Municipality of Bayambang, represented by Mayor Jaime P. Junio and the Sangguniang Bayan of
Bayambang represented by the members thereof, filed on September 5, 1979 Civil Case no. SCC-648 in the Court
of First Instance of Pangasinan, Branch X, San Carlos City against Geruncio Lacuesta for annulment of the contract
entered into between the Municipality and Lacuesta under Ordinance No. 8 hereinbefore mentioned, injunction and
damages with prayer for the issuance of a writ of preliminary injunction. After the hearing of the incident for the
issuance of the writ of preliminary injunction, Judge Saroca issued an order dated November 15, 1979 granted the
writ as prayed for and ordered the defendant Lacuesta, his agents, lawyers, representatives, laborers and other
person or persons under his employ to refrain and desist from interfering with and molesting the plaintiffs in the use
of and in the exercise of plaintiffs' usufructury rights until further orders from the court. On November 16, 1979, the
day Judge Saroca retired from the service, he issued another order to the sheriff to cause defendant Lacuesta to
refrain from and desist from enforcing and implementing Resolution No. 35 enacting Ordinance No. 8, series of
1974 and the contract of management and administration, restraining them further from interfering with and
molesting the plaintiffs in the use of and in the exercise of the latters' usufructuary rights until further orders from the
court.

On November 23, 1979, Lacuesta elevated to the Supreme Court the November 15 and 16 orders of Judge Saroca
in a petition for certiorari with prayer for preliminary injunction docketed as G.R. No. 51984. In Our resolution of
January 14, 1980, the petition for certiorari was denied for lack of merit. His motion for reconsideration was also
denied in Our resolution of February 18, 1980.

With the retirement of Judge Saroca, the case was transferred to Branch III, Court of First Instance of Pangasinan,
Dagupan City, presided over by Judge Felicidad Carandang-Villalon, the case now docketed and numbered as D-
5118. Lacuesta then filed a Motion to Dissolve the Injunction and to Order Plaintiffs to Vacate and Turn All the
Fisheries to Defendants (the injunction previously issued by Judge Saroca dated November 15, 1979). The Motion
was granted by Judge Carandang-Villalon on the ground that 6 4 after the plaintiffs have recognized and confirmed
the validity of the resolution and the contract, and after the defendant had started to perform his duties and
obligations under the contract, the legal and factual ground which led the court to issue the writ has ceased to exist,
and consequently, the dissolution of the writ of preliminary mandatory injunction dated November 15, 1979 appears
warranted by prevailing circumstances." Plaintiff Municipality moved for reconsideration which was denied in the
court's order of March 9, 1981 which also ordered the issuance of the writ of execution after the approval of
defendant Lacuesta's bond of P200,000.00.

The plaintiff Municipality thereafter assailed the above orders of Judge Carandang-Villalon dated November 8, 1981
and March 9, 1981 in the former's petition for certiorari with prayer for writ of preliminary injunction, the petition filed
in the Court of Appeals and docketed as CA-G.R. 12586, dated June 16, 1981.

In the decision of the Court of Appeals, Seventh Division, promulgated September 29, 1981, the court held that
"being bereft of merit, as shown above, the instant petition is hereby denied due course and outrightly dismissed.
Accordingly, the temporary restraining order heretofore issued is hereby lifted and the urgent motion to lift
restraining order filed on August 19, 1981 and on August 27, 1981 are hereby left unconsidered for having been
rendered moot and academic by the resolution." The motion for reconsideration of the decision was denied by
resolution of the appellate court on November 11, 1981.

Meanwhile, when the Court of First Instance of Pangasinan, Branch III, Judge Carandang-Villalon presiding,
received copy of the decision in SP-12586 promulgated September 29, 1981, the court issued an order on October
5, 1981 for the ex-prosecution of its previous order to dissolve the preliminary injunction and place Lacuesta in
possession of the contested fisheries and accordingly, a writ of execution was issued on October 7, 1981.

