CONSTITUTION OF AGENCY This is a petition to review the Decision of the Court of Appeals in CA-G.R. CR No.
This is a petition to review the Decision of the Court of Appeals in CA-G.R. CR No. 10290, entitled People v. Rosa Lim, promulgated
ROSA LIM, petitioner, vs. COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents.
SYLLABUS
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACTS ARE OBLIGATORY IN WHATEVER FORM ENTERED; PLACE OF SIGNATURE
IMMATERIAL; PARTY BOUND THEREON THE MOMENT SHE AFFIXED HER SIGNATURE. - Rosa Lims signature indeed appears on the
upper portion of the receipt immediately below the description of the items taken. We find that this fact does not have the effect
of altering the terms of the transaction from a contract of agency to sell on commission basis to a contract of sale. Neither does it
indicate absence or vitiation of consent thereto on the part of Rosa Lim which would make the contract void or voidable. The
moment she affixed her signature thereon, petitioner became bound by all the terms stipulated in the receipt. She, thus, opened
herself to all the legal obligations that may arise from their breach. This is clear from Article 1356 of the New Civil Code which
provides: Contracts shall be obligatory in whatever form they may have been entered into, provided all the essential requisites for
their validity are present. In the case before us, the parties did not execute a notarial will but a simple contract of agency to sell on
commission basis, thus making the position of petitioners signature thereto immaterial.
2. ID.; ID.; CONTRACT OF AGENCY; NO FORMALITIES REQUIRED. - There are some provisions of the law which require certain formalities
for particular contracts. The first is when the form is required for the validity of the contract; the second is when it is required to
make the contract effective as against the third parties such as those mentioned in Articles 1357 and 1358; and the third is when
the form is required for the purppose of proving the existence of the contract, such as those provided in the Statute of Frauds in
Article 1403. A contract of agency to sell on commission basis does not belong to any of these three categories, hence, it is valid
and enforceable in whatever form it may be entered into.
3. REMEDIAL LAW; EVIDENCE; WEIGHT THEREOF NOT DETERMINED BY SUPERIORITY IN NUMBERS OF WITNESSES. - Weight of evidence is
not determined mathematically by the numerical superiority of the witnesses testifying to a given fact. It depends upon its practical
effect in inducing belief on the part of the judge trying the case.
4. ID.; ID.; CREDIBILITY; FINDINGS OF THE TRIAL AND APPELLATE COURTS GENERALLY NOT INTERFERED WITH ON APPEAL. - In the case at
bench, both the trial court and the Court of Appeals gave weight to the testimony of Vicky Suarez that she did not authorize Rosa
Lim to return the pieces of jewelry to Nadera. We shall not disturb this finding of the respondent court. It is well settled that we
should not interfere with the judgment of the trial court in determining the credibility of witnesses, unless there appears in the
record some fact or circumstances of weight and influence which has been overlooked or the significance of which has been
misinterpreted. The reason is that the trial court is in a better position to determine questions involving credibility having heard the
witnesses and having observed their deportment and manner of testifying during the trial.
5. CRIMINAL LAW; ESTAFA WITH ABUSE OF CONFIDENCE; ELEMENTS. - The elements of estafa with abuse of confidence under this
subdivision are as follows: (1) That money, goods, or other personal property be received by the offender in trust, or on
commission, or for administration, or under any other obligation involving the duty to make delivery of, or to return, the same; (2)
That there be misappropriation or conversion of such money or property by the offender or denial on his part of such receipt; (3)
That such misappropriation or conversion or denial is to the prejudice of another; and (4) That there is a demand made by the
offended party to the offender (Note: The 4th element is not necessary when there is evidence of misappropriation of the goods by
the defendant).
6. ID.; ID.; ID.; PRESENT IN CASE AT BAR. All the elements of estafa under Article 315, Paragraph 1(b) of the Revised Penal Code, are
present in the case at bench. First, the receipt marked as Exhibit A proves that petitioner Rosa Lim received the pieces of jewelry in
trust from Vicky Suarez to be sold on commission basis. Second, petitioner misappropriated or converted the jewelry to her own
use; and, third, such misappropriation obviously caused damaged and prejudice to the private respondent.
APPEARANCES OF COUNSEL
Zosa & Quijano Law Offices for petitioner.
The Solicitor General for respondents.
DECISION
HERMOSISIMA, JR., J.:
on August 30, 1991.
On January 26, 1989, an Information for Estafa was filed against petitioner Rosa Lim before Branch 92 of the Regional Trial Court of
Quezon City.[1] The Information reads:
That on or about the 8th day of October 1987, in Quezon City, Philippines and within the jurisdiction of this Honorable Court, the said
accused with intent to gain, with unfaithfulness and/or abuse of confidence, did, then and there, wilfully, unlawfully and feloniously
defraud one VICTORIA SUAREZ, in the following manner, to wit: on the date and place aforementioned said accused got and received in
trust from said complainant one (1) ring 3.35 solo worth P169,000.00, Philippine Currency, with the obligation to sell the same on
commission basis and to turn over the proceeds of the sale to said complainant or to return said jewelry if unsold, but the said accused
once in possession thereof and far from complying with her obligation despite repeated demands therefor, misapplied, misappropriated
and converted the same to her own personal use and benefit, to the damage and prejudice of the said offended party in the amount
aforementioned and in such other amount as may be awarded under the provisions of the Civil Code.
CONTRARY TO LAW.[2]
After arraignment and trial on the merits, the trial court rendered judgment, the dispositive portion of which reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered:
1. Finding accused Rosa Lim GUILTY beyond reasonable doubt of the offense of estafa as defined and penalized under Article 315,
paragraph 1(b) of the Revised Penal Code;
2. Sentencing her to suffer the Indeterminate penalty of FOUR (4) YEARS and TWO (2) MONTHS of prision correccional as minimum, to
TEN (10) YEARS of prision mayor as maximum;
3. Ordering her to return to the offended party Mrs. Victoria Suarez the ring or its value in the amount of P169,000 without subsidiary
imprisonment in case of insolvency; and
4. To pay costs.[3]
On appeal, the Court of Appeals affirmed the Judgment of conviction with the modification that the penalty imposed shall be six (6)
years, eight (8) months and twenty- one (21) days to twenty (20) years in accordance with Article 315, paragraph 1 of the Revised Penal
Code.[4]
Petitioner filed a motion for reconsideration before the appellate court on September 20, 1991, but the motion was denied in a
Resolution dated November 11, 1991.
In her final bid to exonerate herself, petitioner filed the instant petition for review alleging the following grounds:
I
THE RESPONDENT COURT VIOLATED THE CONSTITUTION, THE RULES OF COURT AND THE DECISION OF THIS HONORABLE COURT IN NOT
PASSING UPON THE FIRST AND THIRD ASSIGNED ERRORS IN PETITIONERS BRIEF;
II
THE RESPONDENT COURT FAILED TO APPLY THE PRINCIPLE THAT THE PAROL EVIDENCE RULE WAS WAIVED WHEN THE PRIVATE
PROSECUTOR CROSS-EXAMINED THE PETITIONER AND AURELIA NADERA AND WHEN COMPLAINANT WAS CROSS-EXAMINED BY THE
COUNSEL FOR THE PETITIONER AS TO THE TRUE NATURE OF THE AGREEMENT BETWEEN THE PARTIES WHEREIN IT WAS DISCLOSED THAT
THE TRUE AGREEMENT OF THE PARTIES WAS A SALE OF JEWELRIES AND NOT WHAT WAS EMBODIED IN THE RECEIPT MARKED AS EXHIBIT
A WHICH WAS RELIED UPON BY THE RESPONDENT COURT IN AFFIRMING THE JUDGMENT OF CONVICTION AGAINST HEREIN PETITIONER;
and
III
THE RESPONDENT COURT FAILED TO APPLY IN THIS CASE THE PRINCIPLE ENUNCIATED BY THIS HONORABLE COURT TO THE EFFECT THAT
ACCUSATION IS NOT, ACCORDING TO THE FUNDAMENTAL LAW, SYNONYMOUS WITH GUILT: THE PROSECUTION MUST OVERTHROW THE
PRESUMPTION OF INNOCENCE WITH PROOF OF GUILT BEYOND REASONABLE DOUBT. TO MEET THIS STANDARD, THERE IS NEED FOR THE
MOST CAREFUL SCRUTINY OF THE TESTIMONY OF THE STATE, BOTH ORAL AND DOCUMENTARY, INDEPENDENTLY OF WHATEVER DEFENSE
IS OFFERED BY THE ACCUSED. ONLY IF THE JUDGE BELOW AND THE APPELLATE TRIBUNAL COULD ARRIVE AT A CONCLUSION THAT THE
CRIME HAD BEEN COMMITTED PRECISELY BY THE PERSON ON TRIAL UNDER SUCH AN EXACTING TEST SHOULD SENTENCE THUS
REQUIRED THAT EVERY INNOCENCE BE DULY TAKEN INTO ACCOUNT. THE PROOF AGAINST HIM MUST SURVIVE THE TEST OF REASON, THE
STRONGEST SUSPICION MUST NOT BE PERMITTED TO SWAY JUDGMENT. (People v. Austria, 195 SCRA 700)[5]
Herein the pertinent facts as alleged by the prosecution.
On or about October 8, 1987, petitioner Rosa Lim who had come from Cebu received from private respondent Victoria Suarez the
following two pieces of jewelry: one (1) 3.35 carat diamond ring worth P169,000.00 and one (1) bracelet worth P170,000.00, to be sold on
commission basis. The agreement was reflected in a receipt marked as Exhibit A[6] for the prosecution. The transaction took place at the
Sir Williams Apartelle in Timog Avenue, Quezon City, where Rosa Lim was temporarily billeted.
On December 15, 1987, petitioner returned the bracelet to Vicky Suarez, but failed to return the diamond ring or to turn over the
proceeds thereof if sold. As a result, private complainant, aside from making verbal demands, wrote a demand letter[7] to petitioner asking
for the return of said ring or the proceeds of the sale thereof. In response, petitioner, thru counsel, wrote a letter[8] to private respondents
counsel alleging that Rosa Lim had returned both ring and bracelet to Vicky Suarez sometime in September, 1987, for which reason,
petitioner had no longer any liability to Mrs. Suarez insofar as the pieces of jewelry were concerned. Irked, Vicky Suarez filed a complaint
for estafa under Article 315, par. 1(b) of the Revised Penal Code for which the petitioner herein stands convicted.
Petitioner has a different version.
Rosa Lim admitted in court that she arrived in Manila from Cebu sometime in October 1987, together with one Aurelia Nadera,
who introduced petitioner to private respondent, and that they were lodged at the Williams Apartelle in Timog, Quezon City. Petitioner
denied that the transaction was for her to sell the two pieces of jewelry on commission basis. She told Mrs. Suarez that she would
consider buying the pieces of jewelry for her own use and that she would inform the private complainant of such decision before she goes
back to Cebu. Thereafter, the petitioner took the pieces of jewelry and told Mrs. Suarez to prepare the necessary paper for me to sign
because I was not yet prepare(d) to buy it.[9] After the document was prepared, petitioner signed it. To prove that she did not agree to the
terms of the receipt regarding the sale on commission basis, petitioner insists that she signed the aforesaid document on the upper
portion thereof and not at the bottom where a space is provided for the signature of the person(s) receiving the jewelry.[10]
On October 12, 1987 before departing for Cebu, petitioner called up Mrs. Suarez by telephone in order to inform her that she was
no longer interested in the ring and bracelet. Mrs. Suarez replied that she was busy at the time and so, she instructed the petitioner to
give the pieces of jewelry to Aurelia Nadera who would in turn give them back to the private complainant. The petitioner did as she was
told and gave the two pieces of jewelry to Nadera as evidenced by a handwritten receipt, dated October 12, 1987.[11]
Two issues need to be resolved: First, what was the real transaction between Rosa Lim and Vicky Suarez - a contract of agency to
sell on commission basis as set out in the receipt or a sale on credit; and, second, was the subject diamond ring returned to Mrs. Suarez
through Aurelia Nadera?
Petitioner maintains that she cannot be liable for estafa since she never received the jewelries in trust or on commission basis from
Vicky Suarez. The real agreement between her and the private respondent was a sale on credit with Mrs. Suarez as the owner-seller and
petitioner as the buyer, as indicated by the fact that petitioner did not sign on the blank space provided for the signature of the person
receiving the jewelry but at the upper portion thereof immediately below the description of the items taken.[12]
The contention is far from meritorious.
The receipt marked as Exhibit A which establishes a contract of agency to sell on commission basis between Vicky Suarez and Rosa
Lim is herein reproduced in order to come to a proper perspective:
THIS IS TO CERTIFY, that I received from Vicky Suarez PINATUTUNAYAN KO na aking tinanggap kay _______________ the following
jewelries:
ang mga alahas na sumusunod:
Description Price
Mga Uri Halaga
1 ring 3.35 dolo P 169,000.00
1 bracelet 170.000.00
total Kabuuan P 339.000.00
in good condition, to be sold in CASH ONLY within . . .days from date of signing this receipt na nasa mabuting kalagayan upang ipagbili ng
KALIWAAN (ALCONTADO) lamang sa loob ng. . . araw mula ng ating pagkalagdaan:
if I could not sell, I shall return all the jewelry within the period mentioned above; if I would be able to sell, I shall immediately deliver and
account the whole proceeds of sale thereof to the owner of the jewelries at his/her residence; my compensation or commission shall be
the over-price on the value of each jewelry quoted above. I am prohibited to sell any jewelry on credit or by installment; deposit, give for
safekeeping; lend, pledge or give as security or guaranty under any circumstance or manner, any jewelry to other person or persons.
kung hindi ko maipagbili ay isasauli ko ang lahat ng alahas sa loob ng taning na panahong nakatala sa itaas; kung maipagbili ko naman ay
dagli kong isusulit at ibibigay ang buong pinagbilhan sa may-ari ng mga alahas sa kanyang bahay tahanan; ang aking gantimpala ay ang
mapapahigit na halaga sa nakatakdang halaga sa itaas ng bawat alahas HIND I ko ipinahihintulutang ipa-u-u-tang o ibibigay na hulugan ang
alin mang alahas, ilalagak, ipagkakatiwala; ipahihiram; isasangla o ipananagot kahit sa anong paraan ang alin mang alahas sa ibang mga
tao o tao.
I sign my name this . . . day of. . . 19 . . . at Manila, NILALAGDAAN ko ang kasunduang ito ngayong ika____ ng dito sa Maynila.
Signature of Persons who
received jewelries (Lagda
ng Tumanggap ng mga
Alahas)
Address: . . . . . . . . . . .
Rosa Lims signature indeed appears on the upper portion of the receipt immediately below the description of the items taken. We
find that this fact does not have the effect of altering the terms of the transaction from a contract of agency to sell on commission basis to
a contract of sale. Neither does it indicate absence or vitiation of consent thereto on the part of Rosa Lim which would make the contract
void or voidable. The moment she affixed her signature thereon, petitioner became bound by all the terms stipulated in the receipt. She,
thus, opened herself to all the legal obligations that may arise from their breach. This is clear from Article 1356 of the New Civil Code
which provides:
Contracts shall be obligatory in whatever form they may have been entered into, provided all the essential requisites for their validity are
present. x x x.
However, there are some provisions of the law which require certain formalities for particular contracts. The first is when the form is
required for the validity of the contract; the second is when it is required to make the contract effective as against third parties such as
those mentioned in Articles 1357 and 1358; and the third is when the form is required for the purpose of proving the existence of the
contract, such as those provided in the Statute of Frauds in Article 1403. [13] A contract of agency to sell on commission basis does not
belong to any of these three categories, hence it is valid and enforceable in whatever form it may be entered into.
Furthermore, there is only one type of legal instrument where the law strictly prescribes the location of the signature of the parties
thereto. This is in the case of notarial wills found in Article 805 of the Civil Code, to wit:
Every will, other than a holographic will, must be subscribed at the end thereof by the testator himself x x x.
The testator or the person requested by him to write his name and the instrumental witnesses of the will, shall also sign, as aforesaid,
each and every page thereof, except the last, on the left margin x x x.
In the case before us, the parties did not execute a notarial will but a simple contract of agency to sell on commission basis, thus
making the position of petitioners signature thereto immaterial.
Petitioner insists, however, that the diamond ring had been returned to Vicky Suarez through Aurelia Nadera, thus relieving her of
any liability. Rosa Lim testified to this effect on direct examination by her counsel:
Q: And when she left the jewelries with you, what did you do thereafter?
A: On October 12, I was bound for Cebu. So I called up Vicky through telephone and informed her that I am no longer
interested in the bracelet and ring and that 1 will just return it.
Q: And what was the reply of Vicky Suarez?
A: She told me that she could not come to the apartelle since she was very busy. So, she asked me if Aurelia was there and
when I informed her that Aurelia was there, she instructed me to give the pieces of jewelry to Aurelia who in turn will
give it back to Vicky.
Q: And you gave the two (2) pieces of jewelry to Aurelia Nadera?
A: Yes, Your Honor.[14]
This was supported by Aurelia Nadera in her direct examination by petitioners counsel:
Q: Do you know if Rosa Lim in fact returned the jewelries ?
A: She gave the jewelries to me.
Q: Why did Rosa Lim give the jewelries to you?
A: Rosa Lim called up Vicky Suarez the following morning and told Vicky Suarez that she was going home to Cebu and asked if
she could give the jewelries to me.
Q: And when did Rosa Lim give to you the jewelries?
A: Before she left for Cebu.[15]
On rebuttal, these testimonies were belied by Vicky Suarez herself:
Q: It has been testified to here also by both Aurelia Nadera and Rosa Lim that you gave authorization to Rosa Lim to turn
over the two (2) pieces of jewelries mentioned in Exhibit A to Aurelia Nadera, what can you say about that?
A:. That is not true sir, because at that time Aurelia Nadera is highly indebted to me in the amount of P 140,000.00, so if I
gave it to Nadera, I will be exposing myself to a high risk.[16]
The issue as to the return of the ring boils down to one of credibility. Weight of evidence is not determined mathematically by the
numerical superiority of the witnesses testifying to a given fact. It depends upon its practical effect in inducing belief on the part of the
judge trying the case.[17] In the case at bench, both the trial court and the Court of Appeals gave weight to the testimony of Vicky Suarez
that she did not authorize Rosa Lim to return the pieces of jewelry to Nadera. The respondent court, in affirming the trial court, said:
x x x This claim (that the ring had been returned to Suarez thru Nadera) is disconcerting. It contravenes the very terms of Exhibit A. The
instruction by the complaining witness to appellant to deliver the ring to Aurelia Nadera is vehemently denied by the complaining witness,
who declared that she did not authorize and/or instruct appellant to do so. And thus, by delivering the ring to Aurelia without the express
authority and consent of the complaining witness, appellant assumed the right to dispose of the jewelry as if it were hers, thereby
committing conversion, a clear breach of trust, punishable under Article 315, par. 1(b), Revised Penal Code.
We shall not disturb this finding of the respondent court. It is well settled that we should not interfere with the judgment of the
trial court in determining the credibility of witnesses, unless there appears in the record some fact or circumstance of weight and
influence which has been overlooked or the significance of which has been misinterpreted. The reason is that the trial court is in a better
position to determine questions involving credibility having heard the witnesses and having observed their deportment and manner of
testifying during the trial.[18]
Article 315, par. 1(b) of the Revised Penal Code provides:
ART. 315. Swindling (estafa). - Any person who shall defraud another by any of the means mentioned hereinbelow shall be punished by:
xxx xxx xxx
(b) By misappropriating or converting, to the prejudice of another, money, goods, or any other personal property received by the offender
in trust or on commission, or for administration, or under any other obligation involving the duty to make delivery of or to return the
same, even though such obligation be totally or partially guaranteed by a bond; or by denying having received such money, goods, or
other property.
xxx xxx xxx
The elements of estafa with abuse of confidence under this subdivision are as follows: (1) That money, goods, or other personal
property be received by the offender in trust, or on commission, or for administration, or under any other obligation involving the duty to
make delivery of, or to return, the same; (2) That there be misappropriation or conversion of such money or property by the offender or
denial on his part of such receipt; (3) That such misappropriation or conversion or denial is to the prejudice of another; and (4) That there
is a demand made by the offended party to the offender (Note: The 4th element is not necessary when there is evidence of
misappropriation of the goods by the defendant).[19]
All the elements of estafa under Article 315, Paragraph 1(b) of the Revised Penal Code, are present in the case at bench. First, the
receipt marked as Exhibit A proves that petitioner Rosa Lim received the pieces of jewelry in trust from Vicky Suarez to be sold on
commission basis. Second, petitioner misappropriated or converted the jewelry to her own use; and, third, such misappropriation
obviously caused damage and prejudice to the private respondent.
WHEREFORE, the petition is DENIED and the Decision of the Court of Appeals is hereby AFFIRMED.
Costs against petitioner.
SO ORDERED.
Padilla (Chairman), Bellosillo, and Kapunan, JJ., concur.
Vitug, J., In the results.
G.R. No. 199990, February 04, 2015
SPOUSES ROLANDO AND HERMINIA SALVADOR, Petitioners, v. SPOUSES ROGELIO AND ELIZABETH RABAJA AND ROSARIO
GONZALES, Respondents.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari seeking to reverse and set aside the August 22, 2011 Decision1 and the January 5, 2012
Resolution2 of the Court of Appeals (CA) in CA-G.R. CV No. 90296 which affirmed with modification the March 29, 2007 Decision of the
Regional Trial Court Branch 214 (RTC-Branch 214), Mandaluyong City in Civil Case No. MC-03-2175, for rescission of a contract (rescission
case).
The Facts
This case stemmed from a dispute involving the sellers, petitioner spouses Rolando and Herminia Salvador (Spouses Salvador); the sellers’
agent, Rosario Gonzales (Gonzales); and the buyers, respondent Spouses Rogelio and Elizabeth Rabaja (Spouses Rabaja), over a parcel of
land situated at No. 25, Merryland Village, 375 Jose Rizal Street, Mandaluyong City (subject property), covered by Transfer Certificate of
Title (TCT) No. 13426 and registered in the names of Spouses Salvador. From 1994 until 2002, Spouses Rabaja were leasing an apartment
in the subject lot.
Sometime in July 1998, Spouses Rabaja learned that Spouses Salvador were looking for a buyer of the subject property. Petitioner
Herminia Salvador (Herminia) personally introduced Gonzales to them as the administrator of the said property. Spouses Salvador even
handed to Gonzales the owner’s duplicate certificate of title over the subject property. On July, 3, 1998, Spouses Rabaja made an initial
payment of P48,000.00 to Gonzales in the presence of Herminia. Gonzales then presented the Special Power of Attorney3 (SPA), executed
by Rolando Salvador (Rolando) and dated July 24, 1998. On the same day, the parties executed the Contract to Sell4 which stipulated that
for a consideration of P5,000,000.00, Spouses Salvador sold, transferred and conveyed in favor of Spouses Rabaja the subject property.
Spouses Rabaja made several payments totalling P950,000.00, which were received by Gonzales pursuant to the SPA provided earlier as
evidenced by the check vouchers signed by Gonzales and the improvised receipts signed by Herminia.
Sometime in June 1999, however, Spouses Salvador complained to Spouses Rabaja that they did not receive any payment from Gonzales.
This prompted Spouses Rabaja to suspend further payment of the purchase price; and as a consequence, they received a notice to vacate
the subject property from Spouses Salvador for non-payment of rentals.
Thereafter, Spouses Salvador instituted an action for ejectment against Spouses Rabaja. In turn, Spouses Rabaja filed an action for
rescission of contract against Spouses Salvador and Gonzales, the subject matter of the present petition.
In the action for ejectment, the complaint was filed before the Metropolitan Trial Court of Mandaluyong City, Branch 60 (MeTC), where it
was docketed as Civil Case No. 17344. In its August 14, 2002 Decision,5the MeTC ruled in favor of Spouses Salvador finding that valid
grounds existed for the eviction of Spouses Rabaja from the subject property and ordering them to pay back rentals. Spouses Salvador
were able to garnish the amount of P593,400.006 from Spouses Rabaja’s time deposit account pursuant to a writ of execution issued by
the MeTC.7 Spouses Rabaja appealed to the Regional Trial Court, Branch 212, Mandaluyong City (RTC-Br. 212) which reversed the MeTC
ruling in its March 1, 2005 decision.8 The RTC-Br. 212 found that no lease agreement existed between the parties. Thereafter, Spouses
Salvador filed an appeal with the CA which was docketed as CA-G.R. SP No. 89259. On March 31, 2006, the CA ruled in favor of Spouses
Salvador and reinstated the MeTC ruling ejecting Spouses Rabaja.9 Not having been appealed, the CA decision in CA-G.R. SP No. 89259
became final and executory on May 12, 2006.10chanroblesvirtuallawlibrary
Meanwhile, the rescission case filed by Spouses Rabaja against Spouses Salvador and Gonzales and docketed as Civil Case No. MC No. 03-
2175 was also raffled to RTC-Br. 212. In their complaint,11 dated July 7, 2003, Spouses Rabaja demanded the rescission of the contract to
sell praying that the amount of P950,000.00 they previously paid to Spouses Salvador be returned to them. They likewise prayed that
damages be awarded due to the contractual breach committed by Spouses Salvador.
Spouses Salvador filed their answer with counterclaim and cross-claim12 contending that there was no meeting of the minds between the
parties and that the SPA in favor of Gonzales was falsified. In fact, they filed a case for falsification against Gonzales, but it was dismissed
because the original of the alleged falsified SPA could not be produced. They further averred that they did not receive any payment from
Spouses Rabaja through Gonzales. In her defense, Gonzales filed her answer13 stating that the SPA was not falsified and that the payments
of Spouses Rabaja amounting to P950,000.00 were all handed over to Spouses Salvador.
The pre-trial conference began but attempts to amicably settle the case were unsuccessful. It was formally reset to February 4, 2005, but
Spouses Salvador and their counsel failed to attend. Consequently, the RTC issued the pre-trial order14declaring Spouses Salvador in
default and allowing Spouses Rabaja to present their evidence ex parte against Spouses Salvador and Gonzales to present evidence in her
favor.
A motion for reconsideration,15 dated March 28, 2005, was filed by Spouses Salvador on the said pre-trial order beseeching the liberality
of the court. The rescission case was then re-raffled to RTC-Br. 214 after the Presiding Judge of RTC-Br. 212 inhibited herself. In the
Order,16 dated October 24, 2005, the RTC-Br. 214 denied the motion for reconsideration because Spouses Salvador provided a flimsy
excuse for their non-appearance in the pre-trial conference.
Thereafter, trial proceeded and Spouses Rabaja and Gonzales presented their respective testimonial and documentary evidence.
RTC Ruling
On March 29, 2007, the RTC-Br. 214 rendered a decision17 in favor of Spouses Rabaja. It held that the signature of Spouses Salvador
affixed in the contract to sell appeared to be authentic. It also held that the contract, although denominated as “contract to sell,” was
actually a contract of sale because Spouses Salvador, as vendors, did not reserve their title to the property until the vendees had fully paid
the purchase price. Since the contract entered into was a reciprocal contract, it could be validly rescinded by Spouses Rabaja, and in the
process, they could recover the amount of P950,000.00 jointly and severally from Spouses Salvador and Gonzales. The RTC stated that
Gonzales was undoubtedly the attorney-in-fact of Spouses Salvador absent any taint of irregularity. Spouses Rabaja could not be faulted in
dealing with Gonzales who was duly equipped with the SPA from Spouses Salvador.
The RTC-Br. 214 then ruled that the amount of P593,400.00 garnished from the time deposit account of Spouses Rabaja, representing the
award of rental arrearages in the separate ejectment suit, should be returned by Spouses Salvador.18 The court viewed that such amount
was part of the purchase price of the subject property which must be returned. It also awarded moral and exemplary damages in favor of
Spouses Rabaja and attorney’s fees in favor of Gonzales. The dispositive portion of the said decision reads:chanRoblesvirtualLawlibrary
WHEREFORE, this court renders judgment as follows:chanRoblesvirtualLawlibrary
a. Ordering the “Contract to Sell” entered into by the plaintiff and defendant spouses Rolando and Herminia Salvador on July 24,
1998 as RESCINDED;chanrobleslaw
b. Ordering defendant spouses Rolando and Herminia Salvador and defendant Rosario S. Gonzales jointly and severally liable to
pay plaintiffs:chanRoblesvirtualLawlibrary
1. the amount of NINE HUNDRED FIFTY THOUSAND PESOS (P950,000.00), representing the payments made by the
latter for the purchase of subject property;chanrobleslaw
2. the amount of TWENTY THOUSAND PESOS (P20,000.00), as moral damages;chanrobleslaw
3. the amount of TWENTY THOUSAND PESOS (P20,000.00), as exemplary damages;chanrobleslaw
4. the amount of ONE HUNDRED THOUSAND PESOS (P100,000.00), as attorney’s fees;chanrobleslaw
5. the cost of suit.
c. Ordering defendant Spouses Rolando and Herminia Salvador to pay plaintiffs the amount of FIVE HUNDRED NINETY THREE
THOUSAND PESOS (P593,000.00) (sic), representing the amount garnished from the Metrobank deposit of plaintiffs as
payment for their alleged back rentals;chanrobleslaw
d. Ordering the defendant Spouses Rolando and Herminia Salvador to pay defendant Rosario Gonzales on her cross-claim in the
amount of ONE HUNDRED THOUSAND PESOS (P100,000.00);chanrobleslaw
e. Dismissing the counterclaims of the defendants against the plaintiff.
SO ORDERED.19
Gonzales filed a motion for partial reconsideration, but it was denied by the RTC-Br. 114 in its Order,20dated September 12, 2007.
Undaunted, Spouses Salvador and Gonzales filed an appeal before the CA.
CA Ruling
On March 29, 2007, the CA affirmed the decision of the RTC-Br. 114 with modifications. It ruled that the “contract to sell” was indeed a
contract of sale and that Gonzales was armed with an SPA and was, in fact, introduced to Spouses Rabaja by Spouses Salvador as the
administrator of the property. Spouses Rabaja could not be blamed if they had transacted with Gonzales.
The CA then held that Spouses Salvador should return the amount of P593,400.00 pursuant to a separate ejectment case, reasoning that
Spouses Salvador misled the court because an examination of CA-G.R. SP No. 89260 showed that Spouses Rabaja were not involved in
that case. CA-G.R. SP No. 59260 was an action between Spouses Salvador and Gonzales only and involved a completely different
residential apartment located at 302-C Jupiter Street, Dreamland Subdivision, Mandaluyong City.
The CA, however, ruled that Gonzales was not solidarily liable with Spouses Salvador. The agent must expressly bind himself or exceed the
limit of his authority in order to be solidarily liable. It was not shown that Gonzales as agent of Spouses Salvador exceeded her authority
or expressly bound herself to be solidarily liable. The decretal portion of the CA decision reads:chanRoblesvirtualLawlibrary
WHEREFORE, the appeal is PARTLY GRANTED. The assailed Decision dated March 29, 2007 and the Order dated September 12, 2007, of
the Regional Trial Court, Branch 214, Mandaluyong City, in Civil Case No. MC-03-2175, are AFFIRMED with MODIFICATION in that Rosario
Gonzalez is not jointly and severally liable to pay Spouses Rabaja the amounts enumerated in paragraph (b) of the Decision dated March
29, 2007.
SO ORDERED.21
Spouses Salvador filed a motion for reconsideration but it was denied by the CA in its January 5, 2012 Resolution.
Hence, this petition.
ASSIGNMENT OF ERRORS
I given weight as a full-blown trial was conducted therein.26chanroblesvirtuallawlibrary
THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE LOWER COURT GRAVELY ABUSED ITS DISCRETION IN DECLARING PETITIONERS
IN DEFAULT AND IN DEPRIVING THEM OF THE OPPORTUNITY TO CROSS-EXAMINE RESPONDENTS SPS. RABAJA AS WELL AS TO PRESENT
EVIDENCE FOR AND IN THEIR BEHALF, GIVEN THE MERITORIOUS DEFENSES RAISED IN THEIR ANSWER THAT CATEGORICALLY AND
DIRECTLY DISPUTE RESPONDENTS SPS. RABAJA’S CAUSE OF ACTION.
II
THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE TRIAL COURT GRAVELY ERRED IN GIVING CREDENCE TO THE TESTIMONY OF
RESPONDENT GONZALES THAT PAYMENTS WERE INDEED REMITTED TO AND RECEIVED BY PETITIONER HERMINIA SALVADOR EVEN AS
THE IMPROVISED RECEIPTS WERE EVIDENTLY MADE UP AND FALSIFIED BY RESPONDENT GONZALES.
III
THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE TRIAL COURT GRAVELY ERRED IN RESCINDING THE CONTRACT TO SELL WHEN
THERE IS NOTHING TO RESCIND AS NO VALID CONTRACT TO SELL WAS ENTERED INTO, AND IN DIRECTING THE REFUND OF THE AMOUNT
OF P950,000.00 WHEN THE EVIDENCE CLEARLY SHOWS THAT SAID AMOUNT WAS PAID TO AND RECEIVED BY RESPONDENT GONZALES
ALONE WHO MISAPPROPRIATED THE SAME.
IV
THE COURT OF APPEALS ERRED IN AFFIRMING THE TRIAL COURT’S DECISION FOR PETITIONERS TO RETURN THE AMOUNT OF P543,400.00
REPRESENTING RENTALS IN ARREARS GARNISHED OR WITHDRAWN BY VIRTUE OF A WRIT OF EXECUTION ISSUED IN AN EJECTMENT CASE
WHICH WAS TRIED AND DECIDED BY ANOTHER COURT.
V The failure of the plaintiff to appear when so required pursuant to the next preceding section shall be cause for dismissal of the action.
THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE LOWER COURT GRAVELY ERRED IN AWARDING DAMAGES TO RESPONDENTS
SPS. RABAJA, THERE BEING NO FACTUAL AND LEGAL BASES FOR SUCH AWARD.
VI
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE TRIAL COURT GRAVELY ERRED IN AWARDING P100,000.00 TO RESPONDENT
GONZALES AS ATTORNEY’S FEES WHEN RESPONDENT GONZALES, IN FACT, COMMITTED FORGERY AND FALSIFICATION IN DEALING WITH
THE PROPERTY OF PETITIONERS AND MISAPPROPRIATED THE MONIES PAID TO HER BY RESPONDENTS SPS. RABAJA, THUS GIVING
PREMIUM TO HER FRAUDULENT ACTS.22
The foregoing can be synthesized into three main issues. First, Spouses Salvador contend that the order of default must be lifted because
reasonable grounds exist to justify their failure to attend the pre-trial conference on February 4, 2005. Second, Spouses Salvador raise in
issue the veracity of the receipts given by Gonzales, the SPA and the validity of the contract to sell. They claim that the improvised
receipts should not be given credence because these were crude and suspicious, measuring only by 2 x 2 inches which showed that
Gonzales misappropriated the payments of Spouses Rabaja for herself and did not remit the amount of P950,000.00 to them. As there
was no consideration, then no valid contract to sell existed. Third, Spouses Salvador argue that the ejectment case, from which the
amount of P593,400.00 was garnished, already became final and executory and could not anymore be disturbed. Lastly, the award of
damages in favor of Spouses Rabaja and Gonzales was improper absent any legal and factual bases.
On January 21, 2013, Spouses Salvador filed their supplemental petition23 informing the Court that RTC-Br. 213 had rendered a decision in
Civil Case No. MC00-1082, an action for rescission of the SPA. The said decision held that Spouses Salvador properly revoked the SPA in
favor of Gonzales due to loss of trust and confidence. On September 11, 2013, Gonzales filed her comment to the supplemental
petition,24 contending that the RTC-Branch 213 decision had no bearing because it had not yet attained finality. On even date, Spouses
Rabaja filed their Comment,25 asserting that the present petition is a mere rehash of the previous arguments of Spouses Salvador before
the CA. On November 15, 2013, Spouses Salvador replied that they merely wanted to show that the findings by the RTC-Br. 213 should be
The Court’s Ruling
As a general rule, the Court’s jurisdiction in a Rule 45 petition is limited to the review of pure questions of law. A question of law arises
when the doubt or difference exists as to what the law is on a certain state of facts. Negatively put, Rule 45 does not allow the review of
questions of fact. A question of fact exists when the doubt or difference arises as to the truth or falsity of the
allegations.27chanroblesvirtuallawlibrary
The present petition presents questions of fact because it requires the Court to examine the veracity of the evidence presented during the
trial, such as the improvised receipts, the SPA given to Gonzales and the contract to sell. Even the petitioner spouses themselves concede
and ask the Court to consider questions of fact,28 but the Court finds no reason to disturb the findings of fact of the lower courts absent
any compelling reason to the contrary.
The failure of Spouses Salvador to attend pre-trial conference warrants the presentation of evidence ex parte by Spouses Rabaja
On the procedural aspect, the Court reiterates the rule that the failure to attend the pre-trial conference does not result in the default of
an absent party. Under the 1997 Rules of Civil Procedure, a defendant is only declared in default if he fails to file his Answer within the
reglementary period.29 On the other hand, if a defendant fails to attend the pre-trial conference, the plaintiff can present his evidence ex
parte. Sections 4 and 5, Rule 18 of the Rules of Court provide:chanRoblesvirtualLawlibrary
Sec. 4. Appearance of parties.
It shall be the duty of the parties and their counsel to appear at the pre-trial. The non-appearance of a party may be excused only if a valid
cause is shown therefor or if a representative shall appear in his behalf fully authorized in writing to enter into an amicable settlement, to
submit to alternative modes of dispute resolution, and to enter into stipulations or admissions of facts and of documents.
Sec. 5. Effect of failure to appear.
The dismissal shall be with prejudice, unless otherwise ordered by the court. A similar failure on the part of the defendant shall be cause
to allow the plaintiff to present his evidence ex parte and the court to render judgment on the basis thereof.
[Emphasis supplied]
The case of Philippine American Life & General Insurance Company v. Joseph Enario30 discussed the difference between the non-
appearance of a defendant in a pre-trial conference and the declaration of a defendant in default in the present Rules of Civil Procedure.
The decision instructs:chanRoblesvirtualLawlibrary
Prior to the 1997 Revised Rules of Civil Procedure, the phrase "as in default" was initially included in Rule 20 of the old rules, and which
read as follows:chanRoblesvirtualLawlibrary
Sec. 2. A party who fails to appear at a pre-trial conference may be non-suited or considered as in default.cralawred
It was, however, amended in the 1997 Revised Rules of Civil Procedure. Justice Regalado, in his book, REMEDIAL LAW COMPENDIUM,
explained the rationale for the deletion of the phrase "as in default" in the amended provision, to wit:chanRoblesvirtualLawlibrary
1. This is a substantial reproduction of Section 2 of the former Rule 20 with the change that, instead of defendant being declared "as in
default" by reason of his non-appearance, this section now spells out that the procedure will be to allow the ex parte presentation of
plaintiff’s evidence and the rendition of judgment on the basis thereof. While actually the procedure remains the same, the purpose is
one of semantical propriety or terminological accuracy as there were criticisms on the use of the word "default" in the former provision
since that term is identified with the failure to file a required answer, not appearance in court.cralawred
Still, in the same book, Justice Regalado clarified that while the order of default no longer obtained, its effects were retained,
thus:chanRoblesvirtualLawlibrary
Failure to file a responsive pleading within the reglementary period, and not failure to appear at the hearing, is the sole ground for an
order of default, except the failure to appear at a pre-trial conference wherein the effects of a default on the part of the defendant are
followed, that is, the plaintiff shall be allowed to present evidence ex parte and a judgment based thereon may be rendered against
defendant.cralawred
From the foregoing, the failure of a party to appear at the pre-trial has indeed adverse consequences. If the absent party is the plaintiff,
then his case shall be dismissed. If it is the defendant who fails to appear, then the plaintiff is allowed to present his evidence ex parte and
the court shall render judgment based on the evidence presented. Thus, the plaintiff is given the privilege to present his evidence without
objection from the defendant, the likelihood being that the court will decide in favor of the plaintiff, the defendant having forfeited the
opportunity to rebut or present its own evidence.31 The stringent application of the rules on pre-trial is necessitated from the significant
role of the pre-trial stage in the litigation process. Pre-trial is an answer to the clarion call for the speedy disposition of cases. Although it
was discretionary under the 1940 Rules of Court, it was made mandatory under the 1964 Rules and the subsequent amendments in
1997.32 “The importance of pre-trial in civil actions cannot be overemphasized.”33chanroblesvirtuallawlibrary
There is no dispute that Spouses Salvador and their counsel failed to attend the pre-trial conference set on February 4, 2005 despite
proper notice. Spouses Salvador aver that their non-attendance was due to the fault of their counsel as he forgot to update his
calendar.34 This excuse smacks of carelessness, and indifference to the pre-trial stage. It simply cannot be considered as a justifiable
excuse by the Court. As a result of their inattentiveness, Spouses Salvador could no longer present any evidence in their favor. Spouses
Rabaja, as plaintiffs, were properly allowed by the RTC to present evidence ex parte against Spouses Salvador as defendants. Considering
that Gonzales as co-defendant was able to attend the pre-trial conference, she was allowed to present her evidence. The RTC could only
render judgment based on the evidence presented during the trial.
Gonzales, as agent of Spouses Salvador, could validly receive the payments of Spouses Rabaja
Even on the substantial aspect, the petition does not warrant consideration. The Court agrees with the courts below in finding that the
contract entered into by the parties was essentially a contract of sale which could be validly rescinded. Spouses Salvador insist that they
did not receive the payments made by Spouses Rabaja from Gonzales which totalled P950,000.00 and that Gonzales was not their duly
authorized agent. These contentions, however, must fail in light of the applicable provisions of the New Civil Code which
state:chanRoblesvirtualLawlibrary
Art. 1900. So far as third persons are concerned, an act is deemed to have been performed within the scope of the agent's authority, if
such act is within the terms of the power of attorney, as written, even if the agent has in fact exceeded the limits of his authority
according to an understanding between the principal and the agent.
xxxx
Art. 1902. A third person with whom the agent wishes to contract on behalf of the principal may require the presentation of the power of
attorney, or the instructions as regards the agency. Private or secret orders and instructions of the principal do not prejudice third persons
who have relied upon the power of attorney or instructions shown them.
xxxx
Art. 1910. The principal must comply with all the obligations which the agent may have contracted within the scope of his
authority.cralawred
Persons dealing with an agent must ascertain not only the fact of agency, but also the nature and extent of the agent’s authority. A third
person with whom the agent wishes to contract on behalf of the principal may require the presentation of the power of attorney, or the
instructions as regards the agency. The basis for agency is representation and a person dealing with an agent is put upon inquiry and must
discover on his own peril the authority of the agent.35chanroblesvirtuallawlibrary
According to Article 1990 of the New Civil Code, insofar as third persons are concerned, an act is deemed to have been performed within
the scope of the agent's authority, if such act is within the terms of the power of attorney, as written. In this case, Spouses Rabaja did not
recklessly enter into a contract to sell with Gonzales. They required her presentation of the power of attorney before they transacted with
her principal. And when Gonzales presented the SPA to Spouses Rabaja, the latter had no reason not to rely on it.
The law mandates an agent to act within the scope of his authority which what appears in the written terms of the power of attorney
granted upon him.36 The Court holds that, indeed, Gonzales acted within the scope of her authority. The SPA precisely stated that she
could administer the property, negotiate the sale and collect any document and all payments related to the subject property.37 As the
agent acted within the scope of his authority, the principal must comply with all the obligations.38 As correctly held by the CA, considering
that it was not shown that Gonzales exceeded her authority or that she expressly bound herself to be liable, then she could not be
considered personally and solidarily liable with the principal, Spouses Salvador.39chanroblesvirtuallawlibrary
Perhaps the most significant point which defeats the petition would be the fact that it was Herminia herself who personally introduced
Gonzalez to Spouses Rabaja as the administrator of the subject property. By their own ostensible acts, Spouses Salvador made third
persons believe that Gonzales was duly authorized to administer, negotiate and sell the subject property. This fact was even affirmed by
Spouses Salvador themselves in their petition where they stated that they had authorized Gonzales to look for a buyer of their
property.40 It is already too late in the day for Spouses Salvador to retract the representation to unjustifiably escape their principal
obligation.
As correctly held by the CA and the RTC, considering that there was a valid SPA, then Spouses Rabaja properly made payments to
Gonzales, as agent of Spouses Salvador; and it was as if they paid to Spouses Salvador. It is of no moment, insofar as Spouses Rabaja are
concerned, whether or not the payments were actually remitted to Spouses Salvador. Any internal matter, arrangement, grievance or
strife between the principal and the agent is theirs alone and should not affect third persons. If Spouses Salvador did not receive the
payments or they wish to specifically revoke the SPA, then their recourse is to institute a separate action against Gonzales. Such action,
however, is not any more covered by the present proceeding.
The amount of P593,400.00 should not be returned by Spouses Salvador
Nevertheless, the assailed decision of the CA must be modified with respect to the amount of P593,400.00 garnished by Spouses Salvador
and ordered returned to Spouses Rabaja. The RTC ordered the return of the amount garnished holding that it constituted a part of the
purchase price. The CA ruled that Spouses Salvador misled the Court when they improperly cited CA-G.R. SP No. 89260 to prove their
entitlement to the said amount. Both courts erred in their ruling.
First, the garnishment of the amount of P593,400.00 against Spouses Rabaja was pursuant to the CA decision in CA-G.R. SP No. 89259, an
entirely different case involving an action for ejectment, and it does not concern the rescission case which is on appeal before this Court.
Moreover, the decision on the ejectment case is final and executory and an entry of judgment has already been made.41 Nothing is more
settled in law than that when a final judgment is executory, it thereby becomes immutable and unalterable. The judgment may no longer
be modified in any respect, even if the modification is meant to correct what is perceived to be an erroneous conclusion of fact or law,
and regardless of whether the modification is attempted to be made by the court which rendered it or by the highest Court of the land.
The doctrine is founded on consideration of public policy and sound practice that, at the risk of occasional errors, judgments must become
final at some definite point in time.42chanroblesvirtuallawlibrary
The March 31, 2006 CA decision43in CA-G.R. SP No. 89259 has long been final and executory and cannot any more be disturbed by the
Court. Public policy dictates that once a judgment becomes final, executory and unappealable, the prevailing party should not be denied
the fruits of his victory by some subterfuge devised by the losing party. Unjustified delay in the enforcement of a judgment sets at naught
the role and purpose of the courts to resolve justiciable controversies with finality.44chanroblesvirtuallawlibrary
Meanwhile, in ruling that the garnishment was improper and thus ordering the return of the garnished amount, the CA referred to its a. Ordering the “Contract to Sell” entered into by Spouses Rogelio and Elizabeth Rabaja and Spouses Rolando and Herminia
decision in CA-G.R. SP No. 89260. Spouses Salvador, however, clarified in its motion for reconsideration45 before the CA and in the present Salvador on July 24, 1998 as RESCINDED;chanrobleslaw
petition46 that the garnishment was pursuant to CA-G.R. SP No. 89259, and not CA-G.R. SP No. 89260, another ejectment case involving
another property. A perusal of the records reveals that indeed the garnishment was pursuant to the ejectment case in the MeTC, b. Ordering Spouses Rolando and Herminia Salvador to pay Spouses Rogelio and Elizabeth Rabaja:chanRoblesvirtualLawlibrary
docketed as Civil Case No. 17344,47 where Spouses Rabaja were the defendants. The MeTC decision was then reinstated by the CA in CA-
G.R. SP No. 89259, not CA-G.R. SP No. 89260. There, a writ of execution48 and notice of pay49 were issued against Spouses Rabaja in the
1. The amount of Nine Hundred Fifty Thousand (P950,000.00) Pesos, representing the payments made by the latter for
amount of P591,900.00.
the purchase of the subject property; and
2. The cost of suit;chanrobleslaw
Second, Spouses Rabaja’s appeal with the RTC never sought relief in returning the garnished amount.50Such issue simply emerged in the
RTC decision. This is highly improper because the court’s grant of relief is limited only to what has been prayed for in the complaint or
related thereto, supported by evidence, and covered by the party’s cause of action.51chanroblesvirtuallawlibrary c. Dismissing the counterclaims of Spouses Rolando and Herminia Salvador and Rosario Gonzales against Spouses Rogelio and
Elizabeth Rabaja
If Spouses Rabaja would have any objection on the manner and propriety of the execution, then they must institute their opposition to
the execution proceeding a separate case. Spouses Rabaja can invoke the Civil Code provisions on legal compensation or set-off under The amounts awarded are subject to interest at the legal rate of 6% per annum to be reckoned from the date of finality of this judgment
Articles 1278, 1279 and 1270.52 The two obligations appear to have respectively offset each other, compensation having taken effect by until fully paid.”
operation of law pursuant to the said provisions of the Civil Code, since all the requisites provided in Art. 1279 of the said Code for As aforestated, this is without prejudice to the invocation by either party of the Civil Code provisions on legal compensation or set-off
automatic compensation are duly present. under Articles 1278, 1279 and 1270.

