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1 G.R. No. 95703 August 3, 1992 RURAL BANK OF BOMBON (CAMARINES SUR), INC., petitioner, vs. HON.

COURT OF APPEALS, EDERLINDA M. GALLARDO, DANIEL MANZO and RUFINO S. AQUINO,respondents. L.M. Maggay & Associates for petitioner.

GRIO-AQUINO, J.: This petition for review seeks reversal of the decision dated September 18, 1990 of the Court of Appeals, reversing the decision of the Regional Trial Court of Makati, Branch 150, which dismissed the private respondents' complaint and awarded damages to the petitioner, Rural Bank of Bombon. On January 12, 1981, Ederlinda M. Gallardo, married to Daniel Manzo, executed a special power of attorney in favor of Rufina S. Aquino authorizing him: 1. To secure a loan from any bank or lending institution for any amount or otherwise mortgage the property covered by Transfer Certificate of Title No. S-79238 situated at Las Pias, Rizal, the same being my paraphernal property, and in that connection, to sign, or execute any deed of mortgage and sign other document requisite and necessary in securing said loan and to receive the proceeds thereof in cash or in check and to sign the receipt therefor and thereafter endorse the check representing the proceeds of loan. (p. 10, Rollo.) Thereupon, Gallardo delivered to Aquino both the special power of attorney and her owner's copy of Transfer Certificate of Title No. S-79238 (19963-A). On August 26, 1981, a Deed of Real Estate Mortgage was executed by Rufino S. Aquino in favor of the Rural Bank of Bombon (Camarines Sur), Inc. (hereafter, defendant Rural Bank) over the three parcels of land covered by TCT No. S-79238. The deed stated that the property was being given as security for the payment of "certain loans, advances, or other accommodations obtained by the mortgagor from the mortgagee in the total sum of Three Hundred Fifty Thousand Pesos only (P350,000.00), plus interest at the rate of fourteen (14%) per annum . . ." (p. 11, Rollo). On January 6, 1984, the spouses Ederlinda Gallardo and Daniel Manzo filed an action against Rufino Aquino and the Bank because Aquino allegedly left his residence at San Pascual, Hagonoy, Bulacan, and transferred to an unknown place in Bicol. She discovered that Aquino first resided at Sta. Isabel, Calabanga, Camarines Sur, and then later, at San Vicente, Calabanga, Camarines Sur, and that they (plaintiffs) were

2 allegedly surprised to discover that the property was mortgaged to pay personal loans obtained by Aquino from the Bank solely for personal use and benefit of Aquino; that the mortgagor in the deed was defendant Aquino instead of plaintiff Gallardo whose address up to now is Manuyo, Las Pias, M.M., per the title (TCT No. S-79238) and in the deed vesting power of attorney to Aquino; that correspondence relative to the mortgage was sent to Aquino's address at "Sta. Isabel, Calabanga, Camarines Sur" instead of Gallardo's postal address at Las Pias, Metro Manila; and that defendant Aquino, in the real estate mortgage, appointed defendant Rural Bank as attorney in fact, and in case of judicial foreclosure as receiver with corresponding power to sell and that although without any express authority from Gallardo, defendant Aquino waived Gallardo's rights under Section 12, Rule 39, of the Rules of Court and the proper venue of the foreclosure suit. On January 23, 1984, the trial court, thru the Honorable Fernando P. Agdamag, temporarily restrained the Rural Bank "from enforcing the real estate mortgage and from foreclosing it either judicially or extrajudicially until further orders from the court" (p.36, Rollo). Rufino S. Aquino in his answer said that the plaintiff authorized him to mortgage her property to a bank so that he could use the proceeds to liquidate her obligation of P350,000 to him. The obligation to pay the Rural Bank devolved on Gallardo. Of late, however, she asked him to pay the Bank but defendant Aquino set terms and conditions which plaintiff did not agree to. Aquino asked for payment to him of moral damages in the sum of P50,000 and lawyer's fees of P35,000. The Bank moved to dismiss the complaint and filed counter-claims for litigation expenses, exemplary damages, and attorney's fees. It also filed a crossclaim against Aquino for P350,000 with interest, other bank charges and damages if the mortgage be declared unauthorized. Meanwhile, on August 30, 1984, the Bank filed a complaint against Ederlinda Gallardo and Rufino Aquino for "Foreclosure of Mortgage" docketed as Civil Case No. 8330 in Branch 141, RTC Makati. On motion of the plaintiff, the foreclosure case and the annulment case (Civil Case No. 6062) were consolidated. On January 16, 1986, the trial court rendered a summary judgment in Civil Case No. 6062, dismissing the complaint for annulment of mortgage and declaring the Rural Bank entitled to damages the amount of which will be determined in appropriate proceedings. The court lifted the writ of preliminary injunction it previously issued. On April 23, 1986, the trial court, in Civil Case No. 8330, issued an order suspending the foreclosure proceedings until after the decision in the annulment case (Civil Case No. 6062) shall have become final and executory.

3 The plaintiff in Civil Case No. 6062 appealed to the Court of Appeals, which on September 18, 1990, reversed the trial court. The dispositive portion of the decision reads: UPON ALL THESE, the summary judgment entered by the lower court is hereby REVERSED and in lieu thereof, judgment is hereby RENDERED, declaring the deed of real estate mortgage dated August 26, 1981, executed between Rufino S. Aquino with the marital consent of his wife Bibiana Aquino with the appellee Rural Bank of Bombon, Camarines Sur, unauthorized, void and unenforceable against plaintiff Ederlinda Gallardo; ordering the reinstatement of the preliminary injunction issued at the onset of the case and at the same time, ordering said injunction made permanent. Appellee Rural Bank to pay the costs. (p. 46, Rollo.) Hence, this petition for review by the Rural Bank of Bombon, Camarines Sur, alleging that the Court of Appeals erred: 1. in declaring that the Deed of Real Estate Mortgage was unauthorized, void, and unenforceable against the private respondent Ederlinda Gallardo; and 2. in not upholding the validity of the Real Estate Mortgage executed by Rufino S. Aquino as attorney-in-fact for Gallardo, in favor of the Rural Bank of Bombon, (Cam. Sur), Inc. Both assignments of error boil down to the lone issue of the validity of the Deed of Real Estate Mortgage dated August 26, 1981, executed by Rufino S. Aquino, as attorney-infact of Ederlinda Gallardo, in favor of the Rural Bank of Bombon (Cam. Sur), Inc. The Rural Bank contends that the real estate mortgage executed by respondent Aquino is valid because he was expressly authorized by Gallardo to mortgage her property under the special power of attorney she made in his favor which was duly registered and annotated on Gallardo's title. Since the Special Power of Attorney did not specify or indicate that the loan would be for Gallardo's benefit, then it could be for the use and benefit of the attorney-in-fact, Aquino. However, the Court of Appeals ruled otherwise. It held: The Special Power of Attorney above quoted shows the extent of authority given by the plaintiff to defendant Aquino. But defendant Aquino in executing the deed of Real Estate Mortgage in favor of the rural bank over the three parcels of land covered by Gallardo's title named himself as the mortgagor without stating that his signature on the deed was for and in behalf of Ederlinda Gallardo in his capacity as her attorney-in-fact.

4 At the beginning of the deed mention was made of "attorney-in-fact of Ederlinda H. Gallardo," thus: " (T)his MORTGAGE executed by Rufino S. Aquino attorney in fact of Ederlinda H. Gallardo, of legal age, Filipino, married to Bibiana Panganiban with postal address at Sta. Isabel . . .," but which of itself, was merely descriptive of the person of defendant Aquino. Defendant Aquino even signed it plainly as mortgagor with the marital consent yet of his wife Bibiana P. Aquino who signed the deed as "wife of mortgagor." xxx xxx xxx The three (3) promissory notes respectively dated August 31, 1981, September 23, 1981 and October 26, 1981, were each signed by Rufino Aquino on top of a line beneath which is written "signature of mortgagor" and by Bibiana P. Aquino on top of a line under which is written "signature of spouse," without any mention that execution thereof was for and in behalf of the plaintiff as mortgagor. It results, borne out from what were written on the deed, that the amounts were the personal loans of defendant Aquino. As pointed out by the appellant, Aquino's wife has not been appointed co-agent of defendant Aquino and her signature on the deed and on the promissory notes can only mean that the obligation was personally incurred by them and for their own personal account. The deed of mortgage stipulated that the amount obtained from the loans shall be used or applied only for "fishpond (bangus and sugpo production)." As pointed out by the plaintiff, the defendant Rural Bank in its Answer had not categorically denied the allegation in the complaint that defendant Aquino in the deed of mortgage was the intended user and beneficiary of the loans and not the plaintiff. And the special power of attorney could not be stretched to include the authority to obtain a loan in said defendant Aquino's own benefit. (pp. 40-41, Rollo.) The decision of the Court of Appeals is correct. This case is governed by the general rule in the law of agency which this Court, applied in "Philippine Sugar Estates Development Co. vs. Poizat," 48 Phil. 536, 538: 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. Neither is it ordinarily sufficient that in the mortgage the agent describes himself as acting by virtue of a power of attorney, if in fact the agent has acted in his own name and has set his own hand and seal to the mortgage. This is especially true where the agent himself is a party to the instrument. However clearly the body of the mortgage may

5 show and intend that it shall be the act of the principal, yet, unless in fact it is executed by the agent for and on behalf of his principal and as the act and deed of the principal, it is not valid as to the principal. In view of this rule, Aquino's act of signing the Deed of Real Estate Mortgage in his name alone as mortgagor, without any indication that he was signing for and in behalf of the property owner, Ederlinda Gallardo, bound himself alone in his personal capacity as a debtor of the petitioner Bank and not as the agent or attorney-in-fact of Gallardo. The Court of Appeals further observed: It will also be observed that the deed of mortgage was executed on August 26, 1981 therein clearly stipulating that it was being executed "as security for the payment of certain loans, advances or other accommodation obtained by the Mortgagor from the Mortgagee in the total sum of Three Hundred Fifty Thousand Pesos only (P350,000.00)" although at the time no such loan or advance had been obtained. The promissory notes were dated August 31, September 23 and October 26, 1981 which were subsequent to the execution of the deed of mortgage. The appellant is correct in claiming that the defendant Rural Bank should not have agreed to extend or constitute the mortgage on the properties of Gallardo who had no existing indebtedness with it at the time. Under the facts the defendant Rural Bank appeared to have ignored the representative capacity of Aquino and dealt with him and his wife in their personal capacities. Said appellee Rural Bank also did not conduct an inquiry on whether the subject loans were to benefit the interest of the principal (plaintiff Gallardo) rather than that of the agent although the deed of mortgage was explicit that the loan was for purpose of the bangus and sugpo production of defendant Aquino. In effect, with the execution of the mortgage under the circumstances and assuming it to be valid but because the loan taken was to be used exclusively for Aquino's business in the "bangus" and "sugpo" production, Gallardo in effect becomes a surety who is made primarily answerable for loans taken by Aquino in his personal capacity in the event Aquino defaults in such payment. Under Art. 1878 of the Civil Code, to obligate the principal as a guarantor or surety, a special power of attorney is required. No such special power of attorney for Gallardo to be a surety of Aquino had been executed. (pp. 42-43, Rollo.) Petitioner claims that the Deed of Real Estate Mortgage is enforceable against Gallardo since it was executed in accordance with Article 1883 which provides: Art. 1883. If an agent acts in his own name, the principal has no right of action against the persons with whom the agent has contracted; neither have such persons against the principal.

6 In such case the agent is the one directly bound in favor of the person with whom he has contracted, as if the transaction were his own, except when the contract involves things belonging to the principal. The above provision of the Civil Code relied upon by the petitioner Bank, is not applicable to the case at bar. Herein respondent Aquino acted purportedly as an agent of Gallardo, but actually acted in his personal capacity. Involved herein are properties titled in the name of respondent Gallardo against which the Bank proposes to foreclose the mortgage constituted by an agent (Aquino) acting in his personal capacity. Under these circumstances, we hold, as we did in Philippine Sugar Estates Development Co. vs. Poizat, supra, that Gallardo's property is not liable on the real estate mortgage: There is no principle of law by which a person can become liable on a real mortgage which she never executed either in person or by attorney in fact. It should be noted that this is a mortgage upon real property, the title to which cannot be divested except by sale on execution or the formalities of a will or deed. For such reasons, the law requires that a power of attorney to mortgage or sell real property should be executed with all of the formalities required in a deed. For the same reason that the personal signature of Poizat, standing alone, would not convey the title of his wife in her own real property, such a signature would not bind her as a mortgagor in real property, the title to which was in her name. (p. 548.) WHEREFORE, finding no reversible error in the decision of the Court of Appeals, we AFFIRM it in toto. Costs against the petitioner. SO ORDERED.

7 G.R. No. L-17160 November 29, 1965

PHILIPPINE PRODUCTS COMPANY, plaintiff-appellant, vs. PRIMATERIA SOCIETE ANONYME POUR LE COMMERCE EXTERIEUR: PRIMATERIA (PHILIPPINES) INC., ALEXANDER G. BAYLIN and JOSE M. CRAME, defendants-appellees. Jose A. Javier Ibarra and Papa for defendants-appellees. BENGZON, C.J.: This is an action to recover from defendants, the sum of P33,009.71 with interest and attorney's fees of P8,000.00. Defendant Primateria Societe Anonyme Pour Le Commerce Exterieur (hereinafter referred to as Primateria Zurich) is a foreign juridical entity and, at the time of the transactions involved herein, had its main office at Zurich, Switzerland. It was then engaged in "Transactions in international trade with agricultural products, particularly in oils, fats and oil-seeds and related products." The record shows that: On October 24, 1951, Primateria Zurich, through defendant Alexander B. Baylin, entered into an agreement with plaintiff Philippine Products Company, whereby the latter undertook to buy copra in the Philippines for the account of Primateria Zurich, during "a tentative experimental period of one month from date." The contract was renewed by mutual agreement of the parties to cover an extended period up to February 24, 1952, later extended to 1953. During such period, plaintiff caused the shipment of copra to foreign countries, pursuant to instructions from defendant Primateria Zurich, thru Primateria (Phil.) Inc. referred to hereafter as Primateria Philippines acting by defendant Alexander G. Baylin and Jose M. Crame, officers of said corporation. As a result, the total amount due to the plaintiff as of May 30, 1955, was P33,009.71. At the trial, before the Manila court of first instance, it was proven that the amount due from defendant Primateria Zurich, on account of the various shipments of copra, was P31,009.71, because it had paid P2,000.00 of the original claim of plaintiff. There is no dispute about accounting. And there is no question that Alexander G. Baylin and Primateria Philippines acted as the duly authorized agents of Primateria Zurich in the Philippines. As far as the record discloses, Baylin acted indiscriminately in these transactions in the dual capacities of agent of the Zurich firm and executive vice-president of Primateria Philippines, which for plaintiff-appellant.

8 also acted as agent of Primateria Zurich. It is likewise undisputed that Primateria Zurich had no license to transact business in the Philippines. For failure to file an answer within the reglementary period, defendant Primateria Zurich was declared in default. After trial, judgment was rendered by the lower court holding defendant Primateria Zurich liable to the plaintiff for the sums of P31,009.71, with legal interest from the date of the filing of the complaint, and P2,000.00 as and for attorney's fees; and absolving defendants Primateria (Phil.), Inc., Alexander G. Baylin, and Jose M. Crame from any and all liability. Plaintiff appealed from that portion of the judgment dismissing its complaint as regards the three defendants. It is plaintiff's theory that Primateria Zurich is a foreign corporation within the meaning of Sections 68 and 69 of the Corporation Law, and since it has transacted business in the Philippines without the necessary license, as required by said provisions, its agents here are personally liable for contracts made in its behalf. Section 68 of the Corporation Law states: "No foreign corporation or corporation formed, organized, or existing under any laws other than those of the Philippines shall be permitted to transact business in the Philippines, until after it shall have obtained a license for that purpose from the Securities and Exchange Commission .. ." And under Section 69, "any officer or agent of the corporation or any person transacting business for any foreign corporation not having the license prescribed shall be punished by imprisonment for etc. ... ." The issues which have to be determined, therefore, are the following: 1. Whether defendant Primateria Zurich may be considered a foreign corporation within the meaning of Sections 68 and 69 of the Corporation Law; 2. Assuming said entity to be a foreign corporation, whether it may be considered as having transacted business in the Philippines within the meaning of said sections; and 3. If so, whether its agents may be held personally liable on contracts made in the name of the entity with third persons in the Philippines. The lower court ruled that the Primateria Zurich was not duly proven to be a foreign corporation; nor that a societe anonyme ("sociedad anomima") is a corporation; and that failing such proof, the societe cannot be deemed to fall within the prescription of Section 68 of the Corporation Law. We agree with the said court's conclusion. In fact, our corporation law recognized the difference between sociedades anonimas and corporations.

9 At any rate, we do not see how the plaintiff could recover from both the principal (Primateria Zurich) and its agents. It has been given judgment against the principal for the whole amount. It asked for such judgment, and did not appeal from it. It clearly stated that its appeal concerned the other three defendants. But plaintiff alleges that the appellees as agents of Primateria Zurich are liable to it under Art. 1897 of the New Civil Code which reads as follows: Art. 1897. The agent who acts as such is not personally liable to the party with whom he contracts, unless he expressly binds himself or exceeds the limits of his authority without giving such party sufficient notice of his powers. But there is no proof that, as agents, they exceeded the limits of their authority. In fact, the principal Primateria Zurich who should be the one to raise the point, never raised it, denied its liability on the ground of excess of authority. At any rate, the article does not hold that in cases of excess of authority, both the agent and the principal are liable to the other contracting party. This view of the cause dispenses with the necessity of deciding the other two issues, namely: whether the agent of a foreign corporation doing business, but not licensed here is personally liable for contracts made by him in the name of such corporation.1 Although, the solution should not be difficult, since we already held that such foreign corporation may be sued here (General Corporation vs. Union Ins., 87 Phil. 509). And obviously, liability of the agent is necessarily premised on the inability to sue the principal or non-liability of such principal. In the absence of express legislation, of course. IN VIEW OF THE FOREGOING CONSIDERATIONS, the appealed judgment is affirmed, with costs against appellant. Bautista Angelo, Concepcion, Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon, J.P., and Zaldivar, JJ., concur. Barrera, J., took no part.

10

G.R. No. 16492

March 9, 1922

E. MACIAS & CO., importers and exporters, plaintiff-appellant, vs. WARNER, BARNES & CO., in its capacity as agents of "The China Fire Insurance Co.," of "The Yang-Tsze" and of "The State Assurance Co., Ltd.," defendantappellant. Ramon Sotelo Cohn, Fisher & DeWitt for defendant-appellant. STATEMENT The plaintiff is a corporation duly registered and domiciled in Manila. The defendant is a corporation duly licensed to do business in the Philippine Islands, and is the resident agent of insurance companies "The China Fire Insurance Company, Limited, of Hongkong," "The Yang-Tsze Insurance Association Limited, of Shanghai," and "The State Assurance Company, Limited, of Liverpool. The plaintiff is an importer of textures and commercial articles for wholesale. In the ordinary course of business, it applied for, and obtained, the following policies against loss by fire: Policy No. 4143, issued by The China Fire Co., Ltd., for ....................................................................... P12,000 Policy No. 4382, issued by The China Fire Co., Ltd., for .......................................................................... 15,000 Policy No. 326, issued by The Yang-Tsze Ass'n., Ltd., for ..................................................................... 10,000 Policy No. 796111, issued by The State Co., Ltd., for ............................................................................ 8,000 Insurance Insurance Insurance Assurance for plaintiff-appellant.

Policy No. 4143, of P12,000, recites that Mrs. Rosario Vizcarra, having paid to the China Fire Insurance Company, Limited, P102 for insuring against or damage by fire certain merchandise the description of which follows, "the company agrees with the insured that, if the property above described, or any party thereof, shall be destroyed or damaged by fire between September 16, 1918, and September 16, 1919," etc., "The company will, out of its capital, stock and funds, pay or make good all such loss or damage, not exceeding" the amount of the policy. This policy was later duly assigned to the plaintiff.

11 Policy No. 4382, for P15,000, was issued by the same company to, and in the name of, plaintiff. Policy No. 326, for P10,000, was issued to, and in the name of policy No. 326, for P10,000, was issued to, and in the name of the plaintiff by The Yang-Tsze Insurance Association, Limited, and recites that the premium of P125 was paid by the plaintiff to the association, and that, in the event of loss by fire between certain dates, "the funds and property of the said association shall be subject and liable to pay, reinstate, or make good to the said assured, their heirs, executors, or administrators, such loss or damage as shall be occasioned by fire to the property above-mentioned and hereby insured," not exceeding the amount of the policy. Policy No. 796111, for P8,000, was issued by The States Assurance Company, Limited, to the plaintiff for a premium of P100, which was paid to the Assurance Company through the defendant, its authorized agent, and recites that "the company agrees with the insured that in the event of loss by fire between certain dates, the company will, out of its capital, stock and funds, pay the amount of such loss or damage," not exceeding the amount of the policy, and it is attested by the defendant, through its "Cashier and Accountant and Manager, Agents, State Assurance Co., Ltd.," authorized agents of the Assurance Company. Policy No. 4143 is attested "on behalf of The China Fire Insurance Company, Limited," by the cashier and accountant and manager of the defendant, as agents of The China Fire Insurance Company, Limited. The same is true as to policy no. 4382. Policy No. 326 recites the payment of a premium of P125 by the plaintiff to The YangTsze Insurance Association, Limited, and that, in the event of loss, "the funds and property of the said association shall be subject and liable to pay, reinstate, or make good to the said assured, their heirs, executors, or administrators, such loss or damage as shall be occasioned by fire or lightning to the property" insured, not exceeding the amount of the policy, and it is attested by the defendant, through its cashier and accountant and manager, as agents of the association "under the authority of a Power of Attorney from The Yang-Tsze Insurance Association, Limited," "to sign, for and on behalf of the said Association, etc." March 25, 1919, and while the policies were in force, a loss occurred in which the insured property was more or less damaged by fire and the use of water resulting from the fire. The plaintiff made a claim for damages under its policies, but could not agree as to the amount of loss sustained. It sold the insured property in its then damaged condition, and brought this action against Warner, Barnes & Co., in its capacity as agents, to recover the difference between the amount of the policies and the amount realized from the sale of the property, and in the first cause of action, it prayed for judgment for P23,052.99, and in the second cause of action P9,857.15.

12 The numbers and amounts of the policies and the names of the insurance companies are set forth and alleged in the complaint. The answer admits that the defendants is the resident agent of the insurance companies, the issuance of the policies, and that a fire occurred on March 25, 1919, in the building in which the goods covered by the insurance policies were stored, and that to extinguish the fire three packages of goods were damage by water not to exceed P500, and denies generally all other material allegations of the complaint. As a further and separate defense, the defendant pleads certain provisions in the policies, among which was a written notice of loss, and all other insurance and certain detailed information. It is then alleged That although frequently requested to do so, plaintiff failed and refused to deliver to defendant or to any other person authorized to receive it, any claim in writing specifying the articles or items of property damaged or destroyed and of the alleged amount of the loss or damage caused thereto. That defendant was at all times ready and willing to pay, on behalf of the insurance companies by whom said policies were issued, and to the extent for which each was proportionately liable, the actual damage to plaintiff's goods covered by the risks insured against, upon compliance within the time limited, with the terms of the clause of the contracts of insurance above set forth. Defendants prays judgment for costs. Before the trial, counsel for the defendant objected to the introduction of any evidence in the case, and moved "that judgment be entered for the defendant on the pleadings upon the ground that it appears from the averment of the complaint that the plaintiff has had no contractual relations with the defendant, and that the action has not been brought against the real party in interest." The objection and motion was overruled and exception duly taken. After trial the court found that there was due the plaintiff from the three insurance companies p18,493.29 with interest thereon at the rate of 6 per cent per annum, from the date of the commencement of the action, and costs, and rendered the following judgment: It is, therefore, ordered that judgment be entered against Warner, Barnes & Co., Ltd., in its capacity as agent and representative in the Philippine Islands for The China fire Insurance Company, Ltd., The Yang-Tsze Insurance Association, Ltd., and The State Assurance Co., Ltd., for the payment to the plaintiff, E. Macias & Co., of the sum of P18,493.29, the amount of this judgment to be prorated by Warner, Barnes & Co., among the three insurance companies above-mentioned by it represented, in proportion to the interest insured by each of said three insurance companies, according to the policies issued by them in favor of the plaintiff, and sued upon in this action.

13 The defendant then filed a motion to set aside the judgment and for a new trial, which was overruled and exception taken. From this judgment the defendant appealed, claiming that "the court erred in overruling defendant's motion for judgment on the pleadings; that the court erred in giving judgment for the plaintiff; that the court erred in denying defendants motion for a new trial," and specifying other assignments which are not material to this opinion, Plaintiff also appealed.

JOHNS, J.: The material facts are not in dispute it must be conceded that the policies in question were issued by the different insurance companies, through the defendant as their respective agent; that they were issued in consideration of a premium which was paid by the insured to the respective companies for the amount of the policies, as alleged; that the defendant was, and is now, the resident agent in Manila of the companies, and was authorized to solicit and do business for them as such agent; that each company is a foreign corporation. The principal office and place business of the The China Fire Insurance Company is at Hongkong; of The Yang-Tsze Insurance Association is at Shanghai; and of The State Assurance Company is at Liverpool. As such foreign corporations they were duly authorized and licensed to do insurance business in the Philippine Islands, and, to that end and for that purpose, the defendant corporation, Warner, Barnes & Co., was the agent of each company. All of the policies are in writing, and recite that the premium was paid by the insured to the insurance company which issued the policy, and that, in the event of a loss, the insurance company which issued it will pay to the insured the amount of the policy. This is not a case of an undisclosed agent or an undisclosed principal. It is a case of a disclosed agent and a disclosed principal. The policies on their face shows that the defendant was the agent of the respective companies, and that it was acting as such agent in dealing with the plaintiff. That in the issuance and delivery of the policies, the defendant was doing business in the name of, acting for, and representing, the respective insurance companies. The different policies expressly recite that, in the event of a loss, the respective companies agree to compensate the plaintiff for the amount of the loss. the defendant company did not insure the property of the plaintiff, or in any manner agree to pay the plaintiff the amount of any loss. There is no contract of any kind. either oral or written, between the plaintiff and Warner, Barnes & Co. Plaintiff's contracts are with the insurance companies, and are in writing, and the premiums were paid to the insurance companies, and are in writing, and the premiums were paid to the insurance companies and the policies were issued by, and in the name of, the insurance companies, and on the face of the policy itself, the plaintiff knew that the defendant was acting as agent for, and was representing, the respective insurance companies in the issuance and deliver of the

14 policies. The defendant company did not contract or agree to do anything or to pay the plaintiff any money at any time or on any condition, either as agent or principal. There is a very important distinction between the power and duties of a resident insurance agent of a foreign company and that of an executor, administrator, or receiver. An insurance agent as such is not responsible for, and does not have, any control over the corpus or estate of the corporate property, as does an executor, administrator, or receiver. Subject only to the order of the court, such officers are legal custodians and have actual possession of the corporate property. It is under their control and within their jurisdiction. As stated by counsel for Warner, Barnes & Co., an attorney of record for an insurance company has greater power and authority to act for, and bind, the company than does a soliciting agent of an insurance company. Yet, no attorney would contend that a personal action would lie against local attorneys who represent a foreign corporation to recover on a contract made by the corporation. On the same principles by which plaintiff seeks to recover from the defendant, an action could be maintained against the cashier of any bank on every foreign draft which he signed for, and on behalf of, the bank. Every cause of action ex contractu must be founded upon a contract, oral or written, either express or implied. Warner, Barnes & Co., as principal or agent, did not make any contract, either or written, with the plaintiff. The contracts were made between the respective insurance companies and the insured, and were made by the insurance companies, through Warner, Barnes & Co., as their agent. As in the case of a bank draft, it is not the cashier of the bank who makes the contract to pay the money evidenced by the draft, it is the bank, acting through its cashier, that makes the contract. So, in the instant case, it was the insurance companies, acting through Warner, Barnes & Co., as their agent, that made the written contracts wit the insured. The trial court attached much importance to the fact that in the further and separate answer, an admission was made "that defendant was at all times ready and will not to pay, on behalf of the insurance companies by whom each was proportionately liable, the actual damage" sustained by the plaintiff covered by the policies upon the terms and conditions therein stated. When analyzed, that is nothing more than a statement that the companies were ready and willing to prorate the amount when the losses were legally ascertained. Again, there is not claim or pretense that Warner, Barnes & Co. had any authority to act for, and represent the insurance companies in the pending action, or to appear for them or make any admission which would bind them. As a local agent, it could not do that without express authority. That power could only exercised by an executive officer of the company, or a person who was duly authorized to act for, and represent, the company

15 in legal proceedings, and there is no claim or pretense, either express or implied, that the defendant has any such authority. Plaintiff's cause of action, if any, is direct against the insurance companies that issued the policies and agreed to pay the losses. The only defendant in the instant case is "Warner, Barnes & Co., in its capacity as agents of:" the insurance companies. Warner, Barnes & Co. did not make any contract with the plaintiff, and are not liable to the plaintiff on any contract, either as principal or agent. For such reason, plaintiff is not entitled to recover its losses from Warner, Barnes & Co., either as principal or agent. There is no breach of any contract with the plaintiff by Warners, Barnes & Co., either as agent or principal, for the simple reason that Warner, Barnes & Co., as agent or principal, never made any contract, oral or written, with the plaintiff. This defense was promptly raised before the taking of the testimony, and again renewed on the motion to set aside the judgment. Plaintiff's own evidence shows that any cause of action it may have is against the insurance companies which issued the policies. The complaint is dismissed, and the judgment of the lower court is reversed, and one will be entered here in favor of Warner, Barnes & Co., Ltd., against the plaintiff, for costs in both this and the lower court. So ordered

16 G.R. No. L-25301 October 26, 1968

GOLD STAR MINING CO., INC., petitioner, vs. MARTA LIM-JIMENA, CARLOS JIMENA, GLORIA JIMENA, AURORA JIMENA, JAIME JIMENA, DANTE JIMENA, JORGE JIMENA, JOYCE JIMENA, as legal heirs of the deceased VICTOR JIMENA, and JOSE HIDALGO, respondents. Emiliano S. Samson and R. Balderrama-Samson Leandro Sevilla and Ramon C. Aquino for respondents. REYES, J.B.L., J.: From an affirmance in toto by the Court of Appeals1 of a decision of the Court of First Instance of Manila,2specifically the portion thereof condemning Gold Star Mining Co., Inc. to pay Marta Lim Vda. de Jimena, et al., the sum of P30,691.92 solidarily with Ananias Isaac Lincallo for violation of an injunction this appeal is taken. It is of record that in 1937, Ananias Isaac Lincallo bound himself in writing to turn to Victor Jimena one-half (1/2) of the proceeds from all mining claims that he would purchase with the money to be advanced by the latter. This agreement was later on modified (in a 1939 notarial instrument duly registered with the Register of Deeds of Marinduque in his capacity as mining recorder) so as to include in the equal sharing arrangement not only the proceeds from several mining claims, which by that time had already been purchased by Lincallo with various sums totalling P5,800.00 supplied by Jimena, but also the lands constituting the same, and so as to bind thereby their "heirs, assigns, or legal representatives." Apparently, the mining rights over part of the claims were assigned by Lincallo to Gold Star Mining Co., Inc., sometime before World War Il because in 1950 the corporation paid him P5,000 in consideration of, and as a quitclaim for, pre-war royalties. On several occasions thereafter, the mining claims in question were made subjectmatter of contracts entered into by Lincallo in his own name and for his benefit alone without the slightest intimation of Jimena's interests over the same. Thus, on 19 September 1951, Lincallo and one Alejandro Marquez, as separate owners of particular mining claims, entered into an agreement with Gold Star Mining Co., Inc., the assignee thereof, regarding allotment to Lincallo of 45% of the royalties due from the corporation. Four months later, Lincallo, Marquez and Congressman Panfilo Manguerra, again as owners, leased certain mining claims to Jacob Cabarrus, who, in turn, transferred to Marinduque Iron Mines Agents, Inc., his rights under the lease contract. By virtue of still another contract executed by these lessors on 29 February 1952, 43% of the royalties due from Marinduque Iron Mines Agents, Inc., were agreed upon to be paid to Lincallo. As early as August, 1939 and down to September, 1952, Jimena repeatedly apprised Gold Star Mining Co., Inc., and Marinduque Iron Mines Agents, Inc., of his interests over the mining claims so assigned and/or leased by Lincallo and, accordingly, demanded for petitioner.