Another petition for certiorari was filed by the spouses Lydia Terrado and Martin Rosario and Domingo Fernandez
docketed as CA-G.R. No. SP-13175, assailing the issuance of the order and writ dated October 5 and 7, 1981
respectively for allegedly violating due process as they were issued before the lapse of the 15-day reglementary
period. In this petition, SP-3175, the court required respondent Judge and Lacuesta to comment, the same time
issuing a temporary restraining order against the assailed order and writ of October 5 and 7, 1981 of the respondent
court.
On November 7, 1981, the appellate court (through the Seventh Division and ponente who handled both SP-12586
and SP-13175), rendered its resolution in SP-13175 dismissing the petition for lack of merit and setting aside the
order of October 14, 1981 to include the lifting of the restraining order of even date. The appellate court ruled that:

Our decision in said CA-G.R. No. SP-12586 held in effect that the impugned orders (like the order of
January 8, 1981), were properly issued by the respondent court. Hence, those interlocutory orders,
the effectivity of which were suspended by the certiorari proceedings in CA-G.R. No. SP-12586,
presumed to be immediately executory upon the lifting of the restraining order as done in the
decision of September 29, 1981. This must be so, notwithstanding the filing on October 21, 1981 of
an "Urgent Ex-Parte Motion For Extension" to file motion for reconsideration of said decision
because an injunction, once dissolved, cannot be revived except by a new exercise of judicial power,
and no appeal by a dissatisfied party can of itself revive it. (Watcon vs. Enriquez, 1 Phil. 480; Sitia
Teco vs. Venture, 9 Phil. 497; II Martin, Rules of Court, 1969 Ed., p. 84).

Thus, when respondent court issued its herein impugned order of October 5, 1981 and the Writ of
Execution pursuant thereto on October 7, 1981, it was merely putting into effect the immediately
operative interlocutory order dissolving the injunction. There was therefore, no abuse of discretion.

When the resolution in SP-13175 was received in the lower court, Judge Villalon issued on November 6, 1981 an
"Alias Writ of Execution and Possession" which reiterated its writ of October 7, 1981. The alias writ was received by
the Municipality, through counsel, on November 12, 1981.

On November 16, 1981, the Municipality of Bayambang, represented by its Mayor, filed another certiorari petition to
annul the alias writ of November 6, 1981, in CA-G.R. No. 13353 against Judge Carandang-Villalon and Geruncio
Lacuesta, the petition being signed by Atty. Oliver O. Lozano.

Since CA-G.R. No. SP-12586 and CA-G.R. No. SP-13353 involve the same subject matter, the Special Sixth
Division of the Court of Appeals to which CA-G.R. No. SP-13353 was assigned or raffled, resolved in its Resolution
of November 27, 1981 to consolidate the case with CA-G.R. No. SP-12586 then pending with the Seventh Division
of the Court of Appeals as to the plaintiff Municipality's motion for reconsideration.

The two certiorari petitions, CA-G.R. No. 12586 and CA G.R. No. SP-13353, now consolidated in the Seventh
Division, were resolved in the Resolution dated December 4, 1981, thus: "WHEREFORE, the foregoing considered,
the petition in 13353 is hereby dismissed for being a scrap of paper, the temporary restraining order heretofore
issued is hereby lifted, and the scheduled hearing on December 10, 1981 hereby discontinued. The motion for
reconsideration in SP-12586 is hereby denied for lack of merit.

Since the Court of Appeals, Seventh Division, dismissed the petition in CA-G.R. No. SP-13353 as a mere scrap of
paper because Atty. Oliver O. Lozano was not authorized to represent the petitioner Municipality, Atty. Lozano
submitted the required authority in his Motion for Reconsideration of the resolution dismissing the petition, further
praying that the resolution of the Sixth Division giving due course to the petition as well as the temporary restraining
order issued therein be reinstated or restored.

