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
1
of then respondent Court of Appeals promulgated on 15 December 1980 in CAG.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:

3.5.1.) ... To complete the trip, the passenger must purchase a new ticket for the
3
remaining portion of the journey" (ibid.)
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.

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.

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.

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
4
commenced.
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.

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 You said so to Mrs. Manucdoc?

A The Ganas will make the arrangement from

Osaka, Tokyo and Manila.

A Yes, sir." ...

Q What do you mean?

Q What arrangement?
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
6
day so that he could not get in touch with Air France 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,

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. ...

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.
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.:
1

This petition for review on certiorari seeks the reversal of the Decision and
2
Resolution, 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
3
Decision 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.

deposited on a monthly basis. Enticed, she initially invested and issued a post-dated
4
check dated January 7, 1977 for P10,000. In return, Valle issued Pedroso his
5
personal check for P800 for the 8% prepaid interest and a Filipinas Life "Agents
6
Receipt" No. 807838.
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
7
Alcantara. 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
8
5% 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
9
P49,550 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.

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

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 CO-DEFENDANTS ON THE CLAIM
OF RESPONDENTS INSTEAD OF HOLDING ITS AGENT, RENATO VALLE,
10
SOLELY LIABLE TO THE RESPONDENTS.
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
11
of Filipinas Life such that, it cannot be held liable to the respondents.
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
12
of the latter. 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
13
third persons. When the agent exceeds his authority, the agent becomes
14
personally liable for the damage. But even when the agent exceeds his authority,
the principal is still solidarily liable together with the agent if the principal allowed
15
the agent to act as though the agent had full powers. In other words, the acts of
an agent beyond the scope of his authority do not bind the principal, unless the
16
principal ratifies them, expressly or impliedly. Ratification in agency is the
adoption or confirmation by one person of an act performed on his behalf by
17
another without authority.
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
18
thing by an agent is considered as doing it himself."
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.

G.R. No. 152122

July 30, 2003

CHINA AIRLINES, petitioner,

vs.
DANIEL CHIOK, respondent.
PANGANIBAN, J.:
A common carrier has a peculiar relationship with and an exacting responsibility to
its passengers. For reasons of public interest and policy, the ticket-issuing airline

acts as principal in a contract of carriage and is thus liable for the acts and the
omissions of any errant carrier to which it may have endorsed any sector of the
entire, continuous trip.
The Case
1

Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of
2
Court, seeking to reverse the August 7, 2001 Decision and the February 7, 2002
3
Resolution of the Court of Appeals (CA) in CA-GR CV No. 45832. The challenged
Decision disposed as follows:
"WHEREFORE, premises considered, the assailed Decision dated July 5,
1991 of Branch 31, Regional Trial Court, National Capital Judicial Region,
Manila, in Civil Case No. 82-13690, is hereby MODIFIED by deleting that
portion regarding defendants-appellants liabilities for the payment of the
actual damages amounting to HK$14,128.80 and US$2,000.00 while all
4
other respects are AFFIRMED. Costs against defendants-appellants."
The assailed Resolution denied Petitioners Motion for Partial Reconsideration.
The Facts
5

The facts are narrated by the CA as follows:

"On September 18, 1981, Daniel Chiok (hereafter referred to as Chiok)
purchased from China Airlines, Ltd. (CAL for brevity) airline passenger
ticket number 297:4402:004:278:5 for air transportation covering ManilaTaipei-Hongkong-Manila. Said ticket was exclusively endorseable to
Philippine Airlines, Ltd. (PAL for brevity).
"Subsequently, on November 21, 1981, Chiok took his trip from Manila to
Taipei using [the] CAL ticket. Before he left for said trip, the trips covered
by the ticket were pre-scheduled and confirmed by the former. When he
arrived in Taipei, he went to the CAL office and confirmed his Hongkong to
Manila trip on board PAL Flight No. PR 311. The CAL office attached a
yellow sticker appropriately indicating that his flight status was OK.
"When Chiok reached Hongkong, he went to the PAL office and sought to
reconfirm his flight back to Manila. The PAL office confirmed his return trip
on board Flight No. PR 311 and attached its own sticker. On November 24,
1981, Chiok proceeded to Hongkong International Airport for his return
trip to Manila. However, upon reaching the PAL counter, Chiok saw a

poster stating that PAL Flight No. PR 311 was cancelled because of a
typhoon in Manila. He was then informed that all the confirmed ticket
holders of PAL Flight No. PR 311 were automatically booked for its next
flight, which was to leave the next day. He then informed PAL personnel
that, being the founding director of the Philippine Polysterene Paper
Corporation, he ha[d] to reach Manila on November 25, 1981 because of a
business option which he ha[d] to execute on said date.
"On November 25, 1981, Chiok went to the airport. Cathay Pacific
stewardess Lok Chan (hereafter referred to as Lok) ha[d] taken and
received Chioks plane ticket and his luggage. Lok called the attention of
Carmen Chan (hereafter referred to as Carmen), PALs terminal supervisor,
and informed the latter that Chioks name was not in the computer list of
passengers. Subsequently, Carmen informed Chiok that his name did not
appear in PALs computer list of passengers and therefore could not be
permitted to board PAL Flight No. PR 307.
"Meanwhile, Chiok requested Carmen to put into writing the alleged
reason why he was not allowed to take his flight. The latter then wrote the
following, to wit: PAL STAFF CARMEN CHAN CHKD WITH R/C KENNY AT
1005H NO SUCH NAME IN COMPUTER FOR 311/24 NOV AND 307/25 NOV.
The latter sought to recover his luggage but found only 2 which were
placed at the end of the passengers line. Realizing that his new Samsonite
luggage was missing, which contained cosmetics worth HK$14,128.80, he
complained to Carmen.
"Thereafter, Chiok proceeded to PALs Hongkong office and confronted
PALs reservation officer, Carie Chao (hereafter referred to as Chao), who
previously confirmed his flight back to Manila. Chao told Chiok that his
name was on the list and pointed to the latter his computer number listed
on the PAL confirmation sticker attached to his plane ticket, which number
was R/MN62.
"Chiok then decided to use another CAL ticket with No.
297:4402:004:370:5 and asked Chao if this ticket could be used to book
him for the said flight. The latter, once again, booked and confirmed the
formers trip, this time on board PAL Flight No. PR 311 scheduled to depart
that evening. Later, Chiok went to the PAL check-in counter and it was
Carmen who attended to him. As this juncture, Chiok had already placed
his travel documents, including his clutch bag, on top of the PAL check-in
counter.

"Thereafter, Carmen directed PAL personnel to transfer counters. In the

ensuing commotion, Chiok lost his clutch bag containing the following, to
wit: (a) $2,000.00; (b) HK$2,000.00; (c) Taipei $8,000.00; (d) P2,000.00; (e)
a three-piece set of gold (18 carats) cross pens valued at P3,500; (f) a
Cartier watch worth about P7,500.00; (g) a tie clip with a garnet birthstone
and diamond worth P1,800.00; and (h) a [pair of] Christian Dior reading
glasses. Subsequently, he was placed on stand-by and at around 7:30 p.m.,
PAL personnel informed him that he could now check-in.
"Consequently, Chiok as plaintiff, filed a Complaint on November 9, 1982
for damages, against PAL and CAL, as defendants, docketed as Civil Case
No. 82-13690, with Branch 31, Regional Trial Court, National Capital
Judicial Region, Manila.
"He alleged therein that despite several confirmations of his flight,
defendant PAL refused to accommodate him in Flight No. 307, for which
reason he lost the business option aforementioned. He also alleged that
PALs personnel, specifically Carmen, ridiculed and humiliated him in the
presence of so many people. Further, he alleged that defendants are
solidarily liable for the damages he suffered, since one is the agent of the
6
other."
The Regional Trial Court (RTC) of Manila held CAL and PAL jointly and severally
liable to respondent. It did not, however, rule on their respective cross-claims. It
disposed as follows:
"WHEREFORE, judgment is hereby rendered in favor of plaintiff and against
the defendants to jointly and severally pay:
1. Actual damages in the amount of HK$14,128.80 or its equivalent in
Philippine Currency at the time of the loss of the luggage consisting of
cosmetic products;
2. US$2,000.00 or its equivalent at the time of the loss of the clutch bag
containing the money;
3. P200,000.00 by way of moral damages;
4. P50,000.00 by way of exemplary damages or corrective damages;
5. Attorney[]s fees equivalent to 10% of the amounts due and
demandable and awarded in favor of the plaintiff; and

6. The costs of this proceedings."

The two carriers appealed the RTC Decision to the CA.

