You are on page 1of 120

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No.

156335 November 28, 2007 SPOUSES RAUL and AMALIA PANLILIO, Petitioners, vs. CITIBANK, N.A., Respondent. DECISION AUSTRIA-MARTINEZ, J.: Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, seeking to reverse the Decision 1 of the Court of Appeals (CA) dated May 28, 2002 in CA-G.R. CV No. 66649 and its Resolution of December 11, 2002, which reversed and set aside the Decision of the Regional Trial Court (RTC) of Makati City. The case originated as a Complaint2 for a sum of money and damages, filed with the RTC of Makati City on March 2, 1999, by the spouses Raul and Amalia Panlilio (petitioners) against Citibank N.A. (respondent). The factual antecedents are as follows: On October 10, 1997, petitioner Amalia Panlilio (Amalia) visited respondent's Makati City office and deposited one million pesos (PhP1 million) in the bank's "Citihi" account, a fixed-term savings account with a higher-than-average interest.3 On the same day, Amalia also opened a current or checking account with respondent, to which interest earnings of the Citihi account were to be credited.4 Respondent assigned one of its employees, Jinky Suzara Lee (Lee), to personally transact with Amalia and to handle the accounts.5 Amalia opened the accounts as ITF or "in trust for" accounts, as they were intended to benefit her minor children, Alejandro King Aguilar and Fe Emanuelle C. Panlilio, in case she would meet an untimely death.6 To open these accounts, Amalia signed two documents: a Relationship Opening Form (ROF)7 and an Investor Profiling and Suitability Questionnaire (Questionnaire). 8 Amalia's initial intention was to invest the money in a Citibank product called the Peso Repriceable Promissory Note (PRPN), a product which had a higher interest. However, as the PRPN was not available that day, Amalia put her money in the Citihi savings account.9 More than a month later, or on November 28, 1997, Amalia phoned Citibank saying she wanted to place an investment, this time in the amount of three million pesos (PhP3 million). Again, she spoke with Lee, the bank employee, who introduced her to Citibank's various investment offerings. After the phone conversation, apparently decided on where to invest the money, Amalia went to Citibank bringing a PCIBank check in the amount of three million pesos (PhP3 million). During the visit, Amalia instructed Lee on what to do with the PhP3 million. Later, she learned that out of the said amount, PhP2,134,635.87 was placed by Citibank in a Long-Term Commercial Paper (LTCP), a debt instrument that paid a high interest, issued by the corporation Camella and Palmera Homes (C&P Homes). 10 The rest of the money was placed in two PRPN accounts, in trust for each of Amalia's two children.11 Allegations differ between petitioners and respondent as to whether Amalia instructed Lee to place the money in the LTCP of C&P Homes.12 An LTCP is an evidence of indebtedness, with a maturity period of more than 365 days, issued by a corporation to any person or entity.13 It is in effect a loan obtained by a corporation (as borrower) from the investing public (as lender)14 and is one of many instruments that investment banks can legally buy on behalf of their clients, upon the latter's express instructions, for

investment purposes.15 LTCPs' attraction is that they usually have higher yields than most investment instruments. In the case of the LTCP issued by C&P Homes, the gross interest rate was 16.25% per annum at the time Amalia made her investment.16 On November 28, 1997, the day she made the PhP3million investment, Amalia signed the following documents: a Directional Investment Management Agreement (DIMA),17 Term Investment Application (TIA),18 and Directional Letter/Specific Instructions.19 Key features of the DIMA and the Directional Letter are provisions that essentially clear Citibank of any obligation to guarantee the principal and interest of the investment, absent fraud or negligence on the latter's part. The provisions likewise state that all risks are to be assumed by the investor (petitioner). As to the amount invested, only PhP2,134,635.87 out of the PhP3 million brought by Amalia was placed in the LTCP since, according to Lee, this was the only amount of LTCP then available.20 According to Lee, the balance of the PhP3 million was placed in two PRPN accounts, each one in trust for Amalia's two children, per her instructions.21 Following this investment, respondent claims to have regularly sent confirmations of investment (COIs) to petitioners.22 A COI is a one-page, computer generated document informing the customer of the investment earlier made with the bank. The first of these COIs was received by petitioners on or about December 9, 1997, as admitted by Amalia, which is around a week after the investment was made.23 Respondent claims that other succeeding COIs were sent to and received by petitioners. Amalia claims to have called Lee as soon as she received the first COI in December 1997, and demanded that the investment in LTCP be withdrawn and placed in a PRPN. 24 Respondent, however, denies this, claiming that Amalia merely called to clarify provisions in the COI and did not demand a withdrawal.25 On August 6, 1998, petitioners met with respondent's other employee, Lizza Colet, to preterminate the LTCP and their other investments. Petitioners were told that as to the LTCP, liquidation could be made only if there is a willing buyer, a prospect which could be difficult at that time because of the economic crisis. Still, petitioners signed three sets of Sales Order Slip to sell the LTCP and left these with Colet.26 On August 18, 1998, Amalia, through counsel, sent her first formal, written demand to respondent "for a withdrawal of her investment as soon as possible."27 The same was followed by another letter dated September 7, 1998, which reiterated the same demands.28 In answer to the letters, respondent noted that the investment had a 2003 maturity, was not a deposit, and thus, its return to the investor was not guaranteed by respondent; however, it added that the LTCP may be sold prior to maturity and had in fact been put up for sale, but such sale was "subject to the availability of buyers in the secondary market."29 At that time, respondent was not able to find a buyer for the LTCP. As this response did not satisfy petitioners, Amalia again wrote respondent, this time a final demand letter dated September 21, 1998, asking for a reconsideration and a return of the money she invested.30 In reply, respondent wrote a letter dated October 12, 1998 stating that despite efforts to sell the LTCP, no willing buyers were found and that even if a buyer would come later, the price would be lower than Amalia's original investment.31 Thus, petitioners filed with the RTC their complaint against respondent for a sum of money and damages. The Complaint32 essentially demanded a return of the investment, alleging that Amalia never instructed respondent's employee Lee to invest the money in an LTCP; and that far from what Lee executed, Amalia's instructions were to invest the money in a "trust account" with an "interest of around 16.25% with a term of 91 days." Further, petitioners alleged that it was only later, or on

December 8, 1997, when Amalia received the first confirmation of investment (COI) from respondent, that she and her husband learned of Lee's infidelity to her orders. The COI allegedly informed petitioners that the money was placed in an LTCP of C&P Homes with a maturity in 2003, and that the investment was not guaranteed by respondent. Petitioners also claimed that as soon as Amalia received the COI, she immediately called Lee; however, the latter allegedly convinced her to ignore the COI, that C&P Homes was an Ayala company, that the investment was secure, and that it could be easily "withdrawn"; hence, Amalia decided not to immediately "withdraw" the investment. Several months later, or on August 6, 1998, petitioners allegedly wanted to "withdraw" the investment to buy a property; however, they failed to do so, since respondent told them the LTCP had not yet matured, and that no buyers were willing to buy it. Hence, they sent various demand letters to respondent, asking for a return of their money; and when these went unheeded, they filed the complaint. In its Answer,33 respondent admitted that, indeed, Amalia was its client and that she invested the amounts stated in the complaint. However, respondent disputed the claim that Amalia opened a "trust account" with a "request for an interest rate of around 16.25% with a term of 91 days;" instead, respondent presented documents stating that Amalia opened a "directional investment management account," with investments to be made in C&P Homes' LTCP with a 2003 maturity. Respondent disputed allegations that it violated petitioners' express instructions. Respondent likewise denied that Amalia, upon her receipt of the COI, immediately called respondent and protested the investment in LTCP, its 2003 maturity and Citibank's lack of guarantee. According to respondent, no such protest was made and petitioners actually decided to liquidate their investment only months later, after the newspapers reported that Ayala Land, Inc. was cancelling plans to invest in C&P Homes. The rest of respondent's Answer denied (1) that it convinced Amalia not to liquidate or "withdraw" her investment or to ignore the contents of the COI; (2) that it assured Amalia that the investment could be easily or quickly "withdrawn" or sold; (3) that it misrepresented that C&P was an Ayala company, implying that C&P had secure finances; and (4) that respondent had been unfaithful to and in breach of its contractual obligations. After trial, the RTC rendered its Decision, 34 dated February 16, 2000, the dispositive portion of which states: The foregoing considered, the court hereby rules in favor of plaintiffs and order defendant to pay: 1. The sum of PhP2,134,635.87 representing the actual amount deposited by plaintiffs with defendant plus interest corresponding to time deposit during the time material to this action from date of filing of this case until fully paid; 2. The sum of PhP300,000.00 representing moral damages; 3. The sum of PhP100,000.00 representing attorney's fees; 4. Costs. SO ORDERED.35 The RTC upheld all the allegations of petitioners and concluded that Amalia never instructed Citibank to invest the money in an LTCP. Thus, the RTC found Citibank in violation of its contractual and fiduciary duties and held it liable to return the money invested by petitioners plus damages. Respondent appealed to the CA. On appeal, in its Decision promulgated on May 28, 2002, the CA reversed the Decision of the RTC, thus: WHEREFORE, premises considered, the assailed decision dated 16 February 2000 is REVERSED and SET ASIDE and a new one entered DISMISSING Civil Case No. 99-500.36

The CA held that with respect to the amount of PhP2,134,635.87, the account opened by Amalia was an investment management account; as a result, the money invested was the sole and exclusive obligation of C&P Homes, the issuer of the LTCP, and was not guaranteed or insured by herein respondent Citibank;37 that Amalia opened such an account as evidenced by the documents she executed with Citibank, namely, the Directional Investment Management Agreement (DIMA), Term Investment Application (TIA), and Directional Letter/Specific Instructions, which were all dated November 28, 1997, the day Amalia brought the money to Citibank. Further, the CA brushed aside petitioners' arguments that Amalia failed to understand the true nature of the LTCP investment, and that she failed to read the documents as they were written in fine print. The CA ruled that petitioners could not seek the court's aid to extricate them from their contractual obligations. Citing jurisprudence, the CA held that the courts protected only those who were innocent victims of fraud, and not those who simply made bad bargains or exercised unwise judgment. On petitioners' motion for reconsideration, the CA reiterated its ruling and denied the motion in a Resolution 38 dated December 11, 2002. Thus, the instant petition which raises issues, summarized as follows: (1) whether petitioners are bound by the terms and conditions of the Directional Investment Management Agreement (DIMA), Term Investment Application (TIA), Directional Letter/Specific Instructions, and Confirmations of Investment (COIs); (2) and whether petitioners are entitled to take back the money they invested from respondent bank; or stated differently, whether respondent is obliged to return the money to petitioners upon their demand prior to maturity. Petitioners contend that they are not bound by the terms and conditions of the DIMA, Directional Letter and COIs because these were inconsistent with the TIA and other documents they signed.39 Further, they claim that the DIMA and the Directional letter were signed in blank or contained unauthorized intercalations by Citibank.40 Petitioners argue that contrary to the contents of the documents, they did not instruct Citibank to invest in an LTCP or to put their money in such high-risk, long-term instruments.41 The Court notes the factual nature of the questions raised in the petition. Although the general rule is that only questions of law are entertained by the Court in petitions for review on certiorari,42 as the Court is not tasked to repeat the lower courts' analysis or weighing of evidence,43 there are instances when the Court may resolve factual issues, such as (1) when the trial court misconstrued facts and circumstances of substance which if considered would alter the outcome of the case;44 and (2) when the findings of facts of the CA and the trial court differ.45 In the instant case, the CA completely reversed the findings of facts of the trial court on the ground that the RTC failed to appreciate certain facts and circumstances. Thus, applying the standing jurisprudence on the matter,46 the Court proceeded to examine the evidence on record. The Court's Ruling The Court finds no merit in the petition. After a careful examination of the records, the Court affirms the CA's ruling for being more in accord with the facts and evidence on record. On the first issue of whether petitioners are bound by the terms and conditions of the DIMA, TIA, Directional Letter and COIs, the Court holds in the affirmative and finds for respondent. The DIMA, Directional Letter and COIs are evidence of the contract between the parties and are binding on them, following Article 1159 of the Civil Code which states that contracts have the force of law between the parties and must be complied with in good faith.47 In particular, petitioner Amalia affixed her signatures on the DIMA, Directional Letter and TIA, a clear evidence of her

consent which, under Article 1330 of the same Code, she cannot deny absent any evidence of mistake, violence, intimidation, undue influence or fraud.48 As the documents have the effect of law, an examination is in order to reveal what underlies petitioners' zeal to exclude these from consideration. Under the DIMA, the following provisions appear: 4. Nature of Agreement THIS AGREEMENT IS AN AGENCY AND NOT A TRUST AGREEMENT. AS SUCH, THE PRINCIPAL SHALL AT ALL TIMES RETAIN LEGAL TITLE TO THE FUNDS AND PROPERTIES SUBJECT OF THE ARRANGEMENT. THIS AGREEMENT IS FOR FINANCIAL RETURN AND FOR THE APPRECIATION OF ASSETS OF THE ACCOUNT. THIS AGREEMENT DOES NOT GUARANTEE A YIELD, RETURN OR INCOME BY THE INVESTMENT MANAGER. AS SUCH, PAST PERFORMANCE OF THE ACCOUNT IS NOT A GUARANTY OF FUTURE PERFORMANCE AND THE INCOME OF INVESTMENTS CAN FALL AS WELL AS RISE DEPENDING ON PREVAILING MARKET CONDITIONS. IT IS UNDERSTOOD THAT THIS INVESTMENT MANAGEMENT AGREEMENT IS NOT COVERED BY THE PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC) AND THAT LOSSES, IF ANY, SHALL BE FOR THE ACCOUNT OF THE PRINCIPAL. (Underscoring supplied.) xxxx 6. Exemption from Liability. - In the absence of fraud, bad faith, or gross or willful negligence on the part of the INVESTMENT MANAGER or any person acting in its behalf, the INVESTMENT MANAGER shall not be liable for any loss or damage to the Portfolio arising out of or in connection with any act done or omitted or caused to be done or omitted by the INVESTMENT MANAGER pursuant to the terms and conditions herein agreed upon, and pursuant to and in accordance with the written instructions of the PRINCIPAL to carry out the powers, duties and purposes for which this Agreement is executed. The PRINCIPAL will hold the INVESTMENT MANAGER free and harmless from any liability, claim, damage or fiduciary responsibility that may arise from any investment made pursuant to this Agreement and to such letters or instructions under Paragraph 3 hereof due to the default, bankruptcy or insolvency of the Borrower/Issuer or the Broker/Dealer handling the transaction and or their failure in any manner to comply with any of their obligations under the aforesaid transactions, it being the PRINCIPAL'S understanding and intention that the investments/reinvestments under this account shall be strictly for his/its account and risk except as indicated above. The INVESTMENT MANAGER shall manage the Portfolio with the skill, care, prudence, and diligence necessary under the prevailing circumstances that a good father of the family, acting in a like capacity and familiar with such matters, would exercise in the conduct of an enterprise of like character and with similar aims. (Underscoring supplied.) xxxx 11. Withdrawal of Income/Principal Subject to availability of funds and taking into consideration the commitment of this account to third parties, the PRINCIPAL may withdraw the income/principal of the Portfolio or portion thereof upon request or application thereof from the Bank. The INVESTMENT MANAGER shall not be required to inquire as to the income/principal so withdrawn from the Portfolio. Any income of the Portfolio not withdrawn shall be accumulated and added to the principal of the Portfolio for further investment and reinvestment.49 (Underscoring supplied.)

Under the Directional Letter, which constituted petitioners' instructions to respondent, the following provisions are found: In the absence of fraud, bad faith or gross or willful negligence on your part or any person acting in your behalf, you shall not be held liable for any loss or damage arising out of or in connection with any act done or performed or caused to be done or performed by you pursuant to the terms and conditions of our Agreement. I/We shall hold you free and harmless from any liability, claim, damage, or fiduciary responsibility that may arise from this investment made pursuant to the foregoing due to the default, bankruptcy or insolvency of the Borrower/Issuer, or the Broker/Dealer handling the aforesaid transactions/s, it being our intention and understanding that the investment/reinvestment under these transaction/s shall be strictly for my/our account and risk. In case of default of the Borrower/Issuers, we hereby authorize you at your sole option, to terminate the investment/s therein and deliver to us the securities/loan documents then constituting the assets of my/our DIMA/trust account with you for me/us to undertake the necessary legal action to collect and/or recover from the borrower/issuers.50 (Underscoring supplied.) The documents, characterized by the quoted provisions, generally extricate respondent from liability in case the investment is lost. Accordingly, petitioners assumed all risks and the task of collecting from the borrower/issuer C&P Homes. In addition to the DIMA and Directional Letter, respondent also sent petitioners the COIs on a regular basis, the first of which was received by petitioners on December 9, 1997. The COIs have the following provisions in common: xxxx NATURE OF INVESTMENT IN LTCP TRANSACTION NAME OF C&P HOMES BORROWER/ISSUER xxxx TENOR 91 DAYS xxxx MATURITY DATE 11/05/03 xxxx REPRICEABLE EVERY OTHERS 91 DAYS PURSUANT TO THE BANGKO SENTRAL REGULATIONS, THE PRINCIPAL AND INTEREST OF YOUR INVESTMENT ARE OBLIGATIONS OF THE BORROWER AND NOT OF THE BANK. YOUR INVESTMENT IS NOT A DEPOSIT AND IS NOT GUARANTEED BY CITIBANK N.A. xxxx Please examine this Confirmation and notify us in writing within seven (7) days from receipt hereof of any deviation from your prior conformity to the investment. If no notice is received by us within this period, this Confirmation shall be deemed correct and approved by you, and we shall be released and discharged as to all items, particulars, matters and things set forth in this Confirmation.51 Petitioners admit receiving only the first COI on December 8, 1997.52 The evidence on record, however, supports respondent's contentions that petitioners received the three other COIs on February 12, 1998,53 May 14, 1998,54 and August 14, 1998,55 before petitioners' first demand letter dated August 18, 1998.56 The DIMA, Directional Letter, TIA and COIs, read together, establish the agreement between the parties as an investment management agreement, which created a principal-agent relationship between petitioners as principals and respondent as agent for investment purposes. The agreement is not a trust or an

ordinary bank deposit; hence, no trustor-trustee-beneficiary or even borrower-lender relationship existed between petitioners and respondent with respect to the DIMA account. Respondent purchased the LTCPs only as agent of petitioners; thus, the latter assumed all obligations or inherent risks entailed by the transaction under Article 1910 of the Civil Code, which provides: Article 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. The transaction is perfectly legal, as investment management activities may be exercised by a banking institution, pursuant to Republic Act No. 337 or the General Banking Act of 1948, as amended, which was the law then in effect.1avvphi1 Section 72 of said Act provides: Sec. 72. In addition to the operations specifically authorized elsewhere in this Act, banking institutions other than building and loan associations may perform the following services: (a) Receive in custody funds, documents, and valuable objects, and rent safety deposit boxes for the safeguarding of such effects; (b) Act as financial agent and buy and sell, by order of and for the account of their customers, shares, evidences of indebtedness and all types of securities; (c) Make collections and payments for the account of others and perform such other services for their customers as are not incompatible with banking business. (d) Upon prior approval of the Monetary Board, act as managing agent, adviser, consultant or administrator of investment management/ advisory/consultancy accounts. The banks shall perform the services permitted under subsections (a), (b) and (c) of this section as depositories or as agents. Accordingly, they shall keep the funds, securities and other effects which they thus receive duly separated and apart from the bank's own assets and liabilities. The Monetary Board may regulate the operations authorized by this section in order to insure that said operations do not endanger the interests of the depositors and other creditors of the banks. (Emphasis supplied.) while Section 74 prohibits banks from guaranteeing obligations of any person, thus: Sec. 74. No bank or banking institution shall enter, directly, or indirectly into any contract of guaranty or suretyship, or shall guarantee the interest or principal of any obligation of any person, copartnership, association, corporation or other entity. The provisions of this section shall, however, not apply to the following: (a) borrowing of money by banking institution through the rediscounting of receivables; (b) acceptance of drafts or bills of exchange (c) certification of checks; (d) transactions involving the release of documents attached to items received for collection; (e) letters of credit transaction, including stand-by arrangements; (f) repurchase agreements; (g) shipside bonds; (h) ordinary guarantees or indorsements in favor of foreign creditors where the principal obligation involves loans and credits extended directly by foreign investment purposes; and (i) other transactions which the Monetary Board may, by regulation, define or specify as not covered by the prohibition. (Emphasis supplied.) Nothing also taints the legality of the LTCP bought in behalf of petitioners. C&P Homes' LTCP was duly registered with the Securities and Exchange Commission while the issuer was accredited by the Philippine Trust Committee. 57 The evidence also sustains respondent's claim that its trust department handled the account only because it was the

department tasked to oversee the trust, and other fiduciary and investment management services of the bank. 58 Contrary to petitioners' claim, this did not mean that petitioners opened a "trust account." This is consistent with Bangko Sentral ng Pilipinas (BSP) regulations, specifically the Manual of Regulations for Banks (MORB), which groups a bank's trust, and other fiduciary and investment management activities under the same set of regulations, to wit: PART FOUR: TRUST, OTHER FIDUCIARY BUSINESS AND INVESTMENT MANAGEMENT ACTIVITIES xxxx Sec. X402 Scope of Regulations. These regulations shall govern the grant of authority to and the management, administration and conduct of trust, other fiduciary business and investment management activities (as these terms are defined in Sec. X403) of banks. The regulations are divided into three (3) Sub-Parts where: A. Trust and Other Fiduciary Business shall apply to banks authorized to engage in trust and other fiduciary business including investment management activities; B. Investment Management Activities shall apply to banks without trust authority but with authority to engage in investment management activities; and C. General Provisions shall apply to both. xxxx Sec. X403 Definitions. For purposes of regulating the operations of trust and other fiduciary business and investment management activities, unless the context clearly connotes otherwise, the following shall have the meaning indicated. a. Trust business shall refer to any activity resulting from a trustor-trustee relationship (trusteeship) involving the appointment of a trustee by a trustor for the administration, holding, management of funds and/or properties of the trustor by the trustee for the use, benefit or advantage of the trustor or of others called beneficiaries. b. Other fiduciary business shall refer to any activity of a trust-licensed bank resulting from a contract or agreement whereby the bank binds itself to render services or to act in a representative capacity such as in an agency, guardianship, administratorship of wills, properties and estates, executorship, receivership, and other similar services which do not create or result in a trusteeship. It shall exclude collecting or paying agency arrangements and similar fiduciary services which are inherent in the use of the facilities of the other operating departments of said bank. Investment management activities, which are considered as among other fiduciary business, shall be separately defined in the succeeding item to highlight its being a major source of fiduciary business. c. Investment management activity shall refer to any activity resulting from a contract or agreement primarily for financial return whereby the bank (the investment manager) binds itself to handle or manage investible funds or any investment portfolio in a representative capacity as financial or managing agent, adviser, consultant or administrator of financial or investment management, advisory, consultancy or any similar arrangement which does not create or result in a trusteeship. (Emphasis supplied.) The Court finds no proof to sustain petitioners' contention that the DIMA and Directional Letter contradict other papers on record, or were signed in blank, or had unauthorized intercalations.59 Petitioners themselves admit that Amalia signed the DIMA and the

Directional Letter, which bars them from disowning the contract on the belated claim that she signed it in blank or did not read it first because of the "fine print."60 On the contrary, the evidence does not support these latter allegations, and it is highly improbable that someone fairly educated and with investment experience would sign a document in blank or without reading it first.61 Petitioners owned various businesses and were clients of other banks, which omits the possibility of such carelessness. 62 Even more damning for petitioners is that, on record, Amalia admitted that it was not her habit to sign in blank and that the contents of the documents were explained to her before she signed.63 Testimonial evidence and the complaint itself contained allegations that petitioners' reason for transferring their money from local banks to respondent is because it is safer to do so, 64 a clear indicia of their intelligence and keen business sense which they could not have easily surrendered upon meeting with respondent. Nothing irregular or illegal attends the execution or construction of the DIMA and the Directional Letter, as their provisions merely conform with BSP regulations governing these types of transactions. Specifically, the MORB mandates that investment managers act as agents, not as trustees, of the investor;65 that the investment manager is prohibited from guaranteeing returns on the funds or properties;66 that a written document should state that the account is not covered by the PDIC; and that losses are to be borne by clients.67 That these legal requirements were communicated to petitioners is evident in Amalia's signatures on the documents and in testimony to this effect.68 As to the allegation that the documents were in "fine print," the Court notes that although the print may have looked smaller than average, they were nevertheless of the same size throughout the documents, so that no part or provision is hidden from the reader. The Court also takes judicial notice that the print is no smaller than those found in similar contracts in common usage, such as insurance, mortgage, sales contracts and even ordinary bank deposit contracts. In the documents in question, the provisions hurtful to petitioners' cause were likewise in no smaller print than the rest of the document, as indeed they were even highlighted either in bold or in all caps. This disposes of the argument that they were designed to hide their damaging nature to the signatory. 69 The conclusion is that the print is readable and should not have prevented petitioners from studying the papers before their signing. Considering petitioners' social stature, the nature of the transaction and the amount of money involved, the Court presumes that petitioners exercised adequate care and diligence in studying the contract prior to its execution.70 In Sweet Lines, Inc. v. Teves, 71 the Court pronounced the general rule regarding contracts of adhesion, thus: x x x there are certain contracts almost all the provisions of which have been drafted only by one party, usually a corporation. Such contracts are called contracts of adhesion, because the only participation of the other party is the signing of his signature or his adhesion thereto. Insurance contracts, bills of lading, contracts of sale of lots on the installment plan fall into this category. x x x it is drafted only by one party, usually the corporation, and is sought to be accepted or adhered to by the other party x x x who cannot change the same and who are thus made to adhere hereto on the take it or leave it basis. x x x it is hardly just and proper to expect the passengers to examine their tickets received from crowded/congested counters, more often than not during rush hours, for conditions that may be printed thereon, much less charge them with having consented to the conditions, so printed, especially if there are a number of such conditions in fine print, as in this case.

However, Sweet Lines72 further expounded that the validity and/or enforceability of contracts of adhesion will have to be determined by the peculiar circumstances obtaining in each case and the nature of the conditions or terms sought to be enforced. 73 Thus, while any ambiguity, obscurity or doubt in a contract of adhesion is construed or resolved strictly against the party who prepared it, 74 it is also equally obvious that in a case where no such ambiguity, obscurity or doubt exists, no such construction is warranted. This was the case in the DIMA and the Directional Letter signed by Amalia in the instant controversy. The parties to this case only disagree on whether petitioners were properly informed of the contents of the documents. But as earlier stated, petitioners were free to read and study the contents of the papers before signing them, without compulsion to sign immediately or even days after, as indeed the parties were even free not to sign the documents at all. Unlike in Sweet Lines, where the plaintiffs had no choice but to take the services of monopolistic transport companies during rush hours, in the instant case, petitioners were under no such pressure; petitioners were free to invest anytime and through any of the dozens of local and foreign banks in the market. In addition, it has been held that contracts of adhesion are not necessarily voidable. The Court has consistently held that contracts of adhesion, wherein one party imposes a ready-made form of contract on the other, are contracts not entirely prohibited, since the one who adheres to the contract is in reality free to reject it entirely; if he adheres, he gives his consent. 75 It is the rule that these contracts are upheld unless they are in the nature of a patently lopsided deal where blind adherence is not justified by other factual circumstances.76 Petitioners insist that other documents Amalia signed -- that is, the ROF,77 Questionnaire78 and TIA79 -- contradict the DIMA and Directional Letter. Specifically, they argue that under the ROF and the Questionnaire, they manifested an intent to invest only in a time deposit in the medium term of over a year to three years, with no risk on the capital, or with returns in line with a time deposit. 80 However, this contention is belied by the evidence and testimony on record. Respondent explains that investors fill up the ROF and Questionnaire only when they first visit the bank and only for the account they first opened,81 as confirmed by the evidence on record and the fact that there were no subsequent ROFs and Questionnaires presented by petitioners. The ROF and Questionnaire were filled up when the PhP1 million "Citihi" savings account was opened by Amalia on October 10, 1997, during her first visit to the bank. When Amalia returned more than a month later on November 28, 1997, a change in her investment attitude occurred in that she wanted to invest an even bigger amount (PhP3 million) and her interest had shifted to highyield but riskier long-term instruments like PRPNs and LTCPs. When Amalia proceeded to sign new documents like the DIMA and the Directional Letter for the LTCP investment, despite their obviously different contents from those she was used to signing for ordinary deposits, she essentially confirmed that she knew what she was agreeing to and that it was different from all her previous transactions. In addition, even the ROF and Questionnaire signed by Amalia during the first visit contained provisions that clearly contradict petitioners' claims. The ROF contained the following: I/We declare the above information to be correct. I/We hereby acknowledge to have received, read, understood and agree to be bound by the general terms and conditions applicable and governing my/our account/s and/or investment/s which appear in a separate brochure/manual as well as separate documents relative to said account/s and/or investment/s. Said terms and conditions shall likewise apply to all our existing and future

account/s and/or investment/s with Citibank. I/We hereby further authorize Citibank to open additional account/s and/or investment/s in the future with the same account title as contained in this relationship opening form subject to the rules governing the aforementioned account/s and/or investment/s and the terms and conditions therein or herein. I/We agree to notify you in writing of any change in the information supplied in this relationship opening form.82 (Emphasis supplied.) while the Questionnaire had the following provisions: I am aware that investment products are not bank deposits or other obligations of, or guaranteed or insured by Citibank N.A., Citicorp or their affiliates. I am aware that the principal and interest of my investments are obligations of the borrower/issuer. They are subject to risk and possible loss of principal. Past performance is not indicative of future performance. In addition, investments are not covered by the Philippine Deposit Insurance Corporation (PDIC) or the Federal Deposit Insurance Corporation (FDIC).83 which do not need further elaboration on the matter. Petitioners contend that the Term Investment Application (TIA), viz: TERM INVESTMENT APPLICATION Date MAKATI Branch and Service Area 1/28/97

IN THE AMOUNT AND TERMS SPECIFIED AS FOLLOWS: PRINCIPAL/Money P/$ In 3,000,000 Value 11/28/97 Date 91 days

MATURITY AMOUNT/Par Value Maturity P/$____________ _______ INTEREST RATE around Term 84 16.25%

CIF Keys TITLE OF ACCOUNT _____________ _______________________________ ____ _________ _____________ PANLILIO, AMALIA ITF ____ _____________ ALEJANDRO KING ____ AGUILAR & FE _____________ EMMANUELLE PANLILIO ____ Address ______________________________________________ ________ For corporations, c/o _______________________ Tel. No. ____________ Dear Sir: THIS IS TO AUTHORIZE ( ) rollover CITIBANK, N. A. TO: ( ) open ( ) rollover w/ added funds ( ) rollover w/ payout Ref. No. ____ [ ] Peso Depositories [ ] NNPN Time [ ] Dollar TD [ ] Confirmation [ ] of Sale Multicurrency [ ] CITIHI-Yielder TD TRUST

NEW ADDED FUNDS WILL COME FROM: ( ) debit my/our account no. ________________ ( ) Check No. ____________________________ ( ) Cash deposit __________________________

for P/$ _______________ for P/$ _______________ for P/$ _______________

(Emphasis supplied.) clearly contradicts the DIMA, Directional Letter and COIs. Petitioners insist that the amount PhP3 million in the TIA does not tally with the actual value of the investment which appeared on the first COI, which was PhP2,134,635.87. Petitioners add that the TIA's interest rate of "around 16.25%" with the term "91 days" contradicts the COI's interest rate of 16.95% with a tenor of 75 days repriceable after 91 days. 85 Further, petitioners claim that the word "TRUST" inscribed on the TIA obviously meant that they opened a trust account, and not any other account. 86 The explanation of respondent is plausible. Only PhP2,134,635.87 out of the PhP3 million was placed in the LTCP since this was the only amount of LTCP then available, while the balance was placed in two PRPN accounts, each one in trust for Amalia's two children, upon her instructions.87 The disparity in the interest rate is also explained by the fact that the 16.95% rate placed in the COI is gross and not net interest,88 and that it is subject to repricing every 91 days. The Court gives credence to respondent's explanation that the word "TRUST" appearing on the TIA simply means that the account is to be handled by the bank's trust department, which handles not only the trust business but also the other fiduciary business and investment management activities of the bank, while the "ITF" or "in trust for" appearing on the other documents only signifies that the money was invested by Amalia in trust for her two children, a device that she uses even in her ordinary deposit accounts with other banks.89 The ITF device allows the children to obtain the money without need of paying estate taxes in case Amalia meets a premature death.90 However, it creates a trustee-beneficiary relationship only between Amalia and her children, and not between Amalia, her children, and Citibank. All the documents signed by Amalia, including the DIMA and Directional Letter, show that her agreement with respondent is one of agency, and not a trust. The DIMA, TIA, Directional Letter and COIs, viewed altogether, establish without doubt the transaction between the parties, that on November 28, 1997, with PhP3 million in tow, Amalia opened an investment management account with respondent, under which she instructed the latter as her agent to invest the bulk of the money in LTCP. Aside from their bare allegations, evidence that supports petitioners' contentions that no such deal took place, or that the agreement was different, simply does not exist in the records. Petitioners were experienced and intelligent enough to be able to demand and sign a different document to signify their real intention; but no such document exists. Thus, petitioners' acts and omissions negate their allegations that they were essentially defrauded by the bank. Petitioners had other chances to protest respondent's alleged disregard of their instructions. The COIs sent by respondent to petitioners encapsulate the spirit of the DIMA and Directional Letter, with the proviso that should there be any deviations from petitioners' instructions, they may inform respondent in writing within seven days. Assuming arguendo that respondent violated

the instructions, petitioners did not file a single timely written protest, however, despite their admission that they received the first COI on December 8, 1997.91 It took eight months for petitioners to formally demand the return of their investment through their counsel in a letter dated August 18, 1998.92 The letter, however, did not even contest the placement of the money in an LTCP, but merely its maturity in the year 2003. Prior to the letter, it has been shown that petitioners had received COIs on February 12, 1998,93 May 14, 1998,94 and August 14, 1998,95 and in between, petitioners never demanded a return of the money they invested. Petitioners' acts and omissions strongly indicate that they in fact conformed to the agreement in the months after the signing. In that period, they were receiving their bank statements and earning interest from the investment, as in fact, C&P Homes under the LTCP continuously paid interest even up to the time the instant case was already on trial.96 When petitioners finally contested the contract months after its signing, it was suspiciously during the time when newspaper reports came out that C&P Homes' stock had plunged in value and that Ayala Land was withdrawing its offer to invest in the company.97 The connection is too obvious to ignore. It is reasonable to conclude that petitioners' repudiation of the agreement was nothing more than an afterthought, a reaction to the negative events in the market and an effort to flee from a losing investment. Anent the second issue, whether petitioners are entitled to recover from respondent the amount of PhP2,134,635.87 invested under the LTCP, the Court agrees with the CA in dismissing the complaint filed by petitioners. Petitioners may not seek a return of their investment directly from respondent at or prior to maturity. As earlier explained, the investment is not a deposit and is not guaranteed by respondent. Absent any fraud or bad faith, the recourse of petitioners in the LTCP is solely against the issuer, C&P Homes, and only upon maturity. The DIMA states, thus: 11. Withdrawal of Income/Principal Subject to availability of funds and taking into consideration the commitment of this account to third parties, the PRINCIPAL may withdraw the income/principal of the Portfolio or portion thereof upon request or application thereof from the Bank. The INVESTMENT MANAGER shall not be required to inquire as to the income/principal so withdrawn from the Portfolio. Any income of the Portfolio not withdrawn shall be accumulated and added to the principal of the Portfolio for further investment and reinvestment.98 (Emphasis supplied.) It is clear that since the money is committed to C&P Homes via LTCP for five years, or until 2003, petitioners may not seek its recovery from respondent prior to the lapse of this period. Petitioners must wait and meanwhile just be content with receiving their interest regularly. If petitioners want the immediate return of their investment before the maturity date, their only way is to find a willing buyer to purchase the LTCP at an agreed price, or to go directly against the issuer C&P Homes, not against the respondent. The nature of the DIMA and the other documents signed by the parties calls for this condition. The DIMA states that respondent is a mere agent of petitioners and that losses from both the principal and interest of the investment are strictly on petitioners' account. Meanwhile, the Directional Letter clearly states that the investment is to be made in an LTCP which, by definition, has a term of more than 365 days.99 Prior to the expiry of the term, which in the case of the C&P Homes LTCP is five years, petitioners may not claim back their investment, especially not from respondent bank. Having bound themselves under the contract as earlier discussed, petitioners are governed by its provisions. Petitioners as principals in an agency relationship are solely obliged to observe the

solemnity of the transaction entered into by the agent on their behalf, absent any proof that the latter acted beyond its authority.100 Concomitant to this obligation is that the principal also assumes the risks that may arise from the transaction.101 Indeed, as in the instant case, bank regulations prohibit banks from guaranteeing profits or the principal in an investment management account.102 Hence, the CA correctly dismissed petitioners complaint against respondent. WHEREFORE, the Petition is DENIED. For lack of evidence, the Decision of the Court of Appeals dated dated May 28, 2002 and its Resolution of December 11, 2002, are AFFIRMED. Costs against the petitioners. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. L-57339 December 29, 1983 AIR FRANCE, petitioner, vs. HONORABLE COURT OF APPEALS, JOSE G. GANA (Deceased), CLARA A. GANA, RAMON GANA, MANUEL GANA, MARIA TERESA GANA, ROBERTO GANA, JAIME JAVIER GANA, CLOTILDE VDA. DE AREVALO, and EMILY SAN JUAN, respondents. Benjamin S. Valte for petitioner. Napoleon Garcia for private respondents. MELENCIO-HERRERA, J.: In this petition for review on certiorari, petitioner AIR FRANCE assails the Decision of then respondent Court of Appeals 1 promulgated on 15 December 1980 in CA-G.R. No. 58164-R, entitled "Jose G. Gana, et al. vs. Sociedad Nacionale Air France", which reversed the Trial Court's judgment dismissing the Complaint of private respondents for damages arising from breach of contract of carriage, and awarding instead P90,000.00 as moral damages. Sometime in February, 1970, the late Jose G. Gana and his family, numbering nine (the GANAS), purchased from AIR FRANCE through Imperial Travels, Incorporated, a duly authorized travel agent, nine (9) "open-dated" air passage tickets for the Manila/Osaka/Tokyo/Manila route. The GANAS paid a total of US$2,528.85 for their economy and first class fares. Said tickets were bought at the then prevailing exchange rate of P3.90 per US$1.00. The GANAS also paid travel taxes of P100.00 for each passenger. On 24 April 1970, AIR FRANCE exchanged or substituted the aforementioned tickets with other tickets for the same route. At this time, the GANAS were booked for the Manila/Osaka segment on AIR FRANCE Flight 184 for 8 May 1970, and for the Tokyo/Manila return trip on AIR FRANCE Flight 187 on 22 May 1970. The aforesaid tickets were valid until 8 May 1971, the date written under the printed words "Non valuable apres de (meaning, "not valid after the"). The GANAS did not depart on 8 May 1970. Sometime in January, 1971, Jose Gana sought the assistance of Teresita Manucdoc, a Secretary of the Sta. Clara Lumber Company where Jose Gana was the Director and Treasurer, for the extension of the validity of their tickets, which were due to expire on 8 May 1971. Teresita enlisted the help of Lee Ella Manager of the Philippine Travel Bureau, who used to handle travel arrangements for the personnel of the Sta. Clara Lumber Company. Ella sent the tickets to Cesar Rillo, Office Manager of AIR FRANCE. The tickets were returned to Ella who was informed that extension was not possible unless the fare differentials resulting from the increase in fares triggered by an increase of the exchange rate of the US dollar to the Philippine peso and the increased travel tax were first paid. Ella then returned the tickets to Teresita and informed her of the impossibility of extension. In the meantime, the GANAS had scheduled their departure on 7 May 1971 or one day before the expiry date. In the morning of the very day of their scheduled departure on the first leg of their trip, Teresita requested travel agent Ella to arrange the revalidation of the tickets. Ella gave the same negative answer and warned her that although the tickets could be used by the GANAS if they left on 7 May 1971, the tickets would no longer be valid for the rest of their trip because the tickets would then have expired on 8 May 1971. Teresita replied that it will be up to the GANAS to make the

arrangements. With that assurance, Ella on his own, attached to the tickets validating stickers for the Osaka/Tokyo flight, one a JAL. sticker and the other an SAS (Scandinavian Airways System) sticker. The SAS sticker indicates thereon that it was "Reevaluated by: the Philippine Travel Bureau, Branch No. 2" (as shown by a circular rubber stamp) and signed "Ador", and the date is handwritten in the center of the circle. Then appear under printed headings the notations: JL. 108 (Flight), 16 May (Date), 1040 (Time), OK (status). Apparently, Ella made no more attempt to contact AIR FRANCE as there was no more time. Notwithstanding the warnings, the GANAS departed from Manila in the afternoon of 7 May 1971 on board AIR FRANCE Flight 184 for Osaka, Japan. There is no question with respect to this leg of the trip. However, for the Osaka/Tokyo flight on 17 May 1971, Japan Airlines refused to honor the tickets because of their expiration, and the GANAS had to purchase new tickets. They encountered the same difficulty with respect to their return trip to Manila as AIR FRANCE also refused to honor their tickets. They were able to return only after pre-payment in Manila, through their relatives, of the readjusted rates. They finally flew back to Manila on separate Air France Frights on 19 May 1971 for Jose Gana and 26 May 1971 for the rest of the family. On 25 August 1971, the GANAS commenced before the then Court of First Instance of Manila, Branch III, Civil Case No. 84111 for damages arising from breach of contract of carriage. AIR FRANCE traversed the material allegations of the Complaint and alleged that the GANAS brought upon themselves the predicament they found themselves in and assumed the consequential risks; that travel agent Ella's affixing of validating stickers on the tickets without the knowledge and consent of AIR FRANCE, violated airline tariff rules and regulations and was beyond the scope of his authority as a travel agent; and that AIR FRANCE was not guilty of any fraudulent conduct or bad faith. On 29 May 1975, the Trial Court dismissed the Complaint based on Partial and Additional Stipulations of Fact as wen as on the documentary and testimonial evidence. The GANAS appealed to respondent Appellate Court. During the pendency of the appeal, Jose Gana, the principal plaintiff, died. On 15 December 1980, respondent Appellate Court set aside and reversed the Trial Court's judgment in a Decision, which decreed: WHEREFORE, the decision appealed from is set aside. Air France is hereby ordered to pay appellants moral damages in the total sum of NINETY THOUSAND PESOS (P90,000.00) plus costs. SO ORDERED. 2 Reconsideration sought by AIR FRANCE was denied, hence, petitioner's recourse before this instance, to which we gave due course. The crucial issue is whether or not, under the environmental milieu the GANAS have made out a case for breach of contract of carriage entitling them to an award of damages. We are constrained to reverse respondent Appellate Court's affirmative ruling thereon. Pursuant to tariff rules and regulations of the International Air Transportation Association (IATA), included in paragraphs 9, 10, and 11 of the Stipulations of Fact between the parties in the Trial Court, dated 31 March 1973, an airplane ticket is valid for one year. "The passenger must undertake the final portion of his journey by departing from the last point at which he has made a voluntary stop before the expiry of this limit (parag. 3.1.2. ) ... That is the time allowed a passenger to begin and to complete his trip (parags. 3.2 and 3.3.). ... A ticket can no longer be used for travel if its validity has expired before the passenger completes his trip

(parag. 3.5.1.) ... To complete the trip, the passenger must purchase a new ticket for the remaining portion of the journey" (ibid.) 3 From the foregoing rules, it is clear that AIR FRANCE cannot be faulted for breach of contract when it dishonored the tickets of the GANAS after 8 May 1971 since those tickets expired on said date; nor when it required the GANAS to buy new tickets or have their tickets re-issued for the Tokyo/Manila segment of their trip. Neither can it be said that, when upon sale of the new tickets, it imposed additional charges representing fare differentials, it was motivated by self-interest or unjust enrichment considering that an increase of fares took effect, as authorized by the Civil Aeronautics Board (CAB) in April, 1971. This procedure is well in accord with the IATA tariff rules which provide: 6. TARIFF RULES 7. APPLICABLE FARE ON THE DATE OF DEPARTURE 3.1 General Rule. All journeys must be charged for at the fare (or charge) in effect on the date on which transportation commences from the point of origin. Any ticket sold prior to a change of fare or charge (increase or decrease) occurring between the date of commencement of the journey, is subject to the above general rule and must be adjusted accordingly. A new ticket must be issued and the difference is to be collected or refunded as the case may be. No adjustment is necessary if the increase or decrease in fare (or charge) occurs when the journey is already commenced. 4 The GANAS cannot defend by contending lack of knowledge of those rules since the evidence bears out that Teresita, who handled travel arrangements for the GANAS, was duly informed by travel agent Ella of the advice of Reno, the Office Manager of Air France, that the tickets in question could not be extended beyond the period of their validity without paying the fare differentials and additional travel taxes brought about by the increased fare rate and travel taxes. ATTY. VALTE Q What did you tell Mrs. Manucdoc, in turn after being told this by Mr. Rillo? A I told her, because that is the reason why they accepted again the tickets when we returned the tickets spin, that they could not be extended. They could be extended by paying the additional fare, additional tax and additional exchange during that time. Q You said so to Mrs. Manucdoc? A Yes, sir." ... 5 The ruling relied on by respondent Appellate Court, therefore, in KLM. vs. Court of Appeals, 65 SCRA 237 (1975), holding that it would be unfair to charge respondents therein with automatic knowledge or notice of conditions in contracts of adhesion, is inapplicable. To all legal intents and purposes, Teresita was the agent of the GANAS and notice to her of the rejection of the request for extension of the validity of the tickets was notice to the GANAS, her principals. The SAS validating sticker for the Osaka/Tokyo flight affixed by Era showing reservations for JAL. Flight 108 for 16 May 1971, without clearing the same with AIR FRANCE allegedly because of

the imminent departure of the GANAS on the same day so that he could not get in touch with Air France 6 was certainly in contravention of IATA rules although as he had explained, he did so upon Teresita's assurance that for the onward flight from Osaka and return, the GANAS would make other arrangements. Q Referring you to page 33 of the transcript of the last session, I had this question which reads as follows: 'But did she say anything to you when you said that the tickets were about to expire?' Your answer was: 'I am the one who asked her. At that time I told her if the tickets being used ... I was telling her what about their bookings on the return. What about their travel on the return? She told me it is up for the Ganas to make the arrangement.' May I know from you what did you mean by this testimony of yours? A That was on the day when they were asking me on May 7, 1971 when they were checking the tickets. I told Mrs. Manucdoc that I was going to get the tickets. I asked her what about the tickets onward from the return from Tokyo, and her answer was it is up for the Ganas to make the arrangement, because I told her that they could leave on the seventh, but they could take care of that when they arrived in Osaka. Q What do you mean? A The Ganas will make the arrangement from Osaka, Tokyo and Manila. Q What arrangement? A The arrangement for the airline because the tickets would expire on May 7, and they insisted on leaving. I asked Mrs. Manucdoc what about the return onward portion because they would be travelling to Osaka, and her answer was, it is up to for the Ganas to make the arrangement. Q Exactly what were the words of Mrs. Manucdoc when you told her that? If you can remember, what were her exact words? A Her words only, it is up for the Ganas to make the arrangement. Q This was in Tagalog or in English? A I think it was in English. ... 7

The circumstances that AIR FRANCE personnel at the ticket counter in the airport allowed the GANAS to leave is not tantamount to an implied ratification of travel agent Ella's irregular actuations. It should be recalled that the GANAS left in Manila the day before the expiry date of their tickets and that "other arrangements" were to be made with respect to the remaining segments. Besides, the validating stickers that Ella affixed on his own merely reflect the status of reservations on the specified flight and could not legally serve to extend the validity of a ticket or revive an expired one. The conclusion is inevitable that the GANAS brought upon themselves the predicament they were in for having insisted on using tickets that were due to expire in an effort, perhaps, to beat the deadline and in the thought that by commencing the trip the day before the expiry date, they could complete the trip even thereafter. It should be recalled that AIR FRANCE was even unaware of the validating SAS and JAL. stickers that Ella had affixed spuriously. Consequently, Japan Air Lines and AIR FRANCE merely acted within their contractual rights when they dishonored the tickets on the remaining segments of the trip and when AIR FRANCE demanded payment of the adjusted fare rates and travel taxes for the Tokyo/Manila flight. WHEREFORE, the judgment under review is hereby reversed and set aside, and the Amended Complaint filed by private respondents hereby dismissed. No costs. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 88539 October 26, 1993 KUE CUISON, doing business under the firm name and style"KUE CUISON PAPER SUPPLY," petitioner, vs. THE COURT OF APPEALS, VALIANT INVESTMENT ASSOCIATES, respondents. Leighton R. Siazon for petitioner. Melanio L. Zoreta for private respondent. BIDIN, J.: This petition for review assails the decision of the respondent Court of Appeals ordering petitioner to pay private respondent, among others, the sum of P297,482.30 with interest. Said decision reversed the appealed decision of the trial court rendered in favor of petitioner. The case involves an action for a sum of money filed by respondent against petitioner anchored on the following antecedent facts: Petitioner Kue Cuison is a sole proprietorship engaged in the purchase and sale of newsprint, bond paper and scrap, with places of business at Baesa, Quezon City, and Sto. Cristo, Binondo, Manila. Private respondent Valiant Investment Associates, on the other hand, is a partnership duly organized and existing under the laws of the Philippines with business address at Kalookan City. From December 4, 1979 to February 15, 1980, private respondent delivered various kinds of paper products amounting to P297,487.30 to a certain Lilian Tan of LT Trading. The deliveries were made by respondent pursuant to orders allegedly placed by Tiu Huy Tiac who was then employed in the Binondo office of petitioner. It was likewise pursuant to Tiac's instructions that the merchandise was delivered to Lilian Tan. Upon delivery, Lilian Tan paid for the merchandise by issuing several checks payable to cash at the specific request of Tiu Huy Tiac. In turn, Tiac issued nine (9) postdated checks to private respondent as payment for the paper products. Unfortunately, sad checks were later dishonored by the drawee bank. Thereafter, private respondent made several demands upon petitioner to pay for the merchandise in question, claiming that Tiu Huy Tiac was duly authorized by petitioner as the manager of his Binondo office, to enter into the questioned transactions with private respondent and Lilian Tan. Petitioner denied any involvement in the transaction entered into by Tiu Huy Tiac and refused to pay private respondent the amount corresponding to the selling price of the subject merchandise. Left with no recourse, private respondent filed an action against petitioner for the collection of P297,487.30 representing the price of the merchandise. After due hearing, the trial court dismissed the complaint against petitioner for lack of merit. On appeal, however, the decision of the trial court was modified, but was in effect reversed by the Court of Appeals, the dispositive portion of which reads: WHEREFORE, the decision appealed from is MODIFIED in that defendant-appellant Kue Cuison is hereby ordered to pay plaintiffappellant Valiant Investment Associates the sum of P297,487.30 with 12% interest from the filing of the complaint until the amount is fully paid, plus the sum of 7% of the total amount due as attorney's fees, and to pay the costs. In all other

respects, the decision appealed from is affirmed. (Rollo, p. 55) In this petition, petitioner contends that: THE HONORABLE COURT ERRED IN FINDING TIU HUY TIAC AGENT OF DEFENDANT-APPELLANT CONTRARY TO THE UNDISPUTED/ESTABLISHED FACTS AND CIRCUMSTANCES. THE HONORABLE COURT ERRED IN FINDING DEFENDANT-APPELLANT LIABLE FOR AN OBLIGATION UNDISPUTEDLY BELONGING TO TIU HUY TIAC. THE HONORABLE COURT ERRED IN REVERSING THE WELL-FOUNDED DECISION OF THE TRIAL COURT, (Rollo, p, 19) The issue here is really quite simple whether or not Tiu Huy Tiac possessed the required authority from petitioner sufficient to hold the latter liable for the disputed transaction. This petition ought to have been denied outright, forin the final analysis, it raises a factual issue. It is elementary that in petitions for review under Rule 45, this Court only passes upon questions of law. An exception thereto occurs where the findings of fact of the Court of Appeals are at variance with the trial court, in which case the Court reviews the evidence in order to arrive at the correct findings based on the records. As to the merits of the case, it is a well-established rule that one who clothes another with apparent authority as his agent and holds him out to the public as such cannot be permitted to deny the authority of such person to act as his agent, to the prejudice of innocent third parties dealing with such person in good faith and in the honest belief that he is what he appears to be (Macke, et al, v. Camps, 7 Phil. 553 (1907]; Philippine National Bank. v Court of Appeals, 94 SCRA 357 [1979]). From the facts and the evidence on record, there is no doubt that this rule obtains. The petition must therefore fail. It is evident from the records that by his own acts and admission, petitioner held out Tiu Huy Tiac to the public as the manager of his store in Sto. Cristo, Binondo, Manila. More particularly, petitioner explicitly introduced Tiu Huy Tiac to Bernardino Villanueva, respondent's manager, as his (petitioner's) branch manager as testified to by Bernardino Villanueva. Secondly, Lilian Tan, who has been doing business with petitioner for quite a while, also testified that she knew Tiu Huy Tiac to be the manager of petitioner's Sto. Cristo, Binondo branch. This general perception of Tiu Huy Tiac as the manager of petitioner's Sto. Cristo store is even made manifest by the fact that Tiu Huy Tiac is known in the community to be the "kinakapatid" (godbrother) of petitioner. In fact, even petitioner admitted his close relationship with Tiu Huy Tiac when he said that they are "like brothers" (Rollo, p. 54). There was thus no reason for anybody especially those transacting business with petitioner to even doubt the authority of Tiu Huy Tiac as his manager in the Sto. Cristo Binondo branch. In a futile attempt to discredit Villanueva, petitioner alleges that the former's testimony is clearly self-serving inasmuch as Villanueva worked for private respondent as its manager. We disagree, The argument that Villanueva's testimony is selfserving and therefore inadmissible on the lame excuse of his employment with private respondent utterly misconstrues the nature of "'self-serving evidence" and the specific ground for its exclusion. As pointed out by this Court in Co v. Court of Appeals et, al., (99 SCRA 321 [1980]): Self-serving evidence is evidence made by a party out of court at one time; it does not include a party's testimony as a witness in court. It is

excluded on the same ground as any hearsay evidence, that is the lack of opportunity for cross-examination by the adverse party, and on the consideration that its admission would open the door to fraud and to fabrication of testimony. On theother hand, a party's testimony in court is sworn and affords the other party the opportunity for cross-examination (emphasis supplied) Petitioner cites Villanueva's failure, despite his commitment to do so on cross-examination, to produce the very first invoice of the transaction between petitioner and private respondent as another ground to discredit Villanueva's testimony. Such failure, proves that Villanueva was not only bluffing when he pretended that he can produce the invoice, but that Villanueva was likewise prevaricating when he insisted that such prior transactions actually took place. Petitioner is mistaken. In fact, it was petitioner's counsel himself who withdrew the reservation to have Villanueva produce the document in court. As aptly observed by the Court of Appeals in its decision: . . . However, during the hearing on March 3, 1981, Villanueva failed to present the document adverted to because defendant-appellant's counsel withdrew his reservation to have the former (Villanueva) produce the document or invoice, thus prompting plaintiff-appellant to rest its case that same day (t.s.n., pp. 39-40, Sess. of March 3, 1981). Now, defendant-appellant assails the credibility of Villanueva for having allegedly failed to produce even one single document to show that plaintiff-appellant have had transactions before, when in fact said failure of Villanueva to produce said document is a direct off-shoot of the action of defendantappellant's counsel who withdrew his reservation for the production of the document or invoice and which led plaintiff-appellant to rest its case that very day. (Rollo, p.52) In the same manner, petitioner assails the credibility of Lilian Tan by alleging that Tan was part of an intricate plot to defraud him. However, petitioner failed to substantiate or prove that the subject transaction was designed to defraud him. Ironically, it was even the testimony of petitioner's daughter and assistant manager Imelda Kue Cuison which confirmed the credibility of Tan as a witness. On the witness stand, Imelda testified that she knew for a fact that prior to the transaction in question, Tan regularly transacted business with her father (petitioner herein), thereby corroborating Tan's testimony to the same effect. As correctly found by the respondent court, there was no logical explanation for Tan to impute liability upon petitioner. Rather, the testimony of Imelda Kue Cuison only served to add credence to Tan's testimony as regards the transaction, the liability for which petitioner wishes to be absolved. But of even greater weight than any of these testimonies, is petitioner's categorical admission on the witness stand that Tiu Huy Tiac was the manager of his store in Sto. Cristo, Binondo, to wit: Court: xxx xxx xxx Q And who was managing the store in Sto. Cristo? A At first it was Mr. Ang, then later Mr. Tiu Huy Tiac but I cannot remember the exact year.

