G.R. No.

142950 March 26, 2001

EQUITABLE PCI BANK, formerly EQUITABLE BANKING CORPORATION, petitioner,

vs.
ROSITA KU, respondent.

KAPUNAN, J.:

Can a person be evicted by virtue of a decision rendered in an ejectment case where she was not joined as
a party? This was the issue that confronted the Court of Appeals, which resolved the issue in the negative.
To hold the contrary, it said, would violate due process. Given the circumstances of the present case,
petitioner Equitable PCI Bank begs to differ. Hence, this petition.

On February 4, 1982, respondent Rosita Ku, as treasurer of Noddy Dairy Products, Inc., and Ku Giok Heng,
as Vice-President/General Manager of the same corporation, mortgaged the subject property to the
Equitable Banking Corporation, now known as Equitable PCI Bank to secure Noddy Inc.’s loan to Equitable.
The property, a residential house and lot located in La Vista, Quezon City, was registered in respondent’s
name.

Noddy, Inc. subsequently failed to pay the loan secured by the mortgage, prompting petitioner to
foreclose the property extrajudicially. As the winning bidder in the foreclosure sale, petitioner was issued
a certificate of sale. Respondent failed to redeem the property. Thus, on December 10, 1984, the Register
of Deeds canceled the Transfer Certificate of Title in the name of respondent and a new one was issued in
petitioner’s name.

On May 10, 1989, petitioner instituted an action for ejectment before the Quezon City Metropolitan Trial
Court (MeTC) against respondent’s father Ku Giok Heng. Petitioner alleged that it allowed Ku Giok Heng to
remain in the property on the condition that the latter pay rent. Ku Giok Heng’s failure to pay rent
prompted the MeTC to seek his ejectment. Ku Giok Heng denied that there was any lease agreement over
the property.1âwphi1.nêt

On December 8, 1994, the MeTC rendered a decision in favor of petitioner and ordered Ku Giok Heng to,
among other things, vacate the premises. It ruled:

x x x for his failure or refusal to pay rentals despite proper demands, the defendant had not
established his right for his continued possession of or stay in the premises acquired by the
plaintiff thru foreclosure, the title of which had been duly transferred in the name of the plaintiff.
The absence of lease agreement or agreement for the payment of rentals is of no moment in the
light of the prevailing Supreme Court ruling on the matter. Thus: "It is settled that the buyer in
foreclosure sale becomes the absolute owner of the property purchased if it is not redeemed
during the period of one (1) year after the registration of the sale is as such he is entitled to the
possession of the property and the demand at any time following the consolidation of ownership
and the issuance to him of a new certificate of title. The buyer can, in fact, demand possession of
the land even during the redemption period except that he has to post a bond in accordance with
Section 7 of Act No. 3155 as amended. Possession of the land then becomes an absolute right of
the purchaser as confirmed owner. Upon proper application and proof of title, the issuance of a
writ of possession becomes a ministerial duty of the court. (David Enterprises vs. IBAA[,] 191 SCRA
116).1

Ku Giok Heng did not appeal the decision of the MeTC. Instead, he and his daughter, respondent Rosita
Ku, filed on December 20, 1994, an action before the Regional Trial Court (RTC) of Quezon City to nullify
the decision of the MeTC. Finding no merit in the complaint, the RTC on September 13, 1999 dismissed the
same and ordered the execution of the MeTC decision.

Respondent filed in the Court of Appeals (CA) a special civil action for certiorari assailing the decision of
the RTC. She contended that she was not made a party to the ejectment suit and was, therefore, deprived
of due process. The CA agreed and, on March 31, 2000, rendered a decision enjoining the eviction of
respondent from the premises.
On May 10, 2000, Equitable PCI Bank filed in this Court a motion for an extension of 30 days from May 10,
2000 or until June 9, 2000 to file its petition for review of the CA decision. The motion alleged that the
Bank received the CA decision on April 25, 2000.2 The Court granted the motion for a 30-day extension
"counted from the expiration of the reglementary period" and "conditioned upon the timeliness of the
filing of [the] motion [for extension]."3

On June 13, 2000,4 Equitable Bank filed its petition, contending that there was no need to name
respondent Rosita Ku as a party in the action for ejectment since she was not a resident of the premises
nor was she in possession of the property.

The petition is meritorious.

Generally, no man shall be affected by any proceeding to which he is a stranger, and strangers to a case
are not bound by judgment rendered by the court.5 Nevertheless, a judgment in an ejectment suit is
binding not only upon the defendants in the suit but also against those not made parties thereto, if they
are:

a) trespassers, squatters or agents of the defendant fraudulently occupying the property to frustrate the
judgment;

b) guests or other occupants of the premises with the permission of the defendant;

c) transferees pendente lite;

d) sub-lessees;

e) co-lessees; or

f) members of the family, relatives and other privies of the defendant.6

Thus, even if respondent were a resident of the property, a point disputed by the parties, she is
nevertheless bound by the judgment of the MeTC in the action for ejectment despite her being a non-
party thereto. Respondent is the daughter of Ku Giok Heng, the defendant in the action for ejectment.

Respondent nevertheless claims that the petition is defective. The bank alleged in its petition that it
received a copy of the CA decision on April 25, 2000. A Certification dated June 6, 2000 issued by the
Manila Central Post Office reveals, however, that the copy "was duly delivered to and received by Joel
Rosales (Authorized Representative) on April 24, 2000."7 Petitioner’s motion for extension to file this
petition was filed on May 10, 2000, sixteen (16) days from the petitioner’s receipt of the CA decision (April
24, 2000) and one (1) day beyond the reglementary period for filing the petition for review (May 9, 2000).

Petitioner however maintains "its honest representation of having received [a copy of the decision] on
April 25, 2000."8 Appended as Annex "A" to petitioner’s Reply is an Affidavit9 dated October 27, 2000 and
executed by Joel Rosales, who was mentioned in the Certification as having received the decision. The
Affidavit states:

(1) I am an employee of Unique Industrial & Allied Services, Inc. (Unique) a corporation duly
organized and existing under Philippine laws with principal place of business at 1206 Vito Cruz St.,
Malate, Manila, and I am assigned with the Equitable PCI Bank, Mail and Courier Department,
Equitable PCI Bank Tower II, cor. Makati Avenue and H.V. dela Costa St., Makati City, Metro
Manila;

(2) Under the contract of services between the Bank and Unique, it is my official duty and
responsibility to receive and pick-up from the Manila Central Post Office (CPO) the various mails,
letters, correspondence, and other mail matters intended for the bank’s various departments and
offices at Equitable Bank Building, 262 Juan Luna St., Binondo, Manila. This building, however, also
houses various other offices or tenants not related to the Bank.
 (3) I am not the constituted agent of "Curato Divina Mabilog Niedo Magturo Pagaduan Law Office"
whose former address is at Rm. 405 4/F Equitable Bank Bldg., 262 Juan Luna St., Binondo, Manila,
for purposes of receiving their incoming mail matters; neither am I any such agent of the various
other tenants of the said Building. On occasions when I receive mail matters for said law office, it is
only to help them receive their letters promptly.

(4) On April 24, 2000, I received the registered letter sent by the Court of Appeals, covered by
Registry Receipt No. 125234 and Delivery No. 4880 (copy of envelope attached as Annex "A")
together with other mail matters, and brought them to the Mail and Courier Department;

(5) After sorting out these mail matters, on April 25, 2000, I erroneously recorded them on page
422 of my logbook as having been received by me on said dated April 25, 2000 (copy of page 422
is attached as Annex "B").

(6) On April 27, 2000, this letter was sent by the Mail and Courier Department to said Law Office
whose receiving clerk Darwin Bawar opened the letter and stamped on the "Notice of Judgment"
their actual date of receipt: "April 27, 2000" (copy of the said Notice with the date so stamped is
attached as Annex "C").

(7) On May 8, 2000, Atty. Roland A. Niedo of said law office inquired from me as to my actual date
of receipt of this letter, and I informed him that based on my logbook, I received it on April 25,
2000.

(8) I discovered this error only on September 6, 2000, when I was informed by Atty. Niedo that
Postmaster VI Alfredo C. Mabanag, Jr. of the Central Post Office, Manila, issued a certification that
I received the said mail on April 24, 2000.

(9) I hereby confirm that this error was caused by an honest mistake.

Petitioner argues that receipt on April 25, 2000 by Joel Rosales, who was not an agent of its counsel’s law
office, did not constitute notice to its counsel, as required by Sections 210 and 10,11 Rule 13 of the Rules of
Court. To support this contention, petitioner cites Philippine Long Distance Telephone Co. vs. NLRC.12 In
said case, the bailiff served the decision of the National Labor Relations Commission at the ground floor of
the building of the petitioner therein, the Philippine Long Distance Telephone Co., rather than on the
office of its counsel, whose address, as indicated in the notice of the decision, was on the ninth floor of the
building. We held that:

x x x practical considerations and the realities of the situation dictate that the service made by the
bailiff on March 23, 1981 at the ground floor of the petitioner’s building and not at the address of
record of petitioner’s counsel on record at the 9th floor of the PLDT building cannot be considered
a valid service. It was only when the Legal Services Division actually received a copy of the decision
on March 26, 1981 that a proper and valid service may be deemed to have been made. x x x.

Applying the foregoing provisions and jurisprudence, petitioner submits that actual receipt by its counsel
was on April 27, 2000, not April 25, 2000. Following the argument to its logical conclusion, the motion for
extension to file the petition for review was even filed two (2) days before the lapse of the 15-day
reglementary period. That counsel treated April 25, 2000 and not April 27, 2000 as the date of receipt was
purportedly intended to obviate respondent’s possible argument that the 15-day period had to be
counted from April 25, 2000.

The Court is not wholly convinced by petitioner’s argument. The Affidavit of Joel Rosales states that he is
"not the constituted agent of ‘Curato Divina Mabilog Nedo Magturo Pagaduan Law Office.’" An agency
may be express but it may also be 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.13 Likewise, acceptance by the agent may also be express, although it may also be implied from
his acts which carry out the agency, or from his silence or inaction according to the circumstances.14 In this
case, Joel Rosales averred that "[o]n occasions when I receive mail matters for said law office, it is only to
help them receive their letters promptly," implying that counsel had allowed the practice of Rosales
receiving mail in behalf of the former. There is no showing that counsel had objected to this practice or
took steps to put a stop to it. The facts are, therefore, inadequate for the Court to make a ruling in
petitioner’s favor.

Assuming the motion for extension was indeed one day late, petitioner urges the Court, in any event, to
suspend its rules and admit the petition in the interest of justice. Petitioner invokes Philippine National
Bank vs. Court of Appeals,15 where the petition was filed three (3) days late. The Court held:

It has been said time and again that the perfection of an appeal within the period fixed by the
rules is mandatory and jurisdictional. But, it is always in the power of this Court to suspend its own
rules, or to except a particular case from its operation, whenever the purposes of justice require it.
Strong compelling reasons such as serving the ends of justice and preventing a grave miscarriage
thereof warrant the suspension of the rules.

The Court proceeded to enumerate cases where the rules on reglementary periods were
suspended. Republic vs. Court of Appeals16 involved a delay of six days; Siguenza vs. Court of
Appeals,17 thirteen days; Pacific Asia Overseas Shipping Corporation vs. NLRC,18 one day; Cortes vs. Court of
Appeals,19 seven days; Olacao vs. NLRC,20 two days; Legasto vs. Court of Appeals,21 two days; and City Fair
Corporation vs. NLRC,22 which also concerned a tardy appeal.1âwphi1.nêt

The Court finds these arguments to be persuasive, especially in light of the merits of the petition.

WHEREFORE, the petition is GIVEN DUE COURSE and GRANTED. The decision of the Court of Appeals
is REVERSED.

SO ORDERED.
 Case #20 Equitable PCIBank vs. Ku (G.R. No. 142950. March 26, 2001)

FACTS:
1. Respondent Rosita Ku, as treasurer of Noddy Dairy Products, Inc., and Ku Giok Heng, as Vice-
President/General Manager of the same corporation incurred a loan from Equitable PCI. As a security,
they mortgaged their property a residential house and lot located in La Vista, Quezon City.

2. When respondents failed to pay the loan, Equitable foreclosed the property extrajudicially and was
issued a certificate of sale after winning in the foreclosure sale. On the other hand, respondent failed to
redeem the property.

3. Petitioner
instituted an action before MeTC- decision in favor of them; RTC dismissed the case for no
merit; CA agreed with Rosita rendered a decision enjoining the eviction of respondent from the
premises.

4. Petitioner filed a motion for extension and it was granted by SC.

5.Rosita argued that the said petition is defective because the bank alleged in its petition that it
received a copy of the CA decision on April 25, 2000, however, the copy "was duly delivered to and
received by Joel Rosales (Authorized Representative) on April 24, 2000."

ISSUE:
Whether Joel Rozales can be considered an agent of the bank counsel and thus service to him is service
to the Bank.

RULING:
Yes. An agency may be express but it may also be 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. Likewise, acceptance by the agent may also be express, although it
may also be implied from his acts which carry out the agency, or from his silence or inaction according
to the circumstances.

In this case, Joel Rosales averred that "[o]n occasions when I receive mail matters for said law office, it
is only to help them receive their letters promptly," implying that counsel had allowed the practice of
Rosales receiving mail in behalf of the former. There is no showing that counsel had objected to this
practice or took steps to put a stop to it.
G.R. No. 169442

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

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

DECISION

PEREZ, J.:

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

The facts as culled from the records are as follows:

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

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

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

xxxx

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

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

9. This option shall be effective from [the] date of your acceptance as indicated by your conformity below
and for a period of one (1) month from and after CRC shall have been notified in writing by the co-owners
that an original certificate of title has been issued in their names and that they are ready to execute the
xxx deed of sale.3 (Emphasis and underscoring ours)
Respondents asked for several cash advances which reached the total amount of, more or less, Two
Hundred Seventeen Thousand Pesos (P217,000.00), to be deducted from the purchase price of Four
Hundred Thousand Pesos (₱400,000.00). After paying cash advances to respondents, CRC constructed staff
houses and introduced improvements on the subject property. As respondents would be staying abroad
for a time, they executed a Special Power of Attorney (SPA) in favor of Edgardo B. Hojilla (Hojilla). The SPA
authorized Hojilla to perform the following:

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

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

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

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

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

In the Complaint, it was alleged that:

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

Ruling of the RTC

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

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

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

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

The RTC further stated that:

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

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

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

Ruling of the Court of Appeals

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

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

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

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

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

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

Petitioner’s Arguments

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

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

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

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

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

Respondents’ Arguments

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

We rule in favor of the petitioner.

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

We shall discuss each letter in seriatim.

Hojilla’s letter dated 15 August 1984

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

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

Atty. Valera is now in the process of preparing the petition papers of the Calaba property for submission to
the local court.12

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

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

Petitioner’s letters dated 29 May

1991 and 24 October 1991

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

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

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

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

Considering that these action (sic) are unauthorized, they constitute violations of the irrevocable option to
purchase dated December 7, 1981, which remains valid, binding and effective to this day. Demand is
hereby made upon you to discontinue such unauthorized acts and vacate the premises within fifteen
(15) days from receipt hereof.16 x x x (Emphasis and underscoring ours)
We do not agree with the lower courts. Clearly, the 29 May 1991 and 24 October 1991 letters demanded
respondents to return the properties, discontinue the construction, repair, demolition and occupancy of
several staff houses, and unlock the gates, which is to enforce respondents’ obligations pursuant to
paragraph 7 of the Contract which reads:

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

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

Petitioner’s letter dated 6 July 1999

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

We do not agree.

Hojilla’s SPA

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Assuming further that Hojilla exceeded his authority, the respondents are still solidarily liable because
they allowed Hojilla to act as though he had full powers by impliedly ratifying Hojilla’s actions—through
action by omission.26 This is the import of the principle of agency by estoppel or the doctrine of apparent
authority.
In an agency by estoppel or apparent authority, "[t]he principal is bound by the acts of his agent with the
apparent authority which he knowingly permits the agent to assume, or which he holds the agent out to
the public as possessing."27

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

Receipt of the Letters

Time and time again, this Court has reiterated it is not a trier of facts and parties may raise only questions
of law.1âwphi1 The jurisdiction of the Court is limited to reviewing errors of law and findings of fact of the
Court of Appeals are conclusive because it is not the Court’s function to review, examine, and evaluate or
weigh the evidence all over again.28 The rule, however, is not without exceptions, viz.:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

xxxx

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

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

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

The Contract and True Intent of the Parties

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

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

The true intent of the parties is further enunciated in Hojilla's letter to petitioner dated 15 August 1984,
which stated, "[t]he Baiiez heirs will only claim for the full payment of the property upon presentation of a
clean title and execution of a Deed of Sale signed by the heirs."39
To rule in favor of respondents despite their failure to perform their obligations is the height of injustice.
Respondents cannot benefit from their own inaction and failure to comply with their obligations in the
Contract and let the petitioner suffer from respondents' own default.

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

SO ORDERED.
 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 bond8 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 Motion12 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.

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 Order16 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 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 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

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)

"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.

ANGHIAN SIY v. TOMLIN

WILLIAM ANGHIAN SIY, petitioner vs. ALVIN TOMLIN, respondent.

G.R. No. 205998

April 24, 2017

Facts:

On July 2011, petitioner William Anghian Siy filed a Complaint for Recovery of Possession with Prayer for
Replevin against Frankie Domanog Ong (Ong), Chris Centeno (Centeno), John Co Chua (Chua), and
respondent Alvin Tomlin. The petition which was filed before the Quezon City RTC, alleged the following:

Petitioner is the owner of a 2007 model Range Rover with Plate Number ZMG 272 which he purchased
from Alberto Lopez on July 22, 2009.

In 2010, he entrusted the said vehicle to Ong, a businessman who owned a second-hand car sales
showroom, after the latter claimed that he had a prospective buyer. Ong failed to remit the proceeds of
the purported sale nor return the vehicle. The petitioner found out that the vehicle had been transferred
to Chua, and later learned that the vehicle was being transferred to respondent.

On August 17, 2011, respondent filed an Omnibus Motion seeking to quash the Writ of Replevin, dismiss
the Complaint, and turn over the vehicle to him.

The RTC denied respondent’s Omnibus Motion while the CA reversed it.

Issue:

Whether or not the Writ of Replevin be issued for the return of the vehicle to petitioner.

Held:

No. “In a complaint of replevin, the claimant must convincingly show that he is 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” (Superlines Transportation Company, Inc v.
Philippine National Construction Company, 548 Phil. 354,364).

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. 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, petitioner thus ceased to be the owner thereof. 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.

Hence, the Supreme Court denied the petition, affirming the decision of the Court of Appeals.

SIY v. TOMLIN
June 8, 2004 | J. Tinga
Petitioner: William Anghian Siy Respondent:
Alvin Tomlin
Doctrine: 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.

CASE SUMMARY
Trigger Word(s):
FACTS: Petitioner Siy, owner of a Range Rover, entrusted said vehicle, all documents of title and a deed
of sale signed in blank, to business man Ong, with full understanding that Ong would offer and sell the
same to his clients or to the public. Ong sold the vehicle to Chua, who subsequently sold the same to
respondent Tomlin. Ong, however, did not remit the proceeds of the sale to Siy, prompting Siy to file
formal complaints for estafa and car-napping against Ong, Chua and Tomlin.
HELD: In surrendering the vehicle and all documents appertaining thereto, Siy appointed Ong as his agent
to sell the vehicle. 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 P4.95 million.
All these gave Ong the authority to act for and in behalf of Siy. Under the Civil Code, agency may be
express or implied. Since Ong was able to sell the subject vehicle to Chua, Siy thus ceased to be its owner.

FACTS
• Petitioner Siy is the owner of a 2007 model Range Rover which he purchased from Alberto Lopez
on July 2009.
 In 2010, Siy entrusted said vehicle to Frankie Ong, a business man who owned a second-hand
car sales showroom ("Motortrend" in Katipunan, Quezon City), after Ong claimed that he had
a prospective buyer.
o Ong failed to remit the proceeds of the purported sale nor return the vehicle.
 Siy later found out that the vehicle had been transferred to John Chua.
• Siy filed a complaint before the QC Police District Anti-Carnapping Section.
 Ong, upon learning of the complaint, met with Siy to arrange the return of the vehicle.
o Ong still failed to surrender the vehicle.
• Siy learned that the vehicle was being transferred to respondent Tomlin.
 The vehicle was later impounded and taken by the PNP Highway-Patrol Group (HPG) in Camp
Crame after Tomlim attempted to process a PNP clearance with a view of transferring
ownership of the vehicle.
• In July 2011, Siy filed before the QC RTC a Complaint for Recovery of Possession with Prayer for
Replevin against respondent Tomlin, Ong, Chua and Chris Centeno.1
 A writ of replevin was issued after Siy posted the P8mil bond required by the RTC.
• In August 2011, Tomlin filed an Omnibus Motion seeking to quash the Writ of Replevin, dismiss
the Complaint, and return the vehicle back to him.
• RTC denied Tomlin’s Omnibus Motion for lack of merit.
• CA reversed the RTC decision, and granted Tomlin’s petition. It held that:
 TC did not acquire jurisdiction over the case since Siy failed to pay the correct docket fees.
o He misdeclared the value of the vehicle at P2mil when its market value was around
P4.5 to 5mil— a misdeclaration clearly intended to defraud the government.
 It was improper for the sheriff to serve a copy of the writ of replevin upon Tomlin on the day
following the seizure of the subject vehicle, and not prior to its taking.
• Before the SC, pet. Siy argued that although Tomlin was able to register the vehicle in his name, he
is nonetheless a buyer and possessor in bad faith, and thus, the purported sale was anomalous and
the transfer of ownership over the vehicle in his favor illegal.

1
The case does not mention who Centeno is.
ISSUES + HELD
ISSUE #1: W/N Siy remains the owner of the vehicle and is entitled to its possession – NO
• Pet. Siy admitted in his pleadings the truth of the following:
 He purchased the subject vehicle from Lopez, who executed and signed in blank a deed of
sale and surrendered all documents of title to him.
 He did not register the sale in his favor, such that the vehicle remained in Lopez’ name.
 In Sept. 2010, he delivered the vehicle, with all its documents of title and blank deed of sale,
to Ong, with the express intention of selling the vehicle through Ong as broker/second hand
car dealer.
 Ong issued in his favor 2 checks amounting to P4.95mil, but these checks bounced.
 Thereafter, Ong was able to sell the vehicle to Chua using the deed of sale executed and signed
in blank by Lopez.
 Chua secured a certificate of registration in his name, then sold the vehicle to resp. Tomlin,
who caused registration of the vehicle in his name on March 2011.
 Ong did not remit Chua’s payment to Siy, prompting Siy to file formal complaints for estafa
and car-napping against Ong and Centeno.

• The Court is aware of the practice by many vehicle buyers and second-hand car traders:
 Practice: not transferring registration and ownership over vehicles purchased from their original
owners, and rather instructing the owners to execute and sign in blank deeds of sale covering these
vehicles
 Purpose: the buyers and dealers may freely and readily trade or re-sell the vehicles in the
second-hand car market without difficulty
• In many cases, busy vehicle owners actually leave their vehicles, and all the documents of title,
spare keys, and deeds of sale signed in blank, with second-hand car traders they know and trust.
 This is done in order to display these vehicles for actual viewing and inspection by
prospective buyers at their lots, warehouses, garages, or showrooms.
 This also enables 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.

• IN THIS CASE, pet. Siy constituted and appointed Ong as his agent to sell the vehicle, surrendering his
vehicle, all documents of title, 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
P4.95 million.
o All these gave Ong the authority to act for and in behalf of Siy.
• Under the CC:
Art. 1869. Agency may be express, or implied from the acts of the principal, from his silence or Jack
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.
• Acting for and in Siy'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 to petitioner.
  This entitled Siy to sue for estafa through abuse of confidence, which is exactly what he did.
• Since Ong was able to sell the subject vehicle to Chua, Siy thus ceased to be the owner thereof.
 Together with his ownership, Siy lost his right of possession over the vehicle.
 His argument that Tomlin is a buyer in bad faith, when Tomlin nonetheless proceeded with
the purchase and registration of the vehicle despite having been apprised of Siy's earlier
"Failed to Return Vehicle" report filed with the PNP-HPG, is unavailing.
o Siy had no right to file said report, as he was no longer the owner of the vehicle at the time.
• Siy’s right of action is only against Ong, for collection of the proceeds of the sale.
 Siy cannot be allowed to cut his losses by securing the recovery of the vehicle in lieu of its
price, which Ong failed and continues to fail to remit.
• Tomlin, who obtained the vehicle from Chua and registered the transfer with the LTO, is the
rightful owner, and as such, is entitled to possession of the vehicle.

RULING: Petition DENIED. Subject vehicle is ORDERED RETURNED to Tomlin as its registered owner.

No dissenting opinions.

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 [ G.R. No. 237506, July 28, 2020 ]

SAN MIGUEL CORPORATION, PETITIONER, VS. LEONARA* FRANCISCO VDA. DE TRINIDAD, SPS.
TEODORICO F. TRINIDAD AND SUSANA COSME-TRINIDAD, SPS. GEMMA F. TRINIDAD-
GANDIONGCO* AND ALFREDO M. GANDIONGCO,** JR., SPS. MANUEL F. TRINIDAD AND RUBI
REMIGIO TRINIDAD AND SPS. GRACE F. TRINIDAD-MALOLOS AND BISMARK D. MALOLOS, ROBERTO N.
GANDIONCO, RESPONDENTS.

DECISION

REYES, J. JR., J.:

Through this Petition for Review on Certiorari1 under Rule 45 of the Rules of Court petitioner San Miguel
Corporation (SMC) seeks a review of the Court of Appeals' (CA) Decision2 dated October 10, 2017 and
Resolution3 dated February 14, 2018 which denied SMC's appeal, and, thus, affirmed the Regional Trial
Court's (RTC) Decision dated August 28, 2014 which voided the real estate mortgages (REMs) and
subsequent foreclosure over the subject properties for lack of authority to mortgage on the part of the
attorney-in-fact.

Facts

Respondents Leonara Francisco Vda. De Trinidad, Teodorico F. Trinidad, Gemma Trinidad-Gandionco,

Manuel F. Trinidad, and Grace F. Trinidad (collectively, Trinidad, et al.,) are the registered co-owners of
two parcels of land located at Pamplona, Las Pinas City, and covered by Transfer Certificate of Title (TCT)
Nos. T-6346 and T-6347. Respondent Gemma Trinidad-Gandionco (Gemma) is the registered owner of
two parcels of land, likewise located at Pamplona, Las Pinas City, and covered by TCT Nos. T-5433 and T-
52796.4

Gemma's brother-in-law, respondent Roberto N. Gandionco (Roberto) opened a beer dealership for
Masbate City with SMC. One of SMC's standard requirements for a dealership is the submission of
sufficient collateral, in money or other valuable properties, to secure the beer stocks to be taken out
from SMC.5

As such, Roberto approached Gemma and asked for help with the submission of the collateral
requirement. Gemma lent TCT No. T-52796, and allowed Roberto to offer the same as collateral. After
three months, Roberto again approached Gemma for additional collateral as the value of the property
covered by TCT No. T-52796 was insufficient. Gemma again acceded and lent TCT No. T-5433 to
Roberto.6 In 2005, Roberto again asked Gemma if there is another property that can be offered to SMC
so Roberto can obtain additional stocks. After obtaining the consent of Trinidad, et al., Roberto was lent
TCT No. T-6347. For the fourth time, in 2007, Roberto asked from Gemma if he could offer another
property to SMC so he could obtain additional stock. Again, after obtaining the consent of Trinidad, et
al., Roberto was lent TCT No. T-6346.

In these four instances, Gemma and Trinidad, et al., executed the corresponding special power of
attorney (SPA) in favor of Roberto, which were similarly-worded and varying only as to the property
involved, as follows:

To offer as collateral, security or property bond with [SMC] a parcel of land located at Las Pinas City
containing an area of square meters and all improvements thereon and covered by TCT No.____.

HEREBY GIVING AND GRANTING unto my/our said Attorney-in-Fact full power and authority whatsoever
requisite necessary to be done in and about the premises as fully to all intents and purposes as I/WE
might or could lawfully do if personally present and acting; and

HEREBY RATIFYING AND CONFIRMING all that my/our Attorney-in-Fact shall lawfully do or cause to be
done under and by virtue of these presents.7

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When asked about the status of the certificates of title, Roberto would explain that the titles were still in
SMC's possession which has yet to decide which title to accept as collateral. It was the understanding of
Gemma and Trinidad, et al., that should SMC accept their certificates of title as collateral, Roberto would
bring the necessary documents from SMC which Gemma and Trinidad, et al., would then sign.8

However, using the SPAs, Roberto executed REMs over the properties covered by TCT Nos. T-6347 and
T-5433, both in favor of SMC.1avvphi1 These mortgages were annotated on the titles.

Meantime, Roberto availed of beer stocks from SMC which he regularly paid. However, in August 2007,
18 successive post-dated checks issued by Roberto were dishonored, leaving unpaid obligations
amounting to about Seven Million Pesos (P7,000,000.00).9 When efforts to collect failed, SMC
undertook to extra-judicially foreclose the REMs. At the foreclosure sale, SMC emerged as the highest
bidder.

In 2008, Gemma and Trinidad, et al., learned that Roberto's business had closed down, and that Roberto
surreptitiously mortgaged two of their properties. Consequently, Gemma and Trinidad et al., executed
four revocations of the SPAs wherein they cancelled all the SPAs issued in favor of Roberto. They also
wrote a letter to SMC informing the latter that the SPAs had been revoked.10 No reply was given by
SMC until Gemma and Trinidad, et al., learned of the foreclosure proceedings.

Aggrieved, Gemma and Trinidad, et al., filed the complaint a quo for the annulment of mortgage and
foreclosure sale and for the recovery of their titles.

In their Answer with Compulsory Counterclaim and Cross-claim, SMC argued that the revocations of the
SPAs were belatedly made as the REMs were already constituted over the properties. Thus, SMC argued,
at the time the REMs were made, the SPAs were still valid and constituted sufficient authority for
Roberto to enter into the mortgage contract. SMC also denied the allegation that they knew of
Roberto's limited authority and that the REMs were entered into surreptitiously. Finally, SMC contended
that Gemma and Trinidad, et al., were guilty of laches as they only questioned the validity of the REMs
when there was a threat of actual foreclosure.11

Roberto did not file any answer, and, as such, was declared in default.12

On August 28, 2014, the RTC rendered its Decision voiding the REMs, and, consequently, the extra-
judicial foreclosure over the properties. According to the RTC, Roberto's authority is only to offer the
subject properties as collateral. It held that SMC should have been placed on guard by the fact that the
SPAs were long executed before the REMs were entered into.13 The RTC also directed SMC to return to
Gemma and Trinidad, et al., their Owner's Duplicate copies of TCT Nos. T-6346, T-6347, T-5433, and T-
52796. It also directed SMC to pay moral damages, attorney's fees, and costs of suit.

SMC's cross-claim against Roberto was likewise dismissed by the RTC on account of SMC's failure to
prove Roberto's liability. The RTC noted that SMC did not present evidence, such as receipts, to prove
Roberto's liability, and, merely relied on the Certificate of Sale.

SMC's motion for reconsideration was similarly denied, thus, it brought the case to the CA on appeal.

SMC argued that the RTC erred in finding that the SPAs in favor of Roberto did not include the authority
to mortgage or encumber the property. SMC also questioned the award of damages and attorney's fees,
as well as the dismissal of its cross-claim against Roberto.

In its presently assailed Decision, the CA dismissed SMC's appeal. The CA held that a power of attorney
must be strictly construed. The subject SPAs merely authorized Roberto to offer the subject properties
as collateral, but not to enter into a mortgage contract. According to the CA, to interpret the SPAs as
likewise giving Roberto the power to mortgage the property is to unduly enlarge the term "to offer."
Because Roberto exceeded his authority, the CA concluded that no valid mortgage was constituted over
the properties, and, as such, the ensuing extra-judicial foreclosures by SMC are likewise void.

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As regards SMC's cross-claim against Roberto, the CA sustained its denial as SMC failed to introduce
evidence in support of SMC's claim that Roberto was liable for the amount of P7,000,000.00. According
to the CA, the Certificate of Sale does not prove Roberto's liabilities but merely establishes the fact that
SMC was awarded as the highest bidder at the foreclosure sale.

Finally, the CA deleted the award for moral damages and attorney's fees for lack of proof that SMC acted
in bad faith.

In disposal, the CA held:

WHEREFORE, premises considered, the Appeal is DENIED. The Assailed Decision dated 28 August 2014
in Civil Case no. 08-0093 is AFFIRMED with MODIFICATIONS in so far as the award for moral damages in
the amount of Five Hundred Thousand Pesos (Php 500,000.00) and the award of attorney's fees and
costs of suit in the amount of Three Hundred Thousand Pesos (Php 300,000.00) are hereby DELETED.

SO ORDERED.

Thus, SMC's resort to the present petition raising the following:

Issues

Whether the [CA] erred when it affirmed the trial court's ruling that the SPAs did not include the
authority to mortgage the property, despite the attendant circumstances in the case.

Whether the [CA] erred in denying the cross-claims of SMC against [Gandionco], considering that
[Gandionco] was declared in default, applying Section 3 of Rule 9 of the Rules of Court.14

Ruling of the Court

The petition is partly granted.

The SPAs specifically authorizing

Roberto to offer the properties as
collateral constitutes sufficient
authority to enter into a contract
of mortgage

For a contract of mortgage to be valid, the following essential requisites must be met: first, that the
mortgage is constituted to secure the fulfillment of a principal obligation; second, the mortgagor is the
absolute owner of the thing mortgaged; and third, the persons constituting the mortgage have the free
disposal of their property, and in the absence thereof, that they be legally authorized for the purpose.
Third persons not parties to the principal obligation may secure such obligation by mortgaging their own
property.15

In the instant case, it was Roberto who obtained certain obligations from SMC which he secured with
the subject properties. The properties, are, in turn, owned by Gemma and Trinidad, et al., who are third
parties in relation to the principal obligation of Roberto to SMC. Since Gemma and Trinidad, et al., were
not the ones who personally mortgaged their properties to secure Roberto's obligations with SMC, the
query to be had is whether Roberto was legally authorized to do so.

Article 1878 16 of the Civil Code requires an SPA in cases where real rights over immovable property are
created or conveyed. Here, the SPAs specifically authorized Roberto to "offer as collateral" to SMC the
subject properties, to wit:

To offer as collateral, security or property bond with [SMC] a parcel of land located at Las Pifias City
containing an area of square meters and all improvements thereon and covered by TCT No._____.

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HEREBY GIVING AND GRANTING unto my/our said Attorney-in-Fact full power and authority whatsoever
requisite necessary to be done in and about the premises as fully to all intents and purposes as I/WE
might or could lawfully do if personally present and acting; and

HEREBY RATIFYING AND CONFIRMING all that my/our Attorney-in-Fact shall lawfully do or cause to be
done under and by virtue of these presents.17

The language of the subject SPAs are clear and unambiguous. In interpreting contracts, Article 1370 of
the Civil Code unequivocally provides that "if the terms of a contract are clear and leave no doubt upon
the intention of the contracting parties, the literal meaning of its stipulations shall control."18 This is
similar to the "plain meaning rule" which assumes that the intent of the parties to an instrument is
"embodied in the writing itself, and when the words are clear and unambiguous the intent is to be
discovered only from the express language of the agreement."19

Contrary to the CA's ruling, the phrase "to offer" the subject properties "as collateral, security or
property bond with SMC," coupled with the "full power and authority" to do all that is necessary for all
intents and purposes of the contract, is a specific and express authority to mortgage the subject
properties in favor of SMC. This is so considering that the presentation of the TCTs by Roberto to SMC
was for the purpose of complying with the collateral requirement for the dealership. As such, executing
the real estate mortgages and registering the same with the register of deeds are well within the scope
of the authority granted.

It is of no moment that it was the supposed "understanding" of the registered owners that "should SMC
accept their certificates of title as collateral, Roberto would bring the necessary documents from SMC
which [the registered owners] would then sign."20 Article 1900 of the Civil Code expressly states that
"[s]o far as third persons are concerned, an act is deemed to have been performed within the scope of
the agent's authority, if such act is within the terms of the power of attorney, as written, even if the
agent has in fact exceeded the limits of his authority according to an understanding between the
principal and the agent." Article 1902 likewise unequivocally states that "[p]rivate or secret orders and
instructions of the principal do not prejudice third persons who have relied upon the power of attorney
or instructions shown to them."

Assuming, however, that Roberto exceeded the limits of his authority under the SPA and such
unauthorized acts were not ratified by Gemma and Trinidad, et al., the latter are still bound by the
mortgages entered by Roberto under the doctrine of apparent authority. As explained in Woodchild
Holdings, Inc. v. Roxas Electric and Construction Co., Inc.:21

It bears stressing that apparent authority is based on estoppel and can arise from two instances: first,
the principal may knowingly permit the agent to so hold himself out as having such authority, and in this
way, the principal becomes estopped to claim that the agent does not have such authority; second, the
principal may so clothe the agent with the indicia of authority as to lead a reasonably prudent person to
believe that he actually has such authority. There can be no apparent authority of an agent without acts
or conduct on the part of the principal and such acts or conduct of the principal must have been known
and relied upon in good faith and as a result of the exercise of reasonable prudence by a third person as
claimant and such must have produced a change of position to its detriment. The apparent power of an
agent is to be determined by the acts of the principal and not by the acts of the agent.

For the principle of apparent authority to apply, the petitioner was burdened to prove the following: (a)
the acts of the respondent justifying belief in the agency by the petitioner; (b) knowledge thereof by the
respondent which is sought to be held; and, (c) reliance thereon by the petitioner consistent with
ordinary care and prudence.22 x x x (Citations omitted)

In this case, in addition to executing similarly worded SPAs expressly authorizing Roberto to offer
specific properties as collateral and to do all things necessary in furtherance of said purpose, Gemma
and Trinidad, et.al., delivered their original owner's duplicate TCTs to Roberto. This happened not only
once, but even on four separate occasions, and this made possible the execution of the mortgages on
two of the properties, their registration, and the delivery by SMC of beer stocks to Roberto.

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In Domingo v. Robles,23 which involved a purportedly forged sale made with the aid of an agent who
had possession of the original owner's duplicate TCTs, the Court upheld the sale and held:

The sale was admittedly made with the aid of Bacani, petitioner's agent, who had with him the original
of the owner's duplicate Certificate of Title to the property, free from any liens or encumbrances. The
signatures of Spouses Domingo, the registered owners, appear on the Deed of Absolute Sale.
Petitioner's husband met with Respondent Yolanda Robles and received payment for the property. The
Torrens Act requires, as a prerequisite to registration, the production of the owner's certificate of title
and the instrument of conveyance. The registered owner who places in the hands of another an
executed document of transfer of registered land effectively represents to a third party that the holder
of such document is authorized to deal with the property.24

Although the present case involves an SPA and not an executed deed, the Court finds the above quoted-
ruling applicable by analogy since Roberto's possession of the SPAs and the owner's duplicates of the
TCTs made it appear to SMC that he had the requisite authority to execute the REMs, and to register the
same with the register of deeds.

Furthermore, Gemma and Trinidad, et al. did not exercise even the slightest diligence to ascertain the
whereabouts of their owner's duplicate TCTs, but instead relied on Roberto's explanation that the titles
were still in SMC's possession which has yet to decide which title to accept as collateral when asked
about the status of the certificates of title. They only revoked the SPAs executed in favor of Roberto
upon receiving news that Roberto's business had closed down, and that Roberto was able to mortgage
two of their properties. Again, assuming that Roberto exceeded his authority under the SPAs, Gemma
and Trinidad, et al., must be bound by the mortgages executed by the former, for "as between two
innocent persons, one of whom must suffer the consequences of a breach of trust, the one who made it
possible by his act of confidence must bear the loss."25

On the basis of the foregoing, a reversal of the assailed C A ruling is in order.1awp++i1 Nevertheless,
SMC's prayer for award of moral damages (in the amount of P500,000.00), exemplary damages (in the
amount of P100,000.00), and attorney's fees and litigation expenses (in the amount of P600,000.00)
must be denied, as its present petition does not even allege the factual and legal bases in support
thereof.

Remand necessary to determine

Roberto's outstanding liability to
SMC, if there is any

Roberto's indebtedness to SMC is undisputed. While the Court rules that the mortgages executed by
Roberto over the subject properties are valid, it must be clear that Roberto's indebtedness to SMC arose
from the dealership which he entered into in his personal capacity, and not on behalf of Gemma and
Trinidad, et al. Thus, Gemma and Trinidad, et al., can only be considered as third-party or
accommodation mortgagors, and can only be held liable to the extent of the amount secured by the
mortgages over their properties. This Court has held:

There is x x x no legal provision nor jurisprudence in our jurisdiction which makes a third person who
secures the fulfillment of another's obligation by mortgaging his own property to be solidarity bound
with the principal obligor, x x x The signatory to the principal contract - loan - remains to be primarily
bound. It is only upon the default of the latter that the creditor may have recourse on the mortgagors by
foreclosing the mortgaged properties in lieu of an action for the recovery of the amount of the loan. And
the liability of the third-party mortgagors extends only to the property mortgaged. Should there be any
deficiency, the creditor has recourse on the principal debtor.26 (Citation omitted)

Unfortunately, the records available to the Court are insufficient to determine whether Roberto still has
any outstanding liability to SMC after applying the proceeds of the foreclosure sale. In particular, the
amount secured by the mortgages, as well as SMC's bid in the foreclosure sale, are not specified in the
pleadings or in the attachments thereto. For this reason, the Court deems it to the best interest of the
parties to give due course to SMC's cross-claim against Roberto, and consequently, to remand the case

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solely for the purpose of determining the amount of Roberto's outstanding liability, if any, after applying
the proceeds of foreclosure to satisfy his indebtedness.

WHEREFORE, the petition is PARTLY GRANTED. The Decision dated October 10, 2017 and Resolution
dated February 14, 2018 of the Court of Appeals insofar as it declared the real estate mortgages dated
September 26, 2007 and July 12, 2007 and the consequent extrajudicial foreclosure sales as void,
ordered petitioner San Miguel Corporation to return to respondents their owner's duplicate copies of
Transfer Certificates of Title Nos. T-6347 and T-5433, and dismissed San Miguel Corporation's cross-
claim against Roberto Gandionco, are REVERSED and SET ASIDE.

San Miguel Corporation's prayer for award of moral damages (in the amount of P500,000.00), exemplary
damages (in the amount of P100,000.00), and attorney's fees and litigation expenses (in the amount of
P600,000.00) is DENIED for lack of merit.

For the purpose of determining the exact amount of respondent Roberto Gandionco's outstanding
liability to San Miguel Corporation, if there is any, the case is hereby REMANDED to the Regional Trial
Court of Las Piñas City.

SO ORDERED.

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SAN MIGUEL CORPORATION, PETITIONER, VS. LEONARA FRANCISCO VDA. DE TRINIDAD, SPS. TEODORICO
F. TRINIDAD AND SUSANA COSME-TRINIDAD, SPS. GEMMA F. TRINIDAD-GANDIONGCO* AND ALFREDO
M. GANDIONGCO,** JR., SPS. MANUEL F. TRINIDAD AND RUBI REMIGIO TRINIDAD AND SPS. GRACE F.
TRINIDAD-MALOLOS AND BISMARK D. MALOLOS, ROBERTO N. GANDIONCO, RESPONDENTS. G.R. No.
237506, July 28, 2020

DOCTRINE: Article 1900 of the Civil Code expressly states that so far as third persons are concerned, an
act is deemed to have been performed within the scope of the agent's authority, if such act is within the
terms of the power of attorney, as written, even if the agent has in fact exceeded the limits of his
authority according to an understanding between the principal and the agent

FACTS: Respondents Leonara Francisco Vda. De Trinidad (collectively, Trinidad, et al.,) are the registered
co-owners of two parcels of land

Respondent Gemma Trinidad-Gandionco (Gemma) is the registered owner of two parcels of land,
likewise located at Pamplona, Las Pinas City

Gemma's brother-in-law, respondent Roberto N. Gandionco (Roberto) opened a beer dealership for
Masbate City with SMC.

One of SMC's standard requirements for a dealership is the submission of sufficient collateral, in money
or other valuable properties, to secure the beer stocks to be taken out from SMC.

As such, Roberto approached Gemma and asked for help with the submission of the collateral
requirement. Gemma lent TCT No. T-52796, and allowed Roberto to offer the same as collateral.

After three months, Roberto again approached Gemma for additional collateral as the value of the
property covered by TCT No. T-52796 was insufficient. Gemma again acceded and lent TCT No. T-5433 to
Roberto.

Roberto again asked Gemma if there is another property that can be offered to SMC so Roberto can
obtain additional stocks. After obtaining the consent of Trinidad, et al., Roberto was lent TCT No. T-6347.

For the fourth time, in 2007, Roberto asked from Gemma if he could offer another property to SMC so
he could obtain additional stock. Again, after obtaining the consent of Trinidad, et al., Roberto was lent
TCT No. T-6346.

In these four instances, Gemma and Trinidad, et al., executed the corresponding special power of
attorney (SPA) in favor of Roberto, which were similarly-worded and varying only as to the property
involved

When asked about the status of the certificates of title, Roberto would explain that the titles were still in
SMC's possession which has yet to decide which title to accept as collateral.

However, using the SPAs, Roberto executed REMs over the properties covered by TCT Nos. T6347 and T-
5433, both in favor of SMC. These mortgages were annotated on the titles.

Meantime, Roberto availed of beer stocks from SMC which he regularly paid.

However,... 18 successive post-dated checks issued by Roberto were dishonored, leaving unpaid
obligations amounting to about Seven Million Pesos (P7,000,000.00)

When efforts to collect failed, SMC undertook to extra-judicially foreclose the REMs. At the foreclosure
sale, SMC emerged as the highest bidder.

Gemma and Trinidad, et al., learned that Roberto's business had closed down, and that Roberto
surreptitiously mortgaged two of their properties. Consequently, Gemma and Trinidad et al., executed
four revocations of the SPAs wherein they cancelled all the SPAs issued in favor of Roberto.

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They also wrote a letter to SMC informing the latter that the SPAs had been revoked.

Gemma and Trinidad, et al., learned of the foreclosure proceedings.

Aggrieved, Gemma and Trinidad, et al., filed the complaint a quo for the annulment of mortgage and
foreclosure sale and for the recovery of their titles.

In their Answer SMC argued that the revocations of the SPAs were belatedly made as the REMs were
already constituted over the properties. Thus, SMC argued, at the time the REMs were made, the SPAs
were still valid and constituted sufficient authority for Roberto to enter into the mortgage contract.

SMC also denied the allegation that they knew of Roberto's limited authority and that the REMs were
entered into surreptitiously.

Finally, SMC contended that Gemma and Trinidad, et al., were guilty of laches as they only questioned
the validity of the REMs when there was a threat of actual foreclosure. The RTC rendered its Decision
voiding the REMs, and, consequently, the extra-judicial foreclosure over the properties. According to the
RTC, Roberto's authority is only to offer the subject properties as collateral. It held that SMC should have
been placed on guard by the fact that the SPAs were long executed before the REMs were entered into.
The CA dismissed SMC's appeal. The CA held that a power of attorney must be strictly construed. The
subject SPAs merely authorized Roberto to offer the subject properties as collateral, but not to enter into
a mortgage contract.

ISSUE: Whether the [CA] erred when it affirmed the trial court's ruling that the SPAs did not include the
authority to mortgage the property, despite the attendant circumstances in the case.

RULING:

The SPAs specifically authorizing Roberto to offer the properties as collateral constitutes sufficient
authority to enter into a contract of mortgage.

For a contract of mortgage to be valid, the following essential requisites must be met: first, that the
mortgage is constituted to secure the fulfillment of a principal obligation; second, the mortgagor is the
absolute owner of the thing mortgaged; and third, the persons constituting the mortgage have the free
disposal of their property, and in the absence thereof, that they be legally authorized for the purpose.
Third persons not parties to the principal obligation may secure such obligation by mortgaging their own
property.15

In the instant case, it was Roberto who obtained certain obligations from SMC which he secured with the
subject properties. The properties, are, in turn, owned by Gemma and Trinidad, et al., who are third
parties in relation to the principal obligation of Roberto to SMC. Since Gemma and Trinidad, et al., were
not the ones who personally mortgaged their properties to secure Roberto's obligations with SMC, the
query to be had is whether Roberto was legally authorized to do so.

Article 1878 16 of the Civil Code requires an SPA in cases where real rights over immovable property are
created or conveyed. Here, the SPAs specifically authorized Roberto to "offer as collateral" to SMC the
subject properties.

The language of the subject SPAs are clear and unambiguous. Contrary to the CA's ruling, the phrase "to
offer" the subject properties "as collateral, security or property bond with SMC," coupled with the "full
power and authority" to do all that is necessary for all intents and purposes of the contract, is a specific
and express authority to mortgage the subject properties in favor of SMC.

Assuming, however, that Roberto exceeded the limits of his authority under the SPA and such
unauthorized acts were not ratified by Gemma and Trinidad, et al., the latter are still bound by the
mortgages entered by Roberto under the doctrine of apparent authority.

Furthermore, Gemma and Trinidad, et al. did not exercise even the slightest diligence to ascertain the
whereabouts of their owner's duplicate TCTs, but instead relied on Roberto's explanation that the titles

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were still in SMC's possession which has yet to decide which title to accept as collateral when asked
about the status of the certificates of title. They only revoked the SPAs executed in favor of Roberto upon
receiving news that Roberto's business had closed down, and that Roberto was able to mortgage two of
their properties. Again, assuming that Roberto exceeded his authority under the SPAs, Gemma and
Trinidad, et al., must be bound by the mortgages executed by the former, for "as between two innocent
persons, one of whom must suffer the consequences of a breach of trust, the one who made it possible
by his act of confidence must bear the loss

On the basis of the foregoing, a reversal of the assailed C A ruling is in order.1awp++i1 Nevertheless,
SMC's prayer for award of moral damages (in the amount of P500,000.00), exemplary damages (in the
amount of P100,000.00), and attorney's fees and litigation expenses (in the amount of P600,000.00)
must be denied, as its present petition does not even allege the factual and legal bases in support
thereof.

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G.R. No. L-67889 October 10, 1985

PRIMITIVO SIASAT and MARCELINO SIASAT, petitioners,

vs.
INTERMEDIATE APPELLATE COURT and TERESITA NACIANCENO, respondents.

Payawal, Jimenez & Associates for petitioners.

Nelson A. Loyola for private respondent.

GUTIERREZ, JR., J.:

This is a petition for review of the decision of the Intermediate Appellate Court affirming in toto the
judgment of the Court of First Instance of Manila, Branch XXI, which ordered the petitioner to pay
respondent the thirty percent (30%) commission on 15,666 pieces of Philippine flags worth P936,960.00,
moral damages, attorney's fees and the costs of the suit.

Sometime in 1974, respondent Teresita Nacianceno succeeded in convincing officials of the then
Department of Education and Culture, hereinafter called Department, to purchase without public
bidding, one million pesos worth of national flags for the use of public schools throughout the country.
The respondent was able to expedite the approval of the purchase by hand-carrying the different
indorsements from one office to another, so that by the first week of September, 1974, all the legal
requirements had been complied with, except the release of the purchase orders. When Nacianceno
was informed by the Chief of the Budget Division of the Department that the purchase orders could not
be released unless a formal offer to deliver the flags in accordance with the required specifications was
first submitted for approval, she contacted the owners of the United Flag Industry on September 17,
1974. The next day, after the transaction was discussed, the following document (Exhibit A) was drawn
up:

Mrs. Tessie Nacianceno,

This is to formalize our agreement for you to represent United Flag Industry to deal with
any entity or organization, private or government in connection with the marketing of
our products-flags and all its accessories.

For your service, you will be entitled to a commission of thirty

(30%) percent.

Signed
Mr. Primitive Siasat
Owner and Gen. Manager

On October 16, 1974, the first delivery of 7,933 flags was made by the United Flag Industry. The next
day, on October 17, 1974, the respondent's authority to represent the United Flag Industry was revoked
by petitioner Primitivo Siasat.

According to the findings of the courts below, Siasat, after receiving the payment of P469,980.00 on
October 23, 1974 for the first delivery, tendered the amount of P23,900.00 or five percent (5%) of the
amount received, to the respondent as payment of her commission. The latter allegedly protested. She
refused to accept the said amount insisting on the 30% commission agreed upon. The respondent was
prevailed upon to accept the same, however, because of the assurance of the petitioners that they
would pay the commission in full after they delivered the other half of the order. The respondent states
that she later on learned that petitioner Siasat had already received payment for the second delivery of
7,833 flags. When she confronted the petitioners, they vehemently denied receipt of the payment, at

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the same time claiming that the respondent had no participation whatsoever with regard to the second
delivery of flags and that the agency had already been revoked.

The respondent originally filed a complaint with the Complaints and Investigation Office in Malacañang
but when nothing came of the complaint, she filed an action in the Court of First Instance of Manila to
recover the following commissions: 25%, as balance on the first delivery and 30%, on the second
delivery.

The trial court decided in favor of the respondent. The dispositive portion of the decision reads as
follows:

WHEREFORE, judgment is hereby rendered sentencing Primitivo Siasat to pay to the

plaintiff the sum of P281,988.00, minus the sum P23,900.00, with legal interest from the
date of this decision, and ordering the defendants to pay jointly and solidarily the sum
of P25,000.00 as moral damages, and P25,000.00 as attorney's fees, also with legal
interest from the date of this decision, and the costs.

The decision was affirmed in toto by the Intermediate Appellate Court. After their motion for
reconsideration was denied, the petitioners went to this Court on a petition for review on August 6,
1984.

In assailing the appellate court's decision, the petition tenders the following arguments: first, the
authorization making the respondent the petitioner's representative merely states that she could deal
with any entity in connection with the marketing of their products for a commission of 30%. There was
no specific authorization for the sale of 15,666 Philippine flags to the Department; second, there were
two transactions involved evidenced by the separate purchase orders and separate delivery receipts,
Exhibit 6-C for the purchase and deliver on October 16, 1974, and Exhibits 7 to 7-C, for the purchase and
delivery on November 6, 1974. The revocation of agency effected by the parties with mutual consent on
October 17, 1974, therefore, forecloses the respondent's claim of 30% commission on the second
transaction; and last, there was no basis for the granting of attorney's fees and moral damages because
there was no showing of bad faith on the part of the petitioner. It was respondent who showed bad
faith in denying having received her commission on the first delivery. The petitioner's counterclaim,
therefore, should have been granted.

This petition was initially dismissed for lack of merit in a minute resolution.On a motion for
reconsideration, however,this Court give due course to the petition on November 14, 1984.

After a careful review of the records, we are constrained to sustain with some modifications the decision
of the appellate court.

We find respondent's argument regarding respondent's incapacity to represent them in the transaction
with the Department untenable. There are several kinds of agents. To quote a commentator on the
matter:

An agent may be (1) universal: (2) general, or (3) special. A universal; agent is one
authorized to do all acts for his principal which can lawfully be delegated to an agent. So
far as such a condition is possible, such an agent may be said to have universal
authority. (Mec. Sec. 58).

A general agent is one authorized to do all acts pertaining to a business of a certain kind
or at a particular place, or all acts pertaining to a business of a particular class or series.
He has usually authority either expressly conferred in general terms or in effect made
general by the usages, customs or nature of the business which he is authorized to
transact.

An agent, therefore, who is empowered to transact all the business of his principal of a
particular kind or in a particular place, would, for this reason, be ordinarily deemed a
general agent. (Mec Sec. ,30).

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 A special agent is one authorized to do some particular act or to act upon some
particular occasion. lie acts usually in accordance with specific instructions or under
limitations necessarily implied from the nature of the act to be done. (Mec. Sec. 61)
(Padilla, Civil Law The Civil Code Annotated, Vol. VI, 1969 Edition, p. 204).

One does not have to undertake a close scrutiny of the document embodying the agreement between
the petitioners and the respondent to deduce that the 'latter was instituted as a general agent. Indeed,
it can easily be seen by the way general words were employed in the agreement that no restrictions
were intended as to the manner the agency was to be carried out or in the place where it was to be
executed. The power granted to the respondent was so broad that it practically covers the negotiations
leading to, and the execution of, a contract of sale of petitioners' merchandise with any entity or
organization.

There is no merit in petitioners' allegations that the contract of agency between the parties was entered
into under fraudulent representation because respondent "would not disclose the agency with which
she was supposed to transact and made the petitioner believe that she would be dealing with The
Visayas", and that "the petitioner had known of the transactions and/or project for the said purchase of
the Philippine flags by the Department of Education and Culture and precisely it was the one being
followed up also by the petitioner."

If the circumstances were as claimed by the petitioners, they would have exerted efforts to protect their
interests by limiting the respondent's authority. There was nothing to prevent the petitioners from
stating in the contract of agency that the respondent could represent them only in the Visayas. Or to
state that the Department of Education and Culture and the Department of National Defense, which
alone would need a million pesos worth of flags, are outside the scope of the agency. As the trial court
opined, it is incredible that they could be so careless after being in the business for fifteen years.

A cardinal rule of evidence embodied in Section 7 Rule 130 of our Revised Rules of Court states that
"when the terms of an agreement have been reduced to writing, it is to be considered as containing all
such terms, and, therefore, there can be between the parties and their successors-in-interest, no
evidence of the terms of the agreement other than the contents of the writing", except in cases
specifically mentioned in the same rule. Petitioners have failed to show that their agreement falls under
any of these exceptions. The respondent was given ample authority to transact with the Department in
behalf of the petitioners. Equally without merit is the petitioners' proposition that the transaction
involved two separate contracts because there were two purchase orders and two deliveries. The
petitioners' evidence is overcome by other pieces of evidence proving that there was only one
transaction.

The indorsement of then Assistant Executive Secretary Roberto Reyes to the Budget Commission on
September 3, 1974 (Exhibit "C") attests to the fact that out of the total budget of the Department for the
fiscal year 1975, "P1,000,000.00 is for the purchase of national flags." This is also reflected in the
Financial and Work Plan Request for Allotment (Exhibit "F") submitted by Secretary Juan Manuel for
fiscal year 1975 which however, divided the allocation and release of the funds into three,
corresponding to the second, third, and fourth quarters of the said year. Later correspondence between
the Department and the Budget Commission (Exhibits "D" and "E") show that the first allotment of
P500.000.00 was released during the second quarter. However, due to the necessity of furnishing all of
the public schools in the country with the Philippine flag, Secretary Manuel requested for the immediate
release of the programmed allotments intended for the third and fourth quarters. These circumstances
explain why two purchase orders and two deliveries had to be made on one transaction.

The petitioners' evidence does not necessarily prove that there were two separate transactions. Exhibit
"6" is a general indorsement made by Secretary Manuel for the purchase of the national flags for public
schools. It contains no reference to the number of flags to be ordered or the amount of funds to be
released. Exhibit "7" is a letter request for a "similar authority" to purchase flags from the United Flag
Industry. This was, however, written by Dr. Narciso Albarracin who was appointed Acting Secretary of
the Department after Secretary Manuel's tenure, and who may not have known the real nature of the
transaction.

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If the contracts were separate and distinct from one another, the whole or at least a substantial part of
the government's supply procurement process would have been repeated. In this case, what were
issued were mere indorsements for the release of funds and authorization for the next purchase.

Since only one transaction was involved, we deny the petitioners' contention that respondent
Nacianceno is not entitled to the stipulated commission on the second delivery because of the
revocation of the agency effected after the first delivery. The revocation of agency could not prevent the
respondent from earning her commission because as the trial court opined, it came too late, the
contract of sale having been already perfected and partly executed.

In Macondray & Co. v. Sellner (33 Phil. 370, 377), a case analogous to this one in principle, this Court
held:

We do not mean to question the general doctrine as to the power of a principal to

revoke the authority of his agent at will, in the absence of a contract fixing the duration
of the agency (subject, however, to some well defined exceptions). Our ruling is that at
the time fixed by the manager of the plaintiff company for the termination of the
negotiations, the defendant real estate agent had already earned the commissions
agreed upon, and could not be deprived thereof by the arbitrary action of the plaintiff
company in declining to execute the contract of sale for some reason personal to itself.

The principal cannot deprive his agent of the commission agreed upon by cancelling the agency and,
thereafter, dealing directly with the buyer. (Infante v. Cunanan, 93 Phil. 691).

The appellate courts citation of its previous ruling in Heimbrod et al. v. Ledesma (C.A. 49 O.G. 1507) is
correct:

The appellee is entitled to recovery. No citation is necessary to show that the general
law of contracts the equitable principle of estoppel. and the expense of another, uphold
payment of compensation for services rendered.

There is merit, however, in the petitioners' contention that the agent's commission on the first delivery
was fully paid. The evidence does not sustain the respondent's claim that the petitioners paid her only
5% and that their right to collect another 25% commission on the first delivery must be upheld.

When respondent Nacianceno asked the Malacanang Complaints and Investigation Office to help her
collect her commission, her statement under oath referred exclusively to the 30% commission on the
second delivery. The statement was emphatic that "now" her demand was for the 30% commission on
the (second) release of P469,980.00. The demand letter of the respondent's lawyer dated November 13,
1984 asked petitioner Siasat only for the 30% commission due from the second delivery. The fact that
the respondent demanded only the commission on the second delivery without reference to the alleged
unpaid balance which was only slightly less than the amount claimed can only mean that the
commission on the first delivery was already fully paid, Considering the sizeable sum involved, such an
omission is too glaringly remiss to be regarded as an oversight.

Moreover, the respondent's authorization letter (Exhibit "5") bears her signature with the handwritten
words "Fully Paid", inscribed above it.

The respondent contested her signature as a forgery, Handwriting experts from two government
agencies testified on the matter. The reason given by the trial court in ruling for the respondent is too
flimsy to warrant a finding of forgery.

The court stated that in thirteen documents presented as exhibits, the private respondent signed her
name as "Tessie Nacianceno" while in this particular instance, she signed as "T. Nacianceno."

The stated basis is inadequate to sustain the respondent's allegation of forgery. A variance in the
manner the respondent signed her name can not be considered as conclusive proof that the questioned
signature is a forgery. The mere fact that the respondent signed thirteen documents using her full name

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does not rule out the possibility of her having signed the notation "Fully Paid", with her initial for the
given came and the surname written in full. What she was signing was a mere acknowledgment.

This leaves the expert testimony as the sole basis for the verdict of forgery.

In support of their allegation of full payment as evidenced by the signed authorization letter (Exhibit "5-
A"), the petitioners presented as witness Mr. Francisco Cruz. Jr., a senior document examiner of the
Philippine Constabulary Crime laboratory. In rebuttal, the respondent presented Mr. Arcadio Ramos, a
junior document examiner of the National Bureau of Investigation.

While the experts testified in a civil case, the principles in criminal cases involving forgery are applicable.
Forgery cannot be presumed. It must be proved.

In Borromeo v. Court of Appeals (131 SCRA 318, 326) we held that:

xxx xxx xxx

... Where the evidence, as here, gives rise to two probabilities, one consistent with the
defendant's innocence and another indicative of his guilt, that which is favorable to the
accused should be considered. The constitutional presumption of innocence continues
until overthrown by proof of guilt beyond reasonable doubt, which requires moral
certainty which convinces and satisfies the reason and conscience of those who are to
act upon it. (People v. Clores, et al., 125 SCRA 67; People v. Bautista, 81 Phil. 78).

We ruled in another case that where the supposed expert's testimony would constitute the sole ground
for conviction and there is equally convincing expert testimony to the contrary, the constitutional
presumption of innocence must prevail. (Lorenzo Ga. Cesar v. Hon. Sandiganbayan and People of the
Philippines, 134 SCRA 105). In the present case, the circumstances earlier mentioned taken with the
testimony of the PC senior document examiner lead us to rule against forgery.

We also rule against the respondent's allegation that the petitioners acted in bad faith when they
revoked the agency given to the respondent.

Fraud and bad faith are matters not to be presumed but matters to be alleged with sufficient facts. To
support a judgment for damages, facts which justify the inference of a lack or absence of good faith
must be alleged and proven. (Bacolod-Murcia Milling Co., Inc. vs. First Farmers Milling Co., Inc., Etc., 103
SCRA 436).

There is no evidence on record from which to conclude that the revocation of the agency was
deliberately effected by the petitioners to avoid payment of the respondent's commission. What
appears before us is only the petitioner's use in court of such a factual allegation as a defense against
the respondent's claim. This alone does not per se make the petitioners guilty of bad faith for that
defense should have been fully litigated.

Moral damages cannot be awarded in the absence of a wrongful act or omission or of fraud or bad faith.
(R & B Surety & Insurance Co., Inc. vs. Intermediate Appellate Court, 129 SCRA 736).

We therefore, rule that the award of P25,000.00 as moral damages is without basis.

The additional award of P25,000.00 damages by way of attorney's fees, was given by the courts below
on the basis of Article 2208, Paragraph 2, of the Civil Code, which provides: "When the defendant's act
or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his
interests;" attorney's fees may be awarded as damages. (Pirovano et al. v. De la Rama Steamship Co., 96
Phil. 335).

The underlying circumstances of this case lead us to rule out any award of attorney's fees. For one thing,
the respondent did not come to court with completely clean hands. For another, the petitioners
apparently believed they could legally revoke the agency in the manner they did and deal directly with

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education officials handling the purchase of Philippine flags. They had reason to sincerely believe they
did not have to pay a commission for the second delivery of flags.

We cannot close this case without commenting adversely on the inexplicably strange procurement
policies of the Department of Education and Culture in its purchase of Philippine flags. There is no
reason why a shocking 30% of the taxpayers' money should go to an agent or facilitator who had no
flags to sell and whose only work was to secure and handcarry the indorsements of education and
budget officials. There are only a few manufacturers of flags in our country with the petitioners claiming
to have supplied flags for our public schools on earlier occasions. If public bidding was deemed
unnecessary, the Department should have negotiated directly with flag manufacturers. Considering the
sad plight of underpaid and overworked classroom teachers whose pitiful salaries and allowances
cannot sometimes be paid on time, a P300,000.00 fee for a P1,000,000.00 purchase of flags is not only
clearly unnecessary but a scandalous waste of public funds as well.

WHEREFORE, the decision of the respondent court is hereby MODIFIED. The petitioners are ordered to
pay the respondent the amount of ONE HUNDRED FOURTY THOUSAND NINE HUNDRED AND NINETY
FOUR PESOS (P140,994.00) as her commission on the second delivery of flags with legal interest from
the date of the trial court's decision. No pronouncement as to costs.