17 recognition and payment of his one-half share in all the royalties, allocated and paid and, thereafter, to be paid to the latter. Both corporations, however, ignored Jimena's demands. Payment of the P5,800 advanced for the purchase of the mining claims, as well as the one-half share in the royalties paid by the two corporations, were also repeatedly demanded by Jimena from Lincallo. Acknowledging Jimena's contractual claim, Lincallo off and on promised to settle his obligations. And on 14 July 1952, Lincallo promised for the last time, to settle everything on or before the 30th day of the same month. Lincallo, however, did not only fail to settle his accounts with Jimena but transferred on 16 August 1952, a month after he promised to pay Jimena, 35 of his 45% share in the royalties due from Gold Star Mining Co., Inc., to one Gregorio Tolentino, a salaried employee, for an alleged consideration of P10,000.00. On 2 September 1954, Jimena commenced a suit against Lincallo for recovery of his advances and his one-half share in the royalties. Gold Star Mining Co., Inc., and Marinduque Iron Mines, Inc., together with Tolentino, were later joined as defendants. On 17 September 1954, the trial court issued, upon petition of Jimena, a writ of preliminary injunction restraining Gold Star Mining Co., Inc., and Marinduque Iron Mines Agents, Inc., from paying royalties during the pendency of the case to Lincallo, his assigns or legal representatives. Despite the injunction, however, Gold Star Mining Co., Inc., was found out to have paid P30, 691.92 to Lincallo and Tolentino. Said corporation claimed later on (on appeal) that the injunction had been superseded and/or dissolved on 25 May 1955 by the trial court's grant of Jimena's petition for a writ of preliminary attachment "to supersede the writ of preliminary injunction previously issued." But as the grant was conditioned upon filing of a bond to be approved by the trial court, no writ of attachment was issued because the bond offered by Jimena was disapproved.3 Jimena and Tolentino died successively during the pendency of the case in the trial court and were, accordingly, substituted by their respective widows and children. After a protracted trial, the lower court rendered a decision, the dispositive portion of which reads as follows: IN VIEW WHEREOF, judgment is rendered: 1. Declaring the plaintiffs (a) as successors in interest of Victor Jimena to be entitled to 1/2 of the 45% share of the royalties of defendant Lincallo under the latter's contract with Gold Star, Exh. D or Exh. D-l, dated September 19, 1951; (b) to 1/2 of the 43% shares of the rental of defendant Lincallo under his contract with Jesus (Jacob) Cabarrus assigned to Marinduque Iron Mines,

18 and his contract with Alejandro Marquez, dated December 5, 1951, and February 29, 1952, Exhs. J and J-1; . (c) and condemning defendants Gold Star and Marinduque Iron Mines to pay direct to plaintiffs said 1/2 shares of the royalties until said contracts are terminated; 2. Condemning defendant Lincallo to pay unto plaintiffs, as successors in interest of Victor Jimena (a) the sum of P5,800 with legal interest from the date of the filing of the complaint; (b) the sum of P40,167.52 which is the 1/2 share of the royalties paid by Gold Star unto Lincallo as of the September 14, 1957; (c) the sum of P3,235.64 which is the 1/2 share of Jimena on the rentals amounting to P6,471.27 corresponding to Lincallo's share paid by Marinduque Iron Mines unto Lincallo from December, 1951 to August 25, 1954; under Exhibit N; (d) P1,000.00 as attorneys fees; 3. Declaring that the deed of sale, Exh. H, dated August 16, 1952, between defendant Lincallo and Gregorio Tolentino was effective and transferred only 1/2 of the 45% (43%) share of Lincallo, and ordering Gold Star Mining Company to make payment hereafter unto plaintiffs, pursuant to this decision on the royalties due unto Lincallo, notwithstanding the cession unto Tolentino, so that of the royalties due unto Lincallo 1/2 should always be paid by Gold Star unto plaintiffs notwithstanding said session, Exh. H, unto Tolentino by Lincallo; 4. Judgment is also rendered condemning the estate of Gregorio Tolentino but not the heirs personally, to pay unto plaintiffs the sum of P24,386.51 with legal interest from the date of the filing of the complaint against Gregorio Tolentino. 5. Judgment is rendered condemning defendant Gold Star Mining Company to pay to plaintiffs solidarily with Lincallo and to be imputed to Lincallo's liability under this judgment unto Jimena, the sum of P30,691.92; 6. Judgment is rendered condemning defendant Marinduque Iron Mines to pay unto plaintiffs the sum of P7,330.36; 7. The counterclaims of defendants are dismissed; 8. Costs against defendant Lincallo.

19 SO ORDERED. (Emphasis supplied.) From this judgment, all four defendants, namely, Lincallo, the widow and children of Tolentino, and the two corporations, appealed to the Court of Appeals. The appeal interposed by Marinduque Iron Mines Agents, Inc., was, however, withdrawn, while that of Lincallo was dismissed for the failure to file brief. Pending outcome of the appeal, the royalties due from Gold Star Mining Co., Inc., were required to be deposited with the trial court, as per order of 17 June 1958 issued by the same court. In compliance therewith, Gold Star Mining Co., Inc., made a judicial deposit in the amount of P30,691.92. On 8 October 1965, the Court of Appeals handed down a decision sustaining in its entirety that of the trial court. Gold Star Mining Co., Inc., moved for reconsideration of said decision insofar as its adjudged solidary liability with Lincallo to pay to the Jimenas the sum of P30,691.92 "for flagrant violation of the injunction" was concerned. The motion was denied. Hence, the present appeal. Petitioner Gold Star Mining Co., Inc., argues that the Court of Appeals' decision finding that respondents Jimenas have a cause of action against it, and condemning it to pay the sum of P30,691.92 for violation of an allegedly non-existent injunction, are reversible errors. Reasons: As to respondents Jimena's cause of action, the same does not allegedly appear in the complaint filed against petitioner corporation. And as to the P30,691.92 penalty for violation of the injunction, the same can not allegedly be imposed because (1) the sum of P30,691.92 was not prayed for, (2) the injunction in question had already been superseded and/or dissolved by the trial court's grant of Jimena's petition for writ of preliminary attachment; and (3) the corporation was never charged, heard, nor found guilty in accordance with, and pursuant to, the provisions, of Rule 64 of the (Old) Rules of Court. We are of the same opinion with the Court of Appeals that respondents Jimenas have a cause of action against petitioner corporation and that the latter's joinder as one of the defendants before the trial court is fitting and proper. Said the Court of Appeals, and we adopt the same: There first assigned error is the Trial Court erred in not dismissing this instant action as "there is no privity of contract between Gold Star and Jimena." This contention is without merit. The situation at bar is similar to the status of the first and second mortgagees of a duly registered real estate mortgage. While there exists no privity of contract between them, yet the common subject-matter supplies the juridical link. Here the evidence overwhelmingly established that Jimena made prewar and postwar demands upon Gold Star for the payment of his 1/2 share of the royalties but all in vain so he (Jimena) was constrained to implead Gold Star because it refused to recognize his right.

20 Jimena now seeks for accounting of the royalties paid by Gold Star to Lincallo, and for direct payment to himself of his share of the royalties. This relief cannot be granted without joining the Gold Star specially in the face of the attitude it had displayed towards Jimena. Borrowing the Spanish maxim cited by Jimena's counsel, "el deudor de mi deudor es deudor mio," this legal maxim finds sanction in Article 1177, new Civil Code which provides that "creditors, after having pursued the property in possession of the debtor to satisfy their claims, may exercise all the rights and bring all the actions of the latter (debtor) for the same purpose, save those which are inherent in his person; they may also impugn the acts which the debtor may have done to defraud them (1111)." From another standpoint, equally valid and acceptable, it can be said that Lincallo, in transferring the mining claims to Gold Star (without disclosing that Jimena was a co-owner although Gold Star had knowledge of the fact as shown by the proofs heretofore mentioned) acted as Jimena's agent with respect to Jimena's share of the claims. Under such conditions, Jimena has an action against Gold Star, pursuant to Article 1883, New Civil Code, which provides that the principal may sue the person with whom the agent dealt with in his (agent's) own name, when the transaction "involves things belonging to the principal." As counsel for Jimena has correctly contended, "the remedy of garnishment suggested by Gold Star is utterly inadequate for the enforcement of Jimena's right against Lincallo because Jimena wanted an accounting and wanted to receive directly his share of the royalties from Gold Star. That recourse is not open to Jimena unless Gold Star is made a party in this action." Coming now to the violation of the injunction, we observe that the facts speak for themselves. Considering that no writ of preliminary attachment was issued by the trial court, the condition for its issuance not having been met by Jimena, nothing can be said to have superseded the writ of preliminary injunction in question. The preliminary injunction was, therefore, subsisting and evidently violated by petitioner corporation when it paid the sum of P30,691.92 to Lincallo and Tolentino. Gold Star Mining Co., Inc., insists that it may not be penalized for breach of the injunction, issued by the court of origin, without prior written charge for indirect contempt, and due hearing, citing section 3 of Rule 64 of the old Rules of Court, now Rule 71 of the Revised Rules. We fail to see any merit in this contention, as it misses the true nature and intent of the award of P30,691.92 to Jimena, payable by Gold Star and Lincallo's estate. Said award is not so much a penalty against petitioner as a decree of restitution, in order to make the violated injunction effective, as it should be, by placing the parties in

21 the same condition as if the injunction had been fully obeyed. If Gold Star Mining Co., Inc., had only heeded the injunction and had not paid to Lincallo the royalties of P30,691.92, such amount would now be available for the satisfaction of the claims of Jimena and his heirs against Lincallo. By sentencing Gold Star Mining Co., Inc., to pay, for the account of Lincallo, the sum aforesaid, the court merely endeavoured to prevent its award from being rendered pro tanto nugatory and ineffective, and thus make it conformable to law and justice. That the questioned award was not intended to be a penalty against appellant Gold Star Mining Co., Inc., is shown by the provision in the judgment that the P30,691.92 to be paid by it to Jimena is "to be imputed to Lincallo's liability under this judgment." The court thus left the way open for Gold Star Mining Co., Inc., to recover later the whole amount from Lincallo, whether by direct action against him or by deducting it from the royalties that may fall due under his 1951 contract with appellant. That the recovery of this particular amount was not specifically sought in the complaint is of no moment, since the complaint prayed in general for "other equitable relief." WHEREFORE, finding no reversible error in the decision appealed from, the same is affirmed, with costs against petitioner-appellant, Gold Star Mining Co., Inc. Concepcion, C.J., Dizon, Makalintal, Sanchez, Castro, Angeles, Fernando and Capistrano, JJ., concur. Zaldivar, J., is on leave.

22

NICHOLAS Y. CERVANTES, petitioner, vs. COURT OF APPEALS AND THE PHILIPPINE AIR LINES, INC., respondent. DECISION PURISIMA, J.: This Petition for Review on certiorari assails the 25 July 1995 decision of the Court of Appeals[1] in CA GR CV No. 41407, entitled Nicholas Y. Cervantes vs. Philippine Air Lines Inc., affirming in toto the judgment of the trial court dismissing petitioners complaint for damages. On March 27, 1989, the private respondent, Philippines Air Lines, Inc. (PAL), issued to the herein petitioner, Nicholas Cervantes (Cervantes), a round trip plane ticket for Manila-Honolulu-Los Angeles-Honolulu-Manila, which ticket expressly provided an expiry of date of one year from issuance, i.e., until March 27, 1990. The issuance of the said plane ticket was in compliance with a Compromise Agreement entered into between the contending parties in two previous suits, docketed as Civil Case Nos. 3392 and 3451 before the Regional Trial Court in Surigao City.[2] On March 23, 1990, four days before the expiry date of subject ticket, the petitioner used it. Upon his arrival in Los Angeles on the same day, he immediately booked his Los Angeles-Manila return ticket with the PAL office, and it was confirmed for the April 2, 1990 flight. Upon learning that the same PAL plane would make a stop-over in San Francisco, and considering that he would be there on April 2, 1990, petitioner made arrangements with PAL for him to board the flight in San Francisco instead of boarding in Los Angeles. On April 2, 1990, when the petitioner checked in at the PAL counter in San Francisco, he was not allowed to board. The PAL personnel concerned marked the following notation on his ticket: TICKET NOT ACCEPTED DUE EXPIRATION OF VALIDITY. Aggrieved, petitioner Cervantes filed a Complaint for Damages, for breach of contract of carriage docketed as Civil Case No. 3807 before Branch 32 of the Regional Trial Court of Surigao del Norte in Surigao City. But the said complaint was dismissed for lack of merit.[3] On September 20, 1993, petitioner interposed an appeal to the Court of Appeals, which came out with a Decision, on July 25, 1995, upholding the dismissal of the case. On May 22, 1996, petitioner came to this Court via the Petition for Review under consideration.

23 The issues raised for resolution are: (1) Whether or not the act of the PAL agents in confirming subject ticket extended the period of validity of petitioners ticket; (2) Whether or not the defense of lack of authority was correctly ruled upon; and (3) Whether or not the denial of the award for damages was proper. To rule on the first issue, there is a need to quote the findings below. As a rule, conclusions and findings of fact arrived at by the trial court are entitled to great weight on appeal and should not be disturbed unless for strong and cogent reasons.[4] The facts of the case as found by the lower court[5] are, as follows: The plane ticket itself (Exhibit A for plaintiff; Exhibit 1 for defendant) provides that it is not valid after March 27, 1990. (Exhibit 1-F). It is also stipulated in paragraph 8 of the Conditions of Contract (Exhibit 1, page 2) as follows: "8. This ticket is good for carriage for one year from date of issue, except as otherwise provided in this ticket, in carriers tariffs, conditions of carriage, or related regulations. The fare for carriage hereunder is subject to change prior to commencement of carriage. Carrier may refuse transportation if the applicable fare has not been paid.[6] The question on the validity of subject ticket can be resolved in light of the ruling in the case of Lufthansa vs. Court of Appeals[7]. In the said case, the Tolentinos were issued first class tickets on April 3, 1982, which will be valid until April 10,1983. On June 10, 1982, they changed their accommodations to economy class but the replacement tickets still contained the same restriction. On May 7, 1983, Tolentino requested that subject tickets be extended, which request was refused by the petitioner on the ground that the said tickets had already expired. The non-extension of their tickets prompted the Tolentinos to bring a complaint for breach of contract of carriage against the petitioner. In ruling against the award of damages, the Court held that the ticket constitute the contract between the parties. It is axiomatic that when the terms are clear and leave no doubt as to the intention of the contracting parties, contracts are to be interpreted according to their literal meaning. In his effort to evade this inevitable conclusion, petitioner theorized that the confirmation by the PALs agents in Los Angeles and San Francisco changed the compromise agreement between the parties. As aptly ruled by the appellate court: xxx on March 23, 1990, he was aware of the risk that his ticket could expire, as it did, before he returned to the Philippines. (pp. 320-321, Original Records)[8] The question is: Did these two (2) employees, in effect , extend the validity or lifetime of the ticket in question? The answer is in the negative. Both had no authority to do so. Appellant knew this from the very start when he called up the Legal Department of appellee in the Philippines before he left for the United States of America. He had first hand knowledge that the ticket in question would expire on March 27,1990 and that

24 to secure an extension, he would have to file a written request for extension at the PALs office in the Philippines (TSN, Testimony of Nicholas Cervantes, August 2, 1991, pp 20-23). Despite this knowledge, appellant persisted to use the ticket in question.[9] From the aforestated facts, it can be gleaned that the petitioner was fully aware that there was a need to send a letter to the legal counsel of PAL for the extension of the period of validity of his ticket. Since the PAL agents are not privy to the said Agreement and petitioner knew that a written request to the legal counsel of PAL was necessary, he cannot use what the PAL agents did to his advantage. The said agents, according to the Court of Appeals, [10] acted without authority when they confirmed the flights of the petitioner. Under Article 1898[11] of the New Civil Code, the acts of an agent beyond the scope of his authority do not bind the principal, unless the latter ratifies the same expressly or impliedly. Furthermore, when the third person (herein petitioner) knows that the agent was acting beyond his power or authority, the principal cannot be held liable for the acts of the agent. If the said third person is aware of such limits of authority, he is to blame, and is not entitled to recover damages from the agent, unless the latter undertook to secure the principals ratification.[12] Anent the second issue, petitioners stance that the defense of lack of authority on the part of the PAL employees was deemed waived under Rule 9, Section 2 of the Revised Rules of Court, is unsustainable. Thereunder, failure of a party to put up defenses in their answer or in a motion to dismiss is a waiver thereof. Petitioner stresses that the alleged lack of authority of the PAL employees was neither raised in the answer nor in the motion to dismiss. But records show that the question of whether there was authority on the part of the PAL employees was acted upon by the trial court when Nicholas Cervantes was presented as a witness and the depositions of the PAL employees, Georgina M. Reyes and Ruth Villanueva, were presented. The admission by Cervantes that he was told by PALs legal counsel that he had to submit a letter requesting for an extension of the validity of subject tickets was tantamount to knowledge on his part that the PAL employees had no authority to extend the validity of subject tickets and only PALs legal counsel was authorized to do so. However, notwithstanding PALs failure to raise the defense of lack of authority of the said PAL agents in its answer or in a motion to dismiss, the omission was cured since the said issue was litigated upon, as shown by the testimony of the petitioner in the course of trial. Rule 10, Section 5 of the 1997 Rules of Civil Procedure provides: Sec. 5. Amendment to conform or authorize presentation of evidence. - When issues not raised by the pleadings are tried with express or implied consent of the parties, as if they had been raised in the pleadings. Such amendment of the pleadings as may be necessary to cause them to conform to the evidence and to raise these issues may be made upon motion of any party at any time, even after judgment; but failure to amend does not affect the result of the trial of these issues. xxx

25 Thus, when evidence is presented by one party, with the express or implied consent of the adverse party, as to issues not alleged in the pleadings, judgment may be rendered validly as regards the said issue, which shall be treated as if they have been raised in the pleadings. There is implied consent to the evidence thus presented when the adverse party fails to object thereto.[13] Re: the third issue, an award of damages is improper because petitioner failed to show that PAL acted in bad faith in refusing to allow him to board its plane in San Francisco. In awarding moral damages for breach of contract of carriage, the breach must be wanton and deliberately injurious or the one responsible acted fraudulently or with malice or bad faith.[14] Petitioner knew there was a strong possibility that he could not use the subject ticket, so much so that he bought a back-up ticket to ensure his departure. Should there be a finding of bad faith, we are of the opinion that it should be on the petitioner. What the employees of PAL did was one of simple negligence. No injury resulted on the part of petitioner because he had a back-up ticket should PAL refuse to accommodate him with the use of subject ticket. Neither can the claim for exemplary damages be upheld. Such kind of damages is imposed by way of example or correction for the public good, and the existence of bad faith is established. The wrongful act must be accompanied by bad faith, and an award of damages would be allowed only if the guilty party acted in a wanton, fraudulent, reckless or malevolent manner.[15] Here, there is no showing that PAL acted in such a manner. An award for attorneys fees is also improper. WHEREFORE, the Petition is DENIED and the decision of the Court of Appeals dated July 25, 1995 AFFIRMED in toto. No pronouncement as to costs. SO ORDERED.

26 G.R. No. 114091 June 29, 1995 BACALTOS COAL MINES and GERMAN A. BACALTOS, petitioners, vs. HON. COURT OF APPEALS and SAN MIGUEL CORPORATION, respondents.

DAVIDE, JR., J.: Petitioners seek the reversal of the decision of 30 September 1993 of the Court of Appeals in CA-G.R. CV No. 35180, 1 entitled "San Miguel Corporation vs. Bacaltos Coal Mines, German A. Bacaltos and Rene R. Savellon," which affirmed the decision of 19 August 1991 of the Regional Trial Court (RTC) of Cebu, Branch 9, in Civil Case No. CEB-8187 2 holding petitioners Bacaltos Coal Mines and German A. Bacaltos and their co-defendant Rene R. Savellon jointly and severally liable to private respondent San Miguel Corporation under a Trip Charter Party. The paramount issue raised is whether Savellon was duly authorized by the petitioners to enter into the Trip Charter Party (Exhibit "A") 3 under and by virtue of an Authorization (Exhibit "C" and Exhibit "1"), 4 dated 1 March 1988, the pertinent portions of which read as follows: I. GERMAN A. BACALTOS, of legal age, Filipino, widower, and residing at second street, Espina Village, Cebu City, province of Cebu, Philippines, do hereby authorize RENE R. SAVELLON, of legal age, Filipino and residing at 376-R Osmea Blvd., Cebu City, Province of Cebu, Philippines, to use the coal operating contract of BACALTOS COAL MINES of which I am the proprietor, for any legitimate purpose that it may serve. Namely, but not by way of limitation, as follows: (1) To acquire purchase orders for and in behalf of BACALTOS COAL MINES; (2) To engage in trading under the style of BACALTOS COAL MINES/RENE SAVELLON; (3) To collect all receivables due or in arrears from people or companies having dealings under BACALTOS COAL MINES/RENE SAVELLON; (4) To extend to any person or company by substitution the same extent of authority that is granted to Rene Savellon; (5) In connection with the preceeding paragraphs to execute and sign documents, contracts, and other pertinent papers.

27 Further, I hereby give and grant to RENE SAVELLON full authority to do and perform all and every lawful act requisite or necessary to carry into effect the foregoing stipulations as fully to all intents and purposes as I might or would lawfully do if personally present, with full power of substitution and revocation. The Trip Charter Party was executed on 19 October 1988 "by and between BACALTOS COAL MINES, represented by its Chief Operating Officer, RENE ROSEL SAVELLON" and private respondent San Miguel Corporation (hereinafter SMC), represented by Francisco B. Manzon, Jr., its "SAVP and Director, Plant Operations-Mandaue" Thereunder, Savellon claims that Bacaltos Coal Mines is the owner of the vessel M/V Premship II and that for P650,000.00 to be paid within seven days after the execution of the contract, it "lets, demises" the vessel to charterer SMC "for three round trips to Davao." As payment of the aforesaid consideration, SMC issued a check (Exhibit "B") 5 payable to "RENE SAVELLON IN TRUST FOR BACALTOS COAL MINES" for which Savellon issued a receipt under the heading of BACALTOS COAL MINES with the address at No 376-R Osmea Blvd., Cebu City (Exhibit "B-1"). 6 The vessel was able to make only one trip. Its demands to comply with the contract having been unheeded, SMC filed against the petitioners and Rene Savellon the complaint in Civil Case No. CEB-8187 for specific performance and damages. In their Answer, 7 the petitioners alleged that Savellon was not their Chief Operating Officer and that the powers granted to him are only those clearly expressed in the Authorization which do not include the power to enter into any contract with SMC. They further claimed that if it is true that SMC entered into a contract with them, it should have issued the check in their favor. They setup counterclaims for moral and exemplary damages and attorney's fees. Savellon did not file his Answer and was declared in default on 17 July 1990. 8 At the pre-trial conference on 1 February 1991, the petitioners and SMC agreed to submit the following issues for resolution: Plaintiff 1. Whether or not defendants are jointly liable to plaintiff for damages on account of breach of contract; 2. Whether or not the defendants acted in good faith in its representations to the plaintiff; 3. Whether or not defendant Bacaltos was duly enriched on the payment made by the plaintiff for the use of the vessel;

28 4. Whether or not defendant Bacaltos is estopped to deny the authorization given to defendant Savellon; Defendants 1. Whether or not the plaintiff should have first investigated the ownership of vessel M/V PREM [SHIP] II before entering into any contract with defendant Savellon; 2. Whether or not defendant Savellon was authorized to enter into a shipping contract with the [plaintiff] corporation; 3. Whether or not the plaintiff was correct and not mistaken in issuing the checks in payment of the contract in the name of defendant Savellon and not in the name of defendant Bacaltos Coal Mines; 4. Whether or counterclaim. 9 not the plaintiff is liable on defendants'

After trial, the lower court rendered the assailed decision in favor of SMC and against the petitioners and Savellon as follows: WHEREFORE, by preponderance of evidence, the Court hereby renders judgment in favor of plaintiff and against defendants, ordering defendants Rene Savellon, Bacaltos Coal Mines and German A. Bacaltos, jointly and severally, to pay to plaintiff: 1. The amount of P433,000.00 by way of reimbursement of the consideration paid by plaintiff, plus 12% interest to start from date of written demand, which is June 14, 1989; 2. The amount of P20,000.00 by way of exemplary damages; 3. The amount of P20,000.00 as attorney's fees and P5,000.00 as Litigation expenses. Plus costs. 10 It ruled that the Authorization given by German Bacaltos to Savellon necessarily included the power to enter into the Trip Charter Party. It did not give credence to the petitioners' claim that the authorization refers only to coal or coal mining and not to shipping because, according to it, "the business of coal mining may also involve the shipping of products" and "a company such as a coal mining company is not prohibited to engage in entering into a Trip Charter Party contract." It further reasoned out that even assuming that the petitioners did not intend to authorize Savellon to enter into the Trip Charter Party, they are still liable because: (a) SMC appears to be an innocent party which has no knowledge of the real intent of the parties to the Authorization and has reason to rely on the written Authorization submitted by Savellon pursuant to

29 Articles 1900 and 1902 of the Civil Code; (b) Savellon issued an official receipt of Bacaltos Coal Mines (Exhibit "B-1") for the consideration of the Trip Charter Party, and the petitioners denial that they caused the printing of such official receipt is "lame" because they submitted only a cash voucher and not their official receipt; (c) the "Notice of Readiness" (Exhibit "A-1") is written on a paper with the letterhead "Bacaltos Coal Mines" and the logo therein is the same as that appearing in their voucher; (d) the petitioners were benefited by the payment because the real payee in the check is actually Bacaltos Coal Mines and since in the Authorization they authorized Savellon to collect receivables due or in arrears, the check was then properly delivered to Savellon; and, (e) if indeed Savellon had not been authorized or if indeed he exceeded his authority or if the Trip Charter Party was personal to him and the petitioners have nothing to do with it, then Savellon should have "bother[ed] to answer" the complaint and the petitioners should have filed "a cross-claim" against him. In their appeal to the Court of Appeals in CA-G.R. CV No. 35180, the petitioners asserted that the trial court erred in: (a) not holding that SMC was negligent in (1) not verifying the credentials of Savellon and the ownership of the vessel, (2) issuing the check in the name of Savellon in trust for Bacaltos Coal Mines thereby allowing Savellon to encash the check, and, (3) making full payment of P650,000.00 after the vessel made only one trip and before it completed three trips as required in the Trip Charter Party; (b) holding that under the authority given to him Savellon was authorized to enter into the Trip Charter Party; and, (c) holding German Bacaltos jointly and severally liable with Savellon and Bacaltos Coal Mines. 11 As stated at the beginning, the Court of Appeals affirmed in toto the judgment of the trial court. It held that: (a) the credentials of Savellon is not an issue since the petitioners impliedly admitted the agency while the ownership of the vessel was warranted on the face of the Trip Charter Party; (b) SMC was not negligent when it issued the check in the name of Savellon in trust for Bacaltos Coal Mines since the Authorization clearly provides that collectibles of the petitioners can be coursed through Savellon as the agent; (c) the Authorization includes the power to enter into the Trip Charter Party because the "five prerogatives" enumerated in the former is prefaced by the phrase "but not by way of limitation"; (d) the petitioners' statement that the check should have been issued in the name of Bacaltos Coal Mines is another implicit admission that the Trip Charter Party is part and parcel of the petitioners' business notwithstanding German Bacaltos's contrary interpretation when he testified, and in any event, the construction of obscure words should not favor him since he prepared the Authorization in favor of Savellon; and, (e) German Bacaltos admitted in the Answer that he is the proprietor of Bacaltos Coal Mines and he likewise represented himself to be so in the Authorization itself, hence he should not now be permitted to disavow what he initially stated to be true and to interpose the defense that Bacaltos Coal Mines has a distinct legal personality. Their motion for a reconsideration of the above decision having been denied, the petitioners filed the instant petition wherein they raise the following errors:

30 I. THE RESPONDENT COURT ERRED IN HOLDING THAT RENE SAVELLON WAS AUTHORIZED TO ENTER INTO A TRIP CHARTER PARTY CONTRACT WITH PRIVATE RESPONDENT INSPITE OF ITS FINDING THAT SUCH AUTHORITY CANNOT BE FOUND IN THE FOUR CORNERS OF THE AUTHORIZATION; II. THE RESPONDENT COURT ERRED IN NOT HOLDING THAT BY ISSUING THE CHECK IN THE NAME OF RENE SAVELLON IN TRUST FOR BACALTOS COAL MINES, THE PRIVATE RESPONDENT WAS THE AUTHOR OF ITS OWN DAMAGE; AND III. THE RESPONDENT COURT ERRED IN HOLDING PETITIONER GERMAN BACALTOS JOINTLY AND SEVERALLY LIABLE WITH RENE SAVELLON AND COPETITIONER BACALTOS COAL MINES IN SPITE OF THE FINDING OF THE COURT A QUO THAT PETITIONER BACALTOS COAL MINES AND PETITIONER BACALTOS ARE TWO DISTINCT AND SEPARATE LEGAL PERSONALITIES. 12 After due deliberations on the allegations, issues raised, and arguments adduced in the petition, and the comment thereto and reply to the comment, the Court resolved to give due course to the petition. Every person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent. If he does not make such inquiry, he is chargeable with knowledge of the agent's authority, and his ignorance of that authority will not be any excuse. Persons dealing with an assumed agent, whether the assumed agency be a general or special one, are bound at their peril, if they would hold the principal, to ascertain not only the fact of the agency but also the nature and extent of the authority, and in case either is controverted, the burden of proof is upon them to establish it. 13 American jurisprudence 14 summarizes the rule in dealing with an agent as follows: A third person dealing with a known agent may not act negligently with regard to the extent of the agent's authority or blindly trust the agent's statements in such respect. Rather, he must use reasonable diligence and prudence to ascertain whether the agent is acting and dealing with him within the scope of his powers. The mere opinion of an agent as to the extent of his powers, or his mere assumption of authority without foundation, will not bind the principal; and a third person dealing with a known agent must bear the burden of determining for himself, by the exercise of reasonable diligence and prudence, the existence or nonexistence of the agent's authority to act in the premises. In other words, whether the agency is general or special, the third person is bound

31 to ascertain not only the fact of agency, but the nature and extent of the authority. The principal, on the other hand, may act on the presumption that third persons dealing with his agent will not be negligent in failing to ascertain the extent of his authority as well as the existence of his agency. Or, as stated in Harry E. Keller Electric Co. vs. Rodriguez, 15 quoting Mechem on Agency: The person dealing with the agent must also act with ordinary prudence and reasonable diligence. Obviously, if he knows or has good reason to believe that the agent is exceeding his authority, he cannot claim protection. So if the suggestions of probable limitations be of such a clear and reasonable quality, or if the character assumed by the agent is of such a suspicious or unreasonable nature, or if the authority which he seeks to exercise is of such an unusual or improbable character, as would suffice to put an ordinarily prudent man upon his guard, the party dealing with him may not shut his eyes to the real estate of the case, but should either refuse to deal with the agent at all, or should ascertain from the principal the true condition of affairs. [emphasis supplied]. In the instant case, since the agency of Savellon is based on a written document, the Authorization of 1 March 1988 (Exhibits "C" and "1"), the extent and scope of his powers must be determined on the basis thereof. The language of the Authorization is clear. It pertinently states as follows: I. GERMAN A. BACALTOS do hereby authorize RENE R. SAVELLON . . . to use the coal operating contract of BACALTOS COAL MINES, of which I am the proprietor, for any legitimate purpose that it may serve. Namely, but not by way of limitation, as follows . . . [emphasis supplied]. There is only one express power granted to Savellon, viz., to use the coal operating contract for anylegitimate purpose it may serve. The enumerated "five prerogatives" to employ the term used by the Court of Appeals are nothing but the specific prerogatives subsumed under or classified as part of or as examples of the power to use the coal operating contract. The clause "but not by way of limitation" which precedes the enumeration could only refer to or contemplate other prerogatives which must exclusively pertain or relate or be germane to the power to use the coal operating contract. The conclusion then of the Court of Appeals that the Authorization includes the power to enter into the Trip Chapter Party because the "five prerogatives" are prefaced by such clause, is seriously flawed. It fails to note that the broadest scope of Savellon's authority is limited to the use of the coal operating contract and the clause cannot contemplate any other power not included in the enumeration or which are unrelated either to the power to use the coal operating contract or to those already enumerated. In short, while the clause allows some room for flexibility, it can comprehend only additional prerogatives falling within the primary power and

32 within the same class as those enumerated. The trial court, however, went further by hastily making a sweeping conclusion that "a company such as a coal mining company is not prohibited to engage in entering into a Trip Charter Party contract." 16 But what the trial court failed to consider was that there is no evidence at all that Bacaltos Coal Mines as a coal mining company owns and operates vessels, and even if it owned any such vessels, that it was allowed to charter or lease them. The trial court also failed to note that the Authorization is not a general power of attorney. It is a special power of attorney for it refers to a clear mandate specifically authorizing the performance of a specific power and of express acts subsumed therein. 17 In short, both courts below unreasonably expanded the express terms of or otherwise gave unrestricted meaning to a clause which was precisely intended to prevent unwarranted and unlimited expansion of the powers entrusted to Savellon. The suggestion of the Court of Appeals that there is obscurity in the Authorization which must be construed against German Bacaltos because he prepared the Authorization has no leg to stand on inasmuch as there is no obscurity or ambiguity in the instrument. If any obscurity or ambiguity indeed existed, then there will be more reason to place SMC on guard and for it to exercise due diligence in seeking clarification or enlightenment thereon, for that was part of its duty to discover upon its peril the nature and extent of Savellon's written agency. Unfortunately, it did not. Howsoever viewed, the foregoing conclusions of the Court of Appeals and the trial court are tenuous and farfetched, bringing to unreasonable limits the clear parameters of the powers granted in the Authorization. Furthermore, had SMC exercised due diligence and prudence, it should have known in no time that there is absolutely nothing on the face of the Authorization that confers upon Savellon the authority to enter into any Trip Charter Party. Its conclusion to the contrary is based solely on the second prerogative under the Authorization, to wit: (2) To engage in trading under the style of BACALTOS COAL MINES/RENE SAVELLON; unmindful that such is but a part of the primary authority to use the coal operating contract which it did not even require Savellon to produce. Its principal witness, Mr. Valdescona, expressly so admitted on cross-examination, thus: Atty. Zosa (to witness ON CROSS) Q You said that in your office Mr. Rene Savellon presented to you this authorization marked Exhibit "C" and Exhibit "1" for the defendant? A Yes, sir.

