1|AGENCY CASES| CABANLIT
FIRST DIVISION G.R. No. 152870-71             June 23, 2006
G.R. No. 152613 & No. 152628             June 23, 2006
APEX MINING CO., INC., petitioner,
vs.
SOUTHEAST MINDANAO GOLD MINING CORP., the mines adjudication board,
provincial mining regulatory board (PMRB-DAVAO), MONKAYO INTEGRATED
SMALL SCALE MINERS ASSOCIATION, INC., ROSENDO VILLAFLOR, BALITE
COMMUNAL PORTAL MINING COOPERATIVE, DAVAO UNITED MINERS
COOPERATIVE, ANTONIO DACUDAO, PUTING-BATO GOLD MINERS
COOPERATIVE, ROMEO ALTAMERA, THELMA CATAPANG, LUIS GALANG,
RENATO BASMILLO, FRANCISCO YOBIDO, EDUARDO GLORIA, EDWIN ASION,
MACARIO HERNANDEZ, REYNALDO CARUBIO, ROBERTO BUNIALES, RUDY
ESPORTONO, ROMEO CASTILLO, JOSE REA, GIL GANADO, PRIMITIVA LICAYAN,
LETICIA ALQUEZA and joel brillantes management mining
corporation, Respondents.
x--------------------------------------x
G.R. No. 152619-20             June 23, 2006
BALITE COMMUNAL PORTAL MINING COOPERATIVE, petitioner,
vs.
SOUTHEAST MINDANAO GOLD MINING CORPORATION, APEX MINING CO.,
INC., the mines adjudication board, provincial mining regulatory board
(PMRB-DAVAO), MONKAYO INTEGRATED SMALL SCALE MINERS
ASSOCIATION, INC., ROSENDO VILLAFLOR, DAVAO UNITED MINERS
COOPERATIVE, ANTONIO DACUDAO, PUTING-BATO GOLD MINERS
COOPERATIVE, ROMEO ALTAMERA, THELMA CATAPANG, LUIS GALANG,
RENATO BASMILLO, FRANCISCO YOBIDO, EDUARDO GLORIA, EDWIN ASION,
MACARIO HERNANDEZ, REYNALDO CARUBIO, ROBERTO BUNIALES, RUDY
ESPORTONO, ROMEO CASTILLO, JOSE REA, GIL GANADO, PRIMITIVA LICAYAN,
LETICIA ALQUEZA and joel brillantes management mining
corporation, Respondents.
x--------------------------------------x
THE MINES ADJUDICATION BOARD AND ITS MEMBERS, THE HON. VICTOR O.
RAMOS (Chairman), UNDERSECRETARY VIRGILIO MARCELO (Member) and
DIRECTOR HORACIO RAMOS (Member), petitioners,
vs.
SOUTHEAST MINADANAO GOLD MINING CORPORATION, Respondent.
DECISION
CHICO-NAZARIO, J.:
On 27 February 1931, Governor General Dwight F. Davis issued Proclamation
No. 369, establishing the Agusan-Davao-Surigao Forest Reserve consisting of
approximately 1,927,400 hectares.1
The disputed area, a rich tract of mineral land, is inside the forest reserve
located at Monkayo, Davao del Norte, and Cateel, Davao Oriental, consisting of
4,941.6759 hectares.2 This mineral land is encompassed by Mt. Diwata, which is
situated in the municipalities of Monkayo and Cateel. It later became known as
the "Diwalwal Gold Rush Area." It has since the early 1980’s been stormed by
conflicts brought about by the numerous mining claimants scrambling for gold
that lies beneath its bosom.
On 21 November 1983, Camilo Banad and his group, who claimed to have first
discovered traces of gold in Mount Diwata, filed a Declaration of Location (DOL)
for six mining claims in the area.
Camilo Banad and some other natives pooled their skills and resources and
organized the Balite Communal Portal Mining Cooperative (Balite). 3
On 12 December 1983, Apex Mining Corporation (Apex) entered into operating
agreements with Banad and his group.
From November 1983 to February 1984, several individual applications for
mining locations over mineral land covering certain parts of the Diwalwal gold
rush area were filed with the Bureau of Mines and Geo-Sciences (BMG).
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On 2 February 1984, Marcopper Mining Corporation (MMC) filed 16 DOLs or
mining claims for areas adjacent to the area covered by the DOL of Banad and
his group. After realizing that the area encompassed by its mining claims is a
forest reserve within the coverage of Proclamation No. 369 issued by Governor
General Davis, MMC abandoned the same and instead applied for a
prospecting permit with the Bureau of Forest Development (BFD).
On 1 July 1985, BFD issued a Prospecting Permit to MMC covering an area of
4,941.6759 hectares traversing the municipalities of Monkayo and Cateel, an
area within the forest reserve under Proclamation No. 369. The permit
embraced the areas claimed by Apex and the other individual mining claimants.
On 11 November 1985, MMC filed Exploration Permit Application No. 84-40
with the BMG. On 10 March 1986, the BMG issued to MCC Exploration Permit
No. 133 (EP 133).
Discovering the existence of several mining claims and the proliferation of
small-scale miners in the area covered by EP 133, MMC thus filed on 11 April
1986 before the BMG a Petition for the Cancellation of the Mining Claims of
Apex and Small Scale Mining Permit Nos. (x-1)-04 and (x-1)-05 which was
docketed as MAC No. 1061. MMC alleged that the areas covered by its EP 133
and the mining claims of Apex were within an established and existing forest
reservation (Agusan-Davao-Surigao Forest Reserve) under Proclamation No.
369 and that pursuant to Presidential Decree No. 463, 4 acquisition of mining
rights within a forest reserve is through the application for a permit to prospect
with the BFD and not through registration of a DOL with the BMG.
On 23 September 1986, Apex filed a motion to dismiss MMC’s petition alleging
that its mining claims are not within any established or proclaimed forest
reserve, and as such, the acquisition of mining rights thereto must be
undertaken via registration of DOL with the BMG and not through the filing of
application for permit to prospect with the BFD.
On 9 December 1986, BMG dismissed MMC’s petition on the ground that the
area covered by the Apex mining claims and MMC’s permit to explore was not
a forest reservation. It further declared null and void MMC’s EP 133 and
sustained the validity of Apex mining claims over the disputed area.
MMC appealed the adverse order of BMG to the Department of Environment
and Natural Resources (DENR).
On 15 April 1987, after due hearing, the DENR reversed the 9 December 1996
order of BMG and declared MMC’s EP 133 valid and subsisting.
Apex filed a Motion for Reconsideration with the DENR which was
subsequently denied. Apex then filed an appeal before the Office of the
President. On 27 July 1989, the Office of the President, through Assistant
Executive Secretary for Legal Affairs, Cancio C. Garcia, 5 dismissed Apex’s appeal
and affirmed the DENR ruling.
Apex filed a Petition for Certiorari before this Court. The Petition was docketed
as G.R. No. 92605 entitled, "Apex Mining Co., Inc. v. Garcia." 6 On 16 July 1991,
this Court rendered a Decision against Apex holding that the disputed area is a
forest reserve; hence, the proper procedure in acquiring mining rights therein
is by initially applying for a permit to prospect with the BFD and not through a
registration of DOL with the BMG.
On 27 December 1991, then DENR Secretary Fulgencio Factoran, Jr. issued
Department Administrative Order No. 66 (DAO No. 66) declaring 729 hectares
of the areas covered by the Agusan-Davao-Surigao Forest Reserve as non-forest
lands and open to small-scale mining purposes.
As DAO No. 66 declared a portion of the contested area open to small scale
miners, several mining entities filed applications for Mineral Production Sharing
Agreement (MPSA).
On 25 August 1993, Monkayo Integrated Small Scale Miners Association
(MISSMA) filed an MPSA application which was denied by the BMG on the
grounds that the area applied for is within the area covered by MMC EP 133
and that the MISSMA was not qualified to apply for an MPSA under DAO No.
82,7 Series of 1990.
On 5 January 1994, Rosendo Villaflor and his group filed before the BMG a
Petition for Cancellation of EP 133 and for the admission of their MPSA
Application. The Petition was docketed as RED Mines Case No. 8-8-94. Davao
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United Miners Cooperative (DUMC) and Balite intervened and likewise sought
the cancellation of EP 133.
On 16 February 1994, MMC assigned EP 133 to Southeast Mindanao Gold
Mining Corporation (SEM), a domestic corporation which is alleged to be a
100% -owned subsidiary of MMC.
On 14 June 1994, Balite filed with the BMG an MPSA application within the
contested area that was later on rejected.
On 23 June 1994, SEM filed an MPSA application for the entire 4,941.6759
hectares under EP 133, which was also denied by reason of the pendency of
RED Mines Case No. 8-8-94. On 1 September 1995, SEM filed another MPSA
application.
On 20 October 1995, BMG accepted and registered SEM’s MPSA application
and the Deed of Assignment over EP 133 executed in its favor by MMC. SEM’s
application was designated MPSA Application No. 128 (MPSAA 128). After
publication of SEM’s application, the following filed before the BMG their
adverse claims or oppositions:
a) MAC Case No. 004 (XI) – JB Management Mining Corporation;
b) MAC Case No. 005(XI) – Davao United Miners Cooperative;
c) MAC Case No. 006(XI) – Balite Integrated Small Scale Miner’s
Cooperative;
d) MAC Case No. 007(XI) – Monkayo Integrated Small Scale Miner’s
Association, Inc. (MISSMA);
e) MAC Case No. 008(XI) – Paper Industries Corporation of the
Philippines;
f) MAC Case No. 009(XI) – Rosendo Villafor, et al.;
g) MAC Case No. 010(XI) – Antonio Dacudao;
h) MAC Case No. 011(XI) – Atty. Jose T. Amacio;
i) MAC Case No. 012(XI) – Puting-Bato Gold Miners Cooperative;
j) MAC Case No. 016(XI) – Balite Communal Portal Mining Cooperative;
k) MAC Case No. 97-01(XI) – Romeo Altamera, et al. 8
To address the matter, the DENR constituted a Panel of Arbitrators (PA) to
resolve the following:
(a) The adverse claims on MPSAA No. 128; and
(b) The Petition to Cancel EP 133 filed by Rosendo Villaflor docketed as
RED Case No. 8-8-94.9
On 13 June 1997, the PA rendered a resolution in RED Mines Case No. 8-8-94.
As to the Petition for Cancellation of EP 133 issued to MMC, the PA relied on
the ruling in Apex Mining Co., Inc. v. Garcia,10 and opined that EP 133 was valid
and subsisting. It also declared that the BMG Director, under Section 99 of the
Consolidated Mines Administrative Order implementing Presidential Decree
No. 463, was authorized to issue exploration permits and to renew the same
without limit.
With respect to the adverse claims on SEM’s MPSAA No. 128, the PA ruled that
adverse claimants’ petitions were not filed in accordance with the existing rules
and regulations governing adverse claims because the adverse claimants failed
to submit the sketch plan containing the technical description of their
respective claims, which was a mandatory requirement for an adverse claim
that would allow the PA to determine if indeed there is an overlapping of the
area occupied by them and the area applied for by SEM. It added that the
adverse claimants were not claim owners but mere occupants conducting
illegal mining activities at the contested area since only MMC or its assignee
SEM had valid mining claims over the area as enunciated in Apex Mining Co.,
Inc. v. Garcia.11 Also, it maintained that the adverse claimants were not
4|AGENCY CASES| CABANLIT
qualified as small-scale miners under DENR Department Administrative Order
No. 34 (DAO No. 34),12 or the Implementing Rules and Regulation of Republic
Act No. 7076 (otherwise known as the "People’s Small-Scale Mining Act of
1991"), as they were not duly licensed by the DENR to engage in the extraction
or removal of minerals from the ground, and that they were large-scale miners.
The decretal portion of the PA resolution pronounces:
VIEWED IN THE LIGHT OF THE FOREGOING, the validity of Expoloration Permit
No. 133 is hereby reiterated and all the adverse claims against MPSAA No. 128
are DISMISSED.13
Undaunted by the PA ruling, the adverse claimants appealed to the Mines
Adjudication Board (MAB). In a Decision dated 6 January 1998, the MAB
considered erroneous the dismissal by the PA of the adverse claims filed
against MMC and SEM over a mere technicality of failure to submit a sketch
plan. It argued that the rules of procedure are not meant to defeat substantial
justice as the former are merely secondary in importance to the latter. Dealing
with the question on EP 133’s validity, the MAB opined that said issue was not
crucial and was irrelevant in adjudicating the appealed case because EP 133 has
long expired due to its non-renewal and that the holder of the same, MMC,
was no longer a claimant of the Agusan-Davao-Surigao Forest Reserve having
relinquished its right to SEM. After it brushed aside the issue of the validity of
EP 133 for being irrelevant, the MAB proceeded to treat SEM’s MPSA
application over the disputed area as an entirely new and distinct application. It
approved the MPSA application, excluding the area segregated by DAO No. 66,
which declared 729 hectares within the Diwalwal area as non-forest lands open
for small-scale mining. The MAB resolved:
WHEREFORE, PREMISES CONSIDERED, the decision of the Panel of Arbitrators
dated 13 June 1997 is hereby VACATED and a new one entered in the records
of the case as follows:
1. SEM’s MPSA application is hereby given due course subject to the
full and strict compliance of the provisions of the Mining Act and its
Implementing Rules and Regulations;
2. The area covered by DAO 66, series of 1991, actually occupied and
actively mined by the small-scale miners on or before August 1, 1987
as determined by the Provincial Mining Regulatory Board (PMRB), is
hereby excluded from the area applied for by SEM;
3. A moratorium on all mining and mining-related activities, is hereby
imposed until such time that all necessary procedures, licenses,
permits, and other requisites as provided for by RA 7076, the Mining
Act and its Implementing Rules and Regulations and all other pertinent
laws, rules and regulations are complied with, and the appropriate
environmental protection measures and safeguards have been
effectively put in place;
4. Consistent with the spirit of RA 7076, the Board encourages SEM
and all small-scale miners to continue to negotiate in good faith and
arrive at an agreement beneficial to all. In the event of SEM’s strict
and full compliance with all the requirements of the Mining Act and its
Implementing Rules and Regulations, and the concurrence of the
small-scale miners actually occupying and actively mining the area,
SEM may apply for the inclusion of portions of the areas segregated
under paragraph 2 hereof, to its MPSA application. In this light, subject
to the preceding paragraph, the contract between JB [JB Management
Mining Corporation] and SEM is hereby recognized. 14
Dissatisfied, the Villaflor group and Balite appealed the decision to this Court.
SEM, aggrieved by the exclusion of 729 hectares from its MPSA application,
likewise appealed. Apex filed a Motion for Leave to Admit Petition for
Intervention predicated on its right to stake its claim over the Diwalwal gold
rush which was granted by the Court. These cases, however, were remanded to
the Court of Appeals for proper disposition pursuant to Rule 43 of the 1997
Rules of Civil Procedure. The Court of Appeals consolidated the remanded
cases as CA-G.R. SP No. 61215 and No. 61216.
In the assailed Decision15 dated 13 March 2002, the Court of Appeals affirmed
in toto the decision of the PA and declared null and void the MAB decision.
5|AGENCY CASES| CABANLIT
The Court of Appeals, banking on the premise that the SEM is the agent of
MMC by virtue of its assignment of EP 133 in favor of SEM and the purported
fact that SEM is a 100% subsidiary of MMC, ruled that the transfer of EP 133
was valid. It argued that since SEM is an agent of MMC, the assignment of EP
133 did not violate the condition therein prohibiting its transfer except to
MMC’s duly designated agent. Thus, despite the non-renewal of EP 133 on 6
July 1994, the Court of Appeals deemed it relevant to declare EP 133 as valid
since MMC’s mining rights were validly transferred to SEM prior to its
expiration.
The Court of Appeals also ruled that MMC’s right to explore under EP 133 is a
property right which the 1987 Constitution protects and which cannot be
divested without the holder’s consent. It stressed that MMC’s failure to
proceed with the extraction and utilization of minerals did not diminish its
vested right to explore because its failure was not attributable to it.
Reading Proclamation No. 369, Section 11 of Commonwealth Act 137, and
Sections 6, 7, and 8 of Presidential Decree No. 463, the Court of Appeals
concluded that the issuance of DAO No. 66 was done by the DENR Secretary
beyond his power for it is the President who has the sole power to withdraw
from the forest reserve established under Proclamation No. 369 as non-forest
land for mining purposes. Accordingly, the segregation of 729 hectares of
mining areas from the coverage of EP 133 by the MAB was unfounded.
The Court of Appeals also faulted the DENR Secretary in implementing DAO No.
66 when he awarded the 729 hectares segregated from the coverage area of EP
133 to other corporations who were not qualified as small-scale miners under
Republic Act No. 7076.
As to the petitions of Villaflor and company, the Court of Appeals argued that
their failure to submit the sketch plan to the PA, which is a jurisdictional
requirement, was fatal to their appeal. It likewise stated the Villaflor and
company’s mining claims, which were based on their alleged rights under DAO
No. 66, cannot stand as DAO No. 66 was null and void. The dispositive portion
of the Decision decreed:
WHEREFORE, premises considered, the Petition of Southeast Mindanao Gold
Mining Corporation is GRANTED while the Petition of Rosendo Villaflor, et al., is
DENIED for lack of merit. The Decision of the Panel of Arbitrators dated 13 June
1997 is AFFIRMED in toto and the assailed MAB Decision is hereby SET ASIDE
and declared as NULL and VOID.16
Hence, the instant Petitions for Review on Certiorari under Rule 45 of the Rules
of Court filed by Apex, Balite and MAB.
During the pendency of these Petitions, President Gloria Macapagal-Arroyo
issued Proclamation No. 297 dated 25 November 2002. This proclamation
excluded an area of 8,100 hectares located in Monkayo, Compostela Valley,
and proclaimed the same as mineral reservation and as environmentally critical
area. Subsequently, DENR Administrative Order No. 2002-18 was issued
declaring an emergency situation in the Diwalwal gold rush area and ordering
the stoppage of all mining operations therein. Thereafter, Executive Order No.
217 dated 17 June 2003 was issued by the President creating the National Task
Force Diwalwal which is tasked to address the situation in the Diwalwal Gold
Rush Area.
In G.R. No. 152613 and No. 152628, Apex raises the following issues:
I
WHETHER OR NOT SOUTHEAST MINDANAO GOLD MINING’S [SEM] E.P. 133 IS
NULL AND VOID DUE TO THE FAILURE OF MARCOPPER TO COMPLY WITH THE
TERMS AND CONDITIONS PRESCRIBED IN EP 133.
II
WHETHER OR NOT APEX HAS A SUPERIOR AND PREFERENTIAL RIGHT TO STAKE
IT’S CLAIM OVER THE ENTIRE 4,941 HECTARES AGAINST SEM AND THE OTHER
CLAIMANTS PURSUANT TO THE TIME-HONORED PRINCIPLE IN MINING LAW
THAT "PRIORITY IN TIME IS PRIORITY IN RIGHT." 17
In G.R. No. 152619-20, Balite anchors its petition on the following grounds:
6|AGENCY CASES| CABANLIT
I I. Whether or not the Court of Appeals erred in upholding the validity
WHETHER OR NOT THE MPSA OF SEM WHICH WAS FILED NINE (9) DAYS LATE
(JUNE 23, 1994) FROM THE FILING OF THE MPSA OF BALITE WHICH WAS FILED
ON JUNE 14, 1994 HAS A PREFERENTIAL RIGHT OVER THAT OF BALITE.
II
WHETHER OR NOT THE DISMISSAL BY THE PANEL OF ARBITRATORS OF THE
ADVERSE CLAIM OF BALITE ON THE GROUND THAT BALITE FAILED TO SUBMIT
THE REQUIRED SKETCH PLAN DESPITE THE FACT THAT BALITE, HAD IN FACT
SUBMITTED ON TIME WAS A VALID DISMISSAL OF BALITE’S ADVERSE CLAIM.
III
WHETHER OR NOT THE ACTUAL OCCUPATION AND SMALL-MINING
OPERATIONS OF BALITE PURSUANT TO DAO 66 IN THE 729 HECTARES WHICH
WAS PART OF THE 4,941.6759 HECTARES COVERED BY ITS MPSA WHICH WAS
REJECTED BY THE BUREAU OF MINES AND GEOSCIENCES WAS ILLEGAL. 18
In G.R. No. 152870-71, the MAB submits two issues, to wit:
I
WHETHER OR NOT EP NO. 133 IS STILL VALID AND SUBSISTING.
II
WHETHER OR NOT THE SUBSEQUENT ACTS OF THE GOVERNMENT SUCH AS
THE ISSUANCE OF DAO NO. 66, PROCLAMATION NO. 297, AND EXECUTIVE
ORDER 217 CAN OUTWEIGH EP NO. 133 AS WELL AS OTHER ADVERSE CLAIMS
OVER THE DIWALWAL GOLD RUSH AREA.19
The common issues raised by petitioners may be summarized as follows:
and continuous existence of EP 133 as well as its transfer to SEM;
II. Whether or not the Court of Appeals erred in declaring that the
DENR Secretary has no authority to issue DAO No. 66; and
III. Whether or not the subsequent acts of the executive department
such as the issuance of Proclamation No. 297, and DAO No. 2002-18
can outweigh Apex and Balite’s claims over the Diwalwal Gold Rush
Area.
On the first issue, Apex takes exception to the Court of Appeals’ ruling
upholding the validity of MMC’s EP 133 and its subsequent transfer to SEM
asserting that MMC failed to comply with the terms and conditions in its
exploration permit, thus, MMC and its successor-in-interest SEM lost their
rights in the Diwalwal Gold Rush Area. Apex pointed out that MMC violated
four conditions in its permit. First, MMC failed to comply with the mandatory
work program, to complete exploration work, and to declare a mining
feasibility. Second, it reneged on its duty to submit an Environmental
Compliance Certificate. Third, it failed to comply with the reportorial
requirements. Fourth, it violated the terms of EP 133 when it assigned said
permit to SEM despite the explicit proscription against its transfer.
Apex likewise emphasizes that MMC failed to file its MPSA application required
under DAO No. 8220 which caused its exploration permit to lapse because DAO
No. 82 mandates holders of exploration permits to file a Letter of Intent and a
MPSA application not later than 17 July 1991. It said that because EP 133
expired prior to its assignment to SEM, SEM’s MPSA application should have
been evaluated on its own merit.
As regards the Court of Appeals recognition of SEM’s vested right over the
disputed area, Apex bewails the same to be lacking in statutory bases.
According to Apex, Presidential Decree No. 463 and Republic Act No. 7942
impose upon the claimant the obligation of actually undertaking exploration
work within the reserved lands in order to acquire priority right over the area.
MMC, Apex claims, failed to conduct the necessary exploration work, thus,
MMC and its successor-in-interest SEM lost any right over the area.
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In its Memorandum, Balite maintains that EP 133 of MMC, predecessor-in-
interest of SEM, is an expired and void permit which cannot be made the basis
of SEM’s MPSA application.
Similarly, the MAB underscores that SEM did not acquire any right from MMC
by virtue of the transfer of EP 133 because the transfer directly violates the
express condition of the exploration permit stating that "it shall be for the
exclusive use and benefit of the permittee or his duly authorized agents." It
added that while MMC is the permittee, SEM cannot be considered as MMC’s
duly designated agent as there is no proof on record authorizing SEM to
represent MMC in its business dealings or undertakings, and neither did SEM
pursue its interest in the permit as an agent of MMC. According to the MAB,
the assignment by MMC of EP 133 in favor of SEM did not make the latter the
duly authorized agent of MMC since the concept of an agent under EP 133 is
not equivalent to the concept of assignee. It finds fault in the assignment of EP
133 which lacked the approval of the DENR Secretary in contravention of
Section 25 of Republic Act No. 794221 requiring his approval for a valid
assignment or transfer of exploration permit to be valid.
SEM, on the other hand, counters that the errors raised by petitioners Apex,
Balite and the MAB relate to factual and evidentiary matters which this Court
cannot inquire into in an appeal by certiorari.
The established rule is that in the exercise of the Supreme Court’s power of
review, the Court not being a trier of facts, does not normally embark on a re-
examination of the evidence presented by the contending parties during the
trial of the case considering that the findings of facts of the Court of Appeals
are conclusive and binding on the Court.22 This rule, however, admits of
exceptions as recognized by jurisprudence, to wit:
(1) [w]hen the findings are grounded entirely on speculation, surmises or
conjectures; (2) when the inference made is manifestly mistaken, absurd or
impossible; (3) when there is grave abuse of discretion; (4) when the judgment
is based on misapprehension of facts; (5) when the findings of facts are
conflicting; (6) when in making its findings the Court of Appeals went beyond
the issues of the case, or its findings are contrary to the admissions of both the
appellant and the appellee; (7) when the findings are contrary to the trial court;
(8) when the findings are conclusions without citation of specific evidence on
which they are based; (9) when the facts set forth in the petition as well as in
the petitioner’s main and reply briefs are not disputed by the respondent; (10)
when the findings of fact are premised on the supposed absence of evidence
and contradicted by the evidence on record; and (11) when the Court of
Appeals manifestly overlooked certain relevant facts not disputed by the
parties, which, if properly considered, would justify a different conclusion. 23
Also, in the case of Manila Electric Company v. Benamira, 24 the Court in a
Petition for Review on Certiorari, deemed it proper to look deeper into the
factual circumstances of the case since the Court of Appeal’s findings are at
odds to those of the National Labor Relations Commission (NLRC). Just like in
the foregoing case, it is this Court’s considered view that a re-evaluation of the
attendant facts surrounding the present case is appropriate considering that
the findings of the MAB are in conflict with that of the Court of Appeals.
I
At the threshold, it is an undisputed fact that MMC assigned to SEM all its
rights under EP 133 pursuant to a Deed of Assignment dated 16 February
1994.25
EP 133 is subject to the following terms and conditions 26 :
1. That the permittee shall abide by the work program submitted with
the application or statements made later in support thereof, and
which shall be considered as conditions and essential parts of this
permit;
2. That permittee shall maintain a complete record of all activities and
accounting of all expenditures incurred therein subject to periodic
inspection and verification at reasonable intervals by the Bureau of
Mines at the expense of the applicant;
3. That the permittee shall submit to the Director of Mines within 15
days after the end of each calendar quarter a report under oath of a
8|AGENCY CASES| CABANLIT
full and complete statement of the work done in the area covered by
the permit;
4. That the term of this permit shall be for two (2) years to be effective
from this date, renewable for the same period at the discretion of the
Director of Mines and upon request of the applicant;
5. That the Director of Mines may at any time cancel this permit for
violation of its provision or in case of trouble or breach of peace
arising in the area subject hereof by reason of conflicting interests
without any responsibility on the part of the government as to
expenditures for exploration that might have been incurred, or as to
other damages that might have been suffered by the permittee; and
6. That this permit shall be for the exclusive use and benefit of the
permittee or his duly authorized agents and shall be used for mineral
exploration purposes only and for no other purpose.
Under Section 9027 of Presidential Decree No. 463, the applicable statute during
the issuance of EP 133, the DENR Secretary, through Director of BMG, is
charged with carrying out the said law. Also, under Commonwealth Act No.
136, also known as "An Act Creating The Bureau of Mines," which was
approved on 7 November 1936, the Director of Mines has the direct charge of
the administration of the mineral lands and minerals, and of the survey,
classification, lease or any other form of concession or disposition thereof
under the Mining Act.28 This power of administration includes the power to
prescribe terms and conditions in granting exploration permits to qualified
entities. Thus, in the grant of EP 133 in favor of the MMC, the Director of the
BMG acted within his power in laying down the terms and conditions attendant
thereto.
Condition number 6 categorically states that the permit shall be for the
exclusive use and benefit of MMC or its duly authorized agents. While it may be
true that SEM, the assignee of EP 133, is a 100% subsidiary corporation of
MMC, records are bereft of any evidence showing that the former is the duly
authorized agent of the latter. For a contract of agency to exist, it is essential
that the principal consents that the other party, the agent, shall act on its
behalf, and the agent consents so as to act. 29 In the case of Yu Eng Cho v. Pan
American World Airways, Inc.,30 this Court had the occasion to set forth the
elements of agency, viz:
(1) consent, express or implied, of the parties to establish the
relationship;
(2) the object is the execution of a juridical act in relation to a third
person;
(3) the agent acts as a representative and not for himself;
(4) the agent acts within the scope of his authority.
The existence of the elements of agency is a factual matter that needs to be
established or proven by evidence. The burden of proving that agency is extant
in a certain case rests in the party who sets forth such allegation. This is based
on the principle that he who alleges a fact has the burden of proving it. 31 It
must likewise be emphasized that the evidence to prove this fact must be clear,
positive and convincing.32
In the instant Petitions, it is incumbent upon either MMC or SEM to prove that
a contract of agency actually exists between them so as to allow SEM to use
and benefit from EP 133 as the agent of MMC. SEM did not claim nor submit
proof that it is the designated agent of MMC to represent the latter in its
business dealings or undertakings. SEM cannot, therefore, be considered as an
agent of MMC which can use EP 133 and benefit from it. Since SEM is not an
authorized agent of MMC, it goes without saying that the assignment or
transfer of the permit in favor of SEM is null and void as it directly contravenes
the terms and conditions of the grant of EP 133.
Furthermore, the concept of agency is distinct from assignment. In agency, the
agent acts not on his own behalf but on behalf of his principal. 33 While in
assignment, there is total transfer or relinquishment of right by the assignor to
the assignee.34 The assignee takes the place of the assignor and is no longer
bound to the latter. The deed of assignment clearly stipulates:
9|AGENCY CASES| CABANLIT
1. That for ONE PESO (P1.00) and other valuable consideration received by the
ASSIGNOR from the ASSIGNEE, the ASSIGNOR hereby ASSIGNS, TRANSFERS and
CONVEYS unto the ASSIGNEE whatever rights or interest the ASSIGNOR may
have in the area situated in Monkayo, Davao del Norte and Cateel, Davao
Oriental, identified as Exploration Permit No. 133 and Application for a Permit
to Prospect in Bunawan, Agusan del Sur respectively.35
Bearing in mind the just articulated distinctions and the language of the Deed
of Assignment, it is readily obvious that the assignment by MMC of EP 133 in
favor of SEM did not make the latter the former’s agent. Such assignment
involved actual transfer of all rights and obligations MMC have under the
permit in favor of SEM, thus, making SEM the permittee. It is not a mere grant
of authority to SEM, as an agent of MMC, to use the permit. It is a total
abdication of MMC’s rights over the permit. Hence, the assignment in question
did not make SEM the authorized agent of MMC to make use and benefit from
EP 133.
The condition stipulating that the permit is for the exclusive use of the
permittee or its duly authorized agent is not without any reason. Exploration
permits are strictly granted to entities or individuals possessing the resources
and capability to undertake mining operations. Without such a condition, non-
qualified entities or individuals could circumvent the strict requirements under
the law by the simple expediency acquiring the permit from the original
permittee.
We cannot lend recognition to the Court of Appeals’ theory that SEM, being a
100% subsidiary of MMC, is automatically an agent of MMC.
A corporation is an artificial being created by operation of law, having the right
of succession and the powers, attributes, and properties expressly authorized
by law or incident to its existence.36 It is an artificial being invested by law with
a personality separate and distinct from those of the persons composing it as
well as from that of any other legal entity to which it may be
related.37 Resultantly, absent any clear proof to the contrary, SEM is a separate
and distinct entity from MMC.
The Court of Appeals pathetically invokes the doctrine of piercing the corporate
veil to legitimize the prohibited transfer or assignment of EP 133. It stresses
that SEM is just a business conduit of MMC, hence, the distinct legal
personalities of the two entities should not be recognized. True, the corporate
mask may be removed when the corporation is just an alter ego or a mere
conduit of a person or of another corporation. 38 For reasons of public policy
and in the interest of justice, the corporate veil will justifiably be impaled only
when it becomes a shield for fraud, illegality or inequity committed against a
third person.39 However, this Court has made a caveat in the application of the
doctrine of piercing the corporate veil. Courts should be mindful of the milieu
where it is to be applied. Only in cases where the corporate fiction was misused
to such an extent that injustice, fraud or crime was committed against another,
in disregard of its rights may the veil be pierced and removed. Thus, a
subsidiary corporation may be made to answer for the liabilities and/or
illegalities done by the parent corporation if the former was organized for the
purpose of evading obligations that the latter may have entered into. In other
words, this doctrine is in place in order to expose and hold liable a corporation
which commits illegal acts and use the corporate fiction to avoid liability from
the said acts. The doctrine of piercing the corporate veil cannot therefore be
used as a vehicle to commit prohibited acts because these acts are the ones
which the doctrine seeks to prevent.
To our mind, the application of the foregoing doctrine is unwarranted. The
assignment of the permit in favor of SEM is utilized to circumvent the condition
of non-transferability of the exploration permit. To allow SEM to avail itself of
this doctrine and to approve the validity of the assignment is tantamount to
sanctioning illegal act which is what the doctrine precisely seeks to forestall.
Quite apart from the above, a cursory consideration of the mining law
pertinent to the case, will, indeed, demonstrate the infraction committed by
MMC in its assignment of EP 133 to SEM.
Presidential Decree No. 463, enacted on 17 May 1974, otherwise known as the
Mineral Resources Development Decree, which governed the old system of
exploration, development, and utilization of mineral resources through
"license, concession or lease" prescribed:
10 | A G E N C Y C A S E S | C A B A N L I T
SEC. 97. Assignment of Mining Rights. – A mining lease contract or any interest
therein shall not be transferred, assigned, or subleased without the prior
approval of the Secretary: Provided, That such transfer, assignment or sublease
may be made only to a qualified person possessing the resources and capability
to continue the mining operations of the lessee and that the assignor has
complied with all the obligations of the lease: Provided, further, That such
transfer or assignment shall be duly registered with the office of the mining
recorder concerned. (Emphasis supplied.)
The same provision is reflected in Republic Act No. 7942, otherwise known as
the Philippine Mining Act of 1995, which is the new law governing the
exploration, development and utilization of the natural resources, which
provides:
SEC. 25. Transfer or Assignment. - An exploration permit may be transferred or
assigned to a qualified person subject to the approval of the Secretary upon the
recommendation of the Director.
The records are bereft of any indication that the assignment bears the
imprimatur of the Secretary of the DENR. Presidential Decree No. 463, which is
the governing law when the assignment was executed, explicitly requires that
the transfer or assignment of mining rights, including the right to explore a
mining area, must be with the prior approval of the Secretary of DENR. Quite
conspicuously, SEM did not dispute the allegation that the Deed of Assignment
was made without the prior approval of the Secretary of DENR. Absent the
prior approval of the Secretary of DENR, the assignment of EP 133, was,
therefore, without legal effect for violating the mandatory provision of
Presidential Decree No. 463.
An added significant omission proved fatal to MMC/SEM’s cause. While it is
true that the case of Apex Mining Co., Inc. v. Garcia 40 settled the issue of which
between Apex and MMC validly acquired mining rights over the disputed area,
such rights, though, had been extinguished by subsequent events. Records
indicate that on 6 July 1993, EP 133 was extended for 12 months or until 6 July
1994.41 MMC never renewed its permit prior and after its expiration. Thus, EP
133 expired by non-renewal.
With the expiration of EP 133 on 6 July 1994, MMC lost any right to the
Diwalwal Gold Rush Area. SEM, on the other hand, has not acquired any right
to the said area because the transfer of EP 133 in its favor is invalid. Hence,
both MMC and SEM have not acquired any vested right over the 4,941.6759
hectares which used to be covered by EP 133.
II
The Court of Appeals theorizes that DAO No. 66 was issued beyond the power
of the DENR Secretary since the power to withdraw lands from forest reserves
and to declare the same as an area open for mining operation resides in the
President.
Under Proclamation No. 369 dated 27 February 1931, the power to convert
forest reserves as non-forest reserves is vested with the DENR Secretary.
Proclamation No. 369 partly states:
From this reserve shall be considered automatically excluded all areas which
had already been certified and which in the future may be proclaimed as
classified and certified lands and approved by the Secretary of Agriculture and
Natural Resources.42
However, a subsequent law, Commonwealth Act No. 137, otherwise known as
"The Mining Act" which was approved on 7 November 1936 provides:
Sec. 14. Lands within reservations for purposes other than mining, which, after
such reservation is made, are found to be more valuable for their mineral
contents than for the purpose for which the reservation was made, may be
withdrawn from such reservations by the President with the concurrence of the
National Assembly, and thereupon such lands shall revert to the public domain
and be subject to disposition under the provisions of this Act.
Unlike Proclamation No. 369, Commonwealth Act No. 137 vests solely in the
President, with the concurrence of the National Assembly, the power to
withdraw forest reserves found to be more valuable for their mineral contents
than for the purpose for which the reservation was made and convert the same
into non-forest reserves. A similar provision can also be found in Presidential
11 | A G E N C Y C A S E S | C A B A N L I T
Decree No. 463 dated 17 May 1974, with the modifications that (1) the
declaration by the President no longer requires the concurrence of the National
Assembly and (2) the DENR Secretary merely exercises the power to
recommend to the President which forest reservations are to be withdrawn
from the coverage thereof. Section 8 of Presidential Decree No. 463 reads:
SEC. 8. Exploration and Exploitation of Reserved Lands. – When lands within
reservations, which have been established for purposes other than mining, are
found to be more valuable for their mineral contents, they may, upon
recommendation of the Secretary be withdrawn from such reservation by the
President and established as a mineral reservation.
Against the backdrop of the applicable statutes which govern the issuance of
DAO No. 66, this Court is constrained to rule that said administrative order was
issued not in accordance with the laws. Inescapably, DAO No. 66, declaring 729
hectares of the areas covered by the Agusan-Davao-Surigao Forest Reserve as
non-forest land open to small-scale mining operations, is null and void as,
verily, the DENR Secretary has no power to convert forest reserves into non-
forest reserves.
III
It is the contention of Apex that its right over the Diwalwal gold rush area is
superior to that of MMC or that of SEM because it was the first one to occupy
and take possession of the area and the first to record its mining claims over
the area.
For its part, Balite argues that with the issuance of DAO No. 66, its occupation
in the contested area, particularly in the 729 hectares small-scale mining area,
has entitled it to file its MPSA. Balite claims that its MPSA application should
have been given preference over that of SEM because it was filed ahead.
The MAB, on the other hand, insists that the issue on who has superior right
over the disputed area has become moot and academic by the supervening
events. By virtue of Proclamation No. 297 dated 25 November 2002, the
disputed area was declared a mineral reservation.
Proclamation No. 297 excluded an area of 8,100 hectares located in Monkayo,
Compostela Valley, and proclaimed the same as mineral reservation and as
environmentally critical area, viz:
WHEREAS, by virtue of Proclamation No. 369, series of 1931, certain tracts of
public land situated in the then provinces of Davao, Agusan and Surigao, with
an area of approximately 1,927,400 hectares, were withdrawn from settlement
and disposition, excluding, however, those portions which had been certified
and/or shall be classified and certified as non-forest lands;
WHEREAS, gold deposits have been found within the area covered by
Proclamation No. 369, in the Municipality of Monkayo, Compostela Valley
Province, and unregulated small to medium-scale mining operations have,
since 1983, been undertaken therein, causing in the process serious
environmental, health, and peace and order problems in the area;
WHEREAS, it is in the national interest to prevent the further degradation of
the environment and to resolve the health and peace and order problems
spawned by the unregulated mining operations in the said area;
WHEREAS, these problems may be effectively addressed by rationalizing mining
operations in the area through the establishment of a mineral reservation;
WHEREAS, after giving due notice, the Director of Mines and Geoxciences
conducted public hearings on September 6, 9 and 11, 2002 to allow the
concerned sectors and communities to air their views regarding the
establishment of a mineral reservation in the place in question;
WHEREAS, pursuant to the Philippine Mining Act of 1995 (RA 7942), the
President may, upon the recommendation of the Director of Mines and
Geosciences, through the Secretary of Environment and Natural Resources, and
when the national interest so requires, establish mineral reservations where
mining operations shall be undertaken by the Department directly or thru a
contractor;
WHEREAS, as a measure to attain and maintain a rational and orderly balance
between socio-economic growth and environmental protection, the President
12 | A G E N C Y C A S E S | C A B A N L I T
may, pursuant to Presidential Decree No. 1586, as amended, proclaim and
declare certain areas in the country as environmentally critical;
NOW, THEREFORE, I, GLORIA MACAPAGAL-ARROYO, President of the
Philippines, upon recommendation of the Secretary of the Department of
Environment and Natural Resources (DENR), and by virtue of the powers vested
in me by law, do hereby exclude certain parcel of land located in Monkayo,
Compostela Valley, and proclaim the same as mineral reservation and as
environmentally critical area, with metes and bound as defined by the
following geographical coordinates;
xxxx
with an area of Eight Thousand One Hundred (8,100) hectares, more or less.
Mining operations in the area may be undertaken either by the DENR directly,
subject to payment of just compensation that may be due to legitimate and
existing claimants, or thru a qualified contractor, subject to existing rights, if
any.
The DENR shall formulate and issue the appropriate guidelines, including the
establishment of an environmental and social fund, to implement the intent
and provisions of this Proclamation.
Upon the effectivity of the 1987 Constitution, the State assumed a more
dynamic role in the exploration, development and utilization of the natural
resources of the country.43 With this policy, the State may pursue full control
and supervision of the exploration, development and utilization of the
country’s natural mineral resources. The options open to the State are through
direct undertaking or by entering into co-production, joint venture, or
production-sharing agreements, or by entering into agreement with foreign-
owned corporations for large-scale exploration, development and
utilization.44 Thus, Article XII, Section 2, of the 1987 Constitution, specifically
states:
SEC. 2. All lands of the public domain, waters, minerals, coal, petroleum, and
other mineral oils, all forces of potential energy, fisheries, forests or timber,
wildlife, flora and fauna, and other natural resources are owned by the State.
With the exception of agricultural lands, all other natural resources shall not be
alienated. The exploration, development, and utilization of natural resources
shall be under the full control and supervision of the State. The State may
directly undertake such activities, or it may enter into co-production, joint
venture, or production-sharing agreements with Filipino citizens, or
corporations or associations at least sixty per centum of whose capital is owned
by such citizens. Such agreements may be for a period not exceeding twenty-
five years, renewable for not more than twenty-five years, and under such
terms and conditions as may be provided by law. x x x
xxxx
The President may enter into agreements with foreign-owned corporations
involving either technical or financial assistance for large-scale exploration,
development, and utilization of minerals, petroleum, and other mineral oils
according to the general terms and conditions provided by law, based on real
contributions to the economic growth and general welfare of the country. x x x
(Underscoring supplied.)
Recognizing the importance of the country’s natural resources, not only for
national economic development, but also for its security and national defense,
Section 5 of Republic Act No. 7942 empowers the President, when the national
interest so requires, to establish mineral reservations where mining operations
shall be undertaken directly by the State or through a contractor.
To implement the intent and provisions of Proclamation No. 297, the DENR
Secretary issued DAO No. 2002-18 dated 12 August 2002 declaring an
emergency situation in the Diwalwal Gold Rush Area and ordering the stoppage
of all mining operations therein.
The issue on who has priority right over the disputed area is deemed overtaken
by the above subsequent developments particularly with the issuance of
Proclamation 297 and DAO No. 2002-18, both being constitutionally-sanctioned
acts of the Executive Branch. Mining operations in the Diwalwal Mineral
Reservation are now, therefore, within the full control of the State through the
executive branch. Pursuant to Section 5 of Republic Act No. 7942, the State can
13 | A G E N C Y C A S E S | C A B A N L I T

either directly undertake the exploration, development and utilization of the SO ORDERED.
area or it can enter into agreements with qualified entities, viz:

SEC 5. Mineral Reservations. – When the national interest so requires, such as

when there is a need to preserve strategic raw materials for industries critical
to national development, or certain minerals for scientific, cultural or ecological
value, the President may establish mineral reservations upon the
recommendation of the Director through the Secretary. Mining operations in
existing mineral reservations and such other reservations as may thereafter be
established, shall be undertaken by the Department or through a contractor x x
x.

It is now up to the Executive Department whether to take the first option, i.e.,
to undertake directly the mining operations of the Diwalwal Gold Rush Area. As
already ruled, the State may not be precluded from considering a direct
takeover of the mines, if it is the only plausible remedy in sight to the gnawing
complexities generated by the gold rush. The State need be guided only by the
demands of public interest in settling on this option, as well as its material and
logistic feasibility.45 The State can also opt to award mining operations in the
mineral reservation to private entities including petitioners Apex and Balite, if it
wishes. The exercise of this prerogative lies with the Executive Department
over which courts will not interfere.

WHEREFORE, premises considered, the Petitions of Apex, Balite and the MAB
are PARTIALLY GRANTED, thus:

1. We hereby REVERSE and SET ASIDE the Decision of the Court of

Appeals, dated 13 March 2002, and hereby declare that EP 133 of
MMC has EXPIRED on 7 July 1994 and that its subsequent transfer to
SEM on 16 February 1994 is VOID.

2. We AFFIRM the finding of the Court of Appeals in the same Decision

declaring DAO No. 66 illegal for having been issued in excess of the
DENR Secretary’s authority.