Ruling of the Court of Appeals
Affirming the RTC, the Court of Appeals debunked petitioners claim that it had
merely acted as an issuing agent for the ticket covering the Hong Kong-Manila leg of
respondents journey. In support of its Decision, the CA quoted a purported ruling
8
of this Court in KLM Royal Dutch Airlines v. Court of Appeals as follows:
"Article 30 of the Warsaw providing that in case of transportation to be
performed by various successive carriers, the passenger can take action
only against the carrier who performed the transportation during which
the accident or the delay occurred presupposes the occurrence of either
an accident or delay in the course of the air trip, and does not apply if the
damage is caused by the willful misconduct on the part of the carriers
employee or agent acting within the scope of his employment.
"It would be unfair and inequitable to charge a passenger with automatic
knowledge or notice of a condition which purportedly would excuse the
carrier from liability, where the notice is written at the back of the ticket in
letters so small that one has to use a magnifying glass to read the words.
To preclude any doubt that the contract was fairly and freely agreed upon
when the passenger accepted the passage ticket, the carrier who issued
the ticket must inform the passenger of the conditions prescribed in the
ticket or, in the very least, ascertain that the passenger read them before
he accepted the passage ticket. Absent any showing that the carriers
officials or employees discharged this responsibility to the passenger, the
latter cannot be bound by the conditions by which the carrier assumed the
role of a mere ticket-issuing agent for other airlines and limited its liability
only to untoward occurrences in its own lines.
"Where the passage tickets provide that the carriage to be performed
thereunder by several successive carriers is to be regarded as a single
operation, the carrier which issued the tickets for the entire trip in effect
guaranteed to the passenger that the latter shall have sure space in the
various carriers which would ferry him through the various segments of
the trip, and the ticket-issuing carrier assumes full responsibility for the
entire trip and shall be held accountable for the breach of that guaranty
whether the breach occurred in its own lines or in those of the other
9
carriers."

On PALs appeal, the appellate court held that the carrier had reneged on its
obligation to transport respondent when, in spite of the confirmations he had
secured for Flight PR 311, his name did not appear in the computerized list of
passengers. Ruling that the airlines negligence was the proximate cause of his
excoriating experience, the appellate court sustained the award of moral and
exemplary damages.
The CA, however, deleted the RTCs award of actual damages amounting to
HK$14,128.80 and US$2,000.00, because the lost piece of luggage and clutch bag
had not actually been "checked in" or delivered to PAL for transportation to Manila.
On August 28, 2001, petitioner filed a Motion for Partial Reconsideration,
contending that the appellate court had erroneously relied on a mere syllabus of
KLM v. CA, not on the actual ruling therein. Moreover, it argued that respondent
was fully aware that the booking for the PAL sector had been made only upon his
request; and that only PAL, not CAL, was liable for the actual carriage of that
segment. Petitioner likewise prayed for a ruling on its cross-claim against PAL,
inasmuch as the latters employees had acted negligently, as found by the trial
court.
Denying the Motion, the appellate court ruled that petitioner had failed to raise any
new matter or issue that would warrant a modification or a reversal of the Decision.
As to the alleged misquotation, the CA held that while the portion it had cited
appeared to be different from the wording of the actual ruling, the variance was
"more apparent than real since the difference [was] only in form and not in
10
substance."
CAL and PAL filed separate Petitions to assail the CA Decision. In its October 3, 2001
Resolution, this Court denied PALs appeal, docketed as GR No. 149544, for failure
to serve the CA a copy of the Petition as required by Section 3, Rule 45, in relation
to Section 5(d) of Rule 56 and paragraph 2 of Revised Circular No. 1-88 of this Court.
PALs Motion for Reconsideration was denied with finality on January 21, 2002.
11

Only the appeal of CAL remains in this Court.

Issues
In its Memorandum, petitioner raises the following issues for the Courts
consideration:
"1. The Court of Appeals committed judicial misconduct in finding liability
against the petitioner on the basis of a misquotation from KLM Royal
Dutch Airlines vs. Court of Appeals, et al., 65 SCRA 237 and in magnifying

its misconduct by denying the petitioners Motion for Reconsideration on a

mere syllabus, unofficial at that.
"2. The Court of Appeals committed an error of law when it did not apply
applicable precedents on the case before it.
"3. The Court of Appeals committed a non sequitur when it did not rule on
12
the cross-claim of the petitioner."
The Courts Ruling
The Petition is not meritorious.
First Issue:
Alleged Judicial Misconduct
Petitioner charges the CA with judicial misconduct for quoting from and basing its
ruling against the two airlines on an unofficial syllabus of this Courts ruling in KLM
v. CA. Moreover, such misconduct was allegedly aggravated when the CA, in an
attempt to justify its action, held that the difference between the actual ruling and
13
the syllabus was "more apparent than real."
We agree with petitioner that the CA committed a lapse when it relied merely on
the unofficial syllabus of our ruling in KLM v. CA. Indeed, lawyers and litigants are
14
mandated to quote decisions of this Court accurately. By the same token, judges
should do no less by strictly abiding by this rule when they quote cases that support
their judgments and decisions. Canon 3 of the Code of Judicial Conduct enjoins
them to perform official duties diligently by being faithful to the law and
maintaining their professional competence.
However, since this case is not administrative in nature, we cannot rule on the CA
justices administrative liability, if any, for this lapse. First, due process requires that
in administrative proceedings, the respondents must first be given an opportunity
to be heard before sanctions can be imposed. Second, the present action is an
appeal from the CAs Decision, not an administrative case against the magistrates
concerned. These two suits are independent of and separate from each other and
cannot be mixed in the same proceedings.
By merely including the lapse as an assigned error here without any adequate and
proper administrative case therefor, petitioner cannot expect the imposition of an
administrative sanction.

In the case at bar, we can only determine whether the error in quotation would be
sufficient to reverse or modify the CA Decision.
Applicability of KLM v. CA
In KLM v. CA, the petitioner therein issued tickets to the Mendoza spouses for their
world tour. The tour included a Barcelona-Lourdes route, which was serviced by the
Irish airline Aer Lingus. At the KLM office in Frankfurt, Germany, they obtained a
confirmation from Aer Lingus of their seat reservations on its Flight 861. On the day
of their departure, however, the airline rudely off-loaded them.
When sued for breach of contract, KLM sought to be excused for the wrongful
conduct of Aer Lingus by arguing that its liability for damages was limited only to
occurrences on its own sectors. To support its argument, it cited Article 30 of the
Warsaw Convention, stating that when transportation was to be performed by
various successive carriers, the passenger could take action only against the carrier
that had performed the transportation when the accident or delay occurred.
In holding KLM liable for damages, we ruled as follows:
"1. The applicability insisted upon by the KLM of article 30 of the Warsaw
Convention cannot be sustained. That article presupposes the occurrence
of either an accident or a delay, neither of which took place at the
Barcelona airport; what is here manifest, instead, is that the Aer Lingus,
through its manager there, refused to transport the respondents to their
planned and contracted destination.
"2. The argument that the KLM should not be held accountable for the
tortious conduct of Aer Lingus because of the provision printed on the
respondents' tickets expressly limiting the KLM's liability for damages only
to occurrences on its own lines is unacceptable. As noted by the Court of
Appeals that condition was printed in letters so small that one would have
to use a magnifying glass to read the words. Under the circumstances, it
would be unfair and inequitable to charge the respondents with automatic
knowledge or notice of the said condition so as to preclude any doubt that
it was fairly and freely agreed upon by the respondents when they
accepted the passage tickets issued to them by the KLM. As the airline
which issued those tickets with the knowledge that the respondents would
be flown on the various legs of their journey by different air carriers, the
KLM was chargeable with the duty and responsibility of specifically
informing the respondents of conditions prescribed in their tickets or, in
the very least, to ascertain that the respondents read them before they
accepted their passage tickets. A thorough search of the record, however,