SO ORDERED.

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PRIMITIVO SIASAT and MARCELINO SIASAT, petitioners, vs. INTERMEDIATE APPELLATE COURT and
TERESITA NACIANCENO, respondents.||| 139 SCRA 238

FACTS

Sometime in 1974, respondent Teresita Nacianceno succeeded in convincing officials of the then
Department of Education and Culture, hereinafter called Department, to purchase without public
bidding, one million pesos worth of national flags for the use of public schools throughout the country.
Nacianceno was informed by the Chief of the Budget Division of the Department that the purchase
orders could not be released unless a formal offer to deliver the flags in accordance with the required
specifications was first submitted for approval, she contacted the owners of the United Flag Industry on
September 17, 1974 and on the next day, a document was drawn whereby Mrs. Tessie Nacianceno was
formally recognized to represent United Flag Industry to deal with any entity or organization, private or
government in connection with the marketing of their products-flags and all its accessories for thirty
percent commission for her service.

On October 16, 1974, the first delivery of 7,933 flags was made by the United Flag Industry. The next day,
on October 17, 1974, the respondent's authority to represent the United Flag Industry was revoked by
petitioner Primitivo Siasat.

Siasat, after receiving the payment of P469,980.00 on October 23, 1974 for the first delivery, tendered
the amount of P23,900.00 or five percent (5%) of the amount received, to the respondent as payment of
her commission. The latter allegedly protested. She refused to accept the said amount insisting on the
30% commission agreed upon. The respondent prevailed upon to accept the same, however, because of
the assurance of the petitioners that they would pay the commission in full after they delivered the
other half of the order. The respondent states that she later on learned that petitioner Siasat had already
received payment for the second delivery of 7,833 flags. When she confronted the petitioners, they
vehemently denied receipt of the payment, at the same time claiming that the respondent had no
participation whatsoever with regard to the second delivery of flags and that the agency had already
been revoked.

She filed an action in CFI to recover the following commissions: 25% as balance on the first delivery and
30% on the second delivery

TC & IAC: decided in favor of the respondent.

ISSUE

Whether or not the petitioner’s argument regarding respondent's incapacity to represent them in the
transaction with the Department is correct?

RULING:

Respondent's argument regarding respondent's incapacity to represent them in the transaction with the
Department is untenable. There are several kinds of agents. To quote a commentator on the matter:

An agent may be (1) universal: (2) general, or (3) special

A universal agent is one authorized to do all acts for his principal which can lawfully be delegated to an
agent. So far as such a condition is possible, such an agent may be said to have universal authority

A general agent is one authorized to do all acts pertaining to a business of a certain kind or at a
particular place, or all acts pertaining to a business of a particular class or series. He has usually authority
either expressly conferred in general terms or in effect made general by the usages, customs or nature of
the business which he is authorized to transact.

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An agent, therefore, who is empowered to transact all the business of his principal of a particular kind or
in a particular place, would, for this reason, be ordinarily deemed a general agent.

A special agent is one authorized to do some particular act or to act upon some particular occasion. He
acts usually in accordance with specific instructions or under limitations necessarily implied from the
nature of the act to be done.

One does not have to undertake a close scrutiny of the document embodying the agreement between
the petitioners and the respondent to deduce that the latter was instituted as a general agent. Indeed, it
can easily be seen by the way general words were employed in the agreement that no restrictions were
intended as to the manner the agency was to be carried out or in the place where it was to be executed.
The power granted to the respondent was so broad that it practically covers the negotiations leading to,
and the execution of, a contract of sale of petitioners' merchandise with any entity or organization.

The revocation of agency could not prevent the respondent from earning her commission because as the
trial court opined, it came too late, the contract of sale having been already perfected and partly
executed.

In Macondray & Co. v. Sellner (33 Phil. 370, 377), a case analogous to this one in principle, this Court
held:

We do not mean to question the general doctrine as to the power of a principal to revoke the authority
of his agent at will, in the absence of a contract fixing the duration of the agency (subject, however, to
some well defined exceptions). Our ruling is that at the time fixed by the manager of the plaintiff
company for the termination of the negotiations, the defendant real estate agent had already earned the
commissions agreed upon, and could not be deprived thereof by the arbitrary action of the plaintiff
company in declining to execute the contract of sale for some reason personal to itself.

The principal cannot deprive his agent of the commission agreed upon by cancelling the agency and,
thereafter, dealing directly with the buyer. (Infante v. Cunanan, 93 Phil. 691).

DOCTRINE S

NE S Where general words were employed in an agreement that no restrictions were intended as to the
manner the agency was to be carried out or in the place where it was to be executed, a general agency
was constituted.

Revocation of agency does not prevent earning of sales commission where the contract of sale had
already been perfected and partly executed.

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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 complaints2 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

By Decision4 of August 29, 2003, Labor Arbiter Fe Superiaso-Cellan dismissed respondent’s complaint for
lack of merit.

On appeal,5 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

On May 8, 2007, petitioners filed before this Court a Manifestation13 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.

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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)

It bears noting that, as reflected earlier, the Quitclaim and Waiver was subscribed and sworn to before
the Labor Arbiter.

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 ‘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
consideration of the compromise as being unconscionable.

The relation of attorney and client is in many respects one of agency, and the general rules of agency
apply to such relation.22 The acts of an agent are 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
acting beyond the scope of his authority in questioning the compromise agreement.

That a client has undoubtedly the right to compromise a suit without the intervention of his
lawyer24 cannot be gainsaid, the only qualification being that if such compromise is entered into with the
intent of defrauding the lawyer of the fees justly due him, the compromise must be subject to the said
fees.25 In the case at bar, there is no showing that respondent intended to defraud his 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 Antonio C. Casim, notes that the 20% attorney’s fees would be
"paid 12 April 2007 – P90,000."

WHEREFORE, the petition is, in light of all the foregoing discussion, DISMISSED.

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J-Phil Marine Inc. vs. NLRC. 561 SCRA 675. G.R. No. 175366. August 11, 2008.

Lawyer as an agent.

FACTS:

Warlito E. Dumalaog (private respondent) filed a complaint against J-Phil Marine, Inc. (J-Phil) and its
foreign principal Norman Shipping Services for disability/medical benefits and other claims. He alleged
that he contracted enlargement of the heart and severe thyroid enlargement while working as a cook
aboard vessels plying overseas.

The NLRC awarded him US$50,000.00 disability benefit, but the Court of Appeals dismissed J-Phil's
petition for certiorari for procedural defects. During the pendency of the case before the Supreme Court,
respondent entered into a compromise agreement with J-Phil and signed a quitclaim and release against
the advice of his counsel. J-Phil filed a manifestation informing the Supreme Court of the amicable
settlement, but respondent's counsel filed a comment and opposition, objecting to the absolution of J-
Phil from paying the full amount of the NLRC award.

ISSUE:

Does respondent's counsel have the authority to oppose the compromise agreement entered into by
respondent and J-Phil?

RULING:

NO. 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.

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. Go 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.

[T]he Quitclaim and Waiver was subscribed and sworn to before the Labor Arbiter. 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 'full and final settlement of judgment award', is unconscionably low, and
un-[C]hristian, to say the least." Only respondent, however, can impugn the consideration of the
compromise as being unconscionable.

The relation of attorney and client is in many respects one of agency, and the general rules of agency
apply to such relation. The acts of an agent are deemed the acts of the principal only if the agent acts
within the scope of his authority.

The circumstances of this case indicate that respondent's counsel is acting beyond the scope of his
authority in questioning the compromise agreement. That a client has undoubtedly the right to
compromise a suit without the intervention of his lawyer cannot be gainsaid, the only qualification being
that if such compromise is entered into with the intent of defrauding the lawyer of the fees justly due
him, the compromise must be subject to the said fees. In the case at bar, there is no showing that
respondent intended to defraud his counsel of his fees.

WHEREFORE, the petition is, in light of all the foregoing discussion, DISMISSED.

DOCTRINE:

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 The relation of attorney and client is in many respects one of agency, and the general rules of agency
apply to such relation. A client has undoubtedly the right to compromise a suit without the intervention
of his lawyer cannot be gainsaid, the only qualification being that if such compromise is entered into
with the intent of defrauding the lawyer of the fees justly due him, the compromise must be subject to
the said fees.

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G.R. No. 176405 August 20, 2008

LEO WEE, petitioner,

vs.
GEORGE DE CASTRO (on his behalf and as attorney-in-fact of ANNIE DE CASTRO and FELOMINA UBAN)
and MARTINIANA DE CASTRO, respondents.

DECISION

CHICO-NAZARIO, J.:

Before this Court is a Petition for Review on Certiorari1 under Rule 45 of the Revised Rules of Court filed
by petitioner Leo Wee, seeking the reversal and setting aside of the Decision2 dated 19 September 2006
and the Resolution3 dated 25 January 2007 of the Court of Appeals in CA-G.R. SP No. 90906. The
appellate court, in its assailed Decision, reversed the dismissal of Civil Case. No. 1990, an action for
ejectment instituted by respondent George de Castro, on his own behalf and on behalf of Annie de
Castro, Felomina de Castro Uban and Jesus de Castro4 against petitioner, by the Municipal Trial Court
(MTC) of Alaminos City, which was affirmed by the Regional Trial Court (RTC), Branch 54, Alaminos City,
Pangasinan; and, ruling in favor of the respondents, ordered the petitioner to vacate the subject
property. In its assailed Resolution dated 25 January 2007, the Court of Appeals refused to reconsider its
earlier Decision of 19 September 2006.

In their Complaint5 filed on 1 July 2002 with the MTC of Alaminos City, docketed as Civil Case No. 1990,
respondents alleged that they are the registered owners of the subject property, a two-storey building
erected on a parcel of land registered under Transfer Certificate of Title (TCT) No. 16193 in the Registry
of Deeds of Pangasinan, described and bounded as follows:

A parcel of land (Lot 13033-D-2, Psd-01550-022319, being a portion of Lot 13033-D, Psd-018529,
LRC Rec. No. ____) situated in Pob., Alaminos City; bounded on the NW. along line 1-2 by Lot
13035-D-1 of the subdivision plan; on the NE. along line 2-3 by Vericiano St.; on the SE. along
line 3-4 by Lot 13033-D-2 of the subdivision plan; on the SW. along line 4-1 by Lot 575,
Numeriano Rabago. It is coverd by TCT No. 16193 of the Register of Deeds of Pangasinan
(Alaminos City) and declared for taxation purposes per T.D. No. 2075, and assessed in the sum
of P93,400.00.6

Respondents rented out the subject property to petitioner on a month to month basis for P9,000.00 per
month.7 Both parties agreed that effective 1 October 2001, the rental payment shall be increased
from P9,000.00 to P15,000.00. Petitioner, however, failed or refused to pay the corresponding increase
on rent when his rental obligation for the month of 1 October 2001 became due. The rental dispute was
brought to the Lupon Tagapagpamayapa of Poblacion, Alaminos, Pangasinan, in an attempt to amicably
settle the matter but the parties failed to reach an agreement, resulting in the issuance by
the Barangay Lupon of a Certification to file action in court on 18 January 2002. On 10 June 2002,
respondent George de Castro sent a letter to petitioner terminating their lease agreement and
demanding that the latter vacate and turn over the subject property to respondents. Since petitioner
stubbornly refused to comply with said demand letter, respondent George de Castro, together with his
siblings and co-respondents, Annie de Castro, Felomina de Castro Uban and Jesus de Castro, filed the
Complaint for ejectment before the MTC.

It must be noted, at this point, that although the Complaint stated that it was being filed by all of the
respondents, the Verification and the Certificate of Non-Forum Shopping were signed by respondent
George de Castro alone. He would subsequently attach to his position paper filed before the MTC on 28
October 2002 the Special Powers of Attorney (SPAs) executed by his sisters Annie de Castro and
Felomina de Castro Uban dated 7 February 2002 and 14 March 2002 respectively, authorizing him to
institute the ejectment case against petitioner.

Petitioner, on the other hand, countered that there was no agreement between the parties to increase
the monthly rentals and respondents' demand for an increase was exorbitant. The agreed monthly
rental was only for the amount of P9,000.00 and he was religiously paying the same every month.

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Petitioner then argued that respondents failed to comply with the jurisdictional requirement of
conciliation before the Barangay Lupon prior to the filing of Civil Case. No. 1990, meriting the dismissal
of their Complaint therein. The Certification to file action issued by the Barangay Lupon appended to
the respondents' Complaint merely referred to the issue of rental increase and not the matter of
ejectment. Petitioner asserted further that the MTC lacked jurisdiction over the ejectment suit, since
respondents' Complaint was devoid of any allegation that there was an "unlawful withholding" of the
subject property by the petitioner.8

During the Pre-Trial Conference9 held before the MTC, the parties stipulated that in May 2002,
petitioner tendered to respondents the sum of P9,000.00 as rental payment for the month of January
2002; petitioner paid rentals for the months of October 2001 to January 2002 but only in the amount
of P9,000.00 per month; respondents, thru counsel, sent a letter to petitioner on 10 June 2002
terminating their lease agreement which petitioner ignored; and the Barangay Lupon did issue a
Certification to file action after the parties failed to reach an agreement before it.

After the submission of the parties of their respective Position Papers, the MTC, on 21 November 2002,
rendered a Decision10 dismissing respondents' Complaint in Civil Case No. 1990 for failure to comply with
the prior conciliation requirement before the Barangay Lupon. The decretal portion of the MTC Decision
reads:

WHEREFORE, premised considered, judgment is hereby rendered ordering the dismissal of this
case. Costs against the [herein respondents].

On appeal, docketed as Civil Case No. A-2835, the RTC of Alaminos, Pangasinan, Branch 54, promulgated
its Decision11 dated 27 June 2005 affirming the dismissal of respondents' Complaint for ejectment after
finding that the appealed MTC Decision was based on facts and law on the matter. The RTC declared
that since the original agreement entered into by the parties was for petitioner to pay only the sum
of P9.000.00 per month for the rent of the subject property, and no concession was reached by the
parties to increase such amount to P15.000.00, petitioner cannot be faulted for paying only the
originally agreed upon monthly rentals. Adopting petitioner's position, the RTC declared that
respondents' failure to refer the matter to the Barangay court for conciliation process barred the
ejectment case, conciliation before the Lupon being a condition sine qua non in the filing of ejectment
suits. The RTC likewise agreed with petitioner in ruling that the allegation in the Complaint was flawed,
since respondents failed to allege that there was an "unlawful withholding" of possession of the subject
property, taking out Civil Case No. 1990 from the purview of an action for unlawful detainer. Finally, the
RTC decreed that respondents' Complaint failed to comply with the rule that a co-owner could not
maintain an action without joining all the other co-owners. Thus, according to the dispositive portion of
the RTC Decision:

WHEREFORE the appellate Court finds no cogent reason to disturb the findings of the court a
quo. The Decision dated November 21, 2002 appealed from is hereby AFFIRMED IN TOTO.12

Undaunted, respondents filed a Petition for Review on Certiorari13 with the Court of Appeals where it
was docketed as CA-G.R. SP No. 90906. Respondents argued in their Petition that the RTC gravely erred
in ruling that their failure to comply with the conciliation process was fatal to their Complaint, since it is
only respondent George de Castro who resides in Alaminos City, Pangasinan, while respondent Annie de
Castro resides in Pennsylvania, United States of America (USA); respondent Felomina de Castro Uban, in
California, USA; and respondent Jesus de Castro, now substituted by his wife, Martiniana, resides in
Manila. Respondents further claimed that the MTC was not divested of jurisdiction over their Complaint
for ejectment because of the mere absence therein of the term "unlawful withholding" of their subject
property, considering that they had sufficiently alleged the same in their Complaint, albeit worded
differently. Finally, respondents posited that the fact that only respondent George de Castro signed the
Verification and the Certificate of Non-Forum Shopping attached to the Complaint was irrelevant since
the other respondents already executed Special Powers of Attorney (SPAs) authorizing him to act as
their attorney-in-fact in the institution of the ejectment suit against the petitioner.

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On 19 September 2006, the Court of Appeals rendered a Decision granting the respondents' Petition and
ordering petitioner to vacate the subject property and turn over the same to respondents. The Court of
Appeals decreed:

WHEREFORE, premises considered, the instant petition is GRANTED. The assailed Decision dated
June 27, 2005 issued by the RTC of Alaminos City, Pangasinan, Branch 54, is REVERSED and SET
ASIDE. A new one is hereby rendered ordering [herein petitioner] Leo Wee to SURRENDER and
VACATE the leased premises in question as well as to pay the sum of P15,000.00 per month
reckoned from March, 2002 until he shall have actually turned over the possession thereof to
petitioners plus the rental arrearages of P30,000.00 representing unpaid increase in rent for the
period from October, 2001 to February, 2002, with legal interest at 6% per annum to be
computed from June 7, 2002 until finality of this decision and 12% thereafter until full payment
thereof. Respondent is likewise hereby ordered to pay petitioners the amount of P20,000.00 as
and for attorney's fees and the costs of suit.14

In a Resolution dated 25 January 2007, the appellate court denied the Motion for Reconsideration
interposed by petitioner for lack of merit.

Petitioner is now before this Court via the Petition at bar, making the following assignment of errors:

I.

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN DECLARING THAT CONCILIATION

PROCESS IS NOT A JURISDICTIONAL REQUIREMENT THAT NON-COMPLIANCE THEREWITH DOES
NOT AFFECT THE JURISDICTION IN EJECTMENT CASE;

II.

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN UPHOLDING THE SUFFICIENCY OF THE
ALLEGATIONS IN THE COMPLAINT FOR EJECTMENT DESPITE THE WANT OF ALLEGATION OF
"UNLAWFUL WITHOLDING PREMISES" (sic) QUESTIONED BY PETITIONER;

III.

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE FILING OF THE
COMPLAINT OF RESPONDENT GEORGE DE CASTRO WITHOUT JOINING ALL HIS OTHER CO-
OWNERS OVER THE SUBJECT PROPERTY IS PROPER;

IV.

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT APPLYING SUPREME COURT
CIRCULAR NO. 10 WHICH DIRECTS A PLEADER TO INDICATE IN HIS PLEADINGS HIS OFFICIAL
RECEIPT OF HIS PAYMENT OF HIS IBP DUES.15

Petitioner avers that respondents failed to go through the conciliation process before the Barangay
Lupon, a jurisdictional defect that bars the legal action for ejectment. The Certification to file action
dated 18 January 2002 issued by the Barangay Lupon, appended by the respondents to their Complaint
in Civil Case No. 1990, is of no moment, for it attested only that there was confrontation between the
parties on the matter of rental increase but not on unlawful detainer of the subject property by the
petitioner. If it was the intention of the respondents from the very beginning to eject petitioner from the
subject property, they should have brought up the alleged unlawful stay of the petitioner on the subject
property for conciliation before the Barangay Lupon.

The barangay justice system was established primarily as a means of easing up the congestion of cases
in the judicial courts. This could be accomplished through a proceeding before the barangay courts
which, according to the one who conceived of the system, the late Chief Justice Fred Ruiz Castro, is
essentially arbitration in character; and to make it truly effective, it should also be compulsory. With this
primary objective of the barangay justice system in mind, it would be wholly in keeping with the

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underlying philosophy of Presidential Decree No. 1508 (Katarungang Pambarangay Law), which would
be better served if an out-of-court settlement of the case is reached voluntarily by the parties.16 To
ensure this objective, Section 6 of Presidential Decree No. 1508 requires the parties to undergo a
conciliation process before the Lupon Chairman or the Pangkat ng Tagapagkasundo as a precondition
to filing a complaint in court subject to certain exceptions. The said section has been declared
compulsory in nature.17

Presidential Decree No. 1508 is now incorporated in Republic Act No. 7160 (The Local Government
Code), which took effect on 1 January 1992.

The pertinent provisions of the Local Government Code making conciliation a precondition to the filing
of complaints in court are reproduced below:

SEC. 412. Conciliation.- (a) Pre-condition to filing of complaint in court. - No complaint, petition,
action, or proceeding involving any matter within the authority of the lupon shall be filed or
instituted directly in court or any other government office for adjudication, unless there has
been a confrontation between the parties before the lupon chairman or the pangkat, and that
no conciliation or settlement has been reached as certified by the lupon secretary or pangkat
secretary as attested to by the lupon or pangkat chairman or unless the settlement has been
repudiated by the parties thereto.

(b) Where parties may go directly to court. - The parties may go directly to court in the following
instances:

(1) Where the accused is under detention;

(2) Where a person has otherwise been deprived of personal liberty calling for habeas
corpus proceedings;

(3) Where actions are coupled with provisional remedies such as preliminary injunction,
attachment, delivery of personal property, and support pendente lite; and

(4) Where the action may otherwise be barred by the statute of limitations.

(c) Conciliation among members of indigenous cultural communities. - The customs and
traditions of indigenous cultural communities shall be applied in settling disputes between
members of the cultural communities.

SEC. 408. Subject Matter for Amicable Settlement; Exception Thereto. - The lupon of each
barangay shall have authority to bring together the parties actually residing in the same city or
municipality for amicable settlement of all disputes except:

(a) Where one party is the government or any subdivision or instrumentality thereof;

(b) Where one party is a public officer or employee, and the dispute relates to the performance
of his official functions;

(c) Offenses punishable by imprisonment exceeding one (1) year or a fine exceeding Five
thousand pesos (P5,000.00);

(d) Offenses where there is no private offended party;

(e) Where the dispute involves real properties located in different cities or municipalities unless
the parties thereto agree to submit their differences to amicable settlement by an appropriate
lupon;

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 (f) Disputes involving parties who actually reside in barangays of different cities or
municipalities, except where such barangay units adjoin each other and the parties thereto
agree to submit their differences to amicable settlement by an appropriate lupon;

(g) Such other classes of disputes which the President may determine in the interest of justice or
upon the recommendation of the Secretary of Justice.

There is no question that the parties to this case appeared before the Barangay Lupon for conciliation
proceedings. There is also no dispute that the only matter referred to the Barangay Lupon for
conciliation was the rental increase, and not the ejectment of petitioner from the subject property. This
is apparent from a perusal of the Certification to file action in court issued by the Barangay Lupon on 18
January 2002, to wit:

CERTIFICATION TO FILE COMPLAINTS

This is to certify that:

1. There was personal confrontation between parties before the barangay Lupon regarding
rental increase of a commercial building but conciliation failed;

2. Therefore, the corresponding dispute of the above-entitled case may now be filed in
Court/Government Office.18 (Emphasis ours.)

The question now to be resolved by this Court is whether the Certification dated 18 January 2002 issued
by the Barangay Lupon stating that no settlement was reached by the parties on the matter of rental
increase sufficient to comply with the prior conciliation requirement under the Katarungang
Pambarangay Law to authorize the respondents to institute the ejectment suit against petitioner.

The Court rules affirmatively.

While it is true that the Certification to file action dated 18 January 2002 of the Barangay Lupon refers
only to rental increase and not to the ejectment of petitioner from the subject property, the submission
of the same for conciliation before the Barangay Lupon constitutes sufficient compliance with the
provisions of the Katarungang Pambarangay Law. Given the particular circumstances of the case at bar,
the conciliation proceedings for the amount of monthly rental should logically and reasonably include
also the matter of the possession of the property subject of the rental, the lease agreement, and the
violation of the terms thereof.

We now proceed to discuss the meat of the controversy.

The contract of lease between the parties did not stipulate a fixed period. Hence, the parties agreed to
the payment of rentals on a monthly basis. On this score, Article 1687 of the Civil Code provides:

Art. 1687. If the period for the lease has not been fixed, it is understood to be from year to
year, if the rent agreed upon is annual; from month to month, if it is monthly; from week to
week, if the rent is weekly; and from day to day, if the rent is to be paid daily. However, even
though a monthly rent is paid, and no period for the lease has been set, the courts may fix a
longer term for the lease after the lessee has occupied the premises for over one year. If the
rent is weekly, the courts may likewise determine a longer period after the lessee has been in
possession for over six months. In case of daily rent, the courts may also fix a longer period after
the lessee has stayed in the place for over one month. (Emphasis supplied.)

The rentals being paid monthly, the period of such lease is deemed terminated at the end of each
month. Thus, respondents have every right to demand the ejectment of petitioners at the end of each
month, the contract having expired by operation of law. Without a lease contract, petitioner has no right
of possession to the subject property and must vacate the same. Respondents, thus, should be allowed
to resort to an action for ejectment before the MTC to recover possession of the subject property from
petitioner.

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Corollarily, petitioner's ejectment, in this case, is only the reasonable consequence of his unrelenting
refusal to comply with the respondents' demand for the payment of rental increase agreed upon by
both parties. Verily, the lessor's right to rescind the contract of lease for non-payment of the demanded
increased rental was recognized by this Court in Chua v. Victorio19:

The right of rescission is statutorily recognized in reciprocal obligations, such as contracts of

lease. In addition to the general remedy of rescission granted under Article 1191 of the Civil
Code, there is an independent provision granting the remedy of rescission for breach of any of
the lessor or lessee's statutory obligations. Under Article 1659 of the Civil Code, the aggrieved
party may, at his option, ask for (1) the rescission of the contract; (2) rescission and
indemnification for damages; or (3) only indemnification for damages, allowing the contract to
remain in force.

Payment of the rent is one of a lessee's statutory obligations, and, upon non-payment by
petitioners of the increased rental in September 1994, the lessor acquired the right to avail of
any of the three remedies outlined above. (Emphasis supplied.)

Petitioner next argues that respondent George de Castro cannot maintain an action for ejectment
against petitioner, without joining all his co-owners.

Article 487 of the New Civil Code is explicit on this point:

ART. 487. Any one of the co-owners may bring an action in ejectment.

This article covers all kinds of action for the recovery of possession, i.e., forcible entry and unlawful
detainer (accion interdictal), recovery of possession (accion publiciana), and recovery of ownership
(accion de reivindicacion). As explained by the renowned civilist, Professor Arturo M. Tolentino20:

A co-owner may bring such an action, without the necessity of joining all the other co-owners
as co-plaintiffs, because the suit is deemed to be instituted for the benefit of all . If the action is
for the benefit of the plaintiff alone, such that he claims possession for himself and not for the
co-ownership, the action will not prosper. (Emphasis added.)

In the more recent case of Carandang v. Heirs of De Guzman,21 this Court declared that a co-owner is not
even a necessary party to an action for ejectment, for complete relief can be afforded even in his
absence, thus:

In sum, in suits to recover properties, all co-owners are real parties in interest. However,
pursuant to Article 487 of the Civil Code and the relevant jurisprudence, any one of them may
bring an action, any kind of action for the recovery of co-owned properties. Therefore, only one
of the co-owners, namely the co-owner who filed the suit for the recovery of the co-owned
property, is an indispensable party thereto. The other co-owners are not indispensable parties.
They are not even necessary parties, for a complete relief can be afforded in the suit even
without their participation, since the suit is presumed to have been filed for the benefit of all co-
owners.

Moreover, respondents Annie de Castro and Felomina de Castro Uban each executed a Special Power of
Attorney, giving respondent George de Castro the authority to initiate Civil Case No. 1990.

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A power of attorney is an instrument in writing by which one person, as principal, appoints another as
his agent and confers upon him the authority to perform certain specified acts or kinds of acts on behalf
of the principal. The written authorization itself is the power of attorney, and this is clearly indicated by
the fact that it has also been called a "letter of attorney."22

Even then, the Court views the SPAs as mere surplusage, such that the lack thereof does not in any way
affect the validity of the action for ejectment instituted by respondent George de Castro. This also
disposes of petitioner's contention that respondent George de Castro lacked the authority to sign the
Verification and the Certificate of Non-Forum Shopping. As the Court ruled in Mendoza v. Coronel23:

We likewise hold that the execution of the certification against forum shopping by the
attorney-in-fact in the case at bar is not a violation of the requirement that the parties must
personally sign the same. The attorney-in-fact, who has authority to file, and who actually filed
the complaint as the representative of the plaintiff co-owner, pursuant to a Special Power of
Attorney, is a party to the ejectment suit. In fact, Section 1, Rule 70 of the Rules of Court
includes the representative of the owner in an ejectment suit as one of the parties authorized to
institute the proceedings. (Emphasis supplied.)

Failure by respondent George de Castro to attach the said SPAs to the Complaint is innocuous, since it is
undisputed that he was granted by his sisters the authority to file the action for ejectment against
petitioner prior to the institution of Civil Case No. 1990. The SPAs in his favor were respectively executed
by respondents Annie de Castro and Felomina de Castro Uban on 7 February 2002 and 14 March 2002;
while Civil Case No. 1990 was filed by respondent George de Castro on his own behalf and on behalf of
his siblings only on 1 July 2002, or way after he was given by his siblings the authority to file said action.
The Court quotes with approval the following disquisition of the Court of Appeals:

Moreover, records show that [herein respondent] George de Castro was indeed authorized by
his sisters Annie de Castro and Felomina de Castro Uban, to prosecute the case in their behalf as
shown by the Special Power of Attorney dated February 7, 2002 and March 14, 2002. That these
documents were appended only to [respondent George de Castro's] position paper is of no
moment considering that the authority conferred therein was given prior to the institution of
the complaint in July, 2002. x x x.24

Respondent deceased Jesus de Castro's failure to sign the Verification and Certificate of Non-Forum
Shopping may be excused since he already executed an Affidavit25 with respondent George de Castro
that he had personal knowledge of the filing of Civil Case No. 1990. In Torres v. Specialized Packaging
Development Corporation,26 the Court ruled that the personal signing of the verification requirement
was deemed substantially complied with when, as in the instant case, two out of 25 real parties-in-
interest, who undoubtedly have sufficient knowledge and belief to swear to the truth of the allegations
in the petition, signed the verification attached to it.

In the same vein, this Court is not persuaded by petitioner's assertion that respondents' failure to allege
the jurisdictional fact that there was "unlawful withholding" of the subject property was fatal to their
cause of action.

It is apodictic that what determines the nature of an action as well as which court has jurisdiction over it
are the allegations in the complaint and the character of the relief sought. In an unlawful detainer case,
the defendant's possession was originally lawful but ceased to be so upon the expiration of his right to
possess. Hence, the phrase "unlawful withholding" has been held to imply possession on the part of
defendant, which was legal in the beginning, having no other source than a contract, express or implied,
and which later expired as a right and is being withheld by defendant.27

In Barba v. Court of Appeals,28 the Court held that although the phrase "unlawfully withholding" was not
actually used by therein petitioner in her complaint, the Court held that her allegations, nonetheless,
amounted to an unlawful withholding of the subject property by therein private respondents, because
they continuously refused to vacate the premises even after notice and demand.

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In the Petition at bar, respondents alleged in their Complaint that they are the registered owners of the
subject property; the subject property was being occupied by the petitioner pursuant to a monthly lease
contract; petitioner refused to accede to respondents' demand for rental increase; the respondents sent
petitioner a letter terminating the lease agreement and demanding that petitioner vacate and turn over
the possession of the subject property to respondents; and despite such demand, petitioner failed to
surrender the subject property to respondents.29 The Complaint sufficiently alleges the unlawful
withholding of the subject property by petitioner, constitutive of unlawful detainer, although the exact
words "unlawful withholding" were not used. In an action for unlawful detainer, an allegation that the
defendant is unlawfully withholding possession from the plaintiff is deemed sufficient, without
necessarily employing the terminology of the law.30

Petitioner's averment that the Court of Appeals should have dismissed respondents' Petition in light of
the failure of their counsel to attach the Official Receipt of his updated payment of Integrated Bar of the
Philippines (IBP) dues is now moot and academic, since respondents' counsel has already duly complied
therewith. It must be stressed that judicial cases do not come and go through the portals of a court of
law by the mere mandate of technicalities.31 Where a rigid application of the rules will result in a
manifest failure or miscarriage of justice, technicalities should be disregarded in order to resolve the
case. 32

Finally, we agree in the ruling of the Court of Appeals that petitioner is liable for the payment of back
rentals, attorney's fees and cost of the suit. Respondents must be duly indemnified for the loss of
income from the subject property on account of petitioner's refusal to vacate the leased premises.

WHEREFORE, premises considered, the instant Petition is DENIED. The Decision dated 19 September
2006 and Resolution dated 25 January 2007 of the Court of Appeals in CA-G.R. SP No. 90906 are
hereby AFFIRMED in toto. Costs against petitioner.

SO ORDERED.

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WEE vs. DE CASTRO

DOCTRINE:

Barangay Lupon is required by law, but with certain exemptions.

SPA - A power of attorney is an instrument in writing by which one person, as principal, appoints another
as his agent and confers upon him the authority to perform certain specified acts or kinds of acts on
behalf of the principal. The written authorization itself is the power of attorney, and this is clearly
indicated by the fact that it has also been called a "letter of attorney."

FACTS:

• Herein petitioner, Leo Wee, was at that time renting a certain property from the respondents, De
Castros, in Pob, Alaminos, Pangasinan.

o Their relationship was at first sweet. Wee agreed to pay a monthly rent of P9,000 for the
property.

o Everything turned downhill when Wee defaulted 1 month’s rent due to refusal to pay. Wee
refused to pay rent for the DeCastros raised his rent from P9,000 to P15,000 – he felt that such increase
was too exorbitant.

o The DeCastros alleged that they came up with an agreement for such increase and everything
was consensual.

• Procedural facts:

o DeCastros went to Lupon Tagapamayapa – failed to amicably settle, which lead to the issuance
by th Barangay Lupon for certification to file action.

o DeCastros sent demand letter, but Wee stubbornly refused to pay.

o DeCastros filed with MTC a complaint for ejectment.

 TAKE NOTE: George DeCastro filed the complaint together with his siblings, Annie, Felomina, and
Jesus – BUT – ONLY George was signed in the certification for non-forum shopping.

 But also attached were SPAs authorizing George to file and represent the siblings in his behalf.

• Wee answered that they did not agree to any increase in rent – further, Wee contended that
DeCastros failed to comply with the jurisdictional requirement of seeking conciliation wit the Barangay
Lupon (they went straight to LT) and what was certified by the Barangay Lupon was for the issue whether
there was an increase in rent and NOT ejectment. He contends that the MTC lacked jurisdiction for the
DeCastros’ complaint was devoid of any allegation that there was “unlawful withholding” of property (or
simply no cause of action).

• MTC – DISMISSED FOR FAILURE TO SEEK CONCILIATION WITH BL. Costs against the DeCastros.

• On appeal to RTC – Affirmed MTC decision.

o DeCastros cannot fault Wee for paying only the agreed price (p9,000).

o And that failure to conciliate with BL barred the ejectment case – for it was a SINE QUA NON in
the filing (A MUST! BAWAL HINDI GAWIN).

• Filed Paetition for Review on Certiorari with CA:

o CA – for some reason – reversed MTC and RTC decisions.

o Stated that BL is not a jurisdictional requirement AND upheld that there was unlawful
withholding, albeit, differently worded.

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• Hence, this petition by LEO WEE.

ISSUES:

1. W/N the conciliation process in the Barangay Lupon is a jurisdictional requirement. (YES –
because there are exceptions)

2. W/N petition for ejectment will prosper – given that, as alleged, there is no cause of action. (YES
– there is ccause of action baby)

3. W/N George’s action is valid even without joining his siblings. (Yes)

HELD:

1. The barangay justice system was established primarily as a means of easing up the congestion of
cases in the judicial courts. This could be accomplished through a proceeding before the barangay courts
which, according to the one who conceived of the system, the late Chief Justice Fred Ruiz Castro, is
essentially arbitration in character; and to make it truly effective, it should also be compulsory. With this
primary objective of the barangay justice system in mind, it would be wholly in keeping with the
underlying philosophy

of Presidential Decree No. 1508 (Katarungang Pambarangay Law), which would be better served if an
out-of-court settlement of the case is reached voluntarily by the parties. To ensure this objective, Section
6 of Presidential Decree No. 1508 requires the parties to undergo a conciliation process before the
Lupon Chairman or the Pangkat ng Tagapagkasundo as a precondition to filing a complaint in court
subject to certain exceptions. The said section has been declared compulsory in nature.

xxxx

(b) Where parties may go directly to court. - The parties may go directly to court in the following
instances:

(1) Where the accused is under detention; xxxx

There is no question that the parties to this case appeared before the Barangay Lupon for conciliation
proceedings. There is also no dispute that the only matter referred to the Barangay Lupon for
conciliation was the rental increase, and not the ejectment of petitioner from the subject property. This
is apparent from a perusal of the Certification to file action in court issued by the Barangay Lupon on 18
January 2002

The question now to be resolved by this Court is whether the Certification dated 18 January 2002 issued
by the Barangay Lupon stating that no settlement was reached by the parties on the matter of rental
increase sufficient to comply with the prior conciliation requirement under the Katarungang
Pambarangay Law to authorize the respondents to institute the ejectment suit against petitioner.

The Court rules affirmatively.

While it is true that the Certification to file action dated 18 January 2002 of the Barangay Lupon refers
only to rental increase and not to the ejectment of petitioner from the subject property, the submission
of the same for conciliation before the Barangay Lupon constitutes sufficient compliance with the
provisions of the Katarungang Pambarangay Law. Given the particular circumstances of the case at bar,
the conciliation proceedings for the amount of monthly rental should logically and reasonably include
also the matter of the possession of the property subject of the rental, the lease agreement, and the
violation of the terms thereof.

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2. The contract of lease between the parties did not stipulate a fixed period. Hence, the parties
agreed to the payment of rentals on a monthly basis. On this score, Article 1687 of the Civil Code
provides:

Art. 1687. If the period for the lease has not been fixed, it is understood to be from year to year, if the
rent agreed upon is annual; from month to month, if it is monthly xxx.

The rentals being paid monthly, the period of such lease is deemed terminated at the end of each
month. Thus, respondents have every right to demand the ejectment of petitioners at the end of each
month, the contract having expired by operation of law. Without a lease contract, petitioner has no right
of possession to the subject property and must vacate the same. Respondents, thus, should be allowed
to resort to an action for ejectment before the MTC to recover possession of the subject property from
petitioner.

Corollarily, petitioner's ejectment, in this case, is only the reasonable consequence of his unrelenting
refusal to comply with the respondents' demand for the payment of rental increase agreed upon by both
parties.

3. Petitioner next argues that respondent George de Castro cannot maintain an action for
ejectment against petitioner, without joining all his co-owners.

Article 487 of the New Civil Code is explicit on this point:

ART. 487. Any one of the co-owners may bring an action in ejectment.

This article covers all kinds of action for the recovery of possession, i.e., forcible entry and unlawful
detainer (accion interdictal), recovery of possession (accion publiciana), and recovery of ownership
(accion de reivindicacion). As explained by the renowned civilist, Professor Arturo M. Tolentino[20]:

A co-owner may bring such an action, without the necessity of joining all the other co-owners as co-
plaintiffs, because the suit is deemed to be instituted for the benefit of all. If the action is for the benefit
of the plaintiff alone, such that he claims possession for himself and not for the co-ownership, the action
will not prosper. (Emphasis added.)

Moreover, respondents Annie de Castro and Felomina de Castro Uban each executed a Special Power of
Attorney, giving respondent George de Castro the authority to initiate Civil Case No. 1990.

A power of attorney is an instrument in writing by which one person, as principal, appoints another as
his agent and confers upon him the authority to perform certain specified acts or kinds of acts on behalf
of the principal. The written authorization itself is the power of attorney, and this is clearly indicated by
the fact that it has also been called a "letter of attorney."

WHEREFORE, premises considered, the instant Petition is DENIED. The Decision dated 19 September
2006 and Resolution dated 25 January 2007 of the Court of Appeals in CA-

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G.R. SP No. 90906 are hereby AFFIRMED in toto. Costs against petitioner.

SO ORDERED.

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G.R. No. 158907 February 12, 2007

EDUARDO B. OLAGUER, Petitioner,

vs.
EMILIO PURUGGANAN, JR. AND RAUL LOCSIN, Respondents.

DECISION

CHICO-NAZARIO, J.:

This is a Petition for Review on Certiorari, under Rule 45 of the Rules of Court, assailing the
Decision,1 dated 30 June 2003, promulgated by the Court of Appeals, affirming the Decision of the
Regional Trial Court, dated 26 July 1995, dismissing the petitioner’s suit.

The parties presented conflicting accounts of the facts.

EDUARDO B. OLAGUER’S VERSION

Petitioner Eduardo B. Olaguer alleges that he was the owner of 60,000 shares of stock of Businessday
Corporation (Businessday) with a total par value of ₱600,000.00, with Certificates of Stock No. 005, No.
028, No. 034, No. 070, and No. 100.2 At the time he was employed with the corporation as Executive
Vice-President of Businessday, and President of Businessday Information Systems and Services and of
Businessday Marketing Corporation, petitioner, together with respondent Raul Locsin (Locsin) and
Enrique Joaquin (Joaquin), was active in the political opposition against the Marcos
dictatorship.3 Anticipating the possibility that petitioner would be arrested and detained by the Marcos
military, Locsin, Joaquin, and Hector Holifeña had an unwritten agreement that, in the event that
petitioner was arrested, they would support the petitioner’s family by the continued payment of his
salary.4 Petitioner also executed a Special Power of Attorney (SPA), on 26 May 1979, appointing as his
attorneys-in-fact Locsin, Joaquin and Hofileña for the purpose of selling or transferring petitioner’s
shares of stock with Businessday. During the trial, petitioner testified that he agreed to execute the SPA
in order to cancel his shares of stock, even before they are sold, for the purpose of concealing that he
was a stockholder of Businessday, in the event of a military crackdown against the opposition.5 The
parties acknowledged the SPA before respondent Emilio Purugganan, Jr., who was then the Corporate
Secretary of Businessday, and at the same time, a notary public for Quezon City.6

On 24 December 1979, petitioner was arrested by the Marcos military by virtue of an Arrest, Search and
Seizure Order and detained for allegedly committing arson. During the petitioner’s detention,
respondent Locsin ordered fellow respondent Purugganan to cancel the petitioner’s shares in the books
of the corporation and to transfer them to respondent Locsin’s name.7

As part of his scheme to defraud the petitioner, respondent Locsin sent Rebecca Fernando, an employee
of Businessday, to Camp Crame where the petitioner was detained, to pretend to borrow Certificate of
Stock No. 100 for the purpose of using it as additional collateral for Businessday’s then outstanding loan
with the National Investment and Development Corporation. When Fernando returned the borrowed
stock certificate, the word "cancelled" was already written therein. When the petitioner became upset,
Fernando explained that this was merely a mistake committed by respondent Locsin’s secretary.8

During the trial, petitioner also agreed to stipulate that from 1980 to 1982, Businessday made regular
deposits, each amounting to ₱10,000.00, to the Metropolitan Bank and Trust Company accounts of
Manuel and Genaro Pantig, petitioner’s in-laws. The deposits were made on every 15th and 30th of the
month.9 Petitioner alleged that these funds consisted of his monthly salary, which Businessday agreed to
continue paying after his arrest for the financial support of his family.10 After receiving a total of
₱600,000.00, the payments stopped. Thereafter, respondent Locsin and Fernando went to ask petitioner
to endorse and deliver the rest of his stock certificates to respondent Locsin, but petitioner refused. 11

On 16 January 1986, petitioner was finally released from detention. He then discovered that he was no
longer registered as stockholder of Businessday in its corporate books. He also learned that Purugganan,
as the Corporate Secretary of Businessday, had already recorded the transfer of shares in favor of

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respondent Locsin, while petitioner was detained. When petitioner demanded that respondents restore
to him full ownership of his shares of stock, they refused to do so. On 29 July 1986, petitioner filed a
Complaint before the trial court against respondents Purugganan and Locsin to declare as illegal the sale
of the shares of stock, to restore to the petitioner full ownership of the shares, and payment of
damages.12

RESPONDENT RAUL LOCSIN’S VERSION

In his version of the facts, respondent Locsin contended that petitioner approached him and requested
him to sell, and, if necessary, buy petitioner’s shares of stock in Businessday, to assure support for
petitioner’s family in the event that something should happen to him, particularly if he was jailed, exiled
or forced to go underground.13 At the time petitioner was employed with Businessday, respondent
Locsin was unaware that petitioner was part of a group, Light-a-Fire Movement, which actively sought
the overthrow of the Marcos government through an armed struggle.14 He denied that he made any
arrangements to continue paying the petitioner’s salary in the event of the latter’s imprisonment.15

When petitioner was detained, respondent Locsin tried to sell petitioner’s shares, but nobody wanted to
buy them. Petitioner’s reputation as an oppositionist resulted in the poor financial condition of
Businessday and discouraged any buyers for the shares of stock.16 In view of petitioner’s previous
instructions, respondent Locsin decided to buy the shares himself.1awphi1.net Although the capital
deficiency suffered by Businessday caused the book value of the shares to plummet below par value,
respondent Locsin, nevertheless, bought the shares at par value.17 However, he had to borrow from
Businessday the funds he used in purchasing the shares from petitioner, and had to pay the petitioner in
installments of ₱10,000.00 every 15th and 30th of each month.18

The trial court in its Decision, dated 26 July 1995, dismissed the Complaint filed by the petitioner. It
ruled that the sale of shares between petitioner and respondent Locsin was valid. The trial court
concluded that petitioner had intended to sell the shares of stock to anyone, including respondent
Locsin, in order to provide for the needs of his family should he be jailed or forced to go underground;
and that the SPA drafted by the petitioner empowered respondent Locsin, and two other agents, to sell
the shares for such price and under such terms and conditions that the agents may deem proper. It
further found that petitioner consented to have respondent Locsin buy the shares himself. It also ruled
that petitioner, through his wife, received from respondent Locsin the amount of ₱600,000.00 as
payment for the shares of stock.19 The dispositive part of the trial court’s Decision reads:

WHEREFORE, for failure of the [herein petitioner] to prove by preponderance of evidence, his causes of
action and of the facts alleged in his complaint, the instant suit is hereby ordered DISMISSED, without
pronouncement as to costs.

[Herein respondents’] counterclaims, however, are hereby DISMISSED, likewise, for dearth of substantial
evidentiary support.20

On appeal, the Court of Appeals affirmed the Decision of the trial court that there was a perfected
contract of sale.21 It further ruled that granting that there was no perfected contract of sale, petitioner,
nevertheless, ratified the sale to respondent Locsin by his receipt of the purchase price, and his failure
to raise any protest over the said sale.22 The Court of Appeals refused to credit the petitioner’s allegation
that the money his wife received constituted his salary from Businessday since the amount he received
as his salary, ₱24,000.00 per month, did not correspond to the amount he received during his detention,
₱20,000.00 per month (deposits of ₱10,000.00 on every 15th and 30th of each month in the accounts of
the petitioner’s in-laws). On the other hand, the total amount received, ₱600,000.00, corresponds to the
aggregate par value of petitioner’s shares in Businessday. Moreover, the financial condition of
Businessday prevented it from granting any form of financial assistance in favor of the petitioner, who
was placed in an indefinite leave of absence, and, therefore, not entitled to any salary. 23

The Court of Appeals also ruled that although the manner of the cancellation of the petitioner’s
certificates of stock and the subsequent issuance of the new certificate of stock in favor of respondent
Locsin was irregular, this irregularity will not relieve petitioner of the consequences of a consummated
sale.24

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Finally, the Court of Appeals affirmed the Decision of the trial court disallowing respondent Locsin’s
claims for moral and exemplary damages due to lack of supporting evidence.25

Hence, the present petition, where the following issues were raised:

I.

THE APPELLATE COURT ERRED IN RULING THAT THERE WAS A PERFECTED CONTRACT OF SALE BETWEEN
PETITIONER AND MR. LOCSIN OVER THE SHARES;

II.

THE APPELLATE COURT ERRED IN RULING THAT PETITIONER CONSENTED TO THE ALLEGED SALE OF THE
SHARES TO MR. LOCSIN;

III.

THE APPELLATE COURT ERRED IN RULING THAT THE AMOUNTS RECEIVED BY PETITIONER’S IN LAWS
WERE NOT PETITIONER’S SALARY FROM THE CORPORATION BUT INSTALLMENT PAYMENTS FOR THE
SHARES;

IV.

THE APPELLATE COURT ERRED IN RULING THAT MR. LOCSIN WAS THE PARTY TO THE ALLEGED SALE OF
THE SHARES AND NOT THE CORPORATION; AND

V.

THE APPELLATE COURT ERRED IN RULING THAT THE ALLEGED SALE OF THE SHARES WAS VALID
ALTHOUGH THE CANCELLATION OF THE SHARES WAS IRREGULAR.26

The petition is without merit.

The first issue that the petitioner raised is that there was no valid sale since respondent Locsin exceeded
his authority under the SPA27 issued in his, Joaquin and Holifena’s favor. He alleged that the authority of
the afore-named agents to sell the shares of stock was limited to the following conditions: (1) in the
event of the petitioner’s absence and incapacity; and (2) for the limited purpose of applying the
proceeds of the sale to the satisfaction of petitioner’s subsisting obligations with the companies
adverted to in the SPA.28

Petitioner sought to impose a strict construction of the SPA by limiting the definition of the word
"absence" to a condition wherein "a person disappears from his domicile, his whereabouts being
unknown, without leaving an agent to administer his property,"29 citing Article 381 of the Civil Code, the
entire provision hereunder quoted:

ART 381. When a person disappears from his domicile, his whereabouts being unknown, and without
leaving an agent to administer his property, the judge, at the instance of an interested party, a relative,
or a friend, may appoint a person to represent him in all that may be necessary.

This same rule shall be observed when under similar circumstances the power conferred by the
absentee has expired.

Petitioner also puts forward that the word "incapacity" would be limited to mean "minority, insanity,
imbecility, the state of being deaf-mute, prodigality and civil interdiction."30 He cites Article 38 of the
Civil Code, in support of this definition, which is hereunder quoted:

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ART. 38 Minority, insanity or imbecility, the state of being a deaf-mute, prodigality and civil interdiction
are mere restrictions on capacity to act, and do not exempt the incapacitated person, from certain
obligations, as when the latter arise from his acts or from property relations, such as easements.

Petitioner, thus, claims that his arrest and subsequent detention are not among the instances covered
by the terms "absence or incapacity," as provided under the SPA he executed in favor of respondent
Locsin.

Petitioner’s arguments are unpersuasive. It is a general rule that a power of attorney must be strictly
construed; the instrument will be held to grant only those powers that are specified, and the agent may
neither go beyond nor deviate from the power of attorney. However, the rule is not absolute and should
not be applied to the extent of destroying the very purpose of the power. If the language will permit, the
construction that should be adopted is that which will carry out instead of defeat the purpose of the
appointment. Clauses in a power of attorney that are repugnant to each other should be reconciled so
as to give effect to the instrument in accordance with its general intent or predominant purpose.
Furthermore, the instrument should always be deemed to give such powers as essential or usual in
effectuating the express powers.31

In the present case, limiting the definitions of "absence" to that provided under Article 381 of the Civil
Code and of "incapacity" under Article 38 of the same Code negates the effect of the power of attorney
by creating absurd, if not impossible, legal situations. Article 381 provides the necessarily stringent
standards that would justify the appointment of a representative by a judge. Among the standards the
said article enumerates is that no agent has been appointed to administer the property. In the present
case, petitioner himself had already authorized agents to do specific acts of administration and thus, no
longer necessitated the appointment of one by the court. Likewise, limiting the construction of
"incapacity" to "minority, insanity, imbecility, the state of being a deaf-mute, prodigality and civil
interdiction," as provided under Article 38, would render the SPA ineffective. Article 1919(3) of the Civil
Code provides that the death, civil interdiction, insanity or insolvency of the principal or of the agent
extinguishes the agency. It would be equally incongruous, if not outright impossible, for the petitioner to
require himself to qualify as a minor, an imbecile, a deaf-mute, or a prodigal before the SPA becomes
operative. In such cases, not only would he be prevented from appointing an agent, he himself would be
unable to administer his property.

On the other hand, defining the terms "absence" and "incapacity" by their everyday usage makes for a
reasonable construction, that is, "the state of not being present" and the "inability to act," given the
context that the SPA authorizes the agents to attend stockholders’ meetings and vote in behalf of
petitioner, to sell the shares of stock, and other related acts. This construction covers the situation
wherein petitioner was arrested and detained. This much is admitted by petitioner in his testimony.32

Petitioner’s contention that the shares may only be sold for the sole purpose of applying the proceeds of
the sale to the satisfaction of petitioner’s subsisting obligations to the company is far-fetched. The
construction, which will carry out the purpose, is that which should be applied. Petitioner had not
submitted evidence that he was in debt with Businessday at the time he had executed the SPA. Nor
could he have considered incurring any debts since he admitted that, at the time of its execution, he was
concerned about his possible arrest, death and disappearance. The language of the SPA clearly
enumerates, as among those acts that the agents were authorized to do, the act of applying the
proceeds of the sale of the shares to any obligations petitioner might have against the Businessday
group of companies. This interpretation is supported by the use of the word "and" in enumerating the
authorized acts, instead of phrases such as "only for," "for the purpose of," "in order to" or any similar
terms to indicate that the petitioner intended that the SPA be used only for a limited purpose, that of
paying any liabilities with the Businessday group of companies.

Secondly, petitioner argued that the records failed to show that he gave his consent to the sale of the
shares to respondent Locsin for the price of ₱600,000.00. This argument is unsustainable. Petitioner
received from respondent Locsin, through his wife and in-laws, the installment payments for a total of
₱600,000.00 from 1980 to 1982, without any protest or complaint. It was only four years after 1982
when petitioner demanded the return of the shares. The petitioner’s claim that he did not instruct
respondent Locsin to deposit the money to the bank accounts of his in-laws fails to prove that petitioner

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did not give his consent to the sale since respondent Locsin was authorized, under the SPA, to negotiate
the terms and conditions of the sale including the manner of payment. Moreover, had respondent
Locsin given the proceeds directly to the petitioner, as the latter suggested in this petition, the proceeds
were likely to have been included among petitioner’s properties which were confiscated by the military.
Instead, respondent Locsin deposited the money in the bank accounts of petitioner’s in-laws, and
consequently, assured that the petitioner’s wife received these amounts. Article 1882 of the Civil Code
provides that the limits of an agent’s authority shall not be considered exceeded should it have been
performed in a manner more advantageous to the principal than that specified by him.

In addition, petitioner made two inconsistent statements when he alleged that (1) respondent Locsin
had not asked the petitioner to endorse and deliver the shares of stock, and (2) when Rebecca Fernando
asked the petitioner to endorse and deliver the certificates of stock, but petitioner refused and even
became upset.33 In either case, both statements only prove that petitioner refused to honor his part as
seller of the shares, even after receiving payments from the buyer. Had the petitioner not known of or
given his consent to the sale, he would have given back the payments as soon as Fernando asked him to
endorse and deliver the certificates of stock, an incident which unequivocally confirmed that the funds
he received, through his wife and his in-laws, were intended as payment for his shares of stocks.
Instead, petitioner held on to the proceeds of the sale after it had been made clear to him that
respondent Locsin had considered the ₱600,000.00 as payment for the shares, and asked petitioner,
through Fernando, to endorse and deliver the stock certificates for cancellation.

As regards the third issue, petitioner’s allegation that the installment payments he was adjudged to have
received for the shares were actually salaries which Businessday promised to pay him during his
detention is unsupported and implausible. Petitioner received ₱20,000.00 per month through his in-
laws; this amount does not correspond to his monthly salary at ₱24,000.00.34 Nor does the amount
received correspond to the amount which Businessday was supposed to be obliged to pay petitioner,
which was only ₱45,000.00 to ₱60,000.00 per annum.35 Secondly, the petitioner’s wife did not receive
funds from respondent Locsin or Businessday for the entire duration of petitioner’s detention. Instead,
when the total amount received by the petitioner reached the aggregate amount of his shares at par
value -- ₱600,000.00 -- the payments stopped. Petitioner even testified that when respondent Locsin
denied knowing the petitioner soon after his arrest, he believed respondent Locsin’s commitment to pay
his salaries during his detention to be nothing more than lip-service.36

Granting that petitioner was able to prove his allegations, such an act of gratuity, on the part of
Businessday in favor of petitioner, would be void. An arrangement whereby petitioner will receive
"salaries" for work he will not perform, which is not a demandable debt since petitioner was on an
extended leave of absence, constitutes a donation under Article 72637 of the Civil Code. Under Article
748 of the Civil Code, if the value of the personal property donated exceeds ₱5,000.00, the donation and
the acceptance shall have to be made in writing. Otherwise, the donation will be void. In the present
case, petitioner admitted in his testimony38 that such arrangement was not made in writing and, hence,
is void.

The fact that some of the deposit slips and communications made to petitioner’s wife contain the
phrase "household expenses" does not disprove the sale of the shares. The money was being deposited
to the bank accounts of the petitioner’s in-laws, and not to the account of the petitioner or his wife,
precisely because some of his property had already been confiscated by the military. Had they used the
phrase "sale of shares," it would have defeated the purpose of not using their own bank accounts, which
was to conceal from the military any transaction involving the petitioner’s property.

Petitioner raised as his fourth issue that granting that there was a sale, Businessday, and not respondent
Locsin, was the party to the transaction. The curious facts that the payments were received on the 15th
and 30th of each month and that the payor named in the checks was Businessday, were adequately
explained by respondent Locsin. Respondent Locsin had obtained cash advances from the company,
paid to him on the 15th and 30th of the month, so that he can pay petitioner for the shares. To support
his claim, he presented Businessday’s financial records and the testimony of Leo Atienza, the Company’s
Accounting Manager. When asked why the term "shares of stock" was used for the entries, instead of
"cash advances," Atienza explained that the term "shares of stock" was more specific rather than the
broader phrase "cash advances."39 More to the point, had the entries been for "shares of stock," the

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issuance of shares should have been reflected in the stock and transfer books of Businessday, which the
petitioner presented as evidence. Instead the stock and transfer books reveal that the increase in
respondent Locsin’s shares was a result of the cancellation and transfer of petitioner’s shares in favor of
respondent Locsin.

Petitioner alleges that the purported sale between himself and respondent Locsin of the disputed shares
of stock is void since it contravenes Article 1491 of the Civil Code, which provides that:

ART. 1491. The following persons cannot acquire by purchase, even at a public or judicial auction, either
in person or through the mediation of another:

xxxx

(2) Agents, the property whose administration or sale may have been entrusted to them, unless the
consent of the principal has been given; x x x.

It is, indeed, a familiar and universally recognized doctrine that a person who undertakes to act as agent
for another cannot be permitted to deal in the agency matter on his own account and for his own
benefit without the consent of his principal, freely given, with full knowledge of every detail known to
the agent which might affect the transaction.40 The prohibition against agents purchasing property in
their hands for sale or management is, however, clearly, not absolute. It does not apply where the
principal consents to the sale of the property in the hands of the agent or administrator.>41

In the present case, the parties have conflicting allegations. While respondent Locsin averred that
petitioner had permitted him to purchase petitioner’s shares, petitioner vehemently denies having
known of the transaction. However, records show that petitioner’s position is less credible than that
taken by respondent Locsin given petitioner’s contemporaneous and subsequent acts.42 In 1980, when
Fernando returned a stock certificate she borrowed from the petitioner, it was marked "cancelled."
Although the petitioner alleged that he was furious when he saw the word cancelled, he had not
demanded the issuance of a new certificate in his name. Instead of having been put on his guard,
petitioner remained silent over this obvious red flag and continued receiving, through his wife,
payments which totalled to the aggregate amount of the shares of stock valued at par. When the
payments stopped, no demand was made by either petitioner or his wife for further payments.

From the foregoing, it is clear that petitioner knew of the transaction, agreed to the purchase price of
₱600,000.00 for the shares of stock, and had in fact facilitated the implementation of the terms of the
payment by providing respondent Locsin, through petitioner’s wife, with the information on the bank
accounts of his in-laws. Petitioner’s wife and his son even provided receipts for the payments that were
made to them by respondent Locsin,43 a practice that bespeaks of an onerous transaction and not an act of gratuity.

Lastly, petitioner claims that the cancellation of the shares and the subsequent transfer thereof were fraudulent, and, therefore, illegal. In the present case, the shares were

transferred in the name of the buyer, respondent Locsin, without the petitioner delivering to the buyer his certificates of stock. Section 63 of the Corporation Code provides that:

Sec.63. Certificate of stock and transfer of shares.— xxx Shares of stock so issued are personal property and may be transferred by delivery of the certificate or certificates indorsed

by the owner or his attorney-in-fact or other person legally authorized to make the transfer. No transfer, however, shall be valid, except as between the parties, until the transfer is

recorded in the books of the corporation showing the names of the parties to the transaction, the date of the transfer, the number of the certificate or certificates and the number

of shares transferred. (Emphasis provided.)

The aforequoted provision furnishes the procedure for the transfer of shares – the delivery of the endorsed certificates, in order to prevent the fraudulent transfer of shares of stock.

However, this rule cannot be applied in the present case without causing the injustice sought to be avoided. As had been amply demonstrated, there was a valid sale of stocks.

Petitioner’s failure to deliver the shares to their rightful buyer is a breach of his duty as a seller, which he cannot use to unjustly profit himself by denying the validity of such sale.

Thus, while the manner of the cancellation of petitioner’s certificates of stock and the issuance of the new certificates in favor of respondent Locsin was highly irregular, we must,

nonetheless, declare the validity of the sale between the parties. Neither does this irregularity prove that the transfer was fraudulent. In his testimony, petitioner admitted that they

had intended to conceal his being a stockholder of Businessday.44 The cancellation of his name from the stock and transfer book, even before the shares were actually sold, had

been done with his consent. As earlier explained, even the subsequent sale of the shares in favor of Locsin had been done with his consent.

IN VIEW OF THE FOREGOING, the instant Petition is DENIED. This Court AFFIRMS the assailed Decision of the Court of Appeals, promulgated on 30 June 2003, affirming the validity of

the sale of the shares of stock in favor of respondent Locsin. No costs.

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SO ORDERED.

TOPIC:

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G.R. No. 158907 February 12, 2007
PETITIONERS: EDUARDO B. OLAGUER
RESPONDENTS: EMILIO PURUGGANAN, JR. AND RAUL LOCSIN

Petitioner Eduardo B. Olaguer alleges that he was the owner of 60,000 shares of stock of
Businessday Corporation. the time he was employed with the corporation as Executive Vice-
President of Businessday, and President of Businessday Information Systems and Services and
of Businessday Marketing Corporation, petitioner, together with respondent Raul Locsin
(Locsin) and Enrique Joaquin (Joaquin), was active in the political opposition against the
Marcos dictatorship. Anticipating the possibility
that petitioner would be arrested and detained by the Marcos military, Locsin, Joaquin, and
Hector Holifeña had an unwritten agreement that, in the event that petitioner was arrested,
they would support the petitioner’s family by the continued payment of his salary.4 Petitioner
also executed a Special Power of Attorney (SPA), on 26 May 1979, appointing as his attorneys-
in-fact Locsin, Joaquin and Hofileña for the purpose of selling or transferring petitioner’s shares
of stock with Businessday. During the trial, petitioner testified that he agreed to execute the
SPA in order to cancel his shares of stock, even before they are sold, for the purpose of
concealing that he was a stockholder of Businessday, in the event of a military crackdown
against the opposition.5
petitioner was arrested by the Marcos military by virtue of an Arrest, Search and Seizure
Order and detained for allegedly committing arson. During the petitioner’s detention,
respondent Locsin ordered fellow respondent Purugganan to cancel the petitioner’s shares in
the books of the corporation and to transfer them to respondent Locsin’s name.
As part of his scheme to defraud the petitioner, respondent Locsin sent Rebecca
Fernando, an employee of Businessday, to Camp Crame where the petitioner was detained, to
pretend to borrow Certificate of Stock No. 100 for the purpose of using it as additional
collateral for Businessday’s then outstanding loan with the National Investment and
Development Corporation. When Fernando returned the borrowed stock certificate, the word
"cancelled" was already written therein. When the petitioner became upset, Fernando
explained that this was merely a mistake committed by respondent Locsin’s secretary.
petitioner also agreed to stipulate that from 1980 to 1982, Businessday made regular deposits,
each amounting to ₱10,000.00, to the Metropolitan Bank and Trust Company accounts of
Manuel and Genaro Pantig, petitioner’s in-laws. The deposits were made on every 15th and
30th of the month
petitioner was finally released from detention. He then discovered that he was no longer
registered as stockholder of Businessday in its corporate books. He also learned that
Purugganan, as the Corporate Secretary of Businessday, had already recorded the transfer of
shares in favor of respondent Locsin, while petitioner was detain
respondent Locsin contended that petitioner approached him and requested him to sell,
and, if necessary, buy petitioner’s shares of stock in Businessday, to assure support for
petitioner’s family in the event that something should happen to him, particularly if he was
jailed, exiled or forced to go underground.13 At the time petitioner was employed with
Businessday, respondent Locsin was unaware that petitioner was part of a group, Light-a-Fire
Movement, which actively sought the overthrow of the Marcos government through an armed
struggle.14 He denied that he made any arrangements to continue paying the petitioner’s
salary in the event of the latter’s imprisonmen
respondent Locsin tried to sell petitioner’s shares, but nobody wanted to buy them.
Petitioner’s reputation as an oppositionist resulted in the poor financial condition of
Businessday and discouraged any buyers for the shares of stock.16 In view of petitioner’s
previous instructions, respondent Locsin decided to buy the shares himself.1awphi1.net
Although the capital deficiency suffered by Businessday caused the book value of the shares to
plummet below par value, respondent Locsin, nevertheless, bought the shares at par value

ISSUE:

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WON the agent exceeded
his authority RULING:

It is a general rule that a power of attorney must be strictly construed; the instrument will be
held to grant only those powers that are specified, and the agent may neither go beyond
nor deviate from the power of attorney. However, the rule is not absolute and should
not be applied to the extent of destroying the very purpose of the power. If the
language will permit, the construction that should be adopted is that which will carry out
instead of defeat the purpose of the appointment. Clauses in a power of attorney that
are repugnant to each other should be reconciled so as to give effect to the instrument
in accordance with its general intent or predominant purpose. Furthermore, the
instrument should always be deemed to give such powers as essential or usual in
effectuating the express powers
Petitioner’s contention that the shares may only be sold for the sole purpose of applying the
proceeds of the sale to the satisfaction of petitioner’s subsisting obligations to the
company is far-fetched. The

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 construction, which will carry out the purpose, is that which should be applied. Petitioner
had not submitted evidence that he was in debt with Businessday at the time he had
executed the SPA. Nor could he have considered incurring any debts since he admitted
that, at the time of its execution, he was concerned about his possible arrest, death and
disappearance. The language of the SPA clearly enumerates, as among those acts that the
agents were authorized to do, the act of applying the proceeds of the sale of the shares to
any obligations petitioner might have against the Businessday group of companies. This
interpretation is supported by the use of the word "and" in enumerating the authorized
acts, instead of phrases such as "only for," "for the purpose of," "in order to" or any similar
terms to indicate that the petitioner intended that the SPA be used only for a limited
purpose, that of paying any liabilities with the Businessday group of companies

(2) Agents, the property whose administration or sale may have been entrusted to them, unless
the consent of the principal has been given; x x x.