Consequently, the State, should it so desire, may now award mining operations
in the disputed area to any qualified entity it may determine. No costs.
14 | A G E N C Y C A S E S | C A B A N L I T
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 76931             May 29, 1991
ORIENT AIR SERVICES & HOTEL REPRESENTATIVES, petitioner,
vs.
COURT OF APPEALS and AMERICAN AIR-LINES INCORPORATED, respondents.
G.R. No. 76933             May 29, 1991
AMERICAN AIRLINES, INCORPORATED, petitioner,
vs.
COURT OF APPEALS and ORIENT AIR SERVICES & HOTEL REPRESENTATIVES,
INCORPORATED, respondents.
Francisco A. Lava, Jr. and Andresito X. Fornier for Orient Air Service and Hotel
Representatives, Inc.
Sycip, Salazar, Hernandez & Gatmaitan for American Airlines, Inc.
PADILLA, J.:
This case is a consolidation of two (2) petitions for review on certiorari of a
decision1 of the Court of Appeals in CA-G.R. No. CV-04294, entitled "American
Airlines, Inc. vs. Orient Air Services and Hotel Representatives, Inc." which
affirmed, with modification, the decision2 of the Regional Trial Court of Manila,
Branch IV, which dismissed the complaint and granted therein defendant's
counterclaim for agent's overriding commission and damages.
The antecedent facts are as follows:
On 15 January 1977, American Airlines, Inc. (hereinafter referred to as
American Air), an air carrier offering passenger and air cargo transportation in
the Philippines, and Orient Air Services and Hotel Representatives (hereinafter
referred to as Orient Air), entered into a General Sales Agency Agreement
(hereinafter referred to as the Agreement), whereby the former authorized the
latter to act as its exclusive general sales agent within the Philippines for the
sale of air passenger transportation. Pertinent provisions of the agreement are
reproduced, to wit:
WITNESSETH
In consideration of the mutual convenants herein contained, the
parties hereto agree as follows:
1. Representation of American by Orient Air Services
Orient Air Services will act on American's behalf as its exclusive
General Sales Agent within the Philippines, including any United States
military installation therein which are not serviced by an Air Carrier
Representation Office (ACRO), for the sale of air passenger
transportation. The services to be performed by Orient Air Services
shall include:
(a) soliciting and promoting passenger traffic for the services
of American and, if necessary, employing staff competent and
sufficient to do so;
(b) providing and maintaining a suitable area in its place of
business to be used exclusively for the transaction of the
business of American;
(c) arranging for distribution of American's timetables, tariffs
and promotional material to sales agents and the general
public in the assigned territory;
(d) servicing and supervising of sales agents (including such
sub-agents as may be appointed by Orient Air Services with
15 | A G E N C Y C A S E S | C A B A N L I T
the prior written consent of American) in the assigned
territory including if required by American the control of
remittances and commissions retained; and
(e) holding out a passenger reservation facility to sales agents
and the general public in the assigned territory.
In connection with scheduled or non-scheduled air passenger
transportation within the United States, neither Orient Air Services nor
its sub-agents will perform services for any other air carrier similar to
those to be performed hereunder for American without the prior
written consent of American. Subject to periodic instructions and
continued consent from American, Orient Air Services may sell air
passenger transportation to be performed within the United States by
other scheduled air carriers provided American does not provide
substantially equivalent schedules between the points involved.
x x x           x x x          x x x
4. Remittances
Orient Air Services shall remit in United States dollars to American the
ticket stock or exchange orders, less commissions to which Orient Air
Services is entitled hereunder, not less frequently than semi-monthly,
on the 15th and last days of each month for sales made during the
preceding half month.
All monies collected by Orient Air Services for transportation sold
hereunder on American's ticket stock or on exchange orders, less
applicable commissions to which Orient Air Services is entitled
hereunder, are the property of American and shall be held in trust by
Orient Air Services until satisfactorily accounted for to American.
5. Commissions
American will pay Orient Air Services commission on transportation
sold hereunder by Orient Air Services or its sub-agents as follows:
(a) Sales agency commission
American will pay Orient Air Services a sales agency commission for all
sales of transportation by Orient Air Services or its sub-agents over
American's services and any connecting through air transportation,
when made on American's ticket stock, equal to the following
percentages of the tariff fares and charges:
(i) For transportation solely between points within the United
States and between such points and Canada: 7% or such
other rate(s) as may be prescribed by the Air Traffic
Conference of America.
(ii) For transportation included in a through ticket covering
transportation between points other than those described
above: 8% or such other rate(s) as may be prescribed by the
International Air Transport Association.
(b) Overriding commission
In addition to the above commission American will pay Orient Air
Services an overriding commission of 3% of the tariff fares and charges
for all sales of transportation over American's service by Orient Air
Service or its sub-agents.
x x x           x x x          x x x
10. Default
If Orient Air Services shall at any time default in observing or
performing any of the provisions of this Agreement or shall become
bankrupt or make any assignment for the benefit of or enter into any
agreement or promise with its creditors or go into liquidation, or
suffer any of its goods to be taken in execution, or if it ceases to be in
business, this Agreement may, at the option of American, be
terminated forthwith and American may, without prejudice to any of
its rights under this Agreement, take possession of any ticket forms,
16 | A G E N C Y C A S E S | C A B A N L I T
exchange orders, traffic material or other property or funds belonging
to American.
11. IATA and ATC Rules
The provisions of this Agreement are subject to any applicable rules or
resolutions of the International Air Transport Association and the Air
Traffic Conference of America, and such rules or resolutions shall
control in the event of any conflict with the provisions hereof.
x x x           x x x          x x x
13. Termination
American may terminate the Agreement on two days' notice in the
event Orient Air Services is unable to transfer to the United States the
funds payable by Orient Air Services to American under this
Agreement. Either party may terminate the Agreement without cause
by giving the other 30 days' notice by letter, telegram or cable.
x x x           x x x          x x x3
On 11 May 1981, alleging that Orient Air had reneged on its obligations under
the Agreement by failing to promptly remit the net proceeds of sales for the
months of January to March 1981 in the amount of US $254,400.40, American
Air by itself undertook the collection of the proceeds of tickets sold originally
by Orient Air and terminated forthwith the Agreement in accordance with
Paragraph 13 thereof (Termination). Four (4) days later, or on 15 May 1981,
American Air instituted suit against Orient Air with the Court of First Instance of
Manila, Branch 24, for Accounting with Preliminary Attachment or
Garnishment, Mandatory Injunction and Restraining Order 4 averring the
aforesaid basis for the termination of the Agreement as well as therein
defendant's previous record of failures "to promptly settle past outstanding
refunds of which there were available funds in the possession of the defendant,
. . . to the damage and prejudice of plaintiff." 5
In its Answer6 with counterclaim dated 9 July 1981, defendant Orient Air denied
the material allegations of the complaint with respect to plaintiff's entitlement
to alleged unremitted amounts, contending that after application thereof to
the commissions due it under the Agreement, plaintiff in fact still owed Orient
Air a balance in unpaid overriding commissions. Further, the defendant
contended that the actions taken by American Air in the course of terminating
the Agreement as well as the termination itself were untenable, Orient Air
claiming that American Air's precipitous conduct had occasioned prejudice to
its business interests.
Finding that the record and the evidence substantiated the allegations of the
defendant, the trial court ruled in its favor, rendering a decision dated 16 July
1984, the dispositive portion of which reads:
WHEREFORE, all the foregoing premises considered, judgment is
hereby rendered in favor of defendant and against plaintiff dismissing
the complaint and holding the termination made by the latter as
affecting the GSA agreement illegal and improper and order the
plaintiff to reinstate defendant as its general sales agent for passenger
tranportation in the Philippines in accordance with said GSA
agreement; plaintiff is ordered to pay defendant the balance of the
overriding commission on total flown revenue covering the period
from March 16, 1977 to December 31, 1980 in the amount of
US$84,821.31 plus the additional amount of US$8,000.00 by way of
proper 3% overriding commission per month commencing from
January 1, 1981 until such reinstatement or said amounts in its
Philippine peso equivalent legally prevailing at the time of payment
plus legal interest to commence from the filing of the counterclaim up
to the time of payment. Further, plaintiff is directed to pay defendant
the amount of One Million Five Hundred Thousand (Pl,500,000.00)
pesos as and for exemplary damages; and the amount of Three
Hundred Thousand (P300,000.00) pesos as and by way of attorney's
fees.
Costs against plaintiff.7
17 | A G E N C Y C A S E S | C A B A N L I T
On appeal, the Intermediate Appellate Court (now Court of Appeals) in a
decision promulgated on 27 January 1986, affirmed the findings of the court a
quo on their material points but with some modifications with respect to the
monetary awards granted. The dispositive portion of the appellate court's
decision is as follows:
WHEREFORE, with the following modifications —
1) American is ordered to pay Orient the sum
of US$53,491.11 representing the balance of the latter's overriding
commission covering the period March 16, 1977 to December 31,
1980, or its Philippine peso equivalent in accordance with the official
rate of exchange legally prevailing on July 10, 1981, the date the
counterclaim was filed;
2) American is ordered to pay Orient the sum of US$7,440.00 as the
latter's overriding commission per month starting January 1,
1981 until date of termination, May 9, 1981 or its Philippine peso
equivalent in accordance with the official rate of exchange legally
prevailing on July 10, 1981, the date the counterclaim was filed
3) American is ordered to pay interest of 12% on said amounts from
July 10, 1981 the date the answer with counterclaim was filed, until
full payment;
4) American is ordered to pay Orient  exemplary damages of
P200,000.00;
5) American is ordered to pay Orient the sum of P25,000.00 as
attorney's fees.
the rest of the appealed decision is affirmed.
Costs against American.8
American Air moved for reconsideration of the aforementioned decision,
assailing the substance thereof and arguing for its reversal. The appellate
court's decision was also the subject of a Motion for Partial Reconsideration by
Orient Air which prayed for the restoration of the trial court's ruling with
respect to the monetary awards. The Court of Appeals, by resolution
promulgated on 17 December 1986, denied American Air's motion and with
respect to that of Orient Air, ruled thus:
Orient's motion for partial reconsideration is denied insofar as it prays
for affirmance of the trial court's award of exemplary damages and
attorney's fees, but granted insofar as the rate of exchange is
concerned. The decision of January 27, 1986 is modified in paragraphs
(1) and (2) of the dispositive part so that the payment of the sums
mentioned therein shall be at their Philippine peso equivalent in
accordance with the official rate of exchange legally prevailing on the
date of actual payment.9
Both parties appealed the aforesaid resolution and decision of the respondent
court, Orient Air as petitioner in G.R. No. 76931 and American Air as petitioner
in G.R. No. 76933. By resolution10 of this Court dated 25 March 1987 both
petitions were consolidated, hence, the case at bar.
The principal issue for resolution by the Court is the extent of Orient Air's right
to the 3% overriding commission. It is the stand of American Air that such
commission is based only on sales of its services actually negotiated or
transacted by Orient Air, otherwise referred to as "ticketed sales." As basis
thereof, primary reliance is placed upon paragraph 5(b) of the Agreement
which, in reiteration, is quoted as follows:
5. Commissions
a) . . .
b) Overriding Commission
In addition to the above commission, American will pay Orient Air
Services an overriding commission of 3% of the tariff fees and charges
for all sales of transportation over American's services by Orient Air
Services or its  sub-agents. (Emphasis supplied)
18 | A G E N C Y C A S E S | C A B A N L I T
Since Orient Air was allowed to carry only the ticket stocks of American Air, and
the former not having opted to appoint any sub-agents, it is American Air's
contention that Orient Air can claim entitlement to the disputed overriding
commission based only on ticketed sales. This is supposed to be the clear
meaning of the underscored portion of the above provision. Thus, to be
entitled to the 3% overriding commission, the sale must be made by Orient Air
and the sale must be done with the use of American Air's ticket stocks.
On the other hand, Orient Air contends that the contractual stipulation of a 3%
overriding commission covers the total revenue of American Air and not merely
that derived from ticketed sales undertaken by Orient Air. The latter, in
justification of its submission, invokes its designation as the exclusive General
Sales Agent of American Air, with the corresponding obligations arising from
such agency, such as, the promotion and solicitation for the services of its
principal. In effect, by virtue of such exclusivity, "all sales of transportation over
American Air's services are necessarily by Orient Air." 11
It is a well settled legal principle that in the interpretation of a contract, the
entirety thereof must be taken into consideration to ascertain the meaning of
its provisions.12 The various stipulations in the contract must be read together
to give effect to all.13 After a careful examination of the records, the Court finds
merit in the contention of Orient Air that the Agreement, when interpreted in
accordance with the foregoing principles, entitles it to the 3% overriding
commission based on total revenue, or as referred to by the parties, "total
flown revenue."
As the designated exclusive General Sales Agent of American Air, Orient Air was
responsible for the promotion and marketing of American Air's services for air
passenger transportation, and the solicitation of sales therefor. In return for
such efforts and services, Orient Air was to be paid commissions of two (2)
kinds: first, a sales agency commission, ranging from 7-8% of tariff fares and
charges from sales by Orient  Air when made on American Air ticket stock; and
second, an overriding commission of 3% of tariff fares and charges for all
sales of passenger transportation over American Air services. It is immediately
observed that the precondition attached to the first type of commission does
not obtain for the second type of commissions. The latter type of commissions
would accrue for sales of American Air services made not on its ticket stock but
on the ticket stock of other air carriers sold by such carriers or other authorized
ticketing facilities or travel agents. To rule otherwise, i.e., to limit the basis of
such overriding commissions to sales from American Air ticket stock would
erase any distinction between the two (2) types of commissions and would lead
to the absurd conclusion that the parties had entered into a contract with
meaningless provisions. Such an interpretation must at all times be avoided
with every effort exerted to harmonize the entire Agreement.
An additional point before finally disposing of this issue. It is clear from the
records that American Air was the party responsible for the preparation of the
Agreement. Consequently, any ambiguity in this "contract of adhesion" is to be
taken "contra proferentem", i.e., construed against the party who caused the
ambiguity and could have avoided it by the exercise of a little more care. Thus,
Article 1377 of the Civil Code provides that the interpretation of obscure words
or stipulations in a contract shall not favor the party who caused the
obscurity.14 To put it differently, when several interpretations of a provision are
otherwise equally proper, that interpretation or construction is to be adopted
which is most favorable to the party in whose favor the provision was made
and who did not cause the ambiguity. 15 We therefore agree with the
respondent appellate court's declaration that:
Any ambiguity in a contract, whose terms are susceptible of different
interpretations, must be read against the party who drafted it. 16
We now turn to the propriety of American Air's termination of the Agreement.
The respondent appellate court, on this issue, ruled thus:
It is not denied that Orient withheld remittances but such action finds
justification from paragraph 4 of the Agreement, Exh. F, which
provides for remittances to American less commissions to which Orient
is entitled, and from paragraph 5(d) which specifically allows Orient to
retain the full amount of its commissions. Since, as stated ante, Orient
is entitled to the 3% override. American's premise, therefore, for the
cancellation of the Agreement did not exist. . . ."
We agree with the findings of the respondent appellate court. As earlier
established, Orient Air was entitled to an overriding commission based on total
19 | A G E N C Y C A S E S | C A B A N L I T

flown revenue. American Air's perception that Orient Air was remiss or in WHEREFORE, with the foregoing modification, the Court AFFIRMS the decision
default of its obligations under the Agreement was, in fact, a situation where and resolution of the respondent Court of Appeals, dated 27 January 1986 and
the latter acted in accordance with the Agreement—that of retaining from the 17 December 1986, respectively. Costs against petitioner American Air.
sales proceeds its accrued commissions before remitting the balance to
American Air. Since the latter was still obligated to Orient Air by way of such SO ORDERED.
commissions. Orient Air was clearly justified in retaining and refusing to remit
the sums claimed by American Air. The latter's termination of the Agreement
was, therefore, without cause and basis, for which it should be held liable to
Orient Air.

On the matter of damages, the respondent appellate court modified by

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

It is believed, however, that respondent appellate court erred in affirming the

rest of the decision of the trial court.1âwphi1 We refer particularly to the lower
court's decision ordering American Air to "reinstate defendant as its general
sales agent for passenger transportation in the Philippines in accordance with
said GSA Agreement."

By affirming this ruling of the trial court, respondent appellate court, in effect,
compels American Air to extend its personality to Orient Air. Such would be
violative of the principles and essence of agency, defined by law as a contract
whereby "a person binds himself to render some service or to do something in
representation or on behalf of another, WITH THE CONSENT OR AUTHORITY OF
THE LATTER .17 (emphasis supplied) In an agent-principal relationship, the
personality of the principal is extended through the facility of the agent. In so
doing, the agent, by legal fiction, becomes the principal, authorized to perform
all acts which the latter would have him do. Such a relationship can only be
effected with the consent of the principal, which must not, in any way, be
compelled by law or by any court. The Agreement itself between the parties
states that "either party may terminate the Agreement  without cause by giving
the other 30 days' notice by letter, telegram or cable." (emphasis supplied) We,
therefore, set aside the portion of the ruling of the respondent appellate court
reinstating Orient Air as general sales agent of American Air.
20 | A G E N C Y C A S E S | C A B A N L I T
Republic of the Philippines
SUPREME COURT
Manila
G.R. No. L-24332 January 31, 1978
RAMON RALLOS, Administrator of the Estate of CONCEPCION
RALLOS, petitioner,
vs.
FELIX GO CHAN & SONS REALTY CORPORATION and COURT OF
APPEALS, respondents.
Seno, Mendoza & Associates for petitioner.
Ramon Duterte for private respondent.
MUÑOZ PALMA, J.:
This is a case of an attorney-in-fact, Simeon Rallos, who after of his death of his
principal, Concepcion Rallos, sold the latter's undivided share in a parcel of land
pursuant to a power of attorney which the principal had executed in favor. The
administrator of the estate of the went to court to have the sale declared
uneanforceable and to recover the disposed share. The trial court granted the
relief prayed for, but upon appeal the Court of Appeals uphold the validity of
the sale and the complaint.
Hence, this Petition for Review on certiorari.
The following facts are not disputed. Concepcion and Gerundia both surnamed
Rallos were sisters and registered co-owners of a parcel of land known as Lot
No. 5983 of the Cadastral Survey of Cebu covered by Transfer Certificate of
Title No. 11116 of the Registry of Cebu. On April 21, 1954, the sisters executed
a special power of attorney in favor of their brother, Simeon Rallos, authorizing
him to sell for and in their behalf lot 5983. On March 3, 1955, Concepcion
Rallos died. On September 12, 1955, Simeon Rallos sold the undivided shares of
his sisters Concepcion and Gerundia in lot 5983 to Felix Go Chan & Sons Realty
Corporation for the sum of P10,686.90. The deed of sale was registered in the
Registry of Deeds of Cebu, TCT No. 11118 was cancelled, and a new transfer
certificate of Title No. 12989 was issued in the named of the vendee.
On May 18, 1956 Ramon Rallos as administrator of the Intestate Estate of
Concepcion Rallos filed a complaint docketed as Civil Case No. R-4530 of the
Court of First Instance of Cebu, praying (1) that the sale of the undivided share
of the deceased Concepcion Rallos in lot 5983 be d unenforceable, and said
share be reconveyed to her estate; (2) that the Certificate of 'title issued in the
name of Felix Go Chan & Sons Realty Corporation be cancelled and another title
be issued in the names of the corporation and the "Intestate estate of
Concepcion Rallos" in equal undivided and (3) that plaintiff be indemnified by
way of attorney's fees and payment of costs of suit. Named party defendants
were Felix Go Chan & Sons Realty Corporation, Simeon Rallos, and the Register
of Deeds of Cebu, but subsequently, the latter was dropped from the
complaint. The complaint was amended twice; defendant Corporation's Answer
contained a crossclaim against its co-defendant, Simon Rallos while the latter
filed third-party complaint against his sister, Gerundia Rallos While the case
was pending in the trial court, both Simon and his sister Gerundia died and they
were substituted by the respective administrators of their estates.
After trial the court a quo rendered judgment with the following dispositive
portion:
A. On Plaintiffs Complaint —
(1) Declaring the deed of sale, Exh. "C", null
and void insofar as the one-half pro-indiviso
share of Concepcion Rallos in the property
in question, — Lot 5983 of the Cadastral
Survey of Cebu — is concerned;
(2) Ordering the Register of Deeds of Cebu
City to cancel Transfer Certificate of Title
No. 12989 covering Lot 5983 and to issue in
lieu thereof another in the names of FELIX
21 | A G E N C Y C A S E S | C A B A N L I T
GO CHAN & SONS REALTY CORPORATION
and the Estate of Concepcion Rallos in the
proportion of one-half (1/2) share each pro-
indiviso;
(3) Ordering Felix Go Chan & Sons Realty
Corporation to deliver the possession of an
undivided one-half (1/2) share of Lot 5983
to the herein plaintiff;
(4) Sentencing the defendant Juan T.
Borromeo, administrator of the Estate of
Simeon Rallos, to pay to plaintiff in concept
of reasonable attorney's fees the sum of
P1,000.00; and
(5) Ordering both defendants to pay the
costs jointly and severally.
B. On GO CHANTS Cross-Claim:
(1) Sentencing the co-defendant Juan T.
Borromeo, administrator of the Estate of
Simeon Rallos, to pay to defendant Felix Co
Chan & Sons Realty Corporation the sum of
P5,343.45, representing the price of one-
half (1/2) share of lot 5983;
(2) Ordering co-defendant Juan T.
Borromeo, administrator of the Estate of
Simeon Rallos, to pay in concept of
reasonable attorney's fees to Felix Go Chan
& Sons Realty Corporation the sum of
P500.00.
C. On Third-Party Complaint of defendant Juan T. Borromeo
administrator of Estate of Simeon Rallos, against Josefina
Rallos special administratrix of the Estate of Gerundia Rallos:
(1) Dismissing the third-party complaint without prejudice to
filing either a complaint against the regular administrator of
the Estate of Gerundia Rallos or a claim in the Intestate-
Estate of Cerundia Rallos, covering the same subject-matter
of the third-party complaint, at bar. (pp. 98-100, Record on
Appeal)
Felix Go Chan & Sons Realty Corporation appealed in due time to the Court of
Appeals from the foregoing judgment insofar as it set aside the sale of the one-
half (1/2) share of Concepcion Rallos. The appellate tribunal, as adverted to
earlier, resolved the appeal on November 20, 1964 in favor of the appellant
corporation sustaining the sale in question. 1 The appellee administrator,
Ramon Rallos, moved for a reconsider of the decision but the same was denied
in a resolution of March 4, 1965. 2
What is the legal effect of an act performed by an agent after the death of his
principal? Applied more particularly to the instant case, We have the query. is
the sale of the undivided share of Concepcion Rallos in lot 5983 valid although
it was executed by the agent after the death of his principal? What is the law in
this jurisdiction as to the effect of the death of the principal on the authority of
the agent to act for and in behalf of the latter? Is the fact of knowledge of the
death of the principal a material factor in determining the legal effect of an act
performed after such death?
Before proceedings to the issues, We shall briefly restate certain principles of
law relevant to the matter tinder consideration.
1. It is a basic axiom in civil law embodied in our Civil Code that no one may
contract in the name of another without being authorized by the latter, or
unless he has by law a right to represent him. 3 A contract entered into in the
name of another by one who has no authority or the legal representation or
who has acted beyond his powers, shall be unenforceable, unless it is ratified,
expressly or impliedly, by the person on whose behalf it has been executed,
22 | A G E N C Y C A S E S | C A B A N L I T
before it is revoked by the other contracting party. 4 Article 1403 (1) of the same
Code also provides:
ART. 1403. The following contracts are unenforceable, unless
they are justified:
(1) Those entered into in the name of another person by one
who hi - been given no authority or legal representation or
who has acted beyond his powers; ...
Out of the above given principles, sprung the creation and acceptance of
the relationship of agency whereby one party, caged the principal (mandante),
authorizes another, called the agent (mandatario), to act for and in his behalf in
transactions with third persons. The essential elements of agency are: (1) there
is consent, express or implied of the parties to establish the relationship; (2)
the object is the execution of a juridical act in relation to a third person; (3) the
agents acts as a representative and not for himself, and (4) the agent acts
within the scope of his authority. 5
Agency is basically personal representative, and derivative in nature. The
authority of the agent to act emanates from the powers granted to him by his
principal; his act is the act of the principal if done within the scope of the
authority. Qui facit per alium facit se. "He who acts through another acts
himself". 6
2. There are various ways of extinguishing agency, 7 but her We are concerned
only with one cause — death of the principal Paragraph 3 of Art. 1919 of the
Civil Code which was taken from Art. 1709 of the Spanish Civil Code provides:
ART. 1919. Agency is extinguished.
xxx xxx xxx
3. By the death, civil interdiction, insanity or insolvency of the
principal or of the agent; ... (Emphasis supplied)
By reason of the very nature of the relationship between Principal and agent,
agency is extinguished by the death of the principal or the agent. This is the law
in this jurisdiction.8
Manresa commenting on Art. 1709 of the Spanish Civil Code explains that the
rationale for the law is found in the juridical basis of agency which
is representation Them being an in. integration of the personality of the
principal integration that of the agent it is not possible for the representation
to continue to exist once the death of either is establish. Pothier agrees with
Manresa that by reason of the nature of agency, death is a necessary cause for
its extinction. Laurent says that the juridical tie between the principal and the
agent is severed ipso jure upon the death of either without necessity for the
heirs of the fact to notify the agent of the fact of death of the former. 9
The same rule prevails at common law — the death of the principal effects
instantaneous and absolute revocation of the authority of the agent unless the
Power be coupled with an interest. 10 This is the prevalent rule in American
Jurisprudence where it is well-settled that a power without an interest confer.
red upon an agent is dissolved by the principal's death, and any attempted
execution of the power afterward is not binding on the heirs or representatives
of the deceased. 11
3. Is the general rule provided for in Article 1919 that the death of the principal
or of the agent extinguishes the agency, subject to any exception, and if so, is
the instant case within that exception? That is the determinative point in issue
in this litigation. It is the contention of respondent corporation which was
sustained by respondent court that notwithstanding the death of the principal
Concepcion Rallos the act of the attorney-in-fact, Simeon Rallos in selling the
former's sham in the property is valid and enforceable inasmuch as the
corporation acted in good faith in buying the property in question.
Articles 1930 and 1931 of the Civil Code provide the exceptions to the general
rule afore-mentioned.
ART. 1930. The agency shall remain in full force and effect
even after the death of the principal, if it has been
constituted in the common interest of the latter and of the
23 | A G E N C Y C A S E S | C A B A N L I T
agent, or in the interest of a third person who has accepted
the stipulation in his favor.
ART. 1931. Anything done by the agent, without knowledge
of the death of the principal or of any other cause which
extinguishes the agency, is valid and shall be fully effective
with respect to third persons who may have contracted with
him in good. faith.
Article 1930 is not involved because admittedly the special power of attorney
executed in favor of Simeon Rallos was not coupled with an interest.
Article 1931 is the applicable law. Under this provision, an act done by the
agent after the death of his principal is valid and effective only under two
conditions, viz: (1) that the agent acted without knowledge of the death of the
principal and (2) that the third person who contracted with the agent himself
acted in good faith. Good faith here means that the third person was not aware
of the death of the principal at the time he contracted with said agent. These
two requisites must concur the absence of one will render the act of the agent
invalid and unenforceable.
In the instant case, it cannot be questioned that the agent, Simeon Rallos, knew
of the death of his principal at the time he sold the latter's share in Lot No.
5983 to respondent corporation. The knowledge of the death is clearly to be
inferred from the pleadings filed by Simon Rallos before the trial court. 12 That
Simeon Rallos knew of the death of his sister Concepcion is also a finding of fact
of the court a quo 13 and of respondent appellate court when the latter stated
that Simon Rallos 'must have known of the death of his sister, and yet he
proceeded with the sale of the lot in the name of both his sisters Concepcion
and Gerundia Rallos without informing appellant (the realty corporation) of the
death of the former. 14
On the basis of the established knowledge of Simon Rallos concerning the
death of his principal Concepcion Rallos, Article 1931 of the Civil Code is
inapplicable. The law expressly requires for its application lack of knowledge on
the part of the agent of the death of his principal; it is not enough that the third
person acted in good faith. Thus in Buason & Reyes v. Panuyas, the Court
applying Article 1738 of the old Civil rode now Art. 1931 of the new Civil Code
sustained the validity , of a sale made after the death of the principal because it
was not shown that the agent knew of his principal's demise. 15 To the same
effect is the case of Herrera, et al., v. Luy Kim Guan, et al., 1961, where in the
words of Justice Jesus Barrera the Court stated:
... even granting arguemendo that Luis Herrera did die in
1936, plaintiffs presented no proof and there is no indication
in the record, that the agent Luy Kim Guan was aware of the
death of his principal at the time he sold the property. The
death 6f the principal does not render the act of an agent
unenforceable, where the latter had no knowledge of such
extinguishment of the agency. (1 SCRA 406, 412)
4. In sustaining the validity of the sale to respondent consideration the Court of
Appeals reasoned out that there is no provision in the Code which provides
that whatever is done by an agent having knowledge of the death of his
principal is void even with respect to third persons who may have contracted
with him in good faith and without knowledge of the death of the principal. 16
We cannot see the merits of the foregoing argument as it ignores the existence
of the general rule enunciated in Article 1919 that the death of the principal
extinguishes the agency. That being the general rule it follows a fortiori that
any act of an agent after the death of his principal is void ab initio unless the
same fags under the exception provided for in the aforementioned Articles
1930 and 1931. Article 1931, being an exception to the general rule, is to be
strictly construed, it is not to be given an interpretation or application beyond
the clear import of its terms for otherwise the courts will be involved in a
process of legislation outside of their judicial function.
5. Another argument advanced by respondent court is that the vendee acting in
good faith relied on the power of attorney which was duly registered on the
original certificate of title recorded in the Register of Deeds of the province of
Cebu, that no notice of the death was aver annotated on said certificate of title
by the heirs of the principal and accordingly they must suffer the consequences
of such omission. 17
24 | A G E N C Y C A S E S | C A B A N L I T
To support such argument reference is made to a portion
in Manresa's Commentaries which We quote:
If the agency has been granted for the purpose of contracting
with certain persons, the revocation must be made known to
them. But if the agency is general iii nature, without
reference to particular person with whom the agent is to
contract, it is sufficient that the principal exercise due
diligence to make the revocation of the agency publicity
known.
In case of a general power which does not specify the persons
to whom represents' on should be made, it is the general
opinion that all acts, executed with third persons who
contracted in good faith, Without knowledge of the
revocation, are valid. In such case, the principal may exercise
his right against the agent, who, knowing of the revocation,
continued to assume a personality which he no longer had.
(Manresa Vol. 11, pp. 561 and 575; pp. 15-16, rollo)
The above discourse however, treats of revocation by an act of the principal as
a mode of terminating an agency which is to be distinguished from revocation
by operation of law  such as death of the principal which obtains in this case. On
page six of this Opinion We stressed that by reason of the very nature of the
relationship between principal and agent, agency is extinguished  ipso jure upon
the death of either principal or agent. Although a revocation of a power of
attorney to be effective must be communicated to the parties concerned, 18 yet
a revocation by operation of law, such as by death of the principal is, as a rule,
instantaneously effective inasmuch as "by legal fiction the agent's exercise of
authority is regarded as an execution of the principal's continuing will. 19 With
death, the principal's will ceases or is the of authority is extinguished.
The Civil Code does not impose a duty on the heirs to notify the agent of the
death of the principal What the Code provides in Article 1932 is that, if the
agent die his heirs must notify the principal thereof, and in the meantime adopt
such measures as the circumstances may demand in the interest of the latter.
Hence, the fact that no notice of the death of the principal was registered on
the certificate of title of the property in the Office of the Register of Deeds, is
not fatal to the cause of the estate of the principal
6. Holding that the good faith of a third person in said with an agent affords the
former sufficient protection, respondent court drew a "parallel" between the
instant case and that of an innocent purchaser for value of a land, stating that if
a person purchases a registered land from one who acquired it in bad faith —
even to the extent of foregoing or falsifying the deed of sale in his favor — the
registered owner has no recourse against such innocent purchaser for value
but only against the forger. 20
To support the correctness of this respondent corporation, in its brief, cites the
case of Blondeau, et al., v. Nano and Vallejo, 61 Phil. 625. We quote from the
brief:
In the case of Angel Blondeau et al. v. Agustin Nano et al., 61
Phil. 630, one Vallejo was a co-owner of lands with Agustin
Nano. The latter had a power of attorney supposedly
executed by Vallejo Nano in his favor. Vallejo delivered to
Nano his land titles. The power was registered in the Office of
the Register of Deeds. When the lawyer-husband of Angela
Blondeau went to that Office, he found all in order including
the power of attorney. But Vallejo denied having executed
the power The lower court sustained Vallejo and the plaintiff
Blondeau appealed. Reversing the decision of the court a
quo, the Supreme Court, quoting the ruling in the case
of Eliason v. Wilborn,  261 U.S. 457, held:
But there is a narrower ground on which
the defenses of the defendant- appellee
must be overruled. Agustin Nano had
possession of Jose Vallejo's title papers.
Without those title papers handed over to
Nano with the acquiescence of Vallejo, a
fraud could not have been perpetuated.
When Fernando de la Canters, a member of
the Philippine Bar and the husband of
25 | A G E N C Y C A S E S | C A B A N L I T
Angela Blondeau, the principal plaintiff,
searched the registration record, he found
them in due form including the power of
attorney of Vallajo in favor of Nano. If this
had not been so and if thereafter the
proper notation of the encumbrance could
not have been made, Angela Blondeau
would not have sent P12,000.00 to the
defendant Vallejo.' An executed transfer of
registered lands placed by the registered
owner thereof in the hands of another
operates as a representation to a third
party that the holder of the transfer is
authorized to deal with the land.
As between two innocent persons, one of
whom must suffer the consequence of a
breach of trust, the one who made it
possible by his act of coincidence bear the
loss. (pp. 19-21)
The Blondeau decision, however, is not on all fours with the case before Us
because here We are confronted with one who admittedly was an agent of his
sister and who sold the property of the latter after her death with full
knowledge of such death. The situation is expressly covered by a provision of
law on agency the terms of which are clear and unmistakable leaving no room
for an interpretation contrary to its tenor, in the same manner that the ruling in
Blondeau and the cases cited therein found a basis in Section 55 of the Land
Registration Law which in part provides:
xxx xxx xxx
The production of the owner's duplicate certificate whenever
any voluntary instrument is presented for registration shall be
conclusive authority from the registered owner to the
register of deeds to enter a new certificate or to make a
memorandum of registration in accordance with such
instruments, and the new certificate or memorandum Shall
be binding upon the registered owner and upon all persons
claiming under him in favor of every purchaser for value and
in good faith: Provided however, That in all cases of
registration provided by fraud, the owner may pursue all his
legal and equitable remedies against the parties to such fraud
without prejudice, however, to the right, of any innocent
holder for value of a certificate of title. ... (Act No. 496 as
amended)
7. One last point raised by respondent corporation in support of the appealed
decision is an 1842 ruling of the Supreme Court of Pennsylvania in Cassiday v.
McKenzie wherein payments made to an agent after the death of the principal
were held to be "good", "the parties being ignorant of the death". Let us take
note that the Opinion of Justice Rogers was premised on the statement that
the parties were ignorant of the death of the principal. We quote from that
decision the following:
... Here the precise point is, whether a payment to an agent
when the Parties are ignorant of the death is a good
payment. in addition to the case in Campbell before cited, the
same judge Lord Ellenboruogh, has decided in 5 Esp. 117, the
general question that a payment after the death of principal
is not good. Thus, a payment of sailor's wages to a person
having a power of attorney to receive them, has been held
void when the principal was dead at the time of the payment.
If, by this case, it is meant merely to decide the general
proposition that by operation of law the death of the
principal is a revocation of the powers of the attorney, no
objection can be taken to it. But if it intended to say that his
principle applies where there was 110 notice of death, or
opportunity of twice I must be permitted to dissent from it.
... That a payment may be good today, or bad tomorrow,
from the accident circumstance of the death of the principal,
which he did not know, and which by no possibility could he
know? It would be unjust to the agent and unjust to the
26 | A G E N C Y C A S E S | C A B A N L I T
debtor. In the civil law, the acts of the agent, done bona fide
in ignorance of the death of his principal are held valid and
binding upon the heirs of the latter. The same rule holds in
the Scottish law, and I cannot believe the common law is so
unreasonable... (39 Am. Dec. 76, 80, 81; emphasis supplied)
To avoid any wrong impression which the Opinion in Cassiday v. McKenzie may
evoke, mention may be made that the above represents the minority view in
American jurisprudence. Thus in Clayton v. Merrett, the Court said.—
There are several cases which seem to hold that although, as
a general principle, death revokes an agency and renders null
every act of the agent thereafter performed, yet that where a
payment has been made in ignorance of the death, such
payment will be good. The leading case so holding is that
of Cassiday v. McKenzie, 4 Watts & S. (Pa) 282, 39 Am. 76,
where, in an elaborate opinion, this view ii broadly
announced. It is referred to, and seems to have been
followed, in the case of Dick v. Page, 17 Mo. 234, 57 AmD
267; but in this latter case it appeared that the estate of the
deceased principal had received the benefit of the money
paid, and therefore the representative of the estate might
well have been held to be estopped from suing for it
again. . . . These cases, in so far, at least, as they announce
the doctrine under discussion, are exceptional. The
Pennsylvania Case, supra (Cassiday v. McKenzie 4 Watts & S.
282, 39 AmD 76), is believed to stand almost, if not quite,
alone in announcing the principle in its broadest scope. (52,
Misc. 353, 357, cited in 2 C.J. 549)
So also in Travers v. Crane, speaking of Cassiday v. McKenzie, and pointing out
that the opinion, except so far as it related to the particular facts, was a
mere dictum, Baldwin J. said:
The opinion, therefore, of the learned Judge may be regarded
more as an extrajudicial indication of his views on the general
subject, than as the adjudication of the Court upon the point
in question. But accordingly all power weight to this opinion,
as the judgment of a of great respectability, it stands alone
among common law authorities and is opposed by an array
too formidable to permit us to following it. (15 Cal. 12,17,
cited in 2 C.J. 549)
Whatever conflict of legal opinion was generated by Cassiday v. McKenzie in
American jurisprudence, no such conflict exists in our own for the simple
reason that our statute, the Civil Code, expressly provides for two exceptions to
the general rule that death of the principal revokes ipso jure the agency, to wit:
(1) that the agency is coupled with an interest (Art 1930), and (2) that the act of
the agent was executed without knowledge of the death of the principal and
the third person who contracted with the agent acted also in good faith (Art.
1931). Exception No. 2 is the doctrine followed in Cassiday, and again We stress
the indispensable requirement that the agent acted without knowledge or
notice of the death of the principal In the case before Us the agent Ramon
Rallos executed the sale notwithstanding notice of the death of his principal
Accordingly, the agent's act is unenforceable against the estate of his principal.
IN VIEW OF ALL THE FOREGOING, We set aside the ecision of respondent
appellate court, and We affirm en toto the judgment rendered by then Hon.
Amador E. Gomez of the Court of First Instance of Cebu, quoted in pages 2 and
3 of this Opinion, with costs against respondent realty corporation at all
instances.
So Ordered.
27 | A G E N C Y C A S E S | C A B A N L I T
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-28740 February 24, 1981
FERMIN Z. CARAM, JR., petitioner,
vs.
CLARO L. LAURETA, respondent.
FERNANDEZ, J.:
This is a petition for certiorari to review the decision of the Court of Appeals
promulgated on January 29, 1968 in CA-G. R. NO. 35721-R entitled "Claro L.
Laureta, plaintiff-appellee versus Marcos Mata, Codidi Mata and Fermin Caram,
Jr., defendants- appellants; Tampino (Mansaca), et al. Intervenors-appellants,"
affirming the decision of the Court of First Instance of Davao in Civil Case No.
3083. 1
On June 25, 1959, Claro L. Laureta filed in the Court of First Instance of Davao
an action for nullity, recovery of ownership and/or reconveyance with damages
and attorney's fees against Marcos Mata, Codidi Mata, Fermin Z. Caram, Jr. and
the Register of Deeds of Davao City. 2
On June 10, 1945, Marcos Mata conveyed a large tract of agricultural land
covered by Original Certificate of Title No. 3019 in favor of Claro Laureta,
plaintiff, the respondent herein. The deed of absolute sale in favor of the
plaintiff was not registered because it was not acknowledged before a notary
public or any other authorized officer. At the time the sale was executed, there
was no authorized officer before whom the sale could be acknowledged
inasmuch as the civil government in Tagum, Davao was not as yet organized.
However, the defendant Marcos Mata delivered to Laureta the peaceful and
lawful possession of the premises of the land together with the pertinent
papers thereof such as the Owner's Duplicate Original Certificate of Title No.
3019, sketch plan, tax declaration, tax receipts and other papers related
thereto. 3 Since June 10, 1945, the plaintiff Laureta had been and is stin in
continuous, adverse and notorious occupation of said land, without being
molested, disturbed or stopped by any of the defendants or their
representatives. In fact, Laureta had been paying realty taxes due thereon and
had introduced improvements worth not less than P20,000.00 at the time of
the filing of the complaint. 4
On May 5, 1947, the same land covered by Original Certificate of Title No. 3019
was sold by Marcos Mata to defendant Fermin Z. Caram, Jr., petitioner herein.
The deed of sale in favor of Caram was acknowledged before Atty. Abelardo
Aportadera. On May 22, 1947, Marcos Mata, through Attys. Abelardo
Aportadera and Gumercindo Arcilla, filed with the Court of First Instance of
Davao a petition for the issuance of a new Owner's Duplicate of Original
Certificate of Title No. 3019, alleging as ground therefor the loss of said title in
the evacuation place of defendant Marcos Mata in Magugpo, Tagum, Davao.
On June 5, 1947, the Court of First Instance of Davao issued an order directing
the Register of Deeds of Davao to issue a new Owner's Duplicate Certificate of
Title No. 3019 in favor of Marcos Mata and declaring the lost title as null and
void. On December 9, 1947, the second sale between Marcos Mata and Fermin
Caram, Jr. was registered with the Register of Deeds. On the same date,
Transfer Certificate of Title No. 140 was issued in favor of Fermin Caram Jr. 5
On August 29, 1959, the defendants Marcos Mata and Codidi Mata filed their
answer with counterclaim admitting the existence of a private absolute deed of
sale of his only property in favor of Claro L. Laureta but alleging that he signed
the same as he was subjected to duress, threat and intimidation for the plaintiff
was the commanding officer of the 10th division USFIP operating in the
unoccupied areas of Northern Davao with its headquarters at Project No. 7
(Km. 60, Davao Agusan Highways), in the Municipality of Tagum, Province of
Davao; that Laureta's words and requests were laws; that although the
defendant Mata did not like to sell his property or sign the document without
even understanding the same, he was ordered to accept P650.00 Mindanao
Emergency notes; and that due to his fear of harm or danger that will happen
to him or to his family, if he refused he had no other alternative but to sign the
document. 6
28 | A G E N C Y C A S E S | C A B A N L I T
The defendants Marcos Mata and Codidi Mata also admit the existence of a
record in the Registry of Deeds regarding a document allegedly signed by him
in favor of his co-defendant Fermin Caram, Jr. but denies that he ever signed
the document for he knew before hand that he had signed a deed of sale in
favor of the plaintiff and that the plaintiff was in possession of the certificate of
title; that if ever his thumb mark appeared in the document purportedly
alienating the property to Fermin Caram, did his consent was obtained through
fraud and misrepresentation for the defendant Mata is illiterate and ignorant
and did not know what he was signing; and that he did not receive a
consideration for the said sale. 7
The defendant Fermin Caram Jr. filed his answer on October 23, 1959 alleging
that he has no knowledge or information about the previous encumbrances,
transactions, and alienations in favor of plaintiff until the filing of the
complaints. 8
The trial court rendered a decision dated February 29, 1964, the dispositive
portion of which reads: 9
1. Declaring that the deed of sale, Exhibit A, executed by
Marcos Mata in favor of Claro L. Laureta stands and prevails
over the deed of sale, Exhibit F, in favor of Fermin Caram, Jr.;
2. Declaring as null and void the deed of sale Exhibit F, in
favor of Fermin Caram, Jr.;
3. Directing Marcos Mata to acknowledge the deed of sale,
Exhibit A, in favor of Claro L. Laureta;
4. Directing Claro L. Laureta to secure the approval of the
Secretary of Agriculture and Natural Resources on the deed,
Exhibit A, after Marcos Mata shall have acknowledged the
same before a notary public;
5. Directing Claro L. Laureta to surrender to the Register of
Deeds for the City and Province of Davao the Owner's
Duplicate of Original Certificate of Title No. 3019 and the
latter to cancel the same;
6. Ordering the Register of Deeds for the City and Province of
Davao to cancel Transfer Certificate of Title No. T-140 in the
name of Fermin Caram, Jr.;
7. Directing the Register of Deeds for the City and Province of
Davao to issue a title in favor of Claro L. Laureta, Filipino,
resident of Quezon City, upon presentation of the deed
executed by Marcos Mata in his favor, Exhibit A, duly
acknowledged by him and approved by the Secretary of
Agriculture and Natural Resources, and
8. Dismissing the counterclaim and cross claim of Marcos
Mata and Codidi Mata, the counterclaim of Caram, Jr., the
answer in intervention, counterclaim and cross-claim of the
Mansacas.
The Court makes no pronouncement as to costs.
SO ORDERED.
The defendants appealed from the judgment to the Court of Appeals. 10 The
appeal was docketed as CA-G.R. NO. 35721- R.
The Court of Appeals promulgated its decision on January 29, 1968 affirming
the judgment of the trial court.
In his brief, the petitioner assigns the following errors: 11
I
THE RESPONDENT COURT OF APPEALS ERRED IN
CONCLUDING THAT IRESPE AND APORTADERA WERE
29 | A G E N C Y C A S E S | C A B A N L I T
ATTORNEYS-IN-FACT OF PETITIONER CARAM FOR THE
PURPOSE OF BUYING THE PROPERTY IN QUESTION.
II
THE RESPONDENT COURT OF APPEALS ERRED IN
CONCLUDING THAT THE EVIDENCE ADDUCED IN THE TRIAL
COURT CONSTITUTE LEGAL EVIDENCE OF FRAUD ON THE
PART OF IRESPE AND APORTADERA AT TRIBUTABLE TO
PETITIONER.
III
THE RESPONDENT COURT OF APPEALS COMMITTED GRAVE
ERROR OF LAW IN HOLDING THAT KNOWLEDGE OF IRESPE
AND APORTADERA OF A PRIOR UNREGISTERED SALE OF A
TITLED PROPERTY ATTRIBUTABLE TO PETITIONER AND
EQUIVALENT IN LAW OF REGISTRATION OF SAID SALE.
IV
THE RESPONDENT COURT OF APPEALS ERRED IN NOT
HOLDING THAT AN ACTION FOR RECONVEYANCE ON THE
GROUND OF FRAUD PRESCRIBES WITHIN FOUR (4) YEARS.
The petitioner assails the finding of the trial court that the second sale of the
property was made through his representatives, Pedro Irespe and Atty.
Abelardo Aportadera. He argues that Pedro Irespe was acting merely as a
broker or intermediary with the specific task and duty to pay Marcos Mata the
sum of P1,000.00 for the latter's property and to see to it that the requisite
deed of sale covering the purchase was properly executed by Marcos Mata;
that the Identity of the property to be bought and the price of the purchase
had already been agreed upon by the parties; and that the other alleged
representative, Atty. Aportadera, merely acted as a notary public in the
execution of the deed of sale.
The contention of the petitioner has no merit. The facts of record show that
Mata, the vendor, and Caram, the second vendee had never met. During the
trial, Marcos Mata testified that he knows Atty. Aportadera but did not know
Caram. 12 Thus, the sale of the property could have only been through Caram's
representatives, Irespe and Aportadera. The petitioner, in his answer, admitted
that Atty. Aportadera acted as his notary public and attorney-in-fact at the
same time in the purchase of the property. 13
The petitioner contends that he cannot be considered to have acted in bad
faith because there is no direct proof showing that Irespe and Aportadera, his
alleged agents, had knowledge of the first sale to Laureta. This contention is
also without merit.
The Court of Appeals, in affirming the decision of the trial court, said: 14
The trial court, in holding that appellant Caram. Jr. was not a
purchaser in good faith, at the time he bought the same
property from appellant Mata, on May 5, 1947, entirely
discredited the testimony of Aportadera. Thus it stated in its
decision:
The testimony of Atty. Aportadera quoted elsewhere in this
decision is hollow. There is every reason to believe that Irespe
and he had known of the sale of the property in question to
Laureta on the day Mata and Irespe, accompanied by Leaning
Mansaca, went to the office of Atty. Aportadera for the sale
of the same property to Caram, Jr., represented by Irespe as
attorney-in-fact. Ining Mansaca was with the two — Irespe
and Mata — to engage the services 6f Atty. Aportadera in the
annulment of the sale of his land to Laureta. When Leaning
Mansaca narrated to Atty. Aportadera the circumstances
under which his property had been sold to Laureta, he must
have included in the narration the sale of the land of Mata,
for the two properties had been sold on the same occassion
and under the same circumstances. Even as early as
immediately after liberation, Irespe, who was the witness in
most of the cases filed by Atty. Aportadera in his capacity as
30 | A G E N C Y C A S E S | C A B A N L I T
Provincial Fiscal of Davao against Laureta, must have known
of the purchases of lands made by Laureta when he was
regimental commander, one of which was the sale made by
Mata. It was not a mere coincidence that Irespe was made
guardian ad litem of Leaning Mansaca, at the suggestion of
Atty. Aportadera and attorney-in-fact of Caram, Jr.
The Court cannot help being convinced that Irespe, attorney-
in-fact of Caram, Jr. had knowledge of the prior existing
transaction, Exhibit A, between Mata and Laureta over the
land, subject matter of this litigation, when the deed, Exhibit
F, was executed by Mata in favor of Caram, Jr. And this
knowledge has the effect of registration as to Caram, Jr. RA
pp. 123-124)
We agree with His Honor's conclusion on this particular point,
on two grounds — the first, the same concerns matters
affecting the credibility of a witness of which the findings of
the trial court command great weight, and second, the same
is borne out by the testimony of Atty. Aportadera himself.
(t.s.n., pp. 187-190, 213-215, Restauro).
Even if Irespe and Aportadera did not have actual knowledge of the first sale,
still their actions have not satisfied the requirement of good faith. Bad faith is
not based solely on the fact that a vendee had knowledge of the defect or lack
of title of his vendor. In the case of Leung Yee vs. F. L. Strong Machinery Co. and
Williamson, this Court held: 15
One who purchases real estate with knowledge of a defect or
lack of title in his vendor can not claim that he has acquired
title thereto in good faith, as against the true owner of the
land or of an interest therein, and the same rule must be
applied to one who has knowledge of facts which should have
put him upon such inquiry and investigation as might be
necessary to acquaint him with the defects in the title of his
vendor.
In the instant case, Irespe and Aportadera had knowledge of circumstances
which ought to have put them an inquiry. Both of them knew that Mata's
certificate of title together with other papers pertaining to the land was taken
by soldiers under the command of Col. Claro L. Laureta. 16 Added to this is the
fact that at the time of the second sale Laureta was already in possession of the
land. Irespe and Aportadera should have investigated the nature of Laureta's
possession. If they failed to exercise the ordinary care expected of a buyer of
real estate they must suffer the consequences. The rule of caveat
emptor requires the purchaser to be aware of the supposed title of the vendor
and one who buys without checking the vendor's title takes all the risks and
losses consequent to such failure. 17
The principle that a person dealing with the owner of the registered land is not
bound to go behind the certificate and inquire into transactions the existence
of which is not there intimated 18 should not apply in this case. It was of
common knowledge that at the time the soldiers of Laureta took the
documents from Mata, the civil government of Tagum was not yet established
and that there were no officials to ratify contracts of sale and make them
registerable. Obviously, Aportadera and Irespe knew that even if Mata
previously had sold t he Disputed such sale could not have been registered.
There is no doubt then that Irespe and Aportadera, acting as agents of Caram,
purchased the property of Mata in bad faith. Applying the principle of agency,
Caram as principal, should also be deemed to have acted in bad faith.
Article 1544 of the New Civil Code provides that:
Art. 1544. If the same thing should have been sold to
different vendees, the ownership shall be transferred to the
person who may have first taken possession thereof in good
faith, if it should be movable property.
Should it be immovable property, the ownership shall belong
to the person acquiring it who in good faith first recordered it
in the Registry of Property.
31 | A G E N C Y C A S E S | C A B A N L I T
Should there be no inscription, the ownership shag pertain to
the person who in good faith was first in the possession; and,
in the absence thereof, to the person who presents the oldest
title, provided there is good faith. (1473)
Since Caram was a registrant in bad faith, the situation is as if there was no
registration at all. 19
The question to be determined now is, who was first in possession in good
faith? A possessor in good faith is one who is not aware that there exists in his
title or mode of acquisition any flaw which invalidates it. 20 Laureta was first in
possession of the property. He is also a possessor in good faith. It is true that
Mata had alleged that the deed of sale in favor of Laureta was procured by
force. 21 Such defect, however, was cured when, after the lapse of four years
from the time the intimidation ceased, Marcos Mata lost both his rights to file
an action for annulment or to set up nullity of the contract as a defense in an
action to enforce the same.
Anent the fourth error assigned, the petitioner contends that the second deed
of sale, Exhibit "F", is a voidable contract. Being a voidable contract, the action
for annulment of the same on the ground of fraud must be brought within four
(4) years from the discovery of the fraud. In the case at bar, Laureta is deemed
to have discovered that the land in question has been sold to Caram to his
prejudice on December 9, 1947, when the Deed of Sale, Exhibit "F" was
recorded and entered in the Original Certificate of Title by the Register of
Deeds and a new Certificate of Title No. 140 was issued in the name of Caram.
Therefore, when the present case was filed on June 29, 1959, plaintiff's cause
of action had long prescribed.
The petitioner's conclusion that the second deed of sale, "Exhibit F", is a
voidable contract is not correct. I n order that fraud can be a ground for the
annulment of a contract, it must be employed prior to or simultaneous to the,
consent or creation of the contract. The fraud or dolo causante must be that
which determines or is the essential cause of the contract. Dolo causante as a
ground for the annulment of contract is specifically described in Article 1338 of
the New Civil Code of the Philippines as "insidious words or machinations of
one of the contracting parties" which induced the other to enter into a
contract, and "without them, he would not have agreed to".
The second deed of sale in favor of Caram is not a voidable contract. No
evidence whatsoever was shown that through insidious words or machinations,
the representatives of Caram, Irespe and Aportadera had induced Mata to
enter into the contract.
Since the second deed of sale is not a voidable contract, Article 1391, Civil Code
of the Philippines which provides that the action for annulment shall be
brought within four (4) years from the time of the discovery of fraud does not
apply. Moreover, Laureta has been in continuous possession of the land since
he bought it in June 1945.
A more important reason why Laureta's action could not have prescribed is
that the second contract of sale, having been registered in bad faith, is null and
void. Article 1410 of the Civil Code of the Philippines provides that any action or
defense for the declaration of the inexistence of a contract does not prescribe.
In a Memorandum of Authorities 22 submitted to this Court on March 13, 1978,
the petitioner insists that the action of Laureta against Caram has prescribed
because the second contract of sale is not void under Article 1409 23 of the Civil
Code of the Philippines which enumerates the kinds of contracts which are
considered void. Moreover, Article 1544 of the New Civil Code of the
Philippines does not declare void a second sale of immovable registered in bad
faith.
The fact that the second contract is not considered void under Article 1409 and
that Article 1544 does not declare void a deed of sale registered in bad faith
does not mean that said contract is not void. Article 1544 specifically provides
who shall be the owner in case of a double sale of an immovable property. To
give full effect to this provision, the status of the two contracts must be
declared valid so that one vendee may contract must be declared void to cut
off all rights which may arise from said contract. Otherwise, Article 1544 win be
meaningless.
The first sale in favor of Laureta prevails over the sale in favor of Caram.
32 | A G E N C Y C A S E S | C A B A N L I T