Acting on the motion of the Municipality entitled "Ex-Parte Reiteration of Motion for Restoration of Temporary
Restraining Order" filed on December 22, 1981 and the "Urgent Ex-Parte Motion to Stop Arrest of Petitioner's
Laborers" filed on December 23, 198 1, the court in its Resolution of December 24, 1981 set the hearing of the first
motion on January 15, 1982 and as to the second motion, the court deemed "it wise and proper in the spirit of love
and compassion this Christmas time, to order that no arrests be ordered by the respondent court against persons
involved in 'those fisheries in areas covered by existing lease contracts executed by plaintiff Municipality in favor of
entities and/or persons before November 15, 1979' until after the results of the November 15 hearing are received.
... In effect, therefore, we are ordering, as it is hereby ordered that a partial temporary restraining order be issued
only as involved the areas with existing lease contract entered into by the Municipality prior to November 15, 1979.

After the hearing on January 15, 1982 as alluded to above, the court promulgated its Resolution dated January 28,
1982, holding that the pleadings signed by Atty. Oliver O. Lozano are deemed valid for purposes of considering the
incidents therein and that the impugned alias writ of execution issued by respondent court on November 6, 1981 is
hereby declared void only insofar as it has deleted the exception involving "those fisheries and areas covered by
existing lease contract executed by the plaintiff Municipality in favor of entities and/or persons before November 15,
1979. Further, the respondent court was directed to conduct a factual determination of (a) who are the persons or
what are the entities involved, and (b) the clearly specified areas covered by their contracts, and that prior to the
holding of such factual determination however, the respondent court was ordered to settle the nature of those "lease
contracts" — i.e., whether ordinary lease contract over a fishery area or contract of lease of services. Finally, the
Court of Appeals ordered that "in case the respondent court finds, after putting to rest the nature of those lease
contracts referred to in the original order of dissolution and after making the factual determination herein ordered,
that such contracts no longer exist, then the Partial Temporary Restraining Order above mentioned shall be deemed
ineffective for having then become moot and academic The Motion for Contempt of Court filed by Lacuesta on
January 13, 1982 was also denied by the court.
Pursuant to the resolution of the Court of Appeals dated January 28, 1982 and in compliance therewith in
conducting a factual determination of who are the persons or what are the entities involved and the clearly specified
areas covered by their contracts, Judge Villalon, after conducting hearings, submitted to the appellate court in her Ist
Indorsement dated April 30, 1982, stating that "it is definite that there are admittedly no areas covered by any
existing lease contract executed by the plaintiff Municipality in favor of entities and/or persons before November 15,
1979 within the contemplation of the Order dated January 8, 1981 which order has ordered the dissolution of the writ
of preliminary mandatory injunction dated November 15, 1979 issued by then retired Hon. Judge Augusto Saroca for
reasons set forth in the Order.

Acting upon the above report of Judge Villalon, the Court of Appeals promulgated its Resolution dated July 7, 1982,
resolving that "in view of the above, the partial temporary restraining order has become ineffective for having then
become moot and academic. WHEREFORE, the motion filed by private respondent is hereby granted (Motion Ex-
Parte for Total Lifting of Partial Restraining Order). The Partial Temporary Restraining Order issued on December
24, 1981 is hereby lifted and set aside.

Two other petitions for certiorari were also filed with the Court of Appeals assailing the October 8, 1982 Order of
Judge Villalon which ordered the issuance of a writ of execution and implementation of the Order of January 8,
1981, the first being CA-G.R. No. 15033 entitled "Spouses Lydia Terrado and Martin Rosario, et al. vs. Hon.
Felicidad Carandang-Villalon, et al.," filed October 18, 1982 and the second, CA-G.R. No. 13175, "Spouses Lydia
Terrado, et al. vs. Hon. Felicidad Carandang-Villalon, et al." dated October 9, 1981. CA-G.R. No. 15033 was
dismissed on March 22, 1983, while CA-G.R. G.R. No. 1317 5 on November 5, 1981.