33 Q Did you read in the first part[y] of this authorization Mr. Valdescona that Mr. Rene Savellon was authorized as the coal operating contract of Bacaltos Coal Mines? A Yes, sir. Q Did it not occur to you that you should have examined further the authorization of Mr. Rene Savellon, whether or not this coal operating contract allows Mr. Savellon to enter into a trip charter party? A Yes, sir. We discussed about the extent of his authorization and he referred us to the number 2 provision of this authorization which is to engage in trading under the style of Bacaltos Coal Mines/Rene Savellon, which we followed up to the check preparation because it is part of the authority. Q In other words, you examined this and you found out that Mr. Savellon is authorized to use the coal operating contract of Bacaltos Coal Mines? A Yes, sir. Q You doubted his authority but you found out in paragraph 2 that he is authorized that's why you agreed and entered into that trip charter party? A We did not doubt his authority but we were questioning as to the extent of his operating contract. Q Did you not require Mr. Savellon to produce that coal operating contract of Bacaltos Coal Mines? A No sir. We did not. 18 Since the principal subject of the Authorization is the coal operating contract, SMC should have required its presentation to determine what it is and how it may be used by Savellon. Such a determination is indispensable to an inquiry into the extent or scope of his authority. For this reason, we now deem it necessary to examine the nature of a coal operating contract. A coal operating contract is governed by P.D. No. 972 (The Coal Development Act of 1976), as amended by P.D. No. 1174. It is one of the authorized ways of active exploration, development, and production of coal resources 19in a specified contract area. 20 Section 9 of the decree prescribes the obligation of the contractor, thus:

34 Sec. 9. Obligations of Operator in Coal Operating Contract. The operator under a coal operating contract shall undertake, manage and execute the coal operations which shall include: (a) The examination and investigation of lands supposed to contain coal, by detailed surface geologic mapping, core drilling, trenching, test pitting and other appropriate means, for the purpose of probing the presence of coal deposits and the extent thereof; (b) Steps necessary to reach the coal deposit so that it can be mined, including but not limited to shaft sinking and tunneling; and (c) The extraction and utilization of coal deposits. The Government shall oversee the management of the operation contemplated in a coal operating contract and in this connection, shall require the operator to: (a) Provide all the necessary service and technology; (b) Provide the requisite financing; (c) Perform the work obligations and program prescribed in the coal operating contract which shall not be less than those prescribed in this Decree; (d) Operate the area on behalf of the Government in accordance with good coal mining practices using modern methods appropriate for the geological conditions of the area to enable maximum economic production of coal, avoiding hazards to life, health and property, avoiding pollution of air, lands and waters, and pursuant to an efficient and economic program of operation; (e) Furnish the Energy Development Board promptly with all information, data and reports which it may require;. (f) Maintain detailed technical records and account of its expenditures; (g) Conform to regulations regarding, among others, safety demarcation of agreement acreage and work areas, non-interference with the rights of the other petroleum, mineral and natural resources operators; (h) Maintain all necessary equipment in good order and allow access to these as well as to the exploration, development and production sites and operations to inspectors authorized by the Energy Development Board;

35 (i) Allow representatives authorized by the Energy Development Board full access to their accounts, books and records for tax and other fiscal purposes. Section 11 thereof provides for the minimum terms and conditions of a coal operating contract. From the foregoing, it is obvious that a scrutiny of the coal operating contract of Bacaltos Coal Mines would have provided SMC knowledge of the activities which are germane, related, or incident to the power to use it. But it did not even require Savellon to produce the same. SMC's negligence was further compounded by its failure to verify if Bacaltos Coal Mines owned a vessel. A party desiring to charter a vessel must satisfy itself that the other party is the owner of the vessel or is at least entitled to its possession with power to lease or charter the vessel. In the instant case, SMC made no such attempt. It merely satisfied itself with the claim of Savellon that the vessel it was leasing is owned by Bacaltos Coal Mines and relied on the presentation of the Authorization as well as its test on the sea worthiness of the vessel. Valdescona thus declared on direct examination as follows: A In October, a certain Rene Savellon called our office offering us shipping services. So I told him to give us a formal proposal and also for him to come to our office so that we can go over his proposal and formally discuss his offer. Q Did Mr. Rene Savellon go to your office? A Few days later he came to our office and gave us his proposal verbally offering a vessel for us to use for our cargo. Q Did he mention the owner of that vessel? A Yes, sir. That it is Bacaltos. Q Did he present a document to you? A Yes, sir. He presented to us the authorization. Q When Mr. Rene Savellon presented to you the authorization what did you do?. A On the strength of that authorization we initially asked him for us to check the vessel to see its sea worthiness, and we

36 assigned our in-house surveyor to check the sea worthiness of the vessel which was on dry dock that time in Danao. Q What was the result of your inspection? A We found out the vessel's sea worthiness to be our cargo carrier. Q After that what did you do? A After that we were discussing the condition of the contract. Q Were you able to execute that contract? A Yes, sir . 21 He further declared as follows: Q When you entered into a trip charter contract did you check the ownership of M/V Premship? A The representation made by Mr. Rene Savellon was that Bacaltos Coal Mines operates the vessel and on the strength of the authorization he showed us we were made to believe that it was Bacaltos Coal Mines that owned it. COURT: (to witness) Q In other words, you just believed Rene Savellon? A Yes, sir. COURT: (to witness) Q You did not check with Bacaltos Coal Mines? A That is the representation he made. Q Did he show you document regarding this M/V Premship II? A No document shown. 22 The Authorization itself does not state that Bacaltos Coal Mines owns any vessel, and since it is clear therefrom that it is not engaged in shipping but in coal mining or in coal business, SMC should have required the presentation of pertinent documentary proof of

37 ownership of the vessel to be chartered. Its in-house surveyor who saw the vessel while drydocked in Danao and thereafter conducted a sea worthiness test could not have failed to ascertain the registered owner of the vessel. The petitioners themselves declared in open court that they have not leased any vessel for they do not need it in their coal operations 23 thereby implying that they do not even own one. The Court of Appeals' asseveration that there was no need to verify the ownership of the vessel because such ownership is warranted on the face of the trip charter party begs the question since Savellon's authority to enter into that contract is the very heart of the controversy. We are not prepared to accept SMC's contention that the petitioners' claim that they are not engaged in shipping and do not own any ship is belied by the fact that they maintained a pre-printed business form known as a "Notice of Readiness" (Exhibit "A1"). 24 This paper is only a photocopy and, despite its reservation to present the original for purposes of comparison at the next 25 hearing, SMC failed to produce the latter. This "Notice of Readiness" is not, therefore, the best evidence, hence inadmissible under Section 3, Rule 130 of the Rules of Court. It is true that when SMC made a formal offer of its exhibits, the petitioners did not object to the admission of Exhibit "A-1," the "Notice of Readiness," under the best evidence rule but on the ground that Savellon was not authorized to enter into the Trip Charter Party and that the party who signed it, one Elmer Baliquig, is not the petitioners' employee but of Premier Shipping Lines, the owner of the vessel in question. 26 The petitioners raised the issue of inadmissibility under the best evidence rule only belatedly in this petition. But although Exhibit "A-1" remains admissible for not having been timely objected to, it has no probative value as to the ownership of the vessel. There is likewise no proof that the petitioners received the consideration of the Trip Charter Party. The petitioners denied having received it. 27 The evidence for SMC established beyond doubt that it was Savellon who requested in writing on 19 October 1988 that the check in payment therefor be drawn in favor of BACALTOS COAL MINES/RENE SAVELLON (Exhibit "B-3") and that SMC drew the check in favor of RENE SAVELLON IN TRUST FOR BACALTOS COALMINES (Exhibit "B") and delivered it to Savellon who there upon issued a receipt (Exhibit "B-1"). We agree with the petitioners that SMC committed negligence in drawing the check in the manner aforestated. It even disregarded the request of Savellon that it be drawn in favor of BACALTOS COAL MINES/RENE SAVELLON. Furthermore, assuming that the transaction was permitted in the Authorization, the check should still have been drawn in favor of the principal. SMC then made possible the wrong done. There is an equitable maxim that between two innocent parties, the one who made it possible for the wrong to be done should be the one to bear the resulting loss. 28 For this rule to apply, the condition precedent is that both parties must be innocent. In the present case, however, SMC is guilty of not ascertaining the extent and limits of the authority of Savellon. In not doing so, SMC dealt with Savellon at its own peril.

38 Having thus found that SMC was the author of its own damage and that the petitioners are, therefore, free from any liability, it has become unnecessary to discuss the issue of whether Bacaltos Coal Mines is a corporation with a personality distinct and separate from German Bacaltos. WHEREFORE, the instant petition is GRANTED and the challenged decision of 30 September 1993 of the Court of Appeals in CA-G.R. CV No. 35180 is hereby REVERSED and SET ASIDE and another judgment is hereby rendered MODIFYING the judgment of the Regional Trial Court of Cebu, Branch 9, in Civil Case No. CEB-8187 by setting aside the declaration of solidary liability, holding defendant RENE R. SAVELLON solely liable for the amounts adjudged, and ordering the dismissal of the case as against herein petitioners. SO ORDERED.

39

.R. No. 85685 September 11, 1991 LAURO CRUZ, petitioner, vs. THE HONORABLE COURT OF APPEALS and PURE FOODS CORP., respondents. Alfonso G. Salvador for petitioner. Hilario, Go & De la Cruz for private respondent.

DAVIDE, JR., J.:p In C.A.-G.R. CV No. 07859 (entitled Pure Foods Corporation versus Lauro Cruz, doing business under the name and style Mang Uro Store), a decision was promulgated on 9 August 1988 by respondent Court of Appeals 1affirming in toto the decision promulgated on 28 February 1985 of the Regional Trial Court of Pasig (Branch 151) of the National Capital Judicial Region in Civil Case No. 49672 2 which, by reason of its unusual brevity, is fully reproduced as follows: DECISION This is an action for sum of money. From the record, the following facts are gathered: The plaintiff is a domestic corporation engaged in the manufacture, processing and selling of various meat products while the defendant is the owner/manager of Mang Uro Store in Dela Paz Street, Marikina, Metro Manila. Sometime in November 1977, the defendant was granted by the plaintiff a credit line on which the defendant, on several occasions, bought on credit several Purefoods products. The defendant had an unpaid balance with the plaintiff in the amount of P57,897.63, from which the former was credited the amount of P2,651.42 representing the amount of returned goods, thereby leaving the balance of P 55,246.21. Demands were made upon the defendant for him to settle his account with the plaintiff. A demand letter dated January 17, 1983 was sent to and was received by the defendant who failed to heed the same. The plaintiff, to protect its interest, was constrained to hire the services of counsel. WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant, ordering the latter to pay the former the following: 1. The sum of P 55,246.21, representing his outstanding unpaid account plus interest of 12% percent per annum to be counted from the date of the filing of this case on April 15, 1983 until fully paid; and

40 2. The sum equivalent to 15% of the total amount due as and for attorney's fees and litigation expenses. Costs against the defendant. SO ORDERED. His motion for reconsideration having been denied in the resolution of respondent Court on 27 October 1988, 3petitioner filed the instant appeal by certiorari under Rule 45 of the Rules of Court urging Us to annul and set aside the aforesaid decision and resolution because respondent Court committed the following errors which are the very errors he ascribed to the trial court: (a) in not holding that petitioner is not a signatory to the credit application card attached as Annex "A" of private respondent's complaint as clearly evidenced by the fact that only the signatures of Me Cruz and Marilou Cruz, who are not impleaded as party defendants, appear therein; (b) in not holding that his signature does not appear in the invoices submitted by private respondent; (c) in not holding that he did not receive the letters of demand; (d) in not finding and concluding that private respondent failed to comply with the Order of the trial court to amend the complaint; and (e) in denying his motion for reconsideration. The antecedent facts are not disputed. On 15 April 1983, private respondent Pure Foods Corporation filed with the trial court a complaint 4 for sum of money against petitioner alleging therein that sometime in November 1977, petitioner applied for a credit line with the plaintiff which was consequently approved by the latter subject to the conditions therein stated; pursuant to said approved credit arrangement, defendant (petitioner herein) made various purchases from plaintiff until the early part of 1982, when he accumulated a total unpaid account of P57,897.63 as evidenced by short payment notices and invoices; against this obligation, defendant was credited with the amount of P2,651.42 representing the value of returned goods, thereby leaving a balance of P55,246.21, which remained unpaid despite numerous demands made upon him. The parties who signed the Credit Application card as applicants are Me Cruz, who signed over the printed wordsname of signatory, and Marilou L. Cruz, who signed over the printed words Authorized Signature. The opening paragraph thereof reads: I/We hereby apply for a charge account in the amount stated above, and herewith are the information for your consideration as a basis for the extension of credit to us: TRADE NAME: MANG URO STORE Owner/Manager: Lauro Cruz xxx xxx xxx

41 Petitioner did not sign any of the invoices attached to the complaint. For failure to file an answer within the reglementary period, and upon motion of private respondent, the trial court issued an Order on 29 September 1983 declaring the petitioner in default and authorizing the private respondent to present its evidence ex parte on 4 October 1983. 5 On 19 October 1983, petitioner filed a motion to set aside the order of default 6 alleging therein that he did not file an answer anymore because upon examination of the records of the case, he discovered that it was his son Rodolfo who received the summons and copy of the complaint; he never entered into any transaction with private respondent and that although the store referred to is still licensed in his name, it has, since 1977, been owned and operated by his son Rodolfo Cruz for the reason that he "is getting old already and moreover, because of deteriorating physical condition;" and according to his son Rodolfo, he had already settled the matter with the private respondent under an agreement whereby Rodolfo would make partial payments and the private respondent would dismiss the case. In its Order of 9 November 1983, 7 the trial court granted the aforesaid motion, required petitioner to file his responsive pleading within five (5) days, and to present his evidence on 6 January 1984. Petitioner filed an Answer With Counterclaim on 28 March 1983. 8 He reiterates therein his allegations in the motion to lift the default order and further avers that his signature does not even appear on the credit application card. On the counter-claim, he prays for judgment awarding him moral damages in an amount to be proved at the trial, and attorney's fees in the amount of P15,000.00. Pre-trial was set on 2 January 1984. It was reset by the trial court for 19 January 1984, and further reset for 21 February 1984 at 1:00 P.M. upon motion of private respondent. On the last mentioned date, however, petitioner arrived late and by then, the court had already issued an order declaring him in default for failure to appear at the pre-trial. Forthwith, he filed a motion for reconsideration which the trial court granted in its order of 22 February 1984. Pre-trial was reset to 27 March 1984. 9 Pre-trial was held as above scheduled and was concluded with the issuance of the following order: As prayed for, the plaintiff is given ten (10) days from today to file amended complaint. By agreement, the presentation of defendant's evidence is set for May 16, 1984, at 8:30 a.m., without prejudice to the filing of a compromise agreement. 10

42 As stated by petitioner, 11 which is not denied by private respondent, the purpose of the amendment was to implead Me Cruz and Marilou Cruz as parties defendants since they are the applicants in the credit application card. Both parties did not appear on 16 May 1984. Thereupon, the trial court issued an order declaring the case as submitted for decision on the basis of the evidence on record. 12 As adverted to earlier, on 28 February 1985, the trial court rendered its decision against petitioner who, on 21 March 1985, filed a motion to reconsider 13 the decision, which the trial court denied for lack of merit in its order of 16 May 1985. 14 Petitioner appealed from the decision to the then Intermediate Appellate Court, now Court of Appeals. The appeal was docketed as C.A.-G.R. CV No. 07859. In his Brief in said case, petitioner attributes to the trial court the errors 15 which, as earlier mentioned, are the very same errors submitted before Us as having been committed by the respondent court. According to the respondent Court, these errors bring into focus one crucial issue: the liability of petitioner for the amounts adjudged by the trial court in favor of private respondent. It held that petitioner is liable because in his motion to set aside the order of default, he admitted that the Mang Uro Store is still licensed under his name and the credit application card indicates that he is the owner/manager thereof. Hence, even on the assumption that there had been a transfer of ownership and management of the store to Rodolfo Cruz, previous to the transactions made with appellee, petitioner permitted the business to be carried on in his name as its ostensible owner. Private respondent should not be expected to be aware of such a transfer and whatever agreement or understanding appellant had with petitioner's son Rodolfo regarding the store cannot bind or affect private respondent, for matters accomplished between two parties ought not to operate to the prejudice of a third person. 16 Accordingly, it also finds as superfluous the amendment of the complaint for the purpose of impleading Rodolfo Cruz, Marilou Cruz and Me Cruz; moreover, it contends that failure to amend the complaint is no cause for reversal because these persons were known to private respondent as petitioner's "progeny"; besides, the transfer of business, if indeed there was such, is a matter of defense which need not be "negatived" in the complaint. A complaint should not, by the averments, anticipate a defense thereto. In respect to the failure of private respondent to comply with the order of 27 March 1984 directing it to amend the complaint, respondent Court held that the non-compliance was "muted by the subsequent order of 16 May 1984 which considered the case submitted for decision." By such order, the trial court gave its assent to resolving the case on the basis of the unamended complaint. Section 11 of Rule 3 (erroneously stated as Section 3 of Rule 11) of the Rules of Court provides that parties may be dropped or added by order of the court on motion of any party or on its own initiative at any stage of the

43 action and on such terms as are just; in the instant case, it may be inferred that the trial court opted to resolve the case without the proposed change in parties defendants. Finally, it ruled that both oral and documentary evidence presented at the hearing on 3 October 1983 proved petitioner's unsatisfied obligation to the private respondent. To bring this petition within Our authority, petitioner asserts, in effect, that at the bottom of the assigned errors is the issue of whether the respondent Court has made conclusions of fact which are not substantiated by the evidence on record. Petitioner asserts that it did. We have held in a long line of cases that findings of facts of the Court of Appeals are conclusive upon this Court.17 There are, however, recognized exceptions to this rule, 18 as where the findings are totally devoid of support in the record, or are glaringly erroneous as to constitute serious abuse of discretion, 19 or when the findings are grounded entirely on speculation, surmise or conjecture. 20 Deliberating on this case, We hold that the findings and conclusions of both the trial court and the respondent Court are not supported by the evidence and that such conclusions are glaringly erroneous. This petition is impressed with merit. In its very brief decision, the trial court, without even laying the factual premises, made a sweeping conclusion that it was the petitioner who applied for a credit line with private respondent and which the latter approved for him; on the basis of such approval, he subsequently bought Purefoods products on credit from private respondent. Evidently, the trial court may have in mind the Credit Application Card 21 and the several invoices for the delivery of the goods. 22 But as correctly pointed out by the petitioner, and as the documents themselves show, he did not sign any of them. It is the respondent Court which endeavored to supply the arguments in support of the foregoing conclusion. According to the respondent court: In his Motion to Set Aside Order of Default filed on October 19, 1983 appellant 23 admitted that subject store is still licensed under his name ... Also, the credit application card accomplished in behalf of the store clearly indicates appellant as owner/manager thereof ... Hence, even on the assumption that there really had been a transfer of ownership and management of the "Mang Uro Store" to Rodolfo Cruz previous to the transactions made with appellee 24 the fact is that appellant permitted the carrying of the business of Id store with him as ostensible owner. Appellee should not be expected to be aware of such transfer. Whatever private agreement or understanding appellant made with his son Rodolfo regarding the store cannot bind or affect appellee. Insofar as the latter is concerned, the store is business property of appellant. The maxim res inter alios acta alteri nocere non debet is square. Matters accomplished between two parties ought not to operate to the prejudice of a third person

44 (Blanza vs. Arcangel, 21 SCRA 4; Perez vs. Mendoza, 65 SCRA 493; Tinitigan vs. Tinitigan 100 SCRA 636). 25 Unfortunately, however, this conclusion is bereft of substantial factual basis and disregards fundamental principles concerning the primary duty of persons dealing with parties who act for others, and of estoppel. Indisputably, the credit application card is a form prepared and supplied by private respondent. There is no evidence, much less an allegation by private respondent, that it was petitioner who filled up the entries in said form. It is logical to presume then that the parties who signed it (Me Cruz and Marilou L. Cruz), or anyone of them, made or accomplished the entries. Needless to state, since on the face of the document, the "owner/manager" of the "Mang Uro Store", which is written on the column Trade Name, is Lauro Cruz, and not the parties signing the same, it was incumbent upon the private respondent to inquire into the relationship of the signatories to the petitioner or to satisfy itself as to their authority to act for or represent the petitioner. Under the circumstances, it is apparent that petitioner had no direct participation and that the two applicants could have acted without authority from him or as his duly authorized representatives. In either case, for the protection of its interest, private respondent should have made the necessary inquiry verification as to the authority of the applicants and to find out from them whether Lauro Cruz is both the owner and manager or merely the owner or the manager, for that is what "owner/manager" in its form could signify. A person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent. 26 It is for this reason that under Article No. 1902 of the Civil Code, 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, and that private or secret orders and instructions of the principal do not prejudice third persons who have relied upon the power of attorney or instructions shown them. In short, petitioner is not under estoppel, as against the claim of private respondent, which seems to be at the bottom of the respondent Court's rationalization. In Kalalo vs. Luz, 27 We held that the essential elements of estoppel in respect to the party claiming it are: (a) lack of knowledge and of the means of knowledge of the truth as the facts in question; (b) reliance, in good faith, upon the conduct or statements of the party to be estopped; and (c) action or inaction based thereon of such character as to change the position or status of the party claiming the estoppel, to his injury, detriment, or prejudice. The above disquisitions ineluctably show the absence of said elements in this case. In the instant case, there is no showing at all that private respondent tried to ascertain the ownership of Mang Uro Store and the extent of the authority of the applicants to represent Lauro Cruz at any time before it approved the credit application card.

45 There is as well no evidence, much less any claim by private respondent, that before Me Cruz and Marilou Cruz signed the credit application card, it had been dealing with petitioner or the Mang Uro Store, or that for sometime prior thereto, petitioner ever represented to it as the owner of the store that he has authorized the above signatories to represent him in any transaction. Clearly, it was error for the respondent Court to conclude that petitioner should be held liable to private respondent on account of the credit application card on the theory that he permitted the carrying of the business of the store. This theory further erroneously assumes that the business of the store before the filing of the credit application card included the sale of products of private respondent. There is evidence on this appoint. Moreover, it is apparent that the purpose of the request of private respondent to file an amended complaint within ten (10) days from 27 March 1984, the date when the pretrial was held, which the trial court granted, 28 was precisely to implead the signatories to the credit application card. This was precisely prompted by the insistence of petitioner that he is not liable for the claims in the complaint because he did not sign the credit card application and the invoices. In short, he is erroneously impleaded as defendant. Since among the matters to be considered at pre-trial is the necessity or desirability of amendments to pleadings, 29 the request was seasonably and properly made. Private respondent did not amend the complaint within the period aforesaid. So, when the case was caned for heating on 16 May 1984, pursuant to the Order of 27 March 1984, and the parties did not appear, the trial court should have dismissed the case for failure on the part of private respondent to file the amended complaint. Such dismissal is authorized under Section 3 of Rule 17 of the Rules of Court. The respondent Court, however, brushed aside this point by holding that the non-compliance by private respondent "was muted by the subsequent order dated May 16, 1984 which submitted the case for decision;" and that by said order "the trial court appears to have given its assent to resolving the case on the basis of the unamended complaint," which is authorized by Section 11 of Rule 3 of the Rules of Court. Although this justification is flimsy and begs the question, the foregoing resolution on the issue of petitioner's liability to the private respondent renders unnecessary further discussion on the remaining assigned errors. WHEREFORE, the instant petition is GRANTED, and the decision of the respondent Court of Appeals of 9 August 1988 and its resolution of 27 October 1988 in C.A.-G.R. CV No. 07859, as well as the decision of the trial court of 28 February 1985 in Civil Case No. 49672, are hereby REVERSED and SET ASIDE. With costs against private respondent. SO ORDERED.

46

G.R. No. L-32977

November 17, 1930 ILOILO, plaintiff-appellee, AL., defendants-appellees.

THE MUNICIPAL COUNCIL OF vs. JOSE EVANGELISTA, ET TAN ONG SZE VDA. DE TAN TOCO, appellant. Trenas & Laserna Provincial Fiscal Blanco of Felipe Ysmael for appellee No appearance for other appellees.

for defendant-appellant. Iloilo for plaintiff-appellees. Mauricio Cruz & Co.

VILLA-REAL, J.: This is an appeal taken by the defendant Tan Ong Sze Vda. de Tan Toco from the judgment of the Court of First Instance of Iloilo, providing as follows: Wherefore, judgment is hereby rendered, declaring valid and binding the deed of assignment of the credit executed by Tan Toco's widow, through her attorney-in-fact Tan Buntiong, in favor of late Antero Soriano; likewise the assignment executed by the latter during his lifetime in favor of the defendant Mauricio Cruz & Co., Inc., and the plaintiff is hereby ordered to pay the said Mauricio Cruz & Co., Inc., the balance of P30,966.40; the plaintiff is also ordered to deposit said sum in a local bank within the period of ninety days from the time this judgment shall become final, at the disposal of the aforesaid Mauricio Cruz & Co. Inc., and in case that the plaintiff shall not make such deposit in the manner indicated, said amount shall bear the legal interest of six percent per annum from the date when the plaintiff shall fail to make the deposit within the period herein set forth, until fully paid. Without special pronouncement of costs. In support of its appeal, the appellant assigns the following alleged errors as committed by the trial court in its decision, to wit: 1. The lower court erred in rejecting as evidence Exhibit 4-A, Tan Toco, and Exhibit 4-B, Tan Toco. 2. The lower court erred in sustaining the validity of the deed of assignment of the credit, Exhibit 2-Cruz, instead of finding that said assignment made by Tan Buntiong to Attorney Antero Soriano was null and void.

47 3. The lower court erred in upholding the assignment of that credit by Antero Soriano to Mauricio Cruz & Co., Inc., instead of declaring it null and void. 4. The court below erred in holding that the balance of the credit against the municipality of Iloilo should be adjudicated to the appellant herein, Tan Toco's widow. 5. The lower court erred in denying the motion for a new trial filed by the defendant-appellant. The facts of the case are as follows: On March 20, 1924, the Court of First Instance of Iloilo rendered judgment in civil case No. 3514 thereof, wherein the appellant herein, Tan Ong Sze Vda. de Tan Toco was the plaintiff, and the municipality of Iloilo the defendant, and the former sought to recover of the latter the value of a strip of land belonging to said plaintiff taken by the defendant to widen a public street; the judgment entitled the plaintiff to recover P42,966.40, representing the value of said strip of land, from the defendant (Exhibit A). On appeal to this court (G. R. No .22617) 1 the judgment was affirmed on November 28, 1924 (Exhibit B). After the case was remanded to the court of origin, and the judgment rendered therein had become final and executory, Attorney Jose Evangelista, in his own behalf and as counsel for the administratrix of Jose Ma .Arroyo's intestate estate, filed a claim in the same case for professional services rendered by him, which the court, acting with the consent of the appellant widow, fixed at 15 per cent of the amount of the judgment (Exhibit 22 Soriano). At the hearing on said claim, the claimants appeared, as did also the Philippine National Bank, which prayed that the amount of the judgment be turned over to it because the land taken over had been mortgaged to it. Antero Soriano also appeared claiming the amount of the judgment as it had been assigned to him, and by him, in turn, assigned to Mauricio Cruz & Co., Inc. After hearing all the adverse claims on the amount of the judgment the court ordered that the attorney's lien in the amount of 15 per cent of the judgment, be recorded in favor of Attorney Jose Evangelista, in his own behalf and as counsel for the administratrix of the deceased Jose Ma .Arroyo, and directed the municipality of Iloilo to file an action of interpleading against the adverse claimants, the Philippine National Bank, Antero Soriano, Mauricio Cruz & Co., Jose Evangelista and Jose Arroyo, as was done, the case being filed in the Court of First Instance of Iloilo as civil case No. 7702. After due hearing, the court rendered the decision quoted from at the beginning. On March 29, 1928, the municipal treasurer of Iloilo, with the approval of the auditor of the provincial treasurer of Iloilo and of the Executive Bureau, paid the late

48 Antero Soriano the amount of P6,000 in part payment of the judgment mentioned above, assigned to him by Tan Boon Tiong, acting as attorney-in-fact of the appellant herein, Tan Ong Sze Vda. de Tan Toco. On December 18, 1928, the municipal treasurer of Iloilo deposited with the clerk of the Court of First Instance of Iloilo the amount of P6,000 on account of the judgment rendered in said civil case No. 3514. In pursuance of the resolution of the court below ordering that the attorney's lien in the amount of 15 per cent of the judgment be recorded in favor of Attorney Jose Evangelista, in his own behalf and as counsel for the late Jose Ma. Arroyo, the said clerk of court delivered on the same date to said Attorney Jose Evangelista the said amount of P6,000. At the hearing of the instant case, the codefendants of Attorney Jose Evangelista agreed not to discuss the payment made to the latter by the clerk of the Court of First Instance of Iloilo of the amount of P6,000 mentioned above in consideration of said lawyer's waiver of the remainder of the 15 per cent of said judgment amounting to P444.69. With these two payments of P6,000 each making a total of P12,000, the judgment for P42,966.44 against the municipality of Iloilo was reduced to P30,966.40, which was adjudicated by said court to Mauricio Cruz & Co. This appeal, then, is confined to the claim of Mauricio Cruz & Co. as alleged assignee of the rights of the late Attorney Antero Soriano by virtue of the said judgment in payment of professional services rendered by him to the said widow and her coheirs. The only question to be decided in this appeal is the legality of the assignment made by Tan Boon Tiong as attorney-in-fact of the appellant Tan Ong Sze Viuda de Tan Toco, to Attorney Antero Soriano, of all the credits, rights and interests belonging to said appellant Tan Ong Sze Viuda de Tan Toco by virtue of the judgment rendered in civil case No .3514 of the Court of First Instance of Iloilo, entitled Viuda de Tan Toco vs. The Municipal Council of Iloilo, adjudicating to said widow the amount of P42,966.40, plus the costs of court, against said municipal council of Iloilo, in consideration of the professional services rendered by said attorney to said widow of Tan Toco and her coheirs, by virtue of the deed Exhibit 2. The appellant contends, in the first place, that said assignments was not made in consideration of professional services by Attorney Antero Soriano, for they had already been satisfied before the execution of said deed of assignment, but in order to facilitate the collection of the amount of said judgment in favor of the appellant, for the reason that, being Chinese, she had encountered many difficulties in trying to collect.lawphil.net In support of her contention on this point, the appellant alleges that the payments admitted by the court in its judgment, as made by Tan Toco's widow to Attorney Antero Soriano for professional services rendered to her and to her coheirs, amounting to P2,900, must be added to the P700 evidenced by Exhibits 4-A, Tan Toco, and 4-B Tan Toco, respectively, which exhibits the court below rejected as evidence, on the ground

49 that they were considered as payments made for professional services rendered, not by Antero Soriano personally, by the firm of Soriano & Arroyo. A glance at these receipts shows that those amounts were received by Attorney Antero Soriano for the firm of Soriano & Arroyo, which is borne out by the stamp on said receipts reading, "Befete Soriano & Arroyo," and the manner in which said attorney receipted for them, "Soriano & Arroyo, by A. Soriano." Therefore, the appellant's contention that the amounts of P200 and P500 evidence by said receipts should be considered as payments made to Attorney Antero Soriano for professional services rendered by him personally to the interests of the widow of Tan Toco, is untenable. Besides, if at the time of the assignments to the late Antero Soriano his professional services to the appellant widow of Tan Toco had already been paid for, no reason can be given why it was necessary to write him money in payment of professional services on March 14, 1928 (Exhibit 5-G Tan Toco) and December 15, of the same year (Exhibit 5-H Tan Toco) after the deed of assignment, (Exhibit 2-Cruz) dated September 27, 1927, had been executed. In view of the fact that the amounts involved in the cases prosecuted by Attorney Antero Soriano as counsel for Tan Toco's widow, some of which cases have been appealed to this court, run into the hundreds of thousands of pesos, and considering that said attorney had won several of those cases for his clients, the sum of P10,000 to date paid to him for professional services is wholly inadequate, and shows, even if indirectly, that the assignments of the appellant's rights and interests made to the late Antero Soriano and determined in the judgment aforementioned, was made in consideration of the professional services rendered by the latter to the aforesaid widow and her coheirs. The defendant-appellant also contends that the deed of assignment Exhibit 2Cruz was drawn up in contravention of the prohibition contained in article 1459, case 5, of the Civil Code, which reads as follows: ART. 1459. The following persons cannot take by purchase, even at a public or judicial auction, either in person or through the mediation of another: xxx xxx xxx

5. Justices, judges, members of the department of public prosecution, clerks of superior and inferior courts, and other officers of such courts, the property and rights in litigation before the court within whose jurisdiction or territory they perform their respective duties .This prohibition shall include the acquisition of such property by assignment. Actions between co-heirs concerning the hereditary property, assignments in payment of debts, or to secure the property of such persons, shall be excluded from this rule.