WHEREFORE, the petition is hereby denied and the decision of the Court of
Appeals sought to be reviewed is affirmed, without pronouncement as to costs.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
33 | A G E N C Y C A S E S | C A B A N L I T
FIRST DIVISION
G.R. No. L-57339 December 29, 1983
AIR FRANCE, petitioner,
vs.
HONORABLE COURT OF APPEALS, JOSE G. GANA (Deceased), CLARA A. GANA,
RAMON GANA, MANUEL GANA, MARIA TERESA GANA, ROBERTO GANA,
JAIME JAVIER GANA, CLOTILDE VDA. DE AREVALO, and EMILY SAN
JUAN, respondents.
Benjamin S. Valte for petitioner.
Napoleon Garcia for private respondents.
MELENCIO-HERRERA, J.:
In this petition for review on certiorari, petitioner AIR FRANCE assails the
Decision of then respondent Court of Appeals 1 promulgated on 15 December
1980 in CA-G.R. No. 58164-R, entitled "Jose G. Gana, et al. vs. Sociedad
Nacionale Air France", which reversed the Trial Court's judgment dismissing the
Complaint of private respondents for damages arising from breach of contract
of carriage, and awarding instead P90,000.00 as moral damages.
Sometime in February, 1970, the late Jose G. Gana and his family, numbering
nine (the GANAS), purchased from AIR FRANCE through Imperial Travels,
Incorporated, a duly authorized travel agent, nine (9) "open-dated" air passage
tickets for the Manila/Osaka/Tokyo/Manila route. The GANAS paid a total of
US$2,528.85 for their economy and first class fares. Said tickets were bought at
the then prevailing exchange rate of P3.90 per US$1.00. The GANAS also paid
travel taxes of P100.00 for each passenger.
On 24 April 1970, AIR FRANCE exchanged or substituted the aforementioned
tickets with other tickets for the same route. At this time, the GANAS were
booked for the Manila/Osaka segment on AIR FRANCE Flight 184 for 8 May
1970, and for the Tokyo/Manila return trip on AIR FRANCE Flight 187 on 22
May 1970. The aforesaid tickets were valid until 8 May 1971, the date written
under the printed words "Non valuable apres de (meaning, "not valid after
the").
The GANAS did not depart on 8 May 1970.
Sometime in January, 1971, Jose Gana sought the assistance of Teresita
Manucdoc, a Secretary of the Sta. Clara Lumber Company where Jose Gana was
the Director and Treasurer, for the extension of the validity of their tickets,
which were due to expire on 8 May 1971. Teresita enlisted the help of Lee Ella
Manager of the Philippine Travel Bureau, who used to handle travel
arrangements for the personnel of the Sta. Clara Lumber Company. Ella sent
the tickets to Cesar Rillo, Office Manager of AIR FRANCE. The tickets were
returned to Ella who was informed that extension was not possible unless the
fare differentials resulting from the increase in fares triggered by an increase of
the exchange rate of the US dollar to the Philippine peso and the increased
travel tax were first paid. Ella then returned the tickets to Teresita and
informed her of the impossibility of extension.
In the meantime, the GANAS had scheduled their departure on 7 May 1971 or
one day before the expiry date. In the morning of the very day of their
scheduled departure on the first leg of their trip, Teresita requested travel
agent Ella to arrange the revalidation of the tickets. Ella gave the same negative
answer and warned her that although the tickets could be used by the GANAS if
they left on 7 May 1971, the tickets would no longer be valid for the rest of
their trip because the tickets would then have expired on 8 May 1971. Teresita
replied that it will be up to the GANAS to make the arrangements. With that
assurance, Ella on his own, attached to the tickets validating stickers for the
Osaka/Tokyo flight, one a JAL. sticker and the other an SAS (Scandinavian
Airways System) sticker. The SAS sticker indicates thereon that it was
"Reevaluated by: the Philippine Travel Bureau, Branch No. 2" (as shown by a
circular rubber stamp) and signed "Ador", and the date is handwritten in the
center of the circle. Then appear under printed headings the notations: JL. 108
(Flight), 16 May (Date), 1040 (Time), OK (status). Apparently, Ella made no
more attempt to contact AIR FRANCE as there was no more time.
34 | A G E N C Y C A S E S | C A B A N L I T
Notwithstanding the warnings, the GANAS departed from Manila in the
afternoon of 7 May 1971 on board AIR FRANCE Flight 184 for Osaka, Japan.
There is no question with respect to this leg of the trip.
However, for the Osaka/Tokyo flight on 17 May 1971, Japan Airlines refused to
honor the tickets because of their expiration, and the GANAS had to purchase
new tickets. They encountered the same difficulty with respect to their return
trip to Manila as AIR FRANCE also refused to honor their tickets. They were able
to return only after pre-payment in Manila, through their relatives, of the
readjusted rates. They finally flew back to Manila on separate Air France Frights
on 19 May 1971 for Jose Gana and 26 May 1971 for the rest of the family.
On 25 August 1971, the GANAS commenced before the then Court of First
Instance of Manila, Branch III, Civil Case No. 84111 for damages arising from
breach of contract of carriage.
AIR FRANCE traversed the material allegations of the Complaint and alleged
that the GANAS brought upon themselves the predicament they found
themselves in and assumed the consequential risks; that travel agent Ella's
affixing of validating stickers on the tickets without the knowledge and consent
of AIR FRANCE, violated airline tariff rules and regulations and was beyond the
scope of his authority as a travel agent; and that AIR FRANCE was not guilty of
any fraudulent conduct or bad faith.
On 29 May 1975, the Trial Court dismissed the Complaint based on Partial and
Additional Stipulations of Fact as wen as on the documentary and testimonial
evidence.
The GANAS appealed to respondent Appellate Court. During the pendency of
the appeal, Jose Gana, the principal plaintiff, died.
On 15 December 1980, respondent Appellate Court set aside and reversed the
Trial Court's judgment in a Decision, which decreed:
WHEREFORE, the decision appealed from is set aside. Air
France is hereby ordered to pay appellants moral damages in
the total sum of NINETY THOUSAND PESOS (P90,000.00) plus
costs.
SO ORDERED. 2
Reconsideration sought by AIR FRANCE was denied, hence, petitioner's
recourse before this instance, to which we gave due course.
The crucial issue is whether or not, under the environmental milieu the GANAS
have made out a case for breach of contract of carriage entitling them to an
award of damages.
We are constrained to reverse respondent Appellate Court's affirmative ruling
thereon.
Pursuant to tariff rules and regulations of the International Air Transportation
Association (IATA), included in paragraphs 9, 10, and 11 of the Stipulations of
Fact between the parties in the Trial Court, dated 31 March 1973, an airplane
ticket is valid for one year. "The passenger must undertake the final portion of
his journey by departing from the last point at which he has made a voluntary
stop before the expiry of this limit (parag. 3.1.2. ) ... That is the time allowed a
passenger to begin and to complete his trip (parags. 3.2 and 3.3.). ... A ticket
can no longer be used for travel if its validity has expired before the passenger
completes his trip (parag. 3.5.1.) ... To complete the trip, the passenger must
purchase a new ticket for the remaining portion of the journey" (ibid.) 3
From the foregoing rules, it is clear that AIR FRANCE cannot be faulted for
breach of contract when it dishonored the tickets of the GANAS after 8 May
1971 since those tickets expired on said date; nor when it required the GANAS
to buy new tickets or have their tickets re-issued for the Tokyo/Manila segment
of their trip. Neither can it be said that, when upon sale of the new tickets, it
imposed additional charges representing fare differentials, it was motivated by
self-interest or unjust enrichment considering that an increase of fares took
effect, as authorized by the Civil Aeronautics Board (CAB) in April, 1971. This
procedure is well in accord with the IATA tariff rules which provide:
6. TARIFF RULES
35 | A G E N C Y C A S E S | C A B A N L I T
7. APPLICABLE FARE ON THE DATE OF DEPARTURE
3.1 General Rule.
All journeys must be charged for at the fare (or charge) in
effect on the date on which transportation commences from
the point of origin. Any ticket sold prior to a change of fare or
charge (increase or decrease) occurring between the date of
commencement of the journey, is subject to the above
general rule and must be adjusted accordingly. A new ticket
must be issued and the difference is to be collected or
refunded as the case may be. No adjustment is necessary if
the increase or decrease in fare (or charge) occurs when the
journey is already commenced. 4
The GANAS cannot defend by contending lack of knowledge of those rules since
the evidence bears out that Teresita, who handled travel arrangements for the
GANAS, was duly informed by travel agent Ella of the advice of Reno, the Office
Manager of Air France, that the tickets in question could not be extended
beyond the period of their validity without paying the fare differentials and
additional travel taxes brought about by the increased fare rate and travel
taxes.
ATTY. VALTE
Q What did you tell Mrs. Manucdoc, in turn
after being told this by Mr. Rillo?
A I told her, because that is the reason why
they accepted again the tickets when we
returned the tickets spin, that they could
not be extended. They could be extended
by paying the additional fare, additional tax
and additional exchange during that time.
Q You said so to Mrs. Manucdoc?
A Yes, sir." ... 5
The ruling relied on by respondent Appellate Court, therefore, in KLM. vs. Court
of Appeals, 65 SCRA 237 (1975), holding that it would be unfair to charge
respondents therein with automatic knowledge or notice of conditions in
contracts of adhesion, is inapplicable. To all legal intents and purposes, Teresita
was the agent of the GANAS and notice to her of the rejection of the request
for extension of the validity of the tickets was notice to the GANAS, her
principals.
The SAS validating sticker for the Osaka/Tokyo flight affixed by Era showing
reservations for JAL. Flight 108 for 16 May 1971, without clearing the same
with AIR FRANCE allegedly because of the imminent departure of the GANAS
on the same day so that he could not get in touch with Air France 6 was
certainly in contravention of IATA rules although as he had explained, he did so
upon Teresita's assurance that for the onward flight from Osaka and return, the
GANAS would make other arrangements.
Q Referring you to page 33 of the transcript
of the last session, I had this question which
reads as follows: 'But did she say anything
to you when you said that the tickets were
about to expire?' Your answer was: 'I am
the one who asked her. At that time I told
her if the tickets being used ... I was telling
her what about their bookings on the
return. What about their travel on the
return? She told me it is up for the Ganas to
make the arrangement.' May I know from
you what did you mean by this testimony of
yours?
A That was on the day when they were
asking me on May 7, 1971 when they were
checking the tickets. I told Mrs. Manucdoc
that I was going to get the tickets. I asked
her what about the tickets onward from the
36 | A G E N C Y C A S E S | C A B A N L I T

return from Tokyo, and her answer was it is
up for the Ganas to make the arrangement,
because I told her that they could leave on
the seventh, but they could take care of
that when they arrived in Osaka.
Q What do you mean?
A The Ganas will make the arrangement
from Osaka, Tokyo and Manila.
Q What arrangement?
A The arrangement for the airline because
the tickets would expire on May 7, and they
insisted on leaving. I asked Mrs. Manucdoc
what about the return onward portion
because they would be travelling to Osaka,
and her answer was, it is up to for the
Ganas to make the arrangement.
Q Exactly what were the words of Mrs.
Manucdoc when you told her that? If you
can remember, what were her exact words?
Besides, the validating stickers that Ella affixed on his own merely reflect the
status of reservations on the specified flight and could not legally serve to
extend the validity of a ticket or revive an expired one.
The conclusion is inevitable that the GANAS brought upon themselves the
predicament they were in for having insisted on using tickets that were due to
expire in an effort, perhaps, to beat the deadline and in the thought that by
commencing the trip the day before the expiry date, they could complete the
trip even thereafter. It should be recalled that AIR FRANCE was even unaware
of the validating SAS and JAL. stickers that Ella had affixed spuriously.
Consequently, Japan Air Lines and AIR FRANCE merely acted within their
contractual rights when they dishonored the tickets on the remaining segments
of the trip and when AIR FRANCE demanded payment of the adjusted fare rates
and travel taxes for the Tokyo/Manila flight.
WHEREFORE, the judgment under review is hereby reversed and set aside, and
the Amended Complaint filed by private respondents hereby dismissed.
No costs.
SO ORDERED.

A Her words only, it is up for the Ganas to

make the arrangement.

Q This was in Tagalog or in English?

A I think it was in English. ... 7

The circumstances that AIR FRANCE personnel at the ticket counter in the
airport allowed the GANAS to leave is not tantamount to an implied ratification
of travel agent Ella's irregular actuations. It should be recalled that the GANAS
left in Manila the day before the expiry date of their tickets and that "other FIRST DIVISION
arrangements" were to be made with respect to the remaining segments.
37 | A G E N C Y C A S E S | C A B A N L I T
April 24, 2017
G.R. No. 205998
WILLIAM ANGIDAN SIY, Petitioner
vs.
ALVIN TOMLIN, Respondent
DECISION
DEL CASTILLO, J.:
This Petition for Review on Certiorari1 assails the October 9, 2012 Decision2 and
February 19, 2013 Resolution3 of the Court of Appeals (CA) which respectively
granted the respondent's Petition for Certiorari  and denied petitioner1s
Motion for Reconsideration4 in CA-G.R. SP No. 124967.
Factual Antecedents
In July, 2011, petitioner William Anghian Siy filed before the Regional Trial
Court of Quezon City (RTC) a Complaint for Recovery of Possession with Prayer
for Replevin5 against Frankie Domanog Ong (Ong), Chris Centeno (Centeno),
John Co Chua (Chua), and herein respondent Alvin Tomlin. The case was
docketed as Civil Case No. Q-11-69644 and assigned to RTC Branch 224.
In his Complaint, petitioner alleged that he is the owner of a 2007 model Range
Rover with Plate Number ZMG 272 which he purchased from alberto Lopez III
(Lopez) on July 22, 2009; that in 2010, he entrusted the said vehicle to Ong, a
businessman who owned a second-hand car sales showroom ("Motortrend" in
Katipunan, Quezon City), after the latter claimed that he had a prospective
buyer therefor; that Ong failed to remit the proceeds of the purported sale nor
return the vehicle; that petitioner later found out that the vehicle had been
transferred to Chua; that in December, 2010, petitioner filed a complaint
before the Quezon City Police District's Anti-Carnapping Section; that Ong,
upon learning of the complaint, met with petitioner to arrange the return of
the vehicle; that Ong still failed to surrender the vehicle; that petitioner learned
that the vehicle was being transferred to respondent; and that the vehicle was
later impounded and taken into custody by the PNP-Highway Patrol Group
(HPG) at Camp Crame, Quezon City after respondent attempted to process a
PNP clearance of the vehicle with a view to transferring ownership thereof.
Petitioner thus prayed that a writ of replevin be issued for the return of the
vehicle to him, and that the defendants be ordered to pay him ₱100,000.00
atton1ey's fees and the costs of suit.
After hearing the application, the trial court issued a July 29, 2011
Order6 decreeing as follows:
WHEREFORE, in view of the foregoing, and with the ADMISSION of the
plaintiff's Documentary Exhibits in support of this Application, issue a Writ of
Replevin in favor of the plaintiff subject to the posting of the bond in the
amount of EIGHT MILLION PESOS (Php8,000,000.00) to be executed in favor of
the defendants for the return of the said property if such return be adjudged,
and for the payment to the adverse parties of such sum as they may recover
from the applicant in this action.
SO ORDERED.7
Petitioner posted the required ₱8 million bond 8 which was approved by the
trial court.9 A Writ of Replevin10 was then issued.
The subject vehicle was seized by the court-appointed special sheriff who then
filed the corresponding Sheriff's Return. 11
On August 17, 2011, respondent filed an Omnibus Motion 12 seeking to quash
the Writ of Replevin, dismiss the Complaint, and turn over or return the vehicle
to him. Respondent claimed that he is the lawful and registered owner of the
subject vehicle, having bought the same and caused registration thereof in his
name on March 7, 2011; that the Complaint in Civil Case No. Q-11-69644
should be dismissed for failure to pay the correct amount of docket fees; that
the Complaint is defective for failing to allege the correct and material facts as
to ownership, possession/detention by defendant, warranty against
distraint/levy/seizure, and actual value of the vehicle; and that the
implementation of the writ was attended by procedural irregularities.
38 | A G E N C Y C A S E S | C A B A N L I T
Particularly, respondent argued that petitioner could not prove his ownership
of the vehicle as the only pieces of evidence he presented in this regard were a
manager's check and cash voucher as proof of payment, and the affidavit of
Lopez attesting to the sale between him and petitioner which are insufficient;
that in fact, he is the registered owner of the vehicle, as shown by the Official
Receipt and Certificate of Registration13 dated March 7, 2011 issued in his name
by the Land Transportation Office (LTO); that it has not been shown that he
wrongfully detained the vehicle, as petitioner was never in possession thereof,
since the same was already detained and seized by the HPG at the time; that
petitioner failed to allege, as required under Section 2 of Rule 60 of the 1997
Rules of Civil Procedure 14 (1997 Rules), that the vehicle has not been distrained
or taken for a tax assessment or a fine pursuant to law, or seized under a writ
of execution or preliminary attachment, or otherwise placed under custodia
legis,  or if so seized, that it is exempt from such seizure or custody; and that
petitioner failed to allege the actual market value (₱4 million) of the vehicle,
and instead, he intentionally understated its value at only ₱2 million in order to
avoid paying the correct docket fees.
As for the alleged procedural defects, respondent claimed that the sheriff
implemented the writ against the HPG, which is not a party to the case; that
the Complaint must be dismissed for failure to pay the correct docket foes
based on the actual value of the vehicle; and that the trial court acted with
undue haste in granting the writ of replevin.
Finally, respondent argued that he is the true owner of the subject vehicle as
he was able to register the transfer in his favor and obtain a certificate of
registration in his name; and that as between petitioner's documentary
evidence and his official registration documents, the latter should pre
Petitioner filed his Opposition/Comment15 to the omnibus motion.
Ruling of the Regional Trial Court
On November 21, 2011, the trial court issued an Order 16 denying respondent's
Omnibus Motion for lack of merit. It held that respondent's remedy is not to
move to quash the writ of replevin, but to post a counterbond within the
reglementary period allowed under the 1997 Rules; that for failure to post said,
counterbond, respondent's prayer for the return of the vehicle to him is
premature; that the issues of ownership and insufficiency of the allegations in
the complaint are best determined during trial; and that an allegation of
undervaluation of the vehicle cannot divest the court of jurisdiction.
Respondent moved for reconsideration, but he was rebuffed just the same.
Ruling of the Court of Appeals
Respondent filed a Petition for Certiorari17 before the CA docketed as CAG. R.
SP No. 124967 claiming as he did in his Omnibus Motion that the trial court
should have dismissed Civil Case No. Q-11-69644 on account of failure to pay
the correct docket fees, defective complaint, procedural irregularities in the
service of the writ of replevin, the fact that he is the registered owner of the
subject vehicle, and for the reason that the trial court irregularly took
cognizance of the case during the period for inventory of its cases. Respondent
sought injunctive relief as well.
On October 9, 2012, the CA rendered the assailed Decision granting the
Petition. It held that the trial court did not acquire jurisdiction over the instant
case for failure of petitioner to pay the correct docket fees, since petitioner
misdeclared the value of the subject vehicle at only ₱2 million in his Complaint,
when the market value thereof was around ₱4.5 million to ₱5 million; that this
misdeclaration was undertaken with the clear intention to defraud the
government; and that petitioner failed to comply with the requirements under
Section 2, Rule 60 of the 1997 Rules, in that he gave a grossly inadequate value
for the subject vehicle in the Complaint and failed to allege therein that the
vehicle has not been distrained or taken for a tax assessment or a fine pursuant
to law, or seized under a writ of execution or preliminary attachment, or
otherwise placed under custodia legis.
The CA added that it was improper for the sheriff to serve a copy of the writ of
replevin upon the respondent on the day following the seizure of the subject
vehicle, and not prior to the taking thereof; that the trial court is deemed to
have acted without or in excess of its jurisdiction when it seized and detained
the vehicle on the basis of an improperly served writ; and that respondent was
correct in moving to quash the writ, as the proper remedy in case of an
improperly served writ of replevin is to file a motion to quash the same or a
39 | A G E N C Y C A S E S | C A B A N L I T
motion to vacate the order of seizure, and not to file a counterbond as the trial
court declared.
The CA thus decreed:
WHEREFORE, premises considered, the instant Petition for Certiorari  is hereby
GRANTED with the following effects:
1) [T]he Order dated 21 November 2011 rendered by the Regional
Trial Court of Quezon City, Bnmch 224 is REVERSED and SET ASIDE;
2) [T]he Order dated 13 March 2012 similarly rendered by the
Regional Trial Court of Quezon City, Branch 224 is REVERSED and SET
ASIDE;
3) Civil Case No. Q-11-69644 pending before the Regional Trial Court
of Quezon City, Branch 224 is hereby DISMISSED for want of
jurisdiction;
4) The subject Range Rover with plate number ZMG 272 should be
RETURNED to the Philippine National Police-Highway Patrol Group for
its proper disposition and finally;
5) Prayer for the Issuance of Temporary Restraining Order and/or
Preliminary Injunction is DENIED for being moot and academic.
SO ORDERED.18
Petitioner moved to reconsider, but in its assailed February 19, 2013
Resolution, the CA remained unconvinced. Hence, the present Petition.
In a November 10, 2014 Resolution, 19 this Court resolved to give due course to
the Petition.
Issues
Petitioner pleads the following assignment of errors:
I.
WHETHER XX X THE TRIAL COURT HAS ACQUIRED JURISDICTION OVER THE
SUBJECT MATTER OF THE COIV1PLAINT FOR RECOVERY OF POSSESSION WITH
PRAYER FOR REPLEVIN.
II.
WHETHER XXX THE PETITIONER FAILED TO ALLEGE ALL THE MATERIAL FACTS IN
THE COMPLAINT FOR REPLEVIN AND AFFIDAVIT OF MERIT UNDER SECTIONS 2
& 4, RULE 60 OF THE REVISED RULES OF COURT.
III.
WHETHER X X X TIIE SHERIFF PROPERLY IMPLEMENTED THE WRIT OF REPLEVIN
BY SERVING THE SAME TO ANY PERSON WHO IS IN POSSESSION OF THE
PROPERTY SUBJECT THEREOF.20
Petitioner's Arguments
Praying that the assailed CA dispositions be reversed and set aside and that,
instead, Civil Case No. Q-11-69644 be reinstated, petitioner argues that the trial
court acquired jurisdiction over the replevin case considering the payment of
docket fees based on a valuation of the subject vehicle arrived at in good faith
by petitioner, who in estimating the vehicle's value took into consideration
various factors such as depreciation, actual condition, year model, and other
circumstances; that the payment of an inadequate docket fee is not a ground
for dismissal of a case, and the trial court may simply allow the plaintiff to
complete the payment of the correct docket fees within a reasonable
time;21 and that his eventual submission to the trial court's valuation of ₱4
million and his willingness to pay the bond and corresponding docket fee
proves his good faith and sincerity.
On the issue relating to his supposed defective complaint on account of
insufficient allegations made therein, petitioner contends that there is nothing
40 | A G E N C Y C A S E S | C A B A N L I T
in the 1997 Rules which requires him to copy the requirements in Section 2 of
Rule 60 and incorporate them to the letter in his complaint, as the rule merely
requires an applicant in replevin to show the circumstances in his complaint or
affidavit of merit, which he claims he did.
Finally, petitioner insists that the writ of replevin was properly served upon
respondent. He did not address the issue relating to the sheriff's service of
summons, the Writ of replevin, and the responding order of the trial court on
the day following the seizure and detention of the subject vehicle, arguing
rather sweepingly that it is sufficient for the sheriff to have served respondent
with a copy of the writ of replevin, together with the complaint, affidavit, and
bond. He conceded that respondent was in constructive possession of the
vehicle, as he was the registered owner thereof.
In his Reply, 22 petitioner retorts that the Petition is grounded on questions of
law; that even though respondent was able to register the vehicle in his name,
he is nonetheless a buyer and possessor in bad faith, and thus, the transfer of
ownership over the subject vehicle in his favor is illegal; that a criminal case for
estafa relative to the vehicle is pending against Ong, Chua, and Centeno; that
Lopez's purported sale to Chua was anomalous; and that respondent should
have filed a counterbond.
Respondent's Arguments
In his Comment, 23 respondent essentially counters that the Petition should be
dismissed as it raises issues of fact; that a liberal application of the rule
requiring the payment of correct docket fees cannot apply to petitioner's case
since he intentionally defrauded the court in misdeclaring the value of the
subject vehicle; that while they need not be stated verbatim, the enumeration
of required allegations under Section 2 of Rule 60 must still be specifically
included in a complaint for replevin or in the accompanying affidavit of merit;
that petitioner failed to show that he is the owner of the vehicle or that he is
entitled to its possession, and that the vehicle is wrongfully detained by him,
and that it has not been distrained, seized or placed under custodia legis;  and
that he is a buyer in good faith and for value.
Our Ruling
The Petition must be denied.
"In a complaint for replevin, the claimant must convincingly show that he is
either the owner or clearly entitled to the possession of the object sought to be
recovered, and that the defendant, who is in actual or legal possession thereof,
wrongfully detains the same."24 "Rule 60 x x x allows a plaintiff, in an action for
the recovery of possession of personal property, to apply for a writ of replevin
if it can be shown that he is 'the owner of the property claimed ... or is entitled
to the possession thereof.’ The plaintiff need not be the owner so long as he is
able to specify his right to the possession of the property and his legal basis
therefor." 25
In Filinvest Credit Corporation  v. Court of Appeals,26 this Court likewise held
that-
x x x It is not only the owner who can institute a replevin suit. A person
"entitled to the possession" of the property also can, as provided in the same
paragraph cited by the trial court, which reads:
Sec. 2. Affidavit and bond. - Upon applying for such order the plaintiff must
show...
(a) That the plaintiff is the owner of the property claimed, particularly
describing it, or is entitled to the possession thereof; xxx
As correctly cited by respondent in his Comment: 27
x x x [A] party praying for the recovery of possession of personal property must
show by his own affidavit or that of some other person who personally knows
the facts that he is the owner of the property claimed, particularly describing it,
or is entitled to the possession thereof It must be borne in mind that replevin is
a possessory action the gist of which focuses on the right of possession that, in
turn, is dependent on a legal basis that, not infrequently, looks to the
ownership of the object sought to be replevied. Wrongful detention by the
defendant of the properties sought in an action for replevin must be
satisfactorily established. If only a mechanistic averment thereof is offered, the
writ should not be issued.28
41 | A G E N C Y C A S E S | C A B A N L I T
Petitioner admits and claims in his pleadings that on July 22, 2009, he
purchased the subject vehicle from Lopez, who executed and signed in blank a
deed of sale and sun-endered all documents of title to him; 29 that he did not
register the sale in his favor, such that the vehicle remained in the name
ofLopez;30 that in September, 2010, he delivered the subject vehicle, together
with all its documents of title and the blank deed of sale, to Ong, with the
express intention of selling the vehicle through the latter as broker/second
hand car dealer; that Ong appears to have issued in his favor two guarantee
checks amounting to P4.95 million; and that these checks
bounced.31 Thereafter, Ong was able to sell the vehicle using the deed of sale
executed and signed in blank by Lopez to Chua, who secured a certificate of
registration in his name.32 Chua then sold the vehicle, via a Deed of Sale of
Motor Vehicle dated December 7, 2010, to respondent, who caused
registration of the vehicle in his name on March 7, 2011. 33 Apparently, Ong did
not remit Chua's payment to petitioner, prompting the latter to file formal
complaints/charges for 1) estafa and carna1ming on May 18, 2011 before the
Office of the City Prosecutor of Quezon City, and 2) camapping on June 15,
2011 before the PNP-HPG in Camp Crame, Quezon City against Ong and
Centeno.34 It appears as well that prior to the filing of these fonnal complaints,
or sometime in November, 2010, petitioner appeared before the Quezon City
Anti-Carnapping Unit based in Camp Karingal, Quezon City and, claiming that
the subject vehicle was cainapped, filed a "Failed to Return Vehicle" report;
that on February 23, 2011, petitioner, respondent, Ong, and Chua appeared at
Can1p Karingal to shed light on the claimed camapping; that the parties were
requested to voluntarily surrender the subject vehicle, but the request proved
futile; and that petitioner was instead advised to file appropriate charges and
file a complaint with the PNP-HPG in order to include the subject vehicle in the
"hold order list".
This Court is not unaware of the practice by many vehicle buyers and second-
hand car traders of not transferring registration and ownership over vehicles
purchased from their original owners, and rather instructing the latter to
execute and sign in blank deeds of sale covering these vehicles, so that these
buyers and dealers may freely and readily trade or re-sell the vehicles in the
second-hand car market without difficulty. This way, multiple transfers, sales,
or trades of the vehicle using these undated deeds signed in blank become
possible, until the latest purchaser decides to actually transfer the certificate of
registration in his name. For many car owners-sellers, this is an easy
concession; so long as they actually receive the sale price, they will sign sale
deeds in blank and surrender them to the buyers or dealers; and for the latter,
this is convenient since they can "flip'' or re-sell the vehicles to the public many
times over with ease, using these blank deeds of sale.
In many cases as well, busy vehicle owners selling their vehicles actually leave
them, together with all the documents of title, spare keys, and deeds of sale
signed in blank, with second-hand car traders they know and trust, in order for
the latter to display these vehicles for actual viewing and inspection by
prospective buyers at their lots, warehouses, garages, or showrooms, and to
enable the traders to facilitate sales on-the-spot, as-is-where-is, without having
to inconvenience the owners with random viewings and inspections of their
vehicles. For this kind of arrangement, an agency relationship is created
between the vehicle owners, as principals, and the car traders, as agents. The
situation is akin to an owner of jewelry who sells the same through an agent,
who receives the jewelry in trust and offers it for sale to his/her regular clients;
if a sale is made, the agent takes payment under the obligation to remit the
same to the jewelry owner, minus the agreed commission or other
compensation.
From petitioner's own account, he constituted and appointed Ong as his agent
to sell the vehicle, surrendering to the latter the vehicle, all documents of title
pertaining thereto, and a deed of sale signed in blank, with full understanding
that Ong would offer and sell the same to his clients or to the public. In return,
Ong accepted the agency by his receipt of the vehicle, the blank deed of sale,
and documents of title, and when he gave bond in the form of two guarantee
checks worth ₱4.95 million. All these gave Ong the authority to act for and in
behalf of petitioner. Under the Civil Code on agency, 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.
Art. 1870. Acceptance by the agent may also be express or implied from his
acts which carry out the agency, or from his silence or inaction according to the
circumstances. (Emphasis and underscoring supplied)
42 | A G E N C Y C A S E S | C A B A N L I T
"The basis of agency is representation and the same may be constituted
expressly or impliedly. In an implied agency, the principal can be bound by the
acts of the implied agent. "35 The same is true with an oral agency.
Acting for and in petitioner's behalf by virtue of the implied or oral agency, Ong
was thus able to sell the vehicle to Chua, but he failed to remit the proceeds
thereof to petitioner; his guarantee checks bounced as well. This entitled
petitioner to sue for estafa through abuse of confidence. This is exactly what
petitioner did: on May 18, 2011, he filed a complaint for estafa and carnapping
against Ong before the Quezon City Prosecutor's Office.
Since Ong was able to sell the subject vehicle to Chua, petitioner thus ceased to
be the owner thereof. Nor is he entitled to the possession of the vehicle;
together with his ownership, petitioner lost his right of possession over the
vehicle. His argument that respondent is a buyer in bad faith, when the latter
nonetheless proceeded with the purchase and registration of the vehicle on
March 7, 2011, despite having been apprised of petitioner's earlier November,
2010 "Failed to Return Vehicle" report filed with the PNP-HPG, is
unavailing.1âwphi1 Petitioner had no right to file said report, as he was no
longer the owner of the vehicle at the time; indeed, his right of action is only
against Ong, for collection of the proceeds of the sale.
Considering that he was no longer the owner or rightful possessor of the
subject vehicle at the time he filed Civil Case No. Q-11-69644 in July, 2011,
petitioner may not seek a return of the same through replevin. Quite the
contrary, respondent, who obtained the vehicle from Chua and registered the
transfer with the Land Transportation Office, is the rightful owner thereof, and
as such, he is entitled to its possession. For this reason, the CA was correct in
decreeing the dismissal of Civil Case No. Q-11-69644, although it e1red in
ordering the return of the vehicle to the PNP-HPG, which had no further right
to hold the vehicle in its custody. As the registered and rightful owner of the
subject vehicle, the trial court must return the same to respondent.
Petitioner cannot be allowed to cut his losses by ostensibly securing the
recovery of the subject vehicle in lieu of its price, which Ong failed and
continues to fail to remit. On the other hand, Ong's declarations contained in
his Affidavit,36 to the effect that petitioner remains the owner of the vehicle,
and that Chua came into illegal possession and ownership of the same by
unlawfully appropriating the same for himself without paying for it, are
unavailing. Faced with a possible criminal charge for estafa initiated by
petitioner for failing or refusing to remit the price for the subject vehicle, Ong's
declarations are considered self-serving, that is, calculated to free himself from
the criminal charge. The premise is that by helping petitioner to actually
recover his vehicle by insisting that the same was unlawfully taken from him,
instead of remitting its price to petitioner, Ong expects that he and petitioner
may redeem themselves from their bad judgment; for the petitioner, the
mistake of bestowing his full faith and confidence upon Ong, and blindly
surrendering the vehicle, its documents of title, and a deed of sale executed
and signed in blank, to the latter; and for Ong, his failure to remit the proceeds
of the sale to petitioner; and petitioner might then opt to desist from pursuing
the estafa and other criminal charges against him.
Having disposed of the case in the foregoing manner, there is no need to
discuss the other issues raised by the parties.
WHEREFORE, the Petition is DENIED. The October 9, 2012 Decision and
February 19, 2013 Resolution of the Court of Appeals in CA-G.R. SP No. 124967
are AFFIRMED WITH MODIFICATION, in that the subject Land Rover Range
Rover, with Plate Number ZMG 272 and particularly described in and made
subject of these proceedings, is ORDERED RETURNED to respondent Alvin
Tomlin as its registered owner.
SO ORDERED.
SECOND DIVISION
G.R. No. 205206, March 16, 2016
43 | A G E N C Y C A S E S | C A B A N L I T

BANK OF THE PHILIPPINE ISLANDS AND FGU INSURANCE CORPORATION regarding Laingo's request. Due to Laingo's credit standing and relationship
(PRESENTLY KNOWN AS BPI/MS INSURANCE with BPI, BPI accommodated Laingo who was allowed to withdraw P995,000
CORPORATION), Petitioners, v. YOLANDA LAINGO, Respondent. from the account of Rheozel. A certain Ms. Laura Cabico, an employee of BPI,
went to Rheozel's wake at the Cosmopolitan Funeral Parlor to verify some
DECISION information from Alice and brought with her a number of documents for Laingo
to sign for the withdrawal of the P995,000.
CARPIO, J.:
More than two years later or on 21 January 2003, Rheozel's sister, Rhealyn
Laingo-Concepcion, while arranging Rheozel's personal things in his room at
The Case
their residence in Ecoland, Davao City, found the Personal Accident Insurance
Coverage Certificate No. 043549 issued by FGU Insurance. Rhealyn immediately
This is a petition for review on certiorari1 assailing the Decision dated 29 June
conveyed the information to Laingo.
20122 and Resolution dated 11 December 20123 of the Court of Appeals in CA-
G.R. CV No. 01575.
Laingo sent two letters dated 11 September 2003 and 7 November 2003 to BPI
and FGU Insurance requesting them to process her claim as beneficiary of
On 20 July 1999, Rheozel Laingo (Rheozel), the son of respondent Yolanda
Rheozel's insurance policy. On 19 February 2004, FGU Insurance sent a reply-
Laingo (Laingo), opened a "Platinum 2-in-1 Savings and Insurance" account with
letter to Laingo denying her claim. FGU Insurance stated that Laingo should
petitioner Bank of the Philippine Islands (BPI) in its Claveria, Davao City branch.
have filed the claim within three calendar months from the death of Rheozel as
The Platinum 2-in-1 Savings and Insurance account is a savings account where
required under Paragraph 15 of the Personal Accident Certificate of Insurance
depositors are automatically covered by an insurance policy against disability or
which states:
death issued by petitioner FGU Insurance Corporation (FGU Insurance), now
chanRoblesvirtualLawlibrary
known as BPI/MS Insurance Corporation. BPI issued Passbook No. 50298 to
15. Written notice of claim shall be given to and filed at FGU Insurance
Rheozel corresponding to Savings Account No. 2233-0251-11. A Personal
Corporation within three calendar months of death or disability.
Accident Insurance Coverage Certificate No. 043549 was also issued by FGU
On 20 February 2004, Laingo filed a Complaint 4 for Specific Performance with
Insurance in the name of Rheozel with Laingo as his named beneficiary.
Damages and Attorney's Fees with the Regional Trial Court of Davao City,
Branch 16 (trial court) against BPI and FGU Insurance.
On 25 September 2000, Rheozel died due to a vehicular accident as evidenced
by a Certificate of Death issued by the Office of the Civil Registrar General of
In a Decision5 dated 21 April 2008, the trial court decided the case in favor of
Tagum City, Davao del Norte. Since Rheozel came from a reputable and affluent
respondents. The trial court ruled that the prescriptive period of 90 days shall
family, the Daily Mirror headlined the story in its newspaper on 26 September
commence from the time of death of the insured and not from the knowledge
2000.
of the beneficiary. Since the insurance claim was filed more than 90 days from
the death of the insured, the case must be dismissed. The dispositive portion of
On 27 September 2000, Laingo instructed the family's personal secretary, Alice
the Decision states:
Torbanos (Alice) to go to BPI, Claveria, Davao City branch and inquire about the
chanRoblesvirtualLawlibrary
savings account of Rheozel. Laingo wanted to use the money in the savings
PREMISES CONSIDERED, judgment is hereby rendered dismissing both the
account for Rheozel's burial and funeral expenses.
complaint and the counterclaims.
Alice went to BPI and talked to Jaime Ibe Rodriguez, BPI's Branch Manager
SO ORDERED.6ChanRoblesVirtualawlibrary
44 | A G E N C Y C A S E S | C A B A N L I T
Laingo filed an appeal with the Court of Appeals.
The Ruling of the Court of Appeals
In a Decision dated 29 June 2012, the Court of Appeals reversed the ruling of
the trial court. The Court of Appeals ruled that Laingo could not be expected to
do an obligation which she did not know existed. The appellate court added
that Laingo was not a party to the insurance contract entered into between
Rheozel and petitioners. Thus, she could not be bound by the 90-day
stipulation. The dispositive portion of the Decision states:
chanRoblesvirtualLawlibrary
WHEREFORE, the Appeal is hereby GRANTED. The Decision dated April 21, 2008
of the Regional Trial Court, Branch 16, Davao City, is hereby REVERSED and SET
ASIDE.
Appellee Bank of the Philippine Islands and FGU Insurance Corporation are
DIRECTED to PAY jointly and severally appellant Yolanda Laingo Actual Damages
in the amount of P44,438.75 and Attorney's Fees in the amount of
P200,000.00.
Appellee FGU Insurance Corporation is also DIRECTED to PAY appellant the
insurance proceeds of the Personal Accident Insurance Coverage of Rheozel
Laingo with legal interest of six percent (6%) per annum reckoned from
February 20, 2004 until this Decision becomes final. Thereafter, an interest of
twelve percent (12%) per annum shall be imposed until fully paid.
SO ORDERED.7ChanRoblesVirtualawlibrary
Petitioners filed a Motion for Reconsideration which was denied by the
appellate court in a Resolution dated 11 December 2012.
Hence, the instant petition.
The Issue
The main issue for our resolution is whether or not Laingo, as named
beneficiary who had no knowledge of the existence of the insurance contract,
is bound by the three calendar month deadline for filing a written notice of
claim upon the death of the insured.
The Court's Ruling
The petition lacks merit.
Petitioners contend that the words or language used in the insurance contract,
particularly under paragraph 15, is clear and plain or readily understandable by
any reader which leaves no room for construction. Petitioners also maintain
that ignorance about the insurance policy does not exempt respondent from
abiding by the deadline and petitioners cannot be faulted for respondent's
failure to comply.
Respondent, on the other hand, insists that the insurance contract is
ambiguous since there is no provision indicating how the beneficiary is to be
informed of the three calendar month claim period. Since petitioners did not
notify her of the insurance coverage of her son where she was named as
beneficiary in case of his death, then her lack of knowledge made it impossible
for her to fulfill the condition set forth in the insurance contract.
In the present case, the source of controversy stems from the alleged non-
compliance with the written notice of insurance claim to FGU Insurance within
three calendar months from the death of the insured as specified in the
insurance contract. Laingo contends that as the named beneficiary entitled to
the benefits of the insurance claim she had no knowledge that Rheozel was
covered by an insurance policy against disability or death issued by FGU
Insurance that was attached to Rheozel's savings account with BPI. Laingo
argues that she dealt with BPI after her son's death, when she was allowed to
withdraw funds from his savings account in the amount of P995,000. However,
BPI did not notify her of the attached insurance policy. Thus, Laingo attributes
responsibility to BPI and FGU Insurance for her failure to file the notice of
insurance claim within three months from her son's death.
We agree.
BPI offered a deposit savings account with life and disability insurance coverage
to its customers called the Platinum 2-in-1 Savings and Insurance account. This
was a marketing strategy promoted by BPI in order to entice customers to
invest their money with the added benefit of an insurance policy. Rheozel was
one of those who availed of this account, which not only included banking
45 | A G E N C Y C A S E S | C A B A N L I T
convenience but also the promise of compensation for loss or injury, to secure
his family's future.
As the main proponent of the 2-in-1 deposit account, BPI tied up with its
affiliate, FGU Insurance, as its partner. Any customer interested to open a
deposit account under this 2-in-1 product, after submitting all the required
documents to BPI and obtaining BPI's approval, will automatically be given
insurance coverage. Thus, BPI acted as agent of FGU Insurance with respect to
the insurance feature of its own marketed product.
Under the law, an agent is one who binds himself to render some service or to
do something in representation of another. 8 In Doles v. Angeles,9 we held that
the basis of an agency is representation. The question of whether an agency
has been created is ordinarily a question which may be established in the same
way as any other fact, either by direct or circumstantial evidence. The question
is ultimately one of intention. Agency may even be implied from the words and
conduct of the parties and the circumstances of the particular case. For an
agency to arise, it is not necessary that the principal personally encounter the
third person with whom the agent interacts. The law in fact contemplates
impersonal dealings where the principal need not personally know or meet the
third person with whom the agent transacts: precisely, the purpose of agency is
to extend the personality of the principal through the facility of the agent.
In this case, since the Platinum 2-in-1 Savings and Insurance account was BPI's
commercial product, offering the insurance coverage for free for every deposit
account opened, Rheozel directly communicated with BPI, the agent of FGU
Insurance. BPI not only facilitated the processing of the deposit account and
the collection of necessary documents but also the necessary endorsement for
the prompt approval of the insurance coverage without any other action on
Rheozel's part. Rheozel did not interact with FGU Insurance directly and every
transaction was coursed through BPI.
In Eurotech Industrial Technologies, Inc. v. Cuizon,10 we held that when an
agency relationship is established, the agent acts for the principal insofar as the
world is concerned. Consequently, the acts of the agent on behalf of the
principal within the scope of the delegated authority have the same legal effect
and consequence as though the principal had been the one so acting in the
given situation.
BPI, as agent of FGU Insurance, had the primary responsibility to ensure that
the 2-in-1 account be reasonably carried out with full disclosure to the parties
concerned, particularly the beneficiaries. Thus, it was incumbent upon BPI to
give proper notice of the existence of the insurance coverage and the
stipulation in the insurance contract for filing a claim to Laingo, as Rheozel's
beneficiary, upon the latter's death.
Articles 1884 and 1887 of the Civil Code state:
chanRoblesvirtualLawlibrary
Art. 1884. The agent is bound by his acceptance to carry out the agency and is
liable for the damages which, through his non-performance, the principal may
suffer.
He must also finish the business already begun on the death of the principal,
should delay entail any danger.
Art. 1887. In the execution of the agency, the agent shall act in accordance with
the instructions of the principal.
In default, thereof, he shall do all that a good father of a family would do, as
required by the nature of the business.
The provision is clear that an agent is bound to carry out the agency. The
relationship existing between principal and agent is a fiduciary one, demanding
conditions of trust and confidence. It is the duty of the agent to act in good
faith for the advancement of the interests of the principal. In this case, BPI had
the obligation to carry out the agency by informing the beneficiary, who
appeared before BPI to withdraw funds of the insured who was BPI's depositor,
not only of the existence of the insurance contract but also the accompanying
terms and conditions of the insurance policy in order for the beneficiary to be
able to properly and timely claim the benefit.
Upon Rheozel's death, which was properly communicated to BPI by his mother
Laingo, BPI, in turn, should have fulfilled its duty, as agent of FGU Insurance, of
advising Laingo that there was an added benefit of insurance coverage in
Rheozel's savings account. An insurance company has the duty to communicate
with the beneficiary upon receipt of notice of the death of the insured. This
notification is how a good father of a family should have acted within the scope
46 | A G E N C Y C A S E S | C A B A N L I T

of its business dealings with its clients. BPI is expected not only to provide pay the insurance proceeds of Rheozel's personal accident insurance coverage
utmost customer satisfaction in terms of its own products and services but also to Laingo, as Rheozel's named beneficiary.chanrobleslaw
to give assurance that its business concerns with its partner entities are
implemented accordingly. WHEREFORE, we DENY the petition. We AFFIRM the Decision dated 29 June
2012 and Resolution dated 11 December 2012 of the Court of Appeals in CA-
There is a rationale in the contract of agency, which flows from the "doctrine of G.R. CV No. 01575.
representation," that notice to the agent is notice to the principal, 11 Here, BPI
had been informed of Rheozel's death by the latter's family. Since BPI is the SO ORDERED.cralawlawlibrary
agent of FGU Insurance, then such notice of death to BPI is considered as
notice to FGU Insurance as well. FGU Insurance cannot now justify the denial of
a beneficiary's insurance claim for being filed out of time when notice of death
had been communicated to its agent within a few days after the death of the
depositor-insured. In short, there was timely notice of Rheozel's death given to
FGU Insurance within three months from Rheozel's death as required by the
insurance company.

