Republic of the PhilippinesSUPREME COURTManila

EN BANC

G.R. No. L-18058 January 16, 1923

FABIOLA SEVERINO, plaintiff-appellee, vs.GUILLERMO SEVERINO, defendant-appellant. FELICITAS VILLANUEVA, intervenor-appellee.

Serafin P. Hilado and A. P. Seva for appellant.Jose Ma. Arroyo, Jose Lopez Vito, and Fisher and DeWitt for appellees.

OSTRAND, J.:

This is an action brought by the plaintiff as the alleged natural daughter and sole heir of one Melecio Severino, deceased, to compel the defendant Guillermo Severino to convey to her four parcels of land described in the complaint, or in default thereof to pay her the sum of P800,000 in damages for wrongfully causing said land to be registered in his own name. Felicitas Villanueva, in her capacity as administratrix of the estate of Melecio Severino, has filed a complaint in intervention claiming in the same relief as the original plaintiff, except in so far as she prays that the conveyance be made, or damages paid, to the estate instead of to the plaintiff Fabiola Severino. The defendant answered both complaints with a general denial.

The lower court rendered a judgment recognizing the plaintiff Fabiola Severino as the acknowledged natural child of the said Melecio Severino and ordering the defendant to convey 428 hectares of the land in question to the intervenor as administratrix of the estate of the said Melecio Severino, to deliver to her the proceeds in his possession of a certain mortgage placed thereon by him and to pay the costs. From this judgment only the defendant appeals.

The land described in the complaint forms one continuous tract and consists of lots Nos. 827, 828, 834, and 874 of the cadaster of Silay, Province of Occidental Negros, which measure, respectively, 61 hectares, 74 ares, and 79 centiares; 76 hectares, 34 ares, and

79 centiares; 52 hectares, 86 ares, and 60 centiares and 608 hectares, 77 ares and 28 centiares, or a total of 799 hectares, 75 ares, and 46 centiares.

The evidence shows that Melecio Severino died on the 25th day of May, 1915; that some 428 hectares of the land were recorded in the Mortgage Law Register in his name in the year 1901 by virtue of possessory information proceedings instituted on the 9th day of May of that year by his brother Agapito Severino in his behalf; that during the lifetime of Melecio Severino the land was worked by the defendant, Guillermo Severino, his brother, as administrator for and on behalf of the said Melecio Severino; that after Melecio's death, the defendant Guillermo Severino continued to occupy the land; that in 1916 a parcel survey was made of the lands in the municipality of Silay, including the land here in question, and cadastral proceedings were instituted for the registration of the lands titles within the surveyed area; that in the cadastral proceedings the land here in question was described as four separate lots numbered as above stated; that Roque Hofileña, as lawyer for Guillermo Severino, filed answers in behalf of the latter in said proceedings claiming the lots mentioned as the property of his client; that no opposition was presented in the proceedings to the claims of Guillermo Severino and the court therefore decreed the title in his favor, in pursuance of which decree certificates of title were issued to him in the month of March, 1917.

It may be further observed that at the time of the cadastral proceedings the plaintiff Fabiola Severino was a minor; that Guillermo Severino did not appear personally in the proceedings and did not there testify; that the only testimony in support of his claims was that of his attorney Hofileña, who swore that he knew the land and that he also knew that Guillermo Severino inherited the land from his father and that he, by himself, and through his predecessors in interest, had possessed the land for thirty years.

The appellant presents the following nine assignments of error:

1. The trial court erred in admitting the evidence that was offered by plaintiff in order to establish the fact that said plaintiff was the legally acknowledged natural child of the deceased Melecio Severino.

2. The trial court erred in finding that, under the evidence presented, plaintiff was the legally acknowledged natural child of Melecio Severino.

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3. The trial court erred in rejecting the evidence offered by defendant to establish the absence of fraud on his part in securing title to the lands in Nacayao.

4. The trial court erred in concluding that the evidence adduced by plaintiff and intervenor established that defendant was guilty of fraud in procuring title to the lands in question in his name.

5. The trial court erred in declaring that the land that was formerly placed in the name of Melecio Severino had an extent of either 434 or 428 hectares at the time of his death.

6. The trial court erred in declaring that the value of the land in litigation is P500 per hectare.

7. The trial court erred in granting the petition of the plaintiff for an attachment without first giving the defendant an opportunity to be heard.

8. The trial court erred in ordering the conveyance of 428 hectares of land by defendant to the administratrix.

9. The trial court erred in failing or refusing to make any finding as to the defendant's contention that the petition for attachment was utterly devoid of any reasonable ground.

In regard to the first two assignments of error, we agree with the appellant that the trial court erred in making a declaration in the present case as to the recognition of Fabiola Severino as the natural child of Melecio Severino. We have held in the case of Briz vs. Briz and Remigio (43 Phil., 763), that "The legitimate heirs or kin of a deceased person who would be prejudiced by a declaration that another person is entitled to recognition as the natural child of such decedent, are necessary and indispensable parties to any action in which a judgment declaring the right to recognition is sought." In the present action only the widow, the alleged natural child, and one of the brothers of the deceased are parties; the other potential heirs have not been included. But, inasmuch as the judgment appealed from is in favor of the intervenor and not of the plaintiff, except to the extent of holding that the latter is a recognized natural child of the deceased, this question is, from the view we take of the case, of no importance in its final disposition. We may say, however, in this connection, that the point urged in appellant's brief that it does not appear affirmatively from the evidence that, at the time of the conception of Fabiola, her mother was a single woman, may be sufficiently disposed of by a reference to article 130 of the Civil Code and subsection 1 of section 334 of the Code of Civil Procedure which create the presumption

that a child born out of wedlock is natural rather than illegitimate. The question of the status of the plaintiff Fabiola Severino and her right to share in the inheritance may, upon notice to all the interested parties, be determined in the probate proceedings for the settlement of the estate of the deceased.

The fifth assignment of error relates to the finding of the trial court that the land belonging to Melecio Severino had an area of 428 hectares. The appellant contends that the court should have found that there were only 324 hectares inasmuch as one hundred hectares of the original area were given to Melecio's brother Donato during the lifetime of the father Ramon Severino. As it appears that Ramon Severino died in 1896 and that the possessory information proceedings, upon which the finding of the trial court as to the area of the land is principally based, were not instituted until the year 1901, we are not disposed to disturb the conclusions of the trial court on this point. Moreover, in the year 1913, the defendant Guillermo Severino testified under oath, in the case of Montelibano vs. Severino, that the area of the land owned by Melecio Severino and of which he (Guillermo) was the administrator, embraced an area of 424 hectares. The fact that Melecio Severino, in declaring the land for taxation in 1906, stated that the area was only 324 hectares and 60 ares while entitled to some weight is not conclusive and is not sufficient to overcome the positive statement of the defendant and the recitals in the record of the possessory information proceedings.

The sixth assignment of error is also of minor importance in view of the fact that in the dispositive part of the decision of the trial court, the only relief given is an order requiring the appellant to convey to the administratrix the land in question, together with such parts of the proceeds of the mortgage thereon as remain in his hands. We may say further that the court's estimate of the value of the land does not appear unreasonable and that, upon the evidence before us, it will not be disturbed.

The seventh and within assignments of error relate to the ex parte granting by the trial court of a preliminary attachment in the case and the refusal of the court to dissolve the same. We find no merit whatever in these assignments and a detailed discussion of them is unnecessary.

The third, fourth, and eight assignments of error involve the vital points in the case, are inter-related and may be conveniently considered together.

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The defendant argues that the gist of the instant action is the alleged fraud on his part in causing the land in question to be registered in his name; that the trial court therefore erred in rejecting his offer of evidence to the effect that the land was owned in common by all the heirs of Ramon Severino and did not belong to Melecio Severino exclusively; that such evidence, if admitted, would have shown that he did not act with fraudulent intent in taking title to the land; that the trial court erred in holding him estopped from denying Melecio's title; that more than a year having elapsed since the entry of the final decree adjudicating the land to the defendant, said decree cannot now be reopened; that the ordering of the defendant to convey the decreed land to the administratrix is, for all practical purposes, equivalent to the reopening of the decree of registration; that under section 38 of the Land Registration Act the defendant has an indefeasible title to the land; and that the question of ownership of the land being thus judicially settled, the question as to the previous relations between the parties cannot now be inquired into.

Upon no point can the defendant's contentions be sustained. It may first be observed that this is not an action under section 38 of the Land Registration Act to reopen or set aside a decree; it is an action in personam against an agent to compel him to return, or retransfer, to the heirs or the estate of its principal, the property committed to his custody as such agent, to execute the necessary documents of conveyance to effect such retransfer or, in default thereof, to pay damages.

That the defendant came into the possession of the property here in question as the agent of the deceased Melecio Severino in the administration of the property, cannot be successfully disputed. His testimony in the case of Montelibano vs. Severino (civil case No. 902 of the Court of First Instance of Occidental Negros and which forms a part of the evidence in the present case) is, in fact, conclusive in this respect. He there stated under oath that from the year 1902 up to the time the testimony was given, in the year 1913, he had been continuously in charge and occupation of the land as the encargado or administrator of Melecio Severino; that he had always known the land as the property of Melecio Severino; and that the possession of the latter had been peaceful, continuous, and exclusive. In his answer filed in the same case, the same defendant, through his attorney, disclaimed all personal interest in the land and averred that it was wholly the property of his brother Melecio.

Neither is it disputed that the possession enjoyed by the defendant at the time of obtaining his decree was of the same character as that held during the lifetime of his brother, except in so far as shortly before the trial of the cadastral case the defendant had secured from his

brothers and sisters a relinguishment in his favor of such rights as they might have in the land.

The relations of an agent to his principal are fiduciary and it is an elementary and very old rule that in regard to property forming the subject-matter of the agency, he is estopped from acquiring or asserting a title adverse to that of the principal. His position is analogous to that of a trustee and he cannot consistently, with the principles of good faith, be allowed to create in himself an interest in opposition to that of his principal or cestui que trust. Upon this ground, and substantially in harmony with the principles of the Civil Law (see sentence of the supreme court of Spain of May 1, 1900), the English Chancellors held that in general whatever a trustee does for the advantage of the trust estate inures to the benefit of the cestui que trust. (Greenlaw vs. King, 5 Jur., 18; Ex parte Burnell, 7 Jur., 116; Ex parte Hughes, 6 Ves., 617; Ex parte James, 8 Ves., 337; Oliver vs. Court, 8 Price, 127.) The same principle has been consistently adhered to in so many American cases and is so well established that exhaustive citations of authorities are superfluous and we shall therefore limit ourselves to quoting a few of the numerous judicial expressions upon the subject. The principle is well stated in the case of Gilbert vs. Hewetson (79 Minn., 326):

A receiver, trustee, attorney, agent, or any other person occupying fiduciary relations respecting property or persons, is utterly disabled from acquiring for his own benefit the property committed to his custody for management. This rule is entirely independent of the fact whether any fraud has intervened. No fraud in fact need be shown, and no excuse will be heard from the trustee. It is to avoid the necessity of any such inquiry that the rule takes so general a form. The rule stands on the moral obligation to refrain from placing one's self in positions which ordinarily excite conflicts between self-interest and integrity. It seeks to remove the temptation that might arise out of such a relation to serve one's self-interest at the expense of one's integrity and duty to another, by making it impossible to profit by yielding to temptation. It applies universally to all who come within its principle.

In the case of Massie vs. Watts (6 Cranch, 148), the United States Supreme Court, speaking through Chief Justice Marshall, said:

But Massie, the agent of Oneale, has entered and surveyed a portion of that land for himself and obtained a patent for it in his own name. According to the clearest and best established principles of equity, the agent who so acts becomes a trustee for his principal. He cannot hold the land under an entry for himself otherwise than as trustee for his principal.

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In the case of Felix vs. Patrick (145 U. S., 317), the United States Supreme Court, after examining the authorities, said:

The substance of these authorities is that, wherever a person obtains the legal title to land by any artifice or concealment, or by making use of facilities intended for the benefit of another, a court of equity will impress upon the land so held by him a trust in favor of the party who is justly entitled to them, and will order the trust executed by decreeing their conveyance to the party in whose favor the trust was created. (Citing Bank of Metropolis vs. Guttschlick, 14 Pet., 19, 31; Moses vs. Murgatroyd, 1 Johns. Ch., 119; Cumberland vs.Codrington, 3 Johns. Ch., 229, 261; Neilson vs. Blight, 1 Johns. Cas., 205; Weston vs. Barker, 12 Johns., 276.)

The same doctrine has also been adopted in the Philippines. In the case of Uy Aloc vs. Cho Jan Ling (19 Phil., 202), the facts are stated by the court as follows:

From the facts proven at the trial it appears that a number of Chinese merchants raised a fund by voluntary subscription with which they purchased a valuable tract of land and erected a large building to be used as a sort of club house for the mutual benefit of the subscribers to the fund. The subscribers organized themselves into an irregular association, which had no regular articles of association, and was not incorporated or registered in the commercial registry or elsewhere. The association not having any existence as a legal entity, it was agreed to have the title to the property placed in the name of one of the members, the defendant, Cho Jan Ling, who on his part accepted the trust, and agreed to hold the property as the agent of the members of the association. After the club building was completed with the funds of the members of the association, Cho Jan Ling collected some P25,000 in rents for which he failed and refused to account, and upon proceedings being instituted to compel him to do so, he set up title in himself to the club property as well as to the rents accruing therefrom, falsely alleging that he had bought the real estate and constructed the building with his own funds, and denying the claims of the members of the association that it was their funds which had been used for that purpose.

The decree of the court provided, among other things, for the conveyance of the club house and the land on which it stood from the defendant, Cho Jan Ling, in whose name it was registered, to the members of the association. In affirming the decree, this court said:

In the case at bar the legal title of the holder of the registered title is not questioned; it is admitted that the members of the association voluntarily obtained the inscription in the

name of Cho Jan Ling, and that they had no right to have that inscription cancelled; they do not seek such cancellation, and on the contrary they allege and prove that the duly registered legal title to the property is in Cho Jan Ling, but they maintain, and we think that they rightly maintain, that he holds it under an obligation, both express and implied, to deal with it exclusively for the benefit of the members of the association, and subject to their will.

In the case of Camacho vs. Municipality of Baliuag (28 Phil., 466), the plaintiff, Camacho, took title to the land in his own name, while acting as agent for the municipality. The court said:

There have been a number of cases before this court in which a title to real property was acquired by a person in his own name, while acting under a fiduciary capacity, and who afterwards sought to take advantage of the confidence reposed in him by claiming the ownership of the property for himself. This court has invariably held such evidence competent as between the fiduciary and the cestui que trust.

x x x x x x x x x

What judgment ought to be entered in this case? The court below simply absolved the defendant from the complaint. The defendant municipality does not ask for a cancellation of the deed. On the contrary, the deed is relied upon the supplement the oral evidence showing that the title to the land is in the defendant. As we have indicated in Consunji vs. Tison, 15 Phil., 81, and Uy Aloc vs. Cho Jan Ling, 19 Phil., 202, the proper procedure in such a case, so long as the rights of innocent third persons have not intervened, is to compel a conveyance to the rightful owner. This ought and can be done under the issues raised and the proof presented in the case at bar.

The case of Sy-Juco and Viardo vs. Sy-Juco (40 Phil., 634) is also in point.

As will be seen from the authorities quoted, and agent is not only estopped from denying his principal's title to the property, but he is also disable from acquiring interests therein adverse to those of his principal during the term of the agency. But the defendant argues that his title has become res adjudicata through the decree of registration and cannot now be disturbed.

This contention may, at first sight, appear to possess some force, but on closer examination it proves untenable. The decree of registration determined the legal title to the land as the date of the decree; as to that there is no question. That, under section 38 of the

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Land Registration Act, this decree became conclusive after one year from the date of the entry is not disputed and no one attempts to disturb the decree or the proceedings upon which it is based; the plaintiff in intervention merely contends that in equity the legal title so acquired inured to the benefit of the estate of Melecio Severino, the defendant's principal and cestui que trust and asks that this superior equitable right be made effective by compelling the defendant, as the holder of the legal title, to transfer it to the estate.

We have already shown that before the issuance of the decree of registration it was the undoubted duty of the defendant to restore the property committed to his custody to his principal, or to the latter's estate, and that the principal had a right of action in personam to enforce the performance of this duty and to compel the defendant to execute the necessary conveyance to that effect. The only question remaining for consideration is, therefore, whether the decree of registration extinguishing this personal right of action.

In Australia and New Zealand, under statutes in this respect similar to ours, courts of equity exercise general jurisdiction in matters of fraud and error with reference to Torrens registered lands, and giving attention to the special provisions of the Torrens acts, will issue such orders and direction to all the parties to the proceedings as may seem just and proper under the circumstances. They may order parties to make deeds of conveyance and if the order is disobeyed, they may cause proper conveyances to be made by a Master in Chancery or Commissioner in accordance with the practice in equity (Hogg, Australian Torrens System, p. 847).

In the Untied States courts have even gone so far in the exercise of their equity jurisdiction as to set aside final decrees after the expiration of the statutory period of limitation for the reopening of such decrees (Baart vs. Martin, 99 Minn., 197). But, considering that equity follows the law and that our statutes expressly prohibit the reopening of a decree after one year from the date of its entry, this practice would probably be out of question here, especially so as the ends of justice may be attained by other equally effective, and less objectionable means.

Turning to our own Land Registration Act, we find no indication there of an intention to cut off, through the issuance of a decree of registration, equitable rights or remedies such as those here in question. On the contrary, section 70 of the Act provides:

Registered lands and ownership therein, shall in all respects be subject to the same burdens and incidents attached by law to unregistered land. Nothing contained in this Act

shall in any way be construed to relieve registered land or the owners thereof from any rights incident to the relation of husband and wife, or from liability to attachment on mesne process or levy on execution, or from liability to any lien of any description established by law on land and the buildings thereon, or the interest of the owner in such land or buildings, or to change the laws of descent, or the rights of partition between coparceners, joint tenants and other cotenants, or the right to take the same by eminent domain, or to relieve such land from liability to be appropriated in any lawful manner for the payment of debts, or to change or affect in any other way any other rights or liabilities created by law and applicable to unregistered land, except as otherwise expressly provided in this Act or in the amendments hereof.

Section 102 of the Act, after providing for actions for damages in which the Insular Treasurer, as the Custodian of the Assurance Fund is a party, contains the following proviso:

Provided, however, That nothing in this Act shall be construed to deprive the plaintiff of any action which he may have against any person for such loss or damage or deprivation of land or of any estate or interest therein without joining the Treasurer of the Philippine Archipelago as a defendant therein.

That an action such as the present one is covered by this proviso can hardly admit of doubt. Such was also the view taken by this court in the case of Medina Ong-Quingco vs. Imaz and Warner, Barnes & Co. (27 Phil., 314), in which the plaintiff was seeking to take advantage of his possession of a certificate of title to deprive the defendant of land included in that certificate and sold to him by the former owner before the land was registered. The court decided adversely to plaintiff and in so doing said:

As between them no question as to the indefeasibility of a Torrens title could arise. Such an action could have been maintained at any time while the property remained in the hands of the purchaser. The peculiar force of a Torrens title would have been brought into play only when the purchaser had sold to an innocent third person for value the lands described in his conveyance. . . . Generally speaking, as between the vendor and the purchaser the same rights and remedies exist with reference to land registered under Act No. 496, as exist in relation to land not so registered.

In Cabanos vs. Register of Deeds of Laguna and Obiñana (40 Phil., 620), it was held that, while a purchaser of land under a pacto de retro cannot institute a real action for the

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recovery thereof where the vendor under said sale has caused such lands to be registered in his name without said vendee's consent, yet he may have his personal action based on the contract of sale to compel the execution of an unconditional deed for the said lands when the period for repurchase has passed.

Torrens titles being on judicial decrees there is, of course, a strong presumption in favor of their regularity or validity, and in order to maintain an action such as the present the proof as to the fiduciary relation of the parties and of the breach of trust must be clear and convincing. Such proof is, as we have seen, not lacking in this case.

But once the relation and the breach of trust on the part of the fiduciary in thus established, there is no reason, neither practical nor legal, why he should not be compelled to make such reparation as may lie within his power for the injury caused by his wrong, and as long as the land stands registered in the name of the party who is guilty of the breach of trust and no rights of innocent third parties are adversely affected, there can be no reason why such reparation should not, in the proper case, take the form of a conveyance or transfer of the title to the cestui que trust. No reasons of public policy demand that a person guilty of fraud or breach of trust be permitted to use his certificate of title as a shield against the consequences of his own wrong.

The judgment of the trial court is in accordance with the facts and the law. In order to prevent unnecessary delay and further litigation it may, however, be well to attach some additional directions to its dipositive clauses. It will be observed that lots Nos. 827, 828, and 834 of a total area of approximately 191 hectares, lie wholly within the area to be conveyed to the plaintiff in intervention and these lots may, therefore, be so conveyed without subdivision. The remaining 237 hectares to be conveyed lie within the western part of lot No. 874 and before a conveyance of this portion can be effected a subdivision of that lot must be made and a technical description of the portion to be conveyed, as well as of the remaining portion of the lot, must be prepared. The subdivision shall be made by an authorized surveyor and in accordance with the provisions of Circular No. 31 of the General Land Registration Office, and the subdivision and technical descriptions shall be submitted to the Chief of that office for his approval. Within thirty days after being notified of the approval of said subdivision and technical descriptions, the defendant Guillermo Severino shall execute good and sufficient deed or deeds of conveyance in favor of the administratrix of the estate of the deceased Melecio Severino for said lots Nos. 827, 828, 834, and the 237 hectares segregated from the western part of lot No. 874 and shall deliver to the register of deeds his duplicate certificates of title for all of the four lots in order

that said certificates may be cancelled and new certificates issued. The cost of the subdivision and the fees of the register of deeds will be paid by the plaintiff in intervention. It is so ordered

With these additional directions the judgment appealed from is affirmed, with the costs against the appellant. The right of the plaintiff Fabiola Severino to establish in the probate proceedings of the estate of Melecio Severino her status as his recognized natural child is reserved.

Araullo, C. J., Johnson, Street, Malcolm, Avanceña, Villamor, Johns, and Romualdez, JJ., concur.

Republic of the PhilippinesSUPREME COURTManila

EN BANC

G.R. No. L-2411 June 28, 1951

DAVID (DAVE) THOMAS, plaintiff-appellant, vs.HERMOGENES S. PINEDA, defendant-appellant.

Matias E. Vergara and Perkins, Ponce Enrile, Contreras and Gomez for plaintiff-appellant.Laurel, Sabido, Almario and Laurel for defendant-appellant.

TUASON, J.:

For a first cause of action the plaintiff sought to compel an accounting of the defendant's operation of a saloon and restaurant of which the plaintiff claims to have been the sole owner. For a second cause of action the court was asked to enjoin the defendant from using the name of that business, Silver Dollar Cafe. The court below found for the defendant on the suit for accounting and for the plaintiff on the suit for injunction.

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On the first cause of action it is alleged that the defendant managed the business as plaintiff's employee or trustee during the Japanese occupation of the City of Manila and on a share of the profits basis after liberation. Grounded on different relationships between the parties before and after the occupation, this cause of action evolves two different acts of evidence, which it may be well to take up separately for the sake of clarity. We will set out the material facts in so far as they are uncontroverted, leaving for later discussion those about which the parties are in disagreement.

It appears that in 1931, the plaintiff bought the bar and restaurant known as Silver Dollar Cafe located at Plaza Santa Cruz, Manila, from one Dell Clark, paying P20,000 for its physical assets and good will. Thereafter he employed the defendant, Clark's former employee, as a bartender with a salary of P60. In the course of time, the defendant became successively cashier and manager of the business. The outbreak of war found him holding the latter position with a monthly compensation of P250.

To prevent the business and its property from falling into enemy hands, the plaintiff being a citizen of the United States, David Thomas on or about December 28, 1941, made a fictitious sale thereof to the defendant; and to clothe the sale with a semblance of reality, the bill of sale was antedated November 29, 1941.

Though this document was said to have been destroyed and no copy thereof was available, the fictitiousness and lack of consideration of the conveyance was expressly admitted in the answer. Besides this admission, it is agreed that simultaneously with or soon after the execution of the simulated sale, the plaintiff and the defendant signed a private or secret document, identified as Exhibit "F", which was kept by the plaintiff. Because of its important bearing on the case, it is convenient to copy this instrument in full.

PRIVATE AGREEMENT

KNOW ALL MEN BY THESE PRESENTS THAT:

On November 29, 1941, a document which purported to be a deed of sale of the bar and restaurant business known as the SILVER DOLLAR CAFE entered into by and between David (Dave) Thomas and Hermogenes Pineda and acknowledged before Julian Lim, a notary public for and in the City of Manila and entered in his notarial register as Document No. 127, Page No. 27, Book I and Series of 1941, witnessed by the Misses Florence Thomas and Esther Thomas.

The said document was prepared and executed only for the purpose of avoiding the seizure of the said establishment if and when the enemy forces entered the City of Manila.

Upon the restoration of peace and order and the absence of the danger abovementioned, the said document automatically becomes null and void and of no effect, the consideration of Ten Thousand Pesos (P10,000), Philippine Currency, mentioned therein, being fictitious and not paid to the Vendor.

In witness whereof, we have hereunto set our hands in the City of Manila, Philippines, this 29th day of November, 1941.

(Sgd.) DAVID THOMAS Vendor

(Sgd.) H. PINEDA Vendee

In the presence of:

(Sgd.) ESTHER THOMAS (Sgd.) FLORENCE THOMAS

Thomas was interred at Santo Tomas during the greater part of the war, and his business was operated by the defendant exclusively throughout that period in accordance with the aforequoted stipulation. On February 3, 1945, the building was destroyed by fire but the defendant had been able to remove some of its furniture, the cash register, the piano, the safe, and a considerable quantity of stocks to a place of safety. According to the defendant, all of these goods were

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accounted for and turned over to the plaintiff after the City of Manila had been retaken by the American Forces.

On May 8, 1945, a bar was opened on Calle Bambang, district of Sta. Cruz, under the old name of Silver Dollar Cafe. Housed in a makeshift structure, which was erected on a lot belonging to the defendant, the Bambang shop was conducted for about four months, i.e., until September of the same year, when it was transferred to the original location of the Silver Dollar Cafe at No. 15 Plaza Sta. Cruz.

It is asserted and denied that the plaintiff as well as the defendant took a more or less active part in the management of the post-liberation business until about the middle of September of the following year, when, it is also alleged, the plaintiff brought a certified public accountant to the establishment in Sta. Cruz for the purpose of examining the books of the business and the defendant threatened the plaintiff and his companion with a gun if they persisted in their purpose. As a result of that incident, the plaintiff forthwith filed the present action, and set up a separate business under the same trade-name, Silver Dollar Cafe, on Echague Street. The defendant remained with the Silver Dollar Cafe at Plaza Sta. Cruz, which was burn down on December 15, 1946. In the face of Exhibit "F" before transcribed, there is no denying that throughout the Japanese military regime the Silver Dollar Cafe belonged exclusively to the plaintiff and that the defendant had charge of it merely as plaintiff's employee, trustee, or manager. There is no pretense that the defendant invested in the business within that period any capital of his own in the form of cash or merchandise.

The controversy lies in nature and scope of the defendant's obligation toward the plaintiff in relation to the business. It will be noticed that Exhibit "F" is silent on this point. The defendant endeavored to prove that there was a third, verbal, agreement, the import of which was that he was to operate the business with no liability other than to turn it over to the plaintiff as the plaintiff would find it after the war.

Little or no weight can be attached to this assertion if by it the defendant means, as he apparently does, that he was relieved of any duty to make an accounting.

Such understanding as the defendant says existed would be at war with the care and precaution which the plaintiff took to insure his rights in the business and its assets, which had an inventory value of P60,000, according to the plaintiff. As the property consisted mostly of perishable and expendable goods to be constantly disposed of and replenished as long as the business lasted, the plaintiff could not, by any stretch of the imagination, have agreed to be content with what the defendant would deign to give him when normalcy was restored. For that was what the defendant's version of the alleged verbal agreement would amount to and what the court below found. As sole manager with full power to do as his fancies dictated, the defendant could strip the business naked of all its stocks, leaving the plaintiff holding the bag, as it were, when the defendant's management was terminated. Unless Thomas was willing to give away his property and its profits, no man in his right senses would have given his manager an outright license such as the defendant claims to have gotten from his employer. Not only did the plaintiff see to the execution of a counter agreement but he stated that his elder daughter "had it (Exhibit "F") kept in her possession;" that "there were many efforts by Mr. Pineda to get hold of this document during the first two weeks of the Japanese occupation," and he was "surprised;" that he "did not know what was in the future" and he "wanted my children to have something more than an empty possession." Referring to the defendant's attempts to take Exhibit "F" away from him, Thomas said that the defendant sent to the hospital where he (plaintiff) was confined, defendant's friend, an attorney by the name of Swartzcoff of whom he had heard "things", "to recover that document", and he, plaintiff, became more determined not to part with it; that as Swartzcoff kept on coming, he gave the document to his children to keep up to the end of the war. This testimony has all the stamps of veracity and vehemence and refutes the defendant's allegation. The conclusion thus seems clear that the defendant owes the plaintiff an accounting of his management of the plaintiff's business during the occupation. The exact legal character of the defendant's relation to the plaintiff matters not a bit. It was enough to show, and it had been shown, that he had been entrusted with the possession and management of the plaintiff's business and property for the owner's benefit and had not made an accounting.

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Neither did the defendant's sweeping statement at the trial — that all the proceeds from the business had been used to support the plaintiff and his daughters an to entertain or bribe Japanese officers and civilians — dispense with defendant's duty to account. It was a clear error for the court below to declare at this stage of the proceeding, on the basis of defendant's incomplete and indefinite evidence, that there were no surplus profits, and to call matters even. Under the pleadings and the evidence the court's inquiry ought to have been confined to the determination of the plaintiff's right to secure an accounting; and that right having been established, the appropriate judgment should have been a preliminary or interlocutory one — that the defendant do account. The court was not called upon to decide, and should not have decided, anything beyond that.

Monies and foodstuffs which the defendant said he had supplied the plaintiff and his daughters during the war are appropriate items to be considered on taking account. Receipts and expenses involving thousands of pesos, covering a great length of time, and consisting of complicated items are, on their face, so complex and in as to necessitate being threshed out in an appropriations by the defendants substantiated. By the defendant's admission, the business made good profits during the war, and there are charges that he amassed a fortune out of the trusteeship. True or false, those allegations and many others which it was the plaintiff's right to prove, if he could, should not have been dismissed summarily. Not technicalities but substantial rights, equity, and justice clearly demanded adherence to the normal course of practice and procedure. The employment of auditors might be necessary.

The defendant denied that the plaintiff had any proprietary interest in the saloon in Bambang and at Plaza Sta. Cruz after liberation. Thomas' evidence on this phase of the litigation is to the effect that, upon his release from the internment camp, he immediately took steps to rehabilitate his business. He declared that he borrowed P2.000 from a friend by the name of Bill Drummond, and with that amount he constructed a temporary building in Bambang and with the stocks saved by the defendant opened the business there. He said that, as before, the defendant now

worked as manager, with the difference that under the new arrangement he was to get one-half the net profits.

The defendant, on the other hand, undertook to show that he himself put up the Bambang business, furnishing the construction materials, paying for the labor, and purchasing the needed merchandise. And when the business was to be moved to Plaza Sta. Cruz, he said, he called on Mrs. Angela Butte, was able to rent the Plaza Sta. Cruz premises from her for Pl,200, and told the lessor when he handed her the rent, "This is my money." He went on to say that Thomas told him to do whatever he pleased with the premises, only requesting him to negotiate the sale of or a loan on plaintiff's mining shares so that the plaintiff could join him as partner or "buy him out" by December. But, according to the defendant, the plaintiff was not able to raise funds, so his desire to acquire interest in or buy the business did not materialize. The plaintiff did not invest a centavo in the new business because he had no money to invest, the defendant concluded. Leaving aside the evidence which depends entirely on the credibility of the Witnesses, the following undisputed or well-established circumstances are, in our judgment, decisive:

1. The defendant corroborated the plaintiff when he practically declared that upon the plaintiff's release from the internment camp, Thomas lost no time in looking a site to open a saloon. That the plaintiff then had the means to do that, was a fact brought out by the defendant's own evidence as well as by the plaintiff's testimony. There were several cases of whiskey, rum, gin and other kinds of liquor which the defendant admitted he had carted away and delivered to the plaintiff after liberation. What the latter did or could have done with those goods, if not to start a business with, there was no plausible explanation. Granting that ten cases of the liquor were confiscated by the MP — the plaintiff said they were soon returned — the confiscation could not have stopped the plaintiff from continuing with the business, which was riding in the crest of a boom. Significantly, the defendant said that the day following the alleged confiscation he handed the plaintiff P2,000 in cash. If he had nothing else, this was an amount which ought to have been enough to enable the plaintiff to keep the business going, which needed no large capital. That this payment was "in full and complete liquidation of the Silver Dollar

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Cafe," as the defendant asserted, was, under the circumstances, highly improbable, to put it mildly.

2. It is also an admitted fact that the bar in Bambang was called Silver Dollar Cafe, Branch No. 1. The use of the old name suggested that the business was in fact an extension and continuation of the Silver Dollar Cafe which the defendant had operated for the plaintiff during the enemy occupation, and precluded any thought of the business having been established by the defendants as his own. It should be remembered that the defendant had not yet appropriated the trade-name Silver Dollar Cafe for himself. This — the subject of the second cause of action — he did on September 27, 1945.

3. Despite statements to the contrary, it was the plaintiff who, in September, 1945, before the reopening of the bar at Plaza Sta. Cruz, entered into a written contract of lease (Exhibit A) with Mrs. Angela Butte for the Sta. Cruz location; Thomas was named in the contract as the lessee. The contract also reveals that it was the plaintiff who personally paid Mrs. Butte the advanced rent (P1,200) for the period August 31-September 30, 1945, the first month of the lease. And thereafter, all the rental receipts were made out in Thomas' name, except those for the months of October, November and December, which were put in the name of the defendant. A propose of this temporary substitution, Jose V. Ramirez, owner of the land and administrator of the building, testified that the Bureau of Internal Revenue had licensed and taxed the business in the name of Hermogenes Pineda and so thought it necessary that for those three months the defendant's name should be put in the receipts. Ramirez added that Mrs. Butte agreed to the Internal Revenue Bureau's requirement on the assurance that beginning January, 1946, the receipts would be issued again in favor of Thomas. Mrs. Butte testified to the same effect.

At any rate, the issuance of three of the receipts in defendant's name was far from implying that he was the proprietor or part owner of the Silver Dollar Cafe. Appropriately, as manager he could make disbursement and get receipts therefor in his name. What would have been strange was the issuance of receipts, let alone the execution of the lease contract, in the name of David Thomas if Thomas had nothing to do with the business, as the defendant would have the court believe.

The defendant testified, and the lower court believed, that he consented to the issuance of the three receipts and the execution of the contract of lease in the plaintiff's name because it was expected that the plaintiff would buy the business or "chip in" as partner. How the mere possibility, by no means certain, of the plaintiff becoming the owner of the saloon or defendant's partner on some future date could have induced the defendant to let the plaintiff figure unqualifiedly as owner of the business in receipts and leases that had nothing to do with the contemplated deal, and why the plaintiff would want to pose as owner while he was yet a complete stranger to the enterprise, is utterly beyond comprehension.

For the rest, the plaintiff's testimony is as convincing and as well supported by the natural course of things as the defendant's explanation is unreasonable. It can not be disputed that Thomas had accumulated money from the business in Bambang which, it has also been proved to the point of certainty, he operated with the goods retrieved by the defendant from the pre-war Silver Dollar Cafe. Conducting saloons having been the plaintiffs only means of support before the war, and the calling in which he had acquired plenty of experience, it is inconceivable that he would have remained idle at a time when the trade was most lucrative and he had been impoverished by the war. That the plaintiff, established a bar behind the Great Eastern Hotel on Echague Street, a hidden place, immediately or very soon after he and the defendant had a falling out, is mute testimony to his eagerness to take advantage of the current boom.

4. That the defendant was only a manager is also made evident by two sets of business cards of the Silver Dollar Cafe which he himself caused to be printed. On the first set, of which 500 prints were made, David Thomas was held out as the proprietor and Hermogenes Pineda, the defendant, as manager. On the second set, which were ordered later, the defendant was not even mentioned as manager, but one Bill Magner, while David Thomas' name was retained as the proprietor.

Customers of the place testified that copies of these cards were handed to them for distribution to their friends by the defendant himself. The defendant swore that he put away the cards in a small drawer under some books and denied they had been distributed. He gave to understand that he was at a loss to know how the

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plaintiff and his witnesses got hold of some of said cards, though, he said, he suspected that Thomas went upstairs and grabbed some copies while the witnesses found other copies scattered after the fire which burned the establishment for the second time in 1946.

However the case may be, whether the defendant distributed the cards or not, the important point is why he, in the first place, ordered the cards in the form in which they were printed. He did not give cogent reasons. His explanation was that Hugo Santiago, the printer's agent, "gave me a hint that Mr. Thomas was going to open the Silver Dollar Cafe in Plaza Sta. Cruz." This explanation fails to forge any sensible link between the printing of Thomas' name in the cards and Thomas' plan to join him in the business. Incidentally, the defendant did not tell the truth when he declared that the cards were ordered when the shop was still in Bambang; the cards gave the location of the Silver Dollar Cafe as No. 15 Plaza Sta. Cruz, and, besides, Santiago, who testified for both sides, was positive that the cards were delivered to the defendant in September, 1945.

5. At different times from May 8 to December 15, 1945, the defendant handed the plaintiff averse amounts totalling P24,100 without so much as asking Thomas to sign a receipts for any of them.

The defendant testified that these amounts were simple loans secured by plaintiff's mining shares of stock. The plaintiff countered that they were advances chargeable to his share of the net profits. While he admitted that he owned some Baguio Consolidated and Baguio Gold shares, he denied that he had given them to the defendant as collateral or in any other concept. He swore that he kept those securities in his own safe and removed them in plain sight of Pineda when he became suspicious of the latter.

It is difficult to understand how the payment of the amounts in question to the plaintiff could have been for any purpose other than that affirmed by him. The lack of any receipt is incompatible with the hypothesis of loans. The defendant's possession of the plaintiff's mining shares, granting that the defendant held them, was no reason for dispensing with the necessity of getting from the plaintiff some

form of acknowledgment that the said amounts were personal debts, if that was the case. Without such acknowledgment, which could have been made in a matter of minutes and required no expert to make, the shares of stock did not afford the creditor much if any protection, as an experienced and intelligent man that the defendant is must have realized.

These amounts were the subject of a counterclaim and the court sustained the defendant's theory and gave him judgment for them. In the light of the what has just been said and of the evidence previously discussed, there is no escaping the conclusion that the plaintiff was the sole owner of the post-war Silver Dollar bar and restaurant, that the defendant was only an industrial partner, and that the said amounts were withdrawals on account of the profits, which appear from portions of the defendant's entries in the books to have been considerable.

On the second cause of action, which relates to the ownership of the Silver Dollar Cafe trade-name, it appears that the defendant on September 27, 1945, registered the business and its name as his own.

The defendant contends that in 1940, the plaintiff's right to use this trade-name expired and by abandonment or non-use the plaintiff ceased to have any title thereto. The alleged abandonment or non-use is predicated on the testimony that the plaintiff expressly allowed the defendant to appropriate the trade-name in dispute.

The parties' actions negative all motions of abandonment by the plaintiff. In the fictitious bill of sale executed on December 29, 1941, the plaintiff asserted and the defendant acknowledged Thomas' ownership of the business. It is manifest from Exhibit "C" and "D, samples of the business cards which were printed at the instance of the defendant himself, that the plaintiff continued to display the name Silver Dollar Cafe after liberation. And when the plaintiff set up a new saloon on Echague Street after he broke with the defendant, he gave the establishment the same appellation — Silver Dollar Cafe.

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The most that can be said in favor of the defendant, which is the view taken by the trial Judge, is that the plaintiff instructed Pineda to renew the registration of the trade-name and the defendant understood the instruction as permission to make the registration in his favor. It is to be doubted to whether even honest mistakes were possible under the circumstance of the case. It is an understatement to say that indications pointed to bad faith in the registration. The application for registration contained brazen untruths.

The plaintiff non-use of his trade name in 1945, granting that to have been the case, did not work as a forfeiture of his exclusive right to the name, name which he and the man from whom he bought the business had used for over forty years without interruption. Under the provision of Commerce Administrative Order No. 1, issued on January 11, 1946, by the Secretary of Commerce and Agriculture, the rights registrant of business names, the records of which had been destroyed or lost during the war, were expressly protected. This administrative Order No. 1-1, dated October 29, 1946, but the amendment referred only to the procedure for authentication of the documents to be submitted. On the other hand, the amendatory order extended the filing of application for reconstitution up to as late as December 31, 1946, that is ninety days after plaintiff commenced the present action.

As legal proposition and in good conscience, the defendants registration of the trade name Silver Dollar Cafe must be deemed to have been affected for the benefit of its owner of whom he was a mere trustee or employee. "The relations of an agent to his principal are fiduciary and it is an elementary and very old rule that in regard to property forming the subject matter of the agency, he is estopped from acquiring or asserting a title adverse to that of principal. His position is analogous to that of a trustee and he cannot consistently, with the principles of good faith, be allowed to create in himself an interest in opposition to that of his principal or cestui que trust. A receiver, trustee, attorney, agent or any other person occupying fiduciary relations respecting property or persons utterly disabled from acquiring for his own benefit the property committed to his custody for management. This rule is entirely independent of the fact whether any fraud has intervened. No fraud in fact

need be shown, and no excuse will be heard from any such inquiry that the rule takes so general form. The rule stands on the moral obligation to refrain from placing one's self in position which ordinarily excite conflicts between self-interest at the expense of one's integrity and duty to another, by making it possible to profit by yielding to temptation". (Barretovs. Tuason, 50 Phil. 888; Severino vs. Severino, 44 Phil., 343.)

To recapitulate, we find from what we believed is conclusive evidence, both direct and circumstance, that the plaintiff was the owner of the Silver Dollar Cafe at Plaza Sta. Cruz during the enemy occupation and is of right entitled to have an accounting of its administration by the defendant. Exhibit "F" does not state the remuneration the defendant was to be paid for managing the plaintiff's business. The natural presumption under normal circumstances would be that his prewar compensation was to continue. But conditions during the occupation being different from what they were before the war, the defendants remuneration may and should be increased if so warranted by the changed circumstances. This matter should be left for consideration in the accounting, having in mind the nature and extent of the services rendered, the volumes of business transacted, the profits obtained and the losses incurred, the personal risk run by the defendant, and other factors related to the success or failure of the defendant's management.

We have it from the plaintiff that he promised to give the defendant one-half of the net profits of the business established in Bambang and later at Plaza Sta. Cruz after liberation. This offer was reasonable, even liberal, and no unforeseen circumstances having supervened to warrants its alteration, the same will not be disturbed and will serve as basis of liquidation. The other basis of liquidation of the post-war business are that the plaintiff was the exclusive owner of its stocks and other assets from May 8, 1945, when it was reestablished in Bambang, to December 15 1946, when the business was levelled to the ground at Plaza Sta. Cruz.

For the reasons hereinbefore stated, the various sums of money aggregating P24,100 and received or taken by the plaintiff were, and they hereby are declared to be, accounting from the defendants share of said profits if there be any.

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We also find that the trade-name Silver Dollar Cafe belongs to the plaintiff and that the defendant should be and he is perpetually enjoined from using it or any essential part thereof.

In all other respects, especially in connection with the demand for accounting, this case is remanded to the court of origin for further proceedings in accordance with law and the tenor of this decision and for a final judgment on the balance that may be found due from either party.

The defendant will pay the costs of this appeal.

Feria, Pablo, Bengzon, Padilla, Montemayor, Reyes, Jugo and Bautista Angelo, JJ., concur.

Separate Opinions

PARAS, C. J. concurring and dissenting:

I concur in the majority opinion except in so far as it requires the defendant to render an accounting of the business Silver Dollar Cafe during the Japanese occupation. The proof shows that the defendant was told the enterprise and pretend to be its owner during the war in order to save it for being surely seized by the Japanese as American property, and that the defendant not only succeeded in doing so but, with all honesty, used the proceeds of the business for the support of the defendant and his daughters. The arrangement cannot be said to have been a regular business proposition undertaken by the parties under normal conditions in virtue of which the defendant was made a mere manager; and even if the defendant had in fact derived personal advantages, its justification necessarily follows from the accomplishment of the mission entrusted by the plaintiff. Moreover, the business during the occupation was carried on in Japanese currency which is now worthless.

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Republic of the PhilippinesSUPREME COURTManila

EN BANC

G.R. No. L-49219 December 11, 1946

PABLO D. PALMA, petitioner, vs.EDUARDO REYES CRISTOBAL, respondent.

Vicente J. Francisco and Guillermo B. Guevara for petitioner.Antonio Gonzales for respondent.

PERFECTO, J.:

A parcel of a land located in Quesada Street, Tondo, Manila, covered by transfer certificate of title No. 31073 of the Register of Deeds of Manila, issued in favor of petitioner Pablo D. Palma, is the subject of contention between the parties.

Petitioner sought, at first, to eject respondent Eduardo Cristobal Reyes from the land in question in a complaint filed with the Municipal Court of Manila. As respondent raised the question of ownership, the complaint was dismissed, and petitioner filed with the Court of First Instance of Manila the complaint which initiated this case, petitioner praying that he be declared the owner of the land and that respondent be ordered to restore its possession and to remove his house therefrom.

The complaint was dismissed and petitioner brought the case to the Court of Appeals, where he again failed, the appealed judgment having been affirmed by a decision penned by Mr. Justice Padilla, concurred in by Mr. Justice Jose G. Generoso and Mr. Justice Pedro Tuason.

The case is now before us on appeal by certiorari.

In 1909, after registration proceedings under the provisions of Act No. 496, original certificate of title No. 1627 was issued in the names of petitioner and his wife Luisa Cristobal. In 1923, said certificate was cancelled and substituted by certificate of title No. 20968 by virtue of a decree issued by the Court of First Instance of Manila in connection with Manila cadastre. It was later substituted by certificate of title No. 26704, also in the name of petitioner and his wife. After the latter's death in 1922,a new certificate of title was issued in 1923 only in the name of the name of the petitioner, substituted in 1928 by certificate of title No. 31073.

The Court of Appeals, upon the evidence, concluded with the Court of First Instance of Manila that the parcel of land in question is a community property held by petitioner in trust for the real owners (the respondent being an heir of one of them), the registration having been made in accordance with an understanding between the co-owners, by reason of the confidence they had in petitioner and his wife. This confidence, close relationship, and the fact that the co-owners were

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receiving their shares in the rentals, were the reasons why no step had been taken to partition the property.

The Court of Appeals explains that it was only after the death of Luisa Cristobal and petitioner had taken a second wife that trouble on religious matters arose between petitioner and respondent, and it gives credence to the testimony of Apolonia Reyes and respondent to the effect that Luisa, before her death, called her husband, the petitioner, and enjoined him to give her co-owners their shares in the parcel of land; but respondent told her then not to worry about it, for it was more important to them to have her cured of the malady that affected her. Petitioner answered his wife that she should not worry because he would take care of the matter by giving the co-owners their respective shares.

Petitioner assigns as first error of the Court of Appeals the fact that it considered the oral testimony adduced in behalf of respondent sufficient to rebut the legal presumption that petitioner is the owner of the land in controversy. .

In Severino vs. Severino (43 Phil., 343), this court declared that "the relations of an agent to his principal are fiduciary and it is an elementary and very old rule that in regard to property forming the subject-matter of the agency, he is estopped from acquiring or asserting a title adverse to that of the principal. His position is analogous to that of a trustee and he cannot consistently, with the principles of good faith, be allowed to create in himself an interest in opposition to that of his principal or cestui que trust." Affirming the said doctrine in Barretto vs. Tuason(50 Phil., 888), the Supreme Court declared that the registration of the property in the name of the trustees in possession thereof, must be deemed to have been effected for the benefit of the cestui que trust. In Palet vs. Tejedor (55 Phil., 790), it was declared that whether or not there is bad faith or fraud in obtaining a decree with respect to a registered property, the same does not belong to the person in whose favor it was issued, and the real owners be entitled to recover the ownership of the property so long as the same has not been transferred to a third person who has acquired it in good faith and for a valuable consideration. This right to recover is sanctioned by section 55 of Act No. 496, as amended by Act No. 3322.

There is no showing why the conclusions of facts of the Court of Appeals should be disturbed, and upon said facts petitioner's first assignment of errors appears to be untenable in the light of law and of the decision of this court.

Petitioner alleged that the Court of Appeals erred in not holding the respondent estopped from claiming that petitioner is not the absolute owner of the property in question because, after Luisa Cristobal, petitioner's wife, died in 1922, instead of moving for the partition of the property, considering specially that petitioner had promised such a partition at the deathbed of the deceased, respondent appeared as attorney for petitioner and prayed that a new certificate of title be issued in the name of said petitioner as the sole owner of the property.

Petitioner insisted with energy that respondent himself was a party to the fraud upon the court, as guilty as petitioner himself, and that estops him from asserting that he is the co-owner of the land involved herein.lawphil.net

There is no merit in petitioner's contention. The fact that respondent has been a party to the deception which resulted in petitioner's securing in his name the title to a property not belonging to him, is not valid reason for changing the legal relationship between the latter and its true owners to such an extent as to let them lose their ownership to a person trying to usurp it.

Whether petitioner and respondent are or are not jointly responsible for any fraud upon a court of justice, cannot affect the substantial rights of the real owners of the title of a real property.

Respondent is not barred because his appearance as attorney for petitioner was not a misrepresentation which would induce petitioner to believe that respondent recognized the former as the sole owner of the property in controversy. The misrepresentation could deceive the court and outsiders, because they were not aware of the understanding between the co-owners that the property be registered in the name of petitioner. The Court of Appeals found, and the finding is not now in issue, that petitioner was a party to the understanding and assumed the role of an instrument to make it effective. Respondent's appearance, as attorney for

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petitioner in 1923, was a consequence of the understanding, and petitioner could not legitimately assume that it had the effect of breaking or reversing said understanding.

Lastly, it is contended by petitioner that, even conceding that the controverted property was owned in common by several co-owners, yet the Court of Appeals erred in not holding that, as against respondent, petitioner had acquired absolute ownership of the same through prescription.

Upon the premise that the registration in 1909 in the name of petitioner and his wife, Luisa Cristobal, was in accordance with an agreement among the co-owners, petitioner advances the theory that when he, upon the death of his wife in 1922, caused the trust property to be registered in his sole name in 1923, and subsequently partitioned between himself and his daughter, Ildefonsa Cristobal Ditangco, as heirs of the decedent, "he openly breached the agreement of 1909 as well as the promise made to his dying wife of giving the co-owners their respective shares," concluding that "that breach was an assumption of ownership, and could be the basis of title by prescription."

This theory holds no water because, according to the pronouncement of the Court of Appeals, upon the evidence, petitioner held the property and secured its registration in his name in a fiduciary capacity, and it is elementary that a trustee cannot acquire by prescription the ownership of the property entrusted to him. The position of a trustee is of representative nature. His position is the position of a cestui que trust. It is logical that all benefits derived by the possession and acts of the agent, as such agent, should accrue to the benefit of his principal.

Petitioner's pretension of building his right to claim ownership by prescription upon his own breach of a trust cannot be countenanced by any court, being subversive of generally accepted ethical principles.

The decision of the Court of Appeals is affirmed. No costs.

Moran, Bengzon, C.J., Paras, Feria, Pablo, Hilado and Briones, JJ., concur.

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Republic of the PhilippinesSUPREME COURTManila

EN BANC

G.R. No. L-5142 February 26, 1954

CONSOLACION L. RAMOS, administratrix-appellant, vs.BENIGNO A. CAOIBES, attorney-in-fact-appellee.

Consolacion L. Ramos in her own behalf.Benigno A. Caoibes in his own behalf.

JUGO, J.:

This is an appeal by Consolacion L. Ramos as administratrix of the estate of Concepcion Ramos from an order issued by the Court of First Instance of Batangas on June 15, 1951.

On August 16, 1948, Concepcion Ramos Dipusoy executed before a notary public two documents which have been marked as Annex "A" and Annex "B".