50 The prohibition contained in this paragraph shall include lawyers and solicitors with respect to any property or rights involved in any litigation in which they may take part by virtue of their profession and office. It does not appear that the Attorney Antero Soriano was counsel for the herein appellant in civil case No. 3514 of the Court of First Instance of Iloilo, which she instituted against the municipality of Iloilo, Iloilo, for the recovery of the value of a strip of land expropriated by said municipality for the widening of a certain public street. The only lawyers who appear to have represented her in that case were Arroyo and Evangelista, who filed a claim for their professional fees .When the appellant's credit, right, and interests in that case were assigned by her attorney-in-fact Tan Boon Tiong, to Attorney Antero Soriano in payment of professional services rendered by the latter to the appellant and her coheirs in connection with other cases, that particular case had been decided, and the only thing left to do was to collect the judgment. There was no relation of attorney and client, then, between Antero Soriano and the appellant, in the case where that judgment was rendered; and therefore the assignment of her credit, right and interests to said lawyer did not violate the prohibition cited above. As to whether Tan Boon Tiong as attorney-in-fact of the appellant, was empowered by his principal to make as assignment of credits, rights and interests, in payment of debts for professional services rendered by lawyers, in paragraph VI of the power of attorney, Exhibit 5-Cruz, Tan Boon Tiong is authorized to employ and contract for the services of lawyers upon such conditions as he may deem convenient, to take charge of any actions necessary or expedient for the interests of his principal, and to defend suits brought against her. This power necessarily implies the authority to pay for the professional services thus engaged. In the present case, the assignment made by Tan Boon Tiong, as Attorney-in-fact for the appellant, in favor of Attorney Antero Soriano for professional services rendered in other cases in the interests of the appellant and her coheirs, was that credit which she had against the municipality of Iloilo, and such assignment was equivalent to the payment of the amount of said credit to Antero Soriano for professional services. With regard to the failure of the other attorney-in-fact of the appellant, Tan Montano, authorized by Exhibit 1 Tan Toco, to consent to the deed of assignment, the latter being also authorized to pay, in the name and behalf of the principal, all her debts and the liens and encumbrances her property, the very fact that different letters of attorney were given to each of these two representatives shows that it was not the principal's intention that they should act jointly in order to make their acts valid. Furthermore, the appellant was aware of that assignment and she not only did not repudiate it, but she continued employing Attorney Antero Soriano to represent her in court. For the foregoing considerations, the court is of opinion and so holds: (1) That an agent of attorney-in -fact empowered to pay the debts of the principal, and to employ lawyers to defend the latter's interests, is impliedly empowered to pay the lawyer's fees for services rendered in the interests of said principal, and may satisfy them by an

51 assignment of a judgment rendered in favor of said principal; (2) that when a person appoints two attorneys-in-fact independently, the consent of the one will not be required to validate the acts of the other unless that appears positively to have been the principal's attention; and (3) that the assignment of the amount of a judgment made by a person to his attorney, who has not taken any part in the case wherein said judgment was rendered, made in payment of professional services in other cases, does not contravene the prohibition of article 1459, case 5, of the Civil Code. By virtue whereof, and finding no error in the judgment appealed from, the same is affirmed in its entirety, with costs against the appellant. So ordered.

52

G.R. No. 150678

February 18, 2005

BIENVENIDO R. MEDRANO and IBAAN RURAL BANK, petitioners, vs. COURT OF APPEALS, PACITA G. BORBON, JOSEFINA E. ANTONIO and ESTELA A. FLOR, respondents. DECISION CALLEJO, SR., J.: This is a petition for review of the Decision1 of the Court of Appeals (CA) affirming in toto the Decision2 of the Regional Trial Court (RTC) of Makati City, Branch 135, in Civil Case No. 15664 which awarded to the respondents their 5% brokers commission. The facts are as follows: Bienvenido R. Medrano was the Vice-Chairman of Ibaan Rural Bank, a bank owned by the Medrano family. In 1986, Mr. Medrano asked Mrs. Estela Flor, a cousin-in-law, to look for a buyer of a foreclosed asset of the bank, 3a 17-hectare mango plantation priced at P2,200,000.00, located in Ibaan, Batangas.4 Mr. Dominador Lee, a businessman from Makati City, was a client of respondent Mrs. Pacita G. Borbon, a licensed real estate broker. The two met through a previous transaction where Lee responded to an ad in a newspaper put up by Borbon for an 8hectare property in Lubo, Batangas, planted with atis trees. Lee expressed that he preferred a land with mango trees instead. Borbon promised to get back to him as soon as she would be able to find a property according to his specifications. Borbon relayed to her business associates and friends that she had a ready buyer for a mango orchard. Flor then advised her that her cousin-in-law owned a mango plantation which was up for sale. She told Flor to confer with Medrano and to give them a written authority to negotiate the sale of the property.5 Thus, on September 3, 1986, Medrano issued the Letter of Authority, as follows: Mrs. Pacita G. Campos Tindalo, Makati, M.M. Mrs. Estela A. 23 Quezon City, M.M. Dear Mesdames: Borbon & Miss Rueda Miss Mabini Maria Josefina E. Antonio Building Karasig Street

Flor

&

Yumi

S.

53 This letter will serve as your authority* to negotiate with any prospective buyer for the sale of a certain real estate property more specifically a mango plantation which is described more particularly therein below: Location : Barrio Tulay-na-Patpat, Ibaan, Batangas Lot Area : 17 attached Appendix "A" hectares (more fruit-bearing or less) mango per trees

Improvements : 720 all (carabao variety) and other trees Price : P 2,200,000.00

For your labor and effort in finding a purchaser thereof, I hereby bind myself to pay you a commission of 5% of the total purchase price to be agreed upon by the buyer and seller. Very truly yours, (Sgd.) B.R. Owner * Subject to price sale.6 The respondents arranged for an ocular inspection of the property together with Lee which never materialized the first time was due to inclement weather; the next time, no car was available for the tripping to Batangas. 7 Lee then called up Borbon and told her that he was on his way to Lipa City to inspect another property, and might as well also take a look at the property Borbon was offering. Since Lee was in a hurry, the respondents could no longer accompany him at the time. Thus, he asked for the exact address of the property and the directions on how to reach the lot in Ibaan from Lipa City. Thereupon, Lee was instructed to get in touch with Medranos daughter and also an officer of the bank, Mrs. Teresa Ganzon, regarding the property.81vvphi1.nt Two days after the visit, respondent Josefina Antonio called Lee to inquire about the result of his ocular inspection. Lee told her that the mango trees "looked sick" so he was bringing an agriculturist to the property. Three weeks thereafter, Antonio called Lee again to make a follow-up of the latters visit to Ibaan. Lee informed her that he already purchased the property and had made a down payment of P1,000,000.00. The remaining balance of P1,200,000.00 was to be paid upon the approval of the incorporation papers of the corporation he was organizing by the Securities and Exchange Commission. According to Antonio, Lee asked her if they had already received their commission. She answered "no," and Lee expressed surprise over this.9 Medrano

54 A Deed of Sale was eventually executed on November 6, 1986 between the bank, represented by its President/General Manager Teresa M. Ganzon (as Vendor) and KGB Farms, Inc., represented by Dominador Lee (as Vendee), for the purchase price of P1,200,000.00.10 Since the sale of the property was consummated, the respondents asked from the petitioners their commission, or 5% of the purchase price. The petitioners refused to pay and offered a measly sum of P5,000.00 each.11 Hence, the respondents were constrained to file an action against herein petitioners. The petitioners alleged that Medrano issued the letter of authority in favor of all the respondents, upon the representation of Flor that she had a prospective buyer. Flor was the only person known to Medrano, and he had never met Borbon and Antonio. Medrano had asked that the name of their prospective buyer be immediately registered so as to avoid confusion later on, but Flor failed to do so. Furthermore, the other officers of the bank had never met nor dealt with the respondents in connection with the sale of the property. Ganzon also asked Lee if he had an agent and the latter replied that he had none. The petitioners also denied that the purchase price of the property was P2,200,000.00 and alleged that the property only cost P1,200,000.00. The petitioners further contended that the letter of authority signed by Medrano was not binding or enforceable against the bank because the latter had a personality separate and distinct from that of Medrano. Medrano, on the other hand, denied liability, considering that he was not the registered owner of the property, but the bank. The petitioners, likewise, filed a counterclaim as they were constrained to hire the services of counsel and suffered damages.12 After the case was submitted for decision, Medrano died, but no substitution of party was made at this time.13 The trial court resolved the case based on the following common issues: 1. Whether or not the letter of authority is binding and enforceable against the defendant Bank only or both defendants; and 2. Whether or not the plaintiffs are entitled to any commission for the sale of the subject property.14 On September 21, 1994, the trial court rendered a Decision in favor of the respondents. The petitioners were ordered to pay, jointly and severally, the 5% brokers commission to herein respondents. The trial court found that the letter of authority was valid and binding as against Medrano and the Ibaan Rural bank. Medrano signed the said letter for and in behalf of the bank, and as owner of the property, promising to pay the respondents a 5% commission for their efforts in looking for a purchaser of the property. He is, therefore, estopped from denying liability on the basis of the letter of authority he issued in favor of the respondents. The trial court further stated that the sale of the property could not have been possible without the representation and intervention of the respondents. As such, they are entitled to the brokers commission of 5% of the selling

55 price of P1,200,000.00 as evidenced by the deed of sale. 15 The fallo of the decision reads as follows: WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs and against the defendants, for the latter, jointly and severally: 1. To pay plaintiffs the sum of P60,000.00 representing their five percent (5%) commission of the purchase price of the property sold based on Exh. "D" or "9" plus legal interest from date of filing of the herein complaint until fully paid; 2. To pay plaintiffs the sum of P20,000.00 as and for attorneys fees; 3. To pay the plaintiffs the sum of P10,000.00 as litigation expenses; 4. To pay the costs of the proceedings.16 Unable to agree with the RTC decision, petitioner Ibaan Rural Bank filed its notice of appeal.17 On October 10, 1994, the heirs of Bienvenido Medrano filed a Motion for Reconsideration18 praying that the late Bienvenido Medrano be substituted by his heirs. They further prayed that the trial courts decision as far as Medrano was concerned be set aside and dismissed considering his demise. The trial court denied the motion for reconsideration.19 Hence, the heirs of Medrano also filed their notice of appeal.20 On appeal, the petitioners reiterated their stance that the letter of authority was not binding and enforceable, as the same was signed by Medrano, who was not actually the owner of the property. They refused to give the respondents any commission, since the latter did not perform any act to consummate the sale. The petitioners pointed out that the respondents (1) did not verify the real owner of the property; (2) never saw the property in question; (3) never got in touch with the registered owner of the property; and (4) neither did they perform any act of assisting their buyer in having the property inspected and verified.21 The petitioners further raised the trial courts error in not dismissing the case against Bienvenido Medrano considering his death. On May 3, 2001, the CA promulgated the assailed decision affirming the finding of the trial court that the letter of authority was valid and binding. Applying the principle of agency, the appellate court ruled that Bienvenido Medrano constituted the respondents as his agents, granting them authority to represent and act on behalf of the former in the sale of the 17-hectare mango plantation. The CA also ruled that the trial court did not err in finding that the respondents were the procuring cause of the sale. Suffice it to state that were it not for the respondents, Lee would not have known that there was a mango orchard offered for sale.1awphi1.nt

56 The CA further ruled that an action for a sum of money continues even after the death of the defendant, and shall remain as a money claim against the estate of the deceased. Undaunted by the CAs unfavorable decision, the petitioners filed the instant petition, raising eight (8) assignments of errors, to wit: I. THE COURT OF APPEALS ERRED WHEN IT FOUND THE PRIVATE RESPONDENTS TO BE THE PROCURING CAUSE OF THE SALE; II. THE COURT OF APPEALS ERRED IN GIVING CREDENCE TO THE LETTER-AUTHORITY OF PETITIONER MR. MEDRANO; III. THE COURT OF APPEALS MADE A MISTAKE WHEN IT CORRECTLY RECOGNIZED THE EXTENT OF THE PRIVATE RESPONDENTS OBLIGATION AND AUTHORITY CONTAINED IN MEDRANOS LETTERAUTHORITY AND YET ERRONEOUSLY GRANTED THE PRIVATERESPONDENTS DEMAND, NOTWITHSTANDING THE NON-PERFORMANCE OF THEIR OBLIGATION THEREUNDER; IV. THE COURT OF APPEALS ERRED IN PRESUMING BAD FAITH UPON THE PETITIONERS; V. THE COURT OF APPEALS ERRED IN PLACING THE BURDEN OF PROOF UPON THE DEFENDANTS-PETITIONERS; VI. THE COURT OF APPEALS FAILED TO SUBSTANTIATE ITS CONCLUSION WITH EVIDENCE AND INSTEAD RELIED ON INFERENCE; VII. THE COURT OF APPEALS FAILED TO SUBSTANTIATE ITS CONCLUSION WITH EVIDENCE AND MERELY RELIED ON SPECULATION AND SURMISE; VIII. THE COURT OF APPEALS MISAPPRECIATED THE FACTS PRESENTED BEFORE IT, AND CONSEQUENTLY FAILED TO CONSIDER REASONABLY THE TWO (2) BASIC ARGUMENTS OF THE PETITIONERS.22 The petition is denied. The records disclose that respondent Pacita Borbon is a licensed real estate broker23 and respondents Josefina Antonio and Estela A. Flor are her associates.24 A broker is generally defined as one who is engaged, for others, on a commission, negotiating contracts relative to property with the custody of which he has no concern; the negotiator between other parties, never acting in his own name but in the name of those who employed him; he is strictly a middleman and for some purposes the agent of both parties. A broker is one whose occupation is to bring parties together, in matters of

57 trade, commerce or navigation.25 For the respondents participation in finding a buyer for the petitioners property, the petitioners refuse to pay them commission, asserting that they are not the efficient procuring cause of the sale, and that the letter of authority signed by petitioner Medrano is not binding against the petitioners. "Procuring cause" is meant to be the proximate cause. 26 The term "procuring cause," in describing a brokers activity, refers to a cause originating a series of events which, without break in their continuity, result in accomplishment of prime objective of the employment of the broker producing a purchaser ready, willing and able to buy real estate on the owners terms.27 A broker will be regarded as the "procuring cause" of a sale, so as to be entitled to commission, if his efforts are the foundation on which the negotiations resulting in a sale are begun.28 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.29 Indeed, the evidence on record shows that the respondents were instrumental in the sale of the property to Lee. Without their intervention, no sale could have been consummated. They were the ones who set the sale of the subject land in motion.30 Upon being informed by Flor that Medrano was selling his mango orchard, Borbon lost no time in informing Lee that they had found a property according to his specifications. An ocular inspection of the property together with Lee was immediately planned; unfortunately, it never pushed through for reasons beyond the respondents control. Since Lee was in a hurry to see the property, he asked the respondents the exact address and the directions on how to reach Ibaan, Batangas. The respondents thereupon instructed him to look for Teresa Ganzon, an officer of the Ibaan Rural Bank and the person to talk to regarding the property. While the letter-authority issued in favor of the respondents was non-exclusive, no evidence was adduced to show that there were other persons, aside from the respondents, who informed Lee about the property for sale. Ganzon testified that no advertisement was made announcing the sale of the lot, nor did she give any authority to other brokers/agents to sell the subject property.31 The fact that it was Lee who personally called Borbon and asked for directions prove that it was only through the respondents that Lee learned about the property for sale.32Significantly, too, Ms. Teresa Ganzon testified that there were no other persons other than the respondents who inquired from her about the sale of the property to Lee.33 It can thus be readily inferred that the respondents were the only ones who knew about the property for sale and were responsible in leading a buyer to its consummation. All these circumstances lead us to the inescapable conclusion that the respondents were the procuring cause of the sale. When there is a close, proximate and causal connection between the brokers efforts and the principals sale of his property, the broker is entitled to a commission.34 The petitioners insist that the respondents are not entitled to any commission since they did not actually perform any acts of "negotiation" as required in the letter-authority. They refuse to pay the commission since according to them, the respondents participation in the transaction was not apparent, if not nil. The respondents did not even look at the

58 property themselves; did not introduce the buyer to the seller; did not hold any conferences with the buyer, nor take part in concluding the sale. For the noncompliance of this obligation "to negotiate," the petitioners argue, the respondents are not entitled to any commission. We find the argument specious.l^vvphi1.net The letter of authority must be read as a whole and not in its truncated parts. Certainly, it was not the intention of Medrano to expect the respondents to do just that (to negotiate) when he issued the letter of authority. The clear intention is to reward the respondents for procuring a buyer for the property. Before negotiating a sale, a broker must first and foremost bring in a prospective buyer. It has been held that a broker earns his pay merely by bringing the buyer and the seller together, even if no sale is eventually made.35 The essential feature of a brokers conventional employment is merely to procure a purchaser for a property ready, able, and willing to buy at the price and on the terms mutually agreed upon by the owner and the purchaser. And it is not a prerequisite to the right to compensation that the broker conduct the negotiations between the parties after they have been brought into contact with each other through his efforts. 36 The case ofMacondray v. Sellner37 is quite instructive: The business of a real estate broker or agent, generally, is only to find a purchaser, and the settled rule as stated by the courts is that, in the absence of an express contract between the broker and his principal, the implication generally is that the broker becomes entitled to the usual commissions whenever he brings to his principal a party who is able and willing to take the property and enter into a valid contract upon the terms then named by the principal, although the particulars may be arranged and the matter negotiated and completed between the principal and the purchaser directly. Notably, there are cases where the right of the brokers to recover commissions were upheld where they actually took no part in the negotiations, never saw the customer, and even some in which they did nothing except advertise the property, as long as it can be shown that they were the efficient cause of the sale.38 In the case at bar, the role of the respondents in the transaction is undisputed. Whether or not they participated in the negotiations of the sale is of no moment. Armed with an authority to procure a purchaser and with a license to act as broker, we see no reason why the respondents can not recover compensation for their efforts when, in fact, they are the procuring cause of the sale.39 Anent the validity of the letter-authority signed by Medrano, we find no reversible error with the findings of the appellate and trial courts that the petitioners are liable thereunder. Such factual findings deserve this Courts respect in the absence of any cogent reason to reverse the same. Medranos obligation to pay the respondents commission for their labor and effort in finding a purchaser or a buyer for the described parcel of land is unquestionable. In the absence of fraud, irregularity or illegality in its execution, such letter-authority serves as a contract, and is considered as the law between the parties. As such, Medrano can not renege on the promise to pay

59 commission on the flimsy excuse that he is not the registered owner of the property. The evidence shows that he comported himself to be the owner of the property. His testimony is quite telling: Q Mr. Medrano, do you know any of the plaintiffs in this case, Pacita Borbon, Josefina Antonio, and Stella (sic) F. Flor? WITNESS A I know only Stella (sic) F. Flor. The rest, I do not know them. I have never met them, up to now. Q How about the co-defendant Ibaan Rural Bank? A I know co-defendant Ibaan Rural Bank, having been the founder and at one time or another, I have served several capacities from President to Chairman of the Board. Q Are you familiar with a certain parcel of land located at Barrio Tulay na Patpat, Ibaan, Batangas, with an area of 17 hectares? A Yes, Sir. I used to own that property but later on mortgaged it to Ibaan Rural Bank. Q And what, if any, [did] the bank do to your property after you have mortgaged the same to it? A After many demands for payment or redemption of my mortgage, which I failed to do so, the Ibaan Rural Bank sold it. Q After it was foreclosed? A Yes, Sir. Q Do you recall having made any transaction with plaintiff Stella (sic) F. Flor regarding the property? A Yes, Sir. Since she is the first cousin of my wife, I remember [that] she came to my office once and requested for a letter of authority which I issued [in] September 1986, I think, and I gave her the letter of authority.40 As to the liability of the bank, we quote with favor the disquisition of the respondent court, to wit: Further, the appellants cannot use the flimsy excuse (only to evade liability) that "(w)hat Mr. Medrano represented to the plaintiffs-appellees, without the knowledge or consent

60 of the defendant Bank, did not bind the Bank. Res inter alios acta alteri nocere non debet." (page 8 of the Appellants Brief; page 35 of the Rollo). While it may be true that technically the Ibaan Rural Bank did not authorize Bienvenido R. Medrano to sell the land under litigation or that the latter was no longer an officer of the said bank, still, these circumstances do not convince this Court fully well to absolve the bank. Note that, as former President of the said bank, it is improbable that he (Bienvenido R. Medrano) was completely oblivious of the developments therein. By reason of his past association with the officers of the said bank (who are, in fact, his relatives), it is unbelievable that Bienvenido R. Medrano could simply have issued the said letter of authority without the knowledge of the said officers. Granting por aguendo that Bienvenido R. Medrano did not act on behalf of the bank, however, We doubt that he had no financial and/or material interest in the said sale a fact that could not possibly have eluded Our attention.41 From all the foregoing, there can be no other conclusion than the respondents are indeed the procuring cause of the sale. If not for the respondents, Lee would not have known about the mango plantation being sold by the petitioners. The sale was consummated. The bank had profited from such transaction. It would certainly be iniquitous if the respondents would not be rewarded their commission pursuant to the letter of authority. WHEREFORE, the petition is DENIED due course. The Decision of the Court of Appeals is AFFIRMED. SO ORDERED.

61

SANTOS B. AREOLA and LYDIA D. AREOLA, petitioners-appellants, vs. COURT OF APPEALS and PRUDENTIAL GUARANTEE AND ASSURANCE, INC., respondentsappellees. ROMERO, J.: chanrobles virtual law library On June 29, 1985, seven months after the issuance of petitioner Santos Areola's Personal Accident Insurance Policy No. PA-20015, respondent insurance company unilaterally cancelled the same since company records revealed that petitioner-insured failed to pay his premiums.chanroblesvirtualawlibrary chanrobles virtual law library On August 3, 1985, respondent insurance company offered to reinstate same policy it had previously cancelled and even proposed to extend its lifetime to December 17, 1985, upon a finding that the cancellation was erroneous and that the premiums were paid in full by petitioner-insured but were not remitted by Teofilo M. Malapit, respondent insurance company's branch manager.chanroblesvirtualawlibrary chanrobles virtual law library These, in brief, are the material facts that gave rise to the action for damages due to breach of contract instituted by petitioner-insured before Branch 40 RTC, Dagupan City against respondent insurance company.chanroblesvirtualawlibrary chanrobles virtual law library There are two issues for resolution in this case: chanrobles virtual law library (1) Did the erroneous act of cancelling subject insurance policy entitle petitioner-insured to payment of damages? chanrobles virtual law library (2) Did the subsequent act of reinstating the wrongfully cancelled insurance policy by respondent insurance company, in an effort to rectify such error, obliterate whatever liability for damages it may have to bear, thus absolving it therefrom? chanrobles virtual law library From the factual findings of the trial court, it appears that petitioner-insured, Santos Areola, a lawyer from Dagupan City, bought, through the Baguio City branch of Prudential Guarantee and Assurance, Inc. (hereinafter referred to as Prudential), a personal accident insurance policy covering the one-year period between noon of November 28, 1984 and noon of November 28, 1985. 1Under the terms of the statement of account issued by respondent insurance company, petitioner-insured was supposed to pay the total amount of P1,609.65 which included the premium of P1,470.00, documentary stamp of P110.25 and 2% premium tax of P29.40.2At the lower left-hand corner of the statement of account, the following is legibly printed:

62 This Statement of Account must not be considered a receipt. Official Receipt will be issued to you upon payment of this account.chanroblesvirtualawlibrary chanrobles virtual law library If payment is made to our representative, demand for a Provisional Receipt and if our Official Receipts is (sic) not received by you within 7 days please notify us.chanroblesvirtualawlibrary chanrobles virtual law library If payment is made to our office, demand for an OFFICIAL RECEIPT. On December 17, 1984, respondent insurance company issued collector's provisional receipt No. 9300 to petitioner-insured for the amount of P1,609.65 3On the lower portion of the receipt the following is written in capital letters: Note: This collector's provisional receipt will be confirmed by our official receipt. If our official receipt is not received by you within 7 days, please notify us. 4 chanrobles virtual law library On June 29, 1985, respondent insurance company, through its Baguio City manager, Teofilo M. Malapit, sent petitioner-insured Endorsement No. BG-002/85 which "cancelled flat" Policy No. PA BG-20015 "for non-payment of premium effective as of inception dated." 5The same endorsement also credited "a return premium of P1,609.65 plus documentary stamps and premium tax" to the account of the insured.chanroblesvirtualawlibrary chanrobles virtual law library Shocked by the cancellation of the policy, petitioner-insured confronted Carlito Ang, agent of respondent insurance company, and demanded the issuance of an official receipt. Ang told petitioner-insured that the cancellation of the policy was a mistake but he would personally see to its rectification. However, petitioner-insured failed to receive any official receipt from Prudential.chanroblesvirtualawlibrary chanrobles virtual law library Hence, on July 15, 1985, petitioner-insured sent respondent insurance company a letter demanding that he be insured under the same terms and conditions as those contained in Policy No. PA-BG-20015 commencing upon its receipt of his letter, or that the current commercial rate of increase on the payment he had made under provisional receipt No. 9300 be returned within five days. 6Areola also warned that should his demands be unsatisfied, he would sue for damages.chanroblesvirtualawlibrary chanrobles virtual law library On July 17, 1985, he received a letter from production manager Malapit informing him that the "partial payment" of P1,000.00 he had made on the policy had been "exhausted pursuant to the provisions of the Short Period Rate Scale" printed at the back of the policy. Malapit warned Areola that should be fail to pay the balance, the company's liability would cease to operate. 7 chanrobles virtual law library

63 In reply to the petitioner-insured's letter of July 15, 1985, respondent insurance company, through its Assistant Vice-President Mariano M. Ampil III, wrote Areola a letter dated July 25, 1985 stating that the company was verifying whether the payment had in fact been issued therefor. Ampil emphasized that the official receipt should have been issued seven days from the issuance of the provisional receipt but because no official receipt had been issued in Areola's name, there was reason to believe that no payment had been made. Apologizing for the inconvenience, Ampil expressed the company's concern by agreeing "to hold you cover (sic) under the terms of the referenced policy until such time that this matter is cleared." 8 chanrobles virtual law library On August 3, 1985, Ampil wrote Areola another letter confirming that the amount of P1,609.65 covered by provisional receipt No. 9300 was in fact received by Prudential on December 17, 1984. Hence, Ampil informed Areola that Prudential was "amenable to extending PGA-PA-BG-20015 up to December 17, 1985 or one year from the date when payment was received." Apologizing again for the inconvenience caused Areola, Ampil exhorted him to indicate his conformity to the proposal by signing on the space provided for in the letter. 9 chanrobles virtual law library The letter was personally delivered by Carlito Ang to Areola on August 13, 1985 10but unfortunately, Areola and his wife, Lydia, as early as August 6, 1985 had filed a complaint for breach of contract with damages before the lower court.chanroblesvirtualawlibrary chanrobles virtual law library In its Answer, respondent insurance company admitted that the cancellation of petitioner-insured's policy was due to the failure of Malapit to turn over the premiums collected, for which reason no official receipt was issued to him. However, it argued that, by acknowledging the inconvenience caused on petitioner-insured and after taking steps to rectify its omission by reinstating the cancelled policy prior to the filing of the complaint, respondent insurance company had complied with its obligation under the contract. Hence, it concluded that petitioner-insured no longer has a cause of action against it. It insists that it cannot be held liable for damages arising from breach of contract, having demonstrated fully well its fulfillment of its obligation.chanroblesvirtualawlibrary chanrobles virtual law library The trial court, on June 30, 1987, rendered a judgment in favor of petitioner-insured, ordering respondent insurance company to pay the former the following: a) P1,703.65 as actual damages; b) P200,000.00 as moral damages; and c) P50,000.00 as exemplary damages; 2. To pay to the plaintiff, as and for attorney's fees the amount of P10,000.00; and

64 3. To pay the costs. In its decision, the court below declared that respondent insurance company acted in bad faith in unilaterally cancelling subject insurance policy, having done so only after seven months from the time that it had taken force and effect and despite the fact of full payment of premiums and other charges on the issued insurance policy. Cancellation from the date of the policy's inception, explained the lower court, meant that the protection sought by petitioner-insured from the risks insured against was never extended by respondent insurance company. Had the insured met an accident at the time, the insurance company would certainly have disclaimed any liability because technically, the petitioner could not have been considered insured. Consequently, the trial court held that there was breach of contract on the part of respondent insurance company, entitling petitioner-insured to an award of the damages prayed for.chanroblesvirtualawlibrary chanrobles virtual law library This ruling was challenged on appeal by respondent insurance company, denying bad faith on its part in unilaterally cancelling subject insurance policy.chanroblesvirtualawlibrary chanrobles virtual law library After consideration of the appeal, the appellate court issued a reversal of the decision of the trial court, convinced that the latter had erred in finding respondent insurance company in bad faith for the cancellation of petitioner-insured's policy. According to the Court of Appeals, respondent insurance company was not motivated by negligence, malice or bad faith in cancelling subject policy. Rather, the cancellation of the insurance policy was based on what the existing records showed, i.e., absence of an official receipt issued to petitioner-insured confirming payment of premiums. Bad faith, said the Court of Appeals, is some motive of self-interest or ill-will; a furtive design of ulterior purpose, proof of which must be established convincingly. On the contrary, it further observed, the following acts indicate that respondent insurance company did not act precipitately or willfully to inflict a wrong on petitioner-insured: (a) the investigation conducted by Alfredo Bustamante to verify if petitioner-insured had indeed paid the premium; (b) the letter of August 3, 1985 confirming that the premium had been paid on December 17, 1984; (c) the reinstatement of the policy with a proposal to extend its effective period to December 17, 1985; and (d) respondent insurance company's apologies for the "inconvenience" caused upon petitioner-insured. The appellate court added that respondent insurance company even relieved Malapit, its Baguio City manager, of his job by forcing him to resign.chanroblesvirtualawlibrary chanrobles virtual law library Petitioner-insured moved for the reconsideration of the said decision which the Court of Appeals denied. Hence, this petition for review on certiorari anchored on these arguments: I chanrobles virtual law library

65 Respondent Court of Appeals is guilty of grave abuse of discretion and committed a serious and reversible error in not holding Respondent Prudential liable for the cancellation of the insurance contract which was admittedly caused by the fraudulent acts and bad faith of its own officers. II chanrobles virtual law library Respondent Court of Appeals committed serious and reversible error and abused its discretion in ruling that the defenses of good faith and honest mistake can co-exist with the admitted fraudulent acts and evident bad faith. III chanrobles virtual law library Respondent Court of Appeals committed a reversible error in not finding that even without considering the fraudulent acts of its own officer in misappropriating the premium payment, the act itself in cancelling the insurance policy was done with bad faith and/or gross negligence and wanton attitude amounting to bad faith, because among others, it was Mr. Malapit - the person who committed the fraud - who sent and signed the notice of cancellation. IV chanrobles virtual law library Respondent Court of Appeals has decided a question of substance contrary to law and applicable decision of the Supreme Court when it refused to award damages in favor of herein Petitioner-Appellants. It is petitioner-insured's submission that the fraudulent act of Malapit, manager of respondent insurance company's branch office in Baguio, in misappropriating his premium payments is the proximate cause of the cancellation of the insurance policy. Petitioner-insured theorized that Malapit's act of signing and even sending the notice of cancellation himself, notwithstanding his personal knowledge of petitioner-insured's full payment of premiums, further reinforces the allegation of bad faith. Such fraudulent act committed by Malapit, argued petitioner-insured, is attributable to respondent insurance company, an artificial corporate being which can act only through its officers or employees. Malapit's actuation, concludes petitioner-insured, is therefore not separate and distinct from that of respondent-insurance company, contrary to the view held by the Court of Appeals. It must, therefore, bear the consequences of the erroneous cancellation of subject insurance policy caused by the non-remittance by its own employee of the premiums paid. Subsequent reinstatement, according to petitionerinsured, could not possibly absolve respondent insurance company from liability, there being an obvious breach of contract. After all, reasoned out petitioner-insured, damage had already been inflicted on him and no amount of rectification could remedy the same.chanroblesvirtualawlibrary chanrobles virtual law library