No award of actual, moral and exemplary damages SO ORDERED.

The award of damages to Spouses Rabaja cannot be sustained by this Court. The filing alone of a civil action should not be a ground for an
award of moral damages in the same way that a clearly unfounded civil action is not among the grounds for moral damages.53 Article 2220 AGENCY BY ESTOPPEL
of the New Civil Code provides that to award moral damages in a breach of contract, the defendant must act fraudulently or in bad faith.
In this case, Spouses Rabaja failed to sufficiently show that Spouses Salvador acted in a fraudulent manner or with bad faith when it COUNTRY BANKERS INSURANCE CORPORATION, G.R. No. 166044
breached the contract of sale. Thus, the award of moral damages cannot be warranted. Petitioner,
Present:
As to the award of exemplary damages, Article 2229 of the New Civil Code provides that exemplary damages may be imposed by way of
example or correction for the public good, in addition to the moral, temperate, liquidated or compensatory damages.54 The claimant must - versus - LEONARDO-DE CASTRO,*
first establish his right to moral, temperate, liquidated or compensatory damages. In this case, considering that Spouses Rabaja failed to Acting Chairperson,
prove moral or compensatory damages, then there could be no award of exemplary damages. BERSAMIN,
KEPPEL CEBU SHIPYARD, UNIMARINE SHIPPING LINES, INC., DEL CASTILLO,
With regard to attorney’s fees, neither Spouses Rabaja nor Gonzales is entitled to the award. The settled rule is that no premium should PAUL RODRIGUEZ, PETER RODRIGUEZ, ALBERT HONTANOSAS, VILLARAMA, JR., and
be placed on the right to litigate and that not every winning party is entitled to an automatic grant of attorney’s fees.55 The RTC reasoned and BETHOVEN QUINAIN, PERLAS-BERNABE,** JJ.
that Gonzales was forced to litigate due to the acts of Spouses Salvador. The Court does not agree. Gonzales, as agent of Spouses Respondents.
Salvador, should have expected that she would be called to litigation in connection with her fiduciary duties to the principal.
Promulgated:
In view of all the foregoing, the CA decision should be affirmed with the following modifications:chanRoblesvirtualLawlibrary
1. The order requiring defendant Spouses Rolando and Herminia Salvador to pay plaintiffs the amount of Five Hundred Ninety June 18, 2012
Three Thousand (P593,000.00) Pesos, representing the amount garnished from the Metrobank deposit of plaintiffs as for their
back rentals should be deleted;chanrobleslaw

2. The award of moral damages in the amount of Twenty Thousand (P20,000.00) Pesos; exemplary damages in the amount of
Twenty Thousand (P20,000.00) Pesos, and attorney’s fees in the amount of One Hundred Thousand (P100,000.00) Pesos in
favor of Spouses Rabaja should be deleted; and

3. The award of attorney’s fees in amount of One Hundred Thousand (P100,000.00) Pesos in favor of Gonzales should be deleted.

The other amounts awarded are subject to interest at the legal rate of 6% per annum, to be reckoned from the date of finality of this
x--------------------------------------------------x
judgment until fully paid.

WHEREFORE, the petition is PARTLY GRANTED. The March 29, 2007 Decision of the Regional Trial Court, Branch 214, Mandaluyong City, in
DECISION
Civil Case No. MC-03-2175, is MODIFIED to read as follows:chanRoblesvirtualLawlibrary
“WHEREFORE, this Court renders judgment as follows:chanRoblesvirtualLawlibrary
LEONARDO-DE CASTRO, J.:
This is a petition for review on certiorari[1] to reverse and set aside the January 29, 2004 Decision[2] and October 28, 2004
Resolution[3] of the Court of Appeals in CA-G.R. CV No. 58001, wherein the Court of Appeals affirmed with modification the February 10,
1997 Decision[4] of the Regional Trial Court (RTC) of Cebu City, Branch 7, in Civil Case No. CBB-13447.
Hereunder are the undisputed facts as culled from the records of the case.
On January 27, 1992, Unimarine Shipping Lines, Inc. (Unimarine), a corporation engaged in the shipping industry, contracted
the services of Keppel Cebu Shipyard, formerly known as Cebu Shipyard and Engineering Works, Inc. (Cebu Shipyard), for dry docking and
ship repair works on its vessel, the M/V Pacific Fortune.[5]
On February 14, 1992, Cebu Shipyard issued Bill No. 26035 to Unimarine in consideration for its services, which amounted
to P4,486,052.00.[6] Negotiations between Cebu Shipyard and Unimarine led to the reduction of this amount to P3,850,000.00. The terms
of this agreement were embodied in Cebu Shipyards February 18, 1992 letter to the President/General Manager of Unimarine, Paul
Rodriguez, who signed his conformity to said letter, quoted in full below:
18 February 1992
Ref No.: LL92/0383
UNIMARINE SHIPPING LINES, INC.
C/O Autographics, Inc.
Gorordo Avenue, Lahug, Cebu City
(SGD) (SGD)______
SEET KENG TAT PAUL RODRIGUEZ
Treasurer/VP-Admin. Unimarine Shipping
Lines, Inc.[7]
In compliance with the agreement, Unimarine, through Paul Rodriguez, secured from Country Bankers Insurance Corp. (CBIC),
through the latters agent, Bethoven Quinain (Quinain), CBIC Surety Bond No. G (16) 29419[8] (the surety bond) on January 15, 1992 in the
amount of P3,000,000.00. The expiration of this surety bond was extended to January 15, 1993, through Endorsement No. 33152 [9] (the
endorsement), which was later on attached to and formed part of the surety bond. In addition to this, Unimarine, on February 19, 1992,
obtained another bond from Plaridel Surety and Insurance Co. (Plaridel), PSIC Bond No. G (16)-00365[10] in the amount of P1,620,000.00.
On February 17, 1992, Unimarine executed a Contract of Undertaking in favor of Cebu Shipyard. The pertinent portions of the
contract read as follows:
Messrs, Uni-Marine Shipping Lines, Inc. (the Debtor) of Gorordo Avenue, Cebu City hereby acknowledges that in
consideration of Cebu Shipyard & Engineering Works, Inc. (Cebu Shipyard) at our request agreeing to release the
vessel specified in part A of the Schedule (name of vessel) prior to the receipt of the sum specified in part B of the
Schedule (Moneys Payable) payable in respect of certain works performed or to be performed by Cebu Shipyard
and/or its subcontractors and/or material and equipment supplied or to be supplied by Cebu Shipyard and/or its
subcontractors in connection with the vessel for the party specified in part C of the Schedule (the Debtor), we
hereby unconditionally, irrevocably undertake to make punctual payment to Cebu Shipyard of the Moneys Payable
on the terms and conditions as set out in part B of the Schedule. We likewise hereby expressly waive whatever right
of excussion we may have under the law and equity.

Attention: Mr. Paul Rodriguez
President/General Manager
This is to confirm our agreement on the shiprepair bills charged for the repair of MV Pacific Fortune, our invoice no.
26035.
The shiprepair bill (Bill No. 26035) is agreed at a negotiated amount of P3,850,000.00 excluding VAT.
Unimarine Shipping Lines, Inc. (Unimarine) will pay the above amount of [P3,850,000.00] in US Dollars to be fixed at
the prevailing USDollar to Philippine Peso exchange rate at the time of payment. The payment terms to be extended
to Unimarine is as follows:
This contract shall be binding upon Uni-Marine Shipping Lines, Inc., its heirs, executors, administrators, successors,
and assigns and shall not be discharged until all obligation of this contract shall have been faithfully and fully
performed by the Debtor.[11]
Because Unimarine failed to remit the first installment when it became due on May 30, 1992, Cebu Shipyard was constrained to deposit
the peso check corresponding to the initial installment of P2,350,000.00. The check, however, was dishonored by the bank due to
insufficient funds.[12] Cebu Shipyard faxed a message to Unimarine, informing it of the situation, and reminding it to settle its account
immediately.[13]
On June 24, 1992, Cebu Shipyard again faxed a message[14] to Unimarine, to confirm Paul Rodriguezs promise that Unimarine
will pay in full the P3,850,000.00, in US Dollars on July 1, 1992.

Installments Amount Due Date Since Unimarine failed to deliver on the above promise, Cebu Shipyard, on July 2, 1992, through a faxed letter, asked
1st Installment P2,350,000.00 30 May 1992 Unimarine if the payment could be picked up the next day. This was followed by another faxed message on July 6, 1992, wherein Cebu
2nd Installment P1,500,000.00 30 Jun 1992 Shipyard reminded Unimarine of its promise to pay in full on July 28, 1992. On August 24, 1992, Cebu Shipyard again faxed[15] Unimarine,
to inform it that interest charges will have to be imposed on their outstanding debt, and if it still fails to pay before August 28, 1992, Cebu
Unimarine will deposit post-dated checks equivalent to the above amounts in Philippine Peso and an additional Shipyard will have to enforce payment against the sureties and take legal action.
check amount of P385,000.00, representing 10% [Value Added Tax] VAT on the above bill of P3,850,000.00. In the
event that Unimarine fails to make full payment on the above due dates in US Dollars, the post-dated checks will be On November 18, 1992, Cebu Shipyard, through its counsel, sent Unimarine a letter,[16] demanding payment, within seven days
deposited by CSEW in payment of the amounts owned by Unimarine and Unimarine agree that the 10% VAT from receipt of the letter, the amount of P4,859,458.00, broken down as follows:
(P385,000.00) shall also become payable to CSEW.
B#26035 MV PACIFIC FORTUNE 4,486,052.00
Unimarine in consideration of the credit terms extended by CSEW and the release of the vessel before full payment LESS: ADJUSTMENT:
of the above debt, agree to present CSEW surety bonds equal to 120% of the value of the credit extended. The total CN#00515-03/19/92 (636,052.00)
bond amount shall be P4,620,000.00. ------------------
3,850,000.00
Yours faithfully, Add: VAT on repair bill no. 26035 385,000.00
------------------
CEBU SHIPYARD & ENGG WORKS, INC Conforme: 4,235,000.00
Add: Interest/penalty charges:
 Debit Note No. 02381 189,888.00
Debit Note No. 02382 434,570.00
------------------
4,859,458.00[17]
Due to Unimarines failure to heed Cebu Shipyards repeated demands, Cebu Shipyard, through counsel, wrote the sureties CBIC [18] on
November 18, 1992, and Plaridel,[19] on November 19, 1992, to inform them of Unimarines nonpayment, and to ask them to fulfill their
obligations as sureties, and to respond within seven days from receipt of the demand.
However, even the sureties failed to discharge their obligations, and so Cebu Shipyard filed a Complaint dated January 8, 1993, before the
RTC, Branch 18 of Cebu City, against Unimarine, CBIC, and Plaridel. This was docketed as Civil Case No. CBB-13447.
CBIC, in its Answer,[20] said that Cebu Shipyards complaint states no cause of action. CBIC alleged that the surety bond was issued by its
agent, Quinain, in excess of his authority. CBIC claimed that Cebu Shipyard should have doubted the authority of Quinain to issue the
surety bond based on the following:
1. The nature of the bond undertaking (guarantee payment), and the amount involved.
2. The surety bond could only be issued in favor of the Department of Public Works and Highways, as stamped on the upper
right portion of the face of the bond.[21] This stamp was covered by documentary stamps.
3. The issuance of the surety bond was not reported, and the corresponding premiums were not remitted to CBIC.[22]
CBIC added that its liability was extinguished when, without its knowledge and consent, Cebu Shipyard and Unimarine novated
their agreement several times.Furthermore, CBIC stated that Cebu Shipyards claim had already been paid or extinguished when
Unimarine executed an Assignment of Claims[23] of the proceeds of the sale of its vessel M/V Headline in favor of Cebu Shipyard. CBIC also
averred that Cebu Shipyards claim had already prescribed as the endorsement that extended the surety bonds expiry date, was not
reported to CBIC. Finally, CBIC asseverated that if it were held to be liable, its liability should be limited to the face value of the bond and
not for exemplary damages, attorneys fees, and costs of litigation.[24]
Subsequently, CBIC filed a Motion to Admit Cross and Third Party Complaint[25] against Unimarine, as cross defendant; Paul
Rodriguez, Albert Hontanosas, and Peter Rodriguez, as signatories to the Indemnity Agreement they executed in favor of CBIC; and
Bethoven Quinain, as the agent who issued the surety bond and endorsement in excess of his authority, as third party defendants.[26]
CBIC claimed that Paul Rodriguez, Albert Hontanosas, and Peter Rodriguez executed an Indemnity Agreement, wherein they
bound themselves, jointly and severally, to indemnify CBIC for any amount it may sustain or incur in connection with the issuance of the
surety bond and the endorsement.[27] As for Quinain, CBIC alleged that he exceeded his authority as stated in the Special Power of
Attorney, wherein he was authorized to solicit business and issue surety bonds not exceeding P500,000.00 but only in favor of the
Department of Public Works and Highways, National Power Corporation, and other government agencies.[28]
On August 23, 1993, third party defendant Hontanosas filed his Answer with Counterclaim, to the Cross and Third Party
Complaint. Hontanosas claimed that he had no financial interest in Unimarine and was neither a stockholder, director nor an officer of
Unimarine. He asseverated that his relationship to Unimarine was limited to his capacity as a lawyer, being its retained counsel. He further
denied having any participation in the Indemnity Agreement executed in favor of CBIC, and alleged that his signature therein was forged,
as he neither signed it nor appeared before the Notary Public who acknowledged such undertaking.[29]
Various witnesses were presented by the parties during the course of the trial of the case. Myrna Obrinaga testified for Cebu
Shipyard. She was the Chief Accountant in charge of the custody of the documents of the company. She corroborated Cebu Shipyards
allegations and produced in court the documents to support Cebu Shipyards claim. She also testified that while it was true that the
proceeds of the sale of Unimarines vessel, M/V Headline, were assigned to Cebu Shipyard, nothing was turned over to them.[30]
Paul Rodriguez admitted that Unimarine failed to pay Cebu Shipyard for the repairs it did on M/V Pacific Fortune, despite the
extensions granted to Unimarine. He claimed that he signed the Indemnity Agreement because he trusted Quinain that it was a mere pre-
requisite for the issuance of the surety bond. He added that he did not bother to read the documents and he was not aware of the
consequences of signing an Indemnity Agreement. Paul Rodriguez also alleged to not having noticed the limitation Valid only in favor of
DPWH stamped on the surety bond.[31] However, Paul Rodriguez did not contradict the fact that Unimarine failed to pay Cebu Shipyard its
obligation.[32]
CBIC presented Dakila Rianzares, the Senior Manager of its Bonding Department. Her duties included the evaluation and
approval of all applications for and reviews of bonds issued by their agents, as authorized under the Special Power of Attorney and
General Agency Contract of CBIC. Rianzares testified that she only learned of the existence of CBIC Surety Bond No. G (16) 29419 when
she received the summons for this case. Upon investigation, she found out that the surety bond was not reported to CBIC by Quinain, the
issuing agent, in violation of their General Agency Contract, which provides that all bonds issued by the agent be reported to CBICs office
within one week from the date of issuance. She further stated that the surety bond issued in favor of Unimarine was issued beyond
Quinains authority. Rianzares added that she was not aware that an endorsement pertaining to the surety bond was also issued by
Quinain.[33]
After the trial, the RTC was faced with the lone issue of whether or not CBIC was liable to Cebu Shipyard based on Surety Bond
No. G (16) 29419.[34]
On February 10, 1997, the RTC rendered its Decision, the fallo of which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff Cebu Shipyard & Engineering Works,
Incorporated and against the defendants:
1. Ordering the defendants Unimarine Shipping Lines, Incorporated, Country Bankers Insurance
Corporation and Plaridel Surety and Insurance Corporation to pay plaintiff jointly and severally the amount
of P4,620,000.00 equivalent to the value of the surety bonds;
2. Ordering further defendant Unimarine to pay plaintiff the amount of P259,458.00 to complete its
entire obligation of P4,859,458.00;
3. To pay plaintiff jointly and severally the amount of P100,000.00 in attorneys fees and litigation
expenses;
4. For Cross defendant Unimarine Shipping Lines, Incorporated and Third party defendants Paul
Rodriguez, Peter Rodriguez and Alber[t] Hontanosas: To indemnify jointly and severally, cross plaintiff and third
party plaintiff Country Bankers Insurance Corporation whatever amount the latter is made to pay to plaintiff.[35]
The RTC held that CBIC, in its capacity as surety is bound with its principal jointly and severally to the extent of the surety bond
it issued in favor of [Cebu Shipyard] because although the contract of surety is in essence secondary only to a valid principal obligation, his
liability to [the] creditor is said to be direct, primary[,] and absolute, in other words, he is bound by the principal.[36] The RTC added:
Solidary obligations on the part of Unimarine and CBIC having been established and expressly stated in
the Surety Bond No. 29419 (Exh. C), [Cebu Shipyard], therefore, is entitled to collect and enforce said obligation
against any and or both of them, and if and when CBIC pays, it can compel its co-defendant Unimarine to reimburse
to it the amount it has paid.[37]
The RTC found CBICs contention that Quinain acted in excess of his authority in issuing the surety bond untenable. The RTC
held that CBIC is bound by the surety bond issued by its agent who acted within the apparent scope of his authority. The RTC said:
[A]s far as third persons are concerned, an act is deemed to have been performed within the scope of the agents
authority, if such act is within the terms of the powers of attorney as written, even if the agent has in fact exceeded
the limits of his authority according to an understanding between the principal and the agent.[38]
All the defendants appealed this Decision to the Court of Appeals.
 Unimarine, Paul Rodriguez, Peter Rodriguez, and Albert Hontanosas argued that Unimarines obligation under Bill No. 26035
had been extinguished by novation, as Cebu Shipyard had agreed to accept the proceeds of the sale of the M/V Headline as payment for
the ship repair works it did on M/V Pacific Fortune. Paul Rodriguez and Peter Rodriguez added that such novation also freed them from
their liability under the Indemnity Agreement they signed in favor of CBIC. Albert Hontanosas in turn reiterated that he did not sign the
Indemnity Agreement.[39][SC1]
CBIC, in its Appellants Brief,[40] claimed that the RTC erred in enforcing its liability on the surety bond as it was issued in excess
of Quinains authority. Moreover, CBIC averred, its liability under such surety had been extinguished by reasons of novation, payment, and
prescription. CBIC also questioned the RTCs order, holding it jointly and severally liable with Unimarine and Plaridel for the amount
of P4,620,000.00, a sum larger than the face value of CBIC Surety Bond No. G (16) 29419, and why the RTC did not hold Quinain liable to
indemnify CBIC for whatever amount it was ordered to pay Cebu Shipyard.
On January 29, 2004, the Court of Appeals promulgated its decision, with the following dispositive portion:
WHEREFORE, in view of the foregoing, the respective appeal[s] filed by Defendants-Appellants Unimarine Shipping
Lines, Inc. and Country Bankers Insurance Corporation; Cross-Defendant-Appellant Unimarine Shipping Lines, Inc.
and; Third-Party Defendants-Appellants Paul Rodriguez, Peter Rodriguez and Albert Hontanosas are
hereby DENIED. The decision of the RTC in Civil Case No. CEB-13447 dated February 10, 1997 is AFFIRMED with
modification that Mr. Bethoven Quinain, CBICs agent is hereby held jointly and severally liable with CBIC by virtue of
Surety Bond No. 29419 executed in favor of plaintiff-appellee CSEW.[41]
In its decision, the Court of Appeals resolved the following issues, as it had summarized from the parties pleadings:
I. Whether or not UNIMARINE is liable to [Cebu Shipyard] for a sum of money arising from the ship-repair
contract;
II. Whether or not the obligation of UNIMARINE to [Cebu Shipyard] has been extinguished by novation;
III. Whether or not Defendant-Appellant CBIC, allegedly being the Surety of UNIMARINE is liable under Surety
Bond No. 29419[;]
IV. Whether or not Cross Defendant-Appellant UNIMARINE and Third-Party Defendants-Appellants Paul
Rodriguez, Peter Rodriguez, Albert Hontanosas and Third-Party Defendant Bethoven Quinain are liable by virtue of
the Indemnity Agreement executed between them and Cross and Third Party Plaintiff CBIC;
V. Whether or not Plaintiff-Appellee [Cebu Shipyard] is entitled to the award of P100,000.00 in attorneys fees
and litigation expenses.[42]
The Court of Appeals held that it was duly proven that Unimarine was liable to Cebu Shipyard for the ship repair works it did on
the formers M/V Pacific Fortune. The Court of Appeals dismissed CBICs contention of novation for lack of merit.[43] CBIC was held liable
under the surety bond as there was no novation on the agreement between Unimarine and Cebu Shipyard that would discharge CBIC
from its obligation. The Court of Appeals also did not allow CBIC to disclaim liability on the ground that Quinain exceeded his authority
because third persons had relied upon Quinains representation, as CBICs agent.[44] Quinain was, however, held solidarily liable with CBIC
under Article 1911 of the Civil Code.[45]
Anent the liability of the signatories to the Indemnity Agreement, the Court of Appeals held Paul Rodriguez, Peter Rodriguez,
and Albert Hontanosas jointly and severally liable thereunder. The Court of Appeals rejected Hontanosass claim that his signature in the
Indemnity Agreement was forged, as he was not able to prove it.[46]
The Court of Appeals affirmed the award of attorneys fees and litigation expenses to Cebu Shipyard since it was able to clearly establish
the defendants liability, which they tried to dodge by setting up defenses to release themselves from their obligation.[47]
CBIC[48]and Unimarine, together with third party defendants-appellants[49] filed their respective Motions for Reconsideration. This was,
however, denied by the Court of Appeals in its October 28, 2004 Resolution for lack of merit.
Unimarine elevated its case to this Court via a petition for review on certiorari, docketed as G.R. No. 166023, which was denied in a
Resolution dated January 19, 2005.[50]
The lone petitioner in this case, CBIC, is now before this Court, seeking the reversal of the Court of Appeals decision and
resolution on the following grounds:
A.
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN APPLYING THE PROVISIONS OF ARTICLE 1911 OF THE
CIVIL CODE TO HOLD PETITIONER LIABLE FOR THE ACTS DONE BY ITS AGENT IN EXCESS OF AUTHORITY.
B.
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN HOLDING THAT AN EXTENSION OF THE PERIOD FOR THE
PERFORMANCE OF AN OBLIGATION GRANTED BY THE CREDITOR TO THE PRINCIPAL DEBTOR IS NOT SUFFICIENT TO
RELEASE THE SURETY.
C.
ASSUMING THAT PETITIONER IS LIABLE UNDER THE BOND, THE HONORABLE COURT OF APPEALS NONETHELESS
SERIOUSLY ERRED IN AFFIRMING THE SOLIDARY LIABILITY OF PETITIONER BEYOND THE VALUE OF THE BOND.
D.
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING PETITIONER JOINTLY AND SEVERALLY LIABLE FOR
ATTORNEYS FEES IN THE AMOUNT OF P100,000.00.[51]
Issue
The crux of the controversy lies in CBICs liability on the surety bond Quinain issued to Unimarine, in favor of Cebu Shipyard.
CBIC avers that the Court of Appeals erred in interpreting and applying the rules governing the contract of agency. It argued that the
Special Power of Attorney granted to Quinain clearly set forth the extent and limits of his authority with regard to businesses he can
transact for and in behalf of CBIC. CBIC added that it was incumbent upon Cebu Shipyard to inquire and look into the power of authority
conferred to Quinain. CBIC said:
The authority to bind a principal as a guarantor or surety is one of those powers which requires a Special Power of
Attorney pursuant to Article 1878 of the Civil Code. Such power could not be simply assumed or inferred from the
mere existence of an agency. A person who enters into a contract of suretyship with an agent without confirming
the extent of the latters authority does so at his peril. x x x.[52]
CBIC claims that the foregoing is true even if Quinain was granted the authority to transact in the business of insurance in
general, as the authority to bind the principal in a contract of suretyship could nonetheless never be presumed.[53] Thus, CBIC claims, that:
[T]hird persons seeking to hold the principal liable for transactions entered into by an agent should establish the
following, in case the same is controverted:
6.6.1. The fact or existence of the agency.
6.6.2. The nature and extent of authority.[54]
 To go a little further, CBIC said that the correct Civil Code provision to apply in this case is Article 1898. CBIC asserts that Cebu
Shipyard was charged with knowledge of the extent of the authority conferred on Mr. Quinain by its failure to perform due diligence
investigations.[55]
Cebu Shipyard, in its Comment[56] first assailed the propriety of the petition for raising factual issues. In support, Cebu Shipyard
claimed that the Court of Appeals application of Article 1911 of the Civil Code was founded on findings of facts that CBIC now
disputes. Thus, the question is not purely of law.
Discussion
The fact that Quinain was an agent of CBIC was never put in issue. What has always been debated by the parties is the extent of authority
or, at the very least, apparent authority, extended to Quinain by CBIC to transact insurance business for and in its behalf.
In a contract of agency, a person, the agent, binds himself to represent another, the principal, with the latters consent or
authority.[57] Thus, agency is based on representation, where the agent acts for and in behalf of the principal on matters within the scope
of the authority conferred upon him.[58] Such acts have the same legal effect as if they were personally done by the principal. By this legal
fiction of representation, the actual or legal absence of the principal is converted into his legal or juridical presence.[59]
The RTC applied Articles 1900 and 1911 of the Civil Code in holding CBIC liable for the surety bond. It held that CBIC could not
be allowed to disclaim liability because Quinains actions were within the terms of the special power of attorney given to him.[60] The Court
of Appeals agreed that CBIC could not be permitted to abandon its obligation especially since third persons had relied on Quinains
representations. It based its decision on Article 1911 of the Civil Code and found CBIC to have been negligent and less than prudent in
conducting its insurance business for its failure to supervise and monitor the acts of its agents, to regulate the distribution of its insurance
forms, and to devise schemes to prevent fraudulent misrepresentations of its agents.[61]
However, contrary to what the RTC held, the Special Power of Attorney accorded to Quinain clearly states the limits of his
authority and particularly provides that in case of surety bonds, it can only be issued in favor of the Department of Public Works and
Highways, the National Power Corporation, and other government agencies; furthermore, the amount of the surety bond is limited
to P500,000.00, to wit:
SPECIAL POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That, COUNTRY BANKERS INSURANCE CORPORATION, a corporation duly organized and existing under and by virtue
of the laws of the Philippines, with head offices at 8th Floor, G.F. Antonino Building, T.M. Kalaw Street, Ermita,
Manila, now and hereinafter referred to as the Company hereby appoints BETHOVEN B. QUINAIN with address at x
x x to be its General Agent and Attorney-in-Fact, for and in its place, name and stead, and for its own use and
benefit, to do and perform the following acts and things:
1. To conduct, manage, carry on and transact insurance business as usually pertains to a General
Agency of Fire, Personal Accident, Bond, Marine, Motor Car (Except Lancer).
2. To accept, underwrite and subscribe policies of insurance for and in behalf of the Company under
the terms and conditions specified in the General Agency Contract executed and entered into by and between it
and its said Attorney-in-Fact subject to the following Schedule of Limits:

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

Art. 1898. If the agent contracts in the name of the principal, exceeding the scope of his authority, and
the principal does not ratify the contract, it shall be void if the party with whom the agent contracted is aware of
the limits of the powers granted by the principal. In this case, however, the agent is liable if he undertook to secure - SCHEDULE OF LIMITS -
the principals ratification.
Art. 1900. So far as third persons are concerned, an act is deemed to have been performed within the a. FIRE:
scope of the agents authority, if such act is within the terms of the power of attorney, as written, even if the agent
has in fact exceeded the limits of his authority according to an understanding between the principal and the agent. xxxx
b. PERSONAL ACCIDENT:
Art. 1902. A third person with whom the agent wishes to contract on behalf of the principal may require
the presentation of the power of attorney, or the instructions as regards the agency. Private or secret orders and xxxx
instructions of the principal do not prejudice third persons who have relied upon the power of attorney or
instructions shown to them. c. MOTOR CAR:

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

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

Our law mandates an agent to act within the scope of his authority.[62] The scope of an agents authority is what appears in the xxxx
written terms of the power of attorney granted upon him.[63] Under Article 1878(11) of the Civil Code, a special power of attorney is
necessary to obligate the principal as a guarantor or surety. Surety Bond (in favor of Dept. of Pub. Works and
Highways, Natl. Power Corp. & other. 500,000.00
In the case at bar, CBIC could be held liable even if Quinain exceeded the scope of his authority only if Quinains act of issuing Government agencies)[65]
Surety Bond No. G (16) 29419 is deemedto have been performed within the written terms of the power of attorney he was granted.[64]
 CBIC does not anchor its defense on a secret agreement, mutual understanding, or any verbal instruction to Quinain. CBICs
stance is grounded on its contract with Quinain, and the clear, written terms therein. This Court finds that the terms of the foregoing
contract specifically provided for the extent and scope of Quinains authority, and Quinain has indeed exceeded them.
Under Articles 1898 and 1910, an agents act, even if done beyond the scope of his authority, may bind the principal if he
ratifies them, whether expressly or tacitly. It must be stressed though that only the principal, and not the agent, can ratify the
unauthorized acts, which the principal must have knowledge of.[66] Expounding on the concept and doctrine of ratification in agency, this
Court said:
Ratification in agency is the adoption or confirmation by one person of an act performed on his behalf by
another without authority. The substance of the doctrine is confirmation after conduct, amounting to a substitute
for a prior authority. Ordinarily, the principal must have full knowledge at the time of ratification of all the material
facts and circumstances relating to the unauthorized act of the person who assumed to act as agent. Thus, if
material facts were suppressed or unknown, there can be no valid ratification and this regardless of the purpose or
lack thereof in concealing such facts and regardless of the parties between whom the question of ratification may
arise. Nevertheless, this principle does not apply if the principals ignorance of the material facts and circumstances
was willful, or that the principal chooses to act in ignorance of the facts. However, in the absence of circumstances
putting a reasonably prudent man on inquiry, ratification cannot be implied as against the principal who is ignorant
of the facts.[67] (Emphases supplied.)
Neither Unimarine nor Cebu Shipyard was able to repudiate CBICs testimony that it was unaware of the existence of Surety
Bond No. G (16) 29419 and Endorsement No. 33152. There were no allegations either that CBIC should have been put on alert with regard
to Quinains business transactions done on its behalf. It is clear, and undisputed therefore, that there can be no ratification in this case,
whether express or implied.
Article 1911, on the other hand, is based on the principle of estoppel, which is necessary for the protection of third persons. It
states that the principal is solidarily liable with the agent even when the latter has exceeded his authority, if the principal allowed him to
act as though he had full powers. However, for an agency by estoppel to exist, the following must be established:
1. The principal manifested a representation of the agents authority or knowingly allowed the agent to assume such
authority;
2. The third person, in good faith, relied upon such representation; and
3. Relying upon such representation, such third person has changed his position to his detriment.[68]
In Litonjua, Jr. v. Eternit Corp.,[69] this Court said that [a]n agency by estoppel, which is similar to the doctrine of apparent
authority, requires proof of reliance upon the representations, and that, in turn, needs proof that the representations predated the action
taken in reliance.[70]
This Court cannot agree with the Court of Appeals pronouncement of negligence on CBICs part. CBIC not only clearly stated the
limits of its agents powers in their contracts, it even stamped its surety bonds with the restrictions, in order to alert the concerned
parties. Moreover, its company procedures, such as reporting requirements, show that it has designed a system to monitor the insurance
contracts issued by its agents. CBIC cannot be faulted for Quinains deliberate failure to notify it of his transactions with Unimarine. In fact,
CBIC did not even receive the premiums paid by Unimarine to Quinain.
Furthermore, nowhere in the decisions of the lower courts was it stated that CBIC let the public, or specifically Unimarine,
believe that Quinain had the authority to issue a surety bond in favor of companies other than the Department of Public Works and
Highways, the National Power Corporation, and other government agencies. Neither was it shown that CBIC knew of the existence of the
surety bond before the endorsement extending the life of the bond, was issued to Unimarine. For one to successfully claim the benefit of
estoppel on the ground that he has been misled by the representations of another, he must show that he was not misled through his own
want of reasonable care and circumspection.[71]
It is apparent that Unimarine had been negligent or less than prudent in its dealings with Quinain. In Manila Memorial Park
Cemetery, Inc. v. Linsangan,[72] this Court held:
It is a settled rule that persons dealing with an agent are bound at their peril, if they would hold the
principal liable, to ascertain not only the fact of agency but also the nature and extent of authority, and in case
either is controverted, the burden of proof is upon them to establish it. The basis for agency is representation and a
person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent. If he
does not make such an inquiry, he is chargeable with knowledge of the agents authority and his ignorance of that
authority will not be any excuse.
In the same case, this Court added:
[T]he ignorance of a person dealing with an agent as to the scope of the latters authority is no excuse to such
person and the fault cannot be thrown upon the principal. A person dealing with an agent assumes the risk of lack
of authority in the agent. He cannot charge the principal by relying upon the agents assumption of authority that
proves to be unfounded. The principal, on the other hand, may act on the presumption that third persons dealing
with his agent will not be negligent in failing to ascertain the extent of his authority as well as the existence of his
agency.[73]
Unimarine undoubtedly failed to establish that it even bothered to inquire if Quinain was authorized to agree to terms beyond
the limits indicated in his special power of attorney. While Paul Rodriguez stated that he has done business with Quinain more than once,
he was not able to show that he was misled by CBIC as to the extent of authority it granted Quinain. Paul Rodriguez did not even allege
that he asked for documents to prove Quinains authority to contract business for CBIC, such as their contract of agency and power of
attorney. It is also worthy to note that even with the Indemnity Agreement, Paul Rodriguez signed it on Quinains mere assurance and
without truly understanding the consequences of the terms of the said agreement. Moreover, both Unimarine and Paul Rodriguez could
have inquired directly from CBIC to verify the validity and effectivity of the surety bond and endorsement; but, instead, they blindly relied
on the representations of Quinain. As this Court held in Litonjua, Jr. v. Eternit Corp.[74]:
A person dealing with a known agent is not authorized, under any circumstances, blindly to trust the agents;
statements as to the extent of his powers; such person must not act negligently but must use reasonable diligence
and prudence to ascertain whether the agent acts within the scope of his authority. The settled rule is that, persons
dealing with an assumed agent are bound at their peril, and if they would hold the principal liable, to ascertain not
only the fact of agency but also the nature and extent of authority, and in case either is controverted, the burden of
proof is upon them to prove it. In this case, the petitioners failed to discharge their burden; hence, petitioners are
not entitled to damages from respondent EC.[75]
In light of the foregoing, this Court is constrained to release CBIC from its liability on Surety Bond No. G (16) 29419 and Endorsement No.
33152. This Court sees no need to dwell on the other grounds propounded by CBIC in support of its prayer.
WHEREFORE, this petition is hereby GRANTED and the complaint against CBIC is DISMISSED for lack of merit. The January 29,
2004 Decision and October 28, 2004 Resolution of the Court of Appeals in CA-G.R. CV No. 58001 is MODIFIED insofar as it affirmed CBICs
liability on Surety Bond No. G (16) 29419 and Endorsement No. 33152.
SO ORDERED.
G.R. No. 169442, October 14, 2015
REPUBLIC OF THE PHILIPPINES, REPRESENTED BY THE PRIVATIZATION AND MANAGEMENT OFFICE (PMO), Petitioner, v. ANTONIO V.
BAÑEZ, LUISITA BAÑEZ VALERA, NENA BAÑEZ HOJILLA, AND EDGARDO B. HOJILLA, JR., Respondents.
DECISION
 PEREZ, J.:
Assailed and sought to be annulled in this Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure is the
Decision1 of the Court of Appeals dated 23 August 2005 in CA-G.R. CV No. 70137, entitled "Cellophil Resources Corporation v. Antonio V.
Bañez, Luisita Bañez Valera, Nena Bañez Hojilla and Edgar do B. Hojilla, Jr.," which affirmed the Order2 of the Regional Trial Court (RTC),
Branch 1, Bangued, Abra, dated 16 August 2000, that dismissed the complaint of petitioner Republic of the Philippines, represented by
Privatization and Management Office (PMO), for specific performance, recovery of possession, and damages against respondents Antonio
V. Bañez, Luisita Bañez Valera, Nena Bañez Hojilla and Edgardo B. Hojilla, Jr., docketed as Civil Case No. 1853.
The facts as culled from the records are as follows:
In 1976, Antonio V. Bañez, Luisita Bañez Valera, and Nena Bañez Hojilla (collectively, respondents) offered for sale a parcel of land (subject
property), with an area of 20,000 sq m in Barangay Calaba, Bangued, Abra to Cellophil Resources Corporation (CRC). Pursuant to the offer
to sell on 7 December 1981, respondents executed a Letter Agreement irrevocably giving CRC the option to purchase the subject
property, which CRC accepted. The pertinent portion of the Letter Agreement (hereinafter referred to as Contract), to wit:
1. The purchase price shall be Twenty Pesos xxx per square meter or a total amount of Four Hundred Thousand Pesos (P400,000.00).
2. The co-owners shall take all necessary steps to cause the CRC Portion to be brought under the operation of Republic Act No. 496, as
amended, and to cause the issuance in their name of the corresponding original certificate of title, all of the foregoing to be accomplished
within a reasonable time from date hereof. xxx
xxxx
7. The co-owners hereby confirm their agreement and permission to CRC's entry into, construction of building[s] and improvements, and
occupancy of, any portion of the Property, and xxx waive any right of action they may have against CRC respecting such entry,
construction, or occupancy by the latter of any Portion of the Property.
8. An absolute deed of sale containing the above provisions and standard warranties on conveyances of real property shall be executed by
the co-owners in favor of CRC or its assignee/s and the same delivered to the latter together with the original certificate of title upon
payment of the purchase price less the advances made by CRC in accordance with Paragraphs 2 and 3 above; provided, that payment shall
be made by CRC only upon presentation by the co-owners to CRC of certificate/s and/or clearances, with corresponding receipts, issued
by the appropriate government office/s or agency/ies to the effect that capital gains tax, real estate taxes on the Property and local
transfer tax and other taxes, fees or charges due on the transaction and/or on the Property have been paid.
9. This option shall be effective from [the] date of your acceptance as indicated by your conformity below and for a period of one (1)
month from and after CRC shall have been notified in writing by the co-owners that an original certificate of title has been issued in their
names and that they are ready to execute the xxx deed of sale.3
Respondents asked for several cash advances which reached the total amount of, more or less, Two Hundred Seventeen Thousand Pesos
(P217,000.00), to be deducted from the purchase price of Four Hundred Thousand Pesos (P400,000.00). After paying cash advances to
respondents, CRC constructed staff houses and introduced improvements on the subject property. As respondents would be staying
abroad for a time, they executed a Special Power of Attorney (SPA) in favor of Edgardo B. Hojilla (Hojilla). The SPA authorized Hojilla to
perform the following:
1. To take all steps necessary to cause a portion of the lot covered by Tax Declaration No. 40185 in the name of Urbano Bañez which is the
subject of our "Offer to Sell" to Cellophil Resources Corporation containing an area xxx to be brought under the operation of Republic Act
No. 496, as amended, and to cause the issuance in our name of the corresponding original certificate of title.
2. To do all acts and things and to execute all papers and documents of whatever nature or kind required for the accomplishments of the
aforesaid purpose.
HEREBY GRANTING AND GIVING unto our said attorney full power and authority whatsoever requisite or necessary or proper to be done
in or about the premises as fully to all intents and purposes as we might or could lawfully do if personally present (with power of
substitution and revocation), and hereby ratifying and confirming all that our said attorney shall do or cause to be done under and by
virtue of these presents.4ChanRoblesVirtualawlibrary
However, CRC stopped its operation. The Development Bank of the Philippines and National Development Company took over CRC's
operation and turned over CRC's equity to Asset Privatization Trust (APT), which is a government agency created by virtue of Proclamation
No. 50, as amended. The APT's function is to take title to and possession of, provisionally manage and dispose of nonperforming assets of
government financial institutions. Upon the expiration of APT's term on 31 December 2000, the government issued Executive Order (E.O.)
No. 323, which created the Privatization and Management Office (PMO). By virtue of E.O. No. 323, the powers, functions, and duties of
APT were transferred to the PMO. Thus, the original party, CRC, is now represented by the Republic of the Philippines through the PMO
(hereinafter referred to as petitioner), the successor of the defunct APT.
As alleged by petitioner, respondents declared afterwards the subject property as Urbano Bañez property, rented out to third parties the
staff houses petitioner constructed, and ordered its guards to prohibit the petitioner from entering the compound, which impelled
petitioner to file a complaint for specific performance, recovery of possession, and damages against respondents, including Hojilla, on 10
April 2000. Among others, the complaint prayed for respondents to surrender and deliver the title of the subject property, and execute a
deed of absolute sale in favor of petitioner upon full payment. It mentioned three letters sent to respondents on 29 May 1991, 24 October
1991, and 6 July 1999.
In the Complaint, it was alleged that:
"[t]here is no justification, legal or otherwise for the [respondents] to dispossess (sic) the [petitioner] from the subject property.
[Petitioner] is more than willing and able to pay the [respondents] the balance of the purchase price of the subject parcel of land but its
inability to do so was due to the [respondents'] failure to produce the original certificate of title of the subject parcel of land and to
execute the pertinent deed of sale, as well as the unjustified occupation by the [respondents] of the property and [of] the staff houses
built by [petitioner and that] such actions of the [respondents] are contrary to their undertaking under condition no. 7 of the subject
letter agreement, that is, for [respondents] to permit [petitioner's] entry into and occupancy of any portion of the subject property and
their waiver of any right of action they may have against [petitioner] respecting such entry and occupancy of any portion of the property.
And despite repeated demands made by [petitioner] upon the [respondents] for them to vacate and turnover the subject parcel of land
and the staff houses to [petitioner], the last of which was in a letter dated July 6, 1999, the said [respondents] have failed and neglected
and still fail and neglect to do so up to the present time."5ChanRoblesVirtualawlibrary
Ruling of the RTC
On 23 June 2000, Hojilla filed a Motion to Dismiss on the grounds that he was not a real party-in-interest and that the action was barred
by the Statute of Limitations, which Motion the RTC granted in an Order dated 16 August 2000 based on Article 1144(1) of the Civil Code,
which bars actions filed beyond ten (10) years upon the execution of the written contract. According to the RTC, the letters petitioner sent
to respondents were not demands for respondents to comply with their obligation to deliver the title as to interrupt the running of the
prescriptive period. The pertinent portion of the RTC Order reads:
In the instant case, the defendants were given [enough] time from December 7, 1981 to comply with their obligation, hence, after a
reasonable period of time, the plaintiff should have demanded compliance of defendants' undertakings or initiated any other action to
protect its interest without waiting for the statute of limitations to bar their claim.6
The RTC resolved that because the written contract was executed on 7 December 1981, then the complaint that was filed more than
eighteen (18) years since the contract was executed was beyond the 10-year prescriptive period. Within that 18-year period, there was no
act on the part of petitioner, whether judicial or extrajudicial, to interrupt prescription.
While petitioner paid cash advances to respondents for the processing of the registration of the title, "which totaled to more or less
P217,000.00 as of September 7, 1984 xxx to the filing of this suit, [petitioner] has not demanded compliance by [respondents] of their
obligation, that is, the execution of the absolute deed of sale and the delivery of the Original Certificate of Title to the property to
[petitioner] upon payment of the purchase price stipulated. There were letters addressed to [respondents] but these were not demands
for compliance of [respondents'] obligation and which is not sufficient under the law to interrupt the prescriptive period."7

The RTC further stated that:
"[t]he parties could not have contemplated that the delivery of the property and the payment thereof could be made indefinitely and
render uncertain the status of the land. The failure of either [of the] parties to demand performance of the obligation of the other for an
unreasonable length of time renders the contract ineffective."8
The motion for reconsideration was likewise denied in an Order dated 5 January 2001.
On appeal, petitioner argued that the RTC erred when it dismissed the complaint. Petitioner averred that: (1) its claim was not yet barred
by prescription; (2) the period of prescription had been interrupted by extrajudicial demand; (3) the Statute of Limitation did not run
against the State; (4) petitioner's claim not having prescribed, laches could not have set in; (5) the laches of one nullified the laches of the
other; and (6) laches cannot be used to defeat justice or to perpetuate fraud and injustice.chanrobleslaw
Ruling of the Court of Appeals
The Court of Appeals affirmed the ruling of the RTC in a Decision dated 23 August 2005 on the ground that the complaint was barred by
the Statute of Limitations. Contrary to petitioner's arguments, the Court of Appeals found that the extrajudicial demand to respondents
did not serve to toll the running of the prescriptive period. The Court of Appeals ruled that the record is bereft of evidence that would
attest that written extrajudicial demands were sent to respondents. While petitioner sent demand letters dated 29 May 1991 and 24
October 1991, these demand letters were not considered as demand letters because the letters simply called the attention of Hojilla to
return the properties and unlock the gates. As regards the letter dated 6 July 1999, the Court of Appeals ruled that because the letter was
addressed to Hojilla, who was only an attorney-in-fact authorized to register the property, it was not binding upon the respondents. The
Court of Appeals also gave no probative value to the 6 July 1999 letter for having no proof of service.
With regard to the issue of running of prescriptive period against the State, the Court of Appeals opined that because the subject property
is a patrimonial property of the State when APT became the controlling stockholder of CRC, prescription may run against the State. Thus,
the reasonable period within which to register the property is three (3) years. According to the Court of Appeals, the cause of action of
petitioner accrued three (3) years from the time the Contract was executed on 7 December 1981 or, to say the least, on 15 August 1984
when Hojilla sent the acknowledgment letter dated 15 August 1984, at which time it became clear that respondents could no longer fulfill
their obligation.
Hence, petitioner is before us raising the following arguments:
A. The Court of Appeals erred in ruling that the running of the prescriptive period was not interrupted when respondents
acknowledged their still unfulfilled obligation to initiate proceedings for the registration of title of the subject property and at
the same time committed that they will only claim the full payment of the property upon presentation of a clean title and
execution of a Deed of Sale signed by the heirs as stated in the letter dated August 15, 1984.
B. The Court of Appeals erred in affirming the outright dismissal of petitioner's suit for specific performance, recovery of
possession and damages on the basis of prescription even as it is evident that there is a need to fix a period considering that
the performance of the condition or obligation is dependent upon the will of respondents.
C. The Court of Appeals erred in ignoring certain manifest equitable considerations which militate against a resort to a purely
mathematical computation of the prescriptive period and in disregarding the provision of the irrevocable offer that the option
remains effective for a period of one month from and after notice that a certificate of title has been issued.9
The main issue is whether or not the complaint for specific performance was filed beyond the prescriptive period.chanrobleslaw
Petitioner's Arguments
The petitioner argues that although there is a 10-year limitation within which to file a case based on a written contract, the period was
interrupted due to a written acknowledgment of respondents' obligation and demand by petitioner. The argument is based on Article
1155 of the Civil Code, which provides that the running of the prescriptive period is interrupted when there is a written extrajudicial
demand by the creditors, and when there is any written acknowledgment of the debt by the debtor.
The petitioner referred to the letter sent by Hojilla to the former dated 15 August 1984, and letters given by petitioner to Hojilla dated 29
May 1991, 24 October 1991, and 6 July 1999. In the letter dated 15 August 1984, respondents affirmed their undertaking that they will
claim full payment of the property upon presentation of a clean title and the execution of the Absolute Deed of Sale, which reads, "[t]he
Bañez heirs will only claim for the full payment of the property upon presentation of a clean title and execution of a Deed of Sale signed
by the heirs."10
Based on Hojilla's representation as stated in the letter dated 15 August 1984, petitioner argues that Hojilla is estopped by his own acts
and for misleading petitioner because "respondents not only failed to comply with their commitment to deliver a certificate of title but
where [sic] they also [misled] petitioner into believing that they were working on the title of subject property even as they had[,] at the
back of their mind[s], the running of the statute of limitations as an arsenal once petitioner demands the fulfillment of their obligation."11
The petitioner further added that because there was no period fixed for the fulfillment or performance of the obligation to deliver the
title, the least the court should have done was to fix the period pursuant to Article 1197 of the Civil Code.
Finally, the petitioner posits that pursuant to paragraph 9 of the Contract, its obligation is conditioned upon respondents' obligation,
which is to deliver the title. Thus, because the respondents failed to deliver such, the obligation of petitioner never ripened.chanrobleslaw
Respondents' Arguments
The arguments of respondents, which are aligned with the reasons of the lower courts, rely on Article 1144 of the Civil Code, which
provides that actions upon a written contract must be brought within ten (10) years from execution. Because the complaint was filed
beyond the 10-year prescriptive period, the action was already barred by the Statute of Limitations. Further, during such period,
petitioner failed to act either judicially or extrajudicially to effectively interrupt the running of the prescriptive period. Thus, the complaint
must be dismissed for having been extinguished by the Statute of Limitations.chanrobleslaw
Our Ruling
We rule in favor of the petitioner.
We deem material, for the resolution of the issues in this case, the letters that were exchanged by the parties.
We shall discuss each letter in seriatim.
Hojilla 's letter dated 15 August 1984
In Hojilla's letter to petitioner dated 15 August 1984, Hojilla updated petitioner of the status of the subject property's title, in this wise:
The preparation of the advance survey plan, technical description and Engineer's Certificate pursuant to Land Administrative Order No.
10-4 has been submitted to the Regional Land Office, and approved by the Regional Director.
Atty. Valera is now in the process of preparing the petition papers of the Calaba property for submission to the local court. 12
There is no other logical conclusion but that the 15 August 1984 letter is an acknowledgment of respondents' commitment under the
Contract. The letter served to update petitioner of the status of the subject property's title, an obligation agreed upon by the parties in
the Contract. It would be specious to argue that respondents did not acknowledge the existence of the Contract and yet, send
correspondence to petitioner updating it of the status of the application for title on the subject property. Therefore, the letter dated 15
August 1984 served as a written acknowledgment of debt or obligation of respondents.
In Philippine National Railways v. NLRC,13 it was stated that a written acknowledgment of debt or obligation effectively interrupts the
running of the prescriptive period and sets the same running anew.14Hence, because Hojilla's letter dated 15 August 1984 served as a
written acknowledgement of the respondents' debt or obligation, it interrupted the running of the prescriptive period and set the same
running anew with a new expiry period of 15 August 1994.
Petitioner's letters dated 29 May
1991 and 24 October 1991
With regard to the letters petitioner sent to Hojilla dated 29 May 1991 and 24 October 1991, the RTC ruled that these letters were
insufficient under the law to interrupt the prescriptive period because these were not demand letters. We lift the pertinent portion from
the letter dated 29 May 1991, which demanded respondents to return the properties and to unlock the gates:
Under the agreement to purchase the lot, APT-CRC shall pay the whole of the purchase price thereof when the certificate of title and
other documents enumerated therein are presented to it. Clearly, the consummation of the sale is within your control, x x x
In view of the foregoing, demand is hereby made upon you and your principals, the heirs of Urbano Bañez, to return the properties
withdrawn and to unlock the gates leading to the staffhouses (sic), within fifteen (15) days from receipt thereof, otherwise we will be
constrained to institute the necessary action to protect the interest of APT-CRC.15 (Emphasis and underscoring ours)
In the same vein, the letter dated 24 October 1991 demanded respondents to discontinue the construction, repair, demolition, and
occupancy of several staff houses. A pertinent portion of the 24 October 1991 letter reads:
Considering that these action (sic) are unauthorized, they constitute violations of the irrevocable option to purchase dated December 7,
1981, which remains valid, binding and effective to this day. Demand is hereby made upon you to discontinue such unauthorized acts and
vacate the premises within fifteen (15) days from receipt hereof.16 x x x (Emphasis and underscoring ours)
We do not agree with the lower courts. Clearly, the 29 May 1991 and 24 October 1991 letters demanded respondents to return the
properties, discontinue the construction, repair, demolition and occupancy of several staff houses, and unlock the gates, which is to
enforce respondents' obligations pursuant to paragraph 7 of the Contract which reads:
7. The co-owners hereby confirm their agreement and permission to CRC's entry into, construction of building and improvements, and
occupancy of, any portion of the Property, and hereby accordingly waive any right of action they may have against CRC respecting such
entry, construction, or occupancy by the latter of any Portion of the Property.17
The letters dated 29 May 1991 and 24 October 1991 are deemed demand letters as contemplated under Article 1155. They are demand
letters to enforce respondents' obligation under the Contract, which is to cede possession to petitioner. The letters interrupted the
running of the prescriptive period which commenced to run anew.
Petitioner's letter dated 6 July 1999
Compared to the letters dated 29 May and 24 October 1991, which demanded Hojilla to surrender possession of the subject property, this
time, in petitioner's letter to Hojilla dated 6 July 1999, petitioner demanded Hojilla to produce the title of the subject property. However,
despite the fact that the letter was a clear demand of the nature contemplated by law that would interrupt the prescriptive period, the
Court of Appeals found that (1) the letter did not effectively interrupt the prescriptive period because the complaint had long prescribed;
(2) the letter was addressed to the wrong party; and, finally, (3) the letter did not bear any proof of service or receipt.
We do not agree.
Hojilla's SPA
We refer to the SPA, which granted the authority of Hojilla.
When respondents went abroad pending the performance of their obligations in the Contract, they authorized Hojilla to register the
subject property— a single obligation in the whole range of obligations in the Contract. The SPA appeared to have left no representative
to fulfill respondents' obligations in the Contract on their behalf except for Hojilla's authority to register the subject property. The
pertinent portion of the SPA reads:
1. To take all steps necessary to cause a portion of the lot covered by Tax Declaration No. 40185 in the name of Urbano Baflez which is the
subject of our "Offer to Sell" to Cellophil Resources Corporation containing an area xxx to be brought under the operation of Republic Act
No. 496, as amended, and to cause the issuance in our name of the corresponding original certificate of title.
2. To do all acts and things and to execute all papers and documents of whatever nature or kind required for the accomplishments of the
aforesaid purpose.
HEREBY GRANTING AND GIVING unto our said attorney full power and authority whatsoever requisite or necessary or proper to be done
in or about the premises as fully to all intents and purposes as we might or could lawfully do if personally present (with power of
substitution and revocation), and hereby ratifying and confirming all that our said attorney shall do or cause to be done under and by
virtue of these presents.18 (Emphasis and underscoring ours)
This was read simply by the lower courts as limiting Hojilla's authority to the registration of the subject property under the name of his
principal, and all the necessary acts for such purpose. It observed that nowhere in the SPA was Hojilla authorized as administrator or
agent of respondents with respect to the execution of the Contract.
In the case at bar, the reliefs prayed for by petitioner include the execution of the Contract such as delivery of the subject title, recovery of
possession of the subject property, execution of the deed of sale or transfer of absolute ownership upon full payment of the balance, and
damages for alleged violation of respondents of the Contract for non-delivery of the title and refusal to vacate the subject property.
Indeed, following the reading of the lower courts of the scope of Hojilla's authority, Hojilla is neither the proper party to execute the
Contract nor the proper party to receive the demand letters on behalf of respondents.
This strict construction of the tenor of the SPA will render the obligatory force of the Contract ineffective. Construction is not a tool to
prejudice or commit fraud or to obstruct, but to attain justice. Ea Est Accipienda Interpretatio Quae Vitio Caret. To favor the lower court's
interpretation of the scope of Hojilla's power is to defeat the juridical tie of the Contract—the vinculum juris of the parties. As no one was
authorized to represent respondents in the Contract, then petitioner cannot enforce the Contract, as it were. This is an absurd
interpretation of the SPA. It renders the Contract ineffective for lack of a party to execute the Contract.
Contrary to the findings of the lower court, the present case is a case of an express agency, where, Hojilla, the agent, binds himself to
represent another, the principal, who are herein respondents, with the latter's express consent or authority.19 In a contract of agency, the
agent acts for and in behalf of the principal on matters within the scope of the authority conferred upon him, such that, the acts of the
agent have the same legal effect as if they were personally done by the principal.20 Because there is an express authority granted upon
Hojilla to represent the respondents as evidenced by the SPA, Hojilla's actions bind the respondents.
As agent, the representations and guarantees of Hojilla are considered representations and guarantees of the principal. This is the
principle of agency by promissory estoppel. We refer to the evidence on record. It was Hojilla who administered and/or managed the
subject property.21 Based on Hojilla's letter dated 15 August 1984 to petitioner, Hojilla made the representation that besides being the
attorney-in-fact of the respondents with limited authority to register the property, he was also their agent with regard to respondents'
other obligations related to the Contract. The pertinent portion of the 15 August 1984 letter of Hojilla to petitioner reads:
Regarding our loan with the National Electrification Administration (NEA), Hon. Mel Mathay who is helping the Bafiez heirs has initiated
negotiations with NEA for Abreco to purchase our lot in front of the Provincial Jail to offset our loan with NEA.22
Also, one glaring fact that cannot escape us is Hojilla's representation and guarantee that petitioner's obligation will only arise upon
presentation of a clean title and execution of a Deed of Sale signed by the respondents' heirs, which reads, "[t]he Bañez heirs will only
claim for the full payment of the property upon presentation of a clean title and execution of a Deed of Sale signed by the heirs."23
If Hojilla knew that he had no authority to execute the Contract and receive the letters on behalf of respondents, he should have opposed
petitioner's demand letters. However, having received the several demand letters from petitioner, Hojilla continuously represented
himself as the duly authorized agent of respondents, authorized not only to administer and/or manage the subject property, but also
authorized to register the subject property and represent the respondents with regard to the latter's obligations in the Contract. Hojilla
also assured petitioner that petitioner's obligation to pay will arise only upon presentation of the title.
Clearly, the respondents are estopped by the acts and representations of their agent. Falling squarely in the case at bar is our
pronouncement in Philippine National Bank v. IAC (First Civil Cases Div.),24 "[h]aving given that assurance, [Hojilla] may not turn around
and do the exact opposite of what [he] said [he] would do. One may not take inconsistent positions. A party may not go back on his own
acts and representations to the prejudice of the other party who relied upon them."25cralawred
Assuming further that Hojilla exceeded his authority, the respondents are still solidarity liable because they allowed Hojilla to act as
though he had full powers by impliedly ratifying Hojilia's actions—through action by omission.26 This is the import of the principle of
agency by estoppel or the doctrine of apparent authority.
In an agency by estoppel or apparent authority, "[t]he principal is bound by the acts of his agent with the apparent authority which he
knowingly permits the agent to assume, or which he holds the agent out to the public as possessing."27
The respondents' acquiescence of Hojilla's acts was made when they failed to repudiate the latter's acts. They knowingly permitted Hojilla
to represent them and petitioners were clearly misled into believing Hojilla's authority. Thus, the respondents are now estopped from
repudiating Hojilla's authority, and Hojilla's actions are binding upon the respondents.
Receipt of the Letters
Time and time again, this Court has reiterated it is not a trier of facts and parties may raise only questions of law. The jurisdiction of the
Court is limited to reviewing errors of law and findings of fact of the Court of Appeals are conclusive because it is not the Court's function
to review, examine, and evaluate or weigh the evidence all over again.28 The rule, however, is not without exceptions, viz.:
(1) [W]hen the [conclusion is a finding] grounded entirely on speculations, surmises [and] conjectures;cralawlawlibrary
(2) [W]hen the inference made is manifestly mistaken, absurd or impossible;cralawlawlibrary
(3) [W]hen there is grave abuse of discretion;cralawlawlibrary
(4) [W]hen the judgment is based on a misapprehension of facts;cralawlawlibrary
(5) [W]hen the findings of fact are conflicting;
(6) [W]hen xxx the Court of Appeals[, in making its findings,] went beyond the issues of the case [and the same is] contrary to the
admissions of both the appellant and the appellee;cralawlawlibrary
(7) [W]hen the findings are contrary to [those] of the trial court;
(8) [W]hen the findings [of fact] are conclusions without citation of specific evidence on which they are based;cralawlawlibrary
(9) [W]hen the facts set forth in the petition as well as in the petitioner's main and reply briefs are not disputed by the
respondents;cralawlawlibrary
(10) [w]hen the findings of fact [of the Court of Appeals] are premised on the supposed absence of evidence and contradicted by the
evidence on record and
(11) [When] the Court of Appeals manifestly overlooked certain irrelevant facts not disputed by the parties, which, if properly considered,
would justify a different conclusion.29
In the case at bar, the findings of the RTC and the Court of Appeals are contradictory: the RTC did not make any finding on the receipt of
the demand letters by Hojilla, while the Court of Appeals resolved that assuming arguendo that the letters were demand letters
contemplated under Article 1155 of the Civil Code, the same are unavailing because the letters do not bear any proof of service of receipt
by respondents.
A perusal of the records reveals that only the 24 October 1991 letter has no proof of receipt.30 The demand letters dated 29 May
199131 and 6 July 199932 contain proofs of receipt.
Thus, the core issue of whether or not the action has prescribed.
An action based on a written contract must be brought within ten (10) years from the time the right of action accrued. Accordingly, a
cause of action on a written contract accrues only when an actual breach or violation thereof occurs.33 A cause of action has three
elements, to wit: (1) a right in favor of the plaintiff by whatever means and under whatever law it arises or is created; (2) an obligation on
the part of the named defendant to respect or not to violate such right; and (3) an act or omission on the part of such defendant violative
of the right of the plaintiff or constituting a breach of the obligation of the defendant to the plaintiff.34
By the contract between the herein parties, the cause of action accrued at the point when the reasonable time within which to present
the title lapsed. The parties did not determine the date when the respondents must present the title and other documents to the
petitioner. The parties only agreed that the respondents must present the same within a "reasonable time." Reasonable time means "so
much time as is necessary under the circumstances for a reasonably prudent and diligent man to do, conveniently, what the contract or
duty requires that should be done, having a regard for the rights and possibility of loss, if any, to the other party."35 Such reasonable time
was determined by the respondents through the letter dated 15 August 1984. The respondents acknowledged their obligation to deliver
the title and asked for a new period to do so. It states:
The preparation of the advance survey plan, technical description and Engineer's Certificate pursuant to Land Administrative Order No.
10-4 has been submitted to the Regional Land Office, and approved by the Regional Director.
Arty. Valera is now in the process of preparing the petition papers of the Calaba property for submission to the local court.
xxxx
The Bañez heirs will only claim for the full payment of the property upon presentation of a clean title and execution of a Deed of Sale
signed by the heirs.36
The accrual of the cause of action to demand the titling of the land cannot be earlier than 15 August 1984. So that, the petitioner can sue
on the contract until 15 August 1994. Prior to the expiration of the aforesaid period, the petitioner sent a demand letter to Hojilla dated
29 May 1991. A few months thereafter, petitioner sent another demand letter to Hojilla dated 24 October 1991.37 The prescriptive period
was interrupted on 29 May 1991.
The consequence is stated in Article 1155 of the Civil Code. It states, "[t]he prescription of actions is interrupted when they are filed
before the court, when there is a written extrajudicial demand by the creditors, and when there is any written acknowledgment of the
debt by the debtor."
Following the law, the new ten-year period for the filing of a case by the petitioner should be counted from 29 May 1991, ending on 29
May 2001. The complaint at bar was filed on 10 April 2000, well within the required period.
Notably, before the expiration of the new prescriptive period, the petitioner again sent a new demand letter on 6 July 1999, which again
caused the same to run anew, which will expire on 6 July 2009. The complaint filed on 10 April 2000 was timely.
The Contract and True Intent of the Parties
Based on the stipulation in the Contract, the parties agreed that payment shall be made only upon presentation of the title and other
documents of the subject property to petitioner. Paragraph 8 of the Contract reads:
8. An absolute deed of sale containing the above provisions and standard warranties on conveyances of real property shall be executed by
the co-owners in favor of CRC or its assignee/s and the same delivered to the latter together with the original certificate of title upon
payment of the purchase price less the advances made by CRC in accordance with Paragraphs 2 and 3 above; provided, that payment shall
be made by CRC only upon presentation by the co-owners to CRC of certificate/s and/or clearances, with corresponding receipts, issued
by the appropriate government office/s or agency/ies to the effect that capital gains tax, real estate taxes on the Property and local
transfer tax and other taxes, fees or charges due on the transaction and/or on the Property have been paid.38 (Emphasis and underscoring
ours)
The true intent of the parties is further enunciated in Hojilla's letter to petitioner dated 15 August 1984, which stated, "[t]he Bañez heirs
will only claim for the full payment of the property upon presentation of a clean title and execution of a Deed of Sale signed by the
heirs."39
To rule in favor of respondents despite their failure to perform their obligations is the height of injustice. Respondents cannot benefit
from their own inaction and failure to comply with their obligations in the Contract and let the petitioner suffer from respondents' own
default.
WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals dated 23 August 2005 in CA-G.R. CV No. 70137, affirming the
Order of the Regional Trial Court, which ruled that the action has prescribed, is reversed and set aside. Let the records of this case
be REMANDED to the court of origin, which is DIRECTED to admit the Answer with Counterclaim of the petitioner for further trial on the
merits. The respondents are further ordered to return possession of the subject property to petitioner. No pronouncement as to costs.
SO ORDERED.chanroblesvirtuallawlibrary
CELESTINA T. NAGUIAT, petitioner, vs. COURT OF APPEALS and AURORA QUEAO, 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 1994[1], 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 Queao (Queao) 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.
The operative facts follow:
Queao applied with Naguiat for a loan in the amount of Two Hundred Thousand Pesos (P200,000.00), which Naguiat granted. On 11
August 1980, Naguiat indorsed to Queao Associated Bank Check No. 090990 (dated 11 August 1980) for the amount of Ninety Five
Thousand Pesos (P95,000.00), 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 Queao, also dated 11 August 1980 and for the amount of Ninety Five Thousand Pesos
(P95,000.00). The proceeds of these checks were to constitute the loan granted by Naguiat to Queao.[3]
To secure the loan, Queao executed a Deed of Real Estate Mortgage dated 11 August 1980 in favor of Naguiat, and surrendered to
the latter the owners duplicates of the titles covering the mortgaged properties.[4] On the same day, the mortgage deed was notarized,
and Queao issued to Naguiat a promissory note for the amount of TWO HUNDRED THOUSAND PESOS (P200,000.00), with interest at 12%
per annum, payable on 11 September 1980.[5] Queao also issued a Security Bank and Trust Company check, postdated 11 September
1980, for the amount of TWO HUNDRED THOUSAND PESOS (P200,000.00) 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, Queao 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, Queao received a letter from Naguiats lawyer, demanding settlement of the loan. Shortly thereafter, Queao
and one Ruby Ruebenfeldt (Ruebenfeldt) met with Naguiat. At the meeting, Queao told Naguiat that she did not receive the proceeds of
the loan, adding that the checks were retained by Ruebenfeldt, who purportedly was Naguiats 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, Queao 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 Queao the owners 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 Queao 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 raised[12] 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
Naguiats 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 Queao 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 Queao 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 Queaos account.
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 Queao the checks she issued or indorsed to Queao, pending delivery by the latter of additional
collateral. Ruebenfeldt served as agent of Naguiat on the loan application of Queaos friend, Marilou Farralese, and it was in connection
with that transaction that Queao came to know Naguiat.[23] It was also Ruebenfeldt who accompanied Queao in her meeting with Naguiat
and on that occasion, on her own and without Queao asking for it, Reubenfeldt actually drew a check for the sum of P220,000.00 payable
to Naguiat, to cover for Queaos alleged liability to Naguiat under the loan agreement.[24]
Yun Kwan Byung (petitioner) filed this Petition for Review[1]assailing the Court of Appeals Decision[2]dated 27 May 2003 in CA-G.R. CV No.
[25] [26]
The Court of Appeals recognized the existence of an agency by estoppel citing Article 1873 of the Civil Code. Apparently, it 65699 as well as the Resolution[3]dated 7 May 2004 denying the Motion for Reconsideration. In the assailed decision, the Court of Appeals
considered that at the very least, as a consequence of the interaction between Naguiat and Ruebenfeldt, Queao got the impression that (CA) affirmed the Regional Trial Courts Decision[4]dated6 May 1999. The Regional Trial Court of Manila, Branch 13 (trial court), dismissed
Ruebenfeldt was the agent of Naguiat, but Naguiat did nothing to correct Queaos impression. In that situation, the rule is clear. One who petitioners demand against respondent Philippine Amusement and Gaming Corporation (PAGCOR) for the redemption of gambling chips.
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 The Facts
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.
PAGCOR is a government-owned and controlled corporation tasked to establish and operate gambling clubs and casinos as a means to
More fundamentally, whatever was the true relationship between Naguiat and Ruebenfeldt is irrelevant in the face of the fact that promote tourism and generate sources of revenue for the government. To achieve these objectives, PAGCOR is vested with the power to
the checks issued or indorsed to Queao were never encashed or deposited to her account of Naguiat. enter into contracts of every kind and for any lawful purpose that pertains to its business. Pursuant to this authority, PAGCOR launched its
Foreign Highroller Marketing Program (Program). The Program aims to invite patrons from foreign countries to play at the dollar pit of
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 designated PAGCOR-operated casinos under specified terms and conditions and in accordance with industry practice.[5]
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 The Korean-based ABS Corporation was one of the international groups that availed of the Program. In a letter-agreement dated 25 April
which it cannot exist as an independent contract.[28] A mortgage contract being a mere accessory contract, its validity would depend on 1996 (Junket Agreement), ABS Corporation agreed to bring in foreign players to play at the five designated gaming tables of the Casino
the validity of the loan secured by it.[29] Filipino Silahis at the Grand Boulevard Hotel in Manila (Casino Filipino). The relevant stipulations of the Junket Agreement state:
WHEREFORE, the petition is denied and the assailed decision is affirmed. Costs against petitioner.
1. PAGCOR will provide ABS Corporation with separate junket chips. The junket
SO ORDERED. chips will be distinguished from the chips being used by other players in the gaming tables.
ABS Corporation will distribute these junket chips to its players and at the end of the playing period, ABS Corporation will collect the
junket chips from its players and make an accounting to the casino treasury.
2. ABS Corporation will assume sole responsibility to pay the winnings of its foreign
YUN KWAN BYUNG, G.R. No. 163553 players and settle the collectibles from losing players.
Petitioner, 3. ABS Corporation shall hold PAGCOR absolutely free and harmless from any
Present: damage, claim or liability which may arise from any cause in connection with the Junket Agreement.
5. In providing the gaming facilities and services to these foreign players, PAGCOR is entitled to receive from ABS
CARPIO, J., Chairperson, Corporation a 12.5% share in the gross winnings of ABS Corporation or 1.5 million US dollars, whichever
CARPIO MORALES,* is higher, over a playing period of 6 months. PAGCOR has the option to extend the period.[6]
- versus - LEONARDO-DE CASTRO,**
DEL CASTILLO, and Petitioner, a Korean national, alleges that from November 1996 to March 1997, he came to the Philippines four times to play for high
ABAD, JJ. stakes at the Casino Filipino.[7]Petitioner claims that in the course of the games, he was able to accumulate gambling chips worth US$2.1
million. Petitioner presented as evidence during the trial gambling chips with a face value of US$1.1 million. Petitioner contends that
PHILIPPINE AMUSEMENT AND GAMING CORPORATION, when he presented the gambling chips for encashment with PAGCORs employees or agents, PAGCOR refused to redeem them.[8]
Respondent. Promulgated:
Petitioner brought an action against PAGCOR seeking the redemption of gambling chips valued at US$2.1 million. Petitioner claims that he
December 11, 2009 won the gambling chips at the Casino Filipino, playing continuously day and night. Petitioner alleges that every time he would come to
Manila, PAGCOR would extend to him amenities deserving of a high roller. A PAGCOR official who meets him at the airport would bring
him to Casino Filipino, a casino managed and operated by PAGCOR. The card dealers were all PAGCOR employees, the gambling chips,
equipment and furnitures belonged to PAGCOR, and PAGCOR enforced all the regulations dealing with the operation of foreign exchange
gambling pits. Petitioner states that he was able to redeem his gambling chips with the cashier during his first few winning trips. But later
on, the casino cashier refused to encash his gambling chips so he had no recourse but to deposit his gambling chips at the Grand
Boulevard Hotels deposit box, every time he departed from Manila.[9]

