G.R. No.

188288 January 16, 2012

SPOUSES FERNANDO and LOURDES VILORIA, Petitioners,

vs.
CONTINENTAL AIRLINES, INC.,

DECISION

REYES, J.:

This is a petition for review under Rule 45 of the Rules of Court from the January 30, 2009 Decision1 of the Special
Thirteenth Division of the Court of Appeals (CA) in CA-G.R. CV No. 88586 entitled "Spouses Fernando and Lourdes
Viloria v. Continental Airlines, Inc.," the dispositive portion of which states:

WHEREFORE, the Decision of the Regional Trial Court, Branch 74, dated 03 April 2006, awarding US$800.00 or its
peso equivalent at the time of payment, plus legal rate of interest from 21 July 1997 until fully paid, [₱]100,000.00 as
moral damages, [₱]50,000.00 as exemplary damages, [₱]40,000.00 as attorney’s fees and costs of suit to plaintiffs-
appellees is hereby REVERSED and SET ASIDE.

Defendant-appellant’s counterclaim is DENIED.

Costs against plaintiffs-appellees.

SO ORDERED.2

On April 3, 2006, the Regional Trial Court of Antipolo City, Branch 74 (RTC) rendered a Decision, giving due course
to the complaint for sum of money and damages filed by petitioners Fernando Viloria (Fernando) and Lourdes
Viloria (Lourdes), collectively called Spouses Viloria, against respondent Continental Airlines, Inc. (CAI). As culled
from the records, below are the facts giving rise to such complaint.

On or about July 21, 1997 and while in the United States, Fernando purchased for himself and his wife, Lourdes,
two (2) round trip airline tickets from San Diego, California to Newark, New Jersey on board Continental Airlines.
Fernando purchased the tickets at US$400.00 each from a travel agency called "Holiday Travel" and was attended
to by a certain Margaret Mager (Mager). According to Spouses Viloria, Fernando agreed to buy the said tickets after
Mager informed them that there were no available seats at Amtrak, an intercity passenger train service provider in
the United States. Per the tickets, Spouses Viloria were scheduled to leave for Newark on August 13, 1997 and
return to San Diego on August 21, 1997.

Subsequently, Fernando requested Mager to reschedule their flight to Newark to an earlier date or August 6, 1997.
Mager informed him that flights to Newark via Continental Airlines were already fully booked and offered the
alternative of a round trip flight via Frontier Air. Since flying with Frontier Air called for a higher fare of US$526.00
per passenger and would mean traveling by night, Fernando opted to request for a refund. Mager, however, denied
his request as the subject tickets are non-refundable and the only option that Continental Airlines can offer is the re-
issuance of new tickets within one (1) year from the date the subject tickets were issued. Fernando decided to
reserve two (2) seats with Frontier Air.

As he was having second thoughts on traveling via Frontier Air, Fernando went to the Greyhound Station where he
saw an Amtrak station nearby. Fernando made inquiries and was told that there are seats available and he can
travel on Amtrak anytime and any day he pleased. Fernando then purchased two (2) tickets for Washington, D.C.

From Amtrak, Fernando went to Holiday Travel and confronted Mager with the Amtrak tickets, telling her that she
had misled them into buying the Continental Airlines tickets by misrepresenting that Amtrak was already fully
booked. Fernando reiterated his demand for a refund but Mager was firm in her position that the subject tickets are
non-refundable.

Upon returning to the Philippines, Fernando sent a letter to CAI on February 11, 1998, demanding a refund and
alleging that Mager had deluded them into purchasing the subject tickets.3
In a letter dated February 24, 1998, Continental Micronesia informed Fernando that his complaint had been referred
to the Customer Refund Services of Continental Airlines at Houston, Texas.4

In a letter dated March 24, 1998, Continental Micronesia denied Fernando’s request for a refund and advised him
that he may take the subject tickets to any Continental ticketing location for the re-issuance of new tickets within two
(2) years from the date they were issued. Continental Micronesia informed Fernando that the subject tickets may be
used as a form of payment for the purchase of another Continental ticket, albeit with a re-issuance fee.5

On June 17, 1999, Fernando went to Continental’s ticketing office at Ayala Avenue, Makati City to have the subject
tickets replaced by a single round trip ticket to Los Angeles, California under his name. Therein, Fernando was
informed that Lourdes’ ticket was non-transferable, thus, cannot be used for the purchase of a ticket in his favor. He
was also informed that a round trip ticket to Los Angeles was US$1,867.40 so he would have to pay what will not be
covered by the value of his San Diego to Newark round trip ticket.

In a letter dated June 21, 1999, Fernando demanded for the refund of the subject tickets as he no longer wished to
have them replaced. In addition to the dubious circumstances under which the subject tickets were issued,
Fernando claimed that CAI’s act of charging him with US$1,867.40 for a round trip ticket to Los Angeles, which
other airlines priced at US$856.00, and refusal to allow him to use Lourdes’ ticket, breached its undertaking under
its March 24, 1998 letter.6

On September 8, 2000, Spouses Viloria filed a complaint against CAI, praying that CAI be ordered to refund the
money they used in the purchase of the subject tickets with legal interest from July 21, 1997 and to pay
₱1,000,000.00 as moral damages, ₱500,000.00 as exemplary damages and ₱250,000.00 as attorney’s fees.7

CAI interposed the following defenses: (a) Spouses Viloria have no right to ask for a refund as the subject tickets
are non-refundable; (b) Fernando cannot insist on using the ticket in Lourdes’ name for the purchase of a round trip
ticket to Los Angeles since the same is non-transferable; (c) as Mager is not a CAI employee, CAI is not liable for
any of her acts; (d) CAI, its employees and agents did not act in bad faith as to entitle Spouses Viloria to moral and
exemplary damages and attorney’s fees. CAI also invoked the following clause printed on the subject tickets:

3. To the extent not in conflict with the foregoing carriage and other services performed by each carrier are subject
to: (i) provisions contained in this ticket, (ii) applicable tariffs, (iii) carrier’s conditions of carriage and related
regulations which are made part hereof (and are available on application at the offices of carrier), except in
transportation between a place in the United States or Canada and any place outside thereof to which tariffs in force
in those countries apply.8

According to CAI, one of the conditions attached to their contract of carriage is the non-transferability and non-
refundability of the subject tickets.

The RTC’s Ruling

Following a full-blown trial, the RTC rendered its April 3, 2006 Decision, holding that Spouses Viloria are entitled to a
refund in view of Mager’s misrepresentation in obtaining their consent in the purchase of the subject tickets.9 The
relevant portion of the April 3, 2006 Decision states:

Continental Airlines agent Ms. Mager was in bad faith when she was less candid and diligent in presenting to
plaintiffs spouses their booking options. Plaintiff Fernando clearly wanted to travel via AMTRAK, but defendant’s
agent misled him into purchasing Continental Airlines tickets instead on the fraudulent misrepresentation that
Amtrak was fully booked. In fact, defendant Airline did not specifically denied (sic) this allegation.

Plainly, plaintiffs spouses, particularly plaintiff Fernando, were tricked into buying Continental Airline tickets on Ms.
Mager’s misleading misrepresentations. Continental Airlines agent Ms. Mager further relied on and exploited plaintiff
Fernando’s need and told him that they must book a flight immediately or risk not being able to travel at all on the
couple’s preferred date. Unfortunately, plaintiffs spouses fell prey to the airline’s and its agent’s unethical tactics for
baiting trusting customers."10
Citing Articles 1868 and 1869 of the Civil Code, the RTC ruled that Mager is CAI’s agent, hence, bound by her bad
faith and misrepresentation. As far as the RTC is concerned, there is no issue as to whether Mager was CAI’s agent
in view of CAI’s implied recognition of her status as such in its March 24, 1998 letter.

The act of a travel agent or agency being involved here, the following are the pertinent New Civil Code provisions on
agency:

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

Art. 1869. 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 his behalf without authority.

Agency may be oral, unless the law requires a specific form.

As its very name implies, a travel agency binds itself to render some service or to do something in representation or
on behalf of another, with the consent or authority of the latter. This court takes judicial notice of the common
services rendered by travel agencies that represent themselves as such, specifically the reservation and booking of
local and foreign tours as well as the issuance of airline tickets for a commission or fee.

The services rendered by Ms. Mager of Holiday Travel agency to the plaintiff spouses on July 21, 1997 were no
different from those offered in any other travel agency. Defendant airline impliedly if not expressly acknowledged its
principal-agent relationship with Ms. Mager by its offer in the letter dated March 24, 1998 – an obvious attempt to
assuage plaintiffs spouses’ hurt feelings.11

Furthermore, the RTC ruled that CAI acted in bad faith in reneging on its undertaking to replace the subject tickets
within two (2) years from their date of issue when it charged Fernando with the amount of US$1,867.40 for a round
trip ticket to Los Angeles and when it refused to allow Fernando to use Lourdes’ ticket. Specifically:

Tickets may be reissued for up to two years from the original date of issue. When defendant airline still charged
plaintiffs spouses US$1,867.40 or more than double the then going rate of US$856.00 for the unused tickets when
the same were presented within two (2) years from date of issue, defendant airline exhibited callous treatment of
passengers.12

The Appellate Court’s Ruling

On appeal, the CA reversed the RTC’s April 3, 2006 Decision, holding that CAI cannot be held liable for Mager’s act
in the absence of any proof that a principal-agent relationship existed between CAI and Holiday Travel. According to
the CA, Spouses Viloria, who have the burden of proof to establish the fact of agency, failed to present evidence
demonstrating that Holiday Travel is CAI’s agent. Furthermore, contrary to Spouses Viloria’s claim, the contractual
relationship between Holiday Travel and CAI is not an agency but that of a sale.

Plaintiffs-appellees assert that Mager was a sub-agent of Holiday Travel who was in turn a ticketing agent of Holiday
Travel who was in turn a ticketing agent of Continental Airlines. Proceeding from this premise, they contend that
Continental Airlines should be held liable for the acts of Mager. The trial court held the same view.

We do not agree. By the contract of agency, a person binds him/herself to render some service or to do something
in representation or on behalf of another, with the consent or authority of the latter. The elements of agency are: (1)
consent, express or implied, of the parties to establish the relationship; (2) the object is the execution of a juridical
act in relation to a third person; (3) the agent acts as a representative and not for him/herself; and (4) the agent acts
within the scope of his/her authority. 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 an intention on the part of the agent to accept the appointment and act upon it. Absent
such mutual intent, there is generally no agency. It is likewise a settled rule that persons dealing with an assumed
agent are bound at their peril, if they would hold the principal liable, to ascertain not only the fact of agency but also
the nature and extent of authority, and in case either is controverted, the burden of proof is upon them to establish it.
Agency is never presumed, neither is it created by the mere use of the word in a trade or business name. We have
perused the evidence and documents so far presented. We find nothing except bare allegations of plaintiffs-
appellees that Mager/Holiday Travel was acting in behalf of Continental Airlines. From all sides of legal prism, the
transaction in issue was simply a contract of sale, wherein Holiday Travel buys airline tickets from Continental
Airlines and then, through its employees, Mager included, sells it at a premium to clients.13

The CA also ruled that refund is not available to Spouses Viloria as the word "non-refundable" was clearly printed on
the face of the subject tickets, which constitute their contract with CAI. Therefore, the grant of their prayer for a
refund would violate the proscription against impairment of contracts.

Finally, the CA held that CAI did not act in bad faith when they charged Spouses Viloria with the higher amount of
US$1,867.40 for a round trip ticket to Los Angeles. According to the CA, there is no compulsion for CAI to charge
the lower amount of US$856.00, which Spouses Viloria claim to be the fee charged by other airlines. The matter of
fixing the prices for its services is CAI’s prerogative, which Spouses Viloria cannot intervene. In particular:

It is within the respective rights of persons owning and/or operating business entities to peg the premium of the
services and items which they provide at a price which they deem fit, no matter how expensive or exhorbitant said
price may seem vis-à-vis those of the competing companies. The Spouses Viloria may not intervene with the
business judgment of Continental Airlines.14

The Petitioners’ Case

In this Petition, this Court is being asked to review the findings and conclusions of the CA, as the latter’s reversal of
the RTC’s April 3, 2006 Decision allegedly lacks factual and legal bases. Spouses Viloria claim that CAI acted in
bad faith when it required them to pay a higher amount for a round trip ticket to Los Angeles considering CAI’s
undertaking to re-issue new tickets to them within the period stated in their March 24, 1998 letter. CAI likewise acted
in bad faith when it disallowed Fernando to use Lourdes’ ticket to purchase a round trip to Los Angeles given that
there is nothing in Lourdes’ ticket indicating that it is non-transferable. As a common carrier, it is CAI’s duty to inform
its passengers of the terms and conditions of their contract and passengers cannot be bound by such terms and
conditions which they are not made aware of. Also, the subject contract of carriage is a contract of adhesion;
therefore, any ambiguities should be construed against CAI. Notably, the petitioners are no longer questioning the
validity of the subject contracts and limited its claim for a refund on CAI’s alleged breach of its undertaking in its
March 24, 1998 letter.

The Respondent’s Case

In its Comment, CAI claimed that Spouses Viloria’s allegation of bad faith is negated by its willingness to issue new
tickets to them and to credit the value of the subject tickets against the value of the new ticket Fernando requested.
CAI argued that Spouses Viloria’s sole basis to claim that the price at which CAI was willing to issue the new tickets
is unconscionable is a piece of hearsay evidence – an advertisement appearing on a newspaper stating that airfares
from Manila to Los Angeles or San Francisco cost US$818.00.15 Also, the advertisement pertains to airfares in
September 2000 and not to airfares prevailing in June 1999, the time when Fernando asked CAI to apply the value
of the subject tickets for the purchase of a new one.16 CAI likewise argued that it did not undertake to protect
Spouses Viloria from any changes or fluctuations in the prices of airline tickets and its only obligation was to apply
the value of the subject tickets to the purchase of the newly issued tickets.

With respect to Spouses Viloria’s claim that they are not aware of CAI’s restrictions on the subject tickets and that
the terms and conditions that are printed on them are ambiguous, CAI denies any ambiguity and alleged that its
representative informed Fernando that the subject tickets are non-transferable when he applied for the issuance of a
new ticket. On the other hand, the word "non-refundable" clearly appears on the face of the subject tickets.

CAI also denies that it is bound by the acts of Holiday Travel and Mager and that no principal-agency relationship
exists between them. As an independent contractor, Holiday Travel was without capacity to bind CAI.