Q So, Mr. Tiu Huy Tiac took over the management,. A Not that was because every afternoon, I was there, sir. Q But in the morning, who takes charge? A Tiu Huy Tiac takes charge of management and if there (sic) orders for newsprint or bond papers they are always referred to the compound in Baesa, sir. (t.s.n., p. 16, Session of January 20, 1981, CA decision, Rollo, p. 50, emphasis supplied). Such admission, spontaneous no doubt, and standing alone, is sufficient to negate all the denials made by petitioner regarding the capacity of Tiu Huy Tiac to enter into the transaction in question. Furthermore, consistent with and as an obvious indication of the fact that Tiu Huy Tiac was the manager of the Sto. Cristo branch, three (3) months after Tiu Huy Tiac left petitioner's employ, petitioner even sent, communications to its customers notifying them that Tiu Huy Tiac is no longer connected with petitioner's business. Such undertaking spoke unmistakenly of Tiu Huy Tiac's valuable position as petitioner's manager than any uttered disclaimer. More than anything else, this act taken together with the declaration of petitioner in open court amount to admissions under Rule 130 Section 22 of the Rules of Court, to wit : "The act, declaration or omission of a party as to a relevant fact may be given in evidence against him." For well-settled is the rule that "a man's acts, conduct, and declaration, wherever made, if voluntary, are admissible against him, for the reason that it is fair to presume that they correspond with the truth, and it is his fault if they do not. If a man's extrajudicial admissions are admissible against him, there seems to be no reason why his admissions made in open court, under oath, should not be accepted against him." (U.S. vs. Ching Po, 23 Phil. 578, 583 [1912];). Moreover, petitioner's unexplained delay in disowning the transactions entered into by Tiu Huy Tiac despite several attempts made by respondent to collect the amount from him, proved all the more that petitioner was aware of the questioned commission was tantamount to an admission by silence under Rule 130 Section 23 of the Rules of Court, thus: "Any act or declaration made in the presence of and within the observation of a party who does or says nothing when the act or declaration is such as naturally to call for action or comment if not true, may be given in evidence against him." All of these point to the fact that at the time of the transaction Tiu Huy Tiac was admittedly the manager of petitioner's store in Sto. Cristo, Binondo. Consequently, the transaction in question as well as the concomitant obligation is valid and binding upon petitioner. By his representations, petitioner is now estopped from disclaiming liability for the transaction entered by Tiu Huy Tiac on his behalf. It matters not whether the representations are intentional or merely negligent so long as innocent, third persons relied upon such representations in good faith and for value As held in the case of Manila Remnant Co. Inc. v. Court of Appeals, (191 SCRA 622 [1990]): More in point, we find that by the principle of estoppel, Manila Remnant is deemed to have allowed its agent to act as though it had plenary powers. Article 1911 of the Civil Code provides: "Even when the agent has exceeded his authority, the principal issolidarily liable

with the agent if the former allowed the latter to act as though he had full powers." (Emphasis supplied). The above-quoted article is new. It is intended to protect the rights of innocent persons. In such a situation, both the principal and the agent may be considered as joint tortfeasors whose liability is joint and solidary. Authority by estoppel has arisen in the instant case because by its negligence, the principal, Manila Remnant, has permitted its agent, A.U. Valencia and Co., to exercise powers not granted to it. That the principal might not have had actual knowledge of theagent's misdeed is of no moment. Tiu Huy Tiac, therefore, by petitioner's own representations and manifestations, became an agent of petitioner by estoppel, an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon (Article 1431, Civil Code of the Philippines). A party cannot be allowed to go back on his own acts and representations to the prejudice of the other party who, in good faith, relied upon them (Philippine National Bank v. Intermediate Appellate Court, et al., 189 SCRA 680 [1990]). Taken in this light,. petitioner is liable for the transaction entered into by Tiu Huy Tiac on his behalf. Thus, even when the agent has exceeded his authority, the principal is solidarily liable with the agent if the former allowed the latter to fact as though he had full powers (Article 1911 Civil Code), as in the case at bar. Finally, although it may appear that Tiu Huy Tiac defrauded his principal (petitioner) in not turning over the proceeds of the transaction to the latter, such fact cannot in any way relieve nor exonerate petitioner of his liability to private respondent. For it is an equitable maxim that as between two innocent parties, the one who made it possible for the wrong to be done should be the one to bear the resulting loss (Francisco vs. Government Service Insurance System, 7 SCRA 577 [1963]). Inasmuch as the fundamental issue of the capacity or incapacity of the purported agent Tiu Huy Tiac, has already been resolved, the Court deems it unnecessary to resolve the other peripheral issues raised by petitioner. WHEREFORE, the instant petition in hereby DENIED for lack of merit. Costs against petitioner. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 79688 February 1, 1996 PLEASANTVILLE DEVELOPMENT CORPORATION, petitioner, vs. COURT OF APPEALS, WILSON KEE, C.T. TORRES ENTERPRISES, INC. and ELDRED JARDINICO, respondents. DECISION PANGANIBAN, J.: Is a lot buyer who constructs improvements on the wrong property erroneously delivered by the owner's agent, a builder in good faith? This is the main issue resolved in this petition for review on certiorari to reverse the Decision1 of the Court of Appeals2 in CAG.R. No. 11040, promulgated on August 20, 1987. By resolution dated November 13, 1995, the First Division of this Court resolved to transfer this case (along with several others) to the Third Division. After due deliberation and consultation, the Court assigned the writing of this Decision to the undersigned ponente. The Facts The facts, as found by respondent Court, are as follows: Edith Robillo purchased from petitioner a parcel of land designated as Lot 9, Phase II and located at Taculing Road, Pleasantville Subdivision, Bacolod City. In 1975, respondent Eldred Jardinico bought the rights to the lot from Robillo. At that time, Lot 9 was vacant. Upon completing all payments, Jardinico secured from the Register of Deeds of Bacolod City on December 19, 1978 Transfer Certificate of Title No. 106367 in his name. It was then that he discovered that improvements had been introduced on Lot 9 by respondent Wilson Kee, who had taken possession thereof. It appears that on March 26, 1974, Kee bought on installment Lot 8 of the same subdivision from C.T. Torres Enterprises, Inc. (CTTEI), the exclusive real estate agent of petitioner. Under the Contract to Sell on Installment, Kee could possess the lot even before the completion of all installment payments. On January 20, 1975, Kee paid CTTEI the relocation fee of P50.00 and another P50.00 on January 27, 1975, for the preparation of the lot plan. These amounts were paid prior to Kee's taking actual possession of Lot 8. After the preparation of the lot plan and a copy thereof given to Kee, CTTEI through its employee, Zenaida Octaviano, accompanied Kee's wife, Donabelle Kee, to inspect Lot 8. Unfortunately, the parcel of land pointed by Octaviano was Lot 9. Thereafter, Kee proceeded to construct his residence, a store, an auto repair shop and other improvements on the lot. After discovering that Lot 9 was occupied by Kee, Jardinico confronted him. The parties tried to reach an amicable settlement, but failed. On January 30, 1981, Jardinico's lawyer wrote Kee, demanding that the latter remove all improvements and vacate Lot 9. When Kee refused to vacate Lot 9, Jardinico filed with the Municipal Trial Court in Cities, Branch 3, Bacolod City (MTCC), a complaint for ejectment with damages against Kee. Kee, in turn, filed a third-party complaint against petitioner and CTTEI. The MTCC held that the erroneous delivery of Lot 9 to Kee was attributable to CTTEI. It further ruled that petitioner and CTTEI could not successfully invoke as a defense the failure of Kee to give notice of his intention to begin construction required under paragraph 22 of the Contract to Sell on Installment and his having built a sari-sari store without the prior approval of petitioner

required under paragraph 26 of said contract, saying that the purpose of these requirements was merely to regulate the type of improvements to be constructed on the Lot. 3 However, the MTCC found that petitioner had already rescinded its contract with Kee over Lot 8 for the latter's failure to pay the installments due, and that Kee had not contested the rescission. The rescission was effected in 1979, before the complaint was instituted. The MTCC concluded that Kee no longer had any right over the lot subject of the contract between him and petitioner. Consequently, Kee must pay reasonable rentals for the use of Lot 9, and, furthermore, he cannot claim reimbursement for the improvements he introduced on said lot. The MTCC thus disposed: IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered as follows: 1. Defendant Wilson Kee is ordered to vacate the premises of Lot 9, covered by TCT No. 106367 and to remove all structures and improvements he introduced thereon; 2. Defendant Wilson Kee is ordered to pay to the plaintiff rentals at the rate of P15.00 a day computed from the time this suit was filed on March 12, 1981 until he actually vacates the premises. This amount shall bear interests (sic) at the rate of 12 per cent (sic) per annum. 3. Third-Party Defendant C.T. Torres Enterprises, Inc. and Pleasantville Subdivision are ordered to pay the plaintiff jointly and severally the sum of P3,000.00 as attorney's fees and P700.00 as cost and litigation expenses.4 On appeal, the Regional Trial Court, Branch 48, Bacolod City (RTC) ruled that petitioner and CTTEI were not at fault or were not negligent, there being no preponderant evidence to show that they directly participated in the delivery of Lot 9 to Kee5. It found Kee a builder in bad faith. It further ruled that even assuming arguendo that Kee was acting in good faith, he was, nonetheless, guilty of unlawfully usurping the possessory right of Jardinico over Lot 9 from the time he was served with notice to vacate said lot, and thus was liable for rental. The RTC thus disposed: WHEREFORE, the decision appealed from is affirmed with respect to the order against the defendant to vacate the premises of Lot No. 9 covered by Transfer Certificate of Title No. T-106367 of the land records of Bacolod City; the removal of all structures and improvements introduced thereon at his expense and the payment to plaintiff (sic) the sum of Fifteen (P15.00) Pesos a day as reasonable rental to be computed from January 30, 1981, the date of the demand, and not from the date of the filing of the complaint, until he had vacated (sic) the premises, with interest thereon at 12% per annum. This Court further renders judgment against the defendant to pay the plaintiff the sum of Three Thousand (P3,000.00) Pesos as attorney's fees, plus costs of litigation. The third-party complaint against Third-Party Defendants Pleasantville Development Corporation and C.T. Torres Enterprises, Inc. is dismissed. The order against ThirdParty Defendants to pay attorney's fees to plaintiff and costs of litigation is reversed.6 Following the denial of his motion for reconsideration on October 20, 1986, Kee appealed directly to the Supreme Court, which referred the matter to the Court of Appeals. The appellate court ruled that Kee was a builder in good faith, as he was unaware of the "mix-up" when he began construction of the improvements on Lot 8. It further ruled that the erroneous delivery was due to the negligence of CTTEI, and that such wrong delivery

was likewise imputable to its principal, petitioner herein. The appellate court also ruled that the award of rentals was without basis. Thus, the Court of Appeals disposed: WHEREFORE, the petition is GRANTED, the appealed decision is REVERSED, and judgment is rendered as follows: 1. Wilson Kee is declared a builder in good faith with respect to the improvements he introduced on Lot 9, and is entitled to the rights granted him under Articles 448, 546 and 548 of the New Civil Code. 2. Third-party defendants C.T. Torres Enterprises, Inc. and Pleasantville Development Corporation are solidarily liable under the following circumstances: A. If Eldred Jardinico decides to appropriate the improvements and, thereafter, remove these structures, the third-party defendants shall answer for all demolition expenses and the value of the improvements thus destroyed or rendered useless; b. If Jardinico prefers that Kee buy the land, the third-party defendants shall answer for the amount representing the value of Lot 9 that Kee should pay to Jardinico. 3. Third-party defendants C.T. Torres Enterprises, Inc. and Pleasantville Development Corporation are ordered to pay in solidum the amount of P3,000.00 to Jardinico as attorney's fees, as well as litigation expenses. 4. The award of rentals to Jardinico is dispensed with. Furthermore, the case is REMANDED to the court of origin for the determination of the actual value of the improvements and the property (Lot 9), as well as for further proceedings in conformity with Article 448 of the New Civil Code.7 Petitioner then filed the instant petition against Kee, Jardinico and CTTEI. The Issues The petition submitted the following grounds to justify a review of the respondent Court's Decision, as follows: 1. The Court of Appeals has decided the case in a way probably not in accord with law or the the (sic) applicable decisions of the Supreme Court on third-party complaints, by ordering third-party defendants to pay the demolition expenses and/or price of the land; 2. The Court of Appeals has so far departed from the accepted course of judicial proceedings, by granting to private respondent-Kee the rights of a builder in good faith in excess of what the law provides, thus enriching private respondent Kee at the expense of the petitioner; 3. In the light of the subsequent events or circumstances which changed the rights of the parties, it becomes imperative to set aside or at least modify the judgment of the Court of Appeals to harmonize with justice and the facts; 4. Private respondent-Kee in accordance with the findings of facts of the lower court is clearly a builder in bad faith, having violated several provisions of the contract to sell on installments; 5. The decision of the Court of Appeals, holding the principal, Pleasantville Development Corporation (liable) for the acts made by the agent in excess of its authority is clearly in violation of the provision of the law; 6. The award of attorney's fees is clearly without basis and is equivalent to putting a premium in (sic) court litigation.

From these grounds, the issues could be re-stated as follows: (1) Was Kee a builder in good faith? (2) What is the liability, if any, of petitioner and its agent, C.T. Torres Enterprises, Inc.? and (3) Is the award of attorney's fees proper? The First Issue: Good Faith Petitioner contends that the Court of Appeals erred in reversing the RTC's ruling that Kee was a builder in bad faith. Petitioner fails to persuade this Court to abandon the findings and conclusions of the Court of Appeals that Kee was a builder in good faith. We agree with the following observation of the Court of Appeals: The roots of the controversy can be traced directly to the errors committed by CTTEI, when it pointed the wrong property to Wilson Kee and his wife. It is highly improbable that a purchaser of a lot would knowingly and willingly build his residence on a lot owned by another, deliberately exposing himself and his family to the risk of being ejected from the land and losing all improvements thereon, not to mention the social humiliation that would follow. Under the circumstances, Kee had acted in the manner of a prudent man in ascertaining the identity of his property. Lot 8 is covered by Transfer Certificate of Title No. T69561, while Lot 9 is identified in Transfer Certificate of Title No. T-106367. Hence, under the Torrens system of land registration, Kee is presumed to have knowledge of the metes and bounds of the property with which he is dealing. . . . xxx xxx xxx But as Kee is a layman not versed in the technical description of his property, he had to find a way to ascertain that what was described in TCT No. 69561 matched Lot 8. Thus, he went to the subdivision developer's agent and applied and paid for the relocation of the lot, as well as for the production of a lot plan by CTTEI's geodetic engineer. Upon Kee's receipt of the map, his wife went to the subdivision site accompanied by CTTEI's employee, Octaviano, who authoritatively declared that the land she was pointing to was indeed Lot 8. Having full faith and confidence in the reputation of CTTEI, and because of the company's positive identification of the property, Kee saw no reason to suspect that there had been a misdelivery. The steps Kee had taken to protect his interests were reasonable. There was no need for him to have acted ex-abundantia cautela, such as being present during the geodetic engineer's relocation survey or hiring an independent geodetic engineer to countercheck for errors, for the final delivery of subdivision lots to their owners is part of the regular course of everyday business of CTTEI. Because of CTTEI's blunder, what Kee had hoped to forestall did in fact transpire. Kee's efforts all went to naught.8 Good faith consists in the belief of the builder that the land he is building on is his and his ignorance of any defect or flaw in his title 9. And as good faith is presumed, petitioner has the burden of proving bad faith on the part of Kee 10. At the time he built improvements on Lot 8, Kee believed that said lot was what he bought from petitioner. He was not aware that the lot delivered to him was not Lot 8. Thus, Kee's good faith. Petitioner failed to prove otherwise. To demonstrate Kee's bad faith, petitioner points to Kee's violation of paragraphs 22 and 26 of the Contract of Sale on Installment. We disagree. Such violations have no bearing whatsoever on whether Kee was a builder in good faith, that is, on his state of

mind at the time he built the improvements on Lot 9. These alleged violations may give rise to petitioner's cause of action against Kee under the said contract (contractual breach), but may not be bases to negate the presumption that Kee was a builder in good faith. Petitioner also points out that, as found by the trial court, the Contract of Sale on Installment covering Lot 8 between it and Kee was rescinded long before the present action was instituted. This has no relevance on the liability of petitioner, as such fact does not negate the negligence of its agent in pointing out the wrong lot. to Kee. Such circumstance is relevant only as it gives Jardinico a cause of action for unlawful detainer against Kee. Petitioner next contends that Kee cannot "claim that another lot was erroneously pointed out to him" because the latter agreed to the following provision in the Contract of Sale on installment, to wit: 13. The Vendee hereby declares that prior to the execution of his contract he/she has personally examined or inspected the property made subject-matter hereof, as to its location, contours, as well as the natural condition of the lots and from the date hereof whatever consequential change therein made due to erosion, the said Vendee shall bear the expenses of the necessary fillings, when the same is so desired by him/her. 11 The subject matter of this provision of the contract is the change of the location, contour and condition of the lot due to erosion. It merely provides that the vendee, having examined the property prior to the execution of the contract, agrees to shoulder the expenses resulting from such change. We do not agree with the interpretation of petitioner that Kee contracted away his right to recover damages resulting from petitioner's negligence. Such waiver would be contrary to public policy and cannot be allowed. "Rights may be waived, unless the waiver is contrary to law, public order, public policy, morals, or good customs, or prejudicial to a third person with a right recognized by law." 12 The Second Issue: Petitioner's Liability Kee filed a third-party complaint against petitioner and CTTEI, which was dismissed by the RTC after ruling that there was no evidence from which fault or negligence on the part of petitioner and CTTEI can be inferred. The Court of Appeals disagreed and found CTTEI negligent for the erroneous delivery of the lot by Octaviano, its employee. Petitioner does not dispute the fact that CTTEI was its agent. But it contends that the erroneous delivery of Lot 9 to Kee was an act which was clearly outside the scope of its authority, and consequently, CTTEI I alone should be liable. It asserts that "while [CTTEI] was authorized to sell the lot belonging to the herein petitioner, it was never authorized to deliver the wrong lot to Kee" 13 . Petitioner's contention is without merit. The rule is that the principal is responsible for the acts of the agent, done within the scope of his authority, and should bear the damage caused to third persons 14. On the other hand, the agent who exceeds his authority is personally liable for the damage 15 CTTEI was acting within its authority as the sole real estate representative of petitioner when it made the delivery to Kee. In acting within its scope of authority, it was, however, negligent. It is this negligence that is the basis of petitioner's liability, as principal of CTTEI, per Articles 1909 and 1910 of the Civil Code. Pending resolution of the case before the Court of Appeals, Jardinico and Kee on July 24, 1987 entered into a deed of sale, wherein the former sold Lot 9 to Kee. Jardinico and Kee did not inform the Court of Appeals of such deal. The deed of sale contained the following provision:

1. That Civil Case No. 3815 entitled "Jardinico vs. Kee" which is now pending appeal with the Court of Appeals, regardless of the outcome of the decision shall be mutually disregarded and shall not be pursued by the parties herein and shall be considered dismissed and without effect whatso-ever; 16 Kee asserts though that the "terms and conditions in said deed of sale are strictly for the parties thereto" and that "(t)here is no waiver made by either of the parties in said deed of whatever favorable judgment or award the honorable respondent Court of Appeals may make in their favor against herein petitioner Pleasantville Development Corporation and/or private respondent C.T. Torres Enterprises; Inc." 17 Obviously, the deed of sale can have no effect on the liability of petitioner. As we have earlier stated, petitioner's liability is grounded on the negligence of its agent. On the other hand, what the deed of sale regulates are the reciprocal rights of Kee and Jardinico; it stressed that they had reached an agreement independent of the outcome of the case. Petitioner further assails the following holding of the Court of Appeals: 2. Third-party defendants C.T. Torres Enterprises, Inc. and Pleasantville Development Corporation are solidarily liable under the following circumstances: a. If Eldred Jardinico decides to appropriate the improvements and, thereafter, remove these structures, the third-party defendants shall answer for all demolition expenses and the value of the improvements thus destroyed or rendered useless; b. If Jardinico prefers that Kee buy the land, the third-party defendants shall answer for the amount representing the value of Lot 9 that Kee should pay to Jardinico. 18 Petitioner contends that if the above holding would be carried out, Kee would be unjustly enriched at its expense. In other words, Kee would be able to own the lot, as buyer, without having to pay anything on it, because the aforequoted portion of respondent Court's Decision would require petitioner and CTTEI jointly and solidarily to "answer" or reimburse Kee therefor. We agree with petitioner. Petitioner' s liability lies in the negligence of its agent CTTEI. For such negligence, the petitioner should be held liable for damages. Now, the extent and/or amount of damages to be awarded is a factual issue which should be determined after evidence is adduced. However, there is no showing that such evidence was actually presented in the trial court; hence no damages could flow be awarded. The rights of Kee and Jardinico vis-a-vis each other, as builder in good faith and owner in good faith, respectively, are regulated by law (i.e., Arts. 448, 546 and 548 of the Civil Code). It was error for the Court of Appeals to make a "slight modification" in the application of such law, on the ground of "equity". At any rate, as it stands now, Kee and Jardinico have amicably settled through their deed of sale their rights and obligations with regards to Lot 9. Thus, we delete items 2 (a) and (b) of the dispositive portion of the Court of Appeals' Decision [as reproduced above] holding petitioner and CTTEI solidarily liable. The Third Issue: Attorney's Fees The MTCC awarded Jardinico attorney's fees and costs in the amount of P3,000.00 and P700.00, respectively, as prayed for in his complaint. The RTC deleted the award, consistent with its ruling that petitioner was without fault or negligence. The Court of

Appeals, however, reinstated the award of attorney's fees after ruling that petitioner was liable for its agent's negligence. The award of attorney's fees lies within the discretion of the court and depends upon the circumstances of each case 19. We shall not interfere with the discretion of the Court of Appeals. Jardinico was compelled to litigate for the protection of his interests and for the recovery of damages sustained as a result of the negligence of petitioner's agent 20. In sum, we rule that Kee is a builder in good faith. The disposition of the Court of Appeals that Kee "is entitled to the rights granted him under Articles 448, 546 and 548 of the New Civil Code" is deleted, in view of the deed of sale entered into by Kee and Jardinico, which deed now governs the rights of Jardinico and Kee as to each other. There is also no further need, as ruled by the appellate Court, to remand the case to the court of origin "for determination of the actual value of the improvements and the property (Lot 9), as well as for further proceedings in conformity with Article 448 of the New Civil Code." WHEREFORE , the petition is partially GRANTED. The Decision of the Court of Appeals is hereby MODIFIED as follows: (1) Wilson Kee is declared a builder in good faith; (2) Petitioner Pleasantville Development Corporation and respondent C.T. Torres Enterprises, Inc. are declared solidarily liable for damages due to negligence; however, since the amount and/or extent of such damages was not proven during the trial, the same cannot now be quantified and awarded; (3) Petitioner Pleasantville Development Corporation and respondent C.T. Torres Enterprises, Inc. are ordered to pay in solidum the amount of P3,000.00 to Jardinico as attorney's fees, as well as litigation expenses; and (4) The award of rentals to Jardinico is dispensed with. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 137686 February 8, 2000 RURAL BANK OF MILAOR (CAMARINES SUR), petitioner, vs. FRANCISCA OCFEMIA, ROWENA BARROGO, MARIFE O. NIO, FELICISIMO OCFEMIA, RENATO OCFEMIA JR, and WINSTON OCFEMIA, respondents. PANGANIBAN, J.: When a bank, by its acts and failure to act, has clearly clothed its manager with apparent authority to sell an acquired asset in the normal course of business, it is legally obliged to confirm the transaction by issuing a board resolution to enable the buyers to register the property in their names. It has a duty to perform necessary and lawful acts to enable the other parties to enjoy all benefits of the contract which it had authorized. The Case Before this Court is a Petition for Review on Certiorari challenging the December 18, 1998 Decision of the Court of Appeals 1 (CA) in CA-GR SP No. 46246, which affirmed the May 20, 1997 Decision 2 of the Regional Trial Court (RTC) of Naga City (Branch 28). The CA disposed as follows: Wherefore, premises considered, the Judgment appealed from is hereby AFFIRMED. Costs against the respondentappellant. 3 The dispositive portion of the judgment affirmed by the CA ruled in this wise: WHEREFORE, in view of all the foregoing findings, decision is hereby rendered whereby the [petitioner] Rural Bank of Milaor (Camarines Sur), Inc. through its Board of Directors is hereby ordered to immediately issue a Board Resolution confirming the Deed of Sale it executed in favor of Renato Ocfemia marked Exhibits C, C-1 and C2); to pay [respondents] the sum of FIVE HUNDRED (P500.00) PESOS as actual damages; TEN THOUSAND (P10,000.00) PESOS as attorney's fees; THIRTY THOUSAND (P30,000.00) PESOS as moral damages; THIRTY THOUSAND (P30,000.00) PESOS as exemplary damages; and to pay the costs. 4 Also assailed is the February 26, 1999 CA Resolution 5 which denied petitioner's Motion for Reconsideration. The Facts The trial court's summary of the undisputed facts was reproduced in the CA Decision as follows: This is an action for mandamus with damages. On April 10, 1996, [herein petitioner] was declared in default on motion of the [respondents] for failure to file an answer within the reglementary-period after it was duly served with summons. On April 26, 1996, [herein petitioner] filed a motion to set aside the order of default with objection thereto filed by [herein respondents]. On June 17, 1996, an order was issued denying [petitioner's] motion to set aside the order of default. On July 10, 1996, the defendant filed a motion for reconsideration of the order of June 17, 1996 with objection thereto by [respondents]. On July 12, 1996, an order was issued denying [petitioner's] motion for reconsideration. On July 31, 1996, [respondents] filed a motion to set case for hearing. A copy thereof was duly furnished the [petitioner] but the latter did not file any opposition and so [respondents] were allowed to present their evidence ex-parte. A certiorari case was filed by the [petitioner] with the Court of Appeals docketed as CA GR

No. 41497-SP but the petition was denied in a decision rendered on March 31, 1997 and the same is now final. The evidence presented by the [respondents] through the testimony of Marife O. Nio, one of the [respondents] in this case, show[s] that she is the daughter of Francisca Ocfemia, a co-[respondent] in this case, and the late Renato Ocfemia who died on July 23, 1994. The parents of her father, Renato Ocfemia, were Juanita Arellano Ocfemia and Felicisimo Ocfemia. Her other co[respondents] Rowena O. Barrogo, Felicisimo Ocfemia, Renato Ocfemia, Jr. and Winston Ocfemia are her brothers and sisters.1wphi1.nt Marife O. Nio knows the five (5) parcels of land described in paragraph 6 of the petition which are located in Bombon, Camarines Sur and that they are the ones possessing them which [were] originally owned by her grandparents, Juanita Arellano Ocfemia and Felicisimo Ocfemia. During the lifetime of her grandparents, [respondents] mortgaged the said five (5) parcels of land and two (2) others to the [petitioner] Rural Bank of Milaor as shown by the Deed of Real Estate Mortgage (Exhs. A and A-1) and the Promissory Note (Exh. B). The spouses Felicisimo Ocfemia and Juanita Arellano Ocfemia were not able to redeem the mortgaged properties consisting of seven (7) parcels of land and so the mortgage was foreclosed and thereafter ownership thereof was transferred to the [petitioner] bank. Out of the seven (7) parcels that were foreclosed, five (5) of them are in the possession of the [respondents] because these five (5) parcels of land described in paragraph 6 of the petition were sold by the [petitioner] bank to the parents of Marife O. Nio as evidenced by a Deed of Sale executed in January 1988 (Exhs. C, C-1 and C-2). The aforementioned five (5) parcels of land subject of the deed of sale (Exh. C), have not been, however transferred in the name of the parents of Merife O. Nio after they were sold to her parents by the [petitioner] bank because according to the Assessor's Office the five (5) parcels of land, subject of the sale, cannot be transferred in the name of the buyers as there is a need to have the document of sale registered with the Register of Deeds of Camarines Sur. In view of the foregoing, Marife O. Nio went to the Register of Deeds of Camarines Sur with the Deed of Sale (Exh. C) in order to have the same registered. The Register of Deeds, however, informed her that the document of sale cannot be registered without a board resolution of the [petitioner] Bank. Marife Nio then went to the bank, showed to if the Deed of Sale (Exh. C), the tax declaration and receipt of tax payments and requested the [petitioner] for a board resolution so that the property can be transferred to the name of Renato Ocfemia the husband of petitioner Francisca Ocfemia and the father of the other [respondents] having died already. The [petitioner] bank refused her request for a board resolution and made many alibi[s]. She was told that the [petitioner] bank ha[d] a new manager and it had no record of the sale. She was asked and she complied with the request of the [petitioner] for a copy of the deed of sale and receipt of payment. The president of the [petitioner] bank told her to get an authority from her parents and other [respondents] and receipts evidencing payment of the consideration appearing in the deed of sale. She complied with said requirements and after she gave all these documents, Marife O. Nio was again told

to wait for two (2) weeks because the [petitioner] bank would still study the matter. After two (2) weeks, Marife O. Nio returned to the [petitioner] bank and she was told that the resolution of the board would not be released because the [petitioner] bank ha[d] no records from the old manager. Because of this, Marife O. Nio brought the matter to her lawyer and the latter wrote a letter on December 22, 1995 to the [petitioner] bank inquiring why no action was taken by the board of the request for the issuance of the resolution considering that the bank was already fully paid [for] the consideration of the sale since January 1988 as shown by the deed of sale itself (Exh. D and D-1 ). On January 15, 1996 the [petitioner] bank answered [respondents'] lawyer's letter (Exh. D and D-1) informing the latter that the request for board resolution ha[d] already been referred to the board of directors of the [petitioner] bank with another request that the latter should be furnished with a certified machine copy of the receipt of payment covering the sale between the [respondents] and the [petitioner] (Exh. E). This request of the [petitioner] bank was already complied [with] by Marife O. Nio even before she brought the matter to her lawyer. On January 23, 1996 [respondents'] lawyer wrote back the branch manager of the [petitioner] bank informing the latter that they were already furnished the receipts the bank was asking [for] and that the [respondents] want[ed] already to know the stand of the bank whether the board [would] issue the required board resolution as the deed of sale itself already show[ed] that the [respondents were] clearly entitled to the land subject of the sale (Exh. F). The manager of the [petitioner] bank received the letter which was served personally to him and the latter told Marife O. Nio that since he was the one himself who received the letter he would not sign anymore a copy showing him as having already received said letter (Exh. F). After several days from receipt of the letter (Exh. F) when Marife O. Nio went to the [petitioner] again and reiterated her request, the manager of the [petitioner] bank told her that they could not issue the required board resolution as the [petitioner] bank ha[d] no records of the sale. Because of this Merife O. Nio already went to their lawyer and ha[d] this petition filed. The [respondents] are interested in having the property described in paragraph 6 of the petition transferred to their names because their mother and co-petitioner, Francisca Ocfemia, is very sickly and they want to mortgage the property for the medical expenses of Francisca Ocfemia. The illness of Francisca Ocfemia beg[a]n after her husband died and her suffering from arthritis and pulmonary disease already became serious before December 1995. Marife O. Nio declared that her mother is now in serious condition and they could not have her hospitalized for treatment as they do not have any money and this is causing the family sleepless nights and mental anguish, thinking that their mother may die because they could not submit her for medication as they do not have money. 6 The trial court granted the Petition. As noted earlier, the CA affirmed the RTC Decision. Hence, this recourse. 7 In a Resolution dated June 23, 1999, this Court issued a Temporary Restraining Order directing the trial court "to refrain and desist from executing [pending appeal] the

decision dated May 20, 1997 in Civil Case No. RTC-96-3513, effective immediately until further orders from this Court." 8 Ruling of the Court of Appeals The CA held that herein respondents were "able to prove their present cause of action" against petitioner. It ruled that the RTC had jurisdiction over the case, because (1) the Petition involved a matter incapable of pecuniary estimation; (2) mandamus fell within the jurisdiction of RTC; and (3) assuming that the action was for specific performance as argued by the petitioner, it was still cognizable by the said court. Issues In its Memorandum, 9 the bank posed the following questions: 1. Question of Jurisdiction of the Regional Trial Court. Has a Regional Trial Court original jurisdiction over an action involving title to real property with a total assessed value of less than P20,000.00? 2. Question of Law. May the board of directors of a rural banking corporation be compelled to confirm a deed of absolute sale of real property owned by the corporation which deed of sale was executed by the bank manager without prior authority of the board of directors of the rural banking corporation? 10 This Court's Ruling The present Petition has no merit. First Issue: Jurisdiction of the Regional Trial Court Petitioner submits that the RTC had no jurisdiction over the case. Disputing the ruling of the appellate court that the present action was incapable of pecuniary estimation, petitioner argues that the matter in fact involved title to real property worth less than P20,000. Thus, under RA 7691, the case should have been filed before a metropolitan trial court, a municipal trial court or a municipal circuit trial court. We disagree. The well-settled rule is that jurisdiction is determined by the allegations of the complaint. 11 In the present case, the Petition for Mandamus filed by respondents before the trial court prayed that petitioner-bank be compelled to issue a board resolution confirming the Deed of Sale covering five parcels of unregistered land, which the bank manager had executed in their favor. The RTC has jurisdiction over such action pursuant to Section 21 of BP 129, which provides: Sec. 21. Original jurisdiction in other cases. Regional Trial Courts shall exercise original jurisdiction; (1) in the issuance of writ of certiorari, prohibition, mandamus, quo warranto, habeas corpus and injunction which may be enforced in any part of their respective regions; and (2) In actions affecting ambassadors and other public ministers and consuls. A perusal of the Petition shows that the respondents did not raise any question involving the title to the property, but merely asked that petitioner's board of directors be directed to issue the subject resolution. Moreover, the bank did not controvert the allegations in the said Petition. To repeat, the issue therein was not the title to the property; it was respondents' right to compel the bank to issue a board resolution confirming the Deed of Sale. Second Issue: Authority of the Bank Manager Respondents initiated the present proceedings, so that they could transfer to their names the subject five parcels of land; and subsequently, to mortgage said lots and to use the loan proceeds for the medical expenses of their ailing mother. For the property to be transferred in their names, however, the register of deeds required the submission of a board resolution from the bank confirming both the Deed of Sale and the authority of the bank

manager, Fe S. Tena, to enter into such transaction. Petitioner refused. After being given the runaround by the bank, respondents sued in exasperation. Allegations in the Petition for Mandamus Deemed Admitted Respondents based their action before the trial court on the Deed of Sale, the substance of which was alleged in and a copy thereof was attached to the Petition for Mandamus. The Deed named Fe S. Tena as the representative of the bank. Petitioner, however, failed to specifically deny under oath the allegations in that contract. In fact, it filed no answer at all, for which reason it was declared in default. Pertinent provisions of the Rules of Court read: Sec. 7. Action or defense based on document. Whenever an action or defense is based upon a written instrument or document, the substance of such instrument or document shall be set forth in the pleading, and the original or a copy thereof shall be attached to the pleading as an exhibit, which shall be deemed to be a part of the pleading, or said copy may with like effect be set forth in the pleading. Sec. 8. How to contest genuineness of such documents. When an action or defense is founded upon a written instrument, copied in or attached to the corresponding pleading as provided in the preceding section, the genuineness and due execution of the instrument shall be deemed admitted unless the adverse party, under oath, specifically denies them, and sets forth what he claims to be the facts; but this provision does not apply when the adverse party does not appear to be a party to the instrument or when compliance with an order for an inspection of the original instrument is refused. 12 In failing to file its answer specifically denying under oath the Deed of Sale, the bank admitted the due execution of the said contract. Such admission means that it acknowledged that Tena was authorized to sign the Deed of Sale on its behalf. 13 Thus, defenses that are inconsistent with the due execution and the genuineness of the written instrument are cut off by an admission implied from a failure to make a verified specific denial. Other Acts of the Bank In any event, the bank acknowledged, by its own acts or failure to act, the authority of Fe S. Tena to enter into binding contracts. After the execution of the Deed of Sale, respondents occupied the properties in dispute and paid the real estate taxes due thereon. If the bank management believed that it had title to the property, it should have taken some measures to prevent the infringement or invasion of its title thereto and possession thereof. Likewise, Tena had previously transacted business on behalf of the bank, and the latter had acknowledged her authority. A bank is liable to innocent third persons where representation is made in the course of its normal business by an agent like Manager Tena, even though such agent is abusing her authority. 14 Clearly, persons dealing with her could not be blamed for believing that she was authorized to transact business for and on behalf of the bank. Thus, this Court has ruled in Board of Liquidators v. Kalaw: 15 Settled jurisprudence has it that where similar acts have been approved by the directors as a matter of general practice, custom, and policy, the general manager may bind the company without formal authorization of the board of directors. In varying language, existence of such authority is established, by proof of the course of business, the usages and practices of the company and by the knowledge which the board of directors has, or must be presumed to have, of acts and doings of its subordinates in and about the affairs of the corporation. So also,

. . . authority to act for and bind a corporation may be presumed from acts of recognition in other instances where the power was in fact exercised. . . . Thus, when, in the usual course of business of a corporation, an officer has been allowed in his official capacity to manage its affairs, his authority to represent the corporation may be implied from the manner in which he has been permitted by the directors to manage its business. Notwithstanding the putative authority of the manager to bind the bank in the Deed of Sale, petitioner has failed to file an answer to the Petition below within the reglementary period, let alone present evidence controverting such authority. Indeed, when one of herein respondents, Marife S. Nino, went to the bank to ask for the board resolution, she was merely told to bring the receipts. The bank failed to categorically declare that Tena had no authority. This Court stresses the following: . . . Corporate transactions would speedily come to a standstill were every person dealing with a corporation held duty-bound to disbelieve every act of its responsible officers, no matter how regular they should appear on their face. This Court has observed in Ramirez vs. Orientalist Co., 38 Phil. 634, 654-655, that In passing upon the liability of a corporation in cases of this kind it is always well to keep in mind the situation as it presents itself to the third party with whom the contract is made. Naturally he can have little or no information as to what occurs in corporate meetings; and he must necessarily rely upon the external manifestation of corporate consent. The integrity of commercial transactions can only be maintained by holding the corporation strictly to the liability fixed upon it by its agents in accordance with law; and we would be sorry to announce a doctrine which would permit the property of man in the city of Paris to be whisked out of his hands and carried into a remote quarter of the earth without recourse against the corporation whose name and authority had been used in the manner disclosed in this case. As already observed, it is familiar doctrine that if a corporation knowingly permits one of its officers, or any other agent, to do acts within the scope of an apparent authority, and thus holds him out to the public as possessing power to do those acts, the corporation will, as against any one who has in good faith dealt with the corporation through such agent, be estopped from denying his authority; and where it is said "if the corporation permits this means the same as "if the thing is permitted by the directing power of the corporation." 16 In this light, the bank is estopped from questioning the authority of the bank manager to enter into the contract of sale. If a corporation knowingly permits one of its officers or any other agent to act within the scope of an apparent authority, it holds the agent out to the public as possessing the power to do those acts; thus, the corporation will, as against anyone who has in good faith dealt with it through such agent, be estopped from denying the agent's authority. 17 Unquestionably, petitioner has authorized Tena to enter into the Deed of Sale. Accordingly, it has a clear legal duty to issue the board resolution sought by respondent's. Having authorized her to

sell the property, it behooves the bank to confirm the Deed of Sale so that the buyers may enjoy its full use. The board resolution is, in fact, mere paper work. Nonetheless, it is paper work necessary in the orderly operations of the register of deeds and the full enjoyment of respondents' rights. Petitionerbank persistently and unjustifiably refused to perform its legal duty. Worse, it was less than candid in dealing with respondents regarding this matter. In this light, the Court finds it proper to assess the bank treble costs, in addition to the award of damages. WHEREFORE, the Petition is hereby DENIED and the assailed Decision and Resolution AFFIRMED. The Temporary Restraining Order issued by this Court is hereby LIFTED. Treble costs against petitioner. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 159489 February 4, 2008 FILIPINAS LIFE ASSURANCE COMPANY (now AYALA LIFE ASSURANCE, INC.), petitioner, vs. CLEMENTE N. PEDROSO, TERESITA O. PEDROSO and JENNIFER N. PALACIO thru her Attorney-in-Fact PONCIANO C. MARQUEZ, respondents. DECISION QUISUMBING, J.: This petition for review on certiorari seeks the reversal of the Decision1 and Resolution,2 dated November 29, 2002 and August 5, 2003, respectively, of the Court of Appeals in CA-G.R. CV No. 33568. The appellate court had affirmed the Decision 3 dated October 10, 1989 of the Regional Trial Court (RTC) of Manila, Branch 3, finding petitioner as defendant and the co-defendants below jointly and severally liable to the plaintiffs, now herein respondents. The antecedent facts are as follows: Respondent Teresita O. Pedroso is a policyholder of a 20-year endowment life insurance issued by petitioner Filipinas Life Assurance Company (Filipinas Life). Pedroso claims Renato Valle was her insurance agent since 1972 and Valle collected her monthly premiums. In the first week of January 1977, Valle told her that the Filipinas Life Escolta Office was holding a promotional investment program for policyholders. It was offering 8% prepaid interest a month for certain amounts deposited on a monthly basis. Enticed, she initially invested and issued a postdated check dated January 7, 1977 for P10,000.4 In return, Valle issued Pedroso his personal check for P800 for the 8%5 prepaid interest and a Filipinas Life "Agents Receipt" No. 807838.6 Subsequently, she called the Escolta office and talked to Francisco Alcantara, the administrative assistant, who referred her to the branch manager, Angel Apetrior. Pedroso inquired about the promotional investment and Apetrior confirmed that there was such a promotion. She was even told she could "push through with the check" she issued. From the records, the check, with the endorsement of Alcantara at the back, was deposited in the account of Filipinas Life with the Commercial Bank and Trust Company (CBTC), Escolta Branch. Relying on the representations made by the petitioners duly authorized representatives Apetrior and Alcantara, as well as having known agent Valle for quite some time, Pedroso waited for the maturity of her initial investment. A month after, her investment of P10,000 was returned to her after she made a written request for its refund. The formal written request, dated February 3, 1977, was written on an inter-office memorandum form of Filipinas Life prepared by Alcantara. 7 To collect the amount, Pedroso personally went to the Escolta branch where Alcantara gave her the P10,000 in cash. After a second investment, she made 7 to 8 more investments in varying amounts, totaling P37,000 but at a lower rate of 5%8 prepaid interest a month. Upon maturity of Pedrosos subsequent investments, Valle would take back from Pedroso the corresponding yellow-colored agents receipt he issued to the latter. Pedroso told respondent Jennifer N. Palacio, also a Filipinas Life insurance policyholder, about the investment plan. Palacio made a total investment of P49,5509 but at only 5% prepaid interest. However, when Pedroso tried to withdraw her investment, Valle did not want to return some P17,000 worth of it. Palacio also tried to withdraw hers, but Filipinas Life, despite demands, refused to return her money. With the assistance of their lawyer, they went to

Filipinas Life Escolta Office to collect their respective investments, and to inquire why they had not seen Valle for quite some time. But their attempts were futile. Hence, respondents filed an action for the recovery of a sum of money. After trial, the RTC, Branch 3, Manila, held Filipinas Life and its co-defendants Valle, Apetrior and Alcantara jointly and solidarily liable to the respondents. On appeal, the Court of Appeals affirmed the trial courts ruling and subsequently denied the motion for reconsideration. Petitioner now comes before us raising a single issue: WHETHER OR NOT THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR AND GRAVELY ABUSED ITS DISCRETION IN AFFIRMING THE DECISION OF THE LOWER COURT HOLDING FLAC [FILIPINAS LIFE] TO BE JOINTLY AND SEVERALLY LIABLE WITH ITS CODEFENDANTS ON THE CLAIM OF RESPONDENTS INSTEAD OF HOLDING ITS AGENT, RENATO VALLE, SOLELY LIABLE TO THE RESPONDENTS.10 Simply put, did the Court of Appeals err in holding petitioner and its co-defendants jointly and severally liable to the herein respondents? Filipinas Life does not dispute that Valle was its agent, but claims that it was only a life insurance company and was not engaged in the business of collecting investment money. It contends that the investment scheme offered to respondents by Valle, Apetrior and Alcantara was outside the scope of their authority as agents of Filipinas Life such that, it cannot be held liable to the respondents.11 On the other hand, respondents contend that Filipinas Life authorized Valle to solicit investments from them. In fact, Filipinas Lifes official documents and facilities were used in consummating the transactions. These transactions, according to respondents, were confirmed by its officers Apetrior and Alcantara. Respondents assert they exercised all the diligence required of them in ascertaining the authority of petitioners agents; and it is Filipinas Life that failed in its duty to ensure that its agents act within the scope of their authority. Considering the issue raised in the light of the submissions of the parties, we find that the petition lacks merit. The Court of Appeals committed no reversible error nor abused gravely its discretion in rendering the assailed decision and resolution. It appears indisputable that respondents Pedroso and Palacio had invested P47,000 and P49,550, respectively. These were received by Valle and remitted to Filipinas Life, using Filipinas Lifes official receipts, whose authenticity were not disputed. Valles authority to solicit and receive investments was also established by the parties. When respondents sought confirmation, Alcantara, holding a supervisory position, and Apetrior, the branch manager, confirmed that Valle had authority. While it is true that a person dealing with an agent is put upon inquiry and must discover at his own peril the agents authority, in this case, respondents did exercise due diligence in removing all doubts and in confirming the validity of the representations made by Valle. Filipinas Life, as the principal, is liable for obligations contracted by its agent Valle. 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. 12 The general rule is that the principal is responsible for the acts of its agent done within the scope of its authority, and should bear the damage caused to third persons.13 When the agent exceeds his authority, the agent becomes personally liable for the damage.14 But even when the agent exceeds his authority, the principal is still solidarily liable together with the agent if the principal allowed the agent to act as though the agent had full powers.15 In other words,

the acts of an agent beyond the scope of his authority do not bind the principal, unless the principal ratifies them, expressly or impliedly.16 Ratification in agency is the adoption or confirmation by one person of an act performed on his behalf by another without authority.17 Filipinas Life cannot profess ignorance of Valles acts. Even if Valles representations were beyond his authority as a debit/insurance agent, Filipinas Life thru Alcantara and Apetrior expressly and knowingly ratified Valles acts. It cannot even be denied that Filipinas Life benefited from the investments deposited by Valle in the account of Filipinas Life. In our considered view, Filipinas Life had clothed Valle with apparent authority; hence, it is now estopped to deny said authority. Innocent third persons should not be prejudiced if the principal failed to adopt the needed measures to prevent misrepresentation, much more so if the principal ratified his agents acts beyond the latters authority. The act of the agent is considered that of the principal itself. Qui per alium facit per seipsum facere videtur. "He who does a thing by an agent is considered as doing it himself."18 WHEREFORE, the petition is DENIED for lack of merit. The Decision and Resolution, dated November 29, 2002 and August 5, 2003, respectively, of the Court of Appeals in CA-G.R. CV No. 33568 are AFFIRMED. Costs against the petitioner. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. 126297 February 2, 2010 PROFESSIONAL SERVICES, INC., Petitioner, vs. THE COURT OF APPEALS and NATIVIDAD and ENRIQUE AGANA, Respondents. x - - - - - - - - - - - - - - - - - - - - - - -x G.R. No. 126467 NATIVIDAD [substituted by her children Marcelino Agana III, Enrique Agana, Jr., Emma Agana-Andaya, Jesus Agana and Raymund Agana] and ENRIQUE AGANA, Petitioners, vs. THE COURT OF APPEALS and JUAN FUENTES, Respondents. x - - - - - - - - - - - - - - - - - - - - - - -x G.R. No. 127590 MIGUEL AMPIL, Petitioner, vs. NATIVIDAD and ENRIQUE AGANA, Respondents. RESOLUTION CORONA, J.: With prior leave of court,1 petitioner Professional Services, Inc. (PSI) filed a second motion for reconsideration 2 urging referral thereof to the Court en banc and seeking modification of the decision dated January 31, 2007 and resolution dated February 11, 2008 which affirmed its vicarious and direct liability for damages to respondents Enrique Agana and the heirs of Natividad Agana (Aganas). Manila Medical Services, Inc. (MMSI),3 Asian Hospital, Inc. (AHI),4 and Private Hospital Association of the Philippines (PHAP)5 all sought to intervene in these cases invoking the common ground that, unless modified, the assailed decision and resolution will jeopardize the financial viability of private hospitals and jack up the cost of health care. The Special First Division of the Court granted the motions for intervention of MMSI, AHI and PHAP (hereafter intervenors),6 and referred en consulta to the Court en banc the motion for prior leave of court and the second motion for reconsideration of PSI. 7 Due to paramount public interest, the Court en banc accepted the referral8 and heard the parties on oral arguments on one particular issue: whether a hospital may be held liable for the negligence of physicians-consultants allowed to practice in its premises. 9 To recall the salient facts, PSI, together with Dr. Miguel Ampil (Dr. Ampil) and Dr. Juan Fuentes (Dr. Fuentes), was impleaded by Enrique Agana and Natividad Agana (later substituted by her heirs), in a complaint10 for damages filed in the Regional Trial Court (RTC) of Quezon City, Branch 96, for the injuries suffered by Natividad when Dr. Ampil and Dr. Fuentes neglected to remove from her body two gauzes11 which were used in the surgery they performed on her on April 11, 1984 at the Medical City General Hospital. PSI was impleaded as owner, operator and manager of the hospital. In a decision12 dated March 17, 1993, the RTC held PSI solidarily liable with Dr. Ampil and Dr. Fuentes for damages. 13 On appeal, the Court of Appeals (CA), absolved Dr. Fuentes but affirmed the liability of Dr. Ampil and PSI, subject to the right of PSI to claim reimbursement from Dr. Ampil.141avvphi1 On petition for review, this Court, in its January 31, 2007 decision, affirmed the CA decision.15 PSI filed a motion for reconsideration16 but the Court denied it in a resolution dated February 11, 2008.17

The Court premised the direct liability of PSI to the Aganas on the following facts and law: First, there existed between PSI and Dr. Ampil an employeremployee relationship as contemplated in the December 29, 1999 decision in Ramos v. Court of Appeals18 that "for purposes of allocating responsibility in medical negligence cases, an employeremployee relationship exists between hospitals and their consultants."19 Although the Court in Ramos later issued a Resolution dated April 11, 200220 reversing its earlier finding on the existence of an employment relationship between hospital and doctor, a similar reversal was not warranted in the present case because the defense raised by PSI consisted of a mere general denial of control or responsibility over the actions of Dr. Ampil. 21 Second, by accrediting Dr. Ampil and advertising his qualifications, PSI created the public impression that he was its agent.22 Enrique testified that it was on account of Dr. Ampil's accreditation with PSI that he conferred with said doctor about his wife's (Natividad's) condition.23 After his meeting with Dr. Ampil, Enrique asked Natividad to personally consult Dr. Ampil. 24 In effect, when Enrigue and Natividad engaged the services of Dr. Ampil, at the back of their minds was that the latter was a staff member of a prestigious hospital. Thus, under the doctrine of apparent authority applied in Nogales, et al. v. Capitol Medical Center, et al.,25 PSI was liable for the negligence of Dr. Ampil. Finally, as owner and operator of Medical City General Hospital, PSI was bound by its duty to provide comprehensive medical services to Natividad Agana, to exercise reasonable care to protect her from harm,26 to oversee or supervise all persons who practiced medicine within its walls, and to take active steps in fixing any form of negligence committed within its premises.27 PSI committed a serious breach of its corporate duty when it failed to conduct an immediate investigation into the reported missing gauzes.28 PSI is now asking this Court to reconsider the foregoing rulings for these reasons: I The declaration in the 31 January 2007 Decision vis-a-vis the 11 February 2009 Resolution that the ruling in Ramos vs. Court of Appeals (G.R. No. 134354, December 29, 1999) that "an employer-employee relations exists between hospital and their consultants" stays should be set aside for being inconsistent with or contrary to the import of the resolution granting the hospital's motion for reconsideration in Ramos vs. Court of Appeals (G.R. No. 134354, April 11, 2002), which is applicable to PSI since the Aganas failed to prove an employer-employee relationship between PSI and Dr. Ampil and PSI proved that it has no control over Dr. Ampil. In fact, the trial court has found that there is no employer-employee relationship in this case and that the doctor's are independent contractors. II Respondents Aganas engaged Dr. Miguel Ampil as their doctor and did not primarily and specifically look to the Medical City Hospital (PSI) for medical care and support; otherwise stated, respondents Aganas did not select Medical City Hospital (PSI) to provide medical care because of any apparent authority of Dr. Miguel Ampil as its agent since the latter was chosen primarily and specifically based on his qualifications and being friend and neighbor. III PSI cannot be liable under doctrine of corporate negligence since the proximate cause of Mrs. Agana's injury was the negligence of Dr. Ampil, which is an element of the principle of corporate negligence.29 In their respective memoranda, intervenors raise parallel arguments that the Court's ruling on the existence of an employer-employee

relationship between private hospitals and consultants will force a drastic and complex alteration in the long-established and currently prevailing relationships among patient, physician and hospital, with burdensome operational and financial consequences and adverse effects on all three parties.30 The Aganas comment that the arguments of PSI need no longer be entertained for they have all been traversed in the assailed decision and resolution.31 After gathering its thoughts on the issues, this Court holds that PSI is liable to the Aganas, not under the principle of respondeat superior for lack of evidence of an employment relationship with Dr. Ampil but under the principle of ostensible agency for the negligence of Dr. Ampil and, pro hac vice, under the principle of corporate negligence for its failure to perform its duties as a hospital. While in theory a hospital as a juridical entity cannot practice medicine,32 in reality it utilizes doctors, surgeons and medical practitioners in the conduct of its business of facilitating medical and surgical treatment.33 Within that reality, three legal relationships crisscross: (1) between the hospital and the doctor practicing within its premises; (2) between the hospital and the patient being treated or examined within its premises and (3) between the patient and the doctor. The exact nature of each relationship determines the basis and extent of the liability of the hospital for the negligence of the doctor. Where an employment relationship exists, the hospital may be held vicariously liable under Article 217634 in relation to Article 218035 of the Civil Code or the principle of respondeat superior. Even when no employment relationship exists but it is shown that the hospital holds out to the patient that the doctor is its agent, the hospital may still be vicariously liable under Article 2176 in relation to Article 143136 and Article 186937 of the Civil Code or the principle of apparent authority. 38 Moreover, regardless of its relationship with the doctor, the hospital may be held directly liable to the patient for its own negligence or failure to follow established standard of conduct to which it should conform as a corporation.39 This Court still employs the "control test" to determine the existence of an employer-employee relationship between hospital and doctor. In Calamba Medical Center, Inc. v. National Labor Relations Commission, et al.40 it held: Under the "control test", an employment relationship exists between a physician and a hospital if the hospital controls both the means and the details of the process by which the physician is to accomplish his task. xxx xxx xxx As priorly stated, private respondents maintained specific workschedules, as determined by petitioner through its medical director, which consisted of 24-hour shifts totaling forty-eight hours each week and which were strictly to be observed under pain of administrative sanctions. That petitioner exercised control over respondents gains light from the undisputed fact that in the emergency room, the operating room, or any department or ward for that matter, respondents' work is monitored through its nursing supervisors, charge nurses and orderlies. Without the approval or consent of petitioner or its medical director, no operations can be undertaken in those areas. For control test to apply, it is not essential for the employer to actually supervise the performance of duties of the employee, it being enough that it has the right to wield the power. (emphasis supplied) Even in its December 29, 1999 decision41 and April 11, 2002 resolution42 in Ramos, the Court found the control test decisive. In the present case, it appears to have escaped the Court's attention that both the RTC and the CA found no employment relationship

between PSI and Dr. Ampil, and that the Aganas did not question such finding. In its March 17, 1993 decision, the RTC found "that defendant doctors were not employees of PSI in its hospital, they being merely consultants without any employer-employee relationship and in the capacity of independent contractors."43 The Aganas never questioned such finding. PSI, Dr. Ampil and Dr. Fuentes appealed44 from the RTC decision but only on the issues of negligence, agency and corporate liability. In its September 6, 1996 decision, the CA mistakenly referred to PSI and Dr. Ampil as employer-employee, but it was clear in its discussion on the matter that it viewed their relationship as one of mere apparent agency.45 The Aganas appealed from the CA decision, but only to question the exoneration of Dr. Fuentes.46 PSI also appealed from the CA decision, and it was then that the issue of employment, though long settled, was unwittingly resurrected. In fine, as there was no dispute over the RTC finding that PSI and Dr. Ampil had no employer-employee relationship, such finding became final and conclusive even to this Court. 47 There was no reason for PSI to have raised it as an issue in its petition. Thus, whatever discussion on the matter that may have ensued was purely academic. Nonetheless, to allay the anxiety of the intervenors, the Court holds that, in this particular instance, the concurrent finding of the RTC and the CA that PSI was not the employer of Dr. Ampil is correct. Control as a determinative factor in testing the employer-employee relationship between doctor and hospital under which the hospital could be held vicariously liable to a patient in medical negligence cases is a requisite fact to be established by preponderance of evidence. Here, there was insufficient evidence that PSI exercised the power of control or wielded such power over the means and the details of the specific process by which Dr. Ampil applied his skills in the treatment of Natividad. Consequently, PSI cannot be held vicariously liable for the negligence of Dr. Ampil under the principle of respondeat superior. There is, however, ample evidence that the hospital (PSI) held out to the patient (Natividad)48 that the doctor (Dr. Ampil) was its agent. Present are the two factors that determine apparent authority: first, the hospital's implied manifestation to the patient which led the latter to conclude that the doctor was the hospital's agent; and second, the patients reliance upon the conduct of the hospital and the doctor, consistent with ordinary care and prudence.49 Enrique testified that on April 2, 1984, he consulted Dr. Ampil regarding the condition of his wife; that after the meeting and as advised by Dr. Ampil, he "asked [his] wife to go to Medical City to be examined by [Dr. Ampil]"; and that the next day, April 3, he told his daughter to take her mother to Dr. Ampil.50 This timeline indicates that it was Enrique who actually made the decision on whom Natividad should consult and where, and that the latter merely acceded to it. It explains the testimony of Natividad that she consulted Dr. Ampil at the instigation of her daughter.51 Moreover, when asked what impelled him to choose Dr. Ampil, Enrique testified: Atty. Agcaoili On that particular occasion, April 2, 1984, what was your reason for choosing Dr. Ampil to contact with in connection with your wife's illness? A. First, before that, I have known him to be a specialist on that part of the body as a surgeon, second, I have known him to be a staff member of the Medical City which is a prominent and known hospital. And third, because he is a neighbor, I expect more than the usual medical service to be given to us, than his ordinary patients.52 (emphasis supplied)

Clearly, the decision made by Enrique for Natividad to consult Dr. Ampil was significantly influenced by the impression that Dr. Ampil was a staff member of Medical City General Hospital, and that said hospital was well known and prominent. Enrique looked upon Dr. Ampil not as independent of but as integrally related to Medical City. PSI's acts tended to confirm and reinforce, rather than negate, Enrique's view. It is of record that PSI required a "consent for hospital care"53 to be signed preparatory to the surgery of Natividad. The form reads: Permission is hereby given to the medical, nursing and laboratory staff of the Medical City General Hospital to perform such diagnostic procedures and to administer such medications and treatments as may be deemed necessary or advisable by the physicians of this hospital for and during the confinement of xxx. (emphasis supplied) By such statement, PSI virtually reinforced the public impression that Dr. Ampil was a physician of its hospital, rather than one independently practicing in it; that the medications and treatments he prescribed were necessary and desirable; and that the hospital staff was prepared to carry them out.1avvphi1 PSI pointed out in its memorandum that Dr. Ampil's hospital affiliation was not the exclusive basis of the Aganas decision to have Natividad treated in Medical City General Hospital, meaning that, had Dr. Ampil been affiliated with another hospital, he would still have been chosen by the Aganas as Natividad's surgeon.54 The Court cannot speculate on what could have been behind the Aganas decision but would rather adhere strictly to the fact that, under the circumstances at that time, Enrique decided to consult Dr. Ampil for he believed him to be a staff member of a prominent and known hospital. After his meeting with Dr. Ampil, Enrique advised his wife Natividad to go to the Medical City General Hospital to be examined by said doctor, and the hospital acted in a way that fortified Enrique's belief. This Court must therefore maintain the ruling that PSI is vicariously liable for the negligence of Dr. Ampil as its ostensible agent. Moving on to the next issue, the Court notes that PSI made the following admission in its Motion for Reconsideration: 51. Clearly, not being an agent or employee of petitioner PSI, PSI [sic] is not liable for Dr. Ampil's acts during the operation. Considering further that Dr. Ampil was personally engaged as a doctor by Mrs. Agana, it is incumbent upon Dr. Ampil, as "Captain of the Ship", and as the Agana's doctor to advise her on what to do with her situation vis-a-vis the two missing gauzes. In addition to noting the missing gauzes, regular check-ups were made and no signs of complications were exhibited during her stay at the hospital, which could have alerted petitioner PSI's hospital to render and provide post-operation services to and tread on Dr. Ampil's role as the doctor of Mrs. Agana. The absence of negligence of PSI from the patient's admission up to her discharge is borne by the finding of facts in this case. Likewise evident therefrom is the absence of any complaint from Mrs. Agana after her discharge from the hospital which had she brought to the hospital's attention, could have alerted petitioner PSI to act accordingly and bring the matter to Dr. Ampil's attention. But this was not the case. Ms. Agana complained ONLY to Drs. Ampil and Fuentes, not the hospital. How then could PSI possibly do something to fix the negligence committed by Dr. Ampil when it was not informed about it at all.55 (emphasis supplied) PSI reiterated its admission when it stated that had Natividad Agana "informed the hospital of her discomfort and pain, the hospital would have been obliged to act on it."56 The significance of the foregoing statements is critical.