The five (5) cases relating to the same subject matter, which are CA-G.R. No. 15033-SP, CA-G.R. 14501-SP, CA-
G.R. 13353- SP CA-G.R. No. 13175-SP and CA-G.R. No. 12586-SP, were then consolidated in the decision of the
Court of Appeals promulgated March 22,1983.

The dismissal of the petition in CA-G.R. No. 13175 and the issuance of the alias writ of execution and possession
issued by respondent Judge Villalon in Civil Case No. D-5118 is now elevated to Us in G.R. No. 58794.

Likewise, the decision of the appellate court dismissing the petition in CA-G.R. No. 15033-SP and the Order issued
by the trial court dated January 8, 1981 have been raised to Us in G.R. No. 64489. Both petitions at bar, G.R. No.
58794 and G.R. No. 64489, have been consolidated per Our Resolution of August 24, 1983.

The records of the petition before Us in G.R. No. 64489 disclose that upon written request of Judge Felicidad
Carandang-Villalon that she be relieved from taking further cognizance of Civil Case No. SCC-648 (D-5118) entitled
"Geruncio Lacuesta, et al. vs. The Municipality of Bayambang, the Supreme Court in its Resolution en banc dated
June 7, 1983 granted the request of the Judge and directed the Clerk of Court of the Regional Trial Court of
Dagupan to transfer the records of the case to the Clerk of the Regional Trial Court of San Carlos City for raffling
among the two branches thereat. Accordingly, Judge Carandang-Villalon issued an Order dated June 17, 1983
directing the Stenographer who took the proceedings 30 days to make complete transcript of the same and the
Officer-in-Charge of the court to prepare the voluminous exhibits and thereafter effect the transmittal of the full
records of the case. Notwithstanding her relief, the same Judge issued a further order dated September 2, 1983
commanding the Sheriff and the Commanding Officer of the 153rd PC Company to restore defendant Lacuesta and
his men to possession of all the fisheries and areas covered by his contract pursuant to the Order of the court dated
October 8, 1982. This Order was implemented according to the Sheriff's Return dated September 20, 1983.

Through the maze and muddle of this protracted legal controversy, it is plain and clear that the complaints and
petitions including all legal incidents and motions filed in the trial court, the appellate court and before this Tribunal
are traceable. in origin to the enactment and implementation of Municipal Ordinance No. 8, series of 1974, of the
Municipality of Bayambang, Pangasinan, establishing the Bayambang Fishery & Hunting Park and Municipal
Watershed coveting the so-called Mangabul Fisheries. As stated in Section of the Ordinance, the purposes of the
Park are: 1. To attract tourists to Bayambang and thus increase the income of the municipality and create new
employment and new sources of income for the people; 2. To restore and conserve the natural environment of the
area by means of reforestation of the forest or timberland reserved, thru engineering works, and other means within
the Ipd-92 area; 3. To restore or improve, conserve and develop the fisheries, zones, and exploit the fish resources
of all the fisheries therein; 4. To supply agro-industrial enterprises that may be established in Bayambang with raw
materials from the area; and 5. To provide sports and recreation facilities and wholesome sports and recreational
activities for the people.

Further, under the Ordinance, the Municipality designated, appointed and constituted private respondent Lacuesta
as Manager-Administrator for a period of twenty-five (25) years, renewable for another twenty-five (25) years upon
mutual agreement (Section 4). Among the powers, duties and obligations of the Manager-Administrator are: 1. To
reforest with woods or economic value all the timberland portions indicated in Plan Ipd-92 and those that need to be
reforested for ecological purposes; 2. To stock the forest with wildlife or economic value, protect the forest products
and wildlife and regulate their multiplication in accordance with existing laws; 3. To deepen the fisheries, swamps
and tributary streams by dredging, employing modern scientific and technological methods to restore or improve and
develop the fisheries to increase the fees yield; 4. To conduct and regulate sports fishing and hunting in the park
and collect fees therefrom; 5. To use or dispose of the fisheries portion in accordance with the general law on
municipal waters; 6. To establish in a suitable site within the park a fishing and hunting camp to be called "Camp
Imelda." In Section 7 of the Ordinance, the Manager-Administrator shall pay to the municipal government the sum
equivalent to ten (10%) percent of the annual gross income derived from an fees charged for fishing and hunting in
the park and entry into Camp Imelda, from the sale of forest products, wild games and fish from the area, but not
less than P200,000.00.

