SECOND DIVISION

[G.R. No. 141485.  June 30, 2005]

PABLITO MURAO and NELIO HUERTAZUELA, petitioners, vs. PEOPLE OF THE PHILIPPINES, respondent.

D E C I S I O N

CHICO-NAZARIO, J.:

In this Petition for Review on Certiorari under Rule 45 of the Rules of Court, petitioners pray for the reversal of the Decision of the Court of Appeals in CA-G.R. CR No. 21134, dated 31 May 1999,[1] affirming with modification the Judgment of the Regional Trial Court (RTC) of Puerto Princesa City, Palawan, in Criminal Case No. 11943, dated 05 May 1997,[2] finding petitioners guilty beyond reasonable doubt of the crime of estafa under Article 315(1)(b) of the Revised Penal Code.

Petitioner Pablito Murao is the sole owner of Lorna Murao Industrial Commercial Enterprises (LMICE), a company engaged in the business of selling and refilling fire extinguishers, with branches in Palawan, Naga, Legaspi, Mindoro, Aurora, Quezon, Isabela, and Laguna.  Petitioner Nelio Huertazuela is the Branch Manager of LMICE in Puerto Princesa City, Palawan.[3]

On 01 September 1994, petitioner Murao and private complainant Chito Federico entered into a Dealership Agreement for the marketing, distribution, and refilling of fire extinguishers within Puerto Princesa City.[4] According to the Dealership Agreement, private complainant Federico, as a dealer for LMICE, could obtain fire extinguishers from LMICE at a 50% discount, provided that he sets up his own sales force, acquires and issues his own sales invoice, and posts a bond with LMICE as security for the credit line extended to him by LMICE.  Failing to comply with the conditions under the said Dealership Agreement, private complainant Federico, nonetheless, was still allowed to act as a part-time sales agent for LMICE entitled to a percentage commission from the sales of fire extinguishers.[5]

The amount of private complainant Federico’s commission as sales agent for LMICE was under contention. Private complainant Federico claimed that he was entitled to a commission equivalent to 50% of the gross sales he had made on behalf of LMICE,[6] while petitioners maintained that he should receive only 30% of the net sales.  Petitioners even contended that as company policy, part-time sales agents were entitled to a commission of only 25% of the net sales, but since private complainant Federico helped in establishing the LMICE branch office in Puerto Princesa City, he was to receive the same commission as the full-time sales agents of LMICE, which was 30% of the net sales.[7]

Private complainant Federico’s first successful transaction as sales agent of LMICE involved two fire extinguishers sold to Landbank of the Philippines (Landbank), Puerto Princesa City Branch, for the price of P7,200.00.  Landbank issued a check, dated 08 November 1993, pay to the order of “L.M. Industrial Comm’l. Enterprises c/o Chito Federico,” for the amount of P5,936.40,[8]

after deducting from the original sales price the 15% discount granted by private complainant Federico to Landbank and the 3% withholding tax.  Private complainant Federico encashed the check at Landbank and remitted only P2,436.40 to LMICE, while he kept P3,500.00 for himself as his commission from the sale.[9]

Petitioners alleged that it was contrary to the standard operating procedure of LMICE that private complainant Federico was named payee of the Landbank check on behalf of LMICE, and that private complainant Federico was not authorized to encash the said check.  Despite the supposed irregularities committed by private complainant Federico in the collection of the payment from Landbank and in the premature withholding of his commission from the said payment, petitioners forgave private complainant Federico because the latter promised to make-up for his misdeeds in the next transaction.[10]

Private complainant Federico, on behalf of LMICE, subsequently facilitated a transaction with the City Government of Puerto Princesa for the refill of 202 fire extinguishers.  Because of the considerable cost, the City Government of Puerto Princesa requested that the transaction be split into two purchase orders, and the City Government of Puerto Princesa shall pay for each of the purchase orders separately.[11] Pursuant to the two purchase orders, LMICE refilled and delivered all 202 fire extinguishers to the City Government of Puerto Princesa: 154 units on 06 January 1994, 43 more units on 12 January 1994, and the last five units on 13 January 1994.[12]

The subject of this Petition is limited to the first purchase order, Purchase Order No. GSO-856, dated 03 January 1994, for the refill of 99 fire extinguishers, with a total cost of P309,000.00.[13] On 16 June 1994, the City Government of Puerto Princesa issued Check No. 611437 to LMICE to pay for Purchase Order No. GSO-856, in the amount of P300,572.73, net of the 3% withholding tax.[14] Within the same day, petitioner Huertazuela claimed Check No. 611437 from the City Government of Puerto Princesa and deposited it under the current account of LMICE with PCIBank.[15]

On 17 June 1994, private complainant Federico went to see petitioner Huertazuela at the LMICE branch office in Puerto Princesa City to demand for the amount of P154,500.00 as his commission from the payment of Purchase Order No. GSO-856 by the City Government of Puerto Princesa.  Petitioner Huertazuela, however, refused to pay private complainant Federico his commission since the two of them could not agree on the proper amount thereof.[16]

Also on 17 June 1994, private complainant Federico went to the police station to file an Affidavit-Complaint for estafa against petitioners.[17] Petitioners submitted their Joint Counter-Affidavit on 12 July 1994.[18] The City Prosecution Office of Puerto Princesa City issued a Resolution, dated 15 August 1994, finding that a prima facie case for estafa existed against the petitioners and recommending the filing of an information for estafa against both of them.[19]

The Information, docketed as Criminal Case No. 11943 and raffled to the RTC of Puerto Princesa City, Palawan, Branch 52, reads as follows –

I N F O R M A T I O N

The undersigned accuses PABLITO MURAO and NELIO C. HUERTAZUELA of the crime of ESTAFA, committed as follows:

That on or about the 16th day of June, 1994, at Puerto Princesa City, Philippines, and within the jurisdiction of this Honorable Court, the said accused, conspiring and confederating together and mutually helping one another, after having received the amount of P309,000.00 as payment of the 99 tanks of refilled fire extinguisher (sic) from the City Government of Puerto Princesa, through deceit, fraud and misrepresentation, did then and there willfully, unlawfully and feloniously defraud one Chito Federico in the following manner, to wit: said accused, well knowing that Chito Federico agent of LM Industrial Commercial Enterprises is entitled to 50% commission of the gross sales as per their Dealership Contract or the amount of P154,500.00 as his commission for his sale of 99 refilled fire extinguishers worth P309,000.00, and accused once in possession of said amount of P309,000.00 misappropriate, misapply and convert the amount of P154,500.00 for their own personal use and benefit and despite repeated demands made upon them by complainant to deliver the amount of P154,500.00, accused failed and refused and still fails and refuses to do so, to the damage and prejudice of said Chito Federico in the amount of P154,500.00, Philippine Currency.[20]

After holding trial, the RTC rendered its Judgment on 05 May 1997 finding petitioners guilty beyond reasonable doubt as co-principals of the crime of estafa defined and penalized in Article 315(1)(b) of the Revised Penal Code.  Estafa, under the said provision, is committed by –

ART. 315.  Swindling (estafa).  – Any person who shall defraud another by any of the means mentioned hereinbelow . . .

1.        With unfaithfulness or abuse of confidence, namely:

(a) …

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

In the same Judgment, the RTC expounded on its finding of guilt, thus –

For the afore-quoted provision of the Revised Penal Code to be committed, the following requisites must concur:

1.   That money, goods or other personal property be received by the offender in trust, or on commission, or for administration, or under any other obligation involving the duty to make delivery of, or to return, the same;

2.   That there be misappropriation or conversion of such money or property by the offender, or denial on his part of such receipt;

3.   That such misappropriation or conversion or denial is to the prejudice of another; and

4.   That there is demand made by the offended party to the offender. (Reyes, Revised Penal Code of the Philippines, p. 716; Manuel Manahan, Jr. vs. Court of Appeals, Et Al., G.R. No. 111656, March 20, 1996)

All the foregoing elements are present in this case.  The aborted testimony of Mrs. Norma Dacuan, Cashier III of the Treasurer’s Office of the City of Puerto Princesa established the fact that indeed, on June 16, 1994, co-accused Nelio Huertazuela took delivery of Check No. 611437 with face value of P300,572.73, representing payment for the refill of 99 cylinders of fire extinguishers.  Although the relationship between complaining witness Chito Federico and LMIC is not fiduciary in nature, still the clause “any other obligation involving the duty to make delivery of or to return” personal property is broad enough to include a “civil obligation” (Manahan vs. C.A., Et. Al., Mar. 20, 1996).

The second element cannot be gainsaid.  Both Pablito Murao and Nelio Huertazuela categorically admitted that they did not give to Chito Federico his commission.  Instead, they deposited the full amount of the consideration, with the PCIBank in the Current Account of LMIC.

…

The refusal by the accused to give Chito Federico what ever percentage his commission necessarily caused him prejudice which constitute the third element of estafa.  Demand for payment, although not an essential element of estafa was nonetheless made by the complainant but was rebuffed by the accused.  The fraudulent intent by the accused is indubitably indicated by their refusal to pay Chito Federico any percentage of the gross sales as commission.  If it were true that what the dealer/sales Agent is entitled to by way of commission is only 30% of the gross sales, then by all means the accused should have paid Chito Federico 30%.  If he refused, they could have it deposited in his name.  In that way they may not be said to have misappropriated for themselves what pertained to their Agent by way of commission. 

…

WHEREFORE, premises considered judgment is hereby rendered finding the accused PABLITO MURAO and NELIO HUERTAZUELA guilty beyond reasonable doubt as co-principals, of the crime of estafa defined and penalized in Article 315 par. 1(b) of the Revised Penal Code, and applying the provisions of the Indeterminate Sentence Law, both accused are hereby sentenced to an indeterminate penalty ranging from a minimum of TWO (2) YEARS, FOUR (4) MONTHS and ONE (1) DAY of prision correccional in its medium period, to a maximum of TWENTY (20) YEARS of reclusion temporal in its maximum period; to pay Chito Federico, jointly and severally:

a.  Sales Commission equivalent to

50% of P309,000.00 or -------------------       P154,500.00

with legal interest thereon fromJune 17, 1994 until fully paid;

b.  Attorney’s fees ----------------------------          P 30,0000.00.[21]

Resolving the appeal filed by the petitioners before it, the Court of Appeals, in its Decision, dated 31 May 1999, affirmed the aforementioned RTC Judgment, finding petitioners guilty of estafa, but modifying the sentence imposed on the petitioners.  The dispositive portion of the Decision of the Court of Appeals reads –

WHEREFORE, the appealed decision is hereby AFFIRMED with the MODIFICATION that appellants PABLITO MURAO and NELIO HUERTAZUELA are hereby each sentenced to an indeterminate penalty of eight (8) years and One (1) day of prision mayor , as minimum, to Twenty (20) years of reclusion temporal, as maximum.  The award for attorney’s fee of P 30,000.00 is deleted because the prosecution of criminal action is the task of the State prosecutors.  All other aspects of the appealed decision are maintained.[22]

When the Court of Appeals, in its Resolution, dated 19 January 2000,[23] denied their Motion for Reconsideration, petitioners filed the present Petition for Review[24] before this Court, raising the following errors allegedly committed by the Court of Appeals in its Decision, dated 31 May 1999 –

I

WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS GRAVELY ERRED WHEN IT RULED THAT PETITIONERS ARE LIABLE FOR ESTAFA UNDER ARTICLE 315 1(B) OF THE REVISED PENAL CODE UNDER THE FOREGOING SET OF FACTS, WHEN IT IS CLEAR FROM THE SAID UNDISPUTED FACTS THAT THE LIABILITY IS CIVIL IN NATURE.

II

WITH DUE RESPECT, THE HONORABLE COURT ERRED WHEN IT UPHOLD (sic) PRIVATE COMPLAINANT’S CLAIM THAT HE IS ENTITLED TO A FIFTY (50%) PERCENT COMMISSION WITHOUT EVIDENCE TO SUPPORT SUCH CLAIM.

This Court finds the instant Petition impressed with merit.  Absent herein are two essential elements of the crime of estafa by misappropriation or conversion under Article 315(1)(b) of the Revised Penal Code, namely: (1) That money, goods or other personal property be received by the offender in trust, or on commission, or for administration, or under any other obligation involving the duty to make delivery of, or to return, the same; and (2) That there be a misappropriation or conversion of such money or property by the offender.

The findings of the RTC and the Court of Appeals that petitioners committed estafa rest on the erroneous belief that private complainant Federico, due to his right to commission, already owned 50% of the amount paid by the City Government of Puerto Princesa to LMICE by virtue of Check No. 611437, so that the collection and deposit of the said check by petitioners under the account of LMICE constituted misappropriation or conversion of private complainant Federico’s commission.

However, his right to a commission does not make private complainant Federico a joint owner of the money paid to LMICE by the City Government of Puerto Princesa, but merely establishes the relation of agent and principal.[25] It is unequivocal that an agency existed between LMICE and private complainant Federico.  Article 1868 of the Civil Code defines agency as a special contract whereby “a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter.”  Although private complainant Federico never had the opportunity to operate as a dealer for LMICE under the terms of the Dealership Agreement, he was allowed to act as a sales agent for LMICE.  He can negotiate for and on behalf of LMICE for the refill and delivery of fire extinguishers, which he, in fact, did on two occasions – with Landbank and with the City Government of Puerto Princesa.  Unlike the Dealership Agreement, however, the agreement that private complainant Federico may act as sales agent of LMICE was based on an oral agreement.[26]

As a sales agent, private complainant Federico entered into negotiations with prospective clients for and on behalf of his principal, LMICE.  When negotiations for the sale or refill of fire extinguishers were successful, private complainant Federico prepared the necessary documentation.  Purchase orders, invoices, and receipts were all in the name of LMICE.  It was LMICE who had the primary duty of picking up the empty fire extinguishers, filling them up, and delivering the refilled tanks to the clients, even though private complainant Federico personally helped in hauling and carrying the fire extinguishers during pick-up from and delivery to clients.

All profits made and any advantage gained by an agent in the execution of his agency should belong to the principal.[27] In the instant case, whether the transactions negotiated by the sales agent were for the sale of brand new fire extinguishers or for the refill of empty tanks, evidently, the business belonged to LMICE.  Consequently, payments made by clients for the fire extinguishers pertained to LMICE.  When petitioner Huertazuela, as the Branch Manager of LMICE in Puerto Princesa City, with the permission of petitioner Murao, the sole proprietor of LMICE, personally picked up Check No. 611437 from the City Government of Puerto Princesa, and deposited the same under the Current Account of LMICE with PCIBank, he was merely collecting what rightfully belonged to LMICE.  Indeed, Check No. 611437 named LMICE as the lone payee.  Private complainant Federico may claim commission, allegedly equivalent to 50% of the payment received by LMICE from the City Government of Puerto Princesa, based on his right to just compensation under his agency contract with LMICE,[28] but not as the automatic owner of the 50% portion of the said payment.

Since LMICE is the lawful owner of the entire proceeds of the check payment from the City Government of Puerto Princesa, then the petitioners who collected the payment on behalf of LMICE did not receive the same or any part thereof in trust, or on commission, or for

administration, or under any other obligation involving the duty to make delivery of, or to return, the same to private complainant Federico, thus, the RTC correctly found that no fiduciary relationship existed between petitioners and private complainant Federico.  A fiduciary relationship between the complainant and the accused is an essential element of estafa by misappropriation or conversion, without which the accused could not have committed estafa.[29]

The RTC used the case of Manahan, Jr. v. Court of Appeals [30] to support its position that even in the absence of a fiduciary relationship, the petitioners still had the civil obligation to return and deliver to private complainant Federico his commission.  The RTC failed to discern the substantial differences in the factual background of the Manahan case from the present Petition.  The Manahan case involved the lease of a dump truck.  Although a contract of lease may not be fiduciary in character, the lessee clearly had the civil obligation to return the truck to the lessor at the end of the lease period; and failure of the lessee to return the truck as provided for in the contract may constitute estafa.  The phrase “or any other obligation involving the duty to make delivery of, or to return the same” refers to contracts of bailment, such as, contract of lease of personal property, contract of deposit, and commodatum, wherein juridical possession of the thing was transferred to the lessee, depositary or borrower, and wherein the latter is obligated to return the same thing.[31]

In contrast, the current Petition concerns an agency contract whereby the principal already received payment from the client but refused to give the sales agent, who negotiated the sale, his commission.  As has been established by this Court in the foregoing paragraphs, LMICE had a right to the full amount paid by the City Government of Puerto Princesa.  Since LMICE, through petitioners, directly collected the payment, then it was already in possession of the amount, and no transfer of juridical possession thereof was involved herein.  Given that private complainant Federico could not claim ownership over the said payment or any portion thereof, LMICE had nothing at all to deliver and return to him.  The obligation of LMICE to pay private complainant Federico his commission does not arise from any duty to deliver or return the money to its supposed owner, but rather from the duty of a principal to give just compensation to its agent for the services rendered by the latter.

Furthermore, the Court of Appeals, in its Decision, dated 31 May 1999, defined the words “convert” and “misappropriate” in the following manner –

The High Court in Saddul v. Court of Appeals [192 SCRA 277] enunciated that the words “convert” and “misappropriate” in the crime of estafa punished under Art. 315, par. 1(b) connote an act of using or disposing of another’s property as if it were one’s own, or if devoting it to a purpose or use different from that agreed upon.  To misappropriate to one’s use includes, not only conversion to one’s personal advantage, but also every attempt to dispose of the property of another without right.[32]

Based on the very same definition, this Court finds that petitioners did not convert nor misappropriate the proceeds from Check No. 611437 because the same belonged to LMICE, and was not “another’s property.” Petitioners collected the said check from the City Government of Puerto Princesa and deposited the same under the Current Account of LMICE with PCIBank.  Since the money was already with its owner, LMICE, it could not be said that the same had been

converted or misappropriated for one could not very well fraudulently appropriate to himself money that is his own.[33]

Although petitioners’ refusal to pay private complainant Federico his commission caused prejudice or damage to the latter, said act does not constitute a crime, particularly estafa by conversion or misappropriation punishable under Article 315(1)(b) of the Revised Penal Code.  Without the essential elements for the commission thereof, petitioners cannot be deemed to have committed the crime.

While petitioners may have no criminal liability, petitioners themselves admit their civil liability to the private complainant Federico for the latter’s commission from the sale, whether it be 30% of the net sales or 50% of the gross sales.  However, this Court is precluded from making a determination and an award of the civil liability for the reason that the said civil liability of petitioners to pay private complainant Federico his commission arises from a violation of the agency contract and not from a criminal act.[34] It would be improper and unwarranted for this Court to impose in a criminal action the civil liability arising from a civil contract, which should have been the subject of a separate and independent civil action.[35]

WHEREFORE, the assailed Decision of the Court of Appeals in CA-G.R. CR No. 21134, dated 31 May 1999, affirming with modification the Judgment of the RTC of Puerto Princesa City, Palawan, in Criminal Case No. 11943, dated 05 May 1997, finding petitioners guilty beyond reasonable doubt of estafa by conversion or misappropriation under Article 315(1)(b) of the Revised Penal Code, and awarding the amount of P154,500.00 as sales commission to private complainant Federico, is hereby REVERSED and SET ASIDE.  A new Judgment is hereby entered ACQUITTING petitioners based on the foregoing findings of this Court that their actions did not constitute the crime of estafa by conversion or misappropriation under Article 315(1)(b) of the Revised Penal Code.  The cash bonds posted by the petitioners for their provisional liberty are hereby ordered RELEASED and the amounts thereof RETURNED to the petitioners, subject to the usual accounting and auditing procedures.

SO ORDERED.

Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur.

Republic of the PhilippinesSUPREME COURT

Manila

SECOND DIVISION

 

G.R. No. 85302 March 31, 1989

BICOL SAVINGS AND LOAN ASSOCIATION, petitioner, vs.HON. COURT OF APPEALS, CORAZON DE JESUS, LYDIA DE JESUS, NELIA DE JESUS, JOSE DE JESUS, AND PABLO DE JESUS, respondents.

Contreras & Associates for petitioner.

Reynaldo A. Feliciano for private respondents.

 

MELENCIO-HERRERA, J.:

This Petition for Review on certiorari was filed by Bicol Savings and Loan Association, seeking the reversal of the Decision ** of the respondent Court of Appeals in CA-G.R. CV No. 02213, dated 11 August 1 988, which ruled adversely against it. The pleadings disclose the following factual milieu:

Juan de Jesus was the owner of a parcel of land, containing an area of 6,870 sq. ms., more or less, situated in Naga City. On 31 March 1976, he executed a Special Power of Attorney in favor of his son, Jose de Jesus, "To negotiate, mortgage my real property in any bank either private or public entity preferably in the Bicol Savings Bank, Naga City, in any amount that may be agreed upon between the bank and my attorney-in-fact." (CA Decision, p. 44, Rollo)

By virtue thereof, Jose de Jesus obtained a loan of twenty thousand pesos (P20,000.00) from petitioner bank on 13 April 1976. To secure payment, Jose de Jesus executed a deed of mortgage on the real property referred to in the Special Power of Attorney, which mortgage contract carried, inter alia, the following stipulation:

b) If at any time the Mortgagor shall refuse to pay the obligations herein secured, or any of the amortizations of such indebtedness when due, or to comply with any of the conditions and stipulations herein agreed .... then all the obligations of the Mortgagor secured by this Mortgage, all the amortizations thereof shall immediately become due, payable and defaulted and the Mortgagee may immediately foreclose this mortgage in accordance with the Rules of Court, or extrajudicially in accordance with

Act No. 3135, as amended, or Act No. 1508. For the purpose of extrajudicial foreclosure, the Mortgagor hereby appoints the Mortgagee his attorney-in-fact to sell the property mortgaged. . . . (CA Decision, pp. 47-48, Rollo)

Juan de Jesus died in the meantime on a date that does not appear of record.

By reason of his failure to pay the loan obligation even during his lifetime, petitioner bank caused the mortgage to be extrajudicially foreclosed on 16 November 1978. In the subsequent public auction, the mortgaged property was sold to the bank as the highest bidder to whom a Provisional Certificate of Sale was issued.

Private respondents herein, including Jose de Jesus, who are all the heirs of the late Juan de Jesus, failed to redeem the property within one year from the date of the registration of the Provisional Certificate of Sale on 21 November 1980. Hence, a Definite Certificate of Sale was issued in favor of the bank on 7 September 1982.

Notwithstanding, private respondents still negotiated with the bank for the repurchase of the property. Offers and counter-offers were made, but no agreement was reached, as a consequence of which, the bank sold the property instead to other parties in installments. Conditional deeds of sale were executed between the bank and these parties. A Writ of Possession prayed for by the bank was granted by the Regional Trial Court.

On 31 January 1983 private respondents herein filed a Complaint with the then Court of First Instance of Naga City for the annulment of the foreclosure sale or for the repurchase by them of the property. That Court, noting that the action was principally for the annulment of the Definite Deed of Sale issued to petitioner bank, dismissed the case, ruling that the title of the bank over the mortgaged property had become absolute upon the issuance and registration of the said deed in its favor in September 1982. The Trial Court also held that herein private respondents were guilty of laches by failing to act until 31 January 1983 when they filed the instant Complaint.

On appeal, the Trial Court was reversed by respondent Court of Appeals. In so ruling, the Appellate Court applied Article 1879 of the Civil Code and stated that since the special power to mortgage granted to Jose de Jesus did not include the power to sell, it was error for the lower Court not to have declared the foreclosure proceedings -and auction sale held in 1978 null and void because the Special Power of Attorney given by Juan de Jesus to Jose de Jesus was merely to mortgage his property, and not to extrajudicially foreclose the mortgage and sell the mortgaged property in the said extrajudicial foreclosure. The Appellate Court was also of the opinion that petitioner bank should have resorted to judicial foreclosure. A Decision was thus handed down annulling the extrajudicial foreclosure sale, the Provisional and Definite Deeds of Sale, the registration thereof, and the Writ of Possession issued to petitioner bank.

From this ruling, the bank filed this petition to which the Court gave due course.

The pivotal issue is the validity of the extrajudicial foreclosure sale of the mortgaged property instituted by petitioner bank which, in turn hinges on whether or not the agent-son exceeded the scope of his authority in agreeing to a stipulation in the mortgage deed that petitioner bank could extrajudicially foreclose the mortgaged property.

Article 1879 of the Civil Code, relied on by the Appellate Court in ruling against the validity of the extrajudicial foreclosure sale, reads:

Art. 1879. A special power to sell excludes the power to mortgage; and a special power to mortgage does not include the power to sell.

We find the foregoing provision inapplicable herein.

The sale proscribed by a special power to mortgage under Article 1879 is a voluntary and independent contract, and not an auction sale resulting from extrajudicial foreclosure, which is precipitated by the default of a mortgagor. Absent that default, no foreclosure results. The stipulation granting an authority to extrajudicially foreclose a mortgage is an ancillary stipulation supported by the same cause or consideration for the mortgage and forms an essential or inseparable part of that bilateral agreement (Perez v. Philippine National Bank, No. L-21813, July 30, 1966, 17 SCRA 833, 839).

The power to foreclose is not an ordinary agency that contemplates exclusively the representation of the principal by the agent but is primarily an authority conferred upon the mortgagee for the latter's own protection. That power survives the death of the mortgagor (Perez vs. PNB, supra). In fact, the right of the mortgagee bank to extrajudicially foreclose the mortgage after the death of the mortgagor Juan de Jesus, acting through his attorney-in-fact, Jose de Jesus, did not depend on the authorization in the deed of mortgage executed by the latter. That right existed independently of said stipulation and is clearly recognized in Section 7, Rule 86 of the Rules of Court, which grants to a mortgagee three remedies that can be alternatively pursued in case the mortgagor dies, to wit: (1) to waive the mortgage and claim the entire debt from the estate of the mortgagor as an ordinary claim; (2) to foreclose the mortgage judicially and prove any deficiency as an ordinary claim; and (3) to rely on the mortgage exclusively, foreclosing the same at any time before it is barred by prescription, without right to file a claim for any deficiency. It is this right of extrajudicial foreclosure that petitioner bank had availed of, a right that was expressly upheld in the same case of Perez v. Philippine National Bank (supra), which explicitly reversed the decision in Pasno v. Ravina (54 Phil. 382) requiring a judicial foreclosure in the same factual situation. The Court in the aforesaid PNB case pointed out that the ruling in the Pasno case virtually wiped out the third alternative, which precisely includes extrajudicial foreclosure, a result not warranted by the text of the Rule.

It matters not that the authority to extrajudicially foreclose was granted by an attorney-in-fact and not by the mortgagor personally. The stipulation in that regard, although ancillary, forms an essential part of the mortgage contract and is inseparable therefrom. No creditor will agree to enter into a mortgage contract without that stipulation intended for its protection.

Petitioner bank, therefore, in effecting the extrajudicial foreclosure of the mortgaged property, merely availed of a right conferred by law. The auction sale that followed in the wake of that foreclosure was but a consequence thereof.

WHEREFORE, the Decision of respondent Court of Appeals in CA-G.R. CV No. 02213 is SET ASIDE, and the extrajudicial foreclosure of the subject mortgaged property, as well as the Deeds of Sale, the registration thereof, and the Writ of Possession in petitioner bank's favor, are hereby declared VALID and EFFECTIVE.

SO ORDERED.

FIRST DIVISION

[G.R. No. 122544. January 28, 1999]

REGINA P. DIZON, AMPARO D. BARTOLOME, FIDELINA D. BALZA, ESTER ABAD DIZON and JOSEPH ANTHONY DIZON, RAYMUND A. DIZON, GERARD A. DIZON, and JOSE A. DIZON, JR., petitioners, vs. COURT OF APPEALS and OVERLAND EXPRESS LINES, INC., respondents.

[G.R. No. 124741. January 28, 1999]

REGINA P. DIZON, AMPARO D. BARTOLOME, FIDELINA D. BALZA, ESTER ABAD DIZON and JOSEPH ANTHONY DIZON, RAYMUND A. DIZON, GERARD A. DIZON, and JOSE A. DIZON, JR., petitioners, vs. COURT OF APPEALS, HON. MAXIMIANO C. ASUNCION, and OVERLAND EXPRESS LINES, INC., respondents.

D E C I S I O N

MARTINEZ, J.:

Two consolidated petitions were filed before us seeking to set aside and annul the decisions and resolutions of respondent Court of Appeals. What seemed to be a simple ejectment suit was juxtaposed with procedural intricacies which finally found its way to this Court.

G. R. NO. 122544:

On May 23, 1974, private respondent Overland Express Lines, Inc. (lessee) entered into a Contract of Lease with Option to Buy with petitionersi[1] (lessors) involving a 1,755.80 square meter parcel of land situated at corner MacArthur Highway and South "H" Street, Diliman, Quezon City. The term of the lease was for one (1) year commencing from May 16, 1974 up to May 15, 1975. During this period, private respondent was granted an option to purchase for the amount of P3,000.00 per square meter. Thereafter, the lease shall be on a per month basis with a monthly rental of P3,000.00.

For failure of private respondent to pay the increased rental of P8,000.00 per month effective June 1976, petitioners filed an action for ejectment (Civil Case No. VIII-29155) on November 10, 1976 before the then City Court (now Metropolitan Trial Court) of Quezon City, Branch VIII. On November 22, 1982, the City Court rendered judgmentii[2] ordering private respondent to vacate the leased premises and to pay the sum of P624,000.00 representing rentals in arrears and/or as damages in the form of reasonable compensation for the use and occupation of the premises during the period of illegal detainer from June 1976 to November 1982 at the monthly rental of P8,000.00, less payments made, plus 12% interest per annum from November 18, 1976, the date of filing of the complaint, until fully paid, the sum of P8,000.00 a month starting December 1982, until private respondent fully vacates the premises, and to pay P20,000.00 as and by way of attorney's fees.

Private respondent filed a certiorari petition praying for the issuance of a restraining order enjoining the enforcement of said judgment and dismissal of the case for lack of jurisdiction of the City Court.

On September 26, 1984, the then Intermediate Appellate Courtiii[3] (now Court of Appeals) rendered a decisioniv[4] stating that:

"x x x, the alleged question of whether petitioner was granted an extension of the option to buy the property; whether such option, if any, extended the lease or whether petitioner actually paid the alleged P300,000.00 to Fidela Dizon, as representative of private respondents in consideration of the option and, whether petitioner thereafter offered to pay the balance of the supposed purchase price, are all merely incidental and do not remove the unlawful detainer case from the jurisdiction of respondent court. In consonance with the ruling in the case of Teodoro, Jr. vs. Mirasol (supra), the above matters may be raised and decided in the unlawful detainer suit as, to rule otherwise, would be a violation of the principle prohibiting multiplicity of suits. (Original Records, pp. 38-39)."

The motion for reconsideration was denied. On review, this Court dismissed the petition in a resolution dated June 19, 1985 and likewise denied private respondent's subsequent motion for reconsideration in a resolution dated September 9, 1985.v[5]

On October 7, 1985, private respondent filed before the Regional Trial Court (RTC) of Quezon City (Civil Case No. Q-45541) an action for Specific Performance and Fixing of Period for Obligation with prayer for the issuance of a restraining order pending hearing on the prayer for a writ of preliminary injunction. It sought to compel the execution of a deed of sale pursuant to the option to purchase and the receipt of the partial payment, and to fix the period to pay the balance. In an Order dated October 25, 1985, the trial court denied the issuance of a writ of preliminary injunction on the ground that the decision of the then City Court for the ejectment of the private respondent, having been affirmed by the then Intermediate Appellate Court and the Supreme Court, has become final and executory.

Unable to secure an injunction, private respondent also filed before the RTC of Quezon City, Branch 102 (Civil Case No. Q-46487) on November 15, 1985 a complaint for Annulment of and Relief from Judgment with injunction and damages. In its decisionvi[6] dated May 12, 1986, the trial court dismissed the complaint for annulment on the ground of res judicata, and the writ of preliminary injunction previously issued was dissolved. It also ordered private respondent to pay P3,000.00 as attorney's fees. As a consequence of private respondent's motion for reconsideration, the preliminary injunction was reinstated, thereby restraining the execution of the City Court's judgment on the ejectment case.

The two cases were thereafter consolidated before the RTC of Quezon City, Branch 77. On April 28, 1989, a decisionvii[7] was rendered dismissing private respondent's complaint in Civil Case No. Q-45541 (specific performance case) and denying its motion for reconsideration in Civil Case No. 46487 (annulment of the ejectment case). The motion for reconsideration of said decision was likewise denied.

On appeal,viii[8] respondent Court of Appeals rendered a decisionix[9] upholding the jurisdiction of the City Court of Quezon City in the ejectment case. It also concluded that there was a perfected contract of sale between the parties on the leased premises and that pursuant to the option to buy agreement, private respondent had acquired the rights of a vendee in a contract of sale. It opined that the payment by private respondent of P300,000.00 on June 20, 1975 as partial payment for the leased property, which petitioners accepted (through Alice A. Dizon) and for which an official receipt was issued, was the operative act that gave rise to a perfected contract of sale, and that for failure of petitioners to deny receipt thereof, private respondent can therefore assume that Alice A. Dizon, acting as agent of petitioners, was authorized by them to receive the money in their behalf. The Court of Appeals went further by stating that in fact, what was entered into was a "conditional contract of sale" wherein ownership over the leased property shall not pass to the private respondent until it has fully paid the purchase price. Since private respondent did not consign to the court the balance of the purchase price and continued to occupy the subject premises, it had the obligation to pay the amount of P1,700.00 in monthly rentals until full payment of the purchase price. The dispositive portion of said decision reads:

"WHEREFORE, the appealed decision in Case No. 46487 is AFFIRMED. The appealed decision in Case No. 45541 is, on the other hand, ANNULLED and SET ASIDE. The defendants-appellees are ordered to execute the deed of absolute sale of the property in question, free from any lien or encumbrance whatsoever, in favor of the plaintiff-appellant, and to deliver to the latter the said deed of sale, as well as the owner's duplicate of the certificate of title to said property upon payment of the balance of the purchase price by the plaintiff-appellant. The plaintiff-appellant is ordered to pay P1,700.00 per month from June 1976, plus 6% interest per annum, until payment of the balance of the purchase price, as previously agreed upon by the parties.

SO ORDERED."

Upon denial of the motion for partial reconsideration (Civil Case No. Q-45541) by respondent Court of Appeals,x[10] petitioners elevated the case via petition for certiorari questioning the authority of Alice A. Dizon as agent of petitioners in receiving private respondent's partial payment amounting to P300,000.00 pursuant to the Contract of Lease with Option to Buy. Petitioners also assail the propriety of private respondent's exercise of the option when it tendered the said amount on June 20, 1975 which purportedly resulted in a perfected contract of sale.

G. R. NO. 124741:

Petitioners filed with respondent Court of Appeals a motion to remand the records of Civil Case No. 38-29155 (ejectment case) to the Metropolitan Trial Court (MTC), then City Court of Quezon City, Branch 38, for execution of the judgmentxi[11] dated November 22, 1982 which was granted in a resolution dated June 29, 1992. Private respondent filed a motion to reconsider said resolution which was denied.

Aggrieved, private respondent filed a petition for certiorari, prohibition with preliminary injunction and/or restraining order with this Court (G.R. Nos. 106750-51) which was dismissed in a resolution dated September 16, 1992 on the ground that the same was a refiled case previously dismissed for lack of merit. On November 26, 1992, entry of judgment was issued by this Court.

On July 14, 1993, petitioners filed an urgent ex-parte motion for execution of the decision in Civil Case No. 38-29155 with the MTC of Quezon City, Branch 38. On September 13, 1993, the trial court ordered the issuance of a third alias writ of execution. In denying private respondent's motion for reconsideration, it ordered the immediate implementation of the third writ of execution without delay.

On December 22, 1993, private respondent filed with the Regional Trial Court (RTC) of Quezon City, Branch 104 a petition for certiorari and prohibition with preliminary injunction/restraining order (SP. PROC. No. 93-18722) challenging the enforceability and validity of the MTC judgment as well as the order for its execution.

On January 11, 1994, RTC of Quezon City, Branch 104 issued an orderxii[12] granting the issuance of a writ of preliminary injunction upon private respondent's posting of an injunction bond of P50,000.00.

Assailing the aforequoted order after denial of their motion for partial reconsideration, petitioners filed a petitionxiii[13] for certiorari and prohibition with a prayer for a temporary restraining order and/or preliminary injunction with the Court of Appeals. In its decision,xiv[14] the Court of Appeals dismissed the petition and ruled that:

"The avowed purpose of this petition is to enjoin the public respondent from restraining the ejectment of the private respondent. To grant the petition would be to allow the ejectment of the private respondent. We cannot do that now in view of the decision of this Court in CA-G.R. CV Nos. 25153-54. Petitioners' alleged right to eject private respondent has been demonstrated to be without basis in the said civil case. The petitioners have been shown, after all, to have no right to eject private respondents.

WHEREFORE, the petition is DENIED due course and is accordingly DISMISSED.

SO ORDERED."xv[15]

Petitioners' motion for reconsideration was denied in a resolutionxvi[16] by the Court of Appeals stating that:

"This court in its decision in CA-G.R. CV Nos. 25153-54 declared that the plaintiff-appellant (private respondent herein) acquired the rights of a vendee in a contract of sale, in effect, recognizing the right of the private respondent to possess the subject premises. Considering said decision, we should not allow ejectment; to do so would disturb the

status quo of the parties since the petitioners are not in possession of the subject property. It would be unfair and unjust to deprive the private respondent of its possession of the subject property after its rights have been established in a subsequent ruling.

WHEREFORE, the motion for reconsideration is DENIED for lack of merit.

SO ORDERED."xvii[17]

Hence, this instant petition.

We find both petitions impressed with merit.

First. Petitioners have established a right to evict private respondent from the subject premises for non-payment of rentals. The term of the Contract of Lease with Option to Buy was for a period of one (1) year (May 16, 1974 to May 15, 1975) during which the private respondent was given an option to purchase said property at P3,000.00 per square meter. After the expiration thereof, the lease was for P3,000.00 per month.

Admittedly, no definite period beyond the one-year term of lease was agreed upon by petitioners and private respondent. However, since the rent was paid on a monthly basis, the period of lease is considered to be from month to month in accordance with Article 1687 of the New Civil Code.xviii[18] Where the rentals are paid monthly, the lease, even if verbal may be deemed to be on a monthly basis, expiring at the end of every month pursuant to Article 1687, in relation to Article 1673 of the Civil Code.xix[19] In such case, a demand to vacate is not even necessary for judicial action after the expiration of every month.xx[20]

When private respondent failed to pay the increased rental of P8,000.00 per month in June 1976, the petitioners had a cause of action to institute an ejectment suit against the former with the then City Court. In this regard, the City Court (now MTC) had exclusive jurisdiction over the ejectment suit. The filing by private respondent of a suit with the Regional Trial Court for specific performance to enforce the option to purchase did not divest the then City Court of its jurisdiction to take cognizance over the ejectment case. Of note is the fact that the decision of the City Court was affirmed by both the Intermediate Appellate Court and this Court.

Second. Having failed to exercise the option within the stipulated one-year period, private respondent cannot enforce its option to purchase anymore. Moreover, even assuming arguendo that the right to exercise the option still subsists at the time private respondent tendered the amount on June 20, 1975, the suit for specific performance to enforce the option to purchase was filed only on October 7, 1985 or more than ten (10) years after accrual of the cause of action as provided under Article 1144 of the New Civil Code.xxi[21]

In this case, there was a contract of lease for one (1) year with option to purchase. The contract of lease expired without the private respondent, as lessee, purchasing the property but remained in possession thereof. Hence, there was an implicit renewal of the contract of lease on a monthly basis. The other terms of the original contract of lease which are revived in the implied new lease under Article 1670 of the New Civil Codexxii[22] are only those terms which are germane to

the lessee’s right of continued enjoyment of the property leased.xxiii[23] Therefore, an implied new lease does not ipso facto carry with it any implied revival of private respondent's option to purchase (as lessee thereof) the leased premises. The provision entitling the lessee the option to purchase the leased premises is not deemed incorporated in the impliedly renewed contract because it is alien to the possession of the lessee. Private respondent’s right to exercise the option to purchase expired with the termination of the original contract of lease for one year. The rationale of this Court is that:

“This is a reasonable construction of the provision, which is based on the presumption that when the lessor allows the lessee to continue enjoying possession of the property for fifteen days after the expiration of the contract he is willing that such enjoyment shall be for the entire period corresponding to the rent which is customarily paid – in this case up to the end of the month because the rent was paid monthly. Necessarily, if the presumed will of the parties refers to the enjoyment of possession the presumption covers the other terms of the contract related to such possession, such as the amount of rental, the date when it must be paid, the care of the property, the responsibility for repairs, etc. But no such presumption may be indulged in with respect to special agreements which by nature are foreign to the right of occupancy or enjoyment inherent in a contract of lease.”xxiv[24]

Third. There was no perfected contract of sale between petitioners and private respondent. Private respondent argued that it delivered the check of P300,000.00 to Alice A. Dizon who acted as agent of petitioners pursuant to the supposed authority given by petitioner Fidela Dizon, the payee thereof. Private respondent further contended that petitioners’ filing of the ejectment case against it based on the contract of lease with option to buy holds petitioners in estoppel to question the authority of petitioner Fidela Dizon. It insisted that the payment of P300,000.00 as partial payment of the purchase price constituted a valid exercise of the option to buy.

Under Article 1475 of the New Civil Code, “the 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. From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts.” Thus, the elements of a contract of sale are consent, object, and price in money or its equivalent. It bears stressing that the absence of any of these essential elements negates the existence of a perfected contract of sale. Sale is a consensual contract and he who alleges it must show its existence by competent proof.xxv[25]

In an attempt to resurrect the lapsed option, private respondent gave P300,000.00 to petitioners (thru Alice A. Dizon) on the erroneous presumption that the said amount tendered would constitute a perfected contract of sale pursuant to the contract of lease with option to buy. There was no valid consent by the petitioners (as co-owners of the leased premises) on the supposed sale entered into by Alice A. Dizon, as petitioners’ alleged agent, and private respondent. The basis for agency is representation and a person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent.xxvi[26] As provided in Article 1868 of the New Civil Code,xxvii[27] there was no showing that petitioners consented to the act of Alice A. Dizon nor authorized her to act on their behalf with regard to her transaction with private respondent. The most prudent thing private respondent should have done was to ascertain the

extent of the authority of Alice A. Dizon. Being negligent in this regard, private respondent cannot seek relief on the basis of a supposed agency.

In Bacaltos Coal Mines vs. Court of Appeals,xxviii[28] we explained the rule in dealing with an agent:

“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.”

For the long years that private respondent was able to thwart the execution of the ejectment suit rendered in favor of petitioners, we now write finis to this controversy and shun further delay so as to ensure that this case would really attain finality.

WHEREFORE, in view of the foregoing, both petitions are GRANTED. The decision dated March 29, 1994 and the resolution dated October 19, 1995 in CA-G.R. CV No. 25153-54, as well as the decision dated December 11, 1995 and the resolution dated April 23, 1997 in CA-G.R. SP No. 33113 of the Court of Appeals are hereby REVERSED and SET ASIDE.

Let the records of this case be remanded to the trial court for immediate execution of the judgment dated November 22, 1982 in Civil Case No. VIII-29155 of the then City Court (now Metropolitan Trial Court) of Quezon City, Branch VIII as affirmed in the decision dated September 26, 1984 of the then Intermediate Appellate Court (now Court of Appeals) and in the resolution dated June 19, 1985 of this Court.

However, petitioners are ordered to REFUND to private respondent the amount of P300,000.00 which they received through Alice A. Dizon on June 20, 1975.

SO ORDERED.

i

iiFIRST DIVISION

 

FAR EAST BANK AND TRUST COMPANY (NOW BANK OF THE PHILIPPINE ISLANDS) AND ROLANDO BORJA, DEPUTY SHERIFF,

Petitioners,

 

 

- versus -

 

 

SPS. ERNESTO AND LEONOR C. CAYETANO,

Respondents.

G.R. No. 179909

 

Present:

 

PUNO, C.J., Chairperson,

CARPIO MORALES,

LEONARDO-DE CASTRO,

BERSAMIN, and

VILLARAMA, JR., JJ.

 

 

Promulgated:

 

January 25, 2010

x-----------------------------------------------------------------------------------------x

 

DECISION

 

VILLARAMA, JR., J.:

 

This is a petition for review[1] under Rule 45 of the 1997 Rules of Civil

Procedure, as amended, of the December 8, 2006 Decision[2] of the Court of Appeals in

CA-G.R. CV No. 76382 which affirmed the May 24, 2002 Decision[3] of the Regional

Trial Court (RTC) of Naga City, Branch 61 and dismissed petitioner Far East Bank and

Trust Company’s appeal. The appellate court likewise denied its motion for

reconsideration in a Resolution[4] dated September 6, 2007.

The undisputed facts of the case are summarized as follows:

Respondent Leonor C. Cayetano (Cayetano) executed a special power of attorney

in favor of her daughter Teresita C. Tabing (Tabing) authorizing her to contract a loan

from petitioner in an amount not more than three hundred thousand pesos (P300,000.00)

and to mortgage her two (2) lots located in Barangay Carolina, Naga City with Transfer

Certificate of Title Nos. 12304 and 11621.[5] For the approval of the loan, Cayetano

also executed an affidavit of non-tenancy.[6] Petitioner loaned Tabing one hundred

thousand pesos (P100,000.00) secured by two (2) promissory notes and a real estate

mortgage over Cayetano’s two (2) properties.[7] The mortgage document was signed

by Tabing and her husband as mortgagors in their individual capacities, without

stating that Tabing was executing the mortgage contract for and in behalf of the

owner (Cayetano).[8]

Petitioner foreclosed the mortgage for failure of the respondents and the spouses

Tabing to pay the loan. A notice of public auction sale, to be conducted on September

18, 1991,[9] was sent to respondents. The latter’s lawyer responded with a letter[10] to

petitioner requesting that the public auction be postponed. Respondents’ letter went

unheeded and the public auction was held as scheduled wherein the subject properties

were sold to petitioner for one hundred sixty thousand pesos (P160,000.00).[11]

Subsequently, petitioner consolidated its title and obtained new titles in its name after

the redemption period lapsed without respondents taking any action.

More than five (5) years later, Tabing, on behalf of Cayetano, sent a letter dated

September 10, 1996 to petitioner expressing the intent to repurchase the properties for

two hundred fifty thousand pesos (P250,000.00) with proposed terms of payment.[12]

Petitioner refused the offer stating that the minimum asking price for the properties was

five hundred thousand pesos (P500,000.00) and it was not amenable to the proposed

terms of payment. Petitioner nevertheless gave respondents the chance to buy back the

properties by joining a bidding to be set in some future date.[13] However, respondents

filed on December 18, 1996 a complaint for annulment of mortgage and extrajudicial

foreclosure of the properties with damages in the RTC of Naga City. Respondents

sought nullification of the real estate mortgage and extrajudicial foreclosure sale, as well

as the cancellation of petitioner’s title over the properties.[14]

After trial, the RTC rendered judgment in favor of the respondents, holding that

the principal (Cayetano) cannot be bound by the real estate mortgage executed by the

agent (Tabing) unless it is shown that the same was made and signed in the name of the

principal; hence, the mortgage will bind the agent only. The trial court also found that

there was no compliance with the requirement of publication of the foreclosure sale in a

newspaper of general circulation as provided in Act No. 3135, as amended. Such

requisite must be strictly complied with as any slight deviation therefrom will render the

sale voidable.[15]

The Court of Appeals affirmed the RTC’s ruling. It held that it must be shown

that the real estate mortgage was executed by the agent on-behalf of the principal,

otherwise the agent may be deemed to have acted on his own and the mortgage is void.

However, the appellate court further declared that the principal loan agreement was not

affected, which had become an unsecured credit. The Court of Appeals denied

petitioner’s motion for reconsideration.[16]

Hence, the present petition.

The only issue before us is whether or not the principal is bound by the real

estate mortgage executed by the authorized agent in her own name without

indicating the principal.

The issue is not novel. The RTC and the Court of Appeals are both correct in

holding that our decision in The Philippine Sugar Estates Development Co., Ltd., Inc. v.

Poizat, et al.[17] (Poizat Case), as reiterated in the case of Rural Bank of Bombon

(Camarines Sur), Inc. v. Court of Appeals[18] (Bombon Case), finds application in the

instant case. The factual circumstances of said cases are similar to the case at bar, where

an authorized agent executed a real estate mortgage on the principal’s property in her

own name without indicating that she was acting on behalf of the principal.

In the Poizat Case, Gabriela Andrea de Coster (Coster) executed a general power

of attorney authorizing her husband, Juan Poizat (Poizat), to obtain a loan and to secure

the same with mortgage, pledge or personal securities. Poizat obtained a credit of ten

thousand (10,000) Pounds Sterling from petitioner therein, and executed a mortgage

upon the real property of his wife. Although the provisions of the real estate mortgage

mentioned that it was entered also in Poizat’s capacity as attorney-in-fact of Coster,

Poizat signed the contract in his own name without any indication that he also signed it

as the attorney-in-fact of his wife. For failure to pay the loan, the petitioner foreclosed

on the mortgage but this was opposed by Coster. The Court ruled on the legal force and

effect of the real estate mortgage in question, by whom and for whom it was executed,

and whether or not it was void as to Coster, in this wise:

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 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. [EMPHASIS SUPPLIED]

Thus, while Poizat may have had the authority to borrow money and mortgage the

real property of his wife, the law specifies how and in what manner it must be done, and

the stubborn fact remains that, as to the transaction in question, that power was never

exercised. The mortgage in question was executed by him and him only, and for such

reason, it is not binding upon the wife, and as to her, it is null and void.

In Bombon, respondent Ederlinda M. Gallardo (Gallardo) authorized Rufino S.

Aquino (Aquino) to contract a loan from any bank and secure it with mortgage on her

property. Gallardo also delivered her owner’s copy of Transfer Certificate of Title to

Aquino. Aquino obtained a loan from petitioner bank and executed a deed of real estate

mortgage without indicating that he was acting in behalf of Gallardo. At the beginning

of the mortgage deed, it was mentioned that the mortgage was executed by Aquino,

attorney-in-fact of Gallardo, together with a description of his legal capacity to contract.

Gallardo and her husband filed a complaint for annulment of mortgage against the

petitioner and Aquino and one (1) of the grounds raised was that the mortgagor in the

deed was Aquino instead of Gallardo. The trial court ordered the suspension of the

foreclosure of the real estate mortgage until after the decision in the annulment case

shall have become final and executory. The dismissal of the complaint for annulment of

mortgage was appealed to the Court of Appeals which reversed the trial court and

declared the mortgage contract void and unenforceable against Gallardo. Upon elevation

to this Court, we held that “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 M. 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.”[19]

In the fairly recent case of Gozun v. Mercado,[20] respondent Mercado denied

having authorized his sister-in-law (Lilian) to borrow money from petitioner who gave

her “cash advance” of P253,000.00 allegedly for allowances of poll watchers. Petitioner

sued respondent to collect on various sums due from the latter including the “cash

advance” obtained by Lilian. The trial court found for the petitioner and ordered the

respondent to pay all amounts being claimed by the petitioner. The Court of Appeals

reversed the trial court’s decision and dismissed the complaint for lack of cause of

action. When the case reached this Court, petitioner argued that respondent had

informed him that he had authorized Lilian to obtain the loan and hence, following

Macke v. Camps which held that one who clothes another with apparent authority as his

agent, and holds him out to the public as such, respondent cannot be permitted to deny

the authority. We sustained the Court of Appeals’ ruling on the matter and held that

respondent was not liable for the “cash advance” given by petitioner to Lilian who

signed the receipt in her name alone, without indicating therein that she was acting for

and in behalf of respondent. She thus bound herself in her personal capacity and not as

an agent of respondent or anyone for that matter.[21]

Notwithstanding the nullity of the real estate mortgage executed by Tabing and

her husband, we find that the equity principle of laches is applicable in the instant case.

Laches 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.[22] Its essential elements are: (1) conduct on the part of the defendant, or of

one under whom he claims, giving rise to the situation complained of; (2) delay in

asserting complainant’s right after he had knowledge of the defendant’s conduct and

after he has an opportunity to sue; (3) lack of knowledge or notice on the part of the

defendant that the complainant would assert the right on which he bases his suit; and (4)

injury or prejudice to the defendant in the event relief is accorded to the complainant.

[23]

There is no absolute rule on what constitutes laches. It is a creation of equity and

applied not really to penalize neglect or sleeping upon one’s rights but rather to avoid

recognizing a right when to do so would result in a clearly inequitable situation. The

question of laches, we said, is addressed to the sound discretion of the court and each

case must be decided according to its particular circumstances.[24] Verily, in a number

of cases, it had been held that laches, the essence of which is the neglect to assert a right

over a long period of time, may prevent recovery of a titled property.[25]

In the present case, records clearly show that respondents could have filed an

action to annul the mortgage on their properties, but for unexplained reasons, they failed

to do so. They only questioned the loan and mortgage transactions in December 1996,

or after the lapse of more than five (5) years from the date of the foreclosure sale. It

bears noting that the real estate mortgage was registered and annotated on the titles of

respondents, and the latter were even informed of the extrajudicial foreclosure and the

scheduled auction. Instead of impugning the real estate mortgage and opposing the

scheduled public auction, respondents’ lawyer wrote a letter to petitioner and merely

asked that the scheduled auction be postponed to a later date. Even after five (5) years,

respondents still failed to oppose the foreclosure and the subsequent transfer of titles to

petitioner when their agent, Tabing, acting in behalf of Cayetano, sent a letter proposing

to buy back the properties. It was only when the negotiations failed that respondents

filed the instant case. Clearly, respondents slept on their rights.[26]

WHEREFORE, the petition is GRANTED. The Decision dated December 8,

2006 and the Resolution dated September 6, 2007 of the Court of Appeals in CA-G.R.

CV No. 76382, as well as the Decision dated May 24, 2002 in Civil Case No. 96-3684

of the Regional Trial Court, Branch 61, Naga City, are hereby SET ASIDE.  

The complaint for annulment of mortgage and extrajudicial foreclosure with

damages and cancellation of titles filed by respondents is hereby DISMISSED.

No costs.

SO ORDERED.

SECOND DIVISION

 

 

HADJI MAHMUD L. JAMMANG G.R. No. 149429

and ALMA SHIPPING LINES, INC.,

Petitioners, Present:

PUNO, J., Chairperson,

- versus - SANDOVAL-GUTIERREZ,CORONA,

AZCUNA, and

TAKAHASHI TRADING CO., LTD., GARCIA, JJ.

and SINOTRANS SHANDONG

COMPANY, Promulgated:

Respondents.

October 9, 2006

 

x ---------------------------------------------------------------------------------------- x

 

DECISION

 

AZCUNA, J.:

 

This is a petition for review on certiorari[1] which seeks to set aside the decision

and resolution of the Court of Appeals (CA) promulgated on May 16, 2001 and August

9, 2001, respectively, in CA-G.R. CV No. 64197 entitled “Takahashi Trading Co., Ltd.

and Sinotrans Shandong Company v. Hadji Mahmud I. Jammang and Alma Shipping

Lines, Inc.”

 

The CA affirmed in toto the entire decision of the Regional Trial Court (RTC) of

Pasig City, Branch 167, in Civil Case No. 65340, which ruled in favor of herein

respondent Sinotrans Shandong Company which filed an action for the collection of a

sum of money against petitioner Jammang pursuant to the provisions of their

supplemental agreement.

 

Petitioner Hadji Mahmud I. Jammang is a trader and the owner of the MV Queen

Alma, a vessel engaged in the shipment of barter goods from Singapore to Jolo,

Philippines. He is also the general manager of co-petitioner Alma Shipping Lines, Inc.

(Alma), a duly-organized and existing domestic corporation.

 

Respondent Takahashi Trading Co., Ltd. (Takahashi) is a foreign corporation duly

licensed to transact business in the Philippines, while co-respondent Sinotrans Shandong

Company (Sinotrans) is a foreign corporation organized and existing under the laws of

the People’s Republic of China.

 

 

The facts of the case are as follows:[2]

 

 

Petitioner Jammang has been engaged in the trading business for over fifteen

years, and is a pioneer in the establishment of trade relations between Zamboanga City

and nearby Asian countries such as Taiwan, Malaysia and Indonesia. As stated earlier,

Jammang is also the general manager of Alma Shipping Lines, being the owner and

operator of the MV Queen Alma.

Sometime in October of 1993, Hiroaki Takahashi, the president of respondent

Takahashi, introduced Jammang to Sinotrans because the latter was scouting for a

supplier of Chinese goods for his buyers in Labuan, Malaysia. Sinotrans agreed to

supply said respondent with Chinese goods on the condition that the latter will act

as a sales agent of petitioner Sinotrans. It was agreed that Jammang shall turn over the

proceeds of the sale, less mark-up, and return unsold goods, if any, to Sinotrans. On the

other hand, Jammang and Takahashi agreed to split equally whatever profit may be

derived from the sale of Sinotrans’ goods.

 

Upon Jammang’s assurances that he had ready buyers in the area, two shipments

of goods consisting of bleached or printed cotton, garlic and lungkow vermicelli

(sotanghon) were made by Sinotrans from Qingdao, China to Labuan, Malaysia. The

goods, valued at US$696,337, were consigned to Takahashi. Contrary to the

representation and assurances of Jammang, however, there were no ready buyers in

Labuan, Malaysia. For two months, Takahashi was forced to store the goods in a

warehouse for a fee.

 

Nevertheless, Jammang was able to convince Sinotrans and Takahashi to allow

him to bring the goods to Zamboanga City, Philippines, where he again claimed to have

ready buyers. He promised to turn over the proceeds of the sale, as well as the unsold

items, to Sinotrans. Likewise, he reassured Takahashi of their equal sharing of the

profits earned from the sale.

 

The goods were subsequently transshipped to Zamboanga City with Jammang as

consignee. Initially, he made a partial turnover of the proceeds of the sale in the amount

of US$230,000. After that, however, no further remittance was made.

 

To address the situation, the parties executed a Supplemental Agreement (Exhibit

“G”) on July 27, 1994, stipulating the following:

 This Agreement is entered into between ALMA SHIPPING LINES, INC. and

SHANDONG CO., CHINA, on July 27, 1994 at Alba Mall, Tetuan, Zamboanga City. Whereas, the amount of goods received by Alma Shipping Lines, Inc. from

SINOTRANS SHANDONG CO. CHINA is 696,337 USD. Whereas, Alma Shipping Lines, Inc. has remitted already the amount of 230,000

USD as partial payment to the Sinotrans Shandong, Co. Whereas, Alma Shipping Lines , Inc. will remit by July 29, 1994 to

SINOTRANS SHANDONG CO. through T/T in the amount of 15,000 USD. Whereas, 266,000 USD is still collectible and the due date for collection will be

on September 15, 1994, and the moment the Alma Shipping Lines, Inc. will receive the payments from the buyers, immediately the same amount must be remitted to Sinotrans Shandong, Co.

 Whereas, the remaining stocks in the amount of 185,000 USD [will] be sold

continuously and if possible, [Alma Shipping Lines, Inc. will] try to dispose them up to October 31, 1994….

 

 

Notwithstanding the agreement, Jammang was able to remit only the amount of

US$15,000.

 

It was discovered later, upon Sinotrans’ investigation, that Jammang had

already sold all the goods subject of the agreement. Despite repeated oral and written

demands, Jammang failed to account for and turn over the remaining balance of

US$451,337 to Sinotrans. He likewise declined to talk to respondents. Moreover, he

refused to give to Takahashi its share in the perceived profits.

 

Consequently, respondents filed with the RTC of Pasig City a complaint for a sum

of money and damages with an application for a writ of preliminary attachment against

Jammang.

Finding merit in the application for a writ of preliminary attachment, the RTC

granted the same in an order dated January 26, 1996.

Respondents offered in evidence several documents to support the testimony of

their lone witness, Lui Xiao Bo, a resident of China and the Import Export Manager of

Sinotrans.

He declared that since only the amount of US$230,000 was remitted by Jammang

as partial payment, he inspected the remaining inventory which the former showed to

him. To his estimate, the value of the same was only US$180,000. Petitioner Jammang

insisted, however, that he had collectibles amounting to US$246,000, and a US$100,000

worth of stocks left at BCC Warehouse.

 

Despite the supplemental agreement that was subsequently executed by the

parties, petitioner Jammang was able to remit only US$15,000, leaving an unliquidated

balance of US$451,337. A demand in writing made by respondents to said petitioner in

April 1995 proved futile.

 

On his part, petitioner Jammang insisted that as a barter trader, he neither bought

nor sold the goods but merely facilitated the sale. Neither was he an agent of

respondents. His signing of the supplemental agreement was only for record purposes,

and the business development report was likewise signed by him in order to convince

Sinotrans that it is profitable to send goods to the Philippines.[3]

 

As to the claim of Takahashi about his purported share in the profits, petitioner

Jammang stated that no such profit was realized on account of the poor quality of the

goods which cannot be sold at higher prices.

 

On the other hand, petitioner Alma Shipping Lines, Inc. denied liability arising

out of the transaction because it enjoys a separate and distinct personality from its

general manager. Petitioner Jammang acted on his own capacity and the former was

never a party or privy to any document signed by the latter.[4]

 

On April 22, 1999, declaring that petitioner Jammang is bound by the provisions

of the supplemental agreement, the RTC rendered its decision in favor of respondents,

the dispositive portion of which reads:

 

WHEREFORE, judgment is hereby rendered in favor of the plaintiff Sinotrans Shandong Company and against the defendant Hadji Mahmud I. Jammang, ordering the latter to pay the former, as follows:

 a) The amount of US$266,000.00, as the principal obligation, plus

legal interest thereon per annum until full payment, to be paid in Philippine Currency at the exchange rate fixed by the Bangko Sentral at the time of payment (Pan American World Airways v. Intermediate Appellate Court, G.R. No. 44445, 31 August 1987);

 

b) To pay 10% of the principal obligation, as and for reasonable attorney’s fees;

 c) To account for the remaining stocks valued at US$185,000.00

and, if sold, to remit the proceeds of the sale; and, d) To pay the costs.

 For lack of sufficient factual and legal basis, the counterclaim interposed by the

defendants is DISMISSED. 

SO ORDERED.[5]

 

Petitioners appealed the RTC decision to the CA. On May 16, 2001, the CA

affirmed the assailed decision, thus:

WHEREFORE, premises considered, the present appeal is hereby DISMISSED and the appealed Decision in Civil Case No. 65340 is hereby AFFIRMED in its entirety. 

Double costs against the defendants-appellants.

 SO ORDERED.[6]

Petitioners moved for a reconsideration of the CA decision but the same was

denied in a resolution dated August 9, 2001.

 

Petitioners contend that:

 

I.

 

THE COURT OF APPEALS DECIDED A QUESTION OF SUBSTANCE NOT IN ACCORD WITH THE CORPORATION CODE AND SETTLED JURISPRUDENCE WHEN IT AFFIRMED THE RTC DECISION THAT JAMMANG WAS SOLIDARILY LIABLE WITH ALMA, CONSIDERING THAT:

 A.                 A CORPORATION HAS A PERSONALITY SEPARATE AND DISTINCT

FROM ITS STOCKHOLDERS; B.                 THE DOCTRINE OF SEPARATE CORPORATE IDENTITY APPLIES TO

OFFICERS OF CORPORATIONS; AND, C.                 JAMMANG, WHO IS NOT A STOCKHOLDER OR EVEN AN OFFICER

BUT A MERE GENERAL MANAGER, CANNOT BE HELD LIABLE FOR ANY OBLIGATION CONTRACTED BY ALMA AS A CORPORATE ENTITY.

  II 

THE COURT OF APPEALS DECIDED A QUESTION OF SUBSTANCE NOT IN ACCORD WITH THE LAW ON AGENCY AND SETTLED JURISPRUDENCE CONSIDERING THAT:

 A.                 IT HELD THAT JAMMANG WAS AN AGENT OF SINOTRANS DESPITE

THE LACK OF A SPECIAL POWER OF ATTORNEY AUTHORIZING HIM TO SELL THE GOODS OF THE LATTER; AND,

 

B.                 EVEN ASSUMING ARGUENDO THAT JAMMANG WAS AN AGENT OF SINOTRANS, THE COURT OF APPEALS SERIOUSLY ERRED IN ITS INTERPRETATION AND APPLICATION OF THE LAW ON AGENCY, IN THAT:

  

1.                  AN AGENT IS NEVER LIABLE TO REMIT TO HIS PRINCIPAL THE PROCEEDS OF THE GOODS DELIVERED TO HIM FOR SALE UNLESS HE RECEIVED THE SAME; AND,

 2.                  SINCE THE RTC DECISION ITSELF WHICH WAS AFFIRMED BY

THE COURT OF APPEALS STATED THAT NO EVIDENCE WAS ADDUCED THAT JAMMANG RECEIVED PAYMENTS FOR THE US$266,000 GOODS SOLD ON CREDIT, THERE WAS NO BASIS IN FACT AND LAW TO HOLD [THAT] JAMMANG IS LIABLE FOR THE AMOUNT OF US$266,000 PLUS INTERESTS UNTIL FULL PAYMENT.

  

III 

THE COURT OF APPEALS SANCTIONED THE DEPARTURE BY THE LOWER COURT FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS, THUS CALLING FOR THE EXERCISE OF THE POWER OF SUPERVISION: A.                 THE LONE WITNESS FOR THE RESPONDENTS DID NOT TESTIFY

BEFORE THE JUDGE HANDLING THE CASE BUT BEFORE A MERE RESEARCHER WHO IS NOT A MEMBER OF THE BAR;

 B.                 THE TRIAL COURT DID NOT ALLOW THE PETITIONERS TO CROSS-

EXAMINE THE LONE WITNESS FOR THE RESPONDENTS. THUS, THE JUDGE DID NOT HAVE THE OPPORTUNITY TO EVALUATE THE TESTIMONY OF THE WITNESS TO DETERMINE HIS TRUTHFULNESS AND CREDIBILITY; AND,

  

C.                 THE ENTIRE RECORDS OF THE CASE, EVEN THE VERY DECISION OF THE TRIAL COURT, SHOWED THAT THE RESPONDENTS MISERABLY FAILED TO PROVE BY PREPONDERANT EVIDENCE THAT THEY WERE ENTITLED TO THEIR CLAIMS AND THE AMOUNT SO ADJUDGED.

  

IV 

THE COURT OF APPEALS ERRED IN NOT HOLDING THE RESPONDENTS LIABLE TO THE PETITIONERS FOR ACTUAL, MORAL AND EXEMPLARY DAMAGES, AS WELL AS FOR ATTORNEY’S FEES AND FOR

EXPENSES OF LITIGATION.

Petitioners argue as follows:

It is clear from the wording of the supplemental agreement that it was Alma

Shipping Lines, Inc. which entered thereto and not petitioner Jammang. The former,

being a juridical person, has a personality separate and distinct from the stockholders or

members who compose it. Therefore, as it was the company that transacted with

Sinotrans in the agreement, there is no basis for petitioner Jammang to be bound

solidarily with the company. In addition, petitioner Jammang was neither a stockholder

nor an officer of the company. As a general manager, he was only a mere employee.

 

Petitioner Jammang was not an agent of respondents. The supplemental

agreement was not a special power of attorney necessary to designate him to perform

acts of dominion over the subject goods in accordance with Article 1878 of the Civil

Code. Likewise, nothing in the Report of Business Development indicated that

petitioner was acting as the agent of Sinotrans. He was merely reporting about the

business conditions in Zamboanga. As a matter of fact, it was Pablo Palis who, on direct

testimony, categorically declared that he was Sinotrans’ agent. Palis’ judicial admission

of the agency existing between him and the respondents was never contradicted.

 

Moreover, even assuming that petitioner was Sinotran’s agent, he cannot be held

liable for the amount of US$266,000 when the evidence on record is bereft of any

showing that he received the proceeds of the sale. Under Article 1897 of the Civil Code,

the agent is not obliged to pay the price but is merely obliged to deliver the price which

he received from the buyer. Furthermore, the supplemental agreement clearly shows that

the obligation of petitioner to remit the amount of US$266,000 was conditioned upon

receipt of payment from the collectibles. If agency existed, the obligation to remit the

money arises only after the same had been received by the agent.