First, they constitute judicial admission by PSI that while it had no power to control the means or method by which Dr. Ampil conducted the surgery on Natividad Agana, it had the power to review or cause the review of what may have irregularly transpired within its walls strictly for the purpose of determining whether some form of negligence may have attended any procedure done inside its premises, with the ultimate end of protecting its patients. Second, it is a judicial admission that, by virtue of the nature of its business as well as its prominence57 in the hospital industry, it assumed a duty to "tread on" the "captain of the ship" role of any doctor rendering services within its premises for the purpose of ensuring the safety of the patients availing themselves of its services and facilities. Third, by such admission, PSI defined the standards of its corporate conduct under the circumstances of this case, specifically: (a) that it had a corporate duty to Natividad even after her operation to ensure her safety as a patient; (b) that its corporate duty was not limited to having its nursing staff note or record the two missing gauzes and (c) that its corporate duty extended to determining Dr. Ampil's role in it, bringing the matter to his attention, and correcting his negligence. And finally, by such admission, PSI barred itself from arguing in its second motion for reconsideration that the concept of corporate responsibility was not yet in existence at the time Natividad underwent treatment;58 and that if it had any corporate responsibility, the same was limited to reporting the missing gauzes and did not include "taking an active step in fixing the negligence committed."59 An admission made in the pleading cannot be controverted by the party making such admission and is conclusive as to him, and all proofs submitted by him contrary thereto or inconsistent therewith should be ignored, whether or not objection is interposed by a party. 60 Given the standard of conduct that PSI defined for itself, the next relevant inquiry is whether the hospital measured up to it. PSI excuses itself from fulfilling its corporate duty on the ground that Dr. Ampil assumed the personal responsibility of informing Natividad about the two missing gauzes. 61 Dr. Ricardo Jocson, who was part of the group of doctors that attended to Natividad, testified that toward the end of the surgery, their group talked about the missing gauzes but Dr. Ampil assured them that he would personally notify the patient about it. 62 Furthermore, PSI claimed that there was no reason for it to act on the report on the two missing gauzes because Natividad Agana showed no signs of complications. She did not even inform the hospital about her discomfort.63 The excuses proffered by PSI are totally unacceptable. To begin with, PSI could not simply wave off the problem and nonchalantly delegate to Dr. Ampil the duty to review what transpired during the operation. The purpose of such review would have been to pinpoint when, how and by whom two surgical gauzes were mislaid so that necessary remedial measures could be taken to avert any jeopardy to Natividads recovery. Certainly, PSI could not have expected that purpose to be achieved by merely hoping that the person likely to have mislaid the gauzes might be able to retrace his own steps. By its own standard of corporate conduct, PSI's duty to initiate the review was non-delegable. While Dr. Ampil may have had the primary responsibility of notifying Natividad about the missing gauzes, PSI imposed upon itself the separate and independent responsibility of initiating the inquiry into the missing gauzes. The purpose of the first would have been to apprise Natividad of what transpired during her surgery, while the purpose of the second would have been to pinpoint any lapse in procedure that led to the gauze count discrepancy, so as to prevent a recurrence thereof and to determine

corrective measures that would ensure the safety of Natividad. That Dr. Ampil negligently failed to notify Natividad did not release PSI from its self-imposed separate responsibility. Corollary to its non-delegable undertaking to review potential incidents of negligence committed within its premises, PSI had the duty to take notice of medical records prepared by its own staff and submitted to its custody, especially when these bear earmarks of a surgery gone awry. Thus, the record taken during the operation of Natividad which reported a gauze count discrepancy should have given PSI sufficient reason to initiate a review. It should not have waited for Natividad to complain. As it happened, PSI took no heed of the record of operation and consequently did not initiate a review of what transpired during Natividads operation. Rather, it shirked its responsibility and passed it on to others to Dr. Ampil whom it expected to inform Natividad, and to Natividad herself to complain before it took any meaningful step. By its inaction, therefore, PSI failed its own standard of hospital care. It committed corporate negligence. It should be borne in mind that the corporate negligence ascribed to PSI is different from the medical negligence attributed to Dr. Ampil. The duties of the hospital are distinct from those of the doctor-consultant practicing within its premises in relation to the patient; hence, the failure of PSI to fulfill its duties as a hospital corporation gave rise to a direct liability to the Aganas distinct from that of Dr. Ampil. All this notwithstanding, we make it clear that PSIs hospital liability based on ostensible agency and corporate negligence applies only to this case, pro hac vice. It is not intended to set a precedent and should not serve as a basis to hold hospitals liable for every form of negligence of their doctors-consultants under any and all circumstances. The ruling is unique to this case, for the liability of PSI arose from an implied agency with Dr. Ampil and an admitted corporate duty to Natividad.64 Other circumstances peculiar to this case warrant this ruling, 65 not the least of which being that the agony wrought upon the Aganas has gone on for 26 long years, with Natividad coming to the end of her days racked in pain and agony. Such wretchedness could have been avoided had PSI simply done what was logical: heed the report of a guaze count discrepancy, initiate a review of what went wrong and take corrective measures to ensure the safety of Nativad. Rather, for 26 years, PSI hemmed and hawed at every turn, disowning any such responsibility to its patient. Meanwhile, the options left to the Aganas have all but dwindled, for the status of Dr. Ampil can no longer be ascertained. 66 Therefore, taking all the equities of this case into consideration, this Court believes P15 million would be a fair and reasonable liability of PSI, subject to 12% p.a. interest from the finality of this resolution to full satisfaction. WHEREFORE, the second motion for reconsideration is DENIED and the motions for intervention are NOTED. Professional Services, Inc. is ORDERED pro hac vice to pay Natividad (substituted by her children Marcelino Agana III, Enrique Agana, Jr., Emma Agana-Andaya, Jesus Agana and Raymund Agana) and Enrique Agana the total amount of P15 million, subject to 12% p.a. interest from the finality of this resolution to full satisfaction. No further pleadings by any party shall be entertained in this case. Let the long-delayed entry of judgment be made in this case upon receipt by all concerned parties of this resolution. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. NO. 170530 July 5, 2010 SARGASSO CONSTRUCTION & DEVELOPMENT CORPORATION/PICK & SHOVEL, INC.,/ATLANTIC ERECTORS, INC. (JOINT VENTURE), Petitioner, vs. PHILIPPINE PORTS AUTHORITY, Respondent. DECISION MENDOZA, J.: This is a petition for review on certiorari under Rule 45 which seeks to annul and set aside the August 22, 2005 Decision 1 of the Court of Appeals (CA) in CA-G.R. CV No. 63180 and its November 14, 2005 Resolution 2 denying petitioners motion for the reconsideration thereof. The questioned CA decision reversed the June 8, 1998 Decision 3 of the Regional Trial Court of Manila, Branch 14, in Civil Case No. 97-83916, which granted petitioners action for specific performance. The factual and procedural antecedents have been succinctly recited in the subject Court of Appeals decision in this wise:4 Plaintiff Sargasso Construction and Development Corporation, Pick and Shovel, Inc. and Atlantic Erectors, Inc., a joint venture, was awarded the construction of Pier 2 and the rock causeway (R.C. Pier 2) for the port of San Fernando, La Union, after a public bidding conducted by the defendant PPA. Implementation of the project commenced on August 14, 1990. The port construction was in pursuance of the development of the Northwest Luzon Growth Quadrangle. Adjacent to Pier 2 is an area of P4,280 square meters intended for the reclamation project as part of the overall port development plan. In a letter dated October 1, 1992 of Mr. Melecio J. Go, Executive Director of the consortium, plaintiff offered to undertake the reclamation between the Timber Pier and Pier 2 of the Port of San Fernando, La Union, as an extra work to its existing construction of R.C. Pier 2 and Rock Causeway for a price of P36,294,857.03. Defendant replied thru its Assistant General Manager Teofilo H. Landicho who sent the following letter dated December 18, 1992: "This is to acknowledge receipt of your letter dated 01 October 1992 offering to undertake the reclamation between the Timber Pier and Pier 2, at the Port of San Fernando, La Union as an extra work to your existing contract. "Your proposal to undertake the project at a total cost of THIRTY SIX MILLION TWO HUNDRED NINETY FOUR THOUSAND EIGHT HUNDRED FIFTY SEVEN AND 03/100 PESOS (P36,294,857.03) is not acceptable to PPA. If you can reduce your offer to THIRTY MILLION SEVEN HUNDRED NINETY FOUR THOUSAND TWO HUNDRED THIRTY AND 89/100 (P30,794,230.89) we may consider favorably award of the project in your favor, subject to the approval of higher authority. Please signify your agreement to the reduced amount of P30,794,230.89 by signing in the space provided below. (emphasis in the original) On August 26, 1993, a Notice of Award signed by PPA General Manager Rogelio Dayan was sent to plaintiff for the phase I Reclamation Contract in the amount of P30,794,230.89 and instructing it to "enter into and execute the contract agreement with this Office" and to furnish the documents representing performance security and credit line. Defendant likewise stated [and] made it a condition that "fendering of Pier No. 2 Port of San Fernando, and the Port of Tabaco is completed before the approval of the contract for the reclamation project." Installation of the rubber dock fenders in the said ports was accomplished in the year

1994. PPA Management further set a condition [that] "the acceptance by the contractor that mobilization/demobilization cost shall not be included in the contract and that escalation shall be reckoned upon approval of the Supplemental Agreement." The award of the negotiated contract as additional or supplemental project in favor of plaintiff was intended "to save on the mobilization/demobilization costs and some items as provided for in the original contract." Hence, then General Manager Carlos L. Agustin presented for consideration by the PPA Board of Directors the contract proposal for the reclamation project. At its meeting held on September 9, 1994, the Board decided not to approve the contract proposal, as reflected in the following excerpt of the minutes taken during said board meeting: "After due deliberation, the Board advised Management to bid the project since there is no strong legal basis for Management to award the supplemental contract through negotiation. The Board noted that the Pier 2 Project was basically for the construction of a pier while the supplemental agreement refers to reclamation. Thus there is no basis to compare the terms and conditions of the reclamation project with the original contract (Pier 2 Project) of Sargasso."5 It appears that PPA did not formally advise the plaintiff of the Boards action on their contract proposal. As plaintiff learned that the Board was not inclined to favor its Supplemental Agreement, Mr. Go wrote General Manager Agustin requesting that the same be presented again to the Board meeting for approval. However, no reply was received by plaintiff from the defendant. On June 30, 1997, plaintiff filed a complaint for specific performance and damages before the Regional Trial Court of Manila alleging that defendant PPAs unjustified refusal to comply with its undertaking, unnecessarily leading to the delay in the implementation of the award under the August 26, 1993 Notice of Award, has put on hold plaintiffs men and resources earmarked for the project, aside from effectively tying its hands in undertaking other projects for fear that plaintiffs incapacity to undertake work might be spread thinly and it might not be able to function efficiently if the PPA project and other projects should require simultaneous attention. Plaintiff averred that it sought reconsideration of the August 9, 1996 letter of PPA informing it that it did not qualify to bid for the proposed extension of RC Pier No. 2, Port of San Fernando, La Union for not having IAC Registration and Classification and not complying with equipment requirement. In its letter dated September 19, 1996, plaintiff pointed out that the disqualification was clearly unjust and totally without basis considering that individual contractors of the joint venture have undertaken separately bigger projects, and have been such individual contractors for almost 16 years. It thus prayed that judgment be rendered by the court directing the defendant (a) to comply with its undertaking under the Notice of Award dated August 26, 1993; and (b) to pay plaintiff actual damages (P1,000,000.00), exemplary damages (P1,000,000.00), attorneys fees (P300,000.00) and expenses of litigation and costs (P50,000.00). Defendant PPA thru the Office of the Government Corporate Counsel (OGCC) filed its Answer with Compulsory Counterclaim contending that the alleged Notice of Award has already been properly revoked when the Supplemental Agreement which should have implemented the award was denied approval by defendants Board of Directors. As to plaintiffs pre-disqualification from participating in the bidding for the extension of R.C. Pier No. 2 Project at the Port of San Fernando, La Union, the same is based on factual determination by the defendant that plaintiff lacked IAC Registration and Classification and equipment for the said project as communicated in the August 9, 1996 letter. Defendant disclaimed any liability for whatever damages suffered by the

plaintiff when it "jumped the gun" by committing its alleged resources for the reclamation project despite the fact that no Notice to Proceed was issued to plaintiff by the defendant. The cause of action insofar as the Extension of R.C. Pier No. 2 of the Port of San Fernando, La Union, is barred by the statute of limitation since plaintiff filed its request for reconsideration way beyond the seven (7) day-period allowed under IB 6-5 of the Implementing Rules and Regulations of P.D. 1594. Defendant clarified that the proposed Reclamation Project and Extension of R.C. Pier No. 2 San Fernando, La Union, are separate projects of PPA. The Board of Directors denied approval of the Supplemental Agreement on September 9, 1994 for lack of legal basis to award the supplemental contract through negotiation which was properly communicated to the plaintiff as shown by its letter dated September 19, 1994 seeking reconsideration thereof. As advised by the Board, PPA Management began to make preparations for the public bidding for the proposed reclamation project. In the meantime, defendant decided to pursue the extension of R.C. Pier 2, San Fernando, La Union. xxx It [prayed that the complaint be dismissed]. (Emphasis supplied) After trial, the lower court rendered a decision in favor of the plaintiff, the dispositive portion of which reads: "WHEREFORE, and in view of the foregoing considerations, judgment is hereby rendered ordering the defendant to execute a contract in favor of the plaintiff for the reclamation of the area between the Timber Pier and Pier 2 located at San Fernando, La Union for the price of P30,794,230.89 and to pay the costs. The counterclaim is dismissed for lack of merit. SO ORDERED.6 In addressing affirmatively the basic issue of whether there was a perfected contract between the parties for the reclamation project, the trial court ruled that the "higher authority x x adverted to does not necessarily mean the Board of Directors (Board). Under IRR, P.D. 1594 (1)B10.6, approval of award and contracts is vested on the head of the infrastructure department or its duly authorized representative. Under Sec. 9 (iii) of P.D. 857 which has amended P.D. 505 that created the PPA, one of the particular powers and duties of the General Manager and Assistant General Manager is to sign contracts."7 It went on to say that "in the case of the PPA, the power to enter into contracts is not only vested on the Board of Directors, but also to the manager" citing Section 9 (III) of P.D. No. 857.8 The trial court added that the tenor of the Notice of Award implied that respondents general manager had been empowered by its Board of Directors to bind respondent by contract. It noted that whereas the letter-reply contained the phrase "approval of the higher authority," the conspicuous absence of the same in the Notice of Award supported the finding that the general manager had been vested with authority to enter into the contract for and in behalf of respondent. To the trial court, the disapproval by the PPA Board of the supplementary contract for the reclamation on a ground other than the general managers lack of authority was an explicit recognition that the latter was so authorized to enter into the purported contract. Respondent moved for a reconsideration of the RTC decision but it was denied for lack of merit. Respondent then filed its Notice of Appeal. Subsequently, petitioner moved to dismiss the appeal on the ground that respondent failed to perfect its appeal seasonably. On June 27, 2000, the Court of Appeals issued a Resolution9 dismissing respondents appeal for having been filed out time. Respondents motion for reconsideration of said resolution was also denied.10 Undaunted, respondent elevated its problem to this Court via a petition for review on certiorari under Rule 45 assailing the denial of its appeal. On July 30, 2004, the Court rendered an en banc

decision11 granting respondents petition on a liberal interpretation of the rules of procedure, and ordering the CA to conduct further proceedings. On August 22, 2005, the CA rendered the assailed decision reversing the trial courts decision and dismissing petitioners complaint for specific performance and damages. Thus, the dispositive portion thereof reads: WHEREFORE, premises considered, the present appeal is hereby GRANTED. The appealed Decision dated June 8, 1998 of the trial court in Civil Case No. 97-83916 is hereby REVERSED and SET ASIDE. A new judgment is hereby entered DISMISSING the complaint for specific performance and damages filed by Plaintiff Sargasso Construction and Development Corporation/Pick & Shovel, Inc./Atlantic Erectors, Inc., (Joint Venture) against the Philippine Ports Authority for lack of merit. In setting aside the trial courts decision, the CA ruled that the law itself should serve as the basis of the general managers authority to bind respondent corporation and, thus, the trial court erred in merely relying on the wordings of the Notice of Award and the Minutes of the Board meeting in determining the limits of his authority; that the power of the general manager "to sign contracts" is different from the Boards power "to make or enter (into) contracts"; and that, in the execution of contracts, the general manager only exercised a delegated power, in reference to which, evidence was wanting that the PPA Board delegated to its general manager the authority to enter into a supplementary contract for the reclamation project. The CA also found the disapproval of the contract on a ground other than the general managers lack of authority rather inconsequential because Executive Order 38012 expressly authorized the governing boards of government-owned or controlled corporations "to enter into negotiated infrastructure contracts involving not more than fifty million (P50 million)." The CA further noted that the Notice of Award was only one of those documents that comprised the entire contract and, therefore, did not in itself evidence the perfection of a contract. Hence, this petition. The issue to be resolved in this case is whether or not a contract has been perfected between the parties which, in turn, depends on whether or not the general manager of PPA is vested with authority to enter into a contract for and on behalf of PPA. The petition fails. Petitioner contends that the existence of "Notice of Award of Contract and Contractors Conforme thereto," resulting from its negotiation with respondent, proves that a contract has already been perfected, and that the other documents enumerated under the amended Rules and Regulations13 implementing P.D. 159414 are mere physical representations of the parties meeting of the minds; that the "Approval of Award by Approving Authority" is only a "supporting document," and not an evidence of perfection of contract, and which merely "facilitates the approval of the contract;"15 that PPA is bound by the acts of its general manager in issuing the Notice of Award under the doctrine of apparent authority; and that the doctrine of estoppel, being an equitable doctrine, cannot be invoked to perpetuate an injustice against petitioner. At the outset, it must be stated that there are two (2) separate and distinct, though related, projects involving the parties herein, viz: (i) the construction of Pier 2 and the rock causeway for the port of San Fernando, La Union, and (ii) the reclamation of the area between the Timber Pier and Pier 2 of the same port. Petitioners action for specific performance and damages merely relates to the latter. Every contract has the following essential elements: (i) consent, (ii) object certain and (iii) cause. Consent has been defined as the

concurrence of the wills of the contracting parties with respect to the object and cause which shall constitute the contract. 16 In general, contracts undergo three distinct stages, to wit: negotiation, perfection or birth, and consummation. Negotiation17 begins from the time the prospective contracting parties manifest their interest in the contract and ends at the moment of their agreement. Perfection or birth of the contract takes place when the parties agree upon the essential elements of the contract, i.e., consent, object and price. Consummation occurs when the parties fulfill or perform the terms agreed upon in the contract, culminating in the extinguishment thereof. The birth or the perfection of the contract, which is the crux of the present controversy, refers to that moment in the life of a contract when there is finally a concurrence of the wills of the contracting parties with respect to the object and the cause of the contract.18 A government or public contract has been defined as a contract entered into by state officers acting on behalf of the state, and in which the entire people of the state are directly interested. It relates wholly to matter of public concern, and affects private rights only so far as the statute confers such rights when its provisions are carried out by the officer to whom it is confided to perform. 19 A government contract is essentially similar to a private contract contemplated under the Civil Code. The legal requisites of consent of the contracting parties, an object certain which is the subject matter, and cause or consideration of the obligation must likewise concur. Otherwise, there is no government contract to speak of. 20 As correctly found by the CA, the issue on the reclamation of the area between Timber Pier and Pier 2 of the Port of San Fernando involves a government infrastructure project, and it is beyond dispute that the applicable laws, rules and regulations on government contracts or projects apply. On the matter of entering into negotiated contracts by governmentowned and controlled corporations, the provisions of existing laws are crystal clear in requiring the governing boards approval thereof. The Court holds that the CA correctly applied the pertinent laws, to wit: Executive Order No. 380 provides for revised levels of authority on approval of government contracts. Section 1 thereof authorizes GOCCs: 1. To enter into infrastructure contracts awarded through public bidding regardless of the amount involved; 2. To enter into negotiated infrastructure contracts involving not more than one hundred million pesos (P100 million) in the case of the Department of Transportation and Communications and the Department of Public Works and Highways, and not more than fifty million pesos (P50 million) in the case of the other Departments and governments corporations; Provided, That contracts exceeding the said amounts shall only be entered into upon prior authority from the Office of the President; and Provided, Further, That said contracts shall only be awarded in strict compliance with Section 5 of Executive Order No. 164, S. of 1987. xxx The rule on negotiated contracts, as amended on August 12, 2000 (IB 10.6.2) now reads 1. Negotiated contract may be entered into only where any of the following conditions exists and the implementing office/agency/corporation is not capable of undertaking the contract by administration: a. In times of emergencies arising from natural calamities where immediate action is necessary to prevent imminent loss of life and/or property or to restore vital public services, infrastructure and utilities such as

b. Failure to award the contract after competitive public bidding for valid cause or causes c. Where the subject project is adjacent or contiguous to an on-going project and it could be economically prosecuted by the same contractor provided that subject contract has similar or related scope of works and it is within the contracting capacity of the contractor, in which case, direct negotiation may be undertaken with the said contractor xxx In cases a and b above, bidding may be undertaken through sealed canvass of at least three (3) qualified contractors Authority to negotiate contract for projects under these exceptional cases shall be subject to prior approval by heads of agencies within their limits of approving authority."21 (emphasis in the original) Furthermore, the Revised Administrative Code22 lays down the same requirement, thus: Sec. 51. Who May Execute Contracts. Contracts in behalf of the Republic of the Philippines shall be executed by the President unless authority therefore is expressly vested by law or by him in any other public officer. Contracts in behalf of the political subdivisions and corporate agencies or instrumentalities shall be approved by their respective governing boards or councils and executed by their respective executive heads. Petitioner neither disputes nor admits the application of the foregoing statutory provisions but insists, nonetheless, that the Notice of Award itself already embodies a perfected contract having passed the negotiation stage23 despite the clear absence thereon of a condition requiring the prior approval of respondents higher authority. Petitioners argument is untenable. Contracts to which the government is a party are generally subject to the same laws and regulations which govern the validity and sufficiency of contracts between private individuals.24 A government contract, however, is perfected25 only upon approval by a competent authority, where such approval is required.26 The contracting officer functions as agent of the Philippine government for the purpose of making the contract. There arises then, in that regard, a principal-agent relationship between the Government, on one hand, and the contracting official, on the other. The latter though, in contemplation of law, possesses only actual agency authority. This is to say that his contracting power exists, where it exists at all, only because and by virtue of a law, or by authority of law, creating and conferring it. And it is well settled that he may make only such contracts as he is so authorized to make. Flowing from these basic guiding principles is another stating that the government is bound only to the extent of the power it has actually given its officers-agents. It goes without saying then that, conformably to a fundamental principle in agency, the acts of such agents in entering into agreements or contracts beyond the scope of their actual authority do not bind or obligate the Government. The moment this happens, the principalagent relationship between the Government and the contracting officer ceases to exist.27 (emphasis supplied) It was stressed that the contracting official who gives his consent as to the subject matter and the consideration ought to be empowered legally to bind the Government and that his actuations in a particular contractual undertaking on behalf of the government come within the ambit of his authority. On top of that, the approval of the contract by a higher authority is usually required by law or administrative regulation as a requisite for its perfection. 28

Under Article 1881 of the Civil Code, the agent must act within the scope of his authority to bind his principal. So long as the agent has authority, express or implied, the principal is bound by the acts of the agent on his behalf, whether or not the third person dealing with the agent believes that the agent has actual authority. 29 Thus, all signatories in a contract should be clothed with authority to bind the parties they represent. P.D. 857 likewise states that one of the corporate powers of respondents Board of Directors is to "reclaim any part of the lands vested in the Authority." It also "exercise[s] all the powers of a corporation under the Corporation Law." On the other hand, the law merely vests the general manager the "general power to sign contracts" and "to perform such other duties as the Board may assign" Therefore, unless respondents Board validly authorizes its general manager, the latter cannot bind respondent PPA to a contract. The Court completely agrees with the CA that the petitioner failed to present competent evidence to prove that the respondents general manager possessed such actual authority delegated either by the Board of Directors, or by statutory provision. The authority of government officials to represent the government in any contract must proceed from an express provision of law or valid delegation of authority.30 Without such actual authority being possessed by PPAs general manager, there could be no real consent, much less a perfected contract, to speak of. It is of no moment if the phrase "approval of higher authority" appears nowhere in the Notice of Award. It neither justifies petitioners presumption that the required approval "had already been granted" nor supports its conclusion that no other condition (than the completion of fendering of Pier 2 as stated in the Notice of Award) ought to be complied with to create a perfected contract.31 Applicable laws form part of, and are read into, the contract without need for any express reference thereto; 32 more so, to a purported government contract, which is imbued with public interest. Adopting the trial courts ratiocination, petitioner further argues that had it been true that respondents general manager was without authority to bind respondent by contract, then the former should have disapproved the supplemental contract on that ground.33 Petitioner also interprets the Boards silence on the matter as an explicit recognition of the latters authority to enter into a negotiated contract involving the reclamation project. This posture, however, does not conform with the basic provisions of the law to which we always go back. Section 4 of P.D. 1594 34 provides:35 Section 4. Bidding. Construction projects shall generally be undertaken by contract after competitive public bidding. Projects may be undertaken by administration or force account or by negotiated contract only in exceptional cases where time is of the essence, or where there is lack of qualified bidders or contractors, or where there is a conclusive evidence that greater economy and efficiency would be achieved through this arrangement, and in accordance with provision of laws and acts on the matter, subject to the approval of the Ministry of Public Works, Transportation and Communications, the Minister of Public Highways, or the Minister of Energy, as the case may be, if the project cost is less than P1 Million, and of the President of the Philippines, upon the recommendation of the Minister, if the project cost is P1 Million or more. Precisely, the Board of Directors of the respondent did not see fit to approve the contract by negotiation after finding that "the Pier 2 Project was basically for the construction of a pier while the supplemental agreement refers to reclamation. Thus, there is no basis to compare the terms and conditions of the reclamation project with the original contract (Pier 2 Project) of Sargasso." So

even granting arguendo that the Boards action or inaction is an "explicit" recognition of the authority of the general manager, the purported contract cannot possibly be the basis of an action for specific performance because the negotiated contract itself basically contravenes stringent legal requirements aimed at protecting the interest of the public. The bottom line here is that the facts do not conform to what the law requires. No wonder petitioner conveniently omitted any attempt at presenting its case within the statutory exceptions, and insisted that respondents disapproval of the supplemental agreement was "a mere afterthought" "perhaps realizing the infirmity of its excuse" (referring to petitioners belated pre-disqualification in the construction project). But the Court, at the very outset, has previously clarified that the two projects involved herein are distinct from each other. Hence, petitioners disqualification in the construction project due to its lack of certain requirements has no significant bearing in this case. Lastly, petitioners invocation of the doctrine of apparent authority36 is misplaced. This doctrine, in the realm of government contracts, has been restated to mean that the government is NOT bound by unauthorized acts of its agents, even though within the apparent scope of their authority. 37 Under the law on agency, however, "apparent authority" is defined as the power to affect the legal relations of another person by transactions with third persons arising from the others manifestations to such third person 38 such that the liability of the principal for the acts and contracts of his agent extends to those which are within the apparent scope of the authority conferred on him, although no actual authority to do such acts or to make such contracts has been conferred. 391avvphi1 Apparent authority, or what is sometimes referred to as the "holding out" theory, or doctrine of ostensible agency, imposes liability, not as the result of the reality of a contractual relationship, but rather because of the actions of a principal or an employer in somehow misleading the public into believing that the relationship or the authority exists. 40 The existence of apparent authority may be ascertained through (1) the general manner in which the corporation holds out an officer or agent as having the power to act or, in other words, the apparent authority to act in general, with which it clothes him; or (2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, whether within or beyond the scope of his ordinary powers. It requires presentation of evidence of similar act(s) executed either in its favor or in favor of other parties. 41 Easily discernible from the foregoing is that apparent authority is determined only by the acts of the principal and not by the acts of the agent. The principal is, therefore, not responsible where the agents own conduct and statements have created the apparent authority.42 In this case, not a single act of respondent, acting through its Board of Directors, was cited as having clothed its general manager with apparent authority to execute the contract with it. With the foregoing disquisition, the Court finds it unnecessary to discuss the other arguments posed by petitioner. WHEREFORE, the petition is DENIED. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 163825 July 13, 2010 VIOLETA TUDTUD BANATE, MARY MELGRID M. CORTEL, BONIFACIO CORTEL, ROSENDO MAGLASANG, and PATROCINIA MONILAR, Petitioners, vs. PHILIPPINE COUNTRYSIDE RURAL BANK (LILOAN, CEBU), INC. and TEOFILO SOON, JR., Respondents. DECISION BRION, J.: Before the Court is a petition for review on certiorari1 assailing the December 19, 2003 decision 2 and the May 5, 2004 resolution 3 of the Court of Appeals (CA) in CA-G.R. CV No. 74332. The CA decision reversed the Regional Trial Court (RTC) decision 4 of June 27, 2001 granting the petitioners complaint for specific performance and damages against the respondent Philippine Countryside Rural Bank, Inc. (PCRB).5 THE FACTUAL ANTECEDENTS On July 22, 1997, petitioner spouses Rosendo Maglasang and Patrocinia Monilar (spouses Maglasang) obtained a loan (subject loan) from PCRB for P1,070,000.00. The subject loan was evidenced by a promissory note and was payable on January 18, 1998. To secure the payment of the subject loan, the spouses Maglasang executed, in favor of PCRB a real estate mortgage over their property, Lot 12868-H-3-C, 6 including the house constructed thereon (collectively referred to as subject properties), owned by petitioners Mary Melgrid and Bonifacio Cortel (spouses Cortel), the spouses Maglasangs daughter and son-in-law, respectively. Aside from the subject loan, the spouses Maglasang obtained two other loans from PCRB which were covered by separate promissory notes7 and secured by mortgages on their other properties. Sometime in November 1997 (before the subject loan became due), the spouses Maglasang and the spouses Cortel asked PCRBs permission to sell the subject properties. They likewise requested that the subject properties be released from the mortgage since the two other loans were adequately secured by the other mortgages. The spouses Maglasang and the spouses Cortel claimed that the PCRB, acting through its Branch Manager, Pancrasio Mondigo, verbally agreed to their request but required first the full payment of the subject loan. The spouses Maglasang and the spouses Cortel thereafter sold to petitioner Violeta Banate the subject properties for P1,750,000.00. The spouses Magsalang and the spouses Cortel used the amount to pay the subject loan with PCRB. After settling the subject loan, PCRB gave the owners duplicate certificate of title of Lot 12868-H-3-C to Banate, who was able to secure a new title in her name. The title, however, carried the mortgage lien in favor of PCRB, prompting the petitioners to request from PCRB a Deed of Release of Mortgage. As PCRB refused to comply with the petitioners request, the petitioners instituted an action for specific performance before the RTC to compel PCRB to execute the release deed. The petitioners additionally sought payment of damages from PCRB, which, they claimed, caused the publication of a news report stating that they "surreptitiously" caused the transfer of ownership of Lot 12868-H-3-C. The petitioners considered the news report false and malicious, as PCRB knew of the sale of the subject properties and, in fact, consented thereto. PCRB countered the petitioners allegations by invoking the crosscollateral stipulation in the mortgage deed which states: 1. That as security for the payment of the loan or advance in principal sum of one million seventy thousand pesos

only (P1,070,000.00) and such other loans or advances already obtained, or still to be obtained by the MORTGAGOR(s) as MAKER(s), CO-MAKER(s) or GUARANTOR(s) from the MORTGAGEE plus interest at the rate of _____ per annum and penalty and litigation charges payable on the dates mentioned in the corresponding promissory notes, the MORTGAGOR(s) hereby transfer(s) and convey(s) to MORTGAGEE by way of first mortgage the parcel(s) of land described hereunder, together with the improvements now existing for which may hereafter be made thereon, of which MORTGAGOR(s) represent(s) and warrant(s) that MORTGAGOR(s) is/are the absolute owner(s) and that the same is/are free from all liens and encumbrances; TRANSFER CERTIFICATE OF TITLE NO. 827468 Accordingly, PCRB claimed that full payment of the three loans, obtained by the spouses Maglasang, was necessary before any of the mortgages could be released; the settlement of the subject loan merely constituted partial payment of the total obligation. Thus, the payment does not authorize the release of the subject properties from the mortgage lien. PCRB considered Banate as a buyer in bad faith as she was fully aware of the existing mortgage in its favor when she purchased the subject properties from the spouses Maglasang and the spouses Cortel. It explained that it allowed the release of the owners duplicate certificate of title to Banate only to enable her to annotate the sale. PCRB claimed that the release of the title should not indicate the corresponding release of the subject properties from the mortgage constituted thereon. After trial, the RTC ruled in favor of the petitioners. It noted that the petitioners, as "necessitous men," could not have bargained on equal footing with PCRB in executing the mortgage, and concluded that it was a contract of adhesion. Therefore, any obscurity in the mortgage contract should not benefit PCRB. 9 The RTC observed that the official receipt issued by PCRB stated that the amount owed by the spouses Maglasang under the subject loan was only about P1.2 million; that Mary Melgrid Cortel paid the subject loan using the check which Banate issued as payment of the purchase price; and that PCRB authorized the release of the title further indicated that the subject loan had already been settled. Since the subject loan had been fully paid, the RTC considered the petitioners as rightfully entitled to a deed of release of mortgage, pursuant to the verbal agreement that the petitioners made with PCRBs branch manager, Mondigo. Thus, the RTC ordered PCRB to execute a deed of release of mortgage over the subject properties, and to pay the petitioners moral damages and attorneys fees.10 On appeal, the CA reversed the RTCs decision. The CA did not consider as valid the petitioners new agreement with Mondigo, which would novate the original mortgage contract containing the cross-collateral stipulation. It ruled that Mondigo cannot orally amend the mortgage contract between PCRB, and the spouses Maglasang and the spouses Cortel; therefore, the claimed commitment allowing the release of the mortgage on the subject properties cannot bind PCRB. Since the cross-collateral stipulation in the mortgage contract (requiring full settlement of all three loans before the release of any of the mortgages) is clear, the parties must faithfully comply with its terms. The CA did not consider as material the release of the owners duplicate copy of the title, as it was done merely to allow the annotation of the sale of the subject properties to Banate.11 Dismayed with the reversal by the CA of the RTCs ruling, the petitioners filed the present appeal by certiorari, claiming that the CA ruling is not in accord with established jurisprudence. THE PETITION

The petitioners argue that their claims are consistent with their agreement with PCRB; they complied with the required full payment of the subject loan to allow the release of the subject properties from the mortgage. Having carried out their part of the bargain, the petitioners maintain that PCRB must honor its commitment to release the mortgage over the subject properties. The petitioners disregard the cross-collateral stipulation in the mortgage contract, claiming that it had been novated by the subsequent agreement with Mondigo. Even assuming that the cross-collateral stipulation subsists for lack of authority on the part of Mondigo to novate the mortgage contract, the petitioners contend that PCRB should nevertheless return the amount paid to settle the subject loan since the new agreement should be deemed rescinded. The basic issues for the Court to resolve are as follows: 1. Whether the purported agreement between the petitioners and Mondigo novated the mortgage contract over the subject properties and is thus binding upon PCRB. 2. If the first issue is resolved negatively, whether Banate can demand restitution of the amount paid for the subject properties on the theory that the new agreement with Mondigo is deemed rescinded. THE COURTS RULING We resolve to deny the petition. The purported agreement did not novate the mortgage contract, particularly the cross- collateral stipulation thereon Before we resolve the issues directly posed, we first dwell on the determination of the nature of the cross-collateral stipulation in the mortgage contract. As a general rule, a mortgage liability is usually limited to the amount mentioned in the contract. However, the amounts named as consideration in a contract of mortgage do not limit the amount for which the mortgage may stand as security if, from the four corners of the instrument, the intent to secure future and other indebtedness can be gathered. This stipulation is valid and binding between the parties and is known as the "blanket mortgage clause" (also known as the "dragnet clause)."12 In the present case, the mortgage contract indisputably provides that the subject properties serve as security, not only for the payment of the subject loan, but also for "such other loans or advances already obtained, or still to be obtained." The crosscollateral stipulation in the mortgage contract between the parties is thus simply a variety of a dragnet clause. After agreeing to such stipulation, the petitioners cannot insist that the subject properties be released from mortgage since the security covers not only the subject loan but the two other loans as well. The petitioners, however, claim that their agreement with Mondigo must be deemed to have novated the mortgage contract. They posit that the full payment of the subject loan extinguished their obligation arising from the mortgage contract, including the stipulated cross-collateral provision. Consequently, consistent with their theory of a novated agreement, the petitioners maintain that it devolves upon PCRB to execute the corresponding Deed of Release of Mortgage. We find the petitioners argument unpersuasive. Novation, in its broad concept, may either be extinctive or modificatory. It is extinctive when an old obligation is terminated by the creation of a new obligation that takes the place of the former; it is merely modificatory when the old obligation subsists to the extent that it remains compatible with the amendatory agreement. An extinctive novation results either by changing the object or principal conditions (objective or real), or by substituting the person of the debtor or subrogating a third person in the rights of the creditor (subjective or personal). Under this mode, novation would have

dual functions one to extinguish an existing obligation, the other to substitute a new one in its place requiring a conflux of four essential requisites: (1) a previous valid obligation; (2) an agreement of all parties concerned to a new contract; (3) the extinguishment of the old obligation; and (4) the birth of a valid new obligation.13 The second requisite is lacking in this case. Novation presupposes not only the extinguishment or modification of an existing obligation but, more importantly, the creation of a valid new obligation.14 For the consequent creation of a new contractual obligation, consent of both parties is, thus, required. As a general rule, no form of words or writing is necessary to give effect to a novation. Nevertheless, where either or both parties involved are juridical entities, proof that the second contract was executed by persons with the proper authority to bind their respective principals is necessary.15 Section 23 of the Corporation Code16 expressly provides that the corporate powers of all corporations shall be exercised by the board of directors. The power and the responsibility to decide whether the corporation should enter into a contract that will bind the corporation are lodged in the board, subject to the articles of incorporation, bylaws, or relevant provisions of law. In the absence of authority from the board of directors, no person, not even its officers, can validly bind a corporation. However, just as a natural person may authorize another to do certain acts for and on his behalf, the board of directors may validly delegate some of its functions and powers to its officers, committees or agents. The authority of these individuals to bind the corporation is generally derived from law, corporate bylaws or authorization from the board, either expressly or impliedly by habit, custom or acquiescence in the general course of business.17 The authority of a corporate officer or agent in dealing with third persons may be actual or apparent. Actual authority is either express or implied. The extent of an agents express authority is to be measured by the power delegated to him by the corporation, while the extent of his implied authority is measured by his prior acts which have been ratified or approved, or their benefits accepted by his principal.18 The doctrine of "apparent authority," on the other hand, with special reference to banks, had long been recognized in this jurisdiction. The existence of apparent authority may be ascertained through: 1) the general manner in which the corporation holds out an officer or agent as having the power to act, or in other words, the apparent authority to act in general, with which it clothes him; or 2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, within or beyond the scope of his ordinary powers. Accordingly, the authority to act for and to bind a corporation may be presumed from acts of recognition in other instances when the power was exercised without any objection from its board or shareholders.19 Notably, the petitioners action for specific performance is premised on the supposed actual or apparent authority of the branch manager, Mondigo, to release the subject properties from the mortgage, although the other obligations remain unpaid. In light of our discussion above, proof of the branch managers authority becomes indispensable to support the petitioners contention. The petitioners make no claim that Mondigo had actual authority from PCRB, whether express or implied. Rather, adopting the trial courts observation, the petitioners posited that PCRB should be held liable for Mondigos commitment, on the basis of the latters apparent authority. We disagree with this position.

Under the doctrine of apparent authority, acts and contracts of the agent, as are within the apparent scope of the authority conferred on him, although no actual authority to do such acts or to make such contracts has been conferred, bind the principal.20 The principals liability, however, is limited only to third persons who have been led reasonably to believe by the conduct of the principal that such actual authority exists, although none was given. In other words, apparent authority is determined only by the acts of the principal and not by the acts of the agent. 21 There can be no apparent authority of an agent without acts or conduct on the part of the principal; such acts or conduct must have been known and relied upon in good faith as a result of the exercise of reasonable prudence by a third party as claimant, and such acts or conduct must have produced a change of position to the third partys detriment.22 In the present case, the decision of the trial court was utterly silent on the manner by which PCRB, as supposed principal, has "clothed" or "held out" its branch manager as having the power to enter into an agreement, as claimed by petitioners. No proof of the course of business, usages and practices of the bank about, or knowledge that the board had or is presumed to have of, its responsible officers acts regarding bank branch affairs, was ever adduced to establish the branch managers apparent authority to verbally alter the terms of mortgage contracts. 23 Neither was there any allegation, much less proof, that PCRB ratified Mondigos act or is estopped to make a contrary claim. 24 Further, we would be unduly stretching the doctrine of apparent authority were we to consider the power to undo or nullify solemn agreements validly entered into as within the doctrines ambit. Although a branch manager, within his field and as to third persons, is the general agent and is in general charge of the corporation, with apparent authority commensurate with the ordinary business entrusted him and the usual course and conduct thereof,25 yet the power to modify or nullify corporate contracts remains generally in the board of directors. 26 Being a mere branch manager alone is insufficient to support the conclusion that Mondigo has been clothed with "apparent authority" to verbally alter terms of written contracts, especially when viewed against the telling circumstances of this case: the unequivocal provision in the mortgage contract; PCRBs vigorous denial that any agreement to release the mortgage was ever entered into by it; and, the fact that the purported agreement was not even reduced into writing considering its legal effects on the parties interests. To put it simply, the burden of proving the authority of Mondigo to alter or novate the mortgage contract has not been established. 27 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 the agents authority, and in case either is controverted, the burden of proof is upon them to establish it.28 As parties to the mortgage contract, the petitioners are expected to abide by its terms. The subsequent purported agreement is of no moment, and cannot prejudice PCRB, as it is beyond Mondigos actual or apparent authority, as above discussed. Rescission has no legal basis; there can be no restitution of the amount paid The petitioners, nonetheless, invoke equity and alternatively pray for the restitution of the amount paid, on the rationale that if PCRBs branch manager was not authorized to accept payment in consideration of separately releasing the mortgage, then the agreement should be deemed rescinded, and the amount paid by them returned. PCRB, on the other hand, counters that the petitioners alternative prayer has no legal and factual basis, and insists that the clear agreement of the parties was for the full payment of the subject

loan, and in return, PCRB would deliver the title to the subject properties to the buyer, only to enable the latter to obtain a transfer of title in her own name. We agree with PCRB. Even if we were to assume that the purported agreement has been sufficiently established, since it is not binding on the bank for lack of authority of PCRBs branch manager, then the prayer for restitution of the amount paid would have no legal basis. Of course, it will be asked: what then is the legal significance of the payment made by Banate? Article 2154 of the Civil Code reads: Art 2154. If something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises.1avvphi1 Notwithstanding the payment made by Banate, she is not entitled to recover anything from PCRB under Article 2154. There could not have been any payment by mistake to PCRB, as the check which Banate issued as payment was to her co-petitioner Mary Melgrid Cortel (the payee), and not to PCRB. The same check was simply endorsed by the payee to PCRB in payment of the subject loan that the Maglasangs owed PCRB. 29 The mistake, if any, was in the perception of the authority of Mondigo, as branch manager, to verbally alter the mortgage contract, and not as to whether the Cortels, as sellers, were entitled to payment. This mistake (on Mondigos lack of authority to alter the mortgage) did not affect the validity of the payment made to the bank as the existence of the loan was never disputed. The dispute was merely on the effect of the payment on the security given.30 Consequently, no right to recover accrues in Banates favor as PCRB never dealt with her. The borrowers-mortgagors, on the other hand, merely paid what was really owed. Parenthetically, the subject loan was due on January 18, 1998, but was paid sometime in November 1997. It appears, however, that at the time the complaint was filed, the subject loan had already matured. Consequently, recovery of the amount paid, even under a claim of premature payment, will not prosper. In light of these conclusions, the claim for moral damages must necessarily fail. On the alleged injurious publication, we quote with approval the CAs ruling on the matter, viz: Consequently, there is no reason to hold [respondent] PCRB liable to [petitioners] for damages. x x x [Petitioner] Maglasang cannot hold [respondent] PCRB liable for the publication of the extrajudicial sale. There was no evidence submitted to prove that [respondent] PCRB authored the words "Mortgagors surreptitiously caused the transfer of ownership of Lot 12868-H-3C x x x" contained in the publication since at the bottom was x x x Sheriff Teofilo C. Soon, Jr.s name. Moreover, there was not even an iota of proof which shows damage on the part of [petitioner] Mary Melgrid M. Cortel.31 WHEREFORE, we DENY the petitioners petition for review on certiorari for lack of merit, and AFFIRM the decision of the Court of Appeals dated December 19, 2003 and its resolution dated May 5, 2004 in CA-G.R. CV No. 74332. No pronouncement as to costs. SO ORDERED.

THIRD DIVISION [G.R. No. 82978, November 22, 1990] THE MANILA REMNANT CO., INC., PETITIONER, VS. THE HONORABLE COURT OF APPEALS AND AND OSCAR VENTANILLA, JR. AND CARMEN GLORIA DIAZ, RESPONDENTS. DECISION FERNAN, C.J.: Like any other couple, Oscar Ventanilla and his wife Carmen, both faculty members of the University of the Philippines and renting a faculty unit, dreamed of someday owning a house and lot. Instead of attaining this dream, they became innocent victims of deceit and found themselves in the midst of an ensuing squabble between a subdivision owner and its real estate agent. The facts as found by the trial court and adopted by the Appellate Court are as follows: Petitioner Manila Remnant Co., Inc. is the owner of the parcels of land situated in Quezon City covered by Transfer Certificates of Title Nos. 26400, 26401, 30783 and 31986 and constituting the subdivision known as Capital Homes Subdivision Nos. I and II. On July 25, 1972, Manila Remnant and A.U. Valencia & Co. Inc. entered into a written agreement entitled "Confirmation of Land Development and Sales Contract" to formalize an earlier verbal agreement whereby for a consideration of 17 and 1/2% fee, including sales commission and management fee, A.U. Valencia and Co., Inc. was to develop the aforesaid subdivision with authority to manage the sales thereof, execute contracts to sell to lot buyers and issue official receipts.[1] At that time the President of both A.U. Valencia and Co. Inc. and Manila Remnant Co., Inc. was Artemio U. Valencia. On March 3, 1970, Manila Remnant thru A.U. Valencia and Co. executed two "contracts to sell" covering Lots 1 and 2 of Block 17 in favor of Oscar C. Ventanilla and Carmen Gloria Diaz for the combined contract price of P66,571.00 payable monthly for ten years.[2] As thus agreed in the contracts to sell, the Ventanillas paid the down payments on the two lots even before the formal contract was signed on March 3, 1970.

Ten (10) days after the signing of the contracts with the Ventanillas or on March 13, 1970, Artemio U. Valencia, as President of Manila Remnant, and without the knowledge of the Ventanilla couple, sold Lots 1 and 2 of Block 17 again, this time in favor of Carlos Crisostomo, one of his sales agents without any consideration.[3] Artemio Valencia then transmitted the fictitious Crisostomo contracts to Manila Remnant while he kept in his files the contracts to sell in favor of the Ventanillas. All the amounts paid by the Ventanillas were deposited in Valencia's bank account. Beginning March 13, 1970, upon orders of Artemio Valencia, the monthly payments of the Ventanillas were remitted to Manila Remnant as payments of Crisostomo for which the former issued receipts in favor of Crisostomo. Since Valencia kept the receipts in his files and never transmitted the same to Crisostomo, the latter and the Ventanillas remained ignorant of Valencia's scheme. Thus, the Ventanillas continued paying their monthly installments. Subsequently, the harmonious business relationship between Artemio Valencia and Manila Remnant ended. On May 30, 1973, Manila Remnant, through its General Manager Karl Landahl, wrote Artemio Valencia informing him that Manila Remnant was terminating its existing collection agreement with his firm on account of the considerable amount of discrepancies and irregularities discovered in its collections and remittances by virtue of confirmations received from lot buyers.[4] As a consequence, on June 6, 1973, Artemio Valencia was removed as President by the Board of Directors of Manila Remnant. Therefore, from May of 1973, Valencia stopped transmitting Ventanilla's monthly installments which at that time had already amounted to P17,925.40 for Lot 1 and P18,141.95 for Lot 2, (which appeared in Manila Remnant's record as credited in the name of Crisostomo).[5] On June 8, 1973, A.U. Valencia and Co. sued Manila Remnant before Branch 19 of the then Court of First Instance of Manila[6] to impugn the abrogation of their agency agreement. On June 10 and July 10, 1973, said court ordered all lot buyers to deposit their monthly amortizations with the court.[7] But on July 17, 1973, A.U. Valencia and Co. wrote the Ventanillas that it was still authorized by the court to collect the monthly amortizations and requested them to continue remitting their amortizations with the assurance that said

payments would be deposited later in court. [8] On May 22, 1974, the trial court issued an order prohibiting A.U. Valencia and Co. from collecting the monthly installments.[9] On July 22, 1974 and February 6, 1976 the same court ordered the Valencia firm to furnish the court with a complete list of all lot buyers who had already made down payments to Manila Remnant before December 1972.[10] Valencia complied with the court's order on August 6, 1974 by submitting a list which excluded the name of the Ventanillas.[11] Since A.U. Valencia and Co. failed to forward its collections after May 1973, Manila Remnant caused on August 20, 1976 the publication in the Times Journal of a notice cancelling the contracts to sell of some lot buyers including that of Carlos Crisostomo in whose name the payments of the Ventanillas had been credited.[12] To prevent the effective cancellation of their contracts, Artemio Valencia instigated on September 22, 1976 the filing by Carlos Crisostomo and seventeen (17) other lot vendees of a complaint for specific performance with damages against Manila Remnant before the Court of First Instance of Quezon City. The complaint alleged that Crisostomo had already paid a total of P17,922.40 and P18,136.85 on Lots 1 and 2, respectively.[13] It was not until March 1978 when the Ventanillas, after learning of the termination of the agency agreement between Manila Remnant and A.U. Valencia & Co., decided to stop paying their amortizations to the latter. The Ventanillas, believing that they had already remitted P37,007.00 for Lot I and P36,911.00 for Lot 2 or a grand total, inclusive of interest, of P73,122.35 for the two lots, thereby leaving a balance of P13,531.58 for Lot 1 and P13,540.22 for Lot 2, went directly to Manila Remnant and offered to pay the entire outstanding balance of the purchase price.[14] To their shock and utter consternation, they discovered from Gloria Caballes, an accountant of Manila Remnant, that their names did not appear in the records of A.U. Valencia and Co. as lot buyers. Caballes showed the Ventanillas copies of the contracts to sell in favor of Carlos Crisostomo, duly sighed by Artemio U. Valencia as President of Manila Remnant.[15] Whereupon, Manila Remnant refused the offer of the Ventanillas to pay for the remainder of the contract price because they did not have the personality to do so. Furthermore, they were

shown the published Notice of Cancellation in the January 29, 1978 issue of the Times Journal rescinding the contracts of delinquent buyers including Crisostomo. Thus, on November 21, 1978, the Ventanillas commenced an action for specific performance, annulment of deeds and damages against Manila Remnant, A.U. Valencia and Co. and Carlos Crisostomo before the Court of First Instance of Quezon City, Branch 17-B.[16] Crisostomo was declared in default for failure to file an answer. On November 17, 1980, the trial court rendered a decision 1) declaring the contracts to sell issued in favor of the Ventanillas valid and subsisting and annulling the contracts to sell in Crisostomo's favor; 2) ordering Manila Remnant to execute in favor of the Ventanillas an Absolute Deed of Sale free from all liens and encumbrances; and 3) condemning defendants A.U. Valencia and Co. Inc., Manila Remnant and Carlos Crisostomo jointly and severally to pay the Ventanillas the amount of P100,000.00 as moral damages, P100,000.00 as exemplary damages, and P100,000.00 as attorneys fees. The lower court also added that if, for any legal reason, the transfer of the lots could no longer be effected, the defendants should reimburse jointly and severally to the Ventanillas the total amount of P73,122.35 representing the total amount paid for the two lots plus legal interest thereon from March 1970 plus damages as aforestated. With regard to the cross claim of Manila Remnant against Valencia, the court found that Manila Remnant could have not been dragged into this suit without the fraudulent manipulations of Valencia. Hence, it adjudged A.U. Valencia and Co. to pay the Manila Remnant P5,000.00 as moral damages and exemplary damages and P5,000.00 as attorney's fees.[17] Subsequently, Manila Remnant and A.U. Valencia and Co. elevated the lower court's decision to the Court of Appeals through separate appeals. On October 13, 1987, the Appellate Court affirmed in toto the decision of the lower court. Reconsideration sought by petitioner Manila Remnant was denied, hence the instant petition. There is no question that the contracts to sell favor of the Ventanilla spouses are valid and subsisting. The only issue remaining is whether or not petitioner Manila Remnant should be held solidarily liable together with A.U. Valencia and Co. and Carlos Crisostomo for the payment of moral, exemplary damages and attorney's fees in favor of the Ventanillas.[18]

While petitioner Manila Remnant has not refuted the legality of the award of damages per se, it believes that it cannot be made jointly and severally liable with its agent A.U. Valencia and Co. since it was not aware of the illegal acts perpetrated nor did it consent or ratify said acts of its agent. The argument is devoid of merit. In the case at bar, the Valencia realty firm had clearly overstepped the bounds of its authority as agent-- and for that matter, even the law -- when it undertook the double sale of the disputed lots. Such being the case, the principal, Manila Remnant, would have been in the clear pursuant to Article 1897 of the Civil Code which states that "(t)he agent who acts as such is not personally liable to that 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." However, the unique relationship existing between the principal and the agent at the time of the dual sale must be underscored. Bear in mind that the president then of both firms was Artemio U. Valencia, the individual directly responsible for the sale scam. Hence, despite the fact that the double sale was beyond the power of the agent, Manila Remnant as principal was chargeable with the knowledge or constructive notice of that fact and not having done anything to correct such an irregularity was deemed to have ratified the same.[19] More in point, we find that by the principle of estoppel, Manila Remnant is deemed to have allowed its agent to act as though it had plenary powers. Article 1911 of the Civil Code provides: "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." (Underscoring supplied). The above-quoted article is new. It is intended to protect the rights of innocent persons. In such a situation, both the principal and the agent may be considered as jointfeasors whose liability is joint and solidary.[20] Authority by estoppel has arisen in the instant case because by its negligence, the principal, Manila Remnant, has permitted its agent, A.U. Valencia and Co., to exercise powers not granted to it. That the principal might not have had actual knowledge of the agent's misdeed is of no moment. Consider the following circumstances: Firstly, Manila Remnant literally gave carte blanche to its agent A.U. Valencia and Co. in the sale and disposition of the subdivision lots. As a disclosed principal in the contracts to sell in favor of the

Ventanilla couple, there was no doubt that they were in fact contracting with the principal. Section 7 of the Ventanillas contracts to sell states: "7. That all payments whether deposits, down payment and monthly installment agreed to be made by the vendee shall be payable to A.U. Valencia and Co., Inc. It is hereby expressly understood that unauthorized payments made to real estate brokers or agents shall be the sole and exclusive responsibility and at the risk of the vendee and any and all such payments shall not be recognized by the vendors unless the official receipts therefor shall have been duly signed by the vendors duly authorized agent, A.U. Valencia and Co., Inc." (Underscoring supplied). Indeed, once Manila Remnant had been furnished with the usual copies of the contracts to sell, its only participation then was to accept the collections and pay the commissions to the agent. The latter had complete control of the business arrangement.[21] Secondly, it is evident from the records that Manila Remnant was less than prudent in the conduct of its business as a subdivision owner. For instance, Manila Remnant failed to take immediate steps to avert any damage that might be incurred by the lot buyers as a result of its unilateral abrogation of the agency contract. The publication of the cancelled contracts to sell in the Times Journal came three years after Manila Remnant had revoked its agreement with A.U. Valencia and Co. Moreover, Manila Remnant also failed to check the records of its agent immediately after the revocation of the agency contract despite the fact that such revocation was due to reported anomalies in Valencia's collections. Altogether, as pointed out by the counsel for the Ventanillas, Manila Remnant could and should have devised a system whereby it could monitor and require a regular accounting from A.U. Valencia and Co., its agent. Not having done so, Manila Remnant has made itself liable to those who have relied on its agent and the representation that such agent was clothed with sufficient powers to act on behalf of the principal. Even assuming that Manila Remnant was as much a victim as the other innocent lot buyers, it cannot be gainsaid that it was precisely its negligence and laxity in the day to day operations of the real estate business which made it possible for the agent to deceive unsuspecting vendees like the Ventanillas. In essence, therefore, the basis for Manila Remnant's solidary liability is estoppel which, in turn, is rooted in the principals neglectfulness in failing to properly supervise and control the affairs of its agent and to adopt the needed measures to prevent further misrepresentation. As a consequence, Manila Remnant

is considered estopped from pleading the truth that it had no direct hand in the deception employed by its agent.[22] A final word. The Court cannot help but be alarmed over the reported practice of supposedly reputable real estate brokers of manipulating prices by allowing their own agents to "buy" lots in their names in the hope of reselling the same at a higher price to the prejudice of bona fide lot buyers, as precisely what the agent had intended to happen in the present case. This is a serious matter that must be looked into by the appropriate government housing authority. WHEREFORE, in view of the foregoing, the appealed decision of the Court of Appeals dated October 13, 1987 sustaining the decision of the Quezon City trial court dated November 17, 1980 is AFFIRMED. This judgment is immediately executory. Costs against petitioner. So ordered.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 163553 December 11, 2009 YUN KWAN BYUNG, Petitioner, vs. PHILIPPINE AMUSEMENT AND GAMING CORPORATION, Respondent. DECISION CARPIO, J.: The Case Yun Kwan Byung (petitioner) filed this Petition for Review1 assailing the Court of Appeals Decision2 dated 27 May 2003 in CA-G.R. CV No. 65699 as well as the Resolution3 dated 7 May 2004 denying the Motion for Reconsideration. In the assailed decision, the Court of Appeals (CA) affirmed the Regional Trial Courts Decision4 dated 6 May 1999. The Regional Trial Court of Manila, Branch 13 (trial court), dismissed petitioners demand against respondent Philippine Amusement and Gaming Corporation (PAGCOR) for the redemption of gambling chips. The Facts PAGCOR is a government-owned and controlled corporation tasked to establish and operate gambling clubs and casinos as a means to promote tourism and generate sources of revenue for the government. To achieve these objectives, PAGCOR is vested with the power to enter into contracts of every kind and for any lawful purpose that pertains to its business. Pursuant to this authority, PAGCOR launched its Foreign Highroller Marketing Program (Program). The Program aims to invite patrons from foreign countries to play at the dollar pit of designated PAGCOR-operated casinos under specified terms and conditions and in accordance with industry practice.5 The Korean-based ABS Corporation was one of the international groups that availed of the Program. In a letter-agreement dated 25 April 1996 (Junket Agreement), ABS Corporation agreed to bring in foreign players to play at the five designated gaming tables of the Casino Filipino Silahis at the Grand Boulevard Hotel in Manila (Casino Filipino). The relevant stipulations of the Junket Agreement state: 1. PAGCOR will provide ABS Corporation with separate junket chips. The junket chips will be distinguished from the chips being used by other players in the gaming tables. ABS Corporation will distribute these junket chips to its players and at the end of the playing period, ABS Corporation will collect the junket chips from its players and make an accounting to the casino treasury.