Issues

To determine the propriety of disturbing the CA’s January 30, 2009 Decision and whether Spouses Viloria have the
right to the reliefs they prayed for, this Court deems it necessary to resolve the following issues:
 a. Does a principal-agent relationship exist between CAI and Holiday Travel?

b. Assuming that an agency relationship exists between CAI and Holiday Travel, is CAI bound by the acts of
Holiday Travel’s agents and employees such as Mager?

c. Assuming that CAI is bound by the acts of Holiday Travel’s agents and employees, can the representation
of Mager as to unavailability of seats at Amtrak be considered fraudulent as to vitiate the consent of Spouse
Viloria in the purchase of the subject tickets?

d. Is CAI justified in insisting that the subject tickets are non-transferable and non-refundable?

e. Is CAI justified in pegging a different price for the round trip ticket to Los Angeles requested by Fernando?

f. Alternatively, did CAI act in bad faith or renege its obligation to Spouses Viloria to apply the value of the
subject tickets in the purchase of new ones when it refused to allow Fernando to use Lourdes’ ticket and in
charging a higher price for a round trip ticket to Los Angeles?

This Court’s Ruling

I. A principal-agent relationship exists between CAI and Holiday Travel.

With respect to the first issue, which is a question of fact that would require this Court to review and re-examine the
evidence presented by the parties below, this Court takes exception to the general rule that the CA’s findings of fact
are conclusive upon Us and our jurisdiction is limited to the review of questions of law. It is well-settled to the point
of being axiomatic that this Court is authorized to resolve questions of fact if confronted with contrasting factual
findings of the trial court and appellate court and if the findings of the CA are contradicted by the evidence on
record.17

According to the CA, agency is never presumed and that he who alleges that it exists has the burden of proof.
Spouses Viloria, on whose shoulders such burden rests, presented evidence that fell short of indubitably
demonstrating the existence of such agency.

We disagree. The CA failed to consider undisputed facts, discrediting CAI’s denial that Holiday Travel is one of its
agents. Furthermore, in erroneously characterizing the contractual relationship between CAI and Holiday Travel as a
contract of sale, the CA failed to apply the fundamental civil law principles governing agency and differentiating it
from sale.

In Rallos v. Felix Go Chan & Sons Realty Corporation,18 this Court explained the nature of an agency and spelled out
the essential elements thereof:

Out of the above given principles, sprung the creation and acceptance of the relationship of agencywhereby one
party, called the principal (mandante), authorizes another, called the agent (mandatario), to act for and in his behalf
in transactions with third persons. The essential elements of agency are: (1) there is consent, express or implied of
the parties to establish the relationship; (2) the object is the execution of a juridical act in relation to a third person;
(3) the agent acts as a representative and not for himself, and (4) the agent acts within the scope of his authority. 1av vphi1

Agency is basically personal, representative, and derivative in nature. The authority of the agent to act emanates
from the powers granted to him by his principal; his act is the act of the principal if done within the scope of the
authority. Qui facit per alium facit se. "He who acts through another acts himself."19

Contrary to the findings of the CA, all the elements of an agency exist in this case. The first and second elements
are present as CAI does not deny that it concluded an agreement with Holiday Travel, whereby Holiday Travel
would enter into contracts of carriage with third persons on CAI’s behalf. The third element is also present as it is
undisputed that Holiday Travel merely acted in a representative capacity and it is CAI and not Holiday Travel who is
bound by the contracts of carriage entered into by Holiday Travel on its behalf. The fourth element is also present
considering that CAI has not made any allegation that Holiday Travel exceeded the authority that was granted to it.
In fact, CAI consistently maintains the validity of the contracts of carriage that Holiday Travel executed with Spouses
Viloria and that Mager was not guilty of any fraudulent misrepresentation. That CAI admits the authority of Holiday
Travel to enter into contracts of carriage on its behalf is easily discernible from its February 24, 1998 and March 24,
1998 letters, where it impliedly recognized the validity of the contracts entered into by Holiday Travel with Spouses
Viloria. When Fernando informed CAI that it was Holiday Travel who issued to them the subject tickets, CAI did not
deny that Holiday Travel is its authorized agent.

Prior to Spouses Viloria’s filing of a complaint against it, CAI never refuted that it gave Holiday Travel the power and
authority to conclude contracts of carriage on its behalf. As clearly extant from the records, CAI recognized the
validity of the contracts of carriage that Holiday Travel entered into with Spouses Viloria and considered itself bound
with Spouses Viloria by the terms and conditions thereof; and this constitutes an unequivocal testament to Holiday
Travel’s authority to act as its agent. This Court cannot therefore allow CAI to take an altogether different position
and deny that Holiday Travel is its agent without condoning or giving imprimatur to whatever damage or prejudice
that may result from such denial or retraction to Spouses Viloria, who relied on good faith on CAI’s acts in
recognition of Holiday Travel’s authority. Estoppel is primarily based on the doctrine of good faith and the avoidance
of harm that will befall an innocent party due to its injurious reliance, the failure to apply it in this case would result in
gross travesty of justice.20 Estoppel bars CAI from making such denial.

As categorically provided under Article 1869 of the Civil Code, "[a]gency 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 his behalf without authority."

Considering that the fundamental hallmarks of an agency are present, this Court finds it rather peculiar that the CA
had branded the contractual relationship between CAI and Holiday Travel as one of sale. The distinctions between a
sale and an agency are not difficult to discern and this Court, as early as 1970, had already formulated the
guidelines that would aid in differentiating the two (2) contracts. In Commissioner of Internal Revenue v.
Constantino,21 this Court extrapolated that the primordial differentiating consideration between the two (2) contracts
is the transfer of ownership or title over the property subject of the contract. In an agency, the principal retains
ownership and control over the property and the agent merely acts on the principal’s behalf and under his
instructions in furtherance of the objectives for which the agency was established. On the other hand, the contract is
clearly a sale if the parties intended that the delivery of the property will effect a relinquishment of title, control and
ownership in such a way that the recipient may do with the property as he pleases.

Since the company retained ownership of the goods, even as it delivered possession unto the dealer for resale to
customers, the price and terms of which were subject to the company's control, the relationship between the
company and the dealer is one of agency, tested under the following criterion:

"The difficulty in distinguishing between contracts of sale and the creation of an agency to sell has led to the
establishment of rules by the application of which this difficulty may be solved. The decisions say the transfer of title
or agreement to transfer it for a price paid or promised is the essence of sale. If such transfer puts the transferee in
the attitude or position of an owner and makes him liable to the transferor as a debtor for the agreed price, and not
merely as an agent who must account for the proceeds of a resale, the transaction is a sale; while the essence of an
agency to sell is the delivery to an agent, not as his property, but as the property of the principal, who remains the
owner and has the right to control sales, fix the price, and terms, demand and receive the proceeds less the agent's
commission upon sales made. 1 Mechem on Sales, Sec. 43; 1 Mechem on Agency, Sec. 48; Williston on Sales, 1;
Tiedeman on Sales, 1." (Salisbury v. Brooks, 94 SE 117, 118-119)22

As to how the CA have arrived at the conclusion that the contract between CAI and Holiday Travel is a sale is
certainly confounding, considering that CAI is the one bound by the contracts of carriage embodied by the tickets
being sold by Holiday Travel on its behalf. It is undisputed that CAI and not Holiday Travel who is the party to the
contracts of carriage executed by Holiday Travel with third persons who desire to travel via Continental Airlines, and
this conclusively indicates the existence of a principal-agent relationship. That the principal is bound by all the
obligations contracted by the agent within the scope of the authority granted to him is clearly provided under Article
1910 of the Civil Code and this constitutes the very notion of agency.

II. In actions based on quasi-delict, a principal can only be held liable for the tort committed by its agent’s
employees if it has been established by preponderance of evidence that the principal was also at fault or
negligent or that the principal exercise control and supervision over them.
Considering that Holiday Travel is CAI’s agent, does it necessarily follow that CAI is liable for the fault or negligence
of Holiday Travel’s employees? Citing China Air Lines, Ltd. v. Court of Appeals, et al.,23CAI argues that it cannot be
held liable for the actions of the employee of its ticketing agent in the absence of an employer-employee
relationship.

An examination of this Court’s pronouncements in China Air Lines will reveal that an airline company is not
completely exonerated from any liability for the tort committed by its agent’s employees. A prior determination of the
nature of the passenger’s cause of action is necessary. If the passenger’s cause of action against the airline
company is premised on culpa aquiliana or quasi-delict for a tort committed by the employee of the airline
company’s agent, there must be an independent showing that the airline company was at fault or negligent or has
contributed to the negligence or tortuous conduct committed by the employee of its agent. The mere fact that the
employee of the airline company’s agent has committed a tort is not sufficient to hold the airline company liable.
There is no vinculum juris between the airline company and its agent’s employees and the contractual relationship
between the airline company and its agent does not operate to create a juridical tie between the airline company
and its agent’s employees. Article 2180 of the Civil Code does not make the principal vicariously liable for the tort
committed by its agent’s employees and the principal-agency relationship per se does not make the principal a party
to such tort; hence, the need to prove the principal’s own fault or negligence.

On the other hand, if the passenger’s cause of action for damages against the airline company is based on
contractual breach or culpa contractual, it is not necessary that there be evidence of the airline company’s fault or
negligence. As this Court previously stated in China Air Lines and reiterated in Air France vs. Gillego,24 "in an action
based on a breach of contract of carriage, the aggrieved party does not have to prove that the common carrier was
at fault or was negligent. All that he has to prove is the existence of the contract and the fact of its non-performance
by the carrier."

Spouses Viloria’s cause of action on the basis of Mager’s alleged fraudulent misrepresentation is clearly one of tort
or quasi-delict, there being no pre-existing contractual relationship between them. Therefore, it was incumbent upon
Spouses Viloria to prove that CAI was equally at fault.

However, the records are devoid of any evidence by which CAI’s alleged liability can be substantiated. Apart from
their claim that CAI must be held liable for Mager’s supposed fraud because Holiday Travel is CAI’s agent, Spouses
Viloria did not present evidence that CAI was a party or had contributed to Mager’s complained act either by
instructing or authorizing Holiday Travel and Mager to issue the said misrepresentation.

It may seem unjust at first glance that CAI would consider Spouses Viloria bound by the terms and conditions of the
subject contracts, which Mager entered into with them on CAI’s behalf, in order to deny Spouses Viloria’s request for
a refund or Fernando’s use of Lourdes’ ticket for the re-issuance of a new one, and simultaneously claim that they
are not bound by Mager’s supposed misrepresentation for purposes of avoiding Spouses Viloria’s claim for
damages and maintaining the validity of the subject contracts. It may likewise be argued that CAI cannot deny
liability as it benefited from Mager’s acts, which were performed in compliance with Holiday Travel’s obligations as
CAI’s agent.

However, a person’s vicarious liability is anchored on his possession of control, whether absolute or limited, on the
tortfeasor. Without such control, there is nothing which could justify extending the liability to a person other than the
one who committed the tort. As this Court explained in Cangco v. Manila Railroad Co.:25

With respect to extra-contractual obligation arising from negligence, whether of act or omission, it is
competent for the legislature to elect — and our Legislature has so elected — to limit such liability to cases in which
the person upon whom such an obligation is imposed is morally culpable or, on the contrary, for reasons of public
policy, to extend that liability, without regard to the lack of moral culpability, so as to include responsibility
for the negligence of those persons whose acts or omissions are imputable, by a legal fiction, to others who
are in a position to exercise an absolute or limited control over them. The legislature which adopted our Civil
Code has elected to limit extra-contractual liability — with certain well-defined exceptions — to cases in which moral
culpability can be directly imputed to the persons to be charged. This moral responsibility may consist in having
failed to exercise due care in one's own acts, or in having failed to exercise due care in the selection and control of
one's agent or servants, or in the control of persons who, by reasons of their status, occupy a position of
dependency with respect to the person made liable for their conduct.26(emphasis supplied)
It is incumbent upon Spouses Viloria to prove that CAI exercised control or supervision over Mager by preponderant
evidence. The existence of control or supervision cannot be presumed and CAI is under no obligation to prove its
denial or nugatory assertion. Citing Belen v. Belen,27 this Court ruled in Jayme v. Apostol,28 that:

In Belen v. Belen, this Court ruled that it was enough for defendant to deny an alleged employment relationship. The
defendant is under no obligation to prove the negative averment. This Court said:

"It is an old and well-settled rule of the courts that the burden of proving the action is upon the plaintiff, and that if he
fails satisfactorily to show the facts upon which he bases his claim, the defendant is under no obligation to prove his
exceptions. This [rule] is in harmony with the provisions of Section 297 of the Code of Civil Procedure holding that
each party must prove his own affirmative allegations, etc."29 (citations omitted)

Therefore, without a modicum of evidence that CAI exercised control over Holiday Travel’s employees or that CAI
was equally at fault, no liability can be imposed on CAI for Mager’s supposed misrepresentation.

III. Even on the assumption that CAI may be held liable for the acts of Mager, still, Spouses Viloria are not
entitled to a refund. Mager’s statement cannot be considered a causal fraud that would justify the
annulment of the subject contracts that would oblige CAI to indemnify Spouses Viloria and return the
money they paid for the subject tickets.

Article 1390, in relation to Article 1391 of the Civil Code, provides that if the consent of the contracting parties was
obtained through fraud, the contract is considered voidable and may be annulled within four (4) years from the time
of the discovery of the fraud. Once a contract is annulled, the parties are obliged under Article 1398 of the same
Code to restore to each other the things subject matter of the contract, including their fruits and interest.

On the basis of the foregoing and given the allegation of Spouses Viloria that Fernando’s consent to the subject
contracts was supposedly secured by Mager through fraudulent means, it is plainly apparent that their demand for a
refund is tantamount to seeking for an annulment of the subject contracts on the ground of vitiated consent.

Whether the subject contracts are annullable, this Court is required to determine whether Mager’s alleged
misrepresentation constitutes causal fraud. Similar to the dispute on the existence of an agency, whether fraud
attended the execution of a contract is factual in nature and this Court, as discussed above, may scrutinize the
records if the findings of the CA are contrary to those of the RTC.