 

The RTC judge was not able to observe the demeanor of respondent’s witness,

Liu Xiao Bo, because it was only the legal researcher, Petronilo Jalandoni, who was not

a member of the Bar, who presided in the proceedings and received the testimony of the

witness.

No evidence was presented to prove that US$266,000 was due and owing from

petitioner.

Respondents should reimburse petitioner for actual, moral and exemplary

damages, as well as for attorney’s fees and litigation expenses.

The petition fails to show any reversible error of law by the Court of Appeals.

The dispute really turns on factual questions.

 

As the Court of Appeals stated in its decision:

The plain and clear language of the Agreement dated July 27, 1994 (Exhibit “G”) undoubtedly shows that appellants Jammang committed himself to act as a selling agent of plaintiff-appellee Sinotrans by his acknowledgment of the actual receipt of goods worth US$696,337 shipped by the latter, his first remittance of the amount of US$230,000 as partial payment thereof, his undertaking to remit the sum of US$266,000 still due and collectible and to remit US$15,000 on July 29, 1994, and his acknowledgment of the remaining unsold goods worth US$185,000 which he will try to dispose of by October 31, 1994. Aside from said Agreement, appellant Jammang had

earlier submitted a Business Development Report confirming receipt of the goods sent to him by plaintiff-appellee Sinotrans, in which We do not find any indication that he was accepting said goods merely as facilitator or warehouseman. In fact, We could not make out of the evidence presented as to the receipt of the subject goods by BCC Warehouse as these are mere photocopies and the owner of said warehouse not presented in court to shed on the particular transaction and arrangement with plaintiffs-appellees. Such evidence would be crucial especially were it true as claimed by appellant Jammang that plaintiff-appellees’ goods were not duly covered by customs documents. Actually, the claim of alleged seizure by the authorities of plaintiffs-appellees’ goods was not substantiated by competent evidence such as documents or official report from the Philippine Navy, Philippine Coast Guard or the Bureau of Customs. AS to Rev. Palis whom appellant Jammang claims was the appointed selling agent of plaintiff-appellees, the same does not hold water. As manifest in an Affidavit executed by Rev. Pablo Palis, he was actually employed by appellant Jammang and worked as his Executive Assistant in Jammang’s SAKATA Office in Alta Mall Complex from 1993 up to December 1995, when the subject transaction with plaintiffs-appellees took place. Appellant Jammang did not deny the statements in said affidavit but maintained that he had clearly spelled out his limited role in the transaction with plaintiffs-appellees. Nevertheless, said affidavit only served to prove that Palis’ involvement in the subject transaction was in his capacity as agent or employee of appellant Jammang and not of plaintiffs-appellees. Thus, even if appellants presented documentary evidence showing that Palis actually withdrew some of the goods at the warehouse, the same does not sufficiently prove the existence of agent-principal relationship between him and plaintiffs-appellees, as in fact it only goes to show that he did so to assist appellant Jammang in disposing of the goods. This conclusion is buttressed by the fact that the buyers had issued promissory notes for the payment of the goods bought by them in the name of appellant Jammang and not of Palis.

 Appellants then assailed the trial court in holding that the Agreement (Exhibit

“G”) embodied the entire transaction which transpired between the parties and thus failed to properly appreciate the circumstances surrounding its execution and subsequent events. Appellant Jammang maintained that he only acquiesced into signing the Agreement (Exhibit “G”) as he was afraid that the “conventional trading” being firmed up with plaintiffs-appellees may not materialize if he would not accommodate the execution of said document as requested by plaintiffs-appellees. Aside from failing to establish such alleged future business deal with plaintiffs-apapellees wherein appellant Jammang claimed to expect lucrative earnings from shipping contracts, appellants’ efforts to vary the clear and unequivocal terms of the Agreement certainly raise more questions than provide a more plausible and truthful version of the case. The difficulty, however, with appellants’ version is that it tried to present an elaborately contrived picture of the entire dealings between the parties that is inconsistent not only with the totality of evidence on record but also contrary to human experience and the ordinary course of things. The trial court aptly remarked that appellant Jammang’s attempt to vary the terms of the Agreement is “a clear illustration of evading a legally contracted obligation” after benefiting from the sale of the goods, he is now reneging on his commitment to remit the proceeds of the sale.

 x x x. No such reversible error appears in this case as to the matter of evaluation

of testimonial evidence by the trial court, the tests applied by it [being] no more than

whether such testimony is in conformity with knowledge and consistent with experience of mankind; a testimony that is credible in itself such as the common experience of mankind can approve as probable under the circumstances. Thus, the trial court could not help but declare that appellant Jammang being a long time and experienced businessman himself, it is simply incredible that he will admit and acknowledge an obligation involving payment of money reaching to thousands of dollars under Exhibits “D” and “G”, knowing its serious legal and financial consequences. With his extensive experience in shipping and barter trading, it is indeed simply unbelievable that he will assume the alleged liability of Rev. Pablo Palis and agree to act as a dummy for the latter, or to simply sign the Agreement (Exhibit “G”) purely to accommodate the plaintiffs-appellees on the mere promise of a so-called “conventional trading” from which he expects to earn huge shipping earnings. The clear and unmistakable terms of Exhibits “G” and “D” indeed leave no room for doubt as to the intention of the herein contracting parties. It is but proper that appellant Jammang be now made to fulfill his contractual undertaking by paying the amounts still due and owing to plaintiffs-appellees as per the Agreement dated July 27, 1994, to account for the remaining stocks valued at US$185,000 and to pay 10% of the principal obligation of US$266,000 as reasonable attorney’s fees, pursuant to Art. 2208 (2) of the Civil Code.

  

It is axiomatic that this Court will not review, much less reverse, the factual

findings of the Court of Appeals, especially where, as in this case, such findings

coincide with those of the trial court, since this Court is not a trier of facts.

All told, therefore, the Court finds no reason or basis to grant the petition.

WHEREFORE, the petition is DENIED. No costs.

 

SO ORDER

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. No. 144805 June 8, 2006

EDUARDO V. LINTONJUA, JR. and ANTONIO K. LITONJUA, Petitioners, vs.ETERNIT CORPORATION (now ETERTON MULTI-RESOURCES CORPORATION), ETEROUTREMER, S.A. and FAR EAST BANK & TRUST COMPANY, Respondents.

D E C I S I O N

CALLEJO, SR., J.:

On appeal via a Petition for Review on Certiorari is the Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 51022, which affirmed the Decision of the Regional Trial Court (RTC), Pasig City, Branch 165, in Civil Case No. 54887, as well as the Resolution2 of the CA denying the motion for reconsideration thereof.

The Eternit Corporation (EC) is a corporation duly organized and registered under Philippine laws. Since 1950, it had been engaged in the manufacture of roofing materials and pipe products. Its manufacturing operations were conducted on eight parcels of land with a total area of 47,233 square meters. The properties, located in Mandaluyong City, Metro Manila, were covered by Transfer Certificates of Title Nos. 451117, 451118, 451119, 451120, 451121, 451122, 451124 and 451125 under the name of Far East Bank & Trust Company, as trustee. Ninety (90%) percent of the shares of stocks of EC were owned by Eteroutremer S.A. Corporation (ESAC), a corporation organized and registered under the laws of Belgium.3 Jack Glanville, an Australian citizen, was the General Manager and President of EC, while Claude Frederick Delsaux was the Regional Director for Asia of ESAC. Both had their offices in Belgium.

In 1986, the management of ESAC grew concerned about the political situation in the Philippines and wanted to stop its operations in the country. The Committee for Asia of ESAC instructed Michael Adams, a member of EC’s Board of Directors, to dispose of the eight parcels of land. Adams engaged the services of realtor/broker Lauro G. Marquez so that the properties could be offered for sale to prospective buyers. Glanville later showed the properties to Marquez.

Marquez thereafter offered the parcels of land and the improvements thereon to Eduardo B. Litonjua, Jr. of the Litonjua & Company, Inc. In a Letter dated September 12, 1986, Marquez declared that he was authorized to sell the properties for P27,000,000.00 and that the terms of the sale were subject to negotiation.4

Eduardo Litonjua, Jr. responded to the offer. Marquez showed the property to Eduardo Litonjua, Jr., and his brother Antonio K. Litonjua. The Litonjua siblings offered to buy the property for P20,000,000.00 cash. Marquez apprised Glanville of the Litonjua siblings’ offer and relayed the same to Delsaux in Belgium, but the latter did not respond. On October 28, 1986, Glanville telexed Delsaux in Belgium, inquiring on his position/ counterproposal to the offer of the Litonjua siblings. It was only on February 12, 1987 that Delsaux sent a telex to Glanville stating that, based on the "Belgian/Swiss decision," the final offer was "US$1,000,000.00 and P2,500,000.00 to cover all existing obligations prior to final liquidation."5

Marquez furnished Eduardo Litonjua, Jr. with a copy of the telex sent by Delsaux. Litonjua, Jr. accepted the counterproposal of Delsaux. Marquez conferred with Glanville, and in a Letter dated February 26, 1987, confirmed that the Litonjua siblings had accepted the counter-proposal of Delsaux.

He also stated that the Litonjua siblings would confirm full payment within 90 days after execution and preparation of all documents of sale, together with the necessary governmental clearances.6

The Litonjua brothers deposited the amount of US$1,000,000.00 with the Security Bank & Trust Company, Ermita Branch, and drafted an Escrow Agreement to expedite the sale.7

Sometime later, Marquez and the Litonjua brothers inquired from Glanville when the sale would be implemented. In a telex dated April 22, 1987, Glanville informed Delsaux that he had met with the buyer, which had given him the impression that "he is prepared to press for a satisfactory conclusion to the sale."8 He also emphasized to Delsaux that the buyers were concerned because they would incur expenses in bank commitment fees as a consequence of prolonged period of inaction.9

Meanwhile, with the assumption of Corazon C. Aquino as President of the Republic of the Philippines, the political situation in the Philippines had improved. Marquez received a telephone call from Glanville, advising that the sale would no longer proceed. Glanville followed it up with a Letter dated May 7, 1987, confirming that he had been instructed by his principal to inform Marquez that "the decision has been taken at a Board Meeting not to sell the properties on which Eternit Corporation is situated."10

Delsaux himself later sent a letter dated May 22, 1987, confirming that the ESAC Regional Office had decided not to proceed with the sale of the subject land, to wit:

May 22, 1987

Mr. L.G. MarquezL.G. Marquez, Inc.334 Makati Stock Exchange Bldg.6767 Ayala AvenueMakati, Metro ManilaPhilippines

Dear Sir:

Re: Land of Eternit Corporation

I would like to confirm officially that our Group has decided not to proceed with the sale of the land which was proposed to you.

The Committee for Asia of our Group met recently (meeting every six months) and examined the position as far as the Philippines are (sic) concerned. Considering [the] new political situation since the departure of MR. MARCOS and a certain stabilization in the Philippines, the Committee has decided not to stop our operations in Manila. In fact, production has started again last week, and (sic) to recognize the participation in the Corporation.

We regret that we could not make a deal with you this time, but in case the policy would change at a later state, we would consult you again.

x x x

Yours sincerely,

(Sgd.)C.F. DELSAUX

cc. To: J. GLANVILLE (Eternit Corp.)11

When apprised of this development, the Litonjuas, through counsel, wrote EC, demanding payment for damages they had suffered on account of the aborted sale. EC, however, rejected their demand.

The Litonjuas then filed a complaint for specific performance and damages against EC (now the Eterton Multi-Resources Corporation) and the Far East Bank & Trust Company, and ESAC in the RTC of Pasig City. An amended complaint was filed, in which defendant EC was substituted by Eterton Multi-Resources Corporation; Benito C. Tan, Ruperto V. Tan, Stock Ha T. Tan and Deogracias G. Eufemio were impleaded as additional defendants on account of their purchase of ESAC shares of stocks and were the controlling stockholders of EC.

In their answer to the complaint, EC and ESAC alleged that since Eteroutremer was not doing business in the Philippines, it cannot be subject to the jurisdiction of Philippine courts; the Board and stockholders of EC never approved any resolution to sell subject properties nor authorized Marquez to sell the same; and the telex dated October 28, 1986 of Jack Glanville was his own personal making which did not bind EC.

On July 3, 1995, the trial court rendered judgment in favor of defendants and dismissed the amended complaint.12 The fallo of the decision reads:

WHEREFORE, the complaint against Eternit Corporation now Eterton Multi-Resources Corporation and Eteroutremer, S.A. is dismissed on the ground that there is no valid and binding sale between the plaintiffs and said defendants.

The complaint as against Far East Bank and Trust Company is likewise dismissed for lack of cause of action.

The counterclaim of Eternit Corporation now Eterton Multi-Resources Corporation and Eteroutremer, S.A. is also dismissed for lack of merit.13

The trial court declared that since the authority of the agents/realtors was not in writing, the sale is void and not merely unenforceable, and as such, could not have been ratified by the principal. In any event, such ratification cannot be given any retroactive effect. Plaintiffs could not assume that defendants had agreed to sell the property without a clear authorization from the corporation concerned, that is, through resolutions of the Board of Directors and stockholders. The trial court also pointed out that the supposed sale involves substantially all the assets of defendant EC which would result in the eventual total cessation of its operation.14

The Litonjuas appealed the decision to the CA, alleging that "(1) the lower court erred in concluding that the real estate broker in the instant case needed a written authority from appellee corporation and/or that said broker had no such written authority; and (2) the lower court committed grave error of law in holding that appellee corporation is not legally bound for specific performance and/or damages in the absence of an enabling resolution of the board of directors."15 They averred that Marquez acted merely as a broker or go-between and not as agent of the corporation; hence, it was not necessary for him to be empowered as such by any written authority. They further claimed that an agency by estoppel was created when the corporation clothed Marquez with apparent authority to negotiate for the sale of the properties. However, since it was a bilateral contract to buy and sell, it was equivalent to a perfected contract of sale, which the corporation was obliged to consummate.

In reply, EC alleged that Marquez had no written authority from the Board of Directors to bind it; neither were Glanville and Delsaux authorized by its board of directors to offer the property for sale. Since the sale involved substantially all of the corporation’s assets, it would necessarily need the authority from the stockholders.

On June 16, 2000, the CA rendered judgment affirming the decision of the RTC. 16 The Litonjuas filed a motion for reconsideration, which was also denied by the appellate court.

The CA ruled that Marquez, who was a real estate broker, was a special agent within the purview of Article 1874 of the New Civil Code. Under Section 23 of the Corporation Code, he needed a special authority from EC’s board of directors to bind such corporation to the sale of its properties. Delsaux, who was merely the representative of ESAC (the majority stockholder of EC) had no authority to bind the latter. The CA pointed out that Delsaux was not even a member of the board of directors of EC. Moreover, the Litonjuas failed to prove that an agency by estoppel had been created between the parties.

In the instant petition for review, petitioners aver that

I

THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PERFECTED CONTRACT OF SALE.

II

THE APPELLATE COURT COMMITTED GRAVE ERROR OF LAW IN HOLDING THAT MARQUEZ NEEDED A WRITTEN AUTHORITY FROM RESPONDENT ETERNIT BEFORE THE SALE CAN BE PERFECTED.

III

THE COURT OF APPEALS ERRED IN NOT HOLDING THAT GLANVILLE AND DELSAUX HAVE THE NECESSARY AUTHORITY TO SELL THE SUBJECT PROPERTIES, OR AT THE VERY LEAST, WERE KNOWINGLY PERMITTED BY RESPONDENT ETERNIT TO DO ACTS WITHIN THE SCOPE OF AN APPARENT AUTHORITY, AND THUS HELD THEM OUT TO THE PUBLIC AS POSSESSING POWER TO SELL THE SAID PROPERTIES.17

Petitioners maintain that, based on the facts of the case, there was a perfected contract of sale of the parcels of land and the improvements thereon for "US$1,000,000.00 plus P2,500,000.00 to cover obligations prior to final liquidation." Petitioners insist that they had accepted the counter-offer of respondent EC and that before the counter-offer was withdrawn by respondents, the acceptance was made known to them through real estate broker Marquez.

Petitioners assert that there was no need for a written authority from the Board of Directors of EC for Marquez to validly act as broker/middleman/intermediary. As broker, Marquez was not an ordinary agent because his authority was of a special and limited character in most respects. His only job as a broker was to look for a buyer and to bring together the parties to the transaction. He was not authorized to sell the properties or to make a binding contract to respondent EC; hence, petitioners argue, Article 1874 of the New Civil Code does not apply.

In any event, petitioners aver, what is important and decisive was that Marquez was able to communicate both the offer and counter-offer and their acceptance of respondent EC’s counter-offer, resulting in a perfected contract of sale.

Petitioners posit that the testimonial and documentary evidence on record amply shows that Glanville, who was the President and General Manager of respondent EC, and Delsaux, who was the Managing Director for ESAC Asia, had the necessary authority to sell the subject property or, at least, had been allowed by respondent EC to hold themselves out in the public as having the power to sell the subject properties. Petitioners identified such evidence, thus:

1. The testimony of Marquez that he was chosen by Glanville as the then President and General Manager of Eternit, to sell the properties of said corporation to any interested party, which authority, as hereinabove discussed, need not be in writing.

2. The fact that the NEGOTIATIONS for the sale of the subject properties spanned SEVERAL MONTHS, from 1986 to 1987;

3. The COUNTER-OFFER made by Eternit through GLANVILLE to sell its properties to the Petitioners;

4. The GOOD FAITH of Petitioners in believing Eternit’s offer to sell the properties as evidenced by the Petitioners’ ACCEPTANCE of the counter-offer;

5. The fact that Petitioners DEPOSITED the price of [US]$1,000,000.00 with the Security Bank and that an ESCROW agreement was drafted over the subject properties;

6. Glanville’s telex to Delsaux inquiring "WHEN WE (Respondents) WILL IMPLEMENT ACTION TO BUY AND SELL";

7. More importantly, Exhibits "G" and "H" of the Respondents, which evidenced the fact that Petitioners’ offer was allegedly REJECTED by both Glanville and Delsaux.18

Petitioners insist that it is incongruous for Glanville and Delsaux to make a counter-offer to petitioners’ offer and thereafter reject such offer unless they were authorized to do so by respondent EC. Petitioners insist that Delsaux confirmed his authority to sell the properties in his letter to Marquez, to wit:

Dear Sir,

Re: Land of Eternit Corporation

I would like to confirm officially that our Group has decided not to proceed with the sale of the land which was proposed to you.

The Committee for Asia of our Group met recently (meeting every six months) and examined the position as far as the Philippines are (sic) concerned. Considering the new political situation since the departure of MR. MARCOS and a certain stabilization in the Philippines, the Committee has decided not to stop our operations in Manila[.] [I]n fact production started again last week, and (sic) to reorganize the participation in the Corporation.

We regret that we could not make a deal with you this time, but in case the policy would change at a later stage we would consult you again.

In the meantime, I remain

Yours sincerely,

C.F. DELSAUX19

Petitioners further emphasize that they acted in good faith when Glanville and Delsaux were knowingly permitted by respondent EC to sell the properties within the scope of an apparent authority. Petitioners insist that respondents held themselves to the public as possessing power to sell the subject properties.

By way of comment, respondents aver that the issues raised by the petitioners are factual, hence, are proscribed by Rule 45 of the Rules of Court. On the merits of the petition, respondents EC (now EMC) and ESAC reiterate their submissions in the CA. They maintain that Glanville, Delsaux and Marquez had no authority from the stockholders of respondent EC and its Board of Directors to offer the properties for sale to the petitioners, or to any other person or entity for that matter. They assert that the decision and resolution of the CA are in accord with law and the evidence on record, and should be affirmed in toto.

Petitioners aver in their subsequent pleadings that respondent EC, through Glanville and Delsaux, conformed to the written authority of Marquez to sell the properties. The authority of Glanville and Delsaux to bind respondent EC is evidenced by the fact that Glanville and Delsaux negotiated for the sale of 90% of stocks of respondent EC to Ruperto Tan on June 1, 1997. Given the significance of their positions and their duties in respondent EC at the time of the transaction, and the fact that respondent ESAC owns 90% of the shares of stock of respondent EC, a formal resolution of the Board of Directors would be a mere ceremonial formality. What is important, petitioners maintain, is that Marquez was able to communicate the offer of respondent EC and the petitioners’ acceptance thereof. There was no time that they acted without the knowledge of respondents. In fact, respondent EC never repudiated the acts of Glanville, Marquez and Delsaux.

The petition has no merit.

Anent the first issue, we agree with the contention of respondents that the issues raised by petitioner in this case are factual. Whether or not Marquez, Glanville, and Delsaux were authorized by respondent EC to act as its agents relative to the sale of the properties of respondent EC, and if so, the boundaries of their authority as agents, is a question of fact. In the absence of express written terms creating the relationship of an agency, the existence of an agency is a fact question.20 Whether an agency by estoppel was created or whether a person acted within the bounds of his apparent authority, and whether the principal is estopped to deny the apparent authority of its agent are, likewise, questions of fact to be resolved on the basis of the evidence on record.21 The findings of the trial court on such issues, as affirmed by the CA, are conclusive on the Court, absent evidence that the trial and appellate courts ignored, misconstrued, or misapplied facts and circumstances of substance which, if considered, would warrant a modification or reversal of the outcome of the case.22

It must be stressed that issues of facts may not be raised in the Court under Rule 45 of the Rules of Court because the Court is not a trier of facts. It is not to re-examine and assess the evidence on record, whether testimonial and documentary. There are, however, recognized exceptions where the Court may delve into and resolve factual issues, namely:

(1) When the conclusion is a finding grounded entirely on speculations, surmises, or conjectures; (2) when the inference made is manifestly mistaken, absurd, or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on 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 of the Court of Appeals 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 Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered, would justify a different conclusion; and (10) when the findings of fact of the Court of Appeals are premised on the absence of evidence and are contradicted by the evidence on record.23

We have reviewed the records thoroughly and find that the petitioners failed to establish that the instant case falls under any of the foregoing exceptions. Indeed, the assailed decision of the Court of Appeals is supported by the evidence on record and the law.

It was the duty of the petitioners to prove that respondent EC had decided to sell its properties and that it had empowered Adams, Glanville and Delsaux or Marquez to offer the properties for sale to prospective buyers and to accept any counter-offer. Petitioners likewise failed to prove that their counter-offer had been accepted by respondent EC, through Glanville and Delsaux. It must be stressed that when specific performance is sought of a contract made with an agent, the agency must be established by clear, certain and specific proof.24

Section 23 of Batas Pambansa Bilang 68, otherwise known as the Corporation Code of the Philippines, provides:

SEC. 23. The Board of Directors or Trustees. – Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees to be elected from among the holders of stocks, or where there is no stock, from among the members of the corporation, who shall hold office for one (1) year and until their successors are elected and qualified.

Indeed, a corporation is a juridical person separate and distinct from its members or stockholders and is not affected by the personal rights, obligations and transactions of the latter.25 It may act only through its board of directors or, when authorized either by its by-laws or by its board resolution, through its officers or agents in the normal course of business. The general principles of agency govern the relation between the corporation and its officers or agents, subject to the articles of incorporation, by-laws, or relevant provisions of law.26

Under Section 36 of the Corporation Code, a corporation may sell or convey its real properties, subject to the limitations prescribed by law and the Constitution, as follows:

SEC. 36. Corporate powers and capacity. – Every corporation incorporated under this Code has the power and capacity:

x x x x

7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise deal with such real and personal property, including securities and bonds of other corporations, as the transaction of a lawful business of the corporation may reasonably and necessarily require, subject to the limitations prescribed by the law and the Constitution.

The property of a corporation, however, is not the property of the stockholders or members, and as such, may not be sold without express authority from the board of directors.27 Physical acts, like the offering of the properties of the corporation for sale, or the acceptance of a counter-offer of prospective buyers of such properties and the execution of the deed of sale covering such property, can be performed by the corporation only by officers or agents duly authorized for the purpose by corporate by-laws or by specific acts of the board of directors.28 Absent such valid delegation/authorization, the rule is that the declarations of an individual director relating to the affairs of the corporation, but not in the course of, or connected with, the performance of authorized duties of such director, are not binding on the corporation.29

While a corporation may appoint agents to negotiate for the sale of its real properties, the final say will have to be with the board of directors through its officers and agents as authorized by a board resolution or by its by-laws.30 An unauthorized act of an officer of the corporation is not binding on it unless the latter ratifies the same expressly or impliedly by its board of directors. Any sale of real property of a corporation by a person purporting to be an agent thereof but without written authority from the corporation is null and void. The declarations of the agent alone are generally insufficient to establish the fact or extent of his/her authority.31

By the contract of agency, a person binds himself to render some service or to do something in representation on behalf of another, with the consent or authority of the latter.32 Consent of both principal and agent is necessary to create an agency. The principal must intend that the agent shall act for him; the agent must intend to accept the authority and act on it, and the intention of the parties must find expression either in words or conduct between them.33

An agency may be expressed or implied from the act of the principal, from his silence or lack of action, or his failure to repudiate the agency knowing that another person is acting on his behalf without authority. Acceptance by the agent may be expressed, or implied from his acts which carry out the agency, or from his silence or inaction according to the circumstances.34 Agency may be oral unless the

law requires a specific form.35 However, to create or convey real rights over immovable property, a special power of attorney is necessary.36 Thus, when a sale of a piece of land or any portion thereof is through an agent, the authority of the latter shall be in writing, otherwise, the sale shall be void.37

In this case, the petitioners as plaintiffs below, failed to adduce in evidence any resolution of the Board of Directors of respondent EC empowering Marquez, Glanville or Delsaux as its agents, to sell, let alone offer for sale, for and in its behalf, the eight parcels of land owned by respondent EC including the improvements thereon. The bare fact that Delsaux may have been authorized to sell to Ruperto Tan the shares of stock of respondent ESAC, on June 1, 1997, cannot be used as basis for petitioners’ claim that he had likewise been authorized by respondent EC to sell the parcels of land.

Moreover, the evidence of petitioners shows that Adams and Glanville acted on the authority of Delsaux, who, in turn, acted on the authority of respondent ESAC, through its Committee for Asia,38 the Board of Directors of respondent ESAC,39 and the Belgian/Swiss component of the management of respondent ESAC.40 As such, Adams and Glanville engaged the services of Marquez to offer to sell the properties to prospective buyers. Thus, on September 12, 1986, Marquez wrote the petitioner that he was authorized to offer for sale the property for P27,000,000.00 and the other terms of the sale subject to negotiations. When petitioners offered to purchase the property for P20,000,000.00, through Marquez, the latter relayed petitioners’ offer to Glanville; Glanville had to send a telex to Delsaux to inquire the position of respondent ESAC to petitioners’ offer. However, as admitted by petitioners in their Memorandum, Delsaux was unable to reply immediately to the telex of Glanville because Delsaux had to wait for confirmation from respondent ESAC.41 When Delsaux finally responded to Glanville on February 12, 1987, he made it clear that, based on the "Belgian/Swiss decision" the final offer of respondent ESAC was US$1,000,000.00 plus P2,500,000.00 to cover all existing obligations prior to final liquidation.42 The offer of Delsaux emanated only from the "Belgian/Swiss decision," and not the entire management or Board of Directors of respondent ESAC. While it is true that petitioners accepted the counter-offer of respondent ESAC, respondent EC was not a party to the transaction between them; hence, EC was not bound by such acceptance.

While Glanville was the President and General Manager of respondent EC, and Adams and Delsaux were members of its Board of Directors, the three acted for and in behalf of respondent ESAC, and not as duly authorized agents of respondent EC; a board resolution evincing the grant of such authority is needed to bind EC to any agreement regarding the sale of the subject properties. Such board resolution is not a mere formality but is a condition sine qua non to bind respondent EC. Admittedly, respondent ESAC owned 90% of the shares of stocks of respondent EC; however, the mere fact that a corporation owns a majority of the shares of stocks of another, or even all of such shares of stocks, taken alone, will not justify their being treated as one corporation.43

It bears stressing that in an agent-principal relationship, the personality of the principal is extended through the facility of the agent. In so doing, the agent, by legal fiction, becomes the principal, authorized to perform all acts which the latter would have him do. Such a relationship can only be effected with the consent of the principal, which must not, in any way, be compelled by law or by any court.44

The petitioners cannot feign ignorance of the absence of any regular and valid authority of respondent EC empowering Adams, Glanville or Delsaux to offer the properties for sale and to sell the said properties to the petitioners. A person dealing with a known agent is not authorized, under any circumstances, blindly to trust the agents; statements as to the extent of his powers; such person must

not act negligently but must use reasonable diligence and prudence to ascertain whether the agent acts within the scope of his authority.45 The settled rule is that, persons dealing with an assumed agent are bound at their peril, and if they would hold the principal liable, to ascertain not only the fact of agency but also the nature and extent of authority, and in case either is controverted, the burden of proof is upon them to prove it.46 In this case, the petitioners failed to discharge their burden; hence, petitioners are not entitled to damages from respondent EC.

It appears that Marquez acted not only as real estate broker for the petitioners but also as their agent. As gleaned from the letter of Marquez to Glanville, on February 26, 1987, he confirmed, for and in behalf of the petitioners, that the latter had accepted such offer to sell the land and the improvements thereon. However, we agree with the ruling of the appellate court that Marquez had no authority to bind respondent EC to sell the subject properties. A real estate broker is one who negotiates the sale of real properties. His business, generally speaking, is only to find a purchaser who is willing to buy the land upon terms fixed by the owner. He has no authority to bind the principal by signing a contract of sale. Indeed, an authority to find a purchaser of real property does not include an authority to sell.47

Equally barren of merit is petitioners’ contention that respondent EC is estopped to deny the existence of a principal-agency relationship between it and Glanville or Delsaux. For an agency by estoppel to exist, the following must be established: (1) the principal manifested a representation of the agent’s authority or knowlingly allowed the agent to assume such authority; (2) the third person, in good faith, relied upon such representation; (3) relying upon such representation, such third person has changed his position to his detriment.48 An agency by estoppel, which is similar to the doctrine of apparent authority, requires proof of reliance upon the representations, and that, in turn, needs proof that the representations predated the action taken in reliance.49 Such proof is lacking in this case. In their communications to the petitioners, Glanville and Delsaux positively and unequivocally declared that they were acting for and in behalf of respondent ESAC.

Neither may respondent EC be deemed to have ratified the transactions between the petitioners and respondent ESAC, through Glanville, Delsaux and Marquez. The transactions and the various communications inter se were never submitted to the Board of Directors of respondent EC for ratification.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against the petitioners.

SO ORDERED.

iii

iv

v

viSECOND DIVISION

[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.

D E C I S I O N

CALLEJO, SR., J.:

This is a petition for review of the Decision[1] of the Court of Appeals (CA) affirming in toto the Decision[2] of the Regional Trial Court (RTC) of Makati City, Branch 135, in Civil Case No. 15664 which awarded to the respondents their 5% broker’s 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,[3] a 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 8-hectare 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. Borbon & Miss Josefina E. AntonioCampos Rueda Building

Tindalo, Makati, M.M.

Mrs. Estela A. Flor & Miss Maria Yumi S. Karasig23 Mabini StreetQuezon City, M.M.

Dear Mesdames:

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 hectares (more or less) per  attached Appendix “A”

Improvements          : 720 all fruit-bearing mango trees  (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. Medrano

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 Medrano’s daughter and also an officer of the bank, Mrs. Teresa Ganzon, regarding the property.[8]

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 latter’s 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]

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% broker’s 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 broker’s commission of 5% of the selling 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 attorney’s 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 Reconsideration[18] praying that the late Bienvenido Medrano be substituted by his heirs.  They further prayed that the trial court’s

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 court’s 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.

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 CA’s 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  MEDRANO’S LETTER-AUTHORITY AND YET ERRONEOUSLY GRANTED THE PRIVATE-RESPONDENTS’ 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 broker[23] 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 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 broker’s 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 owner’s 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.[32] Significantly, 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 broker’s efforts and the principal’s 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 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 non-compliance of this obligation “to negotiate,” the petitioners argue, the respondents are not entitled to any commission.

We find the argument specious.  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 broker’s 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 of Macondray v. Sellner[37] 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 Court’s respect in the absence of any cogent reason to reverse the same.  Medrano’s 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 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 of the defendant Bank, did not bind the Bank. Res inter alios acta alteri nocere non debet.” (page 8 of the Appellant’s 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.

T H I R D D I V I S I O N

 

 

CARLOS SANCHEZ,

                   Petitioner,

 

 

 

- versus -

  

 

 

 

 

 

 

MEDICARD PHILIPPINES, INC., DR. NICANOR MONTOYA and CARLOS EJERCITO,

                              Respondents.

 

G.R. No. 141525

 

Present:

 

 

PANGANIBAN, J., Chairman,

SANDOVAL-GUTIERREZ,

CORONA,

CARPIO MORALES, and

GARCIA, JJ.

 

 

Promulgated:

 

September 2, 2005

x---------------------------------------------------------------------------------------------x

 

 

  D E C I S I O N

 

 

 

SANDOVAL-GUTIERREZ, J.:

 

 

This petition for review on certiorari seeks to reverse the

Decision[1] of the Court of Appeals dated February 24, 1999 and its

Resolution dated January 12, 2000 in CA-G.R. CV No. 47681.

The facts, as established by the trial court and affirmed by the

Court of Appeals, follow:

Sometime in 1987, Medicard Philippines, Inc. (Medicard),

respondent, appointed petitioner as its special corporate agent.   As

such agent, Medicard gave him a commission based on the “cash

brought in.”

In September, 1988, through petitioner’s efforts, Medicard and

United Laboratories Group of Companies (Unilab) executed a Health

Care Program Contract.   Under this contract, Unilab shall pay

Medicard a fixed monthly premium for the health insurance of its

personnel.   Unilab paid Medicard P4,148,005.00 representing the

premium for one (1) year.   Medicard then handed petitioner 18% of

said amount or P746,640.90 representing his commission.

Again, through petitioner’s initiative, the agency contract

between Medicard and Unilab was renewed for another year, or from

October 1, 1989 to September 30, 1990, incorporating therein the

increase of premium from P4,148,005.00 to P7,456,896.00.   Medicard

paid petitioner  P1,342,241.00 as his commission.

Prior to the expiration of the renewed contract, Medicard

proposed to Unilab, through petitioner, an increase of the premium for

the next year.   Unilab rejected the proposal “for the reason that it

was too high,” prompting   Dr. Nicanor Montoya (Medicard’s president

and general manager), also a respondent, to request petitioner to

reduce his commission, but the latter refused.

In a letter dated October 3, 1990, Unilab, through Carlos Ejercito,

another respondent, confirmed its decision not to renew the health

program contract with Medicard.

Meanwhile, in order not to prejudice its personnel by the

termination of their health insurance, Unilab, through

respondent Ejercito, negotiated with Dr. Montoya and other

officers of Medicard, to discuss ways in order to continue the

insurance coverage of those personnel.

Under the new scheme, Unilab shall pay Medicard only

the amount corresponding to the actual hospitalization

expenses incurred by each personnel plus 15% service fee for

using Medicard facilities, which amount shall not be less than

P780,000.00.

Medicard did not give petitioner any commission under

the new scheme.

In a letter dated March 15, 1991, petitioner demanded from

Medicard payment of P338,000.00 as his commission plus damages,

but the latter refused to heed his demand.

Thus, petitioner filed with the Regional Trial Court (RTC), Branch

66, Makati City, a complaint for sum of money against Medicard, Dr.

Nicanor Montoya and Carlos Ejercito, herein respondents.

After hearing, the RTC rendered its Decision dismissing

petitioner’s complaint and respondents’ counterclaim.

On appeal, the Court of Appeals affirmed the trial court’s assailed

Decision.   The Appellate Court held that there is no proof that the

execution of the new contract between the parties under the “cost

plus” system is a strategy to deprive petitioner of his commission;

that Medicard did not commit any fraudulent act in revoking its

agency contract with Sanchez; that when Unilab rejected Medicard’s

proposal for an increase of premium, their Health Care Program

Contract  on its third year was effectively revoked; and that where the

contract is ineffectual, then the agent is not entitled to a commission.

Petitioner filed a motion for reconsideration, but this was denied

by the Court of Appeals on January 12, 2000.

Hence, the instant petition for review on certiorari.

The basic issue for our resolution is whether the Court of Appeals

erred in holding that the contract of agency has been revoked by

Medicard, hence, petitioner is not entitled to a commission.

It is dictum that in order for an agent to be entitled to a

commission, he must be the procuring cause of the sale, which simply

means that the measures employed by him and the efforts he exerted

must result in a sale.[2]   In other words, an agent receives his

commission only upon the successful conclusion of a sale.[3]  

Conversely, it follows that where his efforts are unsuccessful,

or there was no effort on his part, he is not entitled to a

commission.

In Prats vs. Court of Appeals,[4]  this Court held that for the

purpose of equity, an agent who is not the efficient procuring cause is

nonetheless entitled to his commission, where said agent,

notwithstanding the expiration of his authority, nonetheless, took

diligent steps to bring back together the parties, such that a

sale was finalized and consummated between them.   In

Manotok Borthers vs. Court of Appeals,[5]   where the Deed of Sale

was only executed after the agent’s extended authority had expired,

this Court, applying its ruling in Prats, held that the agent (in Manotok)

is entitled to a commission since he was the efficient procuring cause

of the sale, notwithstanding that the sale took place after his authority

had lapsed.   The proximate, close, and causal connection between

the agent’s efforts and the principal’s sale of his property can not be

ignored.

It may be recalled that through petitioner’s efforts, Medicard was

able to enter into a one-year Health Care Program Contract with

Unilab.  As a result, Medicard paid petitioner his commission.   Again,

through his efforts, the contract was renewed and once more, he

received his commission.  Before the expiration of the renewed

contract, Medicard, through petitioner, proposed an increase in

premium, but Unilab rejected this proposal.   Medicard then requested

petitioner to reduce his commission should the contract be renewed

on its third year, but he was obstinate.   Meantime, on October 3,

1990, Unilab informed Medicard it was no longer renewing the Health

Care Program contract.

In order not to prejudice its personnel, Unilab, through

respondent Ejercito, negotiated with respondent Dr. Montoya of

Medicard, in order to find mutually beneficial ways of continuing the

Health Care Program.   The negotiations resulted in a new contract

wherein Unilab shall pay Medicard the hospitalization expenses

actually incurred by each employees, plus a service fee.   Under the

“cost plus” system which replaced the premium scheme,

petitioner was not given a commission.

It is clear that since petitioner refused to reduce his commission,

Medicard directly negotiated with Unilab, thus revoking its agency

contract with petitioner.   We hold that such revocation is authorized

by Article 1924 of the Civil Code which provides:            

 “Art. 1924. The agency is revoked if the principal directly manages

the business entrusted to the agent, dealing directly with third persons.”

 

Moreover, as found by the lower courts, petitioner did not render

services to Medicard, his principal, to entitle him to a commission.  

There is no indication from the records that he exerted any effort in

order that Unilab and Medicard, after the expiration of the Health Care

Program Contract, can renew it for the third time.   In fact, his refusal

to reduce his commission constrained Medicard to negotiate directly

with Unilab.   We find no reason in law or in equity to rule that he is

entitled to a commission.   Obviously, he was not the agent or the

“procuring cause” of the third Health Care Program Contract between

Medicard and Unilab.  

WHEREFORE, the petition is DENIED.   The challenged Decision

and Resolution of the Court of Appeals in CA-G.R. CV No. 47681 are

AFFIRMED IN TOTO.    Costs against petitioner.       

SO ORDERED.     

Republic of the PhilippinesSUPREME COURT

Baguio City

SECOND DIVISION

G.R. No. 165133               April 19, 2010

SPOUSES JOSELINA ALCANTARA AND ANTONIO ALCANTARA, and SPOUSES JOSEFINO RUBI AND ANNIE DISTOR- RUBI, Petitioners, vs.BRIGIDA L. NIDO, as attorney-in-fact of REVELEN N. SRIVASTAVA, Respondent.

R E S O L U T I O N

CARPIO, J.:

The Case

Spouses Antonio and Joselina Alcantara and Spouses Josefino and Annie Rubi (petitioners) filed this Petition for Review1 assailing the Court of Appeals’ (appellate court) Decision2 dated 10 June 2004 as well as the Resolution3 dated 17 August 2004 in CA-G.R. CV No. 78215. In the assailed decision, the appellate court reversed the 17 June 2002 Decision4 of Branch 69 of the Regional Trial Court of Binangonan, Rizal (RTC) by dismissing the case for recovery of possession with damages and preliminary injunction filed by Brigida L. Nido (respondent), in her capacity as administrator and attorney-in-fact of Revelen N. Srivastava (Revelen).

The Facts

Revelen, who is respondent’s daughter and of legal age, is the owner of an unregistered land with an area of 1,939 square meters located in Cardona, Rizal. Sometime in March 1984, respondent accepted the offer of petitioners to purchase a 200-square meter portion of Revelen’s lot (lot) at P200 per square meter. Petitioners paid P3,000 as downpayment and the balance was payable on installment. Petitioners constructed their houses in 1985. In 1986, with respondent’s consent, petitioners occupied an additional 150 square meters of the lot. By 1987, petitioners had already paid P17,5005 before petitioners defaulted on their installment payments.

On 11 May 1994, respondent, acting as administrator and attorney-in-fact of Revelen, filed a complaint for recovery of possession with damages and prayer for preliminary injunction against petitioners with the RTC.

The RTC’s Ruling

The RTC stated that based on the evidence presented, Revelen owns the lot and respondent was verbally authorized to sell 200 square meters to petitioners. The RTC ruled that since respondent’s authority to sell the land was not in writing, the sale was void under Article 18746 of the Civil Code.7 The RTC ruled that rescission is the proper remedy.8

On 17 June 2002, the RTC rendered its decision, the dispositive portion reads:

WHEREFORE, judgment is rendered in favor of plaintiff and against the defendants, by -

1. Declaring the contract to sell orally agreed by the plaintiff Brigida Nido, in her capacity as representative or agent of her daughter Revelen Nido Srivastava, VOID and UNENFORCEABLE.

2. Ordering the parties, upon finality of this judgment, to have mutual restitution – the defendants and all persons claiming under them to peacefully vacate and surrender to the plaintiff the possession of the subject lot covered by TD No. 09-0742 and its derivative Tax Declarations, together with all permanent improvements introduced thereon, and all improvements built or constructed during the pendency of this action, in bad faith; and the plaintiff, to return the sum of P17,500.00, the total amount of the installment on the land paid by defendant; the fruits and interests during the pendency of the condition shall be deemed to have been mutually compensated.

3. Ordering the defendants to pay plaintiff the sum of P20,000.00 as attorney’s fees, plus P15,000.00 as actual litigation expenses, plus the costs of suit.

SO ORDERED.9

The Appellate Court’s Ruling

On 5 January 2004, petitioners appealed the trial court’s Decision to the appellate court. In its decision dated 10 June 2004, the appellate court reversed the RTC decision and dismissed the civil case.10

The appellate court explained that this is an unlawful detainer case. The prayer in the complaint and amended complaint was for recovery of possession and the case was filed within one year from the last demand letter. Even if the complaint involves a question of ownership, it does not deprive the Municipal Trial Court (MTC) of its jurisdiction over the ejectment case. Petitioners raised the issue of lack of jurisdiction in their Motion to Dismiss and Answer before the RTC.11 The RTC denied the Motion to Dismiss and assumed jurisdiction over the case because the issues pertain to a determination of the real agreement between the parties and rescission of the contract to sell the property.12

The appellate court added that even if respondent’s complaint is for recovery of possession or accion publiciana, the RTC still has no jurisdiction to decide the case. The appellate court explained:

Note again that the complaint was filed on 11 May 1994. By that time, Republic Act No. 7691 was already in effect. Said law took effect on 15 April 1994, fifteen days after its publication in the Malaya and in the Time Journal on 30 March 1994 pursuant to Sec. 8 of Republic Act No. 7691.

Accordingly, Sec. 33 of Batas Pambansa 129 was amended by Republic Act No. 7691 giving the Municipal Trial Court the exclusive original jurisdiction over all civil actions involving title to, or possession of, real property, or any interest therein where the assessed value of the property or interest therein does not exceed P20,000 or, in civil actions in Metro Manila, where such assessed value does not exceed P50,000, exclusive of interest, damages of whatever kind, attorney’s fees, litigation expenses and costs.

At bench, the complaint alleges that the whole 1,939- square meter lot of Revelen N. Srivastava is covered by Tax Declaration No. 09-0742 (Exh. "B", p. 100, Records) which gives its assessed value of the whole lot of P4,890.00. Such assessed value falls within the exclusive original prerogative or jurisdiction of the first level court and, therefore, the Regional Trial Court a quo has no jurisdiction to try and decided the same.131avvphi1

The appellate court also held that respondent, as Revelen’s agent, did not have a written authority to enter into such contract of sale; hence, the contract entered into between petitioners and respondent is void. A void contract creates no rights or obligations or any juridical relations. Therefore, the void contract cannot be the subject of rescission.14

Aggrieved by the appellate court’s Decision, petitioners elevated the case before this Court.

Issues

Petitioners raise the following arguments:

1. The appellate court gravely erred in ruling that the contract entered into by respondent, in representation of her daughter, and former defendant Eduardo Rubi (deceased), is void; and

2. The appellate court erred in not ruling that the petitioners are entitled to their counterclaims, particularly specific performance.15

Ruling of the Court

We deny the petition.

Petitioners submit that the sale of land by an agent who has no written authority is not void but merely voidable given the spirit and intent of the law. Being only voidable, the contract may be ratified, expressly or impliedly. Petitioners argue that since the contract to sell was sufficiently established through respondent’s admission during the pre-trial conference, the appellate court should have ruled on the matter of the counterclaim for specific performance.16

Respondent argues that the appellate court cannot lawfully rule on petitioners’ counterclaim because there is nothing in the records to sustain petitioners’ claim that they have fully paid the price of the lot.17 Respondent points out that petitioners admitted the lack of written authority to sell. Respondent also alleges that there was clearly no meeting of the minds between the parties on the purported contract of sale.18

Sale of Land through an Agent

Articles 1874 and 1878 of the Civil Code provide:

Art. 1874. When a sale of a piece of land or any interest therein is through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be void.

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

x x x

(5) To enter into any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable consideration;

x x x

Article 1874 of the Civil Code explicitly requires a written authority before an agent can sell an immovable property. Based on a review of the records, there is absolutely no proof of respondent’s written authority to sell the lot to petitioners. In fact, during the pre-trial conference, petitioners admitted that at the time of the negotiation for the sale of the lot, petitioners were of the belief that respondent was the owner of lot.19 Petitioners only knew that Revelen was the owner of the lot during the hearing of this case. Consequently, the sale of the lot by respondent who did not have a written authority from Revelen is void. A void contract produces no effect either against or in favor of anyone and cannot be ratified.20

A special power of attorney is also necessary to enter into any contract by which the ownership of an immovable is transmitted or acquired for a valuable consideration. Without an authority in writing, respondent cannot validly sell the lot to petitioners. Hence, any "sale" in favor of the petitioners is void.

Our ruling in Dizon v. Court of Appeals21 is instructive:

When the sale of a piece of land or any interest thereon is through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be void. Thus the authority of an agent to execute a

contract for the sale of real estate must be conferred in writing and must give him specific authority, either to conduct the general business of the principal or to execute a binding contract containing terms and conditions which are in the contract he did execute. A special power of attorney is necessary to enter into any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable consideration. The express mandate required by law to enable an appointee of an agency (couched) in general terms to sell must be one that expressly mentions a sale or that includes a sale as a necessary ingredient of the act mentioned. For the principal to confer the right upon an agent to sell real estate, a power of attorney must so express the powers of the agent in clear and unmistakable language. When there is any reasonable doubt that the language so used conveys such power, no such construction shall be given the document.

Further, Article 1318 of the Civil Code enumerates the requisites for a valid contract, namely:

1. consent of the contracting parties;

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

3. cause of the obligation which is established.

Respondent did not have the written authority to enter into a contract to sell the lot. As the consent of Revelen, the real owner of the lot, was not obtained in writing as required by law, no contract was perfected. Consequently, petitioners failed to validly acquire the lot.

General Power of Attorney

On 25 March 1994, Revelen executed a General Power of Attorney constituting respondent as her attorney-in-fact and authorizing her to enter into any and all contracts and agreements on Revelen’s behalf. The General Power of Attorney was notarized by Larry A. Reid, Notary Public in California, U.S.A.

Unfortunately, the General Power of Attorney presented as "Exhibit C"22 in the RTC cannot also be the basis of respondent’s written authority to sell the lot.

Section 25, Rule 132 of the Rules of Court provides:

Sec. 25. Proof of public or official record. — An official record or an entry therein, when admissible for any purpose, may be evidenced by an official publication thereof or by a copy attested by the officer having the legal custody of the record, or by his deputy, and accompanied, if the record is not kept in the Philippines, with a certificate that such officer has the custody. If the office in which the record is kept is in a foreign country, the certificate may be made by a secretary of embassy or legation consul general, consul, vice consul, or consular agent or by any officer in the foreign service of the Philippines stationed in the foreign country in which the record is kept, and authenticated by the seal of his office.

In Teoco v. Metropolitan Bank and Trust Company,23 quoting Lopez v. Court of Appeals,24 we explained:

From the foregoing provision, when the special power of attorney is executed and acknowledged before a notary public or other competent official in a foreign country, it cannot be admitted in evidence unless it is certified as such in accordance with the foregoing provision of the rules by a secretary of embassy or legation, consul general, consul, vice consul, or consular agent or by any officer in the foreign service of the Philippines stationed in the foreign country in which the record is kept of said public document and authenticated by the seal of his office. A city judge-notary who notarized the document, as in this case, cannot issue such certification.25

Since the General Power of Attorney was executed and acknowledged in the United States of America, it cannot be admitted in evidence unless it is certified as such in accordance with the Rules of Court by an officer in the foreign service of the Philippines stationed in the United States of America. Hence, this document has no probative value.

Specific Performance

Petitioners are not entitled to claim for specific performance. It must be stressed that when specific performance is sought of a contract made with an agent, the agency must be established by clear, certain and specific proof.26 To reiterate, there is a clear absence of proof that Revelen authorized respondent to sell her lot.

Jurisdiction of the RTC

Section 33 of Batas Pambansa Bilang 129,27 as amended by Republic Act No. 7691 provides:

Section 33. Jurisdiction of Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts in Civil Cases. – Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts shall exercise:

x x x

(3) Exclusive original jurisdiction in all civil actions which involve title to, possession of, real property, or any interest therein where the assessed value of the property or interest therein does not exceed Twenty thousand pesos (P20,000.00) or, in civil actions in Metro Manila, where such assessed value does not exceed Fifty thousand pesos (P50,000.00) exclusive of interest, damages of whatever kind, attorney’s fees, litigation expenses and costs: x x x

In Geonzon Vda. de Barrera v. Heirs of Vicente Legaspi,28 the Court explained:

Before the amendments introduced by Republic Act No. 7691, the plenary action of accion publiciana was to be brought before the regional trial court. With the modifications introduced by R.A. No. 7691 in 1994, the jurisdiction of the first level courts has been expanded to include jurisdiction over other real actions where the assessed value does not exceed P20,000, P50,000 where the action is filed in Metro Manila. The first level courts thus have exclusive original jurisdiction over accion publiciana and accion reivindicatoria where the assessed value of the real property does not exceed the aforestated amounts. Accordingly, the jurisdictional element is the assessed value of the property.

Assessed value is understood to be "the worth or value of property established by taxing authorities on the basis of which the tax rate is applied. Commonly, however, it does not represent the true or market

value of the property."

The appellate court correctly ruled that even if the complaint filed with the RTC involves a question of ownership, the MTC still has jurisdiction because the assessed value of the whole lot as stated in Tax Declaration No. 09-0742 is P4,890.29 The MTC cannot be deprived of jurisdiction over an ejectment case based merely on the assertion of ownership over the litigated property, and the underlying reason for this rule is to prevent any party from trifling with the summary nature of an ejectment suit.30

The general rule is that dismissal of a case for lack of jurisdiction may be raised at any stage of the proceedings since jurisdiction is conferred by law. The lack of jurisdiction affects the very authority of the court to take cognizance of and to render judgment on the action; otherwise, the inevitable consequence would make the court’s decision a "lawless" thing.31 Since the RTC has no jurisdiction over the complaint filed, all the proceedings as well as the Decision of 17 June 2002 are void. The complaint should perforce be dismissed.

WHEREFORE, we DENY the petition. We AFFIRM the Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 78215.

SO ORDERED.

Republic of the Philippines

Supreme Court

Manila

SECOND DIVISION

SPOUSES FERNANDO

and LOURDES VILORIA,

Petitioners,

- versus -

CONTINENTAL AIRLINES, INC.,

Respondent.

G.R. No. 188288

Present:

CARPIO, J.,

Chairperson,

PEREZ,

SERENO,

REYES, and

BERNABE, JJ.

Promulgated:

January 16, 2012

x------------------------------------------------------------------------------------x

DECISION

REYES, J.:

This is a petition for review under Rule 45 of the Rules of Court from the January 30,

2009 Decision1 of the Special Thirteenth Division of the Court of Appeals (CA) in CA-G.R.

CV No. 88586 entitled “Spouses Fernando and Lourdes Viloria v. Continental Airlines,

Inc.,” the dispositive portion of which states:

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

Defendant-appellant’s counterclaim is DENIED.

Costs against plaintiffs-appellees.

SO ORDERED.2

On April 3, 2006, the Regional Trial Court of Antipolo City, Branch 74 (RTC)

rendered a Decision, giving due course to the complaint for sum of money and damages

filed by petitioners Fernando Viloria (Fernando) and Lourdes Viloria (Lourdes),

collectively called Spouses Viloria, against respondent Continental Airlines, Inc. (CAI). As

culled from the records, below are the facts giving rise to such complaint.

On or about July 21, 1997 and while in the United States, Fernando purchased for

himself and his wife, Lourdes, two (2) round trip airline tickets from San Diego, California

to Newark, New Jersey on board Continental Airlines. Fernando purchased the tickets at

US$400.00 each from a travel agency called “Holiday Travel” and was attended to by a

certain Margaret Mager (Mager). According to Spouses Viloria, Fernando agreed to buy

the said tickets after Mager informed them that there were no available seats at

Amtrak, an intercity passenger train service provider in the United States. Per the

tickets, Spouses Viloria were scheduled to leave for Newark on August 13, 1997 and return

to San Diego on August 21, 1997.

Subsequently, Fernando requested Mager to reschedule their flight to Newark to an

earlier date or August 6, 1997. Mager informed him that flights to Newark via Continental

Airlines were already fully booked and offered the alternative of a round trip flight via

Frontier Air. Since flying with Frontier Air called for a higher fare of US$526.00 per

passenger and would mean traveling by night, Fernando opted to request for a refund.

Mager, however, denied his request as the subject tickets are non-refundable and the only

option that Continental Airlines can offer is the re-issuance of new tickets within one (1)

year from the date the subject tickets were issued. Fernando decided to reserve two (2) seats

with Frontier Air.

As he was having second thoughts on traveling via Frontier Air, Fernando went to

the Greyhound Station where he saw an Amtrak station nearby. Fernando made inquiries

and was told that there are seats available and he can travel on Amtrak anytime and any day

he pleased. Fernando then purchased two (2) tickets for Washington, D.C.

From Amtrak, Fernando went to Holiday Travel and confronted Mager with the

Amtrak tickets, telling her that she had misled them into buying the Continental Airlines

tickets by misrepresenting that Amtrak was already fully booked. Fernando reiterated

his demand for a refund but Mager was firm in her position that the subject tickets are non-

refundable.

Upon returning to the Philippines, Fernando sent a letter to CAI on February 11,

1998, demanding a refund and alleging that Mager had deluded them into purchasing the

subject tickets.3

In a letter dated February 24, 1998, Continental Micronesia informed Fernando that

his complaint had been referred to the Customer Refund Services of Continental Airlines at

Houston, Texas.4

In a letter dated March 24, 1998, Continental Micronesia denied Fernando’s request

for a refund and advised him that he may take the subject tickets to any Continental

ticketing location for the re-issuance of new tickets within two (2) years from the date they

were issued. Continental Micronesia informed Fernando that the subject tickets may be

used as a form of payment for the purchase of another Continental ticket, albeit with a re-

issuance fee.5

On June 17, 1999, Fernando went to Continental’s ticketing office at Ayala Avenue,

Makati City to have the subject tickets replaced by a single round trip ticket to Los Angeles,

California under his name. Therein, Fernando was informed that Lourdes’ ticket was non-

transferable, thus, cannot be used for the purchase of a ticket in his favor. He was also

informed that a round trip ticket to Los Angeles was US$1,867.40 so he would have to pay

what will not be covered by the value of his San Diego to Newark round trip ticket.

In a letter dated June 21, 1999, Fernando demanded for the refund of the subject

tickets as he no longer wished to have them replaced. In addition to the dubious

circumstances under which the subject tickets were issued, Fernando claimed that CAI’s act

of charging him with US$1,867.40 for a round trip ticket to Los Angeles, which other

airlines priced at US$856.00, and refusal to allow him to use Lourdes’ ticket, breached its

undertaking under its March 24, 1998 letter.6

On September 8, 2000, Spouses Viloria filed a complaint against CAI, praying that

CAI be ordered to refund the money they used in the purchase of the subject tickets with

legal interest from July 21, 1997 and to pay P1,000,000.00 as moral damages, P500,000.00

as exemplary damages and P250,000.00 as attorney’s fees.7

CAI interposed the following defenses: (a) Spouses Viloria have no right to ask for a

refund as the subject tickets are non-refundable; (b) Fernando cannot insist on using the

ticket in Lourdes’ name for the purchase of a round trip ticket to Los Angeles since the

same is non-transferable; (c) as Mager is not a CAI employee, CAI is not liable for any of

her acts; (d) CAI, its employees and agents did not act in bad faith as to entitle Spouses

Viloria to moral and exemplary damages and attorney’s fees. CAI also invoked the

following clause printed on the subject tickets:

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

According to CAI, one of the conditions attached to their contract of carriage is the

non-transferability and non-refundability of the subject tickets.

The RTC’s Ruling

Following a full-blown trial, the RTC rendered its April 3, 2006 Decision, holding

that Spouses Viloria are entitled to a refund in view of Mager’s misrepresentation in

obtaining their consent in the purchase of the subject tickets.9 The relevant portion of the

April 3, 2006 Decision states:

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

Plainly, plaintiffs spouses, particularly plaintiff Fernando, were tricked into buying Continental Airline tickets on Ms. Mager’s misleading misrepresentations. Continental Airlines agent Ms. Mager further relied on and exploited plaintiff Fernando’s need and told him that they must book a flight immediately or risk not being able to travel at all on the couple’s preferred date. Unfortunately, plaintiffs spouses fell

prey to the airline’s and its agent’s unethical tactics for baiting trusting customers.”10

Citing Articles 1868 and 1869 of the Civil Code, the RTC ruled that Mager is CAI’s

agent, hence, bound by her bad faith and misrepresentation. As far as the RTC is concerned,

there is no issue as to whether Mager was CAI’s agent in view of CAI’s implied recognition

of her status as such in its March 24, 1998 letter.

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

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

Art. 1869. Agency may be express, or implied from the acts of the principal, from his silence or lack of action, or his failure to repudiate the agency, knowing that another person is acting on his behalf without authority.

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

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

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

Furthermore, the RTC ruled that CAI acted in bad faith in reneging on its

undertaking to replace the subject tickets within two (2) years from their date of issue when

it charged Fernando with the amount of US$1,867.40 for a round trip ticket to Los Angeles

and when it refused to allow Fernando to use Lourdes’ ticket. Specifically:

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

The Appellate Court’s Ruling

On appeal, the CA reversed the RTC’s April 3, 2006 Decision, holding that CAI

cannot be held liable for Mager’s act in the absence of any proof that a principal-agent

relationship existed between CAI and Holiday Travel. According to the CA, Spouses

Viloria, who have the burden of proof to establish the fact of agency, failed to present

evidence demonstrating that Holiday Travel is CAI’s agent. Furthermore, contrary to

Spouses Viloria’s claim, the contractual relationship between Holiday Travel and CAI is

not an agency but that of a sale.

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

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

The CA also ruled that refund is not available to Spouses Viloria as the word “non-

refundable” was clearly printed on the face of the subject tickets, which constitute their

contract with CAI. Therefore, the grant of their prayer for a refund would violate the

proscription against impairment of contracts.

Finally, the CA held that CAI did not act in bad faith when they charged Spouses

Viloria with the higher amount of US$1,867.40 for a round trip ticket to Los Angeles.

According to the CA, there is no compulsion for CAI to charge the lower amount of

US$856.00, which Spouses Viloria claim to be the fee charged by other airlines. The matter

of fixing the prices for its services is CAI’s prerogative, which Spouses Viloria cannot

intervene. In particular:

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

The Petitioners’ Case

In this Petition, this Court is being asked to review the findings and conclusions of

the CA, as the latter’s reversal of the RTC’s April 3, 2006 Decision allegedly lacks factual

and legal bases. Spouses Viloria claim that CAI acted in bad faith when it required them to

pay a higher amount for a round trip ticket to Los Angeles considering CAI’s undertaking

to re-issue new tickets to them within the period stated in their March 24, 1998 letter. CAI

likewise acted in bad faith when it disallowed Fernando to use Lourdes’ ticket to purchase a

round trip to Los Angeles given that there is nothing in Lourdes’ ticket indicating that it is

non-transferable. As a common carrier, it is CAI’s duty to inform its passengers of the

terms and conditions of their contract and passengers cannot be bound by such terms and

conditions which they are not made aware of. Also, the subject contract of carriage is a

contract of adhesion; therefore, any ambiguities should be construed against CAI. Notably,

the petitioners are no longer questioning the validity of the subject contracts and limited its

claim for a refund on CAI’s alleged breach of its undertaking in its March 24, 1998 letter.

The Respondent’s Case

In its Comment, CAI claimed that Spouses Viloria’s allegation of bad faith is negated

by its willingness to issue new tickets to them and to credit the value of the subject tickets

against the value of the new ticket Fernando requested. CAI argued that Spouses Viloria’s

sole basis to claim that the price at which CAI was willing to issue the new tickets is

unconscionable is a piece of hearsay evidence – an advertisement appearing on a newspaper

stating that airfares from Manila to Los Angeles or San Francisco cost US$818.00.15 Also,

the advertisement pertains to airfares in September 2000 and not to airfares prevailing in

June 1999, the time when Fernando asked CAI to apply the value of the subject tickets for

the purchase of a new one.16 CAI likewise argued that it did not undertake to protect

Spouses Viloria from any changes or fluctuations in the prices of airline tickets and its only

obligation was to apply the value of the subject tickets to the purchase of the newly issued

tickets.

With respect to Spouses Viloria’s claim that they are not aware of CAI’s restrictions

on the subject tickets and that the terms and conditions that are printed on them are

ambiguous, CAI denies any ambiguity and alleged that its representative informed

Fernando that the subject tickets are non-transferable when he applied for the issuance of a

new ticket. On the other hand, the word “non-refundable” clearly appears on the face of the

subject tickets.

CAI also denies that it is bound by the acts of Holiday Travel and Mager and that no

principal-agency relationship exists between them. As an independent contractor, Holiday

Travel was without capacity to bind CAI.

Issues

To determine the propriety of disturbing the CA’s January 30, 2009 Decision and

whether Spouses Viloria have the right to the reliefs they prayed for, this Court deems it

necessary to resolve the following issues:

a. Does a principal-agent relationship exist between CAI and Holiday Travel?

b. Assuming that an agency relationship exists between CAI and Holiday

Travel, is CAI bound by the acts of Holiday Travel’s agents and

employees such as Mager?

c. Assuming that CAI is bound by the acts of Holiday Travel’s agents and

employees, can the representation of Mager as to unavailability of seats

at Amtrak be considered fraudulent as to vitiate the consent of Spouse

Viloria in the purchase of the subject tickets?

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

non-refundable?

e. Is CAI justified in pegging a different price for the round trip ticket to Los

Angeles requested by Fernando?

f. Alternatively, did CAI act in bad faith or renege its obligation to Spouses

Viloria to apply the value of the subject tickets in the purchase of new

ones when it refused to allow Fernando to use Lourdes’ ticket and in

charging a higher price for a round trip ticket to Los Angeles?

This Court’s Ruling

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

With respect to the first issue, which is a question of fact that would require this

Court to review and re-examine the evidence presented by the parties below, this Court

takes exception to the general rule that the CA’s findings of fact are conclusive upon Us and

our jurisdiction is limited to the review of questions of law. It is well-settled to the point of

being axiomatic that this Court is authorized to resolve questions of fact if confronted with

contrasting factual findings of the trial court and appellate court and if the findings of the

CA are contradicted by the evidence on record.17

According to the CA, agency is never presumed and that he who alleges that it exists

has the burden of proof. Spouses Viloria, on whose shoulders such burden rests, presented

evidence that fell short of indubitably demonstrating the existence of such agency.

We disagree. The CA failed to consider undisputed facts, discrediting CAI’s denial

that Holiday Travel is one of its agents. Furthermore, in erroneously characterizing the

contractual relationship between CAI and Holiday Travel as a contract of sale, the CA

failed to apply the fundamental civil law principles governing agency and differentiating it

from sale.

In Rallos v. Felix Go Chan & Sons Realty Corporation,18 this Court explained the

nature of an agency and spelled out the essential elements thereof:

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

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

Contrary to the findings of the CA, all the elements of an agency exist in this case.

The first and second elements are present as CAI does not deny that it concluded an

agreement with Holiday Travel, whereby Holiday Travel would enter into contracts of

carriage with third persons on CAI’s behalf. The third element is also present as it is

undisputed that Holiday Travel merely acted in a representative capacity and it is CAI and

not Holiday Travel who is bound by the contracts of carriage entered into by Holiday

Travel on its behalf. The fourth element is also present considering that CAI has not made

any allegation that Holiday Travel exceeded the authority that was granted to it. In fact,

CAI consistently maintains the validity of the contracts of carriage that Holiday Travel

executed with Spouses Viloria and that Mager was not guilty of any fraudulent

misrepresentation. That CAI admits the authority of Holiday Travel to enter into contracts

of carriage on its behalf is easily discernible from its February 24, 1998 and March 24, 1998

letters, where it impliedly recognized the validity of the contracts entered into by Holiday

Travel with Spouses Viloria. When Fernando informed CAI that it was Holiday Travel who

issued to them the subject tickets, CAI did not deny that Holiday Travel is its authorized

agent.

Prior to Spouses Viloria’s filing of a complaint against it, CAI never refuted that it

gave Holiday Travel the power and authority to conclude contracts of carriage on its behalf.

As clearly extant from the records, CAI recognized the validity of the contracts of carriage

that Holiday Travel entered into with Spouses Viloria and considered itself bound with

Spouses Viloria by the terms and conditions thereof; and this constitutes an unequivocal

testament to Holiday Travel’s authority to act as its agent. This Court cannot therefore

allow CAI to take an altogether different position and deny that Holiday Travel is its agent

without condoning or giving imprimatur to whatever damage or prejudice that may result

from such denial or retraction to Spouses Viloria, who relied on good faith on CAI’s acts in

recognition of Holiday Travel’s authority. Estoppel is primarily based on the doctrine of

good faith and the avoidance of harm that will befall an innocent party due to its injurious

reliance, the failure to apply it in this case would result in gross travesty of justice.20

Estoppel bars CAI from making such denial.

As categorically provided under Article 1869 of the Civil Code, “[a]gency may be

express, or implied from the acts of the principal, from his silence or lack of action, or his

failure to repudiate the agency, knowing that another person is acting on his behalf without

authority.”