inexplicably fails to show that any effort was exerted by the KLM officials
or employees to discharge in a proper manner this responsibility to the
respondents. Consequently, we hold that the respondents cannot be
bound by the provision in question by which KLM unilaterally assumed the
role of a mere ticket-issuing agent for other airlines and limited its liability
only to untoward occurrences on its own lines.
"3. Moreover, as maintained by the respondents and the Court of Appeals,
the passage tickets of the respondents provide that the carriage to be
performed thereunder by several successive carriers is to be regarded as a
single operation, which is diametrically incompatible with the theory of
the KLM that the respondents entered into a series of independent
contracts with the carriers which took them on the various segments of
their trip. This position of KLM we reject. The respondents dealt exclusively
with the KLM which issued them tickets for their entire trip and which in
effect guaranteed to them that they would have sure space in Aer Lingus
flight 861. The respondents, under that assurance of the internationally
prestigious KLM, naturally had the right to expect that their tickets would
be honored by Aer Lingus to which, in the legal sense, the KLM had
indorsed and in effect guaranteed the performance of its principal
engagement to carry out the respondents' scheduled itinerary previously
and mutually agreed upon between the parties.
"4. The breach of that guarantee was aggravated by the discourteous and
highly arbitrary conduct of an official of the Aer Lingus which the KLM had
engaged to transport the respondents on the Barcelona-Lourdes segment
of their itinerary. It is but just and in full accord with the policy expressly
embodied in our civil law which enjoins courts to be more vigilant for the
protection of a contracting party who occupies an inferior position with
respect to the other contracting party, that the KLM should be held
responsible for the abuse, injury and embarrassment suffered by the
15
respondents at the hands of a supercilious boor of the Aer Lingus."
In the instant case, the CA ruled that under the contract of transportation,
petitioner -- as the ticket-issuing carrier (like KLM) -- was liable regardless of the fact
that PAL was to perform or had performed the actual carriage. It elucidated on this
point as follows:
"By the very nature of their contract, defendant-appellant CAL is clearly
liable under the contract of carriage with [respondent] and remains to be
so, regardless of those instances when actual carriage was to be performed
by another carrier. The issuance of a confirmed CAL ticket in favor of
[respondent] covering his entire trip abroad concretely attests to this. This

also serves as proof that defendant-appellant CAL, in effect guaranteed

that the carrier, such as defendant-appellant PAL would honor his ticket,
assure him of a space therein and transport him on a particular segment of
16
his trip."

within a territory subject to the sovereignty, suzerainty, mandate, or

23
authority of the same High Contracting Party."
Article 15 of IATA-Recommended Practice similarly provides:

Notwithstanding the errant quotation, we have found after careful deliberation that
the assailed Decision is supported in substance by KLM v. CA. The misquotation by
the CA cannot serve as basis for the reversal of its ruling.

"Carriage to be performed by several successive carriers under one ticket,

or under a ticket and any conjunction ticket issued therewith, is regarded
as a single operation."

Nonetheless, to avert similar incidents in the future, this Court hereby exhorts
members of the bar and the bench to refer to and quote from the official repository
17
of our decisions, the Philippine Reports, whenever practicable. In the absence of
this primary source, which is still being updated, they may resort to unofficial
18
sources like the SCRA. We remind them that the Courts ponencia, when used to
19
support a judgment or ruling, should be quoted accurately.

In American Airlines v. Court of Appeals, we have noted that under a general pool
partnership agreement, the ticket-issuing airline is the principal in a contract of
carriage, while the endorsee-airline is the agent.

Second Issue:
Liability of the Ticket-Issuing Airline
We now come to the main issue of whether CAL is liable for damages. Petitioner
posits that the CA Decision must be annulled, not only because it was rooted on an
erroneous quotation, but also because it disregarded jurisprudence, notably China
20
21
Airlines v. Intermediate Appellate Court and China Airlines v. Court of Appeals.
Jurisprudence Supports CA Decision
It is significant to note that the contract of air transportation was between
petitioner and respondent, with the former endorsing to PAL the Hong Kong-toManila segment of the journey. Such contract of carriage has always been treated
in this jurisdiction as a single operation. This jurisprudential rule is supported by the
22
Warsaw Convention, to which the Philippines is a party, and by the existing
practices of the International Air Transport Association (IATA).
Article 1, Section 3 of the Warsaw Convention states:
"Transportation to be performed by several successive air carriers shall be
deemed, for the purposes of this Convention, to be one undivided
transportation, if it has been regarded by the parties as a single operation,
whether it has been agreed upon under the form of a single contract or of
a series of contracts, and it shall not lose its international character merely
because one contract or a series of contracts is to be performed entirely

24

"x x x Members of the IATA are under a general pool partnership

agreement wherein they act as agent of each other in the issuance of
tickets to contracted passengers to boost ticket sales worldwide and at the
same time provide passengers easy access to airlines which are otherwise
inaccessible in some parts of the world. Booking and reservation among
airline members are allowed even by telephone and it has become an
accepted practice among them. A member airline which enters into a
contract of carriage consisting of a series of trips to be performed by
different carriers is authorized to receive the fare for the whole trip and
through the required process of interline settlement of accounts by way of
the IATA clearing house an airline is duly compensated for the segment of
the trip serviced. Thus, when the petitioner accepted the unused portion
of the conjunction tickets, entered it in the IATA clearing house and
undertook to transport the private respondent over the route covered by
the unused portion of the conjunction tickets, i.e., Geneva to New York,
the petitioner tacitly recognized its commitment under the IATA pool
arrangement to act as agent of the principal contracting airline, Singapore
Airlines, as to the segment of the trip the petitioner agreed to undertake.
As such, the petitioner thereby assumed the obligation to take the place of
the carrier originally designated in the original conjunction ticket. The
petitioners argument that it is not a designated carrier in the original
conjunction tickets and that it issued its own ticket is not decisive of its
liability. The new ticket was simply a replacement for the unused portion
of the conjunction ticket, both tickets being for the same amount of US$
2,760 and having the same points of departure and destination. By
constituting itself as an agent of the principal carrier the petitioners
undertaking should be taken as part of a single operation under the
contract of carriage executed by the private respondent and Singapore
25
Airlines in Manila."

29

Likewise, as the principal in the contract of carriage, the petitioner in British Airways
26
v. Court of Appeals was held liable, even when the breach of contract had
occurred, not on its own flight, but on that of another airline. The Decision followed
27
our ruling in Lufthansa German Airlines v. Court of Appeals, in which we had held
that the obligation of the ticket-issuing airline remained and did not cease,
regardless of the fact that another airline had undertaken to carry the passengers to
one of their destinations.

In Lopez v. Pan American World Airways, we defined bad faith as a breach of a

known duty through some motive of interest or ill will.

In the instant case, following the jurisprudence cited above, PAL acted as the
carrying agent of CAL. In the same way that we ruled against British Airways and
Lufthansa in the aforementioned cases, we also rule that CAL cannot evade liability
to respondent, even though it may have been only a ticket issuer for the Hong
Kong-Manila sector.

It is true that due to a typhoon, PAL was unable to transport respondent on Flight
PR 311 on November 24, 1981. This fact, however, did not terminate the carriers
responsibility to its passengers. PAL voluntarily obligated itself to automatically
transfer all confirmed passengers of PR 311 to the next available flight, PR 307, on
31
the following day. That responsibility was subsisting when respondent, holding a
confirmed ticket for the former flight, presented himself for the latter.

In the case at bar, the known duty of PAL was to transport herein respondent from
Hong Kong to Manila. That duty arose when its agent confirmed his reservation for
30
Flight PR 311, and it became demandable when he presented himself for the trip
on November 24, 1981.

Moral and Exemplary Damages

Both the trial and the appellate courts found that respondent had satisfactorily
proven the existence of the factual basis for the damages adjudged against
petitioner and PAL. As a rule, the findings of fact of the CA affirming those of the
28
RTC will not be disturbed by this Court. Indeed, the Supreme Court is not a trier of
facts. As a rule also, only questions of law -- as in the present recourse -- may be
raised in petitions for review under Rule 45.
Moral damages cannot be awarded in breaches of carriage contracts, except in the
two instances contemplated in Articles 1764 and 2220 of the Civil Code, which we
quote:
"Article 1764. Damages in cases comprised in this Section shall be awarded
in accordance with Title XVIII of this Book, concerning Damages. Article
2206 shall also apply to the death of a passenger caused by the breach of
contract by a common carrier.
xxx

xxx

xxx

"Article 2220. Willful injury to property may be a legal ground for awarding
moral damages if the court should find that, under the circumstances, such
damages are justly due. The same rule applies to breaches of contract
where the defendant acted fraudulently or in bad faith." (Italics supplied)
There is no occasion for us to invoke Article 1764 here. We must therefore
determine if CAL or its agent (PAL) is guilty of bad faith that would entitle
respondent to moral damages.