In accordance with the Ordinance, a Contract of Management and Administration was executed by the Municipality,
represented by its Municipal Mayor as the Usufructuary and Atty. Geruncio Lacuesta as the Manager-Administrator,
setting forth therein the terms and conditions laid down in the Ordinance as well as the mode and manner of the
payment of the sum of P200,000.00 annually due to the Municipality including the posting of a surety bond and other
details of the management and administration of the fisheries by the Manager-Administrator, which contract was
executed on January 28, 1975 at Bayambang, Pangasinan.

Thus, the validity or legality of the Municipal Ordinance in question is the crucial and vital issue that must be
resolved once and for all to put an end to this raging litigation that has become the tug-of-war between the
Municipality and Lacuesta, together with other interested parties, over the vast and rich fishing grounds. In resolving
said issue and ultimately the very root of the conflict, the following undisputed facts are controlling and decisive: 1.
That Municipal Ordinance No. 8 has been disapproved by the Secretary of Agriculture and Natural Resources; and
2. That private respondent has since died as shown in the Return of the Postmaster of Bayambang as noted in Our
Resolution of July 2, 1984.

1. Ordinance No. 8, having been submitted to the Provincial Board of Pangasinan and approved by it by virtue of
Resolution No. 171 dated October 11, 1974, the same was submitted to the Secretary of Agriculture & Natural
Resources as required by Section 4 of Act No. 4003, The Fisheries Act, as amended by Commonwealth Act No.
471 passed June 16, 1939, and further amended by RA No. 659 approved June 16, 1951, thus:

Sec. 4. Instructions, orders, rules and regulations. The Secretary of Agriculture and Commerce shall
from time to time issue instructions, orders, rules and regulations consistent with this Act, as may be
necessary and proper to carry into effect the provisions thereof and for the conduct of proceedings
arising under such provisions; and all licenses, permits, leases and contracts issued, granted or
made herein shall be subject to the same.

All ordinances, rules or regulations pertaining to fishing or fisheries promulgated or enacted by


provincial boards, municipal boards or councils, or municipal district councils shall be submitted to
the Secretary of Agriculture and Commerce for approval and shag have full force and effect unless
notice in writing of their disapproval is communicated by the secretary to the board or council
concerned within thirty days after submission of the ordinance, rule, or regulation.

From the evidence on record, it appears that a Master Plan for the Bayambang Fishing and Hunting Park and
Municipal Watershed (Mangabul Fisheries Reservation) of Atty. Geruncio Lacuesta, Manager-Administrator of the
said park, was submitted to the Bureau of Fisheries and Aquatic Resources. In the Indorsement of the Director of
Fisheries & Aquatic Resources to the Secretary, Department of Natural Resources, the Comments, among others,
state: "2. Records of this bureau show that Resolution No. 171, s. 174 of the Provincial Board of Pangasinan,
embodying Resolution No. 35, s. 1974, enacting Ordinance No. 8, s. 1974 of the Municipal Council of Bayambang,
Pangasinan and Resolution No. 24, s. 1975 of the same council requesting reconsideration and rectification of the
5th Indorsement of that department dated April 4, 1975, were returned DISAPPROVED and denied, respectively, by
the Secretary of Natural Resources to the Municipal Council of Bayambang, Pangasinan .