2. ABS Corporation will assume sole responsibility to pay the winnings of its foreign players and settle the collectibles from losing players. 3. ABS Corporation shall hold PAGCOR absolutely free and harmless from any damage, claim or liability which may arise from any cause in connection with the Junket Agreement. 5. In providing the gaming facilities and services to these foreign players, PAGCOR is entitled to receive from ABS Corporation a 12.5% share in the gross winnings of ABS Corporation or 1.5 million US dollars, whichever is higher, over a playing period of 6 months. PAGCOR has the option to extend the period.6 Petitioner, a Korean national, alleges that from November 1996 to March 1997, he came to the Philippines four times to play for high stakes at the Casino Filipino.7 Petitioner claims that in the course of the games, he was able to accumulate gambling chips worth US$2.1 million. Petitioner presented as evidence during the trial gambling chips with a face value of US$1.1 million. Petitioner contends that when he presented the gambling chips for encashment with PAGCORs employees or agents, PAGCOR refused to redeem them.8 Petitioner brought an action against PAGCOR seeking the redemption of gambling chips valued at US$2.1 million. Petitioner claims that he won the gambling chips at the Casino Filipino, playing continuously day and night. Petitioner alleges that every time he would come to Manila, PAGCOR would extend to him amenities deserving of a high roller. A PAGCOR official who meets him at the airport would bring him to Casino Filipino, a casino managed and operated by PAGCOR. The card dealers were all PAGCOR employees, the gambling chips, equipment and furnitures belonged to PAGCOR, and PAGCOR enforced all the regulations dealing with the operation of foreign exchange gambling pits. Petitioner states that he was able to redeem his gambling chips with the cashier during his first few winning trips. But later on, the casino cashier refused to encash his gambling chips so he had no recourse but to deposit his gambling chips at the Grand Boulevard Hotels deposit box, every time he departed from Manila.9 PAGCOR claims that petitioner, who was brought into the Philippines by ABS Corporation, is a junket player who played in the dollar pit exclusively leased by ABS Corporation for its junket players. PAGCOR alleges that it provided ABS Corporation with distinct junket chips. ABS Corporation distributed these chips to its junket players. At the end of each playing period, the

junket players would surrender the chips to ABS Corporation. Only ABS Corporation would make an accounting of these chips to PAGCORs casino treasury.10 As additional information for the junket players playing in the gaming room leased to ABS Corporation, PAGCOR posted a notice written in English and Korean languages which reads: NOTICE This GAMING ROOM is exclusively operated by ABS under arrangement with PAGCOR, the former is solely accountable for all PLAYING CHIPS wagered on the tables. Any financial ARRANGEMENT/TRANSACTION between PLAYERS and ABS shall only be binding upon said PLAYERS and ABS.11 PAGCOR claims that this notice is a standard precautionary measure12 to avoid confusion between junket players of ABS Corporation and PAGCORs players. PAGCOR argues that petitioner is not a PAGCOR player because under PAGCORs gaming rules, gambling chips cannot be brought outside the casino. The gambling chips must be converted to cash at the end of every gaming period as they are inventoried every shift. Under PAGCORs rules, it is impossible for PAGCOR players to accumulate two million dollars worth of gambling chips and to bring the chips out of the casino premises.13 Since PAGCOR disclaimed liability for the winnings of players recruited by ABS Corporation and refused to encash the gambling chips, petitioner filed a complaint for a sum of money before the trial court.14 PAGCOR filed a counterclaim against petitioner. Then, trial ensued. On 6 May 1999, the trial court dismissed the complaint and counterclaim. Petitioner appealed the trial courts decision to the CA. On 27 May 2003, the CA affirmed the appealed decision. On 27 June 2003, petitioner moved for reconsideration which was denied on 7 May 2004. Aggrieved by the CAs decision and resolution, petitioner elevated the case before this Court. The Ruling of the Trial Court The trial court ruled that based on PAGCORs charter,15 PAGCOR has no authority to lease any portion of the gambling tables to a private party like ABS Corporation. Section 13 of Presidential Decree No. 1869 or the PAGCORs charter states: Sec. 13. Exemptions xxx (4) Utilization of Foreign Currencies The Corporation shall have the right and authority, solely and exclusively in connection with the operations of the

casino(s), to purchase, receive, exchange and disburse foreign exchange, subject to the following terms and conditions: (a) A specific area in the casino(s) or gaming pit shall be put up solely and exclusively for players and patrons utilizing foreign currencies; (b) The Corporation shall appoint and designate a duly accredited commercial bank agent of the Central Bank, to handle, administer and manage the use of foreign currencies in the casino(s); (c) The Corporation shall provide an office at casino(s) exclusively for the employees of the designated bank, agent of the Central Bank, where the Corporation shall maintain a dollar account which will be utilized exclusively for the above purpose and the casino dollar treasury employees; (d) Only persons with foreign passports or certificates of identity (for Hong Kong patron only) duly issued by the government or country of their residence will be allowed to play in the foreign exchange gaming pit; (e) Only foreign exchange prescribed to form part of the Philippine International Reserve and the following foreign exchange currencies: Australian Dollar, Singapore Dollar, Hong Kong Dollar, shall be used in this gaming pit; (f) The disbursement, administration, management and recording of foreign exchange currencies used in the casino(s) shall be carried out in accordance with existing foreign exchange regulations, and periodical reports of the transactions in such foreign exchange currencies by the Corporation shall be duly recorded and reported to the Central Bank thru the designated Agent Bank; and (g) The Corporation shall issue the necessary rules and regulations for the guidance and information of players qualified to participate in the foreign exchange gaming pit, in order to make certain that the terms and conditions as above set forth are strictly complied with. The trial court held that only PAGCOR could use foreign currency in its gaming tables. When PAGCOR accepted only a fixed portion of the dollar earnings of ABS Corporation in the concept of a lease of facilities, PAGCOR shared its franchise with ABS Corporation in violation of the PAGCORs charter. Hence, the Junket Agreement is void. Since the Junket Agreement is not permitted by PAGCORs charter, the mutual rights and obligations of the parties to this case would be resolved based on agency and estoppel.16 The trial court found that the petitioner wanted to redeem gambling chips that were specifically used by

ABS Corporation at its gaming tables. The gambling chips come in distinctive orange or yellow colors with stickers bearing denominations of 10,000 or 1,000. The 1,000 gambling chips are smaller in size and the words "no cash value" marked on them. The 10,000 gambling chips do not reflect the "no cash value" sign. The senior treasury head of PAGCOR testified that these were the gambling chips used by the previous junket operators and PAGCOR merely continued using them. However, the gambling chips used in the regular casino games were of a different quality.17 The trial court pointed out that PAGCOR had taken steps to warn players brought in by all junket operators, including ABS Corporation, that they were playing under special rules. Apart from the different kinds of gambling chips used, the junket players were confined to certain gaming rooms. In these rooms, notices were posted that gambling chips could only be encashed there and nowhere else. A photograph of one such notice, printed in Korean and English, stated that the gaming room was exclusively operated by ABS Corporation and that ABS Corporation was solely accountable for all the chips wagered on the gaming tables. Although petitioner denied seeing this notice, this disclaimer has the effect of a negative evidence that can hardly prevail against the positive assertions of PAGCOR officials whose credibility is also not open to doubt. The trial court concluded that petitioner had been alerted to the existence of these special gambling rules, and the mere fact that he continued to play under the same restrictions over a period of several months confirms his acquiescence to them. Otherwise, petitioner could have simply chose to stop gambling. 18 In dismissing petitioners complaint, the trial court concluded that petitioners demand against PAGCOR for the redemption of the gambling chips could not stand. The trial court stated that petitioner, a stranger to the agreement between PAGCOR and ABS Corporation, could not under principles of equity be charged with notice other than of the apparent authority with which PAGCOR had clothed its employees and agents in dealing with petitioner. Since petitioner was made aware of the special rules by which he was playing at the Casino Filipino, petitioner could not now claim that he was not bound by them. The trial court explained that in an unlawful transaction, the courts will extend equitable relief only to a party who was unaware of all its dimensions and whose ignorance of them exposed him to the risk of being exploited by the other. Where the parties enter into such a relationship with the opportunity to know all of its ramifications, as in this case, there is no room for equitable considerations to come to the rescue of any party. The

trial court ruled that it would leave the parties where they are.19 The Ruling of the Court of Appeals In dismissing the appeal, the appellate court addressed the four errors assigned by petitioner. First, petitioner maintains that he was never a junket player of ABS Corporation. Petitioner also denies seeing a notice that certain gaming rooms were exclusively operated by entities under special agreement.20 The CA ruled that the records do not support petitioners theory. Petitioners own testimony reveals that he enjoyed special accommodations at the Grand Boulevard Hotel. This similar accommodation was extended to players brought in by ABS Corporation and other junket operators. Petitioner cannot disassociate himself from ABS Corporation for it is unlikely that an unknown high roller would be accorded choice accommodations by the hotel unless the accommodation was facilitated by a junket operator who enjoyed such privilege.21 The CA added that the testimonies of PAGCORs employees affirming that notices were posted in English and Korean in the gaming areas are credible in the absence of any convincing proof of ill motive. Further, the specified gaming areas used only special chips that could be bought and exchanged at certain cashier booths in that area.22 Second, petitioner attacks the validity of the contents of the notice. Since the Junket Agreement is void, the notice, which was issued pursuant to the Junket Agreement, is also void and cannot affect petitioner. 23 The CA reasoned that the trial court never declared the notice valid and neither did it enforce the contents thereof. The CA emphasized that it was the act of cautioning and alerting the players that was upheld. The trial court ruled that signs and warnings were in place to inform the public, petitioner included, that special rules applied to certain gaming areas even if the very agreement giving rise to these rules is void. 24 Third, petitioner takes the position that an implied agency existed between PAGCOR and ABS Corporation.25 The CA disagreed with petitioners view. A void contract has no force and effect from the very beginning. It produces no effect either against or in favor of anyone. Neither can it create, modify or extinguish the juridical relation to which it refers. Necessarily, the Junket Agreement, being void from the beginning, cannot give rise to an implied agency. The CA explained that it cannot see how the principle of implied agency can be applied to this case. Article 188326 of the Civil Code applies only to a situation where the agent is authorized by the principal to enter

into a particular transaction, but instead of contracting on behalf of the principal, the agent acts in his own name.27 The CA concluded that no such legal fiction existed between PAGCOR and ABS Corporation. PAGCOR entered into a Junket Agreement to lease to ABS Corporation certain gaming areas. It was never PAGCORs intention to deal with the junket players. Neither did PAGCOR intend ABS Corporation to represent PAGCOR in dealing with the junket players. Representation is the basis of agency but unfortunately for petitioner none is found in this case. 28 The CA added that the special gaming chips, while belonging to PAGCOR, are mere accessories in the void Junket Agreement with ABS Corporation. In Article 1883, the phrase "things belonging to the principal" refers only to those things or properties subject of a particular transaction authorized by the principal to be entered into by its purported agent. Necessarily, the gambling chips being mere incidents to the void lease agreement cannot fall under this category.29 The CA ruled that Article 215230 of the Civil Code is also not applicable. The circumstances relating to negotiorum gestio are non-existent to warrant an officious manager to take over the management and administration of PAGCOR.31 Fourth, petitioner asks for equitable relief.32 The CA explained that although petitioner was never a party to the void Junket Agreement, petitioner cannot deny or feign blindness to the signs and warnings all around him. The notices, the special gambling chips, and the separate gaming areas were more than enough to alert him that he was playing under different terms. Petitioner persisted and continued to play in the casino. Petitioner also enjoyed the perks extended to junket players of ABS Corporation. For failing to heed these signs and warnings, petitioner can no longer be permitted to claim equitable relief. When parties do not come to court with clean hands, they cannot be allowed to profit from their own wrong doing. 33 The Issues Petitioners raise three issues in this petition: 1. Whether the CA erred in holding that PAGCOR is not liable to petitioner, disregarding the doctrine of implied agency, or agency by estoppel; 2. Whether the CA erred in using intent of the contracting parties as the test for creation of agency, when such is not relevant since the instant case involves liability of the presumed principal in implied agency to a third party; and

3. Whether the CA erred in failing to consider that PAGCOR ratified, or at least adopted, the acts of the agent, ABS Corporation. 34 The Ruling of the Court The petition lacks merit. Courts will not enforce debts arising from illegal gambling Gambling is prohibited by the laws of the Philippines as specifically provided in Articles 195 to 199 of the Revised Penal Code, as amended. Gambling is an act beyond the pale of good morals,35 and is thus prohibited and punished to repress an evil that undermines the social, moral, and economic growth of the nation. 36 Presidential Decree No. 1602 (PD 1602),37 which modified Articles 195-199 of the Revised Penal Code and repealed inconsistent provisions,38 prescribed stiffer penalties on illegal gambling.39 As a rule, all forms of gambling are illegal. The only form of gambling allowed by law is that stipulated under Presidential Decree No. 1869, which gave PAGCOR its franchise to maintain and operate gambling casinos. The issue then turns on whether PAGCOR can validly share its franchise with junket operators to operate gambling casinos in the country. Section 3(h) of PAGCORs charter states: Section 3. Corporate Powers. - The Corporation shall have the following powers and functions, among others: xxx h) to enter into, make, perform, and carry out contracts of every kind and for any lawful purpose pertaining to the business of the Corporation, or in any manner incident thereto, as principal, agent or otherwise, with any person, firm, association, or corporation. xxx The Junket Agreement would be valid if under Section 3(h) of PAGCORs charter, PAGCOR could share its gambling franchise with another entity. In Senator Jaworski v. Phil. Amusement and Gaming Corp.,40 the Court discussed the extent of the grant of the legislative franchise to PAGCOR on its authority to operate gambling casinos: A legislative franchise is a special privilege granted by the state to corporations. It is a privilege of public concern which cannot be exercised at will and pleasure, but should be reserved for public control and administration, either by the government directly, or by public agents, under such conditions and regulations as the government may impose on them in the interest of the public. It is Congress that prescribes the conditions on which the grant of the franchise may be made. Thus the manner of granting the franchise, to whom it may be granted, the mode of conducting the business, the charter and the quality of the service to be rendered and the duty of the grantee to the public in exercising the

franchise are almost always defined in clear and unequivocal language. After a circumspect consideration of the foregoing discussion and the contending positions of the parties, we hold that PAGCOR has acted beyond the limits of its authority when it passed on or shared its franchise to SAGE. In the Del Mar case where a similar issue was raised when PAGCOR entered into a joint venture agreement with two other entities in the operation and management of jai alai games, the Court, in an En Banc Resolution dated 24 August 2001, partially granted the motions for clarification filed by respondents therein insofar as it prayed that PAGCOR has a valid franchise, but only by itself (i.e. not in association with any other person or entity), to operate, maintain and/or manage the game of jai-alai. In the case at bar, PAGCOR executed an agreement with SAGE whereby the former grants the latter the authority to operate and maintain sports betting stations and Internet gaming operations. In essence, the grant of authority gives SAGE the privilege to actively participate, partake and share PAGCORs franchise to operate a gambling activity. The grant of franchise is a special privilege that constitutes a right and a duty to be performed by the grantee. The grantee must not perform its activities arbitrarily and whimsically but must abide by the limits set by its franchise and strictly adhere to its terms and conditionalities. A corporation as a creature of the State is presumed to exist for the common good. Hence, the special privileges and franchises it receives are subject to the laws of the State and the limitations of its charter. There is therefore a reserved right of the State to inquire how these privileges had been employed, and whether they have been abused. (Emphasis supplied) Thus, PAGCOR has the sole and exclusive authority to operate a gambling activity. While PAGCOR is allowed under its charter to enter into operators or management contracts, PAGCOR is not allowed under the same charter to relinquish or share its franchise. PAGCOR cannot delegate its power in view of the legal principle of delegata potestas delegare non potest, inasmuch as there is nothing in the charter to show that it has been expressly authorized to do so.41 Similarly, in this case, PAGCOR, by taking only a percentage of the earnings of ABS Corporation from its foreign currency collection, allowed ABS Corporation to operate gaming tables in the dollar pit. The Junket Agreement is in direct violation of PAGCORs charter and is therefore void. Since the Junket Agreement violates PAGCORs charter, gambling between the junket player and the junket operator under such agreement is illegal and may

not be enforced by the courts. Article 201442 of the Civil Code, which refers to illegal gambling, states that no action can be maintained by the winner for the collection of what he has won in a game of chance. Although not raised as an issue by petitioner, we deem it necessary to discuss the applicability of Republic Act No. 948743 (RA 9487) to the present case. RA 9487 amended the PAGCOR charter, granting PAGCOR the power to enter into special agreement with third parties to share the privileges under its franchise for the operation of gambling casinos: Section 1. The Philippine Amusement and Gaming Corporation (PAGCOR) franchise granted under Presidential Decree No. 1869 otherwise known as the PAGCOR Charter, is hereby further amended to read as follows: xxx (2) Section 3(h) is hereby amended to read as follows: "SEC. 3. Corporate Powers. "x x x "(h) to enter into, make, conclude, perform, and carry out contracts of every kind and nature and for any lawful purpose which are necessary, appropriate, proper or incidental to any business or purpose of the PAGCOR, including but not limited to investment agreements, joint venture agreements, management agreements, agency agreements, whether as principal or as an agent, manpower supply agreements, or any other similar agreements or arrangements with any person, firm, association or corporation." (Boldfacing supplied) PAGCOR sought the amendment of its charter precisely to address and remedy the legal impediment raised in Senator Jaworski v. Phil. Amusement and Gaming Corp. Unfortunately for petitioner, RA 9487 cannot be applied to the present case. The Junket Agreement was entered into between PAGCOR and ABS Corporation on 25 April 1996 when the PAGCOR charter then prevailing (PD 1869) prohibited PAGCOR from entering into any arrangement with a third party that would allow such party to actively participate in the casino operations. It is a basic principle that laws should only be applied prospectively unless the legislative intent to give them retroactive effect is expressly declared or is necessarily implied from the language used.44 RA 9487 does not provide for any retroactivity of its provisions. All laws operate prospectively absent a clear contrary language in the text,45 and that in every case of doubt, the doubt will be resolved against the retroactive operation of laws.46 Thus, petitioner cannot avail of the provisions of RA 9487 as this was not the law when the acts giving rise to the claimed liabilities took place. This makes the

gambling activity participated in by petitioner illegal. Petitioner cannot sue PAGCOR to redeem the cash value of the gambling chips or recover damages arising from an illegal activity for two reasons. First, petitioner engaged in gambling with ABS Corporation and not with PAGCOR. Second, the court cannot assist petitioner in enforcing an illegal act. Moreover, for a court to grant petitioners prayer would mean enforcing the Junket Agreement, which is void. Now, to address the issues raised by petitioner in his petition, petitioner claims that he is a third party proceeding against the liability of a presumed principal and claims relief, alternatively, on the basis of implied agency or agency by estoppel. Article 1869 of the Civil Code states that implied agency is derived from the acts of the principal, from his silence or lack of action, or his failure to repudiate the agency, knowing that another person is acting on his behalf without authority. Implied agency, being an actual agency, is a fact to be proved by deductions or inferences from other facts.47 On the other hand, apparent authority is based on estoppel and can arise from two instances. First, the principal may knowingly permit the agent to hold himself out as having such authority, and the principal becomes estopped to claim that the agent does not have such authority. Second, the principal may clothe the agent with the indicia of authority as to lead a reasonably prudent person to believe that the agent actually has such authority.48 In an agency by estoppel, there is no agency at all, but the one assuming to act as agent has apparent or ostensible, although not real, authority to represent another.49 The law makes no presumption of agency and proving its existence, nature and extent is incumbent upon the person alleging it.50 Whether or not an agency has been created is a question to be determined by the fact that one represents and is acting for another. 51 Acts and conduct of PAGCOR negates the existence of an implied agency or an agency by estoppel Petitioner alleges that there is an implied agency. Alternatively, petitioner claims that even assuming that no actual agency existed between PAGCOR and ABS Corporation, there is still an agency by estoppel based on the acts and conduct of PAGCOR showing apparent authority in favor of ABS Corporation. Petitioner states that one factor which distinguishes agency from other legal precepts is control and the following undisputed facts show a relationship of implied agency: 1. Three floors of the Grand Boulevard Hotel52 were leased to PAGCOR for conducting gambling operations;53 2. Of the three floors, PAGCOR allowed ABS Corporation to use one whole floor for foreign

exchange gambling, conducted by PAGCOR dealers using PAGCOR facilities, operated by PAGCOR employees and using PAGCOR chips bearing the PAGCOR logo;54 3. PAGCOR controlled the release, withdrawal and return of all the gambling chips given to ABS Corporation in that part of the casino and at the end of the day, PAGCOR conducted an inventory of the gambling chips;55 4. ABS Corporation accounted for all gambling chips with the Commission on Audit (COA), the official auditor of PAGCOR;56 5. PAGCOR enforced, through its own manager, all the rules and regulations on the operation of the gambling pit used by ABS Corporation.57 Petitioners argument is clearly misplaced. The basis for agency is representation,58 that is, the agent acts for and on behalf of the principal on matters within the scope of his authority and said acts have the same legal effect as if they were personally executed by the principal.59 On the part of the principal, there must be an actual intention to appoint or an intention naturally inferable from his words or actions, while on the part of the agent, there must be an intention to accept the appointment and act on it.60 Absent such mutual intent, there is generally no agency.61 There is no implied agency in this case because PAGCOR did not hold out to the public as the principal of ABS Corporation. PAGCORs actions did not mislead the public into believing that an agency can be implied from the arrangement with the junket operators, nor did it hold out ABS Corporation with any apparent authority to represent it in any capacity. The Junket Agreement was merely a contract of lease of facilities and services. The players brought in by ABS Corporation were covered by a different set of rules in acquiring and encashing chips. The players used a different kind of chip than what was used in the regular gaming areas of PAGCOR, and that such junket players played specifically only in the third floor area and did not mingle with the regular patrons of PAGCOR. Furthermore, PAGCOR, in posting notices stating that the players are playing under special rules, exercised the necessary precaution to warn the gaming public that no agency relationship exists.1avvphi1 For the second assigned error, petitioner claims that the intention of the parties cannot apply to him as he is not a party to the contract. We disagree. The Court of Appeals correctly used the intent of the contracting parties in determining whether an agency by estoppel existed in this case. An agency by estoppel, which is similar to the doctrine of apparent

authority requires proof of reliance upon the representations, and that, in turn, needs proof that the representations predated the action taken in reliance. 62 There can be no apparent authority of an agent without acts or conduct on the part of the principal and such acts or conduct of the principal must have been known and relied upon in good faith and as a result of the exercise of reasonable prudence by a third person as claimant, and such must have produced a change of position to its detriment.63 Such proof is lacking in this case. In the entire duration that petitioner played in Casino Filipino, he was dealing only with ABS Corporation, and availing of the privileges extended only to players brought in by ABS Corporation. The facts that he enjoyed special treatment upon his arrival in Manila and special accommodations in Grand Boulevard Hotel, and that he was playing in special gaming rooms are all indications that petitioner cannot claim good faith that he believed he was dealing with PAGCOR. Petitioner cannot be considered as an innocent third party and he cannot claim entitlement to equitable relief as well. For his third and final assigned error, petitioner asserts that PAGCOR ratified the acts of ABS Corporation. The trial court has declared, and we affirm, that the Junket Agreement is void. A void or inexistent contract is one which has no force and effect from the very beginning. Hence, it is as if it has never been entered into and cannot be validated either by the passage of time or by ratification.64 Article 1409 of the Civil Code provides that contracts expressly prohibited or declared void by law, such as gambling contracts, "cannot be ratified."65 WHEREFORE, we DENY the petition. We AFFIRM the Court of Appeals Decision dated 27 May 2003 as well as the Resolution dated 7 May 2004 as modified by this Decision. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 94753. April 7, 1993. MANOTOK BROTHERS, INC., petitioner, vs. THE HONORABLE COURT OF APPEALS, THE HONORABLE JUDGE OF THE REGIONAL TRIAL COURT OF MANILA (Branch VI), and SALVADOR SALIGUMBA, respondents. Antonio C. Ravelo for petitioner. Remigio M. Trinidad for private respondent. SYLLABUS 1. CIVIL LAW; AGENCY; AGENT'S COMMISSION; WHEN ENTITLED' RULE; APPLICATION IN CASE AT BAR. In an earlier case, this Court ruled that when there is a close, proximate and causal connection between the agent's efforts and labor and the principal's sale of his property, the agent is entitled to a commission. We agree with respondent Court that the City of Manila ultimately became the purchaser of petitioner's property mainly through the efforts of private respondent. Without discounting the fact that when Municipal Ordinance No. 6603 was signed by the City Mayor on May 17, 1968, private respondent's authority had already expired, it is to be noted that the ordinance was approved on April 26, 1968 when private respondent's authorization was still in force. Moreover, the approval by the City Mayor came only three days after the expiration of private respondent's authority. It is also worth emphasizing that from the records, the only party given a written authority by petitioner to negotiate the sale from July 5, 1966 to May 14, 1968 was private respondent. DECISION CAMPOS, JR., J p: Petitioner Manotok Brothers., Inc., by way of the instant Petition docketed as G.R. No. 94753 sought relief from this Court's Resolution dated May 3, 1989, which reads: "G.R. No. 78898 (Manotok Brothers, Inc. vs. Salvador Saligumba and Court of Appeals). Considering the manifestation of compliance by counsel for petitioner dated April 14, 1989 with the resolution of March 13, 1989 which required the petitioner to locate private respondent and to inform this Court of the present address of said private respondent, the Court Resolved to DISMISS this case, as the issues cannot be joined as private respondent's and counsel's addresses cannot be furnished by the petitioner to this court." 1 In addition, petitioner prayed for the issuance of a preliminary injunction to prevent irreparable injury to

itself pending resolution by this Court of its cause. Petitioner likewise urged this Court to hold in contempt private respondent for allegedly adopting sinister ploy to deprive petitioner of its constitutional right to due process. Acting on said Petition, this Court in a Resolution 2 dated October 1, 1990 set aside the entry of judgment made on May 3, 1989 in case G.R. No. 78898; admitted the amended petition; and issued a temporary restraining order to restrain the execution of the judgment appealed from. The amended petition 3 admitted, by this Court sought relief from this Court's Resolution abovequoted. In the alternative, petitioner begged leave of court to re-file its Petition for Certiorari 4 (G.R. No. 78898) grounded on the allegation that petitioner was deprived of its opportunity to be heard. The facts as found by the appellate court, revealed that petitioner herein (then defendant-appellant) is the owner of a certain parcel of land and building which were formerly leased by the City of Manila and used by the Claro M. Recto High School, at M.F. Jhocson Street, Sampaloc Manila. By means of a letter 5 dated July 5, 1966, petitioner authorized herein private respondent Salvador Saligumba to negotiate with the City of Manila the sale of the aforementioned property for not less than P425,000.00. In the same writing, petitioner agreed to pay private respondent a five percent (5%) commission in the event the sale is finally consummated and paid. Petitioner, on March 4, 1967, executed another letter 6 extending the authority of private respondent for 120 days. Thereafter, another extension was granted to him for 120 more days, as evidenced by another letter 7 dated June 26, 1967. Finally, through another letter 8 dated November 16, 1967, the corporation with Rufino Manotok, its President, as signatory, authorized private respondent to finalize and consummate the sale of the property to the City of Manila for not less than P410,000.00. With this letter came another extension of 180 days. The Municipal Board of the City of Manila eventually, on April 26, 1968, passed Ordinance No. 6603, appropriating the sum of P410,816.00 for the purchase of the property which private respondent was authorized to sell. Said ordinance however, was signed by the City Mayor only on May 17, 1968, one hundred eighty three (183) days after the last letter of authorization. On January 14, 1969, the parties signed the deed of sale of the subject property. The initial payment of P200,000.00 having been made, the purchase price was fully satisfied with a second payment on April 8, 1969 by a check in the amount of P210,816.00.

Notwithstanding the realization of the sale, private respondent never received any commission, which should have amounted to P20,554.50. This was due to the refusal of petitioner to pay private respondent said amount as the former does not recognize the latter's role as agent in the transaction. Consequently, on June 29, 1969, private respondent filed a complaint against petitioner, alleging that he had successfully negotiated the sale of the property. He claimed that it was because of his efforts that the Municipal Board of Manila passed Ordinance No. 6603 which appropriated the sum for the payment of the property subject of the sale. Petitioner claimed otherwise. It denied the claim of private respondent on the following grounds: (1) private respondent would be entitled to a commission only if the sale was consummated and the price paid within the period given in the respective letters of authority; and (2) private respondent was not the person responsible for the negotiation and consummation of the sale, instead it was Filomeno E. Huelgas, the PTA president for 1967-1968 of the Claro M. Recto High School. As a counterclaim, petitioner (then defendant-appellant) demanded the sum of P4,000.00 as attorney's fees and for moral damages. Thereafter, trial ensued. Private respondent, then plaintiff, testified as to the efforts undertaken by him to ensure the consummation of the sale. He recounted that it first began at a meeting with Rufino Manotok at the office of Fructuoso Ancheta, principal of C.M. Recto High School. Atty. Dominador Bisbal, then president of the PTA, was also present. The meeting was set precisely to ask private respondent to negotiate the sale of the school lot and building to the City of Manila. Private respondent then went to Councilor Mariano Magsalin, the author of the Ordinance which appropriated the money for the purchase of said property, to present the project. He also went to the Assessor's Office for appraisal of the value of the property. While these transpired and his letters of authority expired, Rufino Manotok always renewed the former's authorization until the last was given, which was to remain in force until May 14, 1968. After securing the report of the appraisal committee, he went to the City Mayor's Office, which indorsed the matter to the Superintendent of City Schools of Manila. The latter office approved the report and so private respondent went back to the City Mayor's Office, which thereafter indorsed the same to the Municipal Board for appropriation. Subsequently, on April 26, 1968, Ordinance No. 6603 was passed by the Municipal Board for the appropriation of the sum corresponding to the purchase price. Petitioner received the full payment

of the purchase price, but private respondent did not receive a single centavo as commission. Fructuoso Ancheta and Atty. Dominador Bisbal both testified acknowledging the authority of private respondent regarding the transaction. Petitioner presented as its witnesses Filomeno Huelgas and the petitioner's President, Rufino Manotok. Huelgas testified to the effect that after being inducted as PTA president in August, 1967 he followed up the sale from the start with Councilor Magsalin until after it was approved by the Mayor on May 17, 1968. He. also said that he came to know Rufino Manotok only in August, 1968, at which meeting the latter told him that he would be given a "gratification" in the amount of P20,000.00 if the sale was expedited. Rufino Manotok confirmed that he knew Huelgas and that there was an agreement between the two of them regarding the "gratification". On rebuttal, Atty. Bisbal said that Huelgas was present in the PTA meetings from 1965 to 1967 but he never offered to help in the acquisition of said property. Moreover, he testified that Huelgas was aware of the fact that it was private respondent who was negotiating the sale of the subject property. Thereafter, the then Court of First Instance (now, Regional Trial Court) rendered judgment sentencing petitioner and/or Rufino Manotok to pay unto private respondent the sum of P20,540.00 by way of his commission fees with legal interest thereon from the date of the filing of the complaint until payment. The lower court also ordered petitioner to pay private respondent the amount of P4,000.00 as and for attorney's fees. 9 Petitioner appealed said decision, but to no avail. Respondent Court of Appeals affirmed the said ruling of the trial court. 10 Its Motion for Reconsideration having been denied by respondent appellate court in a Resolution dated June 22, 1987, petitioner seasonably elevated its case on Petition for Review on Certiorari on August 10, 1987 before this Court, docketed as G.R. No. 78898. Acting on said Petition, this Court issued a Minute Resolution 11 dated August 31, 1987 ordering private respondent to comment on said Petition. It appearing that the abovementioned Resolution was returned unserved with the postmaster's notation "unclaimed", this Court in another Resolution 12 dated March 13, 1989, required petitioner to locate private respondent and to inform this Court of the present address of private respondent within ten (10) days from notice. As petitioner was unsuccessful in its efforts to locate private respondent, it opted to manifest that private respondent's last address was the same as that

address to which this. Court's Resolution was forwarded. Subsequently, this Court issued a Resolution dated May 3, 1989 dismissing petitioner's case on the ground that the issues raised in the case at bar cannot be joined. Thus, the above-entitled case became final and executory by the entry of judgment on May 3, 1989. Thereafter, on January 9, 1990 private respondent filed a Motion to Execute the said judgment before the court of origin. Upon discovery of said development, petitioner verified with the court of origin the circumstances by which private respondent obtained knowledge of the resolution of this Court. Sensing a fraudulent scheme employed by private respondent, petitioner then instituted this instant Petition for Relief, on August 30, 1990. On September 13, 1990, said petition was amended to include, in the alternative, its petition to re-file its Petition for Certiorari (G.R. No. 78898). The sole issue to be addressed in this petition is whether or not private respondent is entitled to the five percent (5%) agent's commission. It is petitioner's contention that as a broker, private respondent's job is to bring together the parties to a transaction. Accordingly, if the broker does not succeed in bringing the minds of the purchaser and the vendor to an agreement with respect to the sale, he is not entitled to a commission. Private respondent, on the other hand, opposes petitioner's position maintaining that it was because of his efforts that a purchase actually materialized between the parties. We rule in favor of private respondent. At first sight, it would seem that private respondent is not entitled to any commission as he was not successful in consummating the sale between the parties, for the sole reason that when the Deed of Sale was finally executed, his extended authority had already expired. By this alone, one might be misled to believe that this case squarely falls within the ambit of the established principle that a broker or agent is not entitled to any commission until he has successfully done the job given to him. 13 Going deeper however into the case would reveal that it is within the coverage of the exception rather than of the general rule, the exception being that enunciated in the case of Prats vs. Court of Appeals. 14 In the said case, this Court ruled in favor of claimant-agent, despite the expiration of his authority, when a sale was finally consummated. In its decision in the abovecited case, this Court said, that while it was respondent court's (referring to the Court of Appeals) factual findings that petitioner Prats (claimant-agent) was not the efficient procuring cause

in bringing about the sale (prescinding from the fact of expiration of his exclusive authority), still petitioner was awarded compensation for his services. And We quote: "In equity, however, the Court notes that petitioner had diligently taken steps to bring back together respondent Doronila and the SSS,. xxx xxx xxx The court has noted on the other hand that Doronila finally sold the property to the Social Security System at P3.25 per square meter which was the very same price counter-offered by the Social Security System and accepted by him in July, 1967 when he alone was dealing exclusively with the said buyer long before Prats came into the picture but that on the other hand Prats' efforts somehow were instrumental in bringing them together again and finally consummating the transaction at the same price of P3.25 per square meter, although such finalization was after the expiration of Prats' extended exclusive authority. xxx xxx xxx Under the circumstances, the Court grants in equity the sum of One hundred Thousand Pesos (P100,000.00) by way of compensation for his efforts and assistance in the transaction, which however was finalized and consummated after the expiration of his exclusive authority . . ." 15 (Emphasis supplied.). From the foregoing, it follows then that private respondent herein, with more reason, should be paid his commission, While in Prats vs. Court of Appeals, the agent was not even the efficient procuring cause in bringing about the sale, unlike in the case at bar, it was still held therein that the agent was entitled to compensation. In the case at bar, private respondent is the efficient procuring cause for without his efforts, the municipality would not have anything to pass and the Mayor would not have anything to approve. In an earlier case, 16 this Court ruled that when there is a close, proximate and causal connection between the agent's efforts and labor and the principal's sale of his property, the agent is entitled to a commission. We agree with respondent Court that the City of Manila ultimately became the purchaser of petitioner's property mainly through the efforts of private respondent. Without discounting the fact that when Municipal Ordinance No. 6603 was signed by the City Mayor on May 17, 1968, private respondent's authority had already expired, it is to be noted that the ordinance was approved on April 26, 1968 when private respondent's authorization was still in force. Moreover, the approval by the City Mayor came only three days after the expiration of private respondent's authority. It is also worth emphasizing that from the records, the only party given a written authority by petitioner to negotiate the

sale from July 5, 1966 to May 14, 1968 was private respondent. Contrary to what petitioner advances, the case of Danon vs. Brimo, 17 on which it heavily anchors its justification for the denial of private respondent's claim, does not apply squarely to the instant petition. Claimant-agent in said case fully comprehended the possibility that he may not realize the agent's commission as he was informed that another agent was also negotiating the sale and thus, compensation will pertain to the one who finds a purchaser and eventually effects the sale. Such is not the case herein. On the contrary, private respondent pursued with his goal of seeing that the parties reach an agreement, on the belief that he alone was transacting the business with the City Government as this was what petitioner made it to appear. While it may be true that Filomeno Huelgas followed up the matter with Councilor Magsalin, the author of Municipal Ordinance No. 6603 and Mayor Villegas, his intervention regarding the purchase came only after the ordinance had already been passed when the buyer has already agreed to the purchase and to the price for which said property is to be paid. Without the efforts of private respondent then, Mayor Villegas would have nothing to approve in the first place. It was actually private respondent's labor that had set in motion the intervention of the third party that produced the sale, hence he should be amply compensated. WHEREFORE, in the light of the foregoing and finding no reversible error committed by respondent Court, the decision of the Court of Appeals is hereby AFFIRMED. The temporary restraining order issued by this Court in its Resolution dated October 1, 1990 is hereby lifted. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 113074 January 22, 1997 ALFRED HAHN, petitioner, vs. COURT OF APPEALS and BAYERSCHE MOTOREN WERKE AKTIENGSELLSCHAFT (BMW), respondents. MENDOZA, J.: This is a petition for review of the decision 1 of the Court of Appeals dismissing a complaint for specific performance which petitioner had filed against private respondent on the ground that the Regional Trial Court of Quezon City did not acquire jurisdiction over private respondent, a nonresident foreign corporation, and of the appellate court's order denying petitioner's motion for reconsideration. The following are the facts: Petitioner Alfred Hahn is a Filipino citizen doing business under the name and style "Hahn-Manila." On the other hand, private respondent Bayerische Motoren Werke Aktiengesellschaft (BMW) is a nonresident foreign corporation existing under the laws of the former Federal Republic of Germany, with principal office at Munich, Germany. On March 7, 1967, petitioner executed in favor of private respondent a "Deed of Assignment with Special Power of Attorney," which reads in full as follows:
WHEREAS, the ASSIGNOR is the present owner and holder of the BMW trademark and device in the Philippines which ASSIGNOR uses and has been using on the products manufactured by ASSIGNEE, and for which ASSIGNOR is the authorized exclusive Dealer of the ASSIGNEE in the Philippines, the same being evidenced by certificate of registration issued by the Director of Patents on 12 December 1963 and is referred to as Trademark No. 10625; WHEREAS, the ASSIGNOR has agreed to transfer and consequently record said transfer of the said BMW trademark and device in favor of the ASSIGNEE herein with the Philippines Patent Office; NOW THEREFORE, in view of the foregoing and in consideration of the stipulations hereunder stated, the ASSIGNOR hereby affirms the said assignment and transfer in favor of the ASSIGNEE under the following terms and conditions: 1. The ASSIGNEE shall take appropriate steps against any user other than ASSIGNOR or infringer of the BMW trademark in the Philippines; for such purpose, the ASSIGNOR shall inform the ASSIGNEE immediately of any such use or infringement of the said trademark which comes to

his knowledge and upon such information the ASSIGNOR shall automatically act as Attorney-InFact of the ASSIGNEE for such case, with full power, authority and responsibility to prosecute unilaterally or in concert with ASSIGNEE, any such infringer of the subject mark and for purposes hereof the ASSIGNOR is hereby named and constituted as ASSIGNEE's Attorney-In-Fact, but any such suit without ASSIGNEE's consent will exclusively be the responsibility and for the account of the ASSIGNOR, 2. That the ASSIGNOR and the ASSIGNEE shall continue business relations as has been usual in the past without a formal contract, and for that purpose, the dealership of ASSIGNOR shall cover the ASSIGNEE's complete production program with the only limitation that, for the present, in view of ASSIGNEE's limited production, the latter shall not be able to supply automobiles to ASSIGNOR.

Per the agreement, the parties "continue[d] business relations as has been usual in the past without a formal contract." But on February 16, 1993, in a meeting with a BMW representative and the president of Columbia Motors Corporation (CMC), Jose Alvarez, petitioner was informed that BMW was arranging to grant the exclusive dealership of BMW cars and products to CMC, which had expressed interest in acquiring the same. On February 24, 1993, petitioner received confirmation of the information from BMW which, in a letter, expressed dissatisfaction with various aspects of petitioner's business, mentioning among other things, decline in sales, deteriorating services, and inadequate showroom and warehouse facilities, and petitioner's alleged failure to comply with the standards for an exclusive BMW dealer. 2 Nonetheless, BMW expressed willingness to continue business relations with the petitioner on the basis of a "standard BMW importer" contract, otherwise, it said, if this was not acceptable to petitioner, BMW would have no alternative but to terminate petitioner's exclusive dealership effective June 30, 1993. Petitioner protested, claiming that the termination of his exclusive dealership would be a breach of the Deed of Assignment. 3 Hahn insisted that as long as the assignment of its trademark and device subsisted, he remained BMW's exclusive dealer in the Philippines because the assignment was made in consideration of the exclusive dealership. In the same letter petitioner explained that the decline in sales was due to lower prices offered for BMW cars in the United States and the fact that few customers returned for repairs and servicing because of the durability of BMW parts and the efficiency of petitioner's service.

Because of Hahn's insistence on the former business relation, BMW withdrew on March 26, 1993 its offer of a "standard importer contract" and terminated the exclusive dealer relationship effective June 30, 1993. 4 At a conference of BMW Regional Importers held on April 26, 1993 in Singapore, Hahn was surprised to find Alvarez among those invited from the Asian region. On April 29, 1993, BMW proposed that Hahn and CMC jointly import and distribute BMW cars and parts. Hahn found the proposal unacceptable. On May 14, 1993, he filed a complaint for specific performance and damages against BMW to compel it to continue the exclusive dealership. Later he filed an amended complaint to include an application for temporary restraining order and for writs of preliminary, mandatory and prohibitory injunction to enjoin BMW from terminating his exclusive dealership. Hahn's amended complaint alleged in pertinent parts:
2. Defendant [BMW] is a foreign corporation doing business in the Philippines with principal offices at Munich, Germany. It may be served with summons and other court processes through the Secretary of the Department of Trade and Industry of the Philippines. . . . xxx xxx xxx 5. On March 7, 1967, Plaintiff executed in favor of defendant BMW a Deed of Assignment with Special Power of Attorney covering the trademark and in consideration thereof, under its first whereas clause, Plaintiff was duly acknowledged as the "exclusive Dealer of the Assignee in the Philippines. . . . xxx xxx xxx 8. From the time the trademark "BMW & DEVICE" was first used by the Plaintiff in the Philippines up to the present, Plaintiff, through its firm name "HAHN MANILA" and without any monetary contribution from defendant BMW, established BMW's goodwill and market presence in the Philippines. Pursuant thereto, Plaintiff has invested a lot of money and resources in order to single-handedly compete against other motorcycle and car companies. . . . Moreover, Plaintiff has built buildings and other infrastructures such as service centers and showrooms to maintain and promote the car and products of defendant BMW. xxx xxx xxx 10. In a letter dated February 24, 1993, defendant BMW advised Plaintiff that it was willing to maintain with Plaintiff a relationship but only "on the basis of a standard BMW importer contract as adjusted to reflect the particular situation in the Philippines" subject to certain conditions, otherwise, defendant BMW would terminate Plaintiffs exclusive dealership and any relationship for cause effective June 30, 1993. . . . xxx xxx xxx 15. The actuations of defendant BMW are in breach of the assignment agreement between itself and

plaintiff since the consideration for the assignment of the BMW trademark is the continuance of the exclusive dealership agreement. It thus, follows that the exclusive dealership should continue for so long as defendant BMW enjoys the use and ownership of the trademark assigned to it by Plaintiff.

The case was docketed as Civil Case No. Q-9315933 and raffled to Branch 104 of the Quezon City Regional Trial Court, which on June 14, 1993 issued a temporary restraining order. Summons and copies of the complaint and amended complaint were thereafter served on the private respondent through the Department of Trade and Industry, pursuant to Rule 14, 14 of the Rules of Court. The order, summons and copies of the complaint and amended complaint were later sent by the DTI to BMW via registered mail on June 15, 1993 5 and received by the latter on June 24, 1993. On June 17, 1993, without proof of service on BMW, the hearing on the application for the writ of preliminary injunction proceeded ex parte, with petitioner Hahn testifying. On June 30, 1993, the trial court issued an order granting the writ of preliminary injunction upon the filing of a bond of P100,000.00. On July 13, 1993, following the posting of the required bond, a writ of preliminary injunction was issued. On July 1, 1993, BMW moved to dismiss the case, contending that the trial court did not acquire jurisdiction over it through the service of summons on the Department of Trade and Industry, because it (BMW) was a foreign corporation and it was not doing business in the Philippines. It contended that the execution of the Deed of Assignment was an isolated transaction; that Hahn was not its agent because the latter undertook to assemble and sell BMW cars and products without the participation of BMW and sold other products; and that Hahn was an indentor or middleman transacting business in his own name and for his own account. Petitioner Alfred Hahn opposed the motion. He argued that BMW was doing business in the Philippines through him as its agent, as shown by the fact that BMW invoices and order forms were used to document his transactions; that he gave warranties as exclusive BMW dealer; that BMW officials periodically inspected standards of service rendered by him; and that he was described in service booklets and international publications of BMW as a "BMW Importer" or "BMW Trading Company" in the Philippines. The trial court 6 deferred resolution of the motion to dismiss until after trial on the merits for the reason

that the grounds advanced by BMW in its motion did not seem to be indubitable. Without seeking reconsideration of the aforementioned order, BMW filed a petition for certiorari with the Court of Appeals alleging that:
I. THE RESPONDENT JUDGE ACTED WITH UNDUE HASTE OR OTHERWISE INJUDICIOUSLY IN PROCEEDINGS LEADING TOWARD THE ISSUANCE OF THE WRIT OF PRELIMINARY INJUNCTION, AND IN PRESCRIBING THE TERMS FOR THE ISSUANCE THEREOF. II. THE RESPONDENT JUDGE PATENTLY ERRED IN DEFERRING RESOLUTION OF THE MOTION TO DISMISS ON THE GROUND OF LACK OF JURISDICTION, AND THEREBY FAILING TO IMMEDIATELY DISMISS THE CASE A QUO.

BMW asked for the immediate issuance of a temporary restraining order and, after hearing, for a writ of preliminary injunction, to enjoin the trial court from proceeding further in Civil Case No. Q93-15933. Private respondent pointed out that, unless the trial court's order was set aside, it would be forced to submit to the jurisdiction of the court by filing its answer or to accept judgment in default, when the very question was whether the court had jurisdiction over it. The Court of Appeals enjoined the trial court from hearing petitioner's complaint. On December 20, 1993, it rendered judgment finding the trial court guilty of grave abuse of discretion in deferring resolution of the motion to dismiss. It stated:
Going by the pleadings already filed with the respondent court before it came out with its questioned order of July 26, 1993, we rule and so hold that petitioner's (BMW) motion to dismiss could be resolved then and there, and that the respondent judge's deferment of his action thereon until after trial on the merit constitutes, to our mind, grave abuse of discretion. xxx xxx xxx . . . [T]here is not much appreciable disagreement as regards the factual matters relating to the motion to dismiss. What truly divide (sic) the parties and to which they greatly differ is the legal conclusions they respectively draw from such facts, (sic) with Hahn maintaining that on the basis thereof, BMW is doing business in the Philippines while the latter asserts that it is not.

allegations that he had invested his own money and resources in establishing BMW's goodwill in the Philippines and on BMW's claim that Hahn sold products other than those of BMW. It held that petitioner was a mere indentor or broker and not an agent through whom private respondent BMW transacted business in the Philippines. Consequently, the Court of Appeals dismissed petitioner's complaint against BMW. Hence, this appeal. Petitioner contends that the Court of Appeals erred (1) in finding that the trial court gravely abused its discretion in deferring action on the motion to dismiss and (2) in finding that private respondent BMW is not doing business in the Philippines and, for this reason, dismissing petitioner's case. Petitioner's appeal is well taken. Rule 14, 14 provides:
14. Service upon private foreign corporations. If the defendant is a foreign corporation, or a nonresident joint stock company or association, doing business in the Philippines, service may be made on its resident agent designated in accordance with law for that purpose, or, if there be no such agent, on the government official designated by law to that effect, or on any of its officers or agents within the Philippines. (Emphasis added).

What acts are considered "doing business in the Philippines" are enumerated in 3(d) of the Foreign Investments Act of 1991 (R.A. No. 7042) as follows: 7
d) the phrase "doing business" shall include soliciting orders, service contracts, opening offices, whether called "liaison" offices or branches; appointing representatives or distributors domiciled in the Philippines or who in any calendar year stay in the country for a period or periods totalling one hundred eighty (180) days or more; participating in the management, supervision or control of any domestic business, firm, entity or corporation in the Philippines; and any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization: Provided, however, That the phrase "doing business" shall not be deemed to include mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business, and/or the exercise of rights as such investor; nor having a nominee director or officer to represent its interests in such corporation; nor appointing a representative or distributor domiciled in the Philippines which transacts business in its own name and for its own account. (Emphasis supplied)

Then, after stating that any ruling which the trial court might make on the motion to dismiss would anyway be elevated to it on appeal, the Court of Appeals itself resolved the motion. It ruled that BMW was not doing business in the country and, therefore, jurisdiction over it could not be acquired through service of summons on the DTI pursuant to Rule 14, 14. 'The court upheld private respondent's contention that Hahn acted in his own name and for his own account and independently of BMW, based on Alfred Hahn's

Thus, the phrase includes "appointing representatives or distributors in the Philippines"

but not when the representative or distributor "transacts business in its name and for its own account." In addition, 1(f)(1) of the Rules and Regulations implementing (IRR) the Omnibus Investment Code of 1987 (E.O. No. 226) provided:
(f) "Doing business" shall be any act or combination of acts, enumerated in Article 44 of the Code. In particular, "doing business" includes: (1) . . . A foreign firm which does business through middlemen acting in their own names, such as indentors, commercial brokers or commission merchants, shall not be deemed doing business in the Philippines. But such indentors, commercial brokers or commission merchants shall be the ones deemed to be doing business in the Philippines.

The question is whether petitioner Alfred Hahn is the agent or distributor in the Philippines of private respondent BMW. If he is, BMW may be considered doing business in the Philippines and the trial court acquired jurisdiction over it (BMW) by virtue of the service of summons on the Department of Trade and Industry. Otherwise, if Hahn is not the agent of BMW but an independent dealer, albeit of BMW cars and products, BMW, a foreign corporation, is not considered doing business in the Philippines within the meaning of the Foreign Investments Act of 1991 and the IRR, and the trial court did not acquire jurisdiction over it (BMW). The Court of Appeals held that petitioner Alfred Hahn acted in his own name and for his own account and not as agent or distributor in the Philippines of BMW on the ground that "he alone had contacts with individuals or entities interested in acquiring BMW vehicles. Independence characterizes Hahn's undertakings, for which reason he is to be considered, under governing statutes, as doing business." (p. 13) In support of this conclusion, the appellate court cited the following allegations in Hahn's amended complaint:
8. From the time the trademark "BMW & DEVICE" was first used by the Plaintiff in the Philippines up to the present, Plaintiff, through its firm name "HAHN MANILA" and without any monetary contributions from defendant BMW, established BMW's goodwill and market presence in the Philippines. Pursuant thereto, Plaintiff invested a lot of money and resources in order to single-handedly compete against other motorcycle and car companies. . . . Moreover, Plaintiff has built buildings and other infrastructures such as service centers and showrooms to maintain and promote the car and products of defendant BMW.

without "interference from, let alone direction of, BMW." (p. 13) To the contrary, Hahn claimed he took orders for BMW cars and transmitted them to BMW. Upon receipt of the orders, BMW fixed the downpayment and pricing charges, notified Hahn of the scheduled production month for the orders, and reconfirmed the orders by signing and returning to Hahn the acceptance sheets. Payment was made by the buyer directly to BMW. Title to cars purchased passed directly to the buyer and Hahn never paid for the purchase price of BMW cars sold in the Philippines. Hahn was credited with a commission equal to 14% of the purchase price upon the invoicing of a vehicle order by BMW. Upon confirmation in writing that the vehicles had been registered in the Philippines and serviced by him, Hahn received an additional 3% of the full purchase price. Hahn performed after-sale services, including warranty services, for which he received reimbursement from BMW. All orders were on invoices and forms of BMW. 8 These allegations were substantially admitted by BMW which, in its petition for certiorari before the Court of Appeals, stated: 9
9.4. As soon as the vehicles are fully manufactured and full payment of the purchase prices are made, the vehicles are shipped to the Philippines. (The payments may be made by the purchasers or thirdpersons or even by Hahn.) The bills of lading are made up in the name of the purchasers, but HahnManila is therein indicated as the person to be notified. 9.5. It is Hahn who picks up the vehicles from the Philippine ports, for purposes of conducting predelivery inspections. Thereafter, he delivers the vehicles to the purchasers. 9.6. As soon as BMW invoices the vehicle ordered, Hahn is credited with a commission of fourteen percent (14%) of the full purchase price thereof, and as soon as he confirms in writing that the vehicles have been registered in the Philippines and have been serviced by him, he will receive an additional three percent (3%) of the full purchase prices as commission.

As the above quoted allegations of the amended complaint show, however, there is nothing to support the appellate court's finding that Hahn solicited orders alone and for his own account and

Contrary to the appellate court's conclusion, this arrangement shows an agency. An agent receives a commission upon the successful conclusion of a sale. On the other hand, a broker earns his pay merely by bringing the buyer and the seller together, even if no sale is eventually made. As to the service centers and showrooms which he said he had put up at his own expense, Hahn said that he had to follow BMW specifications as exclusive dealer of BMW in the Philippines. According to Hahn, BMW periodically inspected the service centers to see to it that BMW standards were maintained. Indeed, it would seem from BMW's letter to Hahn that it was for Hahn's

alleged failure to maintain BMW standards that BMW was terminating Hahn's dealership. The fact that Hahn invested his own money to put up these service centers and showrooms does not necessarily prove that he is not an agent of BMW. For as already noted, there are facts in the record which suggest that BMW exercised control over Hahn's activities as a dealer and made regular inspections of Hahn's premises to enforce compliance with BMW standards and specifications. 10 For example, in its letter to Hahn dated February 23, 1996, BMW stated:
In the last years we have pointed out to you in several discussions and letters that we have to tackle the Philippine market more professionally and that we are through your present activities not adequately prepared to cope with the forthcoming 11 challenges.