The records amply establish that he secured repeated confirmations of his PR 311
flight on November 24, 1981. Hence, he had every reason to expect that he would
be put on the replacement flight as a confirmed passenger. Instead, he was
harangued and prevented from boarding the original and the replacement flights.
Thus, PAL breached its duty to transport him. After he had been directed to pay the
terminal fee, his pieces of luggage were removed from the weighing-in counter
32
despite his protestations.
It is relevant to point out that the employees of PAL were utterly insensitive to his
need to be in Manila on November 25, 1981, and to the likelihood that his business
affairs in the city would be jeopardized because of a mistake on their part. It was
that mistake that had caused the omission of his name from the passenger list
despite his confirmed flight ticket. By merely looking at his ticket and validation
sticker, it is evident that the glitch was the airlines fault. However, no serious
attempt was made by PAL to secure the all-important transportation of respondent
to Manila on the following day. To make matters worse, PAL allowed a group of
non-revenue passengers, who had no confirmed tickets or reservations, to board
33
Flight PR 307.
Time and time again, this Court has stressed that the business of common carriers is
imbued with public interest and duty; therefore, the law governing them imposes
34
35
an exacting standard. In Singson v. Court of Appeals, we said:
"x x x [T]he carrier's utter lack of care and sensitivity to the needs of its
passengers, clearly constitutive of gross negligence, recklessness and
wanton disregard of the rights of the latter, [are] acts evidently
indistinguishable or no different from fraud, malice and bad faith. As the
rule now stands, where in breaching the contract of carriage the defendant

airline is shown to have acted fraudulently, with malice or in bad faith, the
award of moral and exemplary damages, in addition to actual damages, is
36
proper." (Italics supplied)
37

In Saludo v. Court of Appeals, the Court reminded airline companies that due to
the nature of their business, they must not merely give cursory instructions to their
personnel to be more accommodating towards customers, passengers and the
general public; they must require them to be so.
The acts of PALs employees, particularly Chan, clearly fell short of the extraordinary
38
standard of care that the law requires of common carriers. As narrated in Chans
39
oral deposition, the manner in which the airline discharged its responsibility to
respondent and its other passengers manifested a lack of the requisite diligence
and due regard for their welfare. The pertinent portions of the Oral Deposition are
reproduced as follows:
"Q
Now you said that flight PR 311 on 24th November was cancelled
due to [a] typhoon and naturally the passengers on said flight had to be
accommodated on the first flight the following day or the first flight
subsequently. [W]ill you tell the Honorable Deposition Officer the
procedure followed by Philippine Airlines in the handling of passengers of
cancelled flight[s] like that of PR 311 which was cancelled due to [a]
typhoon?
A
The procedure will be: all the confirmed passengers from [PR] 311
24th November [are] automatically transfer[red] to [PR] 307, 25th
November[,] as a protection for all disconfirmed passengers.
Q
Aside from this procedure[,] what do you do with the passengers on
the cancelled flight who are expected to check-in on the flights if this flight
is cancelled or not operating due to typhoon or other reasons[?] In other
words, are they not notified of the cancellation?

Atty. Calica:
Q
Per procedure, what should have been done by Reservations Office
when a flight is cancelled for one reason or another?
A
If there is enough time, of course, Reservations Office x x x call[s] up
all the passengers and tell[s] them the reason. But if there [is] no time[,]
40
then the Reservations Office will not be able to do that."
xxx

xxx

"Q
I see. Miss Chan, I [will] show you a ticket which has been marked
as Exh. A and A-1. Will you please go over this ticket and tell the court
whether this is the ticket that was used precisely by Mr. Chiok when he
checked-in at [F]light 307, 25 November 81?
A
[Are you] now asking me whether he used this ticket with this
sticker?
Q

No, no, no. That was the ticket he used.

Yes, [are you] asking me whether I saw this ticket?

Atty. Fruto: Yes.

A

I believe I saw it.

Q
You saw it, O.K. Now of course you will agree with me Miss Chan
that this yellow stub here which has been marked as Exh. A-1-A, show[s]
that the status on flight 311, 24th November, is O.K., correct?
A

A
I think all these passengers were not notified because of a typhoon
and Philippine Airlines Reservation were [sic] not able to call every
passenger by phone.

xxx

Yes.

Q
You agree with me. And you will also agree with me that in this
ticket of flight 311, on this, another sticker Exh. A-1-B for 24 November is
O.K.?

Atty. Fruto:
Q

Did you say were not notified?

I believe they were not, but believe me, I was on day-off.

A
May I x x x look at them. Yes, it says O.K. x x x, but [there is] no
validation.
Q
O.K. Miss Chan what do you understand by these entries here R bar
41
M N 6 V?

This is what we call a computer reference.

Q
I see. This is a computer reference showing that the name of Mr.
Chiok has been entered in Philippine Airlines computer, and this is his
computer number.
A

Correct.

Q
So that since following the O.K. status of Mr. Chioks reservation
[on] flight 311, [he] was also automatically transferred to flight 307 the
following day?
A

A
Swire House building is not directly under Philippine Airlines. it is
just an agency for selling Philippine Airlines ticket. And besides around six
o clock theyre close[d] in Central.

Yes.

Q
Now you stated in your answer to the procedure taken, that all
confirmed passengers on flight 311, 24 November[,] were automatically
transferred to 307 as a protection for the passengers, correct?
A

Q
And did you not try to call up Swire Building-- Philippine Airlines and
verify indeed if Mr. Chiok was there?

Should be.

Q
Should be. O.K. Now do you remember how many passengers x x x
were transferred from flight 311, 24 November to flight 307, 25 November
81?
A
I can only give you a very brief idea because that was supposed to
be air bus so it should be able to accommodate 246 people; but how many
42
[exactly], I dont know."
xxx

xxx

xxx

"Q
So, between six and eight oclock in the evening of 25 November
81, Mr. Chiok already told you that he just [came] from the Swire Building
where Philippine Airlines had [its] offices and that he told you that his
space for 311 25 November 81 was confirmed?
A

Yes.

That is what he told you. He insisted on that flight?

Yes.

Q
So this Swire Building is an agency authorized by Philippine Airlines
to issue tickets for and on behalf of Philippine Airlines and also...
A

Yes.

And also to confirm spaces for and on behalf of Philippine Airlines.

Yes."

43

Under the foregoing circumstances, we cannot apply our 1989 ruling in China
44
Airlines v. Intermediate Appellate Court, which petitioner urges us to adopt. In
that case, the breach of contract and the negligence of the carrier in effecting the
immediate flight connection for therein private respondent was incurred in good
45
faith. Having found no gross negligence or recklessness, we thereby deleted the
46
award of moral and exemplary damages against it.
47

This Courts 1992 ruling in China Airlines v. Court of Appeals is likewise

inapplicable. In that case, we found no bad faith or malice in the airlines breach of
48
its contractual obligation. We held that, as shown by the flow of telexes from one
of the airlines offices to the others, petitioner therein had exercised diligent efforts
in assisting the private respondent change his flight schedule. In the instant case,
petitioner failed to exhibit the same care and sensitivity to respondents needs.
49

In Singson v. Court of Appeals, we said:

"x x x Although the rule is that moral damages predicated upon a breach of
contract of carriage may only be recoverable in instances where the
mishap results in the death of a passenger, or where the carrier is guilty of
fraud or bad faith, there are situations where the negligence of the carrier
is so gross and reckless as to virtually amount to bad faith, in which case,
the passenger likewise becomes entitled to recover moral damages."
In the present case, we stress that respondent had repeatedly secured
confirmations of his PR 311 flight on November 24, 1981 -- initially from CAL and
subsequently from the PAL office in Hong Kong. The status of this flight was marked

"OK" on a validating sticker placed on his ticket. That sticker also contained the
entry "RMN6V." Ms Chan explicitly acknowledged that such entry was a computer
reference that meant that respondents name had been entered in PALs computer.

necessity. In his absence there cannot be a resolution of the dispute of the

parties before the court which is effective, complete, or equitable.
xxx

Since the status of respondent on Flight PR 311 was "OK," as a matter of right
testified to by PALs witness, he should have been automatically transferred to and
allowed to board Flight 307 the following day. Clearly resulting from negligence on
the part of PAL was its claim that his name was not included in its list of passengers
for the November 24, 1981 PR 311 flight and, consequently, in the list of the
replacement flight PR 307. Since he had secured confirmation of his flight -- not
only once, but twice -- by personally going to the carriers offices where he was
consistently assured of a seat thereon -- PALs negligence was so gross and reckless
that it amounted to bad faith.
50