Considering that the fundamental hallmarks of an agency are present, this Court finds

it rather peculiar that the CA had branded the contractual relationship between CAI and

Holiday Travel as one of sale. The distinctions between a sale and an agency are not

difficult to discern and this Court, as early as 1970, had already formulated the guidelines

that would aid in differentiating the two (2) contracts. In Commissioner of Internal Revenue

v. Constantino,21 this Court extrapolated that the primordial differentiating consideration

between the two (2) contracts is the transfer of ownership or title over the property subject

of the contract. In an agency, the principal retains ownership and control over the property

and the agent merely acts on the principal’s behalf and under his instructions in furtherance

of the objectives for which the agency was established. On the other hand, the contract is

clearly a sale if the parties intended that the delivery of the property will effect a

relinquishment of title, control and ownership in such a way that the recipient may do with

the property as he pleases.

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

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

As to how the CA have arrived at the conclusion that the contract between CAI and

Holiday Travel is a sale is certainly confounding, considering that CAI is the one bound by

the contracts of carriage embodied by the tickets being sold by Holiday Travel on its behalf.

It is undisputed that CAI and not Holiday Travel who is the party to the contracts of

carriage executed by Holiday Travel with third persons who desire to travel via Continental

Airlines, and this conclusively indicates the existence of a principal-agent relationship. That

the principal is bound by all the obligations contracted by the agent within the scope of the

authority granted to him is clearly provided under Article 1910 of the Civil Code and this

constitutes the very notion of agency.

II. In actions based on quasi-delict, a principal can only be held liable for the tort committed by its agent’s employees if it has been established by preponderance of evidence that the principal was also at fault or negligent or that the principal exercise control and supervision over them.

Considering that Holiday Travel is CAI’s agent, does it necessarily follow that CAI

is liable for the fault or negligence of Holiday Travel’s employees? Citing China Air Lines,

Ltd. v. Court of Appeals, et al.,23 CAI argues that it cannot be held liable for the actions of

the employee of its ticketing agent in the absence of an employer-employee relationship.

An examination of this Court’s pronouncements in China Air Lines will reveal that

an airline company is not completely exonerated from any liability for the tort committed

by its agent’s employees. A prior determination of the nature of the passenger’s cause of

action is necessary. If the passenger’s cause of action against the airline company is

premised on culpa aquiliana or quasi-delict for a tort committed by the employee of the

airline company’s agent, there must be an independent showing that the airline company

was at fault or negligent or has contributed to the negligence or tortuous conduct committed

by the employee of its agent. The mere fact that the employee of the airline company’s

agent has committed a tort is not sufficient to hold the airline company liable. There is no

vinculum juris between the airline company and its agent’s employees and the contractual

relationship between the airline company and its agent does not operate to create a juridical

tie between the airline company and its agent’s employees. Article 2180 of the Civil Code

does not make the principal vicariously liable for the tort committed by its agent’s

employees and the principal-agency relationship per se does not make the principal a

party to such tort; hence, the need to prove the principal’s own fault or negligence.

On the other hand, if the passenger’s cause of action for damages against the airline

company is based on contractual breach or culpa contractual, it is not necessary that there

be evidence of the airline company’s fault or negligence. As this Court previously stated

in China Air Lines and reiterated in Air France vs. Gillego,24 “in an action based on a

breach of contract of carriage, the aggrieved party does not have to prove that the common

carrier was at fault or was negligent. All that he has to prove is the existence of the contract

and the fact of its non-performance by the carrier.”

Spouses Viloria’s cause of action on the basis of Mager’s alleged fraudulent

misrepresentation is clearly one of tort or quasi-delict, there being no pre-existing

contractual relationship between them. Therefore, it was incumbent upon Spouses Viloria to

prove that CAI was equally at fault.

However, the records are devoid of any evidence by which CAI’s alleged liability

can be substantiated. Apart from their claim that CAI must be held liable for Mager’s

supposed fraud because Holiday Travel is CAI’s agent, Spouses Viloria did not present

evidence that CAI was a party or had contributed to Mager’s complained act either by

instructing or authorizing Holiday Travel and Mager to issue the said misrepresentation.

It may seem unjust at first glance that CAI would consider Spouses Viloria bound by

the terms and conditions of the subject contracts, which Mager entered into with them on

CAI’s behalf, in order to deny Spouses Viloria’s request for a refund or Fernando’s use of

Lourdes’ ticket for the re-issuance of a new one, and simultaneously claim that they are not

bound by Mager’s supposed misrepresentation for purposes of avoiding Spouses Viloria’s

claim for damages and maintaining the validity of the subject contracts. It may likewise be

argued that CAI cannot deny liability as it benefited from Mager’s acts, which were

performed in compliance with Holiday Travel’s obligations as CAI’s agent.

However, a person’s vicarious liability is anchored on his possession of control,

whether absolute or limited, on the tortfeasor. Without such control, there is nothing which

could justify extending the liability to a person other than the one who committed the tort.

As this Court explained in Cangco v. Manila Railroad Co.:25

With respect to extra-contractual obligation arising from negligence, whether of act or omission, it is competent for the legislature to elect — and our Legislature has so elected — to limit such liability to cases in which the person upon whom such an obligation is imposed is morally culpable or, on the contrary, for reasons of public policy, to extend that liability, without regard to the lack of moral culpability, so as to include responsibility for the negligence of those persons whose acts or omissions

are imputable, by a legal fiction, to others who are in a position to exercise an absolute or limited control over them. The legislature which adopted our Civil Code has elected to limit extra-contractual liability — with certain well-defined exceptions — to cases in which moral culpability can be directly imputed to the persons to be charged. This moral responsibility may consist in having failed to exercise due care in one's own acts, or in having failed to exercise due care in the selection and control of one's agent or servants, or in the control of persons who, by reasons of their status, occupy a position of dependency with respect to the person made liable for their conduct.26 (emphasis supplied)

It is incumbent upon Spouses Viloria to prove that CAI exercised control or

supervision over Mager by preponderant evidence. The existence of control or supervision

cannot be presumed and CAI is under no obligation to prove its denial or nugatory

assertion. Citing Belen v. Belen,27 this Court ruled in Jayme v. Apostol,28 that:

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

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

Therefore, without a modicum of evidence that CAI exercised control over Holiday

Travel’s employees or that CAI was equally at fault, no liability can be imposed on CAI for

Mager’s supposed misrepresentation.

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

Article 1390, in relation to Article 1391 of the Civil Code, provides that if the

consent of the contracting parties was obtained through fraud, the contract is considered

voidable and may be annulled within four (4) years from the time of the discovery of the

fraud. Once a contract is annulled, the parties are obliged under Article 1398 of the same

Code to restore to each other the things subject matter of the contract, including their fruits

and interest.

On the basis of the foregoing and given the allegation of Spouses Viloria that

Fernando’s consent to the subject contracts was supposedly secured by Mager through

fraudulent means, it is plainly apparent that their demand for a refund is tantamount to

seeking for an annulment of the subject contracts on the ground of vitiated consent.

Whether the subject contracts are annullable, this Court is required to determine

whether Mager’s alleged misrepresentation constitutes causal fraud. Similar to the dispute

on the existence of an agency, whether fraud attended the execution of a contract is factual

in nature and this Court, as discussed above, may scrutinize the records if the findings of the

CA are contrary to those of the RTC.

Under Article 1338 of the Civil Code, there is fraud when, through insidious words

or machinations of one of the contracting parties, the other is induced to enter into a

contract which, without them, he would not have agreed to. In order that fraud may vitiate

consent, it must be the causal (dolo causante), not merely the incidental (dolo incidente),

inducement to the making of the contract.30 In Samson v. Court of Appeals,31 causal fraud

was defined as “a deception employed by one party prior to or simultaneous to the contract

in order to secure the consent of the other.”32

Also, fraud must be serious and its existence must be established by clear and

convincing evidence. As ruled by this Court in Sierra v. Hon. Court of Appeals, et al.,33

mere preponderance of evidence is not adequate:

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

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

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

To quote Tolentino again, the “misrepresentation constituting the fraud must be established by full, clear, and convincing evidence, and not merely by a preponderance

thereof. The deceit must be serious. The fraud is serious when it is sufficient to impress, or to lead an ordinarily prudent person into error; that which cannot deceive a prudent person cannot be a ground for nullity. The circumstances of each case should be considered, taking into account the personal conditions of the victim.”34

After meticulously poring over the records, this Court finds that the fraud alleged by

Spouses Viloria has not been satisfactorily established as causal in nature to warrant the

annulment of the subject contracts. In fact, Spouses Viloria failed to prove by clear and

convincing evidence that Mager’s statement was fraudulent. Specifically, Spouses Viloria

failed to prove that (a) there were indeed available seats at Amtrak for a trip to New Jersey

on August 13, 1997 at the time they spoke with Mager on July 21, 1997; (b) Mager knew

about this; and (c) that she purposely informed them otherwise.

This Court finds the only proof of Mager’s alleged fraud, which is Fernando’s

testimony that an Amtrak had assured him of the perennial availability of seats at Amtrak,

to be wanting. As CAI correctly pointed out and as Fernando admitted, it was possible that

during the intervening period of three (3) weeks from the time Fernando purchased the

subject tickets to the time he talked to said Amtrak employee, other passengers may have

cancelled their bookings and reservations with Amtrak, making it possible for Amtrak to

accommodate them. Indeed, the existence of fraud cannot be proved by mere speculations

and conjectures. Fraud is never lightly inferred; it is good faith that is. Under the Rules of

Court, it is presumed that "a person is innocent of crime or wrong" and that "private

transactions have been fair and regular."35 Spouses Viloria failed to overcome this

presumption.

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

Even assuming that Mager’s representation is causal fraud, the subject contracts have

been impliedly ratified when Spouses Viloria decided to exercise their right to use the

subject tickets for the purchase of new ones. Under Article 1392 of the Civil Code,

“ratification extinguishes the action to annul a voidable contract.”

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

follows:

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

Implied ratification may take diverse forms, such as by silence or acquiescence; by

acts showing approval or adoption of the contract; or by acceptance and retention of

benefits flowing therefrom.36

Simultaneous with their demand for a refund on the ground of Fernando’s vitiated

consent, Spouses Viloria likewise asked for a refund based on CAI’s supposed bad faith in

reneging on its undertaking to replace the subject tickets with a round trip ticket from

Manila to Los Angeles.

In doing so, Spouses Viloria are actually asking for a rescission of the subject

contracts based on contractual breach. Resolution, the action referred to in Article 1191, is

based on the defendant’s breach of faith, a violation of the reciprocity between the parties37

and in Solar Harvest, Inc. v. Davao Corrugated Carton Corporation,38 this Court ruled that

a claim for a reimbursement in view of the other party’s failure to comply with his

obligations under the contract is one for rescission or resolution.

However, annulment under Article 1390 of the Civil Code and rescission under

Article 1191 are two (2) inconsistent remedies. In resolution, all the elements to make the

contract valid are present; in annulment, one of the essential elements to a formation of a

contract, which is consent, is absent. In resolution, the defect is in the consummation stage

of the contract when the parties are in the process of performing their respective

obligations; in annulment, the defect is already present at the time of the negotiation and

perfection stages of the contract. Accordingly, by pursuing the remedy of rescission under

Article 1191, the Vilorias had impliedly admitted the validity of the subject contracts,

forfeiting their right to demand their annulment. A party cannot rely on the contract and

claim rights or obligations under it and at the same time impugn its existence or validity.

Indeed, litigants are enjoined from taking inconsistent positions.39

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

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

Considering that the subject contracts are not annullable on the ground of vitiated

consent, the next question is: “Do Spouses Viloria have the right to rescind the contract on

the ground of CAI’s supposed breach of its undertaking to issue new tickets upon surrender

of the subject tickets?”

Article 1191, as presently worded, states:

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

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

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

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

According to Spouses Viloria, CAI acted in bad faith and breached the subject

contracts when it refused to apply the value of Lourdes’ ticket for Fernando’s purchase of a

round trip ticket to Los Angeles and in requiring him to pay an amount higher than the price

fixed by other airline companies.

In its March 24, 1998 letter, CAI stated that “non-refundable tickets may be used as a

form of payment toward the purchase of another Continental ticket for $75.00, per ticket,

reissue fee ($50.00, per ticket, for tickets purchased prior to October 30, 1997).”

Clearly, there is nothing in the above-quoted section of CAI’s letter from which the

restriction on the non-transferability of the subject tickets can be inferred. In fact, the words

used by CAI in its letter supports the position of Spouses Viloria, that each of them can use

the ticket under their name for the purchase of new tickets whether for themselves or for

some other person.

Moreover, as CAI admitted, it was only when Fernando had expressed his interest to

use the subject tickets for the purchase of a round trip ticket between Manila and Los

Angeles that he was informed that he cannot use the ticket in Lourdes’ name as payment.

Contrary to CAI’s claim, that the subject tickets are non-transferable cannot be

implied from a plain reading of the provision printed on the subject tickets stating that “[t]o

the extent not in conflict with the foregoing carriage and other services performed by each

carrier are subject to: (a) provisions contained in this ticket, x x x (iii) carrier’s conditions of

carriage and related regulations which are made part hereof (and are available on

application at the offices of carrier) x x x.” As a common carrier whose business is imbued

with public interest, the exercise of extraordinary diligence requires CAI to inform Spouses

Viloria, or all of its passengers for that matter, of all the terms and conditions governing

their contract of carriage. CAI is proscribed from taking advantage of any ambiguity in the

contract of carriage to impute knowledge on its passengers of and demand compliance with

a certain condition or undertaking that is not clearly stipulated. Since the prohibition on

transferability is not written on the face of the subject tickets and CAI failed to inform

Spouses Viloria thereof, CAI cannot refuse to apply the value of Lourdes’ ticket as payment

for Fernando’s purchase of a new ticket.

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

Nonetheless, the right to rescind a contract for non-performance of its stipulations is

not absolute. The general rule is that rescission of a contract will not be permitted for a

slight or casual breach, but only for such substantial and fundamental violations as would

defeat the very object of the parties in making the agreement.40 Whether a breach is

substantial is largely determined by the attendant circumstances.41

While CAI’s refusal to allow Fernando to use the value of Lourdes’ ticket as

payment for the purchase of a new ticket is unjustified as the non-transferability of the

subject tickets was not clearly stipulated, it cannot, however be considered substantial. The

endorsability of the subject tickets is not an essential part of the underlying contracts and

CAI’s failure to comply is not essential to its fulfillment of its undertaking to issue new

tickets upon Spouses Viloria’s surrender of the subject tickets. This Court takes note of

CAI’s willingness to perform its principal obligation and this is to apply the price of the

ticket in Fernando’s name to the price of the round trip ticket between Manila and Los

Angeles. CAI was likewise willing to accept the ticket in Lourdes’ name as full or partial

payment as the case may be for the purchase of any ticket, albeit under her name and for her

exclusive use. In other words, CAI’s willingness to comply with its undertaking under its

March 24, 1998 cannot be doubted, albeit tainted with its erroneous insistence that Lourdes’

ticket is non-transferable.

Moreover, Spouses Viloria’s demand for rescission cannot prosper as CAI cannot be

solely faulted for the fact that their agreement failed to consummate and no new ticket was

issued to Fernando. Spouses Viloria have no right to insist that a single round trip ticket

between Manila and Los Angeles should be priced at around $856.00 and refuse to pay the

difference between the price of the subject tickets and the amount fixed by CAI. The

petitioners failed to allege, much less prove, that CAI had obliged itself to issue to them

tickets for any flight anywhere in the world upon their surrender of the subject tickets. In its

March 24, 1998 letter, it was clearly stated that “[n]on-refundable tickets may be used as a

form of payment toward the purchase of another Continental ticket”42 and there is nothing

in it suggesting that CAI had obliged itself to protect Spouses Viloria from any fluctuation

in the prices of tickets or that the surrender of the subject tickets will be considered as full

payment for any ticket that the petitioners intend to buy regardless of actual price and

destination. The CA was correct in holding that it is CAI’s right and exclusive prerogative

to fix the prices for its services and it may not be compelled to observe and maintain the

prices of other airline companies.43

The conflict as to the endorsability of the subject tickets is an altogether different

matter, which does not preclude CAI from fixing the price of a round trip ticket between

Manila and Los Angeles in an amount it deems proper and which does not provide Spouses

Viloria an excuse not to pay such price, albeit subject to a reduction coming from the value

of the subject tickets. It cannot be denied that Spouses Viloria had the concomitant

obligation to pay whatever is not covered by the value of the subject tickets whether or not

the subject tickets are transferable or not.

There is also no showing that Spouses Viloria were discriminated against in bad faith

by being charged with a higher rate. The only evidence the petitioners presented to prove

that the price of a round trip ticket between Manila and Los Angeles at that time was only

$856.00 is a newspaper advertisement for another airline company, which is inadmissible

for being “hearsay evidence, twice removed.” Newspaper clippings are hearsay if they were

offered for the purpose of proving the truth of the matter alleged. As ruled in Feria v. Court

of Appeals,:44

[N]ewspaper articles amount to “hearsay evidence, twice removed” and are therefore not only inadmissible but without any probative value at all whether objected to or not,

unless offered for a purpose other than proving the truth of the matter asserted. In this case, the news article is admissible only as evidence that such publication does exist with the tenor of the news therein stated.45 (citations omitted)

The records of this case demonstrate that both parties were equally in default; hence,

none of them can seek judicial redress for the cancellation or resolution of the subject

contracts and they are therefore bound to their respective obligations thereunder. As the 1st

sentence of Article 1192 provides:

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

Therefore, CAI’s liability for damages for its refusal to accept Lourdes’ ticket for the

purchase of Fernando’s round trip ticket is offset by Spouses Viloria’s liability for their

refusal to pay the amount, which is not covered by the subject tickets. Moreover, the

contract between them remains, hence, CAI is duty bound to issue new tickets for a

destination chosen by Spouses Viloria upon their surrender of the subject tickets and

Spouses Viloria are obliged to pay whatever amount is not covered by the value of the

subject tickets.

This Court made a similar ruling in Central Bank of the Philippines v. Court of

Appeals.46 Thus:

Since both parties were in default in the performance of their respective reciprocal obligations, that is, Island Savings Bank failed to comply with its obligation to furnish the entire loan and Sulpicio M. Tolentino failed to comply with his obligation to pay his P17,000.00 debt within 3 years as stipulated, they are both liable for damages.

Article 1192 of the Civil Code provides that in case both parties have committed a breach of their reciprocal obligations, the liability of the first infractor shall be equitably tempered by the courts. WE rule that the liability of Island Savings Bank for damages in not furnishing the entire loan is offset by the liability of Sulpicio M. Tolentino for damages, in the form of penalties and surcharges, for not paying his overdue P17,000.00 debt. x x x.47

Another consideration that militates against the propriety of holding CAI liable for

moral damages is the absence of a showing that the latter acted fraudulently and in bad

faith. Article 2220 of the Civil Code requires evidence of bad faith and fraud and moral

damages are generally not recoverable in culpa contractual except when bad faith had been

proven.48 The award of exemplary damages is likewise not warranted. Apart from the

requirement that the defendant acted in a wanton, oppressive and malevolent manner, the

claimant must prove his entitlement to moral damages.49

WHEREFORE, premises considered, the instant Petition is DENIED.

SO ORDERED.

vii

viii

ix

x

xiTHIRD DIVISION

 

 

MARIA TUAZON, ALEJANDRO               G.R. No. 156262

P. TUAZON, MELECIO P.                

TUAZON, Spouses ANASTACIO and        Present:

MARY T. BUENAVENTURA,                              

                                                Petitioners,        Panganiban, J.,

                                                                                         Chairman,

                                                                                 Sandoval-Gutierrez,

                                                                                 Corona,

                     - versus -                                            Carpio Morales, and

                                                                             Garcia, JJ

                                                                  

                                                                             Promulgated:

HEIRS OF BARTOLOME RAMOS,

                                        Respondents.           July 14, 2005

x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --- -- -- -- -- x

DECISION

 

PANGANIBAN, J.:

 

 

Stripped of nonessentials, the present case involves the collection of a sum of

money.  Specifically, this case arose from the failure of petitioners to pay

respondents’ predecessor-in-interest.  This fact was shown by the non-

encashment of checks issued by a third person, but indorsed by herein

Petitioner Maria Tuazon in favor of the said predecessor.  Under these

circumstances, to enable respondents to collect on the indebtedness, the

check drawer need not be impleaded in the Complaint.  Thus, the suit is

directed, not against the drawer, but against the debtor who indorsed the

checks in payment of the obligation.

 

The Case

 

          Before us is a Petition for Review[1] under Rule 45 of

the Rules of Court, challenging the July 31, 2002 Decision[2]

of the Court of Appeals (CA) in CA-GR CV No. 46535.  The

decretal portion of the assailed Decision reads:

 “WHEREFORE, the appeal is DISMISSED and the appealed

decision is AFFIRMED.” 

 

          On the other hand, the affirmed Decision[3] of Branch

34 of the Regional Trial Court (RTC) of Gapan, Nueva Ecija,

disposed as follows:

           “WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants, ordering the defendants spouses Leonilo Tuazon and Maria Tuazon to pay the plaintiffs, as follows: 

“1. The sum of P1,750,050.00, with interests from the filing of the second amended complaint; “2. The sum of P50,000.00, as attorney’s fees; “3. The sum of P20,000.00, as moral damages  “4. And to pay the costs of suit.

 x x x             x x x             x x x”[4]   

The Facts

 

          The facts are narrated by the CA as follows:

          “[Respondents] alleged that between the period of May 2, 1988 and

June 5, 1988, spouses Leonilo and Maria Tuazon purchased a total of 8,326 cavans of rice from [the deceased Bartolome] Ramos [predecessor-in-interest of respondents].  That of this [quantity,] x x x only 4,437 cavans [have been paid for so far], leaving unpaid 3,889 cavans valued at P1,211,919.00.  In payment therefor, the spouses Tuazon issued x x x [several] Traders Royal Bank checks. x x x                       x x x                       x x x [B]ut when these [checks] were encashed, all of the checks bounced due to insufficiency of funds.  [Respondents] advanced that before issuing said checks[,] spouses Tuazon already knew that they had no available fund to support the checks, and they failed to provide for the payment of these despite repeated demands made on them.            “[Respondents] averred that because spouses Tuazon anticipated that they would be sued, they conspired with the other  [defendants] to defraud them as creditors by executing x x x fictitious sales of their properties.  They executed x x x simulated sale[s] [of three lots] in favor of the x x x spouses Buenaventura x x x[,] as well as their residential lot and the house thereon[,] all located at Nueva Ecija, and another simulated deed of sale dated July 12, 1988 of a Stake Toyota registered with the Land Transportation Office of Cabanatuan City on September 7, 1988.  [Co-petitioner] Melecio Tuazon, a son of spouses Tuazon, registered a fictitious Deed of Sale on July 19, 1988 x x x over a residential lot located at Nueva Ecija.  Another simulated sale of a Toyota Willys was executed

on January 25, 1988 in favor of their other son, [co-petitioner] Alejandro Tuazon x x x.  As a result of the said sales, the titles of these properties issued in the names of spouses Tuazon were cancelled and new ones were issued in favor of the [co-]defendants spouses Buenaventura, Alejandro Tuazon and Melecio Tuazon.  Resultantly, by the said ante-dated and simulated sales and the corresponding transfers there was no more property left registered in the names of spouses Tuazon answerable to creditors, to the damage and prejudice of [respondents].           “For their part, defendants denied having purchased x x x rice from [Bartolome] Ramos.  They alleged that it was Magdalena Ramos, wife of said deceased, who owned and traded the merchandise and Maria Tuazon was merely her agent.  They argued that it was Evangeline Santos who was the buyer of the rice and issued the checks to Maria Tuazon as payments therefor.  In good faith[,] the checks were received [by petitioner] from Evangeline Santos and turned over to Ramos without knowing that these were not funded.  And it is for this reason that [petitioners] have been insisting on the inclusion of Evangeline Santos as an indispensable party, and her non-inclusion was a fatal error.  Refuting that the sale of several properties were fictitious or simulated, spouses Tuazon contended that these were sold because they were then meeting financial difficulties but the disposals were made for value and in good faith and done before the filing of the instant suit.  To dispute the contention of plaintiffs that they were the buyers of the rice, they argued that there was no sales invoice, official receipts or like evidence to prove this.  They assert that they were merely agents and should not be held answerable.”[5]        

 

 

 

          The corresponding civil and criminal cases were filed

by respondents against Spouses Tuazon.  Those cases were

later consolidated and amended to include Spouses

Anastacio and Mary Buenaventura, with Alejandro Tuazon

and Melecio Tuazon as additional defendants.  Having

passed away before the pretrial, Bartolome Ramos was

substituted by his heirs, herein respondents. 

 

          Contending that Evangeline Santos was an

indispensable party in the case, petitioners moved to file a

third-party complaint against her.  Allegedly, she was

primarily liable to respondents, because she was the one

who had purchased the merchandise from their predecessor,

as evidenced by the fact that the checks had been drawn in

her name.  The RTC, however, denied petitioners’ Motion.

 

          Since the trial court acquitted petitioners in all three

of the consolidated criminal cases, they appealed only its

decision finding them civilly liable to respondents.

 

Ruling of the Court of Appeals

 

          Sustaining the RTC, the CA held that petitioners had

failed to prove the existence of an agency between

respondents and Spouses Tuazon.  The appellate court

disbelieved petitioners’ contention that Evangeline Santos

should have been impleaded as an indispensable party. 

Inasmuch as all the checks had been indorsed by Maria

Tuazon, who thereby became liable to subsequent holders

for the amounts stated in those checks, there was no need to

implead Santos.

 

          Hence, this Petition.[6]

 

Issues

 

          Petitioners raise the following issues for our

consideration:

           “1. Whether or not the Honorable Court of Appeals erred in ruling that petitioners are not agents of the respondents.           “2. Whether or not the Honorable Court of Appeals erred in rendering judgment against the petitioners despite x x x the failure of the respondents to include in their action Evangeline Santos, an indispensable party to the suit.”[7]

 

 

The Court’s Ruling

 

          The Petition is unmeritorious.

First Issue:

Agency

 

 

 

          Well-entrenched is the rule that the Supreme Court’s

role in a petition under Rule 45 is limited to reviewing errors

of law allegedly committed by the Court of Appeals.  Factual

findings of the trial court, especially when affirmed by the

CA, are conclusive on the parties and this Court.[8] 

Petitioners have not given us sufficient reasons to deviate

from this rule.

 

In a contract of agency, one binds oneself to render

some service or to do something in representation or on

behalf of another, with the latter’s consent or authority.[9] 

The following are the elements of agency: (1) the parties’

consent, express or implied, to establish the relationship; (2)

the object, which is the execution of a juridical act in

relation to a third person; (3) the representation, by which

the one who acts as an agent does so, not for oneself, but as

a representative; (4) the limitation that the agent acts within

the scope of his or her authority.[10]  As the basis of agency

is representation, there must be, on the part of the principal,

an actual intention to appoint, an intention naturally

inferable from the principal’s words or actions.  In the same

manner, there must be an intention on the part of the agent

to accept the appointment and act upon it.  Absent such

mutual intent, there is generally no agency.[11]

 

This Court finds no reversible error in the findings of

the courts a quo that petitioners were the rice buyers

themselves; they were not mere agents of respondents in

their rice dealership.  The question of whether a contract is

one of sale or of agency depends on the intention of the

parties.[12]

 

The declarations of agents alone are generally

insufficient to establish the fact or extent of their authority.

[13]  The law makes no presumption of agency; proving its

existence, nature and extent is incumbent upon the person

alleging it.[14]  In the present case, petitioners raise the

fact of agency as an affirmative defense, yet fail to

prove its existence.

 

The Court notes that petitioners, on their own behalf,

sued Evangeline Santos for collection of the amounts

represented by the bounced checks, in a separate civil case

that they sought to be consolidated with the current one.  If,

as they claim, they were mere agents of respondents,

petitioners should have brought the suit against Santos for

and on behalf of their alleged principal, in accordance with

Section 2 of Rule 3 of the Rules on Civil Procedure.[15] 

Their filing a suit against her in their own names negates

their claim that they acted as mere agents in selling the rice

obtained from Bartolome Ramos.

 

Second Issue:

Indispensable Party

 

          Petitioners argue that the lower courts erred in not

allowing Evangeline Santos to be impleaded as an

indispensable party.  They insist that respondents’

Complaint against them is based on the bouncing checks she

issued; hence, they point to her as the person primarily

liable for the obligation. 

 

          We hold that respondents’ cause of action is clearly

founded on petitioners’ failure to pay the purchase price of

the rice.  The trial court held that Petitioner Maria Tuazon

had indorsed the questioned checks in favor of respondents,

in accordance with Sections 31 and 63 of the Negotiable

Instruments Law.[16]  That Santos was the drawer of the

checks is thus immaterial to the respondents’ cause of

action.

 

          As indorser, Petitioner Maria Tuazon warranted that

upon due presentment, the checks were to be accepted or

paid, or both, according to their tenor; and that in case they

were dishonored, she would pay the corresponding amount.

[17]  After an instrument is dishonored by nonpayment,

indorsers cease to be merely secondarily liable; they become

principal debtors whose liability becomes identical to that of

the original obligor.  The holder of a negotiable instrument

need not even proceed against the maker before suing the

indorser.[18]  Clearly, Evangeline Santos -- as the drawer of

the checks  -- is not an indispensable party in an action

against Maria Tuazon, the indorser of the checks.

 

          Indispensable parties are defined as “parties in

interest without whom no final determination can be

had.”[19]  The instant case was originally one for the

collection of the purchase price of the rice bought by Maria

Tuazon from respondents’ predecessor.  In this case, it is

clear that there is no privity of contract between

respondents and Santos.  Hence, a final determination of the

rights and interest of the parties may be made without any

need to implead her.

 

WHEREFORE, the Petition is DENIED and the assailed

Decision AFFIRMED.  Costs against petitioners.

 

          SO ORDERED.

 

FIRST DIVISION

[A.C. No. 4863. September 7, 2001]

URBAN BANK, INC., complainant, vs. ATTY. MAGDALENO M. PEÑA, respondent.

R E S O L U T I O N

PUNO, J.:

Before us is an administrative case for disbarment filed by complainant Urban Bank, Inc., a commercial bank, against respondent Atty. Magdaleno M. Peña. Complainant charges that respondent is guilty of deceit, malpractice and gross misconduct in violation of Section 27, Rule 138, of the Revised Rules of Court. The allegations of the Complaint in support of the accusation are as follows:

“3. Last 1 December 1994, Complainant bought a parcel of land located along Roxas Boulevard from the Isabela Sugar Company (“ISC” for brevity). One of the conditions of the sale was for ISC to cause the eviction of all the occupants found in said property. This condition was incorporated in the Contract to Sell and adopted in the subsequent Deed of Absolute Sale executed by and between ISC and Complainant dated 15 November 1994 and 29 Novemebr 1994, respectively.

4. To fully implement the abovementioned condition, ISC engaged the services of herein Respondent Atty. Magdaleno M. Peña. This was communicated by ISC to Respondent in a Memorandum dated 20 November 1994 and relayed to Complainant in a Letter dated 19 December 1994.

5. Respondent accepted the engagement of his services by ISC and he proceeded to take the necessary steps to evict the occupants of the property subject of the sale.

6. During the eviction process, Complainant was informed by ISC and Respondent about the necessity of a letter of authority in favor of the latter, granting him the authority to represent Complainant in maintaining possession of the aforesaid property and to represent Complainant in any court action that may be instituted in connection with the exercise of said duty.

7. Complainant acceded to the request and issued a letter-authority dated 15 December 1994, but only after making it very clear to the Respondent that it was ISC which contracted his services and not Complainant. This clarification was communicated to Respondent by Atty. Corazon M. Bejasa and Mr. Arturo E. Manuel, Jr., Senior Vice-President and Vice-President, respectively of Complainant bank in a letter addressed to respondent dated 15 December 1994. A copy of said letter is attached hereto and made an integral part of this Complaint as Annex “E”.

8. Subsequently however, Respondent requested for a modification of said letter of authority by furnishing Complainant with a draft containing the desired wordings (including the date, i.e., 19 December 1994) and asking Complainant to modify the previous letter by issuing a new one similarly worded as his draft. A copy of said request is attached hereto and made an integral part of this Complaint as Annex “F”.

9. If only to expedite and facilitate matters, Complainant willingly obliged and re-issued a new letter of authority to Respondent, this time incorporating some of Respondent’s suggestions. Thus it came to pass that the actual letter of authority was dated 19 December 1994, while Complainant’s clarificatory letter was dated 15 December 1994.

10. Eventually, the eviction of the occupants of the property in question was successfully carried out. After the lapse of more than thirteen (13) months, Respondent filed a collection suit against herein Complainant and its senior officers “for recovery of agent’s compensation and expenses, damages and attorney’s fees”, on the strength of the letter of authority issued by Atty. Bejasa and Mr. Manuel, Jr. A copy of the complaint filed by herein Respondent with the Bago City Regional Trial Court is attached hereto and made an integral part hereof as Annex “G”.

11. The act of Respondent in securing the letter of authority from Complainant, ostensibly for the purpose of convincing the occupants sought to be evicted that he was duly authorized to take possession of the property and then using the same letter as basis for claiming agent’s compensation, expenses and attorney’s fees from Complainant, knowing fully well the circumstances surrounding the issuance of said letter of authority, constitutes deceit, malpractice and gross misconduct under Section 27, Rule 138 of the Revised Rules of Court. Said provision enumerates the grounds for the suspension and disbarment of lawyers, namely:

Sec. 27. Attorneys removed or suspended by Supreme Court, on what grounds, - A member of the bar may be removed or suspended from his office as attorney by the Supreme Court for any deceit, malpractice or other gross misconduct in such office, grossly immoral conduct or by reason of his conviction of a crime involving moral turpitude, or for any violation of the oath of which he is required to take before admission to practice, or for willful disobedience of any lawful order of a superior court or for corruptly or wilfully appearing as an attorney for a party to a case without any authority to do so. The practice of soliciting cases at law for the purpose of gain, either personally or through paid agents or brokers, constitutes malpractice. (Emphasis supplied)”[1]

In answer to these allegations, respondent submitted with this Court his Comment, wherein he refuted all the charges against him. Preliminarily, he claimed that the present complaint should be dismissed outright since its filing constitutes forum shopping and it involves a matter which is sub-judice, in view of the pending civil action involving the same parties. Respondent then disputed that he was guilty of deceit, malpractice or gross misconduct. He declared that complainant, through its duly authorized officers, engaged his services to rid the property of tenants and intruders in the course of a telephone conversation. He added that there was no reason for him to deceive complainant into writing a letter of authority because he knew very well that the verbal agreement was sufficient to constitute an attorney-client relationship. The request for a letter of authority, according to him, was “merely to formalize the engagement.”[2] Lastly, he argued that the complainant accepted the benefits of his service, just as it never disclaimed that he was acting in its behalf during the period of engagement.

We referred the matter to the Integrated Bar of the Philippines (IBP) for investigation. Both parties presented their respective evidence before the Commission on Bar Discipline of the IBP. After only one hearing, and upon agreement of the parties, the case was submitted for resolution on the basis of their respective pleadings and annexes thereto. The investigating officer, Commissioner Navarro, required both parties to file their own memoranda. The commissioner made the following findings:

“After going over the evidence submitted by the parties, the Undersigned noted that the complainant (plaintiff) in RTC Bago City Civil Case is the respondent in the present case which only showed that to get even with the respondent, complainant instituted the present case as leverage for respondent’s complaint in the civil case. The complainant in the RTC Bago City Civil case is the respondent in the present case and vice-versa; therefore there was no institution by the same party for remedies in different fora which negates forum shopping.

The fact remains however that complainant never contested the actuations done by the respondent to rid its property from tenants and intruders; and even executed a letter of authority in favor of respondent dated December 19, 1994; otherwise complainant should have engaged the services of other lawyers.

Nevertheless, it is not for this Office to determine who should pay the respondent for this is a matter not within its jurisdiction but for the proper court to do so.

The only issue for resolution of this Office is whether or not respondent committed malpractice, deceit and gross misconduct in the practice of his profession as member of the bar.

The evidence on record showed that respondent successfully performed his task of evicting the tenants and intruders in the property in question. More so, no less than Senior Vice-President Corazon Bejasa was very thankful for his job well done.

Complainant benefited from respondent’s task and for a period of fifty (50) days no behest or complaint was received by the respondent from the complainant. It was only when payment for his legal services was demanded that complainant re-acted when it is incumbent upon the benefactor of services that just compensation should be awarded.

It is but just and proper that if refusal to pay just compensation ensues in any transaction, the proper remedy is to institute an action before the proper court and such actuation of the respondent herein did not constitute deceit, malpractice or gross misconduct.

In view of the foregoing, the Undersigned hereby recommends that the complaint against Atty. Magdaleno Peña be dismissed for lack of merit.”[3]

Thereafter, IBP Board of Governors passed a Resolution DISMISSING the Complaint based on the Report and Recommendation of Commissioner Navarro. It appears that on April 26, 2000, the complainant was closed by the Monetary Board of the Bangko Sentral Ng Pilipinas and was placed under receivership of the Philippine Deposit Insurance Corporation (PDIC). On May 8, 2000, it received a notice of the resolution. With the PDIC now acting as its counsel, it sought reconsideration of the resolution with the IBP, which was denied there being “no substantive reason to reverse the findings therein” and because “the pleading is improper as the remedy of the complainant is to file the appropriate Motion with the Supreme Court within fifteen days from receipt of notice of said Decision

pursuant to Section 12 of Rule 139-B.”[4]

On October 5, 2000, we received a Manifestation from the complainant, represented this time by Corazon M. Bejasa, praying that the IBP Commission on Bar Discipline and Board of Governors be ordered to make a more thorough determination of whether or not respondent committed the acts of deceit, malpractice and gross misconduct complained of as grounds for the latter’s disbarment. We then resolved to treat this manifestation as an appeal. Disbarment proceedings are matters of public interest,[5] undertaken for public welfare and for the purpose of preserving courts of justice from the official ministration of the persons unfit to practice them.[6]

The sole issue raised in this appeal is whether or not respondent should be disbarred on the ground of deceit, malpractice and gross misconduct. We rule in the negative.

From the record and evidence before us, we agree with the commissioner’s conclusion that respondent cannot be found guilty of the charges against him. Apart from the allegations it made in various pleadings, complainant has not proferred any proof tending to show that respondent really induced it, through machination or other deceitful means, to issue the December 19 letter of authority ostensibly for the purpose of evicting illegal occupants, then using the very same letter for demanding agent’s compensation. During the scheduled hearing, it did not introduce a single witness to testify apropos the circumstance under which the letter was dispatched. Those who signed and issued the letter, Corazon M. Bejasa and Arturo E. Manuel Jr., were never presented before the investigating commissioner to substantiate its assertion that the letter it gave to the respondent was only “for show,” and for a purpose which is limited in scope. Similarly, not even the sworn statements from these or other vital witnesses were attached to the memorandum or the other pleadings it submitted. It is one thing to allege deceit, malpractice and gross misconduct, and another to demonstrate by evidence the specific acts constituting the same.

To be sure, no evidence in respect of the supposed deceit, malpractice or gross misconduct was adduced by the complainant. It is axiomatic that he who alleges the same has the onus of validating it. In disbarment proceedings, the burden of proof is upon the complainant and this Court will exercise its disciplinary power only if the former establishes its case by clear, convincing, and satisfactory evidence.[7] In this regard, we find that complainant failed to meet the required standard.

In an effort to lend credence to its claim that there was no contractual relation between them, complainant attempted to establish that the legal services of the respondent was engaged, not by it, but by the seller of the lot, Isabela Sugar Company. This should presumably settle any doubt that the December 19 letter was only to be used by respondent for the purpose of supervising the eviction of the occupants of the property and protecting it from intruders, and nothing more. To support this, it submitted correspondence coming from people who appear to be responsible officers of ISC (one from Enrique Montilla III, and another from Julie Abad and Herman Ponce) informing respondent of the engagement of his services by the ISC. These letters, though, cannot by themselves be accorded strong probative weight in the face of respondent’s emphatic assertion that he has never seen any of these documents.[8] Likewise, they do not indicate that copies thereof were received by him or by any authorized person in his behalf. It bears stressing that they do not carry his signature, nor the time or date he took possession of them. It follows that they cannot be used to bind and prejudice the respondent absent any showing that he had actual and ample knowledge of their contents.

Lastly, complainant seems to belabor under the mistaken assumption that the basis of the respondent in instituting the civil case against it was the December 19 letter of authority. Well to point out, the suit was grounded on an oral contract of agency purportedly entered into between him and the complainant, represented by its duly authorized officers. This is evident from the averments embodied in the Complaint filed with the Bago City Trial Court, the pertinent portions of which state:

“7. The defendant URBAN BANK through its president, defendant TEODORO BORLONGAN, and the defendants Board of Directors as well as its Senior Vice President CORAZON BEJASA and Vice President, ANTONIO MANUEL, JR., entered into an agency agreement with the plaintiff, whereby the latter in behalf of the defendant URBAN BANK, shall hold and maintain possession of the aforedescribed property, prevent entry of intruders, interlopers and squatters therein and finally turn over peaceful possession thereof to defendant URBAN BANK; it was further agreed that for the services rendered as its agent, defendant URBAN BANK shall pay plaintiff a fee in an amount equivalent to 10 % of the the market value of the property prevailing at the time of payment;

8. The plaintiff accepted the engagement and in a letter dated December 19, 1994, defendant URBAN BANK through its authorized officials, namely, defendant CORAZON BEJASA and ARTURO E. MANUEL, JR., Senior Vice President and Vice President respectively, of defendant URBAN BANK, officially confirmed the engagement of the services of the plaintiff as its Agent-representative for the following specific purposes; ‘x x x to hold and maintain possession of our abovecaptioned property and to protect the same from tenants, occupants or any other person who are threatening to return to the said property and/or to interfere with your possession of the said property for and in our behalf. You are likewise authorized to represent Urban Bank in any court action that you may institute to carry out your aforementioned duties, and to prevent any intruder, squatter or any other person not otherwise authorized in writing by Urban bank from entering or staying in the premises.’

A photocopy of the letter dated December 19, 1994 is hereto attached as Annex “C” and made integral part hereof.”[9] (Emphasis supplied.)

It is clear from the above that what respondent was trying to enforce were the terms and conditions of the contract. The letter, from the his own admission, just served to officially confirm a done deal. It was, hence, utilized solely as documentary evidence to buttress respondent’s assertion regarding the existence of the agency agreement. In fact, the amount of compensation (to the tune of 10% of the market value of the property) he was recovering in the action was never mentioned in the letter, but apparently settled in the course of an oral conversation. Indeed, respondent, with or without the letter, could have instituted a suit against the complainant. There is no gainsaying that a verbal engagement is sufficient to create an attorney-client relationship.[10]

In sum, we find that, under the premises, respondent can hardly be faulted and accused of deceit, malpractice and gross misconduct for invoking the aid of the court in recovering recompense for legal services which he claims he undertook for the complainant, and which the latter does not deny to have benefited from. Indeed, what he did was a lawful exercise of a right.

IN VIEW WHEREOF, the disbarment complaint against respondent Atty. Magdaleno M. Peña is hereby DISMISSED for lack of merit.

SO ORDERED.

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xixRepublic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

G.R. No. 167552             April 23, 2007

EUROTECH INDUSTRIAL TECHNOLOGIES, INC., Petitioner, vs.EDWIN CUIZON and ERWIN CUIZON, Respondents.

D E C I S I O N

CHICO-NAZARIO, J.:

Before Us is a petition for review by certiorari assailing the Decision1 of the Court of Appeals dated 10 August 2004 and its Resolution2 dated 17 March 2005 in CA-G.R. SP No. 71397 entitled, "Eurotech Industrial Technologies, Inc. v. Hon. Antonio T. Echavez." The assailed Decision and Resolution affirmed the Order3 dated 29 January 2002 rendered by Judge Antonio T. Echavez ordering the dropping of respondent EDWIN Cuizon (EDWIN) as a party defendant in Civil Case No. CEB-19672.

The generative facts of the case are as follows:

Petitioner is engaged in the business of importation and distribution of various European industrial equipment for customers here in the Philippines. It has as one of its customers Impact Systems Sales ("Impact Systems") which is a sole proprietorship owned by respondent ERWIN Cuizon (ERWIN). Respondent EDWIN is the sales manager of Impact Systems and was impleaded in the court a quo in said capacity.

From January to April 1995, petitioner sold to Impact Systems various products allegedly amounting to ninety-one thousand three hundred thirty-eight (P91,338.00) pesos. Subsequently, respondents sought

to buy from petitioner one unit of sludge pump valued at P250,000.00 with respondents making a down payment of fifty thousand pesos (P50,000.00).4 When the sludge pump arrived from the United Kingdom, petitioner refused to deliver the same to respondents without their having fully settled their indebtedness to petitioner. Thus, on 28 June 1995, respondent EDWIN and Alberto de Jesus, general manager of petitioner, executed a Deed of Assignment of receivables in favor of petitioner, the pertinent part of which states:

1.) That ASSIGNOR5 has an outstanding receivables from Toledo Power Corporation in the amount of THREE HUNDRED SIXTY FIVE THOUSAND (P365,000.00) PESOS as payment for the purchase of one unit of Selwood Spate 100D Sludge Pump;

2.) That said ASSIGNOR does hereby ASSIGN, TRANSFER, and CONVEY unto the ASSIGNEE6 the said receivables from Toledo Power Corporation in the amount of THREE HUNDRED SIXTY FIVE THOUSAND (P365,000.00) PESOS which receivables the ASSIGNOR is the lawful recipient;

3.) That the ASSIGNEE does hereby accept this assignment.7

Following the execution of the Deed of Assignment, petitioner delivered to respondents the sludge pump as shown by Invoice No. 12034 dated 30 June 1995.8

Allegedly unbeknownst to petitioner, respondents, despite the existence of the Deed of Assignment, proceeded to collect from Toledo Power Company the amount of P365,135.29 as evidenced by Check Voucher No. 09339 prepared by said power company and an official receipt dated 15 August 1995 issued by Impact Systems.10 Alarmed by this development, petitioner made several demands upon respondents to pay their obligations. As a result, respondents were able to make partial payments to petitioner. On 7 October 1996, petitioner’s counsel sent respondents a final demand letter wherein it was stated that as of 11 June 1996, respondents’ total obligations stood at P295,000.00 excluding interests and attorney’s fees.11 Because of respondents’ failure to abide by said final demand letter, petitioner instituted a complaint for sum of money, damages, with application for preliminary attachment against herein respondents before the Regional Trial Court of Cebu City.12

On 8 January 1997, the trial court granted petitioner’s prayer for the issuance of writ of preliminary attachment.13

On 25 June 1997, respondent EDWIN filed his Answer14 wherein he admitted petitioner’s allegations with respect to the sale transactions entered into by Impact Systems and petitioner between January and April 1995.15 He, however, disputed the total amount of Impact Systems’ indebtedness to petitioner which, according to him, amounted to only P220,000.00.16

By way of special and affirmative defenses, respondent EDWIN alleged that he is not a real party in interest in this case. According to him, he was acting as mere agent of his principal, which was the Impact Systems, in his transaction with petitioner and the latter was very much aware of this fact. In support of this argument, petitioner points to paragraphs 1.2 and 1.3 of petitioner’s Complaint stating –

1.2. Defendant Erwin H. Cuizon, is of legal age, married, a resident of Cebu City. He is the proprietor of a single proprietorship business known as Impact Systems Sales ("Impact Systems" for brevity), with office located at 46-A del Rosario Street, Cebu City, where he may

be served summons and other processes of the Honorable Court.

1.3. Defendant Edwin B. Cuizon is of legal age, Filipino, married, a resident of Cebu City. He is the Sales Manager of Impact Systems and is sued in this action in such capacity.17

On 26 June 1998, petitioner filed a Motion to Declare Defendant ERWIN in Default with Motion for Summary Judgment. The trial court granted petitioner’s motion to declare respondent ERWIN in default "for his failure to answer within the prescribed period despite the opportunity granted"18 but it denied petitioner’s motion for summary judgment in its Order of 31 August 2001 and scheduled the pre-trial of the case on 16 October 2001.19 However, the conduct of the pre-trial conference was deferred pending the resolution by the trial court of the special and affirmative defenses raised by respondent EDWIN.20

After the filing of respondent EDWIN’s Memorandum21 in support of his special and affirmative defenses and petitioner’s opposition22 thereto, the trial court rendered its assailed Order dated 29 January 2002 dropping respondent EDWIN as a party defendant in this case. According to the trial court –

A study of Annex "G" to the complaint shows that in the Deed of Assignment, defendant Edwin B. Cuizon acted in behalf of or represented [Impact] Systems Sales; that [Impact] Systems Sale is a single proprietorship entity and the complaint shows that defendant Erwin H. Cuizon is the proprietor; that plaintiff corporation is represented by its general manager Alberto de Jesus in the contract which is dated June 28, 1995. A study of Annex "H" to the complaint reveals that [Impact] Systems Sales which is owned solely by defendant Erwin H. Cuizon, made a down payment of P50,000.00 that Annex "H" is dated June 30, 1995 or two days after the execution of Annex "G", thereby showing that [Impact] Systems Sales ratified the act of Edwin B. Cuizon; the records further show that plaintiff knew that [Impact] Systems Sales, the principal, ratified the act of Edwin B. Cuizon, the agent, when it accepted the down payment of P50,000.00. Plaintiff, therefore, cannot say that it was deceived by defendant Edwin B. Cuizon, since in the instant case the principal has ratified the act of its agent and plaintiff knew about said ratification. Plaintiff could not say that the subject contract was entered into by Edwin B. Cuizon in excess of his powers since [Impact] Systems Sales made a down payment of P50,000.00 two days later.

In view of the Foregoing, the Court directs that defendant Edwin B. Cuizon be dropped as party defendant.23

Aggrieved by the adverse ruling of the trial court, petitioner brought the matter to the Court of Appeals which, however, affirmed the 29 January 2002 Order of the court a quo. The dispositive portion of the now assailed Decision of the Court of Appeals states:

WHEREFORE, finding no viable legal ground to reverse or modify the conclusions reached by the public respondent in his Order dated January 29, 2002, it is hereby AFFIRMED.24

Petitioner’s motion for reconsideration was denied by the appellate court in its Resolution promulgated on 17 March 2005. Hence, the present petition raising, as sole ground for its allowance, the following:

THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN IT RULED THAT RESPONDENT EDWIN CUIZON, AS AGENT OF IMPACT SYSTEMS SALES/ERWIN CUIZON,

IS NOT PERSONALLY LIABLE, BECAUSE HE HAS NEITHER ACTED BEYOND THE SCOPE OF HIS AGENCY NOR DID HE PARTICIPATE IN THE PERPETUATION OF A FRAUD.25

To support its argument, petitioner points to Article 1897 of the New Civil Code which states:

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.

Petitioner contends that the Court of Appeals failed to appreciate the effect of ERWIN’s act of collecting the receivables from the Toledo Power Corporation notwithstanding the existence of the Deed of Assignment signed by EDWIN on behalf of Impact Systems. While said collection did not revoke the agency relations of respondents, petitioner insists that ERWIN’s action repudiated EDWIN’s power to sign the Deed of Assignment. As EDWIN did not sufficiently notify it of the extent of his powers as an agent, petitioner claims that he should be made personally liable for the obligations of his principal.26

Petitioner also contends that it fell victim to the fraudulent scheme of respondents who induced it into selling the one unit of sludge pump to Impact Systems and signing the Deed of Assignment. Petitioner directs the attention of this Court to the fact that respondents are bound not only by their principal and agent relationship but are in fact full-blooded brothers whose successive contravening acts bore the obvious signs of conspiracy to defraud petitioner.27

In his Comment,28 respondent EDWIN again posits the argument that he is not a real party in interest in this case and it was proper for the trial court to have him dropped as a defendant. He insists that he was a mere agent of Impact Systems which is owned by ERWIN and that his status as such is known even to petitioner as it is alleged in the Complaint that he is being sued in his capacity as the sales manager of the said business venture. Likewise, respondent EDWIN points to the Deed of Assignment which clearly states that he was acting as a representative of Impact Systems in said transaction.

We do not find merit in the petition.

In a contract of agency, a person binds himself to render some service or to do something in representation or on behalf of another with the latter’s consent.29 The underlying principle of the contract of agency is to accomplish results by using the services of others – to do a great variety of things like selling, buying, manufacturing, and transporting.30 Its purpose is to extend the personality of the principal or the party for whom another acts and from whom he or she derives the authority to act.31

It is said that the basis of agency is representation, that is, the agent acts for and on behalf of the principal on matters within the scope of his authority and said acts have the same legal effect as if they were personally executed by the principal.32 By this legal fiction, the actual or real absence of the principal is converted into his legal or juridical presence – qui facit per alium facit per se.33

The elements of the contract of agency are: (1) consent, express or implied, of the parties to establish the relationship; (2) the object is the execution of a juridical act in relation to a third person; (3) the agent acts as a representative and not for himself; (4) the agent acts within the scope of his authority.34

In this case, the parties do not dispute the existence of the agency relationship between respondents ERWIN as principal and EDWIN as agent. The only cause of the present dispute is whether respondent

EDWIN exceeded his authority when he signed the Deed of Assignment thereby binding himself personally to pay the obligations to petitioner. Petitioner firmly believes that respondent EDWIN acted beyond the authority granted by his principal and he should therefore bear the effect of his deed pursuant to Article 1897 of the New Civil Code.

We disagree.

Article 1897 reinforces the familiar doctrine that an agent, who acts as such, is not personally liable to the party with whom he contracts. The same provision, however, presents two instances when an agent becomes personally liable to a third person. The first is when he expressly binds himself to the obligation and the second is when he exceeds his authority. In the last instance, the agent can be held liable if he does not give the third party sufficient notice of his powers. We hold that respondent EDWIN does not fall within any of the exceptions contained in this provision.

The Deed of Assignment clearly states that respondent EDWIN signed thereon as the sales manager of Impact Systems. As discussed elsewhere, the position of manager is unique in that it presupposes the grant of broad powers with which to conduct the business of the principal, thus:

The powers of an agent are particularly broad in the case of one acting as a general agent or manager; such a position presupposes a degree of confidence reposed and investiture with liberal powers for the exercise of judgment and discretion in transactions and concerns which are incidental or appurtenant to the business entrusted to his care and management. In the absence of an agreement to the contrary, a managing agent may enter into any contracts that he deems reasonably necessary or requisite for the protection of the interests of his principal entrusted to his management. x x x.35

Applying the foregoing to the present case, we hold that Edwin Cuizon acted well-within his authority when he signed the Deed of Assignment. To recall, petitioner refused to deliver the one unit of sludge pump unless it received, in full, the payment for Impact Systems’ indebtedness.36 We may very well assume that Impact Systems desperately needed the sludge pump for its business since after it paid the amount of fifty thousand pesos (P50,000.00) as down payment on 3 March 1995,37 it still persisted in negotiating with petitioner which culminated in the execution of the Deed of Assignment of its receivables from Toledo Power Company on 28 June 1995.38 The significant amount of time spent on the negotiation for the sale of the sludge pump underscores Impact Systems’ perseverance to get hold of the said equipment. There is, therefore, no doubt in our mind that respondent EDWIN’s participation in the Deed of Assignment was "reasonably necessary" or was required in order for him to protect the business of his principal. Had he not acted in the way he did, the business of his principal would have been adversely affected and he would have violated his fiduciary relation with his principal.

We likewise take note of the fact that in this case, petitioner is seeking to recover both from respondents ERWIN, the principal, and EDWIN, the agent. It is well to state here that Article 1897 of the New Civil Code upon which petitioner anchors its claim against respondent EDWIN "does not hold that in case of excess of authority, both the agent and the principal are liable to the other contracting party."39 To reiterate, the first part of Article 1897 declares that the principal is liable in cases when the agent acted within the bounds of his authority. Under this, the agent is completely absolved of any liability. The second part of the said provision presents the situations when the agent himself becomes liable to a third party when he expressly binds himself or he exceeds the limits of his authority without giving notice of his powers to the third person. However, it must be pointed out that in case of excess of authority by the agent, like what petitioner claims exists here, the law does not say that a third

person can recover from both the principal and the agent.40

As we declare that respondent EDWIN acted within his authority as an agent, who did not acquire any right nor incur any liability arising from the Deed of Assignment, it follows that he is not a real party in interest who should be impleaded in this case. A real party in interest is one who "stands to be benefited or injured by the judgment in the suit, or the party entitled to the avails of the suit."41 In this respect, we sustain his exclusion as a defendant in the suit before the court a quo.

WHEREFORE, premises considered, the present petition is DENIED and the Decision dated 10 August 2004 and Resolution dated 17 March 2005 of the Court of Appeals in CA-G.R. SP No. 71397, affirming the Order dated 29 January 2002 of the Regional Trial Court, Branch 8, Cebu City, is AFFIRMED.

Let the records of this case be remanded to the Regional Trial Court, Branch 8, Cebu City, for the continuation of the proceedings against respondent Erwin Cuizon.

SO ORDERED.

FIRST DIVISION

[G.R. No. 130423. November 18, 2002]

VIRGIE SERONA, petitioner, vs. HON. COURT OF APPEALS and THE PEOPLE OF THE PHILIPPINES, respondents.

D E C I S I O N

YNARES-SANTIAGO, J.:

During the period from July 1992 to September 1992, Leonida Quilatan delivered pieces of jewelry to petitioner Virgie Serona to be sold on commission basis. By oral agreement of the parties, petitioner shall remit payment or return the pieces of jewelry if not sold to Quilatan, both within 30 days from receipt of the items.

Upon petitioner’s failure to pay on September 24, 1992, Quilatan required her to execute an acknowledgment receipt (Exhibit B) indicating their agreement and the total amount due, to wit:

Ako, si Virginia Serona, nakatira sa Mother Earth Subd., Las Pinas, ay kumuha ng mga alahas kay Gng. Leonida Quilatan na may kabuohang halaga na P567,750.00 para ipagbili para ako magkakomisyon at ibibigay ang benta kung mabibili o ibabalik sa kanya ang mga nasabing alahas kung hindi mabibili sa loob ng 30 araw.

Las Pinas, September 24, 1992.[1]

The receipt was signed by petitioner and a witness, Rufina G. Navarette.

Unknown to Quilatan, petitioner had earlier entrusted the jewelry to one Marichu Labrador for the latter to sell on commission basis. Petitioner was not able to collect payment from Labrador, which caused her to likewise fail to pay her obligation to Quilatan.

Subsequently, Quilatan, through counsel, sent a formal letter of demand[2] to petitioner for failure to settle her obligation. Quilatan executed a complaint affidavit[3] against petitioner before the Office of the Assistant Provincial Prosecutor. Thereafter, an information for estafa under Article 315, paragraph 1(b)[4] of the Revised Penal Code was filed against petitioner, which was raffled to Branch 255 of the Regional Trial Court of Las Pinas. The information alleged:

That on or about and sometime during the period from July 1992 up to September 1992, in the Municipality of Las Pinas, Metro Manila, Philippines, and within the jurisdiction of this Honorable Court, the said accused received in trust from the complainant Leonida E. Quilatan various pieces of jewelry in the total value of P567,750.00 to be sold on commission basis under the express duty and obligation of remitting the proceeds thereof to the said complainant if sold or returning the same to the latter if unsold but the said accused once in possession of said various pieces of jewelry, with unfaithfulness and abuse of confidence and with intent to defraud, did then and there willfully, unlawfully and feloniously misappropriate and convert the same for her own personal use and benefit and despite oral and written demands, she failed and refused to account for said jewelry or the proceeds of sale thereof, to the damage and prejudice of complainant Leonida E. Quilatan in the aforestated total amount of P567,750.00.

CONTRARY TO LAW.[5]

Petitioner pleaded not guilty to the charge upon arraignment.[6] Trial on the merits thereafter ensued.

Quilatan testified that petitioner was able to remit P100,000.00 and returned P43,000.00 worth of jewelriy;[7] that at the start, petitioner was prompt in settling her obligation; however, subsequently the payments were remitted late;[8] that petitioner still owed her in the amount of P424,750.00.[9]

On the other hand, petitioner admitted that she received several pieces of jewelry from Quilatan and that she indeed failed to pay for the same. She claimed that she entrusted the pieces of jewelry to Marichu Labrador who failed to pay for the same, thereby causing her to default in paying Quilatan.[10] She presented handwritten receipts (Exhibits 1 & 2)[11] evidencing payments made to Quilatan prior to the filing of the criminal case.

Marichu Labrador confirmed that she received pieces of jewelry from petitioner worth P441,035.00. She identified an acknowledgment receipt (Exhibit 3)[12] signed by her dated July 5, 1992 and testified that she sold the jewelry to a person who absconded without paying her. Labrador also explained that in the past, she too had directly transacted with Quilatan for the sale of jewelry on commission basis; however, due to her outstanding account with the latter, she got jewelry from petitioner instead.[13]

On November 17, 1994, the trial court rendered a decision finding petitioner guilty of estafa, the dispositive portion of which reads:

WHEREFORE, in the light of the foregoing, the court finds the accused Virgie Serona guilty beyond reasonable doubt, and as the amount misappropriated is P424,750.00 the penalty provided under the first paragraph of Article 315 of the Revised Penal Code has to be imposed which shall be in the

maximum period plus one (1) year for every additional P10,000.00.

Applying the Indeterminate Sentence Law, the said accused is hereby sentenced to suffer the penalty of imprisonment ranging from FOUR (4) YEARS and ONE (1) DAY of prision correccional as minimum to TEN (10) YEARS and ONE (1) DAY of prision mayor as maximum; to pay the sum of P424,750.00 as cost for the unreturned jewelries; to suffer the accessory penalties provided by law; and to pay the costs.

SO ORDERED.[14]

Petitioner appealed to the Court of Appeals, which affirmed the judgment of conviction but modified the penalty as follows:

WHEREFORE, the appealed decision finding the accused-appellant guilty beyond reasonable doubt of the crime of estafa is hereby AFFIRMED with the following MODIFICATION:

Considering that the amount involved is P424,750.00, the penalty should be imposed in its maximum period adding one (1) year for each additional P10,000.00 albeit the total penalty should not exceed Twenty (20) Years (Art. 315). Hence, accused-appellant is hereby SENTENCED to suffer the penalty of imprisonment ranging from Four (4) Years and One (1) Day of Prision Correccional as minimum to Twenty (20) Years of Reclusion Temporal .

SO ORDERED.[15]

Upon denial of her motion for reconsideration,[16] petitioner filed the instant petition under Rule 45, alleging that:

I

RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN CONCLUDING THAT THERE WAS AN ABUSE OF CONFIDENCE ON THE PART OF PETITIONER IN ENTRUSTING THE SUBJECT JEWELRIES (sic) TO HER SUB-AGENT FOR SALE ON COMMISSION TO PROSPECTIVE BUYERS.

II

RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN CONCLUDING THAT THERE WAS MISAPPROPRIATION OR CONVERSION ON THE PART OF PETITIONER WHEN SHE FAILED TO RETURN THE SUBJECT JEWELRIES (sic) TO PRIVATE COMPLAINANT.[17]

Petitioner argues that the prosecution failed to establish the elements of estafa as penalized under Article 315, par. 1(b) of the Revised Penal Code. In particular, she submits that she neither abused the confidence reposed upon her by Quilatan nor converted or misappropriated the subject jewelry; that her giving the pieces of jewelry to a sub-agent for sale on commission basis did not violate her undertaking with Quilatan. Moreover, petitioner delivered the jewelry to Labrador under the same terms upon which it was originally entrusted to her. It was established that petitioner had not derived any personal benefit from the loss of the jewelry. Consequently, it cannot be said that she misappropriated or

converted the same.

We find merit in the petition.

The elements of estafa through misappropriation or conversion as defined in Article 315, par. 1(b) of the Revised Penal Code are: (1) that the money, good or other personal property is received by the offender in trust, or on commission, or for administration, or under any other obligation involving the duty to make delivery of, or to return, the same; (2) that there be misappropriation or conversion of such money or property by the offender or denial on his part of such receipt; (3) that such misappropriation or conversion or denial is to the prejudice of another; and (4) that there is a demand made by the offended party on the offender.[18] While the first, third and fourth elements are concededly present, we find the second element of misappropriation or conversion to be lacking in the case at bar.

Petitioner did not ipso facto commit the crime of estafa through conversion or misappropriation by delivering the jewelry to a sub-agent for sale on commission basis. We are unable to agree with the lower courts’ conclusion that this fact alone is sufficient ground for holding that petitioner disposed of the jewelry “as if it were hers, thereby committing conversion and a clear breach of trust.”[19]

It must be pointed out that the law on agency in our jurisdiction allows the appointment by an agent of a substitute or sub-agent in the absence of an express agreement to the contrary between the agent and the principal.[20] In the case at bar, the appointment of Labrador as petitioner’s sub-agent was not expressly prohibited by Quilatan, as the acknowledgment receipt, Exhibit B, does not contain any such limitation. Neither does it appear that petitioner was verbally forbidden by Quilatan from passing on the jewelry to another person before the acknowledgment receipt was executed or at any other time. Thus, it cannot be said that petitioner’s act of entrusting the jewelry to Labrador is characterized by abuse of confidence because such an act was not proscribed and is, in fact, legally sanctioned.

The essence of estafa under Article 315, par. 1(b) is the appropriation or conversion of money or property received to the prejudice of the owner. The words “convert” and “misappropriated” connote an act of using or disposing of another’s property as if it were one’s own, or of devoting it to a purpose or use different from that agreed upon. To misappropriate for one’s own use includes not only conversion to one’s personal advantage, but also every attempt to dispose of the property of another without right.[21]

In the case at bar, it was established that the inability of petitioner as agent to comply with her duty to return either the pieces of jewelry or the proceeds of its sale to her principal Quilatan was due, in turn, to the failure of Labrador to abide by her agreement with petitioner. Notably, Labrador testified that she obligated herself to sell the jewelry in behalf of petitioner also on commission basis or to return the same if not sold. In other words, the pieces of jewelry were given by petitioner to Labrador to achieve the very same end for which they were delivered to her in the first place. Consequently, there is no conversion since the pieces of jewelry were not devoted to a purpose or use different from that agreed upon.

Similarly, it cannot be said that petitioner misappropriated the jewelry or delivered them to Labrador “without right.” Aside from the fact that no condition or limitation was imposed on the mode or manner by which petitioner was to effect the sale, it is also consistent with usual practice for the seller to necessarily part with the valuables in order to find a buyer and allow inspection of the items for sale.

In People v. Nepomuceno,[22] the accused-appellant was acquitted of estafa on facts similar to the instant case. Accused-appellant therein undertook to sell two diamond rings in behalf of the complainant on commission basis, with the obligation to return the same in a few days if not sold. However, by reason of the fact that the rings were delivered also for sale on commission to sub-agents who failed to account for the rings or the proceeds of its sale, accused-appellant likewise failed to make good his obligation to the complainant thereby giving rise to the charge of estafa. In absolving the accused-appellant of the crime charged, we held:

Where, as in the present case, the agents to whom personal property was entrusted for sale, conclusively proves the inability to return the same is solely due to malfeasance of a subagent to whom the first agent had actually entrusted the property in good faith, and for the same purpose for which it was received; there being no prohibition to do so and the chattel being delivered to the subagent before the owner demands its return or before such return becomes due, we hold that the first agent can not be held guilty of estafa by either misappropriation or conversion. The abuse of confidence that is characteristic of this offense is missing under the circumstances.[23]

Accordingly, petitioner herein must be acquitted. The lower courts’ reliance on People v. Flores[24] and U.S. v. Panes[25] to justify petitioner’s conviction is misplaced, considering that the factual background of the cited cases differ from those which obtain in the case at bar. In Flores, the accused received a ring to sell under the condition that she would return it the following day if not sold and without authority to retain the ring or to give it to a sub-agent. The accused in Panes, meanwhile, was obliged to return the jewelry he received upon demand, but passed on the same to a sub-agent even after demand for its return had already been made. In the foregoing cases, it was held that there was conversion or misappropriation.