Under Article 1338 of the Civil Code, there is fraud when, through insidious words or machinations of one of the
contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed to. In
order that fraud may vitiate consent, it must be the causal (dolo causante), not merely the incidental (dolo incidente),
inducement to the making of the contract.30 In Samson v. Court of Appeals,31 causal fraud was defined as "a
deception employed by one party prior to or simultaneous to the contract in order to secure the consent of the
other."32

Also, fraud must be serious and its existence must be established by clear and convincing evidence. As ruled by this
Court in Sierra v. Hon. Court of Appeals, et al.,33 mere preponderance of evidence is not adequate:

Fraud must also be discounted, for according to the Civil Code:

Art. 1338. There is fraud when, through insidious words or machinations of one of the contracting parties, the other
is induced to enter into a contract which without them, he would not have agreed to.

Art. 1344. In order that fraud may make a contract voidable, it should be serious and should not have been
employed by both contracting parties.

To quote Tolentino again, the "misrepresentation constituting the fraud must be established by full, clear, and
convincing evidence, and not merely by a preponderance thereof. The deceit must be serious. The fraud is serious
when it is sufficient to impress, or to lead an ordinarily prudent person into error; that which cannot deceive a
prudent person cannot be a ground for nullity. The circumstances of each case should be considered, taking into
account the personal conditions of the victim."34
After meticulously poring over the records, this Court finds that the fraud alleged by Spouses Viloria has not been
satisfactorily established as causal in nature to warrant the annulment of the subject contracts. In fact, Spouses
Viloria failed to prove by clear and convincing evidence that Mager’s statement was fraudulent. Specifically,
Spouses Viloria failed to prove that (a) there were indeed available seats at Amtrak for a trip to New Jersey on
August 13, 1997 at the time they spoke with Mager on July 21, 1997; (b) Mager knew about this; and (c) that she
purposely informed them otherwise.

This Court finds the only proof of Mager’s alleged fraud, which is Fernando’s testimony that an Amtrak had assured
him of the perennial availability of seats at Amtrak, to be wanting. As CAI correctly pointed out and as Fernando
admitted, it was possible that during the intervening period of three (3) weeks from the time Fernando purchased the
subject tickets to the time he talked to said Amtrak employee, other passengers may have cancelled their bookings
and reservations with Amtrak, making it possible for Amtrak to accommodate them. Indeed, the existence of fraud
cannot be proved by mere speculations and conjectures. Fraud is never lightly inferred; it is good faith that is. Under
the Rules of Court, it is presumed that "a person is innocent of crime or wrong" and that "private transactions have
been fair and regular."35 Spouses Viloria failed to overcome this presumption.

IV. Assuming the contrary, Spouses Viloria are nevertheless deemed to have ratified the subject contracts.

Even assuming that Mager’s representation is causal fraud, the subject contracts have been impliedly ratified when
Spouses Viloria decided to exercise their right to use the subject tickets for the purchase of new ones. Under Article
1392 of the Civil Code, "ratification extinguishes the action to annul a voidable contract."

Ratification of a voidable contract is defined under Article 1393 of the Civil Code as follows:

Art. 1393. Ratification may be effected expressly or tacitly. It is understood that there is a tacit ratification if, with
knowledge of the reason which renders the contract voidable and such reason having ceased, the person who has a
right to invoke it should execute an act which necessarily implies an intention to waive his right.

Implied ratification may take diverse forms, such as by silence or acquiescence; by acts showing approval or
adoption of the contract; or by acceptance and retention of benefits flowing therefrom.36

Simultaneous with their demand for a refund on the ground of Fernando’s vitiated consent, Spouses Viloria likewise
asked for a refund based on CAI’s supposed bad faith in reneging on its undertaking to replace the subject tickets
with a round trip ticket from Manila to Los Angeles.

In doing so, Spouses Viloria are actually asking for a rescission of the subject contracts based on contractual
breach. Resolution, the action referred to in Article 1191, is based on the defendant’s breach of faith, a violation of
the reciprocity between the parties37 and in Solar Harvest, Inc. v. Davao Corrugated Carton Corporation,38 this Court
ruled that a claim for a reimbursement in view of the other party’s failure to comply with his obligations under the
contract is one for rescission or resolution.

However, annulment under Article 1390 of the Civil Code and rescission under Article 1191 are two (2) inconsistent
remedies. In resolution, all the elements to make the contract valid are present; in annulment, one of the essential
elements to a formation of a contract, which is consent, is absent. In resolution, the defect is in the consummation
stage of the contract when the parties are in the process of performing their respective obligations; in annulment, the
defect is already present at the time of the negotiation and perfection stages of the contract. Accordingly, by
pursuing the remedy of rescission under Article 1191, the Vilorias had impliedly admitted the validity of the subject
contracts, forfeiting their right to demand their annulment. A party cannot rely on the contract and claim rights or
obligations under it and at the same time impugn its existence or validity. Indeed, litigants are enjoined from taking
inconsistent positions.39

V. Contracts cannot be rescinded for a slight or casual breach.

CAI cannot insist on the non-transferability of the subject tickets.

Considering that the subject contracts are not annullable on the ground of vitiated consent, the next question is: "Do
Spouses Viloria have the right to rescind the contract on the ground of CAI’s supposed breach of its undertaking to
issue new tickets upon surrender of the subject tickets?"

Article 1191, as presently worded, states:

The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with
what is incumbent upon him.

The injured party may choose between the fulfilment and the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should
become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.

This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance
with articles 1385 and 1388 and the Mortgage Law.

According to Spouses Viloria, CAI acted in bad faith and breached the subject contracts when it refused to apply the
value of Lourdes’ ticket for Fernando’s purchase of a round trip ticket to Los Angeles and in requiring him to pay an
amount higher than the price fixed by other airline companies.

In its March 24, 1998 letter, CAI stated that "non-refundable tickets may be used as a form of payment toward the
purchase of another Continental ticket for $75.00, per ticket, reissue fee ($50.00, per ticket, for tickets purchased
prior to October 30, 1997)."

Clearly, there is nothing in the above-quoted section of CAI’s letter from which the restriction on the non-
transferability of the subject tickets can be inferred. In fact, the words used by CAI in its letter supports the position
of Spouses Viloria, that each of them can use the ticket under their name for the purchase of new tickets whether for
themselves or for some other person.

Moreover, as CAI admitted, it was only when Fernando had expressed his interest to use the subject tickets for the
purchase of a round trip ticket between Manila and Los Angeles that he was informed that he cannot use the ticket
in Lourdes’ name as payment.

Contrary to CAI’s claim, that the subject tickets are non-transferable cannot be implied from a plain reading of the
provision printed on the subject tickets stating that "[t]o the extent not in conflict with the foregoing carriage and
other services performed by each carrier are subject to: (a) provisions contained in this ticket, x x x (iii) carrier’s
conditions of carriage and related regulations which are made part hereof (and are available on application at the
offices of carrier) x x x." As a common carrier whose business is imbued with public interest, the exercise of
extraordinary diligence requires CAI to inform Spouses Viloria, or all of its passengers for that matter, of all the
terms and conditions governing their contract of carriage. CAI is proscribed from taking advantage of any ambiguity
in the contract of carriage to impute knowledge on its passengers of and demand compliance with a certain
condition or undertaking that is not clearly stipulated. Since the prohibition on transferability is not written on the face
of the subject tickets and CAI failed to inform Spouses Viloria thereof, CAI cannot refuse to apply the value of
Lourdes’ ticket as payment for Fernando’s purchase of a new ticket.

CAI’s refusal to accept Lourdes’ ticket for the purchase of a new ticket for Fernando is only a casual breach.

Nonetheless, the right to rescind a contract for non-performance of its stipulations is not absolute. The general rule
is that rescission of a contract will not be permitted for a slight or casual breach, but only for such substantial and
fundamental violations as would defeat the very object of the parties in making the agreement.40 Whether a breach is
substantial is largely determined by the attendant circumstances.41

While CAI’s refusal to allow Fernando to use the value of Lourdes’ ticket as payment for the purchase of a new
ticket is unjustified as the non-transferability of the subject tickets was not clearly stipulated, it cannot, however be
considered substantial. The endorsability of the subject tickets is not an essential part of the underlying contracts
and CAI’s failure to comply is not essential to its fulfillment of its undertaking to issue new tickets upon Spouses
Viloria’s surrender of the subject tickets. This Court takes note of CAI’s willingness to perform its principal obligation
and this is to apply the price of the ticket in Fernando’s name to the price of the round trip ticket between Manila and
Los Angeles. CAI was likewise willing to accept the ticket in Lourdes’ name as full or partial payment as the case
may be for the purchase of any ticket, albeit under her name and for her exclusive use. In other words, CAI’s
willingness to comply with its undertaking under its March 24, 1998 cannot be doubted, albeit tainted with its
erroneous insistence that Lourdes’ ticket is non-transferable.

Moreover, Spouses Viloria’s demand for rescission cannot prosper as CAI cannot be solely faulted for the fact that
their agreement failed to consummate and no new ticket was issued to Fernando. Spouses Viloria have no right to
insist that a single round trip ticket between Manila and Los Angeles should be priced at around $856.00 and refuse
to pay the difference between the price of the subject tickets and the amount fixed by CAI. The petitioners failed to
allege, much less prove, that CAI had obliged itself to issue to them tickets for any flight anywhere in the world upon
their surrender of the subject tickets. In its March 24, 1998 letter, it was clearly stated that "[n]on-refundable tickets
may be used as a form of payment toward the purchase of another Continental ticket"42 and there is nothing in it
suggesting that CAI had obliged itself to protect Spouses Viloria from any fluctuation in the prices of tickets or that
the surrender of the subject tickets will be considered as full payment for any ticket that the petitioners intend to buy
regardless of actual price and destination. The CA was correct in holding that it is CAI’s right and exclusive
prerogative to fix the prices for its services and it may not be compelled to observe and maintain the prices of other
airline companies.43

The conflict as to the endorsability of the subject tickets is an altogether different matter, which does not preclude
CAI from fixing the price of a round trip ticket between Manila and Los Angeles in an amount it deems proper and
which does not provide Spouses Viloria an excuse not to pay such price, albeit subject to a reduction coming from
the value of the subject tickets. It cannot be denied that Spouses Viloria had the concomitant obligation to pay
whatever is not covered by the value of the subject tickets whether or not the subject tickets are transferable or not. 1avv phi1

There is also no showing that Spouses Viloria were discriminated against in bad faith by being charged with a higher
rate. The only evidence the petitioners presented to prove that the price of a round trip ticket between Manila and
Los Angeles at that time was only $856.00 is a newspaper advertisement for another airline company, which is
inadmissible for being "hearsay evidence, twice removed." Newspaper clippings are hearsay if they were offered for
the purpose of proving the truth of the matter alleged. As ruled in Feria v. Court of Appeals,:44

[N]ewspaper articles amount to "hearsay evidence, twice removed" and are therefore not only inadmissible but
without any probative value at all whether objected to or not, unless offered for a purpose other than proving the
truth of the matter asserted. In this case, the news article is admissible only as evidence that such publication does
exist with the tenor of the news therein stated.45 (citations omitted)

The records of this case demonstrate that both parties were equally in default; hence, none of them can seek
judicial redress for the cancellation or resolution of the subject contracts and they are therefore bound to their
respective obligations thereunder. As the 1st sentence of Article 1192 provides:

Art. 1192. In case both parties have committed a breach of the obligation, the liability of the first infractor
shall be equitably tempered by the courts. If it cannot be determined which of the parties first violated the
contract, the same shall be deemed extinguished, and each shall bear his own damages. (emphasis supplied)

Therefore, CAI’s liability for damages for its refusal to accept Lourdes’ ticket for the purchase of Fernando’s round
trip ticket is offset by Spouses Viloria’s liability for their refusal to pay the amount, which is not covered by the
subject tickets. Moreover, the contract between them remains, hence, CAI is duty bound to issue new tickets for a
destination chosen by Spouses Viloria upon their surrender of the subject tickets and Spouses Viloria are obliged to
pay whatever amount is not covered by the value of the subject tickets.

This Court made a similar ruling in Central Bank of the Philippines v. Court of Appeals.46 Thus:

Since both parties were in default in the performance of their respective reciprocal obligations, that is, Island
Savings Bank failed to comply with its obligation to furnish the entire loan and Sulpicio M. Tolentino failed to comply
with his obligation to pay his ₱17,000.00 debt within 3 years as stipulated, they are both liable for damages.
Article 1192 of the Civil Code provides that in case both parties have committed a breach of their reciprocal
obligations, the liability of the first infractor shall be equitably tempered by the courts. WE rule that the liability of
Island Savings Bank for damages in not furnishing the entire loan is offset by the liability of Sulpicio M. Tolentino for
damages, in the form of penalties and surcharges, for not paying his overdue ₱17,000.00 debt. x x x.47

Another consideration that militates against the propriety of holding CAI liable for moral damages is the absence of a
showing that the latter acted fraudulently and in bad faith. Article 2220 of the Civil Code requires evidence of bad
faith and fraud and moral damages are generally not recoverable in culpa contractual except when bad faith had
been proven.48 The award of exemplary damages is likewise not warranted. Apart from the requirement that the
defendant acted in a wanton, oppressive and malevolent manner, the claimant must prove his entitlement to moral
damages.49

WHEREFORE, premises considered, the instant Petition is DENIED.

SO ORDERED.

G.R. No. 102784 February 28, 1996

ROSA LIM, petitioner,

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

DECISION

HERMOSISIMA, JR., J.:

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

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

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

CONTRARY TO LAW.2

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

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

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

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

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

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

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

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

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

II

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

III

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

Herein the pertinent facts as alleged by the prosecution.

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

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

Petitioner has a different version.

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

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

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

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

The contention is far from meritorious.

The receipt marked as Exhibit "A" which establishes a contract of agency to sell on commission basis between
Vicky Suarez and Rosa Lim is herein reproduced in order to come to a proper perspective:

THIS IS TO CERTIFY, that I received from Vicky Suarez PINATUTUNAYAN KO na aking tinanggap kay
___________ the following jewelries:

ang mga alahas na sumusunod:

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

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

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

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

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

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

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

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

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

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

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

The testator or the person requested by him to write his name and the instrumental witnesses of the will,
shall also sign, as aforesaid, each and every page thereof, except the last, on the left margin. . . .

In the case before us, the parties did not execute a notarial will but a simple contract of agency to sell on
commission basis, thus making the position of petitioner's signature thereto immaterial.

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

Q: And when she left the jewelries with you, what did you do thereafter?
 A: On October 12, I was bound for Cebu. So I called up Vicky through telephone and informed her that I
am no longer interested in the bracelet and ring and that I will just return it.

Q: And what was the reply of Vicky Suarez?

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

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

A: Yes, Your Honor. 14

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

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

A: She gave the jewelries to me.