In view of the foregoing, we rule that moral and exemplary damages were
51
properly awarded by the lower courts.
Third Issue:
Propriety of the Cross-Claim
We now look into the propriety of the ruling on CALs cross-claim against PAL.
Petitioner submits that the CA should have ruled on the cross-claim, considering
that the RTC had found that it was PALs employees who had acted negligently.

xxx

xxx

"Without the presence of indispensable parties to a suit or proceeding,

judgment of a court cannot attain real finality."
PALs interest may be affected by any ruling of this Court on CALs cross-claim.
Hence, it is imperative and in accordance with due process and fair play that PAL
should have been impleaded as a party in the present proceedings, before this
Court can make a final ruling on this matter.
Although PAL was petitioners co-party in the case before the RTC and the CA,
petitioner failed to include the airline in the present recourse. Hence, the Court has
no jurisdiction over it. Consequently, to make any ruling on the cross-claim in the
present Petition would not be legally feasible because PAL, not being a party in the
53
present case, cannot be bound thereby.
WHEREFORE, the Petition is DENIED. Costs against petitioner.
SO ORDERED.

Section 8 of Rule 6 of the Rules of Court reads:

"Sec. 8. Cross-claim. - A cross claim is any claim by one party against a coparty arising out of the transaction or occurrence that is the subject matter
either of the original action or of a counterclaim therein. Such cross-claim
may include a claim that the party against whom it is asserted is or may be
liable to the cross-claimant for all or part of a claim asserted in the action
against the cross-claimant."
For purposes of a ruling on the cross-claim, PAL is an indispensable party. In BA
52
Finance Corporation v. CA, the Court stated:
"x x x. An indispensable party is one whose interest will be affected by the
courts action in the litigation, and without whom no final determination of
the case can be had. The partys interest in the subject matter of the suit
and in the relief sought are so inextricably intertwined with the other
parties that his legal presence as a party to the proceeding is an absolute

G.R. No. L-3407

June 29, 1951

PHILIPPINE NATIONAL BANK, plaintiff-appellee,

vs.
BERNARDO BAGAMASPAD and BIENVENIDO M. FERRER, defendants-appellants.
Jose G. Flores, for appellants.
Nemesio P. Labunao for appellee.
MONTEMAYOR, J.:
On May 25, 1948, the plaintiff Philippine National Bank, a banking corporation
organized and operating under the laws of the Philippines, with main office in the
City of Manila and agencies in different provinces like the province of Cotabato,
initiated this suit in the Court of First Instance of Cotabato for the purpose of

collecting from the defendants Bernardo Bagamaspad and Bienvenido M. Ferrer

who, in the years 1946 and 1947, were its Agent and Assistant Agent, respectively,
in its Cotabato Agency, the sum of P704,903.18, said to have been disbursed and
released by them as special crop loans, without authority and in a careless manner
to manifestly insolvent, unqualified or fictitious borrowers, all contrary to the rules
and regulations of the plaintiff Bank. In the course of the trial, upon petition of
plaintiff's counsel, the amount of the claim was reduced to P699,803.57, due to
payments made by some of the borrowers. On March 31, 1949, the trial court
rendered judgment in favor of the plaintiff, ordering both defendants to pay jointly
and severally to it the sum of P699,803.57, representing the uncollected balance of
the special crop loans improperly released by said defendants, with legal interest
thereon from the date of the filing of the complaint, plus costs. The two defendants
appealed from that decision. The appeal was first taken to the Court of Appeals but
in view of the amount involved it was certified to this Tribunal by the said Court of
Appeals.
The uncontroverted facts in the present case may be briefly stated as follows.
Because of the Pacific War and by reason of the destruction and loss of animals of
labor, farm implements, and damage to or abandonment of farm lands, after
liberation there was acute shortage of foodstuff. President Roxas in order to foment
and encourage food production, instructed the plaintiff Philippine National Bank to
extend special facilities to farmers in the form of crop loans in order to enable them
to rehabilitate their farms. In pursuance of said instructions and to cooperate with
the Administration, the plaintiff Bank passed the corresponding resolution (Exhibit
B) authorizing the granting of ten-month special crop loans to bona fide food
producers, land-owners or their tenants, under certain conditions. Delfin
Buencamino, one of the Vice-President of the Bank and head of the Branches and
Agencies Department of said institution, was entrusted with the supervision of the
granting of these loans. Juan Tueres, one of the Assistant Managers of said
Department drafted the corresponding rules and regulations regarding the granting
of said specials crops loans. After approval by Buencamino, these rules and
regulations were embodied in a circular letter (Exhibit C), a copy of which was
personally delivered to defendant Ferrer. These rules and regulations were later
amplified by another circular letter (Exhibit D). Besides circularizing its branches and
agencies with these rules and regulations, on June 14, 1946, the Bank held in
Manila a conference in of all its manager and Agents. Defendant Ferrer, Assistant
Agent of the Cotabato Agency attended the conference in representation of said
Agency. He arrived late but Tueres explained to him what had been discussed
during the conference, emphasizing to him the necessity of exercising diligence and
care in the granting of the crop loans to see to it that they are granted only to bona
fide planters, land-owners or tenants, as well as repeating to him the advice of
Vicente Carmona, President of the bank, that the Managers and Agents of the Bank
should not allow themselves to be fooled.

The Cotabato Agency under the management of the two defendants began granting
these special crop loans in July, 1946, and by March of the following year, 1947,
said Agency had granted to over 5,000 borrowers, loans in the total amount of a
little over eight and half million pesos.
The theory on which the Bank's claim and complaint are based is that the two
defendants Bagamaspad and Ferrer acting as Agent and Assistant Agent of the
Cotabato Agency, in granting new crop loans after November 13, 1946, violated the
instructions of the Bank, and that furthermore, in granting said crop loans, they
acted negligently and did not exercise the care and precaution required of them in
order to prevent the release of crop loans to persons who were neither qualified
borrowers nor entitled to the assistance being rendered by the Government and
the Bank, all contrary to the rules and regulations issued by the Bank.
Because of the form heavy disbursements made by the Cotabato Agency in the
form of crop loans and because of exhaustion of its funds, said agency sent a
telegram, Exhibit 11, dated November 11, 1946, requesting authority from the
central office to secure cash from the Zamboanga Agency. Replying to this
telegram, Delfin Buencamino sent a letter, Exhibit E, dated November 13, 1946,
addressed to the Cotabato Agency stating among other things that the purposes of
these funds (to be obtained from the Zamboanga Agency was to meet the release
of the second installment crop loans being granted which according to the telegram
aggregated P60,000 daily. The letter reminded the Agency's that the Central office
had not yet received the Agency's monthly reports on special crop loans granted, as
required by the regulations, and it emphasized the necessity of performing
inspection of the field to verify whether the amount released as first installment
was actually used for the purpose for which it was granted, before releasing the
second installment. In relation with the said letter, Exhibit F, dated November 18,
1946, to the central office making reference to said Exhibit E, reiterating the
Agency's heavy disbursements on second installments for crop loans and stating
that Ferrer had been instructed to proceed to Zamboanga to secure the needed
cash, and that Ferrer was able to secure P300,000 from the Zamboanga Agency.
Then making reference to and quoting a portion of the letter of Buencamino,
Exhibit E, Bagamaspad in his letter said:
In connection with the following portion:
"In this connection, we would like to state that the purpose of these funds
is to meet the release of the second installment of crop loans being granted
by that agency, which, according to your said telegram, will run to
P600,000 daily."