Annex "A" is a power of attorney which reads as follows:

SPECIAL POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

That I, Concepcion Ramos Dipusoy, of legal age, single, Filipino citizen and resident of Balayan, Batangas, have made, constituted and appointed, and by these presents do make, constitute and appoint Mr. Benigno A. Caoibes, also of legal age, married, Filipino citizen and at present residing at 1047 Antipolo Street,

Sampaloc, Manila, my true and lawful attorney-in-fact, for me and in my name, place and stead, to collect any amount due me from the Philippine War Damage Commission, regarding my claim filed for my properties that were lost during the last war in Balayan, Batangas, to cash checks, warrants and to sign receipts, vouchers, documents which shall be necessary to the said purpose.

That I am giving and granting unto my said attorney-in-fact Benigno A. Caoibes, full and absolute power and authority to do and perform all any every act or thing whatsoever to be done necessary in and about the premises, as fully to all intents and purposes as I might or could myself do if I were personally present, and hereby confirming and ratifying all that my said attorney-in-fact shall lawfully do or cause to be done and by virtue of these presents.

IN WITNESS WHEREOF, I have hereunto set my hand this 16th day of August, 1948, in the City of Manila, Philippines.

(Miss) CONCEPCION RAMOS DIPUSOY

Signed in the Presence of:

1. (Sgd.) CONSOLACION L. RAMOS Witness

2. (Sgd.) SOCORRO L. RAMOS Witness

REPUBLIC OF THE PHILIPPINES CITY OF MANILA s.s.

Before me, a Notary Public for and in the City of Manila, personally appeared Miss Concepcion Ramos Dipusoy, with Residence Certificate No. A-3115097, issued at Balayan, Batangas, on February 26, 1948, who is known to me to be the same person who executed the foregoing power of attorney in favor of Mr. Benigno A.

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Caoibes, and acknowledged to me that the same is her free and voluntary act and deed.

IN WITNESS WHEREOF, I have hereunto set my hand this 16th day of August, 1948, in the City of Manila and affixed my Notarial Seal.

(Sgd.) ARTEMIO ABAYA Notary Public

My commission expires on December 31, 1948

Annex B is an affidavit of the following tenor:

REPUBLIC OF THE PHILIPPINES} CITY OF MANILA } s.s.

AFFIDAVIT

That I, CONCEPCION RAMOS DIPUSOY, of legal age, single, Filipino citizen, and resident of Balayan, Batangas, after having been duly sworn to in accordance to law depose and say:

That in case payment of any amount or amounts collected from the Philippine War Damage Commission, my nephew and at the same time attorney-in-fact, shall give my sister Teopista Vda. de Basa one-half (½), of the corresponding amount and the other half (½) shall be given to my nephew and niece Mr. and Mrs. Benigno A. Caoibes.

IN WITNESS WHEREOF, I have hereunto set my hand this 16th day of August, 1948, in the City of Manila.

(Sgd.) CONCEPCION RAMOS DIPUSOY

Signed in the Presence of:

1. (Sgd.) CONSOLACION L. RAMOS

2. (Sgd.) SOCORRO L. RAMOS

Subscribed and sworn to before me this 16th day of August, 1948, in the City of Manila. Affiant have exhibited her residence certificate No. A-3115097, issued at Balayan, Batangas, on February 26, 1948.

(Sgd.) ARTEMIO ABAYA Notary Public

My commission expires on December 31,1948

Concepcion Ramos died on August 19, 1948, leaving a will dated January 7, 1927 admitted to probate on October 4, 1948, in which she ordered that the credits due to her be distributed among the children of the deceased Antonino Ramos, namely, Consolacion, Ramon, Socorro and Cirila.

One year before she died, Concepcion Ramos filed with the War Damage Commission a claim which was identified as No. 411773. On August 31, 1948, the Commission issued check No. 348444, in the amount of P501.62, payable to the deceased Concepcion Ramos. This check was returned to the Commission and substituted by the latter which check No. 564614, on November 10, 1948, for the same amount, but payable to Benigno A. Caoibes, who had presented to said entity Annexes "A" and "B", above mentioned, in order to exchange the first check No. 564614, which he cashed for himself.

Annexes "A" and "B" were presented to the Commission by Caoibes after the death of Concepcion. The administratrix, Consolacion L. Ramos, the appellant herein, discovered the collection made by Caoibes when she saw the note "previous payment" which appeared in the account sent to her by the Commission on October 13, 1950. She filed a motion with the court asking that Caoibes be ordered to deposit the sum of P501.62 with the clerk of court. Caoibes answered the motion admitting that after the death of Concepcion, he presented Annexes "A"

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and "B" to the Commission and received in cash the sum of P501.62, amount of the second check, above mentioned, but stating that he was willing to deliver to the clerk the sum of P250.81. He contended that, by virtue of Annex "A", and Annex "B", he had the right to retain, for himself, half of the sum of P501.62.

The court below issued the following order:

Considering the motion of the administratrix praying that Atty. Benigno A. Caoibes turn over the amount of P510.62, representing war damage claim, to the office of the Clerk of this Court, and the answer of Atty. Caoibes to the said motion and this Court having had the opportunity to personally confer with the parties and Atty. Caoibes being agreeable to turn over the amount of P250.81 to the Clerk of this Court in final settlement of this matter — it is ordered that the said Atty. Caoibes deposit the said amount to be at the disposal of the administratrix and the other parties in this intestate proceedings. With this order, the matter before this Court is deemed closed.

SO ORDERED

Batangas, Batangas, June 15, 1951

(Sgd.) E. SORIANO Judge

On July 3, 1951, the administratrix filed a motion for reconsideration, which was denied by the order of the court dated July 12, 1951. (In the printed Record on Appeal the date appears to be July 12, 1950, but it is evidently a mistake and it should be July 12, 1951.)

We will now proceed to consider the two documents.

Annex A is only a power of attorney. Caoibes, as agent, had the obligation to deliver the amount collected by virtue of said power to his principal, Concepcion, or, after her death, to the administratrix of her estate, Consolacion. There is

absolutely no cession of rights made in favor of Caoibes in Annex "A", and under Article 1711 of the old Civil Code (which was in force at the time of the transaction), the contract of agency is presumed to be gratuitous, unless the agent is a professional agent. There is no proof that Caoibes was such. Furthermore, according to Article 1732 of said Code, an agency is terminated, among other causes, by the death of the principal or of the agent. When Caoibes made use of the power of attorney, his principal, Concepcion was already dead.

Coming now to Annex "B", the alleged document of donation, it should be noted that it is not a donation of real but of personal property and is governed by article 632 of the old Civil Code, which reads as follows:

Donations of personal property may be made verbally or in writing.

Verbal donation requires the simultaneous delivery of the gift. In the absence of this requisite the donation shall produce no effect, unless made in writing and accepted in the same form.

The alleged donation was made in writing but it has not been accepted in the same form, and consequently, has no validity. It cannot be considered a donation upon valuable consideration, for no services nor any valuable consideration had passed from the donees to the donor. The mere fact that Caoibes collected the claim from the War Damage Commission is not such a service as to require compensation. Caoibes did not even prepare the claim.

The court below in its order of June 15, 1951, said that it "having had the opportunity to personally confer with the parties and Attorney Caoibes being agreeable to turn over the amount of P250.81 to the Clerk of this Court in final settlement of this matter — it is ordered that the said Atty. Caoibes deposit the amount of P250.81 with the Clerk of this Court, the said amount to be at the disposal of the administratrix and the other parties in these intestate proceedings. With this order, the matter before the administratrix never consented to the reduction of the claim.

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In view of the foregoing, the order appealed from is hereby reversed and Benigno A. Caoibes is ordered to deposit with the Clerk of Court of Batangas the sum of P501.62 to be at the disposal of the administratrix in her capacity as such, without pronouncement as to costs. So ordered.

Paras, C.J., Pablo, Bengzon, Padilla, Montemayor, Reyes, Bautista Angelo, Labrador, Concepcion, and Diokno, JJ., concur.

Republic of the PhilippinesSUPREME COURTManila

FIRST DIVISION

G.R. No. 129577-80 February 15, 2000

PEOPLE OF THE PHILIPPINES, plaintiff-appellee, vs.BULU CHOWDURY, accused-appellant.

PUNO, J.:

In November 1995, Bulu Chowduly and Josephine Ong were charged before the Regional Trial Court of Manila with the crime of illegal recruitment in large scale committed as follows:

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That sometime between the period from August 1994 to October 1994 in the City of Manila, Philippines and within the jurisdiction of this Honorable Court, the above-named accused, representing themselves to have the capacity to contract, enlist and transport workers for employment abroad, conspiring, confederating and mutually helping one another, did then and there willfully, unlawfully and feloniously recruit the herein complainants: Estrella B. Calleja, Melvin C. Miranda and Aser S. Sasis, individually or as a group for employment in Korea without first obtaining the required license and/or authority from the Philippine Overseas Employment Administration.1

They were likewise charged with three counts of estafa committed against private complainants.2 The State Prosecutor, however, later dismissed the estafa charges against Chowdury3 and filed an amended information indicting only Ong for the offense.4

Chowdury was arraigned on April 16, 1996 while Ong remained at large. He pleaded "not guilty" to the charge of illegal recruitment in large scale.5

Trial ensued.

The prosecution presented four witnesses: private complainants Aser Sasis, Estrella Calleja and Melvin Miranda, and Labor Employment Officer Abbelyn Caguitla.

Sasis testified that he first met Chowdury in August 1994 when he applied with Craftrade Overseas Developers (Craftrade) for employment as factory worker in South Korea. Chowdury, a consultant of Craftrade, conducted the interview. During the interview, Chowdury informed him about the requirements for employment. He told him to submit his passport, NBI clearance, passport size picture and medical certificate. He also required him to undergo a seminar. He advised him that placement would be on a first-come-first-serve basis and urged him to complete the requirements immediately. Sasis was also charged a processing fee of P25,000.00. Sasis completed all the requirements in September 1994. He also paid a total amount of P16,000.00 to Craftrade as processing fee. All payments

were received by Ong for which she issued three receipts.6 Chowdury then processed his papers and convinced him to complete his payment.7

Sasis further said that he went to the office of Craftrade three times to follow up his application but he was always told to return some other day. In one of his visits to Craftrade's office, he was informed that he would no longer be deployed for employment abroad. This prompted him to withdraw his payment but he could no longer find Chowdury. After two unsuccessful attempts to contact him, he decided to file with the Philippine Overseas Employment Administration (POEA) a case for illegal recruitment against Chowdury. Upon verification with the POEA, he learned that Craftrade's license had already expired and has not been renewed and that Chowdury, in his personal capacity, was not a licensed recruiter.8

Calleja testified that in June 1994, she applied with Craftrade for employment as factory worker in South Korea. She was interviewed by Chowdury. During the interview, he asked questions regarding her marital status, her age and her province. Toward the end of the interview, Chowdury told her that she would be working in a factory in Korea. He required her to submit her passport, NBI clearance, ID pictures, medical certificate and birth certificate. He also obliged her to attend a seminar on overseas employment. After she submitted all the documentary requirements, Chowdury required her to pay P20,000.00 as placement fee. Calleja made the payment on August 11, 1994 to Ong for which she was issued a receipt.9 Chowdury assured her that she would be able to leave on the first week of September but it proved to be an empty promise. Calleja was not able to leave despite several follow-ups. Thus, she went to the POEA where she discovered that Craftrade's license had already expired. She tried to withdraw her money from Craftrade to no avail. Calleja filed a complaint for illegal recruitment against Chowdury upon advice of POEA's legal counsel.10

Miranda testified that in September 1994, his cousin accompanied him to the office of Craftrade in Ermita, Manila and introduced him to Chowdury who presented himself as consultant and interviewer. Chowdury required him to fill out a bio-data sheet before conducting the interview. Chowdury told Miranda during the interview that he would send him to Korea for employment as factory worker. Then he asked

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him to submit the following documents: passport, passport size picture, NBI clearance and medical certificate. After he complied with the requirements, he was advised to wait for his visa and to pay P25,000.00 as processing fee. He paid the amount of P25,000.00 to Ong who issued receipts therefor.11 Craftrade, however, failed to deploy him. Hence, Miranda filed or complaint with the POEA against Chowdury for illegal recruitment.12

Labor Employment Officer Abbelyn Caguitla of the Licensing Branch of the POEA testified that she prepared a certification on June 9, 1996 that Chowdury and his co-accused, Ong, were not, in their personal capacities, licensed recruiters nor were they connected with any licensed agency. She nonetheless stated that Craftrade was previously licensed to recruit workers for abroad which expired on December 15, 1993. It applied for renewal of its license but was only granted a temporary license effective December 16, 1993 until September 11, 1994. From September 11, 1994, the POEA granted Craftrade another temporary authority to process the expiring visas of overseas workers who have already been deployed. The POEA suspended Craftrade's temporary license on December 6, 1994.13

For his defense, Chowdury testified that he worked as interviewer at Craftrade from 1990 until 1994. His primary duty was to interview job applicants for abroad. As a mere employee, he only followed the instructions given by his superiors, Mr. Emmanuel Geslani, the agency's President and General Manager, and Mr. Utkal Chowdury, the agency's Managing Director. Chowdury admitted that he interviewed private complainants on different dates. Their office secretary handed him their bio-data and thereafter he led them to his room where he conducted the interviews. During the interviews, he had with him a form containing the qualifications for the job and he filled out this form based on the applicant's responses to his questions. He then submitted them to Mr. Utkal Chowdury who in turn evaluated his findings. He never received money from the applicants. He resigned from Craftrade on November 12, 1994.14

Another defense witness, Emelita Masangkay who worked at the Accreditation Branch of the POEA presented a list of the accredited principals of Craftrade

Overseas Developers15 and a list of processed workers of Craftrade Overseas Developers from 1988 to 1994.16

The trial court found Chowdury guilty beyond reasonable doubt of the crime of illegal recruitment in large scale. It sentenced him to life imprisonment and to pay a fine of P100,000.00. It further ordered him to pay Aser Sasis the amount of P16,000.00, Estrella Calleja, P20,000.00 and Melvin Miranda, P25,000.00. The dispositive portion of the decision reads:

WHEREFORE, in view of the foregoing considerations, the prosecution having proved the guilt of the accused Bulu Chowdury beyond reasonable doubt of the crime of Illegal Recruitment in large scale, he is hereby sentenced to suffer the penalty of life imprisonment and a fine of P100,000.00 under Art. 39 (b) of the New Labor Code of the Philippines. The accused is ordered to pay the complainants Aser Sasis the amount of P16,000.00; Estrella Calleja the amount of P20,000.00; Melvin Miranda the amount of P25,000.00.17

Chowdury appealed.

The elements of illegal recruitment in large scale are:

(1) The accused undertook any recruitment activity defined under Article 13 (b) or any prohibited practice enumerated under Article 34 of the Labor Code;

(2) He did not have the license or authority to lawfully engage in the recruitment and placement of workers; and

(3) He committed the same against three or more persons, individually or as a group.18

The last paragraph of Section 6 of Republic Act (RA) 804219 states who shall be held liable for the offense, thus:

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The persons criminally liable for the above offenses are the principals, accomplices and accessories. In case of juridical persons, the officers having control, management or direction of their business shall be liable.

The Revised Penal Code which supplements the law on illegal recruitment20 defines who are the principals, accomplices and accessories. The principals are: (1) those who take a direct part in the execution of the act; (2) those who directly force or induce others to commit it; and (3) those who cooperate in the commission of the offense by another act without which it would not have been accomplished.21 The accomplices are those persons who may not be considered as principal as defined in Section 17 of the Revised Penal Code but cooperate in the execution of the offense by previous or simultaneous act.22 The accessories are those who, having knowledge of the commission of the crime, and without having participated therein, either as principals or accomplices, take part subsequent to its commission in any of the following manner: (1) by profiting themselves or assisting the offenders to profit by the effects of the crime; (2) by concealing or destroying the body of the crime, or the effects or instruments thereof, in order to prevent its discovery; and (3) by harboring, concealing, or assisting in the escape of the principal of the crime, provided the accessory acts with abuse of his public functions or whenever the author of the crime is guilty of treason, parricide, murder, or an attempt at the life of the chief executive, or is known to be habitually guilty of some other crime.23

Citing the second sentence of the last paragraph of Section 6 of RA 8042, accused-appellant contends that he may not be held liable for the offense as he was merely an employee of Craftrade and he only performed the tasks assigned to him by his superiors. He argues that the ones who should be held liable for the offense are the officers having control, management and direction of the agency.

As stated in the first sentence of Section 6 of RA 8042, the persons who may be held liable for illegal recruitment are the principals, accomplices and accessories. An employee of a company or corporation engaged in illegal recruitment may be held liable as principal, together with his employer,24 if it is shown that he actively and consciously participated in illegal recruitment.25 It has been held that the

existence of the corporate entity does not shield from prosecution the corporate agent who knowingly and intentionally causes the corporation to commit a crime. The corporation obviously acts, and can act, only by and through its human agents, and it is their conduct which the law must deter, The employee or agent of a corporation engaged in unlawful business naturally aids and abets in the carrying on of such business and will be prosecuted as principal if with knowledge of the business, its purpose and effect, he consciously contributes his efforts to its conduct and promotion, however slight his contribution may be.26 The law of agency, as applied in civil cases, has no application in criminal cases, and no man can escape punishment when he participates in the commission of a crime upon the ground that he simply acted as an agent of any party.27 The culpability of the employee therefore hinges on his knowledge of the offense and his active participation in its commission. Where it is shown that the employee was merely acting under the direction of his superiors and was unaware that his acts constituted a crime, he may not be held criminally liable for an act done for and in behalf of his employer.28

The fundamental issue in this case, therefore, is whether accused-appellant knowingly and intentionally participated in the commission of the crime charged.

We find that he did not.

Evidence shows that accused-appellant interviewed private complainants in the months of June, August and September in 1994 at Craftrade's office. At that time, he was employed as interviewer of Craftrade which was then operating under a temporary authority given by the POEA pending renewal of its license.29 The temporary license included the authority to recruit workers.30 He was convicted based on the fact that he was not registered with the POEA as employee of Craftrade. Neither was he, in his personal capacity, licensed to recruit overseas workers. Section 10 Rule II Book II of the Rules and Regulation Governing Overseas Employment (1991) requires that every change, termination or appointment of officers, representatives and personnel of licensed agencies be registered with the POEA. Agents or representatives appointed by a licensed recruitment agency whose appointments are not previously approved by the POEA

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are considered "non-licensee" or "non-holder of authority" and therefore not authorized to engage in recruitment activity.31

Upon examination of the records, however, we find that the prosecution failed to prove that accused-appellant was aware of Craftrade's failure to register his name with the POEA and that he actively engaged in recruitment despite this knowledge. The obligation to register its personnel with the POEA belongs to the officers of the agency.32 A mere employee of the agency cannot be expected to know the legal requirements for its operation. The evidence at hand shows that accused-appellant carried out his duties as interviewer of Craftrade believing that the agency was duly licensed by the POEA and he, in turn, was duly authorized by his agency to deal with the applicants in its behalf. Accused-appellant in fact confined his actions to his job description. He merely interviewed the applicants and informed them of the requirements for deployment but he never received money from them. Their payments were received by the agency's cashier, Josephine Ong. Furthermore, he performed his tasks under the supervision of its president and managing director. Hence, we hold that the prosecution failed to prove beyond reasonable doubt accused-appellant's conscious and active participation in the commission of the crime of illegal recruitment. His conviction, therefore, is without basis.

This is not to say that private complainants are left with no remedy for the wrong committed against them. The Department of Justice may still file a complaint against the officers having control, management or direction of the business of Craftrade Overseas Developers (Craftrade), so long as the offense has not yet prescribed. Illegal recruitment is a crime of economic sabotage which need to be curbed by the strong arm of the law. It is important, however, to stress that the government's action must be directed to the real offenders, those who perpetrate the crime and benefit from it.

IN VIEW WHEREOF, the assailed decision of the Regional Trial Court is REVERSED and SET ASIDE. Accused-appellant is hereby ACQUITTED. The Director of the Bureau of Corrections is ordered to RELEASE accused-appellant unless he is being held for some other cause, and to REPORT to this Court compliance with this order within ten (10) days from receipt of this decision. Let a

copy of this Decision be furnished the Secretary of the Department of Justice for his information and appropriate action.1âwphi1.nêt

SO ORDERED.

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Republic of the PhilippinesSUPREME COURTManila

THIRD DIVISION

G.R. No. 158907 February 12, 2007

EDUARDO B. OLAGUER, Petitioner, vs.EMILIO PURUGGANAN, JR. AND RAUL LOCSIN, Respondents.

D E C I S I O N

CHICO-NAZARIO, J.:

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

The parties presented conflicting accounts of the facts.

EDUARDO B. OLAGUER’S VERSION

Petitioner Eduardo B. Olaguer alleges that he was the owner of 60,000 shares of stock of Businessday Corporation (Businessday) with a total par value of P600,000.00, with Certificates of Stock No. 005, No. 028, No. 034, No. 070, and No. 100.2 At the time he was employed with the corporation as Executive Vice-President of Businessday, and President of Businessday Information Systems and Services and of Businessday Marketing Corporation, petitioner, together with respondent Raul Locsin (Locsin) and Enrique Joaquin (Joaquin), was active in the political opposition against the Marcos dictatorship.3 Anticipating the possibility that petitioner would be arrested and detained by the Marcos military, Locsin, Joaquin, and Hector Holifeña had an unwritten agreement that, in the event that petitioner was arrested, they would support the petitioner’s family by the continued payment of his salary.4 Petitioner also executed a Special Power of Attorney (SPA), on 26 May 1979, appointing as his attorneys-in-fact Locsin, Joaquin and Hofileña for the purpose of selling or transferring petitioner’s shares of stock with Businessday.

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During the trial, petitioner testified that he agreed to execute the SPA in order to cancel his shares of stock, even before they are sold, for the purpose of concealing that he was a stockholder of Businessday, in the event of a military crackdown against the opposition.5 The parties acknowledged the SPA before respondent Emilio Purugganan, Jr., who was then the Corporate Secretary of Businessday, and at the same time, a notary public for Quezon City.6

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

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

During the trial, petitioner also agreed to stipulate that from 1980 to 1982, Businessday made regular deposits, each amounting to P10,000.00, to the Metropolitan Bank and Trust Company accounts of Manuel and Genaro Pantig, petitioner’s in-laws. The deposits were made on every 15th and 30th of the month.9 Petitioner alleged that these funds consisted of his monthly salary, which Businessday agreed to continue paying after his arrest for the financial support of his family.10 After receiving a total of P600,000.00, the payments stopped. Thereafter, respondent Locsin and Fernando went to ask petitioner to endorse and deliver the rest of his stock certificates to respondent Locsin, but petitioner refused. 11

On 16 January 1986, petitioner was finally released from detention. He then discovered that he was no longer registered as stockholder of Businessday in its corporate books. He also learned that Purugganan, as the Corporate Secretary of Businessday, had already recorded the transfer of shares in favor of respondent Locsin, while petitioner was detained. When petitioner demanded that respondents restore to him full ownership of his shares of stock, they refused to do so. On 29 July 1986, petitioner filed a Complaint before the trial court against respondents Purugganan and Locsin to declare as illegal the sale of the shares of stock, to restore to the petitioner full ownership of the shares, and payment of damages.12

RESPONDENT RAUL LOCSIN’S VERSION

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

When petitioner was detained, respondent Locsin tried to sell petitioner’s shares, but nobody wanted to buy them. Petitioner’s reputation as an oppositionist resulted in the poor financial condition of Businessday and discouraged any buyers for the shares of stock.16 In view of petitioner’s previous instructions, respondent Locsin decided to buy the shares himself.1awphi1.net Although the capital deficiency suffered by Businessday caused the book value of the shares to plummet below par value, respondent Locsin, nevertheless, bought the shares at par value.17 However, he had to borrow from Businessday the funds he used in purchasing the shares from petitioner, and had to pay the petitioner in installments of P10,000.00 every 15th and 30th of each month.18

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The trial court in its Decision, dated 26 July 1995, dismissed the Complaint filed by the petitioner. It ruled that the sale of shares between petitioner and respondent Locsin was valid. The trial court concluded that petitioner had intended to sell the shares of stock to anyone, including respondent Locsin, in order to provide for the needs of his family should he be jailed or forced to go underground; and that the SPA drafted by the petitioner empowered respondent Locsin, and two other agents, to sell the shares for such price and under such terms and conditions that the agents may deem proper. It further found that petitioner consented to have respondent Locsin buy the shares himself. It also ruled that petitioner, through his wife, received from respondent Locsin the amount ofP600,000.00 as payment for the shares of stock.19 The dispositive part of the trial court’s Decision reads:

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

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

On appeal, the Court of Appeals affirmed the Decision of the trial court that there was a perfected contract of sale.21 It further ruled that granting that there was no perfected contract of sale, petitioner, nevertheless, ratified the sale to respondent Locsin by his receipt of the purchase price, and his failure to raise any protest over the said sale.22 The Court of Appeals refused to credit the petitioner’s allegation that the money his wife received constituted his salary from Businessday since the amount he received as his salary, P24,000.00 per month, did not correspond to the amount he received during his detention, P20,000.00 per month (deposits of P10,000.00 on every 15th and 30th of each month in the accounts of the petitioner’s in-laws). On the other hand, the total amount received, P600,000.00, corresponds to the aggregate par value of petitioner’s shares in Businessday. Moreover, the financial condition of Businessday prevented it from granting any form of financial assistance in favor of the petitioner, who was placed in an indefinite leave of absence, and, therefore, not entitled to any salary. 23

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

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

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

I.

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

II.

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

III.

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

IV.

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

V.

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

The petition is without merit.

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

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

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

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

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

ART. 38 Minority, insanity or imbecility, the state of being a deaf-mute, prodigality and civil interdiction are mere restrictions on capacity to act, and do not exempt the

incapacitated person, from certain obligations, as when the latter arise from his acts or from property relations, such as easements.

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

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

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

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becomes operative. In such cases, not only would he be prevented from appointing an agent, he himself would be unable to administer his property.

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

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

Secondly, petitioner argued that the records failed to show that he gave his consent to the sale of the shares to respondent Locsin for the price of P600,000.00. This argument is unsustainable. Petitioner received from respondent Locsin, through his wife and in-laws, the installment payments for a total of P600,000.00 from 1980 to 1982, without any protest or complaint. It was only four years after 1982 when petitioner demanded the return of the shares. The petitioner’s claim that he did not instruct respondent Locsin to deposit the money to

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

In addition, petitioner made two inconsistent statements when he alleged that (1) respondent Locsin had not asked the petitioner to endorse and deliver the shares of stock, and (2) when Rebecca Fernando asked the petitioner to endorse and deliver the certificates of stock, but petitioner refused and even became upset.33 In either case, both statements only prove that petitioner refused to honor his part as seller of the shares, even after receiving payments from the buyer. Had the petitioner not known of or given his consent to the sale, he would have given back the payments as soon as Fernando asked him to endorse and deliver the certificates of stock, an incident which unequivocally confirmed that the funds he received, through his wife and his in-laws, were intended as payment for his shares of stocks. Instead, petitioner held on to the proceeds of the sale after it had been made clear to him that respondent Locsin had considered the P600,000.00 as payment for the shares, and asked petitioner, through Fernando, to endorse and deliver the stock certificates for cancellation.

As regards the third issue, petitioner’s allegation that the installment payments he was adjudged to have received for the shares were actually salaries which Businessday promised to pay him during his detention is unsupported and implausible. Petitioner received P20,000.00 per month through his in-laws; this amount does not correspond to his monthly salary at P24,000.00.34 Nor does the amount received correspond to the amount which Businessday was supposed to

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be obliged to pay petitioner, which was only P45,000.00 to P60,000.00 per annum.35 Secondly, the petitioner’s wife did not receive funds from respondent Locsin or Businessday for the entire duration of petitioner’s detention. Instead, when the total amount received by the petitioner reached the aggregate amount of his shares at par value -- P600,000.00 -- the payments stopped. Petitioner even testified that when respondent Locsin denied knowing the petitioner soon after his arrest, he believed respondent Locsin’s commitment to pay his salaries during his detention to be nothing more than lip-service.36

Granting that petitioner was able to prove his allegations, such an act of gratuity, on the part of Businessday in favor of petitioner, would be void. An arrangement whereby petitioner will receive "salaries" for work he will not perform, which is not a demandable debt since petitioner was on an extended leave of absence, constitutes a donation under Article 72637 of the Civil Code. Under Article 748 of the Civil Code, if the value of the personal property donated exceeds P5,000.00, the donation and the acceptance shall have to be made in writing. Otherwise, the donation will be void. In the present case, petitioner admitted in his testimony38 that such arrangement was not made in writing and, hence, is void.

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

Petitioner raised as his fourth issue that granting that there was a sale, Businessday, and not respondent Locsin, was the party to the transaction. The curious facts that the payments were received on the 15th and 30th of each month and that the payor named in the checks was Businessday, were adequately explained by respondent Locsin. Respondent Locsin had obtained cash advances from the company, paid to him on the 15th and 30th of the month, so that he can

pay petitioner for the shares. To support his claim, he presented Businessday’s financial records and the testimony of Leo Atienza, the Company’s Accounting Manager. When asked why the term "shares of stock" was used for the entries, instead of "cash advances," Atienza explained that the term "shares of stock" was more specific rather than the broader phrase "cash advances."39 More to the point, had the entries been for "shares of stock," the issuance of shares should have been reflected in the stock and transfer books of Businessday, which the petitioner presented as evidence. Instead the stock and transfer books reveal that the increase in respondent Locsin’s shares was a result of the cancellation and transfer of petitioner’s shares in favor of respondent Locsin.

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

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

x x x x

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

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

In the present case, the parties have conflicting allegations. While respondent Locsin averred that petitioner had permitted him to purchase petitioner’s shares, petitioner vehemently denies having known of the transaction. However, records

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

From the foregoing, it is clear that petitioner knew of the transaction, agreed to the purchase price of P600,000.00 for the shares of stock, and had in fact facilitated the implementation of the terms of the payment by providing respondent Locsin, through petitioner’s wife, with the information on the bank accounts of his in-laws. Petitioner’s wife and his son even provided receipts for the payments that were made to them by respondent Locsin,43 a practice that bespeaks of an onerous transaction and not an act of gratuity.

Lastly, petitioner claims that the cancellation of the shares and the subsequent transfer thereof were fraudulent, and, therefore,

illegal. In the present case, the shares were transferred in the name of the buyer, respondent Locsin, without the petitioner

delivering to the buyer his certificates of stock. Section 63 of the Corporation Code provides that:

Sec.63. Certificate of stock and transfer of shares.— xxx Shares of stock so issued are personal property and may be transferred

by delivery of the certificate or certificates indorsed by the owner or his attorney-in-fact or other person legally authorized to make

the transfer. No transfer, however, shall be valid, except as between the parties, until the transfer is recorded in the books of the

corporation showing the names of the parties to the transaction, the date of the transfer, the number of the certificate or certificates

and the number of shares transferred. (Emphasis provided.)

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

prevent the fraudulent transfer of shares of stock. However, this rule cannot be applied in the present case without causing the

injustice sought to be avoided. As had been amply demonstrated, there was a valid sale of stocks. Petitioner’s failure to deliver the

shares to their rightful buyer is a breach of his duty as a seller, which he cannot use to unjustly profit himself by denying the validity

of such sale. Thus, while the manner of the cancellation of petitioner’s certificates of stock and the issuance of the new certificates

in favor of respondent Locsin was highly irregular, we must, nonetheless, declare the validity of the sale between the parties.

Neither does this irregularity prove that the transfer was fraudulent. In his testimony, petitioner admitted that they had intended to

conceal his being a stockholder of Businessday.44 The cancellation of his name from the stock and transfer book, even before the

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

Locsin had been done with his consent.

IN VIEW OF THE FOREGOING, the instant Petition is DENIED. This Court AFFIRMS the assailed Decision of the Court of

Appeals, promulgated on 30 June 2003, affirming the validity of the sale of the shares of stock in favor of respondent Locsin. No

costs.

SO ORDERED.

Republic of the PhilippinesSUPREME COURT

Manila

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EN BANC

April 7, 1924

In re H. V. BAMBERGER

H. V. Bamberger in his own behalf.Attorney-General Villa-Real for the Government.

OSTRAND, J.:

At the instance of the Attorney-General, disbarment proceedings have been instituted against Attorney H. V. Bamberger for alleged malpractice in his profession. The matter has been investigated by the provincial fiscal of Iloilo, aided by an assistant attorney of the Bureau of Justice, and after receiving considerable testimony and other evidence, and after hearing the respondent, the fiscal summarizes the facts found as follows:

First. That Mr. H. V. Bamberger was attorney for the plaintiff in the case No. 4076 of the Court of First Instance of Iloilo "S. M. Berger, plaintiff vs. Enrique de Valera, defendant" regarding a certain sum of money.

Second. That Mr. Bemberger took possession of the personal property attached by the plaintiff in said case, as well as other personal property not attached, and the respondent disposed of a certain amount of steel bars which the defendant Enrique de Valera had deposited with the Chairman King Chio.

Third. That Mr. Bamberger, as he admitted in his answer and statement, has disposed of a lot 83 tins of canned peas at the price of 10 centavos per tin and one case of catchup at the price P10, without due authorization.

Fourth. That while all the merchandise was in the possession of Mr. H. V. Bamberger, the respondent, he collected and received the amount of P2,178.82 as he admitted, either from debtor of Enrique de Valera, especially the Chinaman King Chio, or for having disposed of some merchandise. It is also an admitted fact by him that he is accountable fro P1,187 to S. M. Berger & Co.

Fifth. That Mr. Bamberger has, on various occasions, required either by Mr. Block, in the name of S. M. Berger & Co., or by Messrs. S. M. Berger & Co.

themselves, to render an immediate accounting which he has disregarded without any reasonable cause.

Sixth. That Mr. H. V. Bamberger, since the civil case No. 4076 above referred to has been decided, on July 22, 1921, and completely determinated as per the stipulation and agreement, Exhibit T and the answer of the defendant admitting all and every one of the allegations in the amended complaint of the plaintiff, has not made any effort to render an accounting to S. M. Berger nor has he been willing to send or deliver to his client the money collected at any time.

Seventh. That the excuse of the respondent that he could not render an accounting to his client because Mr. Cedrum did not give him a list of the merchandise taken by the latter and because Mr. Berger took with him the receipt of King Chio, Exhibit H, and certain notes in connection with King Chio's account, is not admissible:

(a) Because Mr. Cendrum declared that he furnished Mr. Bemberger with the list in question, and the respondent made a note in his book of the merchandise turned over.

(b) Because the evidence of the complaint shows clearly that Mr. Bamberger never asked Mr. Berger for Exhibit H and other notes he needed to render his account and if Mr. Berger [Bamberger] had written to Mr. Berger for the papers he needed for his accounting, Mr. Berger would have, of course, given them to him with pleasure.

(c) Because if we were true that he could not give a complete accounting in regard to King Chio's account without such papers and notes, it is not understood why he prepared and acknowledge before a notary the document Exhibit 2, which is an assignment of the account owed to King Chio by the Talisay-Silay Milling Co. amounting to P5,390. This document was executed on April 25, 1922.

Upon the facts stated the fiscal recommends that the respondent be suspended from the practice of law.

The findings quoted are amply supported by the evidence. Whether the respondent, after deducting proper attorney's fees, owes his client any considerable sum of money, we need not here decide; that must be determined an another and different proceeding. But attorneys are bound to promptly account to their clients for money or property received by

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them as such, and the fact that an attorney has a lien for fees on money in his hands does not relieve him from liability. (6 C. J., 693.) Notwithstanding repeated demands on the part of his client, the defendant has for several years failed to render an accounting of the money received by him on behalf of his client and the excuses offered for his failure to do so are so inadequate as to merit no consideration. The respondent is clearly guilty of professional misconduct in falling to account to S. M. Berger & Co. for money received by him as attorney for the latter.

It is therefore ordered that H. V. Bamberger be and he hereby is suspended from his office of lawyer for the period of six months beginning with the date upon which he is notified of this order.

Araullo, C. J., Johnson, Street, Avanceña, Johns and Romualdez, JJ., concur.

Republic of the PhilippinesSUPREME COURTManila

EN BANC

G.R. No. L-30573 October 29, 1971

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VICENTE M. DOMINGO, represented by his heirs, ANTONINA RAYMUNDO VDA. DE DOMINGO, RICARDO, CESAR, AMELIA, VICENTE JR., SALVADOR, IRENE and JOSELITO, all surnamed DOMINGO, petitioners-appellants, vs.GREGORIO M. DOMINGO, respondent-appellee, TEOFILO P. PURISIMA, intervenor-respondent.

Teofilo Leonin for petitioners-appellants.

Osorio, Osorio & Osorio for respondent-appellee.

Teofilo P. Purisima in his own behalf as intervenor-respondent.

MAKASIAR, J.:

Petitioner-appellant Vicente M. Domingo, now deceased and represented by his heirs, Antonina Raymundo vda. de Domingo, Ricardo, Cesar, Amelia, Vicente Jr., Salvacion, Irene and Joselito, all surnamed Domingo, sought the reversal of the majority decision dated, March 12, 1969 of the Special Division of Five of the Court of Appeals affirming the judgment of the trial court, which sentenced the said Vicente M. Domingo to pay Gregorio M. Domingo P2,307.50 and the intervenor Teofilo P. Purisima P2,607.50 with interest on both amounts from the date of the filing of the complaint, to pay Gregorio Domingo P1,000.00 as moral and exemplary damages and P500.00 as attorney's fees plus costs.

The following facts were found to be established by the majority of the Special Division of Five of the Court of Appeals:

In a document Exhibit "A" executed on June 2, 1956, Vicente M. Domingo granted Gregorio Domingo, a real estate broker, the exclusive agency to sell his lot No. 883 of Piedad Estate with an area of about 88,477 square meters at the rate of P2.00 per square meter (or for P176,954.00) with a commission of 5% on the total price, if the property is sold by Vicente or by anyone else during the 30-day

duration of the agency or if the property is sold by Vicente within three months from the termination of the agency to apurchaser to whom it was submitted by Gregorio during the continuance of the agency with notice to Vicente. The said agency contract was in triplicate, one copy was given to Vicente, while the original and another copy were retained by Gregorio.

On June 3, 1956, Gregorio authorized the intervenor Teofilo P. Purisima to look for a buyer, promising him one-half of the 5% commission.

Thereafter, Teofilo Purisima introduced Oscar de Leon to Gregorio as a prospective buyer.

Oscar de Leon submitted a written offer which was very much lower than the price of P2.00 per square meter (Exhibit "B"). Vicente directed Gregorio to tell Oscar de Leon to raise his offer. After several conferences between Gregorio and Oscar de Leon, the latter raised his offer to P109,000.00 on June 20, 1956 as evidenced by Exhibit "C", to which Vicente agreed by signing Exhibit "C". Upon demand of Vicente, Oscar de Leon issued to him a check in the amount of P1,000.00 as earnest money, after which Vicente advanced to Gregorio the sum of P300.00. Oscar de Leon confirmed his former offer to pay for the property at P1.20 per square meter in another letter, Exhibit "D". Subsequently, Vicente asked for an additional amount of P1,000.00 as earnest money, which Oscar de Leon promised to deliver to him. Thereafter, Exhibit "C" was amended to the effect that Oscar de Leon will vacate on or about September 15, 1956 his house and lot at Denver Street, Quezon City which is part of the purchase price. It was again amended to the effect that Oscar will vacate his house and lot on December 1, 1956, because his wife was on the family way and Vicente could stay in lot No. 883 of Piedad Estate until June 1, 1957, in a document dated June 30, 1956 (the year 1957 therein is a mere typographical error) and marked Exhibit "D". Pursuant to his promise to Gregorio, Oscar gave him as a gift or propina the sum of One Thousand Pesos (P1,000.00) for succeeding in persuading Vicente to sell his lot at P1.20 per square meter or a total in round figure of One Hundred Nine Thousand Pesos (P109,000.00). This gift of One Thousand Pesos (P1,000.00) was not disclosed by Gregorio to Vicente. Neither did Oscar pay Vicente the additional

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amount of One Thousand Pesos (P1,000.00) by way of earnest money. In the deed of sale was not executed on August 1, 1956 as stipulated in Exhibit "C" nor on August 15, 1956 as extended by Vicente, Oscar told Gregorio that he did not receive his money from his brother in the United States, for which reason he was giving up the negotiation including the amount of One Thousand Pesos (P1,000.00) given as earnest money to Vicente and the One Thousand Pesos (P1,000.00) given to Gregorio as propina or gift. When Oscar did not see him after several weeks, Gregorio sensed something fishy. So, he went to Vicente and read a portion of Exhibit "A" marked habit "A-1" to the effect that Vicente was still committed to pay him 5% commission, if the sale is consummated within three months after the expiration of the 30-day period of the exclusive agency in his favor from the execution of the agency contract on June 2, 1956 to a purchaser brought by Gregorio to Vicente during the said 30-day period. Vicente grabbed the original of Exhibit "A" and tore it to pieces. Gregorio held his peace, not wanting to antagonize Vicente further, because he had still duplicate of Exhibit "A". From his meeting with Vicente, Gregorio proceeded to the office of the Register of Deeds of Quezon City, where he discovered Exhibit "G' deed of sale executed on September 17, 1956 by Amparo Diaz, wife of Oscar de Leon, over their house and lot No. 40 Denver Street, Cubao, Quezon City, in favor Vicente as down payment by Oscar de Leon on the purchase price of Vicente's lot No. 883 of Piedad Estate. Upon thus learning that Vicente sold his property to the same buyer, Oscar de Leon and his wife, he demanded in writting payment of his commission on the sale price of One Hundred Nine Thousand Pesos (P109,000.00), Exhibit "H". He also conferred with Oscar de Leon, who told him that Vicente went to him and asked him to eliminate Gregorio in the transaction and that he would sell his property to him for One Hundred Four Thousand Pesos (P104,000.0 In Vicente's reply to Gregorio's letter, Exhibit "H", Vicente stated that Gregorio is not entitled to the 5% commission because he sold the property not to Gregorio's buyer, Oscar de Leon, but to another buyer, Amparo Diaz, wife of Oscar de Leon.

The Court of Appeals found from the evidence that Exhibit "A", the exclusive agency contract, is genuine; that Amparo Diaz, the vendee, being the wife of Oscar de Leon the sale by Vicente of his property is practically a sale to Oscar de

Leon since husband and wife have common or identical interests; that Gregorio and intervenor Teofilo Purisima were the efficient cause in the consummation of the sale in favor of the spouses Oscar de Leon and Amparo Diaz; that Oscar de Leon paid Gregorio the sum of One Thousand Pesos (P1,000.00) as "propina" or gift and not as additional earnest money to be given to the plaintiff, because Exhibit "66", Vicente's letter addressed to Oscar de Leon with respect to the additional earnest money, does not appear to have been answered by Oscar de Leon and therefore there is no writing or document supporting Oscar de Leon's testimony that he paid an additional earnest money of One Thousand Pesos (P1,000.00) to Gregorio for delivery to Vicente, unlike the first amount of One Thousand Pesos (P1,000.00) paid by Oscar de Leon to Vicente as earnest money, evidenced by the letter Exhibit "4"; and that Vicente did not even mention such additional earnest money in his two replies Exhibits "I" and "J" to Gregorio's letter of demand of the 5% commission.

The three issues in this appeal are (1) whether the failure on the part of Gregorio to disclose to Vicente the payment to him by Oscar de Leon of the amount of One Thousand Pesos (P1,000.00) as gift or "propina" for having persuaded Vicente to reduce the purchase price from P2.00 to P1.20 per square meter, so constitutes fraud as to cause a forfeiture of his commission on the sale price; (2) whether Vicente or Gregorio should be liable directly to the intervenor Teofilo Purisima for the latter's share in the expected commission of Gregorio by reason of the sale; and (3) whether the award of legal interest, moral and exemplary damages, attorney's fees and costs, was proper.

Unfortunately, the majority opinion penned by Justice Edilberto Soriano and concurred in by Justice Juan Enriquez did not touch on these issues which were extensively discussed by Justice Magno Gatmaitan in his dissenting opinion. However, Justice Esguerra, in his concurring opinion, affirmed that it does not constitute breach of trust or fraud on the part of the broker and regarded same as merely part of the whole process of bringing about the meeting of the minds of the seller and the purchaser and that the commitment from the prospect buyer that he would give a reward to Gregorio if he could effect better terms for him from the

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seller, independent of his legitimate commission, is not fraudulent, because the principal can reject the terms offered by the prospective buyer if he believes that such terms are onerous disadvantageous to him. On the other hand, Justice Gatmaitan, with whom Justice Antonio Cafizares corner held the view that such an act on the part of Gregorio was fraudulent and constituted a breach of trust, which should deprive him of his right to the commission.

The duties and liabilities of a broker to his employer are essentially those which an agent owes to his principal. 1

Consequently, the decisive legal provisions are in found Articles 1891 and 1909 of the New Civil Code.

Art. 1891. Every agent is bound to render an account of his transactions and to deliver to the principal whatever he may have received by virtue of the agency, even though it may not be owing to the principal.

Every stipulation exempting the agent from the obligation to render an account shall be void.

xxx xxx xxx

Art. 1909. The agent is responsible not only for fraud but also for negligence, which shall be judged with more less rigor by the courts, according to whether the agency was or was not for a compensation.

Article 1891 of the New Civil Code amends Article 17 of the old Spanish Civil Code which provides that:

Art. 1720. Every agent is bound to give an account of his transaction and to pay to the principal whatever he may have received by virtue of the agency, even though what he has received is not due to the principal.

The modification contained in the first paragraph Article 1891 consists in changing the phrase "to pay" to "to deliver", which latter term is more comprehensive than the former.

Paragraph 2 of Article 1891 is a new addition designed to stress the highest loyalty that is required to an agent — condemning as void any stipulation exempting the agent from the duty and liability imposed on him in paragraph one thereof.

Article 1909 of the New Civil Code is essentially a reinstatement of Article 1726 of the old Spanish Civil Code which reads thus:

Art. 1726. The agent is liable not only for fraud, but also for negligence, which shall be judged with more or less severity by the courts, according to whether the agency was gratuitous or for a price or reward.

The aforecited provisions demand the utmost good faith, fidelity, honesty, candor and fairness on the part of the agent, the real estate broker in this case, to his principal, the vendor. The law imposes upon the agent the absolute obligation to make a full disclosure or complete account to his principal of all his transactions and other material facts relevant to the agency, so much so that the law as amended does not countenance any stipulation exempting the agent from such an obligation and considers such an exemption as void. The duty of an agent is likened to that of a trustee. This is not a technical or arbitrary rule but a rule founded on the highest and truest principle of morality as well as of the strictest justice. 2

Hence, an agent who takes a secret profit in the nature of a bonus, gratuity or personal benefit from the vendee, without revealing the same to his principal, the vendor, is guilty of a breach of his loyalty to the principal and forfeits his right to collect the commission from his principal, even if the principal does not suffer any injury by reason of such breach of fidelity, or that he obtained better results or that the agency is a gratuitous one, or that usage or custom allows it; because the rule is to prevent the possibility of any wrong, not to remedy or repair an actual damage. 3 By taking such profit or bonus or gift or propina from the vendee, the

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agent thereby assumes a position wholly inconsistent with that of being an agent for hisprincipal, who has a right to treat him, insofar as his commission is concerned, as if no agency had existed. The fact that the principal may have been benefited by the valuable services of the said agent does not exculpate the agent who has only himself to blame for such a result by reason of his treachery or perfidy.

This Court has been consistent in the rigorous application of Article 1720 of the old Spanish Civil Code. Thus, for failure to deliver sums of money paid to him as an insurance agent for the account of his employer as required by said Article 1720, said insurance agent was convicted estafa. 4 An administrator of an estate was likewise under the same Article 1720 for failure to render an account of his administration to the heirs unless the heirs consented thereto or are estopped by having accepted the correctness of his account previously rendered. 5

Because of his responsibility under the aforecited article 1720, an agent is likewise liable for estafa for failure to deliver to his principal the total amount collected by him in behalf of his principal and cannot retain the commission pertaining to him by subtracting the same from his collections. 6

A lawyer is equally liable unnder said Article 1720 if he fails to deliver to his client all the money and property received by him for his client despite his attorney's lien. 7 The duty of a commission agent to render a full account his operations to his principal was reiterated in Duhart, etc. vs. Macias. 8

The American jurisprudence on this score is well-nigh unanimous.

Where a principal has paid an agent or broker a commission while ignorant of the fact that the latter has been unfaithful, the principal may recover back the commission paid, since an agent or broker who has been unfaithful is not entitled to any compensation.

xxx xxx xxx

In discussing the right of the principal to recover commissions retained by an unfaithful agent, the court in Little vs. Phipps (1911) 208 Mass. 331, 94 NE 260, 34 LRA (NS) 1046, said: "It is well settled that the agent is bound to exercise the utmost good faith in his dealings with his principal. As Lord Cairns said, this rule "is not a technical or arbitrary rule. It is a rule founded on the highest and truest principles, of morality." Parker vs. McKenna (1874) LR 10,Ch(Eng) 96,118 ... If the agent does not conduct himself with entire fidelity towards his principal, but is guilty of taking a secret profit or commission in regard the matter in which he is employed, he loses his right to compensation on the ground that he has taken a position wholly inconsistent with that of agent for his employer, and which gives his employer, upon discovering it, the right to treat him so far as compensation, at least, is concerned as if no agency had existed. This may operate to give to the principal the benefit of valuable services rendered by the agent, but the agent has only himself to blame for that result."

xxx xxx xxx

The intent with which the agent took a secret profit has been held immaterial where the agent has in fact entered into a relationship inconsistent with his agency, since the law condemns the corrupting tendency of the inconsistent relationship. Little vs. Phipps (1911) 94 NE 260. 9

As a general rule, it is a breach of good faith and loyalty to his principal for an agent, while the agency exists, so to deal with the subject matter thereof, or with information acquired during the course of the agency, as to make a profit out of it for himself in excess of his lawful compensation; and if he does so he may be held as a trustee and may be compelled to account to his principal for all profits, advantages, rights, or privileges acquired by him in such dealings, whether in performance or in violation of his duties, and be required to transfer them to his principal upon being reimbursed for his expenditures for the same, unless the principal has consented to or ratified the transaction knowing that benefit or profit would accrue or had accrued, to the agent, or unless with such knowledge he has allowed the agent so as to change his condition that he cannot be put in status quo. The application of this rule is not affected by the fact that the principal did not

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suffer any injury by reason of the agent's dealings or that he in fact obtained better results; nor is it affected by the fact that there is a usage or custom to the contrary or that the agency is a gratuitous one. (Emphasis applied.) 10

In the case at bar, defendant-appellee Gregorio Domingo as the broker, received a gift or propina in the amount of One Thousand Pesos (P1,000.00) from the prospective buyer Oscar de Leon, without the knowledge and consent of his principal, herein petitioner-appellant Vicente Domingo. His acceptance of said substantial monetary gift corrupted his duty to serve the interests only of his principal and undermined his loyalty to his principal, who gave him partial advance of Three Hundred Pesos (P300.00) on his commission. As a consequence, instead of exerting his best to persuade his prospective buyer to purchase the property on the most advantageous terms desired by his principal, the broker, herein defendant-appellee Gregorio Domingo, succeeded in persuading his principal to accept the counter-offer of the prospective buyer to purchase the property at P1.20 per square meter or One Hundred Nine Thousand Pesos (P109,000.00) in round figure for the lot of 88,477 square meters, which is very much lower the the price of P2.00 per square meter or One Hundred Seventy-Six Thousand Nine Hundred Fifty-Four Pesos (P176,954.00) for said lot originally offered by his principal.

The duty embodied in Article 1891 of the New Civil Code will not apply if the agent or broker acted only as a middleman with the task of merely bringing together the vendor and vendee, who themselves thereafter will negotiate on the terms and conditions of the transaction. Neither would the rule apply if the agent or broker had informed the principal of the gift or bonus or profit he received from the purchaser and his principal did not object therto. 11 Herein defendant-appellee Gregorio Domingo was not merely a middleman of the petitioner-appellant Vicente Domingo and the buyer Oscar de Leon. He was the broker and agent of said petitioner-appellant only. And therein petitioner-appellant was not aware of the gift of One Thousand Pesos (P1,000.00) received by Gregorio Domingo from the prospective buyer; much less did he consent to his agent's accepting such a gift.