In effect, BMW was holding Hahn accountable to it under the 1967 Agreement. This case fits into the mould of Communications Materials, Inc. v. Court of Appeals, 12 in which the foreign corporation entered into a "Representative Agreement" and a "Licensing Agreement" with a domestic corporation, by virtue of which the latter was appointed "exclusive representative" in the Philippines for a stipulated commission. Pursuant to these contracts, the domestic corporation sold products exported by the foreign corporation and put up a service center for the products sold locally. This Court held that these acts constituted doing business in the Philippines. The arrangement showed that the foreign corporation's purpose was to penetrate the Philippine market and establish its presence in the Philippines. In addition, BMW held out private respondent Hahn as its exclusive distributor in the Philippines, even as it announced in the Asian region that Hahn was the "official BMW agent" in the Philippines. 13 The Court of Appeals also found that petitioner Alfred Hahn dealt in other products, and not exclusively in BMW products, and, on this basis, ruled that Hahn was not an agent of BMW. (p. 14) This finding is based entirely on allegations of BMW in its motion to dismiss filed in the trial court and in its petition for certiorari before the Court of Appeals. 14 But this allegation was denied by Hahn 15 and therefore the Court of Appeals should not have cited it as if it were the fact. Indeed this is not the only factual issue raised, which should have indicated to the Court of Appeals the necessity of affirming the trial court's order deferring resolution of BMW's motion to dismiss. Petitioner alleged that whether or not he

is considered an agent of BMW, the fact is that BMW did business in the Philippines because it sold cars directly to Philippine buyers. 16 This was denied by BMW, which claimed that Hahn was not its agent and that, while it was true that it had sold cars to Philippine buyers, this was done without solicitation on its part. 17 It is not true then that the question whether BMW is doing business could have been resolved simply by considering the parties' pleadings. There are genuine issues of facts which can only be determined on the basis of evidence duly presented. BMW cannot short circuit the process on the plea that to compel it to go to trial would be to deny its right not to submit to the jurisdiction of the trial court which precisely it denies. Rule 16, 3 authorizes courts to defer the resolution of a motion to dismiss until after the trial if the ground on which the motion is based does not appear to be indubitable. Here the record of the case bristles with factual issues and it is not at all clear whether some allegations correspond to the proof. Anyway, private respondent need not apprehend that by responding to the summons it would be waiving its objection to the trial court's jurisdiction. It is now settled that, for purposes of having summons served on a foreign corporation in accordance with Rule 14, 14, it is sufficient that it be alleged in the complaint that the foreign corporation is doing business in the Philippines. The court need not go beyond the allegations of the complaint in order to determine whether it has Jurisdiction. 18 A determination that the foreign corporation is doing business is only tentative and is made only for the purpose of enabling the local court to acquire jurisdiction over the foreign corporation through service of summons pursuant to Rule 14, 14. Such determination does not foreclose a contrary finding should evidence later show that it is not transacting business in the country. As this Court has explained:
This is not to say, however, that the petitioner's right to question the jurisdiction of the court over its person is now to be deemed a foreclosed matter. If it is true, as Signetics claims, that its only involvement in the Philippines was through a passive investment in Sigfil, which it even later disposed of, and that TEAM Pacific is not its agent, then it cannot really be said to be doing business in the Philippines. It is a defense, however, that requires the contravention of the allegations of the complaint, as well as a full ventilation, in effect, of the main merits of the case, which should not thus be within the province of a mere motion to dismiss. So, also, the issue posed by the petitioner as to whether a foreign corporation which has done business in the country, but which has ceased to do business at the time of the filing of

a complaint, can still be made to answer for a cause of action which accrued while it was doing business, is another matter that would yet have to await the reception and admission of evidence. Since these points have seasonably been raised by the petitioner, there should be no real cause for what may understandably be its apprehension, i.e., that by its participation during the trial on the merits, it may, absent an invocation of separate or independent reliefs of its own, be considered to have voluntarily submitted itself to the court's jurisdiction.
19

Far from committing an abuse of discretion, the trial court properly deferred resolution of the motion to dismiss and thus avoided prematurely deciding a question which requires a factual basis, with the same result if it had denied the motion and conditionally assumed jurisdiction. It is the Court of Appeals which, by ruling that BMW is not doing business on the basis merely of uncertain allegations in the pleadings, disposed of the whole case with finality and thereby deprived petitioner of his right to be heard on his cause of action. Nor was there justification for nullifying the writ of preliminary injunction issued by the trial court. Although the injunction was issued ex parte, the fact is that BMW was subsequently heard on its defense by filing a motion to dismiss. WHEREFORE, the decision of the Court of Appeals is REVERSED and the case is REMANDED to the trial court for further proceedings. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-20726 December 20, 1923 ALBALADEJO Y CIA., S. en C., plaintiff-appellant, vs. The PHILIPPINE REFINING CO., as successor to The Visayan Refining Co., defendant-appellant. Eduardo Gutierrez Repide and Felix Socias for plaintiff. Manly, Goddard and Lockwood for defendantappellant. Fisher, DeWitt, Perkins and Brady of counsel. STREET, J.: This action was instituted in the Court of First Instance of the Province of Albay by Albaladejo y Cia., S. en C., to recover a sum of money from the Philippine Refining Co., as successor to the Visayan Refining Co., two causes of action being stated in the complaint. Upon hearing the cause the trial judge absolved the defendant from the first cause of action but gave judgment for the plaintiff to recover the sum of P49,626.68, with costs, upon the second cause of action. From this judgment the plaintiff appealed with respect to the action taken upon the first cause of action, and the defendant appealed with respect to the action taken upon the second cause of action. It results that, by the appeal of the two parties, the decision of the lower court is here under review as regards the action taken upon both grounds of action set forth in the complaint. It appears that Albaladejo y Cia. is a limited partnership, organized in conformity with the laws of these Islands, and having its principal place of business at Legaspi, in the Province of Albay; and during the transactions which gave origin to this litigation said firm was engaged in the buying and selling of the products of the country, especially copra, and in the conduct of a general mercantile business in Legaspi and in other places where it maintained agencies, or subagencies, for the prosecution of its commercial enterprises. The Visayan Refining Co. is a corporation organized under the laws of the Philippine Islands; and prior to July 9, 1920, it was engaged in operating its extensive plant at Opon, Cebu, for the manufacture of coconut oil. On August 28, 1918, the plaintiff made a contract with the Visayan Refining Co., the material parts of which are as follows: Memorandum of Agreement Re Purchase of Copra. This memorandum of agreement, made and entered into by and between Albaladejo y Compania, S. en C., of Legaspi,

Province of Albay, Philippine Islands, party of the first part, and the Visayan Refining Company, Inc., of Opon, Province of Cebu, Philippine Islands, party of the second part, Witnesseth That. Whereas, the party of the first part is engaged in the purchase of copra in the Province of Albay; and Whereas, the party of the second part is engaged in the business of the manufacture of coconut oil, or which purpose it must continually purchase large quantities of copra; Now, Therefore, in consideration of the premises and covenants hereinafter set forth, the said parties have agreed and do hereby contract and agree as follows, to wit: 1. The party of the first part agrees and binds itself to sell to the party of the second part, and the party of the second part agrees and binds itself to buy from the party of the first part, for a period of one (1) year from the date of these presents, all the copra purchased by the party of the first part in Province of Albay. 2. The party of the second part agrees to pay the party of the first part for the said copra the market price thereof in Cebu at date (of) purchase, deducting, however, from such price the cost of transportation by sea to the factory of the party of second part at Opon, Cebu, the amount deducted to be ascertained from the rates established, from time to time, by the public utility commission, or such entity as shall succeed to its functions, and also a further deduction for the shrinkage of the copra from the time of its delivery to the party of the second part to its arrival at Opon, Cebu, plus one-half of a real per picul in the event the copra is delivered to boats which will unload it on the pier of the party of the second part at Opon, Cebu, plus one real per picul in the event that the party of the first part shall employ its own capital exclusively in its purchase. 3. During the continuance of this contract the party of the second part will not appoint any other agent for the purchase of copra in Legaspi, nor buy copra from any vendor in Legaspi. 4. The party of the second part will, so far as practicable, keep the party of the first part advised of the prevailing prices paid for copra in the Cebu market. 5. The party of the second part will provide transportation by sea to Opon, Cebu, for the copra delivered to it by the party of the first part, but the party of the first part must deliver such copra to the party of the second part free

on board the boats of the latter's ships or on the pier alongside the latter's ships, as the case may be. Pursuant to this agreement the plaintiff, during the year therein contemplated, bought copra extensively for the Visayan Refining Co. At the end of said year both parties found themselves satisfied with the existing arrangement, and they therefore continued by tacit consent to govern their future relations by the same agreement. In this situation affairs remained until July 9, 1920, when the Visayan Refining Co. closed down its factory at Opon and withdrew from the copra market. When the contract above referred to was originally made, Albaladejo y Cia. apparently had only one commercial establishment, i.e., that at Legaspi; but the large requirements of the Visayan Refining Co. for copra appeared so far to justify the extension of the plaintiff's business that during the course of the next two or three years it established some twenty agencies, or subagencies, in various ports and places of the Province of Albay and neighboring provinces. After the Visayan Refining Co. had ceased to buy copra, as above stated, of which fact the plaintiff was duly notified, the supplies of copra already purchased by the plaintiff were gradually shipped out and accepted by the Visayan Refining Co., and in the course of the next eight or ten months the accounts between the two parties were liquidated. The last account rendered by the Visayan Refining Co. to the plaintiff was for the month of April, 1921, and it showed a balance of P288 in favor of the defendant. Under date of June 25, 1921, the plaintiff company addressed a letter from Legaspi to the Philippine Refining Co. (which had now succeeded to the rights and liabilities of the Visayan Refining Co.), expressing its approval of said account. In this letter no dissatisfaction was expressed by the plaintiff as to the state of affairs between the parties; but about six weeks thereafter the present action was begun. Upon reference to paragraph five of the contract reproduced above it will be seen that the Visayan Refining Co. obligated itself to provide transportation by sea to Opon, Cebu, for the copra which should be delivered to it by the plaintiff; and the first cause of action set forth in the complaint is planted upon the alleged negligent failure of the Visayan Refining Co. to provide opportune transportation for the copra collected by the plaintiff and deposited for shipment at various places. In this connection we reproduce the following allegations from the complaint: 6. That, from the month of September, 1918, until the month of June, 1920, the plaintiff opportunely advised the Visayan of the stocks that the former had for shipment, and, from time

to time, requested the Visayan to send vessels to take up said stocks; but that the Visayan culpably and negligently allowed a great number of days to elapse before sending the boats for the transportation of the copra to Opon, Cebu, and that due to the fault and negligence of the Visayan, the stocks of copra prepared for shipment by the plaintiff had to remain an unnecessary length of time in warehouses and could not be delivered to the Visayan, nor could they be transmitted to this latter because of the lack of boats, and that for this reason the copra gathered by the plaintiff and prepared for delivery to the Visayan suffered the diminishment of weight herein below specified, through shrinkage or excessive drying, and, in consequence thereof, an important diminishment in its value. 8. That the diminishment in weight suffered as shrinkage through excessive drying by all the lots of copra sold by the plaintiff to the Visayan, due to the fault and negligence of the Visayan in the sending of boats to take up said copra, represents a total of 9,695 piculs and 56 cates, the just and reasonable value of which, at the rates fixed by the purchaser as the price in its liquidation, is a total of two hundred and one thousand, five hundred and ninety-nine pesos and fifty-three centavos (P201,599.53), Philippine currency, in which amount the plaintiff has been damaged and injured by the negligent and culpable acts and omissions of the Visayan, as herein above stated and alleged. In the course of the appealed decision the trial judge makes a careful examination of the proof relative to the movements of the fleet of boats maintained by the Visayan Refining Co. for the purpose of collecting copra from the various ports where it was gathered for said company, as well as of the movements of other boats chartered or hired by said company for the same purpose; and upon consideration of all the facts revealed in evidence, his Honor found that the Visayan Refining Co. had used reasonable promptitude in its efforts to get out the copra from the places where it had been deposited for shipment, notwithstanding occasional irregularities due at times to the condition of the weather as related to transportation by sea and at other times to the inability of the Visayan Refining Co. to dispatch boats to the more remote ports. This finding of the trial judge, that no negligence of the kind alleged can properly be imputed to the Visayan Refining Co., is in our opinion supported by the proof.

Upon the point of the loss of weight of the copra by shrinkage, the trial judge found that this is a product which necessarily undergoes considerable shrinkage in the process of drying, and intelligent witnesses who are conversant with the matter testified at the trial that shrinkage of cobra varies from twenty to thirty per centum of the original gross weight. It is agreed that the shrinkage shown in all of the copra which the plaintiff delivered to the Visayan Refining Co. amounted to only 8.187 per centum of the whole, an amount which is notably below the normal. This showing was undoubtedly due in part, as the trial judge suggests, to the fact that in purchasing the copra directly from the producers the plaintiff's buyers sometimes estimated the picul at sixty-eight kilos, or somewhat less, but in no case at the true weight of 63.25 kilos. The plaintiff was therefore protected in a great measure from loss by shrinkage by purchasing upon a different basis of weight from that upon which he sold, otherwise the shrinkage shown in the result must have been much greater than that which actually appeared. But even considering this fact, it is quite evident that the demonstrated shrinkage of 8.187 per centum was extremely moderate average; and this fact goes to show that there was no undue delay on the part of the Visayan Refining Co. in supplying transportation for the copra collected by the plaintiff. In the course of his well-reasoned opinion upon this branch of the case, the trial judge calls attention to the fact that it is expressly provided in paragraph two of the contract that the shrinkage of copra from the time of its delivery to the party of the second part till its arrival at Opon should fall upon the plaintiff, from whence it is to be interfered that the parties intended that the copra should be paid for according to its weight upon arrival at Opon regardless of its weight when first purchased; and such appears to have been the uniform practice of the parties in settling their accounts for the copra delivered over a period of nearly two years. From what has been said it follows that the first cause of action set forth in the complaint is not well founded, and the trial judge committed no error in absolving the plaintiff therefrom. It appears that in the first six months of the year 1919, the plaintiff found that its transactions with the Visayan Refining Co. had not been productive of reasonable profit, a circumstance which the plaintiff attributed to loss of weight or shrinkage in the copra from the time of purchase to its arrival at Opon; and the matter was taken up with the officials of said company, with the result that a bounty amounting to P15,610.41 was paid to the plaintiff by the Visayan Refining Co. In the ninth paragraph of the complaint the plaintiff alleges that this payment was made upon account of shrinkage, for

which the Visayan Refining Co. admitted itself to be liable; and it is suggested that the making of this payment operated as a recognition on the part of the Visayan refining Co. of the justice of the plaintiff's claim with respect to the shrinkage in all subsequent transactions. With this proposition we cannot agree. At most the payment appears to have been made in recognition of an existing claim, without involving any commitment as to liability on the part of the defendant in the future; and furthermore it appears to have been in the nature of a mere gratuity given by the company in order to encourage the plaintiff and to assure that the plaintiff's organization would be kept in an efficient state for future activities. It is certain that no general liability for plaintiff's losses was assumed for the future; and the defendant on more than one occasion thereafter expressly disclaimed liability for such losses. As already stated purchases of copra by the defendant were suspended in the month of July, 1920. At this time the plaintiff had an expensive organization which had been built up chiefly, we suppose, with a view to the buying of copra; and this organization was maintained practically intact for nearly a year after the suspension of purchases by the Visayan Refining Co. Indeed in October, 1920, the plaintiff added an additional agency at Gubat to the twenty or more already in existence. As a second cause of action the plaintiff seeks to recover the sum of P110,000, the alleged amount expended by the plaintiff in maintaining and extending its organization as above stated. As a basis for the defendant's liability in this respect it is alleged that said organization was maintained and extended at the express request, or requirement, of the defendant, in conjunction with repeated assurances that the defendant would soon resume activity as a purchaser of copra. With reference to this cause of action the trial judge found that the plaintiff, as claimed, had incurred expenses at the request of the defendant and upon its representation that the plaintiff would be fully compensated therefor in the future. Instead, however, of allowing the plaintiff the entire amount claimed, his Honor gave judgment for only thirty per centum of said amount, in view of the fact that the plaintiff's transactions in copra had amounted in the past only to about thirty per centum of the total business transacted by it. Estimated upon this basis, the amount recognized as constituting a just claim was found to be P49,626.68, and for this amount judgment was rendered against the defendant. The discussion of this branch of the appeal involves the sole question whether the plaintiff's expense in maintaining and extending its organization for the purchase of copra in the period between July, 1920, to July, 1921, were incurred at the instance and request of

the defendant, or upon any promise of the defendant to make the expenditure good. A careful examination of the evidence, mostly of a documentary character, is, in our opinion, convincing that the supposed liability does not exist. By recurring to paragraph four of the contract between the plaintiff and the Visayan Refining Co. it will be seen that the latter agreed to keep the plaintiff advised of the prevailing prices paid for the copra in the Cebu market. In compliance with this obligation the Visayan Refining Co. was accustomed to send out "trade letters" from time to time its various clients in the southern provinces of whom the plaintiff was one. In these letters the manager of the company was accustomed to make comment upon the state of the market and to give such information as might be of interest or value to the recipients of the letters. From the series of letters thus sent to Albaladejo y Cia. during the latter half of 1920, we here reproduce the following excerpts: (Letter of July 2, 1920, from K.B. Day, General Manager of the Visayan Refining Co., to Albaladejo y Cia.) The copra market is still very weak. I have spent the past two weeks in Manila studying conditions and find that practically no business at all is being done. A few of the mills having provincial agents are accepting small deliveries, but I do not suppose that 500 piculs of copra are changing hands a day. Buyers are offering from P13 to P15, depending on quality, and sellers are offering to sell at anywhere from P16 to P18, but no business can be done for the simple reason that the banks will not lend the mills any money to buy copra with at this time. Reports from the United States are to the effect that the oil market is in a very serious and depressed condition and that large quantities of oil cannot be disposed of at any price. Under this conditions it is imperative that this mill buy no more copra than it can possibly help at the present time. We are not anxious to compete, nor do we wish to purchase same in competition with others. We do, however, desire to keep our agents doing business and trust that they will continue to hold their parroquianos (customers), buying only minimum quantities at present. The local market has not changed since last week, and our liquidating price is P14. (Letter of July 9, 1920, from Visayan Refining Co. to Albaladejo y Cia.)

Notify your subagents to drop out of the market temporarily. We do not desire to purchase at present. (Letter of July 10, 1920, from K. B. Day, General Manager, to Albaladejo y Cia.) The market continues to grow weaker. Conditions are so uncertain that this company desires to drop out of the copra market until conditions have a chance to readjust themselves. We request therefore that our agents drop out of active competition for copra temporarily. Stocks that are at present on hand will, of course, be liquidated, but no new stocks should be acquired. Agents should do their best to keep their organizations together temporarily, for we expect to be in the market again soon stronger than ever. We expect the cooperation of agents in making this effective; and if they give us this cooperation, we will endeavor to see that they do not lose by the transaction in the long run. This company has been receiving copra from its agents for a long time at prices which have netted it a loss. The company has been supporting its agents during this period. It now expects the same support from its agents. Agents having stocks actually on hand in their bodegas should telegraph us the quantity immediately and we will protect same. But stocks not actually in bodegas cannot be considered. (Letter of July 17, 1920, from K.B. Day to Albaladejo y Cia.) Conditions have changed very little in the copra market since last reports. . . . We are in the same position as last week and are out of the market. For the benefit of our agents, we wish to explain in a few words just why we are have been forced to close down our mill until the arrival of a boat to load some of our stocks on hand. We have large stocks of copra. The market for oil is so uncertain that we do not care to increase these stocks until such time as we know that the market has touched the bottom. As soon as this period of uncertainty is over, we expect to be in the market again stronger than ever, but it is only the part of business wisdom to play safe at such times as these. Owing to the very small amounts of copra now in the provinces, we do not think that our agents will lose anything by our being out of the market. On the contrary, the producers of copra will have a chance to allow their nuts to mature on the trees so that the quality of copra which you will receive when we again are in the

market should be much better than what you have been receiving in the past. Due to the high prices and scarcity of copra a large proportion of the copra we have received has been made from unripe coconuts and in order to keep revenue coming in the producers have kept harvesting these coconuts without giving them a chance to reach maturity. This period now should give them the chance to let their nuts ripen and should give you a better copra in the future which will shrink less and be more satisfactory both from your standpoint and ours. Please do all you can to assist us at this time. We shall greatly appreciate your cooperation.lawphi1.net (Letter of August 7, 1920, from H.U. Umstead, Assistant General Manager, to Albaladejo y Cia.) The copra situation in Manila remains unchanged and the outlook is still uncertain. Arrivals continue small. We are still out of the market and are not yet in a position to give you buying orders. We trust, however, that within the next few days weeks we may be able to reenter the market and resume our former activity. While we are not of the market we have no objection whatever to our agents selling copra to other purchasers, if by doing so they are able to keep themselves in the market and retain their parroquianos (customers). We do not, however, wish you to use our money, for this purpose, nor do we want you to buy copra on speculation with the idea in mind that we will take it off of your hands at high prices when we reenter the market. We wish to warn you against this now so that you will not be working under any misapprehension. In this same mail, we are sending you a notice of change of organization. In your dealings with us hereafter, will you kindly address all communications to the Philippine Refining Corporation, Cebu, which you will understand will be delivered to us. (Letter of August 21, 1920, from Philippine Refining Corporation, by K.B. Day, to Albaladejo y Cia.) We are not yet in the market, but, as we have indicated before, are hopeful of renewing our activities soon. We shall advise all our agents seasonably of our return to the market. . . . We are preparing new form of agreement between ourselves and our agents and hope to have them completed in time to refer them to our agents in the course of the next week or ten days.

All agents should endeavor to liquidate outstanding advances at this time because this is a particularly good time to clean out old accounts and be on a business basis when we return to the market. We request that our agents concentrate their attention on this point during the coming week.lawphi1.net (Letter of October 16, 1920, from K.B. Day, Manager, to Albaladejo y Cia.) Copra in Manila and coconut oil in the United States have taken a severe drop during the past week. The Cebu price seems to have remained unchanged, but we look for an early drop in the local market. We have received orders from our president in New York to buy no more copra until the situation becomes more favorable. We had hoped and expected to be in the market actively before this time, but this most unexpected reaction in the market makes the date of our entry in it more doubtful. With this in view, we hereby notify our agents that we can accept no more copra and advance no more money until we have permission from our president to do so. We request, therefore, that you go entirely out of the market, so far as we are concerned, with the exception of receiving copra against outstanding accounts. In case any agent be compelled to take in copra and desire to send same to us, we will be glad to sell same for him to the highest bidder in Cebu. We will make no charge for our services in this connection, but the copra must be forwarded to us on consignment only so that we will not appear as buyers and be required to pay the internal-revenue tax. We are extremely sorry to be compelled to make the present announcement to you, but the market is such that our president does not deem it wise for us to purchase copra at present, and, with this in view, we have no alternative other than to comply with his orders. We hope that our agents will realize the spirit in which these orders are given, and will do all they can to remain faithful to us until such time as we can reenter the market, which we hope and believe will be within a comparatively short time. (Special Letter of October 16, 1920, from Philippine Refining Corporation, by K.B. Day, to Albaladejo y Cia.) We have received very strict instructions from New York temporarily to suspend the purchase of copra, and of course we must comply therewith. However, should you find yourselves

obliged to buy copra in connection with your business activities, and cannot dispose of it advantageously in Cebu, we shall be glad to receive your copra under the condition that we shall sell it in the market on your account to the highest bidder, or, in other words, we offer you our services free, to sell your copra to the best possible advantages that the local market may offer, provided that, in doing so, we be not obliged to accept your copra as a purchase when there be no market for this product. Whenever you find yourselves obliged to buy copra in order to liquidate pending advances, we can accept it provided that, so long as present conditions prevail, we be not required to make further cash advances. We shall quote no further from letters written by the management of the Philippine Refining Corporation to the plaintiff, as we find nothing in the correspondence which reflects an attitude different from that reflected in the matter above quoted. It is only necessary to add that the hope so frequently expressed in the letters, to the effect that the Philippine Refining Corporation would soon enter the market as a buyer of copra on a more extensive scale than its predecessor, was not destined to be realized, and the factory at Opon remained closed. But it is quite obvious that there is nothing in these letters on which to hold the defendant liable for the expenses incurred by the plaintiff in keeping its organization intact during the period now under consideration. Nor does the oral testimony submitted by the plaintiff materially change the situation in any respect. Furthermore, the allegation in the complaint that one agency in particular (Gubat) had been opened on October 1, 1920, at the special instance and request of the defendant, is not at all sustained by the evidence. We note that in his letter of July 10, 1920, Mr. Day suggested that if the various purchasing agents of the Visayan Refining Co. would keep their organization intact, the company would endeavor to see that they should not lose by the transaction in the long run. These words afford no sufficient basis for the conclusion, which the trial judge deduced therefrom, that the defendant is bound to compensate the plaintiff for the expenses incurred in maintaining its organization. The correspondence sufficiently shows on its face that there was no intention on the part of the company to lay a basis for contractual liability of any sort; and the plaintiff must have understood the letters in that light. The parties could undoubtedly have contracted about it, but there was clearly no intention to enter into contractual relation; and the law will not raise a contract by implication against the intention of the parties. The inducement held forth was that, when

purchasing should be resumed, the plaintiff would be compensated by the profits then to be earned for any expense that would be incurred in keeping its organization intact. It is needless to say that there is no proof showing that the officials of the defendant acted in bad faith in holding out this hope. In the appellant's brief the contention is advanced that the contract between the plaintiff and the Visayan Refining Co. created the relation of principal and agent between the parties, and the reliance is placed upon article 1729 of the Civil Code which requires the principal to indemnify the agent for damages incurred in carrying out the agency. Attentive perusal of the contract is, however, convincing to the effect that the relation between the parties was not that of principal and agent in so far as relates to the purchase of copra by the plaintiff. It is true that the Visayan Refining Co. made the plaintiff one of its instruments for the collection of copra; but it is clear that in making its purchases from the producers the plaintiff was buying upon its own account and that when it turned over the copra to the Visayan Refining Co., pursuant to that agreement, a second sale was effected. In paragraph three of the contract it is declared that during the continuance of this contract the Visayan Refining Co. would not appoint any other agent for the purchase of copra in Legaspi; and this gives rise indirectly to the inference that the plaintiff was considered its buying agent. But the use of this term in one clause of the contract cannot dominate the real nature of the agreement as revealed in other clauses, no less than in the caption of the agreement itself. In some of the trade letters also the various instrumentalities used by the Visayan Refining Co. for the collection of copra are spoken of as agents. But this designation was evidently used for convenience; and it is very clear that in its activities as a buyer the plaintiff was acting upon its own account and not as agents, in the legal sense, of the Visayan Refining Co. The title to all of the copra purchased by the plaintiff undoubtedly remained in it until it was delivered by way of subsequent sale to said company. For the reasons stated we are of the opinion that no liability on the part of the defendant is shown upon the plaintiff's second cause of action, and the judgment of the trial court on this part of the case is erroneous. The appealed judgment will therefore be affirmed in so far as it absolves the defendant from the first cause of action and will be reversed in so far as it gives judgment against the defendant upon the second cause of action; and the defendant will be completely absolved from the complaint. So ordered

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 115838 July 18, 2002 CONSTANTE AMOR DE CASTRO and CORAZON AMOR DE CASTRO, petitioners, vs. COURT OF APPEALS and FRANCISCO ARTIGO, respondents. CARPIO, J.: The Case Before us is a Petition for Review on Certiorari1 seeking to annul the Decision of the Court of Appeals2 dated May 4, 1994 in CA-G.R. CV No. 37996, which affirmed in toto the decision3 of the Regional Trial Court of Quezon City, Branch 80, in Civil Case No. Q89-2631. The trial court disposed as follows: "WHEREFORE, the Court finds defendants Constante and Corazon Amor de Castro jointly and solidarily liable to plaintiff the sum of: a) P303,606.24 representing unpaid commission; b) P25,000.00 for and by way of moral damages; c) P45,000.00 for and by way of attorney's fees; d) To pay the cost of this suit. Quezon City, Metro Manila, December 20, 1991." The Antecedent Facts On May 29, 1989, private respondent Francisco Artigo ("Artigo" for brevity) sued petitioners Constante A. De Castro ("Constante" for brevity) and Corazon A. De Castro ("Corazon" for brevity) to collect the unpaid balance of his broker's commission from the De Castros.4 The Court of Appeals summarized the facts in this wise: "x x x. Appellants5 were co-owners of four (4) lots located at EDSA corner New York and Denver Streets in Cubao, Quezon City. In a letter dated January 24, 1984 (Exhibit "A-1, p. 144, Records), appellee6 was authorized by appellants to act as real estate broker in the sale of these properties for the amount of P23,000,000.00, five percent (5%) of which will be given to the agent as commission. It was appellee who first found Times Transit Corporation, represented by its president Mr. Rondaris, as prospective buyer which desired to buy two (2) lots only, specifically lots 14 and 15. Eventually, sometime in May of 1985, the sale of lots 14 and 15 was consummated. Appellee received from appellants P48,893.76 as commission.

It was then that the rift between the contending parties soon emerged. Appellee apparently felt short changed because according to him, his total commission should be P352,500.00 which is five percent (5%) of the agreed price of P7,050,000.00 paid by Times Transit Corporation to appellants for the two (2) lots, and that it was he who introduced the buyer to appellants and unceasingly facilitated the negotiation which ultimately led to the consummation of the sale. Hence, he sued below to collect the balance of P303,606.24 after having received P48,893.76 in advance.1wphi1.nt On the other hand, appellants completely traverse appellee's claims and essentially argue that appellee is selfishly asking for more than what he truly deserved as commission to the prejudice of other agents who were more instrumental in the consummation of the sale. Although appellants readily concede that it was appellee who first introduced Times Transit Corp. to them, appellee was not designated by them as their exclusive real estate agent but that in fact there were more or less eighteen (18) others whose collective efforts in the long run dwarfed those of appellee's, considering that the first negotiation for the sale where appellee took active participation failed and it was these other agents who successfully brokered in the second negotiation. But despite this and out of appellants' "pure liberality, beneficence and magnanimity", appellee nevertheless was given the largest cut in the commission (P48,893.76), although on the principle of quantum meruit he would have certainly been entitled to less. So appellee should not have been heard to complain of getting only a pittance when he actually got the lion's share of the commission and worse, he should not have been allowed to get the entire commission. Furthermore, the purchase price for the two lots was only P3.6 million as appearing in the deed of sale and not P7.05 million as alleged by appellee. Thus, even assuming that appellee is entitled to the entire commission, he would only be getting 5% of the P3.6 million, or P180,000.00." Ruling of the Court of Appeals The Court of Appeals affirmed in toto the decision of the trial court. First. The Court of Appeals found that Constante authorized Artigo to act as agent in the sale of two lots in Cubao, Quezon City. The handwritten authorization letter signed by Constante clearly established a contract

of agency between Constante and Artigo. Thus, Artigo sought prospective buyers and found Times Transit Corporation ("Times Transit" for brevity). Artigo facilitated the negotiations which eventually led to the sale of the two lots. Therefore, the Court of Appeals decided that Artigo is entitled to the 5% commission on the purchase price as provided in the contract of agency. Second. The Court of Appeals ruled that Artigo's complaint is not dismissible for failure to implead as indispensable parties the other co-owners of the two lots. The Court of Appeals explained that it is not necessary to implead the other co-owners since the action is exclusively based on a contract of agency between Artigo and Constante. Third. The Court of Appeals likewise declared that the trial court did not err in admitting parol evidence to prove the true amount paid by Times Transit to the De Castros for the two lots. The Court of Appeals ruled that evidence aliunde could be presented to prove that the actual purchase price was P7.05 million and not P3.6 million as appearing in the deed of sale. Evidence aliunde is admissible considering that Artigo is not a party, but a mere witness in the deed of sale between the De Castros and Times Transit. The Court of Appeals explained that, "the rule that oral evidence is inadmissible to vary the terms of written instruments is generally applied only in suits between parties to the instrument and strangers to the contract are not bound by it." Besides, Artigo was not suing under the deed of sale, but solely under the contract of agency. Thus, the Court of Appeals upheld the trial court's finding that the purchase price was P7.05 million and not P3.6 million. Hence, the instant petition. The Issues According to petitioners, the Court of Appeals erred in I. NOT ORDERING THE DISMISSAL OF THE COMPLAINT FOR FAILURE TO IMPLEAD INDISPENSABLE PARTIES-ININTEREST; II. NOT ORDERING THE DISMISSAL OF THE COMPLAINT ON THE GROUND THAT ARTIGO'S CLAIM HAS BEEN EXTINGUISHED BY FULL PAYMENT, WAIVER, OR ABANDONMENT; III. CONSIDERING INCOMPETENT EVIDENCE; IV. GIVING CREDENCE TO PATENTLY PERJURED TESTIMONY; V. SANCTIONING AN AWARD OF MORAL DAMAGES AND ATTORNEY'S FEES; VI. NOT AWARDING THE DE CASTRO'S MORAL AND EXEMPLARY DAMAGES, AND ATTORNEY'S FEES.

The Court's Ruling The petition is bereft of merit. First Issue: whether the complaint merits dismissal for failure to implead other co-owners as indispensable parties The De Castros argue that Artigo's complaint should have been dismissed for failure to implead all the coowners of the two lots. The De Castros claim that Artigo always knew that the two lots were co-owned by Constante and Corazon with their other siblings Jose and Carmela whom Constante merely represented. The De Castros contend that failure to implead such indispensable parties is fatal to the complaint since Artigo, as agent of all the four co-owners, would be paid with funds co-owned by the four co-owners. The De Castros' contentions are devoid of legal basis. An indispensable party is one whose interest will be affected by the court's action in the litigation, and without whom no final determination of the case can be had.7 The joinder of indispensable parties is mandatory and courts cannot proceed without their presence. 8 Whenever it appears to the court in the course of a proceeding that an indispensable party has not been joined, it is the duty of the court to stop the trial and order the inclusion of such party. 9 However, the rule on mandatory joinder of indispensable parties is not applicable to the instant case. There is no dispute that Constante appointed Artigo in a handwritten note dated January 24, 1984 to sell the properties of the De Castros for P23 million at a 5 percent commission. The authority was on a first come, first serve basis. The authority reads in full: "24 Jan. 84 To Whom It May Concern: This is to state that Mr. Francisco Artigo is authorized as our real estate broker in connection with the sale of our property located at Edsa Corner New York & Denver, Cubao, Quezon City. Asking price P 23,000,000.00 with 5% commission as agent's fee. C.C. owner co-owners de & Castro representing

This authority is on a first-come First serve basis CAC" Constante signed the note as owner and as representative of the other co-owners. Under this note, a contract of agency was clearly constituted between Constante and Artigo. Whether Constante appointed Artigo as agent, in Constante's individual or representative capacity, or both, the De Castros cannot

seek the dismissal of the case for failure to implead the other co-owners as indispensable parties. The De Castros admit that the other co-owners are solidarily liable under the contract of agency,10 citing Article 1915 of the Civil Code, which reads: Art. 1915. If two or more persons have appointed an agent for a common transaction or undertaking, they shall be solidarily liable to the agent for all the consequences of the agency. The solidary liability of the four co-owners, however, militates against the De Castros' theory that the other co-owners should be impleaded as indispensable parties. A noted commentator explained Article 1915 thus "The rule in this article applies even when the appointments were made by the principals in separate acts, provided that they are for the same transaction. The solidarity arises from the common interest of the principals, and not from the act of constituting the agency. By virtue of this solidarity, the agent can recover from any principal the whole compensation and indemnity owing to him by the others. The parties, however, may, by express agreement, negate this solidary responsibility. The solidarity does not disappear by the mere partition effected by the principals after the accomplishment of the agency. If the undertaking is one in which several are interested, but only some create the agency, only the latter are solidarily liable, without prejudice to the effects of negotiorum gestio with respect to the others. And if the power granted includes various transactions some of which are common and others are not, only those interested in each transaction shall be liable for it."11 When the law expressly provides for solidarity of the obligation, as in the liability of co-principals in a contract of agency, each obligor may be compelled to pay the entire obligation.12 The agent may recover the whole compensation from any one of the co-principals, as in this case. Indeed, Article 1216 of the Civil Code provides that a creditor may sue any of the solidary debtors. This article reads: Art. 1216. The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others, so long as the debt has not been fully collected.

Thus, the Court has ruled in Operators Incorporated vs. American Biscuit Co., Inc.13 that "x x x solidarity does not make a solidary obligor an indispensable party in a suit filed by the creditor. Article 1216 of the Civil Code says that the creditor `may proceed against anyone of the solidary debtors or some or all of them simultaneously'." (Emphasis supplied) Second Issue: whether Artigo's claim has been extinguished by full payment, waiver or abandonment The De Castros claim that Artigo was fully paid on June 14, 1985, that is, Artigo was given "his proportionate share and no longer entitled to any balance." According to them, Artigo was just one of the agents involved in the sale and entitled to a "proportionate share" in the commission. They assert that Artigo did absolutely nothing during the second negotiation but to sign as a witness in the deed of sale. He did not even prepare the documents for the transaction as an active real estate broker usually does. The De Castros' arguments are flimsy. A contract of agency which is not contrary to law, public order, public policy, morals or good custom is a valid contract, and constitutes the law between the parties.14 The contract of agency entered into by Constante with Artigo is the law between them and both are bound to comply with its terms and conditions in good faith. The mere fact that "other agents" intervened in the consummation of the sale and were paid their respective commissions cannot vary the terms of the contract of agency granting Artigo a 5 percent commission based on the selling price. These "other agents" turned out to be employees of Times Transit, the buyer Artigo introduced to the De Castros. This prompted the trial court to observe: "The alleged `second group' of agents came into the picture only during the so-called `second negotiation' and it is amusing to note that these (sic) second group, prominent among whom are Atty. Del Castillo and Ms. Prudencio, happened to be employees of Times Transit, the buyer of the properties. And their efforts were limited to convincing Constante to 'part away' with the properties because the redemption period of the foreclosed properties is around the corner, so to speak. (tsn. June 6, 1991). xxx To accept Constante's version of the story is to open the floodgates of fraud and deceit. A seller could always pretend rejection of the offer and wait for sometime for others to renew it who are much willing to accept a commission far less than the original broker. The immorality in the

instant case easily presents itself if one has to consider that the alleged `second group' are the employees of the buyer, Times Transit and they have not bettered the offer secured by Mr. Artigo for P7 million. It is to be noted also that while Constante was too particular about the unrenewed real estate broker's license of Mr. Artigo, he did not bother at all to inquire as to the licenses of Prudencio and Castillo. (tsn, April 11, 1991, pp. 39-40)."15 (Emphasis supplied) In any event, we find that the 5 percent real estate broker's commission is reasonable and within the standard practice in the real estate industry for transactions of this nature. The De Castros also contend that Artigo's inaction as well as failure to protest estops him from recovering more than what was actually paid him. The De Castros cite Article 1235 of the Civil Code which reads: Art. 1235. When the obligee accepts the performance, knowing its incompleteness and irregularity, and without expressing any protest or objection, the obligation is deemed fully complied with. The De Castros' reliance on Article 1235 of the Civil Code is misplaced. Artigo's acceptance of partial payment of his commission neither amounts to a waiver of the balance nor puts him in estoppel. This is the import of Article 1235 which was explained in this wise: "The word accept, as used in Article 1235 of the Civil Code, means to take as satisfactory or sufficient, or agree to an incomplete or irregular performance. Hence, the mere receipt of a partial payment is not equivalent to the required acceptance of performance as would extinguish the whole obligation."16 (Emphasis supplied) There is thus a clear distinction between acceptance and mere receipt. In this case, it is evident that Artigo merely received the partial payment without waiving the balance. Thus, there is no estoppel to speak of. The De Castros further argue that laches should apply because Artigo did not file his complaint in court until May 29, 1989, or almost four years later. Hence, Artigo's claim for the balance of his commission is barred by laches. Laches means the failure or neglect, for an unreasonable and unexplained length of time, to do that which by exercising due diligence could or should have been done earlier. It is negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to assert it either has abandoned it or declined to assert it.17

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

evidence rules. They claim that the Court of Appeals erroneously affirmed sub silentio the trial court's reliance on the various correspondences between Constante and Times Transit which were mere photocopies that do not satisfy the best evidence rule. Further, these letters covered only the first negotiations between Constante and Times Transit which failed; hence, these are immaterial in determining the final purchase price. The De Castros further argue that if there was an undervaluation, Artigo who signed as witness benefited therefrom, and being equally guilty, should be left where he presently stands. They likewise claim that the Court of Appeals erred in relying on evidence which were not offered for the purpose considered by the trial court. Specifically, Exhibits "B", "C", "D" and "E" were not offered to prove that the purchase price was P7.05 Million. Finally, they argue that the courts a quo erred in giving credence to the perjured testimony of Artigo. They want the entire testimony of Artigo rejected as a falsehood because he was lying when he claimed at the outset that he was a licensed real estate broker when he was not. Whether the actual purchase price was P7.05 Million as found by the trial court and affirmed by the Court of Appeals, or P3.6 Million as claimed by the De Castros, is a question of fact and not of law. Inevitably, this calls for an inquiry into the facts and evidence on record. This we can not do. It is not the function of this Court to re-examine the evidence submitted by the parties, or analyze or weigh the evidence again.23 This Court is not the proper venue to consider a factual issue as it is not a trier of facts. In petitions for review on certiorari as a mode of appeal under Rule 45, a petitioner can only raise questions of law. Our pronouncement in the case of Cormero vs. Court of Appeals24 bears reiteration: "At the outset, it is evident from the errors assigned that the petition is anchored on a plea to review the factual conclusion reached by the respondent court. Such task however is foreclosed by the rule that in petitions for certiorari as a mode of appeal, like this one, only questions of law distinctly set forth may be raised. These questions have been defined as those that do not call for any examination of the probative value of the evidence presented by the parties. (Uniland Resources vs. Development Bank of the Philippines, 200 SCRA 751 [1991] citing Goduco vs. Court of appeals, et al., 119 Phil. 531; Hernandez vs. Court of Appeals, 149 SCRA 67). And when this court is asked to go over the proof presented by the parties, and analyze, assess and weigh them to ascertain if

the trial court and the appellate court were correct in according superior credit to this or that piece of evidence and eventually, to the totality of the evidence of one party or the other, the court cannot and will not do the same. (Elayda vs. Court of Appeals, 199 SCRA 349 [1991]). Thus, in the absence of any showing that the findings complained of are totally devoid of support in the record, or that they are so glaringly erroneous as to constitute serious abuse of discretion, such findings must stand, for this court is not expected or required to examine or contrast the oral and documentary evidence submitted by the parties. (Morales vs. Court of Appeals, 197 SCRA 391 [1991] citing Santa Ana vs. Hernandez, 18 SCRA 973 [1966])." We find no reason to depart from this principle. The trial and appellate courts are in a much better position to evaluate properly the evidence. Hence, we find no other recourse but to affirm their finding on the actual purchase price.1wphi1.nt Fourth Issue: whether award of moral damages and attorney's fees is proper The De Castros claim that Artigo failed to prove that he is entitled to moral damages and attorney's fees. The De Castros, however, cite no concrete reason except to say that they are the ones entitled to damages since the case was filed to harass and extort money from them. Law and jurisprudence support the award of moral damages and attorney's fees in favor of Artigo. The award of damages and attorney's fees is left to the sound discretion of the court, and if such discretion is well exercised, as in this case, it will not be disturbed on appeal.25 Moral damages may be awarded when in a breach of contract the defendant acted in bad faith, or in wanton disregard of his contractual obligation.26 On the other hand, attorney's fees are awarded in instances where "the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff's plainly valid, just and demandable claim."27 There is no reason to disturb the trial court's finding that "the defendants' lack of good faith and unkind treatment of the plaintiff in refusing to give his due commission deserve censure." This warrants the award of P25,000.00 in moral damages and P 45,000.00 in attorney's fees. The amounts are, in our view, fair and reasonable. Having found a buyer for the two lots, Artigo had already performed his part of the bargain under the contract of agency. The De Castros should have exercised fairness and good judgment in dealing with Artigo by fulfilling their own part of the bargain - paying Artigo his 5 percent broker's commission based on the actual purchase price of the two lots.

WHEREFORE, the petition is denied for lack of merit. The Decision of the Court of Appeals dated May 4, 1994 in CA-G.R. CV No. 37996 is AFFIRMED in toto. SO ORDERED

SECOND DIVISION [G.R. No. 151038, January 18, 2012] PETRON CORPORATION, PETITIONER, VS. SPOUSES CESAR JOVERO AND ERMA F. CUDILLA, SPOUSES LONITO TAN AND LUZVILLA SAMSON, AND SPOUSES ROGELIO LIMPOCO AND LUCIA JOSUE, BEING REPRESENTED BY PIO JOSUE, RESPONDENTS. DECISION SERENO, J.: The present case is a Petition for Review[1] under Rule 45 filed by petitioner Petron Corporation. Petitioner assails the Decision[2] of the Court of Appeals (CA), which affirmed the Decision of the Regional Trial Court (RTC) of Iloilo City in consolidated Civil Case Nos. 19633, 19684, 20122, respectively filed by herein respondents. The facts of the case are as follows:

petroleum products to the dealer, petitioner contracted the hauling services of Jose Villaruz, who did business under the name Gale Freight Services. The hauling contract[4] was executed in March 1988 for a period of three years, renewable for another three upon agreement of the parties. Under the hauling contract, Villaruz specifically assigned three (3) units of tank trucks exclusively for the hauling requirements of petitioner for the delivery of the latters products, namely tank trucks with the plate numbers FVG 605, FVG 581 and FVG 583. Delivery includes not only transportation but also proper loading and unloading and delivery. [5] The parties also agreed that Villaruz shall save petitioner from any and all claims of third persons arising out of, but not necessarily limited to, his performance of the terms and conditions of the contract. Furthermore, Villaruz obligated himself to be answerable to petitioner for damage to its plant, equipment and facilities, including those of its employees, dealers and customers, resulting from his negligence and/or lack of diligence. Meanwhile, on 27 October 1988, Rubin Uy executed a Special Power of Attorney (SPA) in favor of Chiong Uy authorizing the latter to manage and administer the gasoline station. Chiong Uy and his wife, Dortina M. Uy, operated the gasoline station as agents of Rubin Uy. However, on 27 November 1990, Chiong Uy left for Hong Kong, leaving Dortina Uy to manage the gasoline station. On 3 January 1991, around ten oclock in the morning, Ronnie Allanaraiz, an employee of the gasoline station, ordered from petitioner various petroleum products. Petitioner then requested the services of Villaruz for the delivery of the products to the gasoline station in Estancia, Iloilo. He, however, used a tank truck different from the trucks specifically enumerated in the hauling contract executed with petitioner. Petitioner nevertheless allowed the transport and delivery of its products to Estancia in the tank truck driven by Pepito Igdanis. During the unloading of the petroleum from the tank truck into the fill pipe that led to the gasoline stations underground tank, for reasons unknown, a fire started in the fill pipe and spread to the rubber hose connected to the tank truck. During this time, driver Pepito Igdanis was nowhere to be found. Bystanders then tried to put out the flames. It was then that Igdanis returned to the gasoline station with a bag of dried fish in hand. Seeing the fire, he got into the truck without detaching the

On 25 April 1984, Rubin Uy entered into a Contract of Lease with Cesar J. Jovero over a property located at E. Reyes Ave., Estancia, Iloilo for the purpose of operating a gasoline station for a period of five (5) years. On 30 April 1984, petitioner, a domestic corporation engaged in the importation and distribution of gasoline and other petroleum products, entered into a Retail Dealer Contract [3] with Rubin Uy for the period 1 May 1984 to 30 April 1989. Under the dealership contract, petitioner sold its products in quantities as ordered by the dealer. It likewise obligated itself to deliver the products to the dealer at the places agreed upon by the parties. The dealer, meanwhile, obligated himself to exclusively maintain petitioners trademarks and brand names in his gasoline station. The parties also agreed that the dealer shall make good, settle and pay, and hold petitioner harmless against all losses and claims including those of the parties, their agents and employees for death, personal injury or property damage arising out of any use or condition of the dealers premises or the equipment and facilities thereon, regardless of any defects therein; the dealers non-performance of the contract; or the storage and handling of products on the premises. In order to comply with its obligation to deliver the

rubber hose from the fill pipe and drove in reverse, dragging the burning fuel hose along the way. As a result, a conflagration started and consumed the nearby properties of herein defendants, spouses Cesar J. Jovero and Erma Cudilla-Jovero, amounting to P1,500,000; of spouses Leonito Tan and Luzvilla Samson, amounting to P800,000; and of spouses Rogelio Limpoco and Lucia Josue Limpoco, amounting to P4,112,000. Herein respondents thereafter filed separate actions for damages against petitioner, Villaruz, Rubin Uy, and Dortina Uy, docketed as Civil Case Nos. 19633, 19684 and 20122 at the Regional Trial Court (RTC) of Iloilo City. The cases, having arisen from the same set of facts, were subsequently consolidated. Respondents alleged that the negligence of petitioner and its codefendants in the conduct of their businesses caused the fire that destroyed the formers properties. In its separate Answer, petitioner Petron alleged that the petroleum products were already paid for and owned by Rubin Uy and Dortina Uy. Moreover, it alleged that Villaruz was responsible for the safe delivery of the products by virtue of the hauling contract. Thus, petitioner asserted, liability for the damages caused by the fire rested on Rubin Uy and Villaruz. Petitioner likewise filed a cross-claim against its co-defendants for contribution, indemnity, subrogation, or other reliefs for all expenses and damages that it may have suffered by virtue of the incident. It also filed a counterclaim against respondents herein. On 27 April 1998, after trial on the merits, the RTC rendered its Decision in favor of respondents and found petitioner and its co-defendants solidarily liable for damages. The dispositive portion of the Decision states: WHEREFORE, in view of the foregoing, DECISION is hereby rendered: 1. Declaring defendants Petron Corporation, Jose Villaruz, Pepito Igdanis, Rubin Uy and Dortina Uy as being negligent in the conduct of their business activities, which led to the conflagration of January 3, 1991 at E. Reyes Avenue, Estancia, Iloilo, which resulted to (sic) the damages suffered by all the plaintiffs; 2. Ordering all the aforenamed defendants to pay solidarily all the plaintiffs as follows: a.) In Civil Case No. 19633, plaintiffs-spouses Cesar J. Jovero and Erma Cudilla-Jovero the amount of P1,500,00.00 as actual damages; P2,000.00 as litigation expenses; P4,000.00 as attorneys fees, and to pay the costs; b.) In Civil Case No. 19684, to pay plaintiffs-spouses Leonito Tan and Luzvilla Samson the sum of

P800,000.00 as actual damages, P2,000.00 as litigation expenses; P4,000.00 as attorneys fees and to pay the costs; c.) In Civil Case No. 20122, to pay the plaintiffsspouses Rogelio C. Limpoco and Lucia Josue Limpoco the amount of P4,112,000.00 as actual damages; P2,000.00 as litigation expenses; P5,000.00 as attorneys fees, and to pay the costs. 3. The counter-claims of the defendants against all the plaintiffs are hereby dismissed. The cross-claims of the defendants against each other are likewise dismissed as they are all in pari delicto. SO ORDERED.[6] The RTC held that Igdanis, as the driver of the tank truck, was negligent in the performance of his work when he left the tank truck while it was in the process of unloading the petroleum. He was also negligent when he drove the truck in reverse without detaching the burning fuel hose. The trial court stated that defendant Villaruz failed to convince the court that he had exercised due diligence in the hiring and supervision of his employees. The RTC likewise held that petitioner was negligent in allowing Villaruz to use a tank truck that was not included among the trucks specifically enumerated under the hauling contract. Finally, the court ruled that the gasoline station was owned and operated by Rubin Uy and Dortina Uy at the time of the incident. Petitioner and co-defendants Dortina Uy and Rubin Uy thereafter filed their separate Notices of Appeal. Petitioner, in its appeal, insisted that it had already sold and transferred ownership of its petroleum products to the dealer, Rubin Uy, upon payment and receipt of these products at its depot. Thus, it asserted, it ceased to own the products even during transit and while being unloaded at the gasoline station. It also stated that the transportation, delivery, receipt and storage of the petroleum products were solely the responsibility of hauler Villaruz, who was neither an employee nor an agent of petitioner. It reiterated that liability rested on Rubin Uy and Villaruz pursuant to the respective contracts it had executed with them. Petitioner also alleged that the RTC erred in ruling that

the former was negligent in allowing the use of a tank truck not specified in the hauling contract. Petitioner thus insisted that it had examined the tank truck and found it to be in good condition. It added that, since the fire did not originate from the tank truck, the proximate cause of the fire was not attributable to any defect in the truck. Finally, petitioner alleged that respondents failed to prove that the damages they suffered were the direct result of any culpable act or omission on its part. Meanwhile, defendant Villaruz allegedly proved during trial that he had exercised diligence in the selection and supervision of his employees and, thus, he was not responsible for the damages caused by the fire. In addition, he alleged that Igdanis, whom respondents failed to implead as a defendant in the lower court, did not have a chance to defend himself. Since there was no showing that any act or omission of Igdanis was the proximate cause of the fire, Villaruz insisted that the latter himself could not be held liable for the acts of his employee, who was not even impleaded or proven to be negligent. Dortina Uy, in her appeal, alleged that she had no direct participation in the management or administration of the gasoline station. She also alleged that she was not the employer of Igdanis, the driver of the tank truck who had caused the fire to spread in the vicinity. Since defendant Rubin Uy failed to file his Appellants Brief within the reglementary period, the CA dismissed his appeal.[7] Respondents, meanwhile, maintained that petitioner Petron was negligent in selling and storing its products in a gasoline station without an existing dealers contract from May 1989 up to the time of the incident on 3 January 1991. They contended that petitioner, in effect, was itself operating the gasoline station, with the dealer as mere agent of the former. Respondents also insisted that petitioner had the obligation to ensure that the gasoline station was safe and properly maintained, considering the products stored and sold there. Likewise, they asserted that petitioner was responsible for the safe delivery and proper storage of its goods in the gasoline station, and that this responsibility would cease only when the goods had been sold to the end consumer. Additionally, respondents contended that petitioner Petron was also negligent when the latter allowed the use of an unaccredited truck in violation of its hauling

contract

with

Villaruz.

On 12 December 2001, the CA promulgated its Decision affirming that of the trial court, to wit: WHEREFORE, premises considered, the instant appeals are DISMISSED and the assailed consolidated Decision of the court a quo dated 27 April 1998 in Civil Case Nos. 19633, 19684 and 20122 is AFFIRMED in all respects. Costs against appellants. SO ORDERED.[8] The appellate court upheld the findings of the RTC that petitioner Petron was negligent for having allowed the operation of the gasoline station absent a valid dealership contract. Thus, the CA considered the gasoline station as one run by petitioner itself, and the persons managing the gasoline station as petitioners mere agents. Even if a valid dealership contract existed, petitioner was still liable for damages, because there was as yet no complete delivery of its products. The fire had broken out while petroleum was being unloaded from the tank truck to the storage tank. The CA further held that petitioner was also negligent in allowing Villaruz to use an unaccredited tank truck for the transport and delivery of the petroleum at the time of the incident. With regard to the liability of Villaruz, the appellate court found him to be negligent in the conduct of his business. Thus, he was made liable for the damages caused by his employee in accordance with Article 2180 in relation to Article 2176 of the Civil Code. Finally, with regard to Dortina Uy, the CA held that, as one of the operators of the gasoline station, she failed to submit evidence that she had exercised due diligence in the operation thereof. Dissatisfied with the CAs ruling, petitioner is now before us with the present Petition for Review. Petitioner presents the following issues for the resolution of this Court: 1. Whether or not Petron may be considered at fault for continuing to do business with Rubin Uy, an independent petroleum dealer, without renewing or extending their expired dealership agreement; 2. Whether or not a causal connection exists between Petrons failure to renew or extend its dealership contract with Rubin Uy and the fire

that inflicted damages on the buildings surrounding the latters gas station; 3. Whether or not Petron is liable for the fire that occurred during the unloading by an independent hauler of the fuel it sold to an equally independent dealer at the latters gas station; and 4. Whether or not a supplier of fuel can be held liable for the neglect of others in distributing and storing such fuel. [9] In the present case, petitioner does not implead its codefendants Villaruz, Rubin Uy and Dortina Uy. Neither does it assail the dismissal by the lower courts of the cross-claim or counterclaim it filed against its codefendants and herein respondents, respectively. Nor is there any question on respondents right to claim damages. Petitioner merely prays for absolution from liability resulting from the fire by claiming that it had no direct participation in the incident. In support of the issues raised above, petitioner contends that, first, there was an implied renewal of the dealership contract Rubin Uy remained as the operator of the gasoline station. It further contends that there is no law supporting the conclusion of the CA that, upon expiration of the contract, the dealer automatically became the suppliers agent. Second, petitioner asserts that there was no rational link between its alleged neglect in renewing the dealership agreement and the act that caused the fire. Third, petitioner insists that ownership of the petroleum products was transferred when the dealers representative, Ronnie Allanaraiz, went to petitioners oil depot, bought and paid for the gasoline, and had Villaruzs tank truck receive the products for delivery. Moreover, petitioner points out, neither Igdanis nor Villaruz was its employee and, thus, it cannot be held vicariously liable for the damages to respondents caused by Igdanis. Furthermore, it asserted that the tank truck transporting the petroleum though not included in the enumeration in the hauling contract had complied with the standards required of Villaruz. Petitioner also alleges that there was no evidence that the fire was attributable to its distribution and storage safety measures. Finally, petitioner states that both hauler and dealer must bear the costs of their acts and those of their employees, considering that this was an explicit

provision in their respective contracts with it. The Petition has some merit.

We first discuss the liability of petitioner in relation to the dealership contract. Petitioner, as an importer and a distributer of gasoline and other petroleum product, executed with a dealer of these products an exclusive dealership agreement for mutual benefit and gain. On one hand, petitioner benefits from the sale of its products, as well as the advertisement it gains when it broadens its geographical coverage in contracting with independent dealers in different areas. The products sold and the services rendered by the dealer also contribute to its goodwill. Thus, despite the transfer of ownership upon the sale and delivery of its products, petitioner still imposes the obligation on the dealer to exclusively carry its products. The dealer also benefits from the dealership agreement, not only from the resale of the products of petitioner, but also from the latters goodwill. However, with the use of its trade name and trademark, petitioner and the dealer inform and guarantee to the public that the products and services are of a particular standard or quality. More importantly, the public, which is not privy to the dealership contract, assumes that the gasoline station is owned or operated by petitioner. Thus, respondents, who suffered damages from the act or omission that occurred in the gasoline station and that caused the fire, may file an action against petitioner based on the representations it made to the public. As far as the public is concerned, it is enough that the establishment carries exclusively the name and products of petitioner to assume that the latter is liable for acts done within the premises. Second, respondents have a claim against petitioner based on the dealership agreement. The RTC and the CA ruled that, by virtue of the expiration of the dealership contract, the dealer was relegated to being petitioners agent. On this point, we agree with petitioner that the expiration or nonexistence of a dealership contract did not ipso facto transform the relationship of the dealer and petitioner into one of agency. As far as the parties to the dealership contract were concerned, the rights and obligations as to them still subsisted, since they continued to mutually benefit from the agreement. Thus, neither party can claim that it is no longer bound by the terms of the contract and

the

expiration

thereof.