of your above mentioned letter, may we know if could still entertain new
applicants on Special Crop Loans? We are constrained to request for this
matter because there are now on file no less than 1,000 new applicants
which we could not entertain because of your above quoted statement.
Yesterday they held a demonstration and copy of the picture is hereto
attached. In addition, there are about 5,000 settlers in Koronadal Valley
who, according to your indorsement of Oct. 31, 1946 to the Technical
Assistant to the President of the Philippines, could be given crop loans. If
we could not therefore disburse from the funds taken from Zamboanga
Agency against first installment of applicants on crop loans, we shall
appreciate if you could give us definite course of action towards the
clarifications of our stand to the public.
We are again sending Asst. Agent B.M. Ferrer to Zamboanga to despatch
this letter without delay and wait there for whatever instruction that you
may give with reference to our desire to secure more cash from our
Zamboanga Agency, say P1,000,000 and whether we shall continue
granting special crop loans or not.
With reference to the cash that we desire to secure more, we could tell
you with assurance that the same shall arrive their safely under guard on a
chartered plane which will cost not more than P300 only.
From this letter of Bagamaspad of which his co-defendant and Ferrer must have
been aware, because he himself prepared it upon order of Bagamaspad(pp. 340344, t.s.n.), particularly the portion above-quoted, it will be seen that without
waiting for authority to secure funds from the Zamboanga Agency, Ferrer obtained
P300,000 from said Agency, and that Bagamaspad again had sent Ferrer to
Zamboanga to await instruction from the central office regarding their desire and
intention to secure in additional P1,000,000 for the Cotabato Agency. As matter of
fact, however, once in Zamboanga, and without waiting for instructions, Ferrer
again secured P500,000 from the Zamboanga Agency. It was while Ferrer already
carrying the P500,000 was about to board the plane that was to taken him to
Cotabato, that he received the answer from the central office, Exhibit G, authorizing
him to obtain only P3,0000,000 from the Zamboanga Agency, with the statement
that as soon as the said amount was exhausted, the Cotabato Agency may again
request for replenishment. This letter of the Central Office again emphasized the
necessity of strict compliance with the rules and regulations regarding the required
field inspection before releasing the second installment. The said letter, Exhibit G,
ended with the following:
Concerning the new special crop loan applications numbering about 1,000,
we would like to be informed whether the farms of the said applicants

have already been actually planted, considering that at this period planting
season in low-land palay region is now over. As the purpose for which
special crop loans are being granted by the Bank is to provide the farmers
with funds to meet the expenses of their farms and if said farms have
already been planted, we believe that the farmers may not need said
credit facilities unless it has been found out by actual investigation and
verification that said loans are needed by them.
Please, therefore, let us hear from you regarding this matter. (Emphasis
ours)
In answer to this letter, Exhibit G, defendants sent a telegram, Exhibit H, dated
November 25, 1946 to the central office in Manila, stating that for Cotabato, the
planting season for second crops of December. In answer to Exhibit H, the central
office sent a telegram, Exhibit I, dated November 28, 1946, expressly instructing the
Cotabato Agency to discontinue granting new crop loans. The defendants claim that
this telegram, Exhibit I, was received by them by mail on December 7, 1946.
In their brief the appellant contend that the trial court erred in finding and holding
that extending new special crop loans after November 26, 1946, amounting to
P726,680, as they as Agent and Assistant Agent, respectively, of the of the Cotabato
Agency, did so at their own risk and in violation of the instructions received from
the Manila office; also that the court erred in holding that they (appellants) acted
with extreme laxity, negligence and carelessness in granting said new special crops
loans. On the first assigned error appellants maintain that outside of the telegram,
Exhibit I, which they claim to have received only on December 7, 1946, there was no
instruction by the central office stopping the granting of new special crop loans.
It may be that there was no such express instruction couched in so many words
directly ordering the defendants to stop granting new special crop loans, but that
said idea of the central office could be gathered from its letter, Exhibit E, and that it
was understood and clearly, by the defendants, is evident. If defendants did not so
understand it, namely, that they were no longer authorized to grant new special
crop loans, how else may we interpret the contents of the letter of Bagamaspad,
Exhibit F, particularly that portion wherein after quoting a portion of the central
office letter Exhibit E, he asks if they (defendants) could still entertain new
applications for special crop loans? At least, they then doubted their to grant new
special crop loans and until that doubt was cleared up and determined by new
instructions from their superiors, it was their bounden duty to stop granting new
loans. Appellant Ferrer himself, in response to question asked by the trial court
during the hearing, said that in case of doubt as to whether or not to disburse funds
of the bank, he should consult and await instructions. Appellants asked for
instructions as to whether or not they should grant new special crop loans. This

request for instructions is contained clearly in Bagamaspad's letter, Exhibit F, where

in one paragraph he ask: "May we know if we could still entertain new applications
on special crop loans?" And, in another paragraph he says? "We are again sending
Asst. Agent B.M. Ferrer to Zamboanga . . . and wait there for further instructions
that you may give . . . and whether we shall continue granting special crops loans or
not." The trouble is that without waiting for said requested instructions, appellants
proceeded to grant new special crop loans from November 26, 1946, to January 4,
1947.
Appellants not only granted new special crop loans after they were given to
understand by the central office that they should no longer grant said loans and
before appellants received instructions as to what they should do in that regard,
but they also violated the express instructions of the Bank to the effect that funds
received from the Zamboanga Agency should be utilized only to pay second
installments on special crop loans. Of course, defendants contend that the total of
P800,000 secured from the Zamboanga Agency were all used in paying second
installments, but the contrary is amply established by Exhibit T, a statement
prepared by Felicisimo Lopez, Chief Examiner of the Bank showing that out of the
P500,000 secured from the Zamboanga Agency on or about November 18, 1946,
the amount of P232,931.58 was paid on account of new special crop loans or first
installments. The plaintiff-appellee Bank in its brief explains in details this use of
part of the Zamboanga funds in paying first installments on new crop loans.
As to the alleged error committed by the trial court in finding and holding that the
appellants were extremely lax, negligent and careless in granting new special crop
loans, we quote with approval a portion of the well considered decision of the trial
Judge, Hon. Arsenio Solidum, on this point:
From the evidence of record, one cannot help but be amazed at the
extreme laxity, negligence and carelessness on the part of the defendants
in the granting of the special crop loans. It seems that all precautions to
protect the interest of the Philippine National Bank as the principal of the
defendants were thrown overboard. From all appearances, the door of the
Cotabato Agency was left wide open by the defendants as an invitation for
all persons to come in secure from them special crop loans regardless of
whether or not under the rules prescribed therefor they were rightfully
entitled thereto. . . . (p. 165, Record on Appeal)
xxx

xxx

xxx

What really happened was that in those days of crop loan boom, the
borrowers made a holiday of the funds of the Cotabato Agency of the
Philippine National Bank with indulgence and tolerance of the defendants

as the managing officials of the Agency. And the saddest part of it all was
that the money did not go to the farmers who needed it most but to
unscrupulous persons, who, taking undue advantage of the laxity and
looseness of the defendants in doling out these loans, secured special crop
loan funds without the least idea of investing them in food production
campaign for which they were primarily intended. Part of the booty went
to the pockets of those who acted as intermediaries in the procurement of
the loans under the very noses of the defendants fully knowing that such
practice was prohibited by the rules and regulations of the Philippine
National Bank governing the operation of the provincial agencies (Exhibits
"W", "T-1", to "T-11", "U-1" to "U-2") . . . (pp. 176-177, Record on Appeal)
The lower court as may be seen, severely critcized and condemned the acts of
laxity, negligence and carelessness of the appellants. But the severity of this
criticism and condemnation would appear to be amply warranted by the evidence.
Out of the numerous acts of laxity, negligence and carelessness established by the
record, a few cases may be cited. Exhibit C and D which contain instructions and
rules and regulations governing the granting of special crop loans, provide that
before a crop is granted the Agent or Sub-Agent of the Bank must be satisfied that
the applicant is either landowner well known to be possessing the particular
property on which the crop is to be produced, the particular property on which the
crop ids to be produced, or if the applicant be tenant he must be recommended by
the landowner concerned or in the absence of said landowner must be properly
identified that he is the bona fide tenant actually tilling the land from which the
crop to mortgage would be harvested.
The evidence shows that in violation of these instructions and regulations, the
defendants released large loans aggregating P348,768.22 to about 103 borrowers
who were neither landowners or tenants but only public land sales applicants that
is to say, persons who have merely filed applications to buy public lands. It is a well
known fact that when a person desires to apply for the purchase of public lands
usually containing trees, under brush, cogon or other wild vegetation, and never
previously cultivated, he merely goes over the land, takes it out and then files his
application, tries to determine the location of the land, its identity, proceeds to
classify it to see if it is open to sale and if so, perhaps makes rough survey of it to
establish its exact location and fix boundaries with respect to the entire area of the
public domain. The application naturally carries no implication of occupancy,
possession, much less cultivation and dominion. And yet, in spite of all this, the
applicants who were neither landowners or tenants.
The record further shows that Mr. Villamarzo, District Land Officer for Cotabato
with whom these sale applications had been filed, came to know that he had been
issuing to the applicants, which were nothing but acknowledgements of the filing of