PAGCOR claims that petitioner, who was brought into the Philippines by ABS Corporation, is a junket player who played in the dollar pit
x---------------------------------------------------x exclusively leased by ABS Corporation for its junket players. PAGCOR alleges that it provided ABS Corporation with distinct junket chips.
ABS Corporation distributed these chips to its junket players. At the end of each playing period, the junket players would surrender the
chips to ABS Corporation. Only ABS Corporation would make an accounting of these chips to PAGCORs casino treasury.[10]
DECISION
As additional information for the junket players playing in the gaming room leased to ABS Corporation, PAGCOR posted a notice written in
CARPIO, J.: English and Korean languages which reads:

NOTICE
The Case
 This GAMING ROOM is exclusively operated by ABS under arrangement with PAGCOR, the former is solely
accountable for all PLAYING CHIPS wagered on the tables. Any financialARRANGEMENT/TRANSACTION between
PLAYERS and ABS shall only be binding upon said PLAYERS and ABS.[11]
PAGCOR claims that this notice is a standard precautionary measure[12]to avoid confusion between junket players of ABS Corporation and
PAGCORs players.
PAGCOR argues that petitioner is not a PAGCOR player because under PAGCORs gaming rules, gambling chips cannot be brought outside
the casino. The gambling chips must be converted to cash at the end of every gaming period as they are inventoried every shift. Under
PAGCORs rules, it is impossible for PAGCOR players to accumulate two million dollars worth of gambling chips and to bring the chips out
of the casino premises.[13]
Since PAGCOR disclaimed liability for the winnings of players recruited by ABS Corporation and refused to encash the gambling chips,
petitioner filed a complaint for a sum of money before the trial court.[14]PAGCOR filed a counterclaim against petitioner. Then, trial
ensued.
On 6 May 1999, the trial court dismissed the complaint and counterclaim. Petitioner appealed the trial courts decision to the CA. On 27
May 2003, the CA affirmed the appealed decision. On 27 June 2003, petitioner moved for reconsideration which was denied on 7 May
2004.
Aggrieved by the CAs decision and resolution, petitioner elevated the case before this Court.
The Ruling of the Trial Court
[15]
The trial court ruled that based on PAGCORs charter, PAGCOR has no authority to lease any portion of the gambling tables to a private
party like ABS Corporation. Section 13 of Presidential Decree No. 1869 or the PAGCORs charter states:
Sec. 13. Exemptions -
xxx
(4) Utilization of Foreign Currencies The Corporation shall have the right and authority,
solely and exclusively in connection with the operations of the casino(s), to purchase, receive, exchange
and disburse foreign exchange, subject to the following terms and conditions:
(a) A specific area in the casino(s) or gaming pit shall be put up solely and exclusively for players and
patrons utilizing foreign currencies;
(b) The Corporation shall appoint and designate a duly accredited commercial bank agent of the Central Bank, to handle, administer and
manage the use of foreign currencies in the casino(s);
(c) The Corporation shall provide an office at casino(s) exclusively for the employees of the designated bank, agent of the Central Bank,
where the Corporation shall maintain a dollar account which will be utilized exclusively for the above purpose and the casino dollar
treasury employees;
(d) Only persons with foreign passports or certificates of identity (for Hong Kong patron only) duly issued by the government or country of
their residence will be allowed to play in the foreign exchange gaming pit;
(e) Only foreign exchange prescribed to form part of the Philippine International Reserve and the following foreign exchange currencies:
Australian Dollar, Singapore Dollar, Hong Kong Dollar, shall be used in this gaming pit;
(f) The disbursement, administration, management and recording of foreign exchange currencies used in the casino(s) shall be carried out
in accordance with existing foreign exchange regulations, and periodical reports of the transactions in such foreign exchange currencies by
the Corporation shall be duly recorded and reported to the Central Bank thru the designated Agent Bank; and
(g) The Corporation shall issue the necessary rules and regulations for the guidance and information of players qualified to participate in
the foreign exchange gaming pit, in order to make certain that the terms and conditions as above set forth are strictly complied with.
The trial court held that only PAGCOR could use foreign currency in its gaming tables. When PAGCOR accepted only a fixed portion of the
dollar earnings of ABS Corporation in the concept of a lease of facilities, PAGCOR shared its franchise with ABS Corporation in violation of
the PAGCORs charter. Hence, the Junket Agreement is void. Since the Junket Agreement is not permitted by PAGCORs charter, the mutual
rights and obligations of the parties to this case would be resolved based on agency and estoppel.[16]
The trial court found that the petitioner wanted to redeem gambling chips that were specifically used by ABS Corporation at its gaming
tables. The gambling chips come in distinctive orange or yellow colors with stickers bearing denominations of 10,000 or 1,000. The 1,000
gambling chips are smaller in size and the words no cash value marked on them. The 10,000 gambling chips do not reflect the no cash
value sign. The senior treasury head of PAGCOR testified that these were the gambling chips used by the previous junket operators and
PAGCOR merely continued using them. However, the gambling chips used in the regular casino games were of a different quality.[17]
The trial court pointed out that PAGCOR had taken steps to warn players brought in by all junket operators, including ABS Corporation,
that they were playing under special rules. Apart from the different kinds of gambling chips used, the junket players were confined to
certain gaming rooms. In these rooms, notices were posted that gambling chips could only be encashed there and nowhere else. A
photograph of one such notice, printed in Korean and English, stated that the gaming room was exclusively operated by ABS Corporation
and that ABS Corporation was solely accountable for all the chips wagered on the gaming tables. Although petitioner denied seeing this
notice, this disclaimer has the effect of a negative evidence that can hardly prevail against the positive assertions of PAGCOR officials
whose credibility is also not open to doubt. The trial court concluded that petitioner had been alerted to the existence of these special
gambling rules, and the mere fact that he continued to play under the same restrictions over a period of several months confirms his
acquiescence to them. Otherwise, petitioner could have simply chose to stop gambling.[18]
In dismissing petitioners complaint, the trial court concluded that petitioners demand against PAGCOR for the redemption of the gambling
chips could not stand. The trial court stated that petitioner, a stranger to the agreement between PAGCOR and ABS Corporation, could
not under principles of equity be charged with notice other than of the apparent authority with which PAGCOR had clothed its employees
and agents in dealing with petitioner. Since petitioner was made aware of the special rules by which he was playing at the Casino Filipino,
petitioner could not now claim that he was not bound by them. The trial court explained that in an unlawful transaction, the courts will
extend equitable relief only to a party who was unaware of all its dimensions and whose ignorance of them exposed him to the risk of
being exploited by the other. Where the parties enter into such a relationship with the opportunity to know all of its ramifications, as in
this case, there is no room for equitable considerations to come to the rescue of any party. The trial court ruled that it would leave the
parties where they are.[19]
The Ruling of the Court of Appeals
In dismissing the appeal, the appellate court addressed the four errors assigned by petitioner.
First, petitioner maintains that he was never a junket player of ABS Corporation. Petitioner also denies seeing a notice that certain gaming
rooms were exclusively operated by entities under special agreement.[20]
The CA ruled that the records do not support petitioners theory. Petitioners own testimony reveals that he enjoyed special
accommodations at the Grand Boulevard Hotel. This similar accommodation was extended to players brought in by ABS Corporation and
other junket operators. Petitioner cannot disassociate himself from ABS Corporation for it is unlikely that an unknown high roller would be
accorded choice accommodations by the hotel unless the accommodation was facilitated by a junket operator who enjoyed such
privilege.[21]
The CA added that the testimonies of PAGCORs employees affirming that notices were posted in English and Korean in the gaming areas
are credible in the absence of any convincing proof of ill motive. Further, the specified gaming areas used only special chips that could be
bought and exchanged at certain cashier booths in that area.[22]
Second, petitioner attacks the validity of the contents of the notice. Since the Junket Agreement is void, the notice, which was issued
pursuant to the Junket Agreement, is also void and cannot affect petitioner.[23]
The CA reasoned that the trial court never declared the notice valid and neither did it enforce the contents thereof. The CA emphasized
that it was the act of cautioning and alerting the players that was upheld. The trial court ruled that signs and warnings were in place to
inform the public, petitioner included, that special rules applied to certain gaming areas even if the very agreement giving rise to these
rules is void.[24]
Third, petitioner takes the position that an implied agency existed between PAGCOR and ABS Corporation.[25]
The CA disagreed with petitioners view. A void contract has no force and effect from the very beginning. It produces no effect either
against or in favor of anyone. Neither can it create, modify or extinguish the juridical relation to which it refers. Necessarily, the Junket
Agreement, being void from the beginning, cannot give rise to an implied agency. The CA explained that it cannot see how the principle of
implied agency can be applied to this case. Article 1883[26]of the Civil Code applies only to a situation where the agent is authorized by the
principal to enter into a particular transaction, but instead of contracting on behalf of the principal, the agent acts in his own name.[27]
The CA concluded that no such legal fiction existed between PAGCOR and ABS Corporation. PAGCOR entered into a Junket Agreement to
lease to ABS Corporation certain gaming areas. It was never PAGCORs intention to deal with the junket players. Neither did PAGCOR
intend ABS Corporation to represent PAGCOR in dealing with the junket players. Representation is the basis of agency but unfortunately
for petitioner none is found in this case.[28]
The CA added that the special gaming chips, while belonging to PAGCOR, are mere accessories in the void Junket Agreement with ABS
Corporation. In Article 1883, the phrase things belonging to the principal refers only to those things or properties subject of a particular
transaction authorized by the principal to be entered into by its purported agent. Necessarily, the gambling chips being mere incidents to
the void lease agreement cannot fall under this category.[29]
The CA ruled that Article 2152[30]of the Civil Code is also not applicable. The circumstances relating to negotiorum gestio are non-existent
to warrant an officious manager to take over the management and administration of PAGCOR.[31]
Fourth, petitioner asks for equitable relief.[32]
The CA explained that although petitioner was never a party to the void Junket Agreement, petitioner cannot deny or feign blindness to
the signs and warnings all around him. The notices, the special gambling chips, and the separate gaming areas were more than enough to
alert him that he was playing under different terms. Petitioner persisted and continued to play in the casino. Petitioner also enjoyed the
perks extended to junket players of ABS Corporation. For failing to heed these signs and warnings, petitioner can no longer be permitted
to claim equitable relief. When parties do not come to court with clean hands, they cannot be allowed to profit from their own wrong
doing.[33]
The Issues
Petitioners raise three issues in this petition:
1. Whether the CA erred in holding that PAGCOR is not liable to petitioner, disregarding the doctrine of implied agency, or
agency by estoppel;
2. Whether the CA erred in using intent of the contracting parties as the test for creation of agency, when such is not
relevant since the instant case involves liability of the presumed principal in implied agency to a third party; and
3. Whether the CA erred in failing to consider that PAGCOR ratified, or at least adopted, the acts of the agent, ABS
Corporation.[34]
The Ruling of the Court
The petition lacks merit.
Courts will not enforce debts arising from illegal gambling
Gambling is prohibited by the laws of the Philippines as specifically provided in Articles 195 to 199 of the Revised Penal Code, as amended.
Gambling is an act beyond the pale of good morals,[35]and is thus prohibited and punished to repress an evil that undermines the social,
moral, and economic growth of the nation.[36] Presidential Decree No. 1602 (PD 1602),[37]which modified Articles 195-199 of the Revised
Penal Code and repealed inconsistent provisions,[38]prescribed stiffer penalties on illegal gambling.[39]
As a rule, all forms of gambling are illegal. The only form of gambling allowed by law is that stipulated under Presidential Decree No. 1869,
which gave PAGCOR its franchise to maintain and operate gambling casinos. The issue then turns on whether PAGCOR can validly share its
franchise with junket operators to operate gambling casinos in the country. Section 3(h) of PAGCORs charter states:
Section 3. Corporate Powers. - The Corporation shall have the following powers and functions, among others:
xxx
h) to enter into, make, perform, and carry out contracts of every kind and for any lawful purpose pertaining to the
business of the Corporation, or in any manner incident thereto, as principal, agent or otherwise, with any person,
firm, association, or corporation.
xxx
The Junket Agreement would be valid if under Section 3(h) of PAGCORs charter, PAGCOR could share its gambling franchise
with another entity. In Senator Jaworski v. Phil. Amusement and Gaming Corp.,[40]the Court discussed the extent of the grant of the
legislative franchise to PAGCOR on its authority to operate gambling casinos:
A legislative franchise is a special privilege granted by the state to corporations. It is a privilege of public
concern which cannot be exercised at will and pleasure, but should be reserved for public control and
administration, either by the government directly, or by public agents, under such conditions and regulations as the
government may impose on them in the interest of the public. It is Congress that prescribes the conditions on which
the grant of the franchise may be made. Thus the manner of granting the franchise, to whom it may be granted, the
mode of conducting the business, the charter and the quality of the service to be rendered and the duty of the
grantee to the public in exercising the franchise are almost always defined in clear and unequivocal language.
After a circumspect consideration of the foregoing discussion and the contending positions of the parties, we
hold that PAGCOR has acted beyond the limits of its authority when it passed on or shared its franchise to SAGE.
In the Del Mar case where a similar issue was raised when PAGCOR entered into a joint venture agreement
with two other entities in the operation and management of jai alai games, the Court, in an En Banc Resolution
dated 24 August 2001, partially granted the motions for clarification filed by respondents therein insofar as it
prayed that PAGCOR has a valid franchise, but only by itself (i.e. not in association with any other person or entity),
to operate, maintain and/or manage the game of jai-alai.
In the case at bar, PAGCOR executed an agreement with SAGE whereby the former grants the latter the
authority to operate and maintain sports betting stations and Internet gaming operations. In essence, the grant of
authority gives SAGE the privilege to actively participate, partake and share PAGCORs franchise to operate a
gambling activity. The grant of franchise is a special privilege that constitutes a right and a duty to be performed by
the grantee. The grantee must not perform its activities arbitrarily and whimsically but must abide by the limits set
by its franchise and strictly adhere to its terms and conditionalities. A corporation as a creature of the State is
presumed to exist for the common good. Hence, the special privileges and franchises it receives are subject to the
laws of the State and the limitations of its charter. There is therefore a reserved right of the State to inquire how
these privileges had been employed, and whether they have been abused. (Emphasis supplied)
 THUS, PAGCOR HAS THE SOLE AND EXCLUSIVE AUTHORITY TO OPERATE A GAMBLING ACTIVITY. WHILE PAGCOR IS ALLOWED
UNDER ITS CHARTER TO ENTER INTO OPERATORS OR MANAGEMENT CONTRACTS, PAGCOR IS NOT ALLOWED UNDER THE SAME CHARTER
TO RELINQUISH OR SHARE ITS FRANCHISE. PAGCOR CANNOT DELEGATE ITS POWER IN VIEW OF THE LEGAL PRINCIPLE OF DELEGATA
POTESTAS DELEGARE NON POTEST, INASMUCH AS THERE IS NOTHING IN THE CHARTER TO SHOW THAT IT HAS BEEN EXPRESSLY
AUTHORIZED TO DO SO.[41]
Similarly, in this case, PAGCOR, by taking only a percentage of the earnings of ABS Corporation from its foreign currency
collection, allowed ABS Corporation to operate gaming tables in the dollar pit. The Junket Agreement is in direct violation of PAGCORs
charter and is therefore void.
Since the Junket Agreement violates PAGCORs charter, gambling between the junket player and the junket operator under
such agreement is illegal and may not be enforced by the courts. Article 2014[42]of the Civil Code, which refers to illegal gambling, states
that no action can be maintained by the winner for the collection of what he has won in a game of chance.
Although not raised as an issue by petitioner, we deem it necessary to discuss the applicability of Republic Act No. 9487 [43](RA
9487) to the present case.
RA 9487 amended the PAGCOR charter, granting PAGCOR the power to enter into special agreement with third parties to share
the privileges under its franchise for the operation of gambling casinos:
Thus, petitioner cannot avail of the provisions of RA 9487 as this was not the law when the acts giving rise to the claimed
liabilities took place. This makes the gambling activity participated in by petitioner illegal. Petitioner cannot sue PAGCOR to redeem the
cash value of the gambling chips or recover damages arising from an illegal activity for two reasons. First, petitioner engaged in gambling
with ABS Corporation and not with PAGCOR. Second, the court cannot assist petitioner in enforcing an illegal act. Moreover, for a court to
grant petitioners prayer would mean enforcing the Junket Agreement, which is void.
Now, to address the issues raised by petitioner in his petition, petitioner claims that he is a third party proceeding against the liability of a
presumed principal and claims relief, alternatively, on the basis of implied agency or agency by estoppel.
Article 1869 of the Civil Code states that implied agency is derived from the acts of the principal, from his silence or lack of
action, or his failure to repudiate the agency, knowing that another person is acting on his behalf without authority. Implied agency, being
an actual agency, is a fact to be proved by deductions or inferences from other facts.[47]
On the other hand, apparent authority is based on estoppel and can arise from two instances. First, the principal may knowingly permit
the agent to hold himself out as having such authority, and the principal becomes estopped to claim that the agent does not have such
authority. Second, the principal may clothe the agent with the indicia of authority as to lead a reasonably prudent person to believe that
the agent actually has such authority.[48]In an agency by estoppel, there is no agency at all, but the one assuming to act as agent has
apparent or ostensible, although not real, authority to represent another.[49]

Section 1. The Philippine Amusement and

Gaming Corporation (PAGCOR) franchise granted under Presidential Decree No. 1869 otherwise known as the
PAGCOR Charter, is hereby further amended to read as follows: The law makes no presumption of agency and proving its existence, nature and extent is incumbent upon the person alleging
it.[50]Whether or not an agency has been created is a question to be determined by the fact that one represents and is acting for
XXX another. [51]
(2) SECTION 3(H) IS HEREBY AMENDED TO READ AS FOLLOWS:
SEC. 3. CORPORATE POWERS. -
Acts and conduct of PAGCOR negates the existence of an implied agency or an agency by estoppel
xxx
Petitioner alleges that there is an implied agency. Alternatively, petitioner claims that even assuming that no actual agency existed
(h) to enter into, make, conclude, perform, and carry out contracts of every kind between PAGCOR and ABS Corporation, there is still an agency by estoppel based on the acts and conduct of PAGCOR showing apparent
and nature and for any lawful purpose which are necessary, appropriate, proper authority in favor of ABS Corporation. Petitioner states that one factor which distinguishes agency from other legal precepts is control and
or incidental to any business or purpose of the PAGCOR, including but not limited the following undisputed facts show a relationship of implied agency:
to investment agreements, joint venture agreements, management agreements,
agency agreements, whether as principal or as an agent, manpower supply
agreements, or any other similar agreements or arrangements with any person, 1. Three floors of the Grand Boulevard Hotel[52]were leased to PAGCOR for conducting gambling operations;[53]
firm, association or corporation. (Boldfacing supplied)
2. Of the three floors, PAGCOR allowed ABS Corporation to use one whole floor for foreign exchange gambling, conducted by PAGCOR
dealers using PAGCOR facilities, operated by PAGCOR employees and using PAGCOR chips bearing the PAGCOR logo;[54]
PAGCOR sought the amendment of its charter precisely to address and remedy the legal impediment raised in Senator Jaworski v. Phil.
3. PAGCOR controlled the release, withdrawal and return of all the gambling chips given to ABS Corporation in that
Amusement and Gaming Corp.
part of the casino and at the end of the day, PAGCOR conducted an inventory of the gambling chips;[55]
Unfortunately for petitioner, RA 9487 cannot be applied to the present case. The Junket Agreement was entered into between
4. ABS Corporation accounted for all gambling chips with the Commission on Audit (COA), the official auditor of
PAGCOR and ABS Corporation on 25 April 1996 when the PAGCOR charter then prevailing (PD 1869) prohibited PAGCOR from entering
PAGCOR;[56]
into any arrangement with a third party that would allow such party to actively participate in the casino operations.
5. PAGCOR enforced, through its own manager, all the rules and regulations on the operation of the gambling pit
used by ABS Corporation.[57]
It is a basic principle that laws should only be applied prospectively unless the legislative intent to give them retroactive effect
is expressly declared or is necessarily implied from the language used.[44]RA 9487 does not provide for any retroactivity of its provisions.
All laws operate prospectively absent a clear contrary language in the text,[45]and that in every case of doubt, the doubt will be resolved
against the retroactive operation of laws.[46]
Petitioners argument is clearly misplaced. The basis for agency is representation,[58]that is, the agent acts for and on behalf of the principal
on matters within the scope of his authority and said acts have the same legal effect as if they were personally executed by the
principal.[59]On the part of the principal, there must be an actual intention to appoint or an intention naturally inferable from his words or
actions, while on the part of the agent, there must be an intention to accept the appointment and act on it. [60]Absent such mutual intent,
there is generally no agency.[61]
There is no implied agency in this case because PAGCOR did not hold out to the public as the principal of ABS Corporation.
PAGCORs actions did not mislead the public into believing that an agency can be implied from the arrangement with the junket operators,
nor did it hold out ABS Corporation with any apparent authority to represent it in any capacity. The Junket Agreement was merely a
contract of lease of facilities and services.
The players brought in by ABS Corporation were covered by a different set of rules in acquiring and encashing chips. The
players used a different kind of chip than what was used in the regular gaming areas of PAGCOR, and that such junket players played
specifically only in the third floor area and did not mingle with the regular patrons of PAGCOR. Furthermore, PAGCOR, in posting notices
stating that the players are playing under special rules, exercised the necessary precaution to warn the gaming public that no agency
relationship exists.
For the second assigned error, petitioner claims that the intention of the parties cannot apply to him as he is not a party to the
contract.
We disagree. The Court of Appeals correctly used the intent of the contracting parties in determining whether an agency by
estoppel existed in this case. An agency by estoppel, which is similar to the doctrine of apparent authority requires proof of reliance upon
the representations, and that, in turn, needs proof that the representations predated the action taken in reliance.[62]
There can be no apparent authority of an agent without acts or conduct on the part of the principal and such acts or conduct of
the principal must have been known and relied upon in good faith and as a result of the exercise of reasonable prudence by a third person
as claimant, and such must have produced a change of position to its detriment.[63]Such proof is lacking in this case.
In the entire duration that petitioner played in Casino Filipino, he was dealing only with ABS Corporation, and availing of the
privileges extended only to players brought in by ABS Corporation. The facts that he enjoyed special treatment upon his arrival in Manila
and special accommodations in Grand Boulevard Hotel, and that he was playing in special gaming rooms are all indications that petitioner
cannot claim good faith that he believed he was dealing with PAGCOR. Petitioner cannot be considered as an innocent third party and he
cannot claim entitlement to equitable relief as well.
For his third and final assigned error, petitioner asserts that PAGCOR ratified the acts of ABS Corporation.
The trial court has declared, and we affirm, that the Junket Agreement is void. A void or inexistent contract is one which has no
force and effect from the very beginning. Hence, it is as if it has never been entered into and cannot be validated either by the passage of
time or by ratification.[64]Article 1409 of the Civil Code provides that contracts expressly prohibited or declared void by law, such as
gambling contracts, cannot be ratified.[65]
WHEREFORE, we DENY the petition. We AFFIRM the Court of Appeals Decision dated 27 May 2003 as well as the Resolution dated 7 May
2004 as modified by this Decision.
SO ORDERED.
FORMAL REQUIREMENTS OF AGENCY
G.R. No. 187769 June 4, 2014
ALVIN PATRIMONIO, Petitioner,
vs.
NAPOLEON GUTIERREZ and OCTAVIO MARASIGAN III, Respondents.
DECISION
BRION, J.:
Assailed in this petition for review on certiorari1 under Rule 45 of the Revised Rules of Court is the decision2 dated September 24, 2008
and the resolution3 dated April 30, 2009 of the Court of Appeals (CA) in CA-G.R. CV No. 82301. The appellate court affirmed the decision of
the Regional Trial Court (RTC) of Quezon City, Branch 77, dismissing the complaint for declaration of nullity of loan filed by petitioner Alvin
Patrimonio and ordering him to pay respondent Octavio Marasigan III (Marasigan) the sum of ₱200,000.00.
The Factual Background
The facts of the case, as shown by the records, are briefly summarized below.
The petitioner and the respondent Napoleon Gutierrez (Gutierrez) entered into a business venture under the name of Slam Dunk
Corporation (Slum Dunk), a production outfit that produced mini-concerts and shows related to basketball. Petitioner was already then a
decorated professional basketball player while Gutierrez was a well-known sports columnist.
In the course of their business, the petitioner pre-signed several checks to answer for the expenses of Slam Dunk. Although signed, these
checks had no payee’s name, date or amount. The blank checks were entrusted to Gutierrez with the specific instruction not to fill them
out without previous notification to and approval by the petitioner. According to petitioner, the arrangement was made so that he could
verify the validity of the payment and make the proper arrangements to fund the account.
In the middle of 1993, without the petitioner’s knowledge and consent, Gutierrez went to Marasigan (the petitioner’s former teammate),
to secure a loan in the amount of ₱200,000.00 on the excuse that the petitioner needed the money for the construction of his house. In
addition to the payment of the principal, Gutierrez assured Marasigan that he would be paid an interest of 5% per month from March to
May 1994.
After much contemplation and taking into account his relationship with the petitioner and Gutierrez, Marasigan acceded to Gutierrez’
request and gave him ₱200,000.00 sometime in February 1994. Gutierrez simultaneously delivered to Marasigan one of the blank checks
the petitioner pre-signed with Pilipinas Bank, Greenhills Branch, Check No. 21001764 with the blank portions filled out with the words
"Cash" "Two Hundred Thousand Pesos Only", and the amount of "₱200,000.00". The upper right portion of the check corresponding to
the date was also filled out with the words "May 23, 1994" but the petitioner contended that the same was not written by Gutierrez.
On May 24, 1994, Marasigan deposited the check but it was dishonored for the reason "ACCOUNT CLOSED." It was later revealed that
petitioner’s account with the bank had been closed since May 28, 1993.
Marasigan sought recovery from Gutierrez, to no avail. He thereafter sent several demand letters to the petitioner asking for the payment Reduced to its basics, the case presents to us the following issues:
of ₱200,000.00, but his demands likewise went unheeded. Consequently, he filed a criminal case for violation of B.P. 22 against the
petitioner, docketed as Criminal Case No. 42816.
1. Whether the contract of loan in the amount of ₱200,000.00 granted by respondent Marasigan to petitioner, through
respondent Gutierrez, may be nullified for being void;
On September 10, 1997, the petitioner filed before the Regional Trial Court (RTC) a Complaint for Declaration of Nullity of Loan and
Recovery of Damages against Gutierrez and co-respondent Marasigan. He completely denied authorizing the loan or the check’s
2. Whether there is basis to hold the petitioner liable for the payment of the ₱200,000.00 loan;
negotiation, and asserted that he was not privy to the parties’ loan agreement.

3. Whether respondent Gutierrez has completely filled out the subject check strictly under the authority given by the
Only Marasigan filed his answer to the complaint. In the RTC’s order dated December 22, 1997,Gutierrez was declared in default.
petitioner; and

The Ruling of the RTC

4. Whether Marasigan is a holder in due course.

The RTC ruled on February 3,2003 in favor of Marasigan.4 It found that the petitioner, in issuing the pre-signed blank checks, had the
intention of issuing a negotiable instrument, albeit with specific instructions to Gutierrez not to negotiate or issue the check without his
approval. While under Section 14 of the Negotiable Instruments Law Gutierrez had the prima facie authority to complete the checks by
filling up the blanks therein, the RTC ruled that he deliberately violated petitioner’s specific instructions and took advantage of the trust
reposed in him by the latter.
Nonetheless, the RTC declared Marasigan as a holder in due course and accordingly dismissed the petitioner’s complaint for declaration of
nullity of the loan. It ordered the petitioner to pay Marasigan the face value of the check with a right to claim reimbursement from
Gutierrez.
The petitioner elevated the case to the Court of Appeals (CA), insisting that Marasigan is not a holder in due course. He contended that
when Marasigan received the check, he knew that the same was without a date, and hence, incomplete. He also alleged that the loan was
actually between Marasigan and Gutierrez with his check being used only as a security.
The Ruling of the CA
The Court’s Ruling
The petition is impressed with merit.
We note at the outset that the issues raised in this petition are essentially factual in nature. The main point of inquiry of whether the
contract of loan may be nullified, hinges on the very existence of the contract of loan – a question that, as presented, is essentially, one of
fact. Whether the petitioner authorized the borrowing; whether Gutierrez completely filled out the subject check strictly under the
petitioner’s authority; and whether Marasigan is a holder in due course are also questions of fact, that, as a general rule, are beyond the
scope of a Rule 45 petition.
The rule that questions of fact are not the proper subject of an appeal by certiorari, as a petition for review under Rule 45 is limited only
to questions of law, is not an absolute rule that admits of no exceptions. One notable exception is when the findings off act of both the
trial court and the CA are conflicting, making their review necessary.5 In the present case, the tribunals below arrived at two conflicting
factual findings, albeit with the same conclusion, i.e., dismissal of the complaint for nullity of the loan. Accordingly, we will examine the
parties’ evidence presented.

On September 24, 2008, the CA affirmed the RTC ruling, although premised on different factual findings. After careful analysis, the CA
I. Liability Under the Contract of Loan
agreed with the petitioner that Marasigan is not a holder in due course as he did not receive the check in good faith.

The petitioner seeks to nullify the contract of loan on the ground that he never authorized the borrowing of money. He points to Article
The CA also concluded that the check had been strictly filled out by Gutierrez in accordance with the petitioner’s authority. It held that the
1878, paragraph 7 of the Civil Code, which explicitly requires a written authority when the loan is contracted through an agent. The
loan may not be nullified since it is grounded on an obligation arising from law and ruled that the petitioner is still liable to pay Marasigan
petitioner contends that absent such authority in writing, he should not be held liable for the face value of the check because he was not a
the sum of ₱200,000.00.
party or privy to the agreement.

After the CA denied the subsequent motion for reconsideration that followed, the petitioner filed the present petition for review on
Contracts of Agency May be Oral Unless The Law Requires a Specific Form
certiorari under Rule 45 of the Revised Rules of Court.

Article 1868 of the Civil Code defines a contract of agency as a contract whereby a person "binds himself to render some service or to do
The Petition
something in representation or on behalf of another, with the consent or authority of the latter." Agency may be express, or implied from
the acts of the principal, from his silence or lack of action, or his failure to repudiate the agency, knowing that another person is acting on
The petitioner argues that: (1) there was no loan between him and Marasigan since he never authorized the borrowing of money nor the his behalf without authority.
check’s negotiation to the latter; (2) under Article 1878 of the Civil Code, a special power of attorney is necessary for an individual to make
a loan or borrow money in behalf of another; (3) the loan transaction was between Gutierrez and Marasigan, with his check being used
As a general rule, a contract of agency may be oral.6 However, it must be written when the law requires a specific form, for example, in a
only as a security; (4) the check had not been completely and strictly filled out in accordance with his authority since the condition that
sale of a piece of land or any interest therein through an agent.
the subject check can only be used provided there is prior approval from him, was not complied with; (5) even if the check was strictly
filled up as instructed by the petitioner, Marasigan is still not entitled to claim the check’s value as he was not a holder in due course; and
(6) by reason of the bad faith in the dealings between the respondents, he is entitled to claim for damages. Article 1878 paragraph 7 of the Civil Code expressly requires a special power of authority before an agent can loan or borrow money in
behalf of the principal, to wit:
The Issues
Art. 1878. Special powers of attorney are necessary in the following cases:
xxxx
(7) To loan or borrow money, unless the latter act be urgent and indispensable for the preservation of the things which are under
administration. (emphasis supplied)
Article 1878 does not state that the authority be in writing. As long as the mandate is express, such authority may be either oral or
written. We unequivocably declared in Lim Pin v. Liao Tian, et al.,7 that the requirement under Article 1878 of the Civil Code refers to the
nature of the authorization and not to its form. Be that as it may, the authority must be duly established by competent and convincing
evidence other than the self serving assertion of the party claiming that such authority was verbally given, thus:
The requirements of a special power of attorney in Article 1878 of the Civil Code and of a special authority in Rule 138 of the Rules of
Court refer to the nature of the authorization and not its form. The requirements are met if there is a clear mandate from the principal
specifically authorizing the performance of the act. As early as 1906, this Court in Strong v. Gutierrez-Repide (6 Phil. 680) stated that such
a mandate may be either oral or written, the one vital thing being that it shall be express. And more recently, We stated that, if the special
authority is not written, then it must be duly established by evidence:
x x x the Rules require, for attorneys to compromise the litigation of their clients, a special authority. And while the same does not state
that the special authority be in writing the Court has every reason to expect that, if not in writing, the same be duly established by
evidence other than the self-serving assertion of counsel himself that such authority was verbally given him.(Home Insurance Company vs.
United States lines Company, et al., 21 SCRA 863; 866: Vicente vs. Geraldez, 52 SCRA 210; 225). (emphasis supplied).
The Contract of Loan Entered Into by Gutierrez in Behalf of the Petitioner Should be Nullified for Being Void; Petitioner is Not Bound by
the Contract of Loan.
A review of the records reveals that Gutierrez did not have any authority to borrow money in behalf of the petitioner.1âwphi1Records do
not show that the petitioner executed any special power of attorney (SPA) in favor of Gutierrez. In fact, the petitioner’s testimony
confirmed that he never authorized Gutierrez (or anyone for that matter), whether verbally or in writing, to borrow money in his behalf,
nor was he aware of any such transaction:
ALVIN PATRIMONIO (witness)
ATTY. DE VERA: Did you give Nap Gutierrez any Special Power of Attorney in writing authorizing him to borrow using your money?
WITNESS: No, sir. (T.S.N., Alvin Patrimonio, Nov. 11, 1999, p. 105)8
xxxx
Marasigan however submits that the petitioner’s acts of pre-signing the blank checks and releasing them to Gutierrez suffice to establish
that the petitioner had authorized Gutierrez to fill them out and contract the loan in his behalf.
Marasigan’s submission fails to persuade us.
In the absence of any authorization, Gutierrez could not enter into a contract of loan in behalf of the petitioner. As held in Yasuma v. Heirs
of De Villa,9 involving a loan contracted by de Villa secured by real estate mortgages in the name of East Cordillera Mining Corporation, in
the absence of an SPA conferring authority on de Villa, there is no basis to hold the corporation liable, to wit:
The power to borrow money is one of those cases where corporate officers as agents of the corporation need a special power of attorney.
In the case at bar, no special power of attorney conferring authority on de Villa was ever presented. x x x There was no showing that
respondent corporation ever authorized de Villa to obtain the loans on its behalf.
xxxx
Therefore, on the first issue, the loan was personal to de Villa. There was no basis to hold the corporation liable since there was no
authority, express, implied or apparent, given to de Villa to borrow money from petitioner. Neither was there any subsequent ratification
of his act.
xxxx
The liability arising from the loan was the sole indebtedness of de Villa (or of his estate after his death). (citations omitted; emphasis
supplied).
This principle was also reiterated in the case of Gozun v. Mercado,10 where this court held:
Petitioner submits that his following testimony suffices to establish that respondent had authorized Lilian to obtain a loan from him.
xxxx
Petitioner’s testimony failed to categorically state, however, whether the loan was made on behalf of respondent or of his wife. While
petitioner claims that Lilian was authorized by respondent, the statement of account marked as Exhibit "A" states that the amount was
received by Lilian "in behalf of Mrs. Annie Mercado.
It bears noting that Lilian signed in the receipt in her name alone, without indicating therein that she was acting for and in behalf of
respondent. She thus bound herself in her personal capacity and not as an agent of respondent or anyone for that matter.
It is a general rule in the law of agency that, in order to bind the principal by a mortgage on real property executed by an agent, it must
upon its face purport to be made, signed and sealed in the name of the principal, otherwise, it will bind the agent only. It is not enough
merely that the agent was in fact authorized to make the mortgage, if he has not acted in the name of the principal. x x x (emphasis
supplied).
In the absence of any showing of any agency relations or special authority to act for and in behalf of the petitioner, the loan agreement
Gutierrez entered into with Marasigan is null and void. Thus, the petitioner is not bound by the parties’ loan agreement.
Furthermore, that the petitioner entrusted the blank pre-signed checks to Gutierrez is not legally sufficient because the authority to enter
into a loan can never be presumed. The contract of agency and the special fiduciary relationship inherent in this contract must exist as a
matter of fact. The person alleging it has the burden of proof to show, not only the fact of agency, but also its nature and extent.11 As we
held in People v. Yabut:12
Modesto Yambao's receipt of the bad checks from Cecilia Que Yabut or Geminiano Yabut, Jr., in Caloocan City cannot, contrary to the
holding of the respondent Judges, be licitly taken as delivery of the checks to the complainant Alicia P. Andan at Caloocan City to fix the
venue there. He did not take delivery of the checks as holder, i.e., as "payee" or "indorsee." And there appears to beno contract of agency
between Yambao and Andan so as to bind the latter for the acts of the former. Alicia P. Andan declared in that sworn testimony before
the investigating fiscal that Yambao is but her "messenger" or "part-time employee." There was no special fiduciary relationship that
permeated their dealings. For a contract of agency to exist, the consent of both parties is essential, the principal consents that the other
party, the agent, shall act on his behalf, and the agent consents so to act. It must exist as a fact. The law makes no presumption thereof.
The person alleging it has the burden of proof to show, not only the fact of its existence, but also its nature and extent. This is more
imperative when it is considered that the transaction dealt with involves checks, which are not legal tender, and the creditor may validly
refuse the same as payment of obligation.(at p. 630). (emphasis supplied)
The records show that Marasigan merely relied on the words of Gutierrez without securing a copy of the SPA in favor of the latter and
without verifying from the petitioner whether he had authorized the borrowing of money or release of the check. He was thus bound by
the risk accompanying his trust on the mere assurances of Gutierrez.
In order however that one who is not a holder in due course can enforce the instrument against a party prior to the instrument’s
completion, two requisites must exist: (1) that the blank must be filled strictly in accordance with the authority given; and (2) it must be
filled up within a reasonable time. If it was proven that the instrument had not been filled up strictly in accordance with the authority
given and within a reasonable time, the maker can set this up as a personal defense and avoid liability. However, if the holder is a holder
in due course, there is a conclusive presumption that authority to fill it up had been given and that the same was not in excess of
authority.17

In the present case, the petitioner contends that there is no legal basis to hold him liable both under the contract and loan and under the
No Contract of Loan Was Perfected Between Marasigan And Petitioner, as The Latter’s Consent Was Not Obtained.
check because: first, the subject check was not completely filled out strictly under the authority he has given and second, Marasigan was
not a holder in due course.
Another significant point that the lower courts failed to consider is that a contract of loan, like any other contract, is subject to the rules
governing the requisites and validity of contracts in general.13 Article 1318 of the Civil Code14enumerates the essential requisites for a
Marasigan is Not a Holder in Due Course
valid contract, namely:

The Negotiable Instruments Law (NIL) defines a holder in due course, thus:
1. consent of the contracting parties;

Sec. 52 — A holder in due course is a holder who has taken the instrument under the following conditions:
2. object certain which is the subject matter of the contract; and

(a) That it is complete and regular upon its face;

3. cause of the obligation which is established.