The records show that BPI had ample opportunity to inform Laingo, whether
verbally or in writing, regarding the existence of the insurance policy attached
to the deposit account. First, Rheozel's death was headlined in a daily major
newspaper a day after his death. Second, not only was Laingo, through her
representative, able to inquire about Rheozel's deposit account with BPI two
days after his death but she was also allowed by BPI's Claveria, Davao City
branch to withdraw from the funds in order to help defray Rheozel's funeral
and burial expenses. Lastly, an employee of BPI visited Rheozel's wake and
submitted documents for Laingo to sign in order to process the withdrawal
request. These circumstances show that despite being given many
opportunities to communicate with Laingo regarding the existence of the
insurance contract, BPI neglected to carry out its duty.

Since BPI, as agent of FGU Insurance, fell short in notifying Laingo of the
existence of the insurance policy, Laingo had no means to ascertain that she Republic of the Philippines
was entitled to the insurance claim. It would be unfair for Laingo to shoulder SUPREME COURT
the burden of loss when BPI was remiss in its duty to properly notify her that Manila
she was a beneficiary.
FIRST DIVISION
Thus, as correctly decided by the appellate court, BPI and FGU Insurance shall
bear the loss and must compensate Laingo for the actual damages suffered by
 
her family plus attorney's fees. Likewise, FGU Insurance has the obligation to
47 | A G E N C Y C A S E S | C A B A N L I T
G.R. No. 107898 December 19, 1995
MANUEL LIM and ROSITA LIM, petitioners,
vs.
COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents.
BELLOSILLO, J.:
MANUEL LIM and ROSITA LIM, spouses, were charged before the Regional Trial
Court of Malabon with estafa on three (3) counts under Art. 315, par. 2 (d),
of The Revised Penal Code, docketed as Crim. Cases Nos. 1696-MN to 1698-MN.
The Informations substantially alleged that Manuel and Rosita, conspiring
together, purchased goods from Linton Commercial Company, Inc. (LINTON),
and with deceit issued seven Consolidated Bank and Trust Company
(SOLIDBANK) checks simultaneously with the delivery as payment therefor.
When presented to the drawee bank for payment the checks were dishonored
as payment on the checks had been stopped and/or for insufficiency of funds
to cover the amounts. Despite repeated notice and demand the Lim spouses
failed and refused to pay the checks or the value of the goods.
On the basis of the same checks, Manuel and Rosita Lim were also charged with
seven (7) counts of violation of B.P. Blg. 22, otherwise known as the Bouncing
Checks Law, docketed as Crim. Cases Nos. 1699-MN to 1705-MN. In substance,
the Informations alleged that the Lims issued the checks with knowledge that
they did not have sufficient funds or credit with the drawee bank for payment
in full of such checks upon presentment. When presented for payment within
ninety (90) days from date thereof the checks were dishonored by the drawee
bank for insufficiency of funds. Despite receipt of notices of such dishonor the
Lims failed to pay the amounts of the checks or to make arrangements for full
payment within five (5) banking days.
Manuel Lim and Rosita Lim are the president and treasurer, respectively, of Rigi
Bilt Industries, Inc. (RIGI). RIGI had been transacting business with LINTON for
years, the latter supplying the former with steel plates, steel bars, flat bars and
purlin sticks which it uses in the fabrication, installation and building of steel
structures. As officers of RIGI the Lim spouses were allowed 30, 60 and
sometimes even up to 90 days credit.
On 27 May 1983 the Lims ordered 100 pieces of mild steel plates worth
P51,815.00 from LINTON which were delivered on the same day at their place
of business at 666 7th Avenue, 8th Street, Kalookan City. To pay LINTON for the
delivery the Lims issued SOLIDBANK Check No. 027700 postdated 3 September
1983 in the amount of P51,800.00.1
On 30 May 1983 the Lims ordered another 65 pieces of mild steel plates worth
P63,455.00 from LINTON which were delivered at their place of business on the
same day. They issued as payment SOLIDBANK Check No. 027699 in the
amount of P63,455.00 postdated 20 August 1983.2
The Lim spouses also ordered 2,600 "Z" purlins worth P241,800.00 which were
delivered to them on various dates, to wit: 15 and 22 April 1983; 11, 14, 20, 23,
25, 28 and 30 May 1983; and, 2 and 9 June 1983. To pay for the deliveries, they
issued seven SOLIDBANK checks, five of which were —
Check No. Date of Issue Amount
027683 16 July 1983 P27,900.003
027684 23 July 1983 P27,900.004
027719 6 Aug. 1983 P32,550.005
027720 13 Aug. 1983 P27,900.006
027721 27 Aug. 1983 P37,200.007
William Yu Bin, Vice President and Sales Manager of LINTON, testified that
when those seven (7) checks were deposited with the Rizal Commercial
Banking Corporation they were dishonored for "insufficiency of funds" with the
additional notation "payment stopped" stamped thereon. Despite demand
Manuel and Rosita refused to make good the checks or pay the value of the
deliveries.
Salvador Alfonso, signature verifier of SOLIDBANK, Grace Park Branch, Kalookan
City, where the Lim spouses maintained an account, testified on the following
transactions with respect to the seven (7) checks:
48 | A G E N C Y C A S E S | C A B A N L I T
CHECK NO. DATE PRESENTED REASON FOR DISHONOR
027683 22 July 1983 Payment Stopped (PS) 8
027684 23 July 1983 PS and Drawn Against
Insufficient Fund (DAIF)9
027699 24 Aug. 1983 PS and DAIF10
027700 5 Sept. 1983 PS and DAIF11
027719 9 Aug. 1983 DAIF 12
027720 16 Aug. 1983 PS and DAIF13
027721 30 Aug. 1983 PS and DAIF14
Manuel Lim admitted having issued the seven (7) checks in question to pay for
deliveries made by LINTON but denied that his company's account had
insufficient funds to cover the amounts of the checks. He presented the bank
ledger showing a balance of P65,752.75. Also, he claimed that he ordered
SOLIDBANK to stop payment because the supplies delivered by LINTON were
not in accordance with the specifications in the purchase orders.
Rosita Lim was not presented to testify because her statements would only be
corroborative.
On the basis of the evidence thus presented the trial court held both accused
guilty of estafa and violation of B.P. Blg. 22 in its decision dated 25 January
1989. In Crim. Case No. 1696-MN they were sentenced to an indeterminate
penalty of six (6) years and one (1) day of prision mayor as minimum to twelve
(12) years and one (1) day of reclusion temporal  as maximum plus one (1) year
for each additional P10,000.00 with all the accessory penalties provided for by
law, and to pay the costs. They were also ordered to indemnify LINTON in the
amount of P241,800.00. Similarly sentences were imposed in Crim. Cases Nos.
1697-MN and 1698-MN except as to the indemnities awarded, which were
P63,455.00 and P51,800.00, respectively.
In Crim. Case No. 1699-MN the trial court sentenced both accused to a straight
penalty of one (1) year imprisonment with all the accessory penalties provided
for by law and to pay the costs. In addition, they were ordered to indemnify
LINTON in the amount of P27,900.00. Again, similar sentences were imposed in
Crim. Cases Nos. 1700-MN to 1705-MN except for the indemnities awarded,
which were P32,550.00, P27,900.00, P27,900.00, P63,455.00, P51,800.00 and
P37,200.00 respectively.15
On appeal, the accused assailed the decision as they imputed error to the trial
court as follows: (a) the regional Trial Court of malabon had no jurisdiction over
the cases because the offenses charged ere committed outside its territory; (b)
they could not be held liable for estafa because the seven (7) checks were
issued by them several weeks after the deliveries of the goods; and, (c) neither
could they be held liable for violating B.P. Blg. 22 as they ordered payment of
the checks to be stopped because the goods delivered were not those specified
by them, besides they had sufficient funds to pay the checks.
In the decision of 18 September 199216 respondent Court of Appeals acquitted
accused-appellants of estafa on the ground that indeed the checks were not
made in payment of an obligation contracted at the time of their issuance.
However it affirmed the finding of the trial court that they were guilty of having
violated B.P. Blg. 22.17 On 6 November 1992 their motion for reconsideration
was denied.18
In the case at bench petitioners maintain that the prosecution failed to prove
that any of the essential elements of the crime punishable under B.P. Blg. 22
was committed within the jurisdiction of the Regional Trial Court of Malabon.
They claim that what was proved was that all the elements of the offense were
committed in Kalookan City. The checks were issued at their place of business,
received by a collector of LINTON, and dishonored by the drawee bank, all in
Kalookan City. Furthermore, no evidence whatsoever supports the proposition
that they knew that their checks were insufficiently funded. In fact, some of the
checks were funded at the time of presentment but dishonored nonetheless
upon their instruction to the bank to stop payment. In fine, considering that the
checks were all issued, delivered, and dishonored in Kalookan City, the trial
court of Malabon exceeded its jurisdiction when it tried the case and rendered
judgment thereon.
The petition has no merit. Section 1, par. 1, of B.P. Blg. 22 punishes "[a]ny
person who makes or draws and issues any check to apply on account or for
value, knowing at the time of issue that he does not have sufficient funds in or
credit with the drawee bank for the payment of such check in full upon its
49 | A G E N C Y C A S E S | C A B A N L I T
presentment, which check is subsequently dishonored by the drawee bank for
insufficiency of funds or credit or would have been dishonored for the same
reason had not the drawer, without any valid reason, ordered the bank to stop
payment . . ." The gravamen of the offense is knowingly issuing a worthless
check.19 Thus, a fundamental element is knowledge on the part of the drawer
of the insufficiency of his funds in20 or credit with the drawee bank for the
payment of such check in full upon presentment. Another essential element is
subsequent dishonor of the check by the drawee bank for insufficiency of funds
or credit or would have been dishonored for the same reason had not the
drawer, without any valid reason, ordered the bank to stop payment. 21
It is settled that venue in criminal cases is a vital ingredient of
jurisdiction.22 Section 14, par. (a), Rule 110, of the Revised Rules of Court, which
has been carried over in Sec. 15, par. (a), Rule 110 of the 1985 Rules on
Criminal Procedure, specifically provides:
Sec. 14. Place where action is to be instituted. — (a) In all
criminal prosecutions the action shall be instituted and tried
in the court of the municipality or province wherein the
offense was committed or anyone of the essential ingredients
thereof took place.
If all the acts material and essential to the crime and requisite of its
consummation occurred in one municipality or territory, the court therein has
the sole jurisdiction to try the case.23 There are certain crimes in which some
acts material and essential to the crimes and requisite to their consummation
occur in one municipality or territory and some in another, in which event, the
court of either has jurisdiction to try the cases, it being understood that the
first court taking cognizance of the case excludes the other. 24 These are the so-
called transitory or continuing crimes under which violation of B.P. Blg. 22 is
categorized. In other words, a person charged with a transitory crime may be
validly tried in any municipality or territory where the offense was in part
committed.25
In determining proper venue in these cases, the following acts material and
essential to each crime and requisite to its consummation must be considered:
(a) the seven (7) checks were issued to LINTON at its place of business in Balut,
Navotas; b) they were delivered to LINTON at the same place; (c) they were
dishonored in Kalookan City; and, (d) petitioners had knowledge of the
insufficiency of their funds in SOLIDBANK at the time the checks were issued.
Since there is no dispute that the checks were dishonored in Kalookan City, it is
no longer necessary to discuss where the checks were dishonored.
Under Sec. 191 of the Negotiable Instruments Law the term "issue" means the
first delivery of the instrument complete in form to a person who takes it as a
holder. On the other hand, the term "holder" refers to the payee or indorsee of
a bill or note who is in possession of it or the bearer thereof. In People
v. Yabut26 this Court explained —
. . . The place where the bills were written, signed, or dated
does not necessarily fix or determine the place where they
were executed. What is of decisive importance is the delivery
thereof. The delivery of the instrument is the final
act essential to its consummation as an obligation. An
undelivered bill or note is inoperative. Until delivery, the
contract is revocable. And the issuance as well as the delivery
of the check must be to a person who takes it as a holder,
which means "(t)he payee or indorsee of a bill or note, who is
in possession of it, or the bearer thereof." Delivery of the
check signifies transfer of possession, whether actual or
constructive, from one person to another with intent
to transfer title thereto . . .
Although LINTON sent a collector who received the checks from petitioners at
their place of business in Kalookan City, they were actually issued and delivered
to LINTON at its place of business in Balut, Navotas. The receipt of the checks
by the collector of LINTON is not the issuance and delivery to the payee in
contemplation of law. The collector was not the person who could take the
checks as a holder, i.e., as a payee or indorsee thereof, with the intent to
transfer title thereto. Neither could the collector be deemed an agent of
LINTON with respect to the checks because he was a mere employee. As this
Court further explained in People v. Yabut27 —
50 | A G E N C Y C A S E S | C A B A N L I T
Modesto Yambao's receipt of the bad checks from Cecilia Que
Yabut or Geminiano Yabut, Jr., in Caloocan City cannot,
contrary to the holding of the respondent Judges, be licitly
taken as delivery of the checks to the complainant Alicia P.
Andan at Caloocan City to fix the venue there. He did not take
delivery of the checks as holder, i.e., as "payee" or
"indorsee." And there appears to be no contract of agency
between Yambao and Andan so as to bind the latter for the
acts of the former. Alicia P. Andan declared in that sworn
testimony before the investigating fiscal that Yambao is but
her "messenger" or "part-time employee." There was
no special fiduciary  relationship that permeated their
dealings. For a contract of agency to exist, the consent of
both parties is essential. The principal consents that the other
party, the agent, shall act on his behalf, and the agent
consents so as to act. It must exist as a  fact. The law makes
no presumption thereof. The person alleging it has the
burden of proof to show, not only the fact of its existence,
but also its nature and extent . . .
Section 2 of B.P. Blg. 22 establishes a prima facie  evidence of knowledge of
insufficient funds as follows —
The making, drawing and issuance of a check payment of
which is refused by the bank because of insufficient funds in
or credit with such bank, when presented within ninety (90)
days from the date of the check, shall be prima
facie  evidence of knowledge of such insufficiency of funds or
credit unless such maker or drawer pays the holder thereof
the amount due thereon, or makes arrangement for payment
in full by the drawee of such check within five (5) banking
days after receiving notice that such check has not been paid
by the drawee.
The  prima facie evidence has not been overcome by petitioners in the cases
before us because they did not pay LINTON the amounts due on the checks;
neither did they make arrangements for payment in full by the drawee bank
within five (5) banking days after receiving notices that the checks had not been
paid by the drawee bank. In People v. Grospe28 citing People v. Manzanilla29 we
held that ". . . knowledge on the part of the maker or drawer of the check of
the insufficiency of his funds is by itself a continuing eventuality, whether the
accused be within one territory or another."
Consequently, venue or jurisdiction lies either in the Regional Trial Court of
Kalookan City or Malabon. Moreover, we ruled in the
same Grospe and Manzanilla cases as reiterated in Lim v. Rodrigo30 that venue
or jurisdiction is determined by the allegations in the Information. The
Informations in the cases under consideration allege that the offenses were
committed in the Municipality of Navotas which is controlling and sufficient to
vest jurisdiction upon the Regional Trial Court of Malabon. 31
We therefore sustain likewise the conviction of petitioners by the Regional Trial
Court of Malabon for violation of B.P. Blg. 22 thus —
Accused-appellants claim that they ordered payment of the
checks to be stopped because the goods delivered were not
those specified by them. They maintain that they had
sufficient funds to cover the amount of the checks. The
records of the bank, however, reveal otherwise. The two
letters (Exhs. 21 and 22) dated July 23, and August 10, 1983
which they claim they sent to Linton Commercial,
complaining against the quality of the goods delivered by the
latter, did not refer to the delivery of mild steel plates (6mm x
4 x 8) and "Z" purlins (16 x 7 x 2-1/2 mts) for which the checks
in question were issued. Rather, the letters referred to B.1.
Lally columns (Sch. #20), which were the subject of other
purchase orders.
It is true, as accused-appellants point out, that in a case
brought by them against the complainant in the Regional Trial
Court of Kalookan City (Civil Case No. C-10921) the
complainant was held liable for actual damages because of
the delivery of goods of inferior quality (Exh. 23). But the
supplies involved in that case were those of B.I. pipes, while
51 | A G E N C Y C A S E S | C A B A N L I T
the purchases made by accused-appellants, for which they
issued the checks in question, were purchases of mild steel
plates and "Z" purlins.
Indeed, the only question here is whether accused-appellants
maintained funds sufficient to cover the amounts of their
checks at the time of issuance and presentment of such
checks. Section 3 of B.P. Blg. 22 provides that
"notwithstanding receipt of an order to stop payment, the
drawee bank shall state in the notice of dishonor that there
were no sufficient funds in or credit with such bank for the
payment in full of the check, if such be the fact."
The purpose of this provision is precisely to preclude the
maker or drawer of a worthless check from ordering the
payment of the check to be stopped as a pretext for the lack
of sufficient funds to cover the check.
In the case at bar, the notice of dishonor issued by the
drawee bank, indicates not only that payment of the check
was stopped but also that the reason for such order was that
the maker or drawer did not have sufficient funds with which
to cover the checks. . . . Moreover, the bank ledger of
accused-appellants' account in Consolidated Bank shows that
at the time the checks were presented for encashment, the
balance of accused-appellants' account was inadequate to
cover the amounts of the checks.32 . . .
WHEREFORE, the decision of the Court of Appeals dated 18 September 1992
affirming the conviction of petitioners Manuel Lim and Rosita Lim —
In CA-G.R. CR No. 07277 (RTC Crim. Case No. 1699-MN); CA-
G.R. CR No. 07278 (RTC Crim. Case No. 1700-MN); CA-G.R. CR
No. 07279 (RTC Crim. Case No. 1701-MN); CA-G.R. CR No.
07280 (RTC Crim. Case No. 1702-MN); CA-G.R. CR No. 07281
(RTC Crim. Case No. 1703-MN); CA-G.R. CA No. 07282 (RTC
Crim. Case No. 1704-MN); and CA-G.R. CR No. 07283 (RTC
Crim Case No. 1705-MN), the Court finds the accused-
appellants
MANUEL LIM and ROSITA LIM guilty beyond reasonable
doubt of violation of Batas Pambansa Bilang 22 and are
hereby sentenced to suffer a STRAIGHT PENALTY OF ONE (1)
YEAR IMPRISONMENT in each case, together with all the
accessory penalties provided by law, and to pay the costs.
In CA-G.R. CR No. 07277 (RTC Crim. Case No. 1699-MN), both
accused-appellants are hereby ordered to indemnify the
offended party in the sum of P27,900.00.
In CA-G.R. CR No. 07278 (RTC Crim. Case No. 1700-MN) both
accused-appellants are hereby ordered to indemnify the
offended party in the sum of P32,550.00.
In CA-G.R. CR No. 07278 (RTC Crim. Case No. 1701-MN) both
accused-appellants are hereby ordered to indemnify the
offended party in the sum of P27,900.00.
In CA-G.R. CR No. 07280 (RTC Crim. Case No. 1702-MN) both
accused-appellants are hereby ordered to indemnify the
offended party in the sum of P27,900.00.
In CA-G.R. CR No. 07281 (RTC Crim. Case No. 1703-MN) both
accused are hereby ordered to indemnify the offended party
in the sum of P63,455.00.
In CA-G.R CR No. 07282 (RTC Crim. Case No. 1704-MN) both
accused-appellants are hereby ordered to indemnify the
offended party in the sum of P51,800.00, and
In CA-G.R. CR No. 07283 (RTC Crim. Case No. 1705-MN) both
accused-appellants are hereby ordered to indemnify the
offended party in the sum of P37,200.00 33 —
52 | A G E N C Y C A S E S | C A B A N L I T

as well as its resolution of 6 November 1992 denying reconsideration

thereof, is AFFIRMED. Costs against petitioners.

SO ORDERED.

SECOND DIVISION

[G.R. NO. 158585 December 13, 2005]

53 | A G E N C Y C A S E S | C A B A N L I T
Amon Trading Corporation and Juliana Marketing, Petitioners, v. HON. COURT
OF APPEALS and TRI-REALTY DEVELOPMENT AND CONSTRUCTION
CORPORATION, Respondents.
DECISION
CHICO-NAZARIO, J.:
This is an appeal by certiorari from the Decision1 dated 28 November 2002 of
the Court of Appeals in CA-G.R. CV No. 60031, reversing the Decision of the
Regional Trial Court of Quezon City, Branch 104, and holding petitioners Amon
Trading Corporation and Juliana Marketing to be solidarily liable with Lines &
Spaces Interiors Center (Lines & Spaces) in refunding private respondent Tri-
Realty Development and Construction Corporation (Tri-Realty) the amount
corresponding to the value of undelivered bags of cement.
The undisputed facts:
Private respondent Tri-Realty is a developer and contractor with projects in
Bulacan and Quezon City. Sometime in February 1992, private respondent had
difficulty in purchasing cement needed for its projects. Lines & Spaces,
represented by Eleanor Bahia Sanchez, informed private respondent that it
could obtain cement to its satisfaction from petitioners, Amon Trading
Corporation and its sister company, Juliana Marketing. On the strength of such
representation, private respondent proceeded to order from Sanchez Six
Thousand Fifty (6,050) bags of cement from petitioner Amon Trading
Corporation, and from Juliana Marketing, Six Thousand (6,000) bags
at P98.00/bag.
Private respondent, through Mrs. Sanchez of Lines & Spaces, paid in
advance the amount of P592,900.00 through Solidbank Manager's Check No.
0011565 payable to Amon Trading Corporation, and the amount
of P588,000.00 payable to Juliana Marketing, through Solidbank Manager's
Check No. 0011566. A certain "Weng Chua" signed the check vouchers for Lines
& Spaces while Mrs. Sanchez issued receipts for the two manager's checks.
Private respondent likewise paid to Lines & Spaces an advance fee for the
12,050 cement bags at the rate of P7.00/bag, or a total of P84,350.00, in
consideration of the facilitation of the orders and certainty of delivery of the
same to the private respondent. Solidbank Manager's Check Nos. 0011565 and
0011566 were paid by Sanchez to petitioners.
There were deliveries to private respondent from Amon Trading Corporation
and Juliana Marketing of 3,850 bags and 3,000 bags, respectively, during the
period from April to June 1992. However, the balance of 2,200 bags from Amon
Trading Corporation and 3,000 bags from Juliana Marketing, or a total of 5,200
bags, was not delivered. Private respondent, thus, sent petitioners written
demands but in reply, petitioners stated that they have already refunded the
amount of undelivered bags of cement to Lines and Spaces per written
instructions of Eleanor Sanchez.
Left high and dry, with news reaching it that Eleanor Sanchez had already fled
abroad, private respondent filed this case for sum of money against petitioners
and Lines & Spaces.
Petitioners plead in defense lack of right or cause of action, alleging that private
respondent had no privity of contract with them as it was Lines & Spaces/Tri-
Realty, through Mrs. Sanchez, that ordered or purchased several bags of
cement and paid the price thereof without informing them of any special
arrangement nor disclosing to them that Lines & Spaces and respondent
corporation are distinct and separate entities. They added that there were
purchases or orders made by Lines & Spaces/Tri-Realty which they were about
to deliver, but were cancelled by Mrs. Sanchez and the consideration of the
cancelled purchases or orders was later reimbursed to Lines & Spaces. The
refund was in the form of a check payable to Lines & Spaces.
Lines & Spaces denied in its Answer that it is represented by Eleanor B. Sanchez
and pleads in defense lack of cause of action and in the alternative, it raised the
defense that it was only an intermediary between the private respondent and
petitioners.2 Soon after, though, counsel for Lines & Spaces moved to withdraw
from the case for the reason that its client was beyond contact.
On 29 January 1998, the Regional Trial Court of Quezon City, Branch 104, found
Lines & Spaces solely liable to private respondent and absolved petitioners of
any liability. The dispositive portion of the trial court's Decision reads:
54 | A G E N C Y C A S E S | C A B A N L I T
Wherefore, judgment is hereby rendered ordering defendant Lines and Spaces
Interiors Center as follows: to pay plaintiff on the complaint the amount of
P47,950.00 as refund of the fee for the undelivered 5,200 bags of cement at
the rate of P7.00 per bag; the amount of P509,600.00 for the refund of the
price of the 5,200 undelivered bags of cement at P98.00 per bag; the amount of
P2,000,000.00 for compensatory damages; as well as the amount of
P639,387.50 as attorney's fees; and to pay Amon Trading and Juliana
Marketing, Inc. on the crossclaim the sum of P200,000.00 as attorney's fees. 3
Private Respondent Tri-Realty partially appealed from the trial court's decision
absolving Amon Trading Corporation and Juliana Marketing of any liability to
Tri-Realty. In the presently assailed Decision, the Court of Appeals reversed the
decision of the trial court and held petitioners Amon Trading Corporation and
Juliana Marketing to be jointly and severally liable with Lines & Spaces for the
undelivered bags of cement. The Court of Appeals disposed -
WHEREFORE, premises considered, the decision of the court a quo is hereby
REVERSED AND SET ASIDE, and another one is entered ordering the following:
Defendant-appellee Amon Trading Corporation is held liable jointly and
severally with defendant-appellee Lines and Spaces Interiors Center in the
amount of P215,600.00 for the refund of the price of 2,200 undelivered bags of
cement.
Defendant-appellee Juliana Marketing is held liable jointly and severally with
defendant-appellee Lines and Spaces Interiors Center in the amount of
P294,000.00 for the refund of the price of 3,000 undelivered bags of cement.
The defendant-appellee Lines and Spaces Interiors Center is held solely in the
amount of P47,950.00 as refund of the fee for the 5,200 undelivered bags of
cement to the plaintiff-appellant Tri-Realty Development and Construction
Corporation.
The awards of compensatory damages and attorney's fees are DELETED.
The cross claim of defendants-appellees Amon Trading Corporation and Juliana
Marketing is DISMISSED for lack of merit.
No pronouncement as to costs.4
Pained by the ruling, petitioners elevated the case to this Court via the present
Petition for Review to challenge the Decision and Resolution of the Court of
Appeals on the following issues:
I. WHETHER OR NOT THERE WAS A CONTRACT OF AGENCY BETWEEN LINES
AND SPACES INTERIOR CENTER AND RESPONDENT;
II. WHETHER OR NOT PETITIONERS AND RESPONDENT HAS PRIVITY OF
CONTRACT.5
At the focus of scrutiny is the issue of whether or not the Court of Appeals
committed reversible error in ruling that petitioners are solidarily liable with
Lines & Spaces. The key to unlocking this issue is to determine whether or not
Lines & Spaces is the private respondent's agent and whether or not there is
privity of contract between petitioners and private respondent.
We shall consider these issues concurrently as they are interrelated.
Petitioners, in their brief, zealously make a case that there was no contract of
agency between Lines & Spaces and private respondent. 6 Petitioners strongly
assert that they did not have a hint that Lines & Spaces and Tri-Realty are two
different and distinct entities inasmuch as Eleanor Sanchez whom they have
dealt with just represented herself to be from Lines & Spaces/Tri-Realty when
she placed her order for the delivery of the bags of cement. Hence, no privity of
contract can be said to exist between petitioners and private respondent. 7
Private respondent, on the other hand, goes over the top in arguing that
contrary to their claim of innocence, petitioners had knowledge that Lines &
Spaces, as represented by Eleanor Sanchez, was a separate and distinct entity
from tri-realty.8 Then, too, private respondent stirs up support for its
contention that contrary to petitioners' claim, there was privity of contract
between private respondent and petitioners.9
Primarily, there was no written contract entered into between petitioners and
private respondent for the delivery of the bags of cement. As gleaned from the
55 | A G E N C Y C A S E S | C A B A N L I T
records, and as private respondent itself admitted in its Complaint, private
respondent agreed with Eleanor Sanchez of Lines & Spaces for the latter to
source the cement needs of the former in consideration of P7.00 per bag of
cement. It is worthy to note that the payment in manager's checks was made
to Eleanor Sanchez of Lines & Spaces and was not directly paid to petitioners.
While the manager's check issued by respondent company was eventually paid
to petitioners for the delivery of the bags of cement, there is obviously nothing
from the face of said manager's check to hint that private respondent was the
one making the payments. There was likewise no intimation from Sanchez that
the purchase order placed by her was for private respondent's benefit. The
meeting of minds, therefore, was between private respondent and Eleanor
Sanchez of Lines & Spaces. This contract is distinct and separate from the
contract of sale between petitioners and Eleanor Sanchez who represented
herself to be from Lines & Spaces/Tri-Realty, which, per her representation,
was a single account or entity.
The records bear out, too, Annex "A" showing a check voucher payable to
Amon Trading Corporation for the 6,050 bags of cement received by a certain
"Weng Chua"  for Mrs. Eleanor Sanchez of Lines & Spaces, and Annex "B" which
is a check voucher bearing the name of Juliana Marketing as payee, but was
received again by said "Weng Chua." Nowhere from the face of the check
vouchers is it shown that petitioners or any of their authorized representatives
received the payments from respondent company.
Also on record are the receipts issued by Lines & Spaces, signed by Eleanor
Bahia Sanchez, covering the said manager's checks. As Engr. Guido Ganhinhin
of respondent Tri-Realty testified, it was Lines & Spaces, not petitioners, which
issued to them a receipt for the two (2) manager's checks. Thus -
Q: And what is your proof that Amon and Juliana were paid of the purchases
through manager's checks?chanroblesvirtualawlibrary
A: Lines & Spaces who represented Amon Trading and Juliana Marketing issued
us receipts for the two (2) manager's checks we paid to Amon Trading and
Juliana Marketing Corporation.
Q: I am showing to you check no. 074 issued by Lines & Spaces Interiors Center,
what relation has this check to that check you mentioned earlier?
chanroblesvirtualawlibrary
A: Official Receipt No. 074 issued by Lines & Spaces Interiors Center was for the
P592,900.00 we paid to Amon Trading Corporation for 6,050 bags of cement.
Q: Now there appears a signature in that receipt above the printed words
authorized signature, whose signature is that?
A: The signature of Mrs. Eleanor Bahia Sanchez, the representative of Lines and
Spaces.
Q: Why do you know that that is her signature?chanroblesvirtualawlibrary
A: She is quite familiar with me and I saw her affix her signature upon issuance
of the receipt.10 (Emphasis supplied.)
Without doubt, no vinculum could be said to exist between petitioners and
private respondent.
There is likewise nothing meaty about the assertion of private respondent that
inasmuch as the delivery receipts as well as the purchase order were for the
account of Lines & Spaces/Tri-Realty, then petitioners should have been placed
on guard that it was private respondent which is the principal of Sanchez.
In China Banking Corp. v. Members of the Board of Trustees, Home
Development Mutual Fund11 and the later case of Romulo, Mabanta,
Buenaventura, Sayoc and De los Angeles v. Home Development Mutual
Fund,12 the term "and/or" was held to mean that effect shall be given to both
the conjunctive "and" and the disjunctive "or"; or that one word or the other
may be taken accordingly as one or the other will best effectuate the intended
purpose. It was accordingly ordinarily held that in using the term "and/or" the
word "and" and the word "or" are to be used interchangeably.
By analogy, the words "Lines & Spaces/Tri-Realty" mean that effect shall be
given to both Lines & Spaces and Tri-Realty or that Lines & Spaces and Tri-
Realty may be used interchangeably. Hence, petitioners were not remiss when
56 | A G E N C Y C A S E S | C A B A N L I T
they believed Eleanor Sanchez's representation that "Lines & Spaces/Tri-
Realty" refers to just one entity. There was, therefore, no error attributable to
petitioners when they refunded the value of the undelivered bags of cement to
Lines & Spaces only.
There is likewise a dearth of evidence to show that the case at bar is an open-
and-shut case of agency between private respondent and Lines & Spaces.
Neither Eleanor Sanchez nor Lines & Spaces was an agent for private
respondent, but rather a supplier for the latter's cement needs. The Civil Code
defines a contract of agency as follows:
Art. 1868. By the contract of agency a person binds himself to render some
service or to do something in representation or on behalf of another, with the
consent or authority of the latter.
In a bevy of cases such as the avuncular case of Victorias Milling Co., Inc. v.
Court of Appeals,13 the Court decreed from Article 1868 that the basis of agency
is representation.
. . . On the part of the principal, there must be an actual intention to appoint or
an intention naturally inferable from his words or actions and on the part of the
agent, there must be an intention to accept the appointment and act on it, and
in the absence of such intent, there is generally no agency. One factor which
most clearly distinguishes agency from other legal concepts is control; one
person - the agent - agrees to act under the control or direction of another -
the principal. Indeed, the very word "agency" has come to connote control by
the principal. The control factor, more than any other, has caused the courts to
put contracts between principal and agent in a separate category.
Here, the intention of private respondent, as the Executive Officer of
respondent corporation testified on, was merely for Lines & Spaces, through
Eleanor Sanchez, to supply them with the needed bags of cement.
Q: Do you know the defendant Lines & Spaces in this case?
chanroblesvirtualawlibrary
A: Yes, sir.
Q: How come you know this defendant?chanroblesvirtualawlibrary
A: Lines & Spaces represented by Eleanor Bahia Sanchez offered to supply us
cement when there was scarcity of cement experienced in our
projects.14 (Emphasis supplied)Ï‚rαlαωlιbrαrÿ
We cannot go along the Court of Appeals' disquisition that Amon Trading
Corporation and Juliana Marketing should have required a special power of
attorney form when they refunded Eleanor B. Sanchez the cost of the
undelivered bags of cement. All the quibbling about whether Lines & Spaces
acted as agent of private respondent is inane because as illustrated earlier,
petitioners took orders from Eleanor Sanchez who, after all, was the one who
paid them the manager's checks for the purchase of cement. Sanchez
represented herself to be from Lines & Spaces/Tri-Realty, purportedly a single
entity. Inasmuch as they have never directly dealt with private respondent and
there is no paper trail on record to guide them that the private respondent, in
fact, is the beneficiary, petitioners had no reason to doubt the request of
Eleanor Sanchez later on to refund the value of the undelivered bags of cement
to Lines & Spaces. Moreover, the check refund was payable to Lines & Spaces,
not to Sanchez, so there was indeed no cause to suspect the scheme.
The fact that the deliveries were made at the construction sites of private
respondent does not by itself raise suspicion that petitioners were delivering
for private respondent. There was no sufficient showing that petitioners knew
that the delivery sites were that of private respondent and for another thing,
the deliveries were made by petitioners' men who have no business nosing
around their client's affairs.
Parenthetically, Eleanor Sanchez has absconded to the United States of
America and the story of what happened to the check refund may be forever
locked with her. Lines & Spaces, in its Answer to the Complaint, washed its
hands of the apparent ruse perpetuated by Sanchez, but argues that if at all, it
was merely an intermediary between petitioners and private respondent. With
no other way out, Lines & Spaces was a no-show at the trial proceedings so
that eventually, its counsel had to withdraw his appearance because of his
client's vanishing act. Left with an empty bag, so to speak, private respondent
now puts the blame on petitioners. But this Court finds plausible the stance of
57 | A G E N C Y C A S E S | C A B A N L I T

petitioners that they had no inkling of the deception that was forthcoming.
Indeed, without any contract or any hard evidence to show any privity of
contract between it and petitioners, private respondent's claim against
petitioners lacks legal foothold.

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

WHEREFORE, the present petition is hereby GRANTED. Accordingly, the

Decision and the Resolution dated 28 November 2002 and 10 June 2003, of the
Court of Appeals in CA-G.R CV No. 60031, are hereby REVERSED and SET ASIDE.
The Decision dated 29 January 1998 of the Regional Trial Court of Quezon City, FIRST DIVISION
Branch 104, in Civil Case Q-92-14235 is hereby REINSTATED. No costs.
G.R. No. 149353             June 26, 2006
SO ORDERED.
58 | A G E N C Y C A S E S | C A B A N L I T
JOCELYN B. DOLES, Petitioner,
vs.
MA. AURA TINA ANGELES, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
This refers to the Petition for Review on Certiorari under Rule 45 of the Rules of
Court questioning the Decision1 dated April 30, 2001 of the Court of Appeals
(CA) in C.A.-G.R. CV No. 66985, which reversed the Decision dated July 29, 1998
of the Regional Trial Court (RTC), Branch 21, City of Manila; and the CA
Resolution2 dated August 6, 2001 which denied petitioner’s Motion for
Reconsideration.
The antecedents of the case follow:
On April 1, 1997, Ma. Aura Tina Angeles (respondent) filed with the RTC a
complaint for Specific Performance with Damages against Jocelyn B. Doles
(petitioner), docketed as Civil Case No. 97-82716. Respondent alleged that
petitioner was indebted to the former in the concept of a personal loan
amounting to P405,430.00 representing the principal amount and interest; that
on October 5, 1996, by virtue of a "Deed of Absolute Sale", 3 petitioner, as
seller, ceded to respondent, as buyer, a parcel of land, as well as the
improvements thereon, with an area of 42 square meters, covered by Transfer
Certificate of Title No. 382532,4 and located at a subdivision project known as
Camella Townhomes Sorrente in Bacoor, Cavite, in order to satisfy her personal
loan with respondent; that this property was mortgaged to National Home
Mortgage Finance Corporation (NHMFC) to secure petitioner’s loan in the sum
of P337,050.00 with that entity; that as a condition for the foregoing sale,
respondent shall assume the undue balance of the mortgage and pay the
monthly amortization of P4,748.11 for the remainder of the 25 years which
began on September 3, 1994; that the property was at that time being
occupied by a tenant paying a monthly rent of P3,000.00; that upon verification
with the NHMFC, respondent learned that petitioner had incurred arrearages
amounting to P26,744.09, inclusive of penalties and interest; that upon
informing the petitioner of her arrears, petitioner denied that she incurred
them and refused to pay the same; that despite repeated demand, petitioner
refused to cooperate with respondent to execute the necessary documents and
other formalities required by the NHMFC to effect the transfer of the title over
the property; that petitioner collected rent over the property for the month of
January 1997 and refused to remit the proceeds to respondent; and that
respondent suffered damages as a result and was forced to litigate.
Petitioner, then defendant, while admitting some allegations in the Complaint,
denied that she borrowed money from respondent, and averred that from June
to September 1995, she referred her friends to respondent whom she knew to
be engaged in the business of lending money in exchange for personal checks
through her capitalist Arsenio Pua. She alleged that her friends, namely,
Zenaida Romulo, Theresa Moratin, Julia Inocencio, Virginia Jacob, and Elizabeth
Tomelden, borrowed money from respondent and issued personal checks in
payment of the loan; that the checks bounced for insufficiency of funds; that
despite her efforts to assist respondent to collect from the borrowers, she
could no longer locate them; that, because of this, respondent became furious
and threatened petitioner that if the accounts were not settled, a criminal case
will be filed against her; that she was forced to issue eight checks amounting
to P350,000 to answer for the bounced checks of the borrowers she referred;
that prior to the issuance of the checks she informed respondent that they
were not sufficiently funded but the latter nonetheless deposited the checks
and for which reason they were subsequently dishonored; that respondent
then threatened to initiate a criminal case against her for violation of Batas
Pambansa Blg. 22; that she was forced by respondent to execute an "Absolute
Deed of Sale" over her property in Bacoor, Cavite, to avoid criminal
prosecution; that the said deed had no valid consideration; that she did not
appear before a notary public; that the Community Tax Certificate number on
the deed was not hers and for which respondent may be prosecuted for
falsification and perjury; and that she suffered damages and lost rental as a
result.
The RTC identified the issues as follows: first, whether the Deed of Absolute
Sale is valid; second; if valid, whether petitioner is obliged to sign and execute
the necessary documents to effect the transfer of her rights over the property
to the respondent; and third, whether petitioner is liable for damages.
59 | A G E N C Y C A S E S | C A B A N L I T
On July 29, 1998, the RTC rendered a decision the dispositive portion of which
states:
WHEREFORE, premises considered, the Court hereby orders the dismissal of
the complaint for insufficiency of evidence. With costs against plaintiff.
SO ORDERED.
5
The RTC held that the sale was void for lack of cause or consideration:
Plaintiff Angeles’ admission that the borrowers are the friends of defendant
Doles and further admission that the checks issued by these borrowers in
payment of the loan obligation negates [sic] the cause or consideration of the
contract of sale executed by and between plaintiff and defendant. Moreover,
the property is not solely owned by defendant as appearing in Entry No. 9055
of Transfer Certificate of Title No. 382532 (Annex A, Complaint), thus:
"Entry No. 9055. Special Power of Attorney in favor of Jocelyn Doles covering
the share of Teodorico Doles on the parcel of land described in this certificate
of title by virtue of the special power of attorney to mortgage, executed before
the notary public, etc."
The rule under the Civil Code is that contracts without a cause or consideration
produce no effect whatsoever. (Art. 1352, Civil Code).
Respondent appealed to the CA. In her appeal brief, respondent interposed her
sole assignment of error:
THE TRIAL COURT ERRED IN DISMISSING THE CASE AT BAR ON THE GROUND OF
[sic] THE DEED OF SALE BETWEEN THE PARTIES HAS NO CONSIDERATION OR
INSUFFICIENCY OF EVIDENCE.6
On April 30, 2001, the CA promulgated its Decision, the dispositive portion of
which reads:
WHEREFORE, IN VIEW OF THE FOREGOING, this appeal is hereby GRANTED. The
Decision of the lower court dated July 29, 1998 is REVERSED and SET ASIDE. A
new one is entered ordering defendant-appellee to execute all necessary
documents to effect transfer of subject property to plaintiff-appellant with the
arrearages of the former’s loan with the NHMFC, at the latter’s expense. No
costs.
SO ORDERED.
The CA concluded that petitioner was the borrower and, in turn, would "re-
lend" the amount borrowed from the respondent to her friends. Hence, the
Deed of Absolute Sale was supported by a valid consideration, which is the sum
of money petitioner owed respondent amounting to P405,430.00, representing
both principal and interest.
The CA took into account the following circumstances in their entirety: the
supposed friends of petitioner never presented themselves to respondent and
that all transactions were made by and between petitioner and
respondent;7 that the money borrowed was deposited with the bank account
of the petitioner, while payments made for the loan were deposited by the
latter to respondent’s bank account;8 that petitioner herself admitted in open
court that she was "re-lending" the money loaned from respondent to other
individuals for profit;9 and that the documentary evidence shows that the
actual borrowers, the friends of petitioner, consider her as their creditor and
not the respondent.10
Furthermore, the CA held that the alleged threat or intimidation by respondent
did not vitiate consent, since the same is considered just or legal if made to
enforce one’s claim through competent authority under Article 1335 11 of the
Civil Code;12 that with respect to the arrearages of petitioner on her monthly
amortization with the NHMFC in the sum of P26,744.09, the same shall be
deemed part of the balance of petitioner’s loan with the NHMFC which
respondent agreed to assume; and that the amount of P3,000.00 representing
the rental for January 1997 supposedly collected by petitioner, as well as the
claim for damages and attorney’s fees, is denied for insufficiency of evidence. 13
60 | A G E N C Y C A S E S | C A B A N L I T
On May 29, 2001, petitioner filed her Motion for Reconsideration with the CA,
arguing that respondent categorically admitted in open court that she acted
only as agent or representative of Arsenio Pua, the principal financier and,
hence, she had no legal capacity to sue petitioner; and that the CA failed to
consider the fact that petitioner’s father, who co-owned the subject property,
was not impleaded as a defendant nor was he indebted to the respondent and,
hence, she cannot be made to sign the documents to effect the transfer of
ownership over the entire property.
On August 6, 2001, the CA issued its Resolution denying the motion on the
ground that the foregoing matters had already been passed upon.
On August 13, 2001, petitioner received a copy of the CA Resolution. On August
28, 2001, petitioner filed the present Petition and raised the following issues:
I.
WHETHER OR NOT THE PETITIONER CAN BE CONSIDERED AS A
DEBTOR OF THE RESPONDENT.
II.
WHETHER OR NOT AN AGENT WHO WAS NOT AUTHORIZED BY THE
PRINCIPAL TO COLLECT DEBT IN HIS BEHALF COULD DIRECTLY COLLECT
PAYMENT FROM THE DEBTOR.
III.
WHETHER OR NOT THE CONTRACT OF SALE WAS EXECUTED FOR A
CAUSE.14
Although, as a rule, it is not the business of this Court to review the findings of
fact made by the lower courts, jurisprudence has recognized several
exceptions, at least three of which are present in the instant case, namely:
when the judgment is based on a misapprehension of facts; when the findings
of facts of the courts a quo are conflicting; and when the CA manifestly
overlooked certain relevant facts not disputed by the parties, which, if properly
considered, could justify a different conclusion. 15 To arrive at a proper
judgment, therefore, the Court finds it necessary to re-examine the evidence
presented by the contending parties during the trial of the case.
The Petition is meritorious.
The principal issue is whether the Deed of Absolute Sale is supported by a valid
consideration.
1. Petitioner argues that since she is merely the agent or representative of the
alleged debtors, then she is not a party to the loan; and that the Deed of Sale
executed between her and the respondent in their own names, which was
predicated on that pre-existing debt, is void for lack of consideration.
Indeed, the Deed of Absolute Sale purports to be supported by a consideration
in the form of a price certain in money16 and that this sum indisputably pertains
to the debt in issue. This Court has consistently held that a contract of sale is
null and void and produces no effect whatsoever where the same is without
cause or consideration.17 The question that has to be resolved for the moment
is whether this debt can be considered as a valid cause or consideration for the
sale.
To restate, the CA cited four instances in the record to support its holding that
petitioner "re-lends" the amount borrowed from respondent to her friends:
first, the friends of petitioner never presented themselves to respondent and
that all transactions were made by and between petitioner and
respondent;18 second; the money passed through the bank accounts of
petitioner and respondent;19 third, petitioner herself admitted that she was "re-
lending" the money loaned to other individuals for profit; 20 and fourth, the
documentary evidence shows that the actual borrowers, the friends of
petitioner, consider her as their creditor and not the respondent. 21
On the first, third, and fourth points, the CA cites the testimony of the
petitioner, then defendant, during her cross-examination: 22
Atty. Diza:
61 | A G E N C Y C A S E S | C A B A N L I T

q. You also mentioned that you were not the one indebted to the q. Did the plaintiff personally see the transactions with your friends?
plaintiff?
witness:
witness:
a. No, sir.
a. Yes, sir.
Atty. Diza:
Atty. Diza:
q. Your friends and the plaintiff did not meet personally?
q. And you mentioned the persons[,] namely, Elizabeth Tomelden,
Teresa Moraquin, Maria Luisa Inocencio, Zenaida Romulo, they are witness:
your friends?
a. Yes, sir.
witness:
Atty. Diza:
a. Inocencio and Moraquin are my friends while [as to] Jacob and
Tomelden[,] they were just referred. q. You are intermediaries?

Atty. Diza: witness:

q. And you have transact[ed] with the plaintiff? a. We are both intermediaries. As evidenced by the checks of the
debtors they were deposited to the name of Arsenio Pua because the
witness: money came from Arsenio Pua.

a. Yes, sir. xxxx

Atty. Diza: Atty. Diza:

q. What is that transaction? q. Did the plaintiff knew [sic] that you will lend the money to your
friends specifically the one you mentioned [a] while ago?
witness:
witness:
a. To refer those persons to Aura and to refer again to Arsenio Pua, sir.
a. Yes, she knows the money will go to those persons.
Atty. Diza:
Atty. Diza:
62 | A G E N C Y C A S E S | C A B A N L I T

q. You are re-lending the money? Atty. Villacorta:

witness: q. So the money came from Arsenio Pua?

a. Yes, sir. witness:

Atty. Diza: a. Yes, because I am only representing him, sir.

q. What profit do you have, do you have commission? Other portions of the testimony of respondent must likewise be
considered:24
witness:
Atty. Villacorta:
a. Yes, sir.
q. So it is not actually your money but the money of Arsenio Pua?
Atty. Diza:
witness:
q. How much?
a. Yes, sir.
witness:
Court:
a. Two percent to Tomelden, one percent to Jacob and then Inocencio
and my friends none, sir. q. It is not your money?

Based on the foregoing, the CA concluded that petitioner is the real witness:
borrower, while the respondent, the real lender.
a. Yes, Your Honor.
But as correctly noted by the RTC, respondent, then plaintiff, made the
following admission during her cross examination: 23 Atty. Villacorta:

Atty. Villacorta: q. Is it not a fact Ms. Witness that the defendant borrowed from you
to accommodate somebody, are you aware of that?
q. Who is this Arsenio Pua?
witness:
witness:
a. I am aware of that.
a. Principal financier, sir.
63 | A G E N C Y C A S E S | C A B A N L I T

Atty. Villacorta: a. Yes, sir.

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

witness: q. And because of your assistance, the friends of the defendant who
are in need of money were able to obtain loan to [sic] Arsenio Pua
a. Yes, sir, I am aware of that. through your assistance?

xxxx witness:

Atty. Villacorta: a. Yes, sir.

q. And these friends of the defendant borrowed money from you with Atty. Villacorta:
the assurance of the defendant?
q. So that occasion lasted for more than a year?
witness:
witness:
a. They go direct to Jocelyn because I don’t know them.
a. Yes, sir.
xxxx
Atty. Villacorta:
Atty. Villacorta:
q. And some of the checks that were issued by the friends of the
q. And is it not also a fact Madam witness that everytime that the defendant bounced, am I correct?
defendant borrowed money from you her friends who [are] in need of
money issued check[s] to you? There were checks issued to you? witness:

witness: a. Yes, sir.

a. Yes, there were checks issued. Atty. Villacorta:

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

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

witness: a. Yes, sir.