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

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

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

A: Before she left for Cebu. 15

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

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

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

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

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

We shall not disturb this finding of the respondent court. It is well settled that we should not interfere with the
judgment of the trial court in determining the credibility of witnesses, unless there appears in the record some fact or
circumstance of weight and influence which has been overlooked or the significance of which has been
misinterpreted. The reason is that the trial court is in a better position to determine questions involving credibility
having heard the witnesses and having observed their deportment and manner of testifying during the trial. 18
Article 315, par. 1(b) of the Revised Penal Code provides:

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

xxx xxx xxx

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

xxx xxx xxx

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

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

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

Costs against petitioner.

SO ORDERED.

G.R. No. 167622 November 7, 2008

GREGORIO V. TONGKO, petitioner

vs.
THE MANUFACTURERS LIFE INSURANCE CO. (PHILS.), INC. and RENATO A. VERGEL DE DIOS, respondents.

DECISION

VELASCO, JR., J.:

The Case

This Petition for Review on Certiorari under Rule 45 seeks the reversal of the March 29, 2005 Decision 1 of the Court of
Appeals (CA) in CA-G.R. SP No. 88253, entitled The Manufacturers Life Insurance Co. (Phils.), Inc. v. National Labor
Relations Commission and Gregorio V. Tongko. The assailed decision set aside the Decision dated September 27, 2004
and Resolution dated December 16, 2004 rendered by the National Labor Relations Commission (NLRC) in NLRC NCR
CA No. 040220-04.

The Facts

Manufacturers Life Insurance Co. (Phils.), Inc. (Manulife) is a domestic corporation engaged in life insurance business.
Renato A. Vergel De Dios was, during the period material, its President and Chief Executive Officer. Gregorio V. Tongko
started his professional relationship with Manulife on July 1, 1977 by virtue of a Career Agent's Agreement 2 (Agreement)
he executed with Manulife.

In the Agreement, it is provided that:

It is understood and agreed that the Agent is an independent contractor and nothing contained herein shall be
construed or interpreted as creating an employer-employee relationship between the Company and the Agent.

xxxx

a) The Agent shall canvass for applications for Life Insurance, Annuities, Group policies and other products
offered by the Company, and collect, in exchange for provisional receipts issued by the Agent, money due or to
become due to the Company in respect of applications or policies obtained by or through the Agent or from
policyholders allotted by the Company to the Agent for servicing, subject to subsequent confirmation of receipt of
payment by the Company as evidenced by an Official Receipt issued by the Company directly to the policyholder.

xxxx

The Company may terminate this Agreement for any breach or violation of any of the provisions hereof by the
Agent by giving written notice to the Agent within fifteen (15) days from the time of the discovery of the breach. No
waiver, extinguishment, abandonment, withdrawal or cancellation of the right to terminate this Agreement by the
Company shall be construed for any previous failure to exercise its right under any provision of this Agreement.

Either of the parties hereto may likewise terminate his Agreement at any time without cause, by giving to the other
party fifteen (15) days notice in writing. x x x

In 1983, Tongko was named as a Unit Manager in Manulife's Sales Agency Organization. In 1990, he became a Branch
Manager. As the CA found, Tongko's gross earnings from his work at Manulife, consisting of commissions, persistency
income, and management overrides, may be summarized as follows:

January to December 10, 2002 - P 865,096.07

2001 - 6,214,737.11
2000 - 8,003,180.38
1999 - 6,797,814.05
1998 - 4,805,166.34
1997 - 2,822,620.003

The problem started sometime in 2001, when Manulife instituted manpower development programs in the regional sales
management level. Relative thereto, De Dios addressed a letter dated November 6, 20014 to Tongko regarding an
October 18, 2001 Metro North Sales Managers Meeting. In the letter, De Dios stated:

The first step to transforming Manulife into a big league player has been very clear - to increase the number of
agents to at least 1,000 strong for a start. This may seem diametrically opposed to the way Manulife was run
when you first joined the organization. Since then, however, substantial changes have taken place in the
organization, as these have been influenced by developments both from within and without the company.

xxxx

The issues around agent recruiting are central to the intended objectives hence the need for a Senior Managers'
meeting earlier last month when Kevin O'Connor, SVP - Agency, took to the floor to determine from our senior
agency leaders what more could be done to bolster manpower development. At earlier meetings, Kevin had
presented information where evidently, your Region was the lowest performer (on a per Manager basis) in terms
of recruiting in 2000 and, as of today, continues to remain one of the laggards in this area.
While discussions, in general, were positive other than for certain comments from your end which were perceived
to be uncalled for, it became clear that a one-on-one meeting with you was necessary to ensure that you and
management, were on the same plane. As gleaned from some of your previous comments in prior meetings (both
in group and one-on-one), it was not clear that we were proceeding in the same direction.

Kevin held subsequent series of meetings with you as a result, one of which I joined briefly. In those subsequent
meetings you reiterated certain views, the validity of which we challenged and subsequently found as having no
basis.

With such views coming from you, I was a bit concerned that the rest of the Metro North Managers may be a bit
confused as to the directions the company was taking. For this reason, I sought a meeting with everyone in your
management team, including you, to clear the air, so to speak.

This note is intended to confirm the items that were discussed at the said Metro North Region's Sales Managers
meeting held at the 7/F Conference room last 18 October.

xxxx

Issue # 2: "Some Managers are unhappy with their earnings and would want to revert to the position of agents."

This is an often repeated issue you have raised with me and with Kevin. For this reason, I placed the issue on the
table before the rest of your Region's Sales Managers to verify its validity. As you must have noted, no Sales
Manager came forward on their own to confirm your statement and it took you to name Malou Samson as a
source of the same, an allegation that Malou herself denied at our meeting and in your very presence.

This only confirms, Greg, that those prior comments have no solid basis at all. I now believe what I had thought all
along, that these allegations were simply meant to muddle the issues surrounding the inability of your Region to
meet its agency development objectives!

Issue # 3: "Sales Managers are doing what the company asks them to do but, in the process, they earn less."

xxxx

All the above notwithstanding, we had your own records checked and we found that you made a lot more money
in the Year 2000 versus 1999. In addition, you also volunteered the information to Kevin when you said that you
probably will make more money in the Year 2001 compared to Year 2000. Obviously, your above statement about
making "less money" did not refer to you but the way you argued this point had us almost believing that you were
spouting the gospel of truth when you were not. x x x

xxxx

All of a sudden, Greg, I have become much more worried about your ability to lead this group towards the new
direction that we have been discussing these past few weeks, i.e., Manulife's goal to become a major agency-led
distribution company in the Philippines. While as you claim, you have not stopped anyone from recruiting, I have
never heard you proactively push for greater agency recruiting. You have not been proactive all these years when
it comes to agency growth.

xxxx

I cannot afford to see a major region fail to deliver on its developmental goals next year and so, we are making
the following changes in the interim:

1. You will hire at your expense a competent assistant who can unload you of much of the routine tasks
which can be easily delegated. This assistant should be so chosen as to complement your skills and help
you in the areas where you feel "may not be your cup of tea".

You have stated, if not implied, that your work as Regional Manager may be too taxing for you and for
your health. The above could solve this problem.
 xxxx

2. Effective immediately, Kevin and the rest of the Agency Operations will deal with the North Star Branch
(NSB) in autonomous fashion. x x x

I have decided to make this change so as to reduce your span of control and allow you to concentrate
more fully on overseeing the remaining groups under Metro North, your Central Unit and the rest of the
Sales Managers in Metro North. I will hold you solely responsible for meeting the objectives of these
remaining groups.

xxxx

The above changes can end at this point and they need not go any further. This, however, is entirely dependent
upon you. But you have to understand that meeting corporate objectives by everyone is primary and will not be
compromised. We are meeting tough challenges next year and I would want everybody on board. Any resistance
or holding back by anyone will be dealt with accordingly.

Subsequently, De Dios wrote Tongko another letter dated December 18, 2001, 5 terminating Tongko's services, thus:

It would appear, however, that despite the series of meetings and communications, both one-on-one meetings
between yourself and SVP Kevin O'Connor, some of them with me, as well as group meetings with your Sales
Managers, all these efforts have failed in helping you align your directions with Management's avowed agency
growth policy.

xxxx

On account thereof, Management is exercising its prerogative under Section 14 of your Agents Contract as we
are now issuing this notice of termination of your Agency Agreement with us effective fifteen days from the date of
this letter.

Therefrom, Tongko filed a Complaint dated November 25, 2002 with the NLRC against Manulife for illegal dismissal. The
case, docketed as NLRC NCR Case No. 11-10330-02, was raffled to Labor Arbiter Marita V. Padolina.

In the Complaint, Tongko, in a bid to establish an employer-employee relationship, alleged that De Dios gave him specific
directives on how to manage his area of responsibility in the latter's letter dated November 6, 2001. He further claimed
that Manulife exercised control over him as follows:

Such control was certainly exercised by respondents over the herein complainant. It was Manulife who hired,
promoted and gave various assignments to him. It was the company who set objectives as regards productions,
recruitment, training programs and all activities pertaining to its business. Manulife prescribed a Code of Conduct
which would govern in minute detail all aspects of the work to be undertaken by employees, including the sales
process, the underwriting process, signatures, handling of money, policyholder service, confidentiality, legal and
regulatory requirements and grounds for termination of employment. The letter of Mr. De Dios dated 06
November 2001 left no doubt as to who was in control. The subsequent termination letter dated 18 December
2001 again established in no uncertain terms the authority of the herein respondents to control the employees of
Manulife. Plainly, the respondents wielded control not only as to the ends to be achieved but the ways and means
of attaining such ends.6

Tongko bolstered his argument by citing Insular Life Assurance Co., Ltd. v. NLRC (4th Division)7 and Great Pacific Life
Assurance Corporation v. NLRC,8 which Tongko claimed to be similar to the instant case.

Tongko further claimed that his dismissal was without basis and that he was not afforded due process. He also cited the
Manulife Code of Conduct by which his actions were controlled by the company.

Manulife then filed a Position Paper with Motion to Dismiss dated February 27, 2003,9 in which it alleged that Tongko is
not its employee, and that it did not exercise "control" over him. Thus, Manulife claimed that the NLRC has no jurisdiction
over the case.
In a Decision dated April 15, 2004, Labor Arbiter Marita V. Padolina dismissed the complaint for lack of an employer-
employee relationship. Padolina found that applying the four-fold test in determining the existence of an employer-
employee relationship, none was found in the instant case. The dispositive portion thereof states:

WHEREFORE, premises considered, judgment is hereby rendered DISMISSING the instant complaint for lack of
jurisdiction, there being no employer-employee relationship between the parties.

SO ORDERED.

Tongko appealed the arbiter's Decision to the NLRC which reversed the same and rendered a Decision dated September
27, 2004 finding Tongko to have been illegally dismissed.

The NLRC's First Division, while finding an employer-employee relationship between Manulife and Tongko applying the
four-fold test, held Manulife liable for illegal dismissal. It further stated that Manulife exercised control over Tongko as
evidenced by the letter dated November 6, 2001 of De Dios and wrote:

The above-mentioned letter shows the extent to which respondents controlled complainant's manner and means
of doing his work and achieving the goals set by respondents. The letter shows how respondents concerned
themselves with the manner complainant managed the Metro North Region as Regional Sales Manager, to the
point that respondents even had a say on how complainant interacted with other individuals in the Metro North
Region. The letter is in fact replete with comments and criticisms on how complainant carried out his functions as
Regional Sales Manager.

More importantly, the letter contains an abundance of directives or orders that are intended to directly affect
complainant's authority and manner of carrying out his functions as Regional Sales Manager. 10 x x x

Additionally, the First Division also ruled that:

Further evidence of [respondents'] control over complainant can be found in the records of the case. [These] are
the different codes of conduct such as the Agent Code of Conduct, the Manulife Financial Code of Conduct, and
the Manulife Financial Code of Conduct Agreement, which serve as the foundations of the power of control
wielded by respondents over complainant that is further manifested in the different administrative and other tasks
that he is required to perform. These codes of conduct corroborate and reinforce the display of respondents'
power of control in their 06 November 2001 Letter to complainant.11

The fallo of the September 27, 2004 Decision reads:

WHEREFORE, premises considered, the appealed Decision is hereby reversed and set aside. We find
complainant to be a regular employee of respondent Manulife and that he was illegally dismissed from
employment by respondents.

In lieu of reinstatement, respondent Manulife is hereby ordered to pay complainant separation pay as above set
forth. Respondent Manulife is further ordered to pay complainant backwages from the time he was dismissed on
02 January 2002 up to the finality of this decision also as indicated above.

xxxx

All other claims are hereby dismissed for utter lack of merit.

From this Decision, Manulife filed a motion for reconsideration which was denied by the NLRC First Division in a
Resolution dated December 16, 2004.12

Thus, Manulife filed an appeal with the CA docketed as CA-G.R. SP No. 88253. Thereafter, the CA issued the assailed
Decision dated March 29, 2005, finding the absence of an employer-employee relationship between the parties and
deeming the NLRC with no jurisdiction over the case. The CA arrived at this conclusion while again applying the four-fold
test. The CA found that Manulife did not exercise control over Tongko that would render the latter an employee of
Manulife. The dispositive portion reads:
 WHEREFORE, premises considered, the present petition is hereby GRANTED and the writ prayed for
accordingly GRANTED. The assailed Decision dated September 27, 2004 and Resolution dated December 16,
2004 of the National Labor Relations Commission in NLRC NCR Case No. 00-11-10330-2002 (NLRC NCR CA
No. 040220-04) are hereby ANNULLED and SET ASIDE. The Decision dated April 15, 2004 of Labor Arbiter
Marita V. Padolina is hereby REINSTATED.

Hence, Tongko filed this petition and presented the following issues:

The Court of Appeals committed grave abuse of discretion in granting respondents' petition for certiorari.

The Court of Appeals committed grave abuse of discretion in annulling and setting aside the Decision dated
September 27, 2004 and Resolution dated December 16, 2004 in finding that there is no employer-employee
relationship between petitioner and respondent.

The Court of Appeals committed grave abuse of discretion in annulling and setting aside the Decision dated
September 27, 2004 and Resolution dated December 16, 2004 which found petitioner to have been illegally
dismissed and ordered his reinstatement with payment of backwages.13

Restated, the issues are: (1) Was there an employer-employee relationship between Manulife and Tongko? and (2) If yes,
was Manulife guilty of illegal dismissal?

The Court's Ruling

This petition is meritorious.