(b) That he became the holder of it before it was overdue, and without notice that it had been previously dishonored, if such
In this case, the petitioner denied liability on the ground that the contract lacked the essential element of consent. We agree with the
was the fact;
petitioner. As we explained above, Gutierrez did not have the petitioner’s written/verbal authority to enter into a contract of loan. While
there may be a meeting of the minds between Gutierrez and Marasigan, such agreement cannot bind the petitioner whose consent was
not obtained and who was not privy to the loan agreement. Hence, only Gutierrez is bound by the contract of loan. (c) That he took it in good faith and for value;

True, the petitioner had issued several pre-signed checks to Gutierrez, one of which fell into the hands of Marasigan. This act, however,
does not constitute sufficient authority to borrow money in his behalf and neither should it be construed as petitioner’s grant of consent
to the parties’ loan agreement. Without any evidence to prove Gutierrez’ authority, the petitioner’s signature in the check cannot be
taken, even remotely, as sufficient authorization, much less, consent to the contract of loan. Without the consent given by one party in a
purported contract, such contract could not have been perfected; there simply was no contract to speak of.15
With the loan issue out of the way, we now proceed to determine whether the petitioner can be made liable under the check he signed.
II. Liability Under the Instrument
The answer is supplied by the applicable statutory provision found in Section 14 of the Negotiable Instruments Law (NIL) which states:
Sec. 14. Blanks; when may be filled.- Where the instrument is wanting in any material particular, the person in possession thereof has a
prima facie authority to complete it by filling up the blanks therein. And a signature on a blank paper delivered by the person making the
signature in order that the paper may be converted into a negotiable instrument operates as a prima facie authority to fill it up as such for
any amount. In order, however, that any such instrument when completed may be enforced against any person who became a party
thereto prior to its completion, it must be filled up strictly in accordance with the authority given and within a reasonable time. But if any
such instrument, after completion, is negotiated to a holder in due course, it is valid and effectual for all purposes in his hands, and he
may enforce it as if it had been filled up strictly in accordance with the authority given and within a reasonable time.
This provision applies to an incomplete but delivered instrument. Under this rule, if the maker or drawer delivers a pre-signed blank paper
to another person for the purpose of converting it into a negotiable instrument, that person is deemed to have prima facie authority to fill
it up. It merely requires that the instrument be in the possession of a person other than the drawer or maker and from such possession,
together with the fact that the instrument is wanting in a material particular, the law presumes agency to fill up the blanks.16
(d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the
person negotiating it.(emphasis supplied)
Section 52(c) of the NIL states that a holder in due course is one who takes the instrument "in good faith and for value." It also provides in
Section 52(d) that in order that one may be a holder in due course, it is necessary that at the time it was negotiated to him he had no
notice of any infirmity in the instrument or defect in the title of the person negotiating it.
Acquisition in good faith means taking without knowledge or notice of equities of any sort which could beset up against a prior holder of
the instrument.18 It means that he does not have any knowledge of fact which would render it dishonest for him to take a negotiable
paper. The absence of the defense, when the instrument was taken, is the essential element of good faith.19
As held in De Ocampo v. Gatchalian:20
In order to show that the defendant had "knowledge of such facts that his action in taking the instrument amounted to bad faith," it is not
necessary to prove that the defendant knew the exact fraud that was practiced upon the plaintiff by the defendant's assignor, it being
sufficient to show that the defendant had notice that there was something wrong about his assignor's acquisition of title, although he did
not have notice of the particular wrong that was committed.
It is sufficient that the buyer of a note had notice or knowledge that the note was in some way tainted with fraud. It is not necessary that
he should know the particulars or even the nature of the fraud, since all that is required is knowledge of such facts that his action in taking
the note amounted bad faith.
The term ‘bad faith’ does not necessarily involve furtive motives, but means bad faith in a commercial sense. The manner in which the
defendants conducted their Liberty Loan department provided an easy way for thieves to dispose of their plunder. It was a case of "no
questions asked." Although gross negligence does not of itself constitute bad faith, it is evidence from which bad faith may be inferred.
The circumstances thrust the duty upon the defendants to make further inquiries and they had no right to shut their eyes deliberately to
obvious facts. (emphasis supplied).
In the present case, Marasigan’s knowledge that the petitioner is not a party or a privy to the contract of loan, and correspondingly had
no obligation or liability to him, renders him dishonest, hence, in bad faith. The following exchange is significant on this point:
WITNESS: AMBET NABUS
Yet, it does not follow that simply because he is not a holder in due course, Marasigan is already totally barred from recovery. The NIL
does not provide that a holder who is not a holder in due course may not in any case recover on the instrument.22 The only disadvantage
of a holder who is not in due course is that the negotiable instrument is subject to defenses as if it were non-negotiable.23 Among such
defenses is the filling up blank not within the authority.
On this point, the petitioner argues that the subject check was not filled up strictly on the basis of the authority he gave. He points to his
instruction not to use the check without his prior approval and argues that the check was filled up in violation of said instruction.

Check Was Not Completed Strictly Under The Authority Given by The Petitioner
Q: Now, I refer to the second call… after your birthday. Tell us what you talked about?

Our own examination of the records tells us that Gutierrez has exceeded the authority to fill up the blanks and use the check.1âwphi1 To
A: Since I celebrated my birthday in that place where Nap and I live together with the other crew, there were several visitors that included
repeat, petitioner gave Gutierrez pre-signed checks to be used in their business provided that he could only use them upon his approval.
Danny Espiritu. So a week after my birthday, Bong Marasigan called me up again and he was fuming mad. Nagmumura na siya. Hinahanap
His instruction could not be any clearer as Gutierrez’ authority was limited to the use of the checks for the operation of their business, and
niya si… hinahanap niya si Nap, dahil pinagtataguan na siya at sinabi na niya na kailangan I-settle na niya yung utang ni Nap, dahil…
on the condition that the petitioner’s prior approval be first secured.

xxxx
While under the law, Gutierrez had a prima facie authority to complete the check, such prima facie authority does not extend to its use
(i.e., subsequent transfer or negotiation)once the check is completed. In other words, only the authority to complete the check is
WITNESS: Yes. Sinabi niya sa akin na kailangan ayusin na bago pa mauwi sa kung saan ang tsekeng tumalbog… (He told me that we have to presumed. Further, the law used the term "prima facie" to underscore the fact that the authority which the law accords to a holder is a
fix it up before it…) mauwi pa kung saan… presumption juris tantumonly; hence, subject to subject to contrary proof. Thus, evidence that there was no authority or that the
authority granted has been exceeded may be presented by the maker in order to avoid liability under the instrument.
xxxx
In the present case, no evidence is on record that Gutierrez ever secured prior approval from the petitioner to fill up the blank or to use
Q: What was your reply, if any? the check. In his testimony, petitioner asserted that he never authorized nor approved the filling up of the blank checks, thus:

A: I actually asked him. Kanino ba ang tseke na sinasabi mo? ATTY. DE VERA: Did you authorize anyone including Nap Gutierrez to write the date, May 23, 1994?

(Whose check is it that you are referring to or talking about?) WITNESS: No, sir.

Q: What was his answer? Q: Did you authorize anyone including Nap Gutierrez to put the word cash? In the check?

A: It was Alvin’s check. A: No, sir.

Q: What was your reply, if any? Q: Did you authorize anyone including Nap Gutierrez to write the figure ₱200,000 in this check?

A: I told him do you know that it is not really Alvin who borrowed money from you or what you want to appear… A: No, sir.

xxxx Q: And lastly, did you authorize anyone including Nap Gutierrez to write the words ₱200,000 only xx in this check?

Q: What was his reply? A: No, sir. (T.S.N., Alvin Patrimonio, November 11, 1999).24

A: Yes, it was Nap, pero tseke pa rin ni Alvin ang hawak ko at si Alvin ang maiipit dito.(T.S.N., Ambet Nabus, July 27, 2000; pp.65-71;
emphasis supplied)21
Since he knew that the underlying obligation was not actually for the petitioner, the rule that a possessor of the instrument is prima facie
a holder in due course is inapplicable. As correctly noted by the CA, his inaction and failure to verify, despite knowledge of that the
petitioner was not a party to the loan, may be construed as gross negligence amounting to bad faith.
Notably, Gutierrez was only authorized to use the check for business expenses; thus, he exceeded the authority when he used the check
to pay the loan he supposedly contracted for the construction of petitioner's house. This is a clear violation of the petitioner's instruction
to use the checks for the expenses of Slam Dunk. It cannot therefore be validly concluded that the check was completed strictly in
accordance with the authority given by the petitioner.
Considering that Marasigan is not a holder in due course, the petitioner can validly set up the personal defense that the blanks were not
filled up in accordance with the authority he gave. Consequently, Marasigan has no right to enforce payment against the petitioner and
the latter cannot be obliged to pay the face value of the check.
WHEREFORE, in view of the foregoing, judgment is hereby rendered GRANTING the petitioner Alvin Patrimonio's petition for review on VELASCO, JR., J.:
certiorari. The appealed Decision dated September 24, 2008 and the Resolution dated April 30, 2009 of the Court of Appeals are
consequently ANNULLED AND SET ASIDE. Costs against the respondents.
Nature of the Case

SO ORDERED.
For resolution is the consolidated petitions assailing the September 30, 2014 Decision1 and October 14, 2015 Resolution2 of the Court of
Appeals (CA) in CA-G.R. CV. No. 97817.3 Said rulings affirmed the trial court judgment declaring petitioners solidarily liable to Alejandro Ng
G.R. No. 220926 Wee (Ng Wee) in the amount of ₱213,290,410.36, plus interests and damages.

LUIS JUAN L. VIRATA and UEMMARA PHILIPPINES CORPORATION (now known as CAVITEXINFRASTRUCTURE CORPORATION), Petitioners The Facts
vs.
ALEJANDRO NG WEE, WESTMONT INVESTMENT CORP., ANTHONY T. REYES, SIMEON CUA, VICENTE CUALOPING, HENRY CUALOPING,
Ng Wee was a valued client of Westmont Bank. Sometime in 1998, he was enticed by the bank manager to make money placements with
MARIZA SANTOSTAN, and MANUEL ESTRELLA, Respondents
Westmont Investment Corporation (Wincorp), a domestic corporation organized and licensed to operate as an investment house, and one
of the bank's affiliates.4 Offered to him were "sans recourse" transactions with the following mechanics as summarized by the CA:
x-----------------------x
x x x A corporate borrower who needs financial assistance or funding to run its business or to serve as working capital is screened by
G.R. No. 221058 Wincorp. Once it qualifies as an accredited borrower, Wincorp enters into a Credit Line Agreement for a specific amount with the
corporation which the latter can draw upon in a series of availments over a period of time. The agreement stipulates that Wincorp shall
extend a credit facility on "best effort" basis and that every drawdown by the accredited borrower shall be evidenced by a promissory
WESTMONT INVESTMENT, CORPORATION, Petitioner,
note executed in favor of Wincorp and/or the investor/s who has/have agreed to extend the credit facility. Wincorp then scouts for
vs.
investors willing to provide the funds needed by the accredited borrower. The investor is matched with the accredited borrower. An
ALEJANDRO NG WEE, Respondent.
investor who provides the fund is issued a Confirmation Advice which indicates the amount of his investment, the due date, the term, the
yield, the maturity and the name of the borrower.5
x-----------------------x
Lured by representations that the "sans recourse" transactions are safe, stable, high-yielding, and involve little to no risk, Ng Wee,
G.R. No. 221109 sometime in 1998, placed investments thereon under accounts in his own name, or in those of his trustees: Angel Archangel, Elizabeth Ng
Wee, Roberto Tabada Tan, and Alex Lim Tan.6 In exchange, Wincorp issued Ng Wee and his trustees Confirmation Advices informing them
MANUEL ESTRELLA, Petitioner, of the identity of the borrower with whom they were matched, and the terms under which the said borrower would repay them. The
vs. contents of a Confirmation Advice are typically as follows:
ALEJANDRO NG WEE, Respondent.
This is to confirm that pursuant to your authority, we have acted in your behalf and/or for your benefit, risk or account without recourse
x-----------------------x or liability, real or contingent, to Westmont Investment Corporation in respect of the loan granted to the Borrower named and under the
terms specified hereunder

G.R. No. 221135

Borrower: _______

SIMEON CUA, VICENTE CUALOPING, and HENRY CUALOPING, Petitioners,

vs. Amount Rate: % Term: Value Date: Due Date:
ALEJANDRO NG WEE, Respondent.
Yield: Tax: Maturity Value: Instrument:
x-----------------------x Payment on Value Date TO No.
For your convenience but without any obligation on our part, we may act as your collecting and paying agent for this transaction. Kindly
G.R. No. 221218 note that your receipt hereof is an indication of your conformity to the foregoing terms and conditions of the transaction.7

ANTHONY T. REYES, Petitioner, Special Power of Attorneys (SPAs) are also prepared for the signature of the lender investor. The SP As uniformly provide:
vs.
ALEJANDRO NG WEE, LUIS JUAN VIRATA, UEM-MARA PHILIPPINES CORP., WESTMONT INVESTMENT CORP., MARIZA SANTOS-TAN,
The undersigned, whose personal circumstances are stated hereunder, hereby, by these presents, appoints, names and constitutes
SIMEON CUA, VICENTE CUALOPING, HENRY CUALOPING, and MANUEL ESTRELLA, Respondents
Westmont Investment Corporation (Wincorp ), a corporation duly organized and existing under and by virtue of the laws of the
Philippines, with office address at in Floor, Westmont Bank Building, 411 Quintin Paredes Street, Binondo, .Manila, as the Attorney-in-Fact
DECISION of the undersigned:
To agree, deliver, sign, execute loan documents relative to the borrowing of: _______________ ("The Borrower") to whom the Barely a month later, on March 11, 1999, Wincorp, through another board meeting allegedly attended by the same personalities,
undersigned, thru Wincorp, agreed to lend the principal sum of PESOS ________________ increased Power Merge's maximum credit limit to ₱2,500,000,000.00.29 Accordingly, an Amendment to the Credit Line
Agreement30 (Amendment) was executed on March 15, 1999 by the same representatives of the two parties.
HEREBY GIVING AND GRANTING unto said Attorney-in-Fact power and authority to do and perform all and every act and thing whatsoever
requisite or necessary to be done in and about the premises, HEREBY RATIFYING AND CONFIRMING all that said Attorney-in-Fact shall Power Merge made a total of six (6) drawdowns from the amended Credit Line Agreement in the aggregate amount of
lawfully do or cause to be done by virtue of these presents.8 P2,183,755,253.11.31 Following protocol, Power Merge issued Promissory Notes in favor of Wincorp, either for itself or as agent for or on
behalf of certain investors, for each drawdown. The Promissory Notes issued can be summarized thusly:32
Ng Wee's initial investments were matched with Hottick Holdings Corporation (Hottick), one of Wincorp's accredited borrowers, the
majority shares of which was owned by a Malaysian national by the name of Tan Sri Halim Saad (Halim Saad). Halim Saad was then the Promissory Note No. Availment Date Maturity Date Principal
controlling shareowner of UEM-MARA, which has substantial interests in the Manila Cavite Express Tollway Project (Cavitex).9
1411 February 12, 1999 February 12, 2000 ₱8,618,877.35
Hottick was extended a credit facility10 with a maximum drawdown of ₱l,500,908,026.87 in consideration of the following securities it
1537 February 10, 1999 February 10, 2000 ₱1,124,781,081.10
issued in favor of Wincorp: (1) a Suretyship Agreement11 executed by herein petitioner Luis Juan Virata (Virata); (2) a Suretyship
Agreement12 executed by YBHG Tan Sri Halim Saad; and (3) a Third Party Real Estate Mortgage13 executed by National Steel Corporation 1538 March 12, 1999 March 11, 2000 ₱215,660.99
(NSC). Hottick fully availed of the loan facility extended by Wincorp, but it defaulted in paying its outstanding obligations when the Asian
financial crisis struck. As a result, Wincorp filed a collection suit against Hottick, Halim Saad, and NSC for the repayment of the loan and 1539 March 12, 1999 March 11, 2000 ₱671,402,608.61
related costs.14A Writ of Preliminary Attachment was then issued against Halim Saad's properties, which included the assets of UEM-
MARA Philippines Corporation (UEM-MARA).15 Virata was not impleaded as a party defendant in the case. 1540 March 17, 1999 March 16, 2000 ₱378,381,629.15

1541 March 22, 1999 March 21, 2000 ₱355,395.91

To induce the parties to settle, petitioner Virata offered to guarantee the full payment of the loan. The guarantee was embodied in the
July 27, 1999 Memorandum of Agreement16 between him and Wincorp. Virata was then able to broker a compromise between Wincorp Total ₱2,183,755,253.11
and Halim Saad that paved the way for the execution of a Settlement Agreement17 dated July 28, 1999. In the Settlement Agreement, And pertinently, the template for the Promissory Notes read:
Halim Saad agreed to pay USDl,000,000.00 to Wincorp in satisfaction of any and all claims the latter may have against the former under
the Surety Agreement that secured Hottick's loan. As a result, Wincorp dropped Halim Saad from the case and the Writ of Preliminary
Attachment over the assets of UEM-MARA was dissolved.18 PROMISSORY NOTE

Thereafter, Wincorp executed a Waiver and Quitclaim19 dated December 1, 1999 in favor of Virata, releasing the latter from any For value received, I/We hereby promise to pay WESTMONT INVESTMENT CORPORATION (WINCORP), either for itself or as agent for and
obligation arising from the Memorandum of Agreement, except for his obligation to transfer forty percent (40%) equity of UEM on behalf of certain INVESTORS who have placed/invested funds with WINCORP the principal sum of __________ (_______), Philippine
Development Philippines, Inc. (UPDI) and forty percent (40%) of UPDI's interest in the tollway project to Wincorp. Apparently, the Currency, on _____ with interest rate of _________ percent (___%) per annum, or equivalently the Maturity Amount of ___________
Memorandum of Agreement is a mere accommodation that is not meant to give rise to any legal obligation in Wincorp's favor as against PESOS Philippine Currency.
Virata, other than the stipulated equity transfer.
Demand and Dishonor Waived: In case of default in the payment of this Promissory Note, an additional interest on the Maturity Amount
Alarmed by the news of Hottick's default and financial distress, Ng Wee confronted Wincorp and inquired about the status of his at the rate of three percent (3%) per month shall accrue from the date immediately following the Maturity Date hereof until the same is
investments. Wincorp assured him that the losses from the Hottick account will be absorbed by the company and that his investments fully paid. In addition, I/We shall be liable to pay liquidated damages in the amount equivalent to twenty percent (20%) of the Maturity
would be transferred instead to a new borrower account. In view of these representations, Ng Wee continued making money placements, amount.
rolling over his previous investments in Hottick and even increased his stakes in the new borrower account - Power Merge Corporation
(Power Merge).20 If this Note is placed in the hands of an attorney for collection, or if payment herein is collected by suit or through other legal proceedings,
I/We promise to pay WINCORP a sum equal to twenty-five (25%) of the total amount due and payable as and for attorney's fees and cost
Incorporated on August 4, 1997, Power Merge21 is a domestic corporation, the primary purpose of which is to "invest in, purchase, or of collection.33
othe-rwise acquire and own, hold, use, sell, assign, transfer, mortgage, pledge, exchange or otherwise dispose of real or personal property
of every kind and description."22 Petitioner Virata is the majority stockholder of the corporation, owning 374 ,996 out of its 375, 000 After receiving the promissory notes from Power Merge, Wincorp, in turn, issued Confirmation Advices to Ng Wee and his trustees, as
subscribed capital stock.23 well as to the other investors who were matched with Power Merge. A summary of the said Confirmation Advices reveals that out of the
₱2,183,755,253.11 drawn by Power Merge, the aggregate amount of ₱213,290,410.36 was sourced from Ng Wee's money placements
In a special meeting of Wincorp's board of directors held on February 9, 1999, the investment house resolved to file the collection case under the names of his trustees:34
against Halim Saad and Hottick,24 and, on even date, approved Power Merge' s application for a credit line, extending a credit facility to
the latter in the maximum amount of ₱l,300,000,000.00.25 Based on the minutes of the special meeting,26 board chairman John Anthony
Serial No. Name Principal Amount of Placement Due Date Maturity Value
B. Espiritu, Wincorp President Antonio T. Ong (Ong), Mariza Santos-Tan (Santos-Tan), Manuel N. Tankiansee (Tankiansee),27 and
petitioners Manuel A. Estrella (Estrella), Simeon Cua, Henry T. Cualoping, and Vicente Cualoping (Cua and the Cualopings) were allegedly 90029 Angel Archangel 1,559,927.96 3/27/2000 1,584,496.83
in attendance. Thus, on February 15, 1999, Wincorp President Ong and Vice-President for Operations petitioner Anthony Reyes (Reyes)
executed a Credit Line Agreement28 in favor of Power Merge with petitioner Virata's conformity. 90821 Robert Tabada Tan 2,300,000.00 3/22/2000 2,336,225.00
90823 Robert Tabada Tan 11,937,401.91 3/23/2000 12, 125,415.99 93625 Alex Lim Tan 1,933,335.42 4/26/2000 1,960, 160.45

90825 Robert Tabada Tan 2, 722,325.59 3/23/2000 2, 765,202.22 93795 Alex Lim Tan 351,157.75 4/28/2000 356,161.75

90827 Robert Tabada Tan 1,857,896.78 3/22/2000 1,885,765.23 93308 Elizabeth Ng Wee 1,000,000.00 4/19/2000 1,012,750.00

90832 Robert Tabada Tan 17,908,989.04 3/29/2000 18, 191,055.62 Total 210,595,991.62 213,290,410.36

90834 Robert Tabada Tan 2,263,514.95 3/30/2009 2,299, 165.31 Unknown to Ng Wee, however, was that on the very same dates the Credit Line Agreement and its subsequent Amendment were entered
into by Wincorp and Power Merge, additional contracts (Side Agreements) were likewise executed by the two corporations absolving
90835 Robert Tabada Tan 1,970,590.89 3/30/2009 2,001,627.70 Power Merge of liability as regards the Promissory Notes it issued. Pertinently, the Side Agreement dated February 15, 1999 reads:

90839 Alex Lim Tan 406,825.00 3/24/2000 412,164.58

WHEREAS, Powermerge has entered into the Credit Line Agreement with Wincorp as an accommodation in order to allow Wincorp to
90844 Alex Lim Tan 1,835,610.44 4/3/2000 1,866,662.85 hold Powermerge paper instead of the obligations of Hettick which are right now held by Wincorp.

90860 Alex Lim Tan 2,144,975.50 3/31/2000 2,170,715.21

xxxx
90861 Alex Lim Tan 8,649,113.51 3/31/2000 8,752,902.87
1. Powermerge hereby agrees to execute promissory notes in the aggregate principal sum of ₱1,200,000,000.00 in favor of Wincorp and in
90864 Alex Lim Tan 2,051,965.81 4/3/2000 2,078,128.37 exchange therefore, Wincorp hereby assigns, transfers, and conveys to Powermerge all of its rights, titles and interests by way of a
subparticipation over the promissory notes and other obligations executed by Hettick in favor of Wincorp; Provided however that the only
90866 Alex Lim Tan 8,749,275.96 4/4/2000 8,860,829.23
obligation of Powermerge to Wincorp shall be to return and deliver to Wincorp all the rights, title and interests conveyed by Wincorp
90869 Alex Lim Tan 4,175,382.61 4/4/2000 4,228,618.74 hereby to Powermerge over the Hottick obligations. Powermerge shall have no obligation to pay under its promissory notes executed in
favor of Wincorp but shall be obligated merely to return whatever [it] may have received from Wincorp pursuant to this agreement.
91319 Elizabeth Ng Wee 1,000,000.00 4/7/2000 1,012,000.00

91337 Robert Tabada Tan 1,587,553.58 4/7/2000 1,606,604.22 xxxx

91654 Robert Tabada Tan 322,117.07 4/11/2000 326,224.06 3. Win corp confirms and agrees that this accommodation being entered into by the parties is not intended to create a payment obligation
on the part of Powermerge.35 (emphasis added)
91712 Elizabeth Ng Wee 1,610,325.19 4/2/2000 1,630,856.84

91713 Robert Tabada Tan 11,615,297.69 4/12/2000 11,763,392.74 Save for the amount, identical provisions were included in the March 15, 1999 Side Agreement.36 By virtue of these contracts, Wincorp
was able to assign its rights to the uncollected Hottick obligations and hold Power Merge papers instead.37 However, this also meant that
91735 Robert Tabada Tan 28,877,638.89 4/12/2000 29,245,828.79
if Power Merge subsequently defaults in the payment of its obligations, it would refuse, as it did in fact refuse, payment to its investors.
92673 Elizabeth Ng Wee 1,301,666.89 4/4/2000 1,318,263.14
Despite repeated demands,38 Ng Wee was not able to collect Power Merge's outstanding obligation under the Confirmation Advices in the
92761 Elizabeth Ng Wee 2,415,487.78 4/12/2000 2, 446,285 .25 amount of ₱213,290,410.36. This prompted Ng Wee, on October 19, 2000, to institute a Complaint for Sum of Money with Damages with
92804 Robert Tabada Tan 10,635,489.17 3/23/2000 10,691,325.49 prayer for the issuance of a Writ of Preliminary Attachment (Complaint),39 docketed as Civil Case No. 00-99006 before the Regional Trial
Court (RTC), Branch 39 of Manila (R TC). Of the seventeen (17) named defendants therein, only Virata, Power Merge, UPDI, UEM-MARA,
92805 Robert Tabada Tan 8,439, 180.56 4/12/2000 8,546, 780.11 Wincorp, Ong, Reyes, Cua, Tankiansee, Santos-Tan, Vicente and Henry Cualoping, and Estrella were duly served with summons.40

92900 Robert Tabada Tan 652,571.11 4/13/2000 660,891.39

In his Complaint, Ng Wee claimed that he fell prey to the intricate scheme of fraud and deceit that was hatched by Wincorp and Power
92965 Robert Tabada Tan 39,028,875.33 4/14/2000 39,497,221.83 Merge. As he later discovered, Power Merge's default was inevitable from the very start since it only had subscribed capital in the amount
of ₱37,500,000.00, of which only ₱9,375,000.00 is actually paid up. He then attributed gross negligence, if not fraud and bad faith, on the
92980 Robert Tabada Tan 6,799,438.05 4/14/2000 6,881,031.31 part of Wincorp and its directors for approving Power Merge's credit line application and its subsequent increase to the amount of
₱2,500,000,000.00 despite its glaring inability to pay.
93001 Robert Tabada Tan 5,000,000.00 4/14/2000 5,060,000.00

93062 Robert Tabada Tan 1,536,373. 70 4/17/2000 1,555,962.46 Wincorp officers Ong and Reyes were likewise impleaded for signing the Side Agreements that would allow Power Merge to avoid paying
its obligations to the investors.1âwphi1 Ng Wee also sought to pierce the separate juridical personality of Power Merge since Virata owns
93073 Robert Tabada Tan 3,447,004.47 4/17/2000 3,490,953.78 almost all of the company's stocks. It was further alleged that Virata acquired interest in UEM-MARA using the funds swindled from the
Wincorp investors.
93075 Robert Tabada Tan 12,000,000.00 4/17/2000 12, 153,000.00

93619 Alex Lim Tan 508,683.02 4/26/2000 515,741.00

As an annex to the Complaint, Ng Wee cited the May 5, 2000 Cease and Desist Order41 issued by the Prosecution and Enforcement
Department of the Securities and Exchange Commission (SEC) in PED Case No. 20-237842 after its routine audit of the operations of the
investment house. Data gathered by the SEC showed that, as of December 31, 1999, Wincorp has sourced funds from 2,200 individuals
with an average of ₱7,000,000,000.00 worth of commercial papers per month.43 In its subsequent October 27, 2000 Resolution,44 the SEC
found that the Confirmation Advices that Wincorp had been issuing to its investors takes the form of a security that ought to have been
registered before being offered to the public,45 and that the investment house had also been advancing the payment of interest to the
investors to cover up its borrowers' insolvency.46
The defendants moved for the dismissal of the case for failure to state a cause of action, among other reasons, moored on the fact that
the investments were not recorded in the name of Ng Wee. These motions, however, were denied by the RTC on October 4, 2001, which
denial was elevated by way of certiorari to the CA, only for the trial court ruling to be affirmed on August 21, 2003. The issue eventually
made its way to this Court and was docketed as G.R. No. 162928. The Court however, found no reversible error on the part of the CA
when the appellate court sustained the denial of the motions to dismiss.47
In their respective Answers, the Wincorp and Power Merge camps presented opposing defenses.48
Wincorp admitted that it brokered Power Merge Promissory Notes to investors through "sans recourse" transactions. It contended,
however, that its only role was to match an investor with corporate borrowers and, hence, assumed no liability for the monies that Ng
Wee loaned to Power Merge. As proof thereof, Wincorp brought to the attention of the R TC the language of the SP As executed by the
investors.
"Sans recourse" transactions, Wincorp added, are perfectly legal under Presidential Decree No. 129 (PD 129), otherwise known as
the Investment Houses Law, and forms part of the brokering functions of an investment house. As a duly licensed investment house, it
was authorized to offer the "sans recourse" transactions to the public, even without a license to perform quasi-banking functions.
For their part, the Wincorp directors argued that they can only be held liable under Section 31 of Batas Pambansa Big. (BP) 68,49 the
Corporation Code, if they assented to a patently unlawful act, or are guilty of either gross negligence or bad faith in directing the affairs of
the corporation. They explained that the provision is inapplicable since the approval of Power Merge's credit line application was done in
good faith and that they merely relied on the vetting done by the various departments of the company. Additionally, Estrella and
Tankiansee argued that they were not present during the special meetings when Power Merge's credit line application was approved and
even objected against the same when they came to know of such fact.
Reyes meanwhile asseverated that the first paragraph of Sec. 31 cannot find application to his case since he is not a director of Wincorp,
but its officer. It is his argument that he can only be held liable under the second paragraph of the provision if he is guilty of conflict of
interest, which he is not. He likewise claimed that he was duly authorized to sign the side Credit Line Agreements and Side Agreements on
behalf of Wincorp.
The Wincorp camp reiterated that Ng Wee's Complaint failed to state a cause of action because the money placements were not
registered under his name. It was their postulation then that the alleged trustees should have instituted the case in their own names.
On the other hand, petitioners Virata and UEM-MARA harped on the underlying arrangement between Hottick, Power Merge, and
Wincorp. Under the framework, Hottick will issue Promissory Notes to Wincorp, which will then transfer the same to Power Merge. In
exchange for the transfer, Power Merge will issue its own Promissory Notes to Wincorp. That way, Wincorp will be holding Power Merge
papers, instead of Hottick.
To implement this arrangement, Wincorp and Power Merge entered into a Credit Line Agreement with the understanding that Power
Merge and Virata's only obligation thereunder would be to collect payments on the Hottick papers. The Credit Line Agreement and the
issuance of the promissory notes, according to Virata, were mere accommodations to help Wincorp enforce the outstanding obligations of
Hottick. It was then contrary to their agreement for Wincorp to have offered the Power Merge papers to investors since it was allegedly
agreed upon that Power Merge would incur no liability to pay the promissory notes it issued Wincorp.
Ruling of the Trial Court
On July 8, 2011, the RTC rendered a Decision50 in Civil Case No. 00- 99006 in favor of Ng Wee. Thefallo of the Decision reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff, ordering the defendants Luis L. Virata, UEM-MARA
Philippines Corporation, Westmont Investment Corporation (Wincorp), Antonio T. Ong, Anthony T. Reyes, Simeon Cua, Vicente and Henry
Cualoping, Mariza Santos-Tan, and Manuel Estrella to jointly and severally pay plaintiff as follows:
1. The sum of Two Hundred Thirteen Million Two Hundred Ninety Thousand Four Hundred Ten and 36/100 Pesos
(P213,290,410.36), which is the maturity amount of plaintiffs investment with legal interest at the rate of twelve
(12%) percent per annum from the date of filing of the complaint until fully paid;
2. Liquidated damages equivalent to twenty percent (20%) of the maturity amount, and attorney's fees equivalent
to 25% of the total amount due plus legal interest at the rate of twelve (12%) percent per annum from the date of
filing of the complaint until fully paid;
3. ₱l00,000.00 as moral damages.
4. The complaint against defendant Tankiansee is dismissed for lack of merit.
Defendants' counterclaim (sic) are dismissed for lack of merit, while the crossclaims filed by defendants against each other are likewise
dismissed, there being no evidence to support the same.
Cost against the defendants, except defendant Tankiansee.
SO ORDERED.51
Disposing first the procedural issue, the RTC reminded the parties that whether or not Ng Wee had legal standing had already been
settled when the defendants' motions to dismiss were denied with finality. They are then precluded from re-raising the issue in their
memoranda.52
On the merits, the trial court explained that there was no dispute on the factual circumstances of the case and that, based on these facts,
Wincorp and Power Merge colluded, if not connived, to defraud Ng Wee of his investments. The RTC ratiocinated that the "sans
recourse" transactions were used to conceal Wincorp' s direct borrowing; that Wincorp negated its acts and practices under the "sans
recourse" transactions when it advanced the accrued interest due to the investors to conceal the fact that their borrowers have already
defaulted in their obligations; that Wincorp is a vendor in bad faith since it knew that the Power Merge notes were uncollectible from the
beginning by virtue of the Side Agreements; and that, in any event, Wincorp violated its fiduciary responsibilities as the investors' agent.
The R TC held Power Merge equally guilty because Wincorp could not have perpetrated the fraud without its indispensable participation
as a conduit for the scheme.53
The RTC likewise ruled that Ng Wee presented sufficient evidence against the individual directors and officers for them to be held liable
for fraud and/or bad faith under Sec. 31 of the Corporation Code, except for Tankiansee. The claim against Tankiansee was dropped since
his immigration records established that he could not have participated in the special meetings of the Wincorp directors, having been out
of the country during the material dates. Moreover, he filed a civil and criminal case against Wincorp, negating any charge of conspiracy.54
The RTC further found compelling need to pierce through the separate juridical personality of Power Merge since Virata exercised
complete control thereof, owning 374,996 out of 375,000 of its subscribed capital stock. Similarly, the separate juridical personality of
UEM-MARA was pierced to reach the illegal proceeds of the funds sourced from the defrauded investors.55
The motions for reconsideration from the afore-quoted ruling were denied on September 9, 2011.56 Separate appeals were then lodged
by the following parties: (1) Wincorp, (2) Santos-Tan, (3) Cua and the Cualopings, (4) Virata and UEM-MARA Philippines Corp., (5) Reyes;
and (6) Estrella. In due time, the appellants and appellees filed their respective briefs.57
Ruling of the Court of Appeals
On September 30, 2014, the CA promulgated the challenged ruling substantially affirming the findings of the trial court, viz:
WHEREFORE, the appeal is DISMISSED. The Decision dated July 8, 2011 and Order dated September 9, 2011 issued by the Regional Trial
Court of Manila, Branch 39 in Civil Case No. 00-99006 are AFFIRMED with the modification in that defendants-appellants are jointly and
severally liable to pay an interest of twelve percent (12%) per annum of the total monetary awards, computed from the date of the filing
of the complaint until June 30, 2013 and six percent (6%) per annum from July 1, 2013 until their full satisfaction.
SO ORDERED.58
Preliminarily, the CA upheld the finding of the RTC that Ng Wee is a real party in interest and that the Complaint stated a cause of action
despite the money placements being made under the name of Ng Wee's trustees.59
The CA likewise found that Wincorp and Power Merge perpetrated an elaborate scheme of fraud to inveigle Ng Wee into investing funds.
Ng Wee would not have placed his investments in the "sans recourse" transactions had he not been deceived into believing that Power
Merge is financially capable of paying the returns on his investments. In sync with the R TC, the CA found that Wincorp misrepresented
Power Merge's financial capacity when it accredited Power Merge as a corporate borrower and granted it a ₱2,500,000,000.00 credit
facility despite the telling signs that the latter would not be able to perform its obligations, to wit: (1) Power Merge had only been in
existence for two years when it was granted the credit facility; (2) Power Merge was thinly capitalized with only ₱37,500,000.00
subscribed capital; (3) Power Merge was not an on-going concern since it never secured the necessary permits and licenses to conduct
business, it never engaged in any lucrative business, and it did not file the necessary reports with the SEC; and (4) No security was
demanded by Wincorp or was furnished by Power Merge in relation to the latter's drawdowns.60
The intent of Wincorp to deceive became even more manifest when it entered into the Side Agreements with Power Merge. The Side
Agreements rendered worthless Power Merge's Promissory Notes that Wincorp offered to Ng Wee and the other investors. Meanwhile,
the "sans recourse" nature of the transactions prevented the investors from recovering their investments from the investment house.61
Because of the foregoing fraudulent acts, Wincorp was held liable to Ng Wee as a vendor of security in bad faith, and for acting beyond
the scope of its authority as Ng Wee's agent when it knowingly purchased worthless securities for him and his co-investors.62
The CA likewise did not find merit in Power Merge's defense that it was a mere accommodation party. Power Merge's participation was
indispensable in deceiving Ng Wee into placing more investments and amounted to actionable fraud. Its conduct that led to this
conclusion include: (1) setting up the Power Merge borrower account; (2) the laborious execution of Credit Line Agreement, Side
Agreements, and promissory notes; (3) allowing Wincorp to sell worthless Power Merge papers/notes; and (4) receiving valuable
consideration through its drawdowns.63
Anent the liability of the directors, the appellate court sustained the trial court's application of the doctrine on the piercing of the
corporate veil, and also held that under Sec. 31 of the Corporation Code, corporate officers can be held liable for having assented to
patently unlawful corporate acts, and for having acted in gross negligence and/or bad faith in management.64
Here, the CA ratiocinated that the perpetrated investment scheme constituted estafa under either Art. 315(l)(b) or Art. 315(2)(a) of the
Revised Penal Code65 due to Wincorp's violation of its fiduciary relation with Ng Wee, and its employment of fraud or deceit to the latter's
damage and prejudice. Moreover, Wincorp violated various commercial laws when it offered the "sans recourse" transactions. For though
denominated as "sans recourse," Wincorp's actuations reveal that the transactions are actually with recourse since Wincorp virtually
borrowed from itself, for itself. Assenting to these patently unlawful acts, according to the CA, exposed the corporate directors and
officers to liability.
Gross negligence can also be attributed to the Wincorp directors when they approved Power Merge's credit line application and the
subsequent increase of its credit limit to ₱2,500,000,000.00 despite Power Merge's evident weak financial structure and poor
capitalization, so the CA ruled.
The elaborate scheme of deceit and fraud, and the corresponding liability therefrom, is then imputable to the directors of Wincorp.
Meanwhile, Reyes and V irata cannot escape liability since they signed the Side Agreements that rendered the Power Merge papers
worthless.
The CA also did not find compelling reason to depart from the RTC's conclusion as regards UEM-MARA's liability. The appellate court saw
the need to reach the illegal proceeds of funds sourced from the defrauded investors.
Lastly, the CA held that the appellants are jointly and severally liable pursuant to Art. 1170 of the New Civil Code.66
The motions for reconsideration from the September 30, 2014 Decision were denied on October 14, 2015 in the following wise:
WHEREFORE, finding no rationally persuasive reasons which would warrant a modification much less, a reversal of our Decision dated
September 30, 2014, all the Motions for Reconsideration filed by the defendants-appellants are DENIED. The Notice of Change of Name
filed by Defendant Manuel Estrella, is hereby NOTED.
SO ORDERED.67
Grounds for the Petitions
Aside from Santos-Tan, defendants-appellants a quo appealed the September 30, 2014 Decision and October 14, 2015 Resolution of the
CA via the instant recourses.
G.R. No. 220926: Petition for Review
on Certiorari of Luis Juan L. Virata
and UEM-MARA
In their Petition for Review on Certiorari,68 Virata and UEM-MARA claim that there is no basis in implicating them in the scheme to
defraud Ng Wee and the other investors since there was no privity of contract between them; petitioners never interacted with Ng Wee.
This is allegedly consistent with the CA finding that Wincorp engaged in direct borrowing with its investors. Thus, petitioners argue that
Ng Wee cannot subsequently claim that his funds were lent to Power Merge. Ng Wee likewise allegedly failed to prove that Power Merge
derived pecuniary benefits from the investment transactions.
Petitioners add that the Confirmation Advices were issued by Wincorp alone. Wincorp had the sole discretion of selecting which corporate
borrower to match with whom. Power Merge, Virata, and UEM-MARA therefore had no control over the matter. Thus, applying the
doctrine of res inter alios acta alteri nocere non debet, third parties like petitioners may not be prejudiced by the act, declaration, or
omission of Wincorp.
The propriety of piercing the corporate veil is also challenged by petitioners. They argue that Virata's ownership of almost all of the shares
of Power Merge does not automatically justify the application of the doctrine, absent fraud. And according to petitioners, there was no
evidence of fraud, bad faith, or gross negligence on the part of Virata in the case at bar. It is the postulation that Virata could not be held
liable for acts done in his official capacity, including the execution of the Credit Line Agreement and the Side Agreements, which allegedly
are valid arm's length transactions duly authorized by Power Merge, and that bad faith cannot be presumed from the mere failure of
Power Merge to pay its obligations.
Petitioners also see no valid reason to hold UEM-MARA liable since there is no evidence of its participation in the allegedly fraudulent act.
There is no proof that the grant of the credit line was for the purpose of acquiring interests in UEM-MARA, or that the funds obtained by
Power Merge were the same funds used by Virata to acquire interests therein. Petitioner Virata claims that he made use of a
₱600,000,000.00 credit facility from Metrobank to facilitate the acquisition.
G.R. No. 221058: Petition for Review
on Certiorari of Wincorp
In its petition, Wincorp attributes reversible error69 to the CA when it rendered judgment against the investment house. It claims that it
merely performed its normal function as an investment house by matching and marrying corporate borrowers with investors. The
arrangement it entered into was neither an investment contract between it and Ng Wee nor an exercise of quasi-banking function, but
the brokerage of a legitimate loan agreement between Ng Wee and Power Merge. Ng Wee expected a fixed interest income at the end of
the term of the loan, and not a participation in the success or loss of the borrower corporation.
Wincorp adds that it was clear to Ng Wee that what was involved was a loan agreement, and that Wincorp was merely brokering the
transaction. As a mere broker of the transaction, not the beneficiary thereof, Wincorp asserts that it cannot be held liable for the amount
borrowed by Power Merge. Wincorp relies on the text of the Confirmation Advices issued to Ng Wee to advance this point.70
Based on the language of the Confirmation Advices, Ng Wee knew of and approved the transactions that Wincorp entered into with
Power Merge as his agent; that Ng Wee's conformity in the series of Confirmations Advices issued in his favor, and his execution of the
corresponding SP As thereafter, allegedly ratified Wincorp's acts of agency in the execution of the loan agreement; and that Ng Wee had
been renewing and rolling over his initial placement, despite knowledge of this setup.
Wincorp further denies violating commercial laws since the transactions are "without recourse, " in compliance with the Bangko Sentral ng
Pilipinas (BSP) rule that only institutions that are granted license to perform quasi-banking functions can engage in transactions "with
recourse." Moreover, the agreement with Ng Wee to broker a loan, not being a quasi-banking function, is required to be marked
as "without recourse" under Sec. 4103N.2 of the BSP Manual of Regulations for Nonbank Financial Institutions.
It is also the contention of Wincorp that it is within its discretion whether or not to approve Power Merge's credit line. It was not an ultra
vires act, and is instead covered by the business judgment rule. The fact that the business strategy turned out to be unfavorable should
not so casually be used to impute liability to the corporation absent showing of bad faith or gross negligence.
G.R. No. 221109: Petition/or Review
of Manuel Estrella
Petitioner Estrella, one of the directors of Wincorp, instituted a separate petition71 anchored on the ground that he was a mere nominee
in Wincorp of his principals, Eduardo Espiritu and Wincorp board chairperson John Anthony Espiritu; that he did not have any real
beneficial interest in Wincorp as his appointment was a mere accommodation to the Espiritus; and that he did not even receive any
compensation, salary, per diem or benefit of any kind from either the Espiritus or from Wincorp.
As a mere nominee, Estrella is involved solely in setting down company policies and prescribing the general guidelines for the direction of
the business and affairs of Wincorp. In the performance of his duties, he relies heavily on the reports, memoranda, and information
provided them by management. He contends that he was never involved in the day-to-day management and operations of the company.
He then had no knowledge and could not then have approved of the Side Agreements entered into by Ong and petitioner Reyes. The Side
Agreements were never presented in any of the meetings Estrella attended, or so he claims.
He also questions the R TC and the CA's reliance on the minutes of the special meetings naming him as one of the directors who approved
Power Merge's credit line application and its subsequent amendment. He argues that the minutes have already been discredited when
the charges against Tankiansee have been dropped. Estrella reminds the Court that Tankiansee was likewise included in the list of
directors in attendance during the February 9, 1999 and March 11, 1999 special meetings, only to be disproved later on by his
immigration records that show that he was out of the country during the material dates.
It was admitted that Estrella attended the February 9, 1999 special meeting, but claims that he already left before the "other matters" in
the agenda, which included Power Merge's application, were discussed. He denies attending the March 11, 1999 special meeting since he
accompanied his wife that day to the hospital for her cancer treatment. To substantiate these defenses, he brings to the Court's attention
the fact that he did not sign, as he refused to sign, the minutes of the February 9, 1999 and March 11, 1999 special meetings.
G.R. No. 221135: Petition/or Review
on Certiorari of Simeon Cua, Henry
Cualoping, and Vicente Cualoping
For their defense72 against civil liability in this case, petitioners Cua and the Cualopings claim that Ng Wee failed to prove that they acted
in bad faith or were grossly negligent in managing the affairs of Wincorp, which is required for directors to be held liable under Sec. 31 of
the Corporation Code. They argued that the extent of their participation in the alleged fraudulent scheme was limited to acting favorably
on the executive committee's recommendations regarding Power Merge's credit line application and its subsequent amendment. Mere
approval of Power Merge's applications, however, cannot be equated with bad faith, for the directors relied on the vetting by the
departments responsible for doing so. They point out that Power Merge's applications underwent scrutiny by the credit committee and
executive committee prior to their approval. The approval cannot then be considered as unlawful, and neither bad faith nor gross
negligence can be attributed to the directors. Rather, it was performed in the legitimate pursuit of Wincorp's business as a duly-licensed
investment house.
Moreover, petitioners deny any knowledge and participation in the execution of the Side Agreements with Power Merge, and claim that
the execution was performed by Wincorp President Ong and petitioner Reyes without proper authorization from the board and,
hence, ultra vires. They add that they could not have defrauded Ng Wee since they had no knowledge that the latter was matched with
Power Merge.
G.R. No. 221218: Petition/or Review
on Certiorari of Anthony Reyes
Finally, the grounds73 invoked by petitioner Reyes to support his petition centered on the argument that he had no hand in the approval
of the credit line application or its increase since he is not a director of Wincorp. He was merely the Vice-President for Operations of
Wincorp, duly authorized as the investment house's signatory for and to all its documents, transactions and accounts. Thus, he alleges
that he was under obligation to sign the Credit Line Agreement, its Amendment, and the Side Agreements in favor of Power Merge after
the latter's application was approved by Wincorp's board of directors.
Furthermore, he argues that Sec. 31 of the Corporation Code is inapplicable since he is neither a director nor trustee of Wincorp, as
required by the provision. And assuming without conceding its applicability, he claims that he cannot be held solidarily liable since he
signed the agreements on behalf of the company in good faith.
The issue of whether or not Ng Wee is a real party in interest was again raised as an issue in Reyes' petition.
The Comments
Comments of Wincorp
In G.R. No. 220926, filed by petitioners Virata and UEM-MARA, Wincorp admitted in its Comment74 that the execution of the Side
Agreements is highly irregular, but argues that only Ong and Reyes should be held liable therefor since they acted beyond the scope of
their authority. Wincorp claims that the execution of the Side Agreements releasing Power Merge from its obligations are ultra vires acts
of the corporate officers, for which the investment house cannot be held liable.
This argument was further amplified in its Comment75 in G.R. No. 221218, filed by Reyes, wherein Wincorp reiterated that the actions of
the two officers (Ong and Reyes) in executing the Side Agreements, and thereby discharging Virata and Power Merge from their
obligations, was outside the scope of their authority and was not approved its board of directors. Accordingly, their actions could not
legitimately be considered as actions of Wincorp.
Comment of Virata, UEM-MARA
Petitioners V irata and UEM-MARA argued in their Comment76 in G.R. No. 221218, the only petition where they are impleaded as
respondents, that petitioner Reyes' cross-claim has no factual and legal basis. Aside from Reyes' general averments that Wincorp and
Power Merge connived and colluded to defraud the investors, he did not cite any specific basis for holding Virata and UEM-MARA liable to
him.
Comment of Ng Wee
Respondent Ng Wee filed his Comment77 on the consolidated petitions but merely refuted petitioner Reyes' claims. Ng Wee emphasized
that Reyes did not assail the findings of the CA that the transactions between Wincorp and Power Merge were impressed with fraud.
Moreover, Reyes' indispensable participation in the fraud, especially his signing of the Side Agreements, rendered him liable to
respondent Ng Wee. His signatures to the Side Agreements meant that he adhered to its contents, including the release of Power Merge
from its obligations under the Promissory Notes.
Meanwhile, petitioners Reyes, Estrella, Cua, and the Cualopings did not file their respective comments78 despite due notice.79
The Issues
Succinctly stated, the issues raised in the consolidated petitions boil down to the following:
1. Whether or not the case was prosecuted in the name of the real party in interest;
2. Whether or not Ng Wee was able to establish his cause/s of action against Wincorp and Power Merge;
3. Whether or not it is proper to pierce the veil of corporate fiction under the circumstances of the case;
4. Whether or not the counterclaims and cross-claims of the parties should prosper; and
5. Whether or not the award of damages to Ng Wee is proper.
The Court now resolves these issues in seriatim.
The Court's Ruling
I.
Ng Wee is the Real Party in Interest
Petitioners present legal issues on both procedure and substance. Resolving first the procedural aspect of the case, the Court rules that Ng
Wee is a real party in interest, contrary to the petitioners' claim.
Law of the Case doctrine bars the relitigation of a settled issue
As a general rule, every action must be prosecuted or defended in the name of the real party in interest.80 Section 2, Rule 3 of the Rules of
Court defines a real party in interest as "the party who stands to be benefited or injured by the judgment in the suit, or the party entitled to
the avails of the suit."
In this case, it is worth recalling that the procedural issue on whether or not Ng Wee is the real party in interest had already been resolved
by this Court in G.R. No. 162928. There, the Court found neither abuse of discretion on the part of the R TC nor reversible error on the CA
when they ruled that Ng Wee had the legal personality to file the Complaint to recover his investments. The resolutions by the CA and this
Court sustaining the October 4, 2001 Order had already attained finality and could no longer be modified. Concomitantly, the parties are
barred from re-raising the issues settled therein, pursuant to the law of the case doctrine.
The law of the case doctrine applies in a situation where an appellate court has made a ruling on a question on appeal and thereafter
remands the case to the lower court for further proceedings; the question settled by the appellate court becomes the law of the case at
the lower court and in any subsequent appeal. It means that whatever is irrevocably established as the controlling legal rule or decision
between the same parties in the same case continues to be the law of the case, whether correct on general principles or not, so long as
the facts on which the legal rule or decision was predicated continue to be the facts of the case before the court. 81
It is inconsequential that the issue raised in G.R. No. 162928 pertained to the alleged grave abuse of discretion committed by the R TC in
denying the motions to dismiss, and not to the merits of the motions to dismiss per se. For as the Court has elucidated in Banco de Oro-
EPCI, Inc. v. Tansipek:
x x x there is no substantial distinction between an appeal and a Petition for Certiorari when it comes to the application of the Doctrine of
the Law of the Case. The doctrine is founded on the policy of ending litigation. The doctrine is necessary to enable the appellate court to
perform its duties satisfactorily and efficiently, which would be impossible if a question once considered and decided by it were to be
litigated anew in the same case upon any and every subsequent appeal.82 (emphasis added)
We are then constrained to abide by Our prior ruling in G.R. No. 162928 that Ng Wee is a real party in interest in this case.
Ng Wee successfully stated a cause
of action based on a hypothetical
admission of the allegations in his
complaint
To be sure, hornbook doctrine is that when the affirmative defense of dismissal is grounded on the failure to state a cause of action, a
ruling thereon should be based on the facts alleged in the complaint.83 Otherwise stated, whether or not Ng Wee successfully stated a
cause of action requires hypothetically admitting and scrutinizing the allegations in his Complaint. A reproduction of its pertinent contents
is hence apropos:
xxxx
2.5 Relying on said representations, [Ng Wee] placed substantial amounts of money in his own name and in the names of others with
defendant Wincorp on several occasions. Some of the outstanding placements of [Ng Wee] with defendant Wincorp, which were loaned
to defendant Virata/Power Merge, are in the names of Robert Tabada Tan, Elizabeth Ng Wee, Alex Lim Tan and Angel Archangel who hold
said placements in trust for [Ng Wee].84
As aptly noted by the trial court in its October 4, 2001 Order denying the motions to dismiss:
In the Complaint, [Ng Wee] has clearly averred that he placed some of his money placements in the names of other persons and that said A: It is his money.
persons held the said money placements in trust for him (paragraph 2.5 of the complaint). With such allegation of ownership of the funds,
[Ng Wee] is clearly the real party in interest as he stands to be benefited or injured by the judgment in the instant case. (Section 2, Rule 3,
Q: Which one?
Rules of Court)