The fact that the buyer appearing in the deed of sale is Amparo Diaz, the wife of Oscar de Leon, does not materially alter the situation; because the transaction, to

be valid, must necessarily be with the consent of the husband Oscar de Leon, who is the administrator of their conjugal assets including their house and lot at No. 40 Denver Street, Cubao, Quezon City, which were given as part of and constituted the down payment on, the purchase price of herein petitioner-appellant's lot No. 883 of Piedad Estate. Hence, both in law and in fact, it was still Oscar de Leon who was the buyer.

As a necessary consequence of such breach of trust, defendant-appellee Gregorio Domingo must forfeit his right to the commission and must return the part of the commission he received from his principal.

Teofilo Purisima, the sub-agent of Gregorio Domingo, can only recover from Gregorio Domingo his one-half share of whatever amounts Gregorio Domingo received by virtue of the transaction as his sub-agency contract was with Gregorio Domingo alone and not with Vicente Domingo, who was not even aware of such sub-agency. Since Gregorio Domingo received from Vicente Domingo and Oscar de Leon respectively the amounts of Three Hundred Pesos (P300.00) and One Thousand Pesos (P1,000.00) or a total of One Thousand Three Hundred Pesos (P1,300.00), one-half of the same, which is Six Hundred Fifty Pesos (P650.00), should be paid by Gregorio Domingo to Teofilo Purisima.

Because Gregorio Domingo's clearly unfounded complaint caused Vicente Domingo mental anguish and serious anxiety as well as wounded feelings, petitioner-appellant Vicente Domingo should be awarded moral damages in the reasonable amount of One Thousand Pesos (P1,000.00) attorney's fees in the reasonable amount of One Thousand Pesos (P1,000.00), considering that this case has been pending for the last fifteen (15) years from its filing on October 3, 1956.

WHEREFORE, the judgment is hereby rendered, reversing the decision of the Court of Appeals and directing defendant-appellee Gregorio Domingo: (1) to pay to the heirs of Vicente Domingo the sum of One Thousand Pesos (P1,000.00) as moral damages and One Thousand Pesos (P1,000.00) as attorney's fees; (2) to

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pay Teofilo Purisima the sum of Six Hundred Fifty Pesos (P650.00); and (3) to pay the costs.

Republic of the PhilippinesSUPREME COURTManila

FIRST DIVISION

G.R. No. 137162 January 24, 2007

CORAZON L. ESCUETA, assisted by her husband EDGAR ESCUETA, IGNACIO E. RUBIO, THE HEIRS OF LUZ R. BALOLOY, namely, ALEJANDRINO R. BALOLOY and BAYANI R. BALOLOY, Petitioners, vs.RUFINA LIM, Respondent.

D E C I S I O N

AZCUNA, J.:

This is an appeal by certiorari1 to annul and set aside the Decision and Resolution of the Court of Appeals (CA) dated October 26, 1998 and January 11, 1999, respectively, in CA-G.R. CV No. 48282, entitled "Rufina Lim v. Corazon L. Escueta, etc., et. al."

The facts2 appear as follows:

Respondent Rufina Lim filed an action to remove cloud on, or quiet title to, real property, with preliminary injunction and issuance of [a hold-departure order] from the Philippines against Ignacio E. Rubio. Respondent amended her complaint to include specific performance and damages.

In her amended complaint, respondent averred inter alia that she bought the hereditary shares (consisting of 10 lots) of Ignacio Rubio [and] the heirs of Luz

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Baloloy, namely: Alejandrino, Bayani, and other co-heirs; that said vendors executed a contract of sale dated April 10, 1990 in her favor; that Ignacio Rubio and the heirs of Luz Baloloy received [a down payment] or earnest money in the amount of P102,169.86 and P450,000, respectively; that it was agreed in the contract of sale that the vendors would secure certificates of title covering their respective hereditary shares; that the balance of the purchase price would be paid to each heir upon presentation of their individual certificate[s] of [title]; that Ignacio Rubio refused to receive the other half of the down payment which isP[100,000]; that Ignacio Rubio refused and still refuses to deliver to [respondent] the certificates of title covering his share on the two lots; that with respect to the heirs of Luz Baloloy, they also refused and still refuse to perform the delivery of the two certificates of title covering their share in the disputed lots; that respondent was and is ready and willing to pay Ignacio Rubio and the heirs of Luz Baloloy upon presentation of their individual certificates of title, free from whatever lien and encumbrance;

As to petitioner Corazon Escueta, in spite of her knowledge that the disputed lots have already been sold by Ignacio Rubio to respondent, it is alleged that a simulated deed of sale involving said lots was effected by Ignacio Rubio in her favor; and that the simulated deed of sale by Rubio to Escueta has raised doubts and clouds over respondent’s title.

In their separate amended answers, petitioners denied the material allegations of the complaint and alleged inter alia the following:

For the heirs of Luz Baloloy (Baloloys for brevity):

Respondent has no cause of action, because the subject contract of sale has no more force and effect as far as the Baloloys are concerned, since they have withdrawn their offer to sell for the reason that respondent failed to pay the balance of the purchase price as orally promised on or before May 1, 1990.

For petitioners Ignacio Rubio (Rubio for brevity) and Corazon Escueta (Escueta for brevity):

Respondent has no cause of action, because Rubio has not entered into a contract of sale with her; that he has appointed his daughter Patricia Llamas to be his attorney-in-fact and not in favor of Virginia Rubio Laygo Lim (Lim for brevity) who was the one who represented him in the sale of the disputed lots in favor of respondent; that theP100,000 respondent claimed he received as down payment for the lots is a simple transaction by way of a loan with Lim.

The Baloloys failed to appear at the pre-trial. Upon motion of respondent, the trial court declared the Baloloys in default. They then filed a motion to lift the order declaring them in default, which was denied by the trial court in an order dated November 27, 1991. Consequently, respondent was allowed to adduce evidence ex parte. Thereafter, the trial court rendered a partial decision dated July 23, 1993 against the Baloloys, the dispositive portion of which reads as follows:

IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of [respondent] and against [petitioners, heirs] of Luz R. Balolo[y], namely: Alejandrino Baloloy and Bayani Baloloy. The [petitioners] Alejandrino Baloloy and Bayani Baloloy are ordered to immediately execute an [Absolute] Deed of Sale over their hereditary share in the properties covered by TCT No. 74392 and TCT No. 74394, after payment to them by [respondent] the amount of P[1,050,000] or consignation of said amount in Court. [For] failure of [petitioners] Alejandrino Baloloy and Bayani Baloloy to execute the Absolute Deed of Sale over their hereditary share in the property covered by TCT No. T-74392 and TCT No. T-74394 in favor of [respondent], the Clerk of Court is ordered to execute the necessary Absolute Deed of Sale in behalf of the Baloloys in favor of [respondent,] with a consideration ofP[1,500,000]. Further[,] [petitioners] Alejandrino Baloloy and Bayani Baloloy are ordered to jointly and severally pay [respondent] moral damages in the amount of P[50,000] and P[20,000] for attorney’s fees. The adverse claim annotated at the back of TCT No. T-74392 and TCT No. T-74394[,] insofar as the shares of Alejandrino Baloloy and Bayani Baloloy are concerned[,] [is] ordered cancelled.

With costs against [petitioners] Alejandrino Baloloy and Bayani Baloloy.

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SO ORDERED.3

The Baloloys filed a petition for relief from judgment and order dated July 4, 1994 and supplemental petition dated July 7, 1994. This was denied by the trial court in an order dated September 16, 1994. Hence, appeal to the Court of Appeals was taken challenging the order denying the petition for relief.

Trial on the merits ensued between respondent and Rubio and Escueta. After trial, the trial court rendered its assailed Decision, as follows:

IN VIEW OF THE FOREGOING, the complaint [and] amended complaint are dismissed against [petitioners] Corazon L. Escueta, Ignacio E. Rubio[,] and the Register of Deeds. The counterclaim of [petitioners] [is] also dismissed. However, [petitioner] Ignacio E. Rubio is ordered to return to the [respondent], Rufina Lim[,] the amount of P102,169.80[,] with interest at the rate of six percent (6%) per annum from April 10, [1990] until the same is fully paid. Without pronouncement as to costs.

SO ORDERED.4

On appeal, the CA affirmed the trial court’s order and partial decision, but reversed the later decision. The dispositive portion of its assailed Decision reads:

WHEREFORE, upon all the foregoing premises considered, this Court rules:

1. the appeal of the Baloloys from the Order denying the Petition for Relief from Judgment and Orders dated July 4, 1994 and Supplemental Petition dated July 7, 1994 is DISMISSED. The Order appealed from is AFFIRMED.

2. the Decision dismissing [respondent’s] complaint is REVERSED and SET ASIDE and a new one is entered. Accordingly,

a. the validity of the subject contract of sale in favor of [respondent] is upheld.

b. Rubio is directed to execute a Deed of Absolute Sale conditioned upon the payment of the balance of the purchase price by [respondent] within 30 days from the receipt of the entry of judgment of this Decision.

c. the contracts of sale between Rubio and Escueta involving Rubio’s share in the disputed properties is declared NULL and VOID.

d. Rubio and Escueta are ordered to pay jointly and severally the [respondent] the amount ofP[20,000] as moral damages and P[20,000] as attorney’s fees.

3. the appeal of Rubio and Escueta on the denial of their counterclaim is DISMISSED.

SO ORDERED.5

Petitioners’ Motion for Reconsideration of the CA Decision was denied. Hence, this petition.

The issues are:

I

THE HONORABLE COURT OF APPEALS ERRED IN DENYING THE PETITION FOR RELIEF FROM JUDGMENT FILED BY THE BALOLOYS.

II

THE HONORABLE COURT OF APPEALS ERRED IN REINSTATING THE COMPLAINT AND IN AWARDING MORAL DAMAGES AND ATTORNEY’S FEES IN FAVOR OF RESPONDENT RUFINA L. LIM CONSIDERING THAT:

A. IGNACIO E. RUBIO IS NOT BOUND BY THE CONTRACT OF SALE BETWEEN VIRGINIA LAYGO-LIM AND RUFINA LIM.

B. THE CONTRACT ENTERED INTO BETWEEN RUFINA LIM AND VIRGINIA LAYGO-LIM IS A CONTRACT TO SELL AND NOT A CONTRACT OF SALE.

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C. RUFINA LIM FAILED TO FAITHFULLY COMPLY WITH HER OBLIGATIONS UNDER THE CONTRACT TO SELL THEREBY WARRANTING THE CANCELLATION THEREOF.

D. CORAZON L. ESCUETA ACTED IN UTMOST GOOD FAITH IN ENTERING INTO THE CONTRACT OF SALE WITH IGNACIO E. RUBIO.

III

THE CONTRACT OF SALE EXECUTED BETWEEN IGNACIO E. RUBIO AND CORAZON L. ESCUETA IS VALID.

IV

THE HONORABLE COURT OF APPEALS ERRED IN DISMISSING PETITIONERS’ COUNTERCLAIMS.

Briefly, the issue is whether the contract of sale between petitioners and respondent is valid.

Petitioners argue, as follows:

First, the CA did not consider the circumstances surrounding petitioners’ failure to appear at the pre-trial and to file the petition for relief on time.

As to the failure to appear at the pre-trial, there was fraud, accident and/or excusable neglect, because petitioner Bayani was in the United States. There was no service of the notice of pre-trial or order. Neither did the former counsel of record inform him. Consequently, the order declaring him in default is void, and all subsequent proceedings, orders, or decision are void.

Furthermore, petitioner Alejandrino was not clothed with a power of attorney to appear on behalf of Bayani at the pre-trial conference.

Second, the sale by Virginia to respondent is not binding. Petitioner Rubio did not authorize Virginia to transact business in his behalf pertaining to the property. The

Special Power of Attorney was constituted in favor of Llamas, and the latter was not empowered to designate a substitute attorney-in-fact. Llamas even disowned her signature appearing on the "Joint Special Power of Attorney," which constituted Virginia as her true and lawful attorney-in-fact in selling Rubio’s properties.

Dealing with an assumed agent, respondent should ascertain not only the fact of agency, but also the nature and extent of the former’s authority. Besides, Virginia exceeded the authority for failing to comply with her obligations under the "Joint Special Power of Attorney."

The amount encashed by Rubio represented not the down payment, but the payment of respondent’s debt. His acceptance and encashment of the check was not a ratification of the contract of sale.

Third, the contract between respondent and Virginia is a contract to sell, not a contract of sale. The real character of the contract is not the title given, but the intention of the parties. They intended to reserve ownership of the property to petitioners pending full payment of the purchase price. Together with taxes and other fees due on the properties, these are conditions precedent for the perfection of the sale. Even assuming that the contract is ambiguous, the same must be resolved against respondent, the party who caused the same.

Fourth, Respondent failed to faithfully fulfill her part of the obligation. Thus, Rubio had the right to sell his properties to Escueta who exercised due diligence in ascertaining ownership of the properties sold to her. Besides, a purchaser need not inquire beyond what appears in a Torrens title.

The petition lacks merit. The contract of sale between petitioners and respondent is valid.lawphil.net

Bayani Baloloy was represented by his attorney-in-fact, Alejandrino Baloloy. In the Baloloys’ answer to the original complaint and amended complaint, the allegations relating to the personal circumstances of the Baloloys are clearly admitted.

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"An admission, verbal or written, made by a party in the course of the proceedings in the same case, does not require proof."6 The "factual admission in the pleadings on record [dispenses] with the need x x x to present evidence to prove the admitted fact."7 It cannot, therefore, "be controverted by the party making such admission, and [is] conclusive"8 as to them. All proofs submitted by them "contrary thereto or inconsistent therewith should be ignored whether objection is interposed by a party or not."9 Besides, there is no showing that a palpable mistake has been committed in their admission or that no admission has been made by them.

Pre-trial is mandatory.10 The notices of pre-trial had been sent to both the Baloloys and their former counsel of record. Being served with notice, he is "charged with the duty of notifying the party represented by him."11 He must "see to it that his client receives such notice and attends the pre-trial."12 What the Baloloys and their former counsel have alleged instead in their Motion to Lift Order of As In Default dated December 11, 1991 is the belated receipt of Bayani Baloloy’s special power of attorney in favor of their former counsel, not that they have not received the notice or been informed of the scheduled pre-trial. Not having raised the ground of lack of a special power of attorney in their motion, they are now deemed to have waived it. Certainly, they cannot raise it at this late stage of the proceedings. For lack of representation, Bayani Baloloy was properly declared in default.

Section 3 of Rule 38 of the Rules of Court states:

SEC. 3. Time for filing petition; contents and verification. – A petition provided for in either of the preceding sections of this Rule must be verified, filed within sixty (60) days after the petitioner learns of the judgment, final order, or other proceeding to be set aside, and not more than six (6) months after such judgment or final order was entered, or such proceeding was taken; and must be accompanied with affidavits showing the fraud, accident, mistake, or excusable negligence relied upon, and the facts constituting the petitioner’s good and substantial cause of action or defense, as the case may be.

There is no reason for the Baloloys to ignore the effects of the above-cited rule. "The 60-day period is reckoned from the time the party acquired knowledge of the

order, judgment or proceedings and not from the date he actually read the same."13 As aptly put by the appellate court:

The evidence on record as far as this issue is concerned shows that Atty. Arsenio Villalon, Jr., the former counsel of record of the Baloloys received a copy of the partial decision dated June 23, 1993 on April 5, 1994. At that time, said former counsel is still their counsel of record. The reckoning of the 60 day period therefore is the date when the said counsel of record received a copy of the partial decision which was on April 5, 1994. The petition for relief was filed by the new counsel on July 4, 1994 which means that 90 days have already lapsed or 30 days beyond the 60 day period. Moreover, the records further show that the Baloloys received the partial decision on September 13, 1993 as evidenced by Registry return cards which bear the numbers 02597 and 02598 signed by Mr. Alejandrino Baloloy.

The Baloloys[,] apparently in an attempt to cure the lapse of the aforesaid reglementary period to file a petition for relief from judgment[,] included in its petition the two Orders dated May 6, 1994 and June 29, 1994. The first Order denied Baloloys’ motion to fix the period within which plaintiffs-appellants pay the balance of the purchase price. The second Order refers to the grant of partial execution, i.e. on the aspect of damages. These Orders are only consequences of the partial decision subject of the petition for relief, and thus, cannot be considered in the determination of the reglementary period within which to file the said petition for relief.

Furthermore, no fraud, accident, mistake, or excusable negligence exists in order that the petition for relief may be granted.14 There is no proof of extrinsic fraud that "prevents a party from having a trial x x x or from presenting all of his case to the court"15 or an "accident x x x which ordinary prudence could not have guarded against, and by reason of which the party applying has probably been impaired in his rights."16 There is also no proof of either a "mistake x x x of law"17 or an excusable negligence "caused by failure to receive notice of x x x the trial x x x that it would not be necessary for him to take an active part in the case x x x by relying on another person to attend to the case for him, when such other person x x x was

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chargeable with that duty x x x, or by other circumstances not involving fault of the moving party."18

Article 1892 of the Civil Code provides:

Art. 1892. The agent may appoint a substitute if the principal has not prohibited him from doing so; but he shall be responsible for the acts of the substitute:

(1) When he was not given the power to appoint one x x x.

Applying the above-quoted provision to the special power of attorney executed by Ignacio Rubio in favor of his daughter Patricia Llamas, it is clear that she is not prohibited from appointing a substitute. By authorizing Virginia Lim to sell the subject properties, Patricia merely acted within the limits of the authority given by her father, but she will have to be "responsible for the acts of the sub-agent,"19 among which is precisely the sale of the subject properties in favor of respondent.

Even assuming that Virginia Lim has no authority to sell the subject properties, the contract she executed in favor of respondent is not void, but simply unenforceable, under the second paragraph of Article 1317 of the Civil Code which reads:

Art. 1317. x x x

A contract entered into in the name of another by one who has no authority or legal representation, or who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf it has been executed, before it is revoked by the other contracting party.

Ignacio Rubio merely denies the contract of sale. He claims, without substantiation, that what he received was a loan, not the down payment for the sale of the subject properties. His acceptance and encashment of the check, however, constitute ratification of the contract of sale and "produce the effects of an express power of agency."20 "[H]is action necessarily implies that he waived his right of action to avoid the contract, and, consequently, it also implies the tacit, if

not express, confirmation of the said sale effected" by Virginia Lim in favor of respondent.

Similarly, the Baloloys have ratified the contract of sale when they accepted and enjoyed its benefits. "The doctrine of estoppel applicable to petitioners here is not only that which prohibits a party from assuming inconsistent positions, based on the principle of election, but that which precludes him from repudiating an obligation voluntarily assumed after having accepted benefits therefrom. To countenance such repudiation would be contrary to equity, and would put a premium on fraud or misrepresentation."21

Indeed, Virginia Lim and respondent have entered into a contract of sale. Not only has the title to the subject properties passed to the latter upon delivery of the thing sold, but there is also no stipulation in the contract that states the ownership is to be reserved in or "retained by the vendor until full payment of the price."22

Applying Article 1544 of the Civil Code, a second buyer of the property who may have had actual or constructive knowledge of such defect in the seller’s title, or at least was charged with the obligation to discover such defect, cannot be a registrant in good faith. Such second buyer cannot defeat the first buyer’s title. In case a title is issued to the second buyer, the first buyer may seek reconveyance of the property subject of the sale.23 Even the argument that a purchaser need not inquire beyond what appears in a Torrens title does not hold water. A perusal of the certificates of title alone will reveal that the subject properties are registered in common, not in the individual names of the heirs.

Nothing in the contract "prevents the obligation of the vendor to convey title from becoming effective"24 or gives "the vendor the right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed period."25Petitioners themselves have failed to deliver their individual certificates of title, for which reason it is obvious that respondent cannot be expected to pay the stipulated taxes, fees, and expenses.

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"[A]ll the elements of a valid contract of sale under Article 1458 of the Civil Code are present, such as: (1) consent or meeting of the minds; (2) determinate subject matter; and (3) price certain in money or its equivalent."26 Ignacio Rubio, the Baloloys, and their co-heirs sold their hereditary shares for a price certain to which respondent agreed to buy and pay for the subject properties. "The offer and the acceptance are concurrent, since the minds of the contracting parties meet in the terms of the agreement."27

In fact, earnest money has been given by respondent. "[I]t shall be considered as part of the price and as proof of the perfection of the contract.28 It constitutes an advance payment to "be deducted from the total price."29

Article 1477 of the same Code also states that "[t]he ownership of the thing sold shall be transferred to the vendee upon actual or constructive delivery thereof."30 In the present case, there is actual delivery as manifested by acts simultaneous with and subsequent to the contract of sale when respondent not only took possession of the subject properties but also allowed their use as parking terminal for jeepneys and buses. Moreover, the execution itself of the contract of sale is constructive delivery.

Consequently, Ignacio Rubio could no longer sell the subject properties to Corazon Escueta, after having sold them to respondent. "[I]n a contract of sale, the vendor loses ownership over the property and cannot recover it until and unless the contract is resolved or rescinded x x x."31 The records do not show that Ignacio Rubio asked for a rescission of the contract. What he adduced was a belated revocation of the special power of attorney he executed in favor of Patricia Llamas. "In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act."32

WHEREFORE, the petition is DENIED. The Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 48282, dated

October 26, 1998 and January 11, 1999, respectively, are hereby AFFIRMED. Costs against petitioners.

SO ORDERED.

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Republic of the PhilippinesSUPREME COURTManila

THIRD DIVISION

G.R. No. 136433 December 6, 2006

ANTONIO B. BALTAZAR, petitioner, vs.HONORABLE OMBUDSMAN, EULOGIO M. MARIANO, JOSE D. JIMENEZ, JR., TORIBIO E. ILAO, JR. and ERNESTO R. SALENGA, respondents.

D E C I S I O N

VELASCO, JR., J.:

The Case

Ascribing grave abuse of discretion to respondent Ombudsman, this Petition for Review on Certiorari,1 under Rule 45 pursuant to Section 27 of RA 6770,2 seeks to reverse and set aside the November 26, 1997 Order3 of the Office of the Special Prosecutor (OSP) in OMB-1-94-3425 duly approved by then Ombudsman Aniano Desierto on August 21, 1998, which recommended the dismissal of the Information4 in Criminal Case No. 23661 filed before the Sandiganbayan against respondents Pampanga Provincial Adjudicator Toribio E. Ilao, Jr., Chief Legal Officer Eulogio M. Mariano and Legal Officer Jose D. Jimenez, Jr. (both of the DAR Legal Division in San Fernando, Pampanga), and Ernesto R. Salenga. The petition likewise seeks to set aside the October 30, 1998 Memorandum5 of the OSP duly approved by the Ombudsman on November 27, 1998 which denied petitioner's Motion for Reconsideration.6 Previously, the filing of the Information against said respondents was authorized by the May 10, 1996 Resolution7 and October 3, 1996 Order8 of the Ombudsman which found probable cause that they granted unwarranted benefits, advantage, and preference to respondent Salenga in violation of Section 3 (e) of RA 3019.9

The Facts

Paciencia Regala owns a seven (7)-hectare fishpond located at Sasmuan, Pampanga. Her Attorney-in-Fact Faustino R. Mercado leased the fishpond for PhP 230,000.00 to Eduardo Lapid for a three (3)-year period, that is, from August 7, 1990 to August 7, 1993.10 Lessee Eduardo Lapid in turn sub-leased the fishpond to Rafael Lopez for PhP 50,000.00 during the last seven (7) months of the original lease, that is, from January 10, 1993 to August 7, 1993.11 Respondent Ernesto Salenga was hired by Eduardo Lapid as fishpond watchman (bante-encargado). In the sub-lease, Rafael Lopez rehired respondent Salenga.

Meanwhile, on March 11, 1993, respondent Salenga, through a certain Francis Lagman, sent his January 28, 1993 demand letter12 to Rafael Lopez and Lourdes Lapid for unpaid salaries and non-payment of the 10% share in the harvest.

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On June 5, 1993, sub-lessee Rafael Lopez wrote a letter to respondent Salenga informing the latter that for the last two (2) months of the sub-lease, he had given the rights over the fishpond to Mario Palad and Ambit Perez for PhP 20,000.00.13 This prompted respondent Salenga to file a Complaint14 before the Provincial Agrarian Reform Adjudication Board (PARAB), Region III, San Fernando, Pampanga docketed as DARAB Case No. 552-P’93 entitled Ernesto R. Salenga v. Rafael L. Lopez and Lourdes L. Lapid for Maintenance of Peaceful Possession, Collection of Sum of Money and Supervision of Harvest. The Complaint was signed by respondent Jose D. Jimenez, Jr., Legal Officer of the Department of Agrarian Reform (DAR) Region III Office in San Fernando, Pampanga, as counsel for respondent Salenga; whereas respondent Eulogio M. Mariano was the Chief Legal Officer of DAR Region III. The case was assigned to respondent Toribio E. Ilao, Jr., Provincial Adjudicator of DARAB, Pampanga.

On May 10, 1993, respondent Salenga amended his complaint.15 The amendments included a prayer for the issuance of a temporary restraining order (TRO) and preliminary injunction. However, before the prayer for the issuance of a TRO could be acted upon, on June 16, 1993, respondent Salenga filed a Motion to Maintain Status Quo and to Issue Restraining Order16 which was set for hearing on June 22, 1993. In the hearing, however, only respondent Salenga with his counsel appeared despite notice to the other parties. Consequently, the ex-partepresentation of respondent Salenga’s evidence in support of the prayer for the issuance of a restraining order was allowed, since the motion was unopposed, and on July 21, 1993, respondent Ilao, Jr. issued a TRO.17

Thereafter, respondent Salenga asked for supervision of the harvest, which the board sheriff did. Accordingly, defendants Lopez and Lapid received their respective shares while respondent Salenga was given his share under protest. In the subsequent hearing for the issuance of a preliminary injunction, again, only respondent Salenga appeared and presented his evidence for the issuance of the writ.

Pending resolution of the case, Faustino Mercado, as Attorney-in-Fact of the fishpond owner Paciencia Regala, filed a motion to intervene which was granted

by respondent Ilao, Jr. through the November 15, 1993 Order. After the trial, respondent Ilao, Jr. rendered a Decision on May 29, 1995 dismissing the Complaint for lack of merit; but losing plaintiff, respondent Salenga, appealed the decision before the DARAB Appellate Board.

Complaint Before the Ombudsman

On November 24, 1994, pending resolution of the agrarian case, the instant case was instituted by petitioner Antonio Baltazar, an alleged nephew of Faustino Mercado, through a Complaint-Affidavit18 against private respondents before the Office of the Ombudsman which was docketed as OMB-1-94-3425 entitled Antonio B. Baltazar v. Eulogio Mariano, Jose Jimenez, Jr., Toribio Ilao, Jr. and Ernesto Salenga for violation of RA 3019. Petitioner charged private respondents of conspiracy through the issuance of the TRO in allowing respondent Salenga to retain possession of the fishpond, operate it, harvest the produce, and keep the sales under the safekeeping of other private respondents. Moreover, petitioner maintains that respondent Ilao, Jr. had no jurisdiction to hear and act on DARAB Case No. 552-P’93 filed by respondent Salenga as there was no tenancy relation between respondent Salenga and Rafael L. Lopez, and thus, the complaint was dismissible on its face.

Through the December 14, 1994 Order,19 the Ombudsman required private respondents to file their counter-affidavits, affidavits of their witnesses, and other controverting evidence. While the other respondents submitted their counter-affidavits, respondent Ilao, Jr. instead filed his February 9, 1995 motion to dismiss, February 21, 1995 Reply, and March 24, 1995 Rejoinder.

Ombudsman’s Determination of Probable Cause

On May 10, 1996, the Ombudsman issued a Resolution20 finding cause to bring respondents to court, denying the motion to dismiss of respondent Ilao, Jr., and recommending the filing of an Information for violation of Section 3 (e) of RA 3019. Subsequently, respondent Ilao, Jr. filed his September 16, 1996 Motion for Reconsideration and/or Re-investigation21 which was denied through the October

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3, 1996 Order.22 Consequently, the March 17, 1997 Information23 was filed against all the private respondents before the Sandiganbayan which was docketed as Criminal Case No. 23661.

Before the graft court, respondent Ilao, Jr. filed his May 19, 1997 Motion for Reconsideration and/or Re-investigation which was granted through the August 29, 1997 Order.24 On September 8, 1997, respondent Ilao, Jr. subsequently filed his Counter-Affidavit25 with attachments while petitioner did not file any reply-affidavit despite notice to him. The OSP of the Ombudsman conducted the re-investigation; and the result of the re-investigation was embodied in the assailed November 26, 1997 Order26 which recommended the dismissal of the complaint in OMB-1-94-3425 against all private respondents. Upon review, the Ombudsman approved the OSP’s recommendation on August 21, 1998.

Petitioner’s Motion for Reconsideration27 was likewise denied by the OSP through the October 30, 1998 Memorandum28 which was approved by the Ombudsman on November 27, 1998. Consequently, the trial prosecutor moved orally before the Sandiganbayan for the dismissal of Criminal Case No. 23661 which was granted through the December 11, 1998 Order.29

Thus, the instant petition is before us.

The Issues

Petitioner raises two assignments of errors, to wit:

THE HONORABLE OMBUDSMAN ERRED IN GIVING DUE COURSE A MISPLACED COUNTER-AFFIDAVIT FILED AFTER THE TERMINATION OF THE PRELIMINARY INVESTIGATION AND/OR THE CASE WAS ALREADY FILED BEFORE THE SANDIGANBAYAN.

ASSUMING OTHERWISE, THE HONORABLE OMBUDSMAN LIKEWISE ERRED IN REVERSING HIS OWN RESOLUTION WHERE IT WAS RESOLVED THAT ACCUSED AS PROVINCIAL AGRARIAN ADJUDICATOR HAS NO JURISDICTION OVER A COMPLAINT WHERE THERE EXIST [sic] NO

TENANCY RELATIONSHIP CONSIDERING [sic] COMPLAINANT IS NOT A TENANT BUT A "BANTE-ENCARGADO" OR WATCHMAN-OVERSEER HIRED FOR A SALARY OF P3,000.00 PER MONTH AS ALLEGED IN HIS OWN COMPLAINT.30

Before delving into the errors raised by petitioner, we first address the preliminary procedural issue of the authority and locus standi of petitioner to pursue the instant petition.

Preliminary Issue: Legal Standing

Locus standi is defined as "a right of appearance in a court of justice x x x on a given question."31 In private suits, standing is governed by the "real-parties-in interest" rule found in Section 2, Rule 3 of the 1997 Rules of Civil Procedure which provides that "every action must be prosecuted or defended in the name of the real party in interest." Accordingly, the "real-party-in interest" is "the party who stands to be benefited or injured by the judgment in the suit or the party entitled to the avails of the suit."32 Succinctly put, the plaintiffs’ standing is based on their own right to the relief sought.

The records show that petitioner is a non-lawyer appearing for himself and conducting litigation in person. Petitioner instituted the instant case before the Ombudsman in his own name. In so far as the Complaint-Affidavit filed before the Office of the Ombudsman is concerned, there is no question on his authority and legal standing. Indeed, the Office of the Ombudsman is mandated to "investigate and prosecute on its own or on complaint by any person, any act or omission of any public officer or employee, office or agency, when such act or omission appears to be illegal, unjust, improper or inefficient (emphasis supplied)."33 The Ombudsman can act on anonymous complaints and motu proprio inquire into alleged improper official acts or omissions from whatever source, e.g., a newspaper.34 Thus, any complainant may be entertained by the Ombudsman for the latter to initiate an inquiry and investigation for alleged irregularities.

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However, filing the petition in person before this Court is another matter. The Rules allow a non-lawyer to conduct litigation in person and appear for oneself only when he is a party to a legal controversy. Section 34 of Rule 138 pertinently provides, thus:

SEC. 34. By whom litigation conducted. – In the court of a justice of the peace a party may conduct his litigation in person, with the aid of an agent or friend appointed by him for that purpose, or with the aid of an attorney. In any other court, a party may conduct his litigation personally or by aid of an attorney, and his appearance must be either personal or by a duly authorized member of the bar (emphases supplied).

Petitioner has no legal standing

Is petitioner a party or a real party in interest to have the locus standi to pursue the instant petition? We answer in the negative.

While petitioner may be the complainant in OMB-1-94-3425, he is not a real party in interest. Section 2, Rule 3 of the 1997 Rules of Civil Procedure stipulates, thus:

SEC. 2. Parties in interest. – A real party in interest is the party who stands to be benefited or injured by the judgment in the suit, or the party entitled to the avails of the suit. Unless otherwise authorized by law or these Rules, every action must be prosecuted or defended in the name of the real party in interest.

The same concept is applied in criminal and administrative cases.

In the case at bar which involves a criminal proceeding stemming from a civil (agrarian) case, it is clear that petitioner is not a real party in interest. Except being the complainant, the records show that petitioner is a stranger to the agrarian case. It must be recalled that the undisputed owner of the fishpond is Paciencia Regala, who intervened in DARAB Case No. 552-P’93 through her Attorney-in-Fact Faustino Mercado in order to protect her interest. The motion for intervention filed by Faustino Mercado, as agent of Paciencia Regala, was granted by

respondent Provincial Adjudicator Ilao, Jr. through the November 15, 1993 Order in DARAB Case No. 552-P’93.

Agency cannot be further delegated

Petitioner asserts that he is duly authorized by Faustino Mercado to institute the suit and presented a Special Power of Attorney35 (SPA) from Faustino Mercado. However, such SPA is unavailing for petitioner. For one, petitioner’s principal, Faustino Mercado, is an agent himself and as such cannot further delegate his agency to another. Otherwise put, an agent cannot delegate to another the same agency. The legal maxim potestas delegata non delegare potest; a power once delegated cannot be re-delegated, while applied primarily in political law to the exercise of legislative power, is a principle of agency.36 For another, a re-delegation of the agency would be detrimental to the principal as the second agent has no privity of contract with the former. In the instant case, petitioner has no privity of contract with Paciencia Regala, owner of the fishpond and principal of Faustino Mercado.

Moreover, while the Civil Code under Article 189237 allows the agent to appoint a substitute, such is not the situation in the instant case. The SPA clearly delegates the agency to petitioner to pursue the case and not merely as a substitute. Besides, it is clear in the aforecited Article that what is allowed is a substitute and not a delegation of the agency.

Clearly, petitioner is neither a real party in interest with regard to the agrarian case, nor is he a real party in interest in the criminal proceedings conducted by the Ombudsman as elevated to the Sandiganbayan. He is not a party who will be benefited or injured by the results of both cases.

Petitioner: a stranger and not an injured private complainant

Petitioner only surfaced in November 1994 as complainant before the Ombudsman. Aside from that, not being an agent of the parties in the agrarian case, he has no locus standi to pursue this petition. He cannot be likened to an

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injured private complainant in a criminal complaint who has direct interest in the outcome of the criminal case.

More so, we note that the petition is not pursued as a public suit with petitioner asserting a "public right" in assailing an allegedly illegal official action, and doing so as a representative of the general public. He is pursuing the instant case as an agent of an ineffective agency.

Petitioner has not shown entitlement to judicial protection

Even if we consider the instant petition as a public suit, where we may consider petitioner suing as a "stranger," or in the category of a "citizen," or "taxpayer," still petitioner has not adequately shown that he is entitled to seek judicial protection. In other words, petitioner has not made out a sufficient interest in the vindication of the public order and the securing of relief as a "citizen" or "taxpayer"; more so when there is no showing that he was injured by the dismissal of the criminal complaint before the Sandiganbayan.

Based on the foregoing discussion, petitioner indubitably does not have locus standi to pursue this action and the instant petition must be forthwith dismissed on that score. Even granting arguendo that he has locus standi, nonetheless, petitioner fails to show grave abuse of discretion of respondent Ombudsman to warrant a reversal of the assailed November 26, 1997 Order and the October 30, 1998 Memorandum.

First Issue: Submission of Counter-Affidavit

The Sandiganbayan, not the Ombudsman, ordered re-investigation

On the substantive aspect, in the first assignment of error, petitioner imputes grave abuse of discretion on public respondent Ombudsman for allowing respondent Ilao, Jr. to submit his Counter-Affidavit when the preliminary investigation was already concluded and an Information filed with the Sandiganbayan which assumed jurisdiction over the criminal case. This contention is utterly erroneous.

The facts clearly show that it was not the Ombudsman through the OSP who allowed respondent Ilao, Jr. to submit his Counter-Affidavit. It was the Sandiganbayan who granted the prayed for re-investigation and ordered the OSP to conduct the re-investigation through its August 29, 1997 Order, as follows:

Considering the manifestation of Prosecutor Cicero Jurado, Jr. that accused Toribio E. Ilao, Jr. was not able to file his counter-affidavit in the preliminary investigation, there appears to be some basis for granting the motion of said accused for reinvestigation.

WHEREFORE, accused Toribio E. Ilao, Jr. may file his counter-affidavit, with documentary evidence attached, if any, with the Office of the Special Prosecutor within then (10) days from today. Theprosecution is ordered to conduct a reinvestigation within a period of thirty (30) days.38 (Emphases supplied.)

As it is, public respondent Ombudsman through the OSP did not exercise any discretion in allowing respondent Ilao, Jr. to submit his Counter-Affidavit. The OSP simply followed the graft court’s directive to conduct the re-investigation after the Counter-Affidavit of respondent Ilao, Jr. was filed. Indeed, petitioner did not contest nor question the August 29, 1997 Order of the graft court. Moreover, petitioner did not file any reply-affidavit in the re-investigation despite notice.

Re-investigation upon sound discretion of graft court

Furthermore, neither can we fault the graft court in granting the prayed for re-investigation as it can readily be seen from the antecedent facts that respondent Ilao, Jr. was not given the opportunity to file his Counter-Affidavit. Respondent Ilao, Jr. filed a motion to dismiss with the Ombudsman but such was not resolved before the Resolution—finding cause to bring respondents to trial—was issued. In fact, respondent Ilao, Jr.’s motion to dismiss was resolved only through the May 10, 1996 Resolution which recommended the filing of an Information. Respondent Ilao, Jr.’s Motion for Reconsideration and/or Re-investigation was denied and the Information was filed with the graft court.

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Verily, courts are given wide latitude to accord the accused ample opportunity to present controverting evidence even before trial as demanded by due process. Thus, we held in Villaflor v. Vivar that "[a] component part of due process in criminal justice, preliminary investigation is a statutory and substantive right accorded to the accused before trial. To deny their claim to a preliminary investigation would be to deprive them of the full measure of their right to due process."39

Second Issue: Agrarian Dispute

Anent the second assignment of error, petitioner contends that DARAB Case No. 552-P’93 is not an agrarian dispute and therefore outside the jurisdiction of the DARAB. He maintains that respondent Salenga is not an agricultural tenant but a mere watchman of the fishpond owned by Paciencia Regala. Moreover, petitioner further argues that Rafael Lopez and Lourdes Lapid, the respondents in the DARAB case, are not the owners of the fishpond.

Nature of the case determined by allegations in the complaint

This argument is likewise bereft of merit. Indeed, as aptly pointed out by respondents and as borne out by the antecedent facts, respondent Ilao, Jr. could not have acted otherwise. It is a settled rule that jurisdiction over the subject matter is determined by the allegations of the complaint.40 The nature of an action is determined by the material averments in the complaint and the character of the relief sought,41 not by the defenses asserted in the answer or motion to dismiss.42 Given that respondent Salenga’s complaint and its attachment clearly spells out the jurisdictional allegations that he is an agricultural tenant in possession of the fishpond and is about to be ejected from it, clearly, respondent Ilao, Jr. could not be faulted in assuming jurisdiction as said allegations characterize an agricultural dispute. Besides, whatever defense asserted in an answer or motion to dismiss is not to be considered in resolving the issue on jurisdiction as it cannot be made dependent upon the allegations of the defendant.

Issuance of TRO upon the sound discretion of hearing officer

As regards the issuance of the TRO, considering the proper assumption of jurisdiction by respondent Ilao, Jr., it can be readily culled from the antecedent facts that his issuance of the TRO was a proper exercise of discretion. Firstly, the averments with evidence as to the existence of the need for the issuance of the restraining order were manifest in respondent Salenga’s Motion to Maintain Status Quo and to Issue Restraining Order,43 the attached Police Investigation Report,44 and Medical Certificate.45 Secondly, only respondent Salenga attended the June 22, 1993 hearing despite notice to parties. Hence, Salenga’s motion was not only unopposed but his evidence adduced ex-parte also adequately supported the issuance of the restraining order.

Premises considered, respondent Ilao, Jr. has correctly assumed jurisdiction and properly exercised his discretion in issuing the TRO—as respondent Ilao, Jr. aptly maintained that giving due course to the complaint and issuing the TRO do not reflect the final determination of the merits of the case. Indeed, after hearing the case, respondent Ilao, Jr. rendered a Decision on May 29, 1995 dismissing DARAB Case No. 552-P’93 for lack of merit.

Court will not review prosecutor’s determination of probable cause

Finally, we will not delve into the merits of the Ombudsman’s reversal of its initial finding of probable cause or cause to bring respondents to trial. Firstly, petitioner has not shown that the Ombudsman committed grave abuse of discretion in rendering such reversal. Secondly, it is clear from the records that the initial finding embodied in the May 10, 1996 Resolution was arrived at before the filing of respondent Ilao, Jr.’s Counter-Affidavit. Thirdly, it is the responsibility of the public prosecutor, in this case the Ombudsman, to uphold the law, to prosecute the guilty, and to protect the innocent. Lastly, the function of determining the existence of probable cause is proper for the Ombudsman in this case and we will not tread on the realm of this executive function to examine and assess evidence supplied by the parties, which is supposed to be exercised at the start of criminal proceedings. In Perez v. Hagonoy Rural Bank, Inc.,46 as cited in Longos Rural Waterworks and Sanitation Association, Inc. v. Hon. Desierto,47 we had occasion to rule that we

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cannot pass upon the sufficiency or insufficiency of evidence to determine the existence of probable cause.48

WHEREFORE, the instant petition is DENIED for lack of merit, and the November 26, 1997 Order and the October 30, 1998 Memorandum of the Office of the Special Prosecutor in Criminal Case No. 23661 (OMB-1-94-3425) are hereby AFFIRMED IN TOTO, with costs against petitioner.

SO ORDERED.

Republic of the PhilippinesSUPREME COURTManila

EN BANC

G.R. No. L-31739 March 11, 1930

LEONOR MENDEZONA, plaintiff-appellee, vs.ENCARNACION C. VIUDA DE GOITIA, administratrix of the estate of Benigno Goitia, defendant-appellant.

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G.R. No. L-31740 March 11, 1930

VALENTINA IZAGUIRRE Y NAZABAL, plaintiff-appellee, vs.ENCARNACION C. VIUDA DE GOITIA, ETC., defendant-appellant.

Avanceña and Lata for appellant.Ramon Sotelo for appellees.

VILLAMOR, J.:

The plaintiffs, Leonor Mendezona and Valentina Izaguirre y Nazabal, filed separate claims with the committee of claims and appraisal against the intestate estate of Benigno Goitia y Lazaga (Court of First Instance of Manila, civil case No. 30273), the first for the amount of P5,940, and the second, P2,376. By order of the court dated June 16, 1927, these claims were heard by the committee. The claimants presented their evidence, which the committee deemed insufficient and disapproved their claims. Both claimants appealed from the report of the committee, and in accordance with section 776 of the Code of Civil Procedure, filed a new complaint which was later amended with the approval of the court, there being nothing in the bill of exceptions to show that the defendant, or the administratrix of the deceased Benigno Goitia, excepted to the court's order admitting the amendments to the complaints.

The defendant answered the amended complaints, pleading in special defense, that not having no knowledge of the supposed management of their rights in the "Tren de Aguadas," and , furthermore, not having seen nor received any money of the plaintiff's from said business, she is not in a position to render an account of any sort to the plaintiffs, either in her own personal capacity or as judicial administratrix of Benigno Goitia's intestate estate.

By agreement of the parties, both cases were tried together, and the trial court rendered but one decision upon them on October 31, 1928, holding it sufficiently proved, "that defendant Encarnacion C. Vda, de Goitia has been duly appointed judicial administratrix of the estate of her deceased husband Benigno Goitia in

special proceeding No. 30273 of this court; that Benigno Goitia was the representative and attorney-in-fact of the plaintiffs in the joint-account partnership known as the "Tren de Aguadas" and located in the City of Manila, of which the plaintiff Leonor Mendezona, widow of Juan Bautista Goitia, owns 180 shares worth P18,000, and the plaintiff Valentina Izaguirre y Nazabal owns 72 shares worth P7,200; that prior to 1915, Benigno Goitia, at that time the manager of the aforesaid co-partnership, collected the dividends for the plaintiffs, which he remitted to them every year; that prior to 1915, the usual dividends which Benigno Goitia forwarded to plaintiff Leonor Mendezona each year were P540, and to plaintiff Valentina Izaguirre y Nazabal, P216; that from 1915 until his death in August, 1926, Benigno Goitia failed to remit to the dividends upon their shares in the "Tren de Aguadas"; that some time before his death, more particularly, in July, 1926, Benigno Goitia, who was no longer the manager of the said business, receive as attorney-in-fact of both plaintiff, the amount of P90 as dividend upon plaintiff Leonor Mendezona's shares, and P36 upon Valentina Izaguirre y Nazabal's stock; that from 1915 to 1926, the "Tren de Aguadas" paid dividends to the share-holders, one of them, Ramon Salinas, having received the total amount of P1,155 as ordinary and special dividends upon his 15 shares' that calculating the dividends due from 1915 to 1926 upon Leonor Mendezona's 180 shares at P540 per annum, and at P216 yearly upon the 72 shares held by Valentina Izaguirre y Nazabal, counsel for both plaintiffs filed their claims with the committee of claims and appraisal of the estate of Benigno Goitia, and, upon their disallowance, appealed from the committee's decision by means of the complaints in these two cases."

The trial court likewise deemed it proven that "during the period from 1915 to 1926, Benigno Goitia collected and received certain sums as dividends and profits upon the plaintiffs's stock in the "Tren de Aguadas" in his capacity as representative and attorney-in-fact for both of them, which he has neither remitted nor accounted for to the said plaintiffs, although it has been prove that said Benigno Goitia was their attorney-in-fact and representative in the "Tren de Aguadas" up to the time of his death."

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The court below therefore ordered the defendant, as judicial administratrix of Benigno Goitia's estate to render a judicial account of the intestate estate of the deceased Benigno Goitia, in special proceeding No. 30273 of this court (below), to render an account of the amounts collected by her aforesaid husband Benigno Goitia, as attorney-in-fact and representative of the plaintiffs Leonor Mendezona and Valentina Izaguirre y Nazabal in the copartnership known as the "Tren de Aguadas" from 1915 to July, 1926, within thirty days from notice of this decision; and that the defendant may see, examine, and make a copy of the books and documents relative to the business of the aforementioned copartnership, in accordance with the provisions of section 664 of the Code of Civil Procedure. Without special pronouncement of costs.

On December 15, 1928, at the instance of the plaintiffs, the trial court set the 15th of January, 1929, as the date on which the defendant should present her account of the dividends and profits collected by the decedent, as attorney-in-fact for the plaintiffs, with regard to the "Tren de Aguatas" copartnership, form 1915 to 1926, and the hearing was postponed to the 7th of February, 1929.

On February 6, 1929, the defendant, reiterating her exception to the court's decision enjoining her to render accounts, manifested that after a painstaking examination of the books of account of the copartnership "Tren de Aguadas," and several attempts to obtain data from Ruperto Santos, the manager and administrator thereof, she has found no more evidence of any amount received by her late husband, Benigno de Goitia, than a book of accounts where she came upon an item of P90 for Leonor Mendezona, and another of P36 for Valentina Izaguirre.

In view of this report and the evidence taken at the hearing the court rendered a suppletory judgment, upon motion of the plaintiffs dated December 3, 1928; and taking into account chiefly the testimony of Ruperto Santos and Ramon Salinas, it was held that, upon the basis of the dividends received by the witness Salinas on his fifteen shares in the "Tren de Aguadas" from 1915 to 1925, it appears that the dividends distributed for each share was equal to one-fifteenth of P1,087.50, that is P72.50. Thus the dividends upon plaintiff Leonor Mendezona's 180 shares would

be P13,050, and upon the 72 shares pertaining to Valentina Izaguirre, P5,220; and these sums, added to those collected by the attorney-in-fact Benigno Goitia as part of the 1926 dividends, P90 for Leonor Mendezona, and P36 for Valentina Izaguirre, show that Benigno Goitia thereby received P13,140 in behalf of Leonor Mendezona, and P5,256 in behalf of Valentina Izaguirre.

Wherefore, the court ordered the defendant, as judicial administratrix of the estate of the deceased Benigno Goitia, to pay the plaintiff Leonor Mendezona the sum of P13,140 with legal interest from the date of the filing of the complaint, and to pay the plaintiff Valentina Izaguirre P5,256 likewise with legal interest from the date of the filing of the complaint, and moreover, to pay the costs of both instances.

The defendant duly appealed from this judgment to this Supreme Court through the proper bill of exceptions.

The fundamental question raised by the appellant in the first assignment of error refers to the court's jurisdiction to admit the amended complaints whereby the plaintiffs claim P13,680 and P5,470 respectively, whereas the claims presented to the committee of claims and appraisal were only for P5,940 and P2,376, respectively. Appellant contends that the plaintiffs have not perfected their appeal in accoundance with section 773 of the Code of Civil Procedure in claiming more in their complaints than in the claims filed with the committee of claims and appraisal, by including therein, not only the yearly dividends paid from 1915 to 1925, inclusive, but also the ordinary and extraordinary dividends upon their shares for the years of 1915 to 1926, alleged to have been delivered to Benigno Goitia.

The fact that the claims filed with the committee were upon the basis of annual dividends, while those filed with the court below were on ordinary and extraordinary dividends, is of no importance, for, after all they refer to the same amounts received by the deceased Benigno Goitia in the name and for the benefit of the plaintiffs. The question to be decided is whether or not in this jurisdiction a greater sum may be claimed before the court than was claimed before the committee. It should be noted that according to the cases cited by the appellant on pages 12 and 13 of her brief, to wit, Patrick vs. Howard, 47 Mich., 40; 10 N. W. 71.

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72; Dayton vs. Dakin's Estate, 61 N. W., 349; and Luizzi vs. Brandy's Estate, 113 N. W., 574; 140 Mich., 73; 12 Detroit Leg., 59, the claims passed upon by the committee cannot be enlarged in the Circuit Court by amendment. But counsel for the appellees draws our attention to the doctrines of the Vermont Supreme Court (Maughan vs. Burns' Estate, 64 Vt., 316; 23 Atlantic, 583), permitting an augmentative amendment to the claim filed with the committee.

In the Maughan case, supra, the court stated:

ROWELL, J. This is an appeal from the decision and report of the commissioners on the estate of Michael Burns. Plaintiff presented her claim to the commissioners at $2,789.65. The ad damnum in her declaration filed in the probate court was $3,500. In the country court she recovered $3,813.49. Thereupon she moved for leave to amend her declaration by raising the ad damnum to $4,000, which was granted, and she had judgment for the amount of her recovery. The identical claim presented to the commissioners was the claim tried above. The amount of plaintiff's recovery rested on the quantum meruit. The jury found that she merited more than she estimated her claim when she presented it to the commissioners. But such underestimate did not preclude her from recovering more, if the testimony show her entitled to it, as presumably it did, as more was found. The fact of such estimate was evidence against here deserving more, as it was an implied admission that what she claimed was enough; but the admission was not conclusive upon her, and did not prevent 527; Stowe vs. Bishop, 58 Vt., 498; 3 Atl. Rep., 494; Hard vs. Burton, 62 Vt., 314; 20 Atl. Rep., 269.)

It is conceded that in common-low actions the court has power to raise the ad damnum at any time; but it is claimed that as the probate court is not a common-low court, but is a court of special and limited jurisdiction, and has by statue original jurisdiction of settlement of the estates of deceased person, the country court has no power to raise the ad damnum of the declaration filed in the probate court. The county court has, by statue, appellate jurisdiction of matters originally within the jurisdiction of the probate court and in such appeals it sits as a higher court of probate, and its jurisdiction is co-extensive with that of the probate court. It is not limited to the particular questions that arose in the probate court in the

matter appealed, but is expressly extended to matters originally within the jurisdiction of that court. It is an appellate court for the rehearing and the re-examination of matters — not particular questions merely — that have been acted upon in the court below. (Adams vs. Adams, 21 Vt., 162) And these matters embrace even those that rest in discretion. (Holmes vs. Holmes, 26 Vt., 536.) In Francis vs. Lathrope, 2 Tyler, 372, the claimant was allowed, on terms, to file a declaration in the country court, he having omitted to file one in the probate court as required by statute. It was within the jurisdiction of the probate court to have allowed this amendment, and, as the county court had all the jurisdiction of the probate court in this behalf, it also had power to allow the amendment.