Tongko Was An Employee of Manulife

The basic issue of whether or not the NLRC has jurisdiction over the case resolves itself into the question of whether an
employer-employee relationship existed between Manulife and Tongko. If no employer-employee relationship existed
between the two parties, then jurisdiction over the case properly lies with the Regional Trial Court.

In the determination of whether an employer-employee relationship exists between two parties, this Court applies the four-
fold test to determine the existence of the elements of such relationship. In Pacific Consultants International Asia, Inc. v.
Schonfeld, the Court set out the elements of an employer-employee relationship, thus:

Jurisprudence is firmly settled that whenever the existence of an employment relationship is in dispute, four
elements constitute the reliable yardstick: (a) the selection and engagement of the employee; (b) the payment of
wages; (c) the power of dismissal; and (d) the employer's power to control the employee's conduct. It is the so-
called "control test" which constitutes the most important index of the existence of the employer-employee
relationship that is, whether the employer controls or has reserved the right to control the employee not only as to
the result of the work to be done but also as to the means and methods by which the same is to be accomplished.
Stated otherwise, an employer-employee relationship exists where the person for whom the services are
performed reserves the right to control not only the end to be achieved but also the means to be used in reaching
such end.14

The NLRC, for its part, applied the four-fold test and found the existence of all the elements and declared Tongko an
employee of Manulife. The CA, on the other hand, found that the element of control as an indicator of the existence of an
employer-employee relationship was lacking in this case. The NLRC and the CA based their rulings on the same findings
of fact but differed in their interpretations.

The NLRC arrived at its conclusion, first, on the basis of the letter dated November 6, 2001 addressed by De Dios to
Tongko. According to the NLRC, the letter contained "an abundance of directives or orders that are intended to directly
affect complainant's authority and manner of carrying out his functions as Regional Sales Manager." It enumerated these
"directives" or "orders" as follows:

1. You will hire at your expense a competent assistant who can unload you of much of the routine tasks which can
be easily delegated. x x x

xxxx

This assistant should be hired immediately.

2. Effective immediately, Kevin and the rest of the Agency Operations will deal with the North Star Branch (NSB)
in autonomous fashion x x x.

xxxx

I have decided to make this change so as to reduce your span of control and allow you to concentrate more fully
on overseeing the remaining groups under Metro North, your Central Unit and the rest of the Sales Managers in
Metro North. x x x

3. Any resistance or holding back by anyone will be dealt with accordingly.

4. I have been straightforward in this my letter and I know that we can continue to work together… but it will have
to be on my terms. Anything else is unacceptable!

The NLRC further ruled that the different codes of conduct that were applicable to Tongko served as the foundations of
the power of control wielded by Manulife over Tongko that is further manifested in the different administrative and other
tasks that he was required to perform.

The NLRC also found that Tongko was required to render exclusive service to Manulife, further bolstering the existence of
an employer-employee relationship.

Finally, the NLRC ruled that Tongko was integrated into a management structure over which Manulife exercised control,
including the actions of its officers. The NLRC held that such integration added to the fact that Tongko did not have his
own agency belied Manulife's claim that Tongko was an independent contractor.

The CA, however, considered the finding of the existence of an employer-employee relationship by the NLRC as far too
sweeping having as its only basis the letter dated November 6, 2001 of De Dios. The CA did not concur with the NLRC's
ruling that the elements of control as pointed out by the NLRC are "sufficient indicia of control that negates independent
contractorship and conclusively establish an employer-employee relationship between"15 Tongko and Manulife. The CA
ruled that there is no employer-employee relationship between Tongko and Manulife.

An impasse appears to have been reached between the CA and the NLRC on the sole issue of control over an
employee's conduct. It bears clarifying that such control not only applies to the work or goal to be done but also to the
means and methods to accomplish it.16 In Sonza v. ABS-CBN Broadcasting Corporation, we explained that not all forms
of control would establish an employer-employee relationship, to wit:

Further, not every form of control that a party reserves to himself over the conduct of the other party in relation to
the services being rendered may be accorded the effect of establishing an employer-employee relationship. The
facts of this case fall squarely with the case of Insular Life Assurance Co., Ltd. vs. NLRC. In said case, we held
that:

Logically, the line should be drawn between rules that merely serve as guidelines towards the
achievement of the mutually desired result without dictating the means or methods to be
employed in attaining it, and those that control or fix the methodology and bind or restrict the
party hired to the use of such means. The first, which aim only to promote the result, create no
employer-employee relationship unlike the second, which address both the result and the means
used to achieve it.17(Emphasis supplied.)

We ruled in Insular Life Assurance Co., Ltd. v. NLRC (Insular) that:

 It is, therefore, usual and expected for an insurance company to promulgate a set of rules to guide its commission
agents in selling its policies that they may not run afoul of the law and what it requires or prohibits. Of such a
character are the rules which prescribe the qualifications of persons who may be insured, subject insurance
applications to processing and approval by the Company, and also reserve to the Company the determination of
the premiums to be paid and the schedules of payment. None of these really invades the agent's contractual
prerogative to adopt his own selling methods or to sell insurance at his own time and convenience, hence cannot
justifiably be said to establish an employer-employee relationship between him and the company.18

Hence, we ruled in Insular that no employer-employee relationship existed therein. However, such ruling was tempered
with the qualification that had there been evidence that the company promulgated rules or regulations that effectively
controlled or restricted an insurance agent's choice of methods or the methods themselves in selling insurance, an
employer-employee relationship would have existed. In other words, the Court in Insular in no way definitively held that
insurance agents are not employees of insurance companies, but rather made the same a case-to-case basis. We held:

The respondents limit themselves to pointing out that Basiao's contract with the Company bound him to observe
and conform to such rules and regulations as the latter might from time to time prescribe. No showing has been
made that any such rules or regulations were in fact promulgated, much less that any rules existed or
were issued which effectively controlled or restricted his choice of methods or the methods themselves
of selling insurance. Absent such showing, the Court will not speculate that any exceptions or
qualifications were imposed on the express provision of the contract leaving Basiao "... free to exercise
his own judgment as to the time, place and means of soliciting insurance."19 (Emphasis supplied.)

There is no conflict between our rulings in Insular and in Great Pacific Life Assurance Corporation. We said in the latter
case:

[I]t cannot be gain said that Grepalife had control over private respondents' performance as well as the result of
their efforts. A cursory reading of their respective functions as enumerated in their contracts reveals that
the company practically dictates the manner by which their jobs are to be carried out. For instance, the
District Manager must properly account, record and document the company's funds spot-check and audit the work
of the zone supervisors, conserve the company's business in the district through ‘reinstatements', follow up the
submission of weekly remittance reports of the debit agents and zone supervisors, preserve company property in
good condition, train understudies for the position of district manager, and maintain his quota of sales (the failure
of which is a ground for termination). On the other hand, a zone supervisor must direct and supervise the sales
activities of the debit agents under him, conserve company property through "reinstatements", undertake and
discharge the functions of absentee debit agents, spot-check the records of debit agents, and insure proper
documentation of sales and collections by the debit agents.20 (Emphasis supplied.)

Based on the foregoing cases, if the specific rules and regulations that are enforced against insurance agents or
managers are such that would directly affect the means and methods by which such agents or managers would achieve
the objectives set by the insurance company, they are employees of the insurance company.

In the instant case, Manulife had the power of control over Tongko that would make him its employee. Several factors
contribute to this conclusion.

In the Agreement dated July 1, 1977 executed between Tongko and Manulife, it is provided that:

The Agent hereby agrees to comply with all regulations and requirements of the Company as herein provided as
well as maintain a standard of knowledge and competency in the sale of the Company's products which satisfies
those set by the Company and sufficiently meets the volume of new business required of Production Club
membership.21

Under this provision, an agent of Manulife must comply with three (3) requirements: (1) compliance with the regulations
and requirements of the company; (2) maintenance of a level of knowledge of the company's products that is satisfactory
to the company; and (3) compliance with a quota of new businesses.

Among the company regulations of Manulife are the different codes of conduct such as the Agent Code of Conduct,
Manulife Financial Code of Conduct, and Manulife Financial Code of Conduct Agreement, which demonstrate the power
of control exercised by the company over Tongko. The fact that Tongko was obliged to obey and comply with the codes of
conduct was not disowned by respondents.
Thus, with the company regulations and requirements alone, the fact that Tongko was an employee of Manulife may
already be established. Certainly, these requirements controlled the means and methods by which Tongko was to achieve
the company's goals.

More importantly, Manulife's evidence establishes the fact that Tongko was tasked to perform administrative duties that
establishes his employment with Manulife.

In its Comment (Re: Petition for Review dated 15 April 2005) dated August 5, 2005, Manulife attached affidavits of its
agents purportedly to support its claim that Tongko, as a Regional Sales Manager, did not perform any administrative
functions. An examination of these affidavits would, however, prove the opposite.

In an Affidavit dated April 28, 2003,22 John D. Chua, a Regional Sales Manager of Manulife, stated:

4. On September 1, 1996, my services were engaged by Manulife as an Agency Regional Sales Manager
("RSM") for Metro South Region pursuant to an Agency Contract. As such RSM, I have the following functions:

1. Refer and recommend prospective agents to Manulife

2. Coach agents to become productive

3. Regularly meet with, and coordinate activities of agents affiliated to my region.

While Amada Toledo, a Branch Manager of Manulife, stated in her Affidavit dated April 29, 2003 23 that:

3. In January 1997, I was assigned as a Branch Manager ("BM") of Manulife for the Metro North Sector;

4. As such BM, I render the following services:

a. Refer and recommend prospective agents to Manulife;

b. Train and coordinate activities of other commission agents;

c. Coordinate activities of Agency Managers who, in turn, train and coordinate activites of other
commission agents;

d. Achieve agreed production objectives in terms of Net Annualized Commissions and Case Count and
recruitment goals; and

e. Sell the various products of Manulife to my personal clients.

While Ma. Lourdes Samson, a Unit Manager of Manulife, stated in her Affidavit dated April 28, 2003 24 that:

3. In 1977, I was assigned as a Unit Manager ("UM") of North Peaks Unit, North Star Branch, Metro North Region;

4. As such UM, I render the following services:

a. To render or recommend prospective agents to be licensed, trained and contracted to sell Manulife
products and who will be part of my Unit;

b. To coordinate activities of the agents under my Unit in their daily, weekly and monthly selling activities,
making sure that their respective sales targets are met;

c. To conduct periodic training sessions for my agents to further enhance their sales skills.

d. To assist my agents with their sales activities by way of joint fieldwork, consultations and one-on- one
evaluation and analysis of particular accounts.
 e. To provide opportunities to motivate my agents to succeed like conducting promos to increase sales
activities and encouraging them to be involved in company and industry activities.

f. To provide opportunities for professional growth to my agents by encouraging them to be a member of

the LUCAP (Life Underwriters Association of the Philippines).

A comparison of the above functions and those contained in the Agreement with those cited in Great Pacific Life
Assurance Corporation25 reveals a striking similarity that would more than support a similar finding as in that case. Thus,
there was an employer-employee relationship between the parties.

Additionally, it must be pointed out that the fact that Tongko was tasked with recruiting a certain number of agents, in
addition to his other administrative functions, leads to no other conclusion that he was an employee of Manulife.

In his letter dated November 6, 2001, De Dios harped on the direction of Manulife of becoming a major agency-led
distribution company whereby greater agency recruitment is required of the managers, including Tongko. De Dios made it
clear that agent recruitment has become the primary means by which Manulife intends to sell more policies. More
importantly, it is Tongko's alleged failure to follow this principle of recruitment that led to the termination of his employment
with Manulife. With this, it is inescapable that Tongko was an employee of Manulife.

Tongko Was Illegally Dismissed

In its Petition for Certiorari dated January 7, 2005 26 filed before the CA, Manulife argued that even if Tongko is considered
as its employee, his employment was validly terminated on the ground of gross and habitual neglect of duties, inefficiency,
as well as willful disobedience of the lawful orders of Manulife. Manulife stated:

In the instant case, private respondent, despite the written reminder from Mr. De Dios refused to shape up and
altogether disregarded the latter's advice resulting in his laggard performance clearly indicative of his willful
disobedience of the lawful orders of his superior. x x x

xxxx

As private respondent has patently failed to perform a very fundamental duty, and that is to yield obedience to all
reasonable rules, orders and instructions of the Company, as well as gross failure to reach at least minimum
quota, the termination of his engagement from Manulife is highly warranted and therefore, there is no illegal
dismissal to speak of.

It is readily evident from the above-quoted portions of Manulife's petition that it failed to cite a single iota of evidence to
support its claims. Manulife did not even point out which order or rule that Tongko disobeyed. More importantly, Manulife
did not point out the specific acts that Tongko was guilty of that would constitute gross and habitual neglect of duty or
disobedience. Manulife merely cited Tongko's alleged "laggard performance," without substantiating such claim, and
equated the same to disobedience and neglect of duty.

We cannot, therefore, accept Manulife's position.

In Quebec, Sr. v. National Labor Relations Commission, we ruled that:

When there is no showing of a clear, valid and legal cause for the termination of employment, the law considers
the matter a case of illegal dismissal and the burden is on the employer to prove that the termination was for a
valid or authorized cause. This burden of proof appropriately lies on the shoulders of the employer and not on the
employee because a worker's job has some of the characteristics of property rights and is therefore within the
constitutional mantle of protection. No person shall be deprived of life, liberty or property without due process of
law, nor shall any person be denied the equal protection of the laws.

Apropos thereto, Art. 277, par. (b), of the Labor Code mandates in explicit terms that the burden of proving the
validity of the termination of employment rests on the employer. Failure to discharge this evidential burden would
necessarily mean that the dismissal was not justified, and, therefore, illegal. 27

We again ruled in Times Transportation Co., Inc. v. National Labor Relations Commission that:
 The law mandates that the burden of proving the validity of the termination of employment rests with the
employer. Failure to discharge this evidentiary burden would necessarily mean that the dismissal was not
justified, and, therefore, illegal. Unsubstantiated suspicions, accusations and conclusions of employers do not
provide for legal justification for dismissing employees. In case of doubt, such cases should be resolved in favor
of labor, pursuant to the social justice policy of our labor laws and Constitution.28

This burden of proof was clarified in Community Rural Bank of San Isidro (N.E.), Inc. v. Paez to mean substantial
evidence, to wit:

The Labor Code provides that an employer may terminate the services of an employee for just cause and this
must be supported by substantial evidence. The settled rule in administrative and quasi-judicial proceedings is
that proof beyond reasonable doubt is not required in determining the legality of an employer's dismissal of an
employee, and not even a preponderance of evidence is necessary as substantial evidence is considered
sufficient. Substantial evidence is more than a mere scintilla of evidence or relevant evidence as a reasonable
mind might accept as adequate to support a conclusion, even if other minds, equally reasonable, might
conceivably opine otherwise.29

Here, Manulife failed to overcome such burden of proof. It must be reiterated that Manulife even failed to identify the
specific acts by which Tongko's employment was terminated much less support the same with substantial evidence. To
repeat, mere conjectures cannot work to deprive employees of their means of livelihood. Thus, it must be concluded that
Tongko was illegally dismissed.