We then judiciously reviewed the terms of the contract and found that petitioner is liable to respondents for the damages caused by the fire. As petitioner itself points out, it owns the equipment relevant to the handling and storage of gasoline, including the gasoline pumps and the underground tank.[10] It is also responsible for the delivery of the petroleum to the dealer. The incident occurred at the time the petroleum was being unloaded to the underground tank petitioner owned. Aside from failing to show the actual cause of the fire, it also failed to rebut the presumption that it was negligent in the maintenance of its properties and in the conduct of its business. Petitioner contends that under paragraph 8 of the dealership contract, the dealers liability is as follows: LOSSES AND CLAIMS. BUYER shall make good, settle and pay, and hold SELLER harmless against all losses and claims (including those of the parties, their agents and employees) for death, personal injury or property arising out of (1) any use or condition of BUYERs premises or the equipment and facilities thereon, regardless of any defects therein (2) BUYERs non-performance of this contract, or (3) the storage and handling of products on the premises. While both parties to the contract have the right to provide a clause for non-liability, petitioner admits that they both share the maintenance of its equipment. Petitioner states that its responsibility extended to the operating condition of the gasoline station, e.g. whether the fuel pumps were functioning properly.[11] Moreover, it cannot be denied that petitioner likewise obligated itself to deliver the products to the dealer. When the incident occurred, petitioner, through Gale Freight Services, was still in the process of fulfilling its obligation to the dealer. We disagree with its contention that delivery was perfected upon payment of the goods at its depot. There was yet no complete delivery of the goods as evidenced by the aforementioned hauling contract petitioner executed with Villaruz. That contract made it clear that delivery would only be perfected upon the complete unloading of the gasoline. Thus, with regard to the delivery of the petroleum, Villaruz was acting as the agent of petitioner Petron. For a fee, he delivered the petroleum products on its behalf. Notably, petitioner even imposed a penalty clause in instances when there was a violation of the

hauling contract, wherein it may impose a penalty ranging from a written warning to the termination of the contract. Therefore, as far as the dealer was concerned with regard to the terms of the dealership contract, acts of Villaruz and his employees are also acts of petitioner. Both the RTC and the CA held that Villaruz failed to rebut the presumption that the employer was negligent in the supervision of an employee who caused damages to another; and, thus, petitioner should likewise be held accountable for the negligence of Villaruz and Igdanis. To reiterate, petitioner, the dealer Rubin Uy acting through his agent, Dortina Uy shared the responsibility for the maintenance of the equipment used in the gasoline station and for making sure that the unloading and the storage of highly flammable products were without incident. As both were equally negligent in those aspects, petitioner cannot pursue a claim against the dealer for the incident. Therefore, both are solidarily liable to respondents for damages caused by the fire. Petitioner was likewise negligent in allowing a tank truck different from that specifically provided under its hauling contract with Villaruz. The enumeration and specification of particular tank trucks in the contract serve a purpose to ensure the safe transportation, storage and delivery of highly flammable products. Under the hauling contract, these requirements are as follows:[12] 4.3.1 Duly registered under the hired truck (TH) classification and subject to the rules and regulations of Land Transportation Commission (LTC) and Board of Transportation (BOT). 4.3.2 Properly sealed and calibrated in accordance with the requirements of NSTA. 4.3.3.Equipped with safety and other auxiliary equipment as specified by PETROPHIL (Petron) as per attached Annex 8.[13] 4.3.4 Provided with fire permits and other permits required by the government authorities. 4.3.5 In good working condition and in good appearance at all times, 4.3.6 Fully complying with the tank truck color scheme, standard truck number, bumper stripes, haulers name on cab door, and such other similar requirements for good appearance as may be required by PETROPHIL. Annex B attached to the contract, which refers to the tank truck safety and accessories equipment, likewise provides that the following are the specified safety

equipment and other accessories for tank truck operations:[14] 1. Fire extinguisher, Type B & C 2. Manhole covers 3. Manhole cover gasket 4. Product level markers 5. Manhole cover pins 6. NIST Calibration and scale 7. Discharge valves (quick closing) 8. Front Fenders 9. Door glasses 10. ________ (illegible) glasses 11. Windshield 12. Wipers 13. Horn 14. Floor matting 15. Ceiling 16. Seats 17. (Illegible) 18. Air hose connector With respect to the claims of third persons, it is not enough for petitioner to allege that the tank truck met the same requirements provided under the contract; it must duly prove its allegations. This, petitioner failed to do. To reiterate, it was not able to prove the proximate cause of the fire, only the involvement of the tank truck and the underground storage tank. Notably, both pieces of equipment were under its responsibility. Absent any positive determination of the cause of the fire, a presumption exists that there was something wrong with the truck or the underground storage tank, or both. Petitioner, which had the obligation to ensure that the truck was safe, is likewise liable for the operation of that truck. Petitioner maintains that by virtue of the hauling contract, Villaruz must be held responsible for the acts of Igdanis, the driver of the tank truck. In this aspect, petitioner is correct. While it may be vicariously liable to third persons for damages caused by Villaruz, the latter is nevertheless liable to petitioner by virtue of the non-liability clause in the hauling contract. Under this provision, he saved petitioner from any and all claims of third persons arising out of, but not necessarily limited to, his performance of the terms and conditions of this agreement. Petitioner even obligated him to maintain an acceptable Merchandise Floater Policy to provide insurance coverage for the products entrusted to him; and a Comprehensive General Liability Insurance to cover any and all claims for damages for personal injury, including death or damages to property, which may arise from operations under the contract. [15]

Thus, Villaruz is also liable to petitioner based on the hauling contract. Under Rule 6, Sec. 8 of the Rules of Court, petitioner may enforce the terms of the hauling contract against him. However, considering that it did not implead Villaruz in the present case, nor did it assail the Decision of the CA in dismissing the crossclaim, petitioner can no longer go after him based on that cross-claim. Nonetheless, this is not the same as saying that Villaruz is no longer solidarily liable to respondents. As the employer of Igdanis, Villaruz was impleaded by herein respondents in the lower court and was found to be solidarily liable with his other co-defendants. Absent an appeal before this Court assailing the ruling of the lower court and the CA, Villaruz remains to be solidarily liable with petitioner and co-defendants Rubin Uy and Dortina Uy. Thus, petitioner may only claim contribution from him in accordance with Article 1217 of the Civil Code, and not by virtue of its hauling contract, in the event that respondents decide to proceed against petitioner alone for the satisfaction of judgment. Art. 1217 states: Payment made by one of the solidary debtors extinguishes the obligation. If two or more solidary debtors offer to pay, the creditor may choose which offer to accept. He who made the payment may claim from his codebtors only the share which corresponds to each, with the interest for the payment already made. If the payment is made before the debt is due, no interest for the intervening period may be demanded. (Emphasis supplied) The share, meanwhile, of solidary debtors is contained in Art. 1208, to wit: If from the law, or the nature of the wording of the obligations to which the preceding article refers the contrary does not appear, the credit of debt shall be presumed to be divided into as many equal shares as there are creditors or debtors, the credits or debts being considered distinct from one another, subject to the Rules of Court governing the multiplicity of suits. (Emphasis supplied) To put it simply, based on the ruling of the lower courts, there are four (4) persons who are liable to pay damages to respondents. The latter may proceed against any one of the solidary debtors or some or all of them simultaneously, pursuant to Article 1216 of the Civil Code. These solidary debtors are petitioner Petron, the hauler Villaruz, the operator Dortina Uy and the dealer

Rubin Uy. To determine the liability of each defendant to one another, the amount of damages shall be divided by four, representing the share of each defendant. Supposedly, under the hauling contract, petitioner may require Villaruz to indemnify it for its share. However, because it was not able to maintain the cross-claim filed against him, it shall be liable for its own share under Article 1208 and can no longer seek indemnification or subrogation from him under its dismissed cross-claim. Petitioner may not pursue its cross-claim against Rubin Uy and Dortina Uy, because the cross-claims against them were also dismissed; moreover, they were all equally liable for the conflagration as discussed herein. Finally, the incident occurred in 1992. Almost 20 years have passed; yet, respondents, who were innocent bystanders, have not been compensated for the loss of their homes, properties and livelihood. Notably, neither the RTC nor the CA imposed legal interest on the actual damages that it awarded respondents. In Eastern Shipping Lines v. Court of Appeals,[16] enunciated in PCI Leasing & Finance Inc. v. Trojan Metal Industries, Inc.,[17] we laid down the rules for the imposition of legal interest as follows: I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on Damages of the Civil Code govern in determining the measure of recoverable damages. II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable

certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. In the interest of substantial justice, we deem it necessary to impose legal interest on the awarded actual damages at the rate of 6% per annum from the time the cases were filed with the lower court; and 12% from the time the judgment herein becomes final and executory up to the satisfaction of such judgment. WHEREFORE, in view of the foregoing, we AFFIRM the Decision of the Court of Appeals in Civil Case No. 60845 insofar as herein petitioner has been held solidarily liable to pay damages to respondents. The CA Decision is, however, MODIFIED and the actual damages awarded to respondents shall be subject to the rate of legal interest of 6% per annum from the time of filing of Civil Case Nos. 19633, 19684 and 20122 with the Regional Trial Court of Iloilo City up to the time this judgment becomes final and executory. Henceforth, the rate of legal interest shall be 12% until the satisfaction of judgment. Costs SO ORDERED. against petitioner.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-13414 February 4, 1919 JUAN GARCIA Y PALICIO, plaintiff-appelle, vs. JOSEFA DE MANZANO, as administratrix of the estate of her husband Narciso Lopez Manzano, defendant-appellant. Godofredo Reyes for appellants. Eduardo Gutierrez Repide and Felix Socias for appellee. MOIR, J.: In order to understand this case, a brief explanation of the facts is considered necessary. Narciso Lopez Manzano was a merchant in Atimonan, Tayabas, who went to Spain in May, 1910, and died there the 8th of September, 1913. He gave a general power-of-attorney to his son, Angel L. Manzano on the 9th of February, 1910, and on the 25th of March a second general power-of-attorney to his wife, Josefa Samson. Narciso L. Manzano had various commercial dealings before leaving for Spain. Manzano was the owner of a half interest in a small steamer, the San Nicolas, the other half being owned by Ocejo, Perez & Co., with whom there was a partnership agreement to run the steamer for a few years. When this period expired Ocejo, Perez & Co., refused to continue the contact and demanded that Manzano buy or sell. As he did not want to sell at the price offered and could not buy, Juan Garcia bought the half interest held by Ocejo, Perez & Co., on the 15th of October, 1910. Angel L. Manzano, acting under his power-of-attorney, sold in July, 1911, the other half of the boat to the plaintiff, but as Garcia is a Spaniard and could not register the boat in his name at the Custom House, the boat was registered in the name of Agustin Garcia, a son of the plaintiff, who at that time, July 2d, 1913, was a minor about twenty years old. Agustin Garcia shortly thereafter died, leaving his parents as his heirs at law, and as such heirs plaintiff's wife was made a party. On the 23rd of July, 1912, Angel L. Manzano, by virtue of the power-of-attorney from his father, Narciso L. Manzano, executed a contract, Exhibit A, made a part of the complaint, by which Juan Garcia agreed to extend a credit to Narciso L. Manzano in the sum of P12,000, and this credit was used by the house of Manzano. To secure it a mortgage was given in the same document on three parcels of land in Atimonan, with their improvements. The registration of this mortgage was refused by the registrar.

The court of First Instance of Tayabas, on the 18th of April, 1914, named Josefa Samson y San Pedro, administratrix of the property of Narciso L. Manzano, and commissioners were duly appointed, and notice was published, and no claims having been presented against the estate to the commissioners, they so reported to the court on the 7th of December, 1914. On the 29th of July, 1915, the Court of First Instance ordered the partition of the property amongst the heirs of Narciso L. Manzano. On the 15th day of May, 1915, the plaintiff filed his action in the Court of First Instance of Tayabas to foreclose the so-called mortgage in Exhibit a. Josefa de Manzano filed a pleading stating that the estate had already been divided; that the property mentioned in Exhibit A of the plaintiff had been assigned, A and B, to her and her children and C entirely to her; that her son Angel had ceded his share to her; that all the other children were minors and suggesting that she be made guardian ad litem for the minors. In a second motion filed the 25th of August, 1915, the defendant's attorney states the amended complaint had not been presented as stipulated in open court and prays the court that instead of the administratrix the heirs of Narciso L. Manzano be considered defendants and the names of the heirs including Josefa de Manzano are given. Plaintiff filed his amended complaint on the 24th of August, making them individually defendants, the minors to be represented by their guardian ad litem, and asking for a judgment against each and all of them for P14,087.59, being the amount then due on the open account and for P2,700 as attorney's fees, all secured by the so-called mortgage; and that in case the judgment was not paid, that the mortgaged property be sold to pay the debt. The defendants, "Josefa de Manzano y otros," filed an answer on September 4, 1915, stating they knew such a mortgage document set up in the complaint existed, but as they were not certain that Exhibit A was an exact copy, they denied the document; they denied its efficacy and legal effect; they denied the jurisdiction of the court to hear and decide the case, and alleged that the action had prescribed. They alleged no facts in their answer. The defendants also filed a counter-claim against Juan Garcia and his wife, Conception Castro, in which they allege that Narciso L. Manzano was the owner of onehalf of the small steamer San Nicolas and Juan Garcia the owner of the half; that Garcia taking advantage of the youth and inexperience of Angel L. Manzano falsely and maliciously made him believe that he had authority under the power-of-attorney from his father to sell the half interest in the San Nicolas, and that he did so. That Angel L. Manzano had no authority to sell the

interest in the steamer, but that since the date of said sale, July, 1912, (1911?) the plaintiff had illegally appropriated all rents and profits of the boat to his own use, which amount to P30,000 per year, after paying for all repairs, etc., and they ask the court to absolve them from the complaint, to declare them the owners of onehalf of the steamer San Nicolas, and to order the plaintiffs to render a detailed account of all the profits received from the San Nicolas, and to order one-half of the profits paid to the defendants. There are other immaterial questions presented by the counterclaim. The trial court held there was not legal mortgage and gave judgment for the plaintiff against Josefa Samson only, for the amount admitted by her letter to be due, i.e., P12,752.85, and dismissed the claim against the other defendants and also dismissed the counterclaim of defendants. The plaintiffs did not appeal. All of the defendants presented a motion for a new trial, but only the defendant Josefa de Manzano excepted to the order of the court denying the motion for new trial, and she sets up the following assignments of error in the decision giving judgment against her individually. (The alleged errors of the trial court regarding the counterclaim are set out later.) 1. The court exceeded its jurisdiction in deciding a question and granting a relief not comprised within the pleadings and contentions of the parties. 2. The trial court acted without jurisdiction on judging and holding that there was a novation of the debt. 3. The trial court erred in an essential mater in holding that there was a novation of the debt. The argument presented in support of the first error assigned is that the action was against the administratrix of the estate and not against the heirs individually. What are the facts? The original action was presented against Josefa de Manzano as administratrix of her deceased husband, Narciso L. Manzano, on May 15, 1915. The defendant's attorneys on the 6th of August filed a pleading stating that the estate had been distributed by the court on the 27th of July, and giving the names of the heirs and stating that some are minors for whom the mother "is the guardian" and agreeing that she be named guardian ad litem for the minors which was done by the court's order dated the 4th of September, and she took the oath prescribed by law for such guardian. On the 25th of August the same attorneys filed another pleading saying the time stipulated by the parties in open court for filing an amended complaint had passed, that the complaint had not been presented and "Wherefore they respectfully request the Honorable

Court that, in place of the defendant-administratrix, the heirs of the late Narciso L. Manzano, whose names are Josefa Samson de Manzano, widow, Paz Manzano, Matilde Manzano, Soledad Manzano, Carmelo Manzano, Narciso Manzano, and Jose Manzano, be considered defendants in this case," The first two of legal age and the others minors, and they pray that Josefa Samson be named guardian ad litem for the minors, which the court did. The plaintiff's amended complaint making all the above heirs and Angel L. Manzano defendants by name had been filed in the clerk's office the day before but it is assumed the defendants were not then aware of the fact. The defendants filed their answer on September 4th 1915, which is headed "Josefa de Manzano y Otros, demandados." The court's judgment is against them individually. It is difficult to conceive what more defendants could want in order to make them individually defendants, or what effect they intended their pleadings to have if they were not to be considered as defendants. The only thing that might be considered as lacking is an order of the court admitting the amended complaint, but his admission was supplied by the facts of defendants themselves. All the parties were before the court individually and the court could only give judgment against them individually if they were obligated individually. When the whole record shows that the trial proceeded on the theory set up in an amended complaint this court will not inquire as to whether the court actually entered an order admitting the amended complaint. There is no error in this part of the decision. The other two errors assigned will be considered together. The nature of the action having been changed from one against the administratrix to one against the heirs individually, the action against the other heirs was dismissed and judgment was given by the Court against Josefa Samson de Manzano individually, basing its decision on the following letter: September 10, 1913. Mr. Juan Garcia. Manila, Philippine Islands. Dear Sir: In reply to your favor which I have received together with a copy of my current account kept in your city, showing a balance of P12,752.852, I have to state that I find the same entirely satisfactory. I hope to be able to remit a part of the sum during the month of October. I remain, Yours respectfully.

(Sgd.) JOSEFA DE MANZANO. This letter was written two days after the death of Narciso L. Manzano. Is it a novation of the obligation of her husband? Article 1205 of the Civil Code reads as follows: Novation which consists in the substitution of a new debtor in the place of the original one may be made without the knowledge of the later, but not without the consent of the creditor. If the creditor Garcia had consented to the substitution of debtors in this case, he would not have presented his original action against the administratrix of Narciso L. Manzano and later against all the heirs, but against Josefa de Manzano only. As much as justice may plead for it, we can see nothing in the letter which would made appellant personally liable. There is no denial that the debt is a justice one against the estate. The judgment is based on the letter which was not intended by the writer to make her personally liable, and was not considered by the plaintiff to make her personally responsible. There was not novation of the obligation and the part of the judgment holding her liable must be reversed. The defendants set up the following assignment of errors as to their counterclaim against plaintiffs: 1. The trial court erred in holding that the power of attorney executed in favor of Angel L. Manzano was not revoked, at least in so far as it might concern the plaintiff Juan Garcia Palicio. 2. The court below erred in holding that the power of attorney executed by Narciso L. Manzano in favor of Angel L. Manzano authorized the latter to alienate the vessel San Nicolas. 3. The trial court erred in holding that the sale of the vessel San Nicolas was approved by Narciso L. Manzano. 4. The trial court erred in holding that Angel L. Manzano, in executing the sale, did not do so under the pressure of undue influences. As to the first two alleged errors the defendants argue that the power-of-attorney to the wife revoked the one to the son, in accordance with article 1735 of the Civil code, and that even if not revoked the power-ofattorney did not authorize the sale of the boat by Angel L. Manzano. Article 1735 of the Civil code is as follows: The appointment of a new agent for the same business produces a revocation of the previous agency from the day on which notice was given to the former agent, excepting the provisions of the next preceding article.

There is no proof in the record that the first agent, the son, knew of the power-of-attorney to his mother. It was necessary under the law for the defendants, in order to establish their counterclaim, to prove that the son had notice of the second power-of-attorney. They have not done so, and it must be considered that Angel L. Manzano was acting under a valid power-of-attorney from his father which had not been legally revoked on the date of the sale of the half interest in the steamer to the plaintiff's son, which half interest was legally inherited by the plaintiffs. The defendant's next argument is that the power-ofattorney, if valid, does not authorize the sale of the half interest in the boat to the plaintiff. There is no pretense that the boat was not sold for a fair price, there is no denial that the value was received in full, but he defendants allege that the power-of-attorney under which Angel L. Manzano acted, even if a valid power, did not authorize the sale of the boat, and they want it back it with one-half of the profits derived from its use by the plaintiff. The document under which Angel L. Manzano sold the boat reads in part as follows: To enable him to buy or sell, absolutely or under pacto de retro, any of the rural or urban estates that now own and may acquire in the future, at such price as he may deem most advantageous, which he shall collect in cash or by installments and under such conditions as he may consider proper, and he shall set forth the encumbrances on the properties and their origin. I bind myself to warrant and defend, in accordance with law, the titles to such properties; and if the properties alienated by this agreement should be redeemed, he is empowered to redeem them by paying the price that may have been fixed, and, for this purpose, shall execute the proper instrument. The power-of-attorney authorizes the sale of real property, the buying of real property and mortgaging the same the borrowing of money and in fact is general and complete. The power does not expressly state that the agent may sell the boat, but a power so full and complete authoring the sale of real property, must necessarily carry with it the right to sell a half interest in a small boat. The record further shows the sale was necessary in order to get money or a credit without which it would be impossible to continue the business which was being conducted in the name of Narciso L. Manzano and for his benefit. We consider that the authorization is so complete that it carries with it full authority to sell the one-half interest in the boat which was then owned by Narciso L. Manzano.

The last assignment of error is not supported by any reasonable evidence in the record. That part of the judgement ordering the defendant Josefa Samson de Manzano to pay the plaintiff P12,752.85 is revoked, and the judgment in so far as it dismisses the counterclaim of the defendants is affirmed, without any declaration of costs. So ordered. Arellano, C.J., Carson, Street and Avancea, JJ., concur. Johnson, J., took no part. Separate Opinions TORRES, J., dissenting: The undersigned, regretting not to be entirely in accord with the majority opinion, with the due respect thereto, is of the opinion that the defendant Josefa Samson, widow of the late Narciso Lopez Manzano, should be obliged to pay one-half of the sum stated in her letter of September 10, 1913, with interest at the rate of 6 per cent per annum from January 10, 1917, the date on which the amended complaint was filed. It is contended that the conjugal partnership property is directly liable for the payment of the debts of such partnerships and that in order to determine what this property is, in case of the death of one of the spouses, it is indispensable that a liquidation be made of the property that may have been left by the deceased husband or wife, for the purpose of classifying and separating in the estate the private property of each spouse and such property as partakes of the nature of community property. The record shows that, not only was the liquidation made, but also that the partition of the estate left by Narciso Lopez Manzano at his death, had already been effected, so that it appears duly determined what property as community property would have pertained to the widow, Josefa Samson; and, as it is a proven fact, and one not discussed, that, on the death of the husband Manzano, the dissolved conjugal partnership was in debt to the plaintiff in the sum of P12, 752.85. Under this premise it is unquestionable that the window Samson, the surviving member of that partnership, should be obliged to pay one-half of this sum, that is P6,376.425, for it would not be right for her to enrich herself by keeping possession of this amount, to the prejudice of the plaintiff creditor. Although, on the death of the husband, the property of the conjugal partnership was in a mass and pro indiviso, after the liquidation and partition of this property had been made, the widow, a member of the dissolved partnership, received her share of the community property, and it would not be just that, for the collection of one-half of the debt, for which she is liable, the creditor should be force to subject himself to and

observe the proceedings prescribed for the collection of the amount owing him, from the testate or intestate estate of the deceased debtor. We abstain in this opinion from an examination of the right which the plaintiff creditor may have had to collect the debt owing him from the estate of the deceased debtor, and we restrict our opinion solely to the debt which the defendant Josefa Samson, on her part, had the obligation to pay, not in her capacity of administratrix, but in that of widow member of the partnership, the property of which is directly liable for the debts contracted by her; and if the defendant Samson, as lawful owner of one-half of the community property, was entitled to receive it, and in fact did receive it, nothing could be more just than that she should, in turn, be compelled to pay, out of the property she received, the one-half of the debts for which part thereof she is liable. The defendant Josefa Samson should, therefore, be ordered to pay the aforesaid sum of P6,376.425, with interest thereon at the rate of 6 per cent per annum from January 10, 1917. That part of the judgment whereby this defendant is ordered to pay the other one-half of the sum mentioned therein, should be reversed, and the dismissed of the counterclaim should be affirmed, without special finding as to costs. SO ORDERED

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. L-41420 July 10, 1992 CMS LOGGING, INC., petitioner, vs. THE COURT OF APPEALS and D.R. AGUINALDO CORPORATION, respondents. NOCON, J.: This is a petition for review on certiorari from the decision dated July 31, 1975 of the Court of Appeals in CA-G.R. No. 47763-R which affirmed in toto the decision of the Court of First Instance of Manila, Branch VII, in Civil Case No. 56355 dismissing the complaint filed by petitioner CMS Logging, Inc. (CMS, for brevity) against private respondent D.R. Aguinaldo Corporation (DRACOR, for brevity) and ordering the former to pay the latter attorney's fees in the amount of P1,000.00 and the costs. The facts of the case are as follows: Petitioner CMS is a forest concessionaire engaged in the logging business, while private respondent DRACOR is engaged in the business of exporting and selling logs and lumber. On August 28, 1957, CMS and DRACOR entered into a contract of agency 1 whereby the former appointed the latter as its exclusive export and sales agent for all logs that the former may produce, for a period of five (5) years. The pertinent portions of the agreement, which was drawn up by DRACOR, 2 are as follows:
1. SISON [CMS] hereby appoints DRACOR as his sole and exclusive export sales agent with full authority, subject to the conditions and limitations hereinafter set forth, to sell and export under a firm sales contract acceptable to SISON, all logs produced by SISON for a period of five (5) years commencing upon the execution of the agreement and upon the terms and conditions hereinafter provided and DRACOR hereby accepts such appointment; xxx xxx xxx 3. It is expressly agreed that DRACOR shall handle exclusively all negotiations of all export sales of SISON with the buyers and arrange the procurement and schedules of the vessel or vessels for the shipment of SISON's logs in accordance with SISON's written requests, but DRACOR shall not in anyway [sic] be liable or responsible for any delay, default or failure of the vessel or vessels to comply with the schedules agreed upon; xxx xxx xxx

9. It is expressly agreed by the parties hereto that DRACOR shall receive five (5%) per cent commission of the gross sales of logs of SISON based on F.O.B. invoice value which commission shall be deducted from the proceeds of any and/or all moneys received by DRACOR for and in behalf and for the account of SISON;

By virtue of the aforesaid agreement, CMS was able to sell through DRACOR a total of 77,264,672 board feet of logs in Japan, from September 20, 1957 to April 4, 1962. About six months prior to the expiration of the agreement, while on a trip to Tokyo, Japan, CMS's president, Atty. Carlos Moran Sison, and general manager and legal counsel, Atty. Teodoro R. Dominguez, discovered that DRACOR had used Shinko Trading Co., Ltd. (Shinko for brevity) as agent, representative or liaison officer in selling CMS's logs in Japan for which Shinko earned a commission of U.S. $1.00 per 1,000 board feet from the buyer of the logs. Under this arrangement, Shinko was able to collect a total of U.S. $77,264.67. 3 CMS claimed that this commission paid to Shinko was in violation of the agreement and that it (CMS) is entitled to this amount as part of the proceeds of the sale of the logs. CMS contended that since DRACOR had been paid the 5% commission under the agreement, it is no longer entitled to the additional commission paid to Shinko as this tantamount to DRACOR receiving double compensation for the services it rendered. After this discovery, CMS sold and shipped logs valued at U.S. $739,321.13 or P2,883,351.90, 4 directly to several firms in Japan without the aid or intervention of DRACOR. CMS sued DRACOR for the commission received by Shinko and for moral and exemplary damages, while DRACOR counterclaimed for its commission, amounting to P144,167.59, from the sales made by CMS of logs to Japanese firms. In its reply, CMS averred as a defense to the counterclaim that DRACOR had retained the sum of P101,167.59 as part of its commission for the sales made by CMS. 5 Thus, as its counterclaim to DRACOR's counterclaim, CMS demanded DRACOR return the amount it unlawfully retained. DRACOR later filed an amended counterclaim, alleging that the balance of its commission on the sales made by CMS was P42,630.82, 6 thus impliedly admitting that it retained the amount alleged by CMS. In dismissing the complaint, the trial court ruled that no evidence was presented to show that Shinko received the commission of U.S.

$77,264.67 arising from the sale of CMS's logs in Japan, though the trial court stated that "Shinko was able to collect the total amount of $77,264.67 US Dollars (Exhs. M and M-1)." 7 The counterclaim was likewise dismissed, as it was shown that DRACOR had waived its rights to the balance of its commission in a letter dated February 2, 1963 to Atty. Carlos Moran Sison, president of CMS. 8 From said decision, only CMS appealed to the Court of Appeals. The Court of Appeals, in a 3 to 2 decision, 9 affirmed the dismissal of the complaint since "[t]he trial court could not have made a categorical finding that Shinko collected commissions from the buyers of Sison's logs in Japan, and could not have held that Sison is entitled to recover from Dracor the amount collected by Shinko as commissions, plaintiff-appellant having failed to prove by competent evidence its claims." 10 Moreover, the appellate court held:
There is reason to believe that Shinko Trading Co. Ltd., was paid by defendantappellee out of its own commission of 5%, as indicated in the letter of its president to the president of Sison, dated February 2, 1963 (Exhibit "N"), and in the Agreement between Aguinaldo Development Corporation (ADECOR) and Shinko Trading Co., Ltd. (Exhibit "9"). Daniel R. Aguinaldo stated in his said letter: . . . , I informed you that if you wanted to pay me for the service, then it would be no more than at the standard rate of 5% commission because in our own case, we pay our Japanese agents 2-1/2%. Accordingly, we would only add a similar amount of 2-1/2% for the service which we would render you in the Philippines. 11

Aggrieved, CMS appealed to this Court by way of a petition for review on certiorari, alleging (1) that the Court of Appeals erred in not making a complete findings of fact; (2) that the testimony of Atty. Teodoro R. Dominguez, regarding the admission by Shinko's president and director that it collected a commission of U.S. $1.00 per 1,000 board feet of logs from the Japanese buyers, is admissible against DRACOR; (3) that the statement of DRACOR's chief legal counsel in his memorandum dated May 31, 1965, Exhibit "K", is an admission that Shinko was able to collect the commission in question; (4) that the fact that Shinko received the questioned commissions is deemed admitted by DRACOR by its silence under Section 23, Rule 130 of the Rules of Court when it failed to reply to Atty. Carlos Moran Sison's letter dated February 6, 1962; (5) that DRACOR is not entitled to its 5% commission

arising from the direct sales made by CMS to buyers in Japan; and (6) that DRACOR is guilty of fraud and bad faith in its dealings with CMS. With regard to CMS's arguments concerning whether or not Shinko received the commission in question, We find the same unmeritorious. To begin with, these arguments question the findings of fact made by the Court of Appeals, which are final and conclusive and can not be reviewed on appeal to the Supreme Court. 12 Moreover, while it is true that the evidence adduced establishes the fact that Shinko is DRACOR's agent or liaison in Japan, 13 there is no evidence which established the fact that Shinko did receive the amount of U.S. $77,264.67 as commission arising from the sale of CMS's logs to various Japanese firms. The fact that Shinko received the commissions in question was not established by the testimony of Atty. Teodoro R. Dominguez to the effect that Shinko's president and director told him that Shinko received a commission of U.S. $1.00 for every 1,000 board feet of logs sold, since the same is hearsay. Similarly, the letter of Mr. K. Shibata of Toyo Menka Kaisha, Ltd. 14 is also hearsay since Mr. Shibata was not presented to testify on his letter. CMS's other evidence have little or no probative value at all. The statements made in the memorandum of Atty. Simplicio R. Ciocon to DRACOR dated May 31, 1965, 15 the letter dated February 2, 1963 of Daniel R. Aguinaldo, 16 president of DRACOR, and the reply-letter dated January 9, 1964 17 by DRACOR's counsel Atty. V. E. Del Rosario to CMS's demand letter dated September 25, 1963 can not be categorized as admissions that Shinko did receive the commissions in question. The alleged admission made by Atty. Ciocon, to wit
Furthermore, as per our records, our shipment of logs to Toyo Menka Kaisha, Ltd., is only for a net volume of 67,747,732 board feet which should enable Shinko to collect a commission of US $67,747.73 only

can not be considered as such since the statement was made in the context of questioning CMS's tally of logs delivered to various Japanese firms. Similarly, the statement of Daniel R. Aguinaldo, to wit
. . . Knowing as we do that Toyo Menka is a large and reputable company, it is obvious that they paid Shinko for certain services which Shinko must have satisfactorily

performed for them in Japan otherwise they would not have paid Shinko

and that of Atty. V. E. Del Rosario,


. . . It does not seem proper, therefore, for CMS Logging, Inc., as principal, to concern itself with, much less question, the right of Shinko Trading Co., Ltd. with which our client debt directly, to whatever benefits it might have derived form the ultimate consumer/buyer of these logs, Toyo Menka Kaisha, Ltd. There appears to be no justification for your client's contention that these benefits, whether they can be considered as commissions paid by Toyo Menka Kaisha to Shinko Trading, are to be regarded part of the gross sales.

can not be considered admissions that Shinko received the questioned commissions since neither statements declared categorically that Shinko did in fact receive the commissions and that these arose from the sale of CMS's logs. As correctly stated by the appellate court:
It is a rule that "a statement is not competent as an admission where it does not, under a reasonable construction, appear to admit or acknowledge the fact which is sought to be proved by it". An admission or declaration to be competent must have been expressed in definite, certain and unequivocal language (Bank of the Philippine Islands vs. Fidelity & Surety Co., 51 Phil. 57, 64). 18

sale. This is therefore not part of the gross sales of CMS's logs. However, We find merit in CMS's contention that the appellate court erred in holding that DRACOR was entitled to its commission from the sales made by CMS to Japanese firms. The principal may revoke a contract of agency at will, and such revocation may be express, or implied, 20 and may be availed of even if the period fixed in the contract of agency as not yet expired. 21 As the principal has this absolute right to revoke the agency, the agent can not object thereto; neither may he claim damages arising from such revocation, 22 unless it is shown that such was done in order to evade the payment of agent's commission. 23 In the case at bar, CMS appointed DRACOR as its agent for the sale of its logs to Japanese firms. Yet, during the existence of the contract of agency, DRACOR admitted that CMS sold its logs directly to several Japanese firms. This act constituted an implied revocation of the contract of agency under Article 1924 of the Civil Code, which provides:
Art. 1924 The agency is revoked if the principal directly manages the business entrusted to the agent, dealing directly with third persons.

CMS's contention that DRACOR had admitted by its silence the allegation that Shinko received the commissions in question when it failed to respond to Atty. Carlos Moran Sison's letter dated February 6, 1963, is not supported by the evidence. DRACOR did in fact reply to the letter of Atty. Sison, through the letter dated March 5, 1963 of F.A. Novenario, 19 which stated:
This is to acknowledge receipt of your letter dated February 6, 1963, and addressed to Mr. D. R. Aguinaldo, who is at present out of the country. xxx xxx xxx We have no record or knowledge of any such payment of commission made by Toyo Menka to Shinko. If the payment was made by Toyo Menka to Shinko, as stated in your letter, we knew nothing about it and had nothing to do with it.

The finding of fact made by the trial court, i.e., that "Shinko was able to collect the total amount of $77,264.67 US Dollars," can not be given weight since this was based on the summary prepared by CMS itself, Exhibits "M" and "M-1". Moreover, even if it was shown that Shinko did in fact receive the commissions in question, CMS is not entitled thereto since these were apparently paid by the buyers to Shinko for arranging the

In New Manila Lumber Company, Inc. vs. Republic of the Philippines, 24 this Court ruled that the act of a contractor, who, after executing powers of attorney in favor of another empowering the latter to collect whatever amounts may be due to him from the Government, and thereafter demanded and collected from the government the money the collection of which he entrusted to his attorney-infact, constituted revocation of the agency in favor of the attorney-in-fact. Since the contract of agency was revoked by CMS when it sold its logs to Japanese firms without the intervention of DRACOR, the latter is no longer entitled to its commission from the proceeds of such sale and is not entitled to retain whatever moneys it may have received as its commission for said transactions. Neither would DRACOR be entitled to collect damages from CMS, since damages are generally not awarded to the agent for the revocation of the agency, and the case at bar is not one falling under the exception mentioned, which is to evade the payment of the agent's commission. Regarding CMS's contention that the Court of Appeals erred in not finding that DRACOR had committed acts of fraud and bad faith, We find the same unmeritorious. Like the contention involving

Shinko and the questioned commissions, the findings of the Court of Appeals on the matter were based on its appreciation of the evidence, and these findings are binding on this Court. In fine, We affirm the ruling of the Court of Appeals that there is no evidence to support CMS's contention that Shinko earned a separate commission of U.S. $1.00 for every 1,000 board feet of logs from the buyer of CMS's logs. However, We reverse the ruling of the Court of Appeals with regard to DRACOR's right to retain the amount of P101,536.77 as part of its commission from the sale of logs by CMS, and hold that DRACOR has no right to its commission. Consequently, DRACOR is hereby ordered to remit to CMS the amount of P101,536.77. WHEREFORE, the decision appealed from is hereby MODIFIED as stated in the preceding paragraph. Costs de officio. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-40681 October 2, 1934 DY BUNCIO & COMPANY, INC., plaintiff-appelle, vs. ONG GUAN CAN, ET AL., defendants. JUAN TONG and PUA GIOK ENG, appellants. Pedro Escolin for appellants. G. Viola Fernando for appellee. HULL, J.: This is a suit over a rice mill and camarin situated at Dao, Province of Capiz. Plaintiff claims that the property belongs to its judgment debtor, Ong Guan Can, while defendants Juan Tong and Pua Giok Eng claim as owner and lessee of the owner by virtue of a deed dated July 31, 1931, by Ong Guan Can, Jr. After trial the Court of First Instance of Capiz held that the deed was invalid and that the property was subject to the execution which has been levied on said properties by the judgment creditor of the owner. Defendants Juan Tong and Pua Giok bring this appeal and insist that the deed of the 31st of July, 1931, is valid. The first recital of the deed is that Ong Guan Can, Jr., as agent of Ong Guan Can, the proprietor of the commercial firm of Ong Guan Can & Sons, sells the rice-mill and camarin for P13,000 and gives as his authority the power of attorney dated the 23d of May, 1928, a copy of this public instrument being attached to the deed and recorded with the deed in the office of the register of deeds of Capiz. The receipt of the money acknowledged in the deed was to the agent, and the deed was signed by the agent in his own name and without any words indicating that he was signing it for the principal. Leaving aside the irregularities of the deed and coming to the power of attorney referred to in the deed and registered therewith, it is at once seen that it is not a general power of attorney but a limited one and does not give the express power to alienate the properties in question. (Article 1713 of the Civil Code.) Appellants claim that this defect is cured by Exhibit 1, which purports to be a general power of attorney given to the same agent in 1920. Article 1732 of the Civil Code is silent over the partial termination of an agency. The making and accepting of a new power of attorney, whether it enlarges or decreases the power of the agent under a prior power of attorney, must be held to supplant and revoke the latter when the two are inconsistent. If the new appointment with limited powers does not revoke the general power of attorney,

the execution of the second power of attorney would be a mere futile gesture.lawphi1.net The title of Ong Guan Can not having been divested by the so-called deed of July 31, 1931, his properties are subject to attachment and execution. The judgment appealed from is therefore affirmed. Costs against appellants. So ordered.

Republic of the Philippines SUPREME COURT SECOND DIVISION G.R. No. 156015. August 11, 2005 REPUBLIC OF THE PHILIPPINES, represented by LT. GEN. JOSE M. CALIMLIM, in his capacity as former Chief of the Intelligence Service, Armed Forces of the Philippines (ISAFP), and former Commanding General, Presidential Security Group (PSG), and MAJ. DAVID B. DICIANO, in his capacity as an Officer of ISAFP and former member of the PSG, Petitioners, vs. HON. VICTORINO EVANGELISTA, in his capacity as Presiding Judge, Regional Trial Court, Branch 223, Quezon City, and DANTE LEGASPI, represented by his attorney-in-fact, Paul Gutierrez, Respondent. DECISION PUNO, J.: The case at bar stems from a complaint for damages, with prayer for the issuance of a writ of preliminary injunction, filed by private respondent Dante Legaspi, through his attorney-in-fact Paul Gutierrez, against petitioners Gen. Jose M. Calimlim, Ciriaco Reyes and Maj. David Diciano before the Regional Trial Court (RTC) of Quezon City.1 The Complaint alleged that private respondent Legaspi is the owner of a land located in Bigte, Norzagaray, Bulacan. In November 1999, petitioner Calimlim, representing the Republic of the Philippines, and as then head of the Intelligence Service of the Armed Forces of the Philippines and the Presidential Security Group, entered into a Memorandum of Agreement (MOA) with one Ciriaco Reyes. The MOA granted Reyes a permit to hunt for treasure in a land in Bigte, Norzagaray, Bulacan. Petitioner Diciano signed the MOA as a witness.2 It was further alleged that thereafter, Reyes, together with petitioners, started, digging, tunneling and blasting works on the said land of Legaspi. The complaint also alleged that petitioner Calimlim assigned about 80 military personnel to guard the area and encamp thereon to intimidate Legaspi and other occupants of the area from going near the subject land. On February 15, 2000, Legaspi executed a special power of attorney (SPA) appointing his nephew, private respondent Gutierrez, as his attorney-in-fact. Gutierrez was given the power to deal with the treasure hunting activities on Legaspis land and to file charges against those who may enter it without the latters authority.3 Legaspi agreed to give Gutierrez 40% of the treasure that may be found in the land.

On February 29, 2000, Gutierrez filed a case for damages and injunction against petitioners for illegally entering Legaspis land. He hired the legal services of Atty. Homobono Adaza. Their contract provided that as legal fees, Atty. Adaza shall be entitled to 30% of Legaspis share in whatever treasure may be found in the land. In addition, Gutierrez agreed to pay Atty. Adaza P5,000.00 as appearance fee per court hearing and defray all expenses for the cost of the litigation. 4 Upon the filing of the complaint, then Executive Judge Perlita J. Tria Tirona issued a 72-hour temporary restraining order (TRO) against petitioners. The case5 was subsequently raffled to the RTC of Quezon City, Branch 223, then presided by public respondent Judge Victorino P. Evangelista. On March 2, 2000, respondent judge issued another 72-hour TRO and a summary hearing for its extension was set on March 7, 2000. On March 14, 2000, petitioners filed a Motion to Dismiss6 contending: first, there is no real party-ininterest as the SPA of Gutierrez to bring the suit was already revoked by Legaspi on March 7, 2000, as evidenced by a Deed of Revocation, 7 and, second, Gutierrez failed to establish that the alleged armed men guarding the area were acting on orders of petitioners. On March 17, 2000, petitioners also filed a Motion for Inhibition8 of the respondent judge on the ground of alleged partiality in favor of private respondent. On March 23, 2000, the trial court granted private respondents application for a writ of preliminary injunction on the following grounds: (1) the diggings and blastings appear to have been made on the land of Legaspi, hence, there is an urgent need to maintain the status quo to prevent serious damage to Legaspis land; and, (2) the SPA granted to Gutierrez continues to be valid.9 The trial court ordered thus: WHEREFORE, in view of all the foregoing, the Court hereby resolves to GRANT plaintiffs application for a writ of preliminary injunction. Upon plaintiffs filing of an injunction bond in the amount of ONE HUNDRED THOUSAND PESOS (P100,000.00), let a Writ of Preliminary Injunction issue enjoining the defendants as well as their associates, agents or representatives from continuing to occupy and encamp on the land of the plaintiff LEGASPI as well as the vicinity thereof; from digging, tunneling and blasting the said land of plaintiff LEGASPI; from removing whatever treasure may be found on the said land; from preventing and threatening the plaintiffs and their representatives from entering the said land and performing acts of ownership; from threatening the plaintiffs and their representatives as well as plaintiffs lawyer. On even date, the trial court issued another Order 10 denying petitioners motion to dismiss and requiring

petitioners to answer the complaint. On April 4, 2000, it likewise denied petitioners motion for inhibition. 11 On appeal, the Court of Appeals affirmed the decision of the trial court.12 Hence this petition, with the following assigned errors: I WHETHER THE CONTRACT OF AGENCY BETWEEN LEGASPI AND PRIVATE RESPONDENT GUTIERREZ HAS BEEN EFFECTIVELY REVOKED BY LEGASPI. II WHETHER THE COMPLAINT AGAINST PETITIONERS SHOULD BE DISMISSED. III WHETHER RESPONDENT JUDGE OUGHT TO HAVE INHIBITED HIMSELF FROM FURTHER PROCEEDING WITH THE CASE. We find no merit in the petition. On the first issue, petitioners claim that the special power of attorney of Gutierrez to represent Legaspi has already been revoked by the latter. Private respondent Gutierrez, however, contends that the unilateral revocation is invalid as his agency is coupled with interest. We agree with private respondent. Art. 1868 of the Civil Code provides that by the contract of agency, an agent binds himself to render some service or do something in representation or on behalf of another, known as the principal, with the consent or authority of the latter. 13 A contract of agency is generally revocable as it is a personal contract of representation based on trust and confidence reposed by the principal on his agent. As the power of the agent to act depends on the will and license of the principal he represents, the power of the agent ceases when the will or permission is withdrawn by the principal. Thus, generally, the agency may be revoked by the principal at will.14 However, an exception to the revocability of a contract of agency is when it is coupled with interest, i.e., if a bilateral contract depends upon the agency. 15 The reason for its irrevocability is because the agency becomes part of another obligation or agreement. It is not solely the rights of the principal but also that of the agent and third persons which are affected. Hence, the law provides that in such cases, the agency cannot be revoked at the sole will of the principal. In the case at bar, we agree with the finding of the trial and appellate courts that the agency granted by Legaspi to Gutierrez is coupled with interest as a bilateral contract depends on it. It is clear from the records that Gutierrez was given by Legaspi, inter alia, the power to manage the treasure hunting activities in the subject land; to file any case against anyone who

enters the land without authority from Legaspi; to engage the services of lawyers to carry out the agency; and, to dig for any treasure within the land and enter into agreements relative thereto. It was likewise agreed upon that Gutierrez shall be entitled to 40% of whatever treasure may be found in the land. Pursuant to this authority and to protect Legaspis land from the alleged illegal entry of petitioners, agent Gutierrez hired the services of Atty. Adaza to prosecute the case for damages and injunction against petitioners. As payment for legal services, Gutierrez agreed to assign to Atty. Adaza 30% of Legaspis share in whatever treasure may be recovered in the subject land. It is clear that the treasure that may be found in the land is the subject matter of the agency; that under the SPA, Gutierrez can enter into contract for the legal services of Atty. Adaza; and, thus Gutierrez and Atty. Adaza have an interest in the subject matter of the agency, i.e., in the treasures that may be found in the land. This bilateral contract depends on the agency and thus renders it as one coupled with interest, irrevocable at the sole will of the principal Legaspi. 16 When an agency is constituted as a clause in a bilateral contract, that is, when the agency is inserted in another agreement, the agency ceases to be revocable at the pleasure of the principal as the agency shall now follow the condition of the bilateral agreement. 17 Consequently, the Deed of Revocation executed by Legaspi has no effect. The authority of Gutierrez to file and continue with the prosecution of the case at bar is unaffected. On the second issue, we hold that the issuance of the writ of preliminary injunction is justified. A writ of preliminary injunction is an ancilliary or preventive remedy that is 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.18 It is issued by the court to prevent threatened or continuous irremediable injury to the applicant before his claim can be thoroughly studied and adjudicated.19 Its aim is to preserve the status quo ante until the merits of the case can be heard fully, upon the applicants showing of two important conditions, viz.: (1) the right to be protected prima facie exists; and, (2) the acts sought to be enjoined are violative of that right. 20 Section 3, Rule 58 of the 1997 Rules of Civil Procedure provides that a writ of preliminary injunction may be issued when it is established: (a) that the applicant is entitled to the relief demanded, 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 nonperformance of the act 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. It is crystal clear that at the hearing for the issuance of a writ of preliminary injunction, mere prima facie evidence is needed to establish the applicants rights or interests in the subject matter of the main action. 21 It is not required that the applicant should conclusively show that there was a violation of his rights as this issue will still be fully litigated in the main case. 22 Thus, an applicant for a writ is required only to show that he has an ostensible right to the final relief prayed for in his complaint. 23 In the case at bar, we find that respondent judge had sufficient basis to issue the writ of preliminary injunction. It was established, prima facie, that Legaspi has a right to peaceful possession of his land, pendente lite. Legaspi had title to the subject land. It was likewise established that the diggings were conducted by petitioners in the enclosed area of Legaspis land. Whether the land fenced by Gutierrez and claimed to be included in the land of Legaspi covered an area beyond that which is included in the title of Legaspi is a factual issue still subject to litigation and proof by the parties in the main case for damages. It was necessary for the trial court to issue the writ of preliminary injunction during the pendency of the main case in order to preserve the rights and interests of private respondents Legaspi and Gutierrez. On the third issue, petitioners charge that the respondent judge lacked the neutrality of an impartial judge. They fault the respondent judge for not giving credence to the testimony of their surveyor that the diggings were conducted outside the land of Legaspi. They also claim that respondent judges rulings on objections raised by the parties were biased against them. We have carefully examined the records and we find no sufficient basis to hold that respondent judge should have recused himself from hearing the case. There is no discernible pattern of bias on the rulings of the respondent judge. Bias and partiality can never be presumed. Bare allegations of partiality will not suffice in an absence of a clear showing that will overcome the presumption that the judge dispensed justice without fear or favor.24 It bears to stress again that a judges

appreciation or misappreciation of the sufficiency of evidence adduced by the parties, or the correctness of a judges orders or rulings on the objections of counsels during the hearing, without proof of malice on the part of respondent judge, is not sufficient to show bias or partiality. As we held in the case of Webb vs. People,25 the adverse and erroneous rulings of a judge on the various motions of a party do not sufficiently prove bias and prejudice to disqualify him. To be disqualifying, it must be shown that the bias and prejudice stemmed from an extrajudicial source and result in an opinion on the merits on some basis other than what the judge learned from his participation in the case. Opinions formed in the course of judicial proceedings, although erroneous, as long as based on the evidence adduced, do not prove bias or prejudice. We also emphasized that repeated rulings against a litigant, no matter how erroneously, vigorously and consistently expressed, do not amount to bias and prejudice which can be a bases for the disqualification of a judge. Finally, the inhibition of respondent judge in hearing the case for damages has become moot and academic in view of the latters death during the pendency of the case. The main case for damages shall now be heard and tried before another judge. IN VIEW WHEREOF, the impugned Orders of the trial court in Civil Case No. Q-00-40115, dated March 23 and April 4, 2000, are AFFIRMED. The presiding judge of the Regional Trial Court of Quezon City to whom Civil Case No. Q-00-40115 was assigned is directed to proceed with dispatch in hearing the main case for damages. No pronouncement as to costs. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. L-41182-3 April 16, 1988 DR. CARLOS L. SEVILLA and LINA O. SEVILLA, petitioners-appellants, vs. THE COURT OF APPEALS, TOURIST WORLD SERVICE, INC., ELISEO S.CANILAO, and SEGUNDINA NOGUERA, respondents-appellees. SARMIENTO , J.: The petitioners invoke the provisions on human relations of the Civil Code in this appeal by certiorari. The facts are beyond dispute:
xxx xxx xxx On the strength of a contract (Exhibit A for the appellant Exhibit 2 for the appellees) entered into on Oct. 19, 1960 by and between Mrs. Segundina Noguera, party of the first part; the Tourist World Service, Inc., represented by Mr. Eliseo Canilao as party of the second part, and hereinafter referred to as appellants, the Tourist World Service, Inc. leased the premises belonging to the party of the first part at Mabini St., Manila for the former-s use as a branch office. In the said contract the party of the third part held herself solidarily liable with the party of the part for the prompt payment of the monthly rental agreed on. When the branch office was opened, the same was run by the herein appellant Una 0. Sevilla payable to Tourist World Service Inc. by any airline for any fare brought in on the efforts of Mrs. Lina Sevilla, 4% was to go to Lina Sevilla and 3% was to be withheld by the Tourist World Service, Inc. On or about November 24, 1961 (Exhibit 16) the Tourist World Service, Inc. appears to have been informed that Lina Sevilla was connected with a rival firm, the Philippine Travel Bureau, and, since the branch office was anyhow losing, the Tourist World Service considered closing down its office. This was firmed up by two resolutions of the board of directors of Tourist World Service, Inc. dated Dec. 2, 1961 (Exhibits 12 and 13), the first abolishing the office of the manager and vice-president of the Tourist World Service, Inc., Ermita Branch, and the second,authorizing the corporate secretary to receive the properties of the Tourist World Service then located at the said branch office. It further appears that on Jan. 3, 1962, the contract with the appellees for the use of the Branch Office premises was terminated and while the effectivity thereof was Jan. 31, 1962, the appellees no longer used it. As a matter of fact appellants used it since Nov. 1961. Because of this, and to

comply with the mandate of the Tourist World Service, the corporate secretary Gabino Canilao went over to the branch office, and, finding the premises locked, and, being unable to contact Lina Sevilla, he padlocked the premises on June 4, 1962 to protect the interests of the Tourist World Service. When neither the appellant Lina Sevilla nor any of her employees could enter the locked premises, a complaint wall filed by the herein appellants against the appellees with a prayer for the issuance of mandatory preliminary injunction. Both appellees answered with counterclaims. For apparent lack of interest of the parties therein, the trial court ordered the dismissal of the case without prejudice. The appellee Segundina Noguera sought reconsideration of the order dismissing her counterclaim which the court a quo, in an order dated June 8, 1963, granted permitting her to present evidence in support of her counterclaim. On June 17,1963, appellant Lina Sevilla refiled her case against the herein appellees and after the issues were joined, the reinstated counterclaim of Segundina Noguera and the new complaint of appellant Lina Sevilla were jointly heard following which the court a quo ordered both cases dismiss for lack of merit, on the basis of which was elevated the instant appeal on the following assignment of errors: I. THE LOWER COURT ERRED EVEN IN APPRECIATING THE NATURE OF PLAINTIFF-APPELLANT MRS. LINA O. SEVILLA'S COMPLAINT. II. THE LOWER COURT ERRED IN HOLDING THAT APPELLANT MRS. LINA 0. SEVILA'S ARRANGEMENT (WITH APPELLEE TOURIST WORLD SERVICE, INC.) WAS ONE MERELY OF EMPLOYEREMPLOYEE RELATION AND IN FAILING TO HOLD THAT THE SAID ARRANGEMENT WAS ONE OF JOINT BUSINESS VENTURE. III. THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-APPELLANT MRS. LINA O. SEVILLA IS ESTOPPED FROM DENYING THAT SHE WAS A MERE EMPLOYEE OF DEFENDANT-APPELLEE TOURIST WORLD SERVICE, INC. EVEN AS AGAINST THE LATTER. IV. THE LOWER COURT ERRED IN NOT HOLDING THAT APPELLEES HAD NO RIGHT TO EVICT APPELLANT MRS. LINA O. SEVILLA FROM THE A. MABINI OFFICE BY TAKING THE LAW INTO THEIR OWN HANDS. V. THE LOWER COURT ERRED IN NOT CONSIDERING AT .ALL APPELLEE NOGUERA'S RESPONSIBILITY FOR APPELLANT LINA O. SEVILLA'S FORCIBLE DISPOSSESSION OF THE A. MABINI PREMISES.

VI. THE LOWER COURT ERRED IN FINDING THAT APPELLANT APPELLANT MRS. LINA O. SEVILLA SIGNED MERELY AS GUARANTOR FOR RENTALS.