However this may be, in this jurisdiction there is a rule governing the question raised in this assignment of error, namely, section 776 of the Code of Civil Procedure, as construed in the cases of Zaragoza vs. Estate of De Viademonte (10 Phil., 23); Escuin vs. Escuin (11 Phil., 332); and In re Estate of Santos (18 Phil., 403). This section provides:

SEC. 776. Upon the lodging of such appeal; with the clerk, the disputed claim shall stand for trial in the same manner as any other action in the Court of First Instance, the creditor being deemed to be the plaintiff, and the estate the defendant, and pleading as in other actions shall be filed.

Just as in ordinary actions in which the pleadings may be amended, so in the instant case, the original complaint for the same amounts claimed before the committee was altered, increasing the amounts, and the amended complaint was approved by the court and not objected to by the adverse party. The character of the action throughout is the same. The action before the committee rested on the contention that as attorney-in-fact for the plaintiffs with respect to the partnership "Tren de Aguadas," the late Benigno Goitia had received dividends upon their shares which he failed to turn over to them; the appeal to the Court of First Instance is founded on the same contention. When the claim was filed with the committee, counsel for the plaintiffs merely made a calculation of the amounts due, in view of the fact that he had not all the data from the plaintiffs, who live in Spain; but after filing the complaint on appeal with the court of First Instance, he

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discovered that his clients were entitled to larger sums, and was therefore compelled to change the amount of the claims.

Considering the distance that separated the plaintiffs from their attorney-in-fact, the deceased Benigno Goitia, and that the latter failed to supply them with data from 1915 until his death in 1926, it is natural that they had to resort to calculating the amounts due them from the "Tren de Aguadas." To deny them the right to amend their complaint in accordance with section 776, when they had secured more definite information as to the amounts due them, would be an injustice, especially when it is taken into consideration that this action arises from trust relations between the plaintiffs and the late Benigno Goitia as their attorney-in-fact.

The first error is therefore overruled.

The allegation found in the second assignment of error that the plaintiffs are not in reality interested parties in this case is untenable. It does not appear from the bill of exceptions that the appellant demurred on the ground of misjoinder of parties, or alleged such misjoinder in her answer. In accordance with section 93 of the Code of Civil Procedure, the appellant has waived the right to raise any objection on the ground that the plaintiffs are not the real parties in interest, or that they are not the owners of the stock in question. (Broce vs. Broce, 4 Phil., 611; and Ortiz vs. Aramburo, 8 Phil., 98) Furthermore it appears from Exhibits D, E, F, and G, that the late Benigno Goitia recognized that those shares of the "Tren de Aguadas" really belonged to the plaintiffs. And above all, Exhibit K-1, which is a copy of the balance sheet for May and June, 1926, taken from the books of the partnership, clearly shows that Leonor Mendezona owned 180 shares, and Valentina Izaguirre, 72 shares. Therefore the appellant cannot now contend that the plaintiffs are not the real interested parties.

In the third assignment of error it is argued that following section 676 of the Code of Civil Procedure, the court below had no power to order the defendant to render an account of dividends supposed to have been received by her deceased husband. We are of opinion that the order of the court enjoining the appellant to render an account of all the amounts collected by her aforesaid husband Benigno

Goitia as representative and attorney-in-fact of the plaintiffs, from 1915 until June, 1926, was made for the purpose of giving her an opportunity of showing, if she could, just what amounts the deceased Goitia received on account of the appellees' stock. There is no reversible error in this; for, as the complaint demanded the return of amounts alleged to have been received by the deceased attorney-in-fact represented by the appellant, it was quite in order to determine whether such amounts were really received or not.

The fourth assignment of error relates to Exhibits A and B, being the appellees' depositions made before the American consul at Bilbao, Spain, in accordance with section 356 of the Code of Civil Procedure. Counsel for the appellant was notified of the taking of these depositions, and he did not suggest any other interrogatory in addition to the questions of the committee. When these depositions were read in court, the defendant objected to their admission, invoking section 383, No. 7, of the Code of Civil Procedure. Her objection referred mainly to the following questions:

1. Did Mr. Benigno Goitia render you an account of your partnership in the "Tren de Aguadas?" — Yes, until the year 1914.

2. From the year 1915, did Mr. Benigno Goitia send you any report or money on account of profits upon your shares? — He sent me nothing, nor did he answer, my letters.

3. did you ever ask him to send you a statement of your account — Yes, several times by letter, but I never received an answer.

The first of these questions tends to show the relationship between the principals and their attorney-in-fact Benigno Goitia up to 1914. Supposing it was error to permit such a question, it would not be reversible error, for that very relationship is proved by Exhibits C to F, and H to I. As to the other two questions, it is to be noted that the deponents deny having received from the deceased Benigno Goitia any money on account of profits on their shares, since 1915. We are of opinion that the claimants' denial that a certain fact occurred before the death of their

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attorney-in-fact Benigno Agoitia does not come within the legal prohibitions (section 383, No. 7, Code of Civil Procedure). The law prohibits a witness directly interested in a claim against the estate of a decedent from testifying upon a matter of fact which took place before the death of the deceased. The underlying principle of this prohibition is to protect the intestate estate from fictitious claims. But this protection should not be treated as an absolute bar or prohibition from the filing of just claims against the decedent's estate.

The facts in the case of Maxilom vs. Tabotabo (9 Phil., 390), differ from those in the case at bar. In that case, the plaintiff Maxilom liquidated his accounts with the deceased Tabotabo during his lifetime, with the result that there was a balance in his favor and against Tabotabo of P312.37, Mexican currency. The liquidation was signed by both Maxilom and Tabotabo. In spite of this, some years later, or in 1906, Maxilom filed a claim against the estate of Tabotabo for P1,062.37, Mexican currency, alleging that P750 which included the 1899 liquidation had not really been received, and that therefore instead of P312.37, Mexican currency, that liquidation should have shown a balance of P1,062.37 in favor of Maxilom. It is evident that in view of the prohibition of section 383, paragraph 7, of the Code of Civil Procedure, Maxilom could not testify in his own behalf against Tabotabo's estate, so as to alter the balance of the liquidation made by and between himself and the decedent. But in the case before us there has been no such liquidation between the plaintiffs and the deceased Goitia. They testify, denying any such liquidation. To apply to them the rule that "if death has sealed the lips of one of the parties, the law seals those of the other," would be to exclude all possibility of a claim against the testamentary estate. We do not believe that this was the legislator's intention.

The plaintiffs-appellees did not testify to a fact which took place before their representative's death, but on the contrary denied that it had taken place at all, i.e. they denied that a liquidation had been made or any money remitted on account of their shares in the "Tren de Aguadas" which is the ground of their claim. It was incumbent upon the appellant to prove by proper evidence that the affirmative proposition was true, either by bringing into court the books which the attorney-in-

fact was in duty bound to keep, or by introducing copies of the drafts kept by the banks which drew them, as was the decedents's usual practice according to Exhibit I, or by other similar evidence.

The appellant admits having found a book of accounts kept by the decedent showing an item of P90 for the account of Leonor Mendezona and another of P36 for the account of Valentina Izaguirre, which agrees with the statement of Ruperto Santos, who succeeded Benigno Goitia in the administration of said partnership, to the effect that the deceased attorney-in-fact had collected the amounts due the plaintiffs as dividends on their shares for the months of May and June, 1926, or P90 for Leonor Mendezona, and P36 for Valentina Izaguirre, amounts which had not been remitted by the deceased to the plaintiffs.

Finally, the appellant complains that the trial court held by mere inference that Benigno Goitia received from the "Tren de Aguadas" the amounts of P13,140 and P5,265 for Mendezona and Izaguirre, respectively, as dividends for the years from 1915 to 1926, inclusive, and in holding again, by mere inference, that Benigno Goitia did not remit said sums to the plaintiffs.

It is a well established fact in the record that the plaintiffs had an interest or some shares in the partnership called "Tren de Aguadas," Mendezona holding 180 shares, worth P18,000, and Izaguirre, 72 shares worth P7,200. By the testimony of Ruperto Santos, former secretary of Benigno Goitia and his successor in the administration of that partnership, it appears that the deceased Benigno Goitia had received the dividends due the appellees for the months of May and June, 1926. And according to Exhibit K-I, the dividend for the months of May and June was P0.50 a share. And witness Ramon Salinas, a practising attorney and one of the shareholders of the partnership "Tren de Aguadas," testified, from a notebook which he had, that he received from the "Tren de Aguadas" the following ordinary dividends: P45 in 1915; P45 in 1916; P45 in 1917; P45 in 1918; P45 in 1919; P90 in 1920; P67.50 in 1921, and P45 each for 1922, 1923, 4924, 1925, and 1926. By way of extraordinary dividends, the witness testified that he received P22.50 each year from 1915 to 1918 inclusive; P45 in 1919; P60 in 1920; P37.50 in 1921, 1922, 1923, and 1924; P15 in 1925; and P22.50 in 1926. He further stated that he

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received P165 in 1918 as his share of the proceeds of the sale of the boat Santolan. Summing up all these amounts, we find that the witness Ramon Salinas, from 1915 to 1925, received a total of P1,087.50.

It further appears that Ruperto Santos assured the court that the dividends for the period from 1915 to 1926 have been distributed among the shareholders, and that the late Benigno Goitia received the dividends due on the shares pertaining to Leonor Mendezona and Valentina Izaguirre, deducting them from the total distribution. In view of these data, the court below reached the conclusion, on the basis of the dividends received by partner Ramon Salinas, that the attorney-in-fact Benigno Goitia received for the plaintiffs-appellees, respectively, the amounts of P13,140 and P5.256, including the dividends for 1926, or P90 for Leonor Mendezona, and P36 for Valentina Izaguirre.

As to the interest imposed in the judgment appealed from, it is sufficient to cite article 1724 of the Civil Code, which provides that an agent shall be liable for interest upon any sums he may have applied to his own use, from the day on which he did so, and upon those which he still owes, after the expiration of the agency, from the time of his default.

The judgment appealed form being in accordance with the merits of the case, we are of opinion, and so hold, that the same must be, as it is hereby, affirmed, with costs against the appellant. So ordered.

Republic of the PhilippinesSUPREME COURTManila

FIRST DIVISION

G.R. No. 88866 February 18, 1991

METROPOLITAN BANK & TRUST COMPANY, petitioner, vs.COURT OF APPEALS, GOLDEN SAVINGS & LOAN ASSOCIATION, INC., LUCIA CASTILLO, MAGNO CASTILLO and GLORIA CASTILLO, respondents.

Angara, Abello, Concepcion, Regala & Cruz for petitioner.

Bengzon, Zarraga, Narciso, Cudala, Pecson & Bengson for Magno and Lucia Castillo.

Agapito S. Fajardo and Jaime M. Cabiles for respondent Golden Savings & Loan Association, Inc.

CRUZ, J.:p

This case, for all its seeming complexity, turns on a simple question of negligence. The facts, pruned of all non-essentials, are easily told.

The Metropolitan Bank and Trust Co. is a commercial bank with branches throughout the Philippines and even abroad. Golden Savings and Loan Association was, at the time these events happened, operating in Calapan, Mindoro, with the other private respondents as its principal officers.

In January 1979, a certain Eduardo Gomez opened an account with Golden Savings and deposited over a period of two months 38 treasury warrants with a total value of P1,755,228.37. They were all drawn by the Philippine Fish Marketing Authority and purportedly signed by its General Manager and countersigned by its Auditor. Six of these were directly payable to Gomez while the others appeared to have been indorsed by their respective payees, followed by Gomez as second indorser. 1

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On various dates between June 25 and July 16, 1979, all these warrants were subsequently indorsed by Gloria Castillo as Cashier of Golden Savings and deposited to its Savings Account No. 2498 in the Metrobank branch in Calapan, Mindoro. They were then sent for clearing by the branch office to the principal office of Metrobank, which forwarded them to the Bureau of Treasury for special clearing. 2

More than two weeks after the deposits, Gloria Castillo went to the Calapan branch several times to ask whether the warrants had been cleared. She was told to wait. Accordingly, Gomez was meanwhile not allowed to withdraw from his account. Later, however, "exasperated" over Gloria's repeated inquiries and also as an accommodation for a "valued client," the petitioner says it finally decided to allow Golden Savings to withdraw from the proceeds of thewarrants. 3 The first withdrawal was made on July 9, 1979, in the amount of P508,000.00, the second on July 13, 1979, in the amount of P310,000.00, and the third on July 16, 1979, in the amount of P150,000.00. The total withdrawal was P968.000.00. 4

In turn, Golden Savings subsequently allowed Gomez to make withdrawals from his own account, eventually collecting the total amount of P1,167,500.00 from the proceeds of the apparently cleared warrants. The last withdrawal was made on July 16, 1979.

On July 21, 1979, Metrobank informed Golden Savings that 32 of the warrants had been dishonored by the Bureau of Treasury on July 19, 1979, and demanded the refund by Golden Savings of the amount it had previously withdrawn, to make up the deficit in its account.

The demand was rejected. Metrobank then sued Golden Savings in the Regional Trial Court of Mindoro. 5 After trial, judgment was rendered in favor of Golden Savings, which, however, filed a motion for reconsideration even as Metrobank filed its notice of appeal. On November 4, 1986, the lower court modified its decision thus:

ACCORDINGLY, judgment is hereby rendered:

1. Dismissing the complaint with costs against the plaintiff;

2. Dissolving and lifting the writ of attachment of the properties of defendant Golden Savings and Loan Association, Inc. and defendant Spouses Magno Castillo and Lucia Castillo;

3. Directing the plaintiff to reverse its action of debiting Savings Account No. 2498 of the sum of P1,754,089.00 and to reinstate and credit to such account such amount existing before the debit was made including the amount of P812,033.37 in favor of defendant Golden Savings and Loan Association, Inc. and thereafter, to allow defendant Golden Savings and Loan Association, Inc. to withdraw the amount outstanding thereon before the debit;

4. Ordering the plaintiff to pay the defendant Golden Savings and Loan Association, Inc. attorney's fees and expenses of litigation in the amount of P200,000.00.

5. Ordering the plaintiff to pay the defendant Spouses Magno Castillo and Lucia Castillo attorney's fees and expenses of litigation in the amount of P100,000.00.

SO ORDERED.

On appeal to the respondent court, 6 the decision was affirmed, prompting Metrobank to file this petition for review on the following grounds:

1. Respondent Court of Appeals erred in disregarding and failing to apply the clear contractual terms and conditions on the deposit slips allowing Metrobank to charge back any amount erroneously credited.

(a) Metrobank's right to charge back is not limited to instances where the checks or treasury warrants are forged or unauthorized.

(b) Until such time as Metrobank is actually paid, its obligation is that of a mere collecting agent which cannot be held liable for its failure to collect on the warrants.

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2. Under the lower court's decision, affirmed by respondent Court of Appeals, Metrobank is made to pay for warrants already dishonored, thereby perpetuating the fraud committed by Eduardo Gomez.

3. Respondent Court of Appeals erred in not finding that as between Metrobank and Golden Savings, the latter should bear the loss.

4. Respondent Court of Appeals erred in holding that the treasury warrants involved in this case are not negotiable instruments.

The petition has no merit.

From the above undisputed facts, it would appear to the Court that Metrobank was indeed negligent in giving Golden Savings the impression that the treasury warrants had been cleared and that, consequently, it was safe to allow Gomez to withdraw the proceeds thereof from his account with it. Without such assurance, Golden Savings would not have allowed the withdrawals; with such assurance, there was no reason not to allow the withdrawal. Indeed, Golden Savings might even have incurred liability for its refusal to return the money that to all appearances belonged to the depositor, who could therefore withdraw it any time and for any reason he saw fit.

It was, in fact, to secure the clearance of the treasury warrants that Golden Savings deposited them to its account with Metrobank. Golden Savings had no clearing facilities of its own. It relied on Metrobank to determine the validity of the warrants through its own services. The proceeds of the warrants were withheld from Gomez until Metrobank allowed Golden Savings itself to withdraw them from its own deposit. 7 It was only when Metrobank gave the go-signal that Gomez was finally allowed by Golden Savings to withdraw them from his own account.

The argument of Metrobank that Golden Savings should have exercised more care in checking the personal circumstances of Gomez before accepting his deposit does not hold water. It was Gomez who was entrusting the warrants, not Golden Savings that was extending him a loan; and moreover, the treasury warrants were subject to clearing, pending which the depositor could not withdraw its proceeds.

There was no question of Gomez's identity or of the genuineness of his signature as checked by Golden Savings. In fact, the treasury warrants were dishonored allegedly because of the forgery of the signatures of the drawers, not of Gomez as payee or indorser. Under the circumstances, it is clear that Golden Savings acted with due care and diligence and cannot be faulted for the withdrawals it allowed Gomez to make.

By contrast, Metrobank exhibited extraordinary carelessness. The amount involved was not trifling — more than one and a half million pesos (and this was 1979). There was no reason why it should not have waited until the treasury warrants had been cleared; it would not have lost a single centavo by waiting. Yet, despite the lack of such clearance — and notwithstanding that it had not received a single centavo from the proceeds of the treasury warrants, as it now repeatedly stresses — it allowed Golden Savings to withdraw — not once, not twice, but thrice — from the uncleared treasury warrants in the total amount of P968,000.00

Its reason? It was "exasperated" over the persistent inquiries of Gloria Castillo about the clearance and it also wanted to "accommodate" a valued client. It "presumed" that the warrants had been cleared simply because of "the lapse of one week." 8 For a bank with its long experience, this explanation is unbelievably naive.

And now, to gloss over its carelessness, Metrobank would invoke the conditions printed on the dorsal side of the deposit slips through which the treasury warrants were deposited by Golden Savings with its Calapan branch. The conditions read as follows:

Kindly note that in receiving items on deposit, the bank obligates itself only as the depositor's collecting agent, assuming no responsibility beyond care in selecting correspondents, and until such time as actual payment shall have come into possession of this bank, the right is reserved to charge back to the depositor's account any amount previously credited, whether or not such item is returned. This also applies to checks drawn on local banks and bankers and their branches as

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well as on this bank, which are unpaid due to insufficiency of funds, forgery, unauthorized overdraft or any other reason. (Emphasis supplied.)

According to Metrobank, the said conditions clearly show that it was acting only as a collecting agent for Golden Savings and give it the right to "charge back to the depositor's account any amount previously credited, whether or not such item is returned. This also applies to checks ". . . which are unpaid due to insufficiency of funds, forgery, unauthorized overdraft of any other reason." It is claimed that the said conditions are in the nature of contractual stipulations and became binding on Golden Savings when Gloria Castillo, as its Cashier, signed the deposit slips.

Doubt may be expressed about the binding force of the conditions, considering that they have apparently been imposed by the bank unilaterally, without the consent of the depositor. Indeed, it could be argued that the depositor, in signing the deposit slip, does so only to identify himself and not to agree to the conditions set forth in the given permit at the back of the deposit slip. We do not have to rule on this matter at this time. At any rate, the Court feels that even if the deposit slip were considered a contract, the petitioner could still not validly disclaim responsibility thereunder in the light of the circumstances of this case.

In stressing that it was acting only as a collecting agent for Golden Savings, Metrobank seems to be suggesting that as a mere agent it cannot be liable to the principal. This is not exactly true. On the contrary, Article 1909 of the Civil Code clearly provides that —

Art. 1909. — The agent is responsible not only for fraud, but also for negligence, which shall be judged 'with more or less rigor by the courts, according to whether the agency was or was not for a compensation.

The negligence of Metrobank has been sufficiently established. To repeat for emphasis, it was the clearance given by it that assured Golden Savings it was already safe to allow Gomez to withdraw the proceeds of the treasury warrants he had deposited Metrobank misled Golden Savings. There may have been no express clearance, as Metrobank insists (although this is refuted by Golden

Savings) but in any case that clearance could be implied from its allowing Golden Savings to withdraw from its account not only once or even twice but three times. The total withdrawal was in excess of its original balance before the treasury warrants were deposited, which only added to its belief that the treasury warrants had indeed been cleared.

Metrobank's argument that it may recover the disputed amount if the warrants are not paid for any reason is not acceptable. Any reason does not mean no reason at all. Otherwise, there would have been no need at all for Golden Savings to deposit the treasury warrants with it for clearance. There would have been no need for it to wait until the warrants had been cleared before paying the proceeds thereof to Gomez. Such a condition, if interpreted in the way the petitioner suggests, is not binding for being arbitrary and unconscionable. And it becomes more so in the case at bar when it is considered that the supposed dishonor of the warrants was not communicated to Golden Savings before it made its own payment to Gomez.

The belated notification aggravated the petitioner's earlier negligence in giving express or at least implied clearance to the treasury warrants and allowing payments therefrom to Golden Savings. But that is not all. On top of this, the supposed reason for the dishonor, to wit, the forgery of the signatures of the general manager and the auditor of the drawer corporation, has not been established. 9 This was the finding of the lower courts which we see no reason to disturb. And as we said in MWSS v. Court of Appeals: 10

Forgery cannot be presumed (Siasat, et al. v. IAC, et al., 139 SCRA 238). It must be established by clear, positive and convincing evidence. This was not done in the present case.

A no less important consideration is the circumstance that the treasury warrants in question are not negotiable instruments. Clearly stamped on their face is the word "non-negotiable." Moreover, and this is of equal significance, it is indicated that they are payable from a particular fund, to wit, Fund 501.

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The following sections of the Negotiable Instruments Law, especially the underscored parts, are pertinent:

Sec. 1. — Form of negotiable instruments. — An instrument to be negotiable must conform to the following requirements:

(a) It must be in writing and signed by the maker or drawer;

(b) Must contain an unconditional promise or order to pay a sum certain in money;

(c) Must be payable on demand, or at a fixed or determinable future time;

(d) Must be payable to order or to bearer; and

(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty.

xxx xxx xxx

Sec. 3. When promise is unconditional. — An unqualified order or promise to pay is unconditional within the meaning of this Act though coupled with —

(a) An indication of a particular fund out of which reimbursement is to be made or a particular account to be debited with the amount; or

(b) A statement of the transaction which gives rise to the instrument judgment.

But an order or promise to pay out of a particular fund is not unconditional.

The indication of Fund 501 as the source of the payment to be made on the treasury warrants makes the order or promise to pay "not unconditional" and the warrants themselves non-negotiable. There should be no question that the exception on Section 3 of the Negotiable Instruments Law is applicable in the case at bar. This conclusion conforms to Abubakar vs. Auditor General 11 where the Court held:

The petitioner argues that he is a holder in good faith and for value of a negotiable instrument and is entitled to the rights and privileges of a holder in due course, free from defenses. But this treasury warrant is not within the scope of the negotiable instrument law. For one thing, the document bearing on its face the words "payable from the appropriation for food administration, is actually an Order for payment out of "a particular fund," and is not unconditional and does not fulfill one of the essential requirements of a negotiable instrument (Sec. 3 last sentence and section [1(b)] of the Negotiable Instruments Law).

Metrobank cannot contend that by indorsing the warrants in general, Golden Savings assumed that they were "genuine and in all respects what they purport to be," in accordance with Section 66 of the Negotiable Instruments Law. The simple reason is that this law is not applicable to the non-negotiable treasury warrants. The indorsement was made by Gloria Castillo not for the purpose of guaranteeing the genuineness of the warrants but merely to deposit them with Metrobank for clearing. It was in fact Metrobank that made the guarantee when it stamped on the back of the warrants: "All prior indorsement and/or lack of endorsements guaranteed, Metropolitan Bank & Trust Co., Calapan Branch."

The petitioner lays heavy stress on Jai Alai Corporation v. Bank of the Philippine Islands, 12 but we feel this case is inapplicable to the present controversy. That case involved checks whereas this case involves treasury warrants. Golden Savings never represented that the warrants were negotiable but signed them only for the purpose of depositing them for clearance. Also, the fact of forgery was proved in that case but not in the case before us. Finally, the Court found the Jai Alai Corporation negligent in accepting the checks without question from one Antonio Ramirez notwithstanding that the payee was the Inter-Island Gas Services, Inc. and it did not appear that he was authorized to indorse it. No similar negligence can be imputed to Golden Savings.

We find the challenged decision to be basically correct. However, we will have to amend it insofar as it directs the petitioner to credit Golden Savings with the full amount of the treasury checks deposited to its account.

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The total value of the 32 treasury warrants dishonored was P1,754,089.00, from which Gomez was allowed to withdraw P1,167,500.00 before Golden Savings was notified of the dishonor. The amount he has withdrawn must be charged not to Golden Savings but to Metrobank, which must bear the consequences of its own negligence. But the balance of P586,589.00 should be debited to Golden Savings, as obviously Gomez can no longer be permitted to withdraw this amount from his deposit because of the dishonor of the warrants. Gomez has in fact disappeared. To also credit the balance to Golden Savings would unduly enrich it at the expense of Metrobank, let alone the fact that it has already been informed of the dishonor of the treasury warrants.

WHEREFORE, the challenged decision is AFFIRMED, with the modification that Paragraph 3 of the dispositive portion of the judgment of the lower court shall be reworded as follows:

3. Debiting Savings Account No. 2498 in the sum of P586,589.00 only and thereafter allowing defendant Golden Savings & Loan Association, Inc. to withdraw the amount outstanding thereon, if any, after the debit.

SO ORDERED.

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Republic of the PhilippinesSUPREME COURTManila

EN BANC

G.R. No. L-29640 June 10, 1971

GUILLERMO AUSTRIA, petitioner, vs.THE COURT OF APPEALS (Second Division), PACIFICO ABAD and MARIA G. ABAD, respondents.

Antonio Enrile Inton for petitioner.

Jose A. Buendia for respondents.

REYES, J.B.L., J.:

Guillermo Austria petitions for the review of the decision rendered by the Court of Appeal (in CA-G.R. No. 33572-R), on the sole issue of whether in a contract of agency (consignment of goods for sale) it is necessary that there be prior conviction for robbery before the loss of the article shall exempt the consignee from liability for such loss.

In a receipt dated 30 January 1961, Maria G. Abad acknowledged having received from Guillermo Austria one (1) pendant with diamonds valued at P4,500.00, to be sold on commission basis or to be returned on demand. On 1 February 1961,

however, while walking home to her residence in Mandaluyong, Rizal, Abad was said to have been accosted by two men, one of whom hit her on the face, while the other snatched her purse containing jewelry and cash, and ran away. Among the pieces of jewelry allegedly taken by the robbers was the consigned pendant. The incident became the subject of a criminal case filed in the Court of First Instance of Rizal against certain persons (Criminal Case No. 10649, People vs. Rene Garcia, et al.).

As Abad failed to return the jewelry or pay for its value notwithstanding demands, Austria brought in the Court of First Instance of Manila an action against her and her husband for recovery of the pendant or of its value, and damages. Answering the allegations of the complaint, defendants spouses set up the defense that the alleged robbery had extinguished their obligation.

After due hearing, the trial court rendered judgment for the plaintiff, and ordered defendants spouses, jointly and severally, to pay to the former the sum of P4,500.00, with legal interest thereon, plus the amount of P450.00 as reasonable attorneys' fees, and the costs. It was held that defendants failed to prove the fact of robbery, or, if indeed it was committed, that defendant Maria Abad was guilty of negligence when she went home without any companion, although it was already getting dark and she was carrying a large amount of cash and valuables on the day in question, and such negligence did not free her from liability for damages for the loss of the jewelry.

Not satisfied with his decision, the defendants went to the Court of Appeals, and there secured a reversal of the judgment. The appellate court overruling the finding of the trial court on the lack of credibility of the two defense witnesses who testified on the occurrence of the robbery, and holding that the facts of robbery and defendant Maria Abad's possesion of the pendant on that unfortunate day have been duly published, declared respondents not responsible for the loss of the jewelry on account of a fortuitous event, and relieved them from liability for damages to the owner. Plaintiff thereupon instituted the present proceeding.

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It is now contended by herein petitioner that the Court of Appeals erred in finding that there was robbery in the case, although nobody has been found guilty of the supposed crime. It is petitioner's theory that for robbery to fall under the category of a fortuitous event and relieve the obligor from his obligation under a contract, pursuant to Article 1174 of the new Civil Code, there ought to be prior finding on the guilt of the persons responsible therefor. In short, that the occurrence of the robbery should be proved by a final judgment of conviction in the criminal case. To adopt a different view, petitioner argues, would be to encourage persons accountable for goods or properties received in trust or consignment to connive with others, who would be willing to be accused in court for the robbery, in order to be absolved from civil liability for the loss or disappearance of the entrusted articles.

We find no merit in the contention of petitioner.

It is recognized in this jurisdiction that to constitute a caso fortuito that would exempt a person from responsibility, it is necessary that (1) the event must be independent of the human will (or rather, of the debtor's or obligor's); (2) the occurrence must render it impossible for the debtor to fulfill the obligation in a normal manner; and that (3) the obligor must be free of participation in or aggravation of the injury to the creditor. 1 A fortuitous event, therefore, can be produced by nature, e.g., earthquakes, storms, floods, etc., or by the act of man, such as war, attack by bandits, robbery, 2 etc., provided that the event has all the characteristics enumerated above.

It is not here disputed that if respondent Maria Abad were indeed the victim of robbery, and if it were really true that the pendant, which she was obliged either to sell on commission or to return to petitioner, were taken during the robbery, then the occurrence of that fortuitous event would have extinguished her liability. The point at issue in this proceeding is how the fact of robbery is to be established in order that a person may avail of the exempting provision of Article 1174 of the new Civil Code, which reads as follows:

ART. 1174. Except in cases expressly specified by law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which, though foreseen, were inevitable.

It may be noted the reform that the emphasis of the provision is on the events, not on the agents or factors responsible for them. To avail of the exemption granted in the law, it is not necessary that the persons responsible for the occurrence should be found or punished; it would only be sufficient to established that the enforceable event, the robbery in this case did take place without any concurrent fault on the debtor's part, and this can be done by preponderant evidence. To require in the present action for recovery the prior conviction of the culprits in the criminal case, in order to establish the robbery as a fact, would be to demand proof beyond reasonable doubt to prove a fact in a civil case.

It is undeniable that in order to completely exonerate the debtor for reason of a fortutious event, such debtor must, in addition to the cams itself, be free of any concurrent or contributory fault or negligence. 3 This is apparent from Article 1170 of the Civil Code of the Philippines, providing that:

ART. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages.

It is clear that under the circumstances prevailing at present in the City of Manila and its suburbs, with their high incidence of crimes against persons and property that renders travel after nightfall a matter to be sedulously avoided without suitable precaution and protection, the conduct of respondent Maria G. Abad, in returning alone to her house in the evening, carrying jewelry of considerable value would be negligent per se and would not exempt her from responsibility in the case of a robbery. We are not persuaded, however, that the same rule should obtain ten years previously, in 1961, when the robbery in question did take place, for at that time criminality had not by far reached the levels attained in the present day.

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There is likewise no merit in petitioner's argument that to allow the fact of robbery to be recognized in the civil case before conviction is secured in the criminal action, would prejudice the latter case, or would result in inconsistency should the accused obtain an acquittal or should the criminal case be dismissed. It must be realized that a court finding that a robbery has happened would not necessarily mean that those accused in the criminal action should be found guilty of the crime; nor would a ruling that those actually accused did not commit the robbery be inconsistent with a finding that a robbery did take place. The evidence to establish these facts would not necessarily be the same.

WHEREFORE, finding no error in the decision of the Court of Appeals under review, the petition in this case is hereby dismissed with costs against the petitioner.

Republic of the PhilippinesSUPREME COURTManila

EN BANC

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G.R. No. L-42465 November 19, 1936

INTERNATIONAL FILMS (CHINA), LTD., plaintiff-appellant, vs.THE LYRIC FILM EXCHANGE, INC., defendant-appellee.

J. W. Ferrier for appellant.Juan T. Santos and Arsenio Solidum for appellee.

VILLA-REAL, J.:

This is an appeal taken by the plaintiff company International Films (China), Ltd. from the judgment of the Court of First Instance of Manila dismissing the complaint filed by it against the defendant company the Lyric Film Exchange, Inc., with costs to said plaintiff.

In support of its appeal the appellant assigns six alleged errors as committed by the court a quo in its said judgment, which will be discussed in the course of this decision.

The record shows that Bernard Gabelman was the Philippine agent of the plaintiff company International Films (China), Ltd. by virtue of a power of attorney executed in his favor on April 5, 1933 (Exhibit 1). On June 2, 1933, the International Films (China), Ltd., through its said agent, leased the film entitled "Monte Carlo Madness" to the defendant company, the Lyric Film Exchange, Inc., to be shown in Cavite for two consecutive days, that is, on June 1 and 2, 1933, for 30 per cent of the receipts; in the Cuartel de España for one day, or on June 6, 1933, for P45; in the University Theater for two consecutive days, or on June 8, and 9, 1933, for 30 per cent of the receipts; in Stotsenburg for two consecutive days, or on June 18 and 19, 1933, for 30 per cent of the receipts, and in the Paz Theater for two consecutive days, or on June 21 and 22, 1933, for 30 per cent of the receipts (Exhibit C). One of the conditions of the contract was that the defendant company would answer for the loss of the film in question whatever the cause. On June 23,

1933, following the last showing of the film in question in the Paz Theater, Vicente Albo, then chief of the film department of the Lyric Film Exchange, Inc., telephoned said agent of the plaintiff company informing him that the showing of said film had already finished and asked, at the same time, where he wished to have the film returned to him. In answer, Bernard Gabelman informed Albo that he wished to see him personally in the latter's office. At about 11 o'clock the next morning, Gabelman went to Vicente Albo's office and asked whether he could deposit the film in question in the vault of the Lyric Film Exchange, Inc., as the International Films (China) Ltd. did not yet have a safety vault, as required by the regulations of the fire department. After the case had been referred to O'Malley, Vicente Albo's chief, the former answered that the deposit could not be made inasmuch as the film in question would not be covered by the insurance carried by the Lyric Film Exchange, Inc. Bernard Gabelman then requested Vicente Albo to permit him to deposit said film in the vault of the Lyric Film Exchange, Inc., under Gabelman's own responsibility. As there was a verbal contract between Gabelman and the Lyric Film Exchange Inc., whereby the film "Monte Carlo Madness" would be shown elsewhere, O'Malley agreed and the film was deposited in the vault of the defendant company under Bernard Gabelman's responsibility.

About July 27, 1933, Bernard Gabelman severed his connection with the plaintiff company, being succeeded by Lazarus Joseph. Bernard Gabelman, upon turning over the agency to the new agent, informed the latter of the deposit of the film "Monte Carlo Madness" in the vault of the defendant company as well as of the verbal contract entered into between him and the Lyric Film Exchange, Inc., whereby the latter would act as a subagent of the plaintiff company, International Films (China) Ltd., with authority to show this film "Monte Carlo Madness" in any theater where said defendant company, the Lyric Film Exchange, Inc., might wish to show it after the expiration of the contract Exhibit C. As soon as Lazarus Joseph had taken possession of the Philippine agency of the International Films (China) Ltd., he went to the office of the Lyric Film Exchange, Inc., to ask for the return not only of the film "Monte Carlo Madness" but also of the films "White Devils" and "Congress Dances". On August 13 and 19, 1933, the Lyric Film Exchange, Inc., returned the films entitled "Congress Dances" and "White Devils" to Lazarus

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Joseph, but not the film "Monte Carlo Madness" because it was to be shown in Cebu on August 29 and 30, 1933. Inasmuch as the plaintiff would profit by the showing of the film "Monte Carlo Madness", Lazarus Joseph agreed to said exhibition. It happened, however, that the bodega of the Lyric Film Exchange, Inc., was burned on August 19, 1933, together with the film "Monte Carlo Madness" which was not insured.

The first question to be decided in this appeal, which is raised in the first assignment of alleged error, is whether or not the court a quo erred in allowing the defendant company to amend its answer after both parties had already rested their respective cases.

In Torres Viuda de Nery vs. Tomacruz (49 Phil., 913, 915), this court, through Justice Malcolm, said:

Sections 109 and 110 of the Philippine Code of Civil Procedure, relating to the subjects of Variance and Amendments in General, should be equitably applied to the end that cases may be favorably and fairly presented upon their merits, and that equal and exact justice may be done between the parties. Under code practice, amendments to pleadings are favored, and should be liberally allowed in furtherance of justice. This liberality, it has been said, is greatest in the early stages of a lawsuit, decreases as it progresses, and changes at times to a strictness amounting to a prohibition. The granting of leave to file amended pleadings is a matter peculiarly within the sound discretion of the trial court. The discretion will not be disturbed on appeal, except in case of an evident abuse thereof. But the rule allowing amendments to pleadings is subject to the general but not inflexible limitation that the cause of action or defense shall not be substantially changed, or that the theory of the case shall not be altered. (21 R. C. L., pp. 572 et seq.; 3 Kerr's Cyc. Codes of California, sections 469, 470 and 473; Ramirez vs. Murray [1855], 5 Cal., 222; Haydenvs. Hayden [1873], 46 Cal., 332; Hackett vs. Bank of California [1881], 57 Cal., 335; Hancock vs. Board of Education of City of Santa Barbara [1903], 140 Cal., 554; Dunphy vs. Dunphy [1911], 161 Cal., 87; 38 L. R. A. [N. S.], 818.)lawphi1.net

In the case of Gould vs. Stafford (101 Cal., 32, 34), the Supreme Court of California, interpreting section 473 of the Code of Civil Procedure of said State, from which section 110 of our Code was taken, stated as follows:

The rule is that courts will be liberal in allowing an amendment to a pleading when it does not seriously impair the rights of the opposite party — and particularly an amendment to an answer. A defendant can generally set up as many defenses as he may have. Appellant contends that the affidavits upon which the motion to amend was made show that it was based mainly on a mistake of law made by respondent's attorney; but, assuming that to be, so, still the power of a court to allow an amendment is not limited by the character of the mistake which calls forth its exercise. The general rule that a party cannot be relieved from an ordinary contract which is in its nature final, on account of a mistake of law, does not apply to proceedings in an action at law while it is pending and undetermined. Pleadings are not necessarily final until after judgment. Section 473 of the Code of Civil Procedure provides that the court may allow an amendment to a pleading to correct certain enumerated mistakes or "a mistake in any other respect," and "in other particulars." The true rule is well stated in Ward vs. Clay (62 Cal. 502). In the case at bar evidence of the lease was given at the first trial; and we cannot see that the amendment before the second trial put plaintiff in a position any different from that which he would have occupied if the amendment had been made before the first trial.

In the case of Ward vs. Clay (82 Cal., 502, 510), the Supreme Court of said State stated:

The principal purpose of vesting the court with this discretionary power is to enable it "to mold and direct its proceedings so as to dispose of cases upon their substantial merits," when it can be done without injustice to either party, whether the obstruction to such a disposition of cases be a mistake of fact or a mistake as to the law; although it may be that the court should require a stronger showing to justify relief from the effect of a mistake in law than in case of a mistake as to matter of fact. The exercise of the power conferred by section 473 of the code,

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however, should appear to have, been "in furtherance of justice," and the relief, if any, should be granted upon just terms.

Lastly, in the case of Simpson vs. Miller (94 Pac., 253), the said Supreme Court of California said:

In an action to recover property which had vested in plaintiff's trustee in bankruptcy prior to the suit, an amendment to the answer, made after both parties had rested, but before the cause was submitted, pleading plaintiff's bankruptcy in bar to the action, was properly allowed in the discretion of the court.

Under the above-cited doctrines, it is discretionary in the court which has cognizance of a case to allow or not the amendment of an answer for the purpose of questioning the personality of the plaintiff to bring the action, even after the parties had rested their cases, as it causes no injustice to any of the parties, and this court will not interfere in the exercise of said discretion unless there is an evident abuse thereof, which does not exist in this case.

The second question to be decided is whether or not the defendant company, the Lyric Film Exchange, Inc., is responsible to the plaintiff, International Films (China) Ltd., for the destruction by fire of the film in question, entitled "Monte Carlo Madness".

The plaintiff company claims that the defendant's failure to return the film "Monte Carlo Madness" to the former was due to the fact that the period for the delivery thereof, which expired on June 22, 1933, had been extended in order that it might be shown in Cebu on August 29 and 30, 1933, in accordance with an understanding had between Lazarus Joseph, the new agent of the plaintiff company, and the defendant. The defendant company, on the other hand, claims that when it wanted to return the film "Monte Carlo Madness" to Bernard Gabelman, the former agent of the plaintiff company, because of the arrival of the date for the return thereof, under the contract Exhibit C, said agent, not having a safety vault, requested Vicente Albo, chief of the film department of the defendant company, to keep said film in the latter's vault under Gabelman's own

responsibility, verbally stipulating at the same time that the defendant company, as subagent of the International Films (China) Ltd., might show the film in question in its theaters.

It does not appear sufficiently proven that the understanding had between Lazarus Joseph, second agent of the plaintiff company, and Vicente Albo, chief of the film department of the defendant company, was that the defendant company would continue showing said film under the same contract Exhibit C. The preponderance of evidence shows that the verbal agreement had between Bernard Gabelman, the former agent of the plaintiff company, and Vicente Albo, chief of the film department of the defendant company, was that said film "Monte Carlo Madness" would remain deposited in the safety vault of the defendant company under the responsibility of said former agent and that the defendant company, as his subagent, could show it in its theaters, the plaintiff company receiving 5 per cent of the receipts up to a certain amount, and 15 per cent thereof in excess of said amount.

If, as it has been sufficiently proven in our opinion, the verbal contract had between Bernard Gabelman, the former agent of the plaintiff company, and Vicente Albo, chief of the film department of the defendant company, was a sub-agency or a submandate, the defendant company is not civilly liable for the destruction by fire of the film in question because as a mere submandatary or subagent, it was not obliged to fulfill more than the contents of the mandate and to answer for the damages caused to the principal by his failure to do so (art. 1718, Civil Code). The fact that the film was not insured against fire does not constitute fraud or negligence on the part of the defendant company, the Lyric Film Exchange, Inc., because as a subagent, it received no instruction to that effect from its principal and the insurance of the film does not form a part of the obligation imposed upon it by law.

As to the question whether or not the defendant company having collected the entire proceeds of the fire insurance policy of its films deposited in its vault, should pay the part corresponding to the film in question which was deposited therein, the evidence shows that the film "Monte Carlo Madness" under consideration was not

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included in the insurance of the defendant company's films, as this was one of the reasons why O'Malley at first refused to receive said film for deposit and he consented thereto only when Bernard Gabelman, the former agent of the plaintiff company, insisted upon his request, assuming all responsibility. Furthermore, the defendant company did not collect from the insurance company an amount greater than that for which its films were insured, notwithstanding the fact that the film in question was included in the vault, and it would have collected the same amount even if said film had not been deposited in its safety vault. Inasmuch as the defendant company, The Lyric Film Exchange, Inc., had not been enriched by the destruction by fire of the plaintiff company's film, it is not liable to the latter.

For the foregoing considerations, we are of the opinion and so hold: (1) That the court a quo acted within its discretionary power in allowing the defendant company to amend its answer by pleading the special defense of the plaintiff company's lack of personality to bring the action, after both parties had already rested their respective cases; (2) that the defendant company, as subagent of the plaintiff in the exhibition of the film "Monte Carlo Madness", was not obliged to insure it against fire, not having received any express mandate to that effect, and it is not liable for the accidental destruction thereof by fire.

Wherefore, and although on a different ground, the appealed judgment is affirmed, with the costs to the appellant. So ordered.

Republic of the PhilippinesSUPREME COURTManila

THIRD DIVISION

G.R. No. 171591 25 June 2012

ACE NAVIGATION CO., INC., petitioner, vs.FGU INSURANCE CORPORATION and PIONEER INSURANCE AND SURETY CORPORATION, Respondents.

D E C I S I O N

PERLAS-BERNABE, J.:

This is an appeal under Rule 45 of the Rules of Court seeking to reverse the June 22, 2004 Decision1 and February 17, 2006 Resolution2 of the Court of Appeals (CA) ordering petitioner Ace Navigation Co., Inc., jointly and severally with Cardia Limited, to pay respondents FGU Insurance Corp. and Pioneer Insurance and

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Surety Corp. the sum of P213,518.20 plus interest at the rate of six percentum (6%) from the filing of the complaint until paid.

The Facts

On July 19, 1990, Cardia Limited (CARDIA) shipped on board the vessel M/V Pakarti Tiga at Shanghai Port China, 8,260 metric tons or 165,200 bags of Grey Portland Cement to be discharged at the Port of Manila and delivered to its consignee, Heindrich Trading Corp. (HEINDRICH). The subject shipment was insured with respondents, FGU Insurance Corp. (FGU) and Pioneer Insurance and Surety Corp. (PIONEER), against all risks under Marine Open Policy No. 062890275 for the amount of P18,048,421.00. 3

The subject vessel is owned by P.T. Pakarti Tata (PAKARTI) which it chartered to Shinwa Kaiun Kaisha Ltd. (SHINWA). 4 Representing itself as owner of the vessel, SHINWA entered into a charter party contract with Sky International, Inc. (SKY), an agent of Kee Yeh Maritime Co. (KEE YEH), 5 which further chartered it to Regency Express Lines S.A. (REGENCY). Thus, it was REGENCY that directly dealt with consignee HEINDRICH, and accordingly, issued Clean Bill of Lading No. SM-1. 6

On July 23, 1990, the vessel arrived at the Port of Manila and the shipment was discharged. However, upon inspection of HEINDRICH and petitioner Ace Navigation Co., Inc. (ACENAV), agent of CARDIA, it was found that out of the 165,200 bags of cement, 43,905 bags were in bad order and condition. Unable to collect the sustained damages in the amount of P1,423,454.60 from the shipper, CARDIA, and the charterer, REGENCY, the respondents, as co-insurers of the cargo, each paid the consignee, HEINDRICH, the amounts of P427,036.40 and P284,690.94, respectively, 7 and consequently became subrogated to all the rights and causes of action accruing to HEINDRICH.

Thus, on August 8, 1991, respondents filed a complaint for damages against the following defendants: "REGENCY EXPRESS LINES, S.A./ UNKNOWN CHARTERER OF THE VESSEL 'PAKARTI TIGA'/ UNKNOWN OWNER and/or DEMIFE (sic) CHARTERER OF THE VESSEL 'PAKARTI TIGA', SKY

INTERNATIONAL, INC. and/or ACE NAVIGATION COMPANY, INC." 8 which was docketed as Civil Case No. 90-2016.

In their answer with counterclaim and cross-claim, PAKARTI and SHINWA alleged that the suits against them cannot prosper because they were not named as parties in the bill of lading. 9

Similarly, ACENAV claimed that, not being privy to the bill of lading, it was not a real party-in-interest from whom the respondents can demand compensation. It further denied being the local ship agent of the vessel or REGENCY and claimed to be the agent of the shipper, CARDIA. 10

For its part, SKY denied having acted as agent of the charterer, KEE YEH, which chartered the vessel from SHINWA, which originally chartered the vessel from PAKARTI. SKY also averred that it cannot be sued as an agent without impleading its alleged principal, KEE YEH. 11

On September 30, 1991, HEINDRICH filed a similar complaint against the same parties and Commercial Union Assurance Co. (COMMERCIAL), docketed as Civil Case No. 91-2415, which was later consolidated with Civil Case No. 91-2016. However, the suit against COMMERCIAL was subsequently dismissed on joint motion by the respondents and COMMERCIAL. 12

Proceedings Before the RTC and the CA

In its November 26, 2001 Decision, 13 the RTC dismissed the complaint, the fallo of which reads:

WHEREFORE, premises considered, plaintiffs’ complaint is DISMISSED. Defendants’ counter-claim against the plaintiffs are likewise dismissed, it appearing that plaintiff[s] did not act in evident bad faith in filing the present complaint against them.

Defendant Pakarti and Shinwa’s cross-claims against their co-defendants are likewise dismissed for lack of sufficient evidence.

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No costs.

SO ORDERED.

Dissatisfied, the respondents appealed to the CA which, in its assailed June 22, 2004 Decision, 14 found PAKARTI, SHINWA, KEE YEH and its agent, SKY, solidarily liable for 70% of the respondents' claim, with the remaining 30% to be shouldered solidarily by CARDIA and its agent, ACENAV, thus:

WHEREFORE, premises considered, the Decision dated November 26, 2001 is hereby MODIFIED in the sense that:

a) defendant-appellees P.T. Pakarti Tata, Shinwa Kaiun Kaisha, Ltd., Kee Yeh Maritime Co., Ltd. and the latter’s agent Sky International, Inc. are hereby declared jointly and severally liable, and are DIRECTED to pay FGU Insurance Corporation the amount of Two Hundred Ninety Eight Thousand Nine Hundred Twenty Five and 45/100 (P298,925.45) Pesos and Pioneer Insurance and Surety Corp. the sum of One Hundred Ninety Nine Thousand Two Hundred Eighty Three and 66/100 (P199,283.66) Pesos representing Seventy (70%) percentum of their respective claims as actual damages plus interest at the rate of six (6%) percentum from the date of the filing of the complaint; and

b) defendant Cardia Ltd. and defendant-appellee Ace Navigation Co., Inc. are DECLARED jointly and severally liable and are hereby DIRECTED to pay FGU Insurance Corporation One Hundred Twenty Eight Thousand One Hundred Ten and 92/100 (P128,110.92) Pesos and Pioneer Insurance and Surety Corp. Eighty Five Thousand Four Hundred Seven and 28/100 (P85,407.28) Pesos representing thirty (30%) percentum of their respective claims as actual damages, plus interest at the rate of six (6%) percentum from the date of the filing of the complaint.

SO ORDERED.

Finding that the parties entered into a time charter party, not a demise or bareboat charter where the owner completely and exclusively relinquishes possession, command and navigation to the charterer, the CA held PAKARTI, SHINWA, KEE

YEH and its agent, SKY, solidarily liable for 70% of the damages sustained by the cargo. This solidarity liability was borne by their failure to prove that they exercised extraordinary diligence in the vigilance over the bags of cement entrusted to them for transport. On the other hand, the CA passed on the remaining 30% of the amount claimed to the shipper, CARDIA, and its agent, ACENAV, upon a finding that the damage was partly due to the cargo's inferior packing.

With respect to REGENCY, the CA affirmed the findings of the RTC that it did not acquire jurisdiction over its person for defective service of summons.

PAKARTI's, SHINWA's, SKY's and ACENAV's respective motions for reconsideration were subsequently denied in the CA's assailed February 17, 2006 Resolution.

Issues Before the Court

PAKARTI, SHINWA, SKY and ACENAV filed separate petitions for review on certiorari before the Court, docketed as G.R. Nos. 171591, 171614, and 171663, which were ordered consolidated in the Court’s Resolution dated July 31, 2006. 15

On April 21, 2006, SKY manifested 16 that it will no longer pursue its petition in G.R. No. 171614 and has preferred to await the resolution in G.R. No. 171663 filed by PAKARTI and SHINWA. Accordingly, an entry of judgment 17 against it was made on August 18, 2006. Likewise, on November 29, 2007, PAKARTI and SHINWA moved 18 for the withdrawal of their petitions for lack of interest, which the Court granted in its January 21, 2008 Resolution. 19 The corresponding entry of judgment 20 against them was made on March 17, 2008.

Thus, only the petition of ACENAV remained for the Court's resolution, with the lone issue of whether or not it may be held liable to the respondents for 30% of their claim.

Maintaining that it was not a party to the bill of lading, ACENAV asserts that it cannot be held liable for the damages sought to be collected by the respondents. It also alleged that since its principal, CARDIA, was not impleaded as a party-

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defendant/respondent in the instant suit, no liability can therefore attach to it as a mere agent. Moreover, there is dearth of evidence showing that it was responsible for the supposed defective packing of the goods upon which the award was based.