Moreover, as to Manulife's failure to comply with the twin notice rule, it reasons that Tongko not being its employee is not
entitled to such notices. Since we have ruled that Tongko is its employee, however, Manulife clearly failed to afford
Tongko said notices. Thus, on this ground too, Manulife is guilty of illegal dismissal. In Quebec, Sr., we also stated:

Furthermore, not only does our legal system dictate that the reasons for dismissing a worker must be pertinently
substantiated, it also mandates that the manner of dismissal must be properly done, otherwise, the termination
itself is gravely defective and may be declared unlawful.30

For breach of the due process requirements, Manulife is liable to Tongko in the amount of PhP 30,000 as indemnity in the
form of nominal damages.31

Finally, Manulife raises the issue of the correctness of the computation of the award to Tongko made by the NLRC by
claiming that Songco v. National Labor Relations Commission32 is inapplicable to the instant case, considering that
Songco was dismissed on the ground of retrenchment.

An examination of Songco reveals that it may be applied to the present case. In that case, Jose Songco was a salesman
of F.E. Zuellig (M), Inc. which terminated the services of Songco on the ground of retrenchment due to financial losses.
The issue raised to the Court, however, was whether commissions are considered as part of wages in order to determine
separation pay. Thus, the fact that Songco was dismissed due to retrenchment does not hamper the application thereof to
the instant case. What is pivotal is that we ruled in Songco that commissions are part of wages for the determination of
separation pay.

Article 279 of the Labor Code on security of tenure pertinently provides that:

In cases of regular employment the employer shall not terminate the services of an employee except for a just
cause or when authorized by this Title. An employee who is unjustly dismissed from work shall be entitled to
reinstatement without loss of seniority rights and other privileges and to his full backwages, inclusive of
allowances, and to his other benefits or their monetary equivalent computed from the time his compensation was
withheld from him up to the time of his actual reinstatement.

In Triad Security & Allied Services, Inc. v. Ortega, Jr. (Triad), we thus stated that an illegally dismissed employee shall be
entitled to backwages and separation pay, if reinstatement is no longer viable:

As the law now stands, an illegally dismissed employee is entitled to two reliefs, namely: backwages and
reinstatement. These are separate and distinct from each other. However, separation pay is granted where
reinstatement is no longer feasible because of strained relations between the employee and the employer. In
effect, an illegally dismissed employee is entitled to either reinstatement, if viable, or separation pay if
reinstatement is no longer viable and backwages.33
Taking into consideration the cases of Songco and Triad, we find correct the computation of the NLRC that the monthly
gross wage of Tongko in 2001 was PhP 518,144.76. For having been illegally dismissed, Tongko is entitled to
reinstatement with full backwages under Art. 279 of the Labor Code. Due to the strained relationship between Manulife
and Tongko, reinstatement, however, is no longer advisable. Thus, Tongko will be entitled to backwages from January 2,
2002 (date of dismissal) up to the finality of this decision. Moreover, Manulife will pay Tongko separation pay of one (1)
month salary for every year of service that is from 1977 to 2001 amounting to PhP 12,435,474.24, considering that
reinstatement is not feasible. Tongko shall also be entitled to an award of attorney's fees in the amount of ten percent
(10%) of the aggregate amount of the above awards.

WHEREFORE, the petition is hereby GRANTED. The assailed March 29, 2005 Decision of the CA in CA-G.R. SP No.
88253 is REVERSED and SET ASIDE. The Decision dated September 27, 2004 of the NLRC is REINSTATED with the
following modifications:

Manulife shall pay Tongko the following:

(1) Full backwages, inclusive of allowances and other benefits or their monetary equivalent from January 2, 2002
up to the finality of this Decision;

(2) Separation pay of one (1) month salary for every year of service from 1977 up to 2001 amounting to PhP
12,435,474.24;

(3) Nominal damages of PhP 30,000 as indemnity for violation of the due process requirements; and

(4) Attorney's fees equivalent to ten percent (10%) of the aforementioned backwages and separation pay.

Costs against respondent Manulife.

SO ORDERED.

G.R. No. 156335 November 28, 2007

SPOUSES RAUL and AMALIA PANLILIO, Petitioners,

vs.
CITIBANK, N.A., Respondent.

DECISION

AUSTRIA-MARTINEZ, J.:

Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, seeking to reverse the
Decision1 of the Court of Appeals (CA) dated May 28, 2002 in CA-G.R. CV No. 66649 and its Resolution of
December 11, 2002, which reversed and set aside the Decision of the Regional Trial Court (RTC) of Makati City.

The case originated as a Complaint2 for a sum of money and damages, filed with the RTC of Makati City on March
2, 1999, by the spouses Raul and Amalia Panlilio (petitioners) against Citibank N.A. (respondent).

The factual antecedents are as follows:

On October 10, 1997, petitioner Amalia Panlilio (Amalia) visited respondent's Makati City office and deposited one
million pesos (PhP1 million) in the bank's "Citihi" account, a fixed-term savings account with a higher-than-average
interest.3 On the same day, Amalia also opened a current or checking account with respondent, to which interest
earnings of the Citihi account were to be credited.4 Respondent assigned one of its employees, Jinky Suzara Lee
(Lee), to personally transact with Amalia and to handle the accounts.5
Amalia opened the accounts as ITF or "in trust for" accounts, as they were intended to benefit her minor children,
Alejandro King Aguilar and Fe Emanuelle C. Panlilio, in case she would meet an untimely death.6 To open these
accounts, Amalia signed two documents: a Relationship Opening Form (ROF)7 and an Investor Profiling and
Suitability Questionnaire (Questionnaire).8

Amalia's initial intention was to invest the money in a Citibank product called the Peso Repriceable Promissory Note
(PRPN), a product which had a higher interest. However, as the PRPN was not available that day, Amalia put her
money in the Citihi savings account.9

More than a month later, or on November 28, 1997, Amalia phoned Citibank saying she wanted to place an
investment, this time in the amount of three million pesos (PhP3 million). Again, she spoke with Lee, the bank
employee, who introduced her to Citibank's various investment offerings. After the phone conversation, apparently
decided on where to invest the money, Amalia went to Citibank bringing a PCIBank check in the amount of three
million pesos (PhP3 million). During the visit, Amalia instructed Lee on what to do with the PhP3 million. Later, she
learned that out of the said amount, PhP2,134,635.87 was placed by Citibank in a Long-Term Commercial Paper
(LTCP), a debt instrument that paid a high interest, issued by the corporation Camella and Palmera Homes (C&P
Homes).10 The rest of the money was placed in two PRPN accounts, in trust for each of Amalia's two children.11

Allegations differ between petitioners and respondent as to whether Amalia instructed Lee to place the money in the
LTCP of C&P Homes.12

An LTCP is an evidence of indebtedness, with a maturity period of more than 365 days, issued by a corporation to
any person or entity.13 It is in effect a loan obtained by a corporation (as borrower) from the investing public (as
lender)14 and is one of many instruments that investment banks can legally buy on behalf of their clients, upon the
latter's express instructions, for investment purposes.15 LTCPs' attraction is that they usually have higher yields than
most investment instruments. In the case of the LTCP issued by C&P Homes, the gross interest rate was 16.25%
per annum at the time Amalia made her investment.16

On November 28, 1997, the day she made the PhP3million investment, Amalia signed the following documents: a
Directional Investment Management Agreement (DIMA),17 Term Investment Application (TIA),18 and Directional
Letter/Specific Instructions.19 Key features of the DIMA and the Directional Letter are provisions that essentially clear
Citibank of any obligation to guarantee the principal and interest of the investment, absent fraud or negligence on
the latter's part. The provisions likewise state that all risks are to be assumed by the investor (petitioner).

As to the amount invested, only PhP2,134,635.87 out of the PhP3 million brought by Amalia was placed in the LTCP
since, according to Lee, this was the only amount of LTCP then available.20 According to Lee, the balance of the
PhP3 million was placed in two PRPN accounts, each one in trust for Amalia's two children, per her instructions.21

Following this investment, respondent claims to have regularly sent confirmations of investment (COIs) to
petitioners.22 A COI is a one-page, computer generated document informing the customer of the investment earlier
made with the bank. The first of these COIs was received by petitioners on or about December 9, 1997, as admitted
by Amalia, which is around a week after the investment was made.23 Respondent claims that other succeeding COIs
were sent to and received by petitioners.

Amalia claims to have called Lee as soon as she received the first COI in December 1997, and demanded that the
investment in LTCP be withdrawn and placed in a PRPN.24 Respondent, however, denies this, claiming that Amalia
merely called to clarify provisions in the COI and did not demand a withdrawal.25

On August 6, 1998, petitioners met with respondent's other employee, Lizza Colet, to preterminate the LTCP and
their other investments. Petitioners were told that as to the LTCP, liquidation could be made only if there is a willing
buyer, a prospect which could be difficult at that time because of the economic crisis. Still, petitioners signed three
sets of Sales Order Slip to sell the LTCP and left these with Colet.26

On August 18, 1998, Amalia, through counsel, sent her first formal, written demand to respondent "for a withdrawal
of her investment as soon as possible."27 The same was followed by another letter dated September 7, 1998, which
reiterated the same demands.28 In answer to the letters, respondent noted that the investment had a 2003 maturity,
was not a deposit, and thus, its return to the investor was not guaranteed by respondent; however, it added that the
LTCP may be sold prior to maturity and had in fact been put up for sale, but such sale was "subject to the availability
of buyers in the secondary market."29 At that time, respondent was not able to find a buyer for the LTCP. As this
response did not satisfy petitioners, Amalia again wrote respondent, this time a final demand letter dated September
21, 1998, asking for a reconsideration and a return of the money she invested.30 In reply, respondent wrote a letter
dated October 12, 1998 stating that despite efforts to sell the LTCP, no willing buyers were found and that even if a
buyer would come later, the price would be lower than Amalia's original investment.31

Thus, petitioners filed with the RTC their complaint against respondent for a sum of money and damages.

The Complaint32 essentially demanded a return of the investment, alleging that Amalia never instructed respondent's
employee Lee to invest the money in an LTCP; and that far from what Lee executed, Amalia's instructions were to
invest the money in a "trust account" with an "interest of around 16.25% with a term of 91 days." Further, petitioners
alleged that it was only later, or on December 8, 1997, when Amalia received the first confirmation of investment
(COI) from respondent, that she and her husband learned of Lee's infidelity to her orders. The COI allegedly
informed petitioners that the money was placed in an LTCP of C&P Homes with a maturity in 2003, and that the
investment was not guaranteed by respondent. Petitioners also claimed that as soon as Amalia received the COI,
she immediately called Lee; however, the latter allegedly convinced her to ignore the COI, that C&P Homes was an
Ayala company, that the investment was secure, and that it could be easily "withdrawn"; hence, Amalia decided not
to immediately "withdraw" the investment. Several months later, or on August 6, 1998, petitioners allegedly wanted
to "withdraw" the investment to buy a property; however, they failed to do so, since respondent told them the LTCP
had not yet matured, and that no buyers were willing to buy it. Hence, they sent various demand letters to
respondent, asking for a return of their money; and when these went unheeded, they filed the complaint.

In its Answer,33 respondent admitted that, indeed, Amalia was its client and that she invested the amounts stated in
the complaint. However, respondent disputed the claim that Amalia opened a "trust account" with a "request for an
interest rate of around 16.25% with a term of 91 days;" instead, respondent presented documents stating that
Amalia opened a "directional investment management account," with investments to be made in C&P Homes' LTCP
with a 2003 maturity. Respondent disputed allegations that it violated petitioners' express instructions. Respondent
likewise denied that Amalia, upon her receipt of the COI, immediately called respondent and protested the
investment in LTCP, its 2003 maturity and Citibank's lack of guarantee. According to respondent, no such protest
was made and petitioners actually decided to liquidate their investment only months later, after the newspapers
reported that Ayala Land, Inc. was cancelling plans to invest in C&P Homes.

The rest of respondent's Answer denied (1) that it convinced Amalia not to liquidate or "withdraw" her investment or
to ignore the contents of the COI; (2) that it assured Amalia that the investment could be easily or quickly
"withdrawn" or sold; (3) that it misrepresented that C&P was an Ayala company, implying that C&P had secure
finances; and (4) that respondent had been unfaithful to and in breach of its contractual obligations.

After trial, the RTC rendered its Decision,34 dated February 16, 2000, the dispositive portion of which states:

The foregoing considered, the court hereby rules in favor of plaintiffs and order defendant to pay:

1. The sum of PhP2,134,635.87 representing the actual amount deposited by plaintiffs with defendant plus
interest corresponding to time deposit during the time material to this action from date of filing of this case
until fully paid;

2. The sum of PhP300,000.00 representing moral damages;

3. The sum of PhP100,000.00 representing attorney's fees;

4. Costs.

SO ORDERED.35

The RTC upheld all the allegations of petitioners and concluded that Amalia never instructed Citibank to invest the
money in an LTCP. Thus, the RTC found Citibank in violation of its contractual and fiduciary duties and held it liable
to return the money invested by petitioners plus damages.
Respondent appealed to the CA.

On appeal, in its Decision promulgated on May 28, 2002, the CA reversed the Decision of the RTC, thus:

WHEREFORE, premises considered, the assailed decision dated 16 February 2000 is REVERSED and SET ASIDE
and a new one entered DISMISSING Civil Case No. 99-500.36

The CA held that with respect to the amount of PhP2,134,635.87, the account opened by Amalia was an investment
management account; as a result, the money invested was the sole and exclusive obligation of C&P Homes, the
issuer of the LTCP, and was not guaranteed or insured by herein respondent Citibank;37 that Amalia opened such
an account as evidenced by the documents she executed with Citibank, namely, the Directional Investment
Management Agreement (DIMA), Term Investment Application (TIA), and Directional Letter/Specific Instructions,
which were all dated November 28, 1997, the day Amalia brought the money to Citibank. Further, the CA brushed
aside petitioners' arguments that Amalia failed to understand the true nature of the LTCP investment, and that she
failed to read the documents as they were written in fine print. The CA ruled that petitioners could not seek the
court's aid to extricate them from their contractual obligations. Citing jurisprudence, the CA held that the courts
protected only those who were innocent victims of fraud, and not those who simply made bad bargains or exercised
unwise judgment.