It is, indeed, a familiar and universally recognized doctrine that a person who undertakes to act
as agent for another cannot be permitted to deal in the agency matter on his own account
and for his own benefit without the consent of his principal, freely given, with full
knowledge of every detail known to the agent which might affect the transaction.40 The
prohibition against agents purchasing property in their hands for sale or management is,
however, clearly, not absolute. It does not apply where the principal consents to the sale of
the property in the hands of the agent or administrator.>41

In the present case, the parties have conflicting allegations. While respondent Locsin averred
that petitioner had permitted him to purchase petitioner’s shares, petitioner vehemently denies
having known of the transaction. However, records show that petitioner’s position is less credible
than that taken by respondent Locsin given petitioner’s contemporaneous and subsequent
acts.42 In 1980, when Fernando returned a stock certificate she borrowed from the petitioner, it
was marked "cancelled." Although the petitioner alleged that he was furious when he saw the
word cancelled, he had not demanded the issuance of a new certificate in his name. Instead of
having been put on his guard, petitioner remained silent over this obvious red flag and continued
receiving, through his wife, payments which totalled to the aggregate amount of the shares of
stock valued at par. When the payments stopped, no demand was made by either petitioner or
his wife for further payments.

is clear that petitioner knew of the transaction, agreed to the purchase price of ₱600,000.00 for
the shares of stock, and had in fact facilitated the implementation of the terms of the
payment by providing respondent Locsin, through petitioner’s wife, with the information
on the bank accounts of his in-laws
G.R. No. 174978 July 31, 2013

SALLY YOSHIZAKI, Petitioner,

vs.
JOY TRAINING CENTER OF AURORA, INC., Respondent.

DECISION

BRION, J.:

We resolve the petition for review on certiorari1 filed by petitioner Sally Yoshizaki to challenge the
February 14, 2006 Decision2 and the October 3, 2006 Resolution3 of the Court of Appeals (CA) in CA-G.R.
CV No. 83773.

The Factual Antecedents

Respondent Joy Training Center of Aurora, Inc. (Joy Training) is a non-stock, non-profit religious
educational institution. It was the registered owner of a parcel of land and the building thereon (real
properties) located in San Luis Extension Purok No. 1, Barangay Buhangin, Baler, Aurora. The parcel of land
was designated as Lot No. 125-L and was covered by Transfer Certificate of Title (TCT) No. T-25334.4

On November 10, 1998, the spouses Richard and Linda Johnson sold the real properties, a Wrangler jeep,
and other personal properties in favor of the spouses Sally and Yoshio Yoshizaki. On the same date, a Deed
of Absolute Sale5 and a Deed of Sale of Motor Vehicle6 were executed in favor of the spouses Yoshizaki.
The spouses Johnson were members of Joy Training’s board of trustees at the time of sale. On December
7, 1998, TCT No. T-25334 was cancelled and TCT No. T-260527 was issued in the name of the spouses
Yoshizaki.

On December 8, 1998, Joy Training, represented by its Acting Chairperson Reuben V. Rubio, filed an action
for the Cancellation of Sales and Damages with prayer for the issuance of a Temporary Restraining Order
and/or Writ of Preliminary Injunction against the spouses Yoshizaki and the spouses Johnson before the
Regional Trial Court of Baler, Aurora (RTC).8 On January 4, 1999, Joy Training filed a Motion to Amend
Complaint with the attached Amended Complaint. The amended complaint impleaded Cecilia A. Abordo,
officer-in-charge of the Register of Deeds of Baler, Aurora, as additional defendant. The RTC granted the
motion on the same date.9

In the complaint, Joy Training alleged that the spouses Johnson sold its properties without the requisite
authority from the board of directors.10 It assailed the validity of a board resolution dated September 1,
199811 which purportedly granted the spouses Johnson the authority to sell its real properties. It averred
that only a minority of the board, composed of the spouses Johnson and Alexander Abadayan, authorized
the sale through the resolution. It highlighted that the Articles of Incorporation provides that the board of
trustees consists of seven members, namely: the spouses Johnson, Reuben, Carmencita Isip, Dominador
Isip, Miraflor Bolante, and Abelardo Aquino.12

Cecilia and the spouses Johnson were declared in default for their failure to file an Answer within the
reglementary period.13 On the other hand, the spouses Yoshizaki filed their Answer with Compulsory
Counterclaims on June 23, 1999. They claimed that Joy Training authorized the spouses Johnson to sell the
parcel of land. They asserted that a majority of the board of trustees approved the resolution. They
maintained that the actual members of the board of trustees consist of five members, namely: the spouses
Johnson, Reuben, Alexander, and Abelardo. Moreover, Connie Dayot, the corporate secretary, issued a
certification dated February 20, 199814 authorizing the spouses Johnson to act on Joy Training’s behalf.
Furthermore, they highlighted that the Wrangler jeep and other personal properties were registered in the
name of the spouses Johnson.15 Lastly, they assailed the RTC’s jurisdiction over the case. They posited that
the case is an intra-corporate dispute cognizable by the Securities and Exchange Commission (SEC).16

After the presentation of their testimonial evidence, the spouses Yoshizaki formally offered in evidence
photocopies of the resolution and certification, among others.17 Joy Training objected to the formal offer
of the photocopied resolution and certification on the ground that they were not the best evidence of
their contents.18 In an Order19 dated May 18, 2004, the RTC denied the admission of the offered copies.

The RTC Ruling

The RTC ruled in favor of the spouses Yoshizaki. It found that Joy Training owned the real properties.
However, it held that the sale was valid because Joy Training authorized the spouses Johnson to sell the
real properties. It recognized that there were only five actual members of the board of trustees;
consequently, a majority of the board of trustees validly authorized the sale. It also ruled that the sale of
personal properties was valid because they were registered in the spouses Johnson’s name.20

Joy Training appealed the RTC decision to the CA.

The CA Ruling

The CA upheld the RTC’s jurisdiction over the case but reversed its ruling with respect to the sale of real
properties. It maintained that the present action is cognizable by the RTC because it involves recovery of
ownership from third parties.

It also ruled that the resolution is void because it was not approved by a majority of the board of trustees.
It stated that under Section 25 of the Corporation Code, the basis for determining the composition of the
board of trustees is the list fixed in the articles of incorporation. Furthermore, Section 23 of the
Corporation Code provides that the board of trustees shall hold office for one year and until their
successors are elected and qualified. Seven trustees constitute the board since Joy Training did not hold an
election after its incorporation.

The CA did not also give any probative value to the certification. It stated that the certification failed to
indicate the date and the names of the trustees present in the meeting. Moreover, the spouses Yoshizaki
did not present the minutes that would prove that the certification had been issued pursuant to a board
resolution.21 The CA also denied22 the spouses Yoshizaki’s motion for reconsideration, prompting Sally23 to
file the present petition.

The Petition

Sally avers that the RTC has no jurisdiction over the case. She points out that the complaint was principally
for the nullification of a corporate act. The transfer of the SEC’s original and exclusive jurisdiction to the
RTC24 does not have any retroactive application because jurisdiction is a substantive matter.

She argues that the spouses Johnson were authorized to sell the parcel of land and that she was a buyer in
good faith because she merely relied on TCT No. T-25334. The title states that the spouses Johnson are Joy
Training’s representatives.
She also argues that it is a basic principle that a party dealing with a registered land need not go beyond
the certificate of title to determine the condition of the property. In fact, the resolution and the
certification are mere reiterations of the spouses Johnson’s authority in the title to sell the real properties.
She further claims that the resolution and the certification are not even necessary to clothe the spouses
Johnson with the authority to sell the disputed properties. Furthermore, the contract of agency was
subsisting at the time of sale because Section 108 of Presidential Decree No. (PD) 1529 requires that the
revocation of authority must be approved by a court of competent jurisdiction and no revocation was
reflected in the certificate of title.25

The Case for the Respondent

In its Comment26 and Memorandum,27 Joy Training takes the opposite view that the RTC has jurisdiction
over the case. It posits that the action is essentially for recovery of property and is therefore a case
cognizable by the RTC. Furthermore, Sally is estopped from questioning the RTC’s jurisdiction because she
seeks to reinstate the RTC ruling in the present case.

Joy Training maintains that it did not authorize the spouses Johnson to sell its real properties. TCT No. T-
25334 does not specifically grant the authority to sell the parcel of land to the spouses Johnson. It further
asserts that the resolution and the certification should not be given any probative value because they were
not admitted in evidence by the RTC. It argues that the resolution is void for failure to comply with the
voting requirements under Section 40 of the Corporation Code. It also posits that the certification is void
because it lacks material particulars.

The Issues

The case comes to us with the following issues:

1) Whether or not the RTC has jurisdiction over the present case; and

2) Whether or not there was a contract of agency to sell the real properties between Joy Training
and the spouses Johnson.

3) As a consequence of the second issue, whether or not there was a valid contract of sale of the
real properties between Joy Training and the spouses Yoshizaki.

Our Ruling

We find the petition unmeritorious.

The RTC has jurisdiction over disputes concerning the application of the Civil Code

Jurisdiction over the subject matter is the power to hear and determine cases of the general class to which
the proceedings before a court belong.28 It is conferred by law. The allegations in the complaint and the
status or relationship of the parties determine which court has jurisdiction over the nature of an
action.29 The same test applies in ascertaining whether a case involves an intra-corporate controversy.30

The CA correctly ruled that the RTC has jurisdiction over the present case. Joy Training seeks to nullify the
sale of the real properties on the ground that there was no contract of agency between Joy Training and
the spouses Johnson. This was beyond the ambit of the SEC’s original and exclusive jurisdiction prior to the
enactment of Republic Act No. 8799 which only took effect on August 3, 2000. The determination of the
existence of a contract of agency and the validity of a contract of sale requires the application of the
relevant provisions of the Civil Code. It is a well-settled rule that "disputes concerning the application of
the Civil Code are properly cognizable by courts of general jurisdiction."31 Indeed, no special skill requiring
the SEC’s technical expertise is necessary for the disposition of this issue and of this case.

The Supreme Court may review questions of fact in a petition for review on certiorari when the findings of
fact by the lower courts are conflicting

We are aware that the issues at hand require us to review the pieces of evidence presented by the parties
before the lower courts. As a general rule, a petition for review on certiorari precludes this Court from
entertaining factual issues; we are not duty-bound to analyze again and weigh the evidence introduced in
and considered by the lower courts. However, the present case falls under the recognized exception that a
review of the facts is warranted when the findings of the lower courts are conflicting.32 Accordingly, we will
examine the relevant pieces of evidence presented to the lower court.

There is no contract of agency between Joy Training and the spouses Johnson to sell the parcel of land
with its improvements

Article 1868 of the Civil Code defines a contract of agency as a contract whereby a person "binds himself
to render some service or to do something in representation or on behalf of another, with the consent or
authority of the latter." It 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.

As a general rule, a contract of agency may be oral. However, it must be written when the law requires a
specific form.33 Specifically, Article 1874 of the Civil Code provides that the contract of agency must be
written for the validity of the sale of a piece of land or any interest therein. Otherwise, the sale shall be
void. A related provision, Article 1878 of the Civil Code, states that special powers of attorney are
necessary to convey real rights over immovable properties.

The special power of attorney mandated by law must be one that expressly mentions a sale or that
includes a sale as a necessary ingredient of the authorized act. We unequivocably declared in Cosmic
Lumber Corporation v. Court of Appeals34 that a special power of attorneymust express the powers of the
agent in clear and unmistakable language for the principal to confer the right upon an agent to sell real
estate. When there is any reasonable doubt that the language so used conveys such power, no such
construction shall be given the document. The purpose of the law in requiring a special power of attorney
in the disposition of immovable property is to protect the interest of an unsuspecting owner from being
prejudiced by the unwarranted act of another and to caution the buyer to assure himself of the specific
authorization of the putative agent.35

In the present case, Sally presents three pieces of evidence which allegedly prove that Joy Training
specially authorized the spouses Johnson to sell the real properties: (1) TCT No. T-25334, (2) the
resolution, (3) and the certification. We quote the pertinent portions of these documents for a thorough
examination of Sally’s claim. TCT No. T-25334, entered in the Registry of Deeds on March 5, 1998, states:

A parcel of land x x x is registered in accordance with the provisions of the Property Registration Decree in
the name of JOY TRAINING CENTER OF AURORA, INC., Rep. by Sps. RICHARD A. JOHNSON and LINDA S.
JOHNSON, both of legal age, U.S. Citizen, and residents of P.O. Box 3246, Shawnee, Ks 66203,
U.S.A.36 (emphasis ours)
On the other hand, the fifth paragraph of the certification provides:

Further, Richard A. and Linda J. Johnson were given FULL AUTHORITY for ALL SIGNATORY purposes for the
corporation on ANY and all matters and decisions regarding the property and ministry here. They will
follow guidelines set forth according to their appointment and ministerial and missionary training and in
that, they will formulate and come up with by-laws which will address and serve as governing papers over
the center and corporation. They are to issue monthly and quarterly statements to all members of the
corporation.37 (emphasis ours)

The resolution states:

We, the undersigned Board of Trustees (in majority) have authorized the sale of land and building owned
by spouses Richard A. and Linda J. Johnson (as described in the title SN No. 5102156 filed with the
Province of Aurora last 5th day of March, 1998. These proceeds are going to pay outstanding loans against
the project and the dissolution of the corporation shall follow the sale. This is a religious, non-profit
corporation and no profits or stocks are issued.38 (emphasis ours)

The above documents do not convince us of the existence of the contract of agency to sell the real
properties. TCT No. T-25334 merely states that Joy Training is represented by the spouses Johnson. The
title does not explicitly confer to the spouses Johnson the authority to sell the parcel of land and the
building thereon. Moreover, the phrase "Rep. by Sps. RICHARD A. JOHNSON and LINDA S. JOHNSON"39 only
means that the spouses Johnson represented Joy Training in land registration.

The lower courts should not have relied on the resolution and the certification in resolving the
case.1âwphi1 The spouses Yoshizaki did not produce the original documents during trial. They also failed
to show that the production of pieces of secondary evidence falls under the exceptions enumerated in
Section 3, Rule 130 of the Rules of Court.40 Thus, the general rule – that no evidence shall be admissible
other than the original document itself when the subject of inquiry is the contents of a document –
applies.41

Nonetheless, if only to erase doubts on the issues surrounding this case, we declare that even if we
consider the photocopied resolution and certification, this Court will still arrive at the same conclusion.

The resolution which purportedly grants the spouses Johnson a special power of attorney is negated by
the phrase "land and building owned by spouses Richard A. and Linda J. Johnson."42 Even if we disregard
such phrase, the resolution must be given scant consideration. We adhere to the CA’s position that the
basis for determining the board of trustees’ composition is the trustees as fixed in the articles of
incorporation and not the actual members of the board. The second paragraph of Section 2543 of the
Corporation Code expressly provides that a majority of the number of trustees as fixed in the articles of
incorporation shall constitute a quorum for the transaction of corporate business.

Moreover, the certification is a mere general power of attorney which comprises all of Joy Training’s
business.44 Article 1877 of the Civil Code clearly states that "an agency couched in general terms comprises
only acts of administration, even if the principal should state that he withholds no power or that the agent
may execute such acts as he may consider appropriate, or even though the agency should authorize a
general and unlimited management."45

The contract of sale is unenforceable

Necessarily, the absence of a contract of agency renders the contract of sale unenforceable;46 Joy Training
effectively did not enter into a valid contract of sale with the spouses Yoshizaki. Sally cannot also claim
that she was a buyer in good faith. She misapprehended the rule that persons dealing with a registered
land have the legal right to rely on the face of the title and to dispense with the need to inquire further,
except when the party concerned has actual knowledge of facts and circumstances that would impel a
reasonably cautious man to make such inquiry.47 This rule applies when the ownership of a parcel of land is
disputed and not when the fact of agency is contested.

At this point, we reiterate the established principle that persons dealing with an agent must ascertain not
only the fact of agency, but also the nature and extent of the agent’s authority.48 A third person with
whom the agent wishes to contract on behalf of the principal may require the presentation of the power
of attorney, or the instructions as regards the agency.49 The basis for agency is representation and a person
dealing with an agent is put upon inquiry and must discover on his own peril the authority of the
agent.50 Thus, Sally bought the real properties at her own risk; she bears the risk of injury occasioned by
her transaction with the spouses Johnson.

WHEREFORE, premises considered, the assailed Decision dated February 14, 2006 and Resolution dated
October 3, 2006 of the Court of Appeals are hereby AFFIRMED and the petition is hereby DENIED for lack
of merit.

SO ORDERED.
Case Num: 340. Yoshizaki v. Joey Training Center, 702 SCRA 631 [2013]

SALLY YOSHIZAKI, Petitioner, vs. JOY TRAINING CENTER OF AURORA, INC., Respondent. [G.R. No. 174978]

NATURE OF ACTION:

Petition for review on certiorari 1 filed by petitioner Sally Yoshizaki to challenge the February 14, 2006
Decision2 and the October 3, 2006 Resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 83773.

FACTS:

Spouses Richard and Linda Johnson were members in the Joy Training’s Board of trustees who sold the real
properties, a Wrangler Jeep, and other personal properties to spouses Yoshio and Sally Yoshizaki. The
respondent Joy Training Center of Aurora Inc. Represented by its acting Chairperson, Reuben Rubio,
instituted an action for the cancellation of sales and damages, averring that the Johnson’s was without the
requisite authority from Joy Training’s Board of Directors. The Regional Trial Court of Aurora ruled in favour
of the spouses Yoshizaki. Where the RTC ruled its decision based on the fact that Joy Training Center Inc.
owned the real properties and its board of directors authorized the Johnsons’ to dispose/sell those
properties. The RTC recognized that there were only five (5) actual members of the board of trustees, a
majority of the board which validly authorized the said sale. The RTC also rules that the sale of the
personal properties in question was valid due to the fact that those properties are registered under the
Johnsons’ name. The Court of Appeals reversed its ruling with respect to the sale of real properties, ruling
that the resolution is void because it was not appropriated by a majority of the board of trustees.

ISSUE/S:

Whether or not there was a contract of agency to sell the real properties between Joy Training and the
spouses Johnson.

RULING:

RATIO DECIDENDI:

The Supreme Court ruled that there was no contract of agency between Joy Training and the spouses
Richard and Linda Johnson to sell the land with its improvements. Article 1868 of the New Civil Code
defines a contract of agency 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.” It 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. The evidence
that was presented in this case was not substantial enough to convince the Supreme Court of the existence
of the contract of agency to sell the real properties.

In this case, the presented evidence did not convince the SC of the existence of the contract of agency to
sell the real properties. The certification is a mere general power of attorney which comprises all of Joy
training. Art. 1877 of CC clearly states that an agency couched in general terms comprises only acts of
administration, even if the principal should state that he withholds no power or that the agent may
execute such acts as he may authorize as general and unlimited management.
G.R. No. 165803 September 1, 2010

SPOUSES REX AND CONCEPCION AGGABAO, Petitioners,

vs.
DIONISIO Z. PARULAN, JR. and MA. ELENA PARULAN, Respondents.

DECISION

BERSAMIN, J.:

On July 26, 2000, the Regional Trial Court (RTC), Branch 136, in Makati City annulled the deed of absolute
sale executed in favor of the petitioners covering two parcels of registered land the respondents owned
for want of the written consent of respondent husband Dionisio Parulan, Jr. On July 2, 2004, in C.A.-G.R. CV
No. 69044,1 the Court of Appeals (CA) affirmed the RTC decision.

Hence, the petitioners appeal by petition for review on certiorari, seeking to reverse the decision of the
CA. They present as the main issue whether the sale of conjugal property made by respondent wife by
presenting a special power of attorney to sell (SPA) purportedly executed by respondent husband in her
favor was validly made to the vendees, who allegedly acted in good faith and paid the full purchase price,
despite the showing by the husband that his signature on the SPA had been forged and that the SPA had
been executed during his absence from the country.

We resolve the main issue against the vendees and sustain the CA’s finding that the vendees were not
buyers in good faith, because they did not exercise the necessary prudence to inquire into the wife’s
authority to sell. We hold that the sale of conjugal property without the consent of the husband was not
merely voidable but void; hence, it could not be ratified.

Antecedents

Involved in this action are two parcels of land and their improvements (property) located at No. 49 Miguel
Cuaderno Street, Executive Village, BF Homes, Parañaque City and registered under Transfer Certificate of
Title (TCT) No. 633762 and TCT No. 633773 in the name of respondents Spouses Maria Elena A. Parulan
(Ma. Elena) and Dionisio Z. Parulan, Jr. (Dionisio), who have been estranged from one another.

In January 1991, real estate broker Marta K. Atanacio (Atanacio) offered the property to the petitioners,
who initially did not show interest due to the rundown condition of the improvements. But Atanacio’s
persistence prevailed upon them, so that on February 2, 1991, they and Atanacio met with Ma. Elena at
the site of the property. During their meeting, Ma. Elena showed to them the following documents,
namely: (a) the owner’s original copy of TCT No. 63376; (b) a certified true copy of TCT No. 63377; (c) three
tax declarations; and (d) a copy of the special power of attorney (SPA) dated January 7, 1991 executed by
Dionisio authorizing Ma. Elena to sell the property.4 Before the meeting ended, they paid ₱20,000.00 as
earnest money, for which Ma. Elena executed a handwritten Receipt of Earnest Money, whereby the
parties stipulated that: (a) they would pay an additional payment of ₱130,000.00 on February 4, 1991; (b)
they would pay the balance of the bank loan of the respondents amounting to ₱650,000.00 on or before
February 15, 1991; and (c) they would make the final payment of ₱700,000.00 once Ma. Elena turned over
the property on March 31, 1991.5

On February 4, 1991, the petitioners went to the Office of the Register of Deeds and the Assessor’s Office
of Parañaque City to verify the TCTs shown by Ma. Elena in the company of Atanacio and her husband
(also a licensed broker).6 There, they discovered that the lot under TCT No. 63376 had been encumbered
to Banco Filipino in 1983 or 1984, but that the encumbrance had already been cancelled due to the full
payment of the obligation.7 They noticed that the Banco Filipino loan had been effected through an SPA
executed by Dionisio in favor of Ma. Elena.8 They found on TCT No. 63377 the annotation of an existing
mortgage in favor of the Los Baños Rural Bank, also effected through an SPA executed by Dionisio in favor
of Ma. Elena, coupled with a copy of a court order authorizing Ma. Elena to mortgage the lot to secure a
loan of ₱500,000.00.9

The petitioners and Atanacio next inquired about the mortgage and the court order annotated on TCT No.
63377 at the Los Baños Rural Bank. There, they met with Atty. Noel Zarate, the bank’s legal counsel, who
related that the bank had asked for the court order because the lot involved was conjugal property.10

Following their verification, the petitioners delivered ₱130,000.00 as additional down payment on
February 4, 1991; and ₱650,000.00 to the Los Baños Rural Bank on February 12, 1991, which then released
the owner’s duplicate copy of TCT No. 63377 to them.11

On March 18, 1991, the petitioners delivered the final amount of ₱700,000.00 to Ma. Elena, who executed
a deed of absolute sale in their favor. However, Ma. Elena did not turn over the owner’s duplicate copy of
TCT No. 63376, claiming that said copy was in the possession of a relative who was then in
Hongkong.12 She assured them that the owner’s duplicate copy of TCT No. 63376 would be turned over
after a week.

On March 19, 1991, TCT No. 63377 was cancelled and a new one was issued in the name of the
petitioners.

Ma. Elena did not turn over the duplicate owner’s copy of TCT No. 63376 as promised. In due time, the
petitioners learned that the duplicate owner’s copy of TCT No. 63376 had been all along in the custody of
Atty. Jeremy Z. Parulan, who appeared to hold an SPA executed by his brother Dionisio authorizing him to
sell both lots.13

At Atanacio’s instance, the petitioners met on March 25, 1991 with Atty. Parulan at the Manila
Peninsula.14 For that meeting, they were accompanied by one Atty. Olandesca.15 They recalled that Atty.
Parulan "smugly demanded ₱800,000.00" in exchange for the duplicate owner’s copy of TCT No. 63376,
because Atty. Parulan represented the current value of the property to be ₱1.5 million. As a counter-offer,
however, they tendered ₱250,000.00, which Atty. Parulan declined,16 giving them only until April 5, 1991
to decide.

Hearing nothing more from the petitioners, Atty. Parulan decided to call them on April 5, 1991, but they
informed him that they had already fully paid to Ma. Elena.17

Thus, on April 15, 1991, Dionisio, through Atty. Parulan, commenced an action (Civil Case No. 91-
1005 entitled Dionisio Z. Parulan, Jr., represented by Jeremy Z. Parulan, as attorney in fact, v. Ma. Elena
Parulan, Sps. Rex and Coney Aggabao), praying for the declaration of the nullity of the deed of absolute
sale executed by Ma. Elena, and the cancellation of the title issued to the petitioners by virtue thereof.

In turn, the petitioners filed on July 12, 1991 their own action for specific performance with damages
against the respondents.

Both cases were consolidated for trial and judgment in the RTC.18

Ruling of the RTC

After trial, the RTC rendered judgment, as follows:

WHEREFORE, and in consideration of the foregoing, judgment is hereby rendered in favor of plaintiff
Dionisio A. Parulan, Jr. and against defendants Ma. Elena Parulan and the Sps. Rex and Concepcion
Aggabao, without prejudice to any action that may be filed by the Sps. Aggabao against co-defendant Ma.
Elena Parulan for the amounts they paid her for the purchase of the subject lots, as follows:

1. The Deed of Absolute Sale dated March 18, 1991 covering the sale of the lot located at No. 49
M. Cuaderno St., Executive Village, BF Homes, Parañaque, Metro Manila, and covered by TCT Nos.
63376 and 63377 is declared null and void.

2. Defendant Mrs. Elena Parulan is directed to pay litigation expenses amounting to ₱50,000.00
and the costs of the suit.

SO ORDERED.19

The RTC declared that the SPA in the hands of Ma. Elena was a forgery, based on its finding that Dionisio
had been out of the country at the time of the execution of the SPA;20 that NBI Sr. Document Examiner
Rhoda B. Flores had certified that the signature appearing on the SPA purporting to be that of Dionisio and
the set of standard sample signatures of Dionisio had not been written by one and the same person;21 and
that Record Officer III Eliseo O. Terenco and Clerk of Court Jesus P. Maningas of the Manila RTC had issued
a certification to the effect that Atty. Alfred Datingaling, the Notary Public who had notarized the SPA, had
not been included in the list of Notaries Public in Manila for the year 1990-1991.22

The RTC rejected the petitioners’ defense of being buyers in good faith because of their failure to exercise
ordinary prudence, including demanding from Ma. Elena a court order authorizing her to sell the
properties similar to the order that the Los Baños Rural Bank had required before accepting the mortgage
of the property.23 It observed that they had appeared to be in a hurry to consummate the transaction
despite Atanacio’s advice that they first consult a lawyer before buying the property; that with ordinary
prudence, they should first have obtained the owner’s duplicate copies of the TCTs before paying the full
amount of the consideration; and that the sale was void pursuant to Article 124 of the Family Code.24

Ruling of the CA

As stated, the CA affirmed the RTC, opining that Article 124 of the Family Code applied because Dionisio
had not consented to the sale of the conjugal property by Ma. Elena; and that the RTC correctly found the
SPA to be a forgery.

The CA denied the petitioners’ motion for reconsideration.25

Issues

The petitioners now make two arguments: (1) they were buyers in good faith; and (2) the CA erred in
affirming the RTC’s finding that the sale between Mrs. Elena and the petitioners had been a nullity under
Article 124 of the Family Code.

The petitioners impute error to the CA for not applying the "ordinary prudent man’s standard" in
determining their status as buyers in good faith. They contend that the more appropriate law to apply was
Article 173 of the Civil Code, not Article 124 of the Family Code; and that even if the SPA held by Ma. Elena
was a forgery, the ruling in Veloso v. Court of Appeals26 warranted a judgment in their favor.
Restated, the issues for consideration and resolution are as follows:

1) Which between Article 173 of the Civil Code and Article 124 of the Family Code should apply to
the sale of the conjugal property executed without the consent of Dionisio?

2) Might the petitioners be considered in good faith at the time of their purchase of the property?

3) Might the ruling in Veloso v. Court of Appeals be applied in favor of the petitioners despite the
finding of forgery of the SPA?

Ruling

The petition has no merit. We sustain the CA.

1.

Article 124, Family Code, applies to sale of conjugal

properties made after the effectivity of the Family Code

The petitioners submit that Article 173 of the Civil Code, not Article 124 of the Family Code, governed the
property relations of the respondents because they had been married prior to the effectivity of the Family
Code; and that the second paragraph of Article 124 of the Family Code should not apply because the other
spouse held the administration over the conjugal property. They argue that notwithstanding his absence
from the country Dionisio still held the administration of the conjugal property by virtue of his execution of
the SPA in favor of his brother; and that even assuming that Article 124 of the Family Code properly
applied, Dionisio ratified the sale through Atty. Parulan’s counter-offer during the March 25, 1991
meeting.

We do not subscribe to the petitioners’ submissions.

To start with, Article 25427 the Family Code has expressly repealed several titles under the Civil Code,
among them the entire Title VI in which the provisions on the property relations between husband and
wife, Article 173 included, are found.

Secondly, the sale was made on March 18, 1991, or after August 3, 1988, the effectivity of the Family
Code. The proper law to apply is, therefore, Article 124 of the Family Code, for it is settled that any
alienation or encumbrance of conjugal property made during the effectivity of the Family Code is governed
by Article 124 of the Family Code.28

Article 124 of the Family Code provides:

Article 124. The administration and enjoyment of the conjugal partnership property shall belong to both
spouses jointly. In case of disagreement, the husband’s decision shall prevail, subject to recourse to the
court by the wife for proper remedy, which must be availed of within five years from the date of the
contract implementing such decision.

In the event that one spouse is incapacitated or otherwise unable to participate in the administration of
the conjugal properties, the other spouse may assume sole powers of administration. These powers do
not include disposition or encumbrance without authority of the court or the written consent of the
other spouse. In the absence of such authority or consent, the disposition or encumbrance shall be void.
However, the transaction shall be construed as a continuing offer on the part of the consenting spouse and
the third person, and may be perfected as a binding contract upon the acceptance by the other spouse or
authorization by the court before the offer is withdrawn by either or both offerors.

Thirdly, according to Article 25629 of the Family Code, the provisions of the Family Code may apply
retroactively provided no vested rights are impaired. In Tumlos v. Fernandez,30 the Court rejected the
petitioner’s argument that the Family Code did not apply because the acquisition of the contested
property had occurred prior to the effectivity of the Family Code, and pointed out that Article 256
provided that the Family Code could apply retroactively if the application would not prejudice vested or
acquired rights existing before the effectivity of the Family Code. Herein, however, the petitioners did not
show any vested right in the property acquired prior to August 3, 1988 that exempted their situation from
the retroactive application of the Family Code.

Fourthly, the petitioners failed to substantiate their contention that Dionisio, while holding the
administration over the property, had delegated to his brother, Atty. Parulan, the administration of the
property, considering that they did not present in court the SPA granting to Atty. Parulan the authority for
the administration.

Nonetheless, we stress that the power of administration does not include acts of disposition or
encumbrance, which are acts of strict ownership. As such, an authority to dispose cannot proceed from an
authority to administer, and vice versa, for the two powers may only be exercised by an agent by following
the provisions on agency of the Civil Code (from Article 1876 to Article 1878). Specifically, the apparent
authority of Atty. Parulan, being a special agency, was limited to the sale of the property in question, and
did not include or extend to the power to administer the property.31

Lastly, the petitioners’ insistence that Atty. Parulan’s making of a counter-offer during the March 25, 1991
meeting ratified the sale merits no consideration. Under Article 124 of the Family Code, the transaction
executed sans the written consent of Dionisio or the proper court order was void; hence, ratification did
not occur, for a void contract could not be ratified.32

On the other hand, we agree with Dionisio that the void sale was a continuing offer from the petitioners
and Ma. Elena that Dionisio had the option of accepting or rejecting before the offer was withdrawn by
either or both Ma. Elena and the petitioners. The last sentence of the second paragraph of Article 124 of
the Family Code makes this clear, stating that in the absence of the other spouse’s consent, the
transaction should be construed as a continuing offer on the part of the consenting spouse and the third
person, and may be perfected as a binding contract upon the acceptance by the other spouse or upon
authorization by the court before the offer is withdrawn by either or both offerors.

2.

Due diligence required in verifying not only vendor’s title,

but also agent’s authority to sell the property

A purchaser in good faith is one who buys the property of another, without notice that some other person
has a right to, or interest in, such property, and pays the full and fair price for it at the time of such
purchase or before he has notice of the claim or interest of some other persons in the property. He buys
the property with the belief that the person from whom he receives the thing was the owner and could
convey title to the property. He cannot close his eyes to facts that should put a reasonable man on his
guard and still claim he acted in good faith.33 The status of a buyer in good faith is never presumed but
must be proven by the person invoking it.34
Here, the petitioners disagree with the CA for not applying the "ordinary prudent man’s standard" in
determining their status as buyers in good faith. They insist that they exercised due diligence by verifying
the status of the TCTs, as well as by inquiring about the details surrounding the mortgage extended by the
Los Baños Rural Bank. They lament the holding of the CA that they should have been put on their guard
when they learned that the Los Baños Rural Bank had first required a court order before granting the loan
to the respondents secured by their mortgage of the property.

The petitioners miss the whole point.

Article 124 of the Family Code categorically requires the consent of both spouses before the conjugal
property may be disposed of by sale, mortgage, or other modes of disposition. In Bautista v. Silva,35 the
Court erected a standard to determine the good faith of the buyers dealing with

a seller who had title to and possession of the land but whose capacity to sell was restricted, in that the
consent of the other spouse was required before the conveyance, declaring that in order to prove good
faith in such a situation, the buyers must show that they inquired not only into the title of the seller but
also into the seller’s capacity to sell.36 Thus, the buyers of conjugal property must observe two kinds of
requisite diligence, namely: (a) the diligence in verifying the validity of the title covering the property; and
(b) the diligence in inquiring into the authority of the transacting spouse to sell conjugal property in behalf
of the other spouse.

It is true that a buyer of registered land needs only to show that he has relied on the face of the certificate
of title to the property, for he is not required to explore beyond what the certificate indicates on its
face.37 In this respect, the petitioners sufficiently proved that they had checked on the authenticity of TCT
No. 63376 and TCT No. 63377 with the Office of the Register of Deeds in Pasay City as the custodian of the
land records; and that they had also gone to the Los Baños Rural Bank to inquire about the mortgage
annotated on TCT No. 63377. Thereby, the petitioners observed the requisite diligence in examining the
validity of the TCTs concerned.

Yet, it ought to be plain enough to the petitioners that the issue was whether or not they had diligently
inquired into the authority of Ma. Elena to convey the property, not whether or not the TCT had been valid
and authentic, as to which there was no doubt. Thus, we cannot side with them.

Firstly, the petitioners knew fully well that the law demanded the written consent of Dionisio to the sale,
but yet they did not present evidence to show that they had made inquiries into the circumstances behind
the execution of the SPA purportedly executed by Dionisio in favor of Ma. Elena. Had they made the
appropriate inquiries, and not simply accepted the SPA for what it represented on its face, they would
have uncovered soon enough that the respondents had been estranged from each other and were
under de facto separation, and that they probably held conflicting interests that would negate the
existence of an agency between them. To lift this doubt, they must, of necessity, further inquire into the
SPA of Ma. Elena. The omission to inquire indicated their not being buyers in good faith, for, as fittingly
observed in Domingo v. Reed:381avvphi1

What was required of them by the appellate court, which we affirm, was merely to investigate – as any
prudent vendee should – the authority of Lolita to sell the property and to bind the partnership. They had
knowledge of facts that should have led them to inquire and to investigate, in order to acquaint
themselves with possible defects in her title. The law requires them to act with the diligence of a prudent
person; in this case, their only prudent course of action was to investigate whether respondent had indeed
given his consent to the sale and authorized his wife to sell the property.39
Indeed, an unquestioning reliance by the petitioners on Ma. Elena’s SPA without first taking precautions to
verify its authenticity was not a prudent buyer’s move.40 They should have done everything within their
means and power to ascertain whether the SPA had been genuine and authentic. If they did not
investigate on the relations of the respondents vis-à-vis each other, they could have done other things
towards the same end, like attempting to locate the notary public who had notarized the SPA, or checked
with the RTC in Manila to confirm the authority of Notary Public Atty. Datingaling. It turned out that Atty.
Datingaling was not authorized to act as a Notary Public for Manila during the period 1990-1991, which
was a fact that they could easily discover with a modicum of zeal.

Secondly, the final payment of ₱700,000.00 even without the owner’s duplicate copy of the TCT No. 63376
being handed to them by Ma. Elena indicated a revealing lack of precaution on the part of the petitioners.
It is true that she promised to produce and deliver the owner’s copy within a week because her relative
having custody of it had gone to Hongkong, but their passivity in such an essential matter was puzzling
light of their earlier alacrity in immediately and diligently validating the TCTs to the extent of inquiring at
the Los Baños Rural Bank about the annotated mortgage. Yet, they could have rightly withheld the final
payment of the balance. That they did not do so reflected their lack of due care in dealing with Ma. Elena.

Lastly, another reason rendered the petitioners’ good faith incredible. They did not take immediate action
against Ma. Elena upon discovering that the owner’s original copy of TCT No. 63376 was in the possession
of Atty. Parulan, contrary to Elena’s representation. Human experience would have impelled them to exert
every effort to proceed against Ma. Elena, including demanding the return of the substantial amounts paid
to her. But they seemed not to mind her inability to produce the TCT, and, instead, they contented
themselves with meeting with Atty. Parulan to negotiate for the possible turnover of the TCT to them. 3.

Veloso v. Court of Appeals cannot help petitioners

The petitioners contend that the forgery of the SPA notwithstanding, the CA could still have decided in
their favor conformably with Veloso v. Court of Appeals,41 a case where the petitioner husband claimed
that his signature and that of the notary public who had notarized the SPA the petitioner supposedly
executed to authorize his wife to sell the property had been forged. In denying relief, the Court upheld the
right of the vendee as an innocent purchaser for value.

Veloso is inapplicable, however, because the contested property therein was exclusively owned by the
petitioner and did not belong to the conjugal regime. Veloso being upon conjugal property, Article 124 of
the Family Code did not apply.

In contrast, the property involved herein pertained to the conjugal regime, and, consequently, the lack of
the written consent of the husband rendered the sale void pursuant to Article 124 of the Family Code.
Moreover, even assuming that the property involved in Veloso was conjugal, its sale was made on
November 2, 1987, or prior to the effectivity of the Family Code; hence, the sale was still properly covered
by Article 173 of the Civil Code, which provides that a sale effected without the consent of one of the
spouses is only voidable, not void. However, the sale herein was made already during the effectivity of the
Family Code, rendering the application of Article 124 of the Family Code clear and indubitable.

The fault of the petitioner in Veloso was that he did not adduce sufficient evidence to prove that his
signature and that of the notary public on the SPA had been forged. The Court pointed out that his mere
allegation that the signatures had been forged could not be sustained without clear and convincing proof
to substantiate the allegation. Herein, however, both the RTC and the CA found from the testimonies and
evidence presented by Dionisio that his signature had been definitely forged, as borne out by the entries in
his passport showing that he was out of the country at the time of the execution of the questioned SPA;
and that the alleged notary public, Atty. Datingaling, had no authority to act as a Notary Public for Manila
during the period of 1990-1991.

WHEREFORE, we deny the petition for review on certiorari, and affirm the decision dated July 2, 2004
rendered by the Court of Appeals in C.A.-G.R. CV No. 69044 entitled "Dionisio Z. Parulan, Jr. vs. Ma. Elena
Parulan and Sps. Rex and Concepcion Aggabao" and "Sps. Rex and Concepcion Aggabao vs. Dionisio Z.
Parulan, Jr. and Ma. Elena Parulan."Costs of suit to be paid by the petitioners.

SO ORDERED.
 G.R. No. 165803 September 1, 2010

SPOUSES REX AND CONCEPCION AGGABAO, Petitioners,

vs.
DIONISIO Z. PARULAN, JR. and MA. ELENA PARULAN, Respondents.

BERSAMIN, J.:

FACTS:

Subject of this case are 2 parcels of land located, BF Homes, Parañaque City and registered under TCT No.
633763 and TCT No. 633774 in the name of respondents Spouses Maria Elena A. Parulan (Ma. Elena) and
Dionisio Z. Parulan, Jr. (Dionisio), who have been estranged from one another.

Real estate broker Marta K. Atanacio (Atanacio) offered the property to the petitioners, who initially did
not show interest due to the rundown condition of the improvements, but Atanacio’s persistence
prevailed. On February 2, 1991, they and Atanacio met with Ma. Elena at the site of the property
thelatter showed to them the following documents: (a) the owner’s original copy of TCT No. 63376; (b) a
certified true copy of TCT No. 63377; (c) three tax declarations; and (d) a copy of the SPA dated January 7,
1991 executed by Dionisio authorizing Ma. Elena to sell the property.On the same day, they paid
P20,000.00 as earnest money, Ma. Elena then executed a handwritten Receipt of Earnest Money, and
stipulated that: (a) they would pay an additional payment of P130,000.00 on February 4, 1991; (b) they
would pay the balance of the bank loan of the respondents amounting to P650,000.00 on or before
February 15, 1991; and (c) they would make the final payment of P700,000.00 once Ma. Elena turned
over the property on March 31, 1991.

On February 4, 1991, the petitioners went to the Office of the Register of Deeds and the Assessor’s Office
to verify the TCTs in the company of Atanacio and her husband (also a licensed broker). There, they
discovered that the lot under TCT No. 63376 had been encumbered to Banco Filipino in 1983 or 1984, but
that the encumbrance had already been cancelled due to the full payment of the obligation. They noticed
that the Banco Filipino loan had been effected through an SPA executed by Dionisio in favor of Ma. Elena.
They found on TCT No. 63377 the annotation of an existing mortgage in favor of the Los Baños Rural Bank,
also effected through an SPA executed by Dionisio in favor of Ma. Elena, coupled with a copy of a court
order authorizing Ma. Elena to mortgage the lot to secure a loan of P500,000.00.

The petitioners and Atanacio next inquired about the mortgage and the court order annotated on TCT
No. 63377 at the Los Baños Rural Bank. There, they met with Atty. Noel Zarate, the bank’s legal counsel,
who related that the bank had asked for the court order because the lot involved was conjugal
property.

Following their verification, the petitioners delivered P130,000.00 as additional down payment on
February 4, 1991; and P650,000.00 to the Los Baños Rural Bank on February 12, 1991, which then
released the owner’s duplicate copy of TCT No. 63377 to them.

On March 18, 1991, the petitioners delivered the final amount of P700,000.00 to Ma. Elena, who executed
a deed of absolute sale in their favor.However, Ma. Elena did not turn over the owner’s duplicate copy of
TCT No. 63376, claiming that said copy was in the possession of a relative who was then in Hongkong. She
assured them that the owner’s duplicate copy of TCT No. 63376 would be turned over after a week. On
March 19, 1991, TCT No. 63377 was cancelled and a new one was issued in the name of the petitioners.

Ma. Elena did not turn over the duplicate owner’s copy of TCT No. 63376 as promised. In due time, the
petitioners learned that the duplicate owner’s copy of TCT No. 63376 had been all along in the custody
of
Atty. Jeremy Z. Parulan, who appeared to hold an SPA executed by his brother Dionisio authorizing him to
sell both lots.

At Atanacio’s instance, the petitioners met on March 25, 1991 with Atty. Parulan, they were also
accompanied by one Atty. Olandesca. They recalled that Atty. Parulan “smugly demanded P800,000.00” in
exchange for the duplicate owner’s copy of TCT No. 63376, because Atty. Parulan represented the
current value of the property to be P1.5 million. As a counter-offer, however, they tendered P250,000.00,
which Atty. Parulan declined, giving them only until April 5, 1991 to decide.

Hearing nothing more from the petitioners, Atty. Parulan decided to call them on April 5, 1991, but they
informed him that they had already fully paid to Ma. Elena. Thus, on April 15, 1991, Dionisio, through Atty.
Parulan, commenced an action praying for the declaration of the nullity of the deed of absolute sale
executed by Ma. Elena, and the cancellation of the title issued to the petitioners by virtue thereof.In turn,
the petitioners filed on July 12, 1991 their own action for specific performance with damages against the
respondents.Both cases were consolidated for trial and judgment in the RTC.

RTC ruled in favour of Plaintiff Parulan and declared the sale covered by TCT 63376 and 63377 as null and
void. RTC declared that the SPA in the hands of Ma. Elena was a forgery, based on its finding that Dionisio
had been out of the country at the time of the execution of the SPA; that NBI Sr. Document Examiner
Rhoda B. Flores had certified that the signature appearing on the SPA purporting to be that of Dionisio
and the set of standard sample signatures of Dionisio had not been written by one and the same
person;22 and that Record Officer III Eliseo O. Terenco and Clerk of Court Jesus P. Maningas of the Manila
RTC had issued a certification to the effect that Atty. Alfred Datingaling, the Notary Public who had
notarized the SPA, had not been included in the list of Notaries Public in Manila for the year 1990-1991.
CA affirmed the decision of the RTC.Hence, the instant petition.

Issues

1) Which between Article 173 of the Civil Code and Article 124 of the Family Code should apply to
the sale of the conjugal property executed without the consent of Dionisio?

2) whether or not they had diligently inquired into the authority of Ma. Elena to convey the
property, not whether or not the TCT had been valid and authentic, as to which there was no
doubt.

Held:

The petition has no merit. We sustain the CA.

Article 124, Family Code, applies to sale of conjugal

properties made after the effectivity of the Family Code

The sale was made on March 18, 1991, or after August 3, 1988, the effectivity of the Family Code. The
proper law to apply is, therefore, Article 124 of the Family Code, for it is settled that any alienation or
encumbrance of conjugal property made during the effectivity of the Family Code is governed by Article
124 of the Family Code.
Article 124 of the Family Code provides:

Article 124. The administration and enjoyment of the conjugal partnership property shall belong to both
spouses jointly. In case of disagreement, the husband’s decision shall prevail, subject to recourse to the
court by the wife for proper remedy, which must be availed of within five years from the date of the
contract implementing such decision.
.R. No. 187769 June 4, 2014

ALVIN PATRIMONIO, Petitioner,

vs.
NAPOLEON GUTIERREZ and OCTAVIO MARASIGAN III, Respondents.

DECISION

BRION, J.:

Assailed in this petition for review on certiorari1 under Rule 45 of the Revised Rules of Court is the
decision2 dated September 24, 2008 and the resolution3 dated April 30, 2009 of the Court of Appeals (CA)
in CA-G.R. CV No. 82301. The appellate court affirmed the decision of the Regional Trial Court (RTC) of
Quezon City, Branch 77, dismissing the complaint for declaration of nullity of loan filed by petitioner Alvin
Patrimonio and ordering him to pay respondent Octavio Marasigan III (Marasigan) the sum of
₱200,000.00.

The Factual Background

The facts of the case, as shown by the records, are briefly summarized below.

The petitioner and the respondent Napoleon Gutierrez (Gutierrez) entered into a business venture under
the name of Slam Dunk Corporation (Slum Dunk), a production outfit that produced mini-concerts and
shows related to basketball. Petitioner was already then a decorated professional basketball player while
Gutierrez was a well-known sports columnist.

In the course of their business, the petitioner pre-signed several checks to answer for the expenses of Slam
Dunk. Although signed, these checks had no payee’s name, date or amount. The blank checks were
entrusted to Gutierrez with the specific instruction not to fill them out without previous notification to and
approval by the petitioner. According to petitioner, the arrangement was made so that he could verify the
validity of the payment and make the proper arrangements to fund the account.

In the middle of 1993, without the petitioner’s knowledge and consent, Gutierrez went to Marasigan (the
petitioner’s former teammate), to secure a loan in the amount of ₱200,000.00 on the excuse that the
petitioner needed the money for the construction of his house. In addition to the payment of the principal,
Gutierrez assured Marasigan that he would be paid an interest of 5% per month from March to May 1994.

After much contemplation and taking into account his relationship with the petitioner and Gutierrez,
Marasigan acceded to Gutierrez’ request and gave him ₱200,000.00 sometime in February 1994. Gutierrez
simultaneously delivered to Marasigan one of the blank checks the petitioner pre-signed with Pilipinas
Bank, Greenhills Branch, Check No. 21001764 with the blank portions filled out with the words "Cash"
"Two Hundred Thousand Pesos Only", and the amount of "₱200,000.00". The upper right portion of the
check corresponding to the date was also filled out with the words "May 23, 1994" but the petitioner
contended that the same was not written by Gutierrez.

On May 24, 1994, Marasigan deposited the check but it was dishonored for the reason "ACCOUNT
CLOSED." It was later revealed that petitioner’s account with the bank had been closed since May 28,
1993.
Marasigan sought recovery from Gutierrez, to no avail. He thereafter sent several demand letters to the
petitioner asking for the payment of ₱200,000.00, but his demands likewise went unheeded.
Consequently, he filed a criminal case for violation of B.P. 22 against the petitioner, docketed as Criminal
Case No. 42816.

On September 10, 1997, the petitioner filed before the Regional Trial Court (RTC) a Complaint for
Declaration of Nullity of Loan and Recovery of Damages against Gutierrez and co-respondent Marasigan.
He completely denied authorizing the loan or the check’s negotiation, and asserted that he was not privy
to the parties’ loan agreement.

Only Marasigan filed his answer to the complaint. In the RTC’s order dated December 22, 1997,Gutierrez
was declared in default.

The Ruling of the RTC

The RTC ruled on February 3,2003 in favor of Marasigan.4 It found that the petitioner, in issuing the pre-
signed blank checks, had the intention of issuing a negotiable instrument, albeit with specific instructions
to Gutierrez not to negotiate or issue the check without his approval. While under Section 14 of the
Negotiable Instruments Law Gutierrez had the prima facie authority to complete the checks by filling up
the blanks therein, the RTC ruled that he deliberately violated petitioner’s specific instructions and took
advantage of the trust reposed in him by the latter.

Nonetheless, the RTC declared Marasigan as a holder in due course and accordingly dismissed the
petitioner’s complaint for declaration of nullity of the loan. It ordered the petitioner to pay Marasigan the
face value of the check with a right to claim reimbursement from Gutierrez.

The petitioner elevated the case to the Court of Appeals (CA), insisting that Marasigan is not a holder in
due course. He contended that when Marasigan received the check, he knew that the same was without a
date, and hence, incomplete. He also alleged that the loan was actually between Marasigan and Gutierrez
with his check being used only as a security.

The Ruling of the CA

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

The CA also concluded that the check had been strictly filled out by Gutierrez in accordance with the
petitioner’s authority. It held that the loan may not be nullified since it is grounded on an obligation arising
from law and ruled that the petitioner is still liable to pay Marasigan the sum of ₱200,000.00.

After the CA denied the subsequent motion for reconsideration that followed, the petitioner filed the
present petition for review on certiorari under Rule 45 of the Revised Rules of Court.

The Petition

The petitioner argues that: (1) there was no loan between him and Marasigan since he never authorized
the borrowing of money nor the check’s negotiation to the latter; (2) under Article 1878 of the Civil Code, a
special power of attorney is necessary for an individual to make a loan or borrow money in behalf of
another; (3) the loan transaction was between Gutierrez and Marasigan, with his check being used only as
a security; (4) the check had not been completely and strictly filled out in accordance with his authority
since the condition that the subject check can only be used provided there is prior approval from him, was
not complied with; (5) even if the check was strictly filled up as instructed by the petitioner, Marasigan is
still not entitled to claim the check’s value as he was not a holder in due course; and (6) by reason of the
bad faith in the dealings between the respondents, he is entitled to claim for damages.

The Issues

Reduced to its basics, the case presents to us the following issues:

1. Whether the contract of loan in the amount of ₱200,000.00 granted by respondent Marasigan
to petitioner, through respondent Gutierrez, may be nullified for being void;

2. Whether there is basis to hold the petitioner liable for the payment of the ₱200,000.00 loan;

3. Whether respondent Gutierrez has completely filled out the subject check strictly under the
authority given by the petitioner; and

4. Whether Marasigan is a holder in due course.

The Court’s Ruling

The petition is impressed with merit.

We note at the outset that the issues raised in this petition are essentially factual in nature. The main
point of inquiry of whether the contract of loan may be nullified, hinges on the very existence of the
contract of loan – a question that, as presented, is essentially, one of fact. Whether the petitioner
authorized the borrowing; whether Gutierrez completely filled out the subject check strictly under the
petitioner’s authority; and whether Marasigan is a holder in due course are also questions of fact, that, as
a general rule, are beyond the scope of a Rule 45 petition.

The rule that questions of fact are not the proper subject of an appeal by certiorari, as a petition for review
under Rule 45 is limited only to questions of law, is not an absolute rule that admits of no exceptions. One
notable exception is when the findings off act of both the trial court and the CA are conflicting, making
their review necessary.5 In the present case, the tribunals below arrived at two conflicting factual findings,
albeit with the same conclusion, i.e., dismissal of the complaint for nullity of the loan. Accordingly, we will
examine the parties’ evidence presented.

I. Liability Under the Contract of Loan

The petitioner seeks to nullify the contract of loan on the ground that he never authorized the borrowing
of money. He points to Article 1878, paragraph 7 of the Civil Code, which explicitly requires a written
authority when the loan is contracted through an agent. The petitioner contends that absent such
authority in writing, he should not be held liable for the face value of the check because he was not a party
or privy to the agreement.

Contracts of Agency May be Oral Unless The Law Requires a Specific Form

Article 1868 of the Civil Code defines a contract of agency as a contract whereby a person "binds himself
to render some service or to do something in representation or on behalf of another, with the consent or
authority of the latter." Agency may be express, or implied from the acts of the principal, from his silence
or lack of action, or his failure to repudiate the agency, knowing that another person is acting on his behalf
without authority.

As a general rule, a contract of agency may be oral.6 However, it must be written when the law requires a
specific form, for example, in a sale of a piece of land or any interest therein through an agent.

Article 1878 paragraph 7 of the Civil Code expressly requires a special power of authority before an agent
can loan or borrow money in behalf of the principal, to wit:

Art. 1878. Special powers of attorney are necessary in the following cases:

xxxx

(7) To loan or borrow money, unless the latter act be urgent and indispensable for the preservation of the
things which are under administration. (emphasis supplied)

Article 1878 does not state that the authority be in writing. As long as the mandate is express, such
authority may be either oral or written. We unequivocably declared in Lim Pin v. Liao Tian, et al.,7 that the
requirement under Article 1878 of the Civil Code refers to the nature of the authorization and not to its
form. Be that as it may, the authority must be duly established by competent and convincing evidence
other than the self serving assertion of the party claiming that such authority was verbally given, thus:

The requirements of a special power of attorney in Article 1878 of the Civil Code and of a special authority
in Rule 138 of the Rules of Court refer to the nature of the authorization and not its form. The
requirements are met if there is a clear mandate from the principal specifically authorizing the
performance of the act. As early as 1906, this Court in Strong v. Gutierrez-Repide (6 Phil. 680) stated that
such a mandate may be either oral or written, the one vital thing being that it shall be express. And more
recently, We stated that, if the special authority is not written, then it must be duly established by
evidence:

x x x the Rules require, for attorneys to compromise the litigation of their clients, a special authority. And
while the same does not state that the special authority be in writing the Court has every reason to expect
that, if not in writing, the same be duly established by evidence other than the self-serving assertion of
counsel himself that such authority was verbally given him.(Home Insurance Company vs. United States
lines Company, et al., 21 SCRA 863; 866: Vicente vs. Geraldez, 52 SCRA 210; 225). (emphasis supplied).

The Contract of Loan Entered Into by Gutierrez in Behalf of the Petitioner Should be Nullified for Being
Void; Petitioner is Not Bound by the Contract of Loan.

A review of the records reveals that Gutierrez did not have any authority to borrow money in behalf of the
petitioner.1âwphi1 Records do not show that the petitioner executed any special power of attorney (SPA)
in favor of Gutierrez. In fact, the petitioner’s testimony confirmed that he never authorized Gutierrez (or
anyone for that matter), whether verbally or in writing, to borrow money in his behalf, nor was he aware
of any such transaction:

ALVIN PATRIMONIO (witness)

ATTY. DE VERA: Did you give Nap Gutierrez any Special Power of Attorney in writing authorizing him to
borrow using your money?
WITNESS: No, sir. (T.S.N., Alvin Patrimonio, Nov. 11, 1999, p. 105)8

xxxx

Marasigan however submits that the petitioner’s acts of pre-signing the blank checks and releasing them
to Gutierrez suffice to establish that the petitioner had authorized Gutierrez to fill them out and contract
the loan in his behalf.

Marasigan’s submission fails to persuade us.

In the absence of any authorization, Gutierrez could not enter into a contract of loan in behalf of the
petitioner. As held in Yasuma v. Heirs of De Villa,9 involving a loan contracted by de Villa secured by real
estate mortgages in the name of East Cordillera Mining Corporation, in the absence of an SPA conferring
authority on de Villa, there is no basis to hold the corporation liable, to wit:

The power to borrow money is one of those cases where corporate officers as agents of the corporation
need a special power of attorney. In the case at bar, no special power of attorney conferring authority on
de Villa was ever presented. x x x There was no showing that respondent corporation ever authorized de
Villa to obtain the loans on its behalf.

xxxx

Therefore, on the first issue, the loan was personal to de Villa. There was no basis to hold the corporation
liable since there was no authority, express, implied or apparent, given to de Villa to borrow money from
petitioner. Neither was there any subsequent ratification of his act.

xxxx

The liability arising from the loan was the sole indebtedness of de Villa (or of his estate after his death).
(citations omitted; emphasis supplied).

This principle was also reiterated in the case of Gozun v. Mercado,10 where this court held:

Petitioner submits that his following testimony suffices to establish that respondent had authorized Lilian
to obtain a loan from him.

xxxx

Petitioner’s testimony failed to categorically state, however, whether the loan was made on behalf of
respondent or of his wife. While petitioner claims that Lilian was authorized by respondent, the statement
of account marked as Exhibit "A" states that the amount was received by Lilian "in behalf of Mrs. Annie
Mercado.

It bears noting that Lilian signed in the receipt in her name alone, without indicating therein that she was
acting for and in behalf of respondent. She thus bound herself in her personal capacity and not as an agent
of respondent or anyone for that matter.

It is a general rule in the law of agency that, in order to bind the principal by a mortgage on real property
executed by an agent, it must upon its face purport to be made, signed and sealed in the name of the
principal, otherwise, it will bind the agent only. It is not enough merely that the agent was in fact
authorized to make the mortgage, if he has not acted in the name of the principal. x x x (emphasis
supplied).

In the absence of any showing of any agency relations or special authority to act for and in behalf of the
petitioner, the loan agreement Gutierrez entered into with Marasigan is null and void. Thus, the petitioner
is not bound by the parties’ loan agreement.

Furthermore, that the petitioner entrusted the blank pre-signed checks to Gutierrez is not legally sufficient
because the authority to enter into a loan can never be presumed. The contract of agency and the special
fiduciary relationship inherent in this contract must exist as a matter of fact. The person alleging it has the
burden of proof to show, not only the fact of agency, but also its nature and extent.11 As we held in People
v. Yabut:12

Modesto Yambao's receipt of the bad checks from Cecilia Que Yabut or Geminiano Yabut, Jr., in Caloocan
City cannot, contrary to the holding of the respondent Judges, be licitly taken as delivery of the checks to
the complainant Alicia P. Andan at Caloocan City to fix the venue there. He did not take delivery of the
checks as holder, i.e., as "payee" or "indorsee." And there appears to beno contract of agency between
Yambao and Andan so as to bind the latter for the acts of the former. Alicia P. Andan declared in that
sworn testimony before the investigating fiscal that Yambao is but her "messenger" or "part-time
employee." There was no special fiduciary relationship that permeated their dealings. For a contract of
agency to exist, the consent of both parties is essential, the principal consents that the other party, the
agent, shall act on his behalf, and the agent consents so to act. It must exist as a fact. The law makes no
presumption thereof. The person alleging it has the burden of proof to show, not only the fact of its
existence, but also its nature and extent. This is more imperative when it is considered that the transaction
dealt with involves checks, which are not legal tender, and the creditor may validly refuse the same as
payment of obligation.(at p. 630). (emphasis supplied)

The records show that Marasigan merely relied on the words of Gutierrez without securing a copy of the
SPA in favor of the latter and without verifying from the petitioner whether he had authorized the
borrowing of money or release of the check. He was thus bound by the risk accompanying his trust on the
mere assurances of Gutierrez.

No Contract of Loan Was Perfected Between Marasigan And Petitioner, as The Latter’s Consent Was Not
Obtained.

Another significant point that the lower courts failed to consider is that a contract of loan, like any other
contract, is subject to the rules governing the requisites and validity of contracts in general.13 Article 1318
of the Civil Code14 enumerates the essential requisites for a valid contract, namely:

1. consent of the contracting parties;

2. object certain which is the subject matter of the contract; and

3. cause of the obligation which is established.

In this case, the petitioner denied liability on the ground that the contract lacked the essential element of
consent. We agree with the petitioner. As we explained above, Gutierrez did not have the petitioner’s
written/verbal authority to enter into a contract of loan. While there may be a meeting of the minds
between Gutierrez and Marasigan, such agreement cannot bind the petitioner whose consent was not
obtained and who was not privy to the loan agreement. Hence, only Gutierrez is bound by the contract of
loan.

True, the petitioner had issued several pre-signed checks to Gutierrez, one of which fell into the hands of
Marasigan. This act, however, does not constitute sufficient authority to borrow money in his behalf and
neither should it be construed as petitioner’s grant of consent to the parties’ loan agreement. Without any
evidence to prove Gutierrez’ authority, the petitioner’s signature in the check cannot be taken, even
remotely, as sufficient authorization, much less, consent to the contract of loan. Without the consent
given by one party in a purported contract, such contract could not have been perfected; there simply was
no contract to speak of.15

With the loan issue out of the way, we now proceed to determine whether the petitioner can be made
liable under the check he signed.

II. Liability Under the Instrument

The answer is supplied by the applicable statutory provision found in Section 14 of the Negotiable
Instruments Law (NIL) which states:

Sec. 14. Blanks; when may be filled.- Where the instrument is wanting in any material particular, the
person in possession thereof has a prima facie authority to complete it by filling up the blanks therein. And
a signature on a blank paper delivered by the person making the signature in order that the paper may be
converted into a negotiable instrument operates as a prima facie authority to fill it up as such for any
amount. In order, however, that any such instrument when completed may be enforced against any
person who became a party thereto prior to its completion, it must be filled up strictly in accordance with
the authority given and within a reasonable time. But if any such instrument, after completion, is
negotiated to a holder in due course, it is valid and effectual for all purposes in his hands, and he may
enforce it as if it had been filled up strictly in accordance with the authority given and within a reasonable
time.

This provision applies to an incomplete but delivered instrument. Under this rule, if the maker or drawer
delivers a pre-signed blank paper to another person for the purpose of converting it into a negotiable
instrument, that person is deemed to have prima facie authority to fill it up. It merely requires that the
instrument be in the possession of a person other than the drawer or maker and from such possession,
together with the fact that the instrument is wanting in a material particular, the law presumes agency to
fill up the blanks.16

In order however that one who is not a holder in due course can enforce the instrument against a party
prior to the instrument’s completion, two requisites must exist: (1) that the blank must be filled strictly in
accordance with the authority given; and (2) it must be filled up within a reasonable time. If it was proven
that the instrument had not been filled up strictly in accordance with the authority given and within a
reasonable time, the maker can set this up as a personal defense and avoid liability. However, if the holder
is a holder in due course, there is a conclusive presumption that authority to fill it up had been given and
that the same was not in excess of authority.17

In the present case, the petitioner contends that there is no legal basis to hold him liable both under the
contract and loan and under the check because: first, the subject check was not completely filled out
strictly under the authority he has given and second, Marasigan was not a holder in due course.

Marasigan is Not a Holder in Due Course

The Negotiable Instruments Law (NIL) defines a holder in due course, thus:

Sec. 52 — A holder in due course is a holder who has taken the instrument under the following conditions:

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

(b) That he became the holder of it before it was overdue, and without notice that it had been
previously dishonored, if such was the fact;

(c) That he took it in good faith and for value;

(d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or
defect in the title of the person negotiating it.(emphasis supplied)

Section 52(c) of the NIL states that a holder in due course is one who takes the instrument "in good faith
and for value." It also provides in Section 52(d) that in order that one may be a holder in due course, it is
necessary that at the time it was negotiated to him he had no notice of any infirmity in the instrument or
defect in the title of the person negotiating it.

Acquisition in good faith means taking without knowledge or notice of equities of any sort which could
beset up against a prior holder of the instrument.18 It means that he does not have any knowledge of fact
which would render it dishonest for him to take a negotiable paper. The absence of the defense, when the
instrument was taken, is the essential element of good faith.19

As held in De Ocampo v. Gatchalian:20

In order to show that the defendant had "knowledge of such facts that his action in taking the instrument
amounted to bad faith," it is not necessary to prove that the defendant knew the exact fraud that was
practiced upon the plaintiff by the defendant's assignor, it being sufficient to show that the defendant had
notice that there was something wrong about his assignor's acquisition of title, although he did not have
notice of the particular wrong that was committed.

It is sufficient that the buyer of a note had notice or knowledge that the note was in some way tainted
with fraud. It is not necessary that he should know the particulars or even the nature of the fraud, since all
that is required is knowledge of such facts that his action in taking the note amounted bad faith.

The term ‘bad faith’ does not necessarily involve furtive motives, but means bad faith in a commercial
sense. The manner in which the defendants conducted their Liberty Loan department provided an easy
way for thieves to dispose of their plunder. It was a case of "no questions asked." Although gross
negligence does not of itself constitute bad faith, it is evidence from which bad faith may be inferred. The
circumstances thrust the duty upon the defendants to make further inquiries and they had no right to shut
their eyes deliberately to obvious facts. (emphasis supplied).