The Court's Ruling

A bill of lading is defined as "an instrument in writing, signed by a carrier or his agent, describing the freight so as to identify it, stating the name of the consignor, the terms of the contract for carriage, and agreeing or directing that the freight to be delivered to the order or assigns of a specified person at a specified place." 21

It operates both as a receipt and as a contract. As a receipt, it recites the date and place of shipment, describes the goods as to quantity, weight, dimensions, identification marks and condition, quality, and value. As a contract, it names the contracting parties, which include the consignee, fixes the route, destination, and freight rates or charges, and stipulates the rights and obligations assumed by the parties. 22 As such, it shall only be binding upon the parties who make them, their assigns and heirs. 23

In this case, the original parties to the bill of lading are: (a) the shipper CARDIA; (b) the carrier PAKARTI; and (c) the consignee HEINDRICH. However, by virtue of their relationship with PAKARTI under separate charter arrangements, SHINWA, KEE YEH and its agent SKY likewise became parties to the bill of lading. In the same vein, ACENAV, as admitted agent of CARDIA, also became a party to the said contract of carriage.

The respondents, however, maintain 24 that ACENAV is a ship agent and not a mere agent of CARDIA, as found by both the CA 25 and the RTC. 26

The Court disagrees.

Article 586 of the Code of Commerce provides:

ART. 586. The shipowner and the ship agent shall be civilly liable for the acts of the captain and for the obligations contracted by the latter to repair, equip, and

provision the vessel, provided the creditor proves that the amount claimed was invested therein.

By ship agent is understood the person entrusted with the provisioning of a vessel, or who represents her in the port in which she may be found. (Emphasis supplied)

Records show that the obligation of ACENAV was limited to informing the consignee HEINDRICH of the arrival of the vessel in order for the latter to immediately take possession of the goods. No evidence was offered to establish that ACENAV had a hand in the provisioning of the vessel or that it represented the carrier, its charterers, or the vessel at any time during the unloading of the goods. Clearly, ACENAV's participation was simply to assume responsibility over the cargo when they were unloaded from the vessel. Hence, no reversible error was committed by the courts a quo in holding that ACENAV was not a ship agent within the meaning and context of Article 586 of the Code of Commerce, but a mere agent of CARDIA, the shipper.

On this score, Article 1868 of the Civil Code states:

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.

Corollarily, Article 1897 of the same Code provides that an agent 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.

Both exceptions do not obtain in this case. Records are bereft of any showing that ACENAV exceeded its authority in the discharge of its duties as a mere agent of CARDIA. Neither was it alleged, much less proved, that ACENAV's limited obligation as agent of the shipper, CARDIA, was not known to HEINDRICH.

Furthermore, since CARDIA was not impleaded as a party in the instant suit, the liability attributed upon it by the CA 27 on the basis of its finding that the damage

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sustained by the cargo was due to improper packing cannot be borne by ACENAV. As mere agent, ACENAV cannot be made responsible or held accountable for the damage supposedly caused by its principal. 28

Accordingly, the Court finds that theCA erred in ordering ACENAV jointly and severally liable with CARDIA to pay 30o/o of the respondents' claim.

WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are hereby REVERSED.1awp++i1 The complaint against petitioner Ace Navigation Co., Inc. is hereby DISMISSED.

SO ORDERED.

Republic of the PhilippinesSUPREME COURTManila

FIRST DIVISION

G.R. No. L-109937 March 21, 1994

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs.COURT OF APPEALS and the ESTATE OF THE LATE JUAN B. DANS, represented by CANDIDA G. DANS, and the DBP MORTGAGE REDEMPTION INSURANCE POOL, respondents.

Office of the Legal Counsel for petitioner.

Reyes, Santayana, Molo & Alegre for DBP Mortgage Redemption Insurance Pool.

QUIASON, J.:

This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court to reverse and set aside the decision of the Court of Appeals in CA-G.R CV No. 26434 and its resolution denying reconsideration thereof.

We affirm the decision of the Court of Appeals with modification.

I

In May 1987, Juan B. Dans, together with his wife Candida, his son and daughter-in-law, applied for a loan of P500,000.00 with the Development Bank of the Philippines (DBP), Basilan Branch. As the principal mortgagor, Dans, then 76

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years of age, was advised by DBP to obtain a mortgage redemption insurance (MRI) with the DBP Mortgage Redemption Insurance Pool (DBP MRI Pool).

A loan, in the reduced amount of P300,000.00, was approved by DBP on August 4, 1987 and released on August 11, 1987. From the proceeds of the loan, DBP deducted the amount of P1,476.00 as payment for the MRI premium. On August 15, 1987, Dans accomplished and submitted the "MRI Application for Insurance" and the "Health Statement for DBP MRI Pool."

On August 20, 1987, the MRI premium of Dans, less the DBP service fee of 10 percent, was credited by DBP to the savings account of the DBP MRI Pool. Accordingly, the DBP MRI Pool was advised of the credit.

On September 3, 1987, Dans died of cardiac arrest. The DBP, upon notice, relayed this information to the DBP MRI Pool. On September 23, 1987, the DBP MRI Pool notified DBP that Dans was not eligible for MRI coverage, being over the acceptance age limit of 60 years at the time of application.

On October 21, 1987, DBP apprised Candida Dans of the disapproval of her late husband's MRI application. The DBP offered to refund the premium of P1,476.00 which the deceased had paid, but Candida Dans refused to accept the same, demanding payment of the face value of the MRI or an amount equivalent to the loan. She, likewise, refused to accept an ex gratia settlement of P30,000.00, which the DBP later offered.

On February 10, 1989, respondent Estate, through Candida Dans as administratrix, filed a complaint with the Regional Trial Court, Branch I, Basilan, against DBP and the insurance pool for "Collection of Sum of Money with Damages." Respondent Estate alleged that Dans became insured by the DBP MRI Pool when DBP, with full knowledge of Dans' age at the time of application, required him to apply for MRI, and later collected the insurance premium thereon. Respondent Estate therefore prayed: (1) that the sum of P139,500.00, which it paid under protest for the loan, be reimbursed; (2) that the mortgage debt of the deceased be declared fully paid; and (3) that damages be awarded.

The DBP and the DBP MRI Pool separately filed their answers, with the former asserting a cross-claim against the latter.

At the pre-trial, DBP and the DBP MRI Pool admitted all the documents and exhibits submitted by respondent Estate. As a result of these admissions, the trial court narrowed down the issues and, without opposition from the parties, found the case ripe for summary judgment. Consequently, the trial court ordered the parties to submit their respective position papers and documentary evidence, which may serve as basis for the judgment.

On March 10, 1990, the trial court rendered a decision in favor of respondent Estate and against DBP. The DBP MRI Pool, however, was absolved from liability, after the trial court found no privity of contract between it and the deceased. The trial court declared DBP in estoppel for having led Dans into applying for MRI and actually collecting the premium and the service fee, despite knowledge of his age ineligibility. The dispositive portion of the decision read as follows:

WHEREFORE, in view of the foregoing consideration and in the furtherance of justice and equity, the Court finds judgment for the plaintiff and against Defendant DBP, ordering the latter:

1. To return and reimburse plaintiff the amount of P139,500.00 plus legal rate of interest as amortization payment paid under protest;

2. To consider the mortgage loan of P300,000.00 including all interest accumulated or otherwise to have been settled, satisfied or set-off by virtue of the insurance coverage of the late Juan B. Dans;

3. To pay plaintiff the amount of P10,000.00 as attorney's fees;

4. To pay plaintiff in the amount of P10,000.00 as costs of litigation and other expenses, and other relief just and equitable.

The Counterclaims of Defendants DBP and DBP MRI POOL are hereby dismissed. The Cross-claim of Defendant DBP is likewise dismissed (Rollo, p. 79)

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The DBP appealed to the Court of Appeals. In a decision dated September 7, 1992, the appellate court affirmed in toto the decision of the trial court. The DBP's motion for reconsideration was denied in a resolution dated April 20, 1993.

Hence, this recourse.

II

When Dans applied for MRI, he filled up and personally signed a "Health Statement for DBP MRI Pool" (Exh. "5-Bank") with the following declaration:

I hereby declare and agree that all the statements and answers contained herein are true, complete and correct to the best of my knowledge and belief and form part of my application for insurance. It is understood and agreed that no insurance coverage shall be effected unless and until this application is approved and the full premium is paid during my continued good health (Records, p. 40).

Under the aforementioned provisions, the MRI coverage shall take effect: (1) when the application shall be approved by the insurance pool; and (2) when the full premium is paid during the continued good health of the applicant. These two conditions, being joined conjunctively, must concur.

Undisputably, the power to approve MRI applications is lodged with the DBP MRI Pool. The pool, however, did not approve the application of Dans. There is also no showing that it accepted the sum of P1,476.00, which DBP credited to its account with full knowledge that it was payment for Dan's premium. There was, as a result, no perfected contract of insurance; hence, the DBP MRI Pool cannot be held liable on a contract that does not exist.

The liability of DBP is another matter.

It was DBP, as a matter of policy and practice, that required Dans, the borrower, to secure MRI coverage. Instead of allowing Dans to look for his own insurance carrier or some other form of insurance policy, DBP compelled him to apply with the DBP MRI Pool for MRI coverage. When Dan's loan was released on August

11, 1987, DBP already deducted from the proceeds thereof the MRI premium. Four days latter, DBP made Dans fill up and sign his application for MRI, as well as his health statement. The DBP later submitted both the application form and health statement to the DBP MRI Pool at the DBP Main Building, Makati Metro Manila. As service fee, DBP deducted 10 percent of the premium collected by it from Dans.

In dealing with Dans, DBP was wearing two legal hats: the first as a lender, and the second as an insurance agent.

As an insurance agent, DBP made Dans go through the motion of applying for said insurance, thereby leading him and his family to believe that they had already fulfilled all the requirements for the MRI and that the issuance of their policy was forthcoming. Apparently, DBP had full knowledge that Dan's application was never going to be approved. The maximum age for MRI acceptance is 60 years as clearly and specifically provided in Article 1 of the Group Mortgage Redemption Insurance Policy signed in 1984 by all the insurance companies concerned (Exh. "1-Pool").

Under Article 1987 of the Civil Code of the Philippines, "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."

The DBP is not authorized to accept applications for MRI when its clients are more than 60 years of age (Exh. "1-Pool"). Knowing all the while that Dans was ineligible for MRI coverage because of his advanced age, DBP exceeded the scope of its authority when it accepted Dan's application for MRI by collecting the insurance premium, and deducting its agent's commission and service fee.

The liability of an agent who exceeds the scope of his authority depends upon whether the third person is aware of the limits of the agent's powers. There is no showing that Dans knew of the limitation on DBP's authority to solicit applications for MRI.

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If the third person dealing with an agent is unaware of the limits of the authority conferred by the principal on the agent and he (third person) has been deceived by the non-disclosure thereof by the agent, then the latter is liable for damages to him (V Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, p. 422 [1992], citing Sentencia [Cuba] of September 25, 1907). The rule that the agent is liable when he acts without authority is founded upon the supposition that there has been some wrong or omission on his part either in misrepresenting, or in affirming, or concealing the authority under which he assumes to act (Francisco, V., Agency 307 [1952], citing Hall v. Lauderdale, 46 N.Y. 70, 75). Inasmuch as the non-disclosure of the limits of the agency carries with it the implication that a deception was perpetrated on the unsuspecting client, the provisions of Articles 19, 20 and 21 of the Civil Code of the Philippines come into play.

Article 19 provides:

Every person must, in the exercise of his rights and in the performance of his duties, act with justice give everyone his due and observe honesty and good faith.

Article 20 provides:

Every person who, contrary to law, willfully or negligently causes damage to another, shall indemnify the latter for the same.

Article 21 provides:

Any person, who willfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage.

The DBP's liability, however, cannot be for the entire value of the insurance policy. To assume that were it not for DBP's concealment of the limits of its authority, Dans would have secured an MRI from another insurance company, and therefore would have been fully insured by the time he died, is highly speculative. Considering his advanced age, there is no absolute certainty that Dans could

obtain an insurance coverage from another company. It must also be noted that Dans died almost immediately, i.e., on the nineteenth day after applying for the MRI, and on the twenty-third day from the date of release of his loan.

One is entitled to an adequate compensation only for such pecuniary loss suffered by him as he has duly proved (Civil Code of the Philippines, Art. 2199). Damages, to be recoverable, must not only be capable of proof, but must be actually proved with a reasonable degree of certainty (Refractories Corporation v. Intermediate Appellate Court, 176 SCRA 539 [1989]; Choa Tek Hee v. Philippine Publishing Co., 34 Phil. 447 [1916]). Speculative damages are too remote to be included in an accurate estimate of damages (Sun Life Assurance v. Rueda Hermanos, 37 Phil. 844 [1918]).

While Dans is not entitled to compensatory damages, he is entitled to moral damages. No proof of pecuniary loss is required in the assessment of said kind of damages (Civil Code of Philippines, Art. 2216). The same may be recovered in acts referred to in Article 2219 of the Civil Code.

The assessment of moral damages is left to the discretion of the court according to the circumstances of each case (Civil Code of the Philippines, Art. 2216). Considering that DBP had offered to pay P30,000.00 to respondent Estate in ex gratia settlement of its claim and that DBP's non-disclosure of the limits of its authority amounted to a deception to its client, an award of moral damages in the amount of P50,000.00 would be reasonable.

The award of attorney's fees is also just and equitable under the circumstances (Civil Code of the Philippines, Article 2208 [11]).

WHEREFORE, the decision of the Court of Appeals in CA G.R.-CVNo. 26434 is MODIFIED and petitioner DBP is ORDERED: (1) to REIMBURSE respondent Estate of Juan B. Dans the amount of P1,476.00 with legal interest from the date of the filing of the complaint until fully paid; and (2) to PAY said Estate the amount of Fifty Thousand Pesos (P50,000.00) as moral damages and

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the amount of Ten Thousand Pesos (P10,000.00) as attorney's fees. With costs against petitioner.

SO ORDERED.

Republic of the PhilippinesSUPREME COURTManila

EN BANC

G.R. No. 16492 March 9, 1922

E. MACIAS & CO., importers and exporters, plaintiff-appellant, vs.WARNER, BARNES & CO., in its capacity as agents of "The China Fire Insurance Co.," of "The Yang-Tsze" and of "The State Assurance Co., Ltd.," defendant-appellant.

Ramon Sotelo for plaintiff-appellant.Cohn, Fisher & DeWitt for defendant-appellant.

STATEMENT

The plaintiff is a corporation duly registered and domiciled in Manila. The defendant is a corporation duly licensed to do business in the Philippine Islands, and is the resident agent of insurance companies "The China Fire Insurance Company, Limited, of Hongkong," "The Yang-Tsze Insurance Association Limited, of Shanghai," and "The State Assurance Company, Limited, of Liverpool. The plaintiff is an importer of textures and commercial articles for wholesale.

In the ordinary course of business, it applied for, and obtained, the following policies against loss by fire:

Policy No. 4143, issued by The China Fire Insurance Co., Ltd., for ....................................................................... P12,000

Policy No. 4382, issued by The China Fire Insurance Co., Ltd., for .......................................................................... 15,000

Policy No. 326, issued by The Yang-Tsze Insurance Ass'n., Ltd., for ..................................................................... 10,000

Policy No. 796111, issued by The State Assurance Co., Ltd., for ............................................................................ 8,000

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

Policy No. 4382, for P15,000, was issued by the same company to, and in the name of, plaintiff.

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Policy No. 326, for P10,000, was issued to, and in the name of policy No. 326, for P10,000, was issued to, and in the name of the plaintiff by The Yang-Tsze Insurance Association, Limited, and recites that the premium of P125 was paid by the plaintiff to the association, and that, in the event of loss by fire between certain dates, "the funds and property of the said association shall be subject and liable to pay, reinstate, or make good to the said assured, their heirs, executors, or administrators, such loss or damage as shall be occasioned by fire to the property above-mentioned and hereby insured," not exceeding the amount of the policy.

Policy No. 796111, for P8,000, was issued by The States Assurance Company, Limited, to the plaintiff for a premium of P100, which was paid to the Assurance Company through the defendant, its authorized agent, and recites that "the company agrees with the insured that in the event of loss by fire between certain dates, the company will, out of its capital, stock and funds, pay the amount of such loss or damage," not exceeding the amount of the policy, and it is attested by the defendant, through its "Cashier and Accountant and Manager, Agents, State Assurance Co., Ltd.," authorized agents of the Assurance Company.

Policy No. 4143 is attested "on behalf of The China Fire Insurance Company, Limited," by the cashier and accountant and manager of the defendant, as agents of The China Fire Insurance Company, Limited. The same is true as to policy no. 4382.

Policy No. 326 recites the payment of a premium of P125 by the plaintiff to The Yang-Tsze Insurance Association, Limited, and that, in the event of loss, "the funds and property of the said association shall be subject and liable to pay, reinstate, or make good to the said assured, their heirs, executors, or administrators, such loss or damage as shall be occasioned by fire or lightning to the property" insured, not exceeding the amount of the policy, and it is attested by the defendant, through its cashier and accountant and manager, as agents of the association "under the authority of a Power of Attorney from The Yang-Tsze Insurance Association, Limited," "to sign, for and on behalf of the said Association, etc."

March 25, 1919, and while the policies were in force, a loss occurred in which the insured property was more or less damaged by fire and the use of water resulting from the fire.

The plaintiff made a claim for damages under its policies, but could not agree as to the amount of loss sustained. It sold the insured property in its then damaged condition, and brought this action against Warner, Barnes & Co., in its capacity as agents, to recover the difference between the amount of the policies and the amount realized from the sale of the property, and in the first cause of action, it prayed for judgment for P23,052.99, and in the second cause of action P9,857.15.

The numbers and amounts of the policies and the names of the insurance companies are set forth and alleged in the complaint.

The answer admits that the defendants is the resident agent of the insurance companies, the issuance of the policies, and that a fire occurred on March 25, 1919, in the building in which the goods covered by the insurance policies were stored, and that to extinguish the fire three packages of goods were damage by water not to exceed P500, and denies generally all other material allegations of the complaint.

As a further and separate defense, the defendant pleads certain provisions in the policies, among which was a written notice of loss, and all other insurance and certain detailed information. It is then alleged —

That although frequently requested to do so, plaintiff failed and refused to deliver to defendant or to any other person authorized to receive it, any claim in writing specifying the articles or items of property damaged or destroyed and of the alleged amount of the loss or damage caused thereto.

That defendant was at all times ready and willing to pay, on behalf of the insurance companies by whom said policies were issued, and to the extent for which each was proportionately liable, the actual damage to plaintiff's goods covered by the risks insured against, upon compliance within the time limited, with the terms of the clause of the contracts of insurance above set forth.

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Defendants prays judgment for costs.

Before the trial, counsel for the defendant objected to the introduction of any evidence in the case, and moved "that judgment be entered for the defendant on the pleadings upon the ground that it appears from the averment of the complaint that the plaintiff has had no contractual relations with the defendant, and that the action has not been brought against the real party in interest." The objection and motion was overruled and exception duly taken. After trial the court found that there was due the plaintiff from the three insurance companies p18,493.29 with interest thereon at the rate of 6 per cent per annum, from the date of the commencement of the action, and costs, and rendered the following judgment:

It is, therefore, ordered that judgment be entered against Warner, Barnes & Co., Ltd., in its capacity as agent and representative in the Philippine Islands for The China fire Insurance Company, Ltd., The Yang-Tsze Insurance Association, Ltd., and The State Assurance Co., Ltd., for the payment to the plaintiff, E. Macias & Co., of the sum of P18,493.29, the amount of this judgment to be prorated by Warner, Barnes & Co., among the three insurance companies above-mentioned by it represented, in proportion to the interest insured by each of said three insurance companies, according to the policies issued by them in favor of the plaintiff, and sued upon in this action.

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

JOHNS, J.:

The material facts are not in dispute it must be conceded that the policies in question were issued by the different insurance companies, through the defendant

as their respective agent; that they were issued in consideration of a premium which was paid by the insured to the respective companies for the amount of the policies, as alleged; that the defendant was, and is now, the resident agent in Manila of the companies, and was authorized to solicit and do business for them as such agent; that each company is a foreign corporation. The principal office and place business of the The China Fire Insurance Company is at Hongkong; of The Yang-Tsze Insurance Association is at Shanghai; and of The State Assurance Company is at Liverpool. As such foreign corporations they were duly authorized and licensed to do insurance business in the Philippine Islands, and, to that end and for that purpose, the defendant corporation, Warner, Barnes & Co., was the agent of each company.

All of the policies are in writing, and recite that the premium was paid by the insured to the insurance company which issued the policy, and that, in the event of a loss, the insurance company which issued it will pay to the insured the amount of the policy.

This is not a case of an undisclosed agent or an undisclosed principal. It is a case of a disclosed agent and a disclosed principal.

The policies on their face shows that the defendant was the agent of the respective companies, and that it was acting as such agent in dealing with the plaintiff. That in the issuance and delivery of the policies, the defendant was doing business in the name of, acting for, and representing, the respective insurance companies. The different policies expressly recite that, in the event of a loss, the respective companies agree to compensate the plaintiff for the amount of the loss. the defendant company did not insure the property of the plaintiff, or in any manner agree to pay the plaintiff the amount of any loss. There is no contract of any kind. either oral or written, between the plaintiff and Warner, Barnes & Co. Plaintiff's contracts are with the insurance companies, and are in writing, and the premiums were paid to the insurance companies, and are in writing, and the premiums were paid to the insurance companies and the policies were issued by, and in the name of, the insurance companies, and on the face of the policy itself, the plaintiff knew that the defendant was acting as agent for, and was representing, the respective

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insurance companies in the issuance and deliver of the policies. The defendant company did not contract or agree to do anything or to pay the plaintiff any money at any time or on any condition, either as agent or principal.

There is a very important distinction between the power and duties of a resident insurance agent of a foreign company and that of an executor, administrator, or receiver. An insurance agent as such is not responsible for, and does not have, any control over the corpus or estate of the corporate property, as does an executor, administrator, or receiver. Subject only to the order of the court, such officers are legal custodians and have actual possession of the corporate property. It is under their control and within their jurisdiction.

As stated by counsel for Warner, Barnes & Co., an attorney of record for an insurance company has greater power and authority to act for, and bind, the company than does a soliciting agent of an insurance company. Yet, no attorney would contend that a personal action would lie against local attorneys who represent a foreign corporation to recover on a contract made by the corporation. On the same principles by which plaintiff seeks to recover from the defendant, an action could be maintained against the cashier of any bank on every foreign draft which he signed for, and on behalf of, the bank.

Every cause of action ex contractu must be founded upon a contract, oral or written, either express or implied.

Warner, Barnes & Co., as principal or agent, did not make any contract, either or written, with the plaintiff. The contracts were made between the respective insurance companies and the insured, and were made by the insurance companies, through Warner, Barnes & Co., as their agent.

As in the case of a bank draft, it is not the cashier of the bank who makes the contract to pay the money evidenced by the draft, it is the bank, acting through its cashier, that makes the contract. So, in the instant case, it was the insurance companies, acting through Warner, Barnes & Co., as their agent, that made the written contracts wit the insured.

The trial court attached much importance to the fact that in the further and separate answer, an admission was made "that defendant was at all times ready and will not to pay, on behalf of the insurance companies by whom each was proportionately liable, the actual damage" sustained by the plaintiff covered by the policies upon the terms and conditions therein stated.

When analyzed, that is nothing more than a statement that the companies were ready and willing to prorate the amount when the losses were legally ascertained. Again, there is not claim or pretense that Warner, Barnes & Co. had any authority to act for, and represent the insurance companies in the pending action, or to appear for them or make any admission which would bind them. As a local agent, it could not do that without express authority. That power could only exercised by an executive officer of the company, or a person who was duly authorized to act for, and represent, the company in legal proceedings, and there is no claim or pretense, either express or implied, that the defendant has any such authority.

Plaintiff's cause of action, if any, is direct against the insurance companies that issued the policies and agreed to pay the losses.

The only defendant in the instant case is "Warner, Barnes & Co., in its capacity as agents of:" the insurance companies. Warner, Barnes & Co. did not make any contract with the plaintiff, and are not liable to the plaintiff on any contract, either as principal or agent. For such reason, plaintiff is not entitled to recover its losses from Warner, Barnes & Co., either as principal or agent. There is no breach of any contract with the plaintiff by Warners, Barnes & Co., either as agent or principal, for the simple reason that Warner, Barnes & Co., as agent or principal, never made any contract, oral or written, with the plaintiff. This defense was promptly raised before the taking of the testimony, and again renewed on the motion to set aside the judgment.

Plaintiff's own evidence shows that any cause of action it may have is against the insurance companies which issued the policies.

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The complaint is dismissed, and the judgment of the lower court is reversed, and one will be entered here in favor of Warner, Barnes & Co., Ltd., against the plaintiff, for costs in both this and the lower court. So ordered.

Republic of the PhilippinesSUPREME COURTManila

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FIRST DIVISION

G.R. No. 166044 June 18, 2012

COUNTRY BANKERS INSURANCE CORPORATION, Petitioner, vs.KEPPEL CEBU SHIPYARD, UNIMARINE SHIPPING LINES, INC., PAUL RODRIGUEZ, PETER RODRIGUEZ, ALBERT HONTANOSAS, and BETHOVEN QUINAIN, Respondents.

D E C I S I O N

LEONARDO-DE CASTRO, J.:

This is a petition for review on certiorari1 to reverse and set aside the January 29, 2004 Decision2 and October 28, 2004 Resolution3 of the Court of Appeals in CA-G.R. CV No. 58001, wherein the Court of Appeals affirmed with modification the February 10, 1997 Decision4 of the Regional Trial Court (RTC) of Cebu City, Branch 7, in Civil Case No. CBB-13447.

Hereunder are the undisputed facts as culled from the records of the case.

On January 27, 1992, Unimarine Shipping Lines, Inc. (Unimarine), a corporation engaged in the shipping industry, contracted the services of Keppel Cebu Shipyard, formerly known as Cebu Shipyard and Engineering Works, Inc. (Cebu Shipyard), for dry docking and ship repair works on its vessel, the M/V Pacific Fortune.5

On February 14, 1992, Cebu Shipyard issued Bill No. 26035 to Unimarine in consideration for its services, which amounted to P4,486,052.00.6 Negotiations between Cebu Shipyard and Unimarine led to the reduction of this amount to P3,850,000.00. The terms of this agreement were embodied in Cebu Shipyard’s February 18, 1992 letter to the President/General Manager of Unimarine, Paul Rodriguez, who signed his conformity to said letter, quoted in full below:

18 February 1992Ref No.: LL92/0383

UNIMARINE SHIPPING LINES, INC.C/O Autographics, Inc.Gorordo Avenue, Lahug, Cebu City

Attention: Mr. Paul Rodriguez

President/General Manager

This is to confirm our agreement on the shiprepair bills charged for the repair of MV Pacific Fortune, our invoice no. 26035.

The shiprepair bill (Bill No. 26035) is agreed at a negotiated amount of P3,850,000.00 excluding VAT.

Unimarine Shipping Lines, Inc. ("Unimarine") will pay the above amount of [P3,850,000.00] in US Dollars to be fixed at the prevailing USDollar to Philippine Peso exchange rate at the time of payment. The payment terms to be extended to Unimarine is as follows:

Installments Amount Due Date

1st Installment P2,350,000.00 30 May 1992

2nd Installment P1,500,000.00 30 Jun 1992

Unimarine will deposit post-dated checks equivalent to the above amounts in Philippine Peso and an additional check amount of P385,000.00, representing 10% [Value Added Tax] VAT on the above bill of P3,850,000.00. In the event that Unimarine fails to make full payment on the above due dates in US Dollars, the post-dated checks will be deposited by CSEW in payment of the amounts owned

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by Unimarine and Unimarine agree that the 10% VAT (P385,000.00) shall also become payable to CSEW.

Unimarine in consideration of the credit terms extended by CSEW and the release of the vessel before full payment of the above debt, agree to present CSEW surety bonds equal to 120% of the value of the credit extended. The total bond amount shall be P4,620,000.00.

Yours faithfully,

CEBU SHIPYARD & ENG'G WORKS, INC. Conforme:

(SGD)SEET KENG TATTreasurer/VP-Admin.

(SGD)

PAUL RODRIGUEZUnimarine ShippingLines, Inc.7

In compliance with the agreement, Unimarine, through Paul Rodriguez, secured from Country Bankers Insurance Corp. (CBIC), through the latter’s agent, Bethoven Quinain (Quinain), CBIC Surety Bond No. G (16) 294198 (the surety bond) on January 15, 1992 in the amount of P3,000,000.00. The expiration of this surety bond was extended to January 15, 1993, through Endorsement No. 331529 (the endorsement), which was later on attached to and formed part of the surety bond. In addition to this, Unimarine, on February 19, 1992, obtained another bond from Plaridel Surety and Insurance Co. (Plaridel), PSIC Bond No. G (16)-0036510 in the amount of P1,620,000.00.

On February 17, 1992, Unimarine executed a Contract of Undertaking in favor of Cebu Shipyard. The pertinent portions of the contract read as follows:

Messrs, Uni-Marine Shipping Lines, Inc. ("the Debtor") of Gorordo Avenue, Cebu City hereby acknowledges that in consideration of Cebu Shipyard & Engineering

Works, Inc. ("Cebu Shipyard") at our request agreeing to release the vessel specified in part A of the Schedule ("name of vessel") prior to the receipt of the sum specified in part B of the Schedule ("Moneys Payable") payable in respect of certain works performed or to be performed by Cebu Shipyard and/or its subcontractors and/or material and equipment supplied or to be supplied by Cebu Shipyard and/or its subcontractors in connection with the vessel for the party specified in part C of the Schedule ("the Debtor"), we hereby unconditionally, irrevocably undertake to make punctual payment to Cebu Shipyard of the Moneys Payable on the terms and conditions as set out in part B of the Schedule. We likewise hereby expressly waive whatever right of excussion we may have under the law and equity.

This contract shall be binding upon Uni-Marine Shipping Lines, Inc., its heirs, executors, administrators, successors, and assigns and shall not be discharged until all obligation of this contract shall have been faithfully and fully performed by the Debtor.11

Because Unimarine failed to remit the first installment when it became due on May 30, 1992, Cebu Shipyard was constrained to deposit the peso check corresponding to the initial installment of P2,350,000.00. The check, however, was dishonored by the bank due to insufficient funds.12 Cebu Shipyard faxed a message to Unimarine, informing it of the situation, and reminding it to settle its account immediately.13

On June 24, 1992, Cebu Shipyard again faxed a message14 to Unimarine, to confirm Paul Rodriguez’s promise that Unimarine will pay in full the P3,850,000.00, in US Dollars on July 1, 1992.

Since Unimarine failed to deliver on the above promise, Cebu Shipyard, on July 2, 1992, through a faxed letter, asked Unimarine if the payment could be picked up the next day. This was followed by another faxed message on July 6, 1992, wherein Cebu Shipyard reminded Unimarine of its promise to pay in full on July 28, 1992. On August 24, 1992, Cebu Shipyard again faxed15 Unimarine, to inform it that interest charges will have to be imposed on their outstanding debt, and if it still

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fails to pay before August 28, 1992, Cebu Shipyard will have to enforce payment against the sureties and take legal action.

On November 18, 1992, Cebu Shipyard, through its counsel, sent Unimarine a letter,16 demanding payment, within seven days from receipt of the letter, the amount of P4,859,458.00, broken down as follows:

B#26035 MV PACIFIC FORTUNE LESS: ADJUSTMENT:

4,486,052.00

CN#00515-03/19/92 (636,052.00)--------------------

3,850,000.00

Add: VAT on repair bill no. 26035 385,000.00--------------------

4,235,000.00

Add: Interest/penalty charges:Debit Note No. 02381

189,888.00

Debit Note No. 02382 434,570.00--------------------4,859,458.0017

Due to Unimarine’s failure to heed Cebu Shipyard’s repeated demands, Cebu Shipyard, through counsel, wrote the sureties CBIC18 on November 18, 1992, and Plaridel,19 on November 19, 1992, to inform them of Unimarine’s nonpayment, and

to ask them to fulfill their obligations as sureties, and to respond within seven days from receipt of the demand.

However, even the sureties failed to discharge their obligations, and so Cebu Shipyard filed a Complaint dated January 8, 1993, before the RTC, Branch 18 of Cebu City, against Unimarine, CBIC, and Plaridel. This was docketed as Civil Case No. CBB-13447.

CBIC, in its Answer,20 said that Cebu Shipyard’s complaint states no cause of action. CBIC alleged that the surety bond was issued by its agent, Quinain, in excess of his authority. CBIC claimed that Cebu Shipyard should have doubted the authority of Quinain to issue the surety bond based on the following:

1. The nature of the bond undertaking (guarantee payment), and the amount involved.

2. The surety bond could only be issued in favor of the Department of Public Works and Highways, as stamped on the upper right portion of the face of the bond.21 This stamp was covered by documentary stamps.

3. The issuance of the surety bond was not reported, and the corresponding premiums were not remitted to CBIC.22

CBIC added that its liability was extinguished when, without its knowledge and consent, Cebu Shipyard and Unimarine novated their agreement several times. Furthermore, CBIC stated that Cebu Shipyard’s claim had already been paid or extinguished when Unimarine executed an Assignment of Claims23 of the proceeds of the sale of its vessel M/V Headline in favor of Cebu Shipyard. CBIC also averred that Cebu Shipyard’s claim had already prescribed as the endorsement that extended the surety bond’s expiry date, was not reported to CBIC. Finally, CBIC asseverated that if it were held to be liable, its liability should be limited to the face value of the bond and not for exemplary damages, attorney’s fees, and costs of litigation.24

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Subsequently, CBIC filed a Motion to Admit Cross and Third Party Complaint25 against Unimarine, as cross defendant; Paul Rodriguez, Albert Hontanosas, and Peter Rodriguez, as signatories to the Indemnity Agreement they executed in favor of CBIC; and Bethoven Quinain, as the agent who issued the surety bond and endorsement in excess of his authority, as third party defendants.26

CBIC claimed that Paul Rodriguez, Albert Hontanosas, and Peter Rodriguez executed an Indemnity Agreement, wherein they bound themselves, jointly and severally, to indemnify CBIC for any amount it may sustain or incur in connection with the issuance of the surety bond and the endorsement.27 As for Quinain, CBIC alleged that he exceeded his authority as stated in the Special Power of Attorney, wherein he was authorized to solicit business and issue surety bonds not exceeding P500,000.00 but only in favor of the Department of Public Works and Highways, National Power Corporation, and other government agencies.28

On August 23, 1993, third party defendant Hontanosas filed his Answer with Counterclaim, to the Cross and Third Party Complaint. Hontanosas claimed that he had no financial interest in Unimarine and was neither a stockholder, director nor an officer of Unimarine. He asseverated that his relationship to Unimarine was limited to his capacity as a lawyer, being its retained counsel. He further denied having any participation in the Indemnity Agreement executed in favor of CBIC, and alleged that his signature therein was forged, as he neither signed it nor appeared before the Notary Public who acknowledged such undertaking.29

Various witnesses were presented by the parties during the course of the trial of the case. Myrna Obrinaga testified for Cebu Shipyard. She was the Chief Accountant in charge of the custody of the documents of the company. She corroborated Cebu Shipyard’s allegations and produced in court the documents to support Cebu Shipyard’s claim. She also testified that while it was true that the proceeds of the sale of Unimarine’s vessel, M/V Headline, were assigned to Cebu Shipyard, nothing was turned over to them.30

Paul Rodriguez admitted that Unimarine failed to pay Cebu Shipyard for the repairs it did on M/V Pacific Fortune, despite the extensions granted to Unimarine. He claimed that he signed the Indemnity Agreement because he trusted Quinain that it was a mere pre-requisite for the issuance of the surety bond. He added that he did not bother to read the documents and he was not aware of the consequences of signing an Indemnity Agreement. Paul Rodriguez also alleged to not having noticed the limitation "Valid only in favor of DPWH" stamped on the surety bond.31 However, Paul Rodriguez did not contradict the fact that Unimarine failed to pay Cebu Shipyard its obligation.32

CBIC presented Dakila Rianzares, the Senior Manager of its Bonding Department. Her duties included the evaluation and approval of all applications for and reviews of bonds issued by their agents, as authorized under the Special Power of Attorney and General Agency Contract of CBIC. Rianzares testified that she only learned of the existence of CBIC Surety Bond No. G (16) 29419 when she received the summons for this case. Upon investigation, she found out that the surety bond was not reported to CBIC by Quinain, the issuing agent, in violation of their General Agency Contract, which provides that all bonds issued by the agent be reported to CBIC’s office within one week from the date of issuance. She further stated that the surety bond issued in favor of Unimarine was issued beyond Quinain’s authority. Rianzares added that she was not aware that an endorsement pertaining to the surety bond was also issued by Quinain.33

After the trial, the RTC was faced with the lone issue of whether or not CBIC was liable to Cebu Shipyard based on Surety Bond No. G (16) 29419.34

On February 10, 1997, the RTC rendered its Decision, the fallo of which reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff Cebu Shipyard & Engineering Works, Incorporated and against the defendants:

1. Ordering the defendants Unimarine Shipping Lines, Incorporated, Country Bankers Insurance Corporation and Plaridel Surety and Insurance Corporation to

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pay plaintiff jointly and severally the amount of P4,620,000.00 equivalent to the value of the surety bonds;

2. Ordering further defendant Unimarine to pay plaintiff the amount of P259,458.00 to complete its entire obligation of P4,859,458.00;

3. To pay plaintiff jointly and severally the amount of P100,000.00 in attorney’s fees and litigation expenses;

4. For Cross defendant Unimarine Shipping Lines, Incorporated and Third party defendants Paul Rodriguez, Peter Rodriguez and Alber[t] Hontanosas: To indemnify jointly and severally, cross plaintiff and third party plaintiff Country Bankers Insurance Corporation whatever amount the latter is made to pay to plaintiff.35

The RTC held that CBIC, "in its capacity as surety is bound with its principal jointly and severally to the extent of the surety bond it issued in favor of [Cebu Shipyard]" because "although the contract of surety is in essence secondary only to a valid principal obligation, his liability to [the] creditor is said to be direct, primary[,] and absolute, in other words, he is bound by the principal."36 The RTC added:

Solidary obligations on the part of Unimarine and CBIC having been established and expressly stated in the Surety Bond No. 29419 (Exh. "C"), [Cebu Shipyard], therefore, is entitled to collect and enforce said obligation against any and or both of them, and if and when CBIC pays, it can compel its co-defendant Unimarine to reimburse to it the amount it has paid.37

The RTC found CBIC’s contention that Quinain acted in excess of his authority in issuing the surety bond untenable. The RTC held that CBIC is bound by the surety bond issued by its agent who acted within the apparent scope of his authority. The RTC said:

[A]s far as third persons are concerned, an act is deemed to have been performed within the scope of the agent’s authority, if such act is within the terms of the

powers of attorney as written, even if the agent has in fact exceeded the limits of his authority according to an understanding between the principal and the agent.38

All the defendants appealed this Decision to the Court of Appeals.

Unimarine, Paul Rodriguez, Peter Rodriguez, and Albert Hontanosas argued that Unimarine’s obligation under Bill No. 26035 had been extinguished by novation, as Cebu Shipyard had agreed to accept the proceeds of the sale of the M/V Headline as payment for the ship repair works it did on M/V Pacific Fortune. Paul Rodriguez and Peter Rodriguez added that such novation also freed them from their liability under the Indemnity Agreement they signed in favor of CBIC. Albert Hontanosas in turn reiterated that he did not sign the Indemnity Agreement.39 [SC1

CBIC, in its Appellant’s Brief,40 claimed that the RTC erred in enforcing its liability on the surety bond as it was issued in excess of Quinain’s authority. Moreover, CBIC averred, its liability under such surety had been extinguished by reasons of novation, payment, and prescription. CBIC also questioned the RTC’s order, holding it jointly and severally liable with Unimarine and Plaridel for the amount of P4,620,000.00, a sum larger than the face value of CBIC Surety Bond No. G (16) 29419, and why the RTC did not hold Quinain liable to indemnify CBIC for whatever amount it was ordered to pay Cebu Shipyard.

On January 29, 2004, the Court of Appeals promulgated its decision, with the following dispositive portion:

WHEREFORE, in view of the foregoing, the respective appeal[s] filed by Defendants-Appellants Unimarine Shipping Lines, Inc. and Country Bankers Insurance Corporation; Cross-Defendant-Appellant Unimarine Shipping Lines, Inc. and; Third-Party Defendants-Appellants Paul Rodriguez, Peter Rodriguez and Albert Hontanosas are hereby DENIED. The decision of the RTC in Civil Case No. CEB-13447 dated February 10, 1997 is AFFIRMED with modification that Mr. Bethoven Quinain, CBIC’s agent is hereby held jointly and severally liable with CBIC by virtue of Surety Bond No. 29419 executed in favor of plaintiff-appellee CSEW.41

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In its decision, the Court of Appeals resolved the following issues, as it had summarized from the parties’ pleadings:

I. Whether or not UNIMARINE is liable to [Cebu Shipyard] for a sum of money arising from the ship-repair contract;

II. Whether or not the obligation of UNIMARINE to [Cebu Shipyard] has been extinguished by novation;

III. Whether or not Defendant-Appellant CBIC, allegedly being the Surety of UNIMARINE is liable under Surety Bond No. 29419[;]

IV. Whether or not Cross Defendant-Appellant UNIMARINE and Third-Party Defendants-Appellants Paul Rodriguez, Peter Rodriguez, Albert Hontanosas and Third-Party Defendant Bethoven Quinain are liable by virtue of the Indemnity Agreement executed between them and Cross and Third Party Plaintiff CBIC;

V. Whether or not Plaintiff-Appellee [Cebu Shipyard] is entitled to the award of P100,000.00 in attorney’s fees and litigation expenses.42

The Court of Appeals held that it was duly proven that Unimarine was liable to Cebu Shipyard for the ship repair works it did on the former’s M/V Pacific Fortune. The Court of Appeals dismissed CBIC’s contention of novation for lack of merit.43 CBIC was held liable under the surety bond as there was no novation on the agreement between Unimarine and Cebu Shipyard that would discharge CBIC from its obligation. The Court of Appeals also did not allow CBIC to disclaim liability on the ground that Quinain exceeded his authority because third persons had relied upon Quinain’s representation, as CBIC’s agent.44 Quinain was, however, held solidarily liable with CBIC under Article 1911 of the Civil Code.45

Anent the liability of the signatories to the Indemnity Agreement, the Court of Appeals held Paul Rodriguez, Peter Rodriguez, and Albert Hontanosas jointly and severally liable thereunder. The Court of Appeals rejected Hontanosas’s claim that his signature in the Indemnity Agreement was forged, as he was not able to prove it.46

The Court of Appeals affirmed the award of attorney’s fees and litigation expenses to Cebu Shipyard since it was able to clearly establish the defendants’ liability, which they tried to dodge by setting up defenses to release themselves from their obligation.47

CBIC48and Unimarine, together with third party defendants-appellants49 filed their respective Motions for Reconsideration. This was, however, denied by the Court of Appeals in its October 28, 2004 Resolution for lack of merit.

Unimarine elevated its case to this Court via a petition for review on certiorari, docketed as G.R. No. 166023, which was denied in a Resolution dated January 19, 2005.50

The lone petitioner in this case, CBIC, is now before this Court, seeking the reversal of the Court of Appeals’ decision and resolution on the following grounds:

A.

THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN APPLYING THE PROVISIONS OF ARTICLE 1911 OF THE CIVIL CODE TO HOLD PETITIONER LIABLE FOR THE ACTS DONE BY ITS AGENT IN EXCESS OF AUTHORITY.

B.

THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN HOLDING THAT AN EXTENSION OF THE PERIOD FOR THE PERFORMANCE OF AN OBLIGATION GRANTED BY THE CREDITOR TO THE PRINCIPAL DEBTOR IS NOT SUFFICIENT TO RELEASE THE SURETY.

C.

ASSUMING THAT PETITIONER IS LIABLE UNDER THE BOND, THE HONORABLE COURT OF APPEALS NONETHELESS SERIOUSLY ERRED IN

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AFFIRMING THE SOLIDARY LIABILITY OF PETITIONER BEYOND THE VALUE OF THE BOND.

D.

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING PETITIONER JOINTLY AND SEVERALLY LIABLE FOR ATTORNEY’S FEES IN THE AMOUNT OF P100,000.00.51

Issue

The crux of the controversy lies in CBIC’s liability on the surety bond Quinain issued to Unimarine, in favor of Cebu Shipyard.

CBIC avers that the Court of Appeals erred in interpreting and applying the rules governing the contract of agency. It argued that the Special Power of Attorney granted to Quinain clearly set forth the extent and limits of his authority with regard to businesses he can transact for and in behalf of CBIC. CBIC added that it was incumbent upon Cebu Shipyard to inquire and look into the power of authority conferred to Quinain. CBIC said:

The authority to bind a principal as a guarantor or surety is one of those powers which requires a Special Power of Attorney pursuant to Article 1878 of the Civil Code. Such power could not be simply assumed or inferred from the mere existence of an agency. A person who enters into a contract of suretyship with an agent without confirming the extent of the latter’s authority does so at his peril. x x x.52

CBIC claims that the foregoing is true even if Quinain was granted the authority to transact in the business of insurance in general, as "the authority to bind the principal in a contract of suretyship could nonetheless never be presumed."53 Thus, CBIC claims, that:

[T]hird persons seeking to hold the principal liable for transactions entered into by an agent should establish the following, in case the same is controverted:

6.6.1. The fact or existence of the agency.

6.6.2. The nature and extent of authority.54

To go a little further, CBIC said that the correct Civil Code provision to apply in this case is Article 1898. CBIC asserts that "Cebu Shipyard was charged with knowledge of the extent of the authority conferred on Mr. Quinain by its failure to perform due diligence investigations."55

Cebu Shipyard, in its Comment56 first assailed the propriety of the petition for raising factual issues. In support, Cebu Shipyard claimed that the Court of Appeals’ application of Article 1911 of the Civil Code was founded on findings of facts that CBIC now disputes. Thus, the question is not purely of law.

Discussion

The fact that Quinain was an agent of CBIC was never put in issue. What has always been debated by the parties is the extent of authority or, at the very least, apparent authority, extended to Quinain by CBIC to transact insurance business for and in its behalf.

In a contract of agency, a person, the agent, binds himself to represent another, the principal, with the latter’s consent or authority.57 Thus, agency is based on representation, where the agent acts for and in behalf of the principal on matters within the scope of the authority conferred upon him.58 Such "acts have the same legal effect as if they were personally done by the principal. By this legal fiction of representation, the actual or legal absence of the principal is converted into his legal or juridical presence."59

The RTC applied Articles 1900 and 1911 of the Civil Code in holding CBIC liable for the surety bond. It held that CBIC could not be allowed to disclaim liability because Quinain’s actions were within the terms of the special power of attorney given to him.60 The Court of Appeals agreed that CBIC could not be permitted to abandon its obligation especially since third persons had relied on Quinain’s representations. It based its decision on Article 1911 of the Civil Code and found

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CBIC to have been negligent and less than prudent in conducting its insurance business for its failure to supervise and monitor the acts of its agents, to regulate the distribution of its insurance forms, and to devise schemes to prevent fraudulent misrepresentations of its agents.61

This Court does not agree. Pertinent to this case are the following provisions of the Civil Code:

Art. 1898. If the agent contracts in the name of the principal, exceeding the scope of his authority, and the principal does not ratify the contract, it shall be void if the party with whom the agent contracted is aware of the limits of the powers granted by the principal. In this case, however, the agent is liable if he undertook to secure the principal’s ratification.

Art. 1900. So far as third persons are concerned, an act is deemed to have been performed within the scope of the agent’s authority, if such act is within the terms of the power of attorney, as written, even if the agent has in fact exceeded the limits of his authority according to an understanding between the principal and the agent.

Art. 1902. A third person with whom the agent wishes to contract on behalf of the principal may require the presentation of the power of attorney, or the instructions as regards the agency. Private or secret orders and instructions of the principal do not prejudice third persons who have relied upon the power of attorney or instructions shown to them.

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

As for any obligation wherein the agent has exceeded his power, the principal is not bound except when he ratifies it expressly or tacitly.

Art. 1911. Even when the agent has exceeded his authority, the principal is solidarily liable with the agent if the former allowed the latter to act as though he had full powers.

Our law mandates an agent to act within the scope of his authority.62 The scope of an agent’s authority is what appears in the written terms of the power of attorney granted upon him.63 Under Article 1878(11) of the Civil Code, a special power of attorney is necessary to obligate the principal as a guarantor or surety.

In the case at bar, CBIC could be held liable even if Quinain exceeded the scope of his authority only if Quinain’s act of issuing Surety Bond No. G (16) 29419 is deemed to have been performed within the written terms of the power of attorney he was granted.64

However, contrary to what the RTC held, the Special Power of Attorney accorded to Quinain clearly states the limits of his authority and particularly provides that in case of surety bonds, it can only be issued in favor of the Department of Public Works and Highways, the National Power Corporation, and other government agencies; furthermore, the amount of the surety bond is limited to P500,000.00, to wit:

SPECIAL POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

That, COUNTRY BANKERS INSURANCE CORPORATION, a corporation duly organized and existing under and by virtue of the laws of the Philippines, with head offices at 8th Floor, G.F. Antonino Building, T.M. Kalaw Street, Ermita, Manila, now and hereinafter referred to as "the Company" hereby appoints BETHOVEN B. QUINAIN with address at x x x to be its General Agent and Attorney-in-Fact, for and in its place, name and stead, and for its own use and benefit, to do and perform the following acts and things:

1. To conduct, manage, carry on and transact insurance business as usually pertains to a General Agency of Fire, Personal Accident, Bond, Marine, Motor Car (Except Lancer).

2. To accept, underwrite and subscribe policies of insurance for and in behalf of the Company under the terms and conditions specified in the General Agency

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Contract executed and entered into by and between it and its said Attorney-in-Fact subject to the following Schedule of Limits:

- SCHEDULE OF LIMITS -

a. FIRE:

x x x x

b. PERSONAL ACCIDENT:

x x x x

c. MOTOR CAR:

x x x x

d. MARINE:

x x x x

e. BONDS:

x x x x

Surety Bond (in favor of Dept. of Pub. Works and

Highways, Nat’l. Power Corp. & other…. 500,000.00 Government agencies)65

CBIC does not anchor its defense on a secret agreement, mutual understanding, or any verbal instruction to Quinain. CBIC’s stance is grounded on its contract with Quinain, and the clear, written terms therein. This Court finds that the terms of the foregoing contract specifically provided for the extent and scope of Quinain’s authority, and Quinain has indeed exceeded them.

Under Articles 1898 and 1910, an agent’s act, even if done beyond the scope of his authority, may bind the principal if he ratifies them, whether expressly or tacitly. It must be stressed though that only the principal, and not the agent, can ratify the unauthorized acts, which the principal must have knowledge of.66 Expounding on the concept and doctrine of ratification in agency, this Court said:

Ratification in agency is the adoption or confirmation by one person of an act performed on his behalf by another without authority. The substance of the doctrine is confirmation after conduct, amounting to a substitute for a prior authority. Ordinarily, the principal must have full knowledge at the time of ratification of all the material facts and circumstances relating to the unauthorized act of the person who assumed to act as agent. Thus, if material facts were suppressed or unknown, there can be no valid ratification and this regardless of the purpose or lack thereof in concealing such facts and regardless of the parties between whom the question of ratification may arise. Nevertheless, this principle does not apply if the principal’s ignorance of the material facts and circumstances was willful, or that the principal chooses to act in ignorance of the facts. However, in the absence of circumstances putting a reasonably prudent man on inquiry, ratification cannot be implied as against the principal who is ignorant of the facts.67 (Emphases supplied.)

Neither Unimarine nor Cebu Shipyard was able to repudiate CBIC’s testimony that it was unaware of the existence of Surety Bond No. G (16) 29419 and Endorsement No. 33152. There were no allegations either that CBIC should have been put on alert with regard to Quinain’s business transactions done on its behalf. It is clear, and undisputed therefore, that there can be no ratification in this case, whether express or implied.

Article 1911, on the other hand, is based on the principle of estoppel, which is necessary for the protection of third persons. It states that the principal is solidarily liable with the agent even when the latter has exceeded his authority, if the principal allowed him to act as though he had full powers. However, for an agency by estoppel to exist, the following must be established:

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1. The principal manifested a representation of the agent’s authority or knowingly allowed the agent to assume such authority;

2. The third person, in good faith, relied upon such representation; and

3. Relying upon such representation, such third person has changed his position to his detriment.68

In Litonjua, Jr. v. Eternit Corp.,69 this Court said that "[a]n 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."70

This Court cannot agree with the Court of Appeals’ pronouncement of negligence on CBIC’s part. CBIC not only clearly stated the limits of its agents’ powers in their contracts, it even stamped its surety bonds with the restrictions, in order to alert the concerned parties. Moreover, its company procedures, such as reporting requirements, show that it has designed a system to monitor the insurance contracts issued by its agents. CBIC cannot be faulted for Quinain’s deliberate failure to notify it of his transactions with Unimarine. In fact, CBIC did not even receive the premiums paid by Unimarine to Quinain.