A: Those placements, sir.

xxxx

xxxx
Hence, this Court cannot grant the dismissal of the Complaint on this ground, since the allegations in the Complaint show, on the contrary,
that [Ng Wee] is the real party in interest.85 (words in brackets added)
Q: And why are these money placements under your name, Madam Witness, if these are his money?
The RTC is correct in its observation that there is sufficient allegation that Ng Wee is the actual injured party in the failed investment. As
the alleged owner of the funds placed under the names of Robert Tabada Tan, Elizabeth Ng Wee, Alex Lim Tan and Angel Archangel in A: He requested me to handle this money on behalf of him, sir.
Wincorp, Ng Wee lost ₱213,290,410.36 from Power Merge's default and non-payment of its obligations under the credit facility extended
by the investment house. This controverts petitioners' claim that Ng Wee is not the real party in interest herein. Q: And you earlier identified five (5) confirmation advices, what relation do these confirmation advices have to the confirmation which
you have identified and said that you surrendered to your brother?
Testimonial evidence on record
established Ng Wee's ownership over A: They are the same, sir.
the invested funds; Ng Wee does not
lack cause of action
Q: I see. Why did you surrender them to your brother?

Even the evidence on record would belie petitioners' claim that Ng Wee is not the real party in interest. Elizabeth Ng Wee, Alex Lim Tan
and Angel Archangel were straightforward in their testimonies that the funds invested in Power Merge belonged to Ng Wee, albeit A: Simply because they are not my money, sir. Those are his, so it is up to him to do something about what will happen.
recorded under their names. They likewise executed documents denominated as "Declaration of Trust" wherein they categorically stated
that they merely held the funds in trust for Ng Wee, the beneficial owner. xxxx

Angel Archangel admitted the trust relation in the following manner: Q: I am holding before me a document introduced by the lawyer of your brother previously marked as Exhibit "JJJ'' entitled Declaration of
Trust, kindly go over the document.
Q: What can you say about the money placement in Wincorp?
A: Okay.
A: It is not my money, sir.
Q: There is a signature at the bottom portion of the document, whose signature is that?
Q: And whose money is it, Madam Witness?
A That is my signature, sir.87
A: Alejandro Ng Wee.
And when Alex Lim Tan took the witness stand:
Q: And what is your participation insofar as that money placement is concerned?
xxxx
A: None, sir.86
A: He [referring to Alejandro Ng Wee] called me up and he requested me if he can use my name in placing his money with Westmont for
Elizabeth Ng Wee, meanwhile, testified in the following wise: money placement.

Q: Now you said you transacted with this Gilda because you were instructed by your brother to transact with her? Q: You mentioned Westmont. What is that Westmont?

A: Yes, sir. A: Westmont Investment Corporation, sir.

Q: And why did you follow his instruction? Q: And what was your response, if any, to the request of Plaintiff?

A: I agreed.
Q: And what happened next after you agreed? Archangel, his entitlement to recover the ₱213,290,410.36 becomes indubitable. The only question that remains now is: from whom can
Ng Wee recover the ₱213,290,410.36 investment? To this, petitioners would pose clashing claims, which prompts this Court to elucidate
on their respective exposures to civil liability.
A: He let me sign the documents specifically the Confirmation Advices, sir.

Only Wincorp is liable to Ng Wee for

xxxx
fraud; Power Merge is liable based
on contract
Q: And what did you do after he sent these Confirmation Advices to you?
a. That Wincorp defrauded Ng Wee is a finding
A: I signed it, sir. of fact that is conclusive on this Court

Q: And after signing these documents, what else did you do if any? Axiomatic in this jurisdiction is that, as a general rule, only questions of law may be raised in a Petition for Review on Certiorari under Rule
45 of the Rules of Court.90 The appellate court's findings of fact being conclusive, the jurisdiction of this Court in appealed cases is limited
A: I returned them to Mr. Wee, Sir. to reviewing and revising the errors of law.91 As We have emphatically declared in a long line of cases, "it is not the function of the
Supreme Court to analyze or weigh such evidence all over again, its jurisdiction being limited to reviewing errors of law that might have
been committed by the lower court."92
Q: And why did you return these documents to him?

A: Because he owns it, sir.
xxxx
Q: Apart from the Confirmation Advices that you identified today, did you sign any other document in connection with the investment
represented by these Confirmation Advices?
A: There was, sir.
Q: Can you tell us what was that document, Mr. Witness?
A: The Declaration of Trust, Sir.88
Finally, Wincorp employees Ruben Tobias and Gilda Lucena testified89 that they were instructed by Ng Wee to rename several of his
investments under the Power Merge Account to the names of Alex Lim Tan and Robert Tabada Tan. Effectively, Ruben Tobias and Gilda
Lucena corroborated the claim of Ng Wee that the investments in Power Merge that were recorded under those names are actually
respondent Ng Wee's.
From the foregoing evidence on record, it can no longer be gainsaid that Ng Wee is the real party in interest in the present case. The
allegation in his Complaint that he is the actual owner of the ₱213,290,410.36 infused in Power Merge under the names of Robert Tabada
Tan, Elizabeth Ng Wee, Alex Lim Tan and Angel Archangel has been established by preponderant evidence, and, more significantly, has
already become the law of the case. The procedural issue raised by petitioners therefore lacks merit.
II.
Liability of the Corporations to Ng Wee
With the procedural issue disposed, the Court will now proceed to ascertain the liability of the parties to Ng Wee, beginning with the
major players in this controversy. On this point, worthy of note is that none of the petitioners disputed the fact that Ng Wee is entitled to
recover the amount that he has invested. What they only required, which they also invoked as the ground for their motions to dismiss, is
that Ng Wee prove that the amounts invested actually belonged to him. Thus, having established that Ng Wee is the real party in interest
and that he is the beneficial owner of the investments under the names of Robert Tabada Tan, Elizabeth Ng Wee, Alex Lim Tan and Angel
Enumerated in Medina v. Mayor Asistio, Jr.93 are the recognized exceptions to the general rule.94 But insofar as Wincorp is concerned, it
failed to establish that any of these exceptions obtain in the present case. Thus, the Court sustains the finding of the trial court, as
affirmed by the CA, that Wincorp is liable to Ng Wee for perpetrating an elaborate scheme to defraud its investors. As held by the CA:
[Ng Wee] would not have placed funds or invested [in] the "sans recourse" transactions under the Power Merge borrower account had he
not been deceived into believing that Power Merge is financially capable of paying the returns of his investments/money placements.
Wincorp accredited Power Merge as a borrower, given it a credit line in the maximum amount of ₱2,500,000,000.00, Philippine Currency,
allowed it to make drawdowns up to ₱2,183,755,253.ll, Philippine Currency, matched it with [Ng Wee's] investments/ money placements
to the extent of ₱213,290,410.36, Philippine Currency, notwithstanding telling signs which immediately cast doubt on its ability to
perform its obligations under the Credit Line Agreements, Promissory Notes and [Confirmation Advices], to wit: (1) Power Merge had only
been in existence as a corporation for barely two (2) years when it was accredited as borrower by Wincorp; (2) Power Merge is a thinly
capitalized corporation with only ₱37,500,000.00 subscribed capital stock; (3) Power Merge is not an ongoing concern because (a) Despite
the fact that Power Merge's principal place of business is at 151 Paseo de Roxas St., Makati City, it has neither registered nor conducted
any business at Makati City as evident from the Certification dated January 3, 2006 issued by the Business Permits Office Of Makati City;
(b) it is not engaged in any lucrative business to finance its operation; Despite the fact that its primary purpose is to "invest in, purchase,
or otherwise acquire and own, hold, use, sell, assign, transfer, mortgage, pledge, exchange, or otherwise dispose of real or personal
property of every kind and description ... ," no proof was adduced to show that it was carrying out or has carried out this mandate in
accordance with the law; (c) From the time of its incorporation until the revocation of its Certificate of Incorporation on March 15, 2004,
Power Merge has failed to file annual reports required by the SEC such as General Information Sheets and Financial Statements; (4) No
security whatsoever was demanded by Wincorp or furnished by Power Merge in relation to its credit line and drawdowns. Indeed, no
person in his proper frame of mind would venture to lend hundreds of millions of pesos to a business entity having such a financial setup.
xxx
xxxx
The intent to defraud and deceive [Ng Wee] of his investments/ money placements was manifest from the very start. Wincorp and Power
Merge entered into a Credit Line Agreement on February 15, 1999 and an Amendment to Credit Line Agreement on March 15, 1999. It is
interesting to note that they simultaneously executed two Side Agreements which are peculiar because: (1) The dates of execution of the
two Side Agreements coincide with the dates of execution of the credit agreements; (2) [The] two Side Agreements were executed by the
same exact parties: Antonio Ong and Anthony Reyes for and on behalf of Wincorp and [Virata] and Augusto Geluz for and on behalf of
Power Merge; (3) The Credit Line Agreement dated February 15, 1999 and the First Side Agreement dated February 15, 1999 were both
acknowledged before notary public, Atty. Fina De La Cuesta-Tantuico while the Amendment to Credit Line Agreement dated March 15,
1999 and the Second Side Agreement dated March 15, 1999 were both acknowledged before notary public, Atty. Eric R.G. Espiritu; (4) The
two Side Agreements have the same exact provisions as the two credit agreements insofar as it purports to extend a credit line and
increase the credit line of Power Merge but the two Side Agreements relieve Power Merge from any liability arising from the execution of
the agreements and promissory notes.95
Jurisprudence defines "fraud" as the voluntary execution of a wrongful act, or a willful omission, knowing and intending the effects which
naturally and necessarily arise from such act or omission. In its general sense, fraud is deemed to comprise anything calculated to deceive,
including all acts and omissions and concealment involving a breach of legal or equitable duty, trust, or confidence justly reposed,
resulting in damage to another, or by which an undue and unconscientious advantage is taken of another. Fraud is also described as
embracing all multifarious means which human ingenuity can device, and which are resorted to by one individual to secure an advantage
over another by false suggestions or by suppression of truth and includes all surprise, trick, cunning, dissembling, and any unfair way by
which another is cheated.96
Under Article 1170 of the New Civil Code, those who in the performance of their obligations are guilty of fraud are liable for damages. The
fraud referred to in this Article is the deliberate and intentional evasion of the normal fulfillment of obligation.97 Clearly, this provision is
applicable in the case at bar. It is beyond quibble that Wincorp foisted insidious machinations upon Ng Wee in order to inveigle the latter
into investing a significant amount of his wealth into a mere empty shell of a corporation. And instead of guarding the investments of its
clients, Wincorp executed Side Agreements that virtually exonerated Power Merge of liability to them; Side Agreements that the investors
could not have been aware of, let alone authorize.
The summation of Wincorp's actuations establishes the presence of actionable fraud, for which the company can be held liable. In Jason
vs. People, the Court upheld the ruling that where one states that the future profits or income of an enterprise shall be a certain sum, but
he actually knows that there will be none, or that they will be substantially less than he represents, the statements constitute an
actionable fraud where the hearer believes him and relies on the statement to his injury.98
Just as in Jason, it is abundantly clear in the present case that the profits which Wincorp promised to the investors would not be realized
by virtue of the Side Agreements. The investors were kept in the dark as regards the existence of these documents, and were instead
presented with Confirmation Advices from Wincorp to give the transactions a semblance of legitimacy, and to convince, if not deceive, the
investors to roll over their investments or to part with their money some more.
b. Power Merge is not guilty of fraud, but is
liable under contract nonetheless
The story, however, is different for Power Merge. The circumstances of this case points to the conclusion that Power Merge and Virata
were not active parties in defrauding Ng Wee. Instead, the company was used as a mere conduit in order for Wincorp to be able to
conceal its act of directly borrowing funds for its own account. This is made evident by one highly peculiar detail- the date of the Power
Merge's drawdowns.
It must be remembered that the special meeting of Wincorp's board of directors was conducted on February 9 and March 11 of 1999,
while the Credit Line Agreement and its Amendment were entered into on February 15 and March 15 of 1999, respectively. But as
indicated in Power Merge's schedule of drawdowns,99 Wincorp already released to Power Merge the sum of ₱l,133,399,958.45 as of
February 12, 1999, before the Credit Line Agreement was executed. And as of March 12, 1999, prior to the Amendment,
₱l,805,018,228.05 had already been released to Power Merge.
The fact that the proceeds were released to Power Merge before the signing of the Credit Line Agreement and the Amendment thereto
lends credence to Virata's claim that Wincorp did not intend for Power Merge to be strictly bound by the terms of the credit facility; and
that there had already· been an understanding between the parties on what their respective obligations will be, although this agreement
had not yet been reduced into writing. The underlying transaction would later on be revealed in black and white through the Side
Agreements, the tenor of which amounted to Wincorp's intentional cancellation of Power Merge and Virata's obligation under their
Promissory Notes.100 In exchange, Virata and Power Merge assumed the obligation to transfer equity shares in UPDI and the tollway
project in favor of Wincorp. An arm's length transaction has indeed taken place, substituting Virata and Power Merge's obligations under
the Promissory Notes, in pursuance of the Memorandum of Agreement and Waiver and Quitclaim executed by Virata and Wincorp. Thus,
as far as Wincorp, Power Merge, and Virata are concerned, the Promissory Notes had already been discharged.
It was the understanding of the two companies that the Promissory Notes would not be passed on to the hands of third persons and that,
in any event, Wincorp guaranteed Virata that he and Power Merge would not be held liable thereon. Driven by the desire to completely
settle his obligation as a surety under the Hottick account, V irata took the deal and relied in good faith that Wincorp's officials would
honor their gentleman's agreement. But as events unfolded, it turned out that Wincorp was in evident bad faith when it subsequently
assigned credits pertaining to portions of the loan and the corresponding interests in the Promissory Notes to the investors in the form of
Confirmation Advices when it knew fully well of Power Merge's discharge from liability.
Between Wincorp and Power Merge, it is Wincorp, as the assignor of the portions of credit, that is under obligation to disclose to the
investors the existence and execution of the Side Agreements. Failure to do so, to Our mind, only goes to show that the target of Wincorp'
s fraud is not any particular individual, but the public at large. On the other hand, it was not Power Merge's positive legal duty to forewarn
the investors of its discharge since the company did not deal with them directly. Power Merge and Virata were agnostic as to the source
of funds since they relied on their underlying agreement with Wincorp that they would not be liable for the Promissory Notes issued.
As far as it was concerned, Power Merge was merely laying the groundwork prescribed by Wincorp towards fulfilling its obligations under
the Waiver and Quitclaim. Virata was not impelled by any Machiavellian mentality when he signed the Side Agreements in Power Merge's
behalf. Therefore, only Wincorp can be held liable for fraud. Nevertheless, as will later on be discussed, Power Merge and Virata can still
be held liable under their contracts, but not for fraud.
The "sans recourse" transactions
cannot exempt Wincorp from
liability for having been offered in
violation of commercial laws
Wincorp attempts to evade liability by hiding behind the "sans recourse" nature of the transactions with Ng Wee. It argues that as a mere
agent or broker that matches an investor with a borrower, it cannot be held liable for the invested amount in case of an unsuccessful or
failed match. As evidenced by the Confirmation Advices and SP As signed by the investors, Wincorp is merely tasked to deliver the amount
to be loaned to the borrower, and does not guarantee its borrowers' financial capacity.
The argument deserves scant consideration.
a. The "sans recourse" transactions are
deemed "with recourse"
An investment house is an enterprise that engages in the underwriting of securities of other corporations.101 Securities underwriting, in
turn, refers to the process by which underwriters raise capital investments on behalf of the corporation issuing the securities. Thus, aside
from performing the regular powers of a corporation under the Corporation Code, a duly licensed investment house is granted additional
powers under Sec. 7102 of Presidential Decree No. (PD) 129.
Conspicuously absent in the enumerated additional powers of an investment house, however, is the authority to perform quasi-banking
functions. Even as a financial intermediary, investment houses are not allowed to engage in quasi-banking functions, unless authorized by
the Monetary Board through the issuance of a Certificate of Authority.104
The Omnibus Rules and Regulations for Investment Houses and Universal Banks Registered as Underwriters defines "quasi-banking
function " as the function of "borrowing funds for the borrower's own account from 20 or more persons or corporate lenders at any one
time, through the issuance, endorsement or acceptance of debt instruments of any kind other than deposits which may include but need
not be limited to acceptances, promissory notes, participations, certificates of assignment or similar instruments with recourse, trust
certificates or of repurchase agreements for purposes of relending or purchasing of receivables and other obligations."105
Given the definition, it would appear on paper that offering the "sans recourse" transactions does not qualify as the performance of a
quasi-banking function specifically because it is "sans recourse" against Wincorp.
As provided under S4101Q.3 of the Manual of Regulations for Non-Bank Financial Institutions: denominated as "sans recourse" by Wincorp to circumvent the license requirement under the law. The alleged "sans recourse" nature of
the transactions cannot then be used by Wincorp as a shield against liability to Ng Wee.
S4101Q.3. Transactions not considered quasi-banking. The following shall not constitute quasi-banking:
b. Wincorp engaged in the sale of unregistered
securities
xxxx

a. The mere buying and selling without recourse of instruments mentioned in Sec.4101Q: Provided that:
(1) The institution selling without recourse shall indicate or stamp in conspicuous print on the instrument/s, as well as on the confirmation
of sale (COS), the phrase without recourse or sans recourse and the following statement:
(2) In the absence of the phrase without recourse or sans recourse and without the above-required accompanying statement, the
instrument so issued, endorsed or accepted shall automatically be considered as falling within the purview of the rules on quasi-banking.
(emphasis added)
However, the Court affirms the appellate court's finding that the true nature of the "sans recourse" transactions contradicts Wincorp's
averment. A perusal of the records would show that Wincorp engaged in practices that rendered the transactions to be "with
recourse" and, consequently, within the ambit of quasi-banking rules.
There is more to the "sans recourse" transactions than meets the eye, so much so that the operations of Wincorp cannot be
oversimplified as mere brokering of loans. As discovered by the SEC in PED Case No. 20-2378, and as ruled by the CA, Wincorp was, in
reality, selling to the public securities, i.e., shares in the Power Merge credit in the form of investment contracts.
Securities are shares, participation or interests in a corporation or in a commercial enterprise or profit-making venture and evidenced by a
certificate, contract, instruments, whether written or electronic in character.106 As a general rule, securities are not to be sold or offered
for sale or distribution without due registration, and provided that information on the securities shall be made available to prospective
purchasers.107
Included in the list of securities that require registration prior to offer, sale, or distribution are investment contracts.108An investment
contract refers to a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect
profits primarily from the efforts of others.109 It is presumed to exist whenever a person seeks to use the money or property of others on
the promise of profits.110

First, Wincorp did not act as a mere financial intermediary between Ng Wee and Power Merge, but effectively obtained the funds for its In this jurisdiction, the Court employs the Howey test, named after the landmark case of Securities and Exchange Commission v. W.J.
own account. To borrow funds for one's own account should not only be taken in its literal meaning to the effect that Wincorp and its Howey Co.,111 to determine whether or not the security being offered takes the form of an investment contract. The case served as the
beneficial owners literally borrowed the funds invested by Ng Wee. Rather, it should be interpreted in this case while bearing in mind foundation for the domestic definition of the said security.
Wincorp's end goal - to assign its rights to the uncollected, if not worthless, Hottick obligations and hold more valuable Power Merge
papers in their stead. Without enticing the investors to put up capital for Power Merge, Wincorp would not have been able to facilitate
Under the Howey test, the following must concur for an investment contract to exist: (1) a contract, transaction, or scheme; (2) an
the exchange. Thus, with Power Merge as a conduit, Wincorp's borrowings from its investors redounded to its benefit. This is bolstered by
investment of money; (3) investment is made in a common enterprise; (4) expectation of profits; and (5) profits arising primarily from the
Wincorp's act of executing the Side Agreements releasing Power Merge from its obligation to pay under its Promissory Notes, exposing
efforts of others. Indubitably, all of the elements are present in the extant case.
itself to liability to pay the same.

First, Wincorp offered what it purported to be "sans recourse" transactions wherein the investment house would allegedly match
Second, in PED Case No. 20-2378, the Prosecution and Enforcement Department of the SEC found that as of December 31, 1999, Wincorp
investors with pre-screened corporate borrowers in need of financial assistance.
has sourced funds from 2,200 individuals with an average of ₱7,000,000,000.00 worth of commercial papers per month. This figure
unquestionably exceeds the "20 or more persons or corporate lenders" threshold.
Second, Ng Wee invested the aggregate amount of ₱213,290,410.36 in the "sans recourse" transactions through his trustees, as embodied
in the Confirmation Advices.
Third, the Confirmation Advices that are marked "sans recourse" are actually "with recourse." On this point, a reproduction of the
succeeding paragraphs of S4101Q.3 of the Manual of Regulations for Non-Bank Financial Institutions is in order:
Third, prior to being matched with a corporate borrower, all the monies infused by the investors are pooled in an account maintained by
Wincorp.112 This ensures that there are enough funds to meet large drawdowns by single borrowers.
xxxx

Fourth, the investors were induced to invest by Wincorp with promises of high yield. In Ng Wee's case, his Confirmation Advices reveal
Provided further, that any of the following practices or practices similar and/or tantamount thereto in connection with a without recourse
that his funds were supposed to earn 13.5% at their respective maturity dates.
transaction rendered such transaction as with recourse and within the purview of the rules on quasi-banking.

Fifth, the profitability of the enterprise depended largely on whether or not Wincorp, on best effort basis, would be able to match the
xxxx
investors with their approved corporate borrowers.

(iii) Payment with the funds of the financial intermediary which assigned, sold or transferred the debt instrument without recourse, unless
Apparent then is that the factual milieu of the case at bar sufficiently satisfies the Howey test. The "sans recourse" transactions are, in
the financial intermediary can show that the issuer has with the said financial intermediary funds corresponding to the amount of the
actuality, investment contracts wherein investors pool their resources to meet the financial needs of a borrowing company. This does not
obligation. (emphasis added)
stray far from the illustration given by former Associate Justice Roberto A. Abad in Securities and Exchange Commission v. Prosperity.com,
Inc., to wit:
From the above provision, Wincorp's act of advancing the payment of interests when the corporate borrower is unable to pay despite the
borrowing being branded as without recourse, rendered it to be with recourse. Coupled with the above-circumstances, offering the "sans
recourse" transactions should then be categorized as an exercise of a quasi-banking function. The transactions were merely being
An example that comes to mind would be the long-term commercial papers that large companies, like San Miguel Corporation (SMC), xxxx
offer to the public for raising funds that it needs for expansion. When an investor buys these papers or securities, he invests his money,
together with others, in SMC with an expectation of profits arising from the efforts of those who manage and operate that company. SMC
(8) A statement of the capitalization of the issuer and of all companies controlling, controlled by or commonly controlled with the issuer,
has to register these commercial papers with the SEC before offering them to investors.113
including the authorized and outstanding amounts of its capital stock and the proportion thereof paid up; the number and classes of
shares in which such capital stock is divided; par value thereof, or if it has no par value, the stated or assigned value thereof; a description
Likewise, in SEC Admin Case No. 09-07-88 entitled In Re: D 1st Cell Pawnshop, Inc.,114 the SEC ruled that by soliciting investments from of the respective voting rights, preferences, conversion and exchange rights, rights to dividends, profits, or capital of each class, with
₱50,000.00 up to ₱300,000.00 and promising a return of four percent (4%) per month, D 1st Cell Pawnshop offered investment contracts respect to each other class, including the retirement and liquidation rights or values thereof
to the public.
xxxx
No error can then be attributed to the CA when it designated the "sans recourse" transactions as investment contracts. No fault can also
be ascribed to the appellate court in finding that Wincorp virtually purchased and resold securities, and not just brokered a loan. The most
(14) The specific purposes in detail and the approximate amounts to be devoted to such purposes, so far as determinable, for which the
telling circumstance that negate Wincorp's claim of mere brokerage, as mentioned earlier, is the fact that it paid for the interest payments
security to be offered is to supply funds, and if the funds are to be raised in part from other sources, the amounts and the sources thereof.
due from the corporate borrowers that defaulted. This effectively estopped Wincorp from denying liability from its investors in this case.

xxxx
Wincorp cannot hide behind its license to operate as an investment house when it offered the "sans recourse" transactions to the public.
For though investment houses are authorized to do the following:115
(27) A balance sheet as of a date not more than ninety days prior to the date of the filing of the registration statement showing all of the
assets of the issuer, the nature and cost thereof, whenever determinable with intangible items segregated, including any loan to or from
xxxx
any officer, director, stockholder or person directly or indirectly controlling or controlled by the issuer, or person under direct or indirect
common control with the issuer. x x x All the liabilities of the issuer, including surplus of the issuer, showing how and from what sources
6. Act as financial consultant, investment adviser, or broker; such surplus was created, all as of a date not more than ninety days prior to the filing of the registration statement. x x x

7. Act as porfolio manager, and/or financial agent xxx; (28) A profit and loss statement of the issuer showing earnings and income, the nature and source thereof, and the expenses and fixed
charges in such detail and such form as the Commission shall prescribe for the latest fiscal year xxx Such statement shall show what the
practice of the issuer has been during the three years or lesser period as to the character of the charges, dividends or other distributions
8. Encourage companies to go public, and initiate and/or promote, whenever warranted, the formation, merger, consolidation,
made against its various surplus accounts, and as to depreciation, depletion, and maintenance charges, and if stock dividends or avails
reorganization, or recapitalization of productive enterprises, by providing assistance or participation in the form of debt or equity
from the sale of rights have been credited to income, they shall be shown separately with statement of the basis upon which credit is
financing or through the extension of financial or technical advice or service;
computed. Such statement shall also differentiate between recurring and nonrecurring income and between any investment and
operating income. Such statement shall be certified by an independent certified public accountant.
Xxx
xxxx
their license to perform investment house functions does not excuse them from complying with the security registration requirements
under the law. For clarity, the license requirement to operate as an investment houses is separate and distinct from the registration
(30) A copy of any agreement or agreements or, if identical agreements are used, the forms thereof made with any underwriter, including
requirement for the securities they are offering, if any.
all contracts and agreements referred to in subparagraph (19) hereof (emphasis added)

In dealing in securities, Wincorp was under legal obligation to comply with the statutory registration and disclosure requirements. Under
In the guise of merely brokering loans between an investor and a corporate borrower, that it is not in the business of selling securities,
BP 178, otherwise known as the Revised Securities Act, which was still in force at the time material in this case, investment contracts are
Wincorp conveniently failed to disclose to the investors the necessary information under Section 8 of BP 178. To the mind of the Court,
securities, and their sale, transactions that are not exempt from these requirements.116 As such, adherence to Sections 4 and 8 of BP 178
offering the "sans recourse " transactions without compliance therewith constitutes fraudulent transactions within the contemplation of
must be strictly observed, to wit:
Section 29 of the law.117

Section 4. Requirement of registration of securities. - (a) No securities, except of a class exempt under any of the provisions of Section five
hereof or unless sold in any transaction exempt under any of the provisions of Section six hereof, shall be sold or offered for sale or
distribution to the public within the Philippines unless such securities shall have been registered and permitted to be sold as hereinafter
provided.
xxxx
Section. 8. Procedure for registration. - (a) All securities required to be registered under subsection (a) of Section four of this Act shall be
registered through the filing by the issuer or by any dealer or underwriter interested in the sale thereof, in the office of the Commission,
of a sworn registration statement with respect to such securities, containing or having attached thereto, the following:
Non-disclosure of the capitalization details and the financial statements of the issuer Power Merge under Secs. 8(8), (27), and (28)
resulted in the failure of the investors to pay heed to the red flags that the enterprise was doomed to fail: (1) the fact that it only had an
outstanding capital stock of ₱37,500,000.00, of which the total actually paid is only ₱9,375,000.00; (2) that it has not been complying with
the reportorial requirements, including the submission of financial statements to the SEC; (3) and that Power Merge is not an ongoing
concern since it does not engage in any legitimate business. In addition, non-compliance with Section 8(14) and (30) prevented the
investors from discovering the true intent behind the approval of the Power Merge credit line application and the underlying transactions
behind its issuance of Promissory Notes.
Clearly then, because Wincorp had been successful in its scheme of passing off the "sans recourse" transactions as mere brokering of
loans, it managed to circumvent the registration and disclosure requirements under BP 178, and managed to commit fraud in a massive
scale against its investors to the latter's damage and prejudice, for which Wincorp ought to be held liable.
c. Wincorp is liable as a vendor in bad faith
and for breach of warranty
Aside from its liability arising from its fraudulent transactions, Wincorp is also liable to Ng Wee for breach of warranty. It cannot be
emphasized enough that Wincorp is not the mere agent that it claims to be; its operations ought not be reduced to the mere matching of
investors with corporate borrowers. Instead, it must be borne in mind that it not only performed the functions of a financial intermediary
duly registered and licensed to perform the powers of an investment house, it is also engaged in the selling of securities, albeit in violation
of various commercial laws. And just as in any other contracts of sale, the vendor of securities is likewise bound by certain warranties,
including those contained in Article 1628 of the New Civil Code on assignment of credits, to wit:
Article 1628. The vendor in good faith shall be responsible for the existence and legality of the credit at the time of the sale, unless it
should have been sold as doubtful; but not for the solvency of the debtor, unless it has been so expressly stipulated or unless the
insolvency was prior to the sale and of common knowledge.
property are thwarted by some device of the seller, such efforts have been held not to preclude a recovery. It has often been held that the
buyer of a business or property is entitled to rely on the seller's statements concerning its profits, income or rents. The rule - that where a
speaker has knowingly and deliberately made a statement concerning a fact the falsity of which is not apparent to the hearer, and has
thus accomplished a fraudulent result, he cannot def end against the fraud by proving that the victim was negligent in failing to discover
the falsity of the statement - is said to be peculiarly applicable where the owner of the property or a business intentionally makes a false
statement concerning its rents, profits or income.
Applying the foregoing to this case, assuming that [Ng Wee] made an investigation, that should not preclude him from relying on the
representations of Wincorp because: (1) It is an investment house which is presumed to conduct an investigation of its borrowers before
it matches the same to its investors. As testified to by its employees, Wincorp has an Investigation Credit Committee and Executive
Committee which screen, investigate and accredit borrowers before they are submitted for approval of the board of directors; (2) It did
not only materially misrepresent the financial incapacity of Power Merge to pay, it also failed to disclose that the instruments executed by
Power Merge in connection with the investments/ money placements of [Ng Wee] are worthless in view of the Side Agreements executed
by the parties.118 (emphasis added)

xxxx
Verily, the same acts of misrepresentations that constituted fraud in Wincorp's transactions with Ng Wee are the very same acts that
amounted to bad faith on its part as vendor of securities. Inescapably, liability attaches because of Wincorp's dishonest dealings.
The vendor in bad faith shall always be answerable for the payment of all expenses, and for damages. (emphasis added)
d. Even as an agent, Wincorp can still be held liable
That the securities sold to Ng Wee turned out to be "with recourse," not "sans recourse" as advertised, does not remove it from the
coverage of the above article. In fact, such circumstance would even classify Wincorp as a vendor in bad faith, within the contemplation of
The argument that Wincorp is a mere agent that could not be held liable for Power Merge's unpaid loan is equally unavailing. For even if
the last paragraph of the provision. But other than the fraudulent designation of the transaction as "sans recourse," Wincorp's bad faith
the Court were to accede to the argument and undercut the significance of Wincorp's participation from vendor of securities to purely
was also brought to the fore by the execution of the Side Agreements, which cast serious suspicion over, if it did not effectively annul, the
attorney-in-fact, the investment house would still not be immune. Agency, in Wincorp's case, is not a veritable defense.
existence and legality of the credits assigned to Ng Wee under the numerous Confirmation Advices in the name of his trustees.

