G.R. No.

102784 February 28, 1996

ROSA LIM, petitioner,

vs.
COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents.

SYLLABUS

1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACTS ARE OBLIGATORY IN WHATEVER FORM
ENTERED; PLACE OF SIGNATURE IMMATERIAL; PARTY BOUND THEREON THE MOMENT SHE AFFIXED HER
SIGNATURE. Rosa Lims signature indeed appears on the upper portion of the receipt immediately below
the description of the items taken. We find that this fact does not have the effect of altering the terms of the
transaction from a contract of agency to sell on commission basis to a contract of sale. Neither does it
indicate absence or vitiation of consent thereto on the part of Rosa Lim which would make the contract void
or voidable. The moment she affixed her signature thereon, petitioner became bound by all the terms
stipulated in the receipt. She, thus, opened herself to all the legal obligations that may arise from their
breach. This is clear from Article 1356 of the New Civil Code which provides: "Contracts shall be obligatory
in whatever form they may have been entered into, provided all the essential requisites for their validity are
present." In the case before us, the parties did not execute a notarial will but a simple contract of agency to
sell on commission basis, thus making the position of petitioners signature thereto immaterial.

2. ID.; ID.; CONTRACT OF AGENCY; NO FORMALITIES REQUIRED. There are some provisions of the law
which require certain formalities for particular contracts. The first is when the form is required for the
validity of the contract; the second is when it is required to make the contract effective as against the third
parties such as those mentioned in Articles 1357 and 1358; and the third is when the form is required for
the purpose of proving the existence of the contract, such as those provided in the Statute of Frauds in
Article 1403. A contract of agency to sell on commission basis does not belong to any of these three
categories, hence, it is valid and enforceable in whatever form it may be entered into.

3. REMEDIAL LAW; EVIDENCE; WEIGHT THEREOF NOT DETERMINED BY SUPERIORITY IN NUMBERS OF

WITNESSES. Weight of evidence is not determined mathematically by the numerical superiority of the
witnesses testifying to a given fact. It depends upon its practical effect in inducing belief on the part of the
judge trying the case.

4. ID.; ID.; CREDIBILITY; FINDINGS OF THE TRIAL AND APPELLATE COURTS GENERALLY NOT INTERFERED
WITH ON APPEAL. In the case at bench, both the trial court and the Court of Appeals gave weight to the
testimony of Vicky Suarez that she did not authorize Rosa Lim to return the pieces of jewelry to Nadera. We
shall not disturb this finding of the respondent court. It is well settled that we should not interfere with the
judgment of the trial court in determining the credibility of witnesses, unless there appears in the record
some fact or circumstances of weight and influence which has been overlooked or the significance of which
has been misinterpreted. The reason is that the trial court is in a better position to determine questions
involving credibility having heard the witnesses and having observed their deportment and manner of
testifying during the trial.

5. CRIMINAL LAW; ESTAFA WITH ABUSE OF CONFIDENCE; ELEMENTS. The elements of estafa with abuse
of confidence under this subdivision are as follows: (1) That money, goods, or other personal property be
received by the offender in trust, or on commission, or for administration, or under any other obligation
involving the duty to make delivery of, or to return, the same; (2) That there be misappropriation or
conversion of such money or property by the offender or denial on his part of such receipt, (3) That such
misappropriation or conversion or denial is to the prejudice of another; and (4) That there is a demand
made by the offended party to the offender (Note: The 4th element is not necessary when there is evidence
of misappropriation of the goods by the defendant).

6. ID.; ID.; ID.; PRESENT IN CASE AT BAR. All the elements of estafa under Article 315, Paragraph 1(b)
of the Revised Penal Code, are present in the case at bench. First, the receipt marked as Exhibit "A" proves
that petitioner Rosa Lim received the pieces of jewelry in trust from Vicky Suarez to be sold on commission
basis. Second, petitioner misappropriated or converted the jewelry to her own use; and, third, such
misappropriation obviously caused damaged and prejudice to the private Respondent.
 DECISION

HERMOSISIMA, JR., J.:

This is a petition to review the Decision of the Court of Appeals in CA-G.R. CR No. 10290, entitled
"People v. Rosa Lim," promulgated on August 30, 1991.

On January 26, 1989, an Information for Estafa was filed against petitioner Rosa Lim before Branch
92 of the Regional Trial Court of Quezon City.1 The Information reads:

That on or about the 8th day of October 1987, in Quezon City, Philippines and within the
jurisdiction of this Honorable Court, the said accused with intent to gain, with unfaithfulness
and/or abuse of confidence, did, then and there, wilfully, unlawfully and feloniously defraud
one VICTORIA SUAREZ, in the following manner, to wit: on the date and place
aforementioned said accused got and received in trust from said complainant one (1) ring
3.35 solo worth P169,000.00, Philippine Currency, with the obligation to sell the same on
commission basis and to turn over the proceeds of the sale to said complainant or to return
said jewelry if unsold, but the said accused once in possession thereof and far from
complying with her obligation despite repeated demands therefor, misapplied,
misappropriated and converted the same to her own personal use and benefit, to the
damage and prejudice of the said offended party in the amount aforementioned and in such
other amount as may be awarded under the provisions of the Civil Code.

CONTRARY TO LAW.2

After arraignment and trial on the merits, the trial court rendered judgment, the dispositive portion of
which reads:

WHEREFORE, in view of the foregoing, judgment is hereby rendered:

1. Finding accused Rosa Lim GUILTY beyond reasonable doubt of the offense of estafa as
defined and penalized under Article 315, paragraph 1(b) of the Revised Penal Code;

2. Sentencing her to suffer the Indeterminate penalty of FOUR (4) YEARS and TWO (2)
MONTHS of prision correccional as minimum, to TEN (10) YEARS of prision mayor as
maximum;

3. Ordering her to return to the offended party Mrs. Victoria Suarez the ring or its value in the
amount of P169,000 without subsidiary imprisonment in case insolvency; and

4. To pay costs.3

On appeal, the Court of Appeals affirmed the judgment of conviction with the modification that the
penalty imposed shall be six (6) years, eight (8) months and twenty-one (21) days to twenty (20)
years in accordance with Article 315, paragraph 1 of the Revised Penal Code.4

Petitioner filed a motion for reconsideration before the appellate court on September 20, 1991, but
the motion was denied in a Resolution dated November 11, 1991.
In her final bid to exonerate herself, petitioner filed the instant petition for review alleging the
following grounds:

THE RESPONDENT COURT VIOLATED THE CONSTITUTION, THE RULES OF COURT

AND THE DECISION OF THIS HONORABLE COURT IN NOT PASSING UPON THE FIRST
AND THIRD ASSIGNED ERRORS IN PETITIONER'S BRIEF;

II

THE RESPONDENT COURT FAILED TO APPLY THE PRINCIPLE THAT THE PAROL
EVIDENCE RULE WAS WAIVED WHEN THE PRIVATE PROSECUTOR CROSS-
EXAMINED THE PETITIONER AND AURELIA NADERA AND WHEN COMPLAINANT WAS
CROSS-EXAMINED BY THE COUNSEL FOR THE PETITIONER AS TO THE TRUE
NATURE OF THE AGREEMENT BETWEEN THE PARTIES WHEREIN IT WAS
DISCLOSED THAT THE TRUE AGREEMENT OF THE PARTIES WAS A SALE OF
JEWELRIES AND NOT WHAT WAS EMBODIED IN THE RECEIPT MARKED AS EXHIBIT
"A" WHICH WAS RELIED UPON BY THE RESPONDENT COURT IN AFFIRMING THE
JUDGMENT OF CONVICTION AGAINST HEREIN PETITIONER; and

III

THE RESPONDENT COURT FAILED TO APPLY IN THIS CASE THE PRINCIPLE

ENUNCIATED BY THIS HONORABLE COURT TO THE EFFECT THAT "ACCUSATION" IS
NOT, ACCORDING TO THE FUNDAMENTAL LAW, SYNONYMOUS WITH GUILT: THE
PROSECUTION MUST OVERTHROW THE PRESUMPTION OF INNOCENCE WITH
PROOF OF GUILT BEYOND REASONABLE DOUBT. TO MEET THIS STANDARD, THERE
IS NEED FOR THE MOST CAREFUL SCRUTINY OF THE TESTIMONY OF THE STATE,
BOTH ORAL AND DOCUMENTARY, INDEPENDENTLY OF WHATEVER DEFENSE IS
OFFERED BY THE ACCUSED. ONLY IF THE JUDGE BELOW AND THE APPELLATE
TRIBUNAL COULD ARRIVE AT A CONCLUSION THAT THE CRIME HAD BEEN
COMMITTED PRECISELY BY THE PERSON ON TRIAL UNDER SUCH AN EXACTING
TEST SHOULD SENTENCE THUS REQUIRED THAT EVERY INNOCENCE BE DULY
TAKEN INTO ACCOUNT. THE PROOF AGAINST HIM MUST SURVIVE THE TEST OF
REASON; THE STRONGEST SUSPICION MUST NOT BE PERMITTED TO SWAY
JUDGMENT. (People v. Austria, 195 SCRA 700)5

Herein the pertinent facts as alleged by the prosecution.

On or about October 8, 1987, petitioner Rosa Lim who had come from Cebu received from private
respondent Victoria Suarez the following two pieces of jewelry; one (1) 3.35 carat diamond ring
worth P169,000.00 and one (1) bracelet worth P170,000.00, to be sold on commission basis. The
agreement was reflected in a receipt marked as Exhibit "A"6 for the prosecution. The transaction took
place at the Sir Williams Apartelle in Timog Avenue, Quezon City, where Rosa Lim was temporarily
billeted.

On December 15, 1987, petitioner returned the bracelet to Vicky Suarez, but failed to return the
diamond ring or to turn over the proceeds thereof if sold. As a result, private complainant, aside from
making verbal demands, wrote a demand letter7 to petitioner asking for the return of said ring or the
proceeds of the sale thereof. In response, petitioner, thru counsel, wrote a letter8 to private
respondent's counsel alleging that Rosa Lim had returned both ring and bracelet to Vicky Suarez
sometime in September, 1987, for which reason, petitioner had no longer any liability to Mrs. Suarez
insofar as the pieces of jewelry were concerned. Irked, Vicky Suarez filed a complaint for estafa
under Article 315, par l(b) of the Revised Penal Code for which the petitioner herein stands
convicted.

Petitioner has a different version.

Rosa Lim admitted in court that she arrived in Manila from Cebu sometime in October 1987, together
with one Aurelia Nadera, who introduced petitioner to private respondent, and that they were lodged
at the Williams Apartelle in Timog, Quezon City. Petitioner denied that the transaction was for her to
sell the two pieces of jewelry on commission basis. She told Mrs. Suarez that she would consider
buying the pieces of jewelry far her own use and that she would inform the private complainant of
such decision before she goes back to Cebu. Thereafter, the petitioner took the pieces of jewelry
and told Mrs. Suarez to prepare the "necessary paper for me to sign because I was not yet prepare
(d) to buy it."9 After the document was prepared, petitioner signed it. To prove that she did not agree
to the terms of the receipt regarding the sale on commission basis, petitioner insists that she signed
the aforesaid document on the upper portion thereof and not at the bottom where a space is
provided for the signature of the person(s) receiving the jewelry. 10

On October 12, 1987 before departing for Cebu, petitioner called up Mrs. Suarez by telephone in
order to inform her that she was no longer interested in the ring and bracelet. Mrs. Suarez replied
that she was busy at the time and so, she instructed the petitioner to give the pieces of jewelry to
Aurelia Nadera who would in turn give them back to the private complainant. The petitioner did as
she was told and gave the two pieces of jewelry to Nadera as evidenced by a handwritten receipt,
dated October 12, 1987. 11

Two issues need to be resolved: First, what was the real transaction between Rosa Lim and Vicky
Suarez a contract of agency to sell on commission basis as set out in the receipt or a sale on credit;
and, second, was the subject diamond ring returned to Mrs. Suarez through Aurelia Nadera?

Petitioner maintains that she cannot be liable for estafa since she never received the jewelries in
trust or on commission basis from Vicky Suarez. The real agreement between her and the private
respondent was a sale on credit with Mrs. Suarez as the owner-seller and petitioner as the buyer, as
indicated by the bet that petitioner did not sign on the blank space provided for the signature of the
person receiving the jewelry but at the upper portion thereof immediately below the description of the
items taken. 12

The contention is far from meritorious.

The receipt marked as Exhibit "A" which establishes a contract of agency to sell on commission
basis between Vicky Suarez and Rosa Lim is herein reproduced in order to come to a proper
perspective:

THIS IS TO CERTIFY, that I received from Vicky Suarez PINATUTUNAYAN KO na aking

tinanggap kay ___________ the following jewelries:

ang mga alahas na sumusunod:

Description Price
Mga Uri Halaga
 l ring 3.35 dolo P 169,000.00
1 bracelet 9;170,000.00
total P 339,000.00
Kabuuan

in good condition, to be sold in CASH ONLY within . . . days from date of signing this receipt
na nasa mabuting kalagayan upang ipagbili ng KALIWAAN (ALCONTADO) lamang sa loob
ng . . . araw mula ng ating pagkalagdaan:

if I could not sell, I shall return all the jewelry within the period mentioned above; if I
would be able to sell, I shall immediately deliver and account the whole proceeds of
sale thereof to the owner of the jewelries at his/her residence; my compensation or
commission shall be the over-price on the value of each jewelry quoted above. I am
prohibited to sell any jewelry on credit or by installment; deposit, give for
safekeeping: lend, pledge or give as security or guaranty under any circumstance or
manner, any jewelry to other person or persons.

kung hindi ko maipagbili ay isasauli ko ang lahat ng alahas sa loob ng taning na

panahong nakatala sa itaas; kung maipagbili ko naman ay dagli kong isusulit at
ibibigay ang buong pinagbilhan sa may-ari ng mga alahas sa kanyang bahay
tahanan; ang aking gantimpala ay ang mapapahigit na halaga sa nakatakdang
halaga sa itaas ng bawat alahas HINDI ko ipinahihintulutang ipa-u-u-tang o ibibigay
na hulugan ang alin mang alahas, ilalagak, ipagkakatiwala; ipahihiram; isasangla o
ipananagot kahit sa anong paraan ang alin mang alahas sa ibang mga tao o tao.

I sign my name this . . . day of . . . 19 . . . at Manila, NILALAGDAAN ko ang kasunduang ito

ngayong ika _____ ng dito sa Maynila.

___________________
Signature of Persons who
received jewelries (Lagda
ng Tumanggap ng mga
Alahas)

Address: . . . . . . . . . . . .

Rosa Lim's signature indeed appears on the upper portion of the receipt immediately below the
description of the items taken: We find that this fact does not have the effect of altering the terms of
the transaction from a contract of agency to sell on commission basis to a contract of sale. Neither
does it indicate absence or vitiation of consent thereto on the part of Rosa Lim which would make
the contract void or voidable. The moment she affixed her signature thereon, petitioner became
bound by all the terms stipulated in the receipt. She, thus, opened herself to all the legal obligations
that may arise from their breach. This is clear from Article 1356 of the New Civil Code which
provides:

Contracts shall be obligatory in whatever form they may have been entered into, provided all
the essential requisites for their validity are present. . . .

However, there are some provisions of the law which require certain formalities for particular
contracts. The first is when the form is required for the validity of the contract; the second is when it
is required to make the contract effective as against third parties such as those mentioned in Articles
1357 and 1358; and the third is when the form is required for the purpose of proving the existence of
the contract, such as those provided in the Statute of Frauds in article 1403. 13 A contract of agency
to sell on commission basis does not belong to any of these three categories, hence it is valid and
enforceable in whatever form it may be entered into.

Furthermore, there is only one type of legal instrument where the law strictly prescribes the location
of the signature of the parties thereto. This is in the case of notarial wills found in Article 805 of the
Civil Code, to wit:

Every will, other than a holographic will, must be subscribed at the end thereof by the
testator himself . . . .

The testator or the person requested by him to write his name and the instrumental
witnesses of the will, shall also sign, as aforesaid, each and every page thereof, except the
last, on the left margin. . . .

In the case before us, the parties did not execute a notarial will but a simple contract of agency to
sell on commission basis, thus making the position of petitioner's signature thereto immaterial.

Petitioner insists, however, that the diamond ring had been returned to Vicky Suarez through Aurelia
Nadera, thus relieving her of any liability. Rosa Lim testified to this effect on direct examination by
her counsel:

Q: And when she left the jewelries with you, what did you do thereafter?

A: On October 12, I was bound for Cebu. So I called up Vicky through telephone and
informed her that I am no longer interested in the bracelet and ring and that I will just return
it.

Q: And what was the reply of Vicky Suarez?

A: She told me that she could not come to the apartelle since she was very busy. So, she
asked me if Aurelia was there and when I informed her that Aurelia was there, she instructed
me to give the pieces of jewelry to Aurelia who in turn will give it back to Vicky.

Q: And you gave the two (2) pieces of jewelry to Aurelia Nadera?

A: Yes, Your Honor. 14

This was supported by Aurelia Nadera in her direct examination by petitioner's counsel:

Q: Do you know if Rosa Lim in fact returned the jewelries?

A: She gave the jewelries to me.

Q: Why did Rosa Lim give the jewelries to you?

A: Rosa Lim called up Vicky Suarez the following morning and told Vicky Suarez that she
was going home to Cebu and asked if she could give the jewelries to me.
 Q: And when did Rosa Lim give to you the jewelries?

A: Before she left for Cebu. 15

On rebuttal, these testimonies were belied by Vicky Suarez herself:

Q: It has been testified to here also by both Aurelia Nadera and Rosa Lim that you gave
authorization to Rosa Lim to turn over the two (2) pieces of jewelries mentioned in Exhibit "A"
to Aurelia Nadera, what can you say about that?

A: That is not true sir, because at that time Aurelia Nadera is highly indebted to me in the
amount of P140,000.00, so if I gave it to Nadera, I will be exposing myself to a high risk. 16<

The issue as to the return of the ring boils down to one of credibility. Weight of evidence is not
determined mathematically by the numerical superiority of the witnesses testifying to a given fact. It
depends upon its practical effect in inducing belief on the part of the judge trying the case.17 In the
case at bench, both the trial court and the Court of Appeals gave weight to the testimony of Vicky
Suarez that she did not authorize Rosa Lim to return the pieces of jewelry to Nadera. The
respondent court, in affirming the trial court, said:

. . . This claim (that the ring had been returned to Suarez thru Nadera) is disconcerting. It
contravenes the very terms of Exhibit A. The instruction by the complaining witness to
appellant to deliver the ring to Aurelia Nadera is vehemently denied by the complaining
witness, who declared that she did not authorize and/or instruct appellant to do so. And thus,
by delivering the ring to Aurelia without the express authority and consent of the complaining
witness, appellant assumed the right to dispose of the jewelry as if it were hers, thereby
committing conversion, a clear breach of trust, punishable under Article 315, par. 1(b),
Revised Penal Code.

We shall not disturb this finding of the respondent court. It is well settled that we should not interfere
with the judgment of the trial court in determining the credibility of witnesses, unless there appears in
the record some fact or circumstance of weight and influence which has been overlooked or the
significance of which has been misinterpreted. The reason is that the trial court is in a better position
to determine questions involving credibility having heard the witnesses and having observed their
deportment and manner of testifying during the trial. 18

Article 315, par. 1(b) of the Revised Penal Code provides:

Art. 315. Swindling (estafa). Any person who shall defraud another by any of the means
mentioned hereinbelow shall be punished by:

xxx xxx xxx

(b) By misappropriating or converting, to the prejudice of another, money, goods, or any

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

xxx xxx xxx

The elements of estafa with abuse of confidence under this subdivision are as follows. (1) That
money, goods, or other personal property be received by the offender in trust, or on commission, or
for administration, or under any other obligation involving the duty to make delivery of, or to return,
the same; (2) That there be misappropriation or conversion of such money or property by the
offender or denial on his part of such receipt; (3) That such misappropriation or conversion or denial
is to the prejudice of another; and (4) That there is a demand made by the offended party to the
offender (Note: The 4th element is not necessary when there is evidence of misappropriation of the
goods by the defendant) 19

All the elements of estafa under Article 315, Paragraph 1(b) of the Revised Penal Code, are present
in the case at bench. First, the receipt marked as Exhibit "A" proves that petitioner Rosa Lim
received the pieces of jewelry in trust from Vicky Suarez to be sold on commission basis. Second,
petitioner misappropriated or converted the jewelry to her own use; and, third, such misappropriation
obviously caused damage and prejudice to the private respondent.

WHEREFORE, the petition is DENIED and the Decision of the Court of Appeals is hereby
AFFIRMED.

Costs against petitioner.

SO ORDERED.

G.R. No. 142950 March 26, 2001

EQUITABLE PCI BANK, formerly EQUITABLE BANKING CORPORATION, petitioner,

vs.
ROSITA KU, respondent.

KAPUNAN, J.:

Can a person be evicted by virtue of a decision rendered in an ejectment case where she was not
joined as a party? This was the issue that confronted the Court of Appeals, which resolved the issue
in the negative. To hold the contrary, it said, would violate due process. Given the circumstances of
the present case, petitioner Equitable PCI Bank begs to differ. Hence, this petition.

On February 4, 1982, respondent Rosita Ku, as treasurer of Noddy Dairy Products, Inc., and Ku
Giok Heng, as Vice-President/General Manager of the same corporation, mortgaged the subject
property to the Equitable Banking Corporation, now known as Equitable PCI Bank to secure Noddy
Inc.s loan to Equitable. The property, a residential house and lot located in La Vista, Quezon City,
was registered in respondents name.

Noddy, Inc. subsequently failed to pay the loan secured by the mortgage, prompting petitioner to
foreclose the property extrajudicially. As the winning bidder in the foreclosure sale, petitioner was
issued a certificate of sale. Respondent failed to redeem the property. Thus, on December 10, 1984,
the Register of Deeds canceled the Transfer Certificate of Title in the name of respondent and a new
one was issued in petitioners name.

On May 10, 1989, petitioner instituted an action for ejectment before the Quezon City Metropolitan
Trial Court (MeTC) against respondents father Ku Giok Heng. Petitioner alleged that it allowed Ku
Giok Heng to remain in the property on the condition that the latter pay rent. Ku Giok Hengs failure
to pay rent prompted the MeTC to seek his ejectment. Ku Giok Heng denied that there was any
lease agreement over the property. 1wphi1.nt

On December 8, 1994, the MeTC rendered a decision in favor of petitioner and ordered Ku Giok
Heng to, among other things, vacate the premises. It ruled:

x x x for his failure or refusal to pay rentals despite proper demands, the defendant had not
established his right for his continued possession of or stay in the premises acquired by the
plaintiff thru foreclosure, the title of which had been duly transferred in the name of the
plaintiff. The absence of lease agreement or agreement for the payment of rentals is of no
moment in the light of the prevailing Supreme Court ruling on the matter. Thus: "It is settled
that the buyer in foreclosure sale becomes the absolute owner of the property purchased if it
is not redeemed during the period of one (1) year after the registration of the sale is as such
he is entitled to the possession of the property and the demand at any time following the
consolidation of ownership and the issuance to him of a new certificate of title. The buyer
can, in fact, demand possession of the land even during the redemption period except that
he has to post a bond in accordance with Section 7 of Act No. 3155 as amended.
Possession of the land then becomes an absolute right of the purchaser as confirmed owner.
Upon proper application and proof of title, the issuance of a writ of possession becomes a
ministerial duty of the court. (David Enterprises vs. IBAA[,] 191 SCRA 116).1

Ku Giok Heng did not appeal the decision of the MeTC. Instead, he and his daughter, respondent
Rosita Ku, filed on December 20, 1994, an action before the Regional Trial Court (RTC) of Quezon
City to nullify the decision of the MeTC. Finding no merit in the complaint, the RTC on September
13, 1999 dismissed the same and ordered the execution of the MeTC decision.

Respondent filed in the Court of Appeals (CA) a special civil action for certiorari assailing the
decision of the RTC. She contended that she was not made a party to the ejectment suit and was,
therefore, deprived of due process. The CA agreed and, on March 31, 2000, rendered a decision
enjoining the eviction of respondent from the premises.

On May 10, 2000, Equitable PCI Bank filed in this Court a motion for an extension of 30 days from
May 10, 2000 or until June 9, 2000 to file its petition for review of the CA decision. The motion
alleged that the Bank received the CA decision on April 25, 2000.2 The Court granted the motion for
a 30-day extension "counted from the expiration of the reglementary period" and "conditioned upon
the timeliness of the filing of [the] motion [for extension]."3

On June 13, 2000,4 Equitable Bank filed its petition, contending that there was no need to name
respondent Rosita Ku as a party in the action for ejectment since she was not a resident of the
premises nor was she in possession of the property.

The petition is meritorious.

Generally, no man shall be affected by any proceeding to which he is a stranger, and strangers to a
case are not bound by judgment rendered by the court.5 Nevertheless, a judgment in an ejectment
suit is binding not only upon the defendants in the suit but also against those not made parties
thereto, if they are:

a) trespassers, squatters or agents of the defendant fraudulently occupying the property to frustrate
the judgment;
b) guests or other occupants of the premises with the permission of the defendant;

c) transferees pendente lite;

d) sub-lessees;

e) co-lessees; or

f) members of the family, relatives and other privies of the defendant.6

Thus, even if respondent were a resident of the property, a point disputed by the parties, she is
nevertheless bound by the judgment of the MeTC in the action for ejectment despite her being a
non-party thereto. Respondent is the daughter of Ku Giok Heng, the defendant in the action for
ejectment.

Respondent nevertheless claims that the petition is defective. The bank alleged in its petition that it
received a copy of the CA decision on April 25, 2000. A Certification dated June 6, 2000 issued by
the Manila Central Post Office reveals, however, that the copy "was duly delivered to and received
by Joel Rosales (Authorized Representative) on April 24, 2000."7 Petitioners motion for extension to
file this petition was filed on May 10, 2000, sixteen (16) days from the petitioners receipt of the CA
decision (April 24, 2000) and one (1) day beyond the reglementary period for filing the petition for
review (May 9, 2000).

Petitioner however maintains "its honest representation of having received [a copy of the decision]
on April 25, 2000."8 Appended as Annex "A" to petitioners Reply is an Affidavit9 dated October 27,
2000 and executed by Joel Rosales, who was mentioned in the Certification as having received the
decision. The Affidavit states:

(1) I am an employee of Unique Industrial & Allied Services, Inc. (Unique) a corporation duly
organized and existing under Philippine laws with principal place of business at 1206 Vito
Cruz St., Malate, Manila, and I am assigned with the Equitable PCI Bank, Mail and Courier
Department, Equitable PCI Bank Tower II, cor. Makati Avenue and H.V. dela Costa St.,
Makati City, Metro Manila;

(2) Under the contract of services between the Bank and Unique, it is my official duty and
responsibility to receive and pick-up from the Manila Central Post Office (CPO) the various
mails, letters, correspondence, and other mail matters intended for the banks various
departments and offices at Equitable Bank Building, 262 Juan Luna St., Binondo, Manila.
This building, however, also houses various other offices or tenants not related to the Bank.

(3) I am not the constituted agent of "Curato Divina Mabilog Niedo Magturo Pagaduan Law
Office" whose former address is at Rm. 405 4/F Equitable Bank Bldg., 262 Juan Luna St.,
Binondo, Manila, for purposes of receiving their incoming mail matters; neither am I any such
agent of the various other tenants of the said Building. On occasions when I receive mail
matters for said law office, it is only to help them receive their letters promptly.

(4) On April 24, 2000, I received the registered letter sent by the Court of Appeals, covered
by Registry Receipt No. 125234 and Delivery No. 4880 (copy of envelope attached as Annex
"A") together with other mail matters, and brought them to the Mail and Courier Department;
 (5) After sorting out these mail matters, on April 25, 2000, I erroneously recorded them on
page 422 of my logbook as having been received by me on said dated April 25, 2000 (copy
of page 422 is attached as Annex "B").

(6) On April 27, 2000, this letter was sent by the Mail and Courier Department to said Law
Office whose receiving clerk Darwin Bawar opened the letter and stamped on the "Notice of
Judgment" their actual date of receipt: "April 27, 2000" (copy of the said Notice with the date
so stamped is attached as Annex "C").

(7) On May 8, 2000, Atty. Roland A. Niedo of said law office inquired from me as to my
actual date of receipt of this letter, and I informed him that based on my logbook, I received it
on April 25, 2000.

(8) I discovered this error only on September 6, 2000, when I was informed by Atty. Niedo
that Postmaster VI Alfredo C. Mabanag, Jr. of the Central Post Office, Manila, issued a
certification that I received the said mail on April 24, 2000.

(9) I hereby confirm that this error was caused by an honest mistake.

Petitioner argues that receipt on April 25, 2000 by Joel Rosales, who was not an agent of its
counsels law office, did not constitute notice to its counsel, as required by Sections 210 and
10,11 Rule 13 of the Rules of Court. To support this contention, petitioner cites Philippine Long
Distance Telephone Co. vs. NLRC.12 In said case, the bailiff served the decision of the National
Labor Relations Commission at the ground floor of the building of the petitioner therein, the
Philippine Long Distance Telephone Co., rather than on the office of its counsel, whose address, as
indicated in the notice of the decision, was on the ninth floor of the building. We held that:

x x x practical considerations and the realities of the situation dictate that the service made
by the bailiff on March 23, 1981 at the ground floor of the petitioners building and not at the
address of record of petitioners counsel on record at the 9th floor of the PLDT building
cannot be considered a valid service. It was only when the Legal Services Division actually
received a copy of the decision on March 26, 1981 that a proper and valid service may be
deemed to have been made. x x x.

Applying the foregoing provisions and jurisprudence, petitioner submits that actual receipt by its
counsel was on April 27, 2000, not April 25, 2000. Following the argument to its logical conclusion,
the motion for extension to file the petition for review was even filed two (2) days before the lapse of
the 15-day reglementary period. That counsel treated April 25, 2000 and not April 27, 2000 as the
date of receipt was purportedly intended to obviate respondents possible argument that the 15-day
period had to be counted from April 25, 2000.