Furthermore, nowhere in the decisions of the lower courts was it stated that CBIC let the public, or specifically Unimarine, believe that Quinain had the authority to issue a surety bond in favor of companies other than the Department of Public Works and Highways, the National Power Corporation, and other government agencies. Neither was it shown that CBIC knew of the existence of the surety bond before the endorsement extending the life of the bond, was issued to Unimarine. For one to successfully claim the benefit of estoppel on the ground that he has been misled by the representations of another, he must show that he was not misled through his own want of reasonable care and circumspection.71

It is apparent that Unimarine had been negligent or less than prudent in its dealings with Quinain. In Manila Memorial Park Cemetery, Inc. v. Linsangan,72 this Court held:

It is a settled rule that persons dealing with an agent are bound at their peril, if they would hold the principal liable, to ascertain not only the fact of agency but also the nature and extent of authority, and in case either is controverted, the burden of proof is upon them to establish it. 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. If he does not make such an inquiry, he is chargeable with knowledge of the agent’s authority and his ignorance of that authority will not be any excuse.

In the same case, this Court added:

[T]he ignorance of a person dealing with an agent as to the scope of the latter’s authority is no excuse to such person and the fault cannot be thrown upon the principal. A person dealing with an agent assumes the risk of lack of authority in the agent. He cannot charge the principal by relying upon the agent’s assumption of authority that proves to be unfounded. The principal, on the other hand, may act on the presumption that third persons dealing with his agent will not be negligent in failing to ascertain the extent of his authority as well as the existence of his agency.73

Unimarine undoubtedly failed to establish that it even bothered to inquire if Quinain was authorized to agree to terms beyond the limits indicated in his special power of attorney. While Paul Rodriguez stated that he has done business with Quinain more than once, he was not able to show that he was misled by CBIC as to the extent of authority it granted Quinain. Paul Rodriguez did not even allege that he asked for documents to prove Quinain’s authority to contract business for CBIC, such as their contract of agency and power of attorney. It is also worthy to note that even with the Indemnity Agreement, Paul Rodriguez signed it on Quinain’s mere assurance and without truly understanding the consequences of the terms of the said agreement. Moreover, both Unimarine and Paul Rodriguez could have inquired directly from CBIC to verify the validity and effectivity of the surety bond and endorsement; but, instead, they blindly relied on the representations of Quinain. As this Court held in Litonjua, Jr. v. Eternit Corp.74:

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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. 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. In this case, the petitioners failed to discharge their burden; hence, petitioners are not entitled to damages from respondent EC.75

In light of the foregoing, this Court is constrained to release CBIC from its liability on Surety Bond No. G (16) 29419 and Endorsement No. 33152. This Court sees no need to dwell on the other grounds propounded by CBIC in support of its prayer.

WHEREFORE, this petition is hereby GRANTED and the complaint against CBIC is DISMISSED for lack of merit. The January 29, 2004 Decision and October 28, 2004 Resolution of the Court of Appeals in CA-G.R. CV No. 58001 is MODIFIED insofar as it affirmed CBIC’s liability on Surety Bond No. G (16) 29419 and Endorsement No. 33152.

Republic of the PhilippinesSUPREME COURTManila

SECOND DIVISION

G.R. No. 151319 November 22, 2004

MANILA MEMORIAL PARK CEMETERY, INC., petitioner, vs.PEDRO L. LINSANGAN, respondent.

D E C I S I O N

TINGA, J.:

For resolution in this case is a classic and interesting texbook question in the law on agency.

This is a petition for review assailing the Decision1 of the Court of Appeals dated 22 June 2001, and its Resolution2 dated 12 December 2001 in CA G.R. CV No. 49802 entitled "Pedro L. Linsangan v. Manila Memorial Cemetery, Inc. et al.," finding Manila Memorial Park Cemetery, Inc. (MMPCI) jointly and severally liable with Florencia C. Baluyot to respondent Atty. Pedro L. Linsangan.

The facts of the case are as follows:

Sometime in 1984, Florencia Baluyot offered Atty. Pedro L. Linsangan a lot called Garden State at the Holy Cross Memorial Park owned by petitioner (MMPCI). According to Baluyot, a former owner of a memorial lot under Contract No. 25012 was no longer interested in acquiring the lot and had opted to sell his rights subject to reimbursement of the amounts he already paid. The contract was for P95,000.00. Baluyot reassured Atty. Linsangan that once reimbursement is made to the former buyer, the contract would be transferred to him. Atty. Linsangan agreed and gave Baluyot P35,295.00 representing the amount to be reimbursed to the original buyer and to complete the down payment to MMPCI.3 Baluyot issued handwritten and typewritten receipts for these payments.4

Sometime in March 1985, Baluyot informed Atty. Linsangan that he would be issued Contract No. 28660, a new contract covering the subject lot in the name of the latter instead of old Contract No. 25012. Atty. Linsangan protested, but Baluyot assured him that he would still be paying the old price of P95,000.00 with P19,838.00 credited as full down payment leaving a balance of about P75,000.00.5

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Subsequently, on 8 April 1985, Baluyot brought an Offer to Purchase Lot No. A11 (15), Block 83, Garden Estate I denominated as Contract No. 28660 and the Official Receipt No. 118912 dated 6 April 1985 for the amount of P19,838.00. Contract No. 28660 has a listed price of P132,250.00. Atty. Linsangan objected to the new contract price, as the same was not the amount previously agreed upon. To convince Atty. Linsangan, Baluyot executed a document6 confirming that while the contract price is P132,250.00, Atty. Linsangan would pay only the original price of P95,000.00.

The document reads in part:

The monthly installment will start April 6, 1985; the amount of P1,800.00 and the difference will be issued as discounted to conform to the previous price as previously agreed upon. --- P95,000.00

Prepared by:

(Signed)

(MRS.) FLORENCIA C. BALUYOTAgency ManagerHoly Cross Memorial Park

4/18/85

Dear Atty. Linsangan:

This will confirm our agreement that while the offer to purchase under Contract No. 28660 states that the total price of P132,250.00 your undertaking is to pay only the total sum of P95,000.00 under the old price. Further the total sum of P19,838.00 already paid by you under O.R. # 118912 dated April 6, 1985 has been credited in the total purchase price thereby leaving a balance of P75,162.00 on a monthly installment of P1,800.00 including interests (sic) charges for a period of five (5) years.

(Signed)

FLORENCIA C. BALUYOT

By virtue of this letter, Atty. Linsangan signed Contract No. 28660 and accepted Official Receipt No. 118912. As requested by Baluyot, Atty. Linsangan issued twelve (12) postdated checks of P1,800.00 each in favor of MMPCI. The next year, or on 29 April 1986, Atty. Linsangan again issued twelve (12) postdated checks in favor of MMPCI.

On 25 May 1987, Baluyot verbally advised Atty. Linsangan that Contract No. 28660 was cancelled for reasons the latter could not explain, and presented to him another proposal for the purchase of an equivalent property. He refused the new proposal and insisted that Baluyot and MMPCI honor their undertaking.

For the alleged failure of MMPCI and Baluyot to conform to their agreement, Atty. Linsangan filed a Complaint7 for Breach of Contract and Damages against the former.

Baluyot did not present any evidence. For its part, MMPCI alleged that Contract No. 28660 was cancelled conformably with the terms of the contract8 because of non-payment of arrearages.9 MMPCI stated that Baluyot was not an agent but an independent contractor, and as such was not authorized to represent MMPCI or to use its name except as to the extent expressly stated in the Agency Manager Agreement.10 Moreover, MMPCI was not aware of the arrangements entered into by Atty. Linsangan and Baluyot, as it in fact received a down payment and monthly installments as indicated in the contract.11 Official receipts showing the application of payment were turned over to Baluyot whom Atty. Linsangan had from the beginning allowed to receive the same in his behalf. Furthermore, whatever misimpression that Atty. Linsangan may have had must have been rectified by the Account Updating Arrangement signed by Atty. Linsangan which states that he "expressly admits that Contract No. 28660 'on account of serious delinquency…is now due for cancellation under its terms and conditions.'''12

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The trial court held MMPCI and Baluyot jointly and severally liable.13 It found that Baluyot was an agent of MMPCI and that the latter was estopped from denying this agency, having received and enchased the checks issued by Atty. Linsangan and given to it by Baluyot. While MMPCI insisted that Baluyot was authorized to receive only the down payment, it allowed her to continue to receive postdated checks from Atty. Linsangan, which it in turn consistently encashed.14

The dispositive portion of the decision reads:

WHEREFORE, judgment by preponderance of evidence is hereby rendered in favor of plaintiff declaring Contract No. 28660 as valid and subsisting and ordering defendants to perform their undertakings thereof which covers burial lot No. A11 (15), Block 83, Section Garden I, Holy Cross Memorial Park located at Novaliches, Quezon City. All payments made by plaintiff to defendants should be credited for his accounts. NO DAMAGES, NO ATTORNEY'S FEES but with costs against the defendants.

The cross claim of defendant Manila Memorial Cemetery Incorporated as against defendant Baluyot is GRANTED up to the extent of the costs.

SO ORDERED.15

MMPCI appealed the trial court's decision to the Court of Appeals.16 It claimed that Atty. Linsangan is bound by the written contract with MMPCI, the terms of which were clearly set forth therein and read, understood, and signed by the former.17 It also alleged that Atty. Linsangan, a practicing lawyer for over thirteen (13) years at the time he entered into the contract, is presumed to know his contractual obligations and is fully aware that he cannot belatedly and unilaterally change the terms of the contract without the consent, much less the knowledge of the other contracting party, which was MMPCI. And in this case, MMPCI did not agree to a change in the contract and in fact implemented the same pursuant to its clear terms. In view thereof, because of Atty. Linsangan's delinquency, MMPCI validly cancelled the contract.

MMPCI further alleged that it cannot be held jointly and solidarily liable with Baluyot as the latter exceeded the terms of her agency, neither did MMPCI ratify Baluyot's acts. It added that it cannot be charged with making any misrepresentation, nor of having allowed Baluyot to act as though she had full powers as the written contract expressly stated the terms and conditions which Atty. Linsangan accepted and understood. In canceling the contract, MMPCI merely enforced the terms and conditions imposed therein.18

Imputing negligence on the part of Atty. Linsangan, MMPCI claimed that it was the former's obligation, as a party knowingly dealing with an alleged agent, to determine the limitations of such agent's authority, particularly when such alleged agent's actions were patently questionable. According to MMPCI, Atty. Linsangan did not even bother to verify Baluyot's authority or ask copies of official receipts for his payments.19

The Court of Appeals affirmed the decision of the trial court. It upheld the trial court's finding that Baluyot was an agent of MMPCI at the time the disputed contract was entered into, having represented MMPCI's interest and acting on its behalf in the dealings with clients and customers. Hence, MMPCI is considered estopped when it allowed Baluyot to act and represent MMPCI even beyond her authority.20 The appellate court likewise found that the acts of Baluyot bound MMPCI when the latter allowed the former to act for and in its behalf and stead. While Baluyot's authority "may not have been expressly conferred upon her, the same may have been derived impliedly by habit or custom, which may have been an accepted practice in the company for a long period of time."21 Thus, the Court of Appeals noted, innocent third persons such as Atty. Linsangan should not be prejudiced where the principal failed to adopt the needed measures to prevent misrepresentation. Furthermore, if an agent misrepresents to a purchaser and the principal accepts the benefits of such misrepresentation, he cannot at the same time deny responsibility for such misrepresentation.22 Finally, the Court of Appeals declared:

There being absolutely nothing on the record that would show that the court a quo overlooked, disregarded, or misinterpreted facts of weight and significance, its

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factual findings and conclusions must be given great weight and should not be disturbed by this Court on appeal.

WHEREFORE, in view of the foregoing, the appeal is hereby DENIED and the appealed decision in Civil Case No. 88-1253 of the Regional Trial Court, National Capital Judicial Region, Branch 57 of Makati, is hereby AFFIRMED in toto.

SO ORDERED.23

MMPCI filed its Motion for Reconsideration,24 but the same was denied for lack of merit.25

In the instant Petition for Review, MMPCI claims that the Court of Appeals seriously erred in disregarding the plain terms of the written contract and Atty. Linsangan's failure to abide by the terms thereof, which justified its cancellation. In addition, even assuming that Baluyot was an agent of MMPCI, she clearly exceeded her authority and Atty. Linsangan knew or should have known about this considering his status as a long-practicing lawyer. MMPCI likewise claims that the Court of Appeals erred in failing to consider that the facts and the applicable law do not support a judgment against Baluyot only "up to the extent of costs."26

Atty. Linsangan argues that he did not violate the terms and conditions of the contract, and in fact faithfully performed his contractual obligations and complied with them in good faith for at least two years.27 He claims that contrary to MMPCI's position, his profession as a lawyer is immaterial to the validity of the subject contract and the case at bar.28 According to him, MMPCI had practically admitted in its Petition that Baluyot was its agent, and thus, the only issue left to be resolved is whether MMPCI allowed Baluyot to act as though she had full powers to be held solidarily liable with the latter.29

We find for the petitioner MMPCI.

The jurisdiction of the Supreme Court in a petition for review under Rule 45 of the Rules of Court is limited to reviewing only errors of law, not fact, unless the factual findings complained of are devoid of support by the evidence on record or the

assailed judgment is based on misapprehension of facts.30 In BPI Investment Corporation v. D.G. Carreon Commercial Corporation,31 this Court ruled:

There are instances when the findings of fact of the trial court and/or Court of Appeals may be reviewed by the Supreme Court, such as (1) when the conclusion is a finding grounded entirely on speculation, surmises and conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) where there is a grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the Court of Appeals, in making its findings, went beyond the issues of the case and the same is contrary to the admissions of both appellant and appellee; (7) when the findings are contrary to those of the trial court; (8) when the findings of fact are conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioners' main and reply briefs are not disputed by the respondents; and (10) the findings of fact of the Court of Appeals are premised on the supposed absence of evidence and contradicted by the evidence on record.32

In the case at bar, the Court of Appeals committed several errors in the apprehension of the facts of the case, as well as made conclusions devoid of evidentiary support, hence we review its findings of fact.

By the contract of agency, a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter.33 Thus, the elements of agency are (i) consent, express or implied, of the parties to establish the relationship; (ii) the object is the execution of a juridical act in relation to a third person; (iii) the agent acts as a representative and not for himself; and (iv) the agent acts within the scope of his authority.34

In an attempt to prove that Baluyot was not its agent, MMPCI pointed out that under its Agency Manager Agreement; an agency manager such as Baluyot is considered an independent contractor and not an agent.35However, in the same contract, Baluyot as agency manager was authorized to solicit and remit to MMPCI offers to purchase interment spaces belonging to and sold by the

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latter.36 Notwithstanding the claim of MMPCI that Baluyot was an independent contractor, the fact remains that she was authorized to solicit solely for and in behalf of MMPCI. As properly found both by the trial court and the Court of Appeals, Baluyot was an agent of MMPCI, having represented the interest of the latter, and having been allowed by MMPCI to represent it in her dealings with its clients/prospective buyers.

Nevertheless, contrary to the findings of the Court of Appeals, MMPCI cannot be bound by the contract procured by Atty. Linsangan and solicited by Baluyot.

Baluyot was authorized to solicit and remit to MMPCI offers to purchase interment spaces obtained on forms provided by MMPCI. The terms of the offer to purchase, therefore, are contained in such forms and, when signed by the buyer and an authorized officer of MMPCI, becomes binding on both parties.

The Offer to Purchase duly signed by Atty. Linsangan, and accepted and validated by MMPCI showed a total list price of P132,250.00. Likewise, it was clearly stated therein that "Purchaser agrees that he has read or has had read to him this agreement, that he understands its terms and conditions, and that there are no covenants, conditions, warranties or representations other than those contained herein."37 By signing the Offer to Purchase, Atty. Linsangan signified that he understood its contents. That he and Baluyot had an agreement different from that contained in the Offer to Purchase is of no moment, and should not affect MMPCI, as it was obviously made outside Baluyot's authority. To repeat, Baluyot's authority was limited only to soliciting purchasers. She had no authority to alter the terms of the written contract provided by MMPCI. The document/letter "confirming" the agreement that Atty. Linsangan would have to pay the old price was executed by Baluyot alone. Nowhere is there any indication that the same came from MMPCI or any of its officers.

It is a settled rule that persons dealing with an agent are bound at their peril, if they would hold the principal liable, to ascertain not only the fact of agency but also the nature and extent of authority, and in case either is controverted, the burden of proof is upon them to establish it.38 The basis for agency is representation and a

person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent.39 If he does not make such an inquiry, he is chargeable with knowledge of the agent's authority and his ignorance of that authority will not be any excuse.40

As noted by one author, the ignorance of a person dealing with an agent as to the scope of the latter's authority is no excuse to such person and the fault cannot be thrown upon the principal.41 A person dealing with an agent assumes the risk of lack of authority in the agent. He cannot charge the principal by relying upon the agent's assumption of authority that proves to be unfounded. The principal, on the other hand, may act on the presumption that third persons dealing with his agent will not be negligent in failing to ascertain the extent of his authority as well as the existence of his agency.42

In the instant case, it has not been established that Atty. Linsangan even bothered to inquire whether Baluyot was authorized to agree to terms contrary to those indicated in the written contract, much less bind MMPCI by her commitment with respect to such agreements. Even if Baluyot was Atty. Linsangan's friend and known to be an agent of MMPCI, her declarations and actions alone are not sufficient to establish the fact or extent of her authority.43 Atty. Linsangan as a practicing lawyer for a relatively long period of time when he signed the contract should have been put on guard when their agreement was not reflected in the contract. More importantly, Atty. Linsangan should have been alerted by the fact that Baluyot failed to effect the transfer of rights earlier promised, and was unable to make good her written commitment, nor convince MMPCI to assent thereto, as evidenced by several attempts to induce him to enter into other contracts for a higher consideration. As properly pointed out by MMPCI, as a lawyer, a greater degree of caution should be expected of Atty. Linsangan especially in dealings involving legal documents. He did not even bother to ask for official receipts of his payments, nor inquire from MMPCI directly to ascertain the real status of the contract, blindly relying on the representations of Baluyot. A lawyer by profession, he knew what he was doing when he signed the written contract, knew the meaning and value of every word or phrase used in the contract, and more

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importantly, knew the legal effects which said document produced. He is bound to accept responsibility for his negligence.

The trial and appellate courts found MMPCI liable based on ratification and estoppel. For the trial court, MMPCI's acts of accepting and encashing the checks issued by Atty. Linsangan as well as allowing Baluyot to receive checks drawn in the name of MMPCI confirm and ratify the contract of agency. On the other hand, the Court of Appeals faulted MMPCI in failing to adopt measures to prevent misrepresentation, and declared that in view of MMPCI's acceptance of the benefits of Baluyot's misrepresentation, it can no longer deny responsibility therefor.

The Court does not agree. Pertinent to this case are the following provisions of the Civil Code:

Art. 1898. If the agent contracts in the name of the principal, exceeding the scope of his authority, and the principal does not ratify the contract, it shall be void if the party with whom the agent contracted is aware of the limits of the powers granted by the principal. In this case, however, the agent is liable if he undertook to secure the principal's ratification.

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

As for any obligation wherein the agent has exceeded his power, the principal is not bound except when he ratifies it expressly or tacitly.

Art. 1911. Even when the agent has exceeded his authority, the principal is solidarily liable with the agent if the former allowed the latter to act as though he had full powers.

Thus, the acts of an agent beyond the scope of his authority do not bind the principal, unless he ratifies them, expressly or impliedly. Only the principal can ratify; the agent cannot ratify his own unauthorized acts. Moreover, the principal must have knowledge of the acts he is to ratify.44

Ratification in agency is the adoption or confirmation by one person of an act performed on his behalf by another without authority. The substance of the doctrine is confirmation after conduct, amounting to a substitute for a prior authority. Ordinarily, the principal must have full knowledge at the time of ratification of all the material facts and circumstances relating to the unauthorized act of the person who assumed to act as agent. Thus, if material facts were suppressed or unknown, there can be no valid ratification and this regardless of the purpose or lack thereof in concealing such facts and regardless of the parties between whom the question of ratification may arise.45Nevertheless, this principle does not apply if the principal's ignorance of the material facts and circumstances was willful, or that the principal chooses to act in ignorance of the facts.46 However, in the absence of circumstances putting a reasonably prudent man on inquiry, ratification cannot be implied as against the principal who is ignorant of the facts.47

No ratification can be implied in the instant case.

A perusal of Baluyot's Answer48 reveals that the real arrangement between her and Atty. Linsangan was for the latter to pay a monthly installment of P1,800.00 whereas Baluyot was to shoulder the counterpart amount of P1,455.00 to meet the P3,255.00 monthly installments as indicated in the contract. Thus, every time an installment falls due, payment was to be made through a check from Atty. Linsangan for P1,800.00 and a cash component of P1,455.00 from Baluyot.49 However, it appears that while Atty. Linsangan issued the post-dated checks, Baluyot failed to come up with her part of the bargain. This was supported by Baluyot's statements in her letter50 to Mr. Clyde Williams, Jr., Sales Manager of MMPCI, two days after she received the copy of the Complaint. In the letter, she admitted that she was remiss in her duties when she consented to Atty. Linsangan's proposal that he will pay the old price while the difference will be shouldered by her. She likewise admitted that the contract suffered arrearages because while Atty. Linsangan issued the agreed checks, she was unable to give her share of P1,455.00 due to her own financial difficulties. Baluyot even asked for compassion from MMPCI for the error she committed.

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Atty. Linsangan failed to show that MMPCI had knowledge of the arrangement. As far as MMPCI is concerned, the contract price was P132,250.00, as stated in the Offer to Purchase signed by Atty. Linsangan and MMPCI's authorized officer. The down payment of P19,838.00 given by Atty. Linsangan was in accordance with the contract as well. Payments of P3,235.00 for at least two installments were likewise in accord with the contract, albeit made through a check and partly in cash. In view of Baluyot's failure to give her share in the payment, MMPCI received only P1,800.00 checks, which were clearly insufficient payment. In fact, Atty. Linsangan would have incurred arrearages that could have caused the earlier cancellation of the contract, if not for MMPCI's application of some of the checks to his account. However, the checks alone were not sufficient to cover his obligations.

If MMPCI was aware of the arrangement, it would have refused the latter's check payments for being insufficient. It would not have applied to his account the P1,800.00 checks. Moreover, the fact that Baluyot had to practically explain to MMPCI's Sales Manager the details of her "arrangement" with Atty. Linsangan and admit to having made an error in entering such arrangement confirm that MMCPI had no knowledge of the said agreement. It was only when Baluyot filed her Answer that she claimed that MMCPI was fully aware of the agreement.

Neither is there estoppel in the instant case. The essential elements of estoppel are (i) conduct of a party amounting to false representation or concealment of material facts or at least calculated to convey the impression that the facts are otherwise than, and inconsistent with, those which the party subsequently attempts to assert; (ii) intent, or at least expectation, that this conduct shall be acted upon by, or at least influence, the other party; and (iii) knowledge, actual or constructive, of the real facts.51

While there is no more question as to the agency relationship between Baluyot and MMPCI, there is no indication that MMPCI let the public, or specifically, Atty. Linsangan to believe that Baluyot had the authority to alter the standard contracts of the company. Neither is there any showing that prior to signing Contract No. 28660, MMPCI had any knowledge of Baluyot's commitment to Atty. Linsangan. One who claims the benefit of an estoppel on the ground that he has been misled

by the representations of another must not have been misled through his own want of reasonable care and circumspection.52 Even assuming that Atty. Linsangan was misled by MMPCI's actuations, he still cannot invoke the principle of estoppel, as he was clearly negligent in his dealings with Baluyot, and could have easily determined, had he only been cautious and prudent, whether said agent was clothed with the authority to change the terms of the principal's written contract. Estoppel must be intentional and unequivocal, for when misapplied, it can easily become a most convenient and effective means of injustice.53 In view of the lack of sufficient proof showing estoppel, we refuse to hold MMPCI liable on this score.

Likewise, this Court does not find favor in the Court of Appeals' findings that "the authority of defendant Baluyot may not have been expressly conferred upon her; however, the same may have been derived impliedly by habit or custom which may have been an accepted practice in their company in a long period of time." A perusal of the records of the case fails to show any indication that there was such a habit or custom in MMPCI that allows its agents to enter into agreements for lower prices of its interment spaces, nor to assume a portion of the purchase price of the interment spaces sold at such lower price. No evidence was ever presented to this effect.

As the Court sees it, there are two obligations in the instant case. One is the Contract No. 28660 between MMPCI and by Atty. Linsangan for the purchase of an interment space in the former's cemetery. The other is the agreement between Baluyot and Atty. Linsangan for the former to shoulder the amount P1,455.00, or the difference between P95,000.00, the original price, and P132,250.00, the actual contract price.

To repeat, the acts of the agent beyond the scope of his authority do not bind the principal unless the latter ratifies the same. It also bears emphasis that when the third person knows that the agent was acting beyond his power or authority, the principal cannot be held liable for the acts of the agent. If the said third person was aware of such limits of authority, he is to blame and is not entitled to recover damages from the agent, unless the latter undertook to secure the principal's ratification.54

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This Court finds that Contract No. 28660 was validly entered into both by MMPCI and Atty. Linsangan. By affixing his signature in the contract, Atty. Linsangan assented to the terms and conditions thereof. When Atty. Linsangan incurred delinquencies in payment, MMCPI merely enforced its rights under the said contract by canceling the same.

Being aware of the limits of Baluyot's authority, Atty. Linsangan cannot insist on what he claims to be the terms of Contract No. 28660. The agreement, insofar as the P95,000.00 contract price is concerned, is void and cannot be enforced as against MMPCI. Neither can he hold Baluyot liable for damages under the same contract, since there is no evidence showing that Baluyot undertook to secure MMPCI's ratification. At best, the "agreement" between Baluyot and Atty. Linsangan bound only the two of them. As far as MMPCI is concerned, it bound itself to sell its interment space to Atty. Linsangan for P132,250.00 under Contract No. 28660, and had in fact received several payments in accordance with the same contract. If the contract was cancelled due to arrearages, Atty. Linsangan's recourse should only be against Baluyot who personally undertook to pay the difference between the true contract price of P132,250.00 and the original proposed price of P95,000.00. To surmise that Baluyot was acting on behalf of MMPCI when she promised to shoulder the said difference would be to conclude that MMPCI undertook to pay itself the difference, a conclusion that is very illogical, if not antithetical to its business interests.

However, this does not preclude Atty. Linsangan from instituting a separate action to recover damages from Baluyot, not as an agent of MMPCI, but in view of the latter's breach of their separate agreement. To review, Baluyot obligated herself to pay P1,455.00 in addition to Atty. Linsangan's P1,800.00 to complete the monthly installment payment under the contract, which, by her own admission, she was unable to do due to personal financial difficulties. It is undisputed that Atty. Linsangan issued the P1,800.00 as agreed upon, and were it not for Baluyot's failure to provide the balance, Contract No. 28660 would not have been cancelled. Thus, Atty. Linsangan has a cause of action against Baluyot, which he can pursue in another case.

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

SO ORDERED.

Republic of the PhilippinesSUPREME COURTBaguio City

FIRST DIVISION

G.R. No. 126751 March 28, 2001

SAFIC ALCAN & CIE, petitioner, vs.IMPERIAL VEGETABLE OIL CO., INC., respondent.

YNARES-SANTIAGO, J.:

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Petitioner Safic Alcan & Cie (hereinafter, "Safic") is a French corporation engaged in the international purchase, sale and trading of coconut oil. It filed with the Regional Trial Court of Manila, Branch XXV, a complaint dated February 26, 1987 against private respondent Imperial Vegetable Oil Co., Inc. (hereinafter, "IVO"), docketed as Civil Case No. 87- 39597. Petitioner Safic alleged that on July 1, 1986 and September 25, 1986, it placed purchase orders with IVO for 2,000 long tons of crude coconut oil, valued at US$222.50 per ton, covered by Purchase Contract Nos. A601446 and A601655, respectively, to be delivered within the month of January 1987. Private respondent, however, failed to deliver the said coconut oil and, instead, offered a "wash out" settlement, whereby the coconut oil subject of the purchase contracts were to be "sold back" to IVO at the prevailing price in the international market at the time of wash out. Thus, IVO bound itself to pay to Safic the difference between the said prevailing price and the contract price of the 2,000 long tons of crude coconut oil, which amounted to US$293,500.00. IVO failed to pay this amount despite repeated oral and written demands.

Under its second cause of action, Safic alleged that on eight occasions between April 24, 1986 and October 31, 1986, it placed purchase orders with IVO for a total of 4,750 tons of crude coconut oil, covered by Purchase Contract Nos. A601297A/B, A601384, A601385, A601391, A601415, A601681, A601683 and A601770A/B/C/. When IVO failed to honor its obligation under the wash out settlement narrated above, Safic demanded that IVO make marginal deposits within forty-eight hours on the eight purchase contracts in amounts equivalent to the difference between the contract price and the market price of the coconut oil, to compensate it for the damages it suffered when it was forced to acquire coconut oil at a higher price. IVO failed to make the prescribed marginal deposits on the eight contracts, in the aggregate amount of US$391,593.62, despite written demand therefor.

The demand for marginal deposits was based on the customs of the trade, as governed by the provisions of the standard N.I.O.P. Contract arid the FOSFA Contract, to wit:

N.I.O.P. Contract, Rule 54 - If the financial condition of either party to a contract subject to these rules becomes so impaired as to create a reasonable doubt as to the ability of such party to perform its obligations under the contract, the other party may from time to time demand marginal deposits to be made within forty-eight (48) hours after receipt of such demand, such deposits not to exceed the difference between the contract price and the market price of the goods covered by the contract on the day upon which such demand is made, such deposit to bear interest at the prime rate plus one percent (1%) per annum. Failure to make such deposit within the time specified shall constitute a breach of contract by the party upon whom demand for deposit is made, and all losses and expenses resulting from such breach shall be for the account of the party upon whom such demand is made. (Underscoring ours.)1

FOSFA Contract, Rule 54 - BANKRUPTCY/INSOLVENCY: If before the fulfillment of this contract either party shall suspend payment, commit an act of bankruptcy, notify any of his creditors that he is unable to meet his debts or that he has suspended payment or that he is about to suspend payment of his debts, convene, call or hold a meeting either of his creditors or to pass a resolution to go into liquidation (except for a voluntary winding up of a solvent company for the purpose of reconstruction or amalgamation) or shall apply for an official moratorium, have a petition presented for winding up or shal1i have a Receiver appointed, the contract shall forthwith be closed either at the market price then current for similar goods or, at the option of the other party at a price to be ascertained by repurchase or resale and the difference between the contract price and such closing-out price shall be the amount which the other party shall be entitled to claim shall be liable to account for under this contract (sic). Should either party be dissatisfied with the price, the matter shall be referred to arbitration. Where no such resale or repurchase takes place, the closing-out price shall be fixed by a Price Settlement Committee appointed by the Federation. (Underscoring ours.)2

Hence, Safic prayed that IVO be ordered to pay the sums of US$293,500.00 and US$391,593.62, plus attorney's fees and litigation expenses. The complaint also

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included an application for a writ of preliminary attachment against the properties of IVO.

Upon Safic's posting of the requisite bond, the trial court issued a writ of preliminary attachment. Subsequently, the trial court ordered that the assets of IVO be placed under receivership, in order to ensure the preservation of the same.

In its answer, IVO raised the following special affirmative defenses: Safic had no legal capacity to sue because it was doing business in the Philippines without the requisite license or authority; the subject contracts were speculative contracts entered into by IVO's then President, Dominador Monteverde, in contravention of the prohibition by the Board of Directors against engaging in speculative paper trading, and despite IVO's lack of the necessary license from Central Bank to engage in such kind of trading activity; and that under Article 2018 of the Civil Code, if a contract which purports to be for the delivery of goods, securities or shares of stock is entered into with the intention that the difference between the price stipulated and the exchange or market price at the time of the pretended delivery shall be paid by the loser to the winner, the transaction is null and void.1âwphi1.nêt

IVO set up counterclaims anchored on harassment, paralyzation of business, financial losses, rumor-mongering and oppressive action. Later, IVO filed a supplemental counterclaim alleging that it was unable to operate its business normally because of the arrest of most of its physical assets; that its suppliers were driven away; and that its major creditors have inundated it with claims for immediate payment of its debts, and China Banking Corporation had foreclosed its chattel and real estate mortgages.

During the trial, the lower court found that in 1985, prior to the date of the contracts sued upon, the parties had entered into and consummated a number of contracts for the sale of crude coconut oil. In those transactions, Safic placed several orders and IVO faithfully filled up those orders by shipping out the required crude coconut oil to Safic, totaling 3,500 metric tons. Anent the 1986 contracts being sued upon, the trial court refused to declare the same as gambling transactions, as defined in

Article 2018 of the Civil Code, although they involved some degree of speculation. After all, the court noted, every business enterprise carries with it a certain measure of speculation or risk. However, the contracts performed in 1985, on one hand, and the 1986 contracts subject of this case, on the other hand, differed in that under the 1985 contracts, deliveries were to be made within two months. This, as alleged by Safic, was the time needed for milling and building up oil inventory. Meanwhile, the 1986 contracts stipulated that the coconut oil were to be delivered within period ranging from eight months to eleven to twelve months after the placing of orders. The coconuts that were supposed to be milled were in all likelihood not yet growing when Dominador Monteverde sold the crude coconut oil. As such, the 1986 contracts constituted trading in futures or in mere expectations.

The lower court further held that the subject contracts were ultra vires and were entered into by Dominador Monteverde without authority from the Board of Directors. It distinguished between the 1985 contracts, where Safic likewise dealt with Dominador Monteverde, who was presumably authorized to bind IVO, and the 1986 contracts, which were highly speculative in character. Moreover, the 1985 contracts were covered by letters of credit, while the 1986 contracts were payable by telegraphic transfers, which were nothing more than mere promises to pay once the shipments became ready. For these reasons, the lower court held that Safic cannot invoke the 1985 contracts as an implied corporate sanction for the high-risk 1986 contracts, which were evidently entered into by Monteverde for his personal benefit.

The trial court ruled that Safic failed to substantiate its claim for actual damages. Likewise, it rejected IVO's counterclaim and supplemental counterclaim.

Thus, on August 28, 1992, the trial court rendered judgment as follows:

WHEREFORE, judgment is hereby rendered dismissing the complaint of plaintiff Safic Alcan & Cie, without prejudice to any action it might subsequently institute against Dominador Monteverde, the former President of Imperial Vegetable Oil Co., Inc., arising from the subject matter of this case. The counterclaim and

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supplemental counterclaim of the latter defendant are likewise hereby dismissed for lack of merit. No pronouncement as to costs.

The writ of preliminary attachment issued in this case as well as the order placing Imperial Vegetable Oil Co., Inc. under receivership are hereby dissolved and set aside.3

Both IVO and Safic appealed to the Court of Appeals, jointly docketed as CA-G.R. CV No.40820.

IVO raised only one assignment of error, viz:

THE TRIAL COURT ERRED IN HOLDING 'I'HAT THE ISSUANCE OF THE WRIT OF PRELIMINARY ATTACHMENT WAS NOT THE MAIN CAUSE OF THE DAMAGES SUFFERED BY DEFENDANT AND IN NOT AWARDING DEFENDANT-APPELLANT SUCH DAMAGES.

For its part, Safic argued that:

THE TRIAL COURT ERRED IN HOLDING THAT IVO'S PRESIDENT, DOMINADOR MONTEVERDE, ENTERED INTO CONTRACTS WHICH WERE ULTRA VIRES AND WHICH DID NOT BIND OR MAKE IVO LIABLE.

THE TRIAL COURT ERRED IN HOLDING THA SAFIC WAS UNABLE TO PROVE THE DAMAGES SUFFERED BY IT AND IN NOT AWARDING SUCH DAMAGES.

THE TRIAL COURT ERRED IN NOT HOLDING THAT IVO IS LIABLE UNDER THE WASH OUT CONTRACTS.

On September 12, 1996, the Court of Appeals rendered the assailed Decision dismissing the, appeals and affirming the judgment appealed from in toto.4

Hence, Safic filed the instant petition for review with this Court, substantially reiterating the errors it raised before the Court of Appeals and maintaining that the Court of Appeals grievously erred when:

a. it declared that the 1986 forward contracts (i.e., Contracts Nos. A601446 and A60155 (sic) involving 2,000 long tons of crude coconut oil, and Contracts Nos. A60l297A/B, A601385, A60l39l, A60l4l5, A601681. A601683 and A60l770A/B/C involving 4,500 tons of crude coconut oil) were unauthorized acts of Dominador Monteverde which do not bind IVO in whose name they were entered into. In this connection, the Court of Appeals erred when (i) it ignored its own finding that (a) Dominador Monteverde, as IVO's President, had "an implied authority to make any contract necessary or appropriate to the contract of the ordinary business of the company"; and (b) Dominador Monteverde had validly entered into similar forward contracts for and on behalf of IVO in 1985; (ii) it distinguished between the 1986 forward contracts despite the fact that the Manila RTC has struck down IVO's objection to the 1986 forward contracts (i.e. that they were highly speculative paper trading which the IVO Board of Directors had prohibited Dominador Monteverde from engaging in because it is a form of gambling where the parties do not intend actual delivery of the coconut oil sold) and instead found that the 1986 forward contracts were not gambling; (iii) it relied on the testimony of Mr. Rodrigo Monteverde in concluding that the IVO Board of Directors did not authorize its President, Dominador Monteverde, to enter into the 1986 forward contracts; and (iv) it did not find IVO, in any case, estopped from denying responsibility for, and liability under, the 1986 forward contracts because IVO had recognized itself bound to similar forward contracts which Dominador Monteverde entered into (for and on behalf of IVO) with Safic in 1985 notwithstanding that Dominador Monteverde was (like in the 1986 forward contracts) not expressly authorized by the IVO Board of Directors to enter into such forward contracts;

b. it declared that Safic was not able, to prove damages suffered by it, despite the fact that Safic had presented not only testimonial, but also documentary, evidence which proved the higher amount it had to pay for crude coconut oil (vis-à-vis the contract price it was to pay to IVO) when IVO refused to deliver the crude coconut oil bought by Safic under the 1986 forward contracts; and

c. it failed to resolve the issue of whether or not IVO is liable to Safic under the wash out contracts involving Contracts Nos. A601446 and A60155 (sic), despite

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the fact that Safic had properly raised the issue on its appeal, and the evidence and the law support Safic's position that IVO is so liable to Safic.

In fine, Safic insists that the appellate court grievously erred when it did not declare that IVO's President, Dominador Monteverde, validly entered into the 1986 contracts for and on behalf of IVO.

We disagree.

Article III, Section 3 [g] of the By-Laws5 of IVO provides, among others, that –

Section 3. Powers and Duties of the President. - The President shall be elected by the Board of Directors from their own number .

He shall have the following duties:

x x x x x x x x x

[g] Have direct and active management of the business and operation of the corporation, conducting the same according to, the orders, resolutions and instruction of the Board of Directors and according to his own discretion whenever and wherever the same is not expressly limited by such orders, resolutions and instructions.

It can be clearly seen from the foregoing provision of IVO's By-laws that Monteverde had no blanket authority to bind IVO to any contract. He must act according to the instructions of the Board of Directors. Even in instances when he was authorized to act according to his discretion, that discretion must not conflict with prior Board orders, resolutions and instructions. The evidence shows that the IVO Board knew nothing of the 1986 contracts6 and that it did not authorize Monteverde to enter into speculative contracts.7 In fact, Monteverde had earlier proposed that the company engage in such transactions but the IVO Board rejected his proposal.8 Since the 1986 contracts marked a sharp departure from past IVO transactions, Safic should have obtained from Monteverde the prior authorization of the IVO Board. Safic can not rely on the doctrine of implied agency

because before the controversial 1986 contracts, IVO did not enter into identical contracts with Safic. 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.9 In the case of Bacaltos Coal Mines v. Court of Appeals,10 we elucidated the rule on dealing with an agent thus:

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.11

The most prudent thing petitioner should have done was to ascertain the extent of the authority of Dominador Monteverde. Being remiss in this regard, petitioner can not seek relief on the basis of a supposed agency.

Under Article 189812 of the Civil Code, the acts of an agent beyond the scope of his authority do not bind the principal unless the latter ratifies the same expressly or impliedly. It also bears emphasizing that when the third person knows that the agent was acting beyond his power or authority, the principal can not be held liable for the acts of the agent. If the said third person is aware of such limits of authority, he is to blame, and is not entitled to recover damages from the agent, unless the latter undertook to secure the principal's ratification.13

There was no such ratification in this case. When Monteverde entered into the speculative contracts with Safic, he did not secure the Board's approval.14 He also did not submit the contracts to the Board after their consummation so there was, in fact, no occasion at all for ratification. The contracts were not reported in IVO's export sales book and turn-out book.15 Neither were they reflected in other books and records of the corporation.16 It must be pointed out that the Board of Directors, not Monteverde, exercises corporate power.17 Clearly, Monteverde's speculative

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contracts with Safic never bound IVO and Safic can not therefore enforce those contracts against IVO.

To bolster its cause, Safic raises the novel point that the IVO Board of Directors did not set limitations on the extent of Monteverde's authority to sell coconut oil. It must be borne in mind in this regard that a question that was never raised in the courts below can not be allowed to be raised for the first time on appeal without offending basic rules of fair play, justice and due process.18 Such an issue was not brought to the fore either in the trial court or the appellate court, and would have been disregarded by the latter tribunal for the reasons previously stated. With more reason, the same does not deserve consideration by this Court.

Be that as it may, Safic's belated contention that the IVO Board of Directors did not set limitations on Monteverde's authority to sell coconut oil is belied by what appears on the record. Rodrigo Monteverde, who succeeded Dominador Monteverde as IVO President, testified that the IVO Board had set down the policy of engaging in purely physical trading thus:

Q. Now you said that IVO is engaged in trading. With whom does, it usually trade its oil?

A. I am not too familiar with trading because as of March 1987, I was not yet an officer of the corporation, although I was at the time already a stockholder, I think IVO is engaged in trading oil.

Q. As far as you know, what kind of trading was IVO engaged with?

A. It was purely on physical trading.

Q. How did you know this?

A. As a stockholder, rather as member of [the] Board of Directors, I frequently visited the plant and from my observation, as I have to supervise and monitor purchases of copras and also the sale of the same, I observed that the policy of

the corporation is for the company to engaged (sic) or to purely engaged (sic) in physical trading.

Q. What do you mean by physical trading?

A. Physical Trading means - we buy and sell copras that are only available to us. We only have to sell the available stocks in our inventory.

Q. And what is the other form of trading?

Atty. Fernando

No basis, your Honor.

Atty. Abad

Well, the witness said they are engaged in physical trading and what I am saying [is] if there are any other kind or form of trading.

Court

Witness may answer if he knows.

Witness

A. Trading future[s] contracts wherein the trader commits a price and to deliver coconut oil in the future in which he is yet to acquire the stocks in the future.

Atty. Abad

Q. Who established the so-called physical trading in IVO?

A. The Board of Directors, sir.

Atty. Abad.

Q. How did you know that?

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A. There was a meeting held in the office at the factory and it was brought out and suggested by our former president, Dominador Monteverde, that the company should engaged (sic) in future[s] contract[s] but it was rejected by the Board of Directors. It was only Ador Monteverde who then wanted to engaged (sic) in this future[s] contract[s].

Q. Do you know where this meeting took place?

A. As far as I know it was sometime in 1985.

Q. Do you know why the Board of Directors rejected the proposal of Dominador Monteverde that the company should engaged (sic) in future[s] contracts?

Atty. Fernando

Objection, your Honor, no basis.

Court

Why don't you lay the basis?

Atty. Abad

Q. Were you a member of the board at the time?

A. In 1975, I am already a stockholder and a member.

Q. Then would [you] now answer my question?

Atty. Fernando

No basis, your Honor. What we are talking is about 1985.

Atty. Abad

Q. When you mentioned about the meeting in 1985 wherein the Board of Directors rejected the future[s] contract[s], were you already a member of the Board of Directors at that time?

A. Yes, sir.

Q. Do you know the reason why the said proposal of Mr. Dominador Monteverde to engage in future[s] contract[s] was rejected by the Board of Directors?

A. Because this future[s] contract is too risky and it partakes of gambling.

Q. Do you keep records of the Board meetings of the company?

A. Yes, sir.

Q. Do you have a copy of the minutes of your meeting in 1985?

A. Incidentally our Secretary of the Board of Directors, Mr. Elfren Sarte, died in 1987 or 1988, and despite [the] request of our office for us to be furnished a copy he was not able to furnish us a copy.19

x x x x x x x x x

Atty. Abad

Q. You said the Board of Directors were against the company engaging in future[s] contracts. As far as you know, has this policy of the Board of Directors been observed or followed?

Witness

A. Yes, sir.

Q. How far has this Dominador Monteverde been using the name of I.V.0. in selling future contracts without the proper authority and consent of the company's Board of Directors?

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A. Dominador Monteverde never records those transactions he entered into in connection with these future[s] contracts in the company's books of accounts.

Atty. Abad

Q. What do you mean by that the future[s] contracts were not entered into the books of accounts of the company?

Witness

A. Those were not recorded at all in the books of accounts of the company, sir.20

x x x x x x x x x

Q. What did you do when you discovered these transactions?

A. There was again a meeting by the Board of Directors of the corporation and that we agreed to remove the president and then I was made to replace him as president.

Q. What else?

A. And a resolution was passed disowning the illegal activities of the former president.21

Petitioner next argues that there was actually no difference between the 1985 physical contracts and the 1986 futures contracts.

The contention is unpersuasive for, as aptly pointed out by the trial court and sustained by the appellate court –

Rejecting IVO's position, SAFIC claims that there is no distinction between the 1985 and 1986 contracts, both of which groups of contracts were signed or authorized by IVO's President, Dominador Monteverde. The 1986 contracts, SAFIC would bewail, were similarly with their 1985 predecessors, forward sales contracts in which IVO had undertaken to deliver the crude coconut oil months

after such contracts were entered into. The lead time between the closing of the deal and the delivery of the oil supposedly allowed the seller to accumulate enough copra to mill and to build up its inventory and so meet its delivery commitment to its foreign buyers. SAFIC concludes that the 1986 contracts were equally binding, as the 1985 contracts were, on IVO.

Subjecting the evidence on both sides to close scrutiny, the Court has found some remarkable distinctions between the 1985 and 1986 contracts. x x x

1. The 1985 contracts were performed within an average of two months from the date of the sale. On the other hand, the 1986 contracts were to be performed within an average of eight and a half months from the dates of the sale. All the supposed performances fell in 1987. Indeed, the contract covered by Exhibit J was to be performed 11 to 12 months from the execution of the contract. These pattern (sic) belies plaintiffs contention that the lead time merely allowed for milling and building up of oil inventory. It is evident that the 1986 contracts constituted trading in futures or in mere expectations. In all likelihood, the coconuts that were supposed to be milled for oil were not yet on their trees when Dominador Monteverde sold the crude oil to SAFIC.

2. The mode of payment agreed on by the parties in their 1985 contracts was uniformly thru the opening of a letter of credit LC by SAFIC in favor of IVO. Since the buyer's letter of credit guarantees payment to the seller as soon as the latter is able to present the shipping documents covering the cargo, its opening usually mark[s] the fact that the transaction would be consummated. On the other hand, seven out of the ten 1986 contracts were to be paid by telegraphic transfer upon presentation of the shipping documents. Unlike the letter of credit, a mere promise to pay by telegraphic transfer gives no assurance of [the] buyer's compliance with its contracts. This fact lends an uncertain element in the 1986 contracts.1âwphi1.nêt

3. Apart from the above, it is not disputed that with respect to the 1985 contracts, IVO faithfully complied with Central Bank Circular No. 151 dated April 1, 1963, requiring a coconut oil exporter to submit a Report of Foreign Sales within twenty-

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four (24) hours "after the closing of the relative sales contract" with a foreign buyer of coconut oil. But with respect to the disputed 1986 contracts, the parties stipulated during the hearing that none of these contracts were ever reported to the Central Bank, in violation of its above requirement. (See Stipulation of Facts dated June 13, 1990). The 1986 sales were, therefore suspect.

4. It is not disputed that, unlike the 1985 contacts, the 1986 contracts were never recorded either in the 1986 accounting books of IVO or in its annual financial statement for 1986, a document that was prepared prior to the controversy. (Exhibits 6 to 6-0 and 7 to 7-1). Emelita Ortega, formerly an assistant of Dominador Monteverde, testified that they were strange goings-on about the 1986 contract. They were neither recorded in the books nor reported to the Central Bank. What is more, in those unreported cases where profits were made, such profits were ordered remitted to unknown accounts in California, U.S.A., by Dominador Monteverde.

x x x x x x x x x

Evidently, Dominador Monteverde made business or himself, using the name of IVO but concealing from it his speculative transactions.

Petitioner further contends that both the trial and appellate courts erred in concluding that Safic was not able to prove its claim for damages. Petitioner first points out that its wash out agreements with Monteverde where IVO allegedly agreed to pay US$293,500.00 for some of the failed contracts was proof enough and, second, that it presented purchases of coconut oil it made from others during the period of IVO's default.

We remain unconvinced. The so-called "wash out" agreements are clearly ultra vires and not binding on IVO. Furthermore, such agreements did not prove Safic's actual losses in the transactions in question. The fact is that Safic did not pay for the coconut oil that it supposedly ordered from IVO through Monteverede. Safic only claims that, since it was ready to pay when IVO was not ready to deliver, Safic

suffered damages to the extent that they had to buy the same commodity from others at higher prices.

The foregoing claim of petitioner is not, however, substantiated by the evidence and only raises several questions, to wit: 1.] Did Safic commit to deliver the quantity of oil covered by the 1986 contracts to its own buyers? Who were these buyers? What were the terms of those contracts with respect to quantity, price and date of delivery? 2.] Did Safic pay damages to its buyers? Where were the receipts? Did Safic have to procure the equivalent oil from other sources? If so, who were these sources? Where were their contracts and what were the terms of these contracts as to quantity, price and date of delivery?

The records disclose that during the course of the proceedings in the trial court, IVO filed an amended motion22for production and inspection of the following documents: a.] contracts of resale of coconut oil that Safic bought from IVO; b.] the records of the pooling and sales contracts covering the oil from such pooling, if the coconut oil has been pooled and sold as general oil; c.] the contracts of the purchase of oil that, according to Safic, it had to resort to in order to fill up alleged undelivered commitments of IVO; d.] all other contracts, confirmations, invoices, wash out agreements and other documents of sale related to (a), (b) and (c). This amended motion was opposed by Safic.23 The trial court, however, in its September 16, 1988 Order ,24 ruled that:

From the analysis of the parties' respective positions, conclusion can easily be drawn therefrom that there is materiality in the defendant's move: firstly, plaintiff seeks to recover damages from the defendant and these are intimately related to plaintiffs alleged losses which it attributes to the default of the defendant in its contractual commitments; secondly, the documents are specified in the amended motion. As such, plaintiff would entertain no confusion as to what, which documents to locate and produce considering plaintiff to be (without doubt) a reputable going concern in the management of the affairs which is serviced by competent, industrious, hardworking and diligent personnel; thirdly, the desired production and inspection of the documents was precipitated by the testimony of plaintiffs witness (Donald O'Meara) who admitted, in open court, that they are

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available. If the said witness represented that the documents, as generally described, are available, reason there would be none for the same witness to say later that they could not be produced, even after they have been clearly described.

Besides, if the Court may additionally dwell on the issue of damages, the production and inspection of the desired documents would be of tremendous help in the ultimate resolution thereof. Plaintiff claims for the award of liquidated or actual damages to the tune of US$391,593.62 which, certainly, is a huge amount in terms of pesos, and which defendant disputes. As the defendant cannot be precluded in taking exceptions to the correctness and validity of such claim which plaintiffs witness (Donald O'Meara) testified to, and as, by this nature of the plaintiffs claim for damages, proof thereof is a must which can be better served, if not amply ascertained by examining the records of the related sales admitted to be in plaintiffs possession, the amended motion for production and inspection of the defendant is in order.