Through the contract of agency, a person binds himself to render some service or to do something in representation or on behalf of
Anent the claim that Wincorp allegedly did not warrant the capacity of Power Merge to pay its obligations, the CA had this much to say:
another, with the consent or authority of the latter.119 As the basis of agency is representation, there must be, on the part of the principal,
an actual intention to appoint, an intention naturally inferable from the principal's words or actions. In the same manner, there must be
[Petitioners] argue that the financial capacity of Power Merge has always been a matter of public record. We are not persuaded. The an intention on the part of the agent to accept the appointment and act upon it. Absent such mutual intent, there is generally no
material misrepresentations have been made by Wincorp to [Ng Wee], to the effect that Power Merge was structurally sound and agency.120
financially able to undertake a series of loan transactions. Even if Power Merge' s financial integrity is veritable from the articles of
incorporation or other public records, it does not follow that the elaborate scheme of fraud and deceit would be beyond commission
There is no dearth of statutory provisions in the New Civil Code that aim to preserve the fiduciary character of the relationship between
when precisely there are bending representations that Power Merge would be able to meet its obligations. Moreover, [petitioners']
principal and agent. Of the established rules under the code, one cannot be more basic than the obligation of the agent to carry out the
argument assumes that there is a legal obligation on the part of [Ng Wee] to undertake investigation of Power Merge before agreeing to
purpose of the agency within the bounds of his authority.121 Though he may perform acts in a manner more advantageous to the principal
the matching of his investments with the accredited borrower. There is no such obligation. It is unfair to expect a person to procure every
than that specified by him,122 in no case shall the agent carry out the agency if its execution would manifestly result or damage to the
available public record concerning an applicant for funds to satisfy himself of the latter's financial standing. A least that is not the way an
principal.123
average person takes care of his concerns. In addition, no amount of investigation could have revealed that the Power Merge papers are
rendered worthless and noncollectable (sic) [be]cause of the Side Agreements entered into by Wincorp and Power Merge.
In the instant case, the SPAs executed by Ng Wee constituted Wincorp as agent relative to the borrowings of Power Merge, allegedly
without risk of liability on the part of Wincorp. However, the SPAs, as couched, do not specifically include a provision empowering
Wincorp's attempt to shift the blame on [Ng Wee] deserves no credence. Since the transaction involve[s] a considerable sum of money,
Wincorp to excuse Power Merge from repaying the amounts it had drawn from its credit line via the Side Agreements. They merely
Wincorp presupposes that [Ng Wee] would have taken great pains to scrutinize and understand all the documents affecting his
authorize Wincorp "to agree, deliver, sign, execute loan documents" relative to the borrowing of a corporate borrower. Otherwise stated,
investment/ money placement. It also presumes that [Ng Wee] was fully aware of the contents and meaning of the [Confirmation
Wincorp had no authority to absolve Power Merge from the latter's indebtedness to its lenders. Doing so therefore violated the express
Advices] and [Special Power of Attorneys] he signed. He took a calculated risk. As such, he should be estopped from claiming that he
terms of the SPAs that limited Wincorp's authority to contracting the loan.
suffered damage and prejudice.

The argument is specious. As ruled in People of the Philippines v. Priscilla Balasa:
-xxx-
The fact that the buyer makes an independent investigation or inspection has been held not to preclude him from relying on the
representation made by the seller where the seller has superior knowledge and the falsity of such representation would not be apparent
from such examination or inspection, and, a .fortiori, where the efforts of a buyer to learn the true profits or income of a business or
In no way can the execution of the Side Agreements be considered as part and parcel of Wincorp's authority since it was not mentioned
with specificity in the SP As. As far as the investors are concerned, the Side Agreements amounted to a gratuitous waiver of Power
Merge's obligation, which authority is required under the law to be contained in an SP A for its accomplishment.124
Finally, the benefit from the Side Agreements, if any, redounded instead to the agent itself, Wincorp, which was able to hold Power Merge
papers that are more valuable than the outstanding Hottick obligations that it exchanged. In discharging its duties as an alleged agent,
Wincorp then elected to put primacy over its own interest than that of its principal, in clear contravention of the law.125 And when
Wincorp thereafter concealed from the investors the existence of the Side Agreements, the company became liable for fraud even as an The basis for the liability under Section 29 is the underlying relation between the accommodated party and the accommodation party,
agent.126 which is one of principal and surety. 129 In a contract of surety, a person binds himself solidarily liable with the principal debtor of an
obligation.130 But though a suretyship agreement is, in essence, accessory or collateral to a valid principal obligation, the surety's liability
to the creditor is immediate, primary, and absolute. He is directly and equally bound with the principal.131
Power Merge is liable to Ng Wee
under its Promissory Notes
In a similar fashion, the accommodation party cum surety in a negotiable instrument is deemed an original promisor and debtor from the
beginning; he is considered in law as the same party as the debtor in relation to whatever is adjudged touching the obligation of the latter
a. Virata is liable for the Promissory Notes
since their liabilities are so interwoven as to be inseparable.132 It is beyond cavil then that Power Merge and Virata can be held liable for
even as an accommodation party
the amounts stated in the Promissory Notes. Consequently, they are also liable for the assignment to Ng Wee of portions thereof as
embodied in the Confirmation Advices.
A promissory note is a specie of negotiable instruments. Under Section 60 of the Negotiable Instruments Law, the maker of a promissory
note engages that he will pay it according to its tenor. In this case, the Promissory Notes executed by Virata in behalf of Power Merge are
b. The Side Agreements do not bind third
couched in the following wise:
parties thereto

PROMISSORY NOTE
Virata and Power Merge cannot invoke the Side Agreements as bases for its alleged exemption from liability to Ng Wee, simply because
the latter was not privy to the covenants. Ng Wee cannot be charged with knowing the existence of the Side Agreements, let alone ratify
For value received, I/We ____________________, hereby promise to pay WESTMONT INVESTMENT CORPORATION (WINCORP), either for the same.
itself or as agent for and on behalf of certain INVESTORS who have placed/invested funds with WINCORP the principal sum of
________________ (__________), Philippine Currency, on _______ with interest rate of ___________ percent (___%) per annum, or
The basic principle of relativity of contracts is that, as a general rule, contracts take effect only between the parties, their assigns and
equivalently the Maturity Amount of ______________ PESOS (______________)Philippine Currency. (emphasis added)
heirs.133 The sound reason for the exclusion of non-parties to an agreement is the absence of a vinculum or juridical tie which is the
efficient cause for the establishment of an obligation.134
It is crystal clear that Power Merge, through Virata, obligated itself to pay Wincorp and those who invested through it the values stated in
the Promissory Notes. The validity and due execution of the Promissory Notes were not even contested. Instead, Virata postulates that he
Needless to state, Ng Wee does not fall under any of the classes that are deemed privy as far as the Side Agreements are concerned. At
merely executed the Promissory Notes on behalf of Power Merge as an accommodation for Wincorp, and that neither he nor Power
most, he only authorized Wincorp, through the SPAs, to "agree, deliver, sign, [and} execute loan documents" relative to the borrowing of
Merge received any pecuniary benefit from the credit facility. He thus claims that he and Power Merge cannot be held liable for the
Power Merge. This authority does not extend to excusing Power Merge from paying its obligations under the Promissory Notes that it
Promissory Notes that were executed.
issued for the benefit of the investors. Thus, even if we were to assume that the execution of the Side Agreements was with the
imprimatur of the Wincorp board of directors, Power Merge would still have been able to determine, based on a cursory reading of the
The argument is specious. SPAs, that Wincorp's acquiescence to the Side Agreements is an ultra vires act insofar as its principals, Ng Wee included, are concerned.

On its face, the documentary evidence on record reveals that Power Merge actually received the proceeds from the Credit Line c. Power Merge cannot escape liability to Ng
Agreement. But even if We assume for the sake of argument that Power Merge, through Virata, is as a mere accommodation party under Wee under the Credit Line Agreement
the Promissory Notes, liability would still attach to them in favor of the holder of the instrument for value.
That Power Merge did not directly transact with Ng Wee and the other investors does not exonerate it from civil liability, for its liability
In Gonzales v. Philippine Commercial and International Bank,127 the Court held that an accommodation party lends his name to enable the also finds basis on the language of the Credit Line Agreement.
accommodated party to obtain credit or to raise money; he receives no part of the consideration for the instrument but assumes liability
to the other party or parties thereto. Prescinding from the foregoing, an accommodation party is one who meets all the following three
To recall, Power Merge obtained a ₱2,500,000,000.00 credit facility from Wincorp, as one of the latter's corporate borrowers. Under the
requisites, viz: (1) he must be a party to the instrument, signing as maker, drawer, acceptor, or indorser; (2) he must not receive value
terms of the credit facility, Power Merge obligated itself to issue Promissory Notes in favor of Wincorp, for itself "or on behalf of certain
therefor; and (3) he must sign for the purpose of lending his name or credit to some other person.128
investors" for each of its drawdowns. The Credit Line Agreement pertinently provides:

The first element, that Power Merge, through Virata, executed the Promissory Notes as maker cannot be disputed. Meanwhile,
CREDIT LINE AGREEMENT
petitioners would have the Court hypothetically admit that they did not receive the proceeds from the drawdowns, in satisfaction of the
second requisite. And lastly, this was allegedly done for the purpose of lending its name to conceal Wincorp's direct borrowing from its
clients. xxxx

In gratia argumenti that the above elements are established facts herein, liability will still attach to the accommodation parties pursuant WHEREAS, the BORROWER has applied for financial accommodation/credit line from WINCORP.
to Sec. 29 of the Negotiable Instruments Law. The provision states:
WHEREAS, WINCORP by itself or on behalf of certain investors, have agreed to extend the financial accommodation/credit line sought by
Sec. 29. Liability of accommodation party. - An accommodation party is one who has signed the instrument as maker, drawer, acceptor, or the BORROWER under the terms and conditions hereunder provided.
indorser, without receiving value therefor, and for the purpose of lending his name to some other person. Such a person is liable on the
instrument to a holder for value, notwithstanding such holder, at the time of taking the instrument, knew him to be only an
NOW, WHEREFORE, for and in consideration of the foregoing premises, the parties hereto agreed as follows:
accommodation party. (emphasis added)
1. GRANT OF CREDIT FACILITY. WINCORP, either by itself or on behalf of certain investors, shall extend to the BORROWER a credit facility,
on best efforts basis, in the amount of up to but not exceeding the equivalent sum of ONE BILLION TWO HUNDRED MILLION PESOS
(₱l,200,000,000.00), Philippine Currency, upon terms and conditions embodied in this Agreement.
xxxx
3. PROMISSORY NOTE. Subject to the availability of funds, the BORROWER may avail all or any portion of this credit facility under the
terms and conditions hereunder agreed upon, and the BORROWER shall execute in favor of WINCORP and/or the investors who have
agreed to extend the credit facility to the BORROWER a Promissory Note corresponding to each drawdown to evidence its indebtedness.
4. INTEREST RATE. The BORROWER agrees to pay WINCORP, either by itself or on behalf of its investors, interest on the principal amount
of each availment at the rate prevailing on the date of such availment as agreed upon in the corresponding Promissory
Note/s.135 (underscoring supplied, emphasis added)
Virata and Power Merge cannot then deny knowledge that the amounts that were drawn against the credit facility may not necessarily be
from Wincorp's own coffers, but may potentially be from the monies pooled by its clients, even though their identities were at that time
anonymous to Power Merge. As can be gleaned, Power Merge was informed through the plain text of the Credit Line Agreement that
Wincorp may indorse portions of the investment, and the corresponding interest in the Promissory Notes, to its willing clients and act on
the latter's behalf. It then matters not that Power Merge and Virata never personally dealt with Ng Wee for given the setup; Ng Wee
became privy to the Credit Line Agreement when he was assigned his shares in the investment, and when he expressed his conformity
therewith through the Confirmation Advices.
Furthermore, it cannot escape the attention of the Court that this is not the first time for Virata to transact with Wincorp. To refresh,
Virata executed a Surety Agreement to answer Hottick' s drawdowns from its own credit facility with Wincorp. He is then familiar with the
nature of Wincorp's primary functions, whether as a mere financial intermediary or dealer in securities as in this case, rather than its true
creditor. Power Merge and V irata cannot then feign ignorance that the money they have been receiving are from the clients that Wincorp
attracted to invest.
III.
Piercing the Corporate Veil
Indubitably, Wincorp and Power Merge are liable to Ng Wee for fraud and under contract, respectively. The thrust of majority of the
petitioners, however, is that they cannot be held liable for the business judgments of the corporations they are part of given the latter's
separate juridical personalities.
G.R. No. 220926: The liabilities of
Luis Juan L. Virata and UEMMARA
a. Virata is liable for the obligations of Power Merge
Petitioner Virata reiterates his claim that piercing the corporate veil of Power Merge for the sole reason that he owns majority of its
shares is improper. He adds that the Credit Line Agreements and Side Agreements were valid arm's length transactions, and that their
executions were in the performance of his official capacity, which he cannot be made personally liable for in the absence of fraud, bad
faith, or gross negligence on his part.
The Court rejects these arguments.
Concept Builders, Inc. v. NLRC instructs that as a fundamental principle of corporation law, a corporation is an entity separate and distinct
from its stockholders and from other corporations to which it may be connected. But, this separate and distinct personality of a
corporation is merely a fiction created by law for convenience and to promote justice. Thus, authorities discuss that when the notion of
separate juridical personality is used (1) to defeat public convenience, justify wrong, protect fraud or defend crime; (2) as a device to
defeat the labor laws; or (3) when the corporation is merely an adjunct, a business conduit or an alter ego of another corporation, this
separate personality of the corporation may be disregarded or the veil of corporate fiction pierced.136
The circumstances of Power Merge clearly present an alter ego case that warrants the piercing of the corporate veil.
To elucidate, case law lays down a three-pronged test to determine the application of the alter-ego theory, namely:
(1) Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business
practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or
existence of its own;
(2) Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other
positive legal duty, or dishonest and unjust act in contravention of plaintiffs legal right; and
(3) The aforesaid control and breach of duty must have proximately caused the injury or unjust loss complained of.137
In the present case, Virata not only owned majority of the Power Merge shares; he exercised complete control thereof. He is not only the
company president, he also owns 374,996 out of 375,000 of its subscribed capital stock. Meanwhile, the remainder was left for the
nominal incorporators of the business. The reported address of petitioner Virata and the principal office of Power Merge are even one
and the same.138 The clearest indication of all: Power Merge never operated to perform its business functions, but for the benefit of
Virata. Specifically, it was merely created to fulfill his obligations under the Waiver and Quitclaim, the same obligations for his release
from liability arising from Hottick's default and non-payment.
Virata would later on use his control over the Power Merge corporation in order to fulfill his obligation under the Waiver and Quitclaim.
Impelled by the desire to settle the outstanding obligations of Hottick under the terms of the settlement agreement, Virata effectively
allowed Power Merge to be used as Wincorp's pawn in avoiding its legal duty to pay the investors under the failed investment scheme.
Pursuant to the alter ego doctrine, petitioner Virata should then be made liable for his and Power Merge's obligations.
b. UEM-MARA cannot be held liable
There is, however, merit in the argument that UEM-MARA cannot be held liable to respondent Ng Wee. The RIC and the CA held that the
corporation ought to be held solidarily liable with the other petitioners "in order that justice can reach the illegal proceeds from the
defrauded investments of [Ng Wee] under the Power Merge account."139According to the trial court, Virata laundered the proceeds of the
Power Merge borrowings and stashed them in UEM-MARA to prevent detection and discovery and hence, UEM-MARA should likewise be
held solidarily liable.
We disagree.
UEM-MARA is an entity distinct and separate from Power Merge, and it was not established that it was guilty in perpetrating fraud against
the investors. It was a non-party to the "sans recourse" transactions, the Credit Line Agreement, the Side Agreements, the Promissory
Notes, the Confirmation Advices, and to the other transactions that involved Wincorp, Power Merge, and Ng Wee. There is then no
reason to involve UEM-MARA in the fray. Otherwise stated, respondent Ng Wee has no cause of action against UEM-MARA. UEM-MARA
should not have been impleaded in this case.
A cause of action is the act or omission by which a party violates a right of another.140 The essential elements of a cause of action are (1) a
right in favor of the plaintiff by whatever means and under whatever law it arises or is created; (2) an obligation on the part of the named
defendant to respect or not to violate such right; and (3) an act or omission on the part of such defendant in violation of the right of the
plaintiff or constituting a breach of the obligation of the defendant to the plaintiff for which the latter may maintain an action for recovery
of damages or other appropriate relief.141
The third requisite is severely lacking in this case. Respondent Ng Wee cannot point to a specific wrong committed by UEM-MARA against
him in relation to his investments in Wincorp, other than being the object of Wincorp's desires. He merely alleged that the proceeds of
the Power Merge loan was used by Virata in order to acquire interests in DEM-MARA, but this does not, however, constitute a valid cause
of action against the company even if we were to assume the allegation to be true. It would indeed be a giant leap in logic to say that
being Wincorp' s objective automatically makes UEM-MARA a party to the fraud. DEM-Mara's involvement in this case is merely
incidental, not direct.
G.R No. 221218: The liability of
Anthony Reyes
To restate, basic is the rule that a corporation is invested by law with a personality separate and distinct from that of the persons
composing it as well as from that of any other legal entity to which it may be related. Following this, obligations incurred by the
corporation, acting through its directors, officers and employees, are its sole liabilities, and said personalities are generally not held
personally liable thereon.142
By way of exception, a corporate director, a trustee or an officer, may be held solidarily liable with the corporation under Sec. 31 of the
Corporation Code which reads:
Section 31. Liability of directors, trustees or officers. - Directors or trustees who willfully and knowingly vote for or assent to patently
unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the affairs of the corporation or acquire any
personal or pecuniary interest in conflict with their duty as such directors or trustees shall be liable jointly and severally for all damages
resulting therefrom suffered by the corporation, its stockholders or members and other persons.
When a director, trustee or officer attempts to acquire or acquire, in violation of his duty, any interest adverse to the corporation in
respect of any matter which has been reposed in him in confidence, as to which equity imposes a disability upon him to deal in his own
behalf, he shall be liable as a trustee for the corporation and must account for the profits which otherwise would have accrued to the
corporation. (emphasis added)
Petitioner Reyes relies on the black letter law in his bid for absolution. He claims that he is not a director of Wincorp, but its Vice-President
for Operations. Thus, he can only be held liable under the second paragraph of the provision. As can be read, officers are only precluded
from acquiring or attempting to acquire any interest in conflict with that of the company he is serving. There being no allegation of him
being guilty of conflict of interest, Reyes argues that he cannot be held liable under the provision.
The argument is bereft of merit.
Ascribing liability to a corporate director, trustee, or officer by invoking Sec. 31 of the Corporation Code is distinct from the remedial
concept of piercing the corporate veil. While Sec. 31 expressly lays down specific instances wherein the mentioned personalities can be
held liable in their personal capacities, the doctrine of piercing the corporate veil, on the other hand, is an equitable remedy resorted to
only when the corporate fiction is used, among others, to defeat public convenience, justify wrong, protect fraud or defend a crime.143
Applying the doctrine, petitioner cannot escape liability by claiming that he was merely performing his function as Vice-President for
Operations and was duly authorized to sign the Side Agreements in Wincorp's behalf. The Credit Line Agreement is patently contradictory
if not irreconcilable with the Side Agreements, which he executed on the same day as the representative for Wincorp. The execution of
the Side Agreements was the precursor to the fraud. Taken with Wincorp's subsequent offer to its clients of the "sans
recourse" transactions allegedly secured by the Promissory Notes, it is a clear indicia of fraud for which Reyes must be held accountable.
G.R. No. 221135: The liabilities of
Cua and the Cualopings
On the other hand, the liabilities of Cua and the Cualopings are more straightforward. They admit of approving the Credit Line Agreement
and its subsequent Amendment during the special meetings of the Wincorp board of directors, but interpose the defense that they did so
because the screening committee found the application to be above board. They deny knowledge of the Side Agreements and of Power
Merge's inability to pay.
We are not persuaded.
Cua and the Cualopings cannot effectively distance themselves from liability by raising the defenses they did. As ratiocinated by the CA:
Such submission creates a loophole, especially in this age of compartmentalization, that would create a nearly fool-proof scheme whereby
well-organized enterprises can evade liability for financial fraud. Behind the veil of compartmentalized departments, such enterprise could
induce the investing public to invest in a corporation which is financially unable to pay with promises of definite returns on investment. If
we follow the reasoning of defendants-appellants, we allow the masterminds and profiteers from the scheme to take the money and run
without fear of liability from law simply because the defrauded investor would be hard-pressed to identify or pinpoint from among the
various departments of a corporation which directly enticed him to part with his money.144
Petitioners Cua and the Cualopings bewail that the above-quoted statement is overarching, sweeping, and bereft of legal or factual basis.
But as per the records, the totality of circumstances in this case proves that they are either complicit to the fraud, or at the very least
guilty of gross negligence, as regards the "sans recourse" transactions from the Power Merge account.
The board of directors is expected to be more than mere rubber stamps of the corporation and its subordinate departments. It wields all
corporate powers bestowed by the Corporation Code, including the control over its properties and the conduct of its business.145 Being
stewards of the company, the board is primarily charged with protecting the assets of the corporation in behalf of its stakeholders.
Cua and the Cualopings failed to observe this fiduciary duty when they assented to extending a credit line facility to Power Merge. In PED
Case No. 20-2378, the SEC discovered that Power Merge is actually Wincorp's largest borrower at about 30% of the total borrowings.146 It
was then incumbent upon the board of directors to have been more circumspect in approving its credit line facility, and should have made
an independent evaluation of Power Merge' s application before agreeing to expose it to a ₱2,500,000,00.00 risk.
Had it fulfilled its fiduciary duty, the obvious warning signs would have cautioned it from approving the loan in haste. To recapitulate: (1)
Power Merge has only been in existence for two years when it was granted a credit facility; (2) Power Merge was thinly capitalized with
only ₱37 ,500,000.00 subscribed capital; (3) Power Merge was not an ongoing concern since it never secured the necessary permits and
licenses to conduct business, it never engaged in any lucrative business, and it did not file the necessary reports with the SEC; and (4) no
security other than its Promissory Notes was demanded by Wincorp or was furnished by Power Merge in relation to the latter's
drawdowns.
It cannot also be ignored that prior to Power Merge' s application for a credit facility, its controller Virata had already transacted with
Wincorp. A perusal of his records with the company would have revealed that he was a surety for the Hottick obligations that were still
unpaid at that time. This means that at the time the Credit Line Agreement was executed on February 15, 1999, Virata still had direct
obligations to Wincorp under the Hottick account. But instead of impleading him in the collection suit against Hottick, Wincorp's board of
directors effectively released Virata from liability, and, ironically, granted him a credit facility in the amount of ₱l,300,000,000.00 on the
very same day.
This only goes to show that even if Cua and the Cualopings are not
guilty of fraud, they would nevertheless still be liable for gross negligence147 in managing the affairs of the company, to the prejudice of its
clients and stakeholders. Under such circumstances, it becomes immaterial whether or not they approved of the Side Agreements or
authorized Reyes to sign the same since this could have all been avoided if they were vigilant enough to disapprove the Power Merge
credit application. Neither can the business judgment rule148apply herein for it is elementary in corporation law that the doctrine admits
of exceptions: bad faith being one of them, gross negligence, another.149 The CA then correctly held petitioners Cua and the Cualopings
liable to respondent Ng Wee in their personal capacity.
G.R. No. 221109: The liability of
Manuel Estrella
To refresh, Estrella echoes the defense of Tankiansee, who was exempted from liability by the trial court. He claims that just like
Tankiansee, he was not present during Wincorp's special board meetings where Power Merge's credit line was approved and
subsequently amended. Both also claimed that they protested and opposed the board's actions. But despite the parallels in their
defenses, the trial court was unconvinced that Estrella should be released from liability. Estrella appealed to the CA, but the adverse ruling
was sustained.
We agree with the findings of the courts a quo.
The minutes of the February 9, 1999 and March 11, 1999 Wincorp Special Board Meetings were considered as damning evidence against
Estrella, just as they were for Cua and the Cualopings. Although they were said to be unreliable insofar as Tankiansee is concerned, the
trial court rightly distinguished between the circumstances of Estrella and Tankiansee to justify holding Estrella liable.
For perspective, Tankiansee was exempted from liability upon establishing that it was physically impossible for him to have participated in
the said meetings since his immigration records clearly show that he was outside the country during those specific dates. In contrast, no
similar evidence of impossibility was ever offered by Estrella to support his position that he and Tankiansee are similarly situated.
Estrella submitted his departure records proving that he had left the country in July 1999 and returned only in February of 2000. Be that
as it may, this is undoubtedly insufficient to establish his defense that he was not present during the February 9, 1999 and March 11, 1999
board meetings.
Instead, the minutes clearly state that Estrella was present during the meetings when the body approved the grant of a credit line facility
to Power Merge. Estrella would even admit being present during the February 9, 1999 meeting, but attempted to evade responsibility by
claiming that he left the meeting before the "other matters," including Power Merge's application, could have been discussed.
Unfortunately, no concrete evidence was ever offered to confirm Estrella's alibi. In both special meetings scheduled, Estrella averred that
he accompanied his wife to a hospital for her cancer screening and for dialogues on possible treatments. However, this claim was never
corroborated by any evidence coming from the hospital or from his wife's physicians. Aside from his mere say-so, no other credible
evidence was presented to substantiate his claim. Thus, the Court is not inclined to lend credence to Estrella's self-serving denials.
Neither can petitioner Estrella be permitted to raise the defense that he is a mere nominee of John Anthony Espiritu, the then chairman of
the Wincorp board of directors. It is of no moment that he only had one nominal share in the corporation, which he did not even pay for,
just as it is inconsequential whether or not Estrella had been receiving compensation or honoraria for attending the meetings of the
board.
The practice of installing undiscerning directors cannot be tolerated, let alone allowed to perpetuate. This must be curbed by holding
accountable those who fraudulently and negligently perform their duties as corporate directors, regardless of the accident by which they
acquired their respective positions.
In this case, the fact remains that petitioner Estrella accepted the directorship in the Wincorp board, along with the obligations attached
to the position, without question or qualification. The fiduciary duty of a company director cannot conveniently be separated from the
position he occupies on the trifling argument that no monetary benefit was being derived therefrom. The gratuitous performance of his
duties and functions is not sufficient justification to do a poor job at steering the company away from foreseeable pitfalls and perils. The
careless management of corporate affairs, in itself, amounts to a betrayal of the trust reposed by the corporate investors, clients, and
stakeholders, regardless of whether or not the board or its individual members are being paid. The RTC and the CA, therefore, correctly
disregarded the defense of Estrella that he is a mere nominee.
IV.
Effect of the Side Agreements
Effect of the Side Agreements on the
solidary liability of the petitioners
The courts a quo dismissed all counterclaims and cross-claims lodged by petitioners against Ng Wee and each other. However, the Court
finds reason to grant the cross-claim of Virata that he be reimbursed by his co-parties of the amount that he and UEM-MARA may be
adjudged to be liable for.152
The reinstatement and grant of the cross-claim is anchored on the stipulation under the Side Agreements. Worthy of note is that neither
the R TC nor the CA nullified the contract, despite their acerbic language towards the same. They merely held that the agreements cannot
be used as protection against liability for repayment to the investors, without more. The Side Agreements even served as basis for the
courts a quo to declare that the confirmation advices being issued to the investors were worthless and uncollectible credit instruments,
and to label the "sans recourse" transactions as without any economically-valuable object.
As such, the Side Agreements remain to be binding and enforceable on the parties thereto: Wincorp, Virata, and Power Merge. We give
credence to the argument of Virata that, as per the language of the Side Agreements themselves, what transpired was an arm's length
transaction, wherein in exchange for Wincorp assuming liability for Power Merge's drawdowns and promissory notes, Power Merge
obligated itself "to return and deliver to Wincorp all the rights, title and interests conveyed by Wincorp hereby to [Power Merge] over the
Hottick obligations." It appears then that there is ample consideration for the release.
Indeed, the Court must not only look at the "sans recourse" transactions in isolation, but also consider the underlying transactions and
ascertain the true intention of the contracting parties. On this score, a narration on the relationship between Hottick, W incorp, and
Power Merge bears reiteration:
On February 21, 1997, Hottick, through a credit facility, borrowed money from Wincorp in the amount of Pl,500,908,026.00, as evidenced
by a Promissory Note issued by Hottick in favor of the investment hosue, and guaranteed by Halim Saad and petitioner Virata. When the
Asian financial crisis struck, Hottick experienced financial distress and was unable to pay its obligations. This prompted Wincorp to file a
collection case against Hottick and Halim Saad.
Virata was not impleaded in the collection suit, and he would turn out to be instrumental in brokering a settlement agreement between
Wincorp and Hottick. But in exchange for his exclusion in the proceedings, he executed a Memorandum of Agreement under which he
assumes the obligation to transfer forty percent (40%) of UPDI's outstanding shares and forty percent (40%) of UPDI' s interest in the
tollway project to Wincorp, among others. It would be clarified in the December 1, 1999 Waiver and Quitclaim, however, that the equity
transfers would be Virata's only obligation under the Memorandum of Agreement. Said Waiver and Quitclaim provides:
This is to confirm that notwithstanding the terms of the Memorandum of Agreement dated July 27, 1999 between our company and
yourself, our company hereby irrevocably and unconditionally releases, waives and agrees to forever hold you, your heirs and assigns free
and harmless from and against any claim, obligation or liability arising out of or in connection with the Memorandum of Agreement;
provided, however, that your undertaking to cause the assignment, transfer and delivery to our company of at least forty percent (40%) of
the equity of UEM Development Philippines, Inc. ("UPDI") and at least forty percent (40%) of the interest/share of UPDI in the Manila
Cavite Express Tollway Project (the "Project") shall have been fully complied with. We hereby reiterate that, except for your aforesaid
obligation to assign, transfer and deliver to our company at least forty (40%) of UPDI's outstanding shares and at least forty percent (40%)
of UPDI's interest/share in the Project, the Memorandum of Agreement is a mere accommodation on your part and does not give rise to
any legal rights or consequences in our company's favour as against yourself, your heirs or assigns.153 (emphasis added)
As can be gleaned, the significant portions of the Waiver and Quitclaim mirror the content of the Side Agreements. But based on the
peculiar transactions between the players herein, the similarity does not end with the content, but extends to the intent. Reproducing the
salient provisions of the Side Agreements:
WHEREAS, Powermerge has entered into the Credit Line Agreement with Wincorp as an accommodation in order to allow Wincorp to
hold Powermerge paper instead of the obligations of Hottick which are right now held by Wincorp.
xxxx
1. Powermerge hereby agrees to execute promissory notes in the aggregate principal sum of ₱l,200,000,000.00 in favor of Wincorp and in
exchange therefore, Wincorp hereby assigns, transfers, and conveys to Powermerge all of its rights, titles and interest by way of a
subparticipation over the promissory notes and other obligations executed by Hottick in favor of Wincorp; Provided however that the only
obligation of Powermerge to Wincorp shall be to return and deliver to Wincorp all the rights, title and interests conveyed by Wincorp
hereby to Powermerge over the Hottick obligations. Powermerge shall have no obligation to pay under its promissory notes executed in
favor of Wincorp but shall be obligated merely to return whatever may have received from Wincorp pursuant to this agreement.
xxxx
3. Wincorp confirms and agrees that this accommodation being entered into by the parties is not intended to create a payment obligation
on the part of Powermerge.154 (emphasis added)
The above documents, besides the non-suit against Virata, readily convey that the parties did not intend to create a payment obligation
on the part of Power Merge; the latter was merely used as a conduit by Wincorp for the acquisition of equity shares. They also confirm
that Power Merge was just a mere accommodation party to the issuance of the Promissory Notes that Wincorp sold to its clients,
consistent with the findings of the courts a quo that Wincorp borrowed the funds for its own account. Though these circumstances do not
exculpate Power Merge and Virata from paying a holder for value under the negotiable instruments they issued, they nevertheless entitle
Power Merge and Virata, as surety, to indemnification by way of reimbursement from Wincorp and its liable directors and officers, the
main debtors, for any amount stated in the note that petitioners Virata and Power Merge would be compelled to defray, pursuant to Art.
2066 of the New Civil Code.155
V.
Award of Damages
Beyond doubt, Ng Wee is entitled to recover the investments he infused in Win corp. This was never the central issue in this case. Other
than raising Ng Wee's alleged failure to state a cause of action in his complaint, none of the petitioners questioned his right to be
compensated for the losses he suffered in the fraudulent investment scheme. Having ascertained the extent of the liabilities of the
petitioners, the Court will now determine the amount to be awarded to Ng Wee.
The trial and appellate court correctly held that Ng Wee should first be recompensed for the maturity amount of the investments he
made in Power Merge through Wincorp, which totalled ₱213,290,410.36. Pursuant to our ruling in the seminal case of Nacar v. Gallery
Frames,156 the amount shall earn interest at twelve percent (12%) per annum from the date of filing of the Complaint on October 19, 2000
until June 30, 2013, and six percent (6%) from July 1, 2013 until full satisfaction.
Moreover, the Credit Line Agreement provides for a stipulation of three percent (3%) additional monthly interest as penalty, twenty
percent (20%) interest of the entire amount due as liquidated damages, and twentyfive percent (25%) of the entire amount due as
attorney's fees. These additional rates of interest are likewise reflected in the promissory notes issued by Power Merge for which the
liable petitioners can be held responsible. However, unlike the trial court and the CA, the Court finds that these contractual stipulations
cannot fully be imposed.
The freedom to contract is not absolute. And one of the more general restrictions thereon is enshrined in Article 1306 of the Civil Code
which precludes the contracting parties from establishing stipulations, clauses, terms, and conditions that are contrary to law, morals,
good customs, public order, and public policy. In this jurisdiction, the Court has never shied away from striking down iniquitous and
unconscionable interest rates for failing to meet this standard.157 We see no reason to depart from the practice in this case.
That said, the Court herein refuses to impose the three percent (3% ) additional monthly penalty interest, and instead affirms the trial and
appellate court's nullification of the same. Such exorbitant interest rate is void for being contrary to morals, if not against the law.158 Being
a void stipulation, the monthly penalty interest is deemed inexistent from the beginning.159 In its stead, the imposition of legal interest
pursuant to Nacar is deemed sufficient.
Anent the twenty percent (20%) liquidated damages, the Court sees the need to reduce the amount. Liquidated damages are those
agreed upon by the parties to a contract, to be paid in case of breach thereof.160 Although it can conclusively be deduced from the
contracts that the parties intended to impose such additional charges, the Court nevertheless, by express provision in Article 2227 of the
New Civil Code, has the right to temper them if they are unconscionable.161 Considering that the base amount of the indebtedness in this
case is by itself already staggering, imposing an additional twenty percent (20%) interest against the persons liable would prove to be too
cumbersome. The Court therefore sees the need to reduce the amount to only ten percent (10%) of the total maturity value of Ng Wee's
investment in Power Merge.
The same downward modification is in order as regards the award of attorney's fees. Although Ng Wee finds justification for the
entitlement to the award under Article 2208 of the New Civil Code,162 the same provision mandates that "in all cases, the attorney's fees
and expenses of litigation must be reasonable." Just as We have reduced the rate for liquidated damages, the Court likewise tempers the
stipulated rate of attorney's fees to five percent (5%) of the total amount due on Ng Wee's investment.
Finally, the Court sees no cogent reason to disturb the RTC's award of moral damages in favor of Ng Wee in the amount of ₱100,000.00,
as affirmed by the appellate court. Discussed in the following wise in Philippine Savings Bank v. Sps. Manalac, Jr. is the concept of moral
damages:
Moral damages are meant to compensate the claimant for any physical suffering, mental anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social humiliation and similar injuries unjustly caused. Although incapable of pecuniary
estimation, the amount must somehow be proportional to and in approximation of the suffering inflicted. Moral damages are not punitive
in nature and were never intended to enrich the claimant at the expense of the def end ant. There is no hard-and-fast rule in determining
what would be a fair and reasonable amount of moral damages, since each case must be governed by its own peculiar facts. Trial courts
are given discretion in determining the amount, with the limitation that it should not be palpably and scandalously excessive. Indeed, it
must be commensurate to the loss or injury suffered.163 (emphasis added)
Ng Wee's claim for moral damages in the amount of ₱5,000,000.00 is indeed too excessive, even with the principal amount in mind. To
reiterate, moral damages were never meant to enrich the claimant. The court therefore upholds the RTC and the CA's grant of the
reduced amount of ₱100,000.00.
Finally, the judgment of liability shall earn additional six percent (6%) interest reckoned from finality, also pursuant to the Nacar ruling.
WHEREFORE, premises considered, the Court resolves:
1. To PARTIALLY GRANT the Petition for Review on Certiorari of Luis Juan L. Virata and UEM-MARA, docketed as G.R.
No. 220926;
2. To DENY the Petition for Review on Certiorari of Westmont Investment Corporation, docketed as G.R. No.
221058;
3. To DENY the Petition for Review of Manuel Estrella, docketed as G.R. No. 221109;
 4. To DENY the Petition for Review on Certiorari of Simeon Cua, Henry Cualoping, and Vicente Cualoping, docketed
as G.R No. 221135;and
5. To DENY the Petition for Review on Certiorari of Anthony Reyes, docketed as G.R. No. 221218.
The September 30, 2014 Decision and October 14, 2015 Resolution of the Court of Appeals in CA-G.R. CV. No. 97817 affirming the July 8,
2011, Decision of the Regional Trial Court, Branch 39 of Manila is hereby AFFIRMED with MODIFICATION. As modified, the dispositive
portion of the trial court Decision in Civil Case No. 00-99006 shall read:
WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff, ordering the defendants Luis L. Virata, Westmont
Investment Corporation (Wincorp), Antonio T. Ong, Anthony T. Reyes, Simeon Cua, Vicente and Henry Cualoping, Mariza Santos-Tan, and
Manuel Estrella to jointly and severally pay plaintiff as follows:
1. The sum of Two Hundred Thirteen Million Two Hundred Ninety Thousand Four Hundred Ten and 36/100 Pesos (₱213,290,410.36),
which is the maturity amount of plaintiffs investment with legal interest at the rate of twelve (12%) percent per annum from the date of
filing of the complaint on October 19. 2000 until June 30, 2013 and six percent (6%) from July l, 2013 until fully paid;
2. Liquidated damages equivalent to ten percent (10%) of the maturity amount, and attorney's fees equivalent to five percent (5%) of the
total amount due plus legal interest at the rate of twelve (12%) percent per annum from the date of filing of the complaint until June 30,
2013 and six percent (6%) from July 1, 2013 until fully paid;
3. ₱100,000.00 as moral damages.
4. Additional interest of six percent (6%) per annum of the total monetary awards, computed from finality of judgment until full
satisfaction.
5. The complaint against defendants Manuel Tankiansee and UEMMARA Philippines Corporation is dismissed for lack of merit.
The cross claim of Luis Juan L. Virata is hereby GRANTED. Westmont Investment Corporation (Wincorp), Antonio T. Ong, Anthony T. Reyes,
Simeon Cua, Vicente and Henry Cualoping, Mariza Santos-Tan. and Manuel Estrella are hereby ordered jointly and severally liable to pay
and reimburse Luis Juan L. Virata for any payment or contribution he (Luis Juan L. Virata) may make or be compelled to make to satisfy the
amount due to plaintiff Alejandro Ng Wee. All other counterclaims against Alejandro Ng Wee and cross-claims by the defendants as
against each other are dismissed for lack of merit.
Cost against the defendants, except defendants Manuel Tankiansee and UEM-MARA Philippines Corporation.
SO ORDERED.
CITY-LITE REALTY CORPORATION, petitioner, vs. COURT OF APPEALS and F.P. HOLDINGS & REALTY CORP., METRO DRUG INC., MELDIN AL
G. ROY, VIEWMASTER CONSTRUCTION CORP., and the REGISTER OF DEEDS OF QUEZON CITY, respondent. marie
DECISION
BELLOSILLO, J.:
This is a petition for review on certiorari filed by CITY-LITE REALTY CORPORATION (CITY-LITE) seeking to annul the 20 October 1998
Decision of the Court of Appeals[1] which reversed the Decision of the Regional Trial Court of Quezon City in its Civil Case No. Q-92-11068
declaring that a contract of sale over the subject property was perfected and that Metro Drug Inc. and Meldin Al G. Roy had the authority
to sell the property.[2]
Private respondent F. P. HOLDINGS AND REALTY CORPORATION (F.P. HOLDINGS), formerly the Sparta Holdings Inc., was the registered
owner of a parcel of land situated along E. Rodriguez Avenue, Quezon City, also known as the "Violago Property" or the "San Lorenzo Ruiz
Commercial Center," with an area of 71,754 square meters, more or less, and covered by Transfer Certificate of Title No. T-19599. The
property was offered for sale to the general public through the circulation of a sales brochure containing the following information:
A parcel of land including buildings and other improvements thereon located along E. Rodriguez Avenue, Quezon
City, with a total lot area of 71,754 square meters - 9,192 square meters in front, 23,332 square meters in the
middle, and 39,230 square meters at the back. But the total area for sale excludes 5,000 square meters covering the
existing chapel and adjoining areas which will be donated to the Archdiocese of Manila thus reducing the total
saleable area to 66,754 square meters. Asking price was P6,250.00/square meter with terms of payment negotiable.
Broker's commission was 2.0% of selling price, net of withholding taxes and other charges. As advertised, contact
person was Meldin Al G. Roy, Metro Drug Inc., with address at 5/F Metro House, 345 Sen. Gil Puyat Avenue, Makati
City.
The front portion consisting of 9,192 square meters is the subject of this litigation.
On 22 August 1991 respondent Meldin Al G. Roy sent a sales brochure, together with the location plan and copy of the Transfer Certificate
of Title No. T-19599 of the Register of Deeds of Quezon City, to Atty. Gelacio Mamaril, a practicing lawyer and a licensed real estate
broker. Atty. Mamaril in turn passed on these documents to Antonio Teng, Executive Vice-President, and Atty. Victor P. Villanueva, Legal
Counsel, of CITY-LITE.
In a letter dated 19 September 1991 sent to Metro Drug (ATTN: MELDIN AL ROY) after an initial meeting with Meldin Al Roy that day, CITY-
LITE conveyed its interest to purchase a portion or one-half (1/2) of the front lot of the "Violago Property." Apparently, Roy subsequently
informed CITY-LITE's representative that it would take time to subdivide the lot and respondent F. P. HOLDINGS was not receptive to the
purchase of only half of the front lot. After a few days, Atty. Mamaril wrote Metro Drug (ATTN: MELDIN AL ROY) expressing CITY-LITE's
desire to buy the entire front lot of the subject property instead of only half thereof provided the asking price of P6,250.00/square meter
was reduced and that payment be in installment for a certain period. Roy made a counter offer dated 25 September 1991 as follows:
Dear Atty. Mamaril,
This has reference to your letter dated September 24, 1991 in connection with the interest of your clients, Mr.
Antonio Teng/City-Lite Realty Corporation and/or any of their subsidiaries to buy a portion of the Violago Property
fronting E. Rodriguez Sr. Avenue with an area of 9,192 square meters.
We are pleased to inform you that we are prepared to consider the above offer subject to the following major
terms and conditions: 1. The price shall be P6,250.00/square meter or a total of P57,450,000.00; 2. The above
purchase price shall be paid to the owner as follows: (a) P15.0 Million downpayment; (b) balance payable within six
(6) months from date of downpayment without interest. Should your client find the above major terms and
conditions acceptable, please advise us in writing by tomorrow, September 26, 1991, so that we can start formal
discussions on the matter x x x xnovero
Very truly yours,
MELDIN AL G. ROY
On 26 September 1991 CITY-LITE's officers and Atty. Mamaril met with Roy at the Manila Mandarin Hotel in Makati to consummate the
transaction. After some discussions, the parties finally reached an agreement and Roy agreed to sell the property to CITY-LITE provided
only that the latter submit its acceptance in writing to the terms and conditions of the sale as contained in his letter of 25 September
1991. Later that afternoon after meeting with Roy at the Manila Mandarin Hotel, Atty. Mamaril and Antonio Teng of CITY-LITE conveyed
their formal acceptance of the terms and conditions set forth by Roy in separate letters both dated 26 September 1991.
However, for some reason or another and despite demand, respondent F. P. HOLDINGS refused to execute the corresponding deed of sale
in favor of CITY-LITE of the front lot of the property. Upon its claim of protecting its interest as vendee of the property in suit, CITY-LITE
registered an adverse claim to the title of the property with the Register of Deeds of Quezon City which was annotated in the
Memorandum of Encumbrance of Transfer Certificate of Title No. T-19599 under Entry No. PE-1001 dated 27 September 1991.
On 30 September 1991 CITY-LITE's counsel demanded in writing that Metro Drug (ATTN: MELDIN AL G. ROY) comply with its commitment
to CITY-LITE by executing the proper deed of conveyance of the property under pain of court action. On 4 October 1991 F. P. HOLDINGS
filed a petition for the cancellation of the adverse claim against CITY-LITE with the Regional Trial Court of Quezon City, docketed as LRC
Case No. 91-10257, which was raffled to Br. 84.
On 8 October 1991 Edwin Fernandez, President of F. P. HOLDINGS, in a move to amicably settle with CITY-LITE, met with the latter's
officers during which he offered properties located in Caloocan City and in Quezon Boulevard, Quezon City, as substitute for the property,
but CITY-LITE refused the offer because "it did not suit its business needs." With the filing of the petition of F. P. HOLDINGS for the
cancellation of the adverse claim, CITY-LITE caused the annotation of the first notice of lis pendens which was recorded in the title of the
property under Entry No. 4605.
On 2 December 1991 the RTC-Br. 84 of Quezon City dismissed F. P. HOLDINGS' petition declaring that CITY-LITE's adverse claim had factual
basis and was not "sham and frivolous." Meanwhile, F. P. HOLDINGS caused the resurvey and segregation of the property and asked the
Register of Deeds of Quezon City to issue separate titles which the latter did on 17 January 1992 by issuing Transfer Certificate of Title No.
T-51671. nigel
Following the dismissal of F. P. HOLDINGS' petition for the cancellation of the adverse claim, CITY-LITE instituted a complaint against F. P.
HOLDINGS originally for specific perfomance and damages and caused the annotation of the second notice of lis pendens on the new
certificate of title. After the annotation of the second lis pendens, the property was transfered to defendant VIEWMASTER
CONSTRUCTION CORP. (VIEWMASTER) for which Transfer Certificate of Title No. T-52398 was issued. However the notice of lis
pendens was carried over and annotated on the new certificate of title.
In view of the conveyance during the pendency of the suit, the original complaint for specific performance and damages was amended
with leave of court to implead VIEWMASTER as a necessary party and the Register of Deeds of Quezon City as nominal defendant with the
additional prayer for the cancellation of VIEWMASTER's certificate of title. The case was thereafter raffled to Br. 85 of the Regional Trial
Court of Quezon City.
On 4 October 1995 the court a quo rendered its decision in favor of CITY-LITE ordering F. P. HOLDINGS to execute a deed of sale of the
property in favor of CITY-LITE for the total consideration of P55,056,250.00 payable as follows: P15 Million as downpayment to be payable
immediately upon execution of the deed of sale and the balance within six (6) months from downpayment, without interest. The court
also directed the Register of Deeds of Quezon City to cancel Transfer Certificate of Title No. T-52398 or any subsequent title it had issued
affecting the subject property, and to issue a new one in the name of CITY-LITE upon the presentation of the deed of sale and other
requirements for the transfer. It likewise ordered the defendants, except VIEWMASTER and the Register of Deeds of Quezon City, to pay
CITY-LITE jointly and severally P800,000.00 by way of nominal damages, P250,000.00 for attorney's fees, and to pay the costs.
On 30 October 1995 VIEWMASTER filed a motion for reconsideration of the decision of the lower court questioning its ruling that a
perfected contract of sale existed between CITY-LITE and F. P. HOLDINGS as there was no definite agreement over the manner of payment
of the purchase price, citing in support thereof Toyota Shaw Inc. v. Court of Appeals.[3] However the motion for reconsideration was
denied.
In the challenged Decision of 20 October 1998 the Court of Appeals reversed and set aside the judgment of the Regional Trial Court of
Quezon City. On 10 May 1999 the Court of Appeals denied CITY-LITE's motion to reconsider its decision.
Petitioner CITY-LITE is now before us assailing the Court of Appeals for declaring that no contract of sale was perfected between it and
respondent F. P. HOLDINGS because of lack of a definite agreement on the manner of paying the purchase price and that respondents
Metro Drug and Meldin Al G. Roy were not authorized to sell the property to CITY-LITE, and that the authority of Roy was only limited to
that of a mere liaison or contact person. ella
We cannot sustain petitioner. On the issue of whether a contract of sale was perfected between petitioner CITY-LITE and respondent F. P.
HOLDINGS acting through its agent Meldin Al G. Roy of Metro Drug, Art. 1874 of the Civil Code provides: "When the sale of a piece of land
or any interest therein is through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be void." Petitioner
anchors the authority of Metro Drug and Meldin Al G. Roy on (a) the testimonies of petitioner's three (3) witnesses and the admissions of
Roy and the lawyer of Metro Drug; (b) the sales brochure specifying Meldin Al G. Roy as a contact person; (c) the guard posted at the
property saying that Metro Drug was the authorized agent; and, (d) the common knowledge among brokers that Metro Drug through
Meldin Al G. Roy was the authorized agent of F. P. HOLDINGS to sell the property. However, and more importantly, the Civil Code requires
that an authority to sell a piece of land shall be in writing. The absence of authority to sell can be determined from the written
memorandum issued by respondent F. P. HOLDINGS' President requesting Metro Drug's assistance in finding buyers for the property. The
memorandum in part stated: "We will appreciate Metro Drug's assistance in referring to us buyers for the property. Please proceed to
hold preliminary negotiations with interested buyers and endorse formal offers to us for our final evaluation and appraisal." This obviously
meant that Meldin Al G. Roy and/or Metro Drug was only to assist F. P. HOLDINGS in looking for buyers and referring to them possible
prospects whom they were supposed to endorse to F. P. HOLDINGS. But the final evaluation, appraisal and acceptance of the transaction
could be made only by F. P. HOLDINGS. In other words, Meldin Al G. Roy and/or Metro Drug was only a contact person with no authority
to conclude a sale of the property. In fact, a witness for petitioner even admitted that Roy and/or Metro Drug was a mere broker,[4] and
Roy's only job was to bring the parties together for a possible transaction.[5] Consequently, we hold that for lack of a written authority to
sell the "Violago Property" on the part of Meldin Al G. Roy and/or Metro Drug, the sale should be as it is declared null and void. Therefore
the sale could not produce any legal effect as to transfer the subject property from its lawful owner, F. P. HOLDINGS, to any interested
party including petitioner CITY-LITE.
WHEREFORE, the appealed Decision of the Court of Appeals being in accord with law and the evidence is AFFIRMED. Costs against
petitioner CITY-LITE REALTY CORPORATION. marinella
SO ORDERED.
G.R. No. 160346 August 25, 2009
PURITA PAHUD, SOLEDAD PAHUD, and IAN LEE CASTILLA (represented by Mother and Attorney-in-Fact VIRGINIA CASTILLA), Petitioners,
vs.
COURT OF APPEALS, SPOUSES ISAGANI BELARMINO and LETICIA OCAMPO, EUFEMIA SAN AGUSTIN-MAGSINO, ZENAIDA SAN AGUSTIN-
McCRAE, MILAGROS SAN AGUSTIN-FORTMAN, MINERVA SAN AGUSTIN-ATKINSON, FERDINAND SAN AGUSTIN, RAUL SAN AGUSTIN,
ISABELITA SAN AGUSTIN-LUSTENBERGER and VIRGILIO SAN AGUSTIN, Respondents.
DECISION
NACHURA, J.:
For our resolution is a petition for review on certiorari assailing the April 23, 2003 Decision1 and October 8, 2003 Resolution2 of the Court
of Appeals (CA) in CA-G.R. CV No. 59426. The appellate court, in the said decision and resolution, reversed and set aside the January 14,
1998 Decision3 of the Regional Trial Court (RTC), which ruled in favor of petitioners.
The dispute stemmed from the following facts.
During their lifetime, spouses Pedro San Agustin and Agatona Genil were able to acquire a 246-square meter parcel of land situated in
Barangay Anos, Los Baños, Laguna and covered by Original Certificate of Title (OCT) No. O-(1655) 0-15.4 Agatona Genil died on September
13, 1990 while Pedro San Agustin died on September 14, 1991. Both died intestate, survived by their eight (8) children: respondents
Eufemia, Raul, Ferdinand, Zenaida, Milagros, Minerva, Isabelita and Virgilio.
Sometime in 1992, Eufemia, Ferdinand and Raul executed a Deed of Absolute Sale of Undivided Shares5conveying in favor of petitioners
(the Pahuds, for brevity) their respective shares from the lot they inherited from their deceased parents for ₱525,000.00.6 Eufemia also
signed the deed on behalf of her four (4) other co-heirs, namely: Isabelita on the basis of a special power of attorney executed on
September 28, 1991,7 and also for Milagros, Minerva, and Zenaida but without their apparent written authority.8 The deed of sale was
also not notarized.9
On July 21, 1992, the Pahuds paid ₱35,792.31 to the Los Baños Rural Bank where the subject property was mortgaged.10 The bank issued a
release of mortgage and turned over the owner’s copy of the OCT to the Pahuds.11 Over the following months, the Pahuds made more
payments to Eufemia and her siblings totaling to ₱350,000.00.12 They agreed to use the remaining ₱87,500.0013 to defray the payment for
taxes and the expenses in transferring the title of the property.14 When Eufemia and her co-heirs drafted an extra-judicial settlement of
estate to facilitate the transfer of the title to the Pahuds, Virgilio refused to sign it.15
On July 8, 1993, Virgilio’s co-heirs filed a complaint16 for judicial partition of the subject property before the RTC of Calamba, Laguna. On
November 28, 1994, in the course of the proceedings for judicial partition, a Compromise Agreement17 was signed with seven (7) of the
co-heirs agreeing to sell their undivided shares to Virgilio for ₱700,000.00. The compromise agreement was, however, not approved by
the trial court because Atty. Dimetrio Hilbero, lawyer for Eufemia and her six (6) co-heirs, refused to sign the agreement because he knew
of the previous sale made to the Pahuds.18lawphil.net
On December 1, 1994, Eufemia acknowledged having received ₱700,000.00 from Virgilio.19 Virgilio then sold the entire property to
spouses Isagani Belarmino and Leticia Ocampo (Belarminos) sometime in 1994. The Belarminos immediately constructed a building on the
subject property.
Alarmed and bewildered by the ongoing construction on the lot they purchased, the Pahuds immediately confronted Eufemia who
confirmed to them that Virgilio had sold the property to the Belarminos.20 Aggrieved, the Pahuds filed a complaint in intervention21 in the
pending case for judicial partition.1avvphil
After trial, the RTC upheld the validity of the sale to petitioners. The dispositive portion of the decision reads:
WHEREFORE, the foregoing considered, the Court orders:
1. the sale of the 7/8 portion of the property covered by OCT No. O (1655) O-15 by the plaintiffs as heirs of deceased Sps.
Pedro San Agustin and Agatona Genil in favor of the Intervenors-Third Party plaintiffs as valid and enforceable, but obligating
the Intervenors-Third Party plaintiffs to complete the payment of the purchase price of ₱437,500.00 by paying the balance of
₱87,500.00 to defendant Fe (sic) San Agustin Magsino. Upon receipt of the balance, the plaintiff shall formalize the sale of the
7/8 portion in favor of the Intervenor[s]-Third Party plaintiffs;
2. declaring the document entitled "Salaysay sa Pagsang-ayon sa Bilihan" (Exh. "2-a") signed by plaintiff Eufemia San Agustin
attached to the unapproved Compromise Agreement (Exh. "2") as not a valid sale in favor of defendant Virgilio San Agustin;
3. declaring the sale (Exh. "4") made by defendant Virgilio San Agustin of the property covered by OCT No. O (1655)-O-15
registered in the names of Spouses Pedro San Agustin and Agatona Genil in favor of Third-party defendant Spouses Isagani and
Leticia Belarmino as not a valid sale and as inexistent;
4. declaring the defendant Virgilio San Agustin and the Third-Party defendants spouses Isagani and Leticia Belarmino as in bad
faith in buying the portion of the property already sold by the plaintiffs in favor of the Intervenors-Third Party Plaintiffs and the
Third-Party Defendant Sps. Isagani and Leticia Belarmino in constructing the two-[storey] building in (sic) the property subject
of this case; and
5. declaring the parties as not entitled to any damages, with the parties shouldering their respective responsibilities regarding
the payment of attorney[’]s fees to their respective lawyers.
No pronouncement as to costs.
SO ORDERED.22
Not satisfied, respondents appealed the decision to the CA arguing, in the main, that the sale made by Eufemia for and on behalf of her
other co-heirs to the Pahuds should have been declared void and inexistent for want of a written authority from her co-heirs. The CA
yielded and set aside the findings of the trial court. In disposing the issue, the CA ruled:
WHEREFORE, in view of the foregoing, the Decision dated January 14, 1998, rendered by the Regional Trial Court of Calamba, Laguna,
Branch 92 in Civil Case No. 2011-93-C for Judicial Partition is hereby REVERSED and SET ASIDE, and a new one entered, as follows:
(1) The case for partition among the plaintiffs-appellees and appellant Virgilio is now considered closed and terminated;
(2) Ordering plaintiffs-appellees to return to intervenors-appellees the total amount they received from the latter, plus an
interest of 12% per annum from the time the complaint [in] intervention was filed on April 12, 1995 until actual payment of the
same;
(3) Declaring the sale of appellant Virgilio San Agustin to appellants spouses, Isagani and Leticia Belarmino[,] as valid and
binding;
(4) Declaring appellants-spouses as buyers in good faith and for value and are the owners of the subject property.
No pronouncement as to costs.
SO ORDERED.23
Petitioners now come to this Court raising the following arguments:
I. The Court of Appeals committed grave and reversible error when it did not apply the second paragraph of Article 1317 of the
New Civil Code insofar as ratification is concerned to the sale of the 4/8 portion of the subject property executed by
respondents San Agustin in favor of petitioners;
II. The Court of Appeals committed grave and reversible error in holding that respondents spouses Belarminos are in good faith
when they bought the subject property from respondent Virgilio San Agustin despite the findings of fact by the court a quo
that they were in bad faith which clearly contravenes the presence of long line of case laws upholding the task of giving utmost
weight and value to the factual findings of the trial court during appeals; [and]
III. The Court of Appeals committed grave and reversible error in holding that respondents spouses Belarminos have superior
rights over the property in question than petitioners despite the fact that the latter were prior in possession thereby
misapplying the provisions of Article 1544 of the New Civil Code.24
The focal issue to be resolved is the status of the sale of the subject property by Eufemia and her co-heirs to the Pahuds. We find the
transaction to be valid and enforceable.
Article 1874 of the Civil Code plainly provides:
Art. 1874. When a sale of a piece of land or any interest therein is through an agent, the authority of the latter shall be in writing;
otherwise, the sale shall be void.
Also, under Article 1878,25 a special power of attorney is necessary for an agent to enter into a contract by which the ownership of an
immovable property is transmitted or acquired, either gratuitously or for a valuable consideration. Such stringent statutory requirement
has been explained in Cosmic Lumber Corporation v. Court of Appeals:26
[T]he authority of an agent to execute a contract [of] sale of real estate must be conferred in writing and must give him specific authority,
either to conduct the general business of the principal or to execute a binding contract containing terms and conditions which are in the
contract he did execute. A special power of attorney is necessary to enter into any contract by which the ownership of an immovable is
transmitted or acquired either gratuitously or for a valuable consideration. The express mandate required by law to enable an appointee
of an agency (couched) in general terms to sell must be one that expressly mentions a sale or that includes a sale as a necessary
ingredient of the act mentioned. For the principal to confer the right upon an agent to sell real estate, a power of attorney must so
express the powers of the agent in clear and unmistakable language. When there is any reasonable doubt that the language so used
conveys such power, no such construction shall be given the document.27
In several cases, we have repeatedly held that the absence of a written authority to sell a piece of land is, ipso jure, void,28 precisely to
protect the interest of an unsuspecting owner from being prejudiced by the unwarranted act of another.
Based on the foregoing, it is not difficult to conclude, in principle, that the sale made by Eufemia, Isabelita and her two brothers to the
Pahuds sometime in 1992 should be valid only with respect to the 4/8 portion of the subject property. The sale with respect to the 3/8
portion, representing the shares of Zenaida, Milagros, and Minerva, is void because Eufemia could not dispose of the interest of her co-
heirs in the said lot absent any written authority from the latter, as explicitly required by law. This was, in fact, the ruling of the CA.
Still, in their petition, the Pahuds argue that the sale with respect to the 3/8 portion of the land should have been deemed ratified when
the three co-heirs, namely: Milagros, Minerva, and Zenaida, executed their respective special power of attorneys29 authorizing Eufemia to
represent them in the sale of their shares in the subject property.30
While the sale with respect to the 3/8 portion is void by express provision of law and not susceptible to ratification,31we nevertheless
uphold its validity on the basis of the common law principle of estoppel.
Article 1431 of the Civil Code provides:
Art. 1431. Through estoppel an admission or representation is rendered conclusive upon the person making it, and cannot be denied or
disproved as against the person relying thereon.
True, at the time of the sale to the Pahuds, Eufemia was not armed with the requisite special power of attorney to dispose of the 3/8
portion of the property. Initially, in their answer to the complaint in intervention,32 Eufemia and her other co-heirs denied having sold
their shares to the Pahuds. During the pre-trial conference, however, they admitted that they had indeed sold 7/8 of the property to the
Pahuds sometime in 1992.33 Thus, the previous denial was superseded, if not accordingly amended, by their subsequent
admission.34 Moreover, in their Comment,35 the said co-heirs again admitted the sale made to petitioners.36
Interestingly, in no instance did the three (3) heirs concerned assail the validity of the transaction made by Eufemia to the Pahuds on the
basis of want of written authority to sell. They could have easily filed a case for annulment of the sale of their respective shares against
Eufemia and the Pahuds. Instead, they opted to remain silent and left the task of raising the validity of the sale as an issue to their co-heir,
Virgilio, who is not privy to the said transaction. They cannot be allowed to rely on Eufemia, their attorney-in-fact, to impugn the validity
of the first transaction because to allow them to do so would be tantamount to giving premium to their sister’s dishonest and fraudulent
deed. Undeniably, therefore, the silence and passivity of the three co-heirs on the issue bar them from making a contrary claim.
It is a basic rule in the law of agency that a principal is subject to liability for loss caused to another by the latter’s reliance upon a deceitful
representation by an agent in the course of his employment (1) if the representation is authorized; (2) if it is within the implied authority
of the agent to make for the principal; or (3) if it is apparently authorized, regardless of whether the agent was authorized by him or not
to make the representation.37
By their continued silence, Zenaida, Milagros and Minerva have caused the Pahuds to believe that they have indeed clothed Eufemia with
the authority to transact on their behalf. Clearly, the three co-heirs are now estopped from impugning the validity of the sale from
assailing the authority of Eufemia to enter into such transaction.
Accordingly, the subsequent sale made by the seven co-heirs to Virgilio was void because they no longer had any interest over the subject
property which they could alienate at the time of the second transaction.38 Nemo dat quod non habet. Virgilio, however, could still
alienate his 1/8 undivided share to the Belarminos.
The Belarminos, for their part, cannot argue that they purchased the property from Virgilio in good faith. As a general rule, a purchaser of
a real property is not required to make any further inquiry beyond what the certificate of title indicates on its face.39 But the rule excludes
those who purchase with knowledge of the defect in the title of the vendor or of facts sufficient to induce a reasonable and prudent
person to inquire into the status of the property.40Such purchaser cannot close his eyes to facts which should put a reasonable man on
guard, and later claim that he acted in good faith on the belief that there was no defect in the title of the vendor. His mere refusal to
believe that such defect exists, or his obvious neglect by closing his eyes to the possibility of the existence of a defect in the vendor’s title,
will not make him an innocent purchaser for value, if afterwards it turns out that the title was, in fact, defective. In such a case, he is
deemed to have bought the property at his own risk, and any injury or prejudice occasioned by such transaction must be borne by him.41
In the case at bar, the Belarminos were fully aware that the property was registered not in the name of the immediate transferor, Virgilio,
but remained in the name of Pedro San Agustin and Agatona Genil.42 This fact alone is sufficient impetus to make further inquiry and,
thus, negate their claim that they are purchasers for value in good faith.43 They knew that the property was still subject of partition
proceedings before the trial court, and that the compromise agreement signed by the heirs was not approved by the RTC following the
opposition of the counsel for Eufemia and her six other co-heirs.44 The Belarminos, being transferees pendente lite, are deemed buyers in
mala fide, and they stand exactly in the shoes of the transferor and are bound by any judgment or decree which may be rendered for or
against the transferor.45 Furthermore, had they verified the status of the property by asking the neighboring residents, they would have
been able to talk to the Pahuds who occupy an adjoining business establishment46 and would have known that a portion of the property
had already been sold. All these existing and readily verifiable facts are sufficient to suggest that the Belarminos knew that they were
buying the property at their own risk.
WHEREFORE, premises considered, the April 23, 2003 Decision of the Court of Appeals as well as its October 8, 2003 Resolution in CA-G.R.
CV No. 59426, are REVERSED and SET ASIDE. Accordingly, the January 14, 1998 Decision of Branch 92 of the Regional Trial Court of
Calamba, Laguna is REINSTATED with the MODIFICATION that the sale made by respondent Virgilio San Agustin to respondent spouses
Isagani Belarmino and Leticia Ocampo is valid only with respect to the 1/8 portion of the subject property. The trial court is ordered to
proceed with the partition of the property with dispatch.
SO ORDERED.
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 198618and 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 a We did not pay Prime Marine; we paid the beneficiaries.
designated beneficiaries of the employees of the policyholders?
q Will you now tell the Honorable Commission why you did not pay Prime Marine and instead
a Yes because group insurance is normally taken by the employer as an employee-benefit paid the beneficiaries, the designated beneficiaries?
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
xxx xxx xxx