The Court is not wholly convinced by petitioners argument. The Affidavit of Joel Rosales states that
he is "not the constituted agent of Curato Divina Mabilog Nedo Magturo Pagaduan Law Office." An
agency may be express but it may also be implied from the acts of the principal, from his silence, or
lack of action, or his failure to repudiate the agency, knowing that another person is acting on his
behalf without authority.13 Likewise, acceptance by the agent may also be express, although it may
also be implied from his acts which carry out the agency, or from his silence or inaction according to
the circumstances.14 In this case, Joel Rosales averred that "[o]n occasions when I receive mail
matters for said law office, it is only to help them receive their letters promptly," implying that counsel
had allowed the practice of Rosales receiving mail in behalf of the former. There is no showing that
counsel had objected to this practice or took steps to put a stop to it. The facts are, therefore,
inadequate for the Court to make a ruling in petitioners favor.
Assuming the motion for extension was indeed one day late, petitioner urges the Court, in any event,
to suspend its rules and admit the petition in the interest of justice. Petitioner invokes Philippine
National Bank vs. Court of Appeals,15 where the petition was filed three (3) days late. The Court held:

It has been said time and again that the perfection of an appeal within the period fixed by the
rules is mandatory and jurisdictional. But, it is always in the power of this Court to suspend
its own rules, or to except a particular case from its operation, whenever the purposes of
justice require it. Strong compelling reasons such as serving the ends of justice and
preventing a grave miscarriage thereof warrant the suspension of the rules.

The Court proceeded to enumerate cases where the rules on reglementary periods were
suspended. Republic vs. Court of Appeals16 involved a delay of six days; Siguenza vs. Court of
Appeals,17 thirteen days; Pacific Asia Overseas Shipping Corporation vs. NLRC,18 one day; Cortes
vs. Court of Appeals,19 seven days; Olacao vs. NLRC,20 two days; Legasto vs. Court of
Appeals,21 two days; and City Fair Corporation vs. NLRC,22 which also concerned a tardy appeal. 1wphi1.nt

The Court finds these arguments to be persuasive, especially in light of the merits of the petition.

WHEREFORE, the petition is GIVEN DUE COURSE and GRANTED. The decision of the Court of
Appeals is REVERSED.

SO ORDERED.

G.R. No. 158907 February 12, 2007

EDUARDO B. OLAGUER, Petitioner,

vs.
EMILIO PURUGGANAN, JR. AND RAUL LOCSIN, Respondents.

DECISION

CHICO-NAZARIO, J.:

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

The parties presented conflicting accounts of the facts.

EDUARDO B. OLAGUERS VERSION

Petitioner Eduardo B. Olaguer alleges that he was the owner of 60,000 shares of stock of
Businessday Corporation (Businessday) with a total par value of 600,000.00, with Certificates of
Stock No. 005, No. 028, No. 034, No. 070, and No. 100.2 At the time he was employed with the
corporation as Executive Vice-President of Businessday, and President of Businessday Information
Systems and Services and of Businessday Marketing Corporation, petitioner, together with
respondent Raul Locsin (Locsin) and Enrique Joaquin (Joaquin), was active in the political
opposition against the Marcos dictatorship.3 Anticipating the possibility that petitioner would be
arrested and detained by the Marcos military, Locsin, Joaquin, and Hector Holifea had an unwritten
agreement that, in the event that petitioner was arrested, they would support the petitioners family
by the continued payment of his salary.4 Petitioner also executed a Special Power of Attorney (SPA),
on 26 May 1979, appointing as his attorneys-in-fact Locsin, Joaquin and Hofilea for the purpose of
selling or transferring petitioners shares of stock with Businessday. During the trial, petitioner
testified that he agreed to execute the SPA in order to cancel his shares of stock, even before they
are sold, for the purpose of concealing that he was a stockholder of Businessday, in the event of a
military crackdown against the opposition.5 The parties acknowledged the SPA before respondent
Emilio Purugganan, Jr., who was then the Corporate Secretary of Businessday, and at the same
time, a notary public for Quezon City.6

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

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

During the trial, petitioner also agreed to stipulate that from 1980 to 1982, Businessday made regular
deposits, each amounting to 10,000.00, to the Metropolitan Bank and Trust Company accounts of
Manuel and Genaro Pantig, petitioners in-laws. The deposits were made on every 15th and 30th of
the month.9 Petitioner alleged that these funds consisted of his monthly salary, which Businessday
agreed to continue paying after his arrest for the financial support of his family.10 After receiving a
total of 600,000.00, the payments stopped. Thereafter, respondent Locsin and Fernando went to
ask petitioner to endorse and deliver the rest of his stock certificates to respondent Locsin, but
petitioner refused. 11

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

RESPONDENT RAUL LOCSINS VERSION

In his version of the facts, respondent Locsin contended that petitioner approached him and
requested him to sell, and, if necessary, buy petitioners shares of stock in Businessday, to assure
support for petitioners family in the event that something should happen to him, particularly if he was
jailed, exiled or forced to go underground.13 At the time petitioner was employed with Businessday,
respondent Locsin was unaware that petitioner was part of a group, Light-a-Fire Movement, which
actively sought the overthrow of the Marcos government through an armed struggle.14 He denied that
he made any arrangements to continue paying the petitioners salary in the event of the latters
imprisonment.15
When petitioner was detained, respondent Locsin tried to sell petitioners shares, but nobody wanted
to buy them. Petitioners reputation as an oppositionist resulted in the poor financial condition of
Businessday and discouraged any buyers for the shares of stock.16 In view of petitioners previous
instructions, respondent Locsin decided to buy the shares himself. Although the capital deficiency
1aw phi 1.net

suffered by Businessday caused the book value of the shares to plummet below par value,
respondent Locsin, nevertheless, bought the shares at par value.17 However, he had to borrow from
Businessday the funds he used in purchasing the shares from petitioner, and had to pay the
petitioner in installments of 10,000.00 every 15th and 30th of each month.18

The trial court in its Decision, dated 26 July 1995, dismissed the Complaint filed by the petitioner. It
ruled that the sale of shares between petitioner and respondent Locsin was valid. The trial court
concluded that petitioner had intended to sell the shares of stock to anyone, including respondent
Locsin, in order to provide for the needs of his family should he be jailed or forced to go
underground; and that the SPA drafted by the petitioner empowered respondent Locsin, and two
other agents, to sell the shares for such price and under such terms and conditions that the agents
may deem proper. It further found that petitioner consented to have respondent Locsin buy the
shares himself. It also ruled that petitioner, through his wife, received from respondent Locsin the
amount of 600,000.00 as payment for the shares of stock.19 The dispositive part of the trial courts
Decision reads:

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

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

On appeal, the Court of Appeals affirmed the Decision of the trial court that there was a perfected
contract of sale.21It further ruled that granting that there was no perfected contract of sale, petitioner,
nevertheless, ratified the sale to respondent Locsin by his receipt of the purchase price, and his
failure to raise any protest over the said sale.22 The Court of Appeals refused to credit the petitioners
allegation that the money his wife received constituted his salary from Businessday since the
amount he received as his salary, 24,000.00 per month, did not correspond to the amount he
received during his detention, 20,000.00 per month (deposits of 10,000.00 on every 15th and
30th of each month in the accounts of the petitioners in-laws). On the other hand, the total amount
received, 600,000.00, corresponds to the aggregate par value of petitioners shares in
Businessday. Moreover, the financial condition of Businessday prevented it from granting any form
of financial assistance in favor of the petitioner, who was placed in an indefinite leave of absence,
and, therefore, not entitled to any salary. 23

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

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

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

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

II.

THE APPELLATE COURT ERRED IN RULING THAT PETITIONER CONSENTED TO THE

ALLEGED SALE OF THE SHARES TO MR. LOCSIN;

III.

THE APPELLATE COURT ERRED IN RULING THAT THE AMOUNTS RECEIVED BY

PETITIONERS IN LAWS WERE NOT PETITIONERS SALARY FROM THE CORPORATION BUT
INSTALLMENT PAYMENTS FOR THE SHARES;

IV.

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

V.

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

The petition is without merit.

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

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

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

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

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

ART. 38 Minority, insanity or imbecility, the state of being a deaf-mute, prodigality and civil
interdiction are mere restrictions on capacity to act, and do not exempt the incapacitated person,
from certain obligations, as when the latter arise from his acts or from property relations, such as
easements.

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

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

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

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

Petitioners contention that the shares may only be sold for the sole purpose of applying the
proceeds of the sale to the satisfaction of petitioners subsisting obligations to the company is far-
fetched. The construction, which will carry out the purpose, is that which should be applied.
Petitioner had not submitted evidence that he was in debt with Businessday at the time he had
executed the SPA. Nor could he have considered incurring any debts since he admitted that, at the
time of its execution, he was concerned about his possible arrest, death and disappearance. The
language of the SPA clearly enumerates, as among those acts that the agents were authorized to
do, the act of applying the proceeds of the sale of the shares to any obligations petitioner might have
against the Businessday group of companies. This interpretation is supported by the use of the word
"and" in enumerating the authorized acts, instead of phrases such as "only for," "for the purpose of,"
"in order to" or any similar terms to indicate that the petitioner intended that the SPA be used only for
a limited purpose, that of paying any liabilities with the Businessday group of companies.
Secondly, petitioner argued that the records failed to show that he gave his consent to the sale of
the shares to respondent Locsin for the price of 600,000.00. This argument is unsustainable.
Petitioner received from respondent Locsin, through his wife and in-laws, the installment payments
for a total of 600,000.00 from 1980 to 1982, without any protest or complaint. It was only four years
after 1982 when petitioner demanded the return of the shares. The petitioners claim that he did not
instruct respondent Locsin to deposit the money to the bank accounts of his in-laws fails to prove
that petitioner did not give his consent to the sale since respondent Locsin was authorized, under the
SPA, to negotiate the terms and conditions of the sale including the manner of payment. Moreover,
had respondent Locsin given the proceeds directly to the petitioner, as the latter suggested in this
petition, the proceeds were likely to have been included among petitioners properties which were
confiscated by the military. Instead, respondent Locsin deposited the money in the bank accounts of
petitioners in-laws, and consequently, assured that the petitioners wife received these amounts.
Article 1882 of the Civil Code provides that the limits of an agents authority shall not be considered
exceeded should it have been performed in a manner more advantageous to the principal than that
specified by him.

In addition, petitioner made two inconsistent statements when he alleged that (1) respondent Locsin
had not asked the petitioner to endorse and deliver the shares of stock, and (2) when Rebecca
Fernando asked the petitioner to endorse and deliver the certificates of stock, but petitioner refused
and even became upset.33 In either case, both statements only prove that petitioner refused to honor
his part as seller of the shares, even after receiving payments from the buyer. Had the petitioner not
known of or given his consent to the sale, he would have given back the payments as soon as
Fernando asked him to endorse and deliver the certificates of stock, an incident which unequivocally
confirmed that the funds he received, through his wife and his in-laws, were intended as payment for
his shares of stocks. Instead, petitioner held on to the proceeds of the sale after it had been made
clear to him that respondent Locsin had considered the 600,000.00 as payment for the shares, and
asked petitioner, through Fernando, to endorse and deliver the stock certificates for cancellation.

As regards the third issue, petitioners allegation that the installment payments he was adjudged to
have received for the shares were actually salaries which Businessday promised to pay him during
his detention is unsupported and implausible. Petitioner received 20,000.00 per month through his
in-laws; this amount does not correspond to his monthly salary at 24,000.00.34 Nor does the
amount received correspond to the amount which Businessday was supposed to be obliged to pay
petitioner, which was only 45,000.00 to 60,000.00 per annum.35 Secondly, the petitioners wife did
not receive funds from respondent Locsin or Businessday for the entire duration of petitioners
detention. Instead, when the total amount received by the petitioner reached the aggregate amount
of his shares at par value -- 600,000.00 -- the payments stopped. Petitioner even testified that
when respondent Locsin denied knowing the petitioner soon after his arrest, he believed respondent
Locsins commitment to pay his salaries during his detention to be nothing more than lip-service.36

Granting that petitioner was able to prove his allegations, such an act of gratuity, on the part of
Businessday in favor of petitioner, would be void. An arrangement whereby petitioner will receive
"salaries" for work he will not perform, which is not a demandable debt since petitioner was on an
extended leave of absence, constitutes a donation under Article 72637 of the Civil Code. Under
Article 748 of the Civil Code, if the value of the personal property donated exceeds 5,000.00, the
donation and the acceptance shall have to be made in writing. Otherwise, the donation will be void.
In the present case, petitioner admitted in his testimony38 that such arrangement was not made in
writing and, hence, is void.

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

Petitioner raised as his fourth issue that granting that there was a sale, Businessday, and not
respondent Locsin, was the party to the transaction. The curious facts that the payments were
received on the 15th and 30th of each month and that the payor named in the checks was
Businessday, were adequately explained by respondent Locsin. Respondent Locsin had obtained
cash advances from the company, paid to him on the 15th and 30th of the month, so that he can pay
petitioner for the shares. To support his claim, he presented Businessdays financial records and the
testimony of Leo Atienza, the Companys Accounting Manager. When asked why the term "shares of
stock" was used for the entries, instead of "cash advances," Atienza explained that the term "shares
of stock" was more specific rather than the broader phrase "cash advances."39 More to the point, had
the entries been for "shares of stock," the issuance of shares should have been reflected in the stock
and transfer books of Businessday, which the petitioner presented as evidence. Instead the stock
and transfer books reveal that the increase in respondent Locsins shares was a result of the
cancellation and transfer of petitioners shares in favor of respondent Locsin.

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

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

xxxx

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

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

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

From the foregoing, it is clear that petitioner knew of the transaction, agreed to the purchase price of
600,000.00 for the shares of stock, and had in fact facilitated the implementation of the terms of the
payment by providing respondent Locsin, through petitioners wife, with the information on the bank
accounts of his in-laws. Petitioners wife and his son even provided receipts for the payments that
were made to them by respondent Locsin,43 a practice that bespeaks of an onerous transaction and
not an act of gratuity.

Lastly, petitioner claims that the cancellation of the shares and the subsequent transfer thereof were
fraudulent, and, therefore, illegal. In the present case, the shares were transferred in the name of the
buyer, respondent Locsin, without the petitioner delivering to the buyer his certificates of stock.
Section 63 of the Corporation Code provides that:

Sec.63. Certificate of stock and transfer of shares. xxx Shares of stock so issued are personal
property and may be transferred by delivery of the certificate or certificates indorsed by the owner or
his attorney-in-fact or other person legally authorized to make the transfer. No transfer, however,
shall be valid, except as between the parties, until the transfer is recorded in the books of the
corporation showing the names of the parties to the transaction, the date of the transfer, the number
of the certificate or certificates and the number of shares transferred. (Emphasis provided.)

The aforequoted provision furnishes the procedure for the transfer of shares the delivery of the
endorsed certificates, in order to prevent the fraudulent transfer of shares of stock. However, this
rule cannot be applied in the present case without causing the injustice sought to be avoided. As had
been amply demonstrated, there was a valid sale of stocks. Petitioners failure to deliver the shares
to their rightful buyer is a breach of his duty as a seller, which he cannot use to unjustly profit himself
by denying the validity of such sale. Thus, while the manner of the cancellation of petitioners
certificates of stock and the issuance of the new certificates in favor of respondent Locsin was highly
irregular, we must, nonetheless, declare the validity of the sale between the parties. Neither does
this irregularity prove that the transfer was fraudulent. In his testimony, petitioner admitted that they
had intended to conceal his being a stockholder of Businessday.44 The cancellation of his name
from the stock and transfer book, even before the shares were actually sold, had been done with his
consent. As earlier explained, even the subsequent sale of the shares in favor of Locsin had been
done with his consent.

IN VIEW OF THE FOREGOING, the instant Petition is DENIED. This Court AFFIRMS the assailed
Decision of the Court of Appeals, promulgated on 30 June 2003, affirming the validity of the sale of
the shares of stock in favor of respondent Locsin. No costs.

SO ORDERED.

G.R. No. 82040 August 27, 1991

BA FINANCE CORPORATION, petitioner,

vs.
HON. COURT OF APPEALS, Hon. Presiding Judge of Regional Trial Court of Manila, Branch
43, MANUEL CUADY and LILIA CUADY, respondents.

SYLLABUS

1. CIVIL LAW; SPECIAL CONTRACTS; CHATTEL MORTGAGE; RULE WHEN MORTGAGE ASSIGNS HIS
MORTGAGE LIEN; CASE AT BAR. B.A. Finance Corporation was deemed subrogated to the rights and
obligations of Supercars, Inc. when the latter assigned the promissory note, together with the chattel
mortgage constituted on the motor vehicle in question, in favor of the former. Consequently, B.A. Finance
Corporation is bound by the terms and conditions of the chattel mortgage executed between the Cuadys and
Supercars, Inc.
2. ID.; ID.; ID.; ID.; OBLIGATIONS OF AN ASSIGNEE. Under the deed of chattel mortgage, B.A. Finance
Corporation was constituted attorney-in-fact with full power and authority to file, follow-up, prosecute,
compromise or settle insurance claims; to sign, execute and deliver the corresponding papers, receipts and
documents to the Insurance Company as may be necessary to prove the claim, and to collect from the latter
the proceeds of insurance to the extent of its interests, in the event that the mortgaged car suffers any loss
or damage (Rollo, p. 89). In granting B.A. Finance Corporation the aforementioned powers and prerogatives,
the Cuady spouses created in the formers favor an agency. Under Article 1884 of the Civil Code of the
Philippines, B.A. Finance Corporation is bound by its acceptance to carry out the agency, and is liable for
damages which, through its non-performance, the Cuadys, the principal in the case at bar, may suffer.

3. ID.; ID.; ID.; MORTGAGOR, NOT BOUND TO SUFFER FROM THE ACTS OF MORTGAGEE; CASE AT BAR.
Unquestionably, the Cuadys suffered pecuniary loss in the form of salvage value of the motor vehicle in
question, not to mention the amount equivalent to the unpaid balance on the promissory note, when B.A.
Finance Corporation steadfastly refused and refrained from proceeding against the insurer for the payment
of a clearly valid insurance claim, and continued to ignore the yearning of the Cuadys to enforce the total
loss provision in the insurance policy, despite the undeniable fact that Rea Auto Center, the auto repair shop
chosen by the insurer itself to repair the aforementioned motor vehicle, misrepaired and rendered it
completely useless and unserviceable. Accordingly, there is no reason to depart from the ruling set down by
the respondent appellate court. In this connection, the Court of Appeals said: ". . . Under the established
facts and circumstances, it is unjust, unfair inequitable to require the chattel mortgagors, appellees herein,
to still pay the unpaid balance of their mortgage debt on the said car, the non-payment of which account
was due to the stubborn refusal and failure of appellant mortgagee to avail of the insurance money which
became due and demandable after the insured motor vehicle was badly damaged in a vehicular accident
covered by the insurance risk. . . .."
cralaw virtua 1aw lib rary

4. REMEDIAL LAW; EVIDENCE; CONCLUSION OF FACTS BY COURT OF APPEALS. B.A. Finance Corporation
would have this Court review and reverse the factual findings of the respondent appellate court. This, of
course, the Court cannot and will not generally do. It is axiomatic that the judgment of the Court of Appeals
is conclusive as to the facts and may not ordinarily be reviewed by the Supreme Court. The doctrine is, to be
sure, subject to certain specific exceptions none of which, however, obtains in the instant case (Luzon
Brokerage Corporation v. Court of Appeals, 176 SCRA 483 [1989]).

5. ID.; CIVIL PROCEDURE; APPEAL; ISSUES NOT RAISED IN THE TRIAL COURT; CANNOT BE RAISED FOR
THE FIRST TIME ON APPEAL. As ruled by this Court in a long line of cases, issues not raised and/or
ventilated in the trial court, let alone in the Court of Appeals, cannot be raised for the first time on appeal as
it would be offensive to the basic rules of fair play, justice and due process (Galicia v. Polo, 179 SCRA 375
[1989]; Ramos v. IAC, 175 SCRA 70 (1989) and other cases.

DECISION

PARAS, J.:

This is a petition for review on certiorari which seeks to reverse and set aside (1) the decision of the
Court of Appeals dated July 21, 1987 in CA-G.R. No. CV-06522 entitled "B.A. Finance Corporation,
Plaintiff-Appellant, vs. Manuel Cuady and Lilia Cuady, Defendants-Appellees," affirming the decision
of the Regional Trial Court of Manila, Branch 43, which dismissed the complaint in Civil Case No.
82-10478, and (2) the resolution dated February 9, 1988 denying petitioner's motion for
reconsideration.

As gathered from the records, the facts are as follows:

On July 15, 1977, private respondents Manuel Cuady and Lilia Cuady obtained from Supercars, Inc.
a credit of P39,574.80, which amount covered the cost of one unit of Ford Escort 1300, four-door
sedan. Said obligation was evidenced by a promissory note executed by private respondents in
favor of Supercars, Inc., obligating themselves to pay the latter or order the sum of P39,574.80,
inclusive of interest at 14% per annum, payable on monthly installments of P1,098.00 starting
August 16, 1977, and on the 16th day of the next 35 months from September 16, 1977 until full
payment thereof. There was also stipulated a penalty of P10.00 for every month of late installment
payment. To secure the faithful and prompt compliance of the obligation under the said promissory
note, the Cuady spouses constituted a chattel mortage on the aforementioned motor vehicle. On
July 25, 1977, Supercars, Inc. assigned the promissory note, together with the chattel mortgage, to
B.A. Finance Corporation. The Cuadys paid a total of P36,730.15 to the B.A. Finance Corporation,
thus leaving an unpaid balance of P2,344.65 as of July 18, 1980. In addition thereto, the Cuadys
owe B.A. Finance Corporation P460.00 representing penalties or surcharges for tardy monthly
installments (Rollo, pp. 27-29).

Parenthetically, the B.A. Finance Corporation, as the assignee of the mortgage lien obtained the
renewal of the insurance coverage over the aforementioned motor vehicle for the year 1980 with
Zenith Insurance Corporation, when the Cuadys failed to renew said insurance coverage
themselves. Under the terms and conditions of the said insurance coverage, any loss under the
policy shall be payable to the B.A. Finance Corporation (Memorandum for Private Respondents, pp.
3-4).

On April 18, 1980, the aforementioned motor vehicle figured in an accident and was badly damaged.
The unfortunate happening was reported to the B.A. Finance Corporation and to the insurer, Zenith
Insurance Corporation. The Cuadys asked the B.A. Finance Corporation to consider the same as a
total loss, and to claim from the insurer the face value of the car insurance policy and apply the
same to the payment of their remaining account and give them the surplus thereof, if any. But
instead of heeding the request of the Cuadys, B.A. Finance Corporation prevailed upon the former to
just have the car repaired. Not long thereafter, however, the car bogged down. The Cuadys wrote
B.A. Finance Corporation requesting the latter to pursue their prior instruction of enforcing the total
loss provision in the insurance coverage. When B.A. Finance Corporation did not respond favorably
to their request, the Cuadys stopped paying their monthly installments on the promissory note (Ibid.,
pp. 45).

On June 29, 1982, in view of the failure of the Cuadys to pay the remaining installments on the note,
B.A. Finance Corporation sued them in the Regional Trial Court of Manila, Branch 43, for the
recovery of the said remaining installments (Memorandum for the Petitioner, p. 1).

After the termination of the pre-trial conference, the case was set for trial on the merits on April 25,
1984. B.A. Finance Corporation's evidence was presented on even date and the presentation of
Cuady's evidence was set on August 15, 1984. On August 7,1984, Atty. Noel Ebarle, counsel for the
petitioner, filed a motion for postponement, the reason being that the "handling" counsel, Atty.
Ferdinand Macibay was temporarily assigned in Cebu City and would not be back until after August
15, 1984. Said motion was, however, denied by the trial court on August 10, 1984. On August 15,
1984, the date of hearing, the trial court allowed private respondents to adduce evidence ex-parte in
the form of an affidavit to be sworn to before any authorized officer. B.A. Finance Corporation filed a
motion for reconsideration of the order of the trial court denying its motion for postponement. Said
motion was granted in an order dated September 26, 1984, thus:

The Court grants plaintiff's motion for reconsideration dated August 22, 1984, in the sense
that plaintiff is allowed to adduce evidence in the form of counter-affidavits of its witnesses,
to be sworn to before any person authorized to administer oaths, within ten days from notice
hereof. (Ibid., pp. 1-2).

B.A. Finance Corporation, however, never complied with the above-mentioned order, paving the way
for the trial court to render its decision on January 18, 1985, the dispositive portion of which reads as
follows:
 IN VIEW WHEREOF, the Court DISMISSES the complaint without costs.

SO ORDERED. (Rollo, p. 143)

On appeal, the respondent appellate court * affirmed the decision of the trial court. The decretal
portion of the said decision reads as follows:

WHEREFORE, after consultation among the undersigned members of this Division, in

compliance with the provision of Section 13, Article VIII of the Constitution; and finding no
reversible error in the judgment appealed from, the same is hereby AFFIRMED, without any
pronouncement as to costs. (Ibid., p. 33)

B.A. Finance Corporation moved for the reconsideration of the above decision, but the motion was
denied by the respondent appellate court in a resolution dated February 9, 1988 (Ibid., p. 38).

Hence, this present recourse.

On July 11, 1990, this Court gave due course to the petition and required the parties to submit their
respective memoranda. The parties having complied with the submission of their memoranda, the
case was submitted for decision.

The real issue to be resolved in the case at bar is whether or not B.A. Finance Corporation has
waived its right to collect the unpaid balance of the Cuady spouses on the promissory note for failure
of the former to enforce the total loss provision in the insurance coverage of the motor vehicle
subject of the chattel mortgage.

It is the contention of B.A. Finance Corporation that even if it failed to enforce the total loss provision
in the insurance policy of the motor vehicle subject of the chattel mortgage, said failure does not
operate to extinguish the unpaid balance on the promissory note, considering that the circumstances
obtaining in the case at bar do not fall under Article 1231 of the Civil Code relative to the modes of
extinguishment of obligations (Memorandum for the Petitioner, p. 11).

On the other hand, the Cuadys insist that owing to its failure to enforce the total loss provision in the
insurance policy, B.A. Finance Corporation lost not only its opportunity to collect the insurance
proceeds on the mortgaged motor vehicle in its capacity as the assignee of the said insurance
proceeds pursuant to the memorandum in the insurance policy which states that the "LOSS: IF ANY,
under this policy shall be payable to BA FINANCE CORP., as their respective rights and interest
may appear" (Rollo, p. 91) but also the remaining balance on the promissory note (Memorandum for
the Respondents, pp. 16-17).

The petition is devoid of merit.

B.A. Finance Corporation was deemed subrogated to the rights and obligations of Supercars, Inc.
when the latter assigned the promissory note, together with the chattel mortgage constituted on the
motor vehicle in question in favor of the former. Consequently, B.A. Finance Corporation is bound by
the terms and conditions of the chattel mortgage executed between the Cuadys and Supercars, Inc.
Under the deed of chattel mortgage, B.A. Finance Corporation was constituted attorney-in-fact with
full power and authority to file, follow-up, prosecute, compromise or settle insurance claims; to sign
execute and deliver the corresponding papers, receipts and documents to the Insurance Company
as may be necessary to prove the claim, and to collect from the latter the proceeds of insurance to
the extent of its interests, in the event that the mortgaged car suffers any loss or damage (Rollo, p.
89). In granting B.A. Finance Corporation the aforementioned powers and prerogatives, the Cuady
spouses created in the former's favor an agency. Thus, under Article 1884 of the Civil Code of the
Philippines, B.A. Finance Corporation is bound by its acceptance to carry out the agency, and is
liable for damages which, through its non-performance, the Cuadys, the principal in the case at bar,
may suffer.

Unquestionably, the Cuadys suffered pecuniary loss in the form of salvage value of the motor
vehicle in question, not to mention the amount equivalent to the unpaid balance on the promissory
note, when B.A. Finance Corporation steadfastly refused and refrained from proceeding against the
insurer for the payment of a clearly valid insurance claim, and continued to ignore the yearning of the
Cuadys to enforce the total loss provision in the insurance policy, despite the undeniable fact that
Rea Auto Center, the auto repair shop chosen by the insurer itself to repair the aforementioned
motor vehicle, misrepaired and rendered it completely useless and unserviceable (Ibid., p. 31).

Accordingly, there is no reason to depart from the ruling set down by the respondent appellate court.
In this connection, the Court of Appeals said:

... Under the established facts and circumstances, it is unjust, unfair and inequitable to
require the chattel mortgagors, appellees herein, to still pay the unpaid balance of their
mortgage debt on the said car, the non-payment of which account was due to the stubborn
refusal and failure of appellant mortgagee to avail of the insurance money which became
due and demandable after the insured motor vehicle was badly damaged in a vehicular
accident covered by the insurance risk. ... (Ibid.)

On the allegation that the respondent court's findings that B.A. Finance Corporation failed to claim
for the damage to the car was not supported by evidence, the records show that instead of acting on
the instruction of the Cuadys to enforce the total loss provision in the insurance policy, the petitioner
insisted on just having the motor vehicle repaired, to which private respondents reluctantly acceded.
As heretofore mentioned, the repair shop chosen was not able to restore the aforementioned motor
vehicle to its condition prior to the accident. Thus, the said vehicle bogged down shortly thereafter.
The subsequent request of the Cuadys for the B.A. Finance Corporation to file a claim for total loss
with the insurer fell on deaf ears, prompting the Cuadys to stop paying the remaining balance on the
promissory note (Memorandum for the Respondents, pp. 4-5).

Moreover, B.A. Finance Corporation would have this Court review and reverse the factual findings of
the respondent appellate court. This, of course, the Court cannot and will not generally do. It is
axiomatic that the judgment of the Court of Appeals is conclusive as to the facts and may not
ordinarily be reviewed by the Supreme Court. The doctrine is, to be sure, subject to certain specific
exceptions none of which, however, obtains in the instant case (Luzon Brokerage Corporation v.
Court of Appeals, 176 SCRA 483 [1989]).

Finally, B.A. Finance Corporation contends that respondent trial court committed grave abuses of
discretion in two instances: First, when it denied the petitioner's motion for reconsideration praying
that the counsel be allowed to cross-examine the affiant, and; second, when it seriously considered
the evidence adduced ex-parte by the Cuadys, and heavily relied thereon, when in truth and in fact,
the same was not formally admitted as part of the evidence for the private respondents
(Memorandum for the Petitioner, p. 10). This Court does not have to unduly dwell on this issue which
was only raised by B.A. Finance Corporation for the first time on appeal. A review of the records of
the case shows that B.A. Finance Corporation failed to directly raise or ventilate in the trial court nor
in the respondent appellate court the validity of the evidence adduced ex-parte by private
respondents. It was only when the petitioner filed the instant petition with this Court that it later
raised the aforementioned issue. As ruled by this Court in a long line of cases, issues not raised
and/or ventilated in the trial court, let alone in the Court of Appeals, cannot be raised for the first time
on appeal as it would be offensive to the basic rules of fair play, justice and due process (Galicia v.
Polo, 179 SCRA 375 [1989]; Ramos v. Intermediate Appellate Court, 175 SCRA 70 [1989]; Dulos
Realty & Development Corporation v. Court of Appeals, 157 SCRA 425 [1988]; Dihiansan, et al. v.
Court of Appeals, et al., 153 SCRA 712 [1987]; De la Santa v. Court of Appeals, et al., 140 SCRA 44
[1985]).