the applications, had been used by said applicants to secure special crop loans, and
so he went to see the appellants as early as the middle of August of 1946 and
advised them that those certificates were issued merely to show that applications
had been filed with him but that it did not mean that said applications had already
been investigated, much less that the lands covered by them had been surveyed.
Then about the end of the same month Villamarzo accompanied by Almonte, a
Division Land Inspector of the Bureau of Lands, again went to the defendants and
repeated the advice and warning. Despite all these, as already stated, appellants
granted new special crop loans to 103 of these public land sales applicants, knowing
as they must have known that the borrowers were neither landowners nor tenants.
Furthermore, it should be remembered that these special crop loans according to
regulations were payable in ten (10) months, and were to be secured by chattel
mortgages on the crops to be produced. A virgin land, especially if covered with
trees or underbrush, needs to be cleared and placed in condition for cultivation
before crops may produced. That work of clearing would take some time. A public
land sale applicant, even assuming that he immediately began to clear the land
applied for even before favorable action on his application is taken, is hardly in a
position to meet the requirements of the regulations governing the granting of
special crop loans, namely, to mortgage the crop he is going to produce, and pay
the loan within ten months.
Appellants in their over-enthusiasm and seemingly inordinate desire to grant as
many loans as possible and in amounts disproportionate to the needs of the
borrowers, admitted and passed upon more loan applications than they could
properly handle. From July, 1946 to March, 1947 the total amount of about eight
and half (81/2) million pesos was released in the form of special crop loans to about
5,105 borrowers and this, in a relatively sparsely populated province like Cotabato.
As a consequence of this big volume of business the bookkeeper of the Agency
could not keep up with the posting of the daily transactions in his books and ledgers
and he was several months behind. There were so many applications acted upon
and accepted that they could not all be carefully examined and many of them do
not even bear the initials or signatures of the appellants as required by regulations.
Some of the chattel mortgages given to secure the payments of the loans, contrary
to regulations, do not show the number of cavans of palay to be produced on the
land and to be mortgaged in favor of the Bank.
Contrary to the Bank's rules and regulations regarding the granting of special crops
loans, the defendants allowed intermediaries to intervene in the granting of special
crop loans. Many lawyers, business agents and other persons intervened in the
granting of the loans. We may have an idea of the of the part played by these
intermediaries by referring to a portion of the report, Exhibit V, prepared by Mr.
Lagdameo, one of the Assistant Managers of the Agencies and Branches

Department of the plaintiff Bank, sent to Cotabato to investigate the crop loan
anomalies in the Cotabato Agency, which portion we quote below:
On top of this, were the heavy expenses incurred by the borrowers to
secure crop loans. The rush was so unprecendented that applicants had to
stay had to stay for weeks in hotels in Cotabato to lobby for the approval
of their applications. They even went to the extent of engaging
intermediaries who in the words of some borrowers were the best ones to
fix things with the agency for the approval and immediate release of the
loan. These intermediaries are government employees and business agents
and particularly practicing attorneys who charged fees up to 5 per cent of
the total loans approved. Instances have been shown that the Agency itself
collected the attorney's fees and delivered them to the parties concerned.
In other cases, the intermediaries themselves were the ones who received
the proceeds of the loans and distributed them to the borrowers. It has
also been found that loan papers including the preparation of promissory
notes, debit tickets, etc., were prepared by said intermediaries and
submitted to the Agency already executed. . . ..
There is evidence to the effect that sometimes the fees of these intermediaries
were collected by the Agency itself and were later turned over to appellant Ferrer,
perhaps to be later given by him to said intermediaries.
One of the provisions of the rules and regulations concerning the granting of loans
is to the effect that loans to be released by a Provincial Agency like that of the
appellant's should be approved by loan Board to be composed of the Agent, like
defendant Bagamaspad; the Assistant Agent, like defendant Ferrer or the Inspector
if there is no Assistant Agent; and the Municipal Treasurer where the borrower
resides. The evidence, however, shows that many of the special crop loans released
by the appellants have not been approved by this Board and others have not even
been approved by anyone of them.
It will be remembered that in the letter of Vice President Buencamino, Exhibit G,
dated November 19, 1946, speaking of the new special crop loan applications
numbering about 1,000 mentioned by appellant Bagamaspad in his letter, Exhibit F,
the plaintiff Bank wanted to know whether on that date, November 19th, the
farmers in Cotabato had already planted their farms in which case there was no
need for obtaining crop loans to meet the expenses of planting. Answering this
query, the Cotabato Agency under the appellants, sent a telegram (Exhibit H) dated
November 25, 1946, to the plaintiff Bank saying that the planting season for
Cotabato for second crops ends in December. This was evidently intended to justify
the granting of special crop loans even at the end of the year. The evidence
however, belies the correctness of this statement and information. Mr. Aniceto

Padilla, Assistant Provincial Agricultural Supervisor, a graduate of the College of

Agriculture of the University of the Philippines, told the court that his office, which
is the Provincial Agricultural Station in Cotabato, has determined the proper period
for planting crops raised in that province and that for upland palay, the planting
season is during the months of March, April up to May; that for lowland palay is
June and July; and that second crops may be planted in September even as late as
October. From this, one may conclude that it is not true as the appellants informed
the bank that the planting season for palay (second crop) in Cotabato ends in
December. Whether this incorrect information was given deliberately or thru
negligence and carelessness, we deem it unnecessary to determine.
To give a further idea of the confusion, lack of care and method with which the
Cotabato Agency was managed by the appellants, the record shows that in January,
1947, Mr. Simeon Intal, Traveling Auditor of the Philippine National Bank, was sent
to Cotabato with instructions to make an audit of the accounts of the Cotabato
Agency and to see for himself the reported irregularities being committed in said
Agency with respect to the granting of special crop loans. According to Mr. Intal he
found the Cotabato Agency like a market place full of people. He saw crop loan
papers like promissory notes, loan applications and chattel mortgages scattered all
over the Agency, some on the desks of employees, on open shelves or on top of
filing cabinets, and others on the floor. He found that transactions which had taken
place five months before were not yet posted in the books of the Agency. In
February, 1947, Mr. Amado Lagdameo, then one of the Assistant Managers of the
Branches and Agencies Department of the Bank, was also sent to Cotabato and
there he found the same condition found and reported by Intal. In order to make
thorough investigation of the anomalies reportedly obtaining in the Cotabato
Agency, Felicisimo Lopez, a certified public accountant and Chief Examiner of the
plaintiff Bank, was sent to Cotabato in June, 1947. He checked up the findings of
Intal about the deplorable condition of the books and records of the Agency and he
agreed with said findings. Lopez and Intal and assisted by Benjamin de Guzman,
Branch Auditor of the Bank at the Davao Branch, Mr. Macuja (who later succeeded
Benjamin de Guzman), Mr. Juan B. Sanchez, now Branch Auditor in Legaspi, Mr.
Antonio Cruz of the Head Office, Mr. Danao from Oriental Misamis, Mr. Fernandez
from Zamboanga and Mr. Romena of the Davao Branch, went to work on the books
and records of the books and records of the Cotabato Agency and it took them
almost four months to straighten out the special crop loan accounts and bring the
books up-to-date, after which, they found that as of June 10, 1947, the Cotabato
Agency had released special crop loans in the aggregate sum of P8,688,864.
To us who have always had the impression and the idea that the business of a Bank
is conducted in an orderly, methodical and businesslike manner, that its papers,
especially those relating to loans with their corresponding securities, are properly
filed, well-kept and in a safe place, its books kept up-to-date, and that its funds are