On the foregoing facts and in the light of the errors asigned the issues to be resolved are:
1. Whether the appellee Tourist World Service unilaterally disco the telephone line at the branch office on Ermita; 2. Whether or not the padlocking of the office by the Tourist World Service was actionable or not; and 3. Whether or not the lessee to the office premises belonging to the appellee Noguera was appellees TWS or TWS and the appellant. In this appeal, appealant Lina Sevilla claims that a joint bussiness venture was entered into by and between her and appellee TWS with offices at the Ermita branch office and that she was not an employee of the TWS to the end that her relationship with TWS was one of a joint business venture appellant made declarations showing: 1. Appellant Mrs. Lina 0. Sevilla, a prominent figure and wife of an eminent eye, ear and nose specialist as well as a imediately columnist had been in the travel business prior to the establishment of the joint business venture with appellee Tourist World Service, Inc. and appellee Eliseo Canilao, her compadre, she being the godmother of one of his children, with her own clientele, coming mostly from her own social circle (pp. 3-6 tsn. February 16,1965). 2. Appellant Mrs. Sevilla was signatory to a lease agreement dated 19 October 1960 (Exh. 'A') covering the premises at A. Mabini St., she expressly warranting and holding [sic] herself 'solidarily' liable with appellee Tourist World Service, Inc. for the prompt payment of the monthly rentals thereof to other appellee Mrs. Noguera (pp. 14-15, tsn. Jan. 18,1964). 3. Appellant Mrs. Sevilla did not receive any salary from appellee Tourist World Service, Inc., which had its own, separate office located at the Trade & Commerce Building; nor was she an employee thereof, having

no participation in nor connection with said business at the Trade & Commerce Building (pp. 1618 tsn Id.). 4. Appellant Mrs. Sevilla earned commissions for her own passengers, her own bookings her own business (and not for any of the business of appellee Tourist World Service, Inc.) obtained from the airline companies. She shared the 7% commissions given by the airline companies giving appellee Tourist World Service, Lic. 3% thereof aid retaining 4% for herself (pp. 18 tsn. Id.) 5. Appellant Mrs. Sevilla likewise shared in the expenses of maintaining the A. Mabini St. office, paying for the salary of an office secretary, Miss Obieta, and other sundry expenses, aside from desicion the office furniture and supplying some of fice furnishings (pp. 15,18 tsn. April 6,1965), appellee Tourist World Service, Inc. shouldering the rental and other expenses in consideration for the 3% split in the co procured by appellant Mrs. Sevilla (p. 35 tsn Feb. 16,1965). 6. It was the understanding between them that appellant Mrs. Sevilla would be given the title of branch manager for appearance's sake only (p. 31 tsn. Id.), appellee Eliseo Canilao admit that it was just a title for dignity (p. 36 tsn. June 18, 1965testimony of appellee Eliseo Canilao pp. 38-39 tsn April 61965-testimony of corporate secretary Gabino Canilao (pp- 2-5, Appellants' Reply Brief) Upon the other hand, appellee TWS contend that the appellant was an employee of the appellee Tourist World Service, Inc. and as such was designated manager. 1 xxx xxx xxx

The trial court 2 held for the private respondent on the premise that the private respondent, Tourist World Service, Inc., being the true lessee, it was within its prerogative to terminate the lease and padlock the premises. 3 It likewise found the

petitioner, Lina Sevilla, to be a mere employee of said Tourist World Service, Inc. and as such, she was bound by the acts of her employer. 4 The respondent Court of Appeal 5 rendered an affirmance. The petitioners now claim that the respondent Court, in sustaining the lower court, erred. Specifically, they state: I THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS DISCRETION IN HOLDING THAT "THE PADLOCKING OF THE PREMISES BY TOURIST WORLD SERVICE INC. WITHOUT THE KNOWLEDGE AND CONSENT OF THE APPELLANT LINA SEVILLA ... WITHOUT NOTIFYING MRS. LINA O. SEVILLA OR ANY OF HER EMPLOYEES AND WITHOUT INFORMING COUNSEL FOR THE APPELLANT (SEVILIA), WHO IMMEDIATELY BEFORE THE PADLOCKING INCIDENT, WAS IN CONFERENCE WITH THE CORPORATE SECRETARY OF TOURIST WORLD SERVICE (ADMITTEDLY THE PERSON WHO PADLOCKED THE SAID OFFICE), IN THEIR ATTEMP AMICABLY SETTLE THE CONTROVERSY BETWEEN THE APPELLANT (SEVILLA) AND THE TOURIST WORLD SERVICE ... (DID NOT) ENTITLE THE LATTER TO THE RELIEF OF DAMAGES" (ANNEX "A" PP. 7,8 AND ANNEX "B" P. 2) DECISION AGAINST DUE PROCESS WHICH ADHERES TO THE RULE OF LAW. II THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS DISCRETION IN DENYING APPELLANT SEVILLA RELIEF BECAUSE SHE HAD "OFFERED TO WITHDRAW HER COMP PROVIDED THAT ALL CLAIMS AND COUNTERCLAIMS LODGED BY BOTH APPELLEES WERE WITHDRAWN." (ANNEX "A" P. 8) III THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS DISCRETION IN DENYING-IN FACT NOT PASSING AND RESOLVING-APPELLANT SEVILLAS CAUSE OF ACTION FOUNDED ON ARTICLES 19, 20 AND 21 OF THE CIVIL CODE ON RELATIONS. IV THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED

ITS DISCRETION IN DENYING APPEAL APPELLANT SEVILLA RELIEF YET NOT RESOLVING HER CLAIM THAT SHE WAS IN JOINT VENTURE WITH TOURIST WORLD SERVICE INC. OR AT LEAST ITS AGENT COUPLED WITH AN INTEREST WHICH COULD NOT BE TERMINATED OR REVOKED UNILATERALLY BY TOURIST WORLD SERVICE INC. 6 As a preliminary inquiry, the Court is asked to declare the true nature of the relation between Lina Sevilla and Tourist World Service, Inc. The respondent Court of see fit to rule on the question, the crucial issue, in its opinion being "whether or not the padlocking of the premises by the Tourist World Service, Inc. without the knowledge and consent of the appellant Lina Sevilla entitled the latter to the relief of damages prayed for and whether or not the evidence for the said appellant supports the contention that the appellee Tourist World Service, Inc. unilaterally and without the consent of the appellant disconnected the telephone lines of the Ermita branch office of the appellee Tourist World Service, Inc. 7 Tourist World Service, Inc., insists, on the other hand, that Lina SEVILLA was a mere employee, being "branch manager" of its Ermita "branch" office and that inferentially, she had no say on the lease executed with the private respondent, Segundina Noguera. The petitioners contend, however, that relation between the between parties was one of joint venture, but concede that "whatever might have been the true relationship between Sevilla and Tourist World Service," the Rule of Law enjoined Tourist World Service and Canilao from taking the law into their own hands, 8 in reference to the padlocking now questioned. The Court finds the resolution of the issue material, for if, as the private respondent, Tourist World Service, Inc., maintains, that the relation between the parties was in the character of employer and employee, the courts would have been without jurisdiction to try the case, labor disputes being the exclusive domain of the Court of Industrial Relations, later, the Bureau Of Labor Relations, pursuant to statutes then in force. 9 In this jurisdiction, there has been no uniform test to determine the evidence of an employeremployee relation. In general, we have relied on the so-called right of control test, "where the person for whom the services are performed reserves a right to control not only the end to be achieved but also the means to be used in reaching such end." 10 Subsequently, however, we

have considered, in addition to the standard of right-of control, the existing economic conditions prevailing between the parties, like the inclusion of the employee in the payrolls, in determining the existence of an employer-employee relationship. 11 The records will show that the petitioner, Lina Sevilla, was not subject to control by the private respondent Tourist World Service, Inc., either as to the result of the enterprise or as to the means used in connection therewith. In the first place, under the contract of lease covering the Tourist Worlds Ermita office, she had bound herself in solidum as and for rental payments, an arrangement that would be like claims of a masterservant relationship. True the respondent Court would later minimize her participation in the lease as one of mere guaranty, 12 that does not make her an employee of Tourist World, since in any case, a true employee cannot be made to part with his own money in pursuance of his employer's business, or otherwise, assume any liability thereof. In that event, the parties must be bound by some other relation, but certainly not employment. In the second place, and as found by the Appellate Court, '[w]hen the branch office was opened, the same was run by the herein appellant Lina O. Sevilla payable to Tourist World Service, Inc. by any airline for any fare brought in on the effort of Mrs. Lina Sevilla. 13 Under these circumstances, it cannot be said that Sevilla was under the control of Tourist World Service, Inc. "as to the means used." Sevilla in pursuing the business, obviously relied on her own gifts and capabilities. It is further admitted that Sevilla was not in the company's payroll. For her efforts, she retained 4% in commissions from airline bookings, the remaining 3% going to Tourist World. Unlike an employee then, who earns a fixed salary usually, she earned compensation in fluctuating amounts depending on her booking successes. The fact that Sevilla had been designated 'branch manager" does not make her, ergo, Tourist World's employee. As we said, employment is determined by the right-of-control test and certain economic parameters. But titles are weak indicators. In rejecting Tourist World Service, Inc.'s arguments however, we are not, as a consequence, accepting Lina Sevilla's own, that is, that the parties had embarked on a joint venture or otherwise, a partnership. And apparently, Sevilla herself did not recognize the existence of such a relation. In her letter of November 28, 1961, she

expressly 'concedes your [Tourist World Service, Inc.'s] right to stop the operation of your branch office 14 in effect, accepting Tourist World Service, Inc.'s control over the manner in which the business was run. A joint venture, including a partnership, presupposes generally a of standing between the joint co-venturers or partners, in which each party has an equal proprietary interest in the capital or property contributed 15 and where each party exercises equal rights in the conduct of the business. 16 furthermore, the parties did not hold themselves out as partners, and the building itself was embellished with the electric sign "Tourist World Service, Inc. 17in lieu of a distinct partnership name. It is the Court's considered opinion, that when the petitioner, Lina Sevilla, agreed to (wo)man the private respondent, Tourist World Service, Inc.'s Ermita office, she must have done so pursuant to a contract of agency. It is the essence of this contract that the agent renders services "in representation or on behalf of another. 18 In the case at bar, Sevilla solicited airline fares, but she did so for and on behalf of her principal, Tourist World Service, Inc. As compensation, she received 4% of the proceeds in the concept of commissions. And as we said, Sevilla herself based on her letter of November 28, 1961, preassumed her principal's authority as owner of the business undertaking. We are convinced, considering the circumstances and from the respondent Court's recital of facts, that the ties had contemplated a principal agent relationship, rather than a joint managament or a partnership.. But unlike simple grants of a power of attorney, the agency that we hereby declare to be compatible with the intent of the parties, cannot be revoked at will. The reason is that it is one coupled with an interest, the agency having been created for mutual interest, of the agent and the principal. 19 It appears that Lina Sevilla is a bona fide travel agent herself, and as such, she had acquired an interest in the business entrusted to her. Moreover, she had assumed a personal obligation for the operation thereof, holding herself solidarily liable for the payment of rentals. She continued the business, using her own name, after Tourist World had stopped further operations. Her interest, obviously, is not to the commissions she earned as a result of her business transactions, but one that extends to the very subject matter of the power of management delegated to her. It is an agency that, as we said, cannot be revoked at the pleasure of the principal. Accordingly, the

revocation complained of should entitle the petitioner, Lina Sevilla, to damages. As we have stated, the respondent Court avoided this issue, confining itself to the telephone disconnection and padlocking incidents. Anent the disconnection issue, it is the holding of the Court of Appeals that there is 'no evidence showing that the Tourist World Service, Inc. disconnected the telephone lines at the branch office. 20 Yet, what cannot be denied is the fact that Tourist World Service, Inc. did not take pains to have them reconnected. Assuming, therefore, that it had no hand in the disconnection now complained of, it had clearly condoned it, and as owner of the telephone lines, it must shoulder responsibility therefor. The Court of Appeals must likewise be held to be in error with respect to the padlocking incident. For the fact that Tourist World Service, Inc. was the lessee named in the lease con-tract did not accord it any authority to terminate that contract without notice to its actual occupant, and to padlock the premises in such fashion. As this Court has ruled, the petitioner, Lina Sevilla, had acquired a personal stake in the business itself, and necessarily, in the equipment pertaining thereto. Furthermore, Sevilla was not a stranger to that contract having been explicitly named therein as a third party in charge of rental payments (solidarily with Tourist World, Inc.). She could not be ousted from possession as summarily as one would eject an interloper. The Court is satisfied that from the chronicle of events, there was indeed some malevolent design to put the petitioner, Lina Sevilla, in a bad light following disclosures that she had worked for a rival firm. To be sure, the respondent court speaks of alleged business losses to justify the closure '21 but there is no clear showing that Tourist World Ermita Branch had in fact sustained such reverses, let alone, the fact that Sevilla had moonlit for another company. What the evidence discloses, on the other hand, is that following such an information (that Sevilla was working for another company), Tourist World's board of directors adopted two resolutions abolishing the office of 'manager" and authorizing the corporate secretary, the respondent Eliseo Canilao, to effect the takeover of its branch office properties. On January 3, 1962, the private respondents ended the lease over the branch office premises, incidentally, without notice to her. It was only on June 4, 1962, and after office hours significantly, that the Ermita office was padlocked,

personally by the respondent Canilao, on the pretext that it was necessary to Protect the interests of the Tourist World Service. " 22 It is strange indeed that Tourist World Service, Inc. did not find such a need when it cancelled the lease five months earlier. While Tourist World Service, Inc. would not pretend that it sought to locate Sevilla to inform her of the closure, but surely, it was aware that after office hours, she could not have been anywhere near the premises. Capping these series of "offensives," it cut the office's telephone lines, paralyzing completely its business operations, and in the process, depriving Sevilla articipation therein. This conduct on the part of Tourist World Service, Inc. betrays a sinister effort to punish Sevillsa it had perceived to be disloyalty on her part. It is offensive, in any event, to elementary norms of justice and fair play. We rule therefore, that for its unwarranted revocation of the contract of agency, the private respondent, Tourist World Service, Inc., should be sentenced to pay damages. Under the Civil Code, moral damages may be awarded for "breaches of contract where the defendant acted ... in bad faith.
23

We likewise condemn Tourist World Service, Inc. to pay further damages for the moral injury done to Lina Sevilla from its brazen conduct subsequent to the cancellation of the power of attorney granted to her on the authority of Article 21 of the Civil Code, in relation to Article 2219 (10) thereof
ART. 21. Any person who wilfully 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. 24 ART. 2219. Moral damages 25 may be recovered in the following and analogous cases: xxx xxx xxx (10) Acts and actions refered into article 21, 26, 27, 28, 29, 30, 32, 34, and 35.

The respondent, Eliseo Canilao, as a joint tortfeasor is likewise hereby ordered to respond for the same damages in a solidary capacity. Insofar, however, as the private respondent, Segundina Noguera is concerned, no evidence has been shown that she had connived with Tourist World Service, Inc. in the disconnection and padlocking incidents. She cannot therefore be held liable as a cotortfeasor. The Court considers the sums of P25,000.00 as and for moral damages,24 P10,000.00 as exemplary damages, 25 and P5,000.00 as nominal

26

and/or temperate 27 damages, to be just, fair, and reasonable under the circumstances. WHEREFORE, the Decision promulgated on January 23, 1975 as well as the Resolution issued on July 31, 1975, by the respondent Court of Appeals is hereby REVERSED and SET ASIDE. The private respondent, Tourist World Service, Inc., and Eliseo Canilao, are ORDERED jointly and severally to indemnify the petitioner, Lina Sevilla, the sum of 25,00.00 as and for moral damages, the sum of P10,000.00, as and for exemplary damages, and the sum of P5,000.00, as and for nominal and/or temperate damages. Costs against said private respondents. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 83122 October 19, 1990 ARTURO P. VALENZUELA and HOSPITALITA N. VALENZUELA, petitioners, vs. THE HONORABLE COURT OF APPEALS, BIENVENIDO M. ARAGON, ROBERT E. PARNELL, CARLOS K. CATOLICO and THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, INC., respondents. Albino B. Achas for petitioners. Angara, Abello, Concepcion, Regala & Cruz for private respondents. GUTIERREZ, JR., J.: This is a petition for review of the January 29, 1988 decision of the Court of Appeals and the April 27, 1988 resolution denying the petitioners' motion for reconsideration, which decision and resolution reversed the decision dated June 23,1986 of the Court of First Instance of Manila, Branch 34 in Civil Case No. 121126 upholding the petitioners' causes of action and granting all the reliefs prayed for in their complaint against private respondents. The antecedent facts of the case are as follows: Petitioner Arturo P. Valenzuela (Valenzuela for short) is a General Agent of private respondent Philippine American General Insurance Company, Inc. (Philamgen for short) since 1965. As such, he was authorized to solicit and sell in behalf of Philamgen all kinds of non-life insurance, and in consideration of services rendered was entitled to receive the full agent's commission of 32.5% from Philamgen under the scheduled commission rates (Exhibits "A" and "1"). From 1973 to 1975, Valenzuela solicited marine insurance from one of his clients, the Delta Motors, Inc. (Division of Electronics Airconditioning and Refrigeration) in the amount of P4.4 Million from which he was entitled to a commission of 32% (Exhibit "B"). However, Valenzuela did not receive his full commission which amounted to P1.6 Million from the P4.4 Million insurance coverage of the Delta Motors. During the period 1976 to 1978, premium payments amounting to P1,946,886.00 were paid directly to Philamgen and Valenzuela's commission to which he is entitled amounted to P632,737.00. In 1977, Philamgen started to become interested in and expressed its intent to share in the

commission due Valenzuela (Exhibits "III" and "III1") on a fifty-fifty basis (Exhibit "C"). Valenzuela refused (Exhibit "D"). On February 8, 1978 Philamgen and its President, Bienvenido M. Aragon insisted on the sharing of the commission with Valenzuela (Exhibit E). This was followed by another sharing proposal dated June 1, 1978. On June 16,1978, Valenzuela firmly reiterated his objection to the proposals of respondents stating that: "It is with great reluctance that I have to decline upon request to signify my conformity to your alternative proposal regarding the payment of the commission due me. However, I have no choice for to do otherwise would be violative of the Agency Agreement executed between our goodselves." (Exhibit B-1) Because of the refusal of Valenzuela, Philamgen and its officers, namely: Bienvenido Aragon, Carlos Catolico and Robert E. Parnell took drastic action against Valenzuela. They: (a) reversed the commission due him by not crediting in his account the commission earned from the Delta Motors, Inc. insurance (Exhibit "J" and "2"); (b) placed agency transactions on a cash and carry basis; (c) threatened the cancellation of policies issued by his agency (Exhibits "H" to "H-2"); and (d) started to leak out news that Valenzuela has a substantial account with Philamgen. All of these acts resulted in the decline of his business as insurance agent (Exhibits "N", "O", "K" and "K-8"). Then on December 27, 1978, Philamgen terminated the General Agency Agreement of Valenzuela (Exhibit "J", pp. 1-3, Decision Trial Court dated June 23, 1986, Civil Case No. 121126, Annex I, Petition). The petitioners sought relief by filing the complaint against the private respondents in the court a quo (Complaint of January 24, 1979, Annex "F" Petition). After due proceedings, the trial court found:
xxx xxx xxx Defendants tried to justify the termination of plaintiff Arturo P. Valenzuela as one of defendant PHILAMGEN's General Agent by making it appear that plaintiff Arturo P. Valenzuela has a substantial account with defendant PHILAMGEN particularly Delta Motors, Inc.'s Account, thereby prejudicing defendant PHILAMGEN's interest (Exhibits 6,"11","11- "12- A"and"13-A"). Defendants also invoked the provisions of the Civil Code of the Philippines (Article 1868) and the provisions of the General Agency Agreement as their basis for terminating plaintiff Arturo P. Valenzuela as one of their General Agents.

That defendants' position could have been justified had the termination of plaintiff Arturo P. Valenzuela was (sic) based solely on the provisions of the Civil Code and the conditions of the General Agency Agreement. But the records will show that the principal cause of the termination of the plaintiff as General Agent of defendant PHILAMGEN was his refusal to share his Delta commission. That it should be noted that there were several attempts made by defendant Bienvenido M. Aragon to share with the Delta commission of plaintiff Arturo P. Valenzuela. He had persistently pursued the sharing scheme to the point of terminating plaintiff Arturo P. Valenzuela, and to make matters worse, defendants made it appear that plaintiff Arturo P. Valenzuela had substantial accounts with defendant PHILAMGEN. Not only that, defendants have also started (a) to treat separately the Delta Commission of plaintiff Arturo P. Valenzuela, (b) to reverse the Delta commission due plaintiff Arturo P. Valenzuela by not crediting or applying said commission earned to the account of plaintiff Arturo P. Valenzuela, (c) placed plaintiff Arturo P. Valenzuela's agency transactions on a "cash and carry basis", (d) sending threats to cancel existing policies issued by plaintiff Arturo P. Valenzuela's agency, (e) to divert plaintiff Arturo P. Valenzuela's insurance business to other agencies, and (f) to spread wild and malicious rumors that plaintiff Arturo P. Valenzuela has substantial account with defendant PHILAMGEN to force plaintiff Arturo P. Valenzuela into agreeing with the sharing of his Delta commission." (pp. 9-10, Decision, Annex 1, Petition). xxx xxx xxx These acts of harrassment done by defendants on plaintiff Arturo P. Valenzuela to force him to agree to the sharing of his Delta commission, which culminated in the termination of plaintiff Arturo P. Valenzuela as one of defendant PHILAMGEN's General Agent, do not justify said termination of the General Agency Agreement entered into by defendant PHILAMGEN and plaintiff Arturo P. Valenzuela. That since defendants are not justified in the termination of plaintiff Arturo P. Valenzuela as one of their General Agents, defendants shall be liable for the resulting damage and loss of business of plaintiff Arturo P. Valenzuela. (Arts. 2199/2200, Civil Code of the Philippines). (Ibid, p. 11)

The court accordingly rendered judgment, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against defendants ordering the latter to reinstate plaintiff Arturo P. Valenzuela as its General

Agent, and to pay plaintiffs, jointly and severally, the following: 1. The amount of five hundred twenty-one thousand nine hundred sixty four and 16/100 pesos (P521,964.16) representing plaintiff Arturo P. Valenzuela's Delta Commission with interest at the legal rate from the time of the filing of the complaint, which amount shall be adjusted in accordance with Article 1250 of the Civil Code of the Philippines; 2. The amount of seventy-five thousand pesos (P75,000.00) per month as compensatory damages from 1980 until such time that defendant Philamgen shall reinstate plaintiff Arturo P. Valenzuela as one of its general agents; 3. The amount of three hundred fifty thousand pesos (P350,000.00) for each plaintiff as moral damages; 4. The amount of seventy-five thousand pesos (P75,000.00) as and for attorney's fees; 5. Costs of the suit. (Ibid., P. 12) From the aforesaid decision of the trial court, Bienvenido Aragon, Robert E. Parnell, Carlos K. Catolico and PHILAMGEN respondents herein, and defendantsappellants below, interposed an appeal on the following: ASSIGNMENT OF ERRORS I THE LOWER COURT ERRED IN HOLDING THAT PLAINTIFF ARTURO P. VALENZUELA HAD NO OUTSTANDING ACCOUNT WITH DEFENDANT PHILAMGEN AT THE TIME OF THE TERMINATION OF THE AGENCY. II THE LOWER COURT ERRED IN HOLDING THAT PLAINTIFF ARTURO P. VALENZUELA IS ENTITLED TO THE FULL COMMISSION OF 32.5% ON THE DELTA ACCOUNT. III THE LOWER COURT ERRED IN HOLDING THAT THE TERMINATION OF PLAINTIFF ARTURO P. VALENZUELA WAS NOT JUSTIFIED AND THAT CONSEQUENTLY DEFENDANTS ARE LIABLE FOR ACTUAL AND MORAL DAMAGES, ATTORNEYS FEES AND COSTS. IV ASSUMING ARGUENDO THAT THE AWARD OF DAMAGES AGAINST DEFENDANT PHILAMGEN WAS PROPER, THE LOWER COURT ERRED IN AWARDING DAMAGES EVEN AGAINST THE INDIVIDUAL DEFENDANTS WHO ARE MERE CORPORATE AGENTS ACTING WITHIN THE SCOPE OF THEIR AUTHORITY. V ASSUMING ARGUENDO THAT THE AWARD OF DAMAGES IN FAVOR OF PLAINTIFF ARTURO P. VALENZUELA

WAS PROPER, THE LOWER COURT ERRED IN AWARDING DAMAGES IN FAVOR OF HOSPITALITA VALENZUELA, WHO, NOT BEING THE REAL PARTY IN INTEREST IS NOT TO OBTAIN RELIEF.

On January 29, 1988, respondent Court of Appeals promulgated its decision in the appealed case. The dispositive portion of the decision reads:
WHEREFORE, the decision appealed from is hereby modified accordingly and judgment is hereby rendered ordering: 1. Plaintiff-appellee Valenzuela to pay defendant-appellant Philamgen the sum of one million nine hundred thirty two thousand five hundred thirty-two pesos and seventeen centavos (P1,902,532.17), with legal interest thereon from the date of finality of this judgment until fully paid. 2. Both plaintiff-appellees to pay jointly and severally defendants-appellants the sum of fifty thousand pesos (P50,000.00) as and by way of attorney's fees. No pronouncement is made as to costs. (p. 44, Rollo)

There is in this instance irreconcilable divergence in the findings and conclusions of the Court of Appeals, vis-a-vis those of the trial court particularly on the pivotal issue whether or not Philamgen and/or its officers can be held liable for damages due to the termination of the General Agency Agreement it entered into with the petitioners. In its questioned decision the Court of Appeals observed that:
In any event the principal's power to revoke an agency at will is so pervasive, that the Supreme Court has consistently held that termination may be effected even if the principal acts in bad faith, subject only to the principal's liability for damages (Danon v. Antonio A. Brimo & Co., 42 Phil. 133; Reyes v. Mosqueda, 53 O.G. 2158 and Infante V. Cunanan, 93 Phil. 691, cited in Paras, Vol. V, Civil Code of the Philippines Annotated [1986] 696). The lower court, however, thought the termination of Valenzuela as General Agent improper because the record will show the principal cause of the termination of the plaintiff as General Agent of defendant Philamgen was his refusal to share his Delta commission. (Decision, p. 9; p. 13, Rollo, 41)

Because of the conflicting conclusions, this Court deemed it necessary in the interest of substantial justice to scrutinize the evidence and records of the cases. While it is an established principle that the factual findings of the Court of Appeals are final and may not be reviewed on appeal to this Court, there are however certain exceptions to the rule which this Court has recognized and accepted, among which, are when the judgment is

based on a misapprehension of facts and when the findings of the appellate court, are contrary to those of the trial court (Manlapaz v. Court of Appeals, 147 SCRA 236 [1987]); Guita v. Court of Appeals, 139 SCRA 576 [1986]). Where the findings of the Court of Appeals and the trial court are contrary to each other, this Court may scrutinize the evidence on record (Cruz v. Court of Appeals, 129 SCRA 222 [1984]; Mendoza v. Court of Appeals, 156 SCRA 597 [1987]; Maclan v. Santos, 156 SCRA 542 [1987]). When the conclusion of the Court of Appeals is grounded entirely on speculation, surmises or conjectures, or when the inference made is manifestly mistaken, absurd or impossible, or when there is grave abuse of discretion, or when the judgment is based on a misapprehension of facts, and when the findings of facts are conflict the exception also applies (Malaysian Airline System Bernad v. Court of Appeals, 156 SCRA 321 [1987]). After a painstaking review of the entire records of the case and the findings of facts of both the court a quo and respondent appellate court, we are constrained to affirm the trial court's findings and rule for the petitioners. We agree with the court a quo that the principal cause of the termination of Valenzuela as General Agent of Philamgen arose from his refusal to share his Delta commission. The records sustain the conclusions of the trial court on the apparent bad faith of the private respondents in terminating the General Agency Agreement of petitioners. It is axiomatic that the findings of fact of a trial judge are entitled to great weight (People v. Atanacio, 128 SCRA 22 [1984]) and should not be disturbed on appeal unless for strong and cogent reasons, because the trial court is in a better position to examine the evidence as well as to observe the demeanor of the witnesses while testifying (Chase v. Buencamino, Sr., 136 SCRA 365 [1985]; People v. Pimentel, 147 SCRA 25 [1987]; and Baliwag Trans., Inc. v. Court of Appeals, 147 SCRA 82 [1987]). In the case at bar, the records show that the findings and conclusions of the trial court are supported by substantial evidence and there appears to be no cogent reason to disturb them (Mendoza v. Court of Appeals. 156 SCRA 597 [1987]). As early as September 30,1977, Philamgen told the petitioners of its desire to share the Delta Commission with them. It stated that should Delta back out from the agreement, the petitioners would be charged interests through a reduced commission after full payment by Delta.

On January 23, 1978 Philamgen proposed reducing the petitioners' commissions by 50% thus giving them an agent's commission of 16.25%. On February 8, 1978, Philamgen insisted on the reduction scheme followed on June 1, 1978 by still another insistence on reducing commissions and proposing two alternative schemes for reduction. There were other pressures. Demands to settle accounts, to confer and thresh out differences regarding the petitioners' income and the threat to terminate the agency followed. The petitioners were told that the Delta commissions would not be credited to their account (Exhibit "J"). They were informed that the Valenzuela agency would be placed on a cash and carry basis thus removing the 60-day credit for premiums due. (TSN., March 26, 1979, pp. 54-57). Existing policies were threatened to be cancelled (Exhibits "H" and "14"; TSN., March 26, 1979, pp. 29-30). The Valenzuela business was threatened with diversion to other agencies. (Exhibit "NNN"). Rumors were also spread about alleged accounts of the Valenzuela agency (TSN., January 25, 1980, p. 41). The petitioners consistently opposed the pressures to hand over the agency or half of their commissions and for a treatment of the Delta account distinct from other accounts. The pressures and demands, however, continued until the agency agreement itself was finally terminated. It is also evident from the records that the agency involving petitioner and private respondent is one "coupled with an interest," and, therefore, should not be freely revocable at the unilateral will of the latter. In the insurance business in the Philippines, the most difficult and frustrating period is the solicitation and persuasion of the prospective clients to buy insurance policies. Normally, agents would encounter much embarrassment, difficulties, and oftentimes frustrations in the solicitation and procurement of the insurance policies. To sell policies, an agent exerts great effort, patience, perseverance, ingenuity, tact, imagination, time and money. In the case of Valenzuela, he was able to build up an Agency from scratch in 1965 to a highly productive enterprise with gross billings of about Two Million Five Hundred Thousand Pesos (P2,500,000.00) premiums per annum. The records sustain the finding that the private respondent started to covet a share of the insurance business that Valenzuela had built up, developed and nurtured to profitability through over thirteen (13) years of patient work and perseverance. When Valenzuela refused to

share his commission in the Delta account, the boom suddenly fell on him. The private respondents by the simple expedient of terminating the General Agency Agreement appropriated the entire insurance business of Valenzuela. With the termination of the General Agency Agreement, Valenzuela would no longer be entitled to commission on the renewal of insurance policies of clients sourced from his agency. Worse, despite the termination of the agency, Philamgen continued to hold Valenzuela jointly and severally liable with the insured for unpaid premiums. Under these circumstances, it is clear that Valenzuela had an interest in the continuation of the agency when it was unceremoniously terminated not only because of the commissions he should continue to receive from the insurance business he has solicited and procured but also for the fact that by the very acts of the respondents, he was made liable to Philamgen in the event the insured fail to pay the premiums due. They are estopped by their own positive averments and claims for damages. Therefore, the respondents cannot state that the agency relationship between Valenzuela and Philamgen is not coupled with interest. "There may be cases in which an agent has been induced to assume a responsibility or incur a liability, in reliance upon the continuance of the authority under such circumstances that, if the authority be withdrawn, the agent will be exposed to personal loss or liability" (See MEC 569 p. 406). Furthermore, there is an exception to the principle that an agency is revocable at will and that is when the agency has been given not only for the interest of the principal but for the interest of third persons or for the mutual interest of the principal and the agent. In these cases, it is evident that the agency ceases to be freely revocable by the sole will of the principal (See Padilla, Civil Code Annotated, 56 ed., Vol. IV p. 350). The following citations are apropos:
The principal may not defeat the agent's right to indemnification by a termination of the contract of agency (Erskine v. Chevrolet Motors Co. 185 NC 479, 117 SE 706, 32 ALR 196). Where the principal terminates or repudiates the agent's employment in violation of the contract of employment and without cause ... the agent is entitled to receive either the amount of net losses caused and gains prevented by the breach, or the reasonable value of the services rendered. Thus, the agent is entitled to prospective profits which he would have made except for such wrongful termination provided that such

profits are not conjectural, or speculative but are capable of determination upon some fairly reliable basis. And a principal's revocation of the agency agreement made to avoid payment of compensation for a result which he has actually accomplished (Hildendorf v. Hague, 293 NW 2d 272; Newhall v. Journal Printing Co., 105 Minn 44,117 NW 228; Gaylen Machinery Corp. v. Pitman-Moore Co. [C.A. 2 NY] 273 F 2d 340) If a principal violates a contractual or quasicontractual duty which he owes his agent, the agent may as a rule bring an appropriate action for the breach of that duty. The agent may in a proper case maintain an action at law for compensation or damages ... A wrongfully discharged agent has a right of action for damages and in such action the measure and element of damages are controlled generally by the rules governing any other action for the employer's breach of an employment contract. (Riggs v. Lindsay, 11 US 500, 3L Ed 419; Tiffin Glass Co. v. Stoehr, 54 Ohio 157, 43 NE 2798)

no factual and legal basis for the award. Under Section 77 of the Insurance Code, the remedy for the non-payment of premiums is to put an end to and render the insurance policy not binding
Sec. 77 ... [N]otwithstanding any agreement to the contrary, no policy or contract of insurance is valid and binding unless and until the premiums thereof have been paid except in the case of a life or industrial life policy whenever the grace period provision applies (P.D. 612, as amended otherwise known as the Insurance Code of 1974)

In Philippine Phoenix Surety and Insurance, Inc. v. Woodworks, Inc. (92 SCRA 419 [1979]) we held that the non-payment of premium does not merely suspend but puts an end to an insurance contract since the time of the payment is peculiarly of the essence of the contract. And in Arce v. The Capital Insurance and Surety Co. Inc. (117 SCRA 63, [1982]), we reiterated the rule that unless premium is paid, an insurance contract does not take effect. Thus:
It is to be noted that Delgado (Capital Insurance & Surety Co., Inc. v. Delgado, 9 SCRA 177 [1963] was decided in the light of the Insurance Act before Sec. 72 was amended by the underscored portion. Supra. Prior to the Amendment, an insurance contract was effective even if the premium had not been paid so that an insurer was obligated to pay indemnity in case of loss and correlatively he had also the right to sue for payment of the premium. But the amendment to Sec. 72 has radically changed the legal regime in that unless the premium is paid there is no insurance. " (Arce v. Capitol Insurance and Surety Co., Inc., 117 SCRA 66; Emphasis supplied)

At any rate, the question of whether or not the agency agreement is coupled with interest is helpful to the petitioners' cause but is not the primary and compelling reason. For the pivotal factor rendering Philamgen and the other private respondents liable in damages is that the termination by them of the General Agency Agreement was tainted with bad faith. Hence, if a principal acts in bad faith and with abuse of right in terminating the agency, then he is liable in damages. This is in accordance with the precepts in Human Relations enshrined in our Civil Code that "every person must in the exercise of his rights and in the performance of his duties act with justice, give every one his due, and observe honesty and good faith: (Art. 19, Civil Code), and every person who, contrary to law, wilfully or negligently causes damages to another, shall indemnify the latter for the same (Art. 20, id). "Any person who wilfully causes loss or injury to another in a manner contrary to morals, good customs and public policy shall compensate the latter for the damages" (Art. 21, id.). As to the issue of whether or not the petitioners are liable to Philamgen for the unpaid and uncollected premiums which the respondent court ordered Valenzuela to pay Philamgen the amount of One Million Nine Hundred Thirty-Two Thousand Five Hundred Thirty-Two and 17/100 Pesos (P1,932,532,17) with legal interest thereon until fully paid (Decision-January 20, 1988, p. 16; Petition, Annex "A"), we rule that the respondent court erred in holding Valenzuela liable. We find

In Philippine Phoenix Surety case, we held:


Moreover, an insurer cannot treat a contract as valid for the purpose of collecting premiums and invalid for the purpose of indemnity. (Citing Insurance Law and Practice by John Alan Appleman, Vol. 15, p. 331; Emphasis supplied) The foregoing findings are buttressed by Section 776 of the insurance Code (Presidential Decree No. 612, promulgated on December 18, 1974), which now provides that no contract of Insurance by an insurance company is valid and binding unless and until the premium thereof has been paid, notwithstanding any agreement to the contrary (Ibid., 92 SCRA 425)

Perforce, since admittedly the premiums have not been paid, the policies issued have lapsed. The insurance coverage did not go into effect or did not continue and the obligation of Philamgen as insurer ceased. Hence, for Philamgen which had no more liability under the lapsed and inexistent policies to demand, much less sue Valenzuela for

the unpaid premiums would be the height of injustice and unfair dealing. In this instance, with the lapsing of the policies through the nonpayment of premiums by the insured there were no more insurance contracts to speak of. As this Court held in the Philippine Phoenix Surety case, supra "the non-payment of premiums does not merely suspend but puts an end to an insurance contract since the time of the payment is peculiarly of the essence of the contract." The respondent appellate court also seriously erred in according undue reliance to the report of Banaria and Banaria and Company, auditors, that as of December 31, 1978, Valenzuela owed Philamgen P1,528,698.40. This audit report of Banaria was commissioned by Philamgen after Valenzuela was almost through with the presentation of his evidence. In essence, the Banaria report started with an unconfirmed and unaudited beginning balance of account of P1,758,185.43 as of August 20, 1976. But even with that unaudited and unconfirmed beginning balance of P1,758,185.43, Banaria still came up with the amount of P3,865.49 as Valenzuela's balance as of December 1978 with Philamgen (Exh. "38-A-3"). In fact, as of December 31, 1976, and December 31, 1977, Valenzuela had no unpaid account with Philamgen (Ref: Annexes "D", "D-1", "E", Petitioner's Memorandum). But even disregarding these annexes which are records of Philamgen and addressed to Valenzuela in due course of business, the facts show that as of July 1977, the beginning balance of Valenzuela's account with Philamgen amounted to P744,159.80. This was confirmed by Philamgen itself not only once but four (4) times on different occasions, as shown by the records. On April 3,1978, Philamgen sent Valenzuela a statement of account with a beginning balance of P744,159-80 as of July 1977. On May 23, 1978, another statement of account with exactly the same beginning balance was sent to Valenzuela. On November 17, 1978, Philamgen sent still another statement of account with P744,159.80 as the beginning balance. And on December 20, 1978, a statement of account with exactly the same figure was sent to Valenzuela. It was only after the filing of the complaint that a radically different statement of accounts surfaced in court. Certainly, Philamgen's own statements made by its own accountants over a long period of time and covering examinations made on four

different occasions must prevail over unconfirmed and unaudited statements made to support a position made in the course of defending against a lawsuit. It is not correct to say that Valenzuela should have presented its own records to refute the unconfirmed and unaudited finding of the Banaria auditor. The records of Philamgen itself are the best refutation against figures made as an afterthought in the course of litigation. Moreover, Valenzuela asked for a meeting where the figures would be reconciled. Philamgen refused to meet with him and, instead, terminated the agency agreement. After off-setting the amount of P744,159.80, beginning balance as of July 1977, by way of credits representing the commission due from Delta and other accounts, Valenzuela had overpaid Philamgen the amount of P530,040.37 as of November 30, 1978. Philamgen cannot later be heard to complain that it committed a mistake in its computation. The alleged error may be given credence if committed only once. But as earlier stated, the reconciliation of accounts was arrived at four (4) times on different occasions where Philamgen was duly represented by its account executives. On the basis of these admissions and representations, Philamgen cannot later on assume a different posture and claim that it was mistaken in its representation with respect to the correct beginning balance as of July 1977 amounting to P744,159.80. The Banaria audit report commissioned by Philamgen is unreliable since its results are admittedly based on an unconfirmed and unaudited beginning balance of P1,758,185.43 as of August 20,1976. As so aptly stated by the trial court in its decision:
Defendants also conducted an audit of accounts of plaintiff Arturo P. Valenzuela after the controversy has started. In fact, after hearing plaintiffs have already rested their case. The results of said audit were presented in Court to show plaintiff Arturo P. Valenzuela's accountability to defendant PHILAMGEN. However, the auditor, when presented as witness in this case testified that the beginning balance of their audit report was based on an unaudited amount of P1,758,185.43 (Exhibit 46-A) as of August 20, 1976, which was unverified and merely supplied by the officers of defendant PHILAMGEN. Even defendants very own Exhibit 38- A-3, showed that plaintiff Arturo P. Valenzuela's balance as of 1978 amounted to only P3,865.59, not P826,128.46 as stated in defendant Bienvenido M. Aragon's letter

dated December 20,1978 (Exhibit 14) or P1,528,698.40 as reflected in defendant's Exhibit 46 (Audit Report of Banaria dated December 24, 1980). These glaring discrepancy (sic) in the accountability of plaintiff Arturo P. Valenzuela to defendant PHILAMGEN only lends credence to the claim of plaintiff Arturo P. Valenzuela that he has no outstanding account with defendant PHILAMGEN when the latter, thru defendant Bienvenido M. Aragon, terminated the General Agency Agreement entered into by plaintiff (Exhibit A) effective January 31, 1979 (see Exhibits "2" and "2-A"). Plaintiff Arturo P. Valenzuela has shown that as of October 31, 1978, he has overpaid defendant PHILAMGEN in the amount of P53,040.37 (Exhibit "EEE", which computation was based on defendant PHILAMGEN's balance of P744,159.80 furnished on several occasions to plaintiff Arturo P. Valenzuela by defendant PHILAMGEN (Exhibits H-1, VV, VV-1, WW, WW-1 , YY , YY-2 , ZZ and , ZZ-2).

Prescinding from the foregoing, and considering that the private respondents terminated Valenzuela with evident mala fide it necessarily follows that the former are liable in damages. Respondent Philamgen has been appropriating for itself all these years the gross billings and income that it unceremoniously took away from the petitioners. The preponderance of the authorities sustain the preposition that a principal can be held liable for damages in cases of unjust termination of agency. In Danon v. Brimo, 42 Phil. 133 [1921]), this Court ruled that where no time for the continuance of the contract is fixed by its terms, either party is at liberty to terminate it at will, subject only to the ordinary requirements of good faith. The right of the principal to terminate his authority is absolute and unrestricted, except only that he may not do so in bad faith. The trial court in its decision awarded to Valenzuela the amount of Seventy Five Thousand Pesos (P75,000,00) per month as compensatory damages from June 1980 until its decision becomes final and executory. This award is justified in the light of the evidence extant on record (Exhibits "N", "N-10", "0", "0-1", "P" and "P1") showing that the average gross premium collection monthly of Valenzuela over a period of four (4) months from December 1978 to February 1979, amounted to over P300,000.00 from which he is entitled to a commission of P100,000.00 more or less per month. Moreover, his annual sales production amounted to P2,500,000.00 from where he was given 32.5% commissions. Under Article 2200 of the new Civil Code,

"indemnification for damages shall comprehend not only the value of the loss suffered, but also that of the profits which the obligee failed to obtain." The circumstances of the case, however, require that the contractual relationship between the parties shall be terminated upon the satisfaction of the judgment. No more claims arising from or as a result of the agency shall be entertained by the courts after that date. ACCORDINGLY, the petition is GRANTED. The impugned decision of January 29, 1988 and resolution of April 27, 1988 of respondent court are hereby SET ASIDE. The decision of the trial court dated January 23, 1986 in Civil Case No. 121126 is REINSTATED with the MODIFICATIONS that the amount of FIVE HUNDRED TWENTY ONE THOUSAND NINE HUNDRED SIXTY-FOUR AND 16/100 PESOS (P521,964.16) representing the petitioners Delta commission shall earn only legal interests without any adjustments under Article 1250 of the Civil Code and that the contractual relationship between Arturo P. Valenzuela and Philippine American General Insurance Company shall be deemed terminated upon the satisfaction of the judgment as modified. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 151218 January 28, 2003 NATIONAL SUGAR TRADING and/or the SUGAR REGULATORY ADMINISTRATION, petitioners, vs. PHILIPPINE NATIONAL BANK, respondent. YNARES-SANTIAGO, J.: This is a petition for review which seeks to set aside the decision of the Court of Appeals dated August 10, 2001 in CA-G.R. SP. No. 58102, 1 upholding the decision of the Office of the President dated September 17, 1999, 2 as well as the resolution dated December 12, 2001 denying petitioners' motion for reconsideration. The antecedent facts, as culled from the records, are as follows: Sometime in February 1974, then President Ferdinand E. Marcos issued Presidential Decree No. 388 3 constituting the Philippine Sugar Commission (PHILSUCOM), as the sole buying and selling agent of sugar on the quedan permit level. In November of the same year, PD 579 4 was issued, authorizing the Philippine Exchange Company, Inc. (PHILEXCHANGE), a wholly owned subsidiary of Philippine National Bank (PNB) to serve as the marketing agent of PHILSUCOM. Pursuant to PD 579, PHILEXCHANGE's purchases of sugar shall be financed by PNB and the proceeds of sugar trading operations of PHILEXCHANGE shall be used to pay its liabilities with PNB. 5 Similarly, in February 1975, PD 659 was issued, constituting PHILEXCHANGE and/or PNB as the exclusive sugar trading agencies of the government for buying sugar from planters or millers and selling or exporting them. 6 PNB then extended loans to PHILEXCHANGE for the latter's sugar trading operations. At first, PHILEXCHANGE religiously paid its obligations to PNB by depositing the proceeds of the sale of sugar with the bank. Subsequently, however, with the fall of sugar prices in the world market, PHILEXCHANGE defaulted in the payments of its loans amounting to P206,070,172.57. 7 In July 1977, the National Sugar Trading Corporation (NASUTRA) replaced PHILEXCHANGE as the marketing agent of PHILSUCOM. Accordingly, PHILEXCHANGE sold and turned over all sugar quedans to NASUTRA. However, no physical inventory of the sugar covered by the quedans was made. 8 Neither NASUTRA nor PHILSUCOM was required to immediately pay PHILEXCHANGE. Notwithstanding this concession, NASUTRA and

PHILSUCOM still failed to pay the sugar stocks covered by quedans to PHILEXCHANGE which, as of June 30, 1984, amounted to P498,828,845.03. As a consequence, PHILEXCHANGE was not able to pay its obligations to PNB. To finance its sugar trading operations, NASUTRA applied for and was granted 9 a P408 Million Revolving Credit Line by PNB in 1981. Every time NASUTRA availed of the credit line, 10 its Executive VicePresident, Jose Unson, executed a promissory note in favor of PNB. In order to stabilize sugar liquidation prices at a minimum of P300.00 per picul, PHILSUCOM issued on March 15, 1985 Circular Letter No. EC-4-85, considering all sugar produced during crop year 1984 1985 as domestic sugar. Furthermore, PHILSUCOM's Chairman of Executive Committee, Armando C. Gustillo proposed on May 14, 1985 the following liquidation scheme of the sugar quedans 11 assigned to PNB by the sugar planters: Upon notice from NASUTRA, PNB shall credit the individual producer and millers loan accounts for their sugar proceeds and shall treat the same as loans of NASUTRA. Such loans shall be charged interest at the prevailing rates and it shall commence five (5) days after receipt by PNB of quedans from NASUTRA. 12 PNB, for its part, issued Resolution No. 353 dated May 20, 1985 approving 13 the PHILSUCOM/NASUTRA proposal for the payment of the sugar quedans assigned to it. Pursuant to said resolution, NASUTRA would assume the interest on the planter/mill loan accounts. The pertinent portion of the Resolution states: Five (5) days after receipt of the quedans, NASUTRA shall absorb the accruing interest on that portion of the planter/mill loan with PNB commensurate to the net liquidation value of the sugar delivered, or in other words, NASUTRA proposes to assume interest that will run on the planter/mill loan equivalent to the net proceeds of the sugar quedans, reckoned five (5) days after quedan delivery to PNB. 14 Despite such liquidation scheme, NASUTRA/PHILSUCOM still failed to remit the interest payments to PNB and its branches, which interests amounted to P65,412,245.84 in 1986. 15 As a result thereof, then President Marcos issued PD 2005 dissolving NASUTRA effective January 31, 1986. NASUTRA's records of its sugar trading operations, however, were destroyed during the Edsa Revolution in February 1986. On May 28, 1986, then President Corazon C. Aquino issued Executive Order (EO) No. 18 creating the Sugar Regulatory Administration (SRA) and abolishing PHILSUCOM. All the assets and records of

PHILSUCOM 16 including its beneficial interests over the assets of NASUTRA were transferred to SRA. 17 On January 24, 1989, before the completion of the threeyear winding up period, NASUTRA established a trusteeship to liquidate and settle its accounts. 18 This notwithstanding, NASUTRA still defaulted in the payment of its loans amounting to P389,246,324.60 (principal and accrued interest) to PNB. In the meantime, PNB received remittances from foreign banks totaling US$36,564,558.90 or the equivalent of P696,281,405.09 representing the proceeds of NASUTRA's sugar exports. 19 Said remittances were then applied by PNB to the unpaid accounts of NASUTRA/PHILSUCOM with PNB and PHILEXCHANGE. The schedule of remittances and applications are as follows: SCHEDULE OF REMITTANCES & APPLICATIONS Account of NASUTRA July 31, 1988 REMITTANCES Date Remitting Bank Amount P259,253,573.46 144,459,242.84 209,880,477.07 82,151,953.10 536,158.62 P696,281,405.09 Amount 11-1985 Bankers Trust-New York 11-2685 Bankers Trust-New York 03-0686 Credit Lyonnais-Manila 04-2286 Societ General-Manila 06-0986 Credit Lyonnais-Manila Total APPLICATIONS Date 1986 1986 Applied to NASUTRA account with PNB P389,246,324.60 Claims of various CAB planters 15,863,898.79 Claims of various PNB branches for interest or the unpaid CY 198485 sugar proceeds 65,412,245.84

1987

1987& Philsucom account carried 206,070,172.57 in the books of 1988 Philexchange P676,592,641.80 Unapplied Remittance P19,688,763.29" 20 Subsequently, PNB applied the P19,688,763.29 to PHILSUCOM's account with PHILEXCHANGE which

in turn was applied to PHILEXCHANGE's account with PNB. 21 Accordingly, NASUTRA requested 22 PNB to furnish it with the necessary documents and/or explanation 23 concerning the disposition/application, accounting and restitution of the remittances in question. Dissatisfied, and believing that PNB failed to provide them with said documents, NASUTRA and SRA filed a petition for arbitration 24 with the Department of Justice on August 13, 1991. After due proceedings, the Secretary of Justice rendered a decision, to wit: WHEREFORE, judgment is hereby rendered 1. Declaring that of the amount of Six Hundred Ninety Six Million Two Hundred Eighty One Thousand Four Hundred Five and 09/100 Pesos (P696,281,405.09) equivalent of US$36,564,558.90, foreign remittances received by respondent PNB, for and in behalf of petitioner NASUTRA a) the amount of Three Hundred Eighty Nine Million Two Hundred Forty Six Thousand Three Hundred Twenty Four and 60/100 Pesos (P389,246,324.60) was validly applied to outstanding account of NASUTRA to PNB; b) the amount of Sixty Five Billion Four Hundred Twelve Thousand Two Hundred Forty Five and 84/100 Pesos (P65,412,245.84) was validly applied to claims of various PNB branches for interest on the unpaid CY 198485 sugar proceeds; Or a total of Four Hundred Fifty Four Million Six Hundred Fifty Eight Thousand Five Hundred Seventy and 44/100 Pesos (P454,658,570.44). 2. Ordering respondent PNB to pay petitioners a) the amount of Two Hundred Six Million Seventy Thousand One Hundred Seventy Two and 57/100 Pesos (P206,070,172.57) representing the amount of remittance applied to PHILSUCOM account carried in the books of Philexchange; b) the amount of Fifteen Million Eight Hundred Sixty Three Thousand Eight Hundred Ninety Eight and 79/100 Pesos (P15,863,898.79) representing the amount applied to settle Claims of Various CAB Planters; and to pay interest on both items, at legal rate from date of filing of this case.

Costs of suit will be shared equally by the parties. SO ORDERED. 25 Both parties appealed before the Office of the President. On September 17, 1999, the Office of the President modified the decision of the Secretary of Justice, to wit: IN VIEW OF ALL THE FOREGOING, the decision of the Secretary of Justice is hereby AFFIRMED with the MODIFICATION that the application by the Philippine National Bank of the amounts of P225,758,935.86 and P15,863,898.79 as payment of the Philippine Sugar Commission's account carried in the books of Philippine Exchange Co., Inc. and the claims of various CAB planters, respectively, is hereby declared legal and valid. SO ORDERED. 26 Petitioners' subsequent Motion for Reconsideration was denied by the Office of the President. 27 Thereafter, petitioners filed a petition for review with the Court of Appeals, alleging, inter alia, that the Office of the President erred when it relied solely on the documents submitted by PNB to determine the amount of the subject remittances and in not ordering PNB to render an accounting of the said remittances; in declaring as valid and legal PNB's application of the subject remittances to alleged NASUTRA's accounts with PNB and PHILEXCHANGE without NASUTRA's knowledge, consent and authority. On August 10, 2001, Court of Appeals rendered judgment dismissing the petition. 28 Petitioners filed a Motion for Reconsideration, which was denied on December 12, 2001. Hence this petition, raising the lone issue: THE CA DECIDED NOT IN ACCORD WITH LAW AND WITH THE APPLICABLE DECISION OF THIS HONORABLE COURT, AND GRAVELY ABUSED ITS DISCRETION, WHEN IT UPHELD THE LEGALITY AND VALIDITY OF THE OFFSETTING OR COMPENSATION OF THE SUBJECT REMITTANCES TO ALLEGED ACCOUNTS OF NASUTRA WITH PNB AND PHILEX DESPITE THE FACT THAT NO CREDITOR-DEBTOR RELATIONSHIP EXISTED BETWEEN PNB AND NASUTRA WITH RESPECT TO THE SAID REMITTANCES. In essence, NASUTRA and SRA aver that no compensation involving the subject remittances can take effect by operation of law since the relationship created between PNB and NASUTRA was one of trustee-beneficiary and not one of creditor and debtor.