PREMISES CONSIDERED, the instant petition is DENIED, and the decision appealed from is
AFFIRMED.

SO ORDERED.

G.R. No. 117356 June 19, 2000

VICTORIAS MILLING CO., INC., petitioner,

vs.
COURT OF APPEALS and CONSOLIDATED SUGAR CORPORATION, respondents.

DECISION

QUISUMBING, J.:

Before us is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the
decision of the Court of Appeals dated February 24, 1994, in CA-G.R. CV No. 31717, as well as the
respondent court's resolution of September 30, 1994 modifying said decision. Both decision and
resolution amended the judgment dated February 13, 1991, of the Regional Trial Court of Makati
City, Branch 147, in Civil Case No. 90-118.

The facts of this case as found by both the trial and appellate courts are as follows:

St. Therese Merchandising (hereafter STM) regularly bought sugar from petitioner Victorias Milling
Co., Inc., (VMC). In the course of their dealings, petitioner issued several Shipping List/Delivery
Receipts (SLDRs) to STM as proof of purchases. Among these was SLDR No. 1214M, which gave
rise to the instant case. Dated October 16, 1989, SLDR No. 1214M covers 25,000 bags of sugar.
Each bag contained 50 kilograms and priced at P638.00 per bag as "per sales order VMC Marketing
No. 042 dated October 16, 1989."1 The transaction it covered was a "direct sale."2The SLDR also
contains an additional note which reads: "subject for (sic) availability of a (sic) stock at NAWACO
(warehouse)."3

On October 25, 1989, STM sold to private respondent Consolidated Sugar Corporation (CSC) its
rights in SLDR No. 1214M for P 14,750,000.00. CSC issued one check dated October 25, 1989 and
three checks postdated November 13, 1989 in payment. That same day, CSC wrote petitioner that it
had been authorized by STM to withdraw the sugar covered by SLDR No. 1214M. Enclosed in the
letter were a copy of SLDR No. 1214M and a letter of authority from STM authorizing CSC "to
withdraw for and in our behalf the refined sugar covered by Shipping List/Delivery Receipt-Refined
Sugar (SDR) No. 1214 dated October 16, 1989 in the total quantity of 25,000 bags."4

On October 27, 1989, STM issued 16 checks in the total amount of P31,900,000.00 with petitioner
as payee. The latter, in turn, issued Official Receipt No. 33743 dated October 27, 1989
acknowledging receipt of the said checks in payment of 50,000 bags. Aside from SLDR No. 1214M,
said checks also covered SLDR No. 1213.

Private respondent CSC surrendered SLDR No. 1214M to the petitioner's NAWACO warehouse and
was allowed to withdraw sugar. However, after 2,000 bags had been released, petitioner refused to
allow further withdrawals of sugar against SLDR No. 1214M. CSC then sent petitioner a letter dated
January 23, 1990 informing it that SLDR No. 1214M had been "sold and endorsed" to it but that it
had been refused further withdrawals of sugar from petitioner's warehouse despite the fact that only
2,000 bags had been withdrawn.5 CSC thus inquired when it would be allowed to withdraw the
remaining 23,000 bags.

On January 31, 1990, petitioner replied that it could not allow any further withdrawals of sugar
against SLDR No. 1214M because STM had already dwithdrawn all the sugar covered by the
cleared checks.6

On March 2, 1990, CSC sent petitioner a letter demanding the release of the balance of 23,000
bags.

Seven days later, petitioner reiterated that all the sugar corresponding to the amount of STM's
cleared checks had been fully withdrawn and hence, there would be no more deliveries of the
commodity to STM's account. Petitioner also noted that CSC had represented itself to be STM's
agent as it had withdrawn the 2,000 bags against SLDR No. 1214M "for and in behalf" of STM.

On April 27, 1990, CSC filed a complaint for specific performance, docketed as Civil Case No. 90-
1118. Defendants were Teresita Ng Sy (doing business under the name of St. Therese
Merchandising) and herein petitioner. Since the former could not be served with summons, the case
proceeded only against the latter. During the trial, it was discovered that Teresita Ng Go who
testified for CSC was the same Teresita Ng Sy who could not be reached through summons.7 CSC,
however, did not bother to pursue its case against her, but instead used her as its witness.

CSC's complaint alleged that STM had fully paid petitioner for the sugar covered by SLDR No.
1214M. Therefore, the latter had no justification for refusing delivery of the sugar. CSC prayed that
petitioner be ordered to deliver the 23,000 bags covered by SLDR No. 1214M and sought the award
of P1,104,000.00 in unrealized profits, P3,000,000.00 as exemplary damages, P2,200,000.00 as
attorney's fees and litigation expenses.

Petitioner's primary defense a quo was that it was an unpaid seller for the 23,000 bags.8 Since STM
had already drawn in full all the sugar corresponding to the amount of its cleared checks, it could no
longer authorize further delivery of sugar to CSC. Petitioner also contended that it had no privity of
contract with CSC.

Petitioner explained that the SLDRs, which it had issued, were not documents of title, but mere
delivery receipts issued pursuant to a series of transactions entered into between it and STM. The
SLDRs prescribed delivery of the sugar to the party specified therein and did not authorize the
transfer of said party's rights and interests.

Petitioner also alleged that CSC did not pay for the SLDR and was actually STM's co-conspirator to
defraud it through a misrepresentation that CSC was an innocent purchaser for value and in good
faith. Petitioner then prayed that CSC be ordered to pay it the following sums: P10,000,000.00 as
moral damages; P10,000,000.00 as exemplary damages; and P1,500,000.00 as attorney's fees.
Petitioner also prayed that cross-defendant STM be ordered to pay it P10,000,000.00 in exemplary
damages, and P1,500,000.00 as attorney's fees.
Since no settlement was reached at pre-trial, the trial court heard the case on the merits.

As earlier stated, the trial court rendered its judgment favoring private respondent CSC, as follows:

"WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of the plaintiff
and against defendant Victorias Milling Company:

"1) Ordering defendant Victorias Milling Company to deliver to the plaintiff 23,000 bags of
refined sugar due under SLDR No. 1214;

"2) Ordering defendant Victorias Milling Company to pay the amount of P920,000.00 as
unrealized profits, the amount of P800,000.00 as exemplary damages and the amount of
P1,357,000.00, which is 10% of the acquisition value of the undelivered bags of refined
sugar in the amount of P13,570,000.00, as attorney's fees, plus the costs.

"SO ORDERED."9

It made the following observations:

"[T]he testimony of plaintiff's witness Teresita Ng Go, that she had fully paid the purchase price of
P15,950,000.00 of the 25,000 bags of sugar bought by her covered by SLDR No. 1214 as well as
the purchase price of P15,950,000.00 for the 25,000 bags of sugar bought by her covered by SLDR
No. 1213 on the same date, October 16, 1989 (date of the two SLDRs) is duly supported by Exhibits
C to C-15 inclusive which are post-dated checks dated October 27, 1989 issued by St. Therese
Merchandising in favor of Victorias Milling Company at the time it purchased the 50,000 bags of
sugar covered by SLDR No. 1213 and 1214. Said checks appear to have been honored and duly
credited to the account of Victorias Milling Company because on October 27, 1989 Victorias Milling
Company issued official receipt no. 34734 in favor of St. Therese Merchandising for the amount of
P31,900,000.00 (Exhibits B and B-1). The testimony of Teresita Ng Go is further supported by
Exhibit F, which is a computer printout of defendant Victorias Milling Company showing the quantity
and value of the purchases made by St. Therese Merchandising, the SLDR no. issued to cover the
purchase, the official reciept no. and the status of payment. It is clear in Exhibit 'F' that with respect
to the sugar covered by SLDR No. 1214 the same has been fully paid as indicated by the word
'cleared' appearing under the column of 'status of payment.'

"On the other hand, the claim of defendant Victorias Milling Company that the purchase price of the
25,000 bags of sugar purchased by St. Therese Merchandising covered by SLDR No. 1214 has not
been fully paid is supported only by the testimony of Arnulfo Caintic, witness for defendant Victorias
Milling Company. The Court notes that the testimony of Arnulfo Caintic is merely a sweeping barren
assertion that the purchase price has not been fully paid and is not corroborated by any positive
evidence. There is an insinuation by Arnulfo Caintic in his testimony that the postdated checks
issued by the buyer in payment of the purchased price were dishonored. However, said witness
failed to present in Court any dishonored check or any replacement check. Said witness likewise
failed to present any bank record showing that the checks issued by the buyer, Teresita Ng Go, in
payment of the purchase price of the sugar covered by SLDR No. 1214 were dishonored."10

Petitioner appealed the trial courts decision to the Court of Appeals.

On appeal, petitioner averred that the dealings between it and STM were part of a series of
transactions involving only one account or one general contract of sale. Pursuant to this contract,
STM or any of its authorized agents could withdraw bags of sugar only against cleared checks of
STM. SLDR No. 21214M was only one of 22 SLDRs issued to STM and since the latter had already
withdrawn its full quota of sugar under the said SLDR, CSC was already precluded from seeking
delivery of the 23,000 bags of sugar.

Private respondent CSC countered that the sugar purchases involving SLDR No. 1214M were
separate and independent transactions and that the details of the series of purchases were
contained in a single statement with a consolidated summary of cleared check payments and sugar
stock withdrawals because this a more convenient system than issuing separate statements for each
purchase.

The appellate court considered the following issues: (a) Whether or not the transaction between
petitioner and STM involving SLDR No. 1214M was a separate, independent, and single transaction;
(b) Whether or not CSC had the capacity to sue on its own on SLDR No. 1214M; and (c) Whether or
not CSC as buyer from STM of the rights to 25,000 bags of sugar covered by SLDR No. 1214M
could compel petitioner to deliver 23,000 bags allegedly unwithdrawn.

On February 24, 1994, the Court of Appeals rendered its decision modifying the trial court's
judgment, to wit:

"WHEREFORE, the Court hereby MODIFIES the assailed judgment and orders defendant-appellant
to:

"1) Deliver to plaintiff-appellee 12,586 bags of sugar covered by SLDR No. 1214M;

"2) Pay to plaintiff-appellee P792,918.00 which is 10% of the value of the undelivered bags
of refined sugar, as attorneys fees;

"3) Pay the costs of suit.

"SO ORDERED."11

Both parties then seasonably filed separate motions for reconsideration.

In its resolution dated September 30, 1994, the appellate court modified its decision to read:

"WHEREFORE, the Court hereby modifies the assailed judgment and orders defendant-appellant to:

"(1) Deliver to plaintiff-appellee 23,000 bags of refined sugar under SLDR No. 1214M;

"(2) Pay costs of suit.

"SO ORDERED."12

The appellate court explained the rationale for the modification as follows:

"There is merit in plaintiff-appellee's position.

"Exhibit F' We relied upon in fixing the number of bags of sugar which remained undelivered as
12,586 cannot be made the basis for such a finding. The rule is explicit that courts should consider
the evidence only for the purpose for which it was offered. (People v. Abalos, et al, 1 CA Rep 783).
The rationale for this is to afford the party against whom the evidence is presented to object thereto
if he deems it necessary. Plaintiff-appellee is, therefore, correct in its argument that Exhibit F' which
was offered to prove that checks in the total amount of P15,950,000.00 had been cleared. (Formal
Offer of Evidence for Plaintiff, Records p. 58) cannot be used to prove the proposition that 12,586
bags of sugar remained undelivered.

"Testimonial evidence (Testimonies of Teresita Ng [TSN, 10 October 1990, p. 33] and Marianito L.
Santos [TSN, 17 October 1990, pp. 16, 18, and 36]) presented by plaintiff-appellee was to the effect
that it had withdrawn only 2,000 bags of sugar from SLDR after which it was not allowed to withdraw
anymore. Documentary evidence (Exhibit I, Id., p. 78, Exhibit K, Id., p. 80) show that plaintiff-
appellee had sent demand letters to defendant-appellant asking the latter to allow it to withdraw the
remaining 23,000 bags of sugar from SLDR 1214M. Defendant-appellant, on the other hand, alleged
that sugar delivery to the STM corresponded only to the value of cleared checks; and that all sugar
corresponded to cleared checks had been withdrawn. Defendant-appellant did not rebut plaintiff-
appellee's assertions. It did not present evidence to show how many bags of sugar had been
withdrawn against SLDR No. 1214M, precisely because of its theory that all sales in question were a
series of one single transaction and withdrawal of sugar depended on the clearing of checks paid
therefor.

"After a second look at the evidence, We see no reason to overturn the findings of the trial court on
this point."13

Hence, the instant petition, positing the following errors as grounds for review:

"1. The Court of Appeals erred in not holding that STM's and private respondent's specially
informing petitioner that respondent was authorized by buyer STM to withdraw sugar against
SLDR No. 1214M "for and in our (STM) behalf," (emphasis in the original) private
respondent's withdrawing 2,000 bags of sugar for STM, and STM's empowering other
persons as its agents to withdraw sugar against the same SLDR No. 1214M, rendered
respondent like the other persons, an agent of STM as held in Rallos v. Felix Go Chan &
Realty Corp., 81 SCRA 252, and precluded it from subsequently claiming and proving being
an assignee of SLDR No. 1214M and from suing by itself for its enforcement because it was
conclusively presumed to be an agent (Sec. 2, Rule 131, Rules of Court) and estopped from
doing so. (Art. 1431, Civil Code).

"2. The Court of Appeals erred in manifestly and arbitrarily ignoring and disregarding certain
relevant and undisputed facts which, had they been considered, would have shown that
petitioner was not liable, except for 69 bags of sugar, and which would justify review of its
conclusion of facts by this Honorable Court.

"3. The Court of Appeals misapplied the law on compensation under Arts. 1279, 1285 and
1626 of the Civil Code when it ruled that compensation applied only to credits from one
SLDR or contract and not to those from two or more distinct contracts between the same
parties; and erred in denying petitioner's right to setoff all its credits arising prior to notice of
assignment from other sales or SLDRs against private respondent's claim as assignee under
SLDR No. 1214M, so as to extinguish or reduce its liability to 69 bags, because the law on
compensation applies precisely to two or more distinct contracts between the same parties
(emphasis in the original).

"4. The Court of Appeals erred in concluding that the settlement or liquidation of accounts in
Exh. F between petitioner and STM, respondent's admission of its balance, and STM's
acquiescence thereto by silence for almost one year did not render Exh. `F' an account
stated and its balance binding.
 "5. The Court of Appeals erred in not holding that the conditions of the assigned SLDR No.
1214, namely, (a) its subject matter being generic, and (b) the sale of sugar being subject to
its availability at the Nawaco warehouse, made the sale conditional and prevented STM or
private respondent from acquiring title to the sugar; and the non-availability of sugar freed
petitioner from further obligation.

"6. The Court of Appeals erred in not holding that the "clean hands" doctrine precluded
respondent from seeking judicial reliefs (sic) from petitioner, its only remedy being against its
assignor."14

Simply stated, the issues now to be resolved are:

(1)....Whether or not the Court of Appeals erred in not ruling that CSC was an agent of STM
and hence, estopped to sue upon SLDR No. 1214M as an assignee.

(2)....Whether or not the Court of Appeals erred in applying the law on compensation to the
transaction under SLDR No. 1214M so as to preclude petitioner from offsetting its credits on
the other SLDRs.

(3)....Whether or not the Court of Appeals erred in not ruling that the sale of sugar under
SLDR No. 1214M was a conditional sale or a contract to sell and hence freed petitioner from
further obligations.

(4)....Whether or not the Court of Appeals committed an error of law in not applying the
"clean hands doctrine" to preclude CSC from seeking judicial relief.

The issues will be discussed in seriatim.

Anent the first issue, we find from the records that petitioner raised this issue for the first time on
appeal. It is settled that an issue which was not raised during the trial in the court below could not
1avvphi1

be raised for the first time on appeal as to do so would be offensive to the basic rules of fair play,
justice, and due process.15 Nonetheless, the Court of Appeals opted to address this issue, hence,
now a matter for our consideration.

Petitioner heavily relies upon STM's letter of authority allowing CSC to withdraw sugar against SLDR
No. 1214M to show that the latter was STM's agent. The pertinent portion of said letter reads:

"This is to authorize Consolidated Sugar Corporation or its representative to withdraw for and in our
behalf (stress supplied) the refined sugar covered by Shipping List/Delivery Receipt = Refined Sugar
(SDR) No. 1214 dated October 16, 1989 in the total quantity of 25, 000 bags."16

The Civil Code defines a contract of agency as follows:

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

It is clear from Article 1868 that the basis of agency is representation.17 On the part of the principal,
there must be an actual intention to appoint18 or an intention naturally inferable from his words or
actions;19 and on the part of the agent, there must be an intention to accept the appointment and act
on it,20 and in the absence of such intent, there is generally no agency.21 One factor which most clearly
distinguishes agency from other legal concepts is control; one person - the agent - agrees to act
under the control or direction of another - the principal. Indeed, the very word "agency" has come to
connote control by the principal.22 The control factor, more than any other, has caused the courts to
put contracts between principal and agent in a separate category.23 The Court of Appeals, in finding
that CSC, was not an agent of STM, opined:

"This Court has ruled that where the relation of agency is dependent upon the acts of the parties, the
law makes no presumption of agency, and it is always a fact to be proved, with the burden of proof
resting upon the persons alleging the agency, to show not only the fact of its existence, but also its
nature and extent (Antonio vs. Enriquez [CA], 51 O.G. 3536]. Here, defendant-appellant failed to
sufficiently establish the existence of an agency relation between plaintiff-appellee and STM. The
fact alone that it (STM) had authorized withdrawal of sugar by plaintiff-appellee "for and in our
(STM's) behalf" should not be eyed as pointing to the existence of an agency relation ...It should be
viewed in the context of all the circumstances obtaining. Although it would seem STM represented
plaintiff-appellee as being its agent by the use of the phrase "for and in our (STM's) behalf" the
matter was cleared when on 23 January 1990, plaintiff-appellee informed defendant-appellant that
SLDFR No. 1214M had been "sold and endorsed" to it by STM (Exhibit I, Records, p. 78). Further,
plaintiff-appellee has shown that the 25, 000 bags of sugar covered by the SLDR No. 1214M were
sold and transferred by STM to it ...A conclusion that there was a valid sale and transfer to plaintiff-
appellee may, therefore, be made thus capacitating plaintiff-appellee to sue in its own name, without
need of joining its imputed principal STM as co-plaintiff."24

In the instant case, it appears plain to us that private respondent CSC was a buyer of the SLDFR
form, and not an agent of STM. Private respondent CSC was not subject to STM's control. The
question of whether a contract is one of sale or agency depends on the intention of the parties as
gathered from the whole scope and effect of the language employed.25 That the authorization given to
CSC contained the phrase "for and in our (STM's) behalf" did not establish an agency. Ultimately,
what is decisive is the intention of the parties.26 That no agency was meant to be established by the
CSC and STM is clearly shown by CSC's communication to petitioner that SLDR No. 1214M had
been "sold and endorsed" to it.27 The use of the words "sold and endorsed" means that STM and
CSC intended a contract of sale, and not an agency. Hence, on this score, no error was committed
by the respondent appellate court when it held that CSC was not STM's agent and could
independently sue petitioner.

On the second issue, proceeding from the theory that the transactions entered into between
petitioner and STM are but serial parts of one account, petitioner insists that its debt has been offset
by its claim for STM's unpaid purchases, pursuant to Article 1279 of the Civil Code.28 However, the
trial court found, and the Court of Appeals concurred, that the purchase of sugar covered by SLDR
No. 1214M was a separate and independent transaction; it was not a serial part of a single
transaction or of one account contrary to petitioner's insistence. Evidence on record shows, without
being rebutted, that petitioner had been paid for the sugar purchased under SLDR No. 1214M.
Petitioner clearly had the obligation to deliver said commodity to STM or its assignee. Since said
sugar had been fully paid for, petitioner and CSC, as assignee of STM, were not mutually creditors
and debtors of each other. No reversible error could thereby be imputed to respondent appellate
court when, it refused to apply Article 1279 of the Civil Code to the present case.

Regarding the third issue, petitioner contends that the sale of sugar under SLDR No. 1214M is a
conditional sale or a contract to sell, with title to the sugar still remaining with the vendor.
Noteworthy, SLDR No. 1214M contains the following terms and conditions:

"It is understood and agreed that by payment by buyer/trader of refined sugar and/or receipt of this
document by the buyer/trader personally or through a representative, title to refined sugar is
transferred to buyer/trader and delivery to him/it is deemed effected and completed (stress supplied)
and buyer/trader assumes full responsibility therefore"29

The aforequoted terms and conditions clearly show that petitioner transferred title to the sugar to the
buyer or his assignee upon payment of the purchase price. Said terms clearly establish a contract of
sale, not a contract to sell. Petitioner is now estopped from alleging the contrary. The contract is the
law between the contracting parties.30 And where the terms and conditions so stipulated are not
contrary to law, morals, good customs, public policy or public order, the contract is valid and must be
upheld.31 Having transferred title to the sugar in question, petitioner is now obliged to deliver it to the
purchaser or its assignee.

As to the fourth issue, petitioner submits that STM and private respondent CSC have entered into a
conspiracy to defraud it of its sugar. This conspiracy is allegedly evidenced by: (a) the fact that
STM's selling price to CSC was below its purchasing price; (b) CSC's refusal to pursue its case
against Teresita Ng Go; and (c) the authority given by the latter to other persons to withdraw sugar
against SLDR No. 1214M after she had sold her rights under said SLDR to CSC. Petitioner prays
that the doctrine of "clean hands" should be applied to preclude CSC from seeking judicial relief.
However, despite careful scrutiny, we find here the records bare of convincing evidence whatsoever
to support the petitioner's allegations of fraud. We are now constrained to deem this matter purely
speculative, bereft of concrete proof.

WHEREFORE, the instant petition is DENIED for lack of merit. Costs against petitioner.

SO ORDERED.

G.R. No. 136433 December 6, 2006

ANTONIO B. BALTAZAR, petitioner,

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

DECISION

VELASCO, JR., J.:

The Case

Ascribing grave abuse of discretion to respondent Ombudsman, this Petition for Review on
Certiorari,1 under Rule 45 pursuant to Section 27 of RA 6770,2 seeks to reverse and set aside the
November 26, 1997 Order3 of the Office of the Special Prosecutor (OSP) in OMB-1-94-3425 duly
approved by then Ombudsman Aniano Desierto on August 21, 1998, which recommended the
dismissal of the Information4 in Criminal Case No. 23661 filed before the Sandiganbayan against
respondents Pampanga Provincial Adjudicator Toribio E. Ilao, Jr., Chief Legal Officer Eulogio M.
Mariano and Legal Officer Jose D. Jimenez, Jr. (both of the DAR Legal Division in San Fernando,
Pampanga), and Ernesto R. Salenga. The petition likewise seeks to set aside the October 30, 1998
Memorandum5of the OSP duly approved by the Ombudsman on November 27, 1998 which denied
petitioner's Motion for Reconsideration.6 Previously, the filing of the Information against said
respondents was authorized by the May 10, 1996 Resolution7 and October 3, 1996 Order8 of the
Ombudsman which found probable cause that they granted unwarranted benefits, advantage, and
preference to respondent Salenga in violation of Section 3 (e) of RA 3019.9

The Facts

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

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

On June 5, 1993, sub-lessee Rafael Lopez wrote a letter to respondent Salenga informing the latter
that for the last two (2) months of the sub-lease, he had given the rights over the fishpond to Mario
Palad and Ambit Perez for PhP 20,000.00.13 This prompted respondent Salenga to file a
Complaint14 before the Provincial Agrarian Reform Adjudication Board (PARAB), Region III, San
Fernando, Pampanga docketed as DARAB Case No. 552-P93 entitled Ernesto R. Salenga v. Rafael
L. Lopez and Lourdes L. Lapid for Maintenance of Peaceful Possession, Collection of Sum of Money
and Supervision of Harvest. The Complaint was signed by respondent Jose D. Jimenez, Jr., Legal
Officer of the Department of Agrarian Reform (DAR) Region III Office in San Fernando, Pampanga,
as counsel for respondent Salenga; whereas respondent Eulogio M. Mariano was the Chief Legal
Officer of DAR Region III. The case was assigned to respondent Toribio E. Ilao, Jr., Provincial
Adjudicator of DARAB, Pampanga.

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

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

Pending resolution of the case, Faustino Mercado, as Attorney-in-Fact of the fishpond owner
Paciencia Regala, filed a motion to intervene which was granted by respondent Ilao, Jr. through the
November 15, 1993 Order. After the trial, respondent Ilao, Jr. rendered a Decision on May 29, 1995
dismissing the Complaint for lack of merit; but losing plaintiff, respondent Salenga, appealed the
decision before the DARAB Appellate Board.

Complaint Before the Ombudsman

On November 24, 1994, pending resolution of the agrarian case, the instant case was instituted by
petitioner Antonio Baltazar, an alleged nephew of Faustino Mercado, through a Complaint-
Affidavit18 against private respondents before the Office of the Ombudsman which was docketed as
OMB-1-94-3425 entitled Antonio B. Baltazar v. Eulogio Mariano, Jose Jimenez, Jr., Toribio Ilao, Jr.
and Ernesto Salenga for violation of RA 3019. Petitioner charged private respondents of conspiracy
through the issuance of the TRO in allowing respondent Salenga to retain possession of the
fishpond, operate it, harvest the produce, and keep the sales under the safekeeping of other private
respondents. Moreover, petitioner maintains that respondent Ilao, Jr. had no jurisdiction to hear and
act on DARAB Case No. 552-P93 filed by respondent Salenga as there was no tenancy relation
between respondent Salenga and Rafael L. Lopez, and thus, the complaint was dismissible on its
face.

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

Ombudsmans Determination of Probable Cause

On May 10, 1996, the Ombudsman issued a Resolution20 finding cause to bring respondents to
court, denying the motion to dismiss of respondent Ilao, Jr., and recommending the filing of an
Information for violation of Section 3 (e) of RA 3019. Subsequently, respondent Ilao, Jr. filed his
September 16, 1996 Motion for Reconsideration and/or Re-investigation21 which was denied through
the October 3, 1996 Order.22 Consequently, the March 17, 1997 Information23 was filed against all
the private respondents before the Sandiganbayan which was docketed as Criminal Case No.
23661.

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

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

Thus, the instant petition is before us.

The Issues

Petitioner raises two assignments of errors, to wit:

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

ASSUMING OTHERWISE, THE HONORABLE OMBUDSMAN LIKEWISE ERRED IN

REVERSING HIS OWN RESOLUTION WHERE IT WAS RESOLVED THAT ACCUSED AS
PROVINCIAL AGRARIAN ADJUDICATOR HAS NO JURISDICTION OVER A COMPLAINT
WHERE THERE EXIST [sic] NO TENANCY RELATIONSHIP CONSIDERING [sic]
COMPLAINANT IS NOT A TENANT BUT A "BANTE-ENCARGADO" OR WATCHMAN-
OVERSEER HIRED FOR A SALARY OF P3,000.00 PER MONTH AS ALLEGED IN HIS
OWN COMPLAINT.30

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

Preliminary Issue: Legal Standing

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

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

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

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

Petitioner has no legal standing

Is petitioner a party or a real party in interest to have the locus standi to pursue the instant petition?
We answer in the negative.
While petitioner may be the complainant in OMB-1-94-3425, he is not a real party in interest. Section
2, Rule 3 of the 1997 Rules of Civil Procedure stipulates, thus:

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

The same concept is applied in criminal and administrative cases.

In the case at bar which involves a criminal proceeding stemming from a civil (agrarian) case, it is
clear that petitioner is not a real party in interest. Except being the complainant, the records show
that petitioner is a stranger to the agrarian case. It must be recalled that the undisputed owner of the
fishpond is Paciencia Regala, who intervened in DARAB Case No. 552-P93 through her Attorney-in-
Fact Faustino Mercado in order to protect her interest. The motion for intervention filed by Faustino
Mercado, as agent of Paciencia Regala, was granted by respondent Provincial Adjudicator Ilao, Jr.
through the November 15, 1993 Order in DARAB Case No. 552-P93.

Agency cannot be further delegated

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

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

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

Petitioner: a stranger and not an injured private complainant

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

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

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

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

First Issue: Submission of Counter-Affidavit

The Sandiganbayan, not the Ombudsman, ordered re-investigation

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

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

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

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

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

Re-investigation upon sound discretion of graft court

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

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

Second Issue: Agrarian Dispute

Anent the second assignment of error, petitioner contends that DARAB Case No. 552-P93 is not an
agrarian dispute and therefore outside the jurisdiction of the DARAB. He maintains that respondent
Salenga is not an agricultural tenant but a mere watchman of the fishpond owned by Paciencia
Regala. Moreover, petitioner further argues that Rafael Lopez and Lourdes Lapid, the respondents
in the DARAB case, are not the owners of the fishpond.

Nature of the case determined by allegations in the complaint

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

Issuance of TRO upon the sound discretion of hearing officer

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

Premises considered, respondent Ilao, Jr. has correctly assumed jurisdiction and properly exercised
his discretion in issuing the TROas respondent Ilao, Jr. aptly maintained that giving due course to
the complaint and issuing the TRO do not reflect the final determination of the merits of the case.
Indeed, after hearing the case, respondent Ilao, Jr. rendered a Decision on May 29, 1995 dismissing
DARAB Case No. 552-P93 for lack of merit.

Court will not review prosecutors determination of probable cause

Finally, we will not delve into the merits of the Ombudsmans reversal of its initial finding of probable
cause or cause to bring respondents to trial. Firstly, petitioner has not shown that the Ombudsman
committed grave abuse of discretion in rendering such reversal. Secondly, it is clear from the
records that the initial finding embodied in the May 10, 1996 Resolution was arrived at before the
filing of respondent Ilao, Jr.s Counter-Affidavit. Thirdly, it is the responsibility of the public
prosecutor, in this case the Ombudsman, to uphold the law, to prosecute the guilty, and to protect
the innocent. Lastly, the function of determining the existence of probable cause is proper for the
Ombudsman in this case and we will not tread on the realm of this executive function to examine
and assess evidence supplied by the parties, which is supposed to be exercised at the start of
criminal proceedings. In Perez v. Hagonoy Rural Bank, Inc.,46 as cited in Longos Rural Waterworks
and Sanitation Association, Inc. v. Hon. Desierto,47 we had occasion to rule that we cannot pass
upon the sufficiency or insufficiency of evidence to determine the existence of probable cause.48

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

SO ORDERED.