In the present case, Marasigan’s knowledge that the petitioner is not a party or a privy to the contract of
loan, and correspondingly had no obligation or liability to him, renders him dishonest, hence, in bad faith.
The following exchange is significant on this point:

WITNESS: AMBET NABUS

Q: Now, I refer to the second call… after your birthday. Tell us what you talked about?
A: Since I celebrated my birthday in that place where Nap and I live together with the other crew, there
were several visitors that included Danny Espiritu. So a week after my birthday, Bong Marasigan called me
up again and he was fuming mad. Nagmumura na siya. Hinahanap niya si… hinahanap niya si Nap, dahil
pinagtataguan na siya at sinabi na niya na kailangan I-settle na niya yung utang ni Nap, dahil…

xxxx

WITNESS: Yes. Sinabi niya sa akin na kailangan ayusin na bago pa mauwi sa kung saan ang tsekeng
tumalbog… (He told me that we have to fix it up before it…) mauwi pa kung saan…

xxxx

Q: What was your reply, if any?

A: I actually asked him. Kanino ba ang tseke na sinasabi mo?

(Whose check is it that you are referring to or talking about?)

Q: What was his answer?

A: It was Alvin’s check.

Q: What was your reply, if any?

A: I told him do you know that it is not really Alvin who borrowed money from you or what you want to
appear…

xxxx

Q: What was his reply?

A: Yes, it was Nap, pero tseke pa rin ni Alvin ang hawak ko at si Alvin ang maiipit dito.(T.S.N., Ambet Nabus,
July 27, 2000; pp.65-71; emphasis supplied)21

Since he knew that the underlying obligation was not actually for the petitioner, the rule that a possessor
of the instrument is prima facie a holder in due course is inapplicable. As correctly noted by the CA, his
inaction and failure to verify, despite knowledge of that the petitioner was not a party to the loan, may be
construed as gross negligence amounting to bad faith.

Yet, it does not follow that simply because he is not a holder in due course, Marasigan is already totally
barred from recovery. The NIL does not provide that a holder who is not a holder in due course may not in
any case recover on the instrument.22 The only disadvantage of a holder who is not in due course is that
the negotiable instrument is subject to defenses as if it were non-negotiable.23 Among such defenses is the
filling up blank not within the authority.

On this point, the petitioner argues that the subject check was not filled up strictly on the basis of the
authority he gave. He points to his instruction not to use the check without his prior approval and argues
that the check was filled up in violation of said instruction.

Check Was Not Completed Strictly Under The Authority Given by The Petitioner
Our own examination of the records tells us that Gutierrez has exceeded the authority to fill up the blanks
and use the check.1âwphi1 To repeat, petitioner gave Gutierrez pre-signed checks to be used in their
business provided that he could only use them upon his approval. His instruction could not be any clearer
as Gutierrez’ authority was limited to the use of the checks for the operation of their business, and on the
condition that the petitioner’s prior approval be first secured.

While under the law, Gutierrez had a prima facie authority to complete the check, such prima facie
authority does not extend to its use (i.e., subsequent transfer or negotiation)once the check is completed.
In other words, only the authority to complete the check is presumed. Further, the law used the term
"prima facie" to underscore the fact that the authority which the law accords to a holder is a presumption
juris tantumonly; hence, subject to subject to contrary proof. Thus, evidence that there was no authority
or that the authority granted has been exceeded may be presented by the maker in order to avoid liability
under the instrument.

In the present case, no evidence is on record that Gutierrez ever secured prior approval from the
petitioner to fill up the blank or to use the check. In his testimony, petitioner asserted that he never
authorized nor approved the filling up of the blank checks, thus:

ATTY. DE VERA: Did you authorize anyone including Nap Gutierrez to write the date, May 23, 1994?

WITNESS: No, sir.

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

A: No, sir.

Q: Did you authorize anyone including Nap Gutierrez to write the figure ₱200,000 in this check?

A: No, sir.

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

A: No, sir. (T.S.N., Alvin Patrimonio, November 11, 1999).24

Notably, Gutierrez was only authorized to use the check for business expenses; thus, he exceeded the
authority when he used the check to pay the loan he supposedly contracted for the construction of
petitioner's house. This is a clear violation of the petitioner's instruction to use the checks for the expenses
of Slam Dunk. It cannot therefore be validly concluded that the check was completed strictly in accordance
with the authority given by the petitioner.

Considering that Marasigan is not a holder in due course, the petitioner can validly set up the personal
defense that the blanks were not filled up in accordance with the authority he gave. Consequently,
Marasigan has no right to enforce payment against the petitioner and the latter cannot be obliged to pay
the face value of the check.

WHEREFORE, in view of the foregoing, judgment is hereby rendered GRANTING the petitioner Alvin
Patrimonio's petition for review on certiorari. The appealed Decision dated September 24, 2008 and the
Resolution dated April 30, 2009 of the Court of Appeals are consequently ANNULLED AND SET ASIDE. Costs
against the respondents.
ALVIN PATRIMONIO, Petitioner, vs. NAPOLEON GUTIERREZ and OCTAVIO MARASIGAN III, Respondents.

G.R. No. 187769, SECOND DIVISION, June 4, 2014, BRION, J.

Article 1878 paragraph 7 of the Civil Code expressly requires a special power of authority before an agent
can loan or borrow money in behalf of the principal, to wit:

Article 1878 does not state that the authority be in writing. As long as the mandate is express, such
authority may be either oral or written. We unequivocably declared in one case that the requirement
under Article 1878 of the Civil Code refers to the nature of the authorization and not to its form. Be that as
it may, the authority must be duly established by competent and convincing evidence other than the self
serving assertion of the party claiming that such authority was verbally given. And more recently, We
stated that, if the special authority is not written, then it must be duly established by evidence.

Here, the contract of loan entered into by Gutierrez in behalf of the Petitioner should be nullified for being
void; petitioner is not bound by the Contract of Loan.

FACTS

The petitioner and the respondent Napoleon Gutierrez entered into a business venture under the name of
Slam Dunk Corporation, a production outfit that produced mini-concerts and shows related to basketball.
Petitioner was already then a decorated professional basketball player while Gutierrez was a well-known
sports columnist.

In the course of their business, the petitioner presigned several checks to answer for the expenses of Slam
Dunk. Although signed, these checks had no payee’s name, date, or amount. The blank checks were
entrusted to Gutierrez with the specific instruction not to fill them out without previous notification to and
approval by the petitioner. According to petitioner, the arrangement was made so that he could verify the
validity of the payment and make the proper arrangements to fund the account.

Without the petitioner’s knowledge and consent, Gutierrez went to Marasigan to secure a loan in the
amount of 200,000 on the excuse that the petitioner needed the money for the construction of his house.
In addition to the payment of the principal, Gutierrez assured Marasigan that he would be paid an interest
of 5% per month.

Marasigan acceded and gave him the money. Gutierrez simultaneously delivered to Marasigan one of the
blank checks the petitioner pre-signed with Pilipinas Bank. Marasigan deposited the check but it was
dishonored for the reasons “account closed.” Marasigan sough recovery from Gutierrez, to no avail. He
thereafter sent several demand letters to the petitioner asking for the payment of 200,000, but his
demands likewise went unheeded. Consequently, he filed a criminal case for violation of BP 22 against the
petitioner.

Petitioner then filed before the RTC a complaint for declaration of nullity of loan and recovery of damages
against Gutierrez and Marasigan. He completely denied authorizing the loan or the check’s negotiation,
and asserted that he was not privy to the parties’ loan agreement.

The RTC and the CA ruled in favor of Marasigan. The petitioner argues that under Art. 1878 of the CC, a
special power of attorney is necessary for an individual to make a loan of borrow money in behalf of
another.
ISSUE

Whether the contract of loan in the amount of 200,000 granted by respondent Marasigan to the petitioner
through respondent Gutierrez may be nullified for being void

RULING

Yes. The petitioner seeks to nullify the contract of loan on the ground that he never authorized the
borrowing of money. He points to Article 1878, paragraph 7 of the Civil Code, which explicitly requires a
written authority when the loan is contracted through an agent. The petitioner contends that absent such
authority in writing, he should not be held liable for the face value of the check because he was not a party
or privy to the agreement.

Article 1878 paragraph 7 of the Civil Code expressly requires a special power of authority before an agent
can loan or borrow money in behalf of the principal, to wit:

Art. 1878. Special powers of attorney are necessary in the following cases:

(7) To loan or borrow money, unless the latter act be urgent and indispensable for the preservation of the
things which are under administration. (emphasis supplied)

Article 1878 does not state that the authority be in writing. As long as the mandate is express, such
authority may be either oral or written. We unequivocably declared in one case that the requirement
under Article 1878 of the Civil Code refers to the nature of the authorization and not to its form. Be that as
it may, the authority must be duly established by competent and convincing evidence other than the self
serving assertion of the party claiming that such authority was verbally given. And more recently, We
stated that, if the special authority is not written, then it must be duly established by evidence.

Here, the contract of loan entered into by Gutierrez in behalf of the Petitioner should be nullified for being
void; petitioner is not bound by the Contract of Loan.

A review of the records reveals that Gutierrez did not have any authority to borrow money in behalf of the
petitioner. Records do not show that the petitioner executed any special power of attorney (SPA) in favor of
Gutierrez. In fact, the petitioner’s testimony confirmed that he never authorized Gutierrez (or anyone for
that matter), whether verbally or in writing, to borrow money in his behalf, nor was he aware of any such
transaction

Marasigan however submits that the petitioner’s acts of pre-signing the blank checks and releasing them
to Gutierrez suffice to establish that the petitioner had authorized Gutierrez to fill them out and contract
the loan in his behalf.

Marasigan’s submission fails to persuade us. In the absence of any authorization, Gutierrez could not enter
into a contract of loan in behalf of the petitioner.

In the absence of any showing of any agency relations or special authority to act for and in behalf of the
petitioner, the loan agreement Gutierrez entered into with Marasigan is null and void. Thus, the petitioner
is not bound by the parties’ loan agreement.
Furthermore, that the petitioner entrusted the blank pre-signed checks to Gutierrez is not legally sufficient
because the authority to enter into a loan can never be presumed. The contract of agency and the special
fiduciary relationship inherent in this contract must exist as a matter of fact. The person alleging it has the
burden of proof to show, not only the fact of agency, but also its nature and extent.

The records show that Marasigan merely relied on the words of Gutierrez without securing a copy of the
SPA in favor of the latter and without verifying from the petitioner whether he had authorized the
borrowing of money or release of the check. He was thus bound by the risk accompanying his trust on the
mere assurances of Gutierrez.
In the event that one spouse is incapacitated or otherwise unable to participate in the administration
of the conjugal properties, the other spouse may assume sole powers of administration. These powers
do not include disposition or encumbrance without authority of the court or the written consent of the
other spouse. In the absence of such authority or consent, the disposition or encumbrance shall be void.
However, the transaction shall be construed as a continuing offer on the part of the consenting spouse
and the third person, and may be perfected as a binding contract upon the acceptance by the other
spouse or authorization by the court before the offer is withdrawn by either or both offerors.

The power of administration does not include acts of disposition or encumbrance, which are acts of strict
ownership. As such, an authority to dispose cannot proceed from an authority to administer, and vice
versa, for the two powers may only be exercised by an agent by following the provisions on agency of the
Civil Code (from Article 1876 to Article 1878). Specifically, the apparent authority of Atty. Parulan, being a
special agency, was limited to the sale of the property in question, and did not include or extend to the
power to administer the property.

The petitioners’ insistence that Atty. Parulan’s making of a counter-offer during the March 25, 1991
meeting ratified the sale merits no consideration. Under Article 124 of the Family Code, the transaction
executed sans the written consent of Dionisio or the proper court order was void; hence, ratification did
not occur, for a void contract could not be ratified. The void sale was a continuing offer from the
petitioners and Ma. Elena that Dionisio had the option of accepting or rejecting before the offer was
withdrawn by either or both Ma.
Elena and the petitioners. The last sentence of the second paragraph of Article 124 of the Family Code
makes this clear, stating that in the absence of the other spouse’s consent, the transaction should be
construed as a continuing offer on the part of the consenting spouse and the third person, and may be
perfected as a binding contract upon the acceptance by the other spouse or upon authorization by the
court before the offer is withdrawn by either or both offerors.

Due diligence required in verifying not only vendor’s title, but

also agent’s authority to sell the property

Article 124 of the Family Code categorically requires the consent of both spouses before the conjugal
property may be disposed of by sale, mortgage, or other modes of disposition. In Bautista v. Silva,the
Court erected a standard to determine the good faith of the buyers dealing with

A seller who had title to and possession of the land but whose capacity to sell was restricted, in that the
consent of the other spouse was required before the conveyance, declaring that in order to prove good
faith in such a situation, the buyers must show that they inquired not only into the title of the seller but
also into the seller’s capacity to sell. Thus, the buyers of conjugal property must observe two kinds of
requisite diligence, namely: (a) the diligence in verifying the validity of the title covering the property; and
(b) the diligence in inquiring into the authority of the transacting spouse to sell conjugal property in behalf
of the other spouse.

It is true that a buyer of registered land needs only to show that he has relied on the face of the certificate
of title to the property, for he is not required to explore beyond what the certificate indicates on its
face.In this respect, the petitioners sufficiently proved that they had checked on the authenticity of TCT
No. 63376 and TCT No. 63377 with the Office of the Register of Deeds in Pasay City as the custodian of the
land records; and that they had also gone to the Los Baños Rural Bank to inquire about the mortgage
annotated on TCT No. 63377. Thereby, the petitioners observed the requisite diligence in examining the
validity of the TCTs concerned.

Yet, it ought to be plain enough to the petitioners that the issue was whether or not they had diligently
inquired into the authority of Ma. Elena to convey the property, not whether or not the TCT had been
valid and authentic, as to which there was no doubt. Thus, we cannot side with them.
Firstly, the petitioners knew fully well that the law demanded the written consent of Dionisio to the
sale, but yet they did not present evidence to show that they had made inquiries into the
circumstances behind the execution of the SPA purportedly executed by Dionisio in favor of Ma.
Elena. Had they made the appropriate inquiries, and not simply accepted the SPA for what it
represented on its face, they would have uncovered soon enough that the respondents had been
estranged from each other and were under de facto separation, and that they probably held
conflicting interests that would negate the existence of an agency between them. To lift this doubt,
they must, of necessity, further inquire into the SPA of Ma. Elena. Indeed, an unquestioning reliance
by the petitioners on Ma. Elena’s SPA without first taking precautions to verify its authenticity was
not a prudent buyer’s move.40 They should have done everything within their means and power to
ascertain whether the SPA had been genuine and authentic. If they did not investigate on the
relations of the respondents vis-à-vis each other, they could have done other things towards the
same end, like attempting to locate the notary public who had notarized the SPA, or checked with
the RTC in Manila to confirm the authority of Notary Public Atty. Datingaling. It turned out that Atty.
Datingaling was not authorized to act as a Notary Public for Manila during the period 1990-1991,
which was a fact that they could easily discover with a modicum of zeal.

Secondly, the final payment of P700,000.00 even without the owner’s duplicate copy of the TCT No.
63376 being handed to them by Ma. Elena indicated a revealing lack of precaution on the part of the
petitioners. It is true that she promised to produce and deliver the owner’s copy within a week
because her relative having custody of it had gone to Hongkong, but their passivity in such an
essential matter was puzzling light of their earlier alacrity in immediately and diligently validating
the TCTs to the extent of inquiring at the Los Baños Rural Bank about the annotated mortgage. Yet,
they could have rightly withheld the final payment of the balance. That they did not do so reflected
their lack of due care in dealing with Ma. Elena.

Lastly, another reason rendered the petitioners’ good faith incredible. They did not take immediate
action against Ma. Elena upon discovering that the owner’s original copy of TCT No. 63376 was in
the possession of Atty. Parulan, contrary to Elena’s representation. Human experience would have
impelled them to exert every effort to proceed against Ma. Elena, including demanding the return
of the substantial amounts paid to her. But they seemed not to mind her inability to produce the
TCT, and, instead, they contented themselves with meeting with Atty. Parulan to negotiate for the
possible turnover of the TCT to them.
G.R. No. 220926

LUIS JUAN L. VIRATA and UEMMARA PHILIPPINES CORPORATION (now known as

CAVITEXINFRASTRUCTURE CORPORATION), Petitioners
vs.
ALEJANDRO NG WEE, WESTMONT INVESTMENT CORP., ANTHONY T. REYES, SIMEON CUA,
VICENTE CUALOPING, HENRY CUALOPING, MARIZA SANTOSTAN, and MANUEL ESTRELLA,
Respondents

DECISION

VELASCO, JR., J.:

Nature of the Case

For resolution is the consolidated petitions assailing the September 30, 2014 pDecision1 and October
14, 2015 Resolution2 of the Court of Appeals (CA) in CA-G.R. CV. No. 97817.3 Said rulings affirmed the
trial court judgment declaring petitioners solidarily liable to Alejandro Ng Wee (Ng Wee) in the
amount of ₱213,290,410.36, plus interests and damages.

The Facts

Ng Wee was a valued client of Westmont Bank. Sometime in 1998, he was enticed by the bank
manager to make money placements with Westmont Investment Corporation (Wincorp), a domestic
corporation organized and licensed to operate as an investment house, and one of the bank's
affiliates.4 Offered to him were "sans recourse" transactions with the following mechanics as
summarized by the CA:

x x x A corporate borrower who needs financial assistance or funding to run its business or to serve
as working capital is screened by Wincorp. Once it qualifies as an accredited borrower, Wincorp
enters into a Credit Line Agreement for a specific amount with the corporation which the latter can
draw upon in a series of availments over a period of time. The agreement stipulates that Wincorp
shall extend a credit facility on "best effort" basis and that every drawdown by the accredited
borrower shall be evidenced by a promissory note executed in favor of Wincorp and/or the
investor/s who has/have agreed to extend the credit facility. Wincorp then scouts for investors
willing to provide the funds needed by the accredited borrower. The investor is matched with the
accredited borrower. An investor who provides the fund is issued a Confirmation Advice which
indicates the amount of his investment, the due date, the term, the yield, the maturity and the name
of the borrower.5

Lured by representations that the "sans recourse" transactions are safe, stable, high-yielding, and
involve little to no risk, Ng Wee, sometime in 1998, placed investments thereon under accounts in
his own name, or in those of his trustees: Angel Archangel, Elizabeth Ng Wee, Roberto Tabada Tan,
and Alex Lim Tan.6 In exchange, Wincorp issued Ng Wee and his trustees Confirmation Advices
informing them of the identity of the borrower with whom they were matched, and the terms under
which the said borrower would repay them. The contents of a Confirmation Advice are typically as
follows:

This is to confirm that pursuant to your authority, we have acted in your behalf and/or for your
benefit, risk or account without recourse or liability, real or contingent, to Westmont Investment
Corporation in respect of the loan granted to the Borrower named and under the terms specified
hereunder

Borrower: _______

Amount Rate: % Term: Value Date: Due Date:

Yield: Tax: Maturity Value: Instrument:

Payment on Value Date TO No.

For your convenience but without any obligation on our part, we may act as your collecting and
paying agent for this transaction. Kindly note that your receipt hereof is an indication of your
conformity to the foregoing terms and conditions of the transaction.7

Special Power of Attorneys (SPAs) are also prepared for the signature of the lender investor. The SP
As uniformly provide:

The undersigned, whose personal circumstances are stated hereunder, hereby, by these presents,
appoints, names and constitutes Westmont Investment Corporation (Wincorp ), a corporation duly
organized and existing under and by virtue of the laws of the Philippines, with office address at in
Floor, Westmont Bank Building, 411 Quintin Paredes Street, Binondo, .Manila, as the Attorney-in-
Fact of the undersigned:

To agree, deliver, sign, execute loan documents relative to the borrowing of: _______________
("The Borrower") to whom the undersigned, thru Wincorp, agreed to lend the principal sum of
PESOS ________________

HEREBY GIVING AND GRANTING unto said Attorney-in-Fact power and authority to do and perform
all and every act and thing whatsoever requisite or necessary to be done in and about the premises,
HEREBY RATIFYING AND CONFIRMING all that said Attorney-in-Fact shall lawfully do or cause to be
done by virtue of these presents.8

Ng Wee's initial investments were matched with Hottick Holdings Corporation (Hottick), one of
Wincorp's accredited borrowers, the majority shares of which was owned by a Malaysian national by
the name of Tan Sri Halim Saad (Halim Saad). Halim Saad was then the controlling shareowner of
UEM-MARA, which has substantial interests in the Manila Cavite Express Tollway Project (Cavitex).9

Hottick was extended a credit facility10 with a maximum drawdown of ₱l,500,908,026.87 in

consideration of the following securities it issued in favor of Wincorp: (1) a Suretyship
Agreement11 executed by herein petitioner Luis Juan Virata (Virata); (2) a Suretyship
Agreement12 executed by YBHG Tan Sri Halim Saad; and (3) a Third Party Real Estate
Mortgage13 executed by National Steel Corporation (NSC). Hottick fully availed of the loan facility
extended by Wincorp, but it defaulted in paying its outstanding obligations when the Asian financial
crisis struck. As a result, Wincorp filed a collection suit against Hottick, Halim Saad, and NSC for the
repayment of the loan and related costs.14 A Writ of Preliminary Attachment was then issued against
Halim Saad's properties, which included the assets of UEM-MARA Philippines Corporation (UEM-
MARA).15 Virata was not impleaded as a party defendant in the case.
To induce the parties to settle, petitioner Virata offered to guarantee the full payment of the loan.
The guarantee was embodied in the July 27, 1999 Memorandum of Agreement16 between him and
Wincorp. Virata was then able to broker a compromise between Wincorp and Halim Saad that paved
the way for the execution of a Settlement Agreement17 dated July 28, 1999. In the Settlement
Agreement, Halim Saad agreed to pay USDl,000,000.00 to Wincorp in satisfaction of any and all
claims the latter may have against the former under the Surety Agreement that secured Hottick's
loan. As a result, Wincorp dropped Halim Saad from the case and the Writ of Preliminary Attachment
over the assets of UEM-MARA was dissolved.18

Thereafter, Wincorp executed a Waiver and Quitclaim19 dated December 1, 1999 in favor of Virata,
releasing the latter from any obligation arising from the Memorandum of Agreement, except for his
obligation to transfer forty percent (40%) equity of UEM Development Philippines, Inc. (UPDI) and
forty percent (40%) of UPDI's interest in the tollway project to Wincorp. Apparently, the
Memorandum of Agreement is a mere accommodation that is not meant to give rise to any legal
obligation in Wincorp's favor as against Virata, other than the stipulated equity transfer.

Alarmed by the news of Hottick's default and financial distress, Ng Wee confronted Wincorp and
inquired about the status of his investments. Wincorp assured him that the losses from the Hottick
account will be absorbed by the company and that his investments would be transferred instead to a
new borrower account. In view of these representations, Ng Wee continued making money
placements, rolling over his previous investments in Hottick and even increased his stakes in the new
borrower account - Power Merge Corporation (Power Merge).20

Incorporated on August 4, 1997, Power Merge21 is a domestic corporation, the primary purpose of
which is to "invest in, purchase, or othe-rwise acquire and own, hold, use, sell, assign, transfer,
mortgage, pledge, exchange or otherwise dispose of real or personal property of every kind and
description."22 Petitioner Virata is the majority stockholder of the corporation, owning 374 ,996 out
of its 375, 000 subscribed capital stock.23

In a special meeting of Wincorp's board of directors held on February 9, 1999, the investment house
resolved to file the collection case against Halim Saad and Hottick,24 and, on even date, approved
Power Merge' s application for a credit line, extending a credit facility to the latter in the maximum
amount of ₱l,300,000,000.00.25 Based on the minutes of the special meeting,26 board chairman John
Anthony B. Espiritu, Wincorp President Antonio T. Ong (Ong), Mariza Santos-Tan (Santos-Tan),
Manuel N. Tankiansee (Tankiansee),27 and petitioners Manuel A. Estrella (Estrella), Simeon Cua,
Henry T. Cualoping, and Vicente Cualoping (Cua and the Cualopings) were allegedly in attendance.
Thus, on February 15, 1999, Wincorp President Ong and Vice-President for Operations petitioner
Anthony Reyes (Reyes) executed a Credit Line Agreement28 in favor of Power Merge with petitioner
Virata's conformity.

Barely a month later, on March 11, 1999, Wincorp, through another board meeting allegedly
attended by the same personalities, increased Power Merge's maximum credit limit to
₱2,500,000,000.00.29 Accordingly, an Amendment to the Credit Line Agreement30 (Amendment) was
executed on March 15, 1999 by the same representatives of the two parties.

Power Merge made a total of six (6) drawdowns from the amended Credit Line Agreement in the
aggregate amount of P2,183,755,253.11.31 Following protocol, Power Merge issued Promissory
Notes in favor of Wincorp, either for itself or as agent for or on behalf of certain investors, for each
drawdown. The Promissory Notes issued can be summarized thusly:32

Promissory Note No. Availment Date Maturity Date Principal

And pertinently, the template for the Promissory Notes read:

PROMISSORY NOTE

For value received, I/We hereby promise to pay WESTMONT INVESTMENT

CORPORATION (WINCORP), either for itself or as agent for and on behalf of certain INVESTORS who
have placed/invested funds with WINCORP the principal sum of __________ (_______), Philippine
Currency, on _____ with interest rate of _________ percent (___%) per annum, or equivalently the
Maturity Amount of ___________ PESOS Philippine Currency.

Demand and Dishonor Waived: In case of default in the payment of this Promissory Note, an
additional interest on the Maturity Amount at the rate of three percent (3%) per month shall accrue
from the date immediately following the Maturity Date hereof until the same is fully paid. In
addition, I/We shall be liable to pay liquidated damages in the amount equivalent to twenty percent
(20%) of the Maturity amount.

If this Note is placed in the hands of an attorney for collection, or if payment herein is collected by
suit or through other legal proceedings, I/We promise to pay WINCORP a sum equal to twenty-five
(25%) of the total amount due and payable as and for attorney's fees and cost of collection.33

After receiving the promissory notes from Power Merge, Wincorp, in turn, issued Confirmation
Advices to Ng Wee and his trustees, as well as to the other investors who were matched with Power
Merge. A summary of the said Confirmation Advices reveals that out of the ₱2,183,755,253.11
drawn by Power Merge, the aggregate amount of ₱213,290,410.36 was sourced from Ng Wee's
money placements under the names of his trustees:34

Serial No. Name Principal Amount of Placement Due Date Maturity Value

Unknown to Ng Wee, however, was that on the very same dates the Credit Line Agreement and its
subsequent Amendment were entered into by Wincorp and Power Merge, additional contracts (Side
Agreements) were likewise executed by the two corporations absolving Power Merge of liability as
regards the Promissory Notes it issued. Pertinently, the Side Agreement dated February 15, 1999
reads:

WHEREAS, Powermerge has entered into the Credit Line Agreement with Wincorp as an
accommodation in order to allow Wincorp to hold Powermerge paper instead of the obligations of
Hettick which are right now held by Wincorp.

xxxx

1. Powermerge hereby agrees to execute promissory notes in the aggregate principal sum of
₱1,200,000,000.00 in favor of Wincorp and in exchange therefore, Wincorp hereby assigns,
transfers, and conveys to Powermerge all of its rights, titles and interests by way of a
subparticipation over the promissory notes and other obligations executed by Hettick in favor of
Wincorp; Provided however that the only obligation of Powermerge to Wincorp shall be to return
and deliver to Wincorp all the rights, title and interests conveyed by Wincorp hereby to Powermerge
over the Hottick obligations. Powermerge shall have no obligation to pay under its promissory notes
executed in favor of Wincorp but shall be obligated merely to return whatever [it] may have
received from Wincorp pursuant to this agreement.

xxxx

3. Win corp confirms and agrees that this accommodation being entered into by the parties is not
intended to create a payment obligation on the part of Powermerge.35 (emphasis added)

Save for the amount, identical provisions were included in the March 15, 1999 Side Agreement.36 By
virtue of these contracts, Wincorp was able to assign its rights to the uncollected Hottick obligations
and hold Power Merge papers instead.37 However, this also meant that if Power Merge subsequently
defaults in the payment of its obligations, it would refuse, as it did in fact refuse, payment to its
investors.

Despite repeated demands,38 Ng Wee was not able to collect Power Merge's outstanding obligation
under the Confirmation Advices in the amount of ₱213,290,410.36. This prompted Ng Wee, on
October 19, 2000, to institute a Complaint for Sum of Money with Damages with prayer for the
issuance of a Writ of Preliminary Attachment (Complaint),39 docketed as Civil Case No. 00-99006
before the Regional Trial Court (RTC), Branch 39 of Manila (R TC). Of the seventeen (17) named
defendants therein, only Virata, Power Merge, UPDI, UEM-MARA, Wincorp, Ong, Reyes, Cua,
Tankiansee, Santos-Tan, Vicente and Henry Cualoping, and Estrella were duly served with
summons.40

In his Complaint, Ng Wee claimed that he fell prey to the intricate scheme of fraud and deceit that
was hatched by Wincorp and Power Merge. As he later discovered, Power Merge's default was
inevitable from the very start since it only had subscribed capital in the amount of ₱37,500,000.00,
of which only ₱9,375,000.00 is actually paid up. He then attributed gross negligence, if not fraud and
bad faith, on the part of Wincorp and its directors for approving Power Merge's credit line
application and its subsequent increase to the amount of ₱2,500,000,000.00 despite its glaring
inability to pay.

Wincorp officers Ong and Reyes were likewise impleaded for signing the Side Agreements that
would allow Power Merge to avoid paying its obligations to the investors.1âwphi1 Ng Wee also
sought to pierce the separate juridical personality of Power Merge since Virata owns almost all of
the company's stocks. It was further alleged that Virata acquired interest in UEM-MARA using the
funds swindled from the Wincorp investors.

As an annex to the Complaint, Ng Wee cited the May 5, 2000 Cease and Desist Order41 issued by the
Prosecution and Enforcement Department of the Securities and Exchange Commission (SEC) in PED
Case No. 20-237842 after its routine audit of the operations of the investment house. Data gathered
by the SEC showed that, as of December 31, 1999, Wincorp has sourced funds from 2,200 individuals
with an average of ₱7,000,000,000.00 worth of commercial papers per month.43 In its subsequent
October 27, 2000 Resolution,44 the SEC found that the Confirmation Advices that Wincorp had been
issuing to its investors takes the form of a security that ought to have been registered before being
offered to the public,45 and that the investment house had also been advancing the payment of
interest to the investors to cover up its borrowers' insolvency.46

The defendants moved for the dismissal of the case for failure to state a cause of action, among
other reasons, moored on the fact that the investments were not recorded in the name of Ng Wee.
These motions, however, were denied by the RTC on October 4, 2001, which denial was elevated by
way of certiorari to the CA, only for the trial court ruling to be affirmed on August 21, 2003. The
issue eventually made its way to this Court and was docketed as G.R. No. 162928. The Court
however, found no reversible error on the part of the CA when the appellate court sustained the
denial of the motions to dismiss.47

In their respective Answers, the Wincorp and Power Merge camps presented opposing defenses.48

Wincorp admitted that it brokered Power Merge Promissory Notes to investors through "sans
recourse" transactions. It contended, however, that its only role was to match an investor with
corporate borrowers and, hence, assumed no liability for the monies that Ng Wee loaned to Power
Merge. As proof thereof, Wincorp brought to the attention of the R TC the language of the SP As
executed by the investors.

"Sans recourse" transactions, Wincorp added, are perfectly legal under Presidential Decree No. 129
(PD 129), otherwise known as the Investment Houses Law, and forms part of the brokering functions
of an investment house. As a duly licensed investment house, it was authorized to offer the "sans
recourse" transactions to the public, even without a license to perform quasi-banking functions.

For their part, the Wincorp directors argued that they can only be held liable under Section 31
of Batas Pambansa Big. (BP) 68,49 the Corporation Code, if they assented to a patently unlawful act,
or are guilty of either gross negligence or bad faith in directing the affairs of the corporation. They
explained that the provision is inapplicable since the approval of Power Merge's credit line
application was done in good faith and that they merely relied on the vetting done by the various
departments of the company. Additionally, Estrella and Tankiansee argued that they were not
present during the special meetings when Power Merge's credit line application was approved and
even objected against the same when they came to know of such fact.

Reyes meanwhile asseverated that the first paragraph of Sec. 31 cannot find application to his case
since he is not a director of Wincorp, but its officer. It is his argument that he can only be held liable
under the second paragraph of the provision if he is guilty of conflict of interest, which he is not. He
likewise claimed that he was duly authorized to sign the side Credit Line Agreements and Side
Agreements on behalf of Wincorp.

The Wincorp camp reiterated that Ng Wee's Complaint failed to state a cause of action because the
money placements were not registered under his name. It was their postulation then that the
alleged trustees should have instituted the case in their own names.

On the other hand, petitioners Virata and UEM-MARA harped on the underlying arrangement
between Hottick, Power Merge, and Wincorp. Under the framework, Hottick will issue Promissory
Notes to Wincorp, which will then transfer the same to Power Merge. In exchange for the transfer,
Power Merge will issue its own Promissory Notes to Wincorp. That way, Wincorp will be holding
Power Merge papers, instead of Hottick.

To implement this arrangement, Wincorp and Power Merge entered into a Credit Line Agreement
with the understanding that Power Merge and Virata's only obligation thereunder would be to
collect payments on the Hottick papers. The Credit Line Agreement and the issuance of the
promissory notes, according to Virata, were mere accommodations to help Wincorp enforce the
outstanding obligations of Hottick. It was then contrary to their agreement for Wincorp to have
offered the Power Merge papers to investors since it was allegedly agreed upon that Power Merge
would incur no liability to pay the promissory notes it issued Wincorp.
 Ruling of the Trial Court

On July 8, 2011, the RTC rendered a Decision50 in Civil Case No. 00- 99006 in favor of Ng
Wee. Thefallo of the Decision reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff, ordering the
defendants Luis L. Virata, UEM-MARA Philippines Corporation, Westmont Investment Corporation
(Wincorp), Antonio T. Ong, Anthony T. Reyes, Simeon Cua, Vicente and Henry Cualoping, Mariza
Santos-Tan, and Manuel Estrella to jointly and severally pay plaintiff as follows:

1. The sum of Two Hundred Thirteen Million Two Hundred Ninety Thousand Four Hundred
Ten and 36/100 Pesos (P213,290,410.36), which is the maturity amount of plaintiffs
investment with legal interest at the rate of twelve (12%) percent per annum from the date
of filing of the complaint until fully paid;

2. Liquidated damages equivalent to twenty percent (20%) of the maturity amount, and
attorney's fees equivalent to 25% of the total amount due plus legal interest at the rate of
twelve (12%) percent per annum from the date of filing of the complaint until fully paid;

3. ₱l00,000.00 as moral damages.

4. The complaint against defendant Tankiansee is dismissed for lack of merit.

Defendants' counterclaim (sic) are dismissed for lack of merit, while the crossclaims filed by
defendants against each other are likewise dismissed, there being no evidence to support the same.

Cost against the defendants, except defendant Tankiansee.

SO ORDERED.51

Disposing first the procedural issue, the RTC reminded the parties that whether or not Ng Wee had
legal standing had already been settled when the defendants' motions to dismiss were denied with
finality. They are then precluded from re-raising the issue in their memoranda.52

On the merits, the trial court explained that there was no dispute on the factual circumstances of
the case and that, based on these facts, Wincorp and Power Merge colluded, if not connived, to
defraud Ng Wee of his investments. The RTC ratiocinated that the "sans recourse" transactions were
used to conceal Wincorp' s direct borrowing; that Wincorp negated its acts and practices under
the "sans recourse" transactions when it advanced the accrued interest due to the investors to
conceal the fact that their borrowers have already defaulted in their obligations; that Wincorp is a
vendor in bad faith since it knew that the Power Merge notes were uncollectible from the beginning
by virtue of the Side Agreements; and that, in any event, Wincorp violated its fiduciary
responsibilities as the investors' agent. The R TC held Power Merge equally guilty because Wincorp
could not have perpetrated the fraud without its indispensable participation as a conduit for the
scheme.53

The RTC likewise ruled that Ng Wee presented sufficient evidence against the individual directors
and officers for them to be held liable for fraud and/or bad faith under Sec. 31 of the Corporation
Code, except for Tankiansee. The claim against Tankiansee was dropped since his immigration
records established that he could not have participated in the special meetings of the Wincorp
directors, having been out of the country during the material dates. Moreover, he filed a civil and
criminal case against Wincorp, negating any charge of conspiracy.54

The RTC further found compelling need to pierce through the separate juridical personality of Power
Merge since Virata exercised complete control thereof, owning 374,996 out of 375,000 of its
subscribed capital stock. Similarly, the separate juridical personality of UEM-MARA was pierced to
reach the illegal proceeds of the funds sourced from the defrauded investors.55

The motions for reconsideration from the afore-quoted ruling were denied on September 9,
2011.56 Separate appeals were then lodged by the following parties: (1) Wincorp, (2) Santos-Tan, (3)
Cua and the Cualopings, (4) Virata and UEM-MARA Philippines Corp., (5) Reyes; and (6) Estrella. In
due time, the appellants and appellees filed their respective briefs.57

Ruling of the Court of Appeals

On September 30, 2014, the CA promulgated the challenged ruling substantially affirming the
findings of the trial court, viz:

WHEREFORE, the appeal is DISMISSED. The Decision dated July 8, 2011 and Order dated September
9, 2011 issued by the Regional Trial Court of Manila, Branch 39 in Civil Case No. 00-99006 are
AFFIRMED with the modification in that defendants-appellants are jointly and severally liable to pay
an interest of twelve percent (12%) per annum of the total monetary awards, computed from the
date of the filing of the complaint until June 30, 2013 and six percent (6%) per annum from July 1,
2013 until their full satisfaction.

SO ORDERED.58

Preliminarily, the CA upheld the finding of the RTC that Ng Wee is a real party in interest and that
the Complaint stated a cause of action despite the money placements being made under the name
of Ng Wee's trustees.59

The CA likewise found that Wincorp and Power Merge perpetrated an elaborate scheme of fraud to
inveigle Ng Wee into investing funds. Ng Wee would not have placed his investments in the "sans
recourse" transactions had he not been deceived into believing that Power Merge is financially
capable of paying the returns on his investments. In sync with the R TC, the CA found that Wincorp
misrepresented Power Merge's financial capacity when it accredited Power Merge as a corporate
borrower and granted it a ₱2,500,000,000.00 credit facility despite the telling signs that the latter
would not be able to perform its obligations, to wit: (1) Power Merge had only been in existence for
two years when it was granted the credit facility; (2) Power Merge was thinly capitalized with only
₱37,500,000.00 subscribed capital; (3) Power Merge was not an on-going concern since it never
secured the necessary permits and licenses to conduct business, it never engaged in any lucrative
business, and it did not file the necessary reports with the SEC; and (4) No security was demanded by
Wincorp or was furnished by Power Merge in relation to the latter's drawdowns.60

The intent of Wincorp to deceive became even more manifest when it entered into the Side
Agreements with Power Merge. The Side Agreements rendered worthless Power Merge's
Promissory Notes that Wincorp offered to Ng Wee and the other investors. Meanwhile, the "sans
recourse" nature of the transactions prevented the investors from recovering their investments from
the investment house.61
Because of the foregoing fraudulent acts, Wincorp was held liable to Ng Wee as a vendor of security
in bad faith, and for acting beyond the scope of its authority as Ng Wee's agent when it knowingly
purchased worthless securities for him and his co-investors.62

The CA likewise did not find merit in Power Merge's defense that it was a mere accommodation
party. Power Merge's participation was indispensable in deceiving Ng Wee into placing more
investments and amounted to actionable fraud. Its conduct that led to this conclusion include: (1)
setting up the Power Merge borrower account; (2) the laborious execution of Credit Line Agreement,
Side Agreements, and promissory notes; (3) allowing Wincorp to sell worthless Power Merge
papers/notes; and (4) receiving valuable consideration through its drawdowns.63

Anent the liability of the directors, the appellate court sustained the trial court's application of the
doctrine on the piercing of the corporate veil, and also held that under Sec. 31 of the Corporation
Code, corporate officers can be held liable for having assented to patently unlawful corporate acts,
and for having acted in gross negligence and/or bad faith in management.64

Here, the CA ratiocinated that the perpetrated investment scheme constituted estafa under either
Art. 315(l)(b) or Art. 315(2)(a) of the Revised Penal Code65 due to Wincorp's violation of its fiduciary
relation with Ng Wee, and its employment of fraud or deceit to the latter's damage and prejudice.
Moreover, Wincorp violated various commercial laws when it offered the "sans
recourse" transactions. For though denominated as "sans recourse," Wincorp's actuations reveal
that the transactions are actually with recourse since Wincorp virtually borrowed from itself, for
itself. Assenting to these patently unlawful acts, according to the CA, exposed the corporate
directors and officers to liability.

Gross negligence can also be attributed to the Wincorp directors when they approved Power
Merge's credit line application and the subsequent increase of its credit limit to ₱2,500,000,000.00
despite Power Merge's evident weak financial structure and poor capitalization, so the CA ruled.

The elaborate scheme of deceit and fraud, and the corresponding liability therefrom, is then
imputable to the directors of Wincorp. Meanwhile, Reyes and V irata cannot escape liability since
they signed the Side Agreements that rendered the Power Merge papers worthless.

The CA also did not find compelling reason to depart from the RTC's conclusion as regards UEM-
MARA's liability. The appellate court saw the need to reach the illegal proceeds of funds sourced
from the defrauded investors.

Lastly, the CA held that the appellants are jointly and severally liable pursuant to Art. 1170 of the
New Civil Code.66

The motions for reconsideration from the September 30, 2014 Decision were denied on October 14,
2015 in the following wise:

WHEREFORE, finding no rationally persuasive reasons which would warrant a modification much
less, a reversal of our Decision dated September 30, 2014, all the Motions for Reconsideration filed
by the defendants-appellants are DENIED. The Notice of Change of Name filed by Defendant Manuel
Estrella, is hereby NOTED.

SO ORDERED.67

Grounds for the Petitions

Aside from Santos-Tan, defendants-appellants a quo appealed the September 30, 2014 Decision and
October 14, 2015 Resolution of the CA via the instant recourses.

G.R. No. 220926: Petition for Review

on Certiorari of Luis Juan L. Virata
and UEM-MARA

In their Petition for Review on Certiorari,68 Virata and UEM-MARA claim that there is no basis in
implicating them in the scheme to defraud Ng Wee and the other investors since there was no
privity of contract between them; petitioners never interacted with Ng Wee. This is allegedly
consistent with the CA finding that Wincorp engaged in direct borrowing with its investors. Thus,
petitioners argue that Ng Wee cannot subsequently claim that his funds were lent to Power Merge.
Ng Wee likewise allegedly failed to prove that Power Merge derived pecuniary benefits from the
investment transactions.

Petitioners add that the Confirmation Advices were issued by Wincorp alone. Wincorp had the sole
discretion of selecting which corporate borrower to match with whom. Power Merge, Virata, and
UEM-MARA therefore had no control over the matter. Thus, applying the doctrine of res inter alios
acta alteri nocere non debet, third parties like petitioners may not be prejudiced by the act,
declaration, or omission of Wincorp.

The propriety of piercing the corporate veil is also challenged by petitioners. They argue that Virata's
ownership of almost all of the shares of Power Merge does not automatically justify the application
of the doctrine, absent fraud. And according to petitioners, there was no evidence of fraud, bad
faith, or gross negligence on the part of Virata in the case at bar. It is the postulation that Virata
could not be held liable for acts done in his official capacity, including the execution of the Credit
Line Agreement and the Side Agreements, which allegedly are valid arm's length transactions duly
authorized by Power Merge, and that bad faith cannot be presumed from the mere failure of Power
Merge to pay its obligations.

Petitioners also see no valid reason to hold UEM-MARA liable since there is no evidence of its
participation in the allegedly fraudulent act. There is no proof that the grant of the credit line was for
the purpose of acquiring interests in UEM-MARA, or that the funds obtained by Power Merge were
the same funds used by Virata to acquire interests therein. Petitioner Virata claims that he made use
of a ₱600,000,000.00 credit facility from Metrobank to facilitate the acquisition.

G.R. No. 221058: Petition for Review

on Certiorari of Wincorp

In its petition, Wincorp attributes reversible error69 to the CA when it rendered judgment against the
investment house. It claims that it merely performed its normal function as an investment house by
matching and marrying corporate borrowers with investors. The arrangement it entered into was
neither an investment contract between it and Ng Wee nor an exercise of quasi-banking function,
but the brokerage of a legitimate loan agreement between Ng Wee and Power Merge. Ng Wee
expected a fixed interest income at the end of the term of the loan, and not a participation in the
success or loss of the borrower corporation.

Wincorp adds that it was clear to Ng Wee that what was involved was a loan agreement, and that
Wincorp was merely brokering the transaction. As a mere broker of the transaction, not the
beneficiary thereof, Wincorp asserts that it cannot be held liable for the amount borrowed by Power
Merge. Wincorp relies on the text of the Confirmation Advices issued to Ng Wee to advance this
point.70

Based on the language of the Confirmation Advices, Ng Wee knew of and approved the transactions
that Wincorp entered into with Power Merge as his agent; that Ng Wee's conformity in the series of
Confirmations Advices issued in his favor, and his execution of the corresponding SP As thereafter,
allegedly ratified Wincorp's acts of agency in the execution of the loan agreement; and that Ng Wee
had been renewing and rolling over his initial placement, despite knowledge of this setup.

Wincorp further denies violating commercial laws since the transactions are "without recourse, " in
compliance with the Bangko Sentral ng Pilipinas (BSP) rule that only institutions that are granted
license to perform quasi-banking functions can engage in transactions "with recourse." Moreover,
the agreement with Ng Wee to broker a loan, not being a quasi-banking function, is required to be
marked as "without recourse" under Sec. 4103N.2 of the BSP Manual of Regulations for Nonbank
Financial Institutions.

It is also the contention of Wincorp that it is within its discretion whether or not to approve Power
Merge's credit line. It was not an ultra vires act, and is instead covered by the business judgment
rule. The fact that the business strategy turned out to be unfavorable should not so casually be used
to impute liability to the corporation absent showing of bad faith or gross negligence.

G.R. No. 221109: Petition/or Review

of Manuel Estrella

Petitioner Estrella, one of the directors of Wincorp, instituted a separate petition71 anchored on the
ground that he was a mere nominee in Wincorp of his principals, Eduardo Espiritu and Wincorp
board chairperson John Anthony Espiritu; that he did not have any real beneficial interest in Wincorp
as his appointment was a mere accommodation to the Espiritus; and that he did not even receive
any compensation, salary, per diem or benefit of any kind from either the Espiritus or from Wincorp.

As a mere nominee, Estrella is involved solely in setting down company policies and prescribing the
general guidelines for the direction of the business and affairs of Wincorp. In the performance of his
duties, he relies heavily on the reports, memoranda, and information provided them by
management. He contends that he was never involved in the day-to-day management and
operations of the company. He then had no knowledge and could not then have approved of the
Side Agreements entered into by Ong and petitioner Reyes. The Side Agreements were never
presented in any of the meetings Estrella attended, or so he claims.

He also questions the R TC and the CA's reliance on the minutes of the special meetings naming him
as one of the directors who approved Power Merge's credit line application and its subsequent
amendment. He argues that the minutes have already been discredited when the charges against
Tankiansee have been dropped. Estrella reminds the Court that Tankiansee was likewise included in
the list of directors in attendance during the February 9, 1999 and March 11, 1999 special meetings,
only to be disproved later on by his immigration records that show that he was out of the country
during the material dates.

It was admitted that Estrella attended the February 9, 1999 special meeting, but claims that he
already left before the "other matters" in the agenda, which included Power Merge's application,
were discussed. He denies attending the March 11, 1999 special meeting since he accompanied his
wife that day to the hospital for her cancer treatment. To substantiate these defenses, he brings to
the Court's attention the fact that he did not sign, as he refused to sign, the minutes of the February
9, 1999 and March 11, 1999 special meetings.

G.R. No. 221135: Petition/or Review

on Certiorari of Simeon Cua, Henry
Cualoping, and Vicente Cualoping

For their defense72 against civil liability in this case, petitioners Cua and the Cualopings claim that Ng
Wee failed to prove that they acted in bad faith or were grossly negligent in managing the affairs of
Wincorp, which is required for directors to be held liable under Sec. 31 of the Corporation Code.
They argued that the extent of their participation in the alleged fraudulent scheme was limited to
acting favorably on the executive committee's recommendations regarding Power Merge's credit
line application and its subsequent amendment. Mere approval of Power Merge's applications,
however, cannot be equated with bad faith, for the directors relied on the vetting by the
departments responsible for doing so. They point out that Power Merge's applications underwent
scrutiny by the credit committee and executive committee prior to their approval. The approval
cannot then be considered as unlawful, and neither bad faith nor gross negligence can be attributed
to the directors. Rather, it was performed in the legitimate pursuit of Wincorp's business as a duly-
licensed investment house.

Moreover, petitioners deny any knowledge and participation in the execution of the Side
Agreements with Power Merge, and claim that the execution was performed by Wincorp President
Ong and petitioner Reyes without proper authorization from the board and, hence, ultra vires. They
add that they could not have defrauded Ng Wee since they had no knowledge that the latter was
matched with Power Merge.

G.R. No. 221218: Petition/or Review

on Certiorari of Anthony Reyes

Finally, the grounds73 invoked by petitioner Reyes to support his petition centered on the argument
that he had no hand in the approval of the credit line application or its increase since he is not a
director of Wincorp. He was merely the Vice-President for Operations of Wincorp, duly authorized as
the investment house's signatory for and to all its documents, transactions and accounts. Thus, he
alleges that he was under obligation to sign the Credit Line Agreement, its Amendment, and the Side
Agreements in favor of Power Merge after the latter's application was approved by Wincorp's board
of directors.

Furthermore, he argues that Sec. 31 of the Corporation Code is inapplicable since he is neither a
director nor trustee of Wincorp, as required by the provision. And assuming without conceding its
applicability, he claims that he cannot be held solidarily liable since he signed the agreements on
behalf of the company in good faith.

The issue of whether or not Ng Wee is a real party in interest was again raised as an issue in Reyes'
petition.

The Comments

Comments of Wincorp

In G.R. No. 220926, filed by petitioners Virata and UEM-MARA, Wincorp admitted in its
Comment74 that the execution of the Side Agreements is highly irregular, but argues that only Ong
and Reyes should be held liable therefor since they acted beyond the scope of their authority.
Wincorp claims that the execution of the Side Agreements releasing Power Merge from its
obligations are ultra vires acts of the corporate officers, for which the investment house cannot be
held liable.

This argument was further amplified in its Comment75 in G.R. No. 221218, filed by Reyes, wherein
Wincorp reiterated that the actions of the two officers (Ong and Reyes) in executing the Side
Agreements, and thereby discharging Virata and Power Merge from their obligations, was outside
the scope of their authority and was not approved its board of directors. Accordingly, their actions
could not legitimately be considered as actions of Wincorp.

Comment of Virata, UEM-MARA

Petitioners V irata and UEM-MARA argued in their Comment76 in G.R. No. 221218, the only petition
where they are impleaded as respondents, that petitioner Reyes' cross-claim has no factual and legal
basis. Aside from Reyes' general averments that Wincorp and Power Merge connived and colluded
to defraud the investors, he did not cite any specific basis for holding Virata and UEM-MARA liable to
him.

Comment of Ng Wee

Respondent Ng Wee filed his Comment77 on the consolidated petitions but merely refuted petitioner
Reyes' claims. Ng Wee emphasized that Reyes did not assail the findings of the CA that the
transactions between Wincorp and Power Merge were impressed with fraud. Moreover, Reyes'
indispensable participation in the fraud, especially his signing of the Side Agreements, rendered him
liable to respondent Ng Wee. His signatures to the Side Agreements meant that he adhered to its
contents, including the release of Power Merge from its obligations under the Promissory Notes.

Meanwhile, petitioners Reyes, Estrella, Cua, and the Cualopings did not file their respective
comments78 despite due notice.79

The Issues

Succinctly stated, the issues raised in the consolidated petitions boil down to the following:

1. Whether or not the case was prosecuted in the name of the real party in interest;

2. Whether or not Ng Wee was able to establish his cause/s of action against Wincorp and Power
Merge;

3. Whether or not it is proper to pierce the veil of corporate fiction under the circumstances of the
case;

4. Whether or not the counterclaims and cross-claims of the parties should prosper; and

5. Whether or not the award of damages to Ng Wee is proper.

The Court now resolves these issues in seriatim.

The Court's Ruling

 I.
Ng Wee is the Real Party in Interest

Petitioners present legal issues on both procedure and substance. Resolving first the procedural
aspect of the case, the Court rules that Ng Wee is a real party in interest, contrary to the petitioners'
claim.

Law of the Case doctrine bars the relitigation of a settled issue

As a general rule, every action must be prosecuted or defended in the name of the real party in
interest.80 Section 2, Rule 3 of the Rules of Court defines a real party in interest as "the party who
stands to be benefited or injured by the judgment in the suit, or the party entitled to the avails of the
suit."

In this case, it is worth recalling that the procedural issue on whether or not Ng Wee is the real party
in interest had already been resolved by this Court in G.R. No. 162928. There, the Court found
neither abuse of discretion on the part of the R TC nor reversible error on the CA when they ruled
that Ng Wee had the legal personality to file the Complaint to recover his investments. The
resolutions by the CA and this Court sustaining the October 4, 2001 Order had already attained
finality and could no longer be modified. Concomitantly, the parties are barred from re-raising the
issues settled therein, pursuant to the law of the case doctrine.

The law of the case doctrine applies in a situation where an appellate court has made a ruling on a
question on appeal and thereafter remands the case to the lower court for further proceedings; the
question settled by the appellate court becomes the law of the case at the lower court and in any
subsequent appeal. It means that whatever is irrevocably established as the controlling legal rule or
decision between the same parties in the same case continues to be the law of the case, whether
correct on general principles or not, so long as the facts on which the legal rule or decision was
predicated continue to be the facts of the case before the court.81

It is inconsequential that the issue raised in G.R. No. 162928 pertained to the alleged grave abuse of
discretion committed by the R TC in denying the motions to dismiss, and not to the merits of the
motions to dismiss per se. For as the Court has elucidated in Banco de Oro-EPCI, Inc. v. Tansipek:

x x x there is no substantial distinction between an appeal and a Petition for Certiorari when it
comes to the application of the Doctrine of the Law of the Case. The doctrine is founded on the
policy of ending litigation. The doctrine is necessary to enable the appellate court to perform its
duties satisfactorily and efficiently, which would be impossible if a question once considered and
decided by it were to be litigated anew in the same case upon any and every subsequent
appeal.82 (emphasis added)

We are then constrained to abide by Our prior ruling in G.R. No. 162928 that Ng Wee is a real party
in interest in this case.

Ng Wee successfully stated a cause

of action based on a hypothetical
admission of the allegations in his
complaint

To be sure, hornbook doctrine is that when the affirmative defense of dismissal is grounded on the
failure to state a cause of action, a ruling thereon should be based on the facts alleged in the
complaint.83 Otherwise stated, whether or not Ng Wee successfully stated a cause of action requires
hypothetically admitting and scrutinizing the allegations in his Complaint. A reproduction of its
pertinent contents is hence apropos:

xxxx

2.5 Relying on said representations, [Ng Wee] placed substantial amounts of money in his own name
and in the names of others with defendant Wincorp on several occasions. Some of the outstanding
placements of [Ng Wee] with defendant Wincorp, which were loaned to defendant Virata/Power
Merge, are in the names of Robert Tabada Tan, Elizabeth Ng Wee, Alex Lim Tan and Angel Archangel
who hold said placements in trust for [Ng Wee].84

As aptly noted by the trial court in its October 4, 2001 Order denying the motions to dismiss:

In the Complaint, [Ng Wee] has clearly averred that he placed some of his money placements in the
names of other persons and that said persons held the said money placements in trust for him
(paragraph 2.5 of the complaint). With such allegation of ownership of the funds, [Ng Wee] is clearly
the real party in interest as he stands to be benefited or injured by the judgment in the instant case.
(Section 2, Rule 3, Rules of Court)

xxxx

Hence, this Court cannot grant the dismissal of the Complaint on this ground, since the allegations in
the Complaint show, on the contrary, that [Ng Wee] is the real party in interest.85 (words in brackets
added)

The RTC is correct in its observation that there is sufficient allegation that Ng Wee is the actual
injured party in the failed investment. As the alleged owner of the funds placed under the names of
Robert Tabada Tan, Elizabeth Ng Wee, Alex Lim Tan and Angel Archangel in Wincorp, Ng Wee lost
₱213,290,410.36 from Power Merge's default and non-payment of its obligations under the credit
facility extended by the investment house. This controverts petitioners' claim that Ng Wee is not the
real party in interest herein.

Testimonial evidence on record

established Ng Wee's ownership over
the invested funds; Ng Wee does not
lack cause of action

Even the evidence on record would belie petitioners' claim that Ng Wee is not the real party in
interest. Elizabeth Ng Wee, Alex Lim Tan and Angel Archangel were straightforward in their
testimonies that the funds invested in Power Merge belonged to Ng Wee, albeit recorded under
their names. They likewise executed documents denominated as "Declaration of Trust" wherein
they categorically stated that they merely held the funds in trust for Ng Wee, the beneficial owner.

Angel Archangel admitted the trust relation in the following manner:

Q: What can you say about the money placement in Wincorp?

A: It is not my money, sir.

Q: And whose money is it, Madam Witness?

A: Alejandro Ng Wee.

Q: And what is your participation insofar as that money placement is concerned?

A: None, sir.86

Elizabeth Ng Wee, meanwhile, testified in the following wise:

Q: Now you said you transacted with this Gilda because you were instructed by your brother to
transact with her?

A: Yes, sir.

Q: And why did you follow his instruction?

A: It is his money.

Q: Which one?

A: Those placements, sir.

xxxx

Q: And why are these money placements under your name, Madam Witness, if these are his money?

A: He requested me to handle this money on behalf of him, sir.

Q: And you earlier identified five (5) confirmation advices, what relation do these confirmation
advices have to the confirmation which you have identified and said that you surrendered to your
brother?

A: They are the same, sir.

Q: I see. Why did you surrender them to your brother?

A: Simply because they are not my money, sir. Those are his, so it is up to him to do something about
what will happen.

xxxx

Q: I am holding before me a document introduced by the lawyer of your brother previously marked
as Exhibit "JJJ'' entitled Declaration of Trust, kindly go over the document.

A: Okay.

Q: There is a signature at the bottom portion of the document, whose signature is that?

A That is my signature, sir.87

And when Alex Lim Tan took the witness stand:

xxxx

A: He [referring to Alejandro Ng Wee] called me up and he requested me if he can use my name in

placing his money with Westmont for money placement.

Q: You mentioned Westmont. What is that Westmont?

A: Westmont Investment Corporation, sir.

Q: And what was your response, if any, to the request of Plaintiff?

A: I agreed.

Q: And what happened next after you agreed?

A: He let me sign the documents specifically the Confirmation Advices, sir.

xxxx

Q: And what did you do after he sent these Confirmation Advices to you?

A: I signed it, sir.

Q: And after signing these documents, what else did you do if any?

A: I returned them to Mr. Wee, Sir.

Q: And why did you return these documents to him?

A: Because he owns it, sir.

xxxx

Q: Apart from the Confirmation Advices that you identified today, did you sign any other document
in connection with the investment represented by these Confirmation Advices?

A: There was, sir.

Q: Can you tell us what was that document, Mr. Witness?

A: The Declaration of Trust, Sir.88

Finally, Wincorp employees Ruben Tobias and Gilda Lucena testified89 that they were instructed by
Ng Wee to rename several of his investments under the Power Merge Account to the names of Alex
Lim Tan and Robert Tabada Tan. Effectively, Ruben Tobias and Gilda Lucena corroborated the claim
of Ng Wee that the investments in Power Merge that were recorded under those names are actually
respondent Ng Wee's.

From the foregoing evidence on record, it can no longer be gainsaid that Ng Wee is the real party in
interest in the present case. The allegation in his Complaint that he is the actual owner of the
₱213,290,410.36 infused in Power Merge under the names of Robert Tabada Tan, Elizabeth Ng Wee,
Alex Lim Tan and Angel Archangel has been established by preponderant evidence, and, more
significantly, has already become the law of the case. The procedural issue raised by petitioners
therefore lacks merit.

II.
Liability of the Corporations to Ng Wee

With the procedural issue disposed, the Court will now proceed to ascertain the liability of the
parties to Ng Wee, beginning with the major players in this controversy. On this point, worthy of
note is that none of the petitioners disputed the fact that Ng Wee is entitled to recover the amount
that he has invested. What they only required, which they also invoked as the ground for their
motions to dismiss, is that Ng Wee prove that the amounts invested actually belonged to him. Thus,
having established that Ng Wee is the real party in interest and that he is the beneficial owner of the
investments under the names of Robert Tabada Tan, Elizabeth Ng Wee, Alex Lim Tan and Angel
Archangel, his entitlement to recover the ₱213,290,410.36 becomes indubitable. The only question
that remains now is: from whom can Ng Wee recover the ₱213,290,410.36 investment? To this,
petitioners would pose clashing claims, which prompts this Court to elucidate on their respective
exposures to civil liability.

Only Wincorp is liable to Ng Wee for

fraud; Power Merge is liable based
on contract

a. That Wincorp defrauded Ng Wee is a finding

of fact that is conclusive on this Court

Axiomatic in this jurisdiction is that, as a general rule, only questions of law may be raised in a
Petition for Review on Certiorari under Rule 45 of the Rules of Court.90 The appellate court's findings
of fact being conclusive, the jurisdiction of this Court in appealed cases is limited to reviewing and
revising the errors of law.91 As We have emphatically declared in a long line of cases, "it is not the
function of the Supreme Court to analyze or weigh such evidence all over again, its jurisdiction being
limited to reviewing errors of law that might have been committed by the lower court."92

Enumerated in Medina v. Mayor Asistio, Jr.93 are the recognized exceptions to the general rule.94 But
insofar as Wincorp is concerned, it failed to establish that any of these exceptions obtain in the
present case. Thus, the Court sustains the finding of the trial court, as affirmed by the CA, that
Wincorp is liable to Ng Wee for perpetrating an elaborate scheme to defraud its investors. As held
by the CA:

[Ng Wee] would not have placed funds or invested [in] the "sans recourse" transactions under the
Power Merge borrower account had he not been deceived into believing that Power Merge is
financially capable of paying the returns of his investments/money placements. Wincorp accredited
Power Merge as a borrower, given it a credit line in the maximum amount of ₱2,500,000,000.00,
Philippine Currency, allowed it to make drawdowns up to ₱2,183,755,253.ll, Philippine Currency,
matched it with [Ng Wee's] investments/ money placements to the extent of ₱213,290,410.36,
Philippine Currency, notwithstanding telling signs which immediately cast doubt on its ability to
perform its obligations under the Credit Line Agreements, Promissory Notes and [Confirmation
Advices], to wit: (1) Power Merge had only been in existence as a corporation for barely two (2)
years when it was accredited as borrower by Wincorp; (2) Power Merge is a thinly capitalized
corporation with only ₱37,500,000.00 subscribed capital stock; (3) Power Merge is not an ongoing
concern because (a) Despite the fact that Power Merge's principal place of business is at 151 Paseo
de Roxas St., Makati City, it has neither registered nor conducted any business at Makati City as
evident from the Certification dated January 3, 2006 issued by the Business Permits Office Of Makati
City; (b) it is not engaged in any lucrative business to finance its operation; Despite the fact that its
primary purpose is to "invest in, purchase, or otherwise acquire and own, hold, use, sell, assign,
transfer, mortgage, pledge, exchange, or otherwise dispose of real or personal property of every
kind and description ... ," no proof was adduced to show that it was carrying out or has carried out
this mandate in accordance with the law; (c) From the time of its incorporation until the revocation
of its Certificate of Incorporation on March 15, 2004, Power Merge has failed to file annual reports
required by the SEC such as General Information Sheets and Financial Statements; (4) No security
whatsoever was demanded by Wincorp or furnished by Power Merge in relation to its credit line and
drawdowns. Indeed, no person in his proper frame of mind would venture to lend hundreds of
millions of pesos to a business entity having such a financial setup. x x x

xxxx

The intent to defraud and deceive [Ng Wee] of his investments/ money placements was manifest
from the very start. Wincorp and Power Merge entered into a Credit Line Agreement on February
15, 1999 and an Amendment to Credit Line Agreement on March 15, 1999. It is interesting to note
that they simultaneously executed two Side Agreements which are peculiar because: (1) The dates
of execution of the two Side Agreements coincide with the dates of execution of the credit
agreements; (2) [The] two Side Agreements were executed by the same exact parties: Antonio Ong
and Anthony Reyes for and on behalf of Wincorp and [Virata] and Augusto Geluz for and on behalf of
Power Merge; (3) The Credit Line Agreement dated February 15, 1999 and the First Side Agreement
dated February 15, 1999 were both acknowledged before notary public, Atty. Fina De La Cuesta-
Tantuico while the Amendment to Credit Line Agreement dated March 15, 1999 and the Second Side
Agreement dated March 15, 1999 were both acknowledged before notary public, Atty. Eric R.G.
Espiritu; (4) The two Side Agreements have the same exact provisions as the two credit agreements
insofar as it purports to extend a credit line and increase the credit line of Power Merge but the two
Side Agreements relieve Power Merge from any liability arising from the execution of the
agreements and promissory notes.95

Jurisprudence defines "fraud" as the voluntary execution of a wrongful act, or a willful omission,
knowing and intending the effects which naturally and necessarily arise from such act or omission. In
its general sense, fraud is deemed to comprise anything calculated to deceive, including all acts and
omissions and concealment involving a breach of legal or equitable duty, trust, or confidence justly
reposed, resulting in damage to another, or by which an undue and unconscientious advantage is
taken of another. Fraud is also described as embracing all multifarious means which human
ingenuity can device, and which are resorted to by one individual to secure an advantage over
another by false suggestions or by suppression of truth and includes all surprise, trick, cunning,
dissembling, and any unfair way by which another is cheated.96

Under Article 1170 of the New Civil Code, those who in the performance of their obligations are
guilty of fraud are liable for damages. The fraud referred to in this Article is the deliberate and
intentional evasion of the normal fulfillment of obligation.97 Clearly, this provision is applicable in the
case at bar. It is beyond quibble that Wincorp foisted insidious machinations upon Ng Wee in order
to inveigle the latter into investing a significant amount of his wealth into a mere empty shell of a
corporation. And instead of guarding the investments of its clients, Wincorp executed Side
Agreements that virtually exonerated Power Merge of liability to them; Side Agreements that the
investors could not have been aware of, let alone authorize.
The summation of Wincorp's actuations establishes the presence of actionable fraud, for which the
company can be held liable. In Jason vs. People, the Court upheld the ruling that where one states
that the future profits or income of an enterprise shall be a certain sum, but he actually knows that
there will be none, or that they will be substantially less than he represents, the statements
constitute an actionable fraud where the hearer believes him and relies on the statement to his
injury.98

Just as in Jason, it is abundantly clear in the present case that the profits which Wincorp promised to
the investors would not be realized by virtue of the Side Agreements. The investors were kept in the
dark as regards the existence of these documents, and were instead presented with Confirmation
Advices from Wincorp to give the transactions a semblance of legitimacy, and to convince, if not
deceive, the investors to roll over their investments or to part with their money some more.

b. Power Merge is not guilty of fraud, but is

liable under contract nonetheless

The story, however, is different for Power Merge. The circumstances of this case points to the
conclusion that Power Merge and Virata were not active parties in defrauding Ng Wee. Instead, the
company was used as a mere conduit in order for Wincorp to be able to conceal its act of directly
borrowing funds for its own account. This is made evident by one highly peculiar detail- the date of
the Power Merge's drawdowns.