Furthermore, in Lim v. Court of Appeals,[26] the Court, citing Nepomuceno and the case of People v. Trinidad,[27] held that:

In cases of estafa the profit or gain must be obtained by the accused personally, through his own acts, and his mere negligence in permitting another to take advantage or benefit from the entrusted chattel cannot constitute estafa under Article 315, paragraph 1-b, of the Revised Penal Code; unless of course the evidence should disclose that the agent acted in conspiracy or connivance with the one who carried out the actual misappropriation, then the accused would be answerable for the acts of his co-conspirators. If there is no such evidence, direct or circumstantial, and if the proof is clear that the accused herself was the innocent victim of her sub-agent’s faithlessness, her acquittal is in order.[28] (Italics copied)

Labrador admitted that she received the jewelry from petitioner and sold the same to a third person. She further acknowledged that she owed petitioner P441,035.00, thereby negating any criminal intent on the part of petitioner. There is no showing that petitioner derived personal benefit from or conspired with Labrador to deprive Quilatan of the jewelry or its value. Consequently, there is no estafa within contemplation of the law.

Notwithstanding the above, however, petitioner is not entirely free from any liability towards Quilatan. The rule is that an accused acquitted of estafa may nevertheless be held civilly liable where the facts established by the evidence so warrant. Then too, an agent who is not prohibited from appointing a sub-agent but does so without express authority is responsible for the acts of the sub-agent.[29] Considering that the civil action for the recovery of civil liability arising from the offense is deemed instituted with

the criminal action,[30] petitioner is liable to pay complainant Quilatan the value of the unpaid pieces of jewelry.

WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals in CA-G.R. CR No. 17222 dated April 30,1997 and its resolution dated August 28, 1997 are REVERSED and SET ASIDE. Petitioner Virgie Serona is ACQUITTED of the crime charged, but is held civilly liable in the amount of P424,750.00 as actual damages, plus legal interest, without subsidiary imprisonment in case of insolvency.

SO ORDERED.

xx

xxi

xxiiRepublic of the Philippines

Supreme Court

Manila

THIRD DIVISION

WILMA TABANIAG,

                            Petitioner,

 

 

 

 

 - versus -

 

 

 

 

 

PEOPLE OF THE PHILIPPINES,

                           Respondent.

G.R. No. 165411

Present:

        YNARES-SANTIAGO, J.,

                  Chairperson,

        CHICO-NAZARIO,

        VELASCO, JR.,

        NACHURA, and

        PERALTA, JJ.

  

        Promulgated:

 

            June 18, 2009

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -  - - - - - - - x

D E C I S I O N

PERALTA, J.:

For review before this Court is the February 27, 2004 Decision[1] and September 

22, 2004 Resolution[2]  of the Court of Appeals (CA) in CA-G.R. CR No. 24906, which 

affirmed the October 16, 2000 Decision[3] of the Regional Trial Court (RTC), National 

Capital   Judicial  Region,  Branch  268,  Pasig  City,  finding  Wilma  Tabaniag   (petitioner) 

guilty of the Crime of Estafa as defined and penalized under Article 315 of the Revised 

Penal Code, with modification as to the penalty.

The   Information[4]  dated  September  15,  1994,   in  Criminal  Case  No.  106995, 

reads as follows:

 

That on or about and during the month of January 1992, in the Municipality of Pasig, Metro Manila, Philippines, and within the jurisdiction of this Honorable Court, the above-named accused, conspiring and confederating together and mutually helping and aiding each other, received in trust from one Dennis Espiritu assorted jewelries  (sic) amounting to  P509,940.00 under the express obligation on the part of the accused to sell the same and thereafter to remit the proceeds of the sale and/or return said jewelries  (sic) if not sold to said complainant, but the accused once in possession of said jewelries (sic), far from complying with their aforesaid obligation, with unfaithfulness and abuse of confidence, did then and there willfully, unlawfully and feloniously misapply, misappropriate, and convert to their own personal use and benefit and despite demands to pay the proceeds of the sale and/or to return the said jewelries (sic) in the  amount  of  P509,940.00,   they   failed  and   refused,   to   the  damage  and  prejudice  of   the complainant in the aforementioned amount of P509,940.00.

 

CONTRARY TO LAW.[5] 

 

 

When arraigned, petitioner pleaded “not guilty.”   Co-accused Melandia Olandia 

(Olandia)  was   dropped   from   the   Information   upon   the   request[6]  of   complainant 

Dennis Espiritu (Dennis).[7] Thereafter, trial ensued.

 

The  prosecution  presented   two  witnesses,  namely:  Dennis   and  his  wife  Ma. 

Victoria (Victoria) [complainants].

 

On March 5, 1997, the prosecution filed a Motion[8]  for the admittance of an 

Amended Information.  The defense filed their Opposition[9] to the said motion.

 

On August 27, 1997, the RTC issued an Order[10]  granting the motion of the 

prosecution.   The RTC ruled that the amendments to the Information sought by the 

prosecution were merely amendments in form and thus allowable under the rules.

 

The Amended Information[11] reads as follows:

 

 

On or about and during the month of February 1992, in the Municipality of Pasig, Metro Manila,   Philippines,   and  within   the   jurisdiction  of   this  Honorable   Court,   the   above-named accused, conspiring and confederating together, and mutually helping and aiding each other, received in trust from one  Victoria Espiritu assorted jewelries  (sic) amounting to  P  155,252.50    under the express obligation on the part of the accused to sell the same and thereafter to remit the proceeds of the sale and/or return said jewelries (sic) if not sold to said complainant, but the accused once in possession of said jewelries (sic), far from complying with their aforesaid 

obligation, with unfaithfulness and abuse of confidence, did then and there willfully, unlawfully and feloniously misapply, misappropriate, and convert to their own personal use and benefit and despite demands to pay the proceeds of the sale and/or to return the said jewelries (sic) in the  amount  of  P  155,252.50   ,   they   failed  and   refused,   to   the  damage  and  prejudice  of   the complainant in the aforementioned amount of P  155,252.50.    

 

CONTRARY TO LAW.[12]

 

 

The  defense  presented   two witnesses,  namely:  petitioner  Tabaniag  and  Juan 

Tapang III (Tapang).

 

On October 16, 2000, the RTC found petitioner guilty of the crime of Estafa, the 

dispositive portion of which reads:

 

 

WHEREFORE, premises considered, the Court finds the accused WILMA TABANIAG guilty beyond reasonable doubt of the crime of Estafa as defined and penalized under Article 315 of the Revised Penal Code and hereby sentences her to suffer the penalty of imprisonment from ten (10) years and one (1) day of Prision Mayor in its maximum period to fourteen (14) years and eight (8) months of Reclusion Temporal in its minimum period and to indemnify the offended party in the amount of Sixty-Two Thousand Nine Hundred (P62,900.00). With costs. 

 

SO ORDERED.[13]

 

The facts of the case as gleaned from the records are as follows:  Complainants,  both  doctors   by   profession,   are   engaged   in   part-time   jewelry 

business.[14]   Petitioner, on the other hand, is an agent who sells the pieces of jewelry 

of complainants on commission basis.   On February 7, 1992,  petitioner received from 

Victoria several pieces of jewelry amounting to Php106,000.00 as evidenced by a trust 

receipt[15] signed by petitioner.  Later on February 16, 1992, petitioner again received 

several pieces of jewelry amounting  to Php64,515.00 as evidenced by another trust 

receipt[16] signed by petitioner. 

 After weeks passed, Victoria alleged that she made several verbal demands[17] 

to   petitioner   to   return   the   pieces   of   jewelry.   Likewise,   complainants   filed   a 

complaint[18]  at  Barangay   Kapitolyo,   Pasig   City,   against   Tabaniag,   Jane   Bisquera 

(Bisquera) and Olandia for estafa and violations of Batas Pambansa Bilang 22 (BP 22). 

 

 Petitioner, in her defense,  alleged that she entrusted the pieces of jewelry to 

Bisquera  who  issued Security  Bank  Checks[19]  as  payment.  Petitioner  claimed that 

Victoria  knew that   she  was  planning   to   sell   the  pieces  of   jewelry   to  Bisquera.[20] 

Moreover, petitioner contends that she and Olandia  delivered the said Security Bank 

checks to Victoria, who then deposited the same to her account.   The checks issued by 

Bisquera bounced as the accounts were closed and thus Victoria asked petitioner to do 

something about it.  Petitioner claimed that she filed cases for estafa and violation of

BP 22 against Bisquera.     Likewise, petitioner asked the court for the issuance of an 

alias warrant of arrest and a hold departure order against Bisquera.[21] 

 

On cross-examination,  however,  petitioner admitted that the cases she filed

against Bisquera did not involve the same checks which are the subject matter of the

case at bar.[22]

 

On February 27, 2004, the CA affirmed with modification the RTC decision, the 

dispositive portion of which reads as follows:

 

 

WHEREFORE,   the  Decision   finding   accused-appellant  Wilma   Tabaniag   guilty   beyond reasonable doubt of the crime of estafa  is AFFIRMED with the indeterminate penalty modified to four (4) years and two (2) months of prision correccional, as minimum, to twelve (12) years of prision   mayor,  as   the   maximum,   and   with   the   award   of   indemnity   in   the   amount   of Php62,900.00, deleted.

 

SO ORDERED.[23]

 

 

The pertinent portions of the CA decision are hereunder reproduced, to wit:

 

Tabaniag entered into an agreement with Victoria Espiritu for the sale of jewelry. She obligated herself, among others, to deliver and account for the proceeds of all jewelry sold and to return all other items she could not sell. The jewelry could not be sold on installment. She abused the confidence reposed upon her by misrepresenting herself to have sold the jewelry to a certain Bisquera and failing to remit the profit after demand to do so by Espiritu. Due to her failure to forward the returns from the sale of the jewelry, Espiritu suffered loss of income and profit.

 

The   receipts   issued   to   and   signed   by   Tabaniag   corroborate   the   prosecution's testimonial proof that she personally received the jewelry. Tabaniag's uncorroborated claim that Victoria Espiritu directly transferred the jewelry to a certain Jane Bisquera cannot stand along against this factual finding. The checks issued by Bisquera do not conclusively prove a direct transaction between her and Espiritu. x x x[24]

 

 

 

On March 26, 2004, petitioner filed a Motion for Reconsideration[25]  assailing 

the CA decision. 

 

On August 2, 2004, Dennis filed a Motion to Dismiss,[26]  attaching thereto an 

Affidavit   of   Desistance,[27]  to   the   effect   that   he   was   withdrawing   the   criminal 

complaint because he and petitioner had already reached an amicable settlement, the 

latter obligating herself to pay the civil aspect of the case.

 

On September 22,  2004,   the CA  issued a Resolution[28]  denying   petitioner's 

Motion for Reconsideration, as well as the Motion to Dismiss filed by Dennis.

 

Hence, herein appeal with the following assignment of errors:

 

First Assignment of Error

THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN CONCLUDING THAT THERE WAS ABUSE OF CONFIDENCE ON THE PART OF ACCUSED/PETITIONER TABANIAG IN ENTRUSTING THE SUBJECT JEWELRIES (SIC) TO BISQUERA FOR SALE ON COMMISSION TO PROSPECTIVE BUYERS.

Second Assignment of Error

THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN RULING ON THE VALIDITY OF THE AMENDMENT OF INFORMATION DESPITE ITS VIOLATION OF SUBSTANTIAL RIGHT OF ACCUSED TABANIAG.

Third Assignment of Error

THE HONORABLE COURT OF APPEALS SERIOUSLY ABUSED ITS DISCRETION IN RULING THAT THE LETTER COMPLAINT SENT TO THE BGY. CAPTAIN OF BGY. KAPITOLYO WHICH WAS NEVER RECEIVED BY ACCUSED A DEMAND IN CONTEMPLATION OF SECTION 1(b) OF ARTICLE 315 OF THE REVISED PENAL CODE.

Fourth Assignment of Error

THE RESPONDENT COURT OF APPEALS SERIOUSLY ERRED WHEN IT RULED THAT THE MOTION TO DISMISS/AFFIDAVIT OF DESISTANCE OF ESPIRITU WILL NOT EXONERATE ACCUSED TABANIAG DESPITE IT BEING THE SAME PERSON WHO EXECUTED THE SAME AFFIDAVIT TO DISMISS CASE VERSUS ACCUSED MELANIA OLANDIA.

Fifth Assignment of Error

THE RESPONDENT COURT OF APPEALS SERIOUSLY ERRED WHEN IT FAILED TO RENDER A JUDGMENT OF ACQUITTAL OF THE ACCUSED ON GROUND OF REASONABLE DOUBT.[29]

 

 

The petition is impressed with merit.

 

 

The elements of  estafa under Article  315, par. 1 (b) of the Revised Penal Code 

are the following: (a) that money, goods or other personal property is received by the 

offender in trust or on commission, or for administration, or under any other obligation 

involving   the   duty   to  make   delivery   of   or   to   return   the   same;   (b)   that   there   be 

misappropriation or conversion of such money or property by the offender, or denial 

on his part of such receipt; (c) that such misappropriation or conversion or denial is to 

the   prejudice   of   another;   and   (d)   there   is   demand  by   the   offended   party   to   the 

offender.[30]

 

Anent the first error raised by petitioner, this Court finds that, given the facts of 

the case and the evidence on record, the evidence is wanting to prove that petitioner 

had  misappropriated or converted the pieces of jewelry entrusted to her by Victoria.

 

In his Complaint-Affidavit,[31] Dennis alleged that petitioner gave the pieces of 

jewelry to her sub-agent Bisquera for the latter to sell the same. Furthermore, Dennis 

alleged that the checks issued as payment were dishonored, the reason being that the 

accounts were closed.

 

Petitioner  does  not  deny entrusting the pieces  of   jewelry   to  Bisquera.     The 

records of  the case reveal that petitioner had in fact entrusted the pieces of jewelry to 

Bisquera as evidenced by two receipts[32]  dated February 16,  1992.      The same is 

bolstered by the testimony of Tapang, who testified that he witnessed petitioner give 

the   pieces   of   jewelry   to   Bisquera.[33]   Thus,   since   the   pieces   of   jewelry   were 

transferred   to     Bisquera,   petitioner   argues   that   she   could   not   be   guilty   of 

misappropriation or conversion as contemplated by Article 315, par. 1(b) of the Revised 

Penal Code.

 

The   essence   of  estafa  under   Article   315,   par.   1(b)   is   the   appropriation   or 

conversion of money or property received to the prejudice of the owner.  The words

“convert” and “misappropriate” connote an act of using or disposing of another’s

property as if it were one’s own, or of devoting it to a purpose or use different from

that agreed upon.    To misappropriate for one’s own use includes not only conversion 

to  one’s  personal  advantage,  but  also every attempt to dispose of   the property  of 

another without right.[34]

 

The factual milieu of the case at bar is similar to Serona v. Court of Appeals[35]

(Serona) where pieces of jewelry were also transferred to a sub-agent.   The Solicitor 

General, however, contends that the doctrine laid down in Serona is inapplicable as the 

agreement between complainants and petitioner provide a clear prohibition against 

sub-agency.[36]  

 

The conditions set forth in the two trust receipts signed by petitioner read:

x x x   in good condition, to be sold in CASH ONLY within _____, days from date of signing this receipt. If I could not sell, I shall return all the jewelry within the period mentioned above. If I would be able to sell, I shall immediately deliver and account the whole proceeds of the sale thereof to the owner of the jewelries (sic) at his/her residence: my compensation or commission shall be the over-price on the value of each jewelry quoted above. I am prohibited to sell any jewelry on credits or by installment, deposit, give for safekeeping, lend pledge or give as security or guarantee under any circumstances or manner, any jewelry to other person or persons, and that I received the above jewelry in the capacity of agent.[37]   Contrary to the claim of the Solicitor General, the aforementioned conditions do 

not, in any way, categorically state that petitioner cannot employ a sub-agent.    A plain 

reading of the conditions clearly shows that the restrictions only pertain to the manner 

in which petitioner may dispose of the property: (1) to sell the jewelry on credit; (2) to 

sell the jewelry by installment; (3) to give the jewelry for safekeeping; (4) to lend the 

jewelry; (5) to pledge the jewelry; (6) to give the jewelry as security; and  (7) to give the 

jewelry as guarantee.     To this Court's  mind, to maintain the position that the said 

conditions also prohibit the employment of a sub-agent would be stretching the plain 

meaning of the words too thinly.

 

Petitioner is thus correct in citing Serona, which is instructive and may be applied 

by analogy, to wit:

 

Petitioner   did   not  ipso   facto  commit   the   crime   of  estafa  through   conversion   or misappropriation by delivering the jewelry to a sub-agent for sale on commission basis. x x x 

It must be pointed out that the law on agency in our jurisdiction allows the appointment by an agent of a substitute or sub-agent in the absence of an express agreement to the contrary between   the   agent  and   the  principal.   In   the   case   at  bar,   the   appointment  of   Labrador   as petitioner’s sub-agent was not expressly prohibited by Quilatan, as the acknowledgment receipt, Exhibit  B,  does  not  contain  any  such   limitation.  Neither  does   it  appear   that  petitioner  was verbally   forbidden  by  Quilatan   from  passing  on   the  jewelry   to   another   person  before   the acknowledgment   receipt  was  executed  or   at   any  other  time.   Thus,   it   cannot   be   said   that petitioner’s act of entrusting the  jewelry to Labrador is characterized by abuse of confidence because such an act was not proscribed and is, in fact, legally sanctioned.

 x x x x

In the case at bar, it was established that the inability of petitioner as agent to comply with her duty to return either the pieces of jewelry or the proceeds of its sale to her principal Quilatan was due, in turn, to the failure of Labrador to abide by her agreement with petitioner. Notably, Labrador testified that she obligated herself to sell the jewelry in behalf of petitioner also on commission basis or to return the same if not sold. In other words, the pieces of jewelry were   given   by   petitioner   to   Labrador   to   achieve   the   very   same  end   for  which   they  were delivered to her  in  the first  place.  Consequently,   there  is  no conversion since the pieces of jewelry were not devoted to a purpose or use different from that agreed upon.

Similarly,   it   cannot  be  said   that  petitioner  misappropriated   the  jewelry  or  delivered them to   Labrador   “without   right.”  Aside   from the   fact   that  no  condition  or   limitation  was imposed on the mode or manner by which petitioner was to effect the sale, it is also consistent with usual practice for the seller to necessarily part with the valuables in order to find a buyer and allow inspection of the items for sale.

In People v. Nepomuceno, the accused-appellant was acquitted of estafa on facts similar to the instant case. Accused-appellant therein undertook to sell two diamond rings in behalf of the complainant on commission basis, with the obligation to return the same in a few days if not sold. However, by reason of the fact that the rings were delivered also for sale on commission to 

sub-agents who failed to account for the rings or the proceeds of its sale, accused-appellant likewise failed to make good his obligation to the complainant thereby giving rise to the charge of estafa. In absolving the accused-appellant of the crime charged, we held:

Where, as in the present case, the agents to whom personal property was entrusted for sale, conclusively proves the inability to return the same is solely due to malfeasance of a sub-agent to whom the first agent had actually entrusted the property in good faith, and for the same purpose for which it was received; there being no prohibition to do so and the chattel being delivered to the sub-agent before the owner demands its return or before such return becomes due, we hold that the first agent cannot be held guilty of estafa by either misappropriation or conversion. The abuse of confidence that is characteristic of this offense is missing under the circumstances.

Furthermore, in Lim v. Court of Appeals, the Court, citing Nepomuceno and the case of People v. Trinidad, held that:

In cases of estafa, the profit or gain must be obtained by the accused personally, through his own acts, and his mere negligence in permitting another to take advantage or benefit from the entrusted chattel cannot constitute estafa under Article 315, paragraph 1-b, of the Revised Penal Code; unless of course the evidence should disclose that the agent acted in conspiracy or connivance with the one who carried out the actual misappropriation, then the accused would be answerable for the acts of his co-conspirators.   If  there is  no such evidence,  direct  or circumstantial,  and if  the proof is clear that the accused herself was the innocent victim of her sub-agent’s faithlessness, her acquittal is in order.[38] 

Petitioner thus cannot be criminally held liable for estafa.   Although it cannot be 

denied that she received the pieces of jewelry from complainants,  evidence is wanting 

in proving that she misappropriated or converted the amount of the pieces of jewelry 

for her own personal use. Likewise, the prosecution failed to present evidence to show 

that petitioner had conspired or connived with Bisquera.   The mere fact that petitioner 

failed to return the pieces of jewelry upon demand is not proof of conspiracy, nor is it 

proof of misappropriation or conversion.

 

  In  addition,   this  Court   takes  notice of   the findings  of   fact  by  the RTC  in   the 

separate civil action instituted by complainants, the same docketed as Civil Case No. 

63131, dealing with the civil aspect of the case at bar:

x x x x

Jane Bisquera cannot interpose the defense that she is not privy to the transaction. Her admission that she has indeed received the pieces of jewelry which is the subject matter of the controversy and her offer to extinguish the obligation by payment or dacion en pago is contradictory to her defense. Therefore, she is estopped from interposing such a defense.

Furthermore, earlier in her transaction with Wilma Tabaniag, the principals, Sps. Espiritu, were not alien to her but were in fact disclosed to her, hence, she has knowledge that the spouses are the principals of Tabaniag. 

Bisquera, being a sub-agent to Tabaniag, is in fact privy to the agreement. x x x[39] 

 

Based on the foregoing,   it   is  clear  that  petitioner had  in fact   transferred the 

pieces of  jewelry to Bisquera.   Thus, contrary to the finding of the CA, petitioner could 

not have converted the same for her own benefit, especially since the pieces of jewelry 

were not with her, and there was no evidence of conspiracy or connivance between 

petitioner and Bisquera.

Moreover,   even  Victoria   cannot  deny  knowing   that  petitioner  had  given   the 

pieces  of   jewelry   to  Bisquera,  as  Victoria  herself  was   the  one who   deposited   the 

checks issued by Bisquera to her account, to wit:

 

Q. Now, madam witness, there is a (sic) mentioned here an amount of P300,000.00 regarding the violation of bouncing check, am I correct?

A.  Yes, sir. Q. And according to you, these were payments made by Wilma Tabaniag, am I correct?A. Yes, sir. Q. Who is the drawer of these checks with a P300,000.00 that you mentioned in this particular 

document, not less than P300,000.00?A. The total check P300,000.00 was under my name. Q. No, I mean, who is the drawer?A. Mrs. Tabaniag issued and the other pieces of jewelry were issued by a certain Jane Bisquera. Q. No, not jewelries, checks.A. I'm sorry, checks.

Q. How much was issued by Jane Bisquera?A. The total is P320,872.00 Q. That was by Jane Bisquera alone?A. Yes, sir.[40]    

Lastly, although petitioner   may have admitted that the cases she filed against 

Bisquera do not involve the same checks, which are the subject matter of the case at 

bar,  the same does not necessarily  manifest a criminal   intent on her part.    On the 

contrary, what it shows is that petitioner too may be an unwilling victim of this day-to-

day malady of bouncing checks, common in our business field.     Certainly, petitioner 

may have been negligent in entrusting the pieces of  jewelry to Bisquera, but in no way 

can such constitute estafa as defined in the RPC.

 

As a final note, a reading of the records and transcript of the case seemingly 

shows an unintentional reference by the parties in describing the transaction as one of 

sale.[41]  The foregoing notwithstanding, if this Court were to consider the transaction 

as one of sale and not one of sub-agency, the same conclusion would nevertheless be 

reached,   as   the   critical   elements   of  misappropriation   or   conversion,   as   previously 

discussed, are absent in the case at bar.

 

It is the primordial duty of the prosecution to present its side with clarity and 

persuasion so that conviction becomes the only logical and inevitable conclusion.[42] 

What is required of it is to justify the conviction of the accused with moral certainty.

[43]   In the case at bar, the prosecution has failed to discharge its burden.    Based on 

the foregoing, it would then be unnecessary to discuss the other assigned errors.

 

Notwithstanding the above,  however,  petitioner  is  not entirely  free from any 

liability towards complainants.    The rule is that an accused acquitted of  estafa  may 

nevertheless   be  held   civilly   liable  where   the   facts   established  by   the   evidence   so 

warrant.[44]   However, since there is a separate civil action instituted by complainants, 

this Court deems it proper for the civil aspect of the case at bar to be resolved therein.

WHEREFORE, the petition is  GRANTED. The Decision of the Court of Appeals in 

CA-G.R. CR No. 24906,   dated February 27, 2004, and its Resolution dated September 

22, 2004 are REVERSED and SET ASIDE. Petitioner Wilma Tabaniag is ACQUITTED of the 

crime charged, without prejudice, however, to the recovery of civil liability in Civil Case 

No. 63131, before the Regional  Trial  Court,  National Capital  Judicial  Region,  Branch 

268, Pasig City.

 

 

SO ORDERED.

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. L-26860             July 30, 1969

ALBERTA B. CABRAL and RENATO CABRAL, plaintiffs-appellees, vs.TEODORA EVANGELISTA, and JUAN N. EVANGELISTA, defendants-appellants, and GEORGE L. TUNAYA, defendant.

Emilio D. Castellanes for plaintiffs-appellees.Manuel E. Reyes for defendants-appellants.

TEEHANKEE, J.:

          In this appeal from a decision of the Court of First Instance, and certified by the Court of Appeals to this Court upon agreement of the parties as involving only questions of law, we reaffirm the well settled principle that the rights of a mortgage creditor over the mortgaged properties are superior to those of a subsequent attaching creditor.

          On December 12, 1959, defendant George L. Tunaya had executed in favor of plaintiffs-appellees a chattel mortgage covering a "MORRISON" English piano, made in England, Concert model, Serial No. 6079 and a Frigidaire General Motors Electric Stove with four burners and double oven bearing Serial No. 21009298, as security for payment to the plaintiffs-mortgagees of a promissory note in the sum of P1,000.00 executed on the same date by said defendant Tunaya with his wife, Esperanza N. Angeles. The chattel mortgage deed was duly inscribed in the Chattel Mortgage Register of Rizal province on December 14, 1959. The promissory note, which provided for payment of 12% interest per annum and of an additional 15% of the total amount due for attorney's fees and cost of collection was not paid within the two-month maturity period therein provided.

          Meanwhile, defendants-appellants, the Evangelista spouses, obtained on January 4, 1960, a final money judgment against defendant Tunaya in Civil Case No. 5550 of the Court of First Instance of Rizal. They caused the levy in execution on personal properties of said defendant Tunaya, including the piano and stove mortgaged to plaintiffs. The said mortgaged chattels, together with other personal properties of the judgment debtor, were sold at public auction on June 24, 1960, after the corresponding notice of sheriff's sale, to the defendants-appellants as the highest bidders for the total sum of P2,373.00. The judgment credit of defendants-appellants, as judgment creditors in said Civil Case No. 5550, was considered paid up to the said amount and the Sheriff of Rizal issued the corresponding certificate of sale in their favor.

          Subsequently, on October 11, 1960, or 8 months after the maturity of Tunaya's promissory note and his having defaulted in the payment thereof, plaintiffs filed their complaint in the City Court of Manila against Tunaya and the Evangelista spouses, alleging the above facts and that the Evangelista spouses had refused their demands to pay the amount due on Tunaya's promissory note or to exercise their right of redemption and praying for judgment, ordering the defendants, jointly and solidarity, to pay them the amounts stipulated on the note, and in case of the failure to make such payment, to order defendants to deliver to the Sheriff of Manila the mortgaged chattels for sale at public auction to satisfy their mortgage credit.

          The City Court, on November 29, 1960, rendered judgment in favor of plaintiffs against the mortgage debtor, Tunaya, on confession of the latter, but granted the motion to dismiss of the defendants Evangelista spouses on the ground of failure to state a cause of action and dismissed the complaint as against said spouses.

          On appeal from the City Court's adverse decision, the court a quo upheld the superior rights of plaintiffs-appellees as mortgage creditors to the personal properties in question, holding that defendants-appellants, "being subsequent judgment creditors in another case, have only the right of redemption." 1 It therefore rendered the following judgment:

(1) Ordering defendant George L. Tunaya and spouses Teodora Evangelista and Juan Evangelista, jointly and solidarily, to pay to plaintiff Alberta B. Cabral and Renato Cabral the sum of P1,000.00, with interest at 12% per annum, plus the costs of suit and attorney's fees at 15% of the whole amount due conformably to the provisions of the chattel mortgage deed; and

(2) In the event of their failure to pay, ordering defendants to deliver to the Sheriff of Manila the properties mortgaged to plaintiffs, for the sheriff to sell the same at public auction to satisfy the judgment debt.

          The counterclaim 2 of defendant Teodora Evangelista and Juan Evangelista is dismissed.31äwphï1.ñët

          It should be noted that the lower Court rendered its above-quoted judgment only on February 22, 1965, since defendants-appellants, after the lower court denied their motion to affirm the judgment of the City Court and to dismiss plaintiffs' appeal therefrom, moved further for the remand of the case to the City Court and contested the lower court's jurisdiction to try the case as in contravention of Rule 40, section 10, of the Rules of Court. Upon denial by the lower court of their motion for the remand of the case, defendants-appellants filed a petition for certiorari and prohibition with this Court, docketed as Case L-20416, which writs this Court denied in its decision of January 30, 1964, holding that "once (defendants-appellants) had assented to the exercise of the court's jurisdiction, (they) are not permitted thereafter to alter the position thus voluntarily chosen, and to insist once that the case be returned to the Municipal Court. Any other rule would allow the parties to confuse and delay at will the course of litigation." 4

          Defendants-appellants' appeal from the lower courts above-quoted judgment is now before us. In their first four assignments of error, defendants-appellants claim that their right over the mortgaged chattels as purchasers at the public sale in execution of their judgment against their debtor, defendant Tunaya, should not be held subordinate to the mortgage lien of plaintiffs-appellees as mortgagees, by virtue of prescription and laches on the part of said mortgagees as well as of their having purchased the chattels at a public sheriffs sale. We find no merit in these contentions. Appellants' contention of prescription is based on a patent reading of the provisions of section 14 of the Chattel Mortgage Law (Act No. 1508) that "the mortgagee ... may after thirty days from the time of condition broken, cause the mortgaged property, or any part thereof, to be sold at public auction." It does not follow from this provision, as wrongly contended by appellants, that failure on the part of plaintiff to immediately foreclose their chattel mortgage within the 30-day period from February 12, 1960 (when the promisory note matured) to March 12, 1960, resulted in the prescription of plaintiff's mortgage right and action. This thirty-day period is the minimum period after violation of the mortgage condition for the mortgage creditor to cause the sale at public auction of the mortgaged chattels, with at least ten days notice to the mortgagor and posting of public notice of the time, place and purpose of such sale, and is a period of grace for the mortgagor, who has no right of redemption after the sale is held, to discharge the mortgage obligation. 5 The prescription period for recovery of movables for foreclosure purposes such as in the present case is eight years as provided in Article 1140 of the Civil Code, 6 and here plaintiffs had timely filed their action within 8 months from the mortgage debtor's default. By the same token, neither could laches properly be imputed against plaintiffs, who filed their action promptly after they had been advised by their debtor, defendant Tunaya, of the public auction sale on June 24, 1960 of the chattels at the instance of defendants-appellants as his judgment creditors. 7

          Defendants-appellants' purchase of the mortgaged chattels at the public sheriff's sale and the delivery of the chattels to them with a certificate of sale did not give them a superior right to the chattels as against plaintiffs-mortgagees. Rule 39, section 22 of the old Rules of Court (now Rule 39, section 25 of the Revised Rules), cited by appellants precisely provides that "the sale conveys to the purchaser all the right which the debtor had in such property on the day the execution or attachment was levied." It has long been settled by this Court that "The right of those who so acquire said

properties should not and cannot be superior to that of the creditor who has in his favor an instrument of mortgage executed with the formalities of the law, in good faith, and without the least indication of fraud. This is all the more true in the present case, because, when the plaintiff purchased the automobile in question on August 22, 1933, he knew, or at least, it is presumed that he knew, by the mere fact that the instrument of mortgage, Exhibit 2, was registered in the office of the register of deeds of Manila, that said automobile was subject to a mortgage lien. In purchasing it, with full knowledge that such circumstances existed, it should be presumed that he did so, very much willing to respect the lien existing thereon, since he should not have expected that with the purchase, he would acquire a better right than that which the vendor then had." 8 In another case between two mortgagees, we held that "As between the first and second mortgagees, therefore, the second mortgagee has at most only he right to redeem, and even when the second mortgagee goes through the formality of an extrajudicial foreclosure, the purchaser acquires no more than the right of redemption from the first mortgagee." 9

The superiority of the mortgagee's lien over that of a subsequent judgment creditor is now expressly provided in Rule 39, section 16 of the Revised Rules of Court, which states with regard to the effect of levy on execution as to third persons that "The levy on execution shall create a lien in favor of the judgment creditor over the right, title and interest of the judgment debtor in such property at the time of the levy, subject to liens or incumbrances then existing."

          In the fifth assignment of error, appellants contend that the lower court erred in ordering them to pay solidarity with defendant Tunaya the amount due on Tunaya's note in favor of plaintiffs, and in the event of their failure to pay, to deliver the chattels to the Sheriff for sale at public auction. Article 559 of the Civil Code providing that "If the possessor of a movable lost or of which the owner has been unlawfully deprived, has acquired it in good faith at a public sale, the owner cannot obtain its return without reimbursing the price paid therefor..." cited by appellants has no application in the present case, for as pointed above, they acquired the chattels subject to the existing mortgage lien of plaintiffs thereon. Appellants state in their brief that they paid for the chattels the amount of P2,373.00. 10 As pointed out by appellees, the record shows that defendants-appellants had disposed of the mortgaged chattels "to other persons at a discounted rate" 11 and had, therefore, appropriated the same as if the chattels were of their absolute ownership, in complete derogation of plaintiffs' superior mortgage lien and in disregard of plaintiffs' demands to them prior to the filing of their complaint on October 11, 1960, to pay or exercise their right of redemption. Appellants by their act of disposition of the mortgaged chattels, whose value were admittedly more than adequate to secure Tunaya's mortgage obligation, have thus practically nullified plaintiffs' superior right to foreclose the mortgage and collect the amount due them. Considering the long period that has elapsed since October 11, 1960 when plaintiffs tried to enforce their claim and defendants-appellants' adamant resistance thereof and unjust refusal to recognize plaintiffs' clearly superior right to the chattels, which appellants admittedly disposed of without lawful right to other unknown persons obviously to defeat plaintiffs' right over the same, we are satisfied that justice and equity justify the lower court's judgment holding the defendants-appellants solidarily liable for the amount due plaintiffs-appellees.

          WHEREFORE, the lower Court's judgment ordering defendant Tunaya and the defendants-appellants Teodora Evangelista, jointly and solidarity, to pay plaintiffs the sum of P1,000.00 with interest at 12% per annum, plus the costs of suit and attorney's fees at 15% of the whole amount due, conformably to the provisions of the chattel mortgage deed, modified so as to expressly provide that the interest accrues from the date of the execution of the promissory note on December 12, 1959, is hereby affirmed. As the chattels have been disposed of to unknown persons, Paragraph 2 of the dispositive part of the judgment providing for the delivery to the Sheriff of the mortgaged chattels in the event of defendants' failure to pay the judgment is eliminated. No pronouncement as to costs.

xxiii

xxiv

THIRD DIVISION paragraph

[ G . R . No . 110668 . February 6 , 1997 ] paragraph

SMITH , BELL & CO . , INC . , petitioner , vs . COURT OF APPEALS and JOSEPH BENGZON CHUA , [1] respondents . paragraph

D E C I S I O N paragraph

PANGANIBAN , J . : paragraph

The main issue raised in this case is whether a local claim or settling agent is personally and / or solidarily liable upon a marine insurance policy issued by its disclosed foreign principal . paragraph

This is a petition for review on certiorari of the Decision of respondent Court[2] promulgated on January 20 , 1993 in CA - G . R . CV No . 31812 affirming the decision[3] of the trial court[4] which disposed as follows : [5] paragraph

“ Wherefore , the Court renders judgment condemning the defendants ( petitioner and First Insurance Co . Ltd . ) jointly and severally to pay the plaintiff ( private respondent ) the amount of US$7 , 359 . 78 . plus 24% interest thereon annually until the claim is fully paid , 10% as and for attorney ‘ s fees , and the cost . “ paragraph

The Facts paragraph

The facts are undisputed by the parties , [6] and are narrated by respondent Court , quoting the trial court , as follows : [7] paragraph

“ The undisputed facts of the case have been succintly ( sic ) summarized by the lower court ( , ) as follows : paragraph

‘ x x x in July 1982 , the plaintiffs , doing business under the style of Tic Hin Chiong , Importer , bought and imported to the Philippines from the firm Chin Gact Co . , Ltd . of Taipei , Taiwan , 50 metric tons of Dicalcium Phospate , Feed Grade F - 15% valued at US$13 , 000 . 00 CIF Manila . These were contained in 1 , 250 bags and shipped from the Port of Kaohsiung , Taiwan on Board S . S . ‘ GOLDEN WEALTH ‘ for the Port on ( sic ) Manila . On July 27 , 1982 , this shipment was insured by the defendant First Insurance Co . for US$19 , 500 . 00 `against all risks ‘ at port of departure under Marine Policy No . 1000M82070033219 , with the note `Claim , if any , payable in U . S . currency at Manila ( Exh . `1 ‘ , `D ‘ for the plaintiff ) and with defendant Smith , Bell , and Co . stamped at the lower left side of the policy as `Claim Agent . ‘ paragraph

The cargo arrived at the Port of Manila on September 1 , 1982 aboard the above - mentioned carrying vessel and landed at port on September 2 , 1982 . Thereafter , the entire cargo was discharged to the

local arrastre contractor , Metroport Services Inc . with a number of the cargo in apparent bad order condition . On September 27 , 1982 , the plaintiff secured the services of a cargo surveyor to conduct a survey of the damaged cargo which were ( sic ) delivered by plaintiff ‘ s broker on said date to the plaintiff ‘ s premises at 12th Avenue , Grace Park , Caloocan City . The surveyor ‘ s report ( Exh . `E ‘ ) showed that of the 1 , 250 bags of the imported material , 600 were damaged by tearing at the sides of the container bags and the contents partly empty . Upon weighing , the contents of the damaged bags were found to be 18 , 546 . 0 kg short . Accordingly , on October 16 following , the plaintiff filed with Smith , Bell , and Co . , Inc . a formal statement of claim ( Exh . `G ‘ ) with proof of loss and a demand for settlement of the corresponding value of the losses , in the sum of US$7 , 357 . 78 . 00 . ( sic ) After purportedly conveying the claim to its principal , Smith , Bell , and Co . , Inc . informed the plaintiff by letter dated February 15 , 1983 ( Exh . `G - 2 ‘ ) that its principal offered only 50% of the claim or US$3 , 616 . 17 as redress , on the alleged ground of discrepancy between the amounts contained in the shipping agent ‘ s reply to the claimant of only US$90 . 48 with that of Metroport ‘ s . The offer not being acceptable to the plaintiff , the latter wrote Smith , Bell , & Co . expressing his refusal to the `redress ‘ offer , contending that the discrepancy was a result of loss from vessel to arrastre to consignees ‘ warehouse which losses were still within the `all risk ‘ insurance cover . No settlement of the claim having been made , the plaintiff then caused the instant case to be filed . ( p . 2 , RTC Decision ; p . 142 , Record ) . ‘ paragraph

Denying any liability , defendant - appellant averred in its answer that it is merely a settling or claim agent of defendant insurance company and as such agent , it is not personally liable under the policy in which it has not even taken part of . It then alleged that plaintiff - appellee has no cause of action against it . paragraph

Defendant The First Insurance Co . Ltd . did not file an Answer , hence it was declared in default . paragraph

After due trial and proceeding , the lower court rendered a decision favorable to plaintiff - appellee . It ruled that plaintiff - appellee has fully established the liability of the insurance firm on the subject insurance contract as the former presented concrete evidence of the amount of losses resulting from the risks insured against which were supported by reliable report and assessment of professional cargo surveyor . As regards defendant - appellant , the lower court held that since it is admittedly a claim agent of the foreign insurance firm doing business in the Philippines justice is better served if said agent is made liable without prejudice to its right of action against its principal , the insurance firm . x x x “ paragraph

The Issue paragraph

“ Whether or not a local settling or claim agent of a disclosed principal - - a foreign insurance company - - can be held jointly and severally liable with said principal under the latter ‘ s marine cargo insurance policy , given that the agent is not a party to the insurance contract “ [8] - - is the sole issue raised by petitioner . paragraph

Petitioner rejects liability under the said insurance contract , claiming that : ( 1 ) it is merely an agent and thus not personally liable to the party with whom it contracts on behalf of its principal ; ( 2 ) it had no participation at all in the contract of insurance ; and ( 3 ) the suit is not brought against the real party - in - interest . [9] paragraph

On the other hand , respondent Court in ruling against petitioner disposed of the main issue by citing a case it decided in 1987 , where petitioner was also a party - litigant . [10] In that case , respondent Court held that petitioner as resident agent of First Insurance Co . Ltd . was “ authorized to settle claims against its principal . Its defense that its authority excluded personal liability must be proven satisfactorily . There is a complete dearth of evidence supportive of appellant ‘ s non - responsibility as resident agent . “ The ruling continued with the statement that “ the interest of justice is better served by holding the settling or claim agent jointly and severally liable with its principal . “ [11] paragraph

Likewise , private respondent disputed the applicability of the cases of E . Macias & Co . vs . Warner , Barnes & Co . [12] and Salonga vs . Warner , Barnes & Co . , Ltd . [13] invoked by petitioner in its appeal . According to private respondent , these two cases impleaded only the “ insurance agent “ and did not include the principal . While both the foreign principal - - which was declared in default by the trial court - - and petitioner , as claim agent , were found to be solidarily liable in this case , petitioner still had “ recourse “ against its foreign principal . Also , being a contract of adhesion , an insurance agreement must be strictly construed against the insurer . [14] paragraph

The Court ‘ s Ruling paragraph

There are three reasons why we find for petitioner . paragraph

First Reason : Existing Jurisprudence paragraph

Petitioner , undisputedly a settling agent acting within the scope of its authority , cannot be held personally and / or solidarily liable for the obligations of its disclosed principal merely because there is allegedly a need for a speedy settlement of the claim of private respondent . In the leading case of Salonga vs . Warner , Barnes & Co . , Ltd . this Court ruled in this wise : [15] paragraph

“ We agree with counsel for the appellee that the defendant is a settlement and adjustment agent of the foreign insurance company and that as such agent it has the authority to settle all the losses and claims that may arise under the policies that may be issued by or in behalf of said company in accordance with the instructions it may receive from time to time from its principal , but we disagree with counsel in his contention that as such adjustment and settlement agent , the defendant has assumed personal liability under said policies , and , therefore , it can be sued in its own right . An adjustment and settlement agent is no different from any other agent from the point of view of his responsibilty ( sic ) , for he also acts in a representative capacity . Whenever he adjusts or settles a claim , he does it in behalf of his principal , and his action is binding not upon himself but upon his principal . And here again , the ordinary rule of agency applies . The following authorities bear this out : paragraph

‘ An insurance adjuster is ordinarily a special agent for the person or company for whom he acts , and his authority is prima facie coextensive with the business intrusted to him . * * * ‘ paragraph

‘ An adjuster does not discharge functions of a quasi - judicial nature , but represents his employer , to whom he owes faithful service , and for his acts , in the employer ‘ s interest , the employer is responsible so long as the acts are done while the agent is acting within the scope of his employment . ‘ ( 45 C . J . S . , 1338 - 1340 . ) paragraph

It , therefore , clearly appears that the scope and extent of the functions of an adjustment and settlement agent do not include personal liability . His functions are merely to settle and adjusts claims in behalf of his principal if those claims are proven and undisputed , and if the claim is disputed or is disapproved by the principal , like in the instant case , the agent does not assume any personal liability . The recourse of the insured is to press his claim against the principal . “ ( Underscoring supplied ) . paragraph

The foregoing doctrine may have been enunciated by this Court in 1951 , but the passage of time has not eroded its value or merit . It still applies with equal force and vigor . paragraph

Private respondent ‘ s contention that Salonga does not apply simply because only the agent was sued therein while here both agent and principal were impleaded and found solidarily liable is without merit . Such distinction is immaterial . The agent can not be sued nor held liable whether singly or solidarily with its principal . paragraph

Every cause of action ex contractu must be founded upon a contract , oral or written , either express or implied . [16] The only “ involvement “ of petitioner in the subject contract of insurance was having its name stamped at the bottom left portion of the policy as “ Claim Agent . “ Without anything else to back it up , such stamp cannot even be deemed by the remotest interpretation to mean that petitioner participated in the preparation of said contract . Hence , there is no privity of contract , and correspondingly there can be no obligation or liability , and thus no cause of action against petitioner attaches . Under Article 1311[17] of the Civil Code , contracts are binding only upon the parties ( and their assigns and heirs ) who execute them . The subject cargo insurance was between the First Insurance Company , Ltd . and the Chin Gact Co . , Ltd . , both of Taiwan , and was signed in Taipei , Taiwan by the president of the First Insurance Company , Ltd . and the president of the Chin Gact Co . , Ltd . [18] There is absolutely nothing in the contract which mentions the personal liability of petitioner . paragraph

Second Reason : Absence of Solidary Liability paragraph

May then petitioner , in its capacity as resident agent ( as found in the case cited by the respondent Court ) [19] be held solidarily liable with the foreign insurer ? Article 1207 of the Civil Code clearly provides that “ ( t ) here is a solidary liability only when the obligation expressly so states , or when the law or the nature of the obligation requires solidarity . “ The well - entrenched rule is that solidary obligation cannot lightly be inferred . It must be positively and clearly expressed . The contention that , in the end , it would really be First Insurance Company , Ltd . which would be held liable is specious and cannot be accepted . Such a stance would inflict injustice upon petitioner which would be made to advance the funds to settle the claim without any assurance that it can collect from the principal which disapproved such claim , in the first place . More importantly , such position would have absolutely no legal basis . paragraph

The Insurance Code is quite clear as to the purpose and role of a resident agent . Such agent , as a representative of the foreign insurance company , is tasked only to receive legal processes on behalf of its principal and not to answer personally for any insurance claims . We quote : paragraph

“ SEC . 190 . The Commissioner must require as a condition precedent to the transaction of insurance business in the Philippines by any foreign insurance company , that such company file in his office a written power of attorney designating some person who shall be a resident of the Philippines as

its general agent , on whom any notice provided by law or by any insurance policy , proof of loss , summons and other legal processes may be served in all actions or other legal proceedings against such company , and consenting that service upon such general agent shall be admitted and held as valid as if served upon the foreign company at its home office . Any such foreign company shall , as further condition precedent to the transaction of insurance business in the Philippines , make and file with the Commissioner an agreement or stipulation , executed by the proper authorities of said company in form and substance as follows : paragraph

‘ The ( name of company ) does hereby stipulate and agree in consideration of the permission granted by the Insurance Commissioner to transact business in the Philippines , that if at any time such company shall leave the Philippines , or cease to transact business therein , or shall be without any agent in the Philippines on whom any notice , proof of loss , summons , or legal process may be served , then in any action or proceeding arising out of any business or transaction which occurred in the Philippines , service of any notice provided by law , or insurance policy , proof of loss , summons , or other legal process may be made upon the Insurance Commissioner shall have the same force and effect as if made upon the company . ‘ paragraph

Whenever such service of notice , proof of loss , summons , or other legal process shall be made upon the Commissioner he must , within ten days thereafter , transmit by mail , postage paid , a copy of such notice , proof of loss , summons , or other legal process to the company at its home or principal office . The sending of such copy of the Commissioner shall be necessary part of the service of the notice , proof of loss , or other legal process . “ ( Underscoring supplied ) . paragraph

Further , we note that in the case cited by respondent Court , petitioner was found to be a resident agent of First Insurance Co . Ltd . In the instant case however , the trial court had to order the service of summons upon First Insurance Co . , Ltd . which would not have been necessary if petitioner was its resident agent . Indeed , from our reading of the records of this case , we find no factual and legal bases for the finding of respondent Court that petitioner is the resident agent of First Insurance Co . , Ltd . . paragraph

Third Reason : Not Real Party - In - Interest paragraph

Lastly , being a mere agent and representative , petitioner is also not the real party - in - interest in this case . An action is brought for a practical purpose , that is , to obtain actual and positive relief . If the party sued is not the proper party , any decision that may be rendered against him would be futile , for the decision cannot be enforced or executed . Section 2 , Rule 3 of the Rules of Court identifies who the real parties - in - interest are , thus : paragraph

“ Section 2 . Parties in interest . - Every action must be prosecuted and defended in the name of the real party in interest . All persons having an interest in the subject of the action and in obtaining the relief demanded shall be joined as plaintiffs . All persons who claim an interest in the controversy or the subject thereof adverse to the plaintiff , or who are necessary to a complete determination or settlement of the questions involved therein shall be joined as defendants . “ paragraph

The cause of action of private respondent is based on a contract of insurance which as already shown was not participated in by petitioner . It is not a “ person who claim ( s ) an interest adverse to the plaintiff “ nor is said respondent “ necessary to a complete determination or settlement of the questions involved “ in the controversy . Petitioner is improperly impleaded for not being a real -

party - interest . It will not benefit or suffer in case the action prospers . [20] paragraph

Resort to Equity Misplaced paragraph

Finally , respondent Court also contends that “ the interest of justice is better served by holding the settling agent jointly and severally liable with its principal . “ As no law backs up such pronouncement , the appellate Court is thus resorting to equity . However , equity which has been aptly described as “ justice outside legality , “ is availed of only in the absence of , and never against , statutory law or judicial pronouncements . [21] Upon the other hand , the liability of agents is clearly provided for by our laws and existing jurisprudence . paragraph

WHEREFORE , in view of the foregoing considerations , the Petition is GRANTED and the Decision appealed from is REVERSED and SET ASIDE . paragraph

No costs . paragraph

SO ORDERED . paragraph

THIRD DIVISION  

ZENAIDA G. MENDOZA, G.R. No. 175885Petitioner,

Present: 

  Ynares-Santiago, J. (Chairperson), 

- versus -           Austria-Martinez,

  Chico-Nazario, 

  Nachura, and

  Peralta, JJ.

ENGR. EDUARDO PAULE,

ENGR. ALEXANDER COLOMA

and NATIONAL IRRIGATION

ADMINISTRATION (NIA

MUÑOZ, NUEVA ECIJA),

Respondents.

x ------------------------------------------------------ x

MANUEL DELA CRUZ, G.R. No. 176271

Petitioner,

- versus -

ENGR. EDUARDO M. PAULE,

ENGR. ALEXANDER COLOMA

and NATIONAL IRRIGATION Promulgated:

ADMINISTRATION (NIA

MUÑOZ, NUEVA ECIJA),

Respondents.   February 13, 2009

 

x ---------------------------------------------------------------------------------------- x 

 DECISION

YNARES-SANTIAGO, J.:

 

 

These consolidated petitions assail the August 28, 2006 Decision[1] of the Court 

of Appeals in CA-G.R. CV No. 80819 dismissing the complaint in Civil Case No. 18-SD 

(2000),[2]  and  its  December  11,  2006 Resolution[3]  denying   the  herein  petitioners’ 

motion for reconsideration.

 

Engineer Eduardo M. Paule (PAULE) is the proprietor of E.M. Paule Construction 

and Trading (EMPCT).  On May 24, 1999, PAULE executed a special power of attorney 

(SPA)   authorizing   Zenaida   G.   Mendoza   (MENDOZA)   to   participate   in   the   pre-

qualification and bidding of a National Irrigation Administration (NIA) project and to 

represent him in all transactions related thereto, to wit:

 

1. To   represent  E.M.  PAULE  CONSTRUCTION  &  TRADING  of  which   I   (PAULE)   am  the General  Manager  in all  my business transactions with National   Irrigation Authority, Muñoz, Nueva Ecija.

 

2. To participate in the bidding, to secure bid bonds and other documents pre-requisite in the  bidding  of  Casicnan  Multi-Purpose   Irrigation  and  Power  Plant   (CMIPPL  04-99), National Irrigation Authority, Muñoz, Nueva Ecija.

 

3. To receive and collect payment in check in behalf of E.M. PAULE CONSTRUCTION & TRADING.

 

4. To do and perform such acts and things that may be necessary and/or required to make the herein authority effective.[4]

 

On September 29, 1999, EMPCT, through MENDOZA, participated in the bidding 

of the NIA-Casecnan Multi-Purpose Irrigation and Power Project (NIA-CMIPP) and was 

awarded Packages A-10 and B-11 of the NIA-CMIPP Schedule A.   On November 16, 

1999, MENDOZA received the Notice of Award which was signed by Engineer Alexander 

M. Coloma (COLOMA), then Acting Project Manager for the NIA-CMIPP.  Packages A-10 

and B-11 involved the construction of a road system, canal structures and drainage box 

culverts with a project cost of P5,613,591.69.

 

When Manuel  de  la  Cruz  (CRUZ)   learned that  MENDOZA  is   in need of  heavy 

equipment for use in the NIA project, he met up with MENDOZA in Bayuga, Muñoz, 

Nueva Ecija,   in  an apartment  where  the  latter  was holding  office under  an EMPCT 

signboard.  A series of meetings followed in said EMPCT office among CRUZ, MENDOZA 

and PAULE.  

 

On   December   2   and   20,   1999,   MENDOZA   and   CRUZ   signed   two   Job 

Orders/Agreements[5]  for the lease of the latter’s heavy equipment (dump trucks for 

hauling purposes) to EMPCT.

 

On April  27, 2000, PAULE revoked[6]  the SPA he previously issued in favor of 

MENDOZA; consequently, NIA refused to make payment to MENDOZA on her billings. 

CRUZ, therefore,  could not be paid for the rent of the equipment.    Upon advice of 

MENDOZA, CRUZ addressed his demands for payment of lease rentals directly to NIA 

but the latter refused to acknowledge the same and informed CRUZ that it would be 

remitting payment only to EMPCT as the winning contractor for the project.

 

In a letter dated April 5, 2000, CRUZ demanded from MENDOZA and/or EMPCT 

payment of the outstanding rentals which amounted to P726,000.00 as of March 31, 

2000.

 

On June 30, 2000, CRUZ filed Civil Case No. 18-SD (2000) with Branch 37 of the 

Regional Trial Court of Nueva Ecija, for collection of sum of money with damages and a 

prayer for the issuance of a writ of preliminary injunction against PAULE, COLOMA and 

the NIA.  PAULE in turn filed a third-party complaint against MENDOZA, who filed her 

answer thereto, with a cross-claim against PAULE.

 

MENDOZA   alleged   in   her   cross-claim   that   because   of   PAULE’s   “whimsical 

revocation”  of   the   SPA,   she  was  barred   from  collecting  payments   from  NIA,   thus 

resulting   in  her   inability   to   fund  her   checks  which   she  had   issued   to   suppliers  of 

materials, equipment and labor for the project.   She claimed that estafa and B.P. Blg. 

22   cases  were   filed   against   her;   that   she   could   no   longer   finance   her   children’s 

education; that she was evicted from her home; that her vehicle was foreclosed upon; 

and that her reputation was destroyed, thus entitling her to actual and moral damages 

in the respective amounts of P3 million and P1 million.

 

Meanwhile,   on   August   23,   2000,   PAULE   again   constituted  MENDOZA   as   his 

attorney-in-fact –

 

1. To   represent  me   (PAULE),   in  my capacity  as  General  Manager  of   the  E.M. PAULE   CONSTRUCTION   AND   TRADING,   in   all   meetings,   conferences   and   transactions exclusively   for   the construction of  the projects  known as Package A-10 of  Schedule  A and Package No. B-11 Schedule B, which are 38.61% and 63.18% finished as of June 21, 2000, per attached Accomplishment Reports x x x;

 

2. To implement, execute, administer and supervise the said projects in whatever stage they are in as of to date, to collect checks and other payments due on said projects and act as the Project Manager for E.M. PAULE CONSTRUCTION AND TRADING;

 

3. To do and perform such acts and things that may be necessary and required to make the herein power and authority effective.[7]

 

At the pre-trial  conference, the other parties were declared as in default and 

CRUZ   was   allowed   to   present   his   evidence  ex   parte.     Among   the   witnesses   he 

presented was MENDOZA, who was  impleaded as defendant   in  PAULE’s  third-party 

complaint.

 

On  March  6,   2003,  MENDOZA  filed   a  motion   to  declare   third-party   plaintiff 

PAULE non-suited with prayer that she be allowed to present her evidence ex parte.

 

However,  without resolving MENDOZA’s motion to declare PAULE non-suited, 

and without granting her the opportunity to present her evidence  ex parte, the trial 

court   rendered   its  decision  dated  August  7,  2003,   the  dispositive  portion of  which 

states, as follows:

 

WHEREFORE, judgment is hereby rendered in favor of the plaintiff as follows:

 

1. Ordering defendant Paule to pay the plaintiff the sum of P726,000.00 by way of actual damages or compensation for the services rendered by him;

 

2. Ordering defendant Paule to pay plaintiff the sum of P500,000.00 by way of moral damages;

 

3. Ordering defendant Paule to pay plaintiff the sum of P50,000.00 by way of reasonable attorney’s fees;

 

4. Ordering defendant Paule to pay the costs of suit; and

 

5. Ordering defendant National   Irrigation Administration (NIA)  to withhold the balance still due from it to defendant Paule/E.M. Paule Construction and Trading under NIA-CMIPP Contract Package A-10 and to pay plaintiff therefrom to the extent of defendant Paule’s liability herein adjudged.

 

SO ORDERED.[8]

 

In   holding   PAULE   liable,   the   trial   court   found   that   MENDOZA   was   duly 

constituted  as  EMPCT’s  agent   for  purposes  of   the  NIA project  and  that  MENDOZA 

validly contracted with CRUZ for the rental of heavy equipment that was to be used 

therefor.   It found unavailing PAULE’s assertion that MENDOZA merely borrowed and 

used his contractor’s license in exchange for a consideration of 3% of the aggregate 

amount of the project.  The trial court held that through the SPAs he executed, PAULE 

clothed MENDOZA with apparent authority and held her out to the public as his agent; 

as  principal,  PAULE  must   comply  with   the  obligations  which  MENDOZA contracted 

within the scope of her authority and for his benefit.  Furthermore, PAULE knew of the 

transactions which MENDOZA entered into since at various times when she and CRUZ 

met at the EMPCT office, PAULE was present and offered no objections.  The trial court 

declared that it would be unfair to allow PAULE to enrich himself and disown his acts at 

the expense of CRUZ.

 

PAULE and MENDOZA both appealed the trial court’s decision to the Court of 

Appeals.  

 

PAULE claimed that he did not receive a copy of the order of default; that it was 

improper for MENDOZA, as third-party defendant, to have taken the stand as plaintiff 

CRUZ’s witness; and that the trial court erred in finding that an agency was created 

between him and MENDOZA, and that he was liable as principal thereunder.  

 

On the other hand, MENDOZA argued that the trial court erred in deciding the 

case without  affording  her   the  opportunity   to  present  evidence on her  cross-claim 

against   PAULE;   that,   as   a   result,   her   cross-claim  against   PAULE  was   not   resolved, 

leaving   her   unable   to   collect   the   amounts   of   P3,018,864.04,   P500,000.00,   and 

P839,450.88 which allegedly represent the unpaid costs of the project and the amount 

PAULE received in excess of payments made by NIA.

 

On August 28, 2006, the Court of Appeals rendered the assailed Decision which 

dismissed CRUZ’s complaint, as well as MENDOZA’s appeal.   The appellate court held 

that the SPAs issued in MENDOZA’s favor did not grant the latter the authority to enter 

into contract with CRUZ for hauling services; the SPAs limit MENDOZA’s authority to 

only   represent   EMPCT   in   its   business   transactions  with  NIA,   to   participate   in   the 

bidding of   the project,   to   receive  and collect  payment   in  behalf  of  EMPCT,  and to 

perform such acts as may be necessary and/or required to make the said authority 

effective.    Thus,   the  engagement  of  CRUZ’s  hauling   services  was  done beyond  the 

scope of MENDOZA’s authority.  

 

As for CRUZ, the Court of Appeals held that he knew the limits of MENDOZA’s 

authority under the SPAs yet he still transacted with her.  Citing Manila Memorial Park 

Cemetery, Inc. v. Linsangan,[9] the appellate court declared that the principal (PAULE) 

may not be bound by the acts of the agent (MENDOZA) where the third person (CRUZ) 

transacting with the agent knew that the latter was acting beyond the scope of her 

power or authority under the agency.

 

With respect to MENDOZA’s appeal, the Court of Appeals held that when the 

trial court rendered judgment, not only did it rule on the plaintiff’s complaint; in effect, 

it resolved the third-party complaint as well;[10] that the trial court correctly dismissed 

the cross-claim and did  not  unduly   ignore or  disregard  it;   that  MENDOZA may not 

claim, on appeal, the amounts of P3,018,864.04, P500,000.00, and P839,450.88 which 

allegedly represent the unpaid costs of the project and the amount PAULE received in 

excess of payments made by NIA, as these are not covered by her cross-claim in the 

court  a quo,  which seeks reimbursement only of the amounts of P3 million and P1 

million, respectively, for actual damages (debts to suppliers, laborers, lessors of heavy 

equipment, lost personal property) and moral damages she claims she suffered as a 

result  of  PAULE’s  revocation of   the SPAs;  and that  the revocation of   the SPAs  is  a 

prerogative that is allowed to PAULE under Article 1920[11] of the Civil Code.

 

CRUZ and MENDOZA’s motions for reconsideration were denied; hence, these 

consolidated petitions:

 

G.R. No. 175885 (MENDOZA PETITION)

 

a) The   Court   of   Appeals   erred   in   sustaining   the   trial   court’s failure to resolve her motion praying that PAULE be declared non-suited on his third-party complaint,  as well  as her motion seeking that she be allowed to present evidence ex parte on her cross-claim;

 

b) The   Court   of   Appeals   erred   when   it   sanctioned   the   trial court’s failure to resolve her cross-claim against PAULE; and,

 

c) The Court of Appeals erred in its application of Article 1920 of the  Civil  Code,  and  in  adjudging   that  MENDOZA had no   right   to   claim actual  damages from PAULE for debts  incurred on account of the SPAs issued to her.

 

G.R. No. 176271 (CRUZ PETITION)

 

CRUZ argues that the decision of the Court of Appeals is contrary to the provisions of law on agency, and conflicts with the Resolution of the Court in G.R. No. 173275, which affirmed the Court of Appeals’ decision in CA-G.R.  CV No.  81175,  finding  the existence  of  an agency  relation and where  PAULE  was  declared  as  MENDOZA’s  principal  under   the   subject SPAs and, thus, liable for obligations (unpaid construction materials, fuel and heavy equipment rentals)  incurred by the latter for the purpose of implementing and carrying out the NIA project awarded to EMPCT.

 

CRUZ argues that MENDOZA was acting within the scope of her authority when 

she hired his services as hauler of debris because the NIA project (both Packages A-10 

and   B-11   of   the  NIA-CMIPP)   consisted   of   construction   of   canal   structures,  which 

involved the clearing and disposal of waste, acts that are necessary and incidental to 

PAULE’s obligation under the NIA project; and that the decision in a civil case involving 

the same SPAs, where PAULE was found liable as MENDOZA’s principal already became 

final and executory; that in Civil Case No. 90-SD filed by MENDOZA against PAULE,[12] 

the latter was adjudged liable to the former for unpaid rentals of heavy equipment and 

for construction materials which MENDOZA obtained for use in the subject NIA project. 

On September 15, 2003, judgment was rendered in said civil case against PAULE, to wit:

 

WHEREFORE,  judgment is  hereby rendered in favor of the plaintiff (MENDOZA) and against the defendant (PAULE) as follows:

 

1. Ordering defendant Paule to pay plaintiff the sum of P138,304.00 representing the obligation incurred by the plaintiff with LGH Construction;

 

2. Ordering defendant Paule to pay plaintiff the sum of P200,000.00 representing the balance of the obligation incurred by the plaintiff with Artemio Alejandrino;

 

3. Ordering defendant Paule to pay plaintiff the sum of P520,000.00 by way of moral damages, and further sum of P100,000.00 by way of exemplary damages;

 

4. Ordering   defendant   Paule   to   pay   plaintiff   the   sum   of   P25,000.00   as   for attorney’s fees; and

 

5.  To pay the cost of suit.[13]

 

PAULE appealed[14]  the above decision, but it  was dismissed by the Court of 

Appeals in a Decision[15] which reads, in part:

 

As to the finding of the trial court that the principle of agency is applicable in this case, this Court agrees therewith.  It must be emphasized that appellant (PAULE) authorized appellee (MENDOZA) to perform any and all acts necessary to make the business transaction of EMPCT with NIA effective.  Needless to state, said business transaction pertained to the construction of   canal   structures   which   necessitated   the   utilization   of   construction   materials   and equipments.  Having given said authority, appellant cannot be allowed to turn its back on the 

transactions entered into by appellee in behalf of EMPCT.

 

The amount of moral damages and attorney’s fees awarded by the trial court being justifiable and commensurate to the damage suffered by appellee, this Court shall not disturb the same.  It is well-settled that the award of damages as well as attorney’s fees lies upon the discretion of the court in the context of the facts and circumstances of each case.

 

WHEREFORE, the appeal is DISMISSED and the appealed Decision is AFFIRMED.

 

SO ORDERED.[16]

 

PAULE filed a  petition to this  Court  docketed as  G.R.  No.  173275 but   it  was 

denied with finality on September 13, 2006.

 

MENDOZA, for her part, claims that she has a right to be heard on her cause of 

action as stated in her cross-claim against PAULE; that the trial court’s failure to resolve 

the cross-claim was a violation of her constitutional right to be apprised of the facts or 

the law on which the trial court’s decision is based; that PAULE may not revoke her 

appointment as attorney-in-fact for and in behalf of EMPCT because, as manager of 

their partnership in the NIA project, she was obligated to collect from NIA the funds to 

be  used   for   the  payment  of   suppliers  and  contractors  with  whom she  had  earlier 

contracted for labor, materials and equipment.

 

PAULE, on the other hand, argues in his Comment that MENDOZA’s authority 

under the SPAs was for the limited purpose of securing the NIA project; that MENDOZA 

was not authorized to contract with other parties with regard to the works and services 

required for the project, such as CRUZ’s hauling services; that MENDOZA acted beyond 

her authority in contracting with CRUZ, and PAULE, as principal, should not be made 

civilly liable to CRUZ under the SPAs; and that MENDOZA has no cause of action against 

him for actual and moral damages since the latter exceeded her authority under the 

agency.

 

We grant the consolidated petitions.

 

Records show that PAULE (or, more appropriately, EMPCT) and MENDOZA had 

entered into a partnership in regard to the NIA project. PAULE‘s contribution thereto is 

his contractor’s license and expertise, while MENDOZA would provide and secure the 

needed   funds   for   labor,  materials   and   services;   deal  with   the   suppliers   and   sub-

contractors;   and   in   general   and   together   with   PAULE,   oversee   the   effective 

implementation of the project. For this, PAULE would receive as his share three  per 

cent (3%) of the project cost while the rest of the profits shall go to MENDOZA.  PAULE 

admits to this arrangement in all his pleadings.[17]

 

Although   the   SPAs   limit  MENDOZA’s   authority   to   such   acts   as   representing 

EMPCT in its business transactions with NIA, participating in the bidding of the project, 

receiving and collecting payment  in behalf  of  EMPCT,  and performing other acts   in 

furtherance   thereof,   the  evidence  shows  that  when MENDOZA and CRUZ met  and 

discussed (at the EMPCT office in Bayuga, Muñoz, Nueva Ecija) the lease of the latter’s 

heavy   equipment   for   use   in   the   project,   PAULE  was   present   and   interposed   no 

objection to MENDOZA’s actuations.  In his pleadings, PAULE does not even deny this. 