G.R. No. 137162 January 24, 2007

CORAZON L. ESCUETA, assisted by her husband EDGAR ESCUETA, IGNACIO E. RUBIO,

THE HEIRS OF LUZ R. BALOLOY, namely, ALEJANDRINO R. BALOLOY and BAYANI R.
BALOLOY, Petitioners,
vs.
RUFINA LIM, Respondent.

DECISION

AZCUNA, J.:

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

The facts2 appear as follows:

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

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

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

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

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

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

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

Respondent has no cause of action, because Rubio has not entered into a contract of sale with her;
that he has appointed his daughter Patricia Llamas to be his attorney-in-fact and not in favor of
Virginia Rubio Laygo Lim (Lim for brevity) who was the one who represented him in the sale of the
disputed lots in favor of respondent; that the P100,000 respondent claimed he received as down
payment for the lots is a simple transaction by way of a loan with Lim.

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

IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of [respondent] and against
[petitioners, heirs] of Luz R. Balolo[y], namely: Alejandrino Baloloy and Bayani Baloloy. The
[petitioners] Alejandrino Baloloy and Bayani Baloloy are ordered to immediately execute an
[Absolute] Deed of Sale over their hereditary share in the properties covered by TCT No. 74392 and
TCT No. 74394, after payment to them by [respondent] the amount of P[1,050,000] or consignation
of said amount in Court. [For] failure of [petitioners] Alejandrino Baloloy and Bayani Baloloy to
execute the Absolute Deed of Sale over their hereditary share in the property covered by TCT No. T-
74392 and TCT No. T-74394 in favor of [respondent], the Clerk of Court is ordered to execute the
necessary Absolute Deed of Sale in behalf of the Baloloys in favor of [respondent,] with a
consideration of P[1,500,000]. Further[,] [petitioners] Alejandrino Baloloy and Bayani Baloloy are
ordered to jointly and severally pay [respondent] moral damages in the amount of P[50,000]
and P[20,000] for attorneys fees. The adverse claim annotated at the back of TCT No. T-74392 and
TCT No. T-74394[,] insofar as the shares of Alejandrino Baloloy and Bayani Baloloy are concerned[,]
[is] ordered cancelled.

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

SO ORDERED.3

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

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

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

SO ORDERED.4

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

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

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

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

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

b. Rubio is directed to execute a Deed of Absolute Sale conditioned upon the

payment of the balance of the purchase price by [respondent] within 30 days from
the receipt of the entry of judgment of this Decision.

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

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

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

SO ORDERED.5

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

The issues are:

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

II

THE HONORABLE COURT OF APPEALS ERRED IN REINSTATING THE COMPLAINT AND IN

AWARDING MORAL DAMAGES AND ATTORNEYS FEES IN FAVOR OF RESPONDENT RUFINA
L. LIM CONSIDERING THAT:

A. IGNACIO E. RUBIO IS NOT BOUND BY THE CONTRACT OF SALE BETWEEN

VIRGINIA LAYGO-LIM AND RUFINA LIM.

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

C. RUFINA LIM FAILED TO FAITHFULLY COMPLY WITH HER OBLIGATIONS UNDER

THE CONTRACT TO SELL THEREBY WARRANTING THE CANCELLATION THEREOF.

D. CORAZON L. ESCUETA ACTED IN UTMOST GOOD FAITH IN ENTERING INTO THE

CONTRACT OF SALE WITH IGNACIO E. RUBIO.

III

THE CONTRACT OF SALE EXECUTED BETWEEN IGNACIO E. RUBIO AND CORAZON

L. ESCUETA IS VALID.

IV

THE HONORABLE COURT OF APPEALS ERRED IN DISMISSING PETITIONERS

COUNTERCLAIMS.

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

Petitioners argue, as follows:

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

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

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

Second, the sale by Virginia to respondent is not binding. Petitioner Rubio did not authorize Virginia
to transact business in his behalf pertaining to the property. The Special Power of Attorney was
constituted in favor of Llamas, and the latter was not empowered to designate a substitute attorney-
in-fact. Llamas even disowned her signature appearing on the "Joint Special Power of Attorney,"
which constituted Virginia as her true and lawful attorney-in-fact in selling Rubios properties.
Dealing with an assumed agent, respondent should ascertain not only the fact of agency, but also
the nature and extent of the formers authority. Besides, Virginia exceeded the authority for failing to
comply with her obligations under the "Joint Special Power of Attorney."

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

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

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

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

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

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

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

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

SEC. 3. Time for filing petition; contents and verification. A petition provided for in either of the
preceding sections of this Rule must be verified, filed within sixty (60) days after the petitioner learns
of the judgment, final order, or other proceeding to be set aside, and not more than six (6) months
after such judgment or final order was entered, or such proceeding was taken; and must be
accompanied with affidavits showing the fraud, accident, mistake, or excusable negligence relied
upon, and the facts constituting the petitioners good and substantial cause of action or defense, as
the case may be.
There is no reason for the Baloloys to ignore the effects of the above-cited rule. "The 60-day period
is reckoned from the time the party acquired knowledge of the order, judgment or proceedings and
not from the date he actually read the same."13 As aptly put by the appellate court:

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

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

Furthermore, no fraud, accident, mistake, or excusable negligence exists in order that the petition for
relief may be granted.14 There is no proof of extrinsic fraud that "prevents a party from having a trial x
x x or from presenting all of his case to the court"15 or an "accident x x x which ordinary prudence
could not have guarded against, and by reason of which the party applying has probably been
impaired in his rights."16 There is also no proof of either a "mistake x x x of law"17 or an excusable
negligence "caused by failure to receive notice of x x x the trial x x x that it would not be necessary
for him to take an active part in the case x x x by relying on another person to attend to the case for
him, when such other person x x x was chargeable with that duty x x x, or by other circumstances
not involving fault of the moving party."18

Article 1892 of the Civil Code provides:

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

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

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

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

Art. 1317. x x x
A contract entered into in the name of another by one who has no authority or legal representation,
or who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or
impliedly, by the person on whose behalf it has been executed, before it is revoked by the other
contracting party.

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

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

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

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

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

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

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

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

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

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

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

SO ORDERED.

G.R. No. 130423 November 18, 2002

VIRGIE SERONA, petitioner,

vs.
HON. COURT OF APPEALS and THE PEOPLE OF THE PHILIPPINES, respondents.

DECISION

YNARES-SANTIAGO, J.:

During the period from July 1992 to September 1992, Leonida Quilatan delivered pieces of jewelry to
petitioner Virgie Serona to be sold on commission basis. By oral agreement of the parties, petitioner
shall remit payment or return the pieces of jewelry if not sold to Quilatan, both within 30 days from
receipt of the items.

Upon petitioners failure to pay on September 24, 1992, Quilatan required her to execute an
acknowledgment receipt (Exhibit B) indicating their agreement and the total amount due, to wit:

Ako, si Virginia Serona, nakatira sa Mother Earth Subd., Las Pinas, ay kumuha ng mga alahas kay
Gng. Leonida Quilatan na may kabuohang halaga na P567,750.00 para ipagbili para ako
magkakomisyon at ibibigay ang benta kung mabibili o ibabalik sa kanya ang mga nasabing alahas
kung hindi mabibili sa loob ng 30 araw.

Las Pinas, September 24, 1992.1

The receipt was signed by petitioner and a witness, Rufina G. Navarette.

Unknown to Quilatan, petitioner had earlier entrusted the jewelry to one Marichu Labrador for the
latter to sell on commission basis. Petitioner was not able to collect payment from Labrador, which
caused her to likewise fail to pay her obligation to Quilatan.

Subsequently, Quilatan, through counsel, sent a formal letter of demand2 to petitioner for failure to
settle her obligation. Quilatan executed a complaint affidavit3 against petitioner before the Office of
the Assistant Provincial Prosecutor. Thereafter, an information for estafa under Article 315,
paragraph 1(b)4 of the Revised Penal Code was filed against petitioner, which was raffled to Branch
255 of the Regional Trial Court of Las Pinas. The information alleged:

That on or about and sometime during the period from July 1992 up to September 1992, in the
Municipality of Las Pinas, Metro Manila, Philippines, and within the jurisdiction of this Honorable
Court, the said accused received in trust from the complainant Leonida E. Quilatan various pieces of
jewelry in the total value of P567,750.00 to be sold on commission basis under the express duty and
obligation of remitting the proceeds thereof to the said complainant if sold or returning the same to
the latter if unsold but the said accused once in possession of said various pieces of jewelry, with
unfaithfulness and abuse of confidence and with intent to defraud, did then and there willfully,
unlawfully and feloniously misappropriate and convert the same for her own personal use and
benefit and despite oral and written demands, she failed and refused to account for said jewelry or
the proceeds of sale thereof, to the damage and prejudice of complainant Leonida E. Quilatan in the
aforestated total amount of P567,750.00.

CONTRARY TO LAW.5

Petitioner pleaded not guilty to the charge upon arraignment.6 Trial on the merits thereafter ensued.

Quilatan testified that petitioner was able to remit P100,000.00 and returned P43,000.00 worth of
jewelriy;7 that at the start, petitioner was prompt in settling her obligation; however, subsequently the
payments were remitted late;8that petitioner still owed her in the amount of P424,750.00.9

On the other hand, petitioner admitted that she received several pieces of jewelry from Quilatan and
that she indeed failed to pay for the same. She claimed that she entrusted the pieces of jewelry to
Marichu Labrador who failed to pay for the same, thereby causing her to default in paying
Quilatan.10 She presented handwritten receipts (Exhibits 1 & 2)11 evidencing payments made to
Quilatan prior to the filing of the criminal case.

Marichu Labrador confirmed that she received pieces of jewelry from petitioner worth P441,035.00.
She identified an acknowledgment receipt (Exhibit 3)12 signed by her dated July 5, 1992 and testified
that she sold the jewelry to a person who absconded without paying her. Labrador also explained
that in the past, she too had directly transacted with Quilatan for the sale of jewelry on commission
basis; however, due to her outstanding account with the latter, she got jewelry from petitioner
instead.13

On November 17, 1994, the trial court rendered a decision finding petitioner guilty of estafa, the
dispositive portion of which reads:

WHEREFORE, in the light of the foregoing, the court finds the accused Virgie Serona guilty beyond
reasonable doubt, and as the amount misappropriated is P424,750.00 the penalty provided under
the first paragraph of Article 315 of the Revised Penal Code has to be imposed which shall be in the
maximum period plus one (1) year for every additional P10,000.00.
Applying the Indeterminate Sentence Law, the said accused is hereby sentenced to suffer the
penalty of imprisonment ranging from FOUR (4) YEARS and ONE (1) DAY of prision correccional as
minimum to TEN (10) YEARS and ONE (1) DAY of prision mayor as maximum; to pay the sum of
P424,750.00 as cost for the unreturned jewelries; to suffer the accessory penalties provided by law;
and to pay the costs.

SO ORDERED.14

Petitioner appealed to the Court of Appeals, which affirmed the judgment of conviction but modified
the penalty as follows:

WHEREFORE, the appealed decision finding the accused-appellant guilty beyond reasonable doubt
of the crime of estafa is hereby AFFIRMED with the following MODIFICATION:

Considering that the amount involved is P424,750.00, the penalty should be imposed in its maximum
period adding one (1) year for each additional P10,000.00 albeit the total penalty should not exceed
Twenty (20) Years (Art. 315). Hence, accused-appellant is hereby SENTENCED to suffer the
penalty of imprisonment ranging from Four (4) Years and One (1) Day of Prision Correccional as
minimum to Twenty (20) Years of Reclusion Temporal.

SO ORDERED.15

Upon denial of her motion for reconsideration,16 petitioner filed the instant petition under Rule 45,
alleging that:

RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN CONCLUDING THAT THERE WAS

AN ABUSE OF CONFIDENCE ON THE PART OF PETITIONER IN ENTRUSTING THE SUBJECT
JEWELRIES (sic) TO HER SUB-AGENT FOR SALE ON COMMISSION TO PROSPECTIVE
BUYERS.

II

RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN CONCLUDING THAT THERE WAS

MISAPPROPRIATION OR CONVERSION ON THE PART OF PETITIONER WHEN SHE FAILED
TO RETURN THE SUBJECT JEWELRIES (sic) TO PRIVATE COMPLAINANT.17

Petitioner argues that the prosecution failed to establish the elements of estafa as penalized under
Article 315, par. 1(b) of the Revised Penal Code. In particular, she submits that she neither abused
the confidence reposed upon her by Quilatan nor converted or misappropriated the subject jewelry;
that her giving the pieces of jewelry to a sub-agent for sale on commission basis did not violate her
undertaking with Quilatan. Moreover, petitioner delivered the jewelry to Labrador under the same
terms upon which it was originally entrusted to her. It was established that petitioner had not derived
any personal benefit from the loss of the jewelry. Consequently, it cannot be said that she
misappropriated or converted the same.

We find merit in the petition.

The elements of estafa through misappropriation or conversion as defined in Article 315, par. 1(b) of
the Revised Penal Code are: (1) that the money, good or other personal property is received by the
offender in trust, or on commission, or for administration, or under any other obligation involving the
duty to make delivery of, or to return, the same; (2) that there be misappropriation or conversion of
such money or property by the offender or denial on his part of such receipt; (3) that such
misappropriation or conversion or denial is to the prejudice of another; and (4) that there is a
demand made by the offended party on the offender.18 While the first, third and fourth elements are
concededly present, we find the second element of misappropriation or conversion to be lacking in
the case at bar.

Petitioner did not ipso facto commit the crime of estafa through conversion or misappropriation by
delivering the jewelry to a sub-agent for sale on commission basis. We are unable to agree with the
lower courts conclusion that this fact alone is sufficient ground for holding that petitioner disposed of
the jewelry "as if it were hers, thereby committing conversion and a clear breach of trust."19

It must be pointed out that the law on agency in our jurisdiction allows the appointment by an agent
of a substitute or sub-agent in the absence of an express agreement to the contrary between the
agent and the principal.20 In the case at bar, the appointment of Labrador as petitioners sub-agent
was not expressly prohibited by Quilatan, as the acknowledgment receipt, Exhibit B, does not
contain any such limitation. Neither does it appear that petitioner was verbally forbidden by Quilatan
from passing on the jewelry to another person before the acknowledgment receipt was executed or
at any other time. Thus, it cannot be said that petitioners act of entrusting the jewelry to Labrador is
characterized by abuse of confidence because such an act was not proscribed and is, in fact, legally
sanctioned.

The essence of estafa under Article 315, par. 1(b) is the appropriation or conversion of money or
property received to the prejudice of the owner. The words "convert" and "misappropriated" connote
an act of using or disposing of anothers property as if it were ones own, or of devoting it to a
purpose or use different from that agreed upon. To misappropriate for ones own use includes not
only conversion to ones personal advantage, but also every attempt to dispose of the property of
another without right.21

In the case at bar, it was established that the inability of petitioner as agent to comply with her duty
to return either the pieces of jewelry or the proceeds of its sale to her principal Quilatan was due, in
turn, to the failure of Labrador to abide by her agreement with petitioner. Notably, Labrador testified
that she obligated herself to sell the jewelry in behalf of petitioner also on commission basis or to
return the same if not sold. In other words, the pieces of jewelry were given by petitioner to Labrador
to achieve the very same end for which they were delivered to her in the first place. Consequently,
there is no conversion since the pieces of jewelry were not devoted to a purpose or use different
from that agreed upon.

Similarly, it cannot be said that petitioner misappropriated the jewelry or delivered them to Labrador
"without right." Aside from the fact that no condition or limitation was imposed on the mode or
manner by which petitioner was to effect the sale, it is also consistent with usual practice for the
seller to necessarily part with the valuables in order to find a buyer and allow inspection of the items
for sale.

In People v. Nepomuceno,22 the accused-appellant was acquitted of estafa on facts similar to the
instant case. Accused-appellant therein undertook to sell two diamond rings in behalf of the
complainant on commission basis, with the obligation to return the same in a few days if not sold.
However, by reason of the fact that the rings were delivered also for sale on commission to sub-
agents who failed to account for the rings or the proceeds of its sale, accused-appellant likewise
failed to make good his obligation to the complainant thereby giving rise to the charge of estafa. In
absolving the accused-appellant of the crime charged, we held:
Where, as in the present case, the agents to whom personal property was entrusted for sale,
conclusively proves the inability to return the same is solely due to malfeasance of a subagent to
whom the first agent had actually entrusted the property in good faith, and for the same purpose for
which it was received; there being no prohibition to do so and the chattel being delivered to the
subagent before the owner demands its return or before such return becomes due, we hold that the
first agent can not be held guilty of estafa by either misappropriation or conversion. The abuse of
confidence that is characteristic of this offense is missing under the circumstances.23

Accordingly, petitioner herein must be acquitted. The lower courts reliance on People v. Flores24 and
U.S. v. Panes25 to justify petitioners conviction is misplaced, considering that the factual background
of the cited cases differ from those which obtain in the case at bar. In Flores, the accused received a
ring to sell under the condition that she would return it the following day if not sold and without
authority to retain the ring or to give it to a sub-agent. The accused in Panes, meanwhile, was
obliged to return the jewelry he received upon demand, but passed on the same to a sub-agent even
after demand for its return had already been made. In the foregoing cases, it was held that there was
conversion or misappropriation.

Furthermore, in Lim v. Court of Appeals,26 the Court, citing Nepomuceno and the case of People v.
Trinidad,27 held that:

In cases of estafa the profit or gain must be obtained by the accused personally, through his own
acts, and his mere negligence in permitting another to take advantage or benefit from the entrusted
chattel cannot constitute estafa under Article 315, paragraph 1-b, of the Revised Penal Code; unless
of course the evidence should disclose that the agent acted in conspiracy or connivance with the
one who carried out the actual misappropriation, then the accused would be answerable for the acts
of his co-conspirators. If there is no such evidence, direct or circumstantial, and if the proof is clear
that the accused herself was the innocent victim of her sub-agents faithlessness, her acquittal is in
order.28 (Italics copied)

Labrador admitted that she received the jewelry from petitioner and sold the same to a third person.
She further acknowledged that she owed petitioner P441,035.00, thereby negating any criminal
intent on the part of petitioner. There is no showing that petitioner derived personal benefit from or
conspired with Labrador to deprive Quilatan of the jewelry or its value. Consequently, there is no
estafa within contemplation of the law.

Notwithstanding the above, however, petitioner is not entirely free from any liability towards Quilatan.
The rule is that an accused acquitted of estafa may nevertheless be held civilly liable where the facts
established by the evidence so warrant. Then too, an agent who is not prohibited from appointing a
sub-agent but does so without express authority is responsible for the acts of the sub-
agent.29 Considering that the civil action for the recovery of civil liability arising from the offense is
deemed instituted with the criminal action,30 petitioner is liable to pay complainant Quilatan the value
of the unpaid pieces of jewelry.

WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals in CA-G.R. CR No.
17222 dated April 30,1997 and its resolution dated August 28, 1997 are REVERSED and SET
ASIDE. Petitioner Virgie Serona is ACQUITTED of the crime charged, but is held civilly liable in the
amount of P424,750.00 as actual damages, plus legal interest, without subsidiary imprisonment in
case of insolvency.

SO ORDERED.
G.R. No. 103737 December 15, 1994

NORA S. EUGENIO and ALFREDO Y. EUGENIO, petitioners,

vs.
HON. COURT OF APPEALS and PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES,
INC., respondents.

REGALADO, J.:

Private respondent Pepsi-Cola Bottling Company of the Philippines, Inc. is engaged in the business
of manufacturing, making bottling and selling soft drinks and beverages to the general public.
Petitioner Nora S. Eugenio was a dealer of the soft drink products of private respondent corporation.
Although she had only one store located at 27 Diamond Street, Emerald Village, Marikina, Metro
Manila, Eugenio had a regular charge account in both the Quezon City plant (under the name
"Abigail Minimart" *) as well as in the Muntinlupa plant (under the name "Nora Store") of respondent
corporation. Her husband and co-petitioner, Alfredo Y. Eugenio, used to be a route manager of
private respondent in its Quezon City plant.

On March 17, 1982, private respondent filed a complaint for a sum of money against petitioners
Nora S. Eugenio and Alfredo Y. Eugenio, docketed as Civil Case No. Q-34718 of the then Court of
First Instance of Quezon City, Branch 9 (now Regional Trial Court, Quezon City, Branch 97). In its
complaint, respondent corporation alleged that on several occasions in 1979 and 1980, petitioners
purchased and received on credit various products from its Quezon City plant. As of December 31,
1980, petitioners allegedly had an outstanding balance of P20,437.40 therein. Likewise, on various
occasions in 1980, petitioners also purchased and received on credit various products from
respondent's Muntinlupa plant and, as of December 31, 1989, petitioners supposedly had an
outstanding balance of P38,357.20 there. In addition, it was claimed that petitioners had an unpaid
obligation for the loaned "empties" from the same plant in the amount of P35,856.40 as of July 11,
1980. Altogether, petitioners had an outstanding account of P94,651.00 which, so the complaint
alleged, they failed to pay despite oral and written demands.1

In their defense, petitioners presented four trade provisional receipts (TPRs) allegedly issued to and
received by them from private respondent's Route Manager Jovencio Estrada of its Malate
Warehouse (Division 57), showing payments in the total sum of P80,500.00 made by Abigail's Store.
Petitioners contended that had the amounts in the TPRs been credited in their favor, they would not
be indebted to Pepsi-Cola. The details of said receipts are as follows:

TPR No. Date of Issue Amount

500320 600 Fulls returned 5/6/80 P23,520.00

500326 600 Fulls returned 5/10/80 23,520.00
500344 600 Fulls returned 5/14/80 23,520.00
500346 Cash 5/15/80 10,000.00 2

Total P80,560.00

Further, petitioners maintain that the signature purporting to be that of petitioner Nora S. Eugenio in
Sales Invoice No. 85366 dated May 15, 1980 in the amount of P5,631.00,3 which was included in the
computation of their alleged debt, is a falsification. In sum, petitioners argue that if the
aforementioned amounts were credited in their favor, it would be respondent corporation which
would be indebted to them in the sum of P3,546.02 representing overpayment.
After trial on the merits, the court a quo rendered a decision on February 17, 1986, ordering
petitioners, as defendants therein to jointly and severally pay private respondent the amount of
P74,849.00, plus 12% interest per annum until the principal amount shall have been fully paid, as
well as P20,000.00 as attorney's fees.4 On appeal in CA-G.R. CV No. 10623, the Court of Appeals
declared said decision a nullity for failure to comply with the requirement in Section 14, Article VIII of
the 1987 Constitution that decisions of courts should clearly and distinctly state the facts and the law
on which they are based. The Court of Appeals accordingly remanded the records of the case to the
trial court, directing it to render another decision in accordance with the requirements of the
Constitution.5

In compliance with the directive of the Court of Appeals, the lower court rendered a second decision
on September 29, 1989. In this new decision, petitioners were this time ordered to pay, jointly and
severally, the reduced amount of P64,188.60, plus legal interest of 6% per annum from the filing of
the action until full payment of the amount adjudged.6 On appeal therefrom, the Court of Appeals
affirmed the judgment of the trial court in a decision promulgated on September 27, 1991.7 A motion
for the reconsideration of said judgment of respondent court was subsequently denied in a resolution
dated January 23, 1992.8

We agree with petitioners and respondent court that the crux of the dispute in the case at bar is
whether or not the amounts in the aforementioned trade provisional receipts should be credited in
favor of herein petitioner spouses.

In a so-called encyclopedic sense, however, our course of action in this case and the denouement of
the controversy therein takes into account the jurisprudential rule that in the present recourse we
would normally have restricted ourselves to questions of law and eschewed questions of fact were it
not for our perception that the lower courts manifestly overlooked certain relevant factual
considerations resulting in a misapprehension thereof. Consequentially, that position shall
necessarily affect our analysis of the rules on the burden of proof and the burden of evidence, and
ultimately, whether the proponent of the corresponding claim has preponderated or rested on an
equipoise or fallen short of preponderance.

First, the backdrop. It appears that on August 1, 1981, private respondent through the head of its
Legal Department, Atty. Antonio N. Rosario, sent an inter-office correspondence to petitioner Alfredo
Eugenio inviting him for an interview/interrogation on August 3, 1981 regarding alleged "non-
payment of debts to the company, inefficiency, and loss of trust and confidence."9 The interview was
reset to August 4, 1981 to enable said petitioner to bring along with him their union president, Luis
Isip. On said date, a statement of overdue accounts were prepared showing that petitioners owed
respondent corporation the following amounts:

Muntinlupa Plant
Nora's Store
Trade Account P38,357.20 (as of 12/3/80) 10
Loaned Empties P35,856.40 (as of 7/11/81) 11

Quezon City Plant

Abigail Minimart
Regular Account P20,437.40 (as of 1980) 12

Total P94,651.00

A reconciliation of petitioners' account was then conducted. The liability of petitioners as to the
loaned empties (Muntinlupa plant, Nora Store) was reduced to P21,686.00 after a reevaluation of the
value of the loaned empties. 13Likewise, the amount of P5,631.00 under Invoice No. 85366, which
was a spurious document, was deducted from their liability in their trade account with the Muntinlupa
plant. 14 Thereafter, Eugenio and Isip signed the reconciliation sheets reflecting these items:

Muntinlupa Plant
Nora Store
Trade Account P32,726.20 15
Loaned Empties P21,686.00 16

Quezon City Plant

Abigail Minimart
Trade Account P20,437.2017

Total P74,849.40

After the meeting, private respondent alleged that petitioner Alfredo Y. Eugenio requested that he be
allowed to retire and the existing accounts be deducted from his retirement pay, but that he later
withdrew his retirement plan. Said petitioner disputed that allegation and, in fact, he subsequently
filed a complaint for illegal dismissal. The finding of labor arbiter, later affirmed by the Supreme
Court, showed that this petitioner was indeed illegally dismissed, and that he never filed an
application for retirement. In fact, this Court made a finding that the retirement papers allegedly filed
in the name of this petitioner were forged.18 This makes two falsified documents to be foisted against
petitioners.

With their aforesaid accounts still unpaid, petitioner Alfredo Y. Eugenio submitted to Atty. Rosario
the aforementioned four TPRs. Thereafter, Atty. Rosario ordered Daniel Azurin, assistant personnel
manager, to conduct an investigation to verify this claim of petitioners. According to Azurin, during
the investigation on December 4, 1981, Estrada allegedly denied that he issued and signed the
aforesaid TPRs.19 He also presented a supposed affidavit which Estrada allegedly executed during
that investigation to affirm his verbal statements therein. Surprisingly, however, said supposed
affidavit is inexplicably dated February 5, 1982. 20 At this point, it should be noted that Estrada never
testified thereafter in court and what he is supposed to have done or said was merely related by
Azurin.

Now, on this point, respondent court disagreed with herein petitioners that the testimony on the
alleged denial of Jovencio Estrada regarding his signatures on the disputed TPRs, as well as his
affidavit dated February 5, 1982 21wherein he affirmed his denial, are hearsay evidence because
Estrada was not presented as a witness to testify and be cross-examined thereon. Except for the
terse statement of respondent court that since petitioner Alfredo Eugenio was supposedly present on
December 4, 1981, "(t)he testimony of Jovencio Estrada at the aforementioned investigation
categorically denying that he issued and signed the disputed TPRs is, therefore, not
hearsay," 22 there was no further explanation on this unusual doctrinal departure.

The rule is clear and explicit. Under the hearsay evidence rule, a witness can testify only to those
facts which he knows of his personal knowledge; that is, which are derived from his own perception,
except as otherwise provided in the Rules.23 In the present case, Estrada failed to appear as a
witness at the trial. It was only Azurin who testified that during the investigation he conducted,
Estrada supposedly denied having signed the TPRs. It is elementary that under the measure on
hearsay evidence, Azurin's testimony cannot constitute legal proof as to the truth of Estrada's denial.
For that matter, it is not admissible in evidence, petitioners' counsel having seasonably objected at
the trial to such testimony of Azurin as hearsay. And, even if not objected to and thereby admissible,
such hearsay evidence has no probative value whatsoever. 24
It is true that the testimony or deposition of a witness deceased or unable to testify, given in a former
case or proceeding, judicial or administrative, involving the same parties and subject matter, may be
given in evidence against the adverse party who had the opportunity to cross-examine him. 25 Private
respondent cannot, however, seek sanctuary in this exception to the hearsay evidence rule.

Firstly, the supposed investigation conducted by Azurin was neither a judicial trial nor an
administrative hearing under statutory regulations and safeguards. It was merely an inter-office
interview conducted by a personnel officer through an ad hoc arrangement. Secondly, a perusal of
the alleged stenographic notes, assuming arguendo that these notes are admissible in evidence,
would show that the "investigation" was more of a free-flowing question and answer type of
discussion wherein Estrada was asked some questions, after which Eugenio was likewise asked
other questions. Indeed, there was no opportunity for Eugenio to object, much less to cross-examine
Estrada. Even in a formal prior trial itself, if the opportunity for
cross-examination did not exist therein or if the accused was not afforded opportunity to fully cross-
examine the witness when the testimony was offered, evidence relating to the testimony given
therein is thereafter inadmissible in another proceeding, absent any conduct on the part of the
accused amounting to a waiver of his right to cross-examine.26

Thirdly, the stenographer was not even presented to authenticate the stenographic notes submitted
to the trial court. A copy of the stenographic report of the entire testimony at the former trial must be
supported by the oath of the stenographer that it is a correct transcript of his notes of the testimony
of the witness as a sine qua non for its competency and admissibility in evidence. 27 The supposed
stenographic notes on which respondent corporation relies is unauthenticated and necessarily
inadmissible for the purpose intended.

Lastly, although herein private respondent insinuated that Estrada was not presented as a witness
because he had disappeared, no evidence whatsoever was offered to show or even intimate that
this was due to any machination or instigation of petitioners. There is no showing that his absence
was procured, or that he was eloigned, through acts imputable to petitioners. In the case at bar,
except for the self-serving statement that Estrada had disappeared, no plausible explanation was
given by respondent corporation. Estrada was an employee of private respondent, hence it can be
assumed that it could easily trace or ascertain his whereabouts. It had the resources to do so, in
contradistinction to petitioners who even had to seek the help of the Public Attorney's Office to
defend them here. Private respondent could not have been unaware of the importance of Estrada's
testimony and the consequent legal necessity for presenting him in the trial court, through coercive
process if necessary.

Obviously, neither is the affidavit of Estrada admissible; it is likewise barred as evidence by the
hearsay evidence rule. 28 This is aside from the fact that, by their nature, affidavits are generally not
prepared by the affiants themselves but by another who uses his own language in writing the
affiant's statements, which may thus be either omitted or misunderstood by the one writing
them.29 The dubiety of that affidavit, as earlier explained, is further underscored by the fact that it was
executed more than two months after the investigation, presumably for curative purposes as it were.