66 Respondent insurance company, on the other hand, argues that where reinstatement, the equitable relief sought by petitioner-insured was granted at an opportune moment, i.e. prior to the filing of the complaint, petitioner-insured is left without a cause of action on which to predicate his claim for damages. Reinstatement, it further explained, effectively restored petitioner-insured to all his rights under the policy. Hence, whatever cause of action there might have been against it, no longer exists and the consequent award of damages ordered by the lower court in unsustainable.chanroblesvirtualawlibrary chanrobles virtual law library We uphold petitioner-insured's submission. Malapit's fraudulent act of misappropriating the premiums paid by petitioner-insured is beyond doubt directly imputable to respondent insurance company. A corporation, such as respondent insurance company, acts solely thru its employees. The latters' acts are considered as its own for which it can be held to account. 11The facts are clear as to the relationship between private respondent insurance company and Malapit. As admitted by private respondent insurance company in its answer, 12Malapit was the manager of its Baguio branch. It is beyond doubt that he represented its interest and acted in its behalf. His act of receiving the premiums collected is well within the province of his authority. Thus, his receipt of said premiums is receipt by private respondent insurance company who, by provision of law, particularly under Article 1910 of the Civil Code, is bound by the acts of its agent. Article 1910 thus reads: chanrobles virtual law library Art. 1910. The principal must comply with all the obligations which the agent may have contracted within the scope of his authority.chanroblesvirtualawlibrary chanrobles virtual law library As for any obligation wherein the agent has exceeded his power, the principal is not bound except when he ratifies it expressly or tacitly. Malapit's failure to remit the premiums he received cannot constitute a defense for private respondent insurance company; no exoneration from liability could result therefrom. The fact that private respondent insurance company was itself defrauded due to the anomalies that took place in its Baguio branch office, such as the non-accrual of said premiums to its account, does not free the same from its obligation to petitioner Areola. As held in Prudential Bank v. Court of Appeals 13citing the ruling in McIntosh v. Dakota Trust Co.: 14 A bank is liable for wrongful acts of its officers done in the interests of the bank or in the course of dealings of the officers in their representative capacity but not for acts outside the scope of their authority. A bank holding out its officers and agent as worthy of confidence will not be permitted to profit by the frauds they may thus be enabled to perpetrate in the apparent scope of their employment; nor will it be permitted to shirk its responsibility for such frauds, even though no benefit may accrue to the bank therefrom. Accordingly, a banking corporation is liable to innocent third persons where the representation is made in the course of its business by an agent acting within the

67 general scope of his authority even though, in the particular case, the agent is secretly abusing his authority and attempting to perpetrate a fraud upon his principal or some other person, for his own ultimate benefit. Consequently, respondent insurance company is liable by way of damages for the fraudulent acts committed by Malapit that gave occasion to the erroneous cancellation of subject insurance policy. Its earlier act of reinstating the insurance policy can not obliterate the injury inflicted on petitioner-insured. Respondent company should be reminded that a contract of insurance creates reciprocal obligations for both insurer and insured. Reciprocal obligations are those which arise from the same cause and in which each party is both a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other. 15 chanrobles virtual law library Under the circumstances of instant case, the relationship as creditor and debtor between the parties arose from a common cause: i.e., by reason of their agreement to enter into a contract of insurance under whose terms, respondent insurance company promised to extend protection to petitioner-insured against the risk insured for a consideration in the form of premiums to be paid by the latter. Under the law governing reciprocal obligations, particularly the second paragraph of Article 1191, 16the injured party, petitioner-insured in this case, is given a choice between fulfillment or rescission of the obligation in case one of the obligors, such as respondent insurance company, fails to comply with what is incumbent upon him. However, said article entitles the injured party to payment of damages, regardless of whether he demands fulfillment or rescission of the obligation. Untenable then is reinstatement insurance company's argument, namely, that reinstatement being equivalent to fulfillment of its obligation, divests petitioner-insured of a rightful claim for payment of damages. Such a claim finds no support in our laws on obligations and contracts.chanroblesvirtualawlibrary chanrobles virtual law library The nature of damages to be awarded, however, would be in the form of nominal damages 17contrary to that granted by the court below. Although the erroneous cancellation of the insurance policy constituted a breach of contract, private respondent insurance company, within a reasonable time took steps to rectify the wrong committed by reinstating the insurance policy of petitioner. Moreover, no actual or substantial damage or injury was inflicted on petitioner Areola at the time the insurance policy was cancelled. Nominal damages are "recoverable where a legal right is technically violated and must be vindicated against an invasion that has produced no actual present loss of any kind, or where there has been a breach of contract and no substantial injury or actual damages whatsoever have been or can be shown. 18 chanrobles virtual law library WHEREFORE, the petition for review on certiorari is hereby GRANTED and the decision of the Court of Appeals in CA-G.R. No. 16902 on May 31, 1990, REVERSED. The decision of Branch 40, RTC Dagupan City, in Civil Case No. D-7972 rendered on June 30, 1987 is hereby REINSTATED subject to the following modifications: (a) that nominal damages amounting to P30,000.00 be awarded petitioner in lieu of the

68 damages adjudicated by court a quo; and (b) that in the satisfaction of the damages awarded therein, respondent insurance company is ORDERED to pay the legal rate of interest computed from date of filing of complaint until final payment thereof.chanroblesvirtualawlibrary chanrobles virtual law library SO ORDERED.

69 G.R. No. 108957 June 14, 1993 PRUDENTIAL BANK, Petitioner, CRUZ, Respondents. CRUZ, J.: We deal here with another controversy involving bank.chanroblesvirtualawlibrary chanrobles virtual law library the integrity of a vs. THE COURT OF APPEALS, AURORA

The complaint in this case arose when private respondent Aurora F. Cruz, * with her sister as co-depositor, invested P200,000.00 in Central Bank bills with the Prudential Bank at its branch in Quezon Avenue, Quezon City, on June 23, 1986. The placement was for 63 days at 13.75% annual interest. For this purpose, the amount of P196,122.88 was withdrawn from the depositors' Savings Account No. 2546 and applied to the investment. The difference of P3,877.07 represented the pre-paid interest.chanroblesvirtualawlibrary chanrobles virtual law library The transaction was evidenced by a Confirmation of Sale 1delivered to Cruz two days later, together with a Debit Memo 2in the amount withdrawn and applied to the confirmed sale. These documents were issued by Susan Quimbo, the employee of the bank to whom Cruz was referred and who was apparently in charge of such transactions. 3 chanrobles virtual law library Upon maturity of the placement on August 25, 1986, Cruz returned to the bank to "rollover" or renew her investment. Quimbo, who again attended to her, prepared a Credit Memo 4 crediting the amount of P200,000.00 in Cruz's savings account passbook. She also prepared a Debit Memo for the amount of P196,122.88 to cover the re-investment of P200,000.00 minus the prepaid interest of P3,877.02. 5 chanrobles virtual law library This time, Cruz was asked to sign a Withdrawal Slip 6for P196,122.98, representing the amount to be re-invested after deduction of the prepaid interest. Quimbo explained this was a new requirement of the bank. Several days later, Cruz received another Confirmation of Sale 7and a copy of the Debit Memo. 8 chanrobles virtual law library On October 27, 1986, Cruz returned to the bank and sought to withdraw her P200,000.00. After verification of her records, however, she was informed that the investment appeared to have been already withdrawn by her on August 25, 1986. There was no copy on file of the Confirmation of Sale and the Debit Memo allegedly issued to her by Quimbo. Quimbo herself was not available for questioning as she had not been reporting for the past week. Shocked by this information, Cruz became hysterical and burst into tears. The branch manager, Roman Santos, assured her that he would look into the matter. 9 chanrobles virtual law library Every day thereafter, Cruz went to the bank to inquire about her request to withdraw her investment. She received no definite answer, not even to the letter she wrote the bank

70 which was received by Santos himself. 10Finally, Cruz sent the bank a demand letter dated November 12, 1986 for the amount of P200,000.00 plus interest. 11In a reply dated November 20, 1986, the bank's Vice President Lauro J. Jocson said that there appeared to be an anomaly and requested Cruz to defer court action as they hoped to settle the matter amicably. 12Increasingly worried, Cruz sent another letter reiterating her demand. 13This time the reply of the bank was unequivocal and negative. She was told that her request had to be denied because she had already withdrawn the amount she was claiming. 14 chanrobles virtual law library Cruz's reaction was to file a complaint for breach of contract against Prudential Bank in the Regional Trial Court of Quezon City. She demanded the return of her money with interest, plus damages and attorney's fees. In its answer, the bank denied liability, insisting that Cruz had withdrawn her investment. The bank also instituted a third-party complaint against Quimbo, who did not file an answer and was declared in default. 15The bank, however, did not present any evidence against her.chanroblesvirtualawlibrary chanrobles virtual law library After trial, Judge Rodolfo A. Ortiz rendered judgment in favor of the plaintiffs and disposed as follows: ACCORDINGLY, judgment is hereby rendered ordering the defendant/third-party plaintiff to pay to the plaintiffs the following amounts: chanrobles virtual law library 1. P200,000.00, plus interest thereon at the rate of 13.75% per annum from October 27, 1986, until fully paid; chanrobles virtual law library 2. P30,000.00, as moral damages; chanrobles virtual law library 3. P20,000.00, as exemplary damages; and chanrobles virtual law library 4. P25,000.00, as reasonable attorney's fees.chanroblesvirtualawlibrary chanrobles virtual law library The counterclaim and the third-party complaint of the defendant/third-party plaintiff are dismissed.chanroblesvirtualawlibrarychanrobles virtual law library With costs against the defendant/third-party plaintiff. The decision was affirmed in toto on appeal court.chanroblesvirtualawlibrary chanrobles virtual law library to the respondent

The judgment of the Court of Appeals 16is now faulted in this petition, mainly on the ground that the bank should not have been found liable for a quasi-delict when it was sued for breach of contract.chanroblesvirtualawlibrary chanrobles virtual law library

71 The petition shall fail. The petitioner is quibbling. It appears to be merely temporizing to delay enforcement of the liability clearly established against it.chanroblesvirtualawlibrary chanrobles virtual law library The basic issues are factual. The private respondent claims she has not yet collected her investment of P200,000.00 and has submitted in proof of their contention the Confirmation of Sale and the Debit Memo issued to her by Quimbo on the official forms of the bank. The petitioner denies her claim and points to the Withdrawal Slip, which it says Cruz has not denied having signed. It also contends that the Confirmation of Sale and the Debit Memo are fake and should not have been given credence by the lower courts.chanroblesvirtualawlibrary chanrobles virtual law library The findings of the trial court on these issues have been affirmed by the respondent court and we see no reason to disturb them. The petitioner has not shown that they have been reached arbitrarily or in disregard of the evidence of record. On the contrary, we find substantial basis for the conclusion that the private respondents signed the Withdrawal Slip only as part of the bank's new procedure of re-investment. She did not actually receive the amount indicated therein, which she was made to understand was being re-invested in her name. The bank itself so assured her in the Confirmation of Sale and the Debit Memo later issued to her by Quimbo.chanroblesvirtualawlibrary chanrobles virtual law library Especially persuasive are the following observations of the trial court: 17 What is more, it could not be that plaintiff Aurora F. Cruz withdrew only the amount of P196,122.98 from their savings account, if her only intention was to make such a withdrawal. For, if, indeed, it was the desire of the plaintiffs to withdraw their money from the defendant/third-party plaintiff, they could have withdrawn an amount in round figures. Certainly, it is unbelievable that their withdrawal was in the irregular amount of P196,122.98 if they really received it. On the contrary, this amount, which is the price of the Central Bank bills rolled over, indicates that, as claimed by plaintiff Aurora F. Cruz, she did not receive this money, but it was left by her with the defendant/third-party plaintiff in order to buy Central Bank bills placement for another sixty-three (63) days, for which she signed a withdrawal slip at the instance of third-party defendant Susan Quimbo who told her that it was a new bank requirement for the roll-over of a matured placement which she trustingly believed. Indeed, the bank has not explained the remarkable coincidence that the amount indicated in the withdrawal slip is exactly the same amount Cruz was re-investing after deducting therefrom the pre-paid interest.chanroblesvirtualawlibrary chanrobles virtual law library The bank has also not, succeeded in impugning the authenticity of the Confirmation of Sale and the Debit Memo which were made on its official, forms. These are admittedly not available to the general public or even its depositors and are handled only by its personnel. Even assuming that they were not signed by its authorized officials, as it

72 claims, there was no obligation on the part of Cruz to verify their authority because she had the right to presume it. The documents had been issued in the office of the bank itself and by its own employees with whom she had previously dealt. Such dealings had not been questioned before, much leas invalidated. There was absolutely no reason why she should not have accepted their authority to act on behalf of their employer.chanroblesvirtualawlibrary chanrobles virtual law library It is also worthy of note - and wonder - that although the bank impleaded Quimbo in a third-party complaint, it did not pursue its suit even when she failed to answer and was declared in default. The bank did not introduce evidence against her although it could have done so under the rules. No less remarkably, it did not call on her to testify on its behalf, considering that under the circumstances claimed by it, she would have been the best witness to show that Cruz had actually withdrawn her P200,000.00 placement. Instead, the bank chose to rely on its other employees whose testimony was less direct and categorical than the testimony Quimbo could have given.chanroblesvirtualawlibrary chanrobles virtual law library We do not find that the Court of Appeals held the bank liable on a quasi-delict. The argument of the petitioner on this issue is pallid, to say the least, consisting as it does only of the observation that the article cited by the respondent court on the agent's liability falls under the heading in the Civil Code on quasi-delicts. On the other hand, the respondent court clearly declared that: The defendant/third-party plaintiff being liable for the return of the P200,000.00 placement of the plaintiffs, the extent of the liability of the defendant/third-party plaintiff for damages resultant thereof,which is contractual, is for all damages which may be reasonably attributed to the non-performance of the obligation, . . . xxx xxx xxx chanrobles virtual law library Because of the bad faith of the defendant/third-party plaintiff in its breach of its contract with the plaintiffs, the latter are, therefore, entitled to an award of moral damages . . . (Emphasis supplied) There is no question that the petitioner was made liable for its failure or refusal to deliver to Cruz the amount she had deposited with it and which she had a right to withdraw upon its maturity. That investment was acknowledged by its own employees, who had the apparent authority to do so and so could legally bind it by its acts vis-avis Cruz. Whatever might have happened to the investment - whether it was lost or stolen by whoever - was not the concern of the depositor. It was the concern of the bank.chanroblesvirtualawlibrary chanrobles virtual law library As far as Cruz was concerned, she had the right to withdraw her P200,000.00 placement when it matured pursuant to the terms of her investment as acknowledged and reflected in the Confirmation of Sale. The failure of the bank to deliver the amount

73 to her pursuant to the Confirmation of Sale constituted its breach of their contract, for which it should be held liable.chanroblesvirtualawlibrary chanrobles virtual law library The liability of the principal for the acts of the agent is not even debatable. Law and jurisprudence are clearly and absolutely against the petitioner.chanroblesvirtualawlibrary chanrobles virtual law library Such liability dates back to the Roman Law maxim, Qui per alium facit per seipsum facere videtur. "He who does a thing by an agent is considered as doing it himself." This rule is affirmed by the Civil Code thus: Art. 1910. The principal must comply with all the obligations which the agent may have contracted within the scope of his authority.chanroblesvirtualawlibrary chanrobles virtual law library Art. 1911. Even when the agent has exceeded his authority, the principal is solidarily liable with the agent if the former allowed the latter to act as though he had full powers.chanroblesvirtualawlibrary chanrobles virtual law library Conformably, we have declared in countless decisions that the principal is liable for obligations contracted by the agent. The agent's apparent representation yields to the principal's true representation and the contract is considered as entered into between the principal and the third person. 18 A bank is liable for wrongful acts of its officers done in the interests of the bank or in the course of dealings of the officers in their representative capacity but not for acts outside the scope of their authority. (9 c.q.s. p. 417) A bank holding out its officers and agent as worthy of confidence will not be permitted to profit by the frauds they may thus be enabled to perpetrate in the apparent scope of their employment; nor will it be permitted to shirk its responsibility for such frauds, even though no benefit may accrue to the bank therefrom (10 Am Jur 2d, p. 114). Accordingly, a banking corporation is liable to innocent third persons where the representation is made in the course of its business by an agent acting within the general scope of his authority even though, in the particular case, the agent is secretly abusing his authority and attempting to perpetrate a fraud upon his principal or some other person, for his own ultimate benefit (McIntosh v. Dakota Trust Co., 52 ND 752, 204 NW 818, 40 ALR 1021.) Application of these principles in especially necessary because banks have a fiduciary relationship with the public and their stability depends on the confidence of the people in their honesty and efficiency. Such faith will be eroded where banks do not exercise strict care in the selection and supervision of its employees, resulting in prejudice to their depositors.chanroblesvirtualawlibrary chanrobles virtual law library It would appear from the facts established in the case before us that the petitioner was less than eager to present Quimbo at the trial or even to establish her liability although it made the initial effort - which it did not pursue - to hold her answerable in the third-party

74 complaint. What ever happened to her does not appear in the record. Her absence from the proceedings feeds the suspicion of her possible misdeed, which the bank seems to have studiously ignored by its insistence that the missing money had been actually withdrawn by Cruz. By such insistence, the bank is absolving not only itself but also, in effect and by extension, the disappeared Quimbo who apparently has much to explain.chanroblesvirtualawlibrary chanrobles virtual law library We agree with the lower courts that the petitioner acted in bad faith in denying Cruz the obligation she was claiming against it. It was obvious that an irregularity had been committed by the bank's personnel, but instead of repairing the injury to Cruz by immediately restoring her money to her, it sought to gloss over the anomaly in its own operations.chanroblesvirtualawlibrary chanrobles virtual law library Cruz naturally suffered anxious moments and mental anguish over the loss of the investment. The amount of P200,000.00 is not small even by present standards. By unjustly withholding it from her on the unproved defense that she had already withdrawn it, the bank violated the trust she had reposed in it and thus subjected itself to further liability for moral and exemplary damages.chanroblesvirtualawlibrary chanrobles virtual law library If a person dealing with a bank does not read the fine print in the contract, it is because he trusts the bank and relies on its integrity. The ordinary customer applying for a loan or even making a deposit (and so himself extending the loan to the bank) does not bother with the red tape requirements and the finicky conditions in the documents he signs. His feeling is that he does not have to be wary of the bank because it will deal with him fairly and there is no reason to suspect its motives. This is an attitude the bank must justify.chanroblesvirtualawlibrary chanrobles virtual law library While this is not to say that bank regulations are meaningless or have no binding effect, they should, however, not be used for covering up the fault of bank employees when they blunder or, worse, intentionally cheat him. The misdeeds of such employees must be readily acknowledged and rectified without delay. The bank must always act in good faith. The ordinary customer does not feel the need for a lawyer by his side every time he deals with a bank because he is certain that it is not a predator or a potential adversary. The bank should show that there is really no reason for any apprehension because it truly deserves his faith in it.chanroblesvirtualawlibrary chanrobles virtual law library WHEREFORE, the petition is DENIED and the appealed decision is AFFIRMED, with costs against the petitioner. It is so ordered.

75

ADORACION LUSTAN, petitioner, vs. COURT OF APPEALS, NICOLAS PARANGAN and SOLEDAD PARANGAN, PHILIPPINE NATIONAL BANK, respondents. DECISION FRANCISCO, J.: Petitioner Adoracion Lustan is the registered owner of a parcel of land otherwise known as Lot 8069 of the Cadastral Survey of Calinog, lloilo containing an area of 10.0057 hectares and covered by TCT No. T-561. On February 25, 1969, petitioner leased the above described property to private respondent Nicolas Parangan for a term of ten (10) years and an annual rent of One Thousand (P1,000.00) Pesos. During the period of lease, Parangan was regularly extending loans in small amounts to petitioner to defray her daily expenses and to finance her daughter's education. On July 29, 1970, petitioner executed a Special Power of Attorney in favor of Parangan to secure an agricultural loan from private respondent Philippine National Bank (PNB) with the aforesaid lot as collateral. On February 18, 1972, a second Special Power of Attorney was executed by petitioner, by virtue of which, Parangan was able to secure four (4) additional loans, to wit: the sums of P24,000.00, P38,000.00, P38,600.00 and P25,000.00 on December 15, 1975, September 6, 1976, July 2, 1979 and June 2, 1980, respectively. The last three loans were without the knowledge of herein petitioner and all the proceeds therefrom were used by Parangan for his own benefit. [1] These encumbrances were duly annotated on the certificate of title. On April 16, 1973, petitioner signed a Deed of Pacto de Retro Sale[2] in favor of Parangan which was superseded by the Deed of Definite Sale[3] dated May 4, 1979 which petitioner signed upon Parangan's representation that the same merely evidences the loans extended by him unto the former. For fear that her property might be prejudiced by the continued borrowing of Parangan, petitioner demanded the return of her certificate of title. Instead of complying with the request, Parangan asserted his rights over the property which allegedly had become his by virtue of the aforementioned Deed of Definite Sale. Under said document, petitioner conveyed the subject property and all the improvements thereon unto Parangan absolutely for and in consideration of the sum of Seventy Five Thousand (P75,000.00) Pesos. Aggrieved, petitioner filed an action for cancellation of liens, quieting of title, recovery of possession and damages against Parangan and PNB in the Regional Trial Court of Iloilo City. After trial, the lower court rendered judgment, disposing as follows: "WHEREFORE and in view of the foregoing, a decision is rendered as follows: 1. Ordering cancellation by the Register of Deeds of the Province of lloilo, of the unauthorized loans, the liens and encumbrances appearing in the Transfer Certificate of Title No. T-561, especially entries nos. 286231; 338638; and 352794;

76 2. Declaring the Deed of Pacto de Retro Sale dated April 25, 1978 and the Deed of Definite Sale dated May 6, 1979, both documents executed by Adoracion Lustan in favor of Nicolas Parangan over Lot 8069 in TCT No. T-561 of the Register of Deeds of lloilo, as null and void, declaring the same to be Deeds of Equitable Mortgage; 3. Ordering defendant Nicolas Parangan to pay all the loans he secured from defendant PNB using thereto as security TCT No. T-561 of plaintiff and defendant PNB to return TCT No. T-561 to plaintiff; 4. Ordering defendant Nicolas Parangan to return possession of the land in question, Lot 8069 of the Calinog Cadastre described in TCT No. T-561 of the Register of Deeds of lloilo, to plaintiff upon payment of the sum of P75,000.00 by plaintiff to defendant Parangan which payment by plaintiff must be made within ninety (90) days from receipt of this decision; otherwise, sale of the land will be ordered by the court to satisfy payment of the amount; 5. Ordering defendant Nicolas Parangan to pay plaintiff attorney's fees in the sum of P15,000.00 and to pay the costs of the suit. SO ORDERED."[4] Upon appeal to the Court of Appeals (CA), respondent court reversed the trial court's decision. Hence this petition contending that the CA committed the following errors: "IN ARRIVING AT THE CONCLUSION THAT NONE OF THE CONDITIONS STATED IN ART. 1602 OF THE NEW CIVIL CODE HAS BEEN PROVEN TO EXIST BY PREPONDERANCE OF EVIDENCE: IN CONCLUDING THAT PETITIONER SIGNED THE DEED OF SALE WITH KNOWLEDGE AS TO THE CONTENTS THEREOF; IN ARRIVING AT THE CONCLUSION THAT THE TESTIMONY OF WITNESS DELIA CABIAL DESERVES FULL FAITH AND CREDIT; IN FINDING THAT THE SPECIAL POWER OF ATTORNEY AUTHORIZING MORTGAGE FOR "UNLIMITED" LOANS AS RELEVANT." Two main issues confront us in this case, to wit: whether or not the Deed of Definite Sale is in reality an equitable mortgage and whether or not petitioner's property is liable to PNB for the loans contracted by Parangan by virtue of the special power of attorney. The lower court and the CA arrived at different factual findings thus necessitating a review of the evidence on record.[5] After a thorough examination, we note some errors, both in fact and in law, committed by public respondent CA.

77 The court a quo ruled that the Deed of Definite Sale is in reality an equitable mortgage as it was shown beyond doubt that the intention of the parties was one of a loan secured by petitioner's land.[6] We agree. A contract is perfected by mere consent.[7] More particularly, a contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price.[8] This meeting of the minds speaks of the intent of the parties in entering into the contract respecting the subject matter and the consideration thereof. If the words of the contract appear to be contrary to the evident intention of the parties, the latter shall prevail over the former. [9] In the case at bench, the evidence is sufficient to warrant a finding that petitioner and Parangan merely intended to consolidate the former's indebtedness to the latter in a single instrument and to secure the same with the subject property. Even when a document appears on its face to be a sale, the owner of the property may prove that the contract is really a loan with mortgage by raising as an issue the fact that the document does not express the true intent of the parties. In this case, parol evidence then becomes competent and admissible to prove that the instrument was in truth and in fact given merely as a security for the repayment of a loan. And upon proof of the truth of such allegations, the court will enforce the agreement or understanding in consonance with the true intent of the parties at the time of the execution of the contract.[10] Articles 1602 and 1604 of the Civil Code respectively provide: "The contract shall be presumed to be an equitable mortgage in any of the following cases: 1) 2) When the price of a sale with right to repurchase is unusually inadequate; When the vendor remains in possession as lessor or otherwise;

3) When upon or after the expiration of the right to repurchase, another instrument extending the period of redemption or granting a new period is executed; 4) 5) When the vendor binds himself to pay the taxes on the thing sold; When the purchaser retains for himself a part of the purchase price;

6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation." "Art. 1604. The provisions of Article 1602 shall also apply to a contract purporting to be an absolute sale." From a reading of the above-quoted provisions, for a presumption of an equitable mortgage to arise, we must first satisfy two requisites namely: that the parties entered into a contract denominated as a contract of sale and that their intention was to secure

78 an existing debt by way of mortgage. Under Art. 1604 of the Civil Code, a contract purporting to be an absolute sale shall be presumed to be an equitable mortgage should any of the conditions in Art. 1602 be present. The existence of any of the circumstances therein, not a concurrence nor an overwhelming number of such circumstances, suffices to give rise to the presumption that the contract is an equitable mortgage.[11] Art. 1602, (6), in relation to Art 1604 provides that a contract of sale is presumed to be an equitable mortgage in any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation. That the case clearly falls under this category can be inferred from the circumstances surrounding the transaction as herein set forth: Petitioner had no knowledge that the contract[12] she signed is a deed of sale. The contents of the same were not read nor explained to her so that she may intelligibly formulate in her mind the consequences of her conduct and the nature of the rights she was ceding in favor of Parangan. Petitioner is illiterate and her condition constrained her to merely rely on Parangan's assurance that the contract only evidences her indebtedness to the latter. When one of the contracting parties is unable to read, or if the contract is in a language not understood by him, and mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully explained to the former.[13] Settled is the rule that where a party to a contract is illiterate or cannot read or cannot understand the language in which the contract is written, the burden is on the party interested in enforcing the contract to prove that the terms thereof are fully explained to the former in a language understood by him.[14] To our mind, this burden has not been satisfactorily discharged. We do not find the testimony of Parangan and Delia Cabial that the contract was duly read and explained to petitioner worthy of credit. The assessment by the trial court of the credibility of witnesses is entitled to great respect and weight for having had the opportunity of observing the conduct and demeanor of the witnesses while testifying. [15] The lower court may not have categorically declared Cabial's testimony as doubtful but this fact is readily apparent when it ruled on the basis of petitioner's evidence in total disregard of the positive testimony on Parangan's side. We have subjected the records to a thorough examination, and a reading of the transcript of stenographic notes would bear out that the court a quo is correct in its assessment. The CA committed a reversible error when it relied on the testimony of Cabial in upholding the validity of the Deed of Definite Sale. For one, there are noted major contradictions between the testimonies of Cabial and Judge Lebaquin, who notarized the purported Deed of Definite Sale. While the former testified that receipts were presented before Judge Lebaquin, who in turn made an accounting to determine the price of the land [16], the latter categorically denied the allegation.[17] This contradiction casts doubt on the credibility of Cabial as it is ostensible that her version of the story is concocted. On the other hand, petitioner's witness Celso Pamplona, testified that the contract was not read nor explained to petitioner. We believe that this witness gave a more accurate account of the circumstances surrounding the transaction. He has no motive

79 to prevaricate or concoct a story as he witnessed the execution of the document at the behest of Parangan himself who, at the outset, informed him that he will witness a document consolidating petitioner's debts. He thus testified: "Q: In (sic) May 4, 1979, you remember having went (sic) to the Municipality of Calinog? A: Yes, sir. Q: Who invited you to go there? A: Parangan. Q: You mean Nicolas Parangan? A: Yes, sir. Q: What did Nicolas tell you why he invited you to go there? A: He told me that I will witness on the indebtedness of Adoracion to Parangan. xxx xxx xxx Q: Before Adoracion Lustan signed her name in this Exh. "4", was this document read to her? A: No, sir. Q: Did Nicolas Parangan right in that very room tell Adoracion what she was signing? A: No, sir. xxx xxx xxx Q: What did you have in mind when you were signing this document, Exh. "4"? A: To show that Adoracion Lustan has debts with Nicolas Parangan."[18] Furthermore, we note the absence of any question propounded to Judge Lebaquin to establish that the deed of sale was read and explained by him to petitioner. When asked if witness has any knowledge whether petitioner knows how to read or write, he answered in the negative.[19] This latter admission impresses upon us that the contract was not at all read or explained to petitioner for had he known that petitioner is illiterate, his assistance would not have been necessary. The foregoing squares with the sixth instance when a presumption of equitable mortgage prevails. The contract of definite sale, where petitioner purportedly ceded all her rights to the subject lot in favor of Parangan, did not embody the true intention of the parties. The evidence speaks clearly of the nature of the agreement it was one executed to secure some loans. Anent the issue of whether the outstanding mortgages on the subject property can be enforced against petitioner, we rule in the affirmative.

80 Third persons who are not parties to a loan may secure the latter by pledging or mortgaging their own property.[20] So long as valid consent was given, the fact that the loans were solely for the benefit of Parangan would not invalidate the mortgage with respect to petitioner's property. In consenting thereto, even granting that petitioner may not be assuming personal liability for the debt, her property shall nevertheless secure and respond for the performance of the principal obligation. [21] It is admitted that petitioner is the owner of the parcel of land mortgaged to PNB on five (5) occasions by virtue of the Special Powers of Attorney executed by petitioner in favor of Parangan. Petitioner argues that the last three mortgages were void for lack of authority. She totally failed to consider that said Special Powers of Attorney are a continuing one and absent a valid revocation duly furnished to the mortgagee, the same continues to have force and effect as against third persons who had no knowledge of such lack of authority. Article 1921 of the Civil Code provides: "Art. 1921. If the agency has been entrusted for the purpose of contracting with specified persons, its revocation shall not prejudice the latter if they were not given notice thereof." The Special Power of Attorney executed by petitioner in favor of Parangan duly authorized the latter to represent and act on behalf of the former. Having done so, petitioner clothed Parangan with authority to deal with PNB on her behalf and in the absence of any proof that the bank had knowledge that the last three loans were without the express authority of petitioner, it cannot be prejudiced thereby. As far as third persons are concerned, an act is deemed to have been performed within the scope of the agent's authority if such 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 the understanding between the principal and the agent.[22] The Special Power of Attorney particularly provides that the same is good not only for the principal loan but also for subsequent commercial, industrial, agricultural loan or credit accommodation that the attorney-infact may obtain and until the power of attorney is revoked in a public instrument and a copy of which is furnished to PNB.[23] Even when the agent has exceeded his authority, the principal is solidarily liable with the agent if the former allowed the latter to act as though he had full powers (Article 1911, Civil Code).[24] The mortgage directly and immediately subjects the property upon which it is imposed. [25] The property of third persons which has been expressly mortgaged to guarantee an obligation to which the said persons are foreign, is directly and jointly liable for the fulfillment thereof; it is therefore subject to execution and sale for the purpose of paying the amount of the debt for which it is liable.[26] However, petitioner has an unquestionable right to demand proportional indemnification from Parangan with respect to the sum paid to PNB from the proceeds of the sale of her property[27] in case the same is sold to satisfy the unpaid debts. WHEREFORE, premises considered, the judgment of the lower court is hereby REINSTATED with the following MODIFICATIONS: 1. DECLARING THE DEED OF DEFINITE SALE AS AN EQUITABLE MORTGAGE;

81 2. ORDERING PRIVATE RESPONDENT NICOLAS PARANGAN TO RETURN THE POSSESSION OF THE SUBJECT LAND UNTO PETITIONER UPON THE LATTER'S PAYMENT OF THE SUM OF P75,000.00 WITHIN NINETY (90) DAYS FROM RECEIPT OF THIS DECISION; 3. DECLARING THE MORTGAGES IN FAVOR OF PNB AS VALID AND SUBSISTING AND MAY THEREFORE BE SUBJECTED TO EXECUTION SALE. 4. ORDERING PRIVATE RESPONDENT PARANGAN TO PAY PETITIONER THE AMOUNT OF P15,000.00 BY WAY OF ATTORNEY'S FEES AND TO PAY THE COSTS OF THE SUIT. SO ORDERED.