Upon the recommendation of the Director of Fisheries and Aquatic Resources that "In the light, therefore, of the
foregoing, the Master Plan for the Bayambang Fishing and Hunting Park and Municipal Watershed (Mangabul
Fisheries Reservation), insofar as fishing and fisheries thereat are concerned should not be given due course and
should be DISAPPROVED in the absence of adequate provisions thereon to the effect that the grant of the
exclusive fishery privileges within its municipal waters shag be granted by the municipal council (now sangguniang
bayan) to the highest bidder conformable with a fishery ordinance duly approved by the Secretary of Natural
Resources, pursuant to Sections 5, 67 and 69 of Act No. 4003, as amended (now sections 4, 29 and 30 of
Presidential Decree No. 704)," the Secretary of the Department of Natural Resources disapproved the Master Plan.

The legal basis for the disapproval of the Ordinance No. 8 and the Master Plan mentioned above is clear and
explicit in Sections 4, 67 and 69 of Act No. 4003 as amended by PD 704, Revising and Consolidating All Laws and
Decrees Affecting Fishing and Fisheries. These Sections provide:

Sec. 4. Jurisdiction of the Bureau. — The Bureau shall have jurisdiction and responsibility in the
management, conservation, development, protection, utilization and disposition of an fishery and
aquatic resources of the country except municipal waters which shall be under the municipal or city
government concerned: Provided, That fish pens and seaweed culture in municipal centers shall be
under the jurisdiction of the Bureau: Provided, further, That all municipal or city ordinances and
resolutions affecting fishing and fisheries and any disposition thereunder shall be submitted to the
Secretary for appropriate action and shall have full force and effect only upon his approval. The
Bureau shall also have the authority to regulate and supervise the production, capture and gathering
of fish and fishery/aquatic products.
The Bureau shall prepare and implement, upon approval of the Fishery Industry Development
Council, a Fishery Industry Development Program.

Section 29. Grant of Fishery Privileges. — A municipal or city council, conformably with an ordinance
duly approved by the Secretary pursuant to section 4 hereof, may: (a) grant to the highest qualified
bidder the exclusive privilege of construction and operating fish corrals, oyster culture beds, or of
gathering "bangus" fry, or the fry of other species in municipal waters for a period not exceeding five
(5) years: ...

Section 30. Municipal concessions and leases concerning fisheries. — lease or concession granted
by a municipal or city council under authority of an ordinance approved pursuant to section 4 hereof,
concerning fishing or fisheries in streams, lakes, rivers, in land and/or municipal waters, shall be
valid and enforceable unless the Secretary, upon recommendation of the Director, approves the
same.

Indeed, the Ordinance is clearly against the provisions of the law for it granted exclusive fishery privileges to the
private respondent without benefit of public bidding. Under the Fisheries Act, the Municipality may not delegate to a
private individual as Manager-Administrator to "use or dispose of the fisheries portion in accordance with the
general law on municipal waters" nor to charge foes for fishing and hunting in the park, much less sell forest
products, wild games and fish from the area.

Neither can the Municipality grant the exclusive privilege of fishing for a period more than five (5) years, whereas in
the instant case, the period granted the Manager-Administrator was for twenty-five (25) years, renewable for another
twenty-five years.

Moreover, under the specific provision of Act No. 4041, there is the proviso that the timber and other forest products
therein shall be placed under the administration and control of the forest service so that insofar as the ordinance
relates to the timber and other forest products and the reforestation of the timberland portions indicated in Plan Ipd-
92 including the powers, duties and responsibilities of the Manager-Administrator affecting the forestry portions are
violative of Act No. 4041.

It is of no moment that at the pre-trial hearing of Civil Case No. SCC-648 (which was transferred to Branch 111, CFI
Dagupan and docketed as D-5118) the parties had admitted the legality of Ordinance No. 8. The issue as to the
legality of Ordinance No. 8 is not a question of fact that the parties may stipulate and agree at the pre-trial hearing of
the case which is for annulment of the contract under Ordinance No. 8. Such is a question of law for if the Ordinance
is illegal and contrary to law, the contract executed in pursuance thereto is consequently illegal. Acts executed
against the provisions of mandatory or prohibitory laws shall be void, except when the law itself authorizes their
validity. (Art. 5, New Civil Code).