64 | A G E N C Y C A S E S | C A B A N L I T
Respondent is estopped to deny that she herself acted as agent of a certain
Arsenio Pua, her disclosed principal. She is also estopped to deny that
petitioner acted as agent for the alleged debtors, the friends whom she
(petitioner) referred.
This Court has affirmed that, under Article 1868 of the Civil Code, the basis of
agency is representation.25 The question of whether an agency has been
created is ordinarily a question which may be established in the same way as
any other fact, either by direct or circumstantial evidence. The question is
ultimately one of intention.26 Agency may even be implied from the words and
conduct of the parties and the circumstances of the particular case. 27 Though
the fact or extent of authority of the agents may not, as a general rule, be
established from the declarations of the agents alone, if one professes to act as
agent for another, she may be estopped to deny her agency both as against the
asserted principal and the third persons interested in the transaction in which
he or she is engaged.28
In this case, petitioner knew that the financier of respondent is Pua; and
respondent knew that the borrowers are friends of petitioner.
The CA is incorrect when it considered the fact that the "supposed friends of
[petitioner], the actual borrowers, did not present themselves to [respondent]"
as evidence that negates the agency relationship—it is sufficient that petitioner
disclosed to respondent that the former was acting in behalf of her principals,
her friends whom she referred to respondent. For an agency to arise, it is not
necessary that the principal personally encounter the third person with whom
the agent interacts. The law in fact contemplates, and to a great degree,
impersonal dealings where the principal need not personally know or meet the
third person with whom her agent transacts: precisely, the purpose of agency is
to extend the personality of the principal through the facility of the agent. 29
In the case at bar, both petitioner and respondent have undeniably disclosed to
each other that they are representing someone else, and so both of them are
estopped to deny the same. It is evident from the record that petitioner merely
refers actual borrowers and then collects and disburses the amounts of the
loan upon which she received a commission; and that respondent transacts on
behalf of her "principal financier", a certain Arsenio Pua. If their respective
principals do not actually and personally know each other, such ignorance does
not affect their juridical standing as agents, especially since the very purpose of
agency is to extend the personality of the principal through the facility of the
agent.
With respect to the admission of petitioner that she is "re-lending" the money
loaned from respondent to other individuals for profit, it must be stressed that
the manner in which the parties designate the relationship is not controlling. If
an act done by one person in behalf of another is in its essential nature one of
agency, the former is the agent of the latter notwithstanding he or she is not so
called.30 The question is to be determined by the fact that one represents and is
acting for another, and if relations exist which will constitute an agency, it will
be an agency whether the parties understood the exact nature of the relation
or not.31
That both parties acted as mere agents is shown by the undisputed fact that
the friends of petitioner issued checks in payment of the loan in the name of
Pua. If it is true that petitioner was "re-lending", then the checks should have
been drawn in her name and not directly paid to Pua.
With respect to the second point, particularly, the finding of the CA that the
disbursements and payments for the loan were made through the bank
accounts of petitioner and respondent,
suffice it to say that in the normal course of commercial dealings and for
reasons of convenience and practical utility it can be reasonably expected that
the facilities of the agent, such as a bank account, may be employed, and that a
sub-agent be appointed, such as the bank itself, to carry out the task, especially
where there is no stipulation to the contrary. 32
In view of the two agency relationships, petitioner and respondent are not
privy to the contract of loan between their principals. Since the sale is
predicated on that loan, then the sale is void for lack of consideration.
2. A further scrutiny of the record shows, however, that the sale might have
been backed up by another consideration that is separate and distinct from the
debt: respondent averred in her complaint and testified that the parties had
65 | A G E N C Y C A S E S | C A B A N L I T

agreed that as a condition for the conveyance of the property the respondent respondent to compel petitioner to execute necessary documents to effect the
shall assume the balance of the mortgage loan which petitioner allegedly owed transfer of title is premature.
to the NHMFC.33 This Court in the recent past has declared that an assumption
of a mortgage debt may constitute a valid consideration for a sale. 34 WHEREFORE, the petition is granted. The Decision and Resolution of the Court
of Appeals are REVERSED and SET ASIDE. The complaint of respondent in Civil
Although the record shows that petitioner admitted at the time of trial that she Case No. 97-82716 is DISMISSED.
owned the property described in the TCT,35 the Court must stress that the
Transfer Certificate of Title No. 38253236 on its face shows that the owner of SO ORDERED.
the property which admittedly forms the subject matter of the Deed of
Absolute Sale refers neither to the petitioner nor to her father, Teodorico Doles,
the alleged co-owner. Rather, it states that the property is registered in the
name of "Household Development Corporation." Although there is an entry to
the effect that the petitioner had been granted a special power of attorney
"covering the shares of Teodorico Doles on the parcel of land described in this
certificate,"37 it cannot be inferred from this bare notation, nor from any other
evidence on the record, that the petitioner or her father held any direct
interest on the property in question so as to validly constitute a mortgage
thereon38 and, with more reason, to effect the delivery of the object of the sale
at the consummation stage.39 What is worse, there is a notation that the TCT
itself has been "cancelled."40

In view of these anomalies, the Court cannot entertain the

possibility that respondent agreed to assume the balance of the mortgage loan
which petitioner allegedly owed to the NHMFC, especially since the record is
bereft of any factual finding that petitioner was, in the first place, endowed
with any ownership rights to validly mortgage and convey the property. As the
complainant who initiated the case, respondent bears the burden of proving
the basis of her complaint. Having failed to discharge such burden, the Court
has no choice but to declare the sale void for lack of cause. And since the sale is
void, the Court finds it unnecessary to dwell on the issue of whether duress or
intimidation had been foisted upon petitioner upon the execution of the sale.
THIRD DIVISION
G.R. No. 161757             January 25, 2006
SUNACE INTERNATIONAL MANAGEMENT SERVICES, INC.Petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, Second Division; HON. ERNESTO
S. DINOPOL, in his capacity as Labor Arbiter, NLRC; NCR, Arbitration Branch,
Quezon City and DIVINA A. MONTEHERMOZO, Respondents.

Moreover, even assuming the mortgage validly exists, the Court notes DECISION
respondent’s allegation that the mortgage with the NHMFC was for 25 years
which began September 3, 1994. Respondent filed her Complaint for Specific CARPIO MORALES, J.:
Performance in 1997. Since the 25 years had not lapsed, the prayer of
 66 | A G E N C Y C A S E S | C A B A N L I T
Petitioner, Sunace International Management Services (Sunace), a corporation
duly organized and existing under the laws of the Philippines, deployed to
Taiwan Divina A. Montehermozo (Divina) as a domestic helper under a 12-
month contract effective February 1, 1997. 1 The deployment was with the
assistance of a Taiwanese broker, Edmund Wang, President of Jet Crown
International Co., Ltd.
After her 12-month contract expired on February 1, 1998, Divina continued
working for her Taiwanese employer, Hang Rui Xiong, for two more years, after
which she returned to the Philippines on February 4, 2000.
Shortly after her return or on February 14, 2000, Divina filed a
complaint2 before the National Labor Relations Commission (NLRC) against
Sunace, one Adelaide Perez, the Taiwanese broker, and the employer-foreign
principal alleging that she was jailed for three months and that she was
underpaid.
The following day or on February 15, 2000, Labor Arbitration Associate Regina
T. Gavin issued Summons3 to the Manager of Sunace, furnishing it with a copy
of Divina’s complaint and directing it to appear for mandatory conference on
February 28, 2000.
The scheduled mandatory conference was reset. It appears to have been
concluded, however.
On April 6, 2000, Divina filed her Position Paper 4 claiming that under her
original one-year contract and the 2-year extended contract which was with
the knowledge and consent of Sunace, the following amounts representing
income tax and savings were deducted:
Year Deduction for Income Tax Deduction for Savings
1997 NT10,450.00 NT23,100.00
1998 NT9,500.00 NT36,000.00
1999 NT13,300.00 NT36,000.00;5
and while the amounts deducted in 1997 were refunded to her, those
deducted in 1998 and 1999 were not. On even date, Sunace, by its
Proprietor/General Manager Maria Luisa Olarte, filed its Verified Answer and
Position Paper,6 claiming as follows, quoted verbatim:
COMPLAINANT IS NOT ENTITLED FOR THE REFUND OF HER 24 MONTHS
SAVINGS
3. Complainant could not anymore claim nor entitled for the refund of her 24
months savings as she already took back her saving already last year and the
employer did not deduct any money from her salary, in accordance with
a Fascimile Message from the respondent SUNACE’s employer, Jet Crown
International Co. Ltd., a xerographic copy of which is herewith attached
as ANNEX "2" hereof;
COMPLAINANT IS NOT ENTITLED TO REFUND OF HER 14 MONTHS TAX AND
PAYMENT OF ATTORNEY’S FEES
4. There is no basis for the grant of tax refund to the complainant as the she
finished her one year contract and hence, was not illegally dismissed by her
employer. She could only lay claim over the tax refund or much more be
awarded of damages such as attorney’s fees as said reliefs are available only
when the dismissal of a migrant worker is without just valid or lawful cause as
defined by law or contract.
The rationales behind the award of tax refund and payment of attorney’s fees
is not to enrich the complainant but to compensate him for actual injury
suffered. Complainant did not suffer injury, hence, does not deserve to be
compensated for whatever kind of damages.
Hence, the complainant has NO cause of action against respondent SUNACE for
monetary claims, considering that she has been totally paid of all the monetary
benefits due her under her Employment Contract  to her full satisfaction.
6. Furthermore, the tax deducted from her salary is in compliance with the
Taiwanese law, which respondent SUNACE has no control and complainant has
to obey and this Honorable Office has no authority/jurisdiction to intervene
67 | A G E N C Y C A S E S | C A B A N L I T
because the power to tax is a sovereign power which the Taiwanese
Government is supreme in its own territory. The sovereign power of taxation of
a state is recognized under international law and among sovereign states.
7. That respondent SUNACE respectfully reserves the right to file supplemental
Verified Answer and/or Position Paper to substantiate its prayer for the
dismissal of the above case against the herein respondent. AND BY WAY OF -
x x x x (Emphasis and underscoring supplied)
Reacting to Divina’s Position Paper, Sunace filed on April 25, 2000 an ". . .
answer to complainant’s position paper"7 alleging that Divina’s 2-year
extension of her contract was without its knowledge and consent, hence, it had
no liability attaching to any claim arising therefrom, and Divina in fact executed
a Waiver/Quitclaim and Release of Responsibility and an Affidavit of
Desistance, copy of each document was annexed to said ". . . answer to
complainant’s position paper."
To Sunace’s ". . . answer to complainant’s position paper," Divina filed a 2-page
reply,8 without, however, refuting Sunace’s disclaimer of knowledge of the
extension of her contract and without saying anything about the Release,
Waiver and Quitclaim and Affidavit of Desistance.
The Labor Arbiter, rejected Sunace’s claim that the extension of Divina’s
contract for two more years was without its knowledge and consent in this
wise:
We reject Sunace’s submission that it should not be held responsible for the
amount withheld because her contract was extended for 2 more years without
its knowledge and consent because as Annex "B"9 shows, Sunace and Edmund
Wang have not stopped communicating with each other  and yet the matter of
the contract’s extension and Sunace’s alleged non-consent thereto has not
been categorically established.
What Sunace should have done was to write to POEA about the extension and
its objection thereto, copy furnished the complainant herself, her foreign
employer, Hang Rui Xiong and the Taiwanese broker, Edmund Wang.
And because it did not, it is presumed to have consented to the extension and
should be liable for anything that resulted thereform (sic).10 (Underscoring
supplied)
The Labor Arbiter rejected too Sunace’s argument that it is not liable on
account of Divina’s execution of a Waiver and Quitclaim and an Affidavit of
Desistance. Observed the Labor Arbiter:
Should the parties arrive at any agreement as to the whole or any part of the
dispute, the same shall be reduced to writing and signed by the parties and
their respective counsel (sic), if any, before the Labor Arbiter.
The settlement shall be approved by the Labor Arbiter after being satisfied that
it was voluntarily entered into by the parties and after having explained to
them the terms and consequences thereof.
A compromise agreement entered into by the parties not in the presence of the
Labor Arbiter before whom the case is pending shall be approved by him, if
after confronting the parties, particularly the complainants, he is satisfied that
they understand the terms and conditions of the settlement and that it was
entered into freely voluntarily (sic) by them and the agreement is not contrary
to law, morals, and public policy.
And because no consideration is indicated in the documents, we strike them
down as contrary to law, morals, and public policy. 11
He accordingly decided in favor of Divina, by decision of October 9, 2000, 12 the
dispositive portion of which reads:
Wherefore, judgment is hereby rendered ordering respondents SUNACE
INTERNATIONAL SERVICES and its owner ADELAIDA PERGE, both in their
personal capacities and as agent of Hang Rui Xiong/Edmund Wang  to jointly
and severally pay complainant DIVINA A. MONTEHERMOZO the sum of
NT91,950.00 in its peso equivalent at the date of payment, as refund for the
amounts which she is hereby adjudged entitled to as earlier discussed plus 10%
thereof as attorney’s fees since compelled to litigate, complainant had to
engage the services of counsel.
68 | A G E N C Y C A S E S | C A B A N L I T
SO ORDERED.13 (Underescoring supplied)
On appeal of Sunace, the NLRC, by Resolution of April 30, 2002, 14 affirmed the
Labor Arbiter’s decision.
Via petition for certiorari,15 Sunace elevated the case to the Court of Appeals
which dismissed it outright by Resolution of November 12, 2002, 16 the full text
of which reads:
The petition for certiorari faces outright dismissal.
The petition failed to allege facts constitutive of grave abuse of discretion on
the part of the public respondent amounting to lack of jurisdiction when the
NLRC affirmed the Labor Arbiter’s finding that petitioner Sunace International
Management Services impliedly consented to the extension of the contract of
private respondent Divina A. Montehermozo. It is undisputed that petitioner
was continually communicating with private respondent’s foreign
employer (sic). As agent of the foreign principal, "petitioner cannot profess
ignorance of such extension as obviously, the act of the principal extending
complainant (sic) employment contract necessarily bound it." Grave abuse of
discretion is not present in the case at bar.
ACCORDINGLY, the petition is hereby DENIED DUE COURSE and DISMISSED.17
SO ORDERED.
(Emphasis on words in capital letters in the original; emphasis on words in small
letters and underscoring supplied)
Its Motion for Reconsideration having been denied by the appellate court by
Resolution of January 14, 2004,18 Sunace filed the present petition for review
on certiorari.
The Court of Appeals affirmed the Labor Arbiter and NLRC’s finding that Sunace
knew of and impliedly consented to the extension of Divina’s 2-year contract. It
went on to state that "It is undisputed that [Sunace] was continually
communicating with [Divina’s] foreign employer." It thus concluded that "[a]s
agent of the foreign principal, ‘petitioner cannot profess ignorance of such
extension as obviously, the act of the principal extending complainant (sic)
employment contract necessarily bound it.’"
Contrary to the Court of Appeals finding, the alleged continuous
communication was with the Taiwanese broker Wang, not with the foreign
employer Xiong.
The February 21, 2000 telefax message from the Taiwanese broker to Sunace,
the only basis of a finding of continuous communication, reads verbatim:
xxxx
Regarding to Divina, she did not say anything about her saving in police
station. As we contact with her employer, she took back her saving
already last years. And they did not deduct any money from her salary.
Or she will call back her employer to check it again. If her employer
said yes! we will get it back for her.
Thank you and best regards.
(Sgd.)
Edmund Wang
President19
The finding of the Court of Appeals solely on the basis of the above-quoted
telefax message, that Sunace continually communicated with the foreign
"principal" (sic) and therefore was aware of and had consented to the
execution of the extension of the contract is misplaced. The message does not
provide evidence that Sunace was privy to the new contract executed after the
expiration on February 1, 1998 of the original contract. That Sunace and the
Taiwanese broker communicated regarding Divina’s allegedly withheld savings
does not necessarily mean that Sunace ratified the extension of the contract.
As Sunace points out in its Reply20 filed before the Court of Appeals,
As can be seen from that letter communication, it was just an information given
to the petitioner that the private respondent had t[aken] already her savings
69 | A G E N C Y C A S E S | C A B A N L I T

from her foreign employer and that no deduction was made on her salary. It The agency is revoked if the principal directly manages the business entrusted
contains nothing about the extension or the petitioner’s consent thereto. 21 to the agent, dealing directly with third persons.

Parenthetically, since the telefax message is dated February 21, 2000, it is safe
to assume that it was sent to enlighten Sunace who had been directed, by
Summons issued on February 15, 2000, to appear on February 28, 2000 for a
mandatory conference following Divina’s filing of the complaint on February
14, 2000.
thus applies.
In light of the foregoing discussions, consideration of the validity of the Waiver
and Affidavit of Desistance which Divina executed in favor of Sunace is
rendered unnecessary.

Respecting the Court of Appeals following dictum:
As agent of its foreign principal, [Sunace] cannot profess ignorance of such an
extension as obviously, the act of its principal extending [Divina’s] employment
contract necessarily bound it,22
WHEREFORE, the petition is GRANTED. The challenged resolutions of the Court
of Appeals are hereby REVERSED and SET ASIDE. The complaint of respondent
Divina A. Montehermozo against petitioner is DISMISSED.
SO ORDERED.

it too is a misapplication, a misapplication of the theory of imputed knowledge.

The theory of imputed knowledge ascribes the knowledge of the agent, Sunace, Republic of the Philippines
to the principal, employer Xiong, not the other way around.23 The knowledge SUPREME COURT
of the principal-foreign employer cannot, therefore, be imputed to its agent Manila
Sunace.
EN BANC
There being no substantial proof that Sunace knew of and consented to be
bound under the 2-year employment contract extension, it cannot be said to G.R. No. L-21601      December 17, 1966
be privy thereto. As such, it and its "owner" cannot be held solidarily liable for
any of Divina’s claims arising from the 2-year employment extension. As the
NIELSON & COMPANY, INC., plaintiff-appellant,
New Civil Code provides,
vs.
LEPANTO CONSOLIDATED MINING COMPANY, defendant-appellee.
Contracts take effect only between the parties, their assigns, and heirs, except
in case where the rights and obligations arising from the contract are not
W. H. Quasha and Associates for plaintiff-appellant.
transmissible by their nature, or by stipulation or by provision of law. 24
Ponce Enrile, Siguion-Reyna, Montecillo and Belo for defendant-appellee.

Furthermore, as Sunace correctly points out, there was an implied revocation

ZALDIVAR, J.:
of its agency relationship with its foreign principal when, after the termination
of the original employment contract, the foreign principal directly negotiated
On February 6, 1958, plaintiff brought this action against defendant before the
with Divina and entered into a new and separate employment contract in
Court of First Instance of Manila to recover certain sums of money representing
Taiwan. Article 1924 of the New Civil Code reading
70 | A G E N C Y C A S E S | C A B A N L I T
damages allegedly suffered by the former in view of the refusal of the latter to
comply with the terms of a management contract entered into between them
on January 30, 1937, including attorney's fees and costs.
Defendant in its answer denied the material allegations of the complaint and
set up certain special defenses, among them, prescription and laches, as bars
against the institution of the present action.
After trial, during which the parties presented testimonial and numerous
documentary evidence, the court a quo  rendered a decision dismissing the
complaint with costs. The court stated that it did not find sufficient evidence to
establish defendant's counterclaim and so it likewise dismissed the same.
The present appeal was taken to this Court directly by the plaintiff in view of
the amount involved in the case.
The facts of this case, as stated in the decision appealed from, are hereunder
quoted for purposes of this decision:
It appears that the suit involves an operating agreement executed
before World War II between the plaintiff and the defendant whereby
the former operated and managed the mining properties owned by
the latter for a management fee of P2,500.00 a month and a 10%
participation in the net profits resulting from the operation of the
mining properties. For brevity and convenience, hereafter the plaintiff
shall be referred to as NIELSON and the defendant, LEPANTO.
The antecedents of the case are: The contract in question (Exhibit `C')
was made by the parties on January 30, 1937 for a period of five (5)
years. In the latter part of 1941, the parties agreed to renew the
contract for another period of five (5) years, but in the meantime, the
Pacific War broke out in December, 1941.
In January, 1942 operation of the mining properties was disrupted on
account of the war. In February of 1942, the mill, power plant,
supplies on hand, equipment, concentrates on hand and mines, were
destroyed upon orders of the United States Army, to prevent their
utilization by the invading Japanese Army. The Japanese forces
thereafter occupied the mining properties, operated the mines during
the continuance of the war, and who were ousted from the mining
properties only in August of 1945.
After the mining properties were liberated from the Japanese forces,
LEPANTO took possession thereof and embarked in rebuilding and
reconstructing the mines and mill; setting up new organization;
clearing the mill site; repairing the mines; erecting staff quarters and
bodegas and repairing existing structures; installing new machinery
and equipment; repairing roads and maintaining the same; salvaging
equipment and storing the same within the bodegas; doing police
work necessary to take care of the materials and equipment
recovered; repairing and renewing the water system; and
remembering (Exhibits "D" and "E"). The rehabilitation and
reconstruction of the mine and mill was not completed until 1948
(Exhibit "F"). On June 26, 1948 the mines resumed operation under
the exclusive management of LEPANTO (Exhibit "F-l").
Shortly after the mines were liberated from the Japanese invaders in
1945, a disagreement arose between NIELSON and LEPANTO over the
status of the operating contract in question which as renewed expired
in 1947. Under the terms thereof, the management contract shall
remain in suspense in case fortuitous event or  force majeure, such as
war or civil commotion, adversely affects the work of mining and
milling.
"In the event of inundations, floodings of mine, typhoon,
earthquake or any other force majeure, war, insurrection,
civil commotion, organized strike, riot, injury to the
machinery or other event or cause reasonably beyond the
control of NIELSON and which adversely affects the work of
mining and milling; NIELSON shall report such fact to
LEPANTO and without liability or breach of the terms of this
Agreement, the same shall remain in suspense, wholly or
partially during the terms of such inability." (Clause II of
Exhibit "C").
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NIELSON held the view that, on account of the war, the contract was
suspended during the war; hence the life of the contract should be
considered extended for such time of the period of suspension. On the
other hand, LEPANTO contended that the contract should expire in
1947 as originally agreed upon because the period of suspension
accorded by virtue of the war did not operate to extend further the
life of the contract.
No understanding appeared from the record to have been bad by the
parties to resolve the disagreement. In the meantime, LEPANTO
rebuilt and reconstructed the mines and was able to bring the
property into operation only in June of 1948, . . . .
Appellant in its brief makes an alternative assignment of errors depending on
whether or not the management contract basis of the action has been
extended for a period equivalent to the period of suspension. If the agreement
is suspended our attention should be focused on the first set of errors claimed
to have been committed by the court a quo; but if the contrary is true, the
discussion will then be switched to the alternative set that is claimed to have
been committed. We will first take up the question whether the management
agreement has been extended as a result of the supervening war, and after this
question shall have been determined in the sense sustained by appellant, then
the discussion of the defense of laches and prescription will follow as a
consequence.
The pertinent portion of the management contract (Exh. C) which refers to
suspension should any event constituting force majeure happen appears in
Clause II thereof which we quote hereunder:
In the event of inundations, floodings of the mine, typhoon,
earthquake or any other force majeure, war, insurrection, civil
commotion, organized strike, riot, injury to the machinery or other
event or cause reasonably beyond the control of NIELSON and which
adversely affects the work of mining and milling; NIELSON shall report
such fact to LEPANTO and without liability or breach of the terms of
this Agreement, the same shall remain in suspense, wholly or partially
during the terms of such inability.
A careful scrutiny of the clause above-quoted will at once reveal that in order
that the management contract may be deemed suspended two events must
take place which must be brought in a satisfactory manner to the attention of
defendant within a reasonable time, to wit: (1) the event constituting the  force
majeure must be reasonably beyond the control of Nielson, and (2) it must
adversely affect the work of mining and milling the company is called upon to
undertake. As long as these two condition exist the agreement is deem
suspended.
Does the evidence on record show that these two conditions had existed which
may justify the conclusion that the management agreement had been
suspended in the sense entertained by appellant? Let us go to the evidence.
It is a matter that this Court can take judicial notice of that war supervened in
our country and that the mines in the Philippines were either destroyed or
taken over by the occupation forces with a view to their operation. The
Lepanto mines were no exception for not was the mine itself destroyed but the
mill, power plant, supplies on hand, equipment and the like that were being
used there were destroyed as well. Thus, the following is what appears in the
Lepanto Company Mining Report dated March 13, 1946 submitted by its
President C. A. DeWitt to the defendant: 1 "In February of 1942, our mill, power
plant, supplies on hand, equipment, concentrates on hand, and mine, were
destroyed upon orders of the U.S. Army to prevent their utilization by the
enemy." The report also mentions the report submitted by Mr. Blessing, an
official of Nielson, that "the original mill was destroyed in 1942" and "the
original power plant and all the installed equipment were destroyed in 1942." It
is then undeniable that beginning February, 1942 the operation of the Lepanto
mines stopped or became suspended as a result of the destruction of the mill,
power plant and other important equipment necessary for such operation in
view of a cause which was clearly beyond the control of Nielson and that as a
consequence such destruction adversely affected the work of mining and
milling which the latter was called upon to undertake under the management
contract. Consequently, by virtue of the very terms of said contract the same
may be deemed suspended from February, 1942 and as of that month the
contract still had 60 months to go.
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On the other hand, the record shows that the defendant admitted that the
occupation forces operated its mining properties subject of the management
contract,2 and from the very report submitted by President DeWitt it appears
that the date of the liberation of the mine was August 1, 1945 although at the
time there were still many booby traps.3 Similarly, in a report submitted by the
defendant to its stockholders dated August 25, 1948, the following appears:
"Your Directors take pleasure in reporting that June 26, 1948 marked the
official return to operations of this Company of its properties in Mankayan,
Mountain Province, Philippines."4
It is, therefore, clear from the foregoing that the Lepanto mines were liberated
on August 1, 1945, but because of the period of rehabilitation and
reconstruction that had to be made as a result of the destruction of the mill,
power plant and other necessary equipment for its operation it cannot be said
that the suspension of the contract ended on that date. Hence, the contract
must still be deemed suspended during the succeeding years of reconstruction
and rehabilitation, and this period can only be said to have ended on June 26,
1948 when, as reported by the defendant, the company officially resumed the
mining operations of the Lepanto. It should here be stated that this period of
suspension from February, 1942 to June 26, 1948 is the one urged by plaintiff. 5
It having been shown that the operation of the Lepanto mines on the part of
Nielson had been suspended during the period set out above within the
purview of the management contract, the next question that needs to be
determined is the effect of such suspension. Stated in another way, the
question now to be determined is whether such suspension had the effect of
extending the period of the management contract for the period of said
suspension. To elucidate this matter, we again need to resort to the evidence.
For appellant Nielson two witnesses testified, declaring that the suspension
had the effect of extending the period of the contract, namely, George T.
Scholey and Mark Nestle. Scholey was a mining engineer since 1929, an
incorporator, general manager and director of Nielson and Company; and for
some time he was also the vice-president and director of the Lepanto Company
during the pre-war days and, as such, he was an officer of both appellant and
appellee companies. As vice-president of Lepanto and general manager of
Nielson, Scholey participated in the negotiation of the management contract to
the extent that he initialed the same both as witness and as an officer of both
corporations. This witness testified in this case to the effect that the
standard  force majeure  clause embodied in the management contract was
taken from similar mining contracts regarding mining operations and the
understanding regarding the nature and effect of said clause was that when
there is suspension of the operation that suspension meant the extension of
the contract. Thus, to the question, "Before the war, what was the
understanding of the people in the particular trend of business with respect to
the  force majeure  clause?", Scholey answered: "That was our understanding
that the suspension meant the extension of time lost." 6
Mark Nestle, the other witness, testified along similar line. He had been
connected with Nielson since 1937 until the time he took the witness stand and
had been a director, manager, and president of the same company. When he
was propounded the question: "Do you know what was the custom or usage at
that time in connection with  force majeure  clause?", Nestle answered, "In the
mining world the force majeure clause is generally considered. When a
calamity comes up and stops the work like in war, flood, inundation or fire, etc.,
the work is suspended for the duration of the calamity, and the period of the
contract is extended after the calamity is over to enable the person to do the
big work or recover his money which he has invested, or accomplish what his
obligation is to a third person ."7
And the above testimonial evidence finds support in the very minutes of the
special meeting of the Board of Directors of the Lepanto Company issued on
March 10, 1945 which was then chairmaned by Atty. C. A. DeWitt. We read the
following from said report:
The Chairman also stated that the contract with Nielson and Company
would soon expire if the obligations were not suspended, in which
case we should have to pay them the retaining fee of P2,500.00 a
month. He believes however, that there is a provision in the contract
suspending the effects thereof in cases like the present, and that even
if it were not there, the law itself would suspend the operations of the
contract on account of the war. Anyhow, he stated, we shall have no
difficulty in solving satisfactorily any problem we may have with
Nielson and Company.8
73 | A G E N C Y C A S E S | C A B A N L I T
Thus, we can see from the above that even in the opinion of Mr. DeWitt
himself, who at the time was the chairman of the Board of Directors of the
Lepanto Company, the management contract would then expire unless the
period therein rated is suspended but that, however, he expressed the belief
that the period was extended because of the provision contained therein
suspending the effects thereof should any of the case of force majeure happen
like in the present case, and that even if such provision did not exist the law
would have the effect of suspending it on account of the war. In substance,
Atty. DeWitt expressed the opinion that as a result of the suspension of the
mining operation because of the effects of the war the period of the contract
had been extended.
Contrary to what appellant's evidence reflects insofar as the interpretation of
the force majeure  clause is concerned, however, appellee gives Us an opposite
interpretation invoking in support thereof not only a letter Atty. DeWitt sent to
Nielson on October 20, 1945,9 wherein he expressed for the first time an
opinion contrary to what he reported to the Board of Directors of Lepanto
Company as stated in the portion of the minutes of its Board of Directors as
quoted above, but also the ruling laid down by our Supreme Court in some
cases decided sometime ago, to the effect that the war does not have the
effect of extending the term of a contract that the parties may enter into
regarding a particular transaction, citing in this connection the cases
of Victorias Planters Association v. Victorias Milling Company, 51 O.G.
4010; Rosario S. Vda. de Lacson, et al. v. Abelardo G. Diaz, 87 Phil. 150; and Lo
Ching y So Young Chong Co. v. Court of Appeals, et al.,  81 Phil. 601.
To bolster up its theory, appellee also contends that the evidence regarding the
alleged custom or usage in mining contract that appellant's witnesses tried to
introduce was incompetent because (a) said custom was not specifically
pleaded; (b) Lepanto made timely and repeated objections to the introduction
of said evidence; (c) Nielson failed to show the essential elements of usage
which must be shown to exist before any proof thereof can be given to affect
the contract; and (d) the testimony of its witnesses cannot prevail over the very
terms of the management contract which, as a rule, is supposed to contain all
the terms and conditions by which the parties intended to be bound.
It is here necessary to analyze the contradictory evidence which the parties
have presented regarding the interpretation of the  force majeure  clause in the
management contract.
At the outset, it should be stated that, as a rule, in the construction and
interpretation of a document the intention of the parties must be sought (Rule
130, Section 10, Rules of Court). This is the basic rule in the interpretation of
contracts because all other rules are but ancilliary to the ascertainment of the
meaning intended by the parties. And once this intention has been ascertained
it becomes an integral part of the contract as though it had been originally
expressed therein in unequivocal terms (Shoreline Oil Corp. v. Guy, App. 189,
So., 348, cited in 17A C.J.S., p. 47). How is this intention determined?
One pattern is to ascertain the contemporaneous and subsequent acts of the
contracting parties in relation to the transaction under consideration (Article
1371, Civil Code). In this particular case, it is worthy of note what Atty. C. A.
DeWitt has stated in the special meeting of the Board of Directors of Lepanto in
the portion of the minutes already quoted above wherein, as already stated, he
expressed the opinion that the life of the contract, if not extended, would last
only until January, 1947 and yet he said that there is a provision in the contract
that the war had the effect of suspending the agreement and that the effect of
that suspension was that the agreement would have to continue with the result
that Lepanto would have to pay the monthly retaining fee of P2,500.00. And
this belief that the war suspended the agreement and that the suspension
meant its extension was so firm that he went to the extent that even if there
was no provision for suspension in the agreement the law itself would suspend
it.
It is true that Mr. DeWitt later sent a letter to Nielson dated October 20, 1945
wherein apparently he changed his mind because there he stated that the
contract was merely suspended, but not extended, by reason of the war,
contrary to the opinion he expressed in the meeting of the Board of Directors
already adverted to, but between the two opinions of Atty. DeWitt We are
inclined to give more weight and validity to the former not only because such
was given by him against his own interest but also because it was given before
the Board of Directors of Lepanto and in the presence, of some Nielson
officials 10 who, on that occasion were naturally led to believe that that was the
74 | A G E N C Y C A S E S | C A B A N L I T
true meaning of the suspension clause, while the second opinion was merely
self-serving and was given as a mere afterthought.
Appellee also claims that the issue of true intent of the parties was not brought
out in the complaint, but anent this matter suffice it to state that in paragraph
No. 19 of the complaint appellant pleaded that the contract was
extended. 11 This is a sufficient allegation considering that the rules on
pleadings must as a rule be liberally construed.
It is likewise noteworthy that in this issue of the intention of the parties
regarding the meaning and usage concerning the force majeure clause, the
testimony adduced by appellant is uncontradicted. If such were not true,
appellee should have at least attempted to offer contradictory evidence. This it
did not do. Not even Lepanto's President, Mr. V. E. Lednicky who took the
witness stand, contradicted said evidence.
In holding that the suspension of the agreement meant the extension of the
same for a period equivalent to the suspension, We do not have the least
intention of overruling the cases cited by appellee. We simply want to say that
the ruling laid down in said cases does not apply here because the material
facts involved therein are not the same as those obtaining in the present. The
rule of stare decisis cannot be invoked where there is no analogy between the
material facts of the decision relied upon and those of the instant case.
Thus, in Victorias Planters Association vs. Victorias Milling Company, 51 O.G.
4010, there was no evidence at all regarding the intention of the parties to
extend the contract equivalent to the period of suspension caused by the war.
Neither was there evidence that the parties understood the suspension to
mean extension; nor was there evidence of usage and custom in the industry
that the suspension meant the extension of the agreement. All these matters,
however, obtain in the instant case.
Again, in the case of Rosario S. Vda. de Lacson vs. Abelardo G. Diaz, 87 Phil.
150, the issue referred to the interpretation of a pre-war contract of lease of
sugar cane lands and the liability of the lessee to pay rent during and
immediately following the Japanese occupation and where the defendant
claimed the right of an extension of the lease to make up for the time when no
cane was planted. This Court, in holding that the years which the lessee could
not use the land because of the war could not be discounted from the period
agreed upon, held that "Nowhere is there any insinuation that the defendant-
lessee was to have possession of lands for seven years excluding years on
which he could not harvest sugar." Clearly, this ratio decidendi is not applicable
to the case at bar wherein there is evidence that the parties understood the
"suspension clause by force majeure" to mean the extension of the period of
agreement.
Lastly, in the case of Lo Ching y So Young Chong Co. vs. Court of Appeals, et
al., 81 Phil. 601, appellant leased a building from appellee beginning
September 13, 1940 for three years, renewable for two years. The lessee's
possession was interrupted in February, 1942 when he was ousted by the
Japanese who turned the same over to German Otto Schulze, the latter
occupying the same until January, 1945 upon the arrival of the liberation
forces. Appellant contended that the period during which he did not enjoy the
leased premises because of his dispossession by the Japanese had to be
deducted from the period of the lease, but this was overruled by this Court,
reasoning that such dispossession was merely a simple "perturbacion de
merohecho y de la cual no responde el arrendador" under Article 1560 of the
old Civil Code Art. 1664). This ruling is also not applicable in the instant case
because in that case there was no evidence of the intention of the parties that
any suspension of the lease by force majeure would be understood to extend
the period of the agreement.
In resume, there is sufficient justification for Us to conclude that the cases cited
by appellee are inapplicable because the facts therein involved do not run
parallel to those obtaining in the present case.
We shall now consider appellee's defense of laches. Appellee is correct in its
contention that the defense of laches applies independently of prescription.
Laches is different from the statute of limitations. Prescription is concerned
with the fact of delay, whereas laches is concerned with the effect of delay.
Prescription is a matter of time; laches is principally a question of inequity of
permitting a claim to be enforced, this inequity being founded on some change
in the condition of the property or the relation of the parties. Prescription is
statutory; laches is not. Laches applies in equity, whereas prescription applies
75 | A G E N C Y C A S E S | C A B A N L I T
at law. Prescription is based on fixed time, laches is not. (30 C.J.S., p. 522; See
also Pomeroy's Equity Jurisprudence, Vol. 2, 5th ed., p. 177).
The question to determine is whether appellant Nielson is guilty of laches
within the meaning contemplated by the authorities on the matter. In the
leading case of Go Chi Gun, et al. vs. Go Cho, et al., 96 Phil. 622, this Court
enumerated the essential elements of laches as follows:
(1) conduct on the part of the defendant, or of one under whom he
claims, giving rise to the situation of which complaint is made and for
which the complaint seeks a remedy; (2) delay in asserting the
complainant's rights, the complainant having had knowledge or notice
of the defendant's conduct and having been afforded an opportunity
to institute a suit; (3) lack of knowledge or notice on the part of the
defendant that the complainant would assert the right on which he
bases his suit; and (4) injury or prejudice to the defendant in the event
relief is accorded to the complainant, or the suit is not held barred.
Are these requisites present in the case at bar?
The first element is conceded by appellant Nielson when it claimed that
defendant refused to pay its management fees, its percentage of profits and
refused to allow it to resume the management operation.
Anent the second element, while it is true that appellant Nielson knew since
1945 that appellee Lepanto has refused to permit it to resume management
and that since 1948 appellee has resumed operation of the mines and it filed its
complaint only on February 6, 1958, there being apparent delay in filing the
present action, We find the delay justified and as such cannot constitute laches.
It appears that appellant had not abandoned its right to operate the mines for
even before the termination of the suspension of the agreement as early as
January 20, 194612 and even before March 10, 1945, it already claimed its right
to the extension of the contract,13 and it pressed its claim for the balance of its
share in the profits from the 1941 operation 14 by reason of which negotiations
had taken place for the settlement of the claim 15 and it was only on June 25,
1957 that appellee finally denied the claim. There is, therefore, only a period of
less than one year that had elapsed from the date of the final denial of the
claim to the date of the filing of the complaint, which certainly cannot be
considered as unreasonable delay.
The third element of laches is absent in this case. It cannot be said that
appellee Lepanto did not know that appellant would assert its rights on which it
based suit. The evidence shows that Nielson had been claiming for some time
its rights under the contract, as already shown above.
Neither is the fourth element present, for if there has been some delay in
bringing the case to court it was mainly due to the attempts at arbitration and
negotiation made by both parties. If Lepanto's documents were lost, it was not
caused by the delay of the filing of the suit but because of the war.
Another reason why appellant Nielson cannot be held guilty of laches is that
the delay in the filing of the complaint in the present case was the inevitable of
the protracted negotiations between the parties concerning the settlement of
their differences. It appears that Nielson asked for arbitration 16 which was
granted. A committee consisting of Messrs. DeWitt, Farnell and Blessing was
appointed to act on said differences but Mr. DeWitt always tried to evade the
issue17 until he was taken ill and died. Mr. Farnell offered to Nielson the sum of
P13,000.58 by way of compromise of all its claim arising from the management
contract18 but apparently the offer was refused. Negotiations continued with
the exchange of letters between the parties but with no satisfactory result. 19 It
can be said that the delay due to protracted negotiations was caused by both
parties. Lepanto, therefore, cannot be permitted to take advantage of such
delay or to question the propriety of the action taken by Nielson. The defense
of laches is an equitable one and equity should be applied with an even hand. A
person will not be permitted to take advantage of, or to question the validity,
or propriety of, any act or omission of another which was committed or
omitted upon his own request or was caused by his conduct (R. H. Stearns Co.
vs. United States, 291 U.S. 54, 78 L. Ed. 647, 54 S. Ct., 325; United States vs.
Henry Prentiss & Co., 288 U.S. 73, 77 L. Ed., 626, 53 S. Ct., 283).
Had the action of Nielson prescribed? The court a quo  held that the action of
Nielson is already barred by the statute of limitations, and that ruling is now
assailed by the appellant in this appeal. In urging that the court a quo erred in
76 | A G E N C Y C A S E S | C A B A N L I T
reaching that conclusion the appellant has discussed the issue with reference
to particular claims.
The first claim is with regard to the 10% share in profits of 1941 operations.
Inasmuch as appellee Lepanto alleges that the correct basis of the computation
of the sharing in the net profits shall be as provided for in Clause V of the
Management Contract, while appellant Nielson maintains that the basis should
be what is contained in the minutes of the special meeting of the Board of
Directors of Lepanto on August 21, 1940, this question must first be elucidated
before the main issue is discussed.
The facts relative to the matter of profit sharing follow: In the management
contract entered into between the parties on January 30, 1937, which was
renewed for another five years, it was stipulated that Nielson would receive a
compensation of P2,500.00 a month plus 10% of the net profits from the
operation of the properties for the preceding month. In 1940, a dispute arose
regarding the computation of the 10% share of Nielson in the profits. The
Board of Directors of Lepanto, realizing that the mechanics of the contract was
unfair to Nielson, authorized its President to enter into an agreement with
Nielson modifying the pertinent provision of the contract effective January 1,
1940 in such a way that Nielson shall receive (1) 10% of the dividends declared
and paid, when and as paid, during the period of the contract and at the end of
each year, (2) 10% of any depletion reserve that may be set up, and (3) 10% of
any amount expended during the year out of surplus earnings for capital
account. 20 Counsel for the appellee admitted during the trial that the extract of
the minutes as found in Exhibit B is a faithful copy from the original. 21 Mr.
George Scholey testified that the foregoing modification was agreed upon. 22
Lepanto claims that this new basis of computation should be rejected (1)
because the contract was clear on the point of the 10% share and it was so
alleged by Nielson in its complaint, and (2) the minutes of the special meeting
held on August 21, 1940 was not signed.
It appearing that the issue concerning the sharing of the profits had been raised
in appellant's complaint and evidence on the matter was introduced 23 the
same can be taken into account even if no amendment of the pleading to make
it conform to the evidence has been made, for the same is authorized by
Section 4, Rule 17, of the old Rules of Court (now Section 5, Rule 10, of the new
Rules of Court).
Coming now to the question of prescription raised by defendant Lepanto, it is
contended by the latter that the period to be considered for the prescription of
the claim regarding participation in the profits is only four years, because the
modification of the sharing embodied in the management contract is merely
verbal, no written document to that effect having been presented. This
contention is untenable. The modification appears in the minutes of the special
meeting of the Board of Directors of Lepanto held on August 21, 1940, it having
been made upon the authority of its President, and in said minutes the terms of
the modification had been specified. This is sufficient to have the agreement
considered, for the purpose of applying the statute of limitations, as a written
contract even if the minutes were not signed by the parties (3 A.L.R., 2d, p.
831). It has been held that a writing containing the terms of a contract if
adopted by two persons may constitute a contract in writing even if the same is
not signed by either of the parties (3 A.L.R., 2d, pp. 812-813). Another authority
says that an unsigned agreement the terms of which are embodied in a
document unconditionally accepted by both parties is a written contract
(Corbin on Contracts, Vol. 1, p. 85)
The modification, therefore, made in the management contract relative to the
participation in the profits by appellant, as contained in the minutes of the
special meeting of the Board of Directors of Lepanto held on August 21, 1940,
should be considered as a written contract insofar as the application of the
statutes of limitations is concerned. Hence, the action thereon prescribes
within ten (10) years pursuant to Section 43 of Act 190.
Coming now to the facts, We find that the right of Nielson to its 10%
participation in the 1941 operations accrued on December 21, 1941 and the
right to commence an action thereon began on January 1, 1942 so that the
action must be brought within ten (10) years from the latter date. It is true that
the complaint was filed only on February 6, 1958, that is sixteen (16) years, one
(1) month and five (5) days after the right of action accrued, but the action has
not yet prescribed for various reasons which We will hereafter discuss.
77 | A G E N C Y C A S E S | C A B A N L I T
The first reason is the operation of the Moratorium Law, for appellant's claim is
undeniably a claim for money. Said claim accrued on December 31, 1941, and
Lepanto is a war sufferer. Hence the claim was covered by Executive Order No.
32 of March 10, 1945. It is well settled that the operation of the Moratorium
Law suspends the running of the statue of limitations (Pacific Commercial Co.
vs. Aquino, G.R. No. L-10274, February 27, 1957).
This Court has held that the Moratorium Law had been enforced for eight (8)
years, two (2) months and eight (8) days (Tioseco vs. Day, et al., L-9944, April
30, 1957; Levy Hermanos, Inc. vs. Perez, L-14487, April 29, 1960), and
deducting this period from the time that had elapsed since the accrual of the
right of action to the date of the filing of the complaint, the extent of which is
sixteen (16) years, one (1) month and five (5) days, we would have less than
eight (8) years to be counted for purposes of prescription. Hence appellant's
action on its claim of 10% on the 1941 profits had not yet prescribed.
Another reason that may be taken into account in support of the no-bar theory
of appellant is the arbitration clause embodied in the management contract
which requires that any disagreement as to any amount of profits before an
action may be taken to court shall be subject to arbitration. 24 This agreement
to arbitrate is valid and binding. 25 It cannot be ignored by Lepanto. Hence
Nielson could not bring an action on its participation in the 1941 operations-
profits until the condition relative to arbitration had been first complied
with. 26 The evidence shows that an arbitration committee was constituted but
it failed to accomplish its purpose on June 25, 1957. 27 From this date to the
filing of the complaint the required period for prescription has not yet elapsed.
Nielson claims the following: (1) 10% share in the dividends declared in 1941,
exclusive of interest, amounting to P17,500.00; (2) 10% in the depletion
reserves for 1941; and (3) 10% in the profits for years prior to 1948 amounting
to P19,764.70.
With regard to the first claim, the Lepanto's report for the calendar year of
1954 28 shows that it declared a 10% cash dividend in December, 1941, the
amount of which is P175,000.00. The evidence in this connection (Exhibits L
and O) was admitted without objection by counsel for Lepanto. 29 Nielson
claims 10% share in said amount with interest thereon at 6% per annum. The
document (Exhibit L) was even recognized by Lepanto's President V. L.
Lednicky, 30 and this claim is predicated on the provision of paragraph V of the
management contract as modified pursuant to the proposal of Lepanto at the
special meeting of the Board of Directors on August 21, 1940 (Exh. B), whereby
it was provided that Nielson would be entitled to 10% of any dividends to be
declared and paid during the period of the contract.
With regard to the second claim, Nielson admits that there is no evidence
regarding the amount set aside by Lepanto for depletion reserve for
1941 31 and so the 10% participation claimed thereon cannot be assessed.
Anent the third claim relative to the 10% participation of Nielson on the sum of
P197,647.08, which appears in Lepanto's annual report for 1948 32 and entered
as profit for prior years in the statement of income and surplus, which amount
consisted "almost in its entirety of proceeds of copper concentrates shipped to
the United States during 1947," this claim should to denied because the
amount is not "dividend declared and paid" within the purview of the
management contract.
The fifth assignment of error of appellant refers to the failure of the lower
court to order Lepanto to pay its management fees for January, 1942, and for
the full period of extension amounting to P150,000.00, or P2,500.00 a month
for sixty (60) months, — a total of P152,500.00 — with interest thereon from
the date of judicial demand.
It is true that the claim of management fee for January, 1942 was not among
the causes of action in the complaint, but inasmuch as the contract was
suspended in February, 1942 and the management fees asked for included that
of January, 1942, the fact that such claim was not included in a specific manner
in the complaint is of no moment because an appellate court may treat the
pleading as amended to conform to the evidence where the facts show that the
plaintiff is entitled to relief other than what is asked for in the complaint
(Alonzo vs. Villamor, 16 Phil. 315). The evidence shows that the last payment
made by Lepanto for management fee was for November and December,
1941. 33 If, as We have declared, the management contract was suspended
beginning February 1942, it follows that Nielson is entitled to the management
fee for January, 1942.
78 | A G E N C Y C A S E S | C A B A N L I T
Let us now come to the management fees claimed by Nielson for the period of
extension. In this respect, it has been shown that the management contract
was extended from June 27, 1948 to June 26, 1953, or for a period of sixty (60)
months. During this period Nielson had a right to continue in the management
of the mining properties of Lepanto and Lepanto was under obligation to let
Nielson do it and to pay the corresponding management fees. Appellant
Nielson insisted in performing its part of the contract but Lepanto prevented it
from doing so. Hence, by virtue of Article 1186 of the Civil Code, there was a
constructive fulfillment an the part of Nielson of its obligation to manage said
mining properties in accordance with the contract and Lepanto had the
reciprocal obligation to pay the corresponding management fees and other
benefits that would have accrued to Nielson if Lepanto allowed it (Nielson) to
continue in the management of the mines during the extended period of five
(5) years.
We find that the preponderance of evidence is to the effect that Nielson had
insisted in managing the mining properties soon after liberation. In the
report 34 of Lepanto, submitted to its stockholders for the period from 1941 to
March 13, 1946, are stated the activities of Nielson's officials in relation to
Nielson's insistence in continuing the management. This report was admitted in
evidence without objection. We find the following in the report:
Mr. Blessing, in May, 1945, accompanied Clark and Stanford to San Fernando
(La Union) to await the liberation of the mines. (Mr. Blessing was the Treasurer
and Metallurgist of Nielson). Blessing with Clark and Stanford went to the
property on July 16 and found that while the mill site had been cleared of the
enemy the latter was still holding the area around the staff houses and putting
up a strong defense. As a result, they returned to San Fernando and later went
back to the mines on July 26. Mr. Blessing made the report, dated August 6,
recommending a program of operation. Mr. Nielson himself spent a day in the
mine early in December, 1945 and reiterated the program which Mr. Blessing
had outlined. Two or three weeks before the date of the report, Mr. Coldren of
the Nielson organization also visited the mine and told President C. A. DeWitt
of Lepanto that he thought that the mine could be put in condition for the
delivery of the ore within ten (10) days. And according to Mark Nestle, a
witness of appellant, Nielson had several men including engineers to do the job
in the mines and to resume the work. These engineers were in fact sent to the
mine site and submitted reports of what they had done. 35
On the other hand, appellee claims that Nielson was not ready and able to
resume the work in the mines, relying mainly on the testimony of Dr. Juan
Nabong, former secretary of both Nielson and Lepanto, given in the separate
case of Nancy Irving Romero vs. Lepanto Consolidated Mining Company (Civil
Case No. 652, CFI, Baguio), to the effect that as far as he knew "Nielson and
Company had not attempted to operate the Lepanto Consolidated Mining
Company because Mr. Nielson was not here in the Philippines after the last
war. He came back later," and that Nielson and Company had no money nor
stocks with which to start the operation. He was asked by counsel for the
appellee if he had testified that way in Civil Case No. 652 of the Court of First
Instance of Baguio, and he answered that he did not confirm it fully. When this
witness was asked by the same counsel whether he confirmed that testimony,
he said that when he testified in that case he was not fully aware of what
happened and that after he learned more about the officials of the corporation
it was only then that he became aware that Nielson had really sent his men to
the mines along with Mr. Blessing and that he was aware of this fact personally.
He further said that Mr. Nielson was here in 1945 and "he was going out and
contacting his people." 36
Lepanto admits, in its own brief, that Nielson had really insisted in taking over
the management and operation of the mines but that it (Lepanto)
unequivocally refuse to allow it. The following is what appears in the brief of
the appellee:
It was while defendant was in the midst of the rehabilitation work
which was fully described earlier, still reeling under the terrible
devastation and destruction wrought by war on its mine that Nielson
insisted in taking over the management and operation of the mine.
Nielson thus put Lepanto in a position where defendant, under the
circumstances, had to refuse, as in fact it did, Nielson's insistence in
taking over the management and operation because, as was obvious,
it was impossible, as a result of the destruction of the mine, for the
plaintiff to manage and operate the same and because, as provided in
the agreement, the contract was suspended by reason of the war. The
stand of Lepanto in disallowing Nielson to assume again the
management of the mine in 1945 was unequivocal and cannot be
misinterpreted, infra.37
79 | A G E N C Y C A S E S | C A B A N L I T