82

G.R. CONRADO vs. THE ROMAN Irureta Hartigan , J.:

No. AYLLON, CATHOLIC and and ARCHBISHOP Recto and Welch OF Jose MANILA, Carlos for

L-13868 plaintiff-appellant, defendant-appellee. for appellant. appellee.

Goyena

The defendant, the Roman Catholic Archbishop of Manila, is the owner of a large tract of land located in the provinces of Bulacan and Pampanga and known as the Buenadicha Estate. On October 1, 1913, a contract was executed by which the plaintiff, Conrado Ayllon, was placed in charge of this property in the character of agent or administrator. The period of the contract was fixed at one year, expiring September 30, 1914. It was stipulated among other things that, in view of the unproductive and undeveloped condition of the property, the plaintiff should be entitled to retain ninety per centum of the net profits of the estate, any losses incurred in the management of the property being borne exclusively by him. Upon the expiration of the period of the contract above mentioned the plaintiff remained in possession and continued, with the consent of the defendant, to manage the property about as he had done before. At the end of the year 1916, the defendant resumed possession; and the plaintiff brought this action to recover the sum of P11,000, composed of two items to-wit (a) P3,000, alleged to have been expended by the plaintiff in the case and improvement of the estate; and (b) P8,000, representing the supposed reasonable value of the plaintiffs services as administrator of the estate from September 30, 1914, to December 31, 1916. The trial court dismissed the action, with costs against the plaintiff, whereupon the latter appealed. The theory of the plaintiff's case is that inasmuch as, after the termination of the period fixed in the original contract, there was no contractual relation existing between the parties, the plaintiff should be entitled to reimbursement of his expenditures and to compensation for services rendered upon the basis of a reasonable allowance, or quantum merit. We concur with the trial court in the view that the action is not maintainable. It is undoubtedly true that, in the absence of a prior contract, the defendant would have been bound to compensate the plaintiff for services rendered at the defendant's special

83 instance and request, and the defendant likewise would have been bound to reimburse the plaintiff for any expenditures incurred by the plaintiff in the management of the estate with the defendant's knowledge and consent. The obligation to compensate and reimburse under such circumstances is imposed by law in contemplation of the implied request or consent of the person bound and in view of the benefit conferred, the contract arising in conception of law upon the facts involve and without any express promise. One of the fundamental conditions essential to the creation of such implied obligation is that the expenditures or services for which compensation is sought should be incurred, or rendered in response to a request, expressed or implied, on the part of the person benefitted. The obligation can not arise where services are rendered or expenditures paid out voluntarily, that is, without request made and without expectation of a reward. Furthermore, it is elementary that the law will not create an obligation to compensate or reimburse where there is a special contract to which the services or expenditures in question may be referred. In such case the measure of compensation must be sought in the contract itself. In the case before us the relation existing between the parties to this action and its origin in a special contract, which defied the duties of the plaintiff and the obligations of the defendant; and when both parties by tacit consent, after the expiration of the period fixed in the contract, continued the relation substantially as it had existed under the contract, the only reasonable assumption is that they intended for their respective obligations to be measured by that contract. The law in such a situation will not imposed an obligation on the part of the defendant to compensate or reimburse on a basis different from that specially fixed in the contract by which their relation was originally created QwxenD. The situation here contemplated is exactly analogous to that created by tacit reconduction, expressly recognized in the Civil Code (art. 1566); and the rule which in such case fixes the rights of the parties according to the obligations created by the original contract is equally applicable in relations of agency and service. The trial court was not in error in dismissing the action. Judgment affirmed, with costs. So ordered

84

INLAND REALTY INVESTMENT SERVICE, INC. and ROMAN M. DE LOS REYES, petitioners, vs. HON. COURT OF APPEALS, GREGORIO ARANETA, INC. and J. ARMANDO EDUQUE, respondents. DECISION HERMOSISIMA, JR., J.: Herein petitioners Inland Realty Investment Service, Inc. (hereafter, "Inland Realty") and Roman M. de los Reyes seek the reversal of the Decision[1] of the Intermediate Appellate Court (now Court of Appeals)[2] which affirmed the trial court's dismissal[3] of petitioners' claim for unpaid agent's commission for brokering the sales transaction involving 9,800 shares of stock in Architects' Bldg., Inc. (hereafter, "Architects'") between private respondent Gregorio Araneta, Inc. (hereafter, "Araneta, Inc.") as seller and Stanford Microsystems, Inc. (hereafter, "Stanford") as buyer. Petitioners come to us with a two-fold agenda: (1) to obtain from us a declaration that the trial court and the respondent appellate court gravely erred when appreciating the facts of the case by disregarding Exhibits "L," a Letter dated October 28, 1976 signed by Gregorio Araneta II, renewing petitioners' authority to act as sales agent for a period of thirty (30) days from same date, and Exhibit "M," a Letter dated November 16, 1976 signed by petitioner de los Reyes, naming four (4) other prospective buyers, respectively; and (2) to obtain from us a categorical ruling that a broker is automatically entitled to the stipulated commission merely upon securing for, and introducing to, the seller the particular buyer who ultimately purchases from the former the object of the sale, regardless of the expiration of the broker's contract of agency and authority to sell. Before we proceed to address petitioners' objectives, there is a need to unfold the facts of the case. For that purpose, we quote hereunder the findings of fact of the Court of Appeals with which petitioners agree, except as to the respondent appellate court's non-inclusion of the aforementioned Exhibits "L" and "M": "From the evidence, the following facts appear undisputed: On September 16, 1975, defendant corporation thru its co-defendant Assistant General Manager J. Armando Eduque, granted to plaintiffs a 30-day authority to sell its x x x 9,800 shares of stock in Architects' Bldg., Inc. as follows: 'September 16, 1975 TO WHOM IT MAY CONCERN: This is to authorize Mr. R.M. de los Reyes, representing Inland Realty, to sell on a first come first served basis the total holdings of Gregorio Araneta, Inc. in Architects' [Bldg.], Inc. equivalent to 98% or 9,800 shares of stock at the price of P1,500.00 per share for a period of 30 days.

85 (SGD.) J. ARMANDO EDUQUE Asst. General Manager' Plaintiff Inland Realty Investment Service, Inc. (Inland Realty for short) is a corporation engaged [in], among others x x x the real estate business [and] brokerages, duly licensed by the Bureau of Domestic Trade x x x. [Inland Realty] planned their sales campaign, sending proposal letters to prospective buyers. One such prospective buyer to whom a proposal letter was sent to was Stanford Microsystems, Inc. x x x [that] counter-proposed to buy 9,800 shares offered at P1,000.00 per share or for a total of P9,800,000.00, P4,900,000.00 payable in five years at 12% per annum interest until fully paid. Upon plaintiffs' receipt of the said counter-proposal, it immediately [sic] wrote defendant a letter to register Stanford Microsystems, Inc. as one of its prospective buyers x x x. Defendant Araneta, Inc., thru its Assistant General Manager J. Armando Eduque, replied that the price offered by Stanford was too low and suggested that plaintiffs see if the price and terms of payment can be improved upon by Stanford x x x. Other prospective buyers were submitted to defendants among whom were Atty. Maximo F. Belmonte and Mr. Joselito Hernandez. The authority to sell given to plaintiffs by defendants was extended several times: the first being on October 2, 1975, for 30 days from said date (Exh. 'J'), the second on October 28, 1975 for 30 days from said date (Exh. 'L') and on December 2, 1975 for 30 days from said date (Exh. 'K'). Plaintiff Roman de los Reyes, manager of Inland Realty's brokerage division, who by contract with Inland Realty would be entitled to 1/2 of the claim asserted herein, testified that when his company was initially granted the authority to sell, he asked for an exclusive authority and for a longer period but Armando Eduque would not give, but according to this witness, the life of the authority could always be extended for the purpose of negotiation that would be continuing. On July 8, 1977, plaintiffs finally sold the 9,800 shares of stock [in] Architects' [Bldg.], Inc. to Stanford Microsystems, Inc. for P13,500,000.00 x x x. On September 6, 1977, plaintiffs demanded formally [from] defendants, through a letter of demand, for payment of their 5% broker['s] commission at P13,500,000.00 or a total amount of P675,000.00 x x x which was declined by [defendants] on the ground that the claim has no factual or legal basis."[4] Ascribing merit to private respondents' defense that, after their authority to sell expired thirty (30) days from December 2, 1975, or on January 1, 1976, petitioners abandoned the sales transaction and were no longer privy to the consummation and documentation thereof, the trial court dismissed petitioners' complaint for collection of unpaid broker's commission. Petitioners appealed, but the Court of Appeals was unswayed in the face of evidence of the expiration of petitioners' agency contract and authority to sell on

86 January 1, 1976 and the consummation of the sale to Stanford on July 8, 1977 or more than one (1) year and five (5) months after petitioners' agency contract and authority to sell expired. Respondent appellate court dismissed petitioners' appeal in this wise: " x x x The resolution would seem to hinge on the question of whether plaintiff was instrumental in the final consummation of the sale to Stanford which was the same name of the company submitted to defendants as a prospective buyer although their price was considered by defendant to be too low and defendants wrote to plaintiff if the price may be improved upon by Stanford x x x. This was on October 13, 1975. After that, there was an extension for 30 days from October 28, 1975 of the authority (Exh. 'L') and another on December 2, 1975 for another 30 days from the said date x x x. x x x There is nothing in the record or in the testimonial evidence that the authority extended 30 days from the last date of extension was ever reserved nor extended, nor has there been any communication made to defendants that the plaintiff was actually negotiating with Stanford a better price than what was previously offered by it x x x. In fact there was no longer any agency after the last extension. Certainly, the length of time which had transpired from the date of last extension of authority to the final consummation of the sale with Stanford of about one (1) year and five (5) months without any communication at all from plaintiffs to defendants with respect to the suggestion of defendants that Stanford's offer was too low and suggested if plaintiffs may make it better. We have a case of proposal and counter-proposal which would not constitute a definite closing of the transaction just because it was plaintiff who solely suggested to defendants the name of Stanford as buyer x x x."[5] Unable to accept the dismissal of its claim for unpaid broker's commission, petitioners filed the instant petition for review asking us (1) to pass upon the factual issue of the alleged extension of their agency contract and authority to sell and (2) to rule in favor of a broker's automatic entitlement to the stipulated commission merely upon securing for, and introducing to, the seller, the particular buyer who ultimately purchases from the former the object of the sale, regardless of the expiration of the broker's contract of agency and authority to sell. We find for private respondents. I Petitioners take exception to the finding of the respondent Court of Appeals that their contract of agency and authority to sell expired thirty (30) days from its last renewal on December 2, 1975. They insist that, in the Letter dated October 28, 1976, Gregorio Araneta III, in behalf of Araneta, Inc., renewed petitioner Inland Realty's authority to act as agent to sell the former's 9,800 shares in Architects' for another thirty (30) days from same date. This Letter dated October 28, 1976, petitioners claim, was marked as Exhibit "L" during the trial proceedings before the trial court. This claim is a blatant lie. In the first place, petitioners have conspicuously failed to attach a certified copy of this Letter dated October 28, 1976. They have, in fact, not attached even a machine copy thereof. All they gave this court is their word that said

87 Letter dated October 28, 1976 does exist, and on that basis, they expect us to accordingly rule in their favor. Such naivety, this court will not tolerate. We will not treat lightly petitioners' attempt to mislead this court by claiming that the Letter dated October 28, 1976 was marked as Exhibit "L" by the trial court, when the truth is that the trial court marked as Exhibit "L", and the respondent Court of Appeals considered as Exhibit "L," private respondent Araneta, Inc.'s Letter dated October 28, 1975, not 1976. Needless to say, this blatant attempt to mislead this court, is contemptuous conduct that we sternly condemn. II The Letter dated November 16, 1976, claimed by petitioners to have been marked as Exhibit "M", has no probative value, considering that its very existence remains under a heavy cloud of doubt and that hypothetically assuming its existence, its alleged content, namely, a listing of four (4) other prospective buyers, does not at all prove that the agency contract and authority to sell in favor of petitioners was renewed or revived after it expired on January 1, 1976. As in the case of the Letter dated October 28, 1976, petitioners have miserably failed to attach any copy of the Letter dated November 16, 1976. A copy thereof would not help petitioners' failing cause, anyway, especially considering that said letter was signed by petitioner De los Reyes and would therefore take on the nature of a self-serving document that has no evidentiary value insofar as petitioners are concerned. III Finally, petitioners asseverate that, regardless of whether or not their agency contract and authority to sell had expired, they are automatically entitled to their broker's commission merely upon securing for and introducing to private respondent Araneta, Inc. the buyer in the person of Stanford which ultimately acquired ownership over Araneta, Inc.'s 9,800 shares in Architects'. Petitioners' asseverations are devoid of merit. It is understandable, though, why petitioners have resorted to a campaign for an automatic and blanket entitlement to brokerage commission upon doing nothing but submitting to private respondent Araneta, Inc., the name of Stanford as prospective buyer of the latter's shares in Architects'. Of course petitioners would advocate as such because precisely petitioners did nothing but submit Stanford's name as prospective buyer. Petitioners did not succeed in outrightly selling said shares under the predetermined terms and conditions set out by Araneta, Inc., e.g., that the price per share is P1,500.00. They admit that they could not dissuade Stanford from haggling for the price of P1,000.00 per share with the balance of 50% of the total purchase price payable in five (5) years at 12% interest per annum. From September 16, 1975 to January 1, 1976, when petitioners' authority to sell was subsisting, if at all, petitioners had nothing to show that they actively served their principal's interests, pursued to sell the shares in accordance with their principal's terms and conditions, and performed substantial acts that proximately and causatively led to the consummation of the sale to Stanford of Araneta, Inc.'s 9,800 shares in Architects'.

88 The Court of Appeals cannot be faulted for emphasizing the lapse of more than one (1) year and five (5) months between the expiration of petitioners' authority to sell and the consummation of the sale to Stanford, to be a significant index of petitioners' nonparticipation in the really critical events leading to the consummation of said sale, i.e., the negotiations to convince Stanford to sell at Araneta, Inc.'s asking price, the finalization of the terms and conditions of the sale, the drafting of the deed of sale, the processing of pertinent documents, and the delivery of the shares of stock to Stanford. Certainly, when the lapse of the period of more than one (1) year and five (5) months between the expiration of petitioners' authority to sell and the consummation of the sale, is viewed in the context of the utter lack of evidence of petitioners' involvement in the negotiations between Araneta, Inc. and Stanford during that period and in the subsequent processing of the documents pertinent to said sale, it becomes undeniable that the respondent Court of Appeals did not at all err in affirming the trial court's dismissal of petitioners' claim for unpaid brokerage commission. Petitioners were not the efficient procuring cause[6] in bringing about the sale in question on July 8, 1977 and are, therefore, not entitled to the stipulated broker's commission of "5% on the total price." WHEREFORE, the instant petition is HEREBY DISMISSED

89 G.R. No. L-39822 January 31, 1978 ANTONIO E. PRATS, doing business under the name of Philippine Real Estate Exchange, petitioner, vs. HON. COURT OF APPEALS, ALFONSO DORONILA and PHILIPPINE NATIONAL BANK, respondents.

FERNANDEZ, J.: This is a petition for certiorari to review the decision of the Court of Appeals in CA-G.R. No. 45974-R entitled"Antonio E. Prats, doing business under the name of Philippine Real Estate Exchange, vs. Alfonso Doronila and the Philippine National Bank", the dispositive part of which reads: In view of all the foregoing, it is our considered opinion and so hold that the decision of the lower court be, as it is hereby reversed, and the complaint, dismissed. On appellant's counterclaim, judgment is hereby rendered directing appellee to pay attorney's fees in the sum of P10,000 to appellant, no moral damages as therein claimed being awarded for lack of evidence to justify the same. The injunction issued by the lower court on the P2,000,000.00 cash deposit of the appellant is hereby lifted. No special pronouncement as to costs. SO ORDERED. 1 On September 23, 1968 Antonio E. Prats, doing business under the name of "Philippine Real Estate Exchange" instituted against Alfonso Doronila and Philippine National Bank Civil Case No. Q-12412 in the Court of First Instance of Rizal at Quezon City to recover a sum of money and damages. The complaint stated that defendant Alfonso Doronila was the registered owner of 300 hectares of land situated in Montalban, Rizal, covered by Transfer Certificates of Title Nos. 77011, 77013, 216747 and 216750; that defendant Doronila had for sometime tried to sell his aforesaid 300 hectares of land and for that purpose had designated several agents; that at one time, he had offered the same property to the Social Security System but failed to consummate any sale; that his offer to sell to the Social Security System having failed, defendant Doronila on February 14, 1968 gave the plaintiff an exclusive option and authority in writing to negotiate the sale of his aforementioned property, which exclusive option and authority the plaintiff caused to be published in the Manila Times on February 22, 1968; that it was the agreement between plaintiff and defendant Doronila that the basic price shall be P3.00 per square meter, that plaintiff shall be entitled to a commission of 10% based on P2.10 per square meter or at any price finally agreed upon and if the property be sold over and above P3.00 per square

90 meter, the excess shall be created and paid to the plaintiff in addition to his 10% commission based on P2.10 per square meter; that as a result of the grant of the exclusive option and authority to negotiate the sale of his 300 hectares of land situated in Montalban, Rizal in favor of the plaintiff, the defendant Doronila, on February 20, 1968, wrote a letter to the Social Security System withdrawing his previous offer to sell the same land and requesting the return to him of all papers concerning his offered property that the Social Security System, complying with said request of defendant Doronila, returned all the papers thereon and defendant Doronila, in turn gave them to the plaintiff as his duly authorized real estate broker; that by virtue of the exclusive written option and authority granted him and relying upon the announced policy of the President of the Philippines to promote low housing program the plaintiff immediately worked to negotiate the sale of defendant Doronila's 300 hectares of land to the Social Security System, making the necessary contacts and representations to bring the parties together, namely, the owner and the buyer, and bring about the ultimate sale of the land by defendant Doronila to the Social Security System; that on February 27, 1968, after plaintiff had already contacted the Social Security System, its Deputy Administrator, Reynaldo J. Gregorio, wrote a letter to defendant Doronila inviting the latter to a conference regarding the property in question with Administrator Teodoro, Chairman Gaviola and said Reynaldo J. Gregorio on March 4, 1968 at 10:00 o'clock in the morning, stating that the SSS would like to take up the offer of the lot; that having granted plaintiff the exclusive written option and authority to negotiate the sale of his 300 hectares of land, defendant Doronila in a letter dated February 28, 1968 declined the invitation extended by the Social Security System to meet with its Administrator and Chairman and requested them instead "to deal directly" with the plaintiff, that on March 16, 1968, at the suggestion of defendant Doronila, the plaintiff wrote a letter to the Social Security System to the effect that plaintiff would be glad to sit with the officials of the Social Security System to discuss the sale of the property of the defendant Doronila; that on March 18, 1968, the Social Security System sent a telegram to defendant Doronila to submit certain documents regarding the property offered; that on May 6, 1968, a written offer to sell the 300 hectares of land belonging to defendant Doronila was formally made by the plaintiff to the Social Security System and accordingly, on May 7, 1968, the Social Security System Administrator dispatched the following telegram to defendant Doronila: "SSS considering purchase your property for its housing project Administrator Teodoro"; that a few days thereafter, the plaintiff accompanied the defendant Doronila to the China Banking Corporation to arrange the matter of clearing payment by chock and delivery of the titles over the property to the Society Security System; that having been brought together by the plaintiff, the defendant Doronila and the offices of the Society Security System, on May 29, 1968 and on June 4, 1968, met at the office of the SSS Administrator wherein the price for the purchase of the defendant Doronila's 300 hectares of land was, among others, taken up; that on June 20, 1968, the Social Security Commission passed Resolution No. 636 making a counter-offer of P3.25 per square meter subject to an appraise report; that on June 27, 1968, Resolution No. 662 was adopted by the Social Security Commission authorizing the Toples & Harding (Far East) Inc. to conduct an appraisal of the property and to submit a report thereon; that pursuant thereto, the said company submitted its appraisal report specifying that the present value of the property is P3.34

91 per square meter and that a housing program development would represent the highest and best use thereof, that on July 18, 1968, the Social Security Commission, at its regular meeting, taking note of the favorable appraisal report of the Toples'& Harding (Far East) Inc., passed Resolution No. 738, approving the purchase of defendant Doronila's 300 hectares of land in Montalban, Rizal at a price of P3.25 per square meter or for a total purchase price of Nine Million Seven Hundred Fifty Thousand Pesos (P9,750,000.00), appropriating the said amount for the purpose and authorizing the SSS Administrator to sign the necessary documents to implement the said resolution; that on July 30, 1968, defendant Doronila and the Social Security System executed the corresponding deed of absolute sale over the 300 hectares of land in Montalban, Rizal covered by Transfer Certificate of Title Nos. 77011, 77013, 216747 and 216750 under the terms of which the total price of P9,750,000.00 shall be payable as follows: (a) 60% of the agreed purchase price, or Five Million Eight Hundred Fifty Thousand Pesos (P5,860,000.00) immediately after signing the deed of sale. and (b) the balance of 40% of the agreed price, or Three Million Nine Hundred Thousand Pesos (P3,900,000.00) thirty days after the signing of the deed of absolute sale; that on August 21, 1968, after payment of the purchase price, the deed absolute sale executed by defendant Doronila in favor of the Social Security System was presented for registration in the Office of the Register of Deeds of Rizal, and Transfer Certificates of Title Nos. 926574, 226575, 226576 and 226577 in the name of the Social Security System were issued; that defendant Doronila has received the full purchase price for his 300 hectares of land in the total amount of P9,750,000.00, which amount he deposited in his bank Account No. 0012-443 with the defendant Philippine National Bank; that on September 17, 1968, the plaintiff presented his statement to, and demanded of defendant Doronila the payment of his processional fee as real estate broker as computed under the agreement of February 14, 1968 in the total amount of P1,380,000.00; that notwithstanding such demand, the defendant Doronila, in gross and evident bad faith after having availed of the services of plaintiff as real estate broker, refused to pay the professional fees due him; that as a result of defendant Doronila's gross and evident bad faith and unjustified refusal to pay plaintiff the professional fees due him under the agreement, the latter has suffered and continues to suffer mental anguish, serious anxiety, and social humiliation for which defendant Doronila shall be held liable to pay moral damages; and, that by reason likewise of the aforesaid act of defendant Doronila, the plaintiff has been compelled to file this action and to engage the services of counsel at a stipulated professional fee of P250,000.00. In his answer filed on November 18, 1968, the defendant Doronila alleged that when the plaintiff offered the answering defendant's property to the Social Security System on May 6, 1968, said defendant had already offered his property to, and had a closed transaction or contract of sale of, said property with the Social Security System; that the letter agreement had become null and void because defendant Doronila had not received any written offer from any prospective buyers of the plaintiff during the agreed period of 60 days until the last day of the authorization which was April 13, 1968 counting from February 14, 1968; that it is not true that plaintiff brought together defendant Doronila and the officials of the Social Security System to take up the purchase price of defendant Doronila's property for the simple reason that the plaintiff's

92 offer was P6.00 per square meter and later on reduced to P4.50 per square meter because the SSS Chairman had already a closed transaction with the defendant Doronila at the price of P3.25 per square meter and that the offer of the plaintiff was refused by the officials of the Social Security System; and that defendant Doronila did not answer the statement of collection of the plaintiff because the latter had not right to demand the payment for services not rendered according to the agreement of the parties. The answering defendant interposed a counterclaim for damages and attorney's fees. On January 18, 1969, the plaintiff and defendant Alfonso Doronila submitted the following stipulation of facts: STIPULATION OF FACTS COME NOW the plaintiff and defendant DORONILA, through their respective undersigned counsel, and to this Honorable Court by way of abbreviating the proceeding i the case at bar, without prejudice to presentation of explanatory evidence, respectfully submit the following STIPULATION OF FACTS. 1. The defendant Doronila was the registered owner of 300 hectares of land, situated in Montalban, Rizal, covered by Transfer Certificates of Title Nos. 77011, 77013, 216747 (formerly TCT No. 116631) and 216750 (formerly TCT No. 77012). 2. That on July 3, 1967, defendant DORONILA under his letter (marked Annex "1" of the answer) addressed to the SSS Chairman, offered his said property to the Social Security System (SSS) at P4.00 per square meter. That on July 17, 1967 (Annex "2" of the Answer) the SSS Chairman, Mr. Ramon C. Gaviola, Jr., replied to defendant DORONILA, as follows: This will acknowledge your letter of July 3rd, 1967 relative to your offer for sale of your real estate property. In this regard, may I please be informed as to how many hectares, out of the total 300 hectares offered, are located in Quezon City and how many hectares are located in Montalban, Rizal. Likewise, as regards your offer of P4.00 per square meter, would there be any possibility that the same be reduced to P3.25 per square meter Finally and before I submit your proposal for process it is requested that

93 the NAWASA certify to the effect that they have no objection to having this parcel of land subdivided for residential house purposes. Thank you for your offer and may I hear from you at the earliest possible time. 2-a That on July 19, 1967, defendant DORONILA wrote a letter (a xerox copy, attached hereto marked as Annex "2-a" for DORONILA) to NAWASA, and that in reply thereto, on July 25, 1967, the NAWASA wrote the following letter (Xerox copy attached hereto to be marked as Annex "2-b" for DORONILA) to defendant DORONILA. In connection with your proposed subdivision plan of your properties adjacent to our Novaliches Watershed, this Office would like to impose the following conditions: 1. Since your property is an immediate boundary of our Novaliches Watershed, a 20-meter road should be constructed along our common boundary. 2. That no waste or drainage water from the subdivision should flow towards the watershed. 3. That the liquid from the septic tanks or similar waste water should be treated before it is drained to the Alat River above our Alat Dam. The above conditions are all safeguards to the drinking water of the people of Manila and Suburbs. It is therefore expected that we all cooperate to make our drinking water safer from any pollution. 3. That on July 19, 1967, defendant DORONILA wrote another letter (marked as Annex '3' on his Answer) addressed to the SSS Chairman, Mr. Ramon Gaviola Jr., stating, among others, the following: In this connection, I have your counter-offer of P3.25 per square meter against my offer of P4.00 per square meter, although your counter-offer is lower comparing to the prices of adjacent properties, I have to consider the difference as my privilege and opportunity to contribute or support the

94 Presidential policy to promote low cost housing in this country particularly to the SSS members by accepting gladly your counter-offer of P3.25 per square meter with the condition that it should be paid in cash and such payment shall be made within a period of 30 days from the above stated date (2nd paragraph of letter dated July 18, 1967, Annex "3" of the Answer). 3.a That on August 10, 1967, the SSS Chairman, Mr. Ramon Gaviola Jr., wrote the following (Xerox copy attached hereto and marked as Annex '2c' for DORONILA: addressed to defendant DORONILA: With reference to your letter, dated July 1967, please be informed that the same is now with the Administrator for study and comment. The Commission will act on receipt of information re such studies. With the assurance that you will be periodically informed of developments, we remain. 3-b That on October 30, 1967, Mr. Pastor B. Sajorda, 'By authority of Atty. Alfonso Doronila, property owner', wrote the following request (Xerox copy attached hereto and marked as Annex '2-d' for DORONILA) addressed to Realtor Vicente L. Narciso for a certification regarding the actual prices of DORONILA's property, quoted as follows: May I have the honor to request for your certification as a member of the Board of Realtor regarding the actual prices of my real estate raw-land properties described as Lots 3-B7, 26B, 6 and 4-C-3 all adjacent to each other, containing a total area of 3,000,000 square meters, all registered in the name of Alfonso Doronila, covered by T.C.T. Nos. 116631, 77013, 77011, and 77012, located at Montalban, Rizal, all adjacent to the Northern portion of the NAWASA properties in Quezon City including those other surrounding adjacent properties and even those properties located before reaching my own properties coming from Manila. This request is purposely made for my references in case I decided to sell my said properties mentioned above. 3-c

95 That on November 3, 1967, Realtor Vicente Narciso wrote the following reply (Xerox copy attached hereto and marked as Annex 2 for DORONILA) to Mr. Pastor B. Sajorda: As per your request dated October 30, 1967, regarding prices of raw land, it is my finding that the fair market value of raw land in the vicinity of the NAWASA properties at Quezon City and Montalban, Rizal. including the properties of Atty. Alfonso Doronila. more particularly known as lots 3B-7, 26-B, and 4-C-3 containing approximately 3,000,000 square meters is P3.00 to P3.50 per square meter. Current prices before reaching Doronila's property range from P6.00 to P7.00 per square meter. 4. That on February 14, 1968, defendant DORONILA granted plaintiff an exclusive option and authority (Annex 'A' of the complaint), under the following terms and conditions: 1. The price of the property is THREE (P3.00) PESOS per square meter. 2. A commission of TEN (10%) PERCENT will be paid to us based on P2.10 per square meter, or at any price that you DORONILA finally agree upon, and all expenses shall be for our account, including preparation of the corresponding deed of conveyance, documentary stamps and registration fee, whether the sale is causes directly or indirectly by us within the time of this option. If the property is sold over and above P3.00 per square meter, the excess amount shall be credited and paid to the herein workers. In addition to the 10% commission based on P2.10 per square meter, provided the brokers shall pay the corresponding taxes to the owner of the excess amount over P3.00 per square meter, unless paid by check which would then be deductible as additional expenses. 3. This exclusive option and authority is good for a period of sixty (60) days from the date of your conformity; provided, however, that should negotiations have been started with a buyer, said period is automatically extended until said negotiations is terminated, but not more than fifteen (15) days;

96 4. The written offers must be made by the prospective buyers, unless they prefer to have us take the offer for and in their behalf some buyers do not want to be known in the early stages of the negotiations: 5. If no written offer is made to you until the last day of this authorization, this option and authority shall expire and become null and void; 6. It is clearly understood that prospective buyers and all parties interested in this property shall be referred to us, and that you will not even quote a price directly to any agent or buyer. You agree to refer all agents or brokers to us DURING the time this option is in force; and 7. There are some squatters occupying small portions of the property, which fact will be reported to the prospective buyers, and said squatters will be removed at our expense. (Annex "A" of the complaint) Very truly yours, PHILIPPINE REAL ESTATE EXCHANCE (Sgd) ANTONIO E. PRATS Gener al mana ger CONFORME: (Sgt.) ALFONSO DORONILA Date: February 14, 1968 5. That on February 19, 1968, plaintiff wrote the following letter to defendant DORONILA (Annex "4" of the Answer), quoted as follows: February 19, 1968

97 Don Alfonso Doronila Plaza Ferguzon Ermita, Manila Dear Don Alfonso: In view of the exclusive option extended to us for the sale of your property consisting 300 hectares located at Montalban, Rizal, we earnestly request that you take immediate steps to withdraw any and all papers pertaining to this property offered to the SOCIAL SECURITY SYSTEM Very truly yours, PHILIPPINE REAL ESTATE EXCHANGE (Sgd) ANTONIO E. PRATS General Manager AEP/acc RECEIVED ORIGINAL By: (Sgd.) ROGELIO DAPITAN 6. That on February 20, 1968, pursuant to the letter dated February 19, 1968 of plaintiff, defendant DORONILA wrote a letter (Annex 'B' of the complaint) to the SSS Administrator stating: In as much as the SSS has not acted on my offer to sell a 300 hectare lot located in Montalban, Rizal, for the last five (5) months I respectfully requested for the return of all my papers concerning this offered property. 7. That on February 27, 1968, defendant DORONILA received the following letter (Annex "C" of the complaint) from the SSS Deputy Administrator, Mr. Reynaldo J. Gregorio, to wit:

98 May I take this opportunity of inviting you in behalf of Administrator Teodoro, to meet with him, Chairman Gaviola and myself on Friday, March 4, 10:00 A.M. lot offer. Thanks and regards. 8. That on February 28, 1968, defendant DORONILA wrote the following letter (Annex "D" of the complaint) to the SSS Deputy Administrator: Thank you for your invitation to meet Administrator Teodoro, Chairman Gaviola and your goodself, to take up my former offer to sell my property to the Social Security System. Since the SSS had not acted on my offer dated July 19, 1967, more than seven (7) months ago, I have asked for the return of my papers, as per my letter of February 20, 1968, and which you have kindly returned to me. As of February 20, 1968, I gave the Philippine Real Estate Exchange an exclusive option and authority to negotiate the sale of this 300 hectare land, and I am no longer at liberty to negotiate its sale personally; I shall therefore request you communicate directly with the Philippine Real Estate Exchange, P. O. Box 84, Quezon City, and deal with them directly if you are still interested in my property. With my kind personal regards, I am 9. That on March 16, 1968, plaintiff, acting upon the letter of defendant DORONILA dated February 28, 1968 (Annex 'D' for plaintiff), wrote the following letter to SSS Administrator: Don Alfonso Doronila, owner of the 300 hectare land located at Montalban, Rizal, adjoining the Quezon City boundary, has informed us that the Administrator of the SOCIAL SECURITY' SYSTEM, through Mr. Reynaldo J. Gregorio, has invited him to meet with the Administrator and Chairman Gaviola to take up the former offer to sell his property to the SSS. In his letter to the Administrator dated February 20, 1968 (which has been received by the SSS on the same day), Mr.