The interest of justice will be served best, if there would be a full disclosure by the parties on both sides of all documents related to the transactions in litigation.

Notwithstanding the foregoing ruling of the trial court, Safic did not produce the required documents, prompting the court a quo to assume that if produced, the documents would have been adverse to Safic's cause. In its efforts to bolster its claim for damages it purportedly sustained, Safic suggests a substitute mode of computing its damages by getting the average price it paid for certain quantities of coconut oil that it allegedly bought in 1987 and deducting this from the average price of the 1986 contracts. But this mode of computation if flawed .because: 1.] it is conjectural since it rests on average prices not on actual prices multiplied by the actual volume of coconut oil per contract; and 2.] it is based on the unproven assumption that the 1987 contracts of purchase provided the coconut oil needed to make up for the failed 1986 contracts. There is also no evidence that Safic had contracted to supply third parties with coconut oil from the 1986 contracts and that Safic had to buy such oil from others to meet the requirement.

Along the same vein, it is worthy to note that the quantities of oil covered by its 1987 contracts with third parties do not match the quantities of oil provided under the 1986 contracts. Had Safic produced the documents that the trial court required, a substantially correct determination of its actual damages would have been possible. This, unfortunately, was not the case. Suffice it to state in this regard that "[T]he power of the courts to grant damages and attorney's fees demands factual, legal and equitable justification; its basis cannot be left to speculation and conjecture."25

WHEREFORE, in view of all the foregoing, the petition is DENIED for lack of merit.

SO ORDERED.

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Republic of the PhilippinesSUPREME COURTManila

FIRST DIVISION

G.R. No. L-116650 May 23, 1995

TOYOTA SHAW, INC., petitioner, vs.COURT OF APPEALS and LUNA L. SOSA, respondents.

DAVIDE, JR., J.:

At the heart of the present controversy is the document marked Exhibit "A" 1 for the private respondent, which was signed by a sales representative of Toyota Shaw, Inc. named Popong Bernardo. The document reads as follows:

4 June 1989

AGREEMENTS BETWEEN MR. SOSA& POPONG BERNARDO OF TOYOTASHAW, INC.

1. all necessary documents will be submitted to TOYOTA SHAW, INC. (POPONG BERNARDO) a week after, upon arrival of Mr. Sosa from the Province (Marinduque) where the unit will be used on the 19th of June.

2. the downpayment of P100,000.00 will be paid by Mr. Sosa on June 15, 1989.

3. the TOYOTA SHAW, INC. LITE ACE yellow, will be pick-up [sic] and released by TOYOTA SHAW, INC. on the 17th of June at 10 a.m.

Very truly yours,

(Sgd.) POPONG BERNARDO.

Was this document, executed and signed by the petitioner's sales representative, a perfected contract of sale, binding upon the petitioner, breach of which would entitle the private respondent to damages and attorney's fees? The trial court and the Court of Appeals took the affirmative view. The petitioner disagrees. Hence, this petition for review oncertiorari.

The antecedents as disclosed in the decisions of both the trial court and the Court of Appeals, as well as in the pleadings of petitioner Toyota Shaw, Inc. (hereinafter Toyota) and respondent Luna L. Sosa (hereinafter Sosa) are as follows. Sometime in June of 1989, Luna L. Sosa wanted to purchase a Toyota Lite Ace. It was then a seller's market and Sosa had difficulty finding a dealer with an available unit for sale. But upon contacting Toyota Shaw, Inc., he was told that

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there was an available unit. So on 14 June 1989, Sosa and his son, Gilbert, went to the Toyota office at Shaw Boulevard, Pasig, Metro Manila. There they met Popong Bernardo, a sales representative of Toyota.

Sosa emphasized to Bernardo that he needed the Lite Ace not later than 17 June 1989 because he, his family, and abalikbayan guest would use it on 18 June 1989 to go to Marinduque, his home province, where he would celebrate his birthday on the 19th of June. He added that if he does not arrive in his hometown with the new car, he would become a "laughing stock." Bernardo assured Sosa that a unit would be ready for pick up at 10:00 a.m. on 17 June 1989. Bernardo then signed the aforequoted "Agreements Between Mr. Sosa & Popong Bernardo of Toyota Shaw, Inc." It was also agreed upon by the parties that the balance of the purchase price would be paid by credit financing through B.A. Finance, and for this Gilbert, on behalf of his father, signed the documents of Toyota and B.A. Finance pertaining to the application for financing.

The next day, 15 June 1989, Sosa and Gilbert went to Toyota to deliver the downpayment of P100,000.00. They met Bernardo who then accomplished a printed Vehicle Sales Proposal (VSP) No. 928, 2 on which Gilbert signed under the subheading CONFORME. This document shows that the customer's name is "MR. LUNA SOSA" with home address at No. 2316 Guijo Street, United Parañaque II; that the model series of the vehicle is a "Lite Ace 1500" described as "4 Dr minibus"; that payment is by "installment," to be financed by "B.A.," 3 with the initial cash outlay of P100,000.00 broken down as follows:

a) downpayment — P 53,148.00

b) insurance — P 13,970.00

c) BLT registration fee — P 1,067.00

CHMO fee — P 2,715.00

service fee — P 500.00

accessories — P 29,000.00

and that the "BALANCE TO BE FINANCED" is "P274,137.00." The spaces provided for "Delivery Terms" were not filled-up. It also contains the following pertinent provisions:

CONDITIONS OF SALES

1. This sale is subject to availability of unit.

2. Stated Price is subject to change without prior notice, Price prevailing and in effect at time of selling will apply. . . .

Rodrigo Quirante, the Sales Supervisor of Bernardo, checked and approved the VSP.

On 17 June 1989, at around 9:30 a.m., Bernardo called Gilbert to inform him that the vehicle would not be ready for pick up at 10:00 a.m. as previously agreed upon but at 2:00 p.m. that same day. At 2:00 p.m., Sosa and Gilbert met Bernardo at the latter's office. According to Sosa, Bernardo informed them that the Lite Ace was being readied for delivery. After waiting for about an hour, Bernardo told them that the car could not be delivered because "nasulot ang unit ng ibang malakas."

Toyota contends, however, that the Lite Ace was not delivered to Sosa because of the disapproval by B.A. Finance of the credit financing application of Sosa. It further alleged that a particular unit had already been reserved and earmarked for Sosa but could not be released due to the uncertainty of payment of the balance of the purchase price. Toyota then gave Sosa the option to purchase the unit by paying the full purchase price in cash but Sosa refused.

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After it became clear that the Lite Ace would not be delivered to him, Sosa asked that his downpayment be refunded. Toyota did so on the very same day by issuing a Far East Bank check for the full amount of P100,000.00, 4 the receipt of which was shown by a check voucher of Toyota, 5 which Sosa signed with the reservation, "without prejudice to our future claims for damages."

Thereafter, Sosa sent two letters to Toyota. In the first letter, dated 27 June 1989 and signed by him, he demanded the refund, within five days from receipt, of the downpayment of P100,000.00 plus interest from the time he paid it and the payment of damages with a warning that in case of Toyota's failure to do so he would be constrained to take legal action. 6 The second, dated 4 November 1989 and signed by M. O. Caballes, Sosa's counsel, demanded one million pesos representing interest and damages, again, with a warning that legal action would be taken if payment was not made within three days. 7 Toyota's counsel answered through a letter dated 27 November 1989 8 refusing to accede to the demands of Sosa. But even before this answer was made and received by Sosa, the latter filed on 20 November 1989 with Branch 38 of the Regional Trial Court (RTC) of Marinduque a complaint against Toyota for damages under Articles 19 and 21 of the Civil Code in the total amount of P1,230,000.00. 9 He alleges, inter alia, that:

9. As a result of defendant's failure and/or refusal to deliver the vehicle to plaintiff, plaintiff suffered embarrassment, humiliation, ridicule, mental anguish and sleepless nights because: (i) he and his family were constrained to take the public transportation from Manila to Lucena City on their way to Marinduque; (ii) his balikbayan-guest canceled his scheduled first visit to Marinduque in order to avoid the inconvenience of taking public transportation; and (iii) his relatives, friends, neighbors and other provincemates, continuously irked him about "his Brand-New Toyota Lite Ace — that never was." Under the circumstances, defendant should be made liable to the plaintiff for moral damages in the amount of One Million Pesos (P1,000,000.00). 10

In its answer to the complaint, Toyota alleged that no sale was entered into between it and Sosa, that Bernardo had no authority to sign Exhibit "A" for and in its behalf, and that Bernardo signed Exhibit "A" in his personal capacity. As special

and affirmative defenses, it alleged that: the VSP did not state date of delivery; Sosa had not completed the documents required by the financing company, and as a matter of policy, the vehicle could not and would not be released prior to full compliance with financing requirements, submission of all documents, and execution of the sales agreement/invoice; the P100,000.00 was returned to and received by Sosa; the venue was improperly laid; and Sosa did not have a sufficient cause of action against it. It also interposed compulsory counterclaims.

After trial on the issues agreed upon during the pre-trial session, 11 the trial court rendered on 18 February 1992 a decision in favor of Sosa. 12 It ruled that Exhibit "A," the "AGREEMENTS BETWEEN MR. SOSA AND POPONG BERNARDO," was a valid perfected contract of sale between Sosa and Toyota which bound Toyota to deliver the vehicle to Sosa, and further agreed with Sosa that Toyota acted in bad faith in selling to another the unit already reserved for him.

As to Toyota's contention that Bernardo had no authority to bind it through Exhibit "A," the trial court held that the extent of Bernardo's authority "was not made known to plaintiff," for as testified to by Quirante, "they do not volunteer any information as to the company's sales policy and guidelines because they are internal matters." 13 Moreover, "[f]rom the beginning of the transaction up to its consummation when the downpayment was made by the plaintiff, the defendants had made known to the plaintiff the impression that Popong Bernardo is an authorized sales executive as it permitted the latter to do acts within the scope of an apparent authority holding him out to the public as possessing power to do these acts." 14 Bernardo then "was an agent of the defendant Toyota Shaw, Inc. and hence bound the defendants." 15

The court further declared that "Luna Sosa proved his social standing in the community and suffered besmirched reputation, wounded feelings and sleepless nights for which he ought to be compensated." 16 Accordingly, it disposed as follows:

WHEREFORE, viewed from the above findings, judgment is hereby rendered in favor of the plaintiff and against the defendant:

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1. ordering the defendant to pay to the plaintiff the sum of P75,000.00 for moral damages;

2. ordering the defendant to pay the plaintiff the sum of P10,000.00 for exemplary damages;

3. ordering the defendant to pay the sum of P30,000.00 attorney's fees plus P2,000.00 lawyer's transportation fare per trip in attending to the hearing of this case;

4. ordering the defendant to pay the plaintiff the sum of P2,000.00 transportation fare per trip of the plaintiff in attending the hearing of this case; and

5. ordering the defendant to pay the cost of suit.

SO ORDERED.

Dissatisfied with the trial court's judgment, Toyota appealed to the Court of Appeals. The case was docketed as CA-G.R. CV No. 40043. In its decision promulgated on 29 July 1994, 17 the Court of Appeals affirmed in toto the appealed decision.

Toyota now comes before this Court via this petition and raises the core issue stated at the beginning of the ponenciaand also the following related issues: (a) whether or not the standard VSP was the true and documented understanding of the parties which would have led to the ultimate contract of sale, (b) whether or not Sosa has any legal and demandable right to the delivery of the vehicle despite the non-payment of the consideration and the non-approval of his credit application by B.A. Finance, (c) whether or not Toyota acted in good faith when it did not release the vehicle to Sosa, and (d) whether or not Toyota may be held liable for damages.

We find merit in the petition.

Neither logic nor recourse to one's imagination can lead to the conclusion that Exhibit "A" is a perfected contract of sale.

Article 1458 of the Civil Code defines a contract of sale as follows:

Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.

A contract of sale may be absolute or conditional.

and Article 1475 specifically provides when it is deemed perfected:

Art. 1475. 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.

What is clear from Exhibit "A" is not what the trial court and the Court of Appeals appear to see. It is not a contract of sale. No obligation on the part of Toyota to transfer ownership of a determinate thing to Sosa and no correlative obligation on the part of the latter to pay therefor a price certain appears therein. The provision on the downpayment of P100,000.00 made no specific reference to a sale of a vehicle. If it was intended for a contract of sale, it could only refer to a sale on installment basis, as the VSP executed the following day confirmed. But nothing was mentioned about the full purchase price and the manner the installments were to be paid.

This Court had already ruled that a definite agreement on the manner of payment of the price is an essential element in the formation of a binding and enforceable contract of sale. 18 This is so because the agreement as to the manner of payment goes into the price such that a disagreement on the manner of payment is tantamount to a failure to agree on the price. Definiteness as to the price is an essential element of a binding agreement to sell personal property. 19

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Moreover, Exhibit "A" shows the absence of a meeting of minds between Toyota and Sosa. For one thing, Sosa did not even sign it. For another, Sosa was well aware from its title, written in bold letters, viz.,

AGREEMENTS BETWEEN MR. SOSA & POPONG BERNARDO OF TOYOTA SHAW, INC.

that he was not dealing with Toyota but with Popong Bernardo and that the latter did not misrepresent that he had the authority to sell any Toyota vehicle. He knew that Bernardo was only a sales representative of Toyota and hence a mere agent of the latter. It was incumbent upon Sosa to act with ordinary prudence and reasonable diligence to know the extent of Bernardo's authority as anagent 20 in respect of contracts to sell Toyota's vehicles. A person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent. 21

At the most, Exhibit "A" may be considered as part of the initial phase of the generation or negotiation stage of a contract of sale. There are three stages in the contract of sale, namely:

(a) preparation, conception, or generation, which is the period of negotiation and bargaining, ending at the moment of agreement of the parties;

(b) perfection or birth of the contract, which is the moment when the parties come to agree on the terms of the contract; and

(c) consummation or death, which is the fulfillment or performance of the terms agreed upon in the contract. 22

The second phase of the generation or negotiation stage in this case was the execution of the VSP. It must be emphasized that thereunder, the downpayment of the purchase price was P53,148.00 while the balance to be paid on installment should be financed by B.A. Finance Corporation. It is, of course, to be assumed that B.A. Finance Corp. was acceptable to Toyota, otherwise it should not have mentioned B.A. Finance in the VSP.

Financing companies are defined in Section 3(a) of R.A. No. 5980, as amended by P.D. No. 1454 and P.D. No. 1793, as "corporations or partnerships, except those regulated by the Central Bank of the Philippines, the Insurance Commission and the Cooperatives Administration Office, which are primarily organized for the purpose of extending credit facilities to consumers and to industrial, commercial, or agricultural enterprises, either by discounting or factoring commercial papers or accounts receivables, or by buying and selling contracts, leases, chattel mortgages, or other evidence of indebtedness, or by leasing of motor vehicles, heavy equipment and industrial machinery, business and office machines and equipment, appliances and other movable property." 23

Accordingly, in a sale on installment basis which is financed by a financing company, three parties are thus involved: the buyer who executes a note or notes for the unpaid balance of the price of the thing purchased on installment, the seller who assigns the notes or discounts them with a financing company, and the financing company which is subrogated in the place of the seller, as the creditor of the installment buyer. 24 Since B.A. Finance did not approve Sosa's application, there was then no meeting of minds on the sale on installment basis.

We are inclined to believe Toyota's version that B.A. Finance disapproved Sosa's application for which reason it suggested to Sosa that he pay the full purchase price. When the latter refused, Toyota cancelled the VSP and returned to him his P100,000.00. Sosa's version that the VSP was cancelled because, according to Bernardo, the vehicle was delivered to another who was "mas malakas" does not inspire belief and was obviously a delayed afterthought. It is claimed that Bernardo said, "Pasensiya kayo, nasulot ang unit ng ibang malakas," while the Sosas had already been waiting for an hour for the delivery of the vehicle in the afternoon of 17 June 1989. However, in paragraph 7 of his complaint, Sosa solemnly states:

On June 17, 1989 at around 9:30 o'clock in the morning, defendant's sales representative, Mr. Popong Bernardo, called plaintiff's house and informed the plaintiff's son that the vehicle will not be ready for pick-up at 10:00 a.m. of June 17, 1989 but at 2:00 p.m. of that day instead. Plaintiff and his son went to defendant's office on June 17 1989 at 2:00 p.m. in order to pick-up the vehicle but the

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defendant for reasons known only to its representatives, refused and/or failed to release the vehicle to the plaintiff. Plaintiff demanded for an explanation, but nothing was given; . . . (Emphasis supplied). 25

The VSP was a mere proposal which was aborted in lieu of subsequent events. It follows that the VSP created no demandable right in favor of Sosa for the delivery of the vehicle to him, and its non-delivery did not cause any legally indemnifiable injury.

The award then of moral and exemplary damages and attorney's fees and costs of suit is without legal basis. Besides, the only ground upon which Sosa claimed moral damages is that since it was known to his friends, townmates, and relatives that he was buying a Toyota Lite Ace which they expected to see on his birthday, he suffered humiliation, shame, and sleepless nights when the van was not delivered. The van became the subject matter of talks during his celebration that he may not have paid for it, and this created an impression against his business standing and reputation. At the bottom of this claim is nothing but misplaced pride and ego. He should not have announced his plan to buy a Toyota Lite Ace knowing that he might not be able to pay the full purchase price. It was he who brought embarrassment upon himself by bragging about a thing which he did not own yet.

Since Sosa is not entitled to moral damages and there being no award for temperate, liquidated, or compensatory damages, he is likewise not entitled to exemplary damages. Under Article 2229 of the Civil Code, exemplary or corrective damages are imposed by way of example or correction for the public good, in addition to moral, temperate, liquidated, or compensatory damages.

Also, it is settled that for attorney's fees to be granted, the court must explicitly state in the body of the decision, and not only in the dispositive portion thereof, the legal reason for the award of attorney's fees. 26 No such explicit determination thereon was made in the body of the decision of the trial court. No reason thus exists for such an award.

WHEREFORE, the instant petition is GRANTED. The challenged decision of the Court of Appeals in CA-G.R. CV NO. 40043 as well as that of Branch 38 of the Regional Trial Court of Marinduque in Civil Case No. 89-14 are REVERSED and SET ASIDE and the complaint in Civil Case No. 89-14 is DISMISSED. The counterclaim therein is likewise DISMISSED.

No pronouncement as to costs.

SO ORDERED.

Republic of the PhilippinesSUPREME COURTManila

FIRST DIVISION

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G.R. No. 114091 June 29, 1995

BACALTOS COAL MINES and GERMAN A. BACALTOS, petitioners, vs.HON. COURT OF APPEALS and SAN MIGUEL CORPORATION, respondents.

DAVIDE, JR., J.:

Petitioners seek the reversal of the decision of 30 September 1993 of the Court of Appeals in CA-G.R. CV No. 35180, 1 entitled "San Miguel Corporation vs. Bacaltos Coal Mines, German A. Bacaltos and Rene R. Savellon," which affirmed the decision of 19 August 1991 of the Regional Trial Court (RTC) of Cebu, Branch 9, in Civil Case No. CEB-8187 2holding petitioners Bacaltos Coal Mines and German A. Bacaltos and their co-defendant Rene R. Savellon jointly and severally liable to private respondent San Miguel Corporation under a Trip Charter Party.

The paramount issue raised is whether Savellon was duly authorized by the petitioners to enter into the Trip Charter Party (Exhibit "A") 3 under and by virtue of an Authorization (Exhibit "C" and Exhibit "1"), 4 dated 1 March 1988, the pertinent portions of which read as follows:

I. GERMAN A. BACALTOS, of legal age, Filipino, widower, and residing at second street, Espina Village, Cebu City, province of Cebu, Philippines, do hereby authorize RENE R. SAVELLON, of legal age, Filipino and residing at 376-R Osmeña Blvd., Cebu City, Province of Cebu, Philippines, to use the coal operating contract of BACALTOS COAL MINES of which I am the proprietor, for any legitimate purpose that it may serve. Namely, but not by way of limitation, as follows:

(1) To acquire purchase orders for and in behalf of BACALTOS COAL MINES;

(2) To engage in trading under the style of BACALTOS COAL MINES/RENE SAVELLON;

(3) To collect all receivables due or in arrears from people or companies having dealings under BACALTOS COAL MINES/RENE SAVELLON;

(4) To extend to any person or company by substitution the same extent of authority that is granted to Rene Savellon;

(5) In connection with the preceeding paragraphs to execute and sign documents, contracts, and other pertinent papers.

Further, I hereby give and grant to RENE SAVELLON full authority to do and perform all and every lawful act requisite or necessary to carry into effect the foregoing stipulations as fully to all intents and purposes as I might or would lawfully do if personally present, with full power of substitution and revocation.

The Trip Charter Party was executed on 19 October 1988 "by and between BACALTOS COAL MINES, represented by its Chief Operating Officer, RENE ROSEL SAVELLON" and private respondent San Miguel Corporation (hereinafter SMC), represented by Francisco B. Manzon, Jr., its "SAVP and Director, Plant Operations-Mandaue" Thereunder, Savellon claims that Bacaltos Coal Mines is the owner of the vessel M/V Premship II and that for P650,000.00 to be paid within seven days after the execution of the contract, it "lets, demises" the vessel to charterer SMC "for three round trips to Davao."

As payment of the aforesaid consideration, SMC issued a check (Exhibit "B") 5 payable to "RENE SAVELLON IN TRUST FOR BACALTOS COAL MINES" for which Savellon issued a receipt under the heading of BACALTOS COAL MINES with the address at No 376-R Osmeña Blvd., Cebu City (Exhibit "B-1"). 6

The vessel was able to make only one trip. Its demands to comply with the contract having been unheeded, SMC filed against the petitioners and Rene Savellon the complaint in Civil Case No. CEB-8187 for specific performance and damages. In their Answer, 7 the petitioners alleged that Savellon was not their Chief Operating Officer and that the powers granted to him are only those clearly expressed in the Authorization which do not include the power to enter into any contract with SMC. They further claimed that if it is true that SMC entered into a

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contract with them, it should have issued the check in their favor. They setup counterclaims for moral and exemplary damages and attorney's fees.

Savellon did not file his Answer and was declared in default on 17 July 1990. 8

At the pre-trial conference on 1 February 1991, the petitioners and SMC agreed to submit the following issues for resolution:

Plaintiff —

1. Whether or not defendants are jointly liable to plaintiff for damages on account of breach of contract;

2. Whether or not the defendants acted in good faith in its representations to the plaintiff;

3. Whether or not defendant Bacaltos was duly enriched on the payment made by the plaintiff for the use of the vessel;

4. Whether or not defendant Bacaltos is estopped to deny the authorization given to defendant Savellon;

Defendants —

1. Whether or not the plaintiff should have first investigated the ownership of vessel M/V PREM [SHIP] II before entering into any contract with defendant Savellon;

2. Whether or not defendant Savellon was authorized to enter into a shipping contract with the [plaintiff] corporation;

3. Whether or not the plaintiff was correct and not mistaken in issuing the checks in payment of the contract in the name of defendant Savellon and not in the name of defendant Bacaltos Coal Mines;

4. Whether or not the plaintiff is liable on defendants'counterclaim. 9

After trial, the lower court rendered the assailed decision in favor of SMC and against the petitioners and Savellon as follows:

WHEREFORE, by preponderance of evidence, the Court hereby renders judgment in favor of plaintiff and against defendants, ordering defendants Rene Savellon, Bacaltos Coal Mines and German A. Bacaltos, jointly and severally, to pay to plaintiff:

1. The amount of P433,000.00 by way of reimbursement of the consideration paid by plaintiff, plus 12% interest to start from date of written demand, which is June 14, 1989;

2. The amount of P20,000.00 by way of exemplary damages;

3. The amount of P20,000.00 as attorney's fees and P5,000.00 as Litigation expenses. Plus costs. 10

It ruled that the Authorization given by German Bacaltos to Savellon necessarily included the power to enter into the Trip Charter Party. It did not give credence to the petitioners' claim that the authorization refers only to coal or coal mining and not to shipping because, according to it, "the business of coal mining may also involve the shipping of products" and "a company such as a coal mining company is not prohibited to engage in entering into a Trip Charter Party contract." It further reasoned out that even assuming that the petitioners did not intend to authorize Savellon to enter into the Trip Charter Party, they are still liable because: (a) SMC appears to be an innocent party which has no knowledge of the real intent of the parties to the Authorization and has reason to rely on the written Authorization submitted by Savellon pursuant to Articles 1900 and 1902 of the Civil Code; (b) Savellon issued an official receipt of Bacaltos Coal Mines (Exhibit "B-1") for the consideration of the Trip Charter Party, and the petitioners denial that they caused the printing of such official receipt is "lame" because they submitted only a cash voucher and not their official receipt; (c) the "Notice of Readiness" (Exhibit "A-1") is

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written on a paper with the letterhead "Bacaltos Coal Mines" and the logo therein is the same as that appearing in their voucher; (d) the petitioners were benefited by the payment because the real payee in the check is actually Bacaltos Coal Mines and since in the Authorization they authorized Savellon to collect receivables due or in arrears, the check was then properly delivered to Savellon; and, (e) if indeed Savellon had not been authorized or if indeed he exceeded his authority or if the Trip Charter Party was personal to him and the petitioners have nothing to do with it, then Savellon should have "bother[ed] to answer" the complaint and the petitioners should have filed "a cross-claim" against him.

In their appeal to the Court of Appeals in CA-G.R. CV No. 35180, the petitioners asserted that the trial court erred in: (a) not holding that SMC was negligent in (1) not verifying the credentials of Savellon and the ownership of the vessel, (2) issuing the check in the name of Savellon in trust for Bacaltos Coal Mines thereby allowing Savellon to encash the check, and, (3) making full payment of P650,000.00 after the vessel made only one trip and before it completed three trips as required in the Trip Charter Party; (b) holding that under the authority given to him Savellon was authorized to enter into the Trip Charter Party; and, (c) holding German Bacaltos jointly and severally liable with Savellon and Bacaltos Coal Mines. 11

As stated at the beginning, the Court of Appeals affirmed in toto the judgment of the trial court. It held that: (a) the credentials of Savellon is not an issue since the petitioners impliedly admitted the agency while the ownership of the vessel was warranted on the face of the Trip Charter Party; (b) SMC was not negligent when it issued the check in the name of Savellon in trust for Bacaltos Coal Mines since the Authorization clearly provides that collectibles of the petitioners can be coursed through Savellon as the agent; (c) the Authorization includes the power to enter into the Trip Charter Party because the "five prerogatives" enumerated in the former is prefaced by the phrase "but not by way of limitation"; (d) the petitioners' statement that the check should have been issued in the name of Bacaltos Coal Mines is another implicit admission that the Trip Charter Party is part and parcel of the petitioners' business notwithstanding German Bacaltos's contrary interpretation

when he testified, and in any event, the construction of obscure words should not favor him since he prepared the Authorization in favor of Savellon; and, (e) German Bacaltos admitted in the Answer that he is the proprietor of Bacaltos Coal Mines and he likewise represented himself to be so in the Authorization itself, hence he should not now be permitted to disavow what he initially stated to be true and to interpose the defense that Bacaltos Coal Mines has a distinct legal personality.

Their motion for a reconsideration of the above decision having been denied, the petitioners filed the instant petition wherein they raise the following errors:

I. THE RESPONDENT COURT ERRED IN HOLDING THAT RENE SAVELLON WAS AUTHORIZED TO ENTER INTO A TRIP CHARTER PARTY CONTRACT WITH PRIVATE RESPONDENT INSPITE OF ITS FINDING THAT SUCH AUTHORITY CANNOT BE FOUND IN THE FOUR CORNERS OF THE AUTHORIZATION;

II. THE RESPONDENT COURT ERRED IN NOT HOLDING THAT BY ISSUING THE CHECK IN THE NAME OF RENE SAVELLON IN TRUST FOR BACALTOS COAL MINES, THE PRIVATE RESPONDENT WAS THE AUTHOR OF ITS OWN DAMAGE; AND

III. THE RESPONDENT COURT ERRED IN HOLDING PETITIONER GERMAN BACALTOS JOINTLY AND SEVERALLY LIABLE WITH RENE SAVELLON AND CO-PETITIONER BACALTOS COAL MINES IN SPITE OF THE FINDING OF THE COURT A QUO THAT PETITIONER BACALTOS COAL MINES AND PETITIONER BACALTOS ARE TWO DISTINCT AND SEPARATE LEGAL PERSONALITIES. 12

After due deliberations on the allegations, issues raised, and arguments adduced in the petition, and the comment thereto and reply to the comment, the Court resolved to give due course to the petition.

Every person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent. If he does not make such inquiry, he is chargeable

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with knowledge of the agent's authority, and his ignorance of that authority will not be any excuse. Persons dealing with an assumed agent, whether the assumed agency be a general or special one, are bound at their peril, if they would hold the principal, to ascertain not only the fact of the agency but also the nature and extent of the authority, and in case either is controverted, the burden of proof is upon them to establish it. 13 American jurisprudence 14 summarizes the rule in dealing with an agent as follows:

A third person dealing with a known agent may not act negligently with regard to the extent of the agent's authority or blindly trust the agent's statements in such respect. Rather, he must use reasonable diligence and prudence to ascertain whether the agent is acting and dealing with him within the scope of his powers. The mere opinion of an agent as to the extent of his powers, or his mere assumption of authority without foundation, will not bind the principal; and a third person dealing with a known agent must bear the burden of determining for himself, by the exercise of reasonable diligence and prudence, the existence or nonexistence of the agent's authority to act in the premises. In other words, whether the agency is general or special, the third person is bound to ascertain not only the fact of agency, but the nature and extent of the authority. The principal, on the other hand, may act on the presumption that third persons dealing with his agent will not be negligent in failing to ascertain the extent of his authority as well as the existence of his agency.

Or, as stated in Harry E. Keller Electric Co. vs. Rodriguez, 15 quoting Mechem on Agency:

The person dealing with the agent must also act with ordinary prudence and reasonable diligence. Obviously, if he knows or has good reason to believe that the agent is exceeding his authority, he cannot claim protection. So if the suggestions of probable limitations be of such a clear and reasonable quality, or if the character assumed by the agent is of such a suspicious or unreasonable nature, or if the authority which he seeks to exercise is of such an unusual or improbable character, as would suffice to put an ordinarily prudent man upon his guard, the party dealing with him may not shut his eyes to the real estate of the

case, but should either refuse to deal with the agent at all, or should ascertain from the principal the true condition of affairs. [emphasis supplied].

In the instant case, since the agency of Savellon is based on a written document, the Authorization of 1 March 1988 (Exhibits "C" and "1"), the extent and scope of his powers must be determined on the basis thereof. The language of the Authorization is clear. It pertinently states as follows:

I. GERMAN A. BACALTOS do hereby authorize RENE R. SAVELLON . . . to use the coal operating contract of BACALTOS COAL MINES, of which I am the proprietor, for any legitimate purpose that it may serve. Namely, but not by way of limitation, as follows . . . [emphasis supplied].

There is only one express power granted to Savellon, viz., to use the coal operating contract for anylegitimate purpose it may serve. The enumerated "five prerogatives" — to employ the term used by the Court of Appeals — are nothing but the specific prerogatives subsumed under or classified as part of or as examples of the power to use the coal operating contract. The clause "but not by way of limitation" which precedes the enumeration could only refer to or contemplate other prerogatives which must exclusively pertain or relate or be germane to the power to use the coal operating contract. The conclusion then of the Court of Appeals that the Authorization includes the power to enter into the Trip Chapter Party because the "five prerogatives" are prefaced by such clause, is seriously flawed. It fails to note that the broadest scope of Savellon's authority is limited to the use of the coal operating contract and the clause cannot contemplate any other power not included in the enumeration or which are unrelated either to the power to use the coal operating contract or to those already enumerated. In short, while the clause allows some room for flexibility, it can comprehend only additional prerogatives falling within the primary power and within the same class as those enumerated. The trial court, however, went further by hastily making a sweeping conclusion that "a company such as a coal mining company is not prohibited to engage in entering into a Trip Charter Party contract." 16 But what the trial court failed to consider was that there is no evidence at all that Bacaltos Coal Mines as a coal mining company owns and operates vessels, and even if it owned

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any such vessels, that it was allowed to charter or lease them. The trial court also failed to note that the Authorization is not a general power of attorney. It is aspecial power of attorney for it refers to a clear mandate specifically authorizing the performance of a specific power and of express acts subsumed therein. 17 In short, both courts below unreasonably expanded the express terms of or otherwise gave unrestricted meaning to a clause which was precisely intended to prevent unwarranted and unlimited expansion of the powers entrusted to Savellon. The suggestion of the Court of Appeals that there is obscurity in the Authorization which must be construed against German Bacaltos because he prepared the Authorization has no leg to stand on inasmuch as there is no obscurity or ambiguity in the instrument. If any obscurity or ambiguity indeed existed, then there will be more reason to place SMC on guard and for it to exercise due diligence in seeking clarification or enlightenment thereon, for that was part of its duty to discover upon its peril the nature and extent of Savellon's written agency. Unfortunately, it did not.

Howsoever viewed, the foregoing conclusions of the Court of Appeals and the trial court are tenuous and farfetched, bringing to unreasonable limits the clear parameters of the powers granted in the Authorization.

Furthermore, had SMC exercised due diligence and prudence, it should have known in no time that there is absolutely nothing on the face of the Authorization that confers upon Savellon the authority to enter into any Trip Charter Party. Its conclusion to the contrary is based solely on the second prerogative under the Authorization, to wit:

(2) To engage in trading under the style of BACALTOS COAL MINES/RENE SAVELLON;

unmindful that such is but a part of the primary authority to use the coal operating contract which it did not even require Savellon to produce. Its principal witness, Mr. Valdescona, expressly so admitted on cross-examination, thus:

Atty. Zosa (to witness — ON CROSS)

Q You said that in your office Mr. Rene Savellon presented to you this authorization marked Exhibit "C" and Exhibit "1" for the defendant?

A Yes, sir.

Q Did you read in the first part[y] of this authorization Mr. Valdescona that Mr. Rene Savellon was authorized as the coal operating contract of Bacaltos Coal Mines?

A Yes, sir.

Q Did it not occur to you that you should have examined further the authorization of Mr. Rene Savellon, whether or not this coal operating contract allows Mr. Savellon to enter into a trip charter party?

A Yes, sir. We discussed about the extent of his authorization and he referred us to the number 2 provision of this authorization which is to engage in trading under the style of Bacaltos Coal Mines/Rene Savellon, which we followed up to the check preparation because it is part of the authority.

Q In other words, you examined this and you found out that Mr. Savellon is authorized to use the coal operating contract of Bacaltos Coal Mines?

A Yes, sir.

Q You doubted his authority but you found out in paragraph 2 that he is authorized that's why you agreed and entered into that trip charter party?

A We did not doubt his authority but we were questioning as to the extent of his operating contract.

Q Did you not require Mr. Savellon to produce that coal operating contract of Bacaltos Coal Mines?

A No sir. We did not. 18

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Since the principal subject of the Authorization is the coal operating contract, SMC should have required its presentation to determine what it is and how it may be used by Savellon. Such a determination is indispensable to an inquiry into the extent or scope of his authority. For this reason, we now deem it necessary to examine the nature of a coal operating contract.

A coal operating contract is governed by P.D. No. 972 (The Coal Development Act of 1976), as amended by P.D. No. 1174. It is one of the authorized ways of active exploration, development, and production of coal resources 19in a specified contract area. 20 Section 9 of the decree prescribes the obligation of the contractor, thus:

Sec. 9. Obligations of Operator in Coal Operating Contract. — The operator under a coal operating contract shall undertake, manage and execute the coal operations which shall include:

(a) The examination and investigation of lands supposed to contain coal, by detailed surface geologic mapping, core drilling, trenching, test pitting and other appropriate means, for the purpose of probing the presence of coal deposits and the extent thereof;

(b) Steps necessary to reach the coal deposit so that it can be mined, including but not limited to shaft sinking and tunneling; and

(c) The extraction and utilization of coal deposits.

The Government shall oversee the management of the operation contemplated in a coal operating contract and in this connection, shall require the operator to:

(a) Provide all the necessary service and technology;

(b) Provide the requisite financing;

(c) Perform the work obligations and program prescribed in the coal operating contract which shall not be less than those prescribed in this Decree;

(d) Operate the area on behalf of the Government in accordance with good coal mining practices using modern methods appropriate for the geological conditions of the area to enable maximum economic production of coal, avoiding hazards to life, health and property, avoiding pollution of air, lands and waters, and pursuant to an efficient and economic program of operation;

(e) Furnish the Energy Development Board promptly with all information, data and reports which it may require;.

(f) Maintain detailed technical records and account of its expenditures;

(g) Conform to regulations regarding, among others, safety demarcation of agreement acreage and work areas, non-interferencewith the rights of the other petroleum, mineral and natural resources operators; —

(h) Maintain all necessary equipment in good order and allow access to these as well as to the exploration, development and production sites and operations to inspectors authorized by the Energy Development Board;

(i) Allow representatives authorized by the Energy Development Board full access to their accounts, books and records for tax and other fiscal purposes.

Section 11 thereof provides for the minimum terms and conditions of a coal operating contract.

From the foregoing, it is obvious that a scrutiny of the coal operating contract of Bacaltos Coal Mines would have provided SMC knowledge of the activities which are germane, related, or incident to the power to use it. But it did not even require Savellon to produce the same.

SMC's negligence was further compounded by its failure to verify if Bacaltos Coal Mines owned a vessel. A party desiring to charter a vessel must satisfy itself that the other party is the owner of the vessel or is at least entitled to its possession with power to lease or charter the vessel. In the instant case, SMC made no such attempt. It merely satisfied itself with the claim of Savellon that the vessel it was

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leasing is owned by Bacaltos Coal Mines and relied on the presentation of the Authorization as well as its test on the sea worthiness of the vessel. Valdescona thus declared on direct examination as follows:

A In October, a certain Rene Savellon called our office offering us shipping services. So I told him to give us a formal proposal and also for him to come to our office so that we can go over his proposal and formally discuss his offer.

Q Did Mr. Rene Savellon go to your office?

A Few days later he came to our office and gave us his proposal verbally offering a vessel for us to use for our cargo.

Q Did he mention the owner of that vessel?

A Yes, sir. That it is Bacaltos.

Q Did he present a document to you?

A Yes, sir. He presented to us the authorization.

Q When Mr. Rene Savellon presented to you the authorization what did you do?.

A On the strength of that authorization we initially asked him for us to check the vessel to see its sea worthiness, and we assigned our in-house surveyor to check the sea worthiness of the vessel which was on dry dock that time in Danao.

Q What was the result of your inspection?

A We found out the vessel's sea worthiness to be our cargo carrier.

Q After that what did you do?

A After that we were discussing the condition of the contract.

Q Were you able to execute that contract?

A Yes, sir . 21

He further declared as follows:

Q When you entered into a trip charter contract did you check the ownership of M/V Premship?

A The representation made by Mr. Rene Savellon was that Bacaltos Coal Mines operates the vessel and on the strength of the authorization he showed us we were made to believe that it was Bacaltos Coal Mines that owned it.

COURT: (to witness)

Q In other words, you just believed Rene Savellon?

A Yes, sir.

COURT: (to witness)

Q You did not check with Bacaltos Coal Mines?

A That is the representation he made.

Q Did he show you document regarding this M/V Premship II?

A No document shown. 22

The Authorization itself does not state that Bacaltos Coal Mines owns any vessel, and since it is clear therefrom that it is not engaged in shipping but in coal mining or in coal business, SMC should have required the presentation of pertinent documentary proof of ownership of the vessel to be chartered. Its in-house surveyor who saw the vessel while drydocked in Danao and thereafter conducted a sea worthiness test could not have failed to ascertain the registered owner of the vessel. The petitioners themselves declared in open court that they have not leased any vessel for they do not need it in their coal operations 23 thereby implying that they do not even own one.

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The Court of Appeals' asseveration that there was no need to verify the ownership of the vessel because such ownership is warranted on the face of the trip charter party begs the question since Savellon's authority to enter into that contract is the very heart of the controversy.

We are not prepared to accept SMC's contention that the petitioners' claim that they are not engaged in shipping and do not own any ship is belied by the fact that they maintained a pre-printed business form known as a "Notice of Readiness" (Exhibit "A-1"). 24 This paper is only a photocopy and, despite its reservation to present the original for purposes of comparison at the nexthearing, 25 SMC failed to produce the latter. This "Notice of Readiness" is not, therefore, the best evidence, hence inadmissible under Section 3, Rule 130 of the Rules of Court. It is true that when SMC made a formal offer of its exhibits, the petitioners did not object to the admission of Exhibit "A-1," the "Notice of Readiness," under the best evidence rule but on the ground that Savellon was not authorized to enter into the Trip Charter Party and that the party who signed it, one Elmer Baliquig, is not the petitioners' employee but of Premier Shipping Lines, the owner of the vessel in question. 26 The petitioners raised the issue of inadmissibility under the best evidence rule only belatedly in this petition. But although Exhibit "A-1" remains admissible for not having been timely objected to, it has no probative value as to the ownership of the vessel.

There is likewise no proof that the petitioners received the consideration of the Trip Charter Party. The petitioners denied having received it. 27 The evidence for SMC established beyond doubt that it was Savellon who requested in writing on 19 October 1988 that the check in payment therefor be drawn in favor of BACALTOS COAL MINES/RENE SAVELLON (Exhibit "B-3") and that SMC drew the check in favor of RENE SAVELLON IN TRUST FOR BACALTOS COALMINES (Exhibit "B") and delivered it to Savellon who there upon issued a receipt (Exhibit "B-1"). We agree with the petitioners that SMC committed negligence in drawing the check in the manner aforestated. It even disregarded the request of Savellon that it be drawn in favor of BACALTOS COAL MINES/RENE SAVELLON. Furthermore, assuming that the transaction was permitted in the Authorization, the check should

still have been drawn in favor of the principal. SMC then made possible the wrong done. There is an equitable maxim that between two innocent parties, the one who made it possible for the wrong to be done should be the one to bear the resulting loss. 28 For this rule to apply, the condition precedent is that both parties must be innocent. In the present case, however, SMC is guilty of not ascertaining the extent and limits of the authority of Savellon. In not doing so, SMC dealt with Savellon at its own peril.

Having thus found that SMC was the author of its own damage and that the petitioners are, therefore, free from any liability, it has become unnecessary to discuss the issue of whether Bacaltos Coal Mines is a corporation with a personality distinct and separate from German Bacaltos.

WHEREFORE, the instant petition is GRANTED and the challenged decision of 30 September 1993 of the Court of Appeals in CA-G.R. CV No. 35180 is hereby REVERSED and SET ASIDE and another judgment is hereby rendered MODIFYING the judgment of the Regional Trial Court of Cebu, Branch 9, in Civil Case No. CEB-8187 by setting aside the declaration of solidary liability, holding defendant RENE R. SAVELLON solely liable for the amounts adjudged, and ordering the dismissal of the case as against herein petitioners.

SO ORDERED.

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Republic of the PhilippinesSUPREME COURTManila

THIRD DIVISION

G.R. No. 98275 November 13, 1992

BA FINANCE CORPORATION, petitioner, vs.HON. COURT OF APPEALS, REGIONAL TRIAL COURT OF ANGELES CITY, BRANCH LVI, CARLOS OCAMPO, INOCENCIO TURLA, SPOUSES MOISES AGAPITO and SOCORRO M. AGAPITO and NICOLAS CRUZ,respondents.

MELO, J.:

The question of petitioner's responsibility for damages when on March 6, 1983, an accident occurred involving petitioner's Isuzu ten-wheeler truck then driven by an employee of Lino Castro is the thrust of the petition for review on certiorari now before Us considering that neither the driver nor Lino Castro appears to be connected with petitioner.

On October 13, 1988, the disputed decision in the suit below was rendered by the court of origin in this manner:

1. Ordering Rock B.A. and Rogelio Villar y Amare jointly and severally to pay the plaintiffs as follows:

a) To the plaintiff Carlos Ocampo — P121,650.00;

b) To the plaintiff Moises Ocampo — P298,500.00

c) To the plaintiff Nicolas Cruz — P154,740.00

d) To the plaintiff Inocencio Turla, Sr. — 48,000.00

2. Dismissing the case against Lino Castro

3. Dismissing the third-party complaint against STRONGHOLD

4. Dismissing all the counterclaim of the defendants and third-party defendants.

5. Ordering ROCK to reimburse B.A. the total amount of P622,890.00 which the latter is adjudged to pay to the plaintiffs. (p. 46, Rollo)

Respondent Court of Appeals affirmed the appealed disposition in toto through Justice Rasul, with Justices De Pano, Jr. and Imperial concurring, on practically the same grounds arrived at by the court a quo (p. 28, Rollo). Efforts exerted towards re-evaluation of the adverse were futile (p. 37, Rollo). Hence, the instant petition.

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The lower court ascertained after due trial that Rogelio Villar y Amare, the driver of the Isuzu truck, was at fault when the mishap occurred in as much as he was found guilty beyond reasonable doubt of reckless imprudence resulting in triple homicide with multiple physical injuries with damage to property in a decision rendered on February 16, 1984 by the Presiding Judge of Branch 6 of the Regional Trial Court stationed at Malolos, Bulacan. Petitioner was adjudged liable for damages in as much as the truck was registered in its name during the incident in question, following the doctrine laid down by this Court in Perez vs. Gutierrez (53 SCRA 149 [1973]) and Erezo, et al. vs. Jepte (102 Phil. 103 [1957]). In the same breadth, Rock Component Philippines, Inc. was ordered to reimburse petitioner for any amount that the latter may be adjudged liable to pay herein private respondents as expressly stipulated in the contract of lease between petitioner and Rock Component Philippines, Inc. Moreover, the trial court applied Article 2194 of the new Civil Code on solidary accountability of join tortfeasors insofar as the liability of the driver, herein petitioner and Rock Component Philippines was concerned (pp. 6-7, Decision; pp. 44-45, Rollo).

To the question of whether petitioner can be held responsible to the victim albeit the truck was leased to Rock Component Philippines when the incident occurred, the appellate court answered in the affirmative on the basis of the jurisprudential dogmas which, as aforesaid, were relied upon by the trial court although respondent court was quick to add the caveat embodied in the lease covenant between petitioner and Rock Component Philippines relative to the latter's duty to reimburse any amount which may be adjudged against petitioner (pp. 32-33, Rollo).

Petitioner asseverates that it should not have been haled to court and ordered to respond for the damage in the manner arrived at by both the trial and appellate courts since paragraph 5 of the complaint lodged by the plaintiffs below would indicate that petitioner was not the employer of the negligent driver who was under the control an supervision of Lino Castro at the time of the accident, apart from the fact that the Isuzu truck was in the physical possession of Rock Component Philippines by virtue of the lease agreement.

Aside from casting clouds of doubt on the propriety of invoking the Perez and Erezo doctrines, petitioner continue to persist with the idea that the pronouncements of this Court in Duavit vs. Court of Appeals (173 SCRA 490 [1989]) and Duquillo vs. Bayot (67 Phil 131 [1939]) dovetail with the factual and legal scenario of the case at hand. Furthermore, petitioner assumes, given the so-called hiatus on the basis for the award of damages as decreed by the lower and appellate courts, that Article 2180 of the new Civil Code on vicarious liability will divest petitioner of any responsibility absent as there is any employer-employee relationship between petitioner and the driver.

Contrary to petitioner's expectations, the recourse instituted from the rebuffs it encountered may not constitute a sufficient foundation for reversal of the impugned judgment of respondent court. Petitioner is of the impression that the Perez and Erezo cases are inapplicable due to the variance of the generative facts in said cases as against those obtaining in the controversy at bar. A contrario, the lesson imparted by Justice Labrador in Erezo is still good law, thus:

. . . In previous decisions, We already have held that the registered owner of a certificate of public convenience is liable to the public for the injuries or damages suffered by passengers or third persons caused by the operation of said vehicle, even though the same had been transferred to a third person. (Montoya vs. Ignacio, 94 Phil., 182 50 Off. Gaz., 108; Roque vs. Malibay Transit, Inc., G.R. No. L-8561, November 18, 1955; Vda. de Medina vs. Cresencia, 99 Phil., 506, 52 Off. Gaz., [10], 4606.) The principle upon which this doctrine is based is that in dealing with vehicles registered under the Public Service Law, the public has the right to assume or presumed that the registered owner is the actual owner thereof, for it would be difficult with the public to enforce the actions that they may have for injuries caused to them by the vehicles being negligently operated if the public should be required to prove who actual the owner is. How would the public or third persons know against whom to enforce their rights in case of subsequent transfer of the vehicles? We do not imply by this doctrine, however, that the registered owner may not recover whatever amount he had paid by virtue of his liability to

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third persons from the person to whom he had actually sold, assigned or conveyed the vehicle.

Under the same principle the registered owner of any vehicle, even if not used for a public service, should primarily responsible to the public or to the third persons for injuries caused the latter while the vehicle is being driven on the highways or streets. The members of the Court are in agreement that the defendant-appellant should be held liable to plaintiff-appellee for the injuries occasioned to the latter because of the negligence of the driver, even if the defendant-appellant was no longer an owner of the vehicle at the time of the damage because he had previously sold it to another. What is the legal basis for his (defendants-appellant's) liability?

There is a presumption that the owner of the guilty vehicle is the defendant-appellant as he is the registered owner in the Motor Vehicle Office. Should he not be allowed to prove the truth, that he had sold it to another and thus shift the responsibility for the injury to the real and the actual owner? The defendants hold the affirmative of this proposition; the trial court hold the negative.

The Revised Motor Vehicle Law (Act No. 3992, as amended) provides that the vehicle may be used or operated upon any public highway unless the same is properly registered. It has been stated that the system of licensing and the requirement that each machine must carry a registration number, conspicuously displayed, is one of the precautions taken to reduce the danger of injury of pedestrians and other travelers from the careless management of automobiles, and to furnish a means of ascertaining the identity of persons violating the laws and ordinances, regulating the speed and operation of machines upon the highways (2 R. C. L. 1176). Not only are vehicles to be registered and that no motor vehicles are to be used or operated without being properly registered from the current year, furnish the Motor Vehicle Office a report showing the name and address of each purchaser of motor vehicle during the previous month and the manufacturer's serial number and motor number. (Section 5[c], Act No. 3992, as amended.)

Registration is required not to make said registration the operative act by which ownership in vehicles is transferred, as in land registration cases, because the administrative proceeding of registration does not bear any essential relation to the contract of sale between the parties (Chinchilla vs. Rafael and Verdaguer, 39 Phil. 888), but to permit the use and operation of the vehicle upon any public highway (section 5[a], Act No. 3992, as amended). the main aim of motor vehicle registration is to identify the owner so that if any accident happens, or that any damage or injury is caused by the vehicle on the public highways, responsibility therefor can be fixed on a definite individual, the registered owner. Instances are numerous where vehicles running on public highways caused accidents or injuries to pedestrians or other vehicles without positive identification of the owner or drivers, or with very scant means of identification. It is to forestall these circumstances, so inconvenient or prejudicial to the public, that the motor vehicle registration is primarily obtained, in the interest of the determinations of persons responsible for damages or injuries caused on public highways.

One of the principle purposes of motor vehicles legislation is identification of the vehicle and of the operator, in case of accident; and another is that the knowledge that means of detection are always available my act as a deterrent from lax observance of the law and of the rules of conservative and safe operation. Whatever purpose there may be in these statutes, it is subordinate at the last to the primary purpose of rendering it certain that the violator of the law or of the rules of safety shall not escape because of lack of means to discover him. The purpose of the statute is thwarted, and the displayed number becomes a "share and delusion," if courts would entertain such defenses as that put forward by appellee in this case. No responsible person or corporation could be held liable for the most outrageous acts of negligence, if they should be allowed to pace a "middleman" between them and the public, and escape liability by the manner in which they recompense their servants. (King vs. Breham Automobile Co., Inc. 145 S. W. 278, 279.)