Now, the authenticity of a handwriting may be proven, among other means, by its comparison made
by the witness or the court with writings admitted or treated as genuine by the party against whom
the evidence is offered or proved to be genuine to the satisfaction of the judge. 30 The alleged
affidavit of Estrada states". . . that the comparison that was made as to the authenticity of the
signature appearing in the TPRs and that of my signature showed that there was an apparent
dissimilarity between the two signatures, xerox copy of my 201 File is attached hereto as Annex 'F'
of this affidavit.31 However, a search of the Folder of Exhibits in this case does not reveal that private
respondent ever submitted any document, not even the aforementioned 201 File, containing a
specimen of the signature of Estrada which the Court can use as a basis for comparison. Neither
was any document containing a specimen of Estrada's signature presented by private respondent in
the formal offer of its exhibits.32

Respondent court made the further observation that "Estrada was even asked by Atty. Azurin at said
investigation to sign three times to provide specimens of his genuine signature."33 There is, however,
no showing that he did, but assuming that Estrada signed the stenographic notes, the Court would
still be unable to make the necessary comparison because two signatures appear on the right
margin of each and every page of the stenographic notes, without any indication whatsoever as to
which of the signatures is Estrada's. The whole document was marked for identification but the
signatures were not. In fact, although formally offered, it was merely introduced by the private
respondent "in order to show that Jovencio Estrada had been investigated and categorically denied
having collected from Abigail Minimart and denying having signed the receipts claimed by Alfredo
Eugenio to be his payment,"34 and not for the purpose of presenting any alleged signature of Estrada
on the document as a basis for comparison.

This is a situation that irresistibly arouses judicial curiosity, if not suspicion. Respondent corporation
was fully aware that its case rested, as it were, on the issue of whether the TPRs were authentic and
which issue, in turn, turned on the genuineness of Estrada's signatures thereon. Yet, aside from
cursorily dismissing the non-presentation of Estrada in court by the glib assertion that he could not
be found, and necessarily aware that his alleged denial of his signatures on said TPRs and his
affidavit rendered the same vulnerable to the challenge that they are hearsay and inadmissible,
respondent corporation did nothing more. In fact, Estrada's disappearance has not been explained
up to the present.

The next inquiry then would be as to what exactly is the nature of the TPRs insofar as they are used
in the day-to-day business transactions of the company. These trade provisional receipts are bound
and given in booklets to the company sales representatives, under proper acknowledgment by them
and with a record of the distribution thereof. After every transaction, when a collection is made the
customer is given by the sales representative a copy of the trade provisional receipt, that is, the
triplicate copy or customer's copy, properly filled up to reflect the completed transaction. All unused
TPRs, as well as the collections made, are turned over by the sales representative to the appropriate
company officer.35

According to respondent court, "the questioned TPR's are merely 'provisional' and were, as printed
at the bottom of said receipts, to be officially confirmed by plaintiff within fifteen (15) days by
delivering the original copy thereof stamped paid and signed by its cashier to the customer. . . .
Defendants-appellants (herein petitioners) failed to present the original copies of the TPRs in
question, showing that they were never confirmed by the plaintiff, nor did they demand from plaintiff
the confirmed original copies thereof." 36

We do not agree with the strained implication intended to be adverse to petitioners. The TPRs
presented in evidence by petitioners are disputably presumed as evidentiary of payments made on
account of petitioners. There are presumptions juris tantum in law that private transactions have
been fair and regular and that the ordinary course of business has been followed.37 The role of
presumptions in the law on evidence is to relieve the party enjoying the same of the evidential
burden to prove the proposition that he contends for, and to shift the burden of evidence to the
adverse party. Private respondent having failed to rebut the aforestated presumptions in favor of
valid payment by petitioners, these would necessarily continue to stand in their favor in this case.

Besides, even assuming arguendo that herein private respondent's cashier never received the
amounts reflected in the TPRs, still private respondent failed to prove that Estrada, who is its duly
authorized agent with respect to petitioners, did not receive those amounts from the latter. As
correctly explained by petitioners, "in so far as the private respondent's customers are concerned, for
as long as they pay their obligations to the sales representative of the private respondent using the
latter's official receipt, said payment extinguishes their obligations."38 Otherwise, it would
unreasonably cast the burden of supervision over its employees from respondent corporation to its
customers.

The substantive law is that payment shall be made to the person in whose favor the obligation has
been constituted, or his successor-in-interest or any person authorized to receive it.39 As far as third
persons are concerned, an act is deemed to have been performed within the scope of the agent's
authority, if such is within the terms of the power of attorney, as written, even if the agent has in fact
exceeded the limits of his authority according to an understanding between the principal and his
agent. 40 In fact, Atty. Rosario, private respondent's own witness, admitted that "it is the responsibility
of the collector to turn over the collection." 41

Still pursuing its ruling in favor of respondent corporation, the Court of Appeals makes the following
observation:

. . . Having allegedly returned 600 Fulls to the plaintiff's representative on May 6, 10,
and 14, 1980, appellant-wife's Abigail Store must have received more than 1,800
cases of soft drinks from plaintiff before those dates. Yet the Statement of Overdue
Account pertaining to Abigail Minimart (Exhs. "D", "D-1" to "D-3") which appellant-
husband and his representative Luis Isip signed on August 3, 1981 does now show
more than 1,800 cases of soft drinks were delivered to Abigail Minimart by plaintiff's
Quezon City Plant (which supposedly issued the disputed TPRs) in May, 1980 or the
month before."42

We regret the inaccuracy in said theory of respondent court which was impelled by its sole and
limited reliance on a mere statement of overdue amounts. Unlike a statement of account which truly
reflects the day-to-day movement of an account, a statement of an overdue amount is only a
summary of the account, simply reflecting the balance due thereon. A statement of account, being
more specific and detailed in nature, allows one to readily see and verify if indeed deliveries were
made during a specific period of time, unlike a bare statement of overdue payments. Respondent
court cannot make its aforequoted categorical deduction unless supporting documents
accompanying the statement of overdue amounts were submitted to enable easy and accurate
verification of the facts.

A perusal of the statement of overdue accounts shows that, except for a reference number given for
each entry, no further details were volunteered nor offered. It is entirely possible that the statement
of overdue account merely reflects the outstanding debt of a particular client, and not the specific
particulars, such as deliveries made, particularly since the entries therein were surprisingly entered
irrespective of their chronological order. Obviously, therefore, one can not use the statement of
overdue amounts as conclusive proof of deliveries done within a particular time frame.

Except for its speculation that petitioner Alfredo Y. Eugenio could have had easy access to blank
forms of the TPRs because he was a former route manager no evidence whatsoever was presented
by private respondent in support of that theory. We are accordingly intrigued by such an unkind
assertion of respondent corporation since Azurin himself admitted that their accounting department
could not even inform them regarding the persons to whom the TPRs were issued. 43 In addition, it is
significant that respondent corporation did not take proper action if indeed some receipts were
actually lost, such as the publication of the fact of loss of the receipts, with the corresponding
investigation into the matter.
We, therefore, reject as attenuated the comment of the trial court that the TPRs, which Eugenio
submitted after the reconciliation meeting, "smacks too much of an afterthought." 44 The reconciliation
meeting was held on August 4, 1981. Three months later, on November, 1981, petitioner Alfredo Y.
Eugenio submitted the four TPRs. He explained, and this was not disputed, that at the time the
reconciliation meeting was held, his daughter Nanette, who was helping his wife manage the store,
had eloped and she had possession of the TPRs. 45 It was only in November, 1981 when petitioners
were able to talk to Nanette that they were able to find and retrieve said TPRs. He added that during
the reconciliation meeting, Atty. Rosario assured him that any receipt he may submit later will be
credited in his favor, hence he signed the reconciliation documents. Accordingly, when he presented
the TPRs to private respondent, Atty. Rosario directed Mr. Azurin to verify the TPRs. Thus, the
amount stated in the reconciliation sheet was not final, as it was still subject to such receipts as may
thereafter be presented by petitioners.

On the other hand, petitioners claimed that the signature of petitioner Nora S. Eugenio in Sales
Invoice No. 85366, in the amount of P5,631.00 is spurious and should accordingly be deducted from
the disputed amount of P74,849.40. A scrutiny of the reconciliation sheet shows that said amount
had already been deducted upon the instruction of one Mr. Coloma, Plant Controller of Pepsi-Cola ,
Muntinlupa Plant. 46 That amount is not disputed by respondent corporation and should no longer be
deducted from the total liability of petitioner in the sum of P74,849.40. Since petitioners had made a
payment of P80,560.00, there was consequently an overpayment of P5,710.60.

All told, we are constrained to hold that respondent corporation has dismally failed to comply with the
pertinent rules for the admission of the evidence by which it sought to prove its contentions.
Furthermore, there are questions left unanswered and begging for cogent explanations why said
respondent did not or could not comply with the evidentiary rules. Its default inevitably depletes the
weight of its evidence which cannot just be taken in vacuo, with the result that for lack of the
requisite quantum of evidence, it has not discharged the burden of preponderant proof necessary to
prevail in this case.

WHEREFORE, the judgment of respondent Court of Appeals in C.A. G.R. CV No. 26901, affirming
that of the trial court in Civil Case No. Q-34718, is ANNULLED and SET ASIDE. Private respondent
Pepsi-Cola Bottling Company of the Philippines, Inc. is hereby ORDERED to pay petitioners Nora
and Alfredo Eugenio the amount of P5,710.60 representing overpayment made to the former.

SO ORDERED.

G.R. No. 167552 April 23, 2007

EUROTECH INDUSTRIAL TECHNOLOGIES, INC., Petitioner,

vs.
EDWIN CUIZON and ERWIN CUIZON, Respondents.

DECISION

CHICO-NAZARIO, J.:

Before Us is a petition for review by certiorari assailing the Decision1 of the Court of Appeals dated
10 August 2004 and its Resolution2 dated 17 March 2005 in CA-G.R. SP No. 71397 entitled,
"Eurotech Industrial Technologies, Inc. v. Hon. Antonio T. Echavez." The assailed Decision and
Resolution affirmed the Order3 dated 29 January 2002 rendered by Judge Antonio T. Echavez
ordering the dropping of respondent EDWIN Cuizon (EDWIN) as a party defendant in Civil Case No.
CEB-19672.

The generative facts of the case are as follows:

Petitioner is engaged in the business of importation and distribution of various European industrial
equipment for customers here in the Philippines. It has as one of its customers Impact Systems
Sales ("Impact Systems") which is a sole proprietorship owned by respondent ERWIN Cuizon
(ERWIN). Respondent EDWIN is the sales manager of Impact Systems and was impleaded in the
court a quo in said capacity.

From January to April 1995, petitioner sold to Impact Systems various products allegedly amounting
to ninety-one thousand three hundred thirty-eight (91,338.00) pesos. Subsequently, respondents
sought to buy from petitioner one unit of sludge pump valued at 250,000.00 with respondents
making a down payment of fifty thousand pesos (50,000.00).4 When the sludge pump arrived from
the United Kingdom, petitioner refused to deliver the same to respondents without their having fully
settled their indebtedness to petitioner. Thus, on 28 June 1995, respondent EDWIN and Alberto de
Jesus, general manager of petitioner, executed a Deed of Assignment of receivables in favor of
petitioner, the pertinent part of which states:

1.) That ASSIGNOR5 has an outstanding receivables from Toledo Power Corporation in the
amount of THREE HUNDRED SIXTY FIVE THOUSAND (365,000.00) PESOS as payment
for the purchase of one unit of Selwood Spate 100D Sludge Pump;

2.) That said ASSIGNOR does hereby ASSIGN, TRANSFER, and CONVEY unto the
ASSIGNEE6 the said receivables from Toledo Power Corporation in the amount of THREE
HUNDRED SIXTY FIVE THOUSAND (365,000.00) PESOS which receivables the
ASSIGNOR is the lawful recipient;

3.) That the ASSIGNEE does hereby accept this assignment.7

Following the execution of the Deed of Assignment, petitioner delivered to respondents the sludge
pump as shown by Invoice No. 12034 dated 30 June 1995.8

Allegedly unbeknownst to petitioner, respondents, despite the existence of the Deed of Assignment,
proceeded to collect from Toledo Power Company the amount of 365,135.29 as evidenced by
Check Voucher No. 09339prepared by said power company and an official receipt dated 15 August
1995 issued by Impact Systems.10Alarmed by this development, petitioner made several demands
upon respondents to pay their obligations. As a result, respondents were able to make partial
payments to petitioner. On 7 October 1996, petitioners counsel sent respondents a final demand
letter wherein it was stated that as of 11 June 1996, respondents total obligations stood at
295,000.00 excluding interests and attorneys fees.11 Because of respondents failure to abide by
said final demand letter, petitioner instituted a complaint for sum of money, damages, with
application for preliminary attachment against herein respondents before the Regional Trial Court of
Cebu City.12

On 8 January 1997, the trial court granted petitioners prayer for the issuance of writ of preliminary
attachment.13

On 25 June 1997, respondent EDWIN filed his Answer14 wherein he admitted petitioners allegations
with respect to the sale transactions entered into by Impact Systems and petitioner between January
and April 1995.15 He, however, disputed the total amount of Impact Systems indebtedness to
petitioner which, according to him, amounted to only 220,000.00.16

By way of special and affirmative defenses, respondent EDWIN alleged that he is not a real party in
interest in this case. According to him, he was acting as mere agent of his principal, which was the
Impact Systems, in his transaction with petitioner and the latter was very much aware of this fact. In
support of this argument, petitioner points to paragraphs 1.2 and 1.3 of petitioners Complaint stating

1.2. Defendant Erwin H. Cuizon, is of legal age, married, a resident of Cebu City. He is the
proprietor of a single proprietorship business known as Impact Systems Sales ("Impact
Systems" for brevity), with office located at 46-A del Rosario Street, Cebu City, where he
may be served summons and other processes of the Honorable Court.

1.3. Defendant Edwin B. Cuizon is of legal age, Filipino, married, a resident of Cebu City. He
is the Sales Manager of Impact Systems and is sued in this action in such capacity.17

On 26 June 1998, petitioner filed a Motion to Declare Defendant ERWIN in Default with Motion for
Summary Judgment. The trial court granted petitioners motion to declare respondent ERWIN in
default "for his failure to answer within the prescribed period despite the opportunity granted"18 but it
denied petitioners motion for summary judgment in its Order of 31 August 2001 and scheduled the
pre-trial of the case on 16 October 2001.19 However, the conduct of the pre-trial conference was
deferred pending the resolution by the trial court of the special and affirmative defenses raised by
respondent EDWIN.20

After the filing of respondent EDWINs Memorandum21 in support of his special and affirmative
defenses and petitioners opposition22 thereto, the trial court rendered its assailed Order dated 29
January 2002 dropping respondent EDWIN as a party defendant in this case. According to the trial
court

A study of Annex "G" to the complaint shows that in the Deed of Assignment, defendant Edwin B.
Cuizon acted in behalf of or represented [Impact] Systems Sales; that [Impact] Systems Sale is a
single proprietorship entity and the complaint shows that defendant Erwin H. Cuizon is the
proprietor; that plaintiff corporation is represented by its general manager Alberto de Jesus in the
contract which is dated June 28, 1995. A study of Annex "H" to the complaint reveals that [Impact]
Systems Sales which is owned solely by defendant Erwin H. Cuizon, made a down payment of
50,000.00 that Annex "H" is dated June 30, 1995 or two days after the execution of Annex "G",
thereby showing that [Impact] Systems Sales ratified the act of Edwin B. Cuizon; the records further
show that plaintiff knew that [Impact] Systems Sales, the principal, ratified the act of Edwin B.
Cuizon, the agent, when it accepted the down payment of 50,000.00. Plaintiff, therefore, cannot
say that it was deceived by defendant Edwin B. Cuizon, since in the instant case the principal has
ratified the act of its agent and plaintiff knew about said ratification. Plaintiff could not say that the
subject contract was entered into by Edwin B. Cuizon in excess of his powers since [Impact]
Systems Sales made a down payment of 50,000.00 two days later.

In view of the Foregoing, the Court directs that defendant Edwin B. Cuizon be dropped as party
defendant.23

Aggrieved by the adverse ruling of the trial court, petitioner brought the matter to the Court of
Appeals which, however, affirmed the 29 January 2002 Order of the court a quo. The dispositive
portion of the now assailed Decision of the Court of Appeals states:
WHEREFORE, finding no viable legal ground to reverse or modify the conclusions reached by the
public respondent in his Order dated January 29, 2002, it is hereby AFFIRMED.24

Petitioners motion for reconsideration was denied by the appellate court in its Resolution
promulgated on 17 March 2005. Hence, the present petition raising, as sole ground for its allowance,
the following:

THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN IT RULED THAT

RESPONDENT EDWIN CUIZON, AS AGENT OF IMPACT SYSTEMS SALES/ERWIN CUIZON, IS
NOT PERSONALLY LIABLE, BECAUSE HE HAS NEITHER ACTED BEYOND THE SCOPE OF HIS
AGENCY NOR DID HE PARTICIPATE IN THE PERPETUATION OF A FRAUD.25

To support its argument, petitioner points to Article 1897 of the New Civil Code which states:

Art. 1897. The agent who acts as such is not personally liable to the party with whom he contracts,
unless he expressly binds himself or exceeds the limits of his authority without giving such party
sufficient notice of his powers.

Petitioner contends that the Court of Appeals failed to appreciate the effect of ERWINs act of
collecting the receivables from the Toledo Power Corporation notwithstanding the existence of the
Deed of Assignment signed by EDWIN on behalf of Impact Systems. While said collection did not
revoke the agency relations of respondents, petitioner insists that ERWINs action repudiated
EDWINs power to sign the Deed of Assignment. As EDWIN did not sufficiently notify it of the extent
of his powers as an agent, petitioner claims that he should be made personally liable for the
obligations of his principal.26

Petitioner also contends that it fell victim to the fraudulent scheme of respondents who induced it into
selling the one unit of sludge pump to Impact Systems and signing the Deed of Assignment.
Petitioner directs the attention of this Court to the fact that respondents are bound not only by their
principal and agent relationship but are in fact full-blooded brothers whose successive contravening
acts bore the obvious signs of conspiracy to defraud petitioner.27

In his Comment,28 respondent EDWIN again posits the argument that he is not a real party in interest
in this case and it was proper for the trial court to have him dropped as a defendant. He insists that
he was a mere agent of Impact Systems which is owned by ERWIN and that his status as such is
known even to petitioner as it is alleged in the Complaint that he is being sued in his capacity as the
sales manager of the said business venture. Likewise, respondent EDWIN points to the Deed of
Assignment which clearly states that he was acting as a representative of Impact Systems in said
transaction.

We do not find merit in the petition.

In a contract of agency, a person binds himself to render some service or to do something in

representation or on behalf of another with the latters consent.29 The underlying principle of the
contract of agency is to accomplish results by using the services of others to do a great variety of
things like selling, buying, manufacturing, and transporting.30 Its purpose is to extend the personality
of the principal or the party for whom another acts and from whom he or she derives the authority to
act.31 It is said that the basis of agency is representation, that is, the agent acts for and on behalf of
the principal on matters within the scope of his authority and said acts have the same legal effect as
if they were personally executed by the principal.32 By this legal fiction, the actual or real absence of
the principal is converted into his legal or juridical presence qui facit per alium facit per se.33
The elements of the contract of agency are: (1) consent, express or implied, of the parties to
establish the relationship; (2) the object is the execution of a juridical act in relation to a third person;
(3) the agent acts as a representative and not for himself; (4) the agent acts within the scope of his
authority.34

In this case, the parties do not dispute the existence of the agency relationship between respondents
ERWIN as principal and EDWIN as agent. The only cause of the present dispute is whether
respondent EDWIN exceeded his authority when he signed the Deed of Assignment thereby binding
himself personally to pay the obligations to petitioner. Petitioner firmly believes that respondent
EDWIN acted beyond the authority granted by his principal and he should therefore bear the effect
of his deed pursuant to Article 1897 of the New Civil Code.

We disagree.

Article 1897 reinforces the familiar doctrine that an agent, who acts as such, is not personally liable
to the party with whom he contracts. The same provision, however, presents two instances when an
agent becomes personally liable to a third person. The first is when he expressly binds himself to the
obligation and the second is when he exceeds his authority. In the last instance, the agent can be
held liable if he does not give the third party sufficient notice of his powers. We hold that respondent
EDWIN does not fall within any of the exceptions contained in this provision.

The Deed of Assignment clearly states that respondent EDWIN signed thereon as the sales
manager of Impact Systems. As discussed elsewhere, the position of manager is unique in that it
presupposes the grant of broad powers with which to conduct the business of the principal, thus:

The powers of an agent are particularly broad in the case of one acting as a general agent or
manager; such a position presupposes a degree of confidence reposed and investiture with liberal
powers for the exercise of judgment and discretion in transactions and concerns which are incidental
or appurtenant to the business entrusted to his care and management. In the absence of an
agreement to the contrary, a managing agent may enter into any contracts that he deems
reasonably necessary or requisite for the protection of the interests of his principal entrusted to his
management. x x x.35

Applying the foregoing to the present case, we hold that Edwin Cuizon acted well-within his authority
when he signed the Deed of Assignment. To recall, petitioner refused to deliver the one unit of
sludge pump unless it received, in full, the payment for Impact Systems indebtedness.36 We may
very well assume that Impact Systems desperately needed the sludge pump for its business since
after it paid the amount of fifty thousand pesos (50,000.00) as down payment on 3 March 1995,37 it
still persisted in negotiating with petitioner which culminated in the execution of the Deed of
Assignment of its receivables from Toledo Power Company on 28 June 1995.38 The significant
amount of time spent on the negotiation for the sale of the sludge pump underscores Impact
Systems perseverance to get hold of the said equipment. There is, therefore, no doubt in our mind
that respondent EDWINs participation in the Deed of Assignment was "reasonably necessary" or
was required in order for him to protect the business of his principal. Had he not acted in the way he
did, the business of his principal would have been adversely affected and he would have violated his
fiduciary relation with his principal.

We likewise take note of the fact that in this case, petitioner is seeking to recover both from
respondents ERWIN, the principal, and EDWIN, the agent. It is well to state here that Article 1897 of
the New Civil Code upon which petitioner anchors its claim against respondent EDWIN "does not
hold that in case of excess of authority, both the agent and the principal are liable to the other
contracting party."39 To reiterate, the first part of Article 1897 declares that the principal is liable in
cases when the agent acted within the bounds of his authority. Under this, the agent is completely
absolved of any liability. The second part of the said provision presents the situations when the
agent himself becomes liable to a third party when he expressly binds himself or he exceeds the
limits of his authority without giving notice of his powers to the third person. However, it must be
pointed out that in case of excess of authority by the agent, like what petitioner claims exists here,
the law does not say that a third person can recover from both the principal and the agent.40

As we declare that respondent EDWIN acted within his authority as an agent, who did not acquire
any right nor incur any liability arising from the Deed of Assignment, it follows that he is not a real
party in interest who should be impleaded in this case. A real party in interest is one who "stands to
be benefited or injured by the judgment in the suit, or the party entitled to the avails of the suit."41 In
this respect, we sustain his exclusion as a defendant in the suit before the court a quo.

WHEREFORE, premises considered, the present petition is DENIED and the Decision dated 10
August 2004 and Resolution dated 17 March 2005 of the Court of Appeals in CA-G.R. SP No.
71397, affirming the Order dated 29 January 2002 of the Regional Trial Court, Branch 8, Cebu City,
is AFFIRMED.

Let the records of this case be remanded to the Regional Trial Court, Branch 8, Cebu City, for the
continuation of the proceedings against respondent Erwin Cuizon.

SO ORDERED.

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

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
between a subdivision owner and its real estate agent.

The facts as found by the trial court and adopted by the Appellate Court are as follows: chanrob1es v irt ual 1aw li bra ry

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.chan roble s virtual lawli bra ry

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. chanroble s.com:c ralaw:re d

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 : vi rtua l law lib ra ry

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: jg c:chan rob les.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: chanrob 1es vi rtual 1aw lib rary

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:chanroble s.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 vi rtual lawlib rary

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. chanrob les.com. ph : virtual law l ibra ry

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. 160346 August 25, 2009

PURITA PAHUD, SOLEDAD PAHUD, and IAN LEE CASTILLA (represented by Mother and
Attorney-in-Fact VIRGINIA CASTILLA), Petitioners,
vs.
COURT OF APPEALS, SPOUSES ISAGANI BELARMINO and LETICIA OCAMPO, EUFEMIA
SAN AGUSTIN-MAGSINO, ZENAIDA SAN AGUSTIN-McCRAE, MILAGROS SAN AGUSTIN-
FORTMAN, MINERVA SAN AGUSTIN-ATKINSON, FERDINAND SAN AGUSTIN, RAUL SAN
AGUSTIN, ISABELITA SAN AGUSTIN-LUSTENBERGER and VIRGILIO SAN
AGUSTIN, Respondents.

DECISION

NACHURA, J.:

For our resolution is a petition for review on certiorari assailing the April 23, 2003 Decision1 and
October 8, 2003 Resolution2 of the Court of Appeals (CA) in CA-G.R. CV No. 59426. The appellate
court, in the said decision and resolution, reversed and set aside the January 14, 1998 Decision3 of
the Regional Trial Court (RTC), which ruled in favor of petitioners.

The dispute stemmed from the following facts.

During their lifetime, spouses Pedro San Agustin and Agatona Genil were able to acquire a 246-
square meter parcel of land situated in Barangay Anos, Los Baos, Laguna and covered by Original
Certificate of Title (OCT) No. O-(1655) 0-15.4 Agatona Genil died on September 13, 1990 while
Pedro San Agustin died on September 14, 1991. Both died intestate, survived by their eight (8)
children: respondents Eufemia, Raul, Ferdinand, Zenaida, Milagros, Minerva, Isabelita and Virgilio.
Sometime in 1992, Eufemia, Ferdinand and Raul executed a Deed of Absolute Sale of Undivided
Shares5conveying in favor of petitioners (the Pahuds, for brevity) their respective shares from the lot
they inherited from their deceased parents for 525,000.00.6 Eufemia also signed the deed on behalf
of her four (4) other co-heirs, namely: Isabelita on the basis of a special power of attorney executed
on September 28, 1991,7 and also for Milagros, Minerva, and Zenaida but without their apparent
written authority.8 The deed of sale was also not notarized.9

On July 21, 1992, the Pahuds paid 35,792.31 to the Los Baos Rural Bank where the subject
property was mortgaged.10 The bank issued a release of mortgage and turned over the owners copy
of the OCT to the Pahuds.11 Over the following months, the Pahuds made more payments to
Eufemia and her siblings totaling to 350,000.00.12 They agreed to use the remaining
87,500.0013 to defray the payment for taxes and the expenses in transferring the title of the
property.14 When Eufemia and her co-heirs drafted an extra-judicial settlement of estate to facilitate
the transfer of the title to the Pahuds, Virgilio refused to sign it.15

On July 8, 1993, Virgilios co-heirs filed a complaint16 for judicial partition of the subject property
before the RTC of Calamba, Laguna. On November 28, 1994, in the course of the proceedings for
judicial partition, a Compromise Agreement17 was signed with seven (7) of the co-heirs agreeing to
sell their undivided shares to Virgilio for 700,000.00. The compromise agreement was, however,
not approved by the trial court because Atty. Dimetrio Hilbero, lawyer for Eufemia and her six (6) co-
heirs, refused to sign the agreement because he knew of the previous sale made to the Pahuds.18 lawphil.net

On December 1, 1994, Eufemia acknowledged having received 700,000.00 from Virgilio.19 Virgilio
then sold the entire property to spouses Isagani Belarmino and Leticia Ocampo (Belarminos)
sometime in 1994. The Belarminos immediately constructed a building on the subject property.

Alarmed and bewildered by the ongoing construction on the lot they purchased, the Pahuds
immediately confronted Eufemia who confirmed to them that Virgilio had sold the property to the
Belarminos.20 Aggrieved, the Pahuds filed a complaint in intervention21 in the pending case for
judicial partition.
1avv phil

After trial, the RTC upheld the validity of the sale to petitioners. The dispositive portion of the
decision reads:

WHEREFORE, the foregoing considered, the Court orders:

1. the sale of the 7/8 portion of the property covered by OCT No. O (1655) O-15 by the
plaintiffs as heirs of deceased Sps. Pedro San Agustin and Agatona Genil in favor of the
Intervenors-Third Party plaintiffs as valid and enforceable, but obligating the Intervenors-
Third Party plaintiffs to complete the payment of the purchase price of 437,500.00 by
paying the balance of 87,500.00 to defendant Fe (sic) San Agustin Magsino. Upon receipt
of the balance, the plaintiff shall formalize the sale of the 7/8 portion in favor of the
Intervenor[s]-Third Party plaintiffs;

2. declaring the document entitled "Salaysay sa Pagsang-ayon sa Bilihan" (Exh. "2-a")

signed by plaintiff Eufemia San Agustin attached to the unapproved Compromise Agreement
(Exh. "2") as not a valid sale in favor of defendant Virgilio San Agustin;

3. declaring the sale (Exh. "4") made by defendant Virgilio San Agustin of the property
covered by OCT No. O (1655)-O-15 registered in the names of Spouses Pedro San Agustin
and Agatona Genil in favor of Third-party defendant Spouses Isagani and Leticia Belarmino
as not a valid sale and as inexistent;
 4. declaring the defendant Virgilio San Agustin and the Third-Party defendants spouses
Isagani and Leticia Belarmino as in bad faith in buying the portion of the property already
sold by the plaintiffs in favor of the Intervenors-Third Party Plaintiffs and the Third-Party
Defendant Sps. Isagani and Leticia Belarmino in constructing the two-[storey] building in (sic)
the property subject of this case; and

5. declaring the parties as not entitled to any damages, with the parties shouldering their
respective responsibilities regarding the payment of attorney[]s fees to their respective
lawyers.

No pronouncement as to costs.

SO ORDERED.22

Not satisfied, respondents appealed the decision to the CA arguing, in the main, that the sale made
by Eufemia for and on behalf of her other co-heirs to the Pahuds should have been declared void
and inexistent for want of a written authority from her co-heirs. The CA yielded and set aside the
findings of the trial court. In disposing the issue, the CA ruled:

WHEREFORE, in view of the foregoing, the Decision dated January 14, 1998, rendered by the
Regional Trial Court of Calamba, Laguna, Branch 92 in Civil Case No. 2011-93-C for Judicial
Partition is hereby REVERSED and SET ASIDE, and a new one entered, as follows:

(1) The case for partition among the plaintiffs-appellees and appellant Virgilio is now
considered closed and terminated;

(2) Ordering plaintiffs-appellees to return to intervenors-appellees the total amount they

received from the latter, plus an interest of 12% per annum from the time the complaint [in]
intervention was filed on April 12, 1995 until actual payment of the same;

(3) Declaring the sale of appellant Virgilio San Agustin to appellants spouses, Isagani and
Leticia Belarmino[,] as valid and binding;

(4) Declaring appellants-spouses as buyers in good faith and for value and are the owners of
the subject property.