It must be remembered that the special meeting of Wincorp's board of directors was conducted on
February 9 and March 11 of 1999, while the Credit Line Agreement and its Amendment were
entered into on February 15 and March 15 of 1999, respectively. But as indicated in Power Merge's
schedule of drawdowns,99 Wincorp already released to Power Merge the sum of ₱l,133,399,958.45
as of February 12, 1999, before the Credit Line Agreement was executed. And as of March 12, 1999,
prior to the Amendment, ₱l,805,018,228.05 had already been released to Power Merge.

The fact that the proceeds were released to Power Merge before the signing of the Credit Line
Agreement and the Amendment thereto lends credence to Virata's claim that Wincorp did not
intend for Power Merge to be strictly bound by the terms of the credit facility; and that there had
already· been an understanding between the parties on what their respective obligations will be,
although this agreement had not yet been reduced into writing. The underlying transaction would
later on be revealed in black and white through the Side Agreements, the tenor of which amounted
to Wincorp's intentional cancellation of Power Merge and Virata's obligation under their Promissory
Notes.100 In exchange, Virata and Power Merge assumed the obligation to transfer equity shares in
UPDI and the tollway project in favor of Wincorp. An arm's length transaction has indeed taken
place, substituting Virata and Power Merge's obligations under the Promissory Notes, in pursuance
of the Memorandum of Agreement and Waiver and Quitclaim executed by Virata and Wincorp.
Thus, as far as Wincorp, Power Merge, and Virata are concerned, the Promissory Notes had already
been discharged.

It was the understanding of the two companies that the Promissory Notes would not be passed on
to the hands of third persons and that, in any event, Wincorp guaranteed Virata that he and Power
Merge would not be held liable thereon. Driven by the desire to completely settle his obligation as a
surety under the Hottick account, V irata took the deal and relied in good faith that Wincorp's
officials would honor their gentleman's agreement. But as events unfolded, it turned out that
Wincorp was in evident bad faith when it subsequently assigned credits pertaining to portions of the
loan and the corresponding interests in the Promissory Notes to the investors in the form of
Confirmation Advices when it knew fully well of Power Merge's discharge from liability.
Between Wincorp and Power Merge, it is Wincorp, as the assignor of the portions of credit, that is
under obligation to disclose to the investors the existence and execution of the Side Agreements.
Failure to do so, to Our mind, only goes to show that the target of Wincorp' s fraud is not any
particular individual, but the public at large. On the other hand, it was not Power Merge's positive
legal duty to forewarn the investors of its discharge since the company did not deal with them
directly. Power Merge and Virata were agnostic as to the source of funds since they relied on their
underlying agreement with Wincorp that they would not be liable for the Promissory Notes issued.

As far as it was concerned, Power Merge was merely laying the groundwork prescribed by Wincorp
towards fulfilling its obligations under the Waiver and Quitclaim. Virata was not impelled by any
Machiavellian mentality when he signed the Side Agreements in Power Merge's behalf. Therefore,
only Wincorp can be held liable for fraud. Nevertheless, as will later on be discussed, Power Merge
and Virata can still be held liable under their contracts, but not for fraud.

The "sans recourse" transactions

cannot exempt Wincorp from
liability for having been offered in
violation of commercial laws

Wincorp attempts to evade liability by hiding behind the "sans recourse" nature of the transactions
with Ng Wee. It argues that as a mere agent or broker that matches an investor with a borrower, it
cannot be held liable for the invested amount in case of an unsuccessful or failed match. As
evidenced by the Confirmation Advices and SP As signed by the investors, Wincorp is merely tasked
to deliver the amount to be loaned to the borrower, and does not guarantee its borrowers' financial
capacity.

The argument deserves scant consideration.

a. The "sans recourse" transactions are
deemed "with recourse"

An investment house is an enterprise that engages in the underwriting of securities of other

corporations.101 Securities underwriting, in turn, refers to the process by which underwriters raise
capital investments on behalf of the corporation issuing the securities. Thus, aside from performing
the regular powers of a corporation under the Corporation Code, a duly licensed investment house is
granted additional powers under Sec. 7102 of Presidential Decree No. (PD) 129.

Conspicuously absent in the enumerated additional powers of an investment house, however, is the
authority to perform quasi-banking functions. Even as a financial intermediary, investment houses
are not allowed to engage in quasi-banking functions, unless authorized by the Monetary Board
through the issuance of a Certificate of Authority.104

The Omnibus Rules and Regulations for Investment Houses and Universal Banks Registered as
Underwriters defines "quasi-banking function " as the function of "borrowing funds for the
borrower's own account from 20 or more persons or corporate lenders at any one time, through the
issuance, endorsement or acceptance of debt instruments of any kind other than deposits which may
include but need not be limited to acceptances, promissory notes, participations, certificates of
assignment or similar instruments with recourse, trust certificates or of repurchase agreements for
purposes of relending or purchasing of receivables and other obligations."105
Given the definition, it would appear on paper that offering the "sans recourse" transactions does
not qualify as the performance of a quasi-banking function specifically because it is "sans
recourse" against Wincorp.

As provided under S4101Q.3 of the Manual of Regulations for Non-Bank Financial Institutions:

S4101Q.3. Transactions not considered quasi-banking. The following shall not constitute quasi-
banking:

xxxx

a. The mere buying and selling without recourse of instruments mentioned in Sec.4101Q: Provided
that:

(1) The institution selling without recourse shall indicate or stamp in conspicuous print on the
instrument/s, as well as on the confirmation of sale (COS), the phrase without recourse or sans
recourse and the following statement:

(2) In the absence of the phrase without recourse or sans recourse and without the above-required
accompanying statement, the instrument so issued, endorsed or accepted shall automatically be
considered as falling within the purview of the rules on quasi-banking. (emphasis added)

However, the Court affirms the appellate court's finding that the true nature of the "sans
recourse" transactions contradicts Wincorp's averment. A perusal of the records would show that
Wincorp engaged in practices that rendered the transactions to be "with recourse" and,
consequently, within the ambit of quasi-banking rules.

First, Wincorp did not act as a mere financial intermediary between Ng Wee and Power Merge, but
effectively obtained the funds for its own account. To borrow funds for one's own account should
not only be taken in its literal meaning to the effect that Wincorp and its beneficial owners literally
borrowed the funds invested by Ng Wee. Rather, it should be interpreted in this case while bearing
in mind Wincorp's end goal - to assign its rights to the uncollected, if not worthless, Hottick
obligations and hold more valuable Power Merge papers in their stead. Without enticing the
investors to put up capital for Power Merge, Wincorp would not have been able to facilitate the
exchange. Thus, with Power Merge as a conduit, Wincorp's borrowings from its investors redounded
to its benefit. This is bolstered by Wincorp's act of executing the Side Agreements releasing Power
Merge from its obligation to pay under its Promissory Notes, exposing itself to liability to pay the
same.

Second, in PED Case No. 20-2378, the Prosecution and Enforcement Department of the SEC found
that as of December 31, 1999, Wincorp has sourced funds from 2,200 individuals with an average of
₱7,000,000,000.00 worth of commercial papers per month. This figure unquestionably exceeds
the "20 or more persons or corporate lenders" threshold.

Third, the Confirmation Advices that are marked "sans recourse" are actually "with recourse." On
this point, a reproduction of the succeeding paragraphs of S4101Q.3 of the Manual of Regulations
for Non-Bank Financial Institutions is in order:

xxxx
Provided further, that any of the following practices or practices similar and/or tantamount thereto
in connection with a without recourse transaction rendered such transaction as with recourse and
within the purview of the rules on quasi-banking.

xxxx

(iii) Payment with the funds of the financial intermediary which assigned, sold or transferred the
debt instrument without recourse, unless the financial intermediary can show that the issuer has
with the said financial intermediary funds corresponding to the amount of the obligation. (emphasis
added)

From the above provision, Wincorp's act of advancing the payment of interests when the corporate
borrower is unable to pay despite the borrowing being branded as without recourse, rendered it to
be with recourse. Coupled with the above-circumstances, offering the "sans recourse" transactions
should then be categorized as an exercise of a quasi-banking function. The transactions were merely
being denominated as "sans recourse" by Wincorp to circumvent the license requirement under the
law. The alleged "sans recourse" nature of the transactions cannot then be used by Wincorp as a
shield against liability to Ng Wee.

b. Wincorp engaged in the sale of unregistered

securities

There is more to the "sans recourse" transactions than meets the eye, so much so that the
operations of Wincorp cannot be oversimplified as mere brokering of loans. As discovered by the
SEC in PED Case No. 20-2378, and as ruled by the CA, Wincorp was, in reality, selling to the public
securities, i.e., shares in the Power Merge credit in the form of investment contracts.

Securities are shares, participation or interests in a corporation or in a commercial enterprise or

profit-making venture and evidenced by a certificate, contract, instruments, whether written or
electronic in character.106 As a general rule, securities are not to be sold or offered for sale or
distribution without due registration, and provided that information on the securities shall be made
available to prospective purchasers.107

Included in the list of securities that require registration prior to offer, sale, or distribution are
investment contracts.108 An investment contract refers to a contract, transaction or scheme whereby
a person invests his money in a common enterprise and is led to expect profits primarily from the
efforts of others.109 It is presumed to exist whenever a person seeks to use the money or property of
others on the promise of profits.110

In this jurisdiction, the Court employs the Howey test, named after the landmark case of Securities
and Exchange Commission v. W.J. Howey Co.,111 to determine whether or not the security being
offered takes the form of an investment contract. The case served as the foundation for the
domestic definition of the said security.

Under the Howey test, the following must concur for an investment contract to exist: (1) a contract,
transaction, or scheme; (2) an investment of money; (3) investment is made in a common
enterprise; (4) expectation of profits; and (5) profits arising primarily from the efforts of others.
Indubitably, all of the elements are present in the extant case.
First, Wincorp offered what it purported to be "sans recourse" transactions wherein the investment
house would allegedly match investors with pre-screened corporate borrowers in need of financial
assistance.

Second, Ng Wee invested the aggregate amount of ₱213,290,410.36 in the "sans

recourse" transactions through his trustees, as embodied in the Confirmation Advices.

Third, prior to being matched with a corporate borrower, all the monies infused by the investors are
pooled in an account maintained by Wincorp.112 This ensures that there are enough funds to meet
large drawdowns by single borrowers.

Fourth, the investors were induced to invest by Wincorp with promises of high yield. In Ng Wee's
case, his Confirmation Advices reveal that his funds were supposed to earn 13.5% at their respective
maturity dates.

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

Apparent then is that the factual milieu of the case at bar sufficiently satisfies the Howey test.
The "sans recourse" transactions are, in actuality, investment contracts wherein investors pool their
resources to meet the financial needs of a borrowing company. This does not stray far from the
illustration given by former Associate Justice Roberto A. Abad in Securities and Exchange
Commission v. Prosperity.com, Inc., to wit:

An example that comes to mind would be the long-term commercial papers that large companies,
like San Miguel Corporation (SMC), offer to the public for raising funds that it needs for expansion.
When an investor buys these papers or securities, he invests his money, together with others, in
SMC with an expectation of profits arising from the efforts of those who manage and operate that
company. SMC has to register these commercial papers with the SEC before offering them to
investors.113

Likewise, in SEC Admin Case No. 09-07-88 entitled In Re: D 1st Cell Pawnshop, Inc.,114 the SEC ruled
that by soliciting investments from ₱50,000.00 up to ₱300,000.00 and promising a return of four
percent (4%) per month, D 1st Cell Pawnshop offered investment contracts to the public.

No error can then be attributed to the CA when it designated the "sans recourse" transactions as
investment contracts. No fault can also be ascribed to the appellate court in finding that Wincorp
virtually purchased and resold securities, and not just brokered a loan. The most telling circumstance
that negate Wincorp's claim of mere brokerage, as mentioned earlier, is the fact that it paid for the
interest payments due from the corporate borrowers that defaulted. This effectively estopped
Wincorp from denying liability from its investors in this case.

Wincorp cannot hide behind its license to operate as an investment house when it offered the "sans
recourse" transactions to the public. For though investment houses are authorized to do the
following:115

xxxx

6. Act as financial consultant, investment adviser, or broker;

7. Act as porfolio manager, and/or financial agent xxx;

8. Encourage companies to go public, and initiate and/or promote, whenever warranted, the
formation, merger, consolidation, reorganization, or recapitalization of productive enterprises, by
providing assistance or participation in the form of debt or equity financing or through the extension
of financial or technical advice or service;

Xxx

their license to perform investment house functions does not excuse them from complying with the
security registration requirements under the law. For clarity, the license requirement to operate as
an investment houses is separate and distinct from the registration requirement for the securities
they are offering, if any.

In dealing in securities, Wincorp was under legal obligation to comply with the statutory registration
and disclosure requirements. Under BP 178, otherwise known as the Revised Securities Act, which
was still in force at the time material in this case, investment contracts are securities, and their sale,
transactions that are not exempt from these requirements.116 As such, adherence to Sections 4 and 8
of BP 178 must be strictly observed, to wit:

Section 4. Requirement of registration of securities. - (a) No securities, except of a class exempt

under any of the provisions of Section five hereof or unless sold in any transaction exempt under any
of the provisions of Section six hereof, shall be sold or offered for sale or distribution to the public
within the Philippines unless such securities shall have been registered and permitted to be sold as
hereinafter provided.

xxxx

Section. 8. Procedure for registration. - (a) All securities required to be registered under subsection
(a) of Section four of this Act shall be registered through the filing by the issuer or by any dealer or
underwriter interested in the sale thereof, in the office of the Commission, of a sworn registration
statement with respect to such securities, containing or having attached thereto, the following:

xxxx

(8) A statement of the capitalization of the issuer and of all companies controlling, controlled by or
commonly controlled with the issuer, including the authorized and outstanding amounts of its
capital stock and the proportion thereof paid up; the number and classes of shares in which such
capital stock is divided; par value thereof, or if it has no par value, the stated or assigned value
thereof; a description of the respective voting rights, preferences, conversion and exchange rights,
rights to dividends, profits, or capital of each class, with respect to each other class, including the
retirement and liquidation rights or values thereof

xxxx

(14) The specific purposes in detail and the approximate amounts to be devoted to such purposes,
so far as determinable, for which the security to be offered is to supply funds, and if the funds are to
be raised in part from other sources, the amounts and the sources thereof.

xxxx

(27) A balance sheet as of a date not more than ninety days prior to the date of the filing of the
registration statement showing all of the assets of the issuer, the nature and cost thereof, whenever
determinable with intangible items segregated, including any loan to or from any officer, director,
stockholder or person directly or indirectly controlling or controlled by the issuer, or person under
direct or indirect common control with the issuer. x x x All the liabilities of the issuer, including
surplus of the issuer, showing how and from what sources such surplus was created, all as of a date
not more than ninety days prior to the filing of the registration statement. x x x

(28) A profit and loss statement of the issuer showing earnings and income, the nature and source
thereof, and the expenses and fixed charges in such detail and such form as the Commission shall
prescribe for the latest fiscal year xxx Such statement shall show what the practice of the issuer has
been during the three years or lesser period as to the character of the charges, dividends or other
distributions made against its various surplus accounts, and as to depreciation, depletion, and
maintenance charges, and if stock dividends or avails from the sale of rights have been credited to
income, they shall be shown separately with statement of the basis upon which credit is computed.
Such statement shall also differentiate between recurring and nonrecurring income and between
any investment and operating income. Such statement shall be certified by an independent certified
public accountant.

xxxx

(30) A copy of any agreement or agreements or, if identical agreements are used, the forms thereof
made with any underwriter, including all contracts and agreements referred to in subparagraph (19)
hereof (emphasis added)

In the guise of merely brokering loans between an investor and a corporate borrower, that it is not
in the business of selling securities, Wincorp conveniently failed to disclose to the investors the
necessary information under Section 8 of BP 178. To the mind of the Court, offering the "sans
recourse " transactions without compliance therewith constitutes fraudulent transactions within the
contemplation of Section 29 of the law.117

Non-disclosure of the capitalization details and the financial statements of the issuer Power Merge
under Secs. 8(8), (27), and (28) resulted in the failure of the investors to pay heed to the red flags
that the enterprise was doomed to fail: (1) the fact that it only had an outstanding capital stock of
₱37,500,000.00, of which the total actually paid is only ₱9,375,000.00; (2) that it has not been
complying with the reportorial requirements, including the submission of financial statements to the
SEC; (3) and that Power Merge is not an ongoing concern since it does not engage in any legitimate
business. In addition, non-compliance with Section 8(14) and (30) prevented the investors from
discovering the true intent behind the approval of the Power Merge credit line application and the
underlying transactions behind its issuance of Promissory Notes.

Clearly then, because Wincorp had been successful in its scheme of passing off the "sans
recourse" transactions as mere brokering of loans, it managed to circumvent the registration and
disclosure requirements under BP 178, and managed to commit fraud in a massive scale against its
investors to the latter's damage and prejudice, for which Wincorp ought to be held liable.

c. Wincorp is liable as a vendor in bad faith

and for breach of warranty

Aside from its liability arising from its fraudulent transactions, Wincorp is also liable to Ng Wee for
breach of warranty. It cannot be emphasized enough that Wincorp is not the mere agent that it
claims to be; its operations ought not be reduced to the mere matching of investors with corporate
borrowers. Instead, it must be borne in mind that it not only performed the functions of a financial
intermediary duly registered and licensed to perform the powers of an investment house, it is also
engaged in the selling of securities, albeit in violation of various commercial laws. And just as in any
other contracts of sale, the vendor of securities is likewise bound by certain warranties, including
those contained in Article 1628 of the New Civil Code on assignment of credits, to wit:

Article 1628. The vendor in good faith shall be responsible for the existence and legality of the credit
at the time of the sale, unless it should have been sold as doubtful; but not for the solvency of the
debtor, unless it has been so expressly stipulated or unless the insolvency was prior to the sale and
of common knowledge.

xxxx

The vendor in bad faith shall always be answerable for the payment of all expenses, and for
damages. (emphasis added)

That the securities sold to Ng Wee turned out to be "with recourse," not "sans recourse" as
advertised, does not remove it from the coverage of the above article. In fact, such circumstance
would even classify Wincorp as a vendor in bad faith, within the contemplation of the last paragraph
of the provision. But other than the fraudulent designation of the transaction as "sans
recourse," Wincorp's bad faith was also brought to the fore by the execution of the Side
Agreements, which cast serious suspicion over, if it did not effectively annul, the existence and
legality of the credits assigned to Ng Wee under the numerous Confirmation Advices in the name of
his trustees.

Anent the claim that Wincorp allegedly did not warrant the capacity of Power Merge to pay its
obligations, the CA had this much to say:

[Petitioners] argue that the financial capacity of Power Merge has always been a matter of public
record. We are not persuaded. The material misrepresentations have been made by Wincorp to [Ng
Wee], to the effect that Power Merge was structurally sound and financially able to undertake a
series of loan transactions. Even if Power Merge' s financial integrity is veritable from the articles of
incorporation or other public records, it does not follow that the elaborate scheme of fraud and
deceit would be beyond commission when precisely there are bending representations that Power
Merge would be able to meet its obligations. Moreover, [petitioners'] argument assumes that there
is a legal obligation on the part of [Ng Wee] to undertake investigation of Power Merge before
agreeing to the matching of his investments with the accredited borrower. There is no such
obligation. It is unfair to expect a person to procure every available public record concerning an
applicant for funds to satisfy himself of the latter's financial standing. A least that is not the way an
average person takes care of his concerns. In addition, no amount of investigation could have
revealed that the Power Merge papers are rendered worthless and noncollectable (sic) [be]cause of
the Side Agreements entered into by Wincorp and Power Merge.

Wincorp's attempt to shift the blame on [Ng Wee] deserves no credence. Since the transaction
involve[s] a considerable sum of money, Wincorp presupposes that [Ng Wee] would have taken
great pains to scrutinize and understand all the documents affecting his investment/ money
placement. It also presumes that [Ng Wee] was fully aware of the contents and meaning of the
[Confirmation Advices] and [Special Power of Attorneys] he signed. He took a calculated risk. As
such, he should be estopped from claiming that he suffered damage and prejudice.

The argument is specious. As ruled in People of the Philippines v. Priscilla Balasa:

-xxx-

The fact that the buyer makes an independent investigation or inspection has been held not to
preclude him from relying on the representation made by the seller where the seller has superior
knowledge and the falsity of such representation would not be apparent from such examination or
inspection, and, a .fortiori, where the efforts of a buyer to learn the true profits or income of a
business or property are thwarted by some device of the seller, such efforts have been held not to
preclude a recovery. It has often been held that the buyer of a business or property is entitled to rely
on the seller's statements concerning its profits, income or rents. The rule - that where a speaker has
knowingly and deliberately made a statement concerning a fact the falsity of which is not apparent
to the hearer, and has thus accomplished a fraudulent result, he cannot def end against the fraud by
proving that the victim was negligent in failing to discover the falsity of the statement - is said to be
peculiarly applicable where the owner of the property or a business intentionally makes a false
statement concerning its rents, profits or income.

Applying the foregoing to this case, assuming that [Ng Wee] made an investigation, that should not
preclude him from relying on the representations of Wincorp because: (1) It is an investment house
which is presumed to conduct an investigation of its borrowers before it matches the same to its
investors. As testified to by its employees, Wincorp has an Investigation Credit Committee and
Executive Committee which screen, investigate and accredit borrowers before they are submitted
for approval of the board of directors; (2) It did not only materially misrepresent the financial
incapacity of Power Merge to pay, it also failed to disclose that the instruments executed by Power
Merge in connection with the investments/ money placements of [Ng Wee] are worthless in view of
the Side Agreements executed by the parties.118 (emphasis added)

Verily, the same acts of misrepresentations that constituted fraud in Wincorp's transactions with Ng
Wee are the very same acts that amounted to bad faith on its part as vendor of securities.
Inescapably, liability attaches because of Wincorp's dishonest dealings.

d. Even as an agent, Wincorp can still be held liable

The argument that Wincorp is a mere agent that could not be held liable for Power Merge's unpaid
loan is equally unavailing. For even if the Court were to accede to the argument and undercut the
significance of Wincorp's participation from vendor of securities to purely attorney-in-fact, the
investment house would still not be immune. Agency, in Wincorp's case, is not a veritable defense.

Through 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.119 As the basis of
agency is representation, there must be, on the part of the principal, an actual intention to appoint,
an intention naturally inferable from the principal's words or actions. In the same manner, there
must be an intention on the part of the agent to accept the appointment and act upon it. Absent
such mutual intent, there is generally no agency.120

There is no dearth of statutory provisions in the New Civil Code that aim to preserve the fiduciary
character of the relationship between principal and agent. Of the established rules under the code,
one cannot be more basic than the obligation of the agent to carry out the purpose of the agency
within the bounds of his authority.121 Though he may perform acts in a manner more advantageous
to the principal than that specified by him,122 in no case shall the agent carry out the agency if its
execution would manifestly result or damage to the principal.123
In the instant case, the SPAs executed by Ng Wee constituted Wincorp as agent relative to the
borrowings of Power Merge, allegedly without risk of liability on the part of Wincorp. However, the
SPAs, as couched, do not specifically include a provision empowering Wincorp to excuse Power
Merge from repaying the amounts it had drawn from its credit line via the Side Agreements. They
merely authorize Wincorp "to agree, deliver, sign, execute loan documents" relative to the
borrowing of a corporate borrower. Otherwise stated, Wincorp had no authority to absolve Power
Merge from the latter's indebtedness to its lenders. Doing so therefore violated the express terms of
the SPAs that limited Wincorp's authority to contracting the loan.

In no way can the execution of the Side Agreements be considered as part and parcel of Wincorp's
authority since it was not mentioned with specificity in the SP As. As far as the investors are
concerned, the Side Agreements amounted to a gratuitous waiver of Power Merge's obligation,
which authority is required under the law to be contained in an SP A for its accomplishment.124

Finally, the benefit from the Side Agreements, if any, redounded instead to the agent itself, Wincorp,
which was able to hold Power Merge papers that are more valuable than the outstanding Hottick
obligations that it exchanged. In discharging its duties as an alleged agent, Wincorp then elected to
put primacy over its own interest than that of its principal, in clear contravention of the law.125 And
when Wincorp thereafter concealed from the investors the existence of the Side Agreements, the
company became liable for fraud even as an agent.126

Power Merge is liable to Ng Wee

under its Promissory Notes

a. Virata is liable for the Promissory Notes

even as an accommodation party

A promissory note is a specie of negotiable instruments. Under Section 60 of the Negotiable

Instruments Law, the maker of a promissory note engages that he will pay it according to its tenor. In
this case, the Promissory Notes executed by Virata in behalf of Power Merge are couched in the
following wise:

PROMISSORY NOTE

For value received, I/We ____________________, hereby promise to pay WESTMONT INVESTMENT
CORPORATION (WINCORP), either for itself or as agent for and on behalf of certain INVESTORS who
have placed/invested funds with WINCORP the principal sum of ________________ (__________),
Philippine Currency, on _______ with interest rate of ___________ percent (___%) per annum, or
equivalently the Maturity Amount of ______________ PESOS (______________)Philippine Currency.
(emphasis added)

It is crystal clear that Power Merge, through Virata, obligated itself to pay Wincorp and those who
invested through it the values stated in the Promissory Notes. The validity and due execution of the
Promissory Notes were not even contested. Instead, Virata postulates that he merely executed the
Promissory Notes on behalf of Power Merge as an accommodation for Wincorp, and that neither he
nor Power Merge received any pecuniary benefit from the credit facility. He thus claims that he and
Power Merge cannot be held liable for the Promissory Notes that were executed.

The argument is specious.

On its face, the documentary evidence on record reveals that Power Merge actually received the
proceeds from the Credit Line Agreement. But even if We assume for the sake of argument that
Power Merge, through Virata, is as a mere accommodation party under the Promissory Notes,
liability would still attach to them in favor of the holder of the instrument for value.

In Gonzales v. Philippine Commercial and International Bank,127 the Court held that an
accommodation party lends his name to enable the accommodated party to obtain credit or to raise
money; he receives no part of the consideration for the instrument but assumes liability to the other
party or parties thereto. Prescinding from the foregoing, an accommodation party is one who meets
all the following three requisites, viz: (1) he must be a party to the instrument, signing as maker,
drawer, acceptor, or indorser; (2) he must not receive value therefor; and (3) he must sign for the
purpose of lending his name or credit to some other person.128

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

In gratia argumenti that the above elements are established facts herein, liability will still attach to
the accommodation parties pursuant to Sec. 29 of the Negotiable Instruments Law. The provision
states:

Sec. 29. Liability of accommodation party. - An accommodation party is one who has signed the
instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the
purpose of lending his name to some other person. Such a person is liable on the instrument to a
holder for value, notwithstanding such holder, at the time of taking the instrument, knew him to be
only an accommodation party. (emphasis added)

The basis for the liability under Section 29 is the underlying relation between the accommodated
party and the accommodation party, which is one of principal and surety. 129 In a contract of surety, a
person binds himself solidarily liable with the principal debtor of an obligation.130 But though a
suretyship agreement is, in essence, accessory or collateral to a valid principal obligation, the
surety's liability to the creditor is immediate, primary, and absolute. He is directly and equally bound
with the principal.131

In a similar fashion, the accommodation party cum surety in a negotiable instrument is deemed an
original promisor and debtor from the beginning; he is considered in law as the same party as the
debtor in relation to whatever is adjudged touching the obligation of the latter since their liabilities
are so interwoven as to be inseparable.132 It is beyond cavil then that Power Merge and Virata can be
held liable for the amounts stated in the Promissory Notes. Consequently, they are also liable for the
assignment to Ng Wee of portions thereof as embodied in the Confirmation Advices.

b. The Side Agreements do not bind third

parties thereto

Virata and Power Merge cannot invoke the Side Agreements as bases for its alleged exemption from
liability to Ng Wee, simply because the latter was not privy to the covenants. Ng Wee cannot be
charged with knowing the existence of the Side Agreements, let alone ratify the same.
The basic principle of relativity of contracts is that, as a general rule, contracts take effect only
between the parties, their assigns and heirs.133 The sound reason for the exclusion of non-parties to
an agreement is the absence of a vinculum or juridical tie which is the efficient cause for the
establishment of an obligation.134

Needless to state, Ng Wee does not fall under any of the classes that are deemed privy as far as the
Side Agreements are concerned. At most, he only authorized Wincorp, through the SPAs, to "agree,
deliver, sign, [and} execute loan documents" relative to the borrowing of Power Merge. This
authority does not extend to excusing Power Merge from paying its obligations under the
Promissory Notes that it issued for the benefit of the investors. Thus, even if we were to assume that
the execution of the Side Agreements was with the imprimatur of the Wincorp board of directors,
Power Merge would still have been able to determine, based on a cursory reading of the SPAs, that
Wincorp's acquiescence to the Side Agreements is an ultra vires act insofar as its principals, Ng Wee
included, are concerned.

c. Power Merge cannot escape liability to Ng

Wee under the Credit Line Agreement

That Power Merge did not directly transact with Ng Wee and the other investors does not exonerate
it from civil liability, for its liability also finds basis on the language of the Credit Line Agreement.

To recall, Power Merge obtained a ₱2,500,000,000.00 credit facility from Wincorp, as one of the
latter's corporate borrowers. Under the terms of the credit facility, Power Merge obligated itself to
issue Promissory Notes in favor of Wincorp, for itself "or on behalf of certain investors" for each of
its drawdowns. The Credit Line Agreement pertinently provides:

CREDIT LINE AGREEMENT

xxxx

WHEREAS, the BORROWER has applied for financial accommodation/credit line from WINCORP.

WHEREAS, WINCORP by itself or on behalf of certain investors, have agreed to extend the financial
accommodation/credit line sought by the BORROWER under the terms and conditions hereunder
provided.

NOW, WHEREFORE, for and in consideration of the foregoing premises, the parties hereto agreed as
follows:

1. GRANT OF CREDIT FACILITY. WINCORP, either by itself or on behalf of certain investors, shall
extend to the BORROWER a credit facility, on best efforts basis, in the amount of up to but not
exceeding the equivalent sum of ONE BILLION TWO HUNDRED MILLION PESOS (₱l,200,000,000.00),
Philippine Currency, upon terms and conditions embodied in this Agreement.

xxxx

3. PROMISSORY NOTE. Subject to the availability of funds, the BORROWER may avail all or any
portion of this credit facility under the terms and conditions hereunder agreed upon, and the
BORROWER shall execute in favor of WINCORP and/or the investors who have agreed to extend the
credit facility to the BORROWER a Promissory Note corresponding to each drawdown to evidence its
indebtedness.
4. INTEREST RATE. The BORROWER agrees to pay WINCORP, either by itself or on behalf of its
investors, interest on the principal amount of each availment at the rate prevailing on the date of
such availment as agreed upon in the corresponding Promissory Note/s.135 (underscoring supplied,
emphasis added)

Virata and Power Merge cannot then deny knowledge that the amounts that were drawn against the
credit facility may not necessarily be from Wincorp's own coffers, but may potentially be from the
monies pooled by its clients, even though their identities were at that time anonymous to Power
Merge. As can be gleaned, Power Merge was informed through the plain text of the Credit Line
Agreement that Wincorp may indorse portions of the investment, and the corresponding interest in
the Promissory Notes, to its willing clients and act on the latter's behalf. It then matters not that
Power Merge and Virata never personally dealt with Ng Wee for given the setup; Ng Wee became
privy to the Credit Line Agreement when he was assigned his shares in the investment, and when he
expressed his conformity therewith through the Confirmation Advices.

Furthermore, it cannot escape the attention of the Court that this is not the first time for Virata to
transact with Wincorp. To refresh, Virata executed a Surety Agreement to answer Hottick' s
drawdowns from its own credit facility with Wincorp. He is then familiar with the nature of
Wincorp's primary functions, whether as a mere financial intermediary or dealer in securities as in
this case, rather than its true creditor. Power Merge and V irata cannot then feign ignorance that the
money they have been receiving are from the clients that Wincorp attracted to invest.

III.
Piercing the Corporate Veil

Indubitably, Wincorp and Power Merge are liable to Ng Wee for fraud and under contract,
respectively. The thrust of majority of the petitioners, however, is that they cannot be held liable for
the business judgments of the corporations they are part of given the latter's separate juridical
personalities.

G.R. No. 220926: The liabilities of

Luis Juan L. Virata and UEMMARA

a. Virata is liable for the obligations of Power Merge

Petitioner Virata reiterates his claim that piercing the corporate veil of Power Merge for the sole
reason that he owns majority of its shares is improper. He adds that the Credit Line Agreements and
Side Agreements were valid arm's length transactions, and that their executions were in the
performance of his official capacity, which he cannot be made personally liable for in the absence of
fraud, bad faith, or gross negligence on his part.

The Court rejects these arguments.

Concept Builders, Inc. v. NLRC instructs that as a fundamental principle of corporation law, a
corporation is an entity separate and distinct from its stockholders and from other corporations to
which it may be connected. But, this separate and distinct personality of a corporation is merely a
fiction created by law for convenience and to promote justice. Thus, authorities discuss that when
the notion of separate juridical personality is used (1) to defeat public convenience, justify wrong,
protect fraud or defend crime; (2) as a device to defeat the labor laws; or (3) when the corporation is
merely an adjunct, a business conduit or an alter ego of another corporation, this separate
personality of the corporation may be disregarded or the veil of corporate fiction pierced.136
The circumstances of Power Merge clearly present an alter ego case that warrants the piercing of
the corporate veil.

To elucidate, case law lays down a three-pronged test to determine the application of the alter-ego
theory, namely:

(1) Control, not mere majority or complete stock control, but complete domination, not only of
finances but of policy and business practice in respect to the transaction attacked so that the
corporate entity as to this transaction had at the time no separate mind, will or existence of its own;

(2) Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the
violation of a statutory or other positive legal duty, or dishonest and unjust act in contravention of
plaintiffs legal right; and

(3) The aforesaid control and breach of duty must have proximately caused the injury or unjust loss
complained of.137

In the present case, Virata not only owned majority of the Power Merge shares; he exercised
complete control thereof. He is not only the company president, he also owns 374,996 out of
375,000 of its subscribed capital stock. Meanwhile, the remainder was left for the nominal
incorporators of the business. The reported address of petitioner Virata and the principal office of
Power Merge are even one and the same.138 The clearest indication of all: Power Merge never
operated to perform its business functions, but for the benefit of Virata. Specifically, it was merely
created to fulfill his obligations under the Waiver and Quitclaim, the same obligations for his release
from liability arising from Hottick's default and non-payment.

Virata would later on use his control over the Power Merge corporation in order to fulfill his
obligation under the Waiver and Quitclaim. Impelled by the desire to settle the outstanding
obligations of Hottick under the terms of the settlement agreement, Virata effectively allowed Power
Merge to be used as Wincorp's pawn in avoiding its legal duty to pay the investors under the failed
investment scheme. Pursuant to the alter ego doctrine, petitioner Virata should then be made liable
for his and Power Merge's obligations.

b. UEM-MARA cannot be held liable

There is, however, merit in the argument that UEM-MARA cannot be held liable to respondent Ng
Wee. The RIC and the CA held that the corporation ought to be held solidarily liable with the other
petitioners "in order that justice can reach the illegal proceeds from the defrauded investments of
[Ng Wee] under the Power Merge account."139 According to the trial court, Virata laundered the
proceeds of the Power Merge borrowings and stashed them in UEM-MARA to prevent detection and
discovery and hence, UEM-MARA should likewise be held solidarily liable.

We disagree.

UEM-MARA is an entity distinct and separate from Power Merge, and it was not established that it
was guilty in perpetrating fraud against the investors. It was a non-party to the "sans
recourse" transactions, the Credit Line Agreement, the Side Agreements, the Promissory Notes, the
Confirmation Advices, and to the other transactions that involved Wincorp, Power Merge, and Ng
Wee. There is then no reason to involve UEM-MARA in the fray. Otherwise stated, respondent Ng
Wee has no cause of action against UEM-MARA. UEM-MARA should not have been impleaded in this
case.
A cause of action is the act or omission by which a party violates a right of another.140 The essential
elements of a cause of action are (1) a right in favor of the plaintiff by whatever means and under
whatever law it arises or is created; (2) an obligation on the part of the named defendant to respect
or not to violate such right; and (3) an act or omission on the part of such defendant in violation of
the right of the plaintiff or constituting a breach of the obligation of the defendant to the plaintiff for
which the latter may maintain an action for recovery of damages or other appropriate relief.141

The third requisite is severely lacking in this case. Respondent Ng Wee cannot point to a specific
wrong committed by UEM-MARA against him in relation to his investments in Wincorp, other than
being the object of Wincorp's desires. He merely alleged that the proceeds of the Power Merge loan
was used by Virata in order to acquire interests in DEM-MARA, but this does not, however,
constitute a valid cause of action against the company even if we were to assume the allegation to
be true. It would indeed be a giant leap in logic to say that being Wincorp' s objective automatically
makes UEM-MARA a party to the fraud. DEM-Mara's involvement in this case is merely incidental,
not direct.

G.R No. 221218: The liability of

Anthony Reyes

To restate, basic is the rule that a corporation is invested by law with a personality separate and
distinct from that of the persons composing it as well as from that of any other legal entity to which
it may be related. Following this, obligations incurred by the corporation, acting through its
directors, officers and employees, are its sole liabilities, and said personalities are generally not held
personally liable thereon.142

By way of exception, a corporate director, a trustee or an officer, may be held solidarily liable with
the corporation under Sec. 31 of the Corporation Code which reads:

Section 31. Liability of directors, trustees or officers. - Directors or trustees who willfully and
knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of gross
negligence or bad faith in directing the affairs of the corporation or acquire any personal or
pecuniary interest in conflict with their duty as such directors or trustees shall be liable jointly and
severally for all damages resulting therefrom suffered by the corporation, its stockholders or
members and other persons.

When a director, trustee or officer attempts to acquire or acquire, in violation of his duty, any
interest adverse to the corporation in respect of any matter which has been reposed in him in
confidence, as to which equity imposes a disability upon him to deal in his own behalf, he shall be
liable as a trustee for the corporation and must account for the profits which otherwise would have
accrued to the corporation. (emphasis added)

Petitioner Reyes relies on the black letter law in his bid for absolution. He claims that he is not a
director of Wincorp, but its Vice-President for Operations. Thus, he can only be held liable under the
second paragraph of the provision. As can be read, officers are only precluded from acquiring or
attempting to acquire any interest in conflict with that of the company he is serving. There being no
allegation of him being guilty of conflict of interest, Reyes argues that he cannot be held liable under
the provision.

The argument is bereft of merit.

Ascribing liability to a corporate director, trustee, or officer by invoking Sec. 31 of the Corporation
Code is distinct from the remedial concept of piercing the corporate veil. While Sec. 31 expressly lays
down specific instances wherein the mentioned personalities can be held liable in their personal
capacities, the doctrine of piercing the corporate veil, on the other hand, is an equitable remedy
resorted to only when the corporate fiction is used, among others, to defeat public convenience,
justify wrong, protect fraud or defend a crime.143

Applying the doctrine, petitioner cannot escape liability by claiming that he was merely performing
his function as Vice-President for Operations and was duly authorized to sign the Side Agreements in
Wincorp's behalf. The Credit Line Agreement is patently contradictory if not irreconcilable with the
Side Agreements, which he executed on the same day as the representative for Wincorp. The
execution of the Side Agreements was the precursor to the fraud. Taken with Wincorp's subsequent
offer to its clients of the "sans recourse" transactions allegedly secured by the Promissory Notes, it is
a clear indicia of fraud for which Reyes must be held accountable.

G.R. No. 221135: The liabilities of

Cua and the Cualopings

On the other hand, the liabilities of Cua and the Cualopings are more straightforward. They admit of
approving the Credit Line Agreement and its subsequent Amendment during the special meetings of
the Wincorp board of directors, but interpose the defense that they did so because the screening
committee found the application to be above board. They deny knowledge of the Side Agreements
and of Power Merge's inability to pay.

We are not persuaded.

Cua and the Cualopings cannot effectively distance themselves from liability by raising the defenses
they did. As ratiocinated by the CA:

Such submission creates a loophole, especially in this age of compartmentalization, that would
create a nearly fool-proof scheme whereby well-organized enterprises can evade liability for
financial fraud. Behind the veil of compartmentalized departments, such enterprise could induce the
investing public to invest in a corporation which is financially unable to pay with promises of definite
returns on investment. If we follow the reasoning of defendants-appellants, we allow the
masterminds and profiteers from the scheme to take the money and run without fear of liability
from law simply because the defrauded investor would be hard-pressed to identify or pinpoint from
among the various departments of a corporation which directly enticed him to part with his
money.144

Petitioners Cua and the Cualopings bewail that the above-quoted statement is overarching,
sweeping, and bereft of legal or factual basis. But as per the records, the totality of circumstances in
this case proves that they are either complicit to the fraud, or at the very least guilty of gross
negligence, as regards the "sans recourse" transactions from the Power Merge account.

The board of directors is expected to be more than mere rubber stamps of the corporation and its
subordinate departments. It wields all corporate powers bestowed by the Corporation Code,
including the control over its properties and the conduct of its business.145 Being stewards of the
company, the board is primarily charged with protecting the assets of the corporation in behalf of its
stakeholders.
Cua and the Cualopings failed to observe this fiduciary duty when they assented to extending a
credit line facility to Power Merge. In PED Case No. 20-2378, the SEC discovered that Power Merge is
actually Wincorp's largest borrower at about 30% of the total borrowings.146 It was then incumbent
upon the board of directors to have been more circumspect in approving its credit line facility, and
should have made an independent evaluation of Power Merge' s application before agreeing to
expose it to a ₱2,500,000,00.00 risk.

Had it fulfilled its fiduciary duty, the obvious warning signs would have cautioned it from approving
the loan in haste. To recapitulate: (1) Power Merge has only been in existence for two years when it
was granted a credit facility; (2) Power Merge was thinly capitalized with only ₱37 ,500,000.00
subscribed capital; (3) Power Merge was not an ongoing concern since it never secured the
necessary permits and licenses to conduct business, it never engaged in any lucrative business, and it
did not file the necessary reports with the SEC; and (4) no security other than its Promissory Notes
was demanded by Wincorp or was furnished by Power Merge in relation to the latter's drawdowns.

It cannot also be ignored that prior to Power Merge' s application for a credit facility, its controller
Virata had already transacted with Wincorp. A perusal of his records with the company would have
revealed that he was a surety for the Hottick obligations that were still unpaid at that time. This
means that at the time the Credit Line Agreement was executed on February 15, 1999, Virata still
had direct obligations to Wincorp under the Hottick account. But instead of impleading him in the
collection suit against Hottick, Wincorp's board of directors effectively released Virata from liability,
and, ironically, granted him a credit facility in the amount of ₱l,300,000,000.00 on the very same
day.

This only goes to show that even if Cua and the Cualopings are not

guilty of fraud, they would nevertheless still be liable for gross negligence147 in managing the affairs
of the company, to the prejudice of its clients and stakeholders. Under such circumstances, it
becomes immaterial whether or not they approved of the Side Agreements or authorized Reyes to
sign the same since this could have all been avoided if they were vigilant enough to disapprove the
Power Merge credit application. Neither can the business judgment rule148 apply herein for it is
elementary in corporation law that the doctrine admits of exceptions: bad faith being one of them,
gross negligence, another.149 The CA then correctly held petitioners Cua and the Cualopings liable to
respondent Ng Wee in their personal capacity.

G.R. No. 221109: The liability of

Manuel Estrella

To refresh, Estrella echoes the defense of Tankiansee, who was exempted from liability by the trial
court. He claims that just like Tankiansee, he was not present during Wincorp's special board
meetings where Power Merge's credit line was approved and subsequently amended. Both also
claimed that they protested and opposed the board's actions. But despite the parallels in their
defenses, the trial court was unconvinced that Estrella should be released from liability. Estrella
appealed to the CA, but the adverse ruling was sustained.

We agree with the findings of the courts a quo.

The minutes of the February 9, 1999 and March 11, 1999 Wincorp Special Board Meetings were
considered as damning evidence against Estrella, just as they were for Cua and the Cualopings.
Although they were said to be unreliable insofar as Tankiansee is concerned, the trial court rightly
distinguished between the circumstances of Estrella and Tankiansee to justify holding Estrella liable.
For perspective, Tankiansee was exempted from liability upon establishing that it was physically
impossible for him to have participated in the said meetings since his immigration records clearly
show that he was outside the country during those specific dates. In contrast, no similar evidence of
impossibility was ever offered by Estrella to support his position that he and Tankiansee are similarly
situated.

Estrella submitted his departure records proving that he had left the country in July 1999 and
returned only in February of 2000. Be that as it may, this is undoubtedly insufficient to establish his
defense that he was not present during the February 9, 1999 and March 11, 1999 board meetings.

Instead, the minutes clearly state that Estrella was present during the meetings when the body
approved the grant of a credit line facility to Power Merge. Estrella would even admit being present
during the February 9, 1999 meeting, but attempted to evade responsibility by claiming that he left
the meeting before the "other matters," including Power Merge's application, could have been
discussed.

Unfortunately, no concrete evidence was ever offered to confirm Estrella's alibi. In both special
meetings scheduled, Estrella averred that he accompanied his wife to a hospital for her cancer
screening and for dialogues on possible treatments. However, this claim was never corroborated by
any evidence coming from the hospital or from his wife's physicians. Aside from his mere say-so, no
other credible evidence was presented to substantiate his claim. Thus, the Court is not inclined to
lend credence to Estrella's self-serving denials.

Neither can petitioner Estrella be permitted to raise the defense that he is a mere nominee of John
Anthony Espiritu, the then chairman of the Wincorp board of directors. It is of no moment that he
only had one nominal share in the corporation, which he did not even pay for, just as it is
inconsequential whether or not Estrella had been receiving compensation or honoraria for attending
the meetings of the board.

The practice of installing undiscerning directors cannot be tolerated, let alone allowed to
perpetuate. This must be curbed by holding accountable those who fraudulently and negligently
perform their duties as corporate directors, regardless of the accident by which they acquired their
respective positions.

In this case, the fact remains that petitioner Estrella accepted the directorship in the Wincorp board,
along with the obligations attached to the position, without question or qualification. The fiduciary
duty of a company director cannot conveniently be separated from the position he occupies on the
trifling argument that no monetary benefit was being derived therefrom. The gratuitous
performance of his duties and functions is not sufficient justification to do a poor job at steering the
company away from foreseeable pitfalls and perils. The careless management of corporate affairs, in
itself, amounts to a betrayal of the trust reposed by the corporate investors, clients, and
stakeholders, regardless of whether or not the board or its individual members are being paid. The
RTC and the CA, therefore, correctly disregarded the defense of Estrella that he is a mere nominee.

IV.
Effect of the Side Agreements
Effect of the Side Agreements on the
solidary liability of the petitioners

The courts a quo dismissed all counterclaims and cross-claims lodged by petitioners against Ng Wee
and each other. However, the Court finds reason to grant the cross-claim of Virata that he be
reimbursed by his co-parties of the amount that he and UEM-MARA may be adjudged to be liable
for.152

The reinstatement and grant of the cross-claim is anchored on the stipulation under the Side
Agreements. Worthy of note is that neither the R TC nor the CA nullified the contract, despite their
acerbic language towards the same. They merely held that the agreements cannot be used as
protection against liability for repayment to the investors, without more. The Side Agreements even
served as basis for the courts a quo to declare that the confirmation advices being issued to the
investors were worthless and uncollectible credit instruments, and to label the "sans
recourse" transactions as without any economically-valuable object.

As such, the Side Agreements remain to be binding and enforceable on the parties thereto: Wincorp,
Virata, and Power Merge. We give credence to the argument of Virata that, as per the language of
the Side Agreements themselves, what transpired was an arm's length transaction, wherein in
exchange for Wincorp assuming liability for Power Merge's drawdowns and promissory notes, Power
Merge obligated itself "to return and deliver to Wincorp all the rights, title and interests conveyed by
Wincorp hereby to [Power Merge] over the Hottick obligations." It appears then that there is ample
consideration for the release.

Indeed, the Court must not only look at the "sans recourse" transactions in isolation, but also
consider the underlying transactions and ascertain the true intention of the contracting parties. On
this score, a narration on the relationship between Hottick, W incorp, and Power Merge bears
reiteration:

On February 21, 1997, Hottick, through a credit facility, borrowed money from Wincorp in the
amount of Pl,500,908,026.00, as evidenced by a Promissory Note issued by Hottick in favor of the
investment hosue, and guaranteed by Halim Saad and petitioner Virata. When the Asian financial
crisis struck, Hottick experienced financial distress and was unable to pay its obligations. This
prompted Wincorp to file a collection case against Hottick and Halim Saad.

Virata was not impleaded in the collection suit, and he would turn out to be instrumental in
brokering a settlement agreement between Wincorp and Hottick. But in exchange for his exclusion
in the proceedings, he executed a Memorandum of Agreement under which he assumes the
obligation to transfer forty percent (40%) of UPDI's outstanding shares and forty percent (40%) of
UPDI' s interest in the tollway project to Wincorp, among others. It would be clarified in the
December 1, 1999 Waiver and Quitclaim, however, that the equity transfers would be Virata's only
obligation under the Memorandum of Agreement. Said Waiver and Quitclaim provides:

This is to confirm that notwithstanding the terms of the Memorandum of Agreement dated July 27,
1999 between our company and yourself, our company hereby irrevocably and unconditionally
releases, waives and agrees to forever hold you, your heirs and assigns free and harmless from and
against any claim, obligation or liability arising out of or in connection with the Memorandum of
Agreement; provided, however, that your undertaking to cause the assignment, transfer and
delivery to our company of at least forty percent (40%) of the equity of UEM Development
Philippines, Inc. ("UPDI") and at least forty percent (40%) of the interest/share of UPDI in the Manila
Cavite Express Tollway Project (the "Project") shall have been fully complied with. We hereby
reiterate that, except for your aforesaid obligation to assign, transfer and deliver to our company at
least forty (40%) of UPDI's outstanding shares and at least forty percent (40%) of UPDI's
interest/share in the Project, the Memorandum of Agreement is a mere accommodation on your
part and does not give rise to any legal rights or consequences in our company's favour as against
yourself, your heirs or assigns.153 (emphasis added)
As can be gleaned, the significant portions of the Waiver and Quitclaim mirror the content of the
Side Agreements. But based on the peculiar transactions between the players herein, the similarity
does not end with the content, but extends to the intent. Reproducing the salient provisions of the
Side Agreements:

WHEREAS, Powermerge has entered into the Credit Line Agreement with Wincorp as an
accommodation in order to allow Wincorp to hold Powermerge paper instead of the obligations of
Hottick which are right now held by Wincorp.

xxxx

1. Powermerge hereby agrees to execute promissory notes in the aggregate principal sum of
₱l,200,000,000.00 in favor of Wincorp and in exchange therefore, Wincorp hereby assigns, transfers,
and conveys to Powermerge all of its rights, titles and interest by way of a subparticipation over the
promissory notes and other obligations executed by Hottick in favor of Wincorp; Provided however
that the only obligation of Powermerge to Wincorp shall be to return and deliver to Wincorp all the
rights, title and interests conveyed by Wincorp hereby to Powermerge over the Hottick obligations.
Powermerge shall have no obligation to pay under its promissory notes executed in favor of Wincorp
but shall be obligated merely to return whatever may have received from Wincorp pursuant to this
agreement.

xxxx

3. Wincorp confirms and agrees that this accommodation being entered into by the parties is not
intended to create a payment obligation on the part of Powermerge.154 (emphasis added)

The above documents, besides the non-suit against Virata, readily convey that the parties did not
intend to create a payment obligation on the part of Power Merge; the latter was merely used as a
conduit by Wincorp for the acquisition of equity shares. They also confirm that Power Merge was
just a mere accommodation party to the issuance of the Promissory Notes that Wincorp sold to its
clients, consistent with the findings of the courts a quo that Wincorp borrowed the funds for its own
account. Though these circumstances do not exculpate Power Merge and Virata from paying a
holder for value under the negotiable instruments they issued, they nevertheless entitle Power
Merge and Virata, as surety, to indemnification by way of reimbursement from Wincorp and its
liable directors and officers, the main debtors, for any amount stated in the note that petitioners
Virata and Power Merge would be compelled to defray, pursuant to Art. 2066 of the New Civil
Code.155

V.
Award of Damages

Beyond doubt, Ng Wee is entitled to recover the investments he infused in Win corp. This was never
the central issue in this case. Other than raising Ng Wee's alleged failure to state a cause of action in
his complaint, none of the petitioners questioned his right to be compensated for the losses he
suffered in the fraudulent investment scheme. Having ascertained the extent of the liabilities of the
petitioners, the Court will now determine the amount to be awarded to Ng Wee.

The trial and appellate court correctly held that Ng Wee should first be recompensed for the
maturity amount of the investments he made in Power Merge through Wincorp, which totalled
₱213,290,410.36. Pursuant to our ruling in the seminal case of Nacar v. Gallery Frames,156 the
amount shall earn interest at twelve percent (12%) per annum from the date of filing of the
Complaint on October 19, 2000 until June 30, 2013, and six percent (6%) from July 1, 2013 until full
satisfaction.

Moreover, the Credit Line Agreement provides for a stipulation of three percent (3%) additional
monthly interest as penalty, twenty percent (20%) interest of the entire amount due as liquidated
damages, and twentyfive percent (25%) of the entire amount due as attorney's fees. These
additional rates of interest are likewise reflected in the promissory notes issued by Power Merge for
which the liable petitioners can be held responsible. However, unlike the trial court and the CA, the
Court finds that these contractual stipulations cannot fully be imposed.

The freedom to contract is not absolute. And one of the more general restrictions thereon is
enshrined in Article 1306 of the Civil Code which precludes the contracting parties from establishing
stipulations, clauses, terms, and conditions that are contrary to law, morals, good customs, public
order, and public policy. In this jurisdiction, the Court has never shied away from striking down
iniquitous and unconscionable interest rates for failing to meet this standard.157 We see no reason to
depart from the practice in this case.

That said, the Court herein refuses to impose the three percent (3% ) additional monthly penalty
interest, and instead affirms the trial and appellate court's nullification of the same. Such exorbitant
interest rate is void for being contrary to morals, if not against the law.158 Being a void stipulation,
the monthly penalty interest is deemed inexistent from the beginning.159 In its stead, the imposition
of legal interest pursuant to Nacar is deemed sufficient.

Anent the twenty percent (20%) liquidated damages, the Court sees the need to reduce the amount.
Liquidated damages are those agreed upon by the parties to a contract, to be paid in case of breach
thereof.160 Although it can conclusively be deduced from the contracts that the parties intended to
impose such additional charges, the Court nevertheless, by express provision in Article 2227 of the
New Civil Code, has the right to temper them if they are unconscionable.161 Considering that the
base amount of the indebtedness in this case is by itself already staggering, imposing an additional
twenty percent (20%) interest against the persons liable would prove to be too cumbersome. The
Court therefore sees the need to reduce the amount to only ten percent (10%) of the total maturity
value of Ng Wee's investment in Power Merge.

The same downward modification is in order as regards the award of attorney's fees. Although Ng
Wee finds justification for the entitlement to the award under Article 2208 of the New Civil
Code,162 the same provision mandates that "in all cases, the attorney's fees and expenses of litigation
must be reasonable." Just as We have reduced the rate for liquidated damages, the Court likewise
tempers the stipulated rate of attorney's fees to five percent (5%) of the total amount due on Ng
Wee's investment.

Finally, the Court sees no cogent reason to disturb the RTC's award of moral damages in favor of Ng
Wee in the amount of ₱100,000.00, as affirmed by the appellate court. Discussed in the following
wise in Philippine Savings Bank v. Sps. Manalac, Jr. is the concept of moral damages:

Moral damages are meant to compensate the claimant for any physical suffering, mental anguish,
fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation and
similar injuries unjustly caused. Although incapable of pecuniary estimation, the amount must
somehow be proportional to and in approximation of the suffering inflicted. Moral damages are not
punitive in nature and were never intended to enrich the claimant at the expense of the def end ant.
There is no hard-and-fast rule in determining what would be a fair and reasonable amount of moral
damages, since each case must be governed by its own peculiar facts. Trial courts are given
discretion in determining the amount, with the limitation that it should not be palpably and
scandalously excessive. Indeed, it must be commensurate to the loss or injury suffered.163 (emphasis
added)

Ng Wee's claim for moral damages in the amount of ₱5,000,000.00 is indeed too excessive, even
with the principal amount in mind. To reiterate, moral damages were never meant to enrich the
claimant. The court therefore upholds the RTC and the CA's grant of the reduced amount of
₱100,000.00.

Finally, the judgment of liability shall earn additional six percent (6%) interest reckoned from finality,
also pursuant to the Nacar ruling.

WHEREFORE, premises considered, the Court resolves:

1. To PARTIALLY GRANT the Petition for Review on Certiorari of Luis Juan L. Virata and UEM-
MARA, docketed as G.R. No. 220926;

2. To DENY the Petition for Review on Certiorari of Westmont Investment Corporation,

docketed as G.R. No. 221058;

3. To DENY the Petition for Review of Manuel Estrella, docketed as G.R. No. 221109;

4. To DENY the Petition for Review on Certiorari of Simeon Cua, Henry Cualoping, and
Vicente Cualoping, docketed as G.R No. 221135;and

5. To DENY the Petition for Review on Certiorari of Anthony Reyes, docketed as G.R. No.
221218.

The September 30, 2014 Decision and October 14, 2015 Resolution of the Court of Appeals in CA-
G.R. CV. No. 97817 affirming the July 8, 2011, Decision of the Regional Trial Court, Branch 39 of
Manila is hereby AFFIRMED with MODIFICATION. As modified, the dispositive portion of the trial
court Decision in Civil Case No. 00-99006 shall read:

WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff, ordering the
defendants Luis L. Virata, Westmont Investment Corporation (Wincorp), Antonio T. Ong, Anthony T.
Reyes, Simeon Cua, Vicente and Henry Cualoping, Mariza Santos-Tan, and Manuel Estrella to jointly
and severally pay plaintiff as follows:

1. The sum of Two Hundred Thirteen Million Two Hundred Ninety Thousand Four Hundred Ten and
36/100 Pesos (₱213,290,410.36), which is the maturity amount of plaintiffs investment with legal
interest at the rate of twelve (12%) percent per annum from the date of filing of the complaint on
October 19. 2000 until June 30, 2013 and six percent (6%) from July l, 2013 until fully paid;

2. Liquidated damages equivalent to ten percent (10%) of the maturity amount, and attorney's fees
equivalent to five percent (5%) of the total amount due plus legal interest at the rate of twelve (12%)
percent per annum from the date of filing of the complaint until June 30, 2013 and six percent (6%)
from July 1, 2013 until fully paid;3. ₱100,000.00 as moral damages.

4. Additional interest of six percent (6%) per annum of the total monetary awards, computed from
finality of judgment until full satisfaction.
5. The complaint against defendants Manuel Tankiansee and UEMMARA Philippines Corporation is
dismissed for lack of merit.

The cross claim of Luis Juan L. Virata is hereby GRANTED. Westmont Investment Corporation
(Wincorp), Antonio T. Ong, Anthony T. Reyes, Simeon Cua, Vicente and Henry Cualoping, Mariza
Santos-Tan. and Manuel Estrella are hereby ordered jointly and severally liable to pay and reimburse
Luis Juan L. Virata for any payment or contribution he (Luis Juan L. Virata) may make or be
compelled to make to satisfy the amount due to plaintiff Alejandro Ng Wee. All other counterclaims
against Alejandro Ng Wee and cross-claims by the defendants as against each other are dismissed
for lack of merit.

Cost against the defendants, except defendants Manuel Tankiansee and UEM-MARA Philippines
Corporation.

SO ORDERED.
ALVIN PATRIMONIO V. NAPOLEON GUTIERREZ and OCTAVIO MARASIGAN III

Citation: G.R. No. 187769, June 4, 2014

Ponente: J. Arturo D. Brion

Topic: Contract of Agency

Facts:

Petitioner Patrimonio and Respondent Gutierrez entered into a business venture under the
name Slam Dunk Corporation. In the course of their business, the Petitioner pre-signed several check
for the expenses of Slam Dunk. Although signed, however, there was no payee’s name, date or
amount indicated in the said checks. The blank checks were entrusted to Gutierrez with the
instruction that he cannot fill them out without previous notification to and approval by the
petitioner.

Sometime in 1993, without petitioner’s knowledge and consent, Gutierrez went to secure a
loan from Co-Respondent Marasigan on the excuse that Petitioner Patrimonio needed the money for
the construction of his house. The latter acceded to Gutierrez’ request and gave him the amount.
Gutierrez simultaneously delivered to Marasigan one of the blank checks pre-signed by the
Petitioner. However, the same was dishonored by the bank on the reason of closed account.

Marasigan sought recovery from Gutierrez, but to no avail. He thereafter sent several
demand letters to the, but his demands likewise went unheeded. Consequently, he filed a criminal
case for violation of B.P. 22 against the Petitioner. On the other hand, Petitioner filed with the
Regional Trial Court a Complaint for Declaration of Nullity of Loan and Recovery of Damages against
the Respondents, invoking that he was not privy to the parties’ loan agreement.

The trial court ruled in favor of Marasigan and found that the Petitioner, in issuing the pre-
signed blank checks, had the intention of issuing the check even without his approval. The appellate
court affirmed the decision of the RTC.
Issues:

1. Whether or not the contract of loan between Marasigan and Gutierrez may be
nullified for being void?

2. Whether or not the petitioner should be held liable for the payment of loan that
he was not privy of?

3. Whether or not Respondent Gutierrez has completely filled out the subject
check strictly under the authority given by the petitioner; and

4. Whether or not Respondent Marasigan is a holder in due course?

Held:

1. Yes, the Contract of Loan entered into by Gutierrez in behalf of the Petitioner should be
nullified for being void.

Article 1878 paragraph 7 of the Civil Code expressly requires a special power of authority
before an agent can loan or borrow money in behalf of the principal.

A review of the records reveals that Gutierrez did not have any authority to borrow money in
behalf of the petitioner. Records did not show that the Petitioner executed any special power of
attorney (SPA) in favor of Gutierrez. In fact, the Petitioner’s testimony confirmed that he never
authorized Gutierrez, whether verbally or in writing, to borrow money in his behalf, nor was he
aware of any such transaction. In the absence of any showing of any agency relations or special
authority to act for and in behalf of the petitioner, the loan agreement Gutierrez entered into with
Marasigan is null and void.

2. No, the Petitioner cannot be held liable for the payment of loan on the ground that the
contract lacked the essential element of consent.

Article 1318 of the Civil Code14 enumerates the essential requisites for a valid contract,
which includes: a. consent of the contracting parties; b. object certain which is the subject matter of
the contract; and c. cause of the obligation which is established.
 Gutierrez did not have the petitioner’s written/verbal authority to enter into a contract of
loan. While there may be a meeting of the minds between Gutierrez and Marasigan, such agreement
cannot bind the Petitioner whose consent was not obtained and who was not privy to the loan
agreement. Hence, only Gutierrez is bound by the contract of loan.

3. No, the check was not completed strictly under the authority given by the Petitioner.

Under Sec. 14 of the Negotiable Instruments Law, if the maker or drawer delivers a pre-
signed blank paper to another person for the purpose of converting it into a negotiable instrument,
that person is deemed to have prima facie authority to fill it up. It merely requires that the
instrument be in the possession of a person other than the drawer or maker and from such
possession, together with the fact that the instrument is wanting in a material particular, the law
presumes agency to fill up the blanks. The law used the term "prima facie" to underscore the fact
that the authority which the law accords to a holder is a presumption juris tantumonly; hence,
subject to subject to contrary proof. Thus, evidence that there was no authority or that the authority
granted has been exceeded may be presented by the maker in order to avoid liability under the
instrument.

In this case, the Petitioner gave Gutierrez pre-signed checks to be used in their business
provided that the latter could only use them upon the Petitioner’s approval. The Petitioner’s
instruction could not be any clearer as Gutierrez’ authority was limited to the use of the checks for
the operation of their business, and on the condition that the Petitioner’s prior approval be first
secured. No evidence is on record that Gutierrez ever secured prior approval from the Petitioner to
fill up the blank or to use the check.

4. No, Marasigan is not a holder in due course.

Section 52(c) of the NIL states that a holder in due course is one who takes the instrument
"in good faith and for value." It also provides in Section 52(d) that in order that one may be a holder
in due course, it is necessary that at the time it was negotiated to him he had no notice of any
infirmity in the instrument or defect in the title of the person negotiating it.