On petitioners' motion for reconsideration, the CA reiterated its ruling and denied the motion in a Resolution38 dated
December 11, 2002.

Thus, the instant petition which raises issues, summarized as follows: (1) whether petitioners are bound by the
terms and conditions of the Directional Investment Management Agreement (DIMA), Term Investment Application
(TIA), Directional Letter/Specific Instructions, and Confirmations of Investment (COIs); (2) and whether petitioners
are entitled to take back the money they invested from respondent bank; or stated differently, whether respondent is
obliged to return the money to petitioners upon their demand prior to maturity.

Petitioners contend that they are not bound by the terms and conditions of the DIMA, Directional Letter and COIs
because these were inconsistent with the TIA and other documents they signed.39 Further, they claim that the DIMA
and the Directional letter were signed in blank or contained unauthorized intercalations by Citibank.40 Petitioners
argue that contrary to the contents of the documents, they did not instruct Citibank to invest in an LTCP or to put
their money in such high-risk, long-term instruments.41

The Court notes the factual nature of the questions raised in the petition. Although the general rule is that only
questions of law are entertained by the Court in petitions for review on certiorari,42 as the Court is not tasked to
repeat the lower courts' analysis or weighing of evidence,43 there are instances when the Court may resolve factual
issues, such as (1) when the trial court misconstrued facts and circumstances of substance which if considered
would alter the outcome of the case;44 and (2) when the findings of facts of the CA and the trial court differ.45

In the instant case, the CA completely reversed the findings of facts of the trial court on the ground that the RTC
failed to appreciate certain facts and circumstances. Thus, applying the standing jurisprudence on the matter,46 the
Court proceeded to examine the evidence on record.

The Court's Ruling

The Court finds no merit in the petition. After a careful examination of the records, the Court affirms the CA's ruling
for being more in accord with the facts and evidence on record.

On the first issue of whether petitioners are bound by the terms and conditions of the DIMA, TIA, Directional Letter
and COIs, the Court holds in the affirmative and finds for respondent.

The DIMA, Directional Letter and COIs are evidence of the contract between the parties and are binding on them,
following Article 1159 of the Civil Code which states that contracts have the force of law between the parties and
must be complied with in good faith.47 In particular, petitioner Amalia affixed her signatures on the DIMA, Directional
Letter and TIA, a clear evidence of her consent which, under Article 1330 of the same Code, she cannot deny
absent any evidence of mistake, violence, intimidation, undue influence or fraud.48
As the documents have the effect of law, an examination is in order to reveal what underlies petitioners' zeal to
exclude these from consideration.

Under the DIMA, the following provisions appear:

4. Nature of Agreement – THIS AGREEMENT IS AN AGENCY AND NOT A TRUST AGREEMENT. AS SUCH, THE
PRINCIPAL SHALL AT ALL TIMES RETAIN LEGAL TITLE TO THE FUNDS AND PROPERTIES SUBJECT OF
THE ARRANGEMENT.

THIS AGREEMENT IS FOR FINANCIAL RETURN AND FOR THE APPRECIATION OF ASSETS OF THE
ACCOUNT. THIS AGREEMENT DOES NOT GUARANTEE A YIELD, RETURN OR INCOME BY THE
INVESTMENT MANAGER. AS SUCH, PAST PERFORMANCE OF THE ACCOUNT IS NOT A GUARANTY OF
FUTURE PERFORMANCE AND THE INCOME OF INVESTMENTS CAN FALL AS WELL AS RISE DEPENDING
ON PREVAILING MARKET CONDITIONS.

IT IS UNDERSTOOD THAT THIS INVESTMENT MANAGEMENT AGREEMENT IS NOT COVERED BY THE

PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC) AND THAT LOSSES, IF ANY, SHALL BE FOR THE
ACCOUNT OF THE PRINCIPAL. (Underscoring supplied.)

xxxx

6. Exemption from Liability. - In the absence of fraud, bad faith, or gross or willful negligence on the part of the
INVESTMENT MANAGER or any person acting in its behalf, the INVESTMENT MANAGER shall not be liable for
any loss or damage to the Portfolio arising out of or in connection with any act done or omitted or caused to be done
or omitted by the INVESTMENT MANAGER pursuant to the terms and conditions herein agreed upon, and pursuant
to and in accordance with the written instructions of the PRINCIPAL to carry out the powers, duties and purposes for
which this Agreement is executed. The PRINCIPAL will hold the INVESTMENT MANAGER free and harmless from
any liability, claim, damage or fiduciary responsibility that may arise from any investment made pursuant to this
Agreement and to such letters or instructions under Paragraph 3 hereof due to the default, bankruptcy or insolvency
of the Borrower/Issuer or the Broker/Dealer handling the transaction and or their failure in any manner to comply
with any of their obligations under the aforesaid transactions, it being the PRINCIPAL'S understanding and intention
that the investments/reinvestments under this account shall be strictly for his/its account and risk except as indicated
above.

The INVESTMENT MANAGER shall manage the Portfolio with the skill, care, prudence, and diligence necessary
under the prevailing circumstances that a good father of the family, acting in a like capacity and familiar with such
matters, would exercise in the conduct of an enterprise of like character and with similar aims. (Underscoring
supplied.)

xxxx

11. Withdrawal of Income/Principal – Subject to availability of funds and taking into consideration the commitment
of this account to third parties, the PRINCIPAL may withdraw the income/principal of the Portfolio or portion thereof
upon request or application thereof from the Bank. The INVESTMENT MANAGER shall not be required to inquire as
to the income/principal so withdrawn from the Portfolio. Any income of the Portfolio not withdrawn shall be
accumulated and added to the principal of the Portfolio for further investment and reinvestment.49 (Underscoring
supplied.)

Under the Directional Letter, which constituted petitioners' instructions to respondent, the following provisions are
found:

In the absence of fraud, bad faith or gross or willful negligence on your part or any person acting in your behalf, you
shall not be held liable for any loss or damage arising out of or in connection with any act done or performed or
caused to be done or performed by you pursuant to the terms and conditions of our Agreement. I/We shall hold you
free and harmless from any liability, claim, damage, or fiduciary responsibility that may arise from this investment
made pursuant to the foregoing due to the default, bankruptcy or insolvency of the Borrower/Issuer, or the
Broker/Dealer handling the aforesaid transactions/s, it being our intention and understanding that the
investment/reinvestment under these transaction/s shall be strictly for my/our account and risk.

In case of default of the Borrower/Issuers, we hereby authorize you at your sole option, to terminate the
investment/s therein and deliver to us the securities/loan documents then constituting the assets of my/our
DIMA/trust account with you for me/us to undertake the necessary legal action to collect and/or recover from the
borrower/issuers.50 (Underscoring supplied.)

The documents, characterized by the quoted provisions, generally extricate respondent from liability in case the
investment is lost. Accordingly, petitioners assumed all risks and the task of collecting from the borrower/issuer C&P
Homes.

In addition to the DIMA and Directional Letter, respondent also sent petitioners the COIs on a regular basis, the first
of which was received by petitioners on December 9, 1997. The COIs have the following provisions in common:

xxxx
NATURE OF TRANSACTION INVESTMENT IN LTCP
NAME OF BORROWER/ISSUER C&P HOMES
xxxx
TENOR 91 DAYS
xxxx
MATURITY DATE 11/05/03
xxxx
OTHERS REPRICEABLE EVERY 91 DAYS

PURSUANT TO THE BANGKO SENTRAL REGULATIONS, THE PRINCIPAL AND INTEREST OF YOUR
INVESTMENT ARE OBLIGATIONS OF THE BORROWER AND NOT OF THE BANK. YOUR INVESTMENT IS
NOT A DEPOSIT AND IS NOT GUARANTEED BY CITIBANK N.A.

xxxx

Please examine this Confirmation and notify us in writing within seven (7) days from receipt hereof of any deviation
from your prior conformity to the investment. If no notice is received by us within this period, this Confirmation shall
be deemed correct and approved by you, and we shall be released and discharged as to all items, particulars,
matters and things set forth in this Confirmation.51

Petitioners admit receiving only the first COI on December 8, 1997.52 The evidence on record, however, supports
respondent's contentions that petitioners received the three other COIs on February 12, 1998,53 May 14, 1998,54and
August 14, 1998,55 before petitioners' first demand letter dated August 18, 1998.56

The DIMA, Directional Letter, TIA and COIs, read together, establish the agreement between the parties as an
investment management agreement, which created a principal-agent relationship between petitioners as principals
and respondent as agent for investment purposes. The agreement is not a trust or an ordinary bank deposit; hence,
no trustor-trustee-beneficiary or even borrower-lender relationship existed between petitioners and respondent with
respect to the DIMA account. Respondent purchased the LTCPs only as agent of petitioners; thus, the latter
assumed all obligations or inherent risks entailed by the transaction under Article 1910 of the Civil Code, which
provides:

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

As for any obligation wherein the agent has exceeded his power, the principal is not bound except when he ratifies it
expressly or tacitly.
The transaction is perfectly legal, as investment management activities may be exercised by a banking institution,
pursuant to Republic Act No. 337 or the General Banking Act of 1948, as amended, which was the law then in
effect. Section 72 of said Act provides:
1avv phi 1

Sec. 72. In addition to the operations specifically authorized elsewhere in this Act, banking institutions other than
building and loan associations may perform the following services:

(a) Receive in custody funds, documents, and valuable objects, and rent safety deposit boxes for the
safeguarding of such effects;

(b) Act as financial agent and buy and sell, by order of and for the account of their customers,
shares, evidences of indebtedness and all types of securities;

(c) Make collections and payments for the account of others and perform such other services for their
customers as are not incompatible with banking business.

(d) Upon prior approval of the Monetary Board, act as managing agent, adviser, consultant or administrator
of investment management/ advisory/consultancy accounts.

The banks shall perform the services permitted under subsections (a), (b) and (c) of this section as
depositories or as agents. Accordingly, they shall keep the funds, securities and other effects which they
thus receive duly separated and apart from the bank's own assets and liabilities.

The Monetary Board may regulate the operations authorized by this section in order to insure that said operations
do not endanger the interests of the depositors and other creditors of the banks. (Emphasis supplied.)

while Section 74 prohibits banks from guaranteeing obligations of any person, thus:

Sec. 74. No bank or banking institution shall enter, directly, or indirectly into any contract of guaranty or
suretyship, or shall guarantee the interest or principal of any obligation of any person, copartnership,
association, corporation or other entity. The provisions of this section shall, however, not apply to the following:
(a) borrowing of money by banking institution through the rediscounting of receivables; (b) acceptance of drafts or
bills of exchange (c) certification of checks; (d) transactions involving the release of documents attached to items
received for collection; (e) letters of credit transaction, including stand-by arrangements; (f) repurchase agreements;
(g) shipside bonds; (h) ordinary guarantees or indorsements in favor of foreign creditors where the principal
obligation involves loans and credits extended directly by foreign investment purposes; and (i) other transactions
which the Monetary Board may, by regulation, define or specify as not covered by the prohibition. (Emphasis
supplied.)

Nothing also taints the legality of the LTCP bought in behalf of petitioners. C&P Homes' LTCP was duly registered
with the Securities and Exchange Commission while the issuer was accredited by the Philippine Trust Committee.57

The evidence also sustains respondent's claim that its trust department handled the account only because it was the
department tasked to oversee the trust, and other fiduciary and investment management services of the
bank.58Contrary to petitioners' claim, this did not mean that petitioners opened a "trust account." This is consistent
with Bangko Sentral ng Pilipinas (BSP) regulations, specifically the Manual of Regulations for Banks (MORB), which
groups a bank's trust, and other fiduciary and investment management activities under the same set of regulations,
to wit:

PART FOUR: TRUST, OTHER FIDUCIARY BUSINESS AND INVESTMENT MANAGEMENT ACTIVITIES

xxxx

Sec. X402 Scope of Regulations. These regulations shall govern the grant of authority to and the management,
administration and conduct of trust, other fiduciary business and investment management activities (as these terms
are defined in Sec. X403) of banks. The regulations are divided into three (3)
Sub-Parts where:

A. Trust and Other Fiduciary Business shall apply to banks authorized to engage in trust and other fiduciary
business including investment management activities;

B. Investment Management Activities shall apply to banks without trust authority but with authority
to engage in investment management activities; and

C. General Provisions shall apply to both.

xxxx

Sec. X403 Definitions. For purposes of regulating the operations of trust and other fiduciary business and
investment management activities, unless the context clearly connotes otherwise, the following shall have the
meaning indicated.

a. Trust business shall refer to any activity resulting from a trustor-trustee relationship (trusteeship) involving
the appointment of a trustee by a trustor for the administration, holding, management of funds and/or
properties of the trustor by the trustee for the use, benefit or advantage of the trustor or of others called
beneficiaries.

b. Other fiduciary business shall refer to any activity of a trust-licensed bank resulting from a
contract or agreement whereby the bank binds itself to render services or to act in a representative
capacity such as in an agency, guardianship, administratorship of wills, properties and estates,
executorship, receivership, and other similar services which do not create or result in a trusteeship.
It shall exclude collecting or paying agency arrangements and similar fiduciary services which are
inherent in the use of the facilities of the other operating departments of said bank. Investment
management activities, which are considered as among other fiduciary business, shall be separately
defined in the succeeding item to highlight its being a major source of fiduciary business.

c. Investment management activity shall refer to any activity resulting from a contract or agreement
primarily for financial return whereby the bank (the investment manager) binds itself to handle or
manage investible funds or any investment portfolio in a representative capacity as financial or
managing agent, adviser, consultant or administrator of financial or investment management,
advisory, consultancy or any similar arrangement which does not create or result in a
trusteeship. (Emphasis supplied.)