Based on the foregoing facts and circumstances, and Our conclusion that the
15 40% December 1951 2,000,000.00
management contract was extended, We believe that Nielson is entitled to the
management fees for the period of extension. Nielson should be awarded on 16 20% March 1952 1,000,000.00
this claim sixty times its monthly pay of P2,500.00, or a total of P150,000.00.
17 20% May 1952 1,000,000.00
In its sixth assignment of error Nielson contends that the lower court erred in
not ordering Lepanto to pay it (Nielson) the 10% share in the profits of 18 20% July 1952 1,000,000.00
operation realized during the period of five (5) years from the resumption of its
post-war operations of the Mankayan mines, in the total sum of P2,403,053.20 19 20% September 1952 1,000,000.00
with interest thereon at the rate of 6% per annum from February 6, 1958 until
20 20% December 1952 1,000,000.00
full payment. 38
21 20% March 1953 1,000,000.00
The above claim of Nielson refers to four categories, namely: (1) cash
dividends; (2) stock dividends; (3) depletion reserves; and (4) amount expended 22 20% June 1953     1,000,000.00
on capital investment.
TOTAL P14,000,000.00
Anent the first category, Lepanto's report for the calendar year 1954 39 contains
a record of the cash dividends it paid up to the date of said report, and the
According to the terms of the management contract as modified, appellant is
post-war dividends paid by it corresponding to the years included in the period
entitled to 10% of the P14,000,000.00 cash dividends that had been
of extension of the management contract are as follows:
distributed, as stated in the above-mentioned report, or the sum of
P1,400,000.00.
POST-WAR
With regard to the second category, the stock dividends declared by Lepanto
8 10% November 1949 P 200,000.00 during the period of extension of the contract are: On November 28, 1949, the
stock dividend declared was 50% of the outstanding authorized capital of
9 10% July 1950 300,000.00 P2,000,000.00 of the company, or stock dividends worth P1,000,000.00; and on
August 22, 1950, the stock dividends declared was 66-2/3% of the standing
10 10% October 1950 500,000.00 authorized capital of P3,000,000.00 of the company, or stock dividends worth
P2,000,000.00. 40
11 20% December 1950 1,000,000.00
Appellant's claim that it should be given 10% of the cash value of said stock
12 20% March 1951 1,000,000.00
dividends with interest thereon at 6% from February 6, 1958 cannot be granted
13 20% June 1951 1,000,000.00 for that would not be in accordance with the management contract which
entitles Nielson to 10% of any dividends declared paid, when  and as paid.
14 20% September 1951 1,000,000.00 Nielson, therefore, is entitled to 10% of the stock dividends and to the fruits
that may have accrued to said stock dividends pursuant to Article 1164 of the
Civil Code. Hence to Nielson is due shares of stock worth P100,000.00, as per
80 | A G E N C Y C A S E S | C A B A N L I T
stock dividends declared on November 28, 1949 and all the fruits accruing to
said shares after said date; and also shares of stock worth P200,000.00 as per
stock dividends declared on August 20, 1950 and all fruits accruing thereto
after said date.
Anent the third category, the depletion reserve appearing in the statement of
income and surplus submitted by Lepanto corresponding to the years covered
by the period of extension of the contract, may be itemized as follows:
In 1948, as per Exh. F, p. 36 and Exh. Q, p. 5, the depletion reserve set
up was P11,602.80.
In 1949, as per Exh. G, p. 49 and Exh. Q, p. 5, the depletion reserve set
up was P33,556.07.
In 1950, as per Exh. H, p. 37, Exh. Q, p. 6 and Exh. I, p. 37, the
depletion reserve set up was P84,963.30.
In 1951, as per Exh. I, p. 45, Exh. Q, p. 6, and Exh. J, p. 45, the
depletion reserve set up was P129,089.88.
In 1952, as per Exh. J, p. 45, Exh. Q, p. 6 and Exh. K p. 41, the depletion
reserve was P147,141.54.
In 1953, as per Exh. K, p. 41, and Exh. Q, p. 6, the depletion reserve set
up as P277,493.25.
Regarding the depletion reserve set up in 1948 it should be noted that the
amount given was for the whole year. Inasmuch as the contract was extended
only for the last half of the year 1948, said amount of P11,602.80 should be
divided by two, and so Nielson is only entitled to 10% of the half amounting to
P5,801.40.
Likewise, the amount of depletion reserve for the year 1953 was for the whole
year and since the contract was extended only until the first half of the year,
said amount of P277,493.25 should be divided by two, and so Nielson is only
entitled to 10% of the half amounting to P138,746.62. Summing up the entire
depletion reserves, from the middle of 1948 to the middle of 1953, we would
have a total of P539,298.81, of which Nielson is entitled to 10%, or to the sum
of P53,928.88.
Finally, with regard to the fourth category, there is no figure in the record
representing the value of the fixed assets as of the beginning of the period of
extension on June 27, 1948. It is possible, however, to arrive at the amount
needed by adding to the value of the fixed assets as of December 31, 1947 one-
half of the amount spent for capital account in the year 1948. As of December
31, 1947, the value of the fixed assets was P1,061,878.88 41 and as of December
31, 1948, the value of the fixed assets was P3,270,408.07. 42 Hence, the
increase in the value of the fixed assets for the year 1948 was P2,208,529.19,
one-half of which is P1,104,264.59, which amount represents the expenses for
capital account for the first half of the year 1948. If to this amount we add the
fixed assets as of December 31, 1947 amounting to P1,061,878.88, we would
have a total of P2,166,143.47 which represents the fixed assets at the
beginning of the second half of the year 1948.
There is also no figure representing the value of the fixed assets when the
contract, as extended, ended on June 26, 1953; but this may be computed by
getting one-half of the expenses for capital account made in 1953 and adding
the same to the value of the fixed assets as of December 31, 1953 is
P9,755,840.41 43 which the value of the fixed assets as of December 31, 1952 is
P8,463,741.82, the difference being P1,292,098.69. One-half of this amount is
P646,049.34 which would represent the expenses for capital account up to
June, 1953. This amount added to the value of the fixed assets as of December
31, 1952 would give a total of P9,109,791.16 which would be the value of fixed
assets at the end of June, 1953.
The increase, therefore, of the value of the fixed assets of Lepanto from June,
1948 to June, 1953 is P6,943,647.69, which amount represents the difference
between the value of the fixed assets of Lepanto in the year 1948 and in the
year 1953, as stated above. On this amount Nielson is entitled to a share of
10% or to the amount of P694,364.76.
Considering that most of the claims of appellant have been entertained, as
pointed out in this decision, We believe that appellant is entitled to be awarded
81 | A G E N C Y C A S E S | C A B A N L I T

attorney's fees, especially when, according to the undisputed testimony of Mr.
Mark Nestle, Nielson obliged himself to pay attorney's fees in connection with
the institution of the present case. In this respect, We believe, considering the
intricate nature of the case, an award of fifty thousand (P50,000.00) pesos for
attorney's fees would be reasonable.
IN VIEW OF THE FOREGOING CONSIDERATIONS, We hereby reverse the
decision of the court a quo  and enter in lieu thereof another, ordering the
appellee Lepanto to pay appellant Nielson the different amounts as specified
hereinbelow:
(1) 10% share of cash dividends of December, 1941 in the amount of
P17,500.00, with legal interest thereon from the date of the filing of the
complaint;
1950, together with all cash and stock dividends, if any, as may have been
declared and issued subsequent to November 28, 1949 and August 22, 1950, as
fruits that accrued to said shares;
If sufficient shares of stock of Lepanto's are not available to satisfy this
judgment, defendant-appellee shall pay plaintiff-appellant an amount in cash
equivalent to the market value of said shares at the time of default (12 C.J.S., p.
130), that is, all shares of the stock that should have been delivered to Nielson
before the filing of the complaint must be paid at their market value as of the
date of the filing of the complaint; and all shares, if any, that should have been
delivered after the filing of the complaint at the market value of the shares at
the time Lepanto disposed of all its available shares, for it is only then that
Lepanto placed itself in condition of not being able to perform its obligation
(Article 1160, Civil Code);

(2) management fee for January, 1942 in the amount of P2,500.00, with legal (8) the sum of P50,000.00 as attorney's fees; and
interest thereon from the date of the filing of the complaint;
(9) the costs. It is so ordered.
(3) management fees for the sixty-month period of extension of the
management contract, amounting to P150,000.00, with legal interest from the Concepcion, C.J., Regala, Makalintal, Bengzon, J.P., Sanchez and Castro,
date of the filing of the complaint; JJ., concur.

(4) 10% share in the cash dividends during the period of extension of the Reyes, J.B.L. and Barrera, JJ., took no part.
management contract, amounting to P1,400,000.00, with legal interest thereon
from the date of the filing of the complaint;

(5) 10% of the depletion reserve set up during the period of extension,
amounting to P53,928.88, with legal interest thereon from the date of the filing
of the complaint;

(6) 10% of the expenses for capital account during the period of extension,
amounting to P694,364.76, with legal interest thereon from the date of the
filing of the complaint;

(7) to issue and deliver to Nielson and Co., Inc. shares of stock of Lepanto
Consolidated Mining Co. at par value equivalent to the total of Nielson's l0%
share in the stock dividends declared on November 28, 1949 and August 22,
82 | A G E N C Y C A S E S | C A B A N L I T

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-12986             March 31, 1966

THE SPOUSES BERNABE AFRICA and SOLEDAD C. AFRICA, and the HEIRS OF
DOMINGA ONG, petitioners-appellants,
vs.
CALTEX (PHIL.), INC., MATEO BOQUIREN and THE COURT OF
APPEALS, respondents-appellees.

Ross, Selph, Carrascoso and Janda for the respondents.

Bernabe Africa, etc. for the petitioners.

MAKALINTAL., J.:

This case is before us on a petition for review of the decision of the Court of
Appeals, which affirmed that of the Court of First Instance of Manila dismissing
petitioners' second amended complaint against respondents.

The action is for damages under Articles 1902 and 1903 of the old Civil Code. It
appears that in the afternoon of March 18, 1948 a fire broke out at the Caltex
service station at the corner of Antipolo street and Rizal Avenue, Manila. It
started while gasoline was being hosed from a tank truck into the underground
storage, right at the opening of the receiving tank where the nozzle of the hose
83 | A G E N C Y C A S E S | C A B A N L I T
was inserted. The fire spread to and burned several neighboring houses,
including the personal properties and effects inside them. Their owners, among
them petitioners here, sued respondents Caltex (Phil.), Inc. and Mateo
Boquiren, the first as alleged owner of the station and the second as its agent in
charge of operation. Negligence on the part of both of them was attributed as
the cause of the fire.
The trial court and the Court of Appeals found that petitioners failed to prove
negligence and that respondents had exercised due care in the premises and
with respect to the supervision of their employees.
The first question before Us refers to the admissibility of certain reports on the
fire prepared by the Manila Police and Fire Departments and by a certain
Captain Tinio of the Armed Forces of the Philippines. Portions of the first two
reports are as follows:
1. Police Department report: —
Investigation disclosed that at about 4:00 P.M. March 18,
1948, while Leandro Flores was transferring gasoline from a
tank truck, plate No. T-5292 into the underground tank of the
Caltex Gasoline Station located at the corner of Rizal Avenue
and Antipolo Street, this City, an unknown Filipino lighted a
cigarette and threw the burning match stick near the main
valve of the said underground tank. Due to the gasoline
fumes, fire suddenly blazed. Quick action of Leandro Flores in
pulling off the gasoline hose connecting the truck with the
underground tank prevented a terrific explosion. However,
the flames scattered due to the hose from which the gasoline
was spouting. It burned the truck and the following
accessorias and residences.
2. The Fire Department report: —
In connection with their allegation that the premises was (sic)
subleased for the installation of a coca-cola and cigarette stand, the
complainants furnished this Office a copy of a photograph taken
during the fire and which is submitted herewith. it appears in this
picture that there are in the premises a coca-cola cooler and a rack
which according to information gathered in the neighborhood
contained cigarettes and matches, installed between the gasoline
pumps and the underground tanks.
The report of Captain Tinio reproduced information given by a certain Benito
Morales regarding the history of the gasoline station and what the chief of the
fire department had told him on the same subject.
The foregoing reports were ruled out as "double hearsay" by the Court of
Appeals and hence inadmissible. This ruling is now assigned as error. It is
contended: first, that said reports were admitted by the trial court without
objection on the part of respondents; secondly, that with respect to the police
report (Exhibit V-Africa) which appears signed by a Detective Zapanta allegedly
"for Salvador Capacillo," the latter was presented as witness but respondents
waived their right to cross-examine him although they had the opportunity to
do so; and thirdly, that in any event the said reports are admissible as an
exception to the hearsay rule under section 35 of Rule 123, now Rule 130.
The first contention is not borne out by the record. The transcript of the
hearing of September 17, 1953 (pp. 167-170) shows that the reports in
question, when offered as evidence, were objected to by counsel for each of
respondents on the ground that they were hearsay and that they were
"irrelevant, immaterial and impertinent." Indeed, in the court's resolution only
Exhibits J, K, K-5 and X-6 were admitted without objection; the admission of the
others, including the disputed ones, carried no such explanation.
On the second point, although Detective Capacillo did take the witness stand,
he was not examined and he did not testify as to the facts mentioned in his
alleged report (signed by Detective Zapanta). All he said was that he was one of
those who investigated "the location of the fire and, if possible, gather
witnesses as to the occurrence, and that he brought the report with him. There
was nothing, therefore, on which he need be cross-examined; and the contents
of the report, as to which he did not testify, did not thereby become competent
evidence. And even if he had testified, his testimony would still have been
84 | A G E N C Y C A S E S | C A B A N L I T
objectionable as far as information gathered by him from third persons was
concerned.
Petitioners maintain, however, that the reports in themselves, that is, without
further testimonial evidence on their contents, fall within the scope of section
35, Rule 123, which provides that "entries in official records made in the
performance of his duty by a public officer of the Philippines, or by a person in
the performance of a duty specially enjoined by law, are  prima facie evidence
of the facts therein stated."
There are three requisites for admissibility under the rule just mentioned: (a)
that the entry was made by a public officer, or by another person specially
enjoined by law to do so; (b) that it was made by the public officer in the
performance of his duties, or by such other person in the performance of a
duty specially enjoined by law; and (c) that the public officer or other person
had sufficient knowledge of the facts by him stated, which must have been
acquired by him personally or through official information (Moran, Comments
on the Rules of Court, Vol. 3 [1957] p. 398).
Of the three requisites just stated, only the last need be considered here.
Obviously the material facts recited in the reports as to the cause and
circumstances of the fire were not within the personal knowledge of the
officers who conducted the investigation. Was knowledge of such facts,
however, acquired by them through official information? As to some facts the
sources thereof are not even identified. Others are attributed to Leopoldo
Medina, referred to as an employee at the gas station were the fire occurred;
to Leandro Flores, driver of the tank truck from which gasoline was being
transferred at the time to the underground tank of the station; and to
respondent Mateo Boquiren, who could not, according to Exhibit V-Africa, give
any reason as to the origin of the fire. To qualify their statements as "official
information" acquired by the officers who prepared the reports, the persons
who made the statements not only must have personal knowledge of the facts
stated but must have the duty to give such statements for record. 1
The reports in question do not constitute an exception to the hearsay rule; the
facts stated therein were not acquired by the reporting officers through official
information, not having been given by the informants pursuant to any duty to
do so.
The next question is whether or not, without proof as to the cause and origin of
the fire, the doctrine of res ipsa loquitur  should apply so as to presume
negligence on the part of appellees. Both the trial court and the appellate court
refused to apply the doctrine in the instant case on the grounds that "as to (its)
applicability ... in the Philippines, there seems to he nothing definite," and that
while the rules do not prohibit its adoption in appropriate cases, "in the case at
bar, however, we find no practical use for such doctrine." The question
deserves more than such summary dismissal. The doctrine has actually been
applied in this jurisdiction, in the case of Espiritu vs. Philippine Power and
Development Co. (CA-G.R. No. 3240-R, September 20, 1949), wherein the
decision of the Court of Appeals was penned by Mr. Justice J.B.L. Reyes now a
member of the Supreme Court.
The facts of that case are stated in the decision as follows:
In the afternoon of May 5, 1946, while the plaintiff-appellee and other
companions were loading grass between the municipalities of Bay and
Calauan, in the province of Laguna, with clear weather and without
any wind blowing, an electric transmission wire, installed and
maintained by the defendant Philippine Power and Development Co.,
Inc. alongside the road, suddenly parted, and one of the broken ends
hit the head of the plaintiff as he was about to board the truck. As a
result, plaintiff received the full shock of 4,400 volts carried by the
wire and was knocked unconscious to the ground. The electric charge
coursed through his body and caused extensive and serious multiple
burns from skull to legs, leaving the bone exposed in some parts and
causing intense pain and wounds that were not completely healed
when the case was tried on June 18, 1947, over one year after the
mishap.
The defendant therein disclaimed liability on the ground that the plaintiff had
failed to show any specific act of negligence, but the appellate court overruled
the defense under the doctrine of res ipsa loquitur. The court said:
85 | A G E N C Y C A S E S | C A B A N L I T
The first point is directed against the sufficiency of plaintiff's evidence
to place appellant on its defense. While it is the rule, as contended by
the appellant, that in case of noncontractual negligence, or culpa
aquiliana, the burden of proof is on the plaintiff to establish that the
proximate cause of his injury was the negligence of the defendant, it is
also a recognized principal that "where the thing which caused injury,
without fault of the injured person, is under the exclusive control of
the defendant and the injury is such as in the ordinary course of things
does not occur if he having such control use proper care, it affords
reasonable evidence, in the absence of the explanation, that the injury
arose from defendant's want of care."
And the burden of evidence is shifted to him to establish that he has
observed due care and diligence. (San Juan Light & Transit Co. v.
Requena, 244, U.S. 89, 56 L. ed. 680.) This rule is known by the name
of res ipsa loquitur  (the transaction speaks for itself), and is peculiarly
applicable to the case at bar, where it is unquestioned that the
plaintiff had every right to be on the highway, and the electric wire
was under the sole control of defendant company. In the ordinary
course of events, electric wires do not part suddenly in fair weather
and injure people, unless they are subjected to unusual strain and
stress or there are defects in their installation, maintenance and
supervision; just as barrels do not ordinarily roll out of the warehouse
windows to injure passersby, unless some one was negligent. (Byrne v.
Boadle, 2 H & Co. 722; 159 Eng. Reprint 299, the leading case that
established that rule). Consequently, in the absence of contributory
negligence (which is admittedly not present), the fact that the wire
snapped suffices to raise a reasonable presumption of negligence in its
installation, care and maintenance. Thereafter, as observed by Chief
Baron Pollock, "if there are any facts inconsistent with negligence, it is
for the defendant to prove."
It is true of course that decisions of the Court of Appeals do not lay down
doctrines binding on the Supreme Court, but we do not consider this a reason
for not applying the particular doctrine of res ipsa loquitur in the case at bar.
Gasoline is a highly combustible material, in the storage and sale of which
extreme care must be taken. On the other hand, fire is not considered a
fortuitous event, as it arises almost invariably from some act of man. A case
strikingly similar to the one before Us is Jones vs. Shell Petroleum Corporation,
et al., 171 So. 447:
Arthur O. Jones is the owner of a building in the city of Hammon which
in the year 1934 was leased to the Shell Petroleum Corporation for a
gasoline filling station. On October 8, 1934, during the term of the
lease, while gasoline was being transferred from the tank wagon, also
operated by the Shell Petroleum Corporation, to the underground
tank of the station, a fire started with resulting damages to the
building owned by Jones. Alleging that the damages to his building
amounted to $516.95, Jones sued the Shell Petroleum Corporation for
the recovery of that amount. The judge of the district court, after
hearing the testimony, concluded that plaintiff was entitled to a
recovery and rendered judgment in his favor for $427.82. The Court of
Appeals for the First Circuit reversed this judgment, on the ground the
testimony failed to show with reasonable certainty any negligence on
the part of the Shell Petroleum Corporation or any of its agents or
employees. Plaintiff applied to this Court for a Writ of Review which
was granted, and the case is now before us for decision.1äwphï1.ñët
In resolving the issue of negligence, the Supreme Court of Louisiana held:
Plaintiff's petition contains two distinct charges of negligence — one
relating to the cause of the fire and the other relating to the spreading
of the gasoline about the filling station.
Other than an expert to assess the damages caused plaintiff's building
by the fire, no witnesses were placed on the stand by the defendant.
Taking up plaintiff's charge of negligence relating to the cause of the
fire, we find it established by the record that the filling station and the
tank truck were under the control of the defendant and operated by
its agents or employees. We further find from the uncontradicted
testimony of plaintiff's witnesses that fire started in the underground
tank attached to the filling station while it was being filled from the
tank truck and while both the tank and the truck were in charge of and
being operated by the agents or employees of the defendant,
86 | A G E N C Y C A S E S | C A B A N L I T
extended to the hose and tank truck, and was communicated from the
burning hose, tank truck, and escaping gasoline to the building owned
by the plaintiff.
Predicated on these circumstances and the further circumstance of
defendant's failure to explain the cause of the fire or to show its lack
of knowledge of the cause, plaintiff has evoked the doctrine of res ipsa
loquitur. There are many cases in which the doctrine may be
successfully invoked and this, we think, is one of them.
Where the thing which caused the injury complained of is shown to be
under the management of defendant or his servants and the accident
is such as in the ordinary course of things does not happen if those
who have its management or control use proper care, it affords
reasonable evidence, in absence of explanation by defendant, that the
accident arose from want of care. (45 C.J. #768, p. 1193).
This statement of the rule of res ipsa loquitur has been widely
approved and adopted by the courts of last resort. Some of the cases
in this jurisdiction in which the doctrine has been applied are the
following, viz.: Maus v. Broderick, 51 La. Ann. 1153, 25 So. 977; Hebert
v. Lake Charles Ice, etc., Co., 111 La. 522, 35 So. 731, 64 L.R.A. 101, 100
Am. St. Rep. 505; Willis v. Vicksburg, etc., R. Co., 115 La. 63, 38 So.
892; Bents v. Page, 115 La. 560, 39 So. 599.
The principle enunciated in the aforequoted case applies with equal force here.
The gasoline station, with all its appliances, equipment and employees, was
under the control of appellees. A fire occurred therein and spread to and
burned the neighboring houses. The persons who knew or could have known
how the fire started were appellees and their employees, but they gave no
explanation thereof whatsoever. It is a fair and reasonable inference that the
incident happened because of want of care.
In the report submitted by Captain Leoncio Mariano of the Manila Police
Department (Exh. X-1 Africa) the following appears:
Investigation of the basic complaint disclosed that the Caltex Gasoline
Station complained of occupies a lot approximately 10 m x 10 m at the
southwest corner of Rizal Avenue and Antipolo. The location is within
a very busy business district near the Obrero Market, a railroad
crossing and very thickly populated neighborhood where a great
number of people mill around t
until
gasoline
tever be theWactjvities of these peopleor lighting a cigarette cannot
be excluded and this constitute a secondary hazard to its operation
which in turn endangers the entire neighborhood to conflagration.
Furthermore, aside from precautions already taken by its operator the
concrete walls south and west adjoining the neighborhood are only 2-
1/2 meters high at most and cannot avoid the flames from leaping
over it in case of fire.
Records show that there have been two cases of fire which caused not
only material damages but desperation and also panic in the
neighborhood.
Although the soft drinks stand had been eliminated, this gasoline
service station is also used by its operator as a garage and repair shop
for his fleet of taxicabs numbering ten or more, adding another risk to
the possible outbreak of fire at this already small but crowded gasoline
station.
The foregoing report, having been submitted by a police officer in the
performance of his duties on the basis of his own personal observation of the
facts reported, may properly be considered as an exception to the hearsay rule.
These facts, descriptive of the location and objective circumstances
surrounding the operation of the gasoline station in question, strengthen the
presumption of negligence under the doctrine of res ipsa loquitur, since on
their face they called for more stringent measures of caution than those which
87 | A G E N C Y C A S E S | C A B A N L I T
would satisfy the standard of due diligence under ordinary circumstances.
There is no more eloquent demonstration of this than the statement of
Leandro Flores before the police investigator. Flores was the driver of the
gasoline tank wagon who, alone and without assistance, was transferring the
contents thereof into the underground storage when the fire broke out. He
said: "Before loading the underground tank there were no people, but while
the loading was going on, there were people who went to drink coca-cola (at
the coca-cola stand) which is about a meter from the hole leading to the
underground tank." He added that when the tank was almost filled he went to
the tank truck to close the valve, and while he had his back turned to the
"manhole" he, heard someone shout "fire."
Even then the fire possibly would not have spread to the neighboring houses
were it not for another negligent omission on the part of defendants, namely,
their failure to provide a concrete wall high enough to prevent the flames from
leaping over it. As it was the concrete wall was only 2-1/2 meters high, and
beyond that height it consisted merely of galvanized iron sheets, which would
predictably crumple and melt when subjected to intense heat. Defendants'
negligence, therefore, was not only with respect to the cause of the fire but
also with respect to the spread thereof to the neighboring houses.
There is an admission on the part of Boquiren in his amended answer to the
second amended complaint that "the fire was caused through the acts of a
stranger who, without authority, or permission of answering defendant, passed
through the gasoline station and negligently threw a lighted match in the
premises." No evidence on this point was adduced, but assuming the allegation
to be true — certainly any unfavorable inference from the admission may be
taken against Boquiren — it does not extenuate his negligence. A decision of
the Supreme Court of Texas, upon facts analogous to those of the present case,
states the rule which we find acceptable here. "It is the rule that those who
distribute a dangerous article or agent, owe a degree of protection to the
public proportionate to and commensurate with a danger involved ... we think
it is the generally accepted rule as applied to torts that 'if the effects of the
actor's negligent conduct actively and continuously operate to bring about
harm to another, the fact that the active and substantially simultaneous
operation of the effects of a third person's innocent, tortious or criminal act is
also a substantial factor in bringing about the harm, does not protect the actor
from liability.' (Restatement of the Law of Torts, vol. 2, p. 1184, #439). Stated in
another way, "The intention of an unforeseen and unexpected cause, is not
sufficient to relieve a wrongdoer from consequences of negligence, if such
negligence directly and proximately cooperates with the independent cause in
the resulting injury." (MacAfee, et al. vs. Traver's Gas Corporation, 153 S.W.
2nd 442.)
The next issue is whether Caltex should be held liable for the damages caused
to appellants. This issue depends on whether Boquiren was an independent
contractor, as held by the Court of Appeals, or an agent of Caltex. This
question, in the light of the facts not controverted, is one of law and hence may
be passed upon by this Court. These facts are: (1) Boquiren made an admission
that he was an agent of Caltex; (2) at the time of the fire Caltex owned the
gasoline station and all the equipment therein; (3) Caltex exercised control over
Boquiren in the management of the state; (4) the delivery truck used in
delivering gasoline to the station had the name of CALTEX painted on it; and (5)
the license to store gasoline at the station was in the name of Caltex, which
paid the license fees. (Exhibit T-Africa; Exhibit U-Africa; Exhibit X-5 Africa;
Exhibit X-6 Africa; Exhibit Y-Africa).
In Boquiren's amended answer to the second amended complaint, he denied
that he directed one of his drivers to remove gasoline from the truck into the
tank and alleged that the "alleged driver, if one there was, was not in his
employ, the driver being an employee of the Caltex (Phil.) Inc. and/or the
owners of the gasoline station." It is true that Boquiren later on amended his
answer, and that among the changes was one to the effect that he was not
acting as agent of Caltex. But then again, in his motion to dismiss appellants'
second amended complaint the ground alleged was that it stated no cause of
action since under the allegations thereof he was merely acting as agent of
Caltex, such that he could not have incurred personal liability. A motion to
dismiss on this ground is deemed to be an admission of the facts alleged in the
complaint.
Caltex admits that it owned the gasoline station as well as the equipment
therein, but claims that the business conducted at the service station in
question was owned and operated by Boquiren. But Caltex did not present any
contract with Boquiren that would reveal the nature of their relationship at the
time of the fire. There must have been one in existence at that time. Instead,
88 | A G E N C Y C A S E S | C A B A N L I T
what was presented was a license agreement manifestly tailored for purposes
of this case, since it was entered into shortly before the expiration of the one-
year period it was intended to operate. This so-called license agreement
(Exhibit 5-Caltex) was executed on November 29, 1948, but made effective as
of January 1, 1948 so as to cover the date of the fire, namely, March 18, 1948.
This retroactivity provision is quite significant, and gives rise to the conclusion
that it was designed precisely to free Caltex from any responsibility with
respect to the fire, as shown by the clause that Caltex "shall not be liable for
any injury to person or property while in the property herein licensed, it being
understood and agreed that LICENSEE (Boquiren) is not an employee,
representative or agent of LICENSOR (Caltex)."
But even if the license agreement were to govern, Boquiren can hardly be
considered an independent contractor. Under that agreement Boquiren would
pay Caltex the purely nominal sum of P1.00 for the use of the premises and all
the equipment therein. He could sell only Caltex Products. Maintenance of the
station and its equipment was subject to the approval, in other words control,
of Caltex. Boquiren could not assign or transfer his rights as licensee without
the consent of Caltex. The license agreement was supposed to be from January
1, 1948 to December 31, 1948, and thereafter until terminated by Caltex upon
two days prior written notice. Caltex could at any time cancel and terminate
the agreement in case Boquiren ceased to sell Caltex products, or did not
conduct the business with due diligence, in the judgment of Caltex.
Termination of the contract was therefore a right granted only to Caltex but
not to Boquiren. These provisions of the contract show the extent of the
control of Caltex over Boquiren. The control was such that the latter was
virtually an employee of the former.
Taking into consideration the fact that the operator owed his position
to the company and the latter could remove him or terminate his
services at will; that the service station belonged to the company and
bore its tradename and the operator sold only the products of the
company; that the equipment used by the operator belonged to the
company and were just loaned to the operator and the company took
charge of their repair and maintenance; that an employee of the
company supervised the operator and conducted periodic inspection
of the company's gasoline and service station; that the price of the
products sold by the operator was fixed by the company and not by
the operator; and that the receipts signed by the operator indicated
that he was a mere agent, the finding of the Court of Appeals that the
operator was an agent of the company and not an independent
contractor should not be disturbed.
To determine the nature of a contract courts do not have or are not
bound to rely upon the name or title given it by the contracting
parties, should thereby a controversy as to what they really had
intended to enter into, but the way the contracting parties do or
perform their respective obligations stipulated or agreed upon may be
shown and inquired into, and should such performance conflict with
the name or title given the contract by the parties, the former must
prevail over the latter. (Shell Company of the Philippines, Ltd. vs.
Firemens' Insurance Company of Newark, New Jersey, 100 Phil. 757).
The written contract was apparently drawn for the purpose of creating
the apparent relationship of employer and independent contractor,
and of avoiding liability for the negligence of the employees about the
station; but the company was not satisfied to allow such relationship
to exist. The evidence shows that it immediately assumed control, and
proceeded to direct the method by which the work contracted for
should be performed. By reserving the right to terminate the contract
at will, it retained the means of compelling submission to its orders.
Having elected to assume control and to direct the means and
methods by which the work has to be performed, it must be held
liable for the negligence of those performing service under its
direction. We think the evidence was sufficient to sustain the verdict
of the jury. (Gulf Refining Company v. Rogers, 57 S.W. 2d, 183).
Caltex further argues that the gasoline stored in the station belonged to
Boquiren. But no cash invoices were presented to show that Boquiren had
bought said gasoline from Caltex. Neither was there a sales contract to prove
the same.
As found by the trial court the Africas sustained a loss of P9,005.80, after
deducting the amount of P2,000.00 collected by them on the insurance of the
house. The deduction is now challenged as erroneous on the ground that
89 | A G E N C Y C A S E S | C A B A N L I T

Article 2207 of the New Civil Code, which provides for the subrogation of the
insurer to the rights of the insured, was not yet in effect when the loss took
place. However, regardless of the silence of the law on this point at that time,
the amount that should be recovered be measured by the damages actually
suffered, otherwise the principle prohibiting unjust enrichment would be
violated. With respect to the claim of the heirs of Ong P7,500.00 was adjudged
by the lower court on the basis of the assessed value of the property
destroyed, namely, P1,500.00, disregarding the testimony of one of the Ong
SECOND DIVISION
children that said property was worth P4,000.00. We agree that the court
erred, since it is of common knowledge that the assessment for taxation
G.R. No. 154499            March 14, 2003
purposes is not an accurate gauge of fair market value, and in this case should
not prevail over positive evidence of such value. The heirs of Ong are therefore
entitled to P10,000.00. ALBERTO V. REYES, WILFREDO B. DOMO-ONG, and HERMINIO C.
PRINCIPIO, petitioners,
vs.
Wherefore, the decision appealed from is reversed and respondents-appellees
RURAL BANK OF SAN MIGUEL (BULACAN), INC., represented by HILARIO P.
are held liable solidarily to appellants, and ordered to pay them the aforesaid
SORIANO, President and Principal Stockholder, respondent.
sum of P9,005.80 and P10,000.00, respectively, with interest from the filing of
the complaint, and costs.
Mendoza, J.:
Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera, Regala,
Bengzon, J.P., Zaldivar and Sanchez, JJ., concur. Petitioners are officials of the Bangko Sentral ng Pilipinas (BSP). At the time
Dizon, J., took no part. material to this case, Alberto V. Reyes was Deputy Governor and Head of the
Supervision and Examination Sector (SES), Wilfredo B. Domo-ong was Director
of the Department of Rural Banks (DRB), while Herminio Principio was an
Examiner of the DRB. They filed this petition for review on certiorari of the
decision1 of the Court of Appeals which found them administratively liable for
unprofessionalism under the Code of Conduct and Ethical Standards on Public
Officials and Employees and imposed upon each of them a fine equivalent to six
months of their salaries.

The case arose from a letter,2 dated May 19, 1999, which respondent Rural
Bank of San Miguel (Bulacan), Inc. (RBSMI) sent to then BSP Governor Gabriel
Singson. In its letter, RBSMI charged petitioners with violations of Republic Act
No. 3019 (Anti-Graft and Corrupt Practices Act) and Republic Act No. 6713
(Code of Conduct and Ethical Standards for Public Officials and Employees). The
Monetary Board of the BSP created a committee to investigate the matter.
90 | A G E N C Y C A S E S | C A B A N L I T
The ensuing investigation revealed that RBSMI had had a history of major
violations/exceptions dating back to 1995. The Report of Examination 3 on
RBSMI as of July 31, 1995, submitted by BSP Examiner Danilo J. Castillo, cited 10
major exceptions/violations and deficiencies of RBSMI, for which reason the
latter was directed to immediately desist from conducting business in an
unsound and unsafe manner. On March 15, 1996, RBSMI undertook to take
corrective measures and/or comply with the instructions/recommendations of
the BSP.4
In 1996, RBSMI was again examined. The examination team was led by
petitioner Principio who, in a "Report of Examination 5 on RBSMI as of
September 15, 1996," noted 20 serious exceptions/violations and deficiencies
of RBSMI. On January 9, 1997, upon her request, Rose Ilagan, an RBSMI
director, was given a copy of the list of exceptions/deficiencies found by
petitioner Principio. Ms. Ilagan, however, in a sworn affidavit, 6 dated August 10,
1999, claimed that the copy she was given was unreadable, "making it
impossible for RBSMI to immediately react to said list of exceptions."
The exit conference on the September 1996 General Examination on RBSMI
was originally scheduled on January 13, 1997, but on that date, RBSMI’s Legal
Counsel and Corporate Secretary requested a rescheduling of the conference
"to allow RBSMI to review the findings/ exceptions and thereafter, prepare
their comments/observations on the same."7 In a letter, dated January 14,
1997, petitioner Domo-ong granted the request and the conference was reset
to January 21, 1997.
It is claimed that the board of RBSMI discussed the exceptions noted in the list
given to them on January 21, 1997, but as the copy sent to them was
unreadable, "it was unable to understand many exceptions." As the members
of the board were furnished clear copies only during the exit conference,
RBSMI asked for 30 days within which to submit its answer to the exceptions.
Meanwhile, an advance copy of the report of petitioner Principio was
submitted to the Monetary Board (MB) after review of said report by petitioner
Domo-ong. The report, which was dated January 23, 1997, was signed by
petitioner Reyes and submitted to the MB on January 27, 1997. Acting on this
memorandum, the MB issued Resolution No. 968 requiring RBSMI to explain in
writing within 15 days the findings of the examiner. It also directed the DRB to
verify, monitor, and report to the Deputy Governor, petitioner Reyes, the
findings/exceptions noted until the same had been corrected.
On February 26, 1997, RBSMI submitted its comments on the
exceptions/deficiencies/findings noted by petitioners in a paper entitled
"Concurrence, Corrections and Comments on the Exceptions, Deficiencies and
Recommendations of BSP in its ‘General Examination of RBSMI’s Books of
Accounts as of September 15, 1996 as contained in the Report of Examiner
Herminio C. Principio, dated December 23, 1996, initially discussed on January
21, 1997.’"9
Pursuant to the MB’s directive in Resolution No. 96, another examination team
conducted a special examination on RBSMI from March 4, 1997 to March 26,
1997, with February 28, 1997 as the cut-off date of examination. The special
examination team, headed by petitioner Principio and assisted by Ms.
Carmelita Reyes, was introduced to RBSMI through a letter of petitioner Domo-
ong dated February 14, 1997.
RBSMI president Hilario Soriano claims that he was pressured on March 4, 1997
into issuing a memorandum to the bank employees authorizing petitioner
Principio and Ms. Reyes to review the bank’s accounting and internal control
system. He likewise claims that sometime in March 1997, petitioner Reyes
urged him (Soriano) to consider selling the bank. Soriano says that on or about
May 28, 1997, Soriano, through a telephone introduction made by petitioner
Reyes the day before, met with Exequiel Villacorta, President and Chief
Executive Officer of TA Bank. In his sworn affidavit, 10 Villacorta confirmed that
he and Soriano indeed met to discuss a possible corporate combination of
RBSMI and TA Bank. The talks between TA Bank and RBSMI never got past the
exploratory stage. Their discussions were cut short as Soriano wanted a "sell-
out," while Villacorta was interested in a "buy-in."
Soriano continues: Around the last week of May, petitioner Reyes asked him
(Soriano) whether he wanted another buyer. When told that he did, petitioner
Reyes introduced Soriano by telephone to Benjamin P. Castillo of the Export
and Industry Bank (EIB). Hence, he and Castillo met on June 26, 1997, but their
talks ended then and there because, as per his affidavit 11 dated July 12, 1999,
91 | A G E N C Y C A S E S | C A B A N L I T
Castillo alleged that Soriano insisted on an RBSMI sell-out while he wanted a
mere EIB buy-in and take-over of the management.
Meanwhile, on June 13, 1997, the MB approved Resolution No. 724 12 noting
the Report on the examination of RBSMI submitted by petitioner Domo-ong.
The MB confirmed the steps taken or to be taken by the DRB. It also ordered
RBSMI to correct the major exceptions noted within 30 days from receipt of the
advice and to remit to the BSP the amount of P2,538,483.00 as fines and
penalties for incurring deficiencies in reserves against deposit liabilities.
In accordance with the MB resolution, petitioner Domo-ong wrote the bank on
June 25, 1997, informing it of the prescriptions of the resolution. On July 21,
1997, Soriano submitted RBSMI’s answers to the BSP exceptions/findings
mentioned. Soriano said in the letter that "the actions taken or to be taken by
the bank (RBSMI) were deliberated and ratified by the Board of Directors in its
regular meeting held on July 9, 1997." With regard to the fines and penalties
amounting to P2,538,483.00, RBSMI requested the director of the DRB to debit
its demand deposit with the amount.13
On September 22, 1997, nearly six months after MB Resolution No. 96 had
been issued, RBSMI wrote petitioner Domo-ong seeking clarification of two
specific issues:
1. May the scope/coverage of monitoring be expanded as to include
verifications of bank transactions, before and beyond the cut-off date
of the general examinations as of September 15, 1996? If so, to what
extent?
2. Was there no pre-empting of the Monetary Board directive which
was approved under Resolution No. 96 dated January 29, 1997? 14
In a letter, dated November 13, 1997, petitioner Domo-ong explained that
"DRB’s monitoring of the extent of corrective measures must necessarily cover
bank transactions after the examination cut-off date to be assured that the
same exceptions have not been repeated." As to the second issue, he explained
that "there was no pre-empting of the MB directive as it was approved on
January 29, 1997, way ahead of the initial monitoring which was undertaken
from March 4 to 26, 1997 with a cut-off date of February 26, 1997." In
conclusion, petitioner Domo-ong said that "considering that ‘monitoring’ in this
regard simply means overseeing, observing or keeping track of the corrective
measures being made by the bank on the serious findings/exceptions noted,
we do not see any reason for your apprehensions on the matter. As soon as
said findings/exceptions have been fully corrected, then the DRB can
immediately recommend the lifting of said monitoring." 15
Meanwhile, petitioner Principio allegedly requested RBSMI on October 6, 1997
to authorize him and a new BSP examiner, Ms. Zeny Cabais, to visit the bank
from time to time to review accounting and control systems. This was before a
letter of introduction, dated October 10, 1997, was issued by DRB introducing
the new examination team of petitioner Principio and Ms. Cabais. The letter of
instruction stated that both examiners were authorized, pursuant to MB
Resolution No. 96, to verify and monitor the corrective measures taken by
RBSMI on the findings/exceptions noted in the general examination of
September 15, 1996.
When petitioner Principio presented the letter to Ms. Ilagan on October 22,
1997, the latter allegedly asked for a specification of the scope of his
examination. However, Ms. Ilagan claimed in her sworn affidavit that on
October 22, 1997 Soriano asked petitioner Principio to make a formal request
for the records which he wanted to examine in order to avoid confusion.
Nevertheless, Soriano subsequently allowed petitioner Principio to conduct the
examination without the formal request.
Soriano claims that sometime in November 1997, he accidentally met
petitioner Reyes who allegedly told him to sell out or RBSMI would suffer a
bank run and it would be placed under conservatorship. Early that month, the
Monetary Board issued Resolution No. 1473,16 dated November 5, 1997,
ordering the continuous verification/monitoring of RBSMI until the major
exceptions were substantially corrected. It likewise warned the officers of the
bank that unless they ceased from conducting business in such an unsafe and
unsound manner, drastic actions might be taken against the bank, including the
take-over of management without prejudice to the prosecution of parties
responsible pursuant to § 36 of R.A. No. 7653.
92 | A G E N C Y C A S E S | C A B A N L I T
The action of the MB was followed on March 20, 1998 by the MB’s notation of
DRB’s report on the corrective measures taken by complainant on the serious
findings/exceptions in the September 15, 1996 General Examination. However,
as there were some major and/or serious exceptions/findings which remained
uncorrected, the MB again ordered its DRB to continue the
verification/monitoring of RBSMI until the exceptions/findings were fully
corrected.
In another development, the Manila Electric Company (MERALCO) issued a
memorandum,17 dated April 6, 1998, to all of its collection officers enjoining
them not to accept RBSMI checks from customers and other payees of bills,
service deposit, and other payments until further advice from the Treasury.
MERALCO thought that RBSMI had declared a "bank holiday." The next day
(April 7, 1998), MERALCO issued another memorandum 18 to its collection
officers, informing them that RBSMI’s alleged bank holiday was not true and
instructing them to accept RBSMI checks from customers and other payees.
This was after the BSP had denied the news of pending RBSMI bank holiday. On
the same date, MERALCO issued a letter of apology to RBSMI Chairman Atty.
Sedfrey A. Ordoñez.
Thereafter, more than one year after authorizing the BSP to debit its demand
deposit up to the extent of the fines and penalties imposed by BSP, RBSMI,
through its counsel Atty. Rene Saguisag, in a letter, 19 dated November 4, 1998,
appealed to the MB to reverse the imposition of the P2.5 million penalty on the
ground that "no Board Resolution [had been] adopted to authorize the debit in
the Demand Deposit maintained by the bank with the Bangko Sentral ng
Pilipinas."
RBSMI reiterated its request for the reversal of the imposition of penalty in
another letter.20 Atty. Saguisag said that "as for the letter of Mr. Hilario
requesting the Bangko Sentral ng Pilipinas to debit the account of our client, I
would like to state that, at that time, he was under a state of extreme pressure
to sell the bank at an unreasonably low price, hence, the reason for the said
measure of desperation." The aforesaid letters of Atty. Saguisag were answered
by the BSP in its letter21 dated November 18, 1998, explaining to Atty. Saguisag
the bases for BSP’s imposition of the penalty on RBSMI.
On January 21, 1999, the MB, through Resolution No. 71, authorized the
conditional reversal of sixty percent (60%) of the penalty debited against RBSMI
pending resolution of the dispute on the findings on reserve deficiency. The
conditional reversal was communicated to RBSMI by petitioner Reyes through a
letter, dated February 8, 1999. In a letter, dated March 29, 1999, RBSMI agreed
to "the interim reversal of the penalty, such that said P2.5 million will be
credited to RBSMI, without prejudice to the outcome of the legal study
regarding the propriety of the imposition of the penalty." Later, on April 7,
1999, the MB approved the interim reversal of the entire amount of the
penalty "pending the outcome of the study on the legal and factual basis for
the imposition of the penalty." Accordingly, the BSP credited RBSMI’s demand
deposit account to the extent of the remaining forty percent (40%) of the
penalty.
On February 3, 1999, Atty. Sedfrey A. Ordoñez, RBSMI Chairman, and Soriano
wrote the MB regarding the release of the remaining proceeds of the
emergency loans granted to RBSMI. Later on, RBSMI would claim that this letter
was somehow leaked to the press. The Manila Times issue of March 10, 1999
carried a news article by Jun T. Ebias entitled "2 rural banks seek emergency
loans, investors,"22 which quoted certain portions of the February 3, 1999 letter
of RBSMI to the MB. In addition, RBSMI alleged that supposedly forged
directives from Soriano addressed to all directors of the rural bank were faxed
to the municipal mayors of Bulacan. The undated fax message announced a
special board meeting of the directors of RBSMI on February 20, 1999 to
discuss internal and external audit findings, unpaid savings deposit withdrawals
and matured time deposits, and the possible closure of the bank due to
insolvency.
In a letter, dated March 10, 1999, Soriano asked for an inquiry into the alleged
leak of sensitive information which can "logically be traced [to] Bangko Sentral
ng Pilipinas sources." After investigating the matter, BSP, through petitioner
Reyes and BSP Deputy Governor and General Counsel Armando L. Suratos,
informed RBSMI in a letter, dated March 23, 1999, that the BSP was unable to
determine the source of information of the Manila Times.
On the basis of the foregoing, RBSMI, through counsel, filed its letter-complaint
of May 19, 1999, which was referred by the MB to an Ad Hoc Committee it had
93 | A G E N C Y C A S E S | C A B A N L I T
created. After the parties had submitted their respective pleadings, documents
and memoranda, the Ad Hoc Committee issued a resolution,23 dated February
16, 2000, the pertinent part of which reads:
CONCLUSION AND RECOMMENDATION:
After a thorough review of the records, we find that complainant has
not substantiated its allegations of respondents’ unprofessionalism. It
has failed to present sufficient factual and legal bases to
administratively charge respondents with the violation of any
provision of R.A. No. 3019 and/or R.A. No. 6713. The acts complained
of were done by respondents in the performance of their official
duties.
IN VIEW WHEREOF, this Committee respectfully recommends that
upon the approval of these findings, the monetary Board of the
Bangko Sentral ng Pilipinas dismiss the complaint for lack of merit."
The MB adopted the recommendation of the Ad Hoc Committee, prompting
RBSMI to appeal to the Court of Appeals the dismissal of the complaint as well
as the denial of its motion for reconsideration and supplemental motion to
vacate or reconsider. On December 14, 2001, the Court of Appeals reversed.
The dispositive portion of its decision states:
WHEREFORE, the instant petition is hereby GRANTED. Accordingly,
Resolution No. 257 dated February 18, 2000 and letter dated July 31,
2000 of the respondent Monetary Board are hereby REVERSED and
SET ASIDE and a new one entered finding respondents BSP Deputy
Governor Alberto V. Reyes, Director Wilfredo B. Domo-ong of the BSP
Department of Rural Bank, and bank examiner Herminio C. Principio,
administratively liable for unprofessionalism and are each meted the
penalty of fine equivalent to six (6) months salary. 24
SO ORDERED.
Petitioners filed a motion for reconsideration. However, the motion was denied
on July 29, 2002. Hence, this petition for review.
Petitioners submit the following issues:
I. Contrary to the baseless and illogical conclusion of the Court of
Appeals, there exists no substantial and convincing evidence to
support the charge that Petitioners Reyes and Domo-ong are guilty of
unprofessionalism by reason of their alleged "careless handling of
confidential matters involving the internal problems of RBSMI."
II. Contrary to the conclusion of the Court of Appeals, Petitioner Reyes
did not commit any act of unprofessionalism by reason of his alleged
"illegal and unethical act of brokering the sale of RBSMI."
III. The conclusion of the Court of Appeals that petitioner Principio is
liable for the charge of undue pressure against RBSMI, as a
consequence of the undue haste by which petitioner Principio
submitted his advance report to the MB, exposes the lack of
knowledge of the Court of Appeals on how BSP officials work and
perform their functions and duties and/or lack of full understanding of
the facts of the case.
IV. The justification advanced by the Court of Appeals in declaring
petitioners guilty of undue pressure, unprofessionalism, and arrogance
relative to the latter’s act of recommending penalty charges for
RBSMI’s reserve deficiency, is absolutely without any factual and legal
basis.
V. The findings of fact of the Ad Hoc Committee as approved by the
Monetary Board of the BSP in its Resolution No. 257 was not accorded
due consideration by the Court of Appeals despite the fact that said
findings of fact are supported by substantial evidence.
VI. The questioned decision violates the constitutional provision that a
decision should state the facts and law on which it is based.
The present petition warrants the modification of the Court of Appeals’
decision.
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First. Petitioners, particularly petitioner Reyes, are faulted with the careless
handling of confidential and vital information regarding the financial status of
RBSMI. The Court of Appeals ruled:
The respondent BSP officials cannot deny that the newspaper article in
the Manila Times which was brought to the attention of respondent
Alberto V. Reyes unequivocably states that the source of the
information concerning the alleged financial needs of RBSMI came
from BSP and from an officer of the Monetary Board. If Reyes himself
was not the source of such a confidential information, he should have,
at the very least and considering his exalted position as no less than
the BSP Deputy Governor, exerted efforts to discover the leak and
make accountable the concerned BSP officials or employees. . . .
Unfortunately, however, Reyes appeared to have done nothing to
unmask and hold responsible the talkative official or employee of the
BSP. His unlawful act of omission on such a delicate and confidential
matter is no less censurable as an act of omission.
This is error. It is indeed unfortunate that information regarding the financial
needs of RBSMI came to the knowledge of the media. We realize that a bank’s
lifeline depends largely on the trust and confidence accorded to it by its
depositors and the public in general. However, too many possibilities exist on
how word got to the press.
It is to be noted that before the Manila Times article came out in 1999, RBSMI
had already undergone several examinations and was subject to continuous
monitoring for major exceptions and violations found during the 1996 General
Examination. Word could have gotten around that the bank was being
examined and that interested persons or entities could have inquired into the
purpose of the examinations and monitoring. RBSMI’s own employees could
have made remarks to friends and family members - maybe harmless - without
totally realizing the effect of such statements. Indeed, MERALCO said that the
basis of its memorandum was the information concerning RBSMI obtained
from the Philippine Clearing House, an entity distinct and separate from the
BSP. In fact, it was the BSP which dispelled the rumors which incited the second
memorandum of recantation. The undated fax message alleged to be a forged
memorandum has not been sufficiently proven as having been produced by any
of the petitioners.
The article might have attributed the source to be an official or employee of the
BSP if only to appear more credible. In any case, an inquiry was conducted by
an investigating committee especially formed upon RBSMI’s request. But the
committee was unable to determine the source of the leak. We have to
presume that the said committee had performed its tasks with regularity and
good faith, and thus it is entitled to due respect for its findings.
The issue of the training materials is a different matter. RBSMI claims that
during one of the BSP training seminars, the bank was used as a case study
albeit not specifically mentioned in the training materials. The Court of Appeals
found that "the derision against RBSMI in the seminar materials is truly an
additional pound of salt to RBSMI’s already wounded reputation." 25 Petitioners
allege that the seminar was for bank examiners who were bound not to reveal
any confidential information they learned in the performance of their duties.
They further claim that there is no evidence showing that petitioners Reyes and
Domo-ong were the ones who distributed and used the materials or that they
harbored any ill will against the bank to employ such means.
We agree with the appellate court. The facilitators of the seminar who
prepared the materials obviously applied little or no creativity at all as shown
by the words used therein, i.e., "Mrs. Ona I. Ros" which clearly is Soriano’s
name in reverse, and "Rural Bank of Barangay Ginebra" referring to the bank’s
name - Rural Bank of San Miguel. While there was indeed no evidence showing
that either petitioner Reyes or petitioner Domo-ong distributed or used the
materials, the very fact that the seminar was conducted under their auspices is
enough to make them liable to a certain extent. Petitioner Reyes, as Head of
the BSP Supervision and Examination Sector, and petitioner Domo-ong, as
Director of the BSP Department of Rural Banks, should have exercised their
power of control and supervision so that the incident could have been
prevented or at the very least remedied.
Second. On the charge that petitioner Reyes was brokering the sale of RBSMI,
the Court of Appeals ruled:
95 | A G E N C Y C A S E S | C A B A N L I T
Nor can respondent Reyes escape administrative liability for the
charge of having displayed undue interest in brokering the sale of
petitioner RBSM. In a number of occasions, such an interest readily
surfaced. . . . If anything else, Reyes’ actuations smack of
unprofessionaliam as he had concerned himself with transactions that
had nothing to do with his official function as BSP Deputy Governor.
...
Nor is it correct to say that respondent Alberto V. Reyes did no
brokering simply because he was not paid for his efforts. As rightly
argued by petitioner, there is no law which defines brokering in terms
of payment thereof. To our mind, it suffices that respondent Reyes
introduced and brought the parties together to try to hammer out a
sale of RBSMI. After all, a broker’s duty is mainly to bring the
prospective buyers and sellers together.
We agree with the foregoing ruling of the Court of Appeals. In introducing
Soriano to the presidents of TA Bank and EIB Bank, petitioner Reyes was clearly
not acting in his official capacity. It is enough that he brought the parties
together to discuss the possibility of a sale in order for him to be found guilty of
brokering. Petitioner Reyes did not have to be paid for what he did in order to
be considered to have committed a breach of the requirement of propriety
expected of a BSP official. The circulars 26 presented by petitioner Reyes indicate
that it is indeed BSP’s policy to promote mergers and consolidations by
providing incentives for banks who would undergo such corporate
combinations. But nowhere in these circulars is it stated that BSP officials
should take an active role in bringing parties together for the possibility of a
buy-in or sell-out.
Section 4 (A)(b) of R.A. No. 6713 states:
Norms of Conduct of Public Officials and Employees. - (A) Every public
official and employee shall observe the following as standards of
personal conduct in the discharge and execution of official duties:
....
(b) Professionalism - Public officials and employees shall perform and
discharge their duties with the highest degree of excellence,
professionalism, intelligence and skill. They shall enter public service
with utmost devotion and dedication to duty. They shall endeavor to
discourage wrong perceptions of their roles as dispensers or peddlers
of undue patronage.
We do not think Soriano was subjected to undue pressure since he was also
interested in selling the bank.27 However, petitioner Reyes’ active participation
in looking for possible buyers for RBSMI was clearly a violation of the standards
of professionalism.
Third. For his part, petitioner Principio is charged with "undue haste" in
submitting his report to the Monetary Board. His recommendation for the
imposition of a penalty of P2.5 million on RBSMI is also complained of as a way
of pressuring the bank. RBSMI points out that there was an irregularity in the
fact that petitioner Principio headed the three consecutive examinations
conducted on the bank.
We find no undue haste in the submission of petitioner Principio’s report. The
1996 examination on RBSMI was concluded on December 13, 1996. The list of
exceptions prepared by petitioner Principio was dated December 23, 1996, and
a copy thereof was sent to RBSMI on January 9, 1997. This was 18 days before
petitioner Principio finally submitted the report to the Monetary Board. Having
had sufficient time to prepare its reply, RBSMI cannot pretend ignorance of the
findings of the examiner. It should have anticipated the actions it needed to
take considering the urgency of the matter.
Moreover, it is clear from the records that RBSMI was given not only one but
two opportunities to answer the findings in the report before the report was
submitted to the MB. It should be noted that the exit conference for the 1996
General Examination was originally scheduled on January 13, 1997. However,
upon the request of RBSMI’s corporate counsel, the examination was
postponed to January 21, 1997. RBSMI was furnished a copy of the findings on
January 9, 1997. Although RBSMI claimed that the copy it received was
unreadable, it made this accusation only after the complaint had been filed
with the Monetary Board.
96 | A G E N C Y C A S E S | C A B A N L I T