Quite   the  contrary,  MENDOZA’s  actions  were   in  accord  with  what   she  and  PAULE 

originally agreed upon, as to division of labor and delineation of functions within their 

partnership.  Under the Civil Code, every partner is an agent of the partnership for the 

purpose of its business;[18] each one may separately execute all acts of administration, 

unless a specification of  their   respective duties has been agreed upon,  or  else  it   is 

stipulated that any one of them shall not act without the consent of all the others.[19] 

At any rate, PAULE does not have any valid cause for opposition because his only role 

in   the   partnership   is   to   provide   his   contractor’s   license   and   expertise,  while   the 

sourcing of funds, materials, labor and equipment has been relegated to MENDOZA.  

 

Moreover, it does not speak well for PAULE that he reinstated MENDOZA as his 

attorney-in-fact, this time with broader powers to implement, execute, administer and 

supervise the NIA project, to collect checks and other payments due on said project, 

and  act  as   the  Project  Manager   for  EMPCT,  even  after  CRUZ  has  already  filed  his 

complaint.     Despite   knowledge   that   he  was   already   being   sued   on   the   SPAs,   he 

proceeded to execute another   in MENDOZA’s  favor,  and even granted her  broader 

powers  of  administration   than   in   those  being   sued upon.   If  he   truly  believed   that 

MENDOZA exceeded her authority with respect to the initial SPA, then he would not 

have issued another SPA.  If he thought that his trust had been violated, then he should 

not have executed another SPA in favor of MENDOZA, much less grant her broader 

authority.

 

Given the present factual milieu, CRUZ has a cause of action against PAULE and 

MENDOZA.    Thus,   the  Court  of  Appeals  erred  in  dismissing  CRUZ’s  complaint  on a 

finding of exceeded agency.   Besides, that PAULE could be held liable under the SPAs 

for transactions entered into by MENDOZA with laborers, suppliers of materials and 

services for use in the NIA project, has been settled with finality in G.R. No. 173275. 

What has been adjudged in said case as regards the SPAs should be made to apply to 

the instant case. Although the said case involves different parties and transactions, it 

finally disposed of the matter regarding the SPAs – specifically their effect as among 

PAULE,  MENDOZA and third  parties  with  whom MENDOZA had contracted with  by 

virtue of the SPAs – a disposition that should apply to CRUZ as well.  If a particular point 

or  question  is   in   issue  in  the second action,  and the  judgment  will  depend on the 

determination of that particular point or question, a former judgment between the 

same parties or their privies will be final and conclusive in the second if that same point 

or question was in issue and adjudicated in the first suit.  Identity of cause of action is 

not required but merely identity of issues.[20]

 

There   was   no   valid   reason   for   PAULE   to   revoke   MENDOZA’s   SPAs.   Since 

MENDOZA took care of the funding and sourcing of labor, materials and equipment for 

the project, it is only logical that she controls the finances, which means that the SPAs 

issued to her were necessary for the proper performance of her role in the partnership, 

and   to   discharge   the   obligations   she   had   already   contracted   prior   to   revocation. 

Without the SPAs, she could not collect from NIA, because as far as it is concerned, 

EMPCT – and not the PAULE-MENDOZA partnership – is the entity it had contracted 

with.    Without   these  payments   from NIA,   there  would  be  no   source  of   funds   to 

complete   the  project  and   to  pay  off  obligations   incurred.    As  MENDOZA  correctly 

argues, an agency cannot be revoked if a bilateral contract depends upon it, or if it is 

the means of fulfilling an obligation already contracted, or if a partner is appointed 

manager  of  a  partnership   in   the contract  of  partnership  and his   removal   from the 

management is unjustifiable.[21]

 

PAULE’s   revocation of   the  SPAs  was  done  in  evident  bad  faith.  Admitting all 

throughout   that  his  only  entitlement   in   the  partnership  with  MENDOZA   is   his   3% 

royalty for the use of his contractor’s license, he knew that the rest of the amounts 

collected from NIA was owing to MENDOZA and suppliers of materials and services, as 

well as the laborers. Yet, he deliberately revoked MENDOZA’s authority such that the 

latter could no longer collect from NIA the amounts necessary to proceed with the 

project and settle outstanding obligations.

 

From the way he conducted himself, PAULE committed a willful and deliberate 

breach of his contractual duty to his partner and those with whom the partnership had 

contracted.  Thus, PAULE should be made liable for moral damages.

 

Bad faith does not simply connote bad judgment or negligence; it imputes a dishonest purpose or some moral obliquity and conscious doing of a wrong; a breach of a sworn duty through some motive or intent or ill-will; it partakes of the nature of fraud (Spiegel v. Beacon Participation,  8  NE  2nd  Series,   895,  1007).     It   contemplates  a   state  of  mind  affirmatively operating with furtive design or some motive of self-interest or ill will for ulterior purposes (Air France v. Carrascoso, 18 SCRA 155, 166-167).  Evident bad faith connotes a manifest deliberate 

intent on the part of the accused to do wrong or cause damage.[22]

 

 

Moreover, PAULE should be made civilly liable for abandoning the partnership, 

leaving MENDOZA to fend for her own, and for unduly revoking her authority to collect 

payments from NIA, payments which were necessary for the settlement of obligations 

contracted for and already owing to laborers and suppliers of materials and equipment 

like CRUZ, not to mention the agreed profits to be derived from the venture that are 

owing to MENDOZA by reason of their partnership agreement.   Thus, the trial court 

erred   in  disregarding  and dismissing  MENDOZA’s   cross-claim –  which   is  properly  a 

counterclaim, since it is a claim made by her as defendant in a third-party complaint – 

against PAULE, just as the appellate court erred in sustaining it on the justification that 

PAULE’s revocation of the SPAs was within the bounds of his discretion under Article 

1920 of the Civil Code.

 

Where the defendant  has  interposed a counterclaim (whether  compulsory  or 

permissive)  or  is  seeking affirmative relief  by a cross-complaint,  the plaintiff cannot 

dismiss the action so as to affect the right of the defendant  in his counterclaim or 

prayer for affirmative relief.  The reason for that exception is clear.  When the answer 

sets up an independent action against the plaintiff, it then becomes an action by the 

defendant against the plaintiff, and, of course, the plaintiff has no right to ask for a 

dismissal of the defendant’s action.  The present rule embodied in Sections 2 and 3 of 

Rule 17 of the 1997 Rules of Civil Procedure ordains a more equitable disposition of the 

counterclaims by ensuring that any  judgment thereon is  based on the merit  of the 

counterclaim itself  and not on the survival  of the main complaint.    Certainly,   if   the 

counterclaim   is   palpably  without  merit   or   suffers   jurisdictional   flaws  which   stand 

independent of the complaint, the trial court is not precluded from dismissing it under 

the amended rules, provided that the judgment or order dismissing the counterclaim is 

premised on those defects.    At   the same time,   if   the counterclaim  is   justified,   the 

amended   rules   now   unequivocally   protect   such   counterclaim   from   peremptory 

dismissal by reason of the dismissal of the complaint.[23]

 

Notwithstanding   the   immutable   character   of   PAULE’s   liability   to  MENDOZA, 

however, the exact amount thereof is yet to be determined by the trial court, after 

receiving evidence for and in behalf of MENDOZA on her counterclaim, which must be 

considered pending and unresolved.

 

WHEREFORE, the petitions are GRANTED.   The August 28, 2006 Decision of the 

Court of Appeals in CA-G.R. CV No. 80819 dismissing the complaint in Civil Case No. 18-

SD   (2000)   and   its   December   11,   2006   Resolution   denying   the   motion   for 

reconsideration are  REVERSED and SET ASIDE.    The August 7, 2003 Decision of the 

Regional Trial Court of Nueva Ecija, Branch 37 in Civil Case No. 18-SD (2000) finding 

PAULE liable is REINSTATED, with the MODIFICATION that the trial court is  ORDERED

to receive evidence on the counterclaim of petitioner Zenaida G. Mendoza.

 

SO ORDERED.

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. 187485               February 12, 2013

COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs.SAN ROQUE POWER CORPORATION, Respondent.

X----------------------------X

G.R. No. 196113

TAGANITO MINING CORPORATION, Petitioner, vs.COMMISSIONER OF INTERNAL REVENUE, Respondent.

x----------------------------x

G.R. No. 197156

PHILEX MINING CORPORATION, Petitioner, vs.COMMISSIONER OF INTERNAL REVENUE, Respondent.

D E C I S I O N

CARPIO, J.:

The Cases

G.R. No. 187485 is a petitiOn for review1 assailing the Decision2 promulgated on 25 March 2009 as well as the Resolution3 promulgated on 24 April 2009 by the Court of Tax Appeals En Banc (CTA EB) in CTA EB No. 408. The CTA EB affirmed the 29 November 2007 Amended Decision4 as well as the 11 July 2008 Resolution5 of the Second Division of the Court of Tax Appeals (CTA Second Division) in CTA Case No. 6647. The CTA Second Division ordered the Commissioner of Internal Revenue (Commissioner) to refund or issue a tax credit for P483,797,599.65 to San Roque Power Corporation (San Roque) for unutilized input value-added tax (VAT) on purchases of capital goods and services for the taxable year 2001.

G.R. No. 196113 is a petition for review6 assailing the Decision7 promulgated on 8 December 2010 as well as the Resolution8 promulgated on 14 March 2011 by the CTA EB in CTA EB No. 624. In its Decision, the CTA EB reversed the 8 January 2010 Decision9 as well as the 7 April 2010 Resolution10of the CTA Second Division and granted the CIR’s petition for review in CTA Case No.

7574. The CTA EB dismissed, for having been prematurely filed, Taganito Mining Corporation’s (Taganito) judicial claim for P8,365,664.38 tax refund or credit.

G.R. No. 197156 is a petition for review11 assailing the Decision12promulgated on 3 December 2010 as well as the Resolution13 promulgated on 17 May 2011 by the CTA EB in CTA EB No. 569. The CTA EB affirmed the 20 July 2009 Decision as well as the 10 November 2009 Resolution of the CTA Second Division in CTA Case No. 7687. The CTA Second Division denied, due to prescription, Philex Mining Corporation’s (Philex) judicial claim for P23,956,732.44 tax refund or credit.

On 3 August 2011, the Second Division of this Court resolved14 to consolidate G.R. No. 197156 with G.R. No. 196113, which were pending in the same Division, and with G.R. No. 187485, which was assigned to the Court En Banc. The Second Division also resolved to refer G.R. Nos. 197156 and 196113 to the Court En Banc, where G.R. No. 187485, the lower-numbered case, was assigned.

G.R. No. 187485CIR v. San Roque Power Corporation

The Facts

The CTA EB’s narration of the pertinent facts is as follows:

[CIR] is the duly appointed Commissioner of Internal Revenue, empowered, among others, to act upon and approve claims for refund or tax credit, with office at the Bureau of Internal Revenue ("BIR") National Office Building, Diliman, Quezon City.

[San Roque] is a domestic corporation duly organized and existing under and by virtue of the laws of the Philippines with principal office at Barangay San Roque, San Manuel, Pangasinan. It was incorporated in October 1997 to design, construct, erect, assemble, own, commission and operate power-generating plants and related facilities pursuant to and under contract with the Government of the Republic of the Philippines, or any subdivision, instrumentality or agency thereof, or any governmentowned or controlled corporation, or other entity engaged in the development, supply, or distribution of energy.

As a seller of services, [San Roque] is duly registered with the BIR with TIN/VAT No. 005-017-501. It is likewise registered with the Board of Investments ("BOI") on a preferred pioneer status, to engage in the design, construction, erection, assembly, as well as to own, commission, and operate electric power-generating plants and related activities, for which it was issued Certificate of Registration No. 97-356 on February 11, 1998.

On October 11, 1997, [San Roque] entered into a Power Purchase Agreement ("PPA") with the National Power Corporation ("NPC") to develop hydro-potential of the Lower Agno River and generate additional power and energy for the Luzon Power Grid, by building the San Roque Multi-Purpose Project located in San Manuel, Pangasinan. The PPA provides, among others, that [San Roque] shall be responsible for the design, construction, installation, completion, testing and commissioning of the Power Station and shall operate and maintain the same, subject to NPC instructions. During the cooperation period of twenty-five (25) years commencing from the completion date of the Power Station, NPC will take and pay for all electricity available from the Power Station.

On the construction and development of the San Roque Multi- Purpose Project which comprises of the dam, spillway and power plant, [San Roque] allegedly incurred, excess input VAT in the amount of ₱559,709,337.54 for taxable year 2001 which it declared in its Quarterly VAT Returns filed for the same year. [San Roque] duly filed with the BIR separate claims for refund, in the total amount of ₱559,709,337.54, representing unutilized input taxes as declared in its VAT returns for taxable year 2001.

However, on March 28, 2003, [San Roque] filed amended Quarterly VAT Returns for the year 2001 since it increased its unutilized input VAT to the amount of ₱560,200,283.14. Consequently, [San Roque] filed with the BIR on even date, separate amended claims for refund in the aggregate amount of ₱560,200,283.14.

[CIR’s] inaction on the subject claims led to the filing by [San Roque] of the Petition for Review with the Court [of Tax Appeals] in Division on April 10, 2003.

Trial of the case ensued and on July 20, 2005, the case was submitted for decision.15

The Court of Tax Appeals’ Ruling: Division

The CTA Second Division initially denied San Roque’s claim. In its Decision16 dated 8 March 2006, it cited the following as bases for the denial of San Roque’s claim: lack of recorded zero-rated or effectively zero-rated sales; failure to submit documents specifically identifying the purchased goods/services related to the claimed input VAT which were included in its Property, Plant and Equipment account; and failure to prove that the related construction costs were capitalized in its books of account and subjected to depreciation.

The CTA Second Division required San Roque to show that it complied with the following requirements of Section 112(B) of Republic Act No. 8424 (RA 8424)17 to be entitled to a tax refund or credit of input VAT attributable to capital goods imported or locally purchased: (1) it is a VAT-registered entity; (2) its input taxes claimed were paid on capital goods duly supported by VAT invoices and/or official receipts; (3) it did not offset or apply the claimed input VAT payments on capital goods against any output VAT liability; and (4) its claim for refund was filed within the two-year prescriptive period both in the administrative and judicial levels.

The CTA Second Division found that San Roque complied with the first, third, and fourth requirements, thus:

The fact that [San Roque] is a VAT registered entity is admitted (par. 4, Facts Admitted, Joint Stipulation of Facts, Records, p. 157). It was also established that the instant claim of ₱560,200,823.14 is already net of the ₱11,509.09 output tax declared by [San Roque] in its amended VAT return for the first quarter of 2001. Moreover, the entire amount of ₱560,200,823.14 was deducted by [San Roque] from the total available input tax reflected in its amended VAT returns for the last two quarters of 2001 and first two quarters of 2002 (Exhibits M-6, O-6, OO-1 & QQ-1). This means that the claimed input taxes of ₱560,200,823.14 did not form part of the excess input taxes of ₱83,692,257.83, as of the second quarter of 2002 that was to be carried-over to the succeeding quarters. Further, [San Roque’s] claim for refund/tax credit certificate of excess input VAT was filed within the two-year prescriptive period reckoned from the dates of filing of the corresponding quarterly VAT returns.

For the first, second, third, and fourth quarters of 2001, [San Roque] filed its VAT returns on April 25, 2001, July 25, 2001, October 23, 2001 and January 24, 2002, respectively (Exhibits "H, J, L, and N"). These returns were all subsequently amended on March 28, 2003 (Exhibits "I, K, M, and O"). On the other hand, [San Roque] originally filed its separate claims for refund on July 10, 2001, October 10, 2001, February 21, 2002, and May 9, 2002 for the first, second, third, and fourth quarters of 2001, respectively, (Exhibits "EE, FF, GG, and HH") and subsequently filed amended claims for all quarters on March 28, 2003 (Exhibits "II, JJ, KK, and LL"). Moreover, the Petition for Review was filed on April 10, 2003. Counting from the respective dates when [San Roque] originally filed its VAT returns for the first, second, third and fourth quarters of 2001, the administrative claims for refund (original and amended) and the Petition for Review fall within the two-year prescriptive period.18

San Roque filed a Motion for New Trial and/or Reconsideration on 7 April 2006. In its 29 November 2007 Amended Decision,19 the CTA Second Division found legal basis to partially grant San Roque’s claim. The CTA Second Division ordered the Commissioner to refund or issue a tax credit in favor of San Roque in the amount of ₱483,797,599.65, which represents San Roque’s unutilized input VAT on its purchases of capital goods and services for the taxable year 2001. The CTA based the adjustment in the amount on the findings of the independent certified public accountant. The following reasons were cited for the disallowed claims: erroneous computation; failure to ascertain whether the related purchases are in the nature of capital goods; and the purchases pertain to capital goods. Moreover, the reduction of claims was based on the following: the difference between San Roque’s claim and that appearing on its books; the official receipts covering the claimed input VAT on purchases of local services are not within the period of the claim; and the amount of VAT cannot be determined from the submitted official receipts and invoices. The CTA Second Division denied San Roque’s claim for refund or tax credit of its unutilized input VAT attributable to its zero-rated or effectively zero-rated sales because San Roque had no record of such sales for the four quarters of 2001.

The dispositive portion of the CTA Second Division’s 29 November 2007 Amended Decision reads:

WHEREFORE, [San Roque’s] "Motion for New Trial and/or Reconsideration" is hereby PARTIALLY GRANTED and this Court’s Decision promulgated on March 8, 2006 in the instant case is hereby MODIFIED.

Accordingly, [the CIR] is hereby ORDERED to REFUND or in the alternative, to ISSUE A TAX CREDIT CERTIFICATE in favor of [San Roque] in the reduced amount of Four Hundred Eighty Three Million Seven Hundred Ninety Seven Thousand Five Hundred Ninety Nine Pesos and Sixty Five Centavos (₱483,797,599.65) representing unutilized input VAT on purchases of capital goods and services for the taxable year 2001.

SO ORDERED.20

The Commissioner filed a Motion for Partial Reconsideration on 20 December 2007. The CTA Second Division issued a Resolution dated 11 July 2008 which denied the CIR’s motion for lack of merit.

The Court of Tax Appeals’ Ruling: En Banc

The Commissioner filed a Petition for Review before the CTA EB praying for the denial of San Roque’s claim for refund or tax credit in its entirety as well as for the setting aside of the 29 November 2007 Amended Decision and the 11 July 2008 Resolution in CTA Case No. 6647.

The CTA EB dismissed the CIR’s petition for review and affirmed the challenged decision and resolution.

The CTA EB cited Commissioner of Internal Revenue v. Toledo Power, Inc.21 and Revenue Memorandum Circular No. 49-03,22 as its bases for ruling that San Roque’s judicial claim was not prematurely filed. The pertinent portions of the Decision state:

More importantly, the Court En Banc has squarely and exhaustively ruled on this issue in this wise:

It is true that Section 112(D) of the abovementioned provision applies to the present case. However, what the petitioner failed to consider is Section 112(A) of the same provision. The respondent is also covered by the two (2) year prescriptive period. We have repeatedly held that the claim for refund with the BIR and the subsequent appeal to the Court of Tax Appeals must be filed within the two-year period.

Accordingly, the Supreme Court held in the case of Atlas Consolidated Mining and Development Corporation vs. Commissioner of Internal Revenue that the two-year prescriptive period for filing a claim for input tax is reckoned from the date of the filing of the quarterly VAT return and payment of the tax due. If the said period is about to expire but the BIR has not yet acted on the application for refund, the taxpayer may interpose a petition for review with this Court within the two year period.

In the case of Gibbs vs. Collector, the Supreme Court held that if, however, the Collector (now Commissioner) takes time in deciding the claim, and the period of two years is about to end, the suit or proceeding must be started in the Court of Tax Appeals before the end of the two-year period without awaiting the decision of the Collector.

Furthermore, in the case of Commissioner of Customs and Commissioner of Internal Revenue vs. The Honorable Court of Tax Appeals and Planters Products, Inc., the Supreme Court held that the taxpayer need not wait indefinitely for a decision or ruling which may or may not be forthcoming and which he has no legal right to expect. It is disheartening enough to a taxpayer to keep him waiting for an indefinite period of time for a ruling or decision of the Collector (now Commissioner) of Internal Revenue on his claim for refund. It would make matters more exasperating for the taxpayer if we were to close the doors of the courts of justice for such a relief until after the Collector (now Commissioner) of Internal Revenue, would have, at his personal convenience, given his go signal.

This Court ruled in several cases that once the petition is filed, the Court has already acquired jurisdiction over the claims and the Court is not bound to wait indefinitely for no reason for whatever action respondent (herein petitioner) may take. At stake are claims for refund and unlike disputed assessments, no decision of respondent (herein petitioner) is required before one can go to this Court. (Emphasis supplied and citations omitted)

Lastly, it is apparent from the following provisions of Revenue Memorandum Circular No. 49-03 dated August 18, 2003, that [the CIR] knows that claims for VAT refund or tax credit filed with the Court [of Tax Appeals] can proceed simultaneously with the ones filed with the BIR and that taxpayers need not wait for the lapse of the subject 120-day period, to wit:

In response to [the] request of selected taxpayers for adoption of procedures in handling refund cases that are aligned to the statutory requirements that refund cases should be elevated to the Court of Tax Appeals before the lapse of the period prescribed by law, certain provisions of RMC No. 42-2003 are hereby amended and new provisions are added thereto.

In consonance therewith, the following amendments are being introduced to RMC No. 42-2003, to wit:

I.) A-17 of Revenue Memorandum Circular No. 42-2003 is hereby revised to read as follows:

In cases where the taxpayer has filed a "Petition for Review" with the Court of Tax Appeals involving a claim for refund/TCC that is pending at the administrative agency (Bureau of Internal Revenue or OSS-DOF), the administrative agency and the tax court may act on the case separately. While the case is pending in the tax court and at the same time is still under process by the administrative agency, the litigation lawyer of the BIR, upon receipt of the summons from the tax court, shall request from the head of the investigating/processing office for the docket containing certified true copies of all the documents pertinent to the claim. The docket shall be presented to the court as evidence for the BIR in its defense on the tax credit/refund case filed by the taxpayer. In the meantime, the investigating/processing office of the administrative agency shall continue processing the refund/TCC case until such time that a final decision has been reached by either the CTA or the administrative agency.

If the CTA is able to release its decision ahead of the evaluation of the administrative agency, the latter shall cease from processing the claim. On the other hand, if the administrative agency is able to process the claim of the taxpayer ahead of the CTA and the taxpayer is amenable to the findings thereof, the concerned taxpayer must file a motion to withdraw the claim with the CTA.23 (Emphasis supplied)

G.R. No. 196113Taganito Mining Corporation v. CIR

The Facts

The CTA Second Division’s narration of the pertinent facts is as follows:

Petitioner, Taganito Mining Corporation, is a corporation duly organized and existing under and by virtue of the laws of the Philippines, with principal office at 4th Floor, Solid Mills Building, De La Rosa St., Lega[s]pi Village, Makati City. It is duly registered with the Securities and Exchange Commission with Certificate of Registration No. 138682 issued on March 4, 1987 with the following primary purpose:

To carry on the business, for itself and for others, of mining lode and/or placer mining, developing, exploiting, extracting, milling, concentrating, converting, smelting, treating, refining, preparing for market, manufacturing, buying, selling, exchanging, shipping, transporting, and otherwise producing and dealing in nickel, chromite, cobalt, gold, silver, copper, lead, zinc, brass, iron, steel, limestone, and all kinds of ores, metals and their by-products and which by-products thereof of every kind and description and by whatsoever process the same can be or may hereafter be produced, and generally and without limit as to amount, to buy, sell, locate, exchange, lease, acquire and deal in lands, mines, and mineral rights and claims and to conduct all business appertaining thereto, to purchase, locate,

lease or otherwise acquire, mining claims and rights, timber rights, water rights, concessions and mines, buildings, dwellings, plants machinery, spare parts, tools and other properties whatsoever which this corporation may from time to time find to be to its advantage to mine lands, and to explore, work, exercise, develop or turn to account the same, and to acquire, develop and utilize water rights in such manner as may be authorized or permitted by law; to purchase, hire, make, construct or otherwise, acquire, provide, maintain, equip, alter, erect, improve, repair, manage, work and operate private roads, barges, vessels, aircraft and vehicles, private telegraph and telephone lines, and other communication media, as may be needed by the corporation for its own purpose, and to purchase, import, construct, machine, fabricate, or otherwise acquire, and maintain and operate bridges, piers, wharves, wells, reservoirs, plumes, watercourses, waterworks, aqueducts, shafts, tunnels, furnaces, cook ovens, crushing works, gasworks, electric lights and power plants and compressed air plants, chemical works of all kinds, concentrators, smelters, smelting plants, and refineries, matting plants, warehouses, workshops, factories, dwelling houses, stores, hotels or other buildings, engines, machinery, spare parts, tools, implements and other works, conveniences and properties of any description in connection with or which may be directly or indirectly conducive to any of the objects of the corporation, and to contribute to, subsidize or otherwise aid or take part in any operations;

and is a VAT-registered entity, with Certificate of Registration (BIR Form No. 2303) No. OCN 8RC0000017494. Likewise, [Taganito] is registered with the Board of Investments (BOI) as an exporter of beneficiated nickel silicate and chromite ores, with BOI Certificate of Registration No. EP-88-306.

Respondent, on the other hand, is the duly appointed Commissioner of Internal Revenue vested with authority to exercise the functions of the said office, including inter alia, the power to decide refunds of internal revenue taxes, fees and other charges, penalties imposed in relation thereto, or other matters arising under the National Internal Revenue Code (NIRC) or other laws administered by Bureau of Internal Revenue (BIR) under Section 4 of the NIRC. He holds office at the BIR National Office Building, Diliman, Quezon City.

[Taganito] filed all its Monthly VAT Declarations and Quarterly Vat Returns for the period January 1, 2005 to December 31, 2005. For easy reference, a summary of the filing dates of the original and amended Quarterly VAT Returns for taxable year 2005 of [Taganito] is as follows:

Exhibit(s) Quarter Nature ofthe Return

Mode of filing Filing Date

L to L-4 1st Original Electronic April 15, 2005

M to M-3 Amended Electronic July 20, 2005

N to N-4 Amended Electronic October 18, 2006

Q to Q-3 2nd Original Electronic July 20, 2005

R to R-4 Amended Electronic October 18, 2006

U to U-4 3rd Original Electronic October 19, 2005

V to V-4 Amended Electronic October 18, 2006

Y to Y-4 4th Original Electronic January 20, 2006

Z to Z-4 Amended Electronic October 18, 2006

As can be gleaned from its amended Quarterly VAT Returns, [Taganito] reported zero-rated sales amounting to P1,446,854,034.68; input VAT on its domestic purchases and importations of goods (other than capital goods) and services amounting to P2,314,730.43; and input VAT on its domestic purchases and importations of capital goods amounting to P6,050,933.95, the details of which are summarized as follows:

PeriodCovered

Zero-Rated Sales Input VAT onDomestic

Purchases andImportationsof Goods and

Services

Input VAT onDomestic

Purchases andImportations

of CapitalGoods

Total Input VAT

01/01/05 -03/31/05

P551,179,871.58 P1,491,880.56 P239,803.22 P1,731,683.78

04/01/05 -06/30/05

64,677,530.78 204,364.17 5,811,130.73 6,015,494.90

07/01/05 -09/30/05

480,784,287.30 144,887.67 - 144,887.67

10/01/05 -12/31/05

350,212,345.02 473,598.03 - 473,598.03

TOTAL P1,446,854,034.68 P2,314,730.43 P6,050,933.95 P8,365,664.38

On November 14, 2006, [Taganito] filed with [the CIR], through BIR’s Large Taxpayers Audit and Investigation Division II (LTAID II), a letter dated November 13, 2006 claiming a tax credit/refund of its supposed input VAT amounting to ₱8,365,664.38 for the period covering January 1, 2004 to December 31, 2004. On the same date, [Taganito] likewise filed an Application for Tax Credits/Refunds for the period covering January 1, 2005 to December 31, 2005 for the same amount.

On November 29, 2006, [Taganito] sent again another letter dated November 29, 2004 to [the CIR], to correct the period of the above claim for tax credit/refund in the said amount of ₱8,365,664.38 as actually referring to the period covering January 1, 2005 to December 31, 2005.

As the statutory period within which to file a claim for refund for said input VAT is about to lapse without action on the part of the [CIR], [Taganito] filed the instant Petition for Review on February 17, 2007.

In his Answer filed on March 28, 2007, [the CIR] interposes the following defenses:

4. [Taganito’s] alleged claim for refund is subject to administrative investigation/examination by the Bureau of Internal Revenue (BIR);

5. The amount of ₱8,365,664.38 being claimed by [Taganito] as alleged unutilized input VAT on domestic purchases of goods and services and on importation of capital goods for the period January 1, 2005 to December 31, 2005 is not properly documented;

6. [Taganito] must prove that it has complied with the provisions of Sections 112 (A) and (D) and 229 of the National Internal Revenue Code of 1997 (1997 Tax Code) on the prescriptive period for claiming tax refund/credit;

7. Proof of compliance with the prescribed checklist of requirements to be submitted involving claim for VAT refund pursuant to Revenue Memorandum Order No. 53-98, otherwise there would be no sufficient compliance with the filing of administrative claim for refund, the administrative claim thereof being mere proforma, which is a condition sine qua non prior to the filing of judicial claim in accordance with the provision of Section 229 of the 1997 Tax Code. Further, Section 112 (D) of the Tax Code, as amended, requires the submission of complete documents in support of the application filed with the BIR before the 120-day audit period shall apply, and before the taxpayer could avail of judicial remedies as provided for in the law. Hence, [Taganito’s] failure to submit proof of compliance with the above-stated requirements warrants immediate dismissal of the petition for review.

8. [Taganito] must prove that it has complied with the invoicing requirements mentioned in Sections 110 and 113 of the 1997 Tax Code, as amended, in relation to provisions of Revenue Regulations No. 7-95.

9. In an action for refund/credit, the burden of proof is on the taxpayer to establish its right to refund, and failure to sustain the burden is fatal to the claim for refund/credit (Asiatic Petroleum Co. vs. Llanes, 49 Phil. 466 cited in Collector of Internal Revenue vs. Manila Jockey Club, Inc., 98 Phil. 670);

10. Claims for refund are construed strictly against the claimant for the same partake the nature of exemption from taxation (Commissioner of Internal Revenue vs. Ledesma, 31 SCRA 95) and as such, they are looked upon with disfavor (Western Minolco Corp. vs. Commissioner of Internal Revenue, 124 SCRA 1211).

SPECIAL AND AFFIRMATIVE DEFENSES

11. The Court of Tax Appeals has no jurisdiction to entertain the instant petition for review for failure on the part of [Taganito] to comply with the provision of Section 112 (D) of the 1997 Tax Code which provides, thus:

Section 112. Refunds or Tax Credits of Input Tax. –

x x x           x x x          x x x

(D) Period within which refund or Tax Credit of Input Taxes shall be Made. – In proper cases, the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred (120) days from the date of submission of complete documents in support of the application filed in accordance with Subsections (A) and (B) hereof.

In cases of full or partial denial for tax refund or tax credit, or the failure on the part of the Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred twenty dayperiod, appeal the decision or the unacted claim with the Court of Tax Appeals. (Emphasis supplied.)

12. As stated, [Taganito] filed the administrative claim for refund with the Bureau of Internal Revenue on November 14, 2006. Subsequently on February 14, 2007, the instant petition was filed. Obviously the 120 days given to the Commissioner to decide on the claim has not yet lapsed when the petition was filed. The petition was prematurely filed, hence it must be dismissed for lack of jurisdiction.

During trial, [Taganito] presented testimonial and documentary evidence primarily aimed at proving its supposed entitlement to the refund in the amount of ₱8,365,664.38, representing input taxes for the period covering January 1, 2005 to December 31, 2005. [The CIR], on the other hand, opted not to present evidence. Thus, in the Resolution promulgated on January 22, 2009, this case was submitted for decision as of such date, considering [Taganito’s] "Memorandum" filed on January 19, 2009 and [the CIR’s] "Memorandum" filed on December 19, 2008.24

The Court of Tax Appeals’ Ruling: Division

The CTA Second Division partially granted Taganito’s claim. In its Decision25 dated 8 January 2010, the CTA Second Division found that Taganito complied with the requirements of Section 112(A) of RA 8424, as amended, to be entitled to a tax refund or credit of input VAT attributable to zero-rated or effectively zero-rated sales.26

The pertinent portions of the CTA Second Division’s Decision read:

Finally, records show that [Taganito’s] administrative claim filed on November 14, 2006, which was amended on November 29, 2006, and the Petition for Review filed with this Court on February 14, 2007 are well within the two-year prescriptive period, reckoned from March 31, 2005, June 30, 2005, September 30, 2005, and December 31, 2005, respectively, the close of each taxable quarter covering the period January 1, 2005 to December 31, 2005.

In fine, [Taganito] sufficiently proved that it is entitled to a tax credit certificate in the amount of ₱8,249,883.33 representing unutilized input VAT for the four taxable quarters of 2005.

WHEREFORE, premises considered, the instant Petition for Review is hereby PARTIALLY GRANTED. Accordingly, [the CIR] is hereby ORDERED to REFUND to [Taganito] the amount of EIGHT MILLION TWO HUNDRED FORTY NINE THOUSAND EIGHT HUNDRED EIGHTY THREE PESOS AND THIRTY THREE CENTAVOS (P8,249,883.33) representing its unutilized input taxes attributable to zero-rated sales from January 1, 2005 to December 31, 2005.

SO ORDERED.27

The Commissioner filed a Motion for Partial Reconsideration on 29 January 2010. Taganito, in turn, filed a Comment/Opposition on the Motion for Partial Reconsideration on 15 February 2010.

In a Resolution28 dated 7 April 2010, the CTA Second Division denied the CIR’s motion. The CTA Second Division ruled that the legislature did not intend that Section 112 (Refunds or Tax Credits of Input Tax) should be read in isolation from Section 229 (Recovery of Tax Erroneously or Illegally Collected) or vice versa. The CTA Second Division applied the mandatory statute of limitations in seeking judicial recourse prescribed under Section 229 to claims for refund or tax credit under Section 112.

The Court of Tax Appeals’ Ruling: En Banc

On 29 April 2010, the Commissioner filed a Petition for Review before the CTA EB assailing the 8 January 2010 Decision and the 7 April 2010 Resolution in CTA Case No. 7574 and praying that Taganito’s entire claim for refund be denied.

In its 8 December 2010 Decision,29 the CTA EB granted the CIR’s petition for review and reversed and set aside the challenged decision and resolution.

The CTA EB declared that Section 112(A) and (B) of the 1997 Tax Code both set forth the reckoning of the two-year prescriptive period for filing a claim for tax refund or credit over input VAT to be the close of the taxable quarter when the sales were made. The CTA EB also relied on this Court’s rulings in the cases of Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc. (Aichi)30 and Commisioner of Internal Revenue v. Mirant Pagbilao Corporation (Mirant).31 Both Aichi and Mirant ruled that the two-year prescriptive period to file a refund for input VAT arising from zero-rated sales should be reckoned from the close of the taxable quarter when the sales were made. Aichi further emphasized that the failure to await the decision of the Commissioner or the lapse of 120-day period prescribed in Section 112(D) amounts to a premature filing.

The CTA EB found that Taganito filed its administrative claim on 14 November 2006, which was well within the period prescribed under Section 112(A) and (B) of the 1997 Tax Code. However, the CTA EB found that Taganito’s judicial claim was prematurely filed. Taganito filed its Petition for Review before the CTA Second Division on 14 February 2007. The judicial claim was filed after the lapse of only 92 days from the filing of its administrative claim before the CIR, in violation of the 120-day period prescribed in Section 112(D) of the 1997 Tax Code.

The dispositive portion of the Decision states:

WHEREFORE, the instant Petition for Review is hereby GRANTED. The assailed Decision dated January 8, 2010 and Resolution dated April 7, 2010 of the Special Second Division of this Court are

hereby REVERSED and SET ASIDE. Another one is hereby entered DISMISSING the Petition for Review filed in CTA Case No. 7574 for having been prematurely filed.

SO ORDERED.32

In his dissent,33 Associate Justice Lovell R. Bautista insisted that Taganito timely filed its claim before the CTA. Justice Bautista read Section 112(C) of the 1997 Tax Code (Period within which Refund or Tax Credit of Input Taxes shall be Made) in conjunction with Section 229 (Recovery of Tax Erroneously or Illegally Collected). Justice Bautista also relied on this Court’s ruling in Atlas Consolidated Mining and Development Corporation v. Commissioner of Internal Revenue (Atlas),34 which stated that refundable or creditable input VAT and illegally or erroneously collected national internal revenue tax are the same, insofar as both are monetary amounts which are currently in the hands of the government but must rightfully be returned to the taxpayer. Justice Bautista concluded:

Being merely permissive, a taxpayer claimant has the option of seeking judicial redress for refund or tax credit of excess or unutilized input tax with this Court, either within 30 days from receipt of the denial of its claim, or after the lapse of the 120-day period in the event of inaction by the Commissioner, provided that both administrative and judicial remedies must be undertaken within the 2-year period.35

Taganito filed its Motion for Reconsideration on 29 December 2010. The Commissioner filed an Opposition on 26 January 2011. The CTA EB denied for lack of merit Taganito’s motion in a Resolution36 dated 14 March 2011. The CTA EB did not see any justifiable reason to depart from this Court’s rulings in Aichi and Mirant.

G.R. No. 197156Philex Mining Corporation v. CIR

The Facts

The CTA EB’s narration of the pertinent facts is as follows:

[Philex] is a corporation duly organized and existing under the laws of the Republic of the Philippines, which is principally engaged in the mining business, which includes the exploration and operation of mine properties and commercial production and marketing of mine products, with office address at 27 Philex Building, Fairlaine St., Kapitolyo, Pasig City.

[The CIR], on the other hand, is the head of the Bureau of Internal Revenue ("BIR"), the government entity tasked with the duties/functions of assessing and collecting all national internal revenue taxes, fees, and charges, and enforcement of all forfeitures, penalties and fines connected therewith, including the execution of judgments in all cases decided in its favor by [the Court of Tax Appeals] and the ordinary courts, where she can be served with court processes at the BIR Head Office, BIR Road, Quezon City.

On October 21, 2005, [Philex] filed its Original VAT Return for the third quarter of taxable year 2005 and Amended VAT Return for the same quarter on December 1, 2005.

On March 20, 2006, [Philex] filed its claim for refund/tax credit of the amount of ₱23,956,732.44 with the One Stop Shop Center of the Department of Finance. However, due to [the CIR’s] failure to act on such claim, on October 17, 2007, pursuant to Sections 112 and 229 of the NIRC of 1997, as amended, [Philex] filed a Petition for Review, docketed as C.T.A. Case No. 7687.

In [her] Answer, respondent CIR alleged the following special and affirmative defenses:

4. Claims for refund are strictly construed against the taxpayer as the same partake the nature of an exemption;

5. The taxpayer has the burden to show that the taxes were erroneously or illegally paid. Failure on the part of [Philex] to prove the same is fatal to its cause of action;

6. [Philex] should prove its legal basis for claiming for the amount being refunded.37

The Court of Tax Appeals’ Ruling: Division

The CTA Second Division, in its Decision dated 20 July 2009, denied Philex’s claim due to prescription. The CTA Second Division ruled that the two-year prescriptive period specified in Section 112(A) of RA 8424, as amended, applies not only to the filing of the administrative claim with the BIR, but also to the filing of the judicial claim with the CTA. Since Philex’s claim covered the 3rd quarter of 2005, its administrative claim filed on 20 March 2006 was timely filed, while its judicial claim filed on 17 October 2007 was filed late and therefore barred by prescription.

On 10 November 2009, the CTA Second Division denied Philex’s Motion for Reconsideration.

The Court of Tax Appeals’ Ruling: En Banc

Philex filed a Petition for Review before the CTA EB praying for a reversal of the 20 July 2009 Decision and the 10 November 2009 Resolution of the CTA Second Division in CTA Case No. 7687.

The CTA EB, in its Decision38 dated 3 December 2010, denied Philex’s petition and affirmed the CTA Second Division’s Decision and Resolution.

The pertinent portions of the Decision read:

In this case, while there is no dispute that [Philex’s] administrative claim for refund was filed within the two-year prescriptive period; however, as to its judicial claim for refund/credit, records show that on March 20, 2006, [Philex] applied the administrative claim for refund of unutilized input VAT in the amount of ₱23,956,732.44 with the One Stop Shop Center of the Department of Finance, per Application No. 52490. From March 20, 2006, which is also presumably the date [Philex] submitted supporting documents, together with the aforesaid application for refund, the CIR has 120 days, or until July 18, 2006, within which to decide the claim. Within 30 days from the lapse of the 120-day period, or from July 19, 2006 until August 17, 2006, [Philex] should have elevated its claim for refund to the CTA. However, [Philex] filed its Petition for Review only on October 17, 2007, which is 426 days way beyond the 30- day period prescribed by law.

Evidently, the Petition for Review in CTA Case No. 7687 was filed 426 days late. Thus, the Petition for Review in CTA Case No. 7687 should have been dismissed on the ground that the Petition for Review was filed way beyond the 30-day prescribed period; thus, no jurisdiction was acquired by the CTA in Division; and not due to prescription.

WHEREFORE, premises considered, the instant Petition for Review is hereby DENIED DUE COURSE, and accordingly, DISMISSED. The assailed Decision dated July 20, 2009, dismissing the Petition for Review in CTA Case No. 7687 due to prescription, and Resolution dated November 10, 2009 denying [Philex’s] Motion for Reconsideration are hereby AFFIRMED, with modification that the dismissal is based on the ground that the Petition for Review in CTA Case No. 7687 was filed way beyond the 30-day prescribed period to appeal.

SO ORDERED.39

G.R. No. 187485CIR v. San Roque Power Corporation

The Commissioner raised the following grounds in the Petition for Review:

I. The Court of Tax Appeals En Banc erred in holding that [San Roque’s] claim for refund was not prematurely filed.

II. The Court of Tax Appeals En Banc erred in affirming the amended decision of the Court of Tax Appeals (Second Division) granting [San Roque’s] claim for refund of alleged unutilized input VAT on its purchases of capital goods and services for the taxable year 2001 in the amount of P483,797,599.65. 40

G.R. No. 196113Taganito Mining Corporation v. CIR

Taganito raised the following grounds in its Petition for Review:

I. The Court of Tax Appeals En Banc committed serious error and acted with grave abuse of discretion tantamount to lack or excess of jurisdiction in erroneously applying the Aichi doctrine in violation of [Taganito’s] right to due process.

II. The Court of Tax Appeals committed serious error and acted with grave abuse of discretion amounting to lack or excess of jurisdiction in erroneously interpreting the provisions of Section 112 (D).41

G.R. No. 197156Philex Mining Corporation v. CIR

Philex raised the following grounds in its Petition for Review:

I. The CTA En Banc erred in denying the petition due to alleged prescription. The fact is that the petition was filed with the CTA within the period set by prevailing court rulings at the time

it was filed.

II. The CTA En Banc erred in retroactively applying the Aichi ruling in denying the petition in this instant case.42

The Court’s Ruling

For ready reference, the following are the provisions of the Tax Code applicable to the present cases:

Section 105:

Persons Liable. — Any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of this Code.

The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services. This rule shall likewise apply to existing contracts of sale or lease of goods, properties or services at the time of the effectivity of Republic Act No. 7716.

x x x x

Section 110(B):

Sec. 110. Tax Credits. —

(B) Excess Output or Input Tax. — If at the end of any taxable quarter the output tax exceeds the input tax, the excess shall be paid by the VAT-registered person. If the input tax exceeds the output tax, the excess shall be carried over to the succeeding quarter or quarters: [Provided, That the input tax inclusive of input VAT carried over from the previous quarter that may be credited in every quarter shall not exceed seventy percent (70%) of the output VAT:]43 Provided, however, That any input tax attributable to zero-rated sales by a VAT-registered person may at his option be refunded or credited against other internal revenue taxes, subject to the provisions of Section 112.

Section 112:44

Sec. 112. Refunds or Tax Credits of Input Tax. —

(A) Zero-Rated or Effectively Zero-Rated Sales.— Any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent that such input tax has not been applied against output tax: Provided, however, That in the case of zero-rated sales under Section 106(A)(2) (a)(1), (2) and (B) and Section 108(B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in zero-rated or

effectively zero-rated sale and also in taxable or exempt sale of goods or properties or services, and the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions, it shall be allocated proportionately on the basis of the volume of sales.

(B) Capital Goods.- A VAT — registered person may apply for the issuance of a tax credit certificate or refund of input taxes paid on capital goods imported or locally purchased, to the extent that such input taxes have not been applied against output taxes. The application may be made only within two (2) years after the close of the taxable quarter when the importation or purchase was made.

(C) Cancellation of VAT Registration. — A person whose registration has been cancelled due to retirement from or cessation of business, or due to changes in or cessation of status under Section 106(C) of this Code may, within two (2) years from the date of cancellation, apply for the issuance of a tax credit certificate for any unused input tax which may be used in payment of his other internal revenue taxes

(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. — In proper cases, the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) days from the date of submission of complete documents in support of the application filed in accordance with Subsection (A) and (B) hereof.

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals.

(E) Manner of Giving Refund. — Refunds shall be made upon warrants drawn by the Commissioner or by his duly authorized representative without the necessity of being countersigned by the Chairman, Commission on Audit, the provisions of the Administrative Code of 1987 to the contrary notwithstanding: Provided, that refunds under this paragraph shall be subject to post audit by the Commission on Audit.

Section 229:

Recovery of Tax Erroneously or Illegally Collected. — No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress.

In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefor,

refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid.

(All emphases supplied)

I. Application of the 120+30 Day Periods

a. G.R. No. 187485 - CIR v. San Roque Power Corporation

On 10 April 2003, a mere 13 days after it filed its amended administrative claim with the Commissioner on 28 March 2003, San Roque filed a Petition for Review with the CTA docketed as CTA Case No. 6647. From this we gather two crucial facts: first, San Roque did not wait for the 120-day period to lapse before filing its judicial claim; second, San Roque filed its judicial claim more than four (4) years before the Atlas45 doctrine, which was promulgated by the Court on 8 June 2007.

Clearly, San Roque failed to comply with the 120-day waiting period, the time expressly given by law to the Commissioner to decide whether to grant or deny San Roque’s application for tax refund or credit. It is indisputable that compliance with the 120-day waiting period is mandatory and jurisdictional. The waiting period, originally fixed at 60 days only, was part of the provisions of the first VAT law, Executive Order No. 273, which took effect on 1 January 1988. The waiting period was extended to 120 days effective 1 January 1998 under RA 8424 or the Tax Reform Act of 1997. Thus, the waiting period has been in our statute books for more than fifteen (15) years before San Roque filed its judicial claim.

Failure to comply with the 120-day waiting period violates a mandatory provision of law. It violates the doctrine of exhaustion of administrative remedies and renders the petition premature and thus without a cause of action, with the effect that the CTA does not acquire jurisdiction over the taxpayer’s petition. Philippine jurisprudence is replete with cases upholding and reiterating these doctrinal principles.46

The charter of the CTA expressly provides that its jurisdiction is to review on appeal "decisions of the Commissioner of Internal Revenue in cases involving x x x refunds of internal revenue taxes."47 When a taxpayer prematurely files a judicial claim for tax refund or credit with the CTA without waiting for the decision of the Commissioner, there is no "decision" of the Commissioner to review and thus the CTA as a court of special jurisdiction has no jurisdiction over the appeal. The charter of the CTA also expressly provides that if the Commissioner fails to decide within "a specific period" required by law, such "inaction shall be deemed a denial"48 of the application for tax refund or credit. It is the Commissioner’s decision, or inaction "deemed a denial," that the taxpayer can take to the CTA for review. Without a decision or an "inaction x x x deemed a denial" of the Commissioner, the CTA has no jurisdiction over a petition for review.49

San Roque’s failure to comply with the 120-day mandatory period renders its petition for review with the CTA void. Article 5 of the Civil Code provides, "Acts executed against provisions of mandatory or prohibitory laws shall be void, except when the law itself authorizes their validity." San Roque’s void petition for review cannot be legitimized by the CTA or this Court because Article 5 of the Civil Code states that such void petition cannot be legitimized "except when the law itself authorizes [its] validity." There is no law authorizing the petition’s validity.

It is hornbook doctrine that a person committing a void act contrary to a mandatory provision of law cannot claim or acquire any right from his void act. A right cannot spring in favor of a person from his own void or illegal act. This doctrine is repeated in Article 2254 of the Civil Code, which states, "No vested or acquired right can arise from acts or omissions which are against the law or which infringe upon the rights of others."50 For violating a mandatory provision of law in filing its petition with the CTA, San Roque cannot claim any right arising from such void petition. Thus, San Roque’s petition with the CTA is a mere scrap of paper.

This Court cannot brush aside the grave issue of the mandatory and jurisdictional nature of the 120-day period just because the Commissioner merely asserts that the case was prematurely filed with the CTA and does not question the entitlement of San Roque to the refund. The mere fact that a taxpayer has undisputed excess input VAT, or that the tax was admittedly illegally, erroneously or excessively collected from him, does not entitle him as a matter of right to a tax refund or credit. Strict compliance with the mandatory and jurisdictional conditions prescribed by law to claim such tax refund or credit is essential and necessary for such claim to prosper. Well-settled is the rule that tax refunds or credits, just like tax exemptions, are strictly construed against the taxpayer.51 The burden is on the taxpayer to show that he has strictly complied with the conditions for the grant of the tax refund or credit.

This Court cannot disregard mandatory and jurisdictional conditions mandated by law simply because the Commissioner chose not to contest the numerical correctness of the claim for tax refund or credit of the taxpayer. Non-compliance with mandatory periods, non-observance of prescriptive periods, and non-adherence to exhaustion of administrative remedies bar a taxpayer’s claim for tax refund or credit, whether or not the Commissioner questions the numerical correctness of the claim of the taxpayer. This Court should not establish the precedent that non-compliance with mandatory and jurisdictional conditions can be excused if the claim is otherwise meritorious, particularly in claims for tax refunds or credit. Such precedent will render meaningless compliance with mandatory and jurisdictional requirements, for then every tax refund case will have to be decided on the numerical correctness of the amounts claimed, regardless of non-compliance with mandatory and jurisdictional conditions.

San Roque cannot also claim being misled, misguided or confused by the Atlas doctrine because San Roque filed its petition for review with the CTA more than four years before Atlas was promulgated. The Atlas doctrine did not exist at the time San Roque failed to comply with the 120- day period. Thus, San Roque cannot invoke the Atlas doctrine as an excuse for its failure to wait for the 120-day period to lapse. In any event, the Atlas doctrine merely stated that the two-year prescriptive period should be counted from the date of payment of the output VAT, not from the close of the taxable quarter when the sales involving the input VAT were made. The Atlas doctrine does not interpret, expressly or impliedly, the 120+3052 day periods.

In fact, Section 106(b) and (e) of the Tax Code of 1977 as amended, which was the law cited by the Court in Atlas as the applicable provision of the law did not yet provide for the 30-day period for the taxpayer to appeal to the CTA from the decision or inaction of the Commissioner.53 Thus, the Atlas doctrine cannot be invoked by anyone to disregard compliance with the 30-day mandatory and jurisdictional period. Also, the difference between the Atlas doctrine on one hand, and the Mirant54 doctrine on the other hand, is a mere 20 days. The Atlas doctrine counts the two-year prescriptive period from the date of payment of the output VAT, which means within 20 days after the close of the taxable quarter. The output VAT at that time must be paid at the time of filing of the quarterly tax returns, which were to be filed "within 20 days following the end of each quarter."

Thus, in Atlas, the three tax refund claims listed below were deemed timely filed because the administrative claims filed with the Commissioner, and the petitions for review filed with the CTA, were all filed within two years from the date of payment of the output VAT, following Section 229:

Period CoveredDate of Filing Return

& Payment of TaxDate of Filing

Administrative ClaimDate of Filing

Petition With CTA

2nd Quarter, 1990Close of Quarter30 June 1990

20 July 1990 21 August 1990 20 July 1992

3rd Quarter, 1990Close of Quarter30 September 1990

18 October 1990 21 November 1990 9 October 1992

4th Quarter, 1990Close of Quarter31 December 1990

20 January 1991 19 February 1991 14 January 1993

Atlas paid the output VAT at the time it filed the quarterly tax returns on the 20th, 18th, and 20th day after the close of the taxable quarter. Had the twoyear prescriptive period been counted from the "close of the taxable quarter" as expressly stated in the law, the tax refund claims of Atlas would have already prescribed. In contrast, the Mirant doctrine counts the two-year prescriptive period from the "close of the taxable quarter when the sales were made" as expressly stated in the law, which means the last day of the taxable quarter. The 20-day difference55 between the Atlas doctrine and the later Mirant doctrine is not material to San Roque’s claim for tax refund.

Whether the Atlas doctrine or the Mirant doctrine is applied to San Roque is immaterial because what is at issue in the present case is San Roque’s non-compliance with the 120-day mandatory and jurisdictional period, which is counted from the date it filed its administrative claim with the Commissioner. The 120-day period may extend beyond the two-year prescriptive period, as long as the administrative claim is filed within the two-year prescriptive period. However, San Roque’s fatal mistake is that it did not wait for the Commissioner to decide within the 120-day period, a mandatory period whether the Atlas or the Mirant doctrine is applied.

At the time San Roque filed its petition for review with the CTA, the 120+30 day mandatory periods were already in the law. Section 112(C)56 expressly grants the Commissioner 120 days within which to decide the taxpayer’s claim. The law is clear, plain, and unequivocal: "x x x the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) days from the date of submission of complete documents." Following the verba legis doctrine, this law must be applied exactly as worded since it is clear, plain, and unequivocal. The taxpayer cannot simply file a petition with the CTA without waiting for the Commissioner’s decision within the 120-day mandatory and jurisdictional period. The CTA will have no jurisdiction because there will be no "decision" or "deemed a denial" decision of the Commissioner for the CTA to review. In San Roque’s case, it filed its petition with the CTA a mere 13 days after it filed its administrative claim with the Commissioner. Indisputably, San Roque knowingly violated the mandatory 120-day period, and it cannot blame anyone but itself.

Section 112(C) also expressly grants the taxpayer a 30-day period to appeal to the CTA the decision or inaction of the Commissioner, thus:

x x x the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals. (Emphasis supplied)

This law is clear, plain, and unequivocal. Following the well-settled verba legis doctrine, this law should be applied exactly as worded since it is clear, plain, and unequivocal. As this law states, the taxpayer may, if he wishes, appeal the decision of the Commissioner to the CTA within 30 days from receipt of the Commissioner’s decision, or if the Commissioner does not act on the taxpayer’s claim within the 120-day period, the taxpayer may appeal to the CTA within 30 days from the expiration of the 120-day period.

b. G.R. No. 196113 - Taganito Mining Corporation v. CIR

Like San Roque, Taganito also filed its petition for review with the CTA without waiting for the 120-day period to lapse. Also, like San Roque, Taganito filed its judicial claim before the promulgation of the Atlas doctrine. Taganito filed a Petition for Review on 14 February 2007 with the CTA. This is almost four months before the adoption of the Atlas doctrine on 8 June 2007. Taganito is similarly situated as San Roque - both cannot claim being misled, misguided, or confused by the Atlas doctrine.

However, Taganito can invoke BIR Ruling No. DA-489-0357 dated 10 December 2003, which expressly ruled that the "taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek judicial relief with the CTA by way of Petition for Review." Taganito filed its judicial claim after the issuance of BIR Ruling No. DA-489-03 but before the adoption of the Aichi doctrine. Thus, as will be explained later, Taganito is deemed to have filed its judicial claim with the CTA on time.

c. G.R. No. 197156 – Philex Mining Corporation v. CIR

Philex (1) filed on 21 October 2005 its original VAT Return for the third quarter of taxable year 2005; (2) filed on 20 March 2006 its administrative claim for refund or credit; (3) filed on 17 October 2007 its Petition for Review with the CTA. The close of the third taxable quarter in 2005 is 30 September 2005, which is the reckoning date in computing the two-year prescriptive period under Section 112(A).

Philex timely filed its administrative claim on 20 March 2006, within the two-year prescriptive period. Even if the two-year prescriptive period is computed from the date of payment of the output VAT under Section 229, Philex still filed its administrative claim on time. Thus, the Atlas doctrine is immaterial in this case. The Commissioner had until 17 July 2006, the last day of the 120-day period, to decide Philex’s claim. Since the Commissioner did not act on Philex’s claim on or before 17 July 2006, Philex had until 17 August 2006, the last day of the 30-day period, to file its judicial claim. The CTA EB held that 17 August 2006 was indeed the last day for Philex to file its judicial claim. However, Philex filed its Petition for Review with the CTA only on 17 October 2007, or four hundred twenty-six (426) days after the last day of filing. In short, Philex was late by one year and 61 days in filing its judicial claim. As the CTA EB correctly found:

Evidently, the Petition for Review in C.T.A. Case No. 7687 was filed 426 days late. Thus, the Petition for Review in C.T.A. Case No. 7687 should have been dismissed on the ground that the Petition for Review was filed way beyond the 30-day prescribed period; thus, no jurisdiction was acquired by the CTA Division; x x x58 (Emphasis supplied)

Unlike San Roque and Taganito, Philex’s case is not one of premature filing but of late filing. Philex did not file any petition with the CTA within the 120-day period. Philex did not also file any petition with the CTA within 30 days after the expiration of the 120-day period. Philex filed its judicial claim long after the expiration of the 120-day period, in fact 426 days after the lapse of the 120-day period. In any event, whether governed by jurisprudence before, during, or after the Atlas case, Philex’s judicial claim will have to be rejected because of late filing. Whether the two-year prescriptive period is counted from the date of payment of the output VAT following the Atlas doctrine, or from the close of the taxable quarter when the sales attributable to the input VAT were made following the Mirant and Aichi doctrines, Philex’s judicial claim was indisputably filed late.

The Atlas doctrine cannot save Philex from the late filing of its judicial claim. The inaction of the Commissioner on Philex’s claim during the 120-day period is, by express provision of law, "deemed a denial" of Philex’s claim. Philex had 30 days from the expiration of the 120-day period to file its judicial claim with the CTA. Philex’s failure to do so rendered the "deemed a denial" decision of the Commissioner final and inappealable. The right to appeal to the CTA from a decision or "deemed a denial" decision of the Commissioner is merely a statutory privilege, not a constitutional right. The exercise of such statutory privilege requires strict compliance with the conditions attached by the statute for its exercise.59 Philex failed to comply with the statutory conditions and must thus bear the consequences.

II. Prescriptive Periods under Section 112(A) and (C)

There are three compelling reasons why the 30-day period need not necessarily fall within the two-year prescriptive period, as long as the administrative claim is filed within the two-year prescriptive period.

First, Section 112(A) clearly, plainly, and unequivocally provides that the taxpayer "may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of the creditable input tax due or paid to such sales." In short, the law states that the taxpayer may apply with the Commissioner for a refund or credit "within two (2) years," which means at anytime within two years. Thus, the application for refund or credit may be filed by the taxpayer with the Commissioner on the last day of the two-year prescriptive period and it will still strictly comply with the law. The twoyear prescriptive period is a grace period in favor of the taxpayer and he can avail of the full period before his right to apply for a tax refund or credit is barred by prescription.

Second, Section 112(C) provides that the Commissioner shall decide the application for refund or credit "within one hundred twenty (120) days from the date of submission of complete documents in support of the application filed in accordance with Subsection (A)." The reference in Section 112(C) of the submission of documents "in support of the application filed in accordance with Subsection A" means that the application in Section 112(A) is the administrative claim that the Commissioner must decide within the 120-day period. In short, the two-year prescriptive period in Section 112(A) refers to the period within which the taxpayer can file an administrative claim for tax refund or credit. Stated otherwise, the two-year

prescriptive period does not refer to the filing of the judicial claim with the CTA but to the filing of the administrative claim with the Commissioner. As held in Aichi, the "phrase ‘within two years x x x apply for the issuance of a tax credit or refund’ refers to applications for refund/credit with the CIR and not to appeals made to the CTA."

Third, if the 30-day period, or any part of it, is required to fall within the two-year prescriptive period (equivalent to 730 days60), then the taxpayer must file his administrative claim for refund or credit within the first 610 days of the two-year prescriptive period. Otherwise, the filing of the administrative claim beyond the first 610 days will result in the appeal to the CTA being filed beyond the two-year prescriptive period. Thus, if the taxpayer files his administrative claim on the 611th day, the Commissioner, with his 120-day period, will have until the 731st day to decide the claim. If the Commissioner decides only on the 731st day, or does not decide at all, the taxpayer can no longer file his judicial claim with the CTA because the two-year prescriptive period (equivalent to 730 days) has lapsed. The 30-day period granted by law to the taxpayer to file an appeal before the CTA becomes utterly useless, even if the taxpayer complied with the law by filing his administrative claim within the two-year prescriptive period.

The theory that the 30-day period must fall within the two-year prescriptive period adds a condition that is not found in the law. It results in truncating 120 days from the 730 days that the law grants the taxpayer for filing his administrative claim with the Commissioner. This Court cannot interpret a law to defeat, wholly or even partly, a remedy that the law expressly grants in clear, plain, and unequivocal language.

Section 112(A) and (C) must be interpreted according to its clear, plain, and unequivocal language. The taxpayer can file his administrative claim for refund or credit at anytime within the two-year prescriptive period. If he files his claim on the last day of the two-year prescriptive period, his claim is still filed on time. The Commissioner will have 120 days from such filing to decide the claim. If the Commissioner decides the claim on the 120th day, or does not decide it on that day, the taxpayer still has 30 days to file his judicial claim with the CTA. This is not only the plain meaning but also the only logical interpretation of Section 112(A) and (C).

III. "Excess" Input VAT and "Excessively" Collected Tax

The input VAT is not "excessively" collected as understood under Section 229 because at the time the input VAT is collected the amount paid is correct and proper. The input VAT is a tax liability of, and legally paid by, a VAT-registered seller61 of goods, properties or services used as input by another VAT-registered person in the sale of his own goods, properties, or services. This tax liability is true even if the seller passes on the input VAT to the buyer as part of the purchase price. The second VAT-registered person, who is not legally liable for the input VAT, is the one who applies the input VAT as credit for his own output VAT.62 If the input VAT is in fact "excessively" collected as understood under Section 229, then it is the first VAT-registered person - the taxpayer who is legally liable and who is deemed to have legally paid for the input VAT - who can ask for a tax refund or credit under Section 229 as an ordinary refund or credit outside of the VAT System. In such event, the second VAT-registered taxpayer will have no input VAT to offset against his own output VAT.

In a claim for refund or credit of "excess" input VAT under Section 110(B) and Section 112(A), the input VAT is not "excessively" collected as understood under Section 229. At the time of payment of

the input VAT the amount paid is the correct and proper amount. Under the VAT System, there is no claim or issue that the input VAT is "excessively" collected, that is, that the input VAT paid is more than what is legally due. The person legally liable for the input VAT cannot claim that he overpaid the input VAT by the mere existence of an "excess" input VAT. The term "excess" input VAT simply means that the input VAT available as credit exceeds the output VAT, not that the input VAT is excessively collected because it is more than what is legally due. Thus, the taxpayer who legally paid the input VAT cannot claim for refund or credit of the input VAT as "excessively" collected under Section 229.

Under Section 229, the prescriptive period for filing a judicial claim for refund is two years from the date of payment of the tax "erroneously, x x x illegally, x x x excessively or in any manner wrongfully collected." The prescriptive period is reckoned from the date the person liable for the tax pays the tax. Thus, if the input VAT is in fact "excessively" collected, that is, the person liable for the tax actually pays more than what is legally due, the taxpayer must file a judicial claim for refund within two years from his date of payment. Only the person legally liable to pay the tax can file the judicial claim for refund. The person to whom the tax is passed on as part of the purchase price has no personality to file the judicial claim under Section 229.63

Under Section 110(B) and Section 112(A), the prescriptive period for filing a judicial claim for "excess" input VAT is two years from the close of the taxable quarter when the sale was made by the person legally liable to pay the output VAT. This prescriptive period has no relation to the date of payment of the "excess" input VAT. The "excess" input VAT may have been paid for more than two years but this does not bar the filing of a judicial claim for "excess" VAT under Section 112(A), which has a different reckoning period from Section 229. Moreover, the person claiming the refund or credit of the input VAT is not the person who legally paid the input VAT. Such person seeking the VAT refund or credit does not claim that the input VAT was "excessively" collected from him, or that he paid an input VAT that is more than what is legally due. He is not the taxpayer who legally paid the input VAT.

As its name implies, the Value-Added Tax system is a tax on the value added by the taxpayer in the chain of transactions. For simplicity and efficiency in tax collection, the VAT is imposed not just on the value added by the taxpayer, but on the entire selling price of his goods, properties or services. However, the taxpayer is allowed a refund or credit on the VAT previously paid by those who sold him the inputs for his goods, properties, or services. The net effect is that the taxpayer pays the VAT only on the value that he adds to the goods, properties, or services that he actually sells.

Under Section 110(B), a taxpayer can apply his input VAT only against his output VAT. The only exception is when the taxpayer is expressly "zero-rated or effectively zero-rated" under the law, like companies generating power through renewable sources of energy.64 Thus, a non zero-rated VAT-registered taxpayer who has no output VAT because he has no sales cannot claim a tax refund or credit of his unused input VAT under the VAT System. Even if the taxpayer has sales but his input VAT exceeds his output VAT, he cannot seek a tax refund or credit of his "excess" input VAT under the VAT System. He can only carry-over and apply his "excess" input VAT against his future output VAT. If such "excess" input VAT is an "excessively" collected tax, the taxpayer should be able to seek a refund or credit for such "excess" input VAT whether or not he has output VAT. The VAT System does not allow such refund or credit. Such "excess" input VAT is not an "excessively" collected tax under Section 229. The "excess" input VAT is a correctly and properly collected tax. However, such "excess" input VAT can be applied against the output VAT because the VAT is a tax imposed only on

the value added by the taxpayer. If the input VAT is in fact "excessively" collected under Section 229, then it is the person legally liable to pay the input VAT, not the person to whom the tax was passed on as part of the purchase price and claiming credit for the input VAT under the VAT System, who can file the judicial claim under Section 229.

Any suggestion that the "excess" input VAT under the VAT System is an "excessively" collected tax under Section 229 may lead taxpayers to file a claim for refund or credit for such "excess" input VAT under Section 229 as an ordinary tax refund or credit outside of the VAT System. Under Section 229, mere payment of a tax beyond what is legally due can be claimed as a refund or credit. There is no requirement under Section 229 for an output VAT or subsequent sale of goods, properties, or services using materials subject to input VAT.

From the plain text of Section 229, it is clear that what can be refunded or credited is a tax that is "erroneously, x x x illegally, x x x excessively or in any manner wrongfully collected." In short, there must be a wrongful payment because what is paid, or part of it, is not legally due. As the Court held in Mirant, Section 229 should "apply only to instances of erroneous payment or illegal collection of internal revenue taxes." Erroneous or wrongful payment includes excessive payment because they all refer to payment of taxes not legally due. Under the VAT System, there is no claim or issue that the "excess" input VAT is "excessively or in any manner wrongfully collected." In fact, if the "excess" input VAT is an "excessively" collected tax under Section 229, then the taxpayer claiming to apply such "excessively" collected input VAT to offset his output VAT may have no legal basis to make such offsetting. The person legally liable to pay the input VAT can claim a refund or credit for such "excessively" collected tax, and thus there will no longer be any "excess" input VAT. This will upend the present VAT System as we know it.

IV. Effectivity and Scope of the Atlas , Mirant and Aichi Doctrines

The Atlas doctrine, which held that claims for refund or credit of input VAT must comply with the two-year prescriptive period under Section 229, should be effective only from its promulgation on 8 June 2007 until its abandonment on 12 September 2008 in Mirant. The Atlas doctrine was limited to the reckoning of the two-year prescriptive period from the date of payment of the output VAT. Prior to the Atlas doctrine, the two-year prescriptive period for claiming refund or credit of input VAT should be governed by Section 112(A) following the verba legis rule. The Mirant ruling, which abandoned the Atlas doctrine, adopted the verba legis rule, thus applying Section 112(A) in computing the two-year prescriptive period in claiming refund or credit of input VAT.