The Court finds no proof to sustain petitioners' contention that the DIMA and Directional Letter contradict other
papers on record, or were signed in blank, or had unauthorized intercalations.59 Petitioners themselves admit that
Amalia signed the DIMA and the Directional Letter, which bars them from disowning the contract on the belated
claim that she signed it in blank or did not read it first because of the "fine print."60 On the contrary, the evidence
does not support these latter allegations, and it is highly improbable that someone fairly educated and with
investment experience would sign a document in blank or without reading it first.61 Petitioners owned various
businesses and were clients of other banks, which omits the possibility of such carelessness.62 Even more damning
for petitioners is that, on record, Amalia admitted that it was not her habit to sign in blank and that the contents of
the documents were explained to her before she signed.63

Testimonial evidence and the complaint itself contained allegations that petitioners' reason for transferring their
money from local banks to respondent is because it is safer to do so,64 a clear indicia of their intelligence and keen
business sense which they could not have easily surrendered upon meeting with respondent.

Nothing irregular or illegal attends the execution or construction of the DIMA and the Directional Letter, as their
provisions merely conform with BSP regulations governing these types of transactions. Specifically, the MORB
mandates that investment managers act as agents, not as trustees, of the investor;65 that the investment manager is
prohibited from guaranteeing returns on the funds or properties;66 that a written document should state that the
account is not covered by the PDIC; and that losses are to be borne by clients.67 That these legal requirements were
communicated to petitioners is evident in Amalia's signatures on the documents and in testimony to this effect.68
As to the allegation that the documents were in "fine print," the Court notes that although the print may have looked
smaller than average, they were nevertheless of the same size throughout the documents, so that no part or
provision is hidden from the reader. The Court also takes judicial notice that the print is no smaller than those found
in similar contracts in common usage, such as insurance, mortgage, sales contracts and even ordinary bank deposit
contracts. In the documents in question, the provisions hurtful to petitioners' cause were likewise in no smaller print
than the rest of the document, as indeed they were even highlighted either in bold or in all caps. This disposes of the
argument that they were designed to hide their damaging nature to the signatory.69 The conclusion is that the print is
readable and should not have prevented petitioners from studying the papers before their signing. Considering
petitioners' social stature, the nature of the transaction and the amount of money involved, the Court presumes that
petitioners exercised adequate care and diligence in studying the contract prior to its execution.70

In Sweet Lines, Inc. v. Teves,71 the Court pronounced the general rule regarding contracts of adhesion, thus:

x x x there are certain contracts almost all the provisions of which have been drafted only by one party, usually a
corporation. Such contracts are called contracts of adhesion, because the only participation of the other party is the
signing of his signature or his ‘adhesion’ thereto. Insurance contracts, bills of lading, contracts of sale of lots on the
installment plan fall into this category.

x x x it is drafted only by one party, usually the corporation, and is sought to be accepted or adhered to by the other
party x x x who cannot change the same and who are thus made to adhere hereto on the ‘take it or leave it’ basis.

x x x it is hardly just and proper to expect the passengers to examine their tickets received from crowded/congested
counters, more often than not during rush hours, for conditions that may be printed thereon, much less charge them
with having consented to the conditions, so printed, especially if there are a number of such conditions in fine print,
as in this case.

However, Sweet Lines72 further expounded that the validity and/or enforceability of contracts of adhesion will have to
be determined by the peculiar circumstances obtaining in each case and the nature of the conditions or terms
sought to be enforced.73 Thus, while any ambiguity, obscurity or doubt in a contract of adhesion is construed or
resolved strictly against the party who prepared it,74 it is also equally obvious that in a case where no such
ambiguity, obscurity or doubt exists, no such construction is warranted. This was the case in the DIMA and the
Directional Letter signed by Amalia in the instant controversy.

The parties to this case only disagree on whether petitioners were properly informed of the contents of the
documents. But as earlier stated, petitioners were free to read and study the contents of the papers before signing
them, without compulsion to sign immediately or even days after, as indeed the parties were even free not to sign
the documents at all. Unlike in Sweet Lines, where the plaintiffs had no choice but to take the services of
monopolistic transport companies during rush hours, in the instant case, petitioners were under no such pressure;
petitioners were free to invest anytime and through any of the dozens of local and foreign banks in the market.

In addition, it has been held that contracts of adhesion are not necessarily voidable. The Court has consistently held
that contracts of adhesion, wherein one party imposes a ready-made form of contract on the other, are contracts not
entirely prohibited, since the one who adheres to the contract is in reality free to reject it entirely; if he adheres, he
gives his consent.75 It is the rule that these contracts are upheld unless they are in the nature of a patently lopsided
deal where blind adherence is not justified by other factual circumstances.76

Petitioners insist that other documents Amalia signed -- that is, the ROF,77 Questionnaire78 and TIA79 -- contradict
the DIMA and Directional Letter. Specifically, they argue that under the ROF and the Questionnaire, they manifested
an intent to invest only in a time deposit in the medium term of over a year to three years, with no risk on the capital,
or with returns in line with a time deposit.80 However, this contention is belied by the evidence and testimony on
record. Respondent explains that investors fill up the ROF and Questionnaire only when they first visit the bank and
only for the account they first opened,81 as confirmed by the evidence on record and the fact that there were no
subsequent ROFs and Questionnaires presented by petitioners.

The ROF and Questionnaire were filled up when the PhP1 million "Citihi" savings account was opened by Amalia on
October 10, 1997, during her first visit to the bank. When Amalia returned more than a month later on November 28,
1997, a change in her investment attitude occurred in that she wanted to invest an even bigger amount (PhP3
million) and her interest had shifted to high-yield but riskier long-term instruments like PRPNs and LTCPs. When
Amalia proceeded to sign new documents like the DIMA and the Directional Letter for the LTCP investment, despite
their obviously different contents from those she was used to signing for ordinary deposits, she essentially confirmed
that she knew what she was agreeing to and that it was different from all her previous transactions.

In addition, even the ROF and Questionnaire signed by Amalia during the first visit contained provisions that clearly
contradict petitioners' claims. The ROF contained the following:

I/We declare the above information to be correct. I/We hereby acknowledge to have received, read, understood
and agree to be bound by the general terms and conditions applicable and governing my/our account/s
and/or investment/s which appear in a separate brochure/manual as well as separate documents relative to
said account/s and/or investment/s. Said terms and conditions shall likewise apply to all our existing and future
account/s and/or investment/s with Citibank. I/We hereby further authorize Citibank to open additional account/s
and/or investment/s in the future with the same account title as contained in this relationship opening form subject to
the rules governing the aforementioned account/s and/or investment/s and the terms and conditions therein or
herein. I/We agree to notify you in writing of any change in the information supplied in this relationship opening
form.82 (Emphasis supplied.)

while the Questionnaire had the following provisions:

I am aware that investment products are not bank deposits or other obligations of, or guaranteed or insured by
Citibank N.A., Citicorp or their affiliates. I am aware that the principal and interest of my investments are
obligations of the borrower/issuer. They are subject to risk and possible loss of principal. Past performance
is not indicative of future performance. In addition, investments are not covered by the Philippine Deposit Insurance
Corporation (PDIC) or the Federal Deposit Insurance Corporation (FDIC).83

which do not need further elaboration on the matter.

Petitioners contend that the Term Investment Application (TIA), viz:

TERM INVESTMENT APPLICATION

MAKATI Date 1/28/97
Branch and Service Area

CIF Keys
TITLE OF ACCOUNT
_________________
________________________________________
_________________
PANLILIO, AMALIA ITF
_________________
ALEJANDRO KING AGUILAR & FE
_________________
EMMANUELLE PANLILIO
Address ______________________________________________________
For corporations, c/o _______________________ Tel. No. ____________

Dear Sir:
THIS IS TO AUTHORIZE CITIBANK, N. A. TO: ( ) open ( ) rollover
( ) rollover w/
added funds
( ) rollover w/
payout
Ref. No. ____
[ ] Confirmation of Sale
[ ] Peso Time Depositories [ ] Dollar TD
[ ] CITIHI-Yielder
[ ] NNPN [ ] Multicurrency TD
TRUST
for P/$ _______________
NEW ADDED FUNDS WILL COME FROM: for P/$ _______________
( ) debit my/our account no. ________________ for P/$ _______________
 ( ) Check No. ____________________________
( ) Cash deposit __________________________
IN THE AMOUNT AND TERMS SPECIFIED AS FOLLOWS:
PRINCIPAL/Money In P/$ 3,000,000 Value 11/28/97
MATURITY AMOUNT/Par Value P/$____________ Maturity Date _______
INTEREST RATE around 16.25% Term 91 days 84

(Emphasis supplied.)

clearly contradicts the DIMA, Directional Letter and COIs.

Petitioners insist that the amount PhP3 million in the TIA does not tally with the actual value of the investment which
appeared on the first COI, which was PhP2,134,635.87. Petitioners add that the TIA's interest rate of "around
16.25%" with the term "91 days" contradicts the COI's interest rate of 16.95% with a tenor of 75 days repriceable
after 91 days.85 Further, petitioners claim that the word "TRUST" inscribed on the TIA obviously meant that they
opened a trust account, and not any other account.86

The explanation of respondent is plausible. Only PhP2,134,635.87 out of the PhP3 million was placed in the LTCP
since this was the only amount of LTCP then available, while the balance was placed in two PRPN accounts, each
one in trust for Amalia's two children, upon her instructions.87 The disparity in the interest rate is also explained by
the fact that the 16.95% rate placed in the COI is gross and not net interest,88 and that it is subject to repricing every
91 days.

The Court gives credence to respondent's explanation that the word "TRUST" appearing on the TIA simply means
that the account is to be handled by the bank's trust department, which handles not only the trust business but also
the other fiduciary business and investment management activities of the bank, while the "ITF" or "in trust for"
appearing on the other documents only signifies that the money was invested by Amalia in trust for her two children,
a device that she uses even in her ordinary deposit accounts with other banks.89 The ITF device allows the children
to obtain the money without need of paying estate taxes in case Amalia meets a premature death.90 However, it
creates a trustee-beneficiary relationship only between Amalia and her children, and not between Amalia, her
children, and Citibank.

All the documents signed by Amalia, including the DIMA and Directional Letter, show that her agreement with
respondent is one of agency, and not a trust.

The DIMA, TIA, Directional Letter and COIs, viewed altogether, establish without doubt the transaction between the
parties, that on November 28, 1997, with PhP3 million in tow, Amalia opened an investment management account
with respondent, under which she instructed the latter as her agent to invest the bulk of the money in LTCP.

Aside from their bare allegations, evidence that supports petitioners' contentions that no such deal took place, or
that the agreement was different, simply does not exist in the records.

Petitioners were experienced and intelligent enough to be able to demand and sign a different document to signify
their real intention; but no such document exists. Thus, petitioners' acts and omissions negate their allegations that
they were essentially defrauded by the bank.

Petitioners had other chances to protest respondent's alleged disregard of their instructions. The COIs sent by
respondent to petitioners encapsulate the spirit of the DIMA and Directional Letter, with the proviso that should there
be any deviations from petitioners' instructions, they may inform respondent in writing within seven days.
Assuming arguendo that respondent violated the instructions, petitioners did not file a single timely written protest,
however, despite their admission that they received the first COI on December 8, 1997.91 It took eight months for
petitioners to formally demand the return of their investment through their counsel in a letter dated August 18,
1998.92 The letter, however, did not even contest the placement of the money in an LTCP, but merely its maturity in
the year 2003. Prior to the letter, it has been shown that petitioners had received COIs on February 12, 1998,93 May
14, 1998,94 and August 14, 1998,95 and in between, petitioners never demanded a return of the money they
invested.

Petitioners' acts and omissions strongly indicate that they in fact conformed to the agreement in the months after the
signing. In that period, they were receiving their bank statements and earning interest from the investment, as in
fact, C&P Homes under the LTCP continuously paid interest even up to the time the instant case was already on
trial.96 When petitioners finally contested the contract months after its signing, it was suspiciously during the time
when newspaper reports came out that C&P Homes' stock had plunged in value and that Ayala Land was
withdrawing its offer to invest in the company.97 The connection is too obvious to ignore. It is reasonable to conclude
that petitioners' repudiation of the agreement was nothing more than an afterthought, a reaction to the negative
events in the market and an effort to flee from a losing investment.

Anent the second issue, whether petitioners are entitled to recover from respondent the amount of PhP2,134,635.87
invested under the LTCP, the Court agrees with the CA in dismissing the complaint filed by petitioners.

Petitioners may not seek a return of their investment directly from respondent at or prior to maturity. As earlier
explained, the investment is not a deposit and is not guaranteed by respondent. Absent any fraud or bad faith, the
recourse of petitioners in the LTCP is solely against the issuer, C&P Homes, and only upon maturity. The DIMA
states, thus:

11. Withdrawal of Income/Principal – Subject to availability of funds and taking into consideration the
commitment of this account to third parties, the PRINCIPAL may withdraw the income/principal of the
Portfolio or portion thereof upon request or application thereof from the Bank. The INVESTMENT MANAGER
shall not be required to inquire as to the income/principal so withdrawn from the Portfolio. Any income of the
Portfolio not withdrawn shall be accumulated and added to the principal of the Portfolio for further investment and
reinvestment.98 (Emphasis supplied.)

It is clear that since the money is committed to C&P Homes via LTCP for five years, or until 2003, petitioners may
not seek its recovery from respondent prior to the lapse of this period. Petitioners must wait and meanwhile just be
content with receiving their interest regularly. If petitioners want the immediate return of their investment before the
maturity date, their only way is to find a willing buyer to purchase the LTCP at an agreed price, or to go directly
against the issuer C&P Homes, not against the respondent.

The nature of the DIMA and the other documents signed by the parties calls for this condition. The DIMA states that
respondent is a mere agent of petitioners and that losses from both the principal and interest of the investment are
strictly on petitioners' account. Meanwhile, the Directional Letter clearly states that the investment is to be made in
an LTCP which, by definition, has a term of more than 365 days.99 Prior to the expiry of the term, which in the case
of the C&P Homes LTCP is five years, petitioners may not claim back their investment, especially not from
respondent bank.

Having bound themselves under the contract as earlier discussed, petitioners are governed by its provisions.
Petitioners as principals in an agency relationship are solely obliged to observe the solemnity of the transaction
entered into by the agent on their behalf, absent any proof that the latter acted beyond its authority.100 Concomitant
to this obligation is that the principal also assumes the risks that may arise from the transaction.101 Indeed, as in the
instant case, bank regulations prohibit banks from guaranteeing profits or the principal in an investment
management account.102 Hence, the CA correctly dismissed petitioners’ complaint against respondent.

WHEREFORE, the Petition is DENIED. For lack of evidence, the Decision of the Court of Appeals dated dated May
28, 2002 and its Resolution of December 11, 2002, are AFFIRMED.

Costs against the petitioners.

SO ORDERED.