The members of the Board of Directors only discussed their reply on the very
day of the rescheduled exit conference. Surely, RBSMI only had itself to blame.
It was given a sporting chance to react to the findings before it was confirmed
by the MB, but it did not make use of the opportunity. Again, it was given
another chance after the exit conference when the MB, upon review of the
report of petitioner Principio, issued Resolution No. 96 requiring RBSMI to
answer the findings within 15 days from receipt of the advice.
On the other hand, the imposition of the P2.5 million fine was made on the
basis of the finding of legal reserve deficiencies. Soriano wrote to the BSP
authorizing the latter to debit its demand deposit in the amount of the penalty
a few days after MB Resolution No. 96 was issued. It took RBSMI more than
one year before it contested the imposition of the penalty. That the BSP
subsequently reversed, albeit conditionally, the debiting of the amount of
penalty is not an admission that it erred in imposing the same. It was only an
accommodation on the part of the BSP to ease the financial difficulties of
RBSMI. More importantly, it was a conditional reversal pending the resolution
of the dispute on the finding of legal reserve deficiency.
monitoring team considering that he was the initial examiner and was familiar
with the matters to be made in order.
By and large, therefore, we find that while there may have been some
irregularities and badges of unprofessionalism which can be held against
petitioners, these are not so grave as to merit the imposition of the penalty of
fine equal to six months salary imposed by the appellate court. The
modification of the Court of Appeals decision is proper.
WHEREFORE, the decision of the Court of Appeals dated December 14, 2001 is
AFFIRMED with MODIFICATIONS. Petitioner Alberto V. Reyes is ordered to pay
a fine equivalent to two (2) months salary, while petitioner Wilfredo B Domo-
ong is fined in an amount equivalent to one (1) month salary. Petitioner
Herminio C. Principio is found not administratively liable.
SO ORDERED.

RBSMI likewise complains that petitioner Principio took part in three

consecutive examinations in violation of BSP’s own Manual of Examiners which
states:

G. ROTATION OF ASSIGNMENTS FOR EXAMINERS:

A Bank Examiner shall not be in charge of more than two consecutive

examinations of any financial institutions. No exception to this rule
shall be permitted.

But, as petitioners explain, RBSMI was subjected only to one examination ¾ the
1996 General Examination ¾ in which major exceptions and violations were
found. The ensuing examinations were "special examinations" meant to
monitor the progress of the bank in correcting the exceptions found. With the
finding of serious violations by the bank, the MB, through its Resolution No. 96,
thought it best to put RBSMI under continuous monitoring until the exceptions
had been corrected. It is logical for petitioner Principio to be part of the
97 | A G E N C Y C A S E S | C A B A N L I T

FIRST DIVISION

G.R. No. 160016             February 27, 2006

ABACUS SECURITIES CORPORATION, Petitioner,

vs.
RUBEN U. AMPIL, Respondent.

DECISION

PANGANIBAN, CJ:

Stock market transactions affect the general public and the national economy.
The rise and fall of stock market indices reflect to a considerable degree the
state of the economy. Trends in stock prices tend to herald changes in business
conditions. Consequently, securities transactions are impressed with public
interest, and are thus subject to public regulation. In particular, the laws and
regulations requiring payment of traded shares within specified periods are
meant to protect the economy from excessive stock market speculations, and
are thus mandatory.

In the present case, respondent cannot escape payment of stocks validly traded
by petitioner on his behalf. These transactions took place before both parties
violated the trading law and rules. Hence, they fall outside the purview of the
pari delicto rule.

The Case

Before the Court is a Petition for Review 1 under Rule 45 of the Rules of Court,
challenging the March 21, 2003 Decision2 and the September 19, 2003
Resolution3 of the Court of Appeals (CA) in CA-GR CV No. 68273. The assailed
Decision disposed as follows:

"UPON THE VIEW WE TAKE OF THIS CASE THUS, this appeal is hereby
DISMISSED. With costs."4
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The CA denied reconsideration in its September 19, 2003 Resolution.
The Facts
The factual antecedents were summarized by the trial court (and reproduced
by the CA in its assailed Decision) in this wise:
"Evidence adduced by the [petitioner] has established the fact that [petitioner]
is engaged in business as a broker and dealer of securities of listed companies
at the Philippine Stock Exchange Center.
"Sometime in April 1997, [respondent] opened a cash or regular account with
[petitioner] for the purpose of buying and selling securities as evidenced by the
Account Application Form. The parties’ business relationship was governed by
the terms and conditions [stated therein] x x x.
"Since April 10, 1997, [respondent] actively traded his account, and as a result
of such trading activities, he accumulated an outstanding obligation in favor of
[petitioner] in the principal sum of ₱6,617,036.22 as of April 30, 1997.
"Despite the lapse of the period within which to pay his account as well as
sufficient time given by [petitioner] for [respondent] to comply with his
proposal to settle his account, the latter failed to do so. Such that [petitioner]
thereafter sold [respondent’s] securities to set off against his unsettled
obligations.
"After the sale of [respondent’s] securities and application of the proceeds
thereof against his account, [respondent’s] remaining unsettled obligation to
[petitioner] was ₱3,364,313.56. [Petitioner] then referred the matter to its legal
counsel for collection purposes.
"In a letter dated August 15, 1997, [petitioner] through counsel demanded that
[respondent] settle his obligation plus the agreed penalty charges accruing
thereon equivalent to the average 90-day Treasury Bill rate plus 2% per annum
(200 basis points).
"In a letter dated August [26], 1997, [respondent] acknowledged receipt of
[petitioner’s] demand [letter] and admitted his unpaid obligation and at the
same time request[ed] for 60 days to raise funds to pay the same, which was
granted by [petitioner].
"Despite said demand and the lapse of said requested extension, [respondent]
failed and/or refused to pay his accountabilities to [petitioner].
"For his defense, [respondent] claims that he was induced to trade in a stock
security with [petitioner] because the latter allowed offset settlements wherein
he is not obliged to pay the purchase price. Rather, it waits for the customer to
sell. And if there is a loss, [petitioner] only requires the payment of the
deficiency (i.e., the difference between the higher buying price and the lower
selling price). In addition, it charges a commission for brokering the sale.
"However, if the customer sells and there is a profit, [petitioner] deducts the
purchase price and delivers only the surplus – after charging its commission.
"[respondent] further claims that all his trades with [petitioner] were not paid
in full in cash at anytime after purchase or within the T+4 [4 days subsequent to
trading] and none of these trades was cancelled by [petitioner] as required in
Exhibit ‘A-1’. Neither did [petitioner] apply with either the Philippine Stock
Exchange or the SEC for an extension of time for the payment or settlement of
his cash purchases. This was not brought to his attention by his broker and so
with the requirement of collaterals in margin account. Thus, his trade under an
offset transaction with [petitioner] is unlimited subject only to the discretion of
the broker. x x x [Had petitioner] followed the provision under par. 8 of Exh. ‘A-
1’ which stipulated the liquidation within the T+3 [3 days subsequent to
trading], his net deficit would only be ₱1,601,369.59. [respondent] however
affirmed that this is not in accordance with RSA [Rule 25-1 par. C, which
mandates that if you do not pay for the first] order, you cannot subsequently
make any further order without depositing the cash price in full. So, if RSA Rule
25-1, par. C, was applied, he was limited only to the first transaction. That
[petitioner] did not comply with the T+4 mandated in cash transaction. When
[respondent] failed to comply with the T+3, [petitioner] did not require him to
put up a deposit before it executed its subsequent orders. [Petitioner] did not
likewise apply for extension of the T+4 rule. Because of the offset transaction,
99 | A G E N C Y C A S E S | C A B A N L I T

[respondent] was induced to [take a] risk which resulted [in] the filing of the The CA debunked petitioner’s contention that the trial court lacked jurisdiction
instant suit against him [because of which] he suffered sleepless nights, lost to determine violations of the RSA. The court a quo held that petitioner was
appetite which if quantified in money, would amount to ₱500,000.00 moral estopped from raising the question, because it had actively and voluntarily
damages and ₱100,000.00 exemplary damages."5 participated in the assailed proceedings.

In its Decision6 dated June 26, 2000, the Regional Trial Court (RTC) of Makati Hence, this Petition.8
City (Branch 57) held that petitioner violated Sections 23 and 25 of the Revised
Securities Act (RSA) and Rule 25-1 of the Rules Implementing the Act (RSA Issues
Rules) when it failed to: 1) require the respondent to pay for his stock
purchases within three (T+3) or four days (T+4) from trading; and 2) request Petitioner submits the following issues for our consideration:
from the appropriate authority an extension of time for the payment of
respondent’s cash purchases. The trial court noted that despite respondent’s
"I.
non-payment within the required period, petitioner did not cancel the
purchases of respondent. Neither did it require him to deposit cash payments
Whether or not the Court of Appeal’s ruling that petitioner and respondent are
before it executed the buy and/or sell orders subsequent to the first unsettled
in pari delicto which allegedly bars any recovery, is in accord with law and
transaction. According to the RTC, by allowing respondent to trade his account
applicable jurisprudence considering that respondent was the first one who
actively without cash, petitioner effectively induced him to purchase securities
violated the terms of the Account Opening Form, [which was the] agreement
thereby incurring excessive credits.
between the parties.
The trial court also found respondent to be equally at fault, by incurring
"II.
excessive credits and waiting to see how his investments turned out before
deciding to invoke the RSA. Thus, the RTC concluded that petitioner and
respondent were in pari delicto and therefore without recourse against each Whether or not the Court of Appeal’s ruling that the petitioner and respondent
other. are in pari delicto is in accord with law and applicable jurisprudence
considering the Account Opening Form is a valid agreement.
Ruling of the Court of Appeals
"III.
The CA upheld the lower court’s finding that the parties were in pari delicto. It
castigated petitioner for allowing respondent to keep on trading despite the Whether or not the Court of Appeal’s ruling that petitioner cannot recover
latter’s failure to pay his outstanding obligations. It explained that "the reason from respondent is in accord with law and applicable jurisprudence since the
[behind petitioner’s act] is elemental in its simplicity. And it is not exactly evidence and admission of respondent proves that he is liable to petitioner for
altruistic. Because whether [respondent’s] trading transaction would result in a his outstanding obligations arising from the stock trading through petitioner.
surplus or deficit, he would still be liable to pay [petitioner] its commission.
[Petitioner’s] cash register will keep on ringing to the sound of incoming "IV.
money, no matter what happened to [respondent]." 7
100 | A G E N C Y C A S E S | C A B A N L I T
Whether or not the Court of Appeal’s ruling on petitioner’s alleged violation of
the Revised Securities Act [is] in accord with law and jurisprudence since the
lower court has no jurisdiction over violations of the Revised Securities Act." 9
Briefly, the issues are (1) whether the pari delicto rule is applicable in the
present case, and (2) whether the trial court had jurisdiction over the case.
The Court’s Ruling
The Petition is partly meritorious.
Main Issue:
Applicability of the
Pari Delicto Principle
In the present controversy, the following pertinent facts are undisputed: (1) on
April 8, 1997, respondent opened a cash account with petitioner for his
transactions in securities;10 (2) respondent’s purchases were consistently
unpaid from April 10 to 30, 1997;11 (3) respondent failed to pay in full, or even
just his deficiency,12 for the transactions on April 10 and 11, 1997; 13 (4) despite
respondent’s failure to cover his initial deficiency, petitioner subsequently
purchased and sold securities for respondent’s account on April 25 and 29; 14 (5)
petitioner did not cancel or liquidate a substantial amount of respondent’s
stock transactions until May 6, 1997.15
The provisions governing the above transactions are Sections 23 and 25 of the
RSA16 and Rule 25-1 of the RSA Rules, which state as follows:
"SEC. 23. Margin Requirements. –
xxxxxxxxx
(b) It shall be unlawful for any member of an exchange or any broker or dealer,
directly or indirectly, to extend or maintain credit or arrange for the extension
or maintenance of credit to or for any customer –
(1) On any security other than an exempted security, in contravention of the
rules and regulations which the Commission shall prescribe under subsection
(a) of this Section;
(2) Without collateral or on any collateral other than securities, except (i) to
maintain a credit initially extended in conformity with the rules and regulations
of the Commission and (ii) in cases where the extension or maintenance of
credit is not for the purpose of purchasing or carrying securities or of evading
or circumventing the provisions of subparagraph (1) of this subsection.
x x x x x x x x x"
"SEC. 25. Enforcement of margin requirements and restrictions on borrowings.
– To prevent indirect violations of the margin requirements under Section 23
hereof, the broker or dealer shall require the customer in nonmargin
transactions to pay the price of the security purchased for his account within
such period as the Commission may prescribe, which shall in no case exceed
three trading days; otherwise, the broker shall sell the security purchased
starting on the next trading day but not beyond ten trading days following the
last day for the customer to pay such purchase price, unless such sale cannot
be effected within said period for justifiable reasons. The sale shall be without
prejudice to the right of the broker or dealer to recover any deficiency from the
customer. x x x."
"RSA RULE 25-1
"Purchases and Sales in Cash Account
"(a) Purchases by a customer in a cash account shall be paid in full within three
(3) business days after the trade date.
"(b) If full payment is not received within the required time period, the broker
or dealer shall cancel or otherwise liquidate the transaction, or the unsettled
101 | A G E N C Y C A S E S | C A B A N L I T
portion thereof, starting on the next business day but not beyond ten (10)
business days following the last day for the customer to pay, unless such sale
cannot be effected within said period for justifiable reasons.
"(c) If a transaction is cancelled or otherwise liquidated as a result of non-
payment by the customer, prior to any subsequent purchase during the next
ninety (90) days, the customer shall be required to deposit sufficient funds in
the account to cover each purchase transaction prior to execution.
xxxxxxxxx
"(f) Written application for an extension of the period of time required for
payment under paragraph (a) be made by the broker or dealer to the Philippine
Stock Exchange, in the case of a member of the Exchange, or to the
Commission, in the case of a non-member of the Exchange. Applications for the
extension must be based upon exceptional circumstances and must be filed
and acted upon before the expiration of the original payment period or the
expiration of any subsequent extension."
Section 23(b) above -- the alleged violation of petitioner which provides the
basis for respondent’s defense -- makes it unlawful for a broker to extend or
maintain credit on any securities other than in conformity with the rules and
regulations issued by Securities and Exchange Commission (SEC). Section 25
lays down the rules to prevent indirect violations of Section 23 by brokers or
dealers. RSA Rule 25-1 prescribes in detail the regulations governing cash
accounts.
The United States, from which our country’s security policies are
patterned,17 abound with authorities explaining the main purpose of the above
statute on margin18 requirements. This purpose is to regulate the volume of
credit flow, by way of speculative transactions, into the securities market and
redirect resources into more productive uses. Specifically, the main objective of
the law on margins is explained in this wise:
"The main purpose of these margin provisions xxx is not to increase the safety
of security loans for lenders. Banks and brokers normally require sufficient
collateral to make themselves safe without the help of law. Nor is the main
purpose even protection of the small speculator by making it impossible for
him to spread himself too thinly – although such a result will be achieved as a
byproduct of the main purpose.
xxxxxxxxx
"The main purpose is to give a [g]overnment credit agency an effective method
of reducing the aggregate amount of the nation’s credit resources which can be
directed by speculation into the stock market and out of other more desirable
uses of commerce and industry x x x."19
A related purpose of the governmental regulation of margins is the stabilization
of the economy.20 Restrictions on margin percentages are imposed "in order to
achieve the objectives of the government with due regard for the promotion of
the economy and prevention of the use of excessive credit." 21
Otherwise stated, the margin requirements set out in the RSA are primarily
intended to achieve a macroeconomic purpose -- the protection of the overall
economy from excessive speculation in securities. Their recognized secondary
purpose is to protect small investors.
The law places the burden of compliance with margin requirements primarily
upon the brokers and dealers.22 Sections 23 and 25 and Rule 25-1, otherwise
known as the "mandatory close-out rule,"23 clearly vest upon petitioner the
obligation, not just the right, to cancel or otherwise liquidate a customer’s
order, if payment is not received within three days from the date of purchase.
The word "shall" as opposed to the word "may," is imperative and operates to
impose a duty, which may be legally enforced. For transactions subsequent to
an unpaid order, the broker should require its customer to deposit funds into
the account sufficient to cover each purchase transaction prior to its execution.
These duties are imposed upon the broker to ensure faithful compliance with
the margin requirements of the law, which forbids a broker from extending
undue credit to a customer.
It will be noted that trading on credit (or "margin trading") allows investors to
buy more securities than their cash position would normally allow. 24 Investors
pay only a portion of the purchase price of the securities; their broker advances
102 | A G E N C Y C A S E S | C A B A N L I T
for them the balance of the purchase price and keeps the securities as
collateral for the advance or loan. 25 Brokers take these securities/stocks to their
bank and borrow the "balance" on it, since they have to pay in full for the
traded stock. Hence, increasing margins26 i.e., decreasing the amounts which
brokers may lend for the speculative purchase and carrying of stocks is the
most direct and effective method of discouraging an abnormal attraction of
funds into the stock market and achieving a more balanced use of such
resources.
"x x x [T]he x x x primary concern is the efficacy of security credit controls in
preventing speculative excesses that produce dangerously large and rapid
securities price rises and accelerated declines in the prices of given securities
issues and in the general price level of securities. Losses to a given investor
resulting from price declines in thinly margined securities are not of serious
significance from a regulatory point of view. When forced sales occur and put
pressures on securities prices, however, they may cause other forced sales and
the resultant snowballing effect may in turn have a general adverse effect upon
the entire market."27
The nature of the stock brokerage business enables brokers, not the clients, to
verify, at any time, the status of the client’s account.28 Brokers, therefore, are in
the superior position to prevent the unlawful extension of credit. 29 Because of
this awareness, the law imposes upon them the primary obligation to enforce
the margin requirements.
Right is one thing; obligation is quite another. A right may not be exercised; it
may even be waived. An obligation, however, must be performed; those who
do not discharge it prudently must necessarily face the consequence of their
dereliction or omission.30
Respondent Liable for the First,
But Not for the Subsequent Trades
Nonetheless, these margin requirements are applicable only to transactions
entered into by the present parties subsequent to the initial trades of April 10
and 11, 1997. Thus, we hold that petitioner can still collect from respondent to
the extent of the difference between the latter’s outstanding obligation as of
April 11, 1997 less the proceeds from the mandatory sell out of the shares
pursuant to the RSA Rules. Petitioner’s right to collect is justified under the
general law on obligations and contracts. 31
Article 1236 (second paragraph) of the Civil Code, provides:
"Whoever pays for another may demand from the debtor what he has paid,
except that if he paid without the knowledge or against the will of the debtor,
he can recover only insofar as the payment has been beneficial to the debtor."
(Emphasis supplied)
Since a brokerage relationship is essentially a contract for the employment of
an agent, principles of contract law also govern the broker-principal
relationship.32
The right to collect cannot be denied to petitioner as the initial transactions
were entered pursuant to the instructions of respondent. The obligation of
respondent for stock transactions made and entered into on April 10 and 11,
1997 remains outstanding. These transactions were valid and the obligations
incurred by respondent concerning his stock purchases on these dates subsist.
At that time, there was no violation of the RSA yet. Petitioner’s fault arose only
when it failed to: 1) liquidate the transactions on the fourth day following the
stock purchases, or on April 14 and 15, 1997; and 2) complete its liquidation no
later than ten days thereafter, applying the proceeds thereof as payment for
respondent’s outstanding obligation.33
Elucidating further, since the buyer was not able to pay for the transactions
that took place on April 10 and 11, that is at T+4, the broker was duty-bound to
advance the payment to the settlement banks without prejudice to the right of
the broker to collect later from the client. 34
In securities trading, the brokers are essentially the counterparties to the stock
transactions at the Exchange.35 Since the principals of the broker are generally
undisclosed, the broker is personally liable for the contracts thus
made.36 Hence, petitioner had to advance the payments for respondent’s
103 | A G E N C Y C A S E S | C A B A N L I T
trades. Brokers have a right to be reimbursed for sums advanced by them with
the express or implied authorization of the principal, 37 in this case, respondent.
It should be clear that Congress imposed the margin requirements to protect
the general economy, not to give the customer a free ride at the expense of the
broker.38 Not to require respondent to pay for his April 10 and 11 trades would
put a premium on his circumvention of the laws and would enable him to
enrich himself unjustly at the expense of petitioner.
In the present case, petitioner obviously failed to enforce the terms and
conditions of its Agreement with respondent, specifically paragraph 8 thereof,
purportedly acting on the plea39 of respondent to give him time to raise funds
therefor. These stipulations, in relation to paragraph 4, 40 constituted faithful
compliance with the RSA. By failing to ensure respondent’s payment of his first
purchase transaction within the period prescribed by law, thereby allowing him
to make subsequent purchases, petitioner effectively converted respondent’s
cash account into a credit account. However, extension or maintenance of
credits on nonmargin transactions, are specifically prohibited under Section
23(b). Thus, petitioner was remiss in its duty and cannot be said to have come
to court with "clean hands" insofar as it intended to collect on transactions
subsequent to the initial trades of April 10 and 11, 1997.
Respondent Equally Guilty
for Subsequent Trades
On the other hand, we find respondent equally guilty in entering into the
transactions in violation of the RSA and RSA Rules. We are not prepared to
accept his self-serving assertions of being an "innocent victim" in all the
transactions. Clearly, he is not an unsophisticated, small investor merely
prodded by petitioner to speculate on the market with the possibility of large
profits with low -- or no -- capital outlay, as he pictures himself to be. Rather,
he is an experienced and knowledgeable trader who is well versed in the
securities market and who made his own investment decisions. In fact, in the
Account Opening Form (AOF), he indicated that he had excellent knowledge of
stock investments; had experience in stocks trading, considering that he had
similar accounts with other firms.41 Obviously, he knowingly speculated on the
market, by taking advantage of the "no-cash-out" arrangement extended to
him by petitioner.
We note that it was respondent who repeatedly asked for some time to pay his
obligations for his stock transactions. Petitioner acceded to his requests. It is
only when sued upon his indebtedness that respondent raised as a defense the
invalidity of the transactions due to alleged violations of the RSA. It was
respondent’s privilege to gamble or speculate, as he apparently did so by
asking for extensions of time and refraining from giving orders to his broker to
sell, in the hope that the prices would rise. Sustaining his argument now would
amount to relieving him of the risk and consequences of his own speculation
and saddling them on the petitioner after the result was known to be
unfavorable.42 Such contention finds no legal or even moral justification and
must necessarily be overruled. Respondent’s conduct is precisely the behavior
of an investor deplored by the law.
In the final analysis, both parties acted in violation of the law and did not come
to court with clean hands with regard to transactions subsequent to the initial
trades made on April 10 and 11, 1997. Thus, the peculiar facts of the present
case bar the application of the pari delicto rule -- expressed in the maxims "Ex
dolo malo non oritur action" and "In pari delicto potior est conditio
defendentis" -- to all the transactions entered into by the parties. The pari
delecto rule refuses legal remedy to either party to an illegal agreement and
leaves them where they were.43 In this case, the pari delicto rule applies only to
transactions entered into after the initial trades made on April 10 and 11, 1997.
Since the initial trades are valid and subsisting obligations, respondent is liable
for them. Justice and good conscience require all persons to satisfy their debts.
Ours are courts of both law and equity; they compel fair dealing; they do not
abet clever attempts to escape just obligations. Ineludibly, this Court would not
hesitate to grant relief in accordance with good faith and conscience.
Pursuant to RSA Rule 25-1, petitioner should have liquidated the transaction
(sold the stocks) on the fourth day following the transaction (T+4) and
completed its liquidation not later than ten days following the last day for the
customer to pay (effectively T+14). Respondent’s outstanding obligation is
104 | A G E N C Y C A S E S | C A B A N L I T
therefore to be determined by using the closing prices of the stocks purchased
at T+14 as basis.
We consider the foregoing formula to be just and fair under the circumstances.
When petitioner tolerated the subsequent purchases of respondent without
performing its obligation to liquidate the first failed transaction, and without
requiring respondent to deposit cash before embarking on trading stocks any
further, petitioner, as the broker, violated the law at its own peril. Hence, it
cannot now complain for failing to obtain the full amount of its claim for these
latter transactions.
On the other hand, with respect to respondent’s counterclaim for damages for
having been allegedly induced by petitioner to generate additional purchases
despite his outstanding obligations, we hold that he deserves no legal or
equitable relief consistent with our foregoing finding that he was not an
innocent investor as he presented himself to be.
Second Issue:
Jurisdiction
It is axiomatic that the allegations in the complaint, not the defenses set up in
the answer or in the motion to dismiss determine which court has jurisdiction
over an action.44 Were we to be governed by the latter rule, the question of
jurisdiction would depend almost entirely upon the defendant. 45
The instant controversy is an ordinary civil case seeking to enforce rights arising
from the Agreement (AOF) between petitioner and respondent. It relates to
acts committed by the parties in the course of their business relationship. The
purpose of the suit is to collect respondent’s alleged outstanding debt to
petitioner for stock purchases.
To be sure, the RSA and its Rules are to be read into the Agreement entered
into between petitioner and respondent. Compliance with the terms of the AOF
necessarily means compliance with the laws. Thus, to determine whether the
parties fulfilled their obligations in the AOF, this Court had to pass upon their
compliance with the RSA and its Rules. This, in no way, deprived the Securities
and Exchange Commission (SEC) of its authority to determine willful violations
of the RSA and impose appropriate sanctions therefor, as provided under
Sections 45 and 46 of the Act.
Moreover, we uphold the SEC in its Opinion, thus:
"As to the issue of jurisdiction, it is settled that a party cannot invoke the
jurisdiction of a court to secure affirmative relief against his opponent and after
obtaining or failing to obtain such relief, repudiate or question that same
jurisdiction.
"Indeed, after voluntarily submitting a cause and encountering an adverse
decision on the merits, it is too late for petitioner to question the jurisdictional
power of the court. It is not right for a party who has affirmed and invoked the
jurisdiction of a court in a particular matter to secure an affirmative relief, to
afterwards deny that same jurisdiction to escape a penalty." 46
WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are
hereby MODIFIED. Respondent is ordered to pay petitioner the difference
between the former’s outstanding obligation as of April 11, 1997 less the
proceeds from the mandatory sell out of shares pursuant to the RSA Rules, with
interest thereon at the legal rate until fully paid.
The RTC of Makati, Branch 57 is hereby directed to make a computation of
respondent’s outstanding obligation using the closing prices of the stocks at
T+14 as basis -- counted from April 11, 1997 and to issue the proper order for
payment if warranted. It may hold trial and hear the parties to be able to make
this determination.
No finding as to costs in this instance.
SO ORDERED.
105 | A G E N C Y C A S E S | C A B A N L I T

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-55372 May 31, 1989

LETTY HAHN, petitioner,
vs.
COURT OF APPEALS, JOSIE M. SANTOS and FRANCISCO SANTOS, respondents.

Raymundo A. Armovit for petitioner.

Mary Concepcion Bautista for respondents.

CRUZ, J.:

It is said that diamonds are a girl's best friend, but private respondent Josie M.
Santos may have her doubts about this. The fact is that they have caused her
not a little difficulty, and her troubles are not yet over. This case was decided
against her by the trial court and later by the respondent court which,
however, mitigated the judgment of the former. The petitioner does not like
this and wants the earlier decision reinstated. That is why she is now before
this Court.

The basic facts as determined by the trial court 1 and affirmed by the

respondent court 2 are no longer in issue. It has been established that Santos
received two diamond rings with a total value of P47,000.00 in 1966 from the
petitioner. She issued separate receipts therefor in which she acknowledged
that they had been delivered by Letty Hahn to her for sale on commission and
that they would be returned upon demand if unsold. 3 The rings were not sold
nor were they returned when demanded by Hahn.
106 | A G E N C Y C A S E S | C A B A N L I T
Hahn sued for recovery of the rings or their value. While the civil case was
pending, she also filed a criminal action for estafa against Santos. Santos was
acquitted on reasonable doubt. 4 In the civil action, however, where she also
pleaded that the contracts between her and Hahn were not of agency but of
sale, Santos did not fare as well.
The trial court ordered her to return the two rings or pay the plaintiff their
value, which was increased to P65,000.00, with legal interest, plus P10,000
moral damages, P5,000 exemplary damages, and P6,000.00 attorney's
fees. 5 The increase on the original value of the rings was based on Article 1250
of the Civil Code calling for an adjustment of the payment due in case of
extraordinary inflation or deflation. The moral and exemplary damages were
imposed because of the defendant's "seeming lack of scruples and
conscientiousness."
On appeal, this decision was modified. The Court of Appeals found that Article
1250 was not applicable and that the appellant had not acted in bad faith or
with malice. Accordingly, it rendered judgment:
A. Ordering the defendants to return to the
plaintiff the two rings in question; to pay
plaintiff legal interest on the value of the
ring, P47,000.00, from the time of the filing
of the complaint until restitution in made;
and attorney's fees in the amount of
P6,000.00.
B. Sentencing the defendants, in case return
of the rings is no longer feasible, to pay to
the plaintiff the value thereof, which is
P47,000.00, with interest at the legal rate
from the time of the filing of the complaint
until full payment and P6,000.00 attorney's
fees. 6
In challenging this decision, the petitioner contends that the respondent erred
in not allowing an upward adjustment of the original price of the two rings and
in disallowing the moral and exemplary damages granted by the trial court.
These are the issues in this petition.
On the first question, the petitioner cites Central Bank figures to show that the
amount of P47,000.00 in 1966, when the obligation to return it or the rings fell
due, was equivalent to about P235,000.00 in 1980 (and necessarily to an even
higher amount now in view of the continued reduction in the purchasing power
of the peso). As the increase ordered by the trial court (to P65,000.00 on
August 7, 1971) was a finding of fact based on official figures, the Court of
Appeals was not justified in reversing the same.
The petitioner also argues that the award of moral and exemplary damages by
the trial court was entirely justified and should not have been disallowed by the
respondent court. The reason is that there was sufficient showing that the
private respondent had acted with malice and in bad faith toward the
petitioner who had trusted her.
Thus, Santos misrepresented her agreements with the petitioner as contracts
of sale when the very language of the receipts she herself had written and
signed clearly shows that she was receiving the rings in trust from the
petitioner, as later found in both the criminal and civil cases. 7 Second, she
claimed she had made installment payments directly and personally to the
petitioner during the period from August 14 to November 20, 1966, and when
this lie was exposed with evidence that the petitioner was abroad during that
period, changed her testimony to make it appear that the alleged payments
had been made when Hahn was in the country. 8 In fact, the finding of the trial
court as sustained by the respondent court was that she had made no payment
at all at any time. 9 Third, when Santos offered to return the solitaire ring to the
petitioner, the latter readily saw that it was not the same ring she had
entrusted to the private respondent, who evidently wanted to foist another
deception upon her. 10
For her part, the private respondent dismisses the claim for upward adjustment
of the amount due and says Article 1250 of the Civil Code is not applicable,
there being no inflation or deflation. The Central Bank statistics Hahn invokes
are hearsay and immaterial. Not in point either is the case of Zulueta v. Pan-
American World Airways," 11 as cited by the petitioner, where the issue of
107 | A G E N C Y C A S E S | C A B A N L I T
inflation was not even raised. Moreover, the delay in the payment of the
amount due was imputable not to her but to the petitioner, who had
unreasonably prevented her from discharging her obligation.
As early as December of 1966, she says she had offered to return the
marquisette ring to the petitioner but the petitioner's lawyer, acting on her
instructions, refused to accept it and demanded the return also of the
P35,000.00 solitaire ring. 12 She offered to pay for this other ring on installment
but this offer was also rejected. 13 At the trial of the criminal case against her,
she brought the solitaire ring to prove that she had not disposed of it, but the
petitioner denied it was the ring she had delivered to the accused. 14 Still later,
she offered to pay for both rings on installment, but the offer was also rejected
without reason by the petitioner. 15 In sum, it is the petitioner who has delayed
payment of the amount due and not the private respondent, who was ready to
settle her obligation.
The trial court cited no legal basis for the upward adjustment of the original
amount due although the reason was presumably Article 1250 of the Civil
Code. We agree with the respondent court that such adjustment was
erroneous for, as explained by Justice Serafin M. Cuevas (later a member of this
Court):
We, however, find the contention of appellant under her fifth
assignment of error — that the lower court erred in applying
the floating rate to the purely peso transaction — to be
meritorious.
In this regard, Article 1250 of the Civil Code provides —
In case an extraordinary inflation or
deflation of the currency stipulated should
supervene, the value of the currency at the
time of the establishment of the obligation
should be the basis of payment, unless
there is an agreement to the contrary.
By extraordinary inflation or deflation of currency is
understood to be any uncommon decrease or increase in the
purchasing power of currency which the parties could not
have reasonably foreseen and which has been due to war and
the effects thereof, or any unusual force majeure or
fortuitous event. (Civil Code of the Philippines, Dean
Capistrano, Vol. III, p. 186.)
Under the circumstances, we do not find any legal
justification in applying the so-called 'floating rate," since
there has been no 'extraordinary inflation" of currency within
the meaning of the aforequoted Art. 1250 of the Civil Code. 16
The Court holds that, in determining the accountability of the private
respondent, the trial judge should have applied the following provisions of the
Civil Code, as the respondent court apparently did:
Art. 2209. If the obligation consists in the payment of a sum
of money, and the debtor incurs in delay, the indemnity for
damages, there being no stipulation to the contrary, shall be
the payment of the interest agreed upon, and in the absence
of stipulation, the legal interest, which is six per cent per
annum.
Art. 2210. Interest may, in the discretion of the court, be
allowed upon damages awarded for breach of contract.
Art. 2212. Interest due shall earn legal interest from the time
it is judicially demanded, although the obligation may be
silent upon this point.
The Court notes, however, that the respondent court should also have imposed
interest on the interest due on the principal amount of P47,000.00,
conformably to Article 2212. The interest due started to earn interest from the
date it was judicially demanded with the filing of the complaint on January
6,1967.
108 | A G E N C Y C A S E S | C A B A N L I T

As to the delay in the performance of the private respondent's obligation, our option — "upon demand," under the separate receipts she had signed.
ruling is that it was caused by the private respondent herself and not the According to Article 1233 of the Civil Code, "a debt shall not be understood to
petitioner who had the right to demand performance in full of the former's have been paid unless the thing or service in which the obligation consists has
obligation she had assumed under their written agreement. been completely delivered or rendered as the case may be."

The receipts composed and signed by Santos, which were offered as Exhibits A As for the private respondent's offer to return the solitaire ring, which was also
and B, read as follows: refused, the pertinent rule is Article 1244, providing that "the debtor of a thing
cannot compel the creditor to receive a different one, although the latter may
June 2, 1966 be of the same value as, or more valuable than that which is due." More so
then in the case at bar if, as averred by the petitioner, the ring offered was less
Received from Mrs. Letty Hahn 1 ring solo diamond worth valuable than the one that was due . 17
P12,000 to be sold on commission or to be return upon
demand. We cannot sustain the respondent court, however, on the moral and
exemplary damages which it disallowed on the ground that "there was no clear
showing of malice and bad faith on the part of the defendant." The Court thinks
Josie M. Sa
otherwise. We hold that the moral and exemplary damages should be restored
in light of her dubious conduct as recounted in the petitioner's brief and the
June 7,1966
following findings of the trial court which we have no reason to disturb:
Received from Mrs. Letty Hahn 1 ring solo diamond worth
The Court cannot but take note of the relative ease with
P35,000 to be sold on commission basis or to be return upon
which i Josie M. Santos says one thing at one given time and
demand.
another altogether i n subsequently afterwards, even if the
statements different version are both under the sanction of
Josie M. Santos an oath. This seeming lack of scruples and conscientiousness
266 A. del Mundo on her part do not place her in a favorable light under the
Grace Park painstaking scrutiny of the Court. There is so much
Tels. 2-28-21 & 2-57-87 deviousness and complexity in her testimony that does not
invite the confidence of the Court. 18
From the moment demand was made upon Santos and she did not or could not
comply, she has already incurred in delay. The meaning of the receipts is WHEREFORE, the petition is partly GRANTED. The decision of the respondent
unmistakable. Her contention that it was the private respondent who had court dated August 29, 1980, is MODIFIED as follows: a) the award of moral
prevented her from fulfilling her obligation is simply untenable and damages in the sum of I P10,000.00 and exemplary damages in the sum of
unacceptable. P5,000.00 is i added to the other amounts to be paid by the private respondent
to the petitioner in accordance with the said decision; and b) I interest on the
There is no doubt that the petitioner could validly reject the private principal amount of P47,00.00 shall earn interest also at the legal rate, from
respondent's offer to pay for the rings on installment because Hahn was January 6, 1967, and until full payment is made. Costs against the private
entitled to payment in full. If such payment could not be made, Santos was respondent.
obligated to return both of the rings — and not one or the other only at her
109 | A G E N C Y C A S E S | C A B A N L I T

SO ORDERED. Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-40242 December 15, 1982

DOMINGA CONDE, petitioner,
vs.
THE HONORABLE COURT OF APPEALS, MANILA PACIENTE CORDERO, together
with his wife, NICETAS ALTERA, RAMON CONDE, together with his wife,
CATALINA T. CONDE, respondents.

MELENCIO-HERRERA, J.:

An appeal by certiorari from the Decision of respondent Court of Appeals 1 (CA-

G.R. No. 48133- R) affirming the judgment of the Court of First Instance of
Leyte, Branch IX, Tacloban City (Civil Case No. B-110), which dismissed
petitioner's Complaint for Quieting of Title and ordered her to vacate the
property in dispute and deliver its possession to private respondents Ramon
Conde and Catalina Conde.