In the present case, Marasigan’s knowledge that Petitioner Patrimonio is not a party or a
privy to the contract of loan, and correspondingly had no obligation or liability to him, the rule that a
possessor of the instrument is prima facie a holder in due course is inapplicable. Respondent
Marasigan’s inaction and failure to verify, despite knowledge that the Petitioner was not a party to
the loan, may be construed as gross negligence amounting to bad faith.
Virata vs Ng Wee (Myling)

Summary: Petitioners filed for a Motion for Reconsideration of the Court’s 5 July 2017 decision
holding the directors and officers of Wincorp jointly and severally liable with the company for the
unpaid investment made by Ng Wee to Power Merge through Wincorp. The Court dismissed the
petitions finding the grounds relied on in the MR were the same or substantially similar to those
raised in their respective petitions thus were denied. Santos-Tan, however, did not appeal the CA
decision and thus was only participating in the proceedings in this reconsideration. The Court
however found her liable in the same way as Cua and the Cualopings

They were found personally liable as directors for either being complicit to the fraud, or at the very
least guilty of gross negligence following Section 31 of the Corporate Code. Said section provides that
directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the
corporation or who are guilty of gross negligence or bad faith in directing the affairs of the
corporation or acquire any personal or pecuniary interest in conflict with their duty as such directors
or trustees shall be liable jointly and severally for all damages resulting therefrom suffered by the
corporation, its stockholders or members and other persons.

DOCTRINE: The Board of Directors is expected to be more than a mere rubber stamp of the
corporation and its subordinate departments. It wields all corporate powers bestowed by the
Corporation Code, including the control over its properties and the conduct of its business. Being
stewards of the company, the Board is primarily charged with protecting the assets of the
corporation in behalf of its stakeholders.

FACTS:

1. Before the Court are the Motion for Reconsiderations filed in view of its 5 July 2017 Decision
holding the directors and officers of Wincorp jointly and severally liable with the company
for the unpaid investments of Ng Wee made to Power Merge through Wincorp.
2. [From the 5 July 2017 Decision] Ng Wee, as a valued client of Westmont Bank, was enticed
by the bank manager to make investments with Westmont Investment Corporation
(Wincorp). Wincorp would match a corporate borrower with an investor willing to provide
funds.
3. Ng Wee’s initial investments were matched with Hottick Holdings Corporation whose
majority shares were owned by Halim Saad. The Credit Facility extended to Hottick by
Wincorp was secured by, among others, a Suretyship Agreement executed by Luis Juan
Virata and another Suretyship Agreement by Halim Saad.
4. Hottick fully availed of the loan facility but defaulted in payment during the Asian financial
crisis. Wincorp filed collection suits against Hottick but Virata eventually brokered a
compromise.
5. Ng Wee confronted Wincorp about the default of Hottick. Wincorp assured Ng Wee that it
will absorb the losses from Hottick and Ng Wee’s investments will be transferred to another
borrower, Power Merge. Virata is the majority stockholder of Power Merge owning 374,996
 out of its 375,000 subscribed capital stock.
6. . In a special meeting of Wincorp’s board of directors held on 9 February 1999, Wincorp
approved Power Merge’s application for a P1.3bn credit line. On 15 February 1999, Wincorp
President Antonio Ong and Vice-President for Operations Anthony Reyes executed the
Credit Line Agreement in favor of Power Merge.
On 11 March 1999, Wincorp, through another board meeting, increased the credit limit to
P2.5bn and an Amendment to the Credit Line Agreement was executed. Power Merge drew
a total of P2,183,755,253.11 from the line covered by Promissory Notes (PN) in favor of
Wincorp for itself or as agent in behalf of investors which included Ng Wee who put in the
total amount of P213,290,410.36.
7. Unknown to Ng Wee, however, on the same date the two Agreements were separately
signed, Side Agreements were also entered between Wincorp (represented by Ong and
Reyes) and Power Merge absolving Power Merge of liability on the PNs.
8. Ng Wee was not able to collect his investment from Power Merge. On 19 October 2000, he
instituted a Complaint for Sum of Money with Damages against 17 defendants of which only
Virata, Power Merge, UPDI, UEM-MARA, Wincorp, Ong, Reyes, Cua, Tankiansee, Santos-Tan,
Vicente and Henry Cualoping, and Estrella were duly served with summons. The last six
were board directors of Wincorp. Virata filed a cross claim against Wincorp and its board of
directors.
9. [Start of Case] On 5 July 2017, the Court issued its Decision in the present consolidated
cases. The Court held that the actuations of Wincorp establishes actionable fraud for which
it can be held liable while Power Merge is liable to Ng Wee based on the promissory notes
even as an accommodation party.
10. On the basis of fraud, the Court pierced the veil of Wincorp and held the directors and
officers personally liable to Ng Wee. The basis of the liability was Section 31 of the
Corporation Code when they assented to the grant of the Credit Line Agreement and its
Amendment to Power Merge
11. The cross claim of Virata against Ong, Reyes and the board members were also granted and
Wincorp, Ong and Reyes together with the board members were ordered jointly and
severally liable to pay and reimburse Virata for any payment or contribution he made to Ng
Wee.

Petitioners filed for an MR which is the basis of this Resolution.

12. The Court notes that the grounds relied upon by Virata, Estrella, Ng Wee, Cua and the
Cualopings, Reyes, and Wincorp are the same or substantially similar to those raised in their
respective petitions thus were denied.
13. 13. Santos-Tan however did not appeal the decision of the CA holding her liable with her co-
parties to Ng Wee and was only participating in the proceedings in her plea of
reconsideration. She argues that the cross-claim should not have been granted because the
Side Agreements which served as the basis thereof never got the imprimatur of the Board of
Directors. Moreover, considering the P2.18bn drawdowns of Power Merge, she found it
iniquitous and immoral to require her and her co-directors to reimburse Virata of whatever
he was required to pay Ng Wee.

ISSUES: 1. Are the board of directors personally liable to Ng Wee for the investment he
placed with Power Merge through Wincorp? YES

RATIO: 1. In its 5 July 2017 decision, the Court explained the liabilities of the board directors
in view of Section 31 of the Corporation Code.
 2. Section 31 of the Corporation Code provides: Section 31. Liability of directors, trustees or
officers . — Directors or trustees who willfully and knowingly vote for or assent to patently
unlawful acts of the corporation or who are guilty of gross negligence or bad faith in
directing the affairs of the corporation or acquire any personal or pecuniary interest in
conflict with their duty as such directors or trustees shall be liable jointly and severally for all
damages resulting therefrom suffered by the corporation, its stockholders or members and
other persons.

When a director, trustee or officer attempts to acquire or acquire, in violation of his duty, any interest
adverse to the corporation in respect of any matter which has been reposed in him in confidence, as
to which equity imposes a disability upon him to deal in his own behalf, he shall be liable as a trustee
for the corporation and must account for the profits which otherwise would have accrued to the
corporation.

3. For Cua and the Cualopings, the totality of circumstances proves that they are either complicit to
the fraud, or at the very least guilty of gross negligence.

a. The board is charged with a fiduciary duty which it failed to fulfill when it did not heed the warning
signs which would have cautioned it from approving the loan in haste: (1) Power Merge has only
been in existence for two years when it was granted a credit facility; (2) Power Merge was thinly
capitalized with only P37,500,000.00 subscribed capital; (3) Power Merge was not an ongoing
concern since it never secured the necessary permits and licenses to conduct business, it never
engaged in any lucrative business, and it did not file the necessary reports with the SEC; and (4) no
security other than its Promissory Notes was demanded by Wincorp or was furnished by Power
Merge in relation to the latter's drawdowns.

b. Further, prior to Power Merge’s application for a credit facility, Virata had outstanding unpaid
transactions with Wincorp for its Hottick obligations. Instead of impleading Virata in the Hottick
account, however, Wincorp released him from liability and granted him a credit facility in the amount
of P1.3bn.

c. It is immaterial if Cua and the Cualopings approved or not the Side Agreements or authorized its
signing. Wincorp could have avoided its troubles if they were vigilant enough to disapprove the
Power Merge credit application.

4. Tankiansee was absolved because his immigration records clearly show that he was outside the
country during the dates when the Agreements were approved by the board.

5. Estrella tried to echo the same defense as Tankiansee although the minutes of both board
meetings indicate his presence. He claims to have left the meeting before the matter of Power
Merge’s application was discussed. He however failed to offer concrete evidence for this alibi. The
Court likewise did not allow him to use as defense his being a mere nominee and that he only had
one nominal share as well as whether or not he received compensation or honoraria for attending
the board meetings.

6. The liability of Santos-Tan is no different from Cua and the Cualopings in their personal capacity
under Section 31 of the Corporation Code.

7. The contention that the Side Agreements were without the imprimatur of its board of directors
cannot be given credence. The totality of circumstances supports the conclusion that the Wincorp
directors impliedly ratified, if not furtively authorized, the signing of the Side Agreements in order to
lay the groundwork for the fraudulent scheme.

a. Virata had existing obligations to Wincorp from the Hottick account. However, the board excluded
Virata as a party respondent to its collection suit against Hottick and, on the same day, approved the
P1.3bn credit line to Power Merge.

b. Proceeds of the credit line were released to Power Merge before the corresponding Agreements
were signed. This lends credence to Virata’s claim that Wincorp did not intend for Power Merge to be
strictly bound by the terms of the credit facility.

8. RULING: The MRs were denied

DISSENTING OPINION, Tijam, J. : In his dissent, Justice Tijam found no basis in holding Cua, the
Cualopings, Santos-Tan and Estrella jointly and severally liable with Virata, Wincorp, Ong and Reyes
to pay Ng Wee the amount of his investment.

1. Directors, Trustees or Officers can be held personally and solidarily liable with the corporation in
situations enumerated by law and jurisprudence. In this case, there was no proof showing that the
approval of the Credit Line Agreement and its Amendment were patently unlawful acts of the
corporation.

2. The directors did not willfully and knowingly vote for or assent to the execution of the Side
Agreements that exonerated Power Merge of its liability on the promissory notes, except for the
signatories who were Ong and Reyes.

3. Neither are the directors guilty of gross negligence or bad faith in directing or dealing in the affairs
of the corporation, they merely approved the Credit Line Agreements because the screening
committee of the corporation and its subordinate departments approved the same.

4. The Credit Line Agreements of Wincorp as approved by its officers may be merely called as a
business strategy which turned out to be unfavorable.
ESCUETA VS. LIM. 512 SCRA 411. G.R. No. 137162. January 24, 2007. Appointing a sub-agent.

DOCTRINE: An agent can appoint a sub-agent if the principal does not forbid it, but the agent is still
responsible for the actions of the sub-agent. However, if the sub-agent acts without authority or
beyond the power given by the agent, the contract made by the sub-agent is not void, but only
unenforceable, unless the principal ratifies it before the other party cancels it.

FACTS: Respondent Rufina Li, alleged that heirs of Ignacio Rubio and Luz Baloloy sold a parcel of land
her. Petitioner Escueta claimed that Rubio also sold his share to her, but Lim alleged that the sale was
simulated and that she had a prior contract with Rubio. Rubio executed a special power of attorney
(SPA) in favor of his daughter Llamas, authorizing her to sell his share. Llamas, in turn, appointed
Virginia Lim as her sub-agent to sell the same share to Rufina Lim herself.

ISSUE: Was the contract of sale between the sub-agent and respondent (buyer) valid?

RULING: YES. Article 1892 of the Civil Code provides: Art. 1892. The agent may appoint a substitute if
the principal has not prohibited him from doing so; but he shall be responsible for the acts of the
substitute: (1) When he was not given the power to appoint one x x x.

Applying the above-quoted provision to the special power of attorney executed by Ignacio Rubio in
favor of his daughter Patricia Llamas, it is clear that she is not prohibited from appointing a
substitute. By authorizing Virginia Lim to sell the subject properties, Patricia merely acted within the
limits of the authority given by her father, but she will have to be "responsible for the acts of the sub-
agent," among which is precisely the sale of the subject properties in favor of respondent.

Even assuming that Virginia Lim has no authority to sell the subject properties, the contract she
executed in favor of respondent is not void, but simply unenforceable, under the second paragraph
of Article 1317 of the Civil Code which reads:

Art. 1317. x x x A contract entered into in the name of another by one who has no authority or legal
representation, or who has acted beyond his powers, shall be unenforceable, unless it is ratified,
expressly or impliedly, by the person on whose behalf it has been executed, before it is revoked by
the other contracting party.

Ignacio [Rubio’s] xxxx acceptance and encashment of the check, however, constitute ratification of
the contract of sale and "produce the effects of an express power of agency." "[H]is action
necessarily implies that he waived his right of action to avoid the contract, and, consequently, it also
implies the tacit, if not express, confirmation of the said sale effected" by Virginia Lim in favor of
respondent.

Similarly, the Baloloys have ratified the contract of sale when they accepted and enjoyed its benefits.
"The doctrine of estoppel applicable to petitioners here is not only that which prohibits a party from
assuming inconsistent positions, based on the principle of election, but that which precludes him
from repudiating an obligation voluntarily assumed after having accepted benefits therefrom. To
countenance such repudiation would be contrary to equity, and would put a premium on fraud or
misrepresentation."
Indeed, Virginia Lim and respondent have entered into a contract of sale. Not only has the title to the
subject properties passed to the latter upon delivery of the thing sold, but there is also no stipulation
in the contract that states the ownership is to be reserved in or "retained by the vendor until full
payment of the price.1

Ignacio Rubio, the Baloloys, and their co-heirs sold their hereditary shares for a price certain to which
respondent agreed to buy and pay for the subject properties. "The offer and the acceptance are
concurrent, since the minds of the contracting parties meet in the terms of the agreement."

In fact, earnest money has been given by respondent. "[I]t shall be considered as part of the price
and as proof of the perfection of the contract. It constitutes an advance payment to "be deducted
from the total price."

In the present case, there is actual delivery as manifested by acts simultaneous with and subsequent
to the contract of sale when respondent

1 "[A]ll the elements of a valid contract of sale under Article 1458 of the Civil Code are present, such
as: (1) consent or meeting of the minds; (2) determinate subject matter; and (3) price certain in
money or its equivalent."

not only took possession of the subject properties but also allowed their use as parking terminal for
jeepneys and buses. Moreover, the execution itself of the contract of sale is constructive delivery.2

Consequently, Ignacio Rubio could no longer sell the subject properties to Corazon Escueta, after
having sold them to respondent.3 The records do not show that Ignacio Rubio asked for a rescission
of the contract. What he adduced was a belated revocation of the special power of attorney he
executed in favor of Patricia Llamas. "In the sale of immovable property, even though it may have
been stipulated that upon failure to pay the price at the time agreed upon the rescission of the
contract shall of right take place, the vendee may pay, even after the expiration of the period, as long
as no demand for rescission of the contract has been made upon him either judicially or by a notarial
act.

WHEREFORE, the petition is DENIED.

2 Article 1477 of the same Code also states that "[t]he ownership of the thing sold shall be
transferred to the vendee upon actual or constructive delivery thereof."

"[I]n a contract of sale, the vendor loses ownership over the property and cannot recover it until and
unless the contract is resolved or rescinded x x x."
G.R. No. 137162 January 24, 2007

CORAZON L. ESCUETA, assisted by her husband EDGAR ESCUETA, IGNACIO E. RUBIO, THE HEIRS OF
LUZ R. BALOLOY, namely, ALEJANDRINO R. BALOLOY and BAYANI R. BALOLOY, Petitioners,
vs.
RUFINA LIM, Respondent.

The facts2 appear as follows:

Respondent Rufina Lim filed an action to remove cloud on, or quiet title to, real property, with
preliminary injunction and issuance of [a hold-departure order] from the Philippines against Ignacio
E. Rubio. Respondent amended her complaint to include specific performance and damages.

In her amended complaint, respondent averred inter alia that she bought the hereditary shares
(consisting of 10 lots) of Ignacio Rubio [and] the heirs of Luz Baloloy, namely: Alejandrino, Bayani,
and other co-heirs; that said vendors executed a contract of sale dated April 10, 1990 in her favor;
that Ignacio Rubio and the heirs of Luz Baloloy received [a down payment] or earnest money in the
amount of P102,169.86 and P450,000, respectively; that it was agreed in the contract of sale that
the vendors would secure certificates of title covering their respective hereditary shares; that the
balance of the purchase price would be paid to each heir upon presentation of their individual
certificate[s] of [title]; that Ignacio Rubio refused to receive the other half of the down payment
which is P[100,000]; that Ignacio Rubio refused and still refuses to deliver to [respondent] the
certificates of title covering his share on the two lots; that with respect to the heirs of Luz Baloloy,
they also refused and still refuse to perform the delivery of the two certificates of title covering their
share in the disputed lots; that respondent was and is ready and willing to pay Ignacio Rubio and the
heirs of Luz Baloloy upon presentation of their individual certificates of title, free from whatever lien
and encumbrance;

As to petitioner Corazon Escueta, in spite of her knowledge that the disputed lots have already been
sold by Ignacio Rubio to respondent, it is alleged that a simulated deed of sale involving said lots was
effected by Ignacio Rubio in her favor; and that the simulated deed of sale by Rubio to Escueta has
raised doubts and clouds over respondent’s title.

In their separate amended answers, petitioners denied the material allegations of the complaint and
alleged inter alia the following:

For the heirs of Luz Baloloy (Baloloys for brevity):

Respondent has no cause of action, because the subject contract of sale has no more force and
effect as far as the Baloloys are concerned, since they have withdrawn their offer to sell for the
reason that respondent failed to pay the balance of the purchase price as orally promised on or
before May 1, 1990.

For petitioners Ignacio Rubio (Rubio for brevity) and Corazon Escueta (Escueta for brevity):
Respondent has no cause of action, because Rubio has not entered into a contract of sale with her;
that he has appointed his daughter Patricia Llamas to be his attorney-in-fact and not in favor of
Virginia Rubio Laygo Lim (Lim for brevity) who was the one who represented him in the sale of the
disputed lots in favor of respondent; that the P100,000 respondent claimed he received as down
payment for the lots is a simple transaction by way of a loan with Lim.

The Baloloys failed to appear at the pre-trial. Upon motion of respondent, the trial court declared
the Baloloys in default. They then filed a motion to lift the order declaring them in default, which
was denied by the trial court in an order dated November 27, 1991. Consequently, respondent was
allowed to adduce evidence ex parte. Thereafter, the trial court rendered a partial decision dated
July 23, 1993 against the Baloloys, the dispositive portion of which reads as follows:

IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of [respondent] and against
[petitioners, heirs] of Luz R. Balolo[y], namely: Alejandrino Baloloy and Bayani Baloloy. The
[petitioners] Alejandrino Baloloy and Bayani Baloloy are ordered to immediately execute an
[Absolute] Deed of Sale over their hereditary share in the properties covered by TCT No. 74392 and
TCT No. 74394, after payment to them by [respondent] the amount of P[1,050,000] or consignation
of said amount in Court. [For] failure of [petitioners] Alejandrino Baloloy and Bayani Baloloy to
execute the Absolute Deed of Sale over their hereditary share in the property covered by TCT No. T-
74392 and TCT No. T-74394 in favor of [respondent], the Clerk of Court is ordered to execute the
necessary Absolute Deed of Sale in behalf of the Baloloys in favor of [respondent,] with a
consideration of P[1,500,000]. Further[,] [petitioners] Alejandrino Baloloy and Bayani Baloloy are
ordered to jointly and severally pay [respondent] moral damages in the amount of P[50,000]
and P[20,000] for attorney’s fees. The adverse claim annotated at the back of TCT No. T-74392 and
TCT No. T-74394[,] insofar as the shares of Alejandrino Baloloy and Bayani Baloloy are concerned[,]
[is] ordered cancelled.

With costs against [petitioners] Alejandrino Baloloy and Bayani Baloloy.

SO ORDERED.3

The Baloloys filed a petition for relief from judgment and order dated July 4, 1994 and supplemental
petition dated July 7, 1994. This was denied by the trial court in an order dated September 16, 1994.
Hence, appeal to the Court of Appeals was taken challenging the order denying the petition for
relief.

Trial on the merits ensued between respondent and Rubio and Escueta. After trial, the trial court
rendered its assailed Decision, as follows:

IN VIEW OF THE FOREGOING, the complaint [and] amended complaint are dismissed against
[petitioners] Corazon L. Escueta, Ignacio E. Rubio[,] and the Register of Deeds. The counterclaim of
[petitioners] [is] also dismissed. However, [petitioner] Ignacio E. Rubio is ordered to return to the
[respondent], Rufina Lim[,] the amount of P102,169.80[,] with interest at the rate of six percent (6%)
per annum from April 10, [1990] until the same is fully paid. Without pronouncement as to costs.

SO ORDERED.4

On appeal, the CA affirmed the trial court’s order and partial decision, but reversed the later
decision. The dispositive portion of its assailed Decision reads:

WHEREFORE, upon all the foregoing premises considered, this Court rules:
 1. the appeal of the Baloloys from the Order denying the Petition for Relief from Judgment
and Orders dated July 4, 1994 and Supplemental Petition dated July 7, 1994 is DISMISSED.
The Order appealed from is AFFIRMED.

2. the Decision dismissing [respondent’s] complaint is REVERSED and SET ASIDE and a new
one is entered. Accordingly,

a. the validity of the subject contract of sale in favor of [respondent] is upheld.

b. Rubio is directed to execute a Deed of Absolute Sale conditioned upon the

payment of the balance of the purchase price by [respondent] within 30 days from
the receipt of the entry of judgment of this Decision.

c. the contracts of sale between Rubio and Escueta involving Rubio’s share in the
disputed properties is declared NULL and VOID.

d. Rubio and Escueta are ordered to pay jointly and severally the [respondent] the
amount of P[20,000] as moral damages and P[20,000] as attorney’s fees.

3. the appeal of Rubio and Escueta on the denial of their counterclaim is DISMISSED.

SO ORDERED.5Petitioners’ Motion for Reconsideration of the CA Decision was denied. Hence, this
petition.

The issues are:

THE HONORABLE COURT OF APPEALS ERRED IN DENYING THE PETITION FOR RELIEF FROM
JUDGMENT FILED BY THE BALOLOYS.

II

THE HONORABLE COURT OF APPEALS ERRED IN REINSTATING THE COMPLAINT AND IN AWARDING
MORAL DAMAGES AND ATTORNEY’S FEES IN FAVOR OF RESPONDENT RUFINA L. LIM CONSIDERING
THAT:

A. IGNACIO E. RUBIO IS NOT BOUND BY THE CONTRACT OF SALE BETWEEN VIRGINIA LAYGO-
LIM AND RUFINA LIM.

B. THE CONTRACT ENTERED INTO BETWEEN RUFINA LIM AND VIRGINIA LAYGO-LIM IS A
CONTRACT TO SELL AND NOT A CONTRACT OF SALE.

C. RUFINA LIM FAILED TO FAITHFULLY COMPLY WITH HER OBLIGATIONS UNDER THE
CONTRACT TO SELL THEREBY WARRANTING THE CANCELLATION THEREOF.

D. CORAZON L. ESCUETA ACTED IN UTMOST GOOD FAITH IN ENTERING INTO THE CONTRACT
OF SALE WITH IGNACIO E. RUBIO.

III
 THE CONTRACT OF SALE EXECUTED BETWEEN IGNACIO E. RUBIO AND CORAZON L. ESCUETA
IS VALID.

IV

THE HONORABLE COURT OF APPEALS ERRED IN DISMISSING PETITIONERS’ COUNTERCLAIMS.

Briefly, the issue is whether the contract of sale between petitioners and respondent is valid.

Petitioners argue, as follows:

First, the CA did not consider the circumstances surrounding petitioners’ failure to appear at the pre-
trial and to file the petition for relief on time.

As to the failure to appear at the pre-trial, there was fraud, accident and/or excusable neglect,
because petitioner Bayani was in the United States. There was no service of the notice of pre-trial or
order. Neither did the former counsel of record inform him. Consequently, the order declaring him
in default is void, and all subsequent proceedings, orders, or decision are void.

Furthermore, petitioner Alejandrino was not clothed with a power of attorney to appear on behalf of
Bayani at the pre-trial conference.

Second, the sale by Virginia to respondent is not binding. Petitioner Rubio did not authorize Virginia
to transact business in his behalf pertaining to the property. The Special Power of Attorney was
constituted in favor of Llamas, and the latter was not empowered to designate a substitute attorney-
in-fact. Llamas even disowned her signature appearing on the "Joint Special Power of Attorney,"
which constituted Virginia as her true and lawful attorney-in-fact in selling Rubio’s properties.

Dealing with an assumed agent, respondent should ascertain not only the fact of agency, but also
the nature and extent of the former’s authority. Besides, Virginia exceeded the authority for failing
to comply with her obligations under the "Joint Special Power of Attorney."

The amount encashed by Rubio represented not the down payment, but the payment of
respondent’s debt. His acceptance and encashment of the check was not a ratification of the
contract of sale.

Third, the contract between respondent and Virginia is a contract to sell, not a contract of sale. The
real character of the contract is not the title given, but the intention of the parties. They intended to
reserve ownership of the property to petitioners pending full payment of the purchase price.
Together with taxes and other fees due on the properties, these are conditions precedent for the
perfection of the sale. Even assuming that the contract is ambiguous, the same must be resolved
against respondent, the party who caused the same.

Fourth, Respondent failed to faithfully fulfill her part of the obligation. Thus, Rubio had the right to
sell his properties to Escueta who exercised due diligence in ascertaining ownership of the
properties sold to her. Besides, a purchaser need not inquire beyond what appears in a Torrens title.

The petition lacks merit. The contract of sale between petitioners and respondent is
valid.lawphil.net
Bayani Baloloy was represented by his attorney-in-fact, Alejandrino Baloloy. In the Baloloys’ answer
to the original complaint and amended complaint, the allegations relating to the personal
circumstances of the Baloloys are clearly admitted.

"An admission, verbal or written, made by a party in the course of the proceedings in the same case,
does not require proof."6 The "factual admission in the pleadings on record [dispenses] with the
need x x x to present evidence to prove the admitted fact."7 It cannot, therefore, "be controverted
by the party making such admission, and [is] conclusive"8 as to them. All proofs submitted by them
"contrary thereto or inconsistent therewith should be ignored whether objection is interposed by a
party or not."9 Besides, there is no showing that a palpable mistake has been committed in their
admission or that no admission has been made by them.

Pre-trial is mandatory.10 The notices of pre-trial had been sent to both the Baloloys and their former
counsel of record. Being served with notice, he is "charged with the duty of notifying the party
represented by him."11 He must "see to it that his client receives such notice and attends the pre-
trial."12 What the Baloloys and their former counsel have alleged instead in their Motion to Lift Order
of As In Default dated December 11, 1991 is the belated receipt of Bayani Baloloy’s special power of
attorney in favor of their former counsel, not that they have not received the notice or been
informed of the scheduled pre-trial. Not having raised the ground of lack of a special power of
attorney in their motion, they are now deemed to have waived it. Certainly, they cannot raise it at
this late stage of the proceedings. For lack of representation, Bayani Baloloy was properly declared
in default.

Section 3 of Rule 38 of the Rules of Court states:

SEC. 3. Time for filing petition; contents and verification. – A petition provided for in either of the
preceding sections of this Rule must be verified, filed within sixty (60) days after the petitioner learns
of the judgment, final order, or other proceeding to be set aside, and not more than six (6) months
after such judgment or final order was entered, or such proceeding was taken; and must be
accompanied with affidavits showing the fraud, accident, mistake, or excusable negligence relied
upon, and the facts constituting the petitioner’s good and substantial cause of action or defense, as
the case may be.

There is no reason for the Baloloys to ignore the effects of the above-cited rule. "The 60-day period
is reckoned from the time the party acquired knowledge of the order, judgment or proceedings and
not from the date he actually read the same."13 As aptly put by the appellate court:

The evidence on record as far as this issue is concerned shows that Atty. Arsenio Villalon, Jr., the
former counsel of record of the Baloloys received a copy of the partial decision dated June 23, 1993
on April 5, 1994. At that time, said former counsel is still their counsel of record. The reckoning of
the 60 day period therefore is the date when the said counsel of record received a copy of the
partial decision which was on April 5, 1994. The petition for relief was filed by the new counsel on
July 4, 1994 which means that 90 days have already lapsed or 30 days beyond the 60 day period.
Moreover, the records further show that the Baloloys received the partial decision on September 13,
1993 as evidenced by Registry return cards which bear the numbers 02597 and 02598 signed by Mr.
Alejandrino Baloloy.

The Baloloys[,] apparently in an attempt to cure the lapse of the aforesaid reglementary period to
file a petition for relief from judgment[,] included in its petition the two Orders dated May 6, 1994
and June 29, 1994. The first Order denied Baloloys’ motion to fix the period within which plaintiffs-
appellants pay the balance of the purchase price. The second Order refers to the grant of partial
execution, i.e. on the aspect of damages. These Orders are only consequences of the partial decision
subject of the petition for relief, and thus, cannot be considered in the determination of the
reglementary period within which to file the said petition for relief.

Furthermore, no fraud, accident, mistake, or excusable negligence exists in order that the petition
for relief may be granted.14 There is no proof of extrinsic fraud that "prevents a party from having a
trial x x x or from presenting all of his case to the court"15 or an "accident x x x which ordinary
prudence could not have guarded against, and by reason of which the party applying has probably
been impaired in his rights."16 There is also no proof of either a "mistake x x x of law"17 or an
excusable negligence "caused by failure to receive notice of x x x the trial x x x that it would not be
necessary for him to take an active part in the case x x x by relying on another person to attend to
the case for him, when such other person x x x was chargeable with that duty x x x, or by other
circumstances not involving fault of the moving party."18

Article 1892 of the Civil Code provides:

Art. 1892. The agent may appoint a substitute if the principal has not prohibited him from doing so;
but he shall be responsible for the acts of the substitute:

(1) When he was not given the power to appoint one x x x.

Applying the above-quoted provision to the special power of attorney executed by Ignacio Rubio in
favor of his daughter Patricia Llamas, it is clear that she is not prohibited from appointing a
substitute. By authorizing Virginia Lim to sell the subject properties, Patricia merely acted within the
limits of the authority given by her father, but she will have to be "responsible for the acts of the
sub-agent,"19 among which is precisely the sale of the subject properties in favor of respondent.

Even assuming that Virginia Lim has no authority to sell the subject properties, the contract she
executed in favor of respondent is not void, but simply unenforceable, under the second paragraph
of Article 1317 of the Civil Code which reads:

Art. 1317. x x x

A contract entered into in the name of another by one who has no authority or legal representation,
or who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or
impliedly, by the person on whose behalf it has been executed, before it is revoked by the other
contracting party.

Ignacio Rubio merely denies the contract of sale. He claims, without substantiation, that what he
received was a loan, not the down payment for the sale of the subject properties. His acceptance
and encashment of the check, however, constitute ratification of the contract of sale and "produce
the effects of an express power of agency."20 "[H]is action necessarily implies that he waived his right
of action to avoid the contract, and, consequently, it also implies the tacit, if not express,
confirmation of the said sale effected" by Virginia Lim in favor of respondent.

Similarly, the Baloloys have ratified the contract of sale when they accepted and enjoyed its benefits.
"The doctrine of estoppel applicable to petitioners here is not only that which prohibits a party from
assuming inconsistent positions, based on the principle of election, but that which precludes him
from repudiating an obligation voluntarily assumed after having accepted benefits therefrom. To
countenance such repudiation would be contrary to equity, and would put a premium on fraud or
misrepresentation."21
Indeed, Virginia Lim and respondent have entered into a contract of sale. Not only has the title to
the subject properties passed to the latter upon delivery of the thing sold, but there is also no
stipulation in the contract that states the ownership is to be reserved in or "retained by the vendor
until full payment of the price."22

Applying Article 1544 of the Civil Code, a second buyer of the property who may have had actual or
constructive knowledge of such defect in the seller’s title, or at least was charged with the obligation
to discover such defect, cannot be a registrant in good faith. Such second buyer cannot defeat the
first buyer’s title. In case a title is issued to the second buyer, the first buyer may seek reconveyance
of the property subject of the sale.23 Even the argument that a purchaser need not inquire beyond
what appears in a Torrens title does not hold water. A perusal of the certificates of title alone will
reveal that the subject properties are registered in common, not in the individual names of the heirs.

Nothing in the contract "prevents the obligation of the vendor to convey title from becoming
effective"24 or gives "the vendor the right to unilaterally resolve the contract the moment the buyer
fails to pay within a fixed period."25 Petitioners themselves have failed to deliver their individual
certificates of title, for which reason it is obvious that respondent cannot be expected to pay the
stipulated taxes, fees, and expenses.

"[A]ll the elements of a valid contract of sale under Article 1458 of the Civil Code are present, such
as: (1) consent or meeting of the minds; (2) determinate subject matter; and (3) price certain in
money or its equivalent."26 Ignacio Rubio, the Baloloys, and their co-heirs sold their hereditary shares
for a price certain to which respondent agreed to buy and pay for the subject properties. "The offer
and the acceptance are concurrent, since the minds of the contracting parties meet in the terms of
the agreement."27

In fact, earnest money has been given by respondent. "[I]t shall be considered as part of the price
and as proof of the perfection of the contract.28 It constitutes an advance payment to "be deducted
from the total price."29

Article 1477 of the same Code also states that "[t]he ownership of the thing sold shall be transferred
to the vendee upon actual or constructive delivery thereof."30 In the present case, there is actual
delivery as manifested by acts simultaneous with and subsequent to the contract of sale when
respondent not only took possession of the subject properties but also allowed their use as parking
terminal for jeepneys and buses. Moreover, the execution itself of the contract of sale is
constructive delivery.

Consequently, Ignacio Rubio could no longer sell the subject properties to Corazon Escueta, after
having sold them to respondent. "[I]n a contract of sale, the vendor loses ownership over the
property and cannot recover it until and unless the contract is resolved or rescinded x x x."31 The
records do not show that Ignacio Rubio asked for a rescission of the contract. What he adduced was
a belated revocation of the special power of attorney he executed in favor of Patricia Llamas. "In the
sale of immovable property, even though it may have been stipulated that upon failure to pay the
price at the time agreed upon the rescission of the contract shall of right take place, the vendee may
pay, even after the expiration of the period, as long as no demand for rescission of the contract has
been made upon him either judicially or by a notarial act."32

WHEREFORE, the petition is DENIED. The Decision and Resolution of the Court of Appeals in CA-G.R.
CV No. 48282, dated
October 26, 1998 and January 11, 1999, respectively, are hereby AFFIRMED. Costs against
petitioners.

SO ORDERED.

G.R. No. 148775 January 13, 2004

SHOPPER’S PARADISE REALTY & DEVELOPMENT CORPORATION, petitioner,

vs.
EFREN P. ROQUE, respondent.

DECISION

VITUG, J.:

On 23 December 1993, petitioner Shopper’s Paradise Realty & Development Corporation,

represented by its president, Veredigno Atienza, entered into a twenty-five year lease with Dr. Felipe
C. Roque, now deceased, over a parcel of land, with an area of two thousand and thirty six (2,036)
square meters, situated at Plaza Novaliches, Quezon City, covered by Transfer of Certificate of Title
(TCT) No. 30591 of the Register of Deeds of Quezon City in the name of Dr. Roque. Petitioner issued
to Dr. Roque a check for P250,000.00 by way of "reservation payment." Simultaneously, petitioner
and Dr. Roque likewise entered into a memorandum of agreement for the construction,
development and operation of a commercial building complex on the property. Conformably with
the agreement, petitioner issued a check for another P250,000.00 "downpayment" to Dr. Roque.

The contract of lease and the memorandum of agreement, both notarized, were to be annotated on
TCT No. 30591 within sixty (60) days from 23 December 1993 or until 23 February 1994. The
annotations, however, were never made because of the untimely demise of Dr. Felipe C. Roque. The
death of Dr. Roque on 10 February 1994 constrained petitioner to deal with respondent Efren P.
Roque, one of the surviving children of the late Dr. Roque, but the negotiations broke down due to
some disagreements. In a letter, dated 3 November 1994, respondent advised petitioner "to desist
from any attempt to enforce the aforementioned contract of lease and memorandum of
agreement". On 15 February 1995, respondent filed a case for annulment of the contract of lease
and the memorandum of agreement, with a prayer for the issuance of a preliminary injunction,
before Branch 222 of the Regional Trial Court of Quezon City. Efren P. Roque alleged that he had
long been the absolute owner of the subject property by virtue of a deed of donation inter vivos
executed in his favor by his parents, Dr. Felipe Roque and Elisa Roque, on 26 December 1978, and
that the late Dr. Felipe Roque had no authority to enter into the assailed agreements with petitioner.
The donation was made in a public instrument duly acknowledged by the donor-spouses before a
notary public and duly accepted on the same day by respondent before the notary public in the
same instrument of donation. The title to the property, however, remained in the name of Dr. Felipe
C. Roque, and it was only transferred to and in the name of respondent sixteen years later, or on 11
May 1994, under TCT No. 109754 of the Register of Deeds of Quezon City. Respondent, while he
resided in the United States of America, delegated to his father the mere administration of the
property. Respondent came to know of the assailed contracts with petitioner only after retiring to
the Philippines upon the death of his father.

On 9 August 1996, the trial court dismissed the complaint of respondent; it explained:
 "Ordinarily, a deed of donation need not be registered in order to be valid between the
parties. Registration, however, is important in binding third persons. Thus, when Felipe
Roque entered into a leased contract with defendant corporation, plaintiff Efren Roque
(could) no longer assert the unregistered deed of donation and say that his father, Felipe,
was no longer the owner of the subject property at the time the lease on the subject
property was agreed upon.

"The registration of the Deed of Donation after the execution of the lease contract did not
affect the latter unless he had knowledge thereof at the time of the registration which
plaintiff had not been able to establish. Plaintiff knew very well of the existence of the lease.
He, in fact, met with the officers of the defendant corporation at least once before he
caused the registration of the deed of donation in his favor and although the lease itself was
not registered, it remains valid considering that no third person is involved. Plaintiff cannot
be the third person because he is the successor-in-interest of his father, Felipe Roque, the
lessor, and it is a rule that contracts take effect not only between the parties themselves but
also between their assigns and heirs (Article 1311, Civil Code) and therefore, the lease
contract together with the memorandum of agreement would be conclusive on plaintiff
Efren Roque. He is bound by the contract even if he did not participate therein. Moreover,
the agreements have been perfected and partially executed by the receipt of his father of
the downpayment and deposit totaling to P500,000.00."1

The Trial court ordered respondent to surrender TCT No. 109754 to the Register of Deeds of Quezon
City for the annotation of the questioned Contract of Lease and Memorandum of Agreement.

On appeal, the Court of Appeals reversed the decision of the trial court and held to be invalid the
Contract of Lease and Memorandum of Agreement. While it shared the view expressed by the trial
court that a deed of donation would have to be registered in order to bind third persons, the
appellate court, however, concluded that petitioner was not a lessee in good faith having had prior
knowledge of the donation in favor of respondent, and that such actual knowledge had the effect of
registration insofar as petitioner was concerned. The appellate court based its findings largely on the
testimony of Veredigno Atienza during cross-examination, viz;

"Q. Aside from these two lots, the first in the name of Ruben Roque and the second, the
subject of the construction involved in this case, you said there is another lot which was part
of development project?

"A. Yes, this was the main concept of Dr. Roque so that the adjoining properties of his two
sons, Ruben and Cesar, will comprise one whole. The other whole property belongs to Cesar.

"Q. You were informed by Dr. Roque that this property was given to his three (3) sons; one
to Ruben Roque, the other to Efren, and the other to Cesar Roque?

"A. Yes.

"Q. You did the inquiry from him, how was this property given to them?

"A. By inheritance.

"Q. Inheritance in the form of donation?

"A. I mean inheritance.

 "Q. What I am only asking you is, were you told by Dr. Felipe C. Roque at the time of your
transaction with him that all these three properties were given to his children by way of
donation?

"A. What Architect Biglang-awa told us in his exact word: "Yang mga yan pupunta sa mga
anak. Yong kay Ruben pupunta kay Ruben. Yong kay Efren palibhasa nasa America sya, nasa
pangalan pa ni Dr. Felipe C. Roque."

"x x x xxx xxx

"Q. When was the information supplied to you by Biglang-awa? Before the execution of the
Contract of Lease and Memorandum of Agreement?

"A. Yes.

"Q. That being the case, at the time of the execution of the agreement or soon before, did
you have such information confirmed by Dr. Felipe C. Roque himself?

"A. Biglang-awa did it for us.

"Q. But you yourself did not?

"A. No, because I was doing certain things. We were a team and so Biglang-awa did it for us.

"Q. So in effect, any information gathered by Biglang-awa was of the same effect as if
received by you because you were members of the same team?

"A. Yes."2

In the instant petition for review, petitioner seeks a reversal of the decision of the Court of Appeals
and the reinstatement of the ruling of the Regional Trial Court; it argues that the presumption of
good faith it so enjoys as a party dealing in registered land has not been overturned by the
aforequoted testimonial evidence, and that, in any event, respondent is barred by laches and
estoppel from denying the contracts.

The existence, albeit unregistered, of the donation in favor of respondent is undisputed. The trial
court and the appellate court have not erred in holding that the non-registration of a deed of
donation does not affect its validity. As being itself a mode of acquiring ownership, donation results
in an effective transfer of title over the property from the donor to the donee.3 In donations of
immovable property, the law requires for its validity that it should be contained in a public
document, specifying therein the property donated and the value of the charges which the donee
must satisfy.4 The Civil Code provides, however, that "titles of ownership, or other rights over
immovable property, which are not duly inscribed or annotated in the Registry of Property (now
Registry of Land Titles and Deeds) shall not prejudice third persons."5 It is enough, between the
parties to a donation of an immovable property, that the donation be made in a public document
but, in order to bind third persons, the donation must be registered in the registry of Property
(Registry of Land Titles and Deeds).6 Consistently, Section 50 of Act No. 496 (Land Registration Act),
as so amended by Section 51 of P.D. No. 1529 (Property Registration Decree), states:

"SECTION 51. Conveyance and other dealings by registered owner.- An owner of registered
land may convey, mortgage, lease, charge or otherwise deal with the same in accordance
 with existing laws. He may use such forms of deeds, mortgages, leases or other voluntary
instruments as are sufficient in law. But no deed, mortgage, lease, or other voluntary
instrument, except a will purporting to convey or affect registered land shall take effect as a
conveyance or bind the land, but shall operate only as a contract between the parties and as
evidence of authority to the Register of Deeds to make registration.

"The act of registration shall be the operative act to convey or affect the land insofar as third
persons are concerned, and in all cases under this Decree, the registration shall be made in
the office of the Register of Deeds for the province or city where the land lies." (emphasis
supplied)

A person dealing with registered land may thus safely rely on the correctness of the certificate of
title issued therefore, and he is not required to go beyond the certificate to determine the condition
of the property7 but, where such party has knowledge of a prior existing interest which is
unregistered at the time he acquired a right thereto, his knowledge of that prior unregistered
interest would have the effect of registration as regards to him.8

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

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

In a contract of agency, the agent acts in representation or in behalf of another with the consent of
the latter.9 Article 1878 of the Civil Code expresses that a special power of attorney is necessary to
lease any real property to another person for more than one year. The lease of real property for
more than one year is considered not merely an act of administration but an act of strict dominion
or of ownership. A special power of attorney is thus necessary for its execution through an
agent.1awphil.ne+

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

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

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

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

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

SO ORDERED.
Case No. 7
Shoppers Paradise Realty & Development Corp. vs. Efren Roque
G.R No. 148775 Jan 13, 2004
Third Division
Vitug,J.:
Facts: Shoppers Paradise Realty Corp and Dr. Felipe Roque entered into a contract of lease for 25 years
for a development
of a Commercial Building located in Plaza Novaliches Quezon City. Shoppers Paradise Realty Corp paid
250,000 for the
initial reservation payment and another 250,000 for the downpayment, after which the contract of lease
and memorandum of
agreement were notarized, but the annotation on the Title of the property were never made because of
the death of Dr. Felipe
Roque. The son of Dr. Roque, Efren Roque, herein respondent, filed a case over the RTC for the
annulment of the Contract
of Lease and Memorandum of Agreement. He alleged that the subject property has been donated to
him by his parents long
before the transaction was made, thus he is the lawful owner of the property. RTC decided in favor of
Shoppers Paradise
Realty Corp, it held that the registration of the donation do not affect third persons unless he had
knowledge of such
donation. On appeal, CA reversed RTC Decision, and held that the Contract of Lease and Memorandum
of agreement
invalid. Hence, this petition.
Issue: Whether or not the Contract of Lease and Memorandum of Agreement is valid.
Held: No, Dr. Roque has no authority.
Ruling: The Court upholds the validity of the donation of the property to Efren Roque. The non-
registration of the donation
does not affect its validity. However, in order to bind third persons, donations must be registered in the
registry of deeds,
unless such third person had knowledge of the donation. The CA held that Shoppers Paradise actually
had knowledge of the
donation and that Efren Roque is the lawful owner of the property. Efren Roque being the lawful owner,
Dr. Felipe Roque,
in order to transact with Shoppers Paradise Realty Corp should first acquire authority from Efren Roque
as an agent as
provided by Art.1878 of the Civil Code which states that a special power of attorney is necessary to lease
any real property
to another person for more than one year. There is no showing that Efren Roque executed a Special
Power of Attorney in
favor of Dr. Felipe Roque, thus Felipe Roque has no authority and the Contract of Lease and the
Memorandum of
Agreement are invalid.
 G.R. No. 228402, August 26, 2020

LOYOLA LIFE PLANS INCORPORATED (NOW LOYOLA PLANS CONSOLIDATED INC.) AND ANGELITA D.
LUMIQUED, PETITIONERS, V. ATR PROFESSIONAL LIFE ASSURANCE CORPORATION (NOW ASIAN
LIFE AND GENERAL ASSURANCE CORPORATION), RESPONDENT.

G.R. No. 222912

ATR PROFESSIONAL LIFE ASSURANCE CORPORATION (NOW ASIAN LIFE AND GENERAL ASSURANCE
CORPORATION), PETITIONER, V. LOYOLA LIFE PLANS INCORPORATED (NOW LOYOLA PLANS
CONSOLIDATED INC.) AND ANGELITA D. LUMIQUED, RESPONDENTS.

DECISION

CARANDANG, J.:

Before this Court are two consolidated Petitions for Review on Certiorari1 under Rule 45 of the Rules
of Court, assailing the Decision2 dated February 4, 2016 and the Resolution3 dated November 17,
2016 of the Court of Appeals (CA) in CA-G.R. CV No. 97528.

Antecedents

Loyola Life Plans, Inc. (Loyola) is a pre-need company engaged in the business of insuring the lives of
its plan holders through its Timeplans (pension contracts) and Lifeplans (memorial service contracts),
which are covered by insurance benefits provided by several insurance companies including GE Life
Insurance Company, Incorporated (GE Life), later known as ATR Professional Life Assurance
Corporation (ATR).4 On June 8, 1999, Loyola applied with ATR for a Group Creditors Life Insurance
plan, with Group Yearly Renewable Term Life and Accidental Death Benefit as supplementary
benefits.5 They entered into a Group Creditors Life Insurance Agreement, effective on June 15, 1999,
under Master Policy No. GCL-878.6

On April 28, 2000, Dwight L. Lumiqued (Dwight), husband of Angelita Lumiqued (Angelita),
purchased a Timeplan from Loyola payable in 120 monthly installments in the amount of P5,040.00
per month. To pay for the first monthly premium, Dwight issued two Metrobank checks in the
amounts of P2,824.75 and P600.00 under Check Nos. 1200011493 and 1200114994, respectively. He
also paid in cash P1,615.25. Simultaneous with the payment of the first monthly premium, Dwight
executed Timeplan Application No. OT-003810717 for which Timeplan Contract No.
GGG4300047858 was issued.9 He was then issued an Official Receipt,10 which expressly states:

This Receipt is valid for downpayment only. Checks and other similar forms shall be valid only when
cleared by the Bank.11cralawlawlibrary

Belen Edith C. Ganit (Ganit), Loyola's Sales Operation Assistant, deposited on the same day the two
Metrobank checks while the cash payment was deposited to the account of Loyola on May 2, 2000.12

On May 1, 2000, Dwight died due to multiple stab wounds.13

Thereafter, Angelita filed a claim to recover the proceeds of the insurance benefits through Loyola's
broker, Network Unlimited, Inc. However, in a letter14 dated April 17, 2001, ATR denied the claim on
the ground that the initial installment payment was not completed.15 Loyola asked for a
reconsideration, insisting that the Timeplan Dwight obtained was already in full force and effect
upon payment of the premium on April 28, 2000.16

On October 16, 2001, ATR, through its Vice President of Legal and Compliance, denied Angelita's
claim, reiterating its position that payment of the premium had not been completed.17 ATR also
invalidated Dwight's application as his signature appearing therein was allegedly forged.18 To bar
Angelita from further pursuing any claim for the insurance benefits, ATR instituted a complaint19 to
declare the individual insurance coverage of Dwight under Master Policy No. GCL-878 void and of no
effect at the time of his death on May 1, 2000. ATR also prayed for the payment of attorney's fees,
litigation expenses, and costs of suit.20

In Loyola's Answer with Compulsory Counterclaim,21 which was adopted in toto by Angelita,22 Loyola
argued that: (1) Dwight's signature appearing in his Timeplan application was not forged;23 and (2)
Dwight paid in full the first installment of the insurance premium in the amount of P5,040.00 on
April 28, 2000, prior to his death.24 Loyola added that ATR cannot escape paying the proceeds under
the Group Creditors Life Insurance in the amount of P599,760.00, Group Yearly Renewable Term Life
in the amount of P604,800,00, and the Accidental Death Benefit in the amount of P604,800.00 by
insisting that Dwight was murdered. Loyola pointed out that ATR failed to give any evidence to
support its claim that Dwight was murdered and not a victim of homicide.25 Thus, Loyola and
Angelita prayed that ATR be directed to comply with its obligations under the Group Creditors Life
Insurance Agreement by paying P1,809,360.00 in actual damages. In addition, Loyola and Angelita
prayed that judgment be rendered ordering ATR to pay moral damages, and exemplary damages.
Attorney's fees, litigation expenses, and costs of suit were also prayed for.26cralawred

Ruling of the Regional Trial Court

On July 7, 2011, the RTC rendered its Decision,27 the dispositive portion of which reads:

WHEREFORE, the Court renders judgment:

1. DISMISSING the Complaint of plaintiff;

2. HOLDING plaintiff ATR Professional Life Insurance Corporation, now the Asian Life and General
Assurance Corporation, liable for defendants' counterclaim. Plaintiff is ordered
to: ChanRoblesVirtualawlibrary
a. Pay to defendant Angelita Lumiqued actual damages in the amount of P1,809,360;
b. Pay to defendants Loyola Plans Inc. and Angelita Lumiqued moral damages in the amount of
P100,000;
c. Pay to the defendants exemplary damages in the amount of P100,000;
d. Pay to the defendants attorney's fees in the amount of P100,000;
e. Pay to the defendants the costs of suit.
SO ORDERED.28 (Emphasis omitted)

The RTC held that Dwight timely paid the premium of the policy. Since the agreement and the official
receipt state that the insurance coverage of a planholder shall take effect on the date of initial
payment and/or down payment on the Timeplan, the RTC ruled that the date of receipt by the agent
of Loyola of the down payment on April 28, 2000 is also the date of payment of the premium.29 The
RTC also found that ATR's allegation of forgery was a mere afterthought.30 The RTC noted that it was
only on September 22, 2001, or almost 18 months after the death of the Dwight, that the
genuineness of his signature was assailed for the first time.31

The RTC computed the actual damages as follows:

Group Creditors Life�� P599.760.00

Insurance (outstanding balance net
of the first installment
paid)

Group Yearly Renewable 604,800.00 (the gross

Term Life contract price)

Accidental Death Benefit 604,800.00 (the gross

contract price)������������

TOTAL P1,809,360.0032

The RTC also awarded P100,000.00 as moral damages for ATR's bad faith and P100,000.00 as
exemplary damages for not honoring its obligation. Attorney's fees in the amount of P100,000.00
was also found to be reasonable.33cralawred

Ruling of the Court of Appeals

On February 4, 2016, the CA rendered its Decision,34 the dispositive portion of which reads:

WHEREFORE, premises considered, the instant Appeal is hereby DENIED. The assailed Decision
dated 7 July 2011 of the Regional Trial Court, Branch 136, Makati City in Civil Case No. Q-01-1665 is
hereby AFFIRMED with MODIFICATION by holding appellant liable to pay the heirs or beneficiaries
listed in the insurance policy Plan Benefit in the amount of P992,000.00. Actual damages awarded in
the aggregate amount of P1,809,360.00 including the damages for moral and exemplary as well as
attorney's fees each in the sum of P100,000.00 are hereby DELETED.

SO ORDERED.35 (Emphasis in the original)

The CA held that the partial payment of the premium rendered the policy in full force and effect.
This is expressly provided in the terms of the policy.36 The CA declared that the assumption of risk by
ATR started from the moment of the initial down payment on the premium through the payment of
checks and the cash received by Loyola's agent, as reflected in the Official Receipt issued to Dwight
on April 28, 2000.37

The CA explained that, though delivery of the checks does not immediately effect payment, it simply
suspends the action arising from the original obligation until payment is accompanied either actually
or presumptively. The payment of the premium on the policy thus became an independent
obligation, the non-fulfillment of which would entitle the insurer to recover. The CA opined that the
insurer could just deduct the premium due and unpaid upon the satisfaction of the loss under the
policy. It does not have a right to cancel the policy. It could place the insured in default in case of
such and give the latter personal notice to that effect.38
The CA also did not find any merit to ATR's claim that Dwight's application was forged. The
testimony confirming the genuineness of Dwight's signature by the Philippine National Police
handwriting examiner Mely Feliciano Sora was given full credence.39 Likewise, the CA believed
Jacobo Gumiran's (Gumiran) statement that he personally witnessed Dwight affix his signature in the
application and even admitted receiving the down payment.40

The CA deleted the award of actual damages in the amount of P1,809,360.00, stating that the
Timeplan contract specifically provides payment of P992,000.00 as plan benefit only. The CA did not
find sufficient evidence to prove that the policy in question falls within the categories of Group
Creditors Life Insurance and Group Yearly Renewable Term Life or that the death of Dwight was
accidental in order for him to be entitled to P1,809,360.00.41

The moral and exemplary damages awarded were deleted as the CA found that ATR did not commit
any fraudulent act nor employ bad faith. The CA also removed the award of attorney's fees as the
RTC decision did not state the reason why it was awarded.42

On March 16, 2016, ATR filed its petition for review on certiorari docketed as G.R. No.
222912,43 claiming that it is not liable to pay the heirs of Dwight because: (1) Dwight did not
complete the monthly premium payment prior to his death because the cash payment of P1,615.25
was only deposited on May 2, 2000;44 (2) the Timeplan application of Dwight is forged;45 and (3)
murder is not among the risks covered by the Group Creditors Life Insurance Agreement.46

In its Comment47 , Loyola pointed out that ATR's petition is premature because the CA had not yet
resolved Loyola's Motion for Reconsideration48 to the Decision of the CA. Loyola proposed that the
case be remanded to the CA for the final disposition of the Motion for Reconsideration.49

Thereafter, in a Resolution50 dated November 17, 2016, the CA denied the Motion for (Partial)
Reconsideration Loyola filed.

Meanwhile, in the petition filed on January 11, 2017 docketed as G.R. No. 228402, Loyola
emphasized that the records, including documentary evidence and pleadings submitted by ATR,
recognize that the policy in question is entitled to the Group Creditors Life Insurance and the Group
Yearly Renewable Term Life benefits Loyola obtained under Master Policy No. GCL-878.51 Loyola also
highlighted that the amount of P1,809,360 was stipulated by the parties and that the specific
amount of loss need not be proven.52 Loyola further argued that the CA erred in deleting the award
of moral and exemplary damages despite the trial court's finding of bad faith on the part of ATR and
its failure to honor its obligation.53 Contrary to the ruling of the CA, Loyola averred that the award of
attorney's fees is justified because it was clearly stated in the RTC decision that ATR filed an
unfounded suit.54

On January 18, 2017, the Court issued a Resolution ordering that G.R. No. 228402 and G.R. No.
222912 be consolidated as both cases assail the same Decision of the CA in CA-G.R. CV No. 97528.

In its Comment55 in G.R. No. 228402, ATR insisted that the amount paid by Dwight should be treated
only as a deposit and not a premium payment because the cash payment of P1,615.25 was
deposited on May 2, 2000, making the first installment not fully paid.56 Because the downpayment in
the amount of P5,040.00 was not fully paid on its due date, April 28, 2000, ATR reiterated its position
that the policy is not valid and binding.57 ATR also maintained that it is not liable because "[m]urder
or provoked assault; or any attempt thereat" are among the exclusions of the policy.58 Moreover,
ATR insisted that it has substantially proven that Dwight's Timeplan application was forged.59
In its Reply,60 Loyola essentially restated its substantive arguments to support its position.

Issues

The issues to be resolved are:

1. Whether Dwight's Timeplan application was forged;

2. Whether an insurance contract was perfected between Dwight and ATR on April 28, 2000
when Dwight paid Loyola's agent, Gumiran, cash in the amount of P1,615.25 and two checks
amounting to P2,824.75, and P600.00, thus entitling his heirs to the proceeds of the policy
following his death on May 1, 2000;
3. Whether the cause of Dwight's death is a risk covered by the Timeplan contract;
4. Whether Dwight's Timeplan contract is entitled to the Group Creditors Life Insurance and
the Group Yearly Renewable Term Life benefits obtained by Loyola; and
5. Whether the CA correctly deleted the award of moral damages, exemplary damages, and
attorney's fees.

Ruling of the Court

ATR failed to sufficiently establish

that Dwight's Timeplan application
was forged.

It is well-settled that allegations of forgery, like all other allegations, must be proved by clear,
positive, and convincing evidence by the party alleging it. It should not be presumed but must be
established by comparing the alleged forged signature with the genuine signatures. Although
handwriting experts are often offered as witnesses, they are not indispensable because judges must
exercise independent judgment in determining the authenticity or genuineness of the signatures in
question.61

In this case, to prove forgery, ATR relied on the Report62 of retired Chief Document Examiner of the
National Bureau of Investigation, Atty. Desiderio A. Pagui (Atty. Pagui), who concluded that:

FINDINGS-CONCLUSION:

The questioned signature "Dwight L. Lumiqued" in carbon-original appears inherent defect in line
quality which comparing scientifically with standard signatures, assuming that they are authentic
copies of the originals, which though the latter are undoubtedly clear copies reflecting free flowing
execution of the writing strokes reveals inconsistency in line qualities with the
former. As consequence, while the original of questioned document is preferably the most desired
to be examined, the available signatures would show significant differences in handwriting
characteristics between said questioned and standard signatures. Using those that are available as
aforesaid, the questioned and standard signatures could have not been affixed by one and the same
person.63 (Emphasis supplied)
Noticeably, the language used by Atty. Pagui in his findings is not definitive and cannot be
considered a reliable examination of the genuineness of Dwight's signature. While it concludes that
the questioned and standard signatures could not have been affixed by one and the same person,
this conclusion is made on the assumption that the standard signatures provided by ATR are
authentic copies of the originals. Moreover, only the carbon-original copy of Dwight's questioned
document was examined, not the original questioned document bearing his signature. Atty. Pagui
admitted that the original copy of the document where the questioned signature appears is
"preferably the most desired to be examined." Even Mely Feliciano Sora, Chief of the Questioned
Document Examination Division of the Philippine National Police Crime Laboratory, opined that it is
impossible to conduct a reliable handwriting examination of Dwight's signature appearing on the
Timeplan Application. According the her, the Application is a mere carbon original wherein the
minute details are not clear.64 Moreover, it must be stressed that ATR hired Atty. Pagui to prepare
the report. Thus, the CA was correct in not giving credence to Atty. Pagui's testimony because his
report is susceptible to bias and prejudice.65 Given the unreliable quality of the available sample
signatures of Dwight in the records, the Court is inclined to refuse conducting an independent
examination of the genuineness of his signature in the disputed Timeplan application.

Nevertheless, the Court finds Gumiran's admission that he personally witnessed Dwight affix his
signature in the application sufficient to rebut the allegation of forgery. Between the unreliable
findings of Atty. Pagui and the sworn statement of Gumiran, the Court is inclined to give more
credence to the latter.

The Court also agrees with the observation of the lower courts that the allegation of forgery is a
mere afterthought. It was only on September 22, 2001, or almost 18 months after the death of
Dwight, that ATR belatedly assailed for the first time the genuineness of his signature. ATR's timing
in raising the allegation of forgery is suspicious and questionable.66 Thus, the Court is convinced that
the signature of Dwight appearing in his Timeplan application is genuine.

Dwight timely paid the initial monthly

premium for the Timeplan on April
28, 2000 to Loyola who is an agent of
ATR. Hence, an insurance contract was
perfected.

A contract of insurance is defined as an agreement whereby one undertakes for a consideration to

indemnify another against loss, damage, or liability arising from an unknown or contingent
event.67 An insurance contract exists where the following elements concur: (1) the insured has an
insurable interest; (2) the insured is subject to a risk of loss by the happening of the designated peril;
(3) the insurer assumes the risk; (4) such assumption of risk is part of a general scheme to distribute
actual losses among a large group of persons bearing a similar risk; and (5) in consideration of the
insurer's promise, the insured pays a premium.68 In the case of Perez v. Court of Appeals,69 the Court
held that assent is given when the insurer issues a corresponding policy to the applicant. The Court
declared that "[i]t is only when the applicant pays the premium and receives and accepts the policy
while he is in good health that the contract of insurance is deemed to have been perfected."70

The fact that Dwight was only able to make an initial payment of the insurance premium and that
Loyola failed to immediately remit cash portion of the initial payment to ATR should not affect the
validity of the perfected insurance contract.

Furthermore, ATR agreed to insure all present and future planholders of Loyola. The pertinent
provisions in Master Policy No. GCL-878 on payment of premium and effectivity of policy read:
DATE OF EFFECTIVITY OF INDIVIDUAL
INSURANCE

The insurance coverage of all present and future eligible PLANHOLDER shall become effective on the
latest of the following dates.

1. the date the contract of agreement with the CREDITOR is legally perfected; or
2. the date of the initial payment and/or down payment;
3. the date written application is accomplishment (sic); or
4. the date of approval by the COMPANY of evidence of insurability, if required; or
5. the date the COMPANY received the corresponding premium.71

xxxx

PAYMENT OF PREMIUMS

The initial premium for each benefit provided in the Policy shall be stated in the SCHEDULE OF
PREMIUM RATES provision applicable to said benefit. All premium on this Policy are payable in
advance directly to the Home Office of the Company or to a duly authorized Agent of the Company.

Payment of premiums whether monthly, quarterly, semi-annually, or annually are payable as they
become due according to the mode of premium payment. Any change in the mode of premium
payments may be affected only at the beginning of any Policy year. No premium payment shall
maintain this Policy in force beyond the date when the next premium becomes due, except as
provided in the Grace Period provision herein.72

xxxx

EFFECTIVE DATE

The coverage of insurable PLANHOLDER shall take effect on the date of initial payment and/or
down payment on the selected plan (as shown in the Binding Deposit Receipt). However, the
Company reserves the right to require a PLANHOLDER to submit Evidence of Insurability even the
coverage does not exceed the Non-Medical Limit.

REPORTING OF INSURED PLANHOLDERS

xxxx

Applications for insurance must be submitted to GE LIFE within seven (7) working days from the date
of initial/ first payment of the Plan holders together with the list of Certificate issued. Effective Date
shall coincide with the date of first payment if complied with. However, GE LIFE will not be held
liable for Certificates issued not reported for coverage within the said 7-working day
period.73 (Emphasis supplied)

Noticeably, the date of effectivity of individual insurance provision contains conflicting terms that
are susceptible to different interpretations. While the policy states that it shall become effective on
the "latest" of a list of dates, the use of the conjunction "or" suggests that there are options and that
any of the options chosen can give rise to the effectivity of the individual insurance. Meanwhile, in
the clause pertaining to the "EFFECTIVE DATE" of the policy, it clearly states that "[t]he coverage of
insurable PLANHOLDER shall take effect on the date of initial payment and/or down payment on the
selected plan (as shown in the Binding Deposit Receipt)."74

The contract between ATR and Loyola is a contract of adhesion as it was prepared solely by ATR for
Loyola and its planholders to conform to. Any ambiguity in a contract of adhesion is construed
strictly against the party that prepared it. In this case, the obscure provision pertaining to the date of
effectivity of the policy coverage should be resolved in favor of Angelita. Thus, the happening of any
of the instances enumerated should suffice in giving rise to the effectivity of the individual insurance.
This interpretation is more consistent with the other provisions of the policy such as the clause on
the "EFFECTIVE DATE" of the policy.

ATR argues that the date of receipt of payment of premium is the date when the cash was actually
deposited in the bank. The Court finds this proposition contrary to logic and unreasonable.

Here, it is undisputed that at 10:34 am on April 28, 2000, Loyola's Sales Operation Assistant
deposited the two Metrobank checks at Metrobank Solano, Nueva Viscaya branch. However, instead
of immediately depositing the cash payment of P1,615.25, Loyola used the money and waited until
May 2, 2000, the next banking day which fell on a Tuesday, to deposit the remainder of the initial
payment of Dwight.75 By then, Dwight had already passed away due to the multiple stab wounds he
sustained on May 1, 2000. Loyola admitted that the delay in the deposit of the P1,615.25 cash was
due to its district office's immediate need for cash.76

It is important to clarify that Loyola is an agent of ATR. In a contract of agency, "a person binds
himself to render some service or to do something in representation or on behalf of another, with
the consent or authority of the latter."77 Therefore, a planholder's payment made to Loyola has the
same legal effect as payment made to ATR, even if Loyola failed to immediately deposit the cash
payment to its account.