not given out in loans without careful and scrupulous scrutiny of the responsibility
and solvency of the borrowers and the sufficiency of the security given by them, the
conditions obtaining in the Cotabato Agency due to the apparent indifference,
carelessness or negligence of the appellants, is indeed shocking. And it is because of
these shortcomings of the appellants their disregard of the elementary rules and
practice of banking and their violation of instructions of their superiors, that these
anomalies resulting in financial losses to the Bank were made possible.
The trial court based the civil liability of the appellants herein on the provisions of
Arts. 1718 and 1719 of the Civil Code, defining and enumerating the duties and
obligations of an agent and his liability for failure to comply with such duties, and
Art. 259 of the Code of Commerce which provides that an agent must observe the
provisions of law and regulations with respect to business transactions entrusted to
him otherwise he shall be responsible for the consequences resulting from their
breach or omissions; and also Art. 1902 of the Civil Code which provides for the
liability of one for his tortious act, that is to say, any act or omission which causes
damage to another by his fault or negligence. Appellants while agreeing with the
meaning and scope of the legal provisions cited, nevertheless insist that those
provisions are not applicable to them inasmuch as they are not guilty of any
violation of instructions or regulations of the plaintiff Bank; and that neither are
they guilty of negligence of carelessness as found by the trial court. A careful study
and consideration of the record, however, convinces us and we agree with the trial
court that the defendants-appellants have not only violated instructions of the
plaintiff Bank, including things which said Bank wanted done or not done, all of
which were fully understood by them, but they (appellants) also violated standing
regulations regarding the granting of loans; and, what is more, thru their
carelessness, laxity and negligence, they allowed loans to be granted to persons
who were not entitled to receive loans.
It is the contention of the appellants that the act of plaintiff Bank in filling suits
against the borrowers to whom appellants were said to have granted loans without
authority, which suits resulted in the payment of part of said loans resulting in the
reduction of the original claim of the plaintiff Bank from P704,903.18 to
P699,803.57, should be interpreted and considered as a ratification of the acts of
the appellants. What is more, it is more, it is contended that it would be iniquitous
for the plaintiff to go against the defendants for whatever amounts may have been
loaned by the latter and at the same time go against the individual borrowers for
collection of the respective sums borrowed by them. That would be enriching the
plaintiff at the expense of the defendants." We cannot subscribe to this theory. As
pointed out by Counsel for appellee, ordinarily, a principal who collects either
judicially or extrajudicially a loan made by an agent without authority, thereby
ratifies the said act of the agent. In the present case, however, in filing suits against
some of the borrowers to collect at least part of the unauthorized loans, there was

no intention on the part of the plaintiff Bank to ratify the acts of appellants. Neither
did the plaintiff receive any substantial benefit by its act of filing these suits if we
consider the fact that the collections so far made, form a small or insignificant
portion of the entire principal and interest. And, we fail to see any iniquity in this
act of the plaintiff in suing some of the borrowers to collect what it could at the
same time holding the appellants liable for the balance, because the plaintiff Bank is
not trying to enrich itself at the expense of the defendants but is merely trying to
diminish as much as possible the loss to itself and automatically decrease the
financial liability of appellants. Considering the large amount for which appellants
are found liable, it is a matter of serious doubt if they are in a position to pay it.
Moreover, whatever amount is collected by the plaintiff Bank from borrowers,
serves to diminish the financial liability of the appellants, in the same way that the
original claim of P704,903.18, at the very instance of plaintiff was reduced to
P699,803.57. In other words, the act of the plaintiff Bank in the matter, far from
being iniquitous, is really beneficial to the appellants.

making the excessive loan to undo the wrong done by taking the notes off
the hands of the Bank and restoring to it the money that had been loaned.
Of course, whatever of value the Bank recovered from the borrowers on
account of the loan would go in diminution of the damages; but the
responsible officials would have no right to require the Bank to pursue its
remedies against the borrowers or await the liquidation of their estates.
The liability imposed by the statute upon the director is a direct liability,
not contingent or collateral.
In view of all the foregoing, and finding no reversible error in the decision appealed
from, the same is hereby affirmed with costs against the appellants. So ordered.
Paras, C. J., Feria, Pablo, Bengzon, Tuason, Jugo and Bautista Angelo, JJ., concur.

Appellants further contend that the present action is rather premature for the
reason that there is no showing that the borrowers to whom they allegedly gave
loans without authority, are manifestly insolvent or unqualified, and that the loans
granted to them are uncollectible and have been written off the books of the Bank
as "bad debts". We find this contention untenable. It is not necessary for the
plaintiff Bank to first go against the individual borrowers, exhaust all remedies
against them and then hold the defendants liable only for the balance which cannot
be collected. The case of Corsicana National Bank vs. Johnson, 64 L. ed. 141, cited
by the trial court and by the plaintiff bank is in point. The issue in that case whether
or not a bank could proceed against one of its officials for losses which it had
sustained in consequence of the unauthorized loans released by said official, or
whether it should first pursue its remedies against the borrowers or await the
liquidation of their estates. The Supreme Court of the United States in said case
held that the cause of action of the Bank accrued and the injury to it was complete
on the very day that the amounts of the unauthorized loans were released by the
erring official. We quote a part of that decision:
Assuming the Fleming and Templeton notes were found to represent an
excessive loan, knowingly participated in or assented to by defendant as a
director of the Bank, in our opinion the cause of action against him accrued
on or about June 10, 1907, when the Bank, through his act, parted with the
money loaned, receiving in return only negotiable paper that it could not
lawfully accept because the transaction was prohibited by section 5200,
Rev. Stat. (Comp. Stat. section 9761, 6 Fed. Stat. Anno. 2d ed., p. 761). The
damage as well as the injury was complete at that time, and the Bank was
not obliged to await the maturity of the notes, because immediately it
became the duty of the officers or directors who knowingly participated in

[G.R. No. 82978. November 22, 1990.]

THE MANILA REMNANT CO., INC., Petitioner, v. THE HONORABLE COURT OF
APPEALS and OSCAR VENTANILLA, JR. and CARMEN GLORIA DIAZ, Respondents.
Bede S. Talingcos, for Petitioners.
Augusto Gatmaytan for Private Respondent.

SYLLABUS

between a subdivision owner and its real estate agent.

1. CIVIL LAW; AGENCY; FAILURE OF THE PRINCIPAL TO CORRECT AN IRREGULARITY

DESPITE KOWLEDGE THEREOF, DEEMED A RATIFICATION OF THE ACT OF THE
AGENT. 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. (See Art. 1910, Civil Code.)
2. ID.; ID.; PRINCIPLE OF ESTOPPEL; REASON AND EFFECT THEREOF; CASE AT BAR.
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." 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 feasors whose liability is joint and solidary (Verzosa v. Lim, 45
Phil. 416). 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 agents misdeed is of no moment.

DECISION

FERNAN, 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

The facts as found by the trial court and adopted by the Appellate Court are as
follows:chanrob1es virtual 1aw library
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.cralawnad
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 Valencias 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 Valencias scheme. Thus, the Ventanillas
continued paying their monthly installments.chanrobles virtual lawlibrary
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 Ventanillas 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 Remnants 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 courts 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 1 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 signed 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.chanrobles.com:cralaw:red
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 Crisostomos 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 attorneys fees. 17
Subsequently, Manila Remnant and A.U. Valencia and Co. elevated the lower
courts 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 in 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 attorneys
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."
chanrobles.com.ph : virtual law library
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:jgc:chanrobles.com.ph
"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."
(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 feasors 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 agents misdeed is of no moment. Consider the following
circumstances:chanrob1es virtual 1aw library
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:jgc:chanrobles.com.ph
"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." (Emphasis 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.chanrobles virtual lawlibrary
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 Valencias 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 Remnants 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.chanrobles.com.ph :
virtual law library
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.
G.R. No. 137686

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 C-2); 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)
4
PESOS as exemplary damages; and to pay the costs.
5

Also assailed is the February 26, 1999 CA Resolution which denied petitioner's
Motion for Reconsideration.
The Facts

February 8, 2000

The trial court's summary of the undisputed facts was reproduced in the CA
Decision as follows:

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,
1
1998 Decision of the Court of Appeals (CA) in CA-GR SP No. 46246, which affirmed
2
the May 20, 1997 Decision 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
3
AFFIRMED. Costs against the respondent-appellant.
The dispositive portion of the judgment affirmed by the CA ruled in this wise:

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
6
medication as they do not have money.
The trial court granted the Petition. As noted earlier, the CA affirmed the RTC
Decision.
7

Hence, this recourse. 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. RTC8
96-3513, effective immediately until further orders from this Court."

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
10
rural banking corporation?
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
11
allegations of the complaint. 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:

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
9

In its Memorandum, 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?

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

13

acknowledged that Tena was authorized to sign the Deed of Sale on its behalf.
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

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
12
original instrument is refused.
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

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
14
Manager Tena, even though such agent is abusing her authority. 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
15
of Liquidators v. Kalaw:
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
16
directing power of the corporation."
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
17
such agent, be estopped from denying the agent's authority.
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. Petitioner-bank 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.