No pronouncement as to costs.

SO ORDERED.23

Petitioners now come to this Court raising the following arguments:

I. The Court of Appeals committed grave and reversible error when it did not apply the
second paragraph of Article 1317 of the New Civil Code insofar as ratification is concerned to
the sale of the 4/8 portion of the subject property executed by respondents San Agustin in
favor of petitioners;

II. The Court of Appeals committed grave and reversible error in holding that respondents
spouses Belarminos are in good faith when they bought the subject property from
respondent Virgilio San Agustin despite the findings of fact by the court a quo that they were
in bad faith which clearly contravenes the presence of long line of case laws upholding the
 task of giving utmost weight and value to the factual findings of the trial court during appeals;
[and]

III. The Court of Appeals committed grave and reversible error in holding that respondents
spouses Belarminos have superior rights over the property in question than petitioners
despite the fact that the latter were prior in possession thereby misapplying the provisions of
Article 1544 of the New Civil Code.24

The focal issue to be resolved is the status of the sale of the subject property by Eufemia and her
co-heirs to the Pahuds. We find the transaction to be valid and enforceable.

Article 1874 of the Civil Code plainly provides:

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

Also, under Article 1878,25 a special power of attorney is necessary for an agent to enter into a
contract by which the ownership of an immovable property is transmitted or acquired, either
gratuitously or for a valuable consideration. Such stringent statutory requirement has been explained
in Cosmic Lumber Corporation v. Court of Appeals:26

[T]he authority of an agent to execute a contract [of] sale of real estate must be conferred in writing
and must give him specific authority, either to conduct the general business of the principal or to
execute a binding contract containing terms and conditions which are in the contract he did execute.
A special power of attorney is necessary to enter into any contract by which the ownership of an
immovable is transmitted or acquired either gratuitously or for a valuable consideration. The express
mandate required by law to enable an appointee of an agency (couched) in general terms to sell
must be one that expressly mentions a sale or that includes a sale as a necessary ingredient of the
act mentioned. For the principal to confer the right upon an agent to sell real estate, a power of
attorney must so express the powers of the agent in clear and unmistakable language. When there
is any reasonable doubt that the language so used conveys such power, no such construction shall
be given the document.27

In several cases, we have repeatedly held that the absence of a written authority to sell a piece of
land is, ipso jure, void,28 precisely to protect the interest of an unsuspecting owner from being
prejudiced by the unwarranted act of another.

Based on the foregoing, it is not difficult to conclude, in principle, that the sale made by Eufemia,
Isabelita and her two brothers to the Pahuds sometime in 1992 should be valid only with respect to
the 4/8 portion of the subject property. The sale with respect to the 3/8 portion, representing the
shares of Zenaida, Milagros, and Minerva, is void because Eufemia could not dispose of the interest
of her co-heirs in the said lot absent any written authority from the latter, as explicitly required by law.
This was, in fact, the ruling of the CA.

Still, in their petition, the Pahuds argue that the sale with respect to the 3/8 portion of the land should
have been deemed ratified when the three co-heirs, namely: Milagros, Minerva, and Zenaida,
executed their respective special power of attorneys29 authorizing Eufemia to represent them in the
sale of their shares in the subject property.30

While the sale with respect to the 3/8 portion is void by express provision of law and not susceptible
to ratification,31we nevertheless uphold its validity on the basis of the common law principle of
estoppel.
Article 1431 of the Civil Code provides:

Art. 1431. Through estoppel an admission or representation is rendered conclusive upon the person
making it, and cannot be denied or disproved as against the person relying thereon.

True, at the time of the sale to the Pahuds, Eufemia was not armed with the requisite special power
of attorney to dispose of the 3/8 portion of the property. Initially, in their answer to the complaint in
intervention,32 Eufemia and her other co-heirs denied having sold their shares to the Pahuds. During
the pre-trial conference, however, they admitted that they had indeed sold 7/8 of the property to the
Pahuds sometime in 1992.33 Thus, the previous denial was superseded, if not accordingly amended,
by their subsequent admission.34 Moreover, in their Comment,35 the said co-heirs again admitted the
sale made to petitioners.36

Interestingly, in no instance did the three (3) heirs concerned assail the validity of the transaction
made by Eufemia to the Pahuds on the basis of want of written authority to sell. They could have
easily filed a case for annulment of the sale of their respective shares against Eufemia and the
Pahuds. Instead, they opted to remain silent and left the task of raising the validity of the sale as an
issue to their co-heir, Virgilio, who is not privy to the said transaction. They cannot be allowed to rely
on Eufemia, their attorney-in-fact, to impugn the validity of the first transaction because to allow them
to do so would be tantamount to giving premium to their sisters dishonest and fraudulent deed.
Undeniably, therefore, the silence and passivity of the three co-heirs on the issue bar them from
making a contrary claim.

It is a basic rule in the law of agency that a principal is subject to liability for loss caused to another
by the latters reliance upon a deceitful representation by an agent in the course of his employment
(1) if the representation is authorized; (2) if it is within the implied authority of the agent to make for
the principal; or (3) if it is apparently authorized, regardless of whether the agent was authorized by
him or not to make the representation.37

By their continued silence, Zenaida, Milagros and Minerva have caused the Pahuds to believe that
they have indeed clothed Eufemia with the authority to transact on their behalf. Clearly, the three co-
heirs are now estopped from impugning the validity of the sale from assailing the authority of
Eufemia to enter into such transaction.

Accordingly, the subsequent sale made by the seven co-heirs to Virgilio was void because they no
longer had any interest over the subject property which they could alienate at the time of the second
transaction.38 Nemo dat quod non habet. Virgilio, however, could still alienate his 1/8 undivided share
to the Belarminos.

The Belarminos, for their part, cannot argue that they purchased the property from Virgilio in good
faith. As a general rule, a purchaser of a real property is not required to make any further inquiry
beyond what the certificate of title indicates on its face.39 But the rule excludes those who purchase
with knowledge of the defect in the title of the vendor or of facts sufficient to induce a reasonable and
prudent person to inquire into the status of the property.40Such purchaser cannot close his eyes to
facts which should put a reasonable man on guard, and later claim that he acted in good faith on the
belief that there was no defect in the title of the vendor. His mere refusal to believe that such defect
exists, or his obvious neglect by closing his eyes to the possibility of the existence of a defect in the
vendors title, will not make him an innocent purchaser for value, if afterwards it turns out that the title
was, in fact, defective. In such a case, he is deemed to have bought the property at his own risk, and
any injury or prejudice occasioned by such transaction must be borne by him.41
In the case at bar, the Belarminos were fully aware that the property was registered not in the name
of the immediate transferor, Virgilio, but remained in the name of Pedro San Agustin and Agatona
Genil.42 This fact alone is sufficient impetus to make further inquiry and, thus, negate their claim that
they are purchasers for value in good faith.43 They knew that the property was still subject of partition
proceedings before the trial court, and that the compromise agreement signed by the heirs was not
approved by the RTC following the opposition of the counsel for Eufemia and her six other co-
heirs.44 The Belarminos, being transferees pendente lite, are deemed buyers in mala fide, and they
stand exactly in the shoes of the transferor and are bound by any judgment or decree which may be
rendered for or against the transferor.45 Furthermore, had they verified the status of the property by
asking the neighboring residents, they would have been able to talk to the Pahuds who occupy an
adjoining business establishment46 and would have known that a portion of the property had already
been sold. All these existing and readily verifiable facts are sufficient to suggest that the Belarminos
knew that they were buying the property at their own risk.

WHEREFORE, premises considered, the April 23, 2003 Decision of the Court of Appeals as well as
its October 8, 2003 Resolution in CA-G.R. CV No. 59426, are REVERSED and SET ASIDE.
Accordingly, the January 14, 1998 Decision of Branch 92 of the Regional Trial Court of Calamba,
Laguna is REINSTATED with the MODIFICATION that the sale made by respondent Virgilio San
Agustin to respondent spouses Isagani Belarmino and Leticia Ocampo is valid only with respect to
the 1/8 portion of the subject property. The trial court is ordered to proceed with the partition of the
property with dispatch.

SO ORDERED.

G.R. No. L-36585 July 16, 1984

MARIANO DIOLOSA and ALEGRIA VILLANUEVA-DIOLOSA, petitioners,

vs.
THE HON. COURT OF APPEALS, and QUIRINO BATERNA (As owner and proprietor of QUIN
BATERNA REALTY), respondents.

RELOVA, J.:

Appeal by certiorari from a decision of the then Court of Appeals ordering herein petitioners to pay
private respondent "the sum of P10,000.00 as damages and the sum of P2,000.00 as attorney's
fees, and the costs."

This case originated in the then Court of First Instance of Iloilo where private respondents instituted
a case of recovery of unpaid commission against petitioners over some of the lots subject of an
agency agreement that were not sold. Said complaint, docketed as Civil Case No. 7864 and entitled:
"Quirino Baterna vs. Mariano Diolosa and Alegria Villanueva-Diolosa", was dismissed by the trial
court after hearing. Thereafter, private respondent elevated the case to respondent court whose
decision is the subject of the present petition.

The parties petitioners and respondents-agree on the findings of facts made by respondent court
which are based largely on the pre-trial order of the trial court, as follows:

PRE-TRIAL ORDER
When this case was called for a pre-trial conference today, the plaintiff, assisted by
Atty. Domingo Laurea, appeared and the defendants, assisted by Atty. Enrique
Soriano, also appeared.

A. During the pre-trial conference the parties, in addition to what have been
admitted in the pleadings, have agreed and admitted that the following facts are
attendant in this case and that they will no longer adduce evidence to prove them:

1. That the plaintiff was and still is a licensed real estate broker, and
as such licensed real estate broker on June 20, 1968, an agreement
was entered into between him as party of the second part and the
defendants spouses as party of the first part, whereby the former was
constituted as exclusive sales agent of the defendants, its
successors, heirs and assigns, to dispose of, sell, cede, transfer and
convey the lots included in VILLA ALEGRE SUBDIVISION owned by
the defendants, under the terms and conditions embodied in Exhibit
"A", and pursuant to said agreement (Exhibit "A"), the plaintiff acted
for and in behalf of the defendants as their agent in the sale of the
lots included in the VILLA ALEGRE SUBDIVISION;

2. That on September 27, 1968, the defendants terminated the

services of plaintiff as their exclusive sales agent per letter marked as
Exhibit "B", for the reason stated in the latter.

B. During the trial of this case on the merit, the plaintiff will adduce by competent
evidence the following facts:

1. That as a real estate broker, he had sold the lots comprised in

several subdivisions, to wit: Greenfield Subdivision, the Villa Beach
Subdivision, the Juntado Subdivision, the St. Joseph Village, the
Ledesma Subdivision, the Brookside Subdivision, the Villa Alegre
Subdivision, and Cecilia Subdivision, all in the City of Iloilo except St.
Joseph which is in Pavia Iloilo.

2. That the plaintiff, as a licensed real estate broker, has been

seriously damaged by the action of the defendants in rescinding, by
Exhibit "B", the contract (Exhibit "A") for which the plaintiff suffered
moral damages in the amount of P50,000.00, damages to his good
will in the amount of P100,000.00, for attorney's fees in the amount of
P10,000.00 to protect his rights and interests, plus exemplary
damages to be fixed by the Court.

3. That the plaintiff is entitled to a commission on the lots unsold

because of the rescission of the contract.

C. The defendants during the trial will ill prove by competent evidence the
following:

1. That the plaintiff's complaint was filed to make money out of the
suit from defendants, to harrass and to molest defendants;
 2. That because of the unjustified and unfounded complaint of the
plaintiff, the defendants suffered moral damages in the amount of
P50,000.00, and that for the public good, the court may order the
plaintiff to pay the defendants exemplary damages in the amount of
P20,000.00, plus attorney's fees of P10,000.00.

D. Contentions of the parties:

1. The plaintiff contends:

(a) That under the terms of the contract (Exhibit "A")

the plaintiff had unrevocable authority to sell all the
lots included in the Villa Alegre Subdivision and to act
as exclusive sales agent of the defendants until all the
lots shall have been disposed of;

(b) That the rescission of the contract under Exhibit

"B", contravenes the agreement of the parties.

2. The defendants contend:

(a) That they were within their legal right to terminate

the agency on the ground that they needed the
undisposed lots for the use of the family;

(b) That the plaintiff has no right in law to case for

commission on lots that they have not sold.

E. The parties hereby submit to the Court the following issues:

1. Whether under the terms of Exhibit "A" the plaintiff has the
irrevocable right to sen or dispose of all the lots included within Villa
Alegre Subdivision;

2. Can the defendants terminate their agreement with the plaintiff by

a letter like Exhibit "B"?

F. The plaintiff submitted the following exhibits which were admitted by the
defendants:

Exhibit "A" agreement entered into between the parties on June

20, 1968 whereby the plaintiff had the authority to sell the subdivision
lots included in Villa Alegre subdivision;

Exhibit "B" Letter of the defendant Alegria V. Diolosa dated

September 27, 1968 addressed to the plaintiff terminating the agency
and rescinding Exhibit "A" for the reason that the lots remained
unsold lots were for reservation for their grandchildren.

The Court will decide this case based on the facts admitted in the pleadings, those
agreed by the parties during the pre-trial conference, and those which they can prove
 during the trial of this case, in accordance with the contention of the parties based on
the issues submitted by them during the pre-trial conference.

SO ORDERED.

Iloilo City, Philippines, August 14, 1969.

(SGD)
VALER
IO V.
ROVIR
A
Judge
(pp.
22-25,
Rollo)

The only issue in this case is whether the petitioners could terminate the agency agreement, Exhibit
"A", without paying damages to the private respondent. Pertinent portion of said Exhibit "A" reads:

That the PARTY OF THE FIRST PART is the lawful and absolute owner in fee
simple of VILLA ALEGRE SUBDIVISION situated in the District of Mandurriao, Iloilo
City, which parcel of land is more particularly described as follows, to wit:

A parcel of land, Lot No. 2110-b-2-C, PSD 74002, Transfer Certificate

of Title No. T_____ situated in the District of Mandurriao, Iloilo,
Philippines, containing an area of 39016 square meters, more or less,
with improvements thereon.

That the PARTY OF THE FIRST PART by virtue of these presents, to enhance the
sale of the lots of the above-described subdivision, is engaging as their EXCLUSIVE
SALES AGENT the PARTY OF THE SECOND PART, its successors, heirs and
assigns to dispose of, sell, cede, transfer and convey the above-described property
in whatever manner and nature the PARTY OF THE SECOND PART, with the
concurrence of the PARTY OF THE FIRST PART, may deem wise and proper under
the premises, whether it be in cash or installment basis, until all the subject property
as subdivided is fully disposed of. (p. 7 of Petitioner's brief. Emphasis supplied).

Respondent court, in its decision which is the subject of review said:

Article 1920 of the Civil Code of the Philippines notwithstanding, the defendants
could not terminate the agency agreement, Exh. "A", at will without paying damages.
The said agency agreement expressly stipulates ... until all the subject property as
subdivided is fully disposed of ..." The testimony of Roberto Malundo(t.s.n. p. 99) that
the plaintiff agreed to the intention of Mrs. Diolosa to reserve some lots for her own
famay use cannot prevail over the clear terms of the agency agreement. Moreover,
the plaintiff denied that there was an agreement to reserve any of the lots for the
family of the defendants. (T.s.n. pp. 16).

There are twenty seven (27) lots of the subdivision remaining unsold on September
27, 1968 when the defendants rescinded the agency agreement, Exhibit "A". On that
day the defendants had only six grandchildren. That the defendants wanted to
 reserve the twenty seven remaining lots for the six grandchildren is not a legal
reason for defendants rescind the agency agreement. Even if the grandchildren were
to be given one lot each, there would still be twenty-one lots available for sale.
Besides it is undisputed that the defendants have other lands which could be
reserved for their grandchildren. (pp. 26-27, Rollo)

The present appeal is manifestly without merit.

Under the contract, Exhibit "A", herein petitioners allowed the private respondent "to dispose of, sell,
cede, transfer and convey ... until out the subject property as subdivided is fully disposed of." The
authority to sell is not extinguished until all the lots have been disposed of. When, therefore, the
petitioners revoked the contract with private respondent in a letter, Exhibit "B"

Dear Mr. Baterna:

Please be informed that we have finally decided to reserve the remaining unsold lots,
as of this date of our VILLA ALEGRE Subdivision for our grandchildren.

In view thereof, notice is hereby served upon you to the effect that our agreement
dated June 20, 1968 giving you the authority to sell as exclusive sales agent of our
subdivision is hereby rescinded.

Please be duly guided.

Very
truly
yours,

(SGD) ALEGRIA V.
DIOLOSA
Subdivision Owner

(p. 11 of Petitioner's Brief)

they become liable to the private respondent for damages for breach of contract.

And, it may be added that since the agency agreement, Exhibit "A", is a valid contract, the same may
be rescinded only on grounds specified in Articles 1381 and 1382 of the Civil Code, as follows:

ART. 1381. The following contracts are rescissible:

(1) Those which are entered in to by guardians whenever the wards

whom they represent suffer lesion by more than one-fourth of the
value of the things which are the object thereof;

(2) Those agreed upon in representation of absentees, if the latter

suffer the lesion stated in the preceding number;

(3) Those undertaken in fraud of creditors when the latter cannot in

any other name collect the claims due them;
 (4) Those which refer to things under litigation if they have been
entered into by the defendant without the knowledge and approval of
the litigants or of competent judicial authority;

(5) All other contracts specially declared by law to be subject to

rescission.

ART. 1382. Payments made in a state of insolvency for obligations to whose

fulfillment the debtor could not be compelled at the time they were effected, are also
rescissible."

In the case at bar, not one of the grounds mentioned above is present which may be the subject of
an action of rescission, much less can petitioners say that the private respondent violated the terms
of their agreement-such as failure to deliver to them (Subdivision owners) the proceeds of the
purchase price of the lots.

ACCORDINGLY, the petition is hereby dismissed without pronouncement as to costs.

SO ORDERED.

G.R. No. 83122 October 19, 1990

ARTURO P. VALENZUELA and HOSPITALITA N. VALENZUELA, petitioners,

vs.
THE HONORABLE COURT OF APPEALS, BIENVENIDO M. ARAGON, ROBERT E. PARNELL,
CARLOS K. CATOLICO and THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY,
INC., respondents.

Albino B. Achas for petitioners.

Angara, Abello, Concepcion, Regala & Cruz for private respondents.

GUTIERREZ, JR., J.:

This is a petition for review of the January 29, 1988 decision of the Court of Appeals and the April 27, 1988 resolution denying the petitioners'
motion for reconsideration, which decision and resolution reversed the decision dated June 23,1986 of the Court of First Instance of Manila,
Branch 34 in Civil Case No. 121126 upholding the petitioners' causes of action and granting all the reliefs prayed for in their complaint
against private respondents.

The antecedent facts of the case are as follows:

Petitioner Arturo P. Valenzuela (Valenzuela for short) is a General Agent of private respondent
Philippine American General Insurance Company, Inc. (Philamgen for short) since 1965. As such,
he was authorized to solicit and sell in behalf of Philamgen all kinds of non-life insurance, and in
consideration of services rendered was entitled to receive the full agent's commission of 32.5% from
Philamgen under the scheduled commission rates (Exhibits "A" and "1"). From 1973 to 1975,
Valenzuela solicited marine insurance from one of his clients, the Delta Motors, Inc. (Division of
Electronics Airconditioning and Refrigeration) in the amount of P4.4 Million from which he was
entitled to a commission of 32% (Exhibit "B"). However, Valenzuela did not receive his full
commission which amounted to P1.6 Million from the P4.4 Million insurance coverage of the Delta
Motors. During the period 1976 to 1978, premium payments amounting to P1,946,886.00 were paid
directly to Philamgen and Valenzuela's commission to which he is entitled amounted to
P632,737.00.

In 1977, Philamgen started to become interested in and expressed its intent to share in the
commission due Valenzuela (Exhibits "III" and "III-1") on a fifty-fifty basis (Exhibit "C"). Valenzuela
refused (Exhibit "D").

On February 8, 1978 Philamgen and its President, Bienvenido M. Aragon insisted on the sharing of
the commission with Valenzuela (Exhibit E). This was followed by another sharing proposal dated
June 1, 1978. On June 16,1978, Valenzuela firmly reiterated his objection to the proposals of
respondents stating that: "It is with great reluctance that I have to decline upon request to signify my
conformity to your alternative proposal regarding the payment of the commission due me. However, I
have no choice for to do otherwise would be violative of the Agency Agreement executed between
our goodselves." (Exhibit B-1)

Because of the refusal of Valenzuela, Philamgen and its officers, namely: Bienvenido Aragon, Carlos
Catolico and Robert E. Parnell took drastic action against Valenzuela. They: (a) reversed the
commission due him by not crediting in his account the commission earned from the Delta Motors,
Inc. insurance (Exhibit "J" and "2"); (b) placed agency transactions on a cash and carry basis; (c)
threatened the cancellation of policies issued by his agency (Exhibits "H" to "H-2"); and (d) started to
leak out news that Valenzuela has a substantial account with Philamgen. All of these acts resulted in
the decline of his business as insurance agent (Exhibits "N", "O", "K" and "K-8"). Then on December
27, 1978, Philamgen terminated the General Agency Agreement of Valenzuela (Exhibit "J", pp. 1-3,
Decision Trial Court dated June 23, 1986, Civil Case No. 121126, Annex I, Petition).

The petitioners sought relief by filing the complaint against the private respondents in the court a
quo (Complaint of January 24, 1979, Annex "F" Petition). After due proceedings, the trial court found:

xxx xxx xxx

Defendants tried to justify the termination of plaintiff Arturo P. Valenzuela as one of

defendant PHILAMGEN's General Agent by making it appear that plaintiff Arturo P.
Valenzuela has a substantial account with defendant PHILAMGEN particularly Delta
Motors, Inc.'s Account, thereby prejudicing defendant PHILAMGEN's interest
(Exhibits 6,"11","11- "12- A"and"13-A").

Defendants also invoked the provisions of the Civil Code of the Philippines (Article
1868) and the provisions of the General Agency Agreement as their basis for
terminating plaintiff Arturo P. Valenzuela as one of their General Agents.

That defendants' position could have been justified had the termination of plaintiff
Arturo P. Valenzuela was (sic) based solely on the provisions of the Civil Code and
the conditions of the General Agency Agreement. But the records will show that the
principal cause of the termination of the plaintiff as General Agent of defendant
PHILAMGEN was his refusal to share his Delta commission.

That it should be noted that there were several attempts made by defendant
Bienvenido M. Aragon to share with the Delta commission of plaintiff Arturo P.
Valenzuela. He had persistently pursued the sharing scheme to the point of
 terminating plaintiff Arturo P. Valenzuela, and to make matters worse, defendants
made it appear that plaintiff Arturo P. Valenzuela had substantial accounts with
defendant PHILAMGEN.

Not only that, defendants have also started (a) to treat separately the Delta
Commission of plaintiff Arturo P. Valenzuela, (b) to reverse the Delta commission
due plaintiff Arturo P. Valenzuela by not crediting or applying said commission
earned to the account of plaintiff Arturo P. Valenzuela, (c) placed plaintiff Arturo P.
Valenzuela's agency transactions on a "cash and carry basis", (d) sending threats to
cancel existing policies issued by plaintiff Arturo P. Valenzuela's agency, (e) to divert
plaintiff Arturo P. Valenzuela's insurance business to other agencies, and (f) to
spread wild and malicious rumors that plaintiff Arturo P. Valenzuela has substantial
account with defendant PHILAMGEN to force plaintiff Arturo P. Valenzuela into
agreeing with the sharing of his Delta commission." (pp. 9-10, Decision, Annex 1,
Petition).

xxx xxx xxx

These acts of harrassment done by defendants on plaintiff Arturo P. Valenzuela to

force him to agree to the sharing of his Delta commission, which culminated in the
termination of plaintiff Arturo P. Valenzuela as one of defendant PHILAMGEN's
General Agent, do not justify said termination of the General Agency Agreement
entered into by defendant PHILAMGEN and plaintiff Arturo P. Valenzuela.

That since defendants are not justified in the termination of plaintiff Arturo P.
Valenzuela as one of their General Agents, defendants shall be liable for the
resulting damage and loss of business of plaintiff Arturo P. Valenzuela. (Arts.
2199/2200, Civil Code of the Philippines). (Ibid, p. 11)

The court accordingly rendered judgment, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against

defendants ordering the latter to reinstate plaintiff Arturo P. Valenzuela as its General
Agent, and to pay plaintiffs, jointly and severally, the following:

1. The amount of five hundred twenty-one thousand nine hundred sixty four and
16/100 pesos (P521,964.16) representing plaintiff Arturo P. Valenzuela's Delta
Commission with interest at the legal rate from the time of the filing of the complaint,
which amount shall be adjusted in accordance with Article 1250 of the Civil Code of
the Philippines;

2. The amount of seventy-five thousand pesos (P75,000.00) per month as

compensatory damages from 1980 until such time that defendant Philamgen shall
reinstate plaintiff Arturo P. Valenzuela as one of its general agents;

3. The amount of three hundred fifty thousand pesos (P350,000.00) for each plaintiff
as moral damages;

4. The amount of seventy-five thousand pesos (P75,000.00) as and for attorney's

fees;
 5. Costs of the suit. (Ibid., P. 12)

From the aforesaid decision of the trial court, Bienvenido Aragon, Robert E. Parnell,
Carlos K. Catolico and PHILAMGEN respondents herein, and defendants-appellants
below, interposed an appeal on the following:

ASSIGNMENT OF ERRORS

THE LOWER COURT ERRED IN HOLDING THAT PLAINTIFF ARTURO P.

VALENZUELA HAD NO OUTSTANDING ACCOUNT WITH DEFENDANT
PHILAMGEN AT THE TIME OF THE TERMINATION OF THE AGENCY.

II

THE LOWER COURT ERRED IN HOLDING THAT PLAINTIFF ARTURO P.

VALENZUELA IS ENTITLED TO THE FULL COMMISSION OF 32.5% ON THE
DELTA ACCOUNT.

III

THE LOWER COURT ERRED IN HOLDING THAT THE TERMINATION OF

PLAINTIFF ARTURO P. VALENZUELA WAS NOT JUSTIFIED AND THAT
CONSEQUENTLY DEFENDANTS ARE LIABLE FOR ACTUAL AND MORAL
DAMAGES, ATTORNEYS FEES AND COSTS.

IV

ASSUMING ARGUENDO THAT THE AWARD OF DAMAGES AGAINST

DEFENDANT PHILAMGEN WAS PROPER, THE LOWER COURT ERRED IN
AWARDING DAMAGES EVEN AGAINST THE INDIVIDUAL DEFENDANTS WHO
ARE MERE CORPORATE AGENTS ACTING WITHIN THE SCOPE OF THEIR
AUTHORITY.

ASSUMING ARGUENDO THAT THE AWARD OF DAMAGES IN FAVOR OF

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

On January 29, 1988, respondent Court of Appeals promulgated its decision in the appealed case.
The dispositive portion of the decision reads:

WHEREFORE, the decision appealed from is hereby modified accordingly and

judgment is hereby rendered ordering:

1. Plaintiff-appellee Valenzuela to pay defendant-appellant Philamgen the sum of

one million nine hundred thirty two thousand five hundred thirty-two pesos and
 seventeen centavos (P1,902,532.17), with legal interest thereon from the date of
finality of this judgment until fully paid.

2. Both plaintiff-appellees to pay jointly and severally defendants-appellants the sum

of fifty thousand pesos (P50,000.00) as and by way of attorney's fees.

No pronouncement is made as to costs. (p. 44, Rollo)

There is in this instance irreconcilable divergence in the findings and conclusions of the Court of
Appeals, vis-a-visthose of the trial court particularly on the pivotal issue whether or not Philamgen
and/or its officers can be held liable for damages due to the termination of the General Agency
Agreement it entered into with the petitioners. In its questioned decision the Court of Appeals
observed that:

In any event the principal's power to revoke an agency at will is so pervasive, that the
Supreme Court has consistently held that termination may be effected even if the
principal acts in bad faith, subject only to the principal's liability for damages (Danon
v. Antonio A. Brimo & Co., 42 Phil. 133; Reyes v. Mosqueda, 53 O.G. 2158 and
Infante V. Cunanan, 93 Phil. 691, cited in Paras, Vol. V, Civil Code of the Philippines
Annotated [1986] 696).

The lower court, however, thought the termination of Valenzuela as General Agent
improper because the record will show the principal cause of the termination of the
plaintiff as General Agent of defendant Philamgen was his refusal to share his Delta
commission. (Decision, p. 9; p. 13, Rollo, 41)

Because of the conflicting conclusions, this Court deemed it necessary in the interest of substantial
justice to scrutinize the evidence and records of the cases. While it is an established principle that
the factual findings of the Court of Appeals are final and may not be reviewed on appeal to this
Court, there are however certain exceptions to the rule which this Court has recognized and
accepted, among which, are when the judgment is based on a misapprehension of facts and when
the findings of the appellate court, are contrary to those of the trial court (Manlapaz v. Court of
Appeals, 147 SCRA 236 [1987]); Guita v. Court of Appeals, 139 SCRA 576 [1986]). Where the
findings of the Court of Appeals and the trial court are contrary to each other, this Court may
scrutinize the evidence on record (Cruz v. Court of Appeals, 129 SCRA 222 [1984]; Mendoza v.
Court of Appeals, 156 SCRA 597 [1987]; Maclan v. Santos, 156 SCRA 542 [1987]). When the
conclusion of the Court of Appeals is grounded entirely on speculation, surmises or conjectures, or
when the inference made is manifestly mistaken, absurd or impossible, or when there is grave abuse
of discretion, or when the judgment is based on a misapprehension of facts, and when the findings
of facts are conflict the exception also applies (Malaysian Airline System Bernad v. Court of Appeals,
156 SCRA 321 [1987]).

After a painstaking review of the entire records of the case and the findings of facts of both the
court a quo and respondent appellate court, we are constrained to affirm the trial court's findings and
rule for the petitioners.