99 Doronila advised you that as of February 20,1968, he gave the PHILIPPINE REAL ESTATE EXCHANGE (PHILREX) the exclusive option and authority to negotiate the sale of his 300 hectare land in Montalban, and that he is no longer at liberty to negotiate its sale personally, and that, if you are still interested in the property, the SSS should communicate directly with the PHILIPPINE REAL ESTATE EXCHANGE. It is by virtue of this arrangement that Mr. Doronila now refers to us invitation and his reply to the SSS and has requested us to get in touch with you. While, at present we have several prospective buyers interested in this property, we shall, in compliance with the request of Mr. Doronila, be happy to sit down with you and Chairman Ramon Gaviola, Jr. Please let us know when it will be convenient to hold the conference. 10. That on April 18, 1968, defendant DORONILA extended the plaintiff exclusive option and authority to expire May 18, 1968.(annex 'B' Reply letter of Doronila to SSS Deputy Administrator dated May 8, 1968). 11. That on May 6,1968, plaintiff made a formal written offer to the Social Security System to sell the 300 hectares land of defendant DORONILA at the price of P6.00 per square meter, Xerox copy of which bearing the stamp or receipt of Social Security System is attached hereof as Annex "D" plaintiff. 12. That on May 16, 1968 the defendant DORONILA received the following telegram (Annex 'E' of the complaint) form the SSS Administrative, reading: SSS CONSIDERING PURCHASE YOUR PROPERTY FOR ITS HOUSING PROJECT 13.

100 That on May 18, 1968, after plaintiff exclusive option and authority had been extended, plaintiff wrote the following letter (Annex "A" Reply' of plaintiff's REPLY TO ANSWER) to defendant DORONILA, to wit: CONFIDENTIAL In our conference last Monday, May 13, 1968, you have been definitely advised by responsible parties that the SOCIAL SECURITY SYSTEM is acquiring your 300-hectare land at Montalban, Rizal, adjoining the Quezon City Boundary and that said property will be acquired in accordance with the exclusive option and authority you gave the PHILIPPINE REAL ESTATE EXCHANCE. You were assured in that conference that the property will be acquired definitely, but, as it has been mentioned during the conference, it may take from 30 to 60 days to have all the papers prepared and to effect the corresponding payment. The telegram from the SSS confirming these negotiations has already been received by you, a copy of which you yourself have kindly furnished us. Pursuant to paragraph 3 of the terms of the option that you have kindly extended, we still have fifteen days more from today, May 18, 1968, within which to finish the negotiations for the sale of your property to the SSS. For your convenience, we quote the pertinent portion of paragraph 3 of the option: ... provided, however, that should negotiation have been started with a buyer, said period is automatically extended until said negotiation is terminated, but no more than fifteen (15) days. Please be assured that we will do our very best to complete these negotiations for the sale of your property within this fifteen-day period. In the meantime' we hope you will also observe the provisions of paragraph 6 of the exclusive option you have extended to us. 14. That on May 18, 1968, plaintiff wrote the following letter (Xerox copy attached and marked hereof as Annex 'H' for plaintiff) addressed defendant DORONILA, to wit: By virtue of the exclusive option and authority you have granted the PHILIPPINE REAL ESTATE EXCHANGE to

101 negotiate the sale of your 300-hectare land located at Montalban, Rizal, adjoining the Quezon City boundary, which properties are covered by Transfer Certificate of Titles Nos. 116631, 77011, 77012 and 77013, of the Registry of Deeds for the Province of Rizal, we hereby make a firm offer, for and in behalf of our buyer, to purchase said property at the price of FOUR PESOS AND FIFTY CENTAVOS (P4.50) per square meter, or the total amount of THIRTEEN MILLION FIVE HUNDRED THOUSAND (P13,500,000.00) PESOS, Philippine Currency, payable in Cash and D.B.P. Progress Bonds, on a ratio to be decided between you and our principal. To expedite the negotiations, we suggest that we sit down sometime early next week with our principal to take up the final arrangement and other details in connection with the purchase of the subject property. To give you further assurance of the validity of this offer, we refer you to the CHINA BANKING CORPORATION (Trust Department) who has already been apprised of these negotiations, to which ]sank we strongly recommend that this transaction be coursed through, for your own security and protection. 15. That on May 30, 1968, plaintiff wrote the following letter (Xerox copy attached hereto, and marked as Annex 'I' for plaintiff) to defendant DORONILA, quoted as follows: This is to advise you that the SOCIAL SECURITY SYSTEM agreed to purchase your 300-hectare land located at Montalban, Rizal, which purchase can be conformed by the Chairman of the SOCIAL SECURITY COMMISSION. The details will have to be taken up between you and the Chairman, and we suggest that you communicate with the Chairman at your earliest convenience. This negotiation was made by virtue of the exclusive option and authority you have granted the PHILIPPINE REAL ESTATE EXCHANGE, which option is in full force and effect, and covers the transaction referred above. 16.

102 That on June 6,1968, defendant DORONILA wrote the following letter (Annex" 7" for DORONILA), to the plaintiff, to wit: I have to inform you officially, that I have not received any written offer from the SSS or others, to purchase my Montalban property of which you were given an option and exclusive authority as appearing in your letter- contract dated February 14, 1968, during the 60 days of your exclusive authority which expired on April 14, 1968, nor during the extension which was properly a new exclusive authority of 30 days from April 18, which expired on May 18, 1968, nor during the provided 15 days grace, in case that you have closed any transaction to terminate it during that period, which also expired on June 3, 1968. As stated in said letter, we have the following condition: 5. If no written offer is made to you until the last day of this authorization, this option and authority shall expire and becomes null and void. As I have informed you, that on April 16, 1968 or two days after your option expired I have signed an agreement to sell my property to a group of buyers to whom I asked later that the effectivity of said agreement will be after your new authority has expired will be on June 2, 1968, and they have accepted; As your option has expired, and they know that there was no written offer made by the SSS for any price of my property, aside of their previous letter announcing me that they are ready to pay, I was notified on June 4, 1968 by their representative, calling my attention but our agreement; that is why I am writing you, that having expired your option and exclusive authority to offer for sale my said property, I notified only this afternoon said to comply our agreement. Hoping for your consideration on the matter, as we have to be guided by contracts that we have to comply, I hereby express to you my sincere sentiments. 17. That on June 19, 1968, defendant DORONILA wrote the following letter (Annex "5" of the Answer) to the SSS Administrator, renewing his offer to sell his 300 hectare land to the SSS at P4.00 per square meter, to wit:

103 This is to renew my offer to sell my properties located at Montalban, Rizal Identified as Lot Nos. 3-B-7, 26-8, 6, and 4C-3 registered in my name in the office of the Registry of Deeds of Rizal under T.C.T. Nos. 116631, 77013, 77011 and 216750, containing a total area of 300 hectares or 3,000,000 square meters. You will recall that last year, I offered to the Social Security System the same properties at the price of Four (P4.00) pesos per square meter. After 3 ocular inspection of Chairman Gaviola one of said inspections accompanied by Commissioner Arroyo and after receiving the written apprisal report of Manila realtor Vicente L. Narciso, the System then made a counter-offer of Three pesos and twenty-five (P3.25) per square meter which I accepted under the condition that the total amount be paid within a period of thirty (30) days from the date of my acceptance (July 19, 1967). My acceptance was motivated by the fact that within said period of time I had hoped to purchase my sugarcane hacienda in Iloilo with the proceeds I expected from the sale. No action was however taken by the System thereon. Recently the same properties were offered by Antonio E. Prats of the Philippine Real Estate Exchange to the Presidential Assistant on Housing, at the price of six pesos (p6.00) per square meter, who referred it to the System, but against no action had been taken by the System. Considering the lapse of time since our original offer during which prices of real estate have increased considerably, on the one hand and in cooperation with the System's implementation of our government's policy to provide low cost houses to its members, on the other hand, I am renewing my offer to sell my properties to the system only at the same price of P4.00 per square meter, or for a total amount of twelve million pesos (P12,000,000.00), provided the total amount is paid in cash within a period of fifteen (15) days from this date. 18. That on June 20, 1968, the Social Security Commission passed Resolution No. 636 by which the SSS formalized its counter-offer of P3.25 per square meter. (See Annex 'F' of the complaint) 19.

104 That on June 25, 1968, the SSS Administrator, Mr. Gilberto Teodoro, wrote the following reply letter (Annex '6' of the Answer) to defendant DORONILA, to wit: This has reference to your letter dated June 19, 1966 renewing your offer to sell your property located at Montalban, Rizal containing an area of 300 hectares at P4.00 per square meter. Please be informed that the said letter was submitted for the consideration of the Social Security Commission at its last meeting on June 20, 1968 and pursuant to its Resolution No. 636, current series, it decided that the System reiterate its counter-offer for P3.25 per square meter subject to a favorable appraisal report by a reputable appraisal entity as regards particularly to price and housing project feasibility. Should this counter-offer be acceptable to you, kindly so indicate by signing hereunder your conformity thereon. Trusting that the foregoing sufficiently advises you on the matter, I remain Very truly yours, GILBE RTO TEOD ORO Admin istrato r CONFORME: With condition that the sale will be consummated within Twenty (20) days from this date. ALFO NSO DOR ONILA Returned and received the original by

105 June 25/68 Admtr' s Office 20. That on June 27, 1968, the Social Security Commission passed Resolution No. 662 authorizing the Toples & Harding (Far East) to conduct an appraisal of the property of defendant DORONILA and to submit a report thereon. (See Annex 'F' of the complaint) 21. That on July 17, 1968, the Social Security Commission taking note of the report of Toples & Harding (Far East), passed Resolution No. 736, approving the purchase of the 300 hectare land of defendant DORONILA, at the price of P3.25 per square meter, for a total purchase price of NINE MILLION SEVEN HUNDRED FIFTY THOUSAND PESOS (P9,750,000.00), and appropriating the said amount of money for the purpose. (See Annex 'F' of the complaint). 22. That on July 30, 1968, defendant DORONILA executed the deed of absolute sale (Annex "C" of the complaint) over his 300-hectare land, situated in Montalban, Rizal, covered by TCT Nos. 77011, 77013, 216747 (formerly TCT No. 116631) and 216750 (formerly TCT No. 77012), in favor of the Social Security System, for the total purchase price of NINE MILLION SEVEN HUNDRED FIFTY THOUSAND PESOS (P9,750,000.00), Philippine currency, which deed of sale was presented for registration in the Office of the Register of Deeds of Fiscal on August 21, 1968. 23. That defendant DORONILA had received the full purchase price of NINE MILLION SEVEN HUNDRED FIFTY THOUSAND PESOS (P9,750,000.00), Philippine Currency, in two installments. 24. That on September 17, 1968, plaintiff presented his STATEMENT OF ACCOUNT, dated September 16, 1968 (Xerox copy of which is attached

106 hereto and marked as Annex plaintiff' to defendant DORONILA for the payment of his professional services as real estate broker in the amount of P1,380,000.00, as computed on the basis of the letter-agreement, Annex "A" of the complaint, which defendant failed to pay. Manila, for Quezon City, January 18,1968. Respe ctfully submit ted: CRISPIN D. BAIZAS & ASSOCIATES and A.N. BOLI NAO, JR. By: (Sgd.) Couns el for the plaintif f Suite 305, Shurd utBldg . Intram uros, Manila (Sgd.) E. V. Obon Atty. EUGE NIO V. OBON

107 Couns el for the defen dant 9 West Point Street Quezo n City ALFO NSO DOR ONILA Couns el for the defen dant 428 Plaza de Fergu son Ermita , Manila
2

The trial court rendered its decision dated December 12, 1969, the initiative part of which reads: WHEREFORE, judgment is hereby rendered in favor of plaintiff, ordering defendant Alfonso Doronila, under the first cause of action, to pay to plaintiff the sum of P1,380,000.00 with interest thereon at the rate of 6% per annum from September 23, 1968 until fully paid; and under the second Cause of Action, to pay plaintiff the sum of P200,000.00 as moral damages; the sum of P100,000.00 as exemplary damages; the sum of

108 P150,000.00 as attorney's fees, including the expenses of. litigation and costs of this suit. The writ of preliminary injunction issued in this case is hereby made permanent; and the defendant Philippine National Bank is hereby ordered to pay to the plaintiff the amount of P1,380,000.00 and interest on the P1,380,000.00 to be computed separately out of the P2,000,000.00 which it presently holds under a fixed time deposit. SO ORDERED. December 12, 1969, Quezon City, Philippines. (SGD.) LOURDES P. SAN DIEGO Judge3 The defendant appealed to the Court of Appeals where the appeal was docketed as CA-G.R. No. 45974-R. In a decision promulgated on September 19, 1974, the Court of Appeals reversed the derision of the trial court and dismissed the complaint because: In any event, since it has been found that the authority of appellee expired on June 2, 1968, rather than June 12, 1968 as the lower court opined, the inquiry would be whether up to that time, a written offer was made by appellee in behalf of the SSS. The stipulation is clear on this point. There should be a written offer by the prospective buyer or by appellee for or in their behalf, and that if no such written offer is made until the last day of the authorization, the option and authority shall expire and become null and void. Note that the emphasis is placed on the need of a written offer to save the authority from an automatic termination on the last day of the authorization. We note such emphasis with special significance in receive of the condition relative to automatic extension of not more than 15 days if negotiations have been started. The question then is when are negotiations deemed started In the light of the provisions just cited, it should be when a response is given by the prospective buyer showing fits interest to buy the property when an offer is made by the seller or broker and make an offer of the price. Strictly, therefore, prior to May 29, 1968, there were no negotiations yet started within contemplation of the letteragreement of brokerage (Exh. A). Nevertheless appellant extended appellee's exclusive authority to on May 18, 1968 (par. 10, Stipulation of Facts; R.A. p. 89), which was automatically extended by 15 days under their agreement, to expire on June 2, 1968, if the period extended up to May 18, 1968 a necessary authority. For, it may even be considered as taking the of the 15-days automatic extension, since appellee's pretension

109 is that negotiations have been started within the original period of 60 days. Appellant in fixing the expiry date on June 2, 1968, has thus made a liberal concession in favor of appellee, when he chose not to the extension up to May 18, 1968 as the automatic extension which ougth to have been no more than 15 days, but which he stretched twice as long. 4 The petitioner assigned the following errors: I THE RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT PETITIONER WAS NOT THE EFFICIENT PROCURING CAUSE IN BRING ABOUT THE SALE OF PRIVATE RESPONDENT DORONILA'S LAND TO THE SSS. II THE RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT THERE WAS FAILURE ON THE PART OF HEREIN PETITIONER TO COMPLY WITH THE TERMS AND CONDITIONS OF HIS CONTRACT WITH PRIVATE RESPONDENT. III THE RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT PETITIONER IS NOT ENTITLED TO HIS COMMISSION. IV THE RESPONDENT COURT OF APPEALS ERRED IN AWARDING ATTORNEY'S FEES TO PRIVATE RESPONDENT DORONILA INSTEAD OF AFFIRMING THE AWARD OF MORAL AND EXEMPLARY DAMAGES AS WELL As ATTORNEY FEES TO PETITIONER. 5 The Court in its Resolution of May 23, 1975 originally denied the petition for lack of merit but upon petitioner's motion for reconsideration and supplemental petition invoking equity, resolved in its Resolution of August 20, 1975 to give due course thereto. From the stipulation of facts and the evidence of record, it is clear that the offer of defendant Doronila to sell the 300 hectares of land in question to the Social Security System was formally accepted by the System only on June 20, 1968 after the exclusive authority, Exhibit A, in favor of the plaintiff, petitioner herein, had expired. The respondent court's factual findings that petitioner was not the efficient procuring cause in bringing about the sale proceeding from the fact of expiration of his exclusive authority) which are admittedly final for purposes of the present petition, provide no

110 basis law to grant relief to petitioner. The following pertinent excerpts from respondent court's extensive decision amply demonstrate this: It is noted, however, that even in his brief, when he said According to the testimony of the plaintiff-appellee a few days before May 29, 1968, he arranged with Mr. Gilberto Teodoro, SSS Administrator, a meeting with the defendant Manila. He talked with Mr. Teodoro over the telephone and fixed the date of the meeting with defendant-appellant Doronila for May 29, 1968, and that he was specifically requested by Mr. Teodoro not to be present at the meeting, as he, Teodoro, wanted to deal directly with the defendantappellant alone. (Tsn., pp. 4446, March 1, 1969). Finding nothing wrong with such a request, as the sale could be caused directly or indirectly (Exh. 'A'), and believing that as a broker all that he needed to do to be entitled to his commission was to bring about a meeting between the buyer and the seller as to ripen into a sale, plaintiff-appellee readily acceded to the request. appellee is not categorical that it was through his efforts that the meeting took place on inlay 29, 1968. He refers to a telephone call he made "a few days before May 29, 1968," but in the conversation he had with Mr. Teodoro, the latter requested him not to be present in the meeting. From these facts, it is manifest that the SSS officials never wanted to be in any way guided by, or otherwise subject to, the mediation or intervention of, appellee relative to the negotiation for the purchase of the property. It is thus more reasonable to conclude that if a meeting was held on May 29, 1968, it was done independently, and not by virtue of, appellee's wish or efforts to hold such meeting. 6 xxx xxx xxx ... It is even doubtful if he tried to make any arrangement for meeting at all, because on May 18, 1968, he told appellant: ... we hereby make a firm offer, for and in behalf of our buyer, to purchase said property at the price of Four Pesos and Fifty Centavos (P4.50) per square meter .... As this offer is evidently made in behalf of buyer other than the SSS which had never offered the price of P4.50 per square meter, appellee could not have at the same time arranged a meeting between the SSS officials and appellant with a view to consummating the sale in favor of the SSS which had made an offer of only PS.25 per sq. m. and thus lose the much bigger

111 profit he would realize with a higher price of P4.50 per sq. meter. This 'firm offer' of P4.50 per sq. m. made by appellee betrayed his lack of any efficient intervention in the negotiations with the SSS for the purchase by it of appellant's property ... 7 xxx xxx xxx ... This becomes more evident when it is considered that on May 6, 1968 he was making his first offer to sell the property at P6.00 per sq. m. to the SSS to which offer he received no answer. It is this cold indifference of the SSS to him that must have prompted him to look for other buyers, resulting in his making the firm offer of 714.50 per sq. m. on May 18, 1968, a fact which only goes to show that for being ignored by the SSS, he gave up all effort to deal with the SSS. ... 8 xxx xxx xxx ... For him to claim that it was he who aroused the interest of the SSS in buying appellant's property is to ignore the fact that as early as June, (July) 1967, the SSS had directly dealt with appellant to such an extent that the price of P3.25 as offered by the SSS was accepted by appellant, the latter imposing only the condition that the price should be paid in cash, and within 30 days from the date of the acceptance. It can truly be said then that the interest of SSS to acquire the property had been sufficiently aroused for there to be any need for appellee to stimulate it further. Appellee should know this fact for according to him, the 10-day grace period was agreed upon to give the SSS a chance to pay the price of the land at P3.25 per sq. m., as a "compromise" to appellant's insistence that the SSS be excluded from appellee's option or authority to sell the land. 9 ... There should be a written offer by the prospective buyer or by appellee for or in their behalf, and that if no such written offer is made until the last day of the authorization, the option and authority shall expired and become null and void. ... Yet, no such written offer was made. ... 10 In equity, however, the Court notes that petitioner had Monthly taken steps to bring back together respondent Doronila and the SSS, among which may be mentioned the following: In July, 1967, prior to February 14, 1968, respondent Doronila had offered to sell the land in question to the Social Security System Direct negotiations were made by Doronila with the SSS. The SSS did not then accept the offer of Doronila. Thereafter, Doronila executed the exclusive authority in favor of petitioner Prats on February 14, 1968.

112 Prats communicated with the Office of the Presidential Housing Commission on February 23, 1968 offering the Doronila property. Prats wrote a follow-up letter on April is, 1968 which was answered by the Commission with the suggestion that the property be offered directly to the SSS. Prats wrote the SSS on March 16, 1968, inviting Chairman Ramon Gaviola, Jr. to discuss the offer of the sale of the property in question to the SSS. On May 6, 1968, Prats made a formal written offer to the Social Security System to self the 300 hectare land of Doronila at the price of P6.00 per square meter. Doronila received on May 17, 1968 from the SSS Administrator a telegram that the SSS was considering the purchase of Doronilas property for its housing project. Prats and his witness Raagas testified that Prats had several dinner and lunch meetings with Doronila and/or his nephew, Atty. Manuel D. Asencio, regarding the progress of the negotiations with the SSS. Atty. Asencio had declared that he and his uncle, Alfonso Doronila, were invited several times by Prats, sometimes to luncheons and sometimes to dinner. On a Sunday, June 2, 1968, Prats and Raagas had luncheon in Sulu Hotel in Quezon City and they were joined later by Chairman Gaviola of the SSS. The Court has noted on the other hand that Doronila finally sold the property to the Social Security System at P3.25 per square meter which was the very same price counter-offered by the Social Security System and accepted by him in July, 1967 when he alone was dealing exclusively with the said buyer long before Prats came into the picture but that on the other hand Prats' efforts somehow were instrumental in bringing them together again and finally consummating the transaction at the same price of P3.25 square meter, although such finalization was after the expiration of Prats' extended exclusive authority. Still such price was higher than that stipulated in the exclusive authority granted by Doronila to Prats. Under the circumstances, the Court grants in equity the sum of One Hundred Thousand Pesos (P100,000.00) by way of compensation for his efforts and assistance in the transaction, which however was finalized and consummated after the expiration of his exclusive authority and sets aside the P10,000.00 attorneys' fees award adjudged against him by respondent court. WHEREFORE, the derision appealed from is hereby affirmed, with the modification that private respondent Alfonso Doronila in equity is ordered to pay petitioner or his heirs the amount of One Hundred Thousand Pesos (P100,000.00) and that the portion of the said decision sell petitioner Prats to pay respondent Doronila attorneys' fees in the sum of P10,000.00 is set aside. The lifting of the injunction issued by the lower court on the P2,000,000.00 cash deposit of respondent Doronila as ordered by respondent court is hereby with the exception of the sum of One Hundred Thousand Pesos (P100,000.00) which is ordered segregated therefrom to satisfy the award herein given to petitioner, the lifting of said injunction, as herein ordered, is immediately executory upon promulgation hereof.

113 No pronouncement as to costs. Teehankee (Chairman), Makasiar, Muoz Palma and Guerrero JJ., concur.

[G.R. No. 151319. November 22, 2004]

MANILA MEMORIAL PARK CEMETERY, LINSANGAN, respondent. DECISION TINGA, J.:

INC., petitioner,

vs. PEDRO

L.

For resolution in this case is a classic and interesting texbook question in the law on agency. This is a petition for review assailing the Decision[1] of the Court of Appeals dated 22 June 2001, and its Resolution[2] dated 12 December 2001 in CA G.R. CV No. 49802 entitled Pedro L. Linsangan v. Manila Memorial Cemetery, Inc. et al., finding Manila Memorial Park Cemetery, Inc. (MMPCI) jointly and severally liable with Florencia C. Baluyot to respondent Atty. Pedro L. Linsangan. The facts of the case are as follows: Sometime in 1984, Florencia Baluyot offered Atty. Pedro L. Linsangan a lot called Garden State at the Holy Cross Memorial Park owned by petitioner (MMPCI). According to Baluyot, a former owner of a memorial lot under Contract No. 25012 was no longer interested in acquiring the lot and had opted to sell his rights subject to

114 reimbursement of the amounts he already paid. The contract was for P95,000.00. Baluyot reassured Atty. Linsangan that once reimbursement is made to the former buyer, the contract would be transferred to him. Atty. Linsangan agreed and gave Baluyot P35,295.00 representing the amount to be reimbursed to the original buyer and to complete the down payment to MMPCI.[3]Baluyot issued handwritten and typewritten receipts for these payments.[4] Sometime in March 1985, Baluyot informed Atty. Linsangan that he would be issued Contract No. 28660, a new contract covering the subject lot in the name of the latter instead of old Contract No. 25012. Atty. Linsangan protested, but Baluyot assured him that he would still be paying the old price of P95,000.00 with P19,838.00 credited as full down payment leaving a balance of about P75,000.00.[5] Subsequently, on 8 April 1985, Baluyot brought an Offer to Purchase Lot No. A11 (15), Block 83, Garden Estate I denominated as Contract No. 28660 and the Official Receipt No. 118912 dated 6 April 1985 for the amount of P19,838.00. Contract No. 28660 has a listed price of P132,250.00. Atty. Linsangan objected to the new contract price, as the same was not the amount previously agreed upon. To convince Atty. Linsangan, Baluyot executed a document[6] confirming that while the contract price is P132,250.00, Atty. Linsangan would pay only the original price of P95,000.00. The document reads in part: The monthly installment will start April 6, 1985; the amount of P1,800.00 and the difference will be issued as discounted to conform to the previous price as previously agreed upon. --- P95,000.00 Prepared by: (Signed) (MRS.) FLORENCIA C. BALUYOT Agency Manager Holy Cross Memorial Park 4/18/85 Dear Atty. Linsangan: This will confirm our agreement that while the offer to purchase under Contract No. 28660 states that the total price of P132,250.00 your undertaking is to pay only the total sum of P95,000.00 under the old price. Further the total sum of P19,838.00 already paid by you under O.R. # 118912 dated April 6, 1985 has been credited in the total purchase price thereby leaving a balance of P75,162.00 on a monthly installment of P1,800.00 including interests (sic) charges for a period of five (5) years. (Signed) FLORENCIA C. BALUYOT

115 By virtue of this letter, Atty. Linsangan signed Contract No. 28660 and accepted Official Receipt No. 118912. As requested by Baluyot, Atty. Linsangan issued twelve (12) postdated checks of P1,800.00 each in favor of MMPCI. The next year, or on 29 April 1986, Atty. Linsangan again issued twelve (12) postdated checks in favor of MMPCI. On 25 May 1987, Baluyot verbally advised Atty. Linsangan that Contract No. 28660 was cancelled for reasons the latter could not explain, and presented to him another proposal for the purchase of an equivalent property. He refused the new proposal and insisted that Baluyot and MMPCI honor their undertaking. For the alleged failure of MMPCI and Baluyot to conform to their agreement, Atty. Linsangan filed a Complaint[7] for Breach of Contract and Damages against the former. Baluyot did not present any evidence. For its part, MMPCI alleged that Contract No. 28660 was cancelled conformably with the terms of the contract[8] because of nonpayment of arrearages.[9] MMPCI stated that Baluyot was not an agent but an independent contractor, and as such was not authorized to represent MMPCI or to use its name except as to the extent expressly stated in the Agency Manager Agreement. [10] Moreover, MMPCI was not aware of the arrangements entered into by Atty. Linsangan and Baluyot, as it in fact received a down payment and monthly installments as indicated in the contract.[11] Official receipts showing the application of payment were turned over to Baluyot whom Atty. Linsangan had from the beginning allowed to receive the same in his behalf. Furthermore, whatever misimpression that Atty. Linsangan may have had must have been rectified by the Account Updating Arrangement signed by Atty. Linsangan which states that he expressly admits that Contract No. 28660 on account of serious delinquencyis now due for cancellation under its terms and conditions.[12] The trial court held MMPCI and Baluyot jointly and severally liable.[13] It found that Baluyot was an agent of MMPCI and that the latter was estopped from denying this agency, having received and enchased the checks issued by Atty. Linsangan and given to it by Baluyot. While MMPCI insisted that Baluyot was authorized to receive only the down payment, it allowed her to continue to receive postdated checks from Atty. Linsangan, which it in turn consistently encashed.[14] The dispositive portion of the decision reads: WHEREFORE, judgment by preponderance of evidence is hereby rendered in favor of plaintiff declaring Contract No. 28660 as valid and subsisting and ordering defendants to perform their undertakings thereof which covers burial lot No. A11 (15), Block 83, Section Garden I, Holy Cross Memorial Park located at Novaliches, Quezon City. All payments made by plaintiff to defendants should be credited for his accounts. NO DAMAGES, NO ATTORNEYS FEES but with costs against the defendants. The cross claim of defendant Manila Memorial Cemetery Incorporated as against defendant Baluyot is GRANTED up to the extent of the costs. SO ORDERED.[15]

116 MMPCI appealed the trial courts decision to the Court of Appeals.[16] It claimed that Atty. Linsangan is bound by the written contract with MMPCI, the terms of which were clearly set forth therein and read, understood, and signed by the former.[17] It also alleged that Atty. Linsangan, a practicing lawyer for over thirteen (13) years at the time he entered into the contract, is presumed to know his contractual obligations and is fully aware that he cannot belatedly and unilaterally change the terms of the contract without the consent, much less the knowledge of the other contracting party, which was MMPCI. And in this case, MMPCI did not agree to a change in the contract and in fact implemented the same pursuant to its clear terms. In view thereof, because of Atty. Linsangans delinquency, MMPCI validly cancelled the contract. MMPCI further alleged that it cannot be held jointly and solidarily liable with Baluyot as the latter exceeded the terms of her agency, neither did MMPCI ratify Baluyots acts. It added that it cannot be charged with making any misrepresentation, nor of having allowed Baluyot to act as though she had full powers as the written contract expressly stated the terms and conditions which Atty. Linsangan accepted and understood. In canceling the contract, MMPCI merely enforced the terms and conditions imposed therein.[18] Imputing negligence on the part of Atty. Linsangan, MMPCI claimed that it was the formers obligation, as a party knowingly dealing with an alleged agent, to determine the limitations of such agents authority, particularly when such alleged agents actions were patently questionable. According to MMPCI, Atty. Linsangan did not even bother to verify Baluyots authority or ask copies of official receipts for his payments.[19] The Court of Appeals affirmed the decision of the trial court. It upheld the trial courts finding that Baluyot was an agent of MMPCI at the time the disputed contract was entered into, having represented MMPCIs interest and acting on its behalf in the dealings with clients and customers. Hence, MMPCI is considered estopped when it allowed Baluyot to act and represent MMPCI even beyond her authority. [20] The appellate court likewise found that the acts of Baluyot bound MMPCI when the latter allowed the former to act for and in its behalf and stead. While Baluyots authority may not have been expressly conferred upon her, the same may have been derived impliedly by habit or custom, which may have been an accepted practice in the company for a long period of time.[21] Thus, the Court of Appeals noted, innocent third persons such as Atty. Linsangan should not be prejudiced where the principal failed to adopt the needed measures to prevent misrepresentation. Furthermore, if an agent misrepresents to a purchaser and the principal accepts the benefits of such misrepresentation, he cannot at the same time deny responsibility for such misrepresentation.[22] Finally, the Court of Appeals declared: There being absolutely nothing on the record that would show that the court a quo overlooked, disregarded, or misinterpreted facts of weight and significance, its factual findings and conclusions must be given great weight and should not be disturbed by this Court on appeal.