The established facts, as found by the Court of Appeals, show that on 7 April
1938. Margarita Conde, Bernardo Conde and the petitioner Dominga Conde, as
heirs of Santiago Conde, sold with right of repurchase, within ten (10) years
from said date, a parcel of agricultural land located in Maghubas Burauen
Leyte, (Lot 840), with an approximate area of one (1) hectare, to Casimira
Pasagui, married to Pio Altera (hereinafter referred to as the Alteras), for
P165.00. The "Pacto de Retro Sale" further provided:

... (4) if at the end of 10 years the said land is not

repurchased, a new agreement shall be made between the
parties and in no case title and ownership shall be vested in
the hand of the party of the SECOND PART (the Alteras).
110 | A G E N C Y C A S E S | C A B A N L I T
xxx xxx xxx (Exhibit "B")
On 17 April 1941, the Cadastral Court of Leyte adjudicated Lot No. 840 to the
Alteras "subject to the right of redemption by Dominga Conde, within ten (10)
years counting from April 7, 1983, after returning the amount of P165.00 and
the amounts paid by the spouses in concept of land tax ... " (Exhibit "1").
Original Certificate of Title No. N-534 in the name of the spouses Pio Altera and
Casimira Pasagui, subject to said right of repurchase, was transcribed in the
"Registration Book" of the Registry of Deeds of Leyte on 14 November 1956
(Exhibit "2").
On 28 November 1945, private respondent Paciente Cordero, son-in-law of the
Alteras, signed a document in the Visayan dialect, the English translation of
which reads:
MEMORANDUM OF REPURCHASE OVER A PARCEL OF LAND
SOLD WITH REPURCHASE WHICH DOCUMENT GOT LOST
WE, PIO ALTERA and PACIENTE CORDERO, both of legal age,
and residents of Burauen Leyte, Philippines, after having been
duly sworn to in accordance with law free from threats and
intimidation, do hereby depose and say:
1. That I, PIO ALTERA bought with the right
of repurchase two parcels of land from
DOMINGA CONDE, BERNARDO CONDE AND
MARGARITA CONDE, all brother and sisters.
2. That these two parcels of land were all
inherited by the three.
3. That the document of SALE WITH THE
RIGHT OF REPURCHASE got lost in spite of
the diligent efforts to locate the same which
was lost during the war.
4. That these two parcels of land which was
the subject matter of a Deed of Sale with
the Right of Repurchase consists only of one
document which was lost.
5. Because it is about time to repurchase
the land, I have allowed the representative
of Dominga Conde, Bernardo Conde and
Margarita Conde in the name of EUSEBIO
AMARILLE to repurchase the same.
6. Now, this very day November 28, 1945, 1
or We have received together with Paciente
Cordero who is my son-in-law the amount
of ONE HUNDRED SIXTY-FIVE PESOS (P165.
00) Philippine Currency of legal tender
which was the consideration in that sale
with the right of repurchase with respect to
the two parcels of land.
That we further covenant together with Paciente Cordero
who is my son-in-law that from this day the said Dominga
Conde, Bernardo Conde and Margarita Conde will again take
possession of the aforementioned parcel of land because
they repurchased the same from me. If and when their
possession over the said parcel of land be disturbed by other
persons, I and Paciente Cordero who is my son-in-law will
defend in behalf of the herein brother and sisters mentioned
above, because the same was already repurchased by them.
IN WITNESS WHEREOF, I or We have hereunto affixed our
thumbmark or signature to our respective names below this
document or memorandum this 28th day of November 1945
at Burauen Leyte, Philippines, in the presence of two
witnesses.
PIO ALTERA (Sgd.) PACIENTE CORDERO
111 | A G E N C Y C A S E S | C A B A N L I T
WITNESSES:
1. (SGD.) TEODORO C. AGUILLON
To be noted is the fact that neither of the vendees-a-retro, Pio Altera nor
Casimira Pasagui, was a signatory to the deed. Petitioner maintains that
because Pio Altera was very ill at the time, Paciente Cordero executed the deed
of resale for and on behalf of his father-in-law. Petitioner further states that
she redeemed the property with her own money as her co-heirs were bereft of
funds for the purpose.
The  pacto de retro document was eventually found.
On 30 June 1965 Pio Altera sold the disputed lot to the spouses Ramon Conde
and Catalina T. Conde, who are also private respondents herein. Their
relationship to petitioner does not appear from the records. Nor has the
document of sale been exhibited.
Contending that she had validly repurchased the lot in question in 1945,
petitioner filed, on 16 January 1969, in the Court of First Instance of Leyte,
Branch IX, Tacloban City, a Complaint (Civil Case No. B-110), against Paciente
Cordero and his wife Nicetas Altera, Ramon Conde and his wife Catalina T.
Conde, and Casimira Pasagui Pio Altera having died in 1966), for quieting of title
to real property and declaration of ownership.
Petitioner's evidence is that Paciente Cordero signed the Memorandum of
Repurchase in representation of his father-in-law Pio Altera, who was seriously
sick on that occasion, and of his mother-in-law who was in Manila at the time,
and that Cordero received the repurchase price of P65.00.
Private respondents, for their part, adduced evidence that Paciente Cordero
signed the document of repurchase merely to show that he had no objection to
the repurchase; and that he did not receive the amount of P165.00 from
petitioner inasmuch as he had no authority from his parents-in-law who were
the vendees-a-retro.
After trial, the lower Court rendered its Decision dismissing the Complaint and
the counterclaim and ordering petitioner "to vacate the property in dispute and
deliver its peaceful possession to the defendants Ramon Conde and Catalina T.
Conde".
On appeal, the Court of Appeals upheld the findings of the Court a quo that
petitioner had failed to validly exercise her right of repurchase in view of the
fact that the Memorandum of Repurchase was signed by Paciente Cordero and
not by Pio Altera, the vendee-a-retro, and that there is nothing in said
document to show that Cordero was specifically authorized to act for and on
behalf of the vendee a retro, Pio Altera.
Reconsideration having been denied by the Appellate Court, the case is before
us on review.
There is no question that neither of the vendees-a-retro signed the
"Memorandum of Repurchase", and that there was no formal authorization
from the vendees for Paciente Cordero to act for and on their behalf.
Of significance, however, is the fact that from the execution of the repurchase
document in 1945, possession, which heretofore had been with the Alteras, has
been in the hands of petitioner as stipulated therein. Land taxes have also been
paid for by petitioner yearly from 1947 to 1969 inclusive (Exhibits "D" to "D-
15"; and "E"). If, as opined by both the Court a quo and the Appellate Court,
petitioner had done nothing to formalize her repurchase, by the same token,
neither have the vendees-a-retro done anything to clear their title of the
encumbrance therein regarding petitioner's right to repurchase. No new
agreement was entered into by the parties as stipulated in the deed of pacto
de retro, if the vendors a retro failed to exercise their right of redemption after
ten years. If, as alleged, petitioner exerted no effort to procure the signature of
Pio Altera after he had recovered from his illness, neither did the Alteras
repudiate the deed that their son-in-law had signed. Thus, an implied agency
must be held to have been created from their silence or lack of action, or their
failure to repudiate the agency. 2
Possession of the lot in dispute having been adversely and uninterruptedly with
petitioner from 1945 when the document of repurchase was executed, to
112 | A G E N C Y C A S E S | C A B A N L I T

1969, when she instituted this action, or for 24 years, the Alteras must be
deemed to have incurred in laches. 3 That petitioner merely took advantage of
the abandonment of the land by the Alteras due to the separation of said
spouses, and that petitioner's possession was in the concept of a tenant,
remain bare assertions without proof.
Private respondents Ramon Conde and Catalina Conde, to whom Pio Altera
sold the disputed property in 1965, assuming that there was, indeed, such a
sale, cannot be said to be purchasers in good faith. OCT No. 534 in the name of
the Alteras specifically contained the condition that it was subject to the right
of repurchase within 10 years from 1938. Although the ten-year period had
lapsed in 1965 and there was no annotation of any repurchase by petitioner,
neither had the title been cleared of that encumbrance. The purchasers were
put on notice that some other person could have a right to or interest in the
property. It behooved Ramon Conde and Catalina Conde to have looked into
the right of redemption inscribed on the title, and particularly the matter of
possession, which, as also admitted by them at the pre-trial, had been with
petitioner since 1945.
Private respondent must be held bound by the clear terms of the
Memorandum of Repurchase that he had signed wherein he acknowledged the
receipt of P165.00 and assumed the obligation to maintain the repurchasers in
peaceful possession should they be "disturbed by other persons". It was
executed in the Visayan dialect which he understood. He cannot now be
allowed to dispute the same. "... If the contract is plain and unequivocal in its
terms he is ordinarily bound thereby. It is the duty of every contracting party to
learn and know its contents before he signs and delivers it." 4
perjury, which would be afforded if parol evidence was
admissible. 6
In sum, although the contending parties were legally wanting in their respective
actuations, the repurchase by petitioner is supported by the admissions at the
pre-trial that petitioner has been in possession since the year 1945, the date of
the deed of repurchase, and has been paying land taxes thereon since then.
The imperatives of substantial justice, and the equitable principle of laches
brought about by private respondents' inaction and neglect for 24 years, loom
in petitioner's favor.
WHEREFORE, the judgment of respondent Court of Appeals is hereby
REVERSED and SET ASIDE, and petitioner is hereby declared the owner of the
disputed property. If the original of OCT No. N-534 of the Province of Leyte is
still extant at the office of the Register of Deeds, then said official is hereby
ordered to cancel the same and, in lieu thereof, issue a new Transfer Certificate
of Title in the name of petitioner, Dominga Conde.
No costs.
SO ORDERED.

There is nothing in the document of repurchase to show that Paciente Cordero

had signed the same merely to indicate that he had no objection to petitioner's
right of repurchase. Besides, he would have had no personality to object. To
uphold his oral testimony on that point, would be a departure from the parol
evidence rule 5 and would defeat the purpose for which the doctrine is
intended.

... The purpose of the rule is to give stability to written

agreements, and to remove the temptation and possibility of
113 | A G E N C Y C A S E S | C A B A N L I T

SECOND DIVISION

[ADM. CASE No. 5134 December 14, 2005]

TIRSO UYTENGSU III, Complainant, v. ATTY. JOSEPH M. BADUEL, Respondent.

RESOLUTION

TINGA, J.:

A sworn letter-complaint1 dated 1 July 19992 was filed by Tirso Uytengsu III

(complainant) against Atty. Joseph M. Baduel (respondent) for violation of Rule
1.013 of the Code of Professional Responsibility.

Complainant is one of the heirs of Tirso Uytengsu, Jr. He and his co-heirs had a
pending patent application. He alleges that sometime in December 1998
respondent requested him to sign a special power of attorney (SPA) authorizing
Luis Wee (Wee) and/or Thomas Jacobo (Jacobo) to claim, demand,
acknowledge and receive on his behalf the certificates of title from the Register
of Deeds, General Santos City, Department of Environment and Natural
Resources and from any government office or agency due to complainant and
his co-heirs by reason of their application for Homestead Patent II.A. No. 37
142 (E 37 124) over Lot 924-A Cad. II-013120-D with an area of 5.3876 hectares
and II.A. No. 116303 over Lot No. 924-B Cad. II-013120-D with an area of
5,1526 hectares, both situated in Lagao, General Santos City.

Complainant refused to sign the SPA as he wanted to obtain the documents

personally. Subsequently though, before he could get the title and other
documents, complainant learned that respondent caused to have the SPA
signed by Connie U. Kokseng (Kokseng), the former guardian of the heirs of
Tirso Uytengsu, Jr. Complainant maintains that the document signed by
Kokseng was the same SPA which was presented to him for signature by
respondent in December 1998. As a result, the titles and other documents
were received and taken by other persons without his or his co-heirs'
knowledge and consent.
114 | A G E N C Y C A S E S | C A B A N L I T
Complainant contends that the said SPA was prepared and notarized by the law
office of respondent and the latter stood as a witness to the public instrument.
Complainant further avers that respondent used to do some legal work for him
and knew fully well that Kokseng has already ceased to be his and his co-heirs'
guardian when the Regional Trial Court, Branch 19 of Cebu City terminated the
letters of guardianship over her youngest sibling on 30 August 1985 in the case
entitled "In the Matter of Guardianship of Tirso M. Uytengsu III, Kathleen Anne
M. Uytengsu, and Barbara Anne M. Uytengsu," docketed as SP Proc. No. 3039-
R.
In essence, complainant asserts that respondent caused Kokseng to execute an
SPA in favor of Wee and/or Jacobo to the damage and prejudice of the heirs of
Tirso Uytengsu, Jr. even if he knew that Kokseng had no authority to do so.
Respondent in his comment,4 argues that the allegations of complainant are
purely hearsay. He stresses that complaint was instituted to harass him
because he was the counsel of an opposing litigant against complainant's
corporation in an ejectment case entitled "General Milling Corporation v. Cebu
Autometic Motors, Inc. and Tirso Uytengsu III."
On 9 August 2000, this Court referred the case to the Integrated Bar of the
Philippines (IBP) for investigation, report and recommendation. 5
Notices of hearing were sent to both parties between 11 January 2001 and 8
May 2001. However, no actual hearings were conducted then due to the
unavailability of either or both parties. Finally, on 26 June 2001, both parties
appeared before the investigating commissioner. They were then directed to
file their position papers and their respective replies thereto.
Investigating Commissioner Tyrone Cimafranca submitted his Report and
Recommendation dated 2 April 2002, recommending the dismissal of the case.
The Commissioner characterized the evidence against respondent as hearsay.
Moreover, the Commissioner concluded that Kokseng had legal basis to
execute the SPA in favor of a substitute, the records showing that complainant
and his co-heirs have constituted Kokseng as their attorney-in-fact for the
purpose of filing the homestead application.6
Thereafter, the IBP submitted their resolution dated 29 June 2002 approving
and adopting the report and recommendation of the investigating
commissioner, dismissing the complaint against respondent. 7 Complainant filed
his motion for reconsideration8 but was denied by the IBP in its resolution
dated 19 October 2002 on the ground that the IBP no longer had jurisdiction to
consider and resolve a matter already endorsed to this Court. 9 This
notwithstanding, the Court remanded10 the administrative case for immediate
resolution of the motion for reconsideration on the merits to the IBP in the
Court's resolution dated 20 January 2003.11
On 27 February 2004, the IBP filed its resolution adopting and approving the
investigating commissioner's report and recommendation denying
complainant's motion for reconsideration.12
Subsequently, on 1 July 2004,13 complainant filed a Petition for Review
on Certiorari 14 assailing the resolution of the IBP dated 27 February 2004.
In his Petition for Review , complainant questions the findings of the IBP that
complainant's allegations were based on hearsay and in finding that Kokseng
had the authority to execute the special power of attorney in favor of Wee
and/or Jacobo.
We dismiss the complaint.
At the outset, the Court finds that herein respondent was in fact the counsel in
the homestead patent application of the heirs of Tirso Uytengsu, Jr. This can be
deduced from the letters15 dated 9 October 1991 and 15 January 1993,
addressed to respondent by Victoria Villasor-Inong (Villasor-Inong), Accounts
Liquidation Officer III of the Board of Liquidators of General Santos City.
In said letters, Villasor-Inong communicated to respondent the requirements
for the grant of the homestead patent to herein complainant and his co-heirs.
From the tenor of the letters, it would seem that respondent actively
participated in representing complainant and his co-heirs in their patent
application for the subject land. Apparently, he stood as counsel for the heirs of
Tirso Uytengsu, Jr.
115 | A G E N C Y C A S E S | C A B A N L I T
With that ostensible representation and without any evidence to show that
complainant or his co-heirs withdrew such authority from respondent, the
latter himself can even claim the certificates of titles and other documents with
regard to the homestead patents.
It should be remembered that the first letter of Villasor-Inong addressed to
respondent was on 9 October 1991.16 The addressees of the said letter were
"The Heirs of Tirso Uytengsu, Jr., Rep. by Connie Uytengsu Kokseng, c/o Atty.
Joseph Baduel."
Complainant also presented a letter17 dated 23 September 1992 addressed to
Villasor-Inong by the general manager of the Board of Liquidators, directing the
former to personally contact the heirs of Tirso Uytengsu, Jr. to ascertain who
among the persons giving conflicting directives as to the course of the patent
application is the true authorized representative of the heirs of Tirso Uytengsu,
Jr.
After four (4) months, respondent received from Villasor Inong another
letter,18 dated 15 January 1993, also attached to complainant's position paper
and Petition for Review , furnishing respondent the requirements needed for
the homestead patent application of complainant and his co-heirs.
Complainant himself submitted all the aforementioned letters clearly showing
that respondent was indeed the counsel or representative of complainant in
the application for patent.
The relation of attorney and client is in many respects one of agency and the
general rules of ordinary agency apply to such relation. 19 The extent of
authority of a lawyer, when acting on behalf of his client outside of court, is
measured by the same test as that which is applied to an ordinary agent. 20
Such being the case, even respondent himself can acquire the certificates of
title and other documents without need of an SPA from complainant and his
co-heirs.
In addition, the Court agrees with the investigating commissioner that the
allegations of complainant constitutes mere hearsay evidence and may not be
admissible in any proceeding.
In Marcelo v. Javier,21 it was held that:
In all cases the determination whether an attorney should be disbarred or
merely suspended for a period involves the exercise of a sound judicial
discretion, mindful always of the fact that disbarment is the most severe form
of disciplinary action and should be resorted to only in cases where the lawyer
demonstrates an attitude or course of conduct wholly inconsistent with
approved professional standards. In cases of lighter offenses or of first
delinquency, an order of suspension, which is correctional in nature, should be
inflicted. In view of the nature and consequences of a disciplinary proceedings,
observance of due process, as in other judicial determination, is imperative
along with presumption of innocence in favor of the lawyer. Consequently, the
burden of proof is on the complainant to overcome such presumption and
establish his charges by clear preponderance of evidence. 22
Procedural due process demands that respondent lawyer should be given an
opportunity to cross-examine the witnesses against him. He enjoys the legal
presumption that he is innocent of the charges against him until the contrary is
proved. The case must be established by clear, convincing and satisfactory
proof.23
In the case at bar, other than the bare assertions of complainant, the evidence
presented by the latter does not suffice to tip the scale of justice to his side.
It should be stressed that in administrative proceedings, complainant has the
burden of proving the allegations in the complaint. We cannot depend on mere
conjectures and speculations. There must be substantial evidence to support
respondent's guilt.24
Complainant averred that: (1) the SPA which the respondent asked him to sign
was the same document that Kokseng executed; (2) the document was
notarized by a notary public from the office of the respondent; and (3) the
respondent was a witness in the SPA.
116 | A G E N C Y C A S E S | C A B A N L I T
As correctly observed by the investigating commissioner, all the
aforementioned charges are not based on his personal knowledge of the acts
complained of but acquired from other sources.
Complainant charges that respondent committed an act meriting disbarment
when the latter caused to have a special power of attorney, which the former
reused to sign earlier, executed by Mrs. Connie Kokseng, former guardian of
complainant and his co-heirs, authorizing certain individuals to secure the
release from the Register of Deeds and other government offices in General
Santos City, titles and other documents pertaining to complainant's and his co-
heirs' homestead application. However, this charge is not based on his own
personal knowledge of the acts complained of but acquired from another
source. In other words, what he offered in evidence to prove his charge is a
second-hand version. Complainant identified his source but failed to present
any sworn statement or affidavit of said witness. In other words, what he
presented in evidence to prove his charge is hearsay. 25
The hearsay rule provides that no assertion offered as testimony can be
received unless it is or has been open to test by cross-examination or an
opportunity for cross-examination, except as provided otherwise by the rules
on evidence, by rules of court, or by statute. The chief reasons for the rule are
that out-of-court statements amounting to hearsay are not made under oath
and are not subject to cross-examination.26
He did not submit to this Court or to the IBP any witness or documentary
evidence to support his claim that respondent has indeed caused the execution
of the disputed special power of attorney. Furthermore, complainant in his
reply27 to respondent's comment stated that he has a credible witness in the
person of Edward U. Kokseng, son of Kokseng, who has first hand knowledge of
Kokseng's signing of the SPA. However, he failed to present his witness before
the IBP or submitted an affidavit of his witness to affirm his allegations. Neither
did he present any witness, whether expert nor otherwise, to attest to the
genuiness of the signature of respondent which was allegedly found in the SPA,
if that was his objective.
This is not to say that complainant was not given any advice by the Court to
make the proper attachment to pleadings. As early as 21 July 1999, Atty. Erlinda
C. Versoza, the then Deputy Clerk of Court and Bar Confidant, sent word to
complainant through a letter that
complainant's letter-complaint must be verified and the supporting documents
duly authenticated.28
As a basic rule in evidence, the burden of proof lies on the party who makes the
allegations'ei incumbit probatio, qui decit, non qui negat; cum per rerum
naturam factum negantis probatio nulla sit.29
It is also worth noting that complainant's claim that he suffered damage and
prejudice due to the alleged unauthorized procurement of the certificates of
titles and other documents was not substantiated by independent evidence.
Complainant's silence as to the extent of the alleged damage and the lack of
material evidence to show that his rights were impaired by the acts of
respondent would lead this Court to believe that complainant has suffered no
or minimal injury, should there be any.
As held in Metropolitan Bank and Trust Co. v. Tan,30 "no right of action is given
where no injury is sustained. A wrongful violation of a legal right is not a
sufficient element of a cause of action unless it has resulted in an injury causing
loss or damage. There must be therefore, both wrongful violation and
damages. The one without the other is not sufficient." 31
Complainant made no statement on whether or not, at present, other persons
who procured the certificates of title and other documents are still in
possession of the same. He also has not stated the direct injury that was
produced by the acts of respondent.
With all the foregoing, the Court finds that complainant did not overcome the
presumption of innocence of respondent.
We need not dwell on the other factual issues of the case as it involves the
presentation of concrete evidence that, sadly, complainant was not able to
offer.
117 | A G E N C Y C A S E S | C A B A N L I T

WHEREFORE, premises considered, the instant case against respondent is

hereby DISMISSED for lack of merit.
Republic of the Philippines
SO ORDERED. SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 175366             August 11, 2008

J-PHIL MARINE, INC. and/or JESUS CANDAVA and NORMAN SHIPPING

SERVICES, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION and WARLITO E.
DUMALAOG, respondents.

DECISION

CARPIO MORALES, J.:

Warlito E. Dumalaog (respondent), who served as cook aboard vessels plying

overseas, filed on March 4, 2002 before the National Labor Relations
Commission (NLRC) a pro-forma complaint1 against petitioners ─ manning
agency J-Phil Marine, Inc. (J-Phil), its then president Jesus Candava, and its
foreign principal Norman Shipping Services ─ for unpaid money claims, moral
and exemplary damages, and attorney’s fees.

Respondent thereafter filed two amended pro forma complaints 2 praying for
the award of overtime pay, vacation leave pay, sick leave pay, and
disability/medical benefits, he having, by his claim, contracted enlargement of
the heart and severe thyroid enlargement in the discharge of his duties as cook
which rendered him disabled.

Respondent’s total claim against petitioners was P864,343.30 plus P117,557.60

representing interest and P195,928.66 representing attorney’s fees.3
118 | A G E N C Y C A S E S | C A B A N L I T
By Decision4 of August 29, 2003, Labor Arbiter Fe Superiaso-Cellan dismissed
respondent’s complaint for lack of merit.
5
On appeal,  the NLRC, by Decision of September 27, 2004, reversed the Labor
Arbiter’s decision and awarded US$50,000.00 disability benefit to respondent.
It dismissed respondent’s other claims, however, for lack of basis or
jurisdiction.6 Petitioners’ Motion for Reconsideration7 having been denied by
the NLRC,8 they filed a petition for certiorari9 before the Court of Appeals.
By Resolution10 of September 22, 2005, the Court of Appeals dismissed
petitioners’ petition for, inter alia, failure to attach to the petition all material
documents, and for defective verification and certification. Petitioners’ Motion
for Reconsideration of the appellate court’s Resolution was denied; 11 hence,
they filed the present Petition for Review on Certiorari.
During the pendency of the case before this Court, respondent, against the
advice of his counsel, entered into a compromise agreement with petitioners.
He thereupon signed a Quitclaim and Release subscribed and sworn to before
the Labor Arbiter.12
13
On May 8, 2007, petitioners filed before this Court a Manifestation  dated May
7, 2007 informing that, inter alia, they and respondent had forged an amicable
settlement.
On July 2, 2007, respondent’s counsel filed before this Court a Comment and
Opposition (to Petitioners’ Manifestation of May 7, 2007) 14 interposing no
objection to the dismissal of the petition but objecting to "the absolution" of
petitioners from paying respondent the total amount of Fifty Thousand US
Dollars (US$50,000.00) or approximately P2,300,000.00, the amount awarded
by the NLRC, he adding that:
There being already a payment of P450,000.00, and invoking the
doctrine of parens patriae, we pray then [to] this Honorable Supreme
Court that the said amount be deducted from the [NLRC] judgment
award of US$50,000.00, or approximately  P2,300,000.00, and
petitioners be furthermore ordered to pay in favor of herein
respondent [the] remaining balance thereof.
x x x x15 (Emphasis in the original; underscoring supplied)
Respondent’s counsel also filed before this Court, purportedly on behalf of
respondent, a Comment16 on the present petition.
The parties having forged a compromise agreement as respondent in fact has
executed a Quitclaim and Release, the Court dismisses the petition.
Article 227 of the Labor Code provides:
Any compromise settlement, including those involving labor standard
laws, voluntarily agreed upon by the parties with the assistance of the
Department of Labor, shall be final and binding upon the parties. The
National Labor Relations Commission or any court shall not assume
jurisdiction over issues involved therein except in case of non-
compliance thereof or if there is prima facie evidence that the
settlement was obtained through fraud, misrepresentation, or
coercion. (Emphasis and underscoring supplied)
In Olaybar v. NLRC,17 the Court, recognizing the conclusiveness of compromise
settlements as a means to end labor disputes, held that Article 2037 of the Civil
Code, which provides that "[a] compromise has upon the parties the effect and
authority of res judicata," applies suppletorily to labor cases even if the
compromise is not judicially approved.18
That respondent was not assisted by his counsel when he entered into the
compromise does not render it null and void. Eurotech Hair Systems, Inc. v.
Go19 so enlightens:
A compromise agreement is valid as long as the consideration is
reasonable and the employee signed the waiver voluntarily, with a full
understanding of what he was entering into. All that is required for the
compromise to be deemed voluntarily entered into is personal and
specific individual consent. Thus, contrary to respondent’s contention,
the employee’s counsel need not be present at the time of the signing
of the compromise agreement.20 (Underscoring supplied)
119 | A G E N C Y C A S E S | C A B A N L I T

It bears noting that, as reflected earlier, the Quitclaim and Waiver was Republic of the Philippines
subscribed and sworn to before the Labor Arbiter. SUPREME COURT
Manila
Respondent’s counsel nevertheless argues that "[t]he amount of Four Hundred
Fifty Thousand Pesos (P450,000.00) given to respondent on April 4, 2007, as EN BANC
‘full and final settlement of judgment award,’ is unconscionably low, and un-
[C]hristian, to say the least."21 Only respondent, however, can impugn the G.R. No. 126297               February 2, 2010
consideration of the compromise as being unconscionable.
PROFESSIONAL SERVICES, INC., Petitioner,
The relation of attorney and client is in many respects one of agency, and the vs.
general rules of agency apply to such relation. 22 The acts of an agent are THE COURT OF APPEALS and NATIVIDAD and ENRIQUE AGANA, Respondents.
deemed the acts of the principal only if the agent acts within the scope of his
authority.23 The circumstances of this case indicate that respondent’s counsel is x - - - - - - - - - - - - - - - - - - - - - - -x
acting beyond the scope of his authority in questioning the compromise
agreement.
G.R. No. 126467

That a client has undoubtedly the right to compromise a suit without the
NATIVIDAD [substituted by her children Marcelino Agana III, Enrique Agana,
intervention of his lawyer24 cannot be gainsaid, the only qualification being that
Jr., Emma Agana-Andaya, Jesus Agana and Raymund Agana] and ENRIQUE
if such compromise is entered into with the intent of defrauding the lawyer of
AGANA, Petitioners,
the fees justly due him, the compromise must be subject to the said fees. 25 In
vs.
the case at bar, there is no showing that respondent intended to defraud his
THE COURT OF APPEALS and JUAN FUENTES, Respondents.
counsel of his fees. In fact, the Quitclaim and Release, the execution of which
was witnessed by petitioner J-Phil’s president Eulalio C. Candava and one
x - - - - - - - - - - - - - - - - - - - - - - -x
Antonio C. Casim, notes that the 20% attorney’s fees would be "paid 12 April
2007 – P90,000."
G.R. No. 127590
WHEREFORE, the petition is, in light of all the foregoing discussion, DISMISSED.
MIGUEL AMPIL, Petitioner,
vs.
Let a copy of this Decision be furnished respondent, Warlito E. Dumalaog, at his
NATIVIDAD and ENRIQUE AGANA, Respondents.
given address at No. 5-B Illinois Street, Cubao, Quezon City.

RESOLUTION
SO ORDERED.

CORONA, J.:

With prior leave of court,1 petitioner Professional Services, Inc. (PSI) filed a

second motion for reconsideration2 urging referral thereof to the Court en banc
120 | A G E N C Y C A S E S | C A B A N L I T
and seeking modification of the decision dated January 31, 2007 and resolution
dated February 11, 2008 which affirmed its vicarious and direct liability for
damages to respondents Enrique Agana and the heirs of Natividad Agana
(Aganas).
Manila Medical Services, Inc. (MMSI), 3 Asian Hospital, Inc. (AHI),4 and Private
Hospital Association of the Philippines (PHAP)5 all sought to intervene in these
cases invoking the common ground that, unless modified, the assailed decision
and resolution will jeopardize the financial viability of private hospitals and jack
up the cost of health care.
The Special First Division of the Court granted the motions for intervention of
MMSI, AHI and PHAP (hereafter intervenors),6 and referred en consulta to the
Court en banc the motion for prior leave of court and the second motion for
reconsideration of PSI.7
Due to paramount public interest, the Court en banc accepted the referral8 and
heard the parties on oral arguments on one particular issue: whether a hospital
may be held liable for the negligence of physicians-consultants allowed to
practice in its premises.9
To recall the salient facts, PSI, together with Dr. Miguel Ampil (Dr. Ampil) and
Dr. Juan Fuentes (Dr. Fuentes), was impleaded by Enrique Agana and Natividad
Agana (later substituted by her heirs), in a complaint 10 for damages filed in the
Regional Trial Court (RTC) of Quezon City, Branch 96, for the injuries suffered by
Natividad when Dr. Ampil and Dr. Fuentes neglected to remove from her body
two gauzes11 which were used in the surgery they performed on her on April
11, 1984 at the Medical City General Hospital. PSI was impleaded as owner,
operator and manager of the hospital.
In a decision12 dated March 17, 1993, the RTC held PSI solidarily liable with Dr.
Ampil and Dr. Fuentes for damages.13 On appeal, the Court of Appeals (CA),
absolved Dr. Fuentes but affirmed the liability of Dr. Ampil and PSI, subject to
the right of PSI to claim reimbursement from Dr. Ampil. 141avvphi1
On petition for review, this Court, in its January 31, 2007 decision, affirmed the
CA decision.15 PSI filed a motion for reconsideration16 but the Court denied it in
a resolution dated February 11, 2008.17
The Court premised the direct liability of PSI to the Aganas on the following
facts and law:
First, there existed between PSI and Dr. Ampil an employer-employee
relationship as contemplated in the December 29, 1999 decision in Ramos v.
Court of Appeals18 that "for purposes of allocating responsibility in medical
negligence cases, an employer-employee relationship exists between hospitals
and their consultants."19 Although the Court in Ramos later issued a Resolution
dated April 11, 200220 reversing its earlier finding on the existence of an
employment relationship between hospital and doctor, a similar reversal was
not warranted in the present case because the defense raised by PSI consisted
of a mere general denial of control or responsibility over the actions of Dr.
Ampil.21
Second, by accrediting Dr. Ampil and advertising his qualifications, PSI created
the public impression that he was its agent. 22 Enrique testified that it was on
account of Dr. Ampil's accreditation with PSI that he conferred with said doctor
about his wife's (Natividad's) condition.23 After his meeting with Dr. Ampil,
Enrique asked Natividad to personally consult Dr. Ampil. 24 In effect, when
Enrigue and Natividad engaged the services of Dr. Ampil, at the back of their
minds was that the latter was a staff member of a prestigious hospital. Thus,
under the doctrine of apparent authority applied in Nogales, et al. v. Capitol
Medical Center, et al.,25 PSI was liable for the negligence of Dr. Ampil.
Finally, as owner and operator of Medical City General Hospital, PSI was bound
by its duty to provide comprehensive medical services to Natividad Agana, to
exercise reasonable care to protect her from harm, 26 to oversee or supervise all
persons who practiced medicine within its walls, and to take active steps in
fixing any form of negligence committed within its premises. 27 PSI committed a
serious breach of its corporate duty when it failed to conduct an immediate
investigation into the reported missing gauzes. 28
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PSI is now asking this Court to reconsider the foregoing rulings for these
reasons:
I The Aganas comment that the arguments of PSI need no longer be entertained
The declaration in the 31 January 2007 Decision vis-a-vis the 11 February 2009
Resolution that the ruling in Ramos vs. Court of Appeals (G.R. No. 134354,
December 29, 1999) that "an employer-employee relations exists between
hospital and their consultants" stays should be set aside for being inconsistent
with or contrary to the import of the resolution granting the hospital's motion
for reconsideration in Ramos vs. Court of Appeals (G.R. No. 134354, April 11,
2002), which is applicable to PSI since the Aganas failed to prove an employer-
employee relationship between PSI and Dr. Ampil and PSI proved that it has no
control over Dr. Ampil. In fact, the trial court has found that there is no
employer-employee relationship in this case and that the doctor's are
independent contractors.
II
Respondents Aganas engaged Dr. Miguel Ampil as their doctor and did not
primarily and specifically look to the Medical City Hospital (PSI) for medical care
and support; otherwise stated, respondents Aganas did not select Medical City
Hospital (PSI) to provide medical care because of any apparent authority of Dr.
Miguel Ampil as its agent since the latter was chosen primarily and specifically
based on his qualifications and being friend and neighbor.
III
PSI cannot be liable under doctrine of corporate negligence since the proximate
cause of Mrs. Agana's injury was the negligence of Dr. Ampil, which is an
element of the principle of corporate negligence.29
In their respective memoranda, intervenors raise parallel arguments that the
Court's ruling on the existence of an employer-employee relationship between
private hospitals and consultants will force a drastic and complex alteration in
the long-established and currently prevailing relationships among patient,
physician and hospital, with burdensome operational and financial
consequences and adverse effects on all three parties.30
for they have all been traversed in the assailed decision and resolution. 31
After gathering its thoughts on the issues, this Court holds that PSI is liable to
the Aganas, not under the principle of respondeat superior for lack of evidence
of an employment relationship with Dr. Ampil but under the principle of
ostensible agency for the negligence of Dr. Ampil and, pro hac vice, under the
principle of corporate negligence for its failure to perform its duties as a
hospital.
While in theory a hospital as a juridical entity cannot practice medicine, 32 in
reality it utilizes doctors, surgeons and medical practitioners in the conduct of
its business of facilitating medical and surgical treatment. 33 Within that reality,
three legal relationships crisscross: (1) between the hospital and the doctor
practicing within its premises; (2) between the hospital and the patient being
treated or examined within its premises and (3) between the patient and the
doctor. The exact nature of each relationship determines the basis and extent
of the liability of the hospital for the negligence of the doctor.
Where an employment relationship exists, the hospital may be held vicariously
liable under Article 217634 in relation to Article 218035 of the Civil Code or the
principle of respondeat superior. Even when no employment relationship exists
but it is shown that the hospital holds out to the patient that the doctor is its
agent, the hospital may still be vicariously liable under Article 2176 in relation
to Article 143136 and Article 186937 of the Civil Code or the principle of apparent
authority.38 Moreover, regardless of its relationship with the doctor, the
hospital may be held directly liable to the patient for its own negligence or
failure to follow established standard of conduct to which it should conform as
a corporation.39
This Court still employs the "control test" to determine the existence of an
employer-employee relationship between hospital and doctor. In Calamba
Medical Center, Inc. v. National Labor Relations Commission, et al. 40 it held:
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Under the "control test", an employment relationship exists between a
physician and a hospital if the hospital controls both the means and the details
of the process by which the physician is to accomplish his task.
x x x           x x x          x x x
As priorly stated, private respondents maintained specific work-schedules, as
determined by petitioner through its medical director, which consisted of 24-
hour shifts totaling forty-eight hours each week and which were strictly to be
observed under pain of administrative sanctions.
That petitioner exercised control over respondents gains light from the
undisputed fact that in the emergency room, the operating room, or any
department or ward for that matter, respondents' work is monitored through
its nursing supervisors, charge nurses and orderlies. Without the approval or
consent of petitioner or its medical director, no operations can be undertaken
in those areas. For control test to apply, it is not essential for the employer to
actually supervise the performance of duties of the employee, it being
enough that it has the right to wield the power. (emphasis supplied)
Even in its December 29, 1999 decision41 and April 11, 2002
resolution42 in Ramos, the Court found the control test decisive.
In the present case, it appears to have escaped the Court's attention that both
the RTC and the CA found no employment relationship between PSI and Dr.
Ampil, and that the Aganas did not question such finding. In its March 17,
1993 decision, the RTC found "that defendant doctors were not employees of
PSI in its hospital, they being merely consultants without any employer-
employee relationship and in the capacity of independent contractors." 43 The
Aganas never questioned such finding.
44
PSI, Dr. Ampil and Dr. Fuentes appealed  from the RTC decision but only on the
issues of negligence, agency and corporate liability. In its September 6, 1996
decision, the CA mistakenly referred to PSI and Dr. Ampil as employer-
employee, but it was clear in its discussion on the matter that it viewed their
relationship as one of mere apparent agency. 45
The Aganas appealed from the CA decision, but only to question the
exoneration of Dr. Fuentes.46 PSI also appealed from the CA decision, and it was
then that the issue of employment, though long settled, was unwittingly
resurrected.
In fine, as there was no dispute over the RTC finding that PSI and Dr. Ampil had
no employer-employee relationship, such finding became final and conclusive
even to this Court.47 There was no reason for PSI to have raised it as an issue in
its petition. Thus, whatever discussion on the matter that may have ensued was
purely academic.
Nonetheless, to allay the anxiety of the intervenors, the Court holds that, in this
particular instance, the concurrent finding of the RTC and the CA that PSI was
not the employer of Dr. Ampil is correct. Control as a determinative factor in
testing the employer-employee relationship between doctor and hospital
under which the hospital could be held vicariously liable to a patient in medical
negligence cases is a requisite fact to be established by preponderance of
evidence. Here, there was insufficient evidence that PSI exercised the power of
control or wielded such power over the means and the details of the specific
process by which Dr. Ampil applied his skills in the treatment of Natividad.
Consequently, PSI cannot be held vicariously liable for the negligence of Dr.
Ampil under the principle of respondeat superior.
There is, however, ample evidence that the hospital (PSI) held out to the
patient (Natividad)48 that the doctor (Dr. Ampil) was its agent. Present are the
two factors that determine apparent authority: first, the hospital's implied
manifestation to the patient which led the latter to conclude that the doctor
was the hospital's agent; and second, the patient’s reliance upon the conduct
of the hospital and the doctor, consistent with ordinary care and prudence. 49
Enrique testified that on April 2, 1984, he consulted Dr. Ampil regarding the
condition of his wife; that after the meeting and as advised by Dr. Ampil, he
"asked [his] wife to go to Medical City to be examined by [Dr. Ampil]"; and that
the next day, April 3, he told his daughter to take her mother to Dr.
Ampil.50 This timeline indicates that it was Enrique who actually made the
decision on whom Natividad should consult and where, and that the latter
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merely acceded to it. It explains the testimony of Natividad that she consulted
Dr. Ampil at the instigation of her daughter. 51
Moreover, when asked what impelled him to choose Dr. Ampil, Enrique
testified:
Atty. Agcaoili
On that particular occasion, April 2, 1984, what was your reason for choosing
Dr. Ampil to contact with in connection with your wife's illness?
A. First, before that, I have known him to be a specialist on that part of the
body as a surgeon, second, I have known him to be a staff member of the
Medical City which is a prominent and known hospital. And third, because he is
a neighbor, I expect more than the usual medical service to be given to us, than
his ordinary patients.52 (emphasis supplied)
Clearly, the decision made by Enrique for Natividad to consult Dr. Ampil was
significantly influenced by the impression that Dr. Ampil was a staff member of
Medical City General Hospital, and that said hospital was well known and
prominent. Enrique looked upon Dr. Ampil not as independent of but as
integrally related to Medical City.
PSI's acts tended to confirm and reinforce, rather than negate, Enrique's view.
It is of record that PSI required a "consent for hospital care" 53 to be signed
preparatory to the surgery of Natividad. The form reads:
Permission is hereby given to the medical, nursing and laboratory staff of the
Medical City General Hospital to perform such diagnostic procedures and to
administer such medications and treatments as may be deemed necessary or
advisable by the physicians of this hospital for and during the confinement of
xxx. (emphasis supplied)
By such statement, PSI virtually reinforced the public impression that Dr. Ampil
was a physician of its hospital, rather than one independently practicing in it;
that the medications and treatments he prescribed were necessary and
desirable; and that the hospital staff was prepared to carry them out.1avvphi1
PSI pointed out in its memorandum that Dr. Ampil's hospital affiliation was not
the exclusive basis of the Aganas’ decision to have Natividad treated in Medical
City General Hospital, meaning that, had Dr. Ampil been affiliated with another
hospital, he would still have been chosen by the Aganas as Natividad's
surgeon.54
The Court cannot speculate on what could have been behind the Aganas’
decision but would rather adhere strictly to the fact that, under the
circumstances at that time, Enrique decided to consult Dr. Ampil for he
believed him to be a staff member of a prominent and known hospital. After his
meeting with Dr. Ampil, Enrique advised his wife Natividad to go to the Medical
City General Hospital to be examined by said doctor, and the hospital acted in a
way that fortified Enrique's belief.
This Court must therefore maintain the ruling that PSI is vicariously liable for
the negligence of Dr. Ampil as its ostensible agent.
Moving on to the next issue, the Court notes that PSI made the following
admission in its Motion for Reconsideration:
51. Clearly, not being an agent or employee of petitioner PSI, PSI [sic] is not
liable for Dr. Ampil's acts during the operation. Considering further that Dr.
Ampil was personally engaged as a doctor by Mrs. Agana, it is incumbent upon
Dr. Ampil, as "Captain of the Ship", and as the Agana's doctor to advise her on
what to do with her situation vis-a-vis the two missing gauzes. In addition to
noting the missing gauzes, regular check-ups were made and no signs of
complications were exhibited during her stay at the hospital, which could
have alerted petitioner PSI's hospital to render and provide post-operation
services to and tread on Dr. Ampil's role as the doctor of Mrs. Agana. The
absence of negligence of PSI from the patient's admission up to her discharge
is borne by the finding of facts in this case. Likewise evident therefrom is the
absence of any complaint from Mrs. Agana after her discharge from the
hospital which had she brought to the hospital's attention, could have alerted
petitioner PSI to act accordingly and bring the matter to Dr. Ampil's attention.
But this was not the case. Ms. Agana complained ONLY to Drs. Ampil and
Fuentes, not the hospital. How then could PSI possibly do something to fix
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the negligence committed by Dr. Ampil when it was not informed about it at
all.55 (emphasis supplied)
PSI reiterated its admission when it stated that had Natividad Agana "informed
the hospital of her discomfort and pain, the hospital would have been obliged
to act on it."56
The significance of the foregoing statements is critical.
First, they constitute judicial admission by PSI that while it had no power to
control the means or method by which Dr. Ampil conducted the surgery on
Natividad Agana, it had the  power to review or cause the review of what may
have irregularly transpired within its walls strictly for the purpose of
determining whether some form of negligence may have attended any
procedure done inside its premises, with the ultimate end of protecting its
patients.
Second, it is a judicial admission that, by virtue of the nature of its business as
well as its prominence57 in the hospital industry, it assumed a duty to "tread
on" the "captain of the ship" role of any doctor rendering services within its
premises for the purpose of ensuring the safety of the patients availing
themselves of its services and facilities.
Third, by such admission, PSI defined the standards of its corporate conduct
under the circumstances of this case, specifically: (a) that it had a corporate
duty to Natividad even after her operation to ensure her safety as a patient; (b)
that its corporate duty was not limited to having its nursing staff note or record
the two missing gauzes and (c) that its corporate duty extended to determining
Dr. Ampil's role in it, bringing the matter to his attention, and correcting his
negligence.
And finally, by such admission, PSI barred itself from arguing in its second
motion for reconsideration that the concept of corporate responsibility was not
yet in existence at the time Natividad underwent treatment; 58 and that if it had
any corporate responsibility, the same was limited to reporting the missing
gauzes and did not include "taking an active step in fixing the negligence
committed."59 An admission made in the pleading cannot be controverted by
the party making such admission and is conclusive as to him, and all proofs
submitted by him contrary thereto or inconsistent therewith should be ignored,
whether or not objection is interposed by a party. 60
Given the standard of conduct that PSI defined for itself, the next relevant
inquiry is whether the hospital measured up to it.
PSI excuses itself from fulfilling its corporate duty on the ground that Dr. Ampil
assumed the personal responsibility of informing Natividad about the two
missing gauzes.61 Dr. Ricardo Jocson, who was part of the group of doctors that
attended to Natividad, testified that toward the end of the surgery, their group
talked about the missing gauzes but Dr. Ampil assured them that he would
personally notify the patient about it. 62 Furthermore, PSI claimed that there
was no reason for it to act on the report on the two missing gauzes because
Natividad Agana showed no signs of complications. She did not even inform the
hospital about her discomfort.63
The excuses proffered by PSI are totally unacceptable.
To begin with, PSI could not simply wave off the problem and nonchalantly
delegate to Dr. Ampil the duty to review what transpired during the operation.
The purpose of such review would have been to pinpoint when, how and by
whom two surgical gauzes were mislaid so that necessary remedial measures
could be taken to avert any jeopardy to Natividad’s recovery. Certainly, PSI
could not have expected that purpose to be achieved by merely hoping that
the person likely to have mislaid the gauzes might be able to retrace his own
steps. By its own standard of corporate conduct, PSI's duty to initiate the
review was non-delegable.
While Dr. Ampil may have had the primary responsibility of notifying Natividad
about the missing gauzes, PSI imposed upon itself the separate and
independent responsibility of initiating the inquiry into the missing gauzes. The
purpose of the first would have been to apprise Natividad of what transpired
during her surgery, while the purpose of the second would have been to
pinpoint any lapse in procedure that led to the gauze count discrepancy, so as
to prevent a recurrence thereof and to determine corrective measures that
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would ensure the safety of Natividad. That Dr. Ampil negligently failed to notify logical: heed the report of a guaze count discrepancy, initiate a review of what
Natividad did not release PSI from its self-imposed separate responsibility. went wrong and take corrective measures to ensure the safety of Nativad.
Rather, for 26 years, PSI hemmed and hawed at every turn, disowning any such
Corollary to its non-delegable undertaking to review potential incidents of responsibility to its patient. Meanwhile, the options left to the Aganas have all
negligence committed within its premises, PSI had the duty to take notice of but dwindled, for the status of Dr. Ampil can no longer be ascertained. 66
medical records prepared by its own staff and submitted to its custody,
especially when these bear earmarks of a surgery gone awry. Thus, the record Therefore, taking all the equities of this case into consideration, this Court
taken during the operation of Natividad which reported a gauze count believes ₱15 million would be a fair and reasonable liability of PSI, subject to
discrepancy should have given PSI sufficient reason to initiate a review. It 12% p.a. interest from the finality of this resolution to full satisfaction.
should not have waited for Natividad to complain.
WHEREFORE, the second motion for reconsideration is DENIED and the
As it happened, PSI took no heed of the record of operation and consequently motions for intervention are NOTED.
did not initiate a review of what transpired during Natividad’s operation.
Rather, it shirked its responsibility and passed it on to others – to Dr. Ampil Professional Services, Inc. is ORDERED pro hac vice to pay Natividad
whom it expected to inform Natividad, and to Natividad herself to complain (substituted by her children Marcelino Agana III, Enrique Agana, Jr., Emma
before it took any meaningful step. By its inaction, therefore, PSI failed its own Agana-Andaya, Jesus Agana and Raymund Agana) and Enrique Agana the total
standard of hospital care. It committed corporate negligence. amount of ₱15 million, subject to 12% p.a. interest from the finality of this
resolution to full satisfaction.
It should be borne in mind that the corporate negligence ascribed to PSI is
different from the medical negligence attributed to Dr. Ampil. The duties of the No further pleadings by any party shall be entertained in this case.
hospital are distinct from those of the doctor-consultant practicing within its
premises in relation to the patient; hence, the failure of PSI to fulfill its duties as Let the long-delayed entry of judgment be made in this case upon receipt by all
a hospital corporation gave rise to a direct liability to the Aganas distinct from concerned parties of this resolution.
that of Dr. Ampil.
SO ORDERED.
All this notwithstanding, we make it clear that PSI’s hospital liability based on
ostensible agency and corporate negligence applies only to this case, pro hac
vice. It is not intended to set a precedent and should not serve as a basis to
hold hospitals liable for every form of negligence of their doctors-consultants
under any and all circumstances. The ruling is unique to this case, for the
liability of PSI arose from an implied agency with Dr. Ampil and an admitted
corporate duty to Natividad.64

Other circumstances peculiar to this case warrant this ruling, 65 not the least of
which being that the agony wrought upon the Aganas has gone on for 26 long
years, with Natividad coming to the end of her days racked in pain and agony.
Such wretchedness could have been avoided had PSI simply done what was