We agree with the court a quo that the principal cause of the termination of Valenzuela as General
Agent of Philamgen arose from his refusal to share his Delta commission. The records sustain the
conclusions of the trial court on the apparent bad faith of the private respondents in terminating the
General Agency Agreement of petitioners. It is axiomatic that the findings of fact of a trial judge are
entitled to great weight (People v. Atanacio, 128 SCRA 22 [1984]) and should not be disturbed on
appeal unless for strong and cogent reasons, because the trial court is in a better position to
examine the evidence as well as to observe the demeanor of the witnesses while testifying (Chase
v. Buencamino, Sr., 136 SCRA 365 [1985]; People v. Pimentel, 147 SCRA 25 [1987]; and Baliwag
Trans., Inc. v. Court of Appeals, 147 SCRA 82 [1987]). In the case at bar, the records show that the
findings and conclusions of the trial court are supported by substantial evidence and there appears
to be no cogent reason to disturb them (Mendoza v. Court of Appeals. 156 SCRA 597 [1987]).

As early as September 30,1977, Philamgen told the petitioners of its desire to share the Delta
Commission with them. It stated that should Delta back out from the agreement, the petitioners
would be charged interests through a reduced commission after full payment by Delta.

On January 23, 1978 Philamgen proposed reducing the petitioners' commissions by 50% thus giving
them an agent's commission of 16.25%. On February 8, 1978, Philamgen insisted on the reduction
scheme followed on June 1, 1978 by still another insistence on reducing commissions and proposing
two alternative schemes for reduction. There were other pressures. Demands to settle accounts, to
confer and thresh out differences regarding the petitioners' income and the threat to terminate the
agency followed. The petitioners were told that the Delta commissions would not be credited to their
account (Exhibit "J"). They were informed that the Valenzuela agency would be placed on a cash
and carry basis thus removing the 60-day credit for premiums due. (TSN., March 26, 1979, pp. 54-
57). Existing policies were threatened to be cancelled (Exhibits "H" and "14"; TSN., March 26, 1979,
pp. 29-30). The Valenzuela business was threatened with diversion to other agencies. (Exhibit
"NNN"). Rumors were also spread about alleged accounts of the Valenzuela agency (TSN., January
25, 1980, p. 41). The petitioners consistently opposed the pressures to hand over the agency or half
of their commissions and for a treatment of the Delta account distinct from other accounts. The
pressures and demands, however, continued until the agency agreement itself was finally
terminated.

It is also evident from the records that the agency involving petitioner and private respondent is one
"coupled with an interest," and, therefore, should not be freely revocable at the unilateral will of the
latter.

In the insurance business in the Philippines, the most difficult and frustrating period is the solicitation
and persuasion of the prospective clients to buy insurance policies. Normally, agents would
encounter much embarrassment, difficulties, and oftentimes frustrations in the solicitation and
procurement of the insurance policies. To sell policies, an agent exerts great effort, patience,
perseverance, ingenuity, tact, imagination, time and money. In the case of Valenzuela, he was able
to build up an Agency from scratch in 1965 to a highly productive enterprise with gross billings of
about Two Million Five Hundred Thousand Pesos (P2,500,000.00) premiums per annum. The
records sustain the finding that the private respondent started to covet a share of the insurance
business that Valenzuela had built up, developed and nurtured to profitability through over thirteen
(13) years of patient work and perseverance. When Valenzuela refused to share his commission in
the Delta account, the boom suddenly fell on him.

The private respondents by the simple expedient of terminating the General Agency Agreement
appropriated the entire insurance business of Valenzuela. With the termination of the General
Agency Agreement, Valenzuela would no longer be entitled to commission on the renewal of
insurance policies of clients sourced from his agency. Worse, despite the termination of the agency,
Philamgen continued to hold Valenzuela jointly and severally liable with the insured for unpaid
premiums. Under these circumstances, it is clear that Valenzuela had an interest in the continuation
of the agency when it was unceremoniously terminated not only because of the commissions he
should continue to receive from the insurance business he has solicited and procured but also for
the fact that by the very acts of the respondents, he was made liable to Philamgen in the event the
insured fail to pay the premiums due. They are estopped by their own positive averments and claims
for damages. Therefore, the respondents cannot state that the agency relationship between
Valenzuela and Philamgen is not coupled with interest. "There may be cases in which an agent has
been induced to assume a responsibility or incur a liability, in reliance upon the continuance of the
authority under such circumstances that, if the authority be withdrawn, the agent will be exposed to
personal loss or liability" (See MEC 569 p. 406).

Furthermore, there is an exception to the principle that an agency is revocable at will and that is
when the agency has been given not only for the interest of the principal but for the interest of third
persons or for the mutual interest of the principal and the agent. In these cases, it is evident that the
agency ceases to be freely revocable by the sole will of the principal (See Padilla, Civil Code
Annotated, 56 ed., Vol. IV p. 350). The following citations are apropos:

The principal may not defeat the agent's right to indemnification by a termination of
the contract of agency (Erskine v. Chevrolet Motors Co. 185 NC 479, 117 SE 706, 32
ALR 196).

Where the principal terminates or repudiates the agent's employment in violation of

the contract of employment and without cause ... the agent is entitled to receive
either the amount of net losses caused and gains prevented by the breach, or the
reasonable value of the services rendered. Thus, the agent is entitled to prospective
profits which he would have made except for such wrongful termination provided that
such profits are not conjectural, or speculative but are capable of determination upon
some fairly reliable basis. And a principal's revocation of the agency agreement
made to avoid payment of compensation for a result which he has actually
accomplished (Hildendorf v. Hague, 293 NW 2d 272; Newhall v. Journal Printing Co.,
105 Minn 44,117 NW 228; Gaylen Machinery Corp. v. Pitman-Moore Co. [C.A. 2 NY]
273 F 2d 340)

If a principal violates a contractual or quasi-contractual duty which he owes his

agent, the agent may as a rule bring an appropriate action for the breach of that duty.
The agent may in a proper case maintain an action at law for compensation or
damages ... A wrongfully discharged agent has a right of action for damages and in
such action the measure and element of damages are controlled generally by the
rules governing any other action for the employer's breach of an employment
contract. (Riggs v. Lindsay, 11 US 500, 3L Ed 419; Tiffin Glass Co. v. Stoehr, 54
Ohio 157, 43 NE 2798)

At any rate, the question of whether or not the agency agreement is coupled with interest is helpful
to the petitioners' cause but is not the primary and compelling reason. For the pivotal factor
rendering Philamgen and the other private respondents liable in damages is that the termination by
them of the General Agency Agreement was tainted with bad faith. Hence, if a principal acts in bad
faith and with abuse of right in terminating the agency, then he is liable in damages. This is in
accordance with the precepts in Human Relations enshrined in our Civil Code that "every person
must in the exercise of his rights and in the performance of his duties act with justice, give every one
his due, and observe honesty and good faith: (Art. 19, Civil Code), and every person who, contrary
to law, wilfully or negligently causes damages to another, shall indemnify the latter for the same (Art.
20, id). "Any person who wilfully causes loss or injury to another in a manner contrary to morals,
good customs and public policy shall compensate the latter for the damages" (Art. 21, id.).

As to the issue of whether or not the petitioners are liable to Philamgen for the unpaid and
uncollected premiums which the respondent court ordered Valenzuela to pay Philamgen the amount
of One Million Nine Hundred Thirty-Two Thousand Five Hundred Thirty-Two and 17/100 Pesos
(P1,932,532,17) with legal interest thereon until fully paid (Decision-January 20, 1988, p. 16;
Petition, Annex "A"), we rule that the respondent court erred in holding Valenzuela liable. We find no
factual and legal basis for the award. Under Section 77 of the Insurance Code, the remedy for the
non-payment of premiums is to put an end to and render the insurance policy not binding

Sec. 77 ... [N]otwithstanding any agreement to the contrary, no policy or contract of

insurance is valid and binding unless and until the premiums thereof have been paid
except in the case of a life or industrial life policy whenever the grace period
provision applies (P.D. 612, as amended otherwise known as the Insurance Code of
1974)

In Philippine Phoenix Surety and Insurance, Inc. v. Woodworks, Inc. (92 SCRA 419 [1979]) we held
that the non-payment of premium does not merely suspend but puts an end to an insurance contract
since the time of the payment is peculiarly of the essence of the contract. And in Arce v. The Capital
Insurance and Surety Co. Inc. (117 SCRA 63, [1982]), we reiterated the rule that unless premium is
paid, an insurance contract does not take effect. Thus:

It is to be noted that Delgado (Capital Insurance & Surety Co., Inc. v. Delgado, 9
SCRA 177 [1963] was decided in the light of the Insurance Act before Sec. 72 was
amended by the underscored portion. Supra. Prior to the Amendment, an insurance
contract was effective even if the premium had not been paid so that an insurer was
obligated to pay indemnity in case of loss and correlatively he had also the right to
sue for payment of the premium. But the amendment to Sec. 72 has radically
changed the legal regime in that unless the premium is paid there is no insurance. "
(Arce v. Capitol Insurance and Surety Co., Inc., 117 SCRA 66; Emphasis supplied)

In Philippine Phoenix Surety case, we held:

Moreover, an insurer cannot treat a contract as valid for the purpose of collecting
premiums and invalid for the purpose of indemnity. (Citing Insurance Law and
Practice by John Alan Appleman, Vol. 15, p. 331; Emphasis supplied)

The foregoing findings are buttressed by Section 776 of the insurance Code
(Presidential Decree No. 612, promulgated on December 18, 1974), which now
provides that no contract of Insurance by an insurance company is valid and binding
unless and until the premium thereof has been paid, notwithstanding any agreement
to the contrary (Ibid., 92 SCRA 425)

Perforce, since admittedly the premiums have not been paid, the policies issued have lapsed. The
insurance coverage did not go into effect or did not continue and the obligation of Philamgen as
insurer ceased. Hence, for Philamgen which had no more liability under the lapsed and inexistent
policies to demand, much less sue Valenzuela for the unpaid premiums would be the height of
injustice and unfair dealing. In this instance, with the lapsing of the policies through the nonpayment
of premiums by the insured there were no more insurance contracts to speak of. As this Court held
in the Philippine Phoenix Surety case, supra "the non-payment of premiums does not merely
suspend but puts an end to an insurance contract since the time of the payment is peculiarly of the
essence of the contract."

The respondent appellate court also seriously erred in according undue reliance to the report of
Banaria and Banaria and Company, auditors, that as of December 31, 1978, Valenzuela owed
Philamgen P1,528,698.40. This audit report of Banaria was commissioned by Philamgen after
Valenzuela was almost through with the presentation of his evidence. In essence, the Banaria report
started with an unconfirmed and unaudited beginning balance of account of P1,758,185.43 as of
August 20, 1976. But even with that unaudited and unconfirmed beginning balance of
P1,758,185.43, Banaria still came up with the amount of P3,865.49 as Valenzuela's balance as of
December 1978 with Philamgen (Exh. "38-A-3"). In fact, as of December 31, 1976, and December
31, 1977, Valenzuela had no unpaid account with Philamgen (Ref: Annexes "D", "D-1", "E",
Petitioner's Memorandum). But even disregarding these annexes which are records of Philamgen
and addressed to Valenzuela in due course of business, the facts show that as of July 1977, the
beginning balance of Valenzuela's account with Philamgen amounted to P744,159.80. This was
confirmed by Philamgen itself not only once but four (4) times on different occasions, as shown by
the records.

On April 3,1978, Philamgen sent Valenzuela a statement of account with a beginning balance of
P744,159-80 as of July 1977.

On May 23, 1978, another statement of account with exactly the same beginning balance was sent
to Valenzuela.

On November 17, 1978, Philamgen sent still another statement of account with P744,159.80 as the
beginning balance.

And on December 20, 1978, a statement of account with exactly the same figure was sent to
Valenzuela.

It was only after the filing of the complaint that a radically different statement of accounts surfaced in
court. Certainly, Philamgen's own statements made by its own accountants over a long period of
time and covering examinations made on four different occasions must prevail over unconfirmed and
unaudited statements made to support a position made in the course of defending against a lawsuit.

It is not correct to say that Valenzuela should have presented its own records to refute the
unconfirmed and unaudited finding of the Banaria auditor. The records of Philamgen itself are the
best refutation against figures made as an afterthought in the course of litigation. Moreover,
Valenzuela asked for a meeting where the figures would be reconciled. Philamgen refused to meet
with him and, instead, terminated the agency agreement.

After off-setting the amount of P744,159.80, beginning balance as of July 1977, by way of credits
representing the commission due from Delta and other accounts, Valenzuela had overpaid
Philamgen the amount of P530,040.37 as of November 30, 1978. Philamgen cannot later be heard
to complain that it committed a mistake in its computation. The alleged error may be given credence
if committed only once. But as earlier stated, the reconciliation of accounts was arrived at four (4)
times on different occasions where Philamgen was duly represented by its account executives. On
the basis of these admissions and representations, Philamgen cannot later on assume a different
posture and claim that it was mistaken in its representation with respect to the correct beginning
balance as of July 1977 amounting to P744,159.80. The Banaria audit report commissioned by
Philamgen is unreliable since its results are admittedly based on an unconfirmed and unaudited
beginning balance of P1,758,185.43 as of August 20,1976.

As so aptly stated by the trial court in its decision:

Defendants also conducted an audit of accounts of plaintiff Arturo P. Valenzuela after

the controversy has started. In fact, after hearing plaintiffs have already rested their
case.
 The results of said audit were presented in Court to show plaintiff Arturo P.
Valenzuela's accountability to defendant PHILAMGEN. However, the auditor, when
presented as witness in this case testified that the beginning balance of their audit
report was based on an unaudited amount of P1,758,185.43 (Exhibit 46-A) as of
August 20, 1976, which was unverified and merely supplied by the officers of
defendant PHILAMGEN.

Even defendants very own Exhibit 38- A-3, showed that plaintiff Arturo P.
Valenzuela's balance as of 1978 amounted to only P3,865.59, not P826,128.46 as
stated in defendant Bienvenido M. Aragon's letter dated December 20,1978 (Exhibit
14) or P1,528,698.40 as reflected in defendant's Exhibit 46 (Audit Report of Banaria
dated December 24, 1980).

These glaring discrepancy (sic) in the accountability of plaintiff Arturo P. Valenzuela

to defendant PHILAMGEN only lends credence to the claim of plaintiff Arturo P.
Valenzuela that he has no outstanding account with defendant PHILAMGEN when
the latter, thru defendant Bienvenido M. Aragon, terminated the General Agency
Agreement entered into by plaintiff (Exhibit A) effective January 31, 1979 (see
Exhibits "2" and "2-A"). Plaintiff Arturo P. Valenzuela has shown that as of October
31, 1978, he has overpaid defendant PHILAMGEN in the amount of P53,040.37
(Exhibit "EEE", which computation was based on defendant PHILAMGEN's balance
of P744,159.80 furnished on several occasions to plaintiff Arturo P. Valenzuela by
defendant PHILAMGEN (Exhibits H-1, VV, VV-1, WW, WW-1 , YY , YY-2 , ZZ and ,
ZZ-2).

Prescinding from the foregoing, and considering that the private respondents terminated Valenzuela
with evident mala fide it necessarily follows that the former are liable in damages. Respondent
Philamgen has been appropriating for itself all these years the gross billings and income that it
unceremoniously took away from the petitioners. The preponderance of the authorities sustain the
preposition that a principal can be held liable for damages in cases of unjust termination of agency.
In Danon v. Brimo, 42 Phil. 133 [1921]), this Court ruled that where no time for the continuance of
the contract is fixed by its terms, either party is at liberty to terminate it at will, subject only to the
ordinary requirements of good faith. The right of the principal to terminate his authority is absolute
and unrestricted, except only that he may not do so in bad faith.

The trial court in its decision awarded to Valenzuela the amount of Seventy Five Thousand Pesos
(P75,000,00) per month as compensatory damages from June 1980 until its decision becomes final
and executory. This award is justified in the light of the evidence extant on record (Exhibits "N", "N-
10", "0", "0-1", "P" and "P-1") showing that the average gross premium collection monthly of
Valenzuela over a period of four (4) months from December 1978 to February 1979, amounted to
over P300,000.00 from which he is entitled to a commission of P100,000.00 more or less per month.
Moreover, his annual sales production amounted to P2,500,000.00 from where he was given 32.5%
commissions. Under Article 2200 of the new Civil Code, "indemnification for damages shall
comprehend not only the value of the loss suffered, but also that of the profits which the obligee
failed to obtain."

The circumstances of the case, however, require that the contractual relationship between the
parties shall be terminated upon the satisfaction of the judgment. No more claims arising from or as
a result of the agency shall be entertained by the courts after that date.

ACCORDINGLY, the petition is GRANTED. The impugned decision of January 29, 1988 and
resolution of April 27, 1988 of respondent court are hereby SET ASIDE. The decision of the trial
court dated January 23, 1986 in Civil Case No. 121126 is REINSTATED with the MODIFICATIONS
that the amount of FIVE HUNDRED TWENTY ONE THOUSAND NINE HUNDRED SIXTY-FOUR
AND 16/100 PESOS (P521,964.16) representing the petitioners Delta commission shall earn only
legal interests without any adjustments under Article 1250 of the Civil Code and that the contractual
relationship between Arturo P. Valenzuela and Philippine American General Insurance Company
shall be deemed terminated upon the satisfaction of the judgment as modified.

SO ORDERED.

G.R. No. 111924 January 27, 1997

ADORACION LUSTAN, petitioner,

vs.
COURT OF APPEALS, NICOLAS PARANGAN and SOLEDAD PARANGAN, PHILIPPINE
NATIONAL BANK, respondents.

SYLLABUS

1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; SALES; EQUITABLE MORTGAGE; REQUISITES FOR
PRESUMPTION. For a presumption of an equitable mortgage to arise, we must first satisfy two requisites,
namely: that the parties entered into a contract denominated as a contract of sale and that their intention
was to secure an existing debt by way of mortgage. chanroblesvi rtua llawli bra ry

2. ID.; ID.; ID.; ID.; EXISTENCE OF ANY OF THE CIRCUMSTANCES ENUMERATED UNDER ART. 1602,
SUFFICES TO GIVE RISE TO THE PRESUMPTION. Under Art. 1604 of the Civil Code, a contract purporting
to be an absolute sale shall be presumed to be an equitable mortgage should any of the conditions in Art.
1602 be present. The existence of any of the circumstances therein, not a concurrence nor an overwhelming
number of such circumstances, suffices to give rise to the presumption that the contract is an equitable
mortgage.

3. ID.; ID.; CONTRACTS; WHERE A PARTY TO A CONTRACT IS ILLITERATE OR CANNOT READ, OR CANNOT
UNDERSTAND THE LANGUAGE IN WHICH THE CONTRACT IS WRITTEN, THE BURDEN IS ON THE PARTY
INTERESTED IN ENFORCING THE CONTRACT TO PROVE THAT THE TERMS THEREOF ARE FULLY EXPLAINED
TO THE FORMER; CASE AT BENCH. Petitioner had no knowledge that the contract she signed is a deed of
sale. The contents of the same were not read nor explained to her so that she may intelligibly formulate in
her mind the consequences of her conduct and the nature of the rights she was ceding in favor of Parangan.
Petitioner is illiterate and her condition constrained her to merely rely on Parangans assurance that the
contract only evidences her indebtedness to the latter. When one of the contracting parties is unable to
read, or if the contract is in a language not understood by him, and mistake or fraud is alleged, the person
enforcing the contract must show that the terms thereof have been fully explained to the former. Settled is
the rule that where a party to a contract is illiterate or cannot read or cannot understand the language in
which the contract is written, the burden is on the party interested in enforcing the contract to prove that
the terms thereof are fully explained to the former in a language understood by him. To our mind, this
burden has not been satisfactorily discharged.

4. ID.; ID.; INTERPRETATION OF CONTRACTS; IF THE WORDS OF THE CONTRACT APPEAR TO BE

CONTRARY TO THE EVIDENT INTENTION OF THE PARTIES, THE LATTER SHALL PREVAIL OVER THE FORMER;
CASE AT BENCH. A contract is perfected by mere consent. More particularly, a contract of sale is
perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and
upon the price. This meeting of the minds speaks of the intent of the parties in entering into the contract
respecting the subject matter and the consideration thereof. If the words of the contract appear to be
contrary to the evident intention of the parties, the latter shall prevail over the former. In the case at bench,
the evidence is sufficient to warrant a finding that petitioner and Parangan merely intended to consolidate
the formers indebtedness to the latter in a single instrument and to secure the same with the subject
property. Even when a document appears on its face to be a sale, the owner of the property may prove that
the contract is really a loan with mortgage by raising as an issue the fact that the document does not
express the true intent of the parties.

5. ID.; ID.; AGENCY; SPECIAL POWERS OF ATTORNEY ARE CONTINUING ABSENT A VALID REVOCATION
DULY FURNISHED TO MORTGAGEE; THE SAME CONTINUES TO HAVE FORCE AND EFFECT, AS AGAINST
THIRD PERSONS WHO HAD NO KNOWLEDGE OF SUCH AUTHORITY; CASE AT BENCH. It is admitted that
petitioner is the owner of the parcel of land mortgaged to PNB on five (5) occasions by virtue of the Special
Powers of Attorney executed by petitioner in favor of Parangan. Petitioner argues that the last three
mortgages were void for lack of authority. She totally failed to consider that said Special Powers of Attorney
are a continuing one and absent a valid revocation duly furnished to the mortgagee, the same continues to
have force and effect as against third persons who had no knowledge of such lack of authority . . . The
Special Power of Attorney executed by petitioner in favor of Parangan duly authorized the latter to represent
and act on behalf of the former. Having done so, petitioner clothed Parangan with authority to deal with PNB
on her behalf and in the absence of any proof that the bank had knowledge that the last three loans were
without the express authority of petitioner, it cannot be prejudiced thereby. As far as third persons are
concerned, an act is deemed to have been performed within the scope of the agents authority if such is
within the terms of the power of attorney as written even if the agent has in fact exceeded the limits of his
authority according the understanding between the principal and the agent. chanroblesvi rt ualawlib ra ry

6. REMEDIAL LAW; EVIDENCE; CREDIBILITY OF WITNESSES; ASSESSMENT BY TRIAL COURT OF

CREDIBILITY OF WITNESSES, ENTITLED TO GREAT RESPECT AND WEIGHT; CASE AT BENCH. We do not
find the testimony of Parangan and Delia Cabial that the contract was duly read and explained to petitioner
worthy of credit. The assessment by the trial court of the credibility of witnesses is entitled to great respect
and weight for having had the opportunity of observing the conduct and demeanor of the witnesses while
testifying. The lower court may not have categorically declared Cabials testimony as doubtful but this fact is
readily apparent when it ruled on the basis of petitioners evidence in total disregard of the positive
testimony on Parangans side. We have subjected the records to a thorough examination, and a reading of
the transcript of stenographic notes would bear out that the court a quo is correct in its assessment. chanroblesv irtuallawl ib rary:red

DECISION

FRANCISCO, J.:

Petitioner Adoracion Lustan is the registered owner of a parcel of land otherwise known as Lot 8069
of the Cadastral Survey of Calinog, Iloilo containing an area of 10.0057 hectares and covered by
TCT No. T-561. On February 25, 1969, petitioner leased the above described property to private
respondent Nicolas Parangan for a term of ten (10) years and an annual rent of One Thousand
(P1,000.00) Pesos. During the period of lease, Parangan was regularly extending loans in small
amounts to petitioner to defray her daily expenses and to finance her daughter's education. On July
29, 1970, petitioner executed a Special Power of Attorney in favor of Parangan to secure an
agricultural loan from private respondent Philippine National Bank (PNB) with the aforesaid lot as
collateral. On February 18, 1972, a second Special Power of Attorney was executed by petitioner, by
virtue of which, Parangan was able to secure four (4) additional loans, to wit: the sums of
P24,000.00, P38,000.00, P38,600.00 and P25,000.00 on December 15, 1975, September 6, 1976,
July 2, 1979 and June 2, 1980, respectively. The last three loans were without the knowledge of
herein petitioner and all the proceeds therefrom were used by Parangan for his own benefit. 1 These
encumbrances were duly annotated on the certificate of title. On April 16, 1973, petitioner signed a
Deed of Pacto de Retro Sale2 in favor of Parangan which was superseded by the Deed of Definite
Sale3dated May 4, 1979 which petitioner signed upon Parangan's representation that the same
merely evidences the loans extended by him unto the former.

For fear that her property might be prejudiced by the continued borrowing of Parangan, petitioner
demanded the return of her certificate of title. Instead of complying with the request, Parangan
asserted his rights over the property which allegedly had become his by virtue of the aforementioned
Deed of Definite Sale. Under said document, petitioner conveyed the subject property and all the
improvements thereon unto Parangan absolutely for and in consideration of the sum of Seventy Five
Thousand (P75,000.00) Pesos.

Aggrieved, petitioner filed an action for cancellation of liens, quieting of title, recovery of possession
and damages against Parangan and PNB in the Regional Trial Court of Iloilo City. After trial, the
lower court rendered judgment, disposing as follows:

WHEREFORE and in view of the foregoing, a decision is rendered as follows:

1. Ordering cancellation by the Register of Deeds of the Province of Iloilo, of the

unauthorized loans, the liens and encumbrances appearing in the Transfer
Certificate of Title No. T-561, especially entries nos. 286231; 338638; and 352794;

2. Declaring the Deed of Pacto de Retro Sale dated April 25, 1978 and the Deed of
Definite Sale dated May 6, 1979, both documents executed by Adoracion Lustan in
favor of Nicolas Parangan over Lot 8069 in TCT No. T-561 of the Register of Deeds
of Iloilo, as null and void, declaring the same to be Deeds of Equitable Mortgage;

3. Ordering defendant Nicolas Parangan to pay all the loans he secured from
defendant PNB using thereto as security TCT No. T-561 of plaintiff and defendant
PNB to return TCT No. T-561 to plaintiff;

4. Ordering defendant Nicolas Parangan to return possession of the land in question,

Lot 8069 of the Calinog Cadastre, described in TCT No. T-561 of the Register of
Deeds of Iloilo, to plaintiff upon payment of the sum of P75,000.00 by plaintiff to
defendant Parangan which payment by plaintiff must be made within ninety (90) days
from receipt of this decision; otherwise, sale of the land will be ordered by the court
to satisfy payment of the amount;

5. Ordering defendant Nicolas Parangan to pay plaintiff attorney's fees in the sum of
P15,000.00 and to pay the costs of the suit.

SO ORDERED.4

Upon appeal to the Court of Appeals (CA), respondent court reversed the trial court's decision.
Hence this petition contending that the CA committed the following errors:

IN ARRIVING AT THE CONCLUSION THAT NONE OF THE CONDITIONS STATED

IN ART. 1602 OF THE NEW CIVIL CODE HAS BEEN PROVEN TO EXIST BY
PREPONDERANCE OF EVIDENCE;

IN CONCLUDING THAT PETITIONER SIGNED THE DEED OF SALE WITH

KNOWLEDGE AS TO THE CONTENTS THEREOF;

IN ARRIVING AT THE CONCLUSION THAT THE TESTIMONY OF WITNESS

DELIA CABIAL DESERVES FULL FAITH AND CREDIT;

IN FINDING THAT THE SPECIAL POWER OF ATTORNEY AUTHORIZING

MORTGAGE FOR "UNLIMITED" LOANS AS RELEVANT.
Two main issues confront us in this case, to wit: whether or not the Deed of Definite Sale is in reality
an equitable mortgage and whether or not petitioner's property is liable to PNB for the loans
contracted by Parangan by virtue of the special power of attorney. The lower court and the CA
arrived at different factual findings thus necessitating a review of the evidence on record.5 After a
thorough examination, we note some errors, both in fact and in law, committed by public respondent
CA.

The court a quo ruled that the Deed of Definite Sale is in reality an equitable mortgage as it was
shown beyond doubt that the intention of the parties was one of a loan secured by petitioner's
land.6 We agree.

A contract is perfected by mere consent.7 More particularly, a contract of sale is perfected at the
moment there is a meeting of minds upon the thing which is the object of the contract and upon the
price.8 This meeting of the minds speaks of the intent of the parties in entering into the contract
respecting the subject matter and the consideration thereof. If the words of the contract appear to be
contrary to the evident intention of the parties, the latter shall prevail over the former.9 In the case at
bench, the evidence is sufficient to warrant a finding that petitioner and Parangan merely intended to
consolidate the former's indebtedness to the latter in a single instrument and to secure the same
with the subject property. Even when a document appears on its face to be a sale, the owner of the
property may prove that the contract is really a loan with mortgage by raising as an issue the fact
that the document does not express the true intent of the parties. In this case, parol evidence then
becomes competent and admissible to prove that the instrument was in truth and in fact given
merely as a security for the repayment of a loan. And upon proof of the truth of such allegations, the
court will enforce the agreement or understanding in consonance with the true intent of the parties at
the time of the execution of the contract. 10

Articles 1602 and 1604 of the Civil Code respectively provide:

The contract shall be presumed to be an equitable mortgage in any of the following

cases:

1) When the price of a sale with right to repurchase is unusually inadequate;

2) When the vendor remains in possession as lessor or otherwise;

3) When upon or after the expiration of the right to repurchase, another instrument
extending the period of redemption or granting a new period is executed;

4) When the vendor binds himself to pay the taxes on the thing sold;

5) When the purchaser retains for himself a part of the purchase price;

6) In any other case where it may be fairly inferred that the real intention of the
parties is that the transaction shall secure the payment of a debt or the performance
of any other obligation.

Art. 1604. The provisions of Article 1602 shall also apply to a contract purporting to
be an absolute sale.

From a reading of the above-quoted provisions, for a presumption of an equitable mortgage to arise,
we must first satisfy two requisites namely: that the parties entered into a contract denominated as a
contract of sale and that their intention was to secure an existing debt by way of mortgage. Under
Art. 1604 of the Civil Code, a contract purporting to be an absolute sale shall be presumed to be an
equitable mortgage should any of the conditions in Art. 1602 be present. The existence of any of the
circumstances therein, not a concurrence nor an overwhelming number of such circumstances,
suffices to give rise to the presumption that the contract is an equitable mortgage. 11

Art. 1602, (6), in relation to Art 1604 provides that a contract of sale is presumed to be an equitable
mortgage in any other case where it may be fairly inferred that the real intention of the parties is that
the transaction shall secure the payment of a debt or the performance of any other obligation. That
the case clearly falls under this category can be inferred from the circumstances surrounding the
transaction as herein set forth:

Petitioner had no knowledge that the contract 12 she signed is a deed of sale. The contents of the
same were not read nor explained to her so that she may intelligibly formulate in her mind the
consequences of her conduct and the nature of the rights she was ceding in favor of Parangan.
Petitioner is illiterate and her condition constrained her to merely rely on Parangan's assurance that
the contract only evidences her indebtedness to the latter. When one of the contracting parties is
unable to read, or if the contract is in a language not understood by him, and mistake or fraud is
alleged, the person enforcing the contract must show that the terms thereof have been fully
explained to the former. 13 Settled is the rule that where a party to a contract is illiterate or cannot
read or cannot understand the language in which the contract is written, the burden is on the party
interested in enforcing the contract to prove that the terms thereof are fully explained to the former in
a language understood by him.14 To our mind, this burden has not been satisfactorily discharged.