117 WHEREFORE, in view of the foregoing, the appeal is hereby DENIED and the appealed decision in Civil Case No. 88-1253 of the Regional Trial Court, National Capital Judicial Region, Branch 57 of Makati, is hereby AFFIRMED in toto. SO ORDERED.[23] MMPCI filed its Motion for Reconsideration,[24] but the same was denied for lack of merit.[25] In the instant Petition for Review, MMPCI claims that the Court of Appeals seriously erred in disregarding the plain terms of the written contract and Atty. Linsangans failure to abide by the terms thereof, which justified its cancellation. In addition, even assuming that Baluyot was an agent of MMPCI, she clearly exceeded her authority and Atty. Linsangan knew or should have known about this considering his status as a longpracticing lawyer. MMPCI likewise claims that the Court of Appeals erred in failing to consider that the facts and the applicable law do not support a judgment against Baluyot only up to the extent of costs.[26] Atty. Linsangan argues that he did not violate the terms and conditions of the contract, and in fact faithfully performed his contractual obligations and complied with them in good faith for at least two years.[27] He claims that contrary to MMPCIs position, his profession as a lawyer is immaterial to the validity of the subject contract and the case at bar.[28]According to him, MMPCI had practically admitted in its Petition that Baluyot was its agent, and thus, the only issue left to be resolved is whether MMPCI allowed Baluyot to act as though she had full powers to be held solidarily liable with the latter.[29] We find for the petitioner MMPCI. The jurisdiction of the Supreme Court in a petition for review under Rule 45 of the Rules of Court is limited to reviewing only errors of law, not fact, unless the factual findings complained of are devoid of support by the evidence on record or the assailed judgment is based on misapprehension of facts.[30] In BPI Investment Corporation v. D.G. Carreon Commercial Corporation,[31] this Court ruled: There are instances when the findings of fact of the trial court and/or Court of Appeals may be reviewed by the Supreme Court, such as (1) when the conclusion is a finding grounded entirely on speculation, surmises and conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) where there is a grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the Court of Appeals, in making its findings, went beyond the issues of the case and the same is contrary to the admissions of both appellant and appellee; (7) when the findings are contrary to those of the trial court; (8) when the findings of fact are conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioners main and reply briefs are not disputed by the respondents; and (10) the findings of fact of the Court of Appeals are premised on the supposed absence of evidence and contradicted by the evidence on record.[32]

118 In the case at bar, the Court of Appeals committed several errors in the apprehension of the facts of the case, as well as made conclusions devoid of evidentiary support, hence we review its findings of fact. By the contract of agency, a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter.[33]Thus, the elements of agency are (i) consent, express or implied, of the parties to establish the relationship; (ii) the object is the execution of a juridical act in relation to a third person; (iii) the agent acts as a representative and not for himself; and (iv) the agent acts within the scope of his authority.[34] In an attempt to prove that Baluyot was not its agent, MMPCI pointed out that under its Agency Manager Agreement; an agency manager such as Baluyot is considered an independent contractor and not an agent.[35] However, in the same contract, Baluyot as agency manager was authorized to solicit and remit to MMPCI offers to purchase interment spaces belonging to and sold by the latter.[36] Notwithstanding the claim of MMPCI that Baluyot was an independent contractor, the fact remains that she was authorized to solicit solely for and in behalf of MMPCI. As properly found both by the trial court and the Court of Appeals, Baluyot was an agent of MMPCI, having represented the interest of the latter, and having been allowed by MMPCI to represent it in her dealings with its clients/prospective buyers. Nevertheless, contrary to the findings of the Court of Appeals, MMPCI cannot be bound by the contract procured by Atty. Linsangan and solicited by Baluyot. Baluyot was authorized to solicit and remit to MMPCI offers to purchase interment spaces obtained on forms provided by MMPCI. The terms of the offer to purchase, therefore, are contained in such forms and, when signed by the buyer and an authorized officer of MMPCI, becomes binding on both parties. The Offer to Purchase duly signed by Atty. Linsangan, and accepted and validated by MMPCI showed a total list price of P132,250.00. Likewise, it was clearly stated therein that Purchaser agrees that he has read or has had read to him this agreement, that he understands its terms and conditions, and that there are no covenants, conditions, warranties or representations other than those contained herein.[37] By signing the Offer to Purchase, Atty. Linsangan signified that he understood its contents. That he and Baluyot had an agreement different from that contained in the Offer to Purchase is of no moment, and should not affect MMPCI, as it was obviously made outside Baluyots authority. To repeat, Baluyots authority was limited only to soliciting purchasers. She had no authority to alter the terms of the written contract provided by MMPCI. The document/letter confirming the agreement that Atty. Linsangan would have to pay the old price was executed by Baluyot alone. Nowhere is there any indication that the same came from MMPCI or any of its officers. It is a settled rule that persons dealing with an agent are bound at their peril, if they would hold the principal liable, to ascertain not only the fact of agency but also the nature and extent of authority, and in case either is controverted, the burden of proof is upon them to establish it.[38] The basis for agency is representation and a person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the

119 agent.[39] If he does not make such an inquiry, he is chargeable with knowledge of the agents authority and his ignorance of that authority will not be any excuse.[40] As noted by one author, the ignorance of a person dealing with an agent as to the scope of the latters authority is no excuse to such person and the fault cannot be thrown upon the principal.[41] A person dealing with an agent assumes the risk of lack of authority in the agent. He cannot charge the principal by relying upon the agents assumption of authority that proves to be unfounded. The principal, on the other hand, may act on the presumption that third persons dealing with his agent will not be negligent in failing to ascertain the extent of his authority as well as the existence of his agency.[42] In the instant case, it has not been established that Atty. Linsangan even bothered to inquire whether Baluyot was authorized to agree to terms contrary to those indicated in the written contract, much less bind MMPCI by her commitment with respect to such agreements. Even if Baluyot was Atty. Linsangans friend and known to be an agent of MMPCI, her declarations and actions alone are not sufficient to establish the fact or extent of her authority.[43] Atty. Linsangan as a practicing lawyer for a relatively long period of time when he signed the contract should have been put on guard when their agreement was not reflected in the contract. More importantly, Atty. Linsangan should have been alerted by the fact that Baluyot failed to effect the transfer of rights earlier promised, and was unable to make good her written commitment, nor convince MMPCI to assent thereto, as evidenced by several attempts to induce him to enter into other contracts for a higher consideration. As properly pointed out by MMPCI, as a lawyer, a greater degree of caution should be expected of Atty. Linsangan especially in dealings involving legal documents. He did not even bother to ask for official receipts of his payments, nor inquire from MMPCI directly to ascertain the real status of the contract, blindly relying on the representations of Baluyot. A lawyer by profession, he knew what he was doing when he signed the written contract, knew the meaning and value of every word or phrase used in the contract, and more importantly, knew the legal effects which said document produced. He is bound to accept responsibility for his negligence. The trial and appellate courts found MMPCI liable based on ratification and estoppel. For the trial court, MMPCIs acts of accepting and encashing the checks issued by Atty. Linsangan as well as allowing Baluyot to receive checks drawn in the name of MMPCI confirm and ratify the contract of agency. On the other hand, the Court of Appeals faulted MMPCI in failing to adopt measures to prevent misrepresentation, and declared that in view of MMPCIs acceptance of the benefits of Baluyots misrepresentation, it can no longer deny responsibility therefor. The Court does not agree. Pertinent to this case are the following provisions of the Civil Code: Art. 1898. If the agent contracts in the name of the principal, exceeding the scope of his authority, and the principal does not ratify the contract, it shall be void if the party with whom the agent contracted is aware of the limits of the powers granted by the principal. In this case, however, the agent is liable if he undertook to secure the principals ratification.

120 Art. 1910. The principal must comply with all the obligations that the agent may have contracted within the scope of his authority. As for any obligation wherein the agent has exceeded his power, the principal is not bound except when he ratifies it expressly or tacitly. Art. 1911. Even when the agent has exceeded his authority, the principal is solidarily liable with the agent if the former allowed the latter to act as though he had full powers. Thus, the acts of an agent beyond the scope of his authority do not bind the principal, unless he ratifies them, expressly or impliedly. Only the principal can ratify; the agent cannot ratify his own unauthorized acts. Moreover, the principal must have knowledge of the acts he is to ratify.[44] Ratification in agency is the adoption or confirmation by one person of an act performed on his behalf by another without authority. The substance of the doctrine is confirmation after conduct, amounting to a substitute for a prior authority. Ordinarily, the principal must have full knowledge at the time of ratification of all the material facts and circumstances relating to the unauthorized act of the person who assumed to act as agent. Thus, if material facts were suppressed or unknown, there can be no valid ratification and this regardless of the purpose or lack thereof in concealing such facts and regardless of the parties between whom the question of ratification may arise. [45] Nevertheless, this principle does not apply if the principals ignorance of the material facts and circumstances was willful, or that the principal chooses to act in ignorance of the facts.[46] However, in the absence of circumstances putting a reasonably prudent man on inquiry, ratification cannot be implied as against the principal who is ignorant of the facts.[47] No ratification can be implied in the instant case. A perusal of Baluyots Answer[48] reveals that the real arrangement between her and Atty. Linsangan was for the latter to pay a monthly installment of P1,800.00 whereas Baluyot was to shoulder the counterpart amount of P1,455.00 to meet the P3,255.00 monthly installments as indicated in the contract. Thus, every time an installment falls due, payment was to be made through a check from Atty. Linsangan for P1,800.00 and a cash component of P1,455.00 from Baluyot.[49] However, it appears that while Atty. Linsangan issued the post-dated checks, Baluyot failed to come up with her part of the bargain. This was supported by Baluyots statements in her letter [50] to Mr. Clyde Williams, Jr., Sales Manager of MMPCI, two days after she received the copy of the Complaint. In the letter, she admitted that she was remiss in her duties when she consented to Atty. Linsangans proposal that he will pay the old price while the difference will be shouldered by her. She likewise admitted that the contract suffered arrearages because while Atty. Linsangan issued the agreed checks, she was unable to give her share of P1,455.00 due to her own financial difficulties. Baluyot even asked for compassion from MMPCI for the error she committed. Atty. Linsangan failed to show that MMPCI had knowledge of the arrangement. As far as MMPCI is concerned, the contract price was P132,250.00, as stated in the Offer

121 to Purchase signed by Atty. Linsangan and MMPCIs authorized officer. The down payment of P19,838.00 given by Atty. Linsangan was in accordance with the contract as well. Payments of P3,235.00 for at least two installments were likewise in accord with the contract, albeit made through a check and partly in cash. In view of Baluyots failure to give her share in the payment, MMPCI received only P1,800.00 checks, which were clearly insufficient payment. In fact, Atty. Linsangan would have incurred arrearages that could have caused the earlier cancellation of the contract, if not for MMPCIs application of some of the checks to his account. However, the checks alone were not sufficient to cover his obligations. If MMPCI was aware of the arrangement, it would have refused the latters check payments for being insufficient. It would not have applied to his account the P1,800.00 checks. Moreover, the fact that Baluyot had to practically explain to MMPCIs Sales Manager the details of her arrangement with Atty. Linsangan and admit to having made an error in entering such arrangement confirm that MMCPI had no knowledge of the said agreement. It was only when Baluyot filed her Answer that she claimed that MMCPI was fully aware of the agreement. Neither is there estoppel in the instant case. The essential elements of estoppel are (i) conduct of a party amounting to false representation or concealment of material facts or at least calculated to convey the impression that the facts are otherwise than, and inconsistent with, those which the party subsequently attempts to assert; (ii) intent, or at least expectation, that this conduct shall be acted upon by, or at least influence, the other party; and (iii) knowledge, actual or constructive, of the real facts.[51] While there is no more question as to the agency relationship between Baluyot and MMPCI, there is no indication that MMPCI let the public, or specifically, Atty. Linsangan to believe that Baluyot had the authority to alter the standard contracts of the company. Neither is there any showing that prior to signing Contract No. 28660, MMPCI had any knowledge of Baluyots commitment to Atty. Linsangan. One who claims the benefit of an estoppel on the ground that he has been misled by the representations of another must not have been misled through his own want of reasonable care and circumspection.[52] Even assuming that Atty. Linsangan was misled by MMPCIs actuations, he still cannot invoke the principle of estoppel, as he was clearly negligent in his dealings with Baluyot, and could have easily determined, had he only been cautious and prudent, whether said agent was clothed with the authority to change the terms of the principals written contract. Estoppel must be intentional and unequivocal, for when misapplied, it can easily become a most convenient and effective means of injustice. [53] In view of the lack of sufficient proof showing estoppel, we refuse to hold MMPCI liable on this score. Likewise, this Court does not find favor in the Court of Appeals findings that the authority of defendant Baluyot may not have been expressly conferred upon her; however, the same may have been derived impliedly by habit or custom which may have been an accepted practice in their company in a long period of time. A perusal of the records of the case fails to show any indication that there was such a habit or custom in MMPCI that allows its agents to enter into agreements for lower prices of its

122 interment spaces, nor to assume a portion of the purchase price of the interment spaces sold at such lower price. No evidence was ever presented to this effect. As the Court sees it, there are two obligations in the instant case. One is the Contract No. 28660 between MMPCI and by Atty. Linsangan for the purchase of an interment space in the formers cemetery. The other is the agreement between Baluyot and Atty. Linsangan for the former to shoulder the amount P1,455.00, or the difference between P95,000.00, the original price, and P132,250.00, the actual contract price. To repeat, the acts of the agent beyond the scope of his authority do not bind the principal unless the latter ratifies the same. It also bears emphasis that when the third person knows that the agent was acting beyond his power or authority, the principal cannot be held liable for the acts of the agent. If the said third person was aware of such limits of authority, he is to blame and is not entitled to recover damages from the agent, unless the latter undertook to secure the principals ratification.[54] This Court finds that Contract No. 28660 was validly entered into both by MMPCI and Atty. Linsangan. By affixing his signature in the contract, Atty. Linsangan assented to the terms and conditions thereof. When Atty. Linsangan incurred delinquencies in payment, MMCPI merely enforced its rights under the said contract by canceling the same. Being aware of the limits of Baluyots authority, Atty. Linsangan cannot insist on what he claims to be the terms of Contract No. 28660. The agreement, insofar as the P95,000.00 contract price is concerned, is void and cannot be enforced as against MMPCI. Neither can he hold Baluyot liable for damages under the same contract, since there is no evidence showing that Baluyot undertook to secure MMPCIs ratification. At best, the agreement between Baluyot and Atty. Linsangan bound only the two of them. As far as MMPCI is concerned, it bound itself to sell its interment space to Atty. Linsangan for P132,250.00 under Contract No. 28660, and had in fact received several payments in accordance with the same contract. If the contract was cancelled due to arrearages, Atty. Linsangans recourse should only be against Baluyot who personally undertook to pay the difference between the true contract price of P132,250.00 and the original proposed price of P95,000.00. To surmise that Baluyot was acting on behalf of MMPCI when she promised to shoulder the said difference would be to conclude that MMPCI undertook to pay itself the difference, a conclusion that is very illogical, if not antithetical to its business interests. However, this does not preclude Atty. Linsangan from instituting a separate action to recover damages from Baluyot, not as an agent of MMPCI, but in view of the latters breach of their separate agreement. To review, Baluyot obligated herself to pay P1,455.00 in addition to Atty. Linsangans P1,800.00 to complete the monthly installment payment under the contract, which, by her own admission, she was unable to do due to personal financial difficulties. It is undisputed that Atty. Linsangan issued the P1,800.00 as agreed upon, and were it not for Baluyots failure to provide the balance, Contract No. 28660 would not have been cancelled. Thus, Atty. Linsangan has a cause of action against Baluyot, which he can pursue in another case.

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

[G.R. No. 115838. July 18, 2002]

CONSTANTE AMOR DE CASTRO and CORAZON CASTRO, petitioners, vs. COURT OF APPEALS and ARTIGO,respondents. DECISION CARPIO, J.: The Case

AMOR DE FRANCISCO

Before us is a Petition for Review on Certiorari[1] seeking to annul the Decision of the Court of Appeals[2] dated May 4, 1994 in CA-G.R. CV No. 37996, which affirmed in toto the decision[3] of the Regional Trial Court of Quezon City, Branch 80, in Civil Case No. Q-89-2631. The trial court disposed as follows: WHEREFORE, the Court finds defendants Constante and Corazon Amor de Castro jointly and solidarily liable to plaintiff the sum of: a) P303,606.24 representing unpaid commission;

124 b) P25,000.00 for and by way of moral damages; c) P45,000.00 for and by way of attorneys fees; d) To pay the cost of this suit. Quezon City, Metro Manila, December 20, 1991. The Antecedent Facts On May 29, 1989, private respondent Francisco Artigo (Artigo for brevity) sued petitioners Constante A. De Castro (Constante for brevity) and Corazon A. De Castro (Corazon for brevity) to collect the unpaid balance of his brokers commission from the De Castros.[4] The Court of Appeals summarized the facts in this wise: x x x. Appellants[5] were co-owners of four (4) lots located at EDSA corner New York and Denver Streets in Cubao, Quezon City. In a letter dated January 24, 1984 (Exhibit A-1, p. 144, Records), appellee[6] was authorized by appellants to act as real estate broker in the sale of these properties for the amount of P23,000,000.00, five percent (5%) of which will be given to the agent as commission. It was appellee who first found Times Transit Corporation, represented by its president Mr. Rondaris, as prospective buyer which desired to buy two (2) lots only, specifically lots 14 and 15. Eventually, sometime in May of 1985, the sale of lots 14 and 15 was consummated. Appellee received from appellants P48,893.76 as commission. It was then that the rift between the contending parties soon emerged. Appellee apparently felt short changed because according to him, his total commission should be P352,500.00 which is five percent (5%) of the agreed price of P7,050,000.00 paid by Times Transit Corporation to appellants for the two (2) lots, and that it was he who introduced the buyer to appellants and unceasingly facilitated the negotiation which ultimately led to the consummation of the sale. Hence, he sued below to collect the balance of P303,606.24 after having received P48,893.76 in advance. On the other hand, appellants completely traverse appellees claims and essentially argue that appellee is selfishly asking for more than what he truly deserved as commission to the prejudice of other agents who were more instrumental in the consummation of the sale. Although appellants readily concede that it was appellee who first introduced Times Transit Corp. to them, appellee was not designated by them as their exclusive real estate agent but that in fact there were more or less eighteen (18) others whose collective efforts in the long run dwarfed those of appellees, considering that the first negotiation for the sale where appellee took active participation failed and it was these other agents who successfully brokered in the second negotiation. But despite this and out of appellants pure liberality, beneficence and magnanimity, appellee nevertheless was given the largest cut in the commission (P48,893.76), although on the principle of quantum meruit he would have certainly been entitled to less. So appellee should not have been heard to complain of getting only a pittance when he actually got the lions share of the commission and worse, he should not have

125 been allowed to get the entire commission. Furthermore, the purchase price for the two lots was only P3.6 million as appearing in the deed of sale and not P7.05 million as alleged by appellee. Thus, even assuming that appellee is entitled to the entire commission, he would only be getting 5% of the P3.6 million, or P180,000.00. Ruling of the Court of Appeals The Court of Appeals affirmed in toto the decision of the trial court. First. The Court of Appeals found that Constante authorized Artigo to act as agent in the sale of two lots in Cubao, Quezon City. The handwritten authorization letter signed by Constante clearly established a contract of agency between Constante and Artigo. Thus, Artigo sought prospective buyers and found Times Transit Corporation (Times Transit for brevity). Artigo facilitated the negotiations which eventually led to the sale of the two lots. Therefore, the Court of Appeals decided that Artigo is entitled to the 5% commission on the purchase price as provided in the contract of agency. Second. The Court of Appeals ruled that Artigos complaint is not dismissible for failure to implead as indispensable parties the other co-owners of the two lots. The Court of Appeals explained that it is not necessary to implead the other co-owners since the action is exclusively based on a contract of agency between Artigo and Constante. Third. The Court of Appeals likewise declared that the trial court did not err in admitting parol evidence to prove the true amount paid by Times Transit to the De Castros for the two lots. The Court of Appeals ruled that evidence aliunde could be presented to prove that the actual purchase price was P7.05 million and not P3.6 million as appearing in the deed of sale. Evidence aliunde is admissible considering that Artigo is not a party, but a mere witness in the deed of sale between the De Castros and Times Transit. The Court of Appeals explained that, the rule that oral evidence is inadmissible to vary the terms of written instruments is generally applied only in suits between parties to the instrument and strangers to the contract are not bound by it. Besides, Artigo was not suing under the deed of sale, but solely under the contract of agency. Thus, the Court of Appeals upheld the trial courts finding that the purchase price was P7.05 million and not P3.6 million. Hence, the instant petition. The Issues According to petitioners, the Court of Appeals erred in I. NOT ORDERING THE DISMISSAL OF THE COMPLAINT FOR FAILURE TO IMPLEAD INDISPENSABLE PARTIES-IN-INTEREST;

126 II. NOT ORDERING THE DISMISSAL OF THE COMPLAINT ON THE GROUND THAT ARTIGOS CLAIM HAS BEEN EXTINGUISHED BY FULL PAYMENT, WAIVER, OR ABANDONMENT; III. CONSIDERING INCOMPETENT EVIDENCE; IV. GIVING CREDENCE TO PATENTLY PERJURED TESTIMONY; V. SANCTIONING AN AWARD OF MORAL DAMAGES AND ATTORNEYS FEES; VI. NOT AWARDING THE DE CASTROS MORAL AND EXEMPLARY DAMAGES, AND ATTORNEYS FEES. The Courts Ruling The petition is bereft of merit. First Issue: whether the complaint merits dismissal for failure to implead other coowners as indispensable parties The De Castros argue that Artigos complaint should have been dismissed for failure to implead all the co-owners of the two lots. The De Castros claim that Artigo always knew that the two lots were co-owned by Constante and Corazon with their other siblings Jose and Carmela whom Constante merely represented. The De Castros contend that failure to implead such indispensable parties is fatal to the complaint since Artigo, as agent of all the four co-owners, would be paid with funds co-owned by the four co-owners. The De Castros contentions are devoid of legal basis. An indispensable party is one whose interest will be affected by the courts action in the litigation, and without whom no final determination of the case can be had.[7] The joinder of indispensable parties is mandatory and courts cannot proceed without their presence.[8] Whenever it appears to the court in the course of a proceeding that an indispensable party has not been joined, it is the duty of the court to stop the trial and order the inclusion of such party.[9] However, the rule on mandatory joinder of indispensable parties is not applicable to the instant case. There is no dispute that Constante appointed Artigo in a handwritten note dated January 24, 1984 to sell the properties of the De Castros for P23 million at a 5 percent commission. The authority was on a first come, first serve basis. The authority reads in full: 24 Jan. 84

127 To Whom It May Concern: This is to state that Mr. Francisco Artigo is authorized as our real estate broker in connection with the sale of our property located at Edsa Corner New York & Denver, Cubao, Quezon City. Asking price P23,000,000.00 with 5% commission as agents fee. C.C. de Castro owner & representing co-owners This authority is on a first-come First serve basis CAC Constante signed the note as owner and as representative of the other coowners. Under this note, a contract of agency was clearly constituted between Constante and Artigo. Whether Constante appointed Artigo as agent, in Constantes individual or representative capacity, or both, the De Castros cannot seek the dismissal of the case for failure to implead the other co-owners as indispensable parties. The De Castros admit that the other co-owners are solidarily liable under the contract of agency,[10] citing Article 1915 of the Civil Code, which reads: Art. 1915. If two or more persons have appointed an agent for a common transaction or undertaking, they shall be solidarily liable to the agent for all the consequences of the agency. The solidary liability of the four co-owners, however, militates against the De Castros theory that the other co-owners should be impleaded as indispensable parties. A noted commentator explained Article 1915 thus The rule in this article applies even when the appointments were made by the principals in separate acts, provided that they are for the same transaction. The solidarity arises from the common interest of the principals, and not from the act of constituting the agency. By virtue of this solidarity, the agent can recover from any principal the whole compensation and indemnity owing to him by the others. The parties, however, may, by express agreement, negate this solidary responsibility. The solidarity does not disappear by the mere partition effected by the principals after the accomplishment of the agency. If the undertaking is one in which several are interested, but only some create the agency, only the latter are solidarily liable, without prejudice to the effects of negotiorum gestio with respect to the others. And if the power granted includes various transactions some of which are common and others are not, only those interested in each transaction shall be liable for it.[11]

128 When the law expressly provides for solidarity of the obligation, as in the liability of co-principals in a contract of agency, each obligor may be compelled to pay the entire obligation.[12] The agent may recover the whole compensation from any one of the coprincipals, as in this case. Indeed, Article 1216 of the Civil Code provides that a creditor may sue any of the solidary debtors. This article reads: Art. 1216. The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others, so long as the debt has not been fully collected.
[13]

Thus, the Court has ruled in Operators Incorporated vs. American Biscuit Co., Inc. that

x x x solidarity does not make a solidary obligor an indispensable party in a suit filed by the creditor. Article 1216 of the Civil Code says that the creditor `may proceed against anyone of the solidary debtors or some or all of them simultaneously. (Emphasis supplied) Second Issue: whether Artigos claim has been extinguished by full payment, waiver or abandonment The De Castros claim that Artigo was fully paid on June 14, 1985, that is, Artigo was given his proportionate share and no longer entitled to any balance. According to them, Artigo was just one of the agents involved in the sale and entitled to a proportionate share in the commission. They assert that Artigo did absolutely nothing during the second negotiation but to sign as a witness in the deed of sale. He did not even prepare the documents for the transaction as an active real estate broker usually does. The De Castros arguments are flimsy. A contract of agency which is not contrary to law, public order, public policy, morals or good custom is a valid contract, and constitutes the law between the parties.[14] The contract of agency entered into by Constante with Artigo is the law between them and both are bound to comply with its terms and conditions in good faith. The mere fact that other agents intervened in the consummation of the sale and were paid their respective commissions cannot vary the terms of the contract of agency granting Artigo a 5 percent commission based on the selling price. These other agents turned out to be employees of Times Transit, the buyer Artigo introduced to the De Castros. This prompted the trial court to observe: The alleged `second group of agents came into the picture only during the so-called `second negotiation and it is amusing to note that these (sic) second group, prominent among whom are Atty. Del Castillo and Ms. Prudencio, happened to be employees of

129 Times Transit, the buyer of the properties. And their efforts were limited to convincing Constante to part away with the properties because the redemption period of the foreclosed properties is around the corner, so to speak. (tsn. June 6, 1991). xxx To accept Constantes version of the story is to open the floodgates of fraud and deceit. A seller could always pretend rejection of the offer and wait for sometime for others to renew it who are much willing to accept a commission far less than the original broker. The immorality in the instant case easily presents itself if one has to consider that the alleged `second group are the employees of the buyer, Times Transit and they have not bettered the offer secured by Mr. Artigo for P7 million. It is to be noted also that while Constante was too particular about the unrenewed real estate brokers license of Mr. Artigo, he did not bother at all to inquire as to the licenses of Prudencio and Castillo. (tsn, April 11, 1991, pp. 39-40).[15] (Emphasis supplied) In any event, we find that the 5 percent real estate brokers commission is reasonable and within the standard practice in the real estate industry for transactions of this nature. The De Castros also contend that Artigos inaction as well as failure to protest estops him from recovering more than what was actually paid him. The De Castros cite Article 1235 of the Civil Code which reads: Art. 1235. When the obligee accepts the performance, knowing its incompleteness and irregularity, and without expressing any protest or objection, the obligation is deemed fully complied with. The De Castros reliance on Article 1235 of the Civil Code is misplaced. Artigos acceptance of partial payment of his commission neither amounts to a waiver of the balance nor puts him in estoppel. This is the import of Article 1235 which was explained in this wise: The word accept, as used in Article 1235 of the Civil Code, means to take as satisfactory or sufficient, or agree to an incomplete or irregular performance. Hence, the mere receipt of a partial payment is not equivalent to the required acceptance of performance as would extinguish the whole obligation.[16] (Emphasis supplied) There is thus a clear distinction between acceptance and mere receipt. In this case, it is evident that Artigo merely received the partial payment without waiving the balance. Thus, there is no estoppel to speak of. The De Castros further argue that laches should apply because Artigo did not file his complaint in court until May 29, 1989, or almost four years later. Hence, Artigos claim for the balance of his commission is barred by laches.

130 Laches means 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 it or declined to assert it.[17] Artigo disputes the claim that he neglected to assert his rights. He was appointed as agent on January 24, 1984. The two lots were finally sold in June 1985. As found by the trial court, Artigo demanded in April and July of 1985 the payment of his commission by Constante on the basis of the selling price of P7.05 million but there was no response from Constante.[18] After it became clear that his demands for payment have fallen on deaf ears, Artigo decided to sue on May 29, 1989. Actions upon a written contract, such as a contract of agency, must be brought within ten years from the time the right of action accrues. [19] The right of action accrues from the moment the breach of right or duty occurs. From this moment, the creditor can institute the action even as the ten-year prescriptive period begins to run.[20] The De Castros admit that Artigos claim was filed within the ten-year prescriptive period. The De Castros, however, still maintain that Artigos cause of action is barred by laches. Laches does not apply because only four years had lapsed from the time of the sale in June 1985. Artigo made a demand in July 1985 and filed the action in court on May 29, 1989, well within the ten-year prescriptive period. This does not constitute an unreasonable delay in asserting ones right. The Court has ruled, a delay within the prescriptive period is sanctioned by law and is not considered to be a delay that would bar relief.[21] In explaining that laches applies only in the absence of a statutory prescriptive period, the Court has stated Laches is recourse in equity. Equity, however, is applied only in the absence, never in contravention, of statutory law. Thus, laches, cannot, as a rule, be used to abate a collection suit filed within the prescriptive period mandated by the Civil Code.[22] Clearly, the De Castros defense of laches finds no support in law, equity or jurisprudence. Third issue: whether the determination of the purchase price was made in violation of the Rules on Evidence The De Castros want the Court to re-examine the probative value of the evidence adduced in the trial court to determine whether the actual selling price of the two lots was P7.05 million and not P3.6 million. The De Castros contend that it is erroneous to base the 5 percent commission on a purchase price of P7.05 million as ordered by the trial court and the appellate court. The De Castros insist that the purchase price is P3.6 million as expressly stated in the deed of sale, the due execution and authenticity of which was admitted during the trial. The De Castros believe that the trial and appellate courts committed a mistake in considering incompetent evidence and disregarding the best evidence and parole

131 evidence rules. They claim that the Court of Appeals erroneously affirmed sub silentio the trial courts reliance on the various correspondences between Constante and Times Transit which were mere photocopies that do not satisfy the best evidence rule. Further, these letters covered only the first negotiations between Constante and Times Transit which failed; hence, these are immaterial in determining the final purchase price. The De Castros further argue that if there was an undervaluation, Artigo who signed as witness benefited therefrom, and being equally guilty, should be left where he presently stands. They likewise claim that the Court of Appeals erred in relying on evidence which were not offered for the purpose considered by the trial court. Specifically, Exhibits B, C, D and E were not offered to prove that the purchase price was P7.05 Million. Finally, they argue that the courts a quo erred in giving credence to the perjured testimony of Artigo. They want the entire testimony of Artigo rejected as a falsehood because he was lying when he claimed at the outset that he was a licensed real estate broker when he was not. Whether the actual purchase price was P7.05 Million as found by the trial court and affirmed by the Court of Appeals, or P3.6 Million as claimed by the De Castros, is a question of fact and not of law. Inevitably, this calls for an inquiry into the facts and evidence on record. This we can not do. It is not the function of this Court to re-examine the evidence submitted by the parties, or analyze or weigh the evidence again.[23] This Court is not the proper venue to consider a factual issue as it is not a trier of facts. In petitions for review on certiorari as a mode of appeal under Rule 45, a petitioner can only raise questions of law. Our pronouncement in the case of Cormero vs. Court of Appeals[24] bears reiteration: At the outset, it is evident from the errors assigned that the petition is anchored on a plea to review the factual conclusion reached by the respondent court. Such task however is foreclosed by the rule that in petitions for certiorari as a mode of appeal, like this one, only questions of law distinctly set forth may be raised. These questions have been defined as those that do not call for any examination of the probative value of the evidence presented by the parties. (Uniland Resources vs. Development Bank of the Philippines, 200 SCRA 751 [1991] citing Goduco vs. Court of appeals, et al., 119 Phil. 531; Hernandez vs. Court of Appeals, 149 SCRA 67). And when this court is asked to go over the proof presented by the parties, and analyze, assess and weigh them to ascertain if the trial court and the appellate court were correct in according superior credit to this or that piece of evidence and eventually, to the totality of the evidence of one party or the other, the court cannot and will not do the same. (Elayda vs. Court of Appeals, 199 SCRA 349 [1991]). Thus, in the absence of any showing that the findings complained of are totally devoid of support in the record, or that they are so glaringly erroneous as to constitute serious abuse of discretion, such findings must stand, for this court is not expected or required to examine or contrast the oral and documentary evidence submitted by the parties. (Morales vs. Court of Appeals, 197 SCRA 391 [1991] citing Santa Ana vs. Hernandez, 18 SCRA 973 [1966]).

132 We find no reason to depart from this principle. The trial and appellate courts are in a much better position to evaluate properly the evidence. Hence, we find no other recourse but to affirm their finding on the actual purchase price. Fourth Issue: whether award of moral damages and attorneys fees is proper The De Castros claim that Artigo failed to prove that he is entitled to moral damages and attorneys fees. The De Castros, however, cite no concrete reason except to say that they are the ones entitled to damages since the case was filed to harass and extort money from them. Law and jurisprudence support the award of moral damages and attorneys fees in favor of Artigo. The award of damages and attorneys fees is left to the sound discretion of the court, and if such discretion is well exercised, as in this case, it will not be disturbed on appeal.[25] Moral damages may be awarded when in a breach of contract the defendant acted in bad faith, or in wanton disregard of his contractual obligation. [26] On the other hand, attorneys fees are awarded in instances where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiffs plainly valid, just and demandable claim.[27] There is no reason to disturb the trial courts finding that the defendants lack of good faith and unkind treatment of the plaintiff in refusing to give his due commission deserve censure. This warrants the award of P25,000.00 in moral damages and P45,000.00 in attorneys fees. The amounts are, in our view, fair and reasonable. Having found a buyer for the two lots, Artigo had already performed his part of the bargain under the contract of agency. The De Castros should have exercised fairness and good judgment in dealing with Artigo by fulfilling their own part of the bargain - paying Artigo his 5 percent brokers commission based on the actual purchase price of the two lots. WHEREFORE, the petition is denied for lack of merit. The Decision of the Court of Appeals dated May 4, 1994 in CA-G.R. CV No. 37996 is AFFIRMED in toto. SO ORDERED.