In the case of Bank of the Philippine Islands v. Laingo,78 the Court held that the Bank of the Philippine
Islands (BPI) acted as agent of FGU Insurance with respect to the insurance feature of its commercial
product, a savings account which offered insurance coverage for free for every deposit account
opened. The controversy in Laingo involved the alleged non-compliance with the requirement of
submitting a written notice of insurance claim to FGU Insurance within three calendar months from
the death of the insured. The beneficiary of the policy contended that BPI did not notify her of the
attached insurance policy yet allowed her to withdraw from the savings account after the death of
the insured. In ruling that it was incumbent upon BPI, as agent of FGU Insurance, to give proper
notice of the existence of the insurance coverage and the stipulation in the insurance contract for
filing a claim, the Court observed that the account holder directly communicated with BPI as the
agent of FGU Insurance. BPI facilitated the processing of the deposit account, collection of necessary
documents, and the endorsement for the approval of the insurance coverage without any other
action on the part of the account holder. FGU Insurance did not interact directly with the account
holder and all communications were coursed through BPI.79

While the facts and issue surrounding the case of Laingo is different from the case at bar, the ruling
of the Court still finds applications to the present case. The relationship between BPI and FGU
Insurance in the Laingo case is similar to the arrangement between Loyola and ATR in the present
case. Loyola offered its Timeplan product with a life insurance feature to entice customers to invest
their money. Loyola secured Master Policy No. GCL-878 from ATR to insure all of its future
planholders. Customers who intend to avail the Timeplan of Loyola do not transact with ATR and
merely submit all the requirements, including the payment of premiums, to Loyola. As such, it is
apparent that Loyola acted as agent of ATR with respect to the insurance feature of its Timeplan
product. The collective conduct of Loyola, as an agent of ATR, in accepting from Dwight the initial
payment, issuing the corresponding Official Receipt,80 and delivering the pre-signed Timeplan
contract reveal that a contract of insurance was perfected. The acts of Loyola, as an agent of ATR,
binds the latter.

The effectivity of the Timeplan cannot be left to the will of Loyola and ATR. This arrangement will
leave Dwight in a helpless position where the implementation of the contract is put on hold and
made dependent upon the will of Loyola and ATR despite having complied with his contractual
obligations. Moreover, the Official Receipt81 Gumiran issued to Dwight clearly states:

This Receipt is valid for down payment only. Checks and other similar forms shall be valid only when
cleared by the Bank.82cralawlawlibrary

As far as Dwight is concerned, his payment to Gumiran is considered his payment to Loyola and ATR
for the initial monthly installment of the Timeplan even if the cash portion of his payment was not
immediately deposited to Loyola's account.

Furthermore, upon payment of the premium, Dwight was issued a copy of the Timeplan contract
that was pre-signed by Jesusa Puyat-Concepcion, President and Chief Executive Officer of Loyola,
and Francisco D. Cauilan, Area Manager of Loyola.83 Dwight's receipt of the Timeplan contract, while
he was in good health, signifies that the contract was perfected. The delivery of the corresponding
Timeplan contract signifies the perfection of the contract between him and Loyola.

More importantly, it must be clarified that, while the first monthly installment due from Dwight is
P5,040.00, the insurance premium payable to ATR is only a fraction of said installment payment. The
breakdown of the cost allocation of the installment values made on the plan of Dwight indicates that
the insurance premium payable to ATR is only P447.55. Pursuant to the Certification of Distribution
of Monthly Installments84 as of April 28, 2000 Loyola issued, the breakdown of the initial payment is
as follows:

Installment Amount 1st Month 5,040

Here, it is readily apparent that the amount Loyola received from Dwight is more than enough to
cover the P447.55 insurance cost. The cash payment of P1,615.25 alone was more than sufficient to
pay for the insurance cost payable to ATR yet the employees of Loyola opted to delay depositing it
and used it for other purposes not intended by the parties. The insurance coverage of Dwight should
not be adversely affected by Loyola's delay.
The cause of Dwight's death is a risk
covered by the Timeplan contract.

ATR argues that the cause of Dwight's death is an excluded risk because he was murdered. The
Exclusions Clause of Master Policy No. GCL-878 states:

No benefit shall be payable for any loss resulting from or caused directly or indirectly, wholly or
partially, by:
xxxx

10. Murder or provoked assault; or any attempt thereat; or

x x x x86cralawlawlibrary

Noticeably, the records are bereft of any circumstance showing that the fatal stabbing of Dwight is a
product of the crime of murder. The Investigation Report of ATR states:

Since the coverage was only 3 days from the effective date, I went to Nueva Vizcaya to have this case
investigated. I found out, however, that the insured died actually on May 1, 2000 at about 2:30 in
the morning. He was stabbed to death by his brother in law Joemar Tallud after trying to pacify
Joemar and his wife Angelita quarelling (sic) over real property inheritances. A case was already
filed against Joemar Tallud at the Regional Trial Court in Bayombong, Nueva Vizcaya.87 (Emphasis
supplied)

From the foregoing, it is clear that, though Dwight died as a result of stab wounds inflicted by his
brother-in-law Joemar Tallud (Joemar), nothing in the Investigation Report suggests that he was
murdered or that he died due to a provoked assault as understood in criminal law. The act of Joemar
cannot be equated to murder or provoked assault without a final judgment from the court finding
Joemar guilty beyond reasonable doubt. The conclusion of ATR, unsupported by any competent
evidence, fails to persuade the Court that the cause of Dwight's death comes within the purview of
the exclusion clause of Master Policy No. GCL-878. Hence, ATR is not exempted from liability.

Dwight's Timeplan contract entitles

him to the Group Creditors Life
Insurance and the Group Yearly Renewable Term Life benefits
obtained by Loyola.

The CA committed serious error in deleting the award of actual damages comprising the insurance
benefits from the Group Creditors Life Insurance amounting to P599.760.00 and Group Yearly
Renewable Term Life amounting to P604,800.00. The evidence on record and the pleadings
submitted by ATR all show that Loyola obtained a Group Creditors Life Insurance from ATR, with
supplementary Group Yearly Renewable Term Life and Accidental Death benefits, for its present and
future planholders.88

The cover page of Master Policy No. GCL-878, where the dry seal of GE Life and the signature of its
president & chief executive officer Eulogio A. Mendoza appear, specifically states:

MASTER POLICY NO. : GCL-878

 POLICYHOLDER/ CREDITOR : LOYOLA TIMEPLAN

PLAN OF INSURANCE : GROUP CREDITORS LIFE INSURANCE

SUPPLEMENTARY BENEFITS : GROUP YEARLY RENEWABLE TERM LIFE ACCIDENTAL

DEATH BENEFIT

POLICY EFFECTIVE DATE : JUNE 15, 1999

PREMIUM DUE DATE : JUNE 15, 1999 & EVERY YEAR THEREAFTER

POLICY ANNIVERSARIES : JUNE 15, 2000 & EVERY YEAR THEREAFTER89 (Emphasis
supplied)

Master Policy No. GCL-878 enumerates the amount of insurance for each benefit as follows:

AMOUNT OF INSURANCE

Group Creditorss Life - equal to the outstanding and unpaid balance of the
Insurance gross contract price.

Group Yearly Renewable - equal to the original amount of gross contract price.

Accidental Death Benefit - equal to the original amount of gross contract

price.90 [Emphasis and underscoring in the original]

Throughout the text of Master Policy No. GCL-878, the listed benefits have been consistently
mentioned and is deemed to cover all present and future eligible planholders of Loyola.91 Even the
Claims Committee Action Sheet reflecting ATR's denial of Angelita's claim confirm that Master Policy
No. GCL-878 includes said benefits.92 ATR never denied the inclusion of Dwight's Timeplan in Master
Policy No. GCL-878. Thus, the RTC was correct in including the proceeds from those benefits in
computing the award of actual damages in the amount of P1,809,360 in favor of Angelita computed
as follows:

� �

Group P599.760.00

Creditors (outstanding

Life balance net of

Insurance the first

� installment

� paid)

Group 604,800.00
 Yearly (the gross

Renewable contract price)

Term Life �

Accidental 604,800.00

Death (the gross

Benefit contract
price)�������

TOTAL P1,809,360.00

The CA committed error in deleting

the award of moral damages, exemplary damages,
and attorney's fees.

Moral Damages

The RTC awarded moral damages to Loyola and Angelita after finding that ATR acted in bad faith in
bringing a baseless suit against Loyola and Angelita.93 However, the CA deleted the award in its
decision. The Court finds that an award of moral damages in the amount of P50,000.00 is
commensurate to the anxiety and inconvenience Angelita suffered for ATR's callous treatment of her
claim for death benefits. Indeed, ATR reneged on its obligation to pay the proceeds from the policy
Angelita is entitled to receive and intentionally delayed the procedure to claim through its
unsubstantiated assertion that Dwight was murdered. It also did not escape the Court's attention
that ATR belatedly assailed the genuineness of the Timeplan application of Dwight 18 months after
his death. For the Court, these acts collectively show the intention of ATR to unduly prolong the
process of claiming the benefits, thus justifying the award of moral damages in favor of Angelita.

Exemplary Damages

Article 2232 of the Civil Code provides that in a contractual or quasi-contractual relationship,
exemplary damages may be awarded only if the defendant had acted in a wanton, fraudulent,
reckless, oppressive, or malevolent manner.94 Article 2234 of the Civil Code further requires that, to
be entitled to exemplary damages, the claimant must show that he is entitled to moral, temperate,
or compensatory damages.95

ATR undertook to insure Loyola's planholders upon the fulfillment of any of the instances
enumerated in the "Date of Effectivity of Individual Insurance" clause of Master Policy No. GCL-878.
Considering that ATR refused to honor the insurance coverage of Dwight's Timeplan, and unduly
prolonged the procedure for claiming the benefits under the policy, the Court finds that the award of
exemplary damages in the amount of P50,000.00 in favor of Angelita reasonable.

Attorney's Fees

The instances when attorney's fees may be awarded are enumerated in Article 2208 of the Civil Code
which reads:
Article 2208. In the absence of stipulation, attorney's fees and expenses of litigation, other than
judicial costs, cannot be recovered, except:
(1) When exemplary damages are awarded;
(2) When the defendant's act or omission has compelled the plaintiff to litigate with third persons or
to incur expenses to protect his interest;
xxxx
(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;
(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiffs
plainly valid, just and demandable claim;
xxxx
(11) In any other case where the court deems it just and equitable that attorney's fees and expenses
of litigation should be recovered.
In all cases, the attorney's fees and expenses of litigation must be reasonable.96cralawlawlibrary

The RTC was correct in awarding attorney's fees because exemplary damages were awarded and due
to the length of the proceedings. In addition, the Court finds the civil action initiated by ATR
unfounded and that its continued refusal to honor the insurance claim of Angelita under Master
Policy No. GCL-878 justifies the award of attorney's fees in the amount of P50,000.00 in her favor.

Similarly, the Court finds that an award of attorney's fees in the amount of P50,000.00 in favor of
Loyola and Angelita is proper due to the unfounded suit ATR filed against it and the length of the
proceedings.

Interest

Lastly, award of interest in accordance with the Court's ruling in the case of Nacar v. Gallery
Frames97 is proper. In Nacar, the Court modified the imposable interest rates on the basis of Bangko
Sentral ng Pilipinas Monetary Board Circular No. 799, which took effect on July 1, 2013, thus:

xxxx

II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded.
In the absence of stipulation, the rate of interest shall be 6% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169
of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on
the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per
annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or
until the demand can be established with reasonable certainty. Accordingly, where the demand is
established with reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of damages may be deemed to have
been reasonably ascertained). The actual base for the computation of legal interest shall, in any
case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate
of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 6% per
annum from such finality until its satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance of credit.

And in addition to the above, judgments that have become final and executory prior to July 1, 2013,
shall not be disturbed and shall continue to be implemented applying the rate of interest fixed
therein.98 (Emphasis and italics in the original; citations omitted)

Applying the guidelines in Nacar to the present case, 12% interest rate per annum shall be imposed
on the principal amount due from the time of judicial demand, i.e., from the time of the filing of the
complaint, until June 30, 2013. Thereafter, from July 1, 2013, until full satisfaction of the monetary
award, the interest rate shall be 6% per annum.

WHEREFORE, premises considered, the Decision dated February 4, 2016 and the Resolution dated
November 17, 2016 of the Court of Appeals in CA-G.R. CV No. 97528 are MODIFIED. ATR
Professional Life Insurance Corporation, now Asian Life and General Assurance Corporation,
is ORDERED to:

a. Pay Angelita Lumiqued actual damages in the amount of P1,809,360.00;

b. Pay Angelita Lumiqued moral damages in the amount of P50,000.00;
c. Pay Angelita Lumiqued exemplary damages in the amount of P50,000.00; and
d. Pay Loyola Plans Inc. and Angelita Lumiqued attorney's fees in the amount of P50,000.00
each.

In addition, ATR Professional Life Insurance Corporation, now Asian Life and General Assurance
Corporation, is DIRECTED to pay interest of twelve percent (12%) per annum on the monetary award
computed from the time of the filing of the complaint until June 30, 2013 and six percent (6%) per
annum from July 1, 2013 until full satisfaction thereof.

SO ORDERED.
Loyola Life Plans, Inc. v. ATR Professional Life Assurance Corp.

FACTS: 1. Loyola Life Plans, Inc. is a company engaged in the business of insuring the lives of its plan
holders through its Timeplans (pension contracts) and Lifeplans (memorial service contracts), which
are covered by insurance benefits provided by several insurance companies, such as the ATR
Professional Life Assurance Corporation.

2. Loyola applied with ATR for a Group Creditors Life Insurance plan, with Group Yearly Renewable
Term Life and Accidental Death Benefit as supplementary benefits.

3. On April 28, 2000, Dwight purchased a Timeplan from Loyola payable in 120 monthly installments
for P5,040.00 per month. ● For the 1st monthly premium, Dwight issued two checks and cash
payment. ● Simultaneous with the payment, Dwight executed a Timeplan Application for which
Timeplan Contract was issued.

4. Loyola deposited the checks BUT the cash payment was deposited only on May 2.

5. On May 1, Dwight died due to multiple stab wounds.

6. Angelita filed a claim to recover the proceeds of the insurance benefits.

7. ATR denied the claim on the ground that Dwight did not complete the monthly premium payment
prior to his death because the cash payment was only deposited on May 2, 2000. Because the down
payment was not fully paid on s due date, April 28, 2000, ATR contended that the policy is not valid
and binding.

ISSUE: WON an insurance contract was perfected between Dwight and ATR on April 28, 2000 when
Dwight paid Loyola's agent, Gumiran, cash and two checks, thus entitling his heirs to the proceeds of
the policy following his death on May 1, 2000. [YES]

RULING: Dwight timely paid the initial monthly premium for the Timeplan on April 28, 2000 to Loyola
who is an agent of ATR. Hence, an insurance contract was perfected.

1. A contract of insurance is an agreement whereby one undertakes for a consideration to

indemnify another against loss, damage, or liability arising from an unknown or contingent
event.
2. 2. It exists when the following elements concur:
● The insured has an insurable interest;
● The insured is subject to a risk of loss by the happening of the designated peril;
● The insurer assumes the risk;
● Such assumption of risk is part of a general scheme to distribute actual losses among a
large group of persons bearing a similar risk;
3. Contract is perfected when the applicant pays the premium 'and receives and accepts the policy
while he is in good health that the contract of insurance is deemed to have been perfected.

4. Here, upon payment of the premium, Dwight was issued a copy of the Timeplan contract1 , while
he was in good health, signifies that the contract was perfected.

5. The fact that Dwight was only able to make an initial payment of the insurance premium and that
Loyola failed to immediately remit the cash portion of it to ATR does not affect the validity of the
perfected insurance contract.

6. Second, as to the date of effectivity of individual insurance provision containing conflicting terms
susceptible to different interpretations, the contract being a contract of adhesion, any ambiguity
must be construed strictly against the party that prepared it.

7. Hence, the obscure provision should be resolved in favor of Angelita

● It shall become effective on the "latest" of a list of dates, the use of the conjunction "or" suggests
that there are options and that any of the options chosen can give rise to the effectivity of the
individual insurance.

● In the clause pertaining to the "EFFECTIVE DATE" of the policy, it clearly states that "[t]he coverage
of insurable PLANHOLDER shall take effect on the date of initial payment and/or down payment on
the selected plan.2

8. Third, Loyola is an agent of ATR:

● Loyola offered its Timeplan product with a life insurance feature to entice customers to invest their
money.

● Loyola secured Master Policy from ATR to insure all of its future planholders.

● Customers who intend to avail the Timeplan of Loyola do not transact with ATR and merely submit
all the requirements and payment to Loyola.

● Loyola admitted that the delay in the deposit of the cash was due to its district office's immediate
need for cash
9. In a contract of agency, "a person binds himself to render some service or to do something in
representation or-on behalf of another, with the consent or authority of the latter."

10. Therefore, a planholder's payment made to Loyola has the same legal effect as payment made to
ATR, even if Loyola failed to immediately deposit the cash payment to its account.

11. Hence, as far as Dwight is concerned, his payment to Gumiran is considered his payment to
Loyola and ATR for the initial monthly installment of the Timeplan even if the cash portion of his
payment was not immediately deposited to Loyola's account.

12. Finally, while the first monthly installment due from Dwight is PS,040.00, the insurance premium
payable to ATR is only a fraction of said insurance cost (P445).

G.R. No. 199687

PACIFIC REHOUSE CORPORATION, Petitioners,

vs.
COURT OF APPEALS and EXPORT AND INDUSTRY BANK, INC., Respondents.

x-----------------------x

G.R. No. 201537

PACIFIC REHOUSE CORPORATION, PACIFIC CONCORDE CORPORATION, MIZPAH HOLDINGS, INC.,

FORUM HOLDINGS CORPORATION and EAST ASIA OIL COMPANY, INC., Petitioners,
vs.
EXPORT AND INDUSTRY BANK, INC., Respondent.

DECISION

REYES, J.:

On the scales of justice precariously lie the right of a prevailing party to his victor's cup, no more, no
less; and the right of a separate entity from being dragged by the ball and chain of the vanquished
party.
The facts of this case as garnered from the Decision1 dated April 26, 2012 of the Court of Appeals
(CA) in CA-G.R. SP No. 120979 are as follows:

We trace the roots of this case to a complaint instituted with the Makati City Regional Trial Court
(RTC), Branch 66, against EIB Securities Inc. (E-Securities) for unauthorized sale of 32,180,000 DMCI
shares of private respondents Pacific Rehouse Corporation, Pacific Concorde Corporation, Mizpah
Holdings, Inc., Forum Holdings Corporation, and East Asia Oil Company, Inc. In its October 18, 2005
Resolution, the RTC rendered judgment on the pleadings. The fallo reads:

WHEREFORE, premises considered, judgment is hereby rendered directing the defendant [E-
Securities] to return the plaintiffs’ [private respondents herein] 32,180,000 DMCI shares, as of
judicial demand.

On the other hand, plaintiffs are directed to reimburse the defendant the amount of
[P]10,942,200.00, representing the buy back price of the 60,790,000 KPP shares of stocks at [P]0.18
per share.

SO ORDERED. x x x

The Resolution was ultimately affirmed by the Supreme Court and attained finality.

When the Writ of Execution was returned unsatisfied, private respondents moved for the issuance of
an alias writ of execution to hold Export and Industry Bank, Inc. liable for the judgment obligation as
E- Securities is "a wholly-owned controlled and dominated subsidiary of Export and Industry Bank,
Inc., and is[,] thus[,] a mere alter ego and business conduit of the latter. E-Securities opposed the
motion[,] arguing that it has a corporate personality that is separate and distinct from petitioner. On
July 27, 2011, private respondents filed their (1) Reply attaching for the first time a sworn statement
executed by Atty. Ramon F. Aviado, Jr., the former corporate secretary of petitioner and E-Securities,
to support their alter ego theory; and (2) Ex-Parte Manifestation alleging service of copies of the
Writ of Execution and Motion for Alias Writ of Execution on petitioner.

On July 29, 2011, the RTC concluded that E-Securities is a mere business conduit or alter ego of
petitioner, the dominant parent corporation, which justifies piercing of the veil of corporate fiction.
The trial court brushed aside E-Securities’ claim of denial of due process on petitioner as "xxx case
records show that notices regarding these proceedings had been tendered to the latter, which
refused to even receive them. Clearly, [petitioner] had been sufficiently put on notice and afforded
the chance to give its side[,] yet[,] it chose not to." Thus, the RTC disposed as follows:

WHEREFORE, xxx,

Let an Alias Writ of Execution be issued relative to the above-entitled case and pursuant to the
RESOLUTION dated October 18, 2005 and to this Order directing defendant EIB Securities, Inc.,
and/or Export and Industry Bank, Inc., to fully comply therewith.

The Branch Sheriff of this Court is directed to cause the immediate implementation of the given alias
writ in accordance with the Order of Execution to be issued anew by the Branch Clerk of Court.

SO ORDERED. x x x

With this development, petitioner filed an Omnibus Motion (Ex Abundanti Cautela) questioning
the alias writ because it was not impleaded as a party to the case. The RTC denied the motion in its
Order dated August 26, 2011 and directed the garnishment of P1,465,799,000.00, the total amount
of the 32,180,000 DMCI shares at P45.55 per share, against petitioner and/or E-Securities.2 x x x.
(Citations omitted)

The Regional Trial Court (RTC) ratiocinated that being one and the same entity in the eyes of the law,
the service of summons upon EIB Securities, Inc. (E-Securities) has bestowed jurisdiction over both
the parent and wholly-owned subsidiary.3 The RTC cited the cases of Sps. Violago v. BA Finance Corp.
et al.4 and Arcilla v. Court of Appeals5 where the doctrine of piercing the veil of corporate fiction was
applied notwithstanding that the affected corporation was not brought to the court as a party. Thus,
the RTC held in its Order6 dated August 26, 2011:

WHEREFORE, premises considered, the Motion for Reconsideration with Motion to Inhibit filed by
defendant EIB Securities, Inc. is denied for lack of merit. The Omnibus Motion Ex Abundanti C[au]tela
is likewise denied for lack of merit.

Pursuant to Rule 39, Section 10 (a) of the Rules of Court, the Branch Clerk of Court or the Branch
Sheriff of this Court is hereby directed to acquire 32,180,000 DMCI shares of stock from the
Philippine Stock Exchange at the cost of EIB Securities, Inc. and Export and Industry Bank[,] Inc. and
to deliver the same to the plaintiffs pursuant to this Court’s Resolution dated October 18, 2005.

To implement this Order, let GARNISHMENT issue against ALL THOSE HOLDING MONEYS,
PROPERTIES OF ANY AND ALL KINDS, REAL OR PERSONAL BELONGING TO OR OWNED BY
DEFENDANT EIB SECURITIES, INC. AND/OR EXPORT AND INDUSTRY BANK[,] INC., [sic] in such amount
as may be sufficient to acquire 32,180,000 DMCI shares of stock to the Philippine Stock Exchange,
based on the closing price of Php45.55 per share of DMCI shares as of August 1, 2011, the date of
the issuance of the Alias Writ of Execution, or the total amount of PhP1,465,799,000.00.

SO ORDERED.7

CA-G.R. SP No. 120979

Export and Industry Bank, Inc. (Export Bank) filed before the CA a petition for certiorari with prayer
for the issuance of a temporary restraining order (TRO)8 seeking the nullification of the RTC Order
dated August 26, 2011 for having been made with grave abuse of discretion amounting to lack or
excess of jurisdiction. In its petition, Export Bank made reference to several rulings9 of the Court
upholding the separate and distinct personality of a corporation.

In a Resolution10 dated September 2, 2011, the CA issued a 60-day TRO enjoining the execution of
the Orders of the RTC dated July 29, 2011 and August 26, 2011, which granted the issuance of an
alias writ of execution and ordered the garnishment of the properties of E-Securities and/or Export
Bank. The CA also set a hearing to determine the necessity of issuing a writ of injunction, viz:

Considering the amount ordered to be garnished from petitioner Export and Industry Bank, Inc. and
the fiduciary duty of the banking institution to the public, there is grave and irreparable injury that
may be caused to [Export Bank] if the assailed Orders are immediately implemented. We thus
resolve to GRANT the Temporary Restraining Order effective for a period of sixty (60) days from
notice, restraining/enjoining the Sheriff of the Regional Trial Court of Makati City or his deputies,
agents, representatives or any person acting in their behalf from executing the July 29, 2011 and
August 26, 2011 Orders. [Export Bank] is DIRECTED to POST a bond in the sum of fifty million pesos
(P50,000,000.00) within ten (10) days from notice, to answer for any damage which private
respondents may suffer by reason of this Temporary Restraining Order; otherwise, the same shall
automatically become ineffective.

Let the HEARING be set on September 27, 2011 at 2:00 in the afternoon at the Paras Hall, Main
Building, Court of Appeals, to determine the necessity of issuing a writ of preliminary injunction. The
Division Clerk of Court is DIRECTED to notify the parties and their counsel with dispatch.

xxxx

SO ORDERED.11

Pacific Rehouse Corporation (Pacific Rehouse), Pacific Concorde Corporation, Mizpah Holdings, Inc.,
Forum Holdings Corporation and East Asia Oil Company, Inc. (petitioners) filed their Comment12 to
Export Bank’s petition and proffered that the cases mentioned by Export Bank are inapplicable
owing to their clearly different factual antecedents. The petitioners alleged that unlike the other
cases, there are circumstances peculiar only to E-Securities and Export Bank such as: 499,995 out of
500,000 outstanding shares of stocks of E-Securities are owned by Export Bank;13 Export Bank had
actual knowledge of the subject matter of litigation as the lawyers who represented E-Securities are
also lawyers of Export Bank.14 As an alter ego, there is no need for a finding of fraud or illegality
before the doctrine of piercing the veil of corporate fiction can be applied.15

After oral arguments before the CA, the parties were directed to file their respective memoranda.16

On October 25, 2011, the CA issued a Resolution,17 granting Export Bank’s application for the
issuance of a writ of preliminary injunction, viz:

WHEREFORE, finding [Export Bank’s] application for the ancillary injunctive relief to be meritorious,
and it further appearing that there is urgency and necessity in restraining the same, a Writ of
Preliminary Injunction is hereby GRANTED and ISSUED against the Sheriff of the Regional Trial Court
of Makati City, Branch 66, or his deputies, agents, representatives or any person acting in their
behalf from executing the July 29, 2011 and August 26, 2011 Orders. Public respondents are ordered
to CEASE and DESIST from enforcing and implementing the subject orders until further notice from
this Court.18

The petitioners filed a Manifestation19 and Supplemental Manifestation20 challenging the above-
quoted CA resolution for lack of concurrence of Associate Justice Socorro B. Inting (Justice Inting),
who was then on official leave.

On December 22, 2011, the CA, through a Special Division of Five, issued another Resolution,21 which
reiterated the Resolution dated October 25, 2011 granting the issuance of a writ of preliminary
injunction.

On January 2, 2012, one of the petitioners herein, Pacific Rehouse filed before the Court a petition
for certiorari22 under Rule 65, docketed as G.R. No. 199687, demonstrating its objection to the
Resolutions dated October 25, 2011 and December 22, 2011 of the CA.

On April 26, 2012, the CA rendered the assailed Decision23 on the merits of the case, granting Export
Bank’s petition. The CA disposed of the case in this wise:
We GRANT the petition. The Orders dated July 29, 2011 and August 26, 2011 of the Makati City
Regional Trial Court, Branch 66, insofar as [Export Bank] is concerned, are NULLIFIED. The Writ of
Preliminary Injunction (WPI) is rendered PERMANENT.

SO ORDERED.24

The CA explained that the alter ego theory cannot be sustained because ownership of a subsidiary
by the parent company is not enough justification to pierce the veil of corporate fiction. There must
be proof, apart from mere ownership, that Export Bank exploited or misused the corporate fiction of
E-Securities. The existence of interlocking incorporators, directors and officers between the two
corporations is not a conclusive indication that they are one and the same.25 The records also do not
show that Export Bank has complete control over the business policies, affairs and/or transactions of
E-Securities. It was solely E-Securities that contracted the obligation in furtherance of its legitimate
corporate purpose; thus, any fall out must be confined within its limited liability.26

The petitioners, without filing a motion for reconsideration, filed a Petition for Review27 under Rule
45 docketed as G.R. No. 201537,28 impugning the Decision dated April 26, 2012 of the CA.

Considering that G.R. Nos. 199687 and 201537 originated from the same set of facts, involved the
same parties and raised intertwined issues, the cases were then consolidated per Resolution dated
September 26, 2012, for a thorough discussion of the merits of the case.

Issues

In précis, the issues for resolution of this Court are the following:

In G.R. No. 199687,

WHETHER THE CA COMMITTED GRAVE ABUSE OF DISCRETION IN GRANTING EXPORT BANK’S

APPLICATION FOR THE ISSUANCE OF A WRIT OF PRELIMINARY INJUNCTION.

In G.R. No. 201537,

I.

WHETHER THE CA COMMITTED A REVERSIBLE ERROR IN RULING THAT EXPORT BANK MAY NOT BE
HELD LIABLE FOR A FINAL AND EXECUTORY JUDGMENT AGAINST E-SECURITIES IN AN ALIAS WRIT OF
EXECUTION BY PIERCING ITS VEIL OF CORPORATE FICTION; and

II.

WHETHER THE CA COMMITTED A REVERSIBLE ERROR IN RULING THAT THE ALTER EGO DOCTRINE IS
NOT APPLICABLE.

Ruling of the Court

G.R. No. 199687

The Resolution dated October 25, 2011 was initially challenged by the petitioners in its
Manifestation29 and Supplemental Manifestation30 due to the lack of concurrence of Justice Inting,
which according to the petitioners rendered the aforesaid resolution null and void.
To the petitioners’ mind, Section 5, Rule VI of the Internal Rules of the CA (IRCA)31 requires the
submission of the resolution granting an application for TRO or preliminary injunction to the absent
Justice/s when they report back to work for ratification, modification or recall, such that when the
absent Justice/s do not agree with the issuance of the TRO or preliminary injunction, the resolution
is recalled and without force and effect.32 Since the resolution which granted the application for
preliminary injunction appears short of the required number of consensus, owing to the absence of
Justice Inting’s signature, the petitioners contest the validity of said resolution.

The petitioners also impugn the CA Resolution dated December 22, 2011 rendered by the Special
Division of Five. The petitioners maintain that pursuant to Batas Pambansa Bilang 12933 and the
IRCA,34 such division is created only when the three members of a division cannot reach a unanimous
vote in deciding a case on the merits.35 Furthermore, for petitioner Pacific Rehouse, this Resolution is
likewise infirm because the purpose of the formation of the Special Division of Five is to decide the
case on the merits and not to grant Export Bank’s application for a writ of preliminary injunction.36

We hold that the opposition to the CA resolutions is already nugatory because the CA has already
rendered its Decision on April 16, 2012, which disposed of the substantial merits of the case.
Consequently, the petitioners’ concern that the Special Division of Five should have been created to
resolve cases on the merits has already been addressed by the rendition of the CA Decision dated
April 16, 2012.

"It is well-settled that courts will not determine questions that have become moot and academic
because there is no longer any justiciable controversy to speak of. The judgment will not serve any
useful purpose or have any practical legal effect because, in the nature of things, it cannot be
enforced."37 In such cases, there is no actual substantial relief to which the petitioners would be
entitled to and which would be negated by the dismissal of the petition.38 Thus, it would be futile
and pointless to address the issue in G.R. No. 199687 as this has become moot and academic.

G.R. No. 201537

The petitioners bewail that the certified true copy of the CA Decision dated April 26, 2012 along with
its Certification at the bottom portion were not signed by the Chairperson39 of the Special Division of
Five; thus, it is not binding upon the parties.40 The petitioners quoted this Court’s pronouncement
in Limkaichong v. Commission on Elections,41 that a decision must not only be signed by the Justices
who took part in the deliberation, but must also be promulgated to be considered a Decision.42

A cursory glance on a copy of the signature page43 of the decision attached to the records would
show that, indeed, the same was not signed by CA Associate Justice Magdangal M. De Leon.
However, it must be noted that the CA, on May 7, 2012, issued a Resolution44 explaining that due to
inadvertence, copies of the decision not bearing the signature of the Chairperson were sent to the
parties on the same day of promulgation. The CA directed the Division Clerk of Court to furnish the
parties with copies of the signature page with the Chairperson’s signature. Consequently, as the
mistake was immediately clarified and remedied by the CA, the lack of the Chairperson’s signature
on the copies sent to the parties has already become a non-issue.

It must be emphasized that the instant cases sprang from Pacific Rehouse Corporation v. EIB
Securities, Inc.45 which was decided by this Court last October 13, 2010. Significantly, Export Bank
was not impleaded in said case but was unexpectedly included during the execution stage, in
addition to E-Securities, against whom the writ of execution may be enforced in the Order46 dated
July 29, 2011 of the RTC. In including Export Bank, the RTC considered E-Securities as a mere
business conduit of Export Bank.47 Thus, one of the arguments interposed by the latter in its
Opposition48 that it was never impleaded as a defendant was simply set aside.

This action by the RTC begs the question: may the RTC enforce the alias writ of execution against
Export Bank?

The question posed before us is not novel.

The Court already ruled in Kukan International Corporation v. Reyes49 that compliance with the
recognized modes of acquisition of jurisdiction cannot be dispensed with even in piercing the veil of
corporate fiction, to wit:

The principle of piercing the veil of corporate fiction, and the resulting treatment of two related
corporations as one and the same juridical person with respect to a given transaction, is basically
applied only to determine established liability; it is not available to confer on the court a jurisdiction
it has not acquired, in the first place, over a party not impleaded in a case. Elsewise put, a
corporation not impleaded in a suit cannot be subject to the court’s process of piercing the veil of
its corporate fiction. In that situation, the court has not acquired jurisdiction over the corporation
and, hence, any proceedings taken against that corporation and its property would infringe on its
right to due process. Aguedo Agbayani, a recognized authority on Commercial Law, stated as much:

"23. Piercing the veil of corporate entity applies to determination of liability not of jurisdiction. x x x

This is so because the doctrine of piercing the veil of corporate fiction comes to play only during
the trial of the case after the court has already acquired jurisdiction over the corporation. Hence,
before this doctrine can be applied, based on the evidence presented, it is imperative that the court
must first have jurisdiction over the corporation. x x x"50 (Citations omitted)

From the preceding, it is therefore correct to say that the court must first and foremost acquire
jurisdiction over the parties; and only then would the parties be allowed to present evidence for
and/or against piercing the veil of corporate fiction. If the court has no jurisdiction over the
corporation, it follows that the court has no business in piercing its veil of corporate fiction because
such action offends the corporation’s right to due process.

"Jurisdiction over the defendant is acquired either upon a valid service of summons or the
defendant’s voluntary appearance in court. When the defendant does not voluntarily submit to the
court’s jurisdiction or when there is no valid service of summons, ‘any judgment of the court which
has no jurisdiction over the person of the defendant is null and void.’"51 "The defendant must be
properly apprised of a pending action against him and assured of the opportunity to present his
defenses to the suit. Proper service of summons is used to protect one’s right to due process."52

As Export Bank was neither served with summons, nor has it voluntarily appeared before the court,
the judgment sought to be enforced against E-Securities cannot be made against its parent
company, Export Bank. Export Bank has consistently disputed the RTC jurisdiction, commencing from
its filing of an Omnibus Motion53 by way of special appearance during the execution stage until the
filing of its Comment54 before the Court wherein it was pleaded that "RTC [of] Makati[, Branch] 66
never acquired jurisdiction over Export [B]ank. Export [B]ank was not pleaded as a party in this case.
It was never served with summons by nor did it voluntarily appear before RTC [of] Makati[, Branch]
66 so as to be subjected to the latter’s jurisdiction."55
In dispensing with the requirement of service of summons or voluntary appearance of Export Bank,
the RTC applied the cases of Violago and Arcilla. The RTC concluded that in these cases, the Court
decided that the doctrine of piercing the veil of corporate personality can be applied even when one
of the affected parties has not been brought to the Court as a party.56

A closer perusal on the rulings of this Court in Violago and Arcilla, however, reveals that the RTC
misinterpreted the doctrines on these cases. We agree with the CA that these cases are not
congruent to the case at bar. In Violago, Spouses Pedro and Florencia Violago (Spouses Violago) filed
a third party complaint against their cousin Avelino Violago (Avelino), who is also the president of
Violago Motor Sales Corporation (VMSC), for selling them a vehicle which was already sold to
someone else. VMSC was not impleaded as a third party defendant. Avelino contended that he was
not a party to the transaction personally, but VMSC. The Court ruled that "[t]he fact that VMSC was
not included as defendant in [Spouses Violago’s] third party complaint does not preclude recovery
by Spouses Violago from Avelino; neither would such non-inclusion constitute a bar to the
application of the piercing-of-the-corporate-veil doctrine."57 It should be pointed out that although
VMSC was not made a third party defendant, the person who was found liable in Violago, Avelino,
was properly made a third party defendant in the first instance. The present case could not be any
more poles apart from Violago, because Export Bank, the parent company which was sought to be
accountable for the judgment against E-Securities, is not a party to the main case.

In Arcilla, meanwhile, Calvin Arcilla (Arcilla) obtained a loan in the name of Csar Marine Resources,
Inc. (CMRI) from Emilio Rodulfo. A complaint was then filed against Arcilla for non-payment of the
loan. CMRI was not impleaded as a defendant. The trial court eventually ordered Arcilla to pay the
judgment creditor for such loan. Arcilla argued that he is not personally liable for the adjudged
award because the same constitutes a corporate liability which cannot even bind the corporation as
the latter is not a party to the collection suit. The Court made the succeeding observations:

[B]y no stretch of even the most fertile imagination may one be able to conclude that the challenged
Amended Decision directed Csar Marine Resources, Inc. to pay the amounts adjudged. By its clear
and unequivocal language, it is the petitioner who was declared liable therefor and consequently
made to pay. x x x, even if We are to assume arguendo that the obligation was incurred in the name
of the corporation, the petitioner would still be personally liable therefor because for all legal intents
and purposes, he and the corporation are one and the same. Csar Marine Resources, Inc. is nothing
more than his business conduit and alter ego. The fiction of a separate juridical personality conferred
upon such corporation by law should be disregarded. x x x.58 (Citation omitted)

It is important to bear in mind that although CMRI was not a party to the suit, it was Arcilla, the
defendant himself who was found ultimately liable for the judgment award. CMRI and its properties
were left untouched from the main case, not only because of the application of the alter ego
doctrine, but also because it was never made a party to that case.

The disparity between the instant case and those of Violago and Arcilla is that in said cases, although
the corporations were not impleaded as defendant, the persons made liable in the end were already
parties thereto since the inception of the main case. Consequently, it cannot be said that the Court
had, in the absence of fraud and/or bad faith, applied the doctrine of piercing the veil of corporate
fiction to make a non-party liable. In short, liabilities attached only to those who are parties. None of
the non-party corporations (VMSC and CMRI) were made liable for the judgment award against
Avelino and Arcilla.

The Alter Ego Doctrine is not applicable

"The question of whether one corporation is merely an alter ego of another is purely one of fact. So
is the question of whether a corporation is a paper company, a sham or subterfuge or whether
petitioner adduced the requisite quantum of evidence warranting the piercing of the veil of
respondent’s corporate entity."59

As a rule, the parties may raise only questions of law under Rule 45, because the Supreme Court is
not a trier of facts. Generally, we are not duty-bound to analyze again and weigh the evidence
introduced in and considered by the tribunals below.60 However, justice for all is of primordial
importance that the Court will not think twice of reviewing the facts, more so because the RTC and
the CA arrived in contradicting conclusions.

"It is a fundamental principle of corporation law that a corporation is an entity separate and distinct
from its stockholders and from other corporations to which it may be connected. But, this separate
and distinct personality of a corporation is merely a fiction created by law for convenience and to
promote justice. So, when the notion of separate juridical personality is used to defeat public
convenience, justify wrong, protect fraud or defend crime, or is used as a device to defeat the labor
laws, this separate personality of the corporation may be disregarded or the veil of corporate fiction
pierced. This is true likewise when the corporation is merely an adjunct, a business conduit or an
alter ego of another corporation."61

"Where one corporation is so organized and controlled and its affairs are conducted so that it is, in
fact, a mere instrumentality or adjunct of the other, the fiction of the corporate entity of the
"instrumentality" may be disregarded. The control necessary to invoke the rule is not majority or
even complete stock control but such domination of finances, policies and practices that the
controlled corporation has, so to speak, no separate mind, will or existence of its own, and is but a
conduit for its principal. It must be kept in mind that the control must be shown to have been
exercised at the time the acts complained of took place. Moreover, the control and breach of duty
must proximately cause the injury or unjust loss for which the complaint is made."62

The Court has laid down a three-pronged control test to establish when the alter ego doctrine
should be operative:

(1) Control, not mere majority or complete stock control, but complete domination, not only
of finances but of policy and business practice in respect to the transaction attacked so that
the corporate entity as to this transaction had at the time no separate mind, will or existence
of its own;

(2) Such control must have been used by the defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust
act in contravention of plaintiff’s legal right; and

(3) The aforesaid control and breach of duty must [have] proximately caused the injury or
unjust loss complained of.63

The absence of any one of these elements prevents ‘piercing the corporate veil’ in applying the
‘instrumentality’ or ‘alter ego’ doctrine, the courts are concerned with reality and not form, with
how the corporation operated and the individual defendant’s relationship to that
operation.64 Hence, all three elements should concur for the alter ego doctrine to be applicable.

In its decision, the RTC maintained that the subsequently enumerated factors betray the true nature
of E-Securities as a mere alter ego of Export Bank:
 1. Defendant EIB Securities, a subsidiary corporation 100% totally owned by Export and
Industry Bank, Inc., was only re-activated by the latter in 2002-2003 and the continuance of
its operations was geared for no other reason tha[n] to serve as the securities brokerage
arm of said parent corporation bank;

2. It was the parent corporation bank that provided and infused the fresh working cash
capital needed by defendant EIB Securities which prior thereto was non-operating and
severely cash-strapped. [This was so attested by the then Corporate Secretary of both
corporations, Atty. Ramon Aviado, Jr., in his submitted Sworn Statement which is deemed
allowable "evidence on motion", under Sec. 7, Rule 133, Rules on Evidence; Bravo vs.
Borja, 134 SCRA 438];

3. For effective control purposes, defendant EIB Securities and its operating office and staff
are all housed in Exportbank Plaza located at Chino Roces cor. Sen. Gil Puyat Avenue, Makati
City which is the same building w[h]ere the bank parent corporation has its headquarters;

4. As shown in the General Information Sheets annually filed with the S.E.C. from 2002 to
2011, both defendant EIB Securities and the bank parent corporation share common key
Directors and corporate officers. Three of the 5-man Board of Directors of defendant EIB
Securities are Directors of the bank parent corporation, namely: Jaime C. Gonzales, Pauline
C. Tan and Dionisio E. Carpio, Jr. In addition, Mr. Gonzales is Chairman of the Board of both
corporations, whereas Pauline C. Tan is concurrently President/General Manager of EIB
Securities, and Dionisio Carpio Jr., is not only director of the bank, but also Director
Treasurer of defendant EIB Securities;

5. As admitted by the bank parent corporation in its consolidated audited financial

statements[,] EIB Securities is a CONTROLLED SUBSIDIARY, and for which reason its financial
condition and results of operations are included and integrated as part of the group’s
consolidated financial statements, examined and audited by the same auditing firm;

6. The lawyers handling the suits and legal matters of defendant EIB Securities are the same
lawyers in the Legal Department of the bank parent corporation.1âwphi1 The Court notes
that in [the] above-entitled suit, the lawyers who at the start represented said defendant EIB
Securities and filed all the pleadings and filings in its behalf are also the lawyers in the Legal
Services Division of the bank parent corporation. They are Attys. Emmanuel A. Silva,
Leonardo C. Bool, Riva Khristine E. Maala and Ma. Esmeralda R. Cunanan, all of whom
worked at the Legal Services Division of Export Industry Bank located at 36/F, Exportbank
Plaza, Don Chino Roces Avenue, cor. Sen. Gil Puyat Avenue, Makati City.

7. Finally[,] and this is very significant, the control and sway that the bank parent corporation
held over defendant EIB Securities was prevailing in June 2004 when the very act
complained of in plaintiff’s Complaint took place, namely the unauthorized disposal of the
32,180,000 DMCI shares of stock. Being then under the direction and control of the bank
parent corporation, the unauthorized disposal of those shares by defendant EIB Securities is
attributable to, and the responsibility of the former.65

All the foregoing circumstances, with the exception of the admitted stock ownership, were however
not properly pleaded and proved in accordance with the Rules of Court.66 These were merely raised
by the petitioners for the first time in their Motion for Issuance of an Alias Writ of Execution67 and
Reply,68 which the Court cannot consider. "Whether the separate personality of the corporation
should be pierced hinges on obtaining facts appropriately pleaded or proved."69
Albeit the RTC bore emphasis on the alleged control exercised by Export Bank upon its subsidiary E-
Securities, "[c]ontrol, by itself, does not mean that the controlled corporation is a mere
instrumentality or a business conduit of the mother company. Even control over the financial and
operational concerns of a subsidiary company does not by itself call for disregarding its corporate
fiction. There must be a perpetuation of fraud behind the control or at least a fraudulent or illegal
purpose behind the control in order to justify piercing the veil of corporate fiction. Such fraudulent
intent is lacking in this case."70

Moreover, there was nothing on record demonstrative of Export Bank’s wrongful intent in setting up
a subsidiary, E-Securities. If used to perform legitimate functions, a subsidiary’s separate existence
shall be respected, and the liability of the parent corporation as well as the subsidiary will be
confined to those arising in their respective business.71 To justify treating the sole stockholder or
holding company as responsible, it is not enough that the subsidiary is so organized and controlled
as to make it "merely an instrumentality, conduit or adjunct" of its stockholders. It must further
appear that to recognize their separate entities would aid in the consummation of a wrong.72

As established in the main case73 and reiterated by the CA, the subject 32,180,000 DMCI shares
which E-Securities is obliged to return to the petitioners were originally bought at an average price
of P0.38 per share and were sold for an average price of P0.24 per share. The proceeds were then
used to buy back 61,100,000 KPP shares earlier sold by E-Securities. Quite unexpectedly however,
the total amount of these DMCI shares ballooned to P1,465,799,000.00.74 It must be taken into
account that this unexpected turnabout did not inure to the benefit of E-Securities, much less Export
Bank.

Furthermore, ownership by Export Bank of a great majority or all of stocks of E-Securities and the
existence of interlocking directorates may serve as badges of control, but ownership of another
corporation, per se, without proof of actuality of the other conditions are insufficient to establish an
alter ego relationship or connection between the two corporations, which will justify the setting
aside of the cover of corporate fiction. The Court has declared that "mere ownership by a single
stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not
of itself sufficient ground for disregarding the separate corporate personality." The Court has
likewise ruled that the "existence of interlocking directors, corporate officers and shareholders is not
enough justification to pierce the veil of corporate fiction in the absence of fraud or other public
policy considerations."75

While the courts have been granted the colossal authority to wield the sword which pierces through
the veil of corporate fiction, concomitant to the exercise of this power, is the responsibility to uphold
the doctrine of separate entity, when rightly so; as it has for so long encouraged businessmen to
enter into economic endeavors fraught with risks and where only a few dared to venture.

Hence, any application of the doctrine of piercing the corporate veil should be done with caution. A
court should be mindful of the milieu where it is to be applied. It must be certain that the corporate
fiction was misused to such an extent that injustice, fraud, or crime was committed against another,
in disregard of its rights. The wrongdoing must be clearly and convincingly established; it cannot be
presumed. Otherwise, an injustice that was never unintended may result from an erroneous
application.76

In closing, we understand that the petitioners are disgruntled at the turnout of this case-that they
cannot enforce the award due them on its entirety; however, the Court cannot supplant a remedy
which is not sanctioned by our laws and prescribed rules.
WHEREFORE, the petition in G.R. No. 199687 is hereby DISMISSED for having been rendered moot
and academic. The petition in G.R. No. 201537, meanwhile, is hereby DENIED for lack of merit.
Consequently, the Decision dated April 26, 2012 of the Court of Appeals in CA-G.R. SP No. 120979 is
AFFIRMED.

SO ORDERED.
 Effects of Acts Done Within the Scope of Agent’s Authority:
Principal Is the One Liable; Agent Is Not Personally Liable
PACIFIC REHOUSE CORP V. EIB SECURITIES INC, G.R. NO 184036 (2010)
FACTS:
During the period of June 2003 to M arch 2004, plaintiffs Pacific Rehouse Corp (PRC), through their broker
EIB Securities (EIB) purchased 60,790,000 shares of Kuok Properties Inc (KPP), valued at P0.22 per share.

1. S ub sequently, P R C also bought 32,180,000 D M IC sha re s. O f the se sha res, 16,180,000 w e re

acquired through EIB, while the rem aining 16,000,000 were transferred from W estlink G lobal Equities Inc. The
D M IC shares w ere purchased at P.038 per share
2. PRc and EIB agreed to sell the KPP shares for P0.14 per share with the option to buy back or reacquire
the KPP shares within a period of 30 days from transaction date at P0.18 pershare.
3. Since PRC was undecided on whether it was to exercise their option to buy back the shares, PRC and EIB
agreed to extend the buyback option.
4. However, without their knowledge or consent, EIB sold the 32,180,000 DM IC shares atP0.24 per share
despite know ing that such sale w ould result in a substantial loss to P R C .
5. As such, PRC filed an action against EIB for dam ages.
6. The trial court held in favor of PR C . It held that that EIB w ent beyond its authority in selling petitioner’s
D M IC shares in order to buy back the KK P shares
7. Petitioners asserted the inapplicability of Sec 7 of the SD AA to their liability to reacquire the KKP shares, as
the DM IC shares were not sold to pay their P70 m illion obligation to EIB but to settle their obligation to the
buyers of their K K P shares
ISSUE:
W O N EiB acted within the scope of its authority in the sale of the DM IC shares

HELD:
No. Sec 7 of the SDAA does not apply to petitioner’s obligation to third party purchasers of their KKP shares under the
“full cross to seller” obligation, and certainly EIB could not use said provision for the repurchase of the KKP shares.
Indubitably, the sale of the DMIC shares m ade by EIB is null and void for lack of authority to do so since PRC never
gave their consent or perm ission to the sale. M oreover, ART 1991 NCC provides that the agent m ust act within the
scope of his authority.
Pursuant to the authority given by the principal, the agent is granted the right to “affect the legal relations of his
principal by the perform ance of acts effectuated in accordance with the principal’s m anifestation of consent.
 G.R. No. 226587, November 21, 2018

DONABELLE V. GONZALES-SALDANA, Petitioner, v. SPOUSES GORDON R. NIAMATALI AND AMY V.

NIAMATALI, Respondents.

DECISION

J. REYES, JR., J.:

Assailed in this petition for review on certiorari are the March 31, 2016 Decision1 and August 10,
2016 Resolution2 of the Court of Appeals (CA) in CA-G.R. CV No. 05172, which reversed and set aside
the March 11, 2014 Decision3 of the Regional Trial Court, Kalibo, Aklan, Branch 6 (RTC) in Civil Case
No. 7720, a case for recovery of sum of money.

The Antecedents

Sometime in January 2002, respondent-spouses Gordon and Amy Niamatali (respondent-spouses),

then residing in the United States of America, made known to petitioner Donabelle Gonzales-
Saldana (petitioner) their intention to acquire real properties in Metro Manila. Petitioner, who was
then working in the Department of Labor and Employment (DOLE), informed them that a certain
parcel of land located in Las Piñas City would be sold in a public auction conducted by the DOLE
Sheriff's Office.4

Thereafter, respondent-spouses asked petitioner to participate in the public auction on their behalf.
Consequently, on January 30, 2002, they remitted US$60,000.00 or P3,000,000.00 to petitioner's
bank account for the purchase of the Las Piñas property. In March 2002, however, respondent
spouses received from petitioner photocopies of Transfer Certificates of Title (TCT) Nos. 105904 and
223102 covering properties located in Manila and Parañaque contrary to their agreement that
petitioner would purchase the Las Piñas property. Petitioner explained to them that the auction sale
of the Las Piñas property did not push through because of a third-party claim, but the judgment
creditor agreed to sell to her the Parañaque and Manila properties which were also levied on
execution. Upon their return to the Philippines in July 2002, petitioner brought respondent-spouses
to the Las Piñas property but it was locked up and a signboard was posted, on which the words
"Future Home of Lutheran School and Community Center" were written. Thus, respondent-spouses
informed petitioner that they were no longer interested in acquiring the Las Piñas property and
asked for the return of the P3,000,000.00, to which petitioner acceded. She even sent to
respondent-spouses a letter wherein she acknowledged receipt of the P3,000,000.00 and promised
to return said amount on or before September 14, 2002.5

In her Answer, petitioner averred that the public bidding of the Las Piñas property was cancelled
because of a third-party claim. The DOLE Sheriff's Office, however, informed her that other
properties of the losing party would be put up in a public auction. Thus, petitioner asked
respondentspouses whether they were interested in buying the properties located in Manila and
Parañaque, but the latter did not respond. In good faith, and thinking that it would be beneficial for
respondent-spouses, petitioner requested her friend, Alninia L. Austria (Austria), to participate in the
bidding of the Manila and Parañaque properties. In both auctions, Austria was declared the winning
bidder. In July 2002, however, respondent-spouses told petitioner that they were no longer
interested in buying the Las Piñas property. She then told them that she would return their money
but she had to sell first the Manila and Parañaque properties.6
Despite several demands from respondent-spouses, petitioner failed to return the P3,000,000.00.
Thus, on March 6, 2006, respondent-spouses filed a case for collection of sum of money, moral
damages and attorney's fees against petitioner.7

The RTC Ruling

In a Decision dated March 11, 2014, the RTC ruled that respondent spouses' documentary evidence,
with the exception of the printouts of the e-mail correspondence between the parties, failed to
comply with the Best Evidence Rule. It declared that the uncertified photocopies of the bank
transfer, showing the remittance of P3,000,000.00 to petitioner's account, were inadmissible as
respondent-spouses failed to prove the loss of the original thereof It noted that respondent Amy
even testified that she could have secured the original copy from her bank, but she neglected to do
so. As regards the acknowledgment receipt or promissory note allegedly executed by petitioner, the
trial court adjudged that it was also inadmissible because it was a private document executed
without the intervention of a notary public and no witness was presented to prove that petitioner
signed the document. The fallo reads:
ChanRoblesVirtualawlibrary
WHEREFORE, in view of the foregoing, for failure of plaintiffs to present preponderance of evidence
to support the allegations in the Complaint, the instant case is ordered DISMISSED. The counterclaim
is likewise dismissed.8
Aggrieved, respondent-spouses filed an appeal before the CA.

The CA Ruling

In a Decision, dated March 31, 2016, the CA held that respondent spouses need not prove the fact
that they sent money to petitioner because the latter's admission that the amount of P3,000,000.00
was transmitted to her, having been made in her Answer, could be treated as a judicial admission. It
pronounced that petitioner's admission was sufficient to prove that she received money from the
respondent-spouses even without the documents presented by the latter. The appellate court added
that petitioner was legally bound to return the P3,000,000.00 which she received from respondent-
spouses considering that the purchase of the Las Piñas property did not materialize. It disposed the
case in this wise:
ChanRoblesVirtualawlibrary
WHEREFORE, the appeal is GRANTED. The Decision of the Regional Trial Court, Branch 6 of Kalibo,
Aklan in Civil Case No. 7720 is REVERSED and SET ASIDE. A new one is entered ordering defendant-
appellee Donabelle Gonzales-Saldana to pay plaintiffs-appellants the amount of three million pesos
(PhP 3,000,000.00) with interest at six percent (6%) per annum from default until the finality of this
Decision. From finality until full satisfaction, the total amount due shall likewise earn interest at six
percent (6%) per annum until fully paid.

SO ORDERED.9
Petitioner moved for reconsideration, but the same was denied by the CA on August 10, 2016.
Hence, this petition for review on certiorari wherein petitioner raises the following assignment of
errors:
ChanRoblesVirtualawlibrary
WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN CONSIDERING THAT
RESPONDENTS HAD ESTABLISHED THEIR CASE BY PREPONDERANCE OF EVIDENCE BASED ON
INADMISSIBLE EVIDENCE;

WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN APPLYING THE RULES ON
JUDICIAL ADMISSION;

WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN ADMITTING THE ISSUE OF
UNJUST ENRICHMENT WHICH WAS RAISED FOR THE FIRST TIME ON APPEAL;

WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN APPLYING THE PRINCIPLE OF
UNJUST ENRICHMENT; [and]

WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT INTEREST WAS
DUE TO RESPONDENTS.10
Simply put, the issues to be resolved are 1) Whether the statements in petitioner's Answer could be
considered judicial admissions; 2) Whether petitioner should return the P3,000,000.00 she received
from respondent spouses for the purchase of the Las Piñas property; and 3) Whether petitioner is
liable for the payment of interest on the amount due.

Petitioner argues that the allegations in her Answer are not admissions, but are actually defenses to
show that the complaint states no cause of action; that the alleged admission, with respect to her
receipt of P3,000,000.00 from respondent-spouses, was taken out of context because it actually
pertains to the fact that the money remitted was intended for the borrowed money from
respondent-spouses; that the obligation to return the money is demandable only upon sale of the
Manila and Parañaque properties, thus, the principle of unjust enrichment was not applicable; and
that no interest was due because she did not enter into a contract of loan with respondent-spouses
and there was no agreement for the payment of interest.11

In their Comment,12 respondent-spouses counter that petitioner should return the amount of
P3,000,000.00 considering that since 2002, she has not informed them of the status of the property
in Las Piñas; that a complaint for recovery of money is proper even if the contract between the
parties is not a contract of loan; and that legal interest must be imposed on the amount due from
petitioner because she already incurred in delay.

In her Reply,13 petitioner contends that she no longer informed respondent-spouses of the status of
the Las Piñas property because the latter had already abandoned their claim thereto and opted for
the return of their money; and that the award of interest is not proper because the transaction
between the parties is not a contract of loan and payment of monetary interest is allowed only if
there was an express stipulation for the payment of interest and the agreement for the payment of
interest was reduced in writing.

The Court's Ruling

The petition lacks merit.

Statements in the Answer constitute judicial admissions which bind petitioner.

A judicial admission is an admission, verbal or written, made by a party in the course of the
proceedings in the same case, which dispenses with the need for proof with respect to the matter or
fact admitted. It may be contradicted only by showing that it was made through palpable mistake or
that no such admission was made.14

A party who judicially admits a fact cannot later challenge [the] fact as judicial admissions are a
waiver of proof; production of evidence is dispensed with. A judicial admission also removes an
admitted fact from the field of controversy. Consequently, an admission made in the pleadings
cannot be controverted by the party making such admission and is cannot be controverted by the
party making such admission and is conclusive as to such party, and all proofs to the contrary or
inconsistent therewith should be ignored, whether objection is interposed by the party or not. The
allegations, statements or admissions contained in a pleading are conclusive as against the pleader.
A party cannot subsequently take a position contrary to or inconsistent with what was pleaded.15

Petitioner argues that the allegations in her Answer are not admissions, but are actually defenses to
show that the complaint states no cause of action; and that the alleged admission, with respect to
her receipt of the P3,000,000.00 from respondent-spouses, was taken out of context because in that
narration, she actually denied persuading respondent-spouses to remit money for the purchase of
the Las Piñas property.

A perusal, however, of petitioner's Answer leads to the conclusion that her arguments are just a
futile attempt to sow confusion in an otherwise indisputable case. In her Answer, petitioner made
the following statements:
ChanRoblesVirtualawlibrary
xxxx

4. Defendant denies the allegations contained in items 4, 5, 6, and 7, [of the] complaint, that
defendant proposed and convinced the plaintiffs, the truth of the matter being that:
ChanRoblesVirtualawlibrary
xxxx

f. Plaintiff knew what they were venturing into, the defendant fully explaining to them the
procedures. On their own accord, the plaintiffs sent money via bank-to-bank transaction, contrary
to their claim that plaintiffs caused to debit and remit the amount of US$60,000.00 to defendant's
account only upon the instruction of the [defendant]. It cannot be overemphasized that the
defendant is junior to the plaintiffs and that she has no power to direct order on what to do with
their money. x x x

xxxx

20. The complaint states no cause of action.

a. x x x Plaintiffs may have sent money to defendant but not in the form of loan. The money was
sent to invest in properties, primarily Las Piñas City. The money sent was used to purchase
properties for the plaintiffs, however, it happened that the plaintiffs were not satisfied with the
purchase, as such, as an afterthought, plaintiffs wanted to get back the money from defendant.
(Emphases supplied)16
From the foregoing, it is incontrovertible that petitioner does not even deny that she received
P3,000,000.00 from respondent-spouses. What she simply denies is the allegation that it was
because of her insistence that respondent-spouses remitted money to her account. Petitioner,
however, fails to realize that whether or not she persuaded respondent-spouses to purchase the Las
Piñas property is beside the point. To resolve the controversy between the parties, the issue simply
boils down to whether petitioner received P3,000,000.00 from respondent-spouses and as can be
gleaned from her Answer, petitioner admitted such fact. She failed to prove that the admission was
made through palpable mistake or that no such admission was made. Her arguments, therefore, are
mere desperate attempts to escape liability.

There is an implied agency between petitioner and respondent-spouses.

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.17 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.18 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.19

A contract of agency may be inferred from all the dealings between petitioner and respondent-
spouses. 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.20 In this case, respondent-spouses communicated with
petitioner as regards the purchase of the Las Piñas property and they remitted P3,000,000.00 to
petitioner's account for such purpose. For her part, petitioner made inquiries with the DOLE Sheriff's
Office and even talked to the judgment creditor for the purchase of the said property. Also, she
received P3,000,000.00 from respondent-spouses to finalize the transaction. Thus, it is beyond
dispute that an implied agency existed between petitioner and respondent-spouses for the purpose
of purchasing the Las Piñas property.

Petitioner, however, acted beyond the scope of her authority. It is worthy to note that it was
petitioner who introduced to respondent-spouses the idea of participating in the auction sale of the
Las Piñas property.21 When the parties came to an agreement as to the purchase of the said
property, petitioner was then unaware of other properties which were going to be sold on auction.
As a result, the parties never agreed on a substitute property to be purchased in case the bidding of
the Las Piñas property failed to materialize. As it happened, the Las Piñas property could not be
auctioned on account of a third-party claim. Thus, when petitioner was informed that certain
properties in Manila and Parañaque were to be auctioned for the same judgment creditor, she
proceeded to participate in the bidding and decided not to wait for respondent-spouses'
approval.22 It was only after the sale that petitioner informed respondent-spouses that she already
settled for the Manila and Parañaque properties, worth more than P3,000,000.00 in
valuation.23 Thus, even though petitioner may have been motivated by good intentions and by a
sincere belief that the purchase of the Manila and Parañaque properties would benefit respondent-
spouses, it cannot be gainsaid that she acted outside the scope of the authority given to her, i.e., to
purchase the Las Piñas property. Hence, petitioner's failure to fulfill her obligation entitles
respondent-spouses to the return of the P3,000,000.00 which they remitted to her account.

Petitioner is liable for the payment of compensatory interest.

The kinds of interest that may be imposed in a judgment are the monetary interest and the
compensatory interest. In this regard, the Court has expounded in Siga-an v. Villanueva:24
Interest is a compensation fixed by the parties for the use or forbearance of money. This is referred
to as monetary interest. Interest may also be imposed by law or by courts as penalty or indemnity
for damages. This is called compensatory interest. The right to interest arises only by virtue of a
contract or by virtue of damages for delay or failure to pay the principal loan on which interest is
demanded.

Article 1956 of the Civil Code, which refers to monetary interest, specifically mandates that no
interest shall be due unless it has been expressly stipulated in writing. As can be gleaned from the
foregoing provision, payment of monetary interest is allowed only if: (1) there was an express
stipulation for the payment of interest; and (2) the agreement for the payment of interest was
reduced in writing. The concurrence of the two conditions is required for the payment of monetary
interest. Thus, we have held that collection of interest without any stipulation therefor in writing is
prohibited by law.

xxxx

There are instances in which an interest may be imposed even in the absence of express stipulation,
verbal or written, regarding payment of interest. Article 2209 of the Civil Code states that if the
obligation consists in the payment of a sum of money, and the debtor incurs delay, a legal interest of
12% per annum may be imposed as indemnity for damages if no stipulation on the payment of
interest was agreed upon. Likewise, Article 2212 of the Civil Code provides that interest due shall
earn legal interest from the time it is judicially demanded, although the obligation may be silent on
this point.

All the same, the interest under these two instances may be imposed only as a penalty or damages
for breach of contractual obligations. It cannot be charged as a compensation for the use or
forbearance of money. In other words, the two instances apply only to compensatory interest and
not to monetary interest.
Clearly and contrary to petitioner's assertion, the interest imposed by the CA is not monetary
interest because aside from the fact that there is no use or forbearance of money involved in this
case, the subject interest was not one which was agreed upon by the parties in writing. Further, the
appellate court, after citing Eastern Shipping Lines, Inc. v. Court of Appeals,25 wherein the Court
synthesized the rules on the award of interest, imposed an interest of 6% per annum which finds
application in transactions involving the payment of indemnities in the concept of damages arising
from breach or a delay in the performance of obligations in general. Hence, there can be no other
conclusion than that the interest imposed by the appellate court is in the nature of compensatory
interest.

As a form of damages, compensatory interest is due only if the obligor is proven to have failed to
comply with his obligation.26 In this case, petitioner's principal obligation was to purchase the Las
Piñas property for respondent-spouses. Consequently, when she was informed that the auction sale
of the Las Piñas property would have to be cancelled, petitioner should have simply returned the
P3,000,000.00 to respondent-spouses instead of purchasing the Manila and Parañaque properties
without the latter's knowledge and consent. Moreover, she insists that she would return such
amount only after she successfully sells the Manila and Parañaque properties. Contrary to
petitioner's argument, however, the obligation to return the amount is not dependent upon the sale
of the Manila and Parañaque properties. The obligation to return the money is a consequence of her
failure to comply with her principal obligation, the breach thereof entitles respondent-spouses to
the payment of interest at the rate of 6% per annum, which, as pronounced in Eastern Shipping
Lines and subsequently reiterated in Nacar v. Gallery Frames,27 is the rate of interest applicable in
transactions involving the payment of indemnities in the concept of damages arising from the breach
or a delay in the performance of obligations in general.28 The payment of interest should be
reckoned from the date of filing of the Complaint or on March 6, 2006.29

WHEREFORE, the petition is DENIED. The March 31, 2016 Decision and August 10, 2016 Resolution
of the Court of Appeals in CA-G.R. CV No. 05172 are AFFIRMED with MODIFICATION in that the
amount of P3,000,000.00 shall earn interest at the rate of 6% per annum from the date of filing of
the Complaint on March 6, 2006 until the Decision becomes final and executory.

An interest of 6% per annum shall be further imposed on the amount from the finality of the
Decision until its satisfaction.