We do not find the testimony of Parangan and Delia Cabial that the contract was duly read and
explained to petitioner worthy of credit. The assessment by the trial court of the credibility of
witnesses is entitled to great respect and weight for having had the opportunity of observing the
conduct and demeanor of the witnesses while testifying. 15 The lower court may not have
categorically declared Cabial's testimony as doubtful but this fact is readily apparent when it ruled on
the basis of petitioner's evidence in total disregard of the positive testimony on Parangan's side. We
have subjected the records to a thorough examination, and a reading of the transcript of
stenographic notes would bear out that the court a quo is correct in its assessment. The CA
committed a reversible error when it relied on the testimony of Cabial in upholding the validity of the
Deed of Definite Sale. For one, there are noted major contradictions between the testimonies of
Cabial and Judge Lebaquin, who notarized the purported Deed of Definite Sale. While the former
testified that receipts were presented before Judge Lebaquin, who in turn made an accounting to
determine the price of the land 16, the latter categorically denied the allegation. 17 This contradiction
casts doubt on the credibility of Cabial as it is ostensible that her version of the story is concocted.

On the other hand, petitioner's witness Celso Pamplona, testified that the contract was not read nor
explained to petitioner. We believe that this witness gave a more accurate account of the
circumstances surrounding the transaction. He has no motive to prevaricate or concoct a story as he
witnessed the execution of the document at the behest of Parangan himself who, at the outset,
informed him that he will witness a document consolidating petitioner's debts. He thus testified:

Q: In (sic) May 4, 1979, you remember having went (sic) to the

Municipality of Calinog?

A: Yes, sir.

Q: Who invited you to go there?

 A: Parangan.

Q: You mean Nicolas Parangan?

A: Yes, sir.

Q: What did Nicolas tell you why he invited you to go there?

A: He told me that I will witness on the indebtedness of Adoracion to

Parangan.

Q: Before Adoracion Lustan signed her name in this Exh. "4", was
this document read to her?

A: No, sir.

Q: Did Nicolas Parangan right in that very room tell Adoracion what
she was signing?

A: No, sir.

xxx xxx xxx

Q: What did you have in mind when you were signing this document,
Exh. "4"?

A: To show that Adoracion Lustan has debts with Nicolas

Parangan. 18

Furthermore, we note the absence of any question propounded to Judge Lebaquin to establish that
the deed of sale was read and explained by him to petitioner. When asked if witness has any
knowledge whether petitioner knows how to read or write, he answered in the negative. 19 This latter
admission impresses upon us that the contract was not at all read or explained to petitioner for had
he known that petitioner is illiterate, his assistance would not have been necessary.

The foregoing squares with the sixth instance when a presumption of equitable mortgage prevails.
The contract of definite sale, where petitioner purportedly ceded all her rights to the subject lot in
favor of Parangan, did not embody the true intention of the parties. The evidence speaks clearly of
the nature of the agreement it was one executed to secure some loans.

Anent the issue of whether the outstanding mortgages on the subject property can be enforced
against petitioner, we rule in the affirmative.

Third persons who are not parties to a loan may secure the latter by pledging or mortgaging their
own property. 20So long as valid consent was given, the fact that the loans were solely for the benefit
of Parangan would not invalidate the mortgage with respect to petitioner's property. In consenting
thereto, even granting that petitioner may not be assuming personal liability for the debt, her property
shall nevertheless secure and respond for the performance of the principal obligation. 21 It is admitted
that petitioner is the owner of the parcel of land mortgaged to PNB on five (5) occasions by virtue of
the Special Powers of Attorney executed by petitioner in favor of Parangan. Petitioner argues that
the last three mortgages were void for lack of authority. She totally failed to consider that said
Special Powers of Attorney are a continuing one and absent a valid revocation duly furnished to the
mortgagee, the same continues to have force and effect as against third persons who had no
knowledge of such lack of authority. Article 1921 of the Civil Code provides:

Art. 1921. If the agency has been entrusted for the purpose of contracting with
specified persons, its revocation shall not prejudice the latter if they were not given
notice thereof.

The Special Power of Attorney executed by petitioner in favor of Parangan duly authorized the latter
to represent and act on behalf of the former. Having done so, petitioner clothed Parangan with
authority to deal with PNB on her behalf and in the absence of any proof that the bank had
knowledge that the last three loans were without the express authority of petitioner, it cannot be
prejudiced thereby. As far as third persons are concerned, an act is deemed to have been performed
within the scope of the agent's authority if such is within the terms of the power of attorney as written
even if the agent has in fact exceeded the limits of his authority according to the understanding
between the principal and the agent. 22 The Special Power of Attorney particularly provides that the
same is good not only for the principal loan but also for subsequent commercial, industrial,
agricultural loan or credit accommodation that the attorney-in-fact may obtain and until the power of
attorney is revoked in a public instrument and a copy of which is furnished to PNB. 23 Even when the
agent has exceeded his authority, the principal is solidarily liable with the agent if the former allowed
the latter to act as though he had full powers (Article 1911, Civil Code). 24 The mortgage directly and
immediately subjects the property upon which it is imposed. 25 The property of third persons which
has been expressly mortgaged to guarantee an obligation to which the said persons are foreign, is
directly and jointly liable for the fulfillment thereof; it is therefore subject to execution and sale for the
purpose of paying the amount of the debt for which it is liable. 26 However, petitioner has an
unquestionable right to demand proportional indemnification from Parangan with respect to the sum
paid to PNB from the proceeds of the sale of her property 27 in case the same is sold to satisfy the
unpaid debts.

WHEREFORE, premises considered, the judgment of the lower court is hereby REINSTATED with
the following MODIFICATIONS:

1. DECLARING THE DEED OF DEFINITE SALE AS AN EQUITABLE MORTGAGE;

2. ORDERING PRIVATE RESPONDENT NICOLAS PARANGAN TO RETURN THE POSSESSION

OF THE SUBJECT LAND UNTO PETITIONER UPON THE LATTER'S PAYMENT OF THE SUM OF
P75,000.00 WITHIN NINETY (90) DAYS FROM RECEIPT OF THIS DECISION;

3. DECLARING THE MORTGAGES IN FAVOR OF PNB AS VALID AND SUBSISTING AND MAY
THEREFORE BE SUBJECTED TO EXECUTION SALE.

4. ORDERING PRIVATE RESPONDENT PARANGAN TO PAY PETITIONER THE AMOUNT OF

P15,000.00 BY WAY OF ATTORNEY'S FEES AND TO PAY THE COSTS OF THE SUIT.

SO ORDERED.
G.R. No. 175910 July 30, 2009

ATTY. ROGELIO E. SARSABA, Petitioner,

vs.
FE VDA. DE TE, represented by her Attorney-in-Fact, FAUSTINO CASTAEDA, Respondents.

DECISION

DEL CASTILLO, J.:

Before us is a petition for review on certiorari1 with prayer for preliminary injunction assailing the
Order2 dated March 22, 2006 of the Regional Trial Court (RTC), Branch 19, Digos City, Davao del
Sur, in Civil Case No. 3488.

The facts, as culled from the records, follow.

On February 14, 1995, a Decision was rendered in NLRC Case No. RAB-11-07-00608-93
entitled, Patricio Sereno v. Teodoro Gasing/Truck Operator, finding Sereno to have been illegally
dismissed and ordering Gasing to pay him his monetary claims in the amount of 43,606.47. After
the Writ of Execution was returned unsatisfied, Labor Arbiter Newton R. Sancho issued an Alias Writ
of Execution3 on June 10, 1996, directing Fulgencio R. Lavarez, Sheriff II of the National Labor
Relations Commission (NLRC), to satisfy the judgment award. On July 23, 1996, Lavarez,
accompanied by Sereno and his counsel, petitioner Atty. Rogelio E. Sarsaba, levied a Fuso Truck
bearing License Plate No. LBR-514, which at that time was in the possession of Gasing. On July 30,
1996, the truck was sold at public auction, with Sereno appearing as the highest bidder.4

Meanwhile, respondent Fe Vda. de Te, represented by her attorney-in-fact, Faustino Castaeda,

filed with the RTC, Branch 18, Digos, Davao del Sur, a Complaint5 for recovery of motor vehicle,
damages with prayer for the delivery of the truck pendente lite against petitioner, Sereno, Lavarez
and the NLRC of Davao City, docketed as Civil Case No. 3488.

Respondent alleged that: (1) she is the wife of the late Pedro Te, the registered owner of the truck,
as evidenced by the Official Receipt6 and Certificate of Registration;7 (2) Gasing merely rented the
truck from her; (3) Lavarez erroneously assumed that Gasing owned the truck because he was, at
the time of the "taking,"8 in possession of the same; and (4) since neither she nor her husband were
parties to the labor case between Sereno and Gasing, she should not be made to answer for the
judgment award, much less be deprived of the truck as a consequence of the levy in execution.

Petitioner filed a Motion to Dismiss9 on the following grounds: (1) respondent has no legal
personality to sue, having no real interests over the property subject of the instant complaint; (2) the
allegations in the complaint do not sufficiently state that the respondent has cause of action; (3) the
allegations in the complaint do not contain sufficient cause of action as against him; and (4) the
complaint is not accompanied by an Affidavit of Merit and Bond that would entitle the respondent to
the delivery of the tuck pendente lite.

The NLRC also filed a Motion to Dismiss10 on the grounds of lack of jurisdiction and lack of cause of
action.

Meanwhile, Lavarez filed an Answer with Compulsory Counterclaim and Third-Party Complaint.11 By
way of special and affirmative defenses, he asserted that the RTC does not have jurisdiction over
the subject matter and that the complaint does not state a cause of action.
On January 21, 2000, the RTC issued an Order12 denying petitioner's Motion to Dismiss for lack of
merit.

In his Answer,13 petitioner denied the material allegations in the complaint. Specifically, he cited as
affirmative defenses that: respondent had no legal personality to sue, as she had no interest over
the motor vehicle; that there was no showing that the heirs have filed an intestate estate
proceedings of the estate of Pedro Te, or that respondent was duly authorized by her co-heirs to file
the case; and that the truck was already sold to Gasing on March 11, 1986 by one Jesus Matias,
who bought the same from the Spouses Te. Corollarily, Gasing was already the lawful owner of the
truck when it was levied on execution and, later on, sold at public auction.

Incidentally, Lavarez filed a Motion for Inhibition,14 which was opposed15 by respondent.

On October 13, 2000, RTC Branch 18 issued an Order16 of inhibition and directed the transfer of the
records to Branch 19. RTC Branch 19, however, returned the records back to Branch 18 in view of
the appointment of a new judge in place of Judge-designate Rodolfo A. Escovilla. Yet, Branch 19
issued another Order17 dated November 22, 2000 retaining the case in said branch.

Eventually, the RTC issued an Order18 dated May 19, 2003 denying the separate motions to dismiss
filed by the NLRC and Lavarez, and setting the Pre-Trial Conference on July 25, 2003.

On October 17, 2005, petitioner filed an Omnibus Motion to Dismiss the Case on the following
grounds:19 (1) lack of jurisdiction over one of the principal defendants; and (2) to discharge
respondent's attorney-in-fact for lack of legal personality to sue.

It appeared that the respondent, Fe Vda. de Te, died on April 12, 2005.20

Respondent, through her lawyer, Atty. William G. Carpentero, filed an Opposition,21 contending that
the failure to serve summons upon Sereno is not a ground for dismissing the complaint, because the
other defendants have already submitted their respective responsive pleadings. He also contended
that the defendants, including herein petitioner, had previously filed separate motions to dismiss the
complaint, which the RTC denied for lack of merit. Moreover, respondent's death did not
render functus officio her right to sue since her attorney-in-fact, Faustino Castaeda, had long
testified on the complaint on March 13, 1998 for and on her behalf and, accordingly, submitted
documentary exhibits in support of the complaint.

On March 22, 2006, the RTC issued the assailed Order22 denying petitioner's aforesaid motion.

Petitioner then filed a Motion for Reconsideration with Motion for Inhibition,23 in which he claimed that
the judge who issued the Order was biased and partial. He went on to state that the judge's husband
was the defendant in a petition for judicial recognition of which he was the counsel, docketed as Civil
Case No. C-XXI-100, before the RTC, Branch 21, Bansalan, Davao del Sur. Thus, propriety dictates
that the judge should inhibit herself from the case.

Acting on the motion for inhibition, Judge Carmelita Sarno-Davin granted the same24 and ordered
that the case be re-raffled to Branch 18. Eventually, the said RTC issued an Order25 on October 16,
2006 denying petitioner's motion for reconsideration for lack of merit.

Hence, petitioner directly sought recourse from the Court via the present petition involving pure
questions of law, which he claimed were resolved by the RTC contrary to law, rules and existing
jurisprudence.26
There is a "question of law" when the doubt or difference arises as to what the law is on certain
state of facts, and which does not call for an examination of the probative value of the evidence
presented by the parties-litigants. On the other hand, there is a "question of fact" when the doubt or
controversy arises as to the truth or falsity of the alleged facts. Simply put, when there is no dispute
as to fact, the question of whether or not the conclusion drawn therefrom is correct, is a question of
law.27

Verily, the issues raised by herein petitioner are "questions of law," as their resolution rest solely on
what the law provides given the set of circumstances availing. The first issue involves the jurisdiction
of the court over the person of one of the defendants, who was not served with summons on account
of his death. The second issue, on the other hand, pertains to the legal effect of death of the plaintiff
during the pendency of the case.

At first brush, it may appear that since pure questions of law were raised, petitioner's resort to this
Court was justified and the resolution of the aforementioned issues will necessarily follow. However,
a perusal of the petition requires that certain procedural issues must initially be resolved before We
delve into the merits of the case.

Notably, the petition was filed directly from the RTC which issued the Order in the exercise of its
original jurisdiction. The question before Us then is: whether or not petitioner correctly availed of the
mode of appeal under Rule 45 of the Rules of Court.

Significantly, the rule on appeals is outlined below, to wit:28

(1) In all cases decided by the RTC in the exercise of its original jurisdiction, appeal
may be made to the Court of Appeals by mere notice of appeal where the appellant raises
questions of fact or mixed questions of fact and law;

(2) In all cases decided by the RTC in the exercise of its original jurisdiction where the
appellant raises only questions of law, the appeal must be taken to the Supreme Court on
a petition for review on certiorariunder Rule 45.

(3) All appeals from judgments rendered by the RTC in the exercise of its appellate
jurisdiction, regardless of whether the appellant raises questions of fact, questions of law, or
mixed questions of fact and law, shall be brought to the Court of Appeals by filing a petition
for review under Rule 42.

Accordingly, an appeal may be taken from the RTC which exercised its original jurisdiction, before
the Court of Appeals or directly before this Court, provided that the subject of the same is
a judgment or final order that completely disposes of the case, or of a particular matter therein
when declared by the Rules to be appealable.29The first mode of appeal, to be filed before the Court
of Appeals, pertains to a writ of error under Section 2(a), Rule 41 of the Rules of Court, if questions
of fact or questions of fact and law are raised or involved. On the other hand, the second mode is by
way of an appeal by certiorari before the Supreme Court under Section 2(c), Rule 41, in relation to
Rule 45, where only questions of law are raised or involved.30

An order or judgment of the RTC is deemed final when it finally disposes of a pending action, so that
nothing more can be done with it in the trial court. In other words, the order or judgment ends the
litigation in the lower court.31 On the other hand, an order which does not dispose of the case
completely and indicates that other things remain to be done by the court as regards the merits,
is interlocutory. Interlocutory refers to something between the commencement and the end of the
suit which decides some point or matter, but is not a final decision on the whole controversy.32
The subject of the present petition is an Order of the RTC, which denied petitioner's Omnibus Motion
to Dismiss, for lack of merit.

We have said time and again that an order denying a motion to dismiss is interlocutory.33 Under
Section 1(c), Rule 41 of the Rules of Court, an interlocutory order is not appealable. As a remedy for
the denial, a party has to file an answer and interpose as a defense the objections raised in the
motion, and then to proceed to trial; or, a party may immediately avail of the remedy available to the
aggrieved party by filing an appropriate special civil action for certiorari under Rule 65 of the Revised
Rules of Court. Let it be stressed though that a petition for certiorari is appropriate only when an
order has been issued without or in excess of jurisdiction, or with grave abuse of discretion
amounting to lack or excess of jurisdiction.

Based on the foregoing, the Order of the RTC denying petitioner's Omnibus Motion to Dismiss is not
appealable even on pure questions of law. It is worth mentioning that the proper procedure in this
case, as enunciated by this Court, is to cite such interlocutory order as an error in the appeal of the
case -- in the event that the RTC rules in favor of respondent -- and not to appeal such interlocutory
order. On the other hand, if the petition is to be treated as a petition for review under Rule 45, it
would likewise fail because the proper subject would only be judgments or final orders that
completely dispose of the case.34

Not being a proper subject of an appeal, the Order of the RTC is considered interlocutory. Petitioner
should have proceeded with the trial of the case and, should the RTC eventually render an
unfavorable verdict, petitioner should assail the said Order as part of an appeal that may be taken
from the final judgment to be rendered in this case. Such rule is founded on considerations of orderly
procedure, to forestall useless appeals and avoid

undue inconvenience to the appealing party by having to assail orders as they are promulgated by
the court, when all such orders may be contested in a single appeal.

In one case,35 the Court adverted to the hazards of interlocutory appeals:

It is axiomatic that an interlocutory order cannot be challenged by an appeal. Thus, it has been held
that "the proper remedy in such cases is an ordinary appeal from an adverse judgment on the
merits, incorporating in said appeal the grounds for assailing the interlocutory order. Allowing
appeals from interlocutory orders would result in the `sorry spectacle of a case being subject of a
counterproductive ping-pong to and from the appellate court as often as a trial court is perceived to
have made an error in any of its interlocutory rulings. x x x.

Another recognized reason of the law in permitting appeal only from a final order or judgment, and
not from an interlocutory or incidental one, is to avoid multiplicity of appeals in a single action, which
must necessarily suspend the hearing and decision on the merits of the case during the pendency of
the appeal. If such appeal were allowed, trial on the merits of the case would necessarily be delayed
for a considerable length of time and compel the adverse party to incur unnecessary expenses, for
one of the parties may interpose as many appeals as incidental questions may be raised by him, and
interlocutory orders rendered or issued by the lower court.36

And, even if We treat the petition to have been filed under Rule 65, the same is still dismissible for
violating the principle on hierarchy of courts. Generally, a direct resort to us in a petition
for certiorari is highly improper, for it violates the established policy of strict observance of the judicial
hierarchy of courts.37 This principle, as a rule, requires that recourse must first be made to the lower-
ranked court exercising concurrent jurisdiction with a higher court. However, the judicial hierarchy of
courts is not an iron-clad rule. A strict application of the rule is not necessary when cases brought
before the appellate courts do not involve factual but legal questions.38

In the present case, petitioner submits pure questions of law involving the effect of non-service of
summons following the death of the person to whom it should be served, and the effect of the death
of the complainant during the pendency of the case. We deem it best to rule on these issues, not
only for the benefit of the bench and bar, but in order to prevent further delay in the trial of the case.
Resultantly, our relaxation of the policy of strict observance of the judicial hierarchy of courts is
warranted.

Anent the first issue, petitioner argues that, since Sereno died before summons was served on him,
the RTC should have dismissed the complaint against all the defendants and that the same should
be filed against his estate.

The Sheriff's Return of Service39 dated May 19, 1997 states that Sereno could not be served with
copy of the summons, together with a copy of the complaint, because he was already dead.

In view of Sereno's death, petitioner asks that the complaint should be dismissed, not only against
Sereno, but as to all the defendants, considering that the RTC did not acquire jurisdiction over the
person of Sereno. 1avv ph!1

Jurisdiction over a party is acquired by service of summons by the sheriff, his deputy or other proper
court officer, either personally by handing a copy thereof to the defendant or by substituted
service.40 On the other

hand, summons is a writ by which the defendant is notified of the action brought against him. Service
of such writ is the means by which the court may acquire jurisdiction over his person.41

Records show that petitioner had filed a Motion to Dismiss on the grounds of lack of legal personality
of respondent; the allegations in the complaint did not sufficiently state that respondent has a cause
of action or a cause of action against the defendants; and, the complaint was not accompanied by
an affidavit of merit and bond. The RTC denied the motion and held therein that, on the basis of the
allegations of fact in the complaint, it can render a valid judgment. Petitioner, subsequently, filed his
answer by denying all the material allegations of the complaint. And by way of special and
affirmative defenses, he reiterated that respondent had no legal personality to sue as she had no
real interest over the property and that while the truck was still registered in Pedro Te's name, the
same was already sold to Gasing.

Significantly, a motion to dismiss may be filed within the time for but before the filing of an answer to
the complaint or pleading asserting a claim.42 Among the grounds mentioned is the court's lack of
jurisdiction over the person of the defending party.

As a rule, all defenses and objections not pleaded, either in a motion to dismiss or in an answer, are
deemed waived.43 The exceptions to this rule are: (1) when the court has no jurisdiction over the
subject matter, (2) when there is another action pending between the parties for the same cause, or
(3) when the action is barred by prior judgment or by statute of limitations, in which cases, the court
may dismiss the claim.

In the case before Us, petitioner raises the issue of lack of jurisdiction over the person of Sereno, not
in his Motion to Dismiss or in his Answer but only in his Omnibus Motion to Dismiss. Having failed to
invoke this ground at the proper time, that is, in a motion to dismiss, petitioner cannot raise it now for
the first time on appeal.
In fine, We cannot countenance petitioner's argument that the complaint against the other
defendants should have been dismissed, considering that the RTC never acquired jurisdiction over
the person of Sereno. The court's failure to acquire jurisdiction over one's person is a defense which
is personal to the person claiming it. Obviously, it is now impossible for Sereno to invoke the same in
view of his death. Neither can petitioner invoke such ground, on behalf of Sereno, so as to reap the
benefit of having the case dismissed against all of the defendants. Failure to serve summons on
Sereno's person will not be a cause for the dismissal of the complaint against the other defendants,
considering that they have been served with copies of the summons and complaints and have long
submitted their respective responsive pleadings. In fact, the other defendants in the complaint were
given the chance to raise all possible defenses and objections personal to them in their respective
motions to dismiss and their subsequent answers.

We agree with the RTC in its Order when it resolved the issue in this wise:

As correctly pointed by defendants, the Honorable Court has not acquired jurisdiction over the
person of Patricio Sereno since there was indeed no valid service of summons insofar as Patricio
Sereno is concerned. Patricio Sereno died before the summons, together with a copy of the
complaint and its annexes, could be served upon him.

However, the failure to effect service of summons unto Patricio Sereno, one of the defendants herein
does not render the action DISMISSIBLE, considering that the three (3) other defendants, namely,
Atty. Rogelio E. Sarsaba, Fulgencio Lavares and the NLRC, were validly served with summons and
the case with respect to the answering defendants may still proceed independently. Be it recalled
that the three (3) answering defendants have previously filed a Motion to Dismiss the Complaint
which was denied by the Court.

Hence, only the case against Patricio Sereno will be DISMISSED and the same may be filed as a
claim against the estate of Patricio Sereno, but the case with respect to the three (3) other accused
will proceed.

Anent the second issue, petitioner moves that respondent's attorney-in-fact, Faustino Castaeda, be
discharged as he has no more legal personality to sue on behalf of Fe Vda. de Te, who passed
away on April 12, 2005, during the pendency of the case before the RTC.

When a party to a pending action dies and the claim is not extinguished, the Rules of Court require a
substitution of the deceased.44 Section 1, Rule 87 of the Rules of Court enumerates the actions that
survived and may be filed against the decedent's representatives as follows: (1) actions to recover
real or personal property or an interest thereon, (2) actions to enforce liens thereon, and (3) actions
to recover damages for an injury to a person or a property. In such cases, a counsel is obliged to
inform the court of the death of his client and give the name and address of the latter's legal
representative.45

The rule on substitution of parties is governed by Section 16,46 Rule 3 of the 1997 Rules of Civil
Procedure, as amended.

Strictly speaking, the rule on substitution by heirs is not a matter of jurisdiction, but a requirement of
due process. The rule on substitution was crafted to protect every party's right to due process. It was
designed to ensure that the deceased party would continue to be properly represented in the suit
through his heirs or the duly appointed legal representative of his estate. Moreover, non-compliance
with the Rules results in the denial of the right to due process for the heirs who, though not duly
notified of the proceedings, would be substantially affected by the decision rendered therein. Thus, it
is only when there is a denial of due process, as when the deceased is not represented by any legal
representative or heir, that the court nullifies the trial proceedings and the resulting judgment
therein.47

In the case before Us, it appears that respondent's counsel did not make any manifestation before
the RTC as to her death. In fact, he had actively participated in the proceedings. Neither had he
shown any proof that he had been retained by respondent's legal representative or any one who
succeeded her.

However, such failure of counsel would not lead Us to invalidate the proceedings that have long
taken place before the RTC. The Court has repeatedly declared that failure of the counsel to comply
with his duty to inform the court of the death of his client, such that no substitution is effected, will not
invalidate the proceedings and the judgment rendered thereon if the action survives the death of
such party. The trial court's jurisdiction over the case subsists despite the death of the party.48

The purpose behind this rule is the protection of the right to due process of every party to the
litigation who may be affected by the intervening death. The deceased litigants are themselves
protected as they continue to be properly represented in the suit through the duly appointed legal
representative of their estate.49

Anent the claim of petitioner that the special power of attorney50 dated March 4, 1997 executed by
respondent in favor of Faustino has become functus officio and that the agency constituted between
them has been extinguished upon the death of respondent, corollarily, he had no more personality to
appear and prosecute the case on her behalf.

Agency is extinguished by the death of the principal.51 The only exception where the agency shall
remain in full force and effect even after the death of the principal is when if it has been constituted
in the common interest of the latter and of the agent, or in the interest of a third person who has
accepted the stipulation in his favor.52

A perusal of the special power of attorney leads us to conclude that it was constituted for the benefit
solely of the principal or for respondent Fe Vda. de Te. Nowhere can we infer from the stipulations
therein that it was created for the common interest of respondent and her attorney-in-fact. Neither
was there any mention that it was to benefit a third person who has accepted the stipulation in his
favor.

On this ground, We agree with petitioner. However, We do not believe that such ground would cause
the dismissal of the complaint. For as We have said, Civil Case No. 3488, which is an action for the
recovery of a personal property, a motor vehicle, is an action that survives pursuant to Section 1,
Rule 87 of the Rules of Court. As such, it is not extinguished by the death of a party.

In Gonzalez v. Philippine Amusement and Gaming Corporation,53 We have laid down the criteria for
determining whether an action survives the death of a plaintiff or petitioner, to wit:

x x x The question as to whether an action survives or not depends on the nature of the action and
the damage sued for. If the causes of action which survive the wrong complained [of] affects
primarily and principally property and property rights, the injuries to the person being merely
incidental, while in the causes of action which do not survive the injury complained of is to the
person the property and rights of property affected being incidental. x x x

Thus, the RTC aptly resolved the second issue with the following ratiocination:
While it may be true as alleged by defendants that with the death of Plaintiff, Fe Vda. de Te, the
Special Power of Attorney she executed empowering the Attorney-in-fact, Faustino Castaeda to
sue in her behalf has been rendered functus officio, however, this Court believes that the Attorney-
in-fact had not lost his personality to prosecute this case.

It bears stressing that when this case was initiated/filed by the Attorney-in-fact, the plaintiff was still
very much alive.

Records reveal that the Attorney-in-fact has testified long before in behalf of the said plaintiff and
more particularly during the state when the plaintiff was vehemently opposing the dismissal of the
complainant. Subsequently thereto, he even offered documentary evidence in support of the
complaint, and this court admitted the same. When this case was initiated, jurisdiction was vested
upon this Court to try and hear the same to the end. Well-settled is the rule to the point of being
elementary that once jurisdiction is acquired by this Court, it attaches until the case is decided.

Thus, the proper remedy here is the Substitution of Heirs and not the dismissal of this case which
would work injustice to the plaintiff.

SEC. 16, RULE 3 provides for the substitution of the plaintiff who dies pending hearing of the case
by his/her legal heirs. As to whether or not the heirs will still continue to engage the services of the
Attorney-in-fact is another matter, which lies within the sole discretion of the heirs.

In fine, We hold that the petition should be denied as the RTC Order is interlocutory; hence, not a
proper subject of an appeal before the Court. In the same breath, We also hold that, if the petition is
to be treated as a petition for certiorari as a relaxation of the judicial hierarchy of courts, the same is
also dismissible for being substantially insufficient to warrant the Court the nullification of the Order
of the RTC.

Let this be an occasion for Us to reiterate that the rules are there to aid litigants in prosecuting or
defending their cases before the courts. However, these very rules should not be abused so as to
advance one's personal purposes, to the detriment of orderly administration of justice. We can
surmise from the present case herein petitioner's manipulation in order to circumvent the rule on
modes of appeal and the hierarchy of courts so that the issues presented herein could be settled
without going through the established procedures. In Vergara, Sr. v. Suelto,54 We stressed that this
should be the constant policy that must be observed strictly by the courts and lawyers, thus:

x x x. The Supreme Court is a court of last resort, and must so remain if it is to satisfactorily perform
the functions assigned to it by the fundamental charter and immemorial tradition. It cannot and
should not be burdened with the task of dealing with causes in the first instance. Its original
jurisdiction to issue the so-called extraordinary writs should be exercised only where absolutely
necessary or where serious and important reasons exist therefor. Hence, that jurisdiction should
generally be exercised relative to actions or proceedings before the Court of Appeals, or before
constitutional or other tribunals, bodies or agencies whose acts for some reason or another are not
controllable by the Court of Appeals. Where the issuance of an extraordinary writ is also within the
competence of the Court of Appeals or a Regional Trial Court, it is in either of these courts that the
specific action for the writs procurement must be presented. This is and should continue to be the
policy in this regard, a policy that courts and lawyers must strictly observe.55

WHEREFORE, premises considered, the Petition is DENIED. The Order dated March 22, 2006 of
the Regional Trial Court, Branch 19, Digos, Davao del Sur in Civil Case No. 3488, is hereby
AFFIRMED. Costs against the petitioner. SO ORDERED.