The Atlas doctrine has no relevance to the 120+30 day periods under Section 112(C) because the application of the 120+30 day periods was not in issue in Atlas. The application of the 120+30 day periods was first raised in Aichi, which adopted the verba legis rule in holding that the 120+30 day periods are mandatory and jurisdictional. The language of Section 112(C) is plain, clear, and unambiguous. When Section 112(C) states that "the Commissioner shall grant a refund or issue the tax credit within one hundred twenty (120) days from the date of submission of complete documents," the law clearly gives the Commissioner 120 days within which to decide the taxpayer’s claim. Resort to the courts prior to the expiration of the 120-day period is a patent violation of the doctrine of exhaustion of administrative remedies, a ground for dismissing the judicial suit due to prematurity. Philippine jurisprudence is awash with cases affirming and reiterating the doctrine of exhaustion of administrative remedies.65 Such doctrine is basic and elementary.

When Section 112(C) states that "the taxpayer affected may, within thirty (30) days from receipt of the decision denying the claim or after the expiration of the one hundred twenty-day period, appeal the decision or the unacted claim with the Court of Tax Appeals," the law does not make the 120+30 day periods optional just because the law uses the word "may." The word "may" simply means that the taxpayer may or may not appeal the decision of the Commissioner within 30 days from receipt of the decision, or within 30 days from the expiration of the 120-day period. Certainly, by no stretch of the imagination can the word "may" be construed as making the 120+30 day periods optional, allowing the taxpayer to file a judicial claim one day after filing the administrative claim with the Commissioner.

The old rule66 that the taxpayer may file the judicial claim, without waiting for the Commissioner’s decision if the two-year prescriptive period is about to expire, cannot apply because that rule was adopted before the enactment of the 30-day period. The 30-day period was adopted precisely to do away with the old rule, so that under the VAT System the taxpayer will always have 30 days to file the judicial claim even if the Commissioner acts only on the 120th day, or does not act at all during the 120-day period. With the 30-day period always available to the taxpayer, the taxpayer can no longer file a judicial claim for refund or credit of input VAT without waiting for the Commissioner to decide until the expiration of the 120-day period.

To repeat, a claim for tax refund or credit, like a claim for tax exemption, is construed strictly against the taxpayer. One of the conditions for a judicial claim of refund or credit under the VAT System is compliance with the 120+30 day mandatory and jurisdictional periods. Thus, strict compliance with the 120+30 day periods is necessary for such a claim to prosper, whether before, during, or after the effectivity of the Atlas doctrine, except for the period from the issuance of BIR Ruling No. DA-489-03 on 10 December 2003 to 6 October 2010 when the Aichi doctrine was adopted, which again reinstated the 120+30 day periods as mandatory and jurisdictional.

V. Revenue Memorandum Circular No. 49-03 (RMC 49-03) dated 15 April 2003

There is nothing in RMC 49-03 that states, expressly or impliedly, that the taxpayer need not wait for the 120-day period to expire before filing a judicial claim with the CTA. RMC 49-03 merely authorizes the BIR to continue processing the administrative claim even after the taxpayer has filed its judicial claim, without saying that the taxpayer can file its judicial claim before the expiration of the 120-day period. RMC 49-03 states: "In cases where the taxpayer has filed a ‘Petition for Review’ with the Court of Tax Appeals involving a claim for refund/TCC that is pending at the administrative agency (either the Bureau of Internal Revenue or the One- Stop Shop Inter-Agency Tax Credit and Duty Drawback Center of the Department of Finance), the administrative agency and the court may act on the case separately." Thus, if the taxpayer files its judicial claim before the expiration of the 120-day period, the BIR will nevertheless continue to act on the administrative claim because such premature filing cannot divest the Commissioner of his statutory power and jurisdiction to decide the administrative claim within the 120-day period.

On the other hand, if the taxpayer files its judicial claim after the 120- day period, the Commissioner can still continue to evaluate the administrative claim. There is nothing new in this because even after the expiration of the 120-day period, the Commissioner should still evaluate internally the administrative claim for purposes of opposing the taxpayer’s judicial claim, or even for purposes of determining if the BIR should actually concede to the taxpayer’s judicial claim. The internal administrative evaluation of the taxpayer’s claim must necessarily continue to enable the BIR to oppose intelligently the judicial claim or, if the facts and the law warrant otherwise, for the BIR to

concede to the judicial claim, resulting in the termination of the judicial proceedings.

What is important, as far as the present cases are concerned, is that the mere filing by a taxpayer of a judicial claim with the CTA before the expiration of the 120-day period cannot operate to divest the Commissioner of his jurisdiction to decide an administrative claim within the 120-day mandatory period, unless the Commissioner has clearly given cause for equitable estoppel to apply as expressly recognized in Section 246 of the Tax Code.67

VI. BIR Ruling No. DA-489-03 dated 10 December 2003

BIR Ruling No. DA-489-03 does provide a valid claim for equitable estoppel under Section 246 of the Tax Code. BIR Ruling No. DA-489-03 expressly states that the "taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek judicial relief with the CTA by way of Petition for Review." Prior to this ruling, the BIR held, as shown by its position in the Court of Appeals,68 that the expiration of the 120-day period is mandatory and jurisdictional before a judicial claim can be filed.

There is no dispute that the 120-day period is mandatory and jurisdictional, and that the CTA does not acquire jurisdiction over a judicial claim that is filed before the expiration of the 120-day period. There are, however, two exceptions to this rule. The first exception is if the Commissioner, through a specific ruling, misleads a particular taxpayer to prematurely file a judicial claim with the CTA. Such specific ruling is applicable only to such particular taxpayer. The second exception is where the Commissioner, through a general interpretative rule issued under Section 4 of the Tax Code, misleads all taxpayers into filing prematurely judicial claims with the CTA. In these cases, the Commissioner cannot be allowed to later on question the CTA’s assumption of jurisdiction over such claim since equitable estoppel has set in as expressly authorized under Section 246 of the Tax Code.

Section 4 of the Tax Code, a new provision introduced by RA 8424, expressly grants to the Commissioner the power to interpret tax laws, thus:

Sec. 4. Power of the Commissioner To Interpret Tax Laws and To Decide Tax Cases. — The power to interpret the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner, subject to review by the Secretary of Finance.

The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under this Code or other laws or portions thereof administered by the Bureau of Internal Revenue is vested in the Commissioner, subject to the exclusive appellate jurisdiction of the Court of Tax Appeals.

Since the Commissioner has exclusive and original jurisdiction to interpret tax laws, taxpayers acting in good faith should not be made to suffer for adhering to general interpretative rules of the Commissioner interpreting tax laws, should such interpretation later turn out to be erroneous and be reversed by the Commissioner or this Court. Indeed, Section 246 of the Tax Code expressly provides that a reversal of a BIR regulation or ruling cannot adversely prejudice a taxpayer who in good faith relied on the BIR regulation or ruling prior to its reversal. Section 246 provides as follows:

Sec. 246. Non-Retroactivity of Rulings. — Any revocation, modification or reversal of any of the rules and regulations promulgated in accordance with the preceding Sections or any of the rulings or

circulars promulgated by the Commissioner shall not be given retroactive application if the revocation, modification or reversal will be prejudicial to the taxpayers, except in the following cases:

(a) Where the taxpayer deliberately misstates or omits material facts from his return or any document required of him by the Bureau of Internal Revenue;

(b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based; or

(c) Where the taxpayer acted in bad faith. (Emphasis supplied)

Thus, a general interpretative rule issued by the Commissioner may be relied upon by taxpayers from the time the rule is issued up to its reversal by the Commissioner or this Court. Section 246 is not limited to a reversal only by the Commissioner because this Section expressly states, "Any revocation, modification or reversal" without specifying who made the revocation, modification or reversal. Hence, a reversal by this Court is covered under Section 246.

Taxpayers should not be prejudiced by an erroneous interpretation by the Commissioner, particularly on a difficult question of law. The abandonment of the Atlas doctrine by Mirant and Aichi69 is proof that the reckoning of the prescriptive periods for input VAT tax refund or credit is a difficult question of law. The abandonment of the Atlas doctrine did not result in Atlas, or other taxpayers similarly situated, being made to return the tax refund or credit they received or could have received under Atlas prior to its abandonment. This Court is applying Mirant and Aichi prospectively. Absent fraud, bad faith or misrepresentation, the reversal by this Court of a general interpretative rule issued by the Commissioner, like the reversal of a specific BIR ruling under Section 246, should also apply prospectively. As held by this Court in CIR v. Philippine Health Care Providers, Inc.:70

In ABS-CBN Broadcasting Corp. v. Court of Tax Appeals, this Court held that under Section 246 of the 1997 Tax Code, the Commissioner of Internal Revenue is precluded from adopting a position contrary to one previously taken where injustice would result to the taxpayer. Hence, where an assessment for deficiency withholding income taxes was made, three years after a new BIR Circular reversed a previous one upon which the taxpayer had relied upon, such an assessment was prejudicial to the taxpayer. To rule otherwise, opined the Court, would be contrary to the tenets of good faith, equity, and fair play.

This Court has consistently reaffirmed its ruling in ABS-CBN Broadcasting Corp.1âwphi1 in the later cases of Commissioner of Internal Revenue v. Borroughs, Ltd., Commissioner of Internal Revenue v. Mega Gen. Mdsg. Corp., Commissioner of Internal Revenue v. Telefunken Semiconductor (Phils.) Inc., and Commissioner of Internal Revenue v. Court of Appeals. The rule is that the BIR rulings have no retroactive effect where a grossly unfair deal would result to the prejudice of the taxpayer, as in this case.

More recently, in Commissioner of Internal Revenue v. Benguet Corporation, wherein the taxpayer was entitled to tax refunds or credits based on the BIR’s own issuances but later was suddenly saddled with deficiency taxes due to its subsequent ruling changing the category of the taxpayer’s transactions for the purpose of paying its VAT, this Court ruled that applying such ruling retroactively would be prejudicial to the taxpayer. (Emphasis supplied)

Thus, the only issue is whether BIR Ruling No. DA-489-03 is a general interpretative rule applicable to all taxpayers or a specific ruling applicable only to a particular taxpayer.

BIR Ruling No. DA-489-03 is a general interpretative rule because it was a response to a query made, not by a particular taxpayer, but by a government agency tasked with processing tax refunds and credits, that is, the One Stop Shop Inter-Agency Tax Credit and Drawback Center of the Department of Finance. This government agency is also the addressee, or the entity responded to, in BIR Ruling No. DA-489-03. Thus, while this government agency mentions in its query to the Commissioner the administrative claim of Lazi Bay Resources Development, Inc., the agency was in fact asking the Commissioner what to do in cases like the tax claim of Lazi Bay Resources Development, Inc., where the taxpayer did not wait for the lapse of the 120-day period.

Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule. Thus, all taxpayers can rely on BIR Ruling No. DA-489-03 from the time of its issuance on 10 December 2003 up to its reversal by this Court in Aichi on 6 October 2010, where this Court held that the 120+30 day periods are mandatory and jurisdictional

However, BIR Ruling No. DA-489-03 cannot be given retroactive effect for four reasons: first, it is admittedly an erroneous interpretation of the law; second, prior to its issuance, the BIR held that the 120-day period was mandatory and jurisdictional, which is the correct interpretation of the law; third, prior to its issuance, no taxpayer can claim that it was misled by the BIR into filing a judicial claim prematurely; and fourth, a claim for tax refund or credit, like a claim for tax exemption, is strictly construed against the taxpayer.

San Roque, therefore, cannot benefit from BIR Ruling No. DA-489-03 because it filed its judicial claim prematurely on 10 April 2003, before the issuance of BIR Ruling No. DA-489-03 on 10 December 2003. To repeat, San Roque cannot claim that it was misled by the BIR into filing its judicial claim prematurely because BIR Ruling No. DA-489-03 was issued only after San Roque filed its judicial claim. At the time San Roque filed its judicial claim, the law as applied and administered by the BIR was that the Commissioner had 120 days to act on administrative claims. This was in fact the position of the BIR prior to the issuance of BIR Ruling No. DA-489-03. Indeed, San Roque never claimed the benefit of BIR Ruling No. DA-489-03 or RMC 49-03, whether in this Court, the CTA, or before the Commissioner.

Taganito, however, filed its judicial claim with the CTA on 14 February 2007, after the issuance of BIR Ruling No. DA-489-03 on 10 December 2003. Truly, Taganito can claim that in filing its judicial claim prematurely without waiting for the 120-day period to expire, it was misled by BIR Ruling No. DA-489-03. Thus, Taganito can claim the benefit of BIR Ruling No. DA-489-03, which shields the filing of its judicial claim from the vice of prematurity.

Philex’s situation is not a case of premature filing of its judicial claim but of late filing, indeed very late filing. BIR Ruling No. DA-489-03 allowed premature filing of a judicial claim, which means non-exhaustion of the 120-day period for the Commissioner to act on an administrative claim. Philex cannot claim the benefit of BIR Ruling No. DA-489-03 because Philex did not file its judicial claim prematurely but filed it long after the lapse of the 30-day period following the expiration of the 120-day period. In fact, Philex filed its judicial claim 426 days after the lapse of the 30-day period.

VII. Existing Jurisprudence

There is no basis whatsoever to the claim that in five cases this Court had already made a ruling that the filing dates of the administrative and judicial claims are inconsequential, as long as they are within the two-year prescriptive period. The effect of the claim of the dissenting opinions is that San Roque’s failure to wait for the 120-day mandatory period to lapse is inconsequential, thus allowing San Roque to claim the tax refund or credit. However, the five cases cited by the dissenting opinions do not support even remotely the claim that this Court had already made such a ruling. None of these five cases mention, cite, discuss, rule or even hint that compliance with the 120-day mandatory period is inconsequential as long as the administrative and judicial claims are filed within the two-year prescriptive period.

In CIR v. Toshiba Information Equipment (Phils.), Inc.,71 the issue was whether any output VAT was actually passed on to Toshiba that it could claim as input VAT subject to tax credit or refund. The Commissioner argued that "although Toshiba may be a VAT-registered taxpayer, it is not engaged in a VAT-taxable business." The Commissioner cited Section 4.106-1 of Revenue Regulations No. 75 that "refund of input taxes on capital goods shall be allowed only to the extent that such capital goods are used in VAT-taxable business." In the words of the Court, "Ultimately, however, the issue still to be resolved herein shall be whether respondent Toshiba is entitled to the tax credit/refund of its input VAT on its purchases of capital goods and services, to which this Court answers in the affirmative." Nowhere in this case did the Court discuss, state, or rule that the filing dates of the administrative and judicial claims are inconsequential, as long as they are within the two-year prescriptive period.

In Intel Technology Philippines, Inc. v. CIR,72 the Court stated: "The issues to be resolved in the instant case are (1) whether the absence of the BIR authority to print or the absence of the TIN-V in petitioner’s export sales invoices operates to forfeit its entitlement to a tax refund/credit of its unutilized input VAT attributable to its zero-rated sales; and (2) whether petitioner’s failure to indicate "TIN-V" in its sales invoices automatically invalidates its claim for a tax credit certification." Again, nowhere in this case did the Court discuss, state, or rule that the filing dates of the administrative and judicial claims are inconsequential, as long as they are within the two-year prescriptive period.

In AT&T Communications Services Philippines, Inc. v. CIR,73 the Court stated: "x x x the CTA First Division, conceding that petitioner’s transactions fall under the classification of zero-rated sales, nevertheless denied petitioner’s claim ‘for lack of substantiation,’ x x x." The Court quoted the ruling of the First Division that "valid VAT official receipts, and not mere sale invoices, should have been submitted" by petitioner to substantiate its claim. The Court further stated: "x x x the CTA En Banc, x x x affirmed x x x the CTA First Division," and "petitioner’s motion for reconsideration having been denied x x x, the present petition for review was filed." Clearly, the sole issue in this case is whether petitioner complied with the substantiation requirements in claiming for tax refund or credit. Again, nowhere in this case did the Court discuss, state, or rule that the filing dates of the administrative and judicial claims are inconsequential, as long as they are within the two-year prescriptive period.

In CIR v. Ironcon Builders and Development Corporation,74 the Court put the issue in this manner: "Simply put, the sole issue the petition raises is whether or not the CTA erred in granting respondent Ironcon’s application for refund of its excess creditable VAT withheld." The Commissioner argued that "since the NIRC does not specifically grant taxpayers the option to refund excess creditable VAT withheld, it follows that such refund cannot be allowed." Thus, this case is solely about whether the taxpayer has the right under the NIRC to ask for a cash refund of excess creditable VAT withheld. Again, nowhere in this case did the Court discuss, state, or rule that the filing dates of the administrative and judicial claims are inconsequential, as long as they are within the two-year

prescriptive period.

In CIR v. Cebu Toyo Corporation,75 the issue was whether Cebu Toyo was exempt or subject to VAT. Compliance with the 120-day period was never an issue in Cebu Toyo. As the Court explained:

Both the Commissioner of Internal Revenue and the Office of the Solicitor General argue that respondent Cebu Toyo Corporation, as a PEZA-registered enterprise, is exempt from national and local taxes, including VAT, under Section 24 of Rep. Act No. 7916 and Section 109 of the NIRC. Thus, they contend that respondent Cebu Toyo Corporation is not entitled to any refund or credit on input taxes it previously paid as provided under Section 4.103-1 of Revenue Regulations No. 7-95, notwithstanding its registration as a VAT taxpayer. For petitioner claims that said registration was erroneous and did not confer upon the respondent any right to claim recognition of the input tax credit.

The respondent counters that it availed of the income tax holiday under E.O. No. 226 for four years from August 7, 1995 making it exempt from income tax but not from other taxes such as VAT. Hence, according to respondent, its export sales are not exempt from VAT, contrary to petitioner’s claim, but its export sales is subject to 0% VAT. Moreover, it argues that it was able to establish through a report certified by an independent Certified Public Accountant that the input taxes it incurred from April 1, 1996 to December 31, 1997 were directly attributable to its export sales. Since it did not have any output tax against which said input taxes may be offset, it had the option to file a claim for refund/tax credit of its unutilized input taxes.

Considering the submission of the parties and the evidence on record, we find the petition bereft of merit.

Petitioner’s contention that respondent is not entitled to refund for being exempt from VAT is untenable. This argument turns a blind eye to the fiscal incentives granted to PEZA-registered enterprises under Section 23 of Rep. Act No. 7916. Note that under said statute, the respondent had two options with respect to its tax burden. It could avail of an income tax holiday pursuant to provisions of E.O. No. 226, thus exempt it from income taxes for a number of years but not from other internal revenue taxes such as VAT; or it could avail of the tax exemptions on all taxes, including VAT under P.D. No. 66 and pay only the preferential tax rate of 5% under Rep. Act No. 7916. Both the Court of Appeals and the Court of Tax Appeals found that respondent availed of the income tax holiday for four (4) years starting from August 7, 1995, as clearly reflected in its 1996 and 1997 Annual Corporate Income Tax Returns, where respondent specified that it was availing of the tax relief under E.O. No. 226. Hence, respondent is not exempt from VAT and it correctly registered itself as a VAT taxpayer. In fine, it is engaged in taxable rather than exempt transactions. (Emphasis supplied)

Clearly, the issue in Cebu Toyo was whether the taxpayer was exempt from VAT or subject to VAT at 0% tax rate. If subject to 0% VAT rate, the taxpayer could claim a refund or credit of its input VAT. Again, nowhere in this case did the Court discuss, state, or rule that the filing dates of the administrative and judicial claims are inconsequential, as long as they are within the two-year prescriptive period.

While this Court stated in the narration of facts in Cebu Toyo that the taxpayer "did not bother to wait for the Resolution of its (administrative) claim by the CIR" before filing its judicial claim with the CTA, this issue was not raised before the Court. Certainly, this statement of the Court is not a binding precedent that the taxpayer need not wait for the 120-day period to lapse.

Any issue, whether raised or not by the parties, but not passed upon by the Court, does not have any value as precedent. As this Court has explained as early as 1926:

It is contended, however, that the question before us was answered and resolved against the contention of the appellant in the case of Bautista vs. Fajardo (38 Phil. 624). In that case no question was raised nor was it even suggested that said section 216 did not apply to a public officer. That question was not discussed nor referred to by any of the parties interested in that case. It has been frequently decided that the fact that a statute has been accepted as valid, and invoked and applied for many years in cases where its validity was not raised or passed on, does not prevent a court from later passing on its validity, where that question is squarely and properly raised and presented. Where a question passes the Court sub silentio, the case in which the question was so passed is not binding on the Court (McGirr vs. Hamilton and Abreu, 30 Phil. 563), nor should it be considered as a precedent. (U.S. vs. Noriega and Tobias, 31 Phil. 310; Chicote vs. Acasio, 31 Phil. 401; U.S. vs. More, 3 Cranch [U.S.] 159, 172; U.S. vs. Sanges, 144 U.S. 310, 319; Cross vs. Burke, 146 U.S. 82.) For the reasons given in the case of McGirr vs. Hamilton and Abreu, supra, the decision in the case of Bautista vs. Fajardo, supra, can have no binding force in the interpretation of the question presented here.76 (Emphasis supplied)

In Cebu Toyo, the nature of the 120-day period, whether it is mandatory or optional, was not even raised as an issue by any of the parties. The Court never passed upon this issue. Thus, Cebu Toyo does not constitute binding precedent on the nature of the 120-day period.

There is also the claim that there are numerous CTA decisions allegedly supporting the argument that the filing dates of the administrative and judicial claims are inconsequential, as long as they are within the two-year prescriptive period. Suffice it to state that CTA decisions do not constitute precedents, and do not bind this Court or the public. That is why CTA decisions are appealable to this Court, which may affirm, reverse or modify the CTA decisions as the facts and the law may warrant. Only decisions of this Court constitute binding precedents, forming part of the Philippine legal system.77 As held by this Court in The Philippine Veterans Affairs Office v. Segundo:78

x x x Let it be admonished that decisions of the Supreme Court "applying or interpreting the laws or the Constitution . . . form part of the legal system of the Philippines," and, as it were, "laws" by their own right because they interpret what the laws say or mean. Unlike rulings of the lower courts, which bind the parties to specific cases alone, our judgments are universal in their scope and application, and equally mandatory in character. Let it be warned that to defy our decisions is to court contempt. (Emphasis supplied)

The same basic doctrine was reiterated by this Court in De Mesa v. Pepsi Cola Products Phils., Inc.:79

The principle of stare decisis et non quieta movere is entrenched in Article 8 of the Civil Code, to wit:

ART. 8. Judicial decisions applying or interpreting the laws or the Constitution shall form a part of the legal system of the Philippines.

It enjoins adherence to judicial precedents. It requires our courts to follow a rule already established in a final decision of the Supreme Court. That decision becomes a judicial precedent to be followed in subsequent cases by all courts in the land. The doctrine of stare decisis is based on the principle that once a question of law has been examined and decided, it should be deemed settled and

closed to further argument. (Emphasis supplied)

VIII. Revenue Regulations No. 7-95 Effective 1 January 1996

Section 4.106-2(c) of Revenue Regulations No. 7-95, by its own express terms, applies only if the taxpayer files the judicial claim "after" the lapse of the 60-day period, a period with which San Roque failed to comply. Under Section 4.106-2(c), the 60-day period is still mandatory and jurisdictional.

Moreover, it is a hornbook principle that a prior administrative regulation can never prevail over a later contrary law, more so in this case where the later law was enacted precisely to amend the prior administrative regulation and the law it implements.

The laws and regulation involved are as follows:

1977 Tax Code, as amended by Republic Act No. 7716 (1994)

Sec. 106. Refunds or tax credits of creditable input tax. —

(a) x x x x

(d) Period within which refund or tax credit of input tax shall be made - In proper cases, the Commissioner shall grant a refund or issue the tax credit for creditable input taxes within sixty (60) days from the date of submission of complete documents in support of the application filed in accordance with subparagraphs (a) and (b) hereof. In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within thirty (30) days from receipt of the decision denying the claim or after the expiration of the sixty-day period, appeal the decision or the unacted claim with the Court of Tax Appeals.

Revenue Regulations No. 7-95 (1996)

Section 4.106-2. Procedures for claiming refunds or tax credits of input tax — (a) x x x

x x x x

(c) Period within which refund or tax credit of input taxes shall be made. — In proper cases, the Commissioner shall grant a tax credit/refund for creditable input taxes within sixty (60) days from the date of submission of complete documents in support of the application filed in accordance with subparagraphs (a) and (b) above.

In case of full or partial denial of the claim for tax credit/refund as decided by the Commissioner of Internal Revenue, the taxpayer may appeal to the Court of Tax Appeals within thirty (30) days from the receipt of said denial, otherwise the decision will become final. However, if no action on the claim for tax credit/refund has been taken by the Commissioner of Internal Revenue after the sixty (60) day period from the date of submission of the application but before the lapse of the two (2) year period from the date of filing of the VAT return for the taxable quarter, the taxpayer may appeal

to the Court of Tax Appeals.

x x x x

1997 Tax Code

Section 112. Refunds or Tax Credits of Input Tax —

(A) x x x

x x x x

(D) Period within which Refund or Tax Credit of Input Taxes shall be made. — In proper cases, the Commissioner shall grant the refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) days from the date of submission of complete documents in support of the application filed in accordance with Subsections (A) and (B) hereof.

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals.

There can be no dispute that under Section 106(d) of the 1977 Tax Code, as amended by RA 7716, the Commissioner has a 60-day period to act on the administrative claim. This 60-day period is mandatory and jurisdictional.

Did Section 4.106-2(c) of Revenue Regulations No. 7-95 change this, so that the 60-day period is no longer mandatory and jurisdictional? The obvious answer is no.

Section 4.106-2(c) itself expressly states that if, "after the sixty (60) day period," the Commissioner fails to act on the administrative claim, the taxpayer may file the judicial claim even "before the lapse of the two (2) year period." Thus, under Section 4.106-2(c) the 60-day period is still mandatory and jurisdictional.

Section 4.106-2(c) did not change Section 106(d) as amended by RA 7716, but merely implemented it, for two reasons. First, Section 4.106-2(c) still expressly requires compliance with the 60-day period. This cannot be disputed.1âwphi1

Second, under the novel amendment introduced by RA 7716, mere inaction by the Commissioner during the 60-day period is deemed a denial of the claim. Thus, Section 4.106-2(c) states that "if no action on the claim for tax refund/credit has been taken by the Commissioner after the sixty (60) day period," the taxpayer "may" already file the judicial claim even long before the lapse of the two-year prescriptive period. Prior to the amendment by RA 7716, the taxpayer had to wait until the two-year prescriptive period was about to expire if the Commissioner did not act on the claim.80 With the amendment by RA 7716, the taxpayer need not wait until the two-year prescriptive period is about to expire before filing the judicial claim because mere inaction by the Commissioner during the 60-day

period is deemed a denial of the claim. This is the meaning of the phrase "but before the lapse of the two (2) year period" in Section 4.106-2(c). As Section 4.106- 2(c) reiterates that the judicial claim can be filed only "after the sixty (60) day period," this period remains mandatory and jurisdictional. Clearly, Section 4.106-2(c) did not amend Section 106(d) but merely faithfully implemented it.

Even assuming, for the sake of argument, that Section 4.106-2(c) of Revenue Regulations No. 7-95, an administrative issuance, amended Section 106(d) of the Tax Code to make the period given to the Commissioner non-mandatory, still the 1997 Tax Code, a much later law, reinstated the original intent and provision of Section 106(d) by extending the 60-day period to 120 days and re-adopting the original wordings of Section 106(d). Thus, Section 4.106-2(c), a mere administrative issuance, becomes inconsistent with Section 112(D), a later law. Obviously, the later law prevails over a prior inconsistent administrative issuance.

Section 112(D) of the 1997 Tax Code is clear, unequivocal, and categorical that the Commissioner has 120 days to act on an administrative claim. The taxpayer can file the judicial claim (1) only within thirty days after the Commissioner partially or fully denies the claim within the 120- day period, or (2) only within thirty days from the expiration of the 120- day period if the Commissioner does not act within the 120-day period.

There can be no dispute that upon effectivity of the 1997 Tax Code on 1 January 1998, or more than five years before San Roque filed its administrative claim on 28 March 2003, the law has been clear: the 120- day period is mandatory and jurisdictional. San Roque’s claim, having been filed administratively on 28 March 2003, is governed by the 1997 Tax Code, not the 1977 Tax Code. Since San Roque filed its judicial claim before the expiration of the 120-day mandatory and jurisdictional period, San Roque’s claim cannot prosper.

San Roque cannot also invoke Section 4.106-2(c), which expressly provides that the taxpayer can only file the judicial claim "after" the lapse of the 60-day period from the filing of the administrative claim. San Roque filed its judicial claim just 13 days after filing its administrative claim. To recall, San Roque filed its judicial claim on 10 April 2003, a mere 13 days after it filed its administrative claim.

Even if, contrary to all principles of statutory construction as well as plain common sense, we gratuitously apply now Section 4.106-2(c) of Revenue Regulations No. 7-95, still San Roque cannot recover any refund or credit because San Roque did not wait for the 60-day period to lapse, contrary to the express requirement in Section 4.106-2(c). In short, San Roque does not even comply with Section 4.106-2(c). A claim for tax refund or credit is strictly construed against the taxpayer, who must prove that his claim clearly complies with all the conditions for granting the tax refund or credit. San Roque did not comply with the express condition for such statutory grant.

A final word. Taxes are the lifeblood of the nation. The Philippines has been struggling to improve its tax efficiency collection for the longest time with minimal success. Consequently, the Philippines has suffered the economic adversities arising from poor tax collections, forcing the government to continue borrowing to fund the budget deficits. This Court cannot turn a blind eye to this economic malaise by being unduly liberal to taxpayers who do not comply with statutory requirements for tax refunds or credits. The tax refund claims in the present cases are not a pittance. Many other companies stand to gain if this Court were to rule otherwise. The dissenting opinions will turn on its head the well-settled doctrine that tax refunds are strictly construed against the taxpayer.

WHEREFORE, the Court hereby (1) GRANTS the petition of the Commissioner of Internal Revenue in G.R. No. 187485 to DENY the P483,797,599.65 tax refund or credit claim of San Roque Power Corporation; (2) GRANTS the petition of Taganito Mining Corporation in G.R. No. 196113 for a tax refund or credit of P8,365,664.38; and (3) DENIES the petition of Philex Mining Corporation in G.R. No. 197156 for a tax refund or credit of P23,956,732.44.

SO ORDERED.

ANTONIO T. CARPIOAssociate Justice

THIRD DIVISION

[G.R. NO. 171460 : July 24, 2007]

LILLIAN N. MERCADO, CYNTHIA M. FEKARIS, and JULIAN MERCADO, JR., represented by their Attorney-In-Fact, ALFREDO M. PEREZ, Petitioners, v. ALLIED BANKING

CORPORATION, Respondent.

D E C I S I O N

CHICO-NAZARIO, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, filed by petitioners Lillian N. Mercado, Cynthia M. Fekaris and Julian Mercado, Jr., represented by their Attorney-In-Fact, Alfredo M. Perez, seeking to reverse and set aside the Decision1 of the Court of Appeals dated 12 October 2005, and its Resolution2 dated 15 February 2006 in CA-G.R. CV No. 82636. The Court of Appeals, in its assailed Decision and Resolution, reversed the Decision3 of the Regional Trial Court (RTC) of Quezon City, Branch 220 dated 23 September 2003, declaring the deeds of real estate mortgage constituted on TCT No. RT-18206 (106338) null and void. The dispositive portion of the assailed Court of Appeals Decision thus reads:

WHEREFORE, the appealed decision is REVERSED and SET ASIDE, and a new judgment is hereby entered dismissing the [petitioners] complaint.4

Petitioners are heirs of Perla N. Mercado (Perla). Perla, during her lifetime, owned several pieces of real property situated in different provinces of the Philippines.

Respondent, on the other hand, is a banking institution duly authorized as such under the Philippine laws.

On 28 May 1992, Perla executed a Special Power of Attorney (SPA) in favor of her husband, Julian D. Mercado (Julian) over several pieces of real property registered under her name, authorizing the latter to perform the following acts:

1. To act in my behalf, to sell, alienate, mortgage, lease and deal otherwise over the different parcels of land described hereinafter, to wit:

a) Calapan, Oriental Mindoro Properties covered by Transfer Certificates of Title Nos. T-53618 - 3,522 Square Meters, T-46810 - 3,953 Square Meters, T-53140 - 177 Square Meters, T-21403 - 263 square Meters, T - 46807 - 39 Square Meters of the Registry of Deeds of Oriental Mindoro;

b) Susana Heights, Muntinlupa covered by Transfer Certificates of Title Nos. T-108954 - 600 Square Meters and RT-106338 - 805 Square Meters of the Registry of Deeds of Pasig (now Makati);

c) Personal property - 1983 Car with Vehicle Registration No. R-16381; Model 1983; Make - Toyota; Engine No. T - 2464

2. To sign for and in my behalf any act of strict dominion or ownership any sale, disposition, mortgage, lease or any other transactions including quit-claims, waiver and relinquishment of rights in and over the parcels of land situated in General Trias, Cavite, covered by Transfer Certificates of Title Nos. T-112254 and T-112255 of the Registry of Deeds of Cavite, in conjunction with his co-owner and in the person ATTY. AUGUSTO F. DEL ROSARIO;

3. To exercise any or all acts of strict dominion or ownership over the above-mentioned properties, rights and interest therein. (Emphasis supplied.)

On the strength of the aforesaid SPA, Julian, on 12 December 1996, obtained a loan from the respondent in the amount of P3,000,000.00, secured by real estate mortgage constituted on TCT No. RT-18206 (106338) which covers a parcel of land with an area of 805 square meters, registered with the Registry of Deeds of Quezon City (subject property).5

Still using the subject property as security, Julian obtained an additional loan from the respondent in the sum of P5,000,000.00, evidenced by a Promissory Note6 he executed on 5 February 1997 as another real estate mortgage (REM).

It appears, however, that there was no property identified in the SPA as TCT No. RT - 18206 (106338) and registered with the Registry of Deeds of Quezon City. What was identified in the SPA instead was the property covered by TCT No. RT-106338 registered with the Registry of Deeds of Pasig.

Subsequently, Julian defaulted on the payment of his loan obligations. Thus, respondent initiated extra-judicial foreclosure proceedings over the subject property which was subsequently sold at public auction wherein the respondent was declared as the highest bidder as shown in the Sheriff's Certificate of Sale dated 15 January 1998.7

On 23 March 1999, petitioners initiated with the RTC an action for the annulment of REM constituted over the subject property on the ground that the same was not covered by the SPA and that the said SPA, at the time the loan obligations were contracted, no longer had force and effect since it was previously revoked by Perla on 10 March 1993, as evidenced by the Revocation of SPA signed by the latter.8

Petitioners likewise alleged that together with the copy of the Revocation of SPA, Perla, in a Letter dated 23 January 1996, notified the Registry of Deeds of Quezon City that any attempt to mortgage or sell the subject property must be with her full consent documented in the form of an SPA duly authenticated before the Philippine Consulate General in New York.9

In the absence of authority to do so, the REM constituted by Julian over the subject property was null and void; thus, petitioners likewise prayed that the subsequent extra-judicial foreclosure proceedings and the auction sale of the subject property be also nullified.

In its Answer with Compulsory Counterclaim,10 respondent averred that, contrary to petitioner's allegations, the SPA in favor of Julian included the subject property, covered by one of the titles specified in paragraph 1(b) thereof, TCT No. RT - 106338 registered with the Registry of Deeds of Pasig (now Makati). The subject property was purportedly registered previously under TCT No. T-106338, and was only subsequently reconstituted as TCT RT-18206 (106338). Moreover, TCT No. T-106338 was actually registered with the Registry of Deeds of Quezon City and not before the Registry of Deeds of Pasig (now Makati). Respondent explained that the discrepancy in the designation of the Registry of Deeds in the SPA was merely an error that must not prevail over the clear intention of Perla to include the subject property in the said SPA. In sum, the property referred to in the SPA Perla executed in favor of Julian as covered by TCT No. 106338 of the Registry of Deeds of Pasig (now Makati) and the subject property in the case at bar, covered by RT - 18206 (106338) of the Registry of Deeds of Quezon City, are one and the same.

On 23 September 2003, the RTC rendered a Decision declaring the REM constituted over the subject property null and void, for Julian was not authorized by the terms of the SPA to mortgage the same. The court a quo likewise ordered that the foreclosure proceedings and the auction sale conducted pursuant to the void REM, be nullified. The dispositive portion of the Decision reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the [herein petitioners] and against the [herein respondent] Bank:

1. Declaring the Real Estate Mortgages constituted and registered under Entry Nos. PE-4543/RT-18206 and 2012/RT-18206 annotated on TCT No. RT-18206 (106338) of the Registry of Deeds of Quezon City as NULL and VOID;

2. Declaring the Sheriff's Sale and Certificate of Sale under FRE No. 2217 dated January 15, 1998 over the property covered by TCT No. RT-18206 (106338) of the Registry of Deeds of Quezon City as NULL and VOID;

3. Ordering the defendant Registry of Deeds of Quezon City to cancel the annotation of Real Estate Mortgages appearing on Entry Nos. PE-4543/RT-18206 and 2012/RT-18206 on TCT No. RT-18206 (106338) of the Registry of Deeds of Quezon City;

4. Ordering the [respondent] Bank to deliver/return to the [petitioners] represented by their attorney-in-fact Alfredo M. Perez, the original Owner's Duplicate Copy of TCT No. RT-18206 (106338) free from the encumbrances referred to above; and cralawlibrary

5. Ordering the [respondent] Bank to pay the [petitioners] the amount of P100,000.00 as for attorney's fees plus cost of the suit.

The other claim for damages and counterclaim are hereby DENIED for lack of merit.11

Aggrieved, respondent appealed the adverse Decision before the Court of Appeals.

In a Decision dated 12 October 2005, the Court of Appeals reversed the RTC Decision and upheld the validity of the REM constituted over the subject property on the strength of the SPA. The appellate court declared that Perla intended the subject property to be included in the SPA she executed in favor of Julian, and that her subsequent revocation of the said SPA, not being contained in a public instrument, cannot bind third persons.

The Motion for Reconsideration interposed by the petitioners was denied by the Court of Appeals in its Resolution dated 15 February 2006.

Petitioners are now before us assailing the Decision and Resolution rendered by the Court of Appeals raising several issues, which are summarized as follows:

I WHETHER OR NOT THERE WAS A VALID MORTGAGE CONSTITUTED OVER SUBJECT PROPERTY.

II WHETHER OR NOT THERE WAS A VALID REVOCATION OF THE SPA.

III WHETHER OR NOT THE RESPONDENT WAS A MORTGAGEE-IN - GOOD FAITH.

For a mortgage to be valid, Article 2085 of the Civil Code enumerates the following essential requisites:

Art. 2085. The following requisites are essential to the contracts of pledge and mortgage:

(1) That they be constituted to secure the fulfillment of a principal obligation;

(2) That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged;

(3) That the persons constituting the pledge or mortgage have the free disposal of their property, and in the absence thereof, that they be legally authorized for the purpose.

Third persons who are not parties to the principal obligation may secure the latter by pledging or mortgaging their own property.

In the case at bar, it was Julian who obtained the loan obligations from respondent which he secured with the mortgage of the subject property. The property mortgaged was owned by his wife, Perla, considered a third party to the loan obligations between Julian and respondent. It was, thus, a situation recognized by the last paragraph of Article 2085 of the Civil Code afore-quoted. However, since it was not Perla who personally mortgaged her own property to secure Julian's loan obligations with respondent, we proceed to determining if she duly authorized Julian to do so on her behalf.

Under Article 1878 of the Civil Code, a special power of attorney is necessary in cases where real rights over immovable property are created or conveyed.12 In the SPA executed by Perla in favor of

Julian on 28 May 1992, the latter was conferred with the authority to "sell, alienate, mortgage, lease and deal otherwise" the different pieces of real and personal property registered in Perla's name. The SPA likewise authorized Julian "[t]o exercise any or all acts of strict dominion or ownership" over the identified properties, and rights and interest therein. The existence and due execution of this SPA by Perla was not denied or challenged by petitioners.

There is no question therefore that Julian was vested with the power to mortgage the pieces of property identified in the SPA. However, as to whether the subject property was among those identified in the SPA, so as to render Julian's mortgage of the same valid, is a question we still must resolve.

Petitioners insist that the subject property was not included in the SPA, considering that it contained an exclusive enumeration of the pieces of property over which Julian had authority, and these include only: (1) TCT No. T-53618, with an area of 3,522 square meters, located at Calapan, Oriental Mindoro, and registered with the Registry of Deeds of Oriental Mindoro; (2) TCT No. T-46810, with an area of 3,953 square meters, located at Calapan, Oriental Mindoro, and registered with the Registry of Deeds of Oriental Mindoro; (3) TCT No. T-53140, with an area of 177 square meters, located at Calapan, Oriental Mindoro, and registered with the Registry of Deeds of Oriental Mindoro; (4) TCT No. T-21403, with an area of 263 square meters, located at Calapan, Oriental Mindoro, and registered with the Registry of Deeds of Oriental Mindoro; (5) TCT No. T - 46807, with an area of 39 square meters, located at Calapan, Oriental Mindoro, and registered with the Registry of Deeds of Oriental Mindoro; (6) TCT No. T-108954, with an area of 690 square meters and located at Susana Heights, Muntinlupa; (7) RT-106338 - 805 Square Meters registered with the Registry of Deeds of Pasig (now Makati); and (8) Personal Property consisting of a 1983 Car with Vehicle Registration No. R-16381, Model - 1983, Make - Toyota, and Engine No. T - 2464. Nowhere is it stated in the SPA that Julian's authority extends to the subject property covered by TCT No. RT - 18206 (106338) registered with the Registry of Deeds of Quezon City. Consequently, the act of Julian of constituting a mortgage over the subject property is unenforceable for having been done without authority.

Respondent, on the other hand, mainly hinges its argument on the declarations made by the Court of Appeals that there was no property covered by TCT No. 106338 registered with the Registry of Deeds of Pasig (now Makati); but there exists a property, the subject property herein, covered by TCT No. RT-18206 (106338) registered with the Registry of Deeds of Quezon City. Further verification would reveal that TCT No. RT-18206 is merely a reconstitution of TCT No. 106338, and the property covered by both certificates of title is actually situated in Quezon City and not Pasig. From the foregoing circumstances, respondent argues that Perla intended to include the subject property in the SPA, and the failure of the instrument to reflect the recent TCT Number or the exact designation of the Registry of Deeds, should not defeat Perla's clear intention.

After an examination of the literal terms of the SPA, we find that the subject property was not among those enumerated therein. There is no obvious reference to the subject property covered by TCT No. RT-18206 (106338) registered with the Registry of Deeds of Quezon City.

There was also nothing in the language of the SPA from which we could deduce the intention of Perla to include the subject property therein. We cannot attribute such alleged intention to Perla who executed the SPA when the language of the instrument is bare of any indication suggestive of such intention. Contrariwise, to adopt the intent theory advanced by the respondent, in the absence of clear and convincing evidence to that effect, would run afoul of the express tenor of the SPA and thus defeat Perla's true intention.

In cases where the terms of the contract are clear as to leave no room for interpretation, resort to circumstantial evidence to ascertain the true intent of the parties, is not countenanced. As aptly stated in the case of JMA House, Incorporated v. Sta. Monica Industrial and Development Corporation,13 thus:

[T]he law is that if the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulation shall control. When the language of the contract is explicit, leaving no doubt as to the intention of the drafters, the courts may not read into it [in] any other intention that would contradict its main import. The clear terms of the contract should never be the subject matter of interpretation. Neither abstract justice nor the rule on liberal interpretation justifies the creation of a contract for the parties which they did not make themselves or the imposition upon one party to a contract or obligation not assumed simply or merely to avoid seeming hardships. The true meaning must be enforced, as it is to be presumed that the contracting parties know their scope and effects.14

Equally relevant is the rule that a power of attorney must be strictly construed and pursued. The instrument will be held to grant only those powers which are specified therein, and the agent may neither go beyond nor deviate from the power of attorney.15 Where powers and duties are specified and defined in an instrument, all such powers and duties are limited and are confined to those which are specified and defined, and all other powers and duties are excluded.16 This is but in accord with the disinclination of courts to enlarge the authority granted beyond the powers expressly given and those which incidentally flow or derive therefrom as being usual and reasonably necessary and proper for the performance of such express powers.17

Even the commentaries of renowned Civilist Manresa18 supports a strict and limited construction of the terms of a power of attorney:

The law, which must look after the interests of all, cannot permit a man to express himself in a vague and general way with reference to the right he confers upon another for the purpose of alienation or hypothecation, whereby he might be despoiled of all he possessed and be brought to ruin, such excessive authority must be set down in the most formal and explicit terms, and when this is not done, the law reasonably presumes that the principal did not mean to confer it.

In this case, we are not convinced that the property covered by TCT No. 106338 registered with the Registry of Deeds of Pasig (now Makati) is the same as the subject property covered by TCT No. RT-18206 (106338) registered with the Registry of Deeds of Quezon City. The records of the case are stripped of supporting proofs to verify the respondent's claim that the two titles cover the same property. It failed to present any certification from the Registries of Deeds concerned to support its assertion. Neither did respondent take the effort of submitting and making part of the records of this case copies of TCTs No. RT-106338 of the Registry of Deeds of Pasig (now Makati) and RT-18206 (106338) of the Registry of Deeds of Quezon City, and closely comparing the technical descriptions of the properties covered by the said TCTs. The bare and sweeping statement of respondent that the properties covered by the two certificates of title are one and the same contains nothing but empty imputation of a fact that could hardly be given any evidentiary weight by this Court.

Having arrived at the conclusion that Julian was not conferred by Perla with the authority to mortgage the subject property under the terms of the SPA, the real estate mortgages Julian executed over the said property are therefore unenforceable.

Assuming arguendo that the subject property was indeed included in the SPA executed by Perla in favor of Julian, the said SPA was revoked by virtue of a public instrument executed by Perla on 10 March 1993. To address respondent's assertion that the said revocation was unenforceable against it as a third party to the SPA and as one who relied on the same in good faith, we quote with approval the following ruling of the RTC on this matter:

Moreover, an agency is extinguished, among others, by its revocation (Article 1999, New Civil Code of the Philippines). The principal may revoke the agency at will, and compel the agent to return the document evidencing the agency. Such revocation may be express or implied (Article 1920, supra).

In this case, the revocation of the agency or Special Power of Attorney is expressed and by a public document executed on March 10, 1993.

The Register of Deeds of Quezon City was even notified that any attempt to mortgage or sell the property covered by TCT No. [RT-18206] 106338 located at No. 21 Hillside Drive, Blue Ridge, Quezon City must have the full consent documented in the form of a special power of attorney duly authenticated at the Philippine Consulate General, New York City, N.Y., U.S.A.

The non-annotation of the revocation of the Special Power of Attorney on TCT No. RT-18206 is of no consequence as far as the revocation's existence and legal effect is concerned since actual notice is always superior to constructive notice. The actual notice of the revocation relayed to defendant Registry of Deeds of Quezon City is not denied by either the Registry of Deeds of Quezon City or the defendant Bank. In which case, there appears no reason why Section 52 of the Property Registration Decree (P.D. No. 1529) should not apply to the situation. Said Section 52 of P.D. No. 1529 provides:

"Section 52. Constructive notice upon registration. - Every conveyance, mortgage, lease, lien, attachment, order, judgment, instrument or entry affecting registered land shall, if registered, filed or entered in the Office of the Register of Deeds for the province or city where the land to which it relates lies, be constructive notice to all persons from the time of such registering, filing or entering. (Pres. Decree No. 1529, Section 53) (emphasis ours)

It thus developed that at the time the first loan transaction with defendant Bank was effected on December 12, 1996, there was on record at the Office of the Register of Deeds of Quezon City that the special power of attorney granted Julian, Sr. by Perla had been revoked. That notice, works as constructive notice to third parties of its being filed, effectively rendering Julian, Sr. without authority to act for and in behalf of Perla as of the date the revocation letter was received by the Register of Deeds of Quezon City on February 7, 1996.19

Given that Perla revoked the SPA as early as 10 March 1993, and that she informed the Registry of Deeds of Quezon City of such revocation in a letter dated 23 January 1996 and received by the latter on 7 February 1996, then third parties to the SPA are constructively notified that the same had been revoked and Julian no longer had any authority to mortgage the subject property. Although the revocation may not be annotated on TCT No. RT-18206 (106338), as the RTC pointed out, neither the Registry of Deeds of Quezon City nor respondent denied that Perla's 23 January 1996 letter was received by and filed with the Registry of Deeds of Quezon City. Respondent would have undoubtedly come across said letter if it indeed diligently investigated the subject property and the circumstances surrounding its mortgage.

The final issue to be threshed out by this Court is whether the respondent is a mortgagee-in-good faith. Respondent fervently asserts that it exercised reasonable diligence required of a prudent man in dealing with the subject property.

Elaborating, respondent claims to have carefully verified Julian's authority over the subject property which was validly contained in the SPA. It stresses that the SPA was annotated at the back of the TCT of the subject property. Finally, after conducting an investigation, it found that the property covered by TCT No. 106338, registered with the Registry of Deeds of Pasig (now Makati) referred to in the SPA, and the subject property, covered by TCT No. 18206 (106338) registered with the Registry of Deeds of Quezon City, are one and the same property. From the foregoing, respondent concluded that Julian was indeed authorized to constitute a mortgage over the subject property.

We are unconvinced. The property listed in the real estate mortgages Julian executed in favor of PNB is the one covered by "TCT#RT-18206(106338)." On the other hand, the Special Power of Attorney referred to TCT No. "RT-106338 - 805 Square Meters of the Registry of Deeds of Pasig now Makati." The palpable difference between the TCT numbers referred to in the real estate mortgages and Julian's SPA, coupled with the fact that the said TCTs are registered in the Registries of Deeds of different cities, should have put respondent on guard. Respondent's claim of prudence is debunked by the fact that it had conveniently or otherwise overlooked the inconsistent details appearing on the face of the documents, which it was relying on for its rights as mortgagee, and which significantly affected the identification of the property being mortgaged. In Arrofo v. Quiño,20 we have elucidated that:

[Settled is the rule that] a person dealing with registered lands [is not required] to inquire further than what the Torrens title on its face indicates. This rule, however, is not absolute but admits of exceptions. Thus, while its is true, x x x that a person dealing with registered lands need not go beyond the certificate of title, it is likewise a well-settled rule that a purchaser or mortgagee cannot close his eyes to facts which should put a reasonable man on his guard, and then claim that he acted in good faith under the belief that there was no defect in the title of the vendor or mortgagor. His mere refusal to face up the fact that such defect exists, or his willful closing of his eyes to the possibility of the existence of a defect in the vendor's or mortgagor's title, will not make him an innocent purchaser for value, if it afterwards develops that the title was in fact defective, and it appears that he had such notice of the defect as would have led to its discovery had he acted with the measure of precaution which may be required of a prudent man in a like situation.

By putting blinders on its eyes, and by refusing to see the patent defect in the scope of Julian's authority, easily discernable from the plain terms of the SPA, respondent cannot now claim to be an innocent mortgagee.

Further, in the case of Abad v. Guimba,21 we laid down the principle that where the mortgagee does not directly deal with the registered owner of real property, the law requires that a higher degree of prudence be exercised by the mortgagee, thus:

While [the] one who buys from the registered owner does not need to look behind the certificate of title, one who buys from [the] one who is not [the] registered owner is expected to examine not only the certificate of title but all factual circumstances necessary for [one] to determine if there are any flaws in the title of the transferor, or in [the] capacity to transfer the land. Although the instant case does not involve a sale but only a mortgage, the same rule applies inasmuch as the law itself includes a mortgagee in the term "purchaser."22

This principle is applied more strenuously when the mortgagee is a bank or a banking institution. Thus, in the case of Cruz v. Bancom Finance Corporation,23 we ruled:

Respondent, however, is not an ordinary mortgagee; it is a mortgagee-bank. As such, unlike private individuals, it is expected to exercise greater care and prudence in its dealings, including those involving registered lands. A banking institution is expected to exercise due diligence before entering into a mortgage contract. The ascertainment of the status or condition of a property offered to it as security for a loan must be a standard and indispensable part of its operations.24

Hence, considering that the property being mortgaged by Julian was not his, and there are additional doubts or suspicions as to the real identity of the same, the respondent bank should have proceeded with its transactions with Julian only with utmost caution. As a bank, respondent must subject all its transactions to the most rigid scrutiny, since its business is impressed with public interest and its fiduciary character requires high standards of integrity and performance.25 Where respondent acted in undue haste in granting the mortgage loans in favor of Julian and disregarding the apparent defects in the latter's authority as agent, it failed to discharge the degree of diligence required of it as a banking corporation.ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

Thus, even granting for the sake of argument that the subject property and the one identified in the SPA are one and the same, it would not elevate respondent's status to that of an innocent mortgagee. As a banking institution, jurisprudence stringently requires that respondent should take more precautions than an ordinary prudent man should, to ascertain the status and condition of the properties offered as collateral and to verify the scope of the authority of the agents dealing with these. Had respondent acted with the required degree of diligence, it could have acquired knowledge of the letter dated 23 January 1996 sent by Perla to the Registry of Deeds of Quezon City which recorded the same. The failure of the respondent to investigate into the circumstances surrounding the mortgage of the subject property belies its contention of good faith.

On a last note, we find that the real estate mortgages constituted over the subject property are unenforceable and not null and void, as ruled by the RTC. It is best to reiterate that the said mortgage was entered into by Julian on behalf of Perla without the latter's authority and consequently, unenforceable under Article 1403(1) of the Civil Code. Unenforceable contracts are those which cannot be enforced by a proper action in court, unless they are ratified, because either they are entered into without or in excess of authority or they do not comply with the statute of frauds or both of the contracting parties do not possess the required legal capacity.26 An unenforceable contract may be ratified, expressly or impliedly, by the person in whose behalf it has been executed, before it is revoked by the other contracting party.27 Without Perla's ratification of the same, the real estate mortgages constituted by Julian over the subject property cannot be enforced by any action in court against Perla and/or her successors in interest.

In sum, we rule that the contracts of real estate mortgage constituted over the subject property covered by TCT No. RT - 18206 (106338) registered with the Registry of Deeds of Quezon City are unenforceable. Consequently, the foreclosure proceedings and the auction sale of the subject property conducted in pursuance of these unenforceable contracts are null and void. This, however, is without prejudice to the right of the respondent to proceed against Julian, in his personal capacity, for the amount of the loans.

WHEREFORE, IN VIEW OF THE FOREGOING, the instant petition is GRANTED. The Decision dated 12 October 2005 and its Resolution dated 15 February 2006 rendered by the Court of Appeals in CA-G.R. CV No. 82636, are hereby REVERSED. The Decision dated 23 September 2003 of the Regional Trial Court of Quezon City, Branch 220, in Civil Case No. Q-99-37145, is hereby REINSTATED and AFFIRMED with modification that the real estate mortgages constituted over TCT No. RT - 18206 (106338) are not null and void but UNENFORCEABLE. No costs.

SO ORDERED.

Republic of the PhilippinesSUPREME COURT

Manila

SECOND DIVISION

G.R. No. 76590 February 26, 1990

HEIRS OF MARIA DE LA CRUZ Y GUTIERREZ, petitioners, vs.COURT OF APPEALS and HEIRS OF MARIA DE LA CRUZ Y GUEVARRA, respondents.

 

PARAS, J.:

This is a petition for review on certiorari of the June 17, 1986 decision * of the then Intermediate Appellate Court in AC-G.R. CV No. 05785 reversing the appealed decision of the Regional Trial Court of Angeles City, and the November 12, 1986 resolution of the same court denying the motion for reconsideration.

Herein petitioners are the heirs (children) of the late Maria de la Cruz y Gutierrez, married to Mateo del Rosario Lansang, while herein private respondents are the heirs of Maria de la Cruz y Guevarra, married to Calixto Dimalanta, and Fermin de la Cruz. The controversy involves a 1,980 square meters portion of Lot 1488.

From 1921 until her death in 1951, Maria de la Cruz y Gutierrez resided in the questioned lot in the concept of an owner. She declared the lot for tax purposes in her name. Later, she entrusted the administration of the said lot to her niece Maria de la Cruz y Guevarra. When cadastral proceedings were held in Porac, in Cadastral Case No. 18, on March 17, 1926, Maria de la Cruz y Gutierrez f..iled an answer to the questioned lot. In the said filed answer, over the handwritten name "Maria de la Cruz y Gutierrez" is a thumbmark presumably affixed by her, Exhibit "2-C"; that in paragraph 7, a person named therein as Fermin de la Cruz y Gutierrez is stated to have an interest or participation on the said lot. However, in the space provided in paragraph 8 to be filled up with the personal circumstances of claimant Maria de

la Cruz y Gutierrez, what appears therein is the name Maria de la Cruz, married to Calixto Dimalanta, instead of Maria de la Cruz y Gutierrez, Exhibit "2-A"; and in the space provided in paragraph 9, intended for the personal circumstances of other person or persons who may have an interest on the said lot, the name Fermin de la Cruz, single, appears, Exhibit "2-B". Accordingly, the trial court rendered a decision adjudicating Lot No. 1488 in favor of Maria de la Cruz, 26 years old, married to Calixto Dimalanta and Fermin de la Cruz, Single. Finally, Original Certificate of Title No. 16684 of the Register of Deeds of Pampanga was issued in their names.

Petitioners, claiming to have learned of the same only on July 1, 1974, on October 1, 1974 (allegedly barely three months after discovery of the registration, and two years after the death of Maria de la Cruz y Guevarra who, before she died in 1974, revealed to petitioners Daniel Lansang and Isidro Lansang that the lot of their mother Maria de la Cruz y Gutierrez had been included in her title), filed with the then Court of First Instance of Pampanga, Branch IV, presided over by Hon. Cesar V. Alejandria, a complaint for reconveyance, docketed therein as Civil Case No. 2148. The same was amended on June 16, 1975.

The main thrust of the complaint is that the claimant of Lot 1488 in Cadastral Case No. 18 was Maria de la Cruz y Gutierrez and not Maria de la Cruz y Guevarra who by not using her maternal surname "Guevarra" succeeded in registering Lot 1488 in her name and that of her brother Fermin de la Cruz. Under the circumstances, it is claimed that Maria de la Cruz married to Calixto Dimalanta and Fermin de la Cruz hold the property in trust for the petitioners.

In their answer (Rollo, pp. 62-65), private respondents claimed that the land in questin is their �exclusive property, having inherited the same from their parents and the OCT No. 16684 was issued in their names. Moreover, they asserted that petitioners have lost their cause of action by prescription.

During the pre-trial, the parties stipulated the following facts:

1. That Lot No. 1488 is the lot in question as stated in Paragraph 3 of the Complaint;

2. That on March 17, 1926, Maria de la Cruz y Gutierrez filed her Answer over the cadastral lot in question;

3. That Maria de la Cruz y Gutierrez affixed her thumbmark in the Answer dated March 17, 1926;

4. That by virtue of the Answer over Cadastral lot in question filed by Maria de la Cruz y Gutierrez on March 17, 1926, OCT No. 16684 was issued covering the lot in question;

5. That the maternal surname of Maria de la Cruz and Fermin de la Cruz is Guevarra and not Gutierrez; and

6. That Maria de la Cruz y Guevarra and Fermin de la Cruz y Guevarra did not file their answer over the lot in question. (p. 3, Intermediate Appellate Court Decision; p. 46, Rollo)

The issues stated are as follows:

1. Whether or not the handwritings in the Answer of Maria de la Cruz y Gutierrez were her handwritings;

2. Whether or not the heirs of Maria de la Cruz y Gutierrez are paying the land taxes of the lot in question proportionately to their respective shares;

3. Whether or not Lot 1488, the lot in question, is declared in the name of Maria de la Cruz y Gutierrez;

4. Whether or not during the lifetime of Maria de la Cruz y Gutierrez up to the time of her death, she was in actual possession of the lot in question; and

5. If there was fraud in securing OCT No. 16684 in the name of Maria de la Cruz, married to Calixto Dimalanta, and Fermin de la Cruz, single. (pp. 3-4, Intermediate Appellate Court Decision; pp. 4647, Rollo)

After trial, the trial court, in a decision dated November 17, 1983 (ibid., pp. 34-42), ruled in favor of the petitioners. The decretal portion of the said decision, reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs;

(a) ordering the above-named defendants to reconvey to the plaintiffs a portion of 1,980 square meters of Lot No. 1488 covered by Original Certificate of Title No. 16684 of the Register of Deeds of Pampanga, by executing a deed of reconveyance and registering the same with the said Office at their own expense;

(b) ordering the parties to cause the survey and division of Lot No. 1844 into two equal parts in order that two separate titles, one for the plaintiffs and the other for the defendants can be issued by the Register of Deeds of Pampanga in their favor and one-half of the expenses therefore to be shouldered by the plaintiffs, and the other half by the defendant;

(c) ordering that the land to be adjudicated to the plaintiffs should include the portion where the existing house of the late Maria de la Cruz y Gutierrez is situated;

(d) ordering the plaintiffs and the defendants to pay the corresponding estate and inheritance taxes if the parcels of land inherited by them are subject to the payment of the same;

(e) ordering the defendants to pay the costs of suit.

On appeal, considering the action as based on an implied trust, the then Intermediate Appellate Court in its decision promulgated on June 17, 1986 (Ibid., pp. 44-53) reversed the decision of the trial court. The dispositive portion reads:

WHEREFORE, the Court is constrained to REVERSE the decision appealed from. A new one is hereby entered dismissing the complaint.

A Motion for Reconsideration was filed, but the same was denied in a resolution dated November 12, 1986 (Ibid., p. 66). Hence, the instant petition.

Petitioners raised three (3) reasons warranting review, to wit:

I

RESPONDENT COURT ERRED WHEN IT RULED THAT THE ACTION FOR RECONVEYANCE FILED BY HEREIN PETITIONERS WITH THE LOWER COURT HAD ALREADY PRESCRIBED;

II

RESPONDENT COURT ERRED IN RULING THAT PETITIONERS WERE GUILTY OF LACHES; and

III

RESPONDENT COURT ERRED IN RULING THAT THERE WAS NO EVIDENCE OF FRAUD COMMITTED BY THE PREDECESSOR-IN-INTEREST OF PRIVATE RESPONDENTS IN SECURING TITLE TO THE LOT IN QUESTION.(pp. 13, 20 and 22, Petition for Review pp. 21, 28, and 30 Rollo)

The instant petition is impressed with merit.

The main issue in this case is whether or not petitioners' action for reconveyance has already prescribed.

The answer is in the negative.

As aptly argued by petitioners, the Court of Appeals erred when it ruled that their action has already prescribed; obviously on the wrong premise that the action is one based on implied or constructive trust. As maintained by petitioners, their action is one based on express trust and not on implied or constructive trust. Petitioners' predecessor-in-interest, Maria de la Cruz y Gutierrez, was an unlettered woman, a fact borne out by her affixing her thumbmark in her answer in Cadastral Case No. 18, Exhibit "2-C". Because of her mental weakness, in a prepared document for her, Exhibit "B-3", she consented and authorized her niece Maria de la Cruz y Guevarra to administer the lot in question. Such fact is corroborated by the testimony of Daniel Lansay, the son of Maria de la Cruz y Gutierrez that Maria de la Cruz y Guevarra was the one entrusted with the paying of land taxes.

Private respondents argue that said Exhibit "B-3" is a portion of the tax declaration (Exhibit "B") which was prepared by the Office of the Municipal Assessor/Treasurer where the lot in question is located, and clearly not the written instrument constituting an express trust required under Article 1443 of the Civil Code. This argument of private respondents, is untenable. It has been held that under the law on Trusts, it is not necessary that the document expressly state and provide for the express trust, for it may even be created orally, no particular words are required for its creation (Article 1444, Civil Code). An express trust is created by the direct and positive acts of the parties, by some writing or deed or will or by

words evidencing an intention to create a trust (Sotto v. Teves, 86 SCRA 154 [1978]). No particular words are required for the creation of an express trust, it being sufficient that a trust is clearly intended (Vda. de Mapa v. Court of Appeals, 154 SCRA 294 [1987]). Hence, petitioner's action, being one based on express trust, has not yet prescribed. Be it noted that Article 1443 of the Civil Code which states "No express trusts concerning an immovable or any interest therein may be proved by parol evidence," refers merely to enforceability, not validity of a contract between the parties. Otherwise stated, for purposes of validity between the parties, an express trust concerning an immovable does not have to be in writing. Thus, Article 1443 may be said to be an extension of the Statute of Frauds. The action to compel the trustee to convey the property registered in his name for the benefit of the cestui for trust does not prescribe. If at all, it is only when the trustee repudiates the trust that the period of prescription may run (Enriquez v. Court of Appeals, 104 SCRA 656 [1981]).

PREMISES CONSIDERED, the June 17, 1986 decision of the Intermediate Appellate Court is hereby REVERSED and the November 17, 1983 decision of the trial court is hereby REINSTATED, excpt as to the latter court's finding that this case deals with an implied trust.

SO ORDERED.

FIRST DIVISION

 

 FELOMINA[1] ABELLANA, G.R. No. 160488

Petitioner,Present:

   Davide, Jr., C.J. (Chairman), 

- versus -            Quisumbing,

   Ynares-Santiago,

   Carpio, and

   Azcuna, JJ.

SPOUSES ROMEO PONCE and

LUCILA PONCE and the REGISTER Promulgated:

OF DEEDS of BUTUAN CITY,

Respondents. September 3, 2004

 

x ---------------------------------------------------------------------------------------- x 

DECISION

YNARES-SANTIAGO, J.:

 

This is a petition for review on certiorari assailing the June 16, 2003 decision[2] 

of the Court of Appeals  in CA-G.R. CV No. 69213, which reversed and set aside the 

August 28, 2000 decision[3] of the Regional Trial Court of Butuan City, Branch 2, in Civil 

Case No. 4270.

 

The facts as testified to by petitioner Felomina Abellana are as follows: 

 

On   July   15,   1981,   Felomina,   a   spinster,   pharmacist   and   aunt   of   private 

respondent Lucila Ponce, purchased from the late Estela Caldoza-Pacres a 44,297[4] 

square meter agricultural lot[5] with the intention of giving said lot to her niece, Lucila. 

Thus, in the deed of sale,[6]  the latter was designated as the buyer of Lot 3, Pcs-10-

000198, covered by Original Certificate of Title No. P-27, Homestead Patent No. V-1551 

and located at Los Angeles, Butuan City.[7]   The total consideration of the sale was 

P16,500.00, but only P4,500.00 was stated in the deed upon the request of the seller.

[8]  

 

Subsequently, Felomina applied for the issuance of title in the name of her niece. 

On April 28, 1992, Transfer Certificate of Title (TCT) No. 2874[9] over the subject lot 

was issued in the name of Lucila.[10]    Said title, however, remained in the possession 

of   Felomina   who   developed   the   lot   through   Juanario   Torreon[11]  and   paid   real 

property taxes thereon.[12]

 

The relationship between Felomina and respondent spouses Romeo and Lucila 

Ponce, however, turned sour.  The latter allegedly became disrespectful and ungrateful 

to the point of hurling her insults and even attempting to hurt her physically.   Hence, 

Felomina filed the instant case for revocation of implied trust to recover legal title over 

the property.[13]

 

Private   respondent   spouses   Lucila,   also   a  pharmacist,   and  Romeo,   a  marine 

engineer,  on   the  other  hand,   claimed  that   the  purchase  price  of   the   lot  was  only 

P4,500.00 and that it was them who paid the same.   The payment and signing of the 

deed of sale allegedly took place in the office of Atty. Teodoro Emboy in the presence 

of the seller and her siblings namely, Aquilino Caldoza and the late Lilia Caldoza.[14]

 

A year later, Juanario approached Lucila and volunteered to till the lot, to which 

she agreed.[15]  In 1987, the spouses consented to Felomina’s proposal to develop and 

lease the lot.  They, however, shouldered the real property taxes on the lot, which was 

paid through Felomina.  In 1990, the spouses demanded rental from Felomina but she 

refused to pay because her agricultural endeavor was allegedly not profitable.[16]

 

When Lucila   learned that  a  certificate of  title   in  her  name had already been 

issued,   she   confronted  Felomina  who  claimed   that   she  already  gave  her   the  title. 