SO ORDERED.
G.R. No. 88866 February 18, 1991

METROPOLITAN BANK & TRUST COMPANY, petitioner,

vs.
COURT OF APPEALS, GOLDEN SAVINGS & LOAN ASSOCIATION, INC., LUCIA CASTILLO, MAGNO
CASTILLO and GLORIA CASTILLO, respondents.

Angara, Abello, Concepcion, Regala & Cruz for petitioner.

Bengzon, Zarraga, Narciso, Cudala, Pecson & Bengson for Magno and Lucia Castillo.
Agapito S. Fajardo and Jaime M. Cabiles for respondent Golden Savings & Loan Association, Inc.

CRUZ, J.:

This case, for all its seeming complexity, turns on a simple question of negligence. The facts, pruned
of all non-essentials, are easily told.

The Metropolitan Bank and Trust Co. is a commercial bank with branches throughout the Philippines
and even abroad. Golden Savings and Loan Association was, at the time these events happened,
operating in Calapan, Mindoro, with the other private respondents as its principal officers.

In January 1979, a certain Eduardo Gomez opened an account with Golden Savings and deposited
over a period of two months 38 treasury warrants with a total value of P1,755,228.37. They were all
drawn by the Philippine Fish Marketing Authority and purportedly signed by its General Manager
and countersigned by its Auditor. Six of these were directly payable to Gomez while the others
appeared to have been indorsed by their respective payees, followed by Gomez as second indorser.1

On various dates between June 25 and July 16, 1979, all these warrants were subsequently indorsed
by Gloria Castillo as Cashier of Golden Savings and deposited to its Savings Account No. 2498 in the
Metrobank branch in Calapan, Mindoro. They were then sent for clearing by the branch office to the
principal office of Metrobank, which forwarded them to the Bureau of Treasury for special clearing.2

More than two weeks after the deposits, Gloria Castillo went to the Calapan branch several times to
ask whether the warrants had been cleared. She was told to wait. Accordingly, Gomez was
meanwhile not allowed to withdraw from his account. Later, however, "exasperated" over Gloria's
repeated inquiries and also as an accommodation for a "valued client," the petitioner says it finally
decided to allow Golden Savings to withdraw from the proceeds of the
warrants.3

The first withdrawal was made on July 9, 1979, in the amount of P508,000.00, the second on July 13,
1979, in the amount of P310,000.00, and the third on July 16, 1979, in the amount of P150,000.00.
The total withdrawal was P968.000.00.4
In turn, Golden Savings subsequently allowed Gomez to make withdrawals from his own account,
eventually collecting the total amount of P1,167,500.00 from the proceeds of the apparently cleared
warrants. The last withdrawal was made on July 16, 1979.

On July 21, 1979, Metrobank informed Golden Savings that 32 of the warrants had been dishonored
by the Bureau of Treasury on July 19, 1979, and demanded the refund by Golden Savings of the
amount it had previously withdrawn, to make up the deficit in its account.

The demand was rejected. Metrobank then sued Golden Savings in the Regional Trial Court of
Mindoro.5 After trial, judgment was rendered in favor of Golden Savings, which, however, filed a
motion for reconsideration even as Metrobank filed its notice of appeal. On November 4, 1986, the
lower court modified its decision thus:

ACCORDINGLY, judgment is hereby rendered:

1. Dismissing the complaint with costs against the plaintiff;

2. Dissolving and lifting the writ of attachment of the properties of defendant Golden Savings
and Loan Association, Inc. and defendant Spouses Magno Castillo and Lucia Castillo;

3. Directing the plaintiff to reverse its action of debiting Savings Account No. 2498 of the sum
of P1,754,089.00 and to reinstate and credit to such account such amount existing before
the debit was made including the amount of P812,033.37 in favor of defendant Golden
Savings and Loan Association, Inc. and thereafter, to allow defendant Golden Savings and
Loan Association, Inc. to withdraw the amount outstanding thereon before the debit;

4. Ordering the plaintiff to pay the defendant Golden Savings and Loan Association, Inc.
attorney's fees and expenses of litigation in the amount of P200,000.00.

5. Ordering the plaintiff to pay the defendant Spouses Magno Castillo and Lucia Castillo
attorney's fees and expenses of litigation in the amount of P100,000.00.

SO ORDERED.

On appeal to the respondent court,6 the decision was affirmed, prompting Metrobank to file this
petition for review on the following grounds:

1. Respondent Court of Appeals erred in disregarding and failing to apply the clear
contractual terms and conditions on the deposit slips allowing Metrobank to charge back
any amount erroneously credited.

(a) Metrobank's right to charge back is not limited to instances where the checks or
treasury warrants are forged or unauthorized.

(b) Until such time as Metrobank is actually paid, its obligation is that of a mere
collecting agent which cannot be held liable for its failure to collect on the warrants.

2. Under the lower court's decision, affirmed by respondent Court of Appeals, Metrobank is
made to pay for warrants already dishonored, thereby perpetuating the fraud committed by
Eduardo Gomez.
 3. Respondent Court of Appeals erred in not finding that as between Metrobank and Golden
Savings, the latter should bear the loss.

4. Respondent Court of Appeals erred in holding that the treasury warrants involved in this
case are not negotiable instruments.

The petition has no merit.

From the above undisputed facts, it would appear to the Court that Metrobank was indeed negligent
in giving Golden Savings the impression that the treasury warrants had been cleared and that,
consequently, it was safe to allow Gomez to withdraw the proceeds thereof from his account with it.
Without such assurance, Golden Savings would not have allowed the withdrawals; with such
assurance, there was no reason not to allow the withdrawal. Indeed, Golden Savings might even
have incurred liability for its refusal to return the money that to all appearances belonged to the
depositor, who could therefore withdraw it any time and for any reason he saw fit.

It was, in fact, to secure the clearance of the treasury warrants that Golden Savings deposited them
to its account with Metrobank. Golden Savings had no clearing facilities of its own. It relied on
Metrobank to determine the validity of the warrants through its own services. The proceeds of the
warrants were withheld from Gomez until Metrobank allowed Golden Savings itself to withdraw
them from its own deposit.7 It was only when Metrobank gave the go-signal that Gomez was finally
allowed by Golden Savings to withdraw them from his own account.

The argument of Metrobank that Golden Savings should have exercised more care in checking the
personal circumstances of Gomez before accepting his deposit does not hold water. It was Gomez
who was entrusting the warrants, not Golden Savings that was extending him a loan; and moreover,
the treasury warrants were subject to clearing, pending which the depositor could not withdraw its
proceeds. There was no question of Gomez's identity or of the genuineness of his signature as
checked by Golden Savings. In fact, the treasury warrants were dishonored allegedly because of the
forgery of the signatures of the drawers, not of Gomez as payee or indorser. Under the
circumstances, it is clear that Golden Savings acted with due care and diligence and cannot be
faulted for the withdrawals it allowed Gomez to make.

By contrast, Metrobank exhibited extraordinary carelessness. The amount involved was not trifling
— more than one and a half million pesos (and this was 1979). There was no reason why it should
not have waited until the treasury warrants had been cleared; it would not have lost a single centavo
by waiting. Yet, despite the lack of such clearance — and notwithstanding that it had not received a
single centavo from the proceeds of the treasury warrants, as it now repeatedly stresses — it
allowed Golden Savings to withdraw — not once, not twice, but thrice — from
the uncleared treasury warrants in the total amount of P968,000.00

Its reason? It was "exasperated" over the persistent inquiries of Gloria Castillo about the clearance
and it also wanted to "accommodate" a valued client. It "presumed" that the warrants had been
cleared simply because of "the lapse of one week."8 For a bank with its long experience, this
explanation is unbelievably naive.

And now, to gloss over its carelessness, Metrobank would invoke the conditions printed on the
dorsal side of the deposit slips through which the treasury warrants were deposited by Golden
Savings with its Calapan branch. The conditions read as follows:
 Kindly note that in receiving items on deposit, the bank obligates itself only as the depositor's
collecting agent, assuming no responsibility beyond care in selecting correspondents, and
until such time as actual payment shall have come into possession of this bank, the right is
reserved to charge back to the depositor's account any amount previously credited, whether
or not such item is returned. This also applies to checks drawn on local banks and bankers
and their branches as well as on this bank, which are unpaid due to insufficiency of funds,
forgery, unauthorized overdraft or any other reason. (Emphasis supplied.)

According to Metrobank, the said conditions clearly show that it was acting only as a collecting agent
for Golden Savings and give it the right to "charge back to the depositor's account any amount
previously credited, whether or not such item is returned. This also applies to checks ". . . which are
unpaid due to insufficiency of funds, forgery, unauthorized overdraft of any other reason." It is
claimed that the said conditions are in the nature of contractual stipulations and became binding on
Golden Savings when Gloria Castillo, as its Cashier, signed the deposit slips.

Doubt may be expressed about the binding force of the conditions, considering that they have
apparently been imposed by the bank unilaterally, without the consent of the depositor. Indeed, it
could be argued that the depositor, in signing the deposit slip, does so only to identify himself and
not to agree to the conditions set forth in the given permit at the back of the deposit slip. We do not
have to rule on this matter at this time. At any rate, the Court feels that even if the deposit slip were
considered a contract, the petitioner could still not validly disclaim responsibility thereunder in the
light of the circumstances of this case.

In stressing that it was acting only as a collecting agent for Golden Savings, Metrobank seems to be
suggesting that as a mere agent it cannot be liable to the principal. This is not exactly true. On the
contrary, Article 1909 of the Civil Code clearly provides that —

Art. 1909. — The agent is responsible not only for fraud, but also for negligence, which shall
be judged 'with more or less rigor by the courts, according to whether the agency was or
was not for a compensation.

The negligence of Metrobank has been sufficiently established. To repeat for emphasis, it was the
clearance given by it that assured Golden Savings it was already safe to allow Gomez to withdraw
the proceeds of the treasury warrants he had deposited Metrobank misled Golden Savings. There
may have been no express clearance, as Metrobank insists (although this is refuted by Golden
Savings) but in any case that clearance could be implied from its allowing Golden Savings to
withdraw from its account not only once or even twice but three times. The total withdrawal was in
excess of its original balance before the treasury warrants were deposited, which only added to its
belief that the treasury warrants had indeed been cleared.

Metrobank's argument that it may recover the disputed amount if the warrants are not paid for any
reason is not acceptable. Any reason does not mean no reason at all. Otherwise, there would have
been no need at all for Golden Savings to deposit the treasury warrants with it for clearance. There
would have been no need for it to wait until the warrants had been cleared before paying the
proceeds thereof to Gomez. Such a condition, if interpreted in the way the petitioner suggests, is not
binding for being arbitrary and unconscionable. And it becomes more so in the case at bar when it is
considered that the supposed dishonor of the warrants was not communicated to Golden Savings
before it made its own payment to Gomez.

The belated notification aggravated the petitioner's earlier negligence in giving express or at least
implied clearance to the treasury warrants and allowing payments therefrom to Golden Savings. But
that is not all. On top of this, the supposed reason for the dishonor, to wit, the forgery of the
signatures of the general manager and the auditor of the drawer corporation, has not been
established.9 This was the finding of the lower courts which we see no reason to disturb. And as we
said in MWSS v. Court of Appeals:10

Forgery cannot be presumed (Siasat, et al. v. IAC, et al., 139 SCRA 238). It must be
established by clear, positive and convincing evidence. This was not done in the present
case.

A no less important consideration is the circumstance that the treasury warrants in question are not
negotiable instruments. Clearly stamped on their face is the word "non-negotiable." Moreover, and
this is of equal significance, it is indicated that they are payable from a particular fund, to wit, Fund
501.

The following sections of the Negotiable Instruments Law, especially the underscored parts, are
pertinent:

Sec. 1. — Form of negotiable instruments. — An instrument to be negotiable must conform

to the following requirements:

(a) It must be in writing and signed by the maker or drawer;

(b) Must contain an unconditional promise or order to pay a sum certain in money;

(c) Must be payable on demand, or at a fixed or determinable future time;

(d) Must be payable to order or to bearer; and

(e) Where the instrument is addressed to a drawee, he must be named or otherwise

indicated therein with reasonable certainty.

xxx xxx xxx

Sec. 3. When promise is unconditional. — An unqualified order or promise to pay is

unconditional within the meaning of this Act though coupled with —

(a) An indication of a particular fund out of which reimbursement is to be made or a

particular account to be debited with the amount; or

(b) A statement of the transaction which gives rise to the instrument judgment.

But an order or promise to pay out of a particular fund is not unconditional.

The indication of Fund 501 as the source of the payment to be made on the treasury warrants makes
the order or promise to pay "not unconditional" and the warrants themselves non-negotiable. There
should be no question that the exception on Section 3 of the Negotiable Instruments Law is
applicable in the case at bar. This conclusion conforms to Abubakar vs. Auditor General11 where the
Court held:

The petitioner argues that he is a holder in good faith and for value of a negotiable
instrument and is entitled to the rights and privileges of a holder in due course, free from
 defenses. But this treasury warrant is not within the scope of the negotiable instrument law.
For one thing, the document bearing on its face the words "payable from the appropriation
for food administration, is actually an Order for payment out of "a particular fund," and is
not unconditional and does not fulfill one of the essential requirements of a negotiable
instrument (Sec. 3 last sentence and section [1(b)] of the Negotiable Instruments Law).

Metrobank cannot contend that by indorsing the warrants in general, Golden Savings assumed that
they were "genuine and in all respects what they purport to be," in accordance with Section 66 of
the Negotiable Instruments Law. The simple reason is that this law is not applicable to the non-
negotiable treasury warrants. The indorsement was made by Gloria Castillo not for the purpose of
guaranteeing the genuineness of the warrants but merely to deposit them with Metrobank for
clearing. It was in fact Metrobank that made the guarantee when it stamped on the back of the
warrants: "All prior indorsement and/or lack of endorsements guaranteed, Metropolitan Bank &
Trust Co., Calapan Branch."

The petitioner lays heavy stress on Jai Alai Corporation v. Bank of the Philippine Islands,12 but we feel
this case is inapplicable to the present controversy.1âwphi1 That case involved checks whereas this
case involves treasury warrants. Golden Savings never represented that the warrants were
negotiable but signed them only for the purpose of depositing them for clearance. Also, the fact of
forgery was proved in that case but not in the case before us. Finally, the Court found the Jai Alai
Corporation negligent in accepting the checks without question from one Antonio Ramirez
notwithstanding that the payee was the Inter-Island Gas Services, Inc. and it did not appear that he
was authorized to indorse it. No similar negligence can be imputed to Golden Savings.

We find the challenged decision to be basically correct. However, we will have to amend it insofar as
it directs the petitioner to credit Golden Savings with the full amount of the treasury checks
deposited to its account.

The total value of the 32 treasury warrants dishonored was P1,754,089.00, from which Gomez was
allowed to withdraw P1,167,500.00 before Golden Savings was notified of the dishonor. The amount
he has withdrawn must be charged not to Golden Savings but to Metrobank, which must bear the
consequences of its own negligence. But the balance of P586,589.00 should be debited to Golden
Savings, as obviously Gomez can no longer be permitted to withdraw this amount from his deposit
because of the dishonor of the warrants. Gomez has in fact disappeared. To also credit the balance
to Golden Savings would unduly enrich it at the expense of Metrobank, let alone the fact that it has
already been informed of the dishonor of the treasury warrants.

WHEREFORE, the challenged decision is AFFIRMED, with the modification that Paragraph 3 of the
dispositive portion of the judgment of the lower court shall be reworded as follows:

3. Debiting Savings Account No. 2498 in the sum of P586,589.00 only and thereafter allowing
defendant Golden Savings & Loan Association, Inc. to withdraw the amount outstanding
thereon, if any, after the debit.

SO ORDERED.
LIABILITY OF AGENT FOR FRAUD AND NEGLIGENCE

MEBTC VS CA

DOCTRINE: The agent is responsible not only for fraud, but also for negligence, which shall be judged
'with more or less rigor by the courts, according to whether the agency was or was not for a
compensation.

FACTS

Eduardo Gomez opened an account with Golden Savings and deposited over a period of two months
38 treasury warrants. They were all drawn by the Philippine Fish Marketing Authority and
purportedly signed by its General Manager and countersigned by its Auditor. Six of these were
directly payable to Gomez while the others appeared to have been indorsed by their respective
payees, followed by Gomez as second indorser.

All these warrants were subsequently indorsed by Gloria Castillo as Cashier of Golden Savings and
deposited to its Savings Account in the Metrobank branch in Calapan, Mindoro. They were then sent
for clearing by the branch office to the principal office of Metrobank, which forwarded them to the
Bureau of Treasury.

Later on, Castillo went to the Calapan branch several times to ask whether the warrants had been
cleared. She was told to wait. Accordingly, Gomez was meanwhile not allowed to withdraw from his
account. Later, however, "exasperated" over Gloria's repeated inquiries and also as an
accommodation for a "valued client," the petitioner says it finally decided to allow Golden Savings to
withdraw from the proceeds of the warrant. In turn, Golden Savings subsequently allowed Gomez to
make withdrawals from his own account

Metrobank informed Golden Savings that 32 of the warrants had been dishonored by the Bureau of
Treasury, and demanded the refund by Golden Savings of the amount it had previously withdrawn, to
make up the deficit in its account.

The demand was rejected. Metrobank sued Golden Savings. RTC and CA ruled in favor of Golden
Savings.

ISSUE: W/N the Metrobank is negligent in giving Golden Savings the impression that the treasury
warrants had been cleared and that, consequently, it was safe to allow Gomez to withdraw the
proceeds thereof from his account with it

RULING: YES. Without such assurance, Golden Savings would not have allowed the withdrawals; with
such assurance, there was no reason not to allow the withdrawal. Indeed, Golden Savings might even
have incurred liability for its refusal to return the money that belonged to the depositor, who could
withdraw it any time
 The proceeds of the warrants were withheld from Gomez until Metrobank allowed Golden Savings
itself to withdraw them from its own deposit.7 It was only when Metrobank gave the go-signal that
Gomez was finally allowed by Golden Savings to withdraw

And now, to gloss over its carelessness, Metrobank would invoke the conditions printed on the dorsal
side of the deposit slips through which the treasury warrants were deposited by Golden Savings with
its Calapan branch. The conditions read as follows:

Kindly note that in receiving items on deposit, the bank obligates itself only as the depositor's
collecting agent, assuming no responsibility beyond care in selecting correspondents, and
until such time as actual payment shall have come into possession of this bank, the right is
reserved to charge back to the depositor's account any amount previously credited, whether
or not such item is returned. This also applies to checks drawn on local banks and bankers
and their branches as well as on this bank, which are unpaid due to insufficiency of funds,
forgery, unauthorized overdraft or any other reason

In stressing that it was acting only as a collecting agent for Golden Savings, Metrobank seems to be
suggesting that as a mere agent it cannot be liable to the principal. This is not exactly true. On the
contrary, Article 1909 of the Civil Code clearly provides that —

Art. 1909. — The agent is responsible not only for fraud, but also for negligence, which shall be
judged 'with more or less rigor by the courts, according to whether the agency was or was not for a
compensation.

The negligence of Metrobank has been sufficiently established. It was the clearance given by it that
assured Golden Savings it was already safe to allow Gomez to withdraw the proceeds of the treasury
warrants he had deposited Metrobank misled Golden Savings. There may have been no express
clearance, as Metrobank insists (although this is refuted by Golden Savings) but in any case that
clearance could be implied from its allowing Golden Savings to withdraw from its account not only
once or even twice but three times. The total withdrawal was in excess of its original balance before
the treasury warrants were deposited, which only added to its belief that the treasury warrants had
indeed been cleared.
 G.R. No. 205405, June 28, 2021

EDUARDO ATIENZA, Petitioner, v. GOLDEN RAM ENGINEERING SUPPLIES & EQUIPMENT

CORPORATION AND BARTOLOME TORRES, Respondents.

DECISION

HERNANDO, J.:

This Appeal by Certiorari under Rule 451 assails the May 31, 2012 Decision2 of the Court of Appeals
(CA) in CA-G.R. CV No. 92372 which affirmed with modification the August 28, 2008 Decision3 of the
Regional Trial Court (RTC) of Manila, Branch 173, in Civil Case No. 94-72195, as well as the appellate
court's January 14, 2013 Resolution4 denying the motion for reconsideration thereof.

The RTC and the CA uniformly found respondent Golden Ram Engineering and Supplies Equipment
Corporation (GRESEC) liable to petitioner Eduardo Atienza (Atienza) for breach of warranty in the
sale of two vessel engines installed in Atienza's passenger vessel, MY Ace I, and ordered GRESEC to
pay Atienza damages. However, the appellate court diverged from the RTC's ruling and absolved
respondent BartoLome Torres (Torres), President and Manager of GRESEC, from solidary liability
with the respondent corporation, and deleted the awards of moral damages, attorney's fees, and
costs of suit.

Factual antecedents:

Considering the conflicting rulings of the lower courts, we find it imperative to juxtapose their
factual findings on the issues of solidary liability, award of moral damages, attorney's fees and costs
of suit.

First, the appellate court's succinct summary of the facts:

[Petitioner] Eduardo Atienza was engaged in the business of operating MV Ace I, a passenger vessel
plying the Batangas-Mindoro route. [Respondent] Golden Ram Engineering Supplies and Equipment
Corporation [GRESEC] is a dealer and distributor of engines and heavy equipment. Its President and
Manager is [respondent] BartoLome T. Torres.

Asserting his claim for damages arising from breach of warranty. Atienza filed a Complaint,
averring, inter alia, that Torres offered for sale two vessel engines amounting to P3.5 Million Pesos
to be installed in MV Ace I, described as follows:

TWO (2) MAN Diesel Engines, Type D 2840 LE, rated at 470 Hp each, continuous output "A" at 1800
rpm, complete with 2 x ZF (Zahnradfabrik Friedrichshafen AG) Reversed/Reduction Gear Type BW
161 4.06:1 standard ration in accordance with the attached Technical Specification and Scope of
Supply.

On 24 August 1993, Atienza bought the two vessel engines from [GRESEC] and as proof of his
purchase, he was issued a Proforma Invoice which stated therein the warranty period, viz:

WARRANTY PERIOD OF THE EQUIPMENT:

The warranty period is given in accordance with the General Conditions of Sale DK.0105.N-12-87,
article XI, herewith attached, for a period of 12 months, reckoned from date of commissioning, but
not longer than 18 months after notification of readiness for delivery ex-warehouse Manila. The
warranty period is farther limited to 2000 hours of operation.

Atienza forthwith paid the amount of P2.5 Million Pesos, after which the two engines were delivered
and commissioned by [GRESEC] sometime in March 1994.

On 26 September 1994, the engine on the right side of MV Ace I suffered a major dysfunction, the
diagnosis of which revealed that the connecting rod had split resulting in engine stuck up. Atienza
immediately reported the incident to [GRESEC] which sent a certain Engineer R. R. Torres (Engr.
Torres), its Sales and Service Engineer, to inspect and determine the extent of the damage. Engr.
Torres confirmed that the "defect was inherent being attributable to factory defect". This finding
was reported to MAN B&W Diesel, Singapore Pte. Ltd. (MAN Diesel), the foreign supplier. In turn,
the latter promised that the engine which suffered the malfunction would be replaced in accordance
with the warranty.

Thereafter, Atienza made pleas for the replacement of the engine but his entreaties fell on deaf ears.
Inevitably, he suffered losses for failure to operate since 26 September 1994. On 28 October 1994,
Atienza wrote [GRESEC] a Demand Letter offering two alternatives for the company � one, replace
the engine or reimburse him for the losses he had incurred, or two, retrieve the two engines and
refund the cost with interest plus payment for losses. However, [GRESEC] paid no heed to his
demand prompting him to lodge a Complaint for damages.

In their Answer, [GRESEC] and Torres (collectively, defendants) admitted the breakdown of the
engine but confuted Atienza's assertion that Engr. Torres had confirmed that "defect was inherent
being attributable to factory defect". Contrariwise, they claimed that the cause of the damage to the
engine was improper maintenance on the part of Atienza. Defendants maintained that they never
promised to replace the engine and that MAN Diesel was liable only for replacement of parts found
to be defective on account of unsound material, faulty design or poor workmanship. Inasmuch as
the defect of the engine was brought about by improper maintenance, the warranty claim must
necessarily be denied as it was not within the coverage thereof. Moreover, [GRESEC] was merely an
agent of MAN Diesel which had the authority to grant or deny warranty claims. [Defendants]
likewise professed that Atienza had quoted portions of Article XI (Warranty Clause) of the General
Conditions to support his claim; yet, he conveniently omitted other provisions which would nullify
his claim, In particular, they cited Item 5 which states �

5. No warranty shall be accepted by MAN if damage is due to:

xxx

- Purchaser failing to comply with handling, maintenance and service instructions for goods (e.g.
operation instructions)."5
On the other hand, the RTC's factual findings, cited by the appellate court in its disposition,
presented the testimonial and documentary evidence of both parties:

The Pro-forma invoice provides that the conditions and the period of the warranty is as follows:

WARRANTY PERIOD OF EQUIPMENT

The warranty period is given in accordance with the General Conditions of Sale DK.0105.N-12-87,
article XI, herewith attached, for a period of 12 months, reckoned from date of commissioning, but
not longer than 18 months after notification of readiness for delivery ex-warehouse Manila. The
warranty period is further limited to 2000 hours of operation.

XI. WARRANTY

1. MAN's warranty covers the property explicitly guaranteed. Where parts are to be found defective
on account of unsound material, faulty design or poor workmanship, MAN, shall at its option, repair
or replace on an ex-factory basis, free of charge, all parts of its delivery which in consequence of
such deficiencies are found to be unfit to use or seriously affected in use.

The warranty is to the exclusion of all other claims. All parts replaced shall become the property of
MAN. For repair work and parts replaced MAN offers the same warranty as for the original goods in
respect of bought-out items used by MAN in the manufacture of goods without any appreciable
onward processing. MAN's liability shall be limited to assigning its warranty claims on the supplier.
Bought-out items come under MAN's warranty insofar as MAN is responsible for the selection of the
correct type and size of item. If elimination of a defect by MAN is unreasonable, the Purchaser or a
third party may with the consent of MAN eliminate said defect expertly himself. In such cases, MAN
shall reimburse the costs by not more than the amount that MAN would have incurred had MAN
itself eliminated the fault.

xxx

2. MAN's warranty commences on the day the commissioning ends and ends after 12 months. The
warranty shall expire in all cases not later than 18 months after shipment or notification of readiness
for dispatch.

xxx

5. No warranty shall be accepted by MAN if damage is due to:

xxx

- the Purchaser failing to comply with handling, maintenance and service instructions for goods (e.g.
operation instructions)

It is not controverted that the starboard engine broke down six months from time it was
commissioned. This means that it was well within the 12-month period under the warranty.
Raymond Torres testified on cross-examination that the starboard engine had not reached 2,000
hours at the time of breakdown of the engine and it was also within the period of 12 months from
the time of commissioning (tsn, pp. 22-23, dated September 10, 1996).
From the time the starboard engine was commissioned it had performed differently from that of the
portside engine. According to [Atienza] who was present during the sea trial in Manila Bay on
February 13, 1994 it was [respondent] Bartolome Torres and [Engr.] Raymond Torres who effected
the start of the vessel and [Atienza] observed that the right side of engine was [not functioning
properly]. When asked what is the matter with the right engine (sic). Bartolome Torres and [Engr.]
Raymond Torres said that it only lacks adjustment. On the trip from Manila to Batangas. the right
engine was still slow in acceleration. But they were told to just use the engine for two weeks. The
right engine emitted black smoke (tsn, dated February 23, 1999). They again informed Bartolome
Torres and [Engr.] Raymond Torres who fixed the engine while the vessel MV Ace I was docked in
Batangas City. The black smoke disappeared but the acceleration was still the same.

After one week, the right engine again emitted black smoke. [Atienza] again informed Bartolome
Torres who said that they will change the piston ring. [Atienza] was concerned why anything had to
be replaced in the new engine. After repair, the black smoke disappeared but the acceleration of the
engine was still slow.

The right engine again emitted black smoke after three weeks. [Atienza] was advised by defendants
to change the propeller because its heavy and big. However. when a brand new propeller was used
there was no remarkable change. It was only for one month that the black smoke did not appear.

[Atienza] did not receive any written report about the repairs that were done on the starboard
engine. It was their understanding that it was Bartolome Torres and [Engr.] Raymond Torres who will
maintain the engines, all instructions by them were being followed by Manila Ace crew (tsn, dated
August 12, 1999).

When the right engine broke down, [Atienza] was verbally assured that [respondents] will replace
the engine. They did not say that they will refer the matter to MAN Diesel nor did they furnish
[Atienza with] a copy of the findings of MAN Singapore (tsn, dated January 27, 2000).

It is the allegation of [respondents] that MAN denied the warranty claims of [Atienza] under
paragraph 5 on the ground that, "the Purchaser failed to comply with the handling, maintenance and
servicing instructions for the goods."

However, [respondents] failed to substantiate their claim. It merely presented log sheets that were
allegedly accomplished by the crew of MV Ace I. xxx

[Atienza], on the other hand, presented witnesses to prove that [respondents] were the ones in
charge of maintaining the two engines. Arsenio Lim, operations Manager of Manila Ace, testified
that they were instructed by [respondents] that when something goes wrong with the two engines,
they should call Mr. Torres (tsn, dated March 14, 1996). They are not supposed to let another person
touch the engine. A week after the starboard engine broke, [Engr.] Raymond Torres went to see the
engine and even took pictures without even opening the engine. In front of many people [Engr.]
Raymond Torres said "ok, I will change this after one week."

Rolando Casipi, oiler of Manila Ace, testified that [Engr.] Raymond Torres [told] them when to
change oil and that they cannot change oil without Raymond Torres present or supervising it. He was
beside the chief engineer when [Engr.] Raymond Torres told their chief engineer that if there is any
trouble in the engine just call him (tsn, dated August 12, 1997).

[Atienza] testified that he received no written report about the repairs that were done and that it
was their understanding that it was Bartolome Torres and [Engr.] Raymond Torres who will maintain
the engines, all instructions by them were being followed by Manila Ace crew (tsn, dated August 12,
1999).

[Respondents] maintain that for [Atienza] to avail of the warranty he should submit a written
complaint. This was not accomplished by [Atienza] for the reason that he always called upon
Bartolome Torres and [Engr.] Raymond Torres whenever there were problems with the engine (tsn,
dated April 13, 1999). [Respondents] did not require from [Atienza] a written complaint whenever
they fixed the engine. [Respondents] acted in bad faith when it required a written complaint from
[Atienza] after MAN Singapore had allegedly denied the claim on the warranty. They did not even
inform [Atienza] that they will refer the matter to MAN Singapore.

[Respondents] also failed to explain the reason why of the two engines bought by [Atienza], which
was used and maintained simultaneously, only the starboard engine suffered malfunction and
eventually it broke down.6 (Emphasis supplied)

Ruling of the Regional Trial Court:

The RTC found that Atienza proved by preponderance of evidence that he sustained damages
because respondents, GRESEC and Bartolome, breached the warranty against hidden defects in the
sale of the two (2) vessel engines. The RTC noted that despite repeated demands, respondents gave
Atienza a run around and failed to seasonably replace the starboard engine. The trial court found
respondents GRESEC and Bartolome to be in bad faith in their refusal to replace the vessel engines
and declared, thus:

WHEREFORE, premises considered, judgment is hereby rendered in favor of [Atienza], and [GRESEC
and Bartolome] are hereby ordered IN SOLIDUM to pay [Atienza]:

1. Compensatory or actual damages in the form of unrealized income in the total amount of One
Million Six Hundred Thousand Pesos (P1,600,000.00) with legal interest from date of filing of the
Complaint;

2. The amount of P200,000.00 as and by way of moral damages; and

3. The amount of P150,000.00 as and by way of attorney's fees and costs of suit.7

Ruling of the Court of Appeals:

The CA affirmed with modification the RTC's ruling. While it agreed with the trial court that Atienza
established his cause of action against respondents by a preponderance of evidence, the CA differed
from the RTC's finding concerning Bartolome's solidary liability with GRESEC, and whether the
respondents were in bad faith which entitles Atienza to the payment of moral damages, attorney's
fees and cost of suit.

According to the CA, respondents' denial of Atienza's warranty claim was done in good faith based
on their honest belief that the claim did not comply with Item XI of the Warranty Conditions of the
contract of sale and the malfunctioning engine had not been properly maintained. In the same vein,
absent a demonstration of respondents' bad faith, the CA likewise deleted the RTC's award of
attorney's fees and costs of suit.
Lastly, the appellate court exculpated Bartolome from solidary liability with GRESEC as the latter is a
separate juridical personality. Consistent with its finding of respondents' lack of bad faith and gross
negligence, the appellate court ruled that the separate corporate personality of GRESEC which
entered into the sales transaction with Atienza could not be disregarded as to solidarity bind
Bartolome for the breach of warranty.

Issue

Hence, this appeal by certiorari of Atienza insisting that the sales transaction between him and
respondents was attended by bad faith. Atienza maintains that the CA gravely erred or completely
ignored the evidence:

[1] That show the bad faith, malice and intent to cause damage committed by Bartolome Torres as
Director, Stockholder, of [GRESEC] hence his liability with the respondent corporation is IN
SOLIDUM.

[2] That on account of bad faith, malice and intent to cause damage by Bartolome Torres, petitioner
suffered moral damages and having been compelled to litigate to protect its rights and interest,
petitioner should be awarded reasonable Attorney's Fees.

[3] When it modified the Decision of the [RTC] exculpating respondent Bartolome Torres from
liability in solidum with the corporation which he wholly owns.8

We collapse the issues Into the singular issue of whether respondents' denial of Atienza's warranty
claim for the defective vessel engines was done in bad faith as to hold Bartolome solidarity liable
with GRESEC for the payment of actual and moral damages, attorney's fees and costs of suit.

Our Ruling

At the outset, we emphasize that GRESEC's liability to Atienza for the lower courts' uniform award of
actual damages is no longer in issue. The appellate and the trial courts were one in its ruling that the
defective engines sold by respondents to Atienza breached the implied warranty that the thing sold
shall be free from any hidden faults or defects. Stated differently, the lower courts found that the
malfunction of the vessel engines is not due to Atienza's negligence in maintaining these.

As found by the RTC, which factual findings were sustained by the CA, Atienza discharged the burden
of proof by a preponderance of evidence that there were hidden defects in the engines sold by
respondents. The appellate court affirmed the trial court's ruling as follows:

A warranty is a statement or representation made by the seller of goods, contemporaneously and as

part of the contract of sale, having reference to the character, quality or title of the goods, and by
which he promises to insure that certain facts are or shall be as he represents them to be.

It is not disputed that there is no express agreement between the parties as to the coverage of the
warranty. In the absence of an express stipulation between the parties, the applicable provision is
paragraph 2, Article 1547 of the Civil Code which states that in a contract of sale there is an implied
warranty that the thing shall be free from hidden defects. A hidden defect is one which is unknown
or could not have been known to the vendee. Corollarily, Articles 1561 and 1566 of the same Code
set forth the responsibility of the vendor against hidden defects:

Art. 1561. The vendor shall be responsible for warranty against the hidden defects which the thing
sold may have, should they render it unfit for the use for which it is intended, or should they
diminish its fitness for such use to such an extent that, had the vendee been aware thereof, he
would not have acquired it or would have given a lower price for it; but said vendor shall not be
answerable for patent defects or those which may be visible, or for those which are not visible if the
vendee Is an expert who, by reason of his trade or profession, should have known them.

Art. 1566. The vendor is responsible to the vendee for any hidden faults or defects in the thing sold,
even though he was not aware thereof.

This provision shall not apply if the contrary has been stipulated, and the vendor was not aware of
the hidden faults or defects in the thing sold.

xxxx

We find no persuasive reason to depart from the factual finding of the [RTC] that the engine
malfunction was due to a hidden defect which was unknown to [Atienza] at the time he bought the
engine x x x.

xxx

Au contrario, there is lack of evidence to show that the engine malfunctioned due to [Atienza's]
negligence in its maintenance. x x x

xxx

Item No. (2), Section IX, Appendix I of the Pro-Forma Invoice provides that the warranty of the
engine commences from the day of commissioning and ends twelve (12) months thereafter. In
the Pre-Trial Order dated 5 November 1996, both parties entered into a stipulation of fact that the
date the engine was commissioned was sometime In March 1994. Thus, the filing of
the Complaint on 16 November 1994 is well within the warranty period.

We hold and so rule that the Pro-Forma Invoice for which [Atienza] affixed his signature is in the
nature of a contract of adhesion. A contract of adhesion is defined as one in which one of the parties
imposes a ready made form of contract, which the other party may accept or reject, but which the
latter cannot modify. It is construed strictly against the party who drafted it or gave rise to any
ambiguity therein. Being a contract of adhesion, the said provision in the Pro-Forma Invoice must be
strictly construed against [respondents], the party which prepared the agreement.9

However, the CA and the RTC diverged on their factual findings of bad faith by respondents. The RTC
ruled that respondents' denial of Atienza's claim was beset by bad faith; the CA ruled that it was not.

We are thus called upon to break the impasse. Upon a careful consideration, we agree with the
finding of the RTC that respondents were in bad faith.

Bad faith, under the law, does not simply connote bad judgment or negligence. It imports a
dishonest purpose or some moral obliquity and conscious doing of a wrong, a breach of a known
duty through some motive or interest or ill will that partakes of the nature of fraud.10

In finding that respondents acted in bad faith in denying Atienza's warranty claim, the RTC
considered the following circumstances:

First. The starboard engine broke down a mere six (6) months from the time it was commissioned. In
fact, on cross examination of respondents' witness, Engr. Torres, respondent Bartolome's son,
testified that the engine broke down well within the period of 12 months from the time of its
commissioning and had not reached 2,000 hours of use.

Second. From the time it was commissioned, the starboard engine performed poorly compared with
the portside engine and continuously emitted black smoke which Atienza reported to the
respondents.

Third. Various parts of the malfunctioning engine, such as the piston ring and the propeller,
successively conked out and had to be replaced which concerned Atienza given that the engine was
purportedly brand new. Respondents ostensibly appeared to remedy the problem, but the starboard
engine continued to malfunction and breakdown.

Fourth. During negotiations for the sale of the engines and in the course of its operation,
respondents, along with Engr. Torres, repeatedly told Atienza that they were responsible for, and in
charge of, maintaining the engines. Atienza's employees, the operations manager, the chief engineer
and the oiler of MV Ace I, were specifically instructed by respondent Bartolome and Engr, Torres to
inform them of any problem concerning the engine.

Fifth. Respondents did not provide Atienza with written reports on the repairs made on the engines.
Atienza thought he was only dealing with respondents in the repair of the engine. He was not made
aware of respondents' principal, MAN Singapore's, requirement to file a written claim in order to
avail of the warranty. Atienza maintains that respondents never required him to file a written
complaint before they undertook to repair the malfunctioning engine. Neither did respondents
inform Atienza that they will refer the matter to their principal, MAN Singapore.

Sixth. Respondents represented to Atienza that the starboard engine performs up to par and
comparably with the portside engine reaching between 1,800 to 2,200 Revolutions Per Minute
(RPM). However, contrary to the representation of respondents, the starboard engine had a weak
acceleration and below the minimum RPM required by MV Ace I.11

Lastly. Respondents presented in evidence "the authorization of MAN regarding the shipment of
four (4) demo units."

We find no fault in the ratiocination of the RTC, to wit:

Had [respondents] complied with its obligation under the warranty, it can be reasonably expected
that [Atienza] would have continued earning in the same manner as its previous trips, which clearly
indicate that it failed to earn during the time it had to stop operations because of engine breakdown.

Because of respondents' failure to replace the unserviceable engine which resulted in cessation of
operations of [Atienza's] vessel, he suffered serious anxiety, sleepless nights, social humiliation and
economic dislocation. He is entitled to moral damages in the amount of P200,000.00.

[Atienza] presented evidence that because of the cessation of the operations of MV Ace I on
September 26, 1994, the company failed to meet its obligations and creditors abandoned it for its
failure to pay its obligations.

The breach of warranty involved in this case does not involve simple negligence on the part of
[respondents]. They presented (Exh. "16"). the authorization of MAN regarding the shipment of four
(4) demo units. To the mind of the Court, this is an indication that it delivered demo units instead of
brand new units to [Atienza]. Coupled by the fact that from the beginning. [Atienza] has complained
[of] the slow acceleration of the starboard engine, the black smoke that it emits and its breakdown.
There being fraud and bad faith on the part of [respondents], the award of moral damages is proper.

Because of [respondents'] unjustifiable refusal to satisfy [Atienza's] valid claim, [Atienza] was
compelled to litigate and incur expenses to protect his interest. [Atienza] was constrained to engage
the services of a counsel for a fee of 20% of all amounts recovered as and for attorney's fees plus
P1,000.00 as appearance fee. In his direct-examination, [Atienza] disclosed that he had already
incurred half a million for his legal expenses (tsn, dated February 23, 1999). The award of
P150,000.00 attorney's fee is therefore proper.12

From all the foregoing circumstances and as found by the trial court, we need not belabor the point.
The bad faith of respondents in refusing to repair and subsequently replace a defective engine which
already underperformed during sea trial and began malfunctioning six (6) months after its
commissioning has been clearly established. Respondents' uncaring attitude towards fixing the
engine which relates to MV Ace I's seaworthiness amounts to bad faith.13 Thus, the RTC's grant of
moral damages, attorney's fees and costs of suit has sufficient basis.

In Nazareno v. City of Dumaguete,14 the Court expounded on the requisite elements for a litigant's
entitlement to moral damages, thus:

Moral damages are awarded if the following elements exist in the case: (1) an injury clearly
sustained by the claimant; (2) a culpable act or omission factually established; (3) a wrongful act or
omission by the defendant as the proximate cause of the injury sustained by the claimant; and (4)
the award of damages predicated on any of the cases stated Article 2219 of the Civil Code. In
addition, the person claiming moral damages must prove the existence of bad faith by clear and
convincing evidence for the law always presumes good faith. It is not enough that one merely
suffered sleepless nights, mental anguish, and serious anxiety as the result of the actuations of the
other party. Invariably such action must be shown to have been willfully done in bad faith or with ill
motive. Bad faith, under the law, does not simply connote bad judgment or negligence. It imports a
dishonest purpose or some moral obliquity and conscious doing of a wrong, a breach of a known
duty through some motive or interest or ill will that partakes of the nature of fraud.15

Undoubtedly, respondents' unjustified denial of Atienza's warranty claim compelled him to litigate.
Under Article 2208 (2) (5) of the Civil Code, attorney's fees and expenses of litigation may be
recovered:

(2) When the defendant's act or omission has compelled the plaintiff to litigate with third persons or
to incur expenses to protect his interest;

xxx
(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiffs
plainly valid, just and demandable claim;

However, as regards the trial court's finding of respondents' solidary liability to Atienza for damages,
we note that the trial court's Decision did not contain a discussion on the solidary liability of
Bartolome with GRESEC. The RTC simply ordered respondents to pay, in solidum, the monetary
awards to Atienza.

Solidary liability cannot be lightly inferred. "There is solidary liability when the obligation expressly
so states, when the law so provides, or when the nature of the obligation so requires. Settled is the
rule that a director or officer shall only be personally liable for the obligations of the corporation, if
the following conditions concur: (1) the complainant alleged in the complaint that the director or
officer assented to patently unlawful acts of the corporation, or that the officer was guilty of gross
negligence or bad faith; and (2) the complainant clearly and convincingly proved such unlawful acts,
negligence or bad faith."16

Basic is the principle that a corporation is vested by law with a personality separate and distinct from
that of each person composing or representing it. Equally fundamental is the general rule that
corporate officers cannot be held personally liable for the consequences of their acts, for as long as
these are for and in behalf of the corporation, within the scope of their authority and in good faith.
The separate corporate personality is a shield against the personal liability of corporate officers,
whose acts are properly attributed to the corporation.17

In Tramat Mercantile v. Court of Appeals,18 we ruled that personal liability of a corporate director,
trustee or officer along (although not necessarily) with the corporation may so validly attach, as a
rule, only when:

1. He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or gross
negligence in directing its affairs, or (c) for conflict of interest, resulting in damages to the
corporation, its stockholders or other persons;

2. He consents to the issuance of watered stocks or who, having knowledge thereof, does not
forthwith file with the corporate secretary his written objection thereto;

3. He agrees to hold himself personally and solidarity liable with the corporation; or

4. He is made, by a specific provision of law, to personally answer for his corporate

action.19 (Emphasis supplied)

Consistent with the foregoing principles, we disagree with the CA's pronouncement absolving
respondent Bartolome from liability to the damages incurred by Atienza. Atienza established
sufficient and specific evidence to show that Bartolome had acted in bad faith or gross negligence in
the sale of the defective vessel engine and the delivery and installation of demo units instead of a
new engine which Atienza paid for.

WHEREFORE, the petition is hereby GRANTED. The May 31, 2012 Decision of the Court of Appeals in
CA-G.R. CV No. 92372 and its January 14, 2013 Resolution are SET ASIDE. The Decision of the
Regional Trial Court, Branch 173, Manila City in Civil Case No. 94-72195 dated August 28, 2008
is REINSTATED. Respondents Golden Ram Engineering Supplies and Equipment Corporation and
Bartolome T. Torres are DECLARED SOLIDARILY LIABLE to petitioner Eduardo Atienza for the
following amounts:

1. Compensatory or actual damages in the form of unrealized income in the total amount of One
Million Six Hundred Thousand Pesos (P1,600,000.00) with legal interest from date of filing of the
Complaint on November 16, 1994;

2. Moral damages in the amount of P200,000.00;

3. Attorney's fees and costs of suit in the amount of P150,000.00; and

4. 6% per annum interest on the total of the monetary awards from the finality of this Decision until
full payment thereof.20

SO ORDERED.

Article 1894 recognizes a situation where one person may appoint a great many agents not
only as of course where their duties relate to different subjects, but also frequently where,
though severally appointed and authorized, their powers and duties may relate to the same
subject; but limit the regulation thereof to the responsibility of the co-agents as against other
parties. The presumption under our Civil Code that obligations are joint in nature unless
solidarity is stipulated extends to co-agents under Art. 1894. Conversely, such presumption of
jointness must likewise extend to the principal’s obligation to compensate the co-agents, unless
otherwise stipulated or proven. Atienza v. TKC Heavy Industries Corporation, G.R. No.
217782. 23 June 2021.
 [ G.R. No. 220785. March 01, 2017 ]

MA. LORENA TICONG, PETITIONER, VS. MANUEL A. MALIM, MINDA ABANGAN AND MAY MACAL,
RESPONDENTS.

[G.R. NO. 222887]

PATROCINIO S. TICONG AND WILMA T. LAO, PETITIONERS, VS. MANUEL A. MALIM, MINDA ABANGAN
AND MAY MACAL, RESPONDENTS.

DECISION
MENDOZA, J.:
Before the Court are these two (2) petitions for review on certiorari under Rule 45 of the Rules of
Court, separately filed by Ma. Lorena Ticong (Ma. Lorena) docketed as G.R. No. 220785, and by
Patrocinio S. Ticong and Wilma Lao (Patrocinio and Wilma), docketed as G.R. No. 222887. These
consolidated petitions assail the May 27, 2015 Decision[1] and the September 23, 2015[2] and January
12, 2016[3] Resolutions of the Court of Appeals, Cagayan de Oro City (CA) in CA-G.R. CV No. 01838-
MIN, which affirmed with modification, the December 3, 2007 Decision[4] of the Regional Trial Court,
Branch 11, Davao City (RTC), ordering the petitioners to pay overprice commission to the
respondents.

The Antecedents

These consolidated cases originated from a complaint filed before the RTC for collection of sum of
money, damages and attorney's fees by Manuel A. Malim (Malim), Minda Abangan (Abangan) and
May Macal (Macal) against Lorenzo Ticong, Patrocinio Ticong and Wilma Ticong Lao (Ticongs). The
complaint alleged that Malim was a realty broker/dealer while Abangan and Macal were his
associates; that the Ticongs were the registered owners of several parcels of land located in Digos,
Davao del Sur, covered by Transfer Certificate of Title (TCT) Nos. T-11244, T-11246, T-18686, and T-
18687, with a total area of 5,000 square meters (subject properties); that on February 5, 2000,
Malim, presenting himself as the authorized representative of the Ticongs, sent a letter of "formal
intent to sell" to Jainus C. Perez (Perez), the real estate field supervisor of the Church of Jesus Christ
of Latter-Day Saints (Buyer), offering to sell the subject properties for P2,000.00 per square meter;
and that below Malim's signature were inscribed the words, "NOTED/CONFORMED" with the
signature of Lorenzo Ticong above "Lorenzo Ticong, Lot Owner."[5]

Malim, Abangan and Macal (Malim, et al.) further averred that on February 11, 2000, they signed the
Memorandum of Agreement (MOA) authorizing them to "look, negotiate, and sell to any prospective
buyer" for their properties on a commission basis; that they were also authorized by the Ticongs to
charge an "overprice" on top of the P900.00 per square meter price; that the subject properties were
eventually sold at P1,460.00 per square meter or for the total amount of P7,300,000.00; that the sale
was made possible due to their efforts which should entitle them to an overprice commission of
P2,800,000.00 based on the P560.00 per square meter overprice; and that the Ticongs, however,
paid them only P50,000.00 and refused to pay the remaining balance despite demands.[6]
The Ticongs, on the other hand, stressed that Malim, et al. were not entitled to the overprice
commission; that the MOA was crafted and solely prepared by Malim, et al. and that they signed the
same without comprehending the salient aspects thereof due to their limited education; that the
sale of their properties prospered through their own active, direct and personal efforts and was
eventually attained when they sued the Buyer; and that Malim, et al. had received not only the
amount of P50,000.00 but a total of P225,000.00. The Ticongs denied that Malim, et al. offered to
sell their properties to the Buyer. They pointed out that Malim, et al. were not even licensed realty
brokers and considering the questionable and anomalous nature of the MOA, the provision therein
with respect to the overprice commission and 5% finders' fee were not valid, binding and
enforceable against them.[7]

The Ruling of the RTC

On December 3, 2007, the RTC rendered a decision upholding the validity of the MOA as the parties'
expression of their intention to enter into a real estate brokerage. It debunked the Ticongs' allegation
of fraud in signing the MOA for want of sufficient proof. Lastly, the RTC stressed that it was through
the efforts of Malim, et al. that the Ticongs and the Buyer had come together for the finalization of
the sale. Thus, it disposed:

WHEREFORE, in view of the foregoing, the plaintiffs being authorized agent/broker of the defendants
by virtue of the Memorandum of Agreement executed by them, judgment is hereby rendered in
favor of the plaintiffs ordering the defendants:

1. To pay the plaintiffs jointly and solidarity the sum of P2,750,000.00 with interest from
April 2001 until fully paid representing the plaintiffs' commission;

2. To pay the plaintiffs the sum of P100,000.00 as attorney's fees.

Moral and exemplary damages will not be awarded because plaintiffs failed to substantiate their
claim.

SO ORDERED.[8]

Not in conformity with the RTC decision, the Ticongs appealed it before the CA.

The Ruling of the CA

In its assailed May 27, 2015 Decision, the CA denied the appeal. In upholding the judgment of the
RTC, the CA wrote:

1] The claim of the Ticongs that Malim, et al. were not licensed realty brokers did not result in the
nullification or invalidation of the MOA, citing the case of Moldex Realty, Inc. v. Saberon[9] which
declared sale transactions by those who lacked certificates of registration and licenses to sell as
valid.

2] Malim, et al. were entitled to their commission because they were the procuring cause of the
sale of the subject properties to the Buyer and, without their intervention, the sale would not
have been consummated.
3] A perusal of the MOA revealed that Malim, et al. were entitled to the overprice of P560.00 per
square meter on top of the Ticongs' selling price of P900.00 per square meter or for a total
amount of P2,800,000.00.

4] The award of attorney's fees by the RTC had no factual and legal basis and, hence, must be
deleted.

Thus, the CA decreed:

WHEREFORE, the appeal is DENIED. The December 3, 2007 Decision of the Regional Trial Court (RTC),
Branch 11, 11th Judicial Region, Davao City, in Civil Case No. 29,620-2003 is AFFIRMED with the
MODIFICATION that the award of attorney's fees is DELETED.

SO ORDERED.[10]

Ma. Lorena, as one of the children and heirs of Lorenzo Ticong,[11] filed a motion for reconsideration
which was denied by the CA on September 23, 2015. Patrocinio and Wilma also moved for the
reconsideration of the said decision, but their separate motion was denied by the CA in its assailed
January 12, 2016 Resolution.

G.R. No. 220785

Undaunted, Ma. Lorena seasonably filed the present petition anchored on the following

GROUND

THE HONORABLE COURT OF APPEALS VIOLATED THE ESTABLISHED LAW AND JURISPRUDENCE ON
AGENCY IN AFFIRMING THE TRIAL COURT'S FINDING THAT RESPONDENTS ARE THE EFFICIENT
PROCURING CAUSE IN BRINGING ABOUT THE CONSUMMATION OF THE SALE BETWEEN THE
TICONGS AND THE CHURCH THEREBY ENTITLING THEM TO THE PAYMENT OF THE OVERPRICE. [12]

In its January 20, 2016 Resolution,[13] the Court denied the petition for failure to sufficiently show any
reversible error in the assailed judgment to warrant the exercise by this Court of its discretionary
appellate jurisdiction.

Ma. Lorena then filed her manifestation and motion for reconsideration of the January 20, 2016
Resolution which denied her petition. The said motion was granted and her petition was reinstated
in the Court's Resolution[14] dated June 8, 2016.

G.R. No. 222887

Patrocinio and Wilma, on the other hand, cited the following

GROUNDS

1. THE HONORABLE COURT OF APPEALS GRAVELY ERRED AND GRAVELY ABUSED ITS
DISCRETION IN AFFIRMING THE DECISION OF THE REGIONAL TRIAL COURT AWARDING
RESPONDENTS THE AMOUNT OF P2.8 MILLION AS COMMISSION/OVERPRICE FOR THE
F7.3 MILLION SALE OF THE 5,000 SQUARE METER LOT OF THE TICONGS TO THE
MORMONS.
 2. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN IGNORING THE UNDISPUTED
FACTS OF THE CASE AND THE CLEAR PROVISIONS OF THE MEMORANDUM OF
AGREEMENT BETWEEN THE TICONGS AND THE RESPONDENTS WHICH IF CONSIDERED
WOULD ALTER AND REVERSE THE ASSAILED DECISION.[15]
On February 22, 2017, the Court ordered the consolidation of these two petitions.

Thus, the issues raised by the petitioners can be reduced to a single pivotal question - whether
respondents Malim, et al. were entitled to the payment of their brokers' overprice commission for
being the procuring cause of the sale.

Petitioner Ma. Lorena argues that the CA committed serious and reversible error when it summarily
ignored the evidence presented by the Ticongs substantiating their claim that Malim, et al. were not
the efficient procuring cause in the consummation of the sale. She stated that although it was
admitted that the respondents were the ones who introduced and brought the parties together for
negotiations, their meager efforts did not contribute to the conclusion of the transaction. She
reiterates that it was Wilma who followed up with the representative of the Buyer as regards its
decision in buying the properties; but the Buyer replied that it would no longer push through with
the purchase of the lots because the results of the soil test and survey showed that developing the
land would entail a high cost. Thus, the Ticongs were forced to file a complaint for specific
performance which was eventually settled by the parties. She avers that the institution of the civil
action for specific performance against the Buyer constituted a break in the continuity of the series
of events which the respondents had initially set in motion.

Considering that the respondents were not the efficient procuring cause of the final sale, the
petitioners insist that they were not entitled to the overprice commission mistakenly awarded by the
CA, but only to the 5% Broker's Finders Fee as stipulated in the MOA. Even granting, according to
Patrocinio and Wilma, that the respondents were entitled to receive the overprice commission, the
amount awarded was unconscionable, considering that they were not even licensed brokers.

The respondents counter that they were the ones who caused the sale of the subject property.
Documentary evidence such as the letter of intent, dated February 5, 2000, signed by Malim with the
conformity of Lorenzo Ticong, addressed to Perez, the representative of Buyer; the letter of the
Ticongs sent to Perez stating that their "official and registered broker is M.A.M. & Associates &
Brokerage and no other authorized agents" and the acknowledgment receipt, dated March 30, 2001,
showing the Ticongs' payment of P50,000.00 to the respondents as "partial payment to commission,"
were proof that the Ticongs recognized them as the procuring cause of the sale. Lastly, the
respondents underscored that they were entitled to the overprice based on the clear import of the
valid MOA executed by the parties. They also claim that the petition, docketed as G.R. No. 222887,
was filed without proper verification and certification of non-forum shopping.[16]

The Court's Ruling

The Court sees no cogent reason to grant the consolidated petitions.

Preliminarily, the Court cannot overemphasize the principle that in petitions for review
on certiorari under Rule 45 of the Rules of Court, only questions of law may be put into issue.
Questions of fact are not cognizable by this Court.[17] Notably, the issues raised by the petitioner in
this case, such as whether the respondents were the procuring cause of the sale which entitled them
to the broker's overprice commission, are factual in nature as they would require this Court to delve
into the records of the case and review the evidence presented by the parties in order to properly
resolve the dispute.

It is also worth emphasizing that, based on the records, the petition in G.R. No. 222887 was filed out
of time. Further, as noted by the respondents, the petition contained a defective Verification and
Certification of Non-Forum Shopping as it was verified and notarized on February 6, 2016 or nine (9)
days ahead of the petition, dated February 15, 2016. The petition, thus, failed to comply with the
jurisdictional requirements under the Rules.

Nevertheless, even if the Court would gloss over these defects, the petitions must still fail.

The Court is in complete accord with the RTC and the CA in concluding that the respondents were
the procuring cause of the sale. At the very least, the respondents were able to bring together the
Ticongs and the Buyer to negotiate and lay the groundwork for a sale transaction.

The term "procuring cause," in describing a broker's activity, refers to a cause originating a series of
events which, without break in their continuity, results in the accomplishment of the prime objective
of employing the broker - to produce a purchaser ready, willing and able to buy real estate on the
owner's terms.[18] To be regarded as the procuring cause of a sale, a broker's efforts must have been
the foundation of the negotiations which subsequently resulted in a sale.[19] "The broker must be the
efficient agent or the procuring cause of the sale. The means employed by him and his efforts must
result in the sale. He must find the purchaser, and the sale must proceed from his efforts acting as
broker."[20]

In this case, the role of the respondents in the successful consummation of the sale transaction is
undisputed. Indeed, the evidence on record shows that the respondents were instrumental in the
sale of the properties of the Ticongs. Without their intervention, no sale would have been
consummated. They were the ones who set the sale of the said lots in motion. If not for the
respondents, the Buyer would not have known about the lots being sold by the Ticongs. As correctly
observed by the CA, the respondents were the procuring cause of the sale as shown by the following:
a) on February 5, 2000, Malim, with the conformity of Lorenzo Ticong, sent a formal letter of intent
informing the representative of the Buyer regarding the availability for sale of the Ticongs'
properties; b) in a letter, dated April 15, 2000, the Ticongs expressly recognized the respondents as
their sole agents and middlemen with respect to the sale transaction and that the latter were in
constant communication with the Buyer and the Ticongs; c) Javier Alvero, an employee of the
Ticongs, testified that the respondents were the agents who negotiated the sale of the subject lots
with the Buyer; d) the Ticongs gave the respondents P50,000.00 as partial payment of their
commission as stated in the acknowledgment receipt, dated March 30, 2001, which implied that they
recognized the respondents as the procuring cause of the sale; and e) the testimony of Malim clearly
proved the efforts exerted by the respondents to bring about the consummation of the sale through
constant follow-ups with the Buyer by letters and telephone calls.[21]

All these circumstances led the Court to conclude that the respondents' actions indeed constituted
the procuring cause of the sale. When there is a close, proximate and causal connection between the
agent's efforts and the sale of the property, the agents are entitled to their commission.[22]

On the issue of whether the respondents are entitled to the overprice commission or to the 5%
finders' fee only, the Court finds that the CA correctly upheld the award of P2.8 million as overprice
commission in favor of the respondents.

The pertinent provisions of the MOA, paragraphs 3, 4 and 5, read:

THAT, the First Party decided to sell the above lots for a net of NINE HUNDRED PESOS (P900.00) PER
SQUARE METER to the Second Party, provided, that the SECOND PARTY shall take care/shoulder all
the expenses related to the sale of the above properties, such as Capital Gains Tax, Documentary
Stamps, Commissions, legal expenses and notarizations;

THAT, the SECOND PARTY is authorized to make an OVERPRICE at top of the P900.00/sq. meter as
our net asking price; that the FIRST PARTY, hereby Authorize the SECOND PARTY to look, negotiate,
and sell to any prospective buyer/buyers to the above lots;

THAT, both parties agree that this MEMORANDUM OF AGREEMENT/AUTHORITY TO SALE is good for
90 days only and may be renewed, however, even this authority LAPSE but the same registered buyer
able to buy the above(any) property/properties mentioned above, the SECOND PARTY shall still be
entitle for whatever OVERPRICE at top of P900.00/Sq.Meter; that the FIRST PARTY
agrees/commit/bind themselves to observe the terms and conditions set on paragraph 3 & 4,
otherwise, failure on their part to observe paragraph 3 & 4, the SECOND PARTY shall automatically be
entitled for a FIVE(s) PERCENT COMMISSION as Broker's Finders Fee based on the P900.00/Sq.M. and
that all expenses shall be shouldered by the Buyer and Seller.[23] [Emphasis supplied]

Under the said provisions, the respondents, as the Second Party, were entitled to a 5% commission if
they themselves bought the property for P900.00 per square meter or had sold it to a third party for
the exact amount of P900.00 per square meter. In this case, however, the respondents sold the
property to a third party, the Buyer, for a higher price. The respondents were, thus, entitled to the
overprice amount as commission. Given the sale of the subject lots at P1,460.00 per square meter,
the over price was P560.00 per square meter or a total of P2,800,000.00 (P560.00 multiplied by
5,000 square meters). From this amount, however, the amounts[24] paid by the Ticongs to the
respondents should be deducted, which the RTC can determine in a summary hearing in the
execution stage.

Basic is the principle that a contract (the MOA in this case) is the law between the parties, and its
stipulations are binding on them, unless the contract is contrary to law, morals, good customs, public
order or public policy.[25] The Ticongs, having freely and willingly entered into a contract by executing
the MOA, cannot renege on their obligation to pay the overprice commission on the flimsy excuse
that the respondents were not licensed brokers who did not spend much money in partially
negotiating with the Buyer.

Accordingly, the Court finds no reversible error in the findings of the CA and the RTC that the Ticongs
were liable to pay the overprice commission to the respondents pursuant to the MOA. The Court is
bound by such factual findings in the absence of any compelling reason to reverse the same.

Anent the claim for attorney's fees, the CA properly deleted the award, there being no basis for such
claim.

All awards shall earn interest of 12% per annum from April 2001 until June 30, 2013, and interest of
6% per annum from July 1, 2013 until its full satisfaction.
WHEREFORE, the consolidated petitions are DENIED. Accordingly, the May 27, 2015 Decision of the
Court of Appeals, Cagayan de Oro City and its September 23, 2015 and January 12, 2016 Resolutions
in CA-G.R. CV No. 01838-MIN, are AFFIRMED, without prejudice to the deduction of the amount
already paid by the Ticongs.

SO ORDERED.
TICONG VS MALIM

Malim et al were brokers engaged by the Ticongs to sell a land at a net price of 900/sqm to be
overpriced by them andthat under the MOA, they are entitled to commission amounting to the
overprice above 900—2.8 M.

The Malims found the Perez and introduced the parties and gave then the letter of intent of the
Ticongs..

The Perez expressed that they are not willing anymore to buy the property. Because of this, the
Ticongs had to file for specific performance. Eventually, the land was sold for 7._ M. the Malims were
given a partial fee of 50 000.

The Malims are claiming for their commission based on the overprice. The Ticongs were refusing to
give the commission alleging that the Malims were not the procuring cause for the sale since it was
the Ticongs efforts which consummated the sale through the action for specific performance and are
entitled only to 5% finders fee. On the other hand, the Malims contend to be the procuring cause of
the sale.

WON the Malims were the procuring cause of the sale

YES, the Malims were the procuring cause. To be regarded as the procuring cause of a sale, a broker’s
efforts must have been the foundation of the negotiations which subsequently resulted in a sale. The
means employed by him and his efforts must result in the sale. He must find a purchaser and the sale
must proceed form his efforts acting as a broker. In the case at bar, the FF are proof that the Malims
were indeed the procuring cause

1. The letter of intent given by Malim to the Perez were with Lorenzo Ticong’s conformity;
2. Ticong expressly recognized respondents as their sole agents and middlemen; and that they
were the one in constant communication with the buyer
3. Alvero, employee of the Ticongs, testified that the respondents were agents which
negotiated the sale with the Buyer
4. Ticongs gave 50K as partial payment which thereby impliedly recognized that the parties
were the procuring cause of the sale
5. That it was indeed the respondents’ efforts through letters and telephone calls which
brought about the consummation of the sale.

When there is a close proximate and causal connection between the agent’s efforts and the sae pf
the property, the agents are entitled to their commission

On the issue of the 5% finder’s fee, it is inferred from the MOA that the 5% was for when they sold
the lot for 900 exactly. The land was overpriced by the Malims and they are entitled to commission
based on such overprice.

1. “Procuring case” – is the cause originating a series of events which, without break in their
continuity, result in accomplishment of prime object of the employment of the broker—
produce a purchaser who is ready, willing, and able to buy real estate on the owner’s terms.
The broker’s efforts must be the foundation on which the negotiations resulting in a sale are
begun.
Broker’s job – earns his pay by merely bringing the buyer and the seller together, even if no sale is
eventually made. They only have to procure a buyer who us able, and willing to buy the property. It
is not a prerequisite to the right to compensation that the broker conduct negotiations.
 ISSUE: (1) WON Malim et al. were entitled to the payment of their brokers’ overprice
commission for being the procuring
cause of the sale. YES

1. Respondents were the procuring cause of the sale. At the very least, the respondents were
able to bring the Ticongs and the buyer to negotiate and lay the groundwork for a sale
transaction.
2. Evidence:
a. Buyer wouldn’t have known about the property without Malim et al.
b. Malim sent a formal letter of intent to the buyer, with the consent of Ticong
c. Ticongs expressly recognized Malim et al. as their representative and middlemen
d. Ticongs gave the respondents partial
payment in the amount of 50k

3. MOA is binding upon the parties. Ticongs freely and willingly entered into the contract, they
cannot renege on their obligation to pay.