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

q What is the corporate concept of group insurance insofar as Insular Life is concerned?
I will rephrase the question.

WITNESS:
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
a Group insurance is a contract where a group of individuals are covered under one master answered a while ago, it is your practice in group insurance that claims payments, etc., are
contract. The individual underwriting characteristics of each individual is not considered in coursed thru the policyholder?
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
WITNESS:
do not have contractual obligations with the individual employees; it is between Prime
Marine and Insular Life.
a It is coursed but, it is not paid to the policyholder.
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? q And so in this case, you gave the checks to the policyholder only coursing them thru said
policyholder?
a Yes that is our practice.
a That is right, Sir.
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? q Not directly to the designated beneficiaries?

a Not necessarily. a Yes, Sir. 21

q In other words, under a group insurance policy like the one in this case, Insular Life could This practice is usual in the group insurance business and is consistent with the jurisprudence thereon in the State of California — from
pay the claims to the policyholder himself even without the presentation of any power of whose laws our Insurance Code has been mainly patterned — which holds that the employer-policyholder is the agent of the insurer.
attorney from the designated beneficiaries?
Group insurance is a comparatively new form of insurance. In the United States, the first modern group insurance policies appear to have
xxx xxx xxx 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.
WITNESS:

The coverage terms for group insurance are usually stated in a master agreement or policy that is issued by the insurer to a representative
a No. Sir.
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
ATTY. AMPIL: 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.
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?
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
WITNESS:
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.
SHOPPERS PARADISE REALTY & DEVELOPMENT CORPORATION, petitioner, vs. EFREN P. ROQUE, respondent.
DECISION
VITUG, J.:
On 23 December 1993, petitioner Shoppers Paradise Realty & Development Corporation, represented by its president, Veredigno
Atienza, entered into a twenty-five year lease with Dr. Felipe C. Roque, now deceased, over a parcel of land, with an area of two thousand
and thirty six (2,036) square meters, situated at Plaza Novaliches, Quezon City, covered by Transfer of Certificate of Title (TCT) No. 30591
of the Register of Deeds of Quezon City in the name of Dr. Roque. Petitioner issued to Dr. Roque a check for P250,000.00 by way of
reservation payment. Simultaneously, petitioner and Dr. Roque likewise entered into a memorandum of agreement for the construction,
development and operation of a commercial building complex on the property. Conformably with the agreement, petitioner issued a
check for another P250,000.00 downpayment to Dr. Roque.
The contract of lease and the memorandum of agreement, both notarized, were to be annotated on TCT No. 30591 within sixty
(60) days from 23 December 1993 or until 23 February 1994. The annotations, however, were never made because of the untimely
demise of Dr. Felipe C. Roque. The death of Dr. Roque on 10 February 1994 constrained petitioner to deal with respondent Efren P.
Roque, one of the surviving children of the late Dr. Roque, but the negotiations broke down due to some disagreements. In a letter, dated
3 November 1994, respondent advised petitioner to desist from any attempt to enforce the aforementioned contract of lease and
memorandum of agreement. On 15 February 1995, respondent filed a case for annulment of the contract of lease and the memorandum
of agreement, with a prayer for the issuance of a preliminary injunction, before Branch 222 of the Regional Trial Court of Quezon
City. Efren P. Roque alleged that he had long been the absolute owner of the subject property by virtue of a deed of donation inter
vivos executed in his favor by his parents, Dr. Felipe Roque and Elisa Roque, on 26 December 1978, and that the late Dr. Felipe Roque had
no authority to enter into the assailed agreements with petitioner. The donation was made in a public instrument duly acknowledged by
the donor-spouses before a notary public and duly accepted on the same day by respondent before the notary public in the same
instrument of donation. The title to the property, however, remained in the name of Dr. Felipe C. Roque, and it was only transferred to
and in the name of respondent sixteen years later, or on 11 May 1994, under TCT No. 109754 of the Register of Deeds of Quezon
City. Respondent, while he resided in the United States of America, delegated to his father the mere administration of the
property. Respondent came to know of the assailed contracts with petitioner only after retiring to the Philippines upon the death of his
father.
On 9 August 1996, the trial court dismissed the complaint of respondent; it explained:
Ordinarily, a deed of donation need not be registered in order to be valid between the parties. Registration, however, is important in
binding third persons. Thus, when Felipe Roque entered into a leased contract with defendant corporation, plaintiff Efren Roque (could)
no longer assert the unregistered deed of donation and say that his father, Felipe, was no longer the owner of the subject property at the
time the lease on the subject property was agreed upon.
The registration of the Deed of Donation after the execution of the lease contract did not affect the latter unless he had knowledge
thereof at the time of the registration which plaintiff had not been able to establish. Plaintiff knew very well of the existence of the
lease. He, in fact, met with the officers of the defendant corporation at least once before he caused the registration of the deed of
donation in his favor and although the lease itself was not registered, it remains valid considering that no third person is involved. Plaintiff
cannot be the third person because he is the successor-in-interest of his father, Felipe Roque, the lessor, and it is a rule that contracts take
effect not only between the parties themselves but also between their assigns and heirs (Article 1311, Civil Code) and therefore, the lease
contract together with the memorandum of agreement would be conclusive on plaintiff Efren Roque. He is bound by the contract even if
he did not participate therein. Moreover, the agreements have been perfected and partially executed by the receipt of his father of the
downpayment and deposit totaling to P500,000.00.[1]
The Trial court ordered respondent to surrender TCT No. 109754 to the Register of Deeds of Quezon City for the annotation of the
questioned Contract of Lease and Memorandum of Agreement.
On appeal, the Court of Appeals reversed the decision of the trial court and held to be invalid the Contract of Lease and
Memorandum of Agreement. While it shared the view expressed by the trial court that a deed of donation would have to be registered in
order to bind third persons, the appellate court, however, concluded that petitioner was not a lessee in good faith having had prior
knowledge of the donation in favor of respondent, and that such actual knowledge had the effect of registration insofar as petitioner was
concerned. The appellate court based its findings largely on the testimony of Veredigno Atienza during cross-examination, viz;
Q. Aside from these two lots, the first in the name of Ruben Roque and the second, the subject of the construction involved
in this case, you said there is another lot which was part of development project?
A. Yes, this was the main concept of Dr. Roque so that the adjoining properties of his two sons, Ruben and Cesar, will
comprise one whole. The other whole property belongs to Cesar.
Q. You were informed by Dr. Roque that this property was given to his three (3) sons; one to Ruben Roque, the other to
Efren, and the other to Cesar Roque?
A. Yes.
Q. You did the inquiry from him, how was this property given to them?
A. By inheritance.
Q. Inheritance in the form of donation?
A. I mean inheritance.
Q. What I am only asking you is, were you told by Dr. Felipe C. Roque at the time of your transaction with him that all these
three properties were given to his children by way of donation?
A. What Architect Biglang-awa told us in his exact word: Yang mga yan pupunta sa mga anak. Yong kay Ruben pupunta kay
Ruben. Yong kay Efren palibhasa nasa America sya, nasa pangalan pa ni Dr. Felipe C. Roque.
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Q. When was the information supplied to you by Biglang-awa? Before the execution of the Contract of Lease and
Memorandum of Agreement?
A. Yes.
Q. That being the case, at the time of the execution of the agreement or soon before, did you have such information
confirmed by Dr. Felipe C. Roque himself?
A. Biglang-awa did it for us.
Q. But you yourself did not?
A. No, because I was doing certain things. We were a team and so Biglang-awa did it for us.
Q. So in effect, any information gathered by Biglang-awa was of the same effect as if received by you because you were
members of the same team?
A. Yes.[2]
In the instant petition for review, petitioner seeks a reversal of the decision of the Court of Appeals and the reinstatement of the
ruling of the Regional Trial Court; it argues that the presumption of good faith it so enjoys as a party dealing in registered land has not
been overturned by the aforequoted testimonial evidence, and that, in any event, respondent is barred by laches and estoppel from
denying the contracts.
The existence, albeit unregistered, of the donation in favor of respondent is undisputed. The trial court and the appellate court
have not erred in holding that the non-registration of a deed of donation does not affect its validity. As being itself a mode of acquiring
ownership, donation results in an effective transfer of title over the property from the donor to the donee.[3] In donations of immovable
property, the law requires for its validity that it should be contained in a public document, specifying therein the property donated and
the value of the charges which the donee must satisfy.[4] The Civil Code provides, however, that titles of ownership, or other rights over
immovable property, which are not duly inscribed or annotated in the Registry of Property (now Registry of Land Titles and Deeds) shall
not prejudice third persons.[5] It is enough, between the parties to a donation of an immovable property, that the donation be made in a
public document but, in order to bind third persons, the donation must be registered in the registry of Property (Registry of Land Titles
and Deeds).[6] Consistently, Section 50 of Act No. 496 (Land Registration Act), as so amended by Section 51 of P.D. No. 1529 (Property
Registration Decree), states:
SECTION 51. Conveyance and other dealings by registered owner.- An owner of registered land may convey, mortgage, lease, charge or
otherwise deal with the same in accordance with existing laws. He may use such forms of deeds, mortgages, leases or other voluntary
instruments as are sufficient in law. But no deed, mortgage, lease, or other voluntary instrument, except a will purporting to convey or
affect registered land shall take effect as a conveyance or bind the land, but shall operate only as a contract between the parties and as
evidence of authority to the Register of Deeds to make registration.
The act of registration shall be the operative act to convey or affect the land insofar as third persons are concerned, and in all cases under
this Decree, the registration shall be made in the office of the Register of Deeds for the province or city where the land lies. (emphasis
supplied)

A person dealing with registered land may thus safely rely on the correctness of the certificate of title issued therefore, and he is
not required to go beyond the certificate to determine the condition of the property [7] but, where such party has knowledge of a prior
existing interest which is unregistered at the time he acquired a right thereto, his knowledge of that prior unregistered interest would
have the effect of registration as regards to him.[8]

The appellate court was not without substantial basis when it found petitioner to have had knowledge of the donation at the time
it entered into the two agreements with Dr. Roque.During their negotiation, petitioner, through its representatives, was apprised of the
fact that the subject property actually belonged to respondent.

It was not shown that Dr. Felipe C. Roque had been an authorized agent of respondent.

In a contract of agency, the agent acts in representation or in behalf of another with the consent of the latter.[9] Article 1878 of the
Civil Code expresses that a special power of attorney is necessary to lease any real property to another person for more than one
year. The lease of real property for more than one year is considered not merely an act of administration but an act of strict dominion or
of ownership. A special power of attorney is thus necessary for its execution through an agent.

The Court cannot accept petitioners argument that respondent is guilty of laches. Laches, in its real sense, is the failure or neglect,
for an unreasonable and unexplained length of time, to do that which, by exercising due diligence, could or should have been done
earlier; it is negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to assert it
either has abandoned or declined to assert it.[10]

Respondent learned of the contracts only in February 1994 after the death of his father, and in the same year, during November, he
assailed the validity of the agreements. Hardly, could respondent then be said to have neglected to assert his case for unreasonable
length of time.

Neither is respondent estopped from repudiating the contracts. The essential elements of estoppel in pais, in relation to the party
sought to be estopped, are: 1) a clear conduct 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;
2) an intent or, at least, an expectation, that this conduct shall influence, or be acted upon by, the other party; and 3) the knowledge,
actual or constructive, by him of the real facts.[11] With respect to the party claiming the estoppel, the conditions he must satisfy are: 1)
lack of knowledge or of the means of knowledge of the truth as to the facts in question; 2) reliance, in good faith, upon the conduct or
statements of the party to be estopped; and 3) action or inaction based thereon of such character as to change his position or status
calculated to cause him injury or prejudice.[12] It has not been shown that respondent intended to conceal the actual facts concerning the
property; more importantly, petitioner has been shown not to be totally unaware of the real ownership of the subject property.

Altogether, there is no cogent reason to reverse the Court of Appeals in its assailed decision.

WHEREFORE, the petition is DENIED, and the decision of the Court of Appeals declaring the contract of lease and memorandum of
agreement entered into between Dr. Felipe C. Roque and Shoppers Paradise Realty & Development Corporation not to be binding on
respondent is AFFIRMED. No costs.

SO ORDERED.

Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concur