From Our jurisprudence, We cite a number of cases ruling that a public bidding is essential to the validity of the
grant of exclusive privilege of fishery to a private party, thus:

The law (Sec. 2323 of the Revised Administrative Code) requires that when the exclusive privilege of
fishery or the right to conduct a fish-b reeding ground is granted to a private party, the same shall be
let to the highest bidder in the same manner as is being done in exploiting a ferry, a market or a
slaughter house belonging to the municipality (See Municipality of San Luis vs. Venture, et all 56
Phil. 329). The requirement of competitive bidding is for the purpose of inviting competition and to
guard against favoritism, fraud and corruption in letting of fishery privileges (See 3 McQuillin,
Municipal Corporations, 2nd Ed., p. 1170; Harles Gaslight Co. vs. New York, 83 N.Y. 309; and 2
Dillon, Municipal Corporations, p. 1219) (San Diego vs. The Municipality of Naujan Province of
Mindoro, 107 Phil. 118).

It may thus be restated that the law that governs the award of fishery privileges in municipal waters
is the provisions of Section 67 and 69 of Act No. 4003, as amended by Commonwealth Acts Nos.
115 and 471. The provisions of Sections 2321, 2323 and 2319 of the Revised Administrative Code
of 1917 have thereby been modified by Act 4003, as amended. Under the applicable law the
Municipal Council may lease fishery privileges for a period not exceeding five years to the highest
bidder in a public bidding held, where the call for bid had specified the period for the lease. (San
Buenaventura vs. Municipality of San Jose, Camarines Sur, et al, 121 Phil. 101, 114).

The Municipal Council cannot extend the period of lease once it had been fixed on the basis of the
period provided in the call for bids. In the lease of fishery privileges for a period not exceeding five
years the previous approval of the provincial Board is not necessary. If the lease is for a period of
more than five years, but not exceeding ten years, the previous approval of the Provincial Board is
necessary. If the lease is for a period exceeding ten years, but not more than twenty years, the prior
approval of the Secretary of Agriculture and Natural Resources is necessary. In all cases the lease
must be based on a competitive public bidding. (San Buenaventura vs. Municipality of San Jose,
Camarines Sur, et all supra p. 115).
While the respondent appellate court in CA-G.R. No. 12586-SP made the pronouncement that:

Besides, Sec. 4, Act No. 4003 (which was then the law in force before being superseded by PD 704
on May 16, 1975) provides that an ordinance affecting fishing and fisheries "shall have full force and
effect unless notice in writing of (its) disapproval is communicated by the Secretary to the Board of
council concerned, within thirty days after submission of the ordinance." The ordinance was
submitted for approval on January 2, 1975 and the disapproval came only 102 days after such
submission, on April 14, 1975. Paragraph (a) of the pretrial stipulation (Annex "6" of Respondent's
Comment) states that "the said ordinance was submitted to the then Secretary of Natural Resources
who disapproved the ordinance, insofar as fishing and fisheries are concerned after 30 days from
submission."

We cannot sustain the above holding in view of Our holding in the case of Nepomuceno, et al. vs. Ocampo, et
al.,supra, wherein We held that the only purpose in the enactment of Republic Act 659 which required the Secretary
of Agriculture and Natural Resources to approve municipal ordinances pertaining to fishing or fisheries within 30
days after submission of the ordinance, rule or regulation is simply to expedite prompt action by the Department
Chief concerned. Since Ordinance No. 8 granted fishery privileges exclusively to the private respondent without
benefit of public bidding and for a period exceeding five (5) years, the said ordinance and the contract of
management executed in accordance therewith were null and void ab initio, such that the failure of the Secretary of
Agriculture & Natural Resources to disapprove the same within 30 days from its submission does not render validity
to the illegal legislation of the municipal council nor to the contract executed under the same.