They also claim that no legal compensation can take place in favor of PHILEXCHANGE since the subject remittances were received by PNB and not PHILEXCHANGE, a corporation clothed with a separate and distinct corporate personality from PNB. They added that PHILEXCHANGE's account had already prescribed. Moreover, NASUTRA and SRA contend that, assuming arguendo that creditor-debtor relationship existed between PNB and NASUTRA, compensation was still illegal, since PNB has not proven the existence of the P408 million revolving credit line and the CAB Planters Account. Petitioners also assert that the CAB Planters Account is an unliquidated account considering that it still has to be recomputed pursuant to the Sugar Reconstitution Law. 29 Respondent PNB counters that it can apply the foreign remittances on the long-overdue obligations of NASUTRA. They were entered into by NASUTRA with the blessing, if not with express mandate, of the National Government in the pursuit of national interest and policy. PNB invokes also the Letter of Intent submitted by the National Government to the International Monetary Fund (IMF), wherein the government made specific reference to the immediate payment by NASUTRA and PHILSUCOM of their outstanding obligations with PNB to buoy up the country's sagging economy. 30 Petitioners' arguments are specious. Article 1306 of the New Civil Code provides: Contracting parties may establish such stipulations, clauses terms and conditions as they may deem convenient provided they are not contrary to law, morals, good customs, public order or public policy. In the instant case, NASUTRA applied for a P408 million credit line with PNB in order to finance its trading operations. PNB, on the other hand, approved said credit line in its Resolution No. 68. Thereafter, NASUTRA availed of the credit and in fact drew P389,246,324.60, in principal and accrued interest, from the approved credit line. Evidence shows that every time NASUTRA availed of the credit, its Executive Vice President, Jose Unson, executed a promissory note 31 in favor of PNB with the following proviso: In the event that this note is not paid at maturity or when the same becomes due under any of the provisions hereof, I/We hereby authorize the Bank, at its option and without notice, to apply to the payment of this note, any and all moneys, securities and things of values which may be in the hands on deposit or otherwise belonging to me/us and for this purpose, I/We hereby, jointly and severally, irrevocably constitute and appoint the Bank to be my/our true

Attorney-in-Fact with full power and authority for me/us and in my/our name and behalf and without prior notice to negotiate, sell and transfer any moneys, securities and things of value which it may hold, by public or private sale and apply the proceeds thereof to the payment of this note. (Italics ours) While we agree with petitioners that the application of subject remittances cannot be justified under Article 1278 in relation to Article 1279 of the Civil Code, considering that some elements of legal compensation were lacking, application of the subject remittances to NASUTRA's account with PNB and the claims of various PNB branches for interest on the unpaid CY 19841985 sugar proceeds is authorized under the above-quoted stipulation. PNB correctly treated the subject remittances for the account of NASUTRA as moneys in its hands which may be applied for the payment of the note. Also, the relationship between NASUTRA/SRA and PNB when the former constituted the latter as its attorney-in-fact is not a simple agency. NASUTRA/SRA has assigned and practically surrendered its rights in favor of PNB for a substantial consideration. 32 To reiterate, NASUTRA/SRA executed promissory notes in favor of PNB every time it availed of the credit line. The agency established between the parties is one coupled with interest which cannot be revoked or cancelled at will by any of the parties. 33 Notwithstanding its availment of the approved credit, NASUTRA, for reasons only known to itself, insisted in claiming for refund of the remittances. NASUTRA's posture is untenable. NASUTRA's actuation runs counter to the good faith covenant in contractual relations, required under Article 1159 of the Civil Code, to wit: Obligations arising from contract have the force of law between the contracting parties and should be complied with in good faith. Verily, parties may freely stipulate their duties and obligations which perforce would be binding on them. Not being repugnant to any legal proscription, the agreement entered into by NASUTRA/SRA and PNB must be respected and have the force of law between them. With respect to the application of the sum of P65,412,245.84, 34 the record shows that NASUTRA failed to remit the interest payments to PNB despite its obligation under the liquidation scheme proposed by the Chairman of its Executive Committee, Armando C. Gustillo, to stabilize sugar liquidation prices. Certainly, the authority granted by NASUTRA to Armando Gustillo to propose such liquidation scheme was an authority to represent NASUTRA. Undisputedly, any

obligation or liability arising from such agreement shall be binding on the parties. NASUTRA, for its part, cannot now renege on its duties, considering that it took advantage of the loan. Having established that PNB validly applied the subject remittances to the interest of NASUTRA's loan in the amount of P65,412,245.84, the application of the remainder of the remittance amounting to P15,863,898.79 to the principal is proper. With respect to the Central Azucarera de Bais (CAB) Planters account, petitioners maintained that the subject remittances cannot be applied to payment thereof, considering that it is unliquidated and needs recomputation, pursuant to Section 3 of Republic Act No. 7202 or the Sugar Reconstitution Law, which provides: The Philippine National Bank of the Philippines and other government-owned and controlled financial institutions which have granted loans to the sugar producers shall extend to accounts of said sugar producers incurred from Crop Year 19741975 up to and including Crop Year 19841985 the following: (a) Condonation of interest charged by the banks in excess of twelve percent (12%) per annum and all penalties and surcharges: (b) The recomputed loans shall be amortized for a period of thirteen (13) years inclusive of a three-year grace period on principal portion of the loan will carry an interest rate of twelve (12%) and on the outstanding balance effective when the original promissory notes were signed and funds released to the producer. Section 6 of Rules and Regulations implementing RA No. 7202 also provides: SECTION 2. In cases, however, where sugar producers have no outstanding loan balance with said financial institutions as of the date of effectivity of RA No. 7202 (i.e. sugar producers who have fully paid their loans either through actual payment or foreclosure of collateral, or who have partially paid their loans and after the computation of the interest charges, they end up with excess payment to said financial institutions), said producers shall be entitled to the benefits of recomputation in accordance with Sections 3 and 4 of RA No. 7202, but the said financial institutions, instead of refunding the interest in excess of twelve (12%) percent per annum, interests, penalties and surcharges apply the excess payment as an offset and/or as payment for the producers' outstanding loan obligations. Applications of restructuring banks under Section 6 of RA No. 7202 shall be filed with the Central Monetary Authority of the

Philippines within one (1) year from application of excess payment. Although it appears from said provision that PNB was directed to condone interest, penalties and surcharges charged in excess of 12% per annum, the passage of said law did not forestall legal compensation that had taken place before its effectivity. The loan had been definitely ascertained, assessed and determined by PNB. Pursuant to Section 4 35 of RA 7202, there would be condonation of interest whether the accounts were fully or partially paid. With regard to the application of the amount of P206,070,172.57 to the PHILSUCOM account carried in the books of PHILEXCHANGE, petitioners maintain that there could be no application of the subject remittance, considering that the remittances were received by PNB and not PHILEXCHANGE which has a personality separate and distinct from PNB. Petitioners' contention is not well-taken. There exist clear indications that insofar as sugar trading was concerned, PHILEXCHANGE and PNB were treated as one entity. Purchases of sugar of PHILEXCHANGE as the exclusive sugar trading arm of PHILSUCOM were financed by PNB pursuant to PD 579. More importantly, PNB, a wholly owned bank of the government at that time, in turn wholly owned and controlled PHILEXCHANGE. Also, Section 2 (a), PD 659 declared as illegal the sale, transfer and assignment of sugar by any planter, producer, miller, central, or refinery to any person or entity other than Philippine Exchange, Inc. and/or the PNB. To reiterate, PHILEXCHANGE failed to pay its loans with PNB because of the fall of the sugar prices in the world market. When NASUTRA substituted PHILEXCHANGE as marketing agent of PHILSUCOM, 1,485,532.47 metric tons 36 of export sugar were turned over by PHILEXCHANGE to NASUTRA. To reiterate, the foreign remittances constituted proceeds of the sale of the sugar covered by quedans transferred by PHILEXCHANGE to NASUTRA. WHEREFORE, in view of the foregoing, the instant petition for review is DENIED. The decision of the Court of Appeals dated August 10, 2001 is AFFIRMED. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. Nos. 148404-05 April 11, 2002 NELITA M. BACALING, represented by her attorney-in-fact JOSE JUAN TONG, and JOSE JUAN TONG, in his personal capacity, petitioners, vs. FELOMINO MUYA, CRISPIN AMOR, WILFREDO JEREZA, RODOLFO LAZARTE and NEMESIO TONOCANTE, respondents. DE LEON, JR., J.: Before us is a Petition for Review of the consolidated Decision1 dated January 31, 2001 of the Court of Appeals2 in CA-G.R. SP No. 54413,3 and in CA-G.R. SP No. 54414,4 and of its Resolution5 dated June 5, 2001 reversing the Decision6 dated May 22, 1998 and Resolution July 22, 1999 of the Office of the President. The facts of the case are as follows: Petitioner Nelita M. Bacaling and her spouse Ramon Bacaling were the owners of three (3) parcels of land, with a total area of 9.9631 hectares, located in Barangay Cubay, Jaro, Iloilo City, and designated as Lot No. 2103-A (Psd-24069), Lot No. 2103-B-12 (Psd 26685) and Lot No. 2295. These lots were duly covered by Transfer Certificates of Title Nos. T-5801, T-5833 and T-5834, respectively. In 1955 the landholding was subdivided into one hundred ten (110) sub-lots covered by TCT Nos. T-10664 to T-10773, inclusive of the Registry of Deeds of the City of Iloilo. On May 16, 1955, the landholding was processed and approved as "residential" or "subdivision" by the National Urban Planning Commission (NUPC).7 On May 24, 1955 the Bureau of Lands approved the corresponding subdivision plan for purposes of developing the said property into a low-cost residential community which the spouses referred to as the Bacaling-Moreno Subdivision.8 In 1957, a real estate loan of Six Hundred Thousand Pesos (P600,000.00) was granted to the spouses Nelita and Ramon Bacaling by the Government Service Insurance System (GSIS) for the development of the subdivision.9 To secure the repayment of the loan, the Bacalings executed in favor of the GSIS a real estate mortgage over their parcels of land including the one hundred ten (110) sub-lots.10 Out of the approved loan of Six Hundred Thousand Pesos (P600,000.00), only Two Hundred Forty Thousand Pesos (P240,000.00) was released to them.11 The Bacalings failed to pay the amortizations on the loan and consequently the mortgage constituted on the one hundred ten (110) sublots was foreclosed by the GSIS.12 After a court case that reached all the way to this Court, 13 Nelita Bacaling

(by then a widow) in 1989 was eventually able to restore to herself ownership of the one hundred ten (110) sub-lots.14 According to the findings of the Office of the President, in 1972 and thereafter, respondents Felomino Muya, Crispin Amor, Wilfredo Jereza, Rodolfo Lazarte and Nemesio Tonocante clandestinely entered and occupied the entire one hundred ten (110) sub-lots (formerly known as Lot No. 2103-A, Lot No. 2103-B-12 and Lot No. 2295) and grabbed exclusively for themselves the said 9.9631 hectare landholding. 15 Apparently, respondents took advantage of the problematic peace and order situation at the onset of martial law and the foreclosure of the lots by GSIS. 16 They sowed the lots as if the same were their own, and altered the roads, drainage, boundaries and monuments established thereon.17 Respondents, on the other hand, claim that in 1964 they were legally instituted by Bacaling's administrator/overseer as tenant-tillers of the subject parcels of land on sharing basis with two and a half (2) hectares each for respondents Muya, Amor, Tonocante and Lazarte, and one and a half (1) hectares for respondent Jereza. In 1974, their relationship with the landowner was changed to one of leasehold. They religiously delivered their rental payments to Bacaling as agricultural lessor. In 1980, they secured certificates of land transfer in their names for the one hundred ten (110) sub-lots. They have made various payments to the Land Bank of the Philippines as amortizing owners-cultivators of their respective tillage. In 1977, however, the City Council of Iloilo enacted Zoning Ordinance No. 212 declaring the one hundred ten (110) sub-lots as "residential" and "nonagricultural," which was consistent with the conversion effected in 1955 by the NUPC and the Bureau of Lands. In 1978, Nelita Bacaling was able to register the subject property as the Bacaling-Moreno Subdivision with the National Housing Authority and to obtain therefrom a license to sell the subject one hundred ten (110) sublots comprising the said subdivision to consummate the original and abiding design to develop a low-cost residential community. In August 21, 1990, petitioner Jose Juan Tong, together with Vicente Juan and Victoria Siady, bought from Nelita Bacaling the subject one hundred ten (110) sublots for One Million Seven Hundred Thousand Pesos (P1,700,000.00).18 The said sale was effected after Bacaling has repurchased the subject property from the Government Service Insurance System. To secure performance of the contract of absolute sale and facilitate the transfer of title of the lots to Jose Juan Tong, Bacaling appointed him in 1992 as her attorney-

in-fact, under an irrevocable special power of attorney with the following mandate1. To file, defend and prosecute any case/cases involving lots nos. 1 to 110 covered by TCT Nos. T-10664 to T-10773 of the Register of Deeds of the City of Iloilo; 2. To assume full control, prosecute, terminate and enter into an amicable settlement and compromise agreement of all cases now pending before the DARAB, Region VI, Iloilo City, which involved portion of Lots 1 to 110, covered by TCT Nos. T-10664 to T-10773 of the Register of Deeds of Iloilo City, which were purchased by Jose Juan Tong, Vicente Juan Tong and Victoria Siady; 3. To hire a lawyer/counsel which he may deem fit and necessary to effect and attain the foregoing acts and deeds; handle and prosecute the aforesaid cases; 4. To negotiate, cause and effect a settlement of occupation and tenants on the aforesaid lots; 5. To cause and effect the transfer of the aforesaid lots in the name of the VENDEES; 6. To execute and deliver document/s or instrument of whatever nature necessary to accomplish the foregoing acts and deeds.19 It is significant to note that ten (10) years after the perfection and execution of the sale, or on April 26, 2000, Bacaling filed a complaint to nullify the contract of sale. The suit was, however, dismissed with prejudice and the dismissal has long become final and executory.20 Following the sale of the one hundred ten (110) sub-lots and using the irrevocable special power of attorney executed in his favor, petitioner Tong (together with Bacaling) filed a petition for cancellation of the certificates of land transfer against respondents and a certain Jaime Ruel with the Department of Agrarian Reform (DAR) Region VI Office in Iloilo City.21 The DAR, however, dismissed the petition on the ground that there had been no legitimate conversion of the classification of the 110 sub-lots from agricultural to residential prior to October 21, 1972 when Operation Land Transfer under P.D. No. 72 took effect.22 Bacaling and Tong appealed to the DAR Central Office but their appeal was similarly rejected.23 The motion for reconsideration failed to overturn the ruling of the Central Office Order.24 On September 19, 1997, Bacaling and Tong appealed the adverse DAR Orders to the Office of the President which reversed them in toto in a Decision25 dated May 22, 1998 (OP Decision, for brevity), the dispositive portion of which reads:

WHEREFORE, premises [considered], the assailed order of the Regional Director, DAR Region VI, dated April 3, 1996, as well as the orders of the DAR Secretary dated December 12, 1996 and September 4, 1997, are hereby REVERSED AND SET ASIDE and subject landholdings declared exempt from coverage of the CARL. The Certificates of Land Transfer (CLTs) issued to the appellees are hereby cancelled and the Department of Agrarian Reform directed to implement the voluntary offer made by appellant with respect to the payment of disturbance compensation and relocation of the affected parties. 1wphi1.nt SO ORDERED.26 The OP Decision found that the one hundred ten (110) parcels of land had been completely converted from agricultural to residential lots as a result of the declarations of the NUPC and the Bureau of Lands and the factual circumstances, i.e., the GSIS loan with real estate mortgage, the division of the original three (3) parcels of land into one hundred ten (110) sub-lots under individual certificates of title, and the establishment of residential communities adjacent to the subject property, which indubitably proved the intention of Nelita and Ramon Bacaling to develop a residential subdivision thereon. The OP Decision also categorically acknowledged the competence of the NUPC and the Bureau of Lands to classify the one hundred ten (110) sub-lots into residential areas. On July 22, 1999, separate motions for reconsideration thereof were denied.27 Respondents elevated the OP Decision to the Court of Appeals on a petition for review under Rule 43 of the Rules of Civil Procedure.28 Before the petition was resolved, or on December 2, 1999, Nelita Bacaling manifested to the appellate court that she was revoking the irrevocable power of attorney in favor of Jose Juan Tong and that she was admitting the status of respondents as her tenants of the one hundred ten (110) sub-lots which allegedly were agricultural in character. The manifestation was however characterized by an obvious streak of ambivalence when her prayer therein urged the Court of Appeals to decide the case, curiously, "on the basis of the clear intent of Private Respondent" and "in accordance with the perception of this Honorable Court."29 On January 31, 2001 the Court of Appeals reversed the OP Decision and validated the certificates of land transfers in favor of respondents without however promulgating a ruling on petitioner Tong's supposedly ensuing lack of material interest in the controversy as a result of the manifestation.30 The dispositive portion of the decision reads:

WHEREFORE, premises considered, petition is GRANTED; and the May 22, 1998 Decision of the Office of the President is hereby REVERSED and SET ASIDE. The April 3, 1996 Order of the Regional Director, DARAB, Region VI, is REINSTATED.31 The appellate court refused to recognize the 1955 NUPC and Bureau of Lands classification of the subject lots as residential subdivision. Tong moved for reconsideration of the CA Decision which Bacaling did not oppose despite her manifestation. On June 5, 2001, again without a single reference to Bacaling's alleged repudiation of Tong's actions, the Court of Appeals denied reconsideration of its decision, 32 Hence, this petition for review on certiorari based on the following assignment of errors: I SUBJECT LANDHOLDINGS ARE EXEMPT FROM THE COVERAGE OF P.D. 27 AND OPERATION LAND TRANSFER (1972, AS WELL (sic) THE COMPREHENSIVE AGRARIAN REFORM LAW (1988) AS THEY WERE CLASSIFIED AS RESIDENTIAL WAY BACK IN 1955 BY THE THEN NATIONAL PLANNING COMMISSION AND THE SUBDIVSION PLAN WAS APPROVED BY THE BUREAU OF LANDS. AS A CONSEQUENCE, THE CLTs ISSUED TO PRIVATE RESPONENTS IN OCTOBER, 1980 ARE INVALID AS HAVING BEEN ISSUED WITHOUT JURISDICTION. II PRIVATE RESPONDENTS ARE NOT BONA FIDE TENANTS OF THE LANDS INVOLVED. PUBLIC REPSONDENT'S RULING THAT THE LATTER ARE SUCH IS CONTRARY TO LAW AS IT IGNORED THE FACT THAT THE LANDHOLDINGS ARE RESIDENTIAL AND NO COMPETENT PROOF OF CONSENT OF THE OWNER WAS EVER PRESENTED BY PRIVATE RESPONDENTS. III APPROVAL OF THE SECRETARY OF AGRARIAN REFORM IS NOT NECESSARY FOR THE VALID CLASSIFICATION OF THE LANDS INVOLVED INTO RESIDENTIAL BECAUSE THE CARL, AS ALSO THE RELATED AGRARIAN LAWS, HAVE NO RETROACTIVE APPLICATION. 33 Long after issues were joined in the instant proceedings, or on October 8, 2001, petitioner Nelita Bacaling resurrected her manifestation with the Court

of Appeals and moved to withdraw/dismiss the present petition on the ground that the irrevocable power of attorney in favor of petitioner Jose Juan Tong had been nullified by her and that Tong consequently lacked the authority to appear before this Court.34 She also manifested that, contrary to the arguments of petitioner Tong, respondents were bona fide tenants of the one hundred ten (110) sub-lots which were allegedly agricultural and not residential pieces of realty. 35 Accordingly, petitioner Tong was left all alone to pursue the instant case. The issues in this case can be summarized as follows: (1) Does petitioner Tong have the requisite interest to litigate this petition for review on certiorari?; (2) Are the respondents agricultural lessees?; and (3) Are the one hundred ten (110) sub-lots admittedly classified for residential use by the National Urban Planning Commission and the Bureau of Lands prior to October 21, 197236 covered by the Operation Land Transfer under P.D. No. 72? We hold that petitioner Jose Juan Tong possesses adequate and legitimate interest to file the instant petition. Under our rules of procedure, interest means material interest, that is, an interest in issue and to be affected by the judgment,37 while a real party in interest is the party who would be benefited or injured by the judgment or the party entitled to the avails of the suit. 38 There should be no doubt that as transferee of the one hundred ten (110) sub-lots through a contract of sale and as the attorney-in-fact of Nelita Bacaling, former owner of the subject lots, under an irrevocable special power of attorney, petitioner Tong stands to be benefited or injured by the judgment in the instant case as well as the orders and decisions in the proceedings a quo. The deed of sale categorically states that petitioner Tong and his co-sellers have fully paid for the subject parcels of land. The said payment has been duly received by Bacaling. Hence, it stands to reason that he has adequate and material interest to pursue the present petition to finality. Respondents put too much weight on the motion to dismiss/withdraw filed by Nelita Bacaling. Under the facts obtaining in this case, the motion should be treated cautiously, and more properly, even skeptically. It is a matter of law that when a party adopts a certain theory in the court below, he will not be permitted to change his theory on appeal, for to permit him to do so would not only be unfair to the other party but it would also be offensive to the basic rules of fair play, justice and due process.39 Bacaling's motion to dismiss the instant petition comes at the heels of her admission that she had immensely benefited from selling the said one hundred ten (110) sub-lots to petitioner Tong and of the dismissal with prejudice of the civil case which she had

earlier filed to nullify the sale.40 It appears that the motion to dismiss is a crude and belated attempt long after the dismissal of the civil case to divest Tong of his indubitable right of ownership over the one hundred ten (110) sub-lots through the pretext of revoking the irrevocable special power of attorney which Bacaling had executed in his favor hoping that in the process that her act would cause the assailed orders of the DAR to become final and executory. The records also bear out the fact that Bacaling's design to dispossess petitioner Tong of material interest in the subject matter of the instant petition appears to be subtly coordinated with respondents' legal maneuvers when it began as a side pleading (a mere Manifestation) in the proceedings before the Court of Appeals (CAG.R. SP No. 54413 and CA-G.R. SP No. 54414) but which was never pursued to its ultimate conclusion until it again surfaced before this Court long after respondents' voluminous comment to the instant petition had been filed. Under these circumstances, we certainly cannot place our trust upon such an unsolicited motion having dubious roots, character and purpose. Substantively, we rule that Bacaling cannot revoke at her whim and pleasure the irrevocable special power of attorney which she had duly executed in favor of petitioner Jose Juan Tong and duly acknowledged before a notary public. The agency, to stress, is one coupled with interest which is explicitly irrevocable since the deed of agency was prepared and signed and/or accepted by petitioner Tong and Bacaling with a view to completing the performance of the contract of sale of the one hundred ten (110) sub-lots. It is for this reason that the mandate of the agency constituted Tong as the real party in interest to remove all clouds on the title of Bacaling and that, after all these cases are resolved, to use the irrevocable special power of attorney to ultimately "cause and effect the transfer of the aforesaid lots in the name of the vendees [Tong with two (2) other buyers] and execute and deliver document/s or instrument of whatever nature necessary to accomplish the foregoing acts and deeds."41 The fiduciary relationship inherent in ordinary contracts of agency is replaced by material consideration which in the type of agency herein established bars the removal or dismissal of petitioner Tong as Bacaling's attorneyin-fact on the ground of alleged loss of trust and confidence. While Bacaling alleges fraud in the performance of the contract of agency to justify its revocation, it is significant to note that allegations are not proof, and that proof requires the intervention of the courts where both petitioners Tong and Bacaling are heard. Stated otherwise, Bacaling cannot vest in herself just like in

ordinary contracts the unilateral authority of determining the existence and gravity of grounds to justify the rescission of the irrevocable special power of attorney. In Sevilla v. Court of Appeals42 we thus heldBut unlike simple grants of a power of attorney, the agency that we hereby declare to be compatible with the intent of the parties, cannot be revoked at will. The reason is that it is one coupled with an interest, the agency having been created for the mutual interest of the agent and the principal xxx [Petitioner's] interest, obviously, is not limited to the commissions she earned as a result of her business transactions, but one that extends to the very subject matter of the power of management delegated to her. It is an agency that, as we said, cannot be revoked at the pleasure of the principal. Accordingly, the revocation complained of should entitle the petitioner x x x to damages. The requirement of a judicial process all the more assumes significance in light of the dismissal with prejudice, hence, res judicata, of Bacaling's complaint to annul the contract of sale which in turn gave rise to the irrevocable special power of attorney. It is clear that prima facie there are more than sufficient reasons to deny the revocation of the said special power of attorney which is coupled with interest. Inasmuch as no judgment has set aside the agency relationship between Bacaling and Tong, we rule that petitioner Tong maintains material interest to prosecute the instant petition with or without the desired cooperation of Bacaling. On the issue of whether the private respondents are agricultural tenants and entitled to the benefits accorded by our agrarian laws, we rule in the negative. The requisites in order to have a valid agricultural leasehold relationship are: (1) The parties are the landowner and the tenant or agricultural lessee; (2) The subject matter of the relationship is agricultural land; (3) There is consent between the parties to the relationship; (4) the purpose of the relationship is to bring about agricultural production; (5) There is personal cultivation on the part of the tenant or agricultural lessee; and (6) The harvest is shared between the landowner and the tenant or agricultural lessee. We find that the first, third and sixth requisites are lacking in the case at bar. One legal conclusion adduced from the facts in Government Service Insurance System v. Court of Appeals43 provides that GSIS, not Bacaling, was the owner of the subject properties from 1961 up to 1989 as a result of the foreclosure and confirmation of the sale of the subject properties. Although the confirmation only came in 1975, the ownership is deemed to have been vested to GSIS way back in 1961,

the year of the sale of the foreclosed properties. This is due to the fact that the date of confirmation by the trial court of the foreclosure sale retroacts to the date of the actual sale itself.44 Thus, the respondents cannot validly claim that they are legitimate and recognized tenants of the subject parcels of land for the reason that their agreement to till the land was not with GSIS, the real landowner. There is no showing that GSIS consented to such tenancy relationship nor is there proof that GSIS received a share in the harvest of the tenants. Consequently, the respondents cannot claim security of tenure and other rights accorded by our agrarian laws considering that they have not been validly instituted as agricultural lessees of the subject parcels of land. And from the time Bacaling recovered the subject properties from GSIS up to the time the former changed her legal position in the instant case, Bacaling has consistently disclaimed respondents as her alleged tenants. Bacaling's current legal posture cannot also overturn our finding since, as earlier mentioned, the said change of mind of Bacaling has little or no evidentiary weight under the circumstances. The respondents argue that GSIS cannot be considered as the owner of the said properties from 1961 up to 1989 inasmuch as the foreclosure proceedings that started in 1957 only attained finality during its promulgation by this Court in 1989. Respondents contend that GSIS was the owner of the said parcels of land only from 1989. We disagree. The pendency of the GSIS case cannot be construed as a maintenance of status quo with Bacaling as the owner from 1957 up to 1989 for the reason that what was appealed to this Court was only the issue of redemption, and not the validity of the foreclosure proceedings including the public auction sale, the confirmation of the public auction sale and the confirmation and transfer of ownership of the foreclosed parcels of land to GSIS. The ownership of GSIS over the subject parcels of land was not disputed. It was the existence of the right to redeem in a judicial foreclosure that was the subject of the controversy. We ruled that there was no longer any right of redemption in a judicial foreclosure proceeding after the confirmation of the public auction. Only foreclosures of mortgages in favor of banking institutions and those made extrajudicially are subject to legal redemption. Since GSIS is not a banking institution and the procedure of the foreclosure is not extrajudicial in nature, no right of redemption exists after the judicial confirmation of the public auction sale of the said lots. With respect to the third issue, we find that the one hundred ten (110) sub-lots are indeed residential. In Tiongson v. Court of Appeals45 we held that if the lot in

question is not an agricultural land then the rules on agrarian reform do not apply since the "key factor in ascertaining whether there is a landowner-tenant relationship xxx is the nature of the disputed property."46 We reiterated this rule in Natalia Realty, Inc. v. Department of Agrarian Reform47 where we excluded lands not devoted to agricultural activity, i.e., lands previously converted to non-agricultural or residential uses prior to the effectivity of the 1988 agrarian reform law (R.A. No. 6657) by agencies other than the DAR, from the coverage of agrarian reform. The statement of the rule is buttressed by P.D. No. 27 which by its terms applies only to "tenant-farmers of private agricultural lands primarily devoted to rice and corn under a system of shared-crop or lease tenancy, whether classified as landed estate or not."48 In the case at bar, the indubitable conclusion from established facts is that the one hundred ten (110) sublots, originally three (3) parcels of land, have been officially classified as residential since 1955. The classification began when the NUPC and the Bureau of Lands approved the subdivision of the original three (3) parcels of land into one hundred ten (110) sub-lots each covered with transfer certificates of title. To build the subdivision project, Nelita Bacaling then obtained a real estate mortgage loan from the GSIS which she used to fund the project but he was unfortunately unable to complete it due to the immensity of the project cost. Bacaling undertook to complete the sale of the subdivision when in 1978 she obtained the registration thereof with the National Housing Authority as well as a license to sell individually the one hundred ten (110) sub-lots. Earlier, in 1977, the City Council of Iloilo also recognized the residential classification of the same one hundred ten (110) sub-lots when it passed the Land Use Plan and Zoning Ordinance. In 1990, Bacaling sold the same parcels of land to petitioner Tong who obviously wanted to pursue the development of the subdivision project. It is clear that Tong bought the property for residential and not agricultural purposes upon the strong assurance of Bacaling that the one hundred ten (110) sub-lots were legally available for such prospect. To be sure, the subject lots were valuable in the buyer's market only for residential use as shown by the example of adjacent lots which had long been utilized for building subdivisions and the implausibility of believing that Tong would buy the lands only to lose them at a bargain to agrarian reform. 49 Clearly, both intention and overt actions show the classification of the one hundred ten (110) sub-lots for residential use. There can be no other conclusion from the facts obtaining in the instant case. Indeed, one cannot imagine Nelita Bacaling borrowing the substantial amount of Six Hundred Thousand Pesos

(P600,000.00) from the GSIS and spending Two Hundred Fifty Thousand Pesos (P250,000.00) for the purpose of developing and subdividing the original three (3) parcels of land into one hundred ten (110) homelots, with individual transfer certificates of title ready and available for sale, if her purported desire were to keep the landholding for agricultural purposes. It also makes no sense that petitioner Tong would invest so much money, time and effort in these sub-lots for planting and cultivating agricultural crops when all the mechanisms are already in place for building a residential community. One cannot likewise deny the consistent official government action which decreed the said one hundred ten (110) sub-lots as most appropriate for human settlements considering that for several times beginning in 1955 and in accordance with relevant laws and regulations, the said landholding was categorically reserved as a residential subdivision. It is also grave error to gloss over the NUPC action since its declarations have long been recognized in similar cases as the present one as clear and convincing evidence of residential classification. In MagnoAdamos v. Bagasao50 we found the endorsements of the NUPC approving albeit tentatively a subdivision plan to be a very strong evidence of conversion of the disputed parcels of land into a residential subdivision which would contradict the alleged tenancy relationship. We found nothing objectionable in the trial court's ruling in Santos v. de Guzman51 ejecting an alleged tenant from the landholding "because the same was included in a homesite subdivision duly approved by the National Planning Commission."52 In Republic v. Castellvi53 we gave great weight to the certification of the NUPC that the subject parcels of land were classified as residential areas and ordered their appraisal as residential and not agricultural lands The lower court found, and declared, that the lands of Castellvi and Toledo-Gozun are residential lands. The finding of the lower court is in consonance with the unanimous opinion of the three commissioners who, in their report to the court, declared that the lands are residential lands. The Republic assails the finding that the lands are residential, contending that the plans of the appellees to convert the lands into subdivision for residential purposes were only on paper, there being no overt acts on the part of the appellees which indicated that the subdivision project had been commenced xxx. We find evidence showing that the lands in question had ceased to be devoted to the production of agricultural crops, that they had become adaptable for residential purposes, and that the appellees had actually taken steps to

convert their lands into residential subdivisions xxx. The evidence shows that Castellvi broached the idea of subdividing her land into residential lots as early as July 11, 1956 in her letter to the Chief of Staff of the Armed Forces of the Philippines xxx. As a matter of fact, the layout of the subdivision plan was tentatively approved by the National Planning Commission on September 7, 1956 xxx. The land of Castellvi had not been devoted to agriculture since 1947 when it was leased to the Philippine Army. In 1957 said land was classified as residential, and taxes based on its classification as residential had been paid since then xxx. The location of the Castellvi land justifies its suitability for a residential subdivision. The NUPC was created under EO 98, s. of 194654 to "prepare general plans, zoning ordinances, and subdivision regulations, to guide and accomplish a coordinated, adjusted, harmonious reconstruction and future development of urban areas which will in accordance with present and future needs, best promote health, safety, morals, order, convenience, prosperity, and general welfare, as well as efficiency and economy in the process of development; including among other things adequate provisions for traffic, the promotion of safety from fire and other dangers, adequate provision for light and air, the promotion of healthful and convenient distribution of populations xxx."55 Under the express terms of its mandate, the NUPC was therefore duty-bound to act only upon realty projects which would be used for human settlements and not for agricultural purposes. It is in this light that we must take stock of the 1955 NUPC conversion of the one hundred ten (110) sub-lots from agricultural to residential classification. To bolster the exclusive role of the NUPC over developmental projects for residential and industrial purposes, the term "subdivision" (which NUPC was mandated to review and if properly executed to approve) was defined in EO 98 as "the division of a tract or parcel of land into two (2) or more lots, sites or other divisions for the purpose, whether immediate or future, of sale or building development, and includes resubdivision, and when appropriate to the context, relates to the process of subdividing or to the land or area subdivided."56 The Subdivision Regulations57 (which the NUPC adopted pursuant to EO 98) decreed as mandatory the NUPC approval of all subdivisions of land in the Philippines intended for residential, commercial and industrial purposes, before lots comprising the subdivision could be legally sold or building development therein could validly commence -

Any owner of land wishing to subdivide land shall submit to the Director of Planning [who was the head of NUPC] a plat of the subdivision which shall conform to the requirements set forth in these Regulations. No subdivider shall proceed with the sale of lots of a subdivision and no plat of a subdivision shall be filed with the Director of Lands for approval or recorded in the Office of the Register of Deeds until such plat shall have been approved by the Director of Planning. Applications for plat approval submitted to the District or City Engineer of a town or city in the Philippines shall be forwarded to the Director of Planning together with the District or City Engineer's recommendations (underscoring supplied). We are convinced that the 1955 approval by the NUPC of the subdivision of the subject three (3) parcels of land owned by Nelita Bacaling and her spouse into one hundred ten (110) sub-lots caused the conversion, if not outright classification, of the entire landholding into a residential community for sale to interested buyers. This is an official classification of the sub-lots as residential units and constitutes the only objective and effectual means of obtaining in 1955 the classification and reservation of private land for non-agricultural use, i.e. residential, industrial or commercial, since neither P.D. No. 27 nor R.A. No. 665758 (together with the specified formal mechanisms stipulated therein for converting a piece of agricultural land into a residential lot) were then binding and effective. The assignment or conversion of the one hundred ten (110) sub-lots for residential purposes was not abrogated by P.D. No. 27 under which respondents invalidly secured their certificates of land transfer since the decree was only prospectively effective59 and its coverage was limited only to agricultural lands which clearly do not include the residential sub-lots in question.60 By virtue of the official classification made by NUPC and the other circumstances convincingly proved herein, the only fair and legally acceptable decision in the instant case would be to declare, as we now indeed rule, that the one hundred ten (110) sub-lots are truly residential in character as well as in purpose and are thus excluded from the coverage of P.D. No. 27. Verily, the Certificates of Land Transfer (CLT) issued in respondents' names are not valid and do not change our ruling. The respondents cannot rely on said CLTS as proof of security of tenure. It is well settled that the certificates of land transfer are not absolute evidence of ownership of the subject lots61 and consequently do not bar the finding that their issuance is void from inception since they cover residential lands contrary to the mandate of P.D. No. 27. It follows from the fact of

nullity of the certificates of land transfer in respondents' names that the respondents are not entitled to occupy and possess the one hundred ten (110) sub-lots or portions thereof without the consent of the owner, herein petitioner Tong.1wphi1.nt While not raised as issues in the instant petition, we nevertheless rule now (conformably with Gayos v. Gayos62 that it is a cherished rule of procedure that a court should always strive to settle the entire controversy in a single proceeding leaving no root or branch to bear the seeds of future litigation) that respondents cannot claim disturbance compensation for the reason that the sub-lots are not and have never been available for agrarian reform. In the same vein, respondents also have no right to be reimbursed by petitioner Jose Juan Tong for the value of or expenses for improvements which they might have introduced on the one hundred ten (110) sub-lots since they did not allege nor prove the existence of such improvements and their right to compensation thereto, if any.63 WHEREFORE, the Petition for Review is GRANTED. It is further ordered and adjudged that: 1. The certificates of land transfer over the one hundred ten (110) sub-lots located in Barangay Cubay, Jaro, Iloilo City, in the name of respondents and/or their successors in interest are hereby DECLARED VOID AB INITIO. The said one hundred ten (110) sub-lots, covered by TCT Nos. T-10664 to T-10773 of the Registry of Deeds of the City of Iloilo, are declared outside the coverage and operation of P.D. No. 27 and other land reform laws. 2. The consolidated Decision of the Court of Appeals in CA-G.R. SP No. 54413 ("Felomino Muya and Crispin Amor v. Nelita Bacaling, represented by her attorneyin-fact, Jose Juan Tong, and the Executive Secretary, Office of the President") and in CA-G.R. SP No. 54414, ("Wilfredo Jereza, Rodolfo Lazarte and Nemesio Tonocante v. Hon. Executive Secretary, Office of the President and Nelita Bacaling") and its Resolution dated June 5, 2001 denying petitioners' Motion for Reconsideration are REVERSED AND SET ASIDE. 3. The Decision dated May 22, 1998 and the Resolution dated July 22, 1999 of the Office of the President in OP Case No. 98-K-8180 are REINSTATED with the modification in that the respondents are not entitled to disturbance compensation; and 4. Respondents Felomino Muya, Crispin Amor, Wilfredo Jereza, Rodolfo Lazarte and Nemesio Tonocante together with their assigns and successors in interest are ordered to vacate and surrender peacefully the possession of the one hundred ten (110) sub-lots, covered by TCT Nos. T-10664 to T-10773-Iloilo City, to petitioner Jose Juan Tong within thirty (30) days from notice of this Decision.

No pronouncement as to costs. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-18616 March 31, 1964 VICENTE M. COLEONGCO, plaintiff-appellant, vs. EDUARDO L. CLAPAROLS, defendant-appellee. San Juan, Africa and Benedicto for plaintiff-appellant. Alberto Jamir for defendant-appellee. REYES, J.B.L., J.: Appeal by plaintiff Vicente Coleongco from a decision of the Court of First Instance of Negros Occidental (in its Civil Case No. 4170) dismissing plaintiff's action for damages, and ordering him to pay defendant Eduardo Claparols the amount of P81,387.27 plus legal interest from the filing of the counterclaim till payment thereof; P50,000 as moral and compensatory damages suffered by defendant; and costs. A writ of preliminary attachment for the sum of P100,000 was subsequently issued against plaintiff's properties in spite of opposition thereto. Plaintiff Coleongco, not being in conformity with the judgment appealed to this Court directly, the claims involved being in excess of P200,000. The antecedent facts as found by the trial court and shown by the records, are as follows: Since 1951, defendant-appellee, Eduardo L. Claparols, operated a factory for the manufacture of nails in Talisay, Occidental Negros, under the style of "Claparols Steel & Nail Plant". The raw material, nail wire, was imported from foreign sources, specially from Belgium; and Claparols had a regular dollar allocation therefor, granted by the Import Control Commission and the Central Bank. The marketing of the nails was handled by the "ABCD Commercial" of Bacolod, which was owned by a Chinaman named Kho To.1wph1.t Losses compelled Claparols in 1953 to look for someone to finance his imports of nail wires. At first, Kho To agreed to do the financing, but on April 25, 1953, the Chinaman introduced his compadre, appellant Vicente Coleongco, to the appellee, recommending said appellant to be the financier in the stead of Kho To. Claparols agreed, and on April 25 of that year a contract (Exhibit B) was perfected between them whereby Coleongco undertook to finance and put up the funds required for the importation of the nail wire, which Claparols bound himself to convert into nails at his plant. It was agreed that Coleongco would have the exclusive distribution of the product, and the "absolute care in the marketing of these nails and the promotion of sales all over the Philippines", except the Davao Agency; that Coleongco would "share the control of all

the cash" from sales or deposited in banks; that he would have a representative in the management; that all contracts and transactions should be jointly approved by both parties; that proper books would be kept and annual accounts rendered; and that profits and losses would be shared "on a 50-50 basis". The contract was renewed from one year to year until 1958, and Coleongco's share subsequently increased by 5% of the net profit of the factory (Exhibits D, E, F). Two days after the execution of the basic agreement, Exhibit "B", on April 27, 1953, Claparols executed in favor of Coleongco, at the latter's behest a special power of attorney (Exhibit C) to open and negotiate letters of credit, to sign contracts, bills of lading, invoices, and papers covering transactions; to represent appellee and the nail factory; and to accept payments and cash advances from dealers and distributors. Thereafter, Coleongco also became the assistant manager of the factory, and took over its business transactions, while Claparols devoted most of his time to the nail manufacture processes. Around mid-November of 1956, appellee Claparols was disagreeably surprised by service of an alias writ of execution to enforce a judgment obtained against him by the Philippine National Bank, despite the fact that on the preceding September he had submitted an amortization plan to settle the account. Worried and alarmed, Claparols immediately left for Manila to confer with the bank authorities. Upon arrival, he learned to his dismay that the execution had been procured because of derogatory information against appellee that had reached the bank from his associate, appellant Coleongco. On July 6, 1956, the latter, without appellee's knowledge, had written to the bank in connection with the verbal offer for the acquisition by me of the whole interest of Mr. Eduardo L. Claparols in the Claparols Steel & Nail Plant and the Claparols Hollow Blocks Factory" (Exhibit 36); and later, on October 29, 1956, Coleongco had written again the bank another letter (Exhibit 35), also behind the back of appellee, wherein Coleongco charged Claparols with taking machines mortgaged to the bank, and added - . In my humble personal opinion I presume that Mr. Eduardo L. Claparols is not serious in meeting his obligations with your bank, otherwise he had not taken these machines and equipments a sign of bad faith since the factory is making a satisfactory profit of my administration. Fortunately, Claparols managed to arrange matters with the bank and to have the execution levy lifted. Incensed

at what he regarded as disloyalty of his attorney-in-fact, he consulted lawyers. The upshot was that appellee revoked the power of attorney (Exhibit "C"), and informed Coleongco thereof (Exhibits T, T-1), by registered mail, demanding a full accounting at the same time. Coleongco, as could be expected, protested these acts of Claparols, but the latter insisted, and on the first of January, 1957 wrote a letter to Coleongco dismissing him as assistant manager of the plant and asked C. Miller & Company, auditors, to go over the books and records of the business with a view to adjusting the accounts of the associates. These last steps were taken in view of the revelation made by his machinery superintendent, Romulo Agsam, that in the course of the preceding New Year celebrations Coleongco had drawn Agsam aside and proposed that the latter should pour acid on the machinery to paralyze the factory. The examination by the auditors, summarized in Exhibits 80 and 87, found that Coleongco owed the Claparols Nail Factory the amount of P87,387.37, as of June 30, 1957. In the meantime, Claparols had found in the factory files certain correspondence in February, 1955 between Coleongco and the nail dealer Kho To whereby the former proposed to Kho that the latter should cut his monthly advances to Claparols from P2,000 to P1,000 a month, because I think it is time that we do our plan to take advantage of the difficulties of Eddie with the banks for our benefit. If we can squeeze him more. I am sure that we can extend our contract with him before it ends next year, and perhaps on better terms. If we play well our cards we might yet own his factory (Exhibit 32); and conformably to Coleongco's proposal, Kho To had written to Claparols that "due to present business conditions" the latter could only be allowed to draw P1,000 a month beginning April, 1955 (Exhibit 33). As the parties could not amicably settle their accounts, Coleongco filed a suit against Claparols charging breach of contract, asking for accounting, and praying for P528,762.19 as damages, and attorney's fees, to which Claparols answered, denying the charge, and counter-claiming for the rescission of the agreement with Coleongco for P561,387.99 by way of damages. After trial, the court rendered judgment, as stated at the beginning of this opinion. In this appeal, it is first contended by the appellant Coleongco that the power of attorney (Exhibit "C") was made to protect his interest under the financing agreement (Exhibit "B") and was one coupled with an interest that the appellee Claparols had no legal power to revoke. This point can not be sustained. The financing agreement itself already contained clauses for

the protection of appellant's interest, and did not call for the execution of any power of attorney in favor of Coleongco. But granting appellant's view, it must not be forgotten that a power of attorney can be made irrevocable by contract only in the sense that the principal may not recall it at his pleasure; but coupled with interest or not, the authority certainly can be revoked for a just cause, such as when the attorney-infact betrays the interest of the principal, as happened in this case. It is not open to serious doubt that the irrevocability of the power of attorney may not be used to shield the perpetration of acts in bad faith, breach of confidence, or betrayal of trust, by the agent for that would amount to holding that a power coupled with an interest authorizes the agent to commit frauds against the principal. Our new Civil Code, in Article 1172, expressly provides the contrary in prescribing that responsibility arising from fraud is demandable in all obligations, and that any waiver of action for future fraud is void. It is also on this principle that the Civil Code, in its Article 1800, declares that the powers of a partner, appointed as manager, in the articles of co-partnership are irrevocable without just or lawful cause; and an agent with power coupled with an interest can not stand on better ground than such a partner in so far as irrevocability of the power is concerned. That the appellee Coleongco acted in bad faith towards his principal Claparols is, on the record, unquestionable. His letters to the Philippine National Bank (Exhibits 35 and 36) attempting to undermine the credit of the principal and to acquire the factory of the latter, without the principal's knowledge; Coleongco's letter to his cousin, Kho To (Exhibit 32), instructing the latter to reduce to one-half the usual monthly advances to Claparols on account of nail sales in order to squeeze said appellee and compel him to extend the contract entitling Coleongco to share in the profits of the nail factory on better terms, and ultimately "own his factory", a plan carried out by Kho's letter, Exhibit 33, reducing the advances to Claparols; Coleongco's attempt to, have Romulo Agsam pour acid on the machinery; his illegal diversion of the profits of the factory to his own benefit; and the surreptitious disposition of the Yates band resaw machine in favor of his cousin's Hong Shing Lumber Yard, made while Claparols was in Baguio in July and August of 1956, are plain acts of deliberate sabotage by the agent that fully justified the revocation of the power of attorney (Exhibit "C") by Claparols and his demand for an accounting from his agent Coleongco. Appellant attempts to justify his letter to the Philippine National Bank (Exhibits 35 and 36), claiming that Claparols' mal-administration of the business

endangered the security for the advances that he had made under the financing contract (Exhibit "B"). But if that were the case, it is to be expected that Coleongco would have first protested to Claparols himself, which he never did. Appellant likewise denies the authorship of the letter to Kho (Exhibit 32) as well as the attempt to induce Agsam to damage the machinery of the factory. Between the testimony of Agsam and Claparols and that of Coleongco, the court below whose to believe the former, and we see no reason to alter the lower court's conclusion on the value of the evidence before it, considering that Kho's letter to Claparols (Exhibit 33) plainly corroborates and dovetails with the plan outlined in Coleongco's own letter (Exhibit 32), signed by him, and that the credibility of Coleongco is affected adversely by his own admission of his having been previously convicted of estafa (t.s.n., pp. 139, 276), a crime that implies moral turpitude. Even disregarding Coleongco's letter to his son-in-law (Exhibit 82) that so fully reveals Coleongco's lack of business scruples, the clear preponderance of evidence is against appellant. The same remarks apply to the finding of the trial court that it was appellant Coleongco, and not Claparols, who disposed of the band resawing equipment, since said machine was received in July, 1956 and sold in August of that year to the Hong Shing Lumber Co., managed by appellant's cousin Vicente Kho. The untruth of Coleongco's charge that Claparols, upon his return from Baguio in September, 1956, admitted having sold the machine behind his associate's back is further evidenced by (a) Coleongco's letter, Exhibit "V", dated October 29, 1956, inquiring the whereabouts of the resaw equipment from Claparols (an inquiry incompatible with Claparols' previous admission); (b) by the undenied fact that the appellee was in Baguio and Coleongco was acting for him during the months of July and August when the machine was received and sold; and (c) the fact that as between the two it is Coleongco who had a clear interest in selling the sawing machine to his cousin Kho To's lumber yard. If Claparols wished to sell the machine without Coleongco's knowledge, he would not have picked the latter's cousin for a buyer. The action of plaintiff-appellant for damages and lost profits due to the discontinuance of the financing agreement, Exhibit "B", may not prosper, because the record shows that the appellant likewise breached his part of the contract. It will be recalled that paragraph 2 of the contract, Exhibit "B", it was stipulated: That the Party of the Second Part (Coleongco) has agreed to finance and put up all the necessary money which may be needed to pay for the importation of the raw materials needed

by such nail factory and allocated by the ICC from time to time, either in cash of with whatever suitable means which the Party of the Second Part may be able to make by suitable arrangements with any well-known banking institution recognized by the Central Bank of the Philippines. Instead of putting up all the necessary money needed to finance the imports of raw material, Coleongco merely advanced 25% in cash on account of the price and had the balance covered by surety agreements executed by Claparols and others as solidary, (joint and several) guarantors (see Exhibits G, H, I). The upshot of this arrangement was that Claparols was made to shoulder 3/4 of the payment for the imports, contrary to the financing agreement. Paragraph 11 of the latter expressly denied Coleongco any power or authority to bind Claparols without previous consultation and authority. When the balances for the cost of the importations became due, Coleongco, in some instances, paid it with the dealers' advances to the nail factory against future sales without the knowledge of Claparols (Exhibits "K" to K-11, K-13). Under paragraphs 8 and 11 of the financing agreement, Coleongco was to give preference to the operating expenses before sharing profits, so that until the operating costs were provided for, Coleongco had no right to apply the factory's income to pay his own obligations. Again, the examination of the books by accountant Atienza of C. Miller and Co., showed that from 1954 onwards Coleongco (who had the control of the factory's cash and bank deposits, under Paragraph 11 of Exhibit "B") never liquidated and paid in full to Claparols his half of the profits, so that by the end of 1956 there was due to Claparols P38,068.41 on this account (Exhibit 91). For 1957 to 1958 Claparols financed the imports of nail wire without the help of appellant, and in view of the latter's infringement of his obligations, his acts of disloyalty previously discussed, and his diversions of factory funds (he even bought two motor vehicles with them), we find no justification for his insistence in sharing in the factory's profit for those years, nor for the restoration of the revoked power of attorney. The accountant's reports and testimony (specially Exhibits 80 to 87) prove that as of June 30, 1957, Coleongco owed to Claparols the sum of P83,466.34 that after some adjustment was reduced to P81,387.37, practically accepted even by appellant's auditor. The alleged discrepancies between the general ledger and the result thus arrived at was satisfactorily explained by accountant Atienza in his testimony (t.s.n., 1173-1178).

No error was, therefore, committed by the trial court in declaring the financing contract (Exh. B) properly resolved by Claparols or in rendering judgment against appellant in favor of appellee for the said amount of P81,387.37. The basic rule of contracts requires parties to act loyally toward each other in the pursuit of the common end, and appellant clearly violated the rule of good faith prescribed by Art. 1315 of the new Civil Code. The lower court also allowed Claparols P50,000 for damages, material, moral, and exemplary, caused by the appellant Coleongco's acts in maliciously undermining appellee's credit that led the Philippine National Bank to secure a writ of execution against Claparols. Undeniably, the attempts of Coleongco to discredit and "squeeze" Claparols out of his own factory and business could not but cause the latter mental anguish and serious anxiety, as found by the court below, for which he is entitled to compensation; and the malevolence that lay behind appellee's actions justified also the imposition of exemplary or deterrent damages (Civ. Code, Art. 2232). While the award could have been made larger without violating the canons of justice, the discretion in fixing such damages primarily lay in the trial court, and we feel that the same should be respected. IN VIEW OF THE FOREGOING, the decision appealed from is affirmed. Costs against appellant Vicente Coleongco. SO ORDERED

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 111924 January 27, 1997 ADORACION LUSTAN, petitioner, vs. COURT OF APPEALS, NICOLAS PARANGAN and SOLEDAD PARANGAN, PHILIPPINE NATIONAL BANK, respondents. FRANCISCO, J.: Petitioner Adoracion Lustan is the registered owner of a parcel of land otherwise known as Lot 8069 of the Cadastral Survey of Calinog, Iloilo containing an area of 10.0057 hectares and covered by TCT No. T-561. On February 25, 1969, petitioner leased the above described property to private respondent Nicolas Parangan for a term of ten (10) years and an annual rent of One Thousand (P1,000.00) Pesos. During the period of lease, Parangan was regularly extending loans in small amounts to petitioner to defray her daily expenses and to finance her daughter's education. On July 29, 1970, petitioner executed a Special Power of Attorney in favor of Parangan to secure an agricultural loan from private respondent Philippine National Bank (PNB) with the aforesaid lot as collateral. On February 18, 1972, a second Special Power of Attorney was executed by petitioner, by virtue of which, Parangan was able to secure four (4) additional loans, to wit: the sums of P24,000.00, P38,000.00, P38,600.00 and P25,000.00 on December 15, 1975, September 6, 1976, July 2, 1979 and June 2, 1980, respectively. The last three loans were without the knowledge of herein petitioner and all the proceeds therefrom were used by Parangan for his own benefit. 1 These encumbrances were duly annotated on the certificate of title. On April 16, 1973, petitioner signed a Deed of Pacto de Retro Sale 2 in favor of Parangan which was superseded by the Deed of Definite Sale 3 dated May 4, 1979 which petitioner signed upon Parangan's representation that the same merely evidences the loans extended by him unto the former. For fear that her property might be prejudiced by the continued borrowing of Parangan, petitioner demanded the return of her certificate of title. Instead of complying with the request, Parangan asserted his rights over the property which allegedly had become his by virtue of the aforementioned Deed of Definite Sale. Under said document, petitioner conveyed the subject

property and all the improvements thereon unto Parangan absolutely for and in consideration of the sum of Seventy Five Thousand (P75,000.00) Pesos. Aggrieved, petitioner filed an action for cancellation of liens, quieting of title, recovery of possession and damages against Parangan and PNB in the Regional Trial Court of Iloilo City. After trial, the lower court rendered judgment, disposing as follows:
WHEREFORE and in view of the foregoing, a decision is rendered as follows: 1. Ordering cancellation by the Register of Deeds of the Province of Iloilo, of the unauthorized loans, the liens and encumbrances appearing in the Transfer Certificate of Title No. T-561, especially entries nos. 286231; 338638; and 352794; 2. Declaring the Deed of Pacto de Retro Sale dated April 25, 1978 and the Deed of Definite Sale dated May 6, 1979, both documents executed by Adoracion Lustan in favor of Nicolas Parangan over Lot 8069 in TCT No. T-561 of the Register of Deeds of Iloilo, as null and void, declaring the same to be Deeds of Equitable Mortgage; 3. Ordering defendant Nicolas Parangan to pay all the loans he secured from defendant PNB using thereto as security TCT No. T561 of plaintiff and defendant PNB to return TCT No. T-561 to plaintiff; 4. Ordering defendant Nicolas Parangan to return possession of the land in question, Lot 8069 of the Calinog Cadastre, described in TCT No. T-561 of the Register of Deeds of Iloilo, to plaintiff upon payment of the sum of P75,000.00 by plaintiff to defendant Parangan which payment by plaintiff must be made within ninety (90) days from receipt of this decision; otherwise, sale of the land will be ordered by the court to satisfy payment of the amount; 5. Ordering defendant Nicolas Parangan to pay plaintiff attorney's fees in the sum of P15,000.00 and to pay the costs of the suit. SO ORDERED. 4

Upon appeal to the Court of Appeals (CA), respondent court reversed the trial court's decision. Hence this petition contending that the CA committed the following errors:
IN ARRIVING AT THE CONCLUSION THAT NONE OF THE CONDITIONS STATED IN ART. 1602 OF THE NEW CIVIL CODE HAS BEEN PROVEN TO EXIST BY PREPONDERANCE OF EVIDENCE; IN CONCLUDING THAT PETITIONER SIGNED THE DEED OF SALE WITH KNOWLEDGE AS TO THE CONTENTS THEREOF; IN ARRIVING AT THE CONCLUSION THAT THE TESTIMONY OF WITNESS DELIA

CABIAL DESERVES FULL FAITH AND CREDIT; IN FINDING THAT THE SPECIAL POWER OF ATTORNEY AUTHORIZING MORTGAGE FOR "UNLIMITED" LOANS AS RELEVANT.

Two main issues confront us in this case, to wit: whether or not the Deed of Definite Sale is in reality an equitable mortgage and whether or not petitioner's property is liable to PNB for the loans contracted by Parangan by virtue of the special power of attorney. The lower court and the CA arrived at different factual findings thus necessitating a review of the evidence on record. 5 After a thorough examination, we note some errors, both in fact and in law, committed by public respondent CA. The court a quo ruled that the Deed of Definite Sale is in reality an equitable mortgage as it was shown beyond doubt that the intention of the parties was one of a loan secured by petitioner's land. 6 We agree. A contract is perfected by mere consent. 7 More particularly, a contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. 8 This meeting of the minds speaks of the intent of the parties in entering into the contract respecting the subject matter and the consideration thereof. If the words of the contract appear to be contrary to the evident intention of the parties, the latter shall prevail over the former. 9 In the case at bench, the evidence is sufficient to warrant a finding that petitioner and Parangan merely intended to consolidate the former's indebtedness to the latter in a single instrument and to secure the same with the subject property. Even when a document appears on its face to be a sale, the owner of the property may prove that the contract is really a loan with mortgage by raising as an issue the fact that the document does not express the true intent of the parties. In this case, parol evidence then becomes competent and admissible to prove that the instrument was in truth and in fact given merely as a security for the repayment of a loan. And upon proof of the truth of such allegations, the court will enforce the agreement or understanding in consonance with the true intent of the parties at the time of the execution of the contract. 10 Articles 1602 and 1604 of the Civil Code respectively provide:
The contract shall be presumed to be an equitable mortgage in any of the following cases:

1) When the price of a sale with right to repurchase is unusually inadequate; 2) When the vendor remains in possession as lessor or otherwise; 3) When upon or after the expiration of the right to repurchase, another instrument extending the period of redemption or granting a new period is executed; 4) When the vendor binds himself to pay the taxes on the thing sold; 5) When the purchaser retains for himself a part of the purchase price; 6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation. Art. 1604. The provisions of Article 1602 shall also apply to a contract purporting to be an absolute sale.

From a reading of the above-quoted provisions, for a presumption of an equitable mortgage to arise, we must first satisfy two requisites namely: that the parties entered into a contract denominated as a contract of sale and that their intention was to secure an existing debt by way of mortgage. Under Art. 1604 of the Civil Code, a contract purporting to be an absolute sale shall be presumed to be an equitable mortgage should any of the conditions in Art. 1602 be present. The existence of any of the circumstances therein, not a concurrence nor an overwhelming number of such circumstances, suffices to give rise to the presumption that the contract is an equitable mortgage. 11 Art. 1602, (6), in relation to Art 1604 provides that a contract of sale is presumed to be an equitable mortgage in any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation. That the case clearly falls under this category can be inferred from the circumstances surrounding the transaction as herein set forth: Petitioner had no knowledge that the contract 12 she signed is a deed of sale. The contents of the same were not read nor explained to her so that she may intelligibly formulate in her mind the consequences of her conduct and the nature of the rights she was ceding in favor of Parangan. Petitioner is illiterate and her condition constrained her to merely rely on Parangan's assurance that the contract only evidences her indebtedness to the latter. When one of the contracting parties is unable to read, or if the contract is in a language not understood by him, and mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully

explained to the former. 13 Settled is the rule that where a party to a contract is illiterate or cannot read or cannot understand the language in which the contract is written, the burden is on the party interested in enforcing the contract to prove that the terms thereof are fully explained to the former in a language understood by him. 14 To our mind, this burden has not been satisfactorily discharged. We do not find the testimony of Parangan and Delia Cabial that the contract was duly read and explained to petitioner worthy of credit. The assessment by the trial court of the credibility of witnesses is entitled to great respect and weight for having had the opportunity of observing the conduct and demeanor of the witnesses while testifying. 15 The lower court may not have categorically declared Cabial's testimony as doubtful but this fact is readily apparent when it ruled on the basis of petitioner's evidence in total disregard of the positive testimony on Parangan's side. We have subjected the records to a thorough examination, and a reading of the transcript of stenographic notes would bear out that the court a quo is correct in its assessment. The CA committed a reversible error when it relied on the testimony of Cabial in upholding the validity of the Deed of Definite Sale. For one, there are noted major contradictions between the testimonies of Cabial and Judge Lebaquin, who notarized the purported Deed of Definite Sale. While the former testified that receipts were presented before Judge Lebaquin, who in turn made an accounting to determine the price of the land 16, the latter categorically denied the allegation. 17 This contradiction casts doubt on the credibility of Cabial as it is ostensible that her version of the story is concocted. On the other hand, petitioner's witness Celso Pamplona, testified that the contract was not read nor explained to petitioner. We believe that this witness gave a more accurate account of the circumstances surrounding the transaction. He has no motive to prevaricate or concoct a story as he witnessed the execution of the document at the behest of Parangan himself who, at the outset, informed him that he will witness a document consolidating petitioner's debts. He thus testified:
Q: In (sic) May 4, 1979, you remember having went (sic) to the Municipality of Calinog? A: Yes, sir. Q: Who invited you to go there? A: Parangan.

Q: You mean Nicolas Parangan? A: Yes, sir. Q: What did Nicolas tell you why he invited you to go there? A: He told me that I will witness on the indebtedness of Adoracion to Parangan. Q: Before Adoracion Lustan signed her name in this Exh. "4", was this document read to her? A: No, sir. Q: Did Nicolas Parangan right in that very room tell Adoracion what she was signing? A: No, sir. xxx xxx xxx Q: What did you have in mind when you were signing this document, Exh. "4"? A: To show that Adoracion Lustan has debts with Nicolas Parangan. 18

Furthermore, we note the absence of any question propounded to Judge Lebaquin to establish that the deed of sale was read and explained by him to petitioner. When asked if witness has any knowledge whether petitioner knows how to read or write, he answered in the negative. 19 This latter admission impresses upon us that the contract was not at all read or explained to petitioner for had he known that petitioner is illiterate, his assistance would not have been necessary. The foregoing squares with the sixth instance when a presumption of equitable mortgage prevails. The contract of definite sale, where petitioner purportedly ceded all her rights to the subject lot in favor of Parangan, did not embody the true intention of the parties. The evidence speaks clearly of the nature of the agreement it was one executed to secure some loans. Anent the issue of whether the outstanding mortgages on the subject property can be enforced against petitioner, we rule in the affirmative. Third persons who are not parties to a loan may secure the latter by pledging or mortgaging their own property. 20 So long as valid consent was given, the fact that the loans were solely for the benefit of Parangan would not invalidate the mortgage with respect to petitioner's property. In consenting thereto, even granting that petitioner may not be assuming personal liability for the

debt, her property shall nevertheless secure and respond for the performance of the principal obligation. 21 It is admitted that petitioner is the owner of the parcel of land mortgaged to PNB on five (5) occasions by virtue of the Special Powers of Attorney executed by petitioner in favor of Parangan. Petitioner argues that the last three mortgages were void for lack of authority. She totally failed to consider that said Special Powers of Attorney are a continuing one and absent a valid revocation duly furnished to the mortgagee, the same continues to have force and effect as against third persons who had no knowledge of such lack of authority. Article 1921 of the Civil Code provides:
Art. 1921. If the agency has been entrusted for the purpose of contracting with specified persons, its revocation shall not prejudice the latter if they were not given notice thereof.

The Special Power of Attorney executed by petitioner in favor of Parangan duly authorized the latter to represent and act on behalf of the former. Having done so, petitioner clothed Parangan with authority to deal with PNB on her behalf and in the absence of any proof that the bank had knowledge that the last three loans were without the express authority of petitioner, it cannot be prejudiced thereby. As far as third persons are concerned, an act is deemed to have been performed within the scope of the agent's authority if such is within the terms of the power of attorney as written even if the agent has in fact exceeded the limits of his authority according to the understanding between the principal and the agent. 22 The Special Power of Attorney particularly provides that the same is good not only for the principal loan but also for subsequent commercial, industrial, agricultural loan or credit accommodation that the attorney-infact may obtain and until the power of attorney is revoked in a public instrument and a copy of which is furnished to PNB. 23 Even when the agent has exceeded his authority, the principal is solidarily liable with the agent if the former allowed the latter to act as though he had full powers (Article 1911, Civil Code). 24 The mortgage directly and immediately subjects the property upon which it is imposed. 25 The property of third persons which has been expressly mortgaged to guarantee an obligation to which the said persons are foreign, is directly and jointly liable for the fulfillment thereof; it is therefore subject to execution and sale for the purpose of paying the amount of the debt for which it is liable. 26 However, petitioner has an unquestionable right to demand proportional

indemnification from Parangan with respect to the sum paid to PNB from the proceeds of the sale of her property 27 in case the same is sold to satisfy the unpaid debts. WHEREFORE, premises considered, the judgment of the lower court is hereby REINSTATED with the following MODIFICATIONS: 1. DECLARING THE DEED OF DEFINITE SALE AS AN EQUITABLE MORTGAGE; 2. ORDERING PRIVATE RESPONDENT NICOLAS PARANGAN TO RETURN THE POSSESSION OF THE SUBJECT LAND UNTO PETITIONER UPON THE LATTER'S PAYMENT OF THE SUM OF P75,000.00 WITHIN NINETY (90) DAYS FROM RECEIPT OF THIS DECISION; 3. DECLARING THE MORTGAGES IN FAVOR OF PNB AS VALID AND SUBSISTING AND MAY THEREFORE BE SUBJECTED TO EXECUTION SALE. 4. ORDERING PRIVATE RESPONDENT PARANGAN TO PAY PETITIONER THE AMOUNT OF P15,000.00 BY WAY OF ATTORNEY'S FEES AND TO PAY THE COSTS OF THE SUIT. SO ORDERED.