With the above policy in mind, the question that defendant-appellant poses is: should not the registered owner be allowed at the trial to prove who the actual and

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real owner is, and in accordance with such proof escape or evade responsibility and lay the same on the person actually owning the vehicle? We hold with the trial court that the law does not allow him to do so; the law, with its aim and policy in mind, does not relieve him directly of the responsibility that the law fixes and places upon him as an incident or consequence of registration. Were a registered owner allowed to evade responsibility by proving who the supposed transferee or owner is, it would be easy for him, by collusion with others or otherwise, to escape said responsibility and transfer the same to an indefinite person, or to one who possesses no property with which to respond financially for the damage or injury done. A victim of recklessness on the public highways is usually without means to discover or Identify the person actually causing the injury or damage. He has no means other then by a recourse to the registration in the Motor Vehicles Office to determine who is the owner. The protection that the law aims to extend to him would become illusory were the registered owner given the opportunity to escape liability by disproving his ownership. If the policy of the law is to be enforced and carried out, the registered owner should not be allowed to prove the contrary to the prejudice of the person injured, that is, to prove that a third person or another has become the owner, so that he may thereby be relieved of the responsibility to the injured person.

The above policy and application of the law may appear quite harsh and would seem to conflict with truth and justice. We do not think it is so. A registered owner who has already sold or transferred a vehicle has the recourse to a third-party complaint, in the same action brought against him to recover for the damage or injury done, against the vendee or transferee of the vehicle. The inconvenience of the suit is no justification for relieving him of liability; said inconvenience is the price he pays for failure to comply with the registration that the law demands and requires.

In synthesis, we hold that the registered owner, the defendant-appellant herein, is primarily responsible for the damage caused to the vehicle of the plaintiff-appellee, but he (defendant-appellant) has a right to be indemnified by the real or actual

owner of the amount that he may be required to pay as damage for the injury caused to the plaintiff-appellant.

If the foregoing words of wisdom were applied in solving the circumstance whereof the vehicle had been alienated or sold to another, there certainly can be no serious exception against utilizing the same rationale to the antecedents of this case where the subject vehicle was merely leased by petitioner to Rock Component Philippines, Inc., with petitioner retaining ownership over the vehicle.

Petitioner's reliance on the ruling of this Court in Duavit vs. Court of Appeals and in Duquillo vs. Bayot (supra) is legally unpalatable for the purpose of the present discourse. The vehicles adverted to in the two cases shared a common thread, so to speak, in that the jeep and the truck were driven in reckless fashion without the consent or knowledge of the respective owners. Cognizant of the inculpatory testimony spewed by defendant Sabiniano when he admitted that he took the jeep from the garage of defendant Dauvit without the consent or authority of the latter, Justice Gutierrez, Jr. in Duavit remarked;

. . . Herein petitioner does not deny ownership of the vehicle involved in the mishap but completely denies having employed the driver Sabiniano or even having authorized the latter to drive his jeep. The jeep was virtually stolen from the petitioner's garage. To hold, therefore, the petitioner liable for the accident caused by the negligence of Sabiniano who was neither his driver nor employee would be absurd as it would be like holding liable the owner of a stolen vehicle for an accident caused by the person who stole such vehicle. In this regard, we cannot ignore the many cases of vehicles forcibly taken from their owners at gunpoint or stolen from garages and parking areas and the instances of service station attendants or mechanics of auto repair shops using, without the owner's consent, vehicles entrusted to them for servicing or repair.(at p. 496.)

In the Duquillo case, the defendant therein cannot, according to Justice Diaz, be held liable for anything because of circumstances which indicated that the truck was driven without the consent or knowledge of the owner thereof.

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Consequently, there is no need for Us to discuss the matter of imputed negligence because petitioner merely presumed, erroneously, however, that judgment was rendered against it on the basis of such doctrine embodied under Article 2180 of the new Civil Code.

WHEREFORE, the petition is hereby DISMISSED and decision under review AFFIRMED without special pronouncement as to costs.

SO ORDERED.

Republic of the PhilippinesSUPREME COURTManila

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SECOND DIVISION

G.R. No. 103737 December 15, 1994

NORA S. EUGENIO and ALFREDO Y. EUGENIO, petitioners, vs.HON. COURT OF APPEALS and PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC., respondents.

Public Attorney's Office for petitioners.

Romualdo M. Jubay for private respondent.

REGALADO, J.:

Private respondent Pepsi-Cola Bottling Company of the Philippines, Inc. is engaged in the business of manufacturing, making bottling and selling soft drinks and beverages to the general public. Petitioner Nora S. Eugenio was a dealer of the soft drink products of private respondent corporation. Although she had only one store located at 27 Diamond Street, Emerald Village, Marikina, Metro Manila, Eugenio had a regular charge account in both the Quezon City plant (under the name "Abigail Minimart" *) as well as in the Muntinlupa plant (under the name "Nora Store") of respondent corporation. Her husband and co-petitioner, Alfredo Y. Eugenio, used to be a route manager of private respondent in its Quezon City plant.

On March 17, 1982, private respondent filed a complaint for a sum of money against petitioners Nora S. Eugenio and Alfredo Y. Eugenio, docketed as Civil Case No. Q-34718 of the then Court of First Instance of Quezon City, Branch 9 (now Regional Trial Court, Quezon City, Branch 97). In its complaint, respondent corporation alleged that on several occasions in 1979 and 1980, petitioners

purchased and received on credit various products from its Quezon City plant. As of December 31, 1980, petitioners allegedly had an outstanding balance of P20,437.40 therein. Likewise, on various occasions in 1980, petitioners also purchased and received on credit various products from respondent's Muntinlupa plant and, as of December 31, 1989, petitioners supposedly had an outstanding balance of P38,357.20 there. In addition, it was claimed that petitioners had an unpaid obligation for the loaned "empties" from the same plant in the amount of P35,856.40 as of July 11, 1980. Altogether, petitioners had an outstanding account of P94,651.00 which, so the complaint alleged, they failed to pay despite oral and written demands. 1

In their defense, petitioners presented four trade provisional receipts (TPRs) allegedly issued to and received by them from private respondent's Route Manager Jovencio Estrada of its Malate Warehouse (Division 57), showing payments in the total sum of P80,500.00 made by Abigail's Store. Petitioners contended that had the amounts in the TPRs been credited in their favor, they would not be indebted to Pepsi-Cola. The details of said receipts are as follows:

TPR No. Date of Issue Amount

500320 600 Fulls returned 5/6/80 P23,520.00500326 600 Fulls returned 5/10/80 23,520.00500344 600 Fulls returned 5/14/80 23,520.00500346 Cash 5/15/80 10,000.00 2

—————Total P80,560.00

Further, petitioners maintain that the signature purporting to be that of petitioner Nora S. Eugenio in Sales Invoice No. 85366 dated May 15, 1980 in the amount of P5,631.00, 3 which was included in the computation of their alleged debt, is a falsification. In sum, petitioners argue that if the aforementioned amounts were credited in their favor, it would be respondent corporation which would be indebted to them in the sum of P3,546.02 representing overpayment.

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After trial on the merits, the court a quo rendered a decision on February 17, 1986, ordering petitioners, as defendants therein to jointly and severally pay private respondent the amount of P74,849.00, plus 12% interestper annum until the principal amount shall have been fully paid, as well as P20,000.00 as attorney's fees. 4 On appeal in CA-G.R. CV No. 10623, the Court of Appeals declared said decision a nullity for failure to comply with the requirement in Section 14, Article VIII of the 1987 Constitution that decisions of courts should clearly and distinctly state the facts and the law on which they are based. The Court of Appeals accordingly remanded the records of the case to the trial court, directing it to render another decision in accordance with the requirements of the Constitution. 5

In compliance with the directive of the Court of Appeals, the lower court rendered a second decision on September 29, 1989. In this new decision, petitioners were this time ordered to pay, jointly and severally, the reduced amount of P64,188.60, plus legal interest of 6% per annum from the filing of the action until full payment of the amount adjudged. 6 On appeal therefrom, the Court of Appeals affirmed the judgment of the trial court in a decision promulgated on September 27, 1991. 7 A motion for the reconsideration of said judgment of respondent court was subsequently denied in a resolution dated January 23, 1992. 8

We agree with petitioners and respondent court that the crux of the dispute in the case at bar is whether or not the amounts in the aforementioned trade provisional receipts should be credited in favor of herein petitioner spouses.

In a so-called encyclopedic sense, however, our course of action in this case and the denouement of the controversy therein takes into account the jurisprudential rule that in the present recourse we would normally have restricted ourselves to questions of law and eschewed questions of fact were it not for our perception that the lower courts manifestly overlooked certain relevant factual considerations resulting in a misapprehension thereof. Consequentially, that position shall necessarily affect our analysis of the rules on the burden of proof and the burden of evidence, and ultimately, whether the proponent of the corresponding claim has preponderated or rested on an equipoise or fallen short of preponderance.

First, the backdrop. It appears that on August 1, 1981, private respondent through the head of its Legal Department, Atty. Antonio N. Rosario, sent an inter-office correspondence to petitioner Alfredo Eugenio inviting him for an interview/interrogation on August 3, 1981 regarding alleged "non-payment of debts to the company, inefficiency, and loss of trust and confidence." 9 The interview was reset to August 4, 1981 to enable said petitioner to bring along with him their union president, Luis Isip. On said date, a statement of overdue accounts were prepared showing that petitioners owed respondent corporation the following amounts:

Muntinlupa PlantNora's StoreTrade Account P38,357.20 (as of 12/3/80) 10

Loaned Empties P35,856.40 (as of 7/11/81) 11

Quezon City PlantAbigail MinimartRegular Account P20,437.40 (as of 1980) 12

—————Total P94,651.00

A reconciliation of petitioners' account was then conducted. The liability of petitioners as to the loaned empties (Muntinlupa plant, Nora Store) was reduced to P21,686.00 after a reevaluation of the value of the loaned empties.13 Likewise, the amount of P5,631.00 under Invoice No. 85366, which was a spurious document, was deducted from their liability in their trade account with the Muntinlupa plant. 14 Thereafter, Eugenio and Isip signed the reconciliation sheets reflecting these items:

Muntinlupa PlantNora StoreTrade Account P32,726.20 15

Loaned Empties P21,686.00 16

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Quezon City PlantAbigail MinimartTrade Account P20,437.20 17

——————Total P74,849.40

After the meeting, private respondent alleged that petitioner Alfredo Y. Eugenio requested that he be allowed to retire and the existing accounts be deducted from his retirement pay, but that he later withdrew his retirement plan. Said petitioner disputed that allegation and, in fact, he subsequently filed a complaint for illegal dismissal. The finding of labor arbiter, later affirmed by the Supreme Court, showed that this petitioner was indeed illegally dismissed, and that he never filed an application for retirement. In fact, this Court made a finding that the retirement papers allegedly filed in the name of this petitioner were forged. 18 This makes two falsified documents to be foisted against petitioners.

With their aforesaid accounts still unpaid, petitioner Alfredo Y. Eugenio submitted to Atty. Rosario the aforementioned four TPRs. Thereafter, Atty. Rosario ordered Daniel Azurin, assistant personnel manager, to conduct an investigation to verify this claim of petitioners. According to Azurin, during the investigation on December 4, 1981, Estrada allegedly denied that he issued and signed the aforesaid TPRs. 19 He also presented a supposed affidavit which Estrada allegedly executed during that investigation to affirm his verbal statements therein. Surprisingly, however, said supposed affidavit is inexplicably dated February 5, 1982. 20 At this point, it should be noted that Estrada never testified thereafter in court and what he is supposed to have done or said was merely related by Azurin.

Now, on this point, respondent court disagreed with herein petitioners that the testimony on the alleged denial of Jovencio Estrada regarding his signatures on the disputed TPRs, as well as his affidavit dated February 5, 198221 wherein he affirmed his denial, are hearsay evidence because Estrada was not presented as a witness to testify and be cross-examined thereon. Except for the terse statement of respondent court that since petitioner Alfredo Eugenio was supposedly present on December 4, 1981, "(t)he testimony of Jovencio Estrada at the aforementioned

investigation categorically denying that he issued and signed the disputed TPRs is, therefore, not hearsay," 22 there was no further explanation on this unusual doctrinal departure.

The rule is clear and explicit. Under the hearsay evidence rule, a witness can testify only to those facts which he knows of his personal knowledge; that is, which are derived from his own perception, except as otherwise provided in the Rules. 23 In the present case, Estrada failed to appear as a witness at the trial. It was only Azurin who testified that during the investigation he conducted, Estrada supposedly denied having signed the TPRs. It is elementary that under the measure on hearsay evidence, Azurin's testimony cannot constitute legal proof as to the truth of Estrada's denial. For that matter, it is not admissible in evidence, petitioners' counsel having seasonably objected at the trial to such testimony of Azurin as hearsay. And, even if not objected to and thereby admissible, such hearsay evidence has no probative value whatsoever. 24

It is true that the testimony or deposition of a witness deceased or unable to testify, given in a former case or proceeding, judicial or administrative, involving the same parties and subject matter, may be given in evidence against the adverse party who had the opportunity to cross-examine him. 25 Private respondent cannot, however, seek sanctuary in this exception to the hearsay evidence rule.

Firstly, the supposed investigation conducted by Azurin was neither a judicial trial nor an administrative hearing under statutory regulations and safeguards. It was merely an inter-office interview conducted by a personnel officer through an ad hoc arrangement. Secondly, a perusal of the alleged stenographic notes, assumingarguendo that these notes are admissible in evidence, would show that the "investigation" was more of a free-flowing question and answer type of discussion wherein Estrada was asked some questions, after which Eugenio was likewise asked other questions. Indeed, there was no opportunity for Eugenio to object, much less to cross-examine Estrada. Even in a formal prior trial itself, if the opportunity forcross-examination did not exist therein or if the accused was not afforded opportunity to fully cross-examine the witness when the testimony was offered,

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evidence relating to the testimony given therein is thereafter inadmissible in another proceeding, absent any conduct on the part of the accused amounting to a waiver of his right to cross-examine. 26

Thirdly, the stenographer was not even presented to authenticate the stenographic notes submitted to the trial court. A copy of the stenographic report of the entire testimony at the former trial must be supported by the oath of the stenographer that it is a correct transcript of his notes of the testimony of the witness as a sine qua non for its competency and admissibility in evidence. 27 The supposed stenographic notes on which respondent corporation relies is unauthenticated and necessarily inadmissible for the purpose intended.

Lastly, although herein private respondent insinuated that Estrada was not presented as a witness because he had disappeared, no evidence whatsoever was offered to show or even intimate that this was due to any machination or instigation of petitioners. There is no showing that his absence was procured, or that he was eloigned, through acts imputable to petitioners. In the case at bar, except for the self-serving statement that Estrada had disappeared, no plausible explanation was given by respondent corporation. Estrada was an employee of private respondent, hence it can be assumed that it could easily trace or ascertain his whereabouts. It had the resources to do so, in contradistinction to petitioners who even had to seek the help of the Public Attorney's Office to defend them here. Private respondent could not have been unaware of the importance of Estrada's testimony and the consequent legal necessity for presenting him in the trial court, through coercive process if necessary.

Obviously, neither is the affidavit of Estrada admissible; it is likewise barred as evidence by the hearsay evidence rule. 28 This is aside from the fact that, by their nature, affidavits are generally not prepared by the affiants themselves but by another who uses his own language in writing the affiant's statements, which may thus be either omitted or misunderstood by the one writing them. 29 The dubiety of that affidavit, as earlier explained, is further underscored by the fact that it was executed more than two months after the investigation, presumably for curative purposes as it were.

Now, the authenticity of a handwriting may be proven, among other means, by its comparison made by the witness or the court with writings admitted or treated as genuine by the party against whom the evidence is offered or proved to be genuine to the satisfaction of the judge. 30 The alleged affidavit of Estrada states". . . that the comparison that was made as to the authenticity of the signature appearing in the TPRs and that of my signature showed that there was an apparent dissimilarity between the two signatures, xerox copy of my 201 File is attached hereto as Annex 'F' of this affidavit. 31 However, a search of the Folder of Exhibits in this case does not reveal that private respondent ever submitted any document, not even the aforementioned 201 File, containing a specimen of the signature of Estrada which the Court can use as a basis for comparison. Neither was any document containing a specimen of Estrada's signature presented by private respondent in the formal offer of its exhibits. 32

Respondent court made the further observation that "Estrada was even asked by Atty. Azurin at said investigation to sign three times to provide specimens of his genuine signature." 33 There is, however, no showing that he did, but assuming that Estrada signed the stenographic notes, the Court would still be unable to make the necessary comparison because two signatures appear on the right margin of each and every page of the stenographic notes, without any indication whatsoever as to which of the signatures is Estrada's. The whole document was marked for identification but the signatures were not. In fact, although formally offered, it was merely introduced by the private respondent "in order to show that Jovencio Estrada had been investigated and categorically denied having collected from Abigail Minimart and denying having signed the receipts claimed by Alfredo Eugenio to be his payment," 34 and not for the purpose of presenting any alleged signature of Estrada on the document as a basis for comparison.

This is a situation that irresistibly arouses judicial curiosity, if not suspicion. Respondent corporation was fully aware that its case rested, as it were, on the issue of whether the TPRs were authentic and which issue, in turn, turned on the genuineness of Estrada's signatures thereon. Yet, aside from cursorily dismissing the non-presentation of Estrada in court by the glib assertion that he could not be

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found, and necessarily aware that his alleged denial of his signatures on said TPRs and his affidavit rendered the same vulnerable to the challenge that they are hearsay and inadmissible, respondent corporation did nothing more. In fact, Estrada's disappearance has not been explained up to the present.

The next inquiry then would be as to what exactly is the nature of the TPRs insofar as they are used in the day-to-day business transactions of the company. These trade provisional receipts are bound and given in booklets to the company sales representatives, under proper acknowledgment by them and with a record of the distribution thereof. After every transaction, when a collection is made the customer is given by the sales representative a copy of the trade provisional receipt, that is, the triplicate copy or customer's copy, properly filled up to reflect the completed transaction. All unused TPRs, as well as the collections made, are turned over by the sales representative to the appropriate company officer. 35

According to respondent court, "the questioned TPR's are merely 'provisional' and were, as printed at the bottom of said receipts, to be officially confirmed by plaintiff within fifteen (15) days by delivering the original copy thereof stamped paid and signed by its cashier to the customer. . . . Defendants-appellants (herein petitioners) failed to present the original copies of the TPRs in question, showing that they were never confirmed by the plaintiff, nor did they demand from plaintiff the confirmed original copies thereof." 36

We do not agree with the strained implication intended to be adverse to petitioners. The TPRs presented in evidence by petitioners are disputably presumed as evidentiary of payments made on account of petitioners. There are presumptions juris tantum in law that private transactions have been fair and regular and that the ordinary course of business has been followed. 37 The role of presumptions in the law on evidence is to relieve the party enjoying the same of the evidential burden to prove the proposition that he contends for, and to shift the burden of evidence to the adverse party. Private respondent having failed to rebut the aforestated presumptions in favor of valid payment by petitioners, these would necessarily continue to stand in their favor in this case.

Besides, even assuming arguendo that herein private respondent's cashier never received the amounts reflected in the TPRs, still private respondent failed to prove that Estrada, who is its duly authorized agent with respect to petitioners, did not receive those amounts from the latter. As correctly explained by petitioners, "in so far as the private respondent's customers are concerned, for as long as they pay their obligations to the sales representative of the private respondent using the latter's official receipt, said payment extinguishes their obligations." 38 Otherwise, it would unreasonably cast the burden of supervision over its employees from respondent corporation to its customers.

The substantive law is that payment shall be made to the person in whose favor the obligation has been constituted, or his successor-in-interest or any person authorized to receive it. 39 As far as third persons are concerned, an act is deemed to have been performed within the scope of the agent's authority, if such is within the terms of the power of attorney, as written, even if the agent has in fact exceeded the limits of his authority according to an understanding between the principal and his agent. 40 In fact, Atty. Rosario, private respondent's own witness, admitted that "it is the responsibility of the collector to turn over the collection." 41

Still pursuing its ruling in favor of respondent corporation, the Court of Appeals makes the following observation:

. . . Having allegedly returned 600 Fulls to the plaintiff's representative on May 6, 10, and 14, 1980, appellant-wife's Abigail Store must have received more than 1,800 cases of soft drinks from plaintiff before those dates. Yet the Statement of Overdue Account pertaining to Abigail Minimart (Exhs. "D", "D-1" to "D-3") which appellant-husband and his representative Luis Isip signed on August 3, 1981 does now show more than 1,800 cases of soft drinks were delivered to Abigail Minimart by plaintiff's Quezon City Plant (which supposedly issued the disputed TPRs) in May, 1980 or the month before."42

We regret the inaccuracy in said theory of respondent court which was impelled by its sole and limited reliance on a mere statement of overdue amounts. Unlike a statement of account which truly reflects the day-to-day movement of an account,

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a statement of an overdue amount is only a summary of the account, simply reflecting the balance due thereon. A statement of account, being more specific and detailed in nature, allows one to readily see and verify if indeed deliveries were made during a specific period of time, unlike a bare statement of overdue payments. Respondent court cannot make its aforequoted categorical deduction unless supporting documents accompanying the statement of overdue amounts were submitted to enable easy and accurate verification of the facts.

A perusal of the statement of overdue accounts shows that, except for a reference number given for each entry, no further details were volunteered nor offered. It is entirely possible that the statement of overdue account merely reflects the outstanding debt of a particular client, and not the specific particulars, such as deliveries made, particularly since the entries therein were surprisingly entered irrespective of their chronological order. Obviously, therefore, one can not use the statement of overdue amounts as conclusive proof of deliveries done within a particular time frame.

Except for its speculation that petitioner Alfredo Y. Eugenio could have had easy access to blank forms of the TPRs because he was a former route manager no evidence whatsoever was presented by private respondent in support of that theory. We are accordingly intrigued by such an unkind assertion of respondent corporation since Azurin himself admitted that their accounting department could not even inform them regarding the persons to whom the TPRs were issued. 43 In addition, it is significant that respondent corporation did not take proper action if indeed some receipts were actually lost, such as the publication of the fact of loss of the receipts, with the corresponding investigation into the matter.

We, therefore, reject as attenuated the comment of the trial court that the TPRs, which Eugenio submitted after the reconciliation meeting, "smacks too much of an afterthought." 44 The reconciliation meeting was held on August 4, 1981. Three months later, on November, 1981, petitioner Alfredo Y. Eugenio submitted the four TPRs. He explained, and this was not disputed, that at the time the reconciliation meeting was held, his daughter Nanette, who was helping his wife manage the store, had eloped and she had possession of the TPRs. 45 It was only in

November, 1981 when petitioners were able to talk to Nanette that they were able to find and retrieve said TPRs. He added that during the reconciliation meeting, Atty. Rosario assured him that any receipt he may submit later will be credited in his favor, hence he signed the reconciliation documents. Accordingly, when he presented the TPRs to private respondent, Atty. Rosario directed Mr. Azurin to verify the TPRs. Thus, the amount stated in the reconciliation sheet was not final, as it was still subject to such receipts as may thereafter be presented by petitioners.

On the other hand, petitioners claimed that the signature of petitioner Nora S. Eugenio in Sales Invoice No. 85366, in the amount of P5,631.00 is spurious and should accordingly be deducted from the disputed amount of P74,849.40. A scrutiny of the reconciliation sheet shows that said amount had already been deducted upon the instruction of one Mr. Coloma, Plant Controller of Pepsi-Cola , Muntinlupa Plant. 46 That amount is not disputed by respondent corporation and should no longer be deducted from the total liability of petitioner in the sum of P74,849.40. Since petitioners had made a payment of P80,560.00, there was consequently an overpayment of P5,710.60.

All told, we are constrained to hold that respondent corporation has dismally failed to comply with the pertinent rules for the admission of the evidence by which it sought to prove its contentions. Furthermore, there are questions left unanswered and begging for cogent explanations why said respondent did not or could not comply with the evidentiary rules. Its default inevitably depletes the weight of its evidence which cannot just be taken in vacuo, with the result that for lack of the requisite quantum of evidence, it has not discharged the burden of preponderant proof necessary to prevail in this case.

WHEREFORE, the judgment of respondent Court of Appeals in C.A. G.R. CV No. 26901, affirming that of the trial court in Civil Case No. Q-34718, is ANNULLED and SET ASIDE. Private respondent Pepsi-Cola Bottling Company of the Philippines, Inc. is hereby ORDERED to pay petitioners Nora and Alfredo Eugenio the amount of P5,710.60 representing overpayment made to the former.

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SO ORDERED.

Republic of the PhilippinesSUPREME COURTManila

THIRD DIVISION

G.R. No. 94050 November 21, 1991

SYLVIA H. BEDIA and HONTIVEROS & ASSOCIATED PRODUCERS PHILS. YIELDS, INC., petitioners, vs.EMILY A. WHITE and HOLMAN T. WHITE, respondents.

Ramon A. Gonzales for petitioner of the Court.

Renato S. Corpuz for private respondents.

CRUZ, J.:p

The basic issue before us is the capacity in which petitioner Sylvia H. Bedia entered into the subject contract with private respondent Emily A. White. Both the trial court and the respondent court held she was acting in her own personal behalf. She faults this finding as reversible error and insists that she was merely acting as an agent.

The case arose when Bedia and White entered into a Participation Contract 1 reading in full as follows:

THE STATE FAIR OF TEXAS '80PARTICIPATION CONTRACT

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PARTICIPANT (COMPANY NAME) EMILY WHITEENTERPRISES

I/We, the abovementioned company hereby agrees to participate in the 1980 Dallas State Fair to be held in Dallas, Texas on October 3, to October 19,1980. I/We request for a 15 square meter booth space worth $2,250.00 U.S. Dollars.

I/We further understand that this participation contract shall be deemed non-cancellable after payment of the said down payment, and that any intention on our part to cancel the same shall render whatever amount we have paid forfeited in favor of HONTIVEROS & ASSOCIATED PRODUCERS PHILIPPINE YIELDS, INC.

FOR THE ABOVE CONSIDERATION, I/We understand the HONTIVEROS & ASSOCIATED PRODUCERS PHIL. YIELDS, INC. shall: Reserve said booth for our exclusive perusal; We also understand that the above cost includes overall exterior booth decoration and materials but does not include interior designs which will be per our specifications and expenses.

PARTICIPANT'S PARTICIPATIONAUTHORIZED SIGNATURE: ACCEPTED BY:

(SGD.) EMILY WHITE (SGD.) SYLVIA H. BEDIADATE: 8/13/80 DATE: Aug. 1, 1980

On August 10, 1986, White and her husband filed a complaint in the Regional Trial Court of Pasay City for damages against Bedia and Hontiveros & Associated Producers Phil. Yields, Inc. for damages caused by their fraudulent violation of their agreement. She averred that Bedia had approached her and persuaded her to participate in the State of Texas Fair, and that she made a down payment of $500.00 to Bedia on the agreed display space. In due time, she enplaned for Dallas with her merchandise but was dismayed to learn later that the defendants had not paid for or registered any display space in her name, nor were they authorized by the state fair director to recruit participants. She said she incurred losses as a result for which the defendants should be held solidarily liable. 2

In their joint answer, the defendants denied the plaintiff's allegation that they had deceived her and explained that no display space was registered in her name as she was only supposed to share the space leased by Hontiveros in its name. She was not allowed to display her goods in that space because she had not paid her balance of $1,750.00, in violation of their contract. Bedia also made the particular averment that she did not sign the Participation Contract on her own behalf but as an agent of Hontiveros and that she had later returned the advance payment of $500.00 to the plaintiff. The defendants filed their own counterclaim and complained of malice on the part of the plaintiffs. 3

In the course of the trial, the complaint against Hontiveros was dismissed on motion of the plaintiffs. 4

In his decision dated May 29, 1986, Judge Fermin Martin, Jr. found Bedia liable for fraud and awarded the plaintiffs actual and moral damages plus attorney's fees and the costs. The court said:

In claiming to be a mere agent of Hontiveros & Associated Producers Phil. Yields, Inc., defendant Sylvia H. Bedia evidently attempted to escape liability for herself. Unfortunately for her, the "Participation Contract" is not actually in representation or in the name of said corporation. It is a covenant entered into by her in her personal capacity, for no one may contract in the name of another without being authorized by the latter, or unless she has by law a right to represent her. (Art. 1347, new Civil Code)

Sustaining the trail court on this point, the respondent court 5 declared in its decision dated March 30, 1990:

The evidence, on the whole, shows that she definitely acted on her own. She represented herself asauthorized by the State of Texas to solicit and assign booths at the Texas fair; she assured the appellee that she could give her booth. Under Article 1883 of the New Civil Code, if the agent acts in his own name, the principal has no right of action against the persons with whom the agent had contracted.

We do not share these views.

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It is noteworthy that in her letter to the Minister of Trade dated December 23,1984, Emily White began:

I am a local exporter who was recruited by Hontiveros & Associated Producers Phil. Yields, Inc. to participate in the State Fair of Dallas, Texas which was held last Oct. 3 to 19, 1980. Hontiveros & Associated charged me US$150.00 per square meter for display booth of said fair. I have paid an advance of US$500.00 as partial payment for the total space of 15 square meter of which is $2,250.00 (Two Thousand Two Hundred Fifty Dollars). 6

As the Participation Contract was signed by Bedia, the above statement was an acknowledgment by White that Bedia was only acting for Hontiveros when it recruited her as a participant in the Texas State Fair and charged her a partial payment of $500.00. This amount was to be fortified to Hontiveros in case of cancellation by her of the agreement. The fact that the contract was typewritten on the letterhead stationery of Hontiveros bolsters this conclusion in the absence of any showing that said stationery had been illegally used by Bedia.

Significantly, Hontiveros itself has not repudiated Bedia's agency as it would have if she had really not signed in its name. In the answer it filed with Bedia, it did not deny the latter's allegation in Paragraph 4 thereof that she was only acting as its agent when she solicited White's participation. In fact, by filing the answer jointly with Bedia through their common counsel, Hontiveros affirmed this allegation.

If the plaintiffs had any doubt about the capacity in which Bedia was acting, what they should have done was verify the matter with Hontiveros. They did not. Instead, they simply accepted Bedia's representation that she was an agent of Hontiveros and dealt with her as such. Under Article 1910 of the Civil Code, "the principal must comply with all the obligations which the agent may have contracted within the scope of his authority." Hence, the private respondents cannot now hold Bedia liable for the acts performed by her for, and imputable to, Hontiveros as her principal.

The plaintiffs' position became all the more untenable when they moved on June 5, 1984, for the dismissal of the complaint against Hontiveros, 7 leaving Bedia as the sole defendant. Hontiveros had admitted as early as when it filed its answer that Bedia was acting as its agent. The effect of the motion was to leave the plaintiffs without a cause of action against Bedia for the obligation, if any, of Hontiveros.

Our conclusion is that since it has not been found that Bedia was acting beyond the scope of her authority when she entered into the Participation Contract on behalf of Hontiveros, it is the latter that should be held answerable for any obligation arising from that agreement. By moving to dismiss the complaint against Hontiveros, the plaintiffs virtually disarmed themselves and forfeited whatever claims they might have proved against the latter under the contract signed for it by Bedia. It should be obvious that having waived these claims against the principal, they cannot now assert them against the agent.

WHEREFORE, the appealed decision dated March 30, 1990, of the respondent court is REVERSED and a new judgment is rendered dismissing Civil Case No. 9246-P in the Regional Trial Court of Pasay City.

SO ORDERED.

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Republic of the PhilippinesSUPREME COURTManila

FIRST DIVISION

G.R. No. 142616 July 31, 2001

PHILIPPINE NATIONAL BANK, petitioner, vs.

RITRATTO GROUP INC., RIATTO INTERNATIONAL, INC., and DADASAN GENERAL MERCHANDISE,respondents.

KAPUNAN, J.:

In a petition for review on certiorari under Rule 45 of the Revised Rules of Court, petitioner seeks to annul and set aside the Court of Appeals' decision in C.A. CV G.R. S.P. No. 55374 dated March 27, 2000, affirming the Order issuing a writ of preliminary injunction of the Regional Trial Court of Makati, Branch 147 dated June 30, 1999, and its Order dated October 4, 1999, which denied petitioner's motion to dismiss.

The antecedents of this case are as follows:

Petitioner Philippine National Bank is a domestic corporation organized and existing under Philippine law. Meanwhile, respondents Ritratto Group, Inc., Riatto International, Inc. and Dadasan General Merchandise are domestic corporations, likewise, organized and existing under Philippine law.

On May 29, 1996, PNB International Finance Ltd. (PNB-IFL) a subsidiary company of PNB, organized and doing business in Hong Kong, extended a letter of credit in favor of the respondents in the amount of US$300,000.00 secured by real estate mortgages constituted over four (4) parcels of land in Makati City. This credit facility was later increased successively to US$1,140,000.00 in September 1996; to US$1,290,000.00 in November 1996; to US$1,425,000.00 in February 1997; and decreased to US$1,421,316.18 in April 1998. Respondents made repayments of the loan incurred by remitting those amounts to their loan account with PNB-IFL in Hong Kong.

However, as of April 30, 1998, their outstanding obligations stood at US$1,497,274.70. Pursuant to the terms of the real estate mortgages, PNB-IFL, through its attorney-in-fact PNB, notified the respondents of the foreclosure of all the real estate mortgages and that the properties subject thereof were to be sold at a public auction on May 27, 1999 at the Makati City Hall.

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On May 25, 1999, respondents filed a complaint for injunction with prayer for the issuance of a writ of preliminary injunction and/or temporary restraining order before the Regional Trial Court of Makati. The Executive Judge of the Regional Trial Court of Makati issued a 72-hour temporary restraining order. On May 28, 1999, the case was raffled to Branch 147 of the Regional Trial Court of Makati. The trial judge then set a hearing on June 8, 1999. At the hearing of the application for preliminary injunction, petitioner was given a period of seven days to file its written opposition to the application. On June 15, 1999, petitioner filed an opposition to the application for a writ of preliminary injunction to which the respondents filed a reply. On June 25, 1999, petitioner filed a motion to dismiss on the grounds of failure to state a cause of action and the absence of any privity between the petitioner and respondents. On June 30, 1999, the trial court judge issued an Order for the issuance of a writ of preliminary injunction, which writ was correspondingly issued on July 14, 1999. On October 4, 1999, the motion to dismiss was denied by the trial court judge for lack of merit.

Petitioner, thereafter, in a petition for certiorari and prohibition assailed the issuance of the writ of preliminary injunction before the Court of Appeals. In the impugned decision,1 the appellate court dismissed the petition. Petitioner thus seeks recourse to this Court and raises the following errors:

1.

THE COURT OF APPEALS PALPABLY ERRED IN NOT DISMISSING THE COMPLAINT A QUO, CONSIDERING THAT BY THE ALLEGATIONS OF THE COMPLAINT, NO CAUSE OF ACTION EXISTS AGAINST PETITIONER, WHICH IS NOT A REAL PARTY IN INTEREST BEING A MERE ATTORNEY-IN-FACT AUTHORIZED TO ENFORCE AN ANCILLARY CONTRACT.

2.

THE COURT OF APPEALS PALPABLY ERRED IN ALLOWING THE TRIAL COURT TO ISSUE IN EXCESS OR LACK OF JURISDICTION A WRIT OF PRELIMINARY INJUNCTION OVER AND BEYOND WHAT WAS PRAYED FOR

IN THE COMPLAINT A QUO CONTRARY TO CHIEF OF STAFF, AFP VS. GUADIZ JR., 101 SCRA 827.2

Petitioner prays, inter alia, that the Court of Appeals' Decision dated March 27, 2000 and the trial court's Orders dated June 30, 1999 and October 4, 1999 be set aside and the dismissal of the complaint in the instant case.3

In their Comment, respondents argue that even assuming arguendo that petitioner and PNB-IFL are two separate entities, petitioner is still the party-in-interest in the application for preliminary injunction because it is tasked to commit acts of foreclosing respondents' properties.4 Respondents maintain that the entire credit facility is void as it contains stipulations in violation of the principle of mutuality of contracts.5 In addition, respondents justified the act of the court a quo in applying the doctrine of "Piercing the Veil of Corporate Identity" by stating that petitioner is merely an alter ego or a business conduit of PNB-IFL.6

The petition is impressed with merit.

Respondents, in their complaint, anchor their prayer for injunction on alleged invalid provisions of the contract:

GROUNDS

I

THE DETERMINATION OF THE INTEREST RATES BEING LEFT TO THE SOLE DISCRETION OF THE DEFENDANT PNB CONTRAVENES THE PRINCIPAL OF MUTUALITY OF CONTRACTS.

II

THERE BEING A STIPULATION IN THE LOAN AGREEMENT THAT THE RATE OF INTEREST AGREED UPON MAY BE UNILATERALLY MODIFIED BY DEFENDANT, THERE WAS NO STIPULATION THAT THE RATE OF INTEREST

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SHALL BE REDUCED IN THE EVENT THAT THE APPLICABLE MAXIMUM RATE OF INTEREST IS REDUCED BY LAW OR BY THE MONETARY BOARD.7

Based on the aforementioned grounds, respondents sought to enjoin and restrain PNB from the foreclosure and eventual sale of the property in order to protect their rights to said property by reason of void credit facilities as bases for the real estate mortgage over the said property.8

The contract questioned is one entered into between respondent and PNB-IFL, not PNB. In their complaint, respondents admit that petitioner is a mere attorney-in-fact for the PNB-IFL with full power and authority to, inter alia, foreclose on the properties mortgaged to secure their loan obligations with PNB-IFL. In other words, herein petitioner is an agent with limited authority and specific duties under a special power of attorney incorporated in the real estate mortgage. It is not privy to the loan contracts entered into by respondents and PNB-IFL.

The issue of the validity of the loan contracts is a matter between PNB-IFL, the petitioner's principal and the party to the loan contracts, and the respondents. Yet, despite the recognition that petitioner is a mere agent, the respondents in their complaint prayed that the petitioner PNB be ordered to re-compute the rescheduling of the interest to be paid by them in accordance with the terms and conditions in the documents evidencing the credit facilities, and crediting the amount previously paid to PNB by herein respondents.9

Clearly, petitioner not being a part to the contract has no power to re-compute the interest rates set forth in the contract. Respondents, therefore, do not have any cause of action against petitioner.

The trial court, however, in its Order dated October 4, 1994, ruled that since PNB-IFL, is a wholly owned subsidiary of defendant Philippine National Bank, the suit against the defendant PNB is a suit against PNB-IFL.10 In justifying its ruling, the trial court, citing the case of Koppel Phil. Inc. vs. Yatco,11 reasoned that the corporate entity may be disregarded where a corporation is the mere alter ego, or business conduit of a person or where the corporation is so organized and

controlled and its affairs are so conducted, as to make it merely an instrumentality, agency, conduit or adjunct of another corporation.12

We disagree.

The general rule is that as a legal entity, a corporation has a personality distinct and separate from its individual stockholders or members, and is not affected by the personal rights, obligations and transactions of the latter.13The mere fact that a corporation owns all of the stocks of another corporation, taken alone is not sufficient to justify their being treated as one entity. If used to perform legitimate functions, a subsidiary's separate existence may be respected, and the liability of the parent corporation as well as the subsidiary will be confined to those arising in their respective business. The courts may in the exercise of judicial discretion step in to prevent the abuses of separate entity privilege and pierce the veil of corporate entity.

We find, however, that the ruling in Koppel finds no application in the case at bar. In said case, this Court disregarded the separate existence of the parent and the subsidiary on the ground that the latter was formed merely for the purpose of evading the payment of higher taxes. In the case at bar, respondents fail to show any cogent reason why the separate entities of the PNB and PNB-IFL should be disregarded.

While there exists no definite test of general application in determining when a subsidiary may be treated as a mere instrumentality of the parent corporation, some factors have been identified that will justify the application of the treatment of the doctrine of the piercing of the corporate veil. The case of Garrett vs. Southern Railway Co.14is enlightening. The case involved a suit against the Southern Railway Company. Plaintiff was employed by Lenoir Car Works and alleged that he sustained injuries while working for Lenoir. He, however, filed a suit against Southern Railway Company on the ground that Southern had acquired the entire capital stock of Lenoir Car Works, hence, the latter corporation was but a mere instrumentality of the former. The Tennessee Supreme Court stated that as a general rule the stock ownership alone by one corporation of the stock of another

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does not thereby render the dominant corporation liable for the torts of the subsidiary unless the separate corporate existence of the subsidiary is a mere sham, or unless the control of the subsidiary is such that it is but an instrumentality or adjunct of the dominant corporation. Said Court then outlined the circumstances which may be useful in the determination of whether the subsidiary is but a mere instrumentality of the parent-corporation:

The Circumstance rendering the subsidiary an instrumentality. It is manifestly impossible to catalogue the infinite variations of fact that can arise but there are certain common circumstances which are important and which, if present in the proper combination, are controlling.

These are as follows:

(a) The parent corporation owns all or most of the capital stock of the subsidiary.

(b) The parent and subsidiary corporations have common directors or officers.

(c) The parent corporation finances the subsidiary.

(d) The parent corporation subscribes to all the capital stock of the subsidiary or otherwise causes its incorporation.

(e) The subsidiary has grossly inadequate capital.

(f) The parent corporation pays the salaries and other expenses or losses of the subsidiary.

(g) The subsidiary has substantially no business except with the parent corporation or no assets except those conveyed to or by the parent corporation.

(h) In the papers of the parent corporation or in the statements of its officers, the subsidiary is described as a department or division of the parent corporation, or its business or financial responsibility is referred to as the parent corporation's own.

(i) The parent corporation uses the property of the subsidiary as its own.

(j) The directors or executives of the subsidiary do not act independently in the interest of the subsidiary but take their orders from the parent corporation.

(k) The formal legal requirements of the subsidiary are not observed.

The Tennessee Supreme Court thus ruled:

In the case at bar only two of the eleven listed indicia occur, namely, the ownership of most of the capital stock of Lenoir by Southern, and possibly subscription to the capital stock of Lenoir. . . The complaint must be dismissed.

Similarly, in this jurisdiction, we have held that the doctrine of piercing the corporate veil is an equitable doctrine developed to address situations where the separate corporate personality of a corporation is abused or used for wrongful purposes. The doctrine applies when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud or defend crime, or when it is made as a shield to confuse the legitimate issues, or where a corporation is the mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation.15

In Concept Builders, Inc. v. NLRC,16 we have laid the test in determining the applicability of the doctrine of piercing the veil of corporate fiction, to wit:

1. Control, not mere majority or complete control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own.

2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest and, unjust act in contravention of plaintiffs legal rights; and,

3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.

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The absence of any one of these elements prevents "piercing the corporate veil." In applying the "instrumentality" or "alter ego" doctrine, the courts are concerned with reality and not form, with how the corporation operated and the individual defendant's relationship to the operation.17

Aside from the fact that PNB-IFL is a wholly owned subsidiary of petitioner PNB, there is no showing of the indicative factors that the former corporation is a mere instrumentality of the latter are present. Neither is there a demonstration that any of the evils sought to be prevented by the doctrine of piercing the corporate veil exists. Inescapably, therefore, the doctrine of piercing the corporate veil based on the alter ego or instrumentality doctrine finds no application in the case at bar.

In any case, the parent-subsidiary relationship between PNB and PNB-IFL is not the significant legal relationship involved in this case since the petitioner was not sued because it is the parent company of PNB-IFL. Rather, the petitioner was sued because it acted as an attorney-in-fact of PNB-IFL in initiating the foreclosure proceedings. A suit against an agent cannot without compelling reasons be considered a suit against the principal. Under the Rules of Court, every action must be prosecuted or defended in the name of the real party-in-interest, unless otherwise authorized by law or these Rules.18 In mandatory terms, the Rules require that "parties-in-interest without whom no final determination can be had, an action shall be joined either as plaintiffs or defendants."19 In the case at bar, the injunction suit is directed only against the agent, not the principal.

Anent the issuance of the preliminary injunction, the same must be lifted as it is a mere provisional remedy but adjunct to the main suit.20 A writ of preliminary injunction is an ancillary or preventive remedy that may only be resorted to by a litigant to protect or preserve his rights or interests and for no other purpose during the pendency of the principal action. The dismissal of the principal action thus results in the denial of the prayer for the issuance of the writ. Further, there is no showing that respondents are entitled to the issuance of the writ. Section 3, Rule 58, of the 1997 Rules of Civil Procedure provides:

SECTION 3. Grounds for issuance of preliminary injunction. — A preliminary injunction may be granted when it is established:

(a) That the applicant is entitled to the relief demanded, and the whole or part of such relief consists in restraining the commission or continuance of the act or acts complained of, or in requiring the performance of an act or acts, either for a limited period or perpetually,

(b) That the commission, continuance or non-performance of the acts or acts complained of during the litigation would probably work injustice to the applicant; or

(c) That a party, court, agency or a person is doing, threatening, or is attempting to do, or is procuring or suffering to be done, some act or acts probably in violation of the rights of the applicant respecting the subject of the action or proceeding, and tending to render the judgment ineffectual.

Thus, an injunctive remedy may only be resorted to when there is a pressing necessity to avoid injurious consequences which cannot be remedied under any standard compensation.21 Respondents do not deny their indebtedness. Their properties are by their own choice encumbered by real estate mortgages. Upon the non-payment of the loans, which were secured by the mortgages sought to be foreclosed, the mortgaged properties are properly subject to a foreclosure sale. Moreover, respondents questioned the alleged void stipulations in the contract only when petitioner initiated the foreclosure proceedings. Clearly, respondents have failed to prove that they have a right protected and that the acts against which the writ is to be directed are violative of said right.22The Court is not unmindful of the findings of both the trial court and the appellate court that there may be serious grounds to nullify the provisions of the loan agreement. However, as earlier discussed, respondents committed the mistake of filing the case against the wrong party, thus, they must suffer the consequences of their error.

All told, respondents do not have a cause of action against the petitioner as the latter is not privy to the contract the provisions of which respondents seek to declare void. Accordingly, the case before the Regional Trial Court must be

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dismissed and the preliminary injunction issued in connection therewith, must be lifted.

IN VIEW OF THE FOREGOING, the petition is hereby GRANTED. The assailed decision of the Court of Appeals is hereby REVERSED. The Orders dated June 30, 1999 and October 4, 1999 of the Regional Trial Court of Makati, Branch 147 in Civil Case No. 99-1037 are hereby ANNULLED and SET ASIDE and the complaint in said case DISMISSED.

SO ORDERED.

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Republic of the PhilippinesSUPREME COURTManila

EN BANC

G.R. No. L-2484 April 11, 1906

JOHN FORTIS, plaintiff-appellee, vs.GUTIERREZ HERMANOS, defendants-appellants.

Hartigan, Rohde and Gutierrez, for appellants.W. A. Kincaid, for appellee.

WILLARD, J.:

Plaintiff, an employee of defendants during the years 1900, 1901, and 1902, brought this action to recover a balance due him as salary for the year 1902. He alleged that he was entitled, as salary, to 5 per cent of the net profits of the business of the defendants for said year. The complaint also contained a cause of action for the sum of 600 pesos, money expended by plaintiff for the defendants during the year 1903. The court below, in its judgment, found that the contract had been made as claimed by the plaintiff; that 5 per cent of the net profits of the business for the year 1902 amounted to 26,378.68 pesos, Mexican currency; that the plaintiff had received on account of such salary 12,811.75 pesos, Mexican currency, and ordered judgment against the defendants for the sum 13,566.93 pesos, Mexican currency, with interest thereon from December 31, 1904. The court also ordered judgment against the defendants for the 600 pesos mentioned in the complaint, and intereat thereon. The total judgment rendered against the defendants in favor of the plaintiff, reduced to Philippine currency, amounted to P13,025.40. The defendants moved for a new trial, which was denied, and they have brought the case here by bill of exceptions.

(1) The evidence is sufifcient to support the finding of the court below to the effect that the plaintiff worked for the defendants during the year 1902 under a contract by which he was to receive as compensation 5 per cent of the net profits of the business. The contract was made on the part of the defendants by Miguel Alonzo Gutierrez. By the provisions of the articles of partnership he was made one of the managers of the company, with full power to transact all of the business thereof. As such manager he had authority to make a contract of employment with the plaintiff.

(2) Before answering in the court below, the defendants presented a motion that the complaint be made more definite and certain. This motion was denied. To the order denying it the defendants excepted, and they have assigned as error such ruling of the court below. There is nothing in the record to show that the defendants were in any way prejudiced by this ruling of the court below. If it were error it was error without prejudice, and not ground for reversal. (Sec. 503, Code of Civil Procedure.)

(3) It is claimed by the appellants that the contract alleged in the complaint made the plaintiff a copartner of the defendants in the business which they were carrying on. This contention can not bo sustained. It was a mere contract of employnent. The plaintiff had no voice nor vote in the management of the affairs of the company. The fact that the compensation received by him was to be determined with reference to the profits made by the defendants in their business did not in any sense make by a partner therein. The articles of partnership between the defendants provided that the profits should be divided among the partners named in a certain proportion. The contract made between the plaintiff and the then manager of the defendant partnership did not in any way vary or modify this provision of the articles of partnership. The profits of the business could not be determined until all of the expenses had been paid. A part of the expenses to be paid for the year 1902 was the salary of the plaintiff. That salary had to be deducted before the net profits of the business, which were to be divided among the partners, could be ascertained. It was undoubtedly necessary in order to determine what the salary of the plaintiff was, to determine what the profits of the

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business were, after paying all of the expenses except his, but that determination was not the final determination of the net profits of the business. It was made for the purpose of fixing the basis upon which his compensation should be determined.

(4) It was no necessary that the contract between the plaintiff and the defendants should be made in writing. (Thunga Chui vs. Que Bentec,1 1 Off. Gaz., 818, October 8, 1903.)

(5) It appearred that Miguel Alonzo Gutierrez, with whom the plaintiff had made the contract, had died prior to the trial of the action, and the defendants claim that by reasons of the provisions of section 383, paragraph 7, of the Code of Civil Procedure, plaintiff could not be a witness at the trial. That paragraph provides that parties to an action against an executor or aministrator upon a claim or demand against the estate of a deceased person can not testify as to any matter of fact occurring before the death of such deceased person. This action was not brought against the administrator of Miguel Alonzo, nor was it brought upon a claim against his estate. It was brought against a partnership which was in existence at the time of the trial of the action, and which was juridical person. The fact that Miguel Alonzo had been a partner in this company, and that his interest therein might be affected by the result of this suit, is not sufficient to bring the case within the provisions of the section above cited.

(6) The plaintiff was allowed to testify against the objection and exception of the defendants, that he had been paid as salary for the year 1900 a part of the profits of the business. This evidence was competent for the purpose of corroborating the testimony of the plaintiff as to the existence of the contract set out in the complaint.

(7) The plaintiff was allowed to testify as to the contents of a certain letter written by Miguel Glutierrez, one of the partners in the defendant company, to Miguel Alonzo Gutierrez, another partner, which letter was read to plaintiff by Miguel Alonzo. It is not necessary to inquire whether the court committed an error in admitting this evidence. The case already made by the plaintiff was in itself sufficient to prove the contract without reference to this letter. The error, if any

there were, was not prejudicial, and is not ground for revesal. (Sec. 503, Code of Civil Procedure.)

(8) For the purpose of proving what the profits of the defendants were for the year 1902, the plaintiff presented in evidence the ledger of defendants, which contained an entry made on the 31st of December, 1902, as follows:

Perdidas y Ganancias ...................................... a Varios Ps. 527,573.66 Utilidades liquidas obtenidas durante el ano y que abonamos conforme a la proporcion que hemos establecido segun el convenio de sociedad.

The defendant presented as a witness on, the subject of profits Miguel Gutierrez, one of the defendants, who testiffied, among other things, that there were no profits during the year 1902, but, on the contrary, that the company suffered considerable loss during that year. We do not think the evidence of this witnees sufficiently definite and certain to overcome the positive evidence furnished by the books of the defendants themselves.

(9) In reference to the cause of action relating to the 600 pesos, it appears that the plaintiff left the employ of the defendants on the 19th of Macrh, 1903; that at their request he went to Hongkong, and was there for about two months looking after the business of the defendants in the matter of the repair of a certain steamship. The appellants in their brief say that the plaintiff is entitled to no compensation for his services thus rendered, because by the provisions of article 1711 of the Civil Code, in the absence of an agreement to the contrary, the contract of agency is supposed to be gratuitous. That article i not applicable to this case, because the amount of 600 pesos not claimed as compensation for services but as a reimbursment for money expended by the plaintiff in the business of the defendants. The article of the code that is applicable is article 1728.

The judgment of the court below is affirmed, with the costs, of this instance against the appellants. After the expiration of twenty days from the date of this decision let final judgment be entered herein, and ten days thereafter let the case be remanded to the lower court for execution. So ordered.

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Arellano, C.J., Torres, Mapa, Johnson and Carson, JJ., concur.

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