From the foregoing conclusion that the ordinance is illegal and void, per force the contract of management and
administration between the Municipality and Lacuesta is likewise null and void. It also follows that the complaint filed
by Lacuesta for prohibition in Civil Case No. 516 to enjoin the Municipal Council of Bayambang from leasing the
Mangabul Fisheries upon public bidding as authorized in its Resolution' No. 31, series of 1977 is without legal basis
and merit for Lacuesta has no right or interest under the void ordinance and contract. The suit must be dismissed
and We hereby order its immediate dismissal.

2. We have noted earlier the death of Lacuesta in Our Resolution of July 2, 1984. His death is an irreversible fact
that throws an entirely new bearing on the legal controversy at hand. For essentially, the contract of management
and administration between the Municipality and Lacuesta is one of agency whereby a person binds himself to
render some service or to do something in representation or on behalf of another, with the consent or authority of
the latter. (Article 1868, New Civil Code). Here in the case at bar, Lacuesta bound himself as Manager-Administrator
of the Bayambang Fishing & Hunting Park and Municipal Watershed to render service or perform duties and
responsibilities in representation or on behalf of the Municipality of Bayambang, with the consent or authority of the
latter pursuant to Ordinance No. 8. Under Article 1919, New Civil Code, agency is extinguished by the death of the
agent. His rights and obligations arising from the contract are not transmittable to his heirs. (Art. 1311 , New Civil
Code).

3. Petitioners in both cases before Us, G.R. No. 58794 and G.R. No. 64489, anchor their claims to certain portions
of the Mangabul Fisheries which they allege to have won in public bidding under the authority of Resolution No. 31,
series of 1977 of the Municipal Council of Bayambang which leased the fisheries for a four-year period. The period
has already lapsed, hence their fishing privilege is no longer effective as of June 30, 1981. To restore and place
petitioners in possession of the fisheries would be an extension of their four-year period lease which is not
authorized under the ordinance cited above.

Nonetheless, the assailed order of Judge Villalon dated September 3, 1983 restoring possession of the fisheries to
Lacuesta and his men which was issued after her relief from the case upon her own request is clearly irregular and
without authority. There should be and there ought to be full obedience and compliance by a subordinate court of
the orders and resolutions of this Court. There cannot be any iota of discipline much less efficiency in the
administration of justice if the lower echelons in the judicial hierarchy can freely act as they wish inspire of their
relief. This should be a stem warning to all judges and personnel in all the courts.

We brush aside the procedural aspects raised in the petitions before Us and in the interest of public welfare and
speedy administration of justice, avoiding further multiplicity of suits, We consider the intrinsic merits of the
controversy which as We pointed out previously, rest on the validity of the Municipal Ordinance in question. Thus, in
sum and substance, We hereby pronounce the nullity of Ordinance No. 8, series of 1974 of the Municipal Council of
Bayambang, Pangasinan and the contract of management and supervision executed between the Municipality of
Bayambang and Geruncio Lacuesta as Manager-Administrator of the Bayambang Fishery & Hunting Park and
Municipal Watershed.

Since Ordinance No. 8 and the contract of management and supervision are both null and void, the Alias Writ of
Execution and Possession dated November 6, 1981 and the Order of October 8, 1982 for the issuance of writ of
execution and possession to place and restore possession of the Mangabul Fisheries, of portions thereof or
fisheries therein to Geruncio Lacuesta, his agents, men and/or representatives under the said contract and by virtue
of the ordinance are, including the writ also issued on October 8, 1982, without legal force and effect.
WHEREFORE, IN VIEW OF ALL THE FOREGOING, the Alias Writ of Execution and Possession issued November
6, 1981 and assailed in G.R. No. 58794, as well as the Order and Writ dated October 8, 1982 raised in G.R. No.
64489, are hereby NULLIFIED and SET ASIDE. No costs.

SO ORDERED.