Thinking that she might have misplaced the title, Lucila executed an affidavit of loss 

which led to the issuance of another certificate of title in her name.[17]

 

On August 28, 2000, the trial court rendered a decision holding that an implied 

trust existed between Felomina and Lucila, such that the latter is merely holding the lot 

for the benefit of the former.  It thus ordered the conveyance of the subject lot in favor 

of Felomina.  The dispositive portion thereof, reads:

 

IN VIEW OF THE FOREGOING, judgment is hereby rendered declaring, directing and ordering that:

 

a) An implied trust was created with plaintiff as trustor and private defendant Lucila A. Ponce married to private defendant Engr. Romeo D. Ponce as trustee 

pursuant to Article 1448 of the New Civil Code;

b) The implied trust, having been created without the consent of the trustee and without any condition, is revoked;

c) The   private   defendants,  who   are   spouses,   execute   the   necessary   deed   of conveyance in favor of the plaintiff of the land, covered by and embraced in TCT NO. T-2874, in controversy and in the event private defendants refuse to execute the deed of conveyance, the public defendant City Register of Deeds of Butuan to cancel TCT No. T-2874 and issue a new one in lieu thereof in the name of the plaintiff;

d) The private defendants spouses to pay jointly and severally plaintiff the sum of PhP25,000.00 as attorney’s fees and PhP4,000.00 as expenses of litigation;

e) The dismissal of the counterclaim of private defendants spouses[;] and

f) The private defendants to pay the costs.

 

SO ORDERED.[18]

 

 

Private respondent spouses appealed to the Court of Appeals which set aside the 

decision  of   the  trial  court   ruling   that  Felomina   failed   to  prove  the existence  of  an 

implied trust and upheld respondent spouses’ ownership over the litigated lot.   The 

appellate court further held that even assuming that Felomina paid the purchase price 

of the lot, the situation falls within the exception stated in Article 1448 of the Civil Code 

which raises a disputable presumption that the property was purchased by Felomina as 

a  gift   to   Lucila  whom she  considered  as  her  own daughter.     The  decretal  portion 

thereof, states –

 

WHEREFORE, premises considered, the appealed decision of the Regional Trial Court, Branch 2, Butuan City, in Civil Case No. 4270, is hereby REVERSED AND SET ASIDE.  A new one is heretofore rendered dismissing the complaint below of plaintiff-appellee, F[e]lomina Abellana.

SO ORDERED.[19]

 

Felomina   filed   a  motion   for   reconsideration   but   the   same  was   denied.[20] 

Hence, the instant petition.

 

The issue before us is:   Who, as between Felomina and respondent spouses, is 

the  lawful  owner  of   the controverted  lot?    To resolve  this   issue,   it   is  necessary  to 

determine who paid the purchase price of the lot.

 

After   a   thorough   examination  of   the   records   and   transcript   of   stenographic 

notes, we find that it was Felomina and not Lucila who truly purchased the questioned 

lot from Estela.  The positive and consistent testimony of Felomina alone, that she was 

the real  vendee of   the  lot,   is  credible  to  debunk the contrary  claim of  respondent 

spouses.    Indeed, the lone testimony of a witness,   if  credible,   is sufficient as  in the 

present case.[21]   Moreover, Aquilino Caldoza, brother of the vendor and one of the 

witnesses[22] to the deed of sale, categorically declared that Felomina was the buyer 

and the one who paid the purchase price to her sister, Estela.[23]

 

Then   too,   Juanario,   who  was   allegedly   hired   by   Lucila   to   develop   the   lot, 

vehemently denied that he approached and convinced Lucila to let him till the land. 

According to Juanario, he had never spoken to Lucila about the lot and it was Felomina 

who recruited him to be the caretaker of the litigated property.[24]

 

The fact that it was Felomina who bought the lot was further bolstered by her 

possession  of   the   following  documents   from  the  time  of   their   issuance  up   to   the 

present, to wit: (1) the transfer certificate of title[25] and tax declaration in the name 

of Lucila;[26] (2) the receipts of real property taxes in the name of Felomina Abellana 

for the years 1982-1984, 1992-1994 and 1995;[27] and (3) the survey plan of the lot.

[28]

 

Having determined that   it  was Felomina who paid the purchase price  of   the 

subject lot, the next question to resolve is the nature of the transaction between her 

and Lucila.

 

It appears that Felomina, being of advanced age[29] with no family of her own, 

used to purchase properties and afterwards give them to her nieces.  In fact, aside from 

the lot she bought for Lucila (marked as Exhibit “R-2”), she also purchased 2 lots, one 

from Aquilino Caldoza (marked as Exhibit “R-1”) and the other from Domiciano Caldoza 

(marked as Exhibit “R-3”), which she gave to Zaida Bascones (sister of Lucila), thus:

 

Q I am showing to you again Exhibit R, according to you[,] you bought Exhibits R-1, R-2 and R-3, do you remember that?

A Yes sir.

 

x x x x x x x x x

 

Q Aquilin[o] Caldoza conveyed this land in Exhibit R-1 to you?

A Yes, sir.

 

Q Is this now titled in your name?

A No.  I was planning to give this land to my nieces.  One of which [was] already given to Mrs. [Lucila] Ponce.

 

Q I am talking only about this lot in Exhibit R-1[.]

A Not in my name.

 

Q In whose name was this lot in Exhibit R-1 now?

A In the name of Zaida Bascones.

 

Q Who prepared the deed of sale?

A At the start it was in the name of Rudy [Torreon].[30]   Because Rudy [Torreon] knew that there is some trouble already about that lot he made a deed of sale to the name of Zaida Bascones, which I planned to give that land to her (sic).

 

Q As regards Exhibit R-1, you bought it actually?

A Yes, sir.

 

Q But the … original deed of sale was in the name of Rudolfo [Torreon]?

A Yes, sir.

 

Q And later on Rudolfo [Torreon] again transferred it to Zaida Bascones?

A Yes, sir.[31]

 

Likewise, in the case of Lucila, though it was Felomina who paid for the lot, she 

had Lucila designated in the deed as the vendee thereof and had the title of the lot 

issued in Lucila’s name.   It is clear therefore that Felomina donated the land to Lucila. 

This is evident from her declarations, viz:

 

Witness 

 

A In 1981 there was a riceland offered so I told her that I will buy that land and I will give to her later (sic), because since 1981 up to 1992 Mrs. Lucila Ponce has no job.

 

Q Where is the land located?

A In Los Angeles, Butuan City.

 

Q Who was the owner of this land?

A The owner of that land is Mrs. Estela Caldoza-Pacr[e]s.

The husband is Pacr[e]s.

 

x x x x x x x x x

 

Q What did you do with this land belonging to Mrs. Estela-Caldoza- Pacr[e]s? 

A I paid the lot, then worked the lot, since at the start of my buying the lot until now (sic).

 

Q You said that you told Lucila Ponce that you would give the land to her later on, what did you do in connection with this intention of yours to give the land to her?

A So I put the name of the title in her name in good faith (sic).

 

Q You mean to tell the court that when you purchased this land located at Los Angeles, Butuan City,   the  instrument of  sale or  the deed of  sale was  in the name of Lucila Ponce?

A Yes, sir.[32]

 

x x x x x x x x x

 

Q Did you not ask your adviser Rudolfo [Torreon] whether it was wise for you to place the property in the name of Lucila Ponce when you are the one who is the owner?

A Because we have really the intention to give it to her.[33]

 

Generally,   contracts   are   obligatory   in   whatever   form   they  may   have   been 

entered into, provided all the essential requisites for their validity are present.  When, 

however, the law requires that a contract be in some form in order that it may be valid, 

that   requirement   is   absolute   and   indispensable.     Its   non-observance   renders   the 

contract void and of no effect.[34] Thus, under Article 749 of the Civil Code – 

 

Article 749. In order that the donation of an immovable property may be valid, it must be made in a public document, specifying therein the property donated and the value of the charges which the donee must satisfy.

 

The acceptance may be made in the same deed of donation or in a separate public document, but it shall not take effect unless it is done during the lifetime of the donor.

 

If the acceptance is made in a separate instrument, the donor shall be notified thereof in an authentic form, and this step shall be noted in both instruments.

In the instant case, what transpired between Felomina and Lucila was a donation 

of an immovable property which was not embodied in a public instrument as required 

by   the   foregoing   article.     Being   an   oral   donation,   the   transaction   was   void.[35] 

Moreover, even if Felomina enjoyed the fruits of the land with the intention of giving 

effect to the donation after her demise, the conveyance is still a void donation mortis 

causa,   for  non-compliance  with   the   formalities  of  a  will.[36]   No valid  title  passed 

regardless of the intention of Felomina to donate the property to Lucila, because the 

naked intent to convey without the required solemnities does not suffice for gratuitous 

alienations, even as between the parties inter se.[37]  At any rate, Felomina now seeks 

to recover title over the property because of the alleged ingratitude of the respondent 

spouses.

 

Unlike   ordinary   contracts   (which   are   perfected   by   the   concurrence   of   the 

requisites of consent, object and cause pursuant to Article 1318[38] of the Civil Code), 

solemn contracts   like donations are perfected only  upon compliance with the  legal 

formalities under Articles 748[39] and 749.[40]  Otherwise stated, absent the solemnity 

requirements   for validity,   the mere  intention of  the parties does not give rise to a 

contract.   The oral donation in the case at bar is therefore legally inexistent and an 

action   for   the  declaration  of   the   inexistence  of  a   contract  does  not  prescribe.[41] 

Hence, Felomina can still recover title from Lucila.

 

Article 1448[42]  of the Civil  Code on  implied trust finds no application in the 

instant case.  The concept of implied trusts is that from the facts and circumstances of 

a  given case,   the existence of  a  trust  relationship  is   inferred  in order to effect  the 

presumed intention of the parties.[43]   Thus, one of the recognized exceptions to the 

establishment of an implied trust is where a contrary intention is proved, [44] as in the 

present case.   From the testimony of Felomina herself, she wanted to give the lot to 

Lucila as a gift.  To her mind, the execution of a deed with Lucila as the buyer and the 

subsequent issuance of title in the latter’s name were the acts that would effectuate 

her generosity.   In so carrying out what she conceived, Felomina evidently displayed 

her unequivocal intention to transfer ownership of the lot to Lucila and not merely to 

constitute her as a trustee thereof.   It was only when their relationship soured that she 

sought to revoke the donation on the theory of  implied trust,  though as previously 

discussed, there is nothing to revoke because the donation was never perfected.

 

In declaring Lucila as the owner of the disputed lot, the Court of Appeals applied, 

among others, the second sentence of Article 1448 which states – 

 

“x x x However, if the person to whom the title is conveyed is a child, legitimate or illegitimate,  of   the  one  paying   the  price  of   the   sale,   no   trust   is   implied  by   law,   it   being disputably presumed that there is a gift in favor of the child.”  

 

Said presumption also arises where the property is given to a person to whom 

the person paying the price stands in loco parentis or as a substitute parent.[45]

 

The abovecited provision, however, is also not applicable here because, first, it 

was not established that Felomina stood as a substitute parent of Lucila; and second, 

even   assuming   that   she   did,   the   donation   is   still   void   because   the   transfer   and 

acceptance was not embodied in a public   instrument.    We note that said provision 

merely   raised   a   presumption   that   the   conveyance  was   a   gift   but   nothing   therein 

exempts the parties from complying with the formalities of a donation.  Dispensation of 

such solemnities would give rise to anomalous situations where the formalities of a 

donation and a will in donations inter vivos, and donations mortis causa, respectively, 

would be done away with when the transfer of the property is made in favor of a child 

or one to whom the donor stands in loco parentis.  Such a scenario is clearly repugnant 

to the mandatory nature of the law on donation.

 

While Felomina sought to recover the litigated lot on the ground of implied trust 

and not on the  invalidity  of donation, the Court  is  clothed with ample authority  to 

address the latter issue in order to arrive at a just decision that completely disposes of 

the controversy.[46]  Since rules of procedure are mere tools designed to facilitate the 

attainment of  justice, they must be applied in a way that equitably and completely 

resolve the rights and obligations of the parties.[47]

 

As to the trial court’s award of attorney’s fees and litigation expenses, the same 

should be deleted for lack of basis.   Aside from the allegations in the complaint, no 

evidence was presented in support of said claims. The trial court made these awards in 

the dispositive portion of its decision without stating any justification therefor in the 

ratio decidendi.  Their deletion is therefore proper.[48]

 

Finally,   in   deciding   in   favor  of   Felomina,   the   trial   court   ordered   respondent 

spouses to execute a deed of sale over the subject lot in favor of Felomina in order to 

effect the transfer of title to the latter.  The proper remedy, however, is provided under 

Section 10 (a), Rule 39 of the Revised Rules of Civil Procedure which provides that “x x x 

[i]f   real  or  personal  property   is  situated within the Philippines,   the court   in   lieu of 

directing a conveyance thereof may by an order divest the title of any party and vest it 

in others, which shall have the force and effect of a conveyance executed in due form 

of law.”

 

WHEREFORE, in view of all the foregoing, the petition is GRANTED and the June 

16, 2003 decision of the Court of Appeals in CA-G.R. CV No. 69213 is REVERSED and SET

ASIDE.  The August 28, 2000 decision of the Regional Trial Court of Butuan City, Branch 

2, in Civil Case No. 4270, is REINSTATED with the following MODIFICATIONS:

(1) Declaring petitioner Felomina Abellana as the absolute owner 

of Lot 3, Pcs-10-000198;

 

(2) Ordering the Register of Deeds of Butuan City to cancel TCT 

No. T-2874 in the name of respondent Lucila Ponce and to issue a new one 

in the name of petitioner Felomina Abellana; and

 

(3) Deleting the awards of attorney’s fees and litigation expenses 

for lack of basis.

 

No pronouncement as to costs.

 

SO ORDERED.

THIRD DIVISION

 

MARIA B. CHING,

Petitioner,

 

 

-versus-

 

 

JOSEPH C. GOYANKO, JR., EVELYN GOYANKO, JERRY GOYANKO, IMELDA GOYANKO, JULIUS GOYANKO, MARY ELLEN GOYANKO AND JESS GOYANKO,

Respondents.

G.R. No. 165879

 

Present:

 

QUISUMBING, J., Chairman

CARPIO,

CARPIO MORALES, andTINGA,* VELASCO, JR., JJ.

 

Promulgated:

 

November 10, 2006

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - - x

 

 

D E C I S I O N

 

 

CARPIO MORALES, J.:

 

 

On December 30, 1947, Joseph Goyanko (Goyanko) and Epifania dela Cruz

(Epifania) were married.[1] Out of the union were born respondents Joseph, Jr., Evelyn,

Jerry, Imelda, Julius, Mary Ellen and Jess, all surnamed Goyanko.

 

Respondents claim that in 1961, their parents acquired a 661 square meter

property located at 29 F. Cabahug St., Cebu City but that as they (the parents) were

Chinese citizens at the time, the property was registered in the name of their aunt,

Sulpicia Ventura (Sulpicia).

 

On May 1, 1993, Sulpicia executed a deed of sale[2] over the property in favor of

respondents’ father Goyanko. In turn, Goyanko executed on October 12, 1993 a deed

of sale[3] over the property in favor of his common-law-wife-herein petitioner Maria B.

Ching. Transfer Certificate of Title (TCT) No. 138405 was thus issued in petitioner’s

name.

 

After Goyanko’s death on March 11, 1996, respondents discovered that

ownership of the property had already been transferred in the name of petitioner.

Respondents thereupon had the purported signature of their father in the deed of sale

verified by the Philippine National Police Crime Laboratory which found the same to be

a forgery.[4]

 

Respondents thus filed with the Regional Trial Court of Cebu City a complaint for

recovery of property and damages against petitioner, praying for the nullification of the

deed of sale and of TCT No. 138405 and the issuance of a new one in favor of their

father Goyanko.

 

In defense, petitioner claimed that she is the actual owner of the property as it was

she who provided its purchase price. To disprove that Goyanko’s signature in the

questioned deed of sale is a forgery, she presented as witness the notary public who

testified that Goyanko appeared and signed the document in his presence.

 

By Decision of October 16, 1998,[5] the trial court dismissed the complaint

against petitioner, the pertinent portions of which decision read:

 

There is no valid and sufficient ground to declare the sale as null and void, fictitious and simulated. The signature on the questioned Deed of Sale is genuine. The testimony of Atty. Salvador Barrameda who declared in court that Joseph Goyanko, Sr. and Maria Ching together with their witnesses appeared before him for notarization of Deed of Sale in question is more reliable than the conflicting testimonies of the two document examiners. Defendant Maria Ching asserted that the Deed of Sale executed by Joseph Goyanko, Sr. in her favor is valid and genuine. The signature of Joseph Goyanko, Sr. in the questioned Deed of Absolute Sale is genuine as it was duly executed and signed by Joseph Goyanko, Sr. himself.  The parcel of lands known as Lot No. 6 which is sought to be recovered in this case could never be considered as the conjugal property of the original Spouses Joseph C. Goyanko and Epifania dela Cruz or the exclusive capital property of the husband.

The acquisition of the said property by defendant Maria Ching is well-elicited from the aforementioned testimonial and documentary evidence presented by the defendant. Although for a time being the property passed through Joseph Goyanko, Sr. as a buyer yet his ownership was only temporary and transitory for the reason that it was subsequently sold to herein defendant Maria Ching. Maria Ching claimed that it was even her money which was used by Joseph Goyanko, Sr. in the purchase of the land and so it was eventually sold to her. In her testimony, defendant Ching justified her financial capability to buy the land for herself. The transaction undertaken was from the original owner Sulpicia Ventura to Joseph Goyanko, Sr. and then from Joesph Goyanko, Sr. to herein defendant Maria Ching.  

The land subject of the litigation is already registered in the name of defendant Maria Ching under TCT No. 138405. By virtue of the Deed of Sale executed in favor of Maria Ching, Transfer Certificate of Title No. 138405 was issued in her favor. In recognition of the proverbial virtuality of a Torrens title, it has been repeatedly held that, unless bad faith can be established on the part of the person appearing as owner on the certificate of title, there is no other owner than that in whose favor it has been issued. A Torrens title is not subject to collateral attack. It is a well-known doctrine that a Torrens title, as a rule, is irrevocable and indefeasible, and the duty of the court is to see to it that this title is maintained and respected unless challenged in a direct proceedings [sic].[6] (Citations omitted; underscoring supplied) 

 

 

Before the Court of Appeals where respondents appealed, they argued that the trial

court erred:

 

1.      . . . when it dismissed the complaint a quo . . . , in effect, sustaining the sale of the subject property between Joseph, Sr. and the defendant-appellee, despite the proliferation in the records and admissions by both parties that defendant-appellee was the ”mistress” or “common-law wife” of Joseph, Sr..

 

2.      . . . when it dismissed the complaint a quo . . . , in effect, sustaining the sale of the subject property between Joseph, Sr. and the defendant-appellee, despite the fact that the marriage of Joseph, Sr. and Epifania was then still subsisting thereby rendering the subject property as conjugal property of Joseph, Sr. and Epifania.

 

3.      . . . in dismissing the complaint a quo . . . , in effect, sustaining the validity of the sale of the subject property between Joseph, Sr. and the defendant-appellee, despite the clear findings of forgery and the non-credible testimony of notary public.[7]

 

 

By Decision dated October 21, 2003,[8] the appellate court reversed that of the

trial court and declared null and void the questioned deed of sale and TCT No. 138405.

Held the appellate court:

 

. . . The subject property having been acquired during the existence of a valid marriage between Joseph Sr. and Epifania dela Cruz-Goyanko, is presumed to belong to the conjugal partnership. Moreover, while this presumption in favor of conjugality is rebuttable with clear and convincing proof to the contrary, we find no evidence on record to conclude otherwise. The record shows that while Joseph Sr. and his wife Epifania have been estranged for years and that he and defendant-appellant Maria Ching, have in fact been living together as common-law husband and wife, there has never been a judicial decree declaring the dissolution of his marriage to Epifania nor their conjugal partnership. It is therefore undeniable that the 661-square meter property located at No. 29 F. Cabahug Street, Cebu City belongs to the conjugal partnership. 

Even if we were to assume that the subject property was not conjugal, still we cannot sustain the validity of the sale of the property by Joseph, Sr. to defendant-appellant Maria Ching, there being overwhelming evidence on records that they have been living together as common-law husband and wife. On this score, Art. 1352 of the Civil Code provides: 

“Art. 1352. Contracts without cause, or with unlawful cause, produce no effect whatsoever. The cause is unlawful if it is contrary to law, morals, good customs, public order or public policy.” 

We therefore find that the contract of sale in favor of the defendant-appellant Maria Ching was null and void for being contrary to morals and public policy. The purported sale, having been made by Joseph Sr. in favor of his concubine, undermines the stability of the family, a basic social institution which public policy vigilantly protects. Furthermore, the law emphatically prohibits spouses from selling property to each other, subject to certain exceptions. And this is so because transfers or conveyances between spouses, if allowed during the marriage would destroy the system of conjugal partnership, a basic policy in civil law. The prohibition was designed to prevent the exercise of undue influence by one spouse over the other and is likewise applicable even to common-law relationships otherwise, “the condition of those who incurred guilt would turn out to be better than those in legal union.[9] (Underscoring supplied)

  

Hence, the present petition, petitioners arguing that the appellate court gravely

erred in:

I.

. . . APPLYING THE STATE POLICY ON PROHIBITION AGAINST CONVEYANCES AND TRANSFERS OF PROPERTIES BETWEEN LEGITIMATE AND COMMON LAW SPOUSES ON THE SUBJECT PROPERTY, THE SAME BEING FOUND BY THE COURT A QUO, AS THE EXCLUSIVE PROPERTY OF PETITIONER, AND THAT THE SAME WAS NEVER PART OF THE CONJUGAL PROPERTY OF THE MARRIAGE BETWEEN RESPONDENTS’ MOTHER EPIFANIA GOYANKO AND PETITIONER’S COMMON LAW HUSBAND, JOSEPH GOYANKO, SR., NOR THE EXCLUSIVE OR CAPITAL PROPERTY OF THE LATTER AT ANYTIME BEFORE THE SAME WAS VALIDLY ACQUIRED BY PETITIONER. II.. . . NOT FINDING THAT A JURIDICAL RELATION OF TRUST AS PROVIDED FOR UNDER ARTICLES 1448 AND 1450 OF THE NEW CIVIL CODE CAN VALIDLY EXIST BETWEEN COMMON LAW SPOUSES. III.. . . NOT FINDING THAT A CONVEYANCE OVER A PROPERTY MADE BY A TRUSTEE, WHO BECAME AS SUCH IN CONTEMPLATION OF LAW, AND WHO HAPPENS TO BE A COMMON LAW HUSBAND OF THE BENEFICIARY, IS NOT A VIOLATION OF A STATE POLICY ON PROHIBITION AGAINST CONVEYANCES AND TRANSFERS OF PROPERTIES BETWEEN LEGITIMATE AND COMMON LAW SPOUSES. IV.. . . ALLOWING RESPONDENTS TO ABANDON THEIR ORIGINAL THEORY OF THEIR CASE DURING APPEAL.[10]

 

 

The pertinent provisions of the Civil Code which apply to the present case read:

 

ART. 1352. Contracts without cause, or with unlawful cause, produce no effect whatever. The cause is unlawful if it is contrary to law, morals, good customs, public order or public policy.

    

ART. 1409. The following contracts are inexistent and void from the beginning: 

(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy;

(2)    Those which are absolutely simulated or fictitious;(3)      Those whose cause or object did not exist at the time of the transaction;(4)      Those whose object is outside the commerce of men;(5)      Those which contemplate an impossible service;(6)      Those where the intention of the parties relative to the principal object of

the contract cannot be ascertained;(7)      Those expressly prohibited or declared void by law.

 

These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived.

  

ARTICLE 1490. The husband and wife cannot sell property to each other, except:

(1)   When a separation of property was agreed upon in the marriage settlements; or

(2)   When there has been a judicial separation of property under Article 191. (Underscoring supplied)

 

 

The proscription against sale of property between spouses applies even to common

law relationships. So this Court ruled in Calimlim-Canullas v. Hon. Fortun, etc., et al.:

[11]

 

Anent the second issue, we find that the contract of sale was null and void for being contrary to morals and public policy. The sale was made by a husband in favor of a concubine after he had abandoned his family and left the conjugal home where his wife and children lived and from whence they derived their support. The sale was subversive of the stability of the family, a basic social institution which public policy cherishes and protects. 

Article 1409 of the Civil Code states inter alia that: contracts whose cause, object, or purposes is contrary to law, morals, good customs, public order, or public policy are void and inexistent from the very beginning. 

Article 1352 also provides that: “Contracts without cause, or with unlawful cause, produce no effect whatsoever. The cause is unlawful if it is contrary to law, morals, good customs, public order, or public policy.” 

Additionally, the law emphatically prohibits the spouses from selling property to each other subject to certain exceptions. Similarly, donations between spouses during marriage are prohibited. And this is so because if transfers or conveyances between spouses were allowed during marriage, that would destroy the system of conjugal partnership, a basic policy in civil law. It was also designed to prevent the exercise of undue influence by one spouse over the other, as well as to protect the institution of marriage, which is the cornerstone of family law. The prohibitions apply to a couple living as husband and wife without benefit of marriage, otherwise, “the condition of those who incurred guilt would turn out to be better than those in legal union.” Those provisions are dictated by public interest and their criterion must be imposed upon the will of the parties. . . .[12] (Italics in the original; emphasis and underscoring supplied)

 

As the conveyance in question was made by Goyangko in favor of his common-

law-wife-herein petitioner, it was null and void.

 

Petitioner’s argument that a trust relationship was created between Goyanko as

trustee and her as beneficiary as provided in Articles 1448 and 1450 of the Civil Code

which read:

 

ARTICLE 1448. There is an implied trust when property is sold, and the legal estate is granted to one party but the price is paid by another for the purpose of having the beneficial interest of the property. The former is the trustee, while the latter is the beneficiary. However, if the person to whom the title is conveyed is a child, legitimate or illegitimate, of the one paying the price of the sale, no trust is implied by law, it being disputably presumed that there is a gift in favor of the child. 

ARTICLE 1450. If the price of a sale of property is loaned or paid by one person for the benefit of another and the conveyance is made to the lender or payor to secure the payment of the debt, a trust arises by operation of law in favor of the person to whom the money is loaned or for whom it is paid. The latter may redeem the property and compel a conveyance thereof to him.

 

does not persuade.

 

For petitioner’s testimony that it was she who provided the purchase price is

uncorroborated. That she may have been considered the breadwinner of the family and

that there was proof that she earned a living do not conclusively clinch her claim.

 

As to the change of theory by respondents from forgery of their father’s signature

in the deed of sale to sale contrary to public policy, it too does not persuade. Generally,

a party in a litigation is not permitted to freely and substantially change the theory of his

case so as not to put the other party to undue disadvantage by not accurately and timely

apprising him of what he is up against,[13] and to ensure that the latter is given the

opportunity during trial to refute all allegations against him by presenting evidence to

the contrary. In the present case, petitioner cannot be said to have been put to undue

disadvantage and to have been denied the chance to refute all the allegations against her.

For the nullification of the sale is anchored on its illegality per se, it being violative of

the above-cited Articles 1352, 1409 and 1490 of the Civil Code.

 

WHEREFORE, the petition is DENIED for lack of merit.

 

Costs against petitioner.

 

SO ORDERED

THIRD DIVISION

[G.R. No. 149844.  October 13, 2004]

MIGUEL CUENCO, Substituted by MARIETTA C. CUYEGKENG, petitioner, vs. CONCEPCION CUENCO Vda. DE MANGUERRA, respondent.

D E C I S I O N

PANGANIBAN, J.:

Inasmuch as the facts indubitably and eloquently show an implied trust in favor of respondent, the Court of Appeals did not err in affirming the Decision of the Regional Trial Court ordering petitioner to convey the subject property to her.  That Decision satisfied the demands of justice and prevented unjust enrichment.

The Case

Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, challenging the August 22, 2001 Decision[2] of the Court of Appeals (CA) in CA-GR CV No. 54852.  The assailed Decision disposed as follows:

“WHEREFORE, the decision appealed from is AFFIRMED.”[3]

On the other hand, the Regional Trial Court (RTC) Decision affirmed by the CA disposed as follows:

“WHEREFORE, considering that this action is essentially one for reconveyance or enforcement of a trust, judgment is hereby rendered ordering the substituted defendant Marietta Cuenco Cuyegkeng to reconvey or transfer, in a duly registrable public instrument, Lot No 903-A-6 under TCT No. 113781 of the Registry of Deeds of Cebu City, of the Banilad Estate with an area of 834 square meters, in favor of plaintiff Concepcion Cuenco Vda. De Manguerra; or should the substituted defendant, for one reason or another, fail to execute the necessary instrument once the decision becomes final, the Clerk of Court of this Court (RTC) is hereby instructed, in accordance with the Rules of Court, to prepare and execute the appropriate and requisite conveyance and instrument in favor of herein plaintiff which, in either case, shall be registered with the Office of the Register of Deeds of Cebu City.

Without costs in this instance.”[4]

The Facts

The facts were summarized by the appellate court as follows:

“On September 19, 1970, the [respondent] filed the initiatory complaint herein for specific performance against her uncle [Petitioner] Miguel Cuenco which averred, inter alia that her father, the late Don Mariano Jesus Cuenco (who became Senator) and said [petitioner] formed the ‘Cuenco and Cuenco Law Offices’; that on or around August 4, 1931, the Cuenco and Cuenco Law Offices served as lawyers in two (2) cases entitled ‘Valeriano Solon versus Zoilo Solon’ (Civil Case 9037) and ‘Valeriano Solon versus Apolonia Solon’ (Civil Case 9040) involving a dispute among relatives over ownership of lot 903 of the Banilad Estate which is near the Cebu Provincial Capitol; that  records of said cases indicate the name of the [petitioner] alone as counsel of record, but in truth and in fact, the real lawyer behind the success of said cases was the influential Don Mariano Jesus Cuenco; that after winning said cases, the awardees of Lot 903 subdivided said lot into three (3) parts as follows:

Lot 903-A: 5,000 [square meters]: Mariano Cuenco’s attorney’s fees Lot 903-B: 5,000 [square meters]: Miguel Cuenco’s attorney’s fees Lot 903-C: 54,000 [square meters]: Solon’s retention

“That at the time of distribution of said three (3) lots in Cebu, Mariano Jesus Cuenco was actively practicing law in Manila, and so he entrusted his share (Lot 903-A) to his brother law partner (the [petitioner]); that on September 10, 1938, the [petitioner] was able to obtain in his own name a title for Lot 903-A (Transfer Certificate of Title [TCT] RT-6999 [T-21108]); that he was under the obligation to hold the title in trust for his brother Mariano’s children by first marriage; that sometime in 1947, the Cuenco family was anticipating Mariano’s second marriage, and so on February 1, 1947, they partitioned Lot 903-A into six (6) sub-lots (Lots 903-A-1 to 903-A-6) to correspond to the six (6) children of Mariano’s first marriage (Teresita, Manuel, Lourdes, Carmen, Consuelo, and Concepcion); that the [petitioner] did not object nor oppose the partition plan; that on June 4, 1947, the [petitioner] executed four (4) deeds of donation in favor of Mariano’s four (4) children: Teresita, Manuel, Lourdes, and Carmen, pursuant to the partition plan (per notary documents 183, 184, 185, 186, Book III, Series 1947 of Cebu City Notary Public Candido Vasquez); that on June 24, 1947, the [petitioner] executed the fifth deed of donation in favor of Mariano’s fifth child – Consuelo (per notary document 214, Book III, Series 1947 of Cebu City Notary Public Candido Vasquez) (Exhibits ‘2’ to ‘5’); that said five (5) deeds of donation left out Mariano’s sixth child – Concepcion – who later became the [respondent] in this case; that in 1949, [respondent] occupied and fenced a portion of Lot 903-A-6 for taxation purposes (Exhibit ‘F’, Exhibit ‘6’); that she also paid the taxes thereon (Exhibit ‘G’); that her father died on February 25, 1964 with a Last Will and Testament; that the pertinent portion of her father’s Last Will and Testament bequeaths the lot.

‘… near the Cebu provincial capitol, which were my attorney’s fees from my clients, Victoria Rallos and Zoilo Solon, respectively – have already long been disposed of, and distributed by me, through my brother, Miguel, to all my said children in the first marriage;’

“That on June 3, 1966, the [petitioner] wrote a letter petitioning the Register of Deeds of Cebu to transfer Lot 903-A-6 to his name on the ground that Lot 903-A-6 is a portion of Lot 903-A; that on April 6, 1967, the [respondent] requested the Register of Deeds to annotate an affidavit of adverse claim against the [petitioner’s] TCT RT-6999 (T-21108) which covers Lot 903-A; that on June 3, 1967, the Register of Deeds issued TCT 35275 covering Lot 903-A-6 in the name of the [petitioner] but

carrying the earlier annotation of adverse claim; that in 1969, the [petitioner] tore down the wire fence which the [respondent] constructed on Lot 903-A-6 which compelled the latter to institute the instant complaint dated August 20, 1970 on September 19, 1970.

“On December 5, 1970, the answer with counterclaim dated December 3, 1970 of [petitioner] Miguel Cuenco was filed where he alleged that he was the absolute owner of Lot 903-A-6; that this lot was a portion of Lot 903-A which in turn was part of Lot 903 which was the subject matter of litigation; that he was alone in defending the cases involving Lot 903 without the participation of his brother Mariano Cuenco; that he donated five (5) of the six (6) portions of Lot 903-A to the five (5) children of his brother Mariano out of gratitude for the love and care they exhibited to him (Miguel) during the time of his long sickness; that he did not give or donate any portion of the lot to the [respondent] because she never visited him nor took care of him during his long sickness; that he became critically ill on February 11, 1946 and was confined at the Singian’s Clinic in Manila and then transferred to Cebu where he nearly died in 1946; that his wife Fara Remia Ledesma Cuenco had an operation on January 1951 and was confined at the University of Santo Tomas Hospital and John Hopkins Hospital in the United States; that two of his children died at the University of Santo Tomas Hospital in 1951 and 1952; and that his wife was blind for many months due to malignant hypertension but [respondent] never remembered her nor did she commiserate with him and his wife in their long period of sorrow.

“[Petitioner] Miguel Cuenco took the witness stand as early as September 13, 1974.  His self-conducted direct examination lasted until 1985, the last one on November 22, 1985.  Unfortunately, he died[5] before he was able to submit himself for cross-examination and so his testimony had to be stricken off the record.  His only surviving daughter, Marietta Cuyegkeng, stood as the substitute [petitioner] in this case.  She testified that she purchased Lot 903-A-6 (the property subject matter of this case) from her late father sometime in 1990 and constructed a house thereon in the same year; that she became aware of this case because her late father used to commute to Cebu City to attend to this case; and that Lot 903-A-6 is in her name per Transfer Certificate of Title #113781 of the Registry of Deeds for Cebu.”[6]

Ruling of the Court of Appeals

The CA found respondent’s action not barred by res judicata, because there was “no identity of causes of action between the Petition for cancellation of adverse claim in L.R.C. Records 5988 and the Complaint for specific performance to resolve the issue of ownership in Civil Case No. R-11891.”

The appellate court further found no reason to disturb the findings of the trial court that respondent “has the legal right of ownership over lot 903-A-6.”  The CA ruled that the subject land “is part of the attorney’s fees of Don Mariano Cuenco, predecessor-in-interest of [Respondent] Concepcion Cuenco vda. de Manguerra and [petitioner] merely holds such property in trust for [her], his title there[to] notwithstanding.”

Finally, the CA held that the right of action of respondent “has not yet prescribed as she was in possession of the lot in dispute and the prescriptive period to file the case commences to run only from the time she acquired knowledge of an adverse claim over [her] possession.”

Hence, this Petition.[7]

The Issues

In her Memorandum, petitioner raises the following issues for our consideration:

“I.

On question of law, the Court of Appeals failed to consider facts of substance and significance which, if considered, will show that the preponderance of evidence is in favor of the petitioner.

“II.

On question of law, the Court of Appeals failed to appreciate the proposition that, contrary to the position taken by the trial court, no constructive or implied trust exists between the parties, and neither is the action one for reconveyance based upon a constructive or implied trust.

“III.

On question of law, the Court of Appeals erred in not finding that even where implied trust is admitted to exist the respondent’s action for relief is barred by laches and prescription.

“IV.

On question of law, the trial court and the appellate court erred in expunging from the records the testimony of Miguel Cuenco.”[8]

This Court’s Ruling

The Petition has no merit.

First Issue:Evaluation of Evidence

Petitioner asks us to appreciate and weigh the evidence offered in support of the finding that Lot 903-A-6 constituted a part of Mariano Cuenco’s share in the attorney’s fees.  In other words, she seeks to involve us in a reevaluation of the veracity and probative value of the evidence submitted to the lower court.  What she wants us to do is contrary to the dictates of Rule 45 that only questions of law may be raised and resolved in a petition for review.  “Absent any whimsical or capricious exercise of judgment, and unless the lack of any basis for the conclusions made by the lower courts be amply demonstrated, the Supreme Court will not disturb such factual findings.”[9]

As a rule, findings of fact of the Court of Appeals affirming those of the trial court are binding and conclusive.  Normally, such factual findings are not disturbed by this Court, to which only questions of law may be raised in an appeal by certiorari.[10] This Court has consistently ruled that these questions “must involve no examination of the probative value of the evidence presented by the litigants or any of them.”[11] Emphasizing the difference between the two types of question, it has explained that “there is a question of law in a given case when the doubt or difference arises as to what the law is pertaining to a certain state of facts, and there is a question of fact when the doubt arises as the truth or the falsity of alleged facts.”[12]

Indeed, after going over the records of the present case, we are not inclined to disturb the factual findings of the trial and the appellate courts, just because of the insistent claim of petitioner.  His witnesses allegedly testified that Civil Case No. 9040 involving Lot 903 had not been handled by Mariano for defendants therein -- Apolonia Solon, Zoilo Solon, et al.  It has sufficiently been proven, however, that these defendants were represented by the Cuenco and Cuenco Law Office, composed of Partners Mariano Cuenco and Miguel Cuenco.

Given as attorney’s fees was one hectare of Lot 903, of which two five-thousand square meter portions were identified as Lot 903-A and Lot 903-B.  That only Miguel handled Civil Case No. 9040 does not mean that he alone is entitled to the attorney’s fees in the said cases. “When a client employs the services of a law firm, he does not employ the services of the lawyer who is assigned to personally handle the case.  Rather, he employs the entire law firm.”[13]  Being a partner in the law firm, Mariano -- like Miguel -- was likewise entitled[14] to a share in the attorney’s fees from the firm’s clients.  Hence, the lower courts’ finding that Lot 903-A was a part of Mariano Cuenco’s attorney’s fees has ample support.

Second Issue:Implied Trust

Petitioner then contends that no constructive or implied trust exists between the parties.

A trust is a legal relationship between one having an equitable ownership in a property and another having legal title to it.[15]

Trust relations between parties may either be express or implied.[16] Express trusts are created by the direct and positive acts of the parties, indicated through some writing, deed, will, or words evidencing an intention to create a trust.[17] On the other hand, implied trusts are those that, “without being express, are deducible from the nature of the transaction as matters of intent[;] or which are superinduced on the transaction by operation of law as a matter of equity, independently of the particular intention of the parties.  Implied trusts may either be resulting or constructive trusts, both coming into being by operation of law.”[18]

Resulting trusts are presumed to have been contemplated by the parties and are based on the equitable doctrine that valuable consideration, not legal title, determines the equitable title or interest.[19] These trusts arise from the nature of or the circumstances involved in a transaction,[20] whereby legal title becomes vested in one person, who is obligated in equity to hold that title for the benefit of another.

Constructive trusts are “created by the construction of equity in order to satisfy the demands of justice and prevent unjust enrichment. They arise contrary to intention against one who, by fraud, duress or abuse of confidence, obtains or holds the legal right to property which he ought not, in equity and good conscience, to hold.”[21]

A review of the records shows that indeed there is an implied trust between the parties.

Although Lot 903-A was titled in Miguel’s name, the circumstances surrounding the acquisition and the subsequent partial dispositions of this property eloquently speak of the intent that the equitable or beneficial ownership of the property should belong to Mariano and his heirs.

First, Lot 903-A was one half of the one-hectare portion of Lot 903 given as attorney’s fees by a client of the law firm of Partners Miguel and Mariano Cuenco.  It constituted the latter’s share in the attorney’s fees and thus equitably belonged to him, as correctly found by the CA.  That Lot 903-A had been titled in the name of Miguel gave rise to an implied trust between him and Mariano, specifically, the former holds the property in trust for the latter.  In the present case, it is of no moment that the implied trust arose from the circumstance -- a share in the attorney’s fees -- that does not categorically fall under Articles 1448 to 1456 of the Civil Code.  The cases of implied trust enumerated therein “does not exclude others established by the general law of trust.”[22]

Second, from the time it was titled in his name in 1938,[23] Lot 903-A remained undivided and untouched[24] by Miguel.  Only on February 3, 1947, did Lourdes Cuenco,[25] upon the instruction of Mariano, have it surveyed and subdivided into six almost equal portions -- 903-A-1 to 903-A-6.  Each portion was specifically allocated to each of the six children of Mariano with his first wife.[26]

Third, Miguel readily surrendered his Certificate of Title[27] and interposed no objection[28] to the subdivision and the allocation of the property to Mariano’s six children, including Concepcion.

Fourth, Mariano’s children, including Concepcion,[29] were the ones who shouldered the expenses incurred for the subdivision of the property.

Fifth, after the subdivision of the property, Mariano’s children -- including Concepcion[30] -- took possession of their respective portions thereof.

Sixth, the legal titles to five portions of the property were transferred via a gratuitous deed of conveyance to Mariano’s five children, following the allocations specified in the subdivision plan prepared for Lourdes Cuenco.[31]

With respect to Lot 903-A-6 in particular, the existence of Concepcion’s equitable ownership thereof is bolstered, not just by the above circumstances, but also by the fact that respondent fenced the portion allocated to her and planted trees thereon.[32]

More significantly, she also paid real property taxes on Lot 903-A-6 yearly, from 1956 until 1969[33] -- the year when she was dispossessed of the property.  “Although tax declarations or realty tax payments of property are not conclusive evidence of ownership, nevertheless, they are good indicia of possession in the concept of owner, for no one in his right mind would be paying taxes for a property that is not in his actual or at least constructive possession.”[34] Such realty tax payments constitute proof that the holder has a claim of title over the property.

Tellingly, Miguel started paying real property taxes on Lot 903-A-6 only on April 4, 1964,[35] after the death of Mariano.[36] This fact shows that it was only in that year that he was emboldened to claim the property as his own and to stop recognizing Mariano’s, and subsequently Concepcion’s, ownership rights over it.  It was only by then that the one who could have easily refuted his claim had already been silenced by death.  Such a situation cannot be permitted to arise, as will be explained below.

Estoppel

From the time Lot 903-A was subdivided and Mariano’s six children -- including Concepcion -- took possession as owners of their respective portions, no whimper of protest from petitioner was heard until

1963.  By his acts as well as by his omissions, Miguel led Mariano and the latter’s heirs, including Concepcion, to believe that Petitioner Cuenco respected the ownership rights of respondent over Lot 903-A-6.  That Mariano acted and relied on Miguel’s tacit recognition of his ownership thereof is evident from his will, executed in 1963, which states:

“I hereby make it known and declare that x x x all properties which my first wife and I had brought to, or acquired during our marriage, or which I had acquired during the years I was a widower – including jewelry, war damage compensation, and two other lots also located at Cebu City, one near the South-Western University and the other near the Cebu provincial capitol, which were my attorney’s fees from my clients, Victoria Rallos and Zoilo Solon, respectively – have already long been disposed of, and distributed by me, through my brother, Miguel, to all my said six children in the first marriage.”[37] (emphasis supplied)

Indeed, as early as 1947, long before Mariano made his will in 1963, Lot 903-A -- situated along Juana Osmeña Extension, Kamputhaw, Cebu City,[38] near the Cebu Provincial Capitol -- had been subdivided and distributed to his six children in his first marriage.  Having induced him and his heirs to believe that Lot 903-A-6 had already been distributed to Concepcion as her own, petitioner is estopped from asserting the contrary and claiming ownership thereof.

The principle of estoppel in pais applies when -- by one’s acts, representations, admissions, or silence when there is a need to speak out -- one, intentionally or through culpable negligence, induces another to believe certain facts to exist; and the latter rightfully relies and acts on such belief, so as to be prejudiced if the former is permitted to deny the existence of those facts.[39]

Third Issue:Laches

Petitioner claims that respondent’s action is already barred by laches.

We are not persuaded.  Laches is negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to it has either abandoned or declined to assert it.[40] In the present case, respondent has persistently asserted her right to Lot 903-A-6 against petitioner.

Concepcion was in possession as owner of the property from 1949 to 1969.[41] When Miguel took steps to have it separately titled in his name, despite the fact that she had the owner’s duplicate copy of TCT No. RT-6999 -- the title covering the entire Lot 903-A -- she had her adverse claim annotated on the title in 1967.  When petitioner ousted her from her possession of the lot by tearing down her wire fence in 1969,[42] she commenced the present action on September 19, 1970,[43] to protect and assert her rights to the property.  We find that she cannot be held guilty of laches, as she did not sleep on her rights.

Fourth Issue:Expunging of Testimony

Petitioner Cuyegkeng questions the expunging of the direct testimony of Miguel Cuenco.  Respondent points out that this issue was not raised before the CA.  Neither had petitioner asked the trial court to reconsider its Order expunging the testimony.  Hence, this issue cannot for the first time be raised at this point of the appeal.  Issues, arguments and errors not adequately and seriously brought below

cannot be raised for the first time on appeal.[44] “Basic considerations of due process impel this rule.”[45]

WHEREFORE, the Petition is DENIED, and the assailed Decision AFFIRMED.  Costs against petitioner.

SO ORDERED.

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

G.R. No. 146550             March 17, 2006

FELIPA DELFIN, GINA MAALAT, SHIRLEY TAMAYO, RECIO DAÑOS, and ROBERTO DELFIN, Petitioners, vs.PRESENTACION D. BILLONES, ROSARIO D. DEMONARCA (accompanied by husband Pedro and Demonarca), WENEFREDO DEGALA (representing Pedro Degala), RAMON DELA CRUZ (representing his deceased wife Maria Daradar dela Cruz), TERESITA DALIVA DEVIENTE (daughter of Esperanza Daradar Daliva), and JOLLY DATAR (representing his deceased mother Trinidad D. Datar) and the COURT OF APPEALS, Respondents.

D E C I S I O N

TINGA, J.:

This treats of the petition for review on certiorari assailing the Decision1 and Resolution of the Court of Appeals in CA-G.R. CV No. 54035 entitled Presentacion D. Billones, et al. v. Felipa Delfin, et al., promulgated on 13 October 2000 and 26 December 2000, respectively, which reversed the 27 May 1996 Decision of the Regional Trial Court, Branch 15 of Roxas City.

The antecedents are as follows:

On 29 July 1960, a Deed of Absolute Sale2 over Lot No. 213, covered by RO-5563 (14516) of the Cadastral Survey of Panitan, Capiz, was executed by Teresa Daños, Esperanza Daradar, Estrella Daradar and Maria Daradar, with the marital consent of Cipriano Degala, husband of Teresa Daños, in favor of the spouses Rodolfo Delfin and Felipa Belo (spouses Delfin). The document, so it appears, bore the signatures of Esperanza and Estrella, as well as the thumb marks of Teresa, Maria, and Cipriano, and was acknowledged before a notary public. On 18 November 1980, the spouses Delfin registered the Deed of Absolute Sale with the Register of Deeds of the Province of Capiz. Thereupon, a new title, Transfer Certificate of Title (TCT) No. T-17071, was issued in the name of the spouses Delfin.3

Meanwhile, on 26 March 1965, an Extra-Judicial Partition and Absolute Deed of Sale4 involving Lot No. 3414 then covered by TCT No. T-16804 was made between Teresa Daños, Trinidad Degala, Leopoldo Degala, Presentacion Degala, Rosario Degala and Pedro

Degala, on one part, and the spouses Delfin, on the other. The deed, bearing either the thumb marks or the signatures of the sellers, was likewise notarized. Said document was registered by the spouses Delfin on 24 June 1980. Thus, TCT No. T-16804 covering Lot No. 3414 was cancelled and a new one, TCT No. T-16805, was issued in the names of the spouses Delfin on 24 June 1980.5

The spouses Delfin then consolidated Lots No. 213 and No. 3414 and subdivided the resulting lot into six (6) smaller lots.6 Lot No. 1, covered by TCT No. T-19618, was sold to Roberto Delfin on 21 October 1989; Lot No. 2 covered by TCT No. T-19619 to Recio Daños on 25 April 1985; Lot No. 3 covered by TCT No. T-19620 to Gina Maalat on 14 June 1989, and; Lot No. 4 covered by TCT No. T-19621 to Shirley Tamayo on 11 August 1989. Lot No. 5 remained with the spouses Delfin, while Lot No. 6 was used as an access road.7

On 12 April 1994, herein respondents, claiming to be the heirs of the former owners of Lots No. 213 and No. 3414, filed an action for annulment, reconveyance, recovery of ownership and possession and damages.8 According to them, it was only in 19899 when they discovered that Teresa Daños, sick and in dire need of money, was constrained to mortgage the one-half (1/2) portion of Lot No. 3414 to the spouses Delfin for P300.00 sometime in 1965.10 Taking advantage of her condition, the spouses Delfin made her sign a document purporting to be a mortgage, but which turned out to be an extrajudicial partition with deed of absolute sale. As to Lot No. 213, respondents averred that the Deed of Sale covering the property was fictitious and the signatures and thumb marks contained therein were all forged because three (3) of the signatories therein died before the alleged sale in 1960, namely: Estrella Daradar, who died in 1934, and Esperanza Daradar and Cipriano Degala, who both died in 1946.11 As proof thereof, respondents presented certifications12 on the deaths of Esperanza Daradar and Cipriano Degala by the Local Civil Registrar of Panitan, Capiz.

To counter respondents’ arguments, petitioners alleged that respondents’ action was already barred by prescription and laches. Further, they argued that the spouses Delfin, as well as the subsequent owners of the subject properties, are innocent purchasers for value and in good faith, whose titles to the lots at the time of the purchase were all clean and free from liens and encumbrances.13 The documents evidencing the conveyance of the properties were personally and unilaterally executed by the vendors-signatories therein without any intervention from the spouses Delfin, and duly acknowledged before a notary public, petitioners averred.14

Giving credence to the claims of petitioners, the trial court ruled that respondents’ claim of ownership over the subject properties was not established by a preponderance of evidence. Compared to respondents’ verbal claims of ownership, the spouses Delfin were able to prove that they bought the properties from the original owners, the trial court added. The trial court held that the deeds of sale being duly executed notarial and public documents, they enjoy the presumption of regularity which can only be contradicted by clear and convincing evidence. In addition, respondents’ claims based on fraud were barred by prescription, having been filed more than four (4) years from the time the instruments were registered with the Register of Deeds, and they are estopped from annulling the documents by reason of laches, the action having been filed 15 years after the deeds were registered. The trial court also denied respondents’ claims for damages.15

Respondents elevated the case to the Court of Appeals, which reversed the ruling of the trial court. In its Decision,16 the Court of Appeals ruled that while an action for reconveyance based on implied or constructive trust prescribes in ten (10) years from the date of the issuance of the certificate of title over the property, such prescriptive period does not apply if the person claiming to be the owner of the property is in possession thereof, such as respondents in this case.17 Moreover, considering that a similar action for reconveyance was filed by respondents as early as 1989 which was eventually dismissed without prejudice, respondents’ action to annul the two (2) deeds on the ground of fraud has not yet prescribed, according to the Court of Appeals.18

The appellate court annulled the Extra-Judicial Partition and Deed of Sale covering Lot No. 3414. The appellate court noted that: (i) Teresa Daños was a very old and sickly woman; (ii) she and her children lacked formal education to fully comprehend the document to which they affixed their signatures and/or thumb marks; (iii) P300.00 was inadequate consideration for a lot consisting of 1,565 square meters even in 1965; (iv) respondents were allowed to remain in the subject properties; and (v) the questioned document was registered in the name of the spouses Delfin 15 years after the alleged date of its execution, when most of the alleged vendors have already died. These circumstances surrounding the execution of the said document show that the real intention was merely to secure the loan of P300.00. Thus, what took place was in fact, an equitable mortgage and not a sale.19

As for Lot No. 213, the Court of Appeals held that the Deed of Absolute Sale could not have been executed on 9 July 1960. Relying on the certifications of death presented by respondents, the Court of Appeals ruled that the defense of due execution cannot prevail over the fact that two (2) of the signatories therein have already died prior to said date.20 Roberto Delfin, Recio Daños, Gina Maalat, and Shirley Tamayo, buyers of the subdivided lot, could not be considered as purchasers in good faith nor entitled to be protected in their rights because they were informed by respondents prior to the purchase that they, and not the spouses Delfin, are the real owners of the lots, the appellate court added.21

The Court of Appeals thus ruled:

WHEREFORE, premises considered, the present appeal is hereby GRANTED. The Decision dated May 27, 1996 of the Regional Trial Court of Roxas City, Capiz, Branch 15 presided over by Judge Roger B. Patricio is hereby REVERSED and SET SIDE and a new one entered:

(1) Annulling the Extra-Judicial Partition and Deed of Absolute Sale dated March 26, 1965 and Deed of Absolute Sale dated July 9, 1960;

(2) Reinstating OCT No. RO-5563 (14516) referring to Lot 213 registered in the names of Teresa Daños (1/2 portion), and the children of Lucia Daños, namely: Esperanza Daradar, Estrella Daradar and Maria Daradar (1/2 pro-indiviso) and OCT No. (4650) RO-5529 referring to Lot 3414 registered in the names of the late spouses Cipriano Degala and Teresa Daños, and canceling the TCTs issued thereafter;

(3) Ordering plaintiffs-appellants, jointly and severally, to pay defendant Felipa Belo Delfin the amount of P300.00 within thirty (30) days from the date of finality of this decision;

(4) Ordering defendants-appellees to free Lots 3414 and 213 from any and all obligations and encumbrances that may have been attached to both lots and thereafter to deliver possession of

the same to plaintiffs-appellants; and

(5) Ordering defendants-appellees, jointly and severally, to pay plaintiffs-appellants P10,000.00 as exemplary damages, and [sic] for attorney’s fees and P10,000.00 as litigation expenses.

Costs against defendants-appellees.

SO ORDERED.22

In the present petition for review under Rule 45, petitioners claim that the Court of Appeals erred in finding that respondents retained possession of the subject properties. Moreover, petitioners posit that respondent’s allegations of fraud and forgery confine their action to a four (4)-year prescriptive period which has long expired. Additionally, they argue that respondents failed to: (i) prove the inadequacy of the selling price of Lot No. 3414; (ii) prove the frail condition of Teresa Daños; (iii) show that fraud attended the sale of Lot No. 213; (iv) show that Roberto Delfin, Recio Daños, Gina Maalat and Shirley Tamayo are not purchasers in good faith; and (v) overcome the presumption of regularity enjoyed by the notarized deeds of sale. Petitioners also question the award of exemplary damages and attorney’s fees in favor of respondents.23 On the other hand, respondents for the most part merely reiterated the ruling of the Court of Appeals.24

The complete resolution of the issues presented before the Court requires a determination of facts, which this Court, not being a trier of facts, does not normally exercise in an appeal by certiorari.25 This rule, however, is subject to exceptions, such as where the factual findings of the Court of Appeals and the trial court are conflicting or contradictory,26 as in the instant case.

When one’s property is registered in another’s name without the former’s consent, an implied trust is created by law in favor of the true owner.27 Implied trusts are those which, without being expressed, are deducible from the nature of the transaction by operation of law as matters of equity, independently of the particular intention of the parties. Meanwhile, constructive trusts are created in order to satisfy the demands of justice and prevent unjust enrichment. They arise against one who, by fraud, duress or abuse of confidence, obtains or holds the legal right to property which he ought not, in equity and good conscience, to hold.28 An action for reconveyance based upon an implied or constructive trust prescribes in ten (10) years from the registration of the deed or from the issuance of the title, registration being constructive notice to all persons.29 However, an action for reconveyance based on fraud is imprescriptible where the plaintiff is in possession of the property subject of the acts.30

In essence, petitioners insist that respondents failed to prove that fraud attended the sale of Lots No. 213 and No. 3414. The Court agrees.

A contract or conduct apparently honest and lawful must be treated as such until it is shown to be otherwise by either positive or circumstantial evidence.31 A duly executed contract carries with it the presumption of validity. The party who impugns its regularity has the burden of proving its simulation.32 A notarized document is executed to lend truth to the statements contained therein and to the authenticity of the signatures. Notarized documents enjoy the presumption of regularity which can be overturned only by clear and convincing evidence.33

As plaintiffs in the action before the trial court, respondents have the burden to establish their case by a preponderance of evidence, or evidence which is of greater weight or more convincing than that which

is offered in opposition to it. Hence, parties who have the burden of proof must produce such quantum of evidence, with plaintiffs having to rely on the strength of their own evidence, not on the weakness of the defendant’s.34

As regards Lot No. 3414, respondents specifically alleged that the spouses Delfin "tricked the plaintiffs and their late mother into signing a fictitious and simulated document," and that "TCT No. T-16805 was the product of a fictitious and simulated transaction [that] was obtained through fraud, the same should be declared null and void".35 They claimed that the original owners of Lot No. 3414 did not intend to execute a deed of extra-judicial partition and absolute sale but only a mortgage instrument. However, all that respondents came out with were bare allegations that the said owners were either old and sickly or illiterate; that the purported selling price of P300.00 was unconscionable; and that petitioners failed to eject respondents from the subject land, as respondents were unable to present any evidence to substantiate their claims, much less the charge of fraud.

Respondents did not present any witness to testify on the execution of the deed, nor on the condition of the signatories thereto. At best, their witnesses merely testified as to the identity of the previous owners of the property. Worse, petitioners Presentacion Degala Billones and Rosario Degala Demonarca, both signatories to the subject deed, were not presented to testify on the real circumstances surrounding the assailed transaction. As for the selling price of P300.00, suffice it to say that respondents did not even present a witness to testify as to its alleged unconscionability vis-a-vis the prevailing market value of the property at the time of the sale. Meanwhile, the belated registration of the document with the Register of Deeds can be explained by the fact that the original of OCT No. 4650 covering Lot No. 3414 was either lost or destroyed and was reconstituted only in 1971, while the original copy of the deed of sale was lost by Felipa Delfin.36

Even respondents’ claim of possession of the subject properties has not been sufficiently proved. This Court has uniformly held that "the one who is in actual possession of a piece of land claiming to be the owner thereof may wait until his possession is disturbed or his title is attacked before taking steps to vindicate his right. His undisturbed possession gives him a continuing right to seek the aid of a court of equity to ascertain and determine the nature of the adverse claim of a third party and its effect on his own title, which right can be claimed only by one who is in possession."37 Actual possession of land consists in the manifestation of acts of dominion over it of such a nature as those a party would naturally exercise over his own property.38

Contrary to the appellate court’s illation, respondents have not established possession of the subject properties. Save for the lone testimony of Orlando Buday, a neighbor, that Rosario Degala Daradar was the only one still residing in the properties in dispute, no other evidence was presented to show that respondents are in actual occupation and possession thereof. Not even Rosario herself testified. Doubts also arise as to the veracity of respondents’ claim of possession since respondents themselves averred in their complaint that the spouses Delfin had immediately taken possession of the subject properties in the same year that the sale was made, and appropriated the produce found in the subject lots from then on.39 Admissions made in the complaint are judicial admissions which are binding on the party who made them and cannot be contradicted40 absent any showing that it was made through palpable mistake. No amount of rationalization can offset such admission.41 By their very own admissions, it can be inferred that respondents or their predecessors-in-interest did not exercise actual occupancy, as they had ceased to perform acts of dominion over the property upon the sale thereof.

Fraud may be, and often is, proved by or inferred from circumstances, and the circumstances proved may in some cases raise a presumption of its existence. However, while fraud may be proved by circumstances or presumed from them, it cannot be demonstrated by mere construction, but must be proven in all cases.42 Respondents indeed failed to prove that fraud attended the execution of the Extra-Judicial Partition and Deed of Absolute Sale. Their bare and unsupported allegations are not enough to overthrow the presumption of the validity of said agreement or to raise the presumption of fraud.

Considering that respondents failed to establish the existence of fraud in the spouses Delfin’s acquisition of Lot No. 3414, it cannot be said that implied or constructive trust was created between respondents and the spouses Delfin. The action for reconveyance of Lot No. 3414 must fail. Further, in view of respondents’ failure to show their valid title to Lot No. 3414 or even their occupation thereof, the case cannot prosper even when it is viewed as one for quieting of title.

On the other hand, the Court of Appeals annulled the Deed of Absolute Sale dated 9 July 1960 covering Lot No. 213 because "one of the vendors therein was already dead,"43 relying on the certifications issued by the Local Civil Registrar. In assailing this declaration, petitioners once more point out that the Deed of Sale, being a duly notarized document, should be given full faith and credit. Also, they argue that the appellate court’s conclusion is based on the disputable presumption that identity of names means identity of persons.

Documents consisting of entries in public records made in the performance of a duty by a public officer are prima facie evidence of the facts therein stated.44 Public documents are (i) the written official acts, or records of the official acts of the sovereign authority, official bodies and tribunals, and public officers, whether of the Philippines, or of a foreign country; (ii) documents acknowledged before a notary public except last wills and testaments; and (iii) public records, kept in the Philippines, of private documents required by law to be entered therein.45 Public documents may be proved by the original copy, an official publication thereof, or a certified true copy thereof;46 and when a copy of a document or record is attested for the purpose of evidence, the attestation by the officer having legal custody of the record must state that the copy is a correct copy of the original, or a specific part thereof, as the case may be.47 A duly-registered death certificate is considered a public document and the entries found therein are presumed correct, unless the party who contests its accuracy can produce positive evidence establishing otherwise.48 Nevertheless, this presumption is disputable and is satisfactory only if uncontradicted, and may be overcome by other evidence to the contrary.

The documents presented by respondents were mere certifications and not the certified copies or duly authenticated reproductions of the purported death certificates of Esperanza Daradar

and Cipriano Degala. They are not the public documents referred to by the Rules of Court, nor even records of public documents; thus, they do not enjoy the presumption granted by the Rules. Respondents did not even present the local civil registrar who supposedly issued the certifications to authenticate and identify the same. Likewise, respondent Jolly Datar who adverted to the certifications did not testify on how the certifications were obtained, much less his role therein.49 As a consequence, the trial court did not admit the certifications as independent pieces of evidence but merely as part of the testimony of respondent Jolly Datar.50 A document or writing which is admitted not as an independent evidence but merely as part of the testimony of a witness does not constitute proof of the facts related therein.51 Clearly then, the certifications cannot be given probative value, and their contents cannot be deemed to constitute proof of the facts therein stated.

More importantly, the very exhibits of respondents dispel the presumption of regularity of the issuance of the certifications of death relied upon by the Court of Appeals. The certifications state that both Esperanza Daradar and Cipriano Degala died in 1946 at ages 24 and 63, respectively. However, a careful study of the records of the case shows that in OCT No. RO 5563 (14516),52 Esperanza Daradar was already 20 years old in 1929, making her date of birth to be sometime in 1909. This is totally incongruous with her supposed age of 24 years in 1946, which places the year of her birth in 1922. Likewise, the Court takes note of the Decision of the Court of Appeals in CA-G.R. CV No. 31739,53 wherein the appellate court in its statement of facts found that Esperanza Daradar died on 10 August 1940, while Estrella Daradar died on 15 June 1943, contrary to the claim of respondents in this case.54 The Esperanza Daradar named in the OCT and the one referred to in the aforesaid Decision could not have been the same Esperanza Daradar in the Local Civil Registrar’s certification.

As for the Cipriano’s thumb mark on the deed, suffice it to say that his consent was not in fact needed to perfect the sale. Teresa Daños Degala’s share in Lot 213 was paraphernal property and, under the provisions of the Civil Code applicable at the time of the sale, she could alienate or dispose of the said property without the permission or consent of her husband.55 Thus, with or without such thumb mark, whether it was forged or not, the Deed of Absolute Sale remains valid and effectual.

Under the circumstances, therefore, respondents were unable to overthrow the presumption of validity of the Deed of Absolute Sale. Said deed, as well as the titles derived as a result thereof must be accorded respect and must remain undisturbed.

Anent the charge of bad faith on the part of petitioners, the Court takes note of respondents’ statement in their Plaintiff-Appellants’ Brief,56 to wit:

From the facts and circumstances of this case, Lot 213 and 3414 both of Panitan Cadastre which were consolidated, into one single lot, per consolidated plan as appearing at the back of TCT No. T-17071, and after the two lots were consolidated, and the same was subdivided, into six smaller lots, Lots 1, 4 and 5 thereof still remained in the names of appellees spouses Rodolfo Delfin and Felipa Belo, while Lots 2 and 3 thereof were transferred by the said spouses’ appellees to Recio Daños and Gina Maalat, respectively. These two transferees are innocent purchasers for value which appellants admit, and this appeal is only an appeal by appellants against defendant-appellees spouses Rodolfo Delfin and Felipa Belo, and not against Recio Daños and Gina Maalat.57 (Emphasis supplied.)

In effect, contrary to the testimony of respondents’ witness Myrna Degala-Distura that her mother warned petitioners against buying the subject lots,58 respondents admitted that the only persons they consider to be not innocent purchasers are the spouses Delfin. However, in view of respondents’ failure to prove the fraud attributed to the spouses Delfin, the Court has no choice but to declare all petitioners to be purchasers for value and in good faith.

WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals dated 13 October 2000 is REVERSED and SET ASIDE. The Decision of the Regional Trial Court dated 27 May 1996 is REINSTATED.

No pronouncement as to costs.

SO ORDERED.

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. No. 163707             September 15, 2006

MICHAEL C. GUY, petitioner, vs.HON. COURT OF APPEALS, HON. SIXTO MARELLA, JR., Presiding Judge, RTC, Branch 138, Makati City and minors, KAREN DANES WEI and KAMILLE DANES WEI, represented by their mother, REMEDIOS OANES, respondents.

D E C I S I O N

YNARES-SANTIAGO, J.:

This petition for review on certiorari assails the January 22, 2004 Decision1 of the Court of Appeals in CA-G.R. SP No. 79742, which affirmed the Orders dated July 21, 20002 and July 17, 20033 of the Regional Trial Court of Makati City, Branch 138 in SP Proc. Case No. 4549 denying petitioner's motion to dismiss; and its May 25, 2004 Resolution4 denying petitioner's motion for reconsideration.

The facts are as follows:

On June 13, 1997, private respondent-minors Karen Oanes Wei and Kamille Oanes Wei, represented by their mother Remedios Oanes (Remedios), filed a petition for letters of administration5 before the Regional Trial Court of Makati City, Branch 138. The case was docketed as Sp. Proc. No. 4549 and entitled Intestate Estate of Sima Wei (a.k.a. Rufino Guy Susim).

Private respondents alleged that they are the duly acknowledged illegitimate children of Sima Wei, who died intestate in Makati City on October 29, 1992, leaving an estate valued at P10,000,000.00 consisting of real and personal properties. His known heirs are his surviving spouse Shirley Guy and children, Emy, Jeanne, Cristina, George and Michael, all surnamed Guy. Private respondents prayed for the appointment of a regular administrator for the orderly settlement of Sima Wei's estate. They likewise prayed that, in the meantime, petitioner Michael C. Guy, son of the decedent, be appointed as Special Administrator of the estate. Attached to private respondents' petition was a Certification Against Forum Shopping6 signed by their counsel, Atty. Sedfrey A. Ordoñez.

In his Comment/Opposition,7 petitioner prayed for the dismissal of the petition. He asserted that his deceased father left no debts and that his estate can be settled without securing letters of administration pursuant to Section 1, Rule 74 of the Rules of Court. He further argued that private respondents should have established their status as illegitimate children during the lifetime of Sima Wei pursuant to Article 175 of the Family Code.

The other heirs of Sima Wei filed a Joint Motion to Dismiss8 on the ground that the certification against forum shopping should have been signed by private respondents and not their counsel. They contended that Remedios should have executed the certification on behalf of her minor daughters as mandated by

Section 5, Rule 7 of the Rules of Court.

In a Manifestation/Motion as Supplement to the Joint Motion to Dismiss,9 petitioner and his co-heirs alleged that private respondents' claim had been paid, waived, abandoned or otherwise extinguished by reason of Remedios' June 7, 1993 Release and Waiver of Claim stating that in exchange for the financial and educational assistance received from petitioner, Remedios and her minor children discharge the estate of Sima Wei from any and all liabilities.

The Regional Trial Court denied the Joint Motion to Dismiss as well as the Supplemental Motion to Dismiss. It ruled that while the Release and Waiver of Claim was signed by Remedios, it had not been established that she was the duly constituted guardian of her minor daughters. Thus, no renunciation of right occurred. Applying a liberal application of the rules, the trial court also rejected petitioner's objections on the certification against forum shopping.

Petitioner moved for reconsideration but was denied. He filed a petition for certiorari before the Court of Appeals which affirmed the orders of the Regional Trial Court in its assailed Decision dated January 22, 2004, the dispositive portion of which states:

WHEREFORE, premises considered, the present petition is hereby DENIED DUE COURSE and accordingly DISMISSED, for lack of merit. Consequently, the assailed Orders dated July 21, 2000 and July 17, 2003 are hereby both AFFIRMED. Respondent Judge is hereby DIRECTED to resolve the controversy over the illegitimate filiation of the private respondents (sic) minors [-] Karen Oanes Wei and Kamille Oanes Wei who are claiming successional rights in the intestate estate of the deceased Sima Wei, a.k.a. Rufino Guy Susim.

SO ORDERED.10

The Court of Appeals denied petitioner's motion for reconsideration, hence, this petition.

Petitioner argues that the Court of Appeals disregarded existing rules on certification against forum shopping; that the Release and Waiver of Claim executed by Remedios released and discharged the Guy family and the estate of Sima Wei from any claims or liabilities; and that private respondents do not have the legal personality to institute the petition for letters of administration as they failed to prove their filiation during the lifetime of Sima Wei in accordance with Article 175 of the Family Code.

Private respondents contend that their counsel's certification can be considered substantial compliance with the rules on certification of non-forum shopping, and that the petition raises no new issues to warrant the reversal of the decisions of the Regional Trial Court and the Court of Appeals.

The issues for resolution are: 1) whether private respondents' petition should be dismissed for failure to comply with the rules on certification of non-forum shopping; 2) whether the Release and Waiver of Claim precludes private respondents from claiming their successional rights; and 3) whether private respondents are barred by prescription from proving their filiation.

The petition lacks merit.

Rule 7, Section 5 of the Rules of Court provides that the certification of non-forum shopping should be executed by the plaintiff or the principal party. Failure to comply with the requirement shall be cause

for dismissal of the case. However, a liberal application of the rules is proper where the higher interest of justice would be served. In Sy Chin v. Court of Appeals,11 we ruled that while a petition may have been flawed where the certificate of non-forum shopping was signed only by counsel and not by the party, this procedural lapse may be overlooked in the interest of substantial justice.12 So it is in the present controversy where the merits13 of the case and the absence of an intention to violate the rules with impunity should be considered as compelling reasons to temper the strict application of the rules.

As regards Remedios' Release and Waiver of Claim, the same does not bar private respondents from claiming successional rights. To be valid and effective, a waiver must be couched in clear and unequivocal terms which leave no doubt as to the intention of a party to give up a right or benefit which legally pertains to him. A waiver may not be attributed to a person when its terms do not explicitly and clearly evince an intent to abandon a right.14

In this case, we find that there was no waiver of hereditary rights. The Release and Waiver of Claim does not state with clarity the purpose of its execution. It merely states that Remedios received P300,000.00 and an educational plan for her minor daughters "by way of financial assistance and in full settlement of any and all claims of whatsoever nature and kind x x x against the estate of the late Rufino Guy Susim."15 Considering that the document did not specifically mention private respondents' hereditary share in the estate of Sima Wei, it cannot be construed as a waiver of successional rights.

Moreover, even assuming that Remedios truly waived the hereditary rights of private respondents, such waiver will not bar the latter's claim. Article 1044 of the Civil Code, provides:

ART. 1044. Any person having the free disposal of his property may accept or repudiate an inheritance.

Any inheritance left to minors or incapacitated persons may be accepted by their parents or guardians. Parents or guardians may repudiate the inheritance left to their wards only by judicial authorization.

The right to accept an inheritance left to the poor shall belong to the persons designated by the testator to determine the beneficiaries and distribute the property, or in their default, to those mentioned in Article 1030. (Emphasis supplied)

Parents and guardians may not therefore repudiate the inheritance of their wards without judicial approval. This is because repudiation amounts to an alienation of property16 which must pass the court's scrutiny in order to protect the interest of the ward. Not having been judicially authorized, the Release and Waiver of Claim in the instant case is void and will not bar private respondents from asserting their rights as heirs of the deceased.

Furthermore, it must be emphasized that waiver is the intentional relinquishment of a known right. Where one lacks knowledge of a right, there is no basis upon which waiver of it can rest. Ignorance of a material fact negates waiver, and waiver cannot be established by a consent given under a mistake or misapprehension of fact.17

In the present case, private respondents could not have possibly waived their successional rights because they are yet to prove their status as acknowledged illegitimate children of the deceased. Petitioner himself has consistently denied that private respondents are his co-heirs. It would thus be

inconsistent to rule that they waived their hereditary rights when petitioner claims that they do not have such right. Hence, petitioner's invocation of waiver on the part of private respondents must fail.

Anent the issue on private respondents' filiation, we agree with the Court of Appeals that a ruling on the same would be premature considering that private respondents have yet to present evidence. Before the Family Code took effect, the governing law on actions for recognition of illegitimate children was Article 285 of the Civil Code, to wit:

ART. 285. The action for the recognition of natural children may be brought only during the lifetime of the presumed parents, except in the following cases:

(1) If the father or mother died during the minority of the child, in which case the latter may file the action before the expiration of four years from the attainment of his majority;

(2) If after the death of the father or of the mother a document should appear of which nothing had been heard and in which either or both parents recognize the child.

In this case, the action must be commenced within four years from the finding of the document. (Emphasis supplied)

We ruled in Bernabe v. Alejo18 that illegitimate children who were still minors at the time the Family Code took effect and whose putative parent died during their minority are given the right to seek recognition for a period of up to four years from attaining majority age. This vested right was not impaired or taken away by the passage of the Family Code.19

On the other hand, Articles 172, 173 and 175 of the Family Code, which superseded Article 285 of the Civil Code, provide:

ART. 172. The filiation of legitimate children is established by any of the following:

(1) The record of birth appearing in the civil register or a final judgment; or

(2) An admission of legitimate filiation in a public document or a private handwritten instrument and signed by the parent concerned.

In the absence of the foregoing evidence, the legitimate filiation shall be proved by:

(1) The open and continuous possession of the status of a legitimate child; or

(2) Any other means allowed by the Rules of Court and special laws.

ART. 173. The action to claim legitimacy may be brought by the child during his or her lifetime and shall be transmitted to the heirs should the child die during minority or in a state of insanity. In these cases, the heirs shall have a period of five years within which to institute the action.

The action already commenced by the child shall survive notwithstanding the death of either or both of the parties.

ART. 175. Illegitimate children may establish their illegitimate filiation in the same way and on the same, evidence as legitimate children.

The action must be brought within the same period specified in Article 173, except when the action is based on the second paragraph of Article 172, in which case the action may be brought during the lifetime of the alleged parent.

Under the Family Code, when filiation of an illegitimate child is established by a record of birth appearing in the civil register or a final judgment, or an admission of filiation in a public document or a private handwritten instrument signed by the parent concerned, the action for recognition may be brought by the child during his or her lifetime. However, if the action is based upon open and continuous possession of the status of an illegitimate child, or any other means allowed by the rules or special laws, it may only be brought during the lifetime of the alleged parent.

It is clear therefore that the resolution of the issue of prescription depends on the type of evidence to be adduced by private respondents in proving their filiation. However, it would be impossible to determine the same in this case as there has been no reception of evidence yet. This Court is not a trier of facts. Such matters may be resolved only by the Regional Trial Court after a full-blown trial.

While the original action filed by private respondents was a petition for letters of administration, the trial court is not precluded from receiving evidence on private respondents' filiation. Its jurisdiction extends to matters incidental and collateral to the exercise of its recognized powers in handling the settlement of the estate, including the determination of the status of each heir.20 That the two causes of action, one to compel recognition and the other to claim inheritance, may be joined in one complaint is not new in our jurisprudence.21 As held in Briz v. Briz:22

The question whether a person in the position of the present plaintiff can in any event maintain a complex action to compel recognition as a natural child and at the same time to obtain ulterior relief in the character of heir, is one which in the opinion of this court must be answered in the affirmative, provided always that the conditions justifying the joinder of the two distinct causes of action are present in the particular case. In other words, there is no absolute necessity requiring that the action to compel acknowledgment should have been instituted and prosecuted to a successful conclusion prior to the action in which that same plaintiff seeks additional relief in the character of heir. Certainly, there is nothing so peculiar to the action to compel acknowledgment as to require that a rule should be here applied different from that generally applicable in other cases. x x x

The conclusion above stated, though not heretofore explicitly formulated by this court, is undoubtedly to some extent supported by our prior decisions. Thus, we have held in numerous cases, and the doctrine must be considered well settled, that a natural child having a right to compel acknowledgment, but who has not been in fact acknowledged, may maintain partition proceedings for the division of the inheritance against his coheirs (Siguiong vs. Siguiong, 8 Phil., 5; Tiamson vs. Tiamson, 32 Phil., 62); and the same person may intervene in proceedings for the distribution of the estate of his deceased natural father, or mother (Capistrano vs. Fabella, 8 Phil., 135; Conde vs. Abaya, 13 Phil., 249; Ramirez vs. Gmur, 42 Phil., 855). In neither of these situations has it been thought necessary for the plaintiff to show a prior decree compelling acknowledgment. The obvious reason is that in partition suits and distribution proceedings the other persons who might take by inheritance are before the court; and the

declaration of heirship is appropriate to such proceedings.

WHEREFORE, the instant petition is DENIED. The Decision dated January 22, 2004 of the Court of Appeals in CA-G.R. SP No. 79742 affirming the denial of petitioner's motion to dismiss; and its Resolution dated May 25, 2004 denying petitioner's motion for reconsideration, are AFFIRMED. Let the records be REMANDED to the Regional Trial Court of Makati City, Branch 138 for further proceedings.

SO ORDERED.

FIRST DIVISION

 

ROGELIO, GEORGE, LOLITA, G.R. No. 159494

ROSALINDA, and JOSEPHINE, all

surnamed PASIÑO, represented by Present:

their father and attorney-in-fact

JOSE PASIÑO, PUNO, C.J., Chairperson,

Petitioners, CARPIO,

AUSTRIA-MARTINEZ,*

CORONA, and

- versus - LEONARDO-DE CASTRO, JJ.

 

DR. TEOFILO EDUARDO F.

MONTERROYO, substituted by

ROMUALDO MONTERROYO,

MARIA TERESA MONTERROYO, Promulgated:

and STEPHEN MONTERROYO,

Respondents. July 31, 2008

 

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

 

 

D E C I S I O N

 

 

CARPIO, J.:

 

The Case

 

Before the Court is a petition for review[1] assailing the 31 January 2003

Decision[2] and the 5 August 2003 Resolution[3] of the Court of Appeals in CA-G.R.

CV No. 63199. The Court of Appeals affirmed the Decision[4] dated 2 February 1999

of the Regional Trial Court of Iligan City, Branch 6 (trial court), in Civil Case No. 06-

3060.

 

 

The Antecedent Facts

 

This case originated from an action for recovery of possession and damages, with

prayer for the issuance of a temporary restraining order or writ of preliminary mandatory

injunction, filed by Rogelio, George, Lolita, Rosalinda and Josephine, all surnamed

Pasiño, represented by their father and attorney-in-fact Jose Pasiño (petitioners) against

Dr. Teofilo Eduardo F. Monterroyo (Dr. Monterroyo), later substituted by his heirs

Romualdo, Maria Teresa and Stephen, all surnamed Monterroyo (respondents).

 

Cad. Lot No. 2139 of Cad. 292, Iligan Cadastre (Lot No. 2139), with an area of

19,979 square meters, located at Panul-iran, Abuno, Iligan City, was part of a 24-hectare

land occupied, cultivated and cleared by Laureano Pasiño (Laureano) in 1933. The 24-

hectare land formed part of the public domain which was later declared alienable and

disposable. On 18 February 1935, Laureano filed a homestead application over the

entire 24-hectare land under Homestead Application No. 205845.[5] On 22 April 1940,

the Bureau of Forestry wrote Laureano and informed him that the tract of land covered

by his application was not needed for forest purposes.[6] On 11 September 1941, the

Director of Lands issued an Order[7] approving Laureano’s homestead application and

stating that Homestead Entry No. 154651 was recorded in his name for the land applied

for by him.

 

 

 

Laureano died on 24 March 1950. On 15 April 1952, the Director of Lands issued

an Order[8] for the issuance of a homestead patent in favor of Laureano, married to

Graciana Herbito[9] (Graciana). Laureano’s heirs did not receive the order and

consequently, the land was not registered under Laureano’s name or under that of his

heirs. In 1953, the property was covered by Tax Declaration No. 11102[10] in the name

of Laureano with Graciana[11] as administrator.

 

Between 1949 and 1954, a Cadastral Survey was conducted in Iligan City. The

surveyor found that a small creek divided the 24-hectare parcel of land into two

portions, identified as Lot No. 2138 and Lot No. 2139.

 

Petitioners claimed that Laureano’s heirs, headed by his son Jose, continuously

possessed and cultivated both lots. On 16 October 1962, Jose’s co-heirs executed a

Deed of Quitclaim renouncing their rights and interest over the land in favor of

Jose. Jose secured a title in his name for Lot No. 2138. Later, Jose alienated Lot

No. 2139 in favor of his children (petitioners in this case) who, on 8 January 1994,

simultaneously filed applications for grant of Free Patent Titles over their respective

shares of Lot No. 2139 before the Land Management Bureau of the Department of

Environment and Natural Resources (DENR). On 22 August 1994, the DENR granted

petitioners’ applications and issued Original Certificate of Title (OCT) No. P-1322 (a.f.)

in favor of Rogelio Pasiño, OCT No. P-1318 (a.f.) in favor of George Pasiño, OCT No.

P-1317 (a.f.) in favor of Lolita Pasiño, OCT No. P-1321 (a.f.) in favor of Josephine

Pasiño, and OCT No. P-1319 (a.f.) in favor of Rosalinda Pasiño. Petitioners alleged

that their possession of Lot No. 2139 was interrupted on 3 January 1993 when

respondents forcibly took possession of the property.

Respondents alleged that they had been in open, continuous, exclusive and

notorious possession of Lot No. 2139, by themselves and through their predecessors-in-

interest, since 10 July 1949. They alleged that on 10 July 1949, Rufo Larumbe

(Larumbe) sold Lot No. 2139 to Petra Teves (Petra). On 27 February 1984, Petra

executed a deed of sale over Lot No. 2139 in favor of Vicente Teves (Vicente). On

20 February 1985, Vicente executed a pacto de retro sale over the land in favor of

Arturo Teves (Arturo). In 1992, Arturo sold Lot No. 2139 in favor of respondents’

father, Dr. Monterroyo, by virtue of an oral contract. On 5 January 1995, Arturo

executed a Deed of Confirmation of Absolute Sale of Unregistered Land in favor of Dr.

Monterroyo’s heirs.

 

Respondents alleged that Jose was not the owner of Lot No. 2139 and as such, he

could not sell the land to his children. They alleged that petitioners’ OCTs were null

and void for having been procured in violation of the Public Land Act. They further

alleged that the Land Management Bureau had no authority to issue the free patent titles

because Lot No. 2139 was a private land.

The Ruling of the Trial Court

 

In its 2 February 1999 Decision, the trial court ruled, as follows:

 

WHEREFORE, judgment is rendered in favor of all the defendants and against the plaintiffs: 

1.      Dismissing the complaint; 

2.      Declaring Lot No. 2139, Iligan Cadastre 292, located at Panul-iran, Abuno, Iligan City to have acquired the character of a private land over which the Land Management Bureau has been divested of jurisdiction; 

3.      Declaring the defendants to be the owners and possessors of the said lot;4.      Declaring OCT Nos. P-1322 (a.f.) of Rogelio Pasiño, P-1318 (a.f.) of George

Pasiño, P-1317 (a.f.) of Lolita Pasiño, P-1321 (a.f.) of Josephine Pasiño and P-1319 (a.f.) of Rosalinda Pasiño to be null and void for having been procured by fraud and for having been issued by the Land Management Bureau which has been divested of jurisdiction over said lot; 

5.      Declaring the defendants to be entitled to the sum of P6,000.00 deposited with the Office of the Clerk of Court under O.R. No. 1487777; 

6.      Dismissing the defendants’ counterclaim for attorney’s fees. 

Costs against the plaintiffs. SO ORDERED.[12]

 

The trial court ruled that as of January 1994, Lot No. 2139 had already acquired

the character of a private land by operation of law. Since Lot No. 2139 had already

ceased to be a public land, the Land Management Bureau had no power or authority to

dispose of it by issuing free patent titles.

 

The trial court ruled that respondents’ counterclaim stands on the same footing as

an independent action. Thus, it could not be considered a collateral attack on

petitioners’ titles. The trial court further ruled that respondents filed their counterclaim

within one year from the grant of petitioners’ titles, which was the reglementary period

for impugning a title.

 

The trial court ruled that the order for the issuance of a patent in favor of

Laureano lapsed and became functus officio when it was not registered with the Director

of Deeds. The trial court ruled that while Laureano was the original claimant of the

entire 24 hectares, he ceded the right to possession over half of the property,

denominated as Lot No. 2139, to Larumbe sometime in 1947. The trial court found that

Laureano offered to sell half of the land to his tenant Gavino Quinaquin (Gavino) but he

did not have money. Later, Gavino learned from Larumbe that he (Larumbe) acquired

half of the land from Laureano. Gavino then started delivering the owner’s share of the

harvest to Larumbe. Laureano never contested Gavino’s action nor did he demand that

Gavino deliver to him the owner’s share of the harvest and not to Larumbe. When Lot

No. 2139 was sold, Gavino and his successors delivered the owner’s share of the harvest

to Petra, Vicente, Arturo, Dr. Monterroyo, and Dindo Monterroyo, successively. The

trial court also found that the other tenants had never given any share of the harvest to

Jose. The trial court ruled that petitioners had failed to present convincing evidence that

they and their predecessors-in-interest were in possession of Lot No. 2139 from 1947 to

1994 when they filed their application for free patent. The trial court ruled that

petitioners committed actual fraud when they misrepresented in their free patent

applications that they were in possession of the property continuously and publicly.

 

Petitioners appealed from the trial court’s Decision.

 

The Ruling of the Court of Appeals

 

In its 31 January 2003 Decision, the Court of Appeals affirmed the trial court’s

Decision.

 

The Court of Appeals ruled that the trial court did not err in allowing respondents’

counterclaim despite the non-appearance of Dr. Monterroyo, the original defendant, at

the barangay conciliation proceedings. The Court of Appeals ruled that petitioners

themselves did not personally appear. They were represented by their attorney-in-fact

although they were all of legal age, which was a violation of the Katarungang

Pambarangay proceedings requiring the personal appearance of the parties. Hence, the

Court of Appeals ruled that there was never a valid conciliation proceeding. However,

while this would have been a ground for the dismissal of the complaint, the issue was

deemed waived because respondents did not raise it in their answer before the trial court.

 

The Court of Appeals ruled that the validity of petitioners’ titles could be attacked

in a counterclaim. The Court of Appeals ruled that respondents’ counterclaim was a

compulsory counterclaim.

 

The Court of Appeals sustained the trial court’s ruling that the Land Management

Bureau had been divested of jurisdiction to grant the patent because the land already

acquired the character of a private land. While the homestead patent was issued in favor

of Laureano, the issuance of patent order became functus officio when it was not

registered. The Court of Appeals further sustained the trial court’s finding that

respondents were in physical, open, public, adverse and continuous possession of Lot

No. 2139 in the concept of owner for at least 30 years prior to petitioners’ application

for free patent titles over the land.

 

Petitioners filed a motion for reconsideration.

 

In its 5 August 2003 Resolution, the Court of Appeals denied petitioners’ motion

for reconsideration.

 

Hence, the petition before this Court.

 

 

 

 

The Issue

 

Petitioners raised the sole issue of whether the Court of Appeals erred in

sustaining the trial court’s Decision declaring respondents as the rightful owners and

possessors of Lot No. 2139.[13]

 

The Ruling of this Court

 

The petition has no merit.

 

Land Management Bureau Had No Jurisdiction

To Issue Free Patent Titles

 

In Director of Lands v. IAC,[14] the Court ruled:

 

[A]lienable public land held by a possessor, continuously or through his predecessors-in-interest, openly, continuously and exclusively for the prescribed statutory period (30 years under The Public Land Act, as amended) is converted to private property by the mere lapse or completion of the period, ipso jure.[15]

 

In Magistrado v. Esplana,[16] the Court ruled that so long as there is a clear

showing of open, continuous, exclusive and notorious possession, and hence, a

registrable possession, by present or previous occupants, by any proof that would be

competent and admissible, the property must be considered to be private.

 

In this case, the trial court found that the preponderance of evidence favors

respondents as the possessors of Lot No. 2139 for over 30 years, by themselves and

through their predecessors-in-interest. The question of who between petitioners and

respondents had prior possession of the property is a factual question whose resolution is

the function of the lower courts.[17] When the factual findings of both the trial court

and the Court of Appeals are supported by substantial evidence, they are conclusive and

binding on the parties and are not reviewable by this Court.[18] While the rule is

subject to exceptions, no exception exists in this case.

 

Respondents were able to present the original Deed of Absolute Sale, dated 10

July 1949, executed by Larumbe in favor of Petra.[19] Respondents also presented the

succeeding Deeds of Sale showing the transfer of Lot No. 2139 from Petra to

Vicente[20] and from Vicente to Arturo[21] and the Deed of Confirmation of Absolute

Sale of Unregistered Real Property executed by Arturo in favor of respondents.[22]

Respondents also presented a certification[23] executed by P/Sr. Superintendent

Julmunier Akbar Jubail, City Director of Iligan City Police Command and verified from

the Log Book records by Senior Police Officer Betty Dalongenes Mab-Abo confirming

that Andres Quinaquin made a report that Jose, Rogelio and Luciana Pasiño, Lucino

Pelarion and Nando Avilo forcibly took his copra. This belied petitioners’ allegation

that they were in possession of Lot No. 2139 and respondents forcibly took possession

of the property only in January 1993.

 

Considering that petitioners’ application for free patent titles was filed only

on 8 January 1994, when Lot No. 2139 had already become private land ipso jure,

the Land Management Bureau had no jurisdiction to entertain petitioners’

application.

 

Non-Registration of Homestead Patent Rendered it

Functus Officio

 

Once a homestead patent granted in accordance with law is registered, the

certificate of title issued by virtue of the patent has the force and effect of a Torrens title

issued under the land registration law.[24] In this case, the issuance of a homestead

patent in 1952 in favor of Laureano was not registered. Section 103 of Presidential

Decree No. 1529[25] mandates the registration of patents, and registration is the

operative act to convey the land to the patentee, thus:

 

Sec. 103. x x x x. The deed, grant, patent or instrument of conveyance from the Government to the grantee shall not take effect as a conveyance or bind the land but shall operate only as a contract between the Government and the grantee and as evidence of authority to the Register of Deeds to make registration. It is the act of registration that shall be the operative act to affect and convey the land, and in all cases under this Decree, registration shall be made in the office of the Register of Deeds of the province or city where the land lies. The fees for registration shall be paid by the grantee. After due registration and issuance of the certificate of title, such land shall be deemed to be registered land to all intents and purposes under this Decree. (Emphasis supplied)

Further, in this case, Laureano already conveyed Lot No. 2139 to Larumbe in

1947 before the approval of his homestead application. In fact, Larumbe already sold

the land to Petra in 1949, three years before the issuance of the homestead patent in

favor of Laureano. The trial court found that since 1947, the tenants of Lot No. 2139

had been delivering the owner’s share of the harvest, successively, to Larumbe, Petra,

Vicente and Arturo Teves, Dr. Monterroyo and Dindo Monterroyo. The trial court

found no instance when the owner’s share of the harvest was delivered to Jose Pasiño.

 

Hence, we sustain the trial court that the non-registration of Laureano’s

homestead patent had rendered it functus officio.

A Counterclaim is Not a Collateral Attack on the Title

 

It is already settled that a counterclaim is considered an original complaint and as

such, the attack on the title in a case originally for recovery of possession cannot be

considered as a collateral attack on the title.[26] Development Bank of the Philippines v.

Court of Appeals[27] is similar to the case before us insofar as petitioner in that case

filed an action for recovery of possession against respondent who, in turn, filed a

counterclaim claiming ownership of the land. In that case, the Court ruled:

 

Nor is there any obstacle to the determination of the validity of TCT No. 10101. It is true that the indefeasibility of torrens title cannot be collaterally attacked. In the instant case, the original complaint is for recovery of possession filed by petitioner against private respondent, not an original action filed by the latter to question the validity of TCT No. 10101 on which petitioner bases its right. To rule on the issue of validity in a case for recovery of possession is tantamount to a collateral attack. However, it should not [b]e overlooked that private respondent filed a counterclaim against petitioner, claiming ownership over the land and seeking damages. Hence, we could rule on the question of the validity of TCT No. 10101 for the counterclaim can be considered a direct attack on the same. ‘A counterclaim is considered a complaint, only this time, it is the original defendant who becomes the plaintiff... It stands on the same footing and is to be tested by the same rules as if it were an independent action.’ x x x .[28]

As such, we sustain both the trial court and the Court of Appeals on this issue.

 

Principle of Constructive Trust Applies

 

Under the principle of constructive trust, registration of property by one

person in his name, whether by mistake or fraud, the real owner being another

person, impresses upon the title so acquired the character of a constructive trust

for the real owner, which would justify an action for reconveyance.[29] In the

action for reconveyance, the decree of registration is respected as incontrovertible

but what is sought instead is the transfer of the property wrongfully or erroneously

registered in another’s name to its rightful owner or to one with a better right.[30]

If the registration of the land is fraudulent, the person in whose name the land is

registered holds it as a mere trustee, and the real owner is entitled to file an action

for reconveyance of the property.[31]

 

In the case before us, respondents were able to establish that they have a better

right to Lot No. 2139 since they had long been in possession of the property in the

concept of owners, by themselves and through their predecessors-in-interest. Hence,

despite the irrevocability of the Torrens titles issued in their names and even if they are

already the registered owners under the Torrens system, petitioners may still be

compelled under the law to reconvey the property to respondents.[32]

 

WHEREFORE, we DENY the petition. We AFFIRM the 31 January

2003 Decision and the 5 August 2003 Resolution of the Court of Appeals in CA-G.R.

CV No. 63199. Costs against petitioners.

 

SO ORDERED.

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. No. 115925            August 15, 2003

SPOUSES RICARDO PASCUAL and CONSOLACION SIOSON, petitioners, vs.COURT OF APPEALS and REMEDIOS S. EUGENIO-GINO, respondents.

CARPIO, J.:

The Case

This is a petition for review of the Decision1 dated 31 January 1994 of the Court of Appeals ordering the Register of Deeds of Metro Manila, District III, to place TCT No. (232252) 1321 in the name of respondent Remedios S. Eugenio-Gino. The Decision ordered the Register of Deeds to cancel the names of petitioners Ricardo Pascual and Consolacion Sioson ("petitioners") in TCT No. (232252) 1321. The Decision also directed petitioners to pay respondent moral and exemplary damages and attorney’s fees.

The Facts

Petitioner Consolacion Sioson ("CONSOLACION") and respondent Remedios S. Eugenio-Gino ("REMEDIOS") are the niece and granddaughter, respectively, of the late Canuto Sioson ("CANUTO"). CANUTO and 11 other individuals, including his sister Catalina Sioson ("CATALINA") and his brother Victoriano Sioson ("VICTORIANO"), were co-owners of a parcel of land in Tanza, Navotas, Metro Manila. The property, known as Lot 2 of Plan Psu 13245, had an area of 9,347 square meters and was covered by Original Certificate of Title No. 4207 issued by the Register of Deeds of Rizal. CATALINA, CANUTO, and VICTORIANO each owned an aliquot 10/70 share or 1,335 square meters of Lot 2.2

On 20 November 1951, CANUTO had Lot 2 surveyed and subdivided into eight lots (Lot Nos. 2-A to 2-H) through Subdivision Plan Psd 34713 which the Director of Lands approved on 30 May 1952. Lot No. 2-A, with an area of 670 square meters, and Lot No. 2-E, with an area of 2,000 square meters, were

placed under CANUTO’s name. Three other individuals took the remaining lots.3

On 26 September 1956, CANUTO and CONSOLACION executed a Kasulatan ng Bilihang Tuluyan4 ("KASULATAN"). Under the KASULATAN, CANUTO sold his 10/70 share in Lot 2 in favor of CONSOLACION for P2,250.00. The KASULATAN, notarized by Notary Public Jose T. de los Santos of Navotas, provides:

Na ako, CANUTO SIOSON, mamamayang Pilipino, may katampatang gulang, kasal kay Raymunda San Diego, at naninirahan sa Tanza, Navotas, Rizal, sa bisa at pamamagitan ng kasulatang ito ay nagpapatunay at nagpapatibay:

1. Na ako ang lubos at tunay na may-ari ng 10/70 bahaging hindi hati (10/70 porcion pro-indiviso) ng isang lagay na lupa (Lote No. 2, Plano Psu-13245), na nasa sa nayon ng Tanza, Municipio ng Navotas, Provincia ng Rizal, at ang descripcion o pagkakakilanlan ng nasabing lote ay nakasaad sa Certificado Original, de Titulo No. 4207 ng Oficina ng Registrador de Titulos ng Rizal, gaya ng sumusunod:

x x x x

2. Na dahil at alang-alang sa halagang Dalawang Libo Dalawang Daan at Limampung Piso (P2,250.00), salaping Pilipino, na sa akin ay ibinayad ni CONSOLACION SIOSON, kasal kay Ricardo S. Pascual, may sapat na gulang, mamamayang Pilipino, at naninirahan sa Dampalit, Malabon, Rizal at ang pagkakatanggap ng nasabing halaga ay aking inaamin at pinatutunayan, ay aking ipinagbili, inilipat at isinalin, sa pamamagitan ng bilihang tuluyan at walang pasubali a favor [sic] sa nasabing si CONSOLACION SIOSON, sa kanyang tagapagmana at mapaglilipatan ang lahat ng aking titulo, karapatan at kaparti na binubuo ng 10/70 bahaging hindi hati (10/70 porcion pro-indiviso) ng loteng descrito or tinutukoy sa itaas nito. (Emphasis supplied)

CONSOLACION immediately took possession of Lot Nos. 2-A and 2-E. She later declared the land for taxation purposes and paid the corresponding real estate taxes.5

On 23 October 1968, the surviving children of CANUTO, namely, Felicidad and Beatriz, executed a joint affidavit6 ("JOINT AFFIDAVIT") affirming the KASULATAN in favor of CONSOLACION. They also attested that the lots their father had sold to CONSOLACION were Lot Nos. 2-A and 2-E of Subdivision Plan Psd 34713. The JOINT AFFIDAVIT reads:

KAMING sina FELICIDAD SIOSON at BEATRIZ SIOSON, pawang mga Pilipino, kapuwa may sapat na gulang at naninirahan, ang una sa Tanza, Navotas at ang ikalawa sa Concepcion, Malabon, lalawigan ng Rizal, sa ilalim ng isang ganap na panunumpa alinsunod sa batas, ay malayang nagsasalaysay ng mga sumusunod:

Na kami ang mga buhay na anak na naiwan ni CANUTO SIOSON na nagmamay-ari ng 10/70 bahaging hindi hati (10/70 porcion pro-indiviso) ng isang lagay na lupa (Lote No. 2, plano Psu-13245), na nasa Nayon ng Tanza, Navotas, Rizal, at ang mga palatandaan nito ay nasasaad sa Certificado Original de Titulo No. 4207 ng Tanggapan ng Registrador de Titulos ng Rizal;

Na sa lubos naming kaalaman, ay ipinagbili ng aming Ama na si Canuto Sioson ang kaniyang buong bahagi na 10/70 sa nasabing Lote No. 2, kay CONSOLACION SIOSON, may-bahay ni Ricardo S. Pascual, na taga Dampalit, Malabon, Rizal, sa halagang P2,250.00, salaping pilipino, noong ika 16 [sic] ng Septiembre, 1956, sa pamamagitan ng isang KASULATAN NG BILIHANG TULUYAN na pinagtibay sa harap ng Notario Publico Jose T. de los Santos nang pechang nabanggit, sa Navotas, Rizal, (Doc. No. 194, Page No. 84; Book No. IV; Series of 1956);

Na ang nasabing lupa na ipinagbili ng aming Ama kay Consolacion Sioson ni Pascual, ay nakikilala ngayong mga Lote No. 2-A at Lote 2-E ng Plano de Subdivision Psd-34713; na pinagtibay ng Assistant Director of Lands noong Mayo 30, 1952;

Na aming ngayong pinatitibayan ang pagka-pagbili ng bahagi ng aming Ama kay Consolacion Sioson ni Pascual ng ngayo’y nakikilalang Lote No. 2-A at Lote No. 2-E ng Plano de Subdivision Psd-34713. (Emphasis supplied)

On 28 October 1968, CONSOLACION registered the KASULATAN and the JOINT AFFIDAVIT with the Office of the Register of Deeds of Rizal ("Register of Deeds"). Based on these documents, the Register of Deeds issued to CONSOLACION Transfer Certificate of Title No. (232252) 1321 covering Lot Nos. 2-A and 2-E of Subdivision Plan Psd 34713 with a total area of 2,670 square meters.

On 4 February 1988, REMEDIOS filed a complaint against CONSOLACION and her spouse Ricardo Pascual in the Regional Trial Court of Malabon, Branch 165, for "Annulment or Cancellation of Transfer Certificate [of Title] and Damages." REMEDIOS claimed that she is the owner of Lot Nos. 2-A and 2-E because CATALINA devised these lots to her in CATALINA’s last will and testament7 ("LAST WILL") dated 29 May 1964. REMEDIOS added that CONSOLACION obtained title to these lots through fraudulent means since the area covered by TCT (232252) 1321 is twice the size of CANUTO’s share in Lot 2. REMEDIOS prayed for the cancellation of CONSOLACION’s title, the issuance of another title in her name, and the payment to her of damages.

Petitioners sought to dismiss the complaint on the ground of prescription. Petitioners claimed that the basis of the action is fraud, and REMEDIOS should have filed the action within four years from the registration of CONSOLACION’s title on 28 October 1968 and not some 19 years later on 4 February 1988. REMEDIOS opposed the motion, claiming that she became aware of CONSOLACION’s adverse title only in February 1987. CONSOLACION maintained that she had timely filed her complaint within the four-year prescriptive on 4 February 1988.

In its order of 28 April 1988, the trial court denied petitioners’ motion to dismiss. The trial court held that the reckoning of the prescriptive period for filing REMEDIOS’ complaint is evidentiary in nature and must await the presentation of the parties’ evidence during the trial. During the pre-trial stage, REMEDIOS clarified that she was claiming only CATALINA’s 10/70 share in Lot 2, or 1,335 square meters, which constitute ½ of the area of Lot Nos. 2-A and 2-E.8 The trial of the case then ensued.

The Ruling of the Trial Court

On 26 November 1990, the trial court rendered judgment dismissing the case and ordering REMEDIOS to pay petitioners P10,000 as attorney’s fees and the cost of suit. The trial court held that the action filed by REMEDIOS is based on fraud, covered by the four-year prescriptive period. The trial court

also held that REMEDIOS knew of petitioners’ adverse title on 19 November 1982 when REMEDIOS testified against petitioners in an ejectment suit petitioners had filed against their tenants in Lot Nos. 2-A and 2-E. Thus, the complaint of REMEDIOS had already prescribed when she filed it on 4 February 1988.

The trial court further ruled that REMEDIOS has no right of action against petitioners because CATALINA’s LAST WILL from which REMEDIOS claims to derive her title has not been admitted to probate. Under Article 838 of the Civil Code, no will passes real or personal property unless it is allowed in probate in accordance with the Rules of Court. The dispositive portion of the trial court’s decision provides:

WHEREFORE, judgment is hereby rendered in favor of the defendants and against plaintiff, ordering:

1. The dismissal of this case;

2. The plaintiff to pay the defendants the sum of Ten Thousand (P10,000.00) Pesos as and for attorney’s fees; and

3. The plaintiff to pay the costs of suit.9

REMEDIOS appealed to the Court of Appeals.

The Ruling of the Court of Appeals

On 31 January 1994, the Court of Appeals rendered judgment reversing the decision of the trial court. The appellate court held that what REMEDIOS filed was a suit to enforce an implied trust allegedly created in her favor when CONSOLACION fraudulently registered her title over Lot Nos. 2-A and 2-E. Consequently, the prescriptive period for filing the complaint is ten years, not four. The Court of Appeals counted this ten-year period from 19 November 1982. Thus, when REMEDIOS filed her complaint on 4 February 1988, the ten-year prescriptive period had not yet expired.

The appellate court held that CATALINA’s unprobated LAST WILL does not preclude REMEDIOS from seeking reconveyance of Lot Nos. 2-A and 2-E as the LAST WILL may subsequently be admitted to probate. The dispositive portion of the appellate court’s ruling provides:

WHEREFORE, the decision appealed from is REVERSED and SET ASIDE. The Registry of Deeds of Rizal or Metro Manila, District III, is ordered to place Transfer Certificate of Title No. (232252) 1321 under the name of Remedios S. Eugenio-Gino as executor of the will of Catalina Sioson and cancel the names of the Spouses Ricardo Pascual and Consolacion Sioson inscribed over said title as owners of the covered lot. Defendants-appellees spouses Ricardo Pascual and Consolacion Sioson are ordered to pay plaintiff-appellant Remedios S. Eugenio-Gino moral damages in the amount of P50,000.00, exemplary damages of P20,000[.00] and attorney’s fees of P20,000.00 and P500.00 per appearance.10

Petitioners sought reconsideration of the ruling. However, the Court of Appeals denied their motion in its order dated 15 June 1994.

Hence, this petition.

The Issues

Petitioners allege the following assignment of errors:

I. THE COURT OF APPEALS ERRED IN HOLDING THAT PRIVATE RESPONDENT’S CAUSE OF ACTION IS NOT BARRED BY PRESCRIPTION WHICH FINDING IS MANIFESTLY CONTRARY TO LAW AND THE APPLICABLE DECISIONS OF THIS HONORABLE COURT.

II. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT PRIVATE RESPONDENT DOES NOT HAVE ANY TITLE AND HAS UTTERLY FAILED TO PROVE ANY TITLE TO THE LOTS INVOLVED IN THIS CASE, AND IN ORDERING THE CANCELLATION OF THE CERTIFICATE OF TITLE OF PETITIONERS.

III. THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF JURISDICTION AND IN GROSS VIOLATION OF THE RULES OF COURT IN ORDERING THE ENTIRE PROPERTY COVERED BY TRANSFER CERTIFICATE OF TITLE NO. (232252) 1321 TO BE PLACED IN THE NAME OF PRIVATE RESPONDENT, BECAUSE THE CLAIM OF PRIVATE RESPONDENT IS LIMITED ONLY TO ONE-HALF (1/2) PORTION OF THE PROPERTY, AND THE OTHER HALF THEREOF UNQUESTIONABLY BELONGS TO PETITIONERS.

IV. THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONERS ACTED FRAUDULENTLY AND IN BAD FAITH IN SECURING THEIR CERTIFICATE OF TITLE TO THE PROPERTY INVOLVED IN THIS CASE, AND IN ORDERING PETITIONERS TO PAY PRIVATE RESPONDENTS MORAL DAMAGES, EXEMPLARY DAMAGES AND ATTORNEY’S FEES.11

The pivotal questions are: (1) whether prescription bars the action filed by REMEDIOS, and (2) whether REMEDIOS is a real party-in-interest.

The Ruling of the Court

The petition has merit.

The Action is Barred by Prescription

The trial court held that the action filed by REMEDIOS is one based on fraud. REMEDIOS’ action seeks to recover real property that petitioners allegedly acquired through fraud. Consequently, the trial court held that the action prescribes in four years counted from REMEDIOS’ actual discovery of petitioners’ adverse title. The trial court concluded that REMEDIOS belatedly filed her suit on 4 February 1988 because she actually knew of petitioners’ adverse title since 19 November 1982.

On the other hand, the Court of Appeals held that what REMEDIOS filed was a suit to enforce an implied trust. REMEDIOS had ten years counted from actual notice of the breach of trust,

that is, the assertion of adverse title, within which to bring her action. The appellate court held that REMEDIOS seasonably filed her complaint on 4 February 1988 because she allegedly discovered petitioners’ adverse title only on 19 November 1982.

What REMEDIOS filed was an action to enforce an implied trust but the same is already barred by prescription.

Prescriptive Period is 10 Years Counted

From Registration of Adverse Title

The four-year prescriptive period relied upon by the trial court applies only if the fraud does not give rise to an implied trust, and the action is to annul a voidable contract under Article 139012 of the Civil Code. In such a case, the four-year prescriptive period under Article 139113 begins to run from the time of discovery of the mistake, violence, intimidation, undue influence or fraud.

In the present case, REMEDIOS does not seek to annul the KASULATAN. REMEDIOS does not assail the KASULATAN as a voidable contract. In fact, REMEDIOS admits the validity of the sale of 1,335 square meters of land under the KASULATAN. However, REMEDIOS alleges that the excess area of 1,335 meters is not part of the sale under the KASULATAN. REMEDIOS seeks the removal of this excess area from TCT No. (232252) 1321 that was issued to CONSOLACION. Consequently, REMEDIOS’ action is for "Annulment or Cancellation of Transfer Certificate [of Title] and Damages."14

REMEDIOS’ action is based on an implied trust under Article 1456 since she claims that the inclusion of the additional 1,335 square meters in TCT No. (232252) 1321 was without basis. In effect, REMEDIOS asserts that CONSOLACION acquired the additional 1,335 square meters through mistake or fraud and thus CONSOLACION should be considered a trustee of an implied trust for the benefit of the rightful owner of the property. Clearly, the applicable prescriptive period is ten years under Article 1144 and not four years under Articles 1389 and 1391.

It is now well-settled that the prescriptive period to recover property obtained by fraud or mistake, giving rise to an implied trust under Article 145615 of the Civil Code, is ten years pursuant to Article 1144.16 This ten-year prescriptive period begins to run from the date the adverse party repudiates the implied trust, which repudiation takes place when the adverse party registers the land.17

REMEDIOS filed her complaint on 4 February 1988 or more than 19 years after CONSOLACION registered her title over Lot Nos. 2-A and 2-E on 28 October 1968. Unquestionably, REMEDIOS filed the complaint late thus warranting its dismissal. As the Court recently declared in Spouses Alfredo v. Spouses Borras,18 —

Following Caro,19 we have consistently held that an action for reconveyance based on an implied trust prescribes in ten years. We went further by specifying the reference point of the ten-year prescriptive period as the date of the registration of the deed or the issuance of the title.

The Court of Appeals’ Reckoning of

Prescriptive Period from Actual Notice

of Adverse Title Not Justified

In holding that the action filed by REMEDIOS has not prescribed, the Court of Appeals invoked this Court’s ruling in Adille v. Court of Appeals.20 In Adille, the Court reckoned the ten-year prescriptive period for enforcing implied trusts not from registration of the adverse title but from actual notice of the adverse title by the cestui que trust. However, the Court, in justifying its deviation from the general rule, explained:

[W]hile actions to enforce a constructive trust prescribes (sic) in ten years, reckoned from the date of the registration of the property, we x x x are not prepared to count the period from such date in this case. We note the petitioner’s sub rosa efforts to get hold of the property exclusively for himself beginning with his fraudulent misrepresentation in his unilateral affidavit of extrajudicial settlement that he is "the only heir and child of his mother Feliza["] with the consequence that he was able to secure title in his name also. (Emphasis supplied)

Such commission of specific fraudulent conduct is absent in the present case. Other than asserting that petitioners are guilty of fraud because they secured title to Lot Nos. 2-A and 2-E with an area twice bigger than what CANUTO allegedly sold to CONSOLACION, REMEDIOS did not present any other proof of petitioners’ fraudulent conduct akin to Adille.

CONSOLACION obtained title to Lot Nos. 2-A and 2-E through the KASULATAN executed by CANUTO and the JOINT AFFIDAVIT executed by his surviving children, one of whom, Felicidad, is the mother of REMEDIOS. The KASULATAN referred to the sale of CANUTO’s 10/70 share in Lot 2 without specifying the area of the lot sold. The JOINT AFFIDAVIT referred to the "Plano de Subdivision Psd-34713" without also specifying the area of the lot sold. However, Subdivision Plan Psd 34713, as certified by the Assistant Director of Lands on 30 May 1952, showed an area of 2,670 square meters in the name of CANUTO. Based on these documents, the Register of Deeds issued TCT No. (232252) 1321 to CONSOLACION covering an area of 2,670 square meters.

REMEDIOS does not assail the KASULATAN or the JOINT AFFIDAVIT as fictitious or forged. REMEDIOS even admits the authenticity of Subdivision Plan Psd 34713 as certified by the Assistant Director of Lands.21 Moreover, REMEDIOS has not contested petitioners’ claim that CANUTO doubled his share in Lot 2 by acquiring VICTORIANO’s share.22

Plainly, the increase in the area sold from 1,335 square meters to 2,670 square meters is a glaring mistake. There is, however, no proof whatsoever that this increase in area was the result of fraud. Allegations of fraud in actions to enforce implied trusts must be proved by clear and convincing evidence.23 Adille, which is anchored on fraud,24 cannot apply to the present case.

At any rate, even if we apply Adille to this case, prescription still bars REMEDIOS’ complaint. As executrix of CATALINA’s LAST WILL, REMEDIOS submitted to the then Court of First Instance of Caloocan in Special Proceedings Case No. C-208 the inventory of all the property comprising CATALINA’s estate, which included Lot Nos. 2-A and 2-E. In a motion dated 7 November 1977, CONSOLACION sought the exclusion of these lots from the inventory, invoking her title over them. REMEDIOS was served a copy of the motion on 8 November 1977 against which she filed an opposition. Nevertheless, the trial court overruled REMEDIOS’ objection. In its order of 3 January

1978, the trial court granted CONSOLACION’s motion and ordered the exclusion of Lot Nos. 2-A and 2-E from the estate of CATALINA. REMEDIOS did not appeal from this ruling.

REMEDIOS thus had actual notice of petitioners’ adverse title on 8 November 1977. Even if, for the sake of argument, the ten-year prescriptive period begins to run upon actual notice of the adverse title, still REMEDIOS’ right to file this suit has prescribed. REMEDIOS had until 11 November 1987 within which to file her complaint. When she did so on 4 February 1988, the prescriptive period had already lapsed.

Respondent is Not a Real Party-in-Interest

Not only does prescription bar REMEDIOS’ complaint. REMEDIOS is also not a real party-in-interest who can file the complaint, as the trial court correctly ruled.

The 1997 Rules of Civil Procedure require that every action must be prosecuted or defended in the name of the real party-in-interest who is the party who stands to benefit or suffer from the judgment in the suit.25 If one who is not a real party-in-interest brings the action, the suit is dismissible for lack of cause of action.26

REMEDIOS anchored her claim over Lot Nos. 2-A and 2-E (or over its one-half portion) on the devise of these lots to her under CATALINA’s LAST WILL. However, the trial court found that the probate court did not issue any order admitting the LAST WILL to probate. REMEDIOS does not contest this finding. Indeed, during the trial, REMEDIOS admitted that Special Proceedings Case No. C-208 is still pending.27

Article 838 of the Civil Code states that "[N]o will shall pass either real or personal property unless it is proved and allowed in accordance with the Rules of Court." This Court has interpreted this provision to mean, "until admitted to probate, [a will] has no effect whatever and no right can be claimed thereunder."28 REMEDIOS anchors her right in filing this suit on her being a devisee of CATALINA’s LAST WILL. However, since the probate court has not admitted CATALINA’s LAST WILL, REMEDIOS has not acquired any right under the LAST WILL. REMEDIOS is thus without any cause of action either to seek reconveyance of Lot Nos. 2-A and 2-E or to enforce an implied trust over these lots.

The appellate court tried to go around this deficiency by ordering the reconveyance of Lot Nos. 2-A and 2-E to REMEDIOS in her capacity as executrix of CATALINA’s LAST WILL. This is inappropriate because REMEDIOS sued petitioners not in such capacity but as the alleged owner of the disputed lots. Thus, REMEDIOS alleged in her complaint:

3. The plaintiff is a niece and compulsory heir of the late CATALINA SIOSON who died single and without any child of her own and who, during her lifetime, was the owner of those two (2) parcels of land located at Tanza, Navotas, Rizal (now Metro Manila), formerly covered by Original Certificate of Title No. 4207 of the Registry of Deeds for the Province of Rizal, x x x.

4. The plaintiff, aside from being the compulsory heir of the deceased CATALINA SIOSON, has sole and exclusive claim of ownership over the above-mentioned two (2) parcels of land by virtue of a will or "Huling Habilin at Pagpapasiya" executed by Catalina Sioson on May 19, 1964 before Notary Public Efren Y. Angeles at Navotas, Rizal, in which document the deceased Catalina Sioson specifically and

exclusively bequeathed to the plaintiff the above-mentioned Lots 2-A and 2-E of Psd-34713 approved by the Bureau of Lands on May 30, 1952. Copy of the "Huling Habilin at Pagpapasiya" consisting of four (4) pages is hereto attached and forms an integral part hereof as Annex "A;"

5. Sometime on or about February, 1987, plaintiff discovered that the above-mentioned Lots 2-A and 2-E of subdivision plan Psd-34713 are now registered or titled in the name of the defendants under Transfer Certificate of Title No. (232252) 1321 of the Registry of Deeds of Rizal, now Metro-Manila District III. Copy of the title is hereto attached and forms an integral part hereof as Annex "B;"

6. Upon further inquiry and investigation, plaintiff discovered that the defendants were able to obtain title in their name of the said parcels of land by virtue of a "Kasulatan ng Bilihang Tuluyan" allegedly executed by Canuto Sioson on September 26, 1956 before Notary Public Jose [T.] de los Santos of Navotas, Metro-Manila. Copy of the said document is hereto attached and forms an integral part hereof as Annex "C;"

7. The plaintiff also discovered that although x x x the original sale did not specify the parcels of land sold by Canuto Sioson, the defendants submitted an alleged Affidavit executed by Felicidad Sioson and Beatriz Sioson identifying the lots sold by Canuto Sioson to the defendants as Lots 2-A and 2-E of subdivision plan Psd-34713. Copy of the Affidavit dated October 3, 1968 on the basis of which the present Transfer Certificate of Title No. (232252) 1321 was issued to the defendants is hereto attached and forms an integral part hereof as Annex "D;"

8. The defendants are clearly guilty of fraud in presenting the aforementioned Affidavit (Annex "D") to the Register of Deeds as the basis of their claim to Lots 2-A and 2-E in view of the fact that the parcels sold to them by Canuto Sioson, assuming there was such a sale, were different parcels of land, Lots 2-A and 2-E being the properties of the late Catalina Sioson who bequeathed the same to the plaintiff.

x x x x

12. Because of the defendants’ fraudulent actuations on this matter, plaintiff suffered and continious [sic] to suffer moral damages arising from anxiety, shock and wounded feelings. Defendants should also be assessed exemplary damages by way of a lesson to deter them from again committing the fraudulent acts, or acts of similar nature, by virtue of which they were able to obtain title to the parcels of land involved in this case x x x.29 (Emphasis supplied)

Indeed, all throughout the proceedings below and even in her Comment to this petition, REMEDIOS continued to pursue her claim as the alleged owner of one-half of the disputed lots.

Other Matters Raised in the Petition

The Court deems it unnecessary to pass upon the other errors petitioners assigned concerning the award of damages and attorneys fees to REMEDIOS. Such award assumes that REMEDIOS is a real party-in-interest and that she timely filed her complaint. As earlier shown, this is not the case.

WHEREFORE, we GRANT the petition. The Decision of the Court of Appeals dated 31 January 1994 and its Resolution dated 15 June 1994 are SET ASIDE. The complaint filed by respondent Remedios Eugenio-Gino, dated 2 February 1988 is DISMISSED.

SO ORDERED.

SECOND DIVISION

 

 

SPS. FELIPE and JOSEFA PARINGIT, G.R. No. 181844

Petitioner,Present:

  CARPIO, J., Chairperson, 

- versus -   NACHURA,

  PERALTA,

  ABAD, and

  MENDOZA, JJ.

MARCIANA PARINGIT BAJIT,

ADOLIO PARINGIT and Promulgated:

ROSARIO PARINGIT ORDOÑO,

Respondents.    September 29, 2010    

 

x --------------------------------------------------------------------------------------- x 

DECISION

ABAD, J.:

 

This  case  is  about the existence of an  implied trust   in a transaction where a 

property was bought by one sibling supposedly for the benefit of all.  The other siblings 

now want to recover their share in the property by reimbursing their brother for their 

share in the purchase price.

 

The Facts and the Case

During their lifetime,  spouses Julian and Aurelia Paringit leased a lot on Norma 

Street, Sampaloc, Manila (the lot) from Terocel Realty, Inc. (Terocel Realty).[1]   They 

built  their home there and raised five children, namely, Florencio, Felipe, Marciana, 

Adolio, and Rosario.[2]  Aurelia died on November 6, 1972.[3]

 

For having occupied the lot for years, Terocel Realty offered to sell it to Julian but 

he did not have enough money at that time to meet the payment deadline.   Julian 

sought the help of his children so he can buy the property but only his son Felipe and

wife Josefa had the financial resources he needed at that time .[4]  To bring about the 

purchase, on January 16, 1984 Julian executed a deed of assignment of leasehold right 

in favor of Felipe and his wife that would enable them to acquire the lot.[5]  On January 

30, 1984 the latter bought the same from Terocel Realty for P55,500.00 to be paid in 

installments.[6]  On April 12, 1984 Felipe and his wife paid the last installment and the

realty company executed a Deed of Absolute Sale in their favor and turned over the

title to them.[7]

 

On   February   25,   1985,  due   to   issues   among   Julian’s   children   regarding   the 

ownership of the lot, Julian executed an affidavit clarifying the nature of Felipe and his 

wife’s purchase of the lot.   He claimed that  it was bought for the benefit of all his

children.[8]  He said in his affidavit:

 

3. That recently, the Terocel Realty, Inc., owners of the subdivision lots in Sampaloc, gave a limited period to actual occupants like us within which to purchase the lands occupied and as I had no funds at that time, I asked all my children and their respective spouses to contribute money with which to purchase the lot and thereafter to divide the lot among themselves but only my son Felipe Paringit and his wife Josefa answered my plea and so, in order that they could purchase the land, I assigned to my son and his wife my right to the whole property and with this assignment, the couple purchased the parcel of land from the Terocel Realty, Inc. for the sum of Fifty Five Thousand Five Hundred Pesos (P55,500.00) Philippine currency on April 12, 1984 as shown in the Deed of Absolute sale executed by the Terocel Realty, Inc. bearing Registry No. 273, Page 56, Book XV, Series of 1984, of Notary Public of Manila, Atty. Albino B. Achas plus the sum of P4,500.00 expenses or a total of Sixty Thousand (P60,000.00);

x x x x

5. That to set the records straight, and to effect peace and understanding among my children and their respective families, I, as father and head of the family, hereby declare:

x x x x

c) That my conjugal share in the above described property is one half or 75 sq. m. and the other half or 75 sq. m. belongs to my deceased wife;

d) That I waive my share in the estate of my deceased wife and as she has no will regarding the said estate, the same must be divided equally among my five children at 15 sq. m. each; but each of them should reimburse their brother Felipe and his wife, Josefa the proportional amount advanced by them as I also will reimburse him the sum of P30,000.00 or one half of the amount that the couple advanced.

e) That if any of my children claims or needs a bigger area than 15 sq. m., he/she should amicably talk with or negotiate with any other brother or sister for transfer or assignment of such area as they agree.[9]

 

Expressing their concurrence with what their father said in his affidavit, Felipe’s 

siblings, namely, Marciana, Rosario, and Adolio (collectively, Marciana, et al) signed the 

same.  Josefa, Felipe’s wife, also signed the affidavit for Felipe who was in Saudi Arabia.

[10]  Only Florencio, among the siblings, did not sign.

 

On January 23, 1987 Felipe and his wife registered their purchase of the lot,[11] 

resulting  in   the   issuance of  Transfer  Certificate  of  Title  172313  in   their  names.[12] 

Despite the title, however, the spouses moved to another house on the same street in 

1988.[13]   Marciana,  et al, on the other hand, continued to occupy the lot with their 

families without paying rent.[14]    This was the situation when their father Julian died 

on December 21, 1994.

 

On December 18, 1995 Felipe and his wife sent a demand letter to Marciana, et 

al asking them to pay rental arrearages for occupying the property from March 1990 to 

December 1995 at the rate of P2,400.00 a month, totaling P168,000.00.[15]  Marciana,

et al refused to pay or reply to the letter, believing that they had the right to occupy

the house and lot, it being their inheritance from their parents.    On March 11, 1996 

Felipe  and  his  wife  filed  an  ejectment   suit   against   them.[16]    The   suit  prospered, 

resulting in the ejectment of Marciana, et al and their families from the property.[17] 

Shortly after, Felipe and his wife moved into the same.[18]  

 

To vindicate what they regarded as their right to the lot and the house, on July 

24,   1996  Marciana,  et   al  filed   the   present   action   against   Felipe   and   his  wife   for 

annulment of title and reconveyance of property before the Regional Trial Court (RTC) 

of Manila, Branch 39.[19]

In his answer, Felipe denied knowledge of the agreement among the siblings that 

the property would devolve to them all.[20]   Josefa, his wife, claimed that she signed 

the  affidavit  only  because  Marciana,  et  al  were  going   to  get  mad  at  her  had   she 

refused.[21]   She also claimed that  she signed the document  only   to prove having 

received it.[22]

 

For their part, Marciana, et al insisted that the agreement was that Felipe and his 

wife  would  acquire   the   lot   for   the  benefit  of   all   the   siblings.     They  even   tried   to 

reimburse the spouses for their shares in the lot’s price.[23]   In fact, Adolio offered to 

pay P32,000.00 for his 30 square meter-portion of the lot but Felipe and his wife did 

not accept it.  The other siblings tried to pay for their shares of the purchase price, too, 

but the spouses already avoided them.[24]   Marciana,  et al  denied pressuring Josefa 

into signing the document in question.   They claimed that it was in fact Josefa who 

caused the drafting of the affidavit.[25]  

 

On July 21, 2004 the RTC rendered a decision, finding the evidence of Marciana, 

et al insufficient to prove by preponderance of evidence that Felipe and his wife bought 

the subject lot for all of the siblings.   Not satisfied with that decision, Marciana,  et al 

appealed to the Court of Appeals (CA).

 

On August 29, 2007 the CA rendered judgment[26] reversing the decision of the 

RTC and ordering Felipe and his wife to reconvey to Marciana, et al their proportionate 

share in the lot upon reimbursement of what the spouses paid to acquire it plus legal 

interest.  Felipe and his wife filed a motion for reconsideration of the decision but the 

CA denied it on February 21, 2008,[27]  prompting them to come to this Court on a 

petition for review.

 

The Issues Presented

 

This case presents the following issues:

 

1. Whether or not the CA erred in finding that Felipe and his wife purchased the subject lot under an implied trust for the benefit of all the children of Julian; and

 

2. Whether or not the CA erred in failing to hold that Marciana, et al’s right of action was barred by prescription or laches.

 

The Court’s Rulings

 

The CA found that Felipe and his wife’s purchase of the lot falls under the rubric 

of the implied trust provided in Article 1450 of the Civil Code.[28]  Implied trust under 

Article   1450   presupposes   a   situation  where   a   person,   using   his   own   funds,   buys 

property  on  behalf   of   another,  who   in   the  meantime  may  not  have   the   funds   to 

purchase  it.   Title  to the property  is   for the time being placed  in the  name of the 

trustee,   the person who pays   for   it,  until  he   is   reimbursed by   the beneficiary,   the 

person   for   whom   the   trustee   bought   the   land.     It   is   only   after   the   beneficiary 

reimburses the trustee of the purchase price that the former can compel conveyance 

of the property from the latter.[29]   

 

Felipe and his wife claim 1) that they did not lend money to Marciana, et al for 

the purchase of the lot; 2) that they did not buy it for the benefit of the siblings; and 3) 

that the conveyance of the lot was not to secure the payment of any supposed loan. 

Felipe and his wife insist that they had no agreement with Marciana, et al regarding the 

spouses’ purchase of the lot for the benefit of all of Julian’s children.  

 

But   the   circumstances  of   this   case  are  actually  what   implied   trust   is   about. 

Although no express agreement covered Felipe and his wife’s purchase of the lot for 

the siblings and their father, it came about by operation of law and is protected by it. 

The nature of the transaction established the implied trust and this in turn gave rise to 

the   rights   and   obligations   provided   by   law.     Implied   trust   is   a   rule   of   equity, 

independent of the particular intention of the parties.[30]  

 

Here, the evidence shows that Felipe and his wife bought the lot for the benefit 

of Julian and his children, rather than for themselves.  Thus:  

 

First.    There  is  no  question  that   the  house  originally  belonged  to   Julian  and 

Aurelia who built it.  When Aurelia died, Julian and his children inherited her conjugal 

share of the house.  When Terocel Realty, therefore, granted its long time tenants on 

Norma Street   the   right   to  acquire   the   lots  on  which   their  house   stood,   that   right 

technically belonged to Julian and all his children.   If Julian really intended to sell the 

entire house and assign the right to acquire the lot to Felipe and his wife, he would 

have arranged for Felipe’s other siblings to give their conformity as co-owners to such 

sale.   And if Felipe and his wife intended to buy the lot for themselves, they would 

have, knowing that Felipe’s siblings co-owned the same, taken steps to secure their 

conformity to the purchase.  These did not happen.

 

Second.   Julian said in his affidavit that Felipe and his wife bought the lot from 

Terocel Realty on his behalf and on behalf of his other children.   Felipe and his wife 

advanced the payment because Julian and his other children did not then have the 

money needed to meet the realty company’s deadline for the purchase.  Julian added 

that his other children were to reimburse Felipe for the money he advanced for them.  

 

Notably, Felipe, acting through his wife, countersigned Julian’s affidavit the way 

his   siblings   did.     The   document   expressly   acknowledged   the   parties’   intention   to 

establish an implied trust between Felipe and his wife, as trustees, and Julian and the 

other children as trustors.   Josefa, Felipe’s wife, of course claims that she signed the 

document  only   to  show that  she received a  copy of   it.    But  her  signature  did  not 

indicate that fact.  She signed the document in the manner of the others.

 

Third.  If Felipe and his wife really believed that the assignment of the house and 

the right to buy the lot were what their transactions with Julian were and if the spouses 

also believed that they became absolute owners of the same when they paid for the lot 

and had the title to it transferred in their name in 1987, then their moving out of the 

house in 1988 and letting Marciana, et al continue to occupy the house did not make 

sense.   They would make sense only if, as Marciana,  et al  and their deceased father 

claimed, Felipe and his wife actually acquired the lot only in trust for Julian and all the 

children. 

 

Fourth.     Felipe   and   his  wife   demanded   rent   from  Marciana,  et   al  only   on 

December 18, 1995, a year following Julian’s death on December 21, 1994.  This shows 

that from 1984 when they bought the lot to December 18, 1995, when they made their 

demand on the occupants to leave, or for over 10 years, Felipe and his wife respected 

the right of the siblings to reside on the property.  This is incompatible with their claim 

that they bought the house and lot for themselves back in 1984.   Until they filed the 

suit, they did nothing to assert their supposed ownership of the house and lot.  

 

Felipe   and  his  wife   also   claim   that  Marciana,  et  al’s   action   to   recover   their 

portions of the house and lot had already prescribed.  True, an implied trust prescribes 

within 10 years from the time the right of action accrues.[31]  But when did the right of 

action based on the implied trust accrue in this case?   A right of action implies the 

existence  of   a   cause   of   action   and   a   cause   of   action  has   three   elements:   a)   the 

existence of a right in plaintiff’s favor; b) defendant’s obligation to respect such right; 

and c) defendant’s act or omission that violates the plaintiff’s right.  Only when the last 

element occurs or takes place can it be said in law that a cause of action has arisen.[32] 

 

In an implied trust,  the beneficiary’s cause of action arises when the trustee

repudiates the trust, not when the trust was created as Felipe and his wife would

have it.[33] The spouses of course registered the lot in their names in January 1987

but they could not be said to have repudiated the implied trust by that registration.

Their   purchase   of   the   land   and   registration   of   its   title   in   their   names   are   not 

incompatible with implied trust.  It was understood that they did this for the benefit of 

Julian and all the children.  

 

At any rate, even assuming that Felipe and his wife’s registration of the lot in 

their names in January 1987 constituted a hostile act or a violation of the implied trust, 

Marciana, et al had 10 years or until January of 1997 within which to bring their action. 

Here, they filed such action in July 1996 well within the period allowed them.

 

Felipe and his wife also claim that Marciana, et al’s action was barred by laches. 

But there is no basis for such claim.  Laches has been defined as 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.[34]  

 

Here, Marciana, et al had no reason to file an earlier suit against Felipe and his 

wife since the latter had not bothered them despite their purchase of the lot in their 

names on January 30, 1984.  Only about 12 years later or on December 18, 1995 when 

they  wrote   their   demand   letter   did   the   spouses   take   an   adverse   attitude   against 

Marciana, et al.  The latter filed their action to annul Felipe and his wife’s title and have 

the same transferred to their names not too long later on July 24, 1996.  

 

Finally,   the CA ordered Marciana,  et  al  to  reimburse  Felipe  and his  wife   the 

individual  siblings’  proportionate share in the  P55,500.00 that the spouses paid the 

realty company.   But, according to Julian’s affidavit, concurred in by Felipe, his wife, 

and Marciana, et al, the total acquisition cost of the lot was P60,000.00 (purchase price 

of  P55,500.00   plus   additional   expenses   of  P4,500.00).     Thus,   respondents   should 

reimburse petitioners their proportionate contribution in the total acquisition cost of 

P60,000.00.

 

WHEREFORE, the Court  DENIES  the petition, and  AFFIRMS  the decision of the 

Court   of   Appeals   in   CA-G.R.   CV   84792  with   the  MODIFICATION  that   respondents 

Marciana   Paringit   Bajit,   Adolio   Paringit,   and   Rosario   Paringit   Ordoño   reimburse 

petitioners Felipe and Josefa Paringit of their corresponding share in the purchase price 

plus expenses advanced by petitioners  amounting to  P60,000.00  with  legal   interest 

from April 12, 1984 until fully paid.

